-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R2JMYY2TBLoKYtpGof3Db4SI61A6R+jA2rxpS0J8TGcqm3qjxSvQ8HtskjqVYD8m p4qLoh+KzJ3YfVxXR/TaNA== 0000950134-96-004987.txt : 19960923 0000950134-96-004987.hdr.sgml : 19960923 ACCESSION NUMBER: 0000950134-96-004987 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960920 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSISSIPPI CHEMICAL CORP /MS/ CENTRAL INDEX KEY: 0000066895 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 640292638 STATE OF INCORPORATION: MS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20411 FILM NUMBER: 96632837 BUSINESS ADDRESS: STREET 1: HIGHWAY 49 EAST CITY: YAZOO CITY STATE: MS ZIP: 39194 BUSINESS PHONE: 6017464131 MAIL ADDRESS: STREET 1: P O BOX 388 CITY: YAZOO CITY STATE: MS ZIP: 39194 FORMER COMPANY: FORMER CONFORMED NAME: MISSISSIPPI CHEMICAL CORP DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ================================================================================ FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] ================================================================================ Commission File Number 2-7803 MISSISSIPPI CHEMICAL CORPORATION ================================================================================ (Exact name of registrant as specified in its charter) MISSISSIPPI 64-0292638 -------------------------------------------------------------- ------------------------------------ (State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number) Highway 49 East, P.O. Box 388, Yazoo City, MS 39194 --------------------------------------------- ---------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 746-4131 ---------------------- Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, par value $.01 The Nasdaq Stock Market's National Market Preferred Stock Purchase Rights The Nasdaq Stock Market's National Market
Securities registered pursuant to Section 12(g) of the Act: None ================================================================================ 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] At August 31 1996, Mississippi Chemical Corporation had 21,053,450 shares of common stock, par value $.01, outstanding. The Company estimates that the aggregate market value of the common stock on August 31, 1996 (based upon the closing price of these shares on Nasdaq), held by non-affiliates was approximately $473,702,625. ================================================================================ DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for annual meeting of shareholders to be held on or about November 25, 1996 (Items 10, 11, 12 and 13 in Part III). 1 2 PART I ITEM 1. BUSINESS Mississippi Chemical Corporation (the "Company") was incorporated in Mississippi on May 23, 1994, and is the successor by merger, effective July 1, 1994, to a business which was formed in 1948 as the first fertilizer cooperative in the United States (the "Cooperative"). The address of the Company's principal executive office is Owen Cooper Administration Building, Highway 49 East, Yazoo City, Mississippi 39194, and its telephone number is (601) 746-4131. The term "Company" includes Mississippi Chemical Corporation and its wholly owned subsidiaries, Mississippi Phosphates Corporation and Mississippi Potash, Inc. References to the Company's operations prior to July 1, 1994, refer to the Cooperative's operations. The Cooperative was incorporated in Mississippi in September 1948 and operated as a cooperative in accordance with the applicable provisions of the Internal Revenue Code. The principal business of the Cooperative was to provide fertilizer products to its shareholders pursuant to preferred patronage rights which gave the shareholders the right to purchase fertilizer products and receive a patronage refund on fertilizer purchases. On June 28, 1994, the shareholders of the Cooperative approved a plan of reorganization (the "Reorganization"), pursuant to which the Cooperative was merged into the Company. Pursuant to the Reorganization, the capital stock of the Cooperative was converted into common stock and/or cash. As a result of the Reorganization, the Company no longer operates as a cooperative, but as a regular business corporation. NITROGEN FERTILIZER Products The Company produces nitrogen fertilizers at its Yazoo City, Mississippi, production facility in Yazoo City, Mississippi, and through a 50%-owned production facility at Donaldsonville, Louisiana. The Louisiana facility ("Triad") is operated as a joint venture by the Company and First Mississippi Corporation ("First Mississippi"). In fiscal 1996, the Company sold approximately 1.8 million tons of nitrogen fertilizers to farmers, fertilizer dealers and distributors located primarily in the southern United States. Sales of nitrogen fertilizer products by the Company in fiscal 1996 were $255 million, which represented approximately 60% of net sales. The Company's principal nitrogen products include ammonia; fertilizer-grade ammonium nitrate, which is sold under the Company's trade name Amtrate(R); UAN solutions, which are sold under the Company's trade name N-Sol; and urea. Although, to some extent, the various nitrogen fertilizers are interchangeable, each has its own distinct characteristics which produce agronomic preferences among end-users. Farmers decide which type of nitrogen fertilizer to apply based on the crop planted, soil and weather conditions, regional farming practices and relative nitrogen fertilizer prices. Ammonia. The basic nitrogen product is anhydrous ammonia, which is the simplest form of nitrogen fertilizer. Anhydrous ammonia, which is 82% nitrogen, is the most concentrated form of nitrogen fertilizer available. It is synthesized as a gas under high temperature and pressure. The raw materials used to produce anhydrous ammonia are natural gas, atmospheric nitrogen and steam. 2 3 In fiscal 1996, the Company produced approximately 717,000 tons of anhydrous ammonia at its Yazoo City and Triad facilities and purchased approximately 62,000 tons. The Company sold approximately 39,000 tons of anhydrous ammonia for direct-application fertilizer and industrial sales and used the balance as a raw material to manufacture its other nitrogen fertilizer products. The Company's subsidiary Mississippi Phosphates Corporation also purchased 158,000 tons of ammonia for use in its phosphate operations. See "Phosphate Fertilizer." In the Company's markets, ammonia is used primarily as a pre-emergent fertilizer for most row crops. Although anhydrous ammonia is the least expensive form of nitrogen, its use as a primary fertilizer has gradually declined because of the difficulties of application and the high cost of application equipment. Ammonium Nitrate. The Company is the largest manufacturer and marketer of ammonium nitrate fertilizer in the United States. Ammonium nitrate, which is 34% nitrogen, is produced by reacting anhydrous ammonia and nitric acid. Ammonium nitrate is less subject to volatilization (evaporation) losses than other nitrogen fertilizer forms. Due to its stable nature, ammonium nitrate is the product of choice for such uses as pastures and no-till row crops where fertilizer is spread upon the surface and is subject to volatilization losses. Although the consumption of ammonium nitrate in the U.S. has been stable in recent years, the use of conservation tillage, which reduces soil erosion, is increasing in the U.S. and should have a positive impact on ammonium nitrate demand. In fiscal 1996, the Company sold approximately 759,000 tons of solid ammonium nitrate fertilizer, substantially all of which was produced at the Company's Yazoo City facility. The ammonium nitrate produced at the Company's Yazoo City facility is sold under the registered trade name Amtrate(R). Due to its superior shipping and storage characteristics, Amtrate(R) has established excellent brand name recognition and a reputation as a high-quality product. In September 1994, the Company and Air Products and Chemicals, Inc. ("Air Products"), concluded arrangements whereby the Company agreed to purchase all of the ammonium nitrate fertilizer produced at Air Products' Pace, Florida, facility (up to 240,000 tons per year). Approximately 2,400 tons of ammonium nitrate were purchased in fiscal 1996 and approximately 144,000 tons were purchased in 1995. At the end of fiscal year 1995, Air Products announced its intention to suspend ammonium nitrate production at its Pace facility due to sustained high ammonia costs. In February 1996, Air Products and the Company announced the termination of the agreement. N-Sol. In fiscal 1996, the Company sold approximately 624,000 tons of N-Sol, which it produces at its Yazoo City facility. N-Sol is a 32% nitrogen product that is made by mixing urea liquor and ammonium nitrate liquor. N-Sol is used in direct application to cotton, corn, grains and pastures as well as for use in liquid fertilizer blends. Over the past 20 years, there has been a substantial shift in product preference from directly applied ammonia to UAN solutions because of the difficulties of applying and the high cost of application equipment for ammonia. Urea. In fiscal 1996, the Company sold approximately 231,000 tons of prilled urea and approximately 83,000 tons of urea melt which it produces at the Triad facility. Under a long-term contract with Melamine Chemicals, Inc. ("Melamine"), the Company is obligated to sell up to 75,000 tons per year of urea melt at prevailing market prices to Melamine's facility located adjacent to the Triad facility. Urea is synthesized by the reaction of ammonia and carbon dioxide and then solidified in prill form. At 46% nitrogen by weight, urea is the most concentrated form of dry nitrogen. Because urea undergoes a complex series of changes within the soil before the nitrogen it contains is ultimately 3 4 converted into a form which can be used by plants, it is considered a long-lasting form of nitrogen. As a fertilizer product, urea is acceptable as both a direct-application material and as an ingredient in fertilizer blends. Urea consumption has increased modestly in recent years. Most of the Company's prilled urea is broadcast on rice and winter wheat crops in Arkansas, Louisiana, Mississippi, Oklahoma and Texas. Production and Properties Yazoo City, Mississippi. The Yazoo City facility is a closely integrated, multi-plant nitrogen fertilizer production complex located on approximately 1,180 acres. The complex includes an anhydrous ammonia plant, four nitric acid plants, an ammonium nitrate plant and a UAN solutions plant. In 1996, the Company announced an expansion project at its Yazoo City facility. This project will include a 500-ton-per-day anhydrous ammonia plant and a 650-ton-per-day nitric acid plant, as well as expansion of the ammonium nitrate production and product-shipping areas. The project is estimated to cost approximately $130 million and is scheduled for completion in 1998. The Yazoo City facility includes a 20.5 megawatt cogeneration facility which produces significant savings by the sequential generation of electricity and process steam. The Yazoo City plant has direct access to water, rail and truck transportation and is strategically located for the purchase of competitively priced natural gas. See "--Raw Materials--Natural Gas." Donaldsonville, Louisiana. The Triad facility is a closely integrated, multi-plant nitrogen fertilizer complex located on approximately 46 acres fronting the Mississippi River at Donaldsonville, Louisiana. At the Triad plant, the Company produces anhydrous ammonia and urea. The Company is entitled to one-half of the production from the Donaldsonville facility as the co-owner of Triad with First Mississippi Corporation ("First Mississippi"). The Triad ammonia plant has been retrofitted on several occasions to increase production capacity and to enhance operating efficiency. Triad has ready access to rail and truck transportation. The plant is also equipped with a deep-water port facility on the Mississippi River, allowing access to economical ship and barge transport for its urea and ammonia products. The Triad facility is well positioned for the purchase of competitively priced natural gas. See "--Raw Materials--Natural Gas." In August 1996, the Company announced that it had entered into a definitive agreement to acquire the fertilizer operations of First Mississippi, giving the Company full ownership of the Triad facility. Under the terms of the agreement and subject to certain adjustments, the Company will issue approximately 6.9 million shares of the Company's common stock to First Mississippi shareholders. At closing, the fertilizer business of First Mississippi will have approximately $150 million of debt. This transaction is subject to both regulatory and shareholder approval. It is anticipated that the transaction will be completed during December 1996. Also to be acquired in the transaction is First Mississippi's wholly owned subsidiary AMPRO Fertilizer, Inc. ("AMPRO"). AMPRO owns and operates an anhydrous ammonia plant with annual production of approximately 490,000 tons and is in the process of expanding its capacity by approximately 125,000 tons a year, or 26%. The expansion should be completed by the end of 1996. AMPRO and Triad are located on adjacent sites in Donaldsonvillle and share dock facilities capable of receiving oceangoing vessels. In addition, the Company will acquire in the transaction a 50% interest in an ammonia storage terminal in Pasadena, Texas, and a 50% interest in a partnership which owns and operates 11 ammonia barges. Trinidad. In December 1994, the Company signed a letter of intent with Farmland Industries, Inc., to enter into a 50-50 joint venture, known as Farmland MissChem Limited, to construct and operate a 4 5 2,040-short-ton-per-day ammonia plant to be located on the island of Trinidad. The project is expected to cost approximately $330 million. Construction of the facility is underway with completion and start-up scheduled for mid-1998. Marketing and Distribution The Company sells its nitrogen fertilizer products to farmers, dealers and distributors located primarily in the southern farming regions of the United States where its facilities are located. In the three-tiered fertilizer distribution chain, distributors operate as wholesalers supplying dealers who, in turn, sell directly to farmers. Larger customers (distributors and large multi-location dealers) arrange for distribution, storage and financing of nitrogen fertilizer. The majority of the Company's sales are made to distributors and large dealers. The ten states which make up the Company's primary trade area are Mississippi, Texas, Alabama, Louisiana, Tennessee, Georgia, Kentucky, Arkansas, Oklahoma, and Florida. The Company maintains a large and experienced field sales force strategically located throughout the southern United States. This sales force maintains close communications with the customer base and plays an important role in the marketing and distribution of the Company's products. Through regular, personal contact with its customers, the Company is able to ascertain local demand for fertilizer products and arrange to have those products available from the most cost-effective source. The Company's field sales force is also able to identify specific customer service needs which the Company can meet. Customer service helps differentiate the Company's products and enhance its position as a preferred supplier. The Company transports its nitrogen products by barge, rail and truck. The Company's distribution network is complemented by owned or leased warehouses and terminals strategically placed in high-consumption areas. PHOSPHATE FERTILIZER Products The Company produces diammonium phosphate fertilizer ("DAP") at its facility in Pascagoula, Mississippi. In fiscal 1996, the Company sold approximately 754,000 tons of DAP, primarily into international markets. Sales of DAP by the Company in fiscal 1996 were $142 million, which represented approximately 33% of net sales. DAP is the most common form of phosphate fertilizer. DAP is produced by reacting phosphate rock with sulfuric acid to produce phosphoric acid, which is then combined with ammonia. DAP contains 18% nitrogen and 46% phosphate (P205) by weight. DAP is an important fertilizer product for both direct application and for use in blended fertilizers applied to all major types of row crops. Production and Properties The Company's phosphate production complex in Pascagoula, Mississippi, is located on approximately 1,500 acres. The Pascagoula facility is a closely integrated, multi-plant phosphatic fertilizer complex where the primary facilities are a phosphoric acid plant, two sulfuric acid plants and a DAP granulation plant. The plant has storage facilities for finished product (45,000 tons), as well as for the primary raw materials, phosphate rock (100,000 tons), sulfur (10,000 tons) and ammonia 5 6 (25,000 tons). All of the phosphate rock used by the Company is purchased pursuant to a single supply contract with Office Cherifien des Phosphates ("OCP"), the national phosphate company of Morocco. See "--Raw Materials--Phosphate Rock." The plant site fronts a deep-water channel that provides direct access to the Gulf of Mexico. The complex contains docks and off-loading facilities for receiving shipload quantities of phosphate rock, sulfur and ammonia, and for out- loading DAP. The plant's location on deep water provides the Company with an outbound freight cost advantage over central Florida DAP producers with respect to international shipments and domestic shipments along the Mississippi River system. The Company has entered into option agreements for the purchase of lands near the Pascagoula facility for construction of a new phosphogypsum disposal facility. Engineering design is currently in progress and permit applications have been filed with the appropriate local, state and federal authorities. This project, which is expected to cost approximately $16.5 million, is scheduled for completion in late 1997. Marketing and Distribution The Company sells substantially all of its DAP to Atlantic Fertilizer & Chemical Corporation ("Atlantic"), the primary distributor of its DAP products. Atlantic maintains a network of sales agents in the major phosphate fertilizer-consuming nations around the world. Sales to Atlantic are made on an FOB Pascagoula basis at a price which reflects the price Atlantic charges its customers, adjusted to reflect Atlantic's commission. Sales to Atlantic for the export market are backed by standby letters of credit. In fiscal 1996, over two-thirds of the Company's DAP was sold into international markets. The largest export markets in fiscal 1996 were China, India and countries in Central and South America. Most domestic sales are made in barge-lot quantities to major fertilizer distributors and dealers located on the Mississippi River system. The vast majority of the Company's DAP is transported by ship and barge, although truck and rail access is also available. POTASH FERTILIZER Products The Company produces potash at three mines and related facilities near Carlsbad, New Mexico. In fiscal 1996, the Company sold approximately 418,000 tons of potash primarily in granular form. These sales were primarily to customers located west of the Mississippi River. In May 1994, the Company completed an expansion of its Carlsbad facility for $1.6 million, bringing its capacity for granular product to approximately 420,000 tons per year. Sales of potash fertilizer by the Company in fiscal 1996 were $30 million, which represented approximately 7% of net sales. The Company's potash is mined from subterranean salt deposits containing a mixture of potassium chloride and sodium chloride. The Carlsbad, New Mexico, potash deposits are located from 800 to 1,200 feet below the surface. Potash is produced in a refining process whereby the potassium chloride is separated from the sodium chloride. Prior to the acquisition described below, the Company primarily produced red granular potash. The three principal grades of potash fertilizer are granular, coarse and standard, with granular being the 6 7 largest particle size. Granular potash is used as a direct-application fertilizer and, among the various grades, is particularly well suited for use in fertilizer blends. Potash is an important fertilizer product for both direct application and for use in blended fertilizer applied to all major types of row crops. Production and Properties The Company's potash mine and refinery are located approximately 25 miles east of Carlsbad, New Mexico. In fiscal 1994, the Company completed a $5 million project to modernize its mining equipment, enabling it to extract a higher grade of ore which improved overall facility efficiencies. The mine supplies ore to an above-ground refinery which separates the potassium chloride from the ore. The run-of-mine refined product is then transported to the Company's nearby compaction plant for conversion to granular form. Located contiguous to the compaction facility are storage and shipping facilities from which the finished product is transported by rail and truck into domestic and export markets. The Company's existing facility is currently producing approximately 420,000 short tons per year of red potash, primarily in granular form. The Company's potash reserves are controlled under long-term federal and state potassium leases on approximately 60,000 acres. In addition, the Company holds mineral title to approximately 4,400 acres and fee title to approximately 10,000 acres. Revised estimates of potash ore reserves underlying the Carlsbad properties were compiled in 1981 and 1983. According to these estimates, the Company's reserves were estimated to contain 346.2 million tons of in situ ore with an average grade of 15.25% K20 or 297.9 million tons of recoverable ore with an average grade of 14.88% K20. Since these estimates were made, ore extracted would indicate remaining reserves of 330 million tons of in situ ore with an average grade of 15.26% K2O or 281 million tons of recoverable ore with an average grade of 14.88% K2O. This reserve base is estimated to be equivalent to 55 million tons of muriate of potash. At current production rates, the Company's reserves have a remaining life in excess of 100 years. In August 1996, the Company acquired substantially all the assets of two New Mexico potash producers--New Mexico Potash Corporation and Eddy Potash, Inc., from Trans-Resources, Inc., for $45 million, plus an adjustment for working capital on hand at closing (approximately $10 million). Currently, these new acquisitions are being operated as subsidiaries of Mississippi Potash, Inc. These two mines, located near Carlsbad, New Mexico, have a combined annual production capacity of approximately 870,000 tons. The New Mexico Potash Corporation mine produces white potash for use by both agriculture and industry in standard, coarse and granular forms. The Eddy Potash, Inc., mine produces red potash for agriculture in standard, coarse and granular forms, and white chemical and soluble grades for industrial users. Marketing and Distribution The substantial majority of the Company's agricultural potash sales are in domestic markets in the southern states west of the Mississippi River where it and other Carlsbad potash producers enjoy freight cost advantages over Canadian and overseas potash producers. Consistent with the Company's strategy to maximize "net backs" (sales less distribution and delivery expense) and increase profit margins, domestic sales are targeted for locations along the freight route of the Santa Fe Railroad. Domestic potash marketing is performed by the Company's sales staff. The Company's export sales are made through Potash Corporation of Saskatchewan Sales Limited. While the typical primary export market for the Company's potash is Latin America, the majority of fiscal 1996 export sales were to Mexico and 7 8 Brazil. Potash for export is transported by rail to terminal facilities in Houston, Texas, where it is loaded onto ocean-going vessels for shipment to export markets. RAW MATERIALS Natural Gas Natural gas is the primary raw material used by the Company in the manufacture of nitrogen fertilizer products. Natural gas is used both as a chemical feedstock and as a fuel to produce anhydrous ammonia which is then upgraded into other nitrogen fertilizer products. During fiscal 1996, the cost of natural gas represented approximately 73% of the Company's cost of producing ammonia. Because there are no commercially feasible alternatives for natural gas in the production of ammonia, the economic viability of the Company's nitrogen business depends upon the availability of competitively priced natural gas. In today's natural gas market, the Company's total natural gas cost generally consists of two components--the market price of the natural gas in the producing area at the point of delivery into a pipeline and the fee charged by the pipeline for transporting the natural gas to the Company's plants. The cost of the transportation component can vary substantially depending on whether or not the pipeline has to compete for the business. Therefore, it is extremely important to the Company's competitiveness that it have access to multiple natural gas transportation services. In addition to the impact on transmission costs, access alternatives enable the Company to benefit from natural gas price differences that may exist from time to time in the various natural gas-producing areas. In recent years, the Company has improved the natural gas purchasing logistics of its nitrogen facilities. The majority of the 54,000 Mcf per day natural gas requirements of the Yazoo City facility is currently being furnished by Sonat Marketing Company ("Sonat"), an affiliate of Southern Natural Gas Company ("Southern"). In 1995, the Company entered into a long-term natural gas purchase agreement with Sonat. Deliveries under the Sonat agreement began on January 1, 1996. The Sonat agreement provides for market-sensitive pricing and a firm-delivery supply commitment. The balance of the natural gas requirements of the Yazoo City facility is supplied by Pursue Energy Corporation ("Pursue") from its natural gas reserves located in Rankin County, Mississippi. It is anticipated that this purchase arrangement will continue for the foreseeable future. The Yazoo City facility is directly connected to the interstate pipeline system operated by Southern. In addition, the Company recently purchased a 60-mile, 12-inch diameter natural gas pipeline which provides the plant with direct access to the Pursue reserves, an additional interstate pipeline and a large intrastate gathering and transmission system in southern Mississippi. As a result of this multiple source access, the Company benefits from competition for the transportation and supply of natural gas. The natural gas requirements of the Triad facility are approximately 50,000 Mcf per day. The Triad facility is located in one of the primary gas-producing regions of the United States. The facility is currently connected to five intrastate pipeline systems and benefits from intense competition among those suppliers. Currently, the plant's requirements are being supplied by three of the intrastate lines under various pricing arrangements. Generally, these contracts impose firm delivery obligations at market-sensitive prices. In addition, the Company purchases gas for Triad on the spot market pursuant to 30-day fixed-price contracts. As a result of Triad's favorable access to natural gas supplies, the Company believes that the loss of any particular supplier would not have a material impact on plant operations. There have been no significant supply interruptions at the Triad facility. 8 9 Natural gas prices have risen significantly since December 1995. The harsh winter of 1995-1996 is primarily responsible for much of this increase. Although long-term natural gas supplies appear adequate to meet projected demand, gas prices can be significantly influenced by short-term fundamentals such as weather, storage levels, gas transportation interruptions and competing fuel prices. The Company uses natural gas futures contracts to hedge against the risk of short-term market fluctuations in the cost of natural gas. Phosphate Rock Phosphate rock is one of the primary raw materials for the manufacture of DAP. The Pascagoula facility's requirements for phosphate rock are approximately 1.2 million tons per year. As of September 15, 1991, the Company entered into a ten-year contract with Office Cherifien des Phosphates ("OCP") to supply all of the phosphate rock requirements of the Pascagoula facility. This contract has been amended and its term extended to June 30, 2003. OCP, the national phosphate company of Morocco, is the world's largest producer and exporter of phosphate rock and upgraded phosphates as a company. The contract price for phosphate rock is based on phosphate rock costs incurred by certain domestic competitors of the Company and on the operating performance of the Company's phosphate operations. Under this formula, the Company realizes favorable phosphate rock prices and is afforded significant protection during periods when market conditions are depressed and its DAP operations are not profitable. As a result, the Company has been able to sustain its operations since reopening the Pascagoula facility in December 1991, despite a sustained period of low prices for phosphate products during fiscal 1993 and 1992. Conversely, in favorable markets, when the Company's DAP operations are profitable, the contract price of phosphate rock will escalate based on the profitability of its DAP operations. Pursuant to this contract, the Company and OCP are required to negotiate further adjustments as needed to maintain the viability and economic competitiveness of the Pascagoula plant. The strategic alliance with OCP has functioned effectively since inception, and the Company considers its relations with OCP to be good. Sulfur Sulfur is used in the manufacture of sulfuric acid at the Pascagoula plant. Sulfur is in adequate supply and is available on the open market in quantities sufficient to satisfy the Company's current requirements of 290,000 tons per year. The location of the Company's plant at Pascagoula, Mississippi, near major oil and gas fields which supply substantial amounts of sulfur, provides the Company with a strategic advantage in the purchase of sulfur over its Florida competitors. Ammonia Heavy demand for ammonia, which began in 1994, continued into 1995. This demand is from both the industrial and agricultural markets. However, prices have declined somewhat from the level reached during spring 1995, but remain at relatively high levels. The Company expects to become a net seller of ammonia with the construction of additional ammonia capacity in Yazoo City and Trinidad and the pending purchase of First Mississippi Corporation's fertilizer business. COMPETITION Since fertilizers are global commodities which are available from multiple sources, the primary competitive factor is price. Other competitive factors include product quality, customer service and availability of product. In each product category, the Company competes with a broad range of domestic 9 10 producers, including farmer cooperatives, subsidiaries of larger companies, integrated energy companies and independent fertilizer companies. Many of the Company's domestic competitors have larger financial resources and sales than the Company. The Company also competes with foreign producers. Foreign competitors are often owned or subsidized by their governments and, as a result, may have cost advantages over domestic companies. Additionally, foreign competitors are frequently motivated by non-market factors such as the need for hard currency. The Company produces and sells nitrogen fertilizer products primarily in the southern United States. Because competition is based largely on price, maintaining low production costs is critical to competitiveness. The Company believes it is one of the lowest-cost producers of nitrogen fertilizers in the United States. Natural gas comprises the majority of the raw materials cost of nitrogen fertilizers. Competitive natural gas purchasing is essential to maintaining the Company's low-cost position. Equally important is efficient use of this gas because of the energy-intensive nature of the nitrogen fertilizer business. Therefore, cost-competitive production facilities that allow flexible upgrading of ammonia to other finished products are critical to a low-cost competitive position. In the highly fragmented nitrogen fertilizer market, product quality and customer service can also be sources of product differentiation. Through Atlantic, the Company sells over two-thirds of its DAP in international markets. The United States phosphate industry has become more concentrated as a result of recent consolidations and joint ventures, and the Company is significantly smaller than most of its competitors in terms of resources and sales. Most of the Company's principal competitors have captive sources of some or all of the raw materials, and this may provide them with cost advantages. The Company's long-term phosphate rock contract with its flexible pricing mechanism is a key element to the Company's ability to compete. Most potash consumed in the United States is provided by large Canadian producers who have economies of scale and lower variable costs than their U.S. counterparts. Over 80% of United States potash production capacity is located in the Carlsbad, New Mexico, area. While the Carlsbad producers have higher mining costs than the Canadian producers, this disadvantage is offset by logistical and freight advantages in certain markets in the southwestern United States and the lower United States corn belt. The Company competes in these markets primarily with two other Carlsbad potash producers. RESEARCH AND DEVELOPMENT The Company has a research and development staff of 12 full-time professional employees whose activities relate primarily to the improvement of existing products. The expenditures on research activities sponsored by the Company during fiscal 1996, 1995 and 1994 were approximately $1.2 million, $1.3 million and $1.4 million, respectively. EMPLOYEES As of June 30, 1996, the Company employed approximately 1,008 persons at all locations. The Company considers its employee relations to be satisfactory. COMPLIANCE WITH ENVIRONMENTAL REGULATIONS The Company's operations are subject to federal, state and local laws and regulations pertaining to the environment, among which are the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Emergency Response Compensation and Liability Act, the Toxic 10 11 Substances Control Act and various state statutes. The Company's facilities require operating permits that are subject to review by governmental agencies. The Company believes that its policies and procedures now in effect are generally in compliance with applicable laws and with the permits relating to the facilities. In the past, significant capital and operating costs related to environmental laws have been incurred. The majority of the Company's environmental capital expenditures have been in response to the requirements of the Clean Air Act and the Clean Water Act. Since 1967, the Company has spent in excess of $50 million on its fertilizer production facilities in order to meet applicable federal and state pollution standards. Capital expenditures related to environmental obligations for the past three fiscal years were approximately as follows: 1996--$920,000; 1995--$7,750,000; and 1994--$619,000. Environmental capital expenditures are expected to be approximately $9.0 million for fiscal 1997. These funds relate in large part to the development of a new gypsum disposal facility at Pascagoula. The estimated cost of this facility is expected to be $17.0 million, which amount will be expended over an estimated 32 months. The Company is currently seeking the necessary permits for its development. During fiscal 1994, the Company charged to its earnings approximately $6.1 million relating to the estimated cost of the future closure of the existing gypsum disposal facility located at Pascagoula. The Company charged an additional $564,000 in 1996 and $562,000 in 1995 toward this estimated cost of closure. The total accrual of approximately $7.2 million relates to the portion of the disposal facility utilized to date. In future years, the Company expects to record additional charges of approximately $1.9 million related to the anticipated closure costs of the gypsum disposal facility. These charges will be recorded over the estimated four-year remaining life of the facility. In the normal course of its business, the Company is exposed to risks relating to possible releases of hazardous substances into the environment. Such releases could cause substantial damage or injuries. Environmental expenditures have been and will continue to be significant. It is impossible to predict or quantify the impact of future environmental laws and regulations. ITEM 2. OTHER PROPERTIES The Company owns an administration building in Yazoo City which contains approximately 65,000 square feet of office space. The Company's plants are complete with necessary support facilities, such as roads, railroad tracks, storage, offices, laboratories, warehouses, machine shops and loading facilities. Adequate supplies of water and electric power are available at all locations. In addition to the fertilizer storage facilities at Yazoo City and Pascagoula, Mississippi; Carlsbad, New Mexico; and Donaldsonville, Louisiana, the Company also owns or leases 15 major fertilizer storage and distribution facilities at other locations in Alabama, Arkansas, Georgia, Mississippi, Tennessee and Texas, with a total system-wide storage capacity of approximately 220,000 tons. In 1980, the Company completed the purchase of phosphate rock property in Hardee County, Florida. This property, containing approximately 12,000 acres, is estimated by the Company to contain approximately 62,000,000 recoverable tons of phosphate rock of commercial quality. During 1990, the Company entered into an agreement granting a third party the exclusive option, for a period of four 11 12 years, to purchase this undeveloped phosphate rock property. The Company received an aggregate of $14 million in option payments during this four-year period. As of July 12, 1994, the Company and the option holder entered into new agreements with respect to this property whereby (i) the Company conveyed approximately 2,500 acres of this property to the third party; (ii) for aggregate additional option payments of $7 million to be paid during the option period, the Company granted to the third party the exclusive option, for a period of three and one-half years, to purchase the remaining 9,500 acres; (iii) the Company was granted a put option pursuant to which the Company has the right to sell the 9,500 acres to the third party if the third party does not exercise its prior option to purchase the property; and (iv) the Company was granted an exclusive option to repurchase the previously conveyed 2,500 acres in the event the third party does not exercise its option to purchase the 9,500 acres and the Company does not exercise its put option on the 9,500 acres. ITEM 3. LEGAL PROCEEDINGS Cleve Reber CERCLA Site. Triad has received and responded to letters issued by the United States Environmental Protection Agency ("EPA") under Section 104 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") relative to the possible disposition of Triad waste at the disposal site identified as the Cleve Reber site in Ascension Parish, Louisiana. It is Triad's position that, based upon available information and records, Triad did not utilize the Cleve Reber site for the disposition of hazardous material, and it does not appear that Triad has any responsibility for investigation and cleanup on this site. It should be noted that the EPA is contemplating an action under the Resource Conservation and Recovery Act, Section 7003, as well as the CERCLA action mentioned above. The EPA has issued Section 106 orders against the major contributors at the site for cleanup. They are now engaged in negotiations for cleanup. Two years ago, , Triad received a supplemental 104(e) request for information from the EPA, indicating the EPA's renewed interest in pursuing Potential Responsible Persons at the site. Triad filed a Freedom of Information Act request to investigate allegations that some plant trash from Triad may have been disposed of at the Cleve Reber site. In the opinion of management, the likelihood of the CERCLA investigation resulting in a loss in a material amount is remote. In early 1996, a class action suit was brought against Triad and other companies allegedly involved in the site based upon toxic torts alleged to have resulted from the presence of contaminants at the Cleve Reber site. Triad has not been served with process in the case. In the opinion of management, based upon available information, the likelihood that these proceedings will result in a loss in a material amount is remote. Triad is monitoring the case while awaiting service of process. Terra International, Inc. On August 31, 1995, the Company filed suit in federal court in Mississippi against Terra International, Inc. ("Terra") seeking a declaratory judgment and other relief establishing that certain technology relating to the design of an ammonium nitrate neutralizer which the Company licensed to Terra is not defective and was not the cause of an explosion which occurred in 1994 at Terra's Port Neal, Iowa, fertilizer facility. The Company is also seeking damages for defamation based on Terra's public statement related to the Company's alleged role in the explosion. Also, on August 31, 1995, Terra filed suit in federal court in Iowa against the Company seeking damages caused by the explosion. Terra alleges that the Company negligently designed the ammonium nitrate neutralizer technology licensed to Terra and that that design defect led to the Port Neal explosion. Discovery in this case is underway and is scheduled to run through December 31, 1997. Trial is tentatively scheduled to begin in the summer of 1998. The Company intends to vigorously defend itself against Terra's allegations and plans to fully prosecute its defamation claim. 12 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 13 14 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The following table presents dividends paid per share and the high and low price range for the Company's common stock for fiscal 1996 and fiscal 1995.
