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                                   FORM 10-K
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
                               TRANSITION REPORT
                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM JULY 1, 1996     COMMISSION FILE NUMBER 333-15789
      TO DECEMBER 31, 1996
 
                                 CHEMFIRST INC.
             (Exact name of Registrant as specified in its charter)
 
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<C>                                            <C>
                 MISSISSIPPI                                     64-0679456
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)
       700 NORTH STREET, P.O. BOX 1249                           39215-1249
             JACKSON, MISSISSIPPI                                (Zip code)
   (Address of principal executive offices)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (601) 948-7550
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
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             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
             -------------------                 -----------------------------------------
<C>                                            <C>
          COMMON STOCK, PAR VALUE $1                      NEW YORK STOCK EXCHANGE
        COMMON STOCK, PURCHASE RIGHTS
</TABLE>
 
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  YES [X]  NO [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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 February 20, 1997 is approximately $425,942,934.
 
     The number of shares of the Registrant's Common Stock outstanding as of
February 20, 1997 is 20,682,841.
 
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                                     PART I
 
ITEM 1. BUSINESS
 
CHEMFIRST
 
     ChemFirst Inc. (the "Company") was incorporated in Mississippi in 1983
under the name, Omnirad, Inc., as a wholly-owned subsidiary of First Mississippi
Corporation. In November 1996, in anticipation of the Distribution (as defined
below), the Company's name was changed from Omnirad, Inc. to ChemFirst Inc. The
principal businesses of the Company at December 31, 1996 involve the continuous
production of aniline, nitrobenzene, nitrotoluene and toluidines; custom
production of fine chemicals for chemical, agricultural and pharmaceutical
companies and production of electronic performance chemicals for the
semiconductor and related industries. Other significant businesses include the
design and production of low-emission burners, flares and incinerators and
thermal plasma equipment for steel production, waste treatment and research. The
Company also produces steel ingots and billets from melted scrap.
 
     Prior to December 23, 1996, the Company's subsidiaries were subsidiaries of
First Mississippi Corporation ("First Mississippi") and the Company's operations
were conducted through subsidiaries of First Mississippi. On December 23, 1996
(the "Distribution Date"), First Mississippi contributed all of its assets and
subsidiaries, other than those relating to its fertilizer business, to the
Company, which at that time was a wholly-owned subsidiary of First Mississippi
and had engaged in no 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 (the "Merger"),
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. For further information on the Distribution and the Merger,
see the First Mississippi-Mississippi Chemical Corporation Joint Proxy
Statement/Prospectus dated November 18, 1996.
 
     The historical financial statements of First Mississippi have been deemed
to be those of the Company, restated to present the merged fertilizer business
as a discontinued operation. For purposes of this transition report, the
historical business operations and business developments of First Mississippi
have been deemed to be those of the Company, so that references hereinafter to
First Mississippi's business operations and business developments prior to the
Distribution Date shall be referred to as the Company's business operations and
business developments. The Company's fiscal year-end has been changed from June
30 to December 31. Accordingly, the following discussion presents results for a
six-month "Transition Period" beginning July 1, 1996 and ending December 31,
1996. This six-month transition period may hereinafter be referred to as the
"Transition Period". The one-year fiscal period ended June 30, 1996 will
hereinafter be referred to as "fiscal 1996".
 
     At December 31, 1996, the Company had 1,135 employees, which includes
employees of the parent company, all wholly-owned subsidiaries and the
proportionate share of all employees at one 50%-owned subsidiary.
 
  Recent Development
 
     On January 14, 1997, the Company's wholly-owned subsidiary, Plasma
Processing Corporation ("PPC"), sold its aluminum dross processing business to a
subsidiary of Philip Environmental Inc. ("Philip"). The assets acquired by
Philip included PPC's proprietary technology and licenses, the Millwood, West
Virginia plant and related equipment and PPC's 50% interest in the Newminco
Joint Venture. The assets acquired by Philip did not include any of PPC's
inventories of nonmetallic product. However, Philip is obligated to purchase
from PPC all of its future requirements of nonmetallic product, including any
requirements in connection with Philip's obligations under the Newminco Joint
Venture, until such time as PPC's supply of nonmetallic product is exhausted.
The purchase price for the assets acquired by Philip was $4.1 million ($2.0
million of which is payable at the end of a five-year period, with interest
payable over that period at the
 
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prime rate) plus an annual royalty equal to 10% of Philip's share of the profit
from sales of certain products by the Newminco Joint Venture. In addition, in
the event Philip sells or otherwise transfers any portion of its interest in the
Newminco Joint Venture, or receives any payment as a result of the termination
or modification of said joint venture, Philip is obligated to pay the Company an
amount equal to 10% of the proceeds resulting therefrom.
 
     The following contains further discussion of the Company's business and
properties as grouped under Chemicals and Combustion and Thermal Plasma, Steel
Production and Other Operations and should be read in conjunction with Notes 2,
3 and 13 to the Consolidated Financial Statements and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
 
CHEMICALS
 
  General
 
     The Company's chemicals business is operated principally through three
subsidiaries: First Chemical Corporation ("FCC"); Quality Chemicals, Inc.
("Quality Chemicals"); and EKC Technology, Inc. ("EKC"). During the six-month
period ended December 31, 1996, the Company's chemicals business had sales of
$123.3 million, which accounted for approximately 65% of The Company's
consolidated sales for the Transition Period. Chemicals had an operating profit
of $20.8 million for the Transition Period.
 
     The Company groups its chemical products into three major categories:
industrial chemical intermediates, fine chemicals and electronic performance
chemicals. Industrial chemical intermediaries are manufactured by FCC and
include aniline and nitrobenzene. The Company's fine chemicals are produced by
both Quality Chemicals and FCC, and include chemicals for use by companies for
agricultural, pharmaceutical, polymer and photosensitive applications. The
Company's electronic performance chemicals include organic photoresist removers
and cleaning solutions, which are produced by EKC, and other chemicals used in
the semiconductor and related industries. The primary distinction between
intermediates and fine chemicals is the degree to which further processing is
required to produce the end product used by consumers. Electronic performance
chemicals are not consumed into the end product but are instead used during a
manufacturing process for a specific purpose.
 
     Of these three categories, industrial chemical intermediates are chemicals
in the least advanced state of production and the most affected by changes in
the business cycle or in the cost of raw materials. These chemicals are
typically sold in large volumes to industrial customers that purchase on the
basis of the chemical's molecular content. 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.
 
     Fine chemicals are sold in relatively small volumes to a narrow base of
customers, which are either end-users or producers of performance chemicals.
Because of their specialized, complex molecular content, there are typically few
uses for fine chemicals and significantly more technical service is expected
from the customer. The key to successful production of fine chemicals is
identifying the markets for the product and developing a highly exacting
chemical synthesis for use in the production process. Profit margins typically
are higher than those associated with the production of industrial chemical
intermediates.
 
     Purchasers of performance chemicals, who are end-users, acquire the product
to achieve a specific performance objective. As with fine chemicals, performance
chemicals are typically sold in relatively small volumes and have relatively few
uses, although the customer base is often larger than that for fine chemicals.
The production and sale of these chemicals are labor intensive and are usually
dependent on a highly technical proprietary formulae and a sophisticated,
well-trained customer service staff. Profit margins are relatively high and are
usually not significantly affected by increases in the price of raw materials.
 
  Industrial Chemical Intermediates
 
     FCC, located in Pascagoula, Mississippi, owns and operates facilities for
the continuous production of aniline, nitrobenzene, nitrotoluenes and
toluidines. FCC's operating facilities are supported by storage, rail,
 
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truck and barge distribution facilities and quality control laboratories and
also include research laboratories, a pilot plant and multipurpose batch
facilities for the development and production of specialty chemicals, and waste
treatment facilities, including an on-site incinerator. FCC utilizes
state-of-the-art technology for nitration and a proprietary process for
continuous hydrogenation. The Pascagoula facilities' total nitrated aromatic
production capacity is approximately 516 million pounds per year. Actual
Transition Period production was 216 million pounds, which, when annualized,
approximates 84% of average annual capacity.
 
     FCC is among the largest merchant marketers of aniline in the United
States, and its Pascagoula complex is one of the largest aniline production
facilities in the United States. Aniline's primary end use is in rigid
polyurethane foam, an insulation material that is widely used in residential and
commercial construction. Aniline is also used in the manufacture of
impact-resistant plastic that is used as a replacement for metal in automobile
parts such as bumpers where flexibility and impact resistance are important.
Aniline's other primary applications are in the production of an antioxidizing
(anti-cracking) agent used in the manufacture of synthetic rubber and in a
widely used herbicide for corn and soybeans. The aniline sold by FCC accounted
for approximately 21% of the Company's consolidated sales for the Transition
Period. Most of FCC's aniline production is sold under contracts containing
price-adjustment mechanisms that substantially protect FCC from fluctuations in
the prices of raw materials. FCC is also the second largest producer of
nitrotoluenes in the world and the only producer of nitrotoluenes in the United
States.
 
     FCC recently entered into a long-term agreement with Bayer Corporation
("Bayer") to build, own and operate a world scale nitrobenzene and aniline
facility at Bayer's Baytown, Texas chemical complex to supply Bayer's MDI
(methylene diphenyl diisocyantate) manufacturing operations. Phase I of the
facility is under construction and is scheduled for completion in early 1998.
Phase II, which is estimated to cost less than Phase I, may be completed later.
A majority of FCC's current aniline production from the Pascagoula facility is
sold to Bayer under a long-term contract. If a potential Phase II is completed,
it is intended that this aniline sales contract with Bayer will terminate and
that future aniline production for sale to Bayer will be produced at the Baytown
facility. The estimated cost to FCC of Phase I is in excess of $50.0 million.
 
  Custom Manufacturing of Fine Chemicals
 
     Through its Quality Chemicals subsidiary, the Company is a batch producer
of fine chemicals manufactured to the specifications of its customers. Although
historically its customers have purchased small quantities of Quality Chemicals'
production capacity primarily for their new product development and market
testing, recently the amount of production capacity sold by Quality Chemicals
for the production of commercially marketed products has increased
significantly. Companies involved in the mass production of chemically based
consumer products often find it expensive and inefficient to manufacture small
quantities of the complex chemicals required for new product development or
products with limited markets. By providing a versatile array of custom services
to a number of such companies, Quality Chemicals achieves economies of scale and
is able to manufacture certain fine chemicals more economically and timely than
they can be manufactured by its customers.
 
     Quality Chemicals' facilities, located in Tyrone, Pennsylvania, and Dayton,
Ohio, include equipment for multi-step batch processing to custom produce
complex fine chemicals used by chemical, agricultural, pharmaceutical and
cosmetic companies. Both of these facilities are owned by Quality Chemicals.
Following capacity additions and plant modifications to the Tyrone facility in
fiscal 1996, annual production capacity is now between 6.0 million and 9.0
million pounds, depending on the products being produced and the type of custom
processing required. Transition Period production at the Tyrone facility was
approximately 3.9 million pounds. Annual production capacity for the Dayton
facility is between approximately 3.0 million and 4.0 million pounds depending
on the products being produced and the type of custom processing required.
Transition Period production at the Dayton facility was approximately 1.8
million pounds.
 
     Quality Chemicals' current production is based on multi-step organic
syntheses. Quality Chemicals has versatile facilities that use numerous reactors
capable of producing custom fine chemicals in quantities ranging from the very
small amounts needed for initial product testing, through pilot plant production
of developmental quantities and continuing through the commercial production of
chemicals with specific markets.
 
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     A substantial portion of Quality Chemicals' revenue in the Transition
Period was derived from sales of a herbicide ingredient to one manufacturer
under an agreement that will expire in 2002. A substantial portion of the
remainder of Quality Chemicals' sales is derived from a group of agricultural
intermediates and actives. Quality Chemicals' other significant products include
diphenyl isopthalate, an intermediate used in the production of fibers for
fire-retardant fabrics and in transparent, heat-resistant plastics; rubber
additives used in the manufacture of chemical-resistant rubber; and a
co-catalyst for the production of a high-volume polyolefin plastic.
 
  Electronic Performance Chemicals
 
     EKC produces a line of electronic performance chemicals used in the
semiconductor and related industries. These chemicals include organic
photoresist removers and cleaning solutions which remove photoresist and
dry-etch residue during the manufacture of semiconductors. Approximately 56% of
EKC's sales for the Transition Period were outside of the United States, and
approximately 24% of EKC's sales for the Transition Period were made by its
Scotland-based subsidiary, EKC Limited, which sells EKC's chemicals in the
European market. Most of these chemicals are produced on-site utilizing the same
proprietary formulations used by EKC in the United States with a small
percentage manufactured in the United States and distributed by the subsidiary
into Europe. The remaining portion of non-United States sales, representing 32%
of EKC's sales for the Transition Period, were made in the Pacific Rim through
distributors.
 
     EKC's production facilities are located in Hayward, California and East
Kilbride, Scotland, with marketing, technical and administrative support located
at both locations. Additional marketing and technical support was added in
Tokyo, Japan during the past twelve months. Facilities include mixing vessels,
cleanroom packaging facilities, advanced quality control analytical laboratories
and product applications laboratories. EKC owns its California facility, which
is a 65,000-square-foot state-of-the art facility, and is currently adding
additional manufacturing and packaging capabilities to meet customer
requirements and growth expectations. Completion is expected before mid 1997. A
research and development laboratory is near completion in California and will
provide additional facilities for EKC's expanded research staff. The California
operation includes bulk storage facilities and a factory addition and bulk
storage facilities are planned in Scotland with completion expected by the end
of fiscal 1997. EKC's Scotland facility is a 16,300-square-foot warehousing,
manufacturing and office facility. The facility is owned but the land is leased
pursuant to a long-term contract. In fiscal 1996, EKC leased office space in
Tokyo, Japan to provide additional marketing and technical support for
accelerating development of its Japanese markets. The California facility is
currently utilizing 90% of production capability on a two-shift, five-day basis.
The Scotland facility is currently utilizing 75% of production capability on a
one-shift, five-day basis.
 
  Marketing and Sales
 
     Chemicals are marketed globally. Approximately 14% of the Company's sales
in the Transition Period were exports. The Company has long-term contracts with
a number of its largest customers. A majority of chemicals sales are made
through the Company's internal sales force.
 
     FCC's products are sold in drums and in bulk as intermediates into the
construction, transportation, semiconductor, agricultural chemical,
pharmaceutical, pigment, photographic, specialty polymer and ultra violet (U.V.)
curing markets such as powder coatings, printing inks and overprint varnishes.
Exported product is shipped in ocean-going tankers, iso-containers or drums to
European, Japanese and South American markets. Domestic shipments are by barge,
rail or tank trucks. As discussed above, a significant amount of FCC's sales are
to a single customer under a long-term contract. See "Industrial Chemical
Intermediates."
 
     Quality Chemicals' specialty chemical products are sold in drums into
pharmaceutical, electronic chemical, agricultural chemical and specialty polymer
markets. A significant amount of Quality Chemicals' sales are to three customers
under long-term contracts.
 
     EKC's performance products are marketed domestically and internationally
within Europe and the Pacific Rim. Approximately 56% of sales are outside the
United States. EKC's California facility services
 
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North America and the Pacific Rim and its Scotland facility services the
European community. Approximately 43% of all international sales are into Europe
and 57% are into the Pacific Rim. Chemicals are distributed in gallon, liter,
returnable drum or large volume dedicated containers.
 
  Raw Materials
 
     Benzene and toluene, two of FCC's principal raw materials, are readily
available commodity by-products of oil refining. Like most commodities, the
prices of benzene and toluene are subject to fluctuation. Benzene prices are
affected by the demand for a variety of products, principally including styrene
and phenolic resins. The price of toluene, an octane-enhancing additive for
unleaded gasoline, is directly affected by the demand for and price of unleaded
gasoline. However, FCC is protected from fluctuations in raw material prices in
the contracts under which most of its aniline production is sold. The remainder
of its production is sold under short-term contracts or purchase orders at
prices that generally reflect its actual raw material cost.
 
     Other significant raw materials include ammonia, natural gas and ethanol.
FCC purchases ammonia and ethanol at market prices. FCC purchases natural gas in
the spot market for use in making the hydrogen necessary for its manufacturing
processes. This gas is transported into the Pascagoula plant through an
interstate pipeline. Prices paid by the Company for natural gas are affected by
the degree of interruptibility of the gas supply.
 
     Quality Chemicals' primary raw materials include hydrogen, hydrogen
peroxide, o-aminophenol, o-nitrophenol, formaldehyde, butaldehyde and natural
gas. Quality Chemicals obtains its raw materials from a number of different
sources. The Company does not believe that any one source of raw materials is
material to Quality Chemicals' business.
 
     EKC's primary raw materials include free base hydroxylamine, diglycolamine
and N-methylpyrrolidone. With the exception of hydroxlyamine, raw materials are
generally available in adequate quantities from several suppliers, subject to
market variation in price. Hydroxylamine is currently available from one
supplier, located in Japan. Two major manufacturers have announced plans to
construct facilities capable of manufacturing aqueous hydroxylamine with
production anticipated to begin within the next three years.
 
  Research and Development
 
     The Company conducts research and development to improve existing products
and to produce new specialty and performance chemicals. The Company spent
approximately $2.4 million, $4.5 million, $5.3 million and $4.3 million on
research and development in the Transition Period, fiscal 1996, 1995 and 1994,
respectively. Research facilities include laboratories, pilot plant and
semi-works for process research and development with gram to multi-pound sample
production capabilities. FCC also sponsors applied research at leading
universities in the United States and maintains a radiation curing applications
laboratory in Pascagoula to evaluate new products and provide customer technical
support. These closely directed programs have led to the development and
introduction of proprietary technology in fine chemicals and in the FirstCure(R)
line of performance polymer products. EKC conducts research and development
activities internally to improve existing products and to identify and develop
new chemistries related to the production of semiconductors. EKC also sponsors
applied research at two leading universities in the U.K. In addition, EKC has
entered into joint development agreements with a major semiconductor
manufacturer and an industry consortium to develop advanced products to meet
future semiconductor manufacturing technology.
 
  Competition
 
     FCC is one of five major United States producers of aniline, with
approximately 18% of domestic capacity and an estimated 5% of world capacity.
FCC is the only United States producer of nitrotoluenes, with an estimated 12%
of world capacity. Major competitors are large chemical companies. Competition
is based on price, service, quality, marketing and research and development
support capabilities.
 
     Based on market share, Quality Chemical is among the top 10 custom chemical
manufacturing companies in the United States. Major competitors are both smaller
and larger companies. Competition is
 
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based on service, quality, manufacturing expertise in batch chemical production,
research and development capabilities and price.
 
     EKC is one of the world's largest producers of post-metal cleaning
solutions for semiconductor production with approximately 28% of the world
market, representing approximate market shares of 31% in North America, 40% in
Europe and 24% in the Pacific Rim. Although there are approximately 12 companies
participating in this market worldwide, only EKC and three others have
significant market share for advanced and postmetal cleaning solutions required
by the current state of the art semiconductor and related industries.
Competition is based on service, product performance, quality, product
development capabilities and price. EKC has entered into a licensing agreement
with a major competitor whereby EKC licenses its HDA(TM) (hydroxylamine)
technology. The agreement results from a patent violation complaint brought by
EKC against the competitor in federal court. The agreement allows the competitor
to continue to market its products which utilize EKC's hydroxylamine technology,
but provides for EKC to receive a royalty and license fee.
 
  Seasonality of Business
 
     Generally, chemical sales are not seasonal and working capital requirements
do not vary significantly from period to period.
 
COMBUSTION AND THERMAL PLASMA
 
     Combustion and thermal plasma principally includes the development and
marketing of proprietary equipment and systems for industrial applications.
These include design and production of low-emission burners, flares and
incinerators and thermal plasma equipment for steel production, waste treatment
and research. Raw materials and components for these operations are available
from numerous vendors. The businesses are not considered materially seasonal.
Combustion and thermal plasma sales in the Transition Period were $31.7 million,
representing approximately 17% of the Company's consolidated sales for such
period, and it had an operating loss of $3.8 million for the Transition Period,
including provisions of $2.1 million related to the disposition of PPC's
aluminum dross processing business. See "Recent Development."
 
  Combustion Equipment and Services
 
     Callidus Technologies Inc., a wholly-owned subsidiary ("CTI"), was
organized in fiscal 1990. CTI's principal products and services are custom
designed and fabricated gas/liquid incinerators, flares, solid waste systems,
vapor recovery units, burners and predictive emissions monitoring and process
optimization software services. CTI also provides engineering and consulting
services for environmental and combustion applications.
 
     CTI markets worldwide to refining, petrochemical, chemical, wood products
and other industries requiring disposal of gas, liquid and solid wastes.
Marketing is primarily through a combination of manufacturers' representatives
and company personnel. The market is well established but growing through
advancements of existing technology, driven primarily by increasingly strict
environmental regulations both in the United States and abroad. Competition is
based on a wide variety of factors, with the most prominent being price,
technological innovation and delivery schedule. CTI competes with the John Zink
Company, which has a significant share of the burner, flare and vapor recovery
markets. Numerous competitors exist in the gas and liquids incineration market.
Primary competition in the solids waste systems market comes from alternative
technologies. CTI offers predictive emissions monitoring and process
optimization software services utilizing products licensed by CTI's customers.
CTI is affected by a variety of factors beyond its control, including
governmental control of environmental standards and compliance deadlines,
competitor pricing strategies and changing technology, any of which could impact
CTI's operating results. CTI leases office space in Tulsa, Oklahoma, owns a
manufacturing and test facility in Beggs, Oklahoma, and has offices in Belgium,
England, Italy, France, Germany and Japan.
 
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  Thermal Plasma
 
     Plasma Energy Corporation, a wholly-owned subsidiary ("PEC"), is a leading
international supplier of plasma heating systems and related processes to the
metals and waste industries. PEC develops, manufactures, sells and services
these systems for use in steel manufacturing, specialty metals refinement and
various environmental waste recycling processes, including municipal solid waste
("MSW") ash vitrification.
 
     Thermal plasma heating systems convert electrical energy into high
temperature thermal energy using an ionized gas or "plasma." These high
temperatures are produced instantly with no combustion or combustion
by-products. A thermal plasma heating system typically consists of a torch,
power supply, cooling system and control panel. The torch usually operates
within a furnace or heating vessel, in which it can be inserted or retracted
according to operational requirements. PEC holds more than 20 patents in 10
countries, including several in steel, vacuum melting and waste applications.
 
     PEC markets industrial-scale commercial systems for controlling temperature
in steel making and waste treatment and reduction. PEC owns a testing facility
used for system integration, system and process development and customer
training. A separate administrative office is leased. Both facilities are
located in Raleigh, North Carolina. Marketing is performed directly by PEC.
International sales are supported by overseas representatives. Plasma heating
systems are sold in both the domestic and international markets. PEC has two
principal domestic competitors and four foreign competitors. Price competition
is intense and competitors' pricing strategies may impact PEC's operating
results.
 
STEEL PRODUCTION
 
     The Company operates a steel melting and production facility through its
wholly-owned subsidiary, FirstMiss Steel, Inc. ("FMS"), in Hollsopple,
Pennsylvania. The Company is actively seeking a buyer for FMS. FMS had net sales
of $33.5 million in the Transition Period, which constituted 18% of the
Company's consolidated sales during this six-month period. FMS had an operating
loss of $10.9 million for the Transition Period, including a $10.1 million
write-down to reflect the estimated net realizable value of these operations.
FMS's approximately 400,000 square-foot leased facility is located about 100
miles east of Pittsburgh. Following upgrades to one of FMS's two electric arc
furnaces in January 1995, annual capacity of the operation now includes 150,000
tons of carbon, alloy and specialty grade, bottom-poured ingots and 50,000 tons
of high-grade steel billets through a horizontal continuous caster. In January
1996, the second electric arc furnace was removed and a NOD converter was
constructed, which combined with the newly upgraded electric arc furnace and the
existing VOD units form the "Triplex" process for producing stainless steel. The
NOD converter, which was commissioned in July 1996, will increase stainless
steel capacity and lower stainless steel costs. Production during the Transition
Period totaled approximately 51,000 tons consisting primarily of cast ingots and
value-added products. The value-added product line was introduced in fiscal 1992
and includes specialty stainless and tool steel ingots or billets, which are
converted into forged billets, bars and plates by outside processors. FirstMiss
Alloys was formed during fiscal 1993 to produce small quantities of cobalt,
nickel, copper and iron-based alloys in bars and wire produced from two small
horizontal continuous casters, small bottom-poured forging ingots and remelt
sand ingots. Raw materials consist of steel scrap and various alloys, of which
there is an adequate supply in the North American market.
 
