-----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, MNBWWl3N1C9o21uAySWMO8m8RH+D3BjNYTCJsTojgNs7GshE+l5k7KGDlol1yo7T 3mRxe6vQ0eEFQPF22OathA== 0000899243-02-000822.txt : 20020415 0000899243-02-000822.hdr.sgml : 20020415 ACCESSION NUMBER: 0000899243-02-000822 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEMFIRST INC CENTRAL INDEX KEY: 0001026601 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 640679456 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-12547 FILM NUMBER: 02590609 BUSINESS ADDRESS: STREET 1: P O BOX 1249 CITY: JACKSON STATE: MS ZIP: 39202 BUSINESS PHONE: 6019487550 MAIL ADDRESS: STREET 1: P O BOX 1249 CITY: JACKSON STATE: MS ZIP: 39202 10-K405 1 d10k405.txt FORM 10K405 FOR THE PERIOD ENDING 12/31/2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission File Number 001-12547 ChemFirst Inc. (Exact name of Registrant as specified in its charter) Mississippi 64-0679456 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 700 North Street, P. O. Box 1249 Jackson, Mississippi 39215-1249 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (601) 948-7550 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ------------------- ----------------------- Common Stock, Par Value $1 New York Stock Exchange Common Stock Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 13, 2002 (based on the closing sale price of $26.20 of the Registrant's Common Stock, as reported on the New York Stock Exchange Composite Tape on such date) was approximately $332,013,893. The number of shares of the Registrant's Common Stock outstanding as of March 13, 2002 was 14,071,824. DOCUMENTS INCORPORATED BY REFERENCE Certain information required to be disclosed in Parts I, II and III of this Form 10-K is incorporated by reference to: (1) the Company's 2001 Annual Report to Stockholders (the "2001 Annual Report"), which has been furnished to the Commission, and (2) the Company's definitive Proxy Statement for the May 21, 2002 annual meeting of stockholders (the "Proxy Statement"), which has been filed with the Commission pursuant to Regulation 14A. PART I ITEM 1. BUSINESS General The principal businesses of ChemFirst Inc. (the "Company") involve the production of electronic and other specialty chemicals for use in the semiconductor industry and in pharmaceutical, photographic, dyes and pigments, rubber and agricultural applications, as well as the production of polyurethane chemicals. The Company had previously reclassified its engineered products and services segment and its steel segment as discontinued operations pending disposition of these businesses. The Company completed disposition of the engineered products and services operation in December 1999 and its steel operation in February 2000. To further the Company's strategy to concentrate on chemicals for the semiconductor industry and on polyurethane chemicals, in June 2001 the Company sold its custom and fine chemicals business. See Recent Developments below for more information regarding dispositions. At March 1, 2002, the Company had 489 employees, which includes employees of the parent company and all subsidiaries. The Company did not experience a work stoppage during 2001, and none of its employees are covered by a union or bargaining agreement. As of March 1, 2002, the Company believes its relationship with its employees is good. Recent History The Company was incorporated in Mississippi in 1983 under the name Omnirad, Inc., as a wholly-owned subsidiary of First Mississippi Corporation ("First Mississippi"). In November 1996, in anticipation of the Distribution (as defined below), the Company's name was changed from Omnirad, Inc. to ChemFirst Inc. On December 23, 1996 (the "Distribution Date"), First Mississippi contributed all of its assets and subsidiaries, other than those relating to its fertilizer business, to the Company, which at that time was a wholly owned subsidiary of First Mississippi and had engaged in no activities during the previous five years. First Mississippi then spun off the Company in a tax-free distribution of the Company's common stock to First Mississippi shareholders (the "Distribution") on the Distribution Date. The Distribution occurred immediately prior to and in connection with the merger of First Mississippi with a wholly owned subsidiary of Mississippi Chemical Corporation on December 24, 1996, pursuant to an Agreement and Plan of Merger and Reorganization dated as of August 27, 1996. The Company has operated as a publicly held entity since the Distribution Date. Prior to the Distribution Date, the Company's subsidiaries which were in existence on that date were subsidiaries of First Mississippi and the Company's operations were conducted through subsidiaries of First Mississippi. Recent Developments In October 2001, the Company acquired the minority interest in its limited partnership subsidiary that produces specialty polymer resins which are used by others in formulating deep ultraviolet photoresists. In May 2001, the Company's board of directors approved a plan to exit the custom and fine chemicals business and on June 13, 2001, the Company executed an agreement to sell the business to Albemarle Corporation in an all cash transaction. The transaction was completed on July 6, 2001, with an effective date of June 30, 2001. Proceeds received by the Company were $78.8 million. Post-closing adjustments to the transaction are pending but are not expected to be material. The sales agreement also provided for potential additional payments to the Company contingent upon the profit contribution from a specific toll-manufactured product from 2002 through 2004. These additional potential payments are not expected to exceed $10.0 million, and could be significantly less. Assets sold in the transaction included the Company's plant site at Tyrone, Pennsylvania and the current Good Manufacturing Practices (cGMP) pilot plant equipment located at the Company's Dayton, Ohio facility. The Company leased to Albemarle Corporation, under a long-term lease, that portion of the Dayton facility on which the cGMP pilot plant is located. The Company's pharmaceutical contract 2 research and development business and fine chemicals product lines, including FirstCure(R) performance polymer products, were also included in the sale. The Company's contract research and development business and batch fine chemicals manufacturing at Pascagoula, Mississippi were discontinued and these assets have been written off. In December 1999 and February 2000, the Company sold its engineered products and services business and its steel business, respectively. Both of these businesses had been reported as discontinued operations prior to their sale. The Company's disposition of these businesses was to further its strategy to focus on chemicals. Additional information regarding these dispositions and other recent developments is provided in Note 2 to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations, which are incorporated herein by reference to the 2001 Annual Report. Forward-Looking Statements In addition to historical information, this Form 10-K contains "forward- looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, as well as other forward- looking statements made from time to time by the Company or in the Company's press releases, Annual Report to Stockholders and other filings with the Securities and Exchange Commission, are based on certain underlying assumptions and expectations of management. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those expressed in such forward-looking statements. Such risks and uncertainties include, but are not limited to, general economic conditions including inflation and fluctuations in interest rates and foreign currency exchange rates; availability and pricing of utilities and raw materials, including but not limited to electricity, natural gas, nitric acid, 4-hydroxyacetophenone (4-HAP), the primary starting raw material in the Company's specialty polymer resins sold for use in formulating deep ultraviolet photoresists, and free-base hydroxylamine, which is a key raw material in cleaner and remover products; changes in laws, regulations or governmental policies in countries where the Company operates or conducts business; supply/demand balance for key products; new product development; changes in customers' processes or the methods of manufacture or introduction of new technologies, which could reduce the demand for the Company's products; occurrence of significant litigation adverse to the Company, including product liability, patent infringement, environmental and antitrust claims; manufacturing efficiencies; conditions of and product demand by key customers; the timely completion and start-up of construction projects; pricing pressure as a result of domestic and international market forces; environmental factors; insurance coverage and timing of any claim payments related to the disruption in supply of free-base hydroxylamine; and other factors as may be discussed herein and in the Management's Discussion and Analysis of Financial Condition and Results of Operations. The foregoing list of factors is not inclusive, or necessarily in order of importance. The following contains further discussion of the Company's business and properties as grouped by its Electronic and Other Specialty Chemicals segment and its Polyurethane Chemicals segment. Certain information required by Item 1 of Form 10-K and financial information regarding the Company's segments, which includes sales, pretax operating results, capital expenditures, identifiable assets and depreciation/amortization, are provided in Notes 2, 5 and 12 to the Consolidated Financial Statements in the 2001 Annual Report, and are incorporated by reference. As used in this report, the term "Company" includes ChemFirst Inc. and its subsidiaries. Electronic and Other Specialty Chemicals General The Company's Electronic and Other Specialty Chemicals segment produces specialty chemicals for use by others in electronic, pharmaceutical, photographic, optical brightening, agricultural, thermoplastic materials, coatings and structural composites and other applications. These products are sold based on specification requirements and many must also meet performance criteria and achieve customer qualification. These electronic and other specialty chemicals are produced at Company-owned facilities in Hayward, California; East Kilbride, Scotland; Pascagoula, Mississippi; and Dayton, Ohio. In addition, certain of these products are produced for the Company by contract and toll manufacturers. 3 Purchasers of electronic chemicals, who are typically end users, generally acquire the product to achieve a specific performance objective. As with most other specialty chemicals, these chemicals have very specific uses, although the customer base is typically broader than for the Company's other specialty chemicals. The production and sale of the Company's electronic chemicals are generally labor intensive and are usually dependent on highly technical proprietary formulae and sophisticated, well-trained technical and applications engineering staff. The Company's electronic chemicals are primarily used in the semiconductor and related industries. These products include organic post metal cleaning solutions which remove photoresist and dry-etch residue formed during the manufacture of semiconductors. These remover products are the Company's largest volume electronic chemicals. In addition, the Company produces and sells specialty polymer resins used in formulating deep ultraviolet ("DUV") photoresists. These DUV resins are the "imageable" ingredients in photoresists used to "print" semiconductor circuitry. The Company also produces oxidizers and slurries used in chemical mechanical planarization ("CMP") of semiconductor substrate surfaces, and other performance chemicals and products for the semiconductor and related industries. Most of the Company's other specialty chemicals and certain of its electronic chemicals are sold to a narrow base of customers. The Company's other specialty chemicals include nitrotoluenes and their various derivatives. The Company is the sole North American producer of nitrotoluene. A key to successful production of these specialty chemicals is developing an efficient, low cost production process. Nitrotoluenes and derivatives are typically sold as intermediates to other specialty chemical producers and to pharmaceutical, photographic and agricultural companies for use in a broad array of applications, including pharmaceutical applications, dyestuffs and pigments, photographic developers, rubber chemicals, herbicides and pesticide intermediates, and optical brightners in consumer products. In addition, the Company also supplies specialty polymer enhancement materials that are used to produce non-electronic products including thermoplastic materials, coatings and structural composites. The Company owns and operates electronic chemical manufacturing facilities in Hayward, California; East Kilbride, Scotland; and Dayton, Ohio. The Company's 65,000 square-foot facility in Hayward includes research and development labs, separate applications laboratories for CMP and remover products, offices and facilities for manufacturing its removers and other products, quality control testing and packaging. An additional 13,400 square feet of warehouse and office space is leased in an adjacent building. Various improvements were made at the Hayward facility in 2001, including installation of state-of-the-art, fully automated blending and filling operations, which increased production capacity and efficiencies. Annual production capacity for remover products at the Hayward facility is approximately 3.5 million gallons per year on a three-shift, seven-day basis, depending upon the product mix and the processing required. The Hayward facility is currently operating on a two- shift, five-day basis and utilizes approximately 30% of production capacity. In order to free up additional space for technical staff and operations at the Hayward facility and accommodate future growth, in 2001 the Company leased 11,000 square feet of office space in nearby Danville, California, for management, finance and marketing offices. The Company's 26,300 square-foot facility in East Kilbride, Scotland includes manufacturing and quality control capabilities, offices, and remover research and applications laboratories. The facility is equipped with production systems designed to meet the semiconductor industry's requirements for ultra-pure chemicals. Annual production capacity for removers and other products at the East Kilbride facility is approximately 1.05 million gallons per year on a three-shift, seven-day basis, depending on the product mix and the processing required. The facility is currently operating on a one-shift, five-day basis and utilizes approximately 28% of production capacity. Therefore, the Company has substantial unused capacity at both the California and Scotland facilities to increase production. 4 The Company's Dayton, Ohio facility produces electronic chemicals, primarily resins for use in DUV photoresists used for advanced semiconductor manufacturing. Production of electronic chemicals at the facility in 2001 was approximately 125,500 pounds. The Company has the ability to produce these products in specialty solutions or dry powders. Plant modifications and new equipment installation during 2001 increased the capacity for production of resins at the facility by approximately 25%. Annual production capacity for electronic chemicals at Dayton is approximately 308,500 pounds, depending on the product mix and the type of processing required. As the market for the Company's resins increases, additional expansions may be necessary. The Company produces other specialty chemicals by continuous process at its facility in Pascagoula, Mississippi. Production capacity for nitrotoluene products at Pascagoula is approximately 84.0 million pounds, depending on the product mix and the processing required. Specialty chemical production of nitrotoluene and its derivatives at this facility was approximately 53.0 million pounds during 2001. A Company-owned site, the Pascagoula complex is also one of two sites where the Company produces polyurethane chemicals. The facility is supported by storage, truck, rail and barge and has its own ocean- going port. The Company also produces various electronic chemicals through contract and toll manufacturers in California, Missouri, North Carolina and Japan. The Company's CMP products are contract manufactured in North Carolina and Japan pursuant to the Company's proprietary formulations and processes. The Company's specialty polymer enhancement materials are toll manufactured in Wisconsin and Pennsylvania. The Company leases 14,000 square feet of office and laboratory space in Kanagawa, Japan to conduct research and provide technical and engineering services, as well as technical and marketing support. The Company's electronic and other specialty chemicals accounted for approximately 49%, 53% and 55% of the Company's consolidated sales for 2001, 2000 and 1999, respectively. Marketing and Sales Electronic chemicals are marketed domestically and also internationally, principally in Europe, Japan and the Pacific Rim. Most of these chemicals are generally distributed in liter, gallon, returnable drum or other large volume dedicated containers, although the DUV resins, which may be distributed either in the form of dry powder or in specialty solutions, are shipped in appropriate small volume containers. In North America and Europe, the Company's electronic chemicals are principally sold through its internal sales force, although the Company utilizes independent sales representatives as well. In Japan and the Pacific Rim, sales are generally conducted through distributors or sales agents supported by the Company's regional technical sales representatives. In 1999, the Company began manufacturing certain of its electronic chemicals products for the Japanese market through a contract manufacturing arrangement with the Company's Japanese distributor. DUV resins, manufactured at the Dayton site, are sold and shipped directly to photoresist manufacturers. Electronic chemicals are typically sold by purchase order. Domestic shipments are typically by truck or rail, whereas international shipments are usually by ocean-going vessels. The Company's other specialty chemicals are marketed globally. Most of these chemicals are sold under long-term contracts. Sales of these chemicals are made primarily through the Company's internal sales force. These specialty chemicals are typically sold in bulk, although product is also sold in drums. Domestic shipments are typically by truck or rail and export shipments by ship, primarily to European, Far East and South American markets. Raw Materials The primary raw materials for the manufacture of electronic chemicals, other than for the Company's DUV resins, include free-base hydroxylamine, catechol, diglycolamine and N-methylpyrrolidone. Although these raw materials are currently available only from single source suppliers who meet the Company's strict quality requirements, each is currently available in adequate quantities. The Company is currently seeking additional 5 sources for these raw materials. In June 2000, an explosion disrupted the supply of free-base hydroxylamine from the Nissin Chemical plant in Japan. Free-base hydroxylamine is a key ingredient in the Company's important HDA(R) patented remover products. The Nissin plant was the Company's sole supplier, and until late 1999 the only producer of free-base hydroxylamine, when a new BASF plant in Germany started up. Initially, production from BASF was not able to keep pace with the worldwide demand for free-base hydroxylamine. As a result, BASF placed its customers, including the Company, on allocation and, likewise, for a time the Company was forced to put its customers on allocation for products that contain free-base hydroxylamine. Subsequent capacity expansions by BASF and customer conservation methods taught by the Company contributed to the elimination of the free-base hydroxylamine shortage and enabled the Company to suspend allocation of its HDA(R) remover products during 2001. The Company believes that BASF's current capacity is similar to Nissin's capacity prior to the 2000 explosion. Although both Nissin and Honeywell International, Inc. previously announced plans to construct new free-base hydroxylamine plants, it now appears that a new Nissin plant is on hold indefinitely. Honeywell has announced a delay and that its anticipated free-base hydroxylamine plant will not be completed until 2004. Free-base hydroxylamine supply currently exceeds worldwide demand and the Company is optimistic that this trend will continue for the next several years and beyond. However, availability of adequate supply could be affected by such factors as increased future demand for free-base hydroxylamine by the semiconductor and pharmaceutical industries as the economy recovers and the ability of Honeywell, Nissin or others to bring a new free-base hydroxylamine plant on line, although there can be no assurance that any new plant will be completed in a timely manner, or at all. New remover technology introduced by the Company based on different chemical platforms is providing customers with alternative products, and over time is expected to help ease reliance on free- base hydroxylamine. Please see Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 10 to the Consolidated Financial Statements in the 2001 Annual Report for a discussion of the effect of the free-base hydroxylamine shortage on the Company and its business interruption insurance coverage with respect thereto. The primary starting raw material for the Company's DUV resins, 4- hydroxyacetophenone (4-HAP), is currently available from a single source under a long-term contract. Under a tolling arrangement with a domestic manufacturer, the 4-HAP is converted into an acetoxystyrene monomer which the Company uses as a direct raw material for production of its DUV resins. Other raw materials for DUV resins include other monomers, solvents and process materials and essentially all are available in adequate quantities from alternative suppliers. A few specialty monomers are available in adequate quantities but from only one or two suppliers. Primary raw materials for the production of the Company's other specialty chemicals include hydrogen, toluene, ethanol, ammonia, natural gas, 4-HAP and phenol. With the exception of 4-HAP as described above, these raw materials are available from a number of different sources and the Company does not believe that any one source for raw materials used in the production of these chemicals is material to the Company's business. Competition Competition regarding the Company's electronic specialty chemicals is based on service, product performance, quality, product development capabilities and cost of ownership. The Company is one of the largest producers of post metal cleaning solutions for semiconductor production. Although there are approximately twelve companies participating in this market worldwide, the Company believes that significant market share for the advanced and post metal cleaning solutions needed for current and future state-of-the-art semiconductor production and related industries is concentrated among the Company and two competitors, Ashland Chemical and Tokyo Ohka Kogyo of Japan. The Company has entered into a cross-licensing agreement with a competitor whereby the Company licenses certain of its patented free-base hydroxylamine remover technology. The agreement results from a patent infringement complaint brought by the Company against the competitor in federal court. The agreement allows the competitor to continue to market its products which utilize the Company's hydroxylamine technology, but provides for the Company to receive a royalty and license fee. The agreement also requires the Company to pay royalties to the competitor on the Company's HDA(R) products under certain circumstances. However, an arbitration proceeding in 2000 determined that none of the Company's HDA(R) products are covered by the competitor's patents and therefore the Company pays no royalties to the competitor on the production and sale of the Company's products. 6 Regarding CMP slurry products, there are a number of competitors in the oxide slurry world market but it is dominated by Cabot Microelectronics Corporation, who holds an estimated 80% market share. In the smaller, high- growth tungsten slurry world market, the Company is now estimated to be the third largest supplier for this application based on volume. The Company is one of the largest suppliers of resins for use in DUV photoresists and the only known United States producer of these resins. There are two Japanese companies, Maruzen Petrochemical and Nippon Soda, which are major competitors and sell resins in the global merchant market in direct competition with the Company. In addition, two other Japanese companies produce DUV resins as a captive supply source for their own DUV photoresist production. The Company produces a broad spectrum of resins and believes that it is a leading supplier for advanced resin products for newer photoresist technology (for chip fabrication in the range of 0.13 to 0.18 microns). Regarding its other specialty chemicals, the Company competes domestically and internationally with a limited number of producers. Competitors are both smaller and larger companies. Competition is strong and is based on cost, efficient processing, customer service and quality. The Company is the second largest producer of nitrotoluenes and derivatives, behind Bayer Corporation ("Bayer"). Bayer has an estimated 31% of global capacity for nitrotoluene and the Company has an estimated 14% of global capacity. While few competitors market the chemical equivalent of the Company's specialty polymer enhancement materials, the Company competes in the market place with producers of materials that have similar functions and uses. Seasonality of Business Generally, certain of the Company's electronic chemicals may be subject to seasonally lower sales during the first quarter, and practices in the electronics industry require that significant Company inventory be available near many of its customer sites. With the exception of sales for agricultural purposes, the Company's other specialty chemical sales are generally not seasonal and working capital requirements do not vary significantly from period to period. Polyurethane Chemicals General The Company produces aniline and nitrobenzene by continuous production processes at its facilities in Pascagoula, Mississippi and Baytown, Texas. Unlike electronic chemicals, these chemicals generally require additional processing steps and chemical reactions by the Company's customers to produce the end product used by consumers and are primarily sold under long-term contracts. Typically, polyurethane chemicals are more sensitive to the business cycle and the cost of raw materials than are most electronic and specialty chemicals, although, as described below, the Company's sales contracts provide certain protection from fluctuation in raw material price for most of the polyurethane chemicals sold. These chemicals are typically sold in large volumes to industrial customers that purchase on the basis of product specifications. The key to successful production of these chemicals is efficient chemical conversion of large quantities of raw materials and productive use of plant capacity. Providing technical services to customers is generally less important than for the Company's electronic products and certain of its other specialty products. Aniline is the Company's largest volume product. The Company is the largest merchant marketer of aniline in the United States. Most of the aniline produced in the United States is used to manufacture MDI (methylene diphenyl diisocyanate). MDI's primary end use is in rigid polyurethane foam, an insulation material that is widely used in residential and commercial construction. MDI is also used in the manufacture of impact-resistant plastic that is used as a replacement for metal in automobile parts such as bumpers, where flexibility and impact resistance are important. Aniline's other primary applications are in the production of an antioxidizing (anti-cracking) agent used in the manufacture of synthetic rubber, in a widely used herbicide for corn and soybeans, and in plastics for consumer goods. 7 Nitrobenzene is used to make aniline and is also sold separately for the manufacture of an intermediate used in the production of a large volume over- the-counter analgesic (acetaminophen), and in the production of iron-oxide pigments used in decorative and protective coatings for architectural applications, bridge maintenance and other applications. The Company's polyurethane manufacturing facility in Pascagoula is supported by storage, rail, truck, barge and ship distribution facilities. This facility utilizes state-of-the-art, energy efficient nitration technology and a proprietary continuous hydrogenation process. The annual polyurethane chemical production capacity at the facility, less internal consumption, is between 315 and 350 million pounds depending on the product mix being produced. Production of polyurethane chemicals at the Pascagoula facility, less internal consumption, during 2001 was approximately 284 million pounds. A majority of the aniline currently produced at the Pascagoula facility is sold to Bayer. If Phase II of the Baytown facility, as described below, is constructed, Bayer's obligation to purchase aniline from the Pascagoula facility terminates. In 1996, the Company entered into a long-term agreement with Bayer to build, own and operate a world-scale adiabatic nitrobenzene and aniline facility at Bayer's Baytown, Texas chemical complex to supply Bayer's MDI manufacturing operations. Phase I of the facility, with a design capacity of 250 million pounds of aniline, was completed in 1998 and is operating at design capacity. If a potential Phase II to the facility is constructed, it would add another 250 million pounds of capacity. All of the aniline produced at the Baytown facility is sold to Bayer under long-term contracts. Bayer is the Company's largest customer, both in terms of volume of product sold and in sales revenue, and the loss of this customer would have a material adverse effect on the Company as a whole. Polyurethane chemicals accounted for approximately 51%, 47% and 45% of the Company's consolidated sales for 2001, 2000 and 1999, respectively. Marketing and Sales The Company's polyurethane chemicals are sold primarily in the United States under long-term contracts to a small number of customers. The Company's internal sales force accounts for essentially all of the sales in this segment. These products are generally sold in bulk. Domestic shipments are by barge, rail or tank trucks, and exports are shipped in ocean-going tankers, iso-containers or drums. Raw Materials Raw materials for polyurethane chemicals are readily available from many sources. Benzene, which is the principal raw material for the Company's polyurethane chemicals production, is a readily available commodity by-product of oil refining. Like most commodities, the price of benzene is subject to fluctuation. Benzene prices are affected by the demand for a variety of products, principally including styrene and phenolic resins and the underlying cost of crude oil. Other significant raw materials include ammonia, nitric acid, hydrogen and natural gas. The Company purchases ammonia at market prices. The Company captively produces for its own use all of its hydrogen and most of its nitric acid requirements for the Pascagoula facility. For the Baytown facility, the Company purchases its needs for hydrogen and nitric acid from Bayer. Natural gas is purchased in the spot market for use in producing the hydrogen necessary for the Pascagoula manufacturing processes. This gas is transported into the Pascagoula plant through an interstate pipeline under firm and interruptible contracts. While most of the aniline produced by the Company is sold under long-term contracts that provide for price adjustments based on the cost of raw materials, abrupt changes in costs are not always matched by equal changes in the sales price of the aniline. The remainder of aniline production and most of the nitrobenzene production is sold either under long-term contracts which have similar protections against price fluctuations for most major raw materials, or under short-term contracts or purchase orders which generally reflect actual raw material costs. 8 Competition The Company is one of five major United States producers of aniline with approximately 20% of current domestic production capacity. These five producers, in descending order of capacity, are Huntsman, BASF, the Company, DuPont and Sunoco. The Company is one of twelve major world producers of aniline, with an estimated 6.5% of current world production capacity. Regarding nitrobenzene, the Company is one of four major United States producers and ten major world producers, with approximately 28% of domestic production capacity and 8% of world production capacity. Major competitors are large chemical companies. Competition for the products produced in this segment is based on price, service, quality and marketing. Seasonality of Business Generally, the Company's polyurethane chemical sales are not seasonal and working capital requirements do not vary significantly from period to period. Research and Development The Company conducts research and development to improve existing products, to develop and produce new electronic, specialty and performance chemicals and to develop and improve production processes. The Company spent approximately $8.0 million, $8.0 million and $7.4 million on research and development in 2001, 2000 and 1999, respectively. These research and development expenditures do not include the cost of the Company's important applications labs and engineers, which are dedicated to providing strong customer support and helping customers to modify or develop their production processes to integrate the Company's products. The Company's electronic chemicals research and development and applications engineering labs in California, Texas, Scotland and Japan are strategically located near key regional semiconductor production centers, enabling its researchers and engineers to work closely with customers to develop unique chemical solutions to semiconductor manufacturing needs, provide customer support and to test developmental products. The Company continues to focus research efforts on developing new and improved electronic chemicals, including removers, CMP products and resins for use in DUV photoresists. The Company also sponsors applied research at leading universities in the United States, the United Kingdom and Canada. These closely directed programs have led to the development and introduction of proprietary technology in electronic and other specialty chemicals. In 1999, the Company obtained an exclusive license to further develop and commercialize a promising process that utilizes light in combination with metallic compounds to directly deposit metal and metal oxides on a substrate. Research on this technology is ongoing and is being conducted in cooperation with a North American university and others. In addition, the Company has entered into a joint development arrangement with an industry consortium to develop advanced products to meet future semiconductor manufacturing technology. Intellectual Property The Company owns, or is licensed under, a number of patents, patent applications and trade secrets covering its products and processes. The Company has approximately 16 United States and 18 foreign patents regarding its HDA(R) technology and products. The earliest of these patents expires in 2011. The Company considers its HDA(R) remover patents referenced above to be of material importance. See also "Electronic and Other Specialty Chemicals- Competition" for a description of a cross-licensing agreement with a competitor regarding its HDA(R) technology. In addition, the Company has approximately 13 United States and 36 foreign patents which are of material importance to its DUV resin business. The earliest of these patents begins to expire in 2006. The Company believes that, while in the aggregate, the rights under its other patents and licenses are of importance, it does not consider any other patent or license, or group thereof related to a specific process or product, to be of material importance when viewed from the standpoint of the applicable segment's or the Company's overall business. Environmental Considerations Company operations are subject to a wide variety of environmental laws and regulations governing emissions to the air, discharges to water sources and the handling, storage, treatment and disposal of waste materials, as well as other laws and regulations concerning health and safety conditions. The Company holds a 9 number of environmental permits and licenses regulating air emissions, water discharges and hazardous waste disposal and, to the best of its knowledge, is in material compliance with such requirements at all locations. The Company makes capital and other expenditures in a continuing effort to comply with environmental laws and regulations, or changing interpretations of existing laws and regulations. The Company's environmental capital expenditures for 2001 were $0.6 million. Projected environmental capital expenditures for 2002 and 2003 are $1.4 million and $0.6 million, respectively. In addition to complying with environmental laws and regulations, these expenditures may also reduce operating expenses and improve efficiencies. The Company monitors and participates in the environmental regulatory development process which enables the Company to evaluate new laws and regulations. The Company does not anticipate a material increase in expenses related to current environmental regulations, but because federal and state environmental laws and regulations are constantly changing, the Company is unable to predict their future impact. The Company has received notices from the United States Environmental Protection Agency or similar state agencies that it has been deemed a potentially responsible party ("PRP") under Superfund or a comparable state statute at several sites and, thus, may be liable for a share of the associated remediation cost. It is difficult to estimate the Company's ultimate liability relating to these sites due to several uncertainties such as, but not limited to, the method and extent of remediation, the percentage of material attributable to the Company at the site relative to that attributable to other parties, and the financial capabilities of the other PRPs. Based on currently available information, however, the Company does not believe that its future liability at these sites will be material to its financial condition, results of operations, cash flow or competitive position. ITEM 2. PROPERTIES A description of various properties and the segments to which they relate is included in the business discussion of Item 1. In addition to those described above, the Company owns or leases the following properties: The Company owns an approximately 26,000 square-foot office building in Jackson, Mississippi, which is its corporate headquarters. The Company leases 4.2 acres from Bayer Corporation within Bayer's complex for the Baytown, Texas aniline plant with a term equivalent to the aniline contractual supply agreement. The Company leases 7 acres of waterfront property in Pascagoula, Mississippi from the Jackson County Port Authority. This property, utilized by both the Electronics and Other Specialty Chemicals segment and the Polyurethane Chemicals segment, is used for loading and unloading ocean-going vessels and barges at the Pascagoula facility. The lease expires in 2003, but the Company anticipates either extending the current lease or entering into a new lease for this property. The Company-owned Pascagoula plant site, which is utilized by both the Polyurethane Chemicals segment and Electronic and Other Specialty Chemicals segment, consists of 57 acres, 23 of which are undeveloped. The Company also owns an additional 50 acres of undeveloped industrial land, located within 2 miles of the Pascagoula site. The Company leases office space in Dallas, Texas and research and development laboratory space in Corpus Christi, Texas to support its DUV resin and other specialty chemicals businesses. The Company believes that all of its properties are currently suitable and adequate for the manufacturing of the Company's chemical products and the other purposes for which they are used. ITEM 3. LEGAL PROCEEDINGS The Company has pending several claims incurred against it in the normal course of business which, in the opinion of management and legal counsel, can be disposed of without material effect on the Company's business or financial condition. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company, through the solicitation of proxies or otherwise, during the fourth quarter of 2001. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS This information is incorporated by reference to the section entitled "Stock Market Information" found on page 40 of the 2001 Annual Report. ITEM 6. SELECTED FINANCIAL DATA This information is incorporated by reference to page 12 of the 2001 Annual Report. See also Note 2 to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations, incorporated by reference to the 2001 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This information is incorporated by reference to pages 13-17 of the 2001 Annual Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This information is incorporated by reference to the section entitled "Market Risk" found on page 17 of the 2001 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Consolidated Financial Statements are incorporated by reference to pages 18-37 of the 2001 Annual Report. The supplementary data is incorporated by reference to Note 13 on page 36 of the 2001 Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT This information is incorporated by reference to the following pages of the Proxy Statement: 7-9 and 14-15. ITEM 11. EXECUTIVE COMPENSATION This information is incorporated by reference to the following pages of the Proxy Statement: 6; 10-11; 16-17; and 20-21. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS This information is incorporated by reference to pages 2; 12-14; and 18 of the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is incorporated by reference to page 6 of the Proxy Statement. 11 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Financial Statements and Schedules (a)(1) Financial Statements incorporated by reference to the 2001 Annual Report:
Pages in 2001 Annual Report Incorporated Herein by Reference ------------------- Consolidated Balance Sheets as of December 31, 2001 and 2000........................................... p. 18 Consolidated Statements of Operations years ended December 31, 2001, 2000 and 1999................... p. 19 Consolidated Statements of Stockholders' Equity, years ended December 31, 2001, 2000 and 1999....... p. 20 Consolidated Statements of Cash Flows, years ended December 31, 2001, 2000 and 1999................... p. 21 Notes to Consolidated Financial Statements.......... pp. 22-37 Independent Auditors' Report ....................... p. 38
(a)(2) Supplementary Data is incorporated by reference to the 2001 Annual Report. Additional schedules are either not required or are inapplicable and have therefore been omitted. (a)(3) EXHIBITS: 2(a) Agreement and Plan of Merger and Reorganization, dated as of August 27, 1996, among Mississippi Chemical Corporation, MISS SUB, INC. and First Mississippi Corporation, was filed as Exhibit 2.1 to Amendment No. 1 to the Company's Form S-1 (Registration No. 333-15789) filed on November 18, 1996, and is incorporated herein by reference. 2(b) Agreement and Plan of Distribution between First Mississippi Corporation and the Company dated December 18, 1996 was filed as Exhibit 2.2, Form of Agreement and Plan of Distribution, to Amendment No. 1 to the Company's Form S-1 (Registration No. 333-15789) filed on November 18, 1996, and is incorporated herein by reference. The only modification to the text of the Form of Agreement and Plan of Distribution which is incorporated herein by reference was the substitution of "ChemFirst Inc." for "Newco" as a party to this agreement and the dating of the agreement as of December 18, 1996. 2(c) Tax Disaffiliation Agreement between First Mississippi Corporation and the Company dated December 18, 1996 was filed as Exhibit 2.3, Form of Tax Disaffiliation Agreement, to Amendment No. 1 to the Company's Form S-1 (Registration No. 333-15789) filed on November 18, 1996, and is incorporated herein by reference. The only modification to the text of the Form of Tax Disaffiliation Agreement which is incorporated herein by reference was the substitution of "ChemFirst Inc." for "Newco" as a party to this Agreement and the dating of the agreement as of December 18, 1996. 2(d) Employee Benefits and Compensation Agreement between First Mississippi Corporation and the Company dated December 18, 1996 was filed as Exhibit 2.4, Form of Employee Benefits and Compensation Agreement, to Amendment No. 1 to the Company's Form S-1 (Registration No. 333-15789) filed on November 18, 1996, and is incorporated herein by reference. The only modification to the text of the Form of Employee Benefits and Compensation Agreement which is incorporated herein by reference was the substitution of "ChemFirst Inc." for "Newco" as a party to this Agreement and the dating of the agreement as of December 18, 1996. 12 2(e) Asset Purchase Agreement by and between ChemFirst Fine Chemicals, Inc. and First Chemical Corporation, as sellers, and Albemarle Corporation, as buyer, effective June 30, 2001, regarding the sale of the Company's custom and fine chemicals business assets. Schedules and exhibits to this agreement are omitted in accordance with rules of the Commission. The Company agrees to furnish supplementally to the Commission copies of such schedules and exhibits upon request. 3(a) Amended and Restated Articles of Incorporation of the Company were filed as Exhibit 3.1 to Amendment No. 1 to the Company's Form S-1 (Registration No. 333-15789) filed on November 18, 1996, and are incorporated herein by reference. 3(b) Bylaws of the Company as amended were filed as Exhibit 4.3 to the Company's Form S-8 (Registration No. 333-69965) filed on December 30, 1998, and are incorporated herein by reference. 4(a) Articles III, IV, V, VI, VII, VIII, IX and X of the Company's Amended and Restated Articles of Incorporation and the Statements of Resolution establishing the Company's 1987-A, 1988-A, 1988-1, 1989-A, 1989-1, 1989-2, 1990-1, 1990-2, 1991-1, 1991-2, and 1992-1 Series Convertible Preferred Stock and the Company's Series X Junior Participating Preferred Stock are included in Exhibit 3(a). 4(b) Articles II, IV, IX and XII of the Company's Bylaws are included in Exhibit 3(b). 4(c) ChemFirst Inc. 401(k) Savings and Employee Stock Ownership Plan and Trust, as amended and restated on January 1, 1997, was filed as Exhibit 4.6 to Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-8 (Registration No. 333-18691) filed on July 27, 1999 and is incorporated herein by reference. 4(d) First Amendment to ChemFirst Inc. 401(k) and Employee Stock Ownership Plan and Trust was filed as Exhibit 4.7 to Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-8 (Registration No. 333-18691) filed on July 27, 1999, and is incorporated herein by reference. 4(e) Second Amendment to ChemFirst Inc. 401(k) and Employee Stock Ownership Plan and Trust was filed as Exhibit 4.10 to Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-8 (Registration No. 333-18691) filed on July 27, 1999, and is incorporated herein by reference. 4(f) Third Amendment to ChemFirst Inc. 401(k) and Employee Stock Ownership Plan and Trust was filed as Exhibit 4.9 to the Company's Registration Statement on Form S-8 (Registration No. 333-51002) filed on November 30, 2000, and is incorporated herein by reference. 4(g) Fourth Amendment to ChemFirst Inc. 401(k) and Employee Stock Ownership Plan and Trust was filed as Exhibit 4.10 to the Company's Registration Statement on Form S-8 (Registration No. 333-51002) filed on November 30, 2000, and is incorporated herein by reference. 4(h) ChemFirst Savings and Employee Stock Ownership Plan and Trust, restated effective January 1, 1997 (supersedes Exhibits 4(c), 4(d), 4(e), 4(f) and 4(g)). 4(i) Rights Agreement, dated as of October 30, 1996, between the Company and KeyCorp Shareholder Services, Inc., was filed as Exhibit 4 to Amendment No. 1 to the Company's Form S-1 (Registration No. 333-15789) filed on November 18, 1996 and is incorporated herein by reference. 4(j) First Amendment to Rights Agreement dated effective May 1, 1997, by and among the Company, KeyCorp Shareholder Services, Inc. and The Bank of New York, was filed as Exhibit 4.5 to the Company's Form S-8 (File No. 333-69965) filed on December 30, 1998, and is incorporated herein by reference. 4(k) Second Amendment to Rights Agreement dated effective October 1, 2001, by and among the Company, The Bank of New York and American Stock Transfer & Trust Company, was filed as Exhibit 4(c) to Amendment No. 1 to the Company's Form 8-A/A (Registration No. 333-35221) filed on November 2, 2001, and is incorporated herein by reference. 13 4(l) Post Spin-Off Agreement between First Mississippi and FirstMiss Gold Inc. dated as of September 24, 1995, which was assigned to the Company in connection with the Distribution, was filed as Exhibit 99.1 to First Mississippi's Form 8-K dated September 24, 1995, and is incorporated herein by reference. 4(m) Note Purchase Agreement between ChemFirst Inc., State Farm Life Insurance Company and Nationwide Life Insurance Company dated October 15, 1998, was filed as Exhibit 4(j) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and is incorporated herein by reference. 4(n) Form of the Company's stock certificate was filed as Exhibit 4(d) to Amendment No. 1 to the Company's Form 8-A/A (Registration No. 333- 35221) filed on November 2, 2001, and is incorporated herein by reference. 10(a)* Termination Agreement, dated May 29, 1996 and effective June 1, 1996, and amended March 15, 1999, between the Company and its Chief Executive Officer, was filed as Exhibit 10(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and is incorporated herein by reference. 10(b)* Form of Termination Agreement between the Company and each of the following executive officers of the Company, which was assigned to the Company in connection with the Distribution and which form the Company continues to use, was filed as Exhibit 10(d) to First Mississippi's Annual Report on Form 10-K for the fiscal year ended June 30, 1996, and is incorporated herein by reference. The Company has executed a Termination Agreement with each of the following executive officers: Daniel P. Anderson, J. Steven Chustz, Paul J. Coder, George M. Simmons and R. Michael Summerford, each dated effective June 1, 1996; Max P. Bowman, Troy B. Browning, William B. Kemp and James L. McArthur, each dated effective July 1, 1997; and William R. Jordan, dated effective May 25, 1999. 10(c)* Amendment to Termination Agreement, effective February 19, 2002, by and between the Company and its Chief Executive Officer. 10(d)* Form of Amendment to Termination Agreement, effective February 19, 2002, by and between the Company and each of the following executive officers of the Company (the Company's Amendment to Termination Agreement with each such individual contains substantially identical provisions to those contained in the form): Daniel P. Anderson, Max P. Bowman, Troy B. Browning, J. Steve Chustz, P. Jerry Coder, William R. Jordan, William B. Kemp, James L. McArthur, George M. Simmons and R. Michael Summerford. 10(e)* ChemFirst Inc. 1988 Long-Term Incentive Plan was filed as Exhibit 4.5 to the Company's Registration Statement on Form S-8 (Registration No. 333-18693) filed on December 24, 1996, and is incorporated herein by reference. 10(f)* ChemFirst Inc. 1995 Long-Term Incentive Plan was filed as Exhibit 4.4 to the Company's Registration Statement on Form S-8 (Registration No. 333-18693) filed on December 24, 1996, and is incorporated herein by reference. 10(g)* ChemFirst Inc. 1998 Long-Term Incentive Plan, as amended, was included as Appendix A to the Company's Proxy Statement filed in connection with the Annual Meeting of Stockholders held on May 23, 2000, and is incorporated herein by reference. 10(h)* 1991 Restatement of the First Mississippi Directors' Retirement Plan, as revised and restated on May 14, 1991, which was assigned to and assumed by the Company pursuant to the Benefits Agreement, was filed as Exhibit 10(f) to First Mississippi's Annual Report on Form 10-K for the fiscal year ended June 30, 1991, and is incorporated herein by reference. 10(i)* First Mississippi Corporation 1989 Deferred Compensation Plan for Outside Directors ("Plan B"), as amended on September 12, 1994, which was assigned to and assumed by the Company pursuant to the Benefits Agreement, was filed as Exhibit 10(g) to First Mississippi's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, and is incorporated herein by reference. 14 10(j)* A description of the Company's Deferred Income Plan for Directors, Officers and Key Employees ("Plan A") is included in the Company's Proxy Statement filed in connection with the Annual Meeting of Stockholders to be held on May 22, 2001, and is incorporated herein by reference. 10(k)* Form of Indemnification Agreement between the Company and the following former directors or executive officers of the Company, which was assigned to and assumed by the Company in connection with the Distribution (Company's Indemnification Agreements with each such individual contains substantially identical provisions to those contained in the form): Charles R. Gibson, Charles P. Moreton, Maurice T. Reed, Jr., Frank G. Smith, O. E. Wall, Charles M. McAuley and Thomas G. Tepas was filed as Exhibit 10(t) to First Mississippi's Annual Report on Form 10-K for the fiscal year ended June 30, 1988, and is incorporated herein by reference. 10(l)* Form of Indemnification Agreement entered between the Company and the following current or former directors or executive officers of the Company on March 17, 1999 or subsequently thereto was filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and is incorporated herein by reference. (Company's Indemnification Agreement with each such individual contains substantially identical provisions to those contained in the form): Richard P. Anderson, Paul A. Becker, James W. Crook, Michael J. Ferris, James E. Fligg, Robert P. Guyton, Paul W. Murrill, John F. Osborne, William A. Percy, II, Dan F. Smith, Leland R. Speed, R. Gerald Turner, J. Kelley Williams, Daniel P. Anderson, Max P. Bowman, Troy B. Browning, J. Steve Chustz, P. Jerry Coder, William R. Jordan, William B. Kemp, Scott A. Martin, James L. McArthur, George M. Simmons, R. M. Summerford and Roger Van Duyne. 10(m) ChemFirst Inc. 1997 Employee Stock Purchase Plan was filed as Exhibit 4.3 to the Company's Registration Statement on Form S-8 (Registration No. 333-35221) filed on September 9, 1997, and is incorporated herein by reference. 10(n)* ChemFirst Inc. Benefits Restoration Plan, dated effective January 1, 1997, was filed as Exhibit 10(l) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and is incorporated herein by reference. 10(o) First Amended and Restated Loan Agreement dated September 12, 2001 between the Company and SunTrust Bank, as amended on October 10, 2001 and November 29, 2001, and the First Amended and Restated Revolving Credit Note related thereto. 10(p) Loan Agreement dated September 24, 2001 between the Company and AmSouth Bank, as amended on October 17, 2001 and December 3, 2001 and the Revolving Credit Note related thereto. 13 ChemFirst Inc. 2001 Annual Report to Stockholders (such Annual Report is not, except for those portions thereof which are expressly incorporated by reference, to be deemed "filed" as part of this Form10- K). 21 List of the subsidiaries of the Company. 23 Consent regarding incorporation of auditor's report into Registration Statement Nos. 333-18691, 333-18693, 333-35221, 333-69965, 333-38556 and 333-51002. - -------- * Indicates management contract or compensatory plan or arrangement. Certain debt instruments have not been filed. The Company agrees to furnish a copy of such agreement(s) to the Commission upon request. (b) No reports on Form 8-K were filed by the Company during the fourth quarter of 2001. (c) Please see (a)(3) above. The exhibits filed with the Commission are not included in the printed copy of the Form 10-K. A copy of the exhibits will be provided upon payment of a reasonable fee, to be specified at the time a request is made. (d) Please see (a)(2) above. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHEMFIRST INC. Date: March 27, 2002 /s/ J. Kelley Williams By: _________________________________ J. Kelley Williams, Chief Executive Officer 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/ J. Kelley Williams Chairman of the Board of March 27, 2002 ______________________________________ Directors, Chief J. Kelley Williams Executive Officer (Principal Executive Officer) and Director /s/ R. M. Summerford President and Chief March 27, 2002 ______________________________________ Operating Officer R. M. Summerford /s/ Max P. Bowman Vice President, Finance March 27, 2002 ______________________________________ and Chief Financial Max P. Bowman Officer (Principal Financial Officer) /s/ Troy B. Browning Controller (Principal March 27, 2002 ______________________________________ Accounting Officer) Troy B. Browning /s/ Richard P. Anderson Director March 27, 2002 ______________________________________ Richard P. Anderson /s/ Paul A. Becker Director March 27, 2002 ______________________________________ Paul A. Becker /s/ Michael J. Ferris Director March 27, 2002 ______________________________________ Michael J. Ferris /s/ James E. Fligg Director March 27, 2002 ______________________________________ James E. Fligg /s/ Robert P. Guyton Director March 27, 2002 ______________________________________ Robert P. Guyton /s/ Paul W. Murrill Director March 27, 2002 ______________________________________ Paul W. Murrill /s/ John F. Osborne Director March 27, 2002 ______________________________________ John F. Osborne
16
Signature Title Date --------- ----- ---- /s/ William A. Percy, II Director March 27, 2002 ______________________________________ William A. Percy, II /s/ Dan F. Smith Director March 27, 2002 ______________________________________ Dan F. Smith /s/ Leland R. Speed Director March 27, 2002 ______________________________________ Leland R. Speed /s/ R. Gerald Turner Director March 27, 2002 ______________________________________ R. Gerald Turner
17 INDEX TO EXHIBITS 2(a) Agreement and Plan of Merger and Reorganization, dated as of August 27, 1996, among Mississippi Chemical Corporation, MISS SUB, INC. and First Mississippi Corporation, was filed as Exhibit 2.1 to Amendment No. 1 to the Company's Form S-1 (Registration No. 333-15789) filed on November 18, 1996, and is incorporated herein by reference. 2(b) Agreement and Plan of Distribution between First Mississippi Corporation and the Company dated December 18, 1996 was filed as Exhibit 2.2, Form of Agreement and Plan of Distribution, to Amendment No. 1 to the Company's Form S-1 (Registration No. 333-15789) filed on November 18, 1996, and is incorporated herein by reference. The only modification to the text of the Form of Agreement and Plan of Distribution which is incorporated herein by reference was the substitution of "ChemFirst Inc." for "Newco" as a party to this agreement and the dating of the agreement as of December 18, 1996. 2(c) Tax Disaffiliation Agreement between First Mississippi Corporation and the Company dated December 18, 1996 was filed as Exhibit 2.3, Form of Tax Disaffiliation Agreement, to Amendment No. 1 to the Company's Form S-1 (Registration No. 333-15789) filed on November 18, 1996, and is incorporated herein by reference. The only modification to the text of the Form of Tax Disaffiliation Agreement which is incorporated herein by reference was the substitution of "ChemFirst Inc." for "Newco" as a party to this Agreement and the dating of the agreement as of December 18, 1996. 2(d) Employee Benefits and Compensation Agreement between First Mississippi Corporation and the Company dated December 18, 1996 was filed as Exhibit 2.4, Form of Employee Benefits and Compensation Agreement, to Amendment No. 1 to the Company's Form S-1 (Registration No. 333-15789) filed on November 18, 1996, and is incorporated herein by reference. The only modification to the text of the Form of Employee Benefits and Compensation Agreement which is incorporated herein by reference was the substitution of "ChemFirst Inc." for "Newco" as a party to this Agreement and the dating of the agreement as of December 18, 1996. 2(e) Asset Purchase Agreement by and between ChemFirst Fine Chemicals, Inc. and First Chemical Corporation, as sellers, and Albemarle Corporation, as buyer, effective June 30, 2001, regarding the sale of the Company's custom and fine chemicals business assets. Schedules and exhibits to this agreement are omitted in accordance with rules of the Commission. The Company agrees to furnish supplementally to the Commission copies of such schedules and exhibits upon request. 3(a) Amended and Restated Articles of Incorporation of the Company were filed as Exhibit 3.1 to Amendment No. 1 to the Company's Form S-1 (Registration No. 333-15789) filed on November 18, 1996, and are incorporated herein by reference. 3(b) Bylaws of the Company as amended were filed as Exhibit 4.3 to the Company's Form S-8 (Registration No. 333-69965) filed on December 30, 1998, and are incorporated herein by reference. 4(a) Articles III, IV, V, VI, VII, VIII, IX and X of the Company's Amended and Restated Articles of Incorporation and the Statements of Resolution establishing the Company's 1987-A, 1988-A, 1988-1, 1989-A, 1989-1, 1989-2, 1990-1, 1990-2, 1991-1, 1991-2, and 1992-1 Series Convertible Preferred Stock and the Company's Series X Junior Participating Preferred Stock are included in Exhibit 3(a). 4(b) Articles II, IV, IX and XII of the Company's Bylaws are included in Exhibit 3(b). 4(c) ChemFirst Inc. 401(k) Savings and Employee Stock Ownership Plan and Trust, as amended and restated on January 1, 1997, was filed as Exhibit 4.6 to Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-8 (Registration No. 333-18691) filed on July 27, 1999 and is incorporated herein by reference. 4(d) First Amendment to ChemFirst Inc. 401(k) and Employee Stock Ownership Plan and Trust was filed as Exhibit 4.7 to Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-8 (Registration No. 333-18691) filed on July 27, 1999, and is incorporated herein by reference. 1 4(e) Second Amendment to ChemFirst Inc. 401(k) and Employee Stock Ownership Plan and Trust was filed as Exhibit 4.10 to Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-8 (Registration No. 333-18691) filed on July 27, 1999, and is incorporated herein by reference. 4(f) Third Amendment to ChemFirst Inc. 401(k) and Employee Stock Ownership Plan and Trust was filed as Exhibit 4.9 to the Company's Registration Statement on Form S-8 (Registration No. 333-51002) filed on November 30, 2000, and is incorporated herein by reference. 4(g) Fourth Amendment to ChemFirst Inc. 401(k) and Employee Stock Ownership Plan and Trust was filed as Exhibit 4.10 to the Company's Registration Statement on Form S-8 (Registration No. 333-51002) filed on November 30, 2000, and is incorporated herein by reference. 4(h) ChemFirst Savings and Employee Stock Ownership Plan and Trust, restated effective January 1, 1997 (supersedes Exhibits 4(c), 4(d), 4(e), 4(f) and 4(g)). 4(i) Rights Agreement, dated as of October 30, 1996, between the Company and KeyCorp Shareholder Services, Inc., was filed as Exhibit 4 to Amendment No. 1 to the Company's Form S-1 (Registration No. 333-15789) filed on November 18, 1996 and is incorporated herein by reference. 4(j) First Amendment to Rights Agreement dated effective May 1, 1997, by and among the Company, KeyCorp Shareholder Services, Inc. and The Bank of New York, was filed as Exhibit 4.5 to the Company's Form S-8 (File No. 333-69965) filed on December 30, 1998, and is incorporated herein by reference. 4(k) Second Amendment to Rights Agreement dated effective October 1, 2001, by and among the Company, The Bank of New York and American Stock Transfer & Trust Company, was filed as Exhibit 4(c) to Amendment No. 1 to the Company's Form 8-A/A (Registration No. 333-35221) filed on November 2, 2001, and is incorporated herein by reference. 4(l) Post Spin-Off Agreement between First Mississippi and FirstMiss Gold Inc. dated as of September 24, 1995, which was assigned to the Company in connection with the Distribution, was filed as Exhibit 99.1 to First Mississippi's Form 8-K dated September 24, 1995, and is incorporated herein by reference. 4(m) Note Purchase Agreement between ChemFirst Inc., State Farm Life Insurance Company and Nationwide Life Insurance Company dated October 15, 1998, was filed as Exhibit 4(j) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and is incorporated herein by reference. 4(n) Form of the Company's stock certificate was filed as Exhibit 4(d) to Amendment No. 1 to the Company's Form 8-A/A (Registration No. 333- 35221) filed on November 2, 2001, and is incorporated herein by reference. 10(a)* Termination Agreement, dated May 29, 1996 and effective June 1, 1996, and amended March 15, 1999, between the Company and its Chief Executive Officer, was filed as Exhibit 10(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and is incorporated herein by reference. 10(b)* Form of Termination Agreement between the Company and each of the following executive officers of the Company, which was assigned to the Company in connection with the Distribution and which form the Company continues to use, was filed as Exhibit 10(d) to First Mississippi's Annual Report on Form 10-K for the fiscal year ended June 30, 1996, and is incorporated herein by reference. The Company has executed a Termination Agreement with each of the following executive officers: Daniel P. Anderson, J. Steven Chustz, Paul J. Coder, George M. Simmons and R. Michael Summerford, each dated effective June 1, 1996; Max P. Bowman, Troy B. Browning, William B. Kemp and James L. McArthur, each dated effective July 1, 1997; and William R. Jordan, dated effective May 25, 1999. 10(c)* Amendment to Termination Agreement, effective February 19, 2002, by and between the Company and its Chief Executive Officer. 2 10(d)* Form of Amendment to Termination Agreement, effective February 19, 2002, by and between the Company and each of the following executive officers of the Company (the Company's Amendment to Termination Agreement with each such individual contains substantially identical provisions to those contained in the form): Daniel P. Anderson, Max P. Bowman, Troy B. Browning, J. Steve Chustz, P. Jerry Coder, William R. Jordan, William B. Kemp, James L. McArthur, George M. Simmons and R. Michael Summerford. 10(e)* ChemFirst Inc. 1988 Long-Term Incentive Plan was filed as Exhibit 4.5 to the Company's Registration Statement on Form S-8 (Registration No. 333-18693) filed on December 24, 1996, and is incorporated herein by reference. 10(f)* ChemFirst Inc. 1995 Long-Term Incentive Plan was filed as Exhibit 4.4 to the Company's Registration Statement on Form S-8 (Registration No. 333-18693) filed on December 24, 1996, and is incorporated herein by reference. 10(g)* ChemFirst Inc. 1998 Long-Term Incentive Plan, as amended, was included as Appendix A to the Company's Proxy Statement filed in connection with the Annual Meeting of Stockholders held on May 23, 2000, and is incorporated herein by reference. 10(h)* 1991 Restatement of the First Mississippi Directors' Retirement Plan, as revised and restated on May 14, 1991, which was assigned to and assumed by the Company pursuant to the Benefits Agreement, was filed as Exhibit 10(f) to First Mississippi's Annual Report on Form 10-K for the fiscal year ended June 30, 1991, and is incorporated herein by reference. 10(i)* First Mississippi Corporation 1989 Deferred Compensation Plan for Outside Directors ("Plan B"), as amended on September 12, 1994, which was assigned to and assumed by the Company pursuant to the Benefits Agreement, was filed as Exhibit 10(g) to First Mississippi's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, and is incorporated herein by reference. 10(j)* A description of the Company's Deferred Income Plan for Directors, Officers and Key Employees ("Plan A") is included in the Company's Proxy Statement filed in connection with the Annual Meeting of Stockholders to be held on May 22, 2001, and is incorporated herein by reference. 10(k)* Form of Indemnification Agreement between the Company and the following former directors or executive officers of the Company, which was assigned to and assumed by the Company in connection with the Distribution (Company's Indemnification Agreements with each such individual contains substantially identical provisions to those contained in the form): Charles R. Gibson, Charles P. Moreton, Maurice T. Reed, Jr., Frank G. Smith, O. E. Wall, Charles M. McAuley and Thomas G. Tepas was filed as Exhibit 10(t) to First Mississippi's Annual Report on Form 10-K for the fiscal year ended June 30, 1988, and is incorporated herein by reference. 10(l)* Form of Indemnification Agreement entered between the Company and the following current or former directors or executive officers of the Company on March 17, 1999 or subsequently thereto was filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and is incorporated herein by reference. (Company's Indemnification Agreement with each such individual contains substantially identical provisions to those contained in the form): Richard P. Anderson, Paul A. Becker, James W. Crook, Michael J. Ferris, James E. Fligg, Robert P. Guyton, Paul W. Murrill, John F. Osborne, William A. Percy, II, Dan F. Smith, Leland R. Speed, R. Gerald Turner, J. Kelley Williams, Daniel P. Anderson, Max P. Bowman, Troy B. Browning, J. Steve Chustz, P. Jerry Coder, William R. Jordan, William B. Kemp, Scott A. Martin, James L. McArthur, George M. Simmons, R. M. Summerford and Roger Van Duyne. 10(m) ChemFirst Inc. 1997 Employee Stock Purchase Plan was filed as Exhibit 4.3 to the Company's Registration Statement on Form S-8 (Registration No. 333-35221) filed on September 9, 1997, and is incorporated herein by reference. 3 10(n)* ChemFirst Inc. Benefits Restoration Plan, dated effective January 1, 1997, was filed as Exhibit 10(l) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and is incorporated herein by reference. 10(o) First Amended and Restated Loan Agreement dated September 12, 2001 between the Company and SunTrust Bank, as amended on October 10, 2001 and November 29, 2001, and the First Amended and Restated Revolving Credit Note related thereto. 10(p) Loan Agreement dated September 24, 2001 between the Company and AmSouth Bank, as amended on October 17, 2001 and December 3, 2001 and the Revolving Credit Note related thereto. 13 ChemFirst Inc. 2001 Annual Report to Stockholders (such Annual Report is not, except for those portions thereof which are expressly incorporated by reference, to be deemed "filed" as part of this Form10- K). 21 List of the subsidiaries of the Company. 23 Consent regarding incorporation of auditor's report into Registration Statement Nos. 333-18691, 333-18693, 333-35221, 333-69965, 333-38556 and 333-51002. - -------- * Indicates management contract or compensatory plan or arrangement. (Note: The exhibits filed with the Commission are not included in this copy of the Form 10-K. A copy of the exhibits will be provided upon payment of a reasonable fee, to be specified at the time a request is made.) 4 EX-2.(E) 3 dex2e.txt ASSET PURCHASE AGREEMENT EXHIBIT 2(e) ASSET PURCHASE AGREEMENT by and between CHEMFIRST FINE CHEMICALS, INC. AND FIRST CHEMICAL CORPORATION and ALBEMARLE CORPORATION As of June 13, 2001 INDEX TO EXHIBITS EXHIBIT A Form of Bill of Sale EXHIBIT B Form of Assignment and Assumption Agreement EXHIBIT C Form of Deed EXHIBIT D Form of Dayton Pilot Plant Lease EXHIBIT E Form of Transition Supply Agreement EXHIBIT F Form of Services Agreement EXHIBIT G THPE Toll Manufacture Agreement EXHIBIT H Nitrobenzene and Nitrotoluene Supply Agreement INDEX TO SCHEDULES Schedule 1.01(a) CFC Products Produced in Pascagoula Batch Operations Schedule 1.01(b) Electronic Chemical Products Included as CFC Products Schedule 1.01(c) Dayton Real Property Schedule 1.01(d) Permitted Exceptions Schedule 2.01(b) Tyrone Facility Schedule 2.01(d) Dayton Pilot Plant Facility Schedule 2.01(f) Dayton Equipment Schedule 2.01(i) Assumed Contracts Schedule 2.01(j) Permits Schedule 2.01(m) Intellectual Property Rights Schedule 2.01(n) Other Tangible and Intangible Assets Schedule 2.02(e) Other Excluded Assets Schedule 2.05(b)(ii)(2) F-8426 Product Forecast Schedule 3.01(c) Seller Violations, Defaults, etc. Schedule 3.01(d) December 31, 2000 Balance Sheet and Other Financial Statements Schedule 3.01(e) Taxes Schedule 3.01(f) Litigation Schedule 3.01(g) Compliance with Law Exceptions Schedule 3.01(h) Permit Exceptions Schedule 3.01(i) Personal Property Exceptions Schedule 3.01(j) Owned Real Property Exceptions Schedule 3.01(k) Environmental Matters Schedule 3.01(l) Material Open Contracts Schedule 3.01(m) Intellectual Property Exceptions Schedule 3.01(n) Insurance Schedule 3.01(o) Transferred Assets Exceptions Schedule 3.01(p) No Changes Exceptions Schedule 3.01(q) Customers, Distributors and Suppliers Schedule 3.01(r) Product Forecast Schedule 3.02(c) Buyer Violations, Defaults, Etc. Schedule 4.01 Trademarks, Tradenames, Etc., Transferred Schedule 4.10(a)(i) Non-Compete Products Schedule 4.13 Pascagoula Equipment Schedule 4.18(a) CFC Employees at Tyrone, Dayton Pilot Plant Facility, Pascagoula and Jackson Schedule 4.18(d) Employee Benefit Plans Schedule 4.19 Certain Terms in Exhibits D, E and F Schedule 8.01(p) Key Employees
2 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into this thirteenth day of June, 2001, by and between CHEMFIRST FINE CHEMICALS, INC., a Pennsylvania corporation ("CFC"), and FIRST CHEMICAL CORPORATION ("First Chem") a Mississippi corporation (collectively CFC and First Chem are referred to as the "Sellers"), and ALBEMARLE CORPORATION, a Virginia corporation (the "Buyer"). WHEREAS, Sellers are engaged in the CFC Business (as hereinafter defined) and manufacture CFC Products (as hereinafter defined) at production facilities located in or around Pascagoula, Mississippi; Tyrone, Pennsylvania; and Dayton, Ohio; and WHEREAS, Buyer desires to buy from Sellers, and Sellers desire to sell to Buyer, substantially all of the assets held by, or in the name of, Sellers on the Closing Date that are used or useful in connection with the operation of the CFC Business (the purchase and sale of those assets pursuant to this Agreement and the conclusion of the agreements contemplated by this Agreement, the "Transaction") NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties intending to be legally bound agree as follows: ARTICLE I DEFINITIONS Section 1.01 Definitions. As used in this Agreement, the following terms shall have the following meanings: "Accounting Arbitrator" has the meaning described in Section 2.05(b)(i)(4). "Accounts Payable" has the meaning described in Section 2.01(a). "Accounts Receivable" has the meaning described in Section 2.01(a). "Affiliate" shall mean any Person now or hereafter, directly or indirectly, controlling, controlled by or under common control with another Person. "Control" shall mean the right to vote (beneficially or otherwise) more than fifty (50%) percent of the voting securities of the Person, the right to designate a majority of its board of directors or other governing Person or body or the ability to direct or cause the direction of the management and policies of such Person. "Agreement" shall mean this Asset Purchase Agreement, including the Schedules and Exhibits. "Assignment and Assumption Agreement" has the meaning described in Section 2.01. "Assumed Contracts" has the meaning described in Section 2.01(i). "Assumed Liabilities" shall have the meaning set forth in Section 2.04(a). "Base Purchase Price" has the meaning described in Section 2.05(a). "Bill of Sale" has the meaning described in Section 2.01 3 "Buyer's Charter" means the Buyer's Articles of Incorporation. "Buyer Indemnitees" has the meaning described in Section 5.02. "CFC" means ChemFirst Fine Chemicals, Inc., a Pennsylvania corporation. "CFC Products" means (i) all of the products historically associated with that portion of the CFC Business located at Tyrone, Pennsylvania and/or Dayton, Ohio or manufactured by CFC at its Tyrone, Pennsylvania or Dayton, Ohio facilities, including all products which have been manufactured, developed or sold through CFC's custom manufacturing and/or chemical services businesses and (ii) the products listed in Schedule 1.01(a) which have been historically associated with that portion of the CFC Business located at Pascagoula, Mississippi or manufactured by CFC, or First Chem on behalf of CFC, in the batch operations of the First Chem Pascagoula, Mississippi facility, including the FirstCure(R) polymer additive products (which as of the date of this Agreement are being produced for CFC by First Chem). Notwithstanding the foregoing, CFC Products shall not include (i) products historically associated with First Chem's continuous operations business, or manufactured, developed or sold in the continuous operations of the First Chem Pascagoula, Mississippi facility, including aniline, toluenes or toluidines, (ii) the products, other than the products listed on Schedule 1.01(a), historically associated with First Chem's batch operations business, or manufactured, developed or sold in the batch operations of the First Chem Pascagoula, Mississippi, (iii) products historically associated with the business of either EKC Technologies, Inc. or TriQuest, L.P., or their Affiliates other than Sellers, or (iv) products manufactured, developed or sold by CFC which are used or useful in, or associated with, the electronics chemical industry, other than the products listed on Schedule 1.01(b) which shall be considered CFC Products, whether any of the products described in (i), (ii), (iii) or (iv) are also historically associated with the CFC Business or manufactured, developed or sold by CFC, or by First Chem on behalf of CFC, at any of their facilities. "CFC Business" means all of the businesses of CFC as historically conducted, including CFC's business of researching, developing, manufacturing, marketing and selling FirstCure(R) polymer additives (which as of the date of this Agreement are being produced for CFC by First Chem), as well as CFC's custom manufacturing and chemical services businesses. Notwithstanding the foregoing, CFC Business shall not include (i) the business historically conducted in the continuous operations of the First Chem Pascagoula, Mississippi facility, including the business associated with aniline, toluenes or toluidines, (ii) the business historically conducted in the batch operations of the First Chem Pascagoula, Mississippi facility other than business historically conducted by CFC associated with the products listed in Schedule 1.01(a), (iii) the business historically conducted by either of EKC Technologies, Inc. or TriQuest, L.P., or their Affiliates other than Sellers, or (iv) the business historically conducted by CFC associated with products which are used or useful in the electronics chemical industry other than business historically conducted by CFC associated with the products listed on Schedule 1.01(b), whether any of the businesses described in (i), (ii), (iii) or (iv) are also historically conducted by CFC. "Claims" means any and all claims, charges, liens, contracts, rights, options, security interests, mortgages, encumbrances and restrictions whatsoever. "Closing" and "Closing Date" have the meanings described in Section 7.01. "Closing Date Inventory Value" has the meaning described in Section 2.05(b)(i)(3). "Contingency Payments" has the meaning described in Section 2.05(a). 4 "Contribution Margin" shall mean gross revenues on an FOB Tyrone Facility basis less variable costs, calculated in a manner consistent with CFC's past practices. CFC's past practices include defining variable costs as the total of raw material costs, direct waste costs, setup costs and packaging costs only. "Damages" shall mean any claim, liability, obligation, loss, damage, assessment, judgment, cost and expense (including, without limitation, reasonable attorneys' and accountants' fees and costs and expenses reasonably incurred in investigating, preparing, defending against or prosecuting any litigation or claim, action, suit, proceeding or demand) of any kind or character. "Dayton Equipment" has the meaning described in Section 2.01(f). "Dayton Pilot Plant Buildings" has the meaning described in Section 2.01(e). "Dayton Pilot Plant Facility" has the meaning described in Section 2.01(d). "Dayton Pilot Plant Lease" has the meaning described in Section 2.01. "Dayton Plant" shall mean the chemical manufacturing facility owned by CFC as of the date of this Agreement located at 1515 Nicholas Road, Dayton, Montgomery County, Ohio. "Dayton Real Property" is defined as the land owned by Sellers or their Affiliates, which is located in Dayton, Montgomery County, Ohio and is more particularly described in Schedule 1.01(c). "Deed" has the meaning described in Section 2.01. "Designated Pascagoula Equipment" has the meaning described in Section 4.13. "Disputed Accounting Matter" has the meaning described in Section 2.05(b)(i)(4). "December 31, 2000 Balance Sheet" has the meaning described in Section 3.01(d). "Documents " has the meaning described in Section 9.02. "Employee Benefit Plans " has the meaning described in Section 4.18(d). "Environmental Laws" shall mean any federal, state or local law, rule, regulation, permit, judgment, decree, order or agreement with any Governmental Authority applicable to the CFC Business and the Transferred Assets, relating to (1) the protection, preservation or restoration of the environment or to human health or safety, or (2) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Substances, including the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.Section.9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.Section. 9601 et seq., the Occupational Safety and Health Act, 29 U.S.C. Sections. 651 et seq., the Clean Air Act, 42 U.S.C.Sections. 7401 et seq., the Clean Water Act, 33 U.S.C.Sections. 121 et seq., the Safe Drinking Water Act, 42 U.S.C.Sections. 300f et seq., the Toxic Substances Control Act, 15 U.S.C.Sections. 2601 et seq. (the "TSCA"), and the Oil Pollution Act of 1990, 33 U.S.C.Sections.2702 to 2761, each as amended. "Environmental Permits" means all registrations, permits, licenses, and approvals issued by or on behalf of any Governmental Authority relating to the preservation or protection of the environment and applicable to CFC, the Transferred Assets, or the CFC Business. 5 "Estimated Working Capital" has the meaning described in Section 2.05(b)(i)(2). "Excluded Assets" has the meaning described in Section 2.02. "Excluded Liabilities" has the meaning described in Section 2.04(b). "Financial Statements" has the meaning described in Section 3.01(d). "First Chem" means First Chemical Corporation, a Mississippi corporation. "Governmental Authority" means any public body, governmental, administrative or regulatory authority, agency, instrumentality or commission, including courts of competent jurisdiction and other tribunals, whether federal, state, local or foreign. "Hazardous Substances" means any pollutant, hazardous waste substances, hazardous waste materials, hazardous wastes or toxic wastes, as defined in any presently enacted Environmental Law; except, however, with respect only to claims by Buyer, its successors or assigns with respect to the presence at, on or beneath the Owned Real Property of Hazardous Substances, "Hazardous Substances" means any pollutant, hazardous waste substances, hazardous waste materials, hazardous wastes or toxic wastes, as defined in any presently enacted Environmental Law, in excess of allowed regulatory concentration limits (including, without limitation, those set forth in 40 CFR 261). "Health, Safety and Environmental Liability" means any Liability or Damages resulting or arising from or in connection with any action, suit, litigation, claim, demand, proceeding, investigation or arbitration relating to the CFC Business or the Transferred Assets that relates to: (i) the protection of the environment, including: (A) compliance with any Environmental Laws, or health or safety laws, or any conditions of any Environmental Permits or other permits pertaining to environmental, health or safety. (B) the generation, storage, transport, treatment, cleanup, recycling, storage or disposal, or arrangement therefor, of any Hazardous Substances shipped to a facility owned or operated by a third party, and the release or threatened release of any Hazardous Substances from such facility, whether under CERCLA or otherwise; (C) the presence, release or threatened release of any Hazardous Substances, but excluding normal quantities of wastes and by-products which are generated in the Ordinary Course of Business and which are not required to be remediated or removed by Sellers pursuant to Environmental Law. (D) exposure to any Person, including past, present or future employees of Seller or Purchaser, to any product, raw material or Hazardous Substances generated, handled, produced, stored, used, recycled, treated or disposed of that contributes to any disease, injury or illne Section (ii) health and safety, including but not limited to any Liability or Damages under any applicable federal, state and local laws, rules, regulations, orders, directives, decrees or restrictions. 6 "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "HSR Notification Form" has the meaning described in Section 4.03. "Indemnified Party" and "Indemnifying Party" have the meanings described in Section 5.04. "Instruments of Transfer" has the meaning described in Section 2.01. "Intellectual Property Rights" has the meaning described in Section 2.01(m). "Interim Period" has the meaning described in Section 4.08. "Inventory" has the meaning described in Section 2.01(a). "Key Employees " has the meaning described in Section 8.01(p). "KPMG" has the meaning described in Section 2.05(b)(i)(3). "KPMG Audit Schedule" has the meaning described in Section 2.05(b)(i)(3). "Liability" shall mean shall mean any liability or obligation, whether such liability or obligation is known or unknown, disclosed or undisclosed, asserted or unasserted, absolute or contingent, accrued or unaccrued, mature or unmatured or otherwise, including any liability for Taxes. "Material Adverse Effect" shall mean, with respect to a Person, the Transferred Assets or the CFC Business, as applicable, a loss, expense or cost which is materially adverse to the assets or condition (financial or otherwise) of that Person, Transferred Asset or the CFC Business, as applicable, taken as a whole, except for such loss, expense or cost that results from or arises out of any event, occurrence, fact, condition, change or development that affects the economy generally or the industry of the CFC Business as a whole. "Material Open Contracts" has the meaning described in Section 3.01(l). "Nitrobenzene and Nitrotoluene Supply Agreement" has the meaning described in Section 4.22. "Non-Compete Business" has the meaning described in Section 4.10(a)(ii). "Non-Compete Products" has the meaning described in Section 4.10(a)(i). "Ordinary Course of Business" shall mean the ordinary course of business, consistent with past practice (including with respect to quantity and frequency, as applicable). "Owned Real Properties" has the meaning described in Section 3.01(j). "Pascagoula Equipment" has the meaning described in Section 4.13. "Person" shall mean a natural person, a corporation, partnership (general or limited), a limited liability company, a trust, an unincorporated entity, a Governmental Authority, or any other type of legal entity. 7 "Permits" has the meaning described in Section 2.01(j). "Permitted Exceptions" shall mean those easements, rights of way, restrictions, Security Interests and other exceptions to title set forth in Schedule 1.01(d). "PwC" has the meaning described in Section 2.05(b)(i)(3). "Purchase Price" has the meaning described in Section 2.05(a). "Records" has the meaning described in Section 2.01(h). "Review Period" has the meaning described in section 2.05(b)(i)(3). "Security Interests" shall mean any mortgage, pledge, lien, encumbrance, charge or other security interest, other than (i) liens for Taxes and assessments not yet due and payable, (ii) purchase money security interests and liens securing rentals under capital lease arrangements incurred in the Ordinary Course of Business, (iii) the Assumed Liabilities, and (iv) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the Ordinary Course of Busine Section. "Seller's Charter" means the Seller's Articles of Incorporation. "Sellers Indemnitees" has the meaning described in Section 5.01. "Services Agreement" has the meaning described in Section 4.06. "Scheduled Closing Date" has the meaning described in Section 7.01. "Tangible Personal Property" has the meaning described in Section 3.01(i). "Taxes" shall mean any federal, state, local or foreign gross or net income, gross or net receipts, windfall profits, severance, property, ad valorem, real estate, capital property (tangible or intangible), production, sales, use, value added, stamp, duty, business transfer, wealth, license, excise, franchise, employment, withholding or similar taxes imposed on the income, properties or operations of Sellers, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties. "THPE Toll Manufacture Agreement " has the meaning described in Section 4.16. "Transaction" has the meaning described in the second Whereas clause. "Transferred Assets" has the meaning described in Section 2.01. "Transferred Employees" has the meaning described in Section 4.10(f). "Transition Supply Agreement" has the meaning described in Section 4.05. "2002 Payments" has the meaning described in Section 2.05(b)(ii)(1)(A). "2003 Payments" has the meaning described in Section 2.05(b)(ii)(1)(B). 8 "2004 Payments" has the meaning described in Section 2.05(b)(ii)(1)(C). "Tyrone Equipment" has the meaning described in Section 2.01(c). "Tyrone Facility" has the meaning described in Section 2.01(b). "US GAAP" has the meaning specified in Section 1.03. "Working Capital" has the meaning described in Section 2.01(a). "Working Capital Adjustment" has the meaning described in Section 2.05(a). "Working Capital Audit" has the meaning described in Section 2.05(b)(i)(3). Section 1.02 Singular/Plural. Unless the context otherwise requires, words defined herein in the singular include the plural and words defined in the plural include the singular. Section 1.03 Accounting Terms. Any accounting terms used in this Agreement and not specifically defined shall have the meanings customarily given them in United States generally accepted accounting principles ("US GAAP"). Section 1.04 Interpretation of "include". Whenever the word "include", or any form thereof, is used herein to describe a more general word or phrase, the list of items following is not meant to be all inclusive nor to be illustrative of the type of items described by the word or phrase, and the list of items shall not be a limitation on the general nature of the word or phrase. ARTICLE II PURCHASE AND SALE OF ASSETS Section 2.01 Sale of Assets; Transferred Assets. Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, (i) the Sellers shall sell, transfer, assign, convey and deliver to Buyer, and Buyer shall, in the manner and to the extent set forth herein, purchase or acquire from Sellers, all right, title and interest of Sellers in and to all of the assets and rights thereto (other than the Excluded Assets described in Section 2.02) used or intended for use in connection with the CFC Business as the same may exist on the Closing Date (the "Transferred Assets"), including the following assets of Sellers: (a) The working capital of the CFC Business owned by Sellers on the Closing Date ("Working Capital"), including the trade notes and accounts receivable, prepaid expenses, deposits and other receivables held by or on behalf of Sellers as of the Closing Date arising out of the CFC Business (collectively, the "Accounts Receivable") less the trade and non-trade payables and accrued expenses of Sellers relating to or incurred in connection with the business, operations or activities or inactivity of the CFC Business on or prior to the Closing Date (collectively, the "Accounts Payable"), as well as all the inventory which is used or intended for use in connection with the operation of the CFC Business, including raw materials, work-in-process, finished goods, supplies, materials, stores and spare parts, stored, kept or maintained by, or previously purchased and in transit to, Sellers, for or in connection with the CFC Business in the Ordinary Course of Business(the "Inventory"). The December 31, 2000 Balance Sheet reflects Working Capital as of December 31, 2000 of $30,974,000.00; 9 (b) The land, including the buildings, structures and appurtenances thereon, owned by Sellers and located in or around Tyrone, Blair County, Pennsylvania as more particularly described on the attached Schedule 2.01(b) (the "Tyrone Facility"); (c) The tangible assets and properties, including machinery and equipment, vehicles, rolling stock, tooling, tools, furniture, office equipment (including computers and data processing equipment), furnishings and fixtures, owned by Sellers and which are located at or associated with the Tyrone Facility ("Tyrone Equipment"); (d) A leasehold interest, as more particularly described in Section 4.15, of that portion of the land owned by Sellers and located in or around Dayton, Montgomery County, Ohio as more particularly described on the attached Schedule 2.01(d) (the "Dayton Pilot Plant Facility); (e) The buildings, structures and appurtenances, including the chemical manufacturing facilities, located on the land that constitutes the Dayton Pilot Plant Facility (the "Dayton Pilot Plant Buildings"); (f) The following tangible assets: (i) the tangible assets and properties, including machinery and equipment, vehicles, rolling stock, tooling, tools, furniture, office equipment, furnishings and fixtures, owned by Sellers which are located at and used primarily in connection with the Dayton Pilot Plant Facility, and (ii) such other tangible assets and properties, including machinery and equipment, tooling, furniture, office equipment, furnishings and fixtures, owned by Seller which are located at CFC's Dayton, Ohio facility (but outside of the Dayton Pilot Plant Facility) which is listed on the attached Schedule 2.01(f) (the tangible assets described in (i) and (ii) are collectively referred to as the "Dayton Equipment"); (g) Subject to Section 4.13, the Designated Pascagoula Equipment; (h) Subject to Section 4.02, all of the following books and records held by Sellers that are used or intended for use in the CFC Business, including: all books; records; ledgers; files; documents; correspondence; customer, supplier and other lists; pricing and cost information, business and marketing plans and proposals; service, distribution, maintenance and marketing records; plats; surveys; architectural plans or drawings; specifications; advertising and promotional materials; procedure manuals; service and parts records; warranty records; archives; existing or set forth in any form whatsoever, including paper, electronic media, computer records, memory, tape or disk, microfilm, microfiche, image or other storage media; and copies of all other such records and documents in any form whatsoever described in this paragraph; but excluding the corporate minute books, seal, stock records and other records or documents related to the corporate formation, existence and maintenance of Sellers, and all records and documents relating to environmental matters to which Sellers have agreed pursuant to Article V hereof to indemnify Buyer, including waste manifests and waste characterizations (collectively, the "Records"); provided, however, Sellers shall at Closing furnish Buyer a copy of the records and documents relating to environmental matters which are retained by Sellers; (i) All of Sellers' rights, title and interests under those contracts, purchase orders, orders on letters of credit, customer orders and agreements to which either of Sellers are a party and all other commitments and/or binding obligations, and all Security Interests and guarantees in favor of or for the benefit of Seller, existing on the Closing Date, that arise in connection with the operation of the CFC Business (the "Assumed Contracts") and which are listed in Schedule 2.01(i); (j) All permits, approvals, franchises, authorizations and consents held or otherwise used or intended for use by Sellers in connection with the operation of the CFC Business arising out of 10 and associated with CFC's operations at its Tyrone Facility (the "Permits"), including Environmental Permits, all as listed in Schedule 2.01(j); (k) All rights of Sellers under or pursuant to all warranties, representations, indemnities and guarantees made by suppliers, manufacturers and contractors in connection with CFC Products or the CFC Business, or affecting the real estate, machinery, equipment, furniture, fixtures or personalty of any kind used by Sellers in connection with the business or operations of the CFC Business; (l) All claims, deposits, prepayments, refunds, causes of action, choses in action, rights of recovery, rights of set off, rights of recoupment (including any such items relating to the payment of taxes) arising out of or relating to the CFC Business or the Transferred Assets; (m) All of the following intellectual property rights of Sellers used or intended to be used in connection with the operations of the CFC Business or the Transferred Assets (the "Intellectual Property Rights"): (i) domestic and foreign patents (including patents, patent applications and disclosures, together with all reissuance, divisions, continuations, continuations-in-part, revisions, extensions and reexaminations thereof, conception records and support documentation such as lab notebooks; (ii) trademarks (including Seller's FirstCure(R) trademark), trade dress, trade names, service marks (and all variations of and logos associated with such names), together with all translations, adaptations, derivations and combinations thereof and including all goodwill associated therewith; (iii) all copyrightable works, all copyrights, and all applications, registrations and renewals in connection therewith; (iv) all mask works and all applications, registrations and renewals in connection therewith; (v) all trade secrets, technology and confidential information (including ideas, research and development), know-how, formulas, composition, inventions (whether patentable or unpatentable and whether or not reduced to practice), improvements thereto and manufacturing and production processes and techniques, operating manuals, technical data, designs, drawings, specifications; (vi) all computer software and processes (including data and related documents, whether electronic written or otherwise); (vii) government approvals, permits, licenses, product registrations, filings, authorizations and approvals, and applications for any of the foregoing; and (viii) confidential information and other similar intangible assets. (Schedule 2.01(m) sets forth a list of the patents, patent applications, trademarks and trademark applications to be assigned to Buyer); and (n) All other tangible and intangible assets owned by Sellers on the Closing Date that are used or intended for use in connection with the operation of the CFC Business and are listed on Schedule 2.01(n). Sellers shall (1) transfer the Transferred Assets (other than the Tyrone Facility and the Dayton Pilot Plant Facility) to Buyer pursuant to a general assignment and bill of sale in the form of Exhibit A attached hereto (the "Bill of Sale") and an assignment and assumption agreement in the form of Exhibit B attached hereto (the "Assignment and Assumption Agreement"), (2) transfer the Tyrone Facility to Buyer pursuant to a deed, subject to the Permitted Exceptions, in the form of Exhibit C attached hereto (the "Deed") and (3) transfer the leasehold interest in the Dayton Pilot Plant Facility pursuant to a lease in the form of Exhibit D (the "Dayton Pilot Plant Lease") (collectively with the Bill of Sale, Assignment and Assumption Agreement, the Deed and the Pilot Plant Lease shall be referred to as the "Instruments of Transfer"). Section 2.02 Excluded Assets. Notwithstanding anything to the contrary in this Agreement, Sellers shall retain and not sell, transfer, assign, convey or deliver to Buyer, and Buyer shall not purchase or acquire from Sellers, the following assets (the "Excluded Assets"): 11 (a) Sellers' right, title and interest in and to the Dayton Real Property (including any Hazardous Substances stored or contained therein or thereunder) and any buildings, structures and appurtenances located on the Dayton Real Property, other than (i) a leasehold interest, as more particularly described in Section 4.15, of the Dayton Pilot Plant Facility and (ii) the Dayton Pilot Plant Buildings; (b) Sellers' right, title and interest in and to all real property and buildings at Sellers' Pascagoula Plant (including any Hazardous Substances stored or contained therein or thereunder); (c) Sellers' right, title and interest in the "ChemFirst" trademark, servicemark and tradename (and all variations of and logos associated with such names and marks, including the concentric circle of Cs); (d) Any loan agreements, indentures or other contracts or agreements for or relating to any indebtedness for borrowed money or guaranties of Seller of the obligations of any other Person; and (e) The assets listed on Schedule 2.02(e) (f) The Permits related to the use and operation of the Dayton Plant, including the Dayton Pilot Plant Facility, and Sellers' Pascagoula, Mississippi facility; (g) The tangible assets located at the Dayton Facility, other than the tangible assets set forth in Section 2.01(f). Section 2.03 Title to Transferred Assets. The Transferred Assets shall be sold, transferred, assigned and conveyed to Buyer by Sellers at Closing (except that the Designated Pascagoula Equipment shall be sold, transferred, assigned and conveyed at the time set forth in Section 4.13), free and clear of any and all Security Interests, other than the Permitted Exceptions. Section 2.04 Assumption of Liabilities. (a) On the Closing Date, immediately upon the conveyance, transfer and assignment of the Transferred Assets, Buyer shall assume, and agree and undertake to pay, perform and discharge as and when due, each of the following obligations, responsibilities, liabilities and debts (all of which are hereinafter referred to collectively as the "Assumed Liabilities"): (i) any and all Liabilities, including executory obligations, arising out of or relating to events or occurrences on and after the Closing Date with respect to the Assumed Contracts (other than to the extent such obligations are for the payment of money and are due and payable on or prior to the Closing), but in any case, not including any Liability for any breach of an Assumed Contract by Sellers occurring prior to Closing; and (ii) to the extent contained in Working Capital, the Accounts Payable, other than the Accounts Payable associated with the CFC Business at Pascagoula, Mississippi. (b) Except for the Assumed Liabilities, Liabilities incurred by Buyer in connection with the use or ownership of the Transferred Assets after Closing and as otherwise expressly set forth in this Agreement, Buyer shall neither assume, nor become responsible, directly or indirectly, for any Liability of Sellers, or for any claims or demand based thereon or attributable thereto (collectively, the "Excluded Liabilities"), and all such Excluded Liabilities, whether known, unknown, disclosed, 12 undisclosed, direct, indirect, contingent, accrued, or otherwise, shall remain the sole obligation and responsibility of Sellers, including: (i) All Liabilities with respect to actions, grievances, arbitrations, charges, suits, claims, proceedings or investigations relating to the ownership or operation of the CFC Business or the Transferred Assets that arise from the ownership or operations of the CFC Business or the Transferred Assets prior to the Closing Date; (ii) All Health, Safety and Environmental Liabilities and all obligations arising in connection with the compliance with any Environmental, health or safety laws, arising from the ownership or operations of the CFC Business or the Transferred Assets prior to the Closing Date; (iii) Liabilities for (A) defective CFC Products manufactured and sold by Sellers prior to the Closing Date, (B) defective CFC Products manufactured prior to the Closing Date and sold after the Closing Date to the extent such Liabilities arise out of a manufacturing defect (including defects in labeling) which existed prior to the Closing Date, (C) for services rendered by Sellers prior to the Closing Date and (D) actual or alleged conflict or infringement of the intellectual property rights of third parties by Sellers that occurred prior to the Closing Date; (iv) Any Liability of Sellers for income and other Taxes arising in connection with the consummation of the Transaction (including any income Taxes arising because Sellers are transferring assets to Buyer or because Sellers have deferred gain on any deferred Intercompany transactions); (v) Any Liability arising out of or attributable to any Excluded Asset or otherwise expressly assumed by Sellers pursuant to this Agreement; (vii) Any Liability of Sellers arising from, relating to or incurred in connection with the use or ownership of the Pascagoula Plant, whether prior to or after the Closing, other than Liabilities in connection with Assumed Contracts relating to CFC Business associated with the Pascagoula Plant; and (viii) The Accounts Payable associated with the CFC Business at Pascagoula, Mississippi. Section 2.05 Consideration for the Transferred Assets. (a) Purchase Price. In consideration for the transfer of the Transferred Assets, the Buyer shall pay to Sellers, in accordance with this Section 2.05, the aggregate of (i) the amount of Seventy-Four Million Dollars and No Cents ($74,000,000.00) (the "Base Purchase Price"), as adjusted in accordance with Section 2.05(b) (the "Working Capital Adjustment") plus (ii) the contingency payments set forth in Section 2.05(b)(ii) (the "Contingency Payments"). (The total of the Base Purchase Price (as adjusted by the Working Capital Adjustment) and the Contingency Payments shall be the "Purchase Price".) (b) Payment of the Purchase Price. The Purchase Price shall be paid by the Buyer as set forth in this Section 2.05(b). (i) Base Purchase Price Payment and Adjustment. The Base Purchase Price and the Working Capital Adjustment shall be paid as set forth in this Section 2.05(b)(i). 13 (1) Closing Date Payment. At the Closing, the Buyer shall pay the Seller, subject to the adjustment described in Sections 2.05(b)(i)(2) below, the Base Purchase Price of Seventy-Four Million Dollars and No Cents ($74,000,000.00). The amount to be paid by the Buyer at the Closing shall be made by wire transfer in immediately available funds, such wire transfer to be completed at or before 2:00 p.m. Jackson, Mississippi time on the Closing Date (provided the account designated by Sellers is located in the United States), pursuant to instructions to be given by the Seller. (2) Closing Date Adjustment and Payment. At the Closing, Sellers shall deliver to Buyer their best estimate of the Working Capital as of the Closing Date (the "Estimated Working Capital"). The Estimated Working Capital shall be determined in a manner consistent with those methods used to calculate the Working Capital as set forth in the December 31, 2000 Balance Sheet of CFC, which reflected Working Capital of $30,974,000.00, except that (A) Accounts Payable associated with the CFC Business at Pascagoula, Mississippi shall be excluded from the calculation of Working Capital as of the Closing Date and (B) the prepaid expenses as of the Closing Date shall be calculated using actual prepaid expenses as of the Closing Date as opposed to using estimated allocations of prepaid expenses. If the Estimated Working Capital as calculated above exceeds $30,974,000.00, then the difference shall be added to the Base Purchase Price payable at Closing. If the Estimated Working Capital is less than $30,974,000.00, then the difference shall be subtracted from the Base Purchase Price payable at Closing. (3) Post-Closing Date Adjustment. On the Closing Date, Sellers shall at their expense cause KPMG Peat Marwick, LLP ("KPMG") to conduct a physical count of the Inventory and determine the actual value of the Inventory as of the Closing Date, based on Sellers' costs (the "Closing Date Inventory Value"). In no case shall the cost of Inventory items exceed their market value, and the Inventory shall not include items recorded by Sellers as excess and obsolete in Sellers' inventory records in the Ordinary Course of Busine Section. Buyer, in conjunction with its independent public accountants, PricewaterhouseCoopers LLP ("PwC"), shall be entitled to observe and participate in the Inventory count conducted by Sellers at Buyer's own cost. As promptly as reasonably possible, but in any event within forty-five (45) days after the Closing Date, Sellers shall at their expense cause KPMG to conduct and complete an audit (the "Working Capital Audit") to determine the amount of Working Capital as of the close of business immediately preceding the Closing Date. Sellers shall cause KPMG to deliver, promptly after completion of the Working Capital Audit and in any event within forty-five (45) days after the Closing Date, a statement of Working Capital as of the Closing Date and a schedule (collectively, the "KPMG Audit Schedule") reconciling the Sellers' calculation of the Estimated Working Capital as of the Closing Date to the audited Working Capital as of the Closing Date as determined by the Working Capital Audit. KPMG's work papers shall, upon request of Buyer, be provided to the Buyer and PwC under KPMG's normal policies and procedures. The Working Capital Audit, and the determination of CFC's Working Capital as of the Closing Date, shall be prepared in accordance with US GAAP, applied on a basis consistent with CFC's past practices, except that (A) Accounts Payable associated with the CFC Business at Pascagoula, Mississippi shall be excluded from the calculation of Working Capital as of the Closing Date and (B) the prepaid expenses as of the Closing Date shall be calculated using actual prepaid expenses as of the Closing Date as opposed to using estimated allocations of prepaid expenses. KPMG's audit shall be conducted under generally accepted auditing standards, utilizing appropriate standards of materiality for a stand-alone entity. Buyer shall render all cooperation reasonably necessary in connection therewith. The Buyer shall have a period of up to 30 days following delivery of the KPMG Audit Schedule to review it and KPMG's supporting work papers (the "Review Period"). (4) Accounting Disputes. The parties shall endeavor to resolve any disagreements relating to the KPMG Audit Schedule within 20 days following the Review Period. If all disagreements relating to the KPMG Audit Schedule are not resolved within such time period, all matters 14 in dispute (collectively, the "Disputed Accounting Matter") shall be resolved by promptly submitting the Disputed Accounting Matter for review to a nationally recognized independent accounting firm mutually acceptable to the Seller and the Buyer (the "Accounting Arbitrator"). If issues in dispute are submitted to the Accounting Arbitrator for resolution, (A) each party will furnish to the Accounting Arbitrator such workpapers or other documents and information relating to the disputed issues as the Accounting Arbitrator may request and as are available to that party (or its independent public accountants), (B) the determination by the Accounting Arbitrator, as set forth in a notice delivered to both parties by the Accounting Arbitrator, will be binding and conclusive on the parties, subject only to the claims of bias, prejudice or other similar misconduct, and (C) each party will be afforded the opportunity to present to the Accounting Arbitrator any material relating to the determination and to discuss the determination with the Accounting Arbitrator. The Accounting Arbitrator's decision with respect to the Disputed Accounting Matter shall be rendered within thirty (30) days following submission of the Disputed Accounting Matter to the Accounting Arbitrator. (5) Post-Closing Date Payment. Within five (5) business days following the first to occur of (A) the agreement between the Buyer and Sellers as to the Working Capital as of the Closing Date or (B) the final determination of the Working Capital as of the Closing Date by the Accounting Arbitrator, the following action shall be taken. If the Estimated Working Capital estimated by the Sellers at Closing pursuant to Section 2.05(b)(i)(2) hereof is less than the amount of the Working Capital determined by the parties' agreement or the Accounting Arbitrator, the Buyer shall promptly pay the Seller the amount of such deficiency. If the Estimated Working Capital estimated by the Seller at Closing pursuant to Section 2.05(b)(i)(2) hereof exceeds the amount of the Working Capital determined by the parties' agreement or the Accounting Arbitrator, the Sellers shall promptly pay the Buyer the amount of such exce Section. All costs and expenses of KPMG related to the Working Capital Audit shall be borne by the Sellers, all costs and expenses of PwC related to the Working Capital Audit shall be borne by the Buyer, and all costs and expenses of the Accounting Arbitrator related to the resolution of a Disputed Accounting Matter shall be shared equally between the Sellers (1/2) and the Buyer (1/2). (6) Inventory Review. Prior to Closing, and as soon as practical after execution of this Agreement, the parties will meet and attempt in good faith to identify and resolve which obsolete Inventory will be retained by Sellers and excluded from Working Capital. (ii) Contingency Payments. In addition to the payments set forth in Section 2.05(b)(i), Buyer shall pay to Sellers the payments set forth in this Section 2.05(b)(ii). (1) Payments. Buyer shall pay Sellers the following amounts: (A) 2002 Payments. Buyer shall pay Sellers seventy percent(70%) of the total Contribution Margin earned or accrued during calendar year 2002 by Buyer, or any Affiliate of Buyer, in connection with or associated with the processing of step 6 (including the distillation step) of the CFC Product now referred to as F-8426 (the "2002 Payments"). (B) 2003 Payments. Buyer shall pay Sellers fifty percent (50%) of the total Contribution Margin earned or accrued during calendar year 2003 by Buyer, or any Affiliate of Buyer, in connection with or associated with the processing of step 6 (including the distillation step) of the CFC Product now referred to as F-8426 (the "2003 Payments"). (C) 2004 Payment. Buyer shall pay Sellers fifty percent (50%) of the total Contribution Margin earned or accrued during calendar year 2004 by Buyer, or any Affiliate of Buyer, in connection with or associated with the processing of step 6 of the CFC Product now referred to as F-8426 (the "2004 Payments"). 15 (2) Buyer's Efforts to Promote F-8426. Buyer shall use its reasonable, good faith efforts to retain the F-8426 business (including the processing of step 6) during the period from Closing to December 31, 2004 at a level equal to or greater than the forecasted production rates set forth in Schedule 2.05(b)(ii)(2). (3) Access to Records and Audit Rights. Within thirty (30) days of the end of each calendar quarter, Buyer shall provide Sellers with a written report which includes (A) the production volumes of F-8426 during the quarter and the volumes anticipated for the remainder of the calendar year and (B) the amount of Contingency Payments accrued during the quarter and the amount of Payments anticipated to be earned during the remainder of the calendar year. If requested in writing by Sellers, at least ten (10) business days in advance, Buyer, and any Affiliate of Buyer, shall during normal business hours produce its books and records in connection with F-8426 in order to verify the amount of the payments to be made in accordance with Section 2.05(b)(ii), and other proper purposes in connection therewith, and Sellers shall have the right to annually have its outside accounting firm conduct an audit of Buyer's, or Buyer's Affiliate's, books and records to verify the correctness of the Contingency Payments made by Buyer. If it is determined that Buyer has under paid the Contingency Payments by fifteen percent (15%) or more, Buyer shall be responsible for the cost of such audit. Otherwise, Sellers shall be responsible for such audit costs. (4) Time and Method of Payments. The Contingency Payments shall be due and payable upon the later of (i) (A) January 31, 2003 in the case of the 2002 Payments, (B) January 31, 2004 in the case of the 2003 Payments and (C) January 31, 2005 in the case of the 2004 Payments or (ii) fifteen (15) days after the gross revenue on which the Contingency Payment is based is collected from the customer. The Contingency Payments shall be deemed earned or accrued in the calendar year the product toll processed is sold to the customer. The Contingency Payments shall be made by wire transfer in immediately available funds, such wire transfer to be completed on or before 2:00 p.m. on the due date (provided the account designated by Sellers is located in the United States), pursuant to instructions to be given by Sellers. (5) Disputes. In the event of a dispute among the parties as to the amount of any Contingency Payment, if the parties are unable to agree on a resolution within twenty (20) days after the dispute arises, the matter shall be submitted to the Accounting Arbitrator designated in Section 2.05(b)(i)(4) and the procedures set forth in Section 2.05(b)(i)(4) shall be employed in resolving the dispute. Within five (5) business days following the first to occur of (A) the agreement between the Buyer and Sellers as to the correct amount of the Contingency Payment or (B) the final determination of the correct amount of the Contingency Payment by the Accounting Arbitrator, Buyer shall pay to the Seller the amount of the underpayment or Sellers shall refund to Buyer the amount of the overpayment, as the case may be. Section 2.06 Examination and Condition of the CFC Business and the Transferred Assets and Other Matters. (a) Examination by the Buyer. Subject to Section 3.01, the Buyer acknowledges that (i) all tangible personal property which constitutes Transferred Assets is used and (ii) it has made such investigation and examination of the Transferred Assets and the CFC Business as it deems necessary or desirable. (b) Condition of Transferred Assets and Disclaimer of Warranties. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS AGREEMENT, (i) THE TRANSFERRED ASSETS ARE ACCEPTED "AS IS, WHERE IS" WITH ALL FAULTS AND (ii) SELLERS MAKE NO 16 OTHER REPRESENTATION OR WARRANTY OF ANY KIND AND DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PURPOSE, EITHER WITH RESPECT TO THE TRANSFERRED ASSETS AND/OR THE CFC BUSINESS. Section 2.07 Consents and Approvals. To the extent that the sale, conveyance, transfer, assignment or new issuance of any Permit, agreement, lease, Assumed Contract or other document or instrument requires the consent of any Person other than Buyer or Sellers, Sellers and Buyer shall use their reasonable efforts to obtain, prior to Closing or as soon thereafter as is reasonably practical, all required consents. To the extent the sale, conveyance, transfer, or assignment of any of the Transferred Assets or the delegation by Sellers to Buyer of the Assumed Contracts may be prohibited, restricted or delayed pursuant to any provision or requirement of any applicable law, rule or regulation or may give rise to any right on the part of any other party thereto not to perform, or may release any such party from any of its obligations thereunder, this Agreement shall constitute an agreement to sell, transfer, assign and delegate such Transferred Assets and such agreements, leases and Assumed Contracts as soon as practicable following the compliance by Sellers and Buyer with such law, rule or regulation or the obtaining of any necessary consent or otherwise; provided, however, that from the Closing Date to the date such transfer is effected, Sellers shall, to the extent permitted by applicable law, rule or regulation, make available to Buyer, who shall accept and receive the substance of such asset and the economic and practical benefits of such assets, and Sellers and Buyer shall each bear their own costs associated with the delivery of the benefits thereof. Section 2.08 Title and Risk of Loss. Title, possession and risk of loss or destruction or damage to the Transferred Assets shall pass to Buyer as of Closing, except that title, possession and risk of loss or destruction or damage to the Designated Pascagoula Equipment shall pass to Buyer as set forth in Section 4.13. The Transferred Assets will be delivered to and received by Buyer FOB the location of each Transferred Asset as of the Closing Date. Section 2.09 Further Assurances. At any time and from time to time after the date hereof, each of the parties hereto, at the request of any other party and without further consideration, will do such things, including, without limitation, executing and delivering instruments of sale, transfer, conveyance, assignment, confirmation and the like, as may be reasonably necessary in order to transfer, convey and assign to the Buyer and to confirm the Buyer's title in the Transferred Assets and to effectuate the transactions contemplated hereby. Section 2.10 Financial Statements. Buyer understands and agrees that (i) the CFC Business is and has been conducted by CFC and, in part, by First Chem, (ii) the portion of the business of CFC associated with the Dayton Plant other than the Dayton Pilot Plant Facility is not included in the CFC Business and, therefore, not in the Financial Statements and (iii) the Financial Statements, including the December 31, 2000 Balance Sheet, were created solely for this transaction and that the information contained therein was determined from the books and records of accounts of both CFC and First Chem. ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.01 Sellers' Representations and Warranties. As an inducement to the Buyer to enter into this Agreement and to consummate the transactions contemplated hereby, Sellers hereby jointly and severally represent and warrant to the Buyer as follows: 17 (a) Organization and Qualification. First Chem is a corporation duly organized, validly existing and in good standing under the laws of the State of Mississippi and is duly qualified to transact business as a foreign corporation in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect on Sellers' ability to sell the Transferred Assets. CFC is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and is duly qualified to transact business as a foreign corporation in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect on Sellers' ability to sell the Transferred Assets. (b) Corporate Power and Authority. The Sellers have the corporate power and authority to execute, deliver and perform this Agreement and the other documents and instruments contemplated hereby. The execution, delivery and performance of this Agreement and the documents contemplated hereby and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by the Sellers. This Agreement, and each of the other agreements, documents and instruments to be executed and delivered by the Sellers have been duly executed and delivered by, and assuming this Agreement constitutes a valid and binding obligation of the Buyer, constitute the legal, valid and binding obligation of, the Sellers enforceable against the Sellers in accordance with their terms. (c) No Violations, Etc. Except as set forth in Schedule 3.01(c) hereto, neither the execution, delivery or performance by the Sellers of this Agreement and the other documents and instruments contemplated hereby nor the consummation of the transactions contemplated hereby will (i) violate, conflict with or constitute a default of the Sellers' respective Charters or Bylaws, each as may have been amended, (ii) require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, except as may be required under the HSR Act; (iii) violate, conflict with or constitute a default of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument, obligation or commitment to which either of the Sellers is a party; or (iv) violate any law, rule or regulation or any judgment, decree, order or injunction applicable to the Sellers, except for conflicts, violations or defaults which would not have a Material Adverse Effect. (d) Financial Statements. The Sellers have previously furnished to the Buyer, and attached hereto as Schedule 3.01(d) is, the December 31, 2000 Balance Sheet of CFC (the "December 31, 2000 Balance Sheet"), and statements of income and operations for the year ended December 31, 2000 (collectively, the "Financial Statements"). Except as described in Schedule 3.01(d), the Financial Statements (i) have been prepared from the books of account and records of CFC and/or FirstChem, which were maintained on a basis consistent with CFC's and First Chem's past financial practices (since consolidation of the batch chemicals business in Pascagoula, Mississippi), (ii) are internal, unaudited statements and (iii) to the extent possible, recognizing the unique nature of the Financial Statements, have been prepared in accordance with US GAAP, consistently applied, subject to normal audit adjustments. The representations and warranties of this Section 3.01(d) are subject to qualifications of Section 2.10. (e) Taxes. Except as provided on Schedule 3.01(e) attached hereto, (i) all federal, state, local and foreign tax returns and tax reports required to be filed by Sellers with respect to the CFC Business have been timely filed with the appropriate Governmental Authorities in all jurisdictions in which such returns and reports are required to be filed, other than those tax returns and tax reports the failure of which to file will not have a Material Adverse Effect and (ii) all Taxes (including, without limitation, income, accumulated earnings, property, sales, use, franchise, value added, fuel, employees' income withholding and social security taxes) which are shown to be due on such tax returns and tax reports, including all interest and penalties thereon, have been paid in full or provision has been made for the payment therefore in accordance with US GAAP. Neither Seller has taken or failed to take any action which could create or result in any lien for Taxes on any of the Transferred Assets. 18 (f) Litigation. Except as set forth on Schedule 3.01(f), there is no (i) action, suit, claim, proceeding or investigation pending or, to Sellers' knowledge, threatened against the CFC Business, the Transferred Assets or either of the Sellers (with respect to the CFC Business or the Transferred Assets), at law or in equity, or before or by any Governmental Authority, (ii) arbitration or similar proceeding relating to the CFC Business, the Transferred Assets or the Sellers (with respect to the CFC Business or the Transferred Assets) or (iii) governmental inquiry pending or threatened against or involving the CFC Business, the Transferred Assets or the Sellers (with respect to the Transferred Assets) which in each case would have a Material Adverse Effect. (g) Compliance with Law. Except as set forth on Schedule 3.01(g), Sellers (with respect to the CFC Business and the Transferred Assets) have complied with and are not in default under any law, ordinance, legal requirement, rule, regulation, order, judgments, Permits or approvals, including but not limited to those pertaining to zoning, which, if Sellers were in noncompliance or default thereof, would have a Material Adverse Effect. (h) Licenses and Permits. Except as set forth in Schedule 3.01(h), Sellers (with respect to the CFC Business and the Transferred Assets) have all licenses and Permits necessary for the use or operation of the CFC Business and the Transferred Assets as presently used or operated by Sellers as of the date of this Agreement, except for any licenses or Permits the failure of which to have would not have a Material Adverse Effect. Sellers (with respect to the CFC Business and the Transferred Assets) have materially complied with all conditions and requirements imposed by their licenses and Permits and neither Seller (with respect to the CFC Business and the Transferred Assets) has received any notice that any appropriate authority intends to cancel or terminate any of their licenses or Permits or that valid grounds for such cancellation or termination exist. (i) Tangible Owned Properties. Set forth in Schedule 3.01(i) is a schedule which lists all property and equipment (excluding real property) owned or leased by Sellers with respect to the CFC Business and which constitute Transferred Assets (collectively, the "Tangible Personal Property"). Except as shown on Schedule 3.01(i) hereto and except for Claims which do not have a Material Adverse Effect, Sellers have good and marketable title free and clear of all Claims to such Tangible Personal Property. With respect to Tangible Personal Property leased by Sellers as lessee, all leases, conditional sale contracts, franchises or licenses pursuant to which Sellers may hold or use (or permit others to hold or use) such Tangible Personal Property are valid and in full force and effect, and there is not under any of such instruments any existing default or event of default or event which with notice or lapse of time or both would constitute such a default, except where such a default would not have a Material Adverse Effect. Sellers' possession and use of such property has not been disturbed and no claim has been asserted against Sellers adverse to their rights in such leasehold interests. (j) Owned Real Property. Set forth in Schedule 3.01(j) is a schedule which lists or describes the Tyrone Facility and the Dayton Pilot Plant Facility (collectively, the "Owned Real Properties"). Except (i) as set forth in Schedule 3.01(j), (ii) for Permitted Exceptions and (iii) for those Claims which do not have a Material Adverse Effect, Sellers have good and marketable title free and clear of all Claims to the Owned Real Property. No notice from any governmental body or other person has been served upon, or received by, Sellers, nor are Sellers aware that any such notice is contemplated or planned to be served upon Sellers, claiming any violation of any ordinance, law, rule or regulation relating to zoning, land use regulation or other similar matter, or requiring any substantial work, repairs, reclamation, construction, alterations or installation on or in connection with the Owned Real Property which has not been complied with or that any right of access or other right enjoyed by Sellers is being modified or terminated, except as set forth on Schedule 3.01(j) hereto or except as to which would not have a Material Adverse Effect. There are no violations of any covenant, restriction or other agreement 19 or understanding, oral or written, affecting or relating to title or use of the Owned Real Properties, except those violations which do not have a Material Adverse Effect. There are no pending or, to the knowledge of Sellers, threatened condemnation or similar proceedings or assessments affecting any of the Owned Real Properties. (k) Environmental Matters. (i) Environmental Matters. With respect to the CFC Business and the Transferred Assets, except as set forth in Schedule 3.01(k) and except for such matters that would not have a Material Adverse Effect, (1) Sellers are in compliance with all applicable Environmental Laws; (2) neither Seller has received or is aware of any actual Claims, notices, demand letters, lawsuits or requests for information from any Governmental Authority or any private third party alleging that Sellers are in violation of, or liable under, any Environmental Laws; and (3) Sellers are not subject to any court order, administrative order or decree relating to any of the CFC Business or the Transferred Assets arising under any Environmental Laws. (ii) Except as set forth in Schedule 3.01(k), with respect to the CFC Business and the Transferred Assets, to the extent Sellers have processed, stored, disposed, transported, handled, emitted, discharged, or released any Hazardous Substances, Sellers have obtained and adhered to all necessary Permits and other approvals necessary for such processing, storage, disposal, transportation, handling, emitting, discharging or releasing, where the failure to obtain or adhere to such Permits or other approvals would have a Material Adverse Effect. (l) Outstanding Commitments. Schedule 3.01(l) hereto sets forth with respect to the CFC Business each of the open contracts, purchase orders and commitments for the supply of goods or services in excess of $50,000.00 (collectively, the "Material Open Contracts"). Except as set forth in Schedule 3.01(l), with respect to the Material Open Contracts set forth in Schedule 3.01(l) hereto (i) each is in full force and effect, except where the failure to be in full force and effect would not have a Material Adverse Effect and (ii) there are no existing defaults by Sellers, and neither Seller has been informed of an event of default thereunder, which default would result in a Material Adverse Effect. (m) Intangibles and Intellectual Property. Except as set forth in Schedule 3.01(m) hereto, there are no claims or demands of any person nor any proceedings pending, or to the Sellers' knowledge, threatened with respect to the Intellectual Property Rights and Sellers are not, to their knowledge, aware of any person or entity infringing upon such Intellectual Property Rights. The Intellectual Property Rights do not infringe any patents, copyrights or trade secrets held by any third person, except for such infringement which would not have a Material Adverse Effect. Sellers own or possess the licenses or other rights to all the Intellectual Property Rights identified in Schedule 2.01(m). (n) Insurance. Set forth in Schedule 3.01(n) hereto is a list of the policies of liability, property damage, fire, workers' compensation/employer's liability, title or other forms of insurance insuring Sellers (with respect to the CFC Business and the Transferred Assets) as of 11:59 p.m. the day before the Closing Date, and Schedule 3.01(n) also includes a list of the general commercial liability policies insuring Sellers (with respect to the CFC Business) for each of the previous five (5) years. Except as set forth in Schedule 3.01(n), Sellers do not have a claim pending or anticipated against any of the insurance carriers under any of such policies and to Sellers' knowledge there is no current basis for any such claim. (o) Transferred Assets. Except as set forth in Schedule 3.01(o), the Records include all records owned by the Sellers in respect of the CFC Business or the Transferred Assets or which Sellers have used or intended to be used in the CFC Business or the Transferred Assets as conducted by Sellers. 20 (p) No Changes Since December 31, 2000. Since December 31, 2000, and except as set forth on Schedule 3.01(p), there has not been any changes in the CFC Business carried out by Seller which have had a Material Adverse Effect on the CFC Business. More particularly, except as set forth on Schedule 3.01(p) and except as would not have a Material Adverse Effect on the CFC Business, between December 31, 2000 and the Closing Date: (i) The CFC Business has been conducted in the Ordinary Course of Business consistent with past practices; (ii) Sellers have not disposed or agreed to dispose of any Transferred Assets, except in the Ordinary Course of Business; (iii) Sellers have not created or suffered to be imposed any Security Interest on or against the Transferred Assets; and (iv) Sellers have not delayed or postponed outside the Ordinary Course of Business the payment of any Accounts Payable and other Liabilities constituting the Assumed Liabilities solely in contemplation of this Agreement. (q) Customers, Distributors and Suppliers. Schedule 3.01(q) contains a true and complete list of all distributors, representatives and agents of Sellers (with respect to the CFC Business) and a true and complete list of Sellers' customers that represent 5% or more of the CFC Business revenues for the twelve months ended as of the date of this Agreement. Schedule 3.01(q) contains a true and complete list of all persons who provided goods or services to Sellers (with respect to the CFC Business or the Transferred Assets) in the twelve months ended as of the date of this Agreement to which Sellers paid $25,000 or more since the beginning of said period. (r) Capacity of Tyrone Facility. As of the Closing Date, the capacity of the Tyrone Facility is, under normal operating conditions, sufficient to produce the quantity of product set forth in the calendar year 2002 forecast attached hereto as Schedule 3.01(r) according to the estimated production schedule set forth in Schedule 3.01(r), subject to ordinary and customary plant adjustments and set-up. (s) Brokers. Neither Seller has paid or has become obligated to pay any fee or commission to any broker, finder, investment banker or other intermediary in connection with the transactions contemplated by this Agreement. (t) Sellers' Employee Information. To the best of Sellers' knowledge, the Records contain all employee records and documents with respect to each employee of Sellers or any of its Affiliates who is engaged or involved in the CFC Business or the Transferred Assets. Section 3.02 Buyer's Representations and Warranties. As an inducement to the Sellers to enter into this Agreement and to consummate the transactions contemplated hereby, the Buyer hereby represents and warrants to the Seller as follows: (a) Organization. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Virginia and is duly qualified to transact business as a foreign corporation in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect on Buyer's ability to purchase the Transferred Assets. 21 (b) Buyer Corporate Power and Authority. The Buyer has the corporate power and authority to execute, deliver and perform this Agreement and the other documents and instruments contemplated hereby. The execution, delivery and performance of this Agreement and the documents contemplated hereby and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by the Buyer. This Agreement, and each of the other agreements, documents and instruments to be executed and delivered by the Buyer have been duly executed and delivered by, and constitute the valid and binding obligation of the Buyer enforceable against the Buyer in accordance with their terms. (c) No Violations, Etc. Except as set forth in Schedule 3.02(c), neither the execution, delivery or performance by the Buyer of this Agreement and the other documents and instruments contemplated hereby nor the consummation of the transactions contemplated hereby will (i) violate, conflict with or constitute a default of the Buyer's Charter or Bylaws, (ii) require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, except as may be required under the HSR Act, (iii) violate, conflict with or constitute a default of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument, obligation or commitment to which the Buyer is a party, or (iv) violate any law, rule or regulation or any judgment, decree, order or injunction applicable to the Buyer. (d) Litigation. There is no (i) action, suit, claim, proceeding or investigation pending or, to the best of the Buyer's knowledge, threatened against or affecting the Buyer, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding relating to the Buyer or (iii) governmental inquiry pending or threatened against or involving the Buyer, which in each case would materially impair the Buyer's ability to consummate the transactions contemplated hereby. (e) Brokers. Buyer has neither paid nor has become obligated to pay any fee or commission to any broker, finder, investment banker or other intermediary in connection with the transactions contemplated by this Agreement. ARTICLE IV ADDITIONAL AGREEMENTS Section 4.01 Trademarks, Servicemarks, Copyrights and Trade Names. This Agreement does not convey or transfer legal or equitable title to any trademarks, copyrights, trade names or trade designations which are owned, used or controlled by ChemFirst Inc. or the Sellers and used in connection with the CFC Business, except those which are set forth on Schedule 4.01. No right, title or interest, express or implied, is granted to the Buyer to use any trademarks, copyrights, trade names or trade designations of ChemFirst inc. or the Sellers except those listed on Schedule 4.01. All of ChemFirst Inc.'s or the Sellers' respective right, title and interest in those certain trademarks listed on Schedule 4.01 to be transferred to the Buyer will be transferred or conveyed to the Buyer as of the Closing Date. Without limiting the generality of anything herein, no rights are in any way transferred or conveyed to the trade names and/or trademarks "ChemFirst", "ChemFirst Inc.," "First Chemical Corporation," "ChemFirst Fine Chemicals, Inc." or the ChemFirst concentric Cs. The Buyer shall, within one hundred eighty (180) days after the Closing Date, obliterate or remove all trademarks, copyrights, trade names or trade designations belonging or licensed by or to the Sellers or ChemFirst Inc. which, after the Closing Date, remain on the Transferred Assets. For a period of up to one hundred eighty (180) days after the Closing Date, Buyer has the right to use the name "ChemFirst Fine Chemicals" or "ChemFirst Fine Chemicals, Inc." for purposes of communicating to customers, vendors and other relevant parties the fact that the Buyer has purchased the CFC Business and the Transferred Assets. Within thirty (30) days after the Closing, Sellers shall cause CFC to change its corporate name to a name which does not use the name " Fine Chemicals" 22 Section 4.02 Access to Records and Employees-Post Closing. After Closing and upon reasonable prior notice, Buyer shall provide the Sellers and its authorized agents, upon their request, reasonable access during normal business hours to the books, records and data being transferred to the Buyer on the Closing Date, in order to enable the Sellers to: (i) facilitate the preparation of financial statements and tax returns; (ii) respond to tax audits, investigations, claims, amended returns, or other proceeding in connection therewith; (iii) comply with the rules and regulations of the U.S. Internal Revenue Service, the U.S. Securities and Exchange Commission or other Governmental Authority; (iv) investigate, respond to, prosecute or defend any claim, demand or litigation made by or against the Sellers, or (v) for other proper purposes. For a period of three (3) years following the Closing Date, the Buyer shall not discard any books or records, either in paper or electronic form, being transferred to the Buyer on the Closing Date without thirty (30) calendar days prior written notice to the Sellers. Section 4.03 Access to Records and Employees-Pre-Closing. Sellers shall permit Buyer and its representatives after the date of execution of this Agreement and prior to the Closing Date to have reasonable access, during regular business hours and upon reasonable advance notice, to the properties and to the books and records of Sellers which relate to the CFC Business. In the event of the termination of this Agreement, Buyer shall (a) promptly deliver to Sellers all documents Buyer received from Sellers or their affiliated companies in contemplation of this transaction and (b) certify to Sellers that Buyer has destroyed, or caused to be destroyed, documents, work papers and other materials generated by Buyer or its representatives reflecting information obtained from Sellers or their respective representatives in contemplation of this transaction. Section 4.03 Preparation of HSR Act Filings. If reasonably required by counsel, as soon as practicable, each of the Seller and the Buyer shall file with the U.S. Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice a pre-merger notification form (the "HSR Notification Form") and any supplemental information (other than privileged information) which may be requested in connection therewith pursuant to the HSR Act, which filings and supplemental information will comply in all material respects with the requirements of the HSR Act. The parties shall cooperate fully with one another in connection with the preparation of such filings. The Buyer (1/2 share) and Sellers (collectively 1/2 share) shall share payment of the filing fee for the HSR Notification Form. Section 4.04 No Solicitation of the Seller's or CFC's Employees. In the event the transaction contemplated hereby is not consummated, neither the Buyer nor any affiliated company of the Buyer will, for a period of two (2) years from the date hereof, solicit (except through advertisements offered to the general public) or endeavor to entice away any person who is, on the date this Agreement is executed or thereafter, an employee or officer of the Sellers or any of their affiliated companies. Section 4.05 Transition Supply. The Buyer understands and acknowledges that certain of the CFC Products (including those with requalification requirements) are currently being produced at First Chem's Pascagoula, Mississippi facility, that production of such products is being transferred to the Tyrone Facility and that after the Closing such products will no longer be produced for the CFC Business at the Seller's Pascagoula facility. In order to facilitate the transfer of production of such products to Buyer's Tyrone Facility and if necessary, during a transition period of not more than six (6) months from and after the Closing Date, in order to meet customer demand for such products, at the Closing the Sellers agree to enter a supply agreement with Buyer substantially in the form attached hereto as Exhibit E (the "Transition Supply Agreement"). Section 4.06 Services Agreement. At the Closing, Sellers, or an Affiliate of Sellers, and Buyer agree to enter into a Services Agreement in the form attached hereto as Exhibit F (the "Services Agreement"). 23 Section 4.07 Information Systems. To the extent the Sellers may lawfully do so without breach of any agreement or license, for a period of eight (8) months from and after the Closing Date, the Sellers will allow the Buyer to have access and use to so much of the Sellers' information systems as is reasonably necessary to facilitate the transfer to the Buyer of the financial and production information related to the CFC Business or the Transferred Assets which is contained in the Seller's information systems. Section 4.08 Conduct of Business. During the period between signature of this Agreement and the Closing Date ("Interim Period"), Sellers agree that: (a) Sellers shall operate the CFC Business in the ordinary and usual course of business, consistent with past practices, and Sellers will endeavor to promptly advise Buyer in writing of (i) any Material Adverse Change in the financial condition of the CFC Business or the Transferred Assets or (ii) any material adverse development causing a breach of any of Sellers' representations, warranties, or covenants contained herein, to which Sellers become aware. (b) Sellers (with respect to the CFC Business) shall not, other than in the ordinary and usual course of business, consistent with past practices, (i) acquire or dispose of any fixed assets or acquire or dispose of any other material assets, (ii) increase the rate or terms of compensation of any officer or employee or increase the rate or terms of or enter into any new employee benefit, option, bonus, insurance, pension, severance or termination pay, fringe benefit or incentive plan, program or arrangement or employment or consulting contract (other than those terminable at will upon less than thirty (30) days notice and without any termination or severance obligation) or (iii) encumber any of its properties. (c) Sellers shall conduct the CFC Business in accordance with all applicable laws, regulations and orders of any Governmental Authority, including Environmental Laws. Section 4.09 Payments on Account of Accounts Receivable. If Sellers receive payments for Accounts Receivable which have not been re-assigned to Sellers pursuant to Section 4.20, then Sellers shall promptly remit to Buyer after receipt any such payments, but in any case no later than five (5) business days after such payment is received. If Buyer receives payments for Accounts Receivable which have been re-assigned to Sellers pursuant to Section 4.20, then Buyer shall promptly remit to Sellers after receipt any such payments, but in any case no later than five (5) business days after such payment is received. Section 4.10 Non-Competition and Confidentiality. (a) Definitions. As used in this Section 4.10, the following words shall have the following respective meanings: (i) Non-Compete Product or Products. "Non-Compete Products" shall mean the chemical products listed on Schedule 4.10(a)(i) and the homologs of the chemical products listed on Schedule 4.10(a)(i), and "Non-Compete Product" shall mean any one of the chemical products listed in Schedule 4.10(a)(i). Except as noted in Schedule 4.10(a)(i), the chemical products listed on Schedule 4.10(a)(i) include the chemical products which Sellers believe are the chemical products which have been manufactured and sold (including the chemical products developed or being developed for manufacture or sale) during the twelve months prior to the Closing Date by CFC and/or First Chem doing business as ChemFirst Fine Chemicals. 24 (ii) Non-Compete Business. "Non-Compete Business" shall mean the business of the manufacture and/or sale of one or more Non-Compete Products and businesses which directly compete with the FirstCure(R) polymer additives business being acquired by Buyer hereunder. (b) Non-Compete Obligations. Sellers agree that for a period of ten (10) years from and after the Closing they will not, for any reason whatsoever, directly or indirectly, for themselves or on behalf of or in conjunction with any other Person (except for the Buyer): (i) engage in (whether as a stockholder, owner, trustee, partner, financier, agent, joint venturer, or in a managerial capacity, whether as an independent contractor, consultant, advisor, or as a representative of any Person) the Non-Compete Business or have any interest, direct or indirect, in any Person engaged in the Non-Compete Business; or (ii) manufacture or sell any Non-Compete Products. (c) Exceptions. Section 4.10(b), and the obligations of noncompetition contained therein, shall not, however, apply with respect to: (i) the acquisition and holding by Sellers, or any Affiliate of Sellers, as a passive investment, of not more than five percent (5%) of the outstanding shares of any corporation engaged in the Non-Compete Business; or (ii) any Person, which acquires (whether through purchase, merger or otherwise) all or substantially all of the outstanding capital stock of either Seller (or ChemFirst Inc.) or all or substantially all of the assets of either Seller (or ChemFirst Inc.), provided, however, (i) at the time of such acquisition, such Person was not an Affiliate of either Seller or of ChemFirst Inc., (ii) such Person does not use that portion of the plant and equipment presently located at First Chem's Pascagoula, Mississippi facility which was used to produce the Non-Compete Products, to manufacture or sell the Non-Compete Product and (iii) such Person does not use the Intellectual Property Rights acquired by Buyer hereunder to manufacture or sell the Non-Compete Product; or (iii) any Person, which acquires (whether through purchase, merger or otherwise) all or substantially all of the outstanding capital stock of either Seller (or ChemFirst Inc.) or all or substantially all of the assets of either Seller (or ChemFirst Inc.), provided, however, (i) at the time of such acquisition, such Person was not an Affiliate of either Seller or of ChemFirst Inc. and (ii) during the five year period immediately prior to such acquisition either manufactured, sold or offered for sale the Non-Compete Product; or (iv) any Person which acquires the equipment used in First Chem's Pascagoula, Mississippi batch operations, provided, however, such Person, within the five (5) year period immediately prior to such acquisition, manufactured, sold or offered for sale the Non-Compete Product; or (v) the manufacture and/or sale of goods incorporating one or more Non-Compete Products or to which one or more Non-Compete Products are applied where the Non-Compete Products are only incidental components of such goods and where Seller does not participate in the manufacture or sale of the Non-Compete Products; or (v) the manufacture and/or sale of raw materials and intermediate component materials which may be used in the manufacture of one or more Non-Compete Products, or of goods which compete with the Non-Compete Products. 25 (d) Reasonableness and Reformation. If any court of competent jurisdiction shall finally hold that the time, territory or any other provision set forth in Section 4.05(b) constitutes an unreasonable restriction, such provision shall not be rendered void, but shall apply as to such time, territory or to such other extent as such court may determine a reasonable restriction under the circumstances involved. Sellers acknowledge that the restrictions contained in Section 4.05(b) are reasonable and necessary to protect the legitimate interests of Buyer and acknowledges that, in addition to all remedies available at law, Buyer shall be entitled to equitable relief, including injunctive relief, and an equitable accounting of all adverse consequences arising from such breach. (e) Confidentiality. During the period commencing on the Closing Date and ending on the tenth (10th) anniversary of the Closing Date, Sellers will keep confidential all information in the possession of Sellers that is confidential or proprietary to the CFC Business, the CFC Products, the Transferred Assets or Buyer. The provisions of this Section 4.05(e) shall not apply to the disclosure by Seller of any information, documents or materials (i) which are, or become, publicly available, other than by reason of a breach of this Section 4.05(e) by Sellers, (ii) received after the Closing from a third party not bound by any confidentiality agreement with Buyer or (iii) required by applicable law to be disclosed by Seller, provided that, in the case of the immediately foregoing (iii), the Person intending to make disclosure of confidential information will notify Buyer in advance of disclosure of such information and, to the extent practicable, provide Buyer reasonable opportunity to prevent disclosure of such information. (f) No Solicitation. Sellers will not hinder in any way before Closing Buyer's employment of any of the Key Employees. Employees of Sellers who become employees of Buyer on the Closing Date, or, to the extent consistent with Buyers' offer of employment, become employees of Buyer not later than sixty (60) days, and who continue employment with the Buyer thereafter, are referred to as "Transferred Employees." Transferred Employees include the Key Employees. Sellers shall not solicit or make offers of employment to any Transferred Employee for a period of two (2) years after said Transferred Employee commences employment with Buyer. Section 4.11. Proration of Taxes and Transfer Taxes. All real estate, ad valorem and other similar taxes imposed on the Transferred Assets for the year 2001 but not yet due and payable shall be prorated between Seller and Buyer as of the Closing Date. All transfer, documentary, recording, notarial, sales, use, registration, stamp and other similar taxes, fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be for the account of party obligated to pay under applicable law. Section 4.13 Pascagoula Equipment. Buyer shall have the right to elect, but not the obligation, to acquire and remove any or all of the equipment listed on Schedule 4.13 from First Chem's Pascagoula, Mississippi facility which is used in the CFC Business (the "Pascagoula Equipment"). If Buyer elects to acquire any of the Pascagoula Equipment, then not earlier than the date on which Sellers shall have completed their obligations under the contract referred to in Section 4.05 and not later than 90 days following the date of completion of Seller's obligations under the contract referred to in Section 4.05, Buyer shall provide written notice to Sellers that it is electing to exercise the right provided by this Section 4.13 and designate such of the Pascagoula Equipment it elects to acquire (the "Designated Pascagoula Equipment"). Sellers will cooperate with Buyer on arranging the transfer of Designated Pascagoula Equipment such that Buyer may complete the removal of the Designated Pascagoula Equipment not later than 180 days following the date of completion of Seller's obligations under Section 4.05. With respect to any of the Pascagoula Equipment as to which Buyer does not, within the time period prescribed above, give Sellers written notice of its election to acquire and remove, then Buyer shall have waived its right to acquire and remove any such Pascagoula Equipment and such Pascagoula Equipment shall remain the property of Sellers. Buyer shall be responsible for and pay the actual out-of- 26 pocket costs of dismantling, removing and transporting the Designated Pascagoula Equipment, including any authorizations and Permits that may be necessary to remove and relocate the Designated Pascagoula Equipment to another location, and Buyer shall not be required to pay for any other costs associated with First Chem's Pascagoula, Mississippi facility in connection with removal of the Designated Pascagoula Equipment, including the cost of dismantling or decontaminating any equipment located at First Chem's Pascagoula, Mississippi facility other than the Designated Pascagoula Equipment. Title, possession and risk of loss or destruction or damage to the Designated Pascagoula Equipment shall pass to Buyer upon the beginning of the dismantling and packaging for shipment of such Equipment by or on behalf of Buyer. Notwithstanding anything to the contrary herein, Buyer shall accept all risk of, and Sellers shall have no liability for, loss, destruction or damage to the Designated Pascagoula Equipment arising out of the dismantling, packaging or shipment of the Designated Pascagoula Equipment. Section 4.14. Insurance. The insurance coverages provided by the policies listed in Schedule 3.01(n) are provided under Sellers' insurance program and will cease to provide coverage to the CFC Business or the Transferred Assets for occurrences after the Closing. On or before the Closing, Buyer will replace such policies with policies acceptable to Buyer. Section 4.15. Dayton Pilot Plant Lease. At Closing, Buyer and CFC shall enter into a long term lease of at least ninety-nine (99) years, with an option to lease for an additional ninety-nine (99) years, whereby Buyer leases from CFC the Dayton Pilot Plant Facility (the "Dayton Pilot Plant Lease"). Such lease shall substantially be in the form attached hereto as Exhibit D. Section 4.16. THPE Toll Manufacture Agreement. At Closing, Buyer agrees to enter with Sellers' Affiliate, TriQuest, L.P., a toll manufacturing agreement (the "THPE Toll Manufacture Agreement") whereby Buyer agrees to manufacture for TriQuest, L.P. the chemical product known as THPE . The THPE Toll Manufacture Agreement shall be in a form attached hereto as Exhibit G. Section 4.17. Post Closing Assistance. During the first six (6) months after Closing, Sellers agree to provide Buyer technical assistance at the Tyrone Facility to assist Buyer in the transfer of production of CFC Products from CFC's Pascagoula, Mississippi facility to the Tyrone Facility. The first two hundred forty (240) hours of such technical assistance shall be at no cost to Buyer, and Buyer agrees to pay Sellers $50.00 per hour per technical person plus travel expenses for technical assistance in excess of two hundred forty (240) hours. ANY SUCH TECHNICAL ASSISTANCE PROVIDED BY SELLERS SHALL BE WITHOUT WARRANTY OR REPRESENTATION OF ANY KIND, EXPRESS OR IMPLIED, AND ALL WARRANTIES WITH RESPECT TO SUCH ASSISTANCE ARE HEREBY DISCLAIMED. BUYER AGREES THAT SELLERS SHALL NOT BE LIABLE FOR , AND BUYER ASSUMES ALL RISK OF, SUCH TECHNICAL ASSISTANCE. Section 4.18. Employees and Employee Benefit. (a) Termination and Offer of Employment to Tyrone and Dayton Pilot Plant Employees. Attached hereto as Schedule 4.18(a) is a list of all employees of CFC employed at the Tyrone Facility, at the Dayton Pilot Plant Facility, at Pascagoula, Mississippi and at Jackson, Mississippi. The employment of the employees employed by CFC at the Tyrone Facility and the Dayton Pilot Plant shall be terminated as of the Closing, and Buyer shall offer employment to such employees simultaneous with the termination of their employment by CFC. Offers of employment to all Transferred Employees, including those employed at the Tyrone Facility and the Dayton Pilot Plant Facility, will be at a salary comparable to the salary at which such employees are presently employed by Sellers. Sellers shall be responsible for the payment of any severance payments owed by Sellers to employees of CFC or First Chem who are terminated as a result of this Transaction and who do not become Transferred Employees. 27 (b) Pension or Retirement Plan Benefits to Transferred Employees. With respect to pension, retirement and savings benefit plans provided by Buyer to Transferred Employees which require a vesting period, Buyer shall credit, for vesting purposes only, each Transferred Employee with the number of years of service credited to such Transferred Employee as of the Closing Date that such Transferred Employee has under the comparable benefit plan provided by Sellers. (c) Medical, Dental, Prescription Drugs and Health Plans. Sellers shall allow the Transferred Employees to continue participation until December 31, 2001 in any of Sellers' medical, dental and prescription drug plans that such Employees participated in as of the termination of their employment by Sellers. Buyer shall reimburse Sellers for the employer contribution portion of any premiums or other such payments made by Sellers and all benefit costs for claims after Closing, incurred by Sellers in connection with the providing of such coverage. Sellers shall invoice Buyer for such premiums and benefit costs no more frequently than monthly, and Buyer shall pay such invoices within thirty (30) days. (d) Employee Benefit Plans. The employee benefit plans listed in Schedule 4.18(d) are plans maintained by Sellers, or Affiliates of Sellers, including ChemFirst Inc., with respect to Transferred Employees (the "Employee Benefit Plans"). Notwithstanding anything to the contrary in this Agreement, including anything in Section 2.01, the Employee Benefit Plans, and the assets thereof and in connection therewith, are not being transferred or conveyed hereunder to Buyer but are being retained by Sellers and/or Affiliates of Sellers. Upon termination of their employment by CFC, Sellers shall fully vest the Transferred Employees in those Employee Benefit Plans requiring a vesting period, the Transferred Employees' participation in the Employee Benefit Plans will be terminated, and neither Sellers (including any Affiliate of Sellers) nor the Employee Benefit Plans shall have any further liability to either Buyer or the Transferred Employees, except as otherwise provided according to the terms and conditions of the Employee Benefit Plans with respect to terminated employees. Section 4.19 Schedules and Exhibits. The parties understand and agree that the Schedules and Exhibits to this Agreement may not be complete at the time this Agreement is executed. In such event, the parties each agree to exercise good faith and reasonable diligence in preparing and completing Schedules and Exhibits as soon after execution as is practical, with Exhibits D, E and F each respectively containing at least the points set forth in Schedule 4.19. Upon completion of the Schedules and Exhibits with terms to the reasonable satisfaction of the parties, the Schedules and Exhibits shall be attached to this Agreement and shall become a part hereof as if such Schedules and Exhibits had been completed and attached hereto at the time of execution of this Agreement by the parties. Section 4.20 Accounts Receivable. In the event Buyer is unable to collect any of the Accounts Receivable within ninety (90) days after the due date thereof, Buyer may assign any of such Accounts Receivable to Sellers, and Sellers shall reimburse Buyer the amount of such Accounts Receivable (less any amounts previously collected by Buyer on account of such Accounts Receivable). Sellers may, thereafter, collect from the account debtor any such Accounts Receivable assigned to Sellers by Buyer and retain any amounts collected.. Section 4.21 Environmental Baseline. Both parties may mutually agree to perform an environmental baseline study at the Tyrone Facility for use in determining the environmental condition of the Tyrone Facility as of the Closing Date, with the costs of any such mutually agreed study being shared equally by the parties. Section 4.22 Nitrobenzene and Nitrotoluene Supply Agreement. At the Closing, First Chem and Buyer agree to enter into a supply agreement in the form attached hereto as Exhibit H (the 28 "Nitrobenzene and Nitrotoluene Supply Agreement"), whereby First Chem would supply nitrobenzene and nitrotoluene to Buyer. ARTICLE V INDEMNIFICATION AND LIMITATION OF LIABILITY Section 5.01 Indemnification by Buyer. The Buyer hereby agrees to indemnify, defend and hold harmless the Sellers and their Affiliates and the respective officers, directors, employees and shareholders of the foregoing, and their successors and assigns (collectively, the "Sellers Indemnitees") from, against and with respect to any claim and all Damages to the extent arising out of or in any manner incident, relating or attributable to: (a) any material inaccuracy in any representation or breach of warranty of the Buyer contained in this Agreement or in any certificate, instrument of transfer or other document or agreement executed by the Buyer in connection with this Agreement or otherwise made or given in connection with this Agreement; (b) any material failure by the Buyer to perform or observe, or to have performed or observed, in full, any covenant, agreement or condition to be performed or observed by it under this Agreement or under any certificates or other documents or agreements executed by the Buyer in connection with this Agreement; (c) any Liability or Damages arising out of the operations of the CFC Business or the Transferred Assets by Buyer on or after the Closing Date, including, without limitation, such Liabilities or Damages arising from (i) products of the CFC Business that are manufactured and sold on or after the Closing Date (and for warranty obligations associated with product returns and bad debt relating to products manufactured and sold on or after the Closing Date); (ii) products of the CFC Business that are manufactured prior to the Closing Date and sold after the Closing Date, but not for Liabilities or Damages to the extent caused by product defects (including defects in labeling) that existed prior to the Closing Date and (iii) Health, Safety and Environmental Liabilities, except to the extent such Liability or Damages result from or arise out of the Excluded Liabilities or constitute Liability or Damages for which Sellers are required to indemnify the Buyer Indemnitees under Section 5.02; (d) any Liability arising from the Assumed Liabilities; (e) any governmental proceeding, investigation or review, and any legal action or proceeding pending or threatened against Buyer, the CFC Business or the Transferred Assets for operations on or after the Closing Date; and (f) any and all Taxes incurred by Buyer with respect to the Transaction and any and all Taxes arising from the operations of the CFC Business or the Transferred Assets on or after the Closing Date. Section 5.02 Indemnification by Sellers. Sellers agree to jointly and severally indemnify, defend and hold harmless the Buyer and its Affiliates and the respective officers, directors, employees and shareholders of the foregoing, and their successors and assigns (collectively the "Buyer Indemnitees") from, against and with respect to any and all Damages to the extent arising out of or in any manner incident, relating or attributable to: (a) any material inaccuracy in any representation or material breach of warranty of the Seller contained in this Agreement or in any certificate, instrument of transfer or other document or 29 agreement executed by the Sellers in connection with this Agreement or otherwise made or given in connection with this Agreement; (b) any material failure by the Sellers to perform or observe, or to have performed or observed, in full, any covenant, agreement or condition to be performed or observed by it under this Agreement or under any certificates or other documents or agreements executed by the Buyer in connection with this Agreement; (c) any Liability or Damages arising out of the operations of the CFC Business or the Transferred Assets by Sellers prior to the Closing Date, including, without limitation, such Liabilities arising from (i) products of the CFC Business that are manufactured and sold prior to the Closing Date (and for warranty obligations associated with product returns and bad debt relating to products manufactured or sold prior to after the Closing Date); (ii) products of the CFC Business that are manufactured prior to the Closing Date and sold after the Closing Date, but only for Liabilities or Damages to the extent caused by product defects (including defects in labeling) that existed prior to the Closing Date and (iii) Health, Safety and Environmental Liabilities; except to the extent such Liability or Damages result from or arise out of the Assumed Liabilities or constitute Liability or Damages for which Buyer is required to indemnify the Seller Indemnitees under Section 5.01; (d) any Liability arising out of any Excluded Asset or any Excluded Liabilities; (e) any governmental proceeding, investigation or review, and any legal action or proceeding pending or threatened against Sellers, the CFC Business or the Transferred Assets for operations prior to the Closing Date; and (f) any and all Taxes incurred by Seller with respect to the Transaction and any and all Taxes arising prior to the Closing from the operations of the CFC Business or the Transferred Assets. Section 5.03 Indemnification Thresholds and Limits. (a) Threshold Amount. No claim which any party hereto asserts is an indemnifiable claim pursuant to this Article V shall be made by such party against any Indemnifying Party with respect to any item of Damage until such item, together with the aggregate of all prior Damages of such party, shall exceed One Hundred Thousand Dollars ($100,000.00) (the "Threshold Amount"), in which case such party shall be entitled to make a claim for indemnification hereunder for all Damages incurred whether prior to or after the Threshold Amount is reached. (b) Indemnification Limit. IN NO EVENT SHALL EITHER PARTY'S TOTAL AGGREGATE LIABILITY FOR INDEMNIFICATION UNDER THIS ARTICLE V EXCEED THE PURCHASE PRICE, except that the limitation of this Section 5.03(b) shall not apply to indemnification pursuant to Sections 5.01(c)(iii) or 5.02(c)(iii). Section 5.04 Claims for Indemnification. In the event of the occurrence of any event which any party asserts is an indemnifiable event pursuant to this Article V, the party claiming indemnification (the "Indemnified Party") shall provide prompt notice to the party required to provide indemnification (the "Indemnifying Party"), specifying in detail the facts and circumstances with respect to such claim and the basis for which indemnification is available hereunder. If such event involves the claim of any third party, the Indemnifying Party shall have the right to control the defense or settlement of such claim; provided, however, that (a) the Indemnified Party shall be entitled to participate in the defense of such claim at its own expense, (b) the Indemnifying Party shall obtain the prior written approval of the Indemnified Party (which approval shall not be unreasonably withheld or delayed) before entering into 30 any settlement of such claim if, pursuant to or as a result of such settlement, (A) injunctive or other non-monetary relief would be imposed against the Indemnified Party or (B) the Indemnified Party would be liable for monetary relief which, in whole or in part, is not subject to indemnification hereunder, and (C) if the Indemnifying Party is entitled but fails to assume control over the defense of a claim as provided in this Section 5.04, provided that the Damages associated with such claim are covered by the indemnity provisions of Section 5.01 or 5.02, the Indemnified Party shall have the right to defend such claim, provided, further, that the Indemnified Party shall obtain the prior written approval of the Indemnifying Party (which approval shall not be unreasonably withheld or delayed) before entering into any settlement of such claim if, pursuant to or as a result of such settlement, injunctive or other non-monetary relief would be imposed against the Indemnifying Party. In the event that the Indemnifying Party shall be obligated to indemnify the Indemnified Party pursuant to this Article V, the Indemnifying Party shall, upon payment of such indemnity in full, be subrogated to all rights of the Indemnified Party with respect to the claim to which such indemnification relates. Section 5.05 Survival. All representations and warranties in this Agreement, or in any other instrument executed or delivered herewith, and all obligations of indemnification under Article V of this Agreement, shall survive the Closing of the transactions contemplated hereby and continue for a period of three (3) years, provided, however, claims for indemnification pursuant to Section 5.01(c)(iii) and 5.02(c)(iii) shall survive for a period of five (5) years. All such representations and warranties and obligations shall expire on the third or fifth anniversary, as the case may be, of the Closing Date, except that claims, if any, asserted in writing prior to such third or fifth anniversary identified as a claim for indemnification pursuant to this Article V hereof shall survive until finally resolved and satisfied in full. Section 5.06 Limitation of Damages. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR LOSS OF PROFITS OR INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES FOR ANY REASON WHATSOEVER (UNLESS, AND THEN ONLY TO THE EXTENT, SUCH DAMAGES ARE ASSERTED BY A NON-AFFILIATE THIRD PARTY AGAINST AN INDEMNIFIED PARTY HEREUNDER), INCLUDING WITHOUT LIMITATION, ANY INACCURACY OR BREACH OF ANY REPRESENTATION OR WARRANTY MADE BY ANY PARTY HERETO OR IN ANY OTHER INSTRUMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. THE PROVISIONS OF THIS SECTION 5.06 SHALL NOT BE LIMITED TO CLAIMS FOR INDEMNIFICATION BUT SHALL APPLY WHETHER A CLAIM IS BEING ASSERTED FOR INDEMNIFICATION OR FOR ANY OTHER LEGAL THEORY. Section 5.07 Cooperation. If any party hereto notifies the other party pursuant to this Article V that indemnification may apply, the party seeking indemnification shall provide to the other party all documentation and information reasonably necessary to support and verify any Damages that give rise to a claim of indemnification hereunder and shall give such other party access to all books, records and personnel in the possession or control of the party seeking indemnification that would have a bearing on such claim. ARTICLE VI TERMINATION Section 6.01 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) By written consent duly authorized by the Buyer and the Seller; 31 (b) By the Buyer or the Seller if: (i) Any court of competent jurisdiction or other Governmental Authority shall have issued an order, decree or ruling, or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated hereby, provided that this Agreement shall not be terminated pursuant to this paragraph unless the party terminating this Agreement has utilized its reasonable efforts to oppose the issuance of such order, decree or ruling or the taking of such action; (ii) The Closing Date has not occurred within sixty (60) days of the Scheduled Closing Date, for any reason other than the breach of any provision of this Agreement by the party terminating this Agreement; or (iii) The other party materially breaches any of its representations, warranties or covenants attached hereto; (c) By the Buyer if: (i) Any of the conditions set forth in Section 8.01 hereof have not been reasonably satisfied within sixty (60) days of the Scheduled Closing Date or shall have become incapable of fulfillment and shall not have been waived by the Buyer, for any reason other than a breach by the Buyer of any of its representations, warranties or agreements hereunder; or (ii) There is any material inaccuracy in any of the Seller's representations or material breach by the Seller of any warranty contained herein, or any material failure by the Seller to perform any commitment, covenant or condition contained in this Agreement. (d) By Seller if: (i) Any of the conditions set forth in Section 8.02 hereof have not been satisfied within sixty (60) days of the Scheduled Closing Date or shall have become incapable of fulfillment and shall not have been waived by the Seller, for any reason other than a breach by the Seller of any of its representations, warranties or agreements hereunder; or (ii) There is any material inaccuracy in any of the Buyer's representations or breach by the Buyer of any warranty contained herein, or any material failure by the Buyer to perform any commitment, covenant or condition contained in this Agreement. (e) Upon the occurrence of any of the events specified in this Section 6.01 (other than Subsection (a) hereof), written notice of such event shall forthwith be given to the other parties to this Agreement, whereupon this Agreement shall immediately terminate. Section 6.02 Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to Section 6.01 hereof, this Agreement shall forthwith become void and be of no effect, without any liability on the part of any party or its directors, officers or shareholders. ARTICLE VII CLOSING Section 7.01 Closing. The closing of the transactions contemplated hereby (the "Closing") shall take place at or before 2:00 p.m. Jackson, Mississippi time on the "Closing Date", at the offices of 32 ChemFirst Inc., or at such other time and place as may be mutually agreeable. The Closing Date shall be the earlier of the following: (a) July 31, 2001 (the "Scheduled Closing Date") or (b) such other date as the parties may agree to in writing. Section 7.02 Items to Be Delivered at Closing. At the Closing, the following actions shall be taken: (a) The Seller's Deliveries at Closing. At Closing, the Seller shall deliver to the Buyer or cause to be delivered to the Buyer the following: (i) Consents. All of the consents, approvals or authorizations of Governmental Authorities and other third parties necessary in connection with the Seller's consummation of the transactions contemplated hereby; (ii) Corporate Certificates. The following corporate documents: (1) A certificate of the Secretary of the Seller certifying as to (i) the resolutions of the Seller authorizing and approving the execution, delivery and performance of this Agreement and the transactions contemplated hereby, (ii) the incumbency of the Seller's officers, and (iii) the Seller's Bylaws; (2) A copy of the First Chem's Charter certified by the Secretary of State of the State of Mississippi; (3) A certificate of the Secretary of CFC certifying as to CFC's Bylaws; (4) A copy of CFC's Charter certified by the Secretary of State of the Commonwealth of Pennsylvania; (5) A certificate of an officer of the Seller certifying (i) that the representations and warranties of the Seller contained in Article III hereof were true and correct when made and continue to be true and correct as of the Closing Date (or, if a representation and warranty is made as of a date other than the date hereof, the representation and warranty remains true and correct as of such date); and (ii) that the Seller has performed or complied with all agreements and covenants contained in this Agreement and required to be performed by the Seller; (6) A certificate as to First Chem's good standing certified by the Secretary of State of the State of Mississippi; and (7) A certificate as to CFC's good standing certified by the Secretary of State of the Commonwealth of Pennsylvania; (v) Keys, Etc. All such keys, locks, safe combinations and other similar items as are necessary in order for the Buyer to obtain full occupation and control of CFC's Assets; (vi) UCC-3 Termination Statements. UCC-3 termination statements covering all financing statements, if any, relating to the Transferred Assets and evidence of the release of all Security Interests against the Transferred Assets; 33 (vii) Other Documents. The documents, to be executed and delivered by Sellers, whose execution and delivery are conditions to Closing pursuant to Article VIII. (b) The Buyer's Deliveries at Closing. At Closing, the Buyer shall deliver or cause to be delivered to the Sellers: (i) The Purchase Price. The Purchase Price by wire transfer as provided in Section 2.02 hereof; (ii) Consents. All of the consents, approvals or authorizations of Governmental Authorities and other third parties necessary in connection with the Buyer's consummation of the transactions contemplated hereby; (iii) Corporate Certificates. The following corporate documents: (1) A certificate of the Secretary of the Buyer certifying as to (i) the resolutions of the Buyer authorizing and approving the execution, delivery and performance of this Agreement and the transactions contemplated hereby, (ii) the incumbency of the Buyer's officers, and (iii) the Buyer's By-Laws; (2) A copy of the Buyer's Charter, certified by the Virginia Corporation Commission; (3) A certificate of an officer of the Buyer certifying (i) that the representations and warranties of the Buyer contained in Article III hereof were true and correct when made on the date hereof and continue to be true and correct as of the Closing Date (or, if a representation and warranty is made as of a date other than the date hereof, the representation and warranty remains true and correct as of such date); and (ii) that the Buyer has performed or complied with all agreements and covenants contained in this Agreement and required to be performed by the Buyer; and (4) A certificate as to the Buyer's good standing certified by the Virginia Corporation Commission; (iv) Other Documents. The documents, to be executed and delivered by Buyer, whose execution and delivery are conditions to Closing pursuant to Article VIII. ARTICLE VIII CONDITIONS TO CLOSING Section 8.01 Buyer's Conditions to Closing. The obligation of the Buyer to consummate this Agreement and the other transactions contemplated hereby is subject to the satisfaction, on or before the Closing Date, of the following conditions each of which may be waived by the Buyer in its sole discretion: (a) Closing Documents. The Seller shall have delivered the resolutions, certificates, documents and instruments required by this Agreement and identified in Section 7.02. (b) Consents. All requisite governmental approvals and consents of third parties required to be delivered shall have been delivered. 34 (c) Representations and Warranties True. Buyer shall have received from an appropriate officer of Seller dated as of the Closing Date that all of the representations and warranties of the Sellers contained in this Agreement, in the Schedules or other documents attached hereto or referred to herein or delivered in connection with the transactions contemplated hereby shall be true, correct and complete in all material respects on and as of the date hereof and on and as of the Closing Date, as if made on and as of the Closing Date. (d) Performance. Buyer shall have received from an appropriate officer of Seller dated as of the Closing Date that the Sellers shall have performed and complied in all material respects with all covenants and agreements contained herein required to be performed or complied with by them prior to or at the Closing Date. (e) No Actions, Suits or Proceedings. As of the Closing Date, no action, suit, investigation or proceeding brought by any person, corporation, Governmental Authority or other entity shall be pending or, to the knowledge of the parties to this Agreement, threatened, before any court or Governmental Authority (i) to restrain, prohibit, restrict or delay, or to obtain damages or a discovery order in respect of this Agreement or the consummation of the transactions contemplated hereby, or (ii) which has had or may have a material adverse effect on the condition, financial or otherwise, or prospects of the CFC Business and/or the Transferred Assets. No order, decree or judgment of any court or governmental body shall have been issued restraining, prohibiting, restricting or delaying, the consummation of the transactions contemplated by this Agreement. No insolvency proceeding of any character including without limitation, bankruptcy, receivership, reorganization, dissolution or arrangement with creditors, voluntary or involuntary, affecting the Sellers shall be pending. (f) HSR Act. Any waiting period applicable to the HSR Act filings shall have expired or terminated and no objections have been received by the applicable Governmental Authorities or the parties shall have received early termination of the HSR waiting period. (g) Approval of Buyer and Its Counsel. All actions, proceedings, consents, instruments and documents required to be delivered by, or at the behest or direction of, the Sellers hereunder or incident to its performance hereunder, and all other related matters, shall be reasonably satisfactory as to form and substance to Buyer and its counsel. (h) Assumed Contracts. The Sellers shall have assigned the Assumed Contracts to Buyer in accordance with Section 2.01 and Section 2.07. (i) Services Agreement. First Chem and the Buyer shall have entered into the Services Agreement in accordance with Section 4.06. (j) Transition Supply Agreement. First Chem and the Buyer shall have entered into the Transition Supply Agreement in accordance with Section 4.05. (k) THPE Toll Manufacture Agreement. TriQuest, L.P. and Buyer shall have entered into the THPE Toll Manufacture Agreement. (l) Dayton Pilot Plant Lease. CFC and Buyer shall have entered into the Dayton Pilot Plant Lease in accordance with Section 4.15. (m) Schedules and Exhibits. The Schedules and Exhibits to this Agreement shall have been completed with terms to the reasonable satisfaction of Buyer and have been attached to this Agreement in accordance with Section 4.19. 