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 1-9916
Freeport-McMoRan Copper & Gold Inc.
(Exact name of registrant as specified in its charter)
Delaware 74-2480931
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1615 Poydras Street
New Orleans, Louisiana 70112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 582-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Class A Common Stock par value $0.10 per share New York Stock Exchange
Class B Common Stock par value $0.10 per share New York Stock Exchange
Depositary Shares representing 0.05 shares of
Step-Up Convertible Preferred Stock, par value
$0.10 per share New York Stock Exchange
Depositary Shares representing 0.05 shares of
Gold-Denominated Preferred Stock, par value
$0.10 per share New York Stock Exchange
Depositary Shares, Series II, representing 0.05
shares of Gold-Denominated Preferred Stock,
Series II, par value $0.10 per share New York Stock Exchange
Depositary Shares representing 0.025 shares of
Silver-Denominated Preferred Stock, par value
$0.10 per share New York Stock Exchange
9-3/4% Senior Notes due 2001 of P.T. ALatieF
Freeport Finance Company B.V., guaranteed by
the registrant 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 the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of classes of voting stock
(common and preferred) held by non-affiliates of the registrant on
March 9, 1997 was approximately $2,871,700,000.
On March 9, 1997 there were issued and outstanding
72,570,444 shares of Class A Common Stock and 108,333,838 shares
of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to stockholders
for the year ended December 31, 1997 are incorporated by reference
into Parts II and IV of this Report and portions of the Proxy
Statement submitted to the registrant's stockholders in connection
with its 1998 Annual Meeting to be held on May 5, 1998 are
incorporated by reference into Part III of this Report.
TABLE OF CONTENTS
Page
Part I
Items 1. and 2. Business and Properties..........................1
Item 3. Legal Proceedings......................................10
Item 4. Submission of Matters to a Vote of Security Holders....11
Executive Officers of the Registrant ..................11
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................12
Item 6. Selected Financial Data................................12
Items 7. and 7A. Management's Discussion and Analysis of
Financial Condition and Results of Operations
and Quantitative and Qualitative
Disclosures About Market Risk...............13
Item 8. Financial Statements and Supplementary Data............13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. ..................13
Part III
Item 10. Directors and Executive Officers of the Registrant.....13
Item 11. Executive Compensation.................................13
Item 12. Security Ownership of Certain Beneficial Owners
and Management.........................................13
Item 13. Certain Relationships and Related Transactions.........13
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..............................................14
Signatures.....................................................S-1
Index to Financial Statements..................................F-1
Report of Independent Public Accountants.......................F-1
Exhibit Index..................................................E-1
[Page] i
PART I
Items 1. and 2. Business and Properties.
General
Freeport-McMoRan Copper & Gold Inc., a Delaware corporation
("FCX" or the "Company"), is one of the world's largest copper
and gold companies in terms of reserves and production, and
believes that it has one of the lowest cost copper producing
operations in the world, taking into account customary credits
for related gold and silver production.
FCX's principal operating subsidiary is P.T. Freeport
Indonesia Company ("PT-FI"), a limited liability company
organized under the laws of the Republic of Indonesia and
domesticated in Delaware. PT-FI engages in the exploration for
and development, mining and processing of ore containing copper,
gold and silver in Irian Jaya, Indonesia pursuant to an agreement
(a "Contract of Work" or "COW") with the government of the
Republic of Indonesia (the "Indonesian Government") and in the
worldwide marketing of concentrates containing those metals. FCX
owns directly an 81.28 percent interest in PT-FI. Of the
remaining 18.72 percent, 9.36 percent is owned by each of the
Indonesian Government and P.T. Indocopper Investama Corporation,
an Indonesian limited liability company ("PT-II"), in which FCX
owns a 49 percent interest, giving FCX an aggregate 85.87 percent
ownership interest in PT-FI. PT-FI's operations are located in
the remote rugged highlands of the Sudirman Mountain Range in the
province of Irian Jaya, Indonesia, located on the western half of
the island of New Guinea. The PT-FI COW permits extensive
exploration, mining and production activities in a 24,700 acre
area, referred to as "Block A," and an exploration area
consisting of approximately 3.25 million acres referred to as
"Block B." PT-FI's largest mine, Grasberg, was discovered in
Block A in 1988 and contains the largest single gold reserve and
one of the three largest open-pit copper reserves of any mine in
the world.
Through P.T. IRJA Eastern Minerals Corporation ("Eastern
Mining"), FCX holds an additional COW in Irian Jaya covering an
approximately 1.8 million acre exploration area. Eastern Mining
was formed in 1994 for the purpose of acquiring, holding and
developing the Eastern Mining COW. FCX owns 90 percent of the
outstanding common stock of Eastern Mining through a wholly owned
subsidiary, and the remaining 10 percent is owned by PT-II,
giving FCX an aggregate 94.9 percent ownership interest in
Eastern Mining.
In 1996, FCX and Rio Tinto plc ("Rio Tinto") established
exploration and expansion joint ventures. Pursuant to the
exploration joint ventures, Rio Tinto has a 40 percent interest
in future development projects under the PT-FI COW and the
Eastern Mining COW. Rio Tinto also has a 40 percent interest in
certain assets and future production exceeding specified annual
amounts of copper, gold and silver through 2021.
In December 1997, FCX signed a letter of intent to acquire
an ownership interest in an entity that holds a COW covering an
area of approximately 1.2 million acres in central Irian Jaya.
See "Exploration."
FCX is also engaged in the smelting and refining of copper
concentrates in Spain and marketing refined copper products
through its indirect, wholly owned subsidiary, Atlantic Copper,
S.A., formerly Atlantic Copper Holding, S.A. ("Atlantic"). At
December 31, 1997, Atlantic's smelter had a capacity of 290,000
metric tons of metal per year. PT-FI has a 25 percent interest
in P.T. Smelting Co. ("PT Smelting") an Indonesian company formed
to construct and operate a copper smelter and refinery in Gresik,
East Java, Indonesia having a design capacity of 200,000 metric
tons of copper cathode per year. The smelter is expected to
become fully operational during the second half of 1998 and it is
anticipated that PT-FI will provide all of the smelter's copper
concentrate.
Republic of Indonesia
The Republic of Indonesia consists of more than 17,000
islands stretching 3,000 miles along the equator from Malaysia to
Australia and is the fourth most populous nation in the world
with over 200 million people. Following many years of Dutch
colonial rule, Indonesia gained independence in 1945 and now has
a presidential republic system of government in which
parliamentary and presidential elections are held every five
years. President Suharto, who assumed power in 1966 and is now
76, was re-elected in March 1998 to a seventh consecutive five-
year term.
[Page] 1
Maintaining a good relationship with the Indonesian
Government is of particular importance to the Company because all
of its mining operations are located in Indonesia. PT-FI's mining
complex was Indonesia's first copper mining project and was the
first major foreign investment in Indonesia following the
economic development program instituted by the Suharto
administration in 1967. PT-FI works closely with the central,
provincial and local governments in development efforts in the
vicinity of its operations. The Company's current mining
operations in Indonesia are conducted through PT-FI by virtue of
the PT-FI COW and through Eastern Mining by virtue of the Eastern
Mining COW, both of which have 30-year terms, provide for two 10-
year extensions under certain conditions, and govern PT-FI's and
Eastern Mining's rights and obligations relating to taxes,
exchange controls, royalties, repatriation and other matters.
Both COWs were concluded pursuant to the 1967 Foreign Capital
Investment Law, which expresses Indonesia's foreign investment
policy and provides basic guarantees of remittance rights and
protection against nationalization, a framework for economic
incentives and basic rules regarding other rights and obligations
of foreign investors.
PT-FI's current mining operations are located in the
Indonesian province of Irian Jaya, which occupies the western
half of the island of New Guinea and became part of Indonesia
during the early 1960s. The area surrounding PT-FI's mining
development is sparsely populated by primitive local tribes and
former residents of more populous areas of Indonesia, some of
whom have resettled in Irian Jaya under the Indonesian
Government's transmigration program. Certain members of the local
population oppose Indonesian rule over Irian Jaya, and several
small separatist groups seek political independence for the
province. Sporadic attacks on civilians by the separatists and
sporadic but highly publicized conflicts between separatists and
the Indonesian military have led to allegations of human rights
violations. PT-FI personnel have not been involved in those
conflicts. The Indonesian military occasionally has exercised
its right to appropriate transportation and other equipment of
PT-FI to use in its security operations.
PT-FI's policy has been to operate in Irian Jaya in
compliance with Indonesian laws and in a manner that improves the
lives of the local population. PT-FI incurs significant costs
associated with its social and cultural activities. These
activities include comprehensive job training programs, basic
education programs, extensive malaria control and several public
health programs, agricultural assistance programs, a business
incubator program to encourage the local people to establish
their own small scale businesses, cultural preservation programs,
and charitable donations. In early 1996, the international
consulting firm of LABAT-Anderson undertook a comprehensive
independent audit of social programs at PT-FI's operations in
Irian Jaya. In July 1997, the LABAT-Anderson team submitted its
final report to the Indonesian Government and PT-FI, which noted
that PT-FI had gone beyond requirements in providing assistance
for the development of the local people. The report also made a
number of recommendations designed to make PT-FI's programs more
effective, including restructuring PT-FI's participation in the
Indonesian Government's development plan for the area to provide
for more direct input by local people through their leaders. In
implementing these recommendations, PT-FI has undertaken a
restructuring of its role in the Indonesian Government's
development plan for the Timika area. Through the Freeport Fund
for Irian Jaya Development, PT-FI would make available expertise
to support the economic and social development of the area. PT-
FI has agreed to dedicate one percent of its annual revenues for
ten years beginning in 1996 to this fund, which will work closely
with the Indonesian Government's local and regional planning
boards to coordinate developmental projects and activities.
While management believes that its efforts to be responsive to
the issues relating to the impact of its operations on the local
villages and tribes should serve to avoid disruptions of mining
operations, social and political instability in the area may, in
the future, have an adverse impact on PT-FI's mining operations.
Contracts of Work
The PT-FI COW covers both Block A, which was originally the
subject of a 1967 COW between PT-FI's predecessor and the
Indonesian Government, and Block B, to which PT-FI gained rights
in 1991. The initial term of the PT-FI COW expires in December
2021 with provisions for two 10-year extensions under certain
conditions. Pursuant to the PT-FI COW, PT-FI is required to
relinquish its rights to portions of Block B in amounts equal to
25 percent of the original 6.5 million acres at the end of each
of three specified periods during a span of four to seven years,
depending on extensions requested by PT-FI and granted by the
Indonesian Government. The acreage to be released is determined
by PT-FI and need not be contiguous. PT-FI has relinquished
approximately 3.25 million acres. The final 25 percent
relinquishment (approximately 1.6 million acres) will occur no
later than December 1998, unless PT-FI requests and the
Indonesian Government grants an extension. In order to
determine which acreage to relinquish pursuant to these
requirements, PT-FI has conducted an active exploration program
since 1989, focusing on what PT-FI believes to be the most
promising exploration opportunities in Block B.
[Page] 2
In August 1994, Eastern Mining was granted the Eastern
Mining COW originally covering approximately 2.5 million acres in
three separate blocks. The Eastern Mining COW provides for a
four-to-seven year exploratory term and a 30-year term for actual
mining operations with provisions for two 10-year extensions
under certain conditions. Like the PT-FI COW, the Eastern
Mining COW requires Eastern Mining to relinquish its right to
portions of the Eastern Mining COW area determined by Eastern
Mining in amounts equal to 25 percent of the original
approximately 2.5 million acres at the end of each of three
specified periods. Eastern Mining has relinquished approximately
0.7 million acres and must relinquish an additional approximately
1.2 million acres in two equal installments no later than August
1998 and August 2001.
Ore Reserves
All of PT-FI's proved and probable reserves, including the
Grasberg deposit, lie within Block A. In 1997, PT-FI increased
its proved and probable reserves by approximately 204.8 million
metric tons of ore representing 5.0 billion recoverable pounds of
copper, 9.2 million recoverable ounces of gold and 22.3 million
recoverable ounces of silver. December 31, 1997 aggregate proved
and probable recoverable reserves, net of 1997 production,
totaled 2.17 billion metric tons of ore averaging 1.20 percent
copper, 1.20 grams of gold per metric ton and 3.95 grams of
silver per metric ton representing 47.1 billion pounds of copper,
62.7 million ounces of gold and 138.4 million ounces of silver.
Pursuant to joint venture arrangements, Rio Tinto has a 40
percent interest in future production exceeding specified annual
amounts of copper, gold and silver through 2021 calculated by
reference to PT-FI's proved and probable reserves as of December
31, 1994. Rio Tinto's 40 percent share of joint venture proved
and probable reserves as of December 31, 1997 was approximately
9.3 billion pounds of copper, 11.4 million ounces of gold and
27.1 million ounces of silver. Net of Rio Tinto's share,
additions and revisions to PT-FI's proved and probable copper,
gold and silver reserves represent 2.6 times 1997 copper
production, over 3 times 1997 gold production and over 5 times
1997 silver production. Net of Rio Tinto's share, PT-FI's share
of proved and probable recoverable copper, gold and silver
reserves was 37.8 billion pounds of copper, 51.3 million ounces
of gold and 111.3 million ounces of silver as of December 31,
1997. Estimated recoverable reserves were assessed using a
copper price of $0.90 per pound and a gold price of $325 per
ounce. Using prices of $0.75 per pound of copper and $280 per
ounce of gold would reduce estimated recoverable reserves by
approximately 12 percent for copper, 9 percent for gold and 15
percent for silver.
The Grasberg deposit contains the largest single gold
reserve and is one of the three largest open-pit copper reserves
of any mine in the world. The Grasberg deposit contained combined
open pit and underground proved and probable ore reserves as of
December 31, 1997 of 1.76 billion metric tons at an average grade
of 1.12 percent copper, 1.20 grams of gold per metric ton and
3.22 grams of silver per metric ton. Kucing Liar contained as of
December 31, 1997 proved and probable ore reserves of 221.9
million metric tons at an average grade of 1.42 percent copper,
1.57 grams of gold per metric ton and 5.12 grams of silver per
metric ton.
The Company's reserves as of December 31, 1996 and 1997
included in this report have been verified by Independent Mining
Consultants, Inc., and this reserve information has been included
in this report in reliance upon the authority of Independent
Mining Consultants, Inc. as experts in mining, geology and
reserve determination. See "Cautionary Statements."
Mining Operations
Mines in Production. PT-FI currently has two mines in
operation: the Grasberg and the Intermediate Ore Zone (the
"IOZ"), both within Block A. Open pit mining of the Grasberg ore
body commenced in January 1990, and in 1997 the Grasberg mine
output totaled approximately 44.5 million metric tons of ore,
providing approximately 92 percent of PT-FI's total ore
production in 1997. The IOZ is an underground block cave
operation that was placed in production in the first half of
1994. Production is at the 3,550 meter elevation level,
approximately 300 meters below the Ertsberg East deposit, which
was depleted in the second half of 1994. In 1997, output from
the IOZ mine totaled approximately 3.9 million metric tons of
ore.
Mines in Development. Four other significant ore bodies,
referred to as the Deep Ore Zone ("DOZ"), the DOM, the Big Gossan
and Kucing Liar are located in Block A. These ore bodies are
currently at various stages of development, and are carried as
proved and probable reserves. See "Cautionary Statements."
[Page] 3
The DOZ ore body lies vertically below the IOZ. Initial
production from the DOZ ore body commenced in 1989 but was
suspended in favor of production from the Grasberg deposit.
Production is anticipated to recommence as the overlying IOZ
reserve is depleted.
The DOM ore body lies approximately 1,200 meters southeast
of the depleted Ertsberg East deposit. Pre-production development
was completed as the Grasberg began open pit production in 1990,
and all maintenance, warehouse and service facilities are in
place. Production at the DOM ore body was deferred as a result of
the increasing reserves and production capabilities of the
Grasberg.
The Big Gossan ore body is located approximately 1,000
meters southwest of the original Ertsberg deposit. Initial
underground development of the ore body began in 1993 when
tunnels were driven from the mill area into the ore zone at the
2,900 meter elevation level. A variety of stopping methods will
be used to mine the deposit, with production expected to commence
within the next ten years as other underground mines are
depleted.
The Kucing Liar ore body lies on the southern flank of and
underneath the southern portion of the Grasberg open pit.
Delineation drilling is currently under way in three underground
stations at Kucing Liar.
Exploration
In addition to continued delineation of the Grasberg
deposit and other deposits discussed under "Mining Operations,"
PT-FI is continuing its exploration program within Block A.
Exploration drilling continues at other targets including the
IOZ/DOZ Extensions, Guru East, Idenberg, West Grasberg, DOM-SE
and Kay, while surface geological evaluations continue to develop
targets at the South Wanagon, Zaagkam Ridge, VN and Wanagon
prospects.
Exploration of Block B has indicated more than 70
exploration targets, and follow-up exploration of these anomalies
is now in progress. PT-FI has focused its Block B drilling in an
area 35 kilometers north of the Grasberg deposit at a prospect
called Wabu, which lies within the Hitalipa District. A pre-
feasibility study on the Wabu Ridge gold prospect is ongoing with
a potential commercial operation being studied. Because of its
size and number of geologic leads, the Hitalipa District is
likely to be explored for many years. Drilling results are being
interpreted, and no assurance can be given that any of these new
areas contain commercially exploitable mineral deposits.
Pursuant to the exploration joint ventures, Rio Tinto has a
40 percent interest in future development projects under the PT-
FI COW and the Eastern Mining COW. Under these arrangements, Rio
Tinto funded $100 million in 1996 for approved exploration costs
in the areas covered by the PT-FI COW and the Eastern Mining COW.
As of December 31, 1997, $11.4 million in PT-FI's Block A
remains to be applied to the $100 million Rio Tinto exploration
funding and is classified as a current liability. Mutually
agreed upon exploration costs in PT-FI's Block B and Eastern
Mining's COW areas are now being shared 60 percent by FCX and 40
percent by Rio Tinto.
In December 1997, FCX signed a letter of intent to acquire
an ownership interest in P.T. Iriana Mutiara Mining ("Iriana").
Iriana holds a COW covering an area of approximately 1.2 million
acres in central Irian Jaya, in part contiguous to Eastern
Mining's COW area. The transaction is subject to execution of
definitive documentation pursuant to which FCX would become
operator of the Iriana COW area. As operator, FCX would be
required to spend at least $0.5 million on exploration in 1998.
If FCX elects to continue participation beyond June 30, 1999, it
would acquire a 90 percent ownership interest and would fund all
exploration costs up to and including a feasibility study. FCX
would also be responsible for arranging construction financing
for Iriana for any economically feasible projects in the Iriana
COW area. Pursuant to the Rio Tinto joint venture arrangements,
Rio Tinto has the option to participate with respect to 40
percent of FCX's interest in this 1.2 million acre COW area.
Milling and Production
The ore from PT-FI's mines moves by a conveyor system to a
series of ore passes through which it drops to the mill complex
located at approximately 2,900 meters above sea level. At the
mill, the ore is crushed and ground and mixed in tanks with water
and small amounts of chemical reagents where it is continuously
agitated with air. During this physical separation process,
copper-bearing particles rise to the top of the tanks and are
collected and thickened. The
[Page] 4
concentrate leaves the mill complex
as a thickened concentrate slurry, consisting of approximately 65
percent solids by weight, and is pumped through three 115
kilometer pipelines to the port site facility at Amamapare where
it is filtered, dried and stored for shipping. Ships are loaded
at dock facilities at the port until they draw their maximum
water, then move to deeper water, where loading is completed from
shuttling barges.
In 1997, FCX produced 1.17 billion pounds of copper,
approximately 4 percent more than in 1996, and 1,798,300 ounces
of gold, approximately 6 percent more than in 1996, resulting
from record average ore throughput of 128,600 metric tons of ore
per day ("MTPD"), as compared to an average of 127,400 MTPD for
1996. Average cash production costs in 1997, net of customary
gold and silver credits, were $0.221 per pound of copper, which
were higher than the comparable 1996 average primarily because of
lower gold credits.
During 1997, recovery rates averaged 85.4 percent of the
copper content, 81.4 percent of the gold content and 65.6 percent
of the silver content of the ore processed, compared to 83.8
percent, 77.1 percent and 64.6 percent, respectively, during
1996.
Construction on the "fourth concentrator mill expansion" of
PT-FI's facilities is expected to be completed during the first
half of 1998. The expanded mill facilities provide the Company
an opportunity to increase throughput beyond 200,000 MTPD and
improve profitability by optimizing the ore available from PT-
FI's mines. Costs for the expansion are expected to approximate
$960 million, including both working capital and a coal-fired
power plant and related facilities. The new power facilities
were sold in December 1997 to the joint venture that owns the
assets that provide electricity to PT-FI. See "Infrastructure
Improvements." To finance the expansion, Rio Tinto agreed to
make available to PT-FI a nonrecourse loan of up to $450 million.
Through December 31, 1997, Rio Tinto has funded $744.0 million
of expansion costs ($446.4 million loaned to PT-FI and the
remainder funded directly by Rio Tinto). Expansion costs above
$750 million will be funded 60 percent by PT-FI and 40 percent by
Rio Tinto except for approximately $80 million for costs to be
funded solely by PT-FI to enhance the profitability of PT-FI's
existing operations. Incremental cash flow attributable to these
expansion projects will be shared 60 percent PT-FI and 40 percent
Rio Tinto. PT-FI has assigned its interest in the incremental
cash flow to Rio Tinto until Rio Tinto has received an amount
equal to the funds lent to PT-FI plus interest based on Rio
Tinto's cost of borrowing. The incremental production from the
expansion, as well as production from PT-FI's existing
operations, will share proportionately in operating and
administrative costs. PT-FI will continue to receive 100 percent
of cash flow from specified annual amounts of copper, gold and
silver through 2021 calculated by reference to its proved and
probable reserves as of December 31, 1994.
In December 1997, PT-FI received approval from the
Indonesian authorities to expand its milling rate up to a maximum
of 300,000 MTPD. See "Environmental Matters."
Gresik Smelter
In July 1996, PT Smelting commenced construction of a
copper smelter in Gresik, East Java, Indonesia having a design
capacity of 200,000 metric tons of copper cathode per year. PT-
FI, Mitsubishi Materials Corporation ("Mitsubishi Materials"),
Mitsubishi Corporation ("Mitsubishi") and Nippon Mining & Metals
Co., Ltd. ("Nippon") own 25.0 percent, 60.5 percent, 9.5 percent
and 5.0 percent interests, respectively, of the outstanding PT
Smelting stock. The estimated aggregate project cost, before
working capital requirements, is approximately $625 million. PT
Smelting has a $300 million nonrecourse term loan and a $110
million working capital facility with a group of banks. The
remaining funding will be provided by PT-FI, Mitsubishi
Materials, Mitsubishi and Nippon in accordance with their
interests. Construction is expected to be completed in mid-
1998. It is anticipated that PT-FI will provide all of the
smelter's copper concentrate requirements at market rates;
however, for the first 15 years of operations the treatment and
refining charges would not fall below a specified minimum rate.
PT-FI has also agreed to assign, if necessary, its earnings in PT
Smelting to support a 13 percent cumulative annual return to
Mitsubishi Materials, Mitsubishi and Nippon for the first 20
years of commercial operations.
Infrastructure Improvements
The location of PT-FI's current operations in a remote area
requires that its operations be virtually self-sufficient. In
addition to the mining facilities described above, the facilities
originally constructed by or with the
[Page] 5
participation of PT-FI
include an airport, a port, a 119 kilometer road, an aerial
tramway, a hospital and two town sites with housing, schools and
other facilities sufficient to support more than 17,000 persons.
In 1996, PT-FI completed the first phase of the Enhanced
Infrastructure Program ("EIP"), which includes various
residential, community and commercial facilities. The EIP is
designed to provide the infrastructure needed for PT-FI's
operations, to enhance the living conditions of PT-FI's
employees, and to develop and promote the growth of local and
other third party activities and enterprises in Irian Jaya. The
full EIP includes plans for various commercial, residential,
educational, retail, medical, recreational, environmental and
other infrastructure facilities to be constructed over a ten-to-
twenty year period. The facilities constructed through the EIP
have been and are expected to continue to be developed by PT-FI
through joint ventures or direct ownership involving local
Indonesian interests and other investors.
In March 1997, PT-FI completed the final $75.0 million sale
of infrastructure assets to joint ventures owned one-third by PT-
FI and two-thirds by P.T. ALatieF Nusakarya Corporation
("ALatieF"), an Indonesian investor. The sales to the ALatieF
joint ventures totaled $270.0 million during the period from
December 1993 to March 1997. PT-FI subsequently sold its one-
third interest in the joint ventures to ALatieF and is leasing
the infrastructure assets under infrastructure asset financing
arrangements. PT-FI continues to guarantee an approximately $50
million bank loan associated with the purchases.
In December 1997, PT-FI completed a $366.4 million sale,
including $74.4 million for the remaining costs expected to be
incurred to complete construction, of the new power plant
facilities associated with the fourth concentrator mill expansion
to the joint venture that owns the assets that already provide
electricity to PT-FI. The purchase price included $123.2 million
for Rio Tinto's share of the new power plant facilities. PT-FI
subsequently sold its 30 percent interest in the joint venture to
the other partners and is purchasing power under infrastructure
asset financing arrangements pursuant to a power sales agreement.
Marketing
PT-FI supplies copper concentrates, which contain
significant quantities of gold and silver, primarily to Asian
and European smelters and international trading companies. All of
PT-FI's concentrate sales are made in United States dollars.
Substantially all of PT-FI's budgeted production of copper
concentrates is sold under long-term contracts, pursuant to which
the selling price is based on world metals prices (generally the
London Metal Exchange ("LME") settlement prices for Grade A
copper) less certain allowances. Under these contracts, initial
billing occurs at the time of shipment and final settlement on
the copper portion generally occurs three months after arrival
based on average LME prices for that month. Gold generally is
sold at the London Bullion Market Association average price for
the month of shipment. Revenues from concentrate sales are
recorded net of royalties, treatment and refining costs and the
impact of derivative financial instruments, if any, used to hedge
against risks from copper and gold price fluctuations. Per unit
royalty payments to the Indonesian Government increase with
increased copper values and range from 1.5 percent to 3.5 percent
of copper prices at the time of shipment, net of delivery costs
and treatment and refining charges. A 1.0 percent royalty is paid
to the Indonesian Government on gold and silver sales. PT-FI has
agreed with the Indonesian Government that on production in
excess of 200,000 MTPD it will pay a second royalty. Treatment
and refining costs represent payments to smelters and refiners
and are either fixed or in certain cases float with the price of
copper. A small portion of PT-FI's budgeted production of copper
concentrates, and any production in excess of budgeted amounts,
is sold in the spot market. See "Cautionary Statements."
PT-FI has obtained commitments, including commitments from
Atlantic, for essentially all of its estimated 1998 production at
market prices. PT-FI's share of sales for 1998 is expected to
approximate 1.4 billion pounds of copper and 2.2 million ounces
of gold. PT-FI's estimated 1998 copper and gold sales reflect
management's expectation of producing at higher mill throughput
rates than in 1997 because of the fourth concentrator mill
expansion, partially offset by lower average grades than during
1997. PT-FI has a long-term contract to provide Atlantic with
approximately 60 percent of its copper concentrate requirements
at market prices.
[Page] 6
Competition
PT-FI competes with other mining companies in the sale of
its mineral concentrates and the recruitment and retention of
qualified personnel. Some competing companies possess financial
resources equal to or greater than those of PT-FI. Management
believes, however, that PT-FI is one of the lowest cost copper
producers in the world, taking into account customary credits for
related gold and silver production.
Environmental Matters
Management believes that PT-FI's operations are being
conducted pursuant to applicable permits and are in compliance in
all material respects with applicable Indonesian environmental
laws, rules and regulations. In 1996, PT-FI began contributing to
a fund designed to accumulate at least $100 million at the end of
its Indonesian mine's life for eventual mine closure and
reclamation. Although the ultimate amount of reclamation and
closure costs to be incurred is currently indeterminable, based
on recent analyses PT-FI estimates that ultimate reclamation and
closure costs may require as much as $100 million but would not
exceed $150 million.
Mining operations on the scale of PT-FI's operations in
Irian Jaya involve significant environmental challenges,
primarily related to the disposition of tailings, which are the
crushed and ground rock material resulting from the physical
separation of commercially valuable minerals from the ore. The
Company has an extensive, ongoing management system for the
disposal of tailings in connection with discharging them into a
river system downstream from its milling operations. In January
1997, PT-FI completed a levee system, as part of its Indonesian
Government-approved Tailings Management Plan, to minimize the
impact of the tailings on the environment through a controlled
deposition area that ultimately will be reclaimed and
revegetated.
In 1995, PT-FI participated in an independent environmental
audit of its Irian Jaya operations under a program monitored by
the Indonesian Government. The environmental audit report was
released in 1996 and included a total of 33 recommendations, all
of which have been implemented. The audit team identified the
disposal of tailings as the most critical environmental issue
facing PT-FI, requiring significant study, engineering and
monitoring over the life of the mine. The audit concluded that
PT-FI's Tailings and River Management Plan represented the most
suitable option for tailings disposal considering the engineering
and environmental challenges in Irian Jaya. The audit also
confirmed that the tailings from PT-FI's mining operations are
non-toxic, the mining operations do not pose any significant risk
to Irian Jaya's bio-diversity and PT-FI's operations are being
conducted in all material respects in compliance with applicable
Indonesian environmental laws, rules and regulations. PT-FI
intends to implement a program of independent external audits and
continue its internal audits through the life of its mining
operations so that PT-FI's environmental management and
monitoring programs remain sound to ensure compliance in all
material respects with applicable Indonesian environmental laws,
rules and regulations and to preserve and protect the environment
in its area of operations.
In December 1997, PT-FI received approval from the Minister
of Environment for its Regional AMDAL (comprehensive
environmental assessment, monitoring plan and management plan)
study, which is necessary to allow PT-FI to expand its milling
rate up to a maximum of 300,000 MTPD. PT-FI also has received
approval from the Department of Mines and Energy for operations
up to 300,000 MTPD. All of PT-FI's environmental programs are
being expanded and upgraded in accordance with the approved
300,000 MTPD Regional AMDAL study.
Management believes that Atlantic's facilities and
operations are in compliance in all material respects with all
applicable Spanish environmental laws, rules and regulations.
Atlantic recently completed modifications to and expanded its
sulfuric acid plants, which has resulted in significant
reductions in air emissions. In addition, Atlantic expects to
realize significant additional environmental improvements upon
completion of other projects currently under way.
The Indonesian and Spanish governments may periodically
revise their environmental laws and regulations or adopt new
ones, and the effects on the Company's operations of new or
revised regulations cannot be predicted.
The Company has expended significant resources, both
financial and managerial, to comply with environmental
regulations and permitting and approval requirements, and
anticipates that it will continue to do so in the future. There
can be no assurance that additional significant costs and
liabilities will not be incurred to comply with such
[Page] 7
current and
future regulations or that such regulations will not have a
material effect on the Company's operations. See "Cautionary
Statements."
Sale of PT-II Stock
In March 1997, P.T. Nusamba Mineral Industri ("NMI"), a
subsidiary of P.T. Nusantara Ampera Bakti, acquired from a third
party approximately 51 percent of the capital stock of PT-II.
NMI financed $254 million of the $315 million purchase price with
a variable rate commercial loan maturing in March 2002. FCX has
agreed that if NMI defaults on the loan, FCX will purchase the
PT-II stock or the lenders' interest in the commercial loan for
the amount then due by NMI under the loan. FCX also agreed to
lend to NMI any amounts to cover any shortfalls between the
interest payments due on the commercial loan and the dividends
received by NMI from PT-II.
Employees of PT-FI and Relationship with FM Services Company
As of December 31, 1997, PT-FI had approximately 6,300
employees (approximately 96 percent Indonesian). In addition, as
of December 31, 1997, PT-FI had approximately 10,300 contract
workers, most of whom were Indonesian. Approximately 56 percent
of PT-FI's Indonesian employees are members of the All Indonesia
Workers' Union, which operates under Indonesian Government
supervision and is party to a labor agreement covering PT-FI's
hourly-paid Indonesian employees that expires on September 30,
1999. PT-FI experienced no work stoppages in 1997, and relations
with the union have generally been good. As of December 31,
1997, Atlantic had approximately 800 employees, of which
approximately 34 percent are covered by union contracts.
Atlantic experienced no work stoppages in 1997 and relations with
these unions have also generally been good.
Since January 1, 1996, FM Services Company, a Delaware
corporation 40 percent owned by FCX ("FMS"), has furnished
executive, administrative, financial, accounting, legal, tax,
sales and similar services to FCX, PT-FI, Eastern Mining and
Atlantic. FCX reimburses FMS, at its cost, including allocated
overhead, for these services on a monthly basis. As of December
31, 1997, FCX had 271 employees and FMS had 220 employees.
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, 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 and Quantitative
and Qualitative Disclosures About Market Risk" regarding the
Company's financial position and liquidity, payment of dividends,
strategic growth initiatives, future capital needs, development
and capital expenditures (including the amount and nature
thereof), reclamation and closure costs, exploration efforts,
reserve estimates and additions, production levels, ore grades,
commodity prices, revenues, business strategies, and other plans
and objectives of the Company's management 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, general economic and
business conditions, the business opportunities that may be
presented to and pursued by the Company, changes in laws or
regulations and other factors, many of which are beyond the
Company's control. Readers are cautioned that these statements
are not guarantees of future performance, and the actual results
or developments may differ materially from those projected,
predicted or assumed 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 those projected in the forward-looking
statements include, among others:
Commodity Price Risk. FCX's revenues are derived primarily
from PT-FI's sale of copper concentrates, which also contain
significant amounts of gold, and from Atlantic's sale of copper
cathodes and wire rod. FCX's net
[Page] 8
income can vary significantly
with fluctuations in the market prices of copper and gold.
Prices for copper and gold historically have fluctuated widely
and are affected by numerous factors beyond FCX's control. In
addition, PT-FI's concentrate sales agreements, with regard to
copper, provide for provisional billings when shipped with final
settlement generally based on the average LME price for a
specified future month. Copper revenues on provisionally priced
open pounds are adjusted monthly based on then current prices.
Movement in the average price used for these open pounds will
have an impact on FCX's net income.
Location and Industry Risks. PT-FI's mining operations are
located in steeply mountainous terrain in a very remote area of
Indonesia, which makes the conduct of its operations difficult
and has required PT-FI to overcome special engineering
difficulties and develop extensive infrastructure facilities.
The area is subject to considerable rainfall, which has led to
periodic floods and mud slides. The mine site is also in an
active seismic area, and earth tremors have been experienced from
time to time. PT-FI also is subject to the usual risks
encountered in the mining industry, including unexpected
geological conditions resulting in cave-ins, floodings and rock-
bursts and unexpected changes in rock stability conditions. None
of these factors have caused any significant interruptions to
production or significant property damage, although no assurance
can be given that delays or damage will not occur in the future.
PT-FI has substantial insurance involving the amounts and types
of coverage as it believes are appropriate for its exploration,
development, mining and processing activities in Indonesia.
Political and Social Factors. Recently, unfavorable
economic developments have negatively affected Southeast Asia in
general and Indonesia in particular. Indonesia's national debt
ratings have been downgraded, the Indonesian rupiah has devalued
significantly and the Indonesian economic growth rate and stock
market values have declined. The International Monetary Fund and
certain countries are making loans and other commitments to
Indonesia, as well as certain other Asian nations, to stabilize
their currencies' values and their ability to service debt. In
return, changes in these countries' financial and regulatory
practices are being required. Repercussions of these and other
economic developments have also negatively affected commodity
markets, including copper and gold prices, because of anticipated
declines in Asian demand.
Maintaining a good working relationship with the Indonesian
Government is of particular importance to the Company because its
principal operations are located in Indonesia. PT-FI's mining
complex was Indonesia's first copper mining project and was the
first major foreign investment in Indonesia following the
economic development program instituted by the Suharto
administration in 1967. PT-FI works closely with the central,
provincial and local governments in development efforts in the
vicinity of its operations.
The Company operates in Indonesia through PT-FI by virtue
of the PT-FI COW and through Eastern Mining by virtue of the
Eastern Mining COW, both of which have 30-year terms, provide for
two 10-year extensions under certain conditions, and govern PT-
FI's and Eastern Mining's rights and obligations relating to
taxes, exchange controls, royalties, repatriation and other
matters. Both COWs were concluded pursuant to the 1967 Foreign
Capital Investment Law, which expresses Indonesia's foreign
investment policy and provides basic guarantees of remittance
rights and protection against nationalization, a framework for
economic incentives and basic rules regarding other rights and
obligations of foreign investors. Any disputes under the COWs are
subject to international arbitration.
PT-FI's mining operations are located in the Indonesian
province of Irian Jaya, which occupies the western half of the
island of New Guinea and became part of Indonesia during the
early 1960s. The area surrounding PT-FI's mining development is
sparsely populated by primitive local tribes and former residents
of more populous areas of Indonesia, some of whom have resettled
in Irian Jaya under the Indonesian Government's transmigration
program. Certain members of the local population oppose
Indonesian rule over Irian Jaya, and several small separatist
groups seek political independence for the province. Sporadic
attacks on civilians by the separatists and sporadic but highly
publicized conflicts between separatists and the Indonesian
military have led to allegations of human rights violations. PT-
FI personnel have not been involved in those conflicts. The
Indonesian military occasionally has exercised its right to
appropriate transportation and other equipment of PT-FI.
