SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-13617
FREEPORT-McMoRan SULPHUR INC.
(Exact name of registrant as specified in its charter)
Delaware 72-1392855
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1615 Poydras Street, 70112
New Orleans, Louisiana (zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (504) 582-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
on Which Registered
------------------------------------- -----------------------
Common Stock Par Value $.01 per Share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $126,000,000 on
March 2, 1998.
On March 2, 1998, there were issued and outstanding
9,994,678 shares of the registrant's common stock (excluding
treasury shares).
Documents Incorporated by Reference
Portions of the registrant's Proxy Statement submitted to
the registrant's stockholders in connection with its 1998 Annual
Meeting of Stockholders to be held on May 12, 1998 are
incorporated by reference into Part III of this Report.
Freeport-McMoRan Sulphur Inc.
TABLE OF CONTENTS
Page
----
PART I........................................................ 1
Items 1. and 2. Business and Properties.................. 1
Item 3. Legal Proceedings................................16
Item 4. Submission of Matters to a Vote of Security
Holders..........................................16
Item 4(a). Executive officers............................16
PART II .......................................................17
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters......................17
Item 6. Selected Financial and Operating Data............18
Items 7. and 7A. Management's Discussion and Analysis of
Financial Condition and Results of Operations, and
Quantitative and Qualitative Disclosures About Market
Risk.................................................19
Item 8. Financial Statements and Supplementary Data......23
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..........37
PART III.......................................................37
Item 10. Directors and Executive Officers of the
Registrant......................................37
Item 11. Executive Compensation..........................37
Item 12. Security Ownership of Certain Beneficial
Owner and Management...........................37
Item 13. Certain Relationships and Related Transactions..37
PART IV........................................................37
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K......................37
SIGNATURES....................................................S-1
EXHIBIT INDEX.................................................E-1
[PAGE] i
PART I
Items 1. and 2. Business and Properties.
General
Freeport-McMoRan Sulphur Inc. ("Freeport Sulphur," "FSC" or
the "Company") is a Delaware corporation formed in August 1997 to
succeed to the sulphur and certain oil and gas operations of
Freeport-McMoRan Resource Partners, Limited Partnership, a
Delaware Limited Partnership ("FRP"), of which Freeport-McMoRan
Inc. ("FTX") served as administrative managing general partner
and was the owner of a 51.6 percent partnership interest.
Effective December 22, 1997, FTX merged (the "Merger") into IMC
Global Inc. ("IGL"), and FRP contributed to Freeport Sulphur all
of its sulphur operations, and certain of its oil and gas
operations, including FRP's 58.3 percent interest in those
businesses commonly referred to as the "Main Pass" operations,
and its sulphur mine in Culberson County, Texas. In addition, in
connection with the Merger, IGL transferred to FRP, which in turn
contributed to Freeport Sulphur, IGL's 25 percent interest in the
Main Pass operations. Following the contributions, FRP
distributed all of the shares of the Company's Common Stock to
FTX and the other holders of its units of partnership interest,
and, as part of the Merger Consideration, FTX distributed to its
stockholders the shares of the Company's Common Stock that it
received (the "Spin-Off"). Following the Merger, FRP's name was
changed to Phosphate Resource Partners Limited Partnership
("PLP"). PLP, managed by IGL, is engaged in the production and
sale of phosphate crop nutrients and animal feed ingredients as
well as the exploration and development and production of oil and
gas reserves.
Unless otherwise noted or the context requires otherwise,
references herein to the historical operations and performance of
the "Company" or "Freeport Sulphur" refer to the businesses that
FRP contributed to the Company; provided that IGL's 25 percent
interest in Main Pass is only included in the Company's
operations after December 22, 1997.
Freeport Sulphur's operations include the mining, purchase,
transportation, terminaling and marketing of sulphur and the
production and sale of oil and gas from its Main Pass facilities.
Management believes that Freeport Sulphur is the world's largest
producer of mined, or "Frasch," sulphur and the largest supplier
of elemental sulphur in the United States. The Company now has an
83.3 percent interest in the Main Pass operations, and Homestake
Sulphur Company ("Homestake") owns the remaining 16.7 percent
interest. The Company also continues to serve as the operator of
the Main Pass operations.
Sulphur, both in its elemental form and in the form of
sulphuric acid, is essential to agriculture and industry. Sulphur
is a base element primarily used in the production of sulphuric
acid, which is used in the manufacture of phosphate fertilizers
and other agricultural chemicals, and has numerous industrial
applications, including ore and metal leaching, petroleum and
mineral refining, and chemical manufacturing. While sulphur is
essential in almost every segment of the economy, it is generally
used as a processing agent and is seldom apparent in the final
product.
Freeport Sulphur is the successor to a line of business that
had been conducted by FRP and its predecessors since 1912, making
it the longest continuously operating sulphur company in the
United States. Since its founding, the Company has introduced
numerous innovations in the production and transportation of
sulphur, including the development of a mine in marsh terrain
near the mouth of the Mississippi River, the use of directional
drilling (a critical technique for exploiting offshore sulphur
deposits), and the development of technology for transporting
molten sulphur, which has earned the acceptance of U.S. sulphur
consumers as an environmentally and economically superior method.
Freeport Sulphur was the first, and remains the only, company to
superheat seawater for sulphur mining, and in 1960 constructed
the first offshore sulphur mine, followed by a second offshore
mine constructed in 1968, and a third offshore mine with the
construction of the Main Pass mine in 1992. Freeport Sulphur
remains the only company to successfully operate offshore sulphur
mines. Over its history, the Company has mined more than 160
million long tons of sulphur, and in 1988 discovered the largest
sulphur deposit in North America at Main Pass in the Gulf of
Mexico. Through its 1995 acquisition of substantially all of the
sulphur assets of Pennzoil Company ("Pennzoil"), Freeport Sulphur
became the world's largest producer of mined sulphur and a
leading supplier of sulphur to the United States market, and
positioned itself as having the industry's largest molten sulphur
handling system.
[PAGE] 1
The Main Pass sulphur deposit is the largest known sulphur
reserve in North America. The Company's Main Pass offshore mining
complex is the largest structure of its type in the Gulf of
Mexico and one of the largest in the world, and was designed to
produce an average of 5,500 long tons per day over its life. The
Company began operating the Culberson mine in January 1995
following its acquisition of substantially all of Pennzoil's
domestic sulphur assets. As of December 31, 1997, the Main Pass
and Culberson mines were estimated to contain proved sulphur
reserves totaling 61.2 million long tons net to the Company. In
addition to the Culberson mine, the Company also acquired from
Pennzoil sulphur terminals and handling facilities in Galveston,
Texas and Tampa, Florida, land and marine transportation
equipment, and sales and other related commercial contracts and
obligations.
The Company's principal business is the sale of sulphur and
the marketing of its terminaling and transportation assets for
use by recovered sulphur producers and industrial consumers of
sulphur. The phosphate fertilizer industry generally accounts for
approximately 90 percent of the Company's sulphur sales. The
Company's 1997 sulphur sales were approximately 2.9 million long
tons, representing 24.8 percent of domestic consumption (or 3.4
million long tons, representing 29.1 percent of domestic
consumption, on a pro forma basis after the contribution of IGL's
Main Pass interest). Sales to IMC-Agrico Company, a joint venture
partnership between IGL and PLP that is a manufacturer of
phosphate fertilizers and the largest purchaser of elemental
sulphur in the world ("IMC-Agrico"), represented approximately 65
percent of the Company's sulphur sales (or 72 percent on a pro
forma basis after the contribution of IGL's Main Pass interest).
Pursuant to a Sulphur Supply Agreement, the Company has agreed to
supply and IMC-Agrico has agreed to purchase approximately 75
percent of IMC-Agrico's annual sulphur consumption for as long as
IMC-Agrico has an operational need for sulphur. The price per ton
for all sulphur delivered under the agreement is based upon the
weighted average market price for sulphur delivered by other
sources to IMC-Agrico's New Wales production plant in central
Florida, except that the Company is entitled to a premium with
respect to approximately 40 percent of the sulphur that it
delivers under the agreement. IMC-Agrico also pays a portion of
the freight costs associated with the delivery of sulphur under
the agreement. Although this contract was entered into at a time
when IMC-Agrico was an affiliate of the Company, management
believes that the terms of the Sulphur Supply Agreement are no
less favorable to the Company than those that could have been
negotiated with an unaffiliated party.
The Company operates the largest molten sulphur handling
system in North America and has the capacity to transport and
terminal over five million long tons of molten sulphur annually.
The Company uses this system to support both the movement of its
own mined and purchased sulphur and as a service that it markets
to recovered sulphur producers and industrial consumers.
Freeport Sulphur is a major purchaser of recovered sulphur,
which is sulphur recovered from the refining of sour natural gas
and sour crude oil, purchasing almost one million tons per year.
Approximately 32.5 percent of the Company's 1997 sulphur sales
were supplied from its recovered sulphur purchases. Substantially
all of the sulphur purchased by the Company, along with the
sulphur produced at the Main Pass and Culberson mines, is sold by
the Company to industrial companies for use in the manufacture of
sulphuric acid.
The Main Pass operations also contain proved oil reserves
from which the Company produces and sells oil for the Main Pass
joint venture. Oil production averaged approximately 9,030
barrels per day (4,400 barrels net to the Company, or 6,300
barrels net to the Company on a pro forma basis after the
contribution of IGL's Main Pass interest) during the year ended
December 31, 1997. As of December 31, 1997, Main Pass was
estimated to contain 8.7 million barrels (5.3 million barrels net
to the Company) of proved oil reserves, which are expected to
decline substantially in subsequent years and to be fully
depleted by 2002.
Strategy
The Company's strategy is to utilize its extensive
production facilities and its transportation and other logistical
assets and capabilities to maintain its leadership position in
the U.S. sulphur market and to capitalize on new marketing
opportunities that are expected to develop from projected
increases in global phosphate fertilizer demand and other uses of
sulphur. In addition, the Company may expand its third party
transportation and terminaling services business and seek
opportunities to increase its recovered sulphur marketing
activities.
The Company is also evaluating related business
opportunities including the possible construction and operation
of sulphur recovery and sulphuric acid plants for third parties.
The Company believes it can market its operational, technological
and marketing expertise to other industrial concerns, and enter
into strategic alliances
[PAGE] 2
with enterprises having complementary
expertise and shared growth objectives. The Company also plans to
seek opportunities to expand its business in technologies related
to its current Main Pass oil operations such as sour crude oil
processing for others in the Gulf of Mexico region, and the
application of its seawater heating technology to such uses as
secondary oil recovery.
Freeport Sulphur's future sulphur sales volumes and
realizations will continue to depend on the level of demand from
the phosphate fertilizer industry and the availability of
competing supplies from recovered sulphur producers. Accordingly,
the Company continually evaluates its sulphur business strategy
in light of competitive factors and the dynamics of the sulphur
market, including the possibility of adjusting overall production
levels to match changes in market fundamentals.
With respect to the Company's oil business, the Company does
not currently intend to pursue oil operations that are not
related to Main Pass.
Sulphur Business
Sources and Uses of Sulphur
Sulphur is present in many areas of the world and its
production is generally classified into three categories:
elemental, pyrites and sulphur in other forms ("SOF"). Elemental
sulphur represents over two-thirds of worldwide supplies of
sulphur in all forms. Its sources include sulphur mined by the
Frasch process from underground deposits and recovered sulphur.
The remaining one-third of worldwide sulphur is in the form of
pyrites (metal sulphides) and SOF, with the most significant
source being sulphuric acid recovered as a by-product from the
smelting of non-ferrous metals. In the United States, mined
elemental sulphur is principally found in the caprock that covers
salt domes in the coastal areas of the Gulf of Mexico and in
strata-bound deposits in West Texas. Recovered elemental sulphur
is produced from the processing of natural gas that contains
hydrogen sulfide and from the refining of sour (high sulphur
content) crude oil. Recovered sulphur is the largest source of
sulphur in the world, representing approximately 85 percent of
global production of elemental sulphur.
Worldwide, over 56 million long tons of sulphur in all forms
are consumed annually, of which over 90 percent is converted to
sulphuric acid. The remainder is used in elemental form in
fertilizer applications, chemical manufacturing and other
applications. While sulphur is essential in almost every segment
of the economy, it is generally used as a processing agent and is
seldom apparent in the final product.
Sulphur is used primarily in the manufacture of phosphate
fertilizer, with over 60 percent of worldwide sulphur consumption
being used for this purpose. Sulphur is burned to form sulphuric
acid, which is then used to convert phosphate rock to phosphoric
acid, the base material for the manufacture of phosphate
fertilizer. Approximately 0.4 of a long ton of sulphur is
required to produce one short ton of diammonium phosphate
fertilizer, the principal form of phosphate fertilizer. Although
the Company is highly dependent on the phosphate fertilizer
market, management believes that the overall strength of the
phosphate fertilizer market and the resulting demand for
sulphuric acid should support production at current levels for
the immediate future. Industry studies indicate that world demand
for phosphate fertilizer, driven by anticipated population
growth, increases in levels of grain consumption and other
factors, will exceed production capacities in the next several
years. This has led to plans to construct new capacity and
feasibility studies evaluating the expansion of existing capacity
and the addition of new capacity for the manufacture of phosphate
fertilizer.
Sulphur is itself an important plant nutrient, along with
nitrogen, phosphorous and potassium. In 1996, 9.0 million tons of
sulphur were applied to soils worldwide through fertilizer
application. Sulphur is also a key raw material in the
manufacture of many fungicides and other agricultural chemicals.
The Sulphur Institute estimates the current annual worldwide
plant nutrient sulphur deficit at 8.2 million tons and the
outlook is for increasing deficiencies, thus making the use of
sulphur as a fertilizer a developing and growing market.
In addition to its agricultural applications, sulphur
(usually in the form of sulphuric acid) is essential to the
manufacturing processes of pharmaceuticals, paper, chemicals,
paint, steel, petroleum and other products. Sulphuric acid is
also used in the manufacture of detergents and animal feed. There
is a growing demand for sulphur in the form of sulphuric acid for
ore leaching by the non-ferrous metals industry mainly due to
advancements in solvent extraction-electrowinning technology
(SX/EW). This advancement has allowed the development of oxide
ore bodies that previously were not considered commercially
exploitable.
[PAGE] 3
Sulphur Mine Operations
Overview. Although sulphur is one of the most common
elements in the earth's crust, discoveries of elemental sulphur
in quantities that can be mined economically are rare. The
Company is currently mining two such deposits, the Main Pass mine
offshore Louisiana in the Gulf of Mexico and the Culberson mine
in West Texas. The Company's sulphur discovery at Main Pass in
1988 was the first major sulphur discovery in North America in
over 25 years. The Main Pass and Culberson mines utilize the
Frasch mining process, which involves drilling wells and
injecting superheated water into the underground sulphur deposit
to melt solid sulphur, which is then recovered in liquid form.
The Company has used the Frasch process for more than 80 years,
and has developed technology using superheated seawater in the
Frasch process, thereby enhancing offshore mining.
The Frasch Process. The sulphur deposits at the Company's
Culberson and Main Pass mines are located approximately 400 and
2,000 feet underground, respectively. Sulphur production wells
are drilled into sulphur bearing formations by rotary drilling
rigs employing a directional drilling technique that permits
drilling from the well platform at angles of up to 85. from
vertical, allowing sulphur within a radius of more than 3,700
feet to be mined from a single platform. In addition to
production wells, pressure control wells must also be drilled to
recover excess water from the underground formation and to
facilitate water flow. The Frasch process used by the Company
permits cost efficient extraction of sulphur from these
underground deposits. Superheated water and compressed air are
forced separately through concentric pipes towards the sulphur
deposit where the heated water liquefies the sulphur and the
compressed air helps lift the molten sulphur to the surface. The
Frasch process was developed in the 1890s and Freeport Sulphur
was only the second company to use this technology. The Company
has also developed proprietary technology that enables it to use
seawater in the Frasch process without experiencing the corrosion
and scaling that otherwise would affect the heat exchangers and
pipelines. Frasch mining of sulphur deposits at locations where
large quantities of fresh water are unavailable, such as Main
Pass, would not be commercially viable without these techniques.
Natural gas and water are the two resources essential to the
Frasch process. Natural gas fired boilers are used to produce
steam to heat the water in heat exchanges to the superheated
state necessary for sulphur liquefaction. The Company's mine
operations currently consume approximately nine billion cubic
feet of natural gas annually. The Company is dependent on others
for the supply of natural gas, but has never experienced
difficulty in obtaining the required supply of natural gas
because it has long-term supply agreements in place with prices
tied to market indices. At Main Pass, where the Company consumes
the majority of its natural gas requirements, gas is supplied by
a single supplier, but the Company has access to a large
multiple-supplier pipeline should its primary supplier have
difficulties in delivering its requirements. At the Culberson
mine, natural gas is provided by multiple suppliers. In its Main
Pass operations the Company also supplements its natural gas
needs with the gas that is produced in conjunction with its Main
Pass oil operations, which is provided to the sulphur mining
operations in exchange for electricity used by the oil
operations. In the event of a national shortage of natural gas,
curtailment may be imposed by federal authorities and may
interfere with the mining process, but the Company believes that
the risk of such curtailment during the anticipated life of the
mines is remote. Moreover, if necessary, the boilers can also
operate on fuel oil. The availability of water for the Main Pass
mine is not a factor for the Company because of its ability to
use seawater.
The Mines. The Main Pass deposit was discovered by the
Company in 1988. The mine currently has the highest production
rate of any sulphur mine in the world and contains the largest
known Frasch sulphur reserve in North America. The free sulphur
in the Main Pass deposit exists in the porous limestone that is
part of the caprock covering a salt dome. The Main Pass offshore
complex, which is more than a mile in length, is one of the
largest structures of its type in the world and is the largest in
the Gulf of Mexico. The Main Pass mine was designed to produce an
average of 5,500 long tons per day over its life and has two
sulphur storage tanks with a combined capacity of 24,000 long
tons. The facility, which has housing capacity for 240 persons,
is located in 210 feet of water and is designed to withstand
hurricane force conditions. In the event of a major storm in the
Gulf, personnel would be evacuated, but the mine is designed to
remain in operation through a communications link to Freeport
Sulphur's corporate office in New Orleans. During the year ended
December 31, 1997, sulphur production at Main Pass averaged
approximately 5,200 long tons per day. All Main Pass sulphur is
transported to the Company's terminal in Port Sulphur, Louisiana
in 7,500-ton self-propelled tankers. The Company receives a fee
from Homestake for operating the Main Pass mine and for
processing, transporting and marketing Homestake's share of the
Main Pass sulphur. At December 31, 1997, the Main Pass deposit
was estimated to contain proved sulphur reserves totaling 64.3
million long tons (53.6 million long tons net to the Company).
Production from the Main Pass
[PAGE] 4
mine is subject to a royalty of
12.5 percent of net mine revenues that is payable to the U.S.
Department of Interior-Minerals Management Services (the "MMS").
The Company began operating the Culberson mine, which is
located in West Texas south of the New Mexico border, in
January 1995 after acquiring the mine from Pennzoil. The
Culberson mine's free sulphur is part of a strata-bound ore body
located in the Upper Permian and Salado formations. For the year
ended December 31, 1997, production at the Culberson mine
averaged approximately 2,400 long tons per day. A unique feature
of the Culberson mine is a continuous water re-injection system,
through which water recovered from pressure control wells is
reheated and re-injected into the production wells. This
recycling system results in significant cost savings. Once mined,
the liquid sulphur is stored in on-site tanks with a combined
capacity of 45,000 long tons until it is shipped to the Company's
Galveston terminal by Company-owned railcars that average 8,400
long tons of liquid sulphur per trip. At December 31, 1997, the
Culberson mine was estimated to contain proved sulphur reserves
totaling 7.6 million long tons. Production from the Culberson
mine is subject to a royalty of 9 percent of net mine revenues
that is payable to the State of Texas and several private land
owners through a unitization agreement.
The agreement pursuant to which the Company obtained the
Culberson mine requires the Company to make quarterly payments to
Pennzoil, based on a unit volume payment multiplied by an assumed
volume of sulphur, both of which are determined by the average
market price of sulphur during the quarter. The Company is
obligated to make these payments irrespective of whether the
Culberson mine is operational. The payments terminate upon the
earlier of January 2015 or the quarter in which the cumulative
assumed volume of production exceeds 18.6 million long tons.
Under this arrangement, the Company paid Pennzoil $2.0 million
and $2.1 million for fiscal 1996 and 1997, respectively.
The Company has the right, exercisable on January 1, 1999
(the "First Option Date") and each subsequent third anniversary
of the First Option Date, to terminate its obligation to make
further quarterly installment payments in exchange for a lump sum
payment of $65 million less a cumulative inflation adjustment on
the date such right is exercised, but in no event less than $10
million. If the Company does not exercise its right on any option
date, Pennzoil may, within a defined time period after each
option date, require the Company to make a single payment of
$10 million in exchange for relinquishing its rights to receive
any further payments under the agreement.
The Company is currently operating its sulphur mines at less
than designed capacity. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company also has rights to sulphur deposits at its
Caminada Mine, located eight miles from Grand Isle in the Gulf of
Mexico, which the Company is not currently mining. The Company is
maintaining its lease rights to the remaining sulphur resource
under a "suspension of production" issued by the MMS. The Company
estimates that the Caminada mine has approximately 1.8 million
long tons of recoverable proved sulphur remaining.
Sulphur Reserves. The table below sets forth the Company's
portion of the proved developed reserves for the Company's two
producing sulphur mines.
Long Tons at
December 31,
Proved Developed Reserves(1) 1997(2)
---------------------------- ------------
Main Pass 53.6 million
Culberson 7.6 million
__________
(1) All sulphur reserves are considered proved because of the
Company's extensive drilling and production experience.
(2) Reserves represent long tons (2,240 lbs.) of sulphur that
are expected to be recovered from the host formation. Long
tons of sulphur are calculated in place and a recovery
factor, based on the percentage of residual sulphur expected
to be left behind, is applied to calculate the total
estimated recoverable tons.
Sulphur Purchases
The Company is a major purchaser of recovered sulphur in the
United States and management expects its sulphur purchasing
program, which is currently averaging almost one million long
tons per year, to increase and become a more significant
component of the Company's business. The Company purchases
recovered sulphur principally from oil refineries located along
the lower Mississippi River and in the Louisiana and Texas Gulf
Coast regions, and from gas processing plants in Mississippi and
Texas.
[PAGE] 5
The Company's recovered sulphur purchase program provides it
with a source of sulphur that is as important as the production
from its mines in enabling the Company to meet its sales contract
commitments. Approximately 32.5 percent of the Company's 1997
sulphur sales volume was supplied through recovered sulphur
purchases. The Company believes that its position as a leading
sulphur supplier in the domestic market, coupled with its
extensive sulphur handling capabilities, would allow it to
replace any curtailed mine production with purchased recovered
sulphur at price levels that would maintain the Company's
profitability; however there can be no assurance that it will be
able to do so.
Sulphur Handling Operations
Overview. The Company operates the largest molten sulphur
handling system in North America and has the capacity to
transport and terminal over five million long tons of molten
sulphur annually. The Company uses this system both to support
the movement of its own mined and purchased sulphur, and as a
service that it markets to recovered sulphur producers and
industrial consumers. The Company believes that the integration
of the sulphur handling business with its production, purchasing
and marketing operations gives the Company a synergistic
competitive advantage over other suppliers of similar services.
Marine Transportation. The Company operates two molten
sulphur tankers, each having a capacity of approximately 25,000
tons. The two tankers have the combined capacity to transport
3.5 million long tons of sulphur per year across the Gulf of
Mexico, which are loaded at the Company's Galveston and Port
Sulphur terminals and delivered to its Tampa terminals. The
Company's inland barge system is capable of transporting over
one million tons annually. Each of the Company's barges has a
capacity of approximately 2,500 long tons and serves the Texas,
Louisiana and Mississippi Gulf Coast regions and the lower
Mississippi River. Two 7,500-ton tankers are used to transport
sulphur from the Main Pass mine's offshore production platform
and can also be used in Gulf Coast service to transport sulphur
from the Company's terminals to its customers.
Land Transportation. The Company operates a rail car fleet
that transports sulphur from the Culberson mine to the Galveston
terminal for loading onto the Company's tankers for shipment to
its Tampa terminals. The Company also makes other rail movements
in connection with transporting sulphur directly to customers'
plants. The Company also transports approximately 500,000 tons of
molten sulphur per year through a third party trucking service
used primarily to serve the Galveston, Texas, lower Mississippi
River and Pensacola, Florida areas.
Terminals. The Company owns and operates five sulphur
terminals in the United States, the largest of which is located
at Port Sulphur, Louisiana. The Port Sulphur facility is a
combined liquid storage tank farm and stockpile area for solid
sulphur. Liquid sulphur is stored in steam-heated, insulated
tanks having an aggregate capacity of approximately 110,000 long
tons. The solid storage area can hold approximately 1.3 million
long tons of solid sulphur. Because substantially all of the
Company's domestic customers consume sulphur in liquid form, the
Company delivers all of its production in liquid form. This
reduces the need to remelt the sulphur, conserves energy and
reduces costs, and is an environmentally superior handling
method. Sulphur can be solidified for long-term storage to
maintain inventory reserves. The Company owns a high capacity
sulphur melter that permits the conversion of solid sulphur into
liquid sulphur to supplement mine production during periods of
high demand and to cover shortfalls in mine production or in
recovered sulphur purchases. Sulphur is transported from Port
Sulphur by barge to customers' plants in Louisiana on the lower
Mississippi River or along the Gulf Coast of Texas and
Mississippi, or by tanker to the Company's terminals in Tampa.
The Company's other terminals are located in Tampa and
Pensacola, Florida and Galveston, Texas. There are two Tampa
terminals, each of which has a liquid storage capacity of 90,000
long tons and is supplied with sulphur from Port Sulphur and
Galveston by the Company's sulphur tankers. Each of the Tampa
facilities ships molten sulphur to phosphate fertilizer producers
in central Florida by tank truck. The Pensacola terminal has a
storage capacity of 10,000 long tons and is used for the storage,
handling and shipping of recovered sulphur purchases or
transporting recovered sulphur for third parties. Molten sulphur
is shipped by barge from the Pensacola terminal to either the
Port Sulphur terminal or directly to lower Mississippi River
customers.
The Galveston terminal was acquired from Pennzoil in 1995
and has 75,000 long tons of liquid storage tanks and solid
storage capacity of one million long tons. This terminal receives
sulphur from the Company's Culberson mine by unit train, and
recovered sulphur purchases by truck, barge or rail, and then
ships sulphur to local customers by truck or barge or to the
Tampa terminals by tanker. The Galveston terminal also has the
ability to
[PAGE] 6
load solid sulphur aboard large oceangoing vessels,
giving the Company access to international markets should market
conditions favor sulphur exports.
Sulphur Sales
Substantially all of the Company's sulphur is sold to the
phosphate fertilizer industry for the manufacture of sulphuric
acid, which is used to produce phosphoric acid, a base chemical
used in the production of phosphate fertilizers. Typically, the
phosphate fertilizer industry accounts for approximately 90
percent of the Company's total sulphur sales. Freeport Sulphur's
domestic shipments to its five largest customers represented 88
percent of total shipments in 1997, 91 percent in 1996 and 89
percent in 1995. The majority of the Company's sulphur supply
contracts, with the exception of its contract with IMC-Agrico
discussed below, are for a term of one year or longer and
generally call for the repricing of sulphur on a quarterly or
six-month basis.
The Company also processes, transports, and markets
Homestake's share of production at the Main Pass mine for a fee.
In addition to supplying the domestic sulphur market and
providing transportation and terminaling services for others,
Freeport Sulphur maintains the capability of marketing sulphur
internationally should market conditions favor export sales.
Sales to IMC-Agrico, a manufacturer of phosphate fertilizers
and the largest purchaser of elemental sulphur in the world,
represented approximately 65 percent of the Company's sulphur
sales (or 72 percent on a pro forma basis after the contribution
of IGL's Main Pass interest) and 55 percent of its total revenues
(or 60 percent on a pro forma basis after the contribution of
IGL's Main Pass interest) during 1997. Pursuant to a Sulphur
Supply Agreement, the Company has agreed to supply and IMC-Agrico
has agreed to purchase approximately 75 percent of IMC-Agrico's
annual sulphur consumption for as long as IMC-Agrico has an
operational need for sulphur. The price per ton for all sulphur
delivered under the agreement is based upon the weighted average
market price for sulphur delivered by other sources to
IMC-Agrico's New Wales production plant in central Florida,
except that the Company is entitled to a premium with respect to
approximately 40 percent of the sulphur that it delivers under
the agreement. IMC-Agrico also pays a portion of the freight
costs associated with the delivery of sulphur under the
agreement. Although this contract was entered into at a time
when IMC-Agrico was an affiliate of the Company, management
believes that the terms of the Sulphur Supply Agreement are no
less favorable to the Company than those that could have been
negotiated with an unaffiliated party.
Revenues from the Company's sulphur sales depend
significantly on production levels of phosphate fertilizer, the
availability of sulphur that is recovered from high-sulphur oil
and natural gas refining and the rate at which stored surpluses,
particularly in Canada, are released into the market and
depleted. Current prices are substantially weaker than the high
levels of the early 1990's, primarily because of economic and
political changes in Eastern Europe and the former Soviet Union,
which led to the closure of plants consuming in excess of
seven million tons of sulphur per year. Improved phosphate
consumption rates, coupled with reduced imports and curtailed
mine production, stabilized sulphur prices beginning mid-year
1996 and continued into 1997. To the extent that current United
States phosphate fertilizer production remains strong, sustained
sulphur demand is expected to continue; however, the current
level of Canadian sulphur inventories limits the potential for
significant price increases. See "Competition."
Oil and Gas Business
Overview
The Main Pass site also contains oil and natural gas
reserves located within the same caprock reservoir that contains
the sulphur reserves. The Company's estimate of proved
recoverable oil reserves at Main Pass at December 31, 1997 was
8.7 million barrels, (5.3 million barrels net to the Company).
The Main Pass oil reserves are expected to decline substantially
in subsequent years and to be fully depleted by 2002, and the
Company does not intend to pursue oil and gas exploration
operations that are not related to Main Pass.
Reserves and Acreage
For information relating to estimates of the Company's net
interests in proved oil reserves as of December 31, 1997, and for
supplementary information relating to estimates of discounted
future net cash flows from proved oil reserves, and changes in
such estimates, reference is made to the Company's financial
statements
[PAGE] 7
included elsewhere herein.
At various times, the Company is required to report
estimates of oil reserves to various governmental authorities.
The basis for reporting estimates of reserves to these
authorities may not be comparable to the reserves presented
herein because of differences in the times at which such
estimates are made and variances in reserve and other definitions
of the particular governmental authority. Generally, however, the
reserves data used for these governmental reports is computed
from the same reserve information base as reported herein.
The Company's interest in Main Pass, which is located in
federal waters offshore Louisiana, constitutes the only oil and
gas producing property owned by Freeport Sulphur. The property
consists of 1,125 gross acres and is fully developed within the
meaning of governmental reporting requirements.
The Company possesses a leasehold interest in its Main Pass
oil property that is maintained by production and will remain in
effect until production and drilling and development operations
cease. The Company believes that the lease terms are sufficient
to allow for reasonable development of the reserves and that it
has satisfactory title to such property.
Production
Recoverable hydrocarbons at Main Pass are located in the
upper portion of the same caprock that hosts the sulphur reserves
and in an overlying layer of sand. The limestone caprock
reservoir and the overlying sand are in fluid contact with each
other, share a common oil and gas composition and have the same
pressure characteristics. Oil production commenced in the fourth
quarter of 1991 with cumulative total production as of
December 31, 1997 totaling 34.8 million barrels. Oil production
has been enhanced by the injection of superheated water in the
sulphur mining operations, which both lowers oil viscosity,
allowing it to flow more freely, and maintains reservoir
pressure, thereby enhancing recovery. Any associated gas that is
produced with the oil is provided to the sulphur mining operation
in exchange for electricity used in the oil operations. The
co-development of the sulphur and oil reserves has yielded
significant operating synergies and efficiencies.
The purchase agreement pursuant to which the Company
obtained the rights to the Main Pass oil lease obligates the
Company under certain circumstances to make an annual production
payment to Chevron U.S.A. Inc. The payment amount is based on the
amount of annual oil production at the Main Pass site and the
amount by which the average annual price of oil exceeds certain
specified prices during the term of the contract. If the average
annual price of oil does not exceed the specified prices, no
payment is due. No payments were made for 1997 in connection with
this obligation. This payment obligation will convert to a
royalty right on behalf of Chevron upon the occurrence of certain
events that the Company anticipates will occur in the first half
of 1998. Under this royalty right, Chevron will be entitled to
receive 25 percent of revenues (less transportation costs) of oil
and gas production after the first to occur of (i) cumulative oil
production at the Main Pass site in excess of 36 million barrels
or (ii) 20 years from the date of first oil production (November
6, 1991); provided that this 25 percent overriding royalty is
limited to 50 percent of net profit realized on oil production.
Oil Sales
Oil prices have historically exhibited, and can be expected
to continue to exhibit, volatility as a result of such factors as
conflicts in the Middle East, actions by the Organization of
Petroleum Exporting Countries and changes in worldwide economic
and political conditions. The oil produced at Main Pass contains
sulphur and is generally heavier than other Gulf Coast crude
oils. As a result, it sells at a discount relative to Gulf Coast
crude oils containing less sulphur and to lighter grade crude
oils.
Oil produced at the Main Pass mine is sold to two Gulf Coast
refiners with sales volumes split 71 percent and 29 percent. Both
sales contracts are for a term of six months and are priced at
market for the oil's grade. AMOCO Production Company is the
Company's largest oil customer, accounting for 71 percent of oil
revenues and 9 percent of the Company's total revenues for 1997.
[PAGE] 8
Competition
Sulphur
In the United States, there are two principal sources of
elemental sulphur: (i) mined sulphur produced by Freeport Sulphur
and (ii) recovered sulphur produced by more than 50 companies at
more than 130 refineries and gas treatment plants. There are four
producers of mined sulphur worldwide, of which management
believes Freeport Sulphur is the largest and the only mined
sulphur producer serving the United States market. For 1997,
Freeport Sulphur estimates that sulphur production at its Main
Pass and Culberson mines accounted for approximately 27 percent
of domestic, and 7 percent of world, elemental sulphur
production.
The Company estimates that total domestic sulphur
consumption in 1997 was 11.7 million tons, of which domestic
Frasch sulphur accounted for approximately 23 percent, domestic
recovered sulphur accounted for approximately 60 percent, and
imported sulphur, primarily from Canada and Mexico, accounted for
approximately 17 percent.
The following table sets forth for each of the years 1995
through 1997 the total estimated domestic sulphur consumption in
tons, together with the percentage supplied by Frasch suppliers,
domestic recovered sulphur and imported sulphur:
Domestic Sulphur Consumption
Year Total Frasch Domestic Percentage
Consumption Suppliers Recovered Imported
(Millions
of tons)
----- ---------- -------- --------- ----------
1997 11.7 23% 60% 17%
1996 11.5 25% 60% 14%
1995 11.7 27% 55% 17%
Recovered sulphur from domestic and foreign sources is the
major source of competition for Freeport Sulphur. Approximately
90 percent of the Western Hemisphere's sulphur inventories
currently consist of sulphur recovered from natural gas in the
province of Alberta in western Canada, primarily because United
States recovered sulphur suppliers do not have the ability to
store large inventories of sulphur. During the 1990s world
sulphur supply has been in surplus resulting in a build up of
Canadian sulphur inventories. Canadian sulphur inventories were
estimated to be 10.6 million tons at year end 1997 and are
expected to increase.
Production of recovered sulphur in the United States has
increased at an average rate of approximately 180,000 tons per
year for the last three years, and totaled approximately
7.8 million tons in 1997. High-sulphur gas processing capacity in
the U.S. is not expected to increase above current levels, but
the sulphur content of crude oil feedstocks to U.S. oil
refineries is expected to continue to increase. Although growth
in U.S. recovered sulphur production is expected to continue, the
rate of growth is expected to slow, as the refining industry is
consolidating into a smaller number of large refineries, and it
is estimated that total U.S. refinery processing will not
increase substantially. Technology for recovery of sulphur from
coal and oil-burning utility plants is well advanced and this and
other sources of sulphur resulting from air pollution abatement
efforts will have some impact on sulphur supplies. Industry
studies vary in their forecast of the worldwide elemental sulphur
balance; however it is widely accepted that a surplus currently
exists and will continue into the foreseeable future.
Recovered sulphur provides a major and lower cost source of
supply for most sulphur customers. The supply of U.S. recovered
sulphur alone, however, cannot satisfy total domestic demand, and
mined sulphur, along with imported recovered sulphur obtained
principally from Canada and Mexico are required to supply the
balance. The principal competitive risk to the Company's ability
to mine sulphur profitably is the potential for decreased
domestic demand for sulphur, increased production from domestic
recovered sulphur producers, increases in imported recovered
sulphur, and the rate at which stored sulphur, particularly in
Canada, is released into the market.
Oil
A large number of companies and individuals are engaged in
the development and production of oil. A substantial number of
the companies engaged in the development and production of oil
possess financial resources considerably greater than those of
the Company.
[PAGE] 9
Customers
IMC-Agrico is the Company's single largest sulphur customer,
accounting for approximately 65 percent of sulphur sales and 55
percent of total sales for 1997 (or 72 percent and 60 percent,
respectively, on a pro forma basis after the contribution of
IGL's Main Pass interest). The Company's next four largest
customers represent approximately 23 percent of sulphur sales.
These companies represent a mix of industrial companies and
phosphate fertilizer manufacturers.
The oil produced from Main Pass is sold to two Gulf Coast
refiners with sales volumes split 71 percent and 29 percent.
AMOCO Production Company is the largest customer, accounting for
9 percent of the Company's total revenues for 1997.
Engineering, Research and Development
Crescent Technology, Inc. ("Crescent") furnishes certain
engineering consulting, research and development, environmental
and safety services to the Company. Many of Crescent's employees
are former employees of the Company and other formerly related
companies who formed Crescent in 1993 to provide technical
services to such companies and others on an outsourced basis.
Crescent owns and operates laboratory and pilot plant facilities
at Belle Chasse, Louisiana, where minerals analysis,
metallurgical work and other research and testing are conducted,
which contributes to the Company's technical operations and
commercial activities. Additionally, Crescent maintains
engineering consulting and mine development groups in New
Orleans, Louisiana, which provide the engineering consulting,
environmental services and design and construction supervision
activities required to implement new ventures and apply
improvements to the Company's existing operations.
Regulatory Matters
The Company's mining, production and exploration activities
are subject to various federal, state and local laws governing
exploration, development, production, exports, taxes, labor
standards, occupational health and safety, toxic substances and
other matters. Regulations pertaining to the environment mandate,
among other things, the maintenance of air and water quality
standards, solid and hazardous waste standards, protection of
underground sources of drinking water, and protection and
regulation of wetland areas. The Company succeeded to all
licenses, permits or other authorizations obtained or held by FRP
or any of its affiliates insofar as they relate to the sulphur
and Main Pass oil and gas businesses. All material licenses,
permits and other authorizations currently required of each
existing operation have been obtained or timely applied for.
To comply with these federal, state and local laws, material
capital and operating expenditures on environmental projects,
both with respect to maintaining current operations and
initiating new operations, may be required in the future. The
amount of such expenditures cannot be estimated at this time, but
such costs could have an adverse effect on the Company's
financial condition and results of operations. There is also a
risk that more stringent laws affecting the operation of mining
companies could be enacted, and although such regulations would
affect the industry as a whole, compliance with such new
regulations could be costly.
Domestic oil operations are subject to extensive state and
federal regulation. Compliance is often burdensome, and failure
to comply carries substantial penalties. The heavy and increasing
regulatory burden on the oil industry increases the cost of doing
business and consequently affects profitability.
Environmental Matters
Federal laws and regulations have expanded greatly in recent
years with respect to environmental considerations. The United
States Department of Interior, the U.S. Environmental Protection
Agency (the "EPA") and the Coast Guard administer laws and
regulations that impose liability upon the lessee under a federal
lease for the cost of cleanup of pollution damages. A serious
incident of pollution may also result in any one of these
agencies requiring lessees under federal leases to suspend or
cease operations in the particular area. The Company carries
insurance against some, but not all, of these risks.
The Company, through its predecessors, has a history of
commitment to environmental responsibility. Since the 1940s, long
before the general public recognized the importance of
maintaining environmental quality, the
[PAGE] 10
Company has conducted
pre-operational, bioassay, marine ecological and other
environmental surveys to ensure the environmental compatibility
of its operations. The Company's environmental policy commits its
operations to compliance with applicable laws and regulations.
The Company has implemented corporate-wide environmental programs
and continues to study methods to reduce discharges and
emissions.
The largest effluent from sulphur mining operations is the
pressure control water recovered from the sulphur-bearing
formation. At Main Pass, pressure control wells remove water from
the formation and discharge the water under the terms of a
National Pollutant Discharge Elimination System permit issued by
the EPA. At the Culberson mine, the pressure control water is
removed from the formation and reused in the Frasch mining
process. The injection of mine water at Culberson is authorized
by an Underground Injection Control permit issued by the EPA.
Other water discharges at the two mines and five terminals are
made under permits issued by the EPA, state regulatory agencies
in the States of Texas, Louisiana or Florida, or local regulatory
authorities. All of these discharges are in compliance with
applicable regulations in all material respects.
The Company has various other permits with respect to air
emissions, solid waste production and disposal, dredging of
bottom sediment and the operation of port facilities that
facilitate its business activities. Agencies that provide these
permits and authorizations include the MMS, the U.S. Coast Guard,
the Louisiana Department of Environmental Quality, the Louisiana
Department of Natural Resources, the Texas Natural Resources
Conservation Commission, and the Florida Department of
Environmental Protection. The Company believes it is in
compliance in all material respects with the terms and conditions
of these permits and does not anticipate any significant new
costs to obtain new permits or to maintain compliance with
existing permits.
The Company assumed responsibility for environmental
liabilities associated with the prior conduct of the businesses
that FRP contributed to the Company, including reclamation
responsibilities at three previously producing sulphur mines.
Sulphur production was suspended at the Company's Caminada
offshore sulphur mine in 1994, and the Company will be required
to salvage the mining facilities once the remaining reserves are
produced or it becomes certain that such reserves will not be
economically recoverable. The Company's salvage expense will be
shared on a 50/50 basis with Exxon Corporation, and the estimated
expense has been accrued.
The Company's Grande Ecaille mine, which was depleted in
1978, was salvaged in accordance with applicable regulations at
the time of closure. Although the Company has no legal obligation
to do so, it has undertaken to reclaim wellheads and other
materials, none of which are classified as hazardous, that are
being exposed through coastal erosion, and it is anticipated that
these reclamation activities will continue for several more
years. Additional expenditures may be required from time to time
if erosion continues, although the Company does not expect such
expenditures to be material. Additional expenditures may be
necessary in the future to remove building foundations should the
Company decide it is in the best interest of the Company to do
so.
Reclamation of the Company's two producing sulphur mines,
Main Pass and Culberson, will be required upon the closure of
those facilities, and the related future costs are being accrued.
The Company has also closed nine other sulphur mines, all of
which have been reclaimed in accordance with applicable
regulations and customary industry practices.
In September 1997 the Company completed the salvage of its
Grand Isle mine in the Gulf of Mexico, which was depleted in
1991, by converting it into an artificial reef for the
enhancement of marine life. The reef was constructed at the
request of the State of Louisiana as part of its "Rigs-to-Reefs"
program through which the State and private industry are
cooperating to provide useful marine habitats using offshore
structures that are no longer needed for commercial activities.
The Grand Isle reef is the first in shallow water and is the
largest in the Gulf of Mexico. The reef is in the process of
being donated to the State of Louisiana, after which time the
State will assume all responsibility for its upkeep, although the
Company will retain responsibility for any environmental
liabilities that may arise from previous mining activities with
respect to this site.
Although the Company believes that its prior reclamation
activities were carried out in compliance with then applicable
laws and regulations and that it is accruing adequate reserves to
cover future reclamation costs, no assurance can be given that
the Company will not incur materially greater reclamation costs
than those anticipated.
[PAGE] 11
Employees
As of December 31, 1997, Freeport Sulphur had 402 active
employees. There are 382 employees working at the Company's mine
sites and terminals, and 20 employees located at its New Orleans
headquarters. None of the employees of Freeport Sulphur is
represented by any union or covered by any collective bargaining
agreement. The Company believes its employee relations are
satisfactory.