35 (n) Board Approval. This Agreement and the transactions contemplated hereby have been approved by the Board of Directors of the Buyer. (o) No Material Loss or Damage. Except as to matters previously disclosed to Buyer as of the date of this Agreement, no material loss or damage to the CFC Business or the Transferred Assets has occurred (including without limitation, fire, war, act of God or other casualty). (p) Key Employees. Buyer shall have employed the employees listed in Schedule 8.01(p) (the "Key Employees"). (q) Instruments of Transfer. Sellers shall have executed and delivered the Instruments of Transfer. (r) Consent to Assignment of Wastewater Permit. Buyer shall have received from the Borough of Tyrone, Pennsylvania consent to the assignment of CFC's wastewater discharge permit to Buyer. (s) Nitrobenzene and Nitrotoluene Supply Agreement. First Chem and the Buyer shall have entered into the Nitrobenzene and Nitrotoluene Supply Agreement in accordance with Section 4.22. Section 8.02 Seller's Conditions to Closing. The obligation of the Seller to consummate this Agreement and the other transactions contemplated hereby is subject to the satisfaction, on or before the Closing Date, of the following conditions, each of which may be waived by the Seller in its sole discretion: (a) Closing Documents. The Buyer shall have delivered the resolutions, certificates, documents and instruments required by this Agreement and identified in Section 7.02, and the Purchase Price payable to Seller at Closing under Article II hereof shall be available and ready for Seller. (b) Consents. All requisite governmental approvals and consents of third parties required to be delivered shall have been delivered. (c) Representations and Warranties True. The representations and warranties of the Buyer contained in this Agreement or other documents attached hereto or referred to herein or delivered in connection with the transactions contemplated hereby shall be true, correct and complete in all material respects on and as of the date hereof and on and as of the Closing Date, as if made on and as of the Closing Date. (d) Performance. Sellers shall have received from an appropriate officer of Buyer dated as of the Closing Date that Buyer shall have performed and complied in all material respects with all covenants and agreements contained herein required to be performed or complied with by it prior to or at the Closing Date. (e) No Actions, Suits or Proceedings. As of the Closing Date, no action, suit, investigation or proceeding brought by any person, corporation, governmental agency or other entity shall be pending or, to the knowledge of the parties to this Agreement, threatened, before any court or governmental body to restrain, prohibit, restrict or delay, or to obtain damages or a discovery order in respect of this Agreement or the consummation of the transactions contemplated hereby. No order, decree or judgment of any court or governmental body shall have been issued restraining, prohibiting, 36 restricting or delaying, the consummation of the transactions contemplated by this Agreement. No insolvency proceeding of any character including without limitation, bankruptcy, receivership, reorganization, dissolution or arrangement with creditors, voluntary or involuntary, affecting the Buyer shall be pending. (f) HSR Act. Any waiting period applicable to the HSR Act filings shall have expired or terminated and no objections have been received by the applicable governmental agencies or the parties shall have received early termination of the HSR waiting period. (g) Approval of the Seller and its Counsel. All actions, proceedings, consents, instruments and documents required to be delivered by, or at the behest or direction of, the Buyer hereunder or incident to its performance hereunder, and all other related matters, shall be reasonably satisfactory as to form and substance to the Seller and its counsel. (h) Board Approval. This Agreement and the transactions contemplated hereby have been approved by the Boards of Directors of the Sellers and the Sellers' parent company, ChemFirst Inc. (i) Assumed Contracts. Sellers shall have assigned the Assumed Contracts to Buyer in accordance with Section 2.01 and Section 2.07. (j) Services Agreement. First Chem and the Buyer shall have entered into the Services Agreement in accordance with Section 4.06. (k) Transition Supply Agreement. First Chem and the Buyer shall have entered into the Transition Supply Agreement in accordance with Section 4.05. (l) THPE Toll Manufacture Agreement. TriQuest, L.P. and Buyer shall have entered into the THPE Toll Manufacture Agreement. (m) Dayton Pilot Plant Lease. CFC and Buyer shall have entered into the Dayton Pilot Plant Lease in accordance with Section 4.15. (n) Schedules and Exhibits. The Schedules and Exhibits to this Agreement shall have been completed with terms to the reasonable satisfaction of Sellers and have been attached to this Agreement in accordance with Section 4.19. (m) Instruments of Transfer. Buyer shall have executed and delivered such of the Instruments of Transfer that require Buyer's execution. (n) Nitrobenzene and Nitrotoluene Supply Agreement. First Chem and the Buyer shall have entered into the Nitrobenzene and Nitrotoluene Supply Agreement in accordance with Section 4.22 ARTICLE IX MISCELLANEOUS Section 9.01 Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving party's address set forth below or to such other address as a party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) made 37 by telex or facsimile transmission, (iii) sent by recognized overnight courier, or (iv) sent by registered or certified mail, return receipt requested, postage prepaid. If to the Buyer: Albemarle Corporation 451 Florida Street Baton Rouge, Louisiana 70801 Attn: President Fax: (225) 388-7810 with a copy to: Albemarle Corporation 330 South Fourth Street Richmond, Virginia 23219 Attn: General Counsel Fax: (804) 788-5406 If to the Seller: First Chemical Corporation c/o ChemFirst Inc. 700 North Street Jackson, MS 39202 Attn: President Fax: (601) 949-0264 All notices, requests, consents and other communications hereunder shall be deemed to have been (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if made by telex, or facsimile transmission, at the time that receipt thereof has been acknowledged by electronic confirmation or otherwise, (iii) if sent by overnight courier, on the next business day following the day such notice is delivered to the courier service, or (iv) if sent by registered or certified mail, on the fifth business day following the day such mailing is made. Section 9.02 Entire Agreement. This Agreement together with the Exhibits and Schedules hereto and the other documents executed in connection herewith (collectively, the "Documents") embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in the Documents shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement. Section 9.03 Modifications and Amendments. The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the Buyer and the Seller. Section 9.04 Waivers and Consents. No failure or delay by a party hereto in exercising any right, power or remedy under this Agreement, and no course of dealing between the parties hereto, shall operate as a waiver of any such right, power or remedy of the party. No single or partial exercise of any right, power or remedy under this Agreement by a party hereto, nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, shall preclude such party from any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The election of any remedy by a party hereto shall not constitute a waiver of the right of such party to pursue other available remedies. No notice to or demand on a party not expressly required under this Agreement shall entitle the party receiving such notice or demand to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the party giving such notice or demand to any other or further action in any circumstances without such notice or demand. The terms and provisions of this 38 Agreement may be waived, or consent for the departure therefrom granted, only by written document executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent. Section 9.05 Assignment; Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and assigns, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement shall be construed to create any rights or obligations except among the parties hereto, and no person or entity shall be regarded as a third-party beneficiary of this Agreement. Section 9.06 Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the internal laws of the State of Mississippi, without giving effect to the conflict of law principles thereof. Section 9.07 Severability. In the event that any court of competent jurisdiction shall finally determine that any provision, or any portion thereof, contained in this Agreement shall be void or unenforceable in any respect, then such provision shall be deemed limited to the extent that such court determines it enforceable, and as so limited shall remain in full force and effect. In the event that such court shall determine any such provision, or portion thereof, wholly unenforceable, the remaining provisions of this Agreement shall nevertheless remain in full force and effect. Section 9.08 Interpretation. The parties hereto acknowledge and agree that: (i) each party and its counsel reviewed and negotiated the terms and provisions of the Documents and have contributed to their revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement; and (iii) the terms and provisions of this Agreement shall be construed fairly as to all parties hereto and not in favor of or against any party, regardless of which party was generally responsible for the preparation of this Agreement. Section 9.09 Headings and Captions. The headings and captions of the various subdivisions of this Agreement are for convenience of reference only and shall in no way modify, or affect, or be considered in construing or interpreting the meaning or construction of any of the terms or provisions hereof. Section 9.10 No Reliance. The parties hereto agree that, except with respect to the representations expressly made in this Agreement and the instruments and documents in connection herewith, they are entering into this Agreement and this transaction pursuant to their own respective investigations and examinations and that no party is relying upon any representation, warranty or statement of the other which would be relevant to their decision to enter into this Agreement, or this transaction, other than those expressly set forth in this Agreement or the instruments and documents in connection herewith. Section 9.11 Fees and Expenses. Except as otherwise provided in this Agreement, all fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby (including the fees of any attorneys, accountants, appraisers or other engaged by such party) shall be paid by the party incurring such fees, costs and expenses, and each of the parties hereto represents and warrants to the other parties that no broker, finder or other financial consultant has acted on its or his behalf in connection with this Agreement or the transactions contemplated hereby in such a way as to 39 create any liability on the other. Each of the parties hereto agrees to indemnify and save the other harmless from any claim or demand for commission or other compensation by any broker, finder, financial consultant or similar agent claiming to have been employed by or on behalf of such party and to bear the cost of legal expenses incurred in defending against any such claim. Section 9.12 Publicity. No party shall issue any press release or otherwise make any public statement with respect to the execution of, or the transactions contemplated by, this Agreement without the prior written consent of the other party, provided, however, that any party may make any public disclosure it believes in good faith is required by law, rule or regulation of any governmental unit or agency or any stock exchange on which the securities of such party may be listed (in which case the disclosing party shall advise the other parties and provide them with a copy of the proposed disclosure and, if practical, a reasonable opportunity to comment thereon prior to making the disclosure). Section 9.13 Counterparts. This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 9.14 Alternate Dispute Resolution. If a dispute arises concerning or related to this Agreement, it is the express intent of the parties hereto that they commit to enter into good faith efforts to resolve the dispute at a meeting or meetings in which officials from both parties who have authority to settle the dispute, shall participate. The purpose of such negotiations will be an honest effort to allow each party an opportunity to determine if the dispute is resolvable prior to expensive and lengthy litigation. The parties shall have complete discretion as to what procedures shall be used and what agenda shall be discussed. Any such negotiation or series of negotiations shall be held as confidential by all parties and the parties hereto do commit themselves that they shall not disclose either the existence of such proceedings or the content thereof. Any participation in or initiation of such discussions shall not be deemed to be an admission of liability and no statement made or provided in or related to such negotiations shall be construed as a statement against interest or otherwise disclosed or used in any proceeding involving the parties. The parties commit to commence these negotiations prior to litigation being filed (except for injunctive relief); but in no event shall they commence later than four (4) months after litigation is filed. If a party declines to participate, the other party may request the Court to grant a stay of the litigation (except for injunctive relief) while the parties attempt to settle the dispute through this negotiation method, and the party declining to participate agrees not to oppose such a stay. IN WITNESS WHEREOF, the Buyer and the Sellers have executed this Asset Purchase Agreement as of the day and year first above written. FIRST CHEMICAL CORPORATION By: /s/ George M. Simmons Name: George M. Simmons Title: President CHEMFIRST FINE CHEMICALS, INC. By: /s/ R. M. Summerford 40 Name: R. M. Summerford Title: Chairman ALBEMARLE CORPORATION By: /s/ Edward G. Woods Name: Edward G. Woods Title: VP, Corporate Development ChemFirst Inc., a Mississippi corporation and parent company of CFC and First Chem, does hereby guarantee the obligations of Sellers under, and according to the terms of, this Asset Purchase Agreement. CHEMFIRST INC. By: /s/ R. M. Summerford Name: R. M. Summerford Title: President 41 EX-4.(H) 4 dex4h.txt SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN EXHIBIT 4(h) CHEMFIRST INC. SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
TABLE OF CONTENTS PAGE ARTICLE 1 DEFINITIONS.....................................................................................2 1.01 Accounts........................................................................................2 1.02 Accounting Date, Valuation Date.................................................................2 1.03 Accounting Period...............................................................................2 1.04 Accrued Benefit.................................................................................2 1.05 Acquisition Loan................................................................................2 1.06 Anniversary Date................................................................................2 1.07 Beneficiary.....................................................................................2 1.08 Cash-Out Distribution...........................................................................2 1.09 Code and Erisa..................................................................................3 1.10 Company Stock...................................................................................3 1.11 Compensation....................................................................................3 1.12 Effective Date..................................................................................4 1.13 Eligible Employee Classification................................................................4 1.14 Eligible Participant............................................................................4 1.15 Employee........................................................................................4 1.16 Employer/plan Sponsor...........................................................................5 1.17 Employment Commencement Date....................................................................5 1.18 Entry Date......................................................................................5 1.19 Fiscal Year.....................................................................................6 1.20 Forfeiture......................................................................................6 1.21 Highly Compensated Definitions..................................................................6 1.22 Hour of Service.................................................................................8 1.23 Investment Fund.................................................................................8 1.24 Leave of Absence................................................................................9 1.25 Normal Retirement Age...........................................................................9 1.26 Normal Retirement Date..........................................................................9 1.27 One Year Break-in-service.......................................................................9 1.28 Participant.....................................................................................9 1.29 Payroll Withholding Agreement..................................................................10 1.30 Plan, Plan and Trust, Trust....................................................................10 1.31 Plan Administrator.............................................................................10 1.32 Plan Year......................................................................................11 1.33 Portability Group Member.......................................................................11 1.34 Qualified Annuity Definitions..................................................................11 1.35 Related Employer...............................................................................13 1.36 Required Beginning Date........................................................................13 1.37 Service........................................................................................13 1.38 Surviving Spouse...............................................................................13 1.39 Top-heavy Definitions..........................................................................14 1.40 Trust Fund, Trust..............................................................................17 1.41 Trustee........................................................................................17 1.42 Vested Percentage..............................................................................18 1.43 Vesting Schedule...............................................................................18 1.44 Written Resolution.............................................................................18 1.45 Year of Service................................................................................18 ARTICLE 2 PARTICIPATION..................................................................................20 2.01 Participation..................................................................................20
-ii- 2.02 Participant Re-Entry...........................................................................20 2.03 Participation After Re-employment..............................................................21 2.04 Change in Employment Classification............................................................21 2.05 Portability....................................................................................21 ARTICLE 3 PARTICIPANT ACCOUNTS...........................................................................22 3.01 Employee Account...............................................................................22 3.02 Pre 401(K) Account.............................................................................25 3.03 Company Matching Account.......................................................................26 3.04 Employee Stock Ownership Account...............................................................28 3.05 Rollover Contributions.........................................................................32 ARTICLE 4 ACCOUNTING AND VALUATION.......................................................................32 4.01 General Powers of the Plan Administrator.......................................................32 4.02 Valuation Procedure............................................................................32 4.03 Specific Investment Funds......................................................................33 4.04 Participant Direction of Investment............................................................34 4.05 Nondiscrimination Requirements.................................................................35 ARTICLE 5 RETIREMENT BENEFITS............................................................................46 5.01 Valuation of Accounts..........................................................................46 5.02 Normal Retirement..............................................................................46 5.03 Disability Retirement..........................................................................46 5.04 Termination of Employment......................................................................47 5.05 Form of Benefit Payment........................................................................48 5.06 Commencement of Benefit........................................................................49 5.07 Special Distribution and Payment Requirements..................................................49 5.08 Directed Transfer of Eligible Rollover Distributions...........................................50 5.09 Indefinite Layoff..............................................................................51 ARTICLE 6 DEATH BENEFIT..................................................................................51 6.01 Valuation of Accounts..........................................................................51 6.02 Death Benefit..................................................................................51 6.03 Designation of Beneficiary.....................................................................53 ARTICLE 7 LIMITATIONS ON BENEFITS........................................................................53 7.01 Limitation On Annual Additions.................................................................53 7.02 Where Employer Maintains Another Qualified Plan................................................54 7.03 Definitions Applicable to Article 7............................................................55 7.04 Effect of Top-heavy Status.....................................................................57 ARTICLE 8 MISCELLANEOUS..................................................................................57 8.01 Employment Rights of Parties Not Restricted....................................................58 8.02 Alienation.....................................................................................58 8.03 Qualification of Plan..........................................................................58 8.04 Construction...................................................................................58 8.05 Named Fiduciaries..............................................................................59 8.06 Status of Insurer..............................................................................59 8.07 Adoption and Withdrawal by Other Organizations.................................................60
-iii- 8.08 Employer Contributions.........................................................................60 8.09 Employees in Qualified Military Service........................................................61 8.10 Unclaimed Benefits.............................................................................61 ARTICLE 9 ADMINISTRATION.................................................................................61 9.01 Plan Administrator.............................................................................61 9.02 Powers and Duties of the Plan Administrator....................................................61 9.03 Actions of the Plan Administrator..............................................................62 9.04 Reliance On Plan Administrator and Employer....................................................62 9.05 Reports to Participants........................................................................62 9.06 Bond...........................................................................................63 9.07 Compensation of Plan Administrator.............................................................63 9.08 Claims Procedure...............................................................................63 9.09 Liability of Fiduciaries.......................................................................63 9.10 Expenses of Administration.....................................................................64 9.11 Distribution Authority.........................................................................64 ARTICLE 10 AMENDMENT OR TERMINATION OF PLAN...............................................................64 10.01 Right of Plan Sponsor to Amend or Terminate....................................................64 10.02 Allocation of Assets Upon Termination of Plan..................................................65 10.03 Exclusive Benefit..............................................................................65 10.04 Failure to Qualify.............................................................................65 10.05 Mergers, Consolidations or Transfers of Plan Assets............................................65 10.06 Effect of Plan Amendment On Vesting Schedule...................................................66 ARTICLE 11 TRUSTEE AND TRUST FUND.........................................................................66 11.01 Acceptance of Trust............................................................................66 11.02 Trust Fund.....................................................................................66 11.03 Receipt of Contributions.......................................................................67 11.04 Powers of the Trustee..........................................................................68 11.05 Investment in Common or Collective Trust Funds.................................................69 11.06 Investment in Insurance Company Contracts......................................................69 11.07 Fees and Expenses From Fund....................................................................70 11.08 Records and Accounting.........................................................................70 11.09 Distribution Directions........................................................................70 11.10 Third Party....................................................................................70 11.11 Professional Agents, Affiliates and Arbitration................................................70 11.12 Valuation of Trust.............................................................................71 11.13 Liability of Trustee...........................................................................71 11.14 Removal or Resignation and Successor Trustee...................................................71 11.15 Appointment of Investment Manager..............................................................72 11.16 Loans to Participants..........................................................................72 11.17 Special Rules Concerning Trustee Responsibilities..............................................66 ARTICLE 12 PROVISIONS RELATING TO EMPLOYER STOCK..........................................................76 12.01 Investment in Company Stock....................................................................76 12.02 Partial Diversification of Investment..........................................................79 12.03 Dividend Distributions.........................................................................79 12.04 Put Option.....................................................................................80 12.05 Lifetime Transfer/right of First Refusal.......................................................81 12.06 Nonterminable Protections and Rights...........................................................81 12.07 Special Provisions Applicable to Employer Securities...........................................82
-iv- 12.08 Limitation With Respect to an Electing Estate or Shareholder...................................82
-v- PREAMBLE A. The Employer has previously established a 401(k) Profit Sharing Plan and Trust for the exclusive benefit of its eligible Employees and their Beneficiaries; B. The Employer has previously established an Employee Stock Ownership Plan for the exclusive benefit of its eligible Employees and their Beneficiaries; C. Effective January 1, 1997, the Employer desires to amend, combine, merge and consolidate the Employee Stock Ownership Plan with the 401(k) Profit Sharing Plan and Trust so that together they will become and be a single 401(k) Savings and Employee Stock Ownership Plan and Trust (hereinafter sometimes called the "Merged Plan and Trust"); D. The Employer in recognition of the lasting contribution made by its Employees to its successful operation wants to continue the Merged Plan and Trust by amending and restating the Merged Plan and Trust to qualify under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986 as amended and the regulations promulgated thereunder; E. The Trustees are willing to act as Trustee under the terms of the Plan and Trust contained in this Agreement; F. The Trustee will hold, administer and distribute the transferred assets as a part of the Merged Plan and Trust, and the Trustee must maintain a separate Employer Contribution account for the benefit of the Employee on whose behalf the Trustee accepted the transfer in order to reflect the value of the transferred assets; G. The Merged Plan and Trust will preserve all Code Section 411(d)(6) protected benefits with respect to those transferred assets, in the manner described in Section 10.05 of the Merged Plan and Trust; H. The accounts of all active Participants under the Employee Stock Ownership Plan, and the trust funds allocable thereto, shall be transferred to the Merged Plan and Trust; shall be reflected in such Participant's separate accounts established pursuant to Section 10.05 of the Merged Plan and Trust; and shall be used to fund benefits under the Merged Plan and Trust as therein provided. NOW, THEREFORE, considering the premises and their mutual covenants, the Employer and the Trustees agree as follows: -1- ARTICLE 1 DEFINITIONS As used in this document, unless otherwise defined or required by the context, the following terms have the meanings set forth in this Article 1. Some of the terms used in this document are not defined in Article 1, but for convenience are defined as they are introduced in the text. 1.01 Accounts Accounts means the separate accounts maintained for each Participant reflecting applicable contributions, applicable forfeitures, investment income (loss) allocated to the accounts and distributions. 1.02 Accounting Date, Valuation Date The term Accounting Date means the last day of each Accounting Period and any other days within the Accounting Period upon which, consistent with established methods and guidelines, the Plan Administrator applies the valuation procedures specified in Section 4.02. The term Valuation Date, unless otherwise specified, means any business day on which the New York Stock Exchange is open. The Accounting Date is a Valuation Date. 1.03 Accounting Period Accounting Period means each of the 3-month periods which end on March 31, June 30, September 30 and December 31. 1.04 Accrued Benefit A Participant's Accrued Benefit means the total value, as of a given date, of his Accounts determined as of the Valuation Date immediately preceding the date of determination. A Participant's Accrued Benefit will not be reduced solely on account of any increase in the Participant's age or service or on account of an amendment to the Plan. A Participant's Vested Accrued Benefit is equal to his Vested Percentage of that portion of his Accrued Benefit which is subject to the Vesting Schedule plus 100% of the remaining portion of his Accrued Benefit. 1.05 Acquisition Loan A loan (or other extension of credit) used by the trustee to finance the acquisition of Company Stock, which loan will constitute an extension of credit to the Trust from a party-in-interest (as defined in ERISA). 1.06 Anniversary Date Anniversary Date means the last day of each Plan Year. The Anniversary Date is an Accounting Date and an Allocation Date. 1.07 Beneficiary Beneficiary means the person, persons, trust or other entity who is designated to receive any amount payable upon the death of a Participant. 1.08 Cash-Out Distribution Cash-Out Distribution means, as described in Article 5, a distribution to a Participant upon termination of employment of his Vested Accrued Benefit. -2- 1.09 Code and ERISA Code means the Internal Revenue Code of 1986, as it may be amended from time to time, and all regulations issued thereunder. Reference to a section of the Code includes that section and any comparable section or sections of any future legislation that amends, supplements or supersedes such section and any regulations issued thereunder. ERISA means Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as it may be amended from time to time, and all regulations issued thereunder. Reference to a section of ERISA includes that section and any comparable section or sections of any future legislation that amends, supplements or supersedes such section and any regulations issued thereunder. 1.10 Company Stock (a) Company Stock shall mean: (i) Common stock issued by the Employer (or by a corporation which is a member of the same controlled group) which is readily tradeable on an established securities market; or (ii) If there is no common stock which meets the requirements of (i) above, then common stock issued by the Employer (or by a corporation which is a member of the same controlled group) having a combination of voting power and dividend rights equal to or in excess of: (A) that class of common stock of the Employer (or any other such corporation) having the greatest voting power; and (B) that class of common stock of the Employer (or of any other such corporation) having the greatest dividend rights; or (iii) Noncallable preferred stock, if such stock is convertible at any time into stock which meets the requirements of (i) or (ii) above (whichever is applicable) and if such conversion is at a conversion price that is reasonable. A preferred stock will be considered noncallable if after the call there will be a reasonable opportunity for a conversion which meets the requirements of the preceding sentence in accordance with applicable Treasury regulations. 1.11 Compensation Except where otherwise specifically provided in this Plan, Compensation means a Participant's earned income, wages, salaries, and fees for professional services, and other amounts received for personal services actually rendered in the course of employment with the employer maintaining the plan (including, but not limited to, commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums and tips), and excluding the following: (i) Employer contributions to a plan of deferred compensation which are not included in the employee's gross income for the taxable year in which contributed or employer contributions under a simplified employee pension plan to the extent the contributions are deductible by the employee, or any distributions from a plan of deferred compensation; (ii) Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by the employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (iii) Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; -3- (iv) Other amounts which received special tax benefits, or contributions made by the employer (whether or not under a salary reduction agreement) toward the purchase of an annuity described in Code Section 403(b) (whether or not the amounts are actually excludable from the gross income of the employee); (v) Compensation received prior to a Participant's Entry Date. Effective January 1, 1998, this exclusion no longer applies to an Employee who is a member of an Eligible Employee Classification other than Temporary Employees; (vi) Payments for overtime work in excess of the regularly scheduled work period; (vii) Expense or other allowances; (viii) Bonuses; and (ix) Shift differential pay. Compensation also includes any amounts contributed by the Employer or any Related Employer on behalf of any Employee pursuant to a payroll withholding agreement which are not includable in the gross income of the Employee due to Code Sections 125, 402(e)(3), 402(h) or 403(b) and, effective January 1, 1998, Code Section 402(k). Notwithstanding the foregoing, for all purposes under this Plan, Compensation in excess of the Statutory Compensation Limit will be disregarded. Effective January 1, 2002, the Statutory Compensation Limit means $200,000, as adjusted in accordance with Code Section 401(a)(17)(B). 1.12 Effective Date The original Effective Date of the Plan is July 1, 1974. The effective date of this restatement of the Plan is January 1, 1997. The provisions of this Merged Plan and Trust, as amended and restated, shall apply solely to an Employee who terminates employment with the Employer on or after the restated Effective Date of this Merged Plan and Trust. If an Employee terminates employment with the Employer prior to the restated Effective Date, that Employee shall be entitled to benefits under the Merged Plan as the Plan existed on the Employee's termination date. 1.13 Eligible Employee Classification Effective January 1, 1999, an Eligible Employee Classification is a classification of Employees, the members of which are eligible to participate in the Plan. All Employees who are classified as "Regular Employees" are eligible to participate in the Plan. Any reference to Employee within this Agreement is assumed to mean an Employee who is classified as a Regular Employee. 1.14 Eligible Participant All Participants are Eligible Participants. 1.15 Employee (a) In General An Employee is any person who is employed by the Employer or a Participating Employer. -4- (b) Leased Employee A Leased Employee means any person who, pursuant to an agreement between the Employer or any Related Employer ("Recipient Employer") and any other person ("leasing organization"), has performed services for the Recipient Employer on a substantially full-time basis for a period of at least one year and such services are performed under the primary direction or control of the Recipient Employer. Any Leased Employee will be treated as an Employee of the Recipient Employer; however, contributions or benefits provided by the leasing organization which are attributable to the services performed for the Recipient Employer will be treated as provided by the Recipient Employer. If all Leased Employees constitute less than 20% of the Employer's non-highly-compensated work force within the meaning of Code Section 414(n)(1)(C)(ii), then the preceding sentence will not apply to any Leased Employee if such Employee is covered by a money purchase pension plan ("Safe Harbor Plan") which provides: (1) a nonintegrated employer contribution rate of at least 10% of compensation, (2) immediate participation, and (3) full and immediate vesting. Years of Eligibility Service for purposes of eligibility to participate in the Plan and Years of Vesting Service for purposes of determining a Participant's Vested Percentage include service by an Employee as a Leased Employee. (c) Regular Employee A Regular Employee is an Employee (whether full time or part time) hired to fill a specific position on an indefinite basis and whose position is reflected in the Employer's written annual budget as being a permanent position that is eligible for participation in the Plan. 1.16 Employer/Plan Sponsor The Employer and Plan Sponsor is ChemFirst Inc., successor in interest to First Mississippi Corporation. A Participating Employer is any organization which has adopted this Plan and Trust in accordance with Section 8.07. The term Predecessor Employer means any prior employer to which the Employer is the successor, including any Predecessor Employer for which the Employer maintains the obligations of a Predecessor Plan established by the Predecessor Employer. Service with a Predecessor Employer will be included as Service with the Employer for purposes of determining Eligibility under this Plan, unless it is determined that the Company and/or business organization is not a Portability Group Member. Service with a Predecessor Employer for purposes of determining Years of Vesting Service shall be determined as a part of the merger, acquisition, and/or adoption agreement. 1.17 Employment Commencement Date The date an Employee first performs an Hour of Service for the Employer is his Employment Commencement Date. 1.18 Entry Date Entry Date means the first day of the month which coincides with or next follows the date upon which the eligibility requirements of Section 2.01 are met. Effective January 1, 1998, Entry Date means, with respect to an Employee who is a member of an Eligible Employee Classification other than Temporary Employees, the Employee's Employment Commencement Date. -5- 1.19 Fiscal Year Fiscal Year means the taxable year of the Plan Sponsor. The Fiscal Year of the Plan Sponsor is the 12-month period beginning January 1 and ending December 31. 1.20 Forfeiture The term Forfeiture refers to that portion, if any, of a Participant's Accrued Benefit which is in excess of his Vested Accrued Benefit following the termination of the Participant's employment. A Forfeiture is considered to occur as of the earlier of (a) the date of the occurrence of the fifth of 5 consecutive One Year Breaks-in-Service or (b) the date a Cash-Out Distribution occurs in accordance with the provisions of Article 5. 1.21 Highly Compensated Definitions (a) Compensation For purposes of this Section, Compensation means Compensation defined in Section 1.11, excluding only the exclusions described in paragraphs (i) through (iv), and including deferrals under (a) Code Section 402(e)(3) relating to a Code Section 401(k) arrangement; (b) Code Section 125 relating to a cafeteria plan; (c) Code Section 403(b) relating to a tax sheltered annuity plan; (d) Code Section 408(h) relating to a simplified employee pension; and (e) Effective January 1, 1998, Code Section 402(k) relating to a simple retirement account; and effective January 1, 2002, amounts not includable in gross income due to Code Section 132(f)(4). Compensation in excess of the Statutory Compensation Limit will be disregarded. The definition of Compensation shall be limited to Compensation earned during (i) the Determination Year for purposes of Section 1.21(d)(2)(i) and (ii) the Lookback Year for purposes of Sections 1.21(d)(2)(ii) and 1.21(j). (b) Determination Year Determination Year means the Plan Year for which the determination of who is Highly Compensated is being made. (c) Highly Compensated Employee Highly Compensated Employee means any individual who is a Highly Compensated Active Employee or a Highly Compensated Former Employee within the meaning of Code Section 414(q) and the regulations thereunder. (d) Highly Compensated Active Employee Highly Compensated Active Employee means any individual who: (1) During the Determination Year or the Lookback Year was at any time a 5-percent Owner (within the meaning of Code Section 416(i)) of the Employer or any Related Employer; (2) During the Lookback Year (i) received Compensation from the Employer and all Related Employers in excess of $80,000 (or any greater amount determined by regulations issued by the Secretary of the Treasury under Code Section 415(d)), and (ii), subject to the election of the Plan Sponsor, was in the Top-paid Group for the Lookback Year. -6- (e) Highly Compensated Former Employee Highly Compensated Former Employee means any Former Employee who had a Separation Year (within the meaning of Treasury Regulation Section 1.414(q)-1T Q&A-5) and was a Highly Compensated Active Employee for either the Separation Year or any Determination Year ending on or after the Employee's 55th birthday. (f) Highly Compensated Group Highly Compensated Group means all Highly Compensated Employees. (g) Lookback Year Lookback Year means the 12-month period immediately preceding the Determination Year. (h) Non-Highly Compensated Employee Non-Highly Compensated Employee means an Employee who is not a Highly Compensated Employee. (i) Non-Highly Compensated Group Non-Highly Compensated Group means all Non-Highly Compensated Employees. (j) Top-Paid Group Top-Paid Group means those individuals who are among the top 20 percent of Employees of the Employer and all Related Employers when ranked on the basis of Compensation received during the year. In determining the number of individuals in the Top-Paid Group (but not the identity of those individuals), the following individuals may be excluded: (1) Employees who have not completed 6 months of Service by the end of the year. For this purpose, an Employee who has completed One Hour of Service in any calendar month will be credited with one month of Service; (2) Employees who normally work fewer than 17 1/2hours per week; (3) Employees who normally work fewer than 6 months during any year. For this purpose, an Employee who has worked on one day of a month is treated as having worked for the whole month; (4) Employees who have not reached age 21 by the end of the year; (5) Nonresident aliens who received no earned income (which constitutes income from sources within the United States) within the year from the Employer or any Related Employer; and (6) Employees covered by a collective bargaining agreement negotiated in good faith between the employee representatives and the Employer or a group of employers of which the Employer is a member if (i) 90% or more of all employees of the Employer and all Related Employers are covered by collective bargaining agreements, and (ii) this Plan covers only Employees who are not covered under a collective bargaining agreement. -7- 1.22 Hour of Service An Hour of Service means: (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. These hours will be credited to the Employee for the computation period in which the duties are performed; (b) Each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service will be credited under this paragraph for any 12-month period. Hours under this paragraph will be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by this reference; and (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service will not be credited both under paragraphs (a) or (b), as the case may be, and under this paragraph (c). These hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. Hours of Service for all Employees will be determined on the basis of actual hours for which an Employee is paid or is entitled to payment. Hours of Service will be credited for employment with any Related Employer or any Predecessor Employer. Hours of Service will be credited for any individual considered an employee under Code Section 414(n) or 414(o) and the regulations thereunder. Solely for purposes of determining whether a One Year Break-in-Service has occurred, a Participant who is absent from work on an authorized Leave of Absence or by reason of the Participant's pregnancy, birth of the Participant's child, placement of a child with the Participant in connection with the adoption of such child, or for the purpose of caring for such child for a period immediately following such birth or placement, will receive credit for the Hours of Service which otherwise would have been credited to the Participant but for such absence. The Hours of Service credited under this paragraph will be credited in the Plan Year in which the absence begins if such crediting is necessary to prevent a One Year Break-in-Service in such Plan Year; otherwise, such Hours of Service will be credited in the following Plan Year. The Hours of Service credited under this paragraph are those which would normally have been credited but for such absence; in any case in which the Plan Administrator is unable to determine such hours normally credited, 8 Hours of Service per day will be credited. No more than 501 Hours of Service will be credited under this paragraph for any 12-month period. The Date of Severance is the second anniversary of the date on which the absence begins. The period between the initial date of absence and the first anniversary of the initial date of absence is deemed to be a period of Service. The period between the first and second anniversaries of the initial date of absence is neither a period of service nor a period of severance. Notwithstanding the foregoing, effective December 12, 1994, an authorized leave of absence granted on account of qualified military service shall comply with the requirements of Code Section 414(u) in determining a One Year Break-in-Service. 1.23 Investment Fund An Investment Fund means any portion of the assets of the Trust Fund which the Plan Administrator designates as an Investment Fund and for which the Plan Administrator maintains a set of accounts separate from the remaining assets of the Trust Fund. (a) Specific Investment Fund means an Investment Fund which is designated as a Specific Investment Fund by the Plan Administrator in a manner and form acceptable to the Trustee. -8- (b) General Investment Fund means all assets of the Trust Fund excluding the assets of any Specific Investment Funds. 1.24 Leave of Absence An authorized Leave of Absence means a period of time of one year or less granted to an Employee by the Employer due to illness, injury, temporary reduction in work force, or other appropriate cause or due to military service during which the Employee's reemployment rights are protected by law, provided the Employee returns to the service of the Employer on or before the expiration of such leave, or in the case of military service, within the time his reemployment rights are so protected or within 60 days of his discharge from military service if no federal law is applicable. All authorized Leaves of Absence are granted or denied by the Employer in a uniform and nondiscriminatory manner, treating Employees in similar circumstances in a like manner. If the Participant does not return to active service with the Employer on or prior to the expiration of his authorized Leave of Absence he will be considered to have had a Date of Severance as of the earlier of the date on which his authorized Leave of Absence expired, the first anniversary of the last date he worked at least one hour as an Active Participant, or the date on which he resigned or was discharged. 1.25 Normal Retirement Age A Participant's Normal Retirement Age is age 65. 1.26 Normal Retirement Date A Participant's Normal Retirement Date is the date on which the Participant attains Normal Retirement Age. 1.27 One Year Break-in-Service Effective January 1, 1998, One Year Break-in-Service means any 365-day period following a Participant's Date of Termination in which an Employee does not complete at least one (1) Hour of Service. 1.28 Participant The term Participant means an Employee or former Employee who is eligible to participate in this Plan and who is or who may become eligible to receive a benefit of any type from this Plan or whose Beneficiary may be eligible to receive any such benefit. (a) Active Participant means a Participant who is currently an Employee in an Eligible Employee Classification. (b) Disabled Participant means a Participant who has terminated his employment with the Employer due to his Disability and who is receiving or is entitled to receive benefits from the Plan. (c) Retired Participant means a Participant who has terminated his employment with the Employer after meeting the requirements for his Normal Retirement Date and who is receiving or is entitled to receive benefits from the Plan. (d) Vested Terminated Participant means a Participant who has terminated his employment with the Employer and who has a nonforfeitable right to all or a portion of his or her Accrued Benefit and who has not received a distribution of the value of his or her Vested Accrued Benefit. (e) Inactive Participant means a Participant who has (i) interrupted his status as an Active Participant without becoming a Disabled, Retired or Vested Terminated Participant and (ii) has a non-forfeitable right to all or a portion of his Accrued Benefit and has not received a complete distribution of his benefit. -9- (f) Former Participant means a Participant who has terminated his employment with the Employer and who currently has no nonforfeitable right to any portion of his or her Accrued Benefit. 1.29 Payroll Withholding Agreement If a written Payroll Withholding Agreement is required pursuant to the provisions of Article 3, then each Participant who elects to participate in the Plan will file such Agreement on or before the first day of the payroll period for which the Agreement is applicable (or at some other time as specified by the Plan Administrator). Such Agreement will be effective for each payroll period thereafter until modified or amended. The terms of such Agreement will provide that the Participant agrees to have the Employer withhold, each payroll period, any whole percentage of his Compensation (or such other amount as allowed by the Plan Administrator under rules applied on a uniform and nondiscriminatory basis), not to exceed the limitations of Article 7. In consideration of such Agreement, the Employer periodically will make a contribution to the Participant's proper Account(s) in an amount equal to the total amount by which the Participant's Compensation from the Employer was reduced during applicable payroll periods pursuant to the Payroll Withholding Agreement. Notwithstanding the above, Payroll Withholding Agreements will be governed by the following general guidelines: (a) A Payroll Withholding Agreement will apply to each payroll period during which an effective agreement is on file with the Employer. Upon termination of employment, such agreement will become void. (b) The Plan Administrator will establish and apply guidelines concerning the frequency and timing of amendments or changes to Payroll Withholding Agreements. Notwithstanding the foregoing, a Participant may revoke his Payroll Withholding Agreement at any time and discontinue all future withholding. (c) The Plan Administrator may amend or revoke its Payroll Withholding Agreement with any Participant at any time, if the Employer determines that such revocation or amendment is necessary to insure that a Participant's Annual Additions for any Plan Year will not exceed the limitations of Article 7 or to insure that the requirements of Sections 401(k) and 401(m) of the Code have been satisfied with respect to the amount which may be withheld and contributed on behalf of the Highly Compensated Group. (d) Except as provided above, a Payroll Withholding Agreement may not be revoked or amended by the Participant or the Employer. 1.30 Plan, Plan and Trust, Trust The terms Plan, Plan and Trust and Trust mean ChemFirst Inc. 401(k) Savings and Employee Stock Ownership Plan and Trust. The Plan Identification Number is 002. The Plan is a merged plan consisting of an employee stock ownership plan with a cash or deferred arrangement. The term Predecessor Plan means any qualified plan previously established and maintained by the Employer and to which this Plan is the successor. 1.31 Plan Administrator The Plan Administrator is the Employee Benefit Committee. -10- 1.32 Plan Year The Plan Year is the 12 month period beginning January 1 and ending December 31. The Limitation Year coincides with the Plan Year. 1.33 Portability Group Member A Portability Group Member shall mean the Company and any business organization with which the Company has agreed to recognize the portability of either service or benefits, or both, with respect to employees whose employment is transferred between such Portability Group Members. 1.34 Qualified Annuity Definitions (a) Annuity Starting Date Annuity Starting Date means (i) the first day of the first period for which an amount is payable as an annuity, or (ii) in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitled the Participant to such benefit. (b) Qualified Election (1) In General Qualified Election means a written waiver of a Qualified Joint and Survivor Annuity or a Qualified Survivor Annuity. The waiver must be consented to by the Participant's spouse with such written consent witnessed by a representative of the Plan Administrator or a notary public. The spouse's consent must include the designation of a specific Beneficiary and the form of payment which cannot be changed without the consent of the spouse. Such consent will not be required if the Participant establishes to the satisfaction of the Plan Administrator that such written consent may not be obtained because there is no spouse, the spouse cannot be located or other circumstances that may be prescribed by Treasury Regulations. Any consent which is required under this Section will be valid only with respect to the spouse who signs the consent (or in the event of a deemed Qualified Election, the designated spouse). Additionally, any revocation of a prior waiver may be made by a Participant without the consent of the spouse at any time before the Annuity Starting Date; however, any waiver of a Qualified Joint and Survivor Annuity or a Qualified Survivor Annuity which follows such revocation must be in writing and must be consented to by the Participant's spouse. The number of waivers or revocations of such waivers will not be limited. (2) Qualified Joint and Survivor Annuity Notices Not more than 90 days nor less than 30 days before the Participant's Annuity Starting Date, the Plan Administrator will provide the Participant a written explanation of: . the terms and conditions of a Qualified Joint and Survivor Annuity; . the Participant's right to make and the effect of a Qualified Election to waive the Qualified Joint and Survivor Annuity form of benefit; . a general description of the eligibility conditions and other material features of the optional forms of benefit and sufficient additional information to explain the relative values of the optional forms of benefit available; . the rights of the Participant's spouse; and -11- . the right to make, and the effect of, a revocation of a previous Qualified Election to waive the Qualified Joint and Survivor Annuity. (3) Qualified Survivor Annuity Notices The election period to waive the Qualified Survivor Annuity begins on the first day of the Plan Year in which the Participant attains age 35 and ends on the date of the Participant's death. If a Vested Terminated Participant separates from service before the beginning of the election period, the election period begins on the date of separation from service. The Plan Administrator will, within the applicable notice period, provide each Participant a written explanation of the Qualified Survivor Annuity containing comparable information to that required under the provisions of Section 1.32(b)(2). For purposes of this paragraph, the term "applicable notice period" means whichever of the following periods ends last: . the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35; . the period beginning two years before and ending 12 months after the individual becomes a Participant; . the period beginning two years before and ending 12 months after the joint and survivor rules become effective for the Participant; or . the period beginning one year before and ending 12 months after the Participant separates from service before attaining age 35. A Participant who will not have attained age 35 as of the end of any current Plan Year may make a special Qualified Election to waive the Qualified Survivor Annuity for the period beginning on the date of the election and ending on the first day of the Plan Year in which the Participant attains age 35. The Election will not be valid unless the Participant receives a written explanation of the Qualified Survivor Annuity in terms comparable to the explanation required above. Qualified Survivor Annuity coverage will automatically resume as of the first day of the Plan Year in which the Participant attains age 35. Any new waiver on or after that date will be subject to the full requirements of this Section 1.34(b). (c) Qualified Joint and Survivor Annuity A Qualified Joint and Survivor Annuity means an annuity which is purchased from an Insurer and which is payable for the life of the Participant with a survivor annuity for the life of his Surviving Spouse in an amount which is 50% of the amount payable during the joint lives of the Participant and his spouse. The amount of the Qualified Joint and Survivor Annuity will be the amount of benefit which can be purchased from an Insurer with the Participant's Vested Accrued Benefit. (d) Qualified Life Annuity A Qualified Life Annuity means an annuity which is purchased from an Insurer and which is payable for the lifetime of the Participant with payments terminating upon the death of the Participant. The amount of the Qualified Life Annuity will be the amount of benefit which can be purchased from an Insurer with the Participant's Vested Accrued Benefit. (e) Qualified Survivor Annuity A Qualified Survivor Annuity which a Surviving Spouse will be eligible to receive under the provisions of Section 6.02 means a monthly benefit payable for the remaining lifetime of the -12- Surviving Spouse. The amount of the Qualified Survivor Annuity benefit will be the amount of benefit which can be purchased from an Insurer with the Participant's Vested Accrued Benefit. If the Participant's Vested Accrued Benefit is $3,500 ($5,000 for Plan Years beginning after August 5, 1997) or less, the Plan Administrator will direct the immediate distribution of the Participant's Vested Accrued Benefit to the Surviving Spouse. If the Participant's Vested Accrued Benefit at the time of any distribution exceeds $3,500 ($5,000 for Plan Years beginning after August 5, 1997), the Vested Accrued Benefit at any later time will be deemed to exceed $3,500 ($5,000 for Plan Years beginning after August 5, 1997). The Surviving Spouse may elect to receive the Qualified Survivor Annuity as a lump sum. 1.35 Related Employer The terms Related Employer and Affiliated Employer are used interchangeably and mean any other corporation, association, company or entity on or after the Effective Date which is, along with the Employer, a member of a controlled group of corporations (as defined in Code Section 414(b)), a group of trades or businesses which are under common control (as defined in Code Section 414(c)), an affiliated service group (as defined in Code Section 414(m)), or any organization or arrangement required to be aggregated with the Employer by Treasury Regulations issued under Code Section 414(o). 1.36 Required Beginning Date The Required Beginning Date for the commencement of benefit payments from the Plan is the April 1 immediately following the calendar year in which the Participant attains age 70 1/2 for a Participant who is a Five Percent Owner (as defined in Section 1.39(d)) with respect to the Plan Year in which the Participant attains age 70 1/2. The Required Beginning Date for the commencement of benefit payments from the Plan for any other Participant is the April 1 immediately following the later of (i) the calendar year in which the Participant attains age 70 1/2, or (ii) if so elected by the Participant, the calendar year in which the Participant retires. 1.37 Service (a) Service means any period of time the Employee is in the employ of the Employer. Service in all cases includes periods during which the Employee is on an "authorized leave of absence" or a "maternity or paternity leave of absence" described in Section 1.22 relating to One Year Break-in-Service. Leaves of absence also shall include periods of absence in connection with military service during which the Employee's re-employment rights are legally protected. Except for absence by reason of military service, leaves of absence shall be for a maximum period of two (2) years. Leaves of absence shall be granted on a uniform and nondiscriminatory basis. (b) If the Employer maintains the plan of a Predecessor Employer, Service shall include service for the Predecessor Employer. To the extent it may be required under applicable Treasury regulations under Code Section 414, Service shall include all service for any Predecessor Employer. 1.38 Surviving Spouse Surviving Spouse means a deceased Participant's spouse who was married to the Participant on the Participant's date of death. The Plan Administrator and the Trustee may rely conclusively on a Participant's written statement of his marital status. Neither the Plan Administrator nor the Trustee is required at any time to inquire into the validity of any marriage, the effectiveness of a common-law relationship or the claim of any alleged spouse which is inconsistent with the Participant's report of his marital status and the identity of his spouse. -13- 1.39 Top-Heavy Definitions (a) Aggregate Account Aggregate Account means, with respect to each Participant, the value of all accounts maintained on behalf of the Participant, whether attributable to Employer or Employee contributions, used to determine Top-Heavy Plan status under the provisions of a defined contribution plan. A Participant's Aggregate Account as of the Determination Date will be the sum of: . the balance of his Account(s) as of the most recent valuation date occurring within a 12-month period ending on the Determination Date (excluding any amounts attributable to deductible voluntary employee contributions); plus . contributions that would be allocated as of a date not later than the Determination Date, even though those amounts are not yet made or required to be made; plus . any Plan Distributions made within the Plan Year that includes the Determination Date or within the four preceding Plan Years. (b) Aggregation Group Aggregation Group means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. (c) Required Aggregation Group Each plan of the Employer in which a Key Employee is a Participant, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Section 401(a)(4) or 410, will be aggregated and the resulting group will be known as a Required Aggregation Group. Each plan in the Required Aggregation Group will be considered a Top-Heavy Plan if the Required Aggregation Group is a Top-Heavy Group. No plan in the Required Aggregation Group will be considered a Top-Heavy Plan if the Required Aggregation Group is not a Top-Heavy Group. (1) Permissive Aggregation Group The Employer may also include any other plan not required to be included in the Required Aggregation Group, provided the resulting group (to be known as a Permissive Aggregation Group), taken as a whole, would continue to satisfy the provisions of Code Sections 401(a)(4) and 410. Only a plan that is part of the Required Aggregation Group will be considered a Top-Heavy Plan if the Permissive Aggregation Group is a Top-Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top-Heavy Plan if the Permissive Aggregation Group is not a Top-Heavy Group. Only those plans of the Employer in which the Determination Dates fall within the same calendar year will be aggregated in order to determine whether the plans are Top-Heavy Plans. (d) Determination Date Determination Date means the last day of the preceding Plan Year, or, in the case of the first Plan Year, the last day of the first Plan Year. -14- (e) Key Employee Key Employee means any Employee or former Employee (and his Beneficiary) who, at any time during the Plan Year or any of the preceding four Plan Years, was: (1) A "Five Percent Owner" of the Employer. "Five Percent Owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than 5% of the value of the outstanding stock of the Employer or stock possessing more than 5% of the total combined voting power of all stock of the Employer. If the Employer is not a corporation, Five Percent Owner means any person who owns more than 5% of the capital or profits interest in the Employer. In determining percentage ownership hereunder, Related Employers will be treated as separate Employers; or (2) A "One Percent Owner" of the Employer having Compensation from the Employer of more than $150,000. "One Percent Owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than 1% of the value of the outstanding stock of the Employer or stock possessing more than 1% of the total combined voting power of all stock of the Employer. If the Employer is not a corporation, One Percent Owner means any person who owns more than 1% of the capital or profits interest in the Employer. In determining percentage ownership hereunder, Related Employers will be treated as separate Employers. However, in determining whether an individual has Compensation of more than $150,000, Compensation from each Related Employer will be taken into account; or (3) Effective January 1, 2002, any Employee or former Employee (including any deceased employee) who at any time during the plan year that includes the Determination Date was an officer of the employer having Compensation greater than $130,000 (as adjusted under section 416(i)(1) of the Code for plan years beginning after December 31, 2002). (f) Non-Key Employee Non-Key Employee means any Employee (and his Beneficiaries) who is not a Key Employee. (g) Plan Distributions Plan distributions include distributions made before January 1, 1984, and distributions under a terminated plan which, if it had not been terminated, would have been required to be included in an aggregation group. However, distributions made after the valuation date and before the Determination Date are not included to the extent that they are already included in the Participant's Single Sum Benefit as of the valuation date. With respect to "unrelated rollovers and plan-to-plan transfers (those which are both initiated by an employee and made from a plan maintained by one employer to a plan maintained by another employer), if such a rollover or plan-to-plan transfer is made from this Plan, it will be considered as a distribution for purposes of this Section. If such a rollover or plan-to-plan transfer is made to this Plan, it will not be considered as part of the Participant's Single Sum Benefit. However, an unrelated rollover or plan-to-plan transfer accepted before January 1, 1984, will be considered as part of the Participant's Single Sum Benefit. With respect to "related" rollovers and plan-to-plan transfers (those which are either not initiated by an employee or are made from one plan to another plan maintained by the same employer), if such a rollover or plan-to-plan transfer is made from this Plan, it will not be considered as a distribution for purposes of this Section. If such a rollover or plan-to-plan transfer is made to this Plan, it will be considered as part of the Participant's Single Sum Benefit. -15- (h) Present Value of Accrued Benefit In the case of the defined benefit plan, a Participant's Present Value of Accrued Benefit, for Top-Heavy determination purposes, will be determined using the following rules: (1) The Present Value of Accrued Benefit will be determined as of the most recent "valuation date" within a 12-month period ending on the Determination Date. (2) For the first Plan Year, the Present Value of Accrued Benefit will be determined as if (A) the Participant terminated service as of the Determination Date; or (B) the Participant terminated service as of the valuation date, but taking into account the estimated Present Value of Accrued Benefits as of the Determination Date. (3) For any other Plan Year, the Present Value of Accrued Benefit will be determined as if the Participant terminated service as of the valuation date. (4) The valuation date must be the same date used for computing the defined benefit plan minimum funding costs, regardless of whether a calculation is performed that plan year. (5) A Participant's Present Value of Accrued Benefit as of a Determination Date will be the sum of: . the present value of his Accrued Benefit determined using the actuarial assumptions which are specified below; plus . effective January 1, 2002, any Plan Distributions made with respect to the Employee under the Plan and any plan aggregated with the Plan under section 416(g)(2) of the Code during the 1-year period ending on the Determination date; plus . any employee contributions, whether voluntary or mandatory. However, amounts attributable to qualified voluntary employee contributions, as defined in Code Section 219(e)(2) will not be considered to be a part of the Participant's Present Value of Accrued Benefit. Effective January 1, 2002, for purposes of calculating the amount of Plan Distributions made to an employee as required above, in the case of a Plan Distribution made for a reason other than separation from service, death, or Disability, this provision shall be applied by substituting "5-year period" for "1-year period". For purposes of this Section, the present value of a Participant's Accrued Benefit will be equal to the greater of the present value determined using the actuarial assumptions which are specified for Actuarial Equivalent purposes or the present value determined using the "Applicable Interest Rate." The Applicable Interest Rate is the rate or rates that would be used by the Pension Benefit Guaranty Corporation for a trusteed single-employer plan to value a Participant's or Beneficiary's benefit on the date of distribution (the "PBGC Rate"). If the present value using the PBGC Rate exceeds $25,000, the Applicable Interest Rate is 120% of the PBGC Rate. However, the use of 120% of the PBGC Rate will never result in a present value less than $25,000. (6) Solely for the purpose of determining if this Plan (or any other plan included in a Required Aggregation Group of which this Plan is a part) is Top-Heavy, the Accrued Benefit of any Employee other than a Key Employee will be determined under (A) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Employer or any Related Employer, or -16- (B) if there is no such method, as if the benefit accrued no more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Code Section 411(b)(1)(C). (i) Single Sum Benefit The Single Sum Benefit for any Participant in a defined benefit pension plan will be equal to his Present Value of Accrued Benefit. The Single Sum Benefit for any Participant in a defined contribution plan will be equal to his Aggregate Account. (j) Top-Heavy Group Top-Heavy Group means an Aggregation Group in which, as of the Determination Date, the Single Sum Benefits of all Key Employees under all plans included in the group exceeds 60% of a similar sum determined for all Participants. Super Top-Heavy Group means an Aggregation Group in which, as of the Determination Date, the sum of (1) the Single Sum Benefits of all Key Employees under all defined benefit plans included in the group, plus (2) the Single Sum Benefit of all Key Employees under all defined contribution plans included in the group exceeds 90% of a similar sum determined for all Participants. (k) Top-Heavy Plan This Plan will be a Top-Heavy Plan for any Plan Year beginning after December 31, 1983, in which, as of the Determination Date, the Single Sum Benefits of all Key Employees exceed 60% of the Single Sum Benefits of all Participants under this Plan. This Plan will be a Super Top-Heavy Plan for any Plan Year beginning after December 31, 1983, in which, as of the Determination Date, the Single Sum Benefits of all Key Employees exceed 90% of the Single Sum Benefits of all Participants under this Plan. If any Participant is a Non-Key Employee for a given Plan Year, but was a Key Employee for any prior Plan Year, the Participant's Single Sum Benefit will not be taken into account for purposes of determining whether this Plan is a Top-Heavy or Super Top-Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy or Super Top-Heavy Group). Effective January 1, 2002, if an individual has performed no services for the Employer at any time during the 1-year period ending on the Determination Date, any Single Sum Benefit of such individual will not be taken into account for purposes of determining whether this Plan is a Top-Heavy or Super Top-Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy Group or Super top-Heavy Group. If an individual has performed no services for the Employer at any time during the 5-year period ending on the Determination Date, any Single Sum Benefit of such individual will not be taken into account for purposes of determining whether this Plan is a Top-Heavy or Super Top-Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy Group or Super Top-Heavy Group). 1.40 Trust Fund, Trust These terms mean the total cash, securities, real property, insurance contracts and any other property held by the Trustee. 1.41 Trustee Trustee means Fidelity Management Trust Company or any successor Trustee. -17- 1.42 Vested Percentage A Participant's Vested Percentage as of a given date will be that percentage determined in accordance with the Vesting Schedule. Notwithstanding the preceding, a Participant will be 100% vested upon reaching his Normal Retirement Age. 1.43 Vesting Schedule A Participant shall be fully vested at all times in amounts credited to the Participant's Employee Account, Pre-401(k) Account, Rollover Account and certain Employee Stock Ownership Accounts into which PAYSOP accounts were merged on August 1, 1996. In addition, the Participant also shall be entitled to receive a Nonforfeitable percentage of the balance credited to the Company Matching Account and Employee Stock Ownership Account, determined under the following vesting schedule: Nonforfeitable Years of Service Percentage Less than 3 years 0% At least 3 years 100% Notwithstanding the foregoing, the following vesting schedule shall apply to Participants' Employee Stock Ownership Accounts merged hereunder as of January 1, 1997, but only with respect to Participants who are credited with an Hour of Service on or after January 1, 1997: Nonforfeitable Years of Service Percentage Less than 1 year 0% At least 1 but less than 2 years 10% At least 2 but less than 3 years 25% At least 3 years 100% 1.44 Written Resolution The terms Written Resolution and Written Consent are used interchangeably and reflect decisions, authorizations, etc. by the Employer. A Written Resolution will be evidenced by a resolution of the Board of Directors of the Employer. 1.45 Year of Service (a) Years of Service. Years of Service are determined using the Elapsed Time Method as specified in this Section. (1) Elapsed Time Method. The Elapsed Time Method shall be used to compute Years of Eligibility Service and Years of Vesting Service for all Regular Employees. Under the Elapsed Time Method, Years of Service are based upon an Employee's Elapsed Time of employment irrespective of the number of hours actually worked during such period; a Year of Service (including a fraction thereof) will be credited for each completed 365 days of Elapsed Time which need not be consecutive. The following terms are used in determining Years of Service under the Elapsed Time Method: . Date of Severance (Termination) - means the earlier of (A) the actual date an Employee resigns, is discharged, dies or retires, or (B) the first anniversary of the -18- date an Employee is absent from work (with or without pay) for any other reason, e.g., disability, vacation, leave of absence, layoff, etc. . Elapsed Time - means the total period of service which has elapsed between a Participant's Employment Commencement Date and Date of Termination including Periods of Severance where a One Year Break-in-Service does not occur. . Employment Commencement Date - means the date an Employee first performs one Hour of Service for the Employer. . One Year Break-in-Service - means any 365-day period following an Employee's Date of Termination as defined above in which the Employee does not have at least one Hour of Service. . Period of Severance - is the time between the actual Date of Severance as defined above and the subsequent date, if any, on which the Employee performs an Hour of Service. All periods of employment will be aggregated including Periods of Severance unless there is a One Year Break-in-Service. Years of Eligibility Service for purposes of determining eligibility to participate in the Plan and Years of Vesting Service for purposes of determining a Participant's Vested Percentage include service with any organization which is a Related Employer with respect to the Employer. (b) For Eligibility Purposes. Effective January 1, 1998, all Regular Employees who have completed at least one (1) hour of service shall be eligible to participate in the Plan. (c) For Vesting Purposes Years of Service for purposes of computing a Participant's Vested Percentage are referred to as Years of Vesting Service and are determined using the Elapsed Time Method. For purposes of determining an Employee's Years of Vesting Service, an Employee shall receive credit for the aggregate of all time periods commencing on an Employee's Employment Commencement Date, including the Re-Employment Commencement Date, and ending on the date a Break-in-Service begins. An Employee also shall receive credit for any Period of Severance of less than 365 days. A Year of Vesting Service (including a fraction thereof) will be credited for each completed 365 days of Elapsed Time which need not be consecutive. In computing an Employee's Years of Vesting Service, the following rules shall apply: (i) Service shall be disregarded in computing a Participant's Years of Vesting Service under the Plan for Plan Years beginning prior to March 1, 1985, for which the Employee was eligible to make basic contributions (after-tax contributions) but declined to make any such contributions to the Plan, if such period occurred prior to his initial date of participation in the Plan. (ii) Service shall be disregarded in computing a Participant's Years of Vesting Service for Plan Years beginning on or after March 1, 1985, but before October 1, 1993, for which the Employee was eligible to direct the Employer to make Salary Deferral Contributions on his behalf but declined to direct the Employer to make any such contributions to the Plan; and if such period occurred prior to his initial date of participation in the Plan. (iii) Service prior to July 1, 1974, shall be disregarded in computing a Participant's Years of Vesting Service. -19- (d) Related Employers Years of Eligibility Service for purposes of determining eligibility to participate in the Plan and Years of Vesting Service for purposes of determining a Participant's Vested Percentage include service with any organization which is a Related Employer with respect to the Employer. (e) Loss of Service If a Participant who is zero percent (0%) vested terminates employment and incurs at least 5 consecutive One Year Breaks-in-Service, he or she will lose all prior Eligibility Service and Vesting Service. (f) Change in Computation Method With respect to the Employee Stock Ownership Plan Accounts merged hereunder, for purposes of determining a Participant's Years of Vesting Service in those Accounts as of December 31, 1996, the method used to calculate Years of Vesting Service shall be the method described in Section 2.14 of the First Mississippi Corporation Employee Stock Ownership Plan prior to August 1, 1996, or in this Section 1.45, whichever will result in the higher vested percentage. ARTICLE 2 PARTICIPATION 2.01 Participation Effective January 1, 1998, all Regular Employees are eligible to participate in the Plan on the Regular Employee's Employment Commencement Date. Employees not eligible to participate in the Plan are: . Collective Bargaining Employees. Each Employee who is a member of a collective bargaining unit shall not be eligible to participate in this Plan unless the collective bargaining agreement provides otherwise. An Employee is a member of a collective bargaining unit if the Employee is included in a unit of Employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between Employee representatives and one or more employers if there is evidence that retirement benefits were the subject of good faith bargaining between the Employee representatives and the employer or employers. The term "Employee representatives" does not include an organization of which more than one-half (1/2) the members are owners, officers, or executives of the Employer. . Leased Employees. An Employee who is otherwise eligible to participate may irrevocably elect not to participate in the Plan. Any election under this paragraph must be in writing and according to guidelines established by the Plan Administrator. 2.02 Participant Re-Entry If the employment of a Participant is terminated and the Participant subsequently is re-employed, the re-employed Employee shall become a Participant on the Re-employment Commencement Date. If an Employee becomes eligible but terminates employment prior to the first Entry Date, and the Employee is later re-employed, the Employee shall become a Participant on the Re-employment Commencement Date. -20- 2.03 Participation After Re-employment An Employee who has satisfied all of the eligibility requirements but terminates employment prior to his Entry Date will participate in the Plan immediately upon returning to the employ of the Employer. A Participant or Former Participant who has terminated employment will participate as an Active Participant in the Plan immediately upon returning to the employ of the Employer. An Employee who terminates employment prior to satisfying the eligibility requirements of Section 2.01 and is subsequently re-employed shall become a Participant after meeting the eligibility requirements of Section 2.01, but shall be credited for Service retroactively to the Re-employment Commencement Date for purposes of eligibility and vesting. 2.04 Change in Employment Classification If a Participant is no longer a member of an eligible class of Employees and becomes ineligible to participate but has not incurred a Break-in-Service, such Employee will participate immediately upon returning to an eligible class of Employees. If a Participant incurs a Break-in-Service, eligibility will be determined under the Break-in-Service rules of Section 1.27. In the event an Employee who is not a member of an Eligible Employee Classification becomes a member of such a classification, such Employee will begin to participate immediately if he has satisfied the eligibility requirements which are specified in Section 2.01. 2.05 Portability In the event an individual is transferred to or from employment covered by this Plan from or to employment covered by another plan. The provisions of this Section 2.05 shall control in situations where the provisions of this Section 2.05 are in conflict with any other Section or Sections of the Plan. In the event that an individual is transferred from employment covered by a plan sponsored by a Portability Group Member to employment covered by this Plan, employment of such individual which is counted for eligibility, vesting, and/or benefit accrual under the other plan may be counted as Service for the same purpose under this Plan if provided for by the acquisition, merger, and/or adoption agreement. Provided, however, that participation in this Plan shall not commence prior to the date on which the transfer takes place. In the event that an individual is transferred from employment covered by this Plan to employment covered by a plan sponsored by a Portability Group Member, employment of such individual which is counted for vesting purposes under the other plan may be counted as Service for vesting purposes under this Plan. The individual's Accounts in the Plan shall be maintained on an inactive basis and will continue to share in the allocation of investment earnings pursuant to Section 4.02 hereof. Except as otherwise provided in this paragraph, such individual will not share in the allocation of Company Matching Contributions or Forfeitures under this Plan after the date of his transfer to employment covered by a Portability Group Member. In the Plan Year in which such transfer occurs, such individual shall be entitled to share in the Company Matching Contributions or Forfeitures under the Portability Group Member's plan. -21- ARTICLE 3 PARTICIPANT ACCOUNTS 3.01 Employee Account Employee Account means the Account of a Participant reflecting applicable contributions, investment income or loss allocated thereto and distributions. A Participant's Employee Account is 100% vested at all times. (a) Employee Contributions (1) Amount of Contribution Each Participant may elect to make an Employee Contribution each Contribution Period not to exceed 15% of the Participant's Compensation. Such contribution will be designated as a percentage of Compensation and will be equal to an even multiple of 1% or such other amount as allowed by the Plan Administrator. The Employer shall contribute to the Trust Fund the amount of each Participant's Employee Contribution which shall be treated as Employer Elective Contributions and credited to that Participant's Employee Account. (2) Contribution Period The Contribution Period is each month. (3) Method of Contribution All Employee Contributions will be made pursuant to a Payroll Withholding Agreement in accordance with Section 1.29. (4) Limitations on Contributions (i) Amount A Participant may elect to defer Compensation only in an amount which the Participant otherwise could elect to receive in cash and which is currently available to the Participant. Compensation is not currently available to the Participant if the Participant is not eligible to receive it at the time of the contribution election. (ii) Nondiscrimination Requirements All Employee Contributions are Elective Contributions within the meaning of Section 4.05(a)(8) and must satisfy the Nondiscrimination Requirements of Section 4.05(a)(5) and (7). (iii) Excess Deferrals The maximum amount of Employee Contribution which can be made under the Plan on behalf of any Participant during any calendar year will be limited to that amount which would not constitute an Excess Deferral as defined in Section 4.05(a)(14). The Plan Administrator will distribute any Excess Deferral, together with the income allocable to it, to the Participant no later than April 15 of the calendar year immediately following the year of the Excess Deferral. If a -22- Participant notifies the Plan Administrator before March 1 of any calendar year that Excess Deferrals have been made on his Account for the previous calendar year by reason of participation in a Cash or Deferred Arrangement maintained by another employer or employers, and if the Participant requests that the Plan Administrator distribute a specific amount to him on account of Excess Deferrals and certifies that the requested amount is an Excess Deferral, the Plan Administrator will designate the amount requested together with the income allocable to it as a distribution of Excess deferrals and distribute such amount no later than April 15 of that calendar year. The amount of Excess Deferrals to be distributed will be reduced by any Excess Contributions previously distributed or recharacterized with respect to the Plan Year beginning with or within the calendar year. The amount of income allocable to the Excess Deferral will be determined as described in Section 4.05(f). (5) Timing of Deposits The Employer will deposit all Employee Contributions on the earliest date on which such contributions can reasonably be segregated from the Employer's general assets. Employer Elective Contributions accumulated through payroll deductions shall be paid to the Trustee with reasonable promptness and not later than fifteen (15) business days after the end of the month in which payroll deductions were made. (b) Withdrawals Before Separation From Service (1) Restrictions on Distributions No distribution may be made from the Participant's Employee Account or any account comprised of Matching Contributions or Nonelective Contributions which are treated as Elective Contributions in accordance with the provisions of Section 4.05(h) except under one of the following circumstances: . the Participant's retirement, death, disability or termination of employment; . the Participant's attaining of age 59 1/2; . the avoidance or alleviation of a Financial Hardship; . the termination of this Plan without the establishment of a successor plan within the meaning of Treasury Regulation Section 1.401(k)-1(d)(3); . the sale or other disposition by the Employer of at least 85 percent of the assets used by the Employer in a trade or business to an unrelated corporation which does not maintain the plan, but only if the Participant continues employment with the corporation acquiring the assets and only if the Employer continues to maintain this Plan; or . the sale or other disposition by the Employer of its interest in a subsidiary to an unrelated entity which does not maintain the plan, but only if the Participant continues employment with the subsidiary and only if the Employer continues to maintain this Plan. This paragraph does not apply to distributions of Excess Deferrals, Excess Contributions, or excess Annual Additions. Effective January 1, 2002, a Participant's Employee Contributions, and any other contributions treated as elective deferrals, and earnings attributable to these contributions shall be distributed on account of the Participant's severance from employment, as -23- defined in the Code or by Internal Revenue Service guidance. However, such a distribution shall be subject to the other applicable provisions of the Plan regarding distributions, other than provisions that require a separation from service before such amounts may be distributed. (2) Financial Hardship Withdrawals A Participant may file with the Plan Administrator a written request to withdraw, in order to avoid or alleviate a Financial Hardship, any amount not to exceed that portion of his Employee Account which represents the sum of . his total Employee Contributions made after 1988, and . his total Employee Contributions made before 1989 together with the income earned before 1989 which is allocable to those Contributions. The Plan Administrator will allow Financial Hardship withdrawals only if they are necessary to satisfy a Participant's immediate and heavy financial need. (i) Immediate and Heavy Financial Need Defined A withdrawal will be deemed to be made due to an immediate and heavy financial need of the Participant if it is made because of: . Expenses for medical care described in Code Section 213(d) previously incurred by the Participant, his spouse or any of his dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care described in Code Section 213(d); . Costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; . Payment of tuition or educational fees for the next 12 months of post-secondary education for the Participant, his spouse, children or dependents (as defined in Code Section 152); . Prevention of the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. (ii) Maximum Withdrawal Amount No withdrawal may exceed the amount necessary to satisfy the Participant's immediate and heavy financial need. However, the amount of an immediate and heavy financial need may include any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution. The Plan Administrator will allow the withdrawal if it determines, after a full review of the Participant's written request and evidence presented by the Participant showing immediate and heavy financial need as well as the Participant's lack of other reasonably available resources, that the withdrawal is necessary to satisfy the need. No withdrawal will be treated as necessary to the extent it can be satisfied from other resources which are reasonably available to the Participant, including those of the Participant's spouse and minor children. A withdrawal will be treated as necessary to the extent the Participant demonstrates to the satisfaction of the Plan Administrator that the need cannot be relieved by any of the following: -24- . Reimbursement or compensation by insurance or otherwise; . Reasonable liquidation of assets to the extent the liquidation would not itself cause an immediate and heavy financial need; . Cessation of Employee Contributions or Employee After-tax Contributions (as defined in Section 4.05(a)) or both under any plan maintained by any employer; . Other distributions or nontaxable (at the time of the loan) loans from plans maintained by any employer; . Borrowing from commercial sources on reasonable commercial terms. Unless the Plan Administrator has evidence to the contrary, it may rely upon the Participant's written representation that the need cannot be relieved by any of the foregoing. (iii) Safe Harbor The Plan Administrator will not allow any withdrawal until the Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available to the Participant under all plans maintained by the Employer. Effective January 1, 2002, upon the withdrawal of any portion of a Participant's Employee Account, the Participant will become ineligible for any Elective Contribution to this Plan or any other plan maintained by the Employer, or to make any contribution to this Plan or any other plan maintained by the Employer until the first day of the first payroll period which begins not less than 6 months following the date of withdrawal. A Participant who receives a distribution of amounts in the Participant's Employee Account in the calendar year 2001 on account of hardship shall be prohibited from making Elective Contribution to this Plan or any other plan maintained by the Employer for 6 months after receipt of the distribution or until January 1, 2002, if later. For this purpose the phrase "any other plan maintained by the Employer" means all qualified and nonqualified plans of deferred compensation maintained by the Employer. The phrase includes stock option, stock purchase, or similar plans, or a cash or deferred arrangement that is part of a cafeteria plan within the meaning of Code Section 125. It does not include the mandatory employee contribution portion of a defined benefit plan, nor does it include a health or welfare benefit plan (including one that is part of a cafeteria plan within the meaning of Code Section 125). Furthermore, the maximum amount of Employee Contributions which can be made under the Plan on behalf of any Participant during the calendar year which follows the calendar year in which the withdrawal was made will be limited to the amount which would not be treated as an Excess Deferral for that year reduced by the amount of Employee Contributions made on behalf of the Participant in the calendar year of withdrawal." 