PT-FI's policy has been to operate in Irian Jaya in
compliance with Indonesian laws and in a manner that improves the
lives of the local population. PT-FI incurs significant costs
associated with its social and cultural activities. Such
activities include comprehensive job training programs, basic
education programs, extensive malaria control and general public
health programs, agricultural assistance programs, a business
incubator program to encourage the local
[Page] 9
people to establish
their own small scale businesses, cultural preservation programs,
and charitable donations. While management believes that its
efforts to be responsive to the issues relating to the impact of
its operations on the local tribes should serve to avoid
disruptions of mining operations, social and political
instability in the area may, in the future, have an adverse
impact on PT-FI's mining operations.
Reserves. FCX reserve amounts, which are determined in
accordance with established mining industry practices and
standards, are estimates only. PT-FI's mines, whether in the
production or development stages, may not conform to geological
concepts or other expectations, so that the volume and grade of
reserves recovered and the rates of production may be more or
less than anticipated. Because ore bodies do not contain uniform
grades of minerals, ore recovery rates will vary from time to
time, resulting in variations in volumes of minerals sold from
period to period. Further, market price fluctuations in copper,
gold and, to a lesser extent, silver, and changes in operating
and capital costs may render certain ore reserves uneconomic to
develop. No assurance can be given that FCX's exploration
programs will result in the discovery of commercially exploitable
mineral deposits.
Environmental and Government Regulation. The Company's
exploration and mining activities in Irian Jaya involve
significant engineering and environmental challenges that relate
primarily to the location of the mine in remote, rugged highlands
and the disposition of tailings through discharge into a river
and a controlled deposition area near the sea. The Company has
sought to preserve and protect the environment in its area of
operations. The Company has expended significant resources, both
financial and managerial, to comply with environmental
regulations and permitting and approval requirements and
anticipates that it will continue to do so in the future. There
can be no assurance that additional significant costs and
liabilities will not be incurred in order to comply with such
current and future regulations.
Foreign Currency Exchange Risk. FCX conducts the majority
of its operations in Indonesia and Spain where its functional
currencies are U.S. dollars. All of FCX's revenues are
denominated in U.S. dollars; however, some costs are denominated
in either Indonesian rupiah or Spanish pesetas. FCX's results
are adversely affected when the U.S. dollar weakens against these
foreign currencies and positively affected when the U.S. dollar
strengthens against these foreign currencies.
Holding Company Structure. Because FCX is primarily a
holding company, conducting business through its subsidiaries,
its ability to meet its financial obligations and to pay
dividends on its preferred and common stock will depend on the
earnings and cash flow of its subsidiaries and the ability of its
subsidiaries to pay dividends and to advance funds to the
Company. Under certain circumstances, contractual and legal
restrictions, as well as the financial condition and operating
requirements of PT-FI and the Company's other subsidiaries, could
limit the Company's ability to obtain cash from its subsidiaries
for the purpose of meeting its debt service obligations and to
pay dividends. Any right of the Company to participate in any
distribution of the assets of PT-FI and its other subsidiaries
upon the liquidation, reorganization or insolvency thereof would,
with certain exceptions, be subject to the claims of creditors
(including trade creditors) and preferred stockholders (if any)
of such subsidiaries.
Item 3. Legal Proceedings.
Tom Beanal v. Freeport-McMoRan Inc. and Freeport-McMoRan
Copper & Gold Inc., Civ. No. 96-1474 (E.D. La. filed Apr. 29,
1996). In March 1998, the U. S. District Court for the Eastern
District of Louisiana dismissed with prejudice the plaintiff's
third amended complaint. The court held that the plaintiff
failed to plead facts underlying his claims against FCX. The
plaintiff has appealed the court's decision. The plaintiff
alleges environmental, human rights and social/cultural
violations in Indonesia and seeks $6 billion in monetary damages
and other equitable relief. FCX will continue to defend this
action vigorously.
Yosefa Alomang v. Freeport-McMoRan Inc. and Freeport-
McMoRan Copper & Gold Inc., Civ. No. 96-9962 (Orleans Civ. Dist.
Ct. La. filed June 19, 1996). The plaintiff alleges
substantially similar violations as those alleged in the Beanal
suit and seeks unspecified monetary damages and other equitable
relief. In February 1997, the Civil District Court of the Parish
of Orleans, State of Louisiana dismissed this purported class
action for lack of subject matter jurisdiction because the
alleged conduct and damages occurred in Indonesia. In March
1998, the Louisiana Fourth Circuit Court of Appeal reversed the
trial court's dismissal and found that subject matter
jurisdiction existed over some claims. FCX is seeking review of
the Fourth Circuit's opinion, and otherwise has additional legal
defenses to the action it will pursue upon any remand. FCX will
continue to defend this action vigorously.
[Page] 10
In addition to the foregoing proceedings, FCX may be from
time to time involved in various legal proceedings of a character
normally incident to the ordinary course of its business.
Management believes that potential liability in any proceedings
would not have a material adverse effect on the financial
condition or results of operations of FCX. FCX maintains
liability insurance to cover some, but not all, potential
liabilities normally incident to the ordinary course of its
business as well as other insurance coverage customary in its
business, with coverage limits as management deems prudent.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant.
Certain information as of March 9, 1998 about the executive
officers of FCX, including their position or office with FCX, PT-
FI and Atlantic, is set forth in the following table and
accompanying text:
Name Age Position or Office
---- --- ------------------
Richard C. Adkerson 51 President, Chief Operating
Officer and Chief Financial Officer
of FCX. Director and Executive
Vice President of PT-FI.
Michael J. Arnold 45 Senior Vice President of FCX.
W. Russell King 48 Senior Vice President of FCX.
Adrianto Machribie 56 President Director of PT-FI.
John A. Macken 46 Senior Vice President of FCX.
Executive Vice President of PT-FI.
James R. Moffett 59 Director, Chairman of the
Board and Chief Executive Officer
of FCX. President Commissioner of
PT-FI.
Craig E. Saporito 46 Senior Vice President and Treasurer
of FCX. Treasurer of PT-FI.
Steven D. Van Nort 58 Senior Vice President of FCX.
Executive Vice President of PT-FI.
Robert M. Wohleber 47 Senior Vice President of FCX.
Senior Vice President of PT-FI.
Chairman of Atlantic
Richard C. Adkerson has served as FCX's President and Chief
Operating Officer since April 1997 and Chief Financial Officer
since July 1995. Mr. Adkerson is also Executive Vice President
and a director of PT-FI, Co-Chairman of the Board and Chief
Executive Officer of McMoRan Oil & Gas Co. ("MOXY"), Vice
Chairman of the Board of Freeport-McMoRan Sulphur Inc. ("FSC")
and Chairman of the Board and Chief Executive Officer of FM
Properties Inc. From July 1995 to April 1997, Mr. Adkerson served
as Executive Vice President of the Company and from February 1994
to July 1995, he served as Senior Vice President of the Company.
Mr. Adkerson served as Vice Chairman of the Board of Freeport-
McMoRan Inc. ("FTX") from August 1995 to December 1997 and as
Senior Vice President of FTX from May 1992 to August 1995.
Michael J. Arnold has served as Senior Vice President of the
Company since November 1996. From July 1994 to November 1996,
Mr. Arnold was Vice President and Controller - Operations of the
Company. Mr. Arnold also served as a Senior Vice President of
FTX from November 1996 until December 1997. From October 1991 to
November 1996, he was Vice President of FTX, serving as
Controller - Operations from May 1993 to November 1996.
[Page] 11
W. Russell King has served as Senior Vice President of the
Company since July 1994. Mr. King served as Senior Vice
President of FTX from November 1993 to December 1997 and as Vice
President of FTX from October 1984 to November 1993.
Adrianto Machribie has served as President Director of PT-FI
since March 1996. From September 1992 to March 1996, Mr.
Machribie was a director and Executive Vice President of PT-FI.
John A. Macken has served as FCX's Senior Vice President
since December 1997. He is also Executive Vice President of PT-
FI. From April 1996 to December 1997, Mr. Macken was a Vice
President of FCX. From April 1995 to March 1996, Mr. Macken
served as a director and Executive Vice President of PT-FI and
from April 1993 to April 1995, he served as a Vice President of
PT-FI.
James R. Moffett has served as Chairman of the Board and
Chief Executive Officer of the Company since July 1995 and has
served as a director of the Company since May 1992. He is also
President Commissioner of PT-FI, Co-Chairman of the Board of
MOXY, Co-Chairman of the Board of FSC and a director of IMC
Global Inc. 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 May 1993.
Craig E. Saporito has served as Senior Vice President and
Treasurer of the Company since November 1997. Mr. Saporito is
also Treasurer of PT-FI and Vice President of MOXY. From July
1994 to November 1997, Mr. Saporito was a Vice President of FCX
and from May 1988 to December 1997, he was a Vice President of
FTX.
Steven D. Van Nort has served as FCX's Senior Vice President
since December 1997. Mr. Van Nort also serves as Executive Vice
President of PT-FI. From March 1995 to December 1997, Mr. Van
Nort was a Vice President of FCX and from June 1992 to June 1997,
he served as a Senior Vice President of PT-FI.
Robert M. Wohleber has served as Senior Vice President of
the Company since November 1997. He is also Senior Vice
President of PT-FI, Chairman of Atlantic, and President, Chief
Executive Officer and a director of FSC. He served as a Vice
President of the Company from July 1994 to November 1997, as Vice
President and Treasurer of the Company 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 to June 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The information set forth under the captions "FCX Class A
Common Shares," "FCX Class B Common Shares" and "Common Share
Dividends," on the inside back cover of the Annual Report is
incorporated herein by reference. As of March 9, 1998, there
were 14,602 and 9,498 holders of record of FCX's Class A and
Class B common stock, respectively.
Item 6. Selected Financial Data.
The information set forth under the caption "Selected
Financial and Operating Data," on page 14 of the Annual Report is
incorporated herein by reference.
FCX's ratio of earnings to fixed charges for each of the
years 1993 through 1997, inclusive, was 3.6x, 7.5x, 5.9x, 4.5x
and 3.8x, respectively. For this calculation, earnings consist
of income from continuing operations before income taxes,
minority interests and fixed charges. Fixed charges include
interest and that portion of rent deemed representative of
interest. FCX's ratio of earnings to fixed charges, preferred
stock dividends and minimum distributions for each of the years
1993 through 1997, inclusive, was 1.2x, 2.1x, 3.0x, 2.6x and
2.8x, respectively. For this calculation,
[Page] 12
the preferred stock
dividend requirements were assumed to be equal to the pre-tax
earnings which would be required to cover such dividend
requirements. The amount of such pre-tax earnings required to
cover preferred stock dividends was computed using tax rates for
the applicable years. "Minimum Distributions" for purposes of
calculating this ratio consist of the required minimum
distribution for the Company's Class A Common Stock that expired
May 1, 1993.
Items 7. and 7A. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Quantitative
and Qualitative Disclosures About Market Risk.
The information set forth under the caption "Management's
Discussion and Analysis" on pages 15 through 22, inclusive, 25,
27 and 29, as well as the "Environmental & Social Responsibility
Report" on pages 8 through 13, inclusive, of the Annual Report
are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements of FCX appearing on pages 24, 26,
28 and 30, the notes thereto appearing on pages 31 through 45,
the report thereon of Arthur Andersen LLP appearing on page 23,
and the report of management on page 23 of the Annual Report are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
Items 10. Directors and Executive Officers of the Registrant.
The information set forth under the caption "Information
About Nominees and Directors" of the Proxy Statement submitted to
the stockholders of the registrant in connection with its 1998
Annual Meeting to be held on May 5, 1998 is incorporated herein
by reference.
Items 11. Executive Compensation.
The information set forth under the captions "Director
Compensation" and "Executive Officer Compensation" of the Proxy
Statement submitted to the stockholders of the registrant in
connection with its 1998 Annual Meeting to be held on May 5, 1998
is incorporated herein by reference.
Items 12. Security Ownership of Certain Beneficial Owners and
Management.
The information set forth under the captions "Stock
Ownership of Directors and Executive Officers" and "Stock
Ownership of Certain Beneficial Owners" of the Proxy Statement
submitted to the stockholders of the registrant in connection
with its 1998 Annual Meeting to be held on May 5, 1998 is
incorporated herein by reference.
Items 13. Certain Relationships and Related Transactions.
The information set forth under the caption "Certain
Transactions" of the Proxy Statement submitted to the
stockholders of the registrant in connection with its 1998 Annual
Meeting to be held on May 5, 1998 is incorporated herein by
reference.
[Page] 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a)(1). Financial Statements.
Reference is made to the Index to Financial Statements
appearing on page F-1 hereof.
(a)(2). Financial Statement Schedules.
Reference is made to the Index to Financial Statements
appearing on page F-1 hereof.
(a)(3). Exhibits.
Reference is made to the Exhibit Index beginning on
page E-1 hereof.
(b). Reports on Form 8-K.
During the last quarter of the period covered by this
report, FCX filed no reports on Forms 8-K.
[Page] 14
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 30, 1998.
Freeport-McMoRan Copper & Gold Inc.
By: /s/ James R. Moffett
--------------------
James R. Moffett
Chairman of the Board 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 30, 1998.
Signatures
Chairman of the Board, ChiefExecutive Officer and
/s/ James R. Moffett Director (PrincipalExecutive Officer)
James R. Moffett
President, Chief Operating Officer and Chief
* Financial Officer (Principal Financial Officer)
Richard C. Adkerson
Vice President and Controller- Financial Reporting
* (Principal Accounting Officer)
C. Donald Whitmire
* Director
Robert W. Bruce III
* Director
Leon A. Davis
* Director
Robert A. Day
* Director
William B. Harrison, Jr.
* Director
J. Bennett Johnston
[Page] S-1
* Director
Henry A. Kissinger
* Director
Bobby Lee Lackey
* Director
Rene L. Latiolais
* Director
Jonathan C. A. Leslie
* Director
Gabrielle K. McDonald
* Director
George A. Mealey
* Director
George Putnam
* Director
B. M. Rankin
* Director
J. Taylor Wharton
*By: /s/ James R. Moffett
-------------------
James R. Moffett
Attorney-in-Fact
[Page] S-2
FREEPORT-McMoRan COPPER & GOLD INC.
INDEX TO FINANCIAL STATEMENTS
The financial statements of FCX appearing on pages 24, 26, 28,
and 30, the notes thereto appearing on pages 31 through 45
inclusive, and the report thereon of Arthur Andersen LLP appearing
on page 23 of FCX's 1997 Annual Report to stockholders are
incorporated by reference.
The financial statements in the schedule listed below should be
read in conjunction with such financial statements contained in
FCX's 1997 Annual Report to stockholders.
Page
Report of Independent Public Accountants F-1
III-Condensed Financial Information of Registrant F-2
VIII-Valuation and Qualifying Accounts F-4
Schedules other than the ones listed above have been omitted
since they are either not required, not applicable or the required
information is included in the financial statements or notes
thereto.
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
and for each of the three years in the period ended December 31,
1997 included in Freeport-McMoRan Copper & Gold Inc.'s Annual Report
to stockholders incorporated by reference 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 listed in the index above 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] F-1
<TABLE>
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
<CAPTION>
December 31,
--------------------------
1997 1996
---------- ----------
(In Thousands)
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,501 $ 242
Interest receivable 12,597 12,610
Due from affiliates 88,098 44,133
Notes receivable from PT-FI 982,492 1,307,812
Investment in PT-FI and PTII 455,610 427,115
Investment in Atlantic Copper 46,744 43,077
Other assets 48,111 36,710
---------- ----------
Total assets $1,635,153 $1,871,699
========== ==========
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities $ 18,999 $ 19,938
Long-term debt 825,250 662,561
Other liabilities and deferred credits 12,005 13,814
Mandatory redeemable preferred stock 500,007 500,007
Stockholders' equity 278,892 675,379
---------- ----------
Total liabilities and stockholders'
equity $1,635,153 $1,871,699
========== ==========
</TABLE>
<TABLE>
STATEMENTS OF INCOME
<CAPTION>
Years Ended December 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Income from investment in PT-FI and PTII,
net of PT-FI tax
provision $ 218,293 $ 253,895 $ 293,279
Net income (loss) from
investment in Atlantic
Copper 3,391 (24,258) (37,787)
Intercompany charge for
stock option excercises 43,846 - -
Elimination of
intercompany profit 9,271 7,244 (24,851)
General and administrative
expenses (8,855) (9,141) (7,534)
Depreciation and
amortization (3,873) (3,590) (3,819)
Interest expense, net (59,626) (21,191) (15,027)
Interest income on PT-FI notes receivable:
Promissory notes 47,219 29,150 28,130
8.235% debenture 11,723 12,353 13,333
Step-up debenture 3,083 6,327 20,203
Gold and silver production
payment loans 20,451 23,696 23,636
Other expense, net (9,861) (1,698) (3,664)
Provision for income
taxes (29,954) (46,538) (32,281)
---------- ---------- ----------
Net income 245,108 226,249 253,618
Preferred dividends (36,567) (51,569) (54,153)
---------- ---------- ----------
$ 208,541 $ 174,680 $ 199,465
========== ========== ==========
</TABLE>
The footnotes contained in FCX's 1997 Annual Report to stockholders
are an integral part of these statements.
[Page] F-2
<TABLE>
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
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 $ 245,108 $ 226,249 $ 253,618
Adjustments to reconcile net
income to net cash provided by
operating activities:
Income from investment
in PT-FI and PTII (218,293) (253,895) (293,279)
Net (income) loss from
investment in Atlantic
Copper (3,391) 24,258 37,787
Elimination of
intercompany profit (9,271) (7,244) 24,851
Dividends received from
PT-FI and PTII 205,092 220,916 161,144
Depreciation and
amortization 3,873 3,590 3,819
Increase in accounts
receivable (44,358) (5,214) (4,501)
Increase (decrease) in
accounts payable (1,898) 4,501 (296)
Other 8,936 3,733 (3,755)
---------- ---------- ----------
Net cash provided by
operating activities 185,798 216,894 179,388
---------- ---------- ----------
Cash flow from investing activities:
Investment in Atlantic Copper - - (23,622)
Investment in Freeport
Copper Company - - (25,000)
Other (11,895) (11,138) (26,860)
---------- ---------- ----------
Net cash used in investing
activities (11,895) (11,138) (75,482)
---------- ---------- ----------
Cash flow from financing activities:
Cash dividends paid:
Class A common stock (73,309) (69,425) (51,318)
Class B common stock (105,032) (106,341) (86,245)
Convertible exchangeable
preferred stock - (15,498) (15,673)
Step-up convertible
preferred stock (24,642) (19,250) (17,500)
Mandatory redeemable
preferred stock (15,901) (17,689) (17,418)
Proceeds from sale of
Senior notes - 445,570 -
Proceeds from debt 180,000 31,561 128,000
Repayment of debt (17,310) (137,000) -
Loans to PT-FI - (244,682) -
Repayment from PT-FI 325,320 147,315 124,485
Purchase of FCX common
shares (438,388) (220,997) (177,755)
Other (3,382) 829 9,440
---------- ---------- ----------
Net cash used in financing
activities (172,644) (205,607) (103,984)
---------- ---------- ----------
Net decrease in cash and
cash equivalents 1,259 149 (78)
Cash and cash equivalents
at beginning of year 242 93 171
---------- ---------- ----------
Cash and cash equivalents
at end of year $ 1,501 $ 242 $ 93
========== ========== ==========
Interest paid $ 59,798 $ 28,249 $ 23,237
========== ========== ==========
Taxes paid $ 28,286 $ 41,586 $ 34,871
========== ========== ==========
</TABLE>
The footnotes contained in FCX's 1997 Annual Report to stockholders
are an integral part of these statements.
[Page] F-3
<TABLE>
FREEPORT-McMoRan COPPER & GOLD INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- ---------- ---------- ---------------------- ---------- ---------
Additions
----------------------
Balance at Charged to Charged to Balance at
Beginning Cost and Other Other-Add End of
of Period Expense Accounts (Deduct) Period
---------- ---------- ---------- --------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Reserves and allowances deducted from assets accounts:
1997
Materials and supplies
reserves $ 19,340 $ 12,000 $- $(1,827) $29,513
1996
Materials and supplies
reserves $ 26,040 $ 3,000 $- $(9,700) $19,340
1995
Materials and supplies
reserves $ 11,271 $ 14,600 $- $ 169 $26,040
Reclamation and mine shutdown reserves:
1997
PT-FI $ 500 $ 4,966 $- $ - $ 5,466
1996
PT-FI $ - $ 500 $- $ - $ 500
</TABLE>
[Page] F-4
Freeport-McMoRan Copper & Gold Inc.
EXHIBIT INDEX
Exhibit
Number
2.1 Agreement, dated as of May 2, 1995 by and between Freeport-
McMoRan Inc. ("FTX") and FCX and The RTZ Corporation PLC,
RTZ Indonesia Limited, and RTZ America, Inc. (the "Rio Tinto
Agreement"). Incorporated by reference to Exhibit 2.1 to
the Current Report on Form 8-K of FTX dated as of May 26,
1995.
2.2 Amendment dated May 31, 1995 to the Rio Tinto Agreement.
Incorporated by reference to Exhibit 2.1 to the Quarterly
Report on Form 10-Q of FTX for the quarter ended June 30,
1995.
2.3 Distribution Agreement dated as of July 5, 1995 between FTX
and FCX. Incorporated by reference to Exhibit 2.1 to the
Quarterly Report on Form 10-Q of FTX for the quarter ended
September 30, 1995 (the "FTX 1995 Third Quarter Form 10-
Q").
3.1 Composite copy of the Certificate of Incorporation of FCX.
Incorporated by reference to Exhibit 3.1 to the Quarterly
Report on Form 10-Q of FCX for the quarter ended June 30,
1995 (the "FCX 1995 Second Quarter Form 10-Q").
3.2 By-Laws of FCX. Incorporated by reference to Exhibit 3.2 to
the Annual Report on Form 10-K of FCX for the fiscal year
ended December 31, 1996 (the "FCX 1996 Form 10-K").
4.1 Certificate of Designations of the Step-Up Convertible
Preferred Stock of FCX. Incorporated by reference to
Exhibit 4.2 to the FCX 1995 Second Quarter Form 10-Q.
4.2 Deposit Agreement dated as of July 1, 1993 among FCX,
ChaseMellon Shareholder Services, L.L.C. ("ChaseMellon"), as
Depositary, and holders of depositary receipts ("Step-Up
Depositary Receipts") evidencing certain Depositary Shares,
each of which, in turn, represents 0.05 shares of Step-Up
Convertible Preferred Stock. Incorporated by reference to
Exhibit 4.5 to the Annual Report on Form 10-K of FCX for the
fiscal year ended December 31, 1993 (the "FCX 1993 Form 10-
K").
4.3 Form of Step-Up Depositary Receipt. Incorporated by
reference to Exhibit 4.6 to the FCX 1993 Form 10-K.
4.4 Certificate of Designations of the Gold-Denominated
Preferred Stock of FCX. Incorporated by reference to
Exhibit 4.3 to the FCX 1995 Second Quarter Form 10-Q.
4.5 Deposit Agreement dated as of August 12, 1993 among FCX,
ChaseMellon, as Depositary, and holders of depositary
receipts ("Gold-Denominated Depositary Receipts") evidencing
certain Depositary Shares, each of which, in turn,
represents 0.05 shares of Gold-Denominated Preferred Stock.
Incorporated by reference to Exhibit 4.8 to the FCX 1993
Form 10-K.
4.6 Form of Gold-Denominated Depositary Receipt. Incorporated
by reference to Exhibit 4.9 to the FCX 1993 Form 10-K.
4.7 Certificate of Designations of the Gold-Denominated
Preferred Stock, Series II (the "Gold-Denominated Preferred
Stock II") of FCX. Incorporated by reference to Exhibit 4.4
to the FCX 1995 Second Quarter Form 10-Q.
[Page] E-1
4.8 Deposit Agreement dated as of January 15, 1994, among FCX,
ChaseMellon, as Depositary, and holders of depositary
receipts ("Gold-Denominated II Depositary Receipts")
evidencing certain Depositary Shares, each of which, in
turn, represents 0.05 shares of Gold-Denominated Preferred
Stock II. Incorporated by reference to Exhibit 4.2 to the
Quarterly Report on Form 10-Q of FCX for the quarter ended
March 31, 1994 (the "FCX 1994 First Quarter Form 10-Q").
4.9 Form of Gold-Denominated II Depositary Receipt.
Incorporated by reference to Exhibit 4.3 to the FCX 1994
First Quarter Form 10-Q.
4.10 Certificate of Designations of the Silver-Denominated
Preferred Stock of FCX. Incorporated by reference to
Exhibit 4.5 to the FCX 1995 Second Quarter Form 10-Q.
4.11 Deposit Agreement dated as of July 25, 1994 among FCX,
ChaseMellon, as Depositary, and holders of depositary
receipts ("Silver-Denominated Depositary Receipts")
evidencing certain Depositary Shares, each of which, in
turn, initially represents 0.025 shares of Silver-
Denominated Preferred Stock. Incorporated by reference to
Exhibit 4.2 to the July 15, 1994 Form 8-A.
4.12 Form of Silver-Denominated Depositary Receipt. Incorporated
by reference to Exhibit 4.1 to the July 15, 1994, Form 8-A.
4.13 $550 million Composite Restated Credit Agreement dated as of
July 17, 1995 (the "PT-FI Credit Agreement") among PT-FI,
FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI Trustee, Chemical Bank, as administrative agent and
FCX collateral agent, and The Chase Manhattan Bank (National
Association), as documentary agent. Incorporated by
reference to Exhibit 4.16 to the Annual Report of FCX on
Form 10-K for the year ended December 31, 1995 (the "FCX
1995 Form 10-K").
4.14 Amendment dated as of July 15, 1996 to the PT-FI Credit
Agreement among PT-FI, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT-FI Trustee, Chemical Bank,
as administrative agent and FCX collateral agent, and The
Chase Manhattan Bank (National Association), as documentary
agent. Incorporated by reference to Exhibit 4.2 to the
Quarterly Report of FCX on Form 10-Q for the quarter ended
September 30, 1996 (the "FCX 1996 Third Quarter Form 10-Q").
4.15 Amendment dated as of October 9, 1996 to the PT-FI Credit
Agreement among PT-FI, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT-FI Trustee, The Chase
Manhattan Bank (formerly Chemical Bank), as administrative
agent, security agent and JAA security agent, and The Chase
Manhattan Bank (as successor to The Chase Manhattan Bank
(National Association)), as documentary agent. Incorporated
by reference to Exhibit 10.2 to the Current Report on Form
8-K of FCX dated and filed November 13, 1996 (the "FCX
November 13, 1996 Form 8-K").
4.16 Amendment dated as of March 7, 1997 to the PT-FI Credit
Agreement among PT-FI, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT-FI Trustee, The Chase
Manhattan Bank, as administrative agent, security agent and
JAA security agent, and The Chase Manhattan Bank, as
documentary agent.
4.17 Amendment dated as of July 24, 1997 to the PT-FI Credit
Agreement among PT-FI, FCX, the several financial
institutions that are parties thereto, First Trust of New
York, National Association, as PT-FI Trustee, The Chase
Manhattan Bank, as administrative agent, security agent and
JAA security agent, and The Chase Manhattan Bank, as
documentary agent.
4.18 $200 million Credit Agreement dated as of June 30, 1995 (the
"CDF") among PT-FI, FCX, the several financial institutions
that are parties thereto, First Trust of New York, National
[Page] E-2
Association, as PT-FI Trustee, Chemical Bank, as
administrative agent and FCX collateral agent, The Chase
Manhattan Bank (National Association), as documentary agent.
Incorporated by reference to Exhibit 4.2 to the FCX 1995
Third Quarter Form 10-Q.
4.19 Amendment dated as of July 15, 1996 to the CDF among PT-FI,
FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI Trustee, Chemical Bank, as administrative agent and
FCX collateral agent, and The Chase Manhattan Bank (National
Association), as documentary agent. Incorporated by
reference to Exhibit 4.1 to the FCX 1996 Third Quarter Form
10-Q.
4.20 Amendment dated as of October 9, 1996 to the CDF among PT-
FI, FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI Trustee, The Chase Manhattan Bank (formerly Chemical
Bank), as administrative agent, security agent and JAA
security agent, and The Chase Manhattan Bank (as successor
to The Chase Manhattan Bank (National Association)), as
documentary agent. Incorporated by reference to Exhibit
10.1 to the FCX November 13, 1996 Form 8-K.
4.21 Amendment dated as of March 7, 1997 to the CDF among PT-FI,
FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI Trustee, The Chase Manhattan Bank, as administrative
agent, security agent and JAA security agent, and The Chase
Manhattan Bank, as documentary agent.
4.22 Amendment dated as of July 24, 1997 to the CDF among PT-FI,
FCX, the several financial institutions that are parties
thereto, First Trust of New York, National Association, as
PT-FI Trustee, The Chase Manhattan Bank, as administrative
agent, security agent and JAA security agent, and The Chase
Manhattan Bank, as documentary agent.
4.23 Senior Indenture dated as of November 15, 1996 from FCX to
The Chase Manhattan Bank, as Trustee. Incorporated by
reference to Exhibit 4.1 to the Current Report on Form 8-K
of FCX dated November 13, 1996 and filed November 15, 1996.
4.24 First Supplemental Indenture dated as of November 18, 1996
from FCX to The Chase Manhattan Bank, as Trustee, providing
for the issuance of the Senior Notes and supplementing the
Senior Indenture dated November 15, 1996 from FCX to such
Trustee, providing for the issuance of Debt Securities.
Incorporated by reference to Exhibit 4.20 to the FCX 1996
Form 10-K.
10.1 Contract of Work dated December 30, 1991 between The
Government of the Republic of Indonesia and PT-FI.
Incorporated by reference to Exhibit 10.2 to the FCX 1995
Form 10-K.
10.2 Contract of Work dated August 15, 1994 between The
Government of the Republic of Indonesia and P.T. IRJA
Eastern Minerals Corporation. Incorporated by reference to
Exhibit 10.2 to the FCX 1995 Form 10-K.
10.3 Agreement dated as of October 11, 1996 to Amend and Restate
Trust Agreement among PT-FI, FCX, the RTZ Corporation PLC,
P.T. RTZ-CRA Indonesia, RTZ Indonesian Finance Limited and
First Trust of New York, National Association, and The Chase
Manhattan Bank, as Administrative Agent, JAA Security Agent
and Security Agent. Incorporated by reference to Exhibit
10.3 to the FCX November 13, 1996 Form 8-K.
10.4 Credit Agreement dated October 11, 1996 between PT-FI and
RTZ Indonesian Finance Limited. Incorporated by reference
to Exhibit 10.4 to the FCX November 13, 1996 Form 8-K.
[Page] E-3
10.5 Participation Agreement dated as of October 11, 1996 between
PT-FI and P.T. RTZ-CRA Indonesia with respect to a certain
contract of work. Incorporated by reference to Exhibit 10.5
to the FCX November 13, 1996 Form 8-K.
10.6 Second Amended and Restated Joint Venture and Shareholders'
Agreement dated as of December 11, 1996 among Mitsubishi
Materials Corporation, Nippon Mining and Metals Company,
Limited and PT-FI. Incorporated by reference to Exhibit
10.3 of the FCX 1996 Form 10-K.
10.7 Put and Guaranty Agreement dated as of March 21, 1997
between FCX and The Chase Manhattan Bank.
10.8 Subordinated Loan Agreement dated as of March 21, 1997
between FCX and PT Nusamba Mineral Industri.
10.9 Amended and Restated Power Sales Agreement dated as of
December 18, 1997 between PT-FI and P.T. Puncakjaya Power.
10.10 Option, Mandatory Purchase and Right of First Refusal
Agreement dated as of December 19, 1997 among PT-FI, P.T.
Puncakjaya Power, Duke Irian Jaya, Inc., Westcoast Power,
Inc. and P.T. Prasarana Nusantara Jaya.
Executive Compensation Plans and Arrangements (Exhibits
10.11 through 10.28)
10.11 Annual Incentive Plan of FCX. Incorporated by reference
to Exhibit 10.8 to the FCX 1996 Form 10-K.
10.12 1995 Long-Term Performance Incentive Plan of FCX.
Incorporated by reference to Exhibit 10.9 to the FCX 1996
Form 10-K.
10.13 FCX Performance Incentive Awards Program. Incorporated
by reference to Exhibit 10.7 to the FCX 1995 Form 10-K.
10.14 FCX President's Award Program. Incorporated by
reference to Exhibit 10.8 to the FCX 1995 Form 10-K.
10.15 FCX Adjusted Stock Award Plan, as amended.
10.16 FCX 1995 Stock Option Plan. Incorporated by reference
to Exhibit 10.13 to the FCX 1996 Form 10-K.
10.17 FCX 1995 Stock Option Plan for Non-Employee Directors,
as amended.
10.18 Financial Counseling and Tax Return Preparation and
Certification Program of FCX. Incorporated by reference to
Exhibit 10.12 to the FCX 1995 Form 10-K.
10.19 FM Services Company Performance Incentive Awards
Program. Incorporated by reference to Exhibit 10.13 to the
FCX 1995 Form 10-K.
10.20 FM Services Company Financial Counseling and Tax Return
Preparation and Certification Program. Incorporated by
reference to Exhibit 10.14 to the FCX 1995 Form 10-K.
10.21 Consulting Agreement dated as of December 22, 1988
between FTX and Kissinger Associates, Inc. ("Kissinger
Associates").
[Page] E-4
10.22 Letter Agreement dated May 1, 1989 between FTX and Kent
Associates, Inc. ("Kent Associates," predecessor in interest
to Kissinger Associates).
10.23 Letter Agreement dated January 27, 1997 among Kissinger
Associates, Kent Associates, FTX, FCX and FMS. Incorporated
by reference to Exhibit 10.20 to the FCX 1996 Form 10-K.
10.24 Agreement for Consulting Services between FTX and B. M.
Rankin, Jr. effective as of January 1, 1991 (assigned to FMS
as of January 1, 1996).
10.25 Supplemental Agreement between FMS and B. M. Rankin Jr.
dated December 15, 1997.
10.26 Letter Agreement dated March 8, 1996 between George A.
Mealey and FCX. Incorporated by reference to Exhibit 10.22
of the FCX 1996 Form 10-K.
10.27 Letter Agreement effective as of January 4, 1997
between Senator J. Bennett Johnston, Jr. and FCX.
Incorporated by reference to Exhibit 10.25 of the FCX 1996
Form 10-K.
10.28 Letter Agreement dated December 22, 1997 between FMS
and Rene L. Latiolais.
12.1 FCX Computation of Ratio of Earnings to Fixed Charges.
13.1 Those portions of the 1997 Annual Report to stockholders of
FCX that are incorporated herein by reference.
21.1 Subsidiaries of FCX.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Independent Mining Consultants, Inc.
24.1 Certified resolution of the Board of Directors of FCX
authorizing this report to be signed on behalf of any
officer or director pursuant to a Power of Attorney.
24.2 Powers of Attorney pursuant to which this report has been
signed on behalf of certain officers and directors of FCX.
27.1 FCX Financial Data Schedule.
27.2 FCX Restated Financial Data Schedule.
[Page] E-5
Exhibit 4.16
CONFORMED COPY
AMENDMENT dated as of March 7, 1997
(this "Amendment") to the Credit Agreement
dated as of June 30, 1995 (as heretofore
amended, the "Credit Agreement"), among PT
FREEPORT INDONESIA COMPANY, a limited
liability company organized under the laws of
the Republic of Indonesia and also
domesticated in Delaware ("FI"), FREEPORT-
MCMORAN COPPER & GOLD INC., a Delaware
corporation ("FCX"), the undersigned
financial institutions (collectively, the
"Banks"), FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, a national banking association,
as trustee under the FI Trust Agreement (in
such capacity, the "FI Trustee"), THE CHASE
MANHATTAN BANK (formerly Chemical Bank), a
New York banking corporation ("Chase"), as
administrative agent for the Banks (in such
capacity, the "Administrative Agent"), as
security agent for the Banks (in such
capacity, the "Security Agent") under the
Bank Security Documents (as defined in the
Credit Agreement) and as security agent for
the Banks and RTZ-IIL (in such capacity, the
"JAA Security Agent") under the JAA Fiduciary
Transfer (as defined in the Credit Agreement)
and the JAA Fiduciary Power (as defined in
the Credit Agreement), and THE CHASE
MANHATTAN BANK (as successor to the Chase
Manhattan Bank (National Association)), as
documentary agent for the Banks (in such
capacity the "Documentary Agent"; the
Administrative Agent, the Security Agent, the
JAA Security Agent and the Documentary Agent
being collectively referred to herein as the
"Agents"). Capitalized terms used herein and
not defined herein shall have the meanings
given such terms in the Credit Agreement.
PT Nusamba Mineral Industri ("PTMI"), an
Indonesian limited liability company and a special purpose
subsidiary owned 99% by PT Nusantara Ampera Bakti ("PT
Nusamba") and 1% by PT Mapindo Parama ("PTMP", and together
with PT Nusamba, the "PTMI Shareholders"), proposes to
acquire for an aggregate purchase price not to exceed
$312 million approximately 51% of the capital stock of PT
Indocopper Investama Corporation ("PTII") that is currently
owned or controlled by PT Bakrie & Brothers ("PTBB") and PT
Bakrie Investindo ("PTBI", and together with PTBB, the
"Bakrie Group"). PTII in turn owns 9.36% of the capital
stock of FI.
In conjunction with the acquisition, PTMI will
finance (a) up to $256,000,000 of the purchase price and
financing fees with the proceeds of a senior secured term
loan facility (the "PTMI Facility") and (b) the remainder of
such purchase in the amount of $61,780,000 through a
combination of (i) a common equity contribution by the PTMI
shareholders to PTMI and (ii) the issuance by PTMI of
subordinated indebtedness to the PTMI shareholders in a
principal amount not to exceed 50% of $61,780,000.