     Carbon and alloy steel ingots are sold directly to the forging industry,
ring rollers, extruders and integrated steel producers. FMS competes primarily
with three other steel companies in this market and, within the group, ranks
second in total steel production capacity. Specialty steel products are
primarily sold to steel service centers and forgers. Two customers account for
23% of FMS's total revenue. FirstMiss Alloy products are sold as feedstock
directly to forgers, extruders and investment casters. There are numerous
competitors, both domestic and foreign, that compete with FMS in the specialty
steel and ferrous and non-ferrous metals markets. Competitive factors include
price, quality and service. Carbon steel ingots and billets are commodities and
are extremely price competitive.
 
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OTHER OPERATIONS
 
     The Company owns 50% of Power Sources, Inc. ("PSI") of Charlotte, North
Carolina, which burns wood residue and other biomass in industrial boilers to
create steam energy. The steam is sold under long-term contracts to industrial
users. PSI operates seven plants located in North Carolina, South Carolina,
Tennessee and Mississippi.
 
ENVIRONMENTAL CONSIDERATIONS
 
     The Company operations are subject to a wide variety of environmental laws
and regulations governing emissions to the air, discharges to water sources, and
the handling, storage, treatment and disposal of waste materials, as well as
other laws and regulations concerning health and safety conditions. The Company
holds a number of environmental permits and licenses regulating air emissions,
water discharges and hazardous waste disposal and, to the best of its knowledge,
is in material compliance with such requirements at all locations. The Company
makes capital and other expenditures in a continuing effort to comply with
environmental laws and regulations, or changing interpretations of existing laws
and regulations. The Company's environmental capital expenditures for the
Transition Period were $0.8 million. Projected environmental capital
expenditures for fiscal 1997 and 1998 are $3.9 million and $2.7 million,
respectively. While these expenditures are necessary to comply with
environmental laws and regulations, they may also reduce operating expenses and
improve efficiencies. See "Environmental Matters".
 
     The Company monitors and participates in the environmental regulatory
development process which assists it in evaluating new laws and regulations. The
Company does not anticipate a material increase in expenses related to current
environmental regulations, but because federal and state environmental laws and
regulations are constantly changing, the Company is unable to predict their
future impact.
 
     The Company has received notices from the United States Environmental
Protection Agency or a similar state agency 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. The Company contributed $183,000 toward clean up of one of
these sites during fiscal 1996. The Company did not contribute any funds toward
clean up during the Transition Period. It is difficult to estimate The Company's
ultimate liability in these matters 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 or cash flow.
 
ITEM 2. PROPERTIES
 
     A description of various properties and the segments to which they relate
is included in the Business discussion located on pages 2 through 9 of this Form
10-K. In addition to those described above, the Company owns or leases the
following properties:
 
     The Company owns an approximately 26,000 square-foot office building in
Jackson, Mississippi, which is its corporate headquarters.
 
     FCC leases 7 acres of waterfront property from the Jackson County Port
Authority. This property is used by FCC for loading and unloading ocean going
vessels and barges. The lease expires in 2003.
 
     FCC owns 180 acres of land near FCC's Pascagoula plant. Jackson County,
Mississippi has the right to reacquire this land and retain one-fifth of the
$2.2 million installment purchase price if FCC has not commenced construction of
facilities on the property by September 1998. FCC and a subsidiary of
Mississippi Chemical Corporation have entered into an agreement pursuant to
which FCC would convey approximately 110 acres of such land to the Mississippi
Chemical subsidiary in exchange for approximately 23 acres of land near FCC's
Pascagoula plant and $1.2 million in cash. The consummation of this exchange is
subject to a number of conditions, including the release by Jackson County,
Mississippi of FCC's obligation to begin construction on any part of the
180-acre parcel.
 
                                        9
<PAGE>   10
 
     The Company owns approximately 585 acres of undeveloped land located in
Hillsborough County, Florida. The Company believes that its properties are
suitable and adequate for the purposes for which they are used.
 
ITEM 3. LEGAL PROCEEDINGS
 
     The Company has pending several claims incurred in the normal course of
business which, in the opinion of management and legal counsel, can be disposed
of without material effect on the Company's financial statements.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     Except for certain actions taken by First Mississippi, as sole stockholder
of the Company, prior to or on the Distribution Date in connection with the
Distribution, no matters were submitted to a vote of security holders of the
Company, through the solicitation of proxies or otherwise, during the final
quarter of the Transition Period.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's Common Stock is traded on the New York Stock Exchange under
"CEM." The following table sets forth, for the periods indicated, the high and
low recorded prices of the Company's Common Stock on the New York Stock Exchange
since the Company's Common Stock commenced public trading on December 24, 1996.
As of February 20, 1997, there were approximately 5,525 stockholders of record
of the Common Stock of the Company. No cash dividends have been paid by the
Company since the Distribution on December 23, 1996. However, on March 4, 1997
the Company's Board of Directors approved a quarterly dividend of $.10 per share
of Common Stock, payable on April 4, 1997 to stockholders of record at the close
of business on March 19, 1997. Although the Company anticipates paying quarterly
cash dividends in the future, there can be no assurance that any additional cash
dividends will be paid on the Company's Common Stock in the future.
 
<TABLE>
<CAPTION>
                                                                              DIVIDEND
                                                              HIGH    LOW       RATE
                                                              ----    ----    --------
<S>                                                           <C>     <C>     <C>
Transition Period
  December 24-December 31...................................   23 1/4  22 1/4     None
Fiscal 1997
  First Quarter (through February 20, 1997).................   24 1/8  21 5/8     None
</TABLE>
 
                                       10
<PAGE>   11
 
ITEM 6. SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                         SIX MONTHS ENDED
                                            DECEMBER 31                    FISCAL YEARS ENDED JUNE 30
                                        -------------------    ---------------------------------------------------
                                          1996       1995       1996       1995       1994       1993       1992
                                        --------    -------    -------    -------    -------    -------    -------
                                                   (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S>                                     <C>         <C>        <C>        <C>        <C>        <C>        <C>
Sales to unaffiliated customers:
  Chemicals...........................  $123,258    105,081    227,837    209,472    161,045    143,497    130,331
  Combustion and Thermal Plasma.......    31,694     32,781     65,624     56,347     33,779     23,544     19,281
  Steel...............................    33,481     37,480     77,086     65,902     54,267     42,484     36,474
                                        --------    -------    -------    -------    -------    -------    -------
          Total sales.................   188,433    175,342    370,547    331,721    249,091    209,525    186,086
          Other revenues..............     4,248      3,834      6,157      6,120      3,264      2,442      2,849
                                        --------    -------    -------    -------    -------    -------    -------
          Total revenues..............  $192,681    179,176    376,704    337,841    252,355    211,967    188,935
                                        ========    =======    =======    =======    =======    =======    =======
Operating profit (loss) before income
  taxes, investee earnings (loss) and
  cumulative effect of change in
  accounting principle:
  Chemicals...........................  $ 20,845     21,309     44,058     40,019     30,295     24,434     15,333
  Combustion and Thermal Plasma.......    (3,797)    (2,844)   (30,944)    (6,230)    (9,393)    (8,258)    (3,006)
  Steel...............................   (10,919)       908      1,332         27     (3,370)    (3,929)    (2,650)
                                        --------    -------    -------    -------    -------    -------    -------
                                           6,129     19,373     14,446     33,816     17,532     12,247      9,677
Unallocated corporate expenses........    (7,902)    (9,614)   (15,015)   (10,661)    (8,435)    (7,069)    (7,461)
Interest expense, net.................    (2,234)    (1,780)    (4,620)    (5,346)    (8,176)   (10,923)    (6,908)
Other income, net.....................       223        226        260        675        305        623      1,386
                                        --------    -------    -------    -------    -------    -------    -------
                                          (3,784)     8,205     (4,929)    18,484      1,226     (5,122)    (3,306)
Income taxes (benefit)................      (975)     3,968       (688)     8,706      2,248     (1,748)    (1,118)
Equity in net earnings (loss) of
  equity investees....................       562        499        783        860       (249)      (357)        73
                                        --------    -------    -------    -------    -------    -------    -------
Earnings (loss) from continuing
  operations..........................    (2,247)     4,736     (3,458)    10,638     (1,271)    (3,731)    (2,115)
Earnings from discontinued operations,
  net of taxes........................    19,040     22,902     40,424     47,156     21,038      3,503      6,342
Gain (loss) from disposal of
  businesses, net of taxes............   225,485         --     (1,746)        --         --    (23,141)        --
Cumulative effect of change in
  accounting principle................        --         --         --         --      2,096         --         --
                                        --------    -------    -------    -------    -------    -------    -------
          Net earnings (loss).........  $242,278     27,638     35,220     57,794     21,863    (23,369)     4,227
                                        ========    =======    =======    =======    =======    =======    =======
Earnings (loss) per common share:
  Continuing operations...............  $   (.11)       .22       (.16)       .52       (.06)      (.19)      (.11)
  Discontinued operations.............       .91       1.09       1.93       2.28       1.05       (.98)       .33
  Gain (loss) on disposal of
     businesses.......................     10.77         --       (.09)        --         --         --         --
  Cumulative effect of change in
     accounting principle.............        --         --         --         --       0.10         --         --
                                        --------    -------    -------    -------    -------    -------    -------
Total earnings (loss) per common
  share...............................  $  11.57       1.31       1.68       2.80       1.09      (1.17)       .22
                                        ========    =======    =======    =======    =======    =======    =======
Net working capital...................  $130,480    127,009     86,918    110,107     78,874     50,121     59,865
Long-term debt........................  $  2,122     82,871     79,909     84,394    104,275    113,519    144,280
Total assets..........................  $423,090    414,335    413,635    433,327    357,845    348,596    429,123
Stockholders' equity..................  $308,486    226,757    230,267    232,996    177,687    160,774    188,378
Cash dividend payout rate.............         2%        15%        24%        13%        28%      *           136%
Return on average equity -- continuing
  operations..........................        (1)%        2%        (1)%        5%        (1)%       (2)%       (1)%
Return on sales -- continuing
  operations..........................        (1)%        3%        (1)%        3%        (1)%       (2)%       (1)%
Long-term debt/equity ratio...........      . 01        .37        .35        .36        .59        .71        .77
Current ratio.........................      2.57       2.84       2.23       2.55       2.96       2.10       2.48
Cash dividends per share..............  $    .20        .20        .40        .35        .30        .30        .30
Book value per share..................  $  14.92      11.02      11.17      11.40       8.85       8.05       9.50
</TABLE>
 
---------------
 
* Computation not applicable due to loss
 
                                       11
<PAGE>   12
 
ITEM 7. 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 the selected historical financial information and the Company's financial
statements, including the notes thereto.
 
CHANGE IN FISCAL YEAR-END
 
     The Company's fiscal year-end has been changed from June 30 to December 31.
As a result, the accompanying financial statements and following discussion
include results for a six-month "Transition Period" from July 1, 1996 to
December 31, 1996. References in the following discussion to fiscal 1996 or any
earlier fiscal year are references to the one-year fiscal period ended June 30,
1996, or June 30 of the specified earlier year, as the case may be.
 
SIX MONTHS ENDED DECEMBER 31, 1996 VERSUS SIX MONTHS ENDED DECEMBER 31, 1995
 
  CONSOLIDATED RESULTS
 
     Results from continuing operations for the Transition Period ended December
31, 1996, were a loss of $2.2 million versus earnings of $4.7 million for the
same period of the prior year. The loss was due to $13.3 million ($8.0 million
after-tax) in restructuring costs and asset writedowns, including $12.3 million
related to steel and aluminum dross processing operations and $1.0 million in
unallocated corporate expenses (See note 3 to the Consolidated Financial
Statements).
 
  SEGMENT OPERATIONS
 
     Chemicals pretax operating profits were $20.8 million for the Transition
Period, down 2% from the same period in the prior year due to lower results in
custom manufacturing operations. Sales were up 17%, primarily due to increased
industrial intermediates and fine chemicals volume.
 
     Combustion and Thermal Plasma pretax operating results for the Transition
Period were a loss of $3.8 million. This included a provision for a $2.1 million
loss for the disposition of the aluminum dross processing assets sold in January
1997 and losses from Italian combustion operations. Losses for the same period
in the prior year were primarily related to aluminum dross processing
operations.
 
     Steel pretax operating results for the Transition Period were a loss of
$10.9 million, including a $10.1 million provision to reflect the net realizable
value of these assets. The Company is continuing its efforts to sell these
assets, but does not have a formal plan or timetable for disposal.
 
     Unallocated corporate expenses were down 18% for the Transition Period, as
lower compensation expense related to long-term incentives offset approximately
$1.0 million in expenses related to the change in organizational structure. Net
interest expense increased over the prior period due to lower interest income.
 
FISCAL 1996 VERSUS FISCAL 1995
 
  CONSOLIDATED RESULTS
 
     Results of continuing operations for fiscal 1996 were a loss of $3.5
million versus earnings of $10.6 million for fiscal 1995 due to an $18.3 million
($11.7 million after-tax) provision for the shutdown of aluminum dross
operations and increased general, selling and administrative expenses. General,
selling and administrative expenses were up $10.5 million due to higher
corporate expenses and growth in combustion operations.
 
  SEGMENT OPERATIONS
 
     Chemicals operating profits were up 10% to $44.1 million on a 9% increase
in sales primarily due to higher aniline and electronic chemicals volumes.
Aniline sales volume increased 13% due to increased production following
capacity additions in the prior year. In electronic chemicals, sales volume
increased 26% driven by an 82% increase in the hydroxylamine based (HDA(TM))
products volume.
 
                                       12
<PAGE>   13
 
     Combustion and Thermal Plasma results were a loss of $30.9 million for
1996, versus a loss of $6.2 million in 1995. The losses in both years were
primarily due to aluminum dross processing operations. Losses in 1996 included
an $18.3 million pretax charge related to the shutdown of the aluminum dross
processing plant, located in Millwood, West Virginia, following adoption of a
plan by the Board of Directors on May 21, 1996, to close the facility. The
decision to close the facility, which operated at a loss since inception, was
based in part on projections that indicated operations were unlikely to be
profitable in the near future. The charge included write-downs of $12.3 million
for property, plant and equipment, $0.6 million for spare parts, $0.4 million
for inventory and $5.0 million in accruals for other estimated costs to be
incurred related to the closure. In addition, results were down for combustion
operations despite a 34% increase in sales, as gross margins declined $1.1
million due to cost overruns in several large projects and general, selling and
administrative expenses increased $4.5 million due to operations growth.
 
     Steel operating results improved for 1996, as gross margin improved on
higher sales. Steel sales increased from $65.9 million to $77.1 million on a 10%
increase in average sales price and 7% increase in volume.
 
     Unallocated corporate expenses were up $4.4 million, primarily due to the
spin-off of Getchell Gold Corporation ("Getchell"), formerly FirstMiss Gold
Inc., and expenses for potential acquisitions and environmental compliance not
directly allocable to subsidiary operations. Included in 1996 and 1995 are $2.5
million and $3.1 million, respectively, of compensation expenses tied to
appreciation of stock options and debenture options. Net interest expense for
the year was down 14% from the prior year due to increased interest income.
 
FISCAL 1995 VERSUS FISCAL 1994
 
  CONSOLIDATED RESULTS
 
     Results from continuing operations for fiscal 1995 were a profit of $10.6
million versus a loss of $1.3 million in fiscal 1994, on higher chemicals
earnings and improved performance in combustion operations. Sales were up 33%
and gross margin increased to 23% of sales from 22% for the prior year. Equity
income was up $1.1 million as results at Melamine Chemicals, Inc. improved due
to higher revenues and increased margins.
 
  SEGMENT OPERATIONS
 
     Chemicals sales and pretax operating results for 1995 were up 30% and 32%,
respectively, over 1994 on strong demand for electronic chemicals, custom
manufacturing services and intermediates. Intermediate sales, which accounted
for 46% of sales, increased on 20% higher volume, primarily nitrobenzene, and a
6% improvement in average unit price. Nitrobenzene volume was up due to a
multi-year contract entered into in late 1994 that will fully utilize
nitrobenzene capacity through 1999. Custom manufacturing services and electronic
chemicals sales for semiconductor production increased, primarily due to higher
volume.
 
     Combustion and Thermal Plasma results for 1995 improved $3.2 million over
1994, primarily due to increased combustion sales, which grew 83%. In addition,
1994 results included $0.9 million in costs for a successful patent defense. The
losses in both years were primarily due to aluminum dross processing operations.
 
     Steel results for 1995 improved by $3.4 million over 1994. Steel gross
profit improved $2.3 million as sales increased 21% to $65.9 million, primarily
due to an increase in average unit price. Also included in 1995 steel results
was $1.0 million in income related to asset sales and insurance recoveries.
 
     Unallocated corporate expenses for 1995 were up over 1994 due to $3.1
million of compensation expenses tied to appreciation of stock options and
debenture options. Expenses for 1994 included $1.3 million in additional
interest related to deferred compensation. Net interest expense for 1995 was
down versus 1994 due to higher interest income.
 
                                       13
<PAGE>   14
 
DISCONTINUED OPERATIONS
 
  FERTILIZER
 
     On December 24, 1996, First Mississippi completed the spin-off of ChemFirst
Inc. and the combination of its fertilizer operations with Mississippi Chemical
Corporation (See notes 1 and 2 to the Consolidated Financial Statements for the
details of this transaction).
 
     Six month periods ending December 31, 1996 and 1995. After tax net income
for fertilizer operations for the six-month period ending December 31, 1996 was
$19.0 million, down from $23.9 million for the same period for the prior year on
higher production cost as the average price of natural gas increased 39%. Sales
rose 11% on a 7% increase in volume.
 
     Fiscal 1996 Versus Fiscal 1995. Fertilizer after tax net income for fiscal
1996 was down 23% to $41.5 million on lower average sales prices and higher
natural gas cost. Average fertilizer sales prices declined 11% on 18% lower
ammonia prices, more than offsetting a 16% increase in urea prices. Total sales
volume remained about the same at 1.2 million tons with captive production
accounting for about 74% of total volume, up from 70% in the prior year. The
higher production was primarily due to scheduled maintenance in the prior year.
The average price of natural gas purchased at spot prices and consumed in
production increased 36%; however, hedging gains of $1.1 million in the current
year, versus hedging losses of $5.9 million in the prior year, reduced the
overall average gas cost increase to 17%.
 
     Fiscal 1995 Versus Fiscal 1994. Fertilizer after tax net income for fiscal
1995 was up $38.0 million over fiscal 1994 due to higher prices, primarily
ammonia, and lower production cost. Sales rose on a 57% increase in average
price, which offset lower volume. Ammonia prices averaged $210 per ton for 1995
versus $130 per ton in 1994, and urea prices averaged $163 per ton in 1995
versus $126 per ton in 1994. Volume declined on lower brokerage sales. The
ammonia supply/demand balance remained tight through fiscal 1995. Agricultural
demand was strong in 1995, driven by high grain prices and low world
inventories. Industrial demand for production of fibers, plastics, and resins
was also strong. Urea prices increased on higher ammonia prices and strong
offshore demand. Production cost for ammonia and urea declined, primarily due to
lower prices for natural gas, which decreased 12% below 1994 levels. Included in
natural gas cost for 1995 is $5.9 million in net futures contracts losses versus
net gains of $0.7 million in 1994.
 
  GOLD
 
     On October 20, 1995, First Mississippi completed the spin-off of its 81%
owned subsidiary, Getchell, to shareholders (the "Gold Distribution"). Included
in discontinued operations for the fiscal year ended June 30, 1996 and the six
month period ending December 31, 1995 is $1.1 million in after tax losses, net
of minority interest, related to operations of Getchell for the period prior to
the Gold Distribution.
 
     Fiscal 1995 Versus Fiscal 1994. After tax results for fiscal 1995, net of
minority interest, were a loss of $6.9 million versus a profit of $5.0 million
in fiscal 1994. Results declined due to impairment and abandonment charges of
$11.5 million, including a $2.4 million write-off for an inactive silver
exploration property and $9.1 million of assets associated with termination of
mining in its main pit. Mining was discontinued in the pit when results of a
geotechnical monitoring program indicated continued pit mining would destabilize
areas along the pit walls. Production for 1995 declined 24% due to lower mill
feed grade and lower heap leach production. Mill feed grades from the open pit
were down from 1994 when high-grade North Pit ore was used for mill feed. In
addition, delays in mining the Main Pit and Getchell Main Underground required
increased use of lower grade stockpiled ore. Sales declined 25%, primarily due
to the lower production.
 
     Loss on disposal of businesses for the year ended June 30, 1996 reflects
estimated additional after tax costs of $1.7 million related to operations
discontinued in prior years.
 
                                       14
<PAGE>   15
 
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's capital
expenditures for environmental protection were $0.8 million for the Transition
Period and $1.7 million for the twelve months ended June 30, 1996. Expenditures
are projected to be $3.9 million and $2.7 million for the twelve-month periods
ending December 31, 1997 and 1998, respectively. The Company's expenses related
to the operation and maintenance of environmental facilities and the disposal of
hazardous and nonhazardous waste were approximately $1.8 million, $3.3 million,
$2.8 million and $2.5 million in the Transition Period and fiscal years 1996,
1995 and 1994, respectively. In addition, the Company accrues for anticipated
costs associated with investigatory and remediation efforts relating to the
environment. At December 31, 1996, the Company's accrued liability for these
matters totaled $1.6 million.
 
CAPITAL RESOURCES AND LIQUIDITY
 
     Cash and cash equivalents increased $63.1 million from June 30, 1996 to
December 31, 1996. The increase was primarily due to the receipt of proceeds
related to the disposition of fertilizer operations (See notes 1, 2 and 7 to the
Consolidated Financial Statements). Cash and cash equivalents declined $34.8
million from June 30, 1995 to June 30, 1996, primarily due to increased
investing activities and lower cash flow from operations. Investing activities
of continuing operations included higher capital expenditures, primarily to
increase chemicals production capacities and a note collection representing
proceeds received from Getchell following its spin-off in October 1995.
Additional uses of cash included $5.5 million for the purchase of 235,900 shares
of First Mississippi Common Stock. Cash provided by continuing operations for
fiscal 1996 declined $33.0 million from fiscal 1995 primarily due to lower
earnings and increases in working capital in chemicals and combustion
operations. Cash and cash equivalents increased $37.3 million in fiscal 1995
over fiscal 1994, primarily due to cash flow from discontinued fertilizer and
gold operations.
 
     Capital expenditures for continuing operations for the Transition Period
were $33.7 million and are projected at approximately $150.0 million over the
next two years. These expenditure levels are up significantly over prior years
due to expansion in chemicals, including the construction of a new aniline
facility. In addition, in January 1997, the Company announced a $20.0 million
stock repurchase program.
 
     The disposition of the Fertilizer Business, based on its recent
performance, will result in a significant reduction of operating cash flow. The
Company believes, however, that its available cash and cash flow from
operations, combined with access to its existing or additional bank credit
facilities, adequately provides for the Company's cash requirements over the
next two years.
 
FORWARD-LOOKING STATEMENTS
 
     Statements included in this Item 7 -- Management's Discussion and Analysis
of Financial Condition and Results of Operations which relate to projected
capital expenditures and sources of cash, statements in Item 5 -- Market for
Registrant's Common Equity and Related Stockholder Matters regarding anticipated
future dividends and other statements in this Form 10-K which are not historical
in nature, 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 in the Company's press releases, Annual Report to Stockholders
and other filings with the U.S. Securities and Exchange Commission, are based on
certain underlying assumptions and expectations of management. These
forward-looking statements are subject to risks and uncertainties which could
cause actual results to differ materially from those expressed in such
forward-looking statements. Such risks and uncertainties include, but are not
limited to, general economic conditions, availability and pricing of raw
materials, supply/demand balance for key products, new product development,
manufacturing efficiencies, condition of and product demand by key customers and
the timely completion and start-up of construction
 
                                       15
<PAGE>   16
 
projects, including the nitrobenzene and aniline facility at Bayer Corporation's
Baytown, Texas chemical complex.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The financial statements required by this item are set forth on pages F-1
through F-26.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
 
<TABLE>
<CAPTION>
                      NAME                         AGE                    POSITION
                      ----                         ---                    --------
<S>                                                <C>   <C>
Daniel P. Anderson...............................  44    Vice President, Health, Safety and
                                                         Environmental Affairs
Robert B. Barker.................................  52    Vice President, Corporate Development and
                                                         Acquisitions
W. P. Bartlett...................................  59    President, Callidus Technologies Inc.
Max P. Bowman....................................  36    Treasurer
Troy B. Browning.................................  44    Controller
J. Steve Chustz..................................  48    General Counsel
Paul Jerry Coder.................................  54    President, EKC Technology, Inc.
Samir A. Hakooz..................................  50    President, Plasma Energy Corporation
Scott A. Martin..................................  39    President, Quality Chemicals, Inc.
James L. McArthur................................  53    Secretary and Manager, Investor Relations
George M. Simmons................................  54    President, First Chemical Corporation
R. Michael Summerford............................  48    Vice President and Chief Financial Officer
Thomas G. Tepas..................................  50    President and Chief Operating Officer
J. Kelley Williams...............................  62    Chairman of the Board and Chief Executive
                                                         Officer
Frank D. Winter..................................  55    President and Chief Executive Officer,
                                                         FirstMiss Steel, Inc.
Richard P. Anderson..............................  67    Director
Paul A. Becker...................................  58    Director
James W. Crook...................................  66    Director
Michael J. Ferris................................  52    Director
James E. Fligg...................................  60    Director
Robert P. Guyton.................................  59    Director
Charles P. Moreton...............................  69    Director
Paul W. Murrill..................................  62    Director
William A. Percy, II.............................  57    Director
Dan F. Smith.....................................  50    Director
Leland R. Speed..................................  64    Director
R. Gerald Turner.................................  51    Director
</TABLE>
 
                                       16
<PAGE>   17
 
     All officers of the Company were elected on November 25, 1996 to serve at
the pleasure of the Company's Board of Directors for a term of one (1) year and
thereafter until their successors are elected and qualify.
 
     Daniel P. Anderson. Mr. Anderson, 44, is Vice President, Health, Safety and
Environmental Affairs of the Company. He was Vice President, Health, Safety and
Environmental Affairs of First Mississippi from July 1995 to the Distribution
Date. From 1990 to 1995, he was Vice President, Environmental Affairs, of First
Chemical Corporation.
 
     Robert B. Barker. Mr. Barker, 52, is Vice President, Corporate Development
and Acquisitions. He held the same position with First Mississippi from October
1996 until the Distribution Date. He was President of Quality Chemicals, Inc.,
from 1990 to October 1996. From 1985 to 1995, he was Vice President of New
Business for First Chemical Corporation.
 
     W. P. Bartlett. Mr. Bartlett, 59, is President of Callidus Technologies
Inc. and has been since 1989. From 1983 to 1989 he was President of Penteco
Corporation.
 
     Max P. Bowman. Mr. Bowman, 36, is Treasurer and Corporate Risk Manager of
the Company. From 1993 until the Distribution Date, he was Internal
Audit/Corporate Risk Manager of First Mississippi. From 1988 until 1993, he was
Manager of Internal Audit of First Mississippi.
 
     Troy B. Browning. Mr. Browning, 44, is Controller of the Company. He was
Controller of First Mississippi from 1983 until the Distribution Date.
 
     J. Steve Chustz. Mr. Chustz, 48, is General Counsel of the Company. He was
General Counsel of First Mississippi from 1993 until the Distribution Date, and
was Interim General Counsel of First Mississippi from May 1993 through November
1993. From 1987 to May 1993, he was Associate General Counsel of First
Mississippi.
 
     Paul Jerry Coder. Mr. Coder, 54, is President of EKC Technology, Inc. and
has been since December 1992. From June 1992 to December 1992, he was Vice
President, Market Research, of EKC Technology, Inc. He was Vice President of KCI
Chemicals, Inc. from June 1987 to February 1992.
 
     Samir A. Hakooz. Mr. Hakooz, 50, is President of Plasma Energy Corporation
and has been since 1991. He is Vice President of Callidus Technologies, Inc., a
subsidiary of the Company, and has been since October 1, 1996. From July 1990 to
1991, he was Executive Vice President and General Manager of Plasma Energy
Corporation.
 
     Scott A. Martin. Mr. Martin, 39, is President of Quality Chemicals, Inc.
and has been since October, 1996. From 1995 to October 1996, he was Vice
President and General Manager, Custom Manufacturing of Quality Chemicals, Inc.
 
     James L. McArthur. Mr. McArthur, 53, is Secretary and Manager, Investor
Relations, of the Company. He was Secretary and Manager, Investor Relations, of
First Mississippi from 1993 until the Distribution Date. From 1988 until 1993 he
was Manager, Investor Relations of First Mississippi.
 
     George M. Simmons. Mr. Simmons, 54, is President of First Chemical
Corporation and has been since July 1995. From 1985 to June 30, 1995 he was Vice
President, Marketing, of First Chemical Corporation.
 
     R. Michael Summerford. Mr. Summerford, 48, is Vice President and Chief
Financial Officer of the Company. From 1988 until the Distribution Date, he was
Vice President and Chief Financial Officer of First Mississippi.
 
     Thomas G. Tepas. Mr. Tepas, 50, is President and Chief Operating Officer of
the Company. From August 1995 until the Distribution Date, he was President and
Chief Operating Officer of First Mississippi. Prior to joining First Mississippi
in August 1995, he held various senior management positions with Hercules, Inc.,
including Senior Vice President from 1994 to August 1995, Group Vice President
and President of the Food and Functional Products Division from 1992 to 1994 and
President of the Flavor and Food Ingredients Division from 1991 to 1992.
 
                                       17
<PAGE>   18
 
     J. Kelley Williams. Mr. Williams, 62, is Chairman of the Board and Chief
Executive Officer of the Company. He became a director of the Company in
November, 1996. He was Chairman of the Board and Chief Executive Officer of
First Mississippi from 1988 until the Distribution Date, and had been a director
of First Mississippi since 1971. From 1988 until August 1995, he was President,
Chief Executive Officer and Chairman of the Board of First Mississippi. He was
President and Chief Executive Officer of First Mississippi from 1971 until 1988.
He is a Director of Deposit Guaranty Corporation and Deposit Guaranty National
Bank, Jackson, Mississippi, and Chairman of the Board of Getchell Gold
Corporation (formerly FirstMiss Gold Inc.), Englewood, Colorado. He is Chairman
of the Board of Callidus Technologies Inc., FirstMiss Steel, Inc., First
Chemical Corporation, Plasma Energy Corporation, Plasma Processing Corporation
and Power Sources, Inc. (50% owned), all subsidiaries of the Company.
 
     Frank D. Winter. Mr. Winter, 55, is President and Chief Executive Officer
of FirstMiss Steel, Inc., and has been since 1992. From 1991 to 1992, he was a
self-employed consultant to FirstMiss Steel, Inc. Mr. Winter was President of
Atlas Specialty Steels from 1987 to 1991.
 
     Richard P. Anderson. Mr. Anderson, 67, a director of the Company since
November 1996, has been the President and Chief Executive Officer of The
Andersons, Inc., an agribusiness company in Maumee, Ohio, since 1981. He was a
director of First Mississippi from 1987 to the Distribution Date. He is a
Director of Centerior Energy Corporation, an electric utility company in
Cleveland, Ohio, and N-Viro International Corporation, a waste recycling company
in Toledo, Ohio. He is also a Director of Plasma Processing Corporation, a
subsidiary of the Company. He is a member of the Committee on Director Affairs
and Chairman of the Compensation & Human Resources Committee. His current term
expires in 1997.
 
     Paul A. Becker. Mr. Becker, 58, a director of the Company since November
1996, is a Managing Director of Mitchell Hutchins Asset Management, Inc., an
investment management company in New York City and wholly owned by Paine Webber
Group, Inc. He was a Director of the First Mississippi from 1985 to the
Distribution Date. He has been employed by Paine Webber Group, Inc. since 1978.
Mitchell Hutchins served as an investment manager for First Mississippi's
pension plan until August 1996. Mr. Becker is a member of the Audit Committee.
His current term expires in 1998.
 
     James W. Crook. Mr. Crook, 66, a director of the Company since November
1996, is Chairman of the Board of Melamine Chemicals, Inc. ("MCI"), which
manufactures melamine in Donaldsonville, Louisiana, and has been since 1987. The
Company owns approximately 23% of the common stock of MCI. MCI obtains all of
its raw materials (urea) from Triad Chemical, which prior to the Merger was a
joint-venture between First Mississippi and Mississippi Chemical Corporation.
During the Transition Period, the Company was paid approximately $5.4 million by
MCI for urea. Mr. Crook was a director of First Mississippi from 1971 until the
Distribution Date, and is a retired Vice President of First Mississippi, a
position he held from 1965 to June 1985. Mr. Crook is also a Director of
FirstMiss Steel, Inc., a subsidiary of the Company. He is a member of the
Committee on Director Affairs and the ChemFirst Inc. Foundation Advisory
Committee. His current term expires in 1998.
 
     Michael J. Ferris. Mr. Ferris, 52, a director of the Company since November
1996, is President and Chief Executive Officer as well as a director of Pioneer
Companies, Inc. of Houston, Texas., a manufacturer of chlorine, caustic soda,
muriatic acid and related products used in a variety of applications, including
water treatment, plastics, detergents and agricultural chemicals, a position he
has held since January 1997. He was formerly the Executive Vice President,
Chemicals Group, of Vulcan Materials Company, a chemical manufacturer located in
Birmingham, Alabama. Prior to becoming Executive Vice President of Vulcan in
1996, Mr. Ferris served in various positions at Vulcan Chemicals, a division of
Vulcan Materials Company, since 1974, including President and Executive Vice
President. He is a member of the Compensation and Human Resources Committee and
a director of Quality Chemicals, Inc., a subsidiary of the Company. His current
term expires in 1997.
 
     James E. Fligg. Mr. Fligg, 60, a director of the Company since November
1996, has been a Senior Executive Vice President, Strategic Planning and
International Business Development, Amoco Corporation, based in Chicago,
Illinois, since October 1995. From July 1993 until October 1995, he was
Executive Vice President, Chemicals Sector, Amoco Corporation. He was President
of Amoco Chemical Company, an
 
                                       18
<PAGE>   19
 
international chemical manufacturing and marketing subsidiary of Amoco
Corporation based in Chicago, Illinois, from July 1991 until October 1995. He
was a director of Amoco Chemical from 1984 until October 1995. He was Executive
Vice President, International Operations and Polymer Products, from 1989 to July
1991. During the Transition Period, one of the Company's subsidiaries purchased
a total of approximately $2.6 million in products from Amoco Chemical Company or
one of its affiliates. Mr. Fligg was a director of First Mississippi from 1994
until the Distribution Date. He is a member of the Compensation & Human
Resources Committee. His current term expires in 1999.
 
     Robert P. Guyton. Mr. Guyton, 59, a director of the Company since November
1996, is self-employed as a financial consultant, a position he has held since
October 1996. He was Chairman and Chief Executive Officer of Smart Choice
Holdings, Inc., an owner and operator of automobile dealerships and finance
companies, from July 1996 to October 1996. He was Vice President and Financial
Consultant for Raymond James & Associates, Inc., an asset management and
investment banking company in Atlanta, Georgia, from August 1993 to July 1996.
He was self-employed as a management consultant from June 1991 to July 1993. He
was Chairman and Chief Executive Officer of Bank South Corporation, Atlanta,
Georgia, from 1990 to 1991. He was a director of First Mississippi from 1969
until the Distribution Date. He is a member of the Board of Directors of
Piccadilly Cafeterias, Inc., a restaurant chain, Baton Rouge, Louisiana. Mr.
Guyton is a Director of Power Sources, Inc., a 50% owned subsidiary of the
Company. He is Chairman of the Audit Committee. His current term expires in
1999.
 
     Charles P. Moreton. Mr. Moreton, 69, a director of the Company since
November 1996, has been a private investor, primarily in the oil and gas
business, since 1991. He was Chairman of the Board of Commet Resources, Inc., a
natural gas transmission and marketing company in Houston, Texas, from 1986
until its dissolution in July 1991. He was a Director of Tanglewood Bancshares,
Inc., Houston, Texas, until August 1, 1995, and a director of First Mississippi
from 1984 until the Distribution Date. He is a Director of Plasma Processing
Corporation, Callidus Technologies, Inc. and Plasma Energy Corporation, all
subsidiaries of the Company. He is a member of the Audit Committee. His current
term expires in 1998.
 
     Paul W. Murrill. Dr. Murrill, 62, a director of the Company since November
1996, is a professional engineer. He is Chairman of the Board of Directors of
Piccadilly Cafeterias, Inc., a restaurant chain, Baton Rouge, Louisiana. He has
been a director of Entergy Corporation since 1994, when it purchased Gulf States
Utilities Company, an electric and gas utility company in Beaumont, Texas, of
which Dr. Murrill was a director. Until March 1990, Dr. Murrill was also a
Special Advisor to the Chairman of the Board of Gulf States. Dr. Murrill had
also previously served as Chairman of the Board and Chief Executive Officer of
that company. He was a director of First Mississippi from 1969 until the
Distribution Date. He is a Director of ZYGO, a high precision instrument
company, Middlefield, Connecticut; Howell Corporation, a diversified energy
company, Houston, Texas; and Tidewater, Inc., an oil service company, New
Orleans, Louisiana. He is a member of the Audit Committee. His current term
expires in 1999.
 
     William A. Percy, II. Mr. Percy, 57, a director of the Company since
November 1996, has been a partner of Trail Lake Enterprises, a cotton and
soybean farming operation in Arcola, Mississippi, since 1986. Since September
1992, he has been the Chairman of the Board of Staple Cotton Cooperative
Association in Greenwood, Mississippi. Until July 1, 1994, he was a Director of
Mississippi Chemical Corporation, which manufactures and sells fertilizer. Prior
to the Merger, First Mississippi and Mississippi Chemical Corporation were
engaged in a joint-venture, Triad Chemical, in Donaldsonville, Louisiana. Mr.
Percy is also President and Chief Executive Officer of Greenville Compress Co.,
Greenville, Mississippi. He was a Director of the Sunburst Bank of Mississippi,
Grenada, Mississippi, until it was purchased by Union Planters Bank in July
1995. He was a director of First Mississippi from 1988 until the Distribution
Date. He is also a Director of Callidus Technologies Inc. and Plasma Energy
Corporation, subsidiaries of the Company. He is a member of the Compensation &
Human Resources Committee and the ChemFirst Inc. Foundation Advisory Committee.
His current term expires in 1997.
 
     Dan F. Smith. Mr. Smith, 50, a director of the Company since November 1996,
is President and Chief Executive Officer of Lyondell Petrochemical Company of
Houston, Texas, a position he has held since January 1997. Lyondell manufactures
and sells petrochemicals and refinery products. From August 1994 until
 
                                       19
<PAGE>   20
 
January 1997, he was President and Chief Operating Officer of Lyondell. From May
1993 until August 1994, he was Executive Vice President and Chief Operating
Officer of Lyondell. He was Vice President, Corporate Planning, of Atlantic
Richfield Company, Los Angeles, California, from October 1991 to May 1993. From
November 1988 to October 1991, he was Executive Vice President and Chief
Financial Office of Lyondell. During the Transition Period, a subsidiary of the
Company sold a total of approximately $242,000 in products to Lyondell
Petrochemical Company and its affiliates. He is a member of the Audit Committee.
His current term expires in 1998.
 
     Leland R. Speed. Mr. Speed, 64, a director of the Company since November
1996, is Chief Executive Officer and Chairman of the Board of Parkway
Properties, Inc. (formerly The Parkway Company), and Chairman, Chief Executive
Officer and Trustee of EastGroup Properties, real estate investment companies,
both of Jackson, Mississippi. He is Chairman and Director of Delta Industries,
Inc., a construction materials manufacturer and a Director of Farm Fish, Inc.
and Mississippi Valley Gas Company, all of Jackson, Mississippi. He was Trustee
and President of Eastover Corporation from 1977 through December 1994; President
and Director of Congress Street Properties from 1984 through November 1994; and
President and Director of LNH REIT, INC. from 1991 through May 1996. He was also
President, Chief Executive Officer and Director of Rockwood National
Corporation, a real estate developer, from 1983 through June 1994. He was a
Trustee of First Continental Investors REIT, Houston, Texas from 1983 through
May 1994. He was a director of First Mississippi from 1965 until the
Distribution Date. He is also a Director of First Chemical Corporation, a
subsidiary of the Company. He is a member of the Committee on Director Affairs.
His current term expires in 1998.
 
     R. Gerald Turner. Dr. Turner, 51, a director of the Company since November
1996, is the President of Southern Methodist University in Dallas, Texas, a
position he assumed in June 1995. He was the Chancellor of the University of
Mississippi in Oxford, Mississippi, from 1984 through June 1995. He has been a
director of River Oaks Furniture, Inc., a furniture manufacturer based in
Fulton, Mississippi, since 1994, a Director of JC Penney Co., Inc., a retailer,
since 1995, and a Director of Mobile Telecommunications Technologies Corp., a
provider of nationwide paging and voice messaging services, since July 1996. He
was a director of First Mississippi from 1987 until the Distribution Date. Dr.
Turner is also a Director of Callidus Technologies Inc., a subsidiary of the
Company. He is Chairman of the Committee on Director Affairs and a member of the
ChemFirst Inc. Foundation Advisory Committee. His current term expires in 1997.
 
     The COMMITTEE ON DIRECTOR AFFAIRS is composed of four (4) non-employee
Directors and is responsible for nominating new Board of Directors ("Board")
members, appointing members to Board Committees, assessing Board performance and
recommending Board compensation for action by the Board. The Chairman of this
committee also chairs executive sessions of the outside members of the Board.
The Committee on Director Affairs considers suggestions for Director nominations
from all sources. The Committee on Director Affairs met one (1) time during the
Transition Period. Current members of the committee are Mr. Anderson, Mr. Crook,
Mr. Speed and Dr. Turner.
 
     The AUDIT COMMITTEE is composed of five (5) non-employee Directors with
broad latitude for inquiry into all operations of the Company. Its primary
responsibilities include making a recommendation to the Board on the selection
of independent auditors, reviewing audit reports prepared by independent
auditors, internal auditors, insurance auditors and other consultants engaged by
the Company to examine specific areas of corporate operations, and examining the
adequacy of compliance with various governmental regulations and corporate
policies and procedures. The Audit Committee did not meet during the Transition
Period. Current members of the committee are Mr. Becker, Mr. Guyton, Mr.
Moreton, Dr. Murrill and Mr. Smith.
 
     The COMPENSATION & HUMAN RESOURCES COMMITTEE is composed of four (4) non-
employee Directors and is charged with the responsibility of recommending to the
Board a program of overall compensation for the Company and its subsidiaries,
including Executive Officers and other Key Employees. These responsibilities
include administration of the Company's Long-Term Incentive Plans. The
Compensation & Human Resources Committee did not meet during the Transition
Period. Current members of the committee are Mr. Anderson, Mr. Ferris, Mr. Fligg
and Mr. Percy.
 
                                       20
<PAGE>   21
 
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
 
     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of a registered
class of the Company's equity securities (collectively the "Reporting Persons")
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and to furnish the Company with copies of these reports.
 
     Based on the Company's review of such information, the Company believes
that all filings required to be made by the Reporting Persons during the
Transition Period were made on a timely basis.
 
ITEM 11. EXECUTIVE COMPENSATION
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                                 LONG-TERM
                                                ANNUAL COMPENSATION             COMPENSATION
                                       -------------------------------------    ------------
                                                                  OTHER          SECURITIES
                                                                 ANNUAL          UNDERLYING        ALL OTHER
     NAME AND PRINCIPAL                SALARY      BONUS     COMPENSATION(1)    OPTIONS(2)*     COMPENSATION(3)
          POSITION             YEAR      ($)        ($)            ($)              (#)               ($)
     ------------------        ----    -------    -------    ---------------    ------------    ---------------
<S>                            <C>     <C>        <C>        <C>                <C>             <C>
J. Kelley Williams(5)          1996(4) 250,000          0                (7)       75,000           16,840(9)(10)(11)
Chairman & Chief               1996    475,000    324,400       1,886,548(6)       75,000           29,545(9)(10)(11)
Executive Officer              1995    450,000    360,000         127,697(6)            0           22,050
                               1994    330,000    200,000                (7)       35,000           52,975
Thomas G. Tepas                1996(4) 125,000          0                (7)       26,625            5,810(9)(10)(11)
President & Chief              1996    187,500    135,000                (7)       54,222           48,921(9)(10)(11)(12)
Operating Officer
R. Michael Summerford          1996(4)  99,500          0                (7)       21,125            6,555(9)(10)(11)
Vice President and             1996    196,271     95,500         858,782(6)       20,528           12,100(9)(10)(11)
Chief Financial Officer        1995    191,725     86,900         212,965(6)       21,300           11,701
                               1994    182,458     73,400                (7)       25,000           11,357
George M. Simmons              1996(4)  81,614        259                (7)        6,375            7,608(9)(10)(11)
President, First Chemical      1996    163,227     81,600          71,239(6)(8)     2,875           13,313(9)(10)(11)
Corporation                    1995    127,342     35,400                (7)            0           10,829
                               1994    120,731     32,000         151,598(6)(8)         0            6,192
William P. Bartlett            1996(4)  84,900          0               0           4,313            4,906(9)(10)(11)
President, Callidus            1996    167,400          0               0           3,000            9,464(9)(10)(11)
Technologies Inc.              1995    163,764     81,300               0               0            8,036
                               1994    161,264          0               0               0            8,297
</TABLE>
 
---------------
 
  *  On the Distribution Date, each outstanding First Mississippi stock option
     was exchanged for a Company stock option. Effective as of the Distribution
     Date, the effective exercise price and number of underlying securities for
     all First Mississippi stock options outstanding on the Distribution Date
     were adjusted by a factor of 1.25 to reflect the distribution value of the
     Company's shares. Accordingly, the securities listed in this column which
     underlie options which were outstanding on the Distribution Date have been
     restated to reflect this adjustment. See "Security Ownership of Certain
     Beneficial Owners and Management."
 
 (1) Other Annual Compensation includes payouts under Performance Option
     arrangements, direct cash payments related to tax reimbursements related to
     long-term incentives, tax planning and tax return preparation services, and
     imputed income and tax reimbursements resulting from the personal use of
     Company automobiles and country clubs. Tax reimbursement payments represent
     payments to eligible employees of thirty-seven percent (37%) of the
     Company's federal income tax deduction resulting from the exercise of
     Convertible Subordinated Debenture Options, Non-Qualified Stock Options
     ("NQSOs"), Incentive Stock Options and Performance Options. These payments
     are not applicable for options granted since August 22, 1995.
 
 (2) NQSOs were granted to Officers and certain key employees of the Company in
     the Transition Period, 1996, 1995 and 1994. The options for the Transition
     Period and 1996 were awarded under the 1995 Long-Term Incentive Plan.
     Options for 1995 and 1994 were granted under the 1988 Long-Term Incentive
     Plan, under which no further grants will be made. No shares of Common Stock
     of the Company are available for the grant of awards under the 1980
     Long-Term Incentive Plan. The share amounts for a particular fiscal year
     under this column reflect only the shares underlying options which were
     granted during the respective fiscal year (that is, shares underlying
     options granted subsequent to
 
                                       21
<PAGE>   22
 
     fiscal year-end but based on performance in the prior fiscal year are
     included in the share amounts for the subsequent year during which the
     related options were actually granted).
 
 (3) All Other Compensation is comprised of Company contributions related to the
     Company's 401(k) Plan, including amounts provided by the Company's Benefits
     Restoration Plan ("BRP"), executive life insurance, relocation expenses and
     the above market portion of interest earned under the Deferred Income Plan
     (Plan A). The BRP permits participants in the 401(k) Plan to make
     contributions, and the Company to match the same, in amounts permitted by
     the 401(k) Plan but which would otherwise be in excess of those permitted
     by certain Internal Revenue Code limitations.
 
 (4) Represents compensation for the six-month period beginning July 1, 1996 and
     ending December 31, 1996. On October 30, 1996, the Company converted from a
     fiscal year-end of June 30 to a fiscal year-end of December 31.
 
 (5) Mr. Williams' base salary was reduced twenty-five percent (25%) at his
     request from June 1, 1993 to July 1, 1994, in consideration of losses due
     to restructuring in fiscal 1993.
 
 (6) No tax reimbursement payments were made during the Transition Period to any
     of the named officers. Tax reimbursement payments in fiscal 1996 to Mr.
     Williams, Mr. Summerford and Mr. Simmons were $1,856,591, $844,060 and
     $16,304, respectively. Tax reimbursement payments in fiscal 1995 to Mr.
     Williams and Mr. Summerford were $78,625 and $196,493, respectively. The
     tax reimbursement payment in fiscal 1994 to Mr. Simmons was $38,150.
 
 (7) Aggregate perquisites and other personal benefits were less than $50,000 or
     ten percent (10%) of the total annual salary and bonus reported for the
     named Executive Officer and thus are excluded from the table.
 
 (8) Includes payments received by Mr. Simmons on exercise of Performance
     Options of $44,064 in 1996 and $103,107 in 1994.
 
 (9) Above market interest earned under the Deferred Income Plan in the
     Transition Period was $0, $0, $1,930, $3,502 and $0 for Mr. Williams, Mr.
     Tepas, Mr. Summerford, Mr. Simmons and Mr. Bartlett, respectively. Above
     market interest earned under the Deferred Income Plan in fiscal 1996 was
     $0, $0, $2,850, $5,172 and $0 for Mr. Williams, Mr. Tepas, Mr. Summerford,
     Mr. Simmons and Mr. Bartlett, respectively. Mr. Williams voluntarily
     reduced the interest rate on his deferrals effective January 1, 1994 to one
     hundred twenty percent (120%) of the applicable annual federal long-term
     rate as specified in the Internal Revenue Code. See "Director
     Compensation."
 
(10) Company contributions to the 401(k) Plan in the Transition Period were
     $3,000, $3,000, $3,000, $3,000 and $3,000 for Mr. Williams, Mr. Tepas, Mr.
     Summerford, Mr. Simmons and Mr. Bartlett, respectively. Accruals to the
     401(k) related BRP in the Transition Period were $7,000, $2,000, $980, $265
     and $396 for Mr. Williams, Mr. Tepas, Mr. Summerford, Mr. Simmons and Mr.
     Bartlett, respectively. Company contributions to the 401(k) Plan in fiscal
     1996 were $6,000, $1,200, $6,000, $6,000 and $6,000 for Mr. Williams, Mr.
     Tepas, Mr. Summerford, Mr. Simmons and Mr. Bartlett, respectively. Accruals
     to the 401(k) related BRP in fiscal 1996 were $13,000, $3,100, $1,800, $529
     and $696 for Mr. Williams, Mr. Tepas, Mr. Summerford, Mr. Simmons and Mr.
     Bartlett, respectively.
 
(11) The Executive life insurance program was changed effective November 1,
     1995, to provide cash subsidies to participants based on age-based premium
     cost replacing a program under which the Company provided the insurance and
     paid the premiums directly. Cash subsidies in the Transition Period were
     $6,840, $810, $645, $841 and $1,510 for Mr. Williams, Mr. Tepas, Mr.
     Summerford, Mr. Simmons and Mr. Bartlett, respectively. Direct insurance
     payments in fiscal 1996 were $1,425, $283, $590, $490 and $252 for Mr.
     Williams, Mr. Tepas, Mr. Summerford, Mr. Simmons and Mr. Bartlett,
     respectively. Cash subsidies in fiscal 1996 were $9,120, $1,080, $860,
     $1,122 and $2,516 for Mr. Williams, Mr. Tepas, Mr. Summerford, Mr. Simmons
     and Mr. Bartlett, respectively.
 
(12) Relocation expenses paid by the Company during 1996 on behalf of Mr. Tepas
     were $43,258.
 
                                       22
<PAGE>   23
 
                OPTION GRANTS IN PRIOR FISCAL YEAR (FISCAL 1996)
 
<TABLE>
<CAPTION>
                                                    INDIVIDUAL GRANTS                             POTENTIAL REALIZABLE
                                ----------------------------------------------------------      VALUE AT ASSUMED ANNUAL
                                NUMBER OF       % OF TOTAL                                        RATES OF STOCK PRICE
                                SECURITIES       OPTIONS                                         APPRECIATION FOR TEN-
                                UNDERLYING    GRANTED TO ALL      EXERCISE                       YEAR OPTION TERM($)(2)
                                 OPTIONS       EMPLOYEES IN        PRICE        EXPIRATION      ------------------------
             NAME               GRANTED(1)     FISCAL YEAR      ($/SHARE)(1)       DATE           5%              10%
             ----               ----------    --------------    ------------    ----------      -------        ---------
<S>                             <C>           <C>               <C>             <C>             <C>            <C>
J. Kelley Williams............    75,000           24.2%           18.50         11/10/05       872,591        2,211,318
Thomas G. Tepas...............    29,750            9.6%           18.50         11/10/05       346,128          877,156
                                  24,472            7.9%           20.38         08/22/05       313,661          794,879
R. Michael Summerford.........    20,528            6.6%           16.30         08/22/05       210,483          533,406
George M. Simmons.............     2,875            0.9%           18.50         11/10/05        33,449           84,767
William P. Bartlett...........     3,000            .10%           18.50         11/10/05        34,904           88,453
</TABLE>
 
---------------
 
(1) On the Distribution Date, each outstanding First Mississippi stock option
    was exchanged for a Company stock option. Effective as of the Distribution
    Date, the effective exercise price and number of underlying securities for
    all First Mississippi stock options outstanding on the Distribution Date
    were adjusted by a factor of 1.25 to reflect the distribution value of the
    Company's shares. Accordingly, the amounts listed in this column which
    relate to options which were outstanding on the Distribution Date have been
    restated to reflect this adjustment.
 
(2) The dollar amounts under these columns represent the potential realizable
    value of each grant, assuming that the market value of the Company's Common
    Stock appreciates from the date of grant to the expiration of the option at
    annualized rates of 5% and 10%. These assumed rates of appreciation have
    been specified by the Securities and Exchange Commission for illustrative
    purposes only and are not intended to forecast future financial performance
    or possible future appreciation in the price of Company stock.
 
                     OPTION GRANTS IN THE TRANSITION PERIOD
 
<TABLE>
<CAPTION>
                                                    INDIVIDUAL GRANTS                             POTENTIAL REALIZABLE
                                ----------------------------------------------------------      VALUE AT ASSUMED ANNUAL
                                NUMBER OF       % OF TOTAL                                        RATES OF STOCK PRICE
                                SECURITIES       OPTIONS                                         APPRECIATION FOR TEN-
                                UNDERLYING    GRANTED TO ALL      EXERCISE                       YEAR OPTION TERM($)(2)
                                 OPTIONS       EMPLOYEES IN        PRICE        EXPIRATION      ------------------------
             NAME               GRANTED(1)     FISCAL YEAR      ($/SHARE)(1)       DATE           5%              10%
             ----               ----------    --------------    ------------    ----------      -------        ---------
<S>                             <C>           <C>               <C>             <C>             <C>            <C>
J. Kelley Williams............    75,000           30.0%           18.80         08/27/06       886,341        2,247,177
Thomas G. Tepas...............    26,625           11.0%           18.80         08/27/06       314,793          797,748
R. Michael Summerford.........    21,125            9.0%           18.80         08/27/06       249,766          632,955
George Simmons................     6,375            3.0%           18.80         08/27/06        75,373          191,010
William P. Bartlett...........     4,313            2.0%           18.80         08/27/06        50,994          129,228
</TABLE>
 
---------------
 
(1) On the Distribution Date, each outstanding First Mississippi stock option
    was exchanged for a Company stock option. Effective as of the Distribution
    Date, the effective exercise price and number of underlying securities for
    all First Mississippi stock options outstanding on the Distribution Date
    were adjusted by a factor of 1.25 to reflect the distribution value of the
    Company's shares. Accordingly, the amounts listed in this column which
    relate to options which were outstanding on the Distribution Date have been
    restated to reflect this adjustment.
 
(2) The dollar amounts under these columns represent the potential realizable
    value of each grant, assuming that the market value of the Company's Common
    Stock appreciates from the date of grant to the expiration of the option at
    annualized rates of 5% and 10%. These assumed rates of appreciation have
    been specified by the Securities and Exchange Commission for illustrative
    purposes only and are not intended to forecast future financial performance
    or possible future appreciation in the price of Company stock.
 
                                       23
<PAGE>   24
 
                         AGGREGATED OPTION EXERCISES IN
              PRIOR FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                                                                   AGGREGATE VALUE OF
                                                                                                UNEXERCISED, IN-THE-MONEY
                                                                    NUMBER OF SECURITIES          OPTIONS AT 6/30/96($)
                                      NUMBER OF                    UNDERLYING UNEXERCISED      ---------------------------
                                       SHARES                        OPTIONS AT 6/30/96
                                      ACQUIRED        VALUE      ---------------------------   EXERCISABLE   UNEXERCISABLE
               NAME                  ON EXERCISE   REALIZED($)   EXERCISABLE   UNEXERCISABLE       (1)            (2)
               ----                  -----------   -----------   -----------   -------------   -----------   -------------
<S>                                  <C>           <C>           <C>           <C>             <C>           <C>
J. Kelley Williams.................    175,000      5,017,813      317,600           0          3,370,975         N/A
Thomas G. Tepas....................         --             --       48,272           0             45,752         N/A
R. Michael Summerford..............     93,300      2,281,244       16,422           0             30,702         N/A
George M. Simmons..................         --             --       18,400           0            204,788         N/A
William P. Bartlett................         --             --        2,400           0                 --         N/A
</TABLE>
 
---------------
 
(1) Value was computed as the difference between the individual option price and
    the per share closing price of First Mississippi Common Stock on June 30,
    1996, as reported on the consolidated transaction system for New York Stock
    Exchange issues. Only options with fair market values in excess of the
    exercise price are reflected in this column.
 
(2) No value is shown because there were no unexercisable options at fiscal year
    end.
 
            AGGREGATED OPTION EXERCISES IN THE TRANSITION PERIOD AND
               OPTION VALUES AT THE END OF THE TRANSITION PERIOD
 
<TABLE>
<CAPTION>
                                                                    NUMBER OF SECURITIES           AGGREGATE VALUE OF
                                      NUMBER OF                    UNDERLYING UNEXERCISED       UNEXERCISED, IN-THE-MONEY
                                       SHARES                      OPTIONS AT 12/31/96(1)       OPTIONS AT 12/31/96($)(2)
                                      ACQUIRED        VALUE      ---------------------------   ---------------------------
               NAME                  ON EXERCISE   REALIZED($)   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
               ----                  -----------   -----------   -----------   -------------   -----------   -------------
<S>                                  <C>           <C>           <C>           <C>             <C>           <C>
J. Kelley Williams.................         0             --       397,002        75,000        5,432,546       324,375
Thomas G. Tepas....................    24,472        207,879        29,750        26,625          137,594       115,153
R. Michael Summerford..............         0             --        20,528        21,125          140,023        91,366
George M. Simmons..................         0             --        23,001         6,375          325,273        27,572
William P. Bartlett................         0             --         3,000         4,313           13,875        18,663
</TABLE>
 
---------------
 
(1) On the Distribution Date, each outstanding First Mississippi stock option
    was exchanged for a Company stock option. Effective as of the Distribution
    Date, the effective exercise price and number of underlying securities for
    all First Mississippi stock options outstanding on the Distribution Date
    were adjusted by a factor of 1.25 to reflect the distribution value of the
    Company's shares. Accordingly, the amounts under these columns which relate
    to options which were outstanding on the Distribution Date have been
    restated to reflect this adjustment.
 
(2) Value was computed as the difference between the individual option price and
    the per share closing price of the Company's Common Stock on December 31,
    1996, as reported on the consolidated transaction system for New York Stock
    Exchange issues. Only options with fair market values in excess of the
    exercise price are reflected in these columns.
 
                                       24
<PAGE>   25
 
                     AWARDS UNDER LONG-TERM INCENTIVE PLANS
 
AWARDS IN PRIOR FISCAL YEAR(1)
 
<TABLE>
<CAPTION>
                                                               PERFORMANCE OR OTHER
                                                                   PERIOD UNTIL
                                              NUMBER OF           MATURATION OR            ESTIMATED
                   NAME                      SHARES/UNITS             PAYOUT             FUTURE PAYOUTS
                   ----                      ------------      --------------------      --------------
<S>                                          <C>               <C>                       <C>
George M. Simmons..........................     9,600                  (2)                    (3)
</TABLE>
 
AWARDS IN THE TRANSITION PERIOD(4)
 
<TABLE>
<CAPTION>
                                                               PERFORMANCE OR OTHER
                                                                   PERIOD UNTIL
                                              NUMBER OF           MATURATION OR            ESTIMATED
                   NAME                      SHARES/UNITS             PAYOUT             FUTURE PAYOUTS
                   ----                      ------------      --------------------      --------------
<S>                                          <C>               <C>                       <C>
George M. Simmons..........................     6,700                  (5)                    (6)
</TABLE>
 
---------------
 
(1) In fiscal 1996, the Company adopted a Performance Option Plan for First
    Chemical Corporation providing for awards payable only in cash based on
    appreciation in value of units, such appreciated value being based on the
    subsidiary's pre-tax operating profit and the price earnings multiples of a
    peer group of publicly held companies. Options shown in this table represent
    performance units granted under this plan on August 22, 1995.
 
(2) Performance units granted August 22, 1995 are exercisable no earlier than
    six (6) months from date of grant and until ten (10) years from grant. The
    units are valued on a quarterly basis and may be exercised by the
    participant within fifteen (15) business days from the date of valuation.
 
(3) The performance options granted on August 22, 1995, have a base price of
    $20.30 and may be exercised as noted above. Estimated future value will be
    based on the appreciated value of the options on the exercise date and
    cannot be reasonably estimated at this time. However, if unit values
    appreciated at annual rates of 5% and 10%, the potential realizable value at
    the end of their ten (10)-year term would be $122,559 and $310,589,
    respectively.
 
(4) Options shown in this table represent performance units granted under the
    Performance Option Plan for First Chemical Corporation on August 27, 1996.
 
(5) Performance units granted August 27, 1996 are exercisable as follows: 40%
    are exercisable 12 months from date of grant, 40% are exercisable 24 months
    from date of grant and the remaining 20% are exercisable 36 months from date
    of grant. Any performance units not exercised within ten (10) years from
    date of grant are forfeited. The units are valued on a quarterly basis and
    may be exercised by the participant within fifteen (15) business days from
    the date of valuation.
 
(6) The performance options granted on August 27, 1996, have a base price of
    $26.67 and may be exercised as noted above. Estimated future value will be
    based on the appreciated value of the options on the exercise date and
    cannot be reasonably estimated at this time. However, if unit values
    appreciated at annual rates of 5% and 10%, the potential realizable value at
    the end of their ten (10)-year term would be $112,377 and $284,784,
    respectively.
 
                                       25
<PAGE>   26
 
                               OTHER COMPENSATION
 
     In 1970, First Mississippi stockholders authorized a noncontributory
retirement plan for the employees of First Mississippi. Employees become one
hundred percent (100%) vested after five (5) years of employment. The plan
provides for normal retirement at age sixty-five (65) with actuarially adjusted
provisions for early and postponed retirement dates. Retirement benefits are
based on years of service and average compensation (wages and salary) of the
five (5) highest consecutive years during employment. The benefits listed in the
table below are not subject to any reduction for social security or other offset
amounts. Pursuant to that certain Employee Benefits and Compensation Agreement
between First Mississippi and the Company dated as of December 18, 1996 (the
"Benefits Agreement"), the Company assumed the obligations of First Mississippi
under this retirement plan.
 
     The following table shows the estimated annual retirement benefit payable
to participating employees including Executive Officers based on earnings and
years of service classifications as indicated.
 
<TABLE>
<CAPTION>
AVERAGE ANNUAL COMPENSATION                       ESTIMATED ANNUAL BENEFITS FOR YEARS OF CREDITED SERVICE
        (5 HIGHEST                                --------------------------------------------------------
    CONSECUTIVE YEARS)                             10 YEARS       20 YEARS       30 YEARS       40 YEARS
---------------------------                       -----------    -----------    -----------    -----------
<S>                         <C>                   <C>            <C>            <C>            <C>
        $100,000................................     $17,712        $ 35,424       $ 53,136       $ 70,848
         150,000................................       26,712         53,424         80,136        106,848
         200,000................................       35,712         71,424        107,136        142,848
         300,000................................       53,712        107,424        161,136        214,848
         400,000................................       71,712        143,424        215,136        286,848
         450,000................................       80,712        161,424        242,136        322,848
         500,000................................       89,712        179,424        269,136        358,848
</TABLE>
 
     The table includes amounts that exceed limitations allowed under Section
415 of the Code. The Company's BRP provides that if an individual's retirement
benefits calculated under the retirement plan exceed the maximum allowed under
the Code, the Company may supplement such employee's benefits under certain
conditions to the extent such benefit is in excess of the limitation.
 
     Years of service for the Executive Officers listed in the Summary
Compensation Table are: J. Kelley Williams, 29.7 years; Thomas G. Tepas, 1.5
years; R. Michael Summerford, 18.4 years; George M. Simmons, 12.0 years; and
William P. Bartlett, 7.3 years.
 
TERMINATION AGREEMENTS
 
     During fiscal 1996, the Board of Directors of First Mississippi approved
and First Mississippi entered into Termination Agreements for the Executive
Officers of First Mississippi, including Mr. Williams, Mr. Tepas, Mr.
Summerford, Mr. Simmons and Mr. Bartlett. Pursuant to that certain Agreement and
Plan of Distribution between First Mississippi and the Company dated as of
December 18, 1996 (the "Distribution Agreement"), the Company assumed the
obligations of First Mississippi under the Termination Agreements. The
Termination Agreements are contingent upon a Change of Control, as defined in
the Agreements, and provide for three-year terms which are automatically
extended unless the Company determines not to renew or there is a Change of
Control of the Company during any three-year term. Each officer, other than the
Chief Executive Officer, would be paid upon termination of employment for
reasons other than cause, death or disability or upon resignation for good
reason, subsequent to a Change of Control during the term of the Termination
Agreement, three (3) times the sum of the five-year average of his annual base
salary and bonus. The Company's Chief Executive Officer is entitled to the same
termination benefit as described above for all other Executive Officers, except
for the fact that the Chief Executive Officer may resign for any reason, as
opposed to "good reason," within thirty-six (36) months of a Change of Control
and still be entitled to the termination benefit. Upon termination, the
individual would have the option, unless he notifies the Company otherwise, to
receive a cash payment equal to the cash value of all his NQSOs, Debenture
Options and Convertible Debentures, whether then exercisable or not. Following
termination, the Company will pay amounts previously due to individuals for
early stock disposition of grants issued in 1994 and earlier under the
 
                                       26
<PAGE>   27
 
Company's tax sharing plan. No individual would receive payments in the event of
death, disability or termination for cause. In addition, the Termination
Agreements provide for an additional payment to be made by the Company to the
Chief Executive Officer if any of the severance payments provided for by the
Termination Agreements or any other payments made pursuant to a Change of
Control of the Company (the "Total Payments") become subject to an additional
tax ("Excise Tax") imposed by Section 4999 of the Code, such that the net of all
of the payments received by the Officer after the imposition of the Excise Tax
on the Total Payments and any federal income tax on the additional payment shall
be equal to the Total Payments.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     The Chief Executive Officer serves as a member ex-officio of the
Compensation & Human Resources Committee, but may not serve as Chairman or vote
or participate in or be present for Committee decisions regarding his own
compensation. He does not make recommendations about nor participate in
decisions regarding any aspect of his compensation.
 
     In addition, Mr. Crook, a director of the Company, who retired from First
Mississippi as Vice President in 1985, is Chairman of Melamine Chemicals
("MCI"), and Mr. Summerford, an Executive Officer of the Company, is a director
of MCI and a member of MCI's Compensation Committee.
 
DIRECTOR COMPENSATION
 
     Directors who are not employees are compensated for their services with a
retainer of $16,000 per year. In addition, non-employee Directors receive fees
for attendance at duly called Board and committee meetings. The fees paid are
$1,000 per day for attendance at duly called Board and committee meetings or a
fee of $500 for half-day committee meetings except for committee chairmen, who
receive a fee of $1,250 per day for meetings and $625 for half-day meetings.
These fees are recommended by the Committee on Director Affairs to align board
compensation with peer companies. Travel expenses to and from meetings are
reimbursed to all Directors. No fees are paid for informal meetings. Attendance
at meetings held by telephone conference call are paid at the half-day rate.
Directors performing special services at the request of the Chief Executive
Officer are paid a per diem of $1,000 per day, except for committee chairmen,
who are paid a per diem of $1,250 per day.
 
     Under the Company's 1988 Long-Term Incentive Plan, as amended, which was
assumed by the Company pursuant to the Benefits Agreement, non-employee
Directors were automatically awarded for five (5) years, debenture options to
purchase Convertible Subordinated Debentures. Debenture options may be exercised
any time within ten (10) years after the date of grant to purchase Convertible
Debentures. Each debenture may be converted six (6) months after the date of
grant of the applicable option into Convertible Preferred Stock. Each share of
Convertible Preferred Stock is, in turn, immediately convertible into Company
Common Stock. There will be no further awards under this plan. Debenture Options
issued by First Mississippi prior to the Distribution were exchanged on the
Distribution Date for Company Debenture Options pursuant to the terms of the
Benefit Agreement.
 
     Under the Company's 1995 Long-Term Incentive Plan (the "1995 Plan"), as
amended, which was assumed by the Company pursuant to the Benefits Agreement,
each Director is entitled to receive Awards under the 1995 Plan. The
Compensation Committee annually reviews and the Company's Board of Directors
annually approves potential award ranges for the Directors. Award ranges are
based on guidelines developed by nationally recognized compensation consultants.
At fiscal year end, the Compensation Committee reviews Company condition and
performance versus long-term goals and recommends awards under the 1995 Plan.
Awards may be in the form of stock options, restricted stock, stock appreciation
rights, performance shares or units, supplemental cash, or other such forms as
appropriate. In December 1996, each non-employee Director received options to
purchase 1,500 shares of Common Stock of the Company.
 
     Also under the 1995 Plan, Directors may make an irrevocable election to
receive share units in exchange for deferring all or some portion of their
annual retainer at a per share unit exchange price that is eighty-five percent
(85%) of the fair market value of the Company Common Stock determined as of the
first day of the
 
                                       27
<PAGE>   28
 
year during which all or a portion of the deferred retainer was to be paid.
Dividends earned pursuant to the share units are reinvested in the form of
additional share units.
 
     In fiscal 1986, First Mississippi established a Deferred Income Plan for
Directors, Officers and Key Employees ("Plan A") which superseded the previous
deferred income arrangement and pursuant to which deferral opportunities in any
given year, up to a maximum of three (3) years, were offered at the discretion
of the Board. Pursuant to the Benefits Agreement, the Company assumed the
obligations of First Mississippi under Plan A. Amounts deferred under Plan A
earn interest at a prescribed rate which, as originally established, was twenty
percent (20%), compounded annually, subject to reduction as described below. The
Company is owner and beneficiary of life insurance policies covering most of the
participants in Plan A. The benefits associated with these policies are expected
to cover the Company's financial obligations incurred in connection with Plan A,
including the interest accrued on the amounts deferred thereunder in excess of
market rates, resulting in no net cost to the Company over the life of the plan.
Plan A provides that the interest rate may be reduced prospectively and, if
necessary, may be adjusted retroactively, due to severe economic changes
including, but not limited to, changes in tax law. However, no retroactive
changes in the rate of a return may occur unless such economic changes are
material, adverse and retroactive in nature. Further, in no event shall the
interest rate on amounts deferred under Plan A be reduced to a level lower than
the ten (10)-year Treasury Note Rate. Effective January 1, 1994, the Director
participants in Plan A still serving on the First Mississippi Board voluntarily
reduced the applicable interest rate to one hundred twenty percent (120%) of the
applicable annual federal long-term rate as specified in the Internal Revenue
Code. At the same time, the Board closed Plan A for any new participants or
deferral opportunities, subject to the existing rights and obligations
thereunder. The interest rate for the first six months of fiscal year 1994 for
all Directors remained at twenty percent (20%). In fiscal year 1989, First
Mississippi established a successor Deferred Compensation Plan for Outside
Directors ("Plan B") to insure continuation of deferral opportunities for
Directors. Pursuant to the Benefits Agreement, the Company assumed the
obligations of First Mississippi under Plan B. Plan B was amended effective
January 1, 1994, to change the interest rate prospectively to one hundred twenty
percent (120%) of the applicable annual federal long-term rate as specified in
the Internal Revenue Code. Amounts deferred under Plan B prior to January 1,
1994 earned interest based on the Chase Manhattan Bank, N.A. Prime Rate, less
one percent (1%). The deferrals under both Plan A and Plan B are held by the
Company until retirement, resignation or other termination of services. Director
J. Kelley Williams participates only in Plan A (See Note 9 under Summary
Compensation Table).
 
     The Company furnishes Directors with $100,000 accidental death and
dismemberment and $250,000 of business travel accident insurance. The Company
also has a Retirement Plan for its non-employee Directors under which all such
Directors who have served at least one (1) three-year term will, under certain
conditions, receive an annual retirement benefit equal to their annual retainer
at retirement for each year of service, not to exceed fifteen (15) years. The
amount of the retainer to be received after retirement shall be fixed at the
time of retirement. The plan also provides for a lump sum payment to a Director
under certain conditions in the event of a change of control and to his
beneficiary upon his death.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     On the Distribution Date, each outstanding First Mississippi debenture,
debenture option and NQSO was exchanged for a Company security of the same type.
In accordance with the terms of the Benefits Agreement, the number of shares of
Common Stock underlying First Mississippi debentures, debenture options and
NQSO's outstanding on the Distribution Date, as well as the effective exercise
prices relating thereto, were adjusted to reflect the distribution value of the
Company's shares. This adjustment increased the number of shares underlying the
awards outstanding at the time of the Distribution and reduced the respective
exercise prices by a factor of 1.25.
 
                                       28
<PAGE>   29
 
     The Directors and Officers of the Company beneficially owned as of February
20, 1997, Convertible Subordinated Debentures, Convertible Preferred Stock,
NQSOs and Common Stock of the Company as follows:
 
<TABLE>
<CAPTION>
                                                                                TOTAL
                                  COMMON STOCK                               COMMON STOCK    PERCENT
                                  BENEFICIALLY     PERCENT       COMMON      BENEFICIALLY       OF
        DIRECTOR/OFFICER            OWNED(1)       OF CLASS       STOCK        OWNED(2)       CLASS
        ----------------          ------------    ----------    ---------    ------------    --------
<S>                               <C>             <C>           <C>          <C>             <C>
Richard P. Anderson.............                                    9,450(3)
  NQSO..........................      3,750                                      13,200        *
Paul A. Becker..................                                   10,000
  1988-1 Series.................      2,013            20%
  1989-2 Series.................      2,013            20%
  1990-2 Series.................      2,013            20%
  1991-2 Series.................      2,013            20%
  1992-1 Series.................      2,013            20%
  NQSO..........................      3,750
                                    -------
                                     13,815                                      23,815        *
James W. Crook..................                                  113,687(4)
  NQSO..........................      3,750                                     117,437        *
Michael J. Ferris
  NQSO..........................      1,875                                       1,875        *
James E. Fligg..................                                    3,610
  NQSO..........................      1,875
                                                                                  5,485        *
Robert P. Guyton................                                   23,000
  NQSO..........................      3,750                                      26,750        *
Charles P. Moreton..............                                   13,250
  NQSO..........................      3,750                                      17,000        *
Paul W. Murrill.................                                    3,900(5)
  1988-1 Series.................      2,013            20%
  1989-2 Series.................      2,013            20%
  1990-2 Series.................      2,013            20%
  1991-2 Series.................      2,013            20%
  1992-1 Series.................      2,013            20%
  NQSO..........................      3,750
                                    -------
                                     13,815                                      17,715        *
William A. Percy, II............                                   36,275(6)
  1988-1 Series.................      2,013            20%
  1989-2 Series.................      2,013            20%
  1990-2 Series.................      2,013            20%
  1991-2 Series.................      2,013            20%
  1992-1 Series.................      2,013            20%
  NQSO..........................      3,750
                                    -------
                                     13,815                                      50,090        *
Dan F. Smith
  NQSO..........................      1,875                                       1,875        *
</TABLE>
 
                                       29
<PAGE>   30
 
<TABLE>
<S>                                      <C>             <C>          <C>         <C>             <C>
Leland R. Speed........................                                   12,720
  1988-1 Series........................         2,013            20%
  1989-2 Series........................         2,013            20%
  1990-2 Series........................         2,013            20%
  1991-2 Series........................         2,013            20%
  1992-1 Series........................         2,013            20%
  NQSO.................................         3,750
                                           ----------
                                               13,815                                    26,535        *
R. Gerald Turner.......................                                    7,900(7)
  NQSO.................................         3,750                                    11,650        *
J. Kelley Williams.....................                                  866,480(8)
  1987-A Series........................        50,313            78%
  1988-A Series........................        90,563            63%
  1989-1 Series........................        90,563           100%
  1990-1 Series........................        90,563            98%
  NQSO.................................       150,000
                                           ----------
                                              472,002                                 1,338,482         6.2%
W. P. Bartlett.........................                                    1,229
  NQSO.................................         7,313                                     8,542        *
George M. Simmons......................                                      243
  1988-A Series**......................         8,050             6%
  1989-A Series........................         2,013             6%
  NQSO.................................         9,250
                                           ----------
                                               19,313                                    19,556        *
R. Michael Summerford..................                                   70,590
  NQSO.................................        41,653                                   112,243        *
Thomas G. Tepas........................                                    5,009
  NQSO.................................        56,375                                    61,384        *
All Directors and Executive Officers as
  a Group (27 Persons)(9)..............                                1,211,164
  1987-A Series........................        60,376           100%
  1988-A Series**......................       108,676           100%
  1988-1 Series........................         8,052            80%
  1989-A Series........................         5,033            15%
  1989-1 Series........................        90,563           100%
  1989-2 Series........................         8,052            80%
  1990-1 Series........................        90,563            86%
  1990-2 Series........................         8,052            80%
  1991-1 Series........................         6,038            75%
  1991-2 Series........................         8,052            80%
  1992-1 Series........................         8,052            80%
     NQSO..............................       428,322
                                           ----------
                                              829,831                                 2,040,995         9.5%
5% Beneficial Holder:                                                                 1,902,500         9.2%
  Goldman Sachs Group, L.P. and
  Goldman Sachs & Co. 85 Broad Street
     New York, NY 10004(10)
</TABLE>
 
                                       30
<PAGE>   31
 
---------------
 
  *  Represents less than one percent (1%) of class.
 
  ** Represents 8,050 shares of Common Stock underlying Convertible Subordinated
     Debentures that have already been purchased through the exercise of
     Debenture Options.
 
 (1) Numbers represent shares of Common Stock of the Company underlying the
     Convertible Subordinated Debentures and NQSOs beneficially owned by the
     Directors and Officers. The Debentures are immediately convertible into the
     specified number of shares of Convertible Preferred Stock of the same
     series and then immediately convertible into the specified number of shares
     of Common Stock of the Company. NQSOs are exercisable no earlier than six
     (6) months from date of grant into shares of Common Stock of the Company.
 
 (2) 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, including the outstanding shares of Common
     Stock reported above as being owned by Directors and Officers. Under
     certain conditions, each right may be exercised to purchase one
     one-hundredth (1/100) of a share of a new series of preferred stock, at an
     exercise price of $100 (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 $.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.
 
 (3) Shares voting and investment power of 3,700 shares with Mrs. Anderson.
 
 (4) Included are 700 shares owned by Mrs. Crook of which Mr. Crook has no
     voting and investment power and disclaims beneficial ownership.
 
 (5) Included are 775 shares owned by Mrs. Murrill of which Dr. Murrill has no
     voting and investment power and disclaims beneficial ownership.
 
 (6) Included are 31,500 shares of which Mr. Percy has sole voting and
     investment power as President of Greenville Compress Company and of which
     he disclaims beneficial ownership.
 
 (7) Shares voting and investment power of 7,800 shares with Mrs. Turner.
 
 (8) Included are 171,518 shares of which Mr. Williams shares voting and
     investment power. Excluded are 61,750 shares held in the Jean P. Williams
     Revocable Trust, of which Mr. Williams has no voting and investment power
     and disclaims beneficial ownership and 4,327 shares held by Mr. Williams'
     son, George P. Williams, who does not reside in Mr. Williams' household and
     for which Mr. Williams has no voting and investment power and disclaims
     beneficial ownership.
 
 (9) Except for 2,000 shares, 200 shares, 446 shares and 100 shares for which
     Mr. Daniel Anderson, Mr. Barker, Mr. Browning and Mr. Chustz, respectively,
     have shared voting and investment power, and except for 12 shares owned by
     Mr. McArthur's wife, of which he has no voting and investment power and
     disclaims beneficial ownership, and except as otherwise indicated in these
     notes, the shares beneficially owned by the persons indicated in the table
     above represent sole voting and investment power.
 
(10) Based on Form 13G filed by the Investor with the Securities and Exchange
     Commission reporting ownership of shares as of December 31, 1996.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The following discussion includes certain relationships and related
transactions which occurred during the Transition Period.
 
     Debt Owed by Getchell. On October 20, 1995, First Mississippi distributed
to its shareholders the shares of Getchell Gold Corporation ("Getchell"),
formerly FirstMiss Gold Inc., held by First Mississippi (the "Gold
Distribution"). Messr. Williams, the Company's Chairman and Chief Executive
Officer, and
 
                                       31
<PAGE>   32
 
Messr. Summerford, the Company's Vice President and Chief Financial Officer,
currently serve as directors of Getchell.
 
     Prior to the Gold Distribution, First Mississippi provided to Getchell
capital and operating advances from time to time. Effective the date of the Gold
Distribution, the debt was $52.5 million and First Mississippi and Getchell
entered into a new long-term loan agreement (the "Loan Agreement") which
provided that the total outstanding amount would be due in September 2000, that
Getchell would repay $15.0 million to First Mississippi from the proceeds of a
public common stock offering prior to April 1996, that interest would accrue at
a rate not exceeding the London Interbank Offered Rate plus one percent, and
that the interest would not be paid in cash, but rather would be capitalized to
the note. In November 1995, Getchell reduced the debt by $15.0 million, from
proceeds of a common stock offering. The debt was further reduced by the
settlement of a Tax Sharing Agreement. Pursuant to the Distribution Agreement,
the Loan Agreement was assigned from First Mississippi to the Company. At
December 31, 1996, the total aggregate debt owed by Getchell pursuant to the
Loan Agreement was $25.4 million.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
FINANCIAL STATEMENTS AND SCHEDULES
 
(a)(1) The Financial Statements which are filed with this Form 10-K are set
       forth in the Index to Financial Statements at page F-1, which immediately
       precedes such financial statements.
 
(a)(2) No additional schedules are required under the applicable instructions or
       are inapplicable and have therefore been omitted.
 
(a)(3) EXHIBITS
 
<TABLE>
<S>          <C>
   2(a)      -- Agreement and Plan of Merger and Reorganization, dated as
                of August 27, 1996, among Mississippi Chemical
                Corporation, MISS SUB, INC. and First Mississippi
                Corporation, was filed as Exhibit 2.1 to Amendment No. 1
                to the Company's Form S-1 (Registration No. 333-15789)
                filed on November 18, 1996, and is incorporated herein by
                reference.
   2(b)      -- Agreement and Plan of Distribution between First
                Mississippi Corporation and the Company dated December
                18, 1996 was filed as Exhibit 2.2, Form of Agreement and
                Plan of Distribution, to Amendment No. 1 to the Company's
                Form S-1 (Registration No. 333-15789) filed on November
                18, 1996, and is incorporated herein by reference. The
                only modification to the text of the Form of Agreement
                and Plan of Distribution which is incorporated herein by
                reference was the substitution of "ChemFirst Inc." for
                "Newco" as a party to this agreement and the dating of
                the agreement as of December 18, 1996.
   2(c)      -- Tax Disaffiliation Agreement between First Mississippi
                Corporation and the Company dated December 18, 1996 was
                filed as Exhibit 2.3, Form of Tax Disaffiliation
                Agreement, to Amendment No. 1 to the Company's Form S-1
                (Registration No. 333-15789) filed on November 18, 1996,
                and is incorporated herein by reference. The only
                modification to the text of the Form of Tax
                Disaffiliation Agreement which is incorporated herein by
                reference was the substitution of "ChemFirst Inc." for
                "Newco" as a party to this Agreement and the dating of
                the agreement as of December 18, 1996.
</TABLE>
 
                                       32
<PAGE>   33
   2(d)      -- Employee Benefits and Compensation Agreement between
                First Mississippi Corporation and the Company dated
                December 18, 1996 was filed as Exhibit 2.4, Form of
                Employee Benefits and Compensation Agreement, to
                Amendment No. 1 to the Company's Form S-1 (Registration
                No. 333-15789) filed on November 18, 1996, and is
                incorporated herein by reference. The only modification
                to the text of the Form of Employee Benefits and
                Compensation Agreement which is incorporated herein by
                reference was the substitution of "ChemFirst Inc." for
                "Newco" as a party to this Agreement and the dating of
                the agreement as of December 18, 1996.
   3(a)      -- Amended and Restated Articles of Incorporation of the
                Company were filed as Exhibit 3.1 to Amendment No. 1 to
                the Company's Form S-1 (Registration No. 333-15789) filed
                on November 18, 1996, and is incorporated herein by
                reference.
   3(b)      -- Bylaws of the Company were filed as Exhibit 3.2 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(a)      -- Articles III, IV, V, VI, VII, VIII, IX and X of the
                Company's Charter of Incorporation and the Statements of
                Resolution establishing the Company's 1987-A, 1988-A,
                1988-1, 1989-A, 1989-1, 1989-2, 1990-1, 1990-2, 1991-1,
                1991-2, and 1992-1 Series Convertible Preferred Stock and
                the Company's Series X Junior Participating Preferred
                Stock are included in Exhibit 3(a).
   4(b)      -- Articles II, IV, IX and XII of the Company's Bylaws are
                included in Exhibit 3(b).
   4(c)      -- ChemFirst Inc. 401(K) Savings Plan was filed as Exhibit
                4.4 to the Company's Registration Statement on Form S-8
                (Registration No. 333-18691) filed on December 24, 1996
                and is incorporated herein by reference.
   4(d)      -- Rights Agreement, dated as of October 30, 1996, between
                the Company and KeyCorp Shareholder Services, Inc., was
                filed as Exhibit 4 to Amendment No. 1 to the Company's
                Form S-1 (Registration No. 333-15789) filed on November
                18, 1996 and is incorporated herein by reference.
   4(e)      -- 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(f)      -- Tax Ruling 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 99.2 to First
                Mississippi's Form 8-K dated September 24, 1995, and is
                incorporated herein by reference.
   4(g)      -- Loan 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 99.3 to First
                Mississippi's Form 8-K dated September 24, 1995, and is
                incorporated herein by reference.
   4(h)      -- Amended Tax Sharing 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 99.4 to First
                Mississippi's Form 8-K dated September 24, 1995, and is
                incorporated herein by reference.
   4(i)      -- Credit Agreement, dated as of February 9, 1993, between
                the Company, the Banks party thereto and The Chase
                Manhattan Bank (National Association), as Agent, which
                was assigned to the Company in connection with the
                Distribution, was filed as Exhibit 4.1 to the First
                Mississippi's Quarterly Report on Form 10-Q for the
                quarter ended December 31, 1992, and is incorporated
                herein by reference.
 
                                       33
<PAGE>   34
   4(j)      -- Amendment, dated as of August 1, 1993, to the Credit
                Agreement between the Company, the Banks party thereto
                and The Chase Manhattan Bank (National Association), as
                Agent, which was assigned to the Company in connection
                with the Distribution, was filed as Exhibit 4(s) to First
                Mississippi's Annual Report on Form 10-K for the fiscal
                year ended June 30, 1993, and is incorporated herein by
                reference.
   4(k)      -- Extension of commitment termination date, dated as of
                December 30, 1993, in accordance with the provisions of
                Section 2.04 of the Credit Agreement dated as of February
                9, 1993, between First Mississippi, the Banks party
                thereto and The Chase Manhattan Bank (National
                Association), as Agent, which was assigned to the Company
                in connection with the Distribution, was filed as Exhibit
                4(u) to First Mississippi's Annual Report on Form 10-K
                for the fiscal year ended June 30, 1994, and is
                incorporated herein by reference.
   4(l)      -- Extension of commitment termination date, dated as of
                December 30, 1994 and January 9, 1995, in accordance with
                the provisions of Section 2.04 of the Credit Agreement
                dated as of February 9, 1993, between First Mississippi,
                the Banks party thereto and The Chase Manhattan Bank
                (National Association), as Agent, which was assigned to
                the Company in connection with the Distribution, was
                filed as Exhibit 4(w) to First Mississippi's Annual
                Report on Form 10-K for the fiscal year ended June 30,
                1995, and is incorporated herein by reference.
   4(m)      -- Waiver and Amendment, dated as of April 1, 1996, to the
                Credit Agreement between First Mississippi, the Banks
                party thereto and The Chase Manhattan Bank (National
                Association), as Agent, which was assigned to the Company
                in connection with the Distribution, was filed as Exhibit
                4 to First Mississippi's Quarterly Report on Form 10-Q
                for the quarter ended March 31, 1996, and is incorporated
                herein by reference.
   4(n)      -- Amendment No. 2, dated as of December 6, 1996, to the
                Credit Agreement between First Mississippi, the Banks
                party thereto and The Chase Manhattan Bank (National
                Association), as Agent, which was assigned to the Company
                in connection with the Distribution.
   4(o)      -- Consent and Agreement, dated as of December 20, 1996,
                relating to the Credit Agreement between First
                Mississippi, the Banks party thereto and The Chase
                Manhattan Bank (National Association), as Agent, which
                was assigned to the Company in connection with the
                Distribution.
   10(a)*    -- Termination Agreement, dated May 29, 1996 and effective
                June 1, 1996, between First Mississippi and its Chief
                Executive Officer, which was assigned to the Company in
                connection with the Distribution, was filed as Exhibit
                10(c) to First Mississippi's Annual Report on Form 10-K
                for the fiscal year ended June 30, 1996, and is
                incorporated herein by reference.
   10(b)*    -- Form of Termination Agreement, dated May 29, 1996 and
                effective June 1, 1996, between First Mississippi and
                each of the following executive officers of First
                Mississippi: Daniel P. Anderson, Robert P. Barker,
                William P. Bartlett, J. Steven Chustz, Paul J. Coder,
                Charles R. Gibson, Samir A. Hakooz, Terry L. Moore,
                George M. Simmons, R. Michael Summerford and Thomas G.
                Tepas, which was assigned to the Company in connection
                with the Distribution, was filed as Exhibit 10(d) to
                First Mississippi's Annual Report on Form 10-K for the
                fiscal year ended June 30, 1996, and is incorporated
                herein by reference. (Company's Termination Agreement
                with each such officer contains terms identical to those
                contained in the form of Agreement filed.)
   10(c)*    -- ChemFirst Inc. 1980 Long-Term Incentive Plan was filed as
                Exhibit 4.6 to the Company's Registration Statement on
                Form S-8 (Registration No. 333-18693) filed on December
                24, 1996, and is incorporated herein by reference.
   10(d)*    -- ChemFirst Inc. 1988 Long-Term Incentive Plan was filed as
                Exhibit 4.5 to the Company's Registration Statement on
                Form S-8 (Registration No. 333-18693) filed on December
                24, 1996, and is incorporated herein by reference.
 
                                       34
<PAGE>   35
 
<TABLE>
<S>          <C>
   10(e)*    -- ChemFirst Inc. 1995 Long-Term Incentive Plan was filed as
                Exhibit 4.4 to the Company's Registration Statement on
                Form S-8 (Registration No. 333-18693) filed on December
                24, 1996, and is incorporated herein by reference.
   10(f)*    -- 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(g)*    -- First Mississippi Corporation 1989 Deferred Compensation
                Plan for Outside Directors, as amended on September 12,
                1994, which was assigned to and assumed by the Company
                pursuant to the Benefits Agreement, was filed as Exhibit
                10(g) to First Mississippi's Annual Report on Form 10-K
                for the fiscal year ended June 30, 1995, and is
                incorporated herein by reference.
   10(h)     -- Form of Indemnification Agreement between First
                Mississippi and the following Directors or Officers of
                First Mississippi, which was assigned to and assumed by
                the Company in connection with the Distribution,
                (Company's Indemnification Agreements with each such
                individual contains substantially identical provisions to
                those contained in the form): Richard P. Anderson, Paul
                A. Becker, James W. Crook, James E. Fligg, Charles R.
                Gibson, Robert P. Guyton, Charles P. Moreton, Paul W.
                Murrill, William A. Percy, II, Maurice T. Reed, Jr.,
                Frank G. Smith, Leland R. Speed, R. Gerald Turner, J.
                Kelley Williams, R. Michael Summerford, O. E. Wall,
                Charles M. McAuley, J. Steve Chustz, James L. McArthur,
                Danny P. Anderson and Thomas G. Tepas was filed as
                Exhibit 10(t) to First Mississippi's Annual Report on
                Form 10-K for the fiscal year ended June 30, 1988, and is
                incorporated herein by reference.
   21        -- List of the subsidiaries of the Company.
   23        -- Consent regarding incorporation of auditors' report into
                Registration Statement Nos. 333-18691 and 333-18693.
   27        -- Financial Data Schedule.
</TABLE>
 
---------------
 
* Indicates management contract or compensatory plan or arrangement.
 
     Certain debt instruments have not been filed. The Company agrees to furnish
a copy of such agreement(s) to the Commission upon request.
 
(b) No Reports on Form 8-K were filed by the Company during the final quarter of
    the Transition Period.
 
(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.
 
                                       35
<PAGE>   36
 
                                   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 17, 1997                        By:    /s/ J. KELLEY WILLIAMS
                                              ----------------------------------
                                                      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.
 
<TABLE>
<CAPTION>
                      SIGNATURE                                      TITLE                        DATE
                      ---------                                      -----                        ----
<C>                                                    <S>                                 <C>
               /s/ J. KELLEY WILLIAMS                  Chairman of the Board of              March 17, 1997
-----------------------------------------------------    Directors, Chief Executive
                 J. Kelley Williams                      Officer (Principal Executive
                                                         Officer) and Director
 
                 /s/ THOMAS G. TEPAS                   President and Chief Operating         March 17, 1997
-----------------------------------------------------    Officer
                   Thomas G. Tepas
 
              /s/ R. MICHAEL SUMMERFORD                Vice President and Chief Financial    March 17, 1997
-----------------------------------------------------    Officer (Principal Financial
                R. Michael Summerford                    Officer)
 
                /s/ TROY B. BROWNING                   Controller (Principal Accounting      March 17, 1997
-----------------------------------------------------    Officer)
                  Troy B. Browning
 
               /s/ RICHARD P. ANDERSON                 Director                              March 17, 1997
-----------------------------------------------------
                 Richard P. Anderson
 
                 /s/ PAUL A. BECKER                    Director                              March 17, 1997
-----------------------------------------------------
                   Paul A. Becker
 
                 /s/ JAMES W. CROOK                    Director                              March 17, 1997
-----------------------------------------------------
                   James W. Crook
 
                /s/ MICHAEL J. FERRIS                  Director                              March 17, 1997
-----------------------------------------------------
                  Michael J. Ferris
 
                 /s/ JAMES E. FLIGG                    Director                              March 17, 1997
-----------------------------------------------------
                   James E. Fligg
 
                /s/ ROBERT P. GUYTON                   Director                              March 17, 1997
-----------------------------------------------------
                  Robert P. Guyton
 
               /s/ CHARLES P. MORETON                  Director                              March 17, 1997
-----------------------------------------------------
                 Charles P. Moreton
 
                 /s/ PAUL W. MURRILL                   Director                              March 17, 1997
-----------------------------------------------------
                   Paul W. Murrill
 
              /s/ WILLIAM A. PERCY, II                 Director                              March 17, 1997
-----------------------------------------------------
                William A. Percy, II
 
                  /s/ DAN F. SMITH                     Director                              March 17, 1997
-----------------------------------------------------
                    Dan F. Smith
 
                 /s/ LELAND R. SPEED                   Director                              March 17, 1997
-----------------------------------------------------
                   Leland R. Speed
 
                /s/ R. GERALD TURNER                   Director                              March 17, 1997
-----------------------------------------------------
                  R. Gerald Turner
</TABLE>
 
                                       36
<PAGE>   37
 
                                 CHEMFIRST INC.
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                           <C>
Independent Auditor's Report................................  F-2
 
Consolidated Balance Sheets as of December 31, 1996, and
  June 30, 1996 and 1995....................................  F-3
Consolidated Statements of Operations for the six months
  ended December 31, 1996, and years ended June 30, 1996,
  1995 and 1994.............................................  F-4
Consolidated Statements of Stockholders' Equity for the six
  months ended December 31, 1996, and years ended June 30,
  1996, 1995 and 1994.......................................  F-5
Consolidated Statements of Cash Flows for the six months
  ended December 31, 1996, and years ended June 30, 1996,
  1995 and 1994.............................................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>
 
                                       F-1
<PAGE>   38
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors and Stockholders
ChemFirst Inc.:
 
     We have audited the consolidated financial statements of ChemFirst Inc. and
subsidiaries as listed in the accompanying index. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ChemFirst
Inc. and subsidiaries as of December 31, 1996 and June 30, 1996 and 1995, and
the results of their operations and their cash flows for the six months ended
December 31, 1996 and for each of the years in the three-year period ended June
30, 1996, in conformity with generally accepted accounting principles.
 
     As discussed in notes 1 and 8, ChemFirst Inc. changed its method of
accounting for income taxes as of July 1, 1993 to adopt the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
 
                                            KPMG Peat Marwick LLP
 
Jackson, Mississippi
February 21, 1997
 
                                       F-2
<PAGE>   39
 
                                 CHEMFIRST INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                                  JUNE 30,
                                                             DECEMBER 31,    ------------------
                                                                 1996         1996       1995
                                                             ------------    -------    -------
                                                                 (IN THOUSANDS OF DOLLARS)
<S>                                                          <C>             <C>        <C>
Current assets:
  Cash and cash equivalents................................    $ 68,385        5,303     40,123
  Receivables:
     Trade, less allowance for doubtful accounts of $404,
       $781 and $732, respectively.........................      61,874       60,029     52,546
     Affiliated companies (note 4).........................         216          201        192
     Other (note 8)........................................       2,555        9,025      4,099
                                                               --------      -------    -------
          Total receivables................................      64,645       69,255     56,837
                                                               --------      -------    -------
  Inventories:
     Finished products.....................................      28,434       22,335     21,278
     Work in process.......................................      22,772       28,494     19,051
     Raw materials and supplies............................      18,815       19,494     18,210
                                                               --------      -------    -------
          Total inventories................................      70,021       70,323     58,539
                                                               --------      -------    -------
  Prepaid expenses and other current assets (note 8).......      10,374        5,542      6,872
  Net current assets of discontinued operations (note 2)...         412        7,008     18,974
                                                               --------      -------    -------
          Total current assets.............................     213,837      157,431    181,345
                                                               --------      -------    -------
Investments and other assets:
  Investments in affiliated companies (note 4).............      14,471       13,547     12,257
  Other investments (note 4)...............................      31,384       27,496      3,931
  Intangible and other assets, at cost less amortization
     (note 5)..............................................      10,316       11,404     13,396
                                                               --------      -------    -------
          Total investments and other assets...............      56,171       52,447     29,584
                                                               --------      -------    -------
Property, plant and equipment, net (notes 6 and 7).........     153,082      139,647    130,456
Noncurrent assets of discontinued operations (note 2)......          --       64,110     91,942
                                                               --------      -------    -------
                                                               $423,090      413,635    433,327
                                                               ========      =======    =======
                             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current installments of long-term debt (note 7)..........    $    973       14,534     15,076
  Deferred revenue.........................................       7,778        1,802      1,434
  Accounts payable -- trade (including book overdrafts of
     $6,798, $5,019 and $9,334, respectively)..............      37,236       29,773     35,520
  Accrued expenses and other current liabilities (note
     15)...................................................      37,370       24,404     19,208
                                                               --------      -------    -------
          Total current liabilities........................      83,357       70,513     71,238
                                                               --------      -------    -------
Long-term debt, excluding current installments (note 7)....       2,122       79,909     84,394
Other long-term liabilities................................      15,661       13,864     12,289
Long-term liabilities and minority interest of discontinued
  operations (note 2)......................................          --        3,572     13,771
Deferred income taxes (note 8).............................      13,464       15,510     18,639
Stockholders' equity (notes 7, 9 and 10):
  Serial preferred stock. Authorized 20,000,000 shares;
     none issued...........................................          --           --         --
  Common stock of $1 par value. Authorized 100,000,000
     shares; outstanding 20,672,778, 20,614,491 and
     20,438,208 shares, respectively.......................      20,673       20,614     20,438
  Additional paid-in capital...............................      16,586       14,234      7,656
  Retained earnings........................................     271,227      195,419    204,902
                                                               --------      -------    -------
          Total stockholders' equity.......................     308,486      230,267    232,996
                                                               --------      -------    -------
Commitments and contingent liabilities (notes 8, 9 and 11)
                                                               $423,090      413,635    433,327
                                                               ========      =======    =======
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       F-3
<PAGE>   40
 
                                 CHEMFIRST INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                   SIX MONTHS ENDED      YEARS ENDED JUNE 30,
                                                     DECEMBER 31,     ---------------------------
                                                         1996          1996      1995      1994
                                                   ----------------   -------   -------   -------
                                                             (IN THOUSANDS OF DOLLARS,
                                                             EXCEPT PER SHARE AMOUNTS)
<S>                                                <C>                <C>       <C>       <C>
Revenues:
  Sales (note 13)................................      $188,433       370,547   331,721   249,091
  Interest and other income, net (note 12).......         4,248         6,157     6,120     3,264
                                                       --------       -------   -------   -------
                                                        192,681       376,704   337,841   252,355
                                                       --------       -------   -------   -------
Costs and expenses:
  Cost of sales..................................       145,181       288,677   254,364   193,154
  General, selling and administrative expenses...        32,010        58,557    48,091    42,470
  Other operating expenses.......................         2,791         6,901     7,347     5,459
  Restructuring costs and asset writedowns (note
     3)..........................................        13,271        18,256        --        --
  Interest expense (note 7)......................         3,212         9,242     9,555    10,046
                                                       --------       -------   -------   -------
                                                        196,465       381,633   319,357   251,129
                                                       --------       -------   -------   -------
Earnings (loss) from continuing operations before
  income taxes (benefit), investee earnings
  (loss) and cumulative effect of change in
  accounting principle...........................        (3,784)       (4,929)   18,484     1,226
Income tax expense (benefit) (note 8)............          (975)         (688)    8,706     2,248
Equity in net earnings (loss) of affiliated
  companies (note 4).............................           562           783       860      (249)
                                                       --------       -------   -------   -------
Earnings (loss) from continuing operations before
  cumulative effect of change in accounting
  principle......................................        (2,247)       (3,458)   10,638    (1,271)
Earnings from discontinued operations, net of
  taxes (note 2).................................        19,040        40,424    47,156    21,038
Gain (loss) on disposal of businesses, net of
  taxes (note 2).................................       225,485        (1,746)       --        --
Cumulative effect of change in accounting
  principle (note 8).............................            --            --        --     2,096
                                                       --------       -------   -------   -------
          Net earnings...........................      $242,278        35,220    57,794    21,863
                                                       ========       =======   =======   =======
Earnings (loss) per common share (note 10):
  Continuing operations..........................      $   (.11)         (.16)      .52      (.06)
  Discontinued operations........................           .91          1.93      2.28      1.05
  Gain (loss) on disposal of businesses..........         10.77          (.09)       --        --
  Cumulative effect of change in accounting
     principle...................................            --            --        --       .10
                                                       --------       -------   -------   -------
          Total earnings per common share........      $  11.57          1.68      2.80      1.09
                                                       ========       =======   =======   =======
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       F-4
<PAGE>   41
 
                                 CHEMFIRST INC.
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                        SIX MONTHS ENDED DECEMBER 31, 1996 AND
                                                       YEARS ENDED JUNE 30, 1996, 1995 AND 1994
                                                     --------------------------------------------
                                                         COMMON STOCK       ADDITIONAL
                                                     --------------------    PAID-IN     RETAINED
                                                       SHARES     AMOUNT     CAPITAL     EARNINGS
                                                     ----------   -------   ----------   --------
                                                       (IN THOUSANDS OF DOLLARS, EXCEPT SHARES)
<S>                                                  <C>          <C>       <C>          <C>
Balance, June 30, 1993.............................  19,980,440   $19,980      2,424      138,370
Net earnings.......................................          --        --         --       21,863
Dividends declared -- $.30 per share...............          --        --         --       (6,010)
Common stock issued:
  Employee stock options...........................      39,350        39        351           --
  Convertible debentures...........................      66,300        67        561           --
Income tax benefit on exercise of stock options and
  convertible debentures...........................          --        --         42           --
                                                     ----------   -------     ------     --------
Balance, June 30, 1994.............................  20,086,090    20,086      3,378      154,223
Net earnings.......................................          --        --         --       57,794
Dividends declared -- $.35 per share...............          --        --         --       (7,115)
Common stock issued:
  Employee stock options...........................      86,218        86        555           --
  Convertible debentures...........................     265,900       266      2,917           --
Income tax benefit on exercise of stock options and
  convertible debentures...........................          --        --        806           --
                                                     ----------   -------     ------     --------
Balance, June 30, 1995.............................  20,438,208    20,438      7,656      204,902
Net earnings.......................................          --        --         --       35,220
Dividends declared -- $.40 per share...............          --        --         --       (8,161)
Distribution of common stock of Getchell Gold Corp.
  (note 2).........................................          --        --         --      (31,277)
Common stock issued:
  Employee stock options...........................     111,483       111        878           --
  Convertible debentures...........................     300,700       301      2,880           --
  Purchase and retirement of common shares.........    (235,900)     (236)        --       (5,265)
Income tax benefit on exercise of stock options and
  convertible debentures...........................          --        --      2,820           --
                                                     ----------   -------     ------     --------
Balance, June 30, 1996.............................  20,614,491    20,614     14,234      195,419
Net earnings.......................................          --        --         --      242,278
Dividends declared -- $.20 per share...............          --        --         --       (4,124)
Distribution of common stock of Mississippi
  Chemical Corp. (note 2)..........................          --        --         --     (162,346)
Common stock issued:
  Employee stock options...........................      41,704        42        768           --
  Convertible debentures...........................      16,583        17        146           --
Income tax benefit on exercise of stock options and
  convertible debentures...........................          --        --      1,438           --
                                                     ----------   -------     ------     --------
Balance, December 31, 1996.........................  20,672,778   $20,673     16,586      271,227
                                                     ==========   =======     ======     ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       F-5
<PAGE>   42
 
                                 CHEMFIRST INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                               SIX MONTHS
                                                                 ENDED          YEARS ENDED JUNE 30,
                                                              DECEMBER 31,   ---------------------------
                                                                  1996        1996      1995      1994
                                                              ------------   -------   -------   -------
                                                                      (IN THOUSANDS OF DOLLARS)
<S>                                                           <C>            <C>       <C>       <C>
Cash flows from operating activities:
  Net earnings..............................................   $ 242,278      35,220    57,794    21,863
  Adjustments to reconcile net earnings to net cash provided
     by operating activities:
     Depreciation and amortization..........................       9,393      18,210    17,324    15,762
     Restructuring costs and asset writedowns...............      13,271      18,256        --        --
     Provision for losses on receivables....................         631         728       196       550
     Deferred income taxes, net of effect of accounting
      change in 1994........................................      (5,001)     (1,890)    7,244    10,512
     (Gain) loss on disposal of businesses, net of tax
      benefit (note 2)......................................    (225,485)      1,746        --        --
     (Gain) loss on property, plant and equipment...........          41        (657)       81         4
     (Gain) loss on disposition of investments and other
      assets................................................          12         (50)       19       286
     Undistributed (earnings) loss of affiliates, net of
      taxes.................................................        (562)       (783)     (860)      249
     Changes in current assets and liabilities, net of
      effects of dispositions:
       Receivables..........................................       6,995        (131)  (10,011)      827
       Inventories..........................................      (3,010)    (14,134)  (12,190)   (6,200)
       Prepaid expenses.....................................      (1,874)     (8,746)     (878)   (1,178)
       Accounts payable.....................................       1,948      (7,063)   10,221    (4,746)
       Accrued expenses and other current liabilities.......       8,597        (878)    8,540    (4,510)
     Deferred revenue.......................................       7,567       1,961     2,762     3,187
     Other, net.............................................      (1,077)     (1,140)      117        17
     Net earnings from discontinued operations..............     (19,040)    (40,424)  (47,156)  (21,038)
                                                               ---------     -------   -------   -------
     Net cash provided by continuing operations.............      34,684         225    33,203    15,585
     Net cash provided by discontinued operations...........      22,838      44,945    72,901    10,245
                                                               ---------     -------   -------   -------
          Net cash provided by operating activities.........      57,522      45,170   106,104    25,830
                                                               ---------     -------   -------   -------
Cash flows from investing activities:
  Proceeds from sale of subsidiary..........................     142,665          --        --     8,462
  Capital expenditures......................................     (33,734)    (35,909)  (26,160)  (19,775)
  Acquisition of investments and other assets...............         (12)       (177)   (1,405)   (1,027)
  Collection of note receivable.............................          --      15,000        --        --
  Proceeds from sale of property, plant and equipment.......          63         741       304       175
  Proceeds from disposition of investments and other
     assets.................................................          23         630        --     7,594
  Other investing...........................................          --          29        --        --
                                                               ---------     -------   -------   -------
  Net cash provided by (used in) investing activities of
     continuing operations..................................     109,005     (19,686)  (27,261)   (4,571)
  Net cash used in investing activities of discontinued
     operations.............................................      (8,945)    (45,763)  (29,144)  (16,146)
                                                               ---------     -------   -------   -------
          Net cash provided by (used in) investing
             activities.....................................     100,060     (65,449)  (56,405)  (20,717)
                                                               ---------     -------   -------   -------
Cash flows from financing activities:
  Principal repayments of long-term debt (note 7)...........     (91,289)    (15,550)   (6,512)  (11,100)
  Dividends (note 9)........................................      (4,124)     (8,161)   (8,622)   (6,010)
  Purchase of common stock..................................          --      (5,491)       --        --
  Proceeds from long-term borrowings........................          --      11,000       151     1,706
  Proceeds from issuance of common stock....................         913       3,661     2,567       944
                                                               ---------     -------   -------   -------
          Net cash used in financing activities.............     (94,500)    (14,541)  (12,416)  (14,460)
                                                               ---------     -------   -------   -------
Net increase (decrease) in cash and cash equivalents........      63,082     (34,820)   37,283    (9,347)
Cash and cash equivalents at beginning of year..............       5,303      40,123     2,840    12,187
                                                               ---------     -------   -------   -------
Cash and cash equivalents at end of year....................   $  68,385       5,303    40,123     2,840
                                                               =========     =======   =======   =======
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
     Interest, net of amounts capitalized...................   $   3,748       9,605     9,566    10,166
                                                               =========     =======   =======   =======
     Income taxes, net......................................   $   4,936      23,603    20,680    15,581
                                                               =========     =======   =======   =======
</TABLE>
 
Material noncash investing and financing activities are disclosed in note 2.
 
          See accompanying notes to consolidated financial statements.
 
                                       F-6
<PAGE>   43
 
                                 CHEMFIRST INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               DECEMBER 31, 1996 AND JUNE 30, 1996, 1995 AND 1994
              (IN THOUSANDS OF DOLLARS, EXCEPT AMOUNTS PER SHARE)
 
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Change in Organization
 
     ChemFirst Inc. (the "Company") was incorporated in Mississippi in 1983
under the name, Omnirad, Inc., as a wholly-owned subsidiary of First Mississippi
Corporation ("First Mississippi"). In November 1996, in anticipation of the
Distribution (as described below), the Company's name was changed from Omnirad,
Inc. to ChemFirst Inc.
 
     Prior to December 23, 1996, the Company's subsidiaries were subsidiaries of
First Mississippi and the Company's operations were conducted through
subsidiaries of First Mississippi. On December 23, 1996 (the "Distribution
Date"), First Mississippi contributed all of its assets and subsidiaries, other
than those relating to its fertilizer business, to the Company, which at that
time was a wholly-owned subsidiary of First Mississippi and which had engaged in
no operating activities during the previous five years. First Mississippi then
spun-off the Company in a tax-free distribution of the 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 ("MCC"), pursuant to an Agreement and Plan of Merger and
Reorganization dated as of August 27, 1996 (the "Merger"). The Company has
operated as a publicly-held entity since the Distribution Date. For financial
reporting purposes, this transaction has been accounted for as a disposal of the
fertilizer business. Accordingly, the Company's financial statements are the
historical financial statements of First Mississippi restated to present the
fertilizer business as a discontinued operation. For further information, see
note 2.
 
  Basis of Presentation
 
     The Company produces specialty chemicals and chemical intermediates for
industry and agriculture, and provides engineered products and services to
chemical and other industries. Further descriptions of the Company's products
and the relative significance of its operations are included in the industry
segment information data in note 13.
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  Fiscal Year Change
 
     As of January 1, 1997, the Company's fiscal year-end was changed from June
30 to December 31. The six-month period July 1, 1996 through December 31, 1996
("Transition Period") precedes the start of the new fiscal year.
 
  Principles of Consolidation
 
     The consolidated financial statements include the accounts of the Company
and its subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation. Investments in joint ventures, partnerships and
other equity investments are accounted for by the equity method.
 
                                       F-7
<PAGE>   44
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Recognition of Revenue
 
     Revenues generally are recorded when title and risk of ownership pass,
except for long-term construction type contracts, which are accounted for under
the percentage of completion method.
 
  Inventories
 
     Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out and weighted average methods.
 
  Depreciation and Amortization
 
     Depreciation of plant and equipment and depreciable investments is based on
cost and the estimated useful lives (or term of lease, if shorter) of the
separate units of property. The straight-line and accelerated methods are
primarily used in determining the amount of depreciation charged to expense.
Goodwill of businesses acquired is amortized generally over 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 at amounts not less than the minimum requirements of the
Employee Retirement Income Security Act of 1974.
 
  Stock Options
 
     All stock options are nonqualified or incentive options and require no
charges against income upon grant or exercise. The tax benefit the Company
receives from dispositions that result in ordinary income to option recipients
is reflected in stockholders' equity.
 
  Cash and Cash Equivalents
 
     The Company considers all short-term investments with original maturities
of three months or less to be cash equivalents.
 
  Investments
 
     Realized gains and losses on investments are determined on the basis of
specific costs and are included in gain (loss) on investments, net.
 
  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.
 
  Accounting Changes
 
     Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes," was adopted by the Company effective July 1, 1993. It
requires the recognition of deferred tax liabilities and assets
 
                                       F-8
<PAGE>   45
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
for differences between the financial statement and tax bases of liabilities and
assets using enacted tax rates in effect for the year in which the differences
are expected to reverse.
 
     SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," was adopted by the Company effective July 1, 1995. Equity
investments are carried at fair value by the Company based on period end market
prices as quoted by the appropriate security exchange. Any significant
unrealized holding gains and losses for available-for-sale securities are
excluded from earnings and reported as a net amount in a separate component of
stockholders' equity until realized. The effect of adopting SFAS No. 115 was not
material.
 
     SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of," was adopted by the Company effective July
1, 1996. It requires that long-lived assets and certain identifiable
intangibles, including goodwill, to be held and used by an entity, be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset(s) may not be recoverable. An estimate of
undiscounted future cash flows expected to be generated by the asset(s) is the
basis for comparison to the carrying value and recognition of an impairment
loss. Measurement of the impairment loss is then based on the fair value of the
asset(s), generally determined using valuation techniques such as the present
value of expected future cash flows. No material impairment losses have been
recognized as a result of the adoption of SFAS No. 121.
 
     SFAS No. 123, "Accounting for Stock-Based Compensation," was adopted by the
Company effective July 1, 1996. This new standard defines a fair value based
method of accounting for an employee stock option or similar equity instrument.
Companies are given the choice of either recognizing related compensation cost
by adopting the new fair value method, or to continue to use the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25 (APB No. 25),
"Accounting for Stock Issued to Employees," while supplementally disclosing the
proforma effect on earnings and earnings per share using the new measurement
criteria. The Company elected to continue to follow the requirements of APB No.
25, and accordingly, there is no effect on the results of operations.
 
  Reclassifications
 
     The Company has reclassified certain prior years' information to conform
with the current period's presentation.
 
2. DISCONTINUED OPERATIONS
 
     As discussed in note 1, on December 23, 1996, First Mississippi completed
the spin-off of the Company and on December 24, 1996, First Mississippi and its
fertilizer operations ("Fertilizer") were merged with a wholly-owned subsidiary
of MCC. Prior to the completion of the transaction, First Mississippi borrowed
$150,500, which was used to refinance First Mississippi's existing indebtedness
and pay certain transaction costs. The $150,500 in debt remained the obligation
of First Mississippi, which became a subsidiary of MCC as a result of the
Merger. As part of the transaction, for each share of First Mississippi common
stock outstanding at the close of trading on December 23, 1996, First
Mississippi shareholders received one share of ChemFirst Inc. common stock and
approximately one-third share of MCC common stock.
 
     The total value of the transaction was approximately $313,000, based on the
value of the assumed indebtedness of $150,500 and value of the shares of MCC
distributed to First Mississippi shareholders of approximately $162,000. These
total proceeds, less the net book value of the Fertilizer assets and related
transaction costs, resulted in a pretax gain of approximately $222,000 and an
after tax gain of approximately $225,000. The gain on disposition of the
Fertilizer assets is reflected in gain on disposal of businesses in the December
31, 1996 consolidated statement of operations. The tax benefit from the
transaction was for certain tax deductible expenses incurred by the Company. The
distribution of MCC shares to First Mississippi
 
                                       F-9
<PAGE>   46
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
shareholders is reported as a reduction of stockholders' equity in the
accompanying December 31, 1996 financial statements.
 
     On October 20, 1995, First Mississippi distributed to its shareholders its
entire ownership of Getchell Gold Corporation ("Getchell"), formerly known as
FirstMiss Gold Inc. The June 30, 1996 consolidated balance sheet includes a
$31,277 reduction of retained earnings in connection with the distribution of
Getchell. Each First Mississippi shareholder received approximately seven-tenths
of a common share of Getchell for each share of First Mississippi owned.
 
     The assets and liabilities of the discontinued operations (primarily
Fertilizer and Getchell) have been segregated in the consolidated financial
statements. At December 31, 1996, net current assets of Other discontinued
operations in the amount of $412 consists of prepaid expenses and other current
assets of $2,640, accounts payable of $38 and accrued expenses of $2,190. The
following is the composition of those assets and liabilities at June 30, 1996
and 1995:
 
<TABLE>
<CAPTION>
                                                              JUNE 30, 1996
                                               -------------------------------------------
                                               FERTILIZER    GETCHELL    OTHER      TOTAL
                                               ----------    --------    ------    -------
<S>                                            <C>           <C>         <C>       <C>
Receivables..................................   $ 19,319          --         --     19,319
Inventories..................................      6,040          --         --      6,040
Prepaid expenses and other current assets....      5,322          --      2,651      7,973
Deferred revenue.............................       (295)         --         --       (295)
Accounts payable.............................    (20,856)         --        (38)   (20,894)
Accrued expenses and other current
  liabilities................................     (1,840)         --     (3,295)    (5,135)
                                                --------      ------     ------    -------
Net current assets (liabilities) of
  discontinued operations....................   $  7,690          --       (682)     7,008
                                                ========      ======     ======    =======
Noncurrent assets of discontinued
  operations.................................   $ 64,110          --         --     64,110
                                                ========      ======     ======    =======
Long-term liabilities and minority interest
  of discontinued operations.................   $  3,572          --         --      3,572
                                                ========      ======     ======    =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                              JUNE 30, 1995
                                               -------------------------------------------
                                               FERTILIZER    GETCHELL    OTHER      TOTAL
                                               ----------    --------    ------    -------
<S>                                            <C>           <C>         <C>       <C>
Receivables..................................   $ 14,808       1,856         --     16,664
Inventories..................................      5,906       9,554         --     15,460
Prepaid expenses and other current assets....      2,756       1,176      1,990      5,922
Deferred revenue.............................       (614)         --         --       (614)
Accounts payable.............................    (10,056)     (6,522)        --    (16,578)
Accrued expenses and other current
  liabilities................................       (720)       (578)      (582)    (1,880)
                                                --------      ------     ------    -------
Net current assets of discontinued
  operations.................................   $ 12,080       5,486      1,408     18,974
                                                ========      ======     ======    =======
Noncurrent assets of discontinued
  operations.................................   $ 24,253      67,689         --     91,942
                                                ========      ======     ======    =======
Long-term liabilities and minority interest
  of discontinued operations.................   $  4,738       9,033         --     13,771
                                                ========      ======     ======    =======
</TABLE>
 
                                      F-10
<PAGE>   47
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The statements of operations have been reclassified to separate
discontinued and continued operations. Revenues and net earnings (losses) of the
discontinued operations for the Transition Period and years ended June 30, 1996,
1995 and 1994 were as follows:
 
<TABLE>
<CAPTION>
                                                                        JUNE 30,
                                                DECEMBER 31,   ---------------------------
                                                    1996        1996      1995      1994
                                                ------------   -------   -------   -------
<S>                                             <C>            <C>       <C>       <C>
Fertilizer
  Sales and revenues..........................    $118,726     217,002   237,152   164,099
                                                  ========     =======   =======   =======
  Income from operations before taxes.........    $ 30,297      65,495    85,714    24,343
  Income tax expense..........................      11,200      24,238    31,719     9,002
  Equity in net earnings (loss) of equity
     investees................................         (57)        250        74       (57)
  Cumulative effect of change in accounting
     principle................................          --          --        --       754
                                                  --------     -------   -------   -------
  Earnings from discontinued operations,
     net......................................    $ 19,040      41,507    54,069    16,038
                                                  ========     =======   =======   =======
Getchell
  Sales and revenues..........................    $     --      17,961    71,617    95,300
                                                  ========     =======   =======   =======
  Income (loss) from operations before
     taxes....................................    $     --      (2,118)  (17,929)    5,599
  Income tax expense (benefit)................          --        (750)   (7,550)      900
  Minority interests..........................          --         285     3,466    (1,049)
  Cumulative effect of change in accounting
     principle................................          --          --        --     1,350
                                                  --------     -------   -------   -------
  Earnings (loss) from discontinued
     operations, net..........................    $     --      (1,083)   (6,913)    5,000
                                                  ========     =======   =======   =======
  Total operating results of discontinued
     operations...............................    $ 19,040      40,424    47,156    21,038
                                                  ========     =======   =======   =======
</TABLE>
 
     A pretax loss of $2,700 was recorded during the year ended June 30, 1996
related to previously discontinued businesses and is included in loss on
disposal of businesses, net of applicable income tax benefit of $954, in the
consolidated statement of operations. Such loss resulted from revised estimates
of environmental remediation costs and settlements of operating costs related to
previously discontinued phosphate fertilizer (1982) and oil and gas (1993)
businesses.
 
3. RESTRUCTURING COSTS AND ASSET WRITEDOWNS
 
     During the Transition Period and fiscal year ending June 30, 1996, the
Company recorded charges of $13,271 and $18,256, respectively, related to the
disposition of aluminum dross processing, asset writedowns in steel operations
and changes in organizational structure.
 
     On May 21, 1996, the Board of Directors of First Mississippi authorized a
plan to close its aluminum dross processing facility at Millwood, West Virginia,
which was operated by its wholly owned subsidiary Plasma Processing Corporation,
("PPC"). PPC's operations are included in the Company's Combustion and Thermal
Plasma segment. This facility, completed in June 1991, was built to process
aluminum dross using patented thermal plasma technology. The decision to close
the Millwood facility, which operated at a loss since inception, was based in
part on projections that indicated operations were unlikely to be profitable in
the near future. The plan assumed the plant would operate for a short period
following fiscal 1996 to fulfill contractual obligations, then would cease
operations and be held for disposition by sale. As a result of this plan, the
Company incurred a pretax charge of $18,256 ($11,706 after tax) during the
fourth quarter of fiscal 1996. The charge included write-downs to reduce
carrying values to estimated net realizable values (estimated fair values less
costs to sell) of $12,271 for property, plant and equipment, $570 for spare
parts, $350 for inventory and $5,065 in accruals for other estimated costs to be
incurred related to the closure. The majority of
 
                                      F-11
<PAGE>   48
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
the accrual represented the estimated cost of $3,100 in excess of market value
to process inventory to meet contractual obligations and $500 for disposal of
marketable inventory. In addition, the accrual included $525 for severance, $200
for contract cancellations and $740 for other estimated costs. Excluding the
above charge, operating losses for PPC were approximately $9,000, $8,400 and
$5,700 in 1996, 1995 and 1994, respectively. Through December 31, 1996, the
Company recorded $3,293 in cash expenditures against its fiscal year 1996
reserve, primarily for inventory processing costs and severance payments.
 
     On January 14, 1997, the Company sold the aluminum dross processing
business for $4,100. The terms included a cash payment in the amount of $2,100,
and a note for $2,000. Interest on the note is calculated at prime and is
payable quarterly beginning April 1, 1997, with the entire principal balance and
any unpaid interest due and payable on January 13, 2002. Based on the terms of
the disposition agreement, the Company recorded an additional $2,146 loss in the
quarter ended December 31, 1996. The loss included $1,100 related to the sale of
assets and $1,046 of additional accruals related to inventory disposal and
severance costs.
 
     Although the Company does not have a formal plan or timetable for disposal,
it is seeking a buyer for its steel melting and production facility operated by
FirstMiss Steel, Inc. Initial expressions of interest in early 1996 indicated
that the Company would realize approximately the net book value of these assets,
however the Company was unable to reach a final agreement with any of the
prospective buyers. During the quarter ended December 31, 1996, the Company
reduced the carrying amount of its steel assets by $10,125 based on indications
of interest received in late December. The Company is continuing its efforts to
sell its steel assets, but is uncertain as to whether a sale can be completed on
terms acceptable to the Company.
 
     Other charges during the quarter ended December 31, 1996 included $1,000 in
corporate expenses related to the change in organization (note 1).
 
4. INVESTMENTS
 
     Investments in affiliated companies accounted for by the equity method were
$14,471, $13,547 and $12,257, respectively, at December 31, 1996, and June 30,
1996 and 1995. Equity earnings (losses), net of taxes, were $562, $783, $860 and
$(249), respectively, for the Transition Period and the three years ended June
30, 1996.
 
     The following is a summary of financial information related to affiliated
companies:
 
<TABLE>
<CAPTION>
                                                                           JUNE 30,
                                                       DECEMBER 31,    ----------------
                                                           1996         1996      1995
                                                       ------------    ------    ------
<S>                                                    <C>             <C>       <C>
Current assets.......................................    $30,021       27,184    21,575
Noncurrent assets....................................     44,156       45,396    40,429
Current liabilities..................................      7,491        9,045     8,559
Noncurrent liabilities...............................     18,131       17,897    11,854
                                                         -------       ------    ------
Net equity...........................................    $48,555       45,638    41,591
                                                         =======       ======    ======
</TABLE>
 
     The Company has a 50% ownership interest in Power Sources, Inc. which burns
wood waste to create steam for industrial users. The Company also has a 23.4%
interest in Melamine Chemicals, Inc. ("MCI"). The MCI investment has a quoted
market value of approximately $10,519 at December 31, 1996, with a carrying
amount of $8,623. Market values were $11,634 and $11,475, with respective
carrying amounts of $8,153 and $7,508, at June 30, 1996 and 1995.
 
     At the date of the Getchell spinoff, the Company received a promissory note
in the amount of $52,507 from Getchell in settlement of all prior cash advances.
The note bears interest at a rate based on the London Interbank Offered Rate
(6.2% at December 31, 1996). Interest and principal are due in September, 2000.
Subsequent to the spinoff date, the note principal amount was reduced by a cash
repayment of $15,000 and an
 
                                      F-12
<PAGE>   49
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
offset of $13,939 representing settlement of tax attributes utilized by the
Company during the time Getchell was included in the Company's consolidated
income tax returns. The aggregate unpaid principal amount of the note, including
accrued interest, of $25,446 at December 31, 1996 and $24,733 at June 30, 1996
is included in other investments.
 
5. INTANGIBLE AND OTHER ASSETS
 
     The major classes of intangible and other assets are summarized below:
 
<TABLE>
<CAPTION>
                                                                           JUNE 30,
                                                       DECEMBER 31,    ----------------
                                                           1996         1996      1995
                                                       ------------    ------    ------
<S>                                                    <C>             <C>       <C>
Goodwill.............................................    $16,868       16,868    16,868
Other................................................     10,001       10,134     9,873
                                                         -------       ------    ------
                                                          26,869       27,002    26,741
Less accumulated amortization........................     16,553       15,598    13,345
                                                         -------       ------    ------
                                                         $10,316       11,404    13,396
                                                         =======       ======    ======
</TABLE>
 
     The net carrying amount of goodwill at December 31, 1996 was $9,231, and at
June 30, 1996 and 1995 was $9,778 and $10,872, respectively, and is all related
to the chemical segment. Amortization expense related to the above amounted to
$954 for the Transition Period, and $1,959, $2,415 and $2,640 for the three
years ended June 30, 1996, respectively.
 
6. PROPERTY, PLANT AND EQUIPMENT
 
     A summary of property, plant and equipment follows:
 
<TABLE>
<CAPTION>
                                                                                 JUNE 30,
                                                ESTIMATED     DECEMBER 31,   -----------------
                                               USEFUL LIVES       1996        1996      1995
                                               ------------   ------------   -------   -------
<S>                                            <C>            <C>            <C>       <C>
Assets owned, at cost:
  Land and land improvements.................   10-20           $  8,561       6,200     4,794
  Buildings..................................   20-45             20,819      11,768     6,648
  Plant facilities and equipment.............    5-15            168,643     152,935   134,324
  Other facilities and equipment.............    5-12             69,468      80,461    72,031
  Construction in progress...................                     16,453      10,653     6,940
                                                                --------     -------   -------
          Total assets owned.................                    283,944     262,017   224,737
                                                                --------     -------   -------
Assets leased, at cost:
  Land improvements..........................   10-20                509         509       509
  Buildings..................................     10                 216         216       216
  Other facilities and equipment.............     20               8,958       8,958     8,958
                                                                --------     -------   -------
          Total capital leases...............                      9,683       9,683     9,683
                                                                --------     -------   -------
          Total property, plant and
            equipment........................                    293,627     271,700   234,420
Less accumulated depreciation and
  amortization...............................                    140,545     132,053   103,964
                                                                --------     -------   -------
          Net property, plant and
            equipment........................                   $153,082     139,647   130,456
                                                                ========     =======   =======
</TABLE>
 
     Depreciation and amortization expense related to the above, for the
Transition Period was $8,439, and was $16,251, $14,909 and $13,122 for the years
ended June 30, 1996, 1995 and 1994, respectively.
 
                                      F-13
<PAGE>   50
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Interest capitalized amounted to $886 for the Transition Period and $186,
$135 and $396 for the three years ended June 30, 1996, respectively.
 
7. LONG-TERM DEBT
 
     A summary of long-term debt follows:
 
<TABLE>
<CAPTION>
                                                                           JUNE 30,
                                                       DECEMBER 31,    ----------------
                                                           1996         1996      1995
                                                       ------------    ------    ------
<S>                                                    <C>             <C>       <C>
Unsecured:
  9.42% senior notes payable to institutional
     investors.......................................     $   --       79,714    93,000
  Notes payable under revolving credit facility, due
     February 1998...................................         --       11,000        --
  Other notes........................................        753        1,100     3,078
Secured:
  Capital lease obligations, with interest rates at
     4.0%, due in monthly installments through May
     2000............................................      2,084        2,360     2,703
  Other notes........................................        258          269       689
                                                          ------       ------    ------
                                                           3,095       94,443    99,470
Less current installments of long-term debt..........        973       14,534    15,076
                                                          ------       ------    ------
          Long-term debt, excluding current
            installments.............................     $2,122       79,909    84,394
                                                          ======       ======    ======
</TABLE>
 
     Under loan agreements in effect at December 31, 1996, there were no
compensating balance requirements. The above obligations mature in various
amounts through 2000, including approximately, $973 in 1997, $868 in 1998, $864
in 1999 and $390 in 2000.
 
     At the close of the Merger with MCC described in notes 1 and 2, the debt of
First Mississippi was refinanced and increased to an amount of $150,500. This
debt was assumed by MCC as part of the merger transaction. Proceeds from the
refinancing were used to prepay the 9.42% senior notes of $79,714 and make-whole
penalties of $6,613. In addition, existing credit facility borrowings of $5,000
were repaid.
 
     The Company has a $65,000 bank revolving credit facility which is committed
until February 1998. At December 31, 1996, there were no outstanding loans under
the facility. Outstanding letters of credit under the facility were $9,600,
leaving $55,400 available for borrowings. Interest rates are based on either the
London Interbank Offered Rate or the prime rate. A commitment fee ranging from
 .225 to .375 of 1% per annum is charged on the daily average unused commitment
under the facility. Commitment fees for the Transition Period were $53, and for
the years ended June 30, 1996, 1995 and 1994 totaled $183, $216 and $189,
respectively. The revolving credit agreement contains various restrictions
related to working capital, funded debt, net worth, fixed charges coverage,
distributions, repurchases of stock and dispositions of assets. At December 31,
1996, the Company was in compliance with these covenants.
 
     The Company also has access to an uncommitted facility for the issuance of
foreign currency letters of credit. The total of outstanding letters of credit
at December 31, 1996 was $3,200. The possibility of default, which would cause
these letters of credit to become due, is remote and, if this occurred such
payments would be made from available cash or borrowings under the revolving
credit facility.
 
     Total interest costs incurred for the Transition Period were $4,098, and
for the years ended June 30, 1996, 1995 and 1994 were $9,428, $9,690 and
$10,442, respectively.
 
                                      F-14
<PAGE>   51
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
8. INCOME TAXES
 
     The cumulative effect of the change in accounting for income taxes of
continuing operations described in note 1 resulted in a benefit of $2,096, which
was reported as a cumulative effect of a change in accounting principle in the
June 30, 1994 consolidated financial statements.
 
     Total income tax expense (benefit) for the Transition Period and years
ended June 30, 1996, 1995 and 1994 was allocated as follows:
 
<TABLE>
<CAPTION>
                                                                  YEARS ENDED JUNE 30,
                                          SIX MONTHS ENDED     --------------------------
                                          DECEMBER 31, 1996     1996      1995      1994
                                          -----------------    ------    ------    ------
<S>                                       <C>                  <C>       <C>       <C>
Continuing operations...................       $  (975)          (688)    8,706     2,248
Discontinued operations.................        11,200         22,534    24,169     9,902
Fertilizer disposition..................        (2,975)            --        --        --
Stockholders' equity, for compensation
  expense for tax purposes in excess of
  amounts recognized for financial
  reporting purposes....................        (1,438)        (2,820)     (806)      (42)
                                               -------         ------    ------    ------
                                               $ 5,812         19,026    32,069    12,108
                                               =======         ======    ======    ======
</TABLE>
 
     Income tax expense (benefit) differs from the statutory Federal rate of 35%
applied to earnings (loss) from continuing operations before income taxes
(benefit), investee earnings (loss) and the cumulative effect of change in
accounting principle for the Transition Period and the three years ended June
30, 1996, as follows:
 
<TABLE>
<CAPTION>
                                                                   YEARS ENDED JUNE 30,
                                            SIX MONTHS ENDED     ------------------------
                                            DECEMBER 31, 1996     1996     1995     1994
                                            -----------------    ------    -----    -----
<S>                                         <C>                  <C>       <C>      <C>
Computed "expected" tax expense
  (benefit)...............................       $(1,325)        (1,725)   6,469      429
State income taxes, net of Federal income
  tax benefit.............................           (75)         1,224    1,068      536
Amortization of goodwill..................           131            411      392      423
Exempt earnings of Foreign Sales
  Corporation.............................           (47)          (212)    (260)    (128)
Increase in net cash surrender value of
  life insurance..........................          (156)          (324)    (254)    (232)
Tax provision adjustments for pending
  Internal Revenue Service matters........            --            150    1,275       --
Adjustment to deferred tax assets and
  liabilities for enacted change in tax
  law and rates...........................            --             --       --      370
Other, net................................           497           (212)      16      850
                                                 -------         ------    -----    -----
     Actual tax expense
       (benefit) -- continuing
       operations.........................       $  (975)          (688)   8,706    2,248
                                                 =======         ======    =====    =====
</TABLE>
 
                                      F-15
<PAGE>   52
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Components of income tax expense (benefit) are as follows:
 
<TABLE>
<CAPTION>
                                                                  YEARS ENDED JUNE 30,
                                           SIX MONTHS ENDED     -------------------------
                                           DECEMBER 31, 1996     1996     1995      1994
                                           -----------------    ------    -----    ------
<S>                                        <C>                  <C>       <C>      <C>
Current:
  Federal................................       $ 3,171            557     (334)   (9,088)
  State..................................           833          1,003    1,686     1,029
  Foreign................................            22           (358)     110      (205)
                                                -------         ------    -----    ------
                                                  4,026          1,202    1,462    (8,264)
                                                -------         ------    -----    ------
Deferred:
  Federal................................        (4,031)        (2,771)   7,305    10,717
  State..................................          (948)           881      (43)     (205)
  Foreign................................           (22)            --      (18)       --
                                                -------         ------    -----    ------
                                                 (5,001)        (1,890)   7,244    10,512
                                                -------         ------    -----    ------
Total:
  Federal................................          (860)        (2,214)   6,971     1,628
  State..................................          (115)         1,884    1,643       825
  Foreign................................            --           (358)      92      (205)
                                                -------         ------    -----    ------
                                                $  (975)          (688)   8,706     2,248
                                                =======         ======    =====    ======
</TABLE>
 
     The significant components of deferred income tax expense (benefit)
attributable to income (loss) from continuing operations for the Transition
Period and years ended June 30, 1996, 1995 and 1994 are as follows:
 
<TABLE>
<CAPTION>
                                                                  YEARS ENDED JUNE 30,
                                           SIX MONTHS ENDED     -------------------------
                                           DECEMBER 31, 1996     1996     1995      1994
                                           -----------------    ------    -----    ------
<S>                                        <C>                  <C>       <C>      <C>
Deferred tax expense (benefit) from
  changes in temporary differences and
  the valuation allowance................       $(5,001)        (1,890)   7,244    10,142
Adjustment to deferred tax assets and
  liabilities for enacted change in tax
  law and rates..........................            --             --       --       370
                                                -------         ------    -----    ------
                                                $(5,001)        (1,890)   7,244    10,512
                                                =======         ======    =====    ======
</TABLE>
 
                                      F-16
<PAGE>   53
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     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, 1996 and June 30, 1996 and 1995 are as follows:
 
<TABLE>
<CAPTION>
                                                                             JUNE 30,
                                                     SIX MONTHS ENDED    -----------------
                                                     DECEMBER 31, 1996    1996      1995
                                                     -----------------   -------   -------
<S>                                                  <C>                 <C>       <C>
Deferred tax assets:
  Accounts receivable, principally due to allowance
     for doubtful accounts.........................      $    288            229        24
  Deferred compensation............................         3,275          3,116     2,732
  Incentive compensation accrual...................           748            667       882
  Inventory costs..................................         1,502          1,121       617
  State net operating loss carryforward............         2,700          2,687     1,364
  Alternative minimum tax credit carryforward......            --             --     5,383
  Accrued vacation costs...........................           688            611       542
  Accrued pension costs............................         2,123            824       697
  Other, net.......................................         3,639          4,020     3,845
                                                         --------        -------   -------
          Total gross deferred tax assets..........        14,963         13,275    16,086
  Less: valuation allowance........................        (2,592)        (2,579)   (1,262)
                                                         --------        -------   -------
          Net deferred tax assets..................        12,371         10,696    14,824
                                                         --------        -------   -------
Deferred tax liabilities:
  Plant and equipment, principally due to
     differences in depreciation...................        (9,169)        (9,290)  (16,477)
  Investment in affiliated companies, principally
     due to undistributed earnings.................       (10,160)       (12,946)  (12,946)
  State income taxes...............................        (1,548)        (1,967)     (798)
                                                         --------        -------   -------
          Total gross deferred tax liabilities.....       (20,877)       (24,203)  (30,221)
                                                         --------        -------   -------
          Net deferred tax liability...............      $ (8,506)       (13,507)  (15,397)
                                                         ========        =======   =======
</TABLE>
 
     The net deferred tax liability at December 31, 1996, June 30, 1996 and
1995, consists of a long-term deferred tax liability of $13,464, $15,510 and
$18,639, respectively, and a current deferred tax asset of $4,958, $2,003 and
$3,242, respectively. The current deferred tax asset is included in prepaid
expenses and other current assets in the consolidated balance sheets.
 
     The net change in the valuation allowance was an increase of $13 and $1,317
and a decrease of $1,812 for the Transition Period and the years ended June 30,
1996 and 1995, respectively. The valuation allowance is related to certain state
net operating losses, which the Company believes are less than likely to be
recognized. The decrease in the valuation allowance for the year ended June 30,
1995 is attributable to a reduction in available state operating loss
carryforwards for states where the Company is no longer required to file state
income tax returns. 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 deferred 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
 
                                      F-17
<PAGE>   54
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
the Company will realize the benefit of these deductible differences, net of the
existing valuation allowance at December 31, 1996.
 
     Refundable income taxes of $788, $6,020 and $3,236, at December 31, 1996
and June 30, 1996 and 1995, respectively, are included in other current
receivables in the accompanying consolidated financial statements.
 
     As a result of the Merger, the Company assumed liability for the prior tax
returns of First Mississippi. The federal income tax returns have been examined
through June 30, 1994, and all years prior to June 30, 1989 are closed. Issues
relating to the years ended June 30, 1989 through June 30, 1994 are being
contested through various stages of administrative appeal. In addition, First
Mississippi has various state income tax returns in the process of examination
or administrative appeal. Management believes that adequate provision has been
made for any adjustments which might be assessed for open years through December
31, 1996.
 
     Prior to the Getchell spinoff, First Mississippi filed a consolidated
federal income tax return which included Getchell. In accordance with a Tax
Sharing Agreement dated October 1, 1987 between First Mississippi and Getchell,
Getchell recomputed its income tax provision each year on a separate return
basis and paid to First Mississippi amounts approximating the federal income
taxes Getchell would have paid if Getchell filed an independent consolidated
return. The Tax Sharing Agreement also applied to certain state and franchise
tax returns which the Company filed on a combined or consolidated basis. Based
on the June 30, 1995 income tax returns, Getchell had approximately $19,472 of
unused tax assets which First Mississippi was required to reimburse under the
terms of the Tax Sharing Agreement. Prior to the distribution of Getchell shares
to First Mississippi shareholders, a negotiated settlement of $13,939 was made
in cancellation of the Tax Sharing Agreement.
 
9. 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.
 
     Net annual pension expense for this plan for the Transition Period and
years ended June 30, 1996, 1995 and 1994 included the following components:
 
<TABLE>
<CAPTION>
                                               SIX MONTHS
                                                 ENDED           YEARS ENDED JUNE 30,
                                              DECEMBER 31,    --------------------------
                                                  1996         1996      1995      1994
                                              ------------    ------    ------    ------
<S>                                           <C>             <C>       <C>       <C>
Service cost................................    $ 1,262        2,055     1,987     1,876
Interest cost...............................      1,040        1,807     1,697     1,503
Actual return on plan assets................     (2,635)      (3,317)   (4,478)     (481)
Net amortization and deferral...............      1,280          854     2,358    (1,697)
                                                -------       ------    ------    ------
Net annual pension expense..................    $   947        1,399     1,564     1,201
                                                =======       ======    ======    ======
</TABLE>
 
     The assumptions used in calculating the expense for the Transition Period
and the years ended June 30, 1996, 1995 and 1994 included a discount rate of
7.75%, a rate of increase in compensation levels of 4%, 4%, 4% and 4.5%,
respectively, and a 9% expected long-term rate of return on assets. Net annual
pension expense included above and allocated to discontinued operations was $49
for the Transition Period and $189, $412 and $409 for the years ended June 30,
1996, 1995 and 1994, respectively. Plan assets are invested primarily in equity
securities and U. S. Government and corporate bonds.
 
                                      F-18
<PAGE>   55
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following table sets forth the funded status of the plan at December
31, 1996 and June 30, 1996 and 1995:
 
<TABLE>
<CAPTION>
                                                                           JUNE 30,
                                                       DECEMBER 31,    ----------------
                                                           1996         1996      1995
                                                       ------------    ------    ------
<S>                                                    <C>             <C>       <C>
Actuarial present value of benefit obligations:
  Vested benefit obligations.........................    $18,806       19,300    15,974
                                                         =======       ======    ======
  Accumulated benefit obligations....................    $20,101       22,401    18,453
                                                         =======       ======    ======
Projected benefit obligation.........................    $27,035       30,838    25,048
Plan assets at fair value............................     29,619       27,947    25,257
                                                         -------       ------    ------
Plan assets in excess of (less than) projected
  benefit obligation.................................      2,584       (2,891)      209
Unrecognized net gain from past experience...........     (7,356)        (730)   (3,030)
Unrecognized prior service cost......................      1,128        1,077     1,159
Unrecognized transition credit, net..................     (2,482)      (2,634)   (2,947)
                                                         -------       ------    ------
          Pension liability..........................    $(6,126)      (5,178)   (4,609)
                                                         =======       ======    ======
</TABLE>
 
     The Company also has a nonqualified supplemental pension plan. This plan
provides for incremental pension payments from the Company's funds to restore
those pension benefits earned, but reduced due to income tax regulations. The
total accrual relating to this unfunded plan at December 31, 1996 was $1,305 and
at June 30, 1996 and 1995 was $1,177 and $933, respectively. Net annual pension
expense for this plan was $128 for the Transition Period and $245, $187 and $82
for the years ended June 30, 1996, 1995 and 1994, respectively; including
expenses allocated to discontinued operations of $38 for the Transition Period
and $82, $38 and $0 for the years ended June 30, 1996, 1995 and 1994,
respectively.
 
     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 $727 for the Transition Period and $1,468, $1,301 and $1,106 for
the years ended June 30, 1996, 1995 and 1994, respectively. These plans and the
pension plan invest in the Company's stock. The approximate total number of
shares held by the plans at December 31, 1996 was 377,000, and June 30, 1996 and
1995, was 357,000 and 337,000, respectively.
 
     The Company has deferred compensation plans covering directors, officers
and key employees. Individual life insurance contracts were purchased, with the
Company as beneficiary, to assist in the funding of portions of these plans. The
expense for these plans was $459 during the Transition Period, and $609, $536
and $1,876 for the years ended June 30, 1996, 1995 and 1994, respectively.
 
                                      F-19
<PAGE>   56
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Directors, officers and certain key employees of the Company participate in
the long-term incentive plans (the "Plans") under which the Company has reserved
shares of common stock for issuance. Awards under the Plans include stock
options, options to purchase debentures convertible into preferred stock and
then convertible into common stock of the Company, stock appreciation rights,
performance units, restricted stock, supplemental cash and such other forms as
the Board of Directors may direct. Options under all plans are granted at the
market price of the shares on the date of the grants, with vesting occurring no
earlier than six months after grant and expiring no later than ten years after
grant. At December 31, 1996 options available for grant totaled 634,300 shares
of common stock. Additional information follows:
 
<TABLE>
<CAPTION>
                                                      STOCK OPTIONS              DEBENTURE OPTIONS
                                                -------------------------    -------------------------
                                                               AVERAGE                      AVERAGE
                                                 NUMBER      OPTION PRICE     NUMBER      OPTION PRICE
                                                OF SHARES     PER SHARE      OF SHARES     PER SHARE
                                                ---------    ------------    ---------    ------------
<S>                                             <C>          <C>             <C>          <C>
Balance, June 30, 1993........................   163,750        $10.86        863,000        $12.49
  Options granted.............................   113,000          9.41             --            --
  Options exercised...........................   (39,350)         9.90       (177,800)        12.71
  Options forfeited...........................   (45,800)        12.98        (58,000)        13.73
                                                --------        ------       --------        ------
Balance, June 30, 1994........................   191,600          9.69        627,200         12.31
  Options granted.............................    63,600         15.06          1,000         21.31
  Options exercised...........................  (102,400)         9.77       (172,200)        12.04
                                                --------        ------       --------        ------
Balance June 30, 1995.........................   152,800         11.87        456,000         12.43
  Options granted before spinoff..............    93,600         32.81             --            --
  Options exercised before spinoff............  (123,400)        11.47       (247,200)        10.80
  Option conversion adjustment -- Getchell*...    75,034            --        127,368            --
  Options granted after spinoff...............   123,200         23.21             --            --
  Options exercised after spinoff.............      (483)         9.36             --            --
  Options forfeited...........................      (550)        23.13             --            --
                                                --------        ------       --------        ------
Balance, June 30, 1996........................   320,201         19.71        336,168          8.92
  Options granted before spinoff..............   223,850         24.02             --            --
  Options exercised before spinoff............   (41,704)        19.42        (10,143)        10.12
  Options forfeited...........................   (17,301)        22.41             --            --
  Option conversion adjustment -- MCC*........   121,277            --         81,525            --
                                                --------        ------       --------        ------
Balance, December 31, 1996....................   606,323        $17.30        407,550        $ 7.11
                                                ========        ======       ========        ======
Exercisable, December 31, 1996................   606,323                      407,550
                                                ========                     ========
</TABLE>
 
---------------
 
* The number of shares of common stock underlying outstanding debentures,
  debenture options and nonqualifying stock options, as well as stock option
  prices, were adjusted to reflect the distribution values (note 2) of the MCC
  and Getchell shares. These adjustments, which increased the number of shares
  underlying the outstanding awards and reduced the exercise prices by factors
  of 1.25 and 1.61, respectively, are reflected in the total number of shares
  and ending average option prices at December 31, 1996 and June 30, 1996.
 
     In accordance with SFAS No. 123, the following additional disclosures are
required related to options granted during the eighteen-month period ended
December 31, 1996.
 
     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 Transition Period and the year ended
June 30, 1996, respectively: dividend yields of 2.1 and 2.3 percent; expected
volatility of 25 percent for both periods, risk-free interest rates of 6.9 and
6.7 percent, and expected option lives of 4 years for both periods presented.
 
                                      F-20
<PAGE>   57
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     A summary of the status of the Company's stock option plan at December 31,
1996 and June 30, 1996 and changes during the six months and fiscal year ended
on those dates is presented below:
 
<TABLE>
<CAPTION>
                                               SIX MONTHS ENDED              YEAR ENDED
                                              DECEMBER 31, 1996            JUNE 30, 1996
                                           ------------------------   ------------------------
                                                       WEIGHTED-                  WEIGHTED-
                                                        AVERAGE                    AVERAGE
              STOCK OPTIONS                SHARES    EXERCISE PRICE   SHARES    EXERCISE PRICE
              -------------                -------   --------------   -------   --------------
<S>                                        <C>       <C>              <C>       <C>
Outstanding at beginning of period.......  272,548       $21.64            --           --
Granted..................................  223,850       $24.02       216,000       $27.36
Spinoff conversion adjustments...........  110,627           --        57,098           --
Exercised................................  (37,437)      $20.56            --           --
Forfeited................................  (16,501)      $22.25          (550)      $23.13
                                           -------       ------       -------       ------
Outstanding at end of period.............  553,087       $18.33       272,548       $21.64
                                           =======       ======       =======       ======
Options exercisable at end of period.....  285,648                    269,348
                                           =======                    =======
Weighted-average fair value of options
  granted during the period..............                $ 4.93                     $ 4.29
                                                         ======                     ======
</TABLE>
 
     The following table summarizes information about fixed stock options for
the eighteen-month period ended December 31, 1996:
 
<TABLE>
<CAPTION>
                                OPTIONS OUTSTANDING
                  -----------------------------------------------       OPTIONS EXERCISABLE
                    NUMBER         WEIGHTED-                        ----------------------------
                  OUTSTANDING       AVERAGE          WEIGHTED-        NUMBER        WEIGHTED-
   RANGE OF           AT           REMAINING          AVERAGE       EXERCISABLE      AVERAGE
EXERCISE PRICES    12/31/96     CONTRACTUAL LIFE   EXERCISE PRICE   AT 12/31/96   EXERCISE PRICE
---------------   -----------   ----------------   --------------   -----------   --------------
<S>               <C>           <C>                <C>              <C>           <C>
$16.30 - $23.90     553,087        9.2 years           $18.33         285,648         $17.48
</TABLE>
 
     The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its stock option plan. Had compensation cost been determined based on the
fair value at the grant dates for awards under the plan consistent with the
method prescribed by SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
 
<TABLE>
<CAPTION>
                                                          SIX MONTHS ENDED      YEAR ENDED
                                                          DECEMBER 31, 1996    JUNE 30, 1996
                                                          -----------------    -------------
<S>                                        <C>            <C>                  <C>
Net income...............................  As reported        $242,278            $35,220
                                           Pro forma          $241,448            $34,346
Earnings per common share................  As reported        $  11.57            $  1.68
                                           Pro forma          $  11.53            $  1.64
</TABLE>
 
10. STOCKHOLDERS' EQUITY
 
     Earnings per share calculations are based on the weighted average number of
common shares and common share equivalents outstanding during each period,
20,933,963 for the six months ended December 31, 1996, 20,980,439, 20,632,383
and 20,126,093 for the years ended June 30, 1996, 1995 and 1994, respectively.
 
     In connection with the Shareholder Rights Plan adopted by the Company on
October 30, 1996, preferred stock purchase rights were distributed to
stockholders and are deemed to be attached to the outstanding shares of common
stock of the Company. Under certain conditions, each right may be exercised to
purchase one one-hundredth (1/100) of a share of a new series of preferred
stock, at an exercise price of $100 (subject to adjustment). The rights, which
do not have voting rights, expire in 2006 and may be redeemed by the
 
                                      F-21
<PAGE>   58
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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.
 
     The Company elected to accelerate dividend payments beginning in fiscal
year 1995. As a result, five dividend payments were made versus the usual four
during 1995.
 
11. COMMITMENTS AND CONTINGENT LIABILITIES
 
     The Company has entered into various capital and operating leases for
transportation equipment (primarily railroad tank cars), chemical pipelines and
storage facilities, office buildings and land and other miscellaneous items of
equipment.
 
     The following is a schedule by years of future minimum rental payments for
all capital leases and those operating leases with initial or remaining
noncancelable terms in excess of one year, as of December 31, 1996:
 
<TABLE>
<CAPTION>
 YEAR ENDED                                         OPERATING    CAPITAL
DECEMBER 31,                                          LEASES      LEASES
------------                                        ---------    -------
<S>                                                 <C>          <C>
   1997...........................................   $1,450         641
   1998...........................................    1,199         641
   1999...........................................      801         641
   2000...........................................      641         310
   2001...........................................      586          --
   Later years....................................      270          --
                                                     ------      ------
   Total minimum payments required................   $4,947       2,233
                                                     ======
   Less imputed interest..........................                  151
                                                                 ------
                                                                 $2,082
                                                                 ======
</TABLE>
 
     Provisions applicable to certain transportation equipment leases provide
for mileage credits computed on the basis of usage. No recognition has been
given to the effect of such credits in the amounts presented above.
 
     Rental expense, including short-term rentals (net of mileage credits and
short-term subleases of approximately $164 for the Transition Period, and $249,
$255 and $202 for the years ended June 30, 1996, 1995 and 1994, respectively),
was approximately $1,764 for the Transition Period and $4,092, $4,181 and $3,575
for the years ended June 30, 1996, 1995 and 1994, respectively. In most cases,
management expects that, in the normal course of business, leases will be
renewed or replaced by other leases.
 
     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, 1996 the Company's
estimated liability for these matters totaled $1,575.
 
     The Company has pending several claims incurred in the normal course of
business which, in the opinion of management and legal counsel, can be disposed
of without material effect on the accompanying consolidated financial
statements.
 
                                      F-22
<PAGE>   59
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
12. INTEREST AND OTHER INCOME
 
     Interest and other income, net, items are as follows:
 
<TABLE>
<CAPTION>
                                                  SIX MONTHS
                                                    ENDED         YEARS ENDED JUNE 30,
                                                 DECEMBER 31,    -----------------------
                                                     1996        1996     1995     1994
                                                 ------------    -----    -----    -----
<S>                                              <C>             <C>      <C>      <C>
Interest income................................     $  979       4,622    4,211    1,870
Royalty, license, rental and fee income........      2,620         555      223    1,084
Gain (loss) on disposition of noncurrent
  assets.......................................        (41)        708      242     (292)
Other..........................................        690         272    1,444      602
                                                    ------       -----    -----    -----
                                                    $4,248       6,157    6,120    3,264
                                                    ======       =====    =====    =====
</TABLE>
 
13. INDUSTRY SEGMENT INFORMATION
 
     The Company operates principally in the following industry segments:
Chemicals, Combustion and Thermal Plasma, and Steel. The classification
Chemicals includes the operations of First Chemical Corporation, EKC Technology,
Inc. and Quality Chemicals, Inc. The classification Combustion and Thermal
Plasma includes the operations of Callidus Technologies, Inc., Plasma Energy
Corporation and Plasma Processing Corporation. The classification Steel includes
the operations of FirstMiss Steel, which prior to the Merger was included in the
segment Combustion and Thermal Plasma. Operations in the chemicals segment
include production and sale of specialty chemicals and organic chemical
intermediates, and research and development for new products and production
processes for specialty chemicals. The combustion and thermal plasma segment
develops and markets combustion and thermal plasma equipment for manufacturing
and environmental applications. Steel produces steel ingots and billets from
melted scrap.
 
     The chemicals segment had unaffiliated major customer sales of $32,998
during the Transition Period and $61,773, $68,066 and $42,512 for the years
ended June 30, 1996, 1995 and 1994, respectively.
 
     The following is a breakdown by industry segment of the Company's
consolidated financial statements at December 31, 1996 and during the Transition
Period and at June 30, 1996, 1995 and 1994 and for each of the years then ended:
 
<TABLE>
<CAPTION>
                                                                     JUNE 30,
                                           DECEMBER 31,    -----------------------------
                                               1996         1996       1995       1994
                                           ------------    -------    -------    -------
<S>                                        <C>             <C>        <C>        <C>
Sales to unaffiliated customers:
  Chemicals..............................    $123,258      227,837    209,472    161,045
  Combustion and Thermal Plasma..........      31,694       65,624     56,347     33,779
  Steel..................................      33,481       77,086     65,902     54,267
Transfers between business segments:
  Combustion and Thermal Plasma..........          --          812         --         --
  Intercompany eliminations..............          --         (812)        --         --
                                             --------      -------    -------    -------
          Total..........................    $188,433      370,547    331,721    249,091
                                             ========      =======    =======    =======
</TABLE>
 
                                      F-23
<PAGE>   60
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
                                                                     JUNE 30,
                                           DECEMBER 31,    -----------------------------
                                               1996         1996       1995       1994
                                           ------------    -------    -------    -------
<S>                                        <C>             <C>        <C>        <C>
Operating profit (loss) before income
  taxes, investee earnings (loss) and
  cumulative effect of change in
  accounting principle:
  Chemicals..............................    $ 20,845       44,058     40,019     30,295
  Combustion and Thermal Plasma..........      (3,797)     (30,944)    (6,230)    (9,393)
  Steel..................................     (10,919)       1,332         27     (3,370)
                                             --------      -------    -------    -------
                                                6,129       14,446     33,816     17,532
Unallocated corporate expenses...........      (7,902)     (15,015)   (10,661)    (8,435)
Interest expense, net....................      (2,234)      (4,620)    (5,346)    (8,176)
Other income, net........................         223          260        675        305
                                             --------      -------    -------    -------
          Total..........................    $ (3,784)      (4,929)    18,484      1,226
                                             ========      =======    =======    =======
Depreciation and amortization:
  Chemicals..............................    $  7,364       12,888     11,577     10,723
  Combustion and Thermal Plasma..........         461        2,522      2,726      2,193
  Steel..................................       1,042        2,239      2,421      2,201
  Corporate..............................         526          561        600        645
                                             --------      -------    -------    -------
          Total..........................    $  9,393       18,210     17,324     15,762
                                             ========      =======    =======    =======
Identifiable assets:
  Chemicals..............................    $208,181      178,381    150,199    132,739
  Combustion and Thermal Plasma..........      37,708       41,242     40,993     33,591
  Steel..................................      55,194       63,481     63,733     52,452
                                             --------      -------    -------    -------
                                              301,083      283,104    254,925    218,782
Corporate assets and investments.........     121,595       59,413     67,486     31,251
Discontinued operations..................         412       71,118    110,916    107,812
                                             --------      -------    -------    -------
          Total..........................    $423,090      413,635    433,327    357,845
                                             ========      =======    =======    =======
Capital expenditures:
  Chemicals..............................    $ 31,824       30,032     19,460     11,735
  Combustion and Thermal Plasma..........         729        2,871      3,258      5,263
  Steel..................................       1,117        2,546      3,126      2,094
  Corporate..............................          64          460        316        683
                                             --------      -------    -------    -------
          Total..........................    $ 33,734       35,909     26,160     19,775
                                             ========      =======    =======    =======
Export sales to unaffiliated customers:
  North, Central and South America.......    $  5,599        7,529      5,182      5,059
  Europe and Asia........................      21,503       45,748     36,828     20,027
  Africa and Australia...................          77          837        189      1,251
                                             --------      -------    -------    -------
          Total..........................    $ 27,179       54,114     42,199     26,337
                                             ========      =======    =======    =======
</TABLE>
 
     Total segment research and development expenses during the Transition
Period were $2,371, and $6,278, $7,227 and $5,401 for the years ended June 30,
1996, 1995 and 1994, respectively. Certain corporate expenses, primarily those
related to the overall management of the Company, were not allocated to the
operating segments.
 
                                      F-24
<PAGE>   61
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Identifiable assets by industry segment are those assets used in the
Company's operations in each industry and include investments in joint ventures.
Corporate assets and investments are principally cash and cash equivalents,
nontrade receivables and certain other investments.
 
     The Company's trade receivables are primarily concentrated with the
chemicals segment. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral on trade receivables. The
Company believes that consolidated trade receivables are well diversified,
thereby reducing potential credit risk, and that adequate allowances are
maintained for any uncollectible trade receivables.
 
     The Company has revenue-producing operations in foreign countries. These
operations and related foreign currency translation adjustments are not
material.
 
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
 
     Selected quarterly financial data follows:
 
<TABLE>
<CAPTION>
                                                               QUARTERS ENDED         SIX MONTHS ENDED
                                                         --------------------------     DECEMBER 31,
                                                         SEPTEMBER 30   DECEMBER 31         1996
                                                         ------------   -----------   ----------------
<S>                                                      <C>            <C>           <C>
1996:
  Sales................................................    $95,433         93,000         188,433
                                                           =======        =======         =======
  Gross profit.........................................    $22,892         20,360          43,252
                                                           =======        =======         =======
  Net earnings (loss) from continuing operations.......    $ 4,090         (6,337)         (2,247)
                                                           =======        =======         =======
  Net earnings.........................................    $12,789        229,489         242,278
                                                           =======        =======         =======
  Earnings (loss) per share:
     Continuing operations.............................    $   .20           (.30)           (.11)
                                                           =======        =======         =======
     Net earnings......................................    $   .61          10.94           11.57
                                                           =======        =======         =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                             QUARTERS ENDED
                                             -----------------------------------------------   YEAR ENDED
                                             SEPTEMBER 30   DECEMBER 31   MARCH 31   JUNE 30    JUNE 30
                                             ------------   -----------   --------   -------   ----------
<S>                                          <C>            <C>           <C>        <C>       <C>
1996:
  Sales....................................    $88,746        86,594       97,137     98,070    370,547
                                               =======        ======       ======    =======    =======
  Gross profit.............................    $20,394        20,428       20,425     20,623     81,870
                                               =======        ======       ======    =======    =======
  Net earnings (loss) from continuing
     operations............................    $ 1,886         2,850        2,384    (10,578)    (3,458)
                                               =======        ======       ======    =======    =======
  Net earnings (loss)......................    $12,480        15,158       11,618     (4,036)    35,220
                                               =======        ======       ======    =======    =======
  Earnings (loss) per share:
     Continuing operations.................    $   .09           .14          .11       (.51)      (.16)
                                               =======        ======       ======    =======    =======
     Net earnings (loss)...................    $   .59           .72          .56       (.19)      1.68
                                               =======        ======       ======    =======    =======
1995:
  Sales....................................    $76,402        77,660       84,884     92,775    331,721
                                               =======        ======       ======    =======    =======
  Gross profit.............................    $18,793        18,186       19,089     21,289     77,357
                                               =======        ======       ======    =======    =======
  Net earnings from continuing
     operations............................    $ 3,117         2,733        3,029      1,759     10,638
                                               =======        ======       ======    =======    =======
  Net earnings.............................    $15,023        12,942       19,654     10,175     57,794
                                               =======        ======       ======    =======    =======
  Earnings per share:
     Continuing operations.................    $   .15           .13          .15        .09        .52
                                               =======        ======       ======    =======    =======
     Net earnings..........................    $   .74           .63          .95        .49       2.80
                                               =======        ======       ======    =======    =======
</TABLE>
 
                                      F-25
<PAGE>   62
 
                                 CHEMFIRST INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The above quarterly earnings per share calculations are based on the
weighted average shares outstanding during each quarter whereas the annual
earnings per share calculations are based on the weighted average shares
outstanding during the year.
 
     Net earnings increased in the quarter ended December 31, 1996 due to the
gain on the disposal of fertilizer operations (note 2).
 
     Net earnings declined in the third quarter of fiscal 1996 primarily due to
lower margins in discontinued fertilizer operations, and in the fourth quarter
of fiscal 1996 due to losses related to the shutdown of PPC's operations (note
3).
 
     Net earnings declined in the fourth quarter of fiscal 1995 due to losses at
discontinued Getchell operations resulting from impairment and abandonment
charges.
 
15. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 
     Details of accrued expenses and other current liabilities are as follows:
 
<TABLE>
<CAPTION>
                                                                           JUNE 30,
                                                       DECEMBER 31,    ----------------
                                                           1996         1996      1995
                                                       ------------    ------    ------
<S>                                                    <C>             <C>       <C>
Accrued costs for exiting aluminum business (note
  3).................................................    $ 2,818        5,065        --
Other accruals (individually less than 5% of current
  liabilities).......................................     34,552       19,339    19,208
                                                         -------       ------    ------
                                                         $37,370       24,404    19,208
                                                         =======       ======    ======
</TABLE>
 
16. VALUATION AND QUALIFYING ACCOUNTS
 
     Details regarding the allowance for doubtful accounts are as follows:
 
<TABLE>
<CAPTION>
                                                            CHARGED TO       OTHER
                                                BEGINNING   COSTS AND      ADDITIONS     ENDING
                                                 BALANCE     EXPENSES    (DEDUCTIONS)*   BALANCE
                                                ---------   ----------   -------------   -------
<S>                                             <C>         <C>          <C>             <C>
Six months ended December 31, 1996............   $  781        631          (1,008)        404
Year ended June 30, 1996......................   $  732        607            (558)        781
Year ended June 30, 1995......................   $  424        308              --         732
Year ended June 30, 1994......................   $4,287        405          (4,268)        424
</TABLE>
 
---------------
 
* Accounts written off
 
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The carrying amounts of the Company's financial instruments approximate
their fair values.
 
                                      F-26
<PAGE>   63
 
                                    EXHIBITS
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER
        -------
<C>                      <S>
       4(n)              -- Amendment No. 2, dated as of December 6, 1996, to the
                            Credit Agreement between First Mississippi, the Banks
                            party thereto and The Chase Manhattan Bank (National
                            Association), as Agent, which was assigned to the Company
                            in connection with the Distribution.
       4(o)              -- Consent and Agreement, dated as of December 20, 1996,
                            relating to the Credit Agreement between First
                            Mississippi, the Banks party thereto and the Chase
                            Manhattan Bank (National Association), as Agent, which
                            was assigned to the Company in connection with the
                            Distribution.
         21              -- List of the subsidiaries of the Company.
         23              -- Consent regarding incorporation of auditors' report into
                            Registration Statement Nos. 333-18691 and 333-18693.
         27              -- Financial Data Schedule [For EDGAR filing only].
</TABLE>