The Company also uses contract personnel to perform many of
the technical tasks customarily conducted by Company employees at
its Main Pass mine, which minimizes development costs and allows
the Company to use its management staff to direct the efforts of
both the sulphur mine and oil operations. Freeport Sulphur also
receives executive, financial, legal and administrative and other
related services through a services agreement with FM Services
Company ("FMS"), a company that is 25 percent owned by the
Company.
CAUTIONARY STATEMENTS
This report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Forward-looking
statements are all statements other than statements of
historical fact included in this report, including, without
limitation, the statements under the headings "Business and
Properties," "Market for Registrant's Common Equity and Related
Stockholder Matters," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" regarding the
Company's financial position and liquidity, payment of dividends,
the Company's strategic alternatives, future capital needs,
development and capital expenditures (including the amount and
nature thereof), reserve estimates and future net revenues
attributable thereto, business strategies, and other plans and
objectives of management of the Company for future operations and
activities.
Forward-looking statements are based on certain assumptions
and analyses made by the Company in light of its experience and
its perception of historical trends, current conditions, expected
future developments and other factors it believes are appropriate
under the circumstances. These statements are subject to a
number of assumptions, risks and uncertainties, including the
risk factors discussed below and in the Company's other filings
with the Securities and Exchange Commission (the "Commission"),
general economic and business conditions, the business
opportunities that may be presented to and pursued by the
Company, changes in law or regulations and other factors, many of
which are beyond the control of the Company. Readers are
cautioned that these statements are not guarantees of future
performance, and the actual results or developments may differ
materially from those projected in the forward-looking
statements. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by these
cautionary statements. Important factors that could cause actual
results to differ materially from the Company's expectations
include, among others, the following.
Competition
There are two principal sources of elemental sulphur:
(i) mined sulphur and (ii) recovered sulphur produced as a
by-product by oil refineries and gas treatment plants. Recovered
sulphur from domestic and foreign sources is a major and lower
cost source of supply for most sulphur customers and is the major
source of competition for the Company. As a by-product of the
producer's refining operations, the principal cost recognized by
such producers is the cost of handling and transportation to
customers.
Production of recovered sulphur from high-sulphur gas
processing plants and oil refineries in the United States has
increased at an average rate of approximately 180,000 tons per
year for the last three years. Because U.S. recovered sulphur
producers do not have the ability to store large inventories of
sulphur, they must move it to market and, depending on the
proximity of their plants to the principal sulphur market of
central Florida, such producers may enjoy a significant cost
advantage over the Company.
Because the supply of U.S. recovered sulphur alone cannot
meet total domestic demand, mined sulphur, along with imported
recovered sulphur obtained principally from Canada and Mexico,
are required to supply the balance. Canadian recovered sulphur
producers have facilities for storing excess sulphur production
in solid form, and approximately 90 percent of the Western
Hemisphere's sulphur inventories currently consist of sulphur
recovered from natural gas in the province of Alberta in western
Canada. At certain price levels in the U.S. sulphur
[PAGE] 12
markets, and
depending on prices in the foreign markets they supply, Canadian
producers can be expected to increase sulphur sales to U. S.
buyers in competition with the Company.
The principal competitive risk to the Company's ability to
mine sulphur profitably is the potential for decreased domestic
demand for sulphur, increased production from domestic recovered
sulphur producers, increases in imported recovered sulphur and
the rate at which stored sulphur, particularly in Canada, is
released into the market. In addition, the current level of
Canadian sulphur inventories limits the potential of the Company
to realize significant price increases for its sulphur. See
"Business-Competition."
Reliance on IMC-Agrico as Continuing Customer
Approximately 65 percent of the Company's 1997 sulphur sales
(72 percent on a pro forma basis after the contribution of the
IGL's Main Pass interest) were made to IMC-Agrico, and IMC-Agrico
will continue to account for a substantial percentage of the
Company's sulphur sales. Sales of sulphur to IMC-Agrico are
generally made at market prices, with a portion of such sales
receiving additional price consideration. Although the Company
has a long-term supply contract with IMC-Agrico that requires
IMC-Agrico to purchase sulphur from the Company as long as
IMC-Agrico's phosphate fertilizer operations require the use of
sulphur, the loss of or a significant decline in its sales of
sulphur to IMC-Agrico could have a material adverse effect on the
Company's business and operating results.
Effect of Prices on Sulphur Mining Operations
Although current sulphur prices allow the Company to
generate positive cash flows from its mining operations, any
significant decline in the market price of sulphur for a
sustained period would require the Company to consider the
suspension or curtailment of mining operations at either or both
of its operating mines. In such event, it is likely that the
Culberson mine would be closed first, because of the higher
transportation costs associated with that site. Because of the
costs associated with closing and re-opening mine sites, as well
as the potential loss of mining or mineral development rights if
mining operations were suspended, the Company could decide to
operate its mines for some period even if they did not generate
positive cash flow, and if operations were suspended, it could be
difficult and expensive for the Company to subsequently re-open a
mine.
Seasonality and Volatility of Sulphur Markets
Because the principal use of sulphur is in the manufacture
of phosphate fertilizers, the Company's ability to successfully
market its sulphur is materially dependent on prevailing
agricultural conditions and the worldwide demand for fertilizers.
Although phosphate fertilizer sales are fairly constant
month-to-month, seasonal increases occur in the domestic market
prior to the fall and spring planting season. Generally, domestic
phosphate fertilizer sales are at reduced levels after the spring
planting season, although the decline in domestic sales generally
coincides with the time when major commercial and governmental
buyers in China, India and Pakistan purchase product for mid-year
delivery. Sales are also influenced by current and projected
grain inventories and prices, quantities of fertilizers imported
to and exported from North America, domestic fertilizer
consumption and the agricultural policies of certain foreign
governments.
Like other commodities, the market and prices for sulphur
have been and may continue to be volatile. The Company's
operating margins and cash flow are subject to substantial
fluctuations in response to changes in supply and demand for
sulphur, conditions in the domestic and foreign agriculture
industry, market uncertainties and other factors beyond its
control.
Depletion of Oil and Gas Reserves
Approximately 14 percent of the Company's 1997 revenues were
generated from the sale of oil recovered from Main Pass. Oil
revenues are expected to decline substantially in 1998 and
subsequent years, and the Company currently estimates that proved
oil reserves at the Main Pass site will be depleted by the year
2002. The Main Pass site is the Company's only oil and gas
property, and the Company currently does not intend to pursue oil
and gas exploration activities after the Main Pass reserves are
depleted.
[PAGE] 13
Absence of Independent Operating History
In recent years the Company's operations have been conducted
by FRP, FTX and their predecessors as part of a diversified
business that was partly integrated with FRP's other business
activities and not as a stand-alone business. Following the Spin-
Off, the Company has been operated as an independent entity
engaged, except for the production of oil and gas at the Main
Pass operations, exclusively in the sulphur business, and neither
FRP (now PLP) nor FTX has any obligation to provide financial or
operational support to the Company.
Limited Relevance of Historical Financial Information
Because the Company has not been operated in recent years as
an independent entity, the historical financial information
included herein was derived from the audited financial statements
of FRP and is not necessarily indicative of the results of
operations, financial position and cash flows that would have
been achieved if the Company had been an independent entity
during the periods presented or that will be achieved in the
future. The Company's operations were an integral part of FRP's
operations during the periods covered by the historical financial
statements included herein, and certain historical financial data
included herein has been extracted from FRP's books and records
based on allocations between FRP's sulphur and oil operations and
FRP's other businesses, and based on other assumptions necessary
to reflect the Company's operations as if they had been operated
as an independent enterprise. Additionally, the historical
financial information included herein does not give effect to the
contribution of IGL's Main Pass interest. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Reserve Estimates and Future Net Cash Flows
The Company's reporting of proved sulphur and oil and gas
reserves is based upon engineering estimates. Reserve engineering
is a subjective process of estimating the recovery from
underground accumulations of sulphur, oil and natural gas that
are not susceptible to exact measurement, and the accuracy of any
reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment.
Estimates of economically recoverable sulphur and oil and gas
reserves and of future net cash flows necessarily depend upon a
number of variable factors and assumptions, such as historical
production from the area compared with production from other
producing areas, the assumed effects of governmental regulations
and assumptions concerning future sulphur and oil and gas prices,
future operating costs, severance and excise taxes, development
costs and workover and remedial costs, all of which may vary
considerably from actual results. Because all reserve estimates
are to some degree speculative, the quantities of sulphur and oil
and natural gas that are ultimately recovered, production and
operating costs, the amount and timing of future development and
reclamation expenditures, and future sulphur and oil and natural
gas sales prices may all vary materially from those assumed in
these estimates. In addition, different reserve engineers may
make different estimates of reserve quantities and cash flows
based on the same data. All of the Company's sulphur reserves are
considered proved because of extensive drilling and production
experience; nevertheless, reserves are estimates and the amount
of sulphur actually produced may vary from the estimates, and
such variances could be material.
The present values of estimated future net cash flows
referred to in this Prospectus should not be construed as the
current market value of the Company's estimated proved oil and
gas reserves. In accordance with applicable requirements of the
Commission, the estimated discounted future net cash flows from
proved reserves are generally based on prices and costs as of the
date of the estimate, while actual future prices and costs may be
materially higher or lower. Actual net cash flows also will be
affected by factors such as the amount and timing of production,
supply and demand for oil and gas, curtailments or increases in
consumption by gas purchasers and changes in governmental
regulations and taxation. The timing of future net cash flows
from proved reserves, and thus their actual present value, will
be affected by the timing of production and the incurrence of
expenses in the development and production of oil and gas
properties. In addition, the 10 percent discount factor required
by the Commission to be used to calculate discounted future net
cash flows for reporting purposes is not necessarily the most
appropriate discount factor based on interest rates in effect
from time to time and risks associated with the oil and gas
reserves owned by the Company or the oil and gas industry in
general.
[PAGE] 14
Environmental Matters
The Company's operations include exploration, mining,
development and production of natural resources, and the
extraction, handling, production, storage, transportation and
disposal of materials and waste products that may be toxic or
hazardous. Consequently, the Company is subject to numerous
environmental laws and regulations. The Company has incurred, and
expects to continue to incur, significant capital expenditures
and operating expenses based on these laws and regulations.
Continued governmental and public emphasis on environmental
issues may result in increased capital and operating costs in the
future, although the impact of future laws and regulations or
future changes to existing laws and regulations cannot be
predicted or quantified.
Federal legislation (sometimes referred to as "Superfund"
legislation) imposes liability, without regard to fault, for
clean-up of certain waste sites, even though waste management
activities at the site may have been performed in compliance with
regulations applicable at the time. Under the Superfund
legislation, one responsible party may be required to bear more
than its proportional share of clean-up costs if payments cannot
be obtained from other responsible parties. In addition, federal
and state regulatory programs and legislation mandate clean-up of
certain wastes at operating sites. Governmental authorities have
the power to enforce compliance with these regulations and
permits, and violators are subject to civil and criminal
penalties, including fines, injunctions or both. Third parties
also have the right to pursue legal actions to enforce
compliance. Liability under these laws can be significant and
unpredictable.
The Company may receive in the future notices from
governmental agencies that it is one of many potentially
responsible parties at certain sites under relevant federal and
state environmental laws. Some of these sites may involve
significant clean-up costs. The ultimate settlement of liability
for the clean- up of such sites usually occurs many years after
the receipt of notices identifying potentially responsible
parties because of the many complex, technical and financial
issues associated with site clean-up. The Company cannot predict
its potential liability for clean-up costs that it may incur in
the future.
The recent trend toward stricter standards in environmental
legislation and regulation is likely to continue. For instance,
legislation has been proposed in Congress from time to time that
would reclassify certain crude oil and natural gas exploration
and production wastes as "hazardous wastes," which would make the
wastes subject to significantly more stringent handling, disposal
and clean-up requirements. If such legislation were to be
enacted, it could have a significant impact on the Company's
operating costs, as well as the oil and gas industry in general.
Initiatives to further regulate the disposal of crude oil and
natural gas wastes are also pending in certain states and could
have a similar impact. In addition to compliance costs,
government entities and other third parties may assert
substantial liabilities against owners and operators of oil and
gas properties for oil spills, discharges of hazardous materials,
remediation and clean-up costs and other environmental damages,
including damages caused by previous property owners. The
imposition of any such liabilities on the Company could have a
material adverse effect on the Company's financial condition and
results of operations.
The Oil Pollution Act of 1990 imposes a variety of
regulations on "responsible parties" related to the prevention of
oil spills. The implementation of new, or the modification of
existing, environmental laws or regulations, including
regulations promulgated pursuant to the Oil Pollution Act of
1990, could have a material adverse impact on the Company.
In connection with the Spin-Off, the Company assumed
responsibility for potential liabilities, including environmental
liabilities, associated with the prior conduct of the businesses
contributed by FRP to the Company. Among these are potential
liabilities arising from sulphur mines that were depleted and
closed in the past in accordance with reclamation and
environmental laws in effect at the time, particularly in coastal
or marshland areas that have experienced subsidence or erosion.
The Company believes that it is in compliance with existing laws
regarding such closed operations, and has implemented controls in
some areas that it believes exceed its legal responsibilities.
Nevertheless, it is possible that new laws or actions by
governmental agencies could result in significant unanticipated
additional reclamation costs. For additional information
regarding certain reclamation obligations, see "Business-
Environmental Matters."
The Company could also be subject to potential liability for
personal injury or property damage relating to wellheads and
other materials at closed mines in coastal areas that have become
exposed through coastal erosion. Although the Company has
insurance in place to protect it against certain of these
liabilities, there can be no assurance that such insurance
coverage would be sufficient. There can also be no assurance that
the Company's current or future accruals for reclamation costs
will be sufficient to fully cover such costs.
[PAGE] 15
Operating Hazards
The Company's offshore sulphur mining, oil production and
marine transportation operations are subject to marine perils,
including collisions, hurricanes and other adverse weather
conditions. All of the Company's oil and sulphur production
activities are subject to blowouts, cratering, fires and other
risks, any of which could result in serious personal injury or
death and substantial damage to property and the environment. The
Company's operations may be subject to significant interruption,
and the Company may be subject to significant liability, due to
industrial accidents, severe weather or other natural disasters
occurring at one or more of its mining operations.
The Company has in place, through FMS certain liability,
property damage, business interruption and other insurance
coverages in types and amounts that it considers reasonable and
believes to be customary in the Company's business. This
insurance provides protection against loss from some, but not
all, potential liabilities incident to the ordinary conduct of
the Company's business, including coverage for certain types of
damages associated with environmental and other liabilities that
arise from sudden, unexpected and unforeseen events, with such
coverage limits, retentions, deductibles and other features as
management deems appropriate. The occurrence of an event that is
not fully covered by insurance could have a material adverse
effect on the Company's financial condition and results of
operations.
Item 3. Legal Proceedings.
The Company is involved from time to time in various legal
proceedings of a character normally incident to its businesses.
The Company believes that its potential liability in any such
pending or threatened proceedings will not have a material
adverse effect on the financial condition or results of
operations of the Company. The Company, through FMS, maintains
liability insurance to cover some, but not all, potential
liabilities normally incident to the ordinary course of its
businesses with such coverage limits as management deems prudent.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 4(a). Executive officers.
The following table sets forth certain information as of
March 2, 1998 with respect to the Company's executive officers.
Name Age Position
James R. Moffett ........ 59 Co-Chairman of the Board
Rene L. Latiolais ....... 55 Co-Chairman of the Board
Richard C. Adkerson ..... 51 Vice Chairman of the Board
Robert M. Wohleber ...... 47 President and Chief Executive
Officer
John G. Amato ........... 54 General Counsel
James R. Moffett has served as Co-Chairman of the Board of
FSC since November 1997. He also serves as the Chairman of the
Board and Chief Executive Officer of Freeport-McMoRan Copper &
Gold Inc. ("FCX"), and as Co-Chairman of the Board of McMoRan Oil
& Gas Co. ("MOXY"). Mr. Moffett also serves as a director of
IGL. Mr. Moffett served as Chairman of the Board of FTX from May
1992 to December 1997 and as President of FTX from May 1992 to
April 1993.
Rene L. Latiolais has served as Co-Chairman of the Board of
FSC since November 1997. He also serves as Vice Chairman of the
Board of FCX and as a director of IGL. He served as a director
of FTX from August 1993 to December 1997, President and Chief
Executive Officer of FTX from August 1995 until December 1997,
President of FTX from May 1993 until August 1995 and Executive
Vice President of FTX from May 1992 until May 1993.
Richard C. Adkerson has served as Vice Chairman of the Board
of FSC since November 1997. He is also President, Chief
Operating Officer and Chief Financial Officer of FCX, Co-Chairman
of the Board and Chief Executive Officer of MOXY and Chairman of
the Board and Chief Executive Officer of FM Properties Inc.
("FMPO"). Mr. Adkerson served as Executive Vice President of FCX
from July 1995 to April 1997 and as Senior Vice President of FCX
from February 1994 to July 1995. He served as Vice Chairman of
the Board of FTX from
[PAGE] 16
August 1995 until December 1997 and as
Senior Vice President of FTX from May 1992 to August 1995.
Robert M. Wohleber has served as President, Chief Executive
Officer and director of the Company since November 1997. He is
also Senior Vice President of FCX. He served as a Vice President
of FCX from July 1994 to November 1997, as Vice President and
Treasurer of FCX from July 1993 to May 1994 and as Treasurer from
August 1990 to May 1993. Mr. Wohleber served as Senior Vice
President and Chief Financial Officer of FTX from November 1996
to December 1997. He was Vice President of FTX from June 1994 to
November 1996 and Vice President and Treasurer of FTX from May
1992 and June 1994.
John G. Amato has served as General Counsel of the Company
since November 1997. Mr. Amato also serves as General Counsel of
MOXY and FMPO. Prior to August 1995, Mr. Amato served as General
Counsel of FTX and FCX. Mr. Amato currently provides legal and
business advisory services to FCX under a consulting arrangement.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
Since the Spin-Off on December 23, 1997, the Company's
Common Stock has been traded on the New York Stock Exchange under
the symbol FSC. Prior to December 23, 1997 there was no public
market for the Company's Common Stock. The following table sets
forth, for the period indicated, the range of high and low sales
prices, as reported by the New York Stock Exchange:
High Low
------- ------
1997
Fourth Quarter (from December 23, 1997 $13-1/6 $11-5/8
through December 1997.....................
The Company currently intends to retain its earnings to meet
its working capital requirements and finance its business
operations and does not plan to pay cash dividends to its
stockholders for the foreseeable future. Any future
determination to pay cash dividends will be made by the Board of
Directors in light of the Company's earnings, cash flow,
financial position, capital requirements, credit agreements and
such other factors as the Board of Directors deems relevant at
that time. The Company's ability to pay dividends is restricted
by the terms of its credit agreement.
As of March 2, 1998, there were approximately 13,733 record
holders of Company's Common Stock.
[PAGE] 17
Item 6. Selected Financial and Operating Data.
The following table presents selected audited historical and
unaudited pro forma financial information, as well as,
unaudited operating data for FSC for each of the five years
in the period ended December 31, 1997. FSC was spun-off
from PLP on December 22, 1997. The information presented
below reflects periods during which FSC did not operate as
an independent company, and, therefore, may not necessarily
reflect the consolidated results of operations or financial
position that would have existed if FSC had been an
independent company during the periods shown or the future
performance of FSC as an independent company. Additionally,
the results of operations shown below only include IGL's
25.0 percent interest in Main Pass since December 22, 1997.
The financial information below should be read in
conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the
Company's financial statements and notes thereto contained
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- -------- -------- -------- ---------
(In Thousands,Expect per Share
and Realized Price Amounts)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
Years Ended December 31:
Revenues $ 211,945 $221,426 $255,949 $151,795 $ 131,732
Operating income
(loss) (439,316)a 12,392 25,020b 7,353 (122,253)c
Net income
(loss) d (374,199)a 12,392 25,020b 7,353 (122,253)c
Net income
(loss)per share (36.16)a 1.20 2.42b .71 (11.82)c
Unaudited pro forma data: d
Net income (loss)
before income
taxes $(439,304) $12,392 $25,020 $7,353 $(122,253)
Pro forma benefit
(provision) for
income taxes 151,999 (4,659) (6,845) (2,691) 44,745
--------- ------- ------- ------ ---------
Pro forma net
income (loss) $(287,305) $ 7,733 $18,175 $4,662 $ (77,508)
========= ======= ======= ====== =========
Pro forma net
income (loss)
per share $(27.77) $.75 $1.76 $.45 $(7.49)
Pro forma
average shares 10,347 10,347 10,347 10,347 10,347
At December 31:
Working capital$ 65,604 $ 25,794 $ 42,059 $ 41,590 $ 25,105
Property, plant
and equipment,
net 109,833a 535,653 575,029 551,916 577,491
Total assets 273,033 633,620 680,467 637,902 668,274
Stockholders'
equity 114,397a, 484,360 521,782 556,060 573,303
d
OPERATING DATA
Sulphur
Sales
(long tons) 2,900 2,900 3,050 2,088 1,403
Average realized
price $61.04 $61.78 $70.44 $53.07 $57.28
Oil
Sales (barrels) 1,625 1,896 2,218 2,534 3,443
Average realized
price $18.15 $19.49 $15.82 $13.74 $14.43
</TABLE>
a. Includes charges totaling $425.4 million ($41.11 per share)
for an impairment assessment of sulpher assets and $9.9 million
($0.96 per share) for an increase in estimated reclamation costs
for sulpher properties, for drilling costs of an additional brine
well and a reduction of sulpher inventory book value to market
value.
b. Includes charges totaling $7.0 million ($0.68 per
share) allocated to FSC to reflect a compensation charge
pursuant to a management services agreement.
c. Includes charges totaling $86.6 million ($8.37 per
share) for a loss on valuation and sale of assets, and $11.6
million ($1.12 per share) for restructuring and other
related charges.
d. As a partnership, PLP paid no federal or state income
taxes and historically has not provided for income taxes on
the results of operations of FSC. Upon the formation of FSC
as a wholly owned taxable subsidiary of PLP prior to being
spun-off to PLP unitholders, a deferred tax asset of $63.8
million was recognized in 1997 income to reflect the excess
of tax over book basis in the related assets. Pro forma net
income includes an estimated tax provision for the
applicable periods as if FSC operated as a stand-alone
taxable entity.
[Page] 18
Items 7. and 7A. Management's Discussion and Analysis of Financial
Condition and Results of Operations, and Quantitative and
Qualitative Disclosures About Market Risk.
Overview
FSC became an independent, publicly held company
as of December 22, 1997, when PLP distributed to its
unitholders its sulphur business, including its 58.3 percent
interest in Main Pass sulphur and oil operations, together
with the 25.0 percent interest in Main Pass previously owned
by IGL (Note 8), a joint venture partner with PLP (the
Distribution). The results of operations discussed below
only include IGL's 25.0 percent interest in Main Pass since
December 22, 1997. FSC operated as an integral part of PLP
prior to the Distribution. FSC's financial statements have
been prepared from the books and records of PLP. Certain
data have been extracted from PLP records, or in certain
cases derived on the basis of allocations between FSC and
PLP's other businesses. The results of operations described
below are not necessarily indicative of the operating
results that FSC would have achieved on an independent basis
or of future operating results.
FSC's sulphur business consists of the sale of sulphur,
the marketing of logistics services, the operation of two
sulphur mines and a logistics system consisting of sulphur
transportation and terminaling assets. FSC's operations
include the Main Pass mine located offshore Louisiana in the
Gulf of Mexico, the Culberson mine located in West Texas,
five sulphur terminals located across the Gulf Coast, and
marine and rail transportation assets. The oil operations
consist of FSC's interest in the Main Pass operations.
Impairment Assessment of Sulphur Assets
In 1995 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 which
requires an assessment of the carrying value of long-lived
assets and a reduction of such carrying value to fair value
when events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. In
September 1997 FSC concluded that the carrying value of the
Main Pass sulphur assets exceeded the undiscounted estimated
future net cashflows, such that an impairment writedown of
$416.4 million was required. A similar analysis of the
Culberson mine sulphur assets, based on a reassessment of
recoverable reserves utilizing recent production history,
also indicated that a writedown of $9.0 million was
required. Fair values were estimated using discounted
estimated future net cash flows related to these assets.
The writedowns to fair value were recorded in the third
quarter of 1997 and are reflected in the financial
statements as additional depreciation and amortization
charges. Future operating results of FSC will reflect lower
depreciation and amortization expense as a result of these
writedowns.
<TABLE>
Results of Operations
<CAPTION>
Years Ended December 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
(Dollars in millions,
except realized prices)
<S> <C> <C> <C>
Revenues $211.9 $221.4 $255.9
Operating income
(loss) (439.3) 12.4 25.0
Sulphur sales
(long tons) 2,907,500 2,900,000 3,049,700
Sulphur average
realized price per ton $61.04 $61.78 $70.44
Oil sales (barrels) 1,625,200 1,895,500 2,217,600
Oil average realized
price per barrel $18.15 $19.49 $15.82
</TABLE>
1997 Compared With 1996
Sulphur operations reported an operating loss of $441.2
million in 1997 compared with operating income of $3.3
million for 1996, primarily because of the asset impairment
charges. The 1997 period also includes charges totaling
$9.9 million for an increase in estimated reclamation costs
for sulphur properties, for drilling costs of an additional
brine well and a reduction of sulphur inventory book value
to market value. Sulphur average realized prices for the
1997 period were only slightly lower than the 1996 period
while sulphur sales volumes rose slightly, primarily because
of increased sales to the IMC-Agrico. FSC has a long-term
supply contract with IMC-Agrico that extends for as long as
IMC-Agrico's operations have a requirement for sulphur. As
a percentage of total FSC revenues, sales to IMC-Agrico
totaled 55 percent in 1997 and 54 percent in 1996 and 1995.
Production levels at the Main Pass and Culberson sulphur
mines were reduced in early 1996 in response to lower
domestic demand for
[Page] 19
sulphur. Combined production from the
two mines averaged 7,600 tons per day for 1997 compared with
7,800 tons per day for 1996. Unit production and delivery
costs for 1997, excluding the charges discussed above, were
12 percent higher than for 1996 because of higher
maintenance costs, and natural gas usage and prices.
Main Pass operating income from oil operations totaled
$1.9 million in 1997 and $9.1 million in 1996 reflecting
lower average realizations and reduced production levels.
Current estimates are that the proved oil reserves at the
Main Pass site will be fully depleted by the year 2002.
Total production and delivery costs were higher in the
1997 period because of higher maintenance costs, energy
costs and the charges discussed above. Depreciation and
amortization in 1997 includes the asset impairment charges.
Excluding these charges and the additional reclamation
charge, depreciation expense was lower compared with 1996
because of the lower production rates. General and
administrative expenses were lower in 1997 compared with
1996 primarily because of lower incentive compensation costs
and a reimbursement in 1997 for certain costs expensed by
FSC in 1996.
1996 Compared With 1995
Sulphur operating income totaled $3.3 million for 1996
compared with $23.0 million for 1995 primarily because of
lower prices and volumes and slightly higher unit costs.
Sulphur sales volumes for 1996 were 5 percent lower than the
1995 level. Production levels at the Main Pass and
Culberson mines were reduced in early 1996 in response to
lower domestic sulphur sales to U.S. phosphate fertilizer
producers. Combined production averaged 7,800 tons per day
for 1996 compared with 8,500 tons per day in 1995. Sulphur
realizations were 12 percent lower than the 1995 period,
reflecting lower demand from the phosphate fertilizer
industry and higher recovered sulphur supplies. Unit
production costs for 1996 rose slightly from 1995 levels
because of the reduced production levels and increased
energy costs.
Main Pass oil operating income for 1996 totaled $9.1
million compared with $2.0 million for 1995. Despite lower
sales volumes, net income benefited in 1996 from a
significant increase in average realizations caused by the
overall rise in world oil prices which occurred in mid-1996
and again in late 1996. Lower production for 1996 reflected
declining reservoir production levels.
Total production and delivery, and depreciation and
amortization costs were lower in 1996 because of the reduced
production levels. General and administrative expenses were
lower in 1996 primarily because of a $7.0 million charge
($5.2 million to sulphur operations and $1.8 million to oil
operations) that was allocated to FSC in 1995 to reflect
compensation costs related to FTX stock appreciation rights.
Pursuant to a management services agreement with FTX, these
costs were allocated to PLP, and thus to FSC, based on
relative payroll costs.
Outlook
In early 1998 FSC announced its decision to reduce
annual sulphur production by approximately 400,000 long tons
in response to a developing near-term imbalance in U.S.
sulphur supply. This reduction is being achieved primarily
by curtailing production at FSC's Culberson, Texas mine,
with overall production continually being reassessed to
ensure customer requirements are met while still being
responsive to market conditions. Management believes
phosphate fertilizer market fundamentals remain strong, with
the long-range outlook for sulphur consumption equally
positive.
Disclosures About Market Risks
FSC's revenues are derived from the sale of sulphur and
crude oil. In addition, natural gas purchases comprise a
significant portion of FSC's production costs. FSC's net
income can vary significantly with fluctuations in the
market prices of these commodities. Based on projected 1998
annual sales volumes, each $5 per ton change in the average
price realized on sulphur sales would have an approximate
$17 million impact on revenues and an approximate $6 million
impact on net income. Each $2 per barrel change in the
average price realized on annual crude oil sales would have
an approximate $3 million impact on revenues and an
approximate $2 million impact on net income. A $0.50 per
mmbtu change in the average cost of annual natural gas
purchases would have an approximate $4 million impact on
production costs and an approximate $3 million impact on net
income.
[Page] 20
At the present time FSC does not hedge or
otherwise enter into price protection contracts for its
principal products, although FSC has entered into a price
protection program for its anticipated natural gas purchase
requirements for the first quarter of 1998 which provides
for a cost of no more than $2.65 per million british thermal
unit (mmbtu) and no less than $2.33 per mmbtu on 1,350,000
mmbtu's. The fair value of these contracts was $(0.1)
million at December 31, 1997.
As FSC has no outstanding debt, conducts all its
operations within the U.S. in U.S. dollars and has no
investments in equity securities, it is currently not
subject to interest rate risk, foreign currency exchange
risk or equity price risk.
Capital Resources and Liquidity
Net cash provided by operating activities totaled $16.7
million for 1997, $51.8 million for 1996 and $65.4 million
for 1995. Lower net income and an increase in reclamation
and mine shutdown expenditures related to a Rigs-to-Reefs
program resulted in lower net cash provided by operating
activities in 1997 compared with 1996, while lower net
income was the primary reason for the decline in 1996
compared with 1995.
Capital expenditures, which primarily relate to
maintaining current levels of production, totaled $3.5
million for 1997, $3.8 million for 1996 and $3.7 million for
1995. Proceeds from asset sales included certain
warehousing and supply assets totaling $0.9 million in 1997,
and totaled $2.1 million in 1996, mostly from the sale of
certain marine assets. Capital expenditures for 1998 are
expected to be slightly higher compared with 1997 because of
additional drilling activities scheduled in 1998 to maintain
required levels of water treatment capacity for sulphur
operations plus the addition of IGL's 25.0 percent interest.
Based on current projections, management believes that
FSC will generate sufficient cash flow from operations to
fund its ongoing working capital requirements, reclamation
costs and projected capital expenditures for the foreseeable
future. Additionally, in December 1997 FSC established a
$100 million revolving credit facility to further enhance
its liquidity and financial flexibility (Note 7). FSC also
announced an open market share purchase program for up to
1.0 million shares of its common stock, representing
approximately 10 percent of the shares outstanding. The
timing of the purchases is dependent upon many factors,
including the price of the common shares; FSC's operating
results, cash flows and financial position; and general
economic and market conditions. FSC has purchased 351,900
shares, all in 1998, for $4.8 million (an average of $13.53
per share) through March 2, 1998.
FSC has assessed its year 2000 information systems cost
issues and believes its current plans for system upgrades
will adequately address these issues internally at no
material cost.
Environmental
FSC, through its predecessors, has a history of
commitment to environmental responsibility. Since the
1940's, long before public attention focused on the
importance of maintaining environmental quality, FSC has
conducted pre-operational, bioassay, marine ecological and
other environmental surveys to ensure the environmental
compatibility of its operations. FSC's environmental policy
commits its operations to compliance with local, state and
federal laws and regulations, and prescribes the use of
periodic environmental audits of all facilities to evaluate
compliance status and communicate that information to
management. FSC believes that its operations are being
conducted pursuant to necessary permits and are in
compliance in all material respects with applicable laws,
rules and regulations. FSC has access to environmental
specialists who have developed and implemented corporate-
wide environmental programs. FSC continues to study methods
to reduce discharges and emissions.
Federal legislation (sometimes referred to as
"Superfund" legislation) requires payments for cleanup of
certain waste sites, even though waste management activities
were performed in compliance with regulations applicable at
the time. Under the Superfund legislation, one party may,
under certain circumstances, be required to bear more than
its proportional share of cleanup costs at a site where it
has responsibility pursuant to the legislation, if payments
cannot be obtained from other responsible parties. Other
legislation mandates cleanup of certain wastes at operating
sites. States also have regulatory programs that can
mandate waste cleanup. Liability under these laws involves
inherent uncertainties. FSC has, at this time, no known
significant liability under these laws.
[Page] 21
Estimated future expenditures to restore properties and
related facilities to a condition that complies with
environmental and other regulations are accrued over the
life of the properties. The future expenditures are
estimated based on current costs, laws and regulations. As
of December 31, 1997, FSC has accrued $36.5 million ($10.8
million of which will be reimbursed by third parties) for
abandonment and restoration of its non-operating sulphur
assets. Total estimated abandonment cost for Main Pass oil
operations is $9.7 million and was fully accrued at December
31, 1997. FSC's share of abandonment and restoration costs
for its two operating sulphur mines is estimated to total
approximately $78 million, $26.0 million of which had been
accrued at December 31, 1997, with essentially all such
costs expected to be incurred after mine closure. These
estimates are by their nature imprecise and can be expected
to be revised over time because of changes in government
regulations, operations, technology and inflation.
FSC has made, and will continue to make, expenditures
at its operations for protection of the environment.
Continued government and public emphasis on environmental
issues can be expected to result in increased future
investments for environmental controls, which will be
charged against income from future operations. Present and
future environmental laws and regulations applicable to
current opperations may require substantial capital
expenditures and may affect its operations in other ways
that cannot now be accurately predicted.
FSC maintains insurance coverage in amounts deemed
prudent for certain types of damages associated with
environmental liabilities that arise from sudden, unexpected
and unforeseen events.
Cautionary Statement
Management's discussion and analysis of financial
condition and results of operations contains forward-looking
statements, including without limitation, FSC's reserve
expectations, demand for sulphur, the availability of
financing, the ability to satisfy future cash obligations
and environmental costs. Important factors that might cause
future results to differ from these projections include the
reliance on IMC-Agrico as a continuing customer, the
seasonality and volatility of sulphur markets, competition
and environmental issues as described in more detail
elsewhere in this Form 10-K under "Cautionary Statements."
[Page] 22
Item 8. Financial Statements and Supplementary Data.
REPORT OF MANAGEMENT
Freeport-McMoRan Sulphur Inc. (the Company) is
responsible for the preparation of the financial
statements and all other information contained in this
Annual Report. The financial statements have been
prepared in conformity with generally accepted
accounting principles and include amounts that are
based on management's informed judgments and estimates.
The Company maintains a system of internal accounting
controls designed to provide reasonable assurance at
reasonable costs that assets are safeguarded against
loss or unauthorized use, that transactions are
executed in accordance with management's authorization
and that transactions are recorded and summarized
properly. The system is tested and evaluated on a
regular basis by the Company's internal auditors, Price
Waterhouse LLP. In accordance with generally accepted
auditing standards, the Company's independent public
accountants, Arthur Andersen LLP, have developed an
overall understanding of our accounting and financial
controls and have conducted other tests as they
consider necessary to support their opinion on the
financial statements.
The Board of Directors, through its Audit Committee
composed solely of non-employee directors, is
responsible for overseeing the integrity and
reliability of the Company's accounting and financial
reporting practices and the effectiveness of its system
of internal controls. Arthur Andersen LLP and Price
Waterhouse LLP meet regularly with, and have access to,
this committee, with and without management present, to
discuss the results of their audit work.
Robert M. Wohleber
President and
Chief Executive Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
FREEPORT-McMoRan SULPHUR INC.:
We have audited the accompanying balance sheets of
Freeport-McMoRan Sulphur Inc. (the Company), a Delaware
Corporation, and its predecessors as of December 31, 1997
and 1996, and the related statements of operations, cash
flow and changes in stockholders' equity for each of the
years in the three-year period ended December 31, 1997.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
financial position of the Company and its predecessors as of
December 31, 1997 and 1996 and the results of its operations
and its cash flow for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana
January 20, 1998
[Page] 23
<TABLE>
FREEPORT-McMoRan SULPHUR INC.
BALANCE SHEETS
<CAPTION>
December 31,
------------------------
1997 1996
---------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,293 $ 3,116
Accounts receivable:
Customers 27,266 27,402
Other 6,473 15,849
Inventories:
Products 24,841 21,859
Materials and supplies 9,580 8,214
Deferred tax asset 4,768 -
Prepaid expenses and other 1,214 6,764
---------- ----------
Total current assets 95,435 83,204
---------- ----------
Property, plant and equipment 841,222 916,858
Less accumulated depreciation
and amortization (731,389) (381,205)
---------- ----------
Net property, plant and equipment 109,833 535,653
---------- ----------
Deferred tax asset 56,757 -
Other assets 11,008 14,763
---------- ----------
Total assets $ 273,033 $ 633,620
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 25,175 $ 32,149
Current portion of reclamation
and mine shutdown reserves 4,656 25,261
---------- ---------
Total current liabilities 29,831 57,410
Reclamation and mine shutdown reserves 67,518 56,848
Accrued postretirement and pension benefits 15,594 -
Other liabilities 45,693 35,002
Stockholders' equity:
Net assets from PLP - 484,360
Preferred stock, par value $0.01 per
share, 50,000,000 authorized - -
Common stock, par value $0.01 per
share, 100,000,000 shares
authorized, 10,346,578 shares
issued and outstanding 103 -
Capital in excess of par value of
common stock 116,780 -
Accumulated deficit (2,486) -
---------- ---------
114,397 484,360
---------- ---------
Liabilities and stockholders' equity $ 273,033 $ 633,620
========== =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
[Page] 24
<TABLE>
FREEPORT-McMoRan SULPHUR INC.
STATEMENTS OF OPERATIONS
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1996 1995
--------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Revenues $ 211,945 $221,429 $255,949
Cost of sales:
Production and delivery 183,227 160,982 168,504
Depreciation and amortization 461,084 37,800 43,700
--------- -------- --------
Total cost of sales 644,311 198,782 212,204
General and administrative expenses 6,950 10,252 18,725
--------- -------- --------
Total costs and expenses 651,261 209,034 230,929
--------- -------- --------
Operating income (loss) (439,316) 12,392 25,020
Other income, net 12 - -
--------- -------- --------
Net income (loss) before income taxes (439,304) 12,392 25,020
Income tax benefit 65,105 - -
--------- -------- --------
Net income (loss) $(374,199) $ 12,392 $ 25,020
========= ======== ========
Net income (loss) per share $(36.16) $1.20 $2.42
======= ===== =====
UNAUDITED PRO FORMA DATA (NOTE 1)
Net income (loss) before income taxes
reported above $(439,304) $12,392 $25,020
Pro forma benefit (provision) for
income taxes 151,999 (4,659) (6,845)
--------- ------- -------
Pro forma net income (loss) $(287,305) $ 7,733 $18,175
========= ======= =======
Pro forma net income (loss) per share $(27.77) $.75 $1.76
======= ==== =====
Pro forma average shares outstanding 10,347 10,347 10,347
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
[Page] 25
<TABLE>
FREEPORT-McMoRan SULPHUR INC.
STATEMENTS OF CASH FLOW
<CAPTION>
Years Ended December 31,
------------------------------
1997 1996 1995
--------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $(374,199) $12,392 $25,020
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 461,084 37,800 43,700
Reclamation and mine shutdown
expenditures (20,562) (7,504) (2,476)
Deferred income taxes (65,105) - -
Other 3,653 6,421 4,642
(Increase) decrease in working
capital net of effect of
acquisitions:
Accounts receivable 18,946 (3,234) (17,504)
Inventories 399 1,690 5,465
Prepaid expenses and other 4,816 166 (1,605)
Accounts payable and accrued
liabilities (12,304) 4,113 8,165
--------- ------- -------
Net cash provided by operating activities 16,728 51,844 65,407
--------- ------- -------
Cash flow from investing activities:
Capital expenditures (3,513) (3,834) (3,710)
Sale of assets and other 890 2,146 375
--------- ------- -------
Net cash used in investing activities (2,623) (1,688) (3,335)
--------- ------- -------
Cash flow from financing activities:
Net distributions from (to) PLP 4,072 (49,814) (59,298)
--------- ------- -------
Net cash provided by (used in) financing
activities 4,072 (49,814) (59,298)
--------- ------- -------
Net increase in cash and cash equivalents 18,177 342 2,774
Cash and cash equivalents at beginning
of year 3,116 2,774 -
--------- ------- -------
Cash and cash equivalents at end of year $ 21,293 $ 3,116 $ 2,774
========= ======= =======
</TABLE>
The accompanying notes, which include information in Notes 1, 2 and
8 regarding non-cash transactions, are an integral part of these
financial statements.
[Page] 26
<TABLE>
FREEPORT-McMoRan SULPHUR INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Net assets from PLP:
Balance at beginning of year $484,360 $521,782 $556,060
Net income (loss) before distribution to
PLP unitholders (371,713) 12,392 25,020
Contribution of IGL Main Pass interest 18,458 - -
Net PLP liabilities allocated to FSC (18,294) - -
Net distributions from (to) PLP 4,072 (49,814) (59,298)
Distribution of shares to PLP unitholders (116,883) - -
-------- -------- --------
Balance at end of year - 484,360 521,782
-------- -------- --------
Preferred stock:
-------- -------- --------
Balance at beginning and end of year - - -
-------- -------- --------
Common stock:
Balance at beginning of year - - -
Shares issued to PLP unitholders 103 - -
-------- -------- --------
Balance at end of year 103 - -
-------- -------- --------
Capital in excess of par value of common stock:
Balance at beginning of year - - -
Shares issued to PLP unitholders 116,780 - -
-------- -------- --------
Balance at end of year 116,780 - -
-------- -------- --------
Accumulated deficit:
Balance at beginning of year - - -
Net loss subsequent to December 22,1997 (2,486) - -
-------- -------- --------
Balance at end of year (2,486) - -
-------- -------- --------
Total stockholders' equity $114,397 $484,360 $521,782
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
[Page] 27
FREEPORT-McMoRan SULPHUR INC.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
Background. Freeport-McMoRan Sulphur Inc. (FSC) became an
independent, publicly held company as of December 22, 1997, when
Phosphate Resource Partners Limited Partnership (PLP), formerly
Freeport-McMoRan Resource Partners, Limited Partnership, distributed
to its unitholders its sulphur business, including its 58.3 percent
interest in Main Pass sulphur and oil operations, together with the
25.0 percent interest in Main Pass previously owned by IMC Global
Inc. (IGL) (Note 8), a joint venture partner with PLP (the
Distribution). PLP distributed 10,346,578 shares of FSC common
stock pro rata to its unitholders in connection with the merger of
Freeport-McMoRan Inc. (FTX), the former administrative general
partner and majority owner of PLP, with and into IGL (the Merger).
FTX distributed the shares of FSC common stock that it received from
PLP to FTX stockholders on a pro rata basis in connection with the
Merger.
Basis of Presentation. FSC operated as an integral part of PLP
prior to the Distribution. FSC's financial statements have been
prepared from the books and records of PLP. Certain data has been
extracted from PLP records, or in certain cases derived on the basis
of allocations between FSC and PLP's other businesses, for purposes
of presentation in the accompanying financial statements. FSC's
investment in the Main Pass joint venture is reflected using the
proportionate consolidation method in accordance with standard
industry practice. No interest expense has been allocated to FSC as
no interest costs have been incurred in the past by FSC and no debt
previously recorded by PLP was assumed by FSC. Intercompany balances
between PLP and FSC have related to various general and
administrative and similar charges and have been settled monthly.
PLP is not a taxable entity and historically has not provided income
taxes on the results of operations of FSC. Upon formation of FSC as
a wholly owned taxable subsidiary of PLP prior to being spun-off to
PLP unitholders, a deferred tax asset of $63.8 million was
recognized in 1997 income to reflect the excess of tax over book
basis in the related assets. Unaudited pro forma income taxes are
included in the statements of operations as if FSC had been a
separate taxable entity for the periods presented. FTX provided
benefit plans for certain employees that became FSC employees upon
completion of the Merger. FTX transferred certain liabilities
related to these plans to FSC and paid cash to FSC for the
assumption of certain of these liabilities as discussed further in
Note 6.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates. The preparation of FSC's financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. The
more significant areas requiring the use of management estimates
include valuation allowances for deferred tax assets, reclamation
and environmental obligations, postretirement and other employee
benefits, future cash flows associated with assets and useful lives
for depreciation and amortization. Actual results could differ from
those estimates.
Cash and Cash Equivalents. Highly liquid investments purchased with
a maturity of three months or less are considered cash equivalents.
Inventories. Inventories are stated at the lower of average cost or
market.
Property, Plant and Equipment. Property, plant and equipment are
carried at cost, including interest capitalized during the
construction and development period. Expenditures for replacements
and improvements are capitalized. Depreciation for mining and
production assets, including mineral interests, is determined using
the unit-of-production method based on estimated recoverable
reserves. Other assets are depreciated on a straight-line basis over
estimated useful lives of 15 to 20 years for buildings and 5 to 15
years for machinery and equipment.
In 1995 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 (SFAS 121) which
requires an assessment of the carrying value of long-lived assets
and a reduction of such carrying value to fair value when events or
changes in circumstances indicate that the carrying amount may not
be recoverable. In September 1997 FSC concluded that the carrying
value of the Main Pass sulphur assets exceeded the undiscounted
estimated future net cash flows, such that an impairment writedown
of $416.4 million was required. A similar analysis of the Culberson
sulphur assets, based on a reassessment of recoverable reserves
utilizing recent production history, also indicated an impairment
writedown of $9.0 million was required. Fair values were estimated
using discounted estimated future net cash flows related to these
assets. The writedowns to fair value were recorded as additional
depreciation and amortization charges. Future operating results of
FSC will reflect lower depreciation and amortization expense as a
result of these writedowns.
[Page] 28
Oil Capitalized Costs. Oil producing operations are reflected using
the successful efforts method of accounting. Costs of leases,
productive exploratory wells and development activities are
capitalized. Other exploration costs are expensed. Depreciation and
amortization is determined on a field-by-field basis using the unit-
of-production method. Gain or loss is included in income when
properties are sold.
Financial Instruments and Contracts. FSC had outstanding contracts
at December 31, 1997 to purchase 1,350,000 million british thermal
units (mmbtu) of natural gas in the first quarter of 1998 at no more
than $2.65 per mmbtu and no less than $2.33 per mmbtu. These
contracts had a fair value of $(0.1) million at December 31, 1997.
Environmental Remediation and Compliance. FSC incurs significant
costs for environmental programs and projects. Expenditures
pertaining to future revenues from operations are capitalized.
Expenditures resulting from the remediation of conditions caused by
past operations which do not contribute to future revenue generation
are expensed. Liabilities are recognized for remedial activities
when the efforts are probable and the cost can be reasonably
estimated.
Estimated future expenditures to restore properties and related
facilities to a condition that complies with environmental and other
regulations are accrued over the life of the properties. The future
expenditures are estimated based on current costs, laws and
regulations. As of December 31, 1997, FSC had a $36.5 million
accrual for abandonment and restoration of non-operating sulphur
assets, offset by $10.8 million in Other Assets which will be
reimbursed by third parties. Total estimated abandonment cost for
Main Pass oil operations is $9.7 million and was fully accrued at
December 31, 1997. FSC's share of abandonment and restoration costs
for its two operating sulphur mines is estimated to total
approximately $78 million, $26.0 million of which had been accrued
at December 31, 1997, with essentially all costs being incurred
after mine closure. These estimates are by their nature imprecise
and can be expected to be revised over time because of changes in
government regulations, operations, technology and inflation.
Earnings Per Share. In February 1997 the FASB issued SFAS 128,
"Earnings Per Share," which simplifies the computation of earnings
per share (EPS). FSC adopted SFAS 128 in the fourth quarter of
1997. Net income (loss) per share and pro forma net income
(loss) per share for all periods presented was calculated
by dividing the applicable net income (loss) amount by the number
of shares outstanding (10,346,578 shares) as of December 22, 1997,
the date of the spin off from PLP. Options to purchase 790,517
shares of common stock at a weighted average price of $10.93 per
share were outstanding for the last nine days of 1997, but were
excluded from the calculation of EPS as they are anti-dilutive
considering the loss reported in 1997. No options were outstanding
prior to 1997.
In December 1997, FSC announced an open market share purchase
program for up to 1.0 million shares of its common stock,
representing approximately 10 percent of the shares outstanding.
The timing of the purchases is dependent upon many factors,
including the price of the common shares; FSC's operating results,
cash flows and financial position; and general economic and market
conditions. FSC has purchased 49,800 shares, all in 1998, for $0.5
million (an average of $10.77 per share) through January 20, 1998.
3. PROPERTY,PLANT AND EQUIPMENT,NET
The components of net property, plant and equipment follow (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Buildings and facilities $ 555,616 $ 613,412
Capitalized oil exploration and
development costs 203,946 201,517
Transportation, terminaling and
other assets 81,660 101,929
---------- ----------
Property, plant and equipment 841,222 916,858
Accumulated depreciation and amortization,
including $203.9 million and $192.5 million
at December 31, 1997 and 1996, respectively,
for capitalized oil exploration and
development costs 731,389 381,205
---------- ----------
Property, plant and equipment, net $ 109,833 $ 535,653
========== ==========
</TABLE>
[Page] 29
4. MANAGEMENT SERVICES
FTX provided certain management and administrative services to PLP (and
thus FSC), including technical, administrative, accounting, financial,
tax and other services under a management services agreement. The costs
of such services, which include related overhead, were allocated to FSC based
on time spent by FTX employees in the conduct of FSC's business
activities. Such costs were non-interest bearing and reimbursed monthly.
The total amount charged by FTX to FSC for such services was $2.0 million
in 1996 and $15.9 million in 1995 (including $7.0 million for stock
appreciation rights costs resulting from the rise in FTX's common stock
price during the year). Beginning in 1996, FM Services Company (FMS),
an entity now owned 25 percent by FSC, began providing most of the
services previously provided by FTX on a similar cost-reimbursement
basis, totaling $5.1 million in 1997 and $6.7 million in 1996.
Management believes the costs for such services do not differ
materially from the costs that would have been incurred had the
relevant personnel providing these services been employed directly by FSC.
Prior to 1997, FTX operated the Main Pass oil facilities and
charged FSC $1.3 million in 1996 and $1.0 million in 1995 for
specified overhead and other costs. Beginning in 1997, PLP operated
the facilities and charged FSC $1.0 million. Subsequent to
consummation of the Merger, FSC operates the Main Pass oil
facilities.
5. INCOME TAXES
Because PLP is not a taxable entity, historically it has not
provided for income taxes. FSC recorded a deferred income tax asset
pursuant to SFAS 109 immediately upon the transfer of assets and
liabilities from PLP (Note 1). The financial statements reflect an
unaudited pro forma tax provision as if FSC had been a taxable
entity as FSC believes this is a more meaningful presentation. The
components of deferred taxes based upon temporary differences
existing at December 31, 1997 and the estimated amounts as of
December 31, 1996 follow (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax asset:
Property, plant and equipment $ 23,189 $ -
Reclamation and shutdown reserve 21,158 22,656
Deferred compensation, postretirement
and pension benefits 11,571 11,752
Other 5,607 4,538
---------- ----------
Total deferred tax asset 61,525 38,946
Deferred tax liability:
Property, plant and equipment - (121,668)
---------- ----------
Net deferred tax asset (liability) 61,525 (82,722)
Current portion (4,768) (8,889)
---------- ----------
Deferred tax asset (liability) $ 56,757 $ (91,611)
========== ==========
</TABLE>
FSC believes it will generate sufficient income to realize its
deferred tax assets such that no valuation reserve is required.
Unaudited pro forma income taxes consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- -------
<S> <C> <C> <C>
Current $ (7,752) $(6,201) $ 4,942
Deferred (144,247) 10,860 1,903
--------- ------- -------
$(151,999) $ 4,659 $ 6,845
========= ======= =======
</TABLE>
Unaudited reconciliations of the differences between pro forma
income taxes computed at the federal statutory tax rate and pro
forma income taxes recorded follow (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent
--------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Pro forma income
taxes computed at
the federal statutory
tax rate $(153,756) 35% $4,337 35% $8,757 35%
Increase (decrease)
attributable to:
Statutory depletion - - - - (2,385) (10)
State taxes and
other 1,757 - 322 3 473 2
--------- --- ------ --- ------ ---
Pro forma income
taxes $(151,999) 35% $4,659 38% $6,845 27%
========= === ====== === ====== ===
</TABLE>
[Page] 30
6. PENSION AND OTHER EMPLOYEE BENEFITS
Pensions. Substantially all employees have been covered by FTX's or
FMS's defined benefit plans. Additionally, unfunded non-qualified
plans are sponsored for those participants in the qualified defined
benefit plans whose benefits are limited under federal income tax
laws. The accumulated benefits and plan assets were not separately
determined and amounts allocated to FSC under these plans have not
been material. In connection with the Merger, FSC formed its own
defined benefit plans and FTX transferred to the new FSC plan (for
the qualified plan), or to FSC (for the non-qualified plan), assets
and liabilities pertaining to those FTX employees who became FSC
employees. The FSC plans have substantially the same provisions as
the FTX plans and provide credit for prior FTX service. The
estimated actuarial liability related to the FSC plans as of January
1, 1998 follows (in thousands):
<TABLE>
<S> <C>
Accumulated Benefit Obligation $ (10,159)
==========
Projected Benefit Obligation (PBO) $ (12,694)
Less Plan assets 14,116
----------
Overfunded PBO 1,422
Unrecognized amounts:
Transition asset (145)
Prior service credit (7,829)
Gains (4,464)
----------
Accrued pension liability $ (11,016)
==========
</TABLE>
In determining the present value of benefit obligations, FSC
used a discount rate of 7.25 percent in 1997, a 5 percent annual
increase in future compensation levels and a 9 percent average
expected rate of return on assets.
Other Postretirement Benefits. FTX and FMS provided certain health
care and life insurance benefits for retired employees. The related
expense allocated to FSC from FTX totaled $2.7 million in 1997
(including $0.7 million for service cost and $2.0 million in
interest for prior period services), $2.5 million in 1996 ($0.2
million and $2.3 million, respectively) and $4.7 million in 1995
($0.2 million and $4.5 million, respectively). FSC's share of the
FMS plan was not significant for 1997 and 1996.
In connection with the Merger, FSC assumed the liability for
the portion of FTX's postretirement benefit liability related to
active employees transferred to FSC and FTX paid FSC cash for the
amount of the liability. The estimated actuarial information as of
January 1, 1998 follows (in thousands):
<TABLE>
<S> <C>
Accumulated postretirement benefits $ (2,730)
Unrecognized prior service credits (662)
Unrecognized gains (1,186)
----------
Accrued postretirement liability $ (4,578)
==========
</TABLE>
The initial health care cost trend rate used was 8 percent for
1998, decreasing 0.5 percent per year until reaching 5 percent. A
one percent increase in the trend rate would increase the amounts by
approximately 10 percent. The discount rate used was 7.25 percent.
FSC has the right to modify or terminate these benefits.
Stock Options. In December 1997 FSC adopted an Adjusted Stock Award Plan
to provide for the issuance of fixed stock options to holders of FTX fixed
stock options and FTX stock appreciation rights (SARs). FSC granted
425,517 fully vested fixed stock options on December 22, 1997 at a
weighted average option price of $10.38 under the Adjusted Stock Award Plan
to reflect the FTX option holder's economic position under the FTX stock
options as adjusted for the proportionate market value of FSC shares at the
time of the Merger. The number of fixed options issued by FSC was based
upon the number of FTX options and SARs outstanding as of the date of
consummation of the Merger, adjusted for the distribution ratio of FSC
shares to FTX shares. Compensation expense for the aggregate
intrinsic value of the FTX SARs has already been recorded in the
accompanying FSC financial statements through allocations of general and
administrative costs from FTX. As these SARs were converted to fixed options
under the FSC Adjusted Stock Award Plan, the related accrued SAR liability
was recorded as additional paid-in capital in the FSC balance sheets.
FSC also adopted the 1997 Stock Option Plan (the 1997 Plan) in
December 1997 to provide for the issuance of stock options at no
less than market value at the time of grant. Under this plan, FSC
can grant options to eligible
[Page] 31
participants to purchase up to 1.0
million common shares. FSC also adopted the 1997 Stock Option Plan
for Non-Employee Directors (the Director Plan) authorizing FSC to
grant options to purchase up to 75,000 shares. Options granted
under the 1997 Plan and the Director Plan generally are exercisable
in 25 percent annual increments beginning one year from the date of
grant and expire 10 years after the date of grant. Options for
650,000 shares under the 1997 Plan and 60,000 shares under the
Director Plan were available for new grants as of December 31, 1997.
A summary of FSC stock options outstanding follows:
<TABLE>
<CAPTION>
Weighted
Number Average
of Option
Options Price
------- --------
<S> <C> <C>
Balance at January 1, 1997 - $ -
Granted upon PLP spin off 425,517 10.38
Granted 365,000 11.56
Exercised - -
Expired/Forfeited - -
-------
Balance at December 31, 1997 790,517 10.93
=======
</TABLE>
Summary information of stock options outstanding at December
31, 1997 follows:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
----------------------------- ----------------
Weighted Weighted Weighted
Number Average Average Number Average
of Remaining Option of Option
Range of Exercise Prices Options Life Price Options Price
- ------------------------ ------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$4.89 to $7.23 60,552 3.3 years $6.56 60,552 $6.56
$7.43 to $11.06 162,019 5.5 years 8.3 162,019 8.30
$11.56 to $13.84 567,946 9.4 years 12.14 202,946 13.19
------- -------
790,517 425,517
======= =======
</TABLE>
FSC has adopted the disclosure only provisions of SFAS 123 and
applies APB Opinion No. 25 and related interpretations in accounting
for its stock based compensation plans. Had compensation cost for
FTX's fixed stock option grants been determined in accordance with
SFAS 123, FSC would have been allocated additional charges totaling
$1.5 million ($1.0 million to pro forma net loss or $0.09 per share)
in 1997, $1.2 million ($0.7 million to pro forma net income or $0.07
per share) in 1996 and none in 1995. FSC recognized a $7.0 million
charge in 1995 for the cost of FTX SARs as discussed earlier. Had
compensation cost for FSC's December 23, 1997 stock option grants
been determined based on the fair value at the grant date for awards
under those plans consistent with SFAS 123, FSC's stock-based
compensation costs would have increased by $12,600 in 1997. For the
pro forma computations, the fair values of the option grants were
estimated on the date of grant using the Black-Scholes option-
pricing model. The weighted average fair value for stock option
grants was $5.62 per option. The weighted average assumptions used
include a risk-free interest rate of 5.83 percent, expected
volatility of 21 percent, expected lives of 10 years and no annual
dividend. The pro forma effects on net income for 1997 are not
representative of future years because FSC first adopted its stock
option plans in 1997. No other discounts or restrictions related to
vesting or the likelihood of vesting of fixed stock options were
applied.
FSC has adopted other benefit plans, certain of which are
related to its performance, which costs are recognized in general
and administrative expense. Upon consummation of the Merger, FSC
also assumed certain FTX liabilities totaling approximately $0.4
million under its plans related to those employees transferred from
FTX to FSC in exchange for an equal cash payment.
7. COMMITMENTS AND CONTINGENCIES
Credit Facility. In December 1997 FSC established a $100 million
variable rate revolving credit facility with a group of banks. The
variable rate facility matures in December 2002, provides specified
cash flow to interest coverage and maximum allowable debt to cash
flow levels. The facility is subject to a negative pledge on FSC's
assets. Facility fees on the unused amount are variable at a
minimum 0.2 percent annually. No amounts were outstanding under the
facility as of December 31, 1997.
[Page] 32
Long-Term Contracts and Operating Leases. FSC's minimum annual
contractual charges under non-cancelable long-term contracts and
operating leases total $194.9 million, with $19.7 million in 1998,
$16.1 million in 1999, $13.5 million in 2000, $13.5 million in 2001
and $13.5 million in 2002.
Other Liabilities. In connection with the Merger, FSC assumed a
liability to IGL for a portion of IGL's postretirement benefit costs
relating to certain retired employees of FSC. At December 31, 1997
the liability was estimated to total $13.7 million, including $2.0
million in current liabilities. Future changes to this estimate
because of changes in assumptions or actual results varying from
projected results will be recorded in earnings.
Environmental. FSC has made, and will continue to make,
expenditures for protection of the environment. FSC is subject to
contingencies as a result of environmental laws and regulations.
The related future cost is indeterminable because of such factors as
the unknown timing and extent of the corrective actions that may be
required and the application of joint and several liability.
8. ACQUISITIONS
Pennzoil Company. In 1995 PLP acquired essentially all of the
domestic assets of Pennzoil Company's sulphur division, including
the Culberson sulphur mine in West Texas. FSC assumed the terms of
the purchase agreement with Pennzoil. Under the terms of the
purchase agreement, Pennzoil will receive quarterly payments from
FSC over 20 years based on the prevailing price of sulphur. The
estimated future installment payments, based on the prevailing
sulphur price at the time of acquisition, are included in accrued
long-term liabilities. These payments totaled $2.1 million in 1997,
$2.0 million in 1996 and $5.2 million in 1995. The installment
payments may be terminated earlier either by FSC through the
exercise of a $65 million call option or by Pennzoil through the
exercise of a $10 million put option. Neither option may be
exercised prior to 1999. The purchase price allocation follows (in
thousands):
<TABLE>
<S> <C>
Current assets $ 5,635
Property, plant and equipment 48,837
Current liabilities (7,499)
Reclamation and mine shutdown reserves (15,200)
Accrued long-term liabilities (31,773)
--------
Net cash investment $ -
========
</TABLE>
IGL Interest in Main Pass. Immediately prior to and as part of
the Merger, IGL transferred its 25.0 percent interest in the Main
Pass Joint Venture to PLP for no consideration. The transfer was
accounted for using purchase accounting and recorded at fair value.
The allocation of fair value follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 8,020
Property, plant and equipment 22,500
Current liabilities (3,863)
Reclamation and mine shutdown reserves (5,492)
Other, net (2,707)
Net assets from PLP (18,458)
--------
Net cash investment $ -
========
</TABLE>
The following selected unaudited pro forma information assumes
that the acquisition of the 25.0 percent interest in Main Pass and
the Distribution occurred on January 1, 1996. The pro forma
information is presented for illustrative purposes only and is not
necessarily indicative of results that would have been realized had
the acquisition occurred on January 1, 1996, nor are they indicative
of future results.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1997 1996
----------- ----------
(In Thousands, Except per
Share Amounts)
<S> <C> <C>
Revenues $ 253,523 $ 268,919
Operating income (loss) (436,452) 25,576
Net income (loss) (285,440) 15,959
Net income (loss) per share (27.59) 1.53
</TABLE>
[Page] 33
9. BUSINESS SEGMENTS
FSC has adopted SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information" which requires that companies
disclose segment data based on how management makes decisions about
allocating resources to segments and measuring their performance.
FSC has two business segments, sulphur and oil. Frasch sulphur is
produced through the offshore Louisiana Main Pass mine and the
Culberson mine in West Texas. The sulphur business segment also
includes an extensive logistics network, including sulphur
terminaling and transportation assets, and purchases of recovered
sulphur. Oil is produced at Main Pass from the same geologic
formation that holds the deposit's sulphur. The segment data
presented below was prepared on the same basis as FSC's financial
statements.
A significant portion of the sulphur production is sold to the
IMC-Agrico Joint Venture (IMC-Agrico), a chemical fertilizer
producer jointly owned by IGL and PLP, under a long-term supply
contract that extends for as long as IMC-Agrico's operations have a
requirement for sulphur. As a percentage of total FSC's revenues,
sales to IMC-Agrico totaled 55 percent in 1997 and 54 percent in
1996 and 1995. As a percentage of total customer accounts
receivable, receivables from IMC-Agrico totaled 39 percent at
December 31, 1997 and 47 percent at December 31, 1996. Oil produced
from Main Pass is sold to two major Gulf Coast refining companies.
As a percentage of total FSC revenues, oil sales to one of these
refining companies, Amoco, totaled 9 percent in 1997, 12 percent in
1996 and 11 percent in 1995. No other single customer accounted for
greater than 10 percent of total revenues in 1995 through 1997. All
of FSC's customers are located in the United States.
<TABLE>
<CAPTION>
Sulphur Oil Total
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
1997
Revenues $ 182,380 $ 29,565 $ 211,945
Production and delivery 167,050 16,177 183,227
Depreciation and
amortization 449,870 11,214 461,084
General and administrative
expense 6,667 283 6,950
---------- ---------- ----------
Operating income (loss) $ (441,207) $ 1,891 $ (439,316)
========== ========== ==========
Capital expenditures $ 1,406 $ 2,107 $ 3,513
========== ========== ==========
Total assets $ 246,794 $ 26,239 $ 273,033
========== ========== ==========
1996
Revenues $ 184,425 $ 37,001 $ 221,426
Production and delivery 150,086 10,896 160,982
Depreciation and
amortization 23,006 14,794 37,800
General and administrative
expense 8,040 2,212 10,252
---------- ---------- ----------
Operating income $ 3,293 $ 9,099 $ 12,392
========== ========== ==========
Capital expenditures $ 2,777 $ 1,057 $ 3,834
========== ========== ==========
Total assets $ 612,051 $ 21,569 $ 633,620
========== ========== ==========
1995
Revenues $ 220,796 $ 35,153 $ 255,949
Production and delivery 158,703 9,801 168,504
Depreciation and
amortization 24,564 19,136 43,700
General and administrative
expense 14,489 4,236 18,725
---------- ---------- ----------
Operating income $ 23,040 $ 1,980 $ 25,020
========== ========== ==========
Capital expenditures $ 2,148 $ 1,562 $ 3,710
========== ========== ==========
Total assets $ 647,650 $ 32,817 $ 680,467
========== ========== ==========
</TABLE>
[Page] 34
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Pro forma
Operating Pro forma Net Income
Income Net Income (Loss) per
Revenues (Loss) (Loss) share a
-------- --------- --------- ----------
(In Thousands, Except per Share Amounts)
<S> <C> <C> <C> <C>
1997
1ST Quarter $ 53,395 $ 549 $ 359 $0.03
2nd Quarter 54,355 711 465 0.04
3rd Quarter 50,554 (426,431)b (278,886) (26.95)b
4th Quarter 53,641 (14,145)c (9,243 (0.89)c
-------- --------- ---------
$211,945 $(439,316) $(287,305) (27.77)
======== ========= =========
1996
1ST Quarter $ 60,133 $ 5,286 $ 3,298 $0.32
2nd Quarter 54,447 2,450 1,529 0.15
3rd Quarter 52,799 3,884 2,424 0.23
4th Quarter 54,047 772 482 0.05
-------- ---------- ---------
$221,426 $ 12,392 $ 7,733 0.75
======== ========== =========
</TABLE>
a. Pro forma per share amounts shown were calculated using the number
of shares outstanding (10,346,578 shares) as of December 22, 1997, the
date of the Merger (Note 1).
b. Includes charges totaling $425.4 million ($278.2 million to pro
forma net loss or $26.89 per share) for an impairment assessment of
sulphur assets.
c. Includes charges totaling $9.9 million ($6.5 million to pro
forma net loss or $0.63 per share) for an increase in estimated
reclamation costs for sulphur properties, for drilling costs of an
additional brine well and a reduction of sulphur inventory book
value to market value.
11. SUPPLEMENTARY MINERAL RESERVE INFORMATION (UNAUDITED)
Proved and probable mineral reserves follow (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sulphur-long tons 61,184 53,149 55,185 41,018 38,637
</TABLE>
a. Main Pass reserves are subject to a 12.5 percent royalty based
on net mine revenues. Culberson reserves totaled 7.6 million tons
at December 31, 1997, 14.5 million tons at December 31, 1996 and
15.4 million tons at December 31, 1995 and are subject to a 9.0
percent royalty based on net mine revenues.
12. SUPPLEMENTARY OIL INFORMATION
The supplementary information presented below is prepared in
accordance with requirements prescribed by SFAS 69. Note 3 includes
information regarding capitalized oil exploration and development
costs.
Costs Incurred in Oil Property Acquisition, Exploration and
Development Activities. Costs incurred (all of which were
development costs) totaled $2.1 million in 1997, $1.1 million in
1996 and $1.6 million in 1995.
Proved Oil Reserves (Unaudited). Proved oil reserves at December 31, 1997
have been estimated by independent petroleum engineers in accordance with
guidelines established by the Securities and Exchange Commission (SEC).
There are numerous uncertainties inherent in estimating quantities
of proved reserves and in projecting the future rates of production and
timing of development expenditures. Thus, the following reserve
estimates, which relate to reserves attributable to FSC, are based upon
existing economic and operating conditions; they are only estimates and
should not be construed as being exact. The reserves related to FSC
are located in offshore United States waters. Oil, including condensate
and plant products, is stated in thousands of barrels.
[Page] 35
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Proved reserves:
Beginning of year 5,188 6,638 7,279
Revisions of previous estimates 85 446 1,577
Production (1,597) (1,896) (2,218)
Reserves transferred from IGL 1,578 - -
------ ------ ------
End of year 5,254 5,188 6,638
====== ====== ======
Proved developed reserves:
Beginning of year 4,108 5,155 5,383
====== ====== ======
End of year 5,254 4,108 5,155
====== ====== ======
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows From Proved
Oil Reserves (Unaudited). The standardized measure of discounted
future net cash flows and changes therein relating to the proved oil
reserves of FSC were computed using reserve valuations based on
regulations prescribed by the SEC. These regulations provide for
the use of year-end realized oil prices (escalated only when known
and determinable price changes are provided by contract and law) in
the projection of future net cash flows.
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996 1995
------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Future cash flows $79,209 $107,118 $113,231
Future costs applicable to future cash flows:
Production costs 61,640 50,590 39,720
Development and abandonment costs 14,252 15,251 17,971
------- ------- --------
Future net cash flows before income taxes 3,317 41,277 55,540
Future income taxes - - -
------- ------- --------
Future net cash flows 3,317 41,277 55,540
Discount for estimated timing of net cash
flows (10 percent discount rate) (3,704)a 2,323 6,787
------- -------- --------
$ 7,021 $ 38,954 $ 48,753
======= ======== ========
</TABLE>
a. Amount is negative due to the effect of discounting to present
value abandonment costs to be incurred in future periods once
production ceases.
Because FSC will have sufficient tax deductions to utilize
against estimated future taxable income, in accordance with SFAS 69
no deductions for future income taxes arising subsequent to the
Merger have been made above. Main Pass oil prices used in the above
disclosures declined approximately $1.25 per barrel through January
20, 1998. Additionally, subsequent to year-end FSC has signed a
letter of intent with an oil producing company to treat their oil
production at the Main Pass Facility for a fee. This company would
also assume a portion of the total estimated future abandonment
costs shown above. This arrangement, which is not reflected in the
above future cash flows, is subject to completion of a definitive
agreement.
Changes in Standardized Measure of Discounted Future Net Cash Flows
From Proved Oil Reserves (Unaudited).
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1997 1996 1995
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Beginning of year $ 38,954 $ 48,753 $ 45,650
Revisions:
Changes in prices (21,111) 7,316 8,841
Accretion of discount 3,895 4,875 4,565
Other changes (primarily revised
estimates of quantities in 1995) (5,554) 3,058 13,487
Development costs incurred during
the year 2,107 1,057 1,562
Reserves transferred from IGL 2,118 - -
Revenues, less production costs (13,388) (26,105) (25,352)
-------- -------- --------
End of year $ 7,021 $ 38,954 $ 48,753
======== ======== ========
</TABLE>
[Page] 36
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information regarding executive officers required by Item 10 may
be found under item 4(a) of this report.
The information regarding directors required by Item 10 is
incorporated by reference from the registrant's definitive Proxy Statement
for its 1998 Annual Meeting of Stockholders.
Item 11. Executive Compensation.
Incorporated by reference from the registrant's definitive Proxy
Statement for its 1998 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference from the registrant's definitive Proxy
Statement for its 1998 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference from the registrant's definitive Proxy
Statement for its 1998 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
Reference is made to Item 8 hereof.
(a)(2) Financial Statement Schedules
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted auditing
standards, the financial statements as of December 31, 1997 and 1996
for each of the three years in the period ended December 31, 1997
included in Freeport-McMoRan Sulphur Inc.'s annual report to
shareholders included elsewhere in this Form 10-K, and have issued
our report thereon dated January 20, 1998. Our audits were made for
the purpose of forming an opinion on those statements taken as a
whole. The schedule below is the responsibility of the Company's
management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
New Orleans, Louisiana,
January 20, 1998
[Page] 37
<TABLE>
Schedule VIII - Valuation and Qualifying Accounts
<CAPTION>
Additions
--------------------------
Balance at Charged to Charged to Other- Balance at
Beginning of Costs and Other Add End of
of Period Expenses Accounts (Deduct) Period
------------ --------- ----------- --------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Reclamation and mine
shutdown reserves:
1997
Sulphur $ 75,918 $9,349 $- $(22,762) a,b $62,505
Oil 6,191 (248) - 3,726 a 9,669
$ 82,109 $9,101 $- $(19,036) $72,174
1996
Sulphur $ 83,145 $3,920 $- $(11,147) b,c $75,918
Oil 4,903 1,288 - - 6,191
$ 88,048 $5,208 $- $(11,147) $82,109
1995
Sulphur $ 59,446 $2,643 $- $21,056 b,c $83,145
Oil 3,657 1,257 - (11) 4,903
$ 63,103 $3,900 $- $21,045 $88,048
</TABLE>
a. Includes $5.5 million of liabilities assumed ($1.8 million for
sulphur and $3.7 million for oil) in connection with the acquisition
of IGL's 25.0 percent interest in Main Pass.
b. Includes expenditures of $20.6 million in 1997, $7.5 million in
1996 and $2.5 million in 1995.
c. Includes $23.5 million of liabilities assumed in 1995 in
connection with the acquisition of the sulphur assets of Pennzoil
which was subsequently reduced by $8.3 million in 1996.
____________________
No other schedules have been included because they are not required,
not applicable or the information has been included elsewhere
herein.
(a)(3) Exhibits
Reference is made to the Exhibit Index beginning on page E-1 hereof.
(b) Reports on Form 8-K
The registrant filed a Current Report on Form 8-K dated December
16,1997 to report under Item 5 the adoption by the registrant's Board of
Directors of a Stockholder Protection Rights Agreement.
[Page] 38
SIGNATURES
Pursuant to the requirements of Section 13 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, on March 24, 1998.
FREEPORT-McMoRan SULPHUR INC.
By: /s/ Robert M. Wohleber
----------------------
Robert M. Wohleber,
President and
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 indicated on March 24, 1998.
Signature Title
- ----------------------- -------------
/s/ James R. Moffett
James R. Moffett Co-Chairman of the
Board of Directors
* Rene L. Latiolais Co-Chairman of the Board of Directors
* Richard C. Adkerson Vice Chairman of the Board of
Directors
* Robert M. Wohleber President, Chief Executive Officer and
a Director (Principal Executive and
Financial Officer)
* C. Donald Whitmire, Jr. Vice President and Controller -
Financial Reporting (Principal
Accounting Officer)
* J. Terrell Brown Director
* Thomas D. Clark, Jr. Director
* B. M. Rankin, Jr. Director
*By:/s/ James R. Moffett
--------------------
James R. Moffett
Attorney-in-Fact
[Page] S-1
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- -------- -----------------------------------------------
2.1 Contribution and Distribution Agreement by and among the
Company, FTX and FRP, dated as of August26, 1997(1)
2.2 Assignment and Assumption Agreement by and between IGL
and FRP dated as of December 22, 1997
3.1 Certificate of Incorporation of the Company(1)
3.2 By-laws of the Company(1)
4.1 Form of the Company's Common Stock certificate(1)
4.2 Stockholder Protection Rights Agreement between
Freeport-McMoRan Sulphur Inc. and Mellon Securities
Trust Company, as Rights Agent(2)
10.1 Employee Benefits Agreement by and between FTX and the
Company
10.2 Asset Sale Agreement for Main Pass Block 299 between FRP
and Chevron USA, Inc. dated as of May2, 1990(1)
10.3 Main Pass 299 Sulphur and Salt Lease, effective May1,
1988(1)
10.4 Joint Operating Agreement by and between FRP,
IMC-Fertilizer, Inc. and Felmont Oil Corporation, dated
June5, 1990(1)
10.5 Joint Operating Agreement by and between FRP,
IMC-Fertilizer, Inc. and Felmont Oil Corporation, dated
May1, 1988(1)
10.6 Agreement to Coordinate Operating Agreements by and
between FRP, IMC-Fertilizer and Felmont Oil Corporation,
dated May1, 1988(1)
10.7 Asset Purchase Agreement between FRP and Pennzoil
Company dated as of October22, 1994 (the "Asset Purchase
Agreement")(1)
10.8 Amendment No. 1 to the Asset Purchase Agreement dated as
of January3, 1995(1)
10.9 Agreement for Sulphur Supply, as amended, dated as of
July1, 1993 among FRP, IMC Fertilizer and IMC-Agrico
Company (the "Sulphur Supply Agreement")(1)(3)
10.10 Side letter with IGL regarding the Sulphur Supply
Agreement(1)
10.11 Processing and Marketing Agreement between the Freeport
Sulphur Company (a division of FRP) and Felmont Oil
Corporation dated June19, 1990 (the "Processing
Agreement")(1)
10.12 Amendment Number 1 to the Processing Agreement(1)
10.13 Amendment Number 2 to the Processing Agreement(1)
10.14 Services Agreement dated as of December 23, 1997 between
the Company and FMS
10.15 Credit Agreement dated as of December 12, 1997 among the
Company, as borrower, the financial institutions party
thereto, the Chase Manhattan Bank, as administrative
agent and documentary agent, and Hibernia National Bank,
as co-agent
Executive Compensation Plans and Arrangements (Exhibits
10.16 through 10.19)
10.16 1997 Stock Option Plan for Non-Employee Directors(1)
10.17 Company Adjusted Stock Award Plan(1)
10.18 Freeport Sulphur 1997 Stock Option Plan(1)
10.19 Letter Agreement dated December 22, 1997 between FMS and
Rene L. Latiolais
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ryder Scott Company
24.1 Certified resolution adopted by the Company's Board of
Directors authorizing this report to be signed on behalf
of any officer or director pursuant to a Power of
Attorney
24.2 Powers of Attorney
27.1 Financial Data Schedule
- ----------------------
(1) Incorporated by reference from the Company's Registration
Statement on Form S-1 (Registration No. 333-40375) filed with the
Commission on November 17, 1997.
(2) Incorporated by reference from the Company's Current Report on
Form 8-K dated December 16, 1997.
(3) Portions of this Exhibit have been omitted pursuant to a
confidentiality request filed with the Commission in connection with
the filing of the Registration Statement on Form S-1.
[Page] E-1
Exhibit 2.2
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"),
is made and entered into as of the 22nd day of December, 1997, by
and between IMC Global Operations Inc., a Delaware corporation
(together with its successors and assigns, "Assignor") and
Freeport-McMoRan Resource Partners, Limited Partnership, a
Delaware limited partnership (together with its successors and
assigns,"Assignee").
W I T N E S S E T H:
WHEREAS, Assignor holds an interest in certain sulphur and
oil and gas producing properties and certain facilities and other
interests relating thereto; and
WHEREAS, in connection with the proposed merger between
Assignor's parent company, IMC Global Inc., and an Affiliate of
Assignor, Freeport-McMoRan Inc., (the "Merger"), Assignor hereby
agrees to transfer to Assignee the interest in the sulphur and
oil and gas producing properties and the facilities and other
interests relating thereto which are identified herein.
NOW, THEREFORE, in consideration of good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged by Assignor and Assignee, Assignor and Assignee
hereby agree as follows:
1. Definitions. As used herein, the following terms, when
capitalized, shall have the following meanings, unless the
context dictates otherwise:
"Action" means any claim, suit, chose in action,
arbitration, mediation, inquiry, proceeding or investigation by
or before any court, governmental or other regulatory or
administrative agency or commission or any other tribunal.
"Affiliate" means with respect to any Person, any Person
that directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with such
Person. As used in this definition, the term "control" means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of the Person,
whether through ownership of voting securities, by contract or
credit agreement, as trustee or executor or otherwise.
"Applicable Law" means all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including the common
law), rules, regulations, ordinances, codes or orders of any
Governmental Authority, (ii) Consents by Governmental Authorities
and (iii) orders, decisions, injunctions, judgments, awards and
decrees of or agreements with any Governmental Authority.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consent" means any consent, approval, authorization,
waiver, permit, grant, franchise, concession, agreement, license,
exemption or order of, registration, certificate, declaration, or
filing with, or report or notice to, any Person, including but
not limited to any Governmental Authority that is required as a
precondition to the transfer of one or more of the Assets.
"Containment" means any waste, pollutant, hazardous or toxic
substance or waste, petroleum, petroleum-based substance or
waste, special waste, or any constituent of any such substance or
waste.
"Environmental Law" means all Applicable Law relating to or
addressing the environment, health or safety, including but not
limited to OSHA and RCRA and any state equivalent thereof or any
successor statute.
"Fertilizer Business" means the business conducted by IMC-
Agrico Company.
"Governmental Authority" means any federal, state, county,
municipal or other government, department, commission, board,
court, agency, authority, or any other instrumentality of any of
them, or any other organization exercising legislative, executive
or judicial authority over any of the foregoing.
"Hydrocarbons" means crude oil and/or condensate, natural
gas, distillate, natural gas liquids and all products recovered
in the processing of natural gas liquids, including, without
limitation natural gasoline, iso-butane, normal butane, propane
and ethane (including such methane allowable in commercial
ethane).
"Intellectual Property" means any and all United States and
foreign (a) patents (including design patents, industrial designs
and utility models) and patent applications (including docketed
patent disclosures awaiting filing, reissues, divisions,
continuations-in-part and extensions), patent disclosures
awaiting filing determination, inventions, and improvements
thereto, (b) trademarks, service marks, trade names, trade dress,
logos, business and product names, slogans, and registrations and
applications for registration thereof, together with the goodwill
of the businesses attributable thereto, (c) copyrights (including
software) and registrations thereof, (d) inventions, processes,
designs, formulae, trade secrets, know-how, industrial models,
confidential and technical information, manufacturing,
engineering and technical drawings, product specifications and
confidential business information, (e) intellectual property
rights similar to the foregoing, and (f) copies and tangible
embodiments thereof (in whatever form or medium, including
electronic media).
"Leased Real Property" means all interests (including
offshore acreage) leased pursuant to the Leases, together with
all structures, facilities, improvements, fixtures, systems,
equipment, and items of real property which are owned or leased
by Assignor and presently located on the real property or other
acreage subject to the Leases, and all of Assignor's right, title
and interest in and to all easements, servitudes, licenses,
rights, rights-of-way, operating rights, franchises and
appurtenances relating to the foregoing.
"Leases" means the leases set forth on Schedule 1 hereto.
"Liabilities" means any and all claims, debts, costs,
indebtedness, liabilities and obligations, absolute or
contingent, matured or not matured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising,
including all costs and expenses related thereto and including,
without limitation, those claims, debts, costs, indebtedness,
liabilities and obligations arising under any law, rule,
regulation, Action, threatened Action, order or consent decree of
any governmental entity or any award of any arbitrator of any
kind, and those arising under any contract, commitments or
undertaking.
"Lien" means any interest in property held by someone other
than the owner of the property, including a mortgage, pledge,
hypothecation, claim, security interest, pledge, encumbrance,
lease, sublease, license, occupancy agreement, adverse claim or
interest, conditional sale, easement, servitude, covenant,
encroachment, burden, title defect, title retention agreement,
voting trust agreement, option, lien, right of first refusal,
right of rescission, charge or other restriction or limitation of
any nature whatsoever.
"Permit" means any foreign, federal, state, municipal and
local permit, license, registration, consent, order,
administrative consent order, certificate, approval or other
authorization with respect to Assignor necessary for the
ownership or use of any Asset or the conduct of the Transferred
Business as it is currently conducted or has been previously
conducted.
"Person" means any natural person, firm, partnership,
limited liability company, association, corporation, company,
trust, business trust, Governmental Authority or other entity.
"Release" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration of a Contaminant into the indoor or outdoor
environment or into or out of any Leased Real Property, including
the movement of Contaminants through or in the air, soil, surface
water, groundwater or Leased Real Property.
"Remedial Action " means actions required to (i) clean up,
remove, treat or in any other way address Contaminants in the
indoor or outdoor environment; (ii) prevent the Release or
threatened Release or minimize the further Release of
Contaminants or (iii) investigate and determine if a remedial
response is needed and to design such a response and post-
remedial investigation, monitoring, operation and maintenance and
care.
"Tax" means any federal, state, provincial, local, foreign
or other income, alternative minimum, accumulated earnings,
personal holding company, franchise, capital stock, net worth,
capital, profits, windfall profits, gross receipts, value added,
sales, use, goods and services, excise, customs duties, transfer,
conveyance, mortgage, registration, stamp, documentary,
recording, premium, severance, environmental (including taxes
under Section 59(A) of the Code), real property, personal
property, ad valorem, intangible, rent, occupancy, license,
occupational, employment, unemployment insurance, social
security, disability, workers' compensation, payroll, healthcare,
withholding, estimated or similar tax, duty or other governmental
charge or assessment or deficiencies thereof, including all
interest and penalties thereon and additions thereto whether
disputed or not.
"Transferred Businesses" means, collectively: (i) the
businesses and operations of Assignor to the extent relating to
the exploration, production, development, processing,
transportation, storage, terminalling, sale, purchase or
marketing of sulphur, in whatever form, and of sulphuric acid, or
the provision of other services in connection therewith,
including, without limitation, the operations conducted from the
Leased Real Property, but expressly excluding the purchase and
processing of sulphur by IMC-Agrico Company; (ii) the businesses
and operations of Assignor to the extent relating to the
exploration, production, development, processing, transportation,
sale, purchase or marketing of Hydrocarbons produced or
allocable to the Leased Real Property, or the provision of other
services in connection therewith; (iii) to the extent not already
included in the description set forth in (i) or (ii) of this
definition, all businesses and operations located on the Leased
Real Property or using or consuming any of the Assets.
2. Assignment. Assignor hereby conveys, sells, assigns,
transfers and delivers to Assignee any and all right, title and
interest of Assignor in or to (collectively, the "Assets"):
(i) The assets listed on Schedule 1 attached hereto
and made a part hereof;
(ii) All of the assets physically located on any of
the Leased Real Property;
(iii) All books, records and information of
Assignor recorded on any form of media whether owned, leased or
licensed by Assignor, including magnetic disk, computer drives or
microfiche, to the extent the same primarily relate to and
primarily used by or primarily in connection with the Transferred
Business or any Asset; all advertising materials, catalogs, price
lists, correspondence, mailing lists, lists of customers,
distribution lists, photographs, production data, sales and
promotional materials and records, purchasing materials and
records, personnel records, manufacturing and quality control
records and procedures, blueprints, specifications, drawings,
schematics, research and development files, records, data and
laboratory books, Intellectual Property filings or registrations,
media materials and plates, accounting records, sales order
files, litigation files, logs, seismic and geophysical
information, geological and chemical data and information,
reserve studies and evaluations, fluid samples, well cores, title
abstracts and opinions, production data and reports, well testing
data and reports, and maps, to the extent that same primarily
relate to and are used primarily by or primarily in connection
with the Transferred Business or any Asset;
(iv) All cash, credits, prepaid expenses, amounts on
deposit, deferred charges, advance payments, security deposits
and prepaid items owned by, accrued in favor of or held by
Assignor thereof to the extent relating primarily to the
Transferred Businesses or any Asset;
(v) All notes, accounts receivable, rights to payment
or other evidence of indebtedness generated by Assignor primarily
in connection with the Transferred Businesses or any Asset; all
cash and cash equivalents paid in respect of any such notes,
accounts receivable, rights to payment or other indebtedness; and
all Liens, letters of credit, guarantees or bonds to secure the
payment of all such amounts;
(vi) All of the right, title and interest of Assignor
in and to all contracts and agreements between Assignor, on the
one hand and any third party to the extent made by or for the
primary benefit of the Transferred Businesses or any Asset;
provided that the Assignor assigns the rights under the Agreement
for Sulphur Supply dated as of July 1, 1993 (the "IMCAC Sulphur
Agreement") among Assignor, Assignee and IMC-Agrico Company
("IMCAC") other than its rights to act as a buyer on behalf of
IMCAC;
(vii) All asserted and unasserted Actions now
owned by Assignor and that are related primarily arise primarily
out of the Transferred Businesses or any of the Assets, including
any claim for royalty refunds or rebates from any land owner,
including the United States, and any claim for balancing of
Hydrocarbons;
(viii) All Consents and Permits held by Assignor
for the primary benefit of the Transferred Businesses or any
Asset;
(ix) All machinery, equipment, furniture, furnishings,
automobiles, trucks, vehicles, vessels, boats, aircraft, tools,
dies, molds, wells, casing, tubing, pumping units, engines,
platforms, derricks, separators, compressors, flow lines, tanks,
pipelines, chemicals, power generation and transmission
equipment, communication systems, meters, motors, parts and
similar property (including, but not limited to, any of the
foregoing purchased subject to any conditional sales or title
retention agreement in favor of any other Person or subject to
any financed lease in favor of any other Person) to the extent
used primarily in connection with the Transferred Businesses or
any Asset;
(x) All servitudes, easements, rights of way,
operating rights, exploration rights, sharing agreements,
balancing agreements, pooling or unitization agreements, farmout
or farming agreements, unit designation and pooling orders or
other rights or agreements which bear primarily upon or are for
the primary benefit of the Transferred Businesses or any Asset;
(xi) All sulphur, Hydrocarbons or other minerals to
the extent produced from or are allocable to the interest of
Assignor in and to any of the Leased Real Property.
(xii) All Intellectual Property owned or licensed
by Assignor and all rights thereunder or in respect thereof to
the extent relating primarily to or used primarily or held
primarily for use in connection with the Transferred Businesses
or any Asset, including, but not limited to, rights to sue for
and remedies against past, present and future infringements
thereof, and rights of protection of interests therein under the
laws of any jurisdiction worldwide;
(xiii) The Leases; and
(xiv) any payments made to or on behalf of
Assignor or any Actions in favor of Assignor under any insurance
policies retained by Assignor to the extent that the same relate
to any Assumed Liabilities; provided that, notwithstanding
Section 2(iv), Assignor shall retain all claim reserves, prepaid
expenses, accruals and all other rights to the insurance
policies.
Assignor shall amend its "occurrence" insurance policies, if any,
to include Assignees as an additional insured with respect to any
Assumed Liabilities covered by any and all policies held by
Assignor.
3. Assumption of Assumed Liabilities. Subject to the
terms and conditions set forth in this Agreement, Assignee shall
assume and agree to pay, honor and discharge when due, and take
all action necessary or appropriate under Applicable Law to
assume, effective on or prior to the date hereof, all Liabilities
arising from or in connection with the ownership, acquisition,
conduct or operation (past, present or future) of the Transferred
Businesses (or any predecessor to the Transferred Businesses) or
any Assets or relating to the ownership or use of the Assets,
whether arising before, on or after the date hereof and whether
related to the current, past or future operations of the
Transferred Businesses (collectively, the "Assumed Liabilities").
Without limitation of the foregoing, Assumed Liabilities include:
(a) Any and all Liabilities related to the contracts
and agreements described in Section 2 above;
(b) (i) All Liabilities related to, associated with
or arising out of (A) the occupancy, operation, use or control of
any of the Leased Real Property, (B) the operations of the
Transferred Businesses (or any predecessor thereto), in each case
incurred under or imposed by any Environmental Law (including
without limitation any Release or threatened Release of any
Contaminant on, in, at, to, beneath or from the Leased Real
Property, including, without limitation, all facilities,
improvements, structures and equipment thereon, surface water
thereon or adjacent thereto and soil or groundwater thereunder or
any conditions whatsoever on, in, at, under or in the vicinity of
such real property), (C) the generation, handling transportation,
storage, discharge or disposal of any Contaminant in connection
with the Transferred Businesses, (D) any Remedial Action required
under any Environmental Law in connection with the Transferred
Businesses; or (E) any violation of any Environmental Law in
connection with the operations of the Transferred Businesses;
(c) Any sales, use, transfer, stamp, recording,
documentary or similar Taxes or any fees and disbursements of
counsel, accountants, real estate agents, appraisers, financial
advisors, actuaries, consultants or title companies or other
similar charges, in each case arising out of the assignment,
transfer or delivery to the Company of the Transferred Businesses
or Assets pursuant to Section 2 in each case; and
(d) Any Liabilities arising out of or related to
litigation related to the current, past or future operations of
the Transferred Businesses.
4. Consents. In the event that Assignor shall be unable
to transfer any of the Assets to Assignee prior to the date
hereof due to the failure of Assignor to obtain any necessary
Consents, Assignor: (i) shall continue to seek the necessary
Consents, in accordance with this Agreement; (ii) shall hold such
Assets for the benefit of Assignee and cooperate with Assignee in
any lawful and economically feasible arrangement to insure that
Assignee shall receive the benefits thereof, (iii) shall hold or
cause to be held for the account of Assignee all accounts
receivable or accounts payable related to Assignee's interest in
any such Assets accrued as, and accruing after, the date hereof,
(iv) shall make available to Assignee all information relating to
such Assets to the extent making such information available is
permitted by Applicable Law and the contractual arrangements
relating to such Assets, (v) shall not assign, transfer,
otherwise dispose of or grant a Lien upon any such Assets to any
Person other than Assignee, and (vi) shall upon obtaining the
necessary Consents relating to such Assets, promptly take such
action as may be necessary to complete the transfer to Assignee
of such Assets, including without limitation, all accrued
accounts payable and accrued accounts receivable related to such
Assets. Any transfer of an Asset after the date hereof shall be
effective as of the date hereof.
5. Further Assurances.
(a) The transfer of the Assets and the assumption of
the liabilities and obligations contemplated herein shall be
further evidenced by the execution and delivery by the parties
hereto of such acts of transfer, conveyance and assumption as may
be reasonably requested by any party. Each of the parties hereto
will execute and deliver, and cause all other relevant Persons to
execute and deliver, such further instruments of conveyance,
assumption and assignment and will take such other actions
(including, without limitation, (i) any changes or amendments to
or redelivery of such instruments of conveyance, assumption and
assignment that may be necessary to vest in the Assignee title to
or other applicable rights in the Assets and (ii) the delivery of
originals of stock certificates and other similar documents of
title) as any other party may reasonably request in order to
effectuate the purposes of this Agreement.
(b) Assignor shall execute and deliver such further
instruments of conveyance, assumption and assignment and shall
take such other actions, including, without limitation, any
changes or amendments to or redelivery of such instruments of
conveyance, assumption and assignment, that may be necessary to
vest in the Assignee title to or other applicable rights in the
Assets, including without limitation any assets that may arise
in the future. Without limiting the foregoing in any manner,
Assignor shall immediately notify the appropriate Assignee in the
event Assignor obtains knowledge of or reason to believe that
certain assets have not been properly transferred to Assignee and
shall take all action necessary to have such assets properly
transferred to Assignee as set forth herein.
(c) Notwithstanding anything herein to the contrary,
Assignor agrees to cause IMCAC prior to the date of the Merger
(i) to consent to the assignment to Assignee of Assignor's
interest in the IMCAC Sulphur Agreement; and (ii) to execute an
amendment to the IMCAC Sulphur Agreement reasonably necessary to
reflect the fact that Assignee is the successor in interest to
Assignor and that the rights and obligations of the parties have
been divided as set forth in Section 2(a)(vi) above. In addition
to the foregoing, Assignee and IMC Global Inc. (which will become
the indirect parent of IMCAC following the Merger) have
previously executed a letter agreement clarifying the provisions
of Section III of the IMCAC Sulphur Agreement.
6. "As-is, Where-is." Each of the parties hereto
understands and agrees that no party hereto is, in this Agreement
or in any other agreement or document contemplated by this
Agreement or otherwise, representing or warranting in any way (a)
as to the value or freedom from encumbrance of, or any other
matter concerning, any of the Assets or (b) as to the legal
sufficiency to convey title to any Asset, it being understood
that except as otherwise set forth in this Agreement or in any
ancillary transfer document, the Assets are being conveyed "As-
is, Where-is," except for rights or actions in warranty against
predecessors in title (other than Assignor or any prior or
current Affiliates thereof). It is understood and agreed that
Assignee shall bear the economic and legal risk that any
conveyance of the Assets shall prove to be insufficient or that
Assignor's title to any such assets shall be other than good and
marketable and free from encumbrances. Similarly, each party
hereto understands and agrees that no party hereto is
representing or warranting in any way that the obtaining of any
Consents or approvals or the making of any filings or
applications contemplated by this Agreement will satisfy the
provisions of any or all applicable agreements or the
requirements of any or all applicable laws or judgments, it being
agreed and understood that Assignee shall bear the economic and
legal risk that any necessary Consents are not obtained or that
any requirements of law or judgments are not complied with.
Notwithstanding the foregoing, the parties shall use reasonable
efforts to obtain all Consents, and to make all filings and
applications which may be required for the consummation of the
transactions contemplated by this Agreement, including, without
limitation, all applicable regulatory filings or consents under
federal or state environmental laws.
7. Consents. Assignor and Assignee hereby acknowledge
that, under certain conditions, under certain of the contracts
and agreements described on Schedule 1 hereto, Homestake Mining
Company (formerly Felmont Oil Corporation) may have a right of
first refusal and a right to consent to certain transfers of
Assignor's rights and interests under such documents (the
"Homestake Refusal Right"). Without acknowledging that any of
the transfers made pursuant to this Agreement are subject to the
Homestake Refusal Right, Assignor and Assignee hereby agree as
follows:
(a) Assignor agrees that it will comply with the
instructions of Assignee with respect to whether and in what
manner Assignor treats any of the assignments described in this
Agreement as being subject to the Homestake Refusal Right:;
(b) Assignor agrees that it will structure the
assignments pursuant to this Agreement in any manner that
Assignee reasonably requests, including, without limitation, as a
contribution of the Transferred Businesses and the Assets into a
newly-formed subsidiary followed by a transfer of the stock of
said subsidiary; and
(c) Assignee hereby covenants and agrees to defend,
indemnify and hold harmless Assignor and its officers, directors,
employees, agents, advisors, representatives, contractors and
subcontractors and each of their respective heirs, executors,
successors and assigns from and against all claims, liabilities,
obligations, losses, fines, costs, royalties, penalties,
proceedings, deficiencies, or damages (whether absolute or
accrued, conditional or otherwise and whether or not resulting
from third party claims), including out-of-pocket expenses and
reasonable attorneys' and accountants' fees incurred in the
investigation or defense of any of the same or asserting any of
their respective rights hereunder, to the extent resulting from
or arising out of the compliance by Assignor with any of the
directions or requests made by Assignee in respect of subsections
(a) and (b) of this section.
8. Notices. All notices, requests and other
communications under this Agreement to any party hereto shall be
in writing (including facsimile or similar writing) and shall be
given
If to Assignor, to:
IMC Global Operations Inc.
2100 Sanders Road
Northbrook, Illinois 60662
Attention: General Counsel
Telecopier: (847) 205-4894
If to Assignee, to:
Freeport-McMoRan Resource Partners, Limited Partnership
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: General Counsel
Telecopier: (504) 582-4227
or to such other address or telecopier number as such party may
hereafter specify for the purpose by notice to the other parties.
Each such notice, request or other communication shall be
effective (i) if given by facsimile, when such facsimile is
transmitted to the telecopier number specified in this Section
and transmission of the appropriate number of pages is confirmed
or (ii) if given by any other means, when delivered at the
address specified in this Section 6.
9. Amendment and Waiver. This Agreement may not be
altered or amended, nor may rights hereunder be waived, except by
an instrument in writing executed by each party, or in the case
of a waiver by an instrument in writing executed by the party
against whom such waiver is to be effective. No waiver of any
term, provision or condition of or failure to exercise or delay
in exercising any rights or remedies under this Agreement, in any
one or more instances, shall be deemed to be, or construed as, a
further or continuing waiver of any such term, provision,
condition, right or remedy or as a waiver of any other term,
provision or condition of this Agreement.
10. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original
instrument but all of which together shall constitute but one and
the same Agreement.
11. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF
DELAWARE.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
ASSIGNOR
IMC Global Operations Inc.
By: /s/ Marshall I. Smith
Name: Marshall I. Smith
Title: Senior Vice President
ASSIGNEE
Freeport-McMoRan Resource Partners,
Limited Partnership
By: Freeport-McMoRan Inc., its
Administrative
Managing General Partner
By: /s/ Michael J. Arnold
Name: Michael J. Arnold
Title: Senior Vice President
Exhibit 10.1
EMPLOYEE BENEFITS AGREEMENT
This EMPLOYEE BENEFITS AGREEMENT, dated as of December
22, 1997, entered into by FREEPORT-McMoRan RESOURCE PARTNERS,
LIMITED PARTNERSHIP, a Delaware limited partnership (together
with its successors and permitted assigns, "FRP"), FREEPORT-
McMoRan INC., a Delaware corporation (together with its
successors and permitted assigns, "FTX") and FREEPORT-McMoRan
SULPHUR INC., a Delaware corporation (together with its
successors and permitted assigns, "Company"),
WITNESSETH:
WHEREAS, the parties hereto have entered into a CONTRIBUTION
AND DISTRIBUTION AGREEMENT, which includes covenants regarding
assets and liabilities of FRP that are to be transferred to
Company; and
WHEREAS, the parties desire to provide for the transfer of
assets and liabilities pertaining to certain employee-benefit
plans maintained by FTX for the benefit of FTX employees who have
in the past provided services for FRP, and to provide regarding
the compensation and benefits of those of such employees who will
be employees of Company;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. For purposes of this Agreement, the
following terms shall have the meaning set forth below.
(a) "Adjusted Company Award" shall mean a non-
qualified stock option to purchase Company Shares with in tandem
"limited rights" that results from the adjustment and conversion
of an FTX Award pursuant to Paragraph 5.
(b) "Adjusted FTX Award" shall mean an FTX Award that
is adjusted in accordance with the provisions of Paragraph 5.
(c) "Adjusted Stock Award Plan" shall mean the Company
Adjusted Stock Award Plan, adopted pursuant to Paragraph 5.
(d) "Code" shall mean the Internal Revenue Code of
1986, as amended.
(e) "Company Pension Plan" shall mean a defined-
benefit pension plan sponsored by Company for the benefit of
Transferred Employees.
(f) "Company Shares" shall mean Common Stock, par
value $.01 per share, of the Company.
(g) "Distribution Date" shall mean the effective date
of the Distributions.
(h) "Effective Time" shall mean the date of the merger
of Freeport-McMoRan Inc. into IMC Global Inc.
(i) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
(j) "Former Sulphur Employee" shall mean an employee
who (i) either (A) retired from FTX or an Affiliate under
circumstances making him eligible under one or more plans or
arrangements of FTX or the Affiliate to receive medical, dental
or life insurance benefits during retirement, or (B) terminated
employment from FTX or an Affiliate under circumstances making
him eligible for benefits under the FTX Pension Plan, and (ii)
during all of his or her last three years of employment, provided
services primarily for the Transferred Businesses.
(k) "FTX AIP" shall mean the Freeport-McMoRan Inc.
Annual Incentive Plan.
(l) "FTX Award" shall mean a stock option, stock
appreciation right, limited right, stock incentive unit or other
award relating to FTX Shares that has been granted under an FTX
Stock Plan and is outstanding on the Distribution Date and held
by any person other than an employee of IMC-Agrico Company.
(m) "FTX Benefit Arrangements" shall mean each
employment, severance, termination, consulting, retirement or
similar contract, arrangement or policy, and each plan or
arrangement (whether or not written) providing for severance
benefits, insurance coverage (including any self-insured
arrangements), disability benefits, supplemental unemployment
benefits, vacation benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock
appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits that (i) is
not an FTX Employee Plan, (ii) is entered into, maintained, or
contributed to, as the case may be, by FTX or any of its
affiliates and (iii) covers any Transferred Employee.
(n) "FTX EBP" shall mean the Freeport-McMoRan Inc.
Excess Benefits Plan.
(o) "FTX Employee Plans" shall mean each "employee
benefit plan," as defined in Section 3(3) of ERISA, that
(i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by FTX and
(iii) covers any Transferred Employee.
(p) "FTX ECAP" shall mean the Freeport-McMoRan Inc.
Employee Capital Accumulation Program.
(q) "FTX Grandfathered Plan" shall mean the Freeport-
McMoRan Inc. Grandfathered Retirement Benefit Plan.
(r) "FTX LTPIP" shall mean either or both of the
Freeport-McMoRan Inc. 1987 Long-Term Performance Incentive
Plan and the Freeport-McMoRan Inc. 1992 Long-Term-
Performance Incentive Plan.
(s) "FTX Pension Plan" shall mean the FMI Employee
Retirement Plan.
(t) "FTX PIAP" shall mean the Freeport-McMoRan Inc.
Performance Incentive Awards Program.
(u) "FTX PAP" shall mean the Freeport-McMoRan Inc.
President's Award Program.
(v) "FTX SECAP" shall mean the Freeport-McMoRan Inc.
Supplemental Executive Capital Accumulation Plan.
(w) "FTX Shares" shall mean shares of FTX common
stock, par value $.01 per share.
(x) "Retired Employees" shall mean all former and
retired employees of FTX and its subsidiaries, and long-term
disabled employees of FTX and its subsidiaries who did not
work primarily for the Transferred Businesses, as of the
Effective Time, including those persons who retire from FTX
at any time up to the date of the Merger.
(y) "Rule 16b-3" shall mean Rule 16b-3 promulgated
under Section 16 of the Securities Exchange Act of 1934, and
any successor provision.
(z) "Section 162(m)" shall mean Section 162(m) of the
Code and any memoranda or decisions issued by the Internal
Revenue Service or the Department of the Treasury with
respect thereto.
(aa) "Securities Act" shall mean the Securities Act of
1933, as amended.
(bb) "Transferred Employees" shall mean those employees
of FTX or its subsidiaries who by mutual agreement between
FTX and Company become employees of Company on or about the
Effective Time, or who are actively employed in the
Transferred Businesses (as defined in the Contribution and
Distribution Agreement) on the Effective Time. Employees of
FM Services Inc. and its subsidiaries are not Transferred
Employees.
Capitalized terms used in this document that are not defined
herein shall have the meanings set forth in the Contribution and
Distribution Agreement having the same date and entered into by
the same parties.
2. Employment by the Company.
(a) Each Transferred Employee will become an employee
of Company on or before the Effective Time. Except as otherwise
provided in this Agreement, Company will not assume the
liabilities of FTX in respect of the Transferred Employees for
accrued but unpaid salaries, wages, or other compensation or
benefits with respect to service prior to the Effective Time,
which liabilities shall remain with FTX.
(b) No provision of this Agreement shall preclude or
impair the ability of Company to terminate the employment of any
Transferred Employee or to change the terms, conditions or
location of employment following the Effective Time.
3. Pension Plans.
(a) As of the Effective Time, FTX shall cause to be
transferred to a newly-created separate defined-benefit pension
plan (the "Spin-Off Plan") the assets and liabilities of the FTX
Pension Plan that are attributable to the Transferred Employees.
The Spin-Off Plan shall have substantially the same terms and
conditions as the FTX Pension Plan, subject to any limitation
required by Company regarding accrual of benefits after the
Effective Time. In connection with the transfer, FTX shall make
all filings and submissions to governmental agencies as are
required by law, and shall make all amendments to the FTX Pension
Plan and related trust agreement as are necessary. The accrued
benefits attributable to the Transferred Employees shall be 100%
vested. The transfer shall be made as of the "Transfer Date",
which shall be the Effective Time, or at such other time as is
mutually agreed upon by FTX and Company.
(b) The amount of the assets required under Paragraph
(a) to be transferred (the "Transfer Amount") shall be equal to
the Account Balances of the Transferred Employees under the FTX
Plan as of the Effective Time, including Annual Additions with
respect to Earnings throught the Effective Time and Annual
Interest Credits through the Effective Time. The Transfer Amount
shall in no event be less than the minimum amount necessary to
satisfy all requirements of the Code and regulations. The
Transfer Amount shall be transferred within 30 days after the
Effective Time. The terms Account Balance, Earnings, Annual
Additions, and Annual Interest Credits as used in this paragraph
have the same meaning as in the FTX Pension Plan.
(c) As of the Effective Time (or such other date as
agreed to by the Company and FTX) Company shall become the
sponsor of the Spin-Off Plan referred to in Paragraph (a)
(hereafter "Company Pension Plan") and its related trust, which
will hold the Transfer Amount. Company shall take all necessary
steps, including the prompt filing of an application to the
Internal Revenue Service for a favorable determination letter, to
assure that the Company Pension Plan is qualified under Internal
Revenue Code Section 401(a). As of the date of the transfer of
the Transfer Amount, the Company Pension Plan shall assume the
liabilities of the FTX Pension Plan that are attributable to the
Transferred Employees, and the FTX Pension Plan (and FTX as
sponsor of the FTX Pension Plan) shall have no further liability
with respect to the Transferred Employees. Company shall be
under no obligation to accrue benefits under the Company Pension
Plan after the Effective Time at the same rate as under the FTX
Pension Plan, and may terminate the Company Pension Plan.
Company shall have no obligations or liabilities arising under or
attributable to the FTX Pension Plan, other than as described
above.
(d) As of the Effective Time, Company shall assume the
liabilities in respect of Transferred Employees under the FTX EBP
and the FTX Grandfathered Plan, and FTX shall have no further
obligation under such plans with respect to such employees. As
consideration for the assumption of such liabilities by Company,
FTX shall pay to Company an amount, estimated at $700,000, that
the plans' actuary shall determine is equal to the value as of
the Effective Time of the benefits accrued under the plans by the
Transferred Employees. The value of a Transferred Employee's
accrued benefit under the FTX EBP shall be equal to the
difference between the Participant's actual Account Balance under
the FTX Pension Plan and the Account Balance the Participant
would have had under the assumptions set forth in the FTX EBP.
The value of a Transferred Employee's accrued benefit under the
FTX Grandfathered Plan shall be determined under the assumptions
of that plan as if the Transferred Employee had retired as of the
Effective Time and elected to receive an immediate lump-sum
benefit. The payment with respect to the FTX Grandfathered Plan
shall be made only with respect to the Transferred Employees (if
any) who have reached the age of 55 by the Effective Time.
Company shall have no obligation to allow Transferred Employees
to continue to accrue benefits under such plans after the
Effective Time.
4. Individual Account Plans
(a) As of the Effective Time, Company shall adopt the
FTX ECAP and its related trust, and the documents governing said
plan and trust shall be amended by FTX and the Company to provide
that, commencing at the Effective Time, FTX will no longer have
any powers or duties with respect to said plan and trust, and the
Company will have all powers and duties with respect to the plan
and trust that pertain to a plan sponsor. Within 15 days
following the Effective Time, FTX shall pay to the trustee of
said trust any amounts payable to the trust that it has received
or withheld from participants, and any matching contributions due
under said plan.
(b) The FTX ECAP will be amended prior to the
Effective Time to permit it to hold Company shares.
(c) As of the Effective Time, the FTX SECAP document
shall be amended by FTX and the Company to provide that the
Company assumes all liabilities in respect of Transferred
Employees under the FTX SECAP, and that FTX has no further
obligation under the FTX SECAP with respect to the account
balances of Transferred Employees. As consideration for the
assumption of such liabilities by Company, FTX shall pay to
Company an amount equal to the account balances of the
Transferred Employees valued as of the date of the transfer. As
the vehicle for satisfying the liabilities assumed under this
Paragraph (c), Company shall establish a Company SECAP. All
account balances of Transferred Employees in the Company SECAP
shall be 100% vested. Company shall have the right to amend or
terminate the Company SECAP at any time, provided that no
amendment shall reduce participant account balances.
(d) The FTX SECAP will be amended prior to the
Effective Time to require immediate payout with respect to all
participants other than the Transferred Employees.
5. Stock Plan Adjustments; Establishment of New Adjusted
Stock Award Plan.
(a) Effective as of the Distribution Date, the Company
shall adopt the Adjusted Stock Award Plan and shall take all
action necessary in regard to such Plan, the benefits provided
thereunder, and the transactions contemplated thereby to ensure
compliance with Rule 16b-3, Section 162(m) and the Securities
Act, as applicable and as deemed desirable by the Company. The
Adjusted Stock Award Plan shall be established for the exclusive
purpose of granting the Adjusted Company Awards as described in
this Paragraph 5.
(b) Each outstanding FTX Award on the Distribution
Date shall be converted, in accordance with the procedures
described in this Paragraph 5, into an Adjusted FTX Award and an
Adjusted Company Award. The number of Company Shares subject to
an Adjusted Company Award shall be that number of Company Shares
that a record holder of the number of FTX Shares underlying the
related FTX Award would have received in the FTX Distribution.
Notwithstanding the foregoing, if the FTX Award from which the
Adjusted Company Award is derived contains a right to receive a
cash payment upon exercise of such FTX Award related to and
intended to defray the income tax liability associated therewith,
the number of Company Shares to be subject to the Adjusted
Company Award, determined according to the provisions of this
Paragraph 5(b) (without disregarding fractional Company Shares),
shall be multiplied by 1.6556 and any fractional Company Share
resulting from such adjustment shall be disregarded. Such
adjustment shall not affect the calculation of the per Company
Share exercise price of the Adjusted Company Award as set forth
in Paragraph 5(e) below.
(c) Each Adjusted Company Award and each Adjusted FTX
Award will have the same remaining duration as the FTX Award from
which it was derived.
(d) The exercise price of an Adjusted FTX Award shall
be determined by multiplying the exercise price of the FTX Award
from which such Adjusted FTX Award was derived by a fraction, the
numerator of which is the FTX Net Distribution Value, as defined
below, and the denominator of which is the FTX Distribution
Value, as defined below.
(e) The exercise price of an Adjusted Company Award
shall be determined by multiplying the exercise price of the FTX
Award from which such Adjusted Company Award was derived by a
fraction, the numerator of which is the Company Distribution
Value, as defined below, and the denominator of which is the FTX
Distribution Value.
(f) For purposes of the foregoing, the "Company
Distribution Value" shall be the weighted average per share price
of the Company Shares on the New York Stock Exchange on the first
day that Company Shares are traded on the New York Stock Exchange
after the effective date of the merger of Freeport-McMoRan Inc.
into IMC Global Inc.; the "FTX Distribution Value" shall be the
weighted average per share price of the FTX Shares on the New
York Stock Exchange on the last day that FTX Shares are traded on
the New York Stock Exchange before the effective date of the
merger of Freeport-McMoRan Inc. into IMC Global Inc. and the "FTX
Net Distribution Value" shall be (i) the FTX Distribution Value
minus (ii) the product of the Distribution Ratio, as hereinafter
defined, and the Company Distribution Value. The "Distribution
Ratio" shall mean the number of Company Shares distributed in the
FTX Distribution per FTX Share, rounded to the nearest one-
millionth (.000001) of a Company Share.
6. Deferred Compensation Liabilities. As of the
Distribution, FTX shall calculate the liability of FTX and its
subsidiaries in respect of the Transferred Employees' deferred
compensation, including without limitation deferred awards under
the FTX PIAP, FTX AIP, FTX LTPIP, and predecessor plans, if any.
In consideration of a cash payment made promptly after the
Distribution Date by FTX to the Company in an amount equal to
such accrued liability, the Company will assume such liability in
respect of Transferred Employees.
7. Welfare Plans.
(a) As of the Effective Time, Transferred Employees
shall cease participation in all FTX Employee Plans and FTX
Benefit Arrangements. Except as otherwise set forth in this
Agreement or in the Merger Agreement, FTX shall retain all
obligations and liabilities under the FTX Employee Plans and FTX
Benefit Arrangements.
(b) FTX and its FTX Employee Plans and FTX Benefit
Arrangements shall retain responsibility for the administration,
liability, cost of coverage and all amounts payable by reason of
claims incurred by Transferred Employees (and their dependents
and beneficiaries) on or before the Effective Time, by reason of
claims incurred by Retired Employees, and by reason of claims
incurred by FTX employees who as of the Effective Time were on a
leave of absence or were receiving long term disability benefits,
sick leave benefits, or similar benefits. However, the Company
shall assume responsibility for the administration, liability,
cost of coverage, and all amounts payable by reason of employee
benefit plan claims incurred by FTX employees (and their
dependents) who at the time the employees ceased active work for
FTX performed services primarily for the Transferred Businesses
and who as of the Effective Time were on a leave of absence or
were receiving long term disability benefits, sick leave
benefits, or similar benefits. For such purpose, unless
otherwise agreed by FTX and the Company, a claim is deemed
incurred on the date of the occurrence of (i) death,
dismemberment, accident, or other loss in the case of claims
under life insurance and accidental death and dismemberment
benefits, (ii) in the case of a hospital stay, based on the date
any such hospitalization is initiated, or (iii) the date on which
the treatment or other service was rendered or the medicine,
equipment, supply or other material was furnished, as the case
may be, which resulted in the charge or expense giving rise to
the claim in the case of all other claims. This paragraph 7(b)
shall not apply to claims under applicable workman's compensation
laws, the Jones Act, 46 U.S.C. S 688, the Longshore and Harbor
Workers' Compensation Act, 33 U.S.C. S 901, et. seq., or under
similar laws, or arising in connection with any occupational
injury or disease.
(c) As of the Effective Time, Company shall be
responsible for post-retirement benefit liabilities in respect of
Transferred Employees and FTX shall have no further obligation
for such liabilities with respect to such employees. FTX shall
pay to Company an amount that equals the liability that has been
accrued for such employees in accordance with the Financial
Accounting Standard Board No. 106 as provided in the Freeport-
McMoRan Inc. Retiree Benefit Plan's January 1, 1997 valuation
report.
(d) The Company shall reimburse FTX for any payment (a
"Reimbursable Payment") that FTX properly makes to or on behalf
of a Former Sulphur Employee with respect to claims made after
the Effective Time (or to an insurance company to provide
coverage for a Former Sulphur Employee after the Effective Time)
under the terms of any retiree medical, dental or life insurance
plan or arrangement of FTX. No later than 30 days following the
end of each calendar quarter, FTX shall provide the Company with
a report providing in reasonable detail its calculation of the
total amount of Reimbursable Payments made by FTX during the
quarter, less any refunds or other offsetting payments or credits
received by FTX. The amount that Company shall reimburse FTX
shall be equal to the net amount of Reimbursable Payments by FTX,
less the Credit Amount. The Credit Amount for each calendar
quarter shall be equal to 25% of 9.5% of a fraction of the
"Surplus", as defined below, which fraction shall be derived by
dividing the liabilities under the FTX Pension Plan as of the
Effective Time attributable to the Former Sulphur Employees by
the total liabilities of the FTX Pension Plan as of the Effective
Time. The Surplus shall be the fair market value of the assets
of the FTX Pension Plan, less the total liabilities of the FTX
Pension Plan, as of the Effective Time. The assets and
liabilities used in this Paragraph 7(d) to calculate the Surplus
and the appropriate fraction of the Surplus shall be determined
as of the Effective Time, but only with regard to the portion of
the FTX Pension Plan that remains after the transfer described in
Section 3(b) of this Agreement. Furthermore, for purposes of
this Section 7(d), the assets and liabilities of the FTX Pension
Plan (after the transfer described in Section 3(b) shall be
determined on a FAS 87/88 basis. If the Credit Amount for the
current calendar quarter (plus any carried-forward excess from
the preceding calendar quarter) exceeds the Reimbursable Payments
in a quarter no payment shall be made between the parties. Any
excess Credit Amount for the current calendar quarter shall be
carried forward to the next calendar quarter. Company shall have
the right to request an annual audit of the Reimbursable Payments
by an independent certified public accountant. This paragraph is
not intended to limit any rights that FTX may have to reduce its
obligations under any such plans or arrangements. However, FTX
shall have no right to increase its cost of benefits for any
Former Sulphur Employee without obtaining 30-days advance
approval from Company. Nor shall FTX have the right to reduce
the cost of coverage for any Retired Employees who are not Former
Sulphur Employees without likewise reducing the cost of coverage
for the Former Sulphur Employees.
(e) With respect to employees and their dependents
(other than Transferred Employees) who experience a qualifying
event as defined in 29 U.S.C. S 603 as a result of the
transactions contemplated in the Contribution and Distribution
Agreement and the Merger Agreement and who elect COBRA
continuation group health coverage under 29 U.S.C. SS 601, et.
seq. ("COBRA Coverage"), the Company shall reimburse FTX for any
Reimbursable Payment that FTX properly makes to or on behalf of
such employees or dependents with respect to claims made after
the Effective Time under the plan providing such COBRA coverage
(or to an insurance company to provide COBRA Coverage for such
employees or dependents after the Effective Time) in accordance
with the procedures set forth in 7(d) above.
(f) The employee benefit plans established by the
Company for the benefit of Transferred Employees shall give
effect, in determining or applying any copayments, benefit
limits, deductibles and maximum out-of-pocket limitations to
claims incurred, amounts paid by, and amounts reimbursed to, such
employees under the corresponding FTX Employee Plans or FTX
Benefit Arrangements maintained by FTX for their benefit
immediately prior to the Effective Time. Further, the employee
benefit plans established by the Company for the Transferred
Employees shall give credit for service at FTX and its
subsidiaries for purposes of any eligibility waiting periods and
pre-existing condition limitations. The employee benefit plans
established by the Company that provide a maximum annual benefit,
such as a vacation plan or wage and salary continuation, will
take into account benefits used by the Transferred Employees
under the corresponding FTX Employee Plans or FTX Benefit
Arrangements maintained by FTX for their benefit immediately
prior to the Effective Time.
(g) The Company will give Transferred Employees full
credit for purposes of eligibility, vesting, benefit accrual and
benefit entitlement (as such purposes may be applicable) under
the employee benefit plans of the Company for such employees'
respective service recognized or applied for such purposes under
the corresponding FTX Employee Plan or FTX Benefit Arrangement,
to the extent applicable.
(h) FTX and the Company shall provide each other with
copies of such records as are reasonably required to enable the
parties to perform their obligations hereunder.
8. Cash Bonuses. As of the Effective Time, FTX shall in
good faith determine the total amount of cash incentive payments
that it would have made to the Transferred Employees under the
FTX PIAP and the FTX PAP for 1997 (without proration for a
partial year), which determination shall be subject to the
limitations and other terms and conditions of Schedule 5.8(c) to
the Merger Agreement. In consideration of a cash payment made
promptly after the Effective Time by FTX to the Company in an
amount equal thereto, the Company will assume the payment of such
amounts to the Transferred Employees, which will be made as soon
as feasible after 1997 in accordance with any procedures it may
establish with respect to the payment of any cash incentive
payments to Company employees.
9. Expenses. Each of the Company and FTX shall pay its
own expenses in connection with the performance of its
obligations under this Agreement.
10. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of
Louisiana.
11. Amendment and Waiver. This Agreement may not be
altered or amended, nor may rights hereunder be waived, except by
an instrument in writing executed by each party, or in the case
of a waiver by an instrument in writing executed by the party
against whom such waiver is to be effective. No waiver of any
term, provision or condition of or failure to exercise or delay
in exercising any rights or remedies under this Agreement, in any
one or more instances, shall be deemed to be, or construed as, a
further or continuing waiver of any such term, provision,
condition, right or remedy or as a waiver of any other term,
provision or condition of this Agreement.
12. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original
instrument but all of which together shall constitute but one and
the same Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
FREEPORT-McMoRan INC.
By: /s/ Michael J. Arnold
Name: Michael J. Arnold
Title: Senior Vice President
FREEPORT-McMoRan RESOURCE PARTNERS,
LIMITED PARTNERSHIP
By: FREEPORT-McMoRan INC.,
Administrative Managing General Partner
By: /s/ Michael J. Arnold
Name: Michael J. Arnold
Title: Senior Vice President
FREEPORT-McMoRan SULPHUR INC.
By: /s/ Robert M. Wohleber
Name: Robert M. Wohleber
Title: President and Chief Executive
Officer
Exhibit 10.14
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement"), dated as of
December 23, 1997 by and between FM Services Company, a Delaware
corporation ("FMS"), and Freeport-McMoRan Sulphur Inc., a
Delaware corporation ("FSC").
WHEREAS, FSC desires that FMS furnish FSC and its
affiliates, as that term is defined in Rule 405 under the
Securities Act of 1933 (collectively, the "FSC Group"), with
Services, as defined below, to support and complement the
services provided by its officers, employees and other available
resources.
NOW THEREFORE, in consideration of the covenants and
agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Services. During the term of this Agreement
FMS shall furnish the following services (collectively, the
"Services") to the FSC Group: (a) accounting, treasury and
financial, (b) tax, (c) insurance and risk management (including
the purchase and maintenance on behalf of FSC of such insurance
as FSC deems necessary or appropriate), (d) human resources
(including employee benefit services), (e) management information
and system support, (f) governmental relations, (g) community
relations, (h) investor relations, (i) facilities management and
security, (j) marketing; business development, (k) executive
support, (l) aviation, (m) contract administration and (n) such
other services as may mutually be agreed upon by the parties
hereto. Services shall be provided directly by FMS or, in the
discretion of FMS, by affiliated or non-affiliated third parties.
Section 2. Administration of Services. FMS shall keep
the appropriate officers and employees of FSC and other members
of the FSC Group fully informed and shall cooperate with such
officers and employees with respect to the performance of
Services by FMS. Each member of the FSC Group shall have
complete and full access to all data, records, files, statements,
invoices, billings and other information generated by or in the
custody of FMS relating to Services provided to such entity.
Section 3. Compensation.
(a) As compensation for the performance of the Services,
FSC shall reimburse, or cause another member of the FSC Group to
reimburse, FMS for:
(i) All expenses of the Services incurred by FMS that
are readily identifiable to the FSC Group, including
personnel related costs (which shall be based upon
department head allocations), facilities related costs
(based upon personnel cost allocations) and aviation costs
("Direct Charges");
(ii) All costs of goods, services or other items
purchased from third parties by FMS for the FSC Group, to
the extent such costs are paid by FMS ("Third Party
Charges"); and
(iii) The portion of all other expenses incurred by
FMS in connection with providing the Services to the FSC
Group and similar services to Freeport-McMoRan Copper & Gold
Inc. ("FCX"), McMoRan Oil & Gas Co. ("MOXY") and FM
Properties Inc. ("FMPO") and their respective affiliates as
directed from time to time by the joint written instructions
of FSC, FCX, MOXY and FMPO pursuant to the Stockholder
Agreement of even date herewith among FSC, FCX, MOXY and
FMPO ("Allocated Charges").
(b) FMS shall invoice FSC by the last day of each month for
all Direct Charges, Third Party Charges and Allocated Charges
incurred for the immediately preceding month. All invoices shall
provide FSC with an account of all such charges and an accounting
for all Advances, as defined below, during such month. All
amounts shown on each invoice shall be due and payable within
five (5) days of the date of the invoice. In the event of a
dispute as to the propriety of any invoiced amount, FSC shall
pay, or cause the payment of, all undisputed amounts on each
invoice, but shall be entitled to withhold payment of any amount
in dispute and shall promptly notify FMS of the basis of the
dispute.
(c) FSC shall advance, or cause the advancement of, funds
to FMS for Direct Charges, Third Party Charges and Allocated
Charges from time to time during the term of this Agreement
(which may be as often as daily) as requested by FMS, such funds
to serve as an advance of the amounts to be invoiced hereunder
(the "Advances").
Section 4. Use of FMS Facilities. FMS shall provide the
FSC Group with a non-exclusive right to utilize its properties
and facilities, subject to such limitations, if any, as may be
imposed by leases and other agreements and instruments governing
the use of such properties and facilities.
Section 5. Terms of Agreement; Termination. (a) This
Agreement shall commence as of the date first above written and
shall continue in effect until (i) the parties mutually agree in
writing to terminate this Agreement, (ii) 90 days after receipt
by FMS of written notice from FSC of its request to terminate
this Agreement, or (iii) a Change in Control. A "Change in
Control" shall be deemed to have occurred if any Person or group
(within the meaning of Rule 13d-5 of the SEC as in effect on the
date hereof) shall own directly or indirectly, beneficially or of
record, shares representing 50% or more of the aggregate ordinary
voting power represented by the issued and outstanding capital
stock of FSC.
(b) Upon termination of this Agreement, FSC shall be liable
for (i) Direct Charges, Third Party Charges and Allocated Charges
incurred in accordance with Section 3 prior to termination, (ii)
its proportionate share of all costs incurred by FMS or which FMS
is obligated to incur in connection with providing the Services
after termination, because of the anticipated long-term nature of
this Agreement or otherwise, and (iii) all costs of such
termination, whether direct or indirect and including costs
incurred by FMS in connection with the termination by FMS of
obligations entered into in connection with the Services.
Section 6. Limitation of Liability.
(a) FMS makes no representation or warranty whatsoever,
express or implied, with respect to the Services. In no event
shall FMS be liable to FSC for (i) any loss, cost or expense
resulting from any act or omission taken at the express direction
of any member of the FSC Group or (ii) any special, indirect or
consequential damages resulting from any error or omission in the
performance of the Services or from the breach of this Agreement.
(b) Neither FMS nor FSC shall be liable for any loss or
damage or any nonperformance, partial or whole, under this
Agreement, caused by any strike, labor troubles, riot act of a
public enemy, insurrection, act of God, or any law, rule or
regulation promulgated by any governmental body or agency, or any
demand or requisition of any governmental body or agency, or any
other cause beyond the control of the parties hereto.
Section 7. Confidentiality. FMS will hold and will use
its best efforts to cause its officers, directors, employees and
other agents (collectively, its "Agents") to hold, in confidence,
all confidential documents and information concerning the FSC
Group furnished to such party in connection with this Agreement,
except to the extent that such information can be shown to have
been (a) previously known by such party on a nonconfidential
basis, (b) in the public domain through no fault of such party or
(c) later lawfully acquired by such party on a nonconfidential
basis from a source other than the FSC Group; provided that FMS
may disclose such information in connection with this Agreement
to its Agents so long as such persons are informed by FMS of the
confidential nature of such information and are directed by FMS
to keep such information confidential and not to use it for any
purpose other than its intended use. Notwithstanding the
foregoing, FMS or its Agents may disclose such information if (i)
compelled to disclose by judicial or administrative process or by
other requirements of law or (ii) necessary to establish such
party's position in any litigation or any arbitration or other
proceeding based upon or in connection with the subject matter of
this Agreement. Prior to any disclosure pursuant to the
preceding sentence, FMS or its Agent(s) shall give reasonable
prior notice to FSC of such intended disclosure, and if requested
by FSC, FMS shall use all reasonable efforts to obtain a
protective order or similar protection for such information and
shall otherwise disclose only such information as is legally
required. If all or any part of the Services are terminated, FMS
will, and will use its best efforts to cause its Agents to,
destroy or deliver to FSC, upon request, all documents and other
materials, and all copies thereof, containing confidential
information obtained from the FSC Group in connection with the
Services so terminated.
Section 8. Technology. FMS hereby grants to FSC a
royalty free, non-exclusive right and license to use (but not to
sublicense outside of the FSC Group) any and all technology,
whether or not patented, developed by or on behalf of FMS,
relating to the business of FSC; provided that the license hereby
granted shall not extend to (i) any technology developed for a
person not affiliated with FMS, pursuant to an arrangement
granting such person exclusive rights to such technology, or (ii)
any technology developed after the termination of this Agreement.
Section 9. Dispute Resolution. FSC and FMS shall use
all reasonable efforts to amicably resolve all disputes arising
under this Agreement. If despite such efforts any matter cannot
be amicably resolved the matter shall be referred to the
Presidents of FSC and FMS who shall promptly meet for the purpose
of resolving such dispute. If despite such efforts and meetings
the matter remains unresolved, then any affected party may refer
the matter to arbitration for final resolution in accordance with
the commercial rules of the American Arbitration Association.
Any matter submitted to arbitration shall be decided by a single
arbitrator selected by mutual agreement of the parties (or if the
parties cannot agree then such arbitrator shall be selected by
the appropriate official or designee of the American Arbitration
Association). Any such arbitration proceeding shall be held in
New Orleans, Louisiana. Each party shall bear its own costs and
expenses, and the arbitrator's fees and expenses and the costs
and expenses of the proceeding itself shall be borne by the
parties in such proportions as the arbitrator shall decide. The
decision of the arbitrator shall be final and non-appealable, and
may be enforced in any court of competent jurisdiction.
Section 10. Miscellaneous.
(a) The parties hereto are independent contractors.
Nothing in this Agreement is intended or shall be deemed to
constitute a partnership, agency, franchise or joint venture
relationship between the parties. Neither party shall incur any
debts or make any commitments upon the other, except to the
extent specifically provided herein.
(b) This Agreement constitutes the entire agreement between
the parties hereto with respect to the matters set forth in this
Agreement. This Agreement shall not be amended, modified or
supplemented except by an instrument in writing executed by each
of the parties hereto.
(c) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery, certified or
registered mail, return receipt requested or telecopy
transmission with confirmation of receipt to the address of each
of the parties set forth opposite the signature of such party on
the signature page hereof. All notices and communications shall
be deemed given upon receipt thereof.
(d) This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Louisiana
without the application of any conflicts of laws principles.
(e) This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors
and assigns. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other party.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
Address for Notices: FM SERVICES COMPANY
1615 Poydras Street
New Orleans, LA 70112 By:/s/ Michael J. Arnold
Attention: General Counsel Michael J. Arnold
President
Address for Notices: FREEPORT-McMoRan SULPHUR
INC.
1615 Poydras Street
New Orleans, LA 70112 By:/s/ Robert M. Wohleber
Attention: General Counsel Robert M. Wohleber
President and
Chief Executive Officer
Exhibit 10.15
CREDIT AGREEMENT dated as of
December 12, 1997, among FREEPORT-McMoRan
SULPHUR INC., a Delaware corporation (the
"Borrower"); the undersigned financial
institutions (collectively, the "Lenders"),
THE CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), as administrative
agent for the Lenders (in such capacity, the
"Administrative Agent"), and as documentary
agent for the Lenders (in such capacity, the
"Documentary Agent"; the Administrative Agent
and the Documentary Agent being,
collectively, the "Agents") and HIBERNIA
NATIONAL BANK, a national banking association
("Hibernia"), as co-agent for the Lenders
(the "Co-Agent").
The Borrower has requested the Lenders to extend
credit to it in order to enable it to borrow on a revolving
credit basis at any time and from time to time prior to the
Maturity Date (as herein defined). The aggregate principal
amount of all revolving credit loans at any time outstanding
hereunder shall not exceed $100,000,000.
The Lenders are willing to make loans to the
Borrower upon the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises
and of the mutual covenants herein contained, the parties
hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definitions. As used in this
Agreement, the following terms have the meanings indicated
(any term defined in this Article I or elsewhere in this
Agreement in the singular and used in this Agreement in the
plural shall include the plural, and vice versa):
"Administrative Questionnaire" means an
Administrative Questionnaire in the form of Exhibit A.
"Affiliate" means, when used with respect to a
specified Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or
is Controlled by or is under common Control with the Person
specified.
"Alternate Base Rate" means for any day, a rate
per annum (rounded upwards, if not already a whole multiple
of 1/100 of 1%, to the next higher 1/100 of l%) equal to the
greatest of (a) the Prime Rate in effect on such day,
(b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect for such day
plus 1/2 of 1%. For purposes hereof, the term "Prime Rate"
means the rate of interest per annum publicly announced from
time to time by Chase as its prime rate in effect at its
principal office in The City of New York; each change in the
Prime Rate shall be effective on the date such change is
publicly announced as being effective. "Base CD Rate" means
the sum of (x) the product of (i) the Three-Month Secondary
CD Rate and (ii) Statutory Reserves and (y) the Assessment
Rate. "Three-Month Secondary CD Rate" means, for any day,
the secondary market rate for three-month certificates of
deposit reported as being in effect on such day (or, if such
day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone
line of the Federal Reserve Bank of New York (which rate
will, under the current practices of the Board, be published
in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day,
the average of the secondary market quotations for three-
month certificates of deposit of major money center banks in
New York City received at approximately 10:00 a.m., New York
City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by the
Administrative Agent from three New York City negotiable
certificate of deposit dealers of recognized standing
selected by it. "Federal Funds Effective Rate" means, for
any day, the weighted average of the rates on overnight
Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average
of the quotations for the day of such transactions received
by the Administrative Agent from three Federal funds brokers
of recognized standing selected by it. If for any reason
the Administrative Agent shall have determined (which
determination shall be conclusive absent manifest error)
that it is unable to ascertain the Base CD Rate or the
Federal Funds Effective Rate or both for any reason,
including the inability or failure of the Administrative
Agent to obtain sufficient quotations in accordance with the
terms thereof, the Alternate Base Rate shall be determined
without regard to clause (b) or (c), or both, of the first
sentence of this definition, as appropriate, until the
circumstances giving rise to such inability no longer exist.
Any change in the Alternate Base Rate due to a change in
the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate shall be effective on the
effective date of such change in the Prime Rate, the Three-
Month Secondary CD Rate or the Federal Funds Effective Rate,
respectively.
"Applicable LIBO Rate" means on a per annum basis,
in respect of any LIBO Rate Loan, for each day during the
Interest Period for such Loan, the sum of (i) the LIBO Rate
as determined by the Administrative Agent plus (ii) the
Applicable Margin.
"Applicable Margin" means, with respect to any
LIBO Rate Loan or Reference Rate Loan, or with respect to
the Commitment Fees, as the case may be, the applicable
percentage set forth on Schedule I under the caption "LIBOR
Spread", "ABR Spread" or "Commitment Fee Percentage", as the
case may be, based upon the Leverage Ratio as of the most
recent determination date; provided that until the delivery
to the Administrative Agent, pursuant to Section 5.01(a), of
the Borrower's consolidated financial statements for the
fiscal year ending December 31, 1997, the "Applicable
Margin" shall be the applicable rate per annum set forth on
Schedule I under the caption "Below 2.5x". For purposes of
the foregoing, (i) the Leverage Ratio shall be determined as
of the end of each fiscal quarter of the Borrower's fiscal
year based upon the Borrower's consolidated financial
statements delivered pursuant to Section 5.01(a) and
(ii) each change in the Applicable Rate resulting from a
change in the Leverage Ratio shall be effective during the
period commencing on and including the third day after the
date of delivery to the Administrative Agent of such
consolidated financial statements indicating such change and
ending on the date immediately preceding the effective date
of the next such change; provided that the Leverage Ratio
shall be deemed to be the applicable rate per annum set
forth on Schedule I under the caption "Above 3.5x" (x) at
any time that an Event of Default has occurred and is
continuing or (y) if the Borrower fails to deliver the
consolidated financial statements required to be delivered
by it pursuant to Section 5.01(a), during the period from
the expiration of the time for delivery thereof until such
consolidated financial statements are delivered.
"Applicable Percentage" of any Lender means the
percentage set opposite such Lender's name on Schedule II,
as modified from time to time as provided hereby.
"Applicable Reference Rate" means on a per annum
basis in respect of any Reference Rate Loan, for any day,
the sum of the Alternate Base Rate plus the Applicable
Margin.
"Assessment Rate" means, with respect to each day
during an Interest Period, the annual assessment rate
(rounded upwards, if not already a whole multiple of 1/100
of l%, to the next highest whole multiple of 1/100 of 1%) in
effect on such day that is payable by a member of the Bank
Insurance Fund classified as "well-capitalized" and within
supervisory subgroup "B" (or a comparable successor risk
classification) within the meaning of 12 C.F.R. Part 327 (or
any successor provision) to the Federal Deposit Insurance
Corporation for insurance by such Corporation of time
deposits made in dollars at the offices of such member in
the United States; provided that if, as a result of any
change in any law, rule or regulation, it is no longer
possible to determine the Assessment Rate as aforesaid, then
the Assessment Rate shall be such annual rate as shall be
determined by the Administrative Agent to be representative
of the cost of such insurance to the Lenders.
"Board" means the Board of Governors of the
Federal Reserve System of the United States.
"Borrowing Date" means, with respect to any Loan
the date on which such Loan is disbursed.
"Business Day" means any day other than a
Saturday, Sunday or a day on which banks in New York City
are authorized or required by law to close; provided,
however, that when used in connection with a LIBO Rate Loan,
the term "Business Day" shall also exclude any day on which
banks are not open for dealings in Dollar deposits in the
London interbank market.
"Capitalized Lease Obligation" means the
obligation of any Person to pay rent or other amounts under
a lease of (or other agreement conveying the right to use)
real and/or personal property which obligation is, or in
accordance with GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting
Standards Board) is required to be, classified and accounted
for as a capital lease on a balance sheet of such Person
under GAAP, and for purposes of this Agreement the amount of
such obligation shall be the capitalized amount thereof
determined in accordance with GAAP.
"CERCLA" means, collectively, the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. SS 9601 et seq.
A "Change in Control" shall be deemed to have
occurred if (a) any Person or group (within the meaning of
Rule 13d-5 of the SEC as in effect on the Effective Date)
shall own directly or indirectly, beneficially or of record,
shares representing 30% or more of the aggregate ordinary
voting power represented by the issued and outstanding
capital stock of the Borrower; or (b) a majority of the
seats (other than vacant seats) on the Board of Directors of
the Borrower shall at any time be occupied by Persons who
were not (i) members of the Board of Directors of the
Borrower on the Effective Date or (ii) appointed as, or
nominated for election as, directors by a majority of the
directors who are (x) referred to in clause (i) and
(y) other directors who are appointed or nominated in
accordance with this clause (ii).
"Closing Date" means December 12, 1997.
"Code" means the Internal Revenue Code of 1986, as
amended from time to time.
"Commitment" means, with respect to each Lender,
the commitment of such Lender hereunder to make revolving
loans as set forth on Schedule II, or in the Commitment
Transfer Supplement pursuant to which such Lender assumed
its Commitment, as the same may be permanently terminated or
reduced from time to time pursuant to Section 2.07 and
pursuant to assignments by such Lender pursuant to Section
9.03. The Commitment of each Lender shall automatically and
permanently terminate on the Maturity Date.
"Commitment Fee", has the meaning assigned to such
term in Section 2.06(a).
"Commitment Termination Date" has the meaning
assigned to such term in Section 2.06(a).
"Commitment Transfer Supplement" means a
Commitment Transfer Supplement entered into by a Lender and
an assignee, and accepted by the Administrative Agent, in
the form of Exhibit B or such other form as shall be
approved by the Administrative Agent.
"Confidential Information Memorandum" means the
Confidential Information Memorandum of the Borrower dated
October 17, 1997.
"Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of
the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise,
and "Controlling" and "Controlled" shall have meanings
correlative thereto.
"Credit Event" means the making of a Loan.
"Debt" of any Person means, without duplication,
(a) all obligations of such Person for borrowed money,
(b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all
obligations of such Person for the unearned balance of any
payment received under any contract outstanding for
180 days, (d) all obligations of such Person under
conditional sale or other title retention agreements
relating to property or assets purchased by such Person,
(e) all obligations of such Person issued or assumed as the
deferred purchase price of property or services (excluding
(x) the Pennzoil Obligations and (y) trade accounts payable
and accrued obligations incurred in the ordinary course of
business so long as the same are not 180 days overdue or, if
overdue, are being contested in good faith and by
appropriate proceedings), (f) all Debt of others secured by
(or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not
the obligations secured thereby have been assumed, (g) all
Guarantees by such Person of Debt of others, (h) all
Capitalized Lease Obligations of such Person, (i) all
recourse obligations of such Person with respect to sales of
accounts receivable which would be shown under GAAP on the
balance sheet of such Person as a liability, (j) all
obligations of such Person as an account party (including
reimbursement obligations to the issuer of a letter of
credit) in respect of bankers' acceptances and letters of
credit Guaranteeing Debt and (k) all noncontingent
obligations of such Person as an account party (including
reimbursement obligations to the issuer of a letter of
credit) in respect of letters of credit other than those
referred to in clause (j) above. The Debt of any Person
shall include the Debt of any partnership in which such
Person is a general partner but shall exclude obligations
under leases which are characterized as Operating Leases.
"Default" means any event or condition which upon
the giving of notice or lapse of time or both would become
an Event of Default.
"Dollars" or "$" means United States Dollars.
"Domestic Office" means, for any Lender, the
Domestic Office set forth for such Lender on the signature
pages hereof, unless such Lender shall designate a different
Domestic Office by notice in writing to the Administrative
Agent and the Borrower.
"EBITDA" means, for any fiscal quarter, the sum of
(a) the Borrower's consolidated net income (loss) (before
deducting minority interests in net income (loss) of
consolidated subsidiaries, but disregarding all
extraordinary or unusual noncash items in calculating such
net income); (b) consolidated interest paid or accrued on
the Loans to the Borrower and on other consolidated Debt of
the Borrower during such quarter and deducted in determining
the Borrower's consolidated net income; and (c) the
Borrower's consolidated depreciation, depletion and
amortization charges deducted in computing the Borrower's
consolidated net income; provided that such calculations of
items (a) through (c) will exclude items relating to
Nonrestricted Subsidiaries.
"EBITDA Ratio" means at the end of any fiscal
quarter, the cumulative sum, for the four consecutive fiscal
quarters ending with such quarter, of (a) the Borrower's
EBITDA to (b) interest expense and capitalized interest paid
or accrued on consolidated Debt of the Borrower, including
the Loans, during such four consecutive fiscal quarters.
"Effective Date" means the date on which the
conditions specified in Article IV are satisfied (or waived
in accordance with Section 9.07).
"environment" shall mean ambient air, surface
water and groundwater (including potable water, navigable
water and wetlands), the land surface or subsurface strata
or as otherwise defined in any Environmental Law.
"Environmental Claim" means any written notice of
violation, claim, demand, order, directive, cost recovery
action or other cause of action by, or on behalf of, any
Governmental Authority or any Person for damages, injunctive
or equitable relief, personal injury (including sickness,
disease or death), Remedial Action costs, tangible or
intangible property damage, natural resource damages,
nuisance, pollution, any adverse effect on the environment
caused by any Hazardous Material, or for fines, penalties or
restrictions, resulting from or based upon: (a) the threat
or existence, or the continuation of the existence, of a
Release (including sudden or non-sudden, accidental or
nonaccidental Releases); (b) exposure to any Hazardous
Material; (c) the presence, use, handling, transportation,
storage, treatment or disposal of any Hazardous Material; or
(d) the violation of any Environmental Law or Environmental
Permit.
"Environmental Law" means any and all applicable
treaties, laws, rules, regulations, codes, ordinances,
orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any
Governmental Authority, relating in any way to the
environment, preservation or reclamation of natural
resources, the management, Release or threatened Release of
any Hazardous Material or to health and safety matters,
including CERCLA, the Solid Waste Disposal Act, as amended
by the Resource Conservation and Recovery Act of 1976 and
Hazardous and Solid Amendments of 1984, 42 U.S.C. SS 6901 et
seq., the Federal Water Pollution Control Act, as amended by
the Clean Water Act of 1977, 33 U.S.C. 1251 et seq., the
Clean Air Act of 1970, as amended 42 U.S.C. 7401 et seq.,
the Toxic Substances Control Act of 1976, 15 U.S.C. SS 2601
et seq., the Occupational Safety and Health Act of 1970, as
amended, 29 U.S.C. SS 651 et seq., the Emergency Planning
and Community Right-to-Know Act of 1986, 42 U.S.C. SS 11001
et seq., the Safe Drinking Water Act of 1974, as amended,
42 U.S.C. SS 300(f) et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. SS 1801 et seq., and any
similar or implementing state or local law, and all
amendments or regulations promulgated thereunder.
"Environmental Permit" means any permit, approval,
authorization, certificate, license, variance, filing or
permission required by or from any Governmental Authority
pursuant to any Environmental Law.
"Equity Payment" means any dividend or
distribution on, or purchase, redemption or other payment in
respect of, the capital stock of the Borrower, whether in
cash or in kind.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time.
"ERISA Affiliate" means any trade or business
(whether or not incorporated), that together with a
Borrower, is treated as a single employer under
Section 414(b) or (c) of the Code or, solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated
as a single employer under Section 414 of the Code.
"ERISA Event" means (i) any "reportable event", as
defined in Section 4043 of ERISA or the regulations issued
thereunder, with respect to a Plan; (ii) the adoption of any
amendment to a Plan that would require the provision of
security pursuant to Section 401(a)(29) of the Code;
(iii) the existence with respect to any Plan of an
"accumulated funding deficiency" (as defined in Section 412
of the Code), whether or not waived; (iv) the incurrence of
any liability under Title IV of ERISA with respect to any
Plan or Multiemployer Plan, other than any liability for
contributions not yet due or payment of premiums not yet
due; (v) the receipt by a Borrower or any ERISA Affiliate
from the PBGC of any notice relating to the intention of the
PBGC to terminate any Plan or Plans or to appoint a trustee
to administer any Plan; (vi) the receipt by a Borrower or
any ERISA Affiliate of any notice concerning the imposition
of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in
reorganization, within the meaning of Title IV of ERISA; and
(vii) any other similar event or condition with respect to a
Plan or Multiemployer Plan that could reasonably result in
liability of a Borrower.
"Event of Default" means any Event of Default
defined in Article VII.
"Financial Officer" of any corporation means the
principal financial officer, principal accounting officer,
treasurer, assistant treasurer or controller of such
corporation.
"FRP" means Freeport-McMoRan Resource Partners,
Limited Partnership, a Delaware limited partnership.
"GAAP" has the meaning assigned to such term in
"Governmental Authority" means any Federal, state,
local or foreign court or governmental agency, authority,
instrumentality or regulatory body.
"Governmental Rule" means any statute, law,
treaty, rule, code, ordinance, regulation, permit,
certificate or order of any Governmental Authority or any
judgment, decree, injunction, writ, order or like action of
any court, arbitrator or other judicial or quasi judicial
tribunal.
"Guarantee" means, with respect to any Person, any
obligation, contingent or otherwise, of such Person
guaranteeing or having the economic effect of guaranteeing
any Debt or obligation of any other Person in any manner,
whether directly or indirectly, and including, without
limitation, any agreement or obligation (i) to pay dividends
or other distributions upon the stock of such other Person,
or any obligation of such other Person, direct or indirect,
(ii) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or obligation or to
purchase (or advance or supply funds for the purchase of)
any security for the payment of such Debt, obligation,
dividend or distribution, (iii) to purchase or lease
property, securities or services for the purpose of assuring
the owner of such Debt or obligation or the holder of such
stock of the payment of such Debt, obligation, dividend or
distribution including, without limitation, any take-or-pay
contract or agreement to buy a minimum amount or quantity of
production or to provide an operating subsidy which, in each
case, is utilized for a third party financing, or (iv) to
maintain working capital, equity capital or any other
financial statement condition of the primary obligor, so as
to enable the primary obligor to pay such Debt, obligation,
dividend or distribution; provided, however, that the term
Guarantee shall not include any endorsement for collection
or deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or
radioactive materials, substances or wastes, hazardous or
toxic materials, substances or wastes, pollutants, solid,
liquid or gaseous wastes, including petroleum or petroleum
distillates, asbestos or asbestos-containing materials,
polychlorinated biphenyls ("PCBs") or PCB-containing
materials or equipment, radon gas, infectious or medical
wastes and all other substances or wastes of any nature
regulated pursuant to any Environmental Law.
"Hedge Agreement" means any interest rate,
currency or commodity swap, cap, floor or collar agreement
or similar hedging arrangement providing for the transfer or
mitigation of interest rate, commodity price or currency
value or exchange rate risks, either generally or under
specific contingencies.
"Interest Payment Date" means (i) as to any
Reference Rate Loan, the next succeeding March 31, June 30,
September 30 or December 31 (subject to Section 2.16), or if
earlier, the Maturity Date, and (ii) as to any LIBO Rate
Loan, the last day of the Interest Period applicable to such
Loan (and, in the case of any Interest Period of more than
three months' duration, the date that would be the last day
of such Interest Period if such Interest Period were of
three months' duration) and the date of any continuation or
conversion of any Loan as or into a Loan of the same or a
different type.
"Interest Period" means (i) as to any LIBO Rate
Loan, the period commencing on the date of such LIBO Rate
Loan or on the last day of the immediately preceding
Interest Period applicable to such Loan, as the case may be,
and ending on the numerically corresponding day (or, if
there is no numerically corresponding day, on the last day)
in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect, and (ii) as to any
Reference Rate Loan, the period commencing on the date of
such Reference Rate Loan or on the last day of the
immediately preceding Interest Period applicable to such
Loan, as the case may be, and ending on the earliest of
(x) the next succeeding March 31, June 30, September 30 or
December 31, (y) the Maturity Date and (z) the date such
Loan is prepaid or converted as permitted hereby; provided,
however, that (1) if any Interest Period would end on a day
that shall not be a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless, with
respect to LIBO Rate Loans only, such next succeeding
Business Day would fall in the next calendar month, in which
case such Interest Period shall end on the next preceding
Business Day, (2) no Interest Period with respect to any
Loan shall end later than the Maturity Date and (3) interest
shall accrue from and including the first day of an Interest
Period to but excluding the last day of such Interest
Period.
"Lender" means each financial institution
signatory hereto and its successors and permitted assigns
under Section 9.03.
"Leverage Ratio" means, on any date, the ratio of
(a) Total Debt as of such date to (b) EBITDA for the period
of four consecutive fiscal quarters of the Borrower most
recently ended as of such date, all determined on a
consolidated basis in accordance with GAAP.
"LIBO Rate" means, with respect to any LIBO Rate
Loan for any Interest Period, the rate appearing on
Page 3750 of the Telerate Service (or on any successor or
substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations
comparable to those currently provided in such page of such
Service, as determined by the Administrative Agent from time
to time for purposes of providing quotations of interest
rates applicable to Dollar deposits in the London interbank
market) at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest
Period, as the rate for dollar deposits with a maturity
comparable to such Interest Rate. In the event that such
rate is not available at such time for any reason, then the
"LIBO Rate" with respect to such LIBO Rate Loan for such
Interest Period shall be the rate at which Dollar deposits
of $5,000,000 and for a maturity comparable to such Interest
Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the
London interbank market at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such
Interest Period.
"LIBO Rate Loan" means any Loan for which interest
is determined, in accordance with the provisions hereof, at
the Applicable LIBO Rate.
"LIBOR Office" means, for any Lender, the LIBOR
Office set forth for such Lender on the signature pages
hereof or as otherwise notified in writing to the
Administrative Agent and the Borrower, unless such Lender
shall designate a different LIBOR Office by notice in
writing to the Administrative Agent and the Borrower.
"Lien" means with respect to any asset, (a) a
mortgage, deed of trust, lien, pledge, encumbrance, charge
or security interest in or on such asset, (b) the interest
of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement
relating to such asset, (c) in the case of securities, any
purchase option, call or similar right of a third party with
respect to such securities and (d) other encumbrances of any
kind, including, without limitation, production payment
obligations.
"Loan" means any loan made pursuant to
Section 2.01.
"Loan Documents" means this Agreement and all
other agreements, certificates and instruments now or
hereafter entered into in connection therewith or in
furtherance thereof, in each case as amended and modified
from time to time.
"Margin Stock" has the meaning assigned to such
term in Regulation U.
"Material Adverse Effect" means (a) a materially
adverse effect on the business, assets, operations,
prospects or condition, financial or otherwise, of the
Borrower and its Restricted Subsidiaries taken as a whole,
(b) material impairment of the ability of the Borrower or
any of its Subsidiaries to perform any of its obligations
under any Loan Document to which it is or will be a party or
(c) material impairment of the rights of or benefits
available to the Lenders under any Loan Document.
"Maturity Date" means the fifth anniversary of the
Effective Date, or, if earlier, the date of termination of
the Commitments pursuant to the terms hereof.
"Multiemployer Plan" means a multiemployer plan as
defined in Section 4001(a)(3) of ERISA to which the Borrower
or any ERISA Affiliate is making or accruing an obligation
to make contributions, or has within any of the preceding
five plan years made or accrued an obligation to make
contributions.
"Net Proceeds" means (i) the gross fair market
value of the consideration or other amounts payable to or
receivable by the Borrower or any of its Restricted
Subsidiaries in respect of any sales, transfers,
distributions or other dispositions (including by merger or
consolidation) of assets or properties (including any
capital or other equity interests owned), less (ii) the
amount, if any, of all taxes (but only to the extent such
Person reasonably estimates that such taxes will be paid on
the date of the next tax filing by such Person or such
Affiliate of such Person), and reasonable and customary
fees, commissions, costs and other expenses (other than
those payable to the Borrower or any of its Restricted
Subsidiaries) which are incurred in connection with such
sales, transfers, distributions or other dispositions and
are payable by the seller or the transferor of the assets or
property to which such sales, transfers, distributions or
other dispositions relate, but only to the extent not
already deducted in arriving at the amount referred to in
clause (i), and less (iii) amounts used within 120 days from
the date of closing or effectiveness of the original
transaction in question by the seller or transferor to
purchase other assets used in the business of it and its
Wholly-Owned Restricted Subsidiaries and not pledged or
encumbered to any other Person.
"Non-Excluded Taxes" has the meaning assigned such
term in Section 2.17(a).
"Nonrestricted Subsidiary" means (i) any of the
Subsidiaries listed on Schedule III hereto as a
Nonrestricted Subsidiary, (ii) any Subsidiary of any
Nonrestricted Subsidiary and (iii) any surviving Person
(other than a Borrower or a Restricted Subsidiary) into
which any of such Persons referred to in clause (i) or (ii)
is merged or consolidated, subject to Section 5.02(c), and
(iv) any Subsidiary organized after the date of this
Agreement for the purpose of acquiring the stock or other
ownership interests or assets of another Person or for
start-up ventures or exploration programs or activities and
designated as a Nonrestricted Subsidiary by the Borrower as
of the time of its organization. By written notice to the
Administrative Agent, the Borrower may (x) declare any
Nonrestricted Subsidiary to be a Restricted Subsidiary and
such former Nonrestricted Subsidiary shall thereafter be
deemed to be a Restricted Subsidiary for all purposes of
this Agreement or (y) at any time other than when a Default
or Event of Default has occurred and is continuing or would
exist after giving effect to such declaration, in any fiscal
year, declare one or more Restricted Subsidiaries, the
interest of the Borrower in all of which has an equity value
or loan investment of less than $5,000,000 in the aggregate,
to be a Nonrestricted Subsidiary and any such former
Restricted Subsidiary shall thereafter be deemed to be a
Nonrestricted Subsidiary for all purposes of this Agreement.
"Operating Lease" means any lease other than a
lease giving rise to a Capitalized Lease Obligation.
"Other Taxes" has the meaning assigned such term
in Section 2.17(b).
"Participants" has the meaning assigned such term
in Section 9.03(b).
"PBGC" means the Pension Benefit Guaranty
Corporation referred to and defined in ERISA.
"Pennzoil Obligations" means the deferred purchase
price obligations incurred by FRP in connection with the
purchase from Pennzoil Company of the Culberson mining
operations and associated physical assets.
"Permitted Investments" means customary portfolio
cash management investments made pursuant to prudent cash
management practices.
"Person" means any natural person, corporation,
partnership, joint venture, trust, incorporated or
unincorporated association, joint stock company, government
(or an agency or political subdivision thereof) or other
entity of any kind.
"Plan" means any employee pension benefit plan
(other than a Multiemployer Plan) which is subject to the
provisions of Title IV of ERISA or Section 412 of the Code
and in respect of which a Borrower or any ERISA Affiliate is
(or, if such plan were terminated, would under Section 4069
of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Properties" has the meaning assigned such term in
Section 3.01(n)(1).
"Purchasing Lender" has the meaning assigned such
term in Section 9.03(c).
"Reference Rate Loan" means any Loan for which
interest is determined, in accordance with the provisions
hereof, at the Applicable Reference Rate.
"Register" has the meaning assigned such term in
Section 9.03(d).
"Regulation D" means Regulation D of the Board as
from time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Regulation G" means Regulation G of the Board as
from time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Regulation U" means Regulation U of the Board as
from time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Regulation X" means Regulation X of the Board as
from time to time in effect and all official rulings and
interpretations thereunder or thereof.
"Release" means any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, disposing, depositing,
dispersing, emanating or migrating of any Hazardous Material
in, into, onto or through the environment.
"Remedial Action" means (a) "remedial action" as
such term is defined in CERCLA, 42 U.S.C. S 9601(24), and
(b) all other actions required by any Governmental Authority
or voluntarily undertaken to: (i) cleanup, remove, treat,
abate or in any other way address any Hazardous Material in
the environment; (ii) prevent the Release or threat of
Release, or minimize the further Release of any Hazardous
Material so it does not migrate or endanger or threaten to
endanger public health, welfare or the environment; or (iii)
perform studies and investigations in connection with, or as
a precondition to, (i) or (ii) above.
"Required Lenders" means, subject to
Section 9.07(b), at any time Lenders having Commitments
representing more than 50% of the aggregate Commitments
hereunder or, if the Commitments have been terminated,
Lenders holding Loans representing more than 50% of the
aggregate principal amount of the Loans.
"Responsible Officer" of any corporation means any
executive officer or Financial Officer of such corporation
and any other officer or similar official thereof
responsible for the administration of the obligations of
such corporation in respect of this Agreement.
"Restricted Subsidiary" means any Subsidiary that
is not a Nonrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Spin-Off" means the distribution by FRP to its
unitholders of the shares of capital stock of the Borrower,
thereby leaving the Borrower as a publicly held company.
"Statutory Reserves" means a fraction (expressed
as a decimal), the numerator of which is the number one and
the denominator of which is the number one minus the
aggregate of the maximum reserve percentages (including,
without limitation, any marginal, special, emergency or
supplemental reserves) expressed as a decimal established by
the Board and any other banking authority, domestic or
foreign, to which the Administrative Agent or any Lender
(including any branch, Affiliate, or other funding office
making or holding a Loan) is subject (a) with respect to the
Base CD Rate (as such term is used in the definition of
"Alternate Base Rate"), for new negotiable nonpersonal time
deposits in Dollars of over $100,000 with maturities
approximately equal to the applicable Interest Period, and
(b) with respect to the LIBO Rate, for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board). Such reserve percentages shall
include, without limitation, those imposed under Regulation
D. Statutory Reserves shall be adjusted automatically on
and as of the effective date of any change in any reserve
percentage.
"Subsidiary" means as to any Person, any
corporation at least a majority of whose securities having
ordinary voting power for the election of directors (other
than securities having such power only by reason of the
happening of a contingency) are at the time owned by such
Person and/or one or more other Subsidiaries of such Person
and any partnership (other than joint ventures for which the
intention under the applicable agreements, including
operating agreements, if any, is that such joint ventures be
partnerships solely for purposes of the Code) in which such
Person or a Subsidiary of such Person is a general partner;
provided that unless otherwise specified, "Subsidiary" means
a Subsidiary of the Borrower.
"Sulphur Supply Agreement" has the meaning
assigned to such term in clause (r) of Article IV.
"Third Party" has the meaning assigned to such
term in Section 5.02(j).
"Total Commitment" means the sum of all the then
effective Commitments.
"Total Debt" means, as of any date of
determination, without duplication, the aggregate principal
amount of Debt of the Borrower and the Restricted
Subsidiaries outstanding as of such date, determined on a
consolidated basis in accordance with GAAP.
"Transfer Effective Date" has the meaning assigned
to such term in each Commitment Transfer Supplement.
"Transferee" means any Participant or Purchasing
Lender, as such terms are defined in Sections 9.03(b) and
(c), respectively.
"Wholly-Owned Restricted Subsidiary" means any
Subsidiary, all of the stock of which is at the time owned
by the Borrower and/or one or more other Wholly-Owned
Restricted Subsidiaries of the Borrower.
"Withdrawal Liability" means liability to a
Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan, as such terms are
defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Accounting Terms. Except as
otherwise herein specifically provided, each accounting term
used herein shall have the meaning given it under United
States generally accepted accounting principles in effect
from time to time (with such changes thereto as are approved
or concurred in from time to time by the Borrower's
independent public accountants, as applicable) applied on a
basis consistent with those used in preparing the financial
statements referred to in Section 5.01(a) ("GAAP");
provided, however, that each reference in Section 5.02, or
in the definition of any term used in Section 5.02, to GAAP
shall mean generally accepted accounting principles as in
effect on the Effective Date and as applied by the Borrower
in preparing the financial statements referred to in
Section 3.01(e). In the event any change in GAAP materially
affects any provision of this Agreement, the Lenders and the
Borrower agree that they shall negotiate in good faith in
order to amend the affected provisions in such a way as will
restore the parties to their respective positions prior to
such change, and until such amendment becomes effective the
Borrower's compliance with such provisions shall be
determined on the basis of GAAP as in effect immediately
before such change in GAAP became effective.
SECTION 1.03. Section, Article, Exhibit and
Schedule References, etc. Unless otherwise stated, Section,
Article, Exhibit and Schedule references made herein are to
Sections, Articles, Exhibits or Schedules, as the case may
be, of this Agreement. Whenever the context may require,
any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes"
and "including" shall be deemed to be followed by the phrase
"without limitation". Except as otherwise expressly
provided herein, any reference in this Agreement to any Loan
Document shall mean such document as amended, restated,
supplemented or otherwise modified from time to time.
ARTICLE II
The Loans
SECTION 2.01. Revolving Credit Facility. Upon
the terms and subject to the conditions and relying upon the
representations and warranties herein set forth, each
Lender, severally and not jointly, agrees to make Loans to
the Borrower, at any time and from time to time on or after
the Effective Date, and until the earlier of the Maturity
Date and the termination of the Commitment of such Lender in
accordance with the terms hereof, in an aggregate principal
amount at any one time outstanding not to exceed such
Lender's Applicable Percentage of the then effective unused
Total Commitment on the Borrowing Date for such Loan.
Within the foregoing limits, the Borrower may borrow, repay
and reborrow, prior to the Maturity Date, Loans subject to
the terms, provisions and limitations set forth herein.
SECTION 2.02. Loans. (a) The Loans made by the
Lenders to the Borrower on any one date shall be in an
aggregate principal amount which is (i) an integral multiple
of $1,000,000 and not less than $5,000,000 or (ii) equal to
the remaining available balance of the applicable
Commitments.
(b) Each Loan shall be either a Reference Rate
Loan or a LIBO Rate Loan as the Borrower may request
pursuant to Section 2.03. Subject to the provisions of
Sections 2.03 and 2.10, Loans of more than one type may be
outstanding at the same time.
(c) Each Lender shall make its portion, as
determined under Section 2.14, of each Loan hereunder on the
proposed date thereof by paying the amount required to the
Administrative Agent in New York, New York in immediately
available funds not later than 2:00 p.m., New York City
time, and the Administrative Agent shall by 3:00 p.m.,
New York City time, credit the amounts so received to the
general deposit account of the Borrower with the
Administrative Agent or, if Loans shall not be made on such
date because any condition precedent to a borrowing herein
specified is not met, return the amounts so received to the
respective Lenders. Unless the Administrative Agent shall
have received notice from a Lender prior to the date of any
Loan that such Lender will not make available to the
Administrative Agent such Lender's portion of such Loan, the
Administrative Agent may assume that such Lender has made
such portion available to the Administrative Agent on the
date of such Loan in accordance with this paragraph (c) and
the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower on such date a
corresponding amount. If the Administrative Agent shall
have so made funds available, then to the extent that such
Lender shall not have made such portion available to the
Administrative Agent, such Lender and the Borrower severally
agree to repay without duplication to the Administrative
Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such
amount is made available to the Borrower until the date such
amount is repaid to the Administrative Agent at an interest
rate equal to (i) in the case of the Borrower, the interest
rate applicable at the time to the Loans comprising such
borrowing and (ii) in the case of such Lender, a rate
determined by the Administrative Agent to represent its cost
of overnight or short-term funds (which determination shall
be conclusive absent manifest error). If such Lender shall
repay to the Administrative Agent such corresponding amount,
such amount shall constitute such Lender's Loan for purposes
of this Agreement.
SECTION 2.03. Notice of Loans. (a) The Borrower
shall request a Loan by giving the Administrative Agent
telephonic (promptly confirmed in writing), written,
telecopy or telex notice in the form of Exhibit C with
respect to each Loan (i) in the case of a LIBO Rate Loan,
not later than 10:30 a.m., New York City time, three
Business Days before a proposed borrowing, and (ii) in the
case of a Reference Rate Loan, not later than 10:30 a.m.,
New York City time, on the date of a proposed borrowing.
Such notice shall be irrevocable (except that in the case of
a LIBO Rate Loan, the Borrower may, subject to Section 2.13,
revoke such notice by giving written or telex notice thereof
to the Administrative Agent not later than 10:30 a.m., New
York City time, two Business Days before such proposed
borrowing) and shall in each case refer to this Agreement
and specify (1) whether the Loan then being requested is to
be a Reference Rate Loan or LIBO Rate Loan, (2) the date of
such Loan (which shall be a Business Day) and amount
thereof, and (3) if such Loan is to be a LIBO Rate Loan, the
Interest Period or Interest Periods (which shall not end
after the Maturity Date) with respect thereto. If no
election as to the type of Loan is specified in any such
notice by the Borrower, such Loan shall be a Reference Rate
Loan. If no Interest Period with respect to any LIBO Rate
Loan is specified in any such notice by the Borrower, then
the Borrower shall be deemed to have selected an Interest
Period of one month's duration.
(b) The Borrower may continue or convert all or
any part of any Loan as or into a Loan of the same or a
different type in accordance with Section 2.10 and subject
to the limitations set forth herein. If the Borrower shall
not have delivered a borrowing notice in accordance with
this Section 2.03 prior to the end of the Interest Period
then in effect for any Loan requesting that such Loan be
converted or continued as permitted hereby, then the
Borrower shall (unless the Borrower has notified the
Administrative Agent, not less than three Business Days
prior to the end of such Interest Period, that such Loan is
to be repaid at the end of such Interest Period) be deemed
to have delivered a borrowing notice pursuant to this
Section 2.03 requesting that such Loan be converted into or
continued as a Reference Rate Loan of equivalent amount.
(c) Notwithstanding any provision to the contrary
in this Agreement, the Borrower shall not in any borrowing
notice under this Section 2.03 request any LIBO Rate Loan
which, if made, would result in more than 10 separate LIBO
Rate Loans of any Lender. For purposes of the foregoing,
Loans having different Interest Periods, regardless of
whether they commence on the same date, shall be considered
separate Loans.
SECTION 2.04. Repayment of Loans; Evidence of
Debt. (a) The Borrower hereby unconditionally agrees to
pay to the Administrative Agent for the account of each
Lender the then unpaid principal amount of all Loans of such
Lender on the Maturity Date.
(b) Each Lender shall maintain in accordance with
its usual practice an account or accounts evidencing the
indebtedness to such Lender resulting from each Loan made by
such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from
time to time under this Agreement.
(c) The Administrative Agent shall maintain
accounts for (i) the type of each Loan made and the Interest
Period applicable thereto, (ii) the amount of any principal
or interest due and payable or to become due and payable
from the Borrower to each Lender hereunder and (iii) the
amount of any sum received by the Administrative Agent
hereunder from the Borrower and each Lender's share thereof.
(d) The entries made in the accounts maintained
pursuant to paragraphs (b) and (c) of this Section 2.04
shall be prima facie evidence of the existence and amounts
of the obligations therein recorded; provided, however, that
the failure of any Lender or the Administrative Agent to
maintain such accounts or any error therein shall not in any
manner affect the obligations of the Borrower to repay the
Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that any Loans made by
it be evidenced by a promissory note. In such event, the
Borrower shall prepare, execute and deliver to such Lender a
promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent.
Thereafter, the Loans evidenced by such promissory note and
interest thereon shall at all times (including after
assignment pursuant to Section 9.03) be represented by one
or more promissory notes in such form payable to the order
of the payee named therein (of if such promissory note is a
registered note, to such payee and its registered assigns).
SECTION 2.05. Interest on Loans. (a) Subject to
the provisions of Section 2.08, each Reference Rate Loan
shall bear interest at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of
365 or 366 days, as the case may be, when determined by
reference to the Prime Rate, and over a year of 360 days at
all other times), equal to the Applicable Reference Rate.
(b) Subject to the provisions of Section 2.08,
each LIBO Rate Loan shall bear interest at a rate per annum
(computed on the basis of the actual number of days elapsed
over a year of 360 days) equal to the Applicable LIBO Rate
for the Interest Period in effect for such Loan.
(c) Interest on each Loan shall be payable on
each applicable Interest Payment Date. The Applicable
Reference Rate and the Applicable LIBO Rate shall be
determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
The Administrative Agent shall promptly advise the Borrower
and each Lender of such determination.
SECTION 2.06. Fees. (a) The Borrower shall pay
each Lender, through the Administrative Agent, on the last
Business Day of each March, June, September and December,
and on the date on which the Commitment of such Lender shall
be terminated as provided herein (the "Commitment
Termination Date"), in immediately available funds, a
commitment fee (a "Commitment Fee") from and including the
earlier of the Closing Date and the Effective Date through
and including the Commitment Termination Date on the amount
of such Lender's Applicable Percentage of the Total
Commitment during the quarter ending on such date (or
shorter period commencing with the earlier of the Closing
Date and the Effective Date or ending with the Commitment
Termination Date) equal to the applicable Commitment Fee
Percentage set forth in Schedule I.
(b) All Commitment Fees under this Section 2.06
shall be computed on the basis of the actual number of days
elapsed in a year of 365 or 366 days, as the case may be.
The Commitment Fees due to each Lender shall cease to accrue
on the earlier of the Maturity Date and the termination of
the Commitment of such Lender pursuant to Section 2.07.
(c) The Borrower agrees to pay to the
Administrative Agent, for its own account, on the Effective
Date and on each anniversary thereof, an administration fee
(the "Administrative Fee") as agreed between the Borrower
and the Administrative Agent.
(d) All such fees shall be paid on the dates due,
in immediately available funds, to the Administrative Agent
for distribution, if and as appropriate, among the Lenders.
Once paid, all such fees shall be fully earned and non-
refundable under any and all circumstances.
SECTION 2.07. Maturity and Reduction of
Commitments. (a) Upon at least five days' prior written,
telecopied or telex notice to the Administrative Agent, the
Borrower may without penalty at any time in whole
permanently terminate, or from time to time permanently
reduce, the Total Commitment, ratably among the Lenders in
accordance with the amounts of their respective Commitments;
provided, however, that each partial reduction of the
Commitment Amount shall be in a minimum principal amount of
$5,000,000 and an integral multiple of $1,000,000; provided
further, that the Total Commitment may not be reduced to an
amount which is less than the aggregate principal amount of
all Loans outstanding after such reduction.
(b) The Total Commitment shall be automatically
and permanently reduced by an amount equal to the Net
Proceeds of any nonordinary course asset disposition by the
Borrower and its Restricted Subsidiaries (other than in each
case, (i) dispositions of obsolete and worn-out property or
real estate not used or useful in its business and (ii)
sales of accounts receivable), in excess of a cumulative
aggregate amount of $25,000,000 for all such transactions
during the term of this Agreement; provided that such
aggregate amount shall not include any permitted Capitalized
Lease Obligations. The Commitment reductions required by
this Section 2.07(b) shall be effective as of the date of
closing or effectiveness of any transaction subject hereto;
provided that with respect to any noncash Net Proceeds, such
Commitment reductions shall be effective as of the date of
receipt of cash proceeds thereof; and provided further that
to the extent prepayment of any LIBO Rate Loan is required
pursuant to this Section 2.07(b), such prepayment may be
made at the end of the current Interest Period for such LIBO
Rate Loan if the required prepayment would otherwise give
rise to breakage costs under Section 2.13(a)(i).
(c) On the Maturity Date, the Commitments shall
automatically terminate and any outstanding Loans shall be
due and payable in full.
SECTION 2.08. Interest on Overdue Amounts;
Alternative Rate of Interest. (a) If the Borrower shall
default in the payment of the principal of or interest on
any Loan or any other amount becoming due hereunder or under
any other Loan Document, by acceleration or otherwise, the
Borrower shall on demand from time to time pay interest, to
the extent permitted by law, on such defaulted amount up to
the date of actual payment (after as well as before
judgment):
(i) in the case of the payment of principal of or
interest on a LIBO Rate Loan, at a rate 2% per annum
above the rate which would otherwise be payable under
Section 2.05(b) until the last date of the Interest
Period then in effect with respect to such Loan and
thereafter as provided in clause (ii) below; and
(ii) in the case of the payment of principal of or
interest on a Reference Rate Loan or any other amount
payable hereunder (other than principal of or interest
on any LIBO Rate Loan to the extent referred to in
clause (i) above), at a rate 2% per annum above the
Applicable Reference Rate.
(b) In the event, and on each occasion, that on
the day two Business Days prior to the commencement of any
Interest Period for a LIBO Rate Loan the Administrative
Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower absent manifest
error) that (i) Dollar deposits in the requested principal
amount of such LIBO Rate Loan are not generally available in
the London interbank market, (ii) the rates at which Dollar
deposits are being offered will not adequately and fairly
reflect the cost to any Lender of making or maintaining such
LIBO Rate Loan during such Interest Period or
(iii) reasonable means do not exist for ascertaining the
Applicable LIBO Rate, the Administrative Agent shall as soon
as practicable thereafter give written, telecopied or telex
notice of such determination to the Borrower and the other
Lenders, and any request by the Borrower for the making of a
LIBO Rate Loan pursuant to Section 2.03 or 2.10 shall, until
the Administrative Agent shall have advised the Borrower and
the Lenders that the circumstances giving rise to such
notice no longer exist, be deemed to be a request for a
Reference Rate Loan; provided, however, that if the
Administrative Agent makes the determination specified in
(ii) above, at the option of the Borrower such request shall
be deemed to be a request for a Reference Rate Loan only
from such Lender referred to in (ii) above; provided
further, however, that such option shall not be available to
the Borrower if the Administrative Agent makes the
determination specified in (ii) above with respect to three
or more Lenders. Each determination of the Administrative
Agent hereunder shall be conclusive absent manifest error.
SECTION 2.09. Prepayment of Loans. (a) The
Borrower shall have the right at any time and from time to
time to prepay any of its Loans, in whole or in part,
subject to the requirements of Section 2.13 but otherwise
without premium or penalty, upon prior written or telex
notice to the Administrative Agent by 10:30 a.m., New York
City time, on the date of such prepayment; provided,
however, that each such partial prepayment shall be in a
minimum amount of $5,000,000 and an integral multiple of
$1,000,000.
(b) In the event of any termination of the
Commitments, the Borrower shall repay or prepay all its
outstanding Loans on the date of such termination. On the
date of any partial reduction of the Commitments pursuant to
Section 2.07, the Borrower shall pay or prepay so much of
its Loans as shall be necessary in order that the aggregate
principal amount of the Loans (after giving effect to any
other prepayment of Loans on such date) outstanding will not
exceed the Total Commitment immediately following such
reduction.
(c) All prepayments under this Section 2.09 shall
be subject to Section 2.13. Each notice of prepayment
delivered pursuant to paragraph (a) above shall specify the
prepayment date and the principal amount of each Loan (or
portion thereof) to be prepaid, shall be irrevocable and
shall commit the Borrower to prepay such Loan by the amount
stated therein on the date stated therein. All prepayments
shall be applied first to Reference Rate Loans and then to
LIBO Rate Loans and shall be accompanied by accrued interest
on the principal amount being prepaid to the date of
prepayment. Any amounts prepaid may be reborrowed to the
extent permitted by the terms of this Agreement.
SECTION 2.10. Continuation and Conversion of
Loans. The Borrower shall have the right, subject to the
provisions of Section 2.08, (i) on three Business Days'
prior irrevocable notice by such Borrower to the
Administrative Agent, to continue or convert any type of
Loans as or into LIBO Rate Loans, or (ii) with irrevocable
notice by the Borrower to the Administrative Agent by
10:30 a.m. on the date of such proposed continuation or
conversion, to continue or convert any type of Loans as or
into Reference Rate Loans, in each case subject to the
following further conditions:
(a) each continuation or conversion shall be made
pro rata as to each type of Loan of the Borrower to be
continued or converted among the Lenders in accordance with
the respective amounts of their commitments and the notice
given to the Administrative Agent by the Borrower shall
specify the aggregate principal amount of Loans to be
continued or converted;
(b) in the case of a continuation or conversion of
less than all Loans of the Borrower, the Loans continued or
converted shall be in a minimum aggregate principal amount
of $5,000,000 and an integral multiple of $1,000,000;
(c) accrued interest on each Loan (or portion
thereof) being continued or converted shall be paid by the
Borrower at the time of continuation or conversion;
(d) the Interest Period with respect to any Loan
made in respect of a continuation or conversion thereof
shall commence on the date of the continuation or
conversion;
(e) any portion of a Loan maturing or required to
be prepaid in less than one month may not be continued as or
converted into a LIBO Rate Loan;
(f) a LIBO Rate Loan may be continued or converted
on the last day of the applicable Interest Period and,
subject to Section 2.13, on any other day;
(g) no Loan (or portion thereof) may be continued
as or converted into a LIBO Rate Loan if, after such
continuation or conversion, an aggregate of more than 10
separate LIBO Rate Loans of any Lender would result,
determined as set forth in Section 2.03(c);
(h) no Loan shall be continued or converted if
such Loan by any Lender would be greater than the amount by
which its Commitment exceeds the amount of its other Loans
at the time outstanding or if such Loan would not comply
with the other provisions of this Agreement; and
(i) any portion of a LIBO Rate Loan which cannot
be converted into or continued as a LIBO Rate Loan by reason
of clause (e) or (g) above shall be automatically converted
at the end of the Interest Period in effect for such Loan
into a Reference Rate Loan.
The Administrative Agent shall communicate the information
contained in each irrevocable notice delivered by the
Borrower pursuant to this Section 2.10 to the other Lenders
promptly after its receipt of the same.
The Interest Period applicable to any LIBO Rate
Loan resulting from a continuation or conversion shall be
specified by the Borrower in the irrevocable notice of
continuation or conversion delivered pursuant to this
Section 2.10; provided, however, that if no such Interest
Period for a LIBO Rate Loan shall be specified, the Borrower
shall be deemed to have selected an Interest Period of one
month's duration.
For purposes of this Section 2.10, notice received
by the Administrative Agent from the Borrower after
10:30 a.m., New York time, on a Business Day shall be deemed
to be received on the immediately succeeding Business Day.
SECTION 2.11. Reserve Requirements; Change in
Circumstances. (a) The Borrower shall pay to each Lender
on the last day of each Interest Period for any LIBO Rate
Loan so long as such Lender may be required to maintain
reserves against eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of the Board)
(or so long as such Lender may be required to maintain
reserves against any other category of liabilities which
includes deposits by reference to which the interest rate on
any LIBO Rate Loan is determined as provided in this
Agreement or against any category of extensions of credit or
other assets of such Lender which includes any LIBO Rate
Loan) an additional amount (determined by such Lender and
notified to the Borrower), equal to the product of the
following for each affected LIBO Rate Loan for each day
during such Interest Period:
(i) the principal amount of such affected LIBO
Rate Loan outstanding on such day;
(ii) the remainder of (x) the product of Statutory
Reserves on such date times the Applicable LIBO Rate on
such day minus (y) the Applicable LIBO Rate on such
day; and
(iii) 1/360.
Each Lender shall separately bill the Borrower directly for
all amounts claimed pursuant to this Section 2.11(a).
(b) Notwithstanding any other provision herein,
if after the Effective Date any change in condition or
applicable law or regulation or in the interpretation or
administration thereof (whether or not having the force of
law and including, without limitation, Regulation D of the
Board) by any Governmental Authority charged with the
administration or interpretation thereof shall occur which
shall:
(i) subject any Lender (which shall for the
purpose of this Section include any assignee or lending
office of any Lender) to any tax of any kind whatsoever
with respect to its LIBO Rate Loans or other fees or
amounts payable hereunder or change the basis of
taxation of any of the foregoing (other than taxes
(including Non-Excluded Taxes) described in Section
2.17 and other than any franchise tax or tax or other
similar governmental charges, fees or assessments based
on the overall net income of such Lender by the U.S.
Federal government or by any jurisdiction in which such
Lender maintains an office, unless the presence of such
office is solely attributable to the enforcement of any
rights hereunder with respect to an Event of Default);
(ii) impose, modify or deem applicable any reserve,
special deposit or similar requirement against assets
of, deposits with or for the account of or credit
extended by any Lender;
(iii) impose on any such Lender or the London
interbank market any other condition affecting this
Agreement or LIBO Rate Loans made by such Lender; or
(iv) impose upon any Lender any other condition
with respect to any amount paid or to be paid by any
Lender with respect to its LIBO Rate Loans or this
Agreement;
and the result of any of the foregoing shall be to increase
the cost to any Lender of making or maintaining its LIBO
Rate Loans or Commitment hereunder, or to reduce the amount
of any sum (whether of principal, interest or otherwise)
received or receivable by such Lender or to require such
Lender to make any payment, in respect of any such Loan, in
each case by or in an amount which such Lender in its sole
judgment shall deem material, then the Borrower shall pay to
such Lender on demand such an amount or amounts as will
compensate the Lender for such additional cost, reduction or
payment.
(c) If any Lender shall have determined that the
applicability of any law, rule, regulation, agreement or
guideline adopted after the Effective Date regarding capital
adequacy, or any change after the Effective Date in any such
law, rule, regulation, agreement or guideline (whether such
law, rule, regulation, agreement or guideline has been
adopted) or in the interpretation or administration of any
of the foregoing by any Governmental Authority charged with
the interpretation or administration thereof, or compliance
by any Lender (or any lending office of such Lender) or any
Lender's holding company with any request or directive
regarding capital adequacy (whether or not having the force
of law) of any such Governmental Authority made or issued
after the Effective Date, has or would have the effect of
reducing the rate of return on such Lender's capital or on
the capital of such Lender's holding company, if any, as a
consequence of this Agreement or the Loans made pursuant
hereto to a level below that which such Lender or such
Lender's holding company could have achieved but for such
applicability, adoption, change or compliance (taking into
consideration such Lender's policies and the policies of
such Lender's holding company with respect to capital
adequacy) by an amount deemed by such Lender to be material,
then from time to time the Borrower shall pay to such Lender
such additional amount or amounts as will compensate such
Lender or such Lender's holding company for any such
reduction suffered.
(d) If and on each occasion that a Lender makes a
demand for compensation pursuant to paragraph (a), (b) or
(c) above, or under Section 2.17 (it being understood that a
Lender may be reimbursed for any specific amount under only
one such paragraph or Section) the Borrower may, upon at
least three Business Days' prior irrevocable written or
telex notice to each of such Lender and the Administrative
Agent, in whole permanently replace the Commitment of such
Lender; provided that such notice must be given not later
than the 90th day following the date of a demand for
compensation made by such Lender; and provided that the
Borrower shall replace such Commitment with the Commitment
of a commercial bank satisfactory to the Administrative
Agent. Such notice from the Borrower shall specify an
effective date for the termination of such Lender's
Commitment which date shall not be later than the 180th day
after the date such notice is given. On the effective date
of any termination of such Lender's Commitment pursuant to
this clause (d), the Borrower shall pay to the
Administrative Agent for the account of such Lender (A) any
Commitment Fees on the amount of such Lender's Commitment so
terminated accrued to the date of such termination, (B) the
principal amount of any outstanding Loans held by such
Lender plus accrued interest on such principal amount to the
date of such termination and (C) the amount or amounts
requested by such Lender pursuant to clause (a), (b) or (c)
above or Section 2.17, as applicable. The Borrower will
remain liable to such terminated Lender for any loss or
expense that such Lender may sustain or incur as a
consequence of such Lender's making any LIBO Rate Loan or
any part thereof or the accrual of any interest on any such
Loan in accordance with the provisions of this Section
2.11(d) as set forth in Section 2.13. Upon the effective
date of termination of any Lender's Commitment pursuant to
this Section 2.11(d) such Lender shall cease to be a
"Lender" hereunder; provided that no such termination of any
such Lender's Commitment shall affect (i) any liability or
obligation of the Borrower or any other Lender to such
terminated Lender which accrued on or prior to the date of
such termination or (ii) such terminated Lender's rights
hereunder in respect of any such liability or obligation.
(e) A certificate of a Lender (or Transferee)
setting forth such amount or amounts as shall be necessary
to compensate such Lender (or Transferee) as specified in
paragraph (a), (b) or (c) (and in the case of paragraph (c),
such Lender's holding company) above or Section 2.17, as the
case may be, shall be delivered as soon as practicable to
the Borrower, and in any event within 90 days of the change
giving rise to such amount or amounts, and shall be
conclusive absent manifest error. The Borrower shall pay
each Lender the amount shown as due on any such certificate
within 15 days after its receipt of the same. In preparing
such a certificate, each Lender may employ such assumptions
and allocations of costs and expenses as it shall in good
faith deem reasonable. The failure of any Lender (or
Transferee) to give the required 90-day notice shall excuse
the Borrower from its obligations to pay additional amounts
pursuant to such Sections incurred for the period that is
90 days or more prior to the date such notice was required
to be given.
(f) Failure on the part of any Lender to demand
compensation for any increased costs or reduction in amounts
received or receivable or reduction in return on capital
within the 90 days required pursuant to Section 2.11(e)
shall not constitute a waiver of such Lender's rights to
demand compensation for any increased costs or reduction in
amounts received or receivable or reduction in return on
capital for any period after the date that is 90 days prior
to the date of the delivery of demand for compensation. The
protection of this Section 2.11 shall be available to each
Lender regardless of any possible contention of invalidity
or inapplicability of the law, regulation or condition which
shall have occurred or been imposed. The Borrower shall not
be required to make any additional payment to any Lender
pursuant to Section 2.11(a) or (b) in respect of any such
cost, reduction or payment that could be avoided by such
Lender in the exercise of reasonable diligence, including a
change in the lending office of such Lender if possible
without material cost to such Lender. Each Lender agrees
that it will promptly notify the Borrower and the
Administrative Agent of any event of which the responsible
account officer shall have knowledge which would entitle
such Lender to any additional payment pursuant to this
Section 2.11. The Borrower agrees to furnish promptly to
the Administrative Agent official receipts evidencing any
payment of any tax.
SECTION 2.12. Change in Legality.
(a) Notwithstanding anything to the contrary herein
contained, if after the Effective Date any change in any law
or regulation or in the interpretation thereof by any
Governmental Authority charged with the administration or
interpretation thereof shall make it unlawful for any Lender
to make or maintain any LIBO Rate Loan or to give effect to
its obligations as contemplated hereby with respect to any
LIBO Rate Loan, then, by written notice to the Borrower and
to the Administrative Agent, such Lender may:
(i) declare that LIBO Rate Loans will not
thereafter (for the duration of such unlawfulness or
impracticality) be made by such Lender hereunder,
whereupon the Borrower shall be prohibited from
requesting LIBO Rate Loans from such Lender hereunder
unless such declaration is subsequently withdrawn; and
(ii) require that all outstanding LIBO Rate Loans
made by it be converted to Reference Rate Loans, in
which event (A) all such LIBO Rate Loans shall be
automatically converted to Reference Rate Loans as of
the end of the applicable Interest Period, unless an
earlier conversion date is legally required, (B) all
payments and prepayments of principal which would
otherwise have been applied to repay the converted LIBO
Rate Loans shall instead be applied to repay the
Reference Rate Loans resulting from the conversion of
such LIBO Rate Loans and (C) the Reference Rate Loans
resulting from the conversion of such LIBO Rate Loans
shall be prepayable only at the times the converted
LIBO Rate Loans would have been prepayable,
notwithstanding the provisions of Section 2.09.
(b) Before giving any notice to the Borrower and
the Administrative Agent pursuant to this Section 2.12, such
Lender shall designate a different LIBOR Office if such
designation will avoid the need for giving such notice and
will not in the judgment of such Lender, be otherwise
disadvantageous to such Lender. For purposes of Section
2.12(a), a notice to the Borrower by any Lender shall be
effective on the date of receipt by the Borrower.
SECTION 2.13. Indemnity. The Borrower shall
indemnify each Lender against any funding, redeployment or
similar loss or expense which such Lender may sustain or
incur as a consequence of (a) any event, other than a
default by such Lender in the performance of its obligations
hereunder, which results in (i) such Lender receiving or
being deemed to receive any amount on account of the
principal of any LIBO Rate Loan prior to the end of the
Interest Period in effect therefor (any of the events
referred to in this clause (i) being called a "Breakage
Event") or (ii) any Loan to be made by such Lender not being
made after notice of such Loan shall have been given by the
Borrower hereunder or (b) any default in the making of any
payment or prepayment of any amount required to be made
hereunder. In the case of any Breakage Event, such loss
shall include an amount equal to the excess, as reasonably
determined by such Lender, of (i) its cost of obtaining
funds for the Loan which is the subject of such Breakage
Event for the period from the date of such Breakage Event to
the last day of the Interest Period in effect (or which
would have been in effect) for such Loan over (ii) the
amount of interest (as reasonably determined by such Lender)
that would be realized by such Lender in reemploying the
funds so paid, prepaid or converted or not borrowed,
continued or converted by making a LIBO Rate Loan in such
principal amount and with a maturity comparable to such
period. A certificate of any Lender setting forth any
amount or amounts which such Lender is entitled to receive
pursuant to this Section shall be delivered to the Borrower
and shall be conclusive absent manifest error.
SECTION 2.14. Pro Rata Treatment. Except as
permitted under any of Section 2.08(b), 2.11, 2.12, 2.13 or
2.17, each borrowing under each type of Loan, each payment
or prepayment of principal of the Loans, each payment of
interest on the Loans, each other reduction of the principal
or interest outstanding under the Loans, however achieved,
including by setoff by any Person, each payment of the
Commitment Fees, each reduction of the Commitments and each
conversion or continuation of Loans shall be allocated pro
rata among the Lenders in the proportions that their
respective Commitments bear to the Total Commitment (or, if
such Commitments shall have expired or been terminated, in
accordance with the respective principal amounts of their
outstanding Loans). Each Lender agrees that in computing
such Lender's portion of any borrowing to be made hereunder,
the Administrative Agent may, in its discretion, round each
Lender's percentage of such borrowing to the next higher or
lower whole Dollar amount.
SECTION 2.15. Sharing of Setoffs. Each Lender
agrees that if it shall, through the exercise of a right of
banker's lien, setoff or counterclaim against the Borrower
or pursuant to a secured claim under Section 506 of Title 11
of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by
such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means obtain
payment (voluntary or involuntary) in respect of any Loan of
the Borrower held by it as a result of which the unpaid
principal portion of the Loans of the Borrower held by it
shall be proportionately less than the unpaid principal
portion of the Loans of the Borrower held by any other
Lender (other than as permitted under any of Section
2.08(b), 2.11, 2.12, 2.13 or 2.17), it shall be deemed to
have simultaneously purchased from such other Lender at face
value, and shall promptly pay to such other Lender the
purchase price for, a participation in the Loans of the
Borrower held by such other Lender, so that the aggregate
unpaid principal amount of the Loans of the Borrower and
participation in Loans of the Borrower held by each Lender
shall be in the same proportion to the aggregate unpaid
principal amount of all Loans of the Borrower then
outstanding as the principal amount of the Loans of the
Borrower held by it prior to such exercise of banker's lien,
setoff or counterclaim was to the principal amount of all
Loans of the Borrower outstanding prior to such exercise of
banker's lien, setoff or counterclaim or other event;
provided, however, that if any such purchase or purchases or
adjustments shall be made pursuant to this Section 2.15 and
the payment giving rise thereto shall thereafter be
recovered, such purchase or purchases or adjustments shall
be rescinded to the extent of such recovery and the purchase
price or prices or adjustment restored without interest. To
the fullest extent permitted by applicable law, the Borrower
expressly consents to the foregoing arrangements and agrees
that any Lender holding a participation in a Loan of the
Borrower deemed to have been so purchased may exercise any
and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrower
hereunder to such Lender as fully as if such Lender had made
a Loan directly to the Borrower in the amount of such
participation.
SECTION 2.16. Payments. (a) Except as otherwise
provided in this Agreement, all payments and prepayments to
be made by the Borrower to the Lenders hereunder, whether on
account of Commitment Fees, payment of principal or interest
on any Loan or other amounts at any time owing hereunder or
under any other Loan Document, shall be made to the
Administrative Agent at its office at 270 Park Avenue, New
York, New York, for the account of the several Lenders in
immediately available funds. All such payments shall be
made to the Administrative Agent as aforesaid not later than
10:30 a.m., New York City time, on the date due; and funds
received after that hour shall be deemed to have been
received by the Administrative Agent on the following
Business Day.
(b) As promptly as possible, but no later than
2:00 p.m., New York City time, on the date of each
borrowing, each Lender participating in the Loans made on
such date shall pay to the Administrative Agent such
Lender's Applicable Percentage of such Loan plus, if such
payment is received by the Administrative Agent after 2:00
p.m., New York City time, on the date of such borrowing,
interest at a rate per annum equal to the rate in effect on
such day, quoted by the Administrative Agent at its office
at 270 Park Avenue, New York, New York, for the overnight
"sale" to such Lender of Federal funds. At the time of, and
by virtue of, such payment, such Lender shall be deemed to
have made its Loan in the amount of such payment. The
Administrative Agent agrees to pay any moneys, including
such interest, so paid to it by the lending Lenders
promptly, but no later than 3:00 p.m., New York City time,
on the date of such borrowing, to the Borrower in
immediately available funds.
(c) If any payment of principal, interest,
Commitment Fee or any other amount payable to the Lenders
hereunder on any Loan shall fall due on a day that is not a
Business Day, then (except in the case of payments of
principal of or interest on LIBO Rate Loans, in which case
such payment shall be made on the next preceding Business
Day if the next succeeding Business Day would fall in the
next calendar month) such due date shall be extended to the
next succeeding Business Day, and interest shall be payable
on principal in respect of such extension.
(d) Unless the Administrative Agent shall have
been notified by the Borrower prior to the date on which any
payment or prepayment is due hereunder (which notice shall
be effective upon receipt) that the Borrower does not intend
to make such payment or prepayment, the Administrative Agent
may assume that the Borrower has made such payment or
prepayment when due and the Administrative Agent may in
reliance upon such assumption (but shall not be required to)
make available to each Lender on such date an amount equal
to the portion of such assumed payment or prepayment such
Lender is entitled to hereunder, and, if the Borrower has
not in fact made such payment or prepayment to the
Administrative Agent, such Lender shall, on demand, repay to
the Administrative Agent the amount made available to such
Lender, together with interest thereon in respect of each
day during the period commencing on the date such amount was
made available to such Lender and ending on (but excluding)
the date such Lender repays such amount to the
Administrative Agent, at a rate per annum equal to the rate,
determined by the Administrative Agent to represent its cost
of overnight or short-term funds (which determination shall
be conclusive absent manifest error).
(e) All payments of the principal of or interest
on the Loans or any other amounts to be paid to any Lender
or the Administrative Agent under this Agreement or any of
the other Loan Documents shall be made in Dollars, without
reduction by reason of any currency exchange expense.
SECTION 2.17. U.S. Taxes. (a) Any and all
payments by the Borrower hereunder shall be made, in
accordance with Section 2.16, free and clear of and without
deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all
liabilities with respect thereto imposed by the United
States or any political subdivision thereof, excluding taxes
imposed on the net income of an Agent or any Lender (or
Transferee) and franchise taxes of an Agent or any Lender
(or Transferee), as applicable, as a result of a connection
between the jurisdiction imposing such taxes and such Agent
or such Lender (or Transferee), as applicable, other than a
connection arising solely from such Agent or such Lender (or
Transferee), as applicable, having executed, delivered,
performed its obligations or received a payment under, or
enforced, this Agreement (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Non-Excluded
Taxes"). If the Borrower shall be required by law to deduct
any Non-Excluded Taxes from or in respect of any sum payable
hereunder to the Lenders (or any Transferee) or an Agent,
(i) the sum payable shall be increased by the amount
necessary so that after making all required deductions
(including deductions applicable to additional sums payable
under this Section 2.17) such Lender (or Transferee) or an
Agent (as the case may be) shall receive an amount equal to
the sum it would have received had no such deductions been
made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the
relevant taxing authority or other Governmental Authority in
accordance with applicable law; provided, however, that no
Transferee of any Lender shall be entitled to receive any
greater payment under this Section 2.17 than such Lender
would have been entitled to receive with respect to the
rights assigned, participated or otherwise transferred
unless such assignment, participation or transfer shall have
been made at a time when the circumstances giving rise to
such greater payment did not exist.
(b) In addition, the Borrower agrees to bear and
to pay to the relevant Governmental Authority in accordance
with applicable law any current or future stamp or
documentary taxes or any other similar excise taxes, charges
or similar levies that arise from any payment made hereunder
or from the execution, delivery, registration or enforcement
of, or otherwise with respect to, this Agreement or any
other Loan Document and any property taxes that arise from
the enforcement of this Agreement or any other Loan Document
("Other Taxes").
(c) The Borrower will indemnify each Lender (or
Transferee) and each Agent for the full amount of Non-
Excluded Taxes and Other Taxes (including Non-Excluded Taxes
or Other Taxes imposed on amounts payable under this Section
2.17) paid by such Lender (or Transferee) or such Agent, as
the case may be, and any liability (including penalties,
interest and expenses (including reasonable attorney's fees
and expenses)) arising therefrom or with respect thereto. A
certificate as to the amount of such payment or liability
prepared by a Lender or Agent, or the Administrative Agent
on behalf of such Lender or Agent, absent manifest error,
shall be final, conclusive and binding for all purposes.
Such indemnification shall be made within 30 days after the
date such Lender (or Transferee) or such Agent, as the case
may be, makes written demand therefor.
(d) Within 30 days after the date of any payment
of Non-Excluded Taxes or Other Taxes by the Borrower to the
relevant Governmental Authority, the Borrower will furnish
to the Administrative Agent, at its address referred to on
the signature page, the original or a certified copy of a
receipt issued by such Governmental Authority evidencing
payment thereof.
(e) At the time it becomes a party to this
Agreement or a Transferee, each Lender (or Transferee) that
is organized under the laws of a jurisdiction outside the
United States shall (in the case of a Transferee, subject to
the immediately succeeding sentence) deliver to the Borrower
either a valid and currently effective Internal Revenue
Service Form 1001 or Form 4224 or, in the case of a Lender
(or Transferee) claiming exemption from U.S. Federal
withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form W-
8, or any subsequent version thereof or successors thereto,
(and if such Lender (or Transferee) delivers a Form W-8, a
certificate representing that such Lender (or Transferee) is
not a bank for purposes of Section 881(c) of the Code, is
not a 10-percent shareholder (within the meaning of Section
871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower
(within the meaning of Section 864(d)(4) of the Code)),
properly completed and duly executed by such Lender (or
Transferee) establishing that such payment is (i) not
subject to United States Federal withholding tax under the
Code because such payment is effectively connected with the
conduct by such Lender (or Transferee) of a trade or
business in the United States or (ii) totally exempt from
(or in case of a Transferee, entitled to a reduced rate of)
United States Federal withholding tax. Notwithstanding any
other provision of this Section 2.17(e), no Transferee shall
be required to deliver any form pursuant to this Section
2.17(e) that such Transferee is not legally able to deliver.
In addition, each Lender (or Transferee) shall deliver such
forms promptly upon the obsolescence or invalidity of any
form previously delivered, but only, in such case, to the
extent such Lender (or Transferee) is legally able to do so.
(f) Notwithstanding anything to the contrary
contained in this Section 2.17, the Borrower shall not be
required to pay any additional amounts to any Lender (or
Transferee) in respect of United States Federal withholding
tax pursuant to paragraph (a) above if the obligation to pay
such additional amounts would not have arisen but for a
failure by such Lender (or Transferee) to comply with the
provisions of paragraph (e) above.
(g) Any Lender (or Transferee) claiming any
additional amounts payable pursuant to this Section 2.17
shall use reasonable efforts (consistent with legal and
regulatory restrictions) to file any certificate or document
requested by the Borrower or to change the jurisdiction of
its applicable lending office if the making of such a filing
or change would avoid the need for or reduce the amount of
any such additional amounts which may thereafter accrue and
would not, in the sole determination of such Lender, be
otherwise disadvantageous to such Lender (or Transferee).
(h) Without prejudice to the survival of any
other agreement contained herein, the agreements and
obligations contained in this Section 2.17 shall survive the
payment in full of the principal of and interest on all
Loans made hereunder.
(i) Nothing contained in this Section 2.17 shall
require any Lender (or Transferee) or the Administrative
Agent to make available any of its income tax returns (or
any other information that it deems to be confidential or
proprietary).
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties. As
of the Effective Date and each other date upon which such
representations and warranties are required to be made or
deemed made pursuant to Section 6.01(i), the Borrower
represents and warrants to each Lender and Agent as follows:
(a) Organization, Powers. The Borrower (i) is
duly organized, validly existing and in good standing under
the laws of the State of Delaware, (ii) has the requisite
power and authority to own its property and assets and to
carry on its business as now conducted and as proposed to be
conducted, and (iii) is qualified to do business in every
jurisdiction where such qualification is required, except
where the failure so to qualify would not have a material
adverse effect on its condition, financial or otherwise.
The Borrower has the corporate power to execute, deliver and
perform its obligations under this Agreement and the other
Loan Documents to which it is or is to be a party and to
borrow hereunder. The Borrower has all requisite corporate
power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its
own assets and carry on its business as now being or as
proposed to be conducted.
(b) Authorization. The execution, delivery and
performance of this Agreement (including, without
limitation, performance of the obligations set forth in
Section 5.0l(l)) and the other Loan Documents to which the
Borrower is or is to be a party and the borrowings hereunder
(i) have been duly authorized by all requisite corporate
and, if required, stockholder, action on the part of the
Borrower and (ii) will not (A) violate (x) any Governmental
Rule or the Borrower's certificate of incorporation or By-
laws or (y) any provisions of any indenture, agreement or
other instrument to which the Borrower is a party, or by
which the Borrower or any of its properties or assets are or
may be bound, (B) be in conflict with, result in a breach of
or constitute (alone or with notice or lapse of time or
both) a default under any indenture, agreement or other
instrument referred to in (ii)(A)(y) above or (C) result in
the creation or imposition of any Lien, charge or
encumbrance of any nature whatsoever upon any property or
assets of the Borrower.
(c) Governmental Approvals. Except for those
consents, approvals and registrations listed on Schedule IV
hereto, each of which has been obtained and is in full force
and effect, no registration with or consent or approval of,
or other action by, any Governmental Authority is or will be
required in connection with the execution, delivery and
performance by the Borrower of this Agreement or any other
Loan Document to which it is, or is to be, a party or the
borrowings hereunder by the Borrower. Other than routine
authorizations, permissions or consents which are of a minor
nature and which are customarily granted in due course after
application or the denial of which would not materially
adversely affect the business, financial condition or
operations of the Borrower, the Borrower has all franchises,
licenses, certificates, authorizations, approvals or
consents from all national, state and local governmental and
regulatory authorities required to carry on its business as
now conducted and as proposed to be conducted.
(d) Enforceability. This Agreement and each of
the other Loan Documents to which it is a party constitutes
a legal, valid and binding obligation of the Borrower,
enforceable in accordance with its respective terms
(subject, as to the enforcement of remedies against the
Borrower, to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting creditors'
rights against the Borrower generally in connection with the
bankruptcy, reorganization or insolvency of the Borrower or
a moratorium or similar event relating to the Borrower).
(e) Financial Statements. The Borrower has
heretofore furnished to each of the Lenders an unaudited pro
forma statement of operations for the fiscal year ended
December 31, 1996, and an unaudited pro forma consolidated
balance sheet and statement of operations as of and for the
six-month period ended June 30, 1997. All such balance
sheets and statements of operations and cash flow present
fairly the financial condition and results of operations of
the Borrower and its Subsidiaries as of the dates and for
the periods indicated. Such financial statements and the
notes thereto disclose all material liabilities, direct or
contingent, of the Borrower and its Subsidiaries as of the
dates thereof which are required to be disclosed in the
footnotes to financial statements prepared in accordance
with GAAP. The financial statements referred to in this
Section 3.01(e) have been prepared in accordance with GAAP.
There has been no material adverse change since August 26,
1997, in the businesses, assets, operations, prospects or
condition, financial or otherwise, of the Borrower and its
Subsidiaries taken as a whole.
(f) Litigation; Compliance with Laws; etc.
(i) There are no actions, suits or proceedings at law or in
equity or by or before any governmental instrumentality or
other agency or regulatory authority now pending or, to the
knowledge of the Borrower, threatened against or affecting
the Borrower or any Subsidiary or the businesses, assets or
rights of the Borrower or any Subsidiary (i) which involve
this Agreement or any of the other Loan Documents or any of
the transactions contemplated hereby or thereby or (ii) as
to which there is a reasonable possibility of an adverse
determination and which, if adversely determined, could,
individually or in the aggregate, materially impair the
ability of the Borrower to conduct its business
substantially as now conducted, or materially and adversely
affect the businesses, assets, operations, prospects or
condition, financial or otherwise, of the Borrower, or
impair the validity or enforceability of, or the ability of
the Borrower to perform its obligations under, this
Agreement or any of the other Loan Documents to which it is
a party.
(ii) Neither the Borrower nor any Subsidiary is
in violation of any Governmental Rule, or in default with
respect to any judgment, writ, injunction, decree, rule or
regulation of Governmental Authority, where such violation
or default could result in a Material Adverse Effect.
(g) Title, etc. The Borrower and the
Subsidiaries have good and valid title to their respective
material properties, assets and revenues (exclusive of oil,
gas and other mineral properties on which no development or
production activities are being conducted and commercially
exploitable reserves have not been discovered), in the case
of the Borrower and its Restricted Subsidiaries, free and
clear of all Liens except such Liens as are permitted by
Section 5.02(d) and except for covenants, restrictions,
rights, easements and minor irregularities in title which do
not individually or in the aggregate interfere with the
occupation, use and enjoyment by the Borrower or any of its
Restricted Subsidiaries of such properties and assets in the
normal course of business as presently conducted or
materially impair the value thereof for use in such
business.
(h) Federal Reserve Regulations; Use of Proceeds.
(i) Neither the Borrower nor any Subsidiary is engaged
principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing
or carrying Margin Stock.
(ii) No part of the proceeds of the Loans will be
used, whether directly or indirectly, and whether
immediately, incidentally or ultimately, for any purpose
which entails a violation of, or which is inconsistent with,
the provisions of the Regulations of the Board, including,
without limitation, Regulations G, U or X thereof.
(iii) The Borrower will use the proceeds of all
Loans made to it for the funding of capital expenditures,
working capital and general corporate purposes.
(i) Taxes. The Borrower and the Subsidiaries
have filed or caused to be filed all material Federal,
state, local and foreign tax returns which are required to
be filed by them, and have paid or caused to be paid all
taxes shown to be due and payable on such returns or on any
assessments received by any of them, other than any taxes or
assessments the validity of which the Borrower or the
relevant Subsidiary is contesting in good faith by
appropriate proceedings, and with respect to which the
Borrower or such Subsidiary shall, to the extent required by
GAAP, have set aside on its books adequate reserves.
(j) Employee Benefit Plans. Each of the Borrower
and its ERISA Affiliates is in compliance in all material
respects with the applicable provisions of ERISA and the
Code and the regulations and published interpretations
thereunder. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other
such ERISA Events, could materially and adversely affect the
financial condition and operations of the Borrower and the
ERISA Affiliates, taken as a whole. The present value of
all benefit liabilities under each Plan, determined on a
plan termination basis (based on those assumptions used for
financial disclosure purposes in accordance with Statement
of Financial Accounting Standards No. 87 of the Financial
Accounting Standards Board ("SFAS 87") did not, as of the
last annual valuation date applicable thereto, exceed by
more than $5,000,000 the value of the assets of such Plan,
and the present value of all benefit liabilities of all
underfunded Plans, determined on a plan termination basis
(based on those assumptions used for financial disclosure
purposes in accordance with SFAS 87) did not, as of the last
annual valuation dates applicable thereto, exceed by more
than $5,000,000 the value of the assets of all such
underfunded Plans.
(k) Investment Company Act. Neither the Borrower
nor any Subsidiary is an "investment company" as defined in,
or subject to regulation under, the Investment Company Act
of 1940, as amended from time to time.
(1) Public Utility Holding Company Act. Neither
the Borrower nor any Subsidiary is a "holding company", or a
"subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended from
time to time.
(m) Subsidiaries. Schedule III constitutes a
complete and correct list, as of the Effective Date or the
date of any update thereof required by Section 5.01(a)(6),
of all Restricted Subsidiaries with at least $1,000,000 in
total assets, indicating the jurisdiction of incorporation
or organization of each corporation or partnership and the
percentage of shares or units owned on such date directly or
indirectly by the Borrower in each. Each entity shown as a
parent company owns on such date, free and clear of all
Liens (other than the Liens permitted by
Section 5.02(d)(iii)), the percentage of voting shares or
partnership interests outstanding of its Restricted
Subsidiaries shown on Schedule III, and all such shares or
partnership interests are validly issued and fully paid.
(n) Environmental Matters. (1) The properties
owned, leased or operated by the Borrower and its
Subsidiaries (the "Properties") and all operations of the
Borrower and its Subsidiaries are in compliance, and in the
last three years have been in compliance, with all
Environmental Laws, and all necessary Environmental Permits
have been obtained and are in effect, except to the extent
that such noncompliance or failure to obtain any necessary
permits, in the aggregate, could not reasonably be expected
to result in a Material Adverse Effect.
(2) There have been no Releases or threatened
Releases at, from, under or proximate to the Properties or
otherwise in connection with the operations of the Borrower
or its Subsidiaries, which Releases or threatened Releases,
in the aggregate, could reasonably be expected to result in
a Material Adverse Effect.
(3) Neither the Borrower nor any of its
Subsidiaries has received any notice of an Environmental
Claim in connection with the Properties or the operations of
the Borrower or its Subsidiaries or with regard to any
Person whose liabilities for environmental matters the
Borrower or its Subsidiaries has retained or assumed, in
whole or in part, contractually, by operation of law or
otherwise, which, in the aggregate, could reasonably be
expected to result in a Material Adverse Effect, nor does
the Borrower or its Subsidiaries have reason to believe that
any such notice will be received or is being threatened.
(4) Hazardous Materials have not been transported
from the Properties, nor have Hazardous Materials been
generated, treated, stored or disposed of at, on or under
any of the Properties in a manner that could give rise to
liability under any Environmental Law, nor has the Borrower
or its Subsidiaries retained or assumed any liability,
contractually, by operation of law or otherwise, with
respect to the generation, treatment, storage or disposal of
Hazardous Materials, which transportation, generation,
treatment, storage or disposal, or retained or assumed
liabilities, in the aggregate, could reasonably be expected
to result in a Material Adverse Effect.
(o) No Material Misstatements. No information,
report (including any exhibit, schedule or other attachment
thereto or other document delivered in connection
therewith), financial statement, exhibit or schedule
prepared or furnished by the Borrower to the Administrative
Agent or any Lender in connection with this Agreement or any
of the other Loan Documents or included therein contained or
contains any material misstatement of fact or omitted or
omits to state any material fact necessary to make the
statements therein, taken as a whole in the light of the
circumstances under which they were made, not misleading.
ARTICLE IV
Conditions to Initial Credit Event
Subject to satisfaction of the conditions to each
Credit Event required by Section 6.01, the Borrower may not
borrow Loans hereunder until the first date upon which the
following conditions have been satisfied:
(a) The Administrative Agent (or its counsel)
shall have received from each party hereto either (i) a
counterpart of this Agreement signed on behalf of such party
or (ii) written evidence satisfactory to the Administrative
Agent (which may include telecopy transmission of a signed
signature of this Agreement) that such party has signed a
counterpart to this Agreement.
(b) The Administrative Agent and the Documentary
Agent shall have received, on behalf of themselves and the
Lenders, a favorable written opinion of (i) the General
Counsel of the Borrower, substantially to the effect set
forth in Exhibit D and (ii) Jones, Walker, Waechter,
Poitevent, Carrere & Denegre, L.L.P., counsel for the
Borrower, substantially to the effect set forth in
Exhibit E, in each case (A) dated the Effective Date,
(B) addressed to the Agents and the Lenders, and
(C) covering such other matters relating to the Spin-Off,
the Loan Documents and the transactions contemplated thereby
as the Administrative Agent and the Documentary Agent shall
reasonably request, and the Borrower hereby instructs such
counsel to deliver such opinions.
(c) All legal matters incident to this Agreement,
the borrowings and extensions of credit hereunder, the other
Loan Documents or the Spin-Off shall be satisfactory to the
Lenders and to Cravath, Swaine & Moore, special counsel for
the Agents.
(d) The Administrative Agent and the Documentary
Agent shall have received (i) a copy of the certificate of
incorporation, including all amendments thereto, of the
Borrower, certified as of a recent date by the Secretary of
State of the state of its organization, and a certificate as
to the good standing of the Borrower as of a recent date,
from such Secretary of State; (ii) a certificate of the
Secretary or Assistant Secretary of the Borrower dated the
Effective Date and certifying (A) that attached thereto is a
true and complete copy of the By-laws of the Borrower as in
effect on the Effective Date and at all times since a date
prior to the date of the resolutions described in clause (B)
below, (B) that attached thereto is a true and complete copy
of resolutions duly adopted by the Board of Directors of the
Borrower authorizing the execution, delivery and performance
of the Loan Documents to which the Borrower is a party and
the borrowings hereunder, and that such resolutions have not
been modified, rescinded or amended and are in full force
and effect, (C) that the certificate of incorporation and
By-laws of the Borrower have not been amended since the date
of the last amendment thereto shown on the certificate of
good standing furnished pursuant to clause (i) above or the
date of the certificate furnished pursuant to clause (ii)
above, as applicable, and (D) as to the incumbency and
specimen signature of each officer executing any Loan
Document or any other document delivered in connection
herewith on behalf of the Borrower; (iii) a certificate of
another officer as to the incumbency and specimen signature
of the Secretary or Assistant Secretary executing the
certificate pursuant to clause (ii) above; and (iv) such
other documents as the Lenders or Cravath, Swaine & Moore,
special counsel for the Agents, may reasonably request.
(e) The Administrative Agent and the Documentary
Agent shall have received a certificate, dated the Effective
Date and signed by a Financial Officer of the Borrower,
confirming compliance with the conditions precedent set
forth in paragraphs (i) and (iii) of Section 6.01.
(f) The Administrative Agent shall have received
all fees and other amounts due and payable on or prior to
the Effective Date, including, to the extent invoiced,
reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrower hereunder
or under any other Loan Document.
(g) (i) All actions related to the Spin-Off shall
have been completed on a generally tax-free basis with
respect to the Borrower (subject to exceptions approved by
the Administrative Agent), including arrangements in
connection with the Spin-Off with respect to existing
indebtedness of FTX and FRP, all on terms substantially the
same as those described in the Form S-1 filed with the SEC
in connection with the Spin-Off or otherwise satisfactory to
the Lenders (including all tax, accounting, corporate and
partnership matters) and all in accordance with applicable
law and documentation reasonably satisfactory to the
Lenders; and (ii) the Lenders shall be satisfied with the
capitalization and structure of the Borrower after the
consummation of the Spin-Off.
(h) After giving effect to the Spin-Off and the
other transactions contemplated hereby, the Borrower and its
Restricted Subsidiaries shall have outstanding no Debt or
preferred stock other than (i) the Loans and other
extensions of credit under this Agreement and (ii) the Debt
permitted under Section 5.02(g); provided, however, that
such Debt that shall remain outstanding after the Effective
Date pursuant to the terms of Section 5.02(g) shall be
satisfactory in all respects to the Lenders (including, but
not limited to, terms and conditions relating to the
interest rates, fees, amortization, maturity, subordination,
covenants, events of default and remedies).
(i) The Borrower shall have delivered to each
Lender a reserve report, in a form satisfactory to the
Administrative Agent, the Co-Agent and the Lenders, on the
sulphur properties of the Borrower and its Restricted
Subsidiaries.
(j) The Lenders shall have received (i) an
unaudited pro forma consolidated statement of operations of
the Borrower for the 1996 fiscal year, (ii) an unaudited pro
forma consolidated balance sheet and related statement of
operations of the Borrower for the six-month period ended
June 30, 1997 and (iii) other financial information,
including projections, all in form and substance
satisfactory to the Administrative Agent. Such financial
statements and other financial information provided to the
Lenders by the Borrower shall not be materially inconsistent
with such financial statements or other financial
information previously provided to the Lenders.
(k) There shall be no litigation or
administrative proceedings or other legal or regulatory
developments, actual or threatened, that, in the reasonable
judgment of the Lenders, involve a reasonable possibility of
a Material Adverse Effect or which would be materially
inconsistent with the assumptions underlying the projections
contained in the Confidential Information Memorandum.
(l) The Lenders shall be satisfied that the
consummation of the transactions contemplated by this
Agreement and the Spin-Off will not (i) violate any
applicable law, statute, rule or regulation (including, but
not limited to, ERISA, margin regulations and Environmental
Laws) or (ii) conflict with, or result in a default or event
of default under (x) any indenture relating to any existing
indebtedness of the Borrower or any of its Restricted
Subsidiaries that is not being repaid, repurchased or
redeemed in full on or prior to the Effective Date in
connection with the Spin-Off or (y) any other material
agreement of the Borrower or any of its Restricted
Subsidiaries, and the Administrative Agent shall have
received one or more legal opinions to such effect
satisfactory to the Administrative Agent, from counsel to
the Borrower satisfactory to the Administrative Agent.
(m) The Lenders shall be reasonably satisfied as
to the amount and nature of any environmental and employee
health and safety exposures to which the Borrower and its
Restricted Subsidiaries may be subject, and the plans of the
Borrower with respect thereto.
(n) The Borrower and each Restricted Subsidiary
shall have in place insurance with reputable insurance
companies or associations (or, to the extent consistent with
prudent business practice, through its own program of self-
insurance) in such amounts and covering such risks as is
usually carried by companies in similar businesses and
owning similar properties in the same general areas in which
the Borrower or such Restricted Subsidiary operates.
(o) There shall have been no material adverse
change in the business, assets, operations, properties,
financial condition, contingent liabilities, prospects or
material agreements of the Borrower and its Restricted
Subsidiaries, taken as a whole, since August 26, 1997.
(p) The Lenders shall be reasonably satisfied in
all respects with the tax position and the contingent tax
and other liabilities of the Borrower and its Restricted
Subsidiaries and the plans of the Borrower with respect
thereto.
(q) All requisite material Governmental
Authorities and Third Parties shall have approved of or
consented to the Spin-Off and the other transactions
contemplated hereby to the extent required, all applicable
appeal periods shall have expired and there shall be no
governmental or judicial action, actual or threatened, that
could reasonably be expected to restrain, prevent or impose
burdensome conditions on the Spin-Off or the other
transactions contemplated hereby.
(r) The Lenders shall have received a copy, in a
form satisfactory to the Administrative Agent, of the
Agreement for Sulphur Supply dated as of July 1, 1993,
between FRP, IMC Fertilizer, Inc. and IMC-Agrico Company, as
such agreement shall be amended in connection with the Spin-
Off (the "Sulphur Supply Agreement").
(s) The Borrower shall have delivered to each
Lender a calculation of its Leverage Ratio and EBITDA Ratio
as of the fiscal quarter ended September 30, 1997.
ARTICLE V
Covenants
SECTION 5.01. Affirmative Covenants of the
Borrower. The Borrower covenants and agrees with each
Lender and Agent that from and after the Effective Date and
so long as this Agreement shall remain in effect and until
the Commitments have been terminated and the principal of
and interest on each Loan, all fees and all other expenses
or amounts payable under any Loan Document shall have been
paid in full, that, unless the Required Lenders otherwise
provide prior written consent:
(a) Financial Statements, etc. The Borrower
shall furnish each Lender:
(1) within 95 days after the end of each fiscal
year, a consolidated balance sheet of the Borrower and
its Subsidiaries as at the close of such fiscal year
and consolidated statements of operation and changes in
retained earnings and cash flow of it and its
Subsidiaries for such year, with the opinion thereon of
Arthur Andersen LLP or other independent public
accountants of national standing selected by it to the
effect that such consolidated financial statements
fairly present the financial condition and results of
operations of the Borrower on a consolidated basis in
accordance with GAAP consistently applied, except as
disclosed in such auditor's report;
(2) within 50 days after the end of each of the
first three quarters of each of its fiscal years, a
consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such quarter and
consolidated statements of income of the Borrower and
its Subsidiaries, for such quarter and for the period
from the beginning of the fiscal year to the end of
such quarter, certified by a Financial Officer of the
Borrower as fairly presenting the financial condition
and results of operations of the Borrower on a
consolidated basis in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments;
(3) promptly after their becoming available,
(a) copies of all financial statements, reports and
proxy statements which the Borrower shall have sent to
its stockholders generally, (b) copies of all
registration statements (excluding registration
statements relating to employee benefit plans) and
regular and periodic reports, if any, which it shall
have filed with the SEC, or any governmental agency
substituted therefor, and (c) if requested by any
Lender, copies of each annual report filed with any
Governmental Authority pursuant to ERISA with respect
to each Plan of the Borrower or any of the
Subsidiaries;
(4) on or prior to April 1 of each year,
commencing with the April 1 immediately following the
Effective Date, the Borrower shall provide to each
Lender (i) an update with respect to the sulphur
reserves of the Borrower and its Restricted
Subsidiaries and (ii) projections for the Borrower's
business operations, in each case in a form
satisfactory to the Administrative Agent;
(5) promptly upon the occurrence of any Default or
Event of Default, the occurrence of any default under
any other Loan Document, the commencement of any
proceeding regarding the Borrower or any of its
Subsidiaries under any Federal or state bankruptcy law,
any other development that has resulted in, or could
reasonably be expected to result in, a Material Adverse
Effect, notice thereof, describing the same in
reasonable detail;
(6) at the time of provision of the financial
statements referred to in clauses (1) and (2) above, an
update of Schedule III to correct, add or delete any
required information; and
(7) from time to time, such further information
regarding the business, affairs and financial condition
of the Borrower or any Subsidiary as any Lender may
reasonably request.
At the time the Borrower furnishes financial statements
pursuant to the foregoing clauses (1) and (2), it also will
furnish each Lender a certificate signed by its Treasurer or
other authorized Financial Officer setting forth the
calculation of: (a) its Leverage Ratio as determined in
accordance with Section 5.02(e) and (b) its EBITDA Ratio as
determined in accordance with Section 5.02(f); provided,
however, that, with respect to data included in such
calculations related to the period prior to the consummation
of the Spin-Off, such data shall be determined on a pro
forma basis, and it will furnish a certificate signed by its
Treasurer or other authorized Financial Officer certifying
that no Default or Event of Default has occurred, or if such
a Default or Event of Default has occurred, specifying the
nature and extent thereof and any corrective action taken or
proposed to be taken with respect thereto.
(b) Obligations, Taxes and Claims. The Borrower
shall, and shall cause each of its Subsidiaries to, pay its
material obligations promptly and pay and discharge promptly
when due all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits, or
upon any property belonging to it, prior to the date on
which material penalties attach thereto, as well as all
lawful claims for labor, materials and supplies or otherwise
that, with respect to any of the foregoing, if unpaid, could
reasonably be expected to give rise to a Lien upon such
properties or any part thereof which is not permitted by
Section 5.02(d); provided that neither the Borrower nor any
Subsidiary shall be required to pay or discharge any such
obligation, tax, assessment, charge, levy or claim, the
payment of which is being contested in good faith by proper
proceedings and with respect to which the Borrower or such
Subsidiary shall have, to the extent required by GAAP, set
aside on its books adequate reserves and such contest
operates to suspend collection of the contested obligation,
tax, assessment or charge and enforcement of such Lien and,
in the case of a mortgaged property, there is no risk of
forfeiture of such property.
(c) Maintenance of Existence; Conduct of
Business. The Borrower shall preserve and maintain its
corporate existence and all its rights, privileges and
franchises necessary or desirable in the normal conduct of
its business; provided that nothing herein shall prevent any
transaction permitted by Section 5.02(c).
(d) Compliance with Applicable Laws. The
Borrower shall, and shall cause each of its Subsidiaries to,
comply with the requirements of all applicable laws, rules,
regulations and orders of any Governmental Authority, a
breach of which would materially and adversely affect its
consolidated financial condition or business, except where
contested in good faith and by proper proceedings and with
respect to which the Borrower or such Subsidiary shall have,
to the extent required by GAAP, set aside on its books
adequate reserves.
(e) Litigation. The Borrower shall promptly give
to each Lender notice in writing of all litigation and all
proceedings before any Governmental Authority or arbitration
authorities affecting the Borrower or any Subsidiary, except
those which, if adversely determined, do not relate to the
Loan Documents and which would not have a material adverse
effect on the business, assets, operations or financial
condition of the Borrower or the Borrower's ability to
comply with its obligations under the Loan Documents.
(f) ERISA. The Borrower shall, and shall cause
each of its ERISA Affiliates to, comply in all material
respects with the applicable provisions of ERISA and the
Code and furnish to the Administrative Agent as soon as
possible, and in any event within 30 days after any
Responsible Officer of the Borrower or any ERISA Affiliate
knows or has reason to know that any ERISA Event has
occurred that alone or together with any other ERISA Event
could reasonably be expected to result in liability of the
Borrower in an aggregate amount exceeding $25,000,000 or
requires payment exceeding $10,000,000 in any year, a
statement of a Financial Officer of the Borrower setting
forth details as to such ERISA Event and the action that the
Borrower proposes to take with respect thereto.
(g) Compliance with Environmental Laws. The
Borrower shall comply, and cause its Subsidiaries and all
lessees and other Persons occupying the Properties to
comply, in all material respects with all Environmental Laws
and Environmental Permits applicable to its operations and
Properties; obtain and renew all material Environmental
Permits necessary for its operations and Properties; and
conduct any Remedial Action in accordance with Environmental
Laws; provided, however, that neither the Borrower nor any
of its Subsidiaries shall be required to undertake any
Remedial Action to the extent that its obligation to do so
is being contested in good faith and by proper proceedings
and appropriate reserves are being maintained with respect
to such circumstances in accordance with GAAP.
(h) Preparation of Environmental Reports. If a
default caused by reason of a breach of Section 3.01(n) or
5.01(g) shall have occurred and be continuing, at the
request of the Required Lenders through the Administrative
Agent, the Borrower shall provide to the Lenders within
45 days after such request, at the expense of the Borrower,
an environmental site assessment report for the Properties
(which are the subject of such default) prepared by an
environmental consulting firm acceptable to the
Administrative Agent, indicating the presence or absence of
Hazardous Materials and the estimated cost of any compliance
or Remedial Action in connection with such Properties.
(i) Insurance. The Borrower and each Restricted
Subsidiary shall (i) keep its insurable properties
adequately insured at all times; (ii) maintain such other
insurance, to such extent and against such risks, including
fire, flood and other risks insured against by extended
coverage, as is customary with companies in the same or
similar businesses; (iii) maintain in full force and effect
public liability insurance against claims for personal
injury or death or property damage occurring upon, in, about
or in connection with the use of any properties owned,
occupied or controlled by it in such amount as it shall
reasonably deem necessary; and (iv) maintain such other
insurance as may be required by law.
(j) Access to Premises and Records. The Borrower
and each Subsidiary shall maintain financial records in
accordance with GAAP, and, at all reasonable times and as
often as any Lender may reasonably request, permit
representatives of any Lender to have access to its
financial records and its premises and to the records and
premises of any of its Subsidiaries and to make such
excerpts from and copies of such records as such
representatives deem necessary and to discuss its affairs,
finances and accounts with its officers and its independent
certified public accountants or other parties preparing
consolidated or consolidating statements for it or on its
behalf.
(k) Maintenance of Property. The Borrower shall,
and shall cause each of its Restricted Subsidiaries to, keep
and maintain all property material to the conduct of the
business of the Borrower and its Restricted Subsidiaries,
taken as a whole, in good working order and condition,
ordinary wear and tear excepted.
(l) Further Assurances. The Borrower shall, and
shall cause its Subsidiaries to, execute any and all further
documents, financing statements, agreements and instruments,
and take all further actions, which may be required under
applicable law, or which the Required Lenders, the
Administrative Agent or the Documentary Agent may reasonably
request, in order to effectuate the transactions
contemplated by this Agreement and the other Loan Documents.
SECTION 5.02. Negative Covenants of the Borrower.
The Borrower covenants and agrees with each Lender and Agent
that, from and after the Effective Date and so long as this
Agreement shall remain in effect and until the Commitments
have been terminated and the principal of and interest on
each Loan, all fees and all other expenses or amounts
payable under any Loan Document have been paid in full,
without the prior written consent of the Required Lenders:
(a) Conflicting Agreements. The Borrower shall
not, and shall cause its Restricted Subsidiaries not to,
enter into any agreement with any Person containing any
provision which (i) would be violated or breached by the
performance of its obligations under any Loan Document or
under any instrument or document delivered or to be
delivered by it hereunder or thereunder or in connection
herewith or therewith, (ii) would prohibit or restrict the
Borrower or any of its Restricted Subsidiaries in the
payment of dividends or other distributions or (iii) would
prohibit or restrict the ability of the Borrower or any of
its Restricted Subsidiaries to create Liens on any of their
assets (other than assets which are subject to Liens
permitted pursuant to paragraphs (ii), (iii), (iv) and (v)
of Section 5.02(d) and extensions and renewals and
replacements thereof to the extent permitted pursuant to
Section 5.02(d)(vii).
(b) Hedge Transactions. The Borrower and the
Restricted Subsidiaries shall enter into or become obligated
with respect to Hedge Agreements only in the ordinary course
of business to hedge or protect against actual or reasonably
anticipated exposures and not for speculation.
(c) Consolidation or Merger; Disposition of
Assets and Capital Stock. The Borrower shall not, and shall
not permit any Restricted Subsidiary to, merge into or
consolidate with any other Person or permit any other Person
to merge into or consolidate with it, or sell, lease,
transfer or otherwise dispose of (in one transaction or a
series of transactions) all or any substantial part of its
assets (whether now owned or hereafter acquired) or any
capital stock or other ownership interests of any Restricted
Subsidiary, except for (i) dispositions of accounts
receivable and dispositions of inventory in the ordinary
course of business, (ii) dispositions of obsolete or worn-
out property, or real estate not used or useful in its
business, (iii) subject to Sections 5.02(l) and (m),
dispositions of assets by the Borrower or a Restricted
Subsidiary to another Restricted Subsidiary or the Borrower,
(iv) subject to Section 5.02(j), dispositions of assets by a
Borrower or the Restricted Subsidiary to a Third Party,
(v) to the extent permitted by Section 5.02(n), the payment
of Equity Payments by the Borrower or any Restricted
Subsidiary, (iv) subject to Section 2.07(b), sale and
leaseback transactions and (vii) investments in Permitted
Investments and dispositions thereof; and except that:
(x) the Borrower or any Restricted Subsidiary may
merge or liquidate any other Person into itself;
(y) any Restricted Subsidiary may be merged into
any other Person; provided that such other Person,
immediately following such merger, shall be deemed a
Restricted Subsidiary; and
(z) subject to Section 2.07(b), the Borrower or
any Restricted Subsidiary may sell or otherwise dispose
of (including by merger or consolidation) any assets or
securities of any Subsidiary;
provided, however, that in the case of a merger permitted by
clause (x) above, immediately thereafter and giving effect
thereto, the Borrower or, as the case may be, a Restricted
Subsidiary would be the surviving Person and, in the case of
a merger permitted by clause (x) or (y) above or of any
disposition of assets or securities permitted by clause (z)
above, no Default or Event of Default would, immediately
thereafter and giving effect thereto, have occurred and be
continuing. Each sale or other disposition permitted by
clause (z) above shall be permitted only if the Borrower or
the Restricted Subsidiary shall receive fair consideration
therefor, as determined by the Board of Directors of the
Borrower or of such Restricted Subsidiary, as the case may
be, and certified by its Treasurer or another of its
Financial Officers to the Administrative Agent.
(d) Liens. The Borrower shall not, nor shall it
permit any of its Restricted Subsidiaries to, create, incur,
assume or suffer to exist any Lien upon any of their
respective properties, revenues or assets (including stock
or other securities of any Person, including any
Subsidiary), now owned or hereafter acquired, except:
(i) required margin deposits on permitted Hedge
Agreements and foreign currency exchange agreements,
surety and appeal bonds and materialmen's, suppliers',
tax and other like Liens arising in the ordinary course
of its or such Restricted Subsidiary's business
securing obligations which are not overdue or are being
contested in good faith by appropriate proceedings and
as to which adequate reserves have been set aside on
its books to the extent required by GAAP, Liens arising
in connection with workers' compensation, unemployment
insurance and progress payments under government
contracts, and other Liens incident to the ordinary
conduct of its or such Restricted Subsidiary's business
or the ordinary operation of property or assets and not
incurred in connection with the obtaining of any Debt
or Guarantee;
(ii) Liens on assets or properties not owned as
of the Effective Date by the Borrower or any Restricted
Subsidiary securing only purchase money Debt of the
Borrower or such Restricted Subsidiary permitted by
Section 5.02(g)(v), which Liens are limited to the
specific property the purchase of which is financed by
such Debt;
(iii) Liens, existing at the time of the
acquisition by the Borrower or any Restricted
Subsidiary of the majority of the capital stock or
other ownership interests or substantially all of the
assets of any other Person or existing at the time of
the merger of any such other Person into the Borrower
or a Restricted Subsidiary, on such capital stock or
other ownership interests or assets so acquired or on
the assets of the Person so merged into the Borrower or
such Restricted Subsidiary; provided, however, that
such acquisition or merger (and the discharge of such
Liens referred to in the immediately succeeding
proviso) shall not otherwise result in an Event of
Default or Default; and provided further that all such
Liens shall be discharged within 180 days after the
date of the respective acquisition or merger;
(iv) Liens (as in effect on the Effective Date)
securing the Pennzoil Obligations on only the related
assets purchased from Pennzoil Company in an amount not
exceeding the amount of the Pennzoil Obligations;
(v) Liens of lessors of property (in such
capacity) leased by the Borrower or a Restricted
Subsidiary pursuant to an Operating Lease or a
permitted Capitalized Lease Obligation, which Lien in
any such case is limited to the property leased
thereunder;
(vi) zoning restrictions, easements, rights-of-
way, restrictions on use of real property and other
similar encumbrances incurred in the ordinary course of
business which, in the aggregate, are not substantial
in amount and do not materially detract from the value
of the property subject thereto or interfere with the
ordinary conduct of the business of the Borrower or any
of its Subsidiaries;
(vii) extensions, renewals and replacements of
Liens referred to in paragraphs (i), (ii), (v), (vi)
and (viii) of this Section 5.02(d); provided that any
such extension, renewal or replacement Lien shall be
limited to the property or assets covered by the Lien
extended, renewed or replaced and that the obligations
secured by any such extension, renewal or replacement
Lien shall be in an amount not greater than the amount
of the obligations secured by the Lien extended,
renewed or replaced; and
(viii) Liens on equity or debt investments in Third
Parties owned by the Borrower or a Restricted
Subsidiary (which Lien in any case is limited to such
pledged equity or debt investment) which secure Debt of
Third Parties or other Third Party obligations (or
Guarantees thereof); provided that such pledged
investments were initially acquired in accordance with
Section 5.02(j).
(e) Leverage Ratio. The Borrower shall not
permit the Leverage Ratio to exceed 4.00 to 1.00.
(f) EBITDA Ratio. The Borrower shall not permit
the EBITDA Ratio to be less than 3.00 to 1.00 at the end of
any fiscal quarter.
(g) Debt. Neither the Borrower nor any
Restricted Subsidiary shall incur, create, assume or permit
to exist any Debt of any of them except:
(i) the Loans;
(ii) Debt secured by the Liens permitted by Section
5.02(d)(iii); provided that such Debt is discharged
within 180 days of the relevant acquisition or merger;
(iii) unsecured recourse liabilities (not in excess
of the uncollectible amounts of the accounts receivable
sold) of the Borrower arising from the sale of accounts
receivable;
(iv) unsecured loans and advances between the
Restricted Subsidiaries, to any Restricted Subsidiary
from the Borrower and to the Borrower from any
Restricted Subsidiary;
(v) purchase money Debt of the Borrower secured by
Liens referred to in Section 5.02(d)(ii) not in excess
of the purchase price of the related asset in each
individual case and not in excess of $15,000,000
principal amount for all such outstanding purchase
money Debt in the aggregate;
(vi) unsecured Debt of the Borrower with a maturity
less than 90 days pursuant to uncommitted lines of
credit with an outstanding aggregate principal amount
not at any time in excess of $10,000,000;
(vii) additional Debt (including Guarantees of any
Debt of a Third Party and Capitalized Lease
Obligations) of the Borrower with an outstanding
aggregate principal amount not at any time in excess of
$25,000,000 which shall, except for Liens of
Capitalized Lease Obligations permitted by
Section 5.02(d)(ii) or (vi), be unsecured;
(viii) additional Debt of the Borrower fully
subordinated to the Loans on terms approved by the
Administrative Agent; and
(ix) Debt consisting of a pledge of investments in
Nonrestricted Subsidiaries permitted by
Section 5.02(d)(viii); provided that such Debt is
recourse solely to the investment so pledged.
(h) Subordinated Debt Payments. The Borrower and
the Restricted Subsidiaries shall not, directly or
indirectly, make any principal payment on, or repurchase of,
any subordinated debt referred to in clause (viii) of
Section 5.02(g) with proceeds of the Loans.
(i) Fiscal Year. The Borrower shall not change
its fiscal year to end on any date other than December 31.
(j) Investments in Nonrestricted Subsidiaries and
Persons Not Subsidiaries. The Borrower and its Restricted
Subsidiaries shall not make or permit to exist (x) any
Guarantee by it or a Restricted Subsidiary of the Debt of
any Person which is not a Restricted Subsidiary, including
Nonrestricted Subsidiaries (each such Person being a "Third
Party"), in excess of available amounts of Debt of the
Borrower permitted under Section 5.02(g)(vii), or (y) any
loans or advances to, or purchase any stock, other
securities or evidences of indebtedness of, or permit to
exist any investment (whether by transfer of assets or
otherwise) or acquire any investment whatsoever in or any
other payment for the benefit of, any Third Parties the
aggregate outstanding amount of which under this clause (y)
at any time exceeds by more than $50,000,000 the largest
aggregate amount thereof outstanding at any time in the
Borrower's preceding fiscal year; provided that,
notwithstanding the provisions of clauses (x) and (y) above,
the Borrower and the Restricted Subsidiaries may invest in
Permitted Investments all of which shall not be included in
the calculation of such $50,000,000 annual limit.
(k) Federal Reserve Regulations. The Borrower
shall not, and shall cause its Subsidiaries not to, use the
proceeds of any Loan in any manner that would result in a
violation of, or be inconsistent with, the provisions of
Regulations G, U or X. The Borrower shall not, and shall
cause its Subsidiaries not to, take any action at any time
that would (A) result in a violation of the substitution and
withdrawal requirements of said Regulations, in the event
the same should become applicable to this Agreement or any
Loan or (B) cause the representation and warranty contained
in Section 3.01(h) at any time to be other than true and
correct.
(l) Borrower Transfers. The Borrower shall not
make any contribution or transfer of any substantial portion
of its assets to any Restricted Subsidiary other than a
Wholly-Owned Restricted Subsidiary.
(m) Transactions with Affiliates. Other than the
transactions constituting the Spin-Off, the Borrower and its
Restricted Subsidiaries shall not sell or transfer any
property or assets to, or purchase or acquire any property
or assets from, or otherwise engage in any other
transactions with, any of its Affiliates (other than among
Wholly-Owned Restricted Subsidiaries), except that as long
as no Default or Event of Default shall have occurred and be
continuing, the Borrower or any Restricted Subsidiary may
engage in any of the foregoing transactions (i) in the case
of a transaction between the Borrower or a Restricted
Subsidiary of the Borrower and a non-Wholly-Owned Restricted
Subsidiary, the Borrower, or such Restricted Subsidiary, as
the case may be, has determined that such transaction is in
the best interests of the Borrower, or such Restricted
Subsidiary, as the case may be, and (ii) in the case of any
other transaction between the Borrower or a Restricted
Subsidiary and an Affiliate which is not a Restricted
Subsidiary, at prices and on terms and conditions not less
favorable to the Borrower or such Restricted Subsidiary than
could be obtained on an arm's-length basis from unrelated
third parties. Notwithstanding the foregoing, (x) the
Borrower or a Restricted Subsidiary may engage in the
foregoing transactions with a Wholly-Owned Restricted
Subsidiary and (y) a Wholly Owned Restricted Subsidiary may
engage in the foregoing transactions with another Wholly-
Owned Restricted Subsidiary.
(n) Equity Payments. The Borrower shall not make
an Equity Payment if there is then continuing any Default or
Event of Default (or a Default or Event of Default would
result therefrom or exist after giving effect thereto);
provided, however, that no such Equity Payment shall be made
to the extent that, after giving effect thereto,
stockholders' equity of the Borrower (adjusted to exclude
the effect of extraordinary and unusual noncash items) is
less than $60,000,000.
(o) Scope of Borrower's Business. As of the
Effective Date, the Borrower and its Restricted Subsidiaries
(i) produce, purchase, process, transport and sell elemental
sulphur; (ii) produce and process oil and gas and sell oil;
and (iii) through a joint venture, purchase, transport and
sell sulphuric acid. The Borrower and its Restricted
Subsidiaries may expand its business into new areas
associated with oil, gas, sulphur, sulphuric acid and other
related products, including, without limitation, designing,
building, owning and operating sulphuric acid plants and
sulphur recovery units. The Borrower and its Restricted
Subsidiaries shall not materially expand the nature of its
business from that described above.
ARTICLE VI
Conditions to Credit Events
SECTION 6.01. Conditions Precedent to Each Credit
Event. Each Credit Event shall be subject to the following
conditions precedent:
(i) the representations and warranties on the part
of the Borrower contained in the Loan Documents shall
be true and correct in all material respects at and as
of the date of such Credit Event as though made on and
as of such date;
(ii) the Administrative Agent shall have received a
notice of such borrowing as required by Section 2.03;
(iii) no Event of Default shall have occurred and
be continuing on the date of such Credit Event or would
result after giving effect to such Credit Event;
(iv) the Loans to be made by the Lenders on such
date, and the use of the proceeds thereof and the
security arrangements contemplated hereby shall not
result in a violation of Regulation G, Regulation U or
Regulation X, as in effect on the date of such
borrowing. If required by Regulation U as a result of
such use of proceeds, the Borrower shall have delivered
to the Lenders a statement in conformity with the
requirements of Federal Reserve Form U-1 referred to in
Regulation U;
(v) there shall have been no amendments to the
Certificate of Incorporation or By-laws of the Borrower
since the date of the Certificates furnished by the
Borrower on the Effective Date, other than amendments,
if any, copies of which have been furnished to the
Administrative Agent; and
(vi) there shall be no proceeding for the
dissolution or liquidation of the Borrower or any
proceeding to revoke the Certificate of Incorporation
of the Borrower or its corporate existence, which is
pending or, to the knowledge of the Borrower,
threatened against or affecting it.
SECTION 6.02. Representations and Warranties with
Respect to Credit Events. Each Credit Event shall be deemed
a representation and warranty by the Borrower that the
conditions precedent to such Credit Event, unless otherwise
waived in accordance herewith, shall have been satisfied.
ARTICLE VII
Events of Default
SECTION 7.01. Events of Default. If any of the
following acts or occurrences (an "Event of Default") shall
occur and be continuing:
(a) default for three or more days in the payment
when due of any principal of any Loan;
(b) default for five or more days in the payment
when due of any interest on any Loan, or of any other
amount payable under the Loan Documents;
(c) any representation or warranty made or deemed
made in or in connection with any Loan Document or in
any certificate, letter or other writing or instrument
furnished or delivered to the Lenders or the Agents
pursuant to any Loan Document shall prove to have been
incorrect in any material respect when made or
effective or reaffirmed and repeated, as the case may
be;
(d) default by the Borrower in the due observance
or performance of any covenant, condition or agreement
in Section 5.01(a)(5) with respect to notices of
Defaults or Events of Default, 5.01(c) or 5.01(k),
other than the covenant to preserve and maintain all of
the Borrower's rights, privileges and franchises
desirable in the normal conduct of its business;
(e) default by the Borrower or any Restricted
Subsidiary in the due observance or performance of any
covenant, condition or agreement in Section 5.02 other
than Section 5.02(i);
(f) default by the Borrower or any Restricted
Subsidiary in the due observance or performance of any
other covenant, condition or agreement in the Loan
Documents which shall remain unremedied for 30 days
after written notice thereof shall have been given to
such Borrower by the Administrative Agent or any
Lender;
(g) either the Borrower or any Restricted
Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking relief under
Title 11 of the United States Code, as now constituted
or hereafter amended, or any other Federal or state
bankruptcy, insolvency, liquidation or similar law,
(ii) consent to the institution of, or fail to
contravene in a timely and appropriate manner, any
proceeding or the filing of any petition described in
clause (h) below, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian,
sequestrator or similar official for the Borrower or
such Restricted Subsidiary or for a substantial part of
its property or assets, (iv) file an answer admitting
the material allegations of a petition filed against it
in any such proceeding, (v) make a general assignment
for the benefit of creditors, (vi) become unable, admit
in writing its inability or fail generally to pay its
debts as they become due or (vii) take any action for
the purpose of effecting any of the foregoing;
(h) an involuntary proceeding shall be commenced
or an involuntary petition shall be filed in a court of
competent jurisdiction seeking (i) relief in respect of
the Borrower or any Restricted Subsidiary, or of a
substantial part of the property or assets of the
Borrower or any Restricted Subsidiary, under Title 11
of the United States Code, as now constituted or
hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law,
(ii) the appointment of a receiver, trustee, custodian,
sequestrator or similar official for the Borrower or
any Restricted Subsidiary or for a substantial part of
the property of the Borrower or any Restricted
Subsidiary or (iii) the winding-up or liquidation of
the Borrower or any Restricted Subsidiary; and such
proceeding or petition shall continue undismissed for
60 days, or an order or decree approving or ordering
any of the foregoing shall continue unstayed and in
effect for 30 days;
(i) default shall be made with respect to (x) the
Pennzoil Obligations or (y) Hedge Agreements or (z) any
Debt of the Borrower or any Restricted Subsidiary if
the effect of any such default shall be to accelerate,
or to permit the holder or obligee of any such
obligations or Debt (or any trustee on behalf of such
holder or obligee) to accelerate (with or without
notice or lapse of time or both), the maturity of such
Debt, the payment of any net termination value in
respect of Hedge Agreements and/or the payment of the
Pennzoil Obligations, as applicable, in an aggregate
amount in excess of $10,000,000; or any payment,
regardless of amount, of (A) net termination value on
any such obligation in respect of Hedge Agreements,
(B) any deferred purchase amount on the Pennzoil
Obligations and/or (C) any Debt of the Borrower or a
Restricted Subsidiary, as applicable, in an aggregate
principal amount (or in the case of a Hedge Agreement,
net termination value) in excess of $10,000,000, shall
not be paid when due, whether at maturity, by
acceleration or otherwise (after giving effect to any
period of grace specified in the instrument evidencing
or governing such Debt or other obligation);
(j) an ERISA Event shall have occurred with
respect to any Plan or Multi-Employer Plan that, when
taken together with all other ERISA Events, reasonably
could be expected to result in liability of the
Borrower and/or any Restricted Subsidiary and the
Borrower's ERISA Affiliates in an aggregate amount
exceeding $25,000,000 or requires payments exceeding
$10,000,000 in any year;
(k) one or more judgments for the payment of money
in an aggregate amount in excess of $10,000,000 shall
be rendered by a court or other tribunal against the
Borrower or any Restricted Subsidiary and shall remain
undischarged for a period of 45 consecutive days during
which execution of such judgment shall not have been
effectively stayed; or any action shall be legally
taken by a judgment creditor to levy upon assets or
properties of the Borrower or any Restricted Subsidiary
to enforce any such judgment;
(l) there shall have occurred a Change in Control;
or
(m) the termination of, or a material adverse
change (in the Agent's reasonable judgment) in the
terms of, the Sulphur Supply Agreement.
then, and in any such event (other than an event with
respect to the Borrower described in clause (g) or (h)
above), and at any time thereafter during the continuance of
such event, the Administrative Agent may, and at the request
of the Required Lenders shall, by written, telecopied, telex
or telegraphic notice to the Borrower, take one or more of
the following actions at the same or different times:
(i) declare the Total Commitment to be terminated, whereupon
the Total Commitment shall forthwith terminate or
(ii) declare the Loans and all other sums then owing by the
Borrower under the Loan Documents to be forthwith due and
payable, whereupon all the principal of the Loans so
declared to be due and payable, together with accrued
interest thereon and any unpaid accrued fees and all other
liabilities of the Borrower accrued hereunder and under any
other Loan Document, shall become and be immediately due and
payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by the
Borrower, anything contained herein to the contrary
notwithstanding; provided, however, that upon the occurrence
of any event described in clause (g) or (h) of this Section
7.01 as to which the Borrower is the entity involved, the
Commitments will forthwith terminate and all sums then owing
by the Borrower to the Lenders on the Loans or otherwise
hereunder shall, without any declaration or other action by
any Lender or Agent hereunder, be immediately due and
payable and the Total Commitment hereunder shall be
immediately terminated without presentment, demand, protest
or other notice of any kind, all of which are expressly
waived by the Borrower, anything contained herein or in any
other Loan Document to the contrary notwithstanding.
Promptly following the making of any such declaration, the
Administrative Agent shall give notice thereof to the
Borrower but failure to do so shall not impair the effect of
such declaration.
ARTICLE VIII
The Agents
(a) For convenience of administration and to
expedite the transactions contemplated by this Agreement,
Chase is hereby appointed as Administrative Agent and
Documentary Agent and Hibernia is appointed Co-Agent for the
Lenders under this Agreement. None of the Agents or Co-
Agent shall have any duties or responsibilities with respect
hereto except those expressly set forth herein or in the
other Loan Documents. Each Lender and its successors and
permitted assigns hereby irrevocably appoints and expressly
authorizes the Agents, without hereby limiting any implied
authority, to take such action as the Agents may deem
appropriate on its behalf and to exercise such powers under
this Agreement as are specifically delegated to such Person
by the terms hereof, together with such powers as are
reasonably incidental thereto. The Administrative Agent is
hereby expressly authorized by the Lenders, without hereby
limiting any implied authority, (a) to receive on behalf of
the Lenders all payments of principal of and interest on the
Loans and all other amounts due to the Lenders hereunder,
and promptly to distribute to each Lender its proper share
of each payment so received; (b) to give notice on behalf of
the Lenders to the Borrower of any Event of Default
specified in this Agreement of which the Administrative
Agent has actual knowledge acquired in connection with its
agency hereunder or as directed by the Required Lenders; and
(c) to distribute to each Lender copies of all notices,
financial statements and other materials delivered by the
Borrower pursuant to this Agreement as received by the
Administrative Agent. The Co-Agent is hereby expressly
authorized to assist the Administrative Agent as requested
by the Administrative Agent.
(b) None of the Agents or any of their respective
directors, officers, agents or employees shall be liable as
such for any action taken or omitted to be taken by any of
them except for its or his own gross negligence or wilful
misconduct, or be responsible for any statement, warranty or
representation herein or the contents of any document
delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance
or observance by the Borrower or any other party of any of
the terms, conditions, covenants or agreements contained in
any Loan Document. The Agents shall not be responsible to
the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement or any
other Loan Documents or other instruments or agreements.
The Agents shall in all cases be fully protected in acting,
or refraining from acting, in accordance with written
instructions signed by the Required Lenders and, except as
otherwise specifically provided herein, such instructions
and any action or inaction pursuant thereto shall be binding
on all the Lenders and each successor or permitted assign.
Each Agent shall, in the absence of knowledge to the
contrary, be entitled to rely on any instrument or document
believed by it in good faith to be genuine and correct and
to have been signed or sent by the proper Person or Persons.
None of the Agents nor any of their respective directors,
officers, employees or agents shall have any responsibility
to the Borrower or any other party on account of the failure
of or delay in performance or breach by any Lender of any of
its obligations hereunder or to any Lender on account of the
failure of or delay in performance or breach by any other
Lender or the Borrower or any other party of any of their
respective obligations hereunder or under any other Loan
Document or in connection herewith or therewith. Each of
the Agents may execute any and all duties hereunder by or
through agents or employees and shall be entitled to rely
upon the advice of legal counsel selected by it with respect
to all matters arising hereunder and shall not be liable for
any action taken or suffered in good faith by it in
accordance with the advice of such counsel. The Lenders
hereby acknowledge that none of the Agents shall be under
any duty to take any discretionary action permitted to be
taken by it pursuant to the provisions of this Agreement
unless it shall be requested in writing to do so by the
Required Lenders.
(c) To the extent that any Agent shall not be
reimbursed by the Borrower for any costs, liabilities or
expenses incurred in such capacity, each Lender agrees (i)
to reimburse the Agents, on demand (in the amount of its
Applicable Percentage hereunder) of any expenses incurred
for the benefit of the Lenders by the Agents, including
counsel fees and compensation of agents and employees paid
for services rendered on behalf of the Lenders and (ii) to
indemnify and hold harmless each Agent and any of its
directors, officers, employees or agents, on demand, in the
amount of such Applicable Percentage, from and against any
and all liabilities, taxes, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against it in its
capacity as Agent or any of them in any way relating to or
arising out of this Agreement or any other Loan Document or
any action taken or omitted by it or any of them under this
Agreement or any other Loan Document; provided, however,
that no Lender shall be liable to an Agent for any portion
of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the gross negligence or wilful
misconduct of such Agent or of its directors, officers,
employees or agents.
(d) With respect to the Loans made by it
hereunder, each Agent in its individual capacity and not as
Agent shall have the same rights and powers as any other
Lender and may exercise the same as though it were not an
Agent, and the Agents and their Affiliates may accept
deposits from, lend money to and generally engage in any
kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not an Agent.
(e) Subject to the appointment and acceptance of
a successor Agent as provided below, any Agent may resign at
any time by giving written notice thereof to the Lenders and
the Borrower. Upon any such resignation, the Required
Lenders shall have the right to appoint, and the Borrower
shall have the right to approve (such approval not to be
unreasonably withheld or delayed) a successor Administrative
Agent or Documentary Agent, as the case may be. If no
successor Agent or Documentary Agent, as the case may be,
shall have been so appointed and approved and shall have
accepted such appointment, within 30 days after the retiring
Agent's giving of notice of resignation, then the retiring
Person may, on behalf of the Lenders, appoint a successor
Administrative Agent or Documentary Agent, as the case may
be, which shall be a Lender with an office in New York, New
York, having a combined capital and surplus of at least
$500,000,000 or an Affiliate of any such Lender. Upon the
acceptance of any appointment as Administrative Agent or
Documentary Agent hereunder by a successor Administrative
Agent or Documentary Agent, as the case may be, such
successor Administrative Agent or Documentary Agent shall
thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent, and the
retiring Agent shall from and after such date be discharged
from its duties and obligations hereunder. After any such
retiring Agent's resignation hereunder as Administrative
Agent or Documentary Agent, as applicable, the provisions of
this Article VIII and Section 9.04 shall inure to its
benefit as to any actions taken or omitted to be taken by it
while it was acting as the Administrative Agent or
Documentary Agent, as applicable.
(f) The Administrative Agent and the Documentary
Agent shall be responsible for supervising the preparation,
execution and delivery of this Agreement and the other
agreements and instruments contemplated hereby, any
amendment or modification thereto and the closing of the
transactions contemplated hereby and thereby.
(g) The obligations of the Administrative Agent
and the Documentary Agent shall be separate and several and
neither of them shall be responsible or liable for the acts
or omissions of the other, except, to the extent that any
such Agent serves in more than one agent capacity, such
Agent shall be responsible for the acts and omissions
relating to each such agency function.
(h) Each Lender acknowledges that it has,
independently and without reliance upon the Agents or any
other Lender and based on such documents and information as
it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without
reliance upon the Agents or any other Lender and based on
such documents and information as it shall from time to time
deem appropriate, continue to make its own decisions in
taking or not taking action under or based upon this
Agreement or any other Loan Document, any related agreement
or any document furnished hereunder or thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Notices and other
communications provided for herein shall be in writing and
shall be delivered by hand or overnight or same day courier
service or mailed or sent by telex, telecopy, graphic
scanning or other telegraphic communications equipment of
the sending party to the appropriate party's address set
forth on the signature pages hereof. All notices and other
communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have
been given on the date of receipt if hand delivered or
delivered by any telecopy, telegraphic or telex
communications equipment or three days after being sent by
registered or certified mail, postage prepaid, return
receipt requested, in each case addressed to such party as
provided in this Section 9.01 or in accordance with the
latest unrevoked direction from such party.
SECTION 9.02. Survival of Agreement. All
covenants, agreements, representations and warranties made
by the Borrower herein and in the certificates or other
instruments prepared or delivered in connection with this
Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and the Agents and
shall survive the making by the Lenders of the Loans
regardless of any investigation made by the Lenders or on
their behalf, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan
hereunder, any Commitment Fee or any other fee or amount
payable under the Loan Documents is outstanding and unpaid
and so long as the Commitments have not been terminated.
SECTION 9.03. Successors and Assigns;
Participation; Purchasing Lenders. (a) This Agreement
shall be binding upon and inure to the benefit of the
Borrower, the Lenders, the Agents and their respective
successors and assigns, except that the Borrower may not
assign, delegate or transfer any of its rights or
obligations under this Agreement without the prior written
consent of each Lender. Any Lender may at any time pledge
or assign all or any portion of its rights under this
Agreement to a Federal Reserve Bank to secure extensions of
credit by such Federal Reserve Bank to such Lender; provided
that no such pledge or assignment shall release a Lender
from any of its obligations hereunder or substitute any such
Federal Reserve Bank for such Lender as a party hereto.
(b) Any Lender may, in accordance with applicable
law, at any time sell to one or more banks or other entities
("Participants") participating interests in all or a portion
of any Loan owing to such Lender, any Commitment of such
Lender or any other interest of such Lender hereunder. In
the event of any such sale by a Lender of participating
interests to a Participant, such Lender's obligations under
this Agreement to the other parties to this Agreement shall
remain unchanged, such Lender shall remain solely
responsible for the performance thereof and the Borrower and
the Agents shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and
obligations under this Agreement. The Borrower agrees that
if amounts outstanding under this Agreement are due and
unpaid, or shall have been declared due or shall have become
due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of setoff
in respect of its participating interest in amounts owing
under this Agreement to the same extent as if the amount of
its participating interest were owing directly to it as a
Lender under this Agreement; provided that such right of
setoff shall be subject to the obligation of such
Participant to share with the Lenders, and the Lenders agree
to share with such Participant, as provided in Section 2.15.
The Borrower also agrees that each Participant shall be
entitled to the benefits of Sections 2.11, 2.12, 2.13, 2.15,
2.17 and 9.05 with respect to its participation in the
Commitments and the Loans outstanding from time to time as
if it were a Lender; provided that no Participant shall be
entitled to receive any greater payment pursuant to such
Sections than the transferor Lender would have been entitled
to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant
unless such participation shall have been made at a time
when the circumstances giving rise to such greater payment
did not exist; and provided that the voting rights of any
Participant would be limited to amendments, modifications or
waivers decreasing any fees payable hereunder or the amount
of principal of or the rate at which interest is payable on
the Loans, extending any scheduled principal payment date or
date fixed for the payment of interest on the Loans or
changing or extending the Commitments.
(c) Any Lender may, in accordance with applicable
law and subject to Section 9.03(h), at any time assign by
novation all or any part of its rights and obligations under
this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it) (I) to any Lender or
any Affiliate thereof, without the Borrower's consent, or
(II) to one or more additional banks or financial
institutions (any such entity referred to in clause (I) or
(II) being a "Purchasing Lender") with the consent of the
Administrative Agent and the Borrower, such consent not to
be unreasonably withheld (it being understood that the
Borrower may withhold its consent to a Purchasing Lender (i)
which is not a commercial bank or savings and loan
institution or (ii) which would, as of the effective date of
such assignment, be entitled to claim compensation under
Section 2.11 which the transferor Lender would not be
entitled to claim as of such date), pursuant to a Commitment
Transfer Supplement in the form of Exhibit B, executed by
such Purchasing Lender and such transferor Lender (and, in
the case of a Purchasing Lender that is not then a Lender or
an Affiliate thereof, by the Borrower and the Administrative
Agent), and delivered for its recording in the Register to
the Administrative Agent, together with the registration and
processing fee required by Section 9.03(e) and an
Administrative Questionnaire for the Purchasing Lender if it
is not already a Lender. Assignments shall be by novation
only and a proportionate interest in the Loans and
Commitments to the Borrower must be assigned. Upon such
execution, delivery and recording (and, if required, consent
of the Borrower and the Administrative Agent), from and
after the Transfer Effective Date determined pursuant to
such Commitment Transfer Supplement (which shall be at least
five days after the execution and delivery thereof), (x) the
Purchasing Lender thereunder shall (if not already a party
hereto) be a party hereto and have the rights and
obligations of a Lender hereunder with a Commitment as set
forth in such Commitment Transfer Supplement, and (y) the
transferor Lender thereunder shall, to the extent assigned
by such Commitment Transfer Supplement, be released from its
obligations under this Agreement (and, in the case of a
Commitment Transfer Supplement covering all or the remaining
portion of a transferor Lender's rights and obligations
under this Agreement, such transferor Lender shall cease to
be a party hereto). Such Commitment Transfer Supplement
shall be deemed to amend this Agreement (including Schedule
II hereto) to the extent, and only to the extent, necessary
to reflect the addition of such Purchasing Lender (if not
already a party hereto) and the resulting adjustment of
Applicable Percentages arising from the purchase by such
Purchasing Lender of all or a portion of the rights and
obligations of such transferor Lender under this Agreement.
(d) The Administrative Agent, acting solely for
this purpose as an agent of the Borrower, shall maintain at
one of its offices in The City of New York a copy of each
Commitment Transfer Supplement delivered to it and a
register (the "Register") for the recordation of the names
and addresses of the Lenders and the Commitment of, and
principal amount of the Loans owing to, each Lender from
time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the
parties hereto may treat each Person whose name is recorded
in the Register as the owner of the Loan recorded therein
for all purposes of this Agreement. The Register shall be
available for inspection by the parties hereto at any
reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of a Commitment Transfer
Supplement executed by a transferor Lender and a Purchasing
Lender (and, in the case of a Purchasing Lender that is not
then a Lender or an Affiliate thereof, by the Borrower and
the Administrative Agent) together with payment to the
Administrative Agent of a registration and processing fee of
$3,500, the Administrative Agent shall (i) promptly accept
such Commitment Transfer Supplement and (ii) on the Transfer
Effective Date determined pursuant thereto record the
information contained therein in the Register and give
notice of such acceptance and recordation to the Lenders and
the Borrower.
(f) Subject to Section 9.15, the Borrower
authorizes each Lender to disclose to any Participant or
Purchasing Lender (each, a "Transferee") and any prospective
Transferee any and all financial and other information in
such Lender's possession concerning the Borrower and its
Affiliates which has been delivered to such Lender by or on
behalf of the Borrower pursuant to this Agreement or which
has been delivered to such Lender by or on behalf of the
Borrower in connection with such Lender's credit evaluation
of the Borrower and its Affiliates prior to becoming a party
to this Agreement.
(g) If, pursuant to this Section 9.03, any
interest in this Agreement is transferred to any Transferee
which is organized under the laws of any jurisdiction other
than the United States or any State thereof, the transferor
Lender shall immediately notify the Administrative Agent of
such transfer, describing the terms thereof and indicating
the identity and country of residence of each Transferee.
Such transferor Lender or Transferee shall indemnify and
hold harmless the Borrower and the Administrative Agent from
and against any tax, interest, penalty or other expense that
the Borrower and the Administrative Agent may incur as a
consequence of any failure to withhold United States taxes
applicable because of any transfer or participation
arrangement that is not fully disclosed to them as required
hereunder.
(h) By executing and delivering a Commitment
Transfer Supplement, the transferor Lender thereunder and
the Purchasing Lender thereunder shall be deemed to confirm
to and agree with each other and the other parties hereto as
follows: (i) such transferor Lender warrants that it is the
legal and beneficial owner of the interest being assigned
thereby free and clear of any adverse claim and that its
Commitment, and the outstanding balance of its Loans, in
each case without giving effect to assignments thereof which
have not become effective, are as set forth in such
Commitment Transfer Supplement; (ii) except as set forth in
(i) above, such transferor Lender makes no representation or
warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in
connection with this Agreement, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value
of this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto, or the
financial condition of the Borrower or any Subsidiary or the
performance or observance by the Borrower or any Subsidiary
of any of its obligations under this Agreement, any other
Loan Document or any other instrument or document furnished
pursuant hereto; (iii) such Purchasing Lender represents and
warrants that it is legally authorized to enter into such
Commitment Transfer Supplement; (iv) such Purchasing Lender
confirms that it has received a copy of this Agreement,
together with copies of the most recent financial
statements, if any, delivered pursuant to Section 5.01 and
such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to
enter into such Commitment Transfer Supplement; (v) such
Purchasing Lender will independently and without reliance
upon the Agents, such transferor Lender or any other Lender
and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this
Agreement; (vi) such Purchasing Lender appoints and
authorizes the Agents to take such action as agent on its
behalf and to exercise such respective powers under this
Agreement and the other Loan Documents as are delegated to
the Agents by the terms hereof, together with such powers as
are reasonably incidental thereto; and (vii) such Purchasing
Lender agrees that it will perform in accordance with their
terms all the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
SECTION 9.04. Expenses of the Lenders; Indemnity.
(a) The Borrower agrees to pay all out-of-pocket expenses
reasonably incurred by the Agents in connection with the
preparation and administration of this Agreement and the
other Loan Documents or with any amendments, modifications
or waivers of the provisions hereof or thereof (whether or
not the transactions hereby contemplated shall be
consummated) or reasonably incurred by the Agents or any
Lender in connection with the enforcement or protection of
their rights in connection with this Agreement and the other
Loan Documents or with the Loans made hereunder (whether
through negotiations, legal proceedings or otherwise),
including, but not limited to, the reasonable fees and
disbursements of Cravath, Swaine & Moore, special counsel
for the Agents, and, in connection with such enforcement or
protection, the reasonable fees and disbursements of other
counsel for any Lender. The Borrower further agrees that
they shall indemnify the Lenders and the Agents from and
hold them harmless against any documentary taxes,
assessments or charges made by any Governmental Authority by
reason of the execution and delivery of or in connection
with the performance of this Agreement or any of the other
Loan Documents. Further, the Borrower agrees to pay, and to
protect, indemnify and save harmless each Lender, each
Agent, the Co-Agent and each of their respective officers,
directors, stockholders, employees, agents and servants from
and against, any and all losses, liabilities (including
liabilities for penalties), actions, suits, judgments,
demands, damages, costs or expenses (including, without
limitation, attorneys' fees and expenses) in connection with
any investigative, administrative or judicial proceeding,
whether or not such Lender, Agent or Co-Agent shall be
designated a party thereto of any nature arising from or
relating to (i) the execution or delivery of this Agreement
or any other Loan Document or any agreement or instrument
contemplated thereby, the performance by the parties thereto
of their respective obligations thereunder or the
consummation of the transactions contemplated hereby and
thereby (including the Spin-Off) or (ii) the use of the
proceeds of the Loans; and the Borrower also agrees to pay,
and to protect, indemnify and save harmless each Lender,
each Agent, the Co-Agent and each of their respective
officers, directors, stockholders, employees, agents and
servants from and against, any and all losses, liabilities
(including liabilities for penalties), actions, suits,
judgments, demands, damages, costs or expenses (including,
without limitation, attorneys' fees and expenses in
connection with any investigative, administrative or
judicial proceeding, whether or not such Lender, Agent or
Co-Agent shall be designated a party thereto) of any nature
arising from or relating to any actual or alleged presence
or Release or threatened Release of Hazardous Materials on
any of the Properties or any Environmental Claim related in
any way to the Borrower or the Subsidiaries; provided that
any such indemnity referred to in this sentence shall not,
as to any indemnified Person, be available to the extent
that such losses, claims, damages, liabilities or related
expenses are determined by a court of competent jurisdiction
by final and nonappealable judgment to have resulted from
the gross negligence or wilful misconduct of such
indemnified Person. If any action, suit or proceeding
arising from any of the foregoing is brought against any
Lender, Agent or other Person indemnified or intended to be
indemnified pursuant to this Section 9.04, the Borrower, to
the extent and in the manner directed by such indemnified
party, shall resist and defend such action, suit or
proceeding or cause the same to be resisted and defended by
counsel designated by the Borrower (which counsel shall be
satisfactory to such Lender, Agent or other Person
indemnified or intended to be indemnified). If the Borrower
shall fail to do any act or thing which it has covenanted to
do hereunder or any representation or warranty on the part
of the Borrower contained in this Agreement shall be
breached, any Lender or Agent may (but shall not be
obligated to) do the same or cause it to be done or remedy
any such breach, and may expend its funds for such purpose.
Any and all amounts so expended by any Lender or Agent
shall be repayable to it by the Borrower immediately upon
such Lender's or such Agent's demand therefor.
(b) The provisions of this Section 9.04 shall
remain operative and in full force and effect regardless of
the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby or
thereby, the repayment of any of the Loans, the invalidity
or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation
made by or on behalf of any Lender or any Agent. All
amounts due under this Section 9.04 shall be payable on
written demand therefor.
SECTION 9.05. Right of Setoff. If an Event of
Default shall have occurred and be continuing and the Loans
shall have been accelerated or any Lender shall have
requested the Administrative Agent to declare the Loans
immediately due and payable pursuant to Article VII, then
each Lender is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any of and all
the obligations of the Borrower now or hereafter existing
under this Agreement, irrespective of whether or not such
Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. Each Lender
agrees promptly to notify the Borrower after any such setoff
and application made by such Lender, but the failure to give
such notice shall not affect the validity of such setoff and
application. The rights of each Lender under this Section
9.05 are in addition to other rights and remedies
(including, without limitation, other rights of setoff)
which such Lender may have.
SECTION 9.06. APPLICABLE LAW. THIS AGREEMENT
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK.
SECTION 9.07. Waivers; Amendments. (a) No
failure or delay of any Lender or Agent in exercising any
power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right
or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further
exercise thereof or the exercise of any other right or
power. The rights and remedies of the Lenders and the
Agents hereunder and under the other documents and
agreements entered into in connection herewith are
cumulative and not exclusive of any rights or remedies which
they would otherwise have. No waiver of any provision of
this Agreement, any other Loan Document or any other such
document or agreement or consent to any departure by the
Borrower therefrom shall in any event be effective unless
the same shall be authorized as provided in paragraph (b)
below, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which
given. No notice or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or
demand in similar or other circumstances.
(b) This Agreement (including any provision
hereof or thereof) may not be waived, amended or modified
except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders;
provided, however, that no such agreement shall (i) change
the principal amount of, or extend or advance the maturity
of or any date for the payment (other than pursuant to
Section 2.07(b), which may be amended by the Required
Lenders) of any principal of or interest on, any Loan
(including, without limitation, any such payment pursuant to
Section 2.07(c) or paragraph (a) or (b) of Section 2.09), or
waive or excuse any such payment or any part thereof, or
change the rate of interest on any Loan, without the written
consent of each holder affected thereby, (ii) change or
extend the Commitment of any Lender without the written
consent of such Lender, or change any fees to be paid to any
Lender or Agent hereunder without the written consent of
such Lender or the Agent, as applicable, or (iii) amend or
modify the provisions of this Section 9.07, Sections 2.08
through 2.15 or Section 9.04 or the definition of "Required
Lenders", without the written consent of each Lender; and
provided further that no such agreement shall amend, modify
or otherwise affect the rights or duties of an Agent
hereunder without the written consent of such Agent.
SECTION 9.08. Severability. In the event any one
or more of the provisions contained in this Agreement should
be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining
provisions contained herein or therein shall not in any way
be affected or impaired thereby. The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal
or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 9.09. Counterparts. This Agreement may
be executed in two or more counterparts, each of which shall
constitute an original but all of which when taken together
shall constitute but one contract, and shall become
effective when copies hereof which, when taken together,
bear the signatures of each of the parties hereto shall be
delivered or mailed to the Administrative Agent and the
Borrower.
SECTION 9.10. Headings. Article and Section
headings and the table of contents included herein are for
convenience of reference only and are not to affect the
construction of, or to be taken into consideration in
interpreting, this Agreement.
SECTION 9.11. Entire Agreement. This Agreement,
the other Loan Documents, the fee letters between the Agents
and the Borrower and the exhibits and schedules hereto
contain the entire agreement among the parties hereto with
respect to the Loans and the related transactions. Any
previous agreement among the parties with respect to the
subject matter hereof is superseded by this Agreement, such
fee letters and the other Loan Documents. Nothing in this
Agreement or in the other Loan Documents, expressed or
implied, is intended to confer upon any party other than the
parties hereto any rights, remedies, obligations or
liabilities under or by reason of this Agreement or the
other Loan Documents.
SECTION 9.12. WAIVER OF JURY TRIAL, ETC. (A) EACH
PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE
OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 9.12.
(b) Except as prohibited by law, each party
hereto hereby waives any right it may have to claim or
recover in any litigation referred to in paragraph (a) of
this Section 9.12 any special, indirect, exemplary, punitive
or consequential damages or any damages other than, or in
addition to, actual damages.
(c) Each party hereto (i) certifies that no
representative, agent or attorney of any Lender has
represented, expressly or otherwise, that such Lender would
not, in the event of litigation, seek to enforce the
foregoing waivers and (ii) acknowledges that it has been
induced to enter into this Agreement or any other document,
as applicable, by, among other things, the mutual waivers
and certifications herein.
SECTION 9.13. Interest Rate Limitation.
Notwithstanding anything herein to the contrary, if at any
time the interest rate applicable to any Loan, together with
all fees, charges and other amounts which are treated as
interest on such Loan under applicable law (collectively,
the "Charges"), as provided for herein or in any other
document executed in connection herewith, or otherwise
contracted for, charged, received, taken or reserved by any
Lender, shall exceed the maximum lawful rate (the "Maximum
Rate") which may be contracted for, charged, taken, received
or reserved by such Lender in accordance with applicable
law, the rate of interest in respect of such Loan hereunder,
together with all Charges payable to such Lender, shall be
limited to the Maximum Rate and, to the extent lawful, the
interest and Charges that would have been payable in respect
of such Loan but were not payable as a result of the
operation of this Section 9.13 shall be cumulated and the
interest and Charges payable to such Lender in respect of
other Loans or periods shall be increased (but not above the
Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to
the date of repayment, shall have been received by such
Lender.
SECTION 9.14. JURISDICTION; CONSENT TO SERVICE OF
PROCESS. (A) THE BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE
NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR
FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW
YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES
THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING
MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO
THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF
THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED
IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT
SHALL AFFECT ANY RIGHT THAT ANY LENDER OR AGENT MAY
OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
AGAINST ANY BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY
JURISDICTION.
(B) THE BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY
AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY IN ANY NEW YORK STATE
OR FEDERAL COURT. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(C) EACH PARTY TO THIS AGREEMENT IRREVOCABLY
CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR
NOTICES IN SECTION 9.01. NOTHING IN THIS AGREEMENT WILL
AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION 9.15. Confidentiality. Each Lender
agrees (which agreement shall survive the termination of
this Agreement) that financial information, information from
the Borrower's and its Subsidiaries' books and records,
information concerning the Borrower's and its Subsidiaries'
trade secrets and patents and any other information received
from the Borrower and its Subsidiaries hereunder shall be
treated as confidential by such Lender, and each Lender
agrees to use its best efforts to ensure that such
information is not published, disclosed or otherwise
divulged to anyone other than employees or officers of such
Lender and its counsel and agents; provided that it is
understood that the foregoing shall not apply to:
(i) disclosure made with the prior written
authorization of the Borrower;
(ii) disclosure of information (other than that
received from the Borrower and its Subsidiaries prior
to or under this Agreement) already known by, or in the
possession of, such Lender without restrictions on the
disclosure thereof at the time such information is
supplied to such Lender by the Borrower or its
Subsidiaries hereunder;
(iii) disclosure of information which is required
by applicable law or to a governmental agency having
supervisory or regulatory authority over any party
hereto;
(iv) disclosure of information in connection with
any suit, action or proceeding in connection with the
enforcement of rights hereunder or under the other Loan
Documents or in connection with the transactions
contemplated hereby or thereby;
(v) disclosure to any bank (or other financial
institution) which may acquire a participation or other
interest in the Loans or rights of any Lender
hereunder; provided that such bank (or other financial
institution) agrees to maintain any such information to
be received in accordance with the provisions of this
Section 9.15;
(vi) disclosure by any party hereto to any other
party hereto or their counsel or agents;
(vii) disclosure by any party hereto to any entity,
or to any Subsidiary of such an entity, which owns,
directly or indirectly, more than 50% of the voting
stock of such party, or to any Subsidiary of such an
entity; or
(viii) disclosure of information that prior to such
disclosure has become public knowledge through no
violation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first above
written.
FREEPORT-McMoRan SULPHUR INC.,
by /s/ Robert M. Wohleber
----------------------
Name: Robert M. Wohleber
Title:President and Chief
Executive Officer
ADDRESS FOR NOTICES:
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Robert M. Wohleber
President and Chief
Executive Officer
Telephone: 504-582-1758
Telecopy: 504-582-1611
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent and Documentary Agent,
by /s/ James H. Ramage
-------------------
Name:James H. Ramage
Title:Vice President
ADDRESS FOR NOTICES:
Loan & Agency Services
One Chase Manhattan Plaza
8th Floor
New York, NY 10081
Attention: Laura Rebecca
Telephone: 212-552-7253
Telecopy: 212-552-7490
With a copy to:
James Ramage
Telephone: 212-270-1373
Telecopy: 212-270-4724
HIBERNIA NATIONAL BANK,
by /s/ Steven Nance
-----------------
Name: Steven Nance
Title: Assistant Vice President
ADDRESS FOR NOTICES:
313 Carondelet Street
New Orleans, LA 70130
Attention: Steven Nance
Telephone: 504-533-5384
Telecopy: 504-533-2060
BANK OF MONTREAL,
by /s/ Michael P. Sassos
---------------------
Name: Michael P. Sassos
Title: Director
ADDRESS FOR NOTICES:
115 South LaSalle Street
11th Floor
Chicago, IL 60603
Attention: Daniel Scharfee
Telephone: 312-750-3758
Telecopy: 312-750-4345
THE BANK OF NOVA SCOTIA,
by /s/ F.C.H. Ashby
----------------
Name: F.C.H. Ashby
Title: Senior Manager
Loan Operations
ADDRESS FOR NOTICES:
600 Peachtree Street, N.E.
Suite 2700
Atlanta, GA 30308
Attention: Robert Ahern
Telephone: 404-877-1565
Telecopy: 404-888-8998
THE BANK OF TOYKO-MITSUBISHI, LTD.,
HOUSTON AGENCY,
by /s/ John W. McGhee
------------------
Name: John W. McGhee
Title: Vice President and Manager
ADDRESS FOR NOTICES:
1100 Louisiana Street
Suite 2800
Houston, TX 77002-5216
Attention: Barrie Hogue
Telephone: 713-655-3835
Telecopy: 713-658-0116
FIRST NATIONAL BANK OF COMMERCE,
by /s/ Joseph P. Maxwell
---------------------
Name: Joseph P. Maxwell
Title: Assistant Vice President
ADDRESS FOR NOTICES:
201 St. Charles Avenue
28th Floor
New Orleans, LA 70170
Attention: Lisa Glennon
Telephone: 504-623-1352
Telecopy: 504-623-1316
THE FUJI BANK LIMITED-HOUSTON
AGENCY,
by /s/ Nate Ellis
--------------
Name: Nate Ellis
Title: Vice President & Manager
ADDRESS FOR NOTICES:
1221 McKinney
Suite 4100
Houston, TX 77010
Attention: Jenny Lin
Telephone: 713-650-7821
Telecopy: 713-951-0590
MELLON BANK, N.A.,
by /s/ Charles A. Gilbert
----------------------
Name: Charles A. Gilbert
Title: Banking Officer
ADDRESS FOR NOTICES:
Three Mellon Bank Center
Room 1203
Pittsburgh, PA 15259
Attention: Patricia L. Martin
Telephone: 412-234-4710
Telecopy: 412-236-2027
SCHEDULE I
APPLICABLE MARGIN FOR LOANS
AND COMMITMENT FEES
Debt to EBITDA LIBOR ABR Commitment Fee
Leverage Ratio Spread* Spread* Percentage
Below 2.5x 0.300% 0.000% 0.200%
2.5x - 3.5x 0.375% 0.000% 0.250%
Above 3.5x 0.500% 0.000% 0.375%
* At any time when more than $50,000,000 is borrowed under this
Agreement, the applicable spread shall be increased by 0.125%.
SCHEDULE II
LENDER COMMITMENTS
Lender Applicable Commitment
Percentage
THE CHASE MANHATTAN BANK 15% $15,000,000
HIBERNIA NATIONAL BANK 15% 15,000,000
THE BANK OF MONTREAL 12% 12,000,000
THE BANK OF NOVA SCOTIA 12% 12,000,000
THE BANK OF TOKYO-MITSUBISHI,
LTD., HOUSTON AGENCY 12% 12,000,000
FIRST NATIONAL BANK OF 10% 10,000,000
COMMERCE
THE FUJI BANK LIMITED-HOUSTON
AGENCY 12% 12,000,000
MELLON BANK, N.A. 12% 12,000,000
TOTAL: 100% $100,000,000
SCHEDULE III
SUBSIDIARIES
None.
SCHEDULE IV
GOVERNMENTAL APPROVALS
None.
Exhibit 10.19
FM FM Services
Affiliate of Freeport-McMoRan &
Freeport-McMoRan Copper & Gold
FM Services Company
Telephone: (504) 582-4000
1615 Poydras Street
New Orleans, LA 70112
P.O. Box 61119
New Orleans, LA 70161
December 22, 1997
Mr. Rene L. Latiolais
2305 Barton Creek Blvd.
Villa 42
Austin, TX 78735
Dear Rene:
This will confirm the agreement between the
undersigned, FM Services Company (the "Company"), and you
with respect to the provision by you of certain consulting
services to the Company and its subsidiaries and corporate
affiliates (which includes client companies for which
services are provided).
1. From January 1, 1998 through December 31, 1998 (the
"Consulting Term"), you agree to serve as a
consultant to the Company. In your capacity as a
consultant, you will provide to the Company, subject
to the instruction and direction of its executive
officers, consulting advice related to the
businesses, operations and prospects of the Company
and its subsidiaries and corporate affiliates. You
agree to devote such of your time, skill, labor and
attention to the performance of any consulting
services requested by the Company hereunder as may
be necessary for you to render the prompt and
effective performance thereof, provided that it is
generally understood that you shall only be required
to devote yourself to the performance of such duties
to the extent contemplated by paragraph 2(vi) of
this letter.
2. It is understood and agreed with respect to your
undertaking to provide the consulting services
described herein, that:
(i) you will perform such consulting services as
an independent contractor to, and not as an
agent (except in any capacity as an elected
officer or director) or employee of the
Company or any of its subsidiaries or
affiliates, and that, as an independent
contractor, you shall have the sole and
exclusive right to control and direct details
incident to any consulting services required to
be provided hereby;
(ii) this agreement shall not be deemed or
construed to create a partnership, a joint
venture, a principal and agent relationship, or
any other relationship between you and the
Company that would create liability for the
Company for your actions;
(iii) nothing herein contained shall be construed
as giving you any right to be elected or
appointed an officer or director of the Company
or any of its subsidiaries or corporate
affiliates or to retain any such position
during the Consulting Term or any extension
thereof;
(iv) except as otherwise authorized in writing by
the Chairman of the Board of the Company, you
will not (A) represent or hold yourself out to
others that you are an employee or agent of the
Company or any of its subsidiaries or corporate
affiliates, or (B) have any authority to
negotiate or execute any agreements, contracts
commitments on behalf of, or otherwise binding
upon, the Company or such subsidiary or
corporate affiliate other than such authority
which derives from your occupying the position
of an elected officer or director of the
Company or any of its subsidiaries or corporate
affiliates;
(v) the executive officers of the Company or the
subsidiary or corporate affiliate seeking your
consulting services will, insofar as it is
reasonably practicable, consider your
convenience in the timing of their requests,
and your failure or inability, by reason of
temporary illness or other cause beyond your
control or because of absence for reasonable
periods, to respond to such requests during any
such temporary period shall not be deemed to
constitute a default on your part in the
performance hereunder of such services;
(vi) subject to the provisions of the foregoing
clause (v), during the Consulting Term you will
make yourself available for the performance of
services hereunder for fifteen (15) percent of
your time, it being understood that this shall
constitute, on the average, three (3) days per
month during the Consulting Term.
3. As an independent contractor of the Company, you
acknowledge and agree that, except as otherwise
specifically provided herein,
(i) you will not be entitled to any insurance,
pension, vacation or other benefits customarily
afforded to employees of the Company;
(ii) you will not be treated by the Company as an
employee for purposes of any federal or state
law regarding income tax withholding or for
purposes of contributions required by any
unemployment, insurance or compensatory
program; and
(iii) you will be solely responsible for the
payment of any taxes or assessments imposed on
you on account of the payment of the consulting
fee to, or performance of consulting services
by you pursuant to this agreement.
4. During the term hereof, you agree that you will not,
without the prior written consent of the Company,
(i) render any services, whether or not for
compensation, to other individuals, firms,
corporations or entities in connection with any
matters that may involve interests adverse to the
Company or any of its subsidiaries or affiliates, or
(ii) engage in any business or activity detrimental
to the business or interests of the Company or any
of its subsidiaries or affiliates.
5. You acknowledge and agree that any inventions or
discoveries, whether or not patentable, which you
may make (either alone or in conjunction with
others) as a result of performing services hereunder
shall be the sole and exclusive property of the
Company. You agree to communicate to the Company or
its representatives all facts known to you
concerning such matters, and to execute any
documents or instruments necessary to transfer to
the Company any inventions or discoveries to which
the Company may become entitled under this
agreement, and should the Company decide to patent
any such invention or discovery, you will assist in
the preparation of patent applications and execute
and assign such patent applications, and execute
such other documents, as may be necessary.
6. You acknowledge and agree to comply with the
confidentiality and other provisions set for in
Appendix A to this Agreement, the terms of which are
incorporated by reference into, and made a part of,
this Agreement.
7. In the event of a breach or threatened breach by you
of Sections 5 or 6 of this agreement during or after
the term hereof, the Company shall be entitled to
injunctive relief restraining you from violating
such paragraphs. Nothing herein shall be construed
as prohibiting the Company from pursuing any other
remedy at law or in equity it may have in the event
of your breach or threatened breach of this
agreement.
8. For the consulting services provided by you
hereunder during the Consulting Term, the Company
agrees:
(i)to pay to you an annual consulting fee of
$230,000, such fee to be payable monthly in
arrears in $19,166.66 amounts, it being
understood by you that the amounts payable to
you pursuant to this Consulting Agreement shall
be in full satisfaction of any compensation to
which you would otherwise be entitled as a
director of the Company or any of its
subsidiaries or affiliates, with you hereby
relinquishing any claim to such amounts;
(ii)to reimburse you for, or advance to you, all
reasonable out-of-pocket travel and other
expenses incurred by you at the request of the
Company in connection with your performance of
services hereunder. Such expenses will be
reimbursed or advanced promptly after your
submission to the Company of expense statements
in such reasonable detail as the Company may
require;
(iii)to make available to you secretarial
assistance, the use of a portable phone and
laptop computer, and a suitable office at the
Company's headquarters, for which you will pay
to the Company a monthly amount of $2,500, such
amount to be paid no later than the last day of
each month;
(iv)to make available to you, at no additional
charge, an annual physical, a parking space,
access to the executive dining room and fitness
center, and membership privileges at the City
Energy Club and English Turn Country Club for
business entertainment purposes. Any expenses
incurred at these clubs that are not business
related will be borne by you personally.
9. Nothing in this agreement shall affect in any way
any of your previously accrued and vested pension or
other rights or benefits under any of the plans or
agreements of the Company or any of its subsidiaries
or affiliates.
10.(i) The term of this agreement shall be the
Consulting Term, subject to any earlier termination
of your status as a consultant pursuant to the terms
of subparagraph (ii) of this paragraph. This
agreement shall be automatically continued for like
Consulting Terms of one year unless and until
canceled by either party upon thirty (30) days
written notice prior to the end of any Consulting
Term. Following the termination of this agreement,
each party shall have the right to enforce all
rights, and shall be bound by all obligations of
each party that are continuing rights and
obligations under the terms of this agreement.
(ii) This agreement may be terminated, upon notice
given in the manner provided in paragraph 12 hereof,
prior to the expiration of the Consulting Term:
(A) by the mutual written consent of the Company
and you;
(B) by the Company, upon your death, or your
physical or mental incapacity;
(C) by the Company in the event of your (1)
willful failure to perform substantially the
consulting services contemplated hereby, (2)
breach of any of the other covenants of this
agreement, or (3) engaging in gross misconduct
detrimental to the Company.
(D) by the Company for any other reason.
If this agreement is terminated by the Company prior to the
expiration of the Consulting Term for any reason other than
those set forth in subparagraphs 9(ii)(A), (B) or (C) above,
then the Company shall pay in a lump sum in cash within 30
days of such termination, the aggregate amount of previously
unpaid consulting fees that you would have earned had you
served as a consultant through the expiration of the
Consulting Term.
11.It is hereby understood and agreed that the Company
shall indemnify you for serving at the request of
the Company as an elected officer or director of any
of its subsidiaries or affiliates to the fullest
extent permitted by applicable law, and the
determination as to whether you have met the
standard required for indemnification shall be made
in accordance with the articles and bylaws of the
applicable entity and with applicable law. It is
further understood and agreed that while serving in
such capacity you will be covered by the Company's
directors and officers insurance policy.
12.Any notice or other communication required
hereunder shall be in writing, shall be deemed to
have been given and received when delivered in
person, or, if mailed, shall be deemed to have been
given when deposited in the United States mail,
first class, registered or certified, return receipt
requested, with proper postage prepaid, and shall be
deemed to have been received on the third business
day hereafter, and shall be addressed as follows:
If to the Company, addressed to:
Mr. Richard C. Adkerson
Chairman of the Board
FM Services Company
1615 Poydras Street
New Orleans, Louisiana 70112
If to you:
Mr. Rene L. Latiolais
2305 Barton Creek Blvd.
Villa 42
Austin, Texas 78735
or such other address to which either party shall
have notified the other in writing.
13.This agreement is personal to you and the Company
and its subsidiaries and shall not be assignable by
either party without the prior written consent of
the other. This agreement shall be governed by and
construed in accordance with the laws of the State
of Louisiana. This agreement contains the entire
understanding between the Company and you with
respect to the subject matter hereof. Further,
Consultant confirms that he has not relied upon any
representations or statements by the Company as a
basis for entering into this agreement that are not
contained herein. This agreement may not be amended,
modified or extended otherwise than by a written
agreement executed by the parties thereto.
Please confirm that the foregoing correctly sets forth the
agreement between the Company and you by signing and
returning to the Company one of the enclosed copies of this
letter.
Very truly yours,
/S/ Michael J. Arnold
Michael J. Arnold
President
FM Services Company
I hereby confirm that the foregoing correctly sets forth the
agreement between FM Services Company and myself.
/S/ Rene L. Latiolais
Rene L. Latiolais
December 25 1997
APPENDIX A
CONFIDENTIALITY TERMS
This Appendix A to the Consulting Agreement (the
"Agreement") by and between FM Services Company (the
"Company") and Rene' L. Latiolais (the "Consultant") sets
forth the parties' mutual understanding and agreement with
respect to the obligations of the Consultant to maintain the
confidentiality of certain information related to the
Company and its Affiliates (as defined below). Any terms
not otherwise defined in this Appendix A shall have the
meaning normally ascribed to them but in the context
necessary to fulfill the purpose of this Agreement.
1. Definitions
(A) "Affiliate" shall mean, with respect to any
person or entity, (i) any other person or
entity directly or indirectly controlling,
controlled by or under common control with such
person or entity, or (ii) any employee of such
person or entity or any independent contractor
contracted by such person or entity to perform
work for the Company. For the purposes of this
definition, "control" (including the
correlative meanings, the terms "controlling",
"controlled by" and "under common control
with") as used with respect to any person or
entity, shall mean the possession, directly or
indirectly, of the power to direct or cause the
direction of the management and policies of
such person entity, whether through the
ownership of voting securities, by contract or
otherwise; and, for the purposes of this
agreement this term shall be interpreted to
include client companies to which services are
provided to by the Company or Company
Personnel.
(B) "Company Personnel" means, collectively (i)
any Affiliate or joint venture partner of the
Company, (ii) any consultant or independent
contractor employed by the Company, (iii) any
entity in which the Company or any Affiliate of
the Company has an investment interest and (iv)
any employee, independent contractor or
consultant employed by any of the entities
described in subparts (i)-(iii) of this
definition.
(C) "Confidential Information" means any and all
information and Know-How (i)(A) which is
proprietary to the Company or any Company
Personnel, or (B) which is or has been
disclosed to the Consultant by the Company or
any Company Personnel with the understanding
that it is confidential and is to remain so,
and (ii) which the Consultant has obtained or
about which he has become aware during his
prior employment by the Company or any of its
Affiliates or during the Consulting Term.
Confidential Information includes, without
limitation: business plans; environmental
reports and plans; information contained in
internal and external memoranda and
correspondence by or to the Company or any
Company Personnel, together with the memoranda
and correspondence themselves; information
contained in bulletins and newsletters created
by the Company or an Company Personnel,
together with the bulletins and newsletters
themselves; information learned and notes taken
in connection with meetings or teleconferences
conducted during the period of prior employment
of the Consultant or during the Consultant Term
with the Company or any of its Affiliates or
consultants; information and other data
recorded in the databases, files, diskettes,
directories, magnetic tape and other storage
media of the Company's computer systems or any
computer systems on which information or data
of the Company is stored or processed; any
information relating to decisions or actions
taken by the Company or the reasons for such
decisions or actions; financial information;
trade secrets of the Company; and information
relating to the Company's Know-How, products,
operations, technology, computer programs,
source codes, data bases, schematics, other
original Works of Authorship, research and
development, engineering, design, construction,
manufacturing, purchasing, finance, marketing,
product development, business acquisitions,
personnel, promotion, distribution and selling
activities.
(D) "Intellectual Property" means any and all
Know-How, Works of Authorship, patents,
trademarks, and copyrights which (i) relate
directly to the business of the Company or its
Affiliates or to the actual or demonstratively
anticipate research or development of the
Company or its Affiliates, (ii) any of the
Company's Know-How, equipment, supplies,
facilities or trade secret information is used
to develop or improve, or (iii) are not
developed entirely on the Consultant's own
time, including, in each case, any such Know-
How, Works of Authorship, patents, trademarks
and copyrights developed by the Consultant.
(E) "Know-How" means any designs, formulas,
developmental or experimental work, new ideas,
inventions, know-how, innovations, new
applications, techniques, data, devices,
computer and other programs, products,
processes, concepts, discoveries, patterns,
methods, information, improvements or creative
work, whether or not any of them are reduced to
writing or reduced to practice and whether or
not they are patentable. The term "Know-How"
shall include any written manifestations of any
of the intangible information described in the
first sentence of this definition, including,
without limitation, related drawings, charts,
blueprints, manuals and formulae.
(F) "Works of Authorship" mean those works fixed
in any tangible medium of expression from which
they can be perceived, reproduced or otherwise
communicated, either directly or with the aid
of a machine or device, whether or not they are
copyrightable.
2. Confidentiality. The Consultant hereby acknowledges
that during the term of his employment by the
Company and/or any of its Affiliates, and during the
Consulting Term, the Consultant has been and will be
exposed to certain Confidential Information. The
Consultant agrees during the Consulting Term and
thereafter, without limitation as to time, to hold
such Confidential Information in strictest
confidence, and not to use, except for the benefit
of the Company or to disclose, transfer or reveal,
directly or indirectly to any person or entity, any
Confidential Information without the prior written
authorization of the Chairman of the Board of the
Company. All Confidential Information is and shall
remain the sole and exclusive property of the
Company, subject to its sole discretion as to use.
The Consultant agrees not to use (and not to permit
any of his Affiliates to use) any Confidential
Information for his own benefit or for the benefit
of any person or entity other than the Company.
Without limiting the generality of the foregoing,
the Consultant shall presume that all information
and Know-How related in any manner to the Company or
Affiliates which he has obtained or of which he has
become aware during the course of his prior
employment by the Company and/or any of its
Affiliates, or which he obtains or of which he
becomes aware during the Consulting Term, is
Confidential Information, whether such information
or Know-How was or is developed by the Consultant or
by other people associated with the Company and
notwithstanding that such information or Know-How
may be otherwise available to the public.
3. Third Party Information The Consultant acknowledges
that the Company has received, and in
the future will receive confidential or proprietary
information from third parties, subject to a duty on
the Company's part to maintain the confidentiality
of such information and to use it only for certain
limited purposes. The Consultant agrees to hold all
such confidential or proprietary information in the
strictest confidence and not to disclose it to any
person or entity (except as necessary in performing
Consultant's obligations under the Agreement
consistent with the Company's agreement with such
third party) or to use (or permit his Affiliates to
use) it for the benefit of anyone other than for the
Company or such third party (consistent with the
Company's agreement with such third party) without
the express written authorization of the Chairman of
the Board of the Company.
4. No Additional Consideration. The Consultant agrees
that no additional compensation in addition to that
provided in the Consulting Agreement shall be due
him from the Company in consideration of the
obligations required of the Consultant by this
Appendix A.
5. Return of Materials. At the request of the Company
or on the termination of the Consultant's
association with or employment by the Company, the
Consultant agrees to immediately deliver to the
Consultant's primary contact at the Company all
papers, notes, data, reference materials, sketches,
drawings, memoranda, documentation, software, tools,
apparatus and any other materials furnished to the
Consultant by the Company or prepared or made, in
whole or part, by the Consultant at any time during
the Consultant's association with the Company.
4. Notice. The Consultant authorizes the Company to
notify others, including any person to whom the
Consultant has disclosed Confidential Information in
violation of this Agreement of the terms of this
Agreement and his obligations hereunder.
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our reports included herein or
incorporated by reference in this Form 10-K, into Freport-
McMoRan Sulphur Inc.'s previously filed Registration
Statement on Form S-8 (File No. 333-44449).
/s/ Arthur Andersen LLP
-----------------------------
Arthur Andersen LLP
New Orleans, Louisiana,
March 24, 1998
Exhibit 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
As independent petroleum engineers, we hereby consent to the
use of our name included herein or incorporated by reference
in this Form 10-K by Freeport-McMoRan Sulphur Inc. and to
the reference to our estimates of reserves and present value
of future net reserves as of December 31, 1997, into
Freeport-McMoRan Sulphur Inc.'s previously filed
Registration Statement on Form S-8 (File No. 333-44449).
/s/ Ryder Scott Company
Petroleum Engineers
Ryder Scott Company
Petroleum Engineers
Houston, Texas
March 24, 1998
Exhibit 24.1
FREEPORT-McMoRan SULPHUR INC.
SECRETARY'S CERTIFICATE
I, Michael C. Kilanowski, Jr., Secretary of Freeport-McMoRan
Sulphur Inc. (the "Corporation", a Delaware corporation, do
hereby certify that the following resolution was duly adopted by
the Board of Directors of the Corporation at a meeting held on
February 2, 1998, and that such resolution has not been amended,
modified or rescinded and is in full force and effect:
RESOLVED, that any report, registration
statement or other form filed on behalf of
this corporation pursuant to the Securities
Exchange Act of 1934, or any amendment to
such report, registration statement or other
form, may be signed on behalf of any director
or officer of this corporation pursuant to a
power of attorney executed by such director
or officer.
IN WITNESS WHEREOF, I have hereunto signed my name and
affixed the seal of the Company on this the 24th day of March,
1998.
/s/ Michael C. Kilanowski, Jr.
------------------------------
Michael C. Kilanowski, Jr.
Secretary
Exhibit 24.2
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of Freeport-McMoRan Sulphur Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and
appoint JAMES R. MOFFETT
and RICHARD C. ADKERSON, and each of them acting individually,
his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute,
deliver and file, for and on behalf of him, in his name and in
his capacity or capacities as aforesaid, an Annual Report of the
Company on Form 10-K for the year ended December 31, 1997, and
any amendment or amendments thereto and any other document in
support thereof or supplemental thereto, and the undersigned
hereby grants to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or
capacities as aforesaid, hereby ratifying and confirming all acts
and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
/s/ J. Terrell Brown
J. Terrell Brown
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of Freeport-McMoRan Sulphur Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and
appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of
them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended
December 31, 1997 and any amendment or amendments thereto and any
other document in support thereof or supplemental thereto, and
the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every
act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in
the capacity or capacities as aforesaid, hereby ratifying and
confirming all acts and things which said attorney or attorneys
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
/s/ James R. Moffett
James R. Moffett
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of Freeport-McMoRan Sulphur Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and
appoint JAMES R. MOFFETT his true and lawful attorney-in-fact
with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended
December 31, 1997 and any amendment or amendments thereto and any
other document in support thereof or supplemental thereto, and
the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every
act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in
the capacity or capacities as aforesaid, hereby ratifying and
confirming all acts and things which said attorney or attorneys
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
/s/ Richard C. Adkerson
Richard C. Adkerson
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of Freeport-McMoRan Sulphur Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and
appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of
them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended
December 31, 1997, and any amendment or amendments thereto and
any other document in support thereof or supplemental thereto,
and the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every
act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in
the capacity or capacities as aforesaid, hereby ratifying and
confirming all acts and things which said attorney or attorneys
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
/s/ Thomas D. Clark, Jr.
Thomas D. Clark, Jr.
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of Freeport-McMoRan Sulphur Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and
appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of
them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended
December 31, 1997, and any amendment or amendments thereto and
any other document in support thereof or supplemental thereto,
and the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every
act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in
the capacity or capacities as aforesaid, hereby ratifying and
confirming all acts and things which said attorney or attorneys
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
/s/ Robert M. Wohleber
Robert M. Wohleber
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of Freeport-McMoRan Sulphur Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and
appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of
them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended
December 31, 1997, and any amendment or amendments thereto and
any other document in support thereof or supplemental thereto,
and the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every
act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in
the capacity or capacities as aforesaid, hereby ratifying and
confirming all acts and things which said attorney or attorneys
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
/s/ B.M. Rankin, Jr.
B.M. Rankin, Jr.
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of Freeport-McMoRan Sulphur Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and
appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of
them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended
December 31, 1997, and any amendment or amendments thereto and
any other document in support thereof or supplemental thereto,
and the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every
act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in
the capacity or capacities as aforesaid, hereby ratifying and
confirming all acts and things which said attorney or attorneys
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
/s/ Rene L. Latiolais
Rene L. Latiolais
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of Freeport-McMoRan Sulphur Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and
appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of
them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended
December 31, 1997, and any amendment or amendments thereto and
any other document in support thereof or supplemental thereto,
and the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every
act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in
the capacity or capacities as aforesaid, hereby ratifying and
confirming all acts and things which said attorney or attorneys
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
/s/ C.Donald Whitmire
C.Donald Whitmire
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Freeport-McMoRan Sulpher Inc. financial statements at December 31, 1997
and for the 12 months then ended, and is qualified in its entirety by
reference to such financial statements. The earnings per share (EPS) data
shown below was prepared in accordance with Statement of Financial Accounting
Standard No. 128,"Earnings Per Share," and basic and diluted EPS have been
entered in place of primary and fully diluted, respectively.
</LEGEND>
<CIK> 0001046204
<NAME> FREEPORT-MCMORAN SULPHER INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 21,293
<SECURITIES> 0
<RECEIVABLES> 27,266
<ALLOWANCES> 0
<INVENTORY> 34,421
<CURRENT-ASSETS> 95,435
<PP&E> 841,222
<DEPRECIATION> 731,389
<TOTAL-ASSETS> 273,033
<CURRENT-LIABILITIES> 29,831
<BONDS> 0
0
0
<COMMON> 103
<OTHER-SE> 114,294
<TOTAL-LIABILITY-AND-EQUITY> 273,033
<SALES> 211,945
<TOTAL-REVENUES> 211,945
<CGS> 644,311
<TOTAL-COSTS> 644,311
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (439,316)
<INCOME-TAX> (65,105)
<INCOME-CONTINUING> (374,199)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (374,199)
<EPS-PRIMARY> (36.16)
<EPS-DILUTED> (36.16)
</TABLE>