The PTMI Facility will be structured as a five-
year term loan, with full recourse to FCX through a Put and
Guaranty Agreement (the "Put Agreement"). FCX will also
loan to PTMI (on a subordinated basis) such amounts as may
be necessary to cover any differences between the interest
payments due on the PTMI Facility and the dividends received
by PTMI in connection with its ownership interest in PT
Indocopper Investama Corporation (the "Interest Shortfall
Loans"). The PTMI Facility will be secured by a first
priority pledge of the PTII shares held by PTMI (the
"Pledged PTII Shares"), a pledge of all the capital stock of
PTMI (the "Pledged Borrower Shares") and a first priority
security interest in a dividend reserve account to be
established for the deposit of all dividends attributable to
PTMI's indirect interest in FI. FCX also will have a second
priority lien on the Pledged PTII Shares and on the Pledged
Borrower Shares to secure any amounts advanced by FCX to pay
principal or interest on the PTMI Facility. Under the Put
Agreement, FCX will be obligated to purchase the Pledged
PTII Shares, the Pledged Borrower Shares, or the interests
of the lenders under the PTMI Facility under certain
conditions for a purchase price equal to the aggregate
amount of the outstanding principal, interest and other
amounts then owed by PTMI in respect of the PTMI Facility.
Pursuant to the terms of the Credit Agreement,
FCX's obligations under the Put Agreement would constitute a
Guarantee of Debt of PTMI and would therefore count against
the Borrowing Base. Moreover, FCX is limited by
Section 5.2(l) in its ability to make a Guarantee on behalf
of and/or loans to a Third Party. FCX and FI have requested
that the Banks agree to amend the Credit Agreement in order
to, among other things, modify the Borrowing Base
determination and modify Section 5.2(l) to permit FCX to
enter into and perform its obligations under the Put
Agreement and to make the Interest Shortfall Loans; the
Banks have advised FCX that they are willing to do so, on
the terms and subject to the conditions hereinafter set
forth.
Accordingly, FCX, FI, the FI Trustee, the Banks
and the Agents agree as follows:
SECTION 1. Amendments. Effective as of the
Effective Date, the Credit Agreement is hereby amended as
follows:
(a) Section 1.1 of the Credit Agreement is hereby
amended by adding the following defined terms in the
appropriate alphabetical order:
(i) "Interest Shortfall Loans" means the
loans made by FCX to PTMI (on a subordinated
basis) to cover any differences between the
interest payments made on the PTMI Facility and
the dividends received by PTMI in connection with
its ownership interest in PT Indocopper Investama
Corporation.
(ii) "Obligations Amount" means the price at
which FCX will be obligated to purchase the
Pledged PTII Shares and/or the Pledged Borrower
Shares or the interest of the lenders under the
PTMI Facility under the terms of the Put
Agreement, which will be an amount equal to the
aggregate amount of the outstanding principal,
interest and other amounts then owed by PTMI under
the PTMI Facility.
(iii) "Pledged Borrower Shares" means all
the shares of capital stock of PTMI pledged by PT
Nusantara Ampera Bakti and PT Mapindo Parama as
security under the PTMI Facility, to the extent so
pledged;
(iv) "Pledged PTII Shares" means all shares
of the capital stock of PT Indocopper Investama
Corporation, now or hereafter owned by PTMI,
pledged by PTMI as security under the
PTMI Facility, to the extent so pledged.
(v) "PTMI" means PT Nusamba Mineral
Industri, an Indonesian limited liability company.
(vi) "PTMI Facility" means the senior
secured term loan agreement among PTMI, Chase, as
administrative agent, Union Bank of Switzerland,
as managing agent, and the financial institutions
named therein in an aggregate principal amount of
up to $256,000,000, which facility will be full
recourse to FCX through the Put Agreement, and any
and all notes or other instruments and all
security agreements, pledge agreements and other
agreements executed in connection therewith.
(vii) "Put Agreement" means the Put and
Guaranty Agreement among FCX and Chase, as
security agent, pursuant to which Chase will be
entitled to sell, for the Obligations Amount, to
FCX all, but not a portion of, the Pledged PTII
Shares, the Pledged Borrower Shares or all right,
title and interest of the lenders in, to and under
the PTMI Facility following the occurrence of an
Event of Default (as defined in each of the Put
Agreement and the PTMI Facility) and under certain
other conditions specified in the Put Agreement.
(b) Section 2.1 of the Credit Agreement is hereby
amended and restated to read in its entirety as
follows:
"SECTION 2.1. Annual Determination of
Borrowing Base. As of the Fifth Amendment Closing
Date, and until the next redetermination of the
Borrowing Base, the Borrowing Base shall be
$2,000,000,000. FI shall, on or prior to April 1
in each year commencing with 1996, furnish to each
Bank a Borrowing Base Certificate dated as of
April 1 of such year. Such Borrowing Base
Certificate shall have attached thereto (A) a
report on the operations, results and outlook for
the FI Project prepared by FI and satisfactory to
the Administrative Agent, (B) a schedule setting
forth the projected ownership interest of FI and
FCX in each of the Restricted Subsidiaries and
FCX's projected ownership interest in FI (other
than any interest attributable to the Pledged PTII
Shares) and the projected cash flow associated
with the FI Project and the assets of each of the
Restricted Subsidiaries of FI (an update of such
schedule shall also be required to be delivered to
each Bank on or prior to each Borrowing Base
redetermination) and, commencing with the
Borrowing Base Certificate due April 1, 1997,
(C) FI's estimate of the market value of the
Pledged PTII Shares and an explanation in
reasonable detail of the manner in which such
estimate was calculated, together with supporting
information. On or prior to May 1 following the
receipt by each Bank of such annual Borrowing Base
Certificate, the Administrative Agent shall
determine, based upon the information (including
information as to projected cash flows) contained
in such Borrowing Base Certificate and the reports
and schedules attached thereto and on the
Administrative Agent's Policies, a borrowing base
calculation for FI (the "Borrowing Base") based on
the projected future cash flow associated with the
Base Production (as such term is defined in the
Final FI Trust Agreement) and, after the RTZ
Lender loan is repaid in full and so long as the
Banks have a first priority security interest in
the FIEC Interests under the Final FI Trust
Agreement, the FIEC Interests and including, as an
addition to the Borrowing Base, an amount equal to
the lesser of (i) 50% of the market value of the
Pledged PTII Shares (as determined by the
Administrative Agent based on the information
contained in the Borrowing Base Certificate and
such other factors as the Administrative Agent
shall deem relevant) and (ii) the Obligations
Amount. The recommended Borrowing Base as
determined by the Administrative Agent shall be
promptly communicated to the Banks together with
the list of the Nonrestricted Subsidiaries (if
any) included in such calculation. The Banks
shall promptly consider and approve or disapprove
the recommended Borrowing Base in writing, and
upon approval of such recommendations by the
Required Banks by written notice to the
Administrative Agent, such approved amount shall
constitute the then effective Borrowing Base. In
the event that the Administrative Agent's
recommended Borrowing Base is not approved by the
Required Banks, the Administrative Agent shall
worrk with the Banks to agree upon a revised
Borrowing Base acceptable to Banks sufficient to
constitute the Required Banks. Such determination
of the Borrowing Base by the Administrative Agent
and such approval or nonapproval by the Required
Banks of the effective Borrowing Base shall be
based on their respective Policies. Each such
determination (and each redetermination as
provided for below) of the Borrowing Base shall
remain in effect until the next succeeding
calculation and approval of the Borrowing Base in
the manner provided in this Article II.".
(c) Section 5.2(l) of the Credit Agreement is
hereby amended by adding the following immediately
after the last sentence:
"Notwithstanding anything in this
Section 5.2(l), FCX may enter into the Put
Agreement and may make the Interest Shortfall
Loans, and FCX's obligations under the Put
Agreement and the Interest Shortfall Loans will
not be included in the calculation of the
$150,000,000 annual limit provided for above.".
SECTION 2. Representations and Warranties. Each
of FCX and FI represents and warrants as of the effective
date of this Amendment to the Administrative Agent and to
each of the Banks that:
(a) The representations and warranties set forth
in Article IV of the Credit Agreement and in the other
Loan Documents are true and correct in all material
respects with the same effect as if made on the date
hereof, except to the extent such representations and
warranties expressly relate to an earlier date, in
which case they were true and correct in all material
respects on and as of such earlier date.
(b) As of the date hereof, no Default or Event of
Default has occurred and is continuing under the Credit
Agreement.
SECTION 3. Conditions to Effectiveness. This
Amendment shall become effective as of the date hereof when
the Agents shall have received counterparts of this
Amendment that, when taken together, bear the signatures of
each of FCX, FI and the Required Banks.
SECTION 4. Agreement. Except as specifically
stated herein, the provisions of the Credit Agreement are
and shall remain in full force and effect. As used in the
Credit Agreement the terms "Agreement", "herein",
"hereunder", "hereinafter", "hereto", "hereto" and words of
similar import shall, unless the context otherwise requires,
refer to the Credit Agreement as amended hereby.
SECTION 5. Applicable Law. THIS AMENDMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
SECTION 6. Counterparts. This Amendment 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.
SECTION 7. Expenses. The Company agrees to
reimburse the Agents for all out-of-pocket expenses incurred
by it in connection with this Amendment, including the
reasonable fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Agents.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed by their respective
authorized officers as of the day and year first written
above.
PT FREEPORT INDONESIA
COMPANY,
by
/s/R. Foster Duncan
Name: R. Foster Duncan
Title: Treasurer
FREEPORT-MCMORAN COPPER & GOLD
INC.,
by
/s/R. Foster Duncan
Name: R. Foster Duncan
Title: Vice President and
Treasurer
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION, as FI
Trustee,
by
/s/Ward A. Spooner
Name: Ward A. Spooner
Title: Vice President
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent, Security
Agent, JAA Security Agent and
Documentary Agent,
by
/s/ James H. Ramage
Name: James H. Ramage
Title: Vice President
ABN AMRO BANK N.V., HOUSTON
AGENCY,
by
ABN AMRO NORTH AMERICA, INC.,
as Agent for ABN AMRO BANK
N.V.,
by
/s/H. Gene Shiels
Name: H. Gene Shiels
Title: Vice President
by
/s/ David P. Orr
Name: David P. Orr
Title: Vice President
ARAB BANKING CORPORATION
(B.S.C.),
by
/s/ Stephen A. Plauche
Name: Stephen A. Plauche
Title: Vice President
AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED, CAYMAN
ISLANDS BRANCH,
by
/s/ Kyle Loughlin
Name: Kyle Loughlin
Title: Vice President
BANK AUSTRIA
AKTIENGESELLSCHAFT,
by
/s/J. Anthony Seay
Name: J. Anthony Seay
Title: Vice President
by
/s/Mark Nolan
Name: Mark Nolan
Title: Assistant Vice
President
BANK OF AMERICA ILLINOIS,
by
/s/
Name:
Title:
BANK OF MONTREAL,
by
/s/Michael D. Peist
Name: Michael D. Peist
Title: Director
THE BANK OF NOVA SCOTIA,
by
/s/A. S. Norsworthy
Name: A. S. Norsworthy
Title: Sr. Team Leader-
THE BANK OF TOKYO-MITSUBISHI,
LTD. HOUSTON AGENCY,
by
/s/ John W. McGhee
Name: John W. McGhee
Title: Vice President and
Manager
BANQUE NATIONALE DE PARIS,
by
/s/ John Stacy
Name: John Stacy
Title: Vice President
BANQUE PARIBAS,
by
/s/ Douglas R. Liftman
Name: Douglas R. Liftman
Title: Vice President
by
/s/ Brian Malone
Name: Brian Malone
Title: Vice President
BARCLAYS BANK PLC,
by
/s/ Carol A. Cowan
Name: Carol A. Cowan
Title: Director
CHRISTIANIA BANK OG
KREDITKASSE,
by
/s/ William S. Phillips
Name: William S. Phillips
Title: Vice President
by
/s/ Peter M. Dodge
Name: Peter M. Dodge
Title: First Vice
President
DAI-ICHI KANGYO BANK, LTD.,
by
/s/ Masayoshi Komaki
Name: Masayoshi Komaki
Title: Assistant Vice
President
DEUTSCHE BANK, AG, SINGAPORE
BRANCH,
by
/s/ Raymond Lee
Name: Raymond Lee
Title: Head of Credit
by
/s/ Norbert Wanninger
Name: Dr. Norbert
Wanninger
Title: General Manager
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH,
by
Name:
Title:
by
Name:
Title:
THE FIRST NATIONAL BANK OF
CHICAGO,
by
/s/ George R. Schanz
Name: George R. Schanz
Title: Vice President
FIRST NATIONAL BANK OF
COMMERCE,
by
/s/ Joshua C. Cummings
Name: Joshua C. Cummings
Title: Relationship
Manager
THE FUJI BANK, LIMITED,
HOUSTON AGENCY,
by
/s/ David Kelly
Name: David Kelly
Title: Senior Vice
President
HIBERNIA NATIONAL BANK,
by
/s/ Steven Nance
Name: Steven Nance
Title: Banking Officer
THE INDUSTRIAL BANK OF JAPAN,
LIMITED NEW YORK BRANCH,
by
/s/ Kazutoshi Kuwahara
Name: Kazutoshi Kuwahara
Title: Executive Vice
President
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED,
by
/s/ Satoru Otsubo
Name: Satoru Otsubo
Title: Joint General
Manager
THE MITSUI TRUST AND BANKING
COMPANY, LIMITED,
by
/s/ Margaret Holloway
Name: Margaret Holloway
Title: Vice President &
Manager
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
by
Name:
Title:
NATIONAL WESTMINSTER BANK PLC,
by
/s/ Ian M. Plester
Name: Ian M. Plester
Title: Vice President
NATIONAL WESTMINSTER BANK PLC
(NASSAU BRANCH),
by
/s/ Ian M. Plester
Name: Ian M. Plester
Title: Vice President
THE NORINCHUKIN BANK, NEW YORK
BRANCH,
by
Name:
Title:
PT BANK NEGARA INDONESIA
(PERSERO),
by
/s/ Mohamed El-Shazly
Name: Mohamed E. Shazly
Title: Deputy General
Manager
P.T. BANK RAKYAT INDONESIA
(PERSERO),
by
/s/Kemas M. Arief
Name: Kemas M. Arief
Title: General Manager
by
/s/David W. Opdyke
Name: David W. Opdyke
Title: Deputy General
Manager
REPUBLIC NATIONAL BANK OF
NEW YORK,
by
/s/ Richard J. Ward
Name: Richard J. Ward
Title: Vice President
THE ROYAL BANK OF SCOTLAND
PLC,
by
/s/Russell M. Gibson
Name: Russell M. Gibson
Title: Vice President &
Deputy Manager
THE SAKURA BANK, LIMITED,
HOUSTON AGENCY,
by
/s/Yasumasa Kikuchi
Name: Yasumasa Kikuchi
Title: Senior Vice
President
THE SANWA BANK LIMITED, DALLAS
AGENCY,
by
/s/L. J. Perenyi
Name: L. J. Perenyi
Title: Vice President
SOCIETE GENERALE, SOUTHWEST
AGENCY,
by
/s/Elizabeth W. Hunter
Name: Elizabeth W. Hunter
Title: Vice President
THE SUMITOMO BANK, LIMITED,
HOUSTON AGENCY,
by
/s/Harumitsu Seki
Name: Harumitsu Seki
Title: General Manager
THE TOKAI BANK, LIMITED,
by
Name:
Title:
UNION BANK OF SWITZERLAND,
HOUSTON AGENCY,
by
/s/Dan O. Boyle
Name: Dan O. Boyle
Title: Managing Director
by
/s/J. Finley Biggerstaff
Name: J. Finley Biggerstaff
Title: Assistant Vice
President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by
/s/Alan S. Bookspan
Name: Alan S. Bookspan
Title: Vice President
by
/s/Thomas Lee
Name: Thomas Lee
Title: Associate
YASUDA TRUST AND BANKING
COMPANY,
by
/s/Price I. Chenault
Name: Price I. Chenault
Title: First Vice
President
Exhibit 4.17
CONFORMED COPY
AMENDMENT dated as of July 24, 1997
(this "Amendment") to the Credit Agreement
dated as of June 30, 1995 (as heretofore
amended, the "Credit Agreement"), among PT
FREEPORT INDONESIA COMPANY, a limited
liability company organized under the laws of
the Republic of Indonesia and also
domesticated in Delaware ("FI"), FREEPORT-
MCMORAN COPPER & GOLD INC., a Delaware
corporation ("FCX"), the undersigned
financial institutions (collectively, the
"Banks"), FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, a national banking association,
as trustee under the FI Trust Agreement (in
such capacity, the "FI Trustee"), THE CHASE
MANHATTAN BANK (formerly Chemical Bank), a
New York banking corporation ("Chase"), as
administrative agent for the Banks (in such
capacity, the "Administrative Agent"), as
security agent for the Banks (in such
capacity, the "Security Agent") under the
Bank Security Documents (as defined in the
Credit Agreement) and as security agent for
the Banks and RTZ-IIL (in such capacity, the
"JAA Security Agent") under the JAA Fiduciary
Transfer (as defined in the Credit Agreement)
and the JAA Fiduciary Power (as defined in
the Credit Agreement), and THE CHASE
MANHATTAN BANK (as successor to The Chase
Manhattan Bank (National Association)), as
documentary agent for the Banks (in such
capacity the "Documentary Agent"; the
Administrative Agent, the Security Agent, the
JAA Security Agent and the Documentary Agent
being collectively referred to herein as the
"Agents"). Capitalized terms used herein and
not defined herein shall have the meanings
given such terms in the Credit Agreement.
WHEREAS FCX, FI, the FI Trustee and the Agents
have agreed, subject to the terms and conditions hereof, to
amend the Credit Agreement in the manner set forth in this
Amendment.
WHEREAS, this Amendment shall constitute the
written consent of each of the Banks in accordance with
Section 10.7(b) of the Credit Agreement.
Accordingly, FCX, FI, the FI Trustee, the Banks
and the Agents agree as follows:
SECTION 1. Amendments. Effective as of the
Effective Date (as hereinafter defined), the Credit
Agreement is hereby amended as follows:
(a) The definition of "Maturity Date" in
Section 1.1 of the Credit Agreement is hereby amended
to replace the words "December 31, 1999" with
"December 31, 2002".
SECTION 2. Representations and Warranties. Each
of FCX and FI represents and warrants to the Administrative
Agent and to each of the Banks that:
(a) The representations and warranties set forth
in Article IV of the Credit Agreement and in the other
Loan Documents are true and correct in all material
respects with the same effect as if made on the date
hereof, except to the extent such representations and
warranties expressly relate to an earlier date, in
which case they were true and correct in all material
respects on and as of such earlier date.
(b) As of the date hereof, no Default or Event of
Default has occurred and is continuing under the Credit
Agreement.
SECTION 3. Conditions to Effectiveness. This
Amendment shall become effective on the date that each of
the following conditions shall have been satisfied (such
date of effectiveness being the "Effective Date"):
(a) Receipt by Cravath, Swaine & Moore, special
counsel for the Agents, of executed counterparts of
this Amendment which, when taken together, bear the
signatures of FI, FCX, the FI Trustee, the Agents and
each Bank.
(b) The representations and warranties on the part
of FI and FCX contained in Article IV of the Credit
Agreement shall be true and correct in all material
respects at and as of the Effective Date as though made
on and as of such date.
(c) The Administrative Agent shall have received
on behalf of itself and the Banks a favorable written
opinion of (i) Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, counsel for FCX and FI, (ii) Ali
Budiardjo, Nugroho, Reksodiputro, special Indonesian
counsel for FI, (iii) Henry A. Miller, general counsel of
FCX and (iv) Mochtar, Karuwin & Komar, special Indonesian
counsel for the Agents, each dated the Effective Date and
addressed to the Administrative Agent and the Banks, each
in the form approved by the Agents and Cravath, Swaine & Moore,
special counsel for the Agents. FCX and FI and, in the case
of (iv) above, the Agents, hereby instruct such counsel to
deliver such opinions.
SECTION 4. Reallocation of the Banks' Commitments
under the Credit Agreement. (a) It is hereby acknowledged
that, pursuant to the terms of this Amendment, the Total
Commitment under the Credit Agreement is not being changed
but the allocations of the Banks' commitments are being
changed (the "Commitment Reallocation"), effective as of the
Effective Date. The Commitment Reallocation will be
implemented through the increase of the Commitments of one
or more of the Banks (each such Bank that is willing to
increase its Commitment hereunder being an "Increasing
Bank"), the decrease of the Commitments of one or more of
the Banks (each such Bank that is willing to reduce its
Commitment hereunder being a "Reducing Bank") and the
continuation of the amount of the Commitments of one or more
Banks (each such bank whose Commitment is not changing, a
"Non-Changing Bank"). If agreement is reached on or prior
to the Effective Date with any Increasing Banks or Reducing
Banks as to a commitment increase or a commitment reduction,
as the case may be, the Commitments of such Increasing
Banks, such Reducing Banks and the Non-Changing Banks shall
be, as of the Effective Date, the amounts set forth in
Schedule II to this Amendment; provided that each Bank shall
have delivered to the Administrative Agent within 30
Business Days of the Effective Date, its existing Promissory
Notes of FCX and FI issued under the Credit Agreement as in
effect prior to the Effective Date. The Administrative
Agent, upon receipt of such Promissory Notes from each Bank,
shall promptly deliver such Promissory Notes to FCX and FI.
(b) On the Effective Date, the Administrative
Agent shall record in the Register the relevant information
with respect to each Increasing Bank and each Reducing Bank.
Each Increasing Bank shall, before 2:00 P.M. (New York City
time) on the Effective Date, make available to the
Administrative Agent in New York, New York, in immediately
available funds, an amount equal to the excess of (i) such
Increasing Bank's ratable portion of the borrowings then
outstanding (calculated based on its Commitment as a
percentage of the Total Commitments outstanding after giving
effect to the Commitment Reallocation) over (ii) such
Increasing Bank's pro rata share of the borrowings then
outstanding (calculated based on its Commitment (without
giving effect to the Commitment Reallocation) as a
percentage of the Total Commitments (without giving effect
to the Commitment Reallocation). After the Administrative
Agent's receipt of such funds from each such Increasing
Bank, the Administrative Agent will promptly thereafter
cause to be distributed like funds to the Reducing Banks for
their account in an amount to each Reducing Bank such that
the aggregate amount of the outstanding borrowings owing to
each Reducing Bank after giving effect to such distribution
equals such Reducing Bank's pro rata share of the borrowings
then outstanding (calculated based on its Commitment as a
percentage of the aggregate Commitments outstanding after
giving effect to the Commitment Reallocation). Pursuant to
Section 3.13 of the Credit Agreement, FCX and FI shall pay
any losses any Bank may sustain or incur as a consequence of
any Breakage Event that may occur in connection with or as a
result of the transactions contemplated by this Amendment.
Within one Business Day prior to the Effective Date, each of
FCX and FI, at its own expense, shall execute and deliver to
the Administrative Agent Promissory Notes payable to the
order of each Bank, dated as of June 30, 1995, in a
principal amount equal to such Bank's Commitment after
giving effect to the Commitment Reallocation, substantially
in the form of Exhibits A-1 and A-2 to this Amendment. The
Administrative Agent, upon receipt of such Promissory Notes
from each of FCX and FI, shall promptly deliver such
Promissory Notes to the Banks.
SECTION 5. Agreement. Except as specifically
stated herein, the provisions of the Credit Agreement are
and shall remain in full force and effect. As used in the
Credit Agreement the terms "Agreement", "herein",
"hereunder", "hereinafter", "hereto", "hereof" and words of
similar import shall, unless the context otherwise requires,
refer to the Credit Agreement as amended hereby.
SECTION 6. Applicable Law. THIS AMENDMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
SECTION 7. Counterparts. This Amendment 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.
SECTION 8. Expenses. Each of FCX and FI agrees
to reimburse the Agents for all out-of-pocket expenses
incurred by them in connection with this Amendment,
including the reasonable fees, charges and disbursements of
Cravath, Swaine & Moore, counsel for the Agents.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed by their respective
authorized officers as of the day and year first written
above.
PT FREEPORT INDONESIA
COMPANY,
by
/s/ R. Foster Duncan
Name: R. Foster Duncan
Title: Vice President &
Treasurer
FREEPORT-MCMORAN COPPER & GOLD
INC.,
by
/s/R. Foster Duncan
Name: R. Foster Duncan
Title: Vice President &
Treasurer
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION, as FI
Trustee,
by
/s/ Ward A. Spooner
Name: Ward A. Spooner
Title: Vice President
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent, Security
Agent, JAA Security Agent and
Documentary Agent,
by
/s/James H. Ramage
Name: James H. Ramage
Title: Vice President
ABN AMRO BANK N.V., HOUSTON
AGENCY,
by
ABN AMRO NORTH AMERICA, INC.,
as Agent for ABN AMRO BANK
N.V.,
by
/s/H. Gene Shiels
Name: H. Gene Shiels
Title: Vice President
by
/s/W. Bryan Chapman
Name: W. Bryan Chapman
Title: Group Vice
President
ARAB BANKING CORPORATION
(B.S.C.),
by
/s/Stephen A. Plauche
Name: Stephen A. Plauche
Title: Vice President
AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED, CAYMAN
ISLANDS BRANCH,
by
/s/K. Loughlin
Name: K. Loughlin
Title: Vice President
BANK AUSTRIA
AKTIENGESELLSCHAFT,
by
/s/J. Anthony Seay
Name: J. Anthony Seay
Title: Vice President
by
/s/Mark Nolan
Name: Mark Nolan
Title: Assistant Vice
President
BANK OF AMERICA ILLINOIS,
by
/s/W. Thomas Barnett
Name: W. Thomas Barnett
BANK OF MONTREAL,
by
/s/Michael P. Sassos
Name: Michael P. Sassos
Title: Director
THE BANK OF NOVA SCOTIA,
by
/s/F.C.H. Ashby
Name: F.C.H. Ashby
Title: Senior Manager
Loan Operations
THE BANK OF TOKYO-MITSUBISHI,
LTD. HOUSTON AGENCY,
by
/s/John W. McGhee
Name: John W. McGhee
Title: Vice President and
Manager
BANQUE NATIONALE DE PARIS,
by
/s/John L. Stacy
Name: John L. Stacy
Title: Vice President
BANQUE PARIBAS,
by
/s/Marian Livingston
Name: Marian Livingston
Title: Vice President
by
/s/Michael Fiuzat
Name: Michael Fiuzat
Title: Vice President
BARCLAYS BANK PLC,
by
/s/Carol A. Cowan
Name: Carol A. Cowan
Title: Director
CHRISTIANIA BANK OG
KREDITKASSE,
by
/s/Peter M. Dodge
Name: Peter M. Dodge
Title: First Vice
President
by
/s/Carl-Petter Svendsen
Name: Carl-Petter Svendsen
Title: First Vice
President
DAI-ICHI KANGYO BANK, LTD.,
by
/s/Masayoshi Komaki
Name: Masayoshi Komaki
Title: Vice President
DEUTSCHE BANK, AG, SINGAPORE
BRANCH,
by
/s/Raymond Lee
Name: Raymond Lee
Title: First Vice
President, Head of
Credit Department
by
/s/Tan Tiat Hern
Name: Tan Tiat Hern
Title: First Vice
President, Head of
Corporate Banking
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH,
by
/s/Wayde Colquhoun
Name: Wayde Colquhoun
Title: Vice President
by
/s/P. Douglas Sherrod
Name: P.Douglas Sherrod
Title: Vice President
THE FIRST NATIONAL BANK OF
CHICAGO,
by
/s/William V. Clifford
Name: William V. Clifford
Title: Vice President
FIRST NATIONAL BANK OF
COMMERCE,
by
/s/Joshua C. Cummings
Name: Joshua C. Cummings
Title: Assistant Vice
President
THE FUJI BANK, LIMITED,
HOUSTON AGENCY,
by
/s/David Kelley
Name: David Kelley
Title: Sr. Vice President
HIBERNIA NATIONAL BANK,
by
/s/Steven Nance
Name: Steven Nance
Title: Banking Officer
THE INDUSTRIAL BANK OF JAPAN,
LIMITED NEW YORK BRANCH,
by
/s/Kensaku Iwata
Name: Kensaku Iwata
Title: Senior Vice
President,
Houston Office
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED,
by
/s/Sadao Muraoka
Name: Sadao Muraoka
Title: Head of Southwest
Region
THE MITSUI TRUST AND BANKING
COMPANY, LIMITED,
by
/s/Margaret Holloway
Name: Margaret Holloway
Title: Vice President and
Manager
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
by
/s/John Kowalczuk
Name: John Kowalczuk
Title: Vice President
NATIONAL WESTMINSTER BANK PLC,
by
/s/David Rowley
Name: David Rowley
Title: Vice President
NATIONAL WESTMINSTER BANK PLC
(NASSAU BRANCH),
by
/s/David Rowley
Name: David Rowley
Title: Vice President
THE NORINCHUKIN BANK, NEW YORK
BRANCH,
by
/s/Takeshi Akimoto
Name: Takeshi Akimoto
Title: General Manager
PT BANK NEGARA INDONESIA
(PERSERO),
by
/s/Dewa Suthapa
Name: Dewa Suthapa
Title: General Manager
P.T. BANK RAKYAT INDONESIA
(PERSERO),
by
/s/Kemas M. Ariee
Name: Kemas M. Ariee
Title: General Manager
by
/s/David W. Opdyke
Name: David W. Opdyke
Title: Deputy General
Manager
REPUBLIC NATIONAL BANK OF
NEW YORK,
by
/s/W.S. Eobie III
Name: W. S. Eobie III
Title: Senior Vice
President
THE ROYAL BANK OF SCOTLAND
PLC,
by
/s/Russell M. Gibson
Name: Russell M. Gibson
Title: Vice President &
Deputy Manager
THE SAKURA BANK, LIMITED, NEW
YORK BRANCH,
by
/s/Yasumasa Kikuchi
Name: Yasumasa Kikuchi
Title: Senior Vice
President
THE SANWA BANK LIMITED, DALLAS
AGENCY,
by
/s/L.J. Perenyi
Name: L. J. Perenyi
Title: Vice President
SOCIETE GENERALE, SOUTHWEST
AGENCY,
by
/s/Elizabeth W. Hunter
Name: Elizabeth W. Hunter
Title: Vice President
THE SUMITOMO BANK, LIMITED,
by
/s/Harumitsu Seki
Name: Harumitsu Seki
Title: General Manager
THE TOKAI BANK, LIMITED,
by
/s/Kaoru Oda
Name: Kaoru Oda
Title: Assistant General
Manager
UNION BANK OF SWITZERLAND,
HOUSTON AGENCY,
by
/s/Dan O. Boyle
Name: Dan O. Boyle
Title: Managing Director
by
/s/J. Finley Biggerstaff
Name: J. Finley Biggerstaff
Title: Assistant Vice
President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by
/s/ Richard R. Newman
Name: Richard R. Newman
Title: Vice President
by
/s/Thomas Lee
Name: Thomas Lee
Title: Associate
EXHIBIT A-1
PROMISSORY NOTE
$ New York, New York
June 30, 1995
FOR VALUE RECEIVED, the undersigned, P.T. FREEPORT
INDONESIA COMPANY, a limited liability company organized
under the laws of Indonesia and also domesticated in Delaware
(the "Borrower"), hereby promises to pay to the order of
[name of Bank] (the "Bank"), at the office of The Chase
Manhattan Bank (the "Administrative Agent"), at 270 Park
Avenue, New York, New York 10017, on the Maturity Date as
defined in the Credit Agreement entered into as of June 30,
1995 (as amended, restated or modified from time to time, the
"Credit Agreement"), among the Borrower, FREEPORT-McMoRan
COPPER & GOLD INC., a Delaware corporation, the Banks named
therein, FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION (for
purposes of Article VIII thereof only), as trustee for the
Banks under the FI Trust Agreement (as defined therein), and
the Agents (as defined in the Credit Agreement), the lesser
of the principal sum of [amount of commitment] Dollars ($
) and the aggregate unpaid principal amount of all Loans
made by the Bank to the Borrower pursuant to Section 3.2 of
the Credit Agreement, in lawful money of the United States of
America in same day funds, and to pay interest from the date
hereof on such principal amount from time to time
outstanding, in like funds, at said office, at a rate or
rates per annum and payable on such dates as determined
pursuant to the Credit Agreement.
The Borrower promises to pay interest, on demand,
on any overdue principal and, to the extent permitted by law,
overdue interest from their due dates at a rate or rates
determined as set forth in the Credit Agreement.
The Borrower hereby waives diligence, presentment,
demand, protest and notice of any kind whatsoever. The
nonexercise by the holder of any of its rights hereunder in
any particular instance shall not constitute a waiver thereof
in that or any subsequent instance.
All borrowings evidenced by this Promissory Note
and all payments and prepayments of the principal hereof and
interest hereon and the respective dates thereof shall be
endorsed by the holder hereof on the schedule attached hereto
and made a part hereof, or on a continuation thereof which
shall be attached hereto and made a part hereof, or otherwise
recorded by such holder in its internal records; provided,
however, that any failure of the holder hereof to make a
notation or any error in such notation shall not in any
manner affect the obligation of the Borrower to make payments
of principal and interest in accordance with the terms of
this Promissory Note and the Credit Agreement.
This Promissory Note is one of the Promissory Notes
referred to in the Credit Agreement which, among other
things, contains provisions for the acceleration of the
maturity hereof upon the happening of certain events, for
optional and mandatory prepayment of the principal hereof
prior to the maturity thereof and for the amendment or waiver
of certain provisions of the Credit Agreement, all upon the
terms and conditions therein specified. This Promissory Note
and the borrowings evidenced hereby are entitled to the
benefits of the FI Security Documents (as defined in the
Credit Agreement). THIS PROMISSORY NOTE SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.
P.T. FREEPORT INDONESIA
COMPANY,
by
Name:
Title:
Loans and Payments
Unpaid Name of
Amount Payments Principal Person
and Type Maturity Balance Making
Date of Loan Date Principal Interest of Note Notation
EXHIBIT A-2
PROMISSORY NOTE
$ New York, New York
June 30, 1995
FOR VALUE RECEIVED, the undersigned, FREEPORT-
McMoRan COPPER & GOLD INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of [name of
Bank] (the "Bank"), at the office of The Chase Manhattan
Bank (the "Administrative Agent"), at 270 Park Avenue,
New York, New York 10017, on the Maturity Date as defined in
the Credit Agreement entered into as of June 30, 1995 (as
amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among the Borrower, P.T.
FREEPORT INDONESIA COMPANY, a limited liability company
organized under the laws of Indonesia and also domesticated
in Delaware, the Banks named therein, FIRST TRUST OF NEW
YORK, NATIONAL ASSOCIATION (for purposes of Article VIII
thereof only), as trustee for the Banks under the FI Trust
Agreement (as defined therein), and the Agents (as defined
in the Credit Agreement), the lesser of the principal sum of
[amount of commitment] Dollars ($ ) and the aggregate
unpaid principal amount of all Loans made by the Bank to the
Borrower pursuant to Section 3.2 of the Credit Agreement, in
lawful money of the United States of America in same day
funds, and to pay interest from the date hereof on such
principal amount from time to time outstanding, in like
funds, at said office, at a rate or rates per annum and
payable on such dates as determined pursuant to the Credit
Agreement.
The Borrower promises to pay interest, on demand,
on any overdue principal and, to the extent permitted by
law, overdue interest from their due dates at a rate or
rates determined as set forth in the Credit Agreement.
The Borrower hereby waives diligence, presentment,
demand, protest and notice of any kind whatsoever. The
nonexercise by the holder of any of its rights hereunder in
any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Promissory Note
and all payments and prepayments of the principal hereof and
interest hereon and the respective dates thereof shall be
endorsed by the holder hereof on the schedule attached
hereto and made a part hereof, or on a continuation thereof
which shall be attached hereto and made a part hereof, or
otherwise recorded by such holder in its internal records;
provided, however, that any failure of the holder hereof to
make a notation or any error in such notation shall not in
any manner affect the obligation of the Borrower to make
payments of principal and interest in accordance with the
terms of this Promissory Note and the Credit Agreement.
This Promissory Note is one of the Promissory
Notes referred to in the Credit Agreement which, among other
things, contains provisions for the acceleration of the
maturity hereof upon the happening of certain events, for
optional and mandatory prepayment of the principal hereof
prior to the maturity thereof and for the amendment or
waiver of certain provisions of the Credit Agreement, all
upon the terms and conditions therein specified. THIS
PROMISSORY NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
FREEPORT-McMoRan COPPER &
GOLD INC.,
by
Name:
Title:
Note: All Schedules have been omitted and will be
provided upon request.
Exhibit 4.21
CONFORMED COPY
AMENDMENT dated as of March 7, 1997
(this "Amendment") to the Credit Agreement
dated as of October 27, 1989 (as heretofore
amended, the "Credit Agreement"), among PT
FREEPORT INDONESIA COMPANY, a limited
liability company organized under the laws of
the Republic of Indonesia and also
domesticated in Delaware ("FI"), FREEPORT-
MCMORAN COPPER & GOLD INC., a Delaware
corporation ("FCX"), the undersigned
financial institutions (collectively, the
"Banks"), FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, a national banking association,
as trustee under the FI Trust Agreement (in
such capacity, the "FI Trustee"), THE CHASE
MANHATTAN BANK (formerly Chemical Bank), a
New York banking corporation ("Chase"), as
administrative agent for the Banks (in such
capacity, the "Administrative Agent"), as
security agent for the Banks (in such
capacity, the "Security Agent") under the
Bank Security Documents (as defined in the
Credit Agreement) and as security agent for
the Banks and RTZ-IIL (in such capacity, the
"JAA Security Agent") under the JAA Fiduciary
Transfer (as defined in the Credit Agreement)
and the JAA Fiduciary Power (as defined in
the Credit Agreement), and THE CHASE
MANHATTAN BANK (as successor to the Chase
Manhattan Bank (National Association)), as
documentary agent for the Banks (in such
capacity the "Documentary Agent"; the
Administrative Agent, the Security Agent, the
JAA Security Agent and the Documentary Agent
being collectively referred to herein as the
"Agents"). Capitalized terms used herein and
not defined herein shall have the meanings
given such terms in the Credit Agreement.