Year Ending June 30, 1996 ----------------------------------------------------------------- 1st Q 2nd Q 3rd Q 4th Q ------- -------- -------- --------- Dividends paid per share $ 0.08 $ 0.08 $ 0.10 $ 0.10 Common stock price range - high $23.88 $25.13 $24.75 $22.50 - low $19.88 $21.00 $19.75 $19.25
Year Ending June 30, 1995 ----------------------------------------------------------------- 1st Q 2nd Q 3rd Q 4th Q ------- -------- -------- --------- Dividends paid per share $ - $ - $ 0.08 $ 0.08 Common stock price range - high $19.25 $19.00 $19.88 $20.13 - low $15.00 $14.75 $16.50 $15.38
The Company's common stock is listed on the Nasdaq Stock Market's National Market under the symbol "MISS." As of September 18, 1996, shareholders of record numbered approximately 10,700. 14 15 ITEM 6. SELECTED FINANCIAL DATA
Fiscal Year Ended June 30 ---------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- (In thousands, except per-share data) Income Statement Data: --------------------- Net sales $ 428,789 $ 388,154 $ 309,360 $ 289,125 $ 239,657 Operating income $ 84,818 $ 80,969 $ 37,905 $ 29,180 $ 40,804 Income from continuing operations before cumulative effect of change in accounting principle $ 54,178 $ 52,230 $ 26,912 $ 22,681 $ 31,349 Net income $ 54,178 $ 52,230 $ 36,523 $ 4,790 $ 13,003 Income from continuing operations assuming conversion from a cooperative to a regular business N/A n/a $ 21,415 $ 17,533 $ 22,821 corporation as of July 1, 1991 (1) Earnings per share (2) $ 2.46 $ 2.34 $ 1.10 $ 0.92 $ 1.23 Weighted average common shares outstanding (3) 21,980 22,365 19,454 19,035 18,521 June 30 ---------------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- (In thousands, except per-share data) Balance Sheet Data: ------------------ Working capital $ 81,613 $ 70,790 $ 34,931 $ 22,802 $ 35,225 Total assets $ 341,006 $ 302,215 $ 298,430 $ 296,053 $ 303,158 Long-term debt, excluding long-term debt due within one year $ - $ 2,478 $ 57,217 $ 52,357 $ 59,333 Shareholders' equity $ 247,825 $ 227,307 $ 142,956 $ 119,574 $ 128,195 Cash dividends declared per common share (4) $ 0.36 $ 0.16 $ - $ - $ -
(1) For 1994, 1993 and 1992, the Company operated as a cooperative and realized deductions for income taxes for amounts paid in cash as patronage refunds to its shareholder-members. If the conversion from a cooperative to a regular business corporation had occurred as of July 1, 1991, income taxes would have been increased by the following approximate amounts: $5.5 million, $5.1 million and $8.5 million for fiscal 1994, 1993 and 1992, respectively. (2) For 1994, 1993 and 1992, earnings per share reflect the reorganization of the Company from a cooperative to a regular business corporation as if it had occurred July 1, 1991, and is based on income from continuing operations. (3) For 1994, 1993 and 1992, weighted average common shares outstanding reflect the reorganization of the Company from a cooperative to a regular business corporation as if it had occurred July 1, 1991. 15 16 (4) For 1994, 1993 and 1992, the Company operated as a cooperative and paid cash patronage refunds in lieu of cash dividends. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company's results of operations have historically been influenced by a number of factors beyond the Company's control which have, at times, had a significant effect on the Company's operating results. Fertilizer demand and prices are highly dependent upon conditions in the agricultural industry and can be affected by a variety of factors, including planted acreage, United States government agricultural policies, projected grain stocks, weather and changes in agricultural production methods. The Company's results can be affected by such factors as the relative value of the U.S. dollar, foreign agricultural policies (in particular the policies of the governments of India and China regarding subsidies of fertilizer imports), and the hard currency demands of countries such as the former Soviet Union. The Company's fiscal 1996 results reflect record sales, operating income and net income. Net sales increased 10.5% to $428.8 million from $388.2 million in 1995. Operating income increased 4.8% to $84.8 million from $81.0 million in 1995, and net income increased 3.7% to $54.2 million from $52.2 million in 1995. These results reflect higher sales prices for nitrogen and DAP and higher sales volumes for all product groups. Sales volumes were favorably impacted by a carryover effect caused by slow product movement resulting from adverse weather conditions in May and June of 1995. These increases were partially offset by lower ammonium nitrate sales volumes during the current year due to the absence of tonnage obtained through a contract with Air Products and Chemicals, Inc. ("Air Products"), in the prior fiscal year, which is no longer in effect. The Company purchased approximately 144,000 tons of ammonium nitrate from Air Products in fiscal 1995 compared to 2,400 tons during fiscal 1996. The average sales price per ton of nitrogen fertilizer increased to $144 in fiscal 1996 from $138 in fiscal 1995. For fiscal 1996, the average sales price of DAP was $188 per ton compared to $165 per ton for fiscal 1995. The average sales price of potash decreased to $71 in fiscal 1996 from $77 in fiscal 1995. During the current year, a favorable worldwide supply/demand balance for nitrogen and DAP fertilizers caused sales prices to increase. However, during the fourth quarter, adverse weather patterns affected spring demand and resulted in lower than expected sales volumes for the Company's products. In response, nitrogen prices, particularly ammonia and urea, weakened. Looking forward, fertilizer market fundamentals remain strong. U.S. and world grain stocks continue at their lowest level in more than two decades. Total acreage planted during fiscal 1996 increased more than 15 million acres over last year's levels, and industry analysts expect a further increase in planted acres for 1997. This, coupled with rising global food demand, should translate into high levels of fertilizer consumption for the upcoming fiscal year. Prices for natural gas, a significant raw material in the production of nitrogen fertilizers, have risen significantly since December 1995. Much of the recent increase is attributed to difficulties in replenishing natural gas inventories following the harsh winter of 1995-1996. Although long-term natural gas supplies appear adequate to meet projected demand, gas prices can be significantly influenced by short-term fundamentals such as weather, storage levels, gas transportation interruptions and competing fuel prices. This price volatility is expected to continue. 16 17 RESULTS OF OPERATIONS Following are summaries of the Company's sales results by product categories:
Fiscal Year Ended June 30 -------------------------------------------------- 1996 1995 1994 ------------ ------------- ------------- (In thousands) Net Sales: Nitrogen $ 255,195 $ 240,692 $ 199,918 DAP 142,084 117,495 83,367 Potash 29,553 27,433 24,084 Other 1,957 2,534 1,991 ------------ ------------- ------------- Net Sales $ 428,789 $ 388,154 $ 309,360 ============ ============= =============
Fiscal Year Ended June 30 -------------------------------------------------- 1996 1995 1994 ------------ ------------- ------------- (In thousands) Tons Sold: Nitrogen 1,770 1,748 1,643 DAP 754 713 638 Potash 418 357 330
Fiscal Year Ended June 30 -------------------------------------------------- 1996 1995 1994 ------------ ------------- ------------- Average Sales Price Per ton: Nitrogen $ 144 $ 138 $ 122 DAP $ 188 $ 165 $ 131 Potash $ 71 $ 77 $ 73
FISCAL 1996 COMPARED TO FISCAL 1995 Net Sales. Net sales increased 10.5% to $428.8 million in fiscal 1996 from $388.2 million in fiscal 1995, primarily as a result of higher sales prices for nitrogen and DAP fertilizers and increased sales volumes for all product groups. Nitrogen fertilizer sales increased 6.0% as a result of a 4.7% increase in prices and a 1.3% increase in tons sold. During fiscal 1996, the Company's ammonium nitrate sales decreased 6.1% primarily due to the absence of tonnage obtained through a contract with Air Products in the prior year which is no longer in effect. Sales of DAP increased 20.9% as a result of a 14.4% increase in prices and a 5.7% increase in tons sold. Potash sales increased 7.7% as a result of a 17.1% increase in tons sold partially offset by an 8.0% decrease in prices. Cost Of Products Sold. Cost of products sold increased to $291.4 million in fiscal 1996 from $254.6 million in fiscal 1995. As a percentage of net sales, cost of products sold increased to 68.0% in fiscal 1996 from 65.6% in fiscal 1995. This increase, as a percentage of net sales, reflects increases in the production cost per ton for nitrogen fertilizers and DAP partially offset by higher sales prices for nitrogen 17 18 and DAP. During the current fiscal year, the Company incurred higher costs related to its nitrogen products due to higher natural gas costs, increased purchases of ammonia used as a raw material and upgraded to other nitrogen fertilizer products and higher maintenance and labor costs. Maintenance and labor costs were higher due to a scheduled biennial maintenance turnaround at the Company's Yazoo City facility in fiscal 1996. Purchases of ammonia also increased as a result of the scheduled turnaround which reduced supplies of internally produced ammonia. DAP costs per ton increased during fiscal 1996 as a result of higher costs for raw materials, primarily phosphate rock. Phosphate rock costs increased due to the Company's phosphate rock supply contract which bases the price of this raw material on the phosphate rock costs incurred by certain domestic phosphate producers and on the financial performance of the Company's phosphate operations. Potash production costs per ton increased 5.5% primarily due to lower volumes produced at the Carlsbad facility during the current year. Production levels were lower primarily due to a low ore grade resulting from a salt deposit that was encountered during January and February of the current year. Selling Expenses. Selling expenses decreased to $27.9 million in fiscal 1996 from $29.2 million in fiscal 1995. As a percentage of net sales, selling expenses decreased to 6.5% in fiscal 1996 from 7.5% in fiscal 1995. This decrease was the result of increased sales prices for DAP and nitrogen fertilizers and lower delivery costs during the current year due to a product mix that included a lower percentage of tons sold on a delivered basis. These decreases were partially offset by higher storage costs during the current year. General And Administrative Expenses. General and administrative expenses increased to $24.7 million in fiscal 1996 from $23.3 million in fiscal 1995. This increase was primarily due to increased franchise taxes, higher depreciation expense and decreased service fees received from a former subsidiary which reduced the Company's general and administrative expenses in the prior year. As a percentage of net sales, general and administrative expenses decreased to 5.8% in fiscal 1996 from 6.0% in fiscal 1995. This decrease was primarily the result of increased sales prices for DAP and nitrogen fertilizers. Operating Income. As a result of the above factors, operating income increased to $84.8 million in fiscal 1996 from $81.0 million in fiscal 1995, a 4.8% increase. Interest, Net. For fiscal 1996, net interest income was $2.2 million compared to net interest expense of $52,000 in fiscal 1995. This change is primarily a reflection of lower interest expense incurred during the current year resulting from lower levels of borrowings. The Company had no long-term debt at June 30, 1996. The Company also experienced higher interest income during the current year due to higher levels of investments. Income Tax Expense. Income tax expense increased to $34.3 million in fiscal 1996 from $29.2 million in fiscal 1995. This increase is the result of the change in earnings during the current year and the utilization of alternative minimum tax credits during the prior year. Net Income. As a result of the foregoing, net income increased to $54.2 million in fiscal 1996 from $52.2 million in fiscal 1995. 18 19 FISCAL 1995 COMPARED TO FISCAL 1994 Net Sales. Net sales increased 25.5% to $388.2 million in fiscal 1995 from $309.4 million in fiscal 1994, primarily as a result of higher sales prices and increased sales volumes for nitrogen and DAP fertilizers. Nitrogen fertilizer sales increased 20.4% as a result of a 6.4% increase in tons sold and a 12.8% increase in prices. In fiscal 1995, the Company agreed to purchase all of the ammonium nitrate fertilizer produced by Air Products at its Pace, Florida, manufacturing facility. The Company purchased approximately 144,000 tons of ammonium nitrate from Air Products during fiscal 1995. Sales of DAP increased 40.9% as a result of a 26.1% increase in prices and an 11.8% increase in tons sold. Potash sales increased 13.9% as a result of an 8.2% increase in tons sold and a 5.2% increase in prices. Cost Of Products Sold. Cost of products sold increased to $254.6 million in fiscal 1995 from $216.2 million in fiscal 1994. As a percentage of net sales, cost of products sold decreased to 65.6% in fiscal 1995 from 69.9% in fiscal 1994. This decrease reflects increases in sales prices for all products and a reduction in the production cost per ton for nitrogen fertilizers and potash offset by increases in the production cost per ton of DAP. During the current fiscal year, the Company incurred higher costs related to its nitrogen products due to increased purchases of finished products. Nitrogen fertilizer production cost per ton decreased due to lower prices paid for natural gas during the current year and lower maintenance and labor costs due to a scheduled biennial maintenance turnaround at the Company's Yazoo City facility during the prior year. DAP costs per ton increased during fiscal 1995 as a result of higher raw material costs, primarily for ammonia and sulfur. Phosphate rock costs also increased during the year due to the operation of the Company's phosphate rock supply contract which bases the price of phosphate rock on the phosphate rock costs incurred by certain domestic phosphate producers and on the financial performance of the Company's phosphate operations. Potash production costs per ton decreased as a result of increased production volume during the current fiscal year resulting from an expansion which was completed in May 1994. This expansion increased potash production capacity from approximately 300,000 tons to approximately 420,000 tons per year. Selling Expenses. Selling expenses decreased to $29.2 million in fiscal 1995 from $29.3 million in fiscal 1994. As a percentage of net sales, selling expenses decreased to 7.5% in fiscal 1995 from 9.5% in fiscal 1994. Factors contributing to this decrease were increased sales prices for all products and an increase in DAP sales which bore no delivery expense. Also, the Company sold more of its nitrogen products directly from production facilities, thereby eliminating delivery and storage expense on those sales. General And Administrative Expenses. General and administrative expenses increased to $23.3 million in fiscal 1995 from $19.9 million in fiscal 1994. This increase was primarily due to increased expenses related to the purchase of a new computer system and an increase in the Company's reserve for uncollectible accounts. As a percentage of net sales, general and administrative expenses decreased to 6.0% in fiscal 1995 from 6.4% in fiscal 1994. This decrease was primarily the result of increased sales prices for all products. Operating Income. As a result of the above factors, operating income increased to $81.0 million in fiscal 1995 from $37.9 million in fiscal 1994, a 113.6% increase. 19 20 Interest, Net. Net interest decreased to $52,000 in fiscal 1995 from $4.0 million in fiscal 1994. This decrease is primarily a reflection of lower levels of borrowings due to the repayment of debt from the proceeds of a stock offering in August 1994. The Company also had higher earnings due to higher levels of investments and higher rates earned on these investments during fiscal 1995. Income Tax Expense. Income tax expense increased to $29.2 million in fiscal 1995 from $6.0 million in fiscal 1994. The Company's effective tax rate increased significantly in the current fiscal year as a result of the conversion from a cooperative to a regular business corporation on July 1, 1994. As a cooperative, earnings on business done with shareholders were distributed to shareholders as patronage refunds which were deductible for income tax purposes. Income From Continuing Operations Before Cumulative Effect Of Change In Accounting Principle. As a result of the foregoing, income from continuing operations before the cumulative effect of a change in accounting principle increased to $52.2 million in fiscal 1995 from $26.9 million in fiscal 1994. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Company had cash and cash equivalents of $60.2 million, compared to $29.6 million at June 30, 1995, an increase of $30.6 million. At June 30, 1995, cash and cash equivalents had increased to $29.6 million from $23.2 million at June 30, 1994, an increase of $6.4 million. Operating Activities. For fiscal 1996, 1995 and 1994, net cash provided by operating activities was $94.6 million, $78.7 million and $39.8 million, respectively. Investing Activities. Net cash used by investing activities was $27.1 million, $26.9 million and $25.4 million, respectively, for fiscal 1996, 1995 and 1994, primarily reflecting capital expenditures in those periods. In fiscal 1996 and 1995, these expenditures were partially offset by the receipt of option payments related to the Company's Florida phosphate rock properties. Fiscal 1996 and 1995 also included $12.0 million and $1.1 million, respectively, related to the Company's investment in Farmland MissChem Limited, the Company's 50-50 joint venture formed to construct and operate an ammonia plant in The Republic of Trinidad and Tobago. Cash flows from investing activities for fiscal 1995 and 1994 combined reflect an aggregate of $13.1 million in payments required under a newsprint purchase contract with its former subsidiary, Newsprint South, Inc. ("NSI"). In fiscal 1994, the Company also incurred $10.8 million in payments made to settle certain obligations in connection with the disposition of NSI. Capital expenditures were $16.1 million during fiscal 1996. These expenditures were for normal improvements and modifications to the Company's facilities. Financing Activities. Net cash used by financing activities was $36.9 million, $45.4 million, and $13.2 million, respectively, for fiscal 1996, 1995 and 1994. During fiscal 1996, the amounts used by financing activities included $25.9 million for the purchase of treasury stock and $7.9 million in cash dividends. The Company also had debt payments of $3.2 million which included $2.4 million in prepayments. During fiscal 1995, financing activities included $47.4 million in proceeds received from a stock offering in August 1994. These proceeds were subsequently used to prepay approximately $29.0 million of the Company's long-term debt and a portion of the Company's revolving credit facility. The Company also paid $5.7 million to its shareholders related to the reorganization of the Company, $3.7 million in cash dividends and $4.8 million to purchase treasury stock. In addition, the Company paid $14.8 million in cash patronage refunds related to fiscal 1994, when the Company operated as a cooperative. For fiscal 1994, the amounts used by financing activities included cash patronage payments of 20 21 $13.4 million and $11.2 million in payments on long-term debt that matured during the year. Also during fiscal 1994, the Company prepaid $12.2 million of long-term debt with the National Bank for Cooperatives ("CoBank") which had maturities through fiscal 1998. During April 1996, the Company entered into a $125 million credit facility with NationsBank of Tennessee, N.A. ("NationsBank"), as agent for a syndicate of commercial banks, replacing all previous lines the Company had with NationsBank. Under this new facility, the Company has a $40 million short-term line of credit and an $85 million revolving line of credit with a term of three years. These lines of credit will bear interest at the Prime Rate or at rates related to the London Interbank Offered Rate. The Company also has a $5 million short-term line of credit with a financial institution. During fiscal 1996, the Company had no outstanding borrowings under any of its lines of credit. The Company has entered into a 50-50 joint venture ("Farmland MissChem Limited") with Farmland Industries, Inc., to construct and operate a 2,040-short-ton-per-day anhydrous ammonia plant to be located near Point Lisas, The Republic of Trinidad and Tobago. The project is expected to cost approximately $330 million. The portion of the project cost in excess of required equity contributions is to be financed by the joint venture on a non-recourse project basis. Startup of the facility is scheduled for mid-1998. In late fiscal 1996, the Company began an expansion at its nitrogen fertilizer manufacturing facilities at Yazoo City. The project includes the addition of a 650-ton-per-day nitric acid plant, a new 500-ton-per-day ammonia plant and modifications to its ammonium nitrate plant to increase production from approximately 750,000 to 950,000 tons per year. The Company estimates that the total cost of the expansion will be $130 million. This expansion is scheduled to be fully operational during the first half of 1998. In August 1996, two of the Company's indirect subsidiaries acquired substantially all of the assets of New Mexico Potash Corporation and Eddy Potash, Inc., subsidiaries of Trans-Resources, Inc., for $45 million, plus an adjustment for working capital on hand at closing (approximately $10 million). The assets purchased included the two Trans-Resources mines located near Carlsbad, New Mexico, with an annual production capacity of approximately 870,000 tons of potash. The Company anticipates financing all projects, including its equity contribution to the Farmland MissChem Limited project, with existing cash, cash generated from operations, and available lines of credit. The Company also believes that these sources will be sufficient to satisfy any other financing needs in the foreseeable future. DISCONTINUED OPERATIONS On June 30, 1994, the Company disposed of a majority of its interest in NSI. This action was taken due to substantial losses incurred to date by NSI and the expectation of continuing losses. The transaction involved a transfer by the Company of 70% of its economic interest in NSI to various individuals designated by the lessor of the newsprint facility leveraged lease. The Company did not retain any voting interest in NSI. The disposition of NSI allows the Company to focus its attention on its core fertilizer business. Under the terms of the transaction, the Company paid $19.0 million to NSI in various forms, including capital contributions, payments in liquidation of the Company's obligations under a newsprint purchase contract and certain tax- compensating payments pursuant to a tax-sharing agreement. Prior loans 21 22 in the amount of approximately $13.7 million made by the Company to NSI pursuant to a newsprint purchase contract between the Company and NSI were converted to capital. Pursuant to the transaction, the Company also purchased from NSI its CoBank common stock for $4.0 million. This stock is being redeemed at the face amount by CoBank over a four-year period. Subsequent to this transaction, the Company is accounting for its continuing interest in NSI using the cost method of accounting for investments. In connection therewith, the Company wrote up to zero its negative investment in NSI of $39.7 million as it will have no continuing obligation to fund any of NSI's future losses. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Public Accountants To the Board of Directors and the Shareholders of Mississippi Chemical Corporation: We have audited the accompanying consolidated balance sheets of Mississippi Chemical Corporation (a Mississippi corporation) and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for the three years ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of Mississippi Chemical Corporation and subsidiaries as of June 30, 1996 and 1995, and the results of their operations and their cash flows for the three years ended June 30, 1996, in conformity with generally accepted accounting principles. As explained in Note 1 to the consolidated financial statements as of July 1, 1993, the Company has given cumulative effect to the change in accounting for income taxes under Statement of Financial Accounting Standards No. 109. Arthur Andersen LLP Memphis, Tennessee, July 29, 1996 22 23 MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
June 30 ---------------------------- 1996 1995 ----------- ------------ ASSETS (Dollars in thousands) Current Assets: Cash and cash equivalents $ 60,214 $ 29,617 Accounts receivable (less allowances of $1,200 and $1,000) 34,630 30,424 Inventories 40,633 50,315 Prepaid expenses and other current assets 3,956 3,012 Deferred income taxes 2,216 1,929 ----------- ------------ Total current assets 141,649 115,297 Investments and other assets: Investments 15,478 4,087 Other 12,189 10,275 ----------- ------------ Total investments and other assets 27,667 14,362 Properties held for sale 52,919 52,919 Property, plant and equipment, at cost, less accumulated depreciation, depletion and amortization 118,771 119,637 ----------- ------------ $ 341,006 $ 302,215 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt due within one year $ 78 $ 775 Accounts payable 46,013 31,520 Accrued liabilities 8,707 8,799 Income taxes payable 5,238 3,413 ----------- ------------ Total current liabilities 60,036 44,507 Long-term debt - 2,478 Other long-term liabilities and deferred credits 18,218 15,167 Deferred income taxes 14,927 12,756 Commitments and contingencies (see Notes 8 and 13) Shareholders' equity: Common stock ($.01 par; authorized 100,000,000 shares; issued 22,903,450 in 1996 and 22,898,253 in 1995) 229 229 Additional paid-in capital 178,364 178,332 Retained earnings 99,814 53,520 Treasury stock, at cost (1,550,000 shares in 1996 and 300,000 shares in 1995) (30,582) (4,774) ----------- ------------ Total shareholders' equity 247,825 227,307 ----------- ------------ $ 341,006 $ 302,215 =========== ============
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 23 24 MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------
Year Ended June 30 ------------------------------------------------------- 1996 1995 1994 -------------- --------------- ---------------- (Dollars in thousands, except per-share data) Net Sales $ 428,789 $ 388,154 $ 309,360 Operating expenses: Cost of products sold 291,403 254,629 216,204 Selling 27,856 29,212 29,339 General and administrative 24,712 23,344 19,857 Provision for closure of gypsum disposal area - - 6,055 -------------- ---------------- ---------------- 343,971 307,185 271,455 -------------- ---------------- ---------------- Operating income 84,818 80,969 37,905 Other income (expense): Interest, net 2,229 (52) (3,991) Restructuring - - (1,402) Other 1,446 491 421 -------------- ---------------- ---------------- Income from continuing operations before income taxes and cumulative effect of change in accounting principle 88,493 81,408 32,933 Income tax expense 34,315 29,178 6,021 -------------- ---------------- ---------------- Income from continuing operations before cumulative effect of change in accounting principle 54,178 52,230 26,912 Discontinued operations: Loss from discontinued operations (less applicable income tax credits of $5,314) - - (23,987) Gain on disposal of discontinued operations (including applicable income tax credits of $4,030) - - 39,747 Cumulative effect to July 1, 1993, of change in accounting for income taxes - - (6,149) -------------- ---------------- ---------------- Net income $ 54,178 $ 52,230 $ 36,523 ============== ================ ================ Earnings per share (see Note 1) $ 2.46 $ 2.34 ============== ================
The accompanying notes to consolidated financial statements are an integral part of these financial statements. 24 25 MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------
Cooperative Additional Capital Retained Common Common Paid-in Equity Earnings Treasury Stock Stock Capital Credits (Deficit) Stock Total -------- -------- --------- -------- -------- -------- -------- (Dollars in thousands) Balances, June 30, 1993 $ 27,933 $ - $ 65,692 $ 62,352 $(36,403) $ - $119,574 Net income - - - - 36,523 - 36,523 Cash patronage - - - - (14,756) - (14,756) Stock issued 459 - 1,156 - - - 1,615 -------- -------- --------- -------- -------- -------- -------- Balances, June 30, 1994 28,392 - 66,848 62,352 (14,636) - 142,956 Conversion of cooperative stock (26,375) 155 26,220 - - - - Conversion of capital equity credits and allocated surplus accounts - 41 42,723 (62,352) 19,588 - - Redemptions (2,017) (1) (4,095) - - - (6,113) -------- -------- --------- -------- -------- -------- -------- Subtotal - 195 131,696 - 4,952 - 136,843 Net income - - - - 52,230 - 52,230 Stock issued - 34 46,636 - - - 46,670 Cash dividends paid - - - - (3,662) - (3,662) Treasury stock purchased - - - - - (4,774) (4,774) -------- -------- --------- -------- -------- -------- -------- Balances, June 30, 1995 - 229 178,332 - 53,520 (4,774) 227,307 Net income - - - - 54,178 - 54,178 Cash dividends paid - - - - (7,884) - (7,884) Treasury stock, net - - 32 - - (25,808) (25,776) -------- -------- --------- -------- -------- -------- -------- Balances, June 30, 1996 $ - $ 229 $ 178,364 $ - $ 99,814 $(30,582) $247,825 ======== ======== ========= ======== ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these financial statements. 25 26 MISSISSIPPI CHEMICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
Year Ended June 30 ---------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ (Dollars in thousands) Cash flows form operating activities: Net income $ 54,178 $ 52,230 $ 36,523 Loss from discontinued operations - - 23,987 Gain on disposal of discontinued operations - - (39,747) ------------ ------------ ------------ Net income from continuing operations 54,178 52,230 20,763 Reconciliation of net income from continuing operations to net cash provided by operating activities: Net change in operating assets and liabilities 21,401 (3,241) (5,820) Depreciation, depletion and amortization 17,798 17,058 16,967 Deferred income taxes 1,884 11,556 3,302 Accrual for closure of gypsum disposal area 564 562 6,055 Other (1,206) 555 (1,455) ------------ ------------ ------------ Net cash provided by operating activities 94,619 78,720 39,812 ------------ ------------ ------------ Cash flows from investing activities: Purchases of property, plant and equipment (16,143) (22,305) (11,232) Investment in Farmland MissChem Limited (11,993) (1,128) - Proceeds received from option holder 2,000 3,000 - Payments for newsprint contract obligations - (8,751) (4,338) Disposition of Newsprint South, Inc. - - (10,848) Other (937) 2,260 1,039 ------------ ------------ ------------ Net cash used by investing activities (27,073) (26,924) (25,379) ------------ ------------ ------------ Cash flows from financing activities: Debt payments (3,175) (118,567) (162,183) Debt proceeds - 54,625 161,160 Purchase of treasury stock (25,890) (4,774) - Cash dividends paid (7,884) (3,662) - Cash patronage paid - (14,756) (13,405) Proceeds from issuance of common stock - 47,401 1,200 Conversion of common stock - (5,665) - ------------ ------------ ------------ Net cash used by financing activities (36,949) (45,398) (13,228) ------------ ------------ ------------ Net increase in cash and cash equivalents 30,597 6,398 1,205 Cash and cash equivalents - beginning of period 29,617 23,219 22,014 ------------ ------------ ------------ Cash and cash equivalents - end of period $ 60,214 $ 29,617 $ 23,219 ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these financial statements. 26 27 Mississippi Chemical Corporation and Subsidiaries Notes to Consolidated Financial Statements June 30, 1996 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Financial Statements The accompanying consolidated financial statements include the accounts of Mississippi Chemical Corporation, its subsidiaries and its proportionate share of the assets and liabilities of Triad Chemical, a 50%-owned, unincorporated joint venture (collectively, the "Company"). All material intercompany transactions and balances have been eliminated. Prior to July 1, 1994, Mississippi Chemical Corporation was organized and operated as a cooperative to manufacture and distribute chemical fertilizer primarily to its shareholder-members. On July 1, 1994, Mississippi Chemical Corporation converted from a cooperative to a regular business corporation (see Note 2). The Company is a major producer and supplier of nitrogen fertilizers in the southern United States. The Company also manufactures phosphate and potash fertilizers, making it a full product line fertilizer supplier. The Company sells its nitrogen and potash fertilizer products to farmers, fertilizer dealers and distributors primarily for use in the southern farming regions of the United States and areas served by the Mississippi River system. The Company's phosphate fertilizers are sold primarily in international markets. The Company has the right to withdraw, at cost, approximately one-half of the production of Triad Chemical and is obligated to withdraw certain minimum quantities as specified by the Products Withdrawal Agreement. Triad Chemical's assets constitute approximately 2.3% and 2.6% of total assets at June 30, 1996 and 1995, respectively. On June 30, 1994, the Company disposed of a majority of its interest in its newsprint manufacturing subsidiary, Newsprint South, Inc. ("NSI") (see Note 18). Inventories Inventories are stated at the lower of cost or market. Cost has been determined under a moving average cost method. Investments The Company's investments consist of an investment in the National Bank for Cooperatives ("CoBank") and a 50-50 joint venture ("Farmland MissChem Limited") with Farmland Industries, Inc. (see Note 13). The investment in CoBank is stated at its net present value determined by applying a discount factor to an assumed redemption schedule. The value of this investment will be realized over a period of approximately four years as CoBank redeems its equity in the normal course of its operations. 27 28 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Properties Held for Sale Assets are classified as properties held for sale if the Company is actively engaged in trying to dispose of the assets. These assets are valued at the lower of cost or net realizable value. Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation, depletion and amortization. Expenditures for major improvements are capitalized; expenditures for normal maintenance and repairs are charged to expense as incurred. Upon sale or retirement of properties, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is credited or charged to income. Depreciation of property, plant and equipment is provided over the estimated useful lives of the related assets which range from 3 to 25 years. The Company uses primarily the declining-balance method for assets purchased through June 30, 1995. Effective July 1, 1995, the Company changed its method of depreciating newly acquired, long-lived assets from the declining-balance method to the straight- line method. This change in accounting principle did not have a material effect on the Company's financial statements for the year ended June 30, 1996. Depletion of mineral properties is provided using the units-of-production method over the estimated life of the reserves. Interest costs attributable to major construction and other projects under development are capitalized in the appropriate property account and amortized over the life of the related asset. Income Taxes During fiscal 1996 and 1995, the Company operated as a regular business corporation; therefore, the provision for income taxes was based on earnings reported in the financial statements. For fiscal 1994, the provision for income taxes was based on all income not distributed to patrons as patronage refunds since the Company operated as a cooperative in that year. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which the Company adopted effective July 1, 1993. The cumulative effect of this change in accounting principle decreased net income by $6,149,000 for fiscal 1994. Hedging Activities The Company enters into futures contracts to protect against price fluctuations of natural gas. At the time the futures contracts are closed and the related natural gas is purchased, the Company records a gain or loss from the change in market value of such contracts. Earnings Per Share Earnings per share is computed on the basis of the weighted average number of common shares outstanding during the period plus dilutive common share equivalents arising from stock options using the treasury stock method. Shares used in the calculation were 21,980,267 and 22,365,246 for the years ended June 30, 1996 and 1995, respectively. Fully diluted earnings per share are not significantly different from primary earnings per share. 28 29 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): Earnings per share for fiscal 1994 are not meaningful and are not presented since the Company operated as a cooperative in that year. Use of Estimates The preparation of the Company's 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 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. New Accounting Pronouncements In 1995, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," was issued, which is effective for fiscal years beginning after December 15, 1995. This statement requires footnote disclosure of the pro forma impact on net earnings and earnings per share of the compensation cost that would have been recognized if the fair value of all stock-based awards was recorded in the income statement. The disclosure provisions of this statement will be adopted in fiscal 1997. In fiscal 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This pronouncement requires that long- lived assets be reviewed for impairment upon the occurrence of events or changes in circumstances that indicate that the carrying value of these assets may not be recoverable. Recoverability is measured by comparing the assets' net book value to the estimated future cash flows generated by their use. Impaired assets are recorded at the lesser of their carrying value or fair value. The adoption of this statement had no impact on the Company's financial position or operating results. Reclassifications The Company has reclassified certain prior year information to conform with the current year's presentation. NOTE 2 - EFFECTS OF REORGANIZATION: The Company operated as a cooperative during fiscal year 1994. On June 28, 1994, the shareholder-members of the Company voted to adopt a plan of reorganization (the "Reorganization") which became effective July 1, 1994. Pursuant to the Reorganization, the Company was merged into a newly created, wholly owned subsidiary ("New Company") which is a non- cooperative Mississippi business corporation. In the merger, the common stock of the Company was converted into New Company common stock and/or cash. In addition, holders of Capital Equity Credits and Allocated Surplus Accounts of the Company were offered the right to exchange those interests for New Company common stock. Pursuant to the Reorganization, New Company changed its name to Mississippi Chemical Corporation. 29 30 NOTE 3 - INVENTORIES: Inventories consisted of the following:
June 30 --------------------------- 1996 1995 ---------- ----------- (Dollars in thousands) Finished products $ 10,278 $ 19,817 Raw materials and supplies 5,096 6,740 Replacement parts 25,259 23,758 ---------- ----------- $ 40,633 $ 50,315 ========== ===========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consisted of the following:
June 30 --------------------------- 1996 1995 ---------- ----------- (Dollars in thousands) Mineral properties $ 18,574 $ 18,574 Land 8,152 8,079 Buildings 22,520 22,345 Machinery and equipment 345,595 321,511 Construction in progress 5,041 13,822 ---------- ----------- 399,882 384,331 Less accumulated depreciation, depletion and amortization (281,111) (264,694) ---------- ----------- $ 118,771 $ 119,637 ========== ===========
30 31 NOTE 5 - CREDIT AGREEMENTS AND LONG-TERM DEBT: During April 1996, the Company entered into a $125,000,000 credit facility with NationsBank of Tennessee, N.A. ("NationsBank"), and a syndicate of other commercial banks, replacing all previous lines the Company had with NationsBank. Under this new facility, the Company has a $40,000,000 short-term line of credit and an $85,000,000 revolving line of credit with a term of three years. These lines of credit will bear interest at the prime rate or at rates related to the London Interbank Offered Rate. At June 30, 1996, there were no outstanding borrowings under these commitments. Prior to this new agreement, the Company had $15,000,000 in short-term lines with NationsBank and a $50,000,000 long-term revolving credit facility which bore interest at the prime rate or for fixed periods at interest rates related to the London Interbank Offered Rates or U.S. Treasury notes. The Company also has a $5,000,000 short-term line of credit with a financial institution which is not part of the syndicate mentioned above. There were no outstanding borrowings under this commitment at June 30, 1996 or 1995. Long-term debt consisted of the following:
June 30 ------------------------------- 1996 1995 ------------ ------------- (Dollars in thousands) Note payable to financial institution (9.97%) $ - $ 3,000 Other 78 253 ------------ ------------- 78 3,253 Long-term debt due within one year (78) (775) ------------ ------------- $ - $ 2,478 ============ =============
The Company's credit facilities have covenants that require, among other things, that the Company maintain specified levels of tangible net worth and debt to capitalization. The Company is in compliance with all covenants under its facilities. 31 32 NOTE 6 - SHAREHOLDERS' EQUITY: At June 30, 1996, the Company had 100,000,000 authorized shares of common stock at a par value of $0.01. Common stock issued and outstanding consisted of the following:
COOPERATIVE COMMON COMMON STOCK STOCK ----------- ---------- Shares outstanding, June 30, 1993 4,078,751 - Issues 30,643 - Transfers 10,514 - ----------- ---------- Shares outstanding, June 30, 1994 4,119,908 - Redemptions (134,466) - Conversion of cooperative stock (3,985,442) 15,524,746 Conversion of capital equity credits and allocated surplus accounts - 4,133,628 Redemptions - (158,049) Stock issued - 3,397,928 Purchase of treasury stock - (300,000) ----------- ---------- Shares outstanding, June 30, 1995 - 22,598,253 Stock reissued - 5,197 Purchase of treasury stock - (1,250,000) ----------- ---------- Shares outstanding, June 30, 1996 - 21,353,450 =========== ==========
As a cooperative, the Company periodically reserved a certain percentage of earnings from business with its shareholders. These reserves were reflected in "Allocated Surplus Accounts" as a component of retained earnings. As a cooperative, the Company also, from time to time, paid a portion of patronage refunds in the form of Capital Equity Credits. As part of the Reorganization of the Company (see Note 2), these holders of Allocated Surplus Accounts and Capital Equity Credits, which totaled $38,920,000 and $62,352,000, respectively, at June 30, 1994, were offered the right to exchange those interests for common shares. 32 33 NOTE 6 - SHAREHOLDERS' EQUITY (CONTINUED): In May 1995, the Board of Directors authorized the repurchase of up to 1,500,000 shares of the Company's common stock in the open market or in privately negotiated transactions. As of June 30, 1995, the Company had repurchased 300,000 shares pursuant to this authorization. In March 1996, the Board of Directors authorized the Company to repurchase up to 1,500,000 additional shares of the Company's common stock. During fiscal 1996, the Company repurchased 1,250,000 shares pursuant to these authorizations at prices that ranged from $19.88 to $23.50 per common share, or approximately $25,890,000 in the aggregate. These treasury stock repurchases were funded from cash provided by operations. On August 2, 1994, the Board of Directors adopted a stock incentive plan for certain officers and key employees of the Company. This plan was approved by the Company's shareholders at its annual meeting held on November 14, 1995. On July 20, 1995, the Board of Directors also adopted a similar plan for nonemployee directors of the Company. This plan was also approved by the Company's shareholders at its annual meeting held on November 14, 1995. Options may be granted, under the provisions of the Company's plans, to purchase common stock of the Company at a price approximating fair market value on the date of grant. During fiscal 1996 and 1995, total options granted were 201,941 and 279,441, respectively, at option exercise prices of $15.00 and $23.96, respectively. There were no options exercised or canceled during fiscal 1996 or 1995. At June 30, 1996, there were 1,800,000 shares available for future grants under the above-mentioned stock incentive plans. The Company's Articles of Incorporation authorize the Board of Directors, at its discretion, to issue up to 500,000 shares of Preferred Stock, par value $0.01 per share. The stock is issuable in classes or series which may vary as to certain rights and preferences. As of June 30, 1996, none of these shares were outstanding. NOTE 7 - RETIREMENT PLANS: The Company maintains non-contributory defined benefit pension plans which provide benefits to a majority of its full-time employees. Under the plans, retirement benefits are primarily a function of both the average annual compensation and number of years of credited service. The plans are funded annually by the Company, subject to the Internal Revenue Code funding limitation. Net periodic pension expense includes the following components:
Year Ended June 30 --------------------------------------- 1996 1995 1994 ---------- --------- ---------- (Dollars in thousands) Service cost - benefits earned during the period $ 1,955 $ 1,860 $ 1,532 Interest cost on projected benefit obligations 4,875 4,515 4,035 Actual gain on plan assets (13,260) (5,528) (3,059) Net amortization and deferral of transition assets (153) (459) (750) Unrecognized gain (loss) on plan assets 7,778 392 (1,982) ---------- --------- ---------- Net periodic pension expense (credit) $ 1,195 $ 780 $ (224) ========== ========= ===========
33 34 NOTE 7 - RETIREMENT PLANS (CONTINUED): The following table sets forth the plans' funded status and the amounts included in the Company's consolidated balance sheets:
June 30 ----------------------- 1996 1995 ---------- -------- (Dollars in thousands) Actuarial present value of benefit obligations: Vested benefit obligation $ 62,238 $ 54,423 Non-vested benefit obligation 428 74 ---------- -------- Accumulated benefit obligation 62,666 54,497 Increase in benefits due to future compensation increases 14,712 11,803 ---------- -------- Projected benefit obligation 77,378 66,300 Estimated fair value of plan assets 75,954 65,238 ---------- -------- Plan assets less than projected benefit obligation (1,424) (1,062) Contributions after measurement date 175 289 Remaining unrecognized transition assets (3,174) (3,703) Unrecognized prior service cost 829 904 Unrecognized net loss 10,766 10,732 ---------- -------- Prepaid pension cost at end of period $ 7,172 $ 7,160 ========== ========
The following assumptions were used to measure net periodic pension cost for the plans for fiscal 1996, 1995 and 1994:
1996 1995 1994 ---- ---- ---- Discount rate 7.0% 7.5% 7.5% Expected long-term rate of return on assets 8.5% 8.5% 8.5% Average increase in compensation levels 5.0% 5.0% 6.5%
The plans' assets consist primarily of guaranteed investment contracts and marketable equity securities. The Company also has contributory thrift plans covering substantially all employees who have completed minimum service requirements. Company contributions totaled approximately $866,000 in 1996; $812,000 in 1995; and $811,000 in 1994. The Company has no material post-retirement benefit obligations. NOTE 8 - LEASE COMMITMENTS: The Company has commitments under operating leases for plant rolling stock items and storage warehouses. The total for these commitments was $3,440,000 at June 30, 1996. Rental expense for all operating leases was $1,476,000 for 1996; $1,332,000 for 1995; and $1,218,000 for 1994. 34 35 NOTE 9 - INCOME TAXES: The following is a summary of the components of the provision for income taxes:
Year Ended June 30 ----------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- (Dollars in thousands) Current: Federal $ 29,838 $ 16,245 $ 8,862 State 2,592 1,377 223 ------------- ------------- ------------- 32,430 17,622 9,085 ------------- ------------- ------------- Deferred: Federal 1,734 9,504 (3,423) State 151 2,052 359 ------------- ------------- ------------- 1,885 11,556 (3,064) ------------- ------------- ------------- $ 34,315 $ 29,178 $ 6,021 ============= ============= =============
The tax effects of the significant temporary differences and tax credit carryforwards at June 30, 1996, follow:
Current Non-current ------------ ------------ (Dollars in thousands) Employee benefit obligations $ 1,441 $ 107 Reserve for bad debts 472 - Employee retirement 79 1,011 Accrual for closure of gypsum disposal area - 2,379 Investment in CoBank - 199 Capital less carryforwards - 212 Other 224 - ------------ ------------ Deferred tax assets 2,216 3,908 ------------ ------------ Depreciation and amortization - (15,560) Pension - (3,275) ------------ ------------ Deferred tax liabilities - (18,835) ------------ ------------ Net deferred tax asset (liability) $ 2,216 $ (14,927) ============ ============
35 36 NOTE 9 - INCOME TAXES (CONTINUED): A reconciliation, as of June 30, of the provision for income taxes and the effective tax rate with the amount computed by applying the statutory federal income tax rate follows:
1996 1995 1994 ----------------------- ------------------------ ------------------------ % OF % of % of EARNINGS Earnings Earnings BEFORE Before Before AMOUNT TAXES Amount Taxes Amount Taxes ---------- ----------- ----------- --------- ----------- ----------- (Dollars in thousands) Income taxes computed at statutory rate $ 30,972 35.0% $ 28,493 35.0% $ 11,427 34.7% Increase (decrease) in taxes resulting from: State taxes, net 2,743 3.1 3,429 4.2 (582) (1.8) Deduction for cash patronage refunds - - - - (5,017) (15.2) Alternative minimum tax - - (2,822) (3.5) - - Other, net 600 0.7 78 0.1 193 0.6 ---------- ---- ---------- ---- ---------- ---- $ 34,315 38.8% $ 29,178 35.8% $ 6,021 18.3% ========== ==== ========== ==== ========== ====
NOTE 10 - RAW MATERIAL CONTRACTS: Mississippi Phosphates Corporation ("MPC"), a wholly owned subsidiary of the Company, has entered into a contract to purchase from a third party its full requirement of phosphate rock. The contract will expire on June 30, 2003. The purchase price for phosphate rock is based on the phosphate rock costs incurred by certain domestic phosphate producers and the operating performance of MPC. NOTE 11 - MAJOR CUSTOMERS AND EXPORT SALES: Sales to the Company's three largest customers were approximately $136,560,000, $36,499,000 and $20,135,000 for 1996; $117,495,000, $32,270,000 and $16,745,000 for 1995; and $83,366,000, $33,513,000 and $13,696,000 for 1994. Export sales were less than 10% of sales in 1996, 1995 and 1994. A significant portion of the Company's trade receivables are due from entities which operate in the chemical fertilizer and farm supply industries. A severe downturn in the agricultural economy could have an adverse impact on the collectibility of those receivables. Substantially all of MPC's sales are made to a third party which has been appointed the exclusive distributor of diammonium phosphate fertilizer produced by MPC. Sales to the distributor are recorded net of the distributor's commission. The distributor sells primarily in international markets. 36 37 NOTE 12 - HEDGING ACTIVITIES: During fiscal 1996, natural gas hedging activities resulted in average cost decreases of approximately $0.40 per MMBtu on volumes hedged of 5,560,000 MMBtu's. During fiscal 1995 and 1994, natural gas hedging activities resulted in average cost increases of approximately $0.52 and $0.09 per MMBtu on volumes hedged of 4,850,000 and 6,150,000 MMBtu's, respectively. As of June 30, 1996, the Company had no outstanding futures positions. NOTE 13 - COMMITMENTS AND CONTINGENCIES: During 1990, the Company entered into an agreement granting a third party the exclusive option, for a period of four years, to purchase the Company's undeveloped phosphate rock property of approximately 12,000 acres in Hardee County, Florida. As of July 12, 1994, the Company and the optionholder entered into new agreements with respect to this property whereby the Company conveyed a portion of the property to the third party and granted to the third party the exclusive option to purchase the remaining portion of the property. In addition, the Company was granted a put option whereby the Company has the right and option to sell the remaining portion of the property to the third party if the third party does not exercise its option to purchase the remaining property and was granted an exclusive option to repurchase the previously conveyed portion in the event the third party does not exercise its option and the Company does not exercise its put option. The third party's option will expire on January 16, 1998. The Company's put option will expire six months after the third party's option expires, and its repurchase option will expire one year after the Company's put option expires. These properties are classified as properties held for sale at June 30, 1996 and 1995. The Company has entered into a 50-50 joint venture ("Farmland MissChem Limited") with Farmland Industries, Inc., to construct and operate a 2,040-short-ton-per-day anhydrous ammonia plant to be located near Point Lisas, The Republic of Trinidad and Tobago. The project is expected to cost approximately $330 million. Startup of the facility is scheduled for mid-1998. The Company intends to use the majority of its portion of the production from the new facility, expected to be in excess of 350,000 short tons per year, primarily as a raw material for upgrading into finished fertilizer products at its existing facilities. The Company is accounting for this investment using the equity method. In late fiscal 1996, the Company began an expansion at its nitrogen fertilizer manufacturing facilities at Yazoo City. The project includes the addition of a 650-ton-per-day nitric acid plant, a new 500-ton-per-day ammonia plant and modifications to its ammonium nitrate plant to increase production from approximately 750,000 to approximately 950,000 tons per year. The Company estimates total cost of the expansion to be $130 million. The expansion is scheduled to be fully operational during the first half of 1998. In August 1996, two of the Company's indirect subsidiaries acquired substantially all of the assets of New Mexico Potash Corporation and Eddy Potash, Inc., subsidiaries of Trans-Resources, Inc., for $45 million, plus an adjustment for working capital on hand at closing (approximately $10 million). The assets purchased included the two Trans-Resources, Inc., mines located near Carlsbad, New Mexico, with an annual production capacity of approximately 870,000 tons of potash. 37 38 NOTE 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED): Additionally, the Company, in the ordinary course of its business, is the subject of, or a party to, various pending or threatened legal actions. The Company believes that any ultimate liability arising from these actions will not have a significant impact on the financial position or the future earnings of the Company. NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION: The Company considers its holdings of highly liquid money market debt securities to be cash equivalents if the securities mature within 90 days from the date of acquisition. These short-term investments were $53,739,000 and $27,587,000 at June 30, 1996 and 1995, respectively. The increase (decrease) in cash due to the changes in operating assets and liabilities consisted of the following:
Year Ended June 30 ------------------------------------------- 1996 1995 1994 ----------- ------------ ----------- (Dollars in thousands) Accounts receivable $ (3,564) $ 9,095 $ (2,265) Inventories 9,682 (16,325) 754 Prepaid expenses and other current assets (944) 569 (295) Accounts payable 14,494 2,505 (6,407) Accrued liabilities 1,733 915 2,393 ----------- ------------ ----------- $ 21,401 $ (3,241) $ (5,820) =========== ============ ===========
During fiscal 1996 and 1995, the Company had net payments of income taxes of $31,127,000 and $16,675,000. During fiscal 1994, the Company had net refunds of $149,000. Payments of interest were $330,000 in 1996; $2,646,000 in 1995; and $4,707,000 in 1994. Supplemental disclosures regarding non-cash financing and investing activities include the following:
Year Ended June 30 --------------------------------- 1995 1994 --------------- -------------- (Dollars in thousands) Conveyance of phosphate rock property $ 14,000 $ - Conversion of capital equity credits $ 62,352 $ - Conversion of cooperative stock $ 26,375 $ - Capital expenditures made from restricted funds $ - $ 1,000 Net option proceeds deposited in restricted funds $ - $ 1,000
During fiscal 1996, the Company had no material non-cash financing and investing activities. 38 39 NOTE 15 - OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS: Other long-term liabilities and deferred credits are comprised of the following:
June 30 --------------------------------- 1996 1995 -------------- -------------- (Dollars in thousands) Option proceeds (see Note 13) $ 4,967 $ 2,967 Accrual for closure of gypsum disposal area 7,181 6,617 Other 6,070 5,583 -------------- -------------- $ 18,218 $ 15,167 ============== ==============
During fiscal 1994, MPC charged to earnings $6,055,000 relating to the estimated cost of the future closure of the phosphogypsum disposal facility located at Pascagoula, Mississippi. During fiscal 1996 and 1995, MPC recorded additional charges of $564,000 and $562,000, respectively, which are reflected in cost of products sold in the Company's statements of income. The total amount of the accrual, $7,181,000, relates to the portion of the disposal facility utilized to date. In future years, MPC expects to record additional charges of approximately $1,874,000 related to the future closure of the facility. These charges will be accrued over the estimated four-year remaining life of the facility. The Company plans to construct a new phosphogypsum disposal facility. An option agreement has been secured for land for use in the development of this facility. Preliminary engineering work has been completed and the environmental applications have been submitted. The Company anticipates the permitting will be completed and construction will begin during fiscal 1997 on the first phase of the facility, which is estimated to cost $15 million. The facility is expected to be operational by late summer 1997. NOTE 16 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: At June 30, 1996, the carrying amounts of the Company's financial instruments approximate fair value because of the short settlement periods of those instruments. NOTE 17 - INTEREST, NET: Interest, net, consisted of the following:
Year Ended June 30 -------------------------------------------- 1996 1995 1994 ----------- ----------- ------------ (Dollars in thousands) Interest expense $ 715 $ 2,021 $ 4,655 Interest capitalized (10) (231) (2) Interest income (2,934) (1,738) (662) ----------- ----------- ------------ $ (2,229) $ 52 $ 3,991 =========== =========== ============
39 40 NOTE 18 - DISCONTINUED OPERATIONS: On June 30, 1994, the Company disposed of a majority of its interest in Newsprint South, Inc. ("NSI"). This action was taken due to substantial losses incurred to date by NSI and the expectation of continuing losses. The transaction involved a transfer by the Company of 70% of its economic interest in NSI to various individuals designated by the lessor of the newsprint facility leveraged lease. The Company did not retain any voting interest in NSI. Under the terms of the transaction, the Company paid $19,000,000 to NSI in various forms, including capital contributions, payments in liquidation of the Company's obligations under a newsprint purchase contract, and certain tax-compensating payments pursuant to a tax-sharing agreement. Prior loans in the amount of approximately $13,700,000 made by the Company to NSI pursuant to a newsprint purchase contract between the Company and NSI were converted to capital. Pursuant to the transaction, the Company also purchased from NSI its CoBank common stock for $4,000,000. This stock is scheduled for redemption at the face amount by CoBank during the next three years. The disposition of NSI allows the Company to focus its attention on its core fertilizer business. Prior to the disposition, the Company had consolidated the financial results of NSI which had a capital deficit of $39,747,000 at the time of disposition. Since the Company had no further obligations with respect to NSI, the previously recorded deficit was eliminated which resulted in a gain on disposition of $39,747,000. Subsequent to the disposition, the remaining 30% economic interest will be accounted for at cost which was zero at June 30, 1996 and 1995. In fiscal 1994, NSI had net sales of $94,617,000 and incurred a net loss of $23,987,000. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 40 41 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) The information required by this item regarding directors is set forth in the Company's Proxy Statement for the 1996 annual meeting of shareholders under the captions "Nominees for Election to Serve Until 1999," "Directors Continuing to Serve Until 1998," and "Directors Continuing to Serve Until 1997," which information is incorporated herein by reference. (b) Executive officers of the Registrant as of June 30, 1996, are as follows: Executive officers are elected for a one-year term by the Board of Directors.
OFFICE AND EMPLOYMENT DURING THE NAME OF OFFICER AGE LAST FIVE FISCAL YEARS ---------------------- ------- --------------------------------------------------------------------- Charles O. Dunn 48 President and Chief Executive Officer since April 1 1993; Executive Vice President (1988-1993) David W. Arnold 59 Senior Vice President-Technical Group since July 1, 1991; Senior Vice President-Research and Engineering (1987-1991) C. E. McCraw 48 Senior Vice President-Operations since July 12, 1994; Senior Vice President-Fertilizer Group (1991-1994); Vice President-Fertilizer Group (1991); Vice President-Operations (1987-1991) Robert E. Jones 49 Senior Vice President and General Counsel since January 18, 1996; Vice President and General Counsel (1989-1996) John J. Duffy 62 Vice President-Marketing since July 1, 1995; Vice President-Sales and Marketing (1994-1995); Director of Sales and Marketing (1991- 1994); Director, Field Sales (1988-1991) Ethel Truly 46 Vice President-Administration since January 18, 1996; Director of Administrative Services (1995-1996); Assistant General Counsel (1985-1995) Timothy A. Dawson 42 Vice President-Finance since January 18, 1996; Director of Finance (1987-1996); Assistant to Senior Vice President-Finance (1984-1987)
(c) The information called for with respect to the identification of certain significant employees is not applicable to the Registrant. (d) There are no family relationships between the directors and executive officers listed above. There are no arrangements nor understandings between any named officer and any other person pursuant to which such person was selected as an officer. (e) There are no legal proceedings involving directors, nominees for directors, or officers. 41 42 The information required by this item regarding compliance with Section 16(a) of the Exchange Act is set forth in the Company's Proxy Statement for the 1996 annual meeting of shareholders under the caption "Compliance with Section 16(a) of the Exchange Act," which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth in the Company's Proxy Statement for the 1996 annual meeting of shareholders under the captions "Compensation of Executive Officers" and "Retirement Program," which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth in the Company's Proxy Statement for the 1996 annual meeting of shareholders under the captions "Security Ownership of Certain Beneficial Owners" and "Management Ownership of the Company's Stock," which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is set forth in the Company's Proxy Statement for the 1996 annual meeting of shareholders under the caption "Compensation Committee Interlocks and Insider Participation," which information is incorporated herein by reference. 42 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS AND SCHEDULES Financial statement schedules not included in this Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Separate financial statements of 50% or less owned persons accounted for by the equity method which are not shown herein have been omitted because, if considered in the aggregate, they would not constitute a significant subsidiary (i) Financial Statements: Report of Independent Public Accountants Consolidated Balance Sheets, June 30, 1996 and 1995 Consolidated Statements of Income Years Ended June 30, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity, Years Ended June 30, 1996, 1995 and 1994 Consolidated Statements of Cash Flows, Years Ended June 30, 1996, 1995 and 1994 Notes to Consolidated Financial Statements (ii) Exhibits: Exhibits filed as part of this report are listed below. Certain exhibits have been previously filed with the Commission and are incorporated herein by reference.
SEC EXHIBIT REFERENCE NO. DESCRIPTION - ------------- ----------- 1 Shareholder Rights Plan; filed as Exhibit 1 to the Company's Form 8-A Registration Statement dated August 15, 1994, SEC File No. 2-7803, and incorporated herein by reference. 2.1 Asset Purchase Agreement, dated as of May 21, 1996, by and among the Company, Mississippi Acquisition I, Inc., Mississippi Acquisition II, Inc., Eddy Potash, Inc., and New Mexico Potash Corporation; filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed September 3, 1996, SEC File No. 20411, and incorporated herein by reference. 2.2 Agreement and Plan of Merger and Reorganization dated as of August 27, 1996, by and among the Company, MISS SUB, INC., and First Mississippi Corporation.
43 44 3.1 Articles of Incorporation of the Company; filed as Exhibit 3.1 to the Company's Amendment No. 1 to Form S-1 Registration Statement filed August 2, 1994, SEC File No. 33-53119, and incorporated herein by reference. 3.2 Bylaws of the Company; filed as Exhibit 3.2 to the Company's Amendment No. 1 to Form S-1 Registration Statement filed August 2, 1994, SEC File No. 33-53119, and incorporated herein by reference. 4.1 Mississippi Phosphates Corporation 401(k) Retirement Plan; filed as Exhibit 4.3(a) to the Company's Post-Effective Amendment No. 1 to Form S-8 Registration Statement filed June 6, 1995, SEC File No. 33-59577, and incorporated herein by reference. 4.2 Mississippi Chemical Corporation Thrift Plan Plus; filed as Exhibit 4.3(b) to the Company's Post-Effective Amendment No. 1 to Form S-8 Registration Statement filed June 6, 1995, SEC File No. 33-59577, and incorporated herein by reference. 4.3 Mississippi Chemical Corporation 1994 Stock Incentive Plan; filed as Exhibit 4.2 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 4.4 Mississippi Chemical Corporation 1995 Stock Option Plan for Nonemployee Directors; filed as Exhibit 4.3 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 4.5 Mississippi Chemical Corporation 1995 Restricted Stock Purchase Plan for Nonemployee Directors; filed as Exhibit 4.4 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 4.6 Loan Agreement dated as of April 26, 1996, among the Company, Mississippi Phosphates Corporation, Mississippi Potash, Inc., and MCC Pipeline, Inc., and NationsBank of Tennessee, N.A., as Agent, and the banks named therein; filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed September 3, 1996, SEC File No. 20411, and incorporated herein by reference. 10.1 Agreement effective as of October 1, 1991, entered into by the Company's subsidiary Mississippi Phosphates Corporation for the exclusive distribution of diammonium phosphate produced by Mississippi Phosphates Corporation; filed as Exhibit 10.1 to Amendment No. 1 to the Company's Report on Form 8 dated January 7, 1993, SEC File No. 2-7803, and incorporated herein by reference. 10.2 Amendment of Agreement, effective as of July 1, 1993, to the Agreement entered into as of October 1, 1991, by the Company's subsidiary Mississippi Phosphates Corporation for the exclusive distribution of diammonium phosphate produced by Mississippi Phosphates Corporation; filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, SEC File No. 2-7803, and incorporated herein by reference.
44 45 10.3 Amendment of Agreement, effective as of August 1, 1994, to the Agreement entered into as of October 1, 1991, by the Company's subsidiary Mississippi Phosphates Corporation for the exclusive distribution of diammonium phosphate produced by Mississippi Phosphates Corporation; filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference. 10.4 Agreement made and entered into as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1991, File No. 2-7803, and incorporated herein by reference. 10.5 Amendment No. 1, effective as of July 1, 1992, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference(1) 10.6 Amendment No. 2, effective as of July 1, 1993, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference(2) 10.7 Amendment No. 3, effective as of January 1, 1995, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference(3)
- ---------------------------------- (1) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from the first and second paragraphs of paragraph numbered 1 of Amendment No. 1 and an application for confidential treatment has been filed separately with the Commission. (2) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from paragraphs numbered 5 and 8 of Amendment No. 2; from the first paragraph, paragraph numbered 1, paragraph numbered 2, and paragraph numbered 3 of Schedule 1, Exhibit A; from Schedule 2, Exhibit B; from Schedule 3, Exhibit C, and from Schedule 4, Exhibit D; and an application for confidential treatment has been filed separately with the Commission. (3) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from Schedule 1 to Amendment No. 3, Exhibit B, and an application for confidential treatment has been filed separately with the Commission. 45 46 10.8 Gas Sales Agreement entered into by the Company and Sonat Marketing Company as of July 13, 1995, for the sale and purchase of natural gas; filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(4) 10.9 Triad Chemical Joint Venture Agreement; filed as Exhibit G1 to Post-Effective Amendment No. 6 to Registration Statement No. 2-25041 and incorporated herein by reference. 10.10 Amendment to Joint Venture Agreement entered into by the Company and First Mississippi Corporation effective as of May 28, 1993; filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, SEC File No. 2-7803, and incorporated herein by reference. 10.11 Products Withdrawal Agreement dated June 3, 1968, between First Mississippi Corporation and MisCoa covering withdrawal of product from Triad Chemical; filed as Exhibit H to Post-Effective Amendment No. 7 to Registration Statement No. 2-25041 and incorporated herein by reference. 10.12 Amendment to Products Withdrawal Agreement entered into by the Company and First Mississippi Corporation effective as of May 28, 1993; filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, SEC File No. 2-7803, and incorporated herein by reference. 10.13 Agreement for Real Estate Purchase Option dated July 16, 1990, for the sale of the Company's Hardee County, Florida, property and underlying phosphate reserves; filed as an exhibit to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1990, SEC File No. 2-7803, and incorporated herein by reference. 10.14 Form of Severance Agreement dated July 29, 1996, by and between the Company and each of its Executive Officers. 21 List of subsidiaries of the Company. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule.
- ---------------------------------- (4) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from Article IV, Price, and an application for confidential treatment has been filed separately with the Commission. 46 47 (b) REPORTS ON FORM 8-K: The Company's Current Report on Form 8-K dated September 3, 1996. 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. MISSISSIPPI CHEMICAL CORPORATION By: /s/ Charles O. Dunn President Principal Executive Officer By: /s/ Timothy A. Dawson Vice President-Finance Principal Financial Officer and Chief Accounting Officer Date: September 20, 1996 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.
SIGNATURE TITLE DATE /s/ Charles O. Dunn Director, September 20, 1996 President and Chief Executive Officer (principal executive officer) /s/ Coley L. Bailey Director, Chairman of the Board September 20, 1996 /s/ John Sharp Howie Director, Vice Chairman of the Board September 20, 1996 /s/ John W. Anderson Director September 20, 1996 /s/ Frank R. Burnside, Jr. Director September 20, 1996 /s/ Robert P. Dixon Director September 20, 1996 /s/ W. R. Dyess Director September 20, 1996 /s/ Woods E. Eastland Director September 20, 1996 /s/ G. David Jobe Director September 20, 1996 /s/ George D. Penick, Jr. Director September 20, 1996 /s/ David M. Ratcliffe Director September 20, 1996 /s/ Wayne Thames Director September 20, 1996
47 48 MISSISSIPPI CHEMICAL CORPORATION EXHIBIT INDEX TO FORM 10-K
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------- --------------------------------------------------------------------------------- ------ 1 Shareholder Rights Plan; filed as Exhibit 1 to the Company's Form 8-A Registration Statement dated August 15, 1994, SEC File No. 2-7803, and incorporated herein by reference. 2.1 Asset Purchase Agreement, dated as of May 21, 1996, by and among the Company, Mississippi Acquisition I, Inc., Mississippi Acquisition II, Inc., Eddy Potash, Inc., and New Mexico Potash Corporation; filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed September 3, 1996, SEC File No. 20411, and incorporated herein by reference. 2.2 Agreement and Plan of Merger and Reorganization dated as of August 27, 1996, by and among the Company, MISS SUB, INC., and First Mississippi Corporation. [ ] 3.1 Articles of Incorporation of the Company; filed as Exhibit 3.1 to the Company's Amendment No. 1 to Form S-1 Registration Statement filed August 2, 1994, SEC File No. 33-53119, and incorporated herein by reference. 3.2 Bylaws of the Company; filed as Exhibit 3.2 to the Company's Amendment No. 1 to Form S-1 Registration Statement filed August 2, 1994, SEC File No. 33-53119, and incorporated herein by reference. 4.1 Mississippi Phosphates Corporation 401(k) Retirement Plan; filed as Exhibit 4.3(a) to the Company's Post-Effective Amendment No. 1 to Form S-8 Registration Statement filed June 6, 1995, SEC File No. 33-59577, and incorporated herein by reference. 4.2 Mississippi Chemical Corporation Thrift Plan Plus; filed as Exhibit 4.3(b) to the Company's Post-Effective Amendment No. 1 to Form S-8 Registration Statement filed June 6, 1995, SEC File No. 33-59577, and incorporated herein by reference. 4.3 Mississippi Chemical Corporation 1994 Stock Incentive Plan; filed as Exhibit 4.2 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference.
48 49
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------- --------------------------------------------------------------------------------- ------ 4.4 Mississippi Chemical Corporation 1995 Stock Option Plan for Nonemployee Directors; filed as Exhibit 4.3 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 4.5 Mississippi Chemical Corporation 1995 Restricted Stock Purchase Plan for Nonemployee Directors; filed as Exhibit 4.4 to the Company's Form S-8 Registration Statement filed December 21, 1995, SEC File No. 33-65209, and incorporated herein by reference. 4.6 Loan Agreement, dated as of April 26, 1996, the Company, Mississippi Phosphates Corporation, Mississippi Potash, Inc., and MCC Pipeline, Inc., and NationsBank of Tennessee, N.A., as Agent, and the banks named therein; filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed September 3, 1996, SEC File No. 20411, and incorporated herein by reference. 10.1 Agreement effective as of October 1, 1991, entered into by the Company's subsidiary Mississippi Phosphates Corporation for the exclusive distribution of diammonium phosphate produced by Mississippi Phosphates Corporation; filed as Exhibit 10.1 to Amendment No. 1 to the Company's Report on Form 8 dated January 7, 1993, SEC File No. 2-7803, and incorporated herein by reference. 10.2 Amendment of Agreement, effective as of July 1, 1993, to the Agreement entered into as of October 1, 1991, by the Company's subsidiary Mississippi Phosphates Corporation for the exclusive distribution of diammonium phosphate produced by Mississippi Phosphates Corporation; filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, SEC File No. 2-7803, and incorporated herein by reference. 10.3 Amendment of Agreement, effective as of August 1, 1994, to the Agreement entered into as of October 1, 1991, by the Company's subsidiary Mississippi Phosphates Corporation for the exclusive distribution of diammonium phosphate produced by Mississippi Phosphates Corporation; filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.
49 50
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------- --------------------------------------------------------------------------------- ------ 10.4 Agreement made and entered into as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1991, File No. 2-7803, and incorporated herein by reference. 10.5 Amendment No. 1, effective as of July 1, 1992, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(5) 10.6 Amendment No. 2, effective as of July 1, 1993, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(6) 10.7 Amendment No. 3, effective as of January 1, 1995, to the Agreement effective as of September 15, 1991, between Office Cherifien des Phosphates and the Company's subsidiary Mississippi Phosphates Corporation for the sale and purchase of phosphate rock; filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, SEC File No. 2-7803, and incorporated herein by reference.(7)
- ---------------------------------- (5) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from the first and second paragraphs of paragraph numbered 1 of Amendment No. 1 and an application for confidential treatment has been filed separately with the Commission. (6) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from paragraphs numbered 5 and 8 of Amendment No. 2; from the first paragraph, paragraph numbered 1, paragraph numbered 2, and paragraph numbered 3 of Schedule 1, Exhibit A; from Schedule 2, Exhibit B; from Schedule 3, Exhibit C, and from Schedule 4, Exhibit D; and an application for confidential treatment has been filed separately with the Commission. (7) Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential business information has been deleted from Schedule 1 to Amendment No. 3, Exhibit B, and an application for confidential treatment has been filed separately with the Commission. 50 EX-2.2 2 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION 1 EXHIBIT 2.2 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION DATED AS OF AUGUST 27, 1996 BY AND AMONG MISSISSIPPI CHEMICAL CORPORATION MISS SUB, INC. AND FIRST MISSISSIPPI CORPORATION 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I THE MERGER Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.4 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.5 Articles of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.6 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.7 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II CONVERSION OF SECURITIES Section 2.1 Conversion of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 2.2 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 2.3 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY Section 3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 3.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 3.4 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3.5 SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3.6 Information in Disclosure Documents and Registration Statements . . . . . . . . . . . . 9 Section 3.7 Retained Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.9 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 3.10 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 3.11 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 3.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.14 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.15 Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.16 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.17 State Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
i 3 Section 3.18 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.19 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 3.20 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 3.21 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Section 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 4.4 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.5 SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.6 Information in Disclosure Documents and Registration Statements . . . . . . . . . . . . 19 Section 4.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.8 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.9 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.10 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.11 Interim Operations of Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.12 Unwanted Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.13 Purchases of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.14 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.15 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE V COVENANTS PENDING THE EFFECTIVE TIME Section 5.1 Covenants of the Company with Respect to the Retained Business . . . . . . . . . . . . . 21 Section 5.2 Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 5.3 Covenants of Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE VI ADDITIONAL AGREEMENTS Section 6.1 Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 6.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 6.3 Stockholders Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 6.4 Legal Conditions to Distribution and Merger . . . . . . . . . . . . . . . . . . . . . . 27 Section 6.5 Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 6.6 Company Severance Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 6.7 Employee Matters; Company Stock Plans . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 6.8 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ii 4 Section 6.9 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 6.10 No Solicitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6.11 Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 6.12 Tax-Free Nature of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 6.13 Audited Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 6.14 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 6.15 AMPRO Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 6.16 Comfort Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE VII CONDITIONS Section 7.1 Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . . . . . 33 Section 7.2 Conditions of Obligations of Parent and Sub . . . . . . . . . . . . . . . . . . . . . . 34 Section 7.3 Conditions of Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE VIII TERMINATION AND AMENDMENT Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 8.3 Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 8.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 8.5 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE IX MISCELLANEOUS Section 9.1 Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 38 Section 9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 9.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 9.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 9.5 Entire Agreement; No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . 40 Section 9.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 9.7 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 9.8 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 9.10 Attorney-Client Privilege; Work Product . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 9.11 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 9.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
iii 5 ANNEXES AND EXHIBITS Annex I - Distribution Agreement Exhibit A - Retained Business Financial Statements iv 6 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of August 27, 1996, by and among Mississippi Chemical Corporation, a Mississippi corporation ("Parent"), Miss Sub, Inc., a Mississippi corporation and a wholly owned subsidiary of Parent ("Sub"), and First Mississippi Corporation, a Mississippi corporation (the "Company"). WHEREAS, Parent desires to acquire the Company's fertilizer business but does not wish to acquire the other businesses conducted or to be conducted by the Company; WHEREAS, the Board of Directors of the Company has approved a plan of distribution embodied in the form of a draft agreement attached hereto as Annex I, as may be amended pursuant to the provisions of Section 6.11 hereof (the "Distribution Agreement"), which will be entered into prior to the Effective Time (as defined in Section 1.2) pursuant to which all of the Company's assets, other than those used primarily in the Retained Business (as defined in Section 3.7), will be contributed to a wholly owned subsidiary of the Company ("Newco") (such contributions, together with all mergers, other intercompany transfers of assets, and other actions described in Article IV of the Distribution Agreement, the "Transfer") and shares of capital stock of Newco will be distributed (the "Distribution") on a pro rata basis to the stockholders of the Company as provided in the Distribution Agreement in order to divest the Company of the businesses and operations that Parent is unwilling to acquire; WHEREAS, the respective Boards of Directors of Parent, Sub and the Company have determined that, following the Distribution, the merger of Sub with and into the Company (the "Merger") with the Company surviving as a wholly owned subsidiary of Parent would be advantageous and beneficial to their respective corporations and stockholders; and WHEREAS, for federal income tax purposes, it is intended that (i) the Distribution shall qualify as a tax-free distribution under Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the Merger shall qualify as a reorganization under Section 368(a) of the Code, and this Agreement is intended to be and is adopted as a plan of reorganization. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto agree as follows: ARTICLE I THE MERGER Section 1.1 The Merger. Upon the terms and subject to the conditions hereof and the Mississippi Business Corporation Act (the "MBCA"), at the Effective Time, the Company and Sub shall consummate the Merger pursuant to which (i) Sub shall be merged with and into the Company, (ii) the separate corporate existence of Sub shall thereupon cease, (iii) the Company 1 7 shall be the surviving corporation in the Merger (the "Surviving Corporation") and shall continue to be governed by the laws of the State of Mississippi and (iv) the corporate existence of the Company with its properties, rights, privileges, powers and franchises shall continue unaffected by the Merger. Section 1.2 Effective Time of the Merger. Upon the terms and subject to the conditions hereof, articles of merger (the "Articles of Merger") shall be duly prepared, executed and acknowledged by the Company and thereafter delivered to the Secretary of State of the State of Mississippi, for filing, as provided in the MBCA, as soon as practicable on or after the Closing Date (as defined in Section 1.3). The Merger shall become effective immediately following the Distribution, upon the filing of the Articles of Merger with the Secretary of State of the State of Mississippi or at such time thereafter as is provided in the Articles of Merger (the "Effective Time"). Section 1.3 Closing. The closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date to be specified by the parties, which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Article VII hereof, at the offices of the Company, 700 North Street, Jackson, Mississippi 39202- 3095, unless another date or place is agreed to in writing by the parties hereto. The date and time at which the Closing occurs is referred to herein as the "Closing Date." Section 1.4 Effects of the Merger. The Merger shall have the effects set forth in the MBCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of Sub shall become the debts, liabilities and duties of the Surviving Corporation. Section 1.5 Articles of Incorporation and Bylaws. (a) The Articles of Incorporation of Sub in effect at the Effective Time shall be the Articles of Incorporation of the Surviving Corporation until amended in accordance with the MBCA. (b) The bylaws of Sub in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with the MBCA. Section 1.6 Directors. The directors of Sub at the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office from the Effective Time in accordance with the Articles of Incorporation and bylaws of the Surviving Corporation and until his or her successor is duly elected and qualified. Section 1.7 Officers. The officers of Sub at the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office from the Effective Time in accordance with the Articles of Incorporation and bylaws of the Surviving Corporation and until his or her successor is duly appointed and qualified. 2 8 ARTICLE II CONVERSION OF SECURITIES Section 2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the holders of any shares of Common Stock, par value $1.00 per share, of the Company (the "Company Common Stock") or Parent, as the holder of the capital stock of Sub: (a) Capital Stock of Sub. Each issued and outstanding share of the capital stock of Sub shall be converted into and become one fully paid and nonassessable share of Common Stock, par value $1.00 per share, of the Surviving Corporation. (b) Cancellation of Treasury Stock and Parent-Owned Stock. All shares of Company Common Stock that are owned by the Company and any shares of Company Common Stock owned by Parent, Sub or any other wholly-owned Subsidiary (as hereinafter defined) of Parent shall be cancelled and retired and shall cease to exist and no stock of Parent or other consideration shall be delivered in exchange therefor. As used in this Agreement, the word "Subsidiary" means, with respect to any party, any corporation or other organization, whether incorporated or unincorporated, of which (i) such party or any other Subsidiary of such party is a general partner (excluding partnerships the general partnership interests of which held by such party and any Subsidiary of such party do not have a majority of the voting interest in such partnership) or (ii) securities or other interests having by their terms a majority of the outstanding voting power with respect to such corporation or other organization are directly or indirectly owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries. (c) Exchange Ratio for Company Common Stock. Subject to Section 2.2(e), each issued and outstanding share of Company Common Stock (other than shares to be cancelled in accordance with Section 2.1(b) and Dissenting Shares, as defined in Section 2.3) shall be converted into the right to receive the Merger Consideration Per Share in fully paid and nonassessable shares of Common Stock, par value $0.01 per share, of Parent ("Parent Common Stock"). The "Merger Consideration Per Share" shall mean 6,904,762 shares of Parent Common Stock divided by the number of shares of Company Common Stock outstanding at the Effective Time as certified to Parent by the Company's transfer agent and registrar (the "Effective Time Outstanding Shares"), rounded to the nearest one ten-thousandth of a share; provided, however, if the average of the Daily Prices, as derived from The Wall Street Journal, for the ten (10) trading days immediately preceding the trading day prior to the Effective Time (such number rounded to the nearest one one-hundredth of a cent, the "Average Parent Price"), is more than $25.00, then the Merger Consideration Per Share shall be the greater of (i) 6,393,298 shares of Parent Common Stock divided by the Effective Time Outstanding Shares and (ii) the number (rounded to the nearest one ten-thousandth of a share) of Parent Common Shares determined by dividing (A) the product of (x) 6,904,762 multiplied by (y) a fraction, the numerator of which is $25.00 3 9 and the denominator of which is the Average Parent Price, by (B) the Effective Time Outstanding Shares. The term "Daily Price" shall mean for each trading day the average of the opening price, high price, low price and closing price for the Parent Common Stock. At the Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares shall cease to have any rights with respect thereto, except the right to receive the shares of Parent Common Stock and any cash in lieu of fractional shares of Parent Common Stock to be issued or paid in consideration therefor upon the surrender of such certificate in accordance with Section 2.2, without interest. Section 2.2 Exchange of Certificates. (a) Exchange Agent. Prior to the Effective Time, Parent shall deposit with KeyCorp Shareholder Services, Inc. or such other bank or trust company designated by the Company (and reasonably acceptable to Parent) (the "Exchange Agent"), for the benefit of the holders of shares of Company Common Stock, for exchange in accordance with this Article II through the Exchange Agent, certificates representing the shares of Parent Common Stock issuable pursuant to Section 2.1 in exchange for outstanding shares of Company Common Stock, together with cash to be paid in lieu of fractional shares (such shares of Parent Common Stock, together with any dividends or distributions with respect thereto contemplated by Section 2.2(c) and cash in lieu of fractional shares, being hereinafter referred to as the "Exchange Fund"). (b) Exchange Procedures. As soon as practicable after the Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Common Stock (the "Certificates") whose shares were converted pursuant to Section 2.1 into the right to receive shares of Parent Common Stock (i) a letter of transmittal (which shall be in such form and have such provisions as Parent and the Company may reasonably specify) and (ii) instructions for surrendering the Certificates in exchange for certificates representing shares of Parent Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing that number of whole shares of Parent Common Stock which such holder has the right to receive pursuant to the provisions of this Article II and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Company Common Stock which is not registered in the transfer records of the Company, a certificate representing the proper number of shares of Parent Common Stock may be issued to a transferee if the Certificate representing such Company Common Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.2, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender a certificate representing shares of Parent Common Stock and cash in lieu of any fractional shares of Parent Common Stock as contemplated by this Section 2.2. 4 10 (c) Distributions with Respect to Unexchanged Shares. No dividends or other distributions declared or made after the Effective Time with respect to Parent Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock which such holder is entitled to receive upon the surrender thereof in accordance with this Section 2.2, and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 2.2(e) until the holder of record of such Certificate shall so surrender such Certificate. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of any fractional share of Parent Common Stock to which such holder is entitled pursuant to Section 2.2(e) and the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and a payment date subsequent to surrender payable with respect to such whole shares of Parent Common Stock. (d) No Further Ownership Rights in Company Common Stock. All shares of Parent Common Stock issued upon the surrender for exchange of shares of Company Common Stock in accordance with the terms hereof (including any cash paid pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Common Stock, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Article II. (e) No Fractional Shares. No certificate or scrip representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Certificates, and such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of Parent. In lieu of any such fractional shares, each holder of Company Common Stock who would otherwise have been entitled to a fraction of a share of Parent Common Stock upon surrender of Certificates for exchange will be entitled to receive a cash payment in lieu of such fractional share in an amount equal to such fraction multiplied by the Average Parent Price. (f) Termination of Exchange Fund. Any portion of the Exchange Fund which remains undistributed to the stockholders of the Company for six months after the Effective Time shall be delivered to Parent, upon demand, and any stockholders of the Company who have not theretofore complied with this Article II shall thereafter look only to Parent for payment of their claim for Parent Common Stock, any cash in lieu of fractional shares of Parent Common Stock and any dividends or distributions with respect to Parent Common Stock. (g) No Liability. Neither Parent nor the Company shall be liable to any holder of shares of Company Common Stock or Parent Common Stock, as the case may be, for such shares (or dividends or distributions with respect thereto) or cash for payment in lieu of fractional 5 11 shares delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. Section 2.3 Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, shares of the Company Common Stock which immediately prior to the Effective Time are held by stockholders who have properly exercised and perfected appraisal rights under Section 79-4-13.02 of the MBCA (the "Dissenting Shares") shall not be converted into the right to receive shares of Parent Common Stock as provided in Section 2.1 hereof, but the holders of Dissenting Shares shall be entitled to receive such consideration from the Surviving Corporation as shall be determined pursuant to Section 79-4-13.02 of the MBCA; provided, however, that, if any such holder shall have failed to perfect or shall withdraw or lose his right to appraisal and payment under the MBCA, such holder's shares of Company Common Stock shall thereupon be deemed to have been converted as of the Effective Time into the right to receive shares of Parent Common Stock, without any interest thereon, as provided in Section 2.1 and such shares shall no longer be Dissenting Shares. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Sub as follows: Section 3.1 Organization. As used in this Agreement, any reference to the Company and its Subsidiaries means the Company and each of its Subsidiaries; any reference to Newco and its Subsidiaries means Newco at the time of the Distribution and those entities that at or immediately prior to the Distribution will be direct or indirect Subsidiaries of or merged with or liquidated into Newco; and references to Subsidiaries of Newco mean those entities that at or immediately prior to the Distribution will be direct or indirect Subsidiaries of or merged with or liquidated into Newco. As used in this Agreement, any reference to any event, change or effect having a material adverse effect on or with respect to an entity (or group of entities taken as a whole) means that such event, change or effect is materially adverse to the business, properties, assets, results of operations or financial condition of such entity (or, if with respect thereto, of such group of entities taken as a whole). Each of the Company and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a material adverse effect on the Retained Business taken as a whole. The Company and each of its Subsidiaries are duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by them or the nature of the business conducted by them makes such qualification or licensing necessary, except where the failure to be so qualified or licensed and in good standing would not in the aggregate have a material adverse effect on the Retained Business taken as a whole or on the ability of the Company and its Subsidiaries to consummate the transactions contemplated hereby. True, 6 12 accurate and complete copies of the Company's Charter of Incorporation and bylaws, including all amendments thereto, have heretofore been delivered to Parent. Section 3.2 Capitalization. The authorized capital stock of the Company consists of: (i) 100,000,000 shares of Company Common Stock of which, as of August 26, 1996, 20,614,491 shares were issued and outstanding, and (ii) 20,000,000 shares of preferred stock (the "Company Preferred Stock"), of which, as of the date hereof, no shares are issued or outstanding. 250,000 shares of Company Preferred Stock are designated Series X Junior Participating Preferred Stock (the "Company Series X Preferred Stock") and are reserved for issuance in accordance with the Rights Agreement, dated as of February 27, 1996 (the "Rights Agreement"), by and between the Company and Society National Bank, as Rights Agent (the "Company Rights Agent"), pursuant to which the Company has issued rights (the "Company Rights") to purchase shares of Company Series X Preferred Stock and 249,167 shares of Company Preferred Stock (with the designations set forth in Section 3.2 of the disclosure schedule delivered by the Company to Parent on the date hereof (the "Company Disclosure Schedule")) are reserved for issuance pursuant to the terms of debentures convertible into Company Preferred Stock (the "Company Convertible Debentures") and debenture options. As of the date hereof, 926,759 shares of Company Common Stock were reserved for issuance upon exercise of outstanding stock options and debenture options (which debenture options are exercisable for Company Convertible Debentures which are convertible into Company Preferred Stock which is then convertible into Company Common Stock) and upon conversion of Company Convertible Debentures pursuant to the Company's 1980 Long-Term Incentive Plan (the "1980 Plan"), 1988 Long-Term Incentive Plan (the "1988 Plan") and 1995 Long-Term Incentive Plan (the "1995 Plan" and, together with the 1980 Plan and the 1988 Plan, the "Company Stock Plans"). All the outstanding shares of the Company's capital stock are, and all shares which may be issued pursuant to Company Stock Plans will be, when issued in accordance with the terms thereof, duly authorized, validly issued, fully paid and non-assessable and free of any preemptive rights in respect thereof. Except as set forth above or in Section 3.2 of the Company Disclosure Schedule, as of the date hereof, there are no existing options, warrants, calls, subscriptions or other rights or other agreements, commitments, understandings or restrictions of any character binding on the Company or any of its Subsidiaries with respect to the issued or unissued capital stock of the Company or any of its Subsidiaries. Except as set forth in Section 3.2 of the Company Disclosure Schedule, there are no outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its Subsidiaries. Section 3.3 Authority. The Company has the requisite corporate power and authority to execute and deliver this Agreement and the Distribution Agreement and to consummate the transactions contemplated hereby and thereby other than, with respect to the Merger, the approval and adoption of this Agreement by the affirmative vote of the holders of at least a majority of the outstanding shares of Company Common Stock and, with respect to the Distribution, the declaration of the Distribution by the Company's Board of Directors. The execution, delivery and performance of this Agreement and the Distribution Agreement by the Company and the consummation by the Company of the Distribution and the Merger and of the other transactions contemplated hereby and thereby have been duly authorized by the Company's Board of Directors, and no other corporate proceedings on the part of the Company are necessary 7 13 to authorize this Agreement or the Distribution Agreement or for the Company to consummate the transactions so contemplated hereby or thereby other than, with respect to the Merger, the approval and adoption of this Agreement by the affirmative vote of the holders of at least a majority of the outstanding shares of Company Common Stock and, with respect to the Distribution, declaration of the Distribution by the Company's Board of Directors. This Agreement has been duly executed and delivered by the Company and, assuming this Agreement constitutes a valid and binding obligation of Parent and Sub, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. Prior to the Distribution, the Distribution Agreement will be duly executed and delivered by each of the Company and Newco and upon such execution and delivery will constitute a valid and binding obligation of each of the Company and Newco, enforceable against each of them in accordance with its terms. Section 3.4 Consents and Approvals; No Violations. Except (a) as set forth in Section 3.4 of the Company Disclosure Schedule, (b) for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act of 1933, as amended (the "Securities Act"), the New York Stock Exchange (the "NYSE"), the National Association of Securities Dealers, Inc., the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), filings under state securities or "blue sky" laws and the filing with the Secretary of State of the State of Mississippi of the Articles of Merger and articles of merger with respect to the merger of FirstMiss Fertilizer, Inc. into the Company and (c) as may be necessary as a result of any facts or circumstances relating solely to Parent or any of its Subsidiaries, none of the execution, delivery or performance of this Agreement or the Distribution Agreement by the Company or the consummation by the Company of the transactions contemplated hereby or thereby and compliance by the Company with any of the provisions hereof or thereof will (i) conflict with or result in any breach of any provisions of the charters or bylaws of the Company or of any of its Subsidiaries, (ii) require any filing by the Company or any of its Subsidiaries with, or any permit, authorization, consent or approval to be obtained by the Company or any of its Subsidiaries of, any court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency (a "Governmental Entity"), (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument, obligation or commitment to which the Company or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound ("Contracts") or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of its Subsidiaries, except, in the case of clause (ii), (iii) or (iv), for failures to file or obtain, violations, breaches or defaults which would not have a material adverse effect on the Retained Business taken as a whole or the ability of the Company to consummate the transactions contemplated hereby. Section 3.5 SEC Reports and Financial Statements. The Company has timely filed with the Securities and Exchange Commission (the "SEC"), and has heretofore made available to 8 14 Parent true and complete copies of, all periodic reports required to be filed by it since July 1, 1995 under the Exchange Act (as such documents have been amended since the time of their filing, together with all such periodic reports to be filed from the date hereof to the Effective Time, collectively, the "Company SEC Documents"). Except with respect to information concerning the Triad Chemical Joint Venture ("Triad"), as to which the Company makes no representation or warranty for the purposes of this Section 3.5, the Company SEC Documents, including without limitation any financial statements or schedules included therein, at the time filed, (a) did not or will not, as the case may be, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (b) complied or will comply, as the case may be, in all material respects with the applicable requirements of the Exchange Act. Except with respect to information concerning Triad, as to which the Company makes no representation or warranty for purposes of this Section 3.5, the consolidated financial statements of the Company included in the Company SEC Documents (including the notes and schedules thereto, the "Company Financial Statements") comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present in all material respects (subject, in the case of the unaudited financial statements, to normal audit adjustments) the consolidated financial position of the Company and its consolidated Subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. Section 3.6 Information in Disclosure Documents and Registration Statements. Except with respect to information concerning Triad, as to which the Company makes no representation or warranty for purposes of this Section 3.6, none of the information supplied or to be supplied by the Company or its representatives for inclusion or incorporation by reference in (i) the registration statement on Form S-4 to be filed with the SEC by Parent in connection with the issuance of shares of Parent Common Stock in the Merger (the "S-4") will, at the time such registration statement becomes effective under the Securities Act and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) the joint proxy statement relating to the meetings of each of the Company's and Parent's stockholders to be held in connection with the Merger (the "Proxy Statement") will, at the date mailed to the Company's and Parent's stockholders and at the time of each of the meetings of the Company's and Parent's stockholders to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder, except that no representation is made by the Company with respect to statements made therein based on information supplied by Parent or Sub for inclusion in the Proxy Statement, with respect to information concerning Parent or any of its Subsidiaries 9 15 incorporated by reference in the Proxy Statement or with respect to information concerning Triad. Section 3.7 Retained Business. (a) Attached hereto as Exhibit A is an unaudited pro forma consolidated balance sheet of the Retained Business of the Company and its Subsidiaries at June 30, 1996 (including certain explanatory notes thereto, the "Retained Business Balance Sheet") and an unaudited pro forma consolidated statement of operations for the Retained Business of the Company and its Subsidiaries for the year ended June 30, 1996 (including certain explanatory notes thereto, the "Retained Business Income Statement" and, together with the Retained Business Balance Sheet, the "Retained Business Financial Statements"). The "Retained Business" means and includes the assets, liabilities, capital stock and partnership interests reflected on the Retained Business Balance Sheet, as such assets and liabilities may have changed since the date of the Retained Business Balance Sheet, but in any event shall include all of the Company's direct and indirect right, title and interest (including minority interests) in the assets used primarily in, and all of the Company's liabilities and obligations (accrued, absolute, contingent, undisclosed or otherwise) which are primarily related to or have arisen or will arise from, the production, distribution, sale and storage of ammonia and urea and purchase and resale of ammonia and urea (except for those assets and liabilities identified in Section 3.7 of the Company Disclosure Schedule under the headings "Excluded Assets" and "Excluded Liabilities," which shall not be included in the Retained Business and which are referred to herein as the "Excluded Assets" and "Excluded Liabilities"). The Retained Business shall include the following entities: FirstMiss Fertilizer, Inc.; AMPRO Fertilizer, Inc.; FMF Barge, Inc.; FMF, Inc. ("FMF"); a 50% interest in Arcadian/FirstMiss Fertilizer LLC; a 50% interest in Triad; and the partnership interests currently held by FEC Marketing, Inc. ("FEC") and FMF in FirstMiss Fertilizer Limited Partnership and FirstMiss Fertilizer Texas LP (the "Partnerships"). As of the Effective Date, the interests in the Partnerships currently held by FEC will be held by an entity other than FEC included in the Retained Business that will be designated by Parent. (b) Except with respect to information concerning Triad, as to which the Company makes no representation or warranty for purposes of this Section 3.7, the Retained Business Financial Statements have been prepared in accordance with generally accepted accounting principles on a basis consistent with the Company Financial Statements, and, except as set forth in Section 3.7 of the Company Disclosure Schedule, fairly present in all material respects (subject to normal audit adjustments) the consolidated financial position of the Company and its Subsidiaries as at the date thereof, after giving pro forma effect to the Distribution (assuming the Distribution occurred on June 30, 1996), and the consolidated results of their operations for the one-year period then ended, after giving pro forma effect to the Distribution (assuming the Distribution occurred on July 1, 1995). (c) At the Effective Time, except for the Excluded Assets and as contemplated by this Agreement or the Distribution Agreement, neither Newco nor any of its Subsidiaries will own or have rights to use any of the assets or property, whether tangible, intangible or mixed, which are necessary for the conduct of the Retained Business as conducted on the date hereof. 10 16 Except as set forth in Section 3.7 of the Company Disclosure Schedule, at the Effective Time neither Newco nor any of its Subsidiaries will be a party to any material agreement or arrangement with the Surviving Corporation or any of its Subsidiaries (other than the Distribution Agreement and any agreements contemplated by the Distribution Agreement, including the Tax Disaffiliation Agreement and the Employee Benefits Agreement). Section 3.8 Litigation. Except as disclosed in the Company SEC Documents filed prior to the date hereof or as set forth in Section 3.8 of the Company Disclosure Schedule and except with respect to information concerning Triad, as to which the Company makes no representation or warranty for purposes of this Section 3.8, there is no suit, action, proceeding or investigation relating to the Retained Business pending or, to the knowledge of the Company, threatened, against the Company or any of its Subsidiaries before any Governmental Entity which, individually or in the aggregate, is reasonably likely to have a material adverse effect on the Retained Business taken as a whole or the ability of the Company to consummate the transactions contemplated hereby. Except as disclosed in the Company SEC Documents filed prior to the date hereof or as set forth in Section 3.8 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is subject to any outstanding order, writ, injunction or decree relating to the Retained Business which, individually or in the aggregate, is reasonably likely to have a material adverse effect on the Retained Business taken as a whole or a material adverse effect on the ability of the Company to consummate the transactions contemplated hereby. Section 3.9 Employee Benefits. (a) Other than with respect to Triad, as to which the Company makes no representation or warranty for purposes of this Section 3.9, Section 3.9 of the Company Disclosure Schedule contains a list of all "employee benefit plans" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and all bonus, stock option, fringe benefit, vacation, incentive, severance, employment or other benefit plans, programs, agreements and arrangements (the "Benefit Plans"), which cover employees or former employees of the Company and its Subsidiaries who are or were employed in the Retained Business (the "Employees"). True and complete copies of all Benefit Plans, any trust instruments and/or insurance contracts, if any, forming a part of any such plans, and all amendments thereto; current summary plan descriptions; where applicable, the most current determination letter received from the Internal Revenue Service (the "Service") and most recent determination letter application; and where applicable, annual reports, financial statements and actuarial reports for the last three plan years, which fairly and accurately reflect the financial condition of the plans have been made available to Parent. (b) All Benefit Plans are in compliance with ERISA, the Code and all other applicable laws in all material respects. Each Benefit Plan which is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA (a "Pension Plan") and which is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Service, and the Company is not aware of any circumstances likely to result in revocation of any such favorable determination letter. Neither the Company nor any of its 11 17 Subsidiaries or any ERISA Affiliate (as defined below) has contributed or been required to contribute to any Multiemployer Plan (as defined in ERISA) with respect to any Employees. (c) No liability under Subtitle C or D of Title IV of ERISA has been incurred by the Company or any Subsidiary with respect to any ongoing, frozen or terminated Benefit Plan, currently or formerly maintained by any of them, or the Plan of any entity which is or has been considered one employer with the Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate") which would have a material adverse effect on the Retained Business taken as a whole. (d) All contributions required to be made or accrued as of June 30, 1996 under the terms of any Benefit Plan for which the Surviving Corporation or any of its Subsidiaries may have liability have been timely made or have been reflected on the Retained Business Balance sheet. Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has incurred an "accumulated funding deficiency" (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA in an amount which would have a material adverse effect on the Retained Business taken as a whole. Neither the Company nor any of its Subsidiaries has provided, or is required to provide, security to any Pension Plan pursuant to Section 401(a)(29) of the Code. (e) Neither the Company nor any of its Subsidiaries has any obligations for retiree health and life benefits for Employees or former Employees under any Benefit Plan, except as set forth in Section 3.9 of the Company Disclosure Schedule or as required by Part 6 of Title I of ERISA. (f) The Company and its Subsidiaries have no unfunded liabilities with respect to any Pension Plan which covers former Employees in an amount which would have a material adverse effect on the Retained Business taken as a whole. (g) Immediately after the Effective Time, the Surviving Corporation or its Subsidiaries could terminate each Benefit Plan in accordance with its terms without incurring any material liability. (h) With respect to the Company and the Retained Business, the transactions contemplated by this Agreement and the Distribution Agreement will not cause any additional payments to be due under any Benefit Plan, nor accelerate the payment or vesting of any amounts due under any Benefit Plan, nor result in any excess parachute payment within the meaning of Code Section 280G except for payments which are paid prior to the Effective Time, accrued on the Audited Closing Balance Sheet (as defined in Section 6.13) or for which funds have been reserved, or amounts due which are assumed by Newco pursuant to the Distribution Agreement. Section 3.10 Absence of Certain Changes or Events. Since June 30, 1996, the Company and its Subsidiaries have conducted the Retained Business only in the ordinary and usual course consistent with past practice, except as set forth in Section 3.10 of the Company 12 18 Disclosure Schedule, and there has not been any change or development, or combination of changes or developments which individually or in the aggregate have had or are reasonably likely to have a material adverse effect on the Retained Business taken as a whole. Section 3.11 No Violation of Law. Except as disclosed in the Company SEC Documents as filed prior to the date hereof or as set forth in Section 3.11 of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is in violation of, or, to the knowledge of the Company, is under investigation with respect to or has been given notice or been charged by any Governmental Entity with any violation of, any law, statute, order, rule, regulation or judgment of any Governmental Entity, except for violations which, in the aggregate, would not have a material adverse effect on the Retained Business taken as a whole. The Company and its Subsidiaries have all permits, licenses, franchises and other governmental authorizations, consents and approvals necessary to conduct the Retained Business as presently conducted, except for any such permits, licenses, franchises or other governmental authorizations, consents and approvals the failure of which to have would not have a material adverse effect on the Retained Business taken as a whole. Section 3.12 Taxes. (a) Except as disclosed in the Company Financial Statements for the year ended June 30, 1995 or as set forth in Section 3.12 of the Company Disclosure Schedule: (i) the Company and its Subsidiaries have (A) duly filed with the appropriate governmental authorities all Tax Returns (as hereinafter defined) required to be filed by them on or prior to the Effective Time, other than those Tax Returns the failure of which to file would not have a material adverse effect on the Retained Business taken as a whole, and such Tax Returns are true, correct and complete in all material respects, and (B) duly paid in full or made provision in accordance with generally accepted accounting principles for the payment of, and withheld, all Taxes (as hereinafter defined) required to be shown on such Tax Returns or required to be withheld by them, respectively; (ii) as of the date hereof, the Tax Returns for the Company and its Subsidiaries are not currently the subject of any audit, investigation or proceeding by the Service or, to the Company's knowledge, any state or local taxing authority, and the Company and its Subsidiaries have not received any written notice of deficiency or assessment from any taxing authority with respect to liabilities for material Taxes of the Company or its Subsidiaries which have not been paid or finally settled, other than audits, deficiencies or assessments disclosed in Section 3.12 of the Company Disclosure Schedule which are being contested in good faith through appropriate proceedings; (iii) no waiver of any statute of limitations in respect of Taxes or any extension of time with respect to a Tax assessment or deficiency granted by the Company or any of its Subsidiaries is currently in effect; 13 19 (iv) none of the Company and its Subsidiaries is a party to any Tax allocation or sharing agreement, other than the Tax Disaffiliation Agreement; and (v) none of the Company and its Subsidiaries has been a member of any affiliated group within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended, or any similar affiliated or consolidated group for tax purposes under state, local or foreign law (other than a group the common parent of which is the Company), or has any liability for the Taxes of any person (other than the Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6 or any similar provision of state, local or foreign law as a transferee or successor, by contract or otherwise. (b) "Taxes" means all taxes, charges, fees, levies, imposts, duties or other assessments, including, without limitation, income, gross receipts, excise, personal property, real property, sales, ad valorem, value-added, leasing, withholding, social security, occupation, use, service, service use, license, payroll, franchise, transfer and recording taxes, fees and charges, imposed by the United States or any state, local, or foreign governmental authority whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest, fines, penalties or additional amounts attributable or imposed on or with respect to any such taxes, charges, fees, levies, imposts, duties or other assessments. "Tax Return" means any return, report or other document or information required to be supplied to a taxing authority in connection with Taxes. Section 3.13 Environmental Matters. (a) Except as disclosed in the Company SEC Documents as filed prior to the date hereof or as set forth in Section 3.13 of the Company Disclosure Schedule, except for such matters that, individually or in the aggregate, would not have a material adverse effect on the Retained Business taken as a whole and except with respect to information concerning Triad, as to which the Company makes no representation or warranty for purposes of this Section 3.13, (i) the Retained Business of the Company and its Subsidiaries is in compliance in all material respects with all applicable Environmental Laws (as hereinafter defined); (ii) the properties included in the Retained Business and presently owned or operated by the Company or its Subsidiaries (the "Company Properties") do not contain any Hazardous Substance (as hereinafter defined) other than as permitted under applicable Environmental Laws; (iii) neither the Company nor any of its Subsidiaries has since July 1, 1994 received or is aware of any actual claims, notices, demand letters, lawsuits or requests for information from any Governmental Entity or any private third party alleging that the Retained Business is in violation of, or liable under, any Environmental Laws; and (iv) none of the Company, its Subsidiaries or the Company Properties is subject to any court order, administrative order or decree relating to the Retained Business arising under any Environmental Law. (b) "Environmental Law" means any applicable Federal, state or local law, regulation, permit, judgment or agreement with any Governmental Entity, relating to (x) the protection, preservation or restoration of the environment or to human health or safety, or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, 14 20 handling, labeling, production, release or disposal of Hazardous Substances. "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Law. Section 3.14 Material Contracts. Other than with respect to Triad, Section 3.14 of the Company Disclosure Schedule identifies any Contract included in the Retained Business to which the Company or any of its Subsidiaries is a party or by which any of its assets or operations may be bound that is (i) a loan or similar agreement or indebtedness evidenced by a note or other instrument, or any direct or indirect guarantee of indebtedness of any other person, in excess of $1,000,000; (ii) any Contract that expressly limits the right to terminate the Contract without penalty upon less than one year's notice and such Contract provides for future payments in excess of $5,000,000 within the next twelve (12) months from the date hereof; (iii) any Contract for the purchase, sale or transportation of natural gas; (iv) any Contract related to product purchases or product sales in excess of $500,000; and (v) any Contract related to capital expenditures, which provides for future payments in excess of $5,000,000 within the next twelve (12) months from the date hereof. Except as set forth in Section 3.14 of the Company Disclosure Schedule and except with respect to Triad, as to which the Company makes no representation or warranty for purposes of this Section 3.14, (i) each of the Contracts included in the Retained Business to which the Company or any of its Subsidiaries is a party or by which any of its assets or operations may be bound is in full force and effect, except where the failure to be in full force and effect would not have a material adverse effect on the Retained Business taken as a whole and (ii) there are no existing defaults by the Company or such Subsidiary thereunder which default would result in a material adverse effect on the Retained Business taken as a whole. Section 3.15 Rights Agreement. As of the Effective Time, the Company will have taken all necessary action to render the Company Rights inapplicable to the Merger, the Distribution and the other transactions contemplated hereby. Section 3.16 Brokers or Finders. Neither the Company nor any of its Subsidiaries has any liability to any agent, broker, investment banker, financial advisor or other firm or person for any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement except CS First Boston Corporation, whose fees and expenses, as previously disclosed to Parent, will be paid by the Company in accordance with the Company's agreement with such firm. Section 3.17 State Takeover Statutes. The provisions of the Mississippi Control Share Act and the Mississippi Shareholder Protection Act will not apply to the Merger, the Distribution or any of the other transactions contemplated hereby, and to the Company's knowledge, no other state takeover statute or similar statute or regulation applies to the Merger, the Distribution, or any of the other transactions contemplated hereby. Section 3.18 Opinion of Financial Advisor. The Company has received the opinion of CS First Boston Corporation to the effect that, as of the date of such opinion, the terms of the Distribution and Merger, taken together, are fair, from a financial point of view, to the holders of common stock of the Company. 15 21 Section 3.19 Title to Assets. The Company has title and/or rights sufficient to carry-on operations as contemplated by (the AMPRO Retrofit as defined in Section 6.15) or presently conducted to that portion of the real property (and the rights, privileges and appurtenances pertaining to such real property) included in the Retained Business on which the AMPRO ammonia plant and related operations are located, subject only to the following permitted exceptions: (i) all highway, roadway, railroad, utility, drainage, pipeline and other like easements, servitudes and rights of way which an inspection or survey of the property would show and which do not materially adversely affect use of the property as a fertilizer manufacturing facility and related operations, (ii) liens for ad valorem taxes not yet due and payable, (iii) easements, restrictions and encumbrances which do not materially adversely affect use of the property as a fertilizer manufacturing facility and related operations and (iv) all rights, title and interests of (x) Parent and (y) Triad. Except as otherwise set forth above, except with respect to any other real property included in the Retained Business, as to which the Company makes no representation or warranty for purposes of this Section 3.19 and except as set forth in Section 3.19 of the Company Disclosure Schedule, the Company owns all of the material assets included in the Retained Business free and clear of any liens, claims, security interests or encumbrances that, individually or in the aggregate, are reasonably likely to have a material adverse effect on the Retained Business taken as a whole. Section 3.20 Employees. Other than with respect to Triad, the Company has made available to Parent a list of the employees currently employed in the Retained Business indicating the positions which they now hold, their current rates of compensation and which employees, if any, are on short or long term disability, family and medical, military, workers' compensation, or any other type of leave of absence; and copies of all employee handbooks, and policy and procedure manuals. With respect to the Retained Business other than Triad, neither the Company nor any of its Subsidiaries is a party to, or is bound by, any collective bargaining agreement, contract, or other agreement or understanding with a labor union or labor organization, nor is the Company or any of its Subsidiaries the subject of any proceeding or organizing activity asserting that it or any such Subsidiary has committed an unfair labor practice or seeking to compel it or such Subsidiary to bargain with any labor organization as to wages and conditions of employment, nor is there any strike, labor dispute, slow down or stoppage involving the Company or any of its Subsidiaries pending or, to the knowledge of the Company, threatened that, individually or in the aggregate, are reasonably likely to have a material adverse effect on the Retained Business taken as a whole. Section 3.21 Insurance. Set forth in Section 3.21 of the Company Disclosure Schedule is a schedule of the insurance coverage (including policy limits, coverage layers, and named insureds) maintained by the Company on the assets, properties, premises, operations and personnel of the Company, including the Retained Business. 16 22 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub represent and warrant to the Company as follows: Section 4.1 Organization. Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted except where the failure to be so organized, existing and in good standing or to have such power and authority would not have a material adverse effect on Parent and its Subsidiaries taken as a whole. Parent and each of its Subsidiaries are duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by them or the nature of the business conducted by them makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not in the aggregate have a material adverse effect on Parent and its Subsidiaries taken as a whole or on the ability of Parent or Sub to consummate the transactions contemplated hereby. True, accurate and complete copies of Parent's and Sub's Articles of Incorporation and bylaws, including all amendments thereto, have heretofore been delivered to the Company. Section 4.2 Capitalization. As of the date hereof, the authorized capital stock of Parent consists of: (i) 100,000,000 shares of Parent Common Stock of which, as of June 30, 1996, 21,353,450 shares were issued and outstanding and 1,550,000 shares were held in treasury, and (ii) 500,000 shares of preferred stock, par value $0.01 per share, of which, as of the date hereof, no shares were issued and outstanding ("Parent Preferred Stock"). 250,000 shares of Parent Preferred Stock are designated Preferred Stock, Series A and are reserved for issuance in accordance with the Rights Agreement, dated as of August 8, 1994, by and between Parent and Harris Trust and Savings Bank, as Rights Agent, pursuant to which Parent has issued rights to purchase shares of Parent Preferred Stock. All the outstanding shares of Parent's capital stock are, and all shares of Parent Common Stock which are to be issued pursuant to the Merger will be when issued in accordance with the terms hereof, duly authorized, validly issued, fully paid and nonassessable and free of any preemptive rights in respect thereto. Except for Parent Common Stock issuable to directors, officers and employees pursuant to Parent stock option and other benefit plans and except for this Agreement, there are no existing options, warrants, calls, subscriptions or other rights or other agreements, commitments, understandings or restrictions of any character relating to the issued or unissued capital stock of Parent or any of its Subsidiaries. As of the date hereof, the authorized capital stock of Sub consists of 1,000 shares of Common Stock, par value $0.01 per share, all of which are validly issued, fully paid and nonassessable and are owned of record and beneficially by Parent. After June 30, 1996 and prior to the date hereof, no material number of shares of Parent Common Stock have been issued except issuances of shares reserved for issuance as described above. Section 4.3 Authority. Parent and Sub have the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions 17 23 contemplated hereby (other than, with respect to the Merger, the approval of the issuance of shares of Parent Common Stock to the Company's stockholders pursuant to this Agreement by an affirmative vote of the holders of at least a majority of the shares of Parent Common Stock present, in person or by proxy, and entitled to vote at the meeting of Parent's stockholders referred to in Section 6.3(b) for which a quorum exists). The execution, delivery and performance of this Agreement by each of Parent and Sub and the consummation by Sub of the Merger and by Parent and Sub of the other transactions contemplated hereby have been duly authorized by the Boards of Directors of Parent and Sub and Parent as the sole stockholder of Sub, and no other corporate proceedings on the part of Parent or Sub are necessary to authorize this Agreement or for Parent and Sub to consummate the transactions so contemplated (other than, with respect to the Merger, the approval of the issuance of shares of Parent Common Stock to the Company's stockholders pursuant to this Agreement by an affirmative vote of the holders of at least a majority of the shares of Parent Common Stock present, in person or by proxy, and entitled to vote at the meeting of Parent's stockholders referred to in Section 6.3(b) for which a quorum exists). This Agreement has been duly executed and delivered by each of Parent and Sub, and, assuming this Agreement constitutes a valid and binding obligation of the Company, constitutes a valid and binding obligation of each of Parent and Sub, enforceable against each of them in accordance with its terms. Section 4.4 Consents and Approvals; No Violations. Except (a) as set forth in Section 4.4 of the disclosure schedule delivered by Parent to the Company on or prior to the date hereof (the "Parent Disclosure Schedule"), (b) for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Securities Act, the Exchange Act, the HSR Act, the NYSE or the NASDAQ National Market, as the case may be, filings under state securities or "blue sky" laws, and the filing with the Secretary of State of the State of Mississippi of the Articles of Merger and (c) as may be necessary as a result of any facts or circumstances relating solely to the Company and its Subsidiaries, neither the execution, delivery or performance of this Agreement by Parent and Sub nor the consummation by Parent and Sub of the transactions contemplated hereby nor compliance by Parent and Sub with any of the provisions hereof will (i) conflict with or result in any breach of any provision of the respective charter or bylaws of Parent and Sub, (ii) require any filing by Parent or its Subsidiaries with, or permit, authorization, consent or approval to be obtained by Parent or its Subsidiaries of, any Governmental Entity, (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any Contract to which Parent or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, ordinance, rule or regulation applicable to Parent or any of its Subsidiaries, except, in the case of clause (ii), (iii) or (iv), for failures to file or obtain, violations, breaches or defaults which would not, individually or in the aggregate, have a material adverse effect on Parent or Sub or the ability of Parent or Sub to consummate the transactions contemplated hereby. Section 4.5 SEC Reports and Financial Statements. Each of Parent and its Subsidiaries has timely filed with the SEC and has heretofore made available to the Company true and complete copies of all periodic reports required to be filed by it since July 1, 1995 under 18 24 the Exchange Act (as such documents have been amended since the time of their filing, together with all such periodic reports to be filed from the date hereof to the Effective Time, collectively, the "Parent SEC Documents"). Except with respect to information concerning Triad, as to which Parent makes no representation or warranty for purposes of this Section 4.5, the Parent SEC Documents, including without limitation any financial statements or schedules included therein, at the time filed, (a) did not or will not, as the case may be, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (b) complied or will comply, as the case may be, in all material respects with the applicable requirements of the Exchange Act. Except with respect to information concerning Triad, as to which Parent makes no representation or warranty for purposes of this Section 4.5, the consolidated financial statements of Parent included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited financial statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited statements, to normal audit adjustments) the consolidated financial position of Parent and its consolidated Subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. Section 4.6 Information in Disclosure Documents and Registration Statements. Except with respect to information concerning Triad, as to which Parent makes no representation or warranty for purposes of this Section 4.6, none of the information supplied by Parent or Sub or their representatives for inclusion or incorporation by reference in (i) the S-4 will, at the time the S-4 becomes effective under the Securities Act and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) the Proxy Statement will, at the date mailed to each of the Company's and Parent's stockholders and at the time of each of the meetings of the Company's and Parent's stockholders to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The S-4 and the Proxy Statement will comply as to form in all material respects with the provisions of the Securities Act of 1933, as amended and the rules and regulations thereunder, except that no representation is made by Parent and Sub with respect to statements made therein based on information supplied by the Company for inclusion in the S-4 and the Proxy Statement, with respect to information concerning the Company incorporated by reference in the S-4 and the Proxy Statement or with respect to information concerning Triad. Section 4.7 Litigation. Except as disclosed in the Parent SEC Documents filed prior to the date of this Agreement and except with respect to information concerning Triad, as to which Parent makes no representation or warranty for purposes of this Section 4.7, there is no suit, action, proceeding or investigation pending or, to the knowledge of Parent, threatened, against Parent or any of its Subsidiaries before any Governmental Entity which, individually or 19 25 in the aggregate, might reasonably be expected to have a material adverse effect on Parent and its Subsidiaries taken as a whole or a material adverse effect on the ability of Parent or Sub to consummate the transactions contemplated by this Agreement. Except as disclosed in the Parent SEC Documents filed prior to the date of this Agreement, neither Parent nor any of its Subsidiaries is subject to any outstanding order, writ, injunction or decree which, individually or in the aggregate, might reasonably be expected to have a material adverse effect on Parent and its Subsidiaries taken as a whole or a material adverse effect on the ability of Parent or Sub to consummate the transactions contemplated hereby. Section 4.8 Absence of Certain Changes or Events. Since June 30, 1996, there has not been any change or development, or combination of changes or developments which individually or in the aggregate have had or are reasonably likely to have a material adverse effect on Parent and its Subsidiaries taken as a whole. Section 4.9 No Violation of Law. Except as disclosed in the Parent SEC Documents as filed prior to the date hereof or as set forth in Section 4.9 of the Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries is in violation of, or, to the knowledge of Parent, is under investigation with respect to or has been given notice or been charged by any Governmental Entity with any violation of, any law, statute, order, rule, regulation or judgment of any Governmental Entity, except for violations which, in the aggregate, do not have a material adverse effect on the Parent and its Subsidiaries taken as a whole. Parent and its Subsidiaries have all permits, licenses, franchises and other governmental authorizations, consents and approvals necessary to conduct their businesses as presently conducted, except for any such permits, licenses, franchises or other governmental authorizations, consents and approvals the failure of which to have would not have a material adverse effect on Parent and its Subsidiaries taken as a whole. Section 4.10 Environmental Matters. Except as disclosed in the Parent SEC Documents as filed prior to the date hereof or as set forth in Section 4.10 of the Parent Disclosure Schedule, except for such matters that, individually or in the aggregate, would not have a material adverse effect on Parent and its Subsidiaries taken as a whole and except with respect to information concerning Triad, as to which Parent makes no representation or warranty for purposes of this Section 4.10, (i) Parent and its Subsidiaries are in compliance in all material respects with all applicable Environmental Laws; (ii) the properties presently owned or operated by Parent or its Subsidiaries (the "Parent Properties") do not contain any Hazardous Substance other than as permitted under applicable Environmental Laws; (iii) neither Parent nor any of its Subsidiaries has, since July 1, 1994, received any actual claims, notices, demand letters, lawsuits or requests for information from any Governmental Entity or any private third party alleging that Parent is in violation of, or liable under, any Environmental Laws; and (iv) none of Parent, its Subsidiaries or the Parent Properties is subject to any court order, administrative order or decree arising under any Environmental Law. Section 4.11 Interim Operations of Sub. Sub was formed solely for the purpose of engaging in the transactions contemplated hereby, has engaged in no other business activities and has conducted its operations only as contemplated hereby. 20 26 Section 4.12 Unwanted Businesses. Parent is unwilling to consummate the Merger unless the Company has divested itself of all of the Company's assets and Newco has assumed all of the Company's liabilities, other than those relating to the Retained Business. Section 4.13 Purchases of Company Stock. Except as set forth in Section 4.13 of the Parent Disclosure Schedule, neither Parent nor any of its affiliates has acquired any shares of capital stock of the Company. Section 4.13 of Parent Disclosure Schedule sets forth the amount of Parent Common Stock repurchased by Parent in the last six (6) months pursuant to its stock repurchase program (the "Repurchase Program") or otherwise and the amount of repurchases authorized by Parent's Board of Directors. Section 4.14 Brokers or Finders. Neither Parent nor any of its Subsidiaries has any liability to any agent, broker, investment banker, financial advisor or other firm or person for any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement except Donaldson, Lufkin & Jenrette Securities Corporation, whose fees and expenses will be paid by Parent in accordance with the Parent's agreement with such firm. Section 4.15 Opinion of Financial Advisor. Parent has received the opinion of Donaldson, Lufkin & Jenrette Securities Corporation to the effect that the Merger Consideration Per Share is fair to Parent from a financial point of view. ARTICLE V COVENANTS PENDING THE EFFECTIVE TIME Section 5.1 Covenants of the Company with Respect to the Retained Business. During the period from the date of this Agreement and continuing until the Effective Time, the Company agrees as to itself and its Subsidiaries that except (i) for the Distribution and the other transactions, actions or events provided for in the Distribution Agreement, including the Employee Benefits Agreement, (ii) as contemplated or permitted by this Agreement, (iii) as set forth in Section 5.1 of the Company Disclosure Schedule or (iv) to the extent that Parent shall otherwise consent in writing (which consent will not be unreasonably withheld or delayed): (a) Ordinary Course. The Company and its Subsidiaries shall carry on the Retained Business in the usual, regular and ordinary course consistent with past practice and use all reasonable efforts to preserve intact the present business organization, keep available, consistent with past practice, the services of the present officers and employees and preserve the relationships with customers, suppliers and others having business dealings with the Retained Business, it being understood, however, that (i) certain employees of the Retained Business will also be engaged in activities for Newco and its Subsidiaries and certain officers of the Company will resign at the time of the Distribution and will serve as officers of Newco, and (ii) the failure of any employees of the Retained Business to remain employees of the Retained Business or become employees of Parent or any Subsidiary of Parent shall not constitute a breach of this 21 27 covenant. Without limiting the foregoing, except as set forth in Section 5.1 of the Company Disclosure Schedule and except for "like kind" replacements and repairs of equipment, the Company will not make or enter into any contracts, commitments or agreements obligating the Company to make any capital expenditures primarily relating to, or arising from, the Retained Business in excess of $1,000,000, in the aggregate. (b) Dividends; Changes in Stock. The Company shall not (i) declare or pay any dividends (including dividends in Company Common Stock) on or make other distributions in respect of any of its capital stock (including such a distribution or dividend made in connection with a recapitalization, reclassification, merger, consolidation, reorganization or similar transaction), except for regular quarterly cash dividends consistent with amounts currently paid and the Distribution, (ii) split (including a reverse stock split), combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (iii) repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any shares of capital stock of the Company or any of its Subsidiaries. (c) Issuance of Securities. The Company shall not, nor shall the Company permit any of its Subsidiaries included in the Retained Business to, issue, transfer or sell, or authorize or propose or agree to the issuance, transfer or sale of, any shares of its capital stock of any class, any other equity interests or any securities convertible into, or any rights, warrants, calls, subscriptions, options or other rights or agreements, commitments or understandings to acquire, any such shares, equity interests or convertible securities, other than (i) the issuance of shares of Company Common Stock, Company Preferred Stock and Company Convertible Debentures upon the exercise or conversion of stock options, debenture options, debentures or stock grants outstanding on the date of this Agreement pursuant to Company Stock Plans and in accordance with their present terms (or conversions of Company Preferred Stock issued upon the exercise of debenture options-outstanding on the date of this Agreement into Company Common Stock pursuant to the terms thereof), (ii) issuances by a wholly owned Subsidiary of its capital stock to its parent, (iii) the authorization and issuance of Company Series X Preferred Stock or Company Common Stock in connection with the Company Rights and reservation for issuance of shares of Company Series X Preferred Stock or Company Common Stock in connection with the Company Rights in addition to those presently reserved for issuance, and (iv) the granting of stock options, debenture options or stock grants to employees of the Company other than the Retained Employees (as defined in Section 6.7) and issuance of securities upon exercise of the foregoing. (d) Governing Documents. The Company shall not amend its Charter of Incorporation or bylaws in a manner adverse to Parent and Sub or otherwise inconsistent with the transactions contemplated hereby. (e) Indebtedness. The Company shall not, nor shall it permit any of its Subsidiaries to, incur (which shall not be deemed to include (i) entering into credit agreements, lines of credit or similar arrangements until borrowings are made under such arrangements or (ii) refinancings of existing indebtedness) any indebtedness for borrowed money or guarantee any 22 28 such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of the Company or any of its Subsidiaries or guarantee any obligations of others other than (v) in the ordinary course of business consistent with past practice, (w) pursuant to existing credit or guaranty agreements, (x) Company Convertible Debentures issuable upon exercise of debenture options, (y) indebtedness incurred solely by, or that will be assumed and become the obligation solely of Newco or any of its Subsidiaries at the Time of Distribution (as defined in the Distribution Agreement) or (z) the Financing (as defined in Section 6.14). (f) Changes to Benefit Plans. Except as would not increase the costs of the Retained Business and except for changes in response to any changes in applicable law, the Company shall not, nor shall it permit any of its Subsidiaries (other than Newco and its Subsidiaries) to, (i) enter into, adopt, amend (except as may be required by law and except for immaterial amendments) or terminate any Benefit Plan or any agreement, arrangement, plan or policy between the Company or any such Subsidiary and one or more of its directors, officers or Employees or (ii) except for normal increases in the ordinary course of business consistent with past practice and the payment of bonuses to employees in the aggregate not to exceed the amount set forth in Section 5.1 of the Company Disclosure Schedule, increase in any manner the compensation or fringe benefits of any director, officer or Employee or pay any benefit to any director, officer or Employee not required by any plan or arrangement as in effect as of the date hereof or enter into any contract, agreement, commitment or arrangement to do any of the foregoing; provided that the foregoing shall not prohibit the Company from hiring and paying new employees in the ordinary course of business consistent with past practice. (g) Filings. The Company shall promptly provide Parent (or its counsel) copies of all filings (other than those portions of filings under the HSR Act which Parent has no reasonable interest in obtaining in connection with the Merger) made by the Company with any Federal, state or foreign Governmental Entity in connection with this Agreement, the Distribution Agreement and the transactions contemplated hereby and thereby. (h) Accounting Policies and Procedures. The Company will not and will not permit any of its Subsidiaries to change any of its accounting principles, policies or procedures, except as may be required by generally accepted accounting principles. (i) Newco. The Company shall (i) abide and cause Newco to abide by their respective obligations under the Distribution Agreement, Tax Disaffiliation Agreement and Employee Benefits Agreement and (ii) not terminate or amend, or waive compliance with any obligations under, the Distribution Agreement, Tax Disaffiliation Agreement or Employee Benefits Agreement in any manner adverse to Parent and Sub. (j) Sale of Assets. The Company shall not sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of, any of the assets included in the Retained Business, except for dispositions of inventories and equipment in the ordinary course of the Retained Business and consistent with past practice. 23 29 (k) Retained Cash. After December 31, 1996, all net cash generated by the Retained Business after December 31, 1996 shall be retained by the Company. Section 5.2 Covenants of the Company. During the period from the date of this Agreement and continuing to the Effective Time, the Company agrees as to itself and its Subsidiaries that the Company shall not, and shall not permit any of its Subsidiaries to, take any action, including, without limitation, with respect to the terms of the Articles of Incorporation or bylaws of Newco, that would or is reasonably likely to result in any of the conditions to the Merger set forth in Article VII not being satisfied or that would materially impair the ability of the Company to consummate the Distribution in accordance with the terms of the Distribution Agreement or the Merger in accordance with the terms hereof or would materially delay such consummation. Section 5.3 Covenants of Parent. During the period from the date of this Agreement and continuing until the Effective Time, Parent agrees as to itself and its Subsidiaries that except (i) as contemplated or permitted by this Agreement, (ii) as set forth in Section 5.3 of the Parent Disclosure Schedule or (iii) to the extent that the Company shall otherwise consent in writing (which consent will not be unreasonably withheld or delayed): (a) Ordinary Course. Parent and its Subsidiaries shall carry on their businesses in the usual, regular and ordinary course consistent with past practice and use all reasonable efforts to preserve intact the present business organization, keep available, consistent with past practice, the services of the present officers and employees and preserve the relationships with customers, suppliers and others having business dealings with them. (b) Dividends; Changes in Stock. Parent shall not (i) declare or pay any dividends (including dividends in Parent Common Stock) on or make other distributions in respect of any of its capital stock (including such a distribution or dividend made in connection with a recapitalization, reclassification, merger, consolidation, reorganization or similar transaction), except for regular quarterly cash dividends, (ii) split (including a reverse split), combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (iii) repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any shares of capital stock of Parent or any of its Subsidiaries other than repurchases of Parent Common Stock pursuant to the Repurchase Program and made prior to the ten (10) trading days prior to the date of the first trading day used in calculating the Average Parent Price. (c) Issuance of Securities. Parent shall not, nor shall Parent permit any of its Subsidiaries to, issue, transfer or sell, or authorize or propose or agree to the issuance, transfer or sale of, any shares of its capital stock of any class, any other equity interests or any securities convertible into, or any rights, warrants, calls, subscriptions, options or other rights or agreements, commitments or understandings to acquire, any such shares, equity interests or convertible securities, other than (i) the issuance of shares of Parent Common Stock upon the exercise of stock options or stock grants pursuant to existing employee benefit plans, 24 30 (ii) issuances by a wholly owned Subsidiary of its capital stock to its parent, and (iii) the authorization and issuance of capital stock upon exercise of Parent's existing rights plan and reservation for issuance of shares of capital stock in addition to those presently reserved for issuance pursuant to Parent's existing rights plan. (d) Governing Documents. Parent shall not amend its Articles of Incorporation or bylaws in a manner adverse to the Company or otherwise inconsistent with the transactions contemplated hereby. (e) Indebtedness. Parent shall not, nor shall it permit any of its Subsidiaries to, incur (which shall not be deemed to include (i) entering into credit agreements, lines of credit or similar arrangements until borrowings are made under such arrangements or (ii) refinancings of existing indebtedness) any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of Parent or any of its Subsidiaries or guarantee any obligations of others other than (w) in the ordinary course of business consistent with past practice, (x) pursuant to existing credit or guaranty agreements, (y) the Financing (as defined in Section 6.14) or (z) additional indebtedness not to exceed $50,000,000 in the aggregate. (f) Filings. Parent shall promptly provide the Company (or its counsel) copies of all filings (other than those portions of filings under the HSR Act which the Company has no reasonable interest in obtaining in connection with the Merger) made by Parent with any Federal, state or foreign Governmental Entity in connection with this Agreement and the transactions contemplated hereby and thereby. (g) Accounting Policies and Procedures. Parent will not and will not permit any of its Subsidiaries to change any of its accounting principles, policies or procedures, except as may be required by generally accepted accounting principles. (h) Cooperation. Parent shall not take, nor permit Sub or any of its other Subsidiaries to take, any action that would or is reasonably likely to result in any of the conditions to the Merger set forth in Article VII not being satisfied or that would materially impair the ability of Parent or Sub to consummate the Merger in accordance with the terms hereof or materially delay such consummation, and Parent shall promptly advise the Company orally and in writing of any change in, or event with respect to, the business or operations of Parent having, or which, insofar as can reasonably be foreseen, could have, a material adverse effect on Parent and its Subsidiaries taken as a whole. ARTICLE VI ADDITIONAL AGREEMENTS Section 6.1 Reasonable Efforts. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under 25 31 applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement including, without limitation, (i) the prompt preparation and filing with the SEC of the S-4 and the Proxy Statement, (ii) such actions as may be required to have the S-4 declared effective under the Securities Act and to have the Proxy Statement cleared by the SEC, in each case as promptly as practicable, including by consulting with each other as to, and responding promptly to, any SEC comments with respect thereto, (iii) the prompt preparation and filing of all necessary documents under the HSR Act, (iv) such actions as may be required to have the applicable waiting period under the HSR Act expire or terminate as promptly as practicable, including by consulting with each other as to, and responding promptly to any comments or requests for information with respect thereto, (v) such actions as may be required to be taken under applicable state securities or "blue sky" laws in connection with the issuance of shares of Parent Common Stock contemplated hereby, and (vi) the distribution of the prospectus constituting a part of the S-4 and the Proxy Statement to stockholders of the Company. Each party shall promptly consult with the other and provide any necessary information with respect to all filings made by such party with any Governmental Entity in connection with this Agreement and the transactions contemplated hereby. Section 6.2 Access to Information. Upon reasonable notice, each of the Company and Parent shall (and shall cause its Subsidiaries to) afford to the officers, employees, accountants, counsel and other representatives of the other party, access, during normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments and records (with respect to the Company, to the extent relating to the Retained Business), and, during such period, each of the Company and Parent shall (and shall cause each of their respective Subsidiaries to) furnish promptly to the other (a) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal securities laws and (b) all other information concerning its business, properties and personnel (with respect to the Company, to the extent related to the Retained Business) as such other party may reasonably request. After the Effective Time, upon reasonable notice, Parent shall cause the Surviving Corporation and its Subsidiaries to afford to the officers, employees, accountants, counsel and other representatives of Newco access, during normal business hours, to the Surviving Corporation's and its Subsidiaries' books and records which Newco may reasonably request in order to complete tax filings or for other legitimate business purposes. Unless otherwise required by law, the parties will hold any information made available pursuant to this Section 6.2 which is nonpublic in confidence in accordance with the confidentiality agreement, dated August 9, 1996 (the "Confidentiality Agreement"), between Parent and the Company. Section 6.3 Stockholders Meetings. (a) The Company shall call a meeting of its stockholders to be held as promptly as practicable for the purpose of voting upon the approval and adoption of this Agreement. The Company will, through its Board of Directors, recommend to its stockholders approval and adoption of this Agreement and, if the Company determines such approval to be necessary or appropriate, the Distribution and shall use all reasonable efforts to hold such meeting as soon as practicable after the date hereof; provided, however, that the Board of 26 32 Directors of the Company may fail to make such a recommendation, or withdraw, modify or change any such recommendation if it determines after receiving the advice of outside counsel that making such recommendation, or that the failure to withdraw, modify or change its recommendation, would be inconsistent with its fiduciary duties under applicable law. (b) Parent shall call a meeting of its stockholders to be held as promptly as practicable for the purpose of voting upon the approval of the issuance of the shares of Parent Common Stock to the Company's stockholders pursuant to this Agreement. Parent will, through its Board of Directors, recommend to its stockholders such approval and shall use all reasonable efforts to hold such meeting as soon as practicable after the date hereof; provided, however, that the Board of Directors of Parent may fail to make such a recommendation, or withdraw, modify or change any such recommendation if it determines after receiving the advice of outside counsel that making such recommendation, or that the failure to withdraw, modify or change its recommendation, would be inconsistent with its fiduciary duties under applicable law. Section 6.4 Legal Conditions to Distribution and Merger. Each of the Company, Parent and Sub will use all reasonable efforts to comply promptly with all legal requirements which may be imposed on it or its respective Subsidiaries with respect to the Distribution and the Merger (which actions shall include, without limitation, furnishing all information required under the HSR Act and will promptly cooperate with and furnish information to each other in connection with any such requirements imposed upon any of them or any of their respective Subsidiaries in connection with the Distribution or the Merger). Subject to the terms and conditions hereof, each of the Company, Parent and Sub will, and will cause its Subsidiaries to, promptly use all reasonable efforts to obtain (and will consult and cooperate with each other in obtaining) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity or other public or private third party, required to be obtained or made by such party in connection with the Distribution or the Merger or the taking of any action contemplated thereby or by this Agreement or the Distribution Agreement. Section 6.5 Stock Exchange Listing. Parent shall use all reasonable efforts to cause the shares of Parent Common Stock to be issued in the Merger to be approved for listing on either the NYSE or the NASDAQ National Market System, depending on where the Parent Common Stock is listed as of the Effective Time, and any other securities exchange on which shares of Parent Common Stock may at such time be listed, subject to official notice of issuance, prior to the Closing Date. Section 6.6 Company Severance Obligations. Subject to the proviso in the following sentence, the Company will pay with the proceeds of the Financing (as defined in Section 6.14) or Newco will assume the transaction bonus and severance payments arising out of the transactions contemplated by this Agreement pursuant to any contract, agreement or arrangement of which the Company or any of its Subsidiaries is a party, including, without limitation, payments pursuant to the agreements listed in Section 6.6 of the Company Disclosure Schedule. In no event shall Parent, any of its Subsidiaries or the Surviving Corporation be responsible for any such payments, or be under any obligation to honor or assume any such obligations; provided, however, Parent and the Surviving Corporation shall assume and retain, with respect to 27 33 the Retained Employees (as defined in Section 6.7), any and all severance obligations that arise due to events or actions occurring after the Effective Time. Section 6.7 Employee Matters; Company Stock Plans. (a) The Company and Parent agree that Parent will, to the extent practicable, immediately after the Effective Time and for at least six (6) months thereafter, permit the operating personnel of the Retained Business and the other Company employees listed in Section 6.7 to the Parent Disclosure Schedule who will remain in the employ of the Surviving Corporation after the Effective Time (collectively, the "Retained Employees") (i) to participate in a group health plan of Parent, or one of its Subsidiaries that similarly situated employees of Parent participate, in accordance with the terms of the plan and, subject to the approval of its stop-loss carrier on reasonable terms and subject to applicable legal requirements, to waive any pre-existing condition clause or waiting period requirement in such group health plan and to give credit for deductible amounts paid by a Retained Employee during the current deductible year of such group health plan while employed by the Company; (ii) to participate in and receive credit under tax qualified retirement plans of Parent or any of its Subsidiaries that similarly situated employees of Parent participate, for which they are otherwise eligible, solely for eligibility and vesting purposes, for their service with the Company, to the extent permitted by applicable tax-qualification requirements; and (iii) to participate in other benefit plans of Parent which are offered to similarly situated employees. (b) Effective as of the Effective Time, each outstanding option to purchase shares of Company Common Stock or to purchase Company Convertible Debentures (a "Company Option") held by a Retained Employee under the Company Stock Plans whether vested or unvested, exercisable or unexercisable, shall be exchanged for an option (a "Parent Option") to purchase the number of shares of Parent Common Stock equal to the product of (1) the quotient of (x) the Average Company Stock Price, and (y) the Average Parent Stock Price (the "Conversion Ratio") and (2) the number of shares of Company Common Stock that the holder of such option would have been entitled to receive had such holder exercised such option in full and in the case of a Company Option exercisable for Company Convertible Debentures, converted such convertible debentures into Company Preferred Stock and then into Company Common Stock, (not taking into account whether or not such option or convertible debenture was in fact exercisable) (rounded to the nearest whole share) at an exercise price equal to the per share exercise price of such Company Options divided by the Conversion Ratio (rounded to the nearest cent), which Parent Option shall be subject to the same terms and conditions (including the vesting schedule) as the Company Option; provided, however, that the Parent Option shall be exercisable only for Parent Common Stock. The obligations of the Company with respect to such Parent Options shall be transferred to and assumed by Parent. For purposes of this Section 6.7(b), (i) "Average Parent Stock Price" shall mean the average of the closing prices of the Parent Common Stock on the New York Stock Exchange Composite Transactions Reporting System or the NASDAQ National Market System, as the case may be, as reported by The Wall Street Journal, for the 10 trading days immediately proceeding the trading day prior to the date that the Company Common Stock commences trading on an x-dividend basis with respect to the Distribution (the "Measuring Period") and (ii) "Average Company Stock Price" shall mean the 28 34 average of the closing prices of the Company Common Stock on the New York Stock Exchange Composite Transactions Reporting System, as reported by The Wall Street Journal, for the Measuring Period. (c) As soon as practicable after the Effective Time, Parent shall deliver to the Retained Employees having options exchanged pursuant to Section 6.7(b) above appropriate notices setting forth their rights pursuant thereto. (d) Parent shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Parent Common Stock for delivery under the options converted in accordance with this Section 6.7. As soon as practicable after the Effective Time, Parent shall file a registration statement on Form S-3 or Form S-8, as appropriate (or any successor or other appropriate forms), or another appropriate form with respect to the shares of Parent Common Stock subject to such options or, to the extent required by law or in accordance with past practice, awards and shall use its best efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options or awards remain outstanding. With respect to those individuals who subsequent to the Merger will be subject to the reporting requirements under Section 16(a) of the Exchange Act, where applicable, Parent shall administer the options exchanged pursuant to this Section 6.7 in a manner that complies with Rule 16b-3 promulgated under the Exchange Act to the extent the applicable options complied with such rule prior to the Merger. (e) Nothing in this Agreement shall be construed to require Parent or the Company to continue the employment of any Retained Employee for any period of time, or, except as required by Section 6.7(a) above, to offer any particular type or level of benefits to any employee. Nothing in this Agreement shall prevent Parent or the Company from disciplining or terminating any Retained Employee or from amending or terminating any benefit plans at any time. Section 6.8 Fees and Expenses. Subject to the Distribution Agreement, whether or not the Merger is consummated and except as otherwise provided herein, all fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses; provided, however, that Parent and the Company shall each pay one-half of the printing costs incurred with respect to the S-4 and the Proxy Statement. Section 6.9 Indemnification. (a) The Company shall, and from and after the Effective Time the Surviving Corporation shall, indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date of this Agreement or who becomes prior to the Effective Time, an officer, director or employee of the Company or any of its Subsidiaries (the "Indemnified Parties") against all losses, claims, damages, costs, expenses, liabilities or judgments, or amounts that are paid in settlement with the approval of the indemnifying party (which approval shall not be unreasonably withheld) of, or in connection with, any claim, action, suit, proceeding or 29 35 investigation to the extent related to, or to the extent arising from, the Retained Business and based in whole or in part on or arising in whole or in part out of the fact that such person is or was a director, officer or employee of the Company or any of its Subsidiaries, whether pertaining to any matter existing or occurring at or prior to the Effective Time and whether asserted or claimed prior to, or at or after, the Effective Time ("Indemnified Liabilities"), in each case to the full extent a corporation is permitted under the MBCA (notwithstanding the bylaws of the Company or the Surviving Corporation) to indemnify its own directors, officers and employees, as the case may be (and the Surviving Corporation will pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the full extent permitted by law upon receipt of any affirmation and undertaking contemplated by Section 8.53 of the MBCA). Without limiting the foregoing, in the event any such claim, action, suit, proceeding or investigation is brought against any Indemnified Party (whether arising before or after the Effective Time), (i) the Indemnified Parties may retain counsel satisfactory to them with the consent of the Company (or the consent of the Surviving Corporation after the Effective Time) which consent of the Company (or, after the Effective Time, the Surviving Corporation) with respect to such counsel retained by the Indemnified Parties may not be unreasonably withheld, (ii) the Company (or after the Effective Time, the Surviving Corporation) shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received, and (iii) the Company (or after the Effective Time, the Surviving Corporation) will use all reasonable efforts to assist in the vigorous defense of any such matter, provided that neither the Company nor the Surviving Corporation shall be liable for any settlement of any claim effected without its written consent, which consent, however, shall not be unreasonably withheld. Any Indemnified Party wishing to claim indemnification under this Section 6.9, upon learning of any such claim, action, suit, proceeding or investigation, shall notify the Company or the Surviving Corporation (but the failure so to notify shall not relieve the Company or the Surviving Corporation from any liability which it may have under this Section 6.9 except to the extent such failure materially prejudices such party), and shall deliver to the Company (or after the Effective Time, the Surviving Corporation) the affirmation and undertaking contemplated by Section 8.53 of the MBCA. The Indemnified Parties as a group may retain only one law firm to represent them with respect to each such matter unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more Indemnified Parties. (b) The provisions of this Section 6.9 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party, his or her heirs and representatives. Section 6.10 No Solicitations. The Company will immediately cease any existing discussions or negotiations conducted prior to the date hereof with respect to any merger, consolidation, business combination, sale of a significant amount of assets outside of the ordinary course of business, sale of shares of capital stock outside of the ordinary course of business, tender or exchange offer, spin-off, recapitalization or similar transaction involving the sale of the Company or any of its Subsidiaries or divisions but excluding those potential transactions set forth in Section 6.10 of the Company Disclosure Schedule (an "Acquisition Transaction"). The Company, its Subsidiaries and their respective directors and officers shall not, and its or its Subsidiaries' affiliates, representatives and agents shall not, directly or 30 36 indirectly, solicit any person, entity or group concerning any Acquisition Transaction (other than the transactions contemplated by this Agreement); provided that the Company may (i) furnish information or enter into negotiations to the extent the Company's Board of Directors determines after receiving the advice of outside counsel that the failure to do so would be inconsistent with its fiduciary duties under applicable law and prior to furnishing such information to, or entering into discussions or negotiations with such person, entity or group the Company (x) provides immediate written notice to Parent to the effect that it is furnishing information to, or entering into discussions or negotiations with, such person, entity or group, and (y) either enters into with such person, entity or group a confidentiality agreement in reasonable, customary form on terms not more favorable to such person, entity or group than the terms contained in the Confidentiality Agreement or releases Parent from the standstill provisions of the Confidentiality Agreement not applicable to such person; and (ii) recommend to its stockholders a bona fide transaction or combination of transactions that the Board of Directors determines after consulting with its legal and other advisors is more favorable, from a financial point of view, to the stockholders of the Company than the Distribution and the Merger (a "Higher Proposal"). The Company agrees not to release any third party from its obligations, or grant any consent, under any existing standstill provision relating to any Acquisition Transaction or otherwise under any confidentiality or other agreement without similarly releasing or granting a consent to Parent under the Confidentiality Agreement. Section 6.11 Distribution. Prior to the Closing, the Company will enter into the Distribution Agreement in the form attached hereto with such changes which are not adverse to Parent and Sub and cause Newco to enter into the Distribution Agreement and the Company will take all action necessary to effect the Distribution pursuant to the terms of the Distribution Agreement. Section 6.12 Tax-Free Nature of Transactions. Each party agrees to report the Transfer as a tax-free transaction under Section 332, 351 or 368(a) of the Code, the Distribution as a tax-free distribution under Section 355 of the Code and the Merger as a tax-free reorganization within the meaning of Section 368(a)(1)(B) of the Code on all Tax Returns and other filings, and take no position inconsistent therewith. The parties shall not, and shall not permit any of their respective Subsidiaries to, take or cause or permit to be taken, any action that would disqualify the Distribution as a tax-free distribution under Section 355 of the Code, disqualify the Transfer as a tax-free transaction under Section 332, 351 or 368(a) or disqualify the Merger as a reorganization within the meaning of Section 368(a)(1)(B) of the Code, excluding any action to be taken pursuant to this Agreement to effect the Merger. Section 6.13 Audited Closing Balance Sheet. No later than 45 days after the Effective Date, Newco shall deliver to Parent an audited consolidated balance sheet for the Retained Business at the earlier of the Effective Date or December 31, 1996 after giving effect to the Distribution (but not to the Financing (as defined in Section 6.14) or the Merger), which shall be audited by Newco's independent public accountants as in accordance with generally accepted auditing standards (the "Audited Closing Balance Sheet"). The Audited Closing Balance Sheet shall be prepared in accordance with generally accepted accounting principles on a basis consistent with the Company Financial Statements. To the extent that the net working capital 31 37 (current assets less current liabilities) of the Retained Business as shown on the Audited Closing Balance Sheet is more or less than the estimated net working capital as of the Effective Date certified pursuant to Section 6.14, the Company shall pay to Newco, or Newco shall pay to the Company, the amount of such excess or shortfall, respectively, in cash within five days of the delivery of the Audited Closing Balance Sheet. The Company agrees that representatives of Parent and Newco shall be given access to all work papers, books, records and other information related to the preparation of the Audited Closing Balance Sheet. In addition, the Company will authorize, and will use all reasonable efforts to provide Parent and Newco with access to all work papers of the Company's independent public accountants in connection with or relating to their audit of the Audited Closing Balance Sheet. Section 6.14 Financing. Parent will use its best efforts to assist the Company in arranging a customary bank facility for the Company that will be funded immediately prior to the Time of Distribution (as defined in the Distribution Agreement) (the "Financing"). The Financing will be in an aggregate amount equal to $150,000,000 plus (i) the product of (x) the lesser of (A) $2.00 and (B) the amount, if any, by which the Average Parent Price is less than $19.00 times (y) 6,904,762, plus (ii) the costs of obtaining the Financing (including, without limitation, any commitment or agent fees, reasonable attorney fees or other costs and expenses associated with the Financing), plus (iii) the product of (x) $56,575 times (y) the number of calendar days by which the Effective Date is after December 31, 1996, plus (iv) the net cash used by the Retained Business after December 31, 1996 through the Effective Date, minus (v) the unpaid balance as of the Effective Date of the AMPRO Retrofit due under the Kellogg Agreement (as defined in Section 6.15) (which unpaid balance as of July 31, 1996 is set forth in Section 6.15 of the Company Disclosure Schedule), plus or minus (vi) the amount by which the estimated net working capital of the Retained Business as of the earlier of the Effective Date or December 31, 1996 as certified by the chief financial officer of the Company is more or less, respectively, than $8,000,000. Without qualifying Parent's obligations pursuant to the last sentence of this Section 6.14, the Financing will be on terms that are acceptable to Parent. The parties agree that the proceeds of the Financing will be used to refinance in full all outstanding debt of the Retained Business (other than accounts payable incurred in the ordinary course of the Retained Business), as well as any and all transaction, severance and other costs payable by the Company in connection with the transactions contemplated by this Agreement. To the extent that the proceeds of the Financing are not fully applied as set forth above, any remaining proceeds may be contributed to Newco at the discretion of the Company. The Company shall be responsible for the costs of obtaining the Financing (including, without limitation, any commitment or agent fees, reasonable attorney fees or other costs and expenses associated with the Financing), although the parties recognize that Parent will incur costs related to the Financing in connection with satisfying itself as to the terms and conditions of the Financing. In the event that the Company's stockholders do not approve the Merger, the Distribution and the other transactions contemplated by this Agreement, the Company and Parent will reimburse each other for one-half of any costs incurred by them in connection with the Financing. In the event this Agreement is terminated for any other reason, Parent shall be responsible for and reimburse the Company for any costs reasonably incurred in connection with the Financing. In the event that the Company is unable to arrange a bank facility for the Financing, Parent will be responsible for arranging alternative funds from an independent, unrelated third party for the Financing. 32 38 Section 6.15 AMPRO Facility. The Company shall use all reasonable efforts to cause the capital improvements to the Company's AMPRO Facility currently in progress (the "AMPRO Retrofit") as set forth in that certain contract dated September 7, 1995 between the Company and M.W. Kellogg (the "Kellogg Agreement") to be completed (including plant shutdowns, tie-ins and resumption of operations) by December 31, 1996 (with performance testing to be completed after December 31, 1996) on the terms and conditions set forth in the Kellogg Agreement. Section 6.15 of the Company Disclosure Schedule sets forth the unpaid balance of the cost of completion of the AMPRO Retrofit as of July 31, 1996 under the Kellogg Agreement. If despite the Company's reasonable efforts, the AMPRO Retrofit is not mechanically complete and ready for tie-ins to be made during the time of turnaround scheduled for December 1, 1996 through December 15, 1996 then the turnaround shall be delayed until such time as the AMPRO Retrofit can be mechanically completed and made ready for tie-ins during the turnaround period. Section 6.16 Comfort Letters. (a) The Company shall use all reasonable efforts to cause KPMG Peat Marwick LLP, the Company's independent public accountants, to deliver a letter dated as of the date of the Proxy Statement, and addressed to itself and Parent and their respective Boards of Directors, in form and substance reasonably satisfactory to Parent, and customary in scope and substance for agreed-upon procedures letters delivered by independent public accountants in connection with registration statements and proxy statements similar to the S-4 and the Proxy Statement. (b) Parent shall use all reasonable efforts to cause Arthur Andersen & Co., the Parent's independent public accountants, to deliver a letter dated as of the date of the Proxy Statement, and addressed to itself and the Company and their respective Boards of Directors, in form and substance reasonably satisfactory to the Company, and customary in scope and substance for agreed-upon procedures letters delivered by independent public accountants in connection with registration statements and proxy statements similar to the S-4 and the Proxy Statement. ARTICLE VII CONDITIONS Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of the parties to effect the Merger are subject to the satisfaction, on or prior to the Closing Date, of the following conditions: (a) Stockholder Approvals. This Agreement shall have been approved and adopted by (i) the affirmative vote of the holders of at least a majority of the outstanding shares of Company Common Stock and (ii) the affirmative vote of the holders of at least a majority of 33 39 the shares of Parent Common Stock present, in person or by proxy, and entitled to vote at the meeting of stockholders of Parent referred to in Section 6.3(b) for which a quorum exists. (b) Stock Exchange Listing. The shares of Parent Common Stock issuable to the Company's stockholders pursuant to this Agreement shall have been authorized for listing on the NYSE or the NASDAQ National Market System, if Parent Common Stock has not been listed on the NYSE, upon official notice of issuance. (c) Other Approvals. Other than the filing of the Articles of Merger provided for by Section 1.2, all authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity or other public or private third party, the failure of which to obtain would have a material adverse effect on Parent and its Subsidiaries or the Surviving Corporation and its Subsidiaries, in each case taken as a whole, shall have been filed, occurred or been obtained. Parent shall have received all state securities or "blue sky" permits and other authorizations necessary to issue the Parent Common Stock pursuant to this Agreement. (d) Registration Statement. The S-4 shall have become effective under the Securities Act and shall not be the subject of any stop order or proceeding by the SEC seeking a stop order. (e) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger or the Distribution shall be in effect (each party agreeing to use all reasonable efforts to have any such order reversed or injunction lifted). (f) HSR Approval. Any applicable waiting period under the HSR Act shall have expired or been terminated. (g) Consummation of the Distribution. The Distribution shall have become effective in accordance with the Distribution Agreement. Section 7.2 Conditions of Obligations of Parent and Sub. The obligations of Parent and Sub to effect the Merger are subject to the satisfaction, on or prior to the Closing Date, of the following conditions unless waived by Parent and Sub: (a) Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct in all material respects as of the Closing Date as though made on and as of the Closing Date, except to the extent such representations and warranties speak as of an earlier date (in which case, such representations and warranties shall be true and correct in all material respects as of such earlier date) and except as otherwise contemplated by this Agreement, and Parent shall have received a certificate signed on behalf of the Company by the chief financial officer of the Company to such effect. 34 40 (b) Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement and the Distribution Agreement at or prior to the Closing Date, and Parent shall have received a certificate signed on behalf of the Company by the chief financial officer of the Company to such effect. (c) Opinion of Counsel. Parent shall have received the opinion of Skadden, Arps, Slate, Meagher & Flom or Baker, Donelson, Bearman & Caldwell substantially to the effect set forth in Section 7.2(c) of the Company Disclosure Schedule. (d) Opinion of Tax Counsel. Parent shall have received the opinion of Hughes & Luce, L.L.P. to the effect the Merger qualifies as a tax-free reorganization within the meaning of Section 368(a) of the Code. (e) Opinion of Counsel Regarding the Distribution. Parent shall have received the opinion of Skadden, Arps, Slate, Meagher & Flom to the effect that the Transfer qualifies as one or more tax-free transactions under one or more of Sections 332, 351, and 368(a)(1)(D) of the Code and that the Distribution qualifies as a tax-free distribution under Section 355 of the Code. (f) Indebtedness of the Retained Business. As of the Effective Time, the Retained Business shall have no outstanding Indebtedness, other than the Financing. The term "Indebtedness" shall mean any indebtedness for borrowed money, indebtedness evidenced by a note or other instrument, capitalized lease obligations, obligations for the deferred purchase price of assets or direct or indirect guarantees of any of the foregoing. (g) Company Options. At the Effective Time, all Company Options, other than Company Options held by Retained Employees, shall have been terminated or exchanged for Newco Options or shall have been fully assumed by Newco. Section 7.3 Conditions of Obligations of the Company. The obligation of the Company to effect the Merger is subject to the satisfaction of the following conditions, on or prior to the Closing Date, unless waived by the Company: (a) Representations and Warranties. The representations and warranties of Parent and Sub contained in this Agreement shall be true and correct in all material respects as of the Closing Date as though made on and as of the Closing Date, except to the extent such representations and warranties speak as of an earlier date (in which case, such representations and warranties shall be true and correct in all material respects as of such earlier date) and except as otherwise contemplated by this Agreement, and the Company shall have received a certificate signed on behalf of Parent and Sub by the chief financial officer of Parent and Sub, respectively, to such effect. (b) Performance of Obligations of Parent and Sub. Parent and Sub shall have performed in all material respects all obligations required to be performed by them under this 35 41 Agreement at or prior to the Closing Date, and the Company shall have received a certificate signed on behalf of Parent by the chief financial officer of Parent to such effect. (c) Opinion of Counsel. The Company shall have received the opinion of Hughes & Luce, L.L.P. substantially to the effect set forth in Section 7.3 of the Parent Disclosure Schedule. In giving such opinion, Hughes & Luce, L.L.P. may rely as to matters of Mississippi law on opinions of local counsel reasonably satisfactory to the Company. (d) Opinion of Tax Counsel. The Company shall have received an opinion of Skadden, Arps, Slate, Meagher & Flom to the effect that the Merger qualifies as a tax-free reorganization within the meaning of Section 368(a) of the Code, that the Transfer qualifies as one or more tax-free transactions under one or more of Sections 332, 351, and 368(a)(1)(D) of the Code and that the Distribution qualifies as a tax-free distribution under Section 355 of the Code. (e) Financing. The Financing shall have been obtained by the Company; the Financing shall have been funded; and the proceeds of the Financing shall have been applied pursuant to Section 6.14 and the Distribution Agreement. ARTICLE VIII TERMINATION AND AMENDMENT Section 8.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the Merger and this Agreement by the stockholders of the Company: (a) by mutual consent of Parent and the Company; (b) by either Parent or the Company if the Merger shall not have been consummated before March 31, 1997 (unless the failure to so consummate the Merger by such date shall be due to the action or failure to act of the party seeking to terminate this Agreement); (c) by either Parent or the Company if the Average Parent Price is less than $17.00; (d) by Parent, upon a material breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement, or if any representation or warranty of the Company shall have become untrue in any material respect, in either case such that the conditions set forth in Section 7.2(a) or Section 7.2(b) of this Agreement, as the case may be, would be incapable of being satisfied by March 31, 1997; provided, that in any case, a willful breach shall be deemed to cause such conditions to be incapable of being satisfied for purposes of this Section 8.1(c) if such willful breach shall not 36 42 have been remedied within ten (10) days after receipt by the Company of written notice from Parent specifying the nature of such willful breach and requesting that it be remedied; (e) by the Company, upon a material breach of any representation, warranty, covenant or agreement on the part of Parent set forth in this Agreement, or if any representation or warranty of Parent shall have become untrue in any material respect, in either case such that the conditions set forth in Section 7.3(a) or Section 7.3(b) of this Agreement, as the case may be, would be incapable of being satisfied by March 31, 1997; or provided, that in any case, a willful breach shall be deemed to cause such conditions to be incapable of being satisfied for purposes of this Section 8.1(d) if such willful breach shall not have been remedied within ten (10) days after receipt by Parent of written notice from the Company, specifying the nature of such willful breach and requesting that it be remedied; (f) by Parent if (i) the Company's stockholders do not approve the Merger and this Agreement at the meeting required under Section 6.3(a) hereof, (ii) Parent's stockholders do not approve the issuance of the shares of Parent Common Stock to the Company's stockholders pursuant to this Agreement at the meeting required under Section 6.3(b) or (iii) the Company withdraws, amends or modifies in a manner adverse to Parent its favorable recommendation of the Merger; or (g) by the Company if (i) the Company's stockholders do not approve the Merger and this Agreement at the meeting required under Section 6.3(a) hereof, (ii) Parent's stockholders do not approve the issuance of the shares of Parent Common Stock to the Company's stockholders pursuant to this Agreement at the meeting required under Section 6.3(b), (iii) the Company has received a proposal for an Acquisition Transaction that it advises Parent in writing the Company wishes to accept or (iv) the Financing has not been arranged by December 31, 1996. Section 8.2 Effect of Termination. In the event of a termination of this Agreement by either the Company or Parent as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Parent, Sub or the Company or their affiliates or respective officers or directors, other than the provisions of Section 8.3; provided, however, that any such termination shall not relieve any party from liability for willful breach of this Agreement (including, without limitation, a willful breach of Section 6.14 by Parent) or from its obligations under the Confidentiality Agreement. Section 8.3 Termination Fee. If (a)(i) Parent terminates this Agreement pursuant to Section 8.1(f)(iii) or (ii) the Company terminates this Agreement pursuant to 8.1(g)(iii) and (b) within one year after such termination, the Company enters into an agreement, letter of intent or binding arrangement with respect to an Acquisition Transaction or an Acquisition Transaction occurs (provided, however, that in the case of an Acquisition Transaction involving only Newco or any of its Subsidiaries (a "Newco Acquisition Transaction"), payment hereunder will be due only if the Company began discussions or negotiations, received a proposal or indication of interest or entered into an agreement, letter of intent or binding arrangement with respect to such Newco Acquisition Transaction prior to the termination of this Agreement), the Company will 37 43 pay to Parent within one business day following the execution and delivery of such agreement or letter of intent or the entering into of such an arrangement or the occurrence of such Acquisition Transaction, as the case may be, a fee, in cash, of $8,000,000; provided, however, that the Company in no event will be obligated to pay more than one such $8,000,000 fee with respect to all such agreements and occurrences and such termination and such fee shall be the exclusive remedy of Parent for the transactions contemplated hereby upon termination of this Agreement pursuant to Section 8.1(f)(iii) or Section 8.1(g)(iii) and shall be deemed inclusive of expenses incurred by Parent. Upon the payment of the $8,000,000 to Parent in accordance with this Section 8.3, the Company shall have no further liability with respect to the transactions contemplated hereby. Section 8.4 Amendment. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the Merger by the stockholders of the Company or of Parent; provided that (i) after any such approval, no amendment shall be made which by law requires further approval by such stockholders without such further approval and (ii) after the Effective Time, this Agreement may be amended only with the written consent of Newco. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 8.5 Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by the respective Boards of Directors, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions contained here. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. ARTICLE IX MISCELLANEOUS Section 9.1 Nonsurvival of Representations and Warranties. None of the representations or warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This Section 9.1 shall not limit any covenant or agreement of the parties set forth in this Agreement or in any instrument delivered pursuant to the terms hereof. Section 9.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given on the date delivered if delivered personally (including by reputable overnight courier), on the date transmitted if sent by facsimile (which is confirmed) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): 38 44 (a) if to Parent or Sub, to Mississippi Chemical Corporation Owen Cooper Administration Building Highway 49 East Yazoo City, Mississippi 39194 Attn: Robert E. Jones Facsimile: (601) 751-2912 Confirmation: (601) 751-2930 with a copy to Hughes & Luce, L.L.P. 1717 Main Street, Suite 2800 Dallas, Texas 75201 Attn: Alan J. Bogdanow Facsimile: (214) 939-6100 Confirmation: (214) 939-5500 and (b) if to the Company, to First Mississippi Corporation 700 North Street Jackson, Mississippi 39215-1249 Attn: Michael Summerford Facsimile: 601) 948-7550 Confirmation: (601) 949-9876 with a copy to Skadden, Arps, Slate, Meagher & Flom 333 West Wacker Drive Chicago, Illinois 60606 Attn: Charles W. Mulaney, Jr. Facsimile: (312) 407-0411 Confirmation: (312) 407-0700 Section 9.3 Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be 39 45 followed by the words "without limitation." The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. The phrases "the date of this Agreement," "the date hereof" and terms of similar import, unless the context otherwise requires, shall be deemed to refer to August 27, 1996. Section 9.4 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when a counterpart has been signed by each of the parties and delivered to each of the other parties, it being under stood that all parties need not sign the same counterpart. Section 9.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement (including the documents and the instruments referred to herein, including the Distribution Agreement) and the Confidentiality Agreement (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof, and (b) except as provided in Section 6.9, are not intended to confer upon any person other than the parties hereto and thereto any rights or remedies hereunder or thereunder; provided that after the Effective Time, Newco may enforce the obligations of Parent, Sub or the Company under this Agreement. Section 9.6 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Mississippi without regard to any applicable conflicts-of-law principles. Section 9.7 Specific Performance. The parties hereto agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy at law would exist and damages would be difficult to determine, and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. Section 9.8 Publicity. Except as otherwise required by law or the rules of the NYSE or the NASDAQ National Market System, for so long as this Agreement is in effect and then with as much advance notice to the other party as is practicable under the circumstances, neither the Company nor Parent shall, or shall permit any of its Subsidiaries to, issue or cause the publication of any press release or other public announcement with respect to the transactions contemplated by this Agreement without the consent of the other party, which consent shall not be unreasonably withheld or delayed. Section 9.9 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, except that Sub may assign, in its sole discretion, any or all of its rights hereunder to any direct or indirect wholly owned Subsidiary of Parent, and after the Effective Time, Newco shall be entitled to enforce the obligations of Parent, Sub and the Company pursuant to this Agreement (including the documents and instruments referred to herein) and the Confidentiality Agreement. Subject to the 40 46 preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Section 9.10 Attorney-Client Privilege; Work Product. Anything herein or in the Distribution Agreement notwithstanding, except with respect to matters addressed in the opinion referred to in Section 7.3(d) hereof, the transactions contemplated hereby and by the Distribution Agreement shall not be deemed to transfer to Parent, Sub or the Surviving Corporation any right to waive, nor shall they be deemed to waive, any attorney-client privilege between the Company, the present officers and directors of the Company or Newco and their legal counsel with respect to legal advice concerning the transactions contemplated hereby and by the Distribution Agreement, in either case concerning privileged communications (or work product related thereto) at any time prior to the Closing Date. Parent, Sub and the Surviving Corporation and their successors and assigns shall not be entitled to waive or have access, nor shall they attempt to waive or seek access, to any privileged communication (or work product related thereto) between the Company, the present officers and directors of the Company or Newco and their legal counsel relating to the Merger or the Distribution or matters relating to Newco, its subsidiaries and their respective businesses. Section 9.11 Other. Except as otherwise provided for herein and the other agreements to be entered into in connection herewith as to which Parent and the Company agree that neither of them has a cause of action against the other for violation of the parties rights with respect to Triad, it is expressly understood and agreed that this Agreement and any other agreement to be entered into in connection herewith shall not affect in any way and shall be without prejudice to and with full reservation of Parent's and the Company's rights with respect to Triad. Nothing in this Agreement or any other agreement to be entered into in connection herewith shall constitute an acknowledgment by either Parent or the Company of the existence and enforceability of any such rights. Section 9.12 Further Assurances. Subject to the terms and conditions hereof and, as applicable, of the Distribution Agreement, the Company and Parent will, and will cause their respective Subsidiaries to, do such additional things as are necessary or proper to carry out and effectuate the intent of this Agreement or any part hereof or the transactions contemplated hereby, including, without limitation, the providing of reasonable transition assistance services by Newco at cost to the Surviving Corporation for a period not to exceed one year after the Effective Time. 41 47 IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement and Plan of Merger and Reorganization to be signed by their respective officers thereunto duly authorized as of the date first written above. MISSISSIPPI CHEMICAL CORPORATION By: /s/ Robert E. Jones -------------------------------- Name: Robert E. Jones Title: Senior Vice President and General Counsel MISS SUB, INC. By: /s/ Robert E. Jones -------------------------------- Name: Robert E. Jones Title: Vice President FIRST MISSISSIPPI CORPORATION By: /s/ R. Michael Summerford -------------------------------- Name: R. Michael Summerford Title: Vice President and Chief Financial Officer 42 EX-10.14 3 FORM OF SEVERANCE AGREEMENT 1 EXHIBIT 10.14 SEVERANCE AGREEMENT AGREEMENT made and effective as of the 29th day of July, 1996, by and between MISSISSIPPI CHEMICAL CORPORATION (the "Company") and ______________________ (the "Executive"). The Company has determined that the Executive's performance, the Company's ability to retain Executive as an employee, and the Executive's impartial assistance to the Company's Board of Directors in the evaluation of any potential mergers, acquisitions, sales or similar transactions will be significantly enhanced if Executive is provided with fair and reasonable protection from the risks of a termination of employment following a Change in Control of the Company. Accordingly, the Company and Executive agree as follows: 1. Defined Terms. Unless otherwise indicated, capitalized terms used in this Agreement shall have the meanings set forth herein or in Schedule A. 2. Effective Date; Term. This Agreement shall be effective on the date hereof and shall remain in effect until the Company terminates this Agreement by giving Executive at least one (1) year advance written notice of termination. Notwithstanding the foregoing, this Agreement shall, if in effect on the date of a Change of Control, remain in effect for at least three (3) years following such Change of Control, and such additional time as may be necessary to give effect to the terms of the Agreement. 3. Change-of-Control Benefits. Subject to Sections 5 and 8 below, if Executive's employment with the Company is terminated (i) at any time within the three (3) years following a Change of Control by the Company without Cause, (ii) by Executive for any reason within ninety (90) days following any Change of Control, or (iii) at any time within three (3) years following a Change in Control by Executive for Good Reason (the effective date of any such termination hereafter referred to as the "Termination Date"), Executive shall be entitled to the benefits provided hereunder. If Executive's employment by the Company is terminated prior to a Change of Control at the request of any party acquiring control of the Company or in contemplation of a Change of Control, Executive's Termination Date shall be deemed to have occurred immediately following the Change of Control, and the Executive shall be entitled to the benefits provided herein. (a) Severance Payments. Subject to Sections 5 and 8 below, within two (2) business days after the Termination Date, Company shall pay Executive a lump sum amount, equal to: (i) three (3) times Executive's per annum base salary in effect on the date of the Change of Control or the Termination Date, whichever is higher ("Base Salary"); (ii) Executive's Target Bonus for the current fiscal year multiplied by a fraction, the numerator of which shall be the number of days Executive was employed by the Company in the fiscal year in which the Termination Date occurs and the denominator of which shall be 365, and (iii) Thirty-six (36) months of premiums (determined by the Company in accordance with its Consolidated Omnibus Budget Reconciliation Act ("COBRA") continuation procedures) under the Company's group medical and dental plans at the highest level provided to 1 2 Executive during the period beginning immediately prior to the Change of Control and ending on the Termination Date. (b) Continued Benefits. Until the earlier of the third anniversary of the Termination Date or the date on which Executive becomes covered under another group health plan with no preexisting condition exclusion, Company shall allow Executive and his/her spouse and dependents to purchase medical and/or dental coverage under Company's group health plan's and dental COBRA continuation coverage procedures (without regard to whether the Executive and his/her spouse and dependents would be entitled to such continuation coverage for such period of time by law or under the plan). Provided, however, that if Executive becomes employed by a new employer which maintains a major medical plan (or dental plan) that either (i) does not cover Executive with respect to a preexisting condition which was covered under the Company's major medical plan, or (ii) does not cover Executive for a designated waiting period, Executive's coverage under the Company's major medical plan (or dental plan) shall continue (but shall be limited in the event of noncoverage due to a preexisting condition, to the preexisting condition itself) until the earlier of the end of the applicable period of noncoverage under the new employer's plan or the third anniversary of the Termination Date. Until July 28, 2006, the Company, at its own expense, shall provide Executive with life insurance, disability and accidental death and dismemberment benefits at the highest level provided to Executive during the period beginning immediately prior to the Change of Control and ending on the Termination Date. (c) Payment of Accrued But Unpaid Amounts. Within two (2) business days after the Termination Date, Company shall pay Executive any unpaid portion of compensation previously earned by Executive. (d) Effect of Existing Plans. All Change-of-Control provisions applicable to Executive and contained in any plan, program, agreement or arrangement maintained on or after the date hereof by the Company (including, but not limited to, the Company's Supplemental Benefit Plan and any stock option, restricted stock or pension plan) shall remain in effect for such period after the date of a Change of Control as is necessary to carry out such provisions and provide the benefits payable thereunder, and may not be altered in a manner which adversely affects Executive without Executive's prior written approval. No benefits shall be paid to Executive, however, under any severance plan maintained generally for the employees of the Company if Executive is eligible to receive benefits under this Section 3. (e) Outplacement Counseling. The Company shall reimburse all reasonable expenses incurred by Executive for professional outplacement services by qualified consultants selected by Executive. 4. Mitigation. Executive shall not be required to seek other employment after termination and any compensation earned from other employment shall not reduce the amounts otherwise payable under this Agreement. 5. Limitation on Payments. (a) Notwithstanding Section 3 above or any other provision of this Agreement or any other agreement, arrangement or plan, in no event shall the Company pay or be obligated to pay the Executive an amount which would be an Excess Parachute Payment except as provided in Section 5(f) below. For purposes of this Agreement, the term "Excess Parachute Payment" shall mean any payment or any portion thereof which would be an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended ("Code"), and would result in the imposition of an excise tax under Section 4999 of the Code, in the opinion of tax counsel selected by the Company, which counsel is reasonably acceptable to the Executive ("Tax Counsel"). In the event it is determined that an Excess Parachute Payment would result if the full payments provided in Section 3 above were made (when added to any other payments or benefits contingent on a change of control under any other agreement, 2 3 arrangement or plan), the payments due under Section 3(a) shall be reduced to the minimum extent necessary to prevent an Excess Parachute Payment; then, if necessary to prevent an Excess Parachute Payment, benefits or payments under any other plan, agreement or arrangement shall be reduced, and then benefits payable under Section 3(b). If it is established pursuant to a final determination of a court or an Internal Revenue Service administrative appeals proceeding that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Section 5(a), a payment (or portion thereof) made is an Excess Parachute Payment, then, the Company shall pay to the Executive an additional amount in cash (a "Gross-Up Payment") equal to the amount necessary to cause the amount of the aggregate after-tax compensation and benefits received by the Executive hereunder (after payment of the excise tax under Section 4999 of the Code with respect to any Excess Parachute Payment, and any state and federal income taxes with respect to the Gross-Up Payment) to be equal to the aggregate after-tax compensation and benefits he would have received as if Sections 280G and 4999 of the Code had not been enacted. (b) Subject to the provisions of Section 5(c), the amount of any Gross-Up Payment and the assumptions to be utilized in arriving at such amount, shall be determined by a nationally recognized certified public accounting firm designated by the Company (the "Accounting Firm"). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to Section 5(a), shall be paid by the Company to the Executive within five (5) days after the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and Executive. (c) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by Company of a Gross-Up Payment. Such notification shall be given no later than ten (10) business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of the claim and the date of requested payment. Executive shall not pay the claim prior to the expiration of the thirty (30) day period following the date on which it gives notice to the Company. If the Company notifies Executive in writing prior to the expiration of the period that it desires to contest such claim, Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney selected by the Company and reasonably acceptable to Executive; (iii) cooperate with the Company in good faith in order to effectively contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim. Without limitation on the foregoing provisions of this Section 5(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administration tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of the contest; provided, further, that if the Company directs Executive to pay any claim and sue for a refund, the Company shall advance the amount of the payment to Executive, on an interest-free basis, and shall 3 4 indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to the advance or with respect to any imputed income with respect to the advance. (d) In the event that the Company exhausts its remedies pursuant to Section 5(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Gross-Up Payment required and such payment shall be promptly paid by the Company to or for the benefit of Executive. (e) If, after the receipt of Executive of an amount advanced by the Company pursuant to Section 5(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall promptly after receiving such refund pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 5(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (f) Notwithstanding the foregoing, the limitation set forth in Section 5(a) shall not apply to a Participant if in the opinion of Tax Counsel or the Accounting Firm (i) the total amounts payable to the Participant hereunder and under any other agreement, arrangement or plan as a result of a change of control (calculated without regard to the limitation of Section 5(a)), reduced by the amount of excise tax imposed on the Executive under Code Section 4999 with respect to all such amounts and reduced by the state and federal income taxes on amounts paid in excess of the limitation set forth in Section 5(a), would exceed (ii) such total amounts payable after application of the limitation of Section 5(a). No Gross-Up Payment shall be made in such case. 6. Termination for Cause. Nothing in this Agreement shall be construed to prevent the Company from terminating Executive's employment for Cause. If Executive is terminated for Cause, Company shall have no obligation to make any payments under this Agreement, except for payments that may otherwise be payable under then-existing employee benefit plans, programs and arrangements of the Company. 7. Indemnification; Director's and Officer's Liability Insurance. Executive shall, after the Termination Date, retain all rights to indemnification under applicable law, under the terms of any other written plan or agreement, or under the Company's Articles of Incorporation or Bylaws, as they may be amended or restated from time to time. In addition, the Company shall maintain continuing directors' and officers' liability coverage (tail coverage) for Executives who have served as directors and officers prior to the Termination Date, with respect to acts or failures to act prior to the Termination Date, at the level in effect immediately prior to the Termination Date for a three (3) year period following the Termination Date or until expiration of applicable limitations periods, if later. 8. Executive Covenants. (a) Confidential Information. During the twelve (12) month period following the Termination Date, Executive shall not disclose to any person, or use to the significant disadvantage of any of the Company or its subsidiaries (hereinafter collectively the "Company" for purposes of this Section 8), any nonpublic information relating to business plans, marketing plans, customers or employees of the Company other than information the disclosure of which cannot reasonably be expected to adversely affect the business of the Company ("Confidential Information"), provided, that nothing contained in this Section 4 5 8 shall prevent Executive from being employed by a competitor of the Company or utilizing Executive's general skills, experience, and knowledge, including those developed while employed by the Company. (b) Release. In consideration for the protection and benefits provided for under this Agreement, Executive hereby agrees to execute a release substantially in the form of Schedule B. Payment of a portion of the benefits under Section 3(a) (after any reduction in benefits under Section 5) equal to two times Executive's Base Salary is expressly conditioned on Executive's execution of such release. In the event the Executive fails or refuses to execute such release, the amount payable to the Executive under Section 3(a) shall be reduced (after any reduction in benefits under Section 5) by an amount equal to two times the Executive's Base Salary. 9. Disputes. Any disputes or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Jackson, Mississippi, or, at the option of Executive, in the county where Executive then resides, in accordance with the Rules of the American Arbitration Association then in effect. Judgment may be entered on an arbitrator's award relating to this Agreement in any court having jurisdiction. 10. Costs of Proceedings. The Company shall pay all costs and expenses, including reasonable attorneys' fees and disbursements, at least monthly, of Executive in connection with any arbitration or legal proceeding related hereto, whether or not instituted by the Company or Executive, relating to the interpretation or enforcement of any provision of this Agreement, except that if Executive instituted the proceeding and the judge, arbitrator or other individual presiding over the proceeding affirmatively finds that Executive instituted the proceeding in bad faith, Executive shall pay all costs and expenses, including attorneys' fees and disbursements, of Executive. 11. Assignment. Except as otherwise provided herein, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and Executive and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Executive, 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. The provisions of this Section 11 shall continue to apply to each successive employer of Executive hereunder in the event of any merger, consolidation or transfer of assets of a successor employer. 12. Withholding. Notwithstanding the provisions of Sections 4 and 5 hereof, Company may, to the extent required by law, withhold applicable federal, state and local income and other taxes from any payments due to Executive hereunder. 13. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Mississippi applicable to contracts made and to be performed therein. 5 6 14. Entire Agreement. This Agreement constitutes the entire agreement between the parties and, except as expressly provided herein, supersedes all other prior agreements concerning the effect of a Change of Control on the relationship between the Company and Executive. This Agreement may be changed only by a written agreement executed by the Company and Executive. * * The parties have executed this Agreement as of the 29th day of July, 1996. MISSISSIPPI CHEMICAL CORPORATION By: ------------------------------------- Chairman, Compensation Committee --------------------------------------- ("Executive") 6 7 SCHEDULE A CERTAIN DEFINITIONS As used in this Agreement, and unless the context requires a different meaning, the following terms, when capitalized, have the meaning indicated: "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The termination of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good-faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above and specifying the particulars thereof in detail. "Change of Control" shall mean the first to occur of any of the following dates: (1) (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's common stock would be converted into cash, securities or other property, other than any consolidation or merger of the Company in which the holders of the Company's common stock immediately prior to the consolidation or merger own at least sixty percent (60%) of the outstanding voting securities of the surviving corporation immediately after the consolidation or merger; (B) any sale, or other transfer of all, or substantially all, of the assets of the Company, other than any sale, lease, or other transfer to any corporation where the Company or the holders of the Company's common stock immediately prior to such, lease or other transfer owns, directly or indirectly, at least eighty percent (80%) of the outstanding voting securities of the corporation after the transfer; or (C) the Company's Board of Directors votes to approve any plan or proposal for the liquidation or dissolution of the Company. (2) the date any person (as such term as used in Section 13(d) of the Securities Exchange Act of 1934, hereinafter the "1934 Act"), other than one or more trusts established by the Company for the A-1 8 benefit of employees of the Company or its subsidiaries, shall become the beneficial owner (within the meaning of Rule 13d-3 under the 1934 Act) of twenty-five percent (25%) or more of the Company's outstanding common stock; or (3) the date, during any period of twenty-four (24) consecutive months, on which individuals who at the beginning of such period constitute the entire Board of Directors of the Company shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company's stockholders, of each new director comprising the majority was approved by a vote of at least a majority of the Continuing Directors in office on the date of such election or nomination for election of the new director. For purposes hereof, a "Continuing Director" shall mean: (A) any member of the Board of Directors at the close of business on July 17, 1996; (B) any member of the Board who succeeds any Continuing Director described in subparagraph (A) above if such successor was elected, or nominated for election by the Company's stockholders, by a majority of the Continuing Directors then still in office; or (C) any director elected, or nominated for election by the Company's stockholders to fill any vacancy or newly created directorship on the Board of Directors of the Company by a majority of the Continuing Directors then still in office. "Good Reason" shall mean any of the following actions, without Executive's express prior written approval, other than due to Executive's permanent disability; (1) any diminution in Executive's titles, duties, responsibilities or status from the positions, duties, responsibilities or status existing immediately prior to a Change of Control; (2) the removal of Executive from, or any failure to re-elect Executive to, any of the offices Executive held immediately prior to a Change of Control; (3) the failure of the Company to pay Executive any compensation when due; (4) any reduction of Executive's base salary or Target Bonus; (5) any material reduction in Executive's employee or fringe benefits; or (6) the change of Executive's principal place of employment to a location more than fifty (50) miles from Executive's principal place of employment immediately prior to the Change of Control. For purposes of this Severance Agreement, the term "permanent disability" shall mean a disability which results in the Executive's entitlement to long-term disability benefits under the Company's Long Term Disability Plan. "Target Bonus" shall mean the amount which the Executive would have received pursuant to the Company's Officer Incentive Plan ("Plan") following the end of the fiscal year in which the Termination Date occurs if (a) the Executive had remained employed through the end of such fiscal year, (b) Operating Income as a Percent of Capital for such fiscal year had exceeded the Weighted Average Cost of Capital by an amount sufficient to permit the maximum discretionary bonus pursuant to the Plan, and (c) the Executive had been granted the maximum discretionary bonus pursuant to the Plan. A-2 9 SCHEDULE B COMPLETE RELEASE For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, I do hereby irrevocably and unconditionally release, acquit and forever discharge Mississippi Chemical Corporation (the "Company") and each of its owners, partners, stockholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, attorneys, parent companies, holding companies, divisions, subsidiaries, affiliates, related entities (and agents, directors, officers, employees, representatives, fiduciaries and attorneys of such parent companies, holding companies, divisions, subsidiaries, affiliates, employee benefit plans and related entities), past or present, and all persons acting by, through, under or in concert with any of them (collectively "Releasees"), or any of them, from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts, and expenses (including attorneys' fees and costs actually incurred), of any nature whatsoever, known or unknown, suspected or unsuspected, I have, might have or might claim to have against the Releasees or any of them. This Complete Release includes, but is not limited to, a release of any rights arising out of alleged violations of any contract, express or implied, any covenant of good faith and fair dealing, express or implied, any tort, including any claim for negligence or gross negligence on the part of any of the Releasees, or any federal, state or other governmental statute, regulation, or ordinance, including, without limitation, the Age Discrimination in Employment Act, which prohibits discrimination on the basis of age, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, 42 U.S.C. o 1981, the Americans With Disabilities Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, or the Occupational Safety and Health Act. Provided, however, that this Complete Release does not waive or release: (1) any rights or claims that I may have under the Age Discrimination in Employment Act which may arise after the date I sign this Agreement; (2) me or the Company from our respective obligations under that certain Severance Agreement between me and the Company dated as of July 29, 1996, pursuant to which this Complete Release is being executed and delivered; (3) any rights to indemnification that I may have under applicable corporate law, the bylaws or articles of incorporation of any of the Releasees, or any indemnification agreement, or plan or trust agreement, or as an insured under any D & O or liability insurance policy now or previously in force; (4) any rights that I may have to amounts payable under the MCC Stock Incentive Plan, the MCC Supplemental Benefit Plan, and generally applicable employee pension or welfare benefit plans of the Company (other than severance pay plans); and (5) any right to reimbursement of expenses incurred in accordance with Company policies and procedures. I agree never to file a lawsuit, a grievance, administrative charges, or other proceedings asserting any claims that are released above. I agree that if I break this promise, I will pay for all costs incurred by the Company, any related companies or any employees or directors of any of them, including reasonable attorneys' fees, in defending against such claim. I understand that the Company has provided the consideration referenced above solely to resolve any claims that may exist between the Company and me and to avoid the cost of possible lawsuits and that the Company does not admit any wrongdoing. I agree that this Complete Release will be binding upon me and the Company and upon our respective heirs, administrators, trustees, representatives, executors, successors and assigns. I agree that if any portion of this Complete Release is held to be invalid or unenforceable, the other portions shall remain valid and enforceable. I understand that I have twenty-one (21) days from ____[date agreement presented for signature]___ in which to review and consider this Complete Release before signing it, and that I may use B-1 10 as much of this twenty-one (21) day period as I wish. I further understand that I am encouraged to consult an attorney before signing this Complete Release. I understand that after signing this Complete Release, I have seven (7) days in which to revoke that part of this Complete Release which releases claims under the Age Discrimination in Employment Act. I further understand that any such revocation will not be effective unless I deliver a written notice of such revocation to the Company c/o ______[identify particular individual]________, no later than the close of business on the seventh day after I sign the release. I also understand that, in the event that I revoke that part of this Complete Release which releases claims under the Age Discrimination in Employment Act, I must return ______[identify a portion of the consideration that must be refunded, leaving enough consideration to support the release of the remaining claims] of the consideration provided to me by the Company. I UNDERSTAND THAT I HAVE THE RIGHT TO DISCUSS ALL ASPECTS OF THIS COMPLETE RELEASE WITH A PRIVATE ATTORNEY OF MY CHOICE OR A REPRESENTATIVE OF A FEDERAL, STATE OR LOCAL AGENCY, AND AFFIRM THAT I HAVE AVAILED MYSELF OF THIS RIGHT TO THE FULL EXTENT, IF ANY, THAT I DESIRED. I HAVE READ THIS COMPLETE RELEASE, FULLY UNDERSTAND ALL OF ITS PROVISIONS AND AM VOLUNTARILY EXECUTING IT. IN THE EVENT I REVOKE THAT PORTION OF THIS RELEASE COVERING CLAIMS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT BUT FAIL TO RETURN THE CONSIDERATION GIVEN TO ME BY THE COMPANY, I UNDERSTAND AND ACKNOWLEDGE THAT THIS RELEASE WILL REMAIN BINDING IN ITS ENTIRETY, INCLUDING THE RELEASE OF CLAIMS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT. ----------------------------------- Signature ----------------------------------- Printed Name B-2 11 STATE OF MISSISSIPPI ) ) ss. COUNTY OF YAZOO ) Personally appeared before me, the undersigned notary public, in and for said County and State, the within named _________________________________, who acknowledged that (s)he signed and delivered the above and foregoing instrument on the day and date therein mentioned. GIVEN under my hand and official seal this ___ day of ___________, 1996. ---------------------------------- Notary Public My commission expires: ---------------------------------- Printed or Stamped Name of Notary B-3 EX-21 4 LIST OF SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Subsidiaries of the Company as of September 19, 1996, are as follows:
State of Percentage of Voting Name of Company Incorporation Securities Owned - --------------------------------------------------- ----------------------------- ------------------------- Mississippi Phosphates Corporation Delaware 100% NSI Land Corporation Delaware 100% Mississippi Chemical Management Company Delaware 100% MISS SUB, INC. Mississippi 100% Mississippi Potash, Inc. Mississippi 100% Eddy Potash, Inc. Mississippi 100% (a subsidiary of Mississippi Potash, Inc.) New Mexico Potash Corporation Mississippi 100% (a subsidiary of Mississippi Potash, Inc.)
EX-23 5 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated July 29, 1996 included in this Mississippi Chemical Corporation Form 10-K for the year ended June 30, 1996, into the Company's previously filed Form S-8 Registration Statement filed May 24, 1995 (Commission File No. 33-59577). /s/ ARTHUR ANDERSEN LLP September 19, 1996. EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S 1996 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY TO SUCH ANNUAL REPORT. YEAR JUN-30-1996 JUN-30-1996 60,214 0 35,830 1,200 40,633 141,649 399,882 281,111 341,006 60,036 0 229 0 0 247,596 341,006 428,789 430,235 291,403 343,971 0 200 (2,229) 88,493 34,315 54,178 0 0 0 54,178 2.46 0
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