3.02 Pre 401(k) Account Pre 401(k) Account means the Account of a Participant reflecting applicable contributions, investment income or loss allocated thereto and distributions. A Participant's Pre 401(k) Account is 100% vested at all times. -25- (a) Pre 401(k) Contributions The Pre 401(k) Account (previously referred to as the Employee Nondeferred Account) is a frozen account, effective March 1, 1985, consisting of Employee After-tax contributions plus accumulated earnings. The Plan will neither permit nor accept Employee After-tax contributions. (b) Withdrawals Before Separation From Service A Participant may withdraw all or any portion of his Pre 401(k) Account at any time and from time to time subject to the limitations of this Section. Each withdrawal at the time it is paid shall be charged to the Pre 401(k) Account of the withdrawing Participant. Total withdrawals under this Section may be limited to the lesser of the aggregate amount of Employee After-tax contributions made by the Participant or the market value of the Pre 401(k) Account of the Participant on the date of withdrawal. Any amounts in a Pre 401(k) Account in excess of the aggregate Employee After-tax contributions made to the account shall remain fully vested and Nonforfeitable and shall be distributed according to the option selected under Section 5.05 when the Participant separates from service. A distribution of Employee After-tax contributions must comply with the survivor annuity requirements described in Sections 1.32 and 5.05. 3.03 Company Matching Account Company Matching Account means the Account of a Participant reflecting applicable contributions, forfeitures, investment income or loss allocated thereto and distributions. The Company Matching Account is divided into sub-accounts: (1) the Company Stock Sub-Account and (2) the Other Investments Sub-Account. The Company Stock Sub-Account holds a Participant's total interest in the Trust Fund attributable to the Participant's portion of the Company Matching Contribution made or invested in Company Stock. The Other Investments Sub-Account holds a Participant's total interest in the Trust Fund attributable to the Participant's portion of the Company Matching Contribution made in cash and invested in assets other than Company Stock. A Participant's Company Matching Account is subject to the Vesting Schedule. (a) Company Matching Contributions For each Contribution Period, the Employer will make a Company Matching Contribution to each Eligible Participant's Company Matching Account in an amount which is determined in accordance with this Section subject to the limitations of Article 7. (1) Eligible Participants All Participants who are employed by the Employer during the Contribution Period and who have elected to make an Employee Contribution for the Contribution Period are eligible to share in the allocation of the Company Matching Contribution for the Contribution Period. (2) Contribution Period The Contribution Period for Company Matching Contributions is each month. (3) Amount of Company Matching Contribution The amount of the Company Matching Contribution to be made to an Eligible Participant's Company Matching Account is equal to 100% of that portion of the Participant's Employee Contribution which is not in excess of 4% of the Participant's annual Compensation. The Company Matching Contribution on behalf of each Participant shall be credited to each Participant's Company Matching Account. -26- (4) Form of Company Matching Contribution The Employer may make its contribution in cash or in Company Stock as the Employer may determine from time to time. The Employer shall specify in writing at the time a cash contribution is made whether such contribution shall be allocated to the Company Stock Sub-Account or the Other Investments Sub-Account of each Eligible Participant. The Employer may make its contribution in the form of Company Stock at the fair market value determined at the time of contribution, which shall be invested in the Company Stock Sub-Account of each eligible Participant in accordance with Section 3.03(a)(3). (5) Limitations All Company Matching Contributions are Matching Contributions within the meaning of Section 4.05(a) and must satisfy the Nondiscrimination Requirements of Section 4.05. The Company Matching Contribution for any Plan Year on behalf of a Participant shall not exceed the Participant's Annual Additions limitation described in Article 7, even if the formula would otherwise require a larger contribution. (6) Allocation of Company Matching Contributions The Company Matching Contribution shall be allocated to the Company Matching Account of each eligible Participant in the same ratio that each Participant's Employee Contribution for the Contribution Period bears to the total Employee Contributions of all Participants for such Contribution Period. (7) Application of Forfeitures Forfeitures from a Participant's Company Matching Account may be used to pay plan expenses and/or to reduce Company Matching Contributions in the Plan Year in which the Forfeitures are determined to occur. Notwithstanding the above, amounts forfeited from a Participant's Company Matching Account prior to July 1, 1996, are added to the Thrifters Fund and allocated along with Company Matching Contributions on the last day of the Plan Year in which the forfeitures are determined to occur. Amounts forfeited prior to July 1, 1996, will be allocated by the ratio which each Eligible Participant's Compensation bears to the total Compensation of all Eligible Participants. Notwithstanding the foregoing, the portion of a Participant's account attributable to assets other than Company Stock acquired with the proceeds of an Acquisition Loan shall be forfeited first. (8) Timing of Deposit The Employer shall pay to the Trustee the Company Matching Contributions at any time and from time to time; except that the total Company Matching Contribution for any Plan Year shall be paid in full not later than the time prescribed by Code Section 404(a)(6) to enable the Employer to obtain a deduction on its federal income tax return for the Employer's taxable year. The total Company Matching Contribution for any Plan Year shall be deemed made on the Anniversary Date of that Plan Year. (b) Withdrawals Before Separation from Service A Participant must take any withdrawals available to him under Section 3.02(a) and/or Section 3.04(b) before being eligible to make a Company Matching Account withdrawal. -27- A Participant will be permitted to make a Company Matching Account withdrawal if at least one of the following conditions applies: (1) If the Employee has been a Participant for five or more years and has a date of participation in the Plan on or before January 1, 1995; (2) If the Participant has attained age 59 1/2; or (3) On account of a Participant's financial need or hardship as that term is defined in Section 3.01(b)(2). A Company Matching Account withdrawal will not result in a suspension of Company Matching Contributions. A Participant who is eligible to make a withdrawal from his Company Matching Account may not make a withdrawal from his Company Matching Account more frequently than once each Plan Year. For the period commencing with the date of execution of this amendment and continuing until September 5, 2000, a Participant may elect, subject to the limitations below, an in-service withdrawal of the shares of stock in Placer Dome Corporation and/or Mississippi Chemical Corporation held for the Participant's benefit in the Plan. Such election shall be subject to the following: (1) The amount of shares which shall be withdrawn pursuant to such election shall be equal to the least of (i) such Participant's vested interest in his Company Matching Contributions Account, (ii) the amount attributable to Company Matching Contributions made prior to July 31, 1998, or (iii) the number of shares in Placer Dome Corporation and/or Mississippi Chemical Corporation held for the benefit of such Participant; (4) The Participant must complete a written election to withdraw and/or elect a Direct Rollover (as herein defined) no later than September 5, 2000. Any election for less than the entire amount described in (1) above shall be invalid. (5) A Participant shall be limited to electing either an in-kind lump sum distribution and/or a direct rollover of such shares subject, however, to the limitations otherwise applicable herein. (6) The Trustee shall effect the timely and valid election of a Participant as soon as administratively feasible following September 5, 2000. 3.04 Employee Stock Ownership Account Employee Stock Ownership Account means the Account of a Participant reflecting contributions by the Employer in the form of Company Stock, forfeitures, investment income or loss allocated thereto and distributions. The Employee Stock Ownership Account is divided into sub-accounts: (1) the Company Stock Sub-Account and (2) the Other Investments Sub-Account. The Company Stock Sub-Account holds a Participant's total interest in the Trust Fund attributable to the Participant's portion of the Employee Stock Ownership Contribution made or invested in Company Stock. The Other Investments Sub-Account holds a Participant's total interest in the Trust Fund attributable to the Participant's portion of the Employee Stock Ownership Contribution made in cash and invested in assets other than Company Stock. A Participant's Employee Stock Ownership Account is subject to the Vesting Schedule. -28- (a) Employee Stock Ownership Account Contributions (1) Eligible Participant A Participant is entitled to share in the allocation of Employee Stock Ownership Contributions and Forfeitures, if any, for the Plan Year only if he is an Employee on the Anniversary Date of the Plan. A Participant who separates from service prior to the Anniversary Date of the Plan during the Plan Year for which the contribution was made shall not share in an allocation, unless separation from Service occurred because of the Participant's death, disability or retirement. No Participant, other than one who died, became disabled or retired during the Plan Year, shall be entitled to have any Employee Stock Ownership Contributions allocated to his or her Account, unless the Participant shall be employed by the Employer on the Anniversary Date for the Plan Year. The Plan Administrator will suspend the accrual requirements for Includable Employees who are Participants, beginning first with the Includable Employee(s) employed with the Employer on the last day of the Plan Year, then the Includable Employee(s) who have the latest Separation from Service during the Plan Year, and continuing to suspend in descending order the accrual requirements for each Includable Employee who incurred an earlier Separation from Service, from the latest to the earliest Separation from Service date, until the Plan satisfies both the minimum participation requirements of Code Section 401(a)(26)(A) and the minimum coverage requirements of Code Section 410(b)(1) for the Plan Year. If two or more Includable Employees have a Separation from Service on the same day, the Plan Administrator will suspend the accrual requirements for all such Includable Employees, irrespective of whether the Plan can satisfy the minimum participation requirements of Code Section 401(a)(26)(A) and the minimum coverage requirements of Code Section 410(b)(1) by accruing benefits for fewer than all such Includable Employees. If the Plan suspends the accrual requirements for an Includable Employee, that Employee will share in the allocation of Employer contributions and Participant Forfeitures, if any, without regard to the number of Hours of Service he has earned for the Plan Year and without regard to whether he is employed by the Employer on the last day of the Plan Year. If the Employer's Plan includes Employer matching contributions subject to Code Section 401(m), this suspension of accrual requirements applies separately to the Code Section 401(m) portion of the Plan, and the Plan Administrator will treat an Employee as benefiting under that portion of the Plan if the Employee is an Eligible Employee for purposes of the nondiscrimination requirements of Code Section 401(m)(2)(A). "Includable" Employees are all Employees other than: (a) those Employees excluded from participating in the Plan for the entire Plan Year by reason of the collective bargaining unit exclusion or the nonresident alien exclusion or by reason of the participation requirements of Section 2.01 and (b) any Employee who incurs a Separation from Service during the Plan Year and fails to complete at least 501 Hours of Service for the Plan Year. (2) Contribution Period The Contribution Period shall be the Plan Year. (3) Amount For each Plan Year, the amount of the Employee Stock Ownership Contribution to the Trust Fund will equal the amount, if any, the Employer may from time to time determine and authorize. Although the Employer may contribute to this Plan whether or not it has net profits, the Employer intends the merged Plan to be an employee stock ownership plan with a cash or deferred arrangement for all purposes of the Code. The Employer shall not authorize contributions by the Employer at such times or in such amounts that the Plan in operation discriminates in favor of Highly Compensated Employees. Notwithstanding the -29- foregoing, the Employee Stock Ownership Contribution for any year shall be subject to the limitations of Article 7. (4) Form of Employee Stock Ownership Account Contribution The Employer may make its contribution in cash or in Company Stock as the Employer may determine from time to time. The Employer shall specify in writing at the time a cash contribution is made whether such contribution shall be allocated to the Company Stock Sub-Account or the Other Investment Sub-Account of each Eligible Participant. The Employer may make its contribution in the form of Company Stock at the fair market value determined at the time of contribution, which shall be invested in the Company Stock Sub-Account of each Eligible Participant in accordance with Section 3.04(a)(6). (5) Limitations The Employee Stock Ownership Contribution for any Plan Year on behalf of a Participant shall not exceed the Participant's Annual Additions limitation described in Article 7. (6) Allocation of Employee Stock Ownership Account Contribution The Employee Stock Ownership Contribution shall be allocated to the Employee Stock Ownership Account of each eligible Participant in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all such Participants for the Plan Year. (7) Application of Forfeitures Forfeitures from a Participant's Employee Stock Ownership Account will be used to reduce Employee Stock Ownership Contributions in the Plan Year in which the Forfeitures are determined to occur. To the extent that a Participant's Employee Stock Ownership Account holds more than one class of Employer Securities, Forfeitures shall be made equally from each class of Employer Securities. Notwithstanding the foregoing, the portion of a Participant's account attributable to assets other than Company Stock acquired with the proceeds of an Acquisition Loan shall be forfeited first. (8) Timing of Deposit The Employer shall pay to the Trustee the Employee Stock Ownership Contributions at any time and from time to time; except that the total Employee Stock Ownership Contribution for any Plan Year shall be paid in full not later than the time prescribed by Code Section 404(a)(6) to enable the Employer to obtain a deduction on its federal income tax return for the Employer's taxable year. The total Employee Stock Ownership Contribution for any Plan Year shall be deemed made on the Anniversary Date of that Plan Year. (b) Withdrawals Before Separation from Service The Plan does not permit withdrawal of Employee Stock Ownership Contributions prior to separation from Service, except as permitted pursuant to Section 12.02 with respect to diversification. (c) Minimum Allocation for Top-Heavy Plan (1) Minimum Allocation. Notwithstanding the foregoing, for any Plan Year in which the Plan is determined to be Top-Heavy, the amount of Employee Stock Ownership -30- Contributions and Forfeitures allocated to the Employee Stock Ownership Account of each Non-Key Employee shall be equal to the lesser of three percent (3%) of each Non-Key Employee's Compensation or the highest contribution rate for the Plan Year made on behalf of any Key Employee. However, if a defined benefit plan maintained by the Employer which benefits a Key Employee depends on this Plan to satisfy the nondiscrimination rules of Code Section 401(a)(4) or the coverage rules of Code Section 410 (or another plan benefiting the Key Employee so depends on the defined benefit plan), the top heavy minimum allocation is 3% of the Non-Key Employee's Compensation regardless of the contribution rate for the Key Employee. (2) Compensation. For purposes of this Section, Compensation means Compensation defined in Section 1.11 except (i) Compensation does not include Employee Contributions, and (ii) any exclusions from Compensation (other than the exclusion of Employee Contributions and the exclusions described in clauses (i) through (iv) of Section 1.11) do not apply. Notwithstanding the definition of Compensation in Section 1.11(v), the period preceding a Participant's Entry Date shall be included in determining the minimum top-heavy allocation provided by this Section. (3) Contribution Rate. For purposes of this Section, a Participant's contribution rate is the sum of employer contributions (not including employer contributions to Social Security) and Forfeitures allocated to the Participant's Accounts for the Plan Year divided by his or her Compensation for the entire Plan Year. To determine a Participant's contribution rate, the Plan Administrator must treat all qualified top-heavy defined contribution plans maintained by the Employer (or by any related Employers described in Section 1.35) as a single plan. For purposes of this Section, for Plan Years beginning after 1988, the following rules apply: (i) Employer Elective Contributions (described in Section 3.01 as Employee Contributions) on behalf of Key Employees are taken into account in determining the minimum required contribution under Code Section 416(c)(2). However, Employer Elective Contributions on behalf of Employees other than Key Employees may not be treated as Employer Contributions for the minimum contribution or benefit requirement of Code Section 416. (ii) Company Matching Contributions allocated to Key Employees are treated as employer contributions for determining the minimum contribution or benefit under Code Section 416. However, if a plan utilizes Matching Contributions allocated to Employees other than Key Employees as Employee After-Tax Contributions or Elective Contributions to satisfy the minimum contribution requirement, the Matching Contributions are not treated as Matching Contributions for applying the requirements of Code Section 401(k) and 401(m). (iii) Effective January 1, 2002, Company Matching Contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of section 416(c)(2) of the Code and the plan. The preceding sentence shall apply with respect to Company Matching Contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Company Matching Contributions that are used to satisfy the minimum contribution requirements shall be treated as Company Matching Contributions for purposes of the actual contribution percentage test and other requirements of section 401(m) of the Code. (4) Participant Entitled to Top-Heavy Minimum Allocation. The minimum allocation under this Section shall be provided to each Non-Key Employee who is a Participant and is employed by the Employer on the last day of the Plan Year, whether or not the Participant has been credited with one thousand (1,000) Hours of Service for the Plan Year. The minimum allocation under this Section shall not be provided to any -31- Participant who was not employed by the Employer on the last day of the Plan Year. The provisions of this Section shall not apply to any Participant to the extent the Participant is covered under any other plan or plans of the Employer under which the minimum allocation or benefit requirements under Code Section 416(c)(1) or (c)(2) are met for the Participant. (5) Compliance. The Plan will satisfy the top-heavy minimum allocation under this Section. The Plan Administrator first will allocate the Employee Stock Ownership Contributions (and Forfeitures, if any) for the Plan Year pursuant to the allocation formula under Section 3.04(a)(6). The Employer then will contribute an additional amount for the Employee Stock Ownership Account of any Participant entitled under this Section to a top-heavy minimum allocation and whose contribution rate for the Plan Year, under this Plan and any other plan aggregated under this Section, is less than the top-heavy minimum allocation. The additional amount is the amount necessary to increase the Participant's contribution rate to the top-heavy minimum allocation. The Plan Administrator will allocate the additional contribution to the Account of the Participant on whose behalf the Employer makes the contribution. 3.05 Rollover Contributions (a) Eligible Employee Each Employee who is a member of an Eligible Employee Classification, regardless of whether he is a Participant in the Plan, will have the right to make a Rollover Contribution of cash (or other property of a form acceptable to the Plan Administrator and the Trustee in accordance with the Employer's written policy regarding Rollover Contributions) into the Plan from another qualified plan. If the Employee is not a Participant hereunder, his Rollover Account will constitute his entire interest in the Plan. In no event will the existence of a Rollover Account entitle the Employee to participate in any other benefit provided by the Plan. If specifically provided for in a Written Resolution, Rollover Contribution will also mean the amount of assets transferred, pursuant to Section 10.05, to this Plan from another plan which is qualified under Code Sections 401(a) and 501(a). The amount received by the Trustee as a Rollover Contribution shall be credited to the Participant's Rollover Account. A Participant's Rollover Contribution shall not be forfeitable nor reduce in any way the obligations of the Employer under the Plan. (b) Withdrawals A Participant may withdraw all or any portion of his Rollover Account at any time subject to the limitations of Sections 1.34 and 5.05. ARTICLE 4 ACCOUNTING AND VALUATION 4.01 General Powers of the Plan Administrator The Plan Administrator will have the power to establish rules and guidelines, which will be applied on a uniform and non-discriminatory basis, as it deems necessary, desirable or appropriate with regard to accounting procedures and to the timing and method of contributions to and/or withdrawals from the Plan. 4.02 Valuation Procedure (a) Accounts other than Employee Stock Ownership Accounts -32- As of the end of each Accounting Period on the Accounting Date, the Plan Administrator will determine the fair market value of each Specific Investment Fund being administered by the Trustee. To determine the gain or loss of the Accounts in each Specific Investment Fund, the Plan Administrator will first calculate the change in value of each Specific Investment Fund between the current Accounting Period and the last preceding Accounting Period. The net gain or loss in each Specific Investment Fund will be allocated to the accounts of those Participants who are participating in each Specific Investment Fund on the Accounting Date. The Plan Administrator will then charge to the prior account balances all previously uncharged payments or distributions made from the Accounts since the last preceding Accounting Period. Finally, the Plan Administrator will allocate and credit Employer Contributions that are to be allocated and credited as of that date in accordance with Article 3. (b) Employee Stock Ownership Accounts As of each Anniversary Date, any cash dividends paid on shares of Company Stock allocated to Participants' Company Stock Sub-Accounts will, as directed by the Plan Administrator, (a) be invested in Company Stock through any dividend reinvestment plan maintained by the Employer, (b) invested by the Trustee in Company Stock as soon as practical after receipt, or (c) allocated to the Other Investment Sub-Account of such Participants; provided, however, that any cash dividends which are currently distributed to Participants under Article 12 shall not be so allocated. Cash dividends on shares of Company Stock in the suspense account shall be used to make payments on an Acquisition Loan. The shares of Company Stock released from the suspense account as a result of such payment shall be allocated in the manner described in Section 12.01. Any stock dividends received on Company Stock shall be credited to the Account (including the suspense account) to which such Company Stock was allocated. Notwithstanding the foregoing, an independent appraiser meeting requirements similar to those prescribed by the applicable Treasury regulations or Code Section 170(a)(1) must perform all valuations of Company Stock not readily tradeable on an established securities market. 4.03 Specific Investment Funds (a) The Plan Administrator will select the Investment Funds available under the Plan in a separate written Investment Policy. The Plan Administrator shall maintain such Investment Funds in accordance with the Employer's written Investment Policy. Such Investment Funds shall be communicated to Participants in writing. All Accounts, other than Company Stock Sub-Accounts, shall be allocated by the Plan Administrator to the Plan's Investment Funds specified in a separate written Investment Policy. Dividends, interest and other distributions shall be reinvested in the same Specific Investment Fund from which received. Except as provided hereafter in this Section, the assets of each such Specific Investment Fund shall be invested exclusively in shares of the registered investment company designated by the Board, provided that such shares constitute securities described in ERISA Section 401(b)(1). Amounts in any such Specific Investment Fund in amounts estimated by the Trustee to be needed for cash withdrawals, or in amounts too small to be reasonably invested, or in amounts which the Trustee deems to be in the best interest of the Participants, may be retained by the Trustee in cash or invested temporarily. -33- 4.04 Participant Direction of Investment (a) Application of this Section Subject to the provisions of this Section, each Participant will have the right to direct the investment of all of his or her Accounts, other than his or her Employee Stock Ownership Account, among the Investment Funds which are made available by the Plan Administrator. The Employee Stock Ownership Account may not be reinvested in other investment options until the Participant qualifies for diversification under the provisions of Section 12.02. (b) General Powers of the Trustee The Trustee will have the power to establish rules and guidelines as it deems necessary, desirable or appropriate with regard to the directed investment of contributions in accordance with this Section. Such rules and guidelines are intended to comply with Section 404(c) of ERISA and the regulations thereunder. Included in such powers, but not by way of limitation, are the following powers and rights: (1) To temporarily invest those contributions which are pending directed investment in a Specific Investment Fund, in the General Investment Fund or in some other manner as determined by the Trustee. (2) To establish rules with regard to the transfer of all or any part of the balance of an Account or Accounts of a given Participant from one Investment Fund to another. (3) To maintain any part of the assets of any Investment Fund in cash, or in demand or short-term time deposits bearing a reasonable rate of interest, or in a short-term investment fund that provides for the collective investment of cash balances or in other cash equivalents having ready marketability, including, but not limited to, U.S. Treasury Bills, commercial paper, certificates of deposit, and similar types of short-term securities, as may be deemed necessary by the Trustee in its sole discretion. The Trustee will not be liable for any loss that results from a Participant's exercise of control over the investment of the Participant's Accounts. If the Participant fails to provide adequate directions, the Plan Administrator will direct the investment of the Participant's Account. The Trustee will have no duty to review or make recommendations regarding a Participant's investment directions. (c) Accounting The Plan Administrator will maintain a set of accounts for each Investment Fund. The accounts of the Plan Administrator for each Investment Fund will indicate separately the dollar amounts of all contributions made to such Investment Fund by or on behalf of each Participant from time to time. The Plan Administrator will compute the net income from investments; net profits or losses arising from the sale, exchange, redemption, or other disposition of assets, and the pro rata share attributable to each Investment Fund of the expenses of the administration of the Plan and Trust and will debit or credit, as the case may be, such income, profits or losses, and expenses to the unsegregated balance in each Investment Fund from time to time. To the extent that the expenses of the administration of the Plan and Trust are not directly attributable to a given Investment Fund, such expenses, as of a given Accounting Date, will be prorated among each Investment Fund; such allocation of expenses will, in general, be performed in accordance with the guidelines which are specified in this Article. (d) Future Contributions Each Participant who chooses to participate in the Plan will elect the percentage of those contributions (which are subject to Participant direction of investment) which is to be deposited to each available Investment Fund. Such election will be in effect until modified. If any Participant fails to make an election by the appropriate date, he will be deemed to have elected an Investment -34- Fund(s) as determined by the Plan Administrator. Elections will be limited to multiples of one percent (or such other reasonable increments as determined by the Plan Administrator). (e) Change in Investment of Past Contributions A Participant may file an election with the Plan Administrator to shift the aggregate amount or reasonable increments (as determined by the Plan Administrator) of the balance of his existing Account or Accounts which are subject to Participant direction of investment among the various Investment Funds at any time. Elections will be limited to multiples of one percent (or such other reasonable increments as determined by the Plan Administrator). (f) Changes in Investment Elections Elections with respect to future contributions and/or with respect to changes in the investment of past contributions will be made in writing on a form provided by the Plan Administrator, except that each Participant may authorize the Plan Administrator in writing on an authorization form provided by the Plan Administrator to accept such directions as may be made by the Participant by use of a telephone voice response system maintained for such purpose. The Plan Administrator may establish additional rules and procedures with respect to investment election changes including, for example, the number of allowed changes per specified period, the amount of reasonable fee, if any, which will be charged to the Participant for making a change, specified dates or cutoff dates for making a change, etc. (g) Addition and Deletion of Specific Investment Funds Specific Investment Funds may be made available from time to time by the Trustee. Specific Investment Funds, as are from time to time made available by the Trustee, may be deleted or added from time to time by the Plan Administrator. The Plan Administrator will establish guidelines for the proper administration of affected Accounts when a Specific Investment Fund is added or deleted. 4.05 Nondiscrimination Requirements (a) Definitions Applicable to the Nondiscrimination Requirements The following definitions apply to this Section: (1) Aggregate Limit. With respect to a given Plan Year, Aggregate Limit means the greater of the sum of [(A) + (B)] or the sum of [(C) + (D)] where: (A) is equal to 125% of the greater of DP or CP; (B) is equal to 2 percentage points plus the lesser of DP or CP, not to exceed 2 times the lesser of DP or CP; (C) is equal to 125% of the lesser of DP or CP; (D) is equal to 2 percentage points plus the greater of DP or CP, not to exceed 2 times the greater of DP or CP; DP represents the Deferral Percentage for the Non-highly Compensated Group eligible under the Cash or Deferred Arrangement for the Plan Year; and -35- CP represents the Contribution Percentage for the Non-highly Compensated Group eligible under the plan providing for the Employee After-tax Contributions or Employer Matching Contributions for the Plan Year beginning with or within the Plan Year of the Cash or Deferred Arrangement. (2) Cash or Deferred Arrangement (CODA). A Cash or Deferred Election is any election (or modification of an earlier election) by an Employee to have the Employer either: . provide an amount to the Employee in the form of cash or some other taxable benefit that is not currently available, or . contribute an amount to the Plan (or provide an accrual or other benefit) thereby deferring receipt of Compensation. A Cash or Deferred Election will only be made with respect to an amount that is not currently available to the Employee on the date of election. Further, a Cash or Deferred Election will only be made with respect to amounts that would have (but for the Cash or Deferred Election) become currently available after the later of the date on which the Employer adopts the Cash or Deferred Arrangement or the date on which the arrangement first becomes effective. A Cash or Deferred Election does not include a one-time irrevocable election upon the Employee's commencement of employment or first becoming an Eligible Employee. (3) Compensation For purposes of this Section, Compensation means Compensation as defined in Section 1.11. Compensation in excess of the Statutory Compensation Limit is disregarded. The period used to determine an Employee's Compensation for a Plan Year may be limited to that portion of the Plan Year in which the Employee was an Eligible Employee, provided that this method is applied uniformly to all Eligible Employees under the Plan for the Plan Year. (4) Contribution Percentage Contribution Percentage means, for any specified group, the average of the ratios calculated (to the nearest one-hundredth of one percent) separately for each Participant in the group, of the amount of Employee After-tax Contributions and Matching Contributions which are made by or on behalf of each Participant for a Plan Year to each Participant's Compensation for the Plan Year. For purposes of determining the Contribution Percentage, each Employee who is eligible under the terms of the Plan to make or to have contributions made on his behalf is treated as a Participant. The Contribution Percentage of an eligible Employee who makes no Employee After-tax Contribution and receives no Matching Contribution is zero. The Contribution Percentage of a Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to make Employee After-tax Contributions or receive an allocation of Matching Contributions (including Elective Contributions and Nonelective Contributions which are treated as Employee or Matching Contributions for purposes of the Contribution Percentage Test) allocated to his accounts under two or more plans which are sponsored by the Employer will be determined as if the Employee After-tax and Matching Contributions were made under a single plan. For purposes of this paragraph, if a Highly Compensated Employee participates in two or more such plans which have different Plan -36- Years, all plans ending with or within the same calendar year will be treated as a single plan. (5) Contribution Percentage Test The Contribution Percentage Test is a test applied on a Plan Year basis to determine whether a plan meets the requirements of Code Section 401(m). In each of the following tests, the Contribution Percentage for the Highly Compensated Group for a Plan Year is compared with the Contribution Percentage for the Non-highly Compensated Group for the preceding Plan Year. In the case of the first Plan Year of the Plan (if this is not a successor plan within the meaning of Treasury Regulation 1.401(k)-1(d)(3)), the Contribution Percentage for the Non-highly Compensated Group will be the Contribution Percentage for the Non-highly Compensated Group for the first Plan Year or, if the Employer elects to use 3% as the Deferral Percentage for the first Plan Year, the Contribution Percentage that would result if the Deferral Percentage for each Non-highly Compensated Participant were 3%. The Contribution Percentage Test may be met by either satisfying the General Contribution Percentage Test or the Alternative Contribution Percentage Test. The General Contribution Percentage Test is satisfied if the Contribution Percentage for the Highly Compensated Group does not exceed 125% of the Contribution Percentage for the Non-highly Compensated Group. The Alternative Contribution Percentage Test is satisfied if the Contribution Percentage for the Highly Compensated Group does not exceed the lesser of: . The Contribution Percentage for the Non-highly Compensated Group plus 2 percentage points, or . The Contribution Percentage for the Non-highly Compensated Group multiplied by 2.0. If (i) one or more Highly Compensated Employees of the Employer or any Related Employer are eligible to participate in both a Cash or Deferred Arrangement and a plan which provides for Employee After-tax Contributions or Matching Contributions, (ii) the Deferral Percentage for all of the Highly Compensated Group does not satisfy the General Deferral Percentage Test, and (iii) the Contribution Percentage for all of the Highly Compensated Group does not satisfy the General Contribution Percentage Test, then the Contribution Percentage Test will be deemed to be satisfied only if the sum of the Deferral Percentage and the Contribution Percentage for all of the Highly Compensated Group does not exceed the Aggregate Limit. If the Aggregate Limit is exceeded, the Plan shall satisfy the test for multiple use of the alternative limitation as provided in Treas. Reg. ss. 1.401(m)-2(c) in accordance with Section 4.05(a)(7). The Plan will not fail to satisfy the Contribution Percentage test merely because all of the Eligible Employees under the Plan for a Plan Year are Highly Compensated Employees. The Alternative Contribution Percentage Test described in Treasury Regulation section 1.401(m)-2 shall not apply for plan years beginning after December 31, 2001. -37- (6) Deferral Percentage Deferral Percentage means, for any specified group, the average of the ratios calculated (to the nearest one-hundredth of one percent) separately for each Participant in the group, of the amount of Elective Contributions which are made on behalf of each Participant for a Plan Year to each Participant's Compensation for the Plan Year. For purposes of determining the Deferral Percentage, each Employee who is eligible under the terms of the Plan to have contributions made on his behalf is treated as a Participant. The Deferral Percentage of an eligible Employee who makes no Elective Contribution is zero. The Deferral Percentage of a Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Contributions (including Nonelective Contributions or Matching Contributions which are treated as Elective Contributions for purposes of the Deferral Percentage Test) allocated to his accounts under two or more Cash or Deferred Arrangements which are maintained by the Employer will be determined as if the Elective Contributions were made under a single Arrangement. For purposes of this paragraph, if a Highly Compensated Employee participates in two or more Cash or Deferred Arrangements which have different Plan Years, all Cash or Deferred Arrangements ending with or within the same calendar year will be treated as a single Arrangement. (7) Deferral Percentage Test The Deferral Percentage Test is a test applied on a Plan Year basis to determine whether a plan meets the requirements of Code Section 401(k). In each of the following tests, the Deferral Percentage for the Highly Compensated Group for a Plan Year is compared with the Deferral Percentage for the Non-highly Compensated Group for the preceding Plan Year. In the case of the first Plan Year of the Plan (if this is not a successor plan within the meaning of Treasury Regulation 1.401(k)-1(d)(3)), the Deferral Percentage for the Non-highly Compensated Group will be 3%, or, if elected by the Employer, the actual Deferral Percentage for the Non-highly Compensated Group for the first Plan Year. The Deferral Percentage Test may be met by either satisfying the General Deferral Percentage Test of the Alternative Deferral Percentage Test. The General Deferral Percentage Test is satisfied if the Deferral Percentage for the Highly Compensated Group does not exceed 125% of the Deferral Percentage for the Non-highly Compensated Group. The Alternative Deferral Percentage Test is satisfied if the Deferral Percentage for the Highly Compensated Group does not exceed the lesser of: . the Deferral Percentage for the Non-highly Compensated Group plus 2 percentage points, or . the Deferral Percentage for the Non-highly Compensated Group multiplied by 2.0. If (i) one or more Highly Compensated Employees of the Employer or any Related Employer are eligible to participate in both a Cash or Deferred Arrangement and a plan which provides for Employee After-tax Contributions or Matching Contributions, (ii) the Deferral Percentage for the Highly Compensated Group does not satisfy the General -38- Deferral Percentage Test, and (iii) the Contribution Percentage for the Highly Compensated Group does not satisfy the General Contribution Percentage Test, then the Deferral Percentage Test will be deemed to be satisfied only if the sum of the Deferral Percentage and the Contribution Percentage for the Highly Compensated Group does not exceed the Aggregate Limit. If the Aggregate Limit is exceeded, the Plan shall satisfy the test for multiple use of the alternative limitation as provided in Treas. Reg. ss. 1.401(m)-2(c)(3) by reducing the Deferral Percentage of those Highly Compensated employees who also participate in an arrangement that provides for After-tax Contributions or Matching Contributions so that the limit is not exceeded, beginning with the Highly Compensated Employee whose Deferral Percentage is the highest. The amount by which each Highly Compensated Employee's Deferral Percentage amount is reduced shall be treated as an Excess Contribution. The Deferral Percentage and Contribution Percentage of the Highly Compensated Employees are determined after: . use of any Qualified Nonelective Contributions and Qualified Matching Contributions to meet the Deferral Percentage Test; . use of any Qualified Nonelective Contributions and Elective Contributions to meet the Deferral Percentage Test; . any corrective distribution or forfeiture of Excess Deferrals, Excess Contributions or Excess Aggregate Contributions; and . after any recharacterization of Excess Contributions required without regard to multiple use of the alternative limitation. The Plan will not fail to satisfy the Deferral Percentage test merely because all of the Eligible Employees under the Plan for a Plan Year are Highly Compensated Employees. The Alternative Contribution Percentage Test described in Treasury Regulation section 1.401(m)-2 shall not apply for plan years beginning after December 31, 2001. (8) Elective Contribution Elective Contribution means any contribution made by the Employer to a Cash or Deferred Arrangement on behalf of and at the election of an Employee. An Elective Contribution will be taken into account for a given Plan Year only if: . The Elective Contribution is allocated to the Participant's Account as of a date within the Plan Year to which it relates; . The allocation is not contingent upon the Employee's participation in the Plan or performance of services on any date after the allocation date; . . The Elective Contribution is actually paid to the trust no later than 12 months after the end of the Plan Year to which the Elective Contribution relates; and . The Elective Contribution relates to Compensation which either (i) but for the Participant's election to defer, would have been received by the Participant in the Plan Year or (ii) is attributable to services performed by the Participant in the Plan Year and, but for the Participant's election to defer, would have been received by the Participant within two and one-half months after the close of the Plan Year. Elective Contributions will be treated as Employer Contributions for purposes of Code Sections 401(a), 401(k), 402(a), 404, 409, 411, 412, 415, 416, and 417. -39- (9) Elective Deferral Elective Deferral means the sum of the following: . Any Elective Contribution to any Cash or Deferred Arrangement to the extent it is not includable in the Participant's gross income for the taxable year of contribution; . Any employer contribution to a simplified employee pension as defined in Code Section 408(k) to the extent not includable in the Participant's gross income for the taxable year of contribution; . Any employer contribution to an annuity contract under Code Section 403(b) under a salary reduction agreement to the extent not includable in the Participant's gross income for the taxable year of contribution; plus . Any employee contribution designated as deductible under a trust described in Code Section 501(c)(18) for the taxable year of contribution. (10) Eligible Employee Eligible Employee means an Employee who is directly or indirectly eligible to make a Cash or Deferred Election under the Plan for all or a portion of the Plan Year. An Employee who is unable to make a Cash or Deferred Election because the Employee has not contributed to another plan is also an Eligible Employee. An Employee who would be eligible to make Elective Contributions but for a suspension due to a distribution, a loan, or an election not to participate in the Plan, is treated as an Eligible Employee for purposes of Code Section 401(k)(3) and 401(m) for a Plan Year even though the Employee may not make a Cash or Deferred Election due to the suspension. Also, an Employee will not fail to be treated as an Eligible Employee merely because the employee may receive no additional Annual Additions because of Code Section 415(c)(1). (11) Employee After-tax Contribution Employee After-tax Contribution means any contribution made by an Employee to any plan maintained by the Employer or any Related Employer which is other than an Elective Contribution and which is designated or treated at the time of contribution as an after-tax contribution. Employee After-tax Contributions include amounts attributable to Excess Contributions which are recharacterized as Employee After-tax Contributions. (12) Excess Contribution Excess Contribution means, for each member of the Highly Compensated Group, the amount of Elective Contribution (including any Qualified Nonelective Contributions and Qualified Matching Contributions which are treated as Elective Contributions) which exceeds the maximum contribution which could be made if the Deferral Percentage Test were to be satisfied. (13) Excess Aggregate Contribution Excess Aggregate Contribution means, for each member of the Highly Compensated Group, the amount of Employee After-tax and Matching Contributions (including any Qualified Nonelective Contributions and Elective Contributions which are treated as Matching Contributions) which exceeds the maximum contribution which could be made if the Contribution Percentage Test were to be satisfied. -40- (14) Excess Deferral Excess Deferral means, for a given calendar year, that amount by which each Participant's total Elective Deferrals under all plans of all employers exceed the dollar limit in effect under Code Section 402(g) for the calendar year. (15) Matching Contribution Matching Contribution means any contribution made by the Employer to any plan maintained by the Employer or any Related Employer which is based on an Elective Contribution or an Employee After-tax Contribution together with any forfeiture allocated to the Participant's Account on the basis of Elective Contributions, Employee After-tax Contributions or Matching Contributions. A Matching Contribution will be taken into account for a given Plan Year only if: . The Matching Contribution is allocated to a Participant's Account as of a date within the Plan Year to which it relates; . The allocation is not contingent upon the Employee's participation in the Plan or performance of services on any date after the allocation date; . The Matching Contribution is actually paid to the Trust no later than 12 months after the end of the Plan Year to which the Matching Contribution relates; and . The Matching Contribution is based on an Elective or Employee After-tax Contribution for the Plan Year. Any contribution or allocation, other than a Qualified Nonelective Contribution, which is used to meet the minimum contribution or benefit requirement of Code Section 416 is not treated as being based on Elective Contributions or Employee After-tax Contributions and therefore is not treated as a Matching Contribution. Qualified Matching Contribution means a Matching Contribution which is 100% vested and may be withdrawn or distributed only under the conditions described in Treasury Regulation 1.401(k)-l(d). (16) Nonelective Contribution . Nonelective Contribution means any Employer Contribution, other than a Matching Contribution, which meets all of the following requirements: . The Nonelective Contribution is allocated to a Participant's Account as of a date within the Plan Year to which it relates; . The allocation is not contingent upon the Employee's participation in the Plan or performance of services on any date after the allocation date; . The Nonelective Contribution is actually paid to the Trust no later than 12 months after the end of the Plan Year to which the Nonelective Contribution relates; and . The Employee may not elect to have the Nonelective Contribution paid in cash in lieu of being contributed to the Plan. Qualified Nonelective Contribution means a Nonelective Contribution which is 100% vested and may be withdrawn or distributed only under the conditions described in Treasury Regulation 1.401(k)-l(d). -41- (17) Application of Deferral Percentage Test All Elective Contributions, including any Elective Contributions which are treated as Employee After-tax or Matching Contributions with respect to the Contribution Percentage Test, must satisfy the Deferral Percentage Test. Furthermore, any Elective Contributions which are not treated as Employee After-tax or Matching Contributions with respect to the Contribution Percentage Test must satisfy the Deferral Percentage Test. The Plan Administrator will determine as soon as administratively feasible after the end of the Plan Year whether the Deferral Percentage Test has been satisfied. If the Deferral Percentage Test is not satisfied, the Employer may elect to make an additional contribution to the Plan on account of the Non-highly Compensated Group. The additional contribution will be treated as a Nonelective Contribution. If the Deferral Percentage Test is not satisfied after any Nonelective Contributions, the Plan Administrator may, in its sole discretion, recharacterize all or any portion of the Excess Contribution of each Highly Compensated Employee as an Employee After-tax Contribution if Employee After-tax Contributions are otherwise allowed by the Plan. If so, the Plan Administrator will notify all affected Participants and the Internal Revenue Service of the amount recharacterized no later than the 15th day of the third month following the end of the Plan Year in which the Excess Contribution was made. Excess Contributions will be includable in the Participant's gross income on the earliest date any Elective Contribution made on behalf of the Participant during the Plan Year would have been received by the Participant had the Participant elected to receive the amount in cash. Recharacterized Excess Contributions will continue to be treated as Employer Contributions that are Elective Contributions for all other purposes under the Code, including Code Sections 401(a) (other than 401(a)(4) and 401(m)), 404, 409, 411, 412, 415, 416, 417 and 401(k)(2). With respect to the Plan Year for which the Excess Contribution was made, the Plan Administrator will treat the recharacterized amount as an Employee After-tax Contribution for purposes of the Deferral Percentage Test and the Contribution Percentage Test and for purposes of determining whether the Plan meets the requirements of Code Section 401(a)(4), but not for any other purposes under this Plan. Therefore, recharacterized amounts will remain subject to the nonforfeiture requirements and distribution limitations which apply to Elective Contributions. If the Deferral Percentage Test is still not satisfied, then after the close of the Plan Year in which the Excess Contribution arose but within 12 months after the close of that Plan Year, the Plan Administrator will distribute the Excess Contributions, together with allocable income, to Participants of the Highly Compensated Group. Failure to do so will cause the Plan to not satisfy the requirements of Code Section 401(a)(4) for the Plan Year for which the Excess Contribution was made and for all subsequent Plan Years for which the Excess Contribution remains uncorrected. The amount of Excess Contribution to be distributed to a Highly Compensated Employee for a Plan Year will be reduced by any Excess Deferrals previously distributed to the Participant for the calendar year ending with or within the Plan Year in accordance with Code Section 402(g)(2). Excess Contributions will be treated as Employer Contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan. (b) Application of Contribution Percentage Test Employee After-tax Contributions and Matching Contributions, disregarding any Matching Contributions which are treated as Elective Contributions with respect to the Deferral Percentage Test, must satisfy the Contribution Percentage Test. The Plan Administrator will determine as soon as administratively feasible after the end of the Plan Year whether the Contribution Test has been satisfied. If the Contribution Percentage Test is not satisfied, the Employer may elect to -42- make an additional contribution to the Plan for the benefit of the Non-Highly Compensated Group. The additional contribution will be treated as a Nonelective Contribution. If the Contribution Percentage Test is still not satisfied, then after the close of the Plan Year in which the Excess Aggregate Contribution arose but within 12 months after the close of that Plan Year, the Plan Administrator will distribute (or forfeit, to the extent not vested) the Excess Aggregate Contributions, together with allocable income, to Participants of the Highly Compensated Group. Failure to do so will cause the Plan to not satisfy the requirements of Code Section 401(a)(4) for the Plan Year for which the Excess Aggregate Contribution was made and for all subsequent Plan Years for which the Excess Aggregate Contribution remains uncorrected. The determination of any Excess Aggregate Contributions will be made after the recharacterization of any Excess Contributions as Employee After-tax Contributions. Excess Aggregate Contributions, including forfeited Matching Contributions, will be treated as Employer Contributions for purposes of Code Sections 404 and 415 even if they are distributed from the Plan. Forfeited Matching Contributions that are reallocated to the Accounts of other Participants are treated as Annual Additions under Code Section 415 for the Participant whose Accounts they are reallocated to and for the Participants from whose Accounts they are forfeited. (c) Reduction of Excess Amounts For the purpose of determining the total amounts of Excess Contributions and/or Excess Aggregate Contributions to be recharacterized, returned to Participants, or forfeited, as the case may be, the Administrator shall take the following steps. First, the Administrator shall calculate both the Deferral Percentage or the Contribution Percentage of the affected Participant(s) and the percentage of Excess Contributions or Excess Aggregated Contributions, as applicable. Second, the Administrator shall calculate the total dollar amount by which the Deferral Percentage or Contribution Percentage for the Highly Compensated Employee group must be reduced in order to satisfy the Deferral Percentage Test or the Contribution Percentage Test, as applicable. Third, the Administrator shall calculate the total dollar amount of the Excess Contributions or Excess Deferrals for the affected Highly Compensated Employee(s). Fourth, the Excess Contributions or Excess Aggregate Contributions, as applicable, of the Highly Compensated Employee(s) with the highest dollar amount of Excess Contributions or Excess Aggregate Contributions, as applicable, will be reduced by refunding, recharacterizing or forfeiting, as applicable, in the amount of Employee Contributions or Company Matching Contributions, as applicable, by the amount required to cause the dollar amount of such Highly Compensated Employee(s)' Employee Contributions or Company Matching Contributions, as applicable, necessary to equal the dollar amount of Employee Contributions or Company Matching Contributions of the Highly Compensated Employee(s) with the next highest dollar amount of Employee Contributions or Company Matching Contributions. If the total amount distributed, recharacterized, or forfeited, as applicable, is less than the total Excess Contributions or Excess Aggregate Contributions, this Section shall be applied to the Highly Compensated Employee(s) with the next highest dollar amount of Excess Contributions or Excess Aggregate Contributions, as applicable; this reduction shall continue until the total amount of reduced, refunded or forfeited Excess Contributions or Excess Aggregate Contributions, as applicable, equals the total dollar amount calculated above. When calculating the amount of a distribution, recharacterization, or forfeiture, if a lesser reduction, when added to any amounts already distributed, recharacterized, or forfeited, as applicable, under this Section, would equal the total required distribution, recharacterization, or forfeiture, as applicable, necessary to permit the Plan to satisfy the requirements of this Section, the lesser amount of reductions, recharacterizations, or forfeitures shall be applied. (d) Priority of Reductions -43- The Plan Administrator will correct Excess Contributions and Excess Aggregate Contributions as follows. The method of correcting Excess Contributions and Excess Aggregate Contributions must meet the requirements of Code Section 401(a)(4). The determination of whether a rate of Matching Contribution discriminates under Code Section 401(a)(4) will be made after making any corrective distributions of Excess Deferrals, Excess Contributions and Excess Aggregate Contributions. Excess Aggregate Contributions (and any attributable income) will be corrected first, by distributing any excess Employee After-tax Contributions (and any attributable income); then by distributing vested excess Matching Contributions (and any attributable income); and finally, by forfeiting or distributing non-vested Matching Contributions (and any attributable income). The Plan will not distribute Employee After-tax Contributions while the Matching Contributions based upon those Employee After-tax Contributions remain allocated. (e) Income The income allocable to any Excess Contribution made to a given Account for a given Plan Year will be equal to the total income allocated to the Account for the Plan Year, multiplied by a fraction, the numerator of which is the amount of the Excess Contribution and the denominator of which is equal to the sum of the balance of the Account at the beginning of the Plan Year plus the Participant's Elective Contributions and amounts treated as Elective Contributions for the Plan Year. The income allocable to any Excess Aggregate Contribution made to a given Account for a given Plan Year will be equal to the total income allocated to the Account for the Plan Year, multiplied by a fraction, the numerator of which is the amount of the Excess Aggregate Contribution and the denominator of which is equal to the sum of the balance of the Account at the beginning of the Plan Year plus the Participant's Employee After-tax and Matching Contributions and amounts treated as Employee After-tax and Matching Contributions for the Plan Year. Notwithstanding the foregoing, the Plan may use any reasonable method for computing the income allocable to any Excess Contribution or Excess Aggregate Contribution provided the method does not violate Code Section 401(a)(4), is used consistently for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income to the Participants' Accounts. Income includes all earnings and appreciation, including interest, dividends, rents, royalties, gains from the sale of property, and appreciation in the value of stocks, bonds, annuity and life insurance contracts and other property, regardless of whether the appreciation has been realized. (f) Treatment as Elective Contributions The Plan Administrator may, in its discretion, treat all or any portion of Qualified Nonelective Contributions or Qualified Matching Contributions or both, whether to this Plan or to any other qualified plan which has the same Plan Year and is maintained by the Employer or a Related Employer, as Elective Contributions for purposes of satisfying the Deferral Percentage Test if they meet all of the following requirements: . All Nonelective Contributions, including the Qualified Nonelective Contributions treated as Elective Contributions for purposes of the Deferral Percentage Test, satisfy the requirements of Code Section 401(a)(4); . Any Nonelective Contributions which are not treated as Elective Contributions for purposes of the Deferral Percentage Test or as Matching Contributions for purposes of the Contribution Percentage Test satisfy the requirements of Code Section 401(a)(4); . The Qualified Matching Contributions which are treated as Elective Contributions for purposes of the Deferral Percentage Test are not taken into account in determining whether -44- any Employee After-tax Contributions or other Matching Contributions satisfy the Contribution Percentage Test; . Any Matching Contributions which are not treated as Elective Contributions for purposes of the Deferral Percentage Test satisfy the requirements of Code Section 401(m); and . The plan which includes the Cash or Deferred Arrangement and the plan or plans to which the Qualified Nonelective Contributions and Qualified Matching Contributions are made could be aggregated for purposes of Code Section 410(b). (g) Treatment as Matching Contributions The Plan Administrator may, in its discretion, treat all or any portion of Qualified Nonelective Contributions or Elective Contributions or both, whether to this Plan or to any other qualified plan which has the same Plan Year and is maintained by the Employer or a Related Employer, as Matching Contributions for purposes of satisfying the Contribution Percentage Test if they meet all of the following requirements: . All Nonelective Contributions, including the Qualified Nonelective Contributions treated as Matching Contributions for purposes of the Contribution Percentage Test, satisfy the requirements of Code Section 401(a)(4); . Any Nonelective Contributions which are not treated as Elective Contributions for purposes of the Deferral Percentage Test or as Matching Contributions for purposes of the Contribution Percentage Test satisfy the requirements of Code Section 401(a)(4); . The Elective Contributions which are treated as Matching Contributions for purposes of the Contribution Percentage Test are not taken into account in determining whether any other Elective Contributions satisfy the Deferral Percentage Test; . The Qualified Nonelective Contributions and Elective Contributions which are treated as Matching Contributions for purposes of the Contribution Percentage Test are not taken into account in determining whether any other contributions or benefits satisfy Code Section 401(a); . All Elective Contributions, including those treated as Matching Contributions for purposes of the Contribution Percentage Test, satisfy the requirements of Code Section 401(k)(3); and . The plan that takes Qualified Nonelective Contributions and Elective Contributions into account in determining whether Employee After-tax and Matching Contributions satisfy the requirements of Code Section 401(m)(2)(A) and the plan or plans to which the Qualified Nonelective Contributions and Elective Contributions are made could be aggregated for purposes of Code Section 410(b). (h) Aggregation of Plans If the Employer or a Related Employer sponsors one or more other plans which include a Cash or Deferred Arrangement, the Employer may elect to treat any two or more of such plans as an aggregated single plan for purposes of satisfying Code Sections 401(a)(4), 401(k) and 410(b). The Cash or Deferred Arrangements included in such aggregated plans will be treated as a single Arrangement for purposes of this Section. However, only those plans that have the same plan year may be so aggregated. If the Employer or a Related Employer sponsors one or more other plans to which Employee After-tax Contributions or Matching Contributions are made, the Employer may elect to treat any two or more of such plans as an aggregated single plan for purposes of satisfying Code Sections -45- 401(a)(4), 401(m) and 410(b). However, only those plans that have the same plan year may be so aggregated. Any such aggregation must be made in accordance with Treasury Regulation 1.401(k)-1(b)(3). For example, contributions and allocations under the portion of a plan described in Code Section 4975(e)(7) (an ESOP) may not be aggregated with the portion of a plan not described in Code Section 4975(e)(7) (a non-ESOP) for purposes of determining whether the ESOP or non-ESOP satisfies the requirements of Code Sections 401(a)(4), 401(k), 401(m) and 410(b). To the extent that any Participant who is a Highly Compensated Employee for the Plan Year is eligible to have Employer Elective Contributions (or Qualified Non-Elective Contributions or Qualified Matching Contributions, or both, if treated as Employer Elective Contributions for the Actual Deferral Percentage Test) allocated to his or her account under two (2) or more Cash or Deferred Arrangements that are maintained by the Employer or a Related Employer, such plans shall be aggregated for purposes of Code Sections 401(a)(4), 401(k), 401(m) and 410(b). If a Highly Compensated Employee participates in two (2) or more Cash or Deferred Arrangements that have different plan years, all Cash or Deferred Arrangements ending with or within the same calendar year shall be treated as a single plan. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under applicable Treasury regulations pursuant to Code Section 401(k). To the extent that this Plan is required to be aggregated with another plan for purposes of satisfying Code Sections 401(k)(3) or 401(m)(2), then such plans shall be aggregated for all purposes under Code Sections 401(a)(4) and 410(b). To the extent that this Plan is permissively aggregated with another plan for purposes of satisfying Code Sections 401(k)(3) or 401(m)(2), then such plans shall be aggregated for all purposes under Code Sections 401(a)(4) and 410(b). Plans that could be aggregated under Code Section 410(b) but that are not actually aggregated for a Plan Year for purposes of Code Section 410(b) may not be aggregated for purposes of Code Sections 401(k) and 401(m). ARTICLE 5 RETIREMENT BENEFITS 5.01 Valuation of Accounts For purposes of this Article, the value of a Participant's Accrued Benefit will be determined as of the Valuation Date immediately preceding the date that benefits are to be distributed. 5.02 Normal Retirement After an Active Participant reaches his Normal Retirement Date, he may elect to retire. Upon such retirement he will become a Retired Participant and his Accrued Benefit will become distributable to him. A Participant's Accrued Benefit will become nonforfeitable no later than the date upon which he attains his Normal Retirement Age. The form and timing of benefit payment will be governed by the provisions of Section 5.05. 5.03 Disability Retirement In the event of a Participant's termination due to Disability, he will be entitled to begin to receive a distribution of his Accrued Benefit which will become nonforfeitable as of his Date of Termination. The form of benefit payment will be governed by the provisions of Section 5.05. Disability shall mean a Participant's total and permanent disability as a result of a disease or bodily injury which renders the Participant incapable of engaging in substantial gainful activity, and as a result of such disability he is qualified for and is receiving either (a) disability benefits under the Social Security Act or (b) payments (other than Worker's Compensation or Health Care Benefits) payable directly or indirectly by -46- the Employer or its' insurer as a result of the Participant's sickness or injury under any long term disability program maintained by the Employer. 5.04 Termination of Employment (a) In General If a Participant's employment terminates for any reason other than retirement, death, or disability, his Accrued Benefit will become distributable to him as of the last day of the month which coincides with or next follows the last date upon which any contributions on the Participant's behalf are made to the Trust following the Participant's Date of Termination of employment (or as of such earlier date as determined by the Plan Administrator in a uniform and nondiscriminatory manner). The form and timing of benefit payment will be governed by the provisions of Section 5.05. (b) Cash-Out Distribution If a Participant terminates employment and receives a distribution equal to 100% of his Employee Account and the Vested Percentage of his Company Matching and Employee Stock Ownership Accounts, a Cash-Out Distribution will be deemed to have occurred if the following conditions are met: (1) The Participant was less than 100% vested in his Company Matching and Employee Stock Ownership Accounts; and (2) The entire distribution is made before the last day of the second Plan Year following the Plan Year in which the Participant terminated employment. (c) Restoration of Company Matching and Employee Stock Ownership Accounts If, following the date of a Cash-Out Distribution, a Participant returns to an Eligible Employee Classification prior to incurring 5 consecutive One Year Breaks-in-Service, then the Participant will have the right to repay to the Trustee, within 5 years after his return date, the portion of the Cash-Out Distribution which was attributable to his Company Matching and Employee Stock Ownership Accounts in order to restore such Accounts to their value as of the date of the Cash-Out Distribution. The Plan Administrator will restore an eligible Participant's Company Matching and Employee Stock Ownership Accounts as of the Accounting Date coincident with or immediately following the complete repayment of the Cash-Out Distribution. To restore the Participant's Company Matching and Employee Stock Ownership Accounts, the Plan Administrator, to the extent necessary, will, under rules and guidelines applied in a uniform and nondiscriminatory manner, first allocate to the Participant's Company Matching and Employee Stock Ownership Accounts the amount, if any, of Forfeitures which would otherwise be allocated under Article 3. To the extent such forfeitures for a particular Accounting Period are insufficient to enable the Plan Administrator to make the required restoration, the Employer will contribute such additional amount as is necessary to enable the Plan Administrator to make the required restoration. The Plan Administrator will not take into account the allocation under this Section in applying the limitation on allocations under Article 7. (d) Non-Vested Participant If a Participant who is zero percent vested in his Company Matching and Employee Stock Ownership Accounts terminates employment, a Cash-Out Distribution will be deemed to have occurred as of the Participant's Date of Termination of employment. If the Participant subsequently returns to an Eligible Employee Classification prior to incurring five (5) consecutive One Year Breaks-in-Service, then the Participant will immediately become entitled to a complete restoration of his Company Matching and Employee Stock Ownership -47- Accounts as of the Accounting Date coincident with or next following his date of re-employment. Such restoration will be made in accordance with the provisions of Section 5.04(c). 5.05 Form of Benefit Payment Subject to the provisions of Section 5.06, the Plan Administrator will direct the Trustee to make the payment of any benefit provided under this Plan upon the event giving rise to such benefit within 60 days following the receipt of a Participant's written request for the payment of benefits on a form provided by the Plan Administrator. The Plan Administrator may temporarily suspend such processing in the event of unusual or extraordinary circumstances such as the conversion of Plan records from one recordkeeper to another. The form of benefit will be determined as follows: (a) a Participant who is not married on the date benefits are to commence will be provided a Qualified Life Annuity, unless a lump sum payment is elected, under a Qualified Election, by the Participant within the 90-day period which ends on his benefit commencement date. (b) a Participant who is married on the date benefits commence will be provided a Qualified Joint and Survivor Annuity unless a lump sum payment is elected, under a Qualified Election, by the Participant within the 90-day period which ends on his benefit commencement date. Within the 90-day period which ends on a married Participant's expected benefit commencement date, the Plan Administrator will provide each Participant with a written explanation of: (a) the terms and conditions of a Qualified Joint and Survivor Annuity; (c) the Participant's right to make and the effect of a Qualified Election to waive the Qualified Joint and Survivor Annuity form of benefit; (d) the rights of a Participant's spouse; and (e) the right to make, and the effect of, a revocation of a previous Qualified Election to waive the Qualified Joint and Survivor Annuity. Notwithstanding the above, if a terminated Participant's Vested Accrued Benefit is $5,000 or less, such Participant's Vested Accrued Benefit shall be payable in a lump sum of the entire amount of his Vested Accrued Benefit. If the value of his Vested Accrued Benefit at the time of any distribution exceeds $5,000, the value of his Vested Accrued Benefit at any later time will be deemed to also exceed $5,000. Effective for distributions after December 31, 2001, the value of a Participant's nonforfeitable account balance shall be determined without regard to that portion of the account balance that is attributable to rollover contributions (and earnings allocable thereto) within the meaning of sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Code. If the value of the Participant's nonforfeitable account balance as so determined is $5,000 or less, the plan shall immediately distribute the Participant's entire nonforfeitable account balance. Upon request, the Participant may receive his benefit paid in a series of substantially equal annual or more frequent installments from the Trust Fund over a period certain not extending beyond the end of the period measured by the joint life and last survivor expectancy of the Participant and his spouse. A Participant may elect to receive an installment distribution in the form of a Nontransferable Annuity Contract. The Plan Administrator and the Trustee will have the power to establish rules and guidelines as deemed necessary or appropriate with regard to the payment of benefits under the installment payment form. Notwithstanding the foregoing, if Company Stock acquired with the proceeds of an Acquisition Loan available for distribution consist of more than one class, a distributee must receive substantially the same proportion of each class. A Participant entitled to a distribution under this Section shall have the right to demand that all payments under the foregoing paragraphs be made in Company Stock or in cash for fractional -48- shares to the extent his or her Accounts are invested in Company Stock. A Participant's benefits attributable to Company Stock may be paid in whole or in part in cash. 5.06 Commencement of Benefit Subject to the provisions of this Article, commencement of a benefit will, unless the Participant elects otherwise in writing, begin not later than the 60th day after the later of the close of the Plan Year in which the Participant attains Normal Retirement Age or the close of the Plan Year which contains the date the Participant terminates his service with the Employer. Payment of a Participant's benefits must begin no later than his Required Beginning Date. All distributions required under this Section will be determined and made in accordance with the regulations issued under Code Section 401(a)(9), including those dealing with minimum distribution requirements. Notwithstanding the provisions of Section 5.05, an Active Participant who has reached his Required Beginning Date will receive an annual distribution of his Accrued Benefit equal to the minimum required distribution determined under Code Section 401(a)(9). For purposes of this Section, life expectancy and joint and last survivor expectancy are to be computed by the use of the return multiples contained in Section 1.72-9 of the Income Tax Regulations. If the Participant dies after distribution of his interest has begun, the remaining portion of the interest will continue to be distributed at least as rapidly as under the method of distribution being used before the Participant's death. 5.07 Special Distribution and Payment Requirements Notwithstanding any contrary provision, unless other Plan distribution provisions require earlier distribution of the Participant's Accounts, if the Participant elects, the Plan Administrator shall direct the Trustee to commence distribution of that portion of the Participant's Accrued Benefit attributable to Company Stock in the Participant's Company Stock Sub-Account acquired by the Plan after December 31, 1986, as follows: (a) If the Participant retires, dies or is disabled, distribution of the Participant's Accrued Benefit attributable to Company Stock acquired after December 31, 1986, will begin no later than one (1) year after the close of the Plan Year in which the Participant separates from Service on account of death, disability or attainment of Normal Retirement Age. (b) If the Participant separates from Service for any reason other than attainment of Normal Retirement Age, death or disability, the Plan Administrator shall direct the Trustee to commence distribution of the Participant's Accrued Benefit no later than one (1) year after the close of the Plan Year which is the fifth (5th) Plan Year following the Plan Year in which the Participant separates from Service for any reason other than attainment of Normal Retirement Age, death or disability. (c) If the Participant resumes employment with the Employer on or before the last day of the fifth (5th) Plan Year following the Plan Year of the Participant's separation from Service, the distribution provisions of this paragraph will not apply until the Participant again may separate from Service for any other reason other than attainment of Normal Retirement Age, death or disability. This distribution requirement is subject to the form of distribution requirements of Section 5.05. For purposes of this paragraph, Company Stock does not include any Company Stock acquired with the proceeds of an Acquisition Loan until the close of the Plan Year in which the borrower repays the Acquisition Loan in full. Unless the Participant elects otherwise, a distribution of the Participant's Accrued Benefit attributable to Company Stock acquired after December 31, 1986, in the Participant's Company Stock Sub-Account, will -49- be in substantially equal periodic payments (not less frequently than annually) over a period not longer than the greater of (A) five (5) years, or (B) in the case of a Participant with an Accrued Benefit in excess of $500,000, five (5) years plus one (1) additional year (but not more than five (5) additional years) for each $100,000 or fraction thereof by which the balance exceeds $500,000. The portion of a Participant's Accrued Benefit attributable to Company Stock which was acquired by the Plan after December 31, 1986, shall be determined by multiplying the number of shares of such securities held in the account by a fraction, the numerator of which is the number of shares acquired by the Plan after December 31, 1986, and allocated to the Participant's Company Stock Sub-Accounts (not to exceed the number of shares held by the Plan on the date of distribution) and the denominator of which is the total number of shares held by the Plan at the date of distribution. 5.08 Directed Transfer of Eligible Rollover Distributions (a) General Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. (b) Eligible Rollover Distribution An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and, effective January 1, 1999, any hardship distribution made in accordance with Code Section 401(k); and, effective January 1, 2002, any amount that is distributed on account of hardship distribution. (c) Eligible Retirement Plan An Eligible Retirement Plan is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. Effective for distributions made after December 31, 2001, an eligible retirement plan shall also mean an annuity contract described in section 403(b) of the Code and an eligible plan under section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in section 414(p) of the Code. (d) Distributee A Distributee includes an Employee or Former Employee. In addition, the Employee's or Former Employee's surviving spouse and the Employee's or Former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. (e) Direct Rollover -50- A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. (f) Waiver of 30-Day Notice If a distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: . the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option); and . the Participant, after receiving the notice, affirmatively elects to receive a distribution. 5.09 Indefinite Layoff If a full time permanent Employee who is a Participant is indefinitely laid off due to a lack of work or economic or industrial reasons, his vested percentage shall be one hundred percent (100%). Prior to July 1, 1994, if such a Participant does not receive a distribution of any part of his Accounts under the Plan until after the end of the Plan year in which his layoff occurred, he shall be entitled to share in the allocation of Forfeitures on the last day of the Plan Year during which such layoff occurred as if: (a) he had completed at least 1,000 Hours of Service during such Plan Year; and (b) he was an active Participant on the last day of such Plan Year. After July 1, 1994, Participant's who are indefinitely laid off will not share in the allocation of Forfeitures on the last day of the Plan Year during which such layoff occurs. ARTICLE 6 DEATH BENEFIT 6.01 Valuation of Accounts For purposes of this Article, the value of a Participant's Accrued Benefit will be determined as of the Valuation Date immediately preceding the date that benefits are to be distributed. 6.02 Death Benefit (a) Pre-Retirement Death Benefit In the event of the death of a Participant prior to the date that he begins to receive a retirement benefit under the Plan, if the Participant has a Surviving Spouse and if a Beneficiary other than the Participant's Surviving Spouse has not been designated pursuant to a Qualified Election, the Participant's Surviving Spouse will be entitled to receive a Qualified Survivor Annuity. If a Surviving Spouse does not exist or if a Beneficiary other than the Participant's Surviving Spouse has been designated pursuant to a Qualified Election, the Participant's designated Beneficiary will be entitled to receive the value of the Participant's Accrued Benefit. (b) Post-Retirement Death Benefit -51- In the event of the death of a Retired Participant or a Disabled Participant receiving a benefit, a benefit will be paid to the Participant's Beneficiary or Surviving Spouse in accordance with the form of benefit payment elected under the Plan. (c) Commencement of Benefits. Payments to a Participant's Beneficiary or Surviving Spouse shall begin sixty days following the close of the Plan Year in which the Participant dies. The Committee shall charge each payment to the Participant's or Former Participant's Individual Account. Payments shall continue until the death of the last survivor of the Beneficiaries or until the Individual Account is paid in full, whichever event shall occur first. Notwithstanding any contrary provision, unless other Plan distribution provisions require earlier distribution of the Participant's Individual Account, if the Participant's Beneficiary or Surviving Spouse elects, the Committee shall direct the Trustee to commence distribution of the Participant's Account Balance attributable to Employer Securities in the Participant's Employer Stock Ownership Account no later than one (1) year after the close of the Plan Year in which the Participant separates from Service because of death. For purposes of this paragraph, Employer Securities do not include any Employer Securities acquired with the proceeds of an Exempt Loan until the close of the Plan Year in which the borrower repays the Exempt Loan in full. If the Participant dies after his distributions have commenced, the Trustee shall continue to distribute the remaining portion of the Participant's Account Balance at least as rapidly as under the method of distribution used prior to the Participant's death. If the Participant dies before distribution commences, the Trustee shall complete distribution of the Participant's or Former Participant's Account Balance by December 31 of the calendar year containing the fifth (5th) anniversary of the Participant's death, except to the extent that the Beneficiary elects to receive distributions under paragraphs (1) or (2) below: (1) If any portion of the Participant's or Former Participant's Nonforfeitable Account Balance is payable to a Beneficiary, the Beneficiary may elect distributions over the life or over a period certain not greater than the life expectancy of the Designated Beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant or Former Participant died; (2) If the Beneficiary is the Participant's Surviving Spouse, the date distributions must begin under paragraph (1) above shall not be earlier than the later of: (i) December 31 of the calendar year immediately following the calendar year in which the Participant died; and (ii) December 31 of the calendar year in which the Participant would have attained age seventy and one-half (70 1/2) years. If the Participant has not made an election pursuant to this Section by the time of death, the Beneficiary must elect the method of distribution no later than the earlier of: (i) December 31 of the calendar year in which distributions must begin under this Section; or (ii) December 31 of the calendar year which contains the fifth (5th) anniversary of the date of death of the Participant. If the Participant has no Beneficiary, or if the Beneficiary does not elect a method of distribution, distribution of the Account Balance of the Participant must be completed by December 31 of the calendar year containing the fifth (5th) anniversary of the Participant's death. (3) If the Surviving Spouse is the Beneficiary of any portion of a deceased Participant's benefits under the Plan, the Surviving Spouse shall be permitted to direct that this distribution of benefits commence at a reasonable time following the death of the Participant or Former Participant under applicable Treasury regulations. (4) If the Surviving Spouse dies after the Participant, but before payments to the Spouse begin, the preceding provisions of this Section, with the exception of paragraph (2), shall be applied as if the Surviving Spouse had been the Participant. -52- 6.03 Designation of Beneficiary Each Participant will be given the opportunity to designate a Beneficiary or Beneficiaries, and from time to time the Participant may file with the Plan Administrator a new or revised designation on the form provided by the Plan Administrator. If a Participant is married, any designation of a Beneficiary other than the Participant's spouse must be consented to by the Participant's spouse pursuant to a Qualified Election. If a Participant dies without designating a Beneficiary, or if the Participant is predeceased by all designated Beneficiaries and contingent Beneficiaries, the Plan Administrator will distribute all benefits which are payable in the event of the Participant's death in the following manner and to the first of the following (who are listed in order of priority) who survive the Participant by at least 30 days: . All to the Participant's Surviving Spouse; . Equally among the then living children of the Participant (by birth or adoption); . Among the Participant's then living lineal descendants, by right of representation; or . The Participant's estate. ARTICLE 7 LIMITATIONS ON BENEFITS 7.01 Limitation on Annual Additions The amount of the Annual Addition which may be allocated under this Plan to any Participant's Account as of any Allocation Date will not exceed the Defined Contribution Limit (based upon his Aggregate Compensation up to such Valuation Date) reduced by the sum of any allocations of annual additions made to Participant's Accounts under this Plan as of any preceding Allocation Date within the Limitation Year. Such reductions shall be made in the event that an excess annual addition arises from contributions to the Plan based on estimated annual compensation, the allocation of forfeitures, a reasonable error occurs in determining the amount of elective deferrals under Code Section 402(g)(3) or under other facts and circumstances that the Commissioner finds justify the availability of relief under Treas. Reg. Section. 1.415-6(b)(6). If the Annual Addition under this Plan on behalf of a Participant is to be reduced as of any Allocation Date as a result of the next preceding paragraph, the reduction will be, to the extent required, effected by first reducing Participant contributions (which increase the annual addition), then Forfeitures (if any), and then Employer contributions to be allocated under this Plan on behalf of the Participant as of the Allocation Date. Any necessary reduction will be made as follows: (a) The amount of the reduction consisting of nondeductible Participant contributions will be paid to the Participant as soon as administratively feasible. (b) The amount of the reduction consisting of any other Participant contributions will be paid to the Participant as soon as administratively feasible. (c) The amount of the reduction consisting of Forfeitures will be allocated and reallocated to other Accounts in accordance with the Plan formula for allocating Forfeitures to the extent that such allocations do not cause the additions to any other Participant's Accounts to exceed the lesser of the Defined Contribution Limit or any other limitation provided in the Plan. -53- (d) The amount of the reduction consisting of Employer contributions will be allocated and reallocated to other Accounts in accordance with the Plan formula for Employer Contributions to the extent that such allocations do not cause the additions to any other Participant's Accounts to exceed the lesser of the Defined Contribution Limit or any other limitation provided in the Plan. (e) To the extent that the reductions described in paragraph (d) cannot be allocated to other Participant's Accounts, the reductions will be allocated to a suspense account as Forfeitures and held therein until the next succeeding Allocation Date on which Forfeitures could be applied under the provisions of the Plan. All amounts held in a suspense account must be applied as Forfeitures before any additional contributions, which would constitute annual additions, may be made to the Plan. If the Plan terminates, the suspense account will revert to the Employer to the extent it may not be allocated to any Participant's Accounts. (f) If a suspense account is in existence at any time during a Limitation Year pursuant to this Section, it will not participate in the allocation of the Trust Fund's investment gains and losses. (g) If no more than one-third of the employer contributions to the Plan are allocated to Participants who are Highly Compensated Employees, the limitations under this Section shall not apply to (i) forfeitures of Employer Securities under such Plan if the Employer Securities were acquired with the proceeds of an Exempt Loan, or (ii) employer contributions to the Plan which are deductible under Code Section 404(a)(9)(B) and charged against the Participant's Account. 7.02 Where Employer Maintains Another Qualified Plan (a) Where Employer Maintains Another Qualified Defined Contribution Plan If the Employer maintains this Plan and one or more other qualified defined contribution plans, one or more welfare benefit funds (as defined in Code Section 419(e)), or one or more individual medical accounts (as defined in Code Section 415(l)(2)), all of which are referred to in this Article 7 as "qualified defined contribution plans", the annual additions allocated under this Plan to any Participant's Accounts will be limited in accordance with the allocation provisions of this Section 7.02(a). The amount of the Annual Additions which may be allocated under this Plan to any Participant's Accounts as of any Allocation Date will not exceed the Defined Contribution Limit (based upon Aggregate Compensation up to the allocation date) reduced by the sum of any allocations of Annual Additions made to the Participant's Accounts under this Plan and any other qualified defined contribution plans maintained by the Employer as of any earlier Allocation Date within the Limitation Year. If an Allocation Date of this Plan coincides with an Allocation Date of any other plan described in the above paragraph, the amount of Annual Additions to be allocated on behalf of a Participant under this Plan as of such date will be an amount equal to the product of the amount described in the next preceding paragraph multiplied by a fraction (not to exceed 1.0), the numerator of which is the amount to be allocated under this Plan without regard to this Article during the Limitation Year and the denominator of which is the amount that would otherwise be allocated on the Allocation Date under all plans without regard to this Article 7. If the Annual Addition under this Plan on behalf of a Participant is to be reduced as of any Allocation Date as a result of the next preceding two paragraphs, the reduction will be, to the extent required, effected by first reducing Participant contributions (which increase the annual addition), then Forfeitures (if any), and then any Employer contributions, to be allocated under this Plan on behalf of the Participant as of the Allocation Date. If as a result of the first four paragraphs of this Section 7.02 the allocation of Annual Additions is reduced, the reduction will be treated in the manner described in the third paragraph of Section 7.01. -54- (b) [Reserved] 7.03 Definitions Applicable to Article 7 (a) Aggregate Compensation Aggregate Compensation means the total amount of salary, wages, commissions, bonuses and overtime, paid or otherwise includable in the gross income of a Participant during the Limitation Year, but excluding: (i) Employer contributions to any deferred compensation plan (to the extent the contributions are not included in the Participant's gross income for the taxable year in which contributed) or simplified employee pension under Code Section 408(k) (to the extent the contributions are excludable from the Participant's gross income; (ii) distributions from any plan of deferred compensation, whether or not such amounts are includable in the gross income of the Employees when distributed; (iii) amounts realized from the exercise of any nonqualified stock option, or when restricted stock becomes freely transferrable or is no longer subject to a substantial risk of forfeiture; (iv) amounts realized from the sale, exchange, or other disposition of stock acquired under a qualified stock option described in Part II, Subchapter D, Chapter 1 of the Code; (v) premiums paid by the Employer for group term life insurance (to the extent the premiums are not includable in the Participant's gross income); contributions by the Employer to an annuity under Code Section 403(b) (to the extent not includable in the Participant's gross income); and any other amounts received under any Employer sponsored fringe benefit plan (to the extent not includable in the Participant's gross income); (vi) any contribution for medical benefits, within the meaning of Code Section 419A(f)(2), after separation from Service which is otherwise treated as an Annual Addition; and (vii) any amount otherwise treated as an Annual Addition under Code Section 415(l)(1). For Plan Years beginning prior to January 1, 1998, Aggregate Compensation excludes any amounts contributed by the Employer or any Related Employer on behalf of any Employee pursuant to a salary reduction agreement which are not includable in the gross income of the Employee due to Code Section 125, 402(e)(3), 402(h), 403(b), and 402(k). Notwithstanding the above, for Plan Years beginning on or after January 1, 1998, Aggregate Compensation includes any amounts contributed by the Employer or any Related Employer on behalf of any Employee pursuant to a salary reduction agreement which are not includable in the gross income of the Employee due to Code Section 125, 402(e)(3), 402(h), 402(k) or 403(b), and effective January 1, 2002, amounts not includable in gross income due to Code Section 132(f)(4). Aggregate Compensation in excess of the Statutory Compensation Limit is disregarded. Aggregate Compensation for any Limitation Year is the Aggregate Compensation actually paid or includable in gross income in such year. (b) Allocation Date -55- Allocation Date means the date with respect to which all or a portion of employer contributions, employee contributions or forfeitures or both are allocated to Participant accounts under a defined contribution plan. (c) Annual Additions For Plan Years beginning after December 31, 1986, Annual Additions are the sum of the following amounts allocated to any defined contribution plan maintained by the Employer (including voluntary contributions to any defined benefit plan maintained by the Employer) on behalf of a Participant for a Limitation Year: . All Employee and Employer contributions; . All reallocated forfeitures; . Amounts allocated after March 31, 1984, to an individual medical account, as defined in Code Section 415(1)(2) which is part of a pension or annuity plan maintained by the Employer, and amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after that date, which are attributable to post-retirement medical benefits required by Code Section 401(h)(6) to be allocated to the separate account of a Key Employee under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer. Contributions or forfeitures will be treated as Annual Additions regardless of whether they constitute Excess Deferrals, Excess Contributions or Excess Aggregate Contributions within the meaning of the regulations under Code Section 401(k) or 401(m) and regardless of whether they are corrected through distribution or recharacterization. Excess deferrals distributed in accordance with Treasury Regulation 1.402(g)-1(e)(2) or (3) are not Annual Additions. The Annual Addition for any Limitation Year beginning before January 1, 1987, will not be recomputed to treat all Employee After-tax Contributions as Annual Additions. (d) Annual Benefit Annual Benefit means a benefit payable annually in the form of a straight life annuity (with no ancillary benefits) under a plan to which employees do not contribute and under which no rollover contributions are made. (e) Defined Contribution Limit Effective January 1, 2002, the Defined Contribution Limit, except to the extent permitted under Code Section 414(v) if applicable, for a given Limitation Year is equal to the lesser of (1) the Defined Contribution Compensation Limit, which is 100% of Aggregate Compensation applicable to the Limitation Year, or (2) the Defined Contribution Dollar Limit, which is $40,000 as adjusted for increases in the cost-of-living under Code Section 415(d). If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12 consecutive month period, the Defined Contribution Dollar Limit is multiplied by a fraction, the numerator of which is equal to the number of months in the short Limitation Year and the denominator of which is 12. (f) Employer The Employer is the Employer that adopts this Plan together with all Related Employers. For this purpose, the definition of Related Employer in Section 1.35 of this Plan is modified by Code Section 415(h). (g) Limitation Year -56- The Limitation Year will be the 12 consecutive month period which is specified in Article 1 of this Plan and which is adopted for all qualified plans maintained by the Employer pursuant to a Written Resolution adopted by the Employer. In the event of a change in the Limitation Year, the additional limitations of Treasury Regulation Section 1.415-2(b)(4)(iii) will also apply. 7.04 Effect of Top-Heavy Status (a) General Notwithstanding the provisions of Section 7.03, "1.0" will be substituted for "1.25" wherever it appears in Sections 7.03(h) and 7.03(k) for any Limitation Year in which the Plan is found to be Top-Heavy for the Plan Year which coincides with or ends within such Limitation Year. (b) Non-application If the Plan is not determined to be Super Top-Heavy, then for the Plan Year which coincides with or ends within a Limitation Year, the following will apply: (1) Any Non-Key Employee who is a Participant in both this Plan and a defined benefit plan maintained by the Employer or a Related Employer will be entitled to a minimum accrued benefit under the defined benefit plan equal to the greater of the accrued benefit provided under the defined benefit plan or a monthly benefit in the form of a straight life annuity (with no ancillary benefits) commencing at normal retirement date equal to the Participant's average monthly compensation (which means the average rate of Aggregate Compensation during the five consecutive years, as defined for purposes of determining average monthly compensation, in which the Participant had the highest Aggregate Compensation) multiplied by the lesser of (A) 3% for each year of benefit service performed while actually participating in the plan during a Plan Year in which the plan is determined to be Top-Heavy, or (B) 30%. A Participant will not be required to be employed on the last day of a Plan Year in order to be entitled to the benefit provided by this Section 7.04(b). The defined benefit plan may not satisfy the requirements of this Section 7.04(b) through Employer contributions to Social Security. (2) Section 7.04(a) will not apply for such Limitation Year. (c) Minimum Allocation. If a defined benefit plan maintained by the Employer which benefits a Key Employee depends on this Plan to satisfy the nondiscrimination rules of Code Section 401(a)(4) or the coverage rules of Code Section 410 (or another plan benefiting the Key Employee so depends on the defined benefit plan), each Non-Key Employee shall receive a top heavy minimum allocation of five percent (5%) of the Non-Key Employee's Compensation regardless of the contribution rate for the Key Employee. The minimum allocation under this Section shall be provided to each Non-Key Employee who is a Participant and is employed by the Employer on the last day of the Plan Year, whether or not the Participant has been credited with one thousand (1,000) Hours of Service for the Plan Year. The minimum allocation under this Section shall not be provided to any Participant who was not employed by the Employer on the last day of the Plan Year. The provisions of this Section shall not apply to any Participant to the extent the Participant is covered under any other plan or plans of the Employer under which the minimum allocation or benefit requirements under Code Section 416(c)(1) or (c)(2) are met for the Participant. ARTICLE 8 MISCELLANEOUS -57- 8.01 Employment Rights of Parties Not Restricted The adoption and maintenance of this Plan will not be deemed a contract between the Employer and any Employee. Nothing in this Plan will give any Employee or Participant the right to be retained in the employ of the Employer or to interfere with the right of the Employer to discharge any Employee or Participant at any time, nor will it give the Employer the right to require any Employee or Participant to remain in its employ, or to interfere with any Employee's or Participant's right to terminate his employment at any time. 8.02 Alienation (a) General No person entitled to any benefit under this Plan will have any right to sell, assign, transfer, hypothecate, encumber, commute, pledge, anticipate or otherwise dispose of his interest in the benefit, and any attempt to do so will be void. No benefit under this Plan will be subject to any legal process, levy, execution, attachment or garnishment for the payment of any claim against such person. (b) Exceptions Section 8.02(a) will not apply to the extent a Participant or Beneficiary is indebted to the Plan under the provisions of the Plan. At the time a distribution is to be made to or for a Participant's or Beneficiary's benefit, the portion of the amount distributed which equals the indebtedness will be withheld by the Trustee to apply against or discharge the indebtedness. Before making a payment, however, the Participant or Beneficiary must be given written notice by the Plan Administrator that the indebtedness is to be so paid in whole or part from his Vested Accrued Benefit. If the Participant or Beneficiary does not agree that the indebtedness is a valid claim against his Vested Accrued Benefit, he will be entitled to a review of the validity of the claim in accordance with procedures established by the Plan Administrator. Section 8.02(a) will not apply to a qualified domestic relations order (QDRO) as defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Plan Administrator under the provisions of the Retirement Equity Act of 1984. The Plan Administrator will establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a QDRO, a former spouse of a Participant will be treated as the spouse or Surviving Spouse for all purposes under the Plan. Where, however, because of a QDRO, more than one individual is to be treated as a Surviving Spouse, the total amount to be paid in the form of a Qualified Survivor Annuity or the survivor portion of a Qualified Joint and Survivor Annuity may not exceed the amount that would be paid if there were only one Surviving Spouse. All rights and benefits, including elections, provided to a Participant under this Plan will be subject to the rights afforded to any alternate payee as such term is defined in Code Section 414(p). This Plan specifically permits distribution to an alternate payee under a QDRO (without regard to whether the Participant has attained his or her earliest retirement age as that term is defined under Code Section 414(p)) in the same manner that is provided for a Vested Terminated Participant. 8.03 Qualification of Plan The Employer will have the sole responsibility for obtaining and retaining qualification of the Plan under the Code with respect to the Employer's individual circumstances. 8.04 Construction -58- To the extent not preempted by ERISA, this Plan will be construed according to the laws of the state in which the Employer's principal place of business is located. Words used in the singular will include the plural, the masculine gender will include the feminine, and vice versa, whenever appropriate. 8.05 Named Fiduciaries (a) Allocation of Functions The authority to control and manage the operation and administration of the Plan and Trust created by this instrument will be allocated between the Plan Sponsor, the Trustee, and the Plan Administrator, all of whom are designated as Named Fiduciaries with respect to the Plan and Trust as provided for by Section 402(a)(2) of ERISA. The Plan Sponsor reserves the right to allocate the various responsibilities for the present execution of the functions of the Plan, other than the Trustee's responsibilities, among its Named Fiduciaries. Any person or group of persons may serve in more than one fiduciary capacity with regard to the Plan. (b) Responsibilities of the Plan Sponsor The Plan Sponsor, in its capacity as a Named Fiduciary, will have only the following authority and responsibility: . To appoint or remove the Plan Administrator and furnish the Trustee with certified copies of any resolutions of the Plan Sponsor with regard thereto; . To appoint and remove the Trustee; . To appoint a successor Trustee or additional Trustees; . To communicate information to the Plan Administrator and the Trustee as needed for the proper performance of the duties of each; . To appoint an investment manager (or to refrain from such appointment), to monitor the performance of the investment manager so appointed, and to terminate such appointment (more than one investment manger may be appointed and in office at any time); and . To establish and communicate to the Trustee a funding policy for the Plan. (c) Limitation on Obligations of Named Fiduciaries No Named Fiduciary will have authority or responsibility to deal with matters other than as delegated to it under this Plan or by operation of law. A Named Fiduciary will not in any event be liable for breach of fiduciary responsibility or obligation by another fiduciary (including Named Fiduciaries) if the responsibility or authority of the act or omission deemed to be a breach was not within the scope of the Named Fiduciary's authority or delegated responsibility. (d) Standard of Care and Skill The duties of each fiduciary will be performed with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like objectives. 8.06 Status of Insurer The term Insurer refers to any legal reserve life insurance company licensed to do business in the state within which the Employer maintains its principal office. The Insurer will file such returns, keep such records, make such reports and supply such information as required by applicable law or regulation. -59- 8.07 Adoption and Withdrawal by Other Organizations (a) Procedure for Adoption Subject to the provisions of this Section 8.07, any organization now in existence or hereafter formed or acquired, which is not already a Participating Employer under this Plan and which is otherwise legally eligible may, in the future, with the consent and approval of the Plan Sponsor, by formal Written Resolution (referred to in this Section as an Adoption Resolution), adopt the Plan and Trust hereby created for all or any classification of persons in its employment and thereby, from and after the specified effective date, become a Participating Employer under this Plan. Such consent will be effected by and evidenced by a formal Written Resolution of the Plan Sponsor. The Adoption Resolution may contain such specific changes and variations in Plan terms and provisions applicable to the adopting Participating Employer and its Employees as may be acceptable to the Plan Sponsor and the Trustee. However, the sole, exclusive right of any other amendment of whatever kind or extent to the Plan is reserved to the Plan Sponsor. The Adoption Resolution will become, as to the adopting organization and its Employees, a part of this Plan as then amended or thereafter amended. It will not be necessary for the adopting organization to sign or execute the original or then amended Plan and Trust Agreement or any future amendment to the Plan and Trust Agreement. The effective date of the Plan for the adopting organization will be that stated in the Adoption Resolution and from and after such effective date the adopting organization will assume all the rights, obligations and liabilities as a Participating Employer under this Plan. The administrative powers of and control by the Plan Sponsor as provided in the Plan, including the sole right of amendment or termination of the Plan, of appointment and removal of the Plan Administrator and the Trustee, and of appointment and removal of an investment manager will not be diminished by reason of the participation of the adopting organization in the Plan. (b) Withdrawal Any Participating Employer may withdraw from the Plan at any time, without affecting the Plan Sponsor or other Participating Employers not withdrawing, by complying with the provisions of the Plan. A withdrawing Participating Employer may arrange for the continuation by itself or its successor of this Plan in separate forms for its own employees, with such amendments, if any, as it may deem proper, and may arrange for continuation of the Plan by merger with an existing plan and transfer of plan assets. The Plan Sponsor may, it its absolute discretion, terminate a Participating Employer's participation at any time when in its judgment the Participating Employer fails or refuses to discharge its obligations under the Plan. (c) Adoption Contingent Upon Initial and Continued Qualifications The adoption of this Plan by an organization as provided is hereby made contingent and subject to the condition precedent that said adopting organization meets all the statutory requirements for qualified plans, including, but not limited to, Sections 401(a) and 501(a) of the Internal Revenue Code for its Employees. If the Plan or the Trust, in its operation, becomes disqualified, for any reason, as to the adopting organization and its Employees, the portion of the Plan assets allocable to them will be segregated as soon as is administratively feasible, pending either the prompt (1) requalification of the Plan as to the organization and its employees to the satisfaction of the Internal Revenue Service so as not to affect the continued qualified status thereof as to other Employers, (2) withdrawal of the organization from this Plan and a continuation by itself or its successor of its plan separately from this Plan, or by merger with another existing plan, with a transfer of its said segregated portion of Plan assets, or (3) termination of the Plan as to itself and its Employees. 8.08 Employer Contributions Employer contributions made to the Plan and Trust are made and will be held for the sole purpose of providing benefits to Participants and their Beneficiaries. -60- In no event will any contribution made by the Employer to the Plan and Trust or income therefrom revert to the Employer except as provided in Section 7.01(e) or as provided below. (a) Any contribution made to the Plan and Trust by the Employer because of a mistake of fact may be returned to the Employer within one year of such contribution. The amount of the mistaken contribution is equal to the excess of (a) the amount contributed over (b) the amount that would have been contributed had there not occurred a mistake of fact. Earnings attributable to mistaken contributions may not be returned to the Employer, but losses attributable thereto shall reduce the amount to be returned. (b) Notwithstanding any other provision of the Plan and Trust, if the Internal Revenue Service determines initially that the Plan, as adopted by the Employer, does not qualify under applicable sections of the Code and applicable Treasury Department Regulations, and the Employer does not wish to amend this Plan and Trust so that it does qualify, the value of all assets will be distributed by the Trustee to the Employer within one year after the date such initial qualification is denied. Thereafter, the Employer's participation in this Plan and Trust will be considered rescinded and of no force or effect. (c) Any contribution made by the Employer is conditioned on the deductibility of such contribution and may be refunded to the Employer, to the extent the contribution is determined not to be deductible, within one year after such determination is made. Earnings attributable to excess contributions may not be returned to the Employer, but losses attributable thereto shall reduce the amount to be returned. 8.09 Employees in Qualified Military Service Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credits with respect to qualified military service will be provided in accordance with Section 414(u) of the Internal Revenue Code. 8.10 Unclaimed Benefits In the event of the failure of a Participant or Beneficiary to claim benefits payable under the Plan, and the inability of the Plan Administrator to find the Participant or Beneficiary after a good faith effort to do so, the benefits shall be allocated in the same manner as Forfeitures at the end of the applicable Plan Year. This provision shall be administered in a uniform and non-discriminatory manner. If a claim is later made by the Participant or his Beneficiary, the benefits, together with estimated earnings, will be reinstated from subsequent forfeitures, and to the extent insufficient to make such restitution, from Employer contributions. ARTICLE 9 ADMINISTRATION 9.01 Plan Administrator The Plan Administrator will have the responsibility for the general supervision and administration of the Plan and will be a fiduciary of the Plan. The Employer may, by Written Resolution, appoint one or more individuals to serve as Plan Administrator. If the Employer does not appoint an individual or individuals as Plan Administrator, the Employer will function as Plan Administrator. The Employer may at any time, with or without cause, remove an individual as Plan Administrator or substitute another individual therefor. 9.02 Powers and Duties of the Plan Administrator The Plan Administrator will be charged with and will have delegated to it the power, duty, authority and discretion to interpret and construe the provisions of this Plan, to determine its meaning and intent and to make application thereof to the facts of any individual case; to determine in its discretion the rights and benefits of Participants or the eligibility of Employees; to give necessary instructions and directions to the -61- Trustee and the Insurer as herein provided or as may be requested by the Trustee and the Insurer from time to time; to resolve all questions of fact relating to any of the foregoing; and to generally direct the administration of the Plan according to its terms. All decisions of the Plan Administrator in matters properly coming before it according to the terms of this Plan, and all actions taken by the Plan Administrator in the proper exercise of its administrative powers, duties and responsibilities, will be final and binding upon all Employees, Participants and Beneficiaries and upon any person having or claiming any rights or interest in this Plan. The Employer and the Plan Administrator will make and receive any reports and information, and retain any records necessary or appropriate to the administration of this Plan or to the performance of duties hereunder or to satisfy any requirements imposed by law. In the performance of its duties, the Plan Administrator will be entitled to rely on information duly furnished by any Employee, Participant or Beneficiary or by the Employer or Trustee. Notwithstanding the foregoing, if the Plan Administrator adopts a loan policy, pursuant to Section 11.16, the loan policy must be a written document and must include (A) the identity of the person or positions authorized to administer the Participant loan program; (B) a procedure for applying for the loan; (C) the criteria for approving or denying a loan; (D) the limitations, if any, on the types and amounts of loans available; (E) the procedure for determining a reasonable rate of interest; (F) the types of collateral which may secure the loan; and (G) the events constituting default and the steps the Plan will take to preserve plan assets in the event of default. This Section specifically incorporates any written loan policy adopted by the Plan Administrator as part of the Employer's Plan. 9.03 Actions of the Plan Administrator The Plan Administrator may adopt such rules as it deems necessary, desirable or appropriate with respect to the conduct of its affairs and the administration of the Plan. Whenever any action to be taken in accordance with the terms of the Plan requires the consent or approval of the Plan Administrator, or whenever an interpretation is to be made of the terms of the Plan, the Plan Administrator will act in a uniform and non-discriminatory manner, treating all Employees and Participants in similar circumstances in a like manner. If the Plan Administrator is a group of individuals, all of its decisions will be made by a majority vote. The Plan Administrator will have the authority to employ one or more persons to render advice or services with regard to the responsibilities of the Plan Administrator, including but not limited to attorneys, actuaries, and accountants. Any persons employed to render advice or services will have no fiduciary responsibility for any ministerial functions performed with respect to this Plan. 9.04 Reliance on Plan Administrator and Employer Until the Employer gives notice to the contrary, the Trustee and any persons employed to render advice or services will be entitled to rely on the designation of Plan Administrator that has been furnished to them. In addition, the Trustee and any persons employed to render advice or services will be fully protected in acting upon the written directions and instructions of the Plan Administrator made in accordance with the terms of this Plan. If the Plan Administrator is a group of individuals, unless otherwise specified, any one of such individuals will be authorized to sign documents on behalf of the Plan Administrator and such authorized signatures will be recognized by all person dealing with the Plan Administrator. The Trustee and any persons employed to render advice or services may take cognizance of any rules established by the Plan Administrator and rely upon them until notified to the contrary. The Trustee and any persons employed to render advice or services will be fully protected in taking any action upon any paper or document believed to be genuine and to have been properly signed and presented by the Plan Administrator, Employer or any agent of the Plan Administrator acting on behalf of the Plan Administrator. 9.05 Reports to Participants The Plan Administrator will report in writing to a Participant his Accrued Benefit under the Plan and the Vested Percentage of such benefit when the Participant terminates his employment or requests such a report in writing from the Plan Administrator. To the extent required by law or regulation, the Plan Administrator will annually furnish to each Participant, and to each Beneficiary receiving benefits, a report which fairly summarizes the Plan's most recent report. -62- 9.06 Bond The Plan Administrator and other fiduciaries of the Plan will be bonded to the extent required by ERISA or other applicable law. No additional bond or other security for the faithful performance of any duties under this Plan will be required. 9.07 Compensation of Plan Administrator The Compensation of the Plan Administrator will be left to the discretion of the Plan Sponsor; no person who is receiving full pay from the Employer will receive compensation for services as Plan Administrator. All reasonable and necessary expenses incurred by the Plan Administrator in supervising and administering the Plan will be paid from the Plan assets by the Trustee at the direction of the Plan Administrator to the extent not paid by the Plan Sponsor. 9.08 Claims Procedure The Plan Administrator will make all determinations as to the rights of any Employee, Participant, Beneficiary or other person under the terms of this Plan. Any Employee, Participant or Beneficiary, or person claiming under them, may make claim for benefit under this Plan by filing written notice with the Plan Administrator setting forth the substance of the claim. If a claim is wholly or partially denied, the claimant will have the opportunity to appeal the denial upon filing with the Plan Administrator a written request for review within 60 days after receipt of notice of denial. In making an appeal the claimant may examine pertinent Plan documents and may submit issues and comments in writing. Denial of a claim or a decision on review will be made in writing by the Plan Administrator delivered to the claimant within 60 days after receipt of the claim or request for review, unless special circumstances require an extension of time for processing the claim or review, in which event the Plan Administrator's decision must be made as soon as possible thereafter but not beyond an additional 60 days. If no action on an initial claim is taken within 120 days, the claims will be deemed denied for purposes of permitting the claimant to proceed to the review stage. The denial of a claim or the decision on review will specify the reasons for the denial or decision and will make reference to the pertinent Plan provisions upon which the denial or decision is based. The denial of a claim will also include a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of the claim review procedure herein described. The Plan Administrator will serve as an agent for service of legal process with respect to the Plan unless the Employer, through written resolution, appoints another agent. If a Participant or Beneficiary is entitled to a distribution from the Plan, the Participant or Beneficiary will be responsible for providing the Plan Administrator with his current address. If the Plan Administrator notifies the Participant or Beneficiary by registered mail (return receipt requested) at his last known address that he is entitled to a distribution and also notifies him of the provisions of this paragraph, and the Participant or Beneficiary fails to claim his benefits under the Plan or provide his current address to the Plan Administrator within one year after such notification, the distributable amount will be forfeited and used to reduce the cost of the Plan. If the Participant or Beneficiary is subsequently located, such benefit will be restored. 9.09 Liability of Fiduciaries Except for a breach of fiduciary responsibility due to gross negligence or willful misconduct, the Plan Administrator will not incur any individual liability for any decision, act, or failure to act hereunder. The Plan Administrator may engage agents to assist it and may engage legal counsel who may be counsel for the Employer. The Plan Administrator will not be responsible for any action taken or omitted to be taken on the advice of counsel. If there is more than one person serving as a fiduciary in any capacity (for example, co-Trustees), each will use reasonable care to prevent the other or others from committing a breach of this Plan. Nothing contained in this Section will preclude any agreement allocating specific responsibilities or obligations among the co-fiduciaries provided that the agreement does not violate any of the terms and provisions of this Plan. In those instances where any duties have been allocated between co-fiduciaries, a fiduciary will not be liable for any loss resulting to the Plan arising from any act or omission on the part of another co- -63- fiduciary to whom responsibilities or obligations have been allocated except under the following circumstances: . If he participates knowingly in, or knowingly undertakes to conceal, an act or omission of a co-fiduciary knowing the act or omission is a breach, or . If by his failure to comply with his specific responsibilities which give rise to his status as a fiduciary, he has enabled the other fiduciary to commit a breach; or . If he has knowledge of a breach by a co-fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach. 9.10 Expenses of Administration The Employer does not and will not guarantee the Plan assets against loss. The Employer may in its sole discretion, but will not be obligated to, pay the ordinary expenses of establishing the Plan, including the fees of consultants, accountants and attorneys in connection therewith. The Employer may, in its sole discretion (but will not be obligated to), pay other costs and expenses of administering the Plan, the taxes imposed upon the Plan, if any, and the fees, charges or commissions with respect to the purchase and sale of Plan assets. Unless paid by the Employer, such costs and expenses, taxes (if any), and fees, charges and commissions will be a charge upon Plan assets and deducted by the Trustee. 9.11 Distribution Authority If any person entitled to receive payment under this Plan is a minor, declared incompetent or is under other legal disability, the Plan Administrator may, in its sole discretion, direct the Trustee to: . Distribute directly to the person entitled to the payment; . Distribute to the legal guardian or, if none, to a parent of the person entitled to payment or to a responsible adult with whom the person entitled to payment maintains his residence; . Distribute to a custodian for the person entitled to payment under the Uniform Gifts to Minors Act if permitted by the laws of the state in which the person entitled to payment resides; or . Withhold distribution of the amount payable until a court of competent jurisdiction determines the rights of the parties thereto or appoints a guardian of the estate of the person entitled to payment. If there is any dispute, controversy or disagreement between any Beneficiary or person and any other person as to who is entitled to receive the benefits payable under this Plan, or if the Plan Administrator is uncertain as to who is entitled to receive benefits, or if the Plan Administrator is unable to locate the person who is entitled to benefits, the Plan Administrator may with acquittance interplead the funds into a court of competent jurisdiction in the judicial district in which the Employer maintains its principal place of business and, upon depositing the funds with the clerk of the court, be released from any further responsibility for the payment of the benefits. If it is necessary for the Plan Administrator to retain legal counsel or incur any expense in determining who is entitled to receive the benefits, whether or not it is necessary to institute court action, the Plan Administrator will be entitled to reimbursement from the benefits for the amount of its reasonable costs, expenses and attorneys' fees incurred. ARTICLE 10 AMENDMENT OR TERMINATION OF PLAN 10.01 Right of Plan Sponsor to Amend or Terminate -64- The Plan Sponsor reserves the right to alter, amend, revoke or terminate this Plan. No amendment will deprive any Participant or Beneficiary of any vested right nor will it reduce the present value (determined upon an actuarial equivalent basis) of any Accrued Benefit to which he is then entitled with respect to Employer contributions previously made, except as may be required to maintain the Plan as a qualified plan under the Code. No amendment will change the duties or responsibilities of the Trustee without its express written consent thereto. A plan amendment which has the effect of (a) eliminating or reducing an early retirement benefit or a retirement-type subsidy, or (b) eliminating an optional benefit form, will, with respect to benefits attributable to service before the amendment be treated as reducing Accrued Benefits. In the case of a retirement-type subsidy, the preceding sentence will apply only with respect to a Participant who satisfies (either before or after the amendment) the preamendment conditions for the subsidy. In general, a retirement-type subsidy is a subsidy that continues after retirement but does not include a disability retirement benefit, a medical benefit, a social security supplement, a pre-retirement death benefit, or a plant shutdown benefit (that does not continue after retirement). A minimum Accrued Benefit value will apply if this Plan is or becomes a successor to a profit sharing plan, a defined contribution pension plan, a target benefit plan, or a defined benefit pension plan which was fully insured, or any plan under which the accrued benefit of a Participant was determined as a lump sum or account balance. The actuarial equivalent value of a Participant's Accrued Benefit will not be less than the actuarial equivalent value of his Accrued Benefit on the Effective Date of the Plan. 10.02 Allocation of Assets Upon Termination of Plan If this Plan is revoked or terminated (in whole or in part) or if contributions are completely discontinued, the Accounts of all affected Participants will become non-forfeitable. The Employer will then arrange for allocation of all assets among Participants so affected by the total or partial termination in accordance with the requirements of all applicable law and the regulations and requirements of the Internal Revenue Service. All allocated amounts will be retained in the Plan to the credit of the individual Participants until distribution as directed by the Employer. Distribution to Participants may be in the form of cash or other Plan assets or partly in each. 10.03 Exclusive Benefit At no time will any part of the principal or income of the Plan assets be used or diverted for purposes other than the exclusive benefit of Participants in the Plan and their Beneficiaries, nor may any portion of the Plan assets revert to the Employer except as provided in Sections 7.01(e) and 8.08. 10.04 Failure to Qualify Notwithstanding any of the foregoing provisions, if this Plan, upon adoption by the Employer, is submitted to the Internal Revenue Service which then determines that the Plan as initially adopted by the Employer is not a qualified plan under the Code, the Employer may elect to terminate this Plan by giving written notice thereof. Such termination will have the same effect as if the Plan were never adopted, all policies and contracts will be cancelled, and all contributions, to the extent recoverable from the Trustee, will be returned to their source. If any amendment to this Plan is submitted to the Internal Revenue Service within the period allowed under Code Section 401(b) which then determines that the Plan as amended is not a qualified plan under the Code, the Employer may cancel or modify any or all provisions of the amendment retroactive to the effective date of the amendment in order to maintain the qualified status of the Plan, whereupon written notice thereof will be furnished to all affected Employees, Participants and Beneficiaries. 10.05 Mergers, Consolidations or Transfers of Plan Assets In the event this Plan is merged or consolidated with another plan which is qualified under Code Sections 401(a) (and 501(a) if applicable), or in the event of a transfer of the assets or liabilities of this Plan to another plan which is qualified under Code Sections 401(a) (and 501(a) if applicable), the benefit which each Participant would be entitled to receive under the successor plan or other plan if it were terminated -65- immediately after the merger, consolidation or transfer will be equal to or greater than the benefit which the Participant would have received immediately before the merger, consolidation or transfer if this Plan had then terminated. Any transfer of assets and/or liabilities to (or from) this Plan from (or to) another plan qualified under Code Sections 401(a) (and 501(a) if applicable) will be evidenced by a Written Resolution by the Plan Sponsor of each affected plan which specifically authorizes such transfer of assets and/or liabilities. Unless a transfer of assets to this Plan is an Elective Transfer, the Plan will preserve all Code Section 411(d)(6) protected benefits with respect to those transferred assets, in the manner described in Section 10.01. A transfer is an Elective Transfer if: (a) the transfer satisfies this Section 10.05; (b) the transfer is voluntary, under a fully informed election by the Participant; (c) the Participant has an alternative that retains his or her Code Section 411(d)(6) protected benefits, including an option to leave the benefit in the transferor plan, if that plan is not terminating; (d) the transfer satisfies the applicable spousal consent requirements of the Code; (e) the transferor plan satisfies the joint and survivor notice requirements of the Code, if the Participant's transferred benefit is subject to those requirements; (f) the Participant has a right to immediate distribution from the transferor plan, in lieu of the Elective Transfer; (g) the transferred benefit is at least the greater of the single sum distribution provided by the transferor plan for which the Participant is eligible or the present value of the Participant's Accrued Benefit under the transferor plan payable at that plan's normal retirement age; (h) the Participant has a one hundred percent (100%) Nonforfeitable interest in the transferred benefit; and (i) the transfer otherwise satisfies applicable Treasury regulations. An Elective Transfer may occur between qualified plans of any type. If the Plan receives a direct transfer, by merger or otherwise, of Elective Contributions, or amounts treated as Elective Contributions, under a Plan with a Code Section 401(k) arrangement, the distribution restrictions of Code Sections 401(k)(2) and 401(k)(10) continue to apply to those transferred Elective Contributions. 10.06 Effect of Plan Amendment on Vesting Schedule No amendment to the Vesting Schedule will deprive a Participant of his nonforfeitable right to his Vested Accrued Benefit as of the date of the amendment. Further, if the Vesting Schedule of the Plan is amended, or if the Plan is amended in any way that directly or indirectly affects the computation of a Participant's non-forfeitable percentage, each Participant with at least 3 Years of Vesting Service as of the last day of the election period described below may elect, within a reasonable period after the adoption of the amendment, to have his Vested Percentage computed under the Plan without regard to such amendment. The period during which such election may be made will commence with the date the amendment is adopted and will end 60 days after the latest of: (a) the date the amendment is adopted; (b) the date the amendment becomes effective; or (c) the date the Participant is issued written notice of the amendment by the Employer. ARTICLE 11 TRUSTEE AND TRUST FUND 11.01 Acceptance of Trust The Trustee shall perform the duties of the Trustee in accordance with the terms and conditions set forth herein and in any separate trust agreement entered into with the Employer. 11.02 Trust Fund (a) Purpose and Nature -66- The Trustee will establish and maintain a Trust Fund for purposes of providing a means of accumulating the assets necessary to provide the benefits which become payable under the Plan. The Trustee will receive, hold and invest all contributions made by the Employer, any Participating Employers, and the Participants, including the investment earnings thereon. The Trust Fund arising from such contributions and earnings will consist of all assets held by the Trustee under the Plan and Trust. All benefits payable under the Plan will be paid by the Trustee from the Trust Fund. Any person having any claim under the Plan will look solely to the assets of the Trust Fund for satisfaction. In no event will the Plan Administrator, the Employer, any Employees, any officer of the Employer or any agents of the Employer or the Plan Administrator be liable in their individual capacities to any person whomsoever, under the provisions of this Plan and Trust, except as provided by law. The Trust Fund will be used and applied only in accordance with the provisions of the Plan and Trust, to provide the benefits thereof, and no part of the corpus or income of the Trust Fund will be used for, or diverted to, purposes other than for the exclusive benefit of the Participants or their Beneficiaries entitled to benefits under the Plan, except to the extent specifically provided elsewhere herein. (b) Investments The Trustee will invest the Trust Fund in accordance with the investment policy for the Trust Fund considering the fiduciary requirements of law, the objectives of the Plan, and the liquidity needs of the Plan. (c) Operation of Trust Fund The Trust Fund will be maintained in accordance with the accounting requirements of the Plan. No Participant will have any right to any specific asset or any specific portion of the Trust Fund prior to distribution of benefits. Withdrawals from the Trust Fund will be made to provide benefits to Participants and Beneficiaries in the amounts specified by the Plan, and to pay expenses authorized by the Plan Administrator. (d) Plan Sponsor Direction of Investment The Plan Sponsor will have the right to direct the Trustee with respect to the investment and reinvestment of assets comprising the Trust Fund. The Trustee and the Plan Sponsor (or the Plan Administrator or an Investment Committee appointed by the Plan Sponsor) will execute a letter of agreement as a part of this Plan containing such conditions, limitations and other provisions they deem appropriate before the Trustee will follow any Plan Sponsor direction with respect to the investment or reinvestment of any part of the Trust Fund. (e) Combined Trust Fund for Collective Investment Purposes At the Plan Sponsor's direction, the Trustee, for collective investment purposes, may combine into a single fund the Trust created under this Plan with the Trust created under any other qualified retirement plan maintained by the Plan Sponsor. The Plan Sponsor will ensure that records of the combined fund are maintained in such a manner as to properly reflect each Participant's Accrued Benefit under the Plan(s) in which he is a Participant. 11.03 Receipt of Contributions The Trustee will be accountable to the Employer for the funds contributed to it, but will have no duty to see that the contributions received comply with the provisions of the Plan. The Trustee will not be obligated to collect any contributions from the Employer or the Participants. -67- 11.04 Powers of the Trustee Unless otherwise provided in the trust agreement, the Plan Sponsor designates the Trustee to administer the Trust as a nondiscretionary Trustee. The Trustee will not have any discretion or authority regarding investment of the Trust Fund, but must act solely as a directed trustee of the funds contributed to it. Subject to the provisions and limitations contained elsewhere in this Plan, the Trustee is authorized and empowered, but not by way of limitation, with the following powers, rights and duties: (a) To invest any part or all of the Trust Fund in any common or preferred stocks, open-end or closed-end mutual funds, United States retirement plan bonds, corporate bonds, debentures, convertible debentures, commercial paper, U.S. Treasury bills, book entry deposits with the United States Federal Reserve Bank or System, Master Notes or similar arrangements sponsored by the Trustee or any other financial institution as permitted by law, improved or unimproved real estate situated in the United States, mortgages, notes or other property of any kind, real or personal, as a prudent man would so invest under like circumstances with due regard for the purposes of this Plan; (b) To maintain any part of the assets of the Trust Fund in cash, or in demand or short-term time deposits bearing a reasonable rate of interest (including demand or short-term time deposits of or with the Trustee), or in a short-term investment fund or in other cash equivalents having ready marketability, including, but not limited to, U.S. Treasury Bills, commercial paper, certificates of deposit (including such certificates of deposit of or with the Trustee), and similar types of short-term securities, as may be deemed necessary by the Trustee in its sole discretion; (c) To manage, sell, contract to sell, grant options to purchase, convey, exchange, transfer, abandon, improve, repair, insure, lease for any term even though commencing in the future or extending beyond the term of the Trust, and otherwise deal with all property, real or personal, in such manner, for such considerations and on such terms and conditions as the Trustee will decide; (d) To credit and distribute the Trust as directed by the Plan Administrator or any agent of the Plan Administrator. The Trustee will not be obliged to inquire as to whether any payee or distributes is entitled to any payment or whether the distribution is proper or within the terms of the Plan, or as to the manner of making any payment or distribution. The Trustee will be accountable only to the Plan Administrator for any payment or distribution made by it in good faith on the order or direction of the Plan Administrator or any agent of the Plan Administrator; (e) To borrow money, assume indebtedness, extend mortgages and encumber by mortgage or pledge; (f) To compromise, contest, arbitrate, or abandon claims and demands, in its discretion; (g) To have with respect to the Trust all of the rights of an individual owner, including the power to give proxies, to participate in any voting trusts, mergers, consolidations or liquidations, and to exercise or sell stock subscriptions or conversion rights; (h) To hold any securities or other property in the name of the Trustee or its nominee, or in another form as it may deem best, with or without disclosing the trust relationship; (i) To perform any and all other acts in its judgment necessary or appropriate for the proper and advantageous management, investment and distribution of the Trust; (j) To retain any funds or property subject to any dispute without liability for the payment of interest, and to decline to make payment or delivery of the funds or property until final adjudication is made by a court of competent jurisdiction; (k) To file all tax forms or returns required of the Trustee; -68- (l) To begin, maintain or defend any litigation necessary in connection with the administration of the Plan, except that the Trustee will not be obligated to or required to do so unless indemnified to its satisfaction; (m) To keep any or all of the Trust property at any place or places within the United States or abroad, or with a depository or custodian at such place or places; provided, however, that the Trustee may not maintain the indicia of ownership of any assets of the Plan outside the jurisdiction of the District Courts of the United States, except as may be expressly authorized in U.S. Treasury or U.S. Department of Labor regulations; and (n) To acquire or hold qualifying employer securities, defined in ERISA Section 407(d)(5), or qualifying employer real property, defined in ERISA Section 407(d)(4), of an Employer not to exceed a stated percentage, if any, of the Trust Fund and such additional authority as enumerated above under the description of the Trustee's authority, to the extent necessary and convenient to carry out the duties of the Trustee. (o) Effective September 5, 2000, shares of stock in Placer Dome Corporation and Mississippi Chemical Corporation will no longer be permissible investments. Notwithstanding any Participant investment direction, as soon as administratively feasible after September 5, 2000, any shares of stock in Placer Dome Corporation and Mississippi Chemical Corporation held in the Trust Fund which are not subject to an in-service withdrawal election under Section 3.03(b) above shall be sold by the Trustee. The Trustee shall reinvest the proceeds from the sale of such shares as directed by the Plan Administrator, pending investment direction of the Participant. 11.05 Investment in Common or Collective Trust Funds Notwithstanding the provisions of Section 11.04, the Plan Sponsor specifically authorizes the Trustee to invest all or any portion of the assets comprising the Trust Fund in any common or collective trust fund which at the time of the investment provides for the pooling of the assets of plans qualified under Code Section 401(a). The authorization applies only if such common or collective trust fund: (a) is exempt from taxation under Code Section 584 or 501(a); (b) if exempt under Code Section 501(a), expressly limits participation to pension and profit sharing trusts which are exempt under Code Section 501(a) by reason of qualifying under Code Section 401(a); (c) prohibits that part of its corpus or income which equitably belongs to any participating trust from being used for or diverted to any purposes other than for the exclusive benefit of the Employees or their Beneficiaries who are entitled to benefits under such participating trust; (d) prohibits assignment by participating trust of any part of its equity or interest in the group trust; and (e) the sponsor of the group trust created or organized the group trust in the United States and maintains the group trust at all times as a domestic trust in the United States. The provisions of the common or collective trust fund agreement, as amended by the Trustee from time to time, are by this reference incorporated within this Plan and Trust. The provisions of the common or collective trust fund will govern any investment of Plan assets in that fund. This provision constitutes the express permission required by Section 408(b)(8) of ERISA. 11.06 Investment in Insurance Company Contracts The Trustee may invest any portion of the Trust Fund in a deposit administration, guaranteed investment or similar type of investment contract (hereinafter referred to as Contract); provided, however, that no such Contract may provide for an optional form of benefit which would not be provided for under the provisions hereof. The Trustee will be the complete and absolute owner of Contracts held in the Trust Fund. The Trustee may convert from one form to another any Contract held in the Trust Fund; designate any mode of settlement; sell or assign any Contract held in the Trust Fund; surrender for cash any Contract held in the Trust Fund; agree with the insurance company issuing any Contract to any release, reduction, modification or amendment thereof; and, without limitation of any of the foregoing, exercise any and all of the rights, options and privileges that belong to the absolute owner of any Contract held in the Trust Fund that are granted by the terms of any such Contract or by the terms of this Agreement. -69- The Trustee will hold in the Trust Fund the proceeds of any sale, assignment or surrender of any Contract held in the Trust Fund and any and all dividends and other payments of any kind received in respect to any Contract held in the Trust Fund. No insurance company which may issue any Contract based upon the application of the Trustee will be responsible for the validity of this Plan, be required to look into the terms of this Plan, be required to question any act of the Plan Administrator or the Trustee hereunder or be required to verify that any action of the Trustee is authorized by this Plan. If a conflict should arise between the terms of the Plan and any such Contract, the terms of the Plan will govern. 11.07 Fees and Expenses from Fund The Trustee will be entitled to receive reasonable annual compensation as may be mutually agreed upon from time to time between the Plan Sponsor and the Trustee. The Trustee will pay all expenses reasonably incurred by it in its administration and investment of the Trust Fund from the Trust Fund unless the Plan Sponsor pays the expenses. No person who is receiving full pay from the Plan Sponsor will receive compensation for services as Trustee. 11.08 Records and Accounting The Trustee will keep full and complete records of the administration of the Trust Fund which the Employer and the Plan Administrator may examine at any reasonable time. As soon as practical after the end of each Plan Year and at such other reasonable times as the Employer may direct, the Trustee will prepare and deliver to the Employer and the Plan Administrator an accounting of the administration of the Trust, including a report on the fair market value of all assets of the Trust Fund. 11.09 Distribution Directions If no one claims a payment or distribution made from the Trust, the Trustee will notify the Plan Administrator and will dispose of the payment in accordance with the subsequent direction of the Plan Administrator. 11.10 Third Party No person dealing with the Trustee will be obliged to see to the proper application of any money paid or property delivered to the Trustee, or to inquire whether the Trustee has acted pursuant to any of the terms of the Plan. Each person dealing with the Trustee may act upon any notice, request or representation in writing by the Trustee, or by the Trustee's duly authorized agent, and will not be liable to any person whomsoever in so doing. The certification of the Trustee that it is acting in accordance with the Plan will be conclusive in favor of any person relying on the certification. 11.11 Professional Agents, Affiliates and Arbitration (a) Professional Agents The Trustee may employ and pay from the Trust Fund reasonable compensation to agents, attorneys, accountants and other persons to advise the Trustee as in its opinion may be necessary. The Trustee may delegate to any agent, attorney, accountant or other person selected by it any non-Trustee power or duty vested in it by the Plan; the Trustee may act or refrain from acting on the advice or opinion of any agent, attorney, accountant or other person so selected. (b) Use of Affiliates The Trustee is authorized to contract or make other arrangements with the Trustee's affiliates and subsidiaries, successors and assigns, for the provision of services to the Trust Fund or Plan, except where such arrangements are prohibited by law or regulation. -70- (c) Arbitration Any dispute under this agreement will be resolved by submission of the issue to a member of the American Arbitration Association who is chosen by the Employer and the Trustee. If the Employer and the Trustee cannot agree on such a choice, each will nominate a member of the American Arbitration Association, and the two nominees will then select an arbitrator. Expenses of the arbitration will be paid as decided by the arbitrator. 11.12 Valuation of Trust The Trustee will value the Trust Fund as of the last day of each Plan Year to determine the fair market value of the Trust, and the Trustee will value the Trust Fund on such other date(s) as may be necessary to carry out the provisions of the Plan. 11.13 Liability of Trustee The Trustee will be liable only for the safeguarding and administration of the assets of this Trust Fund in accordance with the provisions hereof and any amendments hereto and no other duties or responsibilities will be implied. The Trustee will not be required to pay any interest on funds paid to or deposited with it or to its credit under the provisions of this Trust, unless pursuant to a written agreement between the Employer and the Trustee. The Trustee will not be responsible for the adequacy of the Trust Fund to meet and discharge any liabilities under the Plan and will not be required to make any payment of any nature except from funds actually received as Trustee. The Trustee may consult with legal counsel (who may be legal counsel for the Employer) selected by the Trustee and will be fully protected for any action taken, suffered or omitted in good faith in accordance with the opinion of said legal counsel. It will not be the duty of the Trustee to determine the identity or mailing address of any Participant or any other person entitled to benefits hereunder, such identity and mailing addresses to be furnished by the Employer, the Plan Administrator or an agent of the Plan Administrator. The Trustee will be under no liability in making payments in accordance with the terms of this Plan and the certification of the Plan Administrator or an agent of the Plan Administrator who has been granted such powers by the Plan Administrator. Except to the extent required by any applicable law, no bond or other security for the faithful performance of duty hereunder will be required of the Trustee. 11.14 Removal or Resignation and Successor Trustee A Trustee may resign at any time upon giving 30 days prior written notice to the Plan Sponsor or, with the consent of the Plan Sponsor, a Trustee may resign with less than 30 days prior written notice. The Plan Sponsor may remove a Trustee by giving at least 30 days prior written notice to the Trustee. Upon the removal or resignation of a Trustee, the Plan Sponsor will appoint and designate a successor Trustee which will be one or more individual successor Trustees or a corporate Trustee organized under the laws of the United States or of any state thereof with authority to accept and execute trusts. Any successor Trustee must accept and acknowledge in writing its appointment as a successor Trustee before it can act in such capacity. Title to all property and records or true copies of such records necessary to the current operation of the Trust Fund held by the Trustee hereunder will vest in any successor Trustee acting pursuant to the provisions hereof, without the execution or filing of any further instrument. Any resigning or removed Trustee will execute all instruments and do all acts necessary to vest such title in any successor Trustee of record. Each successor Trustee will have, exercise and enjoy all the powers, both discretionary and ministerial, herein conferred upon his predecessor. No successor Trustee will be obligated to examine the accounts, records and acts of any previous Trustee or Trustees, and each successor Trustee in no way or manner will be responsible for any action or omission to act on the part of any previous Trustee. -71- Any corporation which results from any merger, consolidation or purchase to which the Trustee may be a party, or which succeeds to the trust business of the Trustee, or to which substantially all the trust assets of the Trustee may be transferred, will be the successor to the Trustee hereunder without any further act or formality with like effect as if the successor Trustee had originally been named Trustee herein; and in any such event it will not be necessary for the Trustee or any successor Trustee to give notice thereof to any person, and any requirement, statutory or otherwise, that notice will be given is hereby waived. 11.15 Appointment of Investment Manager One or more Investment Managers may be appointed by the Plan Sponsor (or the Plan Administrator) to exercise full investment management authority with respect to all or a portion of the Trust assets. Authorized payment of the fees and expenses of the Investment Manager(s) may be made from the Trust assets. For purposes of this agreement, any Investment Manager so appointed will, during the period of his appointment, possess fully and absolutely those powers, rights and duties of the Trustee (to the extent delegated by the Plan Sponsor or the Plan Administrator) with respect to the investment or reinvestment of that portion of the Trust assets over which the Investment Manager has investment management authority. The Investment Manager must be one of the following: (a) Registered as an investment advisor under the Investment Advisors Act of 1940; (b) A bank, as defined in the Investment Advisors Act of 1940; or (c) An insurance company qualified to manage, acquire, or dispose of such Plan assets under the laws of more than one state. Any Investment Manager will acknowledge in writing to the Plan Sponsor or the Plan Administrator and to the Trustee that he or it is a fiduciary with respect to the Plan. During any period of time when the Investment Manager is so appointed and serving, and with respect to those assets in the Plan over which the Investment Manager exercises investment management authority, the Trustee's responsibility will be limited to holding such assets as a custodian, providing accounting services, disbursing benefits as authorized, and executing such investment instructions only as directed by the Investment Manager. The Trustee will not be responsible for any acts or omissions of the Investment Manager. Any certificates or other instruments duly signed by the Investment Manager (or the authorized representative of the Investment Manager), purporting to evidence any instruction, direction or order of the Investment Manager with respect to the investment of those assets of the Plan over which the Investment Manager has investment management authority, will be accepted by the Trustee as conclusive proof thereof. The Trustee will also be fully protected in acting in good faith upon any notice, instruction, direction, order, certificate, opinion, letter, telegram or other document believed by the Trustee to be genuine and from the Investment Manager (or the authorized representative of the Investment Manager). The Trustee will not be liable for any action taken or omitted by the Investment Manager or for any mistakes of judgment or other action made, taken or omitted by the Trustee in good faith upon direction of the Investment Manager. 11.16 Loans to Participants This Plan authorizes the Trustee to lend on a nondiscriminatory basis to an Active Participant in accordance with the loan policy established by the Plan Administrator, provided that (a) loans are available to all Active Participants on a reasonably equivalent basis and are not available in a greater amount for Highly Compensated Employees than for other Employees; (b) any loan is adequately secured and bears a reasonable rate of interest; (c) the loan provides for repayment within a specified time; (d) the default provisions of the note prohibit offset of the Participant's Nonforfeitable Accrued Benefit prior to the time the Trustee otherwise would distribute the Participant's Nonforfeitable Accrued Benefit; (e) the amount of the loan does not exceed (at the time the Plan extends the loan) the present value of the Participant's Nonforfeitable Accrued Benefit; and (f) the loan otherwise conforms to the exemption provided by Code Section 4975(d)(1). If the joint and survivor requirements of Section 5.05 apply to the Participant, the Participant may not pledge any portion of his or her Accrued Benefit as security for a loan, unless, within the 90-day period ending on the date the pledge becomes effective, the Participant's spouse, if any, consents to the security or, by separate consent, to an increase in the amount of security. -72- The following limitations is effective for Plan Years prior to January 1, 2002. If the Employer is an unincorporated trade or business, a Participant who is an Owner-Employee may not receive a loan from the Plan, unless he or she has obtained a prohibited transaction exemption from the Department of Labor. If the Employer is an "S Corporation," a Participant who is a shareholder-employee (an employee or an officer) who, at any time during the Employer's taxable year, owns more than 5%, either directly or by attribution under Code Section 318(a)(1), of the Employer's outstanding stock may not receive a loan from the Plan, unless he has obtained a prohibited transaction exemption from the Department of Labor. If the Employer is not an unincorporated trade or business nor an "S Corporation," this Section does not impose any restrictions on the class of Participants eligible for a loan from the Plan. All Participant's Accounts, other than the Employee Stock Ownership Account, are available to fund Participant loans. All interest and principal repayments will be credited to the Participant's Account from which the loan was made. In addition to any additional rules and regulations as the Plan Administrator may adopt all loans will comply with the following terms and conditions: (a) Only Active Participants will be eligible to apply for a loan. Each application for a loan will be made in writing to the Plan Administrator, whose action thereon will be final. (b) Each loan will be made against collateral being the assignment of 50% of the borrower's entire right, title and interest in and to the Trust Fund, supported by the borrower's promissory note for the amount of the loan, including interest payable to the order of the Trustee, and any additional security deemed necessary to adequately secure the Loan. Effective January 1, 2002, if a person fails to make a required payment by the last day of the calendar quarter following the calendar quarter in which the repayments were discontinued, the loan will be in default. There will be no foreclosure against a Participant's Accrued Benefit prior to his becoming entitled to a distribution of benefits in accordance with the terms of this Plan. All loans will become due and payable in full upon the termination of a Participant's employment. If a Participant with an outstanding loan terminates employment and becomes entitled to a distribution of benefits from the Plan, then the outstanding balance of the unpaid loan plus any accrued interest thereon will be deducted from the amount of otherwise distributable benefits and the Participant's promissory note will be distributed to the Participant. (c) The principal repayment will be amortized over the fixed life of a loan with installments of principal and interest to be paid not less often than quarterly. The period of repayment for each loan will be arrived at by mutual agreement between the Plan Administrator and the borrower, but in no event will such period exceed a reasonable period of time. The period of repayment will in no event exceed 5 years unless the loan is to be used to acquire, construct, reconstruct or substantially rehabilitate any dwelling unit which, within a reasonable period of time, is to be used as a principal residence of the Participant or a member of the family (spouse, brother, sister, ancestor, or lineal descendants) of the Participant. (d) The minimum amount of any loan is equal to $1,000. (e) The maximum amount of any loan is such that when the amount of the loan is added to the outstanding balance of all other loans made to the Participant from the Plan (and any other plans maintained by the Employer or any Related Employer) the total does not exceed the lesser of: (1) 50% of the Participant's Vested Accrued Benefit. In determining the Participant's Vested Accrued Benefit, the Plan Administrator shall disregard amounts attributable to the Employee Stock Ownership Account; or (2) $50,000, reduced by the amount, if any, of the highest balance of all outstanding loans to the Participant during the one-year period ending on the day prior to the day on which the loan in question is made. -73- (f) Each loan will bear interest at a rate equal to the prime rate which is published in the Wall Street Journal as being representative of the base rate on corporate loans at large U.S. money center commercial banks on the date on which the loan is made, plus 1 percentage point. (g) A Participant may have no more than three (3) loans outstanding at any time. (h) Each loan will require the Participant (and, if the Participant is married, the Participant's spouse) to consent to the loan and the possible reduction in the Participant's Accrued Benefit. Such consent must be made in writing within the 90-day period before the making of the loan. The spousal consent must meet requirements which are comparable to the requirements described in Code Section 417(a)(2). Any security interest held by the Plan by reason of an outstanding loan is taken into account in determining the value of a Qualified Survivor Annuity. However, in the event a Participant defaults on a loan, the security interest in the loan will be deducted from the Qualified Survivor Annuity. 11.17 Special Rules Concerning Trustee Responsibilities Notwithstanding the foregoing sections of this Article 11, the following provisions regarding the investment of Plan assets and the Trustee's duties and responsibilities thereto shall override any Plan provision to the contrary: (a) Company Stock. In addition to the provisions of Section 12.01 of the Plan: 1. No assets of the Trust Fund shall be invested in the securities of the Employer or its affiliates unless the Administrator determines that the securities are exempt from registration under the federal Securities Act of 1933, as amended, and are exempt from registration or qualification under the applicable state law, and of any other applicable blue sky law, or in the alternative, that the securities have been so registered and/or qualified. The Administrator shall also specify what restrictive legend on transfer, if any, is required to be set forth on the certificates for the securities and the procedure to be followed by the Trustee to effectuate a resale of such securities. The Administrator shall not direct the investment in "employer securities" or "employer real property", within the meaning of section 407 of ERISA, if such investment would be prohibited by ERISA. The Administrator shall only direct the investment of Trust funds into securities of the Employer or an affiliate (i) if those securities are traded on an exchange permitting a readily ascertainable fair market value, or (ii) if the Administrator shall have obtained a current valuation by a qualified independent appraiser. 2. The Employer represents and warrants that it will take all responsibility (and hereby assumes all liability for the failure) to notify Participants of any limitations on investment directions necessary or appropriate to comply with federal securities laws (including the Exchange Act and the 1933 Act), including but not limited to the frequency of investment changes by certain officers and shareholder-employees pursuant to Section 16(a) and the volume of trading in Company Stock pursuant to Rule 10b-6. Consequently the Trustee shall have no liability to a Participant, and beneficiary, or the Employer for carrying out instructions relating to the acquisition or disposition of Company Stock regardless of whether those instructions subject such person or the Employer to any liability. The Employer represents and warrants that either the percentage of the issued and outstanding class of equity security registered under section 12 of the Exchange Act which is Company Stock owned by the Plan (the "Plan Percentage") is less than 4.5% or that the Plan and its prior trust have complied with all notice and filing requirements imposed by federal securities laws with regard to Company Stock. The Employer covenants that it will (a) notify the Trustee in writing within 5 business days following any date as of which the Plan Percentage equals or exceeds 4.5%, (b) monitor the Plan Percentage on a daily basis so long as the Plan Percentage is at least 4.5%, (c) notify the Trustee in writing within 5 business days following any date as of which the Plan Percentage equals or exceeds 5% and, if applicable, 10%, and (d) provide monthly -74- written reports to the Trustee disclosing the Plan Percentage. The foregoing monitoring and notification requirements shall cease during any month when the Plan Percentage is below 4.5% for each day of the month. The provisions of this Section shall survive the termination of this Trust Agreement. 3. The election to purchase stock from a Participant as described in Section 12.05 of the Plan and Trust, shall be the exclusive right and option of the Plan Administrator and the Trustee shall be responsible only for following the directions of the Plan Administrator. -75- ARTICLE 12 PROVISIONS RELATING TO EMPLOYER STOCK 12.01 Investment in Company Stock (a) The Trustee shall invest Participant Employee Stock Ownership and Company Matching Contribution Accounts primarily in Company Stock to the extent practicable and may invest one hundred percent (100%) of such Accounts in Company Stock. The Company Stock may be Treasury Stock which has been purchased by the Employer; stock which has been authorized, but never issued by the Employer; Company Stock traded on a public market; or Company Stock owned by shareholders of the Employer. Provided, however, that the Trustee shall invest the proceeds of an Acquisition Loan to acquire Company Stock only in "qualifying employer securities." For purposes of determining Voting Rights under subsection (e), Company Stock shall include shares of Getchell Gold Corporation stock held in the Trust Fund. (b) Purchase Price. For the purchase of Company Stock, from the Employer or from a shareholder of the Employer, the Trustee shall not pay more than fair market value as determined by the current market price of the Company Stock, if there is a market, and if there is not a market for the stock, then as determined by an independent appraisal after taking into account the book value of the stock, the earnings of the Employer and other factors normally taken into account in determining fair market value of stock of a corporation. For the purchase of Company Stock from a Disqualified Person, the value of the Company Stock must be determined as of the date of the transaction. For any other purchase, the value shall be at the discretion of the Trustee, based on a current valuation or based upon the price fixed as of the most recent Valuation Date. Notwithstanding the preceding provisions of this Section, the Trustee may purchase Company Stock at a price lower than that determined in accordance with the preceding provisions of this Section from any source whatsoever. If a public market is made for the Company Stock, the Trustee shall purchase the Company Stock at the public trading price determined at the time of the purchase regardless of whether such stock is purchased from the Employer or on the open market. (c) Acquisition Loan. The Trustee is expressly authorized to enter into an Acquisition Loan transaction.; provided, however, that the loan shall be primarily for the benefit of the Plan Participants. The following terms and conditions apply to any Acquisition Loan. (i) The Trustee shall, within a reasonable period of time, use the proceeds of any Acquisition Loan: (A) to acquire Company Stock described in Section 1.10(b)(i), (ii) or (iii); (B) to repay the Acquisition Loan; or (C) to repay a prior Acquisition Loan. (ii) Any Acquisition Loan shall provide that the creditor is without recourse against the Plan and Trust. The Acquisition Loan shall further provide that no person entitled to payment under the Acquisition Loan shall have any rights to the assets of the Plan and Trust other than: (A) the collateral given under the Acquisition Loan; (B) contributions (other than contributions of Company Stock) made by the Employer to meet the repayment requirements of the Acquisition Loan; or -76- (C) earnings attributable to: (1) the Company Stock pledged as collateral for such loan; or (2) the Employer contributions described in the preceding paragraph (B). (iii) Any Acquisition Loan shall provide that payments made on the loan by the Plan shall not exceed for any Plan Year an amount equal to the sum of Employer Contributions and Plan earnings for the current Plan Year, plus the amounts in prior years, less the sum of the note payment for prior years. The Plan Administrator shall maintain separate accounting for such contributions and earnings. (iv) Collateral for the Acquisition Loan shall be restricted to Company Stock acquired with the proceeds of the Acquisition Loan or Company Stock acquired with a prior Acquisition Loan which prior Acquisition Loan is repaid with the proceeds of the Acquisition Loan. (v) Any Acquisition Loan shall provide that in the event of default, the value of the Plan assets transferred in satisfaction of the Acquisition Loan must not exceed the amount of the default. If the lender is a Disqualified Person, the Acquisition Loan shall provide for the transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to meet the repayment schedule of the loan. (vi) Any Acquisition Loan shall provide for a reasonable rate of interest, taking into account all relevant factors. (vii) Any Acquisition Loan shall provide for a release from encumbrance of shares of Company Stock held as collateral as of each Anniversary Date equal to the number of encumbered shares of Company Stock held immediately before the release, multiplied by a fraction. The numerator of the fraction is the amount of principal and interest paid during the Plan Year. The denominator of the fraction is the sum of the principal and interest to be paid in all future years without taking into account any possible extensions of the loan. If a variable rate of interest is used, the calculation of the denominator shall be based upon the rate applicable as of the end of the Plan Year in question. Release of shares of more than one class shall be made on a pro rata basis applying such fraction. (viii) Any Acquisition Loan shall call for a definitely determinable period of repayment and may not be payable at the demand of any person except in the case of default. (ix) The Trustee shall comply with all requirements under Code Section 4975 and the applicable Treasury regulations to assure that the loan qualifies as an Acquisition Loan. (x) Notwithstanding that this Plan ceases to be an employee stock ownership plan, Company Stock acquired with the proceeds of an Acquisition Loan will continue, after the Trustee repays the loan, to be subject to the provisions of Treasury Regulations Sections 54.4975-7(b)(4), (10), (11) and (12) relating to put, call or other options and to buy-sell or similar arrangements, except to the extent those regulations are inconsistent with Code Section 409(h). (d) Allocation The Trustees shall allocate all Company Stock contributed or purchased for each Plan Year in accordance with the provisions of Sections 3.03(a)(6) and 3.04(a)(6) as applicable. Additional shares or fractional shares of Company Stock shall be added to each Participant's Company Stock Sub-Account as of the applicable Contribution Period. -77- (i) Provided, however, that the Trustee shall hold any shares of Company Stock which are acquired with the proceeds of an Acquisition Loan in a suspense account. As of each Anniversary Date, a pro rata amount of such Company Stock shall be released from the suspense account in accordance with Section 12.01(c)(vii), and allocated in accordance with the immediately preceding paragraph. The amount to be released shall equal the total number of shares acquired from the proceeds of the Acquisition Loan, multiplied by a fraction. The numerator of the fraction is the amount of principal and interest paid on the loan during the Plan Year. The denominator of the fraction is the sum of the numerator plus the principal and interest to be paid for all future years, without taking into account any possible extensions of the loan. (ii) Any dividend income received during the year for the shares held in suspense shall be applied by the Trustee in the subsequent year towards the repayment of the Acquisition Loan. (e) Voting Rights (i) Regarding the Company Stock held in the Trust Fund, the Trustee may vote the same in person or by proxy; may join in any merger, reorganization of capital adjustment; may exercise or sell any conversion, subscription, or similar rights; and may hold any assets in the name of its nominee or unregistered agent. A majority vote of the Trustees shall control the vote of the Company Stock. (ii) Notwithstanding the foregoing, if the Employer has a registration-type class of securities defined in Code Section 409(e)(4), each Participant or Beneficiary in the Plan shall be entitled to direct the Trustee as to the manner in which his or her allocable share of the Company Stock held in the Trust Fund will be voted. If the Employer does not have a registration-type class of securities defined in Code Section 409(e)(4), each Participant or Beneficiary shall be entitled to direct the Trustee as to the manner in which the voting rights under securities of the Employer which are allocated to his or her account are to be exercised regarding any corporate matter involving the voting of the shares with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or any similar transaction which the Secretary may prescribe in regulations. (f) Tender Offers Each Participant, or, in the event of his death, his Beneficiary, shall have the right, to the extent of the number of full shares of Company Stock in his account, to direct the Trustee in writing as to the manner in which to respond to a tender or exchange offer with respect to shares of such Company Stock. The Employer shall utilize its best efforts to timely distribute or cause to be distributed to each Participant (or Beneficiary) such information as will be distributed to shareholders of the Employer in connection with any such tender or exchange offer. The Trustee shall, with respect to all Company Stock held in the Trust Fund, accept or reject the terms of any tender offer and, accordingly, tender Company Stock held by the Trustee in the Trust Fund in accordance with the terms and provisions of any tender offer, or not tender such Company Stock, as directed by the respective Participants (or Beneficiaries). With respect to shares of Company Stock which are allocated to Participants who have not given directions, the Trustee shall not tender any shares of Company Stock with respect to which such Participants (or Beneficiaries) have the right of direction. The Plan Administrator may establish such rules and guidelines as it deems appropriate to properly effect the provisions of this Section. -78- (g) Shareholder Agreements The Trustee may enter into agreements with shareholders to purchase shares of Company Stock under which the Trustee is granted an option to purchase all or a portion of the shares of Company Stock owned by the shareholders on the death of the shareholder or shareholders. To provide for the funding of the purchase of shares of Company Stock, the Trustee may apply for and pay premiums on contracts of life insurance on the life of such shareholder for the benefit of the Trust Fund as a whole, provided, however, that if this Plan invests in Leveraged Company Stock the Trustee may not enter into any agreement which would obligate the Plan and Trust to purchase Company Stock from a particular shareholder at an indefinite time determined upon the happening of an event such as the death of the shareholder. 12.02 Partial Diversification of Investment A Qualified Participant may elect within the Diversification Election Interval during his Qualified Election Period to direct the trustee on the investment of: (a) not more than twenty-five percent (25%) of the Qualified Participant's Accrued Benefit (excluding accumulated contributions in the Participant's Pre 401(k) Account) at the end of the Plan Year, reduced by amounts previously diversified, during the first four (4) years of his Qualified Election Period; and (b) not more than fifty percent (50%) of the Qualified Participant's Accrued Benefit (excluding accumulated contributions in the Participant's Pre 401(k) Account) at the end of the Plan Year, reduced by amounts previously diversified, during the fifth (5th) year of his Qualified Election Period. The Trustee shall complete diversification of a Qualified Participant's investment in accordance with a Qualified Participant's Election no later than ninety (90) days after the close of the Diversification Election Interval. The Trustee shall satisfy this requirement: (a) by distributing to the Participant an amount equal to the amount for which the Participant elected diversification; or (b) by substituting for the amount of the Company Stock for which the Participant elected diversification an equivalent amount of other assets, according to the Participant's investment direction based on at least three (3) investment options consistent with applicable Treasury regulations. All valuations of Company Stock contemplated herein must be made by an independent appraiser if not publicly traded on an established securities market. For purposes of this Section, the following definitions apply: (a) "Qualified Participant" means any Employee who has completed at least ten (10) years of participation under the Plan and has attained age fifty-five (55) years. (b) "Qualified Election Period" means the six (6) Plan Year Period beginning with the later of: (i) the first Plan Year in which the individual first became a qualified Participant, or (ii) the first Plan Year beginning after December 31, 1986. The Employer may elect to treat an individual first becoming a qualified Participant in the first Plan Year beginning in 1987 as having become a Participant in the first Plan Year beginning in 1988. (c) "Diversification Election Interval" means the span of ninety (90) days after the close of each Plan Year within a Qualified Participant's Qualified Election Period. 12.03 Dividend Distributions If so determined by the Board of Directors of the Employer, any applicable dividends on Company Stock allocated to the Company Stock Accounts of Participants may be paid currently (or within 90 days after the Anniversary Date of the Plan Year in which the dividends are paid to the Trust) in cash to such Participants on a nondiscriminatory basis, or the Employer may pay such dividends directly to Participants. Such distribution (if any) of applicable dividends to Participants may be limited to Participants who are Active Participants, may be limited to dividends on shares of Company Stock allocated to Participants' Company -79- Stock Sub-Accounts which are then vested or may be applicable to dividends on all Company Stock Sub-Accounts. 12.04 Put Option (a) Stock Subject to Put The Employer shall issue a put option to each former Participant receiving a distribution of Company Stock from the Plan that is not readily tradeable on an established securities market in accordance with the terms set forth in this Section. (b) Period, Exercise of Option The put option shall be exercisable during the sixty (60) day period beginning on the date that the shares of Company Stock subject to the put option are distributed to the Participant. If the option is not exercised during such period, the put option shall be exercisable for an additional period of sixty (60) days during the following Plan Year after the Plan Administrator determines the fair market value of the Company Stock, as provided in applicable Treasury regulations. The put option shall be exercisable only by a Participant; by the Participant's donee; or by a person, including an estate or its distributee, to whom such Company Stock has passed because of the Participant's death. For purposes of this Section, Participant means the Plan Participant or designated death Beneficiary. (c) Rights Under Put Option The put option shall give to the eligible holder the right to put such shares to the Employer based upon a fair valuation formula established by the Plan Administrator. Such put option may grant to the Trustee an option to assume the rights and obligations of the Employer at the time the put option is exercised. The Trustee shall be under no obligation to exercise this option. (d) Option Rights Not Affected by Amendment The rights provided to Participants under this Article shall be non-terminable and no amendment to this Plan shall affect these rights except such amendments to this Article as may be required to assure the continuing qualification of the Plan under the Code. (e) Commencement and Form of Payment If Company Stock is distributed as part of a total distribution, the payment for such stock sold under a put option shall be made no later than 30 days after the date the put option was exercised. Payment may be made in a lump sum, or in substantially equal, annual installments over a period not exceeding five years, as described in Section 5.05. If payment for Company Stock sold under a put option is made in installments, the first installment shall be paid not later than 30 days after the date on which the put option was exercised, and the Company shall provide adequate security (within the meaning of Section 409(h)(5) of the Code and regulations thereunder) to secure payment of the unpaid installments, and pay interest on the unpaid installment balance at a reasonable rate (as determined by the Company or the Plan Administrator). The Plan Administrator shall give written notice of the terms and conditions of the put option to the Participant at the time of distribution and at the beginning of the second option period. If Company Stock is distributed to a Participant as part of an installment distribution, the payment for any Company Stock sold under a put option shall be made no later than 30 days after the date the put option was exercised. -80- 12.05 Lifetime Transfer/Right of First Refusal (a) Notice of Offer. If a former Participant or Beneficiary, who has received a distribution of Company Stock, receives a bona fide offer for the purchase of all or a portion of the shares, the person shall give written notice of the offer to the Trustees and to the Employer. The notice shall set forth the name of the proposed transferee, the number of shares to be transferred, the price per share, and all other terms and conditions of the proposed transfer. (b) Right of First Refusal On receipt of the notice regarding the transfer, the Trustees shall have the exclusive right and option, exercisable at any time during a period of fourteen (14) days from the date of the notice to purchase the shares of the Employer covered by the offer in question at the same price and on the same terms and conditions of the offer as set out in the notice. If the Trustees decide to exercise the option, the Trustees shall give written notice of this effect to the Former Participant or Beneficiary desiring to sell, and the sale and purchase shall be closed within thirty (30) days thereafter. If the Trustees do not elect to exercise the option to purchase any or all of the offered shares, the Trustees shall, prior to the expiration of the fourteen (14) day period stated above, notify the Employer of the Trustees' election, and the Employer shall be entitled during the remainder of the fourteen (14) day period to purchase that portion of the offered shares, not so purchased by the Trustees, on the same terms and conditions as set out in the offer. (c) Requirements Notwithstanding the foregoing, the right of first refusal shall be subject to the following requirements: (i) The Company Stock subject to such right must be equity or debt convertible into equity; (ii) The right of first refusal may not be exercised at a time when the Company Stock is publicly traded; (iii) The right of first refusal may be granted only to the Trustees and the Employer; (iv) The selling price and terms of purchase by either the Trustees or Employer, pursuant to this right of first refusal, shall be no less favorable to the seller than the greater of the selling price and terms offered by a good faith purchaser or fair market value; (v) The right of first refusal shall lapse no later than fourteen (14) days after notice of the third party offer is given. 12.06 Nonterminable Protections and Rights Except as provided in this Article, no Company Stock may be subject to a put, call, or other option, or buy-sell or similar arrangement when held by and when distributed from the Trust Fund, whether or not the Plan is then an employee stock ownership plan. The protections and rights granted in this Article, in Sections 5.05 and 5.07 pursuant to Code Section 409(o) attributable to stock acquired after December 31, 1986, and in Section 12.02 pursuant to Code Section 401(a)(28)(B), are nonterminable and shall continue to exist under the terms of this Plan so long as any Company Stock is held by the Trust Fund or by any Participant or other person for whose benefit such protections and rights have been created. Neither the repayment of an Acquisition Loan described in Section 12.01 nor the failure of the Plan to be an employee stock ownership plan, nor an amendment of the Plan shall cause a termination of the protections and rights. -81- 12.07 Special Provisions Applicable to Employer Securities In accordance with Rule 16(b)-3 adopted by the Securities and Exchange Commission, the following provisions shall apply with respect to purchases, sales and allocations to Participant accounts of Company Stock, notwithstanding anything else to the contrary in this Plan or in any rules adopted hereunder: (a) Annual Limit on Shares Acquired or Awarded The Plan shall not acquire or award to Participants in any fiscal year of the Plan more than 2% of the outstanding shares of Common Stock of the Company or more than 2% of the outstanding shares of Common Stock of First Miss Gold, in each case based on the number of such shares outstanding as of the beginning of each such fiscal year; and (b) Fiduciary Duties with regard to Prices and Values The Trustee and other Plan Fiduciaries shall act in accordance with their fiduciary duties in determining the prices at which the Trustee shall purchase Company Stock and in determining the value used in allocating such securities to Participant Accounts. 12.08 Limitation with Respect to an Electing Estate or Shareholder (a) If the executor of the estate of a deceased shareholder sells Company Stock to the Trust and elects (with the consent of the Company) an estate tax deduction pursuant to Section 2057(a) of the Code, or if a shareholder sells Company Stock to the Trust and elects (with the consent of the Company) favorable tax treatment under Section 1042 of the Code, then no portion of the Trust Assets attributable to (or allocable in lieu of) the Company Stock acquired by the Trust in such transaction may be allocated (directly or indirectly): (i) During the "nonallocation period", to the Accounts of the decedent whose estate makes such sale; or to the shareholder who makes the sale; (ii) During the "nonallocation period" to the Accounts of any person related to the decedent or shareholder (within the meaning of Section 267(b) of the Code; or (iii) To the Accounts of any shareholder owning (as determined under Section 318(a) of the Code, at any time described in Code Section 409(n)(3)(B), more than 25% (in value or in number of shares) of any class of outstanding stock of the Company. (b) For purposes of this Section, the "nonallocation period" is the ten-year period beginning on the later of: (i) the date on which the Company Stock held by the estate or shareholder is sold to the Plan, or (ii) if such Company Stock is acquired with the proceeds of an Acquisition Loan, the date of allocation of the shares of Company Stock released from the suspense account (as described in Section 12.01(d) with respect to the final payment on such Acquisition Loan. -82- IN WITNESS WHEREOF, this instrument has been executed by the duly authorized and empowered officers of the Employer, this 12th day of February, 2002. CHEMFIRST INC. By: /s/ William B. Kemp, Jr. Name: William B. Kemp, Jr. Title: VP, Human Resources -83- EX-10.(C) 5 dex10c.txt AMENDMENT TO TERMINATION AGREEMENT EXHIBIT 10(c) Amendment to Termination Agreement This Amendment to March 15, 1999 Termination Agreement is made and entered into effective as of the 19th day of February 2002 by and between J. Kelley Williams ("Executive") and ChemFirst Inc. ("CEM"). WHEREAS, Executive and CEM entered into the above referenced Termination Agreement and desire to amend the Agreement to extend the term, clarify the definition of change in control, eliminate age restrictions under the Agreement, and make other clarifications to the Agreement. NOW, THEREFORE, for and in consideration of the covenants and agreements contained herein, and other good and valuable consideration, the right and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Paragraph one, "Term of Agreement", shall be amended to read in its entirety as follows: "This Agreement shall be deemed effective on June 1, 1996 and shall continue in effect through May 31, 2004, and that commencing on June 1, 2004 and each June 1 thereafter, the term of this Agreement shall automatically be extended for one additional year, unless, not later than June 30 of that year, the Company shall have given notice that it does not wish to extend this Agreement. Notwithstanding the above, if a Change in Control (as defined in Section 2 below) of the Company shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of three (3) years beyond the month in which such Change in Control occurred." 2. Paragraph 2, Change in Control, (i)(C) shall be amended to read in its entirety as follows: "the shareholders of the Company approve a merger or consolidation of the Company which is then consummated, with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefits plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner (determined pursuant to Subsection A above) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or" 3. Paragraph 2, Change in Control, (i)(D) shall be amended to read in its entirety as follows: "the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, followed by such liquidation or sale or disposition." 4. Paragraph 3, Termination Following Change in Control, first paragraph, shall be amended to read in its entirety as follows: "If any of the events described in Subsection 2(i) hereof constituting a Change in Control shall have occurred, you shall be entitled to the benefits provided in Subsection 4(iii) and (iv) hereof: (1) upon the subsequent termination of your employment during the term of this Agreement unless such termination is (A) because of your death or Disability as defined in Section 3(i), or (B) by the Company for Cause; or (2) upon your resignation within thirty-six (36) months of the occurrence of an event as specified in Section 2(i)." 5. Paragraph 4, Compensation Upon Termination or During Disability, (ii), shall be amended to read in its entirety as follows: "If your employment shall be terminated by the Company for Cause, the Company shall pay you for your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement." 6. Paragraph 4, Compensation Upon Termination or During Disability, (iii) first 2 lines before Subparagraph (A) shall be amended to read in its entirety as follows: "If your employment by the Company shall be terminated (a) by the Company other than for Cause or Disability, or (b) by you otherwise than for Disability or death, then you shall be entitled to the benefits provided below:" 7. Paragraph 4, Compensation Upon Termination or During Disability, (iii)(B)(2) is deleted in its entirety. 8. Paragraph 4, Compensation Upon Termination or During Disability, (iii)(C) shall be amended to read in its entirety as follows: "The Company shall continue to provide you with medical insurance, life insurance and disability insurance in the amounts and upon the terms and conditions present immediately prior to Notice of Termination for a period of three years following the Date of Termination. However, if during such three year period you become re-employed with another employer and you are eligible to receive medical or other welfare benefits under another employer provided plan, then the medical and other welfare benefits described above shall no longer be provided by the Company. In the event that the Company cannot, despite its best efforts, provide such coverage under its benefit plans, it shall arrange for equivalent coverage outside such plans." 9. All capitalized terms used in this Amendment shall have the meanings assigned to them in the Agreement. 10. All other terms and provisions of the said Termination Agreement shall remain unchanged and in full force and effect. WHEREAS, PREMISES CONSIDERED, the parties have caused this Amendment to Termination Agreement to be executed. CHEMFIRST INC. /s/ Richard P. Anderson /s/ J. Kelley Williams Richard P. Anderson, Chairman J. Kelley Williams Compensation and Health Resources Committee EX-10.(D) 6 dex10d.txt AMENDMENT TO TERMINATION AGREEMENT EXHIBIT 10(d) Amendment to Termination Agreement This Amendment to [DATE] Termination Agreement is made and entered into effective as of the 19th day of February 2002 by and between [NAME OF EXECUTIVE] ("Executive") and ChemFirst Inc. ("CEM"). WHEREAS, Executive and First Mississippi Corporation ("FMC") entered into the above referenced Termination Agreement, which was subsequently assumed by CEM under terms of the December 1996 transaction between FMC and Mississippi Chemical Corporation and the spin-off of CEM; and WHEREAS, the parties desire to amend the Agreement to extend the term, clarify the definition of change in control, and eliminate age restrictions under the Agreement. NOW, THEREFORE, for and in consideration of the covenants and agreements contained herein, and other good and valuable consideration, the right and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. In Line one, "First Mississippi Corporation (the "Company")" shall be amended to read "ChemFirst Inc. (the "Company")." 2. Paragraph one, "Term of Agreement", shall be amended to read in its entirety as follows: "This Agreement shall be deemed effective on June 1, 1996 and shall continue in effect through May 31, 2004, and that commencing on June 1, 2004 and each June 1 thereafter, the term of this Agreement shall automatically be extended for one additional year, unless, not later than June 30 of that year, the Company shall have given notice that it does not wish to extend this Agreement. Notwithstanding the above, if a Change in Control (as defined in Section 2 below) of the Company shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of three (3) years beyond the month in which such Change in Control occurred." 3. Paragraph 2, Change in Control, (i)(C) shall be amended to read in its entirety as follows: "the shareholders of the Company approve a merger or consolidation of the Company which is then consummated, with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefits plan of the Company, at least 80% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner (determined pursuant to Subsection A above) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or" 4. Paragraph 2, Change in Control, (i)(D) shall be amended to read in its entirety as follows: "the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, followed by such liquidation or sale or disposition." 5. Paragraph 4, Compensation Upon Termination or During Disability, (iii)(B)(2) is deleted in its entirety. 6. Paragraph 4, Compensation Upon Termination or During Disability, (iii)(C) shall be amended to read in its entirety as follows: "The Company shall continue to provide you with medical insurance, life insurance and disability insurance in the amounts and upon the terms and conditions present immediately prior to Notice of Termination for a period of three years following the Date of Termination. However, if during such three year period you become re-employed with another employer and you are eligible to receive medical or other welfare benefits under another employer provided plan, then the medical and other welfare benefits described above shall no longer be provided by the Company. In the event that the Company cannot, despite its best efforts, provide such coverage under its benefit plans, it shall arrange for equivalent coverage outside such plans." 7. All capitalized terms used in this Amendment shall have the meanings assigned to them in the Agreement. 8. All other terms and provisions of the said Termination Agreement shall remain unchanged and in full force and effect. WHEREAS, PREMISES CONSIDERED, the parties have caused this Amendment to Termination Agreement to be executed. CHEMFIRST INC. /s/ J. Kelley Williams [SIGNATURE OF EXECUTIVE] J. Kelley Williams [NAME OF EXECUTIVE] Chairman of the Board EX-10.(O) 7 dex10o.txt AMENDED AND RESTATED LOAN AGREEMENT EXHIBIT 10(o) FIRST AMENDED AND RESTATED LOAN AGREEMENT THIS FIRST AMENDED AND RESTATED LOAN AGREEMENT is entered into this 12th day of September, 2001 by and between CHEMFIRST INC., a Mississippi corporation (the "Borrower"), and SUNTRUST BANK, a Georgia state chartered banking corporation ("Lender"). RECITALS: A. Borrower and Lender previously executed that certain Loan Agreement dated October 24, 2000 (as amended to date, the "Original Loan Agreement") and in connection therewith Borrower executed in favor of Lender that certain $10,000,000 Revolving Credit Note dated October 24, 2000 (the "Original Note"). B. Borrower and Lender previously amended the Original Loan Agreement pursuant to that certain First Amendment to Loan Agreement dated as of July 26, 2001 (the "First Amendment") executed by Borrower and Lender. C. Borrower and Lender are desirous of making certain amendments to the Original Loan Agreement as set forth herein, including an increase in the facility from $10,000,000 to $35,000,000, by amending and restating the Original Loan Agreement and replacing the Original Loan Agreement as set forth herein. Concurrently herewith Borrower and Lender have amended and restated the Original Note. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree that the Original Loan Agreement is restated in its entirety as follows: ARTICLE 1. LOAN FACILITY 1.1 Loan Facility. Subject to the terms and conditions contained in this ------------- Agreement and the other Loan Documents, and in reliance upon the representations, warranties and covenants in this Agreement and the other Loan Documents, Lender agrees to make Advances to Borrower on a revolving credit basis from time to time until the Maturity Date, as evidenced by the Note, on the condition that the aggregate principal amount outstanding of all Advances under the Revolving Credit Note (and the face amount of all outstanding Letters of Credit) shall not at any time exceed the Maximum Revolver Amount. Borrower may request Foreign Currency Advances (subject to the availability of such Foreign Currency to Lender) and U.S. Dollar Advances under the Note. Interest shall accrue on the Revolving Credit Loan at the Applicable Rate, and the terms of payment shall be as set forth herein and in the Note. The Dollar Equivalent of each Foreign Currency Advance shall be determined on the second Business Day prior to the making or continuation of such Advance and on any other date that any Advance is made or continued hereunder. 1.2 Borrowing Procedures for Revolving Credit Loan. Lender shall make ---------------------------------------------- Advances under the Revolving Credit Loan as follows: Borrower shall give Lender at least two (2) Business Days' prior written notice of a proposed borrowing. Any one of the Executive Officers of Borrower are authorized (pursuant to Borrower's board resolutions) to request an Advance on behalf of Borrower. Lender shall make the Advance by depositing the funds being advanced into the account designated by Borrower. In connection with each request for Advance, Borrower shall designate the Interest Period for such Advance and whether such Advance is a Foreign Currency Advance (indicating the applicable Foreign Currency available hereunder) or a U.S. Dollar Advance. Whenever Borrower desires to renew all or a portion of an outstanding Advance after an expiration of an Interest Period it shall give the Lender at least two (2) Business Days' prior written notice of each such Advance to be renewed. Notices shall be in form and substance satisfactory to Lender shall be given prior to 11:00 a.m. (Atlanta, Georgia time). Each such notice shall be irrevocable and shall specify the aggregate principal amount of the Advances to be renewed and the date of such renewal. If Borrower shall have failed to deliver the notice of renewal, Borrower shall be deemed to have elected to convert such Advance to bear interest accruing at the Base Rate. 1.3 Prepayments. ----------- (a) Borrower shall have the right to borrow, repay and reborrow under the Note on a revolving credit basis, however, in the event an Advance (other than an Advance accruing interest at a Base Rate) is paid prior to the expiration of its applicable Interest Period, the Borrower shall pay Lender a reasonable and customary breakage fee as reasonably determined by Lender to compensate Lender for such prepayment. The determination of such fee (absent manifest error) shall be binding upon Borrower. (b) If at any time the Dollar Equivalent of the aggregate principal amount of all outstanding Advances exceeds the Maximum Revolver Amount, Borrower shall promptly prepay the Advances (including, without limitation any breakage fee referred to in clause (a) above) in an amount sufficient to eliminate such excess. 1.4 Use of Proceeds. Proceeds of the Note will be used to refinance the --------------- Original Loan Agreement and thereafter solely for purchases of Borrower's capital stock and for working capital and general corporate purposes of the Borrower or a Subsidiary. Letters of Credit issued hereunder will be used for general corporate purposes. 1.5 Taxes. ----- (a) Any and all payments by or on account of any obligation of Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided, that if Borrower shall -------- be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section), Lender shall receive an amount equal to the sum it would have received had no such deductions been made; (ii) Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant governmental authority in accordance with applicable law. (b) In addition, Borrower shall pay any Other Taxes to the relevant governmental authority in accordance with applicable law. (c) Borrower shall indemnify Lender, within five (5) Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by Lender on or with respect to any payment by or on account of any obligation of Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this section) and any penalties, interest and reasonable expenses arising therefrom or with respect to thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant governmental authority. A certificate as to the amount of such payment or liability delivered to Borrower by Lender shall be conclusive absent manifest error. Lender shall remit any Indemnified Taxes to Borrower if they are subsequently refunded to Lender. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by Borrower to a governmental authority, Borrower shall deliver to the Lender the original or a certified copy of a receipt issued by such governmental authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Lender. 1.6 Inability to Determine Interest Rates. If prior to the commencement of ------------------------------------- any Interest Period for any Advance in any currency, Lender shall have determined reasonably that (i) by reason of circumstances affecting the relevant interbank market, adequate means do not exist for ascertaining LIBOR in such currency for such Interest Period, or (ii) the Adjusted LIBOR Rate for such currency does not adequately and fairly reflect the cost to Lender of making, funding or maintaining its Advance(s) in such currency for such Interest Period, Lender shall given written notice (or telephonic notice, promptly confirmed in writing) to the Borrower as soon as practicable thereafter. Until Lender notifies Borrower that the circumstances giving rise to such notice no longer exist, (i) the obligation of Lender to make an Advance in such currency and (ii) all such affected U.S. Dollar Advances shall be converted into Advances accruing interest at the Base Rate on the last day of the then current Interest Period applicable thereto unless the Borrower prepays such Advances in accordance with this Agreement and all Advances in any Foreign Currency shall be repaid. 1.7 Illegality. If any Change in Law shall make it unlawful or impossible ---------- for Lender to make, maintain or fund any Advance, Lender shall promptly give notice thereof to Borrower, whereupon until Lender notifies Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of Lender to make Advances, or to continue outstanding Advances, shall be suspended. In the case of the making of U.S. Dollar Advances, Advances may be made or converted to Advances bearing interest at the Base Rate. 1.8 Increased Costs. --------------- (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement that is not otherwise included in the determination of the LIBOR Rate hereunder against assets of, deposits with or for the account of, or credit extended by, Lender (except any such reserve requirement reflected in the Adjusted LIBOR Rate); or (ii) impose on Lender or the eurodollar interbank market any other condition affecting this Agreement or any Advances made by Lender; and the result of the foregoing is to increase the cost to Lender of making, continuing or maintaining an Advance or to reduce the amount received or receivable by Lender hereunder (whether of principal, interest or any other amount), then the Borrower shall promptly pay, upon written notice from and demand by Lender, within five (5) Business Days after the date if such notice and demand, additional amount or amounts sufficient to compensate Lender for such additional costs incurred or reduction suffered. (b) If Lender shall have reasonably determined that on or after the date of this Agreement any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on Lender's capital (or on the capital of Lender's parent corporation) as a consequence of its obligation hereunder to a level below that which Lender or Lender's parent corporation could have achieved but for such Change in Law (taking into consideration the Lender's policies or the policies of Lender's parent corporation with respect to capital adequacy) then, from time to time, within five (5) Business Day after receipt by Borrower of written demand by Lender, Borrower shall pay to Lender such additional amounts as will compensate Lender or Lender's parent corporation for any such reduction suffered. (c) A certificate of Lender setting forth the amount or amounts necessary to compensate Lender or its parent corporation, as the case may be, specified in paragraph (a) or (b) of this Section shall be delivered to Borrower. Borrower shall pay Lender such amount or amounts within 10 days after receipt thereof. 1.9 Facility Fee. The Borrower agrees to pay to the Lender a facility fee, ------------ which shall accrue at fifteen basis points (.15%) on the Maximum Revolver Amount, provided that if Letters of Credit are outstanding after the Maturity Date, the facility fee shall accrue on the daily amount of the outstanding Letters of Credit. Accrued facility fees shall be payable in arrears on the last day of each March, June, September and December of each year and on the Maturity Date, commencing on the first such date after the Closing Date; provided -------- further, that any facility fees accruing after the Maturity Date shall be - ------- payable in arrears on the last Business Day of each March, June, September and December. ARTICLE 2. LETTERS OF CREDIT ----------------- 2.1 Letters of Credit Commitment. ---------------------------- (a) During the term of this Agreement, the Lender agrees to issue, at the request of the Borrower, Letters of Credit for the account of the Borrower on the terms and conditions hereinafter set forth; provided, -------- that (i) each Letter of Credit shall expire on or before the Maturity Date (unless Lender shall agree in writing to an expiration date or an extension date beyond the Maturity Date); (ii) each Letter of Credit shall be in a stated Dollar Equivalent of at least $10,000; (iii) the Borrower may not request any Letter of Credit, if, after giving effect to such issuance, the face amount of all Letters of Credit issued under this Agreement, plus the outstanding Advances as revolving credit loans ---- would exceed the Maximum Revolver Amount; and (iv) outstanding letters of credit in Foreign Currencies shall not in the aggregate exceed a Dollar Equivalent of $1,000,000. (b) To request the issuance of a Letter of Credit (or any amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall give the Lender irrevocable written notice at least three (3) Business Days prior to the requested date of such issuance specifying the date (which shall be a Business Day) such Letter of Credit is to be issued (or amended, extended or renewed, as the case may be), the expiration date of such Letter of Credit, the amount of such Letter of Credit, the name and address of the beneficiary thereof, whether the Letter of Credit shall be in a Foreign Currency and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. In addition to the satisfaction of the conditions in Section 4.2 hereof, the issuance of ----------- such Letter of Credit (or any amendment which increases the amount of such Letter of Credit) will be subject to the further conditions that such Letter of Credit shall be in such form and contain such terms as the Lender shall reasonably approve and that the Borrower shall have executed and delivered any additional applications, agreements and instruments relating to such Letter of Credit as the Lender shall reasonably require; provided, that in the event of any conflict between such applications, agreements or instruments and this Agreement, the terms of this Agreement shall control. (c) The Lender shall examine all documents purporting to represent a demand for payment under a Letter of Credit promptly following its receipt thereof. The Lender shall notify the Borrower of such demand for payment; provided, that any failure to give or delay in giving such notice shall -------- not relieve the Borrower of its obligation to reimburse the Lender with respect to such disbursement. The disbursement by Lender for the account of a beneficiary of a Letter of Credit shall be deemed an Advance under the Revolving Credit loan facility and the Revolving Credit Note under Section 1.1 hereof. ----------- (d) If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Lender demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Lender, in the name of the Lender and for the benefit of the Lender, an amount in cash equal to the face amount of all Letters of Credit. Such deposit shall be held by the Lender as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Lender shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Lender. Interest and profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Lender to reimburse itself for disbursements for which it had not been reimbursed and to the extent so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower or, if the maturity has been accelerated, be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not so applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. (e) The Borrower's obligation to reimburse disbursements made under Letters of Credit issued hereunder shall be absolute and unconditional and shall be performed in accordance with the terms of this Agreement irrespective of any of the following circumstances: (i) Any lack of validity or enforceability of any Letter of Credit; (ii) The existence of any claim, set-off, defense or other right which the Borrower or affiliate of the Borrower may have at any time against a beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom any such beneficiary or transferee may be acting), the Lender or any other person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction; (iii) Any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect; (iv) Payment by the Lender under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, if such noncompliance is not material; (v) Any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder; or (vi) The existence of a Default or an Event of Default. Neither the Lender nor any affiliate of the Lender shall have any liability by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to above), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Lender; provided, -------- that the foregoing shall not be construed to excuse the Lender from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Lender's failure to exercise care when determining whether drafts or other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree, that in the absence of gross negligence or willful misconduct on the part of the Lender (as finally determined by a court of competent jurisdiction), the Lender shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented that appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Lender may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (f) Each Letter of Credit shall be subject to the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time, and, to the extent not inconsistent therewith, the governing law of this Agreement. 2.2 Letter of Credit Fee. The Borrower agrees to pay to Lender a letter of -------------------- credit fee which shall accrue at 50 basis points on the average daily Dollar Equivalent amount of the face amount of all undrawn letters of credit outstanding, calculated from the period of the issuance of the Letter of Credit to but excluding the date upon which such Letter of Credit expires or is drawn upon (including without limitation, any Letters of Credit remaining outstanding after the Maturity Date), as well as the Lender's standard fees with respect to issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Accrued letter of credit fees shall be payable quarterly in arrears on the last day of each March, June, September and December commencing September 30, 2001 and on the Maturity Date, provided further, that any letter of credit fee ---------------- accruing after the Maturity Date shall be payable on the last day of each March, June, September and December. ARTICLE 3. REPRESENTATIONS AND WARRANTIES ------------------------------ To induce Lender to enter this Agreement and extend credit under this Agreement, Borrower covenants, represents, and warrants to Lender that as of the date hereof and as of the Closing Date: 3.1 Existence; Power. Borrower and each of its Subsidiaries (i) is duly ---------------- organized, validly existing and in good standing as a corporation (or limited partnership) under the laws of the jurisdiction of its organization, (ii) has all requisite power and authority to carry on its business as now conducted, and (iii) is duly qualified to do business, and is in good standing, in each jurisdiction where such qualification is required, except where a failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect. 3.2 Corporate Power and Authorization. Borrower is duly authorized and --------------------------------- empowered to execute, deliver, and perform under all Loan Documents; Borrower's board of directors has authorized such Borrower to execute and perform under the Loan Documents; and all other corporate action required for the due execution, delivery, and performance of the Loan Documents has been duly and effectively taken. 3.3 Financial Condition. The consolidated Financial Statements of Borrower ------------------- for the period ended December 31, 2000, and the Fiscal Quarter ended June 30, 2001, which have been delivered to Lender, have been prepared in accordance with GAAP, consistently applied, and the Financial Statements present fairly the financial condition of Borrower on a consolidated basis as of the date or dates and for the period or periods stated therein. No Material Adverse Change has occurred since the date of such Financial Statements, and Borrower has no knowledge of any events or circumstances which may give rise to a Material Adverse Change. 3.4 Liabilities and Litigation. Neither Borrower nor any of its -------------------------- Subsidiaries has any liabilities (individually or in the aggregate) direct or contingent, that are likely to have a Material Adverse Effect on the business or Properties of Borrower or its ability to carry on its business as now conducted. There is no material litigation, legal or administrative proceeding, investigation, or other action of any nature pending or, to the knowledge of Borrower, threatened against or affecting Borrower (or any of its Subsidiaries) that involves the reasonable possibility of any judgment or liability not fully covered by insurance and that are likely to cause a Material Adverse Effect on the business or the Properties of Borrower (or its applicable Subsidiary) or their ability to carry on their business as now conducted. 3.5 Taxes; Governmental Charges. Borrower and its Subsidiaries have filed --------------------------- or caused to be filed all tax returns and reports required to be filed. Borrower and its Subsidiaries have paid all due and payable taxes, assessments, fees, and other governmental charges levied upon it, except for any taxes and assessments (a) the amount of which would not individually or in the aggregate cause a Material Adverse Effect or (b) the amount, applicability or validity or which is currently being contested in good faith by appropriate proceedings and with respect to which the Borrower and/or its Subsidiaries, has established adequate reserves therefore in accordance with GAAP. Borrower and its Subsidiaries have made all required withholding deposits. 3.6 ERISA. Borrower is in compliance in all material respects with the ----- applicable provisions of ERISA. Borrower has not incurred any material "accumulated funding deficiency" within the meaning of ERISA, and has not - -------------------------------- incurred any material liability to PBGC in connection with any Plan. 3.7 No Material Misstatements. No information, exhibit, or report ------------------------- furnished or to be furnished by Borrower to Lender in connection with this Agreement, contains as of the date thereof, or will contain as of the Closing Date, any material misstatement of fact or failed or will fail to state any material fact, the omission of which would render the statements therein materially false or misleading. ARTICLE 4. CONDITIONS PRECEDENT -------------------- 4.1 Initial Conditions. Lender's obligation to extend credit hereunder is ------------------ subject to the Conditions Precedent that Lender shall have received (or agreed in writing to waive or defer receipt of) each of the following, as of the Closing Date, in form and substance satisfactory to Lender: (a) Note and Loan Documents. The Note, payable to the order of ----------------------- Lender and all other Loan Documents, all duly executed by the Borrower and all other applicable Loan Parties. (b) Resolutions. Certified copies of resolutions of the Board of ----------- Directors of Borrower authorizing or ratifying the execution, delivery, and performance, respectively, of this Agreement and all applicable Loan Documents. (c) Certificates of Existence. Certificates of existence or good ------------------------- standing for Borrower. (d) Organizational Documents. A copy of Borrower's organizational ------------------------ documents (including all amendments thereto) certified by the secretary or any assistant secretary of Borrower, or, where available, by the Secretary of State of the jurisdiction in which Borrower was formed, as being true, complete and current copies thereof. (e) Closing Fee. Borrower's payment of a nonrefundable closing fee ----------- to Lender in the amount of Twenty-Five Thousand ($25,000) Dollars. (f) Cancellation of Facility. Evidence of cancellation of a ------------------------ $100,000,000 revolving credit loan facility by and between Borrower and Bank of America, N.A. (g) Guaranty. Subsidiary Guaranty agreements executed by First -------- Chemical Corporation, EKC Technology, Inc., First Chemical Texas, L.P., and ChemFirst Electronic Materials, Inc., respectively. (h) Other. Such other documents as Lender may reasonably request. ----- 4.2 Each Advance. The obligation of Lender to make any Advance is subject ------------ to the satisfaction of the following conditions: (a) at the time of and immediately after giving effect to such Advance, no Default or Event of Default shall exist and the aggregate principal amount of all Advances does not exceed the Maximum Revolver Amount; and (b) all representations and warranties of Borrower set forth in the Loan Documents shall be true and correct in all material respects on and as of the date of such Advance before and after giving effect thereto; (c) since the date of the most recent financial statements of Borrower described in Section 5.1(a), there shall have been no change -------------- which has had or could reasonably be expected to have a Material Adverse Effect; and (d) Lender shall have received such other documents, certificates, information or legal opinions as it may reasonably request, all in form and substance reasonably satisfactory to the Lender. The making of each Advance shall be deemed to constitute a representation and warranty by Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this Section 4.2. ----------- ARTICLE 5. AFFIRMATIVE COVENANTS --------------------- Borrower covenants that, during the term of this Agreement (including any extensions hereof) and until all Indebtedness shall have been finally paid in full, unless Lender shall otherwise first consent in writing, Borrower shall: 5.1 Financial Statements and Reports. Promptly furnish to Lender: -------------------------------- (a) Annual Reports. As soon as available, and in any event within -------------- ninety (90) days after the close of each Fiscal Year, the audited consolidated Financial Statements of Borrower and its Subsidiaries prepared by a firm of independent certified public accountants acceptable to Lender setting forth the audited consolidated balance sheets of Borrower and its Subsidiaries as at the end of such year, and the audited consolidated statements of income, statements of cash flows, and statements of retained earnings of Borrower and its Subsidiaries for such year, setting forth in each case in comparative form (beginning when comparative data are available) the corresponding figures for the preceding Fiscal Year, accompanied by the report of Borrower's certified public accountants, and by an unaudited consolidating balance sheet and unaudited consolidating statements of income, statements of cash flows, and statements of retained earnings of Borrower and its Subsidiaries duly certified by Borrower's chief financial officer as being correct reflections of the information used for the audited consolidated Financial Statements; (b) Quarterly and Year-to-Date Reports. As soon as available and in ---------------------------------- any event within forty-five (45) days after the end of each Fiscal Quarter, the consolidated balance sheets of Borrower and its Subsidiaries as of the end of such Fiscal Quarter, and the consolidated and consolidating statements of income of Borrower and its Subsidiaries for such Fiscal Quarter and for a period from the beginning of the Fiscal Year to the close of such Fiscal Quarter, all certified by the chief financial officer or chief accounting officer of Borrower as being true and correct to the best of his or her knowledge; All such balance sheets and other Financial Statements referred to in Sections -------- 5.1(a) and (b) hereof shall conform to GAAP on a basis consistent with those of - ------ --- previous Financial Statements. 5.2 Further Assurances. Promptly cure any defects in the creation, ------------------ issuance, and delivery of the Loan Documents. Borrower at its expense promptly will execute and deliver to Lender upon request all such other and further reasonable and necessary documents, agreements, and instruments in compliance with or accomplishment of the covenants and agreements of Borrower in the Loan Documents. 5.3 Quarterly Certificates of Compliance. Concurrently with the ------------------------------------ furnishing of the quarterly Financial Statements pursuant to Section ------- 5.1(b) hereof, furnish or cause to be furnished to Lender a certificate of ------ compliance prepared by Borrower's chief accounting officer evidencing Borrower's compliance with the financial covenants in Section 6.6 hereof. ----------- 5.4 Maintenance. Maintain its corporate existence, name as well as ----------- material rights and franchises; 5.5 Insurance. Maintain and continue to maintain, with financially sound --------- and reputable insurors, reasonable insurance in type, form, coverage and amount against such liabilities, casualties, risks, and contingencies and in such types and amounts as is customary in the case of corporations engaged in the same or similar businesses and similarly situated. Upon request of Lender, Borrower will furnish or cause to be furnished to Lender from time to time a summary of the insurance coverage of Borrower in form and substance satisfactory to Lender and if requested will furnish Lender copies of the applicable policies. 5.6 Right of Inspection; Audits. Permit an officer, employee, or agent --------------------------- designated by Lender to visit and inspect during normal business hours any of the Property of Borrower, to examine Borrower's books of record and accounts, to take copies and extracts from such books of record and accounts. ARTICLE 6. NEGATIVE COVENANTS ------------------ Borrower covenants and agrees that, during the term of this Agreement and until the Indebtedness has been paid and satisfied in full, unless Lender shall otherwise first consent in writing, Borrower will not (and will not permit its Subsidiaries to), either directly or indirectly: 6.1 Debts, Guaranties, and Other Obligations. Incur, create, assume, or in ---------------------------------------- any manner become or be liable with respect to any Debt; provided that subject to all other provisions of this Article, the foregoing prohibitions shall not apply to: (a) The Indebtedness and any other Debt to Lender; (b) existing liabilities, direct or contingent, of Borrower that are referenced or reflected in the Financial Statements delivered to Lender prior to the Closing Date; (c) endorsements of negotiable or similar instruments for collection or deposit in the ordinary course of business; (d) revolving credit facility with AmSouth Bank, N.A. in the principal amount not to exceed $15,000,000; (e) letters of credit issued by Bank of America, N.A. or by Chase Manhattan Bank (or their successors) with an aggregate face amount not to exceed $5,000,000; (f) Debt to a Subsidiary of Borrower which shall not exceed $1,000,000 at any time However notwithstanding the foregoing, Debt to a Subsidiary which is a Guarantor and Debt to TriQuest, L.P. which does not exceed $15,000,000 in the aggregate, shall not be subject to the prohibition of Debt under this Section; and (g) other Funded Debt, which is not included in subsection (a) through (e) of this Section, which in the aggregate does not exceed $10,000,000. 6.2 Liens. Create, incur, assume, or permit to exist any Lien on any of ----- its Property (now owned or hereafter acquired) except, subject to all other provisions of this Article, the foregoing restrictions shall not apply to: (a) Any Liens securing the payment of any Debt to Lender; (b) any Lien existing as of the Closing Date; (c) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or Liens contested in good faith by appropriate proceeding; (d) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; (e) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; (f) Liens securing (i) the non-delinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations; (ii) contingent obligations on surety and appeal bonds; and (iii) other non-delinquent obligations of a like nature; in each case, incurred in the ordinary course of business, provided all such Liens in the aggregate would not (even if enforced) cause a Material Adverse Effect; (g) Liens consisting of judgment or judicial attachment liens, provided that the enforcement of such Liens is effectively stayed and all such liens in the aggregate at any time outstanding for the consolidated Borrower do not exceed $5,000,000; (h) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Borrower; (i) purchase money security interests on any property acquired or held by the Borrower in the ordinary course of business; (j) Liens securing obligations in respect of capital leases on assets subject to such leases; and (k) Normal and customary Liens incurred in the ordinary course of business which do not, in the aggregate, exceed twenty percent (20%) of the Borrower's Consolidated Tangible Net Worth. 6.3 Investments and Loans. The Borrower shall not purchase or acquire, or --------------------- suffer or permit any Subsidiary to purchase or acquire, or make any commitment therefor, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person including any Affiliate of the Borrower, except for: (a) investment in cash equivalents and short term marketable securities; (b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (c) extensions of credit by Borrower to any Subsidiaries which are Subsidiary Guarantors or by any of its Subsidiaries to another of its Subsidiaries; (d) investments incurred in order to consummate acquisitions or increase Borrower's ownership interest in affiliates; (e) repurchase of shares of the Borrower's capital stock as authorized by its board of directors; (f) types of investments existing as of the Closing Date; and (g) loans and investments not otherwise permitted hereunder not to exceed 20% of the Borrower's Consolidated Tangible Net Worth. 6.4 Nature of Business. Suffer or permit any material change to be made in ------------------ the character of its business as carried on at the Closing Date. 6.5 Fundamental Changes. The Borrower will not, and will not permit any ------------------- Subsidiary to, merge into or consolidate into any other Person, or permit any other Person to merge into or consolidate with it, or sell, lease, transfer or otherwise dispose of (in a single transaction or a series of transactions) all or substantially all of its assets or all or substantially all of the stock of any of its Subsidiaries or liquidate or dissolve; provided, that if at the time thereof and immediately after giving effect thereto, no Event of Default shall have occurred and be continuing (i) the Borrower or any Subsidiary may merge with a Person if the Borrower (or such Subsidiary if the Borrower is not a party to such merger) is the surviving Person, (ii) any Subsidiary may merge into another Subsidiary; provided, that if any party to such merger is a Subsidiary Guarantor, the Subsidiary Guarantor shall be the surviving Person, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of all or substantially all of its assets to the Borrower or to a Subsidiary Guarantor. 6.6 Financial Covenants. ------------------- (a) Debt to Capitalization. The Borrower shall not permit the ratio ---------------------- of Consolidated Total Funded Debt to Consolidated Total Capital to exceed .35 to 1.0, determined at the end of each Fiscal Quarter. (b) Fixed Charge Coverage Ratio. The Borrower shall not permit the --------------------------- ratio of Consolidated EBITR to Consolidated Fixed Charges to be less than 3.0 to 1.00, determined at the end of each Fiscal Quarter and calculated on a trailing four quarter basis. (c) Debt to EBITDA. The Borrower shall not permit the ratio of -------------- Consolidated Total Funded Debt to Consolidated EBITDA (calculated on a trailing four quarters basis) to exceed 1.75 to 1.0, determined at the end of each Fiscal Quarter. (d) Net Income. The Borrower's Consolidated Net Income shall be ---------- positive as determined at the end of each Fiscal Quarter, calculated on a trailing four quarters basis. ARTICLE 7. EVENTS OF DEFAULT ----------------- 7.1 Events of Default. Any of the following events shall be considered an ----------------- Event of Default (and shall be considered a Default pending the passage of time, giving of notice or other condition specified below): (a) Principal and Interest Payments. Borrower fails to pay any ------------------------------- installment of principal when due or any installment of interest under the Note within five (5) Business Days after such payment is due or Borrower fails to pay any other amount payable hereunder, under the Note, other Loan Document or with respect to any Indebtedness within fifteen (15) Business Days after written demand by Lender; or (b) Certain Covenants. Borrower shall fail to observe or perform any ----------------- of the covenants or agreements contained in Section 5.4 (concerning Borrower's existence), Section 6.4 (concerning nature of business) or Section 6.5 (concerning mergers and acquisitions); or (c) Representations and Warranties. Any representation, warranty, ------------------------------ statement (including financial statements), certification or data made or furnished by or on behalf of Borrower in connection with this Agreement or any other Loan Document is false or misleading in any material respect as of the date as of which the facts therein set forth were stated or certified; or (d) Obligations. Borrower fails to perform any of the promises or ----------- obligations contained in or required by this Agreement or any other Loan Document (other than the obligations described in subsections (a) and (b) hereof) and such failure is not cured within thirty (30) days after Lender's demand; or (e) Involuntary Bankruptcy or Receivership Proceedings. Any of the -------------------------------------------------- following events or conditions occurs with respect to Borrower: (i) a receiver, custodian, liquidator, or trustee of itself or of any of its respective Property is appointed by the order or decree of any court or agency or supervisory authority having jurisdiction; or (ii) any of its Property is sequestered by court order because of insolvency; or (iii) a petition is filed against it under any state or federal bankruptcy, reorganization, debt arrangement, insolvency, readjustment of debt, dissolution, liquidation or receivership law of any jurisdiction, whether now or hereafter in effect and such petition is not dismissed within ninety (90) days of its filing; or (f) Voluntary Petitions. Borrower files a voluntary bankruptcy ------------------- petition or other petition to seek relief under any provision of any bankruptcy, reorganization, debt arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction or consents to the filing of any such petition against it under any such law; or (g) Assignments for Benefit of Creditors, Etc. Borrower makes an ------------------------------------------ assignment for the benefit of its creditors, or admits in writing its inability to pay its debts generally as they become due, or consents to the appointment of a receiver, trustee, or liquidator of itself or of all or any part of its Property; or (h) Discontinuance of Business, Etc. Borrower (i) discontinues its -------------------------------- usual business for a reason other than force majeure and such discontinuance of business extends for more than sixty (60) days, or (ii) commences to dissolve, wind-up or liquidate itself, or (iii) experiences a Change of Control; or (i) Cross-Default on Other Debt or Security. Subject to any --------------------------------------- applicable grace period or waiver prior to any due date, Borrower fails to make any payment due on any indebtedness, which in the aggregate equals or exceeds $10,000,000; or (j) Undischarged Judgments. Any court or other governmental ---------------------- authority renders judgment against Borrower for the payment of money in excess of $5,000,000, payment of which is not fully covered by valid collectible insurance or for which Borrower has not established adequate reserves in accordance with GAAP; or (k) Guaranty Default. A Subsidiary Guarantor fails to make any ---------------- payment, perform any agreement or observe any covenant in a Subsidiary Guaranty, subject to any cure period or grace period set forth therein. 7.2 Remedies. Upon the occurrence of an Event of Default, Lender may -------- declare the entire principal amount of all Indebtedness then outstanding, including interest accrued thereon, to be immediately due and payable without presentment, demand, protest, notice of protest, or dishonor or other notice of default of any kind, all of which Borrower hereby expressly waives, and, at Lender's sole discretion and option, all obligations of Lender under this Agreement shall immediately cease and terminate unless and until Lender shall reinstate such obligations in writing. Such acceleration and cessation of Lender's obligations shall occur automatically, without any declaration by Lender or any notice, upon the occurrence of an Event of Default under Section 7.1(e), (f) or (g). Upon the occurrence of any Event of Default, Lender may exercise all rights afforded a creditor under applicable law, and/or bring an action to protect or enforce its rights under the Loan Documents or seek to collect the Indebtedness by any lawful means. ARTICLE 8. INDEMNIFICATIONS ---------------- 8.1 Indemnity. In consideration of the execution and delivery of this --------- Agreement by Lender and the extension of the Loan, Borrower hereby indemnifies, exonerates and holds Lender and each of its affiliates, officers, directors, shareholders, employees, agents and assigns (the "indemnified parties") free and harmless from and ------------------- against any and all actions, causes of action, suits, losses, costs, liabilities and damages and expenses (irrespective of whether any such indemnified party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements incurred by the indemnified parties or any of them resulting from (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the Loan; or (b) the entering into and performance of this Agreement and any other Loan Document by any of the indemnified parties, regardless of whether caused by, or within the control of, Borrower, except to the extent arising out of an indemnified party's gross negligence or willful misconduct, or (c) Borrower's material breach of any provision of any Loan Document (collectively, the "Indemnified ----------- Liabilities"). If and to the extent that the foregoing undertaking may be - ----------- unenforceable for any reason, Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law. The indemnification set forth in this Section shall survive termination of this Agreement. ARTICLE 9. GENERAL PROVISIONS ------------------ 9.1 Notices. All notices, requests, demands, directions and other ------- communications (collectively "notices") required under this Agreement shall be ------- in writing (including communication by facsimile transmission) and shall be sent by hand, by registered or certified mail return receipt requested, by overnight courier service maintaining records of receipt, or by facsimile transmission with confirmation in writing mailed first-class, in all cases with charges prepaid. Any such properly given notice shall be effective upon the earlier of receipt or (a) the date delivered by hand, or (b) the third Business Day after being mailed, or (c) the following Business Day if sent by overnight courier service, or (d) upon sender's receipt of transmission confirmation, if sent by facsimile. All notices shall be sent to the following addresses: ChemFirst Inc. 700 North Street Jackson, MS 39215 (601) 960-6810 (facsimile) Attn: Max P. Bowman, Vice President and Chief Financial Officer SunTrust Bank 6410 Poplar Avenue, Suite 320 Memphis, TN 38119 (901) 766-7565 (facsimile) Attention: Bryan Ford, Vice President 9.2 Successors and Assigns. Borrower shall not assign its rights or ---------------------- delegate its duties under this Agreement or any other Loan Document without the written consent of Lender, such consent not to be unreasonably withheld. All covenants and agreements made by or on behalf of Borrower shall bind its permitted successors and assigns and shall inure to the benefit of Lender and its successors and assigns. 9.3 Amendments. This Agreement may not be modified or amended except in ---------- writing signed by Borrower and Lender. 9.4 Governing Law. This Agreement, the Note, and the other Loan Documents ------------- constitute a contract made under, and shall be construed in accordance with and governed by, the laws of the State of Tennessee (without regard to its rules on conflicts of laws). 9.5 Costs, Expenses, and Taxes. Borrower agrees to pay on demand all -------------------------- reasonable and necessary out-of-pocket costs and expenses of Lender (including the reasonable fees and out-of-pocket expenses of Lender's attorneys) incurred by Lender in connection with the enforcement of this Agreement or the other Loan Documents. 9.6 Counterparts. This Agreement may be executed in any number of ------------ counterparts or counterpart signature pages (by facsimile transmission or otherwise), each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. 9.7 Jurisdiction; Venue; Service of Process. BORROWER AND LENDER HEREBY --------------------------------------- IRREVOCABLY CONSENT TO THE JURISDICTION OF THE FEDERAL COURTS SITTING IN FULTON COUNTY, GEORGIA, FOR ANY SUIT BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS AGREEMENT. 9.8 Jury Waiver. BORROWER AND LENDER HEREBY KNOWINGLY, WILLINGLY AND ----------- IRREVOCABLY WAIVES ITS RIGHTS TO DEMAND A JURY TRIAL IN ANY ACTION OR PROCEEDING INVOLVING THIS AGREEMENT. 9.9 Waiver of Damages. In any action to enforce this Agreement, Borrower ----------------- and Lender hereby irrevocably and unconditionally waive any and all rights under the laws of any state to claim or recover any special, exemplary, punitive, consequential or other damages other than actual direct damages. ARTICLE 10. DEFINITIONS AND USAGE --------------------- 10.1 Defined Terms. In addition to other words and terms defined in the ------------- preamble hereof or elsewhere in this Agreement, the following terms shall have the following meanings herein, unless the context expressly requires otherwise: "Advance" means any extension of credit made pursuant to this Agreement, ------- including the issuance of a Letter of Credit. "Applicable Rate" means: (i) with respect to a U.S. Dollar Advance the --------------- LIBOR Rate for the applicable Interest Period, plus 50 basis points; and (ii) with respect to the Foreign Currency Advance the applicable LIBOR Rate for the applicable Interest Period plus 50 basis points. "Base Rate" means the higher of (i) the per annum rate which the Lender --------- publicly announces from time to time to be its prime lending rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%). The Lender's prime lending rate is a reference rate and does not necessarily represent the lowest or best rate charged to customers. The Lender may make commercial loans or other loans at rates of interest at, above or below the Lender's prime lending rate. Each change in the Lender's prime lending rate shall be effective from and including the date such change is publicly announced as being effective. "Business Day" means (i) any day other than a Saturday, Sunday or other ------------ day on which commercial banks in Atlanta, Georgia and Nashville, Tennessee are authorized or required by law to close and (ii) if such day relates to a borrowing of, a payment or prepayment of principal or interest on, a conversion of or into, or an Interest Period for, a U.S. Dollar Advance or a Foreign Currency Advance, or a notice with respect to any of the foregoing, any day on which dealings in Dollars (in the case of a U.S. Dollar Advance) or such Foreign Currency (in case of a Foreign Currency Advance in such Foreign Currency) are carried on in the London interbank market. "Change in Control" shall mean the occurrence of one or more of the ----------------- following events: (a) any sale, lease, exchange or other transfer (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Borrower to any Person or "group" (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder in effect on the date hereof), (b) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or "group" (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder in effect on the date hereof) of 30% or more of the outstanding shares of the voting stock of the Borrower; or (c) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the current board of directors or (ii) appointed by directors so nominated. "Change in Law" shall mean (i) the adoption of any applicable law, rule or ------------- regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any governmental authority after the date of this Agreement, or (iii) compliance by the Lender (or for purposes of Section 1.9, by the Lender's ----------- holding company, if applicable) with any request, guideline or directive (whether or not having the force of law) of any governmental authority made or issued after the date of this Agreement. "Closing" means the time and place of the execution and/or delivery of ------- the Loan Documents. "Closing Date" means September 12, 2001. ------------ "Consolidated EBITDA" shall mean, for the Borrower and its Subsidiaries ------------------- for any period, an amount equal to the sum of (a) Consolidated Net Income for such period plus (b) to the extent deducted in determining Consolidated Net Income for such period, (i) Consolidated Interest Expense, (ii) income tax expense determined on a consolidated basis in accordance with GAAP, and (iii) depreciation and amortization determined on a consolidated basis in accordance with GAAP. "Consolidated EBITR" shall mean, for the Borrower and its Subsidiaries for ------------------ any period, an amount equal to the sum of (a) Consolidated Net Income for such period, plus (b) to the extent deducted in determining Consolidated Net Income ---- for such period, (i) Consolidated Interest Expense, (ii) income tax expense, determined on a consolidated basis in accordance with GAAP in each case for such period, and (iii) rent expense on a consolidated basis for such period. "Consolidated Fixed Charges" shall mean, for the Borrower and its -------------------------- Subsidiaries for any period, the sum (without duplication) of (a) Consolidated Interest Expense for such period, (b) scheduled principal payments made on Consolidated Total Funded Debt during such period and (c) dividend payments during any such period. "Consolidated Interest Expense" shall mean, for the Borrower and its ----------------------------- Subsidiaries for any period determined on a consolidated basis in accordance with GAAP, the sum of (i) total cash interest expense, including without limitation the interest component of any payments in respect of capital lease obligations capitalized or expensed during such period (whether or not actually paid during such period) plus (ii) the net amount payable (or minus the net amount receivable) under Hedging Agreements during such period (whether or not actually paid or received during such period). "Consolidated Net Income" shall mean, for any period, the net income (or ----------------------- loss) of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, but excluding therefrom (to the extent otherwise included therein) (i) any extraordinary gains, (ii) any gains attributable to write-ups of assets and (iii) any equity interest of the Borrower or any Subsidiary of the Borrower in the unremitted earnings of any Person that is not a Subsidiary, (iv) any income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Borrower or any Subsidiary on the date that such Person's assets are acquired by the Borrower or any Subsidiary; and (v) for the Fiscal Quarter ended June 30, 2001 a $17,692,000 after-tax loss arising from the sale of assets of the ChemFirst Fine Chemicals business. "Consolidated Net Worth" shall mean, as of any date, the total assets of ---------------------- the Borrower and its Subsidiaries that would be reflected on the Borrower's consolidated balance sheet as of such date prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries, minus the total liabilities of ----- the Borrower and its Subsidiaries that would be reflected on the Borrower's consolidated balance sheet as of such date prepared in accordance with GAAP. "Consolidated Tangible Net Worth" shall mean the Consolidated Net Worth, ------------------------------- excluding any items that would be classified as an intangible asset or goodwill according to GAAP. "Consolidated Total Capital" shall mean, as of any date of determination -------------------------- with respect to the Borrower, the sum of (i) Consolidated Total Funded Debt and (ii) Consolidated Net Worth. "Consolidated Total Funded Debt" or "Funded Debt" shall mean, as of any ------------------------------ ----------- date of determination, without duplication, (a) all indebtedness for borrowed money; (b) all non-contingent reimbursement or payment obligations with respect to letters of credit or surety obligations; (c) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (d) all capital lease obligations; and (e) all guaranty obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (d) above. "Consolidated Total Debt" shall mean, as of any date of determination, all ----------------------- Debt of the Borrower and its Subsidiaries that would be reflected on a consolidated balance sheet of the Borrower prepared in accordance with GAAP as of such date. "Debt" means all of a Person's obligations, contingent or otherwise, that ---- would be classified on its balance sheet as its liabilities in accordance with GAAP. "Default" means the occurrence of any of the events specified in Section ------- ======= 7.1 hereof, even though any requirement for notice or lapse of time or other === condition precedent has not been satisfied. "Default Rate" means the higher or greater of: (a) the "applicable formula ------------ rate" (as defined in Tennessee Code Annotated ss. 47-14-102(2)), or (b) such other lawful rate of interest permitted to be charged by other applicable laws or regulations, as amended or enacted from time to time. "Dollar Equivalent" means, on any date of determination, (i) with respect ----------------- to any amount in U.S. Dollars, such amount and (ii) with respect to any amount in any Foreign Currency, the equivalent in U.S. Dollars of such amount, determined by Lender and calculated on the basis of the spot selling rate at which Lender offers to sell such Foreign Currency in the interbank foreign exchange market in New York at approximately 10:00 a.m. (Atlanta, Georgia time) for delivery two (2) Business Days after such date of determination. "Event of Default" means the occurrence of any of the events specified in ---------------- Section 7.1 hereof, if any requirement in Section 7.1 for notice or lapse of =========== =========== time or other condition precedent has been satisfied. "Excluded Taxes" shall mean with respect to the Lender or any other -------------- recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of the Lender, in which its applicable lending office is located and (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located. "Executive Officer" means any one of the following: the Chief Executive ----------------- Officer and Chairman of the Board of Directors, President and Chief Operating Officer, Vice President Finance and Treasurer or Corporate Secretary of Borrower. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded ------------------ upwards, if necessary, to the next 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average rounded upwards, if necessary, to the next 1/100th of 1% of the quotations for such day on such transactions received by the Lender from three Federal funds brokers of recognized standing selected by the Lender. "Financial Statements" means (a) the financial statement or statements of -------------------- Borrower described or referenced in Section 3.6 hereof and delivered with this =========== Agreement to Lender, and (b) subsequent financial statements required to be provided pursuant to this Agreement. "Fiscal Quarter" means each of the quarters of the Fiscal Year, ending on -------------- March 31, June 30, September 30 and December 31. "Fiscal Year" means any twelve-month accounting period ending December 31. ----------- "Foreign Currency" means Japanese Yen, Euro and British Pounds Sterling ---------------- (if available to Lender) and any other currency mutually agreed to in writing by Borrower and Lender from time to time. "Foreign Currency Rate" means the offered rate for deposits in the Foreign --------------------- Currency for the applicable Interest Period as quoted on the Telerate System subscribed to be Lender, two (2) Business Days prior to the Interest Period. "GAAP" means generally accepted accounting principles as in effect from ---- time to time. "Hedging Agreement" shall mean the obligations of any person pursuant to ----------------- any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a floating or fixed rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a floating or fixed rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Indebtedness" means any and all amounts and liabilities of any nature ------------ owing or to be owing by Borrower to Lender from time to time, whether now existing or hereafter incurred, in connection with this Agreement, the Note and/or the Loan Documents. "Indemnified Taxes" shall mean Taxes other than Excluded Taxes. ----------------- "Interest Period" means initially, the period commencing on the borrowing, --------------- conversion or renewal thereof, as the case may be, with respect to an Advance and ending one month or three months thereafter, as selected by the Borrower in its notice of borrowing or notice of renewal, as the case may be, given with respect thereto; provided that all of the foregoing provisions relating to -------- Interest Periods are subject to the following: (1) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day; (2) any Interest Period that would otherwise extend beyond the Maturity Date shall end on the Maturity Date; and (3) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "Lender's Office" means the principal office of Lender located at the --------------- address set forth at the beginning of this Agreement. "Letters of Credit" shall mean any letter(s) of credit issued by the ----------------- Lender pursuant to Article 2 hereof. --------- "LIBOR" means, with respect to any U.S. Dollar Advance and Foreign ----- Currency Advance for the related Interest Period: (a) the rate per annum quoted at or about 11:00 a.m. (London time) such Interest Period on that page of the Telerate Screen, Reuters or Bloombergs which displays British Bankers Association Interest Settlement Rates for deposits in U.S. Dollars or the Foreign Currency for such Interest Period or, if such page or service shall cease to be available, such other page or such other service (as the case may be) for the purpose of displaying British Bankers Association Interest Settlement Rates for U.S. Dollars or the Foreign Currency as the Lender, in its discretion, shall select. (b) If such rate for either U.S. Dollar (in the case of U.S. Dollar Advances) or the Foreign Currency (in the case of Foreign Currency Advances) and the relevant Interest Period is not available to Lender for any reason, the "LIBOR" will be the rate at which deposits in such currency equal to the Dollar Equivalent of $500,000 are offered by the Lender for such Interest Period to prime banks in the London interbank market at or about 10:00 a.m. (Atlanta, Georgia time) two (2) Business Days prior to the beginning of such Interest Period. "Lien" means any interest in Property securing an obligation owed to, or a ---- claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute, or contract, and including, without limitation, the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale, sale of accounts or intangibles, trust receipt or a lease, consignment, or bailment for security purposes. "Loan" means the loan facility described in Section 1.1 hereof. ---- =========== "Loan Documents" means, collectively, all of the agreements, documents, -------------- papers and certificates executed, furnished or delivered in connection with this Agreement (whether before, at, or after the Closing Date) or at any time evidencing or securing any of the Indebtedness, including, without limitation, this Agreement, the Note, the Guaranty, any assumption of the Note by Borrower and all other documents, certificates, reports, and instruments that this Agreement requires or that were executed or delivered (or both) at Lender's request. "Material Adverse Effect" or "Material Adverse Change" means, as ----------------------- ----------------------- applicable, a material adverse effect on, or material adverse change in, (a) the business, operations or financial condition of Borrower, (b) the ability of Borrower to perform its obligations under this Loan Agreement, the Note, or other Loan Documents, or (c) Lender's ability to enforce the rights and remedies granted under this Agreement or other Loan Documents, in all cases whether attributable to a single circumstance or event or an aggregation of circumstances or events. "Maturity Date" means September 11, 2002. ------------- "Maximum Revolver Amount" means the Dollar Equivalent of Thirty-Five ----------------------- Million and 00/100 Dollars ($35,000,000.00). "Maximum Revolver Availability" means the amount, if any, by which the ----------------------------- Maximum Revolver Amount exceeds the Dollar Equivalent of all outstanding Advances and the Dollar Equivalent of the face amount of all outstanding Letters of Credit. "Note" means, the First Amended and Restated Revolving Credit Note, dated ---- as of the date hereof, executed by Borrower and Lender, and any amendments thereto or restatements thereof. "Other Taxes" shall mean any and all present or future stamp or ----------- documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "Person" means any individual, corporation, partnership, joint venture, ------ association, limited liability company, joint stock company, trust, unincorporated organization, government, or any agency or political subdivision thereof, or any other form of entity. "Property" or "Properties" means any interest in any kind of property or -------- ---------- asset, whether real, personal, or mixed, or tangible or intangible. "Statutory Reserve Rate" means, with respect to any currency, a fraction ---------------------- (expressed as a decimal), the numerator of which is one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any emergency, supplemental, special or other marginal reserves) expressed as a decimal established by any governmental authority of the United States or of the jurisdiction of any Foreign Currency or any jurisdiction in which Foreign Currency Advances are made to which banks in such jurisdiction are subject for any category of deposits or liabilities customarily used to fund loans in such currency or by reference to which interest rates applicable to loans in such currency are determined. Such reserve, liquid asset or similar percentages shall include those imposed pursuant to Regulation D. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subsidiary" means, at the time as of which any determination is being ---------- made, any corporation, partnership, limited partnership or other entity of which more than fifty percent (50%) of the issued and outstanding voting stock (or partnership interests) is owned or controlled, directly or indirectly, by Borrower and/or by one or more of Borrower's Subsidiaries. "Subsidiary Guarantor" means individually and collectively, the -------------------- Subsidiaries of Borrower executing a Subsidiary Guaranty from time to time. "Subsidiary Guaranty" means (individually and collectively) the Guaranty ------------------- Agreements executed by a Subsidiary Guarantor substantially in the form of Exhibit A from time to time. "Taxes" shall mean any and all present or future taxes, levies, imposts, ----- duties, deductions, charges or withholdings imposed by any governmental authority. "U.S. Dollar Advance" means an Advance requested by Borrower in U.S. ------------------- Dollars. 10.2 Computations; Accounting Principles. Where the character or amount of ----------------------------------- any asset or liability or item of income or expense is required to be determined, or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, such determination or calculation, to the extent applicable and except as otherwise specified in this Agreement, shall be made in accordance with GAAP applied on a consolidated basis consistent with those in effect at the Closing Date. 10.3 Exhibits and Schedules. All Exhibits and Schedules attached hereto ---------------------- are by reference made a part hereof. 10.4 General Construction; Captions. All definitions and other terms used ------------------------------ in this Agreement are equally applicable to the singular and plural forms thereof, and all references to any gender include all other genders. The words "hereof", "herein" and "hereunder" and words of similar import in this Agreement ------ ------ --------- refer to this Agreement as a whole and not to any particular provision of this Agreement, and references to Sections, subsections, schedules and exhibits are to this Agreement unless otherwise specified. The words "includes" and -------- "including" and words of similar import are inclusive and not exclusive terms, --------- and are not intended to create any limitation. The captions in this Agreement are for convenience only, and in no way limit or amplify the provisions hereof. 10.5 UCC Terms. Terms used in this Agreement that are defined in the UCC --------- shall have the same meanings herein, except as otherwise expressly provided or amplified (but not limited) herein. 10.6 References to Documents and Laws. All defined terms and references in -------------------------------- this Agreement with respect to any agreements, notes, instruments, certificates or other documents shall be deemed to refer to such documents and to any amendments, modifications, renewals, extensions, replacements, restatements, substitutions and supplements of and to such documents. Unless otherwise provided, all references to statutes and related regulations shall include any amendments thereof and any successor statutes and regulations. 10.7 Entire Agreement. This Agreement and the Loan Documents state the ---------------- entire Agreement between the parties and supercedes all other agreements including the Original Loan and all prior Loan Documents as defined therein. This Agreement may only be supplemented, altered, amended, modified, or revoked in writing by signed agreement of all the parties hereto. ENTERED INTO as of the date first written above. BORROWER: -------- CHEMFIRST INC. By: /s/ Max P. Bowman Title: Vice-President LENDER: ------ SUNTRUST BANK By: /s/ Bryan W. Ford Title: Vice President FIRST AMENDED AND RESTATED REVOLVING CREDIT NOTE ------------------------------------------------ Memphis, Tennessee $35,000,000.00 Originally Dated October 24, 2000 Amended and Restated September 12, 2001 WHEREAS, CHEMFIRST INC. (the "Borrower") executed that certain revolving -------- credit promissory note in the original principal amount of up to $35,000,000 dated October 24, 2000 payable to the order of SUNTRUST BANK ("Lender") (the ------ "Original Note"); ------------- WHEREAS, Borrower and Lender agree to modify the Original Note upon the terms contained herein; and NOW, THEREFORE, the parties hereto amend and restate the Original Note in its entirety as follows: FOR VALUE RECEIVED, CHEMFIRST INC., a Mississippi corporation (the "Borrower") promises and agrees to pay to the order of SUNTRUST BANK ("Lender") at the offices of SunTrust Bank in Nashville, Tennessee, or at such other place as may be designated in writing by the holder: (i) the principal amount of U.S. Dollar Advances (Advanced under the terms of the Loan Agreement, as defined below) in United States Dollars, together with interest on the principal balance of U.S. Dollar Advances outstanding from time to time hereon, from the date of such Advance through the Maturity Date and; (ii) the principal amount of Foreign Currency Advances (Advanced under the terms of the Loan Agreement) in the Foreign Currency so Advanced, together with interest on the principal balance of Foreign Currency Advances outstanding from time to time, hereon, from the date of such Advance through the Maturity Date. This Note is issued pursuant to, and is the Note referred to in, that certain First Amended and Restated Loan Agreement of even date herewith between Borrower and the Lender (such agreement, as it may be amended, modified, extended and/or renewed from time to time, including without limitation all restatements thereof, being referred to herein as the "Loan Agreement"). Any term not otherwise defined in this Note shall have the same meaning as set forth in the Loan Agreement. Reference is made to the Loan Agreement, which, among other things, provides for the acceleration of the maturity hereof upon the occurrence of certain events in certain circumstances and upon certain terms and conditions. Interest shall accrue on all amounts outstanding under this Note at the Applicable Rates elected by Borrower in accordance with the Loan Agreement. All payments of interest on any U.S. Dollar Advances shall be payable in United States Dollars and interest on any Foreign Currency Advance shall be payable in such Foreign Currency. Borrower promises to pay interest on the outstanding principal amount of each Advance hereunder, at such interest rates, payable at such times, and computed in such manner, in accordance with the terms of the Loan Agreement and the terms hereof. Interest on all Advances shall be paid at the end of the applicable Interest Period. As long as no Event of Default has occurred, Borrower may borrow, repay, reborrow and repay hereunder until the Maturity Date; provided, however, that at no time shall the principal amount outstanding hereunder exceed the applicable Maximum Revolver Amount under the Loan Agreement. If any such excess occurs, Borrower shall immediately pay to the Lender all principal outstanding hereunder in excess of the applicable Maximum Revolver Amount plus all accrued interest thereon. The terms and conditions of any prepayment of this Note shall be governed by the Loan Agreement. The terms and conditions in connection with requesting an Advance by Borrower and for making any Advances by Lender hereunder shall be governed by the applicable provisions of the Loan Agreement. This Note shall mature on September 11, 2002 (the "Maturity Date"), at which time all outstanding principal, accrued interest, and all unpaid fees or charges hereunder (if any) will be immediately due and payable. In the event that there occurs any Event of Default under the Loan Agreement, then, in such event, at the option of the Lender or automatically in the case of Events of Default under Sections 7.01(d), (e) and (f) of the Loan Agreement, the entire indebtedness hereby evidenced shall become due, payable and collectible then or thereafter, without further notice, as the holder may elect regardless of the date of maturity. The Lender may waive any Event of Default before or after the same has been declared and restore this Note to full force and effect without impairing any rights hereunder, such right of waiver being a continuing one. Following the occurrence of an Event of Default, principal and unpaid interest bear interest at the Default Rate, until paid. The undersigned will pay under the provisions of the Loan Agreement, the costs and expenses in connection with the collection, enforcement, protection and/or litigation with regard to this Note and/or any of Lender's rights hereunder. The makers, endorsers, guarantors and all parties to this Note and all who may become liable for same, jointly and severally waive presentment for payment, protest, notice of protest, notice of nonpayment of this Note, demand and all legal diligence in enforcing collection, and hereby expressly agree that the lawful owner or holder of this Note may defer or postpone collection of the whole or any part thereof, either principal and/or interest, or may extend or renew the whole or any part thereof, either principal and/or interest, or may accept additional collateral or security for the payment of this Note, or may release the whole or any part of any collateral security and/or liens given to secure the payment of this Note, or may release from liability on account of this Note any one or more of the makers, endorsers, guarantors and/or other parties thereto, all without notice to them or any of them; and such deferment, postponement, renewal, extension, acceptance of additional collateral or security and/or release shall not in any way affect or change the obligation of any such maker, endorser, guarantor or other party to this Note, or of any who may become liable for the payment thereof. This Note has been executed and delivered in, and shall be governed by and construed according to the laws of the State of Tennessee except to the extent pre-empted by applicable laws of the United States of America. This Note amends and restates that certain Revolving Credit Note originally dated as of October 24, 2000, executed by Borrower and payable to Lender (the "Original Note") and does not constitute a novation of the Original ------------- Note. IN WITNESS WHEREOF, the undersigned, authorized officers of Borrower and Lender, execute this First Amended and Restated Revolving Credit Note as of the day and date first set forth above. CHEMFIRST INC. By: /s/ Max P. Bowman Title: Vice-President SUNTRUST BANK By: /s/ Bryan W. Ford Title: Vice President FIRST AMENDMENT TO ------------------ FIRST AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------------- THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED LOAN AGREEMENT (this "Amendment") is executed this the 10th day of October, 2001 (effective September 12, 2001), by and between CHEMFIRST, INC., a Mississippi corporation (the "Borrower") and SUNTRUST BANK (the "Lender"). RECITALS: -------- A. Borrower and Lender previously executed that certain First Amended and Restated Loan Agreement dated as of September 12, 2001 (as amended or restated from time to time, the "Loan Agreement") pursuant to which the Lender extended credit to the Borrower upon the terms and conditions set forth therein. B. The Borrower and Lender are desirous of amending the Loan Agreement as set forth herein. C. Terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. NOW, THEREFORE, for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. The following is added as Section 1.10 of the Loan Agreement: 1.10 Extension of Maturity Date. No earlier than seventy-five (75) -------------------------- days and not later than sixty (60) days prior to the applicable Maturity Date, the Borrower may deliver a written request to Lender requesting an extension of the Maturity Date for an additional period of up to 364 days from the existing Maturity Date. Lender, in its sole and absolute discretion, may extend the Maturity Date as requested by Borrower by delivery of written notice to Borrower. If the extension is approved by Lender, the definition of Maturity Date shall thereafter be the date as requested by Borrower and approved by Lender under this Section. In the event the Lender has not delivered to Borrower its written acceptance of an extended Maturity Date within forty-five (45) days of the current Maturity Date, Borrower's request for an extension under this Section shall be deemed denied. 2. Except as specifically set forth herein, no other amendment or modification is hereby made to the Loan Agreement or any Loan Documents. Borrower and Lender agree that all documents and instruments presently securing or guaranteeing the Note and the Loan Agreement shall not be otherwise amended, modified, terminated or released by the execution hereof. 3. This Amendment may be executed in one or more counterparts, all of which shall, taken together, constitute one original. The parties agree that facsimile signatures shall be deemed to be and treated as original signatures of such parties. IN WITNESS WHEREOF, the undersigned, by and through their duly authorized officers, hereby execute this Amendment as of the day and date first set forth above. CHEMFIRST, INC. By: /s/ Max P. Bowman Title: SUNTRUST BANK By: /s/ Bryan W. Ford Title: Vice President SECOND AMENDMENT TO ------------------- FIRST AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------------- THIS SECOND AMENDMENT TO FIRST AMENDED AND RESTATED LOAN AGREEMENT (this "Amendment") is executed this the 29th day of November, 2001 (effective September 30, 2001), by and between CHEMFIRST, INC., a Mississippi corporation (the "Borrower") and SUNTRUST BANK (the "Lender"). RECITALS: -------- A. Borrower and Lender previously executed that certain First Amended and Restated Loan Agreement dated as of September 12, 2001 and that certain First Amendment to First Amended and Restated Loan Agreement effective September 12, 2001 (as amended or restated from time to time, the "Loan Agreement") pursuant to which the Lender extended credit to the Borrower upon the terms and conditions set forth therein. B. The Borrower and Lender are desirous of further amending the Loan Agreement as set forth herein. C. Terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. NOW, THEREFORE, for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Compliance with Section 6.6(b) of the Loan Agreement concerning "Fixed Charge Coverage Ratio" is waived for the Fiscal Quarter ending September 30, 2001. Section 6.6(b) of the Loan Agreement is deleted and the following is substituted in lieu thereof: 6.6 Financial Covenants (b) Fixed Charge Coverage Ratio. The Borrower shall not permit --------------------------- the ratio of Consolidated EBITR to Consolidated Fixed Charges to be less than 2.25 to 1.00 at the end of the Fiscal Quarter ending December 31, 2001, less than 1.75 to 1.00 at the end of the Fiscal Quarter ending March 31, 2002, less than 2.25 to 1.00 at the end of the Fiscal Quarter ending June 30, 2002 and less than 3.00 to 1.00 at the end of each Fiscal Quarter thereafter. This ratio shall be calculated on a trailing four-quarter basis. 2. Concurrently with the execution of this Amendment, Borrower shall pay Lender an amendment fee of $2,500. 3. Except as specifically set forth herein, no other amendment or modification is hereby made to the Loan Agreement or any Loan Documents. Borrower and Lender agree that all documents and instruments presently securing or guaranteeing the Note and the Loan Agreement shall not be otherwise amended, modified, terminated or released by the execution hereof. 4. This Amendment may be executed in one or more counterparts, all of which shall, taken together, constitute one original. The parties agree that facsimile signatures shall be deemed to be and treated as original signatures of such parties. IN WITNESS WHEREOF, the undersigned, by and through their duly authorized officers, hereby execute this Amendment as of the day and date first set forth above. CHEMFIRST, INC. By: /s/ Max P. Bowman Title: Vice President & CFO SUNTRUST BANK By: /s/ Bryan W. Ford Title: Vice President EX-10.(P) 8 dex10p.txt LOAN AGREEMENT EXHIBIT 10(p) LOAN AGREEMENT THIS LOAN AGREEMENT is entered into this 24th day of September, 2001 by and between CHEMFIRST INC., a Mississippi corporation (the "Borrower"), and -------- AMSOUTH BANK, an Alabama banking corporation ("Lender"). ------ RECITALS: NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE 1. LOAN FACILITY 1.1 Loan Facility. Subject to the terms and conditions contained in this ------------- Agreement and the other Loan Documents, and in reliance upon the representations, warranties and covenants in this Agreement and the other Loan Documents, Lender agrees to make Advances to Borrower on a revolving credit basis from time to time until the Maturity Date, as evidenced by the Note, on the condition that the aggregate principal amount outstanding of all Advances under the Revolving Credit Note (and the face amount of all outstanding Letters of Credit) shall not at any time exceed the Maximum Revolver Amount. Interest shall accrue on the Revolving Credit Loan at the Applicable Rate, and the terms of payment shall be as set forth herein and in the Note. 1.2 Borrowing Procedures for Revolving Credit Loan. Lender shall make ---------------------------------------------- Advances under the Revolving Credit Note as follows: (a) With respect to an Advance bearing interest with reference to the LIBOR Rate (a "LIBOR Advance"), Borrower shall give Lender at least two (2) Business Days' prior written notice of a proposed borrowing. Any one of the Executive Officers of Borrower are authorized (pursuant to Borrower's board resolutions) to request an Advance on behalf of Borrower. Lender shall make the Advance by depositing the funds being advanced into the account designated by Borrower. In connection with each request for a LIBOR Advance, Borrower's request shall designate the Interest Period and the amount for such Advance. Whenever Borrower desires to renew all or a portion of an outstanding LIBOR Advance after an expiration of an Interest Period it shall give the Lender at least two (2) Business Days' prior written notice of each such Advance to be renewed. Notices shall be in form and substance satisfactory to Lender shall be given prior to 11:00 a.m. (Central time). Each notice shall be irrevocable. Any notice of renewal shall specify the aggregate principal amount of the Advance(s) to be renewed, the date of such renewal and the new Interest Period. If Borrower shall have failed to deliver the notice of renewal, Borrower shall be deemed to have elected to convert such Advance to an Advance accruing interest at the Lender's Prime Rate. (b) With respect to an Advance bearing interest with reference to the Prime Rate, Borrower shall give Lender prior notice (written or oral followed by prompt written confirmation) of a proposed borrowing by 11:00 a.m. Central time on the date of such Advance. Lender shall make the Advance by depositing the funds being advanced into the account designated by Borrower. Each notice shall be irrevocable and shall specify the aggregate principal amount of the Advance(s). (c) With respect to a Bid-Rate Advance, Borrower shall give the Lender prior notice (written or oral followed by prompt written confirmation) of a proposed borrowing by 11:00 a.m. Central time on the date of such Advance. Lender shall make the Advance by depositing the funds being advanced into the account designated by Borrower. In connection with each request for a Bid-Rate Advance, Borrower's request shall designate the Interest Period and the amount of such Advance. Lender shall have the sole and absolute option to agree to the terms of a Bid-Rate Advance or any renewal of an outstanding Bid-Rate Advance. Each notice shall be irrevocable. Any notice of renewal shall specify the aggregate principal amount of the Bid-Rate Advance(s) to be renewed, the date of such renewal and any new Interest Period. If Borrower shall have failed to deliver the notice of renewal, Borrower shall be deemed to have elected to convert such Bid-Rate Advance to an Advance accruing interest at the Lender's Prime Rate. 1.3 Prepayments. ----------- (a) Borrower shall have the right to borrow, repay and reborrow under the Note on a revolving credit basis, however, in the event an Advance (other than an Advance accruing interest at a Prime Rate) is paid prior to the expiration of its applicable Interest Period, the Borrower shall pay Lender a reasonable and customary breakage fee as reasonably determined by Lender to compensate Lender for such prepayment. The determination of such fee (absent manifest error) shall be binding upon Borrower. (b) If at any time the aggregate principal amount of all outstanding Advances exceeds the Maximum Revolver Amount, Borrower shall promptly prepay the Advances (including, without limitation any breakage fee referred to in clause (a) above) in an amount sufficient to eliminate such excess. 1.4 Use of Proceeds. Proceeds of the Note will be used to refinance the --------------- existing indebtedness from Borrower to Lender, for working capital and general corporate purposes of the Borrower or a Subsidiary. Letters of Credit issued hereunder will be used for general corporate purposes. 1.5 [RESERVED]. ---------- 1.6 Inability to Determine Interest Rates. If prior to the commencement of ------------------------------------- any Interest Period for any Advance in any currency, Lender shall have determined reasonably that (i) by reason of circumstances affecting the relevant interbank market, adequate means do not exist for ascertaining LIBOR for such Interest Period, or (ii) the Adjusted LIBOR Rate does not adequately and fairly reflect the cost to Lender of making, funding or maintaining its Advance(s) for such Interest Period, Lender shall given written notice (or telephonic notice, promptly confirmed in writing) to the Borrower as soon as practicable thereafter. Until Lender notifies Borrower that the circumstances giving rise to such notice no longer exist, (i) the obligation of Lender to make an Advance and (ii) all such affected Advances shall be converted into Advances accruing interest at the Prime Rate on the last day of the then current Interest Period applicable thereto unless the Borrower prepays such Advances in accordance with this Agreement. 1.7 Illegality. If any Change in Law shall make it unlawful or impossible ---------- for Lender to make, maintain or fund any Advance, Lender shall promptly give notice thereof to Borrower, whereupon until Lender notifies Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of Lender to make Advances, or to continue outstanding Advances, shall be suspended. In the case of the making of Advances, Advances may be made or converted to Advances bearing interest at the Prime Rate. 1.8 Increased Costs. --------------- (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement that is not otherwise included in the determination of the LIBOR Rate hereunder against assets of, deposits with or for the account of, or credit extended by, Lender (except any such reserve requirement reflected in the Adjusted LIBOR Rate); or (ii) impose on Lender or the eurodollar interbank market any other condition affecting this Agreement or any Advances made by Lender; and the result of the foregoing is to increase the cost to Lender of making, continuing or maintaining an Advance or to reduce the amount received or receivable by Lender hereunder (whether of principal, interest or any other amount), then the Borrower shall promptly pay, upon written notice from and demand by Lender, within five (5) Business Days after the date if such notice and demand, additional amount or amounts sufficient to compensate Lender for such additional costs incurred or reduction suffered. (b) If Lender shall have reasonably determined that on or after the date of this Agreement any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on Lender's capital (or on the capital of Lender's parent corporation) as a consequence of its obligation hereunder to a level below that which Lender or Lender's parent corporation could have achieved but for such Change in Law (taking into consideration the Lender's policies or the policies of Lender's parent corporation with respect to capital adequacy) then, from time to time, within five (5) Business Day after receipt by Borrower of written demand by Lender, Borrower shall pay to Lender such additional amounts as will compensate Lender or Lender's parent corporation for any such reduction suffered. (c) A certificate of Lender setting forth the amount or amounts necessary to compensate Lender or its parent corporation, as the case may be, specified in paragraph (a) or (b) of this Section shall be delivered to Borrower. Borrower shall pay Lender such amount or amounts within 10 days after receipt thereof. 1.9 Facility Fee. The Borrower agrees to pay to the Lender a facility fee, ------------ which shall accrue at fifteen basis points (.15%) on the Maximum Revolver Amount, provided that if Letters of Credit are outstanding after the Maturity Date, the facility fee shall accrue on the daily amount of the outstanding Letters of Credit. Accrued facility fees shall be payable in arrears on the last day of each March, June, September and December of each year and on the Maturity Date, commencing on December 31, 2001; provided further, that any facility fees ---------------- accruing after the Maturity Date shall be payable in arrears on the last Business Day of each March, June, September and December. ARTICLE 2. LETTERS OF CREDIT ----------------- 2.1 Letters of Credit Commitment. ---------------------------- (a) During the term of this Agreement, the Lender agrees to issue, at the request of the Borrower, Letters of Credit for the account of the Borrower on the terms and conditions hereinafter set forth; provided, -------- that (i) each Letter of Credit shall expire on or before the Maturity Date (unless Lender shall agree in writing to an expiration date or an extension date beyond the Maturity Date); (ii) each Letter of Credit shall be in a stated amount of at least $10,000; and (iii) the Borrower may not request any Letter of Credit, if, after giving effect to such issuance, the face amount of all Letters of Credit issued under this Agreement, plus the outstanding Advances as revolving credit loans ---- would exceed the Maximum Revolver Amount. (b) To request the issuance of a Letter of Credit (or any amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall give the Lender irrevocable written notice at least three (3) Business Days prior to the requested date of such issuance specifying the date (which shall be a Business Day) such Letter of Credit is to be issued (or amended, extended or renewed, as the case may be), the expiration date of such Letter of Credit, the amount of such Letter of Credit, the name and address of the beneficiary thereof, and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. In addition to the satisfaction of the conditions in Section 4.2 ----------- hereof, the issuance of such Letter of Credit (or any amendment which increases the amount of such Letter of Credit) will be subject to the further conditions that such Letter of Credit shall be in such form and contain such terms as the Lender shall reasonably approve and that the Borrower shall have executed and delivered any additional applications, agreements and instruments relating to such Letter of Credit as the Lender shall reasonably require; provided, that in the event of any conflict -------- between such applications, agreements or instruments and this Agreement, the terms of this Agreement shall control. (c) The Lender shall examine all documents purporting to represent a demand for payment under a Letter of Credit promptly following its receipt thereof. The Lender shall notify the Borrower of such demand for payment; provided, that any failure to give or delay in giving such notice shall -------- not relieve the Borrower of its obligation to reimburse the Lender with respect to such disbursement. The disbursement by Lender for the account of a beneficiary of a Letter of Credit shall be deemed an Advance under the Revolving Credit loan facility and the Revolving Credit Note under Section 1.1 hereof. ----------- (d) If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Lender demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Lender, in the name of the Lender and for the benefit of the Lender, an amount in cash equal to the face amount of all Letters of Credit. Such deposit shall be held by the Lender as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Lender shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Lender. Interest and profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Lender to reimburse itself for disbursements for which it had not been reimbursed and to the extent so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower or, if the maturity has been accelerated, be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not so applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. (e) The Borrower's obligation to reimburse disbursements made under Letters of Credit issued hereunder shall be absolute and unconditional and shall be performed in accordance with the terms of this Agreement irrespective of any of the following circumstances: (i) Any lack of validity or enforceability of any Letter of Credit; (ii) The existence of any claim, set-off, defense or other right which the Borrower or affiliate of the Borrower may have at any time against a beneficiary or any transferee of any Letter of Credit (or any persons or entities for whom any such beneficiary or transferee may be acting), the Lender or any other person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction; (iii) Any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect; (iv) Payment by the Lender under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, if such noncompliance is not material; (v) Any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder; or (vi) The existence of a Default or an Event of Default. Neither the Lender nor any affiliate of the Lender shall have any liability by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to above), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Lender; provided, -------- that the foregoing shall not be construed to excuse the Lender from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Lender's failure to exercise care when determining whether drafts or other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree, that in the absence of gross negligence or willful misconduct on the part of the Lender (as finally determined by a court of competent jurisdiction), the Lender shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented that appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Lender may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (f) Each Letter of Credit shall be subject to the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time, and, to the extent not inconsistent therewith, the governing law of this Agreement. 2.2 Letter of Credit Fee. The Borrower agrees to pay to Lender a letter of -------------------- credit fee which shall accrue at 50 basis points on the average daily face amount of all undrawn letters of credit outstanding, calculated from the period of the issuance of the Letter of Credit to but excluding the date upon which such Letter of Credit expires or is drawn upon (including without limitation, any Letters of Credit remaining outstanding after the Maturity Date), as well as the Lender's standard fees with respect to issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Accrued letter of credit fees shall be payable quarterly in arrears on the last day of each March, June, September and December commencing December 31, 2001 and on the Maturity Date, provided further, that any letter of credit fee -------- ------- accruing after the Maturity Date shall be payable on the last day of each March, June, September and December. ARTICLE 3. REPRESENTATIONS AND WARRANTIES ------------------------------ To induce Lender to enter this Agreement and extend credit under this Agreement, Borrower covenants, represents, and warrants to Lender that as of the date hereof and as of the Closing Date: 3.1 Existence; Power. Borrower and each of its Subsidiaries (i) is duly ---------------- organized, validly existing and in good standing as a corporation (or limited partnership) under the laws of the jurisdiction of its organization, (ii) has all requisite power and authority to carry on its business as now conducted, and (iii) is duly qualified to do business, and is in good standing, in each jurisdiction where such qualification is required, except where a failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect. 3.2 Corporate Power and Authorization. Borrower is duly authorized and --------------------------------- empowered to execute, deliver, and perform under all Loan Documents; Borrower's board of directors has authorized such Borrower to execute and perform under the Loan Documents; and all other corporate action required for the due execution, delivery, and performance of the Loan Documents has been duly and effectively taken. 3.3 Financial Condition. The consolidated Financial Statements of Borrower ------------------- for the period ended December 31, 2000, and the Fiscal Quarter ended June 30, 2001, which have been delivered to Lender, have been prepared in accordance with GAAP, consistently applied, and the Financial Statements present fairly the financial condition of Borrower on a consolidated basis as of the date or dates and for the period or periods stated therein. No Material Adverse Change has occurred since the date of such Financial Statements, and Borrower has no knowledge of any events or circumstances which may give rise to a Material Adverse Change. 3.4 Liabilities and Litigation. Neither Borrower nor any of its -------------------------- Subsidiaries has any liabilities (individually or in the aggregate) direct or contingent, that are likely to have a Material Adverse Effect on the business or Properties of Borrower or its ability to carry on its business as now conducted. There is no material litigation, legal or administrative proceeding, investigation, or other action of any nature pending or, to the knowledge of Borrower, threatened against or affecting Borrower (or any of its Subsidiaries) that involves the reasonable possibility of any judgment or liability not fully covered by insurance and that are likely to cause a Material Adverse Effect on the business or the Properties of Borrower (or its applicable Subsidiary) or their ability to carry on their business as now conducted. 3.5 Taxes; Governmental Charges. Borrower and its Subsidiaries have filed --------------------------- or caused to be filed all tax returns and reports required to be filed. Borrower and its Subsidiaries have paid all due and payable taxes, assessments, fees, and other governmental charges levied upon it, except for any taxes and assessments (a) the amount of which would not individually or in the aggregate cause a Material Adverse Effect or (b) the amount, applicability or validity or which is currently being contested in good faith by appropriate proceedings and with respect to which the Borrower and/or its Subsidiaries, has established adequate reserves therefore in accordance with GAAP. Borrower and its Subsidiaries have made all required withholding deposits. 3.6 ERISA. Borrower is in compliance in all material respects with the ----- applicable provisions of ERISA. Borrower has not incurred any material "accumulated funding deficiency" within the meaning of ERISA, and has not ------------------------------ incurred any material liability to PBGC in connection with any Plan. 3.7 No Material Misstatements. No information, exhibit, or report ------------------------- furnished or to be furnished by Borrower to Lender in connection with this Agreement, contains as of the date thereof, or will contain as of the Closing Date, any material misstatement of fact or failed or will fail to state any material fact, the omission of which would render the statements therein materially false or misleading. ARTICLE 4. CONDITIONS PRECEDENT -------------------- 4.1 Initial Conditions. Lender's obligation to extend credit hereunder is ------------------ subject to the Conditions Precedent that Lender shall have received (or agreed in writing to waive or defer receipt of) each of the following, as of the Closing Date, in form and substance satisfactory to Lender: (a) Note and Loan Documents. The Note, payable to the order of ----------------------- Lender and all other Loan Documents, all duly executed by the Borrower and all other applicable Loan Parties. (b) Resolutions. Certified copies of resolutions of the Board of ----------- Directors of Borrower and each authorizing or ratifying the execution, delivery, and performance, respectively, of this Agreement and all applicable Loan Documents. (c) Certificates of Existence. Certificates of existence or good ------------------------- standing for Borrower and each Subsidiary Guarantor. (d) Organizational Documents. A copy of Borrower's (and each ------------------------ Subsidiary Guarantor's) organizational documents (including all amendments thereto) certified by the secretary or any assistant secretary of Borrower or the Subsidiary Guarantor, as applicable, or, where available, by the Secretary of State of the jurisdiction in which such entity was formed, as being true, complete and current copies thereof. (e) Closing Fee. Borrower's payment of a nonrefundable closing fee ----------- to Lender in the amount of Seven Thousand Five Hundred ($7,500) Dollars. (f) Cancellation of Facility. Evidence of cancellation of a ------------------------ $100,000,000 revolving credit loan facility by and between Borrower and Bank of America, N.A. (g) Guaranty. Subsidiary Guaranty agreements executed by First -------- Chemical Corporation, EKC Technology, Inc., First Chemical Texas, L.P., and ChemFirst Electronic Materials, Inc., respectively. (h) Other. Such other documents as Lender may reasonably request. ----- 4.2 Each Advance. The obligation of Lender to make any Advance is subject ------------ to the satisfaction of the following conditions: (a) at the time of and immediately after giving effect to such Advance, no Default or Event of Default shall exist and the aggregate principal amount of all Advances does not exceed the Maximum Revolver Amount; and (b) all representations and warranties of Borrower set forth in the Loan Documents shall be true and correct in all material respects on and as of the date of such Advance before and after giving effect thereto; (c) since the date of the most recent financial statements of Borrower described in Section 5.1(a), there shall have been no change -------------- which has had or could reasonably be expected to have a Material Adverse Effect; and (d) Lender shall have received such other documents, certificates, information or legal opinions as it may reasonably request, all in form and substance reasonably satisfactory to the Lender. The making of each Advance shall be deemed to constitute a representation and warranty by Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this Section 4.2. ------------ ARTICLE 5. AFFIRMATIVE COVENANTS --------------------- Borrower covenants that, during the term of this Agreement (including any extensions hereof) and until all Indebtedness shall have been finally paid in full, unless Lender shall otherwise first consent in writing, Borrower shall: 5.1 Financial Statements and Reports. Promptly furnish to Lender: -------------------------------- (a) Annual Reports. As soon as available, and in any event within -------------- ninety (90) days after the close of each Fiscal Year, the audited consolidated Financial Statements of Borrower and its Subsidiaries prepared by a firm of independent certified public accountants acceptable to Lender setting forth the audited consolidated balance sheets of Borrower and its Subsidiaries as at the end of such year, and the audited consolidated statements of income, statements of cash flows, and statements of retained earnings of Borrower and its Subsidiaries for such year, setting forth in each case in comparative form (beginning when comparative data are available) the corresponding figures for the preceding Fiscal Year, accompanied by the report of Borrower's certified public accountants, and by an unaudited consolidating balance sheet and unaudited consolidating statements of income, statements of cash flows, and statements of retained earnings of Borrower and its Subsidiaries duly certified by Borrower's chief financial officer as being correct reflections of the information used for the audited consolidated Financial Statements; (b) Quarterly and Year-to-Date Reports. As soon as available and in ---------------------------------- any event within forty-five (45) days after the end of each Fiscal Quarter, the consolidated balance sheets of Borrower and its Subsidiaries as of the end of such Fiscal Quarter, and the consolidated and consolidating statements of income of Borrower and its Subsidiaries for such Fiscal Quarter and for a period from the beginning of the Fiscal Year to the close of such Fiscal Quarter, all certified by the chief financial officer or chief accounting officer of Borrower as being true and correct to the best of his or her knowledge; All such balance sheets and other Financial Statements referred to in Sections ======== 5.1(a) and (b) hereof shall conform to GAAP on a basis consistent with those of ====== === previous Financial Statements. 5.2 Further Assurances. Promptly cure any defects in the creation, ------------------ issuance, and delivery of the Loan Documents. Borrower at its expense promptly will execute and deliver to Lender upon request all such other and further reasonable and necessary documents, agreements, and instruments in compliance with or accomplishment of the covenants and agreements of Borrower in the Loan Documents. 5.3 Quarterly Certificates of Compliance. Concurrently with the furnishing ------------------------------------ of the quarterly Financial Statements pursuant to Section 5.1(b) hereof, furnish ============== or cause to be furnished to Lender a certificate of compliance prepared by Borrower's chief accounting officer evidencing Borrower's compliance with the financial covenants in Section 6.6 hereof. =========== 5.4 Maintenance. Maintain its corporate existence, name as well as ----------- material rights and franchises; 5.5 Insurance. Maintain and continue to maintain, with financially sound --------- and reputable insurors, reasonable insurance in type, form, coverage and amount against such liabilities, casualties, risks, and contingencies and in such types and amounts as is customary in the case of corporations engaged in the same or similar businesses and similarly situated. Upon request of Lender, Borrower will furnish or cause to be furnished to Lender from time to time a summary of the insurance coverage of Borrower in form and substance satisfactory to Lender and if requested will furnish Lender copies of the applicable policies. 5.6 Right of Inspection; Audits. Permit an officer, employee, or agent --------------------------- designated by Lender to visit and inspect during normal business hours any of the Property of Borrower, to examine Borrower's books of record and accounts, to take copies and extracts from such books of record and accounts. ARTICLE 6. NEGATIVE COVENANTS ------------------ Borrower covenants and agrees that, during the term of this Agreement and until the Indebtedness has been paid and satisfied in full, unless Lender shall otherwise first consent in writing, Borrower will not (and will not permit its Subsidiaries to), either directly or indirectly: 6.1 Debts, Guaranties, and Other Obligations. Incur, create, assume, or in ---------------------------------------- any manner become or be liable with respect to any Debt; provided that subject to all other provisions of this Article, the foregoing prohibitions shall not apply to: (a) The Indebtedness and any other Debt to Lender; (b) existing liabilities, direct or contingent, of Borrower that are referenced or reflected in the Financial Statements delivered to Lender prior to the Closing Date; (c) endorsements of negotiable or similar instruments for collection or deposit in the ordinary course of business; (d) revolving credit facility with SunTrust Bank in the principal amount not to exceed $35,000,000; (e) letters of credit issued by Bank of America, N.A. or by Chase Manhattan Bank (or their successors) with an aggregate face amount not to exceed $5,000,000; (f) Debt to a Subsidiary of Borrower which shall not exceed $1,000,000 at any time. However, notwithstanding the foregoing, Debt to a Subsidiary which is a Guarantor and Debt to TriQuest, L.P. which does not exceed $15,000,000 in the aggregate, shall not be subject to the prohibition of Debt under this Section; and (g) other Funded Debt, which is not included in subsection (a) through (f) of this Section, which in the aggregate does not exceed $10,000,000. 6.2 Liens. Create, incur, assume, or permit to exist any Lien on any of ----- its Property (now owned or hereafter acquired) except, subject to all other provisions of this Article, the foregoing restrictions shall not apply to: (a) Any Liens securing the payment of any Debt to Lender; (b) any Lien existing as of the Closing Date; (c) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or Liens contested in good faith by appropriate proceeding; (d) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; (e) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; (f) Liens securing (i) the non-delinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations; (ii) contingent obligations on surety and appeal bonds; and (iii) other non-delinquent obligations of a like nature; in each case, incurred in the ordinary course of business, provided all such Liens in the aggregate would not (even if enforced) cause a Material Adverse Effect; (g) Liens consisting of judgment or judicial attachment liens, provided that the enforcement of such Liens is effectively stayed and all such liens in the aggregate at any time outstanding for the consolidated Borrower do not exceed $5,000,000; (h) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Borrower; (i) purchase money security interests on any property acquired or held by the Borrower in the ordinary course of business; (j) Liens securing obligations in respect of capital leases on assets subject to such leases; and (k) Normal and customary Liens incurred in the ordinary course of business which do not, in the aggregate, exceed twenty percent (20%) of the Borrower's Consolidated Tangible Net Worth. 6.3 Investments and Loans. The Borrower shall not purchase or acquire, or --------------------- suffer or permit any Subsidiary to purchase or acquire, or make any commitment therefor, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person including any Affiliate of the Borrower, except for: (a) investment in cash equivalents and short term marketable securities; (b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (c) extensions of credit by Borrower to any Subsidiaries which are Subsidiary Guarantors or by any of its Subsidiaries to another of its Subsidiaries; (d) investments incurred in order to consummate acquisitions or increase Borrower's ownership interest in affiliates; (e) repurchase of shares of the Borrower's capital stock as authorized by its board of directors; (f) types of investments existing as of the Closing Date; and (g) loans and investments not otherwise permitted hereunder not to exceed 20% of the Borrower's Consolidated Tangible Net Worth. 6.4 Nature of Business. Suffer or permit any material change to be made in ------------------ the character of its business as carried on at the Closing Date. 6.5 Fundamental Changes. The Borrower will not, and will not permit any ------------------- Subsidiary to, merge into or consolidate into any other Person, or permit any other Person to merge into or consolidate with it, or sell, lease, transfer or otherwise dispose of (in a single transaction or a series of transactions) all or substantially all of its assets or all or substantially all of the stock of any of its Subsidiaries or liquidate or dissolve; provided, that if at the time -------- thereof and immediately after giving effect thereto, no Event of Default shall have occurred and be continuing (i) the Borrower or any Subsidiary may merge with a Person if the Borrower (or such Subsidiary if the Borrower is not a party to such merger) is the surviving Person, (ii) any Subsidiary may merge into another Subsidiary; provided, that if any party to such merger is a Subsidiary Guarantor, the - -------- Subsidiary Guarantor shall be the surviving Person, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of all or substantially all of its assets to the Borrower or to a Subsidiary Guarantor. 6.6 Financial Covenants. ------------------- (a) Debt to Capitalization. The Borrower shall not permit the ratio ---------------------- of Consolidated Total Funded Debt to Consolidated Total Capital to exceed .35 to 1.0, determined at the end of each Fiscal Quarter. (b) Fixed Charge Coverage Ratio. The Borrower shall not permit the --------------------------- ratio of Consolidated EBITR to Consolidated Fixed Charges to be less than 3.0 to 1.00, determined at the end of each Fiscal Quarter and calculated on a trailing four quarter basis. (c) Debt to EBITDA. The Borrower shall not permit the ratio of -------------- Consolidated Total Funded Debt to Consolidated EBITDA (calculated on a trailing four quarters basis) to exceed 1.75 to 1.0, determined at the end of each Fiscal Quarter. (d) Net Income. The Borrower's Consolidated Net Income shall be ---------- positive as determined at the end of each Fiscal Quarter, calculated on a trailing four quarters basis. ARTICLE 7. EVENTS OF DEFAULT ----------------- 7.1 Events of Default. Any of the following events shall be considered an ----------------- Event of Default (and shall be considered a Default pending the passage of time, giving of notice or other condition specified below): (a) Principal and Interest Payments. Borrower fails to pay any ------------------------------- installment of principal when due or any installment of interest under the Note within five (5) Business Days after such payment is due or Borrower fails to pay any other amount payable hereunder, under the Note, other Loan Document or with respect to any Indebtedness within fifteen (15) Business Days after written demand by Lender; or (b) Certain Covenants. Borrower shall fail to observe or perform any ----------------- of the covenants or agreements contained in Section 5.4 (concerning Borrower's existence), Section 6.4 (concerning nature of business) or Section 6.5 (concerning mergers and acquisitions); or (c) Representations and Warranties. Any representation, warranty, ------------------------------ statement (including financial statements), certification or data made or furnished by or on behalf of Borrower in connection with this Agreement or any other Loan Document is false or misleading in any material respect as of the date as of which the facts therein set forth were stated or certified; or (d) Obligations. Borrower fails to perform any of the promises or ----------- obligations contained in or required by this Agreement or any other Loan Document (other than the obligations described in subsections (a) and (b) hereof) and such failure is not cured within thirty (30) days after Lender's demand; or (e) Involuntary Bankruptcy or Receivership Proceedings. Any of the -------------------------------------------------- following events or conditions occurs with respect to Borrower: (i) a receiver, custodian, liquidator, or trustee of itself or of any of its respective Property is appointed by the order or decree of any court or agency or supervisory authority having jurisdiction; or (ii) any of its Property is sequestered by court order because of insolvency; or (iii) a petition is filed against it under any state or federal bankruptcy, reorganization, debt arrangement, insolvency, readjustment of debt, dissolution, liquidation or receivership law of any jurisdiction, whether now or hereafter in effect and such petition is not dismissed within ninety (90) days of its filing; or (f) Voluntary Petitions. Borrower files a voluntary bankruptcy ------------------- petition or other petition to seek relief under any provision of any bankruptcy, reorganization, debt arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction or consents to the filing of any such petition against it under any such law; or (g) Assignments for Benefit of Creditors, Etc. Borrower makes an ------------------------------------------ assignment for the benefit of its creditors, or admits in writing its inability to pay its debts generally as they become due, or consents to the appointment of a receiver, trustee, or liquidator of itself or of all or any part of its Property; or (h) Discontinuance of Business, Etc. Borrower (i) discontinues its -------------------------------- usual business for a reason other than force majeure and such discontinuance of business extends for more than sixty (60) days, or (ii) commences to dissolve, wind-up or liquidate itself, or (iii) experiences a Change of Control; or (i) Cross-Default on Other Debt or Security. Subject to any --------------------------------------- applicable grace period or waiver prior to any due date, Borrower fails to make any payment due on any indebtedness, which in the aggregate equals or exceeds $10,000,000; or (j) Undischarged Judgments. Any court or other governmental ---------------------- authority renders judgment against Borrower for the payment of money in excess of $5,000,000, payment of which is not fully covered by valid collectible insurance or for which Borrower has not established adequate reserves in accordance with GAAP; or (k) Guaranty Default. A Subsidiary Guarantor fails to make any ---------------- payment, perform any agreement or observe any covenant in a Subsidiary Guaranty, subject to any cure period or grace period set forth therein. 7.2 Remedies. Upon the occurrence of an Event of Default, Lender may -------- declare the entire principal amount of all Indebtedness then outstanding, including interest accrued thereon, to be immediately due and payable without presentment, demand, protest, notice of protest, or dishonor or other notice of default of any kind, all of which Borrower hereby expressly waives, and, at Lender's sole discretion and option, all obligations of Lender under this Agreement shall immediately cease and terminate unless and until Lender shall reinstate such obligations in writing. Such acceleration and cessation of Lender's obligations shall occur automatically, without any declaration by Lender or any notice, upon the occurrence of an Event of Default under Section 7.1(e), (f) or (g). Upon the occurrence of any Event of Default, Lender may exercise all rights afforded a creditor under applicable law, and/or bring an action to protect or enforce its rights under the Loan Documents or seek to collect the Indebtedness by any lawful means. ARTICLE 8. INDEMNIFICATIONS ---------------- 8.1 Indemnity. In consideration of the execution and delivery of this --------- Agreement by Lender and the extension of the Loan, Borrower hereby indemnifies, exonerates and holds Lender and each of its affiliates, officers, directors, shareholders, employees, agents and assigns (the "indemnified parties") free and ------------------- harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages and expenses (irrespective of whether any such indemnified party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements incurred by the indemnified parties or any of them resulting from (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the Loan; or (b) the entering into and performance of this Agreement and any other Loan Document by any of the indemnified parties, regardless of whether caused by, or within the control of, Borrower, except to the extent arising out of an indemnified party's gross negligence or willful misconduct, or (c) Borrower's material breach of any provision of any Loan Document (collectively, the "Indemnified Liabilities"). If and to the extent that the ----------------------- foregoing undertaking may be unenforceable for any reason, Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law. The indemnification set forth in this Section shall survive termination of this Agreement. ARTICLE 9. GENERAL PROVISIONS ------------------ 9.1 Notices. All notices, requests, demands, directions and other ------- communications (collectively "notices") required under this Agreement shall be ------- in writing (including communication by facsimile transmission) and shall be sent by hand, by registered or certified mail return receipt requested, by overnight courier service maintaining records of receipt, or by facsimile transmission with confirmation in writing mailed first-class, in all cases with charges prepaid. Any such properly given notice shall be effective upon the earlier of receipt or (a) the date delivered by hand, or (b) the third Business Day after being mailed, or (c) the following Business Day if sent by overnight courier service, or (d) upon sender's receipt of transmission confirmation, if sent by facsimile. All notices shall be sent to the following addresses: ChemFirst Inc. 700 North Street Jackson, MS 39215 (601) 960-6810 (facsimile) Attn: Max P. Bowman, Vice President and Chief Financial Officer AmSouth Bank 200 East Capitol Street Jackson, MS 39201 (601) 354-8563 (facsimile) Attention: Anthony Thomas, Vice President 9.2 Successors and Assigns. Borrower shall not assign its rights or ---------------------- delegate its duties under this Agreement or any other Loan Document without the written consent of Lender, such consent not to be unreasonably withheld. All covenants and agreements made by or on behalf of Borrower shall bind its permitted successors and assigns and shall inure to the benefit of Lender and its successors and assigns. 9.3 Amendments. This Agreement may not be modified or amended except in ---------- writing signed by Borrower and Lender. 9.4 Governing Law. This Agreement, the Note, and the other Loan Documents ------------- constitute a contract made under, and shall be construed in accordance with and governed by, the laws of the State of Mississippi (without regard to its rules on conflicts of laws). 9.5 Costs, Expenses, and Taxes. Borrower agrees to pay on demand all -------------------------- reasonable and necessary out-of-pocket costs and expenses of Lender (including the reasonable fees and out-of-pocket expenses of Lender's attorneys) incurred by Lender in connection with the enforcement of this Agreement or the other Loan Documents. 9.6 Counterparts. This Agreement may be executed in any number of ------------ counterparts or counterpart signature pages (by facsimile transmission or otherwise), each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. 9.7 Jurisdiction; Venue; Service of Process. BORROWER AND LENDER HEREBY --------------------------------------- IRREVOCABLY CONSENT TO THE JURISDICTION OF THE FEDERAL COURTS SITTING IN HINDS COUNTY, MISSISSIPPI, FOR ANY SUIT BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS AGREEMENT. 9.8 Jury Waiver. BORROWER AND LENDER HEREBY KNOWINGLY, WILLINGLY AND ----------- IRREVOCABLY WAIVES ITS RIGHTS TO DEMAND A JURY TRIAL IN ANY ACTION OR PROCEEDING INVOLVING THIS AGREEMENT. 9.9 Waiver of Damages. In any action to enforce this Agreement, Borrower ----------------- and Lender hereby irrevocably and unconditionally waive any and all rights under the laws of any state to claim or recover any special, exemplary, punitive, consequential or other damages other than actual direct damages. ARTICLE 10. DEFINITIONS AND USAGE --------------------- 10.1 Defined Terms. In addition to other words and terms defined in the ------------- preamble hereof or elsewhere in this Agreement, the following terms shall have the following meanings herein, unless the context expressly requires otherwise: "Advance" means any extension of credit made pursuant to this Agreement, ------- including the issuance of a Letter of Credit. "Applicable Rate" means: (i) with respect to a requested Advance --------------- determined with reference to LIBOR, the LIBOR Rate for the applicable Interest Period, plus 50 basis points; (ii) with respect to a requested Advance determined with reference to Prime Rate, the Prime Rate of interest; and (iii) such other rate of interest mutually agreed upon by Borrower and Lender with reference to Lender's cost of funds serving as an index thereto. "Bid Rate Request" or "Bid-Rate Advance" means a request for and Advance ---------------- ---------------- under the Note with an interest rate negotiated by and between Borrower and Lender (in Lender's sole and absolute discretion) under the terms hereof and under the Note. "Business Day" means any day other than a Saturday, Sunday or other day on ------------ which commercial banks in Birmingham, Alabama or Jackson, Mississippi are authorized or required by law to close. "Change in Control" shall mean the occurrence of one or more of the ----------------- following events: (a) any sale, lease, exchange or other transfer (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Borrower to any Person or "group" (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder in effect on the date hereof), (b) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or "group" (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder in effect on the date hereof) of 30% or more of the outstanding shares of the voting stock of the Borrower; or (c) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the current board of directors or (ii) appointed by directors so nominated. "Change in Law" shall mean (i) the adoption of any applicable law, rule or ------------- regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any governmental authority after the date of this Agreement, or (iii) compliance by the Lender (or for purposes of Section 1.9, by the Lender's ----------- holding company, if applicable) with any request, guideline or directive (whether or not having the force of law) of any governmental authority made or issued after the date of this Agreement. "Closing" means the time and place of the execution and/or delivery of the ------- Loan Documents. "Closing Date" means September 21, 2001. ------------ "Consolidated EBITDA" shall mean, for the Borrower and its Subsidiaries ------------------- for any period, an amount equal to the sum of (a) Consolidated Net Income for such period plus (b) to the extent deducted in determining Consolidated Net Income for such period, (i) Consolidated Interest Expense, (ii) income tax expense determined on a consolidated basis in accordance with GAAP, and (iii) depreciation and amortization determined on a consolidated basis in accordance with GAAP. "Consolidated EBITR" shall mean, for the Borrower and its Subsidiaries for ------------------ any period, an amount equal to the sum of (a) Consolidated Net Income for such period, plus (b) to the extent deducted in determining Consolidated Net Income ---- for such period, (i) Consolidated Interest Expense, (ii) income tax expense, determined on a consolidated basis in accordance with GAAP in each case for such period, and (iii) rent expense on a consolidated basis for such period. "Consolidated Fixed Charges" shall mean, for the Borrower and its -------------------------- Subsidiaries for any period, the sum (without duplication) of (a) Consolidated Interest Expense for such period, (b) scheduled principal payments made on Consolidated Total Funded Debt during such period and (c) dividend payments during any such period. "Consolidated Interest Expense" shall mean, for the Borrower and its ----------------------------- Subsidiaries for any period determined on a consolidated basis in accordance with GAAP, the sum of (i) total cash interest expense, including without limitation the interest component of any payments in respect of capital lease obligations capitalized or expensed during such period (whether or not actually paid during such period) plus (ii) the net amount payable (or minus the net amount receivable) under Hedging Agreements during such period (whether or not actually paid or received during such period). "Consolidated Net Income" shall mean, for any period, the net income (or ----------------------- loss) of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, but excluding therefrom (to the extent otherwise included therein) (i) any extraordinary gains, (ii) any gains attributable to write-ups of assets and (iii) any equity interest of the Borrower or any Subsidiary of the Borrower in the unremitted earnings of any Person that is not a Subsidiary, (iv) any income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Borrower or any Subsidiary on the date that such Person's assets are acquired by the Borrower or any Subsidiary; and (v) for the Fiscal Quarter ended June 30, 2001 a $17,692,000 after-tax loss arising from the sale of assets of the ChemFirst Fine Chemicals business. "Consolidated Net Worth" shall mean, as of any date, the total assets of ---------------------- the Borrower and its Subsidiaries that would be reflected on the Borrower's consolidated balance sheet as of such date prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries, minus the total liabilities of ----- the Borrower and its Subsidiaries that would be reflected on the Borrower's consolidated balance sheet as of such date prepared in accordance with GAAP. "Consolidated Tangible Net Worth" shall mean the Consolidated Net Worth, ------------------------------- excluding any items that would be classified as an intangible asset or goodwill according to GAAP. "Consolidated Total Capital" shall mean, as of any date of determination -------------------------- with respect to the Borrower, the sum of (i) Consolidated Total Funded Debt and (ii) Consolidated Net Worth. "Consolidated Total Funded Debt" or "Funded Debt" shall mean, as of any ------------------------------ ----------- date of determination, without duplication, (a) all indebtedness for borrowed money; (b) all non-contingent reimbursement or payment obligations with respect to letters of credit or surety obligations; (c) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (d) all capital lease obligations; and (e) all guaranty obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (d) above. "Consolidated Total Debt" shall mean, as of any date of determination, all ----------------------- Debt of the Borrower and its Subsidiaries that would be reflected on a consolidated balance sheet of the Borrower prepared in accordance with GAAP as of such date. "Debt" means all of a Person's obligations, contingent or otherwise, that ---- would be classified on its balance sheet as its liabilities in accordance with GAAP. "Default" means the occurrence of any of the events specified in Section ------- ======= 7.1 hereof, even though any requirement for notice or lapse of time or other === condition precedent has not been satisfied. "Default Rate" means the highest lawful rate of interest permitted to be ------------ charged by other applicable laws or regulations, as amended or enacted from time to time. "Event of Default" means the occurrence of any of the events specified in ---------------- Section 7.1 hereof, if any requirement in Section 7.1 for notice or lapse of =========== =========== time or other condition precedent has been satisfied. "Executive Officer" means any one of the following: the Chief Executive ----------------- Officer and Chairman of the Board of Directors, President and Chief Operating Officer, Vice President Finance and Treasurer or Corporate Secretary of Borrower. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded ------------------ upwards, if necessary, to the next 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average rounded upwards, if necessary, to the next 1/100th of 1% of the quotations for such day on such transactions received by the Lender from three Federal funds brokers of recognized standing selected by the Lender. "Financial Statements" means (a) the financial statement or statements of -------------------- Borrower described or referenced in Section 3.6 hereof and delivered with this =========== Agreement to Lender, and (b) subsequent financial statements required to be provided pursuant to this Agreement. "Fiscal Quarter" means each of the quarters of the Fiscal Year, ending on -------------- March 31, June 30, September 30 and December 31. "Fiscal Year" means any twelve-month accounting period ending December ----------- 31. "GAAP" means generally accepted accounting principles as in effect from ---- time to time. "Hedging Agreement" shall mean the obligations of any person pursuant to ----------------- any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a floating or fixed rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a floating or fixed rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Indebtedness" means any and all amounts and liabilities of any nature ------------ owing or to be owing by Borrower to Lender from time to time, whether now existing or hereafter incurred, in connection with this Agreement, the Note and/or the Loan Documents. "Interest Period" means initially, the period commencing on the borrowing, --------------- conversion or renewal thereof, as the case may be, with respect to an Advance and ending one month or three months thereafter, as selected by the Borrower in its notice of borrowing or notice of renewal, as the case may be, given with respect thereto; provided that all of the foregoing provisions relating to -------- Interest Periods are subject to the following: (1) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day; (2) any Interest Period that would otherwise extend beyond the Maturity Date shall end on the Maturity Date; and (3) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "Lender's Office" means the principal office of Lender located at the --------------- address set forth at the beginning of this Agreement. "Letters of Credit" shall mean any letter(s) of credit issued by the ----------------- Lender pursuant to Article 2 hereof. --------- "LIBOR" means, for the related Interest Period: ----- (a) the rate per annum quoted at or about 11:00 a.m. (London time) such Interest Period on that page of the Telerate Screen, Reuters or Bloombergs which displays British Bankers Association Interest Settlement Rates for deposits in U.S. Dollars for such Interest Period or, if such page or service shall cease to be available, such other page or such other service (as the case may be) for the purpose of displaying British Bankers Association Interest Settlement Rates for U.S. Dollars. (b) If such rate and the relevant Interest Period is not available to Lender for any reason, the "LIBOR" will be the rate at which deposits in such currency equal to $500,000 are offered by the Lender for such Interest Period to prime banks in the London interbank market at or about 10:00 a.m. (Eastern time) two (2) Business Days prior to the beginning of such Interest Period. "Lien" means any interest in Property securing an obligation owed to, or a ---- claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute, or contract, and including, without limitation, the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale, sale of accounts or intangibles, trust receipt or a lease, consignment, or bailment for security purposes. "Loan" means the loan facility described in Section 1.1 hereof. ---- =========== "Loan Documents" means, collectively, all of the agreements, documents, -------------- papers and certificates executed, furnished or delivered in connection with this Agreement (whether before, at, or after the Closing Date) or at any time evidencing or securing any of the Indebtedness, including, without limitation, this Agreement, the Note, the Subsidiary Guaranties, and all other documents, certificates, reports, and instruments that this Agreement requires or that were executed or delivered (or both) at Lender's request. "Material Adverse Effect" or "Material Adverse Change" means, as ----------------------- ----------------------- applicable, a material adverse effect on, or material adverse change in, (a) the business, operations or financial condition of Borrower, (b) the ability of Borrower to perform its obligations under this Loan Agreement, the Note, or other Loan Documents, or (c) Lender's ability to enforce the rights and remedies granted under this Agreement or other Loan Documents, in all cases whether attributable to a single circumstance or event or an aggregation of circumstances or events. "Maturity Date" means September 20, 2002. ------------- "Maximum Revolver Amount" means Fifteen Million and 00/100 Dollars ----------------------- ($15,000,000.00). "Maximum Revolver Availability" means the amount, if any, by which the ----------------------------- Maximum Revolver Amount exceeds all outstanding Advances and the face amount of all outstanding Letters of Credit. "Note" or "Revolving Credit Note" means, the Revolving Credit Note, dated ---- --------------------- as of the date hereof, executed by Borrower and Lender, and any amendments thereto or restatements thereof. "Person" means any individual, corporation, partnership, joint venture, ------ association, limited liability company, joint stock company, trust, unincorporated organization, government, or any agency or political subdivision thereof, or any other form of entity. "Prime Rate" means the higher of (i) the per annum rate which the Lender ---------- publicly announces from time to time to be its prime lending rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in effect from time to time, plus one-half of one percent (0.50%). The Lender's prime lending rate is a reference rate and does not necessarily represent the lowest or best rate charged to customers. The Lender may make commercial loans or other loans at rates of interest at, above or below the Lender's prime lending rate. Each change in the Lender's prime lending rate shall be effective from and including the date such change is publicly announced as being effective. "Property" or "Properties" means any interest in any kind of property or -------- ---------- asset, whether real, personal, or mixed, or tangible or intangible. "Statutory Reserve Rate" means, with respect to any currency, a fraction ---------------------- (expressed as a decimal), the numerator of which is one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any emergency, supplemental, special or other marginal reserves) expressed as a decimal established by any governmental authority of the United States. Such reserve, liquid asset or similar percentages shall include those imposed pursuant to Regulation D. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subsidiary" means, at the time as of which any determination is being ---------- made, any corporation, partnership, limited partnership or other entity of which more than fifty percent (50%) of the issued and outstanding voting stock (or partnership interests) is owned or controlled, directly or indirectly, by Borrower and/or by one or more of Borrower's Subsidiaries. "Subsidiary Guarantor" means individually and collectively, the -------------------- Subsidiaries of Borrower executing a Subsidiary Guaranty from time to time. "Subsidiary Guaranty" or "Subsidiary Guaranties" means (individually and ------------------- --------------------- collectively) the Guaranty Agreements executed from time to time by a Subsidiary Guarantor substantially in the form of Exhibit A. "Taxes" shall mean any and all present or future taxes, levies, imposts, ----- duties, deductions, charges or withholdings imposed by any governmental authority. 10.2 Computations; Accounting Principles. Where the character or amount of ----------------------------------- any asset or liability or item of income or expense is required to be determined, or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, such determination or calculation, to the extent applicable and except as otherwise specified in this Agreement, shall be made in accordance with GAAP applied on a consolidated basis consistent with those in effect at the Closing Date. 10.3 Exhibits and Schedules. All Exhibits and Schedules attached hereto ---------------------- are by reference made a part hereof. 10.4 General Construction; Captions. All definitions and other terms used ------------------------------ in this Agreement are equally applicable to the singular and plural forms thereof, and all references to any gender include all other genders. The words "hereof", "herein" and "hereunder" and words of similar import in this Agreement ------ ------ --------- refer to this Agreement as a whole and not to any particular provision of this Agreement, and references to Sections, subsections, schedules and exhibits are to this Agreement unless otherwise specified. The words "includes" and -------- "including" and words of similar import are inclusive and not exclusive terms, --------- and are not intended to create any limitation. The captions in this Agreement are for convenience only, and in no way limit or amplify the provisions hereof. 10.5 UCC Terms. Terms used in this Agreement that are defined in the UCC --------- shall have the same meanings herein, except as otherwise expressly provided or amplified (but not limited) herein. 10.6 References to Documents and Laws. All defined terms and references in -------------------------------- this Agreement with respect to any agreements, notes, instruments, certificates or other documents shall be deemed to refer to such documents and to any amendments, modifications, renewals, extensions, replacements, restatements, substitutions and supplements of and to such documents. Unless otherwise provided, all references to statutes and related regulations shall include any amendments thereof and any successor statutes and regulations. 10.7 Entire Agreement. This Agreement and the Loan Documents state the ---------------- entire Agreement between the parties and supercedes all other agreements with respect to the subject matter hereof. This Agreement may only be supplemented, altered, amended, modified, or revoked in writing by signed agreement of all the parties hereto. ENTERED INTO as of the date first written above. BORROWER: --------- CHEMFIRST INC. By: /s/ Max P. Bowman Title: Vice President & CFO LENDER: ------- AMSOUTH BANK By: /s/ E. Anthony Thomas Title: VP REVOLVING CREDIT NOTE --------------------- Jackson, Mississippi $15,000,000.00 September 24, 2001 FOR VALUE RECEIVED, CHEMFIRST INC., a Mississippi corporation (the "Borrower") promises and agrees to pay to the order of AMSOUTH BANK ("Lender") at the offices of AmSouth Bank in Jackson, Mississippi, or at such other place as may be designated in writing by the holder, in lawful money of the United States of America the principal amount of up to Fifteen Million and 00/100 ($15,000,000) Dollars, or so much thereof as may be advanced from time to time, on the Maturity Date, together with interest as set forth herein and in the Loan Agreement (as defined below). This Note is issued pursuant to, and is the Note referred to in that certain Loan Agreement of even date herewith between Borrower and the Lender as such Loan Agreement may be amended, modified, extended and/or renewed from time to time, including without limitation all restatements thereof, being referred to herein as the "Loan Agreement". Any term not otherwise defined in this Note shall have the same meaning as set forth in the Loan Agreement. Reference is made to the Loan Agreement, which, among other things, provides for the acceleration of the maturity hereof upon the occurrence of certain events in certain circumstances and upon certain terms and conditions. Interest shall accrue on all amounts outstanding under this Note at the Applicable Rate(s) elected (or as requested by Borrower and agreed to by Lender) by Borrower in accordance with the Loan Agreement. The Applicable Rate may be determined with reference to the LIBOR Rate, the Prime Rate or may be such other rate of interest as agreed upon by Borrower and Lender for such Advance from time to time (a "Bid Rate Advance"). Notices and requests for Advances hereunder shall be in accordance with the Loan Agreement. The Lender shall have the sole and absolute discretion to make a Bid-Rate Advance. If the Lender shall accept the Borrower's request for a Bid-Rate Advance, it shall make the Advance on the date requested, at the agreed-upon rate of interest and with the agreed-upon payment date, all of which shall be noted upon Lender's books and records and such notation shall be presumed correct absent manifest error. Lender's failure to note such terms of a Bid-Rate Advance shall not affect Borrower's requirement to make repayment thereof. Borrower promises to pay interest on the outstanding principal amount of each Advance hereunder, at such interest rates, payable at such times, and computed in such manner, in accordance with the terms of the Loan Agreement and the terms hereof. Interest on all Bid-Rate Advances and on all Advances which accrue interest with reference to the LIBOR Rate as the Applicable Rate, shall be paid at the end of the applicable Interest Period, unless such Interest Period is greater than three months, and in such event at the end of each three month period from such Advance and at the end of the applicable Interest Period. Interest accruing on an Advance with reference to Prime Rate as the Applicable Rate shall be paid in arrears on the first Business Day of each calendar month, commencing October 1, 2001. As long as no Event of Default has occurred, Borrower may borrow, repay, reborrow and repay hereunder until the Maturity Date; provided, however, that at no time shall the principal amount outstanding hereunder exceed the Maximum Revolver Amount under the Loan Agreement. If any such excess occurs, Borrower shall immediately pay to the Lender all principal outstanding hereunder in excess of the applicable Maximum Revolver Amount plus all accrued interest thereon. The terms and conditions of any prepayment of this Note shall be governed by the Loan Agreement. The terms and conditions in connection with requesting an Advance by Borrower and for making any Advances by Lender hereunder shall be governed by the applicable provisions hereof and of the Loan Agreement. This Note shall mature on September 20, 2002 (the "Maturity Date"), at which time all outstanding principal, accrued interest, and all unpaid fees or charges hereunder (if any) will be immediately due and payable. In the event that there occurs any Event of Default under the Loan Agreement, then, in such event, at the option of the Lender or automatically in the case of Events of Default under Sections 7.01(d), (e) and (f) of the Loan Agreement, the entire indebtedness hereby evidenced shall become due, payable and collectible then or thereafter, without further notice, as the holder may elect regardless of the date of maturity. The Lender may waive any Event of Default before or after the same has been declared and restore this Note to full force and effect without impairing any rights hereunder, such right of waiver being a continuing one. Following the occurrence of an Event of Default, principal and unpaid interest bear interest at the Default Rate, until paid. The undersigned will pay under the provisions of the Loan Agreement, the costs and expenses in connection with the collection, enforcement, protection and/or litigation with regard to this Note and/or any of Lender's rights hereunder. The makers, endorsers, guarantors and all parties to this Note and all who may become liable for same, jointly and severally waive presentment for payment, protest, notice of protest, notice of nonpayment of this Note, demand and all legal diligence in enforcing collection, and hereby expressly agree that the lawful owner or holder of this Note may defer or postpone collection of the whole or any part thereof, either principal and/or interest, or may extend or renew the whole or any part thereof, either principal and/or interest, or may accept additional collateral or security for the payment of this Note, or may release the whole or any part of any collateral security and/or liens given to secure the payment of this Note, or may release from liability on account of this Note any one or more of the makers, endorsers, guarantors and/or other parties thereto, all without notice to them or any of them; and such deferment, postponement, renewal, extension, acceptance of additional collateral or security and/or release shall not in any way affect or change the obligation of any such maker, endorser, guarantor or other party to this Note, or of any who may become liable for the payment thereof. This Note has been executed and delivered in, and shall be governed by and construed according to the laws of the State of Mississippi except to the extent pre-empted by applicable laws of the United States of America. IN WITNESS WHEREOF, the undersigned, a duly authorized officer of Borrower executes this Revolving Credit Note as of the day and date first set forth above. CHEMFIRST INC. By:/s/ Max P. Bowman Title: Vice President & CFO FIRST AMENDMENT TO LOAN AGREEMENT --------------------------------- THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment") is executed this the 17th day of October, 2001 (effective September 24, 2001), by and between CHEMFIRST, INC., a Mississippi corporation (the "Borrower") and AMSOUTH BANK (the "Lender"). RECITALS: --------- A. Borrower and Lender previously executed that certain Loan Agreement dated as of September 24, 2001 (as amended or restated from time to time, the "Loan Agreement") pursuant to which the Lender extended credit to the Borrower upon the terms and conditions set forth therein. B. The Borrower and Lender are desirous of amending the Loan Agreement as set forth herein. C. Terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. NOW, THEREFORE, for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. The following is added as Section 1.10 of the Loan Agreement: 1.10 Extension of Maturity Date. No earlier than seventy-five (75) -------------------------- days and not later than sixty (60) days prior to the applicable Maturity Date, the Borrower may deliver a written request to Lender requesting an extension of the Maturity Date for an additional period of up to 364 days from the existing Maturity Date. Lender, in its sole and absolute discretion, may extend the Maturity Date as requested by Borrower by delivery of written notice to Borrower. If the extension is approved by Lender, the definition of Maturity Date shall thereafter be the date as requested by Borrower and approved by Lender under this Section. In the event the Lender has not delivered to Borrower its written acceptance of an extended Maturity Date within forty-five (45) days of the current Maturity Date, Borrower's request for an extension under this Section shall be deemed denied. 2. Except as specifically set forth herein, no other amendment or modification is hereby made to the Loan Agreement or any Loan Documents. Borrower and Lender agree that all documents and instruments presently securing or guaranteeing the Note and the Loan Agreement shall not be otherwise amended, modified, terminated or released by the execution hereof. 3. This Amendment may be executed in one or more counterparts, all of which shall, taken together, constitute one original. The parties agree that facsimile signatures shall be deemed to be and treated as original signatures of such parties. IN WITNESS WHEREOF, the undersigned, by and through their duly authorized officers, hereby execute this Amendment as of the day and date first set forth above. CHEMFIRST, INC. By: /s/ Max P. Bowman Title: Treasurer AMSOUTH BANK By: /s/ E. Anthony Thomas Title: Vice President SECOND AMENDMENT TO LOAN AGREEMENT ---------------------------------- THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Amendment") is executed this the 3rd day of December, 2001 (effective September 30, 2001), by and between CHEMFIRST, INC., a Mississippi corporation (the "Borrower") and AMSOUTH BANK (the "Lender"). RECITALS: --------- A. Borrower and Lender previously executed that certain Loan Agreement dated as of September 24, 2001 and that certain First Amendment to Loan Agreement dated October 17, 2001 (as amended or restated from time to time, the "Loan Agreement") pursuant to which the Lender extended credit to the Borrower upon the terms and conditions set forth therein. B. The Borrower and Lender are desirous of further amending the Loan Agreement as set forth herein. C. Terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement. NOW, THEREFORE, for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Compliance with Section 6.6(b) of the Loan Agreement concerning "Fixed Charge Coverage Ratio" is waived for the Fiscal Quarter ending September 30, 2001. Section 6.6(b) of the Loan Agreement is deleted and the following is substituted in lieu thereof: 6.6 Financial Covenants (b) Fixed Charge Coverage Ratio. The Borrower shall not permit --------------------------- the ratio of Consolidated EBITR to Consolidated Fixed Charges to be less than 2.25 to 1.00 at the end of the Fiscal Quarter ending December 31, 2001, less than 1.65 to 1.00 at the end of the Fiscal Quarter ending March 31, 2002, less than 2.25 to 1.00 at the end of the Fiscal Quarter ending June 30, 2001 and less than 3.00 to 1.00 at the end of each Fiscal Quarter thereafter. This ratio shall be calculated on a trailing four-quarter basis. 2. Except as specifically set forth herein, no other amendment or modification is hereby made to the Loan Agreement or any Loan Documents. Borrower and Lender agree that all documents and instruments presently securing or guaranteeing the Note and the Loan Agreement shall not be otherwise amended, modified, terminated or released by the execution hereof. 3. This Amendment may be executed in one or more counterparts, all of which shall, taken together, constitute one original. The parties agree that facsimile signatures shall be deemed to be and treated as original signatures of such parties. IN WITNESS WHEREOF, the undersigned, by and through their duly authorized officers, hereby execute this Amendment as of the day and date first set forth above. CHEMFIRST, INC. By: /s/ Max P. Bowman Title: Vice President & CFO AMSOUTH BANK By: /s/ E. Anthony Thomas Title: Vice President EX-13 9 dex13.txt ANNUAL REPORT EXHIBIT 13 Selected Financial Data
Years ended December 31 (In Thousands of Dollars, Except Per Share Amounts) ----------------------------------------------------------- 2001 2000 1999 ----------------------------------------------------------- % % % ----------------------------------------------------------- Gross sales to unaffiliated customers: Electronic and Other Specialty Chemicals $ 152,286 47 204,905 52 177,554 55 Polyurethane Chemicals 157,688 49 178,974 45 144,389 44 ----------------------------------------------------------- Total gross sales 309,974 96 383,879 98 321,943 99 Other revenues 13,551 4 9,606 2 3,641 1 ----------------------------------------------------------- Total revenues $ 323,525 100 393,485 100 325,584 100 =========================================================== Operating profit from continuing operations before income taxes and investee earnings Electronic and Other Specialty Chemicals $ (24,725) 17,854 18,048 Polyurethane Chemicals 24,997 31,234 31,034 ----------------------------------------------------------- 272 49,088 49,082 Unallocated corporate expenses (13,412) (10,450) (11,811) Interest income (expense), net (1,249) (2,328) (782) Other income (expense), net 1,063 (143) (536) ----------------------------------------------------------- (13,326) 36,167 35,953 Income taxes (benefit) (5,997) 13,563 13,480 Equity in net earnings of equity investees -- -- -- ----------------------------------------------------------- Earnings (loss) from continuing operations (7,329) 22,604 22,473 Earnings (loss) from discontinued operations, net of taxes -- -- -- Net gain (loss) on disposal of discontinued businesses, net of taxes -- 9,656 646 ----------------------------------------------------------- Net earnings (loss) $ (7,329) 32,260 23,119 =========================================================== Earnings (loss) per common share: Continuing operations $ (0.52) 1.44 1.23 Discontinued operations, net of taxes -- -- -- Net gain (loss) on disposal of discontinued businesses, net of taxes -- 0.62 0.03 ----------------------------------------------------------- Net earnings (loss) $ (0.52) 2.06 1.26 =========================================================== Earnings (loss) per common share, assuming dilution: Continuing operations $ (0.52) 1.43 1.22 Discontinued operations, net of taxes -- -- -- Net gain (loss) on disposal of discontinued businesses, net of taxes -- 0.61 0.03 ----------------------------------------------------------- Net earnings (loss) $ (0.52) 2.04 1.25 =========================================================== Net working capital $ 96,104 94,783 112,969 Long-term debt $ 4,755 41,640 24,224 Total assets $ 302,444 383,743 402,387 Stockholders' equity $ 219,890 234,814 288,724 Cash dividend payout rate * 19 31 Return on average equity - continuing operations (3) 9 8 Return on sales - continuing operations (2) 6 7 Long-term debt/equity ratio 0.02 0.18 0.08 Current ratio 3.37 2.74 3.54 Cash dividends per share $ 0.40 0.40 0.40 Book value per share $ 15.65 16.60 16.13 Years ended December 31 (In Thousands of Dollars, Except Per Share Amounts) --------------------------------- 1998 1997 --------------------------------- % % --------------------------------- Gross sales to unaffiliated customers: Electronic and Other Specialty Chemicals 179,579 58 179,549 60 Polyurethane Chemicals 125,525 40 118,273 39 --------------------------------- Total gross sales 305,104 98 297,822 99 Other revenues 5,195 2 3,586 1 --------------------------------- Total revenues 310,299 100 301,408 100 ================================= Operating profit from continuing operations before income taxes and investee earnings Electronic and Other Specialty Chemicals 17,796 27,617 Polyurethane Chemicals 22,648 24,071 --------------------------------- 40,444 51,688 Unallocated corporate expenses (9,781) (11,347) Interest income (expense), net 213 3,010 Other income (expense), net 9,224 14,997 --------------------------------- 40,100 58,348 Income taxes (benefit) 15,440 23,050 Equity in net earnings of equity investees -- 2,497 --------------------------------- Earnings (loss) from continuing operations 24,660 37,795 Earnings (loss) from discontinued operations, net of taxes (2,618) 1,103 Net gain (loss) on disposal of discontinued businesses, net of taxes (11,950) -- --------------------------------- Net earnings (loss) 10,092 38,898 ================================= Earnings (loss) per common share: Continuing operations 1.28 1.85 Discontinued operations, net of taxes (0.14) 0.06 Net gain (loss) on disposal of discontinued businesses, net of taxes (0.62) -- --------------------------------- Net earnings (loss) 0.52 1.91 ================================= Earnings (loss) per common share, assuming dilution: Continuing operations 1.27 1.81 Discontinued operations, net of taxes (0.14) 0.05 Net gain (loss) on disposal of discontinued businesses, net of taxes (0.61) -- --------------------------------- Net earnings (loss) 0.52 1.86 ================================= Net working capital 116,936 79,936 Long-term debt 64,956 3,941 Total assets 443,434 433,097 Stockholders' equity 285,482 321,697 Cash dividend payout rate 76 20 Return on average equity - continuing operations 8 12 Return on sales - continuing operations 8 13 Long-term debt/equity ratio 0.23 0.01 Current ratio 3.66 2.19 Cash dividends per share 0.40 0.40 Book value per share 15.48 16.06
* Computation not applicable due to loss. 12 Management's Discussion And Analysis Of Financial Condition And Results Of Operations The following discussion is based upon and should be read in conjunction with ChemFirst Inc.'s ("the Company's") financial statements, including the notes thereto. Critical Accounting Policies Management's discussion and analysis of its financial position and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While the estimates and assumptions associated with the application of these policies may be affected by different assumptions or conditions, the Company believes the estimates and judgements associated with the reported amounts are appropriate in the circumstances. Our significant accounting policies are described in note 1 to the consolidated financial statements. In response to the Securities and Exchange Commission's Release No. 33-8040, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies," the Company has reviewed its accounting policies and determined that the most critical policies relate to inventory valuation, long-lived assets and contingencies. Inventory Valuation - The Company values its inventories principally at average cost or at market, if lower. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated fair value, less costs to sell and normal gross profit margin, based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Long-lived Assets - The Company assesses the impairment of identifiable intangibles, long-lived assets and related goodwill when facts and circumstances indicate that the carrying amount of an asset may not be recoverable as estimated future, undiscounted cash flows are less than the carrying amount of the long-lived assets. Factors that could trigger an impairment review include, but are not limited to: significant and continued underperformance versus expected historical or projected operating results; significant changes in the manner of use of the assets; significant negative industry or economic trends; and significant decline in the Company's stock price for a sustained period. When estimated future discounted cash flows are less than the carrying amount of the net long-lived assets, an impairment loss is charged to operations. With the implementation of Statement of Financial Accounting Standards ("SFAS") No. 142 (see Accounting Developments), in lieu of amortization, the Company is required to perform an initial impairment review of goodwill in 2002 and an annual impairment review thereafter. The Company expects to complete its initial review during the first quarter of 2002. We currently do not expect to record an impairment charge upon completion of the initial impairment review. However, there can be no assurance that at the time the review is completed a material impairment charge will not be recorded. Contingencies - Estimates of loss contingencies related to pending litigation and costs for environmental remediation are charged to expense when it is probable an asset has been impaired or a liability incurred and the amount can be reasonably estimated. If a potentially material loss contingency is reasonably possible, or probable but cannot be estimated, then the nature of the contingency and an estimated range of possible loss, if determinable and material, are disclosed. The Company continues to review its pending litigation and responsibilities related to environmental remediation. As additional information becomes available, the Company assesses these contingencies and revises provisions and disclosures accordingly. 2001 VERSUS 2000 Consolidated Results Results of continuing operations for 2001 were a loss of $7.3 million or $0.52 per share. These results include an after tax loss of $16.8 million or $1.18 per share due to the Company's decision to exit and dispose of its custom and fine chemical operations (see note 2 to the Consolidated Financial Statements) and an after tax gain of $0.7 million or $0.05 per share from the sale of the Company's interest in a captive insurance company. Excluding these items, earnings from continuing operations were $8.8 million or $0.61 per share, down from $22.6 million or $1.43 per diluted share for the prior year, primarily due to lower sales and margins in both electronic and other specialty chemicals and polyurethane chemicals. Results for the current year also include custom and fine chemicals after tax operating losses of $1.6 million or $0.11 per share versus prior year after tax operating losses of $1.3 million or $ 0.08 per share. Earnings per share for the current year are based on approximately 10% fewer average shares outstanding versus the prior year, resulting from share repurchases by the Company. Sales declined 19% for the year, with 10% attributable to the divestiture of fine chemical operations, 4% to remaining electronic and other specialties and 5% to polyurethanes. General, selling and administrative expenses were $56.9 million in 2001, down 3% from 2000, with the elimination of fine chemical expenses more than offsetting increased product and market development costs and unallocated corporate expenses. Other operating income was up 11%, due to increased insurance proceeds associated with the hydroxylamine supply shortage discussed below. Interest expense, net of interest income, was down $1.1 million from the prior year, primarily due to repayment of debt with proceeds from the fine chemical disposition. Segments Electronic and Other Specialty Chemicals results for the current year were an operating loss before taxes of $24.7 million versus operating profits of $17.9 million for the prior year. Current year results include a $28.4 million pretax loss resulting from the Company's decision to exit and dispose of its custom and fine chemical operations. Pretax operating results of custom and fine chemical operations for the current year were a loss of $2.5 million on $32.0 million in sales versus a $2.0 million loss on $70.4 million in sales for the prior year. The custom and fine chemical business suffered over the last several years from declining sales of agricultural intermediates, industry overcapacity and competition from the Far East. These declines were 13 Management's Discussion And Analysis Of Financial Condition And Results Of Operations partially offset with growth in electronic chemical products and pharmaceuticals, however, capacity utilization and investment returns continued to be low. Excluding the custom and fine chemicals loss on disposal and operating results, current year results were a pretax profit of $6.2 million, down from $19.9 million for the prior year, and sales were $120.2 million, down from $134.6 million. Operating profits declined as sales decreased on lower volume and gross margins. Gross margins declined from 36% to 32% of sales as lower electronic chemical facility utilization more than offset improved margins in other specialties. Volumes for removers and deep ultra violet ("DUV") resins were down 20% and 5%, respectively, due to a downturn in the semiconductor industry. Remover volume was also affected by the shortage of hydroxylamine raw material discussed below. Also, other operating expenses in electronic chemicals were up over the prior year. This increase in expenses reflects higher chemical mechanical planarization ("CMP") product and market development cost as well as approximately $0.8 million in severance cost related to workforce reductions. Operations continue to be affected by the June 2000 explosion at Nissin Chemical, which disrupted the supply of hydroxylamine raw material for HDA(R) electronic chemicals. The impact in the current year has been reduced somewhat by business interruption recoveries of $7.5 million for the first three quarters of the year. However, a recovery for the quarter ending December 31, 2001, has not been recorded as the Company has been unable to reach an agreement with its carriers as to the amount of additional loss. Prior year results reflect insurance recoveries of $5.4 million covering the period from June 30 through the end of that year (see note 10 to the Consolidated Financial Statements). Improvement in 2002 for our electronic and other specialties business is largely dependent on recovery in the semiconductor industry, which suffered its worst decline in history in 2001 with worldwide revenues down an estimated 35%. Industry forecasts for 2002 predict a flat first half with improving fundamentals and a return to growth in the second half. The Company expects some improvement but is cautious about the outlook and timing of a recovery. The degrees of success, in both CMP business development and securing additional business interruption insurance recoveries, will also shape 2002. While the Company believes its claims for additional business interruption collections are valid, additional recoveries cannot be predicted with certainty. CMP product formulations and performance requirements are evolving as semiconductor devices shrink and new materials are introduced into chip production processes. This requires intense product development and extensive testing in customer processes before products are qualified and commercial sales begin. Pretax operating losses in 2001, from the CMP product lines, were $7.8 million versus $5.4 million in the prior year, reflecting the continuing product development as well as expansion in Japan. Polyurethane Chemicals pretax operating profits for the current year were $25.0 million, down from $31.2 million for the prior year, primarily due to lower margins. Sales were $157.7 million, down from $179.0 million primarily due to the influence of lower raw material cost pass-through versus the prior year as volume decreased only 2%. Gross margin as a percentage of sales declined from 21% last year to 19% this year, primarily due to raw material price volatility. The outlook for our polyurethane chemicals business is dependent upon demand for MDI (methylene diphenyl diisocyanate) for residential and commercial construction, appliance, packaging and transportation applications. The business held up well during an otherwise weak economy in 2001, with no significant change in demand presently forecasted for 2002. Most of the Company's polyurethane products are sold under long-term contracts that provide for price adjustments based on the cost of raw materials. Abrupt changes in these costs are not always matched by equal changes in revenue and can lead to either plus or minus variances in margin from period to period. Overall, the Company believes the net effect of such abrupt changes will be immaterial for the term of these contracts. Unallocated corporate expense for the current year was $13.4 million, up from $10.5 million in the prior year, reflecting $0.5 million in severance accruals related to corporate workforce reductions, $0.7 million in higher insurance deductibles for legal costs in cases being defended by the Company's insurer and higher pension and other benefit expenses. Net interest expense for the current year was $1.2 million versus $2.3 million from the prior year on lower average debt and increased interest income from the proceeds of the custom and fine chemicals disposal. Other income for the current year included a $1.1 million pretax gain from the sale of the Company's interest in an offshore captive insurance company. 2000 VERSUS 1999 Consolidated Results Earnings from continuing operations for 2000 were $22.6 million or $1.43 per diluted share versus $22.5 million or $1.22 per diluted share for 1999. While earnings were up only slightly, earnings per share were up 17% due to a 14% decline in average shares outstanding due to share repurchases. Sales for the year were up 19% to $383.9 million on higher prices for polyurethane chemicals due to energy and raw materials cost pass-throughs and increased electronic and other specialty chemicals volume. General, selling and administrative expenses for 2000 were $58.6 million, up $8.0 million from the prior year, primarily due to increased overhead in electronic and other specialty chemicals. Other operating income was up $6.0 million in 2000, primarily due to the business interruption insurance proceeds associated with the hydroxylamine supply shortage. Segments Electronic and Other Specialty Chemicals pretax operating profits for 2000 were $17.9 million versus $18.0 million for 1999. Pretax operating results of custom and fine chemical operations for 2000 were a loss of $2.0 million on $70.4 million in sales, versus a $2.9 million profit on $68.1 million in sales for 1999, reflecting difficult conditions in agricultural chemicals, excess industry capacity and competitive price pressures. Excluding custom and fine chemicals, pretax operating profits for 2000 were $19.9 million, up from $15.2 million for 1999, on sales of $134.6 million, up 23%. Sales were up primarily due to higher volumes of electronic chemicals. Additional sales were hurt by a shortage of hydroxylamine raw material caused by an explosion in June 2000 at the Nissin Chemical plant supplying the material. The effect on earnings was mostly offset by net insurance of $5.4 million, after 14 Management's Discussion And Analysis Of Financial Condition And Results Of Operations meeting a one-time $1.0 million deductible, which is reflected in other operating income. The increased sales and insurance proceeds were partially offset by higher other operating expenses associated with the revenue growth and lower margins, 36% in 2000 versus 38% in 1999, primarily due to increased energy and raw material costs in other specialties. Polyurethane Chemicals pretax operating profits for 2000 were $31.2 million, up slightly from $31.0 million for the prior year as gross profit remained essentially flat despite higher sales. Sales were up 24% for the year, primarily due to the pass-through of higher raw material costs, with volume up only 1%. Unallocated corporate expenses for 2000 were $10.4 million, down 12% from 1999, primarily due to a reduction in pension and other benefit expenses. Net interest expense increased $1.5 million over 1999 due to higher average borrowings and lower interest income. Debt increased due to the repurchase of common stock during the year. Interest income declined following collection of the Getchell Gold note in May 1999. Other income in 1999 included recognition of $1.6 million in additional income related to the 1998 sale of Power Sources, Inc. ("PSI"). PSI, a 50% owned equity investment, was sold in January 1998, with a pretax gain of $10.1 million recorded in that year. Approximately $1.6 million of additional gain was deferred related to contingencies that, if not met, could have resulted in a specified refund of cash to the purchaser. The contingencies were related to the buyer obtaining certain governmental permits as well as the continuance of sales from certain purchased facilities. The requirements were met in 1999 and the deferred income was recognized. Other expenses in 1999 included $1.0 million in loss provisions for a note received in the disposition of Plasma Processing Company ("PPC") in January 1997, leaving a net carrying value of $0.5 million, and $1.0 million from termination of a corporate lease obligation. Discontinued Operations A gain of $9.7 million on disposal of discontinued operations was recorded during the quarter ending March 31, 2000. The gain included $10.1 million from a reduction in estimated tax liabilities related to the distribution of Getchell Gold Corporation to the Company's shareholders in 1995. The reduction in estimated tax liabilities resulted from the Company's reevaluation of tax exposure items associated with the Getchell Gold Corporation distribution. The Company reevaluated its tax exposure during the quarter ended March 31, 2000, when various statutes governing the handling of the disposition for tax purposes expired. Also during the first quarter of 2000, the Company recorded an additional $0.4 million loss on disposal of discontinued operations related to final settlement of post-closure issues associated with the dispositions of Callidus Technology, Inc. ("CTI") and FirstMiss Steel, Inc. In December 1999, the Company sold two of its wholly owned subsidiaries, CTI and Plasma Energy Corporation in an all cash transaction. Proceeds of the transaction were $8.1 million and resulted in an after tax loss of $2.7 million. The loss was primarily attributable to costs associated with the shutdown of CTI's European operations, which increased expenses during the disposal period. This transaction completed the disposition of the Engineered Products and Services segment. On February 15, 2000, the Company completed the sale of its steel operation for $12.6 million in cash. During 1999, net assets of the business were reduced approximately $9.5 million, primarily through reductions in inventory and accounts receivable. In 1998, the Company recorded an estimated after tax loss from disposal of steel operations of $12.0 million, primarily related to the writedown of assets to their estimated net realizable value. In the fourth quarter of 1999, this valuation adjustment was reduced by approximately $0.8 million, to reflect terms of the pending sale. On October 20, 1995, the Company's gold operations were discontinued through the distribution to its shareholders of its entire ownership of Getchell Gold Corporation. A reduction in estimated tax liabilities of $2.4 million was recorded in the fourth quarter of 1999 following final settlement of federal tax examinations covering Getchell Gold's operations through that period (see note 2 to the Consolidated Financial Statements). Environmental Matters The Company's operations are subject to a wide variety of constantly changing environmental laws and regulations governing emissions to the air, discharges to water sources, and the handling, storage, treatment and disposal of waste materials, as well as other laws and regulations concerning health and safety conditions for which it must incur certain costs. The Company makes capital and other expenditures in a continuing effort to comply with environmental laws and regulations, or changing interpretations of existing laws and regulations. The Company's environmental capital expenditures were $0.6 million in 2001. Environmental capital expenditures are projected to be $1.4 million and $0.6 million for 2002 and 2003, respectively. In addition, the Company accrues for anticipated costs associated with investigatory and remediation efforts relating to the environment. At December 31, 2001, the Company's accrued liability for these matters totaled $1.1 million, $0.9 million of which is for discontinued operations and $0.2 million for continuing operations. Based on information presently available, the Company believes any amounts paid in excess of the accrued liabilities will not have a material adverse effect on its financial position or results of operations. Capital Resources and Liquidity Net cash provided by operating activities for 2001 was $25.3 million versus $64.6 million and $44.7 million in 2000 and 1999, respectively. Cash generated in 2000 was higher due to greater earnings, a reduction in accounts receivable and increased accounts payable. Working capital (excluding cash and notes payable) at December 31, 2001 was $60.2 million, down from $96.9 million for the prior year, primarily due to the sale of fine chemical operations. Net cash provided by investing activities for the current year includes $78.9 million in proceeds received in July 2001 from the disposal of custom and fine chemicals operations and $1.6 million in April 2001 from the sale of the Company's interest in an offshore captive insurance company. Investing 15 Management's Discussion And Analysis Of Financial Condition And Results Of Operations activities for 2000 include $12.6 million from the disposal of FirstMiss Steel. In 1999, investing activities include $29.6 million in proceeds from collection of a note with Getchell Gold Corporation and $17.9 million from the disposal of CTI and a reduction in FirstMiss Steel working capital. Capital expenditures were $19.2 million, $16.9 million and $24.6 million for 2001, 2000 and 1999, respectively. Projected capital expenditures for 2002 are approximately $20.0 million. Note 2 to the financial statements describes the Company's disposal and exiting of custom and fine chemical operations effective June 30, 2001. Proceeds of the transaction were used to retire debt, which is down $36.7 million for the year, with the balance held as cash at year-end. The Company expended $3.8 million, $82.6 million and $16.7 million in 2001, 2000 and 1999, respectively, to repurchase common stock leaving approximately $65.0 million remaining under the current repurchase authorization. The Company believes that its cash as of December 31, 2001, as well as cash flow from operations in 2002, should meet most, if not all, of 2002's cash requirements including share repurchases at the current authorization level. The Company's existing $50.0 million revolving credit facilities are committed until September 30, 2002 and could also be utilized. With debt to equity of only .06:1 at December 31, 2001, the Company believes that it could enter into long-term credit facilities if needed. The polyurethane business currently provides the bulk of the Company's operating cash flow. Its primary markets, construction and automotive, have held up well in an otherwise weak economy. If they continue to do so, the polyurethane business should generate solid earnings and cash flow in 2002. Annual operating cash flow is expected to exceed capital expenditures over the next several years except for the anticipated Phase II aniline expansion at Baytown. The Company does not have relationships with any unconsolidated, special-purpose entities or financial partnerships, which would have been established for the purpose of facilitating off-balance sheet financial arrangements. Therefore, the Company is not exposed to any financing, liquidity, market or credit risk that could arise had the Company entered into any such relationships. Accounting Developments In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also specifies criteria which intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 will also require that intangible assets with estimable useful lives be amortized over the respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", or as described below, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The Company is required to adopt the provisions of SFAS No. 141 effective immediately and SFAS No.142 effective January 1, 2002. As of the date of adoption, the Company had unamortized goodwill in the amount of $13.7 million and unamortized identifiable intangible assets in the amount of $0.1 million, both of which were subject to the transition provisions of SFAS No. 141 and 142. Amortization expense related to goodwill was $1.4 million and $1.9 million for the years ended December 31, 2001 and 2000, respectively. Because of the extensive effort needed to comply with adopting SFAS No. 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the Company's financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When a liability is initially recorded, an entity must capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The Company is required to adopt the provisions of SFAS No. 143 for fiscal years beginning after June 15, 2002. The Company is currently assessing whether SFAS No. 143 will have an impact on its financial statements. In August 2001, the FASB issued SFAS No. 144, which supersedes both SFAS No. 121 and the accounting and reporting provisions of APB Opinion No. 30, "Reporting and Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequent Occurring Events and Transactions"(Opinion No. 30), for the disposal of a segment of a business (as previously defined in that Opinion). SFAS No. 144 provides guidance on how a long-lived asset that is used, as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. SFAS No. 144 retains the basic provisions of Opinion No. 30 on how to present discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will not result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under SFAS No. 142, "Goodwill and Other Intangible Assets". The Company is required to adopt SFAS No. 144 no later than the year beginning after December 15, 2001, and plans to adopt its provisions for the year ending December 31, 2002. Management does not expect the adoption of SFAS No. 144 to have a material impact on the Company's financial statements because the impairment assessment under SFAS No. 144 is largely unchanged from SFAS No. 121. The provisions of the Statement for assets held for sale or other disposals generally are required to be applied prospectively after the adoption date to newly initiated disposal activities. Therefore, management cannot fully determine the potential effects that adoption of SFAS No. 144 will have on the Company's financial statements. 16 Management's Discussion And Analysis Of Financial Condition And Results Of Operations Market Risk The Company is exposed to changes in financial market conditions in the normal course of its business, including changes in interest rates and foreign currency exchange rates. At December 31, 2001, the Company had no open derivative instrument contracts (see note 15 to the Consolidated Financial Statements). Financial instruments related to foreign operations were limited to short-term debt denominated in Japanese yen with an U.S. dollar equivalent of $7.9 million. Due to the short-term nature and amount of this yen obligation, the Company does not consider its exposure to fluctuations in foreign currency exchange rates or interest rates to be material. The Company typically utilizes fixed and variable-rate debt to maintain liquidity and fund its domestic business operations, with the terms and amounts based on business requirements, market conditions and other factors. At December 31, 2001, this included long-term, fixed rate debt denominated in U.S. dollars, the fair value of which was approximately $4.8 million. A 100 basis point change in interest rates (all other variables held constant) at December 31, 2001, would result in an approximate $0.1 million annualized change in fair value but would not affect interest expense or cash flow. At December 31, 2001, there was no variable rate debt outstanding. Forward-Looking Statements Certain statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations that relate to earnings forecasts and future economic conditions, as well as other statements in this Annual Report that are not historical in nature, may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, as well as other forward-looking statements made from time to time by the Company, or in the Company's press releases and filings with the U.S. Securities and Exchange Commission, are based on certain underlying assumptions and expectations of management. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those expressed in such forward-looking statements. Such risks and uncertainties include, but are not limited to, general economic conditions, availability and pricing of raw materials including hydroxylamine, supply/demand balance for key products, new product development, manufacturing efficiencies, conditions of and product demand by key customers, the timely completion and start up of construction projects, pricing pressure as a result of domestic and international market forces and insurance coverage and timing of any claim payments related to the disruption in supply of hydroxylamine, and other factors as may be discussed in the Company's Form 10-K for the fiscal year ended December 31, 2001. 17 Consolidated Balance Sheets
December 31 (In Thousands of Dollars) ------------------------- 2001 2000 -------------------- Assets Current assets: Cash and cash equivalents $ 43,864 5,594 Receivables Trade, less allowance for doubtful accounts of $747 and $388, respectively 36,354 47,497 Other 228 5,923 -------------------- Total receivables 36,582 53,420 -------------------- Inventories: Finished products 35,157 60,890 Work in process 828 1,663 Raw materials and supplies 12,475 16,624 -------------------- Total inventories 48,460 79,177 -------------------- Prepaid expenses and other current assets 7,690 11,112 -------------------- Total current assets 136,596 149,303 -------------------- Investments 1,045 1,552 Intangible and other assets, at cost less amortization 13,844 16,594 Property, plant and equipment, net 150,959 216,294 -------------------- $ 302,444 383,743 ==================== Liabilities and Stockholders' Equity Current liabilities: Notes payable $ 7,916 7,689 Deferred revenue 890 1,396 Accounts payable - trade (including book overdrafts of $1,957 and $6,152, respectively) 14,446 29,750 Accrued expenses and other current liabilities 16,484 15,515 Net current liabilities of discontinued operations 756 170 -------------------- Total current liabilities 40,492 54,520 -------------------- Long-term debt, excluding current installments 4,755 41,640 Other long-term liabilities 27,647 27,201 Deferred income taxes 9,660 24,919 Minority interest -- 649 Stockholders' equity: Serial preferred stock. Authorized 20,000,000 shares; none issued -- -- Common stock of $1 par value. Authorized 100,000,000 shares: outstanding 14,053,460 and 14,146,159 shares, respectively 14,053 14,146 Additional paid-in capital 29,398 27,672 Unearned compensation (683) -- Accumulated other comprehensive income 1,368 627 Retained earnings 175,754 192,369 -------------------- Total stockholders' equity 219,890 234,814 -------------------- $ 302,444 383,743 ====================
See accompanying notes to consolidated financial statements. 18 Consolidated Statements Of Operations
Years ended December 31 (In Thousands of Dollars, Except Per Share Amounts) --------------------------------------------------- 2001 2000 1999 --------------------------------- Sales $ 309,974 383,879 321,943 Cost of sales 240,370 288,202 230,275 --------------------------------- Gross margin 69,604 95,677 91,668 General, selling and administrative expenses 56,943 58,599 50,605 Research and development expenses 8,004 8,046 7,433 Loss on disposal and costs to exit fine chemicals business 28,438 -- -- Other operating income, net 10,641 9,606 3,641 --------------------------------- Operating earnings (loss) (13,140) 38,638 37,271 Interest income 973 438 1,363 Interest expense 2,222 2,766 2,145 Other income (expense), net 1,063 (143) (536) --------------------------------- Earnings (loss) from continuing operations before income taxes (13,326) 36,167 35,953 Income tax expense (benefit) (5,997) 13,563 13,480 --------------------------------- Earnings (loss) from continuing operations (7,329) 22,604 22,473 Gain on disposal of discontinued businesses, net -- 9,656 646 --------------------------------- Net earnings (loss) $ (7,329) 32,260 23,119 ================================= Earnings (loss) per common share: Earnings (loss) from continuing operations $ (0.52) 1.44 1.23 Gain on disposal of discontinued businesses, net -- .62 .03 --------------------------------- Net earnings (loss) $ (0.52) 2.06 1.26 ================================= Earnings (loss) per common share, assuming dilution: Earnings (loss) from continuing operations $ (0.52) 1.43 1.22 Gain on disposal of discontinued businesses, net -- .61 .03 --------------------------------- Net earnings (loss) $ (0.52) 2.04 1.25 =================================
See accompanying notes to consolidated financial statements. 19 Consolidated Statements Of Stockholders' Equity
Years ended December 31, 2001, 2000 and 1999 (In Thousands of Dollars, Except Share Amounts) ----------------------------------------------------------------------------- Accumulated Common Stock Additional Other ------------------------- Paid-In Unearned Comprehensive Retained Shares Amount Capital Compensation Income Earnings ----------------------------------------------------------------------------- Balance, December 31, 1998 18,445,391 $ 18,445 22,212 -- (293) 245,118 Net earnings -- -- -- -- -- 23,119 Dividends declared - $.40 per share -- -- -- -- -- (7,276) Common stock issued: Employee stock options 36,770 37 607 -- -- -- Convertible debenture options 129,811 130 988 -- -- -- Employee Stock Purchase Plan 47,451 47 963 -- -- -- Purchase and retirement of common shares (758,100) (758) -- -- -- (15,969) Income tax benefit on exercise of stock options and convertible debenture options -- -- 773 -- -- Foreign currency translation adjustments -- -- -- -- 580 -- ----------------------------------------------------------------------------- Balance, December 31, 1999 17,901,323 17,901 25,543 -- 287 244,992 ----------------------------------------------------------------------------- Net earnings-- -- -- -- -- -- 32,260 Dividends declared - $.40 per share -- -- -- -- -- (6,157) Common stock issued: Employee stock options 127,398 127 888 -- -- (11) Employee Stock Purchase Plan 38,238 38 475 -- -- (32) Purchase and retirement of common shares (3,920,800) (3,920) -- -- -- (78,683) Income tax benefit on exercise of stock options -- -- 766 -- -- -- Foreign currency translation adjustments -- -- -- -- 340 -- ----------------------------------------------------------------------------- Balance, December 31, 2000 14,146,159 14,146 27,672 -- 627 192,369 ----------------------------------------------------------------------------- Net loss -- -- -- -- -- (7,329) Dividends declared - $.40 per share -- -- -- -- -- (5,650) Common stock issued: Employee stock options 19,934 20 354 -- -- -- Convertible debenture options 6,039 6 22 -- -- -- Restricted stock awards 35,000 35 686 (721) -- -- Amortization of unearned compensation, restricted stock -- -- -- 38 -- -- Employee Stock Purchase Plan 32,728 32 589 -- -- (14) Purchase and retirement of common shares (186,400) (186) -- -- -- (3,622) Income tax benefit on exercise of stock options and convertible debenture options -- -- 75 -- -- -- Foreign currency translation adjustments -- -- -- -- 741 -- ----------------------------------------------------------------------------- Balance, December 31, 2001 14,053,460 $ 14,053 29,398 (683) 1,368 175,754 ============================================================================= Total comprehensive income (loss): Net loss for year ended December 31, 2001 $ (7,329) Foreign currency translation adjustment, net of taxes of $445 741 -------- Total comprehensive loss for year ended December 31, 2001 $ (6,588) ======== Net earnings for year ended December 31, 2000 $ 32,260 Foreign currency translation adjustment, net of taxes of $204 340 -------- Total comprehensive income for year ended December 31, 2000 $ 32,600 ======== Net earnings for year ended December 31, 1999 $ 23,119 Foreign currency translation adjustment, net of taxes of $142 237 Reclassification adjustment for foreign currency translation adjustment included in net earnings, net of taxes of $206 343 -------- Total comprehensive income for year ended December 31, 1999 $ 23,699 ========
See accompanying notes to consolidated financial statements. 20 Consolidated Statements Of Cash Flows
Years ended December 31 (In Thousands of Dollars) -------------------------------- 2001 2000 1999 -------------------------------- Cash flows from operating activities: Net earnings (loss) $ (7,329) 32,260 23,119 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 24,649 28,454 26,988 Provision for losses on receivables 682 79 133 Deferred income taxes (15,531) 6,699 5,533 Net gain on disposal of discontinued businesses, net of taxes -- (9,656) (646) Net loss on disposal of fine chemicals business 28,438 -- -- Gain on sale of equity investees -- -- (1,605) Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Receivables 8,426 12,326 (5,920) Inventories 1,878 (16,514) (11,368) Prepaid expenses (473) (837) (2,042) Accounts payable (14,156) 10,831 (3,101) Accrued expenses and other current liabilities (2,533) (1,589) 814 Deferred revenue and other long-term liabilities 1,290 2,095 6,176 Other, net (62) 474 1,390 -------------------------------- Net cash provided by continuing operations 25,279 64,622 39,471 Net cash provided by discontinued operations -- -- 5,245 -------------------------------- Net cash provided by operating activities 25,279 64,622 44,716 -------------------------------- Cash flows from investing activities: Capital expenditures (19,248) (16,932) (24,645) Acquisitions of businesses -- -- (3,000) Proceeds from disposal of businesses 78,850 12,583 17,857 Proceeds from collection of note receivable -- -- 29,569 Proceeds from sale of captive insurance investment 1,638 -- -- Other, net (1,611) 434 -- -------------------------------- Net cash provided by (used in) investing activities 59,629 (3,915) 19,781 -------------------------------- Cash flows from financing activities: Net borrowings (repayments) on notes payable (17,150) 17,437 (38,691) Principal repayments of long-term debt (20,000) -- (23) Dividends (5,650) (6,157) (7,276) Purchase of common stock (3,808) (82,603) (16,676) Proceeds from issuance of common stock 461 1,780 1,536 -------------------------------- Net cash used in financing activities (46,147) (69,543) (61,130) -------------------------------- Effect of exchange rate changes on cash (491) (121) (42) -------------------------------- Net increase (decrease) in cash and cash equivalents 38,270 (8,957) 3,325 Cash and cash equivalents at beginning of year 5,594 14,551 11,226 -------------------------------- Cash and cash equivalents at end of year $ 43,864 5,594 14,551 ================================ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized $ 1,819 2,733 2,144 ================================ Income taxes (refund), net $ 3,846 (2,973) 272 ================================
See accompanying notes to consolidated financial statements. 21 Notes To Consolidated Financial Statements December 31, 2001, 2000, and 1999 (In thousands of dollars, except share data and option contract strike prices; disclosures included in the Notes to Consolidated Financial Statements relate to continuing operations, unless otherwise indicated.) 1. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The principal businesses of the Company involve the production of electronic and other specialty chemicals for use in the semiconductor industry and in pharmaceutical, polymer, photographic, photosensitive and agricultural applications, as well as the production of polyurethane chemicals. Further descriptions of the Company's products and their relative significance to its operations are included in the segment information data in note 12. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Recognition of Revenue Revenue is recognized when the earning process is complete and the risks and rewards of ownership have transferred to the customer, which is generally considered to have occurred when finished product has been shipped and title and risk of ownership pass. Inventories Inventories are stated principally at average cost or at market, if lower. Inventory consists of raw materials, supplies and finished goods. Long-lived Assets Property, plant and equipment are stated on the basis of historical cost less accumulated depreciation. Expenditures for renewals, replacements and improvements are capitalized. Maintenance and repairs are charged to operating expenses as incurred. Long-lived assets and certain identifiable intangibles, primarily goodwill, to be held and used by the Company are reviewed for impairment when the facts and circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment is assessed when undiscounted, expected future cash flows derived from an asset are less than its carrying amount. If assets are considered to be impaired, the impairment is measured as the amount by which the carrying value of the assets exceeds their fair value, and any related losses are then recognized in operating results. Long-lived assets and certain identifiable intangibles to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. Depreciation and Amortization Depreciation of plant and equipment is based on cost and the estimated useful lives of the separate units of property. The straight-line method is used in determining the amount of depreciation charged to expense. Goodwill of businesses acquired is generally amortized over periods up to 20 years using the straight-line method. Other intangibles are amortized over their estimated useful lives (5-17 years) using the straight-line method. Loan costs are amortized over the terms of related loans using the interest method. Pension Plans Pension cost is determined using the "projected unit credit" actuarial method for financial reporting purposes. The Company's funding policy is to contribute annually amounts not less than the minimum requirements of the Employee Retirement Income Security Act of 1974. Incentive Compensation The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." In accounting for employee stock options and similar equity instruments, companies are given the choice of either recognizing related compensation cost by adopting the fair market value method, or to continue using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees," and supplementally disclose the proforma effect on earnings and earnings per share using SFAS No. 123 measurement criteria. The Company elected to continue to follow the requirements of APB No. 25, and accordingly, will continue to measure compensation cost using the intrinsic value-based method as prescribed. All outstanding stock options are nonqualified and require no charges to expense upon grant or exercise. Options under all plans are granted at the market price of the shares on the date of the grants, with vesting occurring no earlier than six months after grant and expiration no later than ten years after grant. The Company receives a tax benefit from option exercises, resulting in ordinary income to option recipients, that is included in stockholders' equity. 22 Notes To Consolidated Financial Statements The Company has various nonqualified plans that act to restore earned benefits limited by income tax regulations, or allow for other compensation deferrals. Beginning in July 1997, participants in certain of these plans could elect to convert existing deferred balances and/or future deferrals, at the start of each new year, into phantom share units tracking the performance of the Company's stock. Additionally, a fifteen percent (15%) discount on the market value of the stock at the original conversion date and each new plan year is given to those participants making this election. Beginning in 1998, Company officers could elect to defer a portion of salary and/or bonuses into phantom share units on a pretax basis at a fifteen percent (15%) discount. Phantom share unit compensation plan discounts are amortized over various holding periods of up to three years. The share units are credited with equivalent dividends equal to cash dividends paid by the Company. The equivalent dividends are expensed through the statement of operations. Share units are acquired by employee participants electing to defer salary and bonus payments, or by participating Company directors electing to defer retainer or per diem payments. Phantom share units are settled through the distribution of cash and require charges or credits to the statement of operations based on changes in the market value of the Company's stock. Cash and Cash Equivalents The Company considers all short-term investments with original maturities of three months or less to be cash equivalents. Excess cash is invested in low-risk, highly liquid money market fund instruments where preservation of principal is the primary objective. Cash and cash equivalents at December 31, 2001 were primarily concentrated with one financial institution. Investments At December 31, 2001 and 2000, all the Company's investments were accounted for using the cost method because the Company did not exercise significant influence over these investments. Investments are classified as available-for-sale as defined by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At December 31, 2001 and 2000, cost approximated fair value. Contingencies Estimates of loss contingencies, including environmental liability costs for remediation, are charged to expense when it is probable an asset has been impaired or a liability incurred and the amount can be reasonably estimated. If a potentially material loss contingency is reasonably possible, or probable but cannot be estimated, then the nature of the contingency and an estimated range of possible loss, if determinable and material, are disclosed. Foreign Currency Translation Financial statements of foreign subsidiaries are translated into U.S. dollars at current rates, except that revenues, costs and expenses are translated at average current rates during each reporting period. Net exchange gains or losses resulting from the translation of foreign financial statements and the effect of exchange rate changes on intercompany transactions of a long-term investment nature are accumulated net of taxes in other comprehensive income. Derivative Financial Instruments Effective January 01, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The statement establishes accounting and reporting standards for derivative instruments and for hedging activities. All derivatives are required to be recognized as either assets or liabilities in the balance sheet and measured at fair value. Changes in fair value are reported either in earnings or other comprehensive income depending on the intended use of the derivative and the resulting designation. Entities applying hedge accounting are required to establish at the inception of the hedge the method used to assess the effectiveness of the hedging derivative and the measurement approach for determining any ineffective aspect of the hedge. The adoption of this statement did not have a material impact on the Company's financial statements. The Company uses foreign currency option contracts and forward exchange contracts to manage exposure on certain foreign receivables and firm sales commitments to be denominated in currencies other than U.S. dollars. Prior to the adoption of SFAS No. 133, accounting treatment for gains and losses on contracts designated as hedges of identifiable foreign currency sales commitments involved deferring recognition until the related transactions were consummated. When consummated, these gains and losses were recorded in net earnings (see note 15) as part of the underlying transaction. Future Impact of Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also specifies criteria, which intangible assets acquired in a purchase method business combination must meet, to be recognized and reported apart from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with its provisions. SFAS No. 142 will also require that intangible assets with estimable useful lives be amortized over the respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," or as described below, SFAS Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The Company is required to adopt the provisions of SFAS No. 141 effective immediately and SFAS No. 142 effective January 1, 2002. As of December 31, 2001, the Company had unamortized goodwill in the amount of $13,724 and unamortized identifiable intangible assets in the amount of $120, both of which were subject to the transition provisions of SFAS No. 141 and 142. Amortization expense related to goodwill was $1,381 and $1,913 for the years ended December 31, 2001 and 2000, respectively. Because of the extensive effort needed to comply with adopting SFAS No. 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the Company's financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. 23 Notes To Consolidated Financial Statements In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When a liability is initially recorded, an entity must capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The Company is required to adopt the provisions of SFAS No. 143 for fiscal years beginning after June 15, 2002. The Company is currently assessing whether SFAS No. 143 will have an impact on its financial statements. In August 2001, the FASB issued SFAS No. 144, which supersedes both SFAS No. 121 and the accounting and reporting provisions of APB Opinion No. 30, "Reporting and Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequent Occurring Events and Transactions" (Opinion No. 30), for the disposal of a segment of a business (as previously defined in that Opinion). SFAS No. 144 provides guidance on how a long-lived asset that is used as part of a group should be evaluated for impairment, establishes criteria for when a long-lived asset is held for sale, and prescribes the accounting for a long-lived asset that will be disposed of other than by sale. SFAS No. 144 retains the basic provisions of Opinion No. 30 on how to present discontinued operations in the income statement but broadens that presentation to include a component of an entity (rather than a segment of a business). Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will not result in a write-down of goodwill. Rather, goodwill is evaluated for impairment under SFAS No. 142, "Goodwill and Other Intangible Assets." The Company is required to adopt SFAS No. 144 no later than the year beginning after December 15, 2001, and plans to adopt its provisions for the year ending December 31, 2002. Management does not expect the adoption of SFAS No. 144 to have a material impact on the Company's financial statements because the impairment assessment under SFAs No. 144 is largely unchanged from SFAS No. 121. The provisions of the statement for assets held for sale or other disposals generally are required to be applied prospectively after the adoption date to newly initiated disposal activities. Therefore, management cannot fully determine the potential effects that adoption of SFAS No. 144 will have on the Company's financial statements. Reclassifications Certain 2000 and 1999 amounts have been reclassified to conform with the 2001 presentation. 2. Acquisitions and Disposals Acquisitions In October 2001, the twelve and one-half percent (12.5%) minority interest stake previously held by management members of TriQuest, L.P. was purchased by the Company giving it total ownership of TriQuest, L.P. as a result. In September 1999, the Company acquired a choline raw material business from DCV, a holding company established by a joint venture between DuPont and ConAgra, for approximately $3,000 in cash. Choline is an ingredient in photoresist strippers used to manufacture printed wire boards and other electronic interconnects. Disposals In May 2001, the Board of Directors approved a plan to exit the custom and fine chemicals business and on June 13, 2001, the Company executed an agreement to sell the business to Albemarle Corporation ("Albemarle") in an all cash transaction. The transaction was completed on July 6, 2001, with an effective date of June 30, 2001, with proceeds received in the amount of $78,850. The agreement also provides for potential additional payments, not expected to exceed $10,000, contingent upon the profit contribution from a specific toll-manufactured product from 2002 through 2004. Assets sold in the transaction included the Company's cGMP pilot plant located at the Company's Dayton, OH facility and its plant site at Tyrone, PA. The Company's pharmaceutical contract research and development business and fine chemicals product lines, including FirstCure(R) performance polymer products, were also included in the sale. As a result of the sale of the custom and fine chemical business, contract research and development and fine chemicals manufacturing at Pascagoula, MS were discontinued and these assets were written-off. As a result of these actions, the Company recorded a pretax loss of $27,500 in the second quarter of 2001 in its Electronic and Other Specialty Chemicals segment. An additional loss of $938 was recorded in the second half of the year, primarily related to post-closing adjustments to the selling price. The components of the loss associated with exiting the custom and fine chemicals business include a $19,900 net asset impairment loss, $6,138 for severance and other accrued exit costs and a $2,400 write-off of inventory and other assets. The asset impairment loss of $19,900 was due to the decision to exit the custom and fine chemicals business. Other manufacturing assets associated with the custom and fine chemicals business were abandoned and written down to zero because the Company is prohibited from manufacturing the product lines sold to Albemarle for a period of ten years and has no current use or plans for future use for these assets. Also included in the impairment loss was the write-off of $3,500 of capitalized software costs directly associated with fine chemical operations. Accrued exit costs at June 30, 2001, included $3,237 in severance, $810 in required payments to lenders stemming from the sale and $1,153 in other costs, primarily related to the disposal of residual inventory. Severance costs covered 71 employees, 61 of whom were terminated as of December 31, 2001. Inventory and other assets written-off included $1,900 of inventory of product lines not purchased by Albemarle. The value of these product lines was adversely affected by the decision to exit the fine chemical business. 24 Notes To Consolidated Financial Statements Accrual for Exiting Custom and Fine Chemicals
Total Severance Lender Payments Other/*/ ------------------------------------------------- Balance, December 31,2000 $ -- -- -- -- Provision 5,200 3,237 810 1,153 Balance, June 30,2001 5,200 3,237 810 1,153 Provision Adjustments 938 (117) 154 901 Cash Expenditure 4,440 2,872 964 604 ------------------------------------------------- Balance December 31, 2001 $1,698 248 -- 1,450 =================================================
/*/ Covers disposition of residual inventory and post-closing adjustments. Custom and fine chemicals pretax operating profits (losses), excluding the $28,438 loss on disposal and exit costs, for six months ended June 30, 2001, and twelve months ended December 31, 2000 and 1999, were $(2,523), $(2,038), and $2,856, respectively. Revenues for the six months ended June 30, 2001, and twelve months ended December 31, 2000 and 1999, were $32,077, $70,352 and $68,124, respectively. Discontinued Operations Effective December 1, 1999, the Company sold its wholly owned subsidiaries, Callidus Technologies Inc. ("CTI") and Plasma Energy Corporation, to Howe-Baker International Inc., for $8,106 in cash. A plan for disposal of this business was adopted in the fourth quarter of 1998 with no loss anticipated. A pretax loss of $4,500 was recognized in 1999 on the disposal as operating results during the disposal period were lower than projected, primarily due to the decision to exit CTI's European operations, and changes were made to the disposition plan in conjunction with the final sales agreement. This sale completed the disposition of the Company's Engineered Products and Services segment. Also in 1999, the Company reversed $318 of accruals related to the disposal of Plasma Processing Corporation, sold in 1997. In the third quarter of 1998, the Companys' board of directors approved a plan to discontinue its steel operations and in February 2000, the Company sold its wholly owned subsidiary, FirstMiss Steel, Inc., for $12,583. The estimated costs included $1,400 for employee retention and severance pay, $1,628 for anticipated operating losses and $100 in other accruals. An estimated loss on disposal of $18,000 was recorded in the third quarter of 1998, which included accruing $3,128 of estimated costs to exit this business. In the fourth quarter of 1999, the estimated loss on disposal was reduced by $1,281, reflecting an estimated $2,087 of additional gain from the sale of assets, net of $806 of additional estimated operating losses through the February 13, 2000, closing. On October 20, 1995, the Company's gold operations were discontinued through the distribution to its shareholders of its entire ownership of Getchell Gold Corporation. A reduction in estimated tax liabilities of $2,388 was recorded in the fourth quarter of 1999 following final settlement of federal tax examinations covering Getchell Gold's operations through the distribution date. A gain of $9,656 on disposal of discontinued operations was recorded during the quarter ending March 31, 2000. The gain included $10,097 from a reduction in estimated tax liabilities related to the distribution of Getchell Gold Corporation in 1995. The reduction in estimated tax liabilities resulted from the Company's reevaluation of tax exposure items associated with the Getchell Gold Corporation distribution. The Company reevaluated its tax exposure during the quarter ended March 31, 2000, when various statutes governing the handling of the disposition for tax purposes expired. Also during the first quarter of 2000, the Company recorded an additional $441 loss on disposal of discontinued operations related to final settlement of post-closure issues associated with the dispositions of CTI and FirstMiss Steel, Inc. Gain (loss) on Disposal of Discontinued Businesses Summary
Pretax Tax After tax 1999 gain/(loss) expense/(benefit) gain/(loss) -------------------------------------------- Accrual adjustment - FirstMiss Steel $ 1,281 501 780 Loss on disposal - CTI/PEC (4,500) (1,768) (2,732) Reduction in gold tax liability -- -- 2,388 Accrual adjustment - PPC 318 123 195 Other 25 10 15 ------------------------------------------ Gain (loss) on disposal of discontinued businesses, net $(2,876) (1,134) 646 ========================================== 2000 Reduction in gold tax liability $ -- -- 10,097 Accrual adjustment - CTI/PEC & FirstMiss Steel (700) (259) (441) ------------------------------------------ Gain (loss) on disposal of discontinued businesses, net $ (700) (259) 9,656 ==========================================
25 Notes To Consolidated Financial Statements The net assets and liabilities of discontinued operations included in the consolidated financial statements are classified as current assets, noncurrent assets and noncurrent liabilities by segment as follows:
Engineered Products Steel and Services and Other Total December 31 December 31 December 31 2001 2000 2001 2000 2001 2000 -------------------------------------------------------- Current assets $ 28 37 777 1,375 805 1,412 -------------------------------------------------------- Current liabilities (75) (99) (1,486) (1,483) (1,561) (1,582) -------------------------------------------------------- Net current liabilities of discontinued operations $(47) (62) (709) (108) (756) (170) ========================================================
3. Investments On January 22, 1998, the Company sold its 50% interest in Power Sources Inc. ("PSI") to Trigen Energy Corporation for a net cash amount of $18,986 after payments of incentives to former PSI management. A pretax gain of $10,069 was recognized in 1998, with an additional gain of $1,605, including interest, recognized in 1999 following resolution of contingencies related to the transaction. The Company received a promissory note from Getchell Gold Corporation, a former subsidiary, in October 1995. Subsequently, Getchell and Placer Dome Inc. merged in May 1999, and Getchell paid $29,569 representing all principal and interest due on the note to the Company. 4. Intangible and Other Assets The major classes of intangible and other assets are summarized below: December 31 ----------------------- 2001 2000 ----------------------- Goodwill $26,311 30,214 Other 322 2,003 ----------------------- 26,633 32,217 Less accumulated amortization 12,789 15,623 ----------------------- $13,844 16,594 ======================= The net carrying amounts of goodwill at December 31, 2001 and 2000 were $13,724 and $15,059, respectively. Amortization expense related to the above amounted to $1,414 in 2001, $2,090 in 2000 and $1,921 in 1999. 5. Property, Plant and Equipment A summary of property, plant and equipment, at cost, follows:
December 31 Estimated ----------------------- useful lives in years 2001 2000 ------------------------------------------------- Land and land improvements 10-20 $ 6,521 7,111 Buildings 20-45 26,923 33,767 Plant facilities and equipment 5-20 221,521 315,492 Other facilities and equipment 5-12 42,947 46,910 Construction in progress 6,571 3,950 ----------------------- Total property, plant and equipment 304,483 407,230 Less accumulated depreciation and amortization 153,524 190,936 ----------------------- Net property, plant and equipment $150,959 216,294 =======================
Depreciation and amortization expense related to the above was $23,235 in 2001, $26,364 in 2000 and $25,067 in 1999. There was no capitalized interest related to construction in progress in 2001, however, $107 and $739 of interest was capitalized in 2000 and 1999, respectively. 26 Notes To Consolidated Financial Statements 6. Long-Term Debt A summary of long-term debt follows: December 31 ----------------- 2001 2000 ----------------- Unsecured: Senior notes payable: Tranche A, 6.50%, repaid in 2001 $ -- 15,000 Tranche B, 6.75%, repaid in 2001 -- 5,000 Revolving credit facility, terminated July 2001 -- 17,150 BK International Corporation note, 6.25%, net of discount 4,755 4,490 ----------------- $ 4,755 41,640 ================= There are no compensating balance requirements under loan agreements in effect at December 31, 2001. The BK International Corporation note matures in the amount of $5,000 with repayment due within 90 days after December 31, 2002. Proceeds from the sale of the custom and fine chemicals business (described in Note 2) were used to prepay Tranches A and B of the Company's $20,000 senior notes and a make-whole penalty of $964, as loan covenant violations stemming from the sale transaction forced premature repayment. In addition, existing credit facility borrowings of $26,000 were repaid and the facility was terminated. The Company has access to $50,000 represented by two short-term bank revolving credit facilities (one for $35,000 and another for $15,000) with identical covenants that are both committed until September 2002. At December 31, 2001, the outstanding balance under the facilities was $7,916, denominated in Japanese yen. Outstanding letters of credit under the facility are $870, leaving $41,214 available for borrowings at December 31, 2001. Interest rates are based on the London Interbank Offered Rate, the federal funds rate or the prime rate. The average interest rate for the short-term facility was 0.51% for 2001. A facility fee of 0.150 of 1% per annum is charged for the facilities. Total facility fees were $22 for the year ended December 31, 2001. The two agreements contain various restrictions and covenants, the most significant of which requires a specified ratio of earnings before interest and taxes to cover fixed charges and specified debt to capitalization and debt to EBITDA ratios. At December 31, 2001, the Company was in compliance with these covenants. Prior to July 2001, the Company had a $100,000 revolving credit facility. At December 31, 2000, the outstanding balance under the facility was $17,150, at an average interest rate of 7.06%. A facility fee of $68, $125 and $125 was charged for the years ended December 31, 2001, 2000 and 1999, respectively. Prior to September 2001, the Company had access to a $10,000 short-term uncommitted facility for foreign or trade related borrowings. The total outstanding at December 31, 2000 was $7,689. The average interest rate for the short-term facility was 0.74% and 0.80% for 2001 and 2000, respectively. The Company also has access to an uncommitted facility for the issuance of foreign currency letters of credit. The total outstanding at December 31, 2001 and 2000, was $118 and $543, respectively. The possibility of default is considered remote but would cause these letters of credit to come due immediately. If this occurred, payments would be made from available cash or borrowings under a revolving credit facility. Total interest costs incurred for the years ended December 31, 2001, 2000 and 1999, including amounts capitalized in 2000 and 1999, were $2,222, $2,873 and $2,884, respectively. The Company is potentially restricted by covenants related to its revolving credit facility borrowings that could limit dividend payments. A fixed cost coverage covenant, which includes dividend, scheduled debt principal and interest payments, requires a minimum of 2.25 times annual earnings before interest and taxes in excess of fixed costs. Compliance with the covenant allows for Company retained earnings to be free of restrictions for dividend payments up to an amount of $7,233 for the year ended December 31, 2001. 27 Notes To Consolidated Financial Statements 7. Income Taxes Total income tax expense (benefit) for the years ended December 31, 2001, 2000, and 1999, was allocated as follows:
2001 2000 1999 ------------------------------- Continuing operations $(5,997) 13,563 13,480 Discontinued operations -- (10,097) (1,124) Other comprehensive income - foreign currency translation 445 204 142 Stockholders' equity related to compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes (75) (766) (773) ------------------------------- $(5,627) 2,904 11,725 ===============================
Income tax expense (benefit) differs from the statutory federal rate of 35% applied to earnings (loss) from continuing operations before income taxes (benefit) for the years ended December 31, 2001, 2000 and 1999 as follows:
2001 2000 1999 ------------------------------- Computed "expected" tax expense (benefit) $(4,664) 12,659 12,584 State income taxes benefit, net of federal income taxes (423) 533 928 Amortization of goodwill -- 246 267 Write-off of goodwill (1,014) -- -- Exempt earnings of Foreign Sales Corporation (57) (122) (149) Increase in net cash surrender value of life insurance (760) (478) (381) Nondeductible portion of travel expenses 75 100 132 Tax provision adjustments for pending Internal Revenue Service matters 600 -- -- Other, net 246 625 99 ------------------------------- Actual tax expense of continuing operations $(5,997) 13,563 13,480 ===============================
Components of income tax expense (benefit) for the years ended December 31, 2001, 2000 and 1999 are as follows: 2001 2000 1999 ----------------------------- Current: Federal $ 6,538 5,340 6,120 State 1,882 570 765 Foreign 1,114 954 1,062 ----------------------------- 9,534 6,864 7,947 ----------------------------- Deferred: Federal (13,031) 6,283 4,870 State (2,533) 251 663 Foreign 33 165 -- ----------------------------- (15,531) 6,699 5,533 ----------------------------- Total: Federal (6,493) 11,623 10,990 State (651) 821 1,428 Foreign 1,147 1,119 1,062 ----------------------------- $ (5,997) 13,563 13,480 ============================= 28 Notes To Consolidated Financial Statements The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and the deferred tax liabilities at December 31, 2001 and 2000 are as follows:
December 31 -------------------- 2001 2000 -------------------- Deferred tax assets: Note and accounts receivable, principally due to $ 886 12 allowance for doubtful accounts Deferred compensation 5,832 5,672 Accrued incentive compensation 273 314 Inventory costs 836 1,286 Foreign net operating loss carry forward 1,847 -- State net operating loss carry forward -- 416 Accrued vacation costs 781 836 Accrued pension costs 3,895 3,502 Other, net 2,105 467 -------------------- Total gross deferred tax assets 16,455 12,505 Less: valuation allowance 1,847 -- -------------------- Net deferred tax assets 14,608 12,505 -------------------- Deferred tax liabilities: Plant and equipment, principally depreciation differences (21,672) (33,525) State income taxes -- (1,575) -------------------- Total gross deferred tax liabilities (21,672) (35,100) -------------------- Net deferred tax liability $ (7,064) (22,595) ====================
The net deferred tax liability at December 31, 2001 and 2000, consists of a long-term deferred tax liability of $9,660 and $24,919, respectively, and a current deferred tax asset of $2,596 and $2,324, respectively. The current deferred tax asset is included in prepaid expenses and other current assets in the consolidated balance sheets. The net increase in the valuation allowance was $1,847 for the period ending December 31, 2001. The valuation allowance is related to foreign net operating losses of $4,389 (expiring in 2006) which the Company believes are less than likely to be recognized. Subsequently recognized tax benefits relating to the allowance for deferred tax assets will be reported in the consolidated statement of operations. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, recoverable taxes paid, projected taxable income and tax planning strategies in making this assessment. Based on the reversal of existing tax liabilities and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefit of these deductible differences. Current income taxes payable of $1,506 at December 31, 2001, and refundable income taxes of $2,577 at December 31, 2000, are included in accrued expenses and other current liabilities and other receivables, respectively in the accompanying consolidated balance sheets. The Company's federal income tax returns have been examined and closed through June 30, 1996. Examinations of the Company's federal income tax returns for the periods ended December 31, 1996 and 1997 are currently in progress. Management believes that adequate provision has been made for any adjustments that might be assessed for open years through December 31, 2001. Foreign income taxes are based on earnings (loss) from foreign operations of $(822), $3,478 and $1,509 for the years ended December 31, 2001, 2000 and 1999, respectively. 29 Notes To Consolidated Financial Statements 8. Employee Benefit and Incentive Plans The Company has a noncontributory defined benefit pension plan covering substantially all full-time permanent employees. The benefits are based on years of service and participants' compensation during the last five years of employment. The following tables present plan information at December 31, 2001 and 2000, and for the years ended December 31, 2001, 2000 and 1999: 2001 2000 ---------------------- Change in Benefit Obligation Benefit obligation at beginning of year $ 44,332 44,081 Service cost 2,038 2,094 Interest cost 3,289 3,274 Actuarial gain (527) (1,040) Benefits paid (1,298) (4,077) ---------------------- Benefit obligation at end of year $ 47,834 44,332 ====================== Change in Plan Assets Fair value of plan assets at beginning of year $ 40,956 43,910 Actual return on plan assets 456 863 Employer contribution -- 260 Benefits paid (1,298) (4,077) ---------------------- Fair value of plan assets at end of year $ 40,114 40,956 ====================== Reconciliation of Funded Status Funded status $ (7,720) (3,376) Unrecognized net actuarial gain (2,508) (5,238) Unrecognized transition asset (958) (1,263) Unrecognized prior service cost 239 291 ---------------------- Accrued pension liability $(10,947) (9,586) ====================== 2001 2000 1999 ------------------------------- Weighted-Average Assumptions as of December 31 Discount rate - net periodic pension cost 7.75% 8.00% 7.00% Discount rate - benefit obligations 7.50% 7.75% 8.00% Expected return on plan assets 10.00% 10.00% 9.50% Rate of compensation increase 4.00% 4.00% 4.00% Components of Net Periodic Pension Cost Service cost $ 2,038 2,094 3,684 Interest cost 3,289 3,274 2,680 Expected return on plan assets (3,883) (4,197) (3,691) Recognized net actuarial gain (59) (301) (116) Amortization of transition asset (304) (304) (304) Amortization of prior service cost 43 43 49 ------------------------------- Net periodic pension cost $ 1,124 609 2,302 =============================== Net annual pension expense allocated to discontinued operations was $1,123 for the year ended December 31, 1999. Plan assets are invested primarily in equity securities and U.S. Government and corporate bonds. 30 Notes To Consolidated Financial Statements The Company has a contributory 401(k) savings plan and an employee stock ownership plan, both of which cover substantially all eligible employees who have completed six months of service. Total expense under the plans amounted to approximately $1,269, $1,226 and $1,255 for the years ended December 31, 2001, 2000 and 1999, respectively. These plans and the defined benefit pension plan invest in the Company's stock. The total number of shares held by the plans at December 31, 2001 and 2000 was 376,188 and 399,422, respectively. The Company has various nonqualified plans that act to restore earned benefits limited by income tax regulations, or allow for other compensation deferrals. Beginning in July 1997, participants in certain of these plans could elect to convert existing deferred balances and/or future deferrals, at the start of each new year, into phantom share units tracking the performance of the Company's stock. Additionally, a fifteen percent (15%) discount on the market value of the stock at the original conversion date and each new plan year is given to those participants making this election. Beginning in 1998, Company officers could elect to defer a portion of salary and/or bonuses into phantom share units on a pretax basis at a fifteen percent (15%) discount. The total liability for these deferrals at December 31, 2001 and 2000 is $1,752 and $1,654, respectively. Charges related to phantom share units, based on market value changes in the Company's stock, were $667 in 2001 and immaterial in 2000 and 1999. The nonqualified supplemental pension plan provides for incremental pension payments from the Company's funds. The total liability relating to this plan at December 31, 2001 and 2000, was $1,827 and $1,615, respectively. Net annual pension expense for this plan was $216, $178 and $205 for the years ended December 31, 2001, 2000 and 1999, respectively. The cost of the nonqualified benefit restoration plans for the 401(k) and ESOP was $103, $49 and $314 for the years ended December 2001, 2000 and 1999. Individual life insurance contracts were purchased, with the Company as beneficiary, to assist in the funding of portions of certain nonqualified deferred compensation plans covering directors, officers and key employees. The expense for these plans was $1,016, $932 and $964 for the years ended December 31, 2001, 2000 and 1999. Directors, officers and certain key employees of the Company participate in the long-term incentive plans (the "Plans") under which the Company has reserved shares of common stock for issuance. Awards under the Plans include stock options, stock appreciation rights, performance units, restricted stock, supplemental cash and such other forms as the Board of Directors may direct. At December 31, 2001, shares available for grant under the referenced plans totaled 397,703 shares of common stock. SFAS No. 123, "Accounting for Stock-Based Compensation," was adopted by the Company for fiscal years beginning after 1995. In accounting for employee stock options and similar equity instruments, companies are given the choice of either recognizing related compensation cost by adopting the fair market value method, or to continue using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees," and supplementally disclose the proforma effect on earnings and earnings per share using SFAS No. 123 measurement criteria. The Company elected to continue to follow the requirements of APB No. 25, and accordingly, will continue to measure compensation cost using the intrinsic value-based method as prescribed. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants made during the years ended December 31, 2001, 2000 and 1999, respectively: dividend yields of 1.6, 2.0 and 2.0 percent; expected volatilities of 34, 32 and 27 percent; risk-free interest rates of 5.3, 7.1 and 6.1 percent, and expected option lives of four years for all periods presented. 31 Notes To Consolidated Financial Statements A summary of the status of the Company's stock option plans at December 31, 2001, 2000 and 1999, and changes during the years ended on those dates is presented below:
2001 2000 1999 --------------------------------------------------------------------------------------- Weighted-avg. Weighted-avg. Weighted-avg. Shares exercise price Shares exercise price Shares exercise price --------------------------------------------------------------------------------------- Stock Options: Outstanding at beginning of year 1,920,488 $ 20.59 1,659,295 $ 21.08 1,202,015 $ 21.84 Granted 365,616 25.35 409,631 19.13 545,168 19.02 Exercised (29,775) 20.83 (39,462) 17.53 (54,153) 15.71 Forfeited (11,000) 26.64 (108,976) 23.58 (33,735) 23.73 ---------- ---------- ---------- Outstanding at end of year 2,245,329 $ 22.16 1,920,488 $ 20.59 1,659,295 $ 21.08 Exercisable at end of year 2,200,289 1,827,165 1,407,079 ========== ========== ========== Weighted-average fair value of grants during year $ 7.57 $ 5.56 $ 4.88 ========= ========= ==========
The following table summarizes information about fixed stock options for the period ended December 31, 2001:
Options outstanding Options exercisable - --------------------------------------------------------------------------- ----------------------------- Weighted-avg. Range of Number remaining Weighted-avg. Number Weighted-avg. exercise prices outstanding contractual life exercise price exercisable exercise price $16.30 - $26.75 2,245,329 6.7 years $22.16 2,200,289 $21.34
Under the Company's application of APB No. 25 and related interpretations in accounting for its plans, no compensation cost has been recognized for its stock option plans. An immaterial charge related to grants to non- employee advisors, who fall outside of the scope of APB No. 25 and instead follow FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation," was recorded. Had compensation been determined based on the fair value at the grant dates for awards to employees and directors under the plan consistent with the method prescribed by SFAS No. 123, the Company's net earnings (loss), earnings (loss) per common share, and earnings (loss) per common share, assuming dilution, would have been reduced (increased) to the pro forma amounts indicated below for the years ended December 31:
2001 2000 1999 ---------------------------------- Net earnings (loss) As reported $ (7,329) $ 32,260 $ 23,119 Pro forma $ (9,229) $ 30,919 $ 20,434 Earnings (loss) per common share As reported $ (0.52) $ 2.06 $ 1.26 Pro forma $ (0.65) $ 1.97 $ 1.12 Earnings (loss) per common share, assuming dilution As reported $ (0.52) $ 2.04 $ 1.25 Pro forma $ (0.65) $ 1.96 $ 1.11
32 Notes To Consolidated Financial Statements 9. Stockholders' Equity The annual earnings (loss) per common share ("EPS") calculation is based on the collective averages of the weighted-average number of common shares outstanding during each quarter for earnings (loss) per common share and the collective averages of the weighted-average number of outstanding common shares and common share equivalents during each quarter for earnings (loss) per common share, assuming dilution. A reconciliation of the numerators and denominators for basic and diluted per share computations from continuing operations for the years ended December 31, 2001, 2000 and 1999, follows:
Weighted-avg. Income Shares Per Share (Numerator) (Denominator) Amount --------------------------------------- Basic and Diluted EPS Loss from continuing operations - 2001 $ (7,329) 14,135,311 $(0.52) =========== Basic EPS Earnings from continuing operations - 2000 $ 22,604 15,663,500 $ 1.44 Effect of Dilutive Securities Options -- 98,372 -- Convertible debenture options -- 33,905 -- ----------- Diluted EPS Earnings from continuing operations - 2000 $ 22,604 15,795,776 $ 1.43 =========== Basic EPS Earnings from continuing operations - 1999 $ 22,473 18,242,021 $ 1.23 Effect of Dilutive Securities Options -- 143,243 -- Convertible debenture options -- 84,705 -- ----------- Diluted EPS Earnings from continuing operations - 1999 $ 22,473 18,469,969 $ 1.22 ===========
Options and debenture options to purchase 2,279,812 shares of the Company's common stock were outstanding at December 31, 2001, but were not included in the computation of diluted EPS because results of operations for the year were a loss. Of these potentially dilutive options, 6,039 (these are the only debenture options remaining) expire in 2002, 22,542 expire in 2004, 189,113 expire in 2005, 200,938 expire in 2006, 309,390 expire in 2007, 257,615 expire in 2008, 512,125 expire in 2009, 388,950 expire in 2010 and 393,100 expire in 2011. In connection with the Shareholder Rights Plan adopted by the Company on October 30, 1996, preferred stock purchase rights were distributed to stockholders and are deemed to be attached to the outstanding shares of common stock of the Company. Under certain conditions, each right may be exercised to purchase one one-hundreth (1/100) share of a new series of preferred stock, at an exercise price of $100 per share (subject to adjustment). The rights, which do not have voting rights, expire in 2006, and may be redeemed by the Company at a price of $0.01 per right prior to a specified period of time after the occurrence of certain events. In certain events, each right (except certain rights beneficially owned by 10% or more owners, which rights are voided) will entitle its holder to purchase shares of common stock with a value of twice the then-current exercise price. In March 2001, the Company's directors authorized an additional $60,000 stock repurchase program. From inception in January 1997, through December 31, 2001, repurchase authorizations have reached a total of $230,000. 10. Commitments and Contingencies The Company has entered into various operating leases for transportation equipment (primarily railroad tank cars), chemical pipelines and storage facilities, office buildings and land and other miscellaneous items of equipment. The following is a schedule by year of future minimum rental payments for those operating leases with remaining noncancelable terms in excess of one year, as of December 31, 2001: Years ending Operating December 31 Leases ----------- ------ 2002 $ 2,976 2003 1,327 2004 496 2005 432 2006 147 ------- Total minimum payments required $ 5,378 ======= Provisions applicable to certain transportation equipment leases provide for mileage credits computed on the basis of usage. No recognition has been given to the effect of such credits in the amounts presented above. 33 Notes To Consolidated Financial Statements Rental expense, including short-term rentals (net of mileage credits of approximately $323, $110 and $365 for the years ended December 31, 2001, 2000 and 1999, respectively), was approximately $3,114, $3,283 and $1,820 for the years ended December 31, 2001, 2000 and 1999, respectively. In most cases, management expects that leases will be renewed or replaced by other leases in the normal course of business. Company operations are subject to a wide variety of environmental laws and regulations governing emissions to the air, discharges to water sources, and the handling, storage, treatment and disposal of waste materials, as well as other laws and regulations concerning health and safety conditions. The Company accrues for anticipated costs associated with investigatory and remediation efforts relating to the environment. At December 31, 2001 and 2000, the Company's estimated liability for these matters totaled $1,333 for both years as related to discontinued operations. The estimated liability related to continuing operations at December 31, 2001 and 2000, was $244 for both years. Based on information presently available, the Company believes any amounts paid in excess of the accrued liabilities will not have a material adverse effect on its financial position or results of operations. In June 2000, an explosion at the Nissin Chemical plant in Japan disrupted the Company's supply of hydroxylamine. This is a key ingredient in the Company's patented HDA(R) remover products for the semiconductor industry. The Nissin plant was the world's sole supplier of hydroxylamine until late 1999 when BASF established production in Germany. Initially, BASF's supply capabilities were less than the worldwide demand for hydroxylamine. As a result, BASF allocated hydroxylamine to its customers, including the Company, which in turn put its customers on allocation for its hydroxylamine-containing products. Subsequent capacity expansions by BASF and customer conservation methods taught by the Company contributed to eliminate the hydroxylamine shortage and enabled the Company to suspend allocations of HDA (R) remover products during 2001. However, allocations may become necessary again if demand picks up before additional supplies of hydroxylamine become available. Although both Nissin and Honeywell International, Inc. previously announced plans to construct new hydroxylamine plants, it now appears that a new Nissin plant is on hold indefinitely and Honeywell has announced a delay in completion of its anticipated hydroxylamine plant until 2004. While electronic chemical sales have been hurt by the disruption in hydroxylamine supply, the Company's business interruption insurance has helped to reduce the impact of the associated lost profits. The primary policy has a coverage limit of $25,000, less a one-time insurance deductible of $1,000, with an indemnity period for this claim of up to 30 months from June , 2000. Operations in Scotland are covered by a separate policy that provides a limit of liability of 6,000 British Pounds (approximately $8,500 in current U.S. dollars) with no deductible and an 18-month indemnity period from the date of loss. While the Company intends to vigorously pursue its claims with the insurance companies for its lost profits, the claims process can be lengthy and uncertain and successful recoveries cannot be predicted with certainty. Since June 2000, $12,900 has been recorded after meeting the one-time $1,000 deductible ($7,500 in 2001 and $5,400 in 2000) and reflected in the consolidated statement of operations as other operating income. At each quarter-end, the Company submits a claim for its losses for that quarter to the insurance company's adjuster. If the Company receives notification that payment will be made, a receivable is recorded at that quarter-end. A receivable balance of $3,400 was shown in other receivables at December 31, 2000, and was collected the first quarter of 2001. For the quarter ended December 31, 2001, the Company did not record an insurance recovery as it has been unable to reach an agreement with its carrier as to the amount of additional loss. Accordingly, no receivable was reflected at December 31, 2001. The Company has pending several claims incurred in the normal course of business which, in the opinion of management and legal counsel, should be disposed of without material effect on the accompanying consolidated financial statements. 11. Other Income (Expense) Other income (expense), net, for the years ended December 31 consists of: 2001 2000 1999 ----------------------------- Gain on sale of PSI (see note 3) $ -- -- 1,605 Gain on sale of captive insurance investment 1,138 -- -- Loss on note receivable -- -- (1,000) Other (75) (143) (1,141) ----------------------------- $ 1,063 (143) (536) ============================= 34 Notes To Consolidated Financial Statements 12. Segment Information The Company operates in two segments: Electronic and Other Specialty Chemicals and Polyurethane Chemicals. The Electronic and Other Specialty Chemicals segment produces specialty chemicals for use by others in electronic, agricultural, pharmaceutical, polymer and photosensitive applications. These Chemicals are typically produced by multi-step processing with products sold both on specification and performance. This segment includes research and development for new products and processes. The Polyurethane Chemicals segment produces aniline and nitrobenzene by a continuous production process. These chemicals generally require more processing to produce the end product used by consumers and are primarily sold under long-term contracts to industrial customers. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance and allocates resources based on the segment's profit or loss from operations before interest income and expense and income taxes. The Company's reportable segments are based on similarities in products and services, type and class of customers, production processes and methods of distribution. The polyurethane chemicals segment had unaffiliated major customer sales (sales to customer exceed ten percent of consolidated revenues) of $128,326, $147,229 and $111,151 for the years ended December 31, 2001, 2000 and 1999, respectively. The following is a breakdown by segment of selected consolidated financial information at December 31, 2001, 2000 and 1999 and for each of the years then ended:
2001 2000 1999 ----------------------------------- Sales to unaffiliated customers: Electronic and Other Special Chemicals $ 152,286 204,905 177,554 Polyurethane Chemicals 157,688 178,974 144,389 ----------------------------------- Total $ 309,974 383,879 321,943 =================================== Operating profit (loss) before income taxes (benefit): Electronic and Other Specialty Chemicals $ (24,725) 17,854 18,048 Polyurethane Chemicals 24,997 31,234 31,034 ----------------------------------- 272 49,088 49,082 Unallocated corporate expenses (13,412) (10,450) (11,811) Interest income (expense), net (1,249) (2,328) (782) Other income, net 1,063 (143) (536) ----------------------------------- Earnings (loss) from continuing operations before income taxes (benefit) $ (13,326) 36,167 35,953 =================================== Depreciation and amortization: Electronic and Other Specialty Chemicals $ 14,792 18,661 17,168 Polyurethane Chemicals 7,701 7,827 8,265 Corporate 2,156 1,966 1,555 ----------------------------------- Total $ 24,649 28,454 26,988 =================================== Identifiable assets: Electronic and Other Specialty Chemicals $ 144,888 252,041 253,014 Polyurethane Chemicals 98,990 103,610 100,976 ----------------------------------- 243,878 355,651 353,990 Corporate 58,566 28,092 45,865 Discontinued operations -- -- 2,532 ----------------------------------- Total $ 302,444 383,743 402,387 =================================== Capital expenditures: Electronic and Other Specialty Chemicals $ 14,203 11,307 16,399 Polyurethane Chemicals 3,996 4,186 3,245 Corporate 1,049 1,439 5,001 ----------------------------------- Total $ 19,248 16,932 24,645 ===================================
Electronic and Other Specialty Chemicals sales growth was hurt by a shortage of hydroxylamine raw material caused by an explosion in June 2000 at Nissin Chemical's plant in Japan. Net business interruption insurance of $5.4 million, after meeting a $1.0 million deductible, was recorded last year related to the incident and is reflected in other operating income. 35 Notes To Consolidated Financial Statements Revenues from sales to all foreign countries were $67,093, $69,341 and $47,345 in 2001, 2000 and 1999, respectively, and are attributed to those countries based on ship-to location of customers. Identifiable assets in foreign countries were $29,618, $25,580 and $21,943. Identifiable assets by segment are those assets used in the Company's operations. Corporate assets and investments are principally cash and cash equivalents, nontrade receivables and certain other investments. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on trade receivables. The Company believes that adequate allowances are maintained for any uncollectible trade receivables. Certain corporate expenses, primarily those related to the overall management of the Company, were not allocated to the operating segments. 13. Quarterly Financial Data (Unaudited) Selected quarterly financial data follows:
Quarters Ended Year Ended ----------------------------------------------------------------- 03/31 06/30 09/30 12/31 12/31 ----------------------------------------------------------------- 2001: Sales $ 91,673 89,009 61,529 67,763 309,974 ================================================================= Gross profit $ 22,109 16,795 13,379 17,321 69,604 ================================================================= Earnings (loss) from continuing operations $ 5,775 (16,920) (1,015) 4,831 (7,329) ================================================================= Net earnings (loss) $ 5,775 (16,920) (1,015) 4,831 (7,329) ================================================================= Earnings (loss) per common share: Continuing operations $ .41 (1.19) (.07) .34 (.52) ================================================================= Net earnings (loss) $ .41 (1.19) (.07) .34 (.52) ================================================================= Earnings (loss) per common share, assuming dilution: Continuing operations $ .40 (1.19) (.07) .34 (.52) ================================================================= Net earnings (loss) $ .40 (1.19) (.07) .34 (.52) =================================================================
Quarters Ended Year Ended ----------------------------------------------------------------- 03/31 06/30 09/30 12/31 12/31 ----------------------------------------------------------------- 2000: Sales $ 97,856 101,027 93,753 91,243 383,879 ================================================================= Gross profit $ 24,876 26,462 21,199 23,140 95,677 ================================================================= Earnings from continuing operations $ 5,814 6,059 5,152 5,579 22,604 ================================================================= Net earnings $ 15,470 6,059 5,152 5,579 32,260 ================================================================= Earnings per common share: Continuing operations $ .34 .38 .34 .38 1.44 ================================================================= Net earnings $ .91 .38 .34 .38 2.06 ================================================================= Earnings per common share, assuming dilution: Continuing operations $ .34 .38 .33 .38 1.43 ================================================================= Net earnings $ .90 .38 .33 .38 2.04 =================================================================
The above quarterly earnings (loss) per share calculations are based on the weighted-average number of common shares outstanding during each quarter for earnings (loss) per common share and the weighted-average number of outstanding common shares equivalents during each quarter for the earnings (loss) per common share, assuming dilution. Net earnings for the fourth quarter of 2001 reflect the recording of a $1,000 increase in anticipated tax benefit related to exiting custom and fine chemicals operations in June 2001. As a result, the effective tax rate for the fourth quarter of 2001 was twenty-two percent (22%). 36 Notes To Consolidated Financial Statements 14. Valuation and Qualifying Accounts Details regarding the valuation allowances for discontinued operations and doubtful trade accounts and notes receivable for continuing operations are as follows:
Charged to Other Beginning Costs and Additions Ending Balance Expenses (Deductions)* Balance ------------------------------------------------- Year ended December 31, 2001 $ 2,263 708 (349) 2,622 Year ended December 31, 2000 27,217 79 (25,033) 2,263 Year ended December 31, 1999 25,314 2,008 (105) 27,217
*Businesses disposed and/or amounts written off. At December 31, 2001, valuation allowances were $1,750 related to a note received on the sale of PPC and $125 related to PPC legal and inventory issues with the balance of $747 related to the allowance for doubtful accounts on trade receivables. 15. Financial Instruments Fair Value of Financial Instruments At December 31, 2001 and 2000, cash and cash equivalents, trade receivables, notes receivable, trade payables, accrued liabilities and notes payable are reflected in the financial statements at cost, which approximates fair value, due to the short-term nature of these instruments. The revolving credit facility is based on floating interest rates and approximates fair value. Derivative Financial Instruments The Company enters into foreign currency option contracts and foreign exchange contracts to minimize its exposure related to receivables dominated in yen. To lessen the short-term effect of exchange rate fluctuations on consolidated performance, the Company uses derivative instruments to manage currency exposure on a portion of these yen-denominated receivables and future sales commitments. Gains and losses on contracts, designated as hedges, related to future sales commitments are deferred and subsequently recorded in net earnings in the period in which the related transactions are consummated. At December 31, 2001, the Company had no open derivative instrument contracts. The Company entered into two forward exchange contracts during 2001 and elected not to designate those instruments as hedges at their inception. Accordingly, changes in the fair value of the contracts during interim periods and at their close were reflected in the statement of operations. These contracts matured during the second quarter of 2001 and their impact was immaterial. Net realized and unrealized losses associated with similar instruments in 2000 and 1999 were also immaterial. 37 Independent Auditors' Report The Board of Directors and Stockholders ChemFirst, Inc.: We have audited the consolidated balance sheets of ChemFirst Inc and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ChemFirst Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Jackson, Mississippi February 15, 2002 38 Corporate Information Transfer Agents for Common Stock American Stock Transfer & Trust Company 877-777-0800 E-mail: info@amstock.com Internet: http://www.amstock.com Mailing Address: 59 Maiden Lane New York, New York 10038 Overnight Address: 6201 15th Avenue Brooklyn, NY 11219 ChemFirst Inc. Stock Transfer Department 700 North St Jackson, Mississippi 39202-3095 (601) 948-7550 e-mail: ir@chemfirst.com Common Stock Registrars American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 Stock Listing New York Stock Exchange TRADING SYMBOL: CEM Note: The Wall Street Journal and many other major daily newspapers list the stock as ChemFst. Investor Relations If you have questions concerning ChemFirst Inc. or your investment in the Company, we will be pleased to assist you. Contact: James L. McArthur Secretary Manager, Investor Relations ChemFirst Inc. P.O. Box 1249 Jackson, Mississippi 39215-1249 (601) 948-7550 e-mail: ir@chemfirst.com Independent Public Accountants KPMG LLP 1100 One Jackson Place Jackson, Mississippi 39201-9988 Stockholder Reports Stockholders with stock in brokerage accounts who wish to receive quarterly stockholder reports and other information directly from the Company, may do so by writing, calling or e-mailing the Company's Investor Relations department. Quarterly earnings reports may also be accessed via the Company's Internet site located at www.chemfirst.com. Form 10-K Stockholders may obtain without charge a copy of the ChemFirst Inc. 10-K as filed with the Securities and Exchange Commission by calling or writing the Company's Investor Relations department, or on the Company's Internet site located at www.chemfirst.com. Annual Meeting The Annual Meeting of Stockholders will be held May 21, 2002, at 1:30 p.m. at the Hilton Jackson, 1001 East County Line Rd., Jackson, Mississippi. Stockholders are cordially invited to attend and participate in the business of the meeting. Those who are unable to attend are requested to return their proxy cards to the Registrar in the envelope that accompanies the proxy. ChemFirst Inc. STOCK MARKET INFORMATION The high and low recorded prices of the Company's common stock and cash dividends declared during 2001 and 2000 are presented in the table below. There were approximately 3,516 shareholders of record as of March 5, 2002. 2001 2000 -------------------------- ----------------------- Dividend Dividend High Low Rate High Low Rate -------------------------- ----------------------- 1st Quarter 27.90 21.25 .10 22.00 18.32 .10 2nd Quarter 27.90 24.00 .10 24.13 17.63 .10 3rd Quarter 26.55 19.60 .10 24.75 20.75 .10 4th Quarter 24.05 19.80 .10 23.13 18.83 .10 For the Year 27.90 19.60 .40 24.75 17.63 .40 EX-21 10 dex21.txt SUBSIDIARIES OF CHEMFIRST INC. EXHIBIT 21 SUBSIDIARIES OF CHEMFIRST INC. JURISDICTION OF COMPANY NAME ORGANIZATION Burmar Chemical, Inc. ................................... California CEM Investment, Inc. .................................... Mississippi ChemFirst Electronic Materials L.P....................... Delaware (formerly, TriQuest, L.P.) ChemFirst Electronic Materials Japan K K................. Japan (formerly, TriQuest Japan K K) ChemFirst Foundation, Inc. .............................. Mississippi ChemFirst Texas, Inc. ................................... Texas EKC Technology, Inc. .................................... California EKC Technology International, Inc. ...................... California EKC Technology K K ...................................... Japan EKC Technology Limited .................................. Scotland FCC Acquisition Corporation ............................. California FEC Marketing, Inc. ..................................... Texas First Chemical Corporation .............................. Mississippi First Chemical Holdings, Inc. ........................... Mississippi First Chemical Texas, L.P. .............................. Delaware FRM International, Inc. ................................. U.S. Virgin Islands FT Chemical, Inc. ....................................... Texas Micropel, Inc. .......................................... California Mycosil, Inc. ........................................... California EX-23 11 dex23.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT ----------------------------- The Board of Directors ChemFirst Inc.: We consent to incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-18691, 333-18693, 333-35221, 333-69965, 333-38556 and 333- 51002) of our report dated February 15, 2002 relating to the consolidated balance sheets of ChemFirst Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2001, which report is incorporated by reference in the December 31, 2001 annual report on Form 10-K of ChemFirst Inc. Jackson, Mississippi March 26, 2002 /s/ KPMG LLP ------------- KPMG LLP -----END PRIVACY-ENHANCED MESSAGE-----