PT Nusamba Mineral Industri ("PTMI"), an
Indonesian limited liability company and a special purpose
subsidiary owned 99% by PT Nusantara Ampera Bakti ("PT
Nusamba") and 1% by PT Mapindo Parama ("PTMP", and together
with PT Nusamba, the "PTMI Shareholders"), proposes to
acquire for an aggregate purchase price not to exceed
$312 million approximately 51% of the capital stock of PT
Indocopper Investama Corporation ("PTII") that is currently
owned or controlled by PT Bakrie & Brothers ("PTBB") and PT
Bakrie Investindo ("PTBI", and together with PTBB, the
"Bakrie Group"). PTII in turn owns 9.36% of the capital
stock of FI.
In conjunction with the acquisition, PTMI will
finance (a) up to $256,000,000 of the purchase price and
financing fees with the proceeds of a senior secured term
loan facility (the "PTMI Facility") and (b) the remainder of
such purchase in the amount of $61,780,000 through a
combination of (i) a common equity contribution by the PTMI
shareholders to PTMI and (ii) the issuance by PTMI of
subordinated indebtedness to the PTMI shareholders in a
principal amount not to exceed 50% of $61,780,000.
The PTMI Facility will be structured as a five-
year term loan, with full recourse to FCX through a Put and
Guaranty Agreement (the "Put Agreement"). FCX will also
loan to PTMI (on a subordinated basis) such amounts as may
be necessary to cover any differences between the interest
payments due on the PTMI Facility and the dividends received
by PTMI in connection with its ownership interest in PT
Indocopper Investama Corporation (the "Interest Shortfall
Loans"). The PTMI Facility will be secured by a first
priority pledge of the PTII shares held by PTMI (the
"Pledged PTII Shares"), a pledge of all the capital stock of
PTMI (the "Pledged Borrower Shares") and a first priority
security interest in a dividend reserve account to be
established for the deposit of all dividends attributable to
PTMI's indirect interest in FI. FCX also will have a second
priority lien on the Pledged PTII Shares and on the Pledged
Borrower Shares to secure any amounts advanced by FCX to pay
principal or interest on the PTMI Facility. Under the Put
Agreement, FCX will be obligated to purchase the Pledged
PTII Shares, the Pledged Borrower Shares, or the interests
of the lenders under the PTMI Facility under certain
conditions for a purchase price equal to the aggregate
amount of the outstanding principal, interest and other
amounts then owed by PTMI in respect of the PTMI Facility.
Pursuant to the terms of the Credit Agreement,
FCX's obligations under the Put Agreement would constitute a
Guarantee of Debt of PTMI and would therefore count against
the Borrowing Base. Moreover, FCX is limited by
Section 5.2(l) in its ability to make a Guarantee on behalf
of and/or loans to a Third Party. FCX and FI have requested
that the Banks agree to amend the Credit Agreement in order
to, among other things, modify the Borrowing Base
determination and modify Section 5.2(l) to permit FCX to
enter into and perform its obligations under the Put
Agreement and to make the Interest Shortfall Loans; the
Banks have advised FCX that they are willing to do so, on
the terms and subject to the conditions hereinafter set
forth.
Accordingly, FCX, FI, the FI Trustee, the Banks
and the Agents agree as follows:
SECTION 1. Amendments. Effective as of the
Effective Date, the Credit Agreement is hereby amended as
follows:
(a) Section 1.1 of the Credit Agreement is hereby
amended by adding the following defined terms in the
appropriate alphabetical order:
(i) "Interest Shortfall Loans" means the
loans made by FCX to PTMI (on a subordinated
basis) to cover any differences between the
interest payments made on the PTMI Facility and
the dividends received by PTMI in connection with
its ownership interest in PT Indocopper Investama
Corporation.
(ii) "Obligations Amount" means the price at
which FCX will be obligated to purchase the
Pledged PTII Shares and/or the Pledged Borrower
Shares or the interest of the lenders under the
PTMI Facility under the terms of the Put
Agreement, which will be an amount equal to the
aggregate amount of the outstanding principal,
interest and other amounts then owed by PTMI under
the PTMI Facility.
(iii) "Pledged Borrower Shares" means all
the shares of capital stock of PTMI pledged by PT
Nusantara Ampera Bakti and PT Mapindo Parama as
security under the PTMI Facility, to the extent so
pledged;
(iv) "Pledged PTII Shares" means all shares
of the capital stock of PT Indocopper Investama
Corporation, now or hereafter owned by PTMI,
pledged by PTMI as security under the
PTMI Facility, to the extent so pledged.
(v) "PTMI" means PT Nusamba Mineral
Industri, an Indonesian limited liability company.
(vi) "PTMI Facility" means the senior
secured term loan agreement among PTMI, Chase, as
administrative agent, Union Bank of Switzerland,
as managing agent, and the financial institutions
named therein in an aggregate principal amount of
up to $256,000,000, which facility will be full
recourse to FCX through the Put Agreement, and any
and all notes or other instruments and all
security agreements, pledge agreements and other
agreements executed in connection therewith.
(vii) "Put Agreement" means the Put and
Guaranty Agreement among FCX and Chase, as
security agent, pursuant to which Chase will be
entitled to sell, for the Obligations Amount, to
FCX all, but not a portion of, the Pledged PTII
Shares, the Pledged Borrower Shares or all right,
title and interest of the lenders in, to and under
the PTMI Facility following the occurrence of an
Event of Default (as defined in each of the Put
Agreement and the PTMI Facility) and under certain
other conditions specified in the Put Agreement.
(b) Section 2.1 of the Credit Agreement is hereby
amended and restated to read in its entirety as
follows:
"SECTION 2.1. Annual Determination of
Borrowing Base. As of the Fifth Amendment Closing
Date, and until the next redetermination of the
Borrowing Base, the Borrowing Base shall be
$2,000,000,000. FI shall, on or prior to April 1
in each year commencing with 1996, furnish to each
Bank a Borrowing Base Certificate dated as of
April 1 of such year. Such Borrowing Base
Certificate shall have attached thereto (A) a
report on the operations, results and outlook for
the FI Project prepared by FI and satisfactory to
the Administrative Agent, (B) a schedule setting
forth the projected ownership interest of FI and
FCX in each of the Restricted Subsidiaries and
FCX's projected ownership interest in FI (other
than any interest attributable to the Pledged PTII
Shares) and the projected cash flow associated
with the FI Project and the assets of each of the
Restricted Subsidiaries of FI (an update of such
schedule shall also be required to be delivered to
each Bank on or prior to each Borrowing Base
redetermination) and, commencing with the
Borrowing Base Certificate due April 1, 1997,
(C) FI's estimate of the market value of the
Pledged PTII Shares and an explanation in
reasonable detail of the manner in which such
estimate was calculated, together with supporting
information. On or prior to May 1 following the
receipt by each Bank of such annual Borrowing Base
Certificate, the Administrative Agent shall
determine, based upon the information (including
information as to projected cash flows) contained
in such Borrowing Base Certificate and the reports
and schedules attached thereto and on the
Administrative Agent's Policies, a borrowing base
calculation for FI (the "Borrowing Base") based on
the projected future cash flow associated with the
Base Production (as such term is defined in the
Final FI Trust Agreement) and, after the RTZ
Lender loan is repaid in full and so long as the
Banks have a first priority security interest in
the FIEC Interests under the Final FI Trust
Agreement, the FIEC Interests and including, as an
addition to the Borrowing Base, an amount equal to
the lesser of (i) 50% of the market value of the
Pledged PTII Shares (as determined by the
Administrative Agent based on the information
contained in the Borrowing Base Certificate and
such other factors as the Administrative Agent
shall deem relevant) and (ii) the Obligations
Amount. The recommended Borrowing Base as
determined by the Administrative Agent shall be
promptly communicated to the Banks together with
the list of the Nonrestricted Subsidiaries (if
anyy) included in such calculation. The Banks
shall promptly consider and approve or disapprovve
the recommended Borrowing Base in writing, and
upon approval of such recommendations by the
Required Banks by written notice to the
Administrative Agent, such approved amount shall
constitute the then effective Borrowing Base. In
the event that the Administrative Agent's
recommended Borrowing Base is not approved by the
Required Banks, the Administrative Agent shall
work with the Banks to agree upon a revised
Borrowing Base acceptable to Banks sufficient to
constitute the Required Banks. Such determination
of the Borrowing Base by the Administrative Agent
and such approval or nonapproval by the Required
Banks of the effective Borrowing Base shall be
based on their respective Policies. Each such
determination (and each redetermination as
provided for below) of the Borrowing Base shall
remain in effect until the next succeeding
calculation and approval of the Borrowing Base in
the manner provided in this Article II.".
(c) Section 5.2(l) of the Credit Agreement is
hereby amended by adding the following immediately
after the last sentence:
"Notwithstanding anything in this
Section 5.2(l), FCX may enter into the Put
Agreement and may make the Interest Shortfall
Loans, and FCX's obligations under the Put
Agreement and the Interest Shortfall Loans will
not be included in the calculation of the
$150,000,000 annual limit provided for above.".
SECTION 2. Representations and Warranties. Each
of FCX and FI represents and warrants as of the effective
date of this Amendment to the Administrative Agent and to
each of the Banks that:
(a) The representations and warranties set forth
in Article IV of the Credit Agreement and in the other
Loan Documents are true and correct in all material
respects with the same effect as if made on the date
hereof, except to the extent such representations and
warranties expressly relate to an earlier date, in
which case they were true and correct in all material
respects on and as of such earlier date.
(b) As of the date hereof, no Default or Event of
Default has occurred and is continuing under the Credit
Agreement.
SECTION 3. Conditions to Effectiveness. This
Amendment shall become effective as of the date hereof when
the Agents shall have received counterparts of this
Amendment that, when taken together, bear the signatures of
each of FCX, FI and the Required Banks.
SECTION 4. Agreement. Except as specifically
stated herein, the provisions of the Credit Agreement are
and shall remain in full force and effect. As used in the
Credit Agreement the terms "Agreement", "herein",
"hereunder", "hereinafter", "hereto", "hereof" and words of
similar import shall, unless the context otherwise requires,
refer to the Credit Agreement as amended hereby.
SECTION 5. Applicable Law. THIS AMENDMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
SECTION 6. Counterparts. This Amendment 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.
SECTION 7. Expenses. The Company agrees to
reimburse the Agents for all out-of-pocket expenses incurred
by it in connection with this Amendment, including the
reasonable fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Agents.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed by their respective
authorized officers as of the day and year first written
above.
PT FREEPORT INDONESIA
COMPANY,
by
/s/ R. Foster Duncan
-----------------------
Name: R. Foster Duncan
Title: Treasurer
FREEPORT-MCMORAN COPPER & GOLD
INC.,
by
/s/ R. Foster Duncan
--------------------
Name: R. Foster Duncan
Title: Vice President and
Treasurer
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION, as FI
Trustee,
by
/s/ Ward A. Spooner
-------------------
Name: Ward A. Spooner
Title: Vice President
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent, Security
Agent, JAA Security Agent and
Documentary Agent,
by
/s/ James H. Ramage
---------------------
Name: James H. Ramage
Title: Vice President
ABN AMRO BANK N.V., HOUSTON
AGENCY,
by
ABN AMRO NORTH AMERICA, INC.,
as Agent for ABN AMRO BANK
N.V.,
by
/s/ H. Gene Shiels
---------------------
Name: H. Gene Shiels
Title: Vice President
by
/s/ David P. Orr
-------------------
Name: David P. Orr
Title: Vice President
ARAB BANKING CORPORATION
(B.S.C.),
by
/s/ Stephen A. Plauche
-------------------------
Name: Stephen A. Plauche
Title: Vice President
AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED, CAYMAN
ISLANDS BRANCH,
by
/s/ Kyle Loughlin
-----------------
Name: Kyle Loughlin
Title: Vice President
BANK AUSTRIA
AKTIENGESELLSCHAFT,
by
/s/ J. Anthony Seay
------------------
Name: J. Anthony Seay
Title: Vice President
by
/s/ Mark Nolan
---------------
Name: Mark Nolan
Title: Assistant Vice
President
BANK OF AMERICA ILLINOIS,
by
/s/ Signed
--------------
Name:
Title:
BANK OF MONTREAL,
by
/s/ Michael D. Peist
------------------------
Name: Michael D. Peist
Title: Director
THE BANK OF NOVA SCOTIA,
by
/s/ A. S. Norsworthy
-----------------------
Name: A. S. Norsworthy
Title: Sr. Team Leader-
THE BANK OF TOKYO-MITSUBISHI,
LTD. HOUSTON AGENCY,
by
/s/ John W. McGhee
----------------------
Name: John W. McGhee
Title: Vice President and
Manager
BANQUE NATIONALE DE PARIS,
by
/s/ John Stacy
-----------------
Name: John Stacy
Title: Vice President
BANQUE PARIBAS,
by
/s/ Douglas R. Liftman
----------------------
Name: Douglas R. Liftman
Title: Vice President
by
/s/ Brian Malone
-------------------
Name: Brian Malone
Title: Vice President
BARCLAYS BANK PLC,
by
/s/ Carol A. Cowan
------------------
Name: Carol A. Cowan
Title: Director
CHRISTIANIA BANK OG
KREDITKASSE,
by
/s/ William S. Phillips
-----------------------
Name: William S. Phillips
Title: Vice President
by
/s/ Peter M. Dodge
------------------
Name: Peter M. Dodge
Title: First Vice
President
DAI-ICHI KANGYO BANK, LTD.,
by
/s/ Masayoshi Komaki
--------------------
Name: Masayoshi Komaki
Title: Assistant Vice
President
DEUTSCHE BANK, AG, SINGAPORE
BRANCH,
by
/s/ Raymond Lee
---------------
Name: Raymond Lee
Title: Head of Credit
by
/s/ Norbert Wanninger
---------------------
Name: Dr. Norbert
Wanninger
Title: General Manager
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH,
by /s/ Signed
----------------
Name:
Title:
by /s/ Signed
---------------
Name:
Title:
THE FIRST NATIONAL BANK OF
CHICAGO,
by
/s/ George R. Schanz
-----------------------
Name: George R. Schanz
Title: Vice President
FIRST NATIONAL BANK OF
COMMERCE,
by
/s/ Joshua C. Cummings
----------------------
Name: Joshua C. Cummings
Title: Relationship
Manager
THE FUJI BANK, LIMITED,
HOUSTON AGENCY,
by
/s/ David Kelly
------------------
Name: David Kelly
Title: Senior Vice
President
HIBERNIA NATIONAL BANK,
by
/s/ Steven Nance
---------------------
Name: Steven Nance
Title: Banking Officer
THE INDUSTRIAL BANK OF JAPAN,
LIMITED NEW YORK BRANCH,
by
/s/ Kazutoshi Kuwahara
-------------------------
Name: Kazutoshi Kuwahara
Title: Executive Vice
President
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED,
by
/s/ Satoru Otsubo
-----------------
Name: Satoru Otsubo
Title: Joint General
Manager
THE MITSUI TRUST AND BANKING
COMPANY, LIMITED,
by
/s/ Margaret Holloway
----------------------
Name: Margaret Holloway
Title: Vice President &
Manager
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
by /s/ Signed
-----------
Name:
Title:
NATIONAL WESTMINSTER BANK PLC,
by
/s/ Ian M. Plester
---------------------
Name: Ian M. Plester
Title: Vice President
NATIONAL WESTMINSTER BANK PLC
(NASSAU BRANCH),
by
/s/ Ian M. Plester
---------------------
Name: Ian M. Plester
Title: Vice President
THE NORINCHUKIN BANK, NEW YORK
BRANCH,
by /s/ Signed
-----------
Name:
Title:
PT BANK NEGARA INDONESIA
(PERSERO),
by
/s/ Mohamed El-Shazly
------------------------
Name: Mohamed E. Shazly
Title: Deputy General
Manager
P.T. BANK RAKYAT INDONESIA
(PERSERO),
by
/s/ Kemas M. Arief
--------------------
Name: Kemas M. Arief
Title: General Manager
by
/s/ David W. Opdyke
----------------------
Name: David W. Opdyke
Deputy General
Manager
REPUBLIC NATIONAL BANK OF
NEW YORK,
by
/s/ Richard J. Ward
---------------------
Name: Richard J. Ward
Title: Vice President
THE ROYAL BANK OF SCOTLAND
PLC,
by
/s/ Russell M. Gibson
------------------------
Name: Russell M. Gibson
Title: Vice President &
Deputy Manager
THE SAKURA BANK, LIMITED,
HOUSTON AGENCY,
by
/s/ Yasumasa Kikuchi
--------------------
Name: Yasumasa Kikuchi
Title: Senior Vice
President
THE SANWA BANK LIMITED, DALLAS
AGENCY,
by
/s/ L. J. Perenyi
------------------
Name: L. J. Perenyi
Title: Vice President
SOCIETE GENERALE, SOUTHWEST
AGENCY,
by
/s/ Elizabeth W. Hunter
--------------------------
Name: Elizabeth W. Hunter
Title: Vice President
THE SUMITOMO BANK, LIMITED,
HOUSTON AGENCY,
by
/s/ Harumitsu Seki
------------------
Name: Harumitsu Seki
Title: General Manager
THE TOKAI BANK, LIMITED,
by /s/ Signed
-----------
Name:
Title:
UNION BANK OF SWITZERLAND,
HOUSTON AGENCY,
by
/s/ Dan O. Boyle
-------------------
Name: Dan O. Boyle
Title: Managing Director
by
/s/ J. Finley Biggerstaff
-------------------------
Name: J. Finley Biggerstaff
Title: Assistant Vice
President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by
/s/ Alan S. Bookspan
--------------------
Name: Alan S. Bookspan
Title: Vice President
by
/s/ Thomas Lee
-----------------
Name: Thomas Lee
Title: Associate
YASUDA TRUST AND BANKING
COMPANY,
by
/s/ Price I. Chenault
----------------------
Name: Price I. Chenault
Title: First Vice
President
Exhibit 4.22
CONFORMED COPY
AMENDMENT dated as of July 24, 1997
(this "Amendment") to the Credit Agreement
dated as of June 30, 1995 (as heretofore
amended, the "Credit Agreement"), among PT
FREEPORT INDONESIA COMPANY, a limited
liability company organized under the laws of
the Republic of Indonesia and also
domesticated in Delaware ("FI"), FREEPORT-
MCMORAN COPPER & GOLD INC., a Delaware
corporation ("FCX"), the undersigned
financial institutions (collectively, the
"Banks"), FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, a national banking association,
as trustee under the FI Trust Agreement (in
such capacity, the "FI Trustee"), THE CHASE
MANHATTAN BANK (formerly Chemical Bank), a
New York banking corporation ("Chase"), as
administrative agent for the Banks (in such
capacity, the "Administrative Agent"), as
security agent for the Banks (in such
capacity, the "Security Agent") under the
Bank Security Documents (as defined in the
Credit Agreement) and as security agent for
the Banks and RTZ-IIL (in such capacity, the
"JAA Security Agent") under the JAA Fiduciary
Transfer (as defined in the Credit Agreement)
and the JAA Fiduciary Power (as defined in
the Credit Agreement), and THE CHASE
MANHATTAN BANK (as successor to The Chase
Manhattan Bank (National Association)), as
documentary agent for the Banks (in such
capacity the "Documentary Agent"; the
Administrative Agent, the Security Agent, the
JAA Security Agent and the Documentary Agent
being collectively referred to herein as the
"Agents"). Capitalized terms used herein and
not defined herein shall have the meanings
given such terms in the Credit Agreement.
WHEREAS FCX, FI, the FI Trustee and the Agents
have agreed, subject to the terms and conditions hereof, to
amend the Credit Agreement in the manner set forth in this
Amendment.
WHEREAS, this Amendment shall constitute the
written consent of each of the Banks in accordance with
Section 10.7(b) of the Credit Agreement.
Accordingly, FCX, FI, the FI Trustee, the Banks
and the Agents agree as follows:
SECTION 1. Amendments. Effective as of the
Effective Date (as hereinafter defined), the Credit
Agreement is hereby amended as follows:
(a) The definition of "Maturity Date" in
Section 1.1 of the Credit Agreement is hereby amended
to replace the words "December 31, 1999" with
"December 31, 2002".
SECTION 2. Representations and Warranties. Each
of FCX and FI represents and warrants to the Administrative
Agent and to each of the Banks that:
(a) The representations and warranties set forth
in Article IV of the Credit Agreement and in the other
Loan Documents are true and correct in all material
respects with the same effect as if made on the date
hereof, except to the extent such representations and
warranties expressly relate to an earlier date, in
which case they were true and correct in all material
respects on and as of such earlier date.
(b) As of the date hereof, no Default or Event of
Default has occurred and is continuing under the Credit
Agreement.
SECTION 3. Conditions to Effectiveness. This
Amendment shall become effective on the date that each of
the following conditions shall have been satisfied (such
date of effectiveness being the "Effective Date"):
(a) Receipt by Cravath, Swaine & Moore, special
counsel for the Agents, of executed counterparts of
this Amendment which, when taken together, bear the
signatures of FI, FCX, the FI Trustee, the Agents and
each Bank.
(b) The representations and warranties on the part
of FI and FCX contained in Article IV of the Credit
Agreement shall be true and correct in all material
respects at and as of the Effective Date as though made
on and as of such date.
(c) The Administrative Agent shall have received
on behalf of itself and the Banks a favorable written
opinion of (i) Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, counsel for FCX and FI, (ii) Ali
Budiardjo, Nugroho, Reksodiputro, special Indonesian
counsel for FI, (iii) Henry A. Miller, general counsel of
FCX and (iv) Mochtar, Karuwin & Komar, special Indonesian
counsel for the Agents, each dated the Effective Date and
addressed to the Administrative Agent and the Banks, each in
the form approved by the Agents and Cravath, Swaine & Moore,
special counsel for the Agents. FCX and FI and, in the case
of (iv) above, the Agents, hereby instruct such counsel to
deliver such opinions.
SECTION 4. Reallocation of the Banks' Commitments
under the Credit Agreement. (a) It is hereby acknowledged
that, pursuant to the terms of this Amendment, the Total
Commitment under the Credit Agreement is not being changed
but the allocations of the Banks' commitments are being
changed (the "Commitment Reallocation"), effective as of the
Effective Date. The Commitment Reallocation will be
implemented through the increase of the Commitments of one
or more of the Banks (each such Bank that is willing to
increase its Commitment hereunder being an "Increasing
Bank"), the decrease of the Commitments of one or more of
the Banks (each such Bank that is willing to reduce its
Commitment hereunder being a "Reducing Bank") and the
continuation of the amount of the Commitments of one or more
Banks (each such bank whose Commitment is not changing, aa
"Non-Changing Bank"). If agreement is reached on or prior
to the Effective Date with any Increasing Banks or Reducing
Banks as to a commitment increase or a commitment reduction,
as the case may be, the Commitments of such Increasing
Banks, such Reducing Banks and the Non-Changing Banks shall
be, as of the Effective Date, the amounts set forth in
Schedule II to this Amendment; provided that each Bank shall
have delivered to the Administrative Agent within 30
Business Days of the Effective Date, its existing Promissory
Notes of FCX and FI issued under the Credit Agreement as in
effect prior to the Effective Date. The Administrative
Agent, upon receipt of such Promissory Notes from each Bank,
shall promptly deliver such Promissory Notes to FCX and FI.
(b) On the Effective Date, the Administrative
Agent shall record in the Register the relevant information
with respect to each Increasing Bank and each Reducing Bank.
Each Increasing Bank shall, before 2:00 P.M. (New York City
time) on the Effective Date, make available to the
Administrative Agent in New York, New York, in immediately
available funds, an amount equal to the excess of (i) such
Increasing Bank's ratable portion of the borrowings then
outstanding (calculated based on its Commitment as a
percentage of the Total Commitments outstanding after giving
effect to the Commitment Reallocation) over (ii) such
Increasing Bank's pro rata share of the borrowings then
outstanding (calculated based on its Commitment (without
giving effect to the Commitment Reallocation) as a
percentage of the Total Commitments (without giving effect
to the Commitment Reallocation). After the Administrative
Agent's receipt of such funds from each such Increasing
Bank, the Administrative Agent will promptly thereafter
cause to be distributed like funds to the Reducing Banks for
their account in an amount to each Reducing Bank such that
the aggregate amount of the outstanding borrowings owing to
each Reducing Bank after giving effect to such distribution
equals such Reducing Bank's pro rata share of the borrowings
then outstanding (calculated based on its Commitment as a
percentage of the aggregate Commitments outstanding after
giving effect to the Commitment Reallocation). Pursuant to
Section 3.13 of the Credit Agreement, FCX and FI shall pay
any losses any Bank may sustain or incur as a consequence of
any Breakage Event that may occur in connection with or as a
result of the transactions contemplated by this Amendment.
Within one Business Day prior to the Effective Date, each of
FCX and FI, at its own expense, shall execute and deliver to
the Administrative Agent Promissory Notes payable to the
order of each Bank, dated as of June 30, 1995, in a
principal amount equal to such Bank's Commitment after
giving effect to the Commitment Reallocation, substantially
in the form of Exhibits A-1 and A-2 to this Amendment. The
Administrative Agent, upon receipt of such Promissory Notes
from each of FCX and FI, shall promptly deliver such
Promissory Notes to the Banks.
SECTION 5. Agreement. Except as specifically
stated herein, the provisions of the Credit Agreement are
and shall remain in full force and effect. As used in the
Credit Agreement the terms "Agreement", "herein",
"hereunder", "hereinafter", "hereto", "hereof" and words of
similar import shall, unless the context otherwise requires,
refer to the Credit Agreement as amended hereby.
SECTION 6. Applicable Law. THIS AMENDMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
SECTION 7. Counterparts. This Amendment 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.
SECTION 8. Expenses. Each of FCX and FI agrees
to reimburse the Agents for all out-of-pocket expenses
incurred by them in connection with this Amendment,
including the reasonable fees, charges and disbursements of
Cravath, Swaine & Moore, counsel for the Agents.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed by their respective
authorized officers as of the day and year first written
above.
PT FREEPORT INDONESIA
COMPANY,
by /s/R. Foster Duncan
---------------------
Name: R. Foster Duncan
Title: Vice President &
Treasurer
FREEPORT-MCMORAN COPPER & GOLD
INC.,
by
/s/R. Foster Duncan
-------------------
Name: R. Foster Duncan
Title: Vice President &
Treasurer
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION, as FI
Trustee,
by
/s/ Ward A. Spooner
---------------------
Name: Ward A. Spooner
Title: Vice President
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent, Security
Agent, JAA Security Agent and
Documentary Agent,
by
/s/James H. Ramage
----------------------
Name: James H. Ramage
Title: Vice President
ABN AMRO BANK N.V., HOUSTON
AGENCY,
by
ABN AMRO NORTH AMERICA, INC.,
as Agent for ABN AMRO BANK
N.V.,
by
/s/ H. Gene Shiels
---------------------
Name: H. Gene Shiels
Title: Vice President
by
/s/ W. Bryan Chapman
------------------------
Name: W. Bryan Chapman
Title: Group Vice
President
ARAB BANKING CORPORATION
(B.S.C.),
by
/s/ Stephen A. Plauche
------------------------
Name: Stephen A. Plauche
Title: Vice President
AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED, CAYMAN
ISLANDS BRANCH,
by
/s/ K. Loughlin
-------------------
Name: K. Loughlin
Title: Vice President
BANK AUSTRIA
AKTIENGESELLSCHAFT,
by
/s/ J. Anthony Seay
-----------------------
Name: J. Anthony Seay
Title: Vice President
by
/s/ Mark Nolan
------------------
Name: Mark Nolan
Title: Assistant Vice
President
BANK OF AMERICA ILLINOIS,
by
/s/ W. Thomas Barnett
-----------------------
Name: W. Thomas Barnett
BANK OF MONTREAL,
by
/s/ Michael P. Sassos
------------------------
Name: Michael P. Sassos
Title: Director
THE BANK OF NOVA SCOTIA,
by
/s/ F.C.H. Ashby
-------------------
Name: F.C.H. Ashby
Title: Senior Manager
Loan Operations
THE BANK OF TOKYO-MITSUBISHI,
LTD. HOUSTON AGENCY,
by
/s/ John W. McGhee
----------------------
Name: John W. McGhee
Title: Vice President and
Manager
BANQUE NATIONALE DE PARIS,
by
/s/ John L. Stacy
--------------------
Name: John L. Stacy
Title: Vice President
BANQUE PARIBAS,
by
/s/ Marian Livingston
-------------------------
Name: Marian Livingston
Title: Vice President
by
/s/ Michael Fiuzat
----------------------
Name: Michael Fiuzat
Title: Vice President
BARCLAYS BANK PLC,
by
/s/ Carol A. Cowan
----------------------
Name: Carol A. Cowan
Title: Director
CHRISTIANIA BANK OG
KREDITKASSE,
by
/s/ Peter M. Dodge
---------------------
Name: Peter M. Dodge
Title: First Vice
President
by
/s/ Carl-Petter Svendsen
------------------------
Name: Carl-Petter Svendsen
Title: First Vice
President
DAI-ICHI KANGYO BANK, LTD.,
by
/s/ Masayoshi Komaki
------------------------
Name: Masayoshi Komaki
Title: Vice President
DEUTSCHE BANK, AG, SINGAPORE
BRANCH,
by
/s/ Raymond Lee
-------------------
Name: Raymond Lee
Title: First Vice
President, Head of
Credit Department
by
/s/ Tan Tiat Hern
---------------------
Name: Tan Tiat Hern
Title: First Vice
President, Head of
Corporate Banking
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH,
by
/s/ Wayde Colquhoun
----------------------
Name: Wayde Colquhoun
Title: Vice President
by
/s/ P. Douglas Sherrod
-----------------------
Name: P.Douglas Sherrod
Title: Vice President
THE FIRST NATIONAL BANK OF
CHICAGO,
by
/s/ William V. Clifford
---------------------------
Name: William V. Clifford
Title: Vice President
FIRST NATIONAL BANK OF
COMMERCE,
by
/s/ Joshua C. Cummings
-------------------------
Name: Joshua C. Cummings
Title: Assistant Vice
President
THE FUJI BANK, LIMITED,
HOUSTON AGENCY,
by
/s/ David Kelley
--------------------
Name: David Kelley
Title: Sr. Vice President
HIBERNIA NATIONAL BANK,
by
/s/ Steven Nance
--------------------
Name: Steven Nance
Title: Banking Officer
THE INDUSTRIAL BANK OF JAPAN,
LIMITED NEW YORK BRANCH,
by
/s/ Kensaku Iwata
---------------------
Name: Kensaku Iwata
Title: Senior Vice
President,
Houston Office
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED,
by
/s/ Sadao Muraoka
---------------------
Name: Sadao Muraoka
Title: Head of Southwest
Region
THE MITSUI TRUST AND BANKING
COMPANY, LIMITED,
by
/s/ Margaret Holloway
-------------------------
Name: Margaret Holloway
Title: Vice President and
Manager
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
by
/s/ John Kowalczuk
---------------------
Name: John Kowalczuk
Title: Vice President
NATIONAL WESTMINSTER BANK PLC,
by
/s/ David Rowley
--------------------
Name: David Rowley
Title: Vice President
NATIONAL WESTMINSTER BANK PLC
(NASSAU BRANCH),
by
/s/ David Rowley
--------------------
Name: David Rowley
Title: Vice President
THE NORINCHUKIN BANK, NEW YORK
BRANCH,
by
/s/ Takeshi Akimoto
----------------------
Name: Takeshi Akimoto
Title: General Manager
PT BANK NEGARA INDONESIA
(PERSERO),
by
/s/ Dewa Suthapa
--------------------
Name: Dewa Suthapa
Title: General Manager
P.T. BANK RAKYAT INDONESIA
(PERSERO),
by
/s/ Kemas M. Ariee
---------------------
Name: Kemas M. Ariee
Title: General Manager
by
/s/ David W. Opdyke
----------------------
Name: David W. Opdyke
Title: Deputy General
Manager
REPUBLIC NATIONAL BANK OF
NEW YORK,
by
/s/ W.S. Eobie III
----------------------
Name: W. S. Eobie III
Title: Senior Vice
President
THE ROYAL BANK OF SCOTLAND
PLC,
by
/s/ Russell M Gibson
-------------------------
Name: Russell M. Gibson
Title: Vice President &
Deputy Manager
THE SAKURA BANK, LIMITED, NEW
YORK BRANCH,
by
/s/ Yasumasa Kikuchi
-----------------------
Name: Yasumasa Kikuchi
Title: Senior Vice
President
THE SANWA BANK LIMITED, DALLAS
AGENCY,
by
/s/ L. J. Perenyi
---------------------
Name: L. J. Perenyi
Title: Vice President
SOCIETE GENERALE, SOUTHWEST
AGENCY,
by
/s/ Elizabeth W. Hunter
---------------------------
Name: Elizabeth W. Hunter
Title: Vice President
THE SUMITOMO BANK, LIMITED,
by
/s/ Harumitsu Seki
---------------------
Name: Harumitsu Seki
Title: General Manager
THE TOKAI BANK, LIMITED,
by
/s/ Kaoru Oda
----------------
Name: Kaoru Oda
Title: Assistant General
Manager
UNION BANK OF SWITZERLAND,
HOUSTON AGENCY,
by
/s/ Dan O. Boyle
-------------------
Name: Dan O. Boyle
Title: Managing Director
by
/s/ J. Finley Biggerstaff
---------------------------
Name: J. Finley Biggerstaff
Title: Assistant Vice
President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE,
by
/s/ Richard R. Newman
------------------------
Name: Richard R. Newman
Title: Vice President
by
/s/ Thomas Lee
------------------
Name: Thomas Lee
Title: Associate
EXHIBIT A-1
PROMISSORY NOTE
$ New York, New York
June 30, 1995
FOR VALUE RECEIVED, the undersigned, P.T. FREEPORT
INDONESIA COMPANY, a limited liability company organized
under the laws of Indonesia and also domesticated in Delaware
(the "Borrower"), hereby promises to pay to the order of
[name of Bank] (the "Bank"), at the office of The Chase
Manhattan Bank (the "Administrative Agent"), at 270 Park
Avenue, New York, New York 10017, on the Maturity Date as
defined in the Credit Agreement entered into as of June 30,
1995 (as amended, restated or modified from time to time, the
"Credit Agreement"), among the Borrower, FREEPORT-McMoRan
COPPER & GOLD INC., a Delaware corporation, the Banks named
theerein, FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION (for
purposseess of Article VIII thereof only), as trustee for the
Banks under the FI Trust Agreement (as defined therein), and
the Agents (as defined in the Credit Agreement), the lesser
of the principal sum of [amount of commitment] Dollars ($
) and the aggregate unpaid principal amount of all Loans
made by the Bank to the Borrower pursuant to Section 3.2 of
the Credit Agreement, in lawful money of the United States of
America in same day funds, and to pay interest from the date
hereof on such principal amount from time to time
outstanding, in like funds, at said office, at a rate or
rates per annum and payable on such dates as determined
pursuant to the Credit Agreement.
The Borrower promises to pay interest, on demand,
on any overdue principal and, to the extent permitted by law,
overdue interest from their due dates at a rate or rates
determined as set forth in the Credit Agreement.
The Borrower hereby waives diligence, presentment,
demand, protest and notice of any kind whatsoever. The
nonexercise by the holder of any of its rights hereunder in
any particular instance shall not constitute a waiver thereof
in that or any subsequent instance.
All borrowings evidenced by this Promissory No and
all payments and prepayments of the principal hereof and
interest hereon and the respective dates thereof shall be
endorsed by the holder hereof on the schedule attached hereto
and made a part hereof, or on a continuation thereof which
shall be attached hereto and made a part hereof, or otherwise
recorded by such holder in its internal records; provided,
however, that any failure of the holder hereof to make a
notation or any error in such notation shall not in any
manner affect the obligation of the Borrower to make payments
of principal and interest in accordance with the terms of
this Promissory Note and the Credit Agreement.
This Promissory Note is one of the Promissory Notes
referred to in the Credit Agreement which, among other
things, contains provisions for the acceleration of the
maturity hereof upon the happening of certain events, for
optional and mandatory prepayment of the principal hereof
prior to the maturity thereof and for the amendment or waiver
of certain provisions of the Credit Agreement, all upon the
terms and conditions therein specified. This Promissory Note
and the borrowings evidenced hereby are entitled to the
benefits of the FI Security Documents (as defined in the
Credit Agreement). THIS PROMISSORY NOTE SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.
P.T. FREEPORT INDONESIA
COMPANY,
by
Name:
Title:
EXHIBIT A-2
PROMISSORY NOTE
$ New York, New York
June 30, 1995
FOR VALUE RECEIVED, the undersigned, FREEPORT-
McMoRan COPPER & GOLD INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of [name of
Bank] (the "Bank"), at the office of The Chase Manhattan
Bank (the "Administrative Agent"), at 270 Park Avenue,
New York, New York 10017, on the Maturity Date as defined in
the Credit Agreement entered into as of June 30, 1995 (as
amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among the Borrower, P.T.
FREEPORT INDONESIA COMPANY, a limited liability company
organized under the laws of Indonesia and also domesticated
in Delaware, the Banks named therein, FIRST TRUST OF NEW
YORK, NATIONAL ASSOCIATION (for purposes of Article VIII
thereof only), as trustee for the Banks under the FI Trust
Agreement (as defined therein), and the Agents (as defined
in the Credit Agreement), the lesser of the principal sum of
[amount of commitment] Dollars ($ ) and the aggregate
unpaid principal amount of all Loans made by the Bank to the
Borrower pursuant to Section 3.2 of the Credit Agreement, in
lawful money of the United States of America in same day
funds, and to pay interest from the date hereof on such
principal amount from time to time outstanding, in like
funds, at said office, at a rate or rates per annum and
payable on such dates as determined pursuant to the Credit
Agreement.
The Borrower promises to pay interest, on demand,
on any overdue principal and, to the extent permitted by
law, overdue interest from their due dates at a rate or
rates determined as set forth in the Credit Agreement.
The Borrower hereby waives diligence, presentment,
demand, protest and notice of any kind whatsoever. The
nonexercise by the holder of any of its rights hereunder in
any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Promissory Note
and all payments and prepayments of the principal hereof and
interest hereon and the respective dates thereof shall be
endorsed by the holder hereof on the schedule attached
hereto and made a part hereof, or on a continuation thereof
which shall be attached hereto and made a part hereof, or
otherwise recorded by such holder in its internal records;
provided, however, that any failure of the holder hereof to
make a notation or any error in such notation shall not in
any manner affect the obligation of the Borrower to make
payments of principal and interest in accordance with the
terms of this Promissory Note and the Credit Agreement.
This Promissory Note is one of the Promissory
Notes referred to in the Credit Agreement which, among other
things, contains provisions for the acceleration of the
maturity hereof upon the happening of certain events, for
optional and mandatory prepayment of the principal hereof
prior to the maturity thereof and for the amendment or
waiver of certain provisions of the Credit Agreement, all
upon the terms and conditions therein specified. THIS
PROMISSORY NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
FREEPORT-McMoRan COPPER &
GOLD INC.,
by
Name:
Title:
Note:
All Schedules have been omitted and will be provided upon
request.
Exhibit 10.7
PUT AND GUARANTY AGREEMENT (this
"Agreement") dated as of March 21, 1997,
among FREEPORT-MCMORAN COPPER & GOLD INC., a
Delaware corporation ("FCX") and THE CHASE
MANHATTAN BANK, a banking corporation
organized under the laws of the State of New
York ("Chase"), as Security Agent (in such
capacity, the "Security Agent") under (a) the
Pledge Agreement dated as of the date hereof
between PT Nusamba Mineral Industri, a
limited liability company organized under the
laws of the Republic of Indonesia (the
"Borrower"), and the Security Agent (the
"Borrower Pledge Agreement") and (b) the
Pledge Agreement dated as of the date hereof
among PT Nusantara Ampera Bakti and PT
Mapindo Parama (collectively, the "PTMI
Shareholders"), each a limited liability
company organized under the laws of the
Republic of Indonesia, and the Security Agent
(the "Parents' Pledge Agreement").
The Borrower, certain banks (collectively, the
"Banks" and each, individually, a "Bank") and Chase, as
Agent (the "Agent"), have entered into a Loan Agreement
dated as of the date hereof (the "Loan Agreement") providing
for certain advances to be made by such banks to the
Borrower to finance the purchase by the Borrower of the
Pledged PTII Shares (as defined below). The Pledged
PTII Shares are being pledged to the Security Agent pursuant
to the Borrower Pledge Agreement and the Pledged Borrower
Shares (as defined below) are being pledged to the Security
Agent pursuant to the Parents' Pledge Agreement, in each
case to secure the obligations of the Borrower under the
Loan Agreement. It is a condition to the making of the
advances under the Loan Agreement that FCX shall have
entered into this Agreement with the Security Agent.
Accordingly, FCX and the Security Agent agree as
follows:
SECTION 1. Defined Terms. Subject to the
following sentence, all capitalized terms used in this
Agreement but not otherwise defined herein shall be defined
as set forth in each of the PTFI Revolver and the FCX
Revolver referred to below; provided that all capitalized
terms used in the provisions incorporated by reference into
this Agreement from each of the PTFI Revolver and the FCX
Revolver but not otherwise defined herein shall be defined
as set forth in each of the PTFI Revolver and the FCX
Revolver, each as in effect on the date hereof; provided
further that all references in each of the PTFI Revolver and
the FCX Revolver (or in provisions incorporated herein from
each of the PTFI Revolver and the FCX Revolver) to (a) any
"Borrower" shall be deemed to be references to FCX, (b) "FI"
shall be deemed to be references to PTFI, (c) "this
Agreement" shall be deemed to be references to this
Agreement, (d) any "Loan Document" or the "Loan Documents"
shall be deemed to be references to any Loan Document or the
Loan Documents as defined herein, (e) any "Bank" shall be
deemed to be references to any Bank as defined herein,
(f) "Required Banks" shall be deemed to be references to the
Majority Banks as defined herein, (g) the "Administrative
Agent" shall be deemed to be references to the Agent as
defined herein, (h) the "Documentary Agent" shall be
disregarded, (i) the "Collateral Agent" shall be deemed to
be references to the Security Agent as defined herein, (j)
"Agents" shall be deemed to be references to the Agent and
the Security Agent as defined herein and (k) any
"Commitment" or "Loan" shall be deemed to be references to
each Bank's Commitment under the Loan Agreement and the
Advances made pursuant to such Commitment (except that for
purposes of Section 5.2(e) of the FCX Revolver and the PTFI
Revolver, as incorporated by reference herein under Section
9, the terms "Commitment" and "this Agreement" shall have
the respective meanings assigned to them in the FCX Revolver
and the PTFI Revolver. As used in this Agreement (or in
provisions incorporated herein from each of the PTFI
Revolver and the FCX Revolver), the following terms shall
have the meanings specified below:
"Advances" shall mean the advances outstanding
under the Loan Agreement.
"Banking Day" shall mean a day other than Saturday
and Sunday, on which banks are open for business in New York
City and for interbank Dollar deposits in London.
"Bankruptcy Event" shall mean if (a) FCX 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 (b) below, (iii) apply for or
consent to the appointment of a receiver, trustee,
custodian, sequestrator or similar official for FCX 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; or (b) 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 FCX or any Restricted Subsidiary,
or of a substantial part of the property or assets of FCX 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 FCX or any
Restricted Subsidiary or for a substantial part of the
property of FCX or any Restricted Subsidiary or (iii) the
winding-up or liquidation of FCX 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.
"Capital Stock" shall mean any and all shares,
interests, rights to purchase, options, participations or
other equivalents of or interests (however designated) in
corporate stock, including any Preferred Stock.
"Change in Control" shall have the meaning
assigned to it under the PTFI Revolver and the FCX Revolver,
each as in effect on the date hereof.
"Commitment" shall have the meaning assigned to it
under the Loan Agreement.
"Dividend Reserve Account" shall have the meaning
assigned to it under the Loan Agreement.
"Event of Default" shall have the meaning assigned
to it under the Loan Agreement.
"FCX Obligations" shall mean the due and punctual
payment of all amounts payable hereunder by FCX and the due
and punctual performance of all other obligations of FCX
hereunder.
"FCX Option Agreement" shall have the meaning
assigned to it under the Loan Agreement.
"FCX Payment Date" shall have the meaning assigned
to it in Section 4(a).
"FCX Revolver" shall mean the $450,000,000 Credit
Agreement dated June 30, 1995, among PTFI, FCX and the
financial institutions named therein, as from time to time
amended, renewed or replaced with another loan agreement
which replacement facility has terms and conditions
reasonably satisfactory in all respects to the Agent.
"GAAP" shall have the meaning assigned to it under
the FCX Revolver and the PTFI Revolver, each as in effect on
the date hereof.
"Governmental Authority" shall mean any United
States Federal, state or local court or governmental agency,
authority, instrumentality or regulatory body, or any Indo-
nesian or other foreign (central or local) court or govern-
mental agency, authority, instrumentality or regulatory
body.
"Guaranteed Obligations" shall have the meaning
assigned to it in Section 4(b).
"Interest Shortfall Loans" shall have the meaning
assigned to it under the Loan Agreement.
"Lien" shall mean any mortgage, hypothecation,
power of attorney to establish hypothecation, power of
attorney to sell, assignment, pledge, lien, charge, security
interest, option or other encumbrance.
"Loan Documents" shall mean the Loan Agreement,
any promissory notes issued thereunder, the Borrower Pledge
Agreement, the Parents' Pledge Agreement, this Agreement,
the Pledge of Account and the Fee Letter dated as of
January 24, 1997, among Chase, the Borrower and FCX.
"Loan Parties" shall mean the Borrower, FCX and
the pledgors under each of the Pledge Agreements referred to
under the definition of the term "Loan Documents".
"Majority Banks" shall have the meaning assigned
to it under the Loan Agreement.
"Material Adverse Effect" shall mean (a) a materi-
ally adverse effect on the business, assets, operations or
condition, financial or otherwise, of FCX and its Restricted
Subsidiaries taken as a whole, (b) a material impairment of
the ability of FCX to perform any of its obligations here-
under or (c) a material impairment of the rights of or
benefits available to the Banks hereunder.
"Obligations" shall mean each of the payment and
performance obligations of each of the Loan Parties under
each of the Loan Documents.
"person" shall mean any natural person,
corporation, limited liability company, trust, joint
venture, association, company, partnership, Governmental
Authority or other entity.
"Pledged Borrower Shares" shall mean the shares of
capital stock of the Borrower pledged to the Security Agent
pursuant to the Parents' Pledge Agreement, excluding any
such shares released by the Security Agent from the Lien of
the Parents' Pledge Agreement in connection with the sale by
the PTMI Shareholders of such shares as contemplated by
Sections 2.04 and 7.01 of the Loan Agreement.
"Pledged PTII Shares" shall mean the shares of
capital stock of PTII pledged to the Security Agent pursuant
to the Borrower Pledge Agreement, excluding any such shares
released by the Security Agent from the Lien of the Borrower
Pledge Agreement in connection with the sale by the Borrower
of such shares as contemplated by Sections 2.04 and 7.01 of
the Loan Agreement.
"Preferred Stock", as applied to the Capital Stock
of any corporation, shall mean Capital Stock of any class or
classes, however designated, which is preferred as to the
payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution
of such corporation, over shares of Capital Stock of any
other class of such corporation.
"PTFI" shall mean PT Freeport Indonesia Company, a
limited liability company organized under the laws of the
Republic of Indonesia and domesticated in Delaware, and its
successors and assigns.
"PTFI Revolver" shall mean the $550,000,000 Credit
Agreement, dated as of October 27, 1989, among PTFI, FCX and
the financial institutions named therein, as from time to
time amended, renewed or replaced by another loan agreement
which replacement facility has terms and conditions
reasonably satisfactory in all respects to the Agent.
"PTII" shall mean PT Indocopper Investama
Corporation, a limited liability company organized under the
laws of the Republic of Indonesia.
"Put Price" shall mean, as of any date, (a) the
sum of (i) the principal of and interest accrued but unpaid
on all Advances outstanding (or, if the Advances shall be
deemed no longer to be outstanding as a result of any fore-
closure or similar proceeding, that would have been out-
standing but for such proceeding) under the Loan Agreement
as of such date and (ii) all fees, expenses (including any
enforcement expenses) and other amounts due to the Secured
Parties under the Loan Documents as of such date and (iii)
the unwind amounts related to all terminated Permitted
Secured Hedges, reduced by (b) all cash received by the
Security Agent on or prior to such date (i) upon the
disposition by the Security Agent of any securities or other
collateral held by the Security Agent under any Loan
Document or (ii) representing the Borrower's interest (based
on the Borrower's then percentage equity interest in PTII)
in the dividends payable to PTII, in each case to the extent
the Security Agent is permitted under applicable law to
apply such cash to the payment of the principal of or inter-
est accrued on outstanding Advances; provided, however, that
no reduction shall be made under this clause (b) to the
extent such cash has been applied to the payment of the
principal of or interest accrued on outstanding Advances or
other amounts payable under the Loan Documents prior to the
determination of the amount referred to in clause (a)(i)
above. The amounts received by the Security Agent on
account of the Put Price shall be distributed to the Agent
and the individual lenders and applied to satisfy the
amounts owed them under the Loan Agreement and the Permitted
Secured Hedges.
"Restricted Subsidiary" shall have the meaning
assigned to it in the PTFI Revolver and the FCX Revolver,
each as in effect on the date hereof.
"Secured Parties" shall mean the Banks, the Agent
and the Security Agent.
"Taxes" shall have the meaning assigned to it in
Section 10(a) hereof.
"Transactions" shall have the meaning assigned to
it in Section 7(b) hereof.
SECTION 2. Put of Shares. (a) In the event (i)
the Advances shall have become due in accordance with the
terms of the Loan Agreement (at their final maturity or upon
acceleration) but shall not have been paid and (ii) FCX
shall have notified the Security Agent that it will not
exercise its option to purchase the Pledged PTII Shares or
the Pledged Borrower Shares pursuant to the FCX Option
Agreement, the Security Agent shall have the right, upon
notice to FCX, to require FCX to purchase the Pledged
PTII Shares (or, if the Security Agent shall be unable at
the time to sell the Pledged PTII Shares to FCX, the Pledged
Borrower Shares), together, in each case, with any Related
Assets (as hereinafter defined), from the Security Agent at
the Put Price (determined as of the date of payment set
forth below and payable as provided in paragraph (e) below),
whether pursuant to the power of sale provided for in the
Borrower Pledge Agreement (or the Parents' Pledge Agreement,
in the case of the Pledged Borrower Shares), upon any fore-
closure or similar proceeding or otherwise, at a time set
forth in such notice, but not less than two Banking Days
after the giving of such notice. Any such purchase shall be
final and without recourse to or representation by the
Security Agent or any other Secured Party, other than as to
the satisfaction of the conditions set forth in
paragraph (b) below. For purposes hereof, the "Related
Assets" means, if any dividends payable to PTII have been
declared or paid to the Security Agent and the Borrower's
interest (based on the Borrower's then percentage equity
interest in PTII) in such dividends has not been reflected
in a reduction of the Put Price, all rights of the Security
Agent in and to such dividends.
(b) It is a condition to FCX's obligation to pur-
chase the Pledged PTII Shares or the Pledged Borrower Shares
pursuant to this Section 2 that (i) following such purchase,
such Pledged PTII Shares or Pledged Borrower Shares, as the
case may be, shall be free and clear of all Liens that have
been created or consented to in writing by the Banks, the
Agent or the Security Agent without the written consent of
FCX; and (ii) if Pledged Borrower Shares are to be so
purchased, no action shall have been taken or consented to
by the Banks, the Agent or the Security Agent that would
prevent such shares from constituting all the capital stock
of the Borrower, or the assets of the Borrower from consist-
ing solely of the Pledged PTII Shares, or the Borrower from
being free of outstanding liabilities other than those
arising under the Loan Documents or any guarantee thereof,
so that following such purchase FCX would own, directly or
indirectly, 100% of the Pledged PTII Shares free and clear
of all Liens or liabilities that have been created or
consented to in writing by the Banks, the Agent or the
Security Agent without the consent of FCX other than those
arising under the Loan Documents or any guarantee thereof
(it being expressly understood, however, that no provision
of the Loan Documents that permits or does not prohibit any
action referred to above shall be deemed to be a consent of
the Banks, the Agent or the Security Agent to such action).
In the event that, after FCX has received the notice
referred to in the first sentence of paragraph (a) above,
FCX is of the opinion that any of the conditions set forth
in clause (i) or (ii) above of this paragraph (b) have not
been met, it shall notify the Security Agent of such opinion
and of its basis therefor in reasonable detail in writing on
or before the time set forth in the notice referred to in
the first sentence of paragraph (a) above, whereupon the
Security Agent shall prmptly (A) determine whether the
objections speccified by FCX can be remedied and the
condiions set forth in thiiss ppaaragraph can be met within a
reasonable period of time and (B) notify FCX in writing of
such determination. If the Security Agent shall have
determined that the objections specified by FCX can be
remedied, the Security Agent shall be entitled to attempt to
remedy such objections within such reasonable period of time
and to redeliver the notice referred to in the first
sentence of paragraph (a) above once such objections have
been remedied, notwithstanding the 30-day limitation set
forth in paragraph (c) below.
(c) The Security Agent's notice referred to in
the first sentence of paragraph (a) above shall, except as
provided in paragraph (j) below, in no event be given after
11:59 p.m., New York City time, on the 30th day (or, if such
30th day shall not be a Banking Day, on the first Banking
Day thereafter) after the date on which the Security Agent
shall have obtained the right under this Agreement, the
Borrower Pledge Agreement (or the Parents' Pledge Agreement,
in the case of the Pledged Borrower Shares) and applicable
law to sell the Pledged PTII Shares (or the Pledged Borrower
Shares) as provided herein following receipt by the Security
Agent of actual notice of the occurrence of a payment
default by the Borrower upon the final maturity or accel-
eration of the Advances (or, if the Security Agent shall
notify FCX that the Security Agent reasonably believes that
it is prevented by an injunction or any other legal
restraint from exercising its right to require that FCX pur-
chase the Pledged PTII Shares or the Pledged Borrower Shares
hereunder, or that it has been advised by counsel that the
exercise of such right would or may be contrary to applica-
ble standards for the disposition of pledged securities or
would entail significant risk of liability on the part of
the Security Agent or the Banks, on the 30th day (or, if
such 30th day shall not be a Banking Day, on the first
Banking Day thereafter) after the date on which the Security
Agent believes that such restraint has ceased to be
applicable or such advice of counsel shall have been
withdrawn).
(d) The Security Agent shall be conclusively
deemed to have given the notice referred to in the first
sentence of paragraph (a) above on the last day of the 30-
day period specified in paragraph (c) above (and shall
thereafter specify a time for the purchase of Pledged PTII
Shares or Pledged Borrower Shares) unless the Security Agent
shall have previously (i) given such notice or (ii) acting
on the instructions of all the Banks, given notice to FCX
that the Security Agent will not exercise its rights under
this Section 2. If the Security Agent shall have given the
notice referred to in clause (ii) of the immediately preced-
ing sentence after the Security Agent has obtained the right
to sell the Pledged PTII Shares (or the Pledged Borrower
Shares) to FCX hereunder (A) all obligations of FCX under
this Section 2 and all expense reimbursement, indemnity and
other obligations of FCX under Section 10 and Section 18
shall terminate and (B) the Security Agent shall (1) request
from the other Secured Parties the amount of any funds
theretofore paid by FCX to any of such other Secured Parties
pursuant to this Agreement, together with interest thereon
at the rate borne by the Advances, and (2) return to FCX any
such amounts received by the Security Agent from such other
Secured Parties or received by the Security Agent from FCX
and not previously paid by the Security Agent to such other
Secured Parties. No Bank shall be deemed to have consented
to the delivery by the Security Agent of the notice referred
to in clause (ii) of this paragraph (d) unless such Bank
shall have returned to the Security Agent, in immediately
available funds, any amounts received by such Bank
representing payments previously made by FCX hereunder,
which funds each Bank hereby authorizes the Security Agent
to return to FCX pursuant to this paragraph (d).
(e) If the Security Agent shall deliver or be
deemed to have delivered a notice pursuant to paragraph (a)
or paragraph (d) above, FCX shall pay the Put Price in cash
in immediately available funds.
(f) FCX agrees that it will remain bound under
this Section 2 and under Section 3 in the event of any
extension or renewal of any Obligation made with its written
consent.
(g) Except as otherwise provided herein with
respect to the conditions to the obligations of FCX under
this Section 2 or under Section 3, as the case may be, the
obligations of FCX under this Section 2 or under Section 3,
respectively, shall not be discharged or impaired or other-
wise affected by (i) the failure of any Secured Party to
enforce any right or remedy under the provisions of any Loan
Document or any guarantee or any other agreement; (ii) any
waiver, amendment or modification of any of the terms or
provisions of any Loan Document not materially affecting the
rights or obligations of FCX or made with the written
consent of FCX; (iii) the voluntary release of any security
held by any Secured Party for the Obligations made with the
written consent of FCX or pursuant to any provision
contained in any Loan Document; (iv) the failure of any
Secured Party to exercise any right or remedy against any
other guarantor, if any, of any of the Obligations; (v) any
default, failure or delay, wilful or otherwise, in the
performance of the Obligations; or (vi) except to the extent
covered by clauses (i) through (v) above, any other act or
omission that may or might in any manner or to any extent
vary the risk of FCX or otherwise operate as a discharge of
FCX as a matter of law or equity.
(h) FCX further waives any right to require that
any resort be had by the Security Agent to any security held
for payment of the Obligations or to any balance of any
deposit account or credit on the books of an Secured Party
in favor of the Borrower or any other person (but the
Security Agent will endeavor in good faith to realize upon
liquid assets held by it as security and apply the same to
reduce the Obligations).
(i) The obligations of FCX hereunder shall not be
affected by the actual or asserted invalidity, illegality or
unenforceability of any of the Obligations.
(j) FCX further agrees that its obligations under
this Section 2 or under Section 3 shall continue to be
effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is
rescinded or must otherwise be restored by any Secured Party
upon the bankruptcy or reorganization of any Loan Party, or
otherwise. In any such event, the 30-day period described
in paragraph (c) of this Section 2 shall not begin to run
until the day on which such payment is rescinded or must
otherwise be restored and the other conditions referred to
in such paragraph have been satisfied.
SECTION 3. Purchase and Assumption of Certain
Interests of Banks under Loan Documents. FCX (a) shall have
the right, upon notice to the Agent and the Security Agent
at any time after either (i) the Advances shall have become
due and payable pursuant to Section 9.02 of the Loan Agree-
ment or (ii) FCX shall have been obligated to make any pay-
ment to the Security Agent under Section 2 or Section 4, and
(b) shall have the obligation, upon the occurrence of any of
the following events and notice thereof from the Security
Agent, namely that
(i) 60 days have elapsed following the occurrence of
any Event of Default and such Event of Default is
continuing or the Advances have become due and payable
pursuant to Section 9.02 of the Loan Agreement,
(ii) either (A) FCX is in default of its obligations
under Section 2, 4, 8 or 9 (and, in the case of any
default under Section 8 or 9, any applicable grace
period set forth herein or in the FCX Revolver or the
PTFI Revolver has expired) or (B) any representation
made by FCX hereunder proves to have been false or mis-
leading in any material respect when made (unless such
misrepresentation does not result in or entail a
Material Adverse Effect),
(iii) an event of default has occurred and is
continuing under any agreement or agreements to which
PTII, FCX or PTFI is a party relating to the borrowing
of money in an aggregate amount for all such agreements
collectively in excess of $10,000,000 or any guarantee
thereof, as a result of which indebtedness in such
amount has become or may immediately be declared due
and payable prior to its scheduled final maturity,
(iv) a Bankruptcy Event occurs,
(v) a Change in Control occurs,
(vi) an Event of Default occurs due to (a) a failure
to renew (or replace with a revolving credit facility
or facilities that has or have terms and conditions
reasonably satisfactory in all respects to the Security
Agent) by October 31, 1999 each of the PTFI Revolver
and the FCX Revolver to a maturity date beyond the
maturity date under the Loan Agreement or (b) a
failure, at any time, to maintain under the PTFI
Revolver and the FCX Revolver a minimum aggregate
commitment level of $600,000,000,
to purchase and assume, without recourse to or representa-
tion by any Secured Party other than as to the satisfaction
of the conditions set forth in this Section 3, all inter-
ests, rights and obligations of the Secured Parties under
the Loan Documents (other than any rights of the Secured
Parties to reimbursement of expenses, yield protection
payments or indemnities, all of which shall continue to
benefit the Secured Parties following any such purchase and
assumption) at a price equal to the Put Price, determined as
of and payable by FCX in cash in immediately available funds
on the closing date specified in the applicable notice
referred to above (which closing date shall be not fewer
than two Banking Days after the date of such notice). Not-
withstanding the giving of the notice required by clause (b)
above in connection with the occurrence of an event of
default described in subclause (iii) above, FCX shall not be
obligated to purchase and assume the interests of the
Secured Parties under the Loan Documents as a result of the
occurrence of such event of default described in sub-
clause (iii) if, prior to the time at which FCX would be
required to purchase and assume such interests, the event of
default described in such subclause (iii) is waived by the
lenders under the affected agreements and no other events
described in clause (b) shall have occurred and be continu-
ing at the time. Notwithstanding the foregoing, in the case
of an occurrence of an Event of Default described in
subclause (iv) above, such occurrence, without further
action by the Security Agent, will automatically be deemed
to be notice to FCX of its obligation to perform the actions
contemplated by this Section 3, and the closing date for
FCX's purchase and assumption of all the Secured Parties'
interests under the Loan Documents shall be the date of the
occurrence of such Event of Default.
In the event that following any purchase by FCX of
the Pledged PTII Shares or Pledged Borrower Shares pursuant
to Section 2, or any payment by FCX of the Put Price
pursuant to this Section 3, (a) any Secured Party shall be
required to return to the Borrower or any other Loan Party,
pursuant to any bankruptcy, insolvency or similar law or any
order of a court or other Governmental Authority, or other-
wise, any principal, interest or other amount received by it
under any Loan Document, or (b) any such payment of
principal, interest or other amout sall be rescinded, the
Put Price shall be deemed to have been increased by such
amount and FCX shall promptly pay such amount to such
Secured Party.
SECTION 4. Limited Guaranty of Payment of
Advances. (a) In addition to, and not in lieu of, any
other obligation of FCX under this Agreement, FCX guarantees
and agrees, as a primary obligor and not merely as surety,
that, in the event that, at any time prior to (i) the date
on which all amounts due (or which would have been due but
for any foreclosure or similar proceeding) to the Secured
Parties under the Loan Documents have been paid in full in
cash following the exercise or deemed exercise by the
Security Agent of its rights under Section 2 or (ii) in the
event the Security Agent shall have notified FCX that it
will not exercise its rights under Section 2, the last day
of the 30-day period described in paragraph (c) of
Section 2, any scheduled payment of interest on or principal
of the Advances (excluding principal due by reason of the
acceleration of the Advances prior to their scheduled
maturity) shall remain unpaid for 90 days following the due
date thereof (or such shorter period as would, in the
judgment of the Agent, result in the Advances being required
to be classified as "nonperforming" for regulatory or
reporting purposes) (the last day of such 90-day or shorter
period being referred to herein as the "FCX Payment Date"),
(A) FCX will pay to the Security Agent on such FCX Payment
Date the full amount of such unpaid interest or principal
and (B) if the Borrower shall fail or continue in its fail-
ure after such FCX Payment Date to make scheduled payments
of interest on or principal of the Advances, FCX will, in
each case not later than two Banking Days after receipt of
notice from the Security Agent, pay to the Security Agent
the full amount of interest and principal when and as due.
(b) The payment obligations of the Borrower guar-
anteed by FCX pursuant to clauses (A) and (B) of para-
graph (a) of this Section 4 above are referred to herein as
the "Guaranteed Obligations". FCX agrees that it will
remain bound upon its guarantee under this Section 4 in the
event of any extension or renewal of any Guaranteed Obliga-
tion made with its written consent.
(c) The obligations of FCX under this Section 4
shall not be discharged or impaired or otherwise affected by
(i) the failure of any Secured Party to enforce any right or
remedy under the provisions of any Loan Document or any
guarantee or any other agreement; (ii) any waiver, amendment
or modification of any of the terms or provisions of any
Loan Document not materially affecting the rights or
obligations of FCX or made with the written consent of FCX;
(iii) the voluntary release of any security held by any
Secured Party for the Obligations or any of them made with
the written consent of FCX; (iv) any default, failure or
delay, wilful or otherwise, in the performance of the
Obligations; or (v) except to the extent covered by
clauses (i) through (iv) above, any other act or omission
that may or might in any manner or to any extent vary the
risk of FCX or otherwise operate as a discharge of FCX as a
matter of law or equity.
(d) FCX further waives any right to require that
any resort be had by the Security Agent to any security held
for payment of the Guaranteed Obligations or to any balance
of any deposit account or credit on the books of any Secured
Party in favor of the Borrower or any other person (but the
Security Agent will endeavor in good faith to realize upon
liquid assets held by it as security and apply the same to
reduce the Obligations).
(e) The obligations of FCX hereunder shall not be
affected by the actual or asserted invalidity, illegality or
unenforceability of any of the Obligations.
(f) FCX further agrees that its guarantee under
this Section 4 shall continue to be effective or be rein-
stated, as the case may be, if at any time payment, or any
part thereof, of any Guaranteed Obligation is rescinded or
must otherwise be restored by any Secured Party upon the
bankruptcy or reorganization of any Loan Party, or other-
wise.
SECTION 5. Notice of Acceleration; Cooperation
with FCX. (a) The Security Agent shall promptly notify FCX
of any acceleration of the maturity of the Advances pursuant
to Section 9.02 of the Loan Agreement.
(b) At any time when an Event of Default shall
have occurred and be continuing, and whether or not FCX
shall have given the notice described in Section 2(a)(ii),
the Security Agent, acting on behalf of the Banks, will use
its commercially reasonable best efforts to cooperate with
FCX's efforts to protect its rights and interests as a party
entitled or obligated under the circumstances set forth in
Sections 2 and 3 to purchase the Pledged PTII Shares or the
Pledged Borrower Shares or to purchase and assume the
interests, rights and obligations of the Secured Parties
under the Loan Documents. Without limiting the foregoing,
the Security Agent shall promptly take such actions
(including, without limitation, the implementation of
foreclosure or similar proceedings, the diligent pursuit of
other remedies available to it hereunder and, if action by
the shareholders of PTII shall be required, cooperation with
FCX in calling a shareholders' meeting of PTII to take such
action and voting the Pledged PTII Shares in the manner
necessary to approve such action) as are available to it,
and as FCX may reasonably request, to acquire title to the
Pledged PTII Shares or the Pledged Borrower Shares or the
right to dispose of such shares pursuant to Section 2.
Notwithstanding the foregoing, the Security Agent shall not
be required to take any action under this Section (i) that
it reasonably believes to be prevented by any injunction or
other legal restraint, (ii) that it reasonably believes
would (A) expose it to any material expense or liability for
which it shall not have been reimbursed or indemnified by
CX, (B) expose any offcer or agent of the Security Agent
to danger or (C) materially affect the economic interests of
the Security Agent, or (iii) that it believes in good faith,
after consultation with counsel, to be contrary to
applicable standards of good faith and fair dealing or to
applicable standards for the disposition of pledged securi-
ties. The Security Agent shall have no obligation to take
any action under this Section (x) following the sale of the
Pledged PTII Shares or the Pledged Borrower Shares to FCX
pursuant to Section 2 or pursuant to the FCX Option
Agreement, (y) following the purchase and assumption of the
interests, rights and obligations of the Secured Parties
under the Loan Documents pursuant to Section 3 or (z) during
the continuance of an Event of Default resulting from any
act or omission of FCX.
(c) FCX acknowledges and agrees for the benefit
of each Bank that its obligations under Section 2 and
Section 3 of this Agreement will not be suspended or reduced
by any breach by the Security Agent of its obligations under
this Section 5; provided that nothing herein shall be
construed to prevent FCX from bringing an action at law or
in equity against the Security Agent to compel performance
by the Security Agent or to collect damages resulting from
such breach.
SECTION 6. Right of First Refusal. The Security
Agent agrees that if the Security Agent shall have acquired
the right to sell any Pledged PTII Shares or Pledged
Borrower Shares pursuant to any exercise of its remedies and
if at any time thereafter it shall receive a Bona Fide Offer
(as hereinafter defined) from a third party to purchase all
or any portion of such Pledged PTII Shares or Pledged
Borrower Shares, the Security Agent shall first notify FCX
of such Bona Fide Offer by providing FCX all relevant data
and information concerning the proposed transaction,
including, but not limited to, a copy of the purchase
contract (if any) with the proposed buyer and shall give to
FCX the right to purchase such shares, upon the terms and
conditions stipulated in such Bona Fide Offer (the "Offer"),
such right to purchase to be communicated by the Security
Agent by notice given hereunder; provided, however, that the
obligation of the Security Agent to offer the Pledged PTII
Shares or the Pledged Borrower Shares to FCX hereunder shall
terminate if (a) a Bankruptcy Event occurs or (b) FCX shall
be in default of any payment obligation under Section 2, 3
or 4. For the purposes of the foregoing, a "Bona Fide
Offer" shall be an offer reflected in an executed purchase
contract with a ready, willing and able buyer (or a contract
in a fully-negotiated form which the Security Agent and such
a buyer are willing to execute) providing for the purchase
of the shares referred to in the Offer subject only to the
obtaining of any necessary governmental approvals and the
waiver or non-exercise of FCX's rights in this Section 6.
Any such right to purchase may be exercised in whole only
and not merely in part. In the event that such right to
purchase shall not be exercised in full by notice given
hereunder and received by the Security Agent within fifteen
days after the date of the notice to FCX with respect to
such right to purchase, the Security Agent shall be entitled
to sell, as a whole and not in part only, the number of
Pledged PTII Shares or Pledged Borrower Shares described in
the Offer to the third party making the Offer on terms and
conditions no more favorable to such third party than the
terms and conditions of the Offer. If the Security Agent
shall fail to consummate a sale to such third party of the
entire number of Pledged PTII Shares or Pledged Borrower
Shares set forth in the Offer within sixty days after the
Security Agent shall become entitled under this Section 6 to
sell such Pledged PTII Shares or Pledged Borrower Shares to
such third party, no sale or transfer to a third party of
such Pledged PTII Shares or Pledged Borrower Shares may
thereafter be made by the Security Agent without again com-
plying with the provisions of this Section 6.
SECTION 7. Representations and Warranties. FCX
represents and warrants to each of the Banks that as of the
date hereof:
(a) Each of FCX and any Restricted Subsidiary
thereof (i) is a corporation duly organized, validly
existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) has all requisite
power and authority to own its property and assets and to
carry on its business as now conducted, (iii) is qualified
to do business in every jurisdiction where such
qualification is required, except where the failure so to
qualify would not result in a Material Adverse Effect and
(iv) has the corporate power and authority to execute,
deliver and perform its obligations hereunder.
(b) The execution, delivery and performance by
FCX of this Agreement and the transactions contemplated
hereby (collectively, the "Transactions") (i) have been duly
authorized by all requisite corporate and, if required,
stockholder action and (ii) will not (A) violate (x) any
provision of law, statute, rule or regulation, or of the
certificate or articles of incorporation or other constitu-
tive documents or by-laws of FCX or any Restricted
Subsidiary thereof, (y) any order of any Governmental
Authority or (z) any provision of any indenture, agreement
or other instrument to which FCX or any Restricted
Subsidiary thereof is a party or by which any of them or any
of their property is 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 such
indenture, agreement or other instrument or (C) result in
the creation or imposition of any Lien upon or with respect
to any property or assets now owned or hereafter acquired by
FCX or any Restricted Subsidiary thereof.
(c) Ths Agreement has been duly executed and
delivered by FCX and constitutes a legal, valid and binding
obligation of FCX enforceable against FCX in accordance with
its terms (subject to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting creditors'
rights generally).
(d) No action, consent or approval of, registra-
tion or filing with or any other action by any Governmental
Authority or other third party is required in connection
with the Transactions, except such as have been made or
obtained and are in full force and effect and such
appropriate governmental approvals as may be necessary to
delist PTII from the Surabaya Stock Exchange prior to any
sale of the Pledged PTII Shares pursuant to Section 2.
(e) FCX has heretofore furnished to the Security
Agent the following items with respect to FCX and its
consolidated subsidiaries: (i) its consolidated balance
sheets and statements of operations and changes in retained
earnings and cash flow as of and for the fiscal year ended
December 31, 1996, audited by and accompanied by the opinion
of Arthur Andersen LLP, independent public accountants,
included in FCX's Annual Report on Form 10-K for the year
ended December 31, 1996 and (ii) a certificate of the
Treasurer or another authorized financial officer of FCX
certifying that FCX (and, as applicable, PTFI) is in
compliance with the Borrowing Base under each of the PTFI
Revolver and the FCX Revolver. All such balance sheets and
statements of operations and cash flow present fairly the
financial condition and results of operations of each entity
as of such dates and for such periods. Such financial
statements and the notes thereto disclose all material lia-
bilities, direct or indirect, fixed or contingent, of each
entity as of the date 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 7(e) have been prepared in accordance
with GAAP.
(f) There has been no material adverse change in
the business, assets, operations or condition, financial or
otherwise, of FCX or any Restricted Subsidiary thereof since
the date of the last balance sheet described in
paragraph (e) above.
(g) No information, report, financial statement,
exhibit or schedule furnished by or on behalf of FCX to the
Security Agent in connection with the negotiation of this
Agreement or included herein or delivered pursuant hereto
contains any material misstatement of fact or omits to state
any material fact necessary to make the statements therein,
in the light of the circumstances under which they were
made, not misleading.
(h) Except as disclosed in FCX's Annual Report on
Form 10-K for the year ended December 31, 1996, 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 FCX
or PTFI, threatened against or affecting FCX or PTFI or any
Restricted Subsidiary or the businesses, assets or rights of
FCX or PTFI or any Restricted Subsidiary (i) which involve
this Agreement or any of the other Loan Documents or any of
the Transactions or the collateral for the Advances 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 FCX or PTFI to conduct its business
substantially as now conducted, or materially and adversely
affect the businesses, assets, operations, prospects or
condition, financial or otherwise, of FCX or PTFI, or impair
the validity or enforceability of, or the ability of FCX to
perform its obligations under, this Agreement or any of the
other Loan Documents to which it is a party.
(i) Neither FCX nor any Restricted Subsidiary
thereof is in violation of any law, rule or regulation, or
in default with respect to any judgment, writ, injunction or
decree of any Governmental Authority, where such violation
or default would reasonably be expected to result in a
Material Adverse Effect.
(j) With respect to environmental matters:
(i) the properties owned or operated by FCX and
its Restricted Subsidiaries and by PTFI (the
"Properties") and all operations of FCX and its
Restricted Subsidiaries and by PTFI 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 non-compliance
or failure to obtain any necessary permits, in the
aggregate, could not reasonably be expected to result
in a Material Adverse Effect;
(ii) there have been no Releases or threaten
Releases at, from, under or proximate to the Properties
or otherwise in connection with the operations of FCX,
its Restricted Subsidiaries or PTFI, which Releases or
threatened Releases, in the aggregate, could reasonably
be expected to result in a Material Adverse Effect;
(iii) none of FCX, its Restricted Subsidiaries or
PTFI has received any notice of an Environmental Claim
in connection with the Properties or the operations of
FCX, its Restricted Subsidiaries or PTFI or with regard
to any person whose liabilities for environmental
matters FCX, its Restricted Subsidiaries or PTFI 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 do FCX, its
Restricted Subsidiaries or PTFI have reason to believe
that any such notice will be received or is being
threatened; and
(iv) Hazzardous Materials have not been transported
from the Properties, nor have Hazardous Materils 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 have
FCX, its Restricted Subsidiaries or PTFI 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.
(k) No stamp or similar tax is required to be
paid on or in connection with this Agreement to ensure the
legality, validity, enforceability or admissibility in
evidence thereof in Delaware, New York or the Republic of
Indonesia, except that a copy of this Agreement should be
stamped in nominal amounts when it is first used in
Indonesia if it is to be admissible in an Indonesian court.
(l) None of FCX, its Restricted Subsidiaries or
any of their property has any right to immunity in any
jurisdiction or court from set-off, legal proceedings,
attachment prior to judgment or other attachment, judgment
or execution of judgment or other legal process on the
grounds of sovereignty or otherwise, and, to the extent FCX
any of its Restricted Subsidiaries or any of their property
may acquire any such right to immunity, each of FCX and its
Restricted Subsidiaries hereby irrevocably waives such right
to immunity in respect of its respective obligations under
the Loan Documents.
(m) Each of FCX and its Restricted Subsidiaries
has timely filed or caused to be filed all Tax returns and
reports required to have been filed and has paid or caused
to be paid all Taxes required to have been paid by it,
except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such
subsidiary has set aside on its books adequate reserves or
(b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse
Effect.
SECTION 8. Covenants. FCX covenants and agrees
with the Security Agent that so long as this Agreement shall
remain in effect or any amounts payable hereunder shall be
unpaid and unless the Security Agent shall otherwise consent
in writing:
(a) FCX will furnish to the Security Agent:
(i) within 95 days after the end of each fiscal
year of each of FCX and PTFI, the following items with
respect to FCX and its consolidated subsidiaries and
with respect to PTFI: its consolidated balance sheet
and consolidated statements of operations and changes
in retained earnings and cash flow, showing its
financial condition as of the close of such fiscal year
and the results of its operations during such year, all
audited by independent public accountants of recognized
national standing in the United States and accompanied
by an opinion of such accountants to the effect that
such consolidated financial statements fairly present
its financial condition and results of operations on a
consolidated basis in accordance with GAAP, except as
disclosed in such auditor's report;
(ii) within 50 days after the end of each of the
first three fiscal quarters of each fiscal year of each
of FCX and PTFI, the following items with respect to
FCX and its consolidated subsidiaries and with respect
to PTFI: its consolidated balance sheet and
consolidated statements of income of each such entity,
showing its financial condition as of the close of such
fiscal quarter and the results of its operations during
such fiscal quarter and the then elapsed portion of the
fiscal year, all certified by one of its financial
officers as fairly presenting its financial condition
and results of operations on a consolidated basis in
accordance with GAAP, subject to normal year-end audit
adjustments;
(iii) promptly after the same become publicly
available, copies of all periodic and other reports,
proxy statements and other materials filed by either
FCX or PTFI with the Securities and Exchange Commission
or any other Governmental Authority, or with any
national securities exchange, or distributed to its
shareholders, as the case may be; and
(iv) promptly, from time to time, such other infor-
mation regarding the operations, business affairs and
financial condition of each of FCX and PTFI, or
compliance with the terms hereof as the Security Agent
may reasonably request.
(b) FCX shall, at the time of provision of the
financial statements referred to in Sections 8(a)(i) and
(ii) above, furnish to the Agent a certificate of the
Treasurer or another authorized Financial Officer of FCX
certifying that FCX (and, as applicable, PTFI) is in
compliance with the Borrowing Base under each of the PTFI
Revolver and the FCX Revolver.
(c) FCX shall, and shall cause each of its
Restricted Subsidiaries to, obtain all authorizations and
approvals, and other actions by, and shall make all notices
to or filings with, any Governmental Authority or regulatory
body now or hereafter required for its making and
performance of the Loan Documents to be made and performed
by FCX and promptly furnish copies thereof to the Agent.
(d) If FCX chooses to exercise its option to
purchase the Pledged PTII Shares or the Pledged Borrower
Shares under the FCX Option Agreement, FCX will, at the time
it takes title to such shares, assume all the Obligations,
and will cause such Obligations to be paid in full within
three Banking Days after such assumption.
(e) FCX shall promptly, upon theeeqquest of the
Security Agent, give such furthher assurances and perform
such other acts, as shall be necessary to effectuate the
purposes of any Loan Document.
(f) FCX shall not create, incur, assume or permit
to exist any Lien securing any Debt upon any Capital Stock
or other equity interest of PTFI owned by FCX or any of its
Subsidiaries unless, contemporaneously therewith, effective
provision is made to secure the obligations of FCX to the
Banks under this Agreement and the other Loan Documents
equally and ratably with such Debt for so long as such Debt
is so secured.
SECTION 9. Incorporation by Reference. The
provisions of Sections 5.1 (a)(4) and (8), (b), (c), (d),
(e), (g), (i) (but only the first sentence thereof) and (j),
and 5.2(c),(e), (f), (i) and (p) of each of the PTFI
Revolver and the FCX Revolver, each as in effect on the date
hereof, are incorporated herein by reference in their
entirety (but with the defined terms used therein and the
definitions of such terms being construed in accordance with
Section 1 above). It is acknowledged that the failure of
PTFI to conduct its existing mining operations in Irian Jaya
will constitute a material alteration in the nature of the
business of FCX and PTFI for purposes of such Section
5.2(i).
SECTION 10. Taxes. (a) Any and all payments by
FCX hereunder shall be made, in accordance with Section 19,
free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions,
charges or withholdings imposed by a Governmental Authority,
and all liabilities with respect thereto, excluding taxes
imposed on the net income of any Secured Party (or any
transferee or assignee thereof, including a participation
holder (any such entity being called a "Transferee")) and
franchise taxes imposed on any Secured Party (or Trans-
feree), in either case by any jurisdiction under the laws of
which such Secured Party (or Transferee), is organized
(including the United States, in the case of any Secured
Party (or Transferee) organized under the laws of a state of
the United States), or in which such Secured Party (or
Transferee) books this transaction, or any political sub-
division thereof (all such nonexcluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities
being hereinafter referred to as "Taxes"). If FCX shall be
required by law to deduct any Taxes from or in respect of
any sum payable hereunder to any Secured Party (or any
Transferee), (i) the sum payable shall be increased by the
amount necessary so that after making all required deduc-
tions (including deductions applicable to additional sums
payable under this Section 10) such Secured Party (or Trans-
feree) shall receive an amount equal to the sum it would
have received had no such deductions been made, (ii) FCX
shall make such deductions and (iii) FCX shall pay the full
amount deducted to the relevant Governmental Authority in
accordance with applicable law.
(b) In addition, FCX agrees to pay any present
future stamp or documentary taxes or similar levies which
arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to,
this Agreement (hereinafter referred to as "Other Taxes").
(c) FCX will indemnify each Secured Party (or
Transferee) for the full amount of Taxes and Other Taxes
paid by such Secured Party (or Transferee) and any liability
(including penalties, interest and expenses) arising there-
from or with respect thereto, whether or not such Taxes or
Other Taxes were correctly or legally asserted by a Govern-
mental Authority. Such indemnification shall be made within
30 days after the date any Secured Party (or Transferee)
makes written demand therefor. Such demand shall be made by
a responsible account officer of the Secured Party (or
Transferee) and shall set forth the computation of the
amount or amounts as shall be necessary to compensate such
Secured Party (or Transferee) under this Section 10. The
Security Agent agrees, on behalf of itself, the Agent and
each Bank, that each such Secured Party will promptly notify
FCX of any event which would entitle any Secured Party to
any additional payment pursuant to this Section 10 (provided
that the Security Agent shall not be liable for any other
Secured Party's failure so to notify FCX). The Security
Agent agrees, on behalf of itself, the Agent and each Bank,
that each such Secured Party will, to the extent such
Secured Party is actually aware of a Tax or Other Tax with
respect to which such Secured Party would be entitled to
payments from FCX hereunder, use reasonable diligence
(consistent with legal and regulatory restrictions) to, at
FCX's expense, (i) file any certificate or document, (ii) in
the case of a Bank, change the jurisdiction of its Banking
Office (as defined in the Loan Agreement) or (iii) take
other appropriate action if (A) the making of such a filing
or change or the taking of such other action would avoid the
need for or reduce the amounts that would be payable by FCX
under this Section 10 and would not otherwise adversely
affect such Secured Party (as determined by such Secured
Party in good faith) and (B) either (1) FCX has requested
such Secured Party to make such filing or change or to take
such other action or (2) the officers of such Secured Party
administering this transaction are actually aware that the
making of such filing or change or the taking of such other
action will have the effect specified in clause (A) above
(provided that the Security Agent shall not be liable for
any other Secured Party's failure to take any of the actions
specified in clauses (i), (ii) or (iii) above).
(d) Within 30 days after the date of any payment
of Taxes or Other Taxes withheld by FCX in respect of any
payment to any Secured Party (or Transferee), FCX will
furnish to the Security Agent, at its address referred to in
Section 17, the original or a certified copy of a receipt
evidencing payment thereof.
(e) Without prejudice to the survival of any
other agreement contained herein, the agreements and obliga-
tions contained in this Section 10 shall survive the payment
in full of all Obligations.
SECTION 11. Subordination of Rights of FCX.
(a) FCX hereby agrees that all its rights to payments
arising by virtue of any payment made by FCX to the Security
Agent hereunder, whether pursuant to Section 2, Section 4 or
otherwise (collectively, the "Subordinated Obligations"),
are hereby expressly subordinated, to the extent and in the
manner set forth in this Section, to the prior indefeasible
payment in full in cash of all Obligations in accordance
with the terms thereof.
(b) No payment in respect of the Subordinated
Obligations shall be made (other than payments with respect
to the Interest Shortfall Loans made with funds in the
Dividend Reserve Account as permitted under the Loan
Agreement), or any security therefor given (other than a
security interest over the Pledged PTII Shares and the
Pledged Borrower Shares securing FCX's rights against the
Borrower arising by virtue of any payment made by FCX
hereunder with respect to any obligations for which the
Borrower is liable to any Secured Party under the Loan
Documents, provided such security interest is expressly
junior in right of payment to the security interest held by
or on behalf of the Secured Parties on terms satisfactory to
the Security Agent), by the Borrower or FCX or received or
accepted by or on behalf of FCX unless and until all
Obligations then due and payable have been paid in full in
cash and (i) no Default or Event of Default exists under the
Loan Agreement and (ii) no default exists hereunder.
(c) Upon any distribution of the assets of the
Borrower or of FCX or upon any dissolution, winding up,
liquidation or reorganization of the Borrower or of FCX,
whether in bankruptcy, insolvency, reorganization, arrange-
ment or receivership proceedings or otherwise, or upon any
assignment for the benefit of creditors or any other mar-
shalling of the assets and liabilities of the Borrower or
FCX, or otherwise:
(i) the Secured Parties shall first be entitled to
receive payment in full of the Obligations in accor-
dance with the terms of the Obligations before FCX
shall be entitled to receive any payment on account of
any Subordinated Obligation; and
(ii) any payment by, or distribution of the assets
of, the Borrower or of FCX of any kind or character,
whether in cash, property or securities, to which FCX
would be entitled except for the provisions of this
Agreement shall be paid or delivered by the person
making such payment or distribution (whether a trustee
in bankruptcy, a receiver, custodian or liquidating
trustee or otherwise) directly to the Security Agent to
the extent necessary to make payment in full in cash of
all Obligations remaining unpaid, after giving effect
to any concurrent payment or distribution to the
Secured Parties in respect of Obligations.
(d) In the event that any payment by or distribu-
tion of the assets of the Borrower or FCX of any kind or
character, whether in cash, property or securities, and
whether directly, by exercise of any right of set-off or
otherwise, shall be received by or on behalf of FCX at a
time when such payment is prohibited by this Agreement, such
payment or distribution shall be held in trust for the
benefit of, and shall be paid over to, the Security Agent to
the extent necessary to make payment in full of all
Obligations remaining unpaid, after giving effect to any
concurrent payment or distribution to the Secured Parties in
respect of Obligations.
(e) FCX agrees that, except upon the request or
with the consent of the Security Agent, it will not exercise
any remedies or take any action or proceeding to enforce any
Subordinated Obligation until the Obligations have been paid
in full in cash, and FCX further agrees not to join with any
other creditors of the Borrower or of FCX, as the case may
be, in filing any petition commencing any bankruptcy,
insolvency, reorganization, arrangement or receivership
proceeding or any assignment for the benefit of creditors
against or in respect of the Borrower or FCX, respectively,
or any other marshalling of the assets and liabilities of
the Borrower or FCX, respectively.
(f) FCX shall be entitled to be secured, on terms
acceptable to the Banks and on a basis fully subordinated to
the rights of the Secured Parties, by the Pledged PTII
Shares and the Pledged Borrower Shares, with respect to
payments made by FCX relating to obligations for which the
Borrower is liable to any Secured Party under the Loan
Documents. Payment by FCX of amounts payable by the
Borrower under the Loan Documents shall not relieve the
Borrower of its obligation to make such payments, and FCX
shall be subrogated to all rights of the Secured Parties
against the Borrower or any of the other Loan Parties, as
the case may be, with respect to such amounts. If, after
all Obligations then due and payable have been paid in full
in cash, any of the Secured Parties shall receive payment
from the Borrower of any such amounts with respect to which
FCX shall have made a payment hereunder, such Secured Party
shall, provided that (i) no Default or Event of Default
under the Loan Agreement shall have occurred and be
continuing at the time and (ii) no default hereunder shall
have occurred and be continuing at the time, pay such
amounts so received to FCX. Until FCX has received payment
of all amounts payable to it pursuant to succh subrogation,
FCX shall remain secured by the collateral referred to in
the ffirst sentence of this paragraph (f).
SECTION 12. Sccessors and Assigns. Whenever in
this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and
assigns of such party; and all covenants, promises and
agreements by or on behalf of FCX that are contained in this
Agreement shall bind and inure to the benefit of its
successors and assigns. FCX may not assign or transfer any
of its rights or obligations hereunder without the prior
written consent of all the Banks and any such purported
assignment or transfer without such consent shall be void.
SECTION 13. Waivers; Amendments. (a) No failure
on the part of the Security Agent to exercise, and no delay
in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy by the Security
Agent preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. All remedies
hereunder are cumulative and are not exclusive of any other
remedies provided by law. No waiver of any provision of
this Agreement or consent to any departure by FCX therefrom
shall in any event be effective unless the same shall be
permitted by 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 FCX
in any case shall entitle FCX to any other or further notice
or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision
hereof may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by FCX
and the Security Agent acting on instructions from the
Majority Banks; provided that (i) any amendment or waiver of
this Section 13(b) or any amendment or waiver that changes
or could have the effect of changing the amount of any
payment required to be made by FCX under Section 2, 3 or 4
hereof, or the timing of any such payment, or the conditions
under which FCX shall be required to purchase the Pledged
PTII Shares or the Pledged Borrower Shares or to purchase
and assume the interests, rights and obligations of the
Secured Parties under the Loan Documents, or this Section
13, shall require the consent of each Bank; (ii) amendments
to and waivers of the covenants (including the definitions
used in such covenants) set forth or incorporated by
reference in Section 8 or 9 may be effected by the Security
Agent acting on instructions from Banks representing more
than 51% of the principal amount of the Advances outstanding
under the Loan Agreement or, if no Advances are outstanding,
more than 51% of the aggregate Commitments of the Banks; and
(iii) any release of the Pledged PTII Shares or the Pledged
Borrower Shares pursuant to and in compliance with Sections
2.04 and 7.01 of the Loan Agreement, and any amendment or
modification to this Agreement required to give effect
thereto, shall not require any instructions from the Banks,
but shall be effected by the Security Agent at the request
of the Borrower in accordance with Section 11.02 of the Loan
Agreement.
SECTION 14. Applicable Law; Submission to Juris-
diction; Consent to Service of Process. (a) THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS (EXCEPT THE SHARE PLEDGES,
WHICH SHALL BE GOVERNED BY THE LAWS PROVIDED FOR THEREIN)
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
(b) FCX hereby irrevocably and unconditionally
submits, for itself and its property, to the jurisdiction of
any New York State court and of any Federal court of the
United States of America, in each case sitting in New York
City, and any appellate court from any thereof, for the
purpose of any suit, action or other proceeding arising out
of, or relating to, this Agreement, Article 11 of each of
the Share Pledges or any of the other Loan Documents, and
FCX hereby irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in
such state or Federal court. FCX hereby irrevocably waives,
to the fullest extent it may effectively do so, and agrees
not to assert, by way of motion, as a defense, or otherwise,
in any such suit, action or proceeding, any claim that it is
not subject to the jurisdiction of the above-named courts
for any reason whatsoever, that such suit, action or pro-
ceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper or that
this Agreement, Article 11 of each of the Share Pledges or
any of the other Loan Documents may not be enforced in or by
such courts. FCX 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.
(c) Each party to this Agreement, each of the
Share Pledges and each of the other Loan Documents
irrevocably consents to service of process in the manner
provided for notices in Section 17. Nothing in this
Agreement, Article 11 of each of the Share Pledges or any of
the other Loan Documents will affect the right of any party
to this Agreement, either of the Share Pledges or any of the
other Loan Documents to serve process in any other manner
permitted by law.
SECTION 15. Waiver of Trial By Jury. 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) acknnoowwlledges that it annd the other
parties hereto have been induced to enter into this Agree-
ment and the other Loan Documents, as applicable, by, among
other things, the mutual waivers and certifications in this
Section 15.
SECTION 16. Severability. In case 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 pro-
visions contained herein shall not in any way be affected or
impaired. The parties shall endeavor in good-faith negotia-
tions to replace the invalid, illegal or unenforceable pro-
visions with valid, legal and enforceable provisions, the
economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 17. Notices. Any notice by a party
hereto required or permitted to be given hereunder shall be
in writing and shall be (a) personally delivered, (b) trans-
mitted by postage prepaid registered mail (air mail if
international), or (c) transmitted by facsimile to the
addressee at the address or facsimile number indicated below
or at such other address or facsimile number as such
addressee shall have conveyed by notice to the other party:
(i) if to FCX, to it at 1615 Poydras Street,
New Orleans, Louisiana 70112, Attention of the
Treasurer (Telecopy No. (504) 582-4511); and
(ii) if to the Security Agent, to it at One
Chase Manhattan Plaza, 5th Floor, New York, New
York 10081, Attention of James H. Ramage (Telecopy
No. (212) 552-5555).
Unless otherwise provided herein, the date of any notice
hereunder shall be deemed to be (A) the date of receipt if
delivered personally or transmitted by facsimile or (B) the
date seven days after posting if transmitted by mail (air
mail if international).
SECTION 18. Expenses; Indemnity. (a) FCX agrees
to pay all out-of-pocket expenses incurred by the Security
Agent or the Agent in connection with the exercise,
enforcement or protection of the rights or remedies of any
of the Secured Parties under each of the Loan Documents,
including the fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Security Agent, and the
fees, charges and disbursements of any other counsel for the
Security Agent or the Agent.
(b) FCX agrees to indemnify each of the Secured
Parties and each of their respective directors, officers,
employees and agents (each such person being called an
"Indemnitee") against, and to hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and
related expenses, including counsel fees, charges and
disbursements, incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as
a result of (i) the exercise, enforcement or purported
exercise or enforcement by the Security Agent or the Agent
of any of the rights and remedies of any of the Secured
Parties hereunder (including, without limitation, any
exercise by the Security Agent or the Agent of any action in
accordance with Section 5 of this Agreement) or under any of
the other Loan Documents, or the Transactions and the other
transactions contemplated hereby or (ii) any actual or
threatened claim, litigation, investigation or proceeding
relating to any of the foregoing, whether or not any
Indemnitee is a party thereto; provided that such indemnity
shall not, as to any Indemnitee, 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 Indemnitee
(it being understood that actions contemplated by the Loan
Documents will in no event be deemed to constitute gross
negligence or wilful misconduct).
(c) The provisions of this Section 18 shall
remain operative and in full force and effect regardless of
the expiration of the term of this Agreement, the consumma-
tion of the transactions contemplated hereby, and 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 the
Security Agent or any other Secured Party. All amounts due
under this Section 18 shall be payable on written demand
therefor.
SECTION 19. Payments. FCX shall make each
payment hereunder not later than 12:00 noon, New York City
time, on the date when due in United States dollars to the
Security Agent at its offices at 270 Park Avenue, New York,
N.Y. 10017, or at such other address as the Security Agent
may have specified in writing, in immediately available
funds.
SECTION 20. Entire Agreement. This Agreement and
the other Loan Documents constitute the entire contract
between the parties relative to the subject matter hereof.
Any previous agreement among the parties with respect to the
subject matter hereof is superseded by this Agreement 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 and
thereto any rights, remedies, obligations or liabilities
under or by reason of this Agreement or the other Loan Docu-
ments.
SECTION 21. Execution in 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 instrument.
SECTION 22. Banks as Third Party Beneficiaries.
This Agreement is made for the benefit of the Banks that are
parties to the Loan Agreement, and each Bank shall have the
right to enforce any agreement of FCX hereunder as if it
were a party hereunder.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the day and year first
above written.
FREEPORT-MCMORAN COPPER & GOLD INC.,
by
Name: Signed
Title:
THE CHASE MANHATTAN BANK, as Security
Agent,
by
Name: Signed
Title:
ANNEX I
NON-INTERFERENCE AGREEMENT AND ACKNOWLEDGMENT
The undersigned hereby acknowledge and agree that, upon the
occurrence of an Event of Default under the Loan Agreement
and the acceleration of the Advances thereunder (a) the
Security Agent intends to exercise its rights under
Section 2 of the foregoing Put and Guaranty Agreement to
sell the Pledged PTII Shares or the Pledged Borrower Shares
to FCX for a price equal to the Put Price (which the
undersigned understand may be substantially less than the
value of the Pledged PTII Shares or Pledged Borrower
Shares), and the undersigned hereby consent to such sale;
and (b) the Security Agent shall have no obligation to offer
or sell the Pledged PTII Shares or the Pledged Borrower
Shares to any third party even if a higher price could be
obtained from such a third party. The undersigned hereby
consent to the other agreements and arrangements set forth
in the foregoing Put and Guaranty Agreement and waive any
and all claims that they might otherwise have against the
Security Agent or any Bank as a result of the exercise of
any right or the performance of any obligation that the
Security Agent or such Bank may have hereunder or under any
other Loan Document. The undersigned agree to take no
action to interfere with or restrain the exercise by the
Security Agent of its rights under the foregoing Put and
Guaranty Agreement or under the Pledge Agreements referred
to therein. The undersigned also agree that (i) payment by
FCX of amounts payable by the Borrower under the Loan
Documents shall not relieve the Borrower of its obligations
to make such payments and (ii) FCX shall be subrogated to
all rights of the Secured Parties against the Borrower or
any of the other Loan Parties, as the case may be, with
respect to such amounts.
PT NUSAMBA MINERAL INDUSTRI,
by
Name:
Title:
PT NUSANTARA AMPERA BAKTI,
Name:
Title:
PT MAPINDO PARAMA,
by
Name:
Exhibit 10.8
FCX SUBORDINATED LOAN AGREEMENT
THIS SUBORDINATED LOAN AGREEMENT (this "Subordinated Loan
Agreement") is made and entered into as of March 21, 1997, by and
between FREEPORT-McMoRan COPPER & GOLD INC., a corporation
organized under the laws of the State of Delaware, United States
of America (the "Subordinated Lender"), and PT NUSAMBA MINERAL
INDUSTRI, a limited liability company organized under the laws of
the Republic of Indonesia (the "Borrower").
RECITALS
WHEREAS, the Borrower and the Bakrie Group (as defined in
the Loan Agreement referred to below) have entered into the
Purchase Agreement (as defined in the Loan Agreement referred to
below), pursuant to which the Borrower will purchase from the
Bakrie Group the Subject Shares (as defined in the Loan Agreement
referred to below);
WHEREAS, the Borrower has entered into that certain Loan
Agreement dated as of March 21, 1997, as the same may be amended
and/or restated and in effect from time to time (the "Loan
Agreement"), among the Borrower, the banks parties thereto (the
"Banks"), The Chase Manhattan Bank, as administrative agent and
as security agent for the Banks, and Union Bank of Switzerland,
as managing agent for the Banks;
WHEREAS, pursuant to the Loan Agreement, the Banks will make
Advances (as defined in the Loan Agreement) to the Borrower in
order to finance not more than $254,000,000.00 of the amount
payable by the Borrower on account of the purchase of the Subject
Shares and related fees and expenses; and
WHEREAS, the Borrower has requested that the Subordinated
Lender make, at any time at which the amounts in the Dividend
Reserve Account (as defined in the Loan Agreement) are
insufficient to meet any scheduled payment of interest and
related fees due on the Advances, loans to cover such
insufficiency (referred to in the Loan Agreement as the "Interest
Shortfall Loans'), and the Subordinated Lender has agreed to make
such Interest Shortfall Loans subject to the terms and conditions
hereof.
NOW, THEREFORE, in consideration of the promises and mutual
agreements set forth herein, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used and not
defined herein shall have the meanings assigned to them,
respectively, in the Loan Agreement.
Section 2. Subordinated Loans. At any time at which the
amounts in the Dividend Reserve Account are insufficient to meet
any scheduled payment of interest on the Advances or fees due
under the Loan Agreement, the Subordinated Lender shall make a
subordinated loan to the Borrower (each a "Subordinated Loan";
collectively, the "Subordinated Loans") in an amount, in United
States Dollars, equal to the amount by which the amounts in the
Dividend Reserve Account shall be insufficient to meet such
scheduled payment (the "Interest Shortfall Amount"). The
Borrower shall give the Subordinated Lender written notice of
such insufficiency not less than ten (10) days prior to the date
of such scheduled payment (the "Payment Date"), which notice
shall specify (a) the Interest Shortfall Amount and (b) the
Payment Date. Not later than 11:00 a.m. (New York time) on the
Payment Date, the Subordinated Lender shall make available a
Subordinated Loan in an amount equal to the Interest Shortfall
Amount by paying such Interest Shortfall Amount, in immediately
available funds, to the Security Agent for deposit into the
Dividend Reserve Account.
Section 3. Promise to Pay. For value received, the
Borrower hereby promises to pay to the Subordinated Lender the
aggregate unpaid principal balance of the Subordinated Loans made
to the Borrower pursuant to the terms of this Subordinated Loan
Agreement, together with interest thereon as provided in Section
5 hereof, and all other amounts due to the Subordinated Lender by
the Borrower hereunder, all at the times and on the terms and
conditions set forth herein.
Section 4. Evidence of Outstanding Amounts. The
aggregate amount of the Subordinated Loans owed to the
Subordinated Lender, each payment of interest and principal on
account of such Subordinated Loans, and the unpaid balance of
such Subordinated Loans shall, absent manifest error, be as
recorded on the books and records of the Subordinated Lender.
Section 5. Interest; Payments.
(a) Each Subordinated Loan shall bear interest
(computed on the basis of the actual number of days elapsed
over a year of 360 days) on the aggregate unpaid principal
amount thereof from time to time outstanding at the rate
(the "Prescribed Rate") equal to the weighted average daily
cost of borrowings by the Subordinated Lender under the FCX
Revolver during the applicable period when each such
Subordinated Loan is outstanding, as determined by the
Subordinated Lender in its sole discretion, or if no such
borrowings by the Subordinated Lender under the FCX Revolver
are outstanding during such period, then at a rate
approximately equivalent to such rate, as determined by the
Subordinated Lender in its sole discretion.
(b) Interest shall be due and payable on the aggregate
unpaid principal amount of the Subordinated Loans from time
to time outstanding hereunder on the last day of each
calendar quarter, subject, however, to the provisions of
Section 5(d) below. There shall be added to and become part
of each Subordinated Loan, on the last day of each calendar
quarter, interest accrued on such Subordinated Loan, to the
extent not paid in accordance with the terms hereof.
(c) The Subordinated Lender shall give to he Borrower
such explanation regarding the calculation of the Prescribed
Rate and the amounts due hereunder as the Borrower may
reasonably request.
(d) Subject to Section 7 hereof and the Terms of
Subordination (as hereafter defined), the Borrower shall
make no payments of principal or interest, or any other
amount, on account of the Subordinated Loans until the
maturity thereof; provided that, in accordance with the Loan
Agreement, any amounts in the Dividend Reserve Account in
excess of the amounts required to pay interest on the
Advances or fees under the Loan Agreement to become due
during the next 90 days shall be applied to repay
outstanding principal and interest on account of the
Subordinated Loans upon receipt by the Security Agent of a
certificate signed by an authorized financial officer of the
Subordinated Lender calculating the amount of such excess
and directing the Security Agent to pay such amount to the
Subordinated Lender; provided that no default or Event of
Default shall have occurred and be continuing.
Section 6. Maturity. Subject to Section 7 hereof and
the Terms of Subordination (as hereafter defined), the principal
of all Subordinated Loans outstanding on the fifth (5th)
anniversary of the date hereof shall mature and be payable on
such date, together with all accrued and unpaid interest on such
Subordinated Loans.
Section 7. Subordination. The Subordinated Loans and
all amounts payable under this Subordinated Loan Agreement,
including upon any acceleration thereof, shall be and hereby are
subordinated in accordance with the Terms of Subordination
attached as Exhibit A hereto and made a part hereof (the "Terms
of Subordination").
Section 8. Collateral Security. Subject to Section 7
hereof and the Terms of Subordination, the prompt payment when
due of the Subordinated Loans, in principal and accrued interest,
and all other amounts payable under this Subordinated Loan
Agreement shall be secured by the FCX Liens, as further provided
in the Share Pledges.
Section 9. Order of Application of Payments. Subject to
Section 7 hereof and the Terms of Subordination, all payments
made by the Borrower hereunder shall be credited in the following
order of priority:
(a) First, to any fees, costs and expenses (including,
without limitation, attorneys fees) incurred in connection
with the administration and enforcement of the Subordinated
Loans and the Subordinated Lender's rights hereunder;
(b) Second, to accrued and unpaid interest on the
outstanding Subordinated Loans;
(c) Third, to current interest then due on the
outstanding Subordinated Loans; and
(d) Fourth, to principal on the outstanding
Subordinated Loans.
The Borrower shall make payments of principal and interest
in accordance with the terms hereof without presentment, demand,
protest, or notice of any kind, all of which are hereby waived by
the Borrower.
Section 10. Withholding Taxes. All payments of principal
of and interest on the Subordinated Loans, and all other amounts
payable by the Borrower hereunder, shall be made free and clear
of and without reduction by reason of any present or future
taxes, duties, levies, imposts, assessments, or other
governmental charges, other than taxes, duties, levies, imposts,
assessments or other governmental charges based upon net income
payable by the Subordinated Lender or franchise taxes, in each
case imposed by the jurisdiction of incorporation of the
Subordinated Lender or the jurisdiction in which the Subordinated
Lender has its principal executive office, or any department,
agency or other political subdivision or taxing authority in
either of such jurisdictions, ("Withholding Taxes"), all of which
will be for the account of and paid in full when due by the
Borrower. In case any deduction or withholding for or on account
of any Withholding Taxes is (a) levied by the government of the
Republic of Indonesia on the amounts payable to the Subordinated
Lender pursuant to this Subordinated Loan Agreement and (b)
required to be withheld from such payments, the Borrower shall
make the required deduction or withholding, promptly pay the
amount of such Withholding Taxes to the appropriate taxing
authorities, and pay to the Subordinated Lender such additional
amounts as may be required, after the deduction or withholding of
such Withholding Taxes, to enable the Subordinated Lender to
receive from the Borrower on the due date thereof an amount equal
to the full amount that the Subordinated Lender should have
received had the relevant deduction or withholding not been made
from such payment for or on account of such Withholding Taxes.
The Subordinated Lender shall cooperate with the Borrower to
reduce the rate of such Withholding Taxes to the lowest legal
rate. Promptly after each such payment of Withholding Taxes, the
official tax receipts or other evidence of such payment issued by
the tax authorities concerned shall be forwarded to the
Subordinated Lender.
Section 11. Notices. All notices hereunder shall be in
writing and delivered personally or sent by telecopier or by
registered or certified mail (return receipt requested) to the
Subordinated Lender or the Borrower at the following addresses
(or such other addresses as shall be specified by like notice):
If to the Subordinated Lender, to:
Freeport-McMoRan Copper & Gold Inc.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: R. Foster Duncan
Treasurer
Telecopier: (504) 582-4511
If to the Borrower, to:
PT Nusamba Mineral Industri
Wisma Kalimanis, Lt. 8
J1. Let. Jen. Haryono MT Kav 33
Jakarta 12770
Attention: Mr. AbdulMadjid, President Director
Mr. Paulce D. Wenas, Director
Telecopier: 62-21-798-19333 or 799-6328
All notices shall be deemed given as of (a) the date upon
which such notice is first delivered by hand or sent by
telecopier (receipt confirmed, with a copy simultaneously mailed
by registered mail), (b) one (1) day after depositing for
delivery, fee prepaid, with Federal Express or similar overnight
delivery service, or (c) five (5) days after mailing, postage
prepaid and properly addressed.
Section 12. Prepayment. Subject to Sections 5 and 7 hereof
and the Terms of Subordination, principal and/or interest on the
Subordinated Loans may be prepaid by the Borrower, in whole or in
part, at any time without penalty or premium.
Section 13. Acceleration; Termination of Commitment.
Subject to Section 7 hereof and the Terms of Subordination, the
Subordinated Loans, together with all accrued and unpaid interest
thereon and all other amounts then payable with respect thereto,
shall be accelerated and due and payable in full by the Borrower,
and the commitment of the Subordinated Lender to make any further
Subordinated Loans shall terminate, in each case, at the option
of the Subordinated Lender, upon: (a) the acceleration of the
Senior Debt (as defined in the Terms of Subordination), or (b)
the repayment in full of the Senior Debt (regardless of whether
then due). The commitment of the Subordinated Lender to make any
further Subordinated Loans shall also terminate, at the option of
the Subordinated Lender, upon (x) the occurrence of an Event of
Default, or (y) the occurrence of any default or other breach of
the Borrower's obligations under the Acquisition Documents.
Section 14. Choice of Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK. THE BORROWER HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT
SITTING IN NEW YORK COUNTY FOR PURPOSES OF ALL LEGAL PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
Section 15. Miscellaneous. This Subordinated Loan
Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall
constitute one and the same instrument. The provisions of this
Subordinated Loan Agreement shall be binding upon and shall inure
to the benefit of the parties and their respective heirs,
successors and assigns. In the event any suit, legal action or
proceeding arising out of or in connection with this Agreement is
brought in the Republic of Indonesia against the Borrower or the
Subordinated Lender or any of their property, each of the
Borrower and Subordinated Lender elects its legal and permanent
domicile at the Clerk's Office of the District Court in Central
Jakarta (Kantor Panitera Pengadilan Negeri Jakarta Pusat).
IN WITNESS WHEREOF, the parties have caused this
Subordinated Loan Agreement to be duly executed as of the date
first above written.
SUBORDINATED LENDER:
FREEPORT-McMoRan COPPER & GOLD INC.
By: /s/R. Foster Duncan
--------------------
R. Foster Duncan
Its: Treasurer
BORROWER:
PT NUSAMBA MINERAL INDUSTRI
By: Signed
Name:
Title:
EXHIBIT "A"
TO
FCX SUBORDINATED LOAN AGREEMENT
Terms of Subordination
Capitalized terms used and not defined herein shall have the
meanings assigned to them, respectively, in the Loan Agreement
referred to below.
(a) All obligations of PT Nusamba Mineral Industri (the
"Borrower"), howsoever created, arising, or evidenced, whether
direct or indirect, absolute or contingent, now or hereafter
existing, due or to become due, including, without limitation,
all amounts owing from time to time in respect of the Advances,
and the fees, indemnities, and expenses payable by the Borrower
under the Loan Agreement referred to below and the related
documentation, and all amounts owing from time to time by the
Borrower to any of the Banks pursuant to any Permitted Secured
Hedge and the related documentation, are hereinafter called
"Liabilities". All Liabilities arising under or in connection
with (i) the Loan Agreement dated as of March 21, 1997, and the
related documentation (including the other Loan Documents), as
the same may be amended and/or restated and in effect from time
to time (the "Loan Agreement"), among the Borrower, the banks
from time to time parties thereto (the "Banks"), The Chase
Manhattan Bank, as administrative agent and as security agent for
the Banks (in such capacities, the "Agent"), and Union Bank of
Switzerland, as managing agent for the Banks, and (ii) any and
all Permitted Secured Hedges; in each case whether acquired
directly, by assignment, or otherwise, and any refunding (it
being understood that any person extending credit in a
transaction that shall constitute such a refunding may waive in
writing (or be deemed to have waived by the agreement pursuant to
which such credit is issued) its rights hereunder as a holder of
Senior Debt), renewal, or extension thereof, are hereinafter
collectively called "Senior Debt", and all Liabilities to FCX
(the "Subordinated Lender") arising under the FCX Subordinated
Loan Agreement dated as of March 21, 1997, as the same may be
amended and/or restated and in effect from time to time (the "FCX
Subordinated Loan Agreement"), between the Borrower and the
Subordinated Lender are hereinafter called "Subordinated Debt",
it being expressly understood and agreed that the term "Senior
Debt" as used herein shall include, without limitation, any and
all interest accruing on any of the Senior Debt after the
commencement of any proceedings referred to in paragraph (c)
hereof, notwithstanding any provision or rule of law that might
restrict the rights of the holders of the Senior Debt, as against
the Borrower or anyone else, to collect such interest.
(b) So long as any amount of Senior Debt shall be
outstanding, and until the Senior Debt shall have been paid in
full, (i) the payment of all Subordinated Debt shall be postponed
and subordinated as herein provided to the payment in full of all
Senior Debt, (ii) the Borrower will not make and the Subordinated
Lender will not take or receive from the Borrower, in any manner,
payment of the whole or any part of the principal of or interest
on the Subordinated Debt, and (iii) the Subordinated Lender will
not sue or seek to enforce any judgment for, and will not take
any action towards the enforcement of the FCX Liens or any other
Liens in respect of, such Subordinated Debt, or exercise any
rights granted under the FCX Liens or any other such Liens in
respect of the collateral subject thereto, as further provided in
the Share Pledges; provided, however, that payments of principal
and interest, or any other amount, on account of Subordinated
Debt, including any applicable Withholding Taxes (as defined in
the FCX Subordinated Loan Agreement), may be made as permitted
under the Loan Agreement.
(c) Upon any distribution of assets of the Borrower to its
creditors upon any dissolution, winding-up, total or partial
liquidation, readjustment of debt, reorganization, or similar
proceeding of the Borrower or its property, or in any bankruptcy,
insolvency, receivership, assignment for the benefit of
creditors, marshaling of assets and liabilities of the Borrower,
or other proceeding, whether any of the foregoing is voluntary or
involuntary, partial or complete, all amounts due in respect of
the Senior Debt shall first be paid in full before the
Subordinated Lender shall be entitled to receive or retain any
payment or distribution from the Borrower in respect of the
Subordinated Debt.
(d) Upon any such dissolution, winding-up, liquidation,
readjustment, reorganization, or other proceeding, the
Subordinated Lender irrevocably authorizes the holders of the
Senior Debt to file all claims, proofs of debt, petitions,
consents, and other documents related to the Subordinated Debt or
the FCX Liens or any other Liens on any collateral granted in
favor of the Subordinated Lender to the extent not filed by the
Subordinated Lender (in form and substance reasonably
satisfactory to the Agent) by the thirtieth (30th) day before the
bar date or other similar date on which any claim in connection
with any such proceeding would be barred from being asserted if
such document were not filed; and any payment or distribution of
assets or securities of the Borrower of any kind or character,
whether in cash, property, or securities, to which the
Subordinated Lender would be entitled shall be paid by the
Borrower or by any receiver, trustee in bankruptcy, liquidating
trustee, agent, or other person making such payment or
distribution directly to the holders of the Senior Debt to the
extent necessary to pay all the Senior Debt in full before any
payment or distribution is made to the Subordinated Lender in
respect of the Subordinated Debt.
(e) If any payment or any distribution of assets or
securities of the Borrower of any kind or character, whether in
cash, property, or securities, shall be received by the
Subordinated Lender in respect of the Subordinated Debt, whether
upon any such dissolution, winding-up, liquidation, readjustment,
reorganization, or other proceeding, pursuant to the
subordination of any other indebtedness or obligation to the
Subordinated Debt, or pursuant to any realization on any
collateral for the Subordinated Debt, or otherwise, before all
the Senior Debt is paid in full, such payment or distribution
will be held in trust for the benefit of, and shall promptly be
paid over in trust for the benefit of, and in the form received
(duly endorsed, if necessary, to the holders of the Senior Debt),
to, the holders of the Senior Debt (or their appointed trustee or
agent) for application to the payment of the Senior Debt until
all the Senior Debt shall have been paid in full; provided,
however, that this subsection (e) shall not in any way be deemed
to include or apply to payments received by the Subordinated
Lender in accordance with the proviso in subsection (b) above.
(f) The Subordinated Lender will mark its books and
records, and cause the Borrower to mark its books and records, so
as to clearly indicate that the Subordinated Debt is subordinated
in accordance with the terms hereof.
(g) All payments and distributions received by the holders
of the Senior Debt in respect of the Subordinated Debt, to the
extent received in or converted into cash, may be applied by the
holders of the Senior Debt, first to the payment of any and all
expenses (including attorneys' fees and legal expenses) paid or
incurred by the holders of the Senior Debt in enforcing the
provisions hereof or in endeavoring to collect or realize upon
any of the Subordinated Debt or any security herefor or therefor,
and any balance thereof shall, solely as between the Subordinated
Lender and the holders of the Senior Debt, be applied by the
holders of the Senior Debt to the payment of the Senior Debt held
by the holders of the Senior Debt until paid in full in such
order of application as the holders of the Senior Debt may from
time to time select; provided that, as between the Borrower and
its creditors generally, no such payments or distributions of any
kind or character shall be deemed to be payments or distributions
in respect of the Senior Debt; provided further that,
notwithstanding any such payments or distributions received by
the holders of the Senior Debt in respect of the Subordinated
Debt and so applied by the holders of the Senior Debt toward the
payment of the Senior Debt, the Subordinated Lender shall be
subrogated to the then existing rights of the holders of the
Senior Debt, if any, in respect of the Senior Debt only at such
time as the holders of the Senior Debt shall have received final
payment of the full amount of the Senior Debt.
(h) The Subordinated Lender hereby waives notice of
acceptance by the holders of the Senior Debt hereof.
(i) Until all the Senior Debt shall have been indefeasibly
paid in full, the Subordinated Lender will not: (i) subordinate
any Subordinated Debt or any rights in respect thereof to any
Liabilities other than the Senior Debt; (ii) take from the
Borrower or any of the Borrower's Affiliates for any Subordinated
Debt any collateral security not specifically permitted under the
Loan Agreement or the Share Pledges; or (iii) commence, or join
with any other creditor in commencing, any bankruptcy,
reorganization, readjustment of debt, or any dissolution,
receivership, liquidation, or insolvency proceedings with respect
to the Borrower; provided (but without affecting any rights or
remedies that any holder of any Senior Debt may have as a
consequence thereof) that the foregoing shall not prevent the
Borrower from voluntarily commencing any proceeding described in
paragraph (c) above.
(j) The subordination provisions hereof shall in all
respects be a continuing agreement and shall remain in full force
and effect until the payment in full of the Senior Debt (or, in
the case of any such provisions that are specifically applicable
until the indefeasible payment in full of the Senior Debt, until
such indefeasible payment in full) and any and all expenses paid
or incurred by any holder of the Senior Debt in endeavoring to
collect or realize upon any of the foregoing or any security
therefor.
(k) As far as the Subordinated Lender is concerned, the
holders of the Senior Debt, or any of them, may, from time to
time, at their sole discretion and without notice to the
Subordinated Lender and without affecting the subordination
hereunder, take all or any of the following actions: (i) retain
or obtain a Lien on any property to secure any of the Senior
Debt, (ii) retain or obtain the primary or secondary obligation
of any other obligor or obligors with respect to any of the
Senior Debt, (iii) extend or renew for one or more periods
(whether or not longer than the original period), alter, or
exchange any of the Senior Debt, or release or compromise any
obligation of any nature of any obligor with respect to any of
the Senior Debt, and (iv) release, or fail to perfect their Lien
on, or surrender, release, or permit any substitution or exchange
for, all or any part of any property securing any of the Senior
Debt, or extend or renew for one or more periods (whether or not
longer than the original period), or release, compromise, alter,
or exchange any obligations of any nature of any obligor with
respect to any such property. This paragraph (k) shall not be
deemed to be an agreement by the Borrower to enlarge the rights
of the holders of the Senior Debt under the Loan Agreement or any
Permitted Secured Hedges.
(l) The holders of the Senior Debt, or any of them, may,
from time to time, without notice to the Subordinated Lender,
assign or transfer any or all of the Senior Debt or any interest
therein except as expressly prohibited by the Loan Agreement or
the Permitted Secured Hedges; and, notwithstanding any such
assignment or transfer or any subsequent assignment or transfer
thereof, such Senior Debt shall be and remain Senior Debt for the
purposes hereof, and every immediate and successive assignee or
transferee of any of the Senior Debt or of any interest therein
shall, to the extent of the interest of such assignee or
transferee in the Senior Debt, be entitled to the full benefits
hereof.
(m) The holders of the Senior Debt shall not be prejudiced
in their rights hereunder by any act or failure to act of the
Borrower or the Subordinated Lender, or any noncompliance of the
Borrower or the Subordinated Lender with any agreement or
obligation, regardless of any knowledge thereof that the holders
of the Senior Debt may have or with which the holders of the
Senior Debt may be charged, and no action of the holders of the
Senior Debt permitted hereunder shall in any way affect or impair
the rights of the holders of the Senior Debt and the obligations
of the Subordinated Lender hereunder.
(n) No delay on the part of any holder of the Senior Debt,
or of any agent of such holders, in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or
partial exercise by the holders of the Senior Debt, or any of
them, of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy,
nor shall any modification, waiver, or discharge of any of the
provisions hereof be binding upon the holders of the Senior Debt
except as expressly set forth in a writing duly signed and
delivered on behalf of the holders of the Senior Debt. The
subordination herein contained shall be effective notwithstanding
any right or power of the Borrower or anyone else to assert any
claim or defense as to the invalidity or unenforceability here
or of the Senior Debt, in whole or in part, or any determination
by any court or other tribunal of such invalidity or
unenforceability, and no such claim, defense, or determination
shall affect or impair the agreements and rights of the holders
of the Senior Debt hereunder.
(o) The provisions hereof shall be binding upon the
Subordinated Lender and upon its successors. All references to
the Borrower and the Subordinated Lender, respectively, shall be
deemed to include their respective successors, whether immediate
or remote.
(p) Nothing herein contained shall impair, as between the
Borrower and the Subordinated Lender, the obligation of the
Borrower, which is absolute and unconditional, to make payments
of the Subordinated Debt as and when the same shall become due
and payable in accordance with its terms, or affect the relative
rights of the Subordinated Lender and creditors of the Borrower
other than holders of Senior Debt.
(q) THE PROVISIONS HEREOF RELATING TO SUBORDINATION SHALL
BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REFERENCE TO ANY
CONFLICT OR CHOICE OF LAW RULES THAT MIGHT OTHERWISE APPLY.
Wherever possible, each provision hereof shall be interpreted in
such manner as to be effective and valid under applicable law,
but if any provision hereof shall be prohibited by or be invalid
under such law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining provisions
hereof.
(r) Any suit, action, or proceeding arising out of or in
connection with the provisions hereof relating to subordination
may be brought against the Borrower or the Subordinated Lender in
a court of record of the State of New York, County of New York,
or the United States District Court for the Southern District of
New York, and each of the Borrower and the Subordinated Lender
hereby irrevocably submits and consents to the jurisdiction of
each such court and agrees that any summons, complaint, writ,
judgment, or other notice or service of legal process may be
sufficiently served upon it in connection with any such suit,
action, or proceeding if mailed to it by certified or registered
mail at its address set forth in the Loan Agreement. In any
suit, action, or proceeding relating to the subordination
hereunder, each of the Borrower and the Subordinated Lender
waives, to the fullest extent not prohibited by applicable law
any objection that it may now or hereafter have to the laying of
the venue of any suit, action, or proceeding brought in such
court and any claim that the same was brought in an inconvenient
forum. The submission to the said jurisdiction shall not (and
shall not be construed so as to) limit the right of the holders
of the Senior Debt, or any of them, or any agent on their behalf,
to take proceedings against the Borrower or the Subordinated
Lender in whatsoever jurisdictions shall to it seem appropriate,
nor shall the taking of proceedings in any one or more
jurisdictions preclude the taking of proceedings in any other
jurisdiction, whether concurrently or not. In the event any
suit, legal action or proceeding arising out of or in connection
with the provisions hereof relating to subordination is brought
in the Republic of Indonesia against the Borrower or the
Subordinated Lender or any of their property, each of the
Borrower and Subordinated Lender elects its legal and
domicile at the Clerk's Office of the District Court in Central
Jakarta (Kantor Panitera Pengadilan Negeri Jakarta Pusat).
Exhibit 10.9
AMENDED AND RESTATED POWER SALES AGREEMENT
between
P.T. PUNCAKJJAYA POWER
and
P.T. FREEPORT INDONESIA COMPANY
dated as of December 18, 1997
Power Generation Facilities
Irian Jaya, Indonesia
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND USAGE................................1
SECTION 1.01. DEFINITIONS.....................................1
SECTION 1.02. USAGE...........................................2
SECTION 1.03. PARTIES.........................................3
ARTICLE II TERM................................................3
SECTION 2.01. INITIAL TERM; RENEWAL...........................3
ARTICLE III SALE AND PURCHASE OF CAPACITY AND ELECTRICITY......4
SECTION 3.01. CAPACITY SUPPLY OBLIGATIONS.....................4
SECTION 3.02. PURCHASE OBLIGATIONS............................4
SECTION 3.03. RISK OF LOSS....................................5
SECTION 3.04. THIRD PARTY SALES...............................5
SECTION 3.05. ADJUSTMENTS TO TARGET CAPACITY LEVELS...........6
SECTION 3.06. ADDITIONAL CAPACITY REQUIREMENTS BY PTFI........8
ARTICLE IV.....................................................9
ARTICLE IV SUPPLY OF FUEL......................................9
SECTION 4.01. OBLIGATION TO SUPPLY DIESEL FUEL................9
SECTION 4.02. ASSIGNMENT OF COAL SUPPLY AGREEMENT.............9
ARTICLE V COORDINATION OF PTFI'S PLANT AND FACILITIES.........10
SECTION 5.01. ADDITIONAL PTFI INTERCONNECTIONS...............10
SECTION 5.02. SCHEDULING OF CAPACITY DELIVERY................10
SECTION 5.03. USE OF COAL DOCK...............................11
ARTICLE VI METERING...........................................11
SECTION 6.01. OWNERSHIP AND MAINTENANCE......................11
SECTION 6.02. TESTING OF METERS..............................11
SECTION 6.03. ADJUSTMENTS FOR INACCURACY.....................12
ARTICLE VII BILLING AND PAYMENT...............................13
SECTION 7.01. (A) BILLING....................................13
SECTION 7.02. DISPUTED PAYMENT...............................14
SECTION 7.03. CHANGE IN LAW ADJUSTMENTS......................14
SECTION 7.04. ADJUSTMENTS TO CLOSING MODEL...................18
ARTICLE VIII OPERATION AND MAINTENANCE........................19
SECTION 8.01. OPERATION......................................19
SECTION 8.02. MAINTENANCE....................................19
SECTION 8.03. CERTAIN OPERATING MATTERS......................19
ARTICLE IX ALTERATIONS TO THE FACILITIES......................21
SECTION 9.01. ALTERATIONS TO THE FACILITIES BY PJP...........21
ARTICLE X INSURANCE; DAMAGE AND DESTRUCTION; EXPROPRIATION....22
SECTION 10.01. PJP'S INSURANCE COVERAGE......................22
SECTION 10.02. EVIDENCE OF COVERAGE..........................24
SECTION 10.03. WAIVER OF SUBROGATION; RELEASE................24
SECTION 10.04. DAMAGE AND DESTRUCTION........................24
SECTION 10.05. EXPROPRIATION AND OTHER LOSSES................25
SECTION 10.06. ADJUSTMENT OF EQUITY COMPONENT................26
ARTICLE XI ENVIRONMENTAL RESPONSIBILITY.......................26
SECTION 11.01. ENVIRONMENTAL INDEMNIFICATION BY PJP..........26
SECTION 11.02. ENVIRONMENTAL INDEMNIFICATION BY PTFI.........27
SECTION 11.03. NOTICE OR KNOWLEDGE RELATING TO POSSIBLE
CLAIMS........................................27
SECTION 11.04. RELEASE; WAIVER OF SUBROGATION................28
SECTION 11.05. SURVIVAL......................................28
ARTICLE XII ADDITIONAL AGREEMENTS.............................29
SECTION 12.01. RECORDS.......................................29
SECTION 12.02. ACCESS........................................29
SECTION 12.03. APPLICABLE PERMITS............................29
SECTION 12.04. WASTE HEAT....................................30
SECTION 12.05. NO OTHER CHARGES..............................30
SECTION 12.06. PENALTIES NOT ASSESSED AGAINST PJP............30
ARTICLE XIII FORCE MAJEURE AND LOCAL POLITICAL RISK...........33
SECTION 13.01. FORCE MAJEURE EVENT DEFINED...................33
SECTION 13.02. EFFECT OF FORCE MAJEURE EVENT.................33
SECTION 13.03. MITIGATION AND NOTICE.........................34
SECTION 13.04. LABOR DISPUTES................................34
SECTION 13.05. EXTENDED FORCE MAJEURE........................34
ARTICLE XIV PTFI'S RIGHTS OF ENTRY............................34
SECTION 14.01. ADVERSE CONDITIONS............................35
SECTION 14.02. EXTENDED FORCE MAJEURE........................35
SECTION 14.03. LOCAL POLITICAL RISK..........................36
SECTION 14.04. PJP DEFAULT...................................36
SECTION 14.05.ADVERSE EFFECTS; EFFECT ON OTHER RIGHTS AND
REMEDIES.....................................................37
ARTICLE XV ASSIGNMENT.........................................37
SECTION 15.01. PJP...........................................37
SECTION 15.02. PTFI..........................................37
ARTICLE XVI DEFAULT AND TERMINATION...........................38
SECTION 16.01. EVENTS OF DEFAULT.............................38
SECTION 16.02. [RESERVED]....................................43
SECTION 16.03.REMEDIES ON DEFAULT, APPOINTMENT OF SUCCESSOR
MINE OPERATOR. SUBJECT TO SECTION 16.03(F), .................43
ARTICLE XVII REPRESENTATIONS AND WARRANTIES...................45
SECTION 17.01. REPRESENTATIONS AND WARRANTIES OF PJP.........45
SECTION 17.02. REPRESENTATIONS AND WARRANTIES OF PTFI........46
ARTICLE XVIII INDEMNIFICATION/LIMITATION OF LIABILITY.........47
SECTION 18.01. INDEMNIFICATION BY PTFI.......................47
SECTION 18.02. INDEMNIFICATION BY PJP........................47
SECTION 18.03. LIMITATION OF LIABILITY.......................48
SECTION 18.04. NOTICE AND COOPERATION........................48
SECTION 18.05. DISPUTE OF OBLIGATION.........................49
SECTION 18.06. SURVIVAL......................................49
ARTICLE XIX DISPUTE RESOLUTION................................49
SECTION 19.01. NEGOTIATED RESOLUTION.........................49
SECTION 19.02. PROCEDURE FOR INITIATING ARBITRATION..........50
SECTION 19.03. GENERAL ARBITRATION RULES.....................50
SECTION 19.04. NECESSARY PARTIES.............................51
SECTION 19.05. FINALITY......................................51
SECTION 19.06. VENUE.........................................51
SECTION 19.07. TECHNICAL DISPUTE RESOLUTIONS.................51
SECTION 19.08. COSTS OF ARBITRATION..........................52
SECTION 19.09. PERFORMANCE OBLIGATIONS.......................52
ARTICLE XX MISCELLANEOUS......................................52
SECTION 20.01. APPENDICES AND SCHEDULES......................52
SECTION 20.02. INTENTION OF THE PARTIES......................53
SECTION 20.03. CONFIDENTIALITY...............................53
SECTION 20.04. GOVERNING LAW.................................54
SECTION 20.05. NOTICES.......................................54
SECTION 20.06. SEVERABILITY..................................55
SECTION 20.07. ENTIRE AGREEMENT..............................55
SECTION 20.08. AMENDMENT.....................................55
SECTION 20.09. WAIVER........................................55
SECTION 20.10. TABLE OF CONTENTS; HEADINGS...................55
SECTION 20.11. COUNTERPARTS..................................56
SECTION 20.12. METHOD OF PAYMENT.............................56
SECTION 20.13. DATE OF PAYMENT...............................56
SECTION 20.14. DEFAULT INTEREST..............................56
SECTION 20.15. ATTORNEYS' FEES...............................56
SECTION 20.16. THIRD-PARTY BENEFICIARIES.....................57
SECTION 20.17. FURTHER DOCUMENTS.............................57
SECTION 20.18. PERFORMANCE OF OBLIGATIONS....................57
SECTION 20.19. TAX COOPERATION...............................57
SECTION 20.20. SURVIVAL OF PAYMENT OBLIGATIONS...............57
APPENDIX A DEFINITIONS
APPENDIX B INTERCONNECTION POINTS
APPENDIX C PTFI'S PLANT
APPENDIX D TIMIKA FACILITY
APPENDIX E PTFI'S SITE
APPENDIX F MILL SITE FACILITY
APPENDIX G PORT SITE FACILITY
APPENDIX H ENGINEERING FIRMS
APPENDIX I TECHNICAL SPECIFICATIONS FOR ELECTRICITY AND
ELECTRIC CAPACITY
APPENDIX J COAL FACILITY
APPENDIX K LIP FACILITY
APPENDIX L TARGET CAPACITY LEVELS AND RELIABILITY
APPENDIX M FORM OF MONTHLY INVOICE
APPENDIX N OUTLINE OF SITE PROCEDURES
APPENDIX O OPERATOR'S PERSONNEL
SCHEDULE I SUMMARY OF CHARGES - INITIAL TERM
SCHEDULE II [RESERVED]
SCHEDULE III OUTSTANDING INVESTMENT AND OPTION PRICE
SCHEDULE IV PRINCIPLES GOVERNING USE BY THIRD PARTIES OF
PJP'S TRANSMISSION AND DISTRIBUTION LINES
SCHEDULE V LETTER AGREEMENT CONCERNING LIP FACILITY
DATED JUNE 20, 1995
SCHEDULE VI TAX INFORMATION AND ASSUMPTIONS
SCHEDULE VII TERMS OF SUBORDINATION
AMENDED AND RESTATED POWER SALES AGREEMENT
This AMENDED AND RESTATED POWER SALES AGREEMENT (as
hereafter amended, modified or supplemented in accordance with
the terms hereof, this "Agreement") is made as of December 18,
1997 between P.T. PUNCAKJAYA POWER, an Indonesian limited
liability company ("PJP"), and P.T. FREEPORT INDONESIA COMPANY,
an Indonesian limited liability company, acting in its individual
capacity and in its capacity as Mine Operator ("PTFI").
WHEREAS, PJP and PTFI entered into a Power Sales
Agreement dated as of December 27, 1994 (the "Original Power
Sales Agreement") pursuant to which PJP has produced and sold to
PTFI and PTFI has purchased from PJP electric capacity and
electricity from the Existing Facilities;
WHEREAS, PTFI is presently conducting exploration,
mining and milling operations as the Mine Operator;
WHEREAS, PJP has agreed to acquire from PTFI and PTFI
has agreed to sell to PJP the New Facilities (as hereinafter
defined), and in connection therewith PJP and PTFI desire to
amend and restate the Original Power Sales Agreement to set forth
the terms upon which PJP will sell to PTFI and PTFI will purchase
from PJP electric capacity and electricity from the Facilities;
and
NOW, THEREFORE, in consideration of the foregoing and
the mutual promises contained herein, the parties agree the
Original Power Sales Agreement is amended and restated in its
entirety as follows:
ARTICLE I
DEFINITIONS AND USAGE
Section 1.01. Definitions. Unless the express terms
of this Agreement shall otherwise provide, capitalized terms used
herein shall have the meanings ascribed to them in Appendix A.
Section 1.02. Usage. This Agreement shall be governed
by the following rules of usage:
(a) References to Persons. A reference herein to a
Person includes, unless the context otherwise requires, its
permitted assignees.
(b) References to Laws. A reference herein to an
Applicable Law includes any Governmental Authority's amendment
to, or modification or written interpretation of, such Applicable
Law.
(c) References to Divisions. A reference herein to an
article, section, exhibit, schedule or appendix is to the
article, section, exhibit, schedule or appendix hereto unless
otherwise indicated.
(d) References to Documents. References to any
document, instrument or agreement (a) shall be deemed to include
all appendices, exhibits, schedules and other attachments
thereto, and (b) shall mean such document, instrument or
agreement, as amended, modified and supplemented from time to
time in accordance with the terms thereof and as the same is in
effect at any given time.
(e) Use of "Herein". Unless otherwise specified, the
words "herein", "hereof", "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision hereof.
(f) Use of "Including". The words "include" and
"including" do not limit the generality of any description
following such term, and, for such purposes, the rule of ejusdem
generis shall not be applicable to limit a general statement,
which is followed by or referable to an enumeration of specific
matters, to matters similar to the matters specifically
mentioned.
Section 1.03. Parties. (a) This Agreement is entered
into by PTFI, acting in its individual capacity and in its
capacity as Mine Operator.
(b) (i) No Person (other than PTFI) that participates
in COW Operations shall have any liability to PJP hereunder for
acts or omissions of PTFI which are outside the scope of actual
authority given by such Person to PTFI.
(ii) If any Person (other than PTFI) that
participates in COW Operations has any liability to PJP
for the acts or omissions of PTFI hereunder, such
liability shall be limited to such Person's Non-PTFI
Proportion of the liability for such act or omission.
"Non-PTFI Proportion" shall mean, with respect to any
Person other than PTFI, that proportion of the costs of
COW Operations which such Person is required to bear in
accordance with arrangements agreed between such Person
and PTFI, with a certificate from such Person as to
that proportion being conclusive for the purposes of
this Agreement.
(c) PTFI shall notify PJP of any other Person which is
participating at any time in COW Operations, including an address
for service of notices on such Person, but no failure to give
notice under this Section 1.03(c) shall constitute an Event of
Default for purposes of Section 16.01(b) or affect any rights of
such Person hereunder.
ARTICLE II
TERM
Section 2.01. Initial Term; Renewal. The term of this
Agreement shall commence on the Closing Date and, if not sooner
terminated pursuant to the terms hereof, shall terminate twenty
years thereafter (such period, the "Initial Term"); provided,
however, that PTFI shall have the option to extend the Initial
Term for up to an additional ten-year period (the "Renewal Term")
upon its delivery to PJP, no earlier than 730 days and no later
than 365 Days prior to the expiration of the Initial Term of a
written notice expressing its desire to extend the Term (as
defined below) by the Renewal Term. PJP shall have the right, if
PTFI shall have exercised its option to extend the Initial Term
for the Renewal Term, to cause PTFI to enter into a second
Renewal Term (the "Second Renewal Term") for an additional ten-
year period.
The Initial Term, the Renewal Term and the Second
Renewal Term shall be hereinafter collectively referred to as the
"Term".
ARTICLE III
SALE AND PURCHASE OF CAPACITY AND ELECTRICITY
Section 3.01. Capacity Supply Obligations. During the
Term, PJP shall, subject to the terms and conditions set forth
herein including, without limitation, Section 3.04 hereof, make
available, sell and deliver to PTFI, and to each Designated
PTFI-Related Entity, at the Interconnection Point for each
Facility (i) electric capacity in an aggregate amount equal to
the Target Capacity Level of such Facility, and (ii) Electricity
required by PTFI and each Designated PTFI-Related Entity at a
rate not exceeding such Target Capacity Level; provided, however,
that PJP shall use commercially reasonable efforts to satisfy
PTFI and each Designated PTFI-Related Entity's demand for
Electricity at the Interconnection Point for any Facility in
excess of its Target Capacity Level subject to Generally Accepted
Practices. PJP shall deliver all electric capacity and
Electricity pursuant to this Section 3.01 in accordance with the
technical specifications set forth in Appendix I.
Section 3.02. Purchase Obligations. Subject to the
following sentence, PTFI shall accept and purchase all of the
electric capacity and Electricity made available by PJP from the
Facilities and delivered to the Interconnection Points in
accordance with the terms hereof. PTFI shall have the right to
require PJP, by communicating such requirement to PJP through
SCADA or otherwise, to curtail or reduce its deliveries of
Electricity to any Interconnection Point whenever PTFI
determines, in its sole discretion, that such curtailment or
reduction is necessary for any reason; provided, however, that
the exercise of such right by PTFI will not diminish PTFI's
obligation to pay the Capacity Charge or the Fixed O&M Charge.
PTFI shall have the right to accept and purchase
electric energy from other sources, for its own use or the use of
any PTFI-Related Entity, only during such times and to such
extent as PJP is unable to satisfy PTFI's requirements for
electric energy and capacity, except as otherwise provided below.
In addition, PTFI shall have the right to produce, through the
use of energy recovered from its mining operations, up to 100 MW
of electric energy and capacity for its own use or the use of any
PTFI-Related Entity; provided, however, that the exercise of such
right by PTFI will not diminish PTFI's obligation to pay the
Capacity Charge or the Fixed O&M Charge. Except as provided in
this paragraph and in Section 3.06, PJP will be the only source
from which PTFI may procure Electricity and electric capacity.
Section 3.03. Risk of Loss. Risk of loss with respect
to all Electricity shall pass to PTFI upon the delivery by PJP of
such Electricity to the Interconnection Points in accordance with
the provisions of Appendix B hereto.
Section 3.04. Third Party Sales. PJP and PTFI agree
that sales of electric energy and capacity to third parties on
reasonable economic terms are to be encouraged on the terms and
conditions set forth herein. PJP shall give PTFI written notice
of any such proposed sale. PJP shall have the right to sell to
third parties electric energy and capacity produced at any of the
diesel generating units comprising the Facilities, including
those situated at the Mill Facility, the LIP Facility, the Port
Site Facility or the Timika Facility if either (a) PTFI consents
to such sale, which consent shall not be unreasonably withheld or
delayed or (b) PJP shall have demonstrated that (i) the proposed
sale will not impair PTFI's priority right to receive Electricity
from such Facility at the Target Capacity Level of such Facility
and (ii) PJP shall have funded any costs associated with such
sales. The exercise by PJP of its rights under this Section 3.04
shall not excuse or reduce PTFI's obligation to make payments in
respect of the Capacity Charge and the O&M Charges. PTFI's
written approval, which shall be at PTFI's sole discretion, shall
be required for the construction of a fourth Coal Unit and shall
be required for any sale by PJP to a third party of electric
energy or capacity produced at the Coal Facility. Unless
otherwise agreed by PTFI, all sales to third parties of electric
energy and capacity from a Facility of like Reliability and term
to the Electricity and capacity sold to PTFI from such Facility
hereunder shall be at prices equal to or higher than the price
charged to PTFI for Electricity and capacity from such Facility.
A term of at least five (5) years shall be deemed to be a "like
term" for purposes of the preceding sentence.
Section 3.05. Adjustments to Target Capacity Levels.
(a)The Target Capacity Level of any Facility shall be adjusted as
set forth below:
(i) when both the first and second Coal Units
have been Completed, the Target Capacity Level of the
Coal Facility shall be established as an amount
expressed in MW equal to the lower of the Unit Rating
of the first Coal Unit and the second Coal Unit, as
determined by the applicable procedures utilized to
determine Completion of such Coal Unit;
(ii) when the third Coal Unit has been
Completed, the Target Capacity Level of the Coal
Facility shall be increased to an amount expressed in
MW equal to the sum of the Unit Ratings of the two Coal
Units which have the lowest Unit Ratings of all three
Coal Units, as determined by the applicable procedures
utilized to determine Completion of such Coal Unit;
(iii) after the third Coal Unit has been
Completed and (x) at such time when the level of
electric demand for those portions of PTFI's Plant
intended to be served by the Coal Facility is such that
PJP may operate all three Coal Units at their Unit
Rating or (y) at PJP's option, at any time after
September 30, 1999, PJP shall conduct a capacity test
of the Coal Facility consisting of the operation of all
three Coal Units at their Unit Rating for a period of
seven consecutive days using procedures mutually
acceptable to PJP and PTFI (with the output corrected
to reflect actual expected conditions and fuel
specifications); provided, however, that if at the time
of such test PTFI's requirements for Electricity and
electric capacity are less than the amounts of
Electricity and electric capacity that the Coal
Facility is capable of generating while operating at
full load, PJP may, with respect to any test conducted
in accordance with clause (y) above, adjust the
procedures used to conduct such test to account for the
fact that the Coal Facility is operating at less than
full load. The Target Capacity Level shall be adjusted
to an amount expressed in MW equal to the sum of the
tested capacity levels of the two Coal Units which have
the lowest of the tested capacity levels of all three
Coal Units, as determined by the test described in the
preceding sentence and the Unit Rating of each Coal
Unit shall be adjusted to such tested capacity level of
such Coal Unit. Each of PJP and PTFI shall have a one-
time right to demand that the capacity test conducted
pursuant to this clause (iii) be readministered.
(iv) when each of the fourth and fifth units of
the LIP Facility has been Completed, the Target
Capacity Level of the LIP Facility shall be increased
by an amount expressed in MW equal to the tested
capacity of each such unit;
(v) upon the completion of any Required
Alteration, the Target Capacity Level of the relevant
Facility shall be adjusted to reflect any change in
PJP's ability to supply Electricity from such Facility
to the relevant Interconnection Point as a result
thereof;
(vi) upon PTFI's exercise of its rights under
Section 3.02 or 3.06 to produce electric energy and
capacity or to accept electric energy or capacity from
other sources, the Target Capacity Level of any
relevant Facility shall be adjusted to reflect any
change in PJP's ability to supply Electricity from such
Facility to the relevant Interconnection Point as a
direct result thereof;
(vii) upon PTFI's exercise of its rights under
Section 5.01 to interconnect PTFI's Plant with the
distribution and transmission lines of power suppliers
other than PJP (whether directly or indirectly by means
of interconnecting through PJP's transmission and
distribution lines), the Target Capacity Level of any
relevant Facility shall be adjusted to reflect any
change in PJP's ability to supply Electricity from such
Facility to the relevant Interconnection Point as a
direct result thereof;
(viii)upon PTFI's and PJP's establishment of
mutually agreeable terms and conditions relating to the
supply by PJP of additional electric capacity pursuant
to Section 3.06, the Target Capacity Level of the
relevant Facility shall be adjusted to reflect such
agreement; and
(ix) the Target Capacity Levels of the LIP
Facility and Power Plant C are subject to adjustment in
accordance with the Letter Agreement.
The Target Capacity Level of a Facility (other than the Coal
Facility) will be reduced by the Unit Rating of any unit of such
Facility which is taken out of service at the end of its useful
life. A unit (other than a Coal Unit) will be deemed to have
reached the end of its useful life upon achieving 120,000 hours
of operation, unless a test to be conducted upon a unit having
achieved such hours of operation indicates that such unit is
capable of additional hours of reliable operation on a cost
effective basis. The useful life of Power Plant A, and each
other unit which is continuing in service after having achieved
120,000 hours of operation, will be assessed on a year-by-year
basis. The adjustments to the Target Capacity Levels of the Coal
Facility described in clauses (i) and (ii) of this Section
3.05(a) shall not be effective until (a) the Coal Dock is
functionally complete and capable of receiving shipments of coal
on a continuous basis in amounts sufficient to operate the Coal
Facilities at the relevant adjusted Target Capacity Level and (b)
the New Transmission Line is functionally complete and capable of
continuously transmitting electricity at a rate equal to the
relevant adjusted Target Capacity Level. Notwithstanding the
timing of the establishment of or adjustment to the Target
Capacity Level of the Coal Facility in accordance with this
Section 3.05(a), for any period prior to January 1, 2000, for
purposes of assessing Curtailment Hours and Major Unexcused
Outages, the Target Capacity Level of the Coal Facility shall be
zero.
If as a result of any Change in Law the output of any
Facility is curtailed, the Target Capacity Level for such
Facility shall, during the period of such curtailment, be reduced
to reflect such curtailed output.
(b) Except as provided in clauses (a)(i), (ii), (iii),
(iv) or (x) above, PJP and PTFI shall make good faith efforts to
reach agreement on any proposed adjustment to a Target Capacity
Level pursuant to clauses (a)(v) through (ix). If PTFI and PJP
are unable to reach agreement within thirty (30) Days after any
adjustment in Target Capacity Level is proposed by either party,
the issue shall be submitted for resolution pursuant to Section
19.07.
(c) With respect to any adjustment of the Target
Capacity Level of any Facility pursuant to this Section 3.05,
such Target Capacity Level shall be adjusted so as to preserve
the Reliability (as described in Appendix L) applicable to the
Facilities.
Section 3.06. Additional Capacity Requirements by
PTFI. If PTFI shall require on an ongoing basis additional
electric capacity that PJP is not obligated to provide hereunder,
PTFI shall notify PJP of such need. PTFI and PJP shall negotiate
in good faith to establish mutually-agreeable terms and
conditions relating to the supply by PJP of such additional
electric capacity, including adjustments to the pricing and
operating parameters (including, without limitation, measures of
Reliability and Target Capacity Level as further described in
Appendix L), and the schedule for implementation of such supply
of additional electric capacity. If within 90 days of PJP's
receipt of PTFI's notification PJP and PTFI shall not have
reached agreement on such terms and conditions, PTFI shall have
the right to procure such additional electric capacity from other
sources.
ARTICLE IV
SUPPLY OF FUEL
Section 4.01. Obligation to Supply Diesel Fuel. PTFI
shall be obligated to deliver, or cause to be delivered, to PJP,
Diesel Fuel as provided in the Restated Services Agreement.
Section 4.02. Assignment of Coal Supply Agreement.
PTFI hereby assigns, contemporaneously with the execution and
delivery hereof, to PJP all of its right, title and interest in
and to the Coal Supply Agreement. Notwithstanding such
assignment, PTFI shall bear the risk of any failure by PT Kaltim
Prima (or by any other supplier under a Coal Supply Agreement) to
deliver Coal for use in the Coal Facility; provided that (i) PTFI
shall have no risk as to any failure by PT Kaltim Prima (or any
other supplier under a Coal Supply Agreement) to deliver Coal
when such failure to deliver results from PJP's own Fault or
Breach (excluding a PJP Breach under the Coal Supply Agreement
resulting from PTFI's failure to make payments due hereunder) and
(ii) PJP shall not be liable for the payment of any Penalty to
the extent attributable to a failure of the coal supplier to
deliver Coal meeting the specifications set forth in the Coal
Supply Agreement unless such failure results from PJP's own Fault
or Breach (excluding a PJP Breach under the Coal Supply Agreement
resulting from PTFI's failure to make payments due hereunder).
PJP shall not be deemed to be in breach of this Agreement during
any period in which it is unable to supply Electricity and
capacity from the Coal Facility at the levels required by PTFI as
a result of such failure to deliver Coal, no Curtailment Hours
shall accrue during such period and any such period shall be
excluded from any calculation of the Availability of the Coal
Facility for purposes of Schedule I hereto, unless PJP's
inability to supply such Electricity or capacity is a result of
its own Fault or Breach (excluding a PJP Breach under the Coal
Supply Agreement resulting from PTFI's failure to make payments
due hereunder).
ARTICLE V
COORDINATION OF PTFI'S PLANT AND FACILITIES
Section 5.01. Additional PTFI Interconnections. At
any time during the Term, PTFI shall have the right at its sole
cost and expense, upon at least one hundred eighty (180) Days'
prior written notice to PJP, to interconnect PTFI's Plant with
the distribution and transmission lines of PTFI or power
suppliers other than PJP (whether directly or indirectly by means
of interconnecting through PJP's transmission and distribution
lines); provided, however, that in the case of any such
interconnection through PJP's transmission and distribution
lines, PTFI or any such power supplier shall have entered into an
agreement with PJP regarding its right to use PJP's transmission
and distribution lines in accordance with the principles set
forth in Schedule IV hereto. In the event that PTFI exercises
its right pursuant to this Section 5.01 to interconnect PTFI's
Plant to PTFI's or other power suppliers' transmission or
distribution lines, PTFI shall pay all reasonable engineering,
capital and operating costs, if any, incurred by PJP as a result
thereof and take such other action, at its sole cost, as is
necessary to prevent any material interference by such
transmission or distribution lines with the ability of the
Facilities to operate in accordance with the terms hereof.
Section 5.02. Scheduling of Capacity Delivery. In the
absence of contrary notification by PTFI, PJP shall assume that
PTFI (together with any Designated PTFI-Related Entity) requires,
and PJP shall operate and maintain each Facility so as to make
available to PTFI or any Designated PTFI-Related Entity at the
relevant Interconnection Point as set forth in Appendix B hereto,
electric capacity and Electricity at the Target Capacity Level of
such Facility. PTFI shall, from time to time, notify PJP in
writing of the period during which PTFI will make material
alterations to its mining, mill processing or other operations,
which alterations it expects will result in electric capacity
requirement adjustments to the extent that PTFI desires that PJP
perform maintenance during the period of such reduced capacity
requirements. PJP shall perform maintenance to the extent
commercially practicable during any such designated period. No
Additional Output Bonuses or Curtailment Penalties shall be due
with respect to (i) the period of time specified in such notice
and (ii) provided that PJP has initiated startup of the Coal
Facility prior to the conclusion of the period of time specified
in such notice, the 24-hour period of time commencing immediately
following tthe conclusion of the period of time specified in such
notice.
Section 5.03. Use of Coal Dock. PJP hereby grants
PTFI the right to enter on to and use the Coal Dock located at or
near the Coal Facility for the purpose of loading and unloading
PTFI's ore concentrate products and/or Diesel Fuel during any
period during which PTFI's facilities normally used for such
purpose cannot be used. PJP shall not be obligated to make the
Coal Dock available to PTFI during any time when PJP is not
required to provide Electricity or electric capacity to PTFI due
to an Event of Default attributable or relating to PTFI. PJP
shall not be deemed to be in breach of this Agreement during any
period in which PJP is not able to operate the Coal Facility at
its Target Capacity Level as a result of PTFI's use of such Coal
Dock, no Curtailment Hours shall accrue during such period and
such period shall be excluded from any calculation of
Availability of the Coal Facility for purposes of Schedule I
hereto. PTFI shall pay or reimburse PJP for any costs incurred
by PJP as a result of the exercise by PTFI of its right to use
the Coal Dock.
ARTICLE VI
METERING
Section 6.01. Ownership and Maintenance. PJP shall
install, own and maintain one or more Meters to be located,
respectively, on PJP's side of each Interconnection Point to
determine accurately the kilowatt hours of Electricity delivered
to such Interconnection Point. The Meters shall be used as the
basis for billing for Electricity. All Meters shall be sealed to
the extent reasonably practicable. PTFI may install at its sole
cost and expense check meters on its side of each Interconnection
Point.
Section 6.02. Testing of Meters. PJP shall on an
annual basis inspect and test each Meter, and if any Meter
registers inaccurately by more than the Applicable Meter
Precision, PJP shall recalibrate each such inaccurate Meter. PJP
shall provide PTFI reasonable prior notice of, and PTFI shall
have the right to be present during, any occasion when PJP
cleans, changes, repairs, inspects, tests, calibrates or adjusts
a Meter hereunder, or intentionally breaks a seal on any Meter.
PTFI may, at its expense, cause the Meters to be inspected at
more frequent intervals.
Section 6.03. Adjustments for Inaccuracy (a) If any
Meter is out of service, measurement shall be determined by: (i)
a check meter installed by PTFI, if registering accurately at or
within the Applicable Meter Precision or (ii) in the absence of
any such accurately registering check meter, an estimate made by
PJP by reference to quantities measured by such Meter during
periods when the relevant Facility was operating at similar
levels and under similar conditions and the Meter in question was
registering accurately at or within the Applicable Meter
Precision. If PTFI disagrees with the estimate made by PJP and
the parties are not able to amicably resolve such disagreement,
then the issue shall be submitted for resolution pursuant to
Section 19.07.
(b) If, upon testing, a Meter is found to be
registering inaccurately by more than the Applicable Meter
Precision, measurement shall be determined by: (i) a check meter
installed by PTFI, if registering accurately at or within the
Applicable Meter Precision; (ii) in the absence of any such
accurately registering check meter and if upon a calibration test
of the Meter in question a percentage error is ascertainable, by
the amount measured by such Meter as adjusted to reflect such
percentage error; or (iii) in the absence of any such accurately
registering check meter or an ascertainable percentage of error,
an estimate made by PJP by reference to quantities measured by
such Meter during periods when the relevant Facility was
operating at similar levels and under similar conditions and the
Meter in question was registering accurately. If no reliable
information exists as to the period over which such Meter
registered inaccurately by an amount greater than the Applicable
Meter Precision, it shall be assumed for correction purposes
hereunder that such inaccuracy began at the later of (x) the
point in time midway between the testing date and the last
previous date on which such Meter's measurement was tested and
found to be registering accurately at or within the Applicable
Meter Precision and (y) the date one (1) year prior to the
testing date in question. Upon completion of such calibration
test such Meter shall be promptly adjusted, if so required, to
register accurately. If PTFI disagrees with the estimate made by
PJP and the parties are not able to amicably resolve such
disagreement, then this issue shall be submitted for resolution
to Section 19.07.
(c) If, in accordance with paragraph (b) above, a
Meter's measurement is found to register inaccurately by an
amount equal to or less than the Applicable Meter Precision, any
previous readings of such Meter submitted by PJP or PTFI before
such test shall be considered accurate. If, in accordance with
paragraph (b) above, a Meter's measurement is found to register
inaccurately by an amount greater than the Applicable Meter
Precision, any reading of such Meter since the previous test
thereof shall be adjusted to reflect the corrected measurements
determined pursuant to subsection (b) above. After making such
adjustments, any previous payment made by PTFI or PJP on the
basis of such reading shall be compared to the amount of such
payment as adjusted to reflect such reading as adjusted in
accordance with the preceding sentence, and the difference shall
be credited toward or added to the next payment or payments due
either party hereunder, as appropriate; provided that no payment
adjustment to be made under this paragraph (c) shall be made with
respect to the Debt Component of the Capacity Charge.
ARTICLE VII
BILLING AND PAYMENT
Section 7.01. (a) Billing. Throughout the Initial
Term, PTFI shall pay to PJP the amounts described in and
calculated in accordance with Schedule I hereto. Such amounts
shall be invoiced and shall be payable in accordance with
Schedule I and Appendix M hereto. It is the intent of the
parties to minimize PJP's working capital requirements, and the
timing of payments from PTFI to PJP hereunder (other than the
Capacity Charge) will be adjusted by mutual agreement as
necessary to ensure that funds are available to PJP to pay, when
due, operating costs contemplated hereby (excluding operating
costs relating to third party sales), and that excess working
capital funds are not unnecessarily retained by PJP. Throughout
the Renewal Term, PTFI shall pay PJP for Electricity and electric
capacity a price comprised of (i) an equity component to the
extent there remains Outstanding Investment and a debt service
component to the extent there remains Debt of PJP from the
Initial Term (other than Outstanding Investment or Debt allocable
to sales of electricity or electric capacity to third parties);
(ii) a fixed operation and maintenance charge and a variable
operation and maintenance charge (each as defined in Schedule I
hereto); (iii) a charge to fully reimburse PJP for the delivered
cost of fuel for the Facilities; and (iv) an additional amount
equal to the lesser of (x) U.S.$1,500,000 per annum (1998
Dollars, escalated each January 1, commencing January, 1999, by
the following renewal indices: 50% by the GDP Deflator, 33% by
the Copper Deflator and 17% by the Gold Deflator) and (y)
U.S.$0.001 per KWH (1998 Dollars, escalated each January 1,
commencing January, 1999, by the following renewal indices: 50%
by the GDP Deflator, 33% by the Copper Deflator and 17% by the
Gold Deflator). Throughout the Second Renewal Term, PTFI shall
pay PJP for Electricity and electric capacity an amount that is
equivalent to the then fair market value thereof as determined,
prior to the commencement of the Second Renewal Term, by an
independent appraiser to be appointed by PTFI with the reasonable
consent of PJP. The appraiser shall be instructed to assume that
fair market value is the equivalent of service fees paid by
service recipients with respect to similar facilities in similar
geographic localities.
(b) Capacity Charge. Throughout the Initial Term, the
Capacity Charge and Fixed O&M shall not vary according to the
amount of Electricity or electric capacity made available by PJP
or of Electricity taken by PTFI and shall be subject to
adjustment only in accordance with the express terms hereof.
Throughout the Renewal Term, the Capacity Charge and Fixed O&M
Charge will be paid in a manner as agreed by the parties.
Section 7.02. Disputed Payment. PTFI shall make each
payment calculated and invoiced by PJP in accordance herewith
when due, regardless of whether PTFI disputes the amount of such
statement or invoice. Any dispute regarding the amount of any
payment payable by either party hereunder shall be resolved
pursuant to the procedures set forth in Article 19. In the event
that it is determined through such procedures that either PTFI or
PJP is entitled to an adjustment in the amount previously paid,
the amount of such adjustment, together with interest thereon at
the Default Interest Rate from the date of payment of such
invoice until repaid, shall be paid in full in the currency in
which the disputed payment was originally made (i) in a lump sum
or (ii) at PJP's option, (A) during the Term (other than the last
Contract Year) in equal adjustments to the next four payments of
the Equity Component of the Capacity Charge due from PTFI to PJP
or (B) during the last Contract Year of the Term, in equal
adjustments to the remaining monthly payments payable by PTFI
prior to the expiration of the Term or earlier termination of
this Agreement. Payments to be made by PJP under this Section
7.02 shall be subordinated to payments to Senior Secured Lenders
and shall be payable only from and to the extent of amounts
otherwise available to PJP, pursuant to the terms of the
Financing Documents, for the payment of dividends. Interest
shall accrue at the Default Interest Rate on any such payments
which PJP has failed to make when due. This Section 7.02 shall
survive the expiration of the Term or earlier termination of this
Agreement.
Section 7.03. Change in Law Adjustments. (a) If any
Change in Law shall result in an increase or decrease in the cost
to PJP of operating and/or maintaining the Facilities (other than
to the extent such increases or decreases are allocable to sales
of electricity or electric capacity to third parties), then the
Capacity Charge, the Fixed O&M Charge, the Variable O&M Charge
and/or the Fuel Charge, as the case may be, shall be equitably
adjusted to reflect such increase or decrease. PJP and PTFI
shall make good faith efforts to agree on an equitable adjustment
("CIL Adjustment") to the components of the Capacity Charge, the
Fixed O&M Charge, the Variable O&M Charge and/or the Fuel Charge,
as the case may be, such that, after giving effect to such CIL
Adjustment, PJP will be in the same financial position (except to
the extent of any amounts borne by PJP pursuant to Section
7.03(d)) that it would have been had such Change in Law not
occurred; provided that no such CIL Adjustment or Tax Adjustment
(as defined in Section 7.03(b)) shall result in a reduction of
the Debt Component of the Capacity Charge (other than with
respect to any reduction in withholding taxes or similar amounts
included in the Debt Component of the Capacity Charge). If PJP
and PTFI, after making good faith efforts, are unable to agree on
a CIL Adjustment within thirty (30) days after any adjustment is
proposed by either party, the issue shall be submitted for
resolution pursuant to Section 19.07.
(b) If any Change in Law shall result in an increase
or decrease in the Indonesian Taxes payable by PJP (other than to
the extent such increases or decreases are allocable to sales of
electricity or electric capacity to third parties), then, in each
case, the Capacity Charge, the Fixed O&M Charge, the Variable O&M
Charge and/or the Fuel Charge, as the case may be, shall be
equitably adjusted to reflect such increase or decrease. PJP and
PTFI shall make good faith efforts to agree on an equitable
adjustment ("Tax Adjustment") to the components of the Capacity
Charge, the Fixed O&M Charge, the Variable O&M Charge and/or the
Fuel Charge, as the case may be, such that, after giving effect
to such Tax Adjustment, PJP will be in the saame financial
position (except to the extent of any amounts borne by PJP in
accordance with Section 7.03(d)), that it would have been had
such assumption or inaccuracy or Change in Law not occurred;
provided, that the Tax Adjustment with respect to interest on
Subordinated Loans, dividends and profits will be computed for
the Hypothetical Taxpayer with respect to its financial position
as presented in the Closing Model. If PJP and PTFI, after making
good faith efforts, are unable to agree on an adjustment within
thirty (30) days after an adjustment is proposed by either party,
the issue shall be submitted for resolution pursuant to Article
19, excluding Section 19.07.
(c) PJP shall use reasonable efforts to minimize the
detrimental effect to PTFI of any Change in Law on the Capacity
Charge, the O&M Charge and the Fuel Charge.
(d) (i) Subject to subparagraph (iii) of this Section
7.03(d), for each Change in Law PJP shall bear the first $100,000
of any increase in (x) the cost to PJP of operating and/or
maintaining the Facilities or (y) the Indonesian Taxes payable by
PJP, and PJP shall not be entitled to a CIL Adjustment or Tax
Adjustment in respect of such amount(s). For each Change in Law,
any increase in (1) the cost to PJP of operating and/or
maintaining the Facilities or (2) the Indonesian Taxes payable by
PJP, which is in excess of amount(s) borne by PJP pursuant to the
preceding sentence, shall result in a CIL Adjustment and/or Tax
Adjustment, as the case may be, to reflect such increased cost
and/or Indonesian Taxes payable; provided that no such CIL
Adjustment or Tax Adjustment shall result in a reduction of the
Debt Component of the Capacity Charge (other than with respect to
any reduction in withholding taxes or similar amounts included in
the Debt Component of the Capacity Charge).
(ii) Subject to subparagraph (iv) of this
Section 7.03(d), for each Change in Law (A) PJP shall
retain the benefit of the first $100,000 of any
decrease in (x) the cost to PJP of operating and/or
maintaining the (y) the Indonesian Taxes
payable by PJP, (B) PTFI shall continue to pay the
Capacity Charge, the O&M Charge and the Fuel Charge as
set forth in Schedule I hereto and (C) PTFI shall not
be entitled to a CIL Adjustment or Tax Adjustment in
respect of such amount(s). For each Change in Law, any
decrease in (1) the cost to PJP of operating and/or
maintaining the Facilities or (2) the Indonesian Taxes
payable by PJP, which is in excess of $100,000 (subject
to subparagraph (iv) below), shall result in a CIL
Adjustment and/or Tax Adjustment, as the case may be,
to reflect such decreased cost and/or decrease in (or
refund of) Indonesian Taxes.
(iii) At any time when PJP has borne in the
aggregate (x) $1,000,000, during the Initial Term, and
(y) $250,000, during the Renewal Term, of (A) increased
operating and maintenance costs resulting from Changes
in Law, (B) increased Indonesian Taxes resulting from
Changes in Law and (C) Life Cycle Costs, PJP shall be
entitled to CIL Adjustments and/or Tax Adjustments for
all subsequent (1) increases in the cost to PJP of
operating and/or maintaining the Facilities or in the
Indonesian Taxes payable by PJP, which result from a
Change in Law, and (2) Required Alterations. Solely
for purposes of calculating the maximum aggregate
amount which PJP is required to bear (without receiving
the benefit of a CIL Adjustment or Tax Adjustment)
pursuant to the preceding sentence, amounts borne by
PJP pursuant to subparagraph (i) of this Section
7.03(d) and subparagraph (ii) of Section 7.03(e) shall
be offset by amounts of decreases in respect of which
PJP retains the benefit pursuant to subparagraph (ii)
of this Section 7.03(d).
(iv) At any time when PJP has retained the
benefit of, and PTFI has borne, and has not received a
CIL Adjustment and/or Tax Adjustment for, in the
aggregate (x) $1,000,000, during the Initial Term, and
(y) $250,000, during the Renewal Term, of (A) decreased
operating and maintenance costs resulting from Changes
in Law and (B) decreased (or refunded) Indonesian Taxes
resulting from Changes in Law, PTFI shall be entitled
to CIL Adjustments and/or Tax Adjustments for all
subsequent decreases in (1) the cost to PJP of
operating and/or maintaining the Facilities or (2) the
Indonesian Taxes payable by PJP, which result from a
Change in Law. Solely for purposes of calculating the
maximum aggregate amount which PTFI is required to bear
(without receiving the benefit of a CIL Adjustment or
Tax Adjustment) pursuant to the preceding sentence,
amounts of decreases retained by PJP pursuant to
subparagraph (ii) of this Section 7.03(d) shall be
offset by amounts which PJP is required to bear
pursuant to subparagraph (i) of this Section 7.03(d)
and subparagraph (ii) of Section 7.03(e).
(e) Required Alterations. (i) PJP or PTFI shall
give notice to the other party of any Alteration that is required
by any Governmental Authority or by operation of any Governmental
Action pursuant to Applicable Law (a "Required Alteration") which
notice shall include in reasonable detail a description of the
Required Alteration and the projected Alteration Costs thereof.
PTFI shall, within thirty (30) Business Days of having given or
received such notice, either (x) consent to such Required
Alteration and elect to provide for the payment or financing,
which financing shall be in compliance with the terms of the
Financing Documents, of the Alteration Costs of such Required
Alteration as provided in paragraph (ii) of this Section 7.03(e)
or (y) propose to PJP that such Required Alteration be deferred
or not be performed, which proposal shall be accompanied by
proposed amendments hereto to either relieve PJP of, or
compensate PJP for, the increased risks to PJP of deferring or
not performing such Required Alteration. PJP shall consider
PTFI's proposal in good faith, provided, however, that PJP shall
not be required to defer or forego taking any action necessary to
prevent a violation of Applicable Law, in which case the
foregoing clause (x) shall apply. Any dispute as to PTFI's
proposal shall, at either party's request, be submitted to
technical dispute resolution in accordance with Section 19.07.
(ii) PTFI shall elect, within thirty (30)
Business Days of receipt or delivery of a notice of a
Required Alteration (or within fifteen (15) Business
Days following resolution of any matter described in
the last sentence of subparagraph (i) of this Section
7.03(e) that results in the making of a Required
Alteration), as the case may be, to (A) pay directly
the Life Cycle Costs of such Required Alteration (to
the extent not required to be paid by PJP as provided
below and to the extent not otherwise paid by PTFI), or
(B) agree to such modifications to the payments to be
made by PTFI hereunder as shall permit the financing,
which financing shall be in compliance with the terms
of the Financing Documents, of the Life Cycle Costs of
such Required Alteration (excluding any Life Cycle
Costs paid by PTFI pursuant to clause (A) above),
including a mutually acceptable return of and on any
investment made by Shareholders in respect thereof;
provided, however, that PJP shall bear the first
$100,000 of Life Cycle Costs in respect of each
Required Alteration. PTFI shall have no obligations
under this Section 7.03(e) to the extent that a
Required Alteration is attributable to any third party
sale. Upon termination of this Agreement, PTFI's
obligation to pay the Life Cycle Costs shall terminate.
(f) Notwithstanding the separate limits specified in
Sections 7.03(d)(iii) and (iv) and 7.03(e)(ii), it is understood
and agreed that the aggregate amount of costs borne, or benefits
retained, by PJP with respect to all CIL Adjustments, Tax
Adjustments and Life Cycle Costs in the aggregate shall be
limited to $1,000,000 during the Initial Term, and $250,000
during the Renewal Term, after giving effect to the offsetting
described in subparagraphs (d)(iii) and (iv) above, and once the
applicable limit has been reached, PJP or PTFI, as the case may
be, shall be entitled to CIL Adjustments, Tax Adjustments and
adjustments for Required Alterations without further limitation.
Section 7.04. Adjustments to Closing Model. The
Capacity Charge, as set forth in Section 1.2 of Schedule I hereto
has been calculated based in part on the assumptions set forth in
Schedule VI hereto. If the inaccuracy of any of the assumptions
set forth in Schedule VI hereto with respect to Indonesian Taxes
or tax attributes shall result in an increase or decrease in
Indonesian taxes payable by PJP (other than to the extent such
increases or decreases are allocable to sales of electricity or
electric capacity to third parties) or United States taxes
payable by the Shareholders (as assumed in the Closing Model),
then the Closing Model shall be amended to correct any
inaccuracies set forth therein and the Tax Gross-Up shall be
equitably adjusted to maintain the Closing Model's original
project internal rate of return (i.e. 16.65%), with differences
in prior period payments being subject to interest at the Default
Interest Rate.
ARTICLE VIII
OPERATION AND MAINTENANCE
Section 8.01. Operation. PJP shall operate, or cause
to be operated, the Facilities in accordance with Generally
Accepted Practices, the Site Procedures and Applicable Law and in
a manner which will not unreasonably or materially interfere with
the operation of PTFI's Plant. PJP shall not use or occupy, or
permit any portion of PJP's Site or the Facilities to be used or
occupied, in violation of any Applicable Law, or in any manner or
for any business or purpose that would constitute a nuisance.
PTFI shall, at its sole cost and expense, provide, maintain and
operate throughout the Term, in accordance with Generally
Accepted Practices and Applicable Laws, all interconnection and
other related electrical and fuel Equipment on its side of the
Interconnection Points and Diesel Fuel Interconnection Points to
the extent necessary to enable PJP to perform its obligations
hereunder and to operate the Facilities in accordance with
Generally Accepted Practices, the Site Procedures and Applicable
Law.
Section 8.02. Maintenance. PJP shall maintain, or
cause to be maintained, PJP's Site and the Facilities in good
condition and repair, normal wear and tear excepted, and in
accordance with Generally Accepted Practices and Applicable Law.
Without limiting the foregoing, PJP shall use commercially
reasonable efforts to maintain the Facilities so as to enable it
to perform its obligations hereunder and to operate the
Facilities in accordance with Generally Accepted Practices, the
Site Procedures and Applicable Law.
Section 8.03. Certain Operating Matters. Without
limiting the generality of Section 8.01 or Section 8.02, PJP's
operation and maintenance responsibilities shall include the
following:
(a) Site Procedures. Within 180 days after
achievement of the Completion Criteria for the third Coal Unit,
PJP shall prepare and deliver to PTFI detailed site procedures
substantially as outlined in Appendix N (the "Site Procedures"),
which procedures shall be (i) in accordance with all Applicable
Laws and Aplicable Permits and (ii) in accordance with Generally
Accepted Practicess.
(b) Operator's Personnel. PJP's organization
structure for operating and maintenance of the Facilities is set
forth in Exhibit O. PTFI shall be entitled to rely on the
authority of the General Manager to act on behalf of and commit
PJP in regard to matters involving day to day operation and
maintenance of the Facilities hereunder. PJP shall notify PTFI
of any material amendments, supplements or modifications to such
Exhibit O.
PJP shall cause to be present at each Facility at all
times at least one representative, who shall be qualified and
authorized to direct the operation and maintenance of such
Facility.
PJP shall provide and employ in connection with the
operation and maintenance of the Facilities (i) professional and
technically competent key personnel; (ii) qualified, skilled and
experienced supervising engineers and technical assistants to
provide functional direction of the performance of such
activities; and (iii) such skilled, semi-skilled and unskilled
labor as necessary for the proper operation and maintenance of
the Facilities.
(c) Reports. PJP shall orally advise PTFI of the
cause and expected duration of any Unexcused Outage that causes
PTFI to curtail its mining or mill processing operations or
shipping operations at PTFI's Site as soon as possible after its
occurrence. Within 10 days after the conclusion of any Unexcused
Outage, PJP shall deliver a report to PTFI describing the nature
of the Unexcused Outage and detailing any remedial measures
undertaken to correct such Unexcused Outage and to minimize
future Unexcused Outages.
(d) Outages. PJP shall provide, annually with
quarterly updates, notice to PTFI of any scheduled outage of a
Facility to occur during the period covered by such notice. PJP
shall use reasonable efforts to coordinate scheduled outages of
the Facilities with scheduled downtime or periods of diminished
operation of PTFI's Plant.
(e) Safety. Within 180 days after achievement of the
Completion Criteria for the third Coal Unit, PJP shall establish
and provide PTFI with a copy of a written program designed to
allow operation and maintenance of the Facilities in a safe
manner and in accordance with Generally Accepted Practices (the
"Safety Program"). PJP shall conduct its operations in
accordance with all Applicable Laws relating to safety and in
accordance with the Safety Program.
ARTICLE IX
ALTERATIONS TO THE FACILITIES
Section 9.01. Alterations to the Facilities by PJP.
PJP shall notify PTFI of PJP's intention to make or cause to be
made any Alteration, which notice shall state whether, in PJP's
opinion, the failure to make such Alteration would have a
material adverse effect on PJP's ability to perform its
obligations hereunder. If PTFI reasonably determines that such
Alteration would have a material adverse effect on PTFI's
operations or the operations of any PTFI-Related Entity at PTFI's
Site, then PTFI may object to PJP's making such Alteration by
notifying PJP in writing of such determination, describing the
reasons for such determination within thirty (30) days of such
notice. If, in PJP's reasonable judgment, PJP's failure to make
such Alteration would result in a material adverse effect on
PJP's ability to perform its obligations hereunder, and PTFI has
notified PJP of its objection to such Alteration pursuant to the
preceding sentence, the matter shall, at PJP's request, be
submitted to technical dispute resolution in accordance with
Section 19.07. If the Independent Engineer determines that the
failure to make such Alteration would result in a material
adverse effect on PJP's ability to perform its obligations
hereunder, then, subject to the immediately succeeding sentence,
PJP shall be permitted to make such Alteration and shall not be
liable for any Penalties otherwise payable by PJP during the
pendency of such determination. Notwithstanding (i) an agreement
by PTFI or (ii) a determination in accordance with Section 19.07
that PJP's failure to make an Alteration would have a material
adverse effect on PJP's ability to perform its obligations
hereunder, PTFI may propose to PJP that such Alteration be
deferred or not performed, which proposal shall be accompanied by
proposed amendments hereto to either relieve PJP of, or
compensate PJP for, the increased risk of PJP deferring or not
performing such alteration. PJP shall consider PTFI's proposal
in good faith. Any dispute as to PTFI's proposal shall, at
either party's request, be submitted to technical dispute
resolution in accordance with Section 19.07. PJP agrees that,
except with respect to Required Alterations, PJP shall bear all
Alteration Costs and related ownership, management, operation and
maintenance costs without requesting any increase in payments
from PTFI.
Nothing in this Section 9.01 shall be deemed to limit,
or construed as limiting, PJP's ability to make emergency
Alterations, without giving prior notice to PTFI, the failure of
which to make in a timely manner would have a material adverse
effect on PJP's ability to perform its obligations hereunder.
PJP shall notify PTFI in writing within 10 days of having made
any such emergency Alteration.
ARTICLE X
INSURANCE; DAMAGE AND DESTRUCTION; EXPROPRIATION
Section 10.01. PJP's Insurance Coverage.
(a) During the Term, PJP shall maintain with respect
to PJP's Site, the Facilities and the operation, maintenance,
management, repair, replacement, alteration and removal thereof
the following insurance coverage:
(i) Property insurance written in all risk
form, including coverage for earthquakes (subject to
availability on commercially reasonable terms) and
floods and boiler and machinery insurance, in amounts
not less than the full replacement cost of the
Facilities, including any increase in such replacement
costs. During the performance of any construction work
on PJP's Site, such insurance shall be in builder's
risk completed value form, or such other form as is
reasonably acceptable to the parties.
(ii) Business interruption insurance covering
actual business interruption loss sustained and
expediting expense for a period of at least one year.
(iii) Commercial general liability insurance
written on an occurrence basis and including coverage
for premises operations, contractual liability, broad
form property damage and independent contractors, in
the amount of at least $1,000,000 combined single
limits
(iv) If and for so long as PJP has any employees
(including non-Indonesian nationals) based at PJP's
Site, (x) Jamsostek as required by Indonesian law for
PJP's Indonesian employees, (y) worker's compensation
insurance with statutory limits and employer's
liability in the amount of $1,000,000 for any PJP
employee hired in the United States, and (z) other
similar coverage which may be required by law in the
country where any other expatriate employee of PJP is
hired.
(v) Automobile liability insurance, including
all owned, non-owned and hired vehicles, in the amount
of at least $1,000,000.
(vi) Excess liability umbrella insurance with
respect to liabilities covered by the insurance
required pursuant to clauses (iii) and (v) above, in
the amount of at least $25,000,000.
Notwithstanding the provisions of subparagraph (a) of
this Section 10.01, PTFI shall provide or, at its sole
discretion, cause to be provided, in accordance with the Restated
Services Agreement, the coverages specified in Section
10.01(a)(i) and 10.01(a)(ii) above. During any period of time
when PJP is unable to operate any part of the Facilities due to
PTFI's failure to provide, or cause to be provided, the coverage
specified in Section 10.01(a)(i), such period of time shall not
be included for purposes of calculating Unexcused Outages or
Availability. In the event PTFI is unable to provide, or cause
to be provided, the coverage specified in Section 10.01(a)(i),
PJP may obtain such insurance through alternative means, the cost
of which shall be borne by PTFI through the Pass-through O&M
Charge in accordance with Schedule I hereto.
(b) PJP shall carry all insurance required in Section
10.01(a)(iii), 10.01(a)(iv), 10.01(a)(v) and 10.01(a)(vi) above
with one or more good and solvent insurance companies licensed to
do business in Indonesia and reasonably satisfactory to PTFI,
shall endorse such insurance to (x) name PTFI as an additional
named insured thereunder and (y) provide that such insurance is
primary, without any right of contribution of or from any other
insurance carried by PTFI, and shall have a self insured
retention of no less than $50,000 per occurrence. In addition,
all insurance required under Section 10.01(a) shall be endorsed
to provide that such insurance shall not be cancelled, reduced in
amount or changed in any manner that affects the interest of PTFI
without the insurer having first provided written notice to PTFI
at least thirty (30) Days prior to any such change becoming
effective. PJP shall effect such changes in the form (but not
the amount or type) of such policies required pursuant to the
preceding paragraph as are typical for projects of this type,
provided such changes are commercially available at reasonable
rates. PJP shall not assign its interests in any insurance
policy (or any part or parts thereof) which PJP is required to
maintain under this Section, including the right to receive any
proceeds therefrom, except to a Senior Secured Lender. Any
coverage amounts specified in clauses (iii), (iv), (v) and (vi)
of the preceding paragraph shall be adjusted on each fifth
anniversary of the Closing Date by the GDP Deflator.
Section 10.02. Evidence of Coverage. On or before the
Closing Date and, thereafter, at least thirty (30) Days prior to
the expiration date of any such policies, PJP shall furnish PTFI
with a certificate evidencing or, if requested by PTFI, a
duplicate original or agent certified copy of, all insurance
policies PJP is required to maintain hereunder. PTFI shall
furnish PJP with a certificate evidencing or, if requested by
PJP, a duplicate original or agent certified copy of, all
insurance policies PTFI is required to provide or cause to be
provided hereunder.
Section 10.03. Waiver of Subrogation; Release. PTFI
and PJP each hereby release the other, each PTFI-Related Entity
and the officers, agents, Affiliates, commissioners, directors,
shareholders, employees and assignees of any of them from any and
all liability to the other or anyone claiming through or under
them by way of subrogation or otherwise, for any loss or damage
to the releasing party's property caused by any casualty insured
under insurance policies maintained by the releasing party to the
extent of the insurance proceeds received by PTFI or PJP,
respectively, even if such loss or damage results from the
negligence of the released party or anyone for whom the released
party may be responsible. PTFI and PJP shall each cause their
respective property insurance policies to provide that the
insurer waive all right to recover by way of subrogation against
the other party and its officers, agents, Affiliates,
commissioners, directors, shareholders, employees and permitted
assigns in connection with any such loss or damage and shall each
waive all right to recover against the other party and its
officers, agents, Affiliates, commissioners, directors,
shareholders, employees and permitted assigns in connection with
any such loss or damage relating to property damage to the extent
it is self-insured. This Section shall not enlarge, reduce or
otherwise alter the obligations set forth in Section 11.04.
Section 10.04. Damage and Destruction. If the
Facilities or any part thereof shall be damaged or destroyed by
fire or other casualty during the Term, and the proceeds of the
insurance coverage received by PJP requirred to be obtained
hereunder are sufficient to pay the costs of repairing or
restoring the same in a good and workmanlike manner and in
accordance with Generally Accepted Practices and Applicable Law,
as nearly as possible to its value, condition and character
immediately before such damage or destruction, then, subject to
the terms of the Financing Documents, PJP shall proceed with such
repair or restoration as soon as possible after the damage or
loss occurs and shall complete such repair or restoration with
due diligence and all due speed. In the event the proceeds of
the insurance coverage required to be obtained hereunder are not
sufficient to pay the costs of repairing or restoring the
Facilities or portion thereof as contemplated herein, subject to
the terms of the Financing Documents PTFI may require PJP to
proceed with the repair or restoration of such Facilities
(excluding any portion of such Facilities constituting an
Alteration made in connection with any sale approved or permitted
pursuant to Section 3.04 hereof) as contemplated herein, in which
event PTFI shall be obligated to pay all such costs in excess of
the insurance proceeds (other than any deductible amount, which
shall be borne by PJP). Of the total amount paid by PTFI
pursuant to the preceding sentence, an amount no greater than the
amount of the Outstanding Investment shall constitute PSA
Subordinated Debt owing by PJP to PTFI, and if the total amount
anticipated to be paid by PTFI pursuant to the preceding sentence
exceeds the amount of the Outstanding Investment, PTFI shall have
the option, exercisable within ninety (90) Days after the date on
which PTFI made the last payment towards such costs of repair or
restoration, to purchase all of the assets of PJP or all of the
Shares of PJP from the Shareholders for an amount equal to the
Outstanding Investment minus $250,000 in accordance with the
Option Agreement, provided that PTFI shall not have such option
if PJP shall pay the portion of such costs which exceeds the
amount of the Outstanding Investment. Upon such purchase, PTFI
shall pay or assume the obligation to pay in accordance with the
terms of agreements between PJP and Senior Secured Lenders all
outstanding principal, all interest thereon and all other amounts
payable to Senior Secured Lenders. Any excess insurance proceeds
remaining after the Facilities, or any portion thereof, have been
repaired or restored as contemplated above shall be given to
PTFI. However, in the event that the Facilities or any portion
thereof are not repaired or restored, as contemplated in the
second sentence of this Section 10.04, any insurance proceeds
received during the Initial Term shall be retained by PJP and any
insurance proceeds received during the Renewal Term shall be paid
to PTFI. Any decision not to repair or restore the Facilities or
portion thereof under this Section 10.04 shall not constitute an
abandonment of the Facilities or portion thereof for purposes
hereof.
Section 10.05. Expropriation and Other Losses. In the
event PJP receives compensation from any Governmental Authority
(including any Person acting on behalf of any such Governmental
Authority) in respect of any expropriation, condemnation or
similar action or in respect of a Local Political Risk Event, the
amount of such compensation shall be retained by PJP.
Section 10.06. Adjustment of Equity Component. Upon
any permanent loss of a portion of the Facilities, whether
through expropriation or casualty and the payment to PJP of the
full amount of the proceeds or compensation specified in Section
10.04 or Section 10.05, respectively, the amounts set forth in
Schedule III hereto shall each be adjusted by multiplying such
amounts by a percentage equal to one minus the Allocation
Percentage applicable to such portion of the Facilities subject
to permanent loss.
ARTICLE XI
ENVIRONMENTAL RESPONSIBILITY
Section 11.01. Environmental Indemnification by PJP.
Subject to Section 18.03, PJP hereby agrees to indemnify, defend
and hold harmless PTFI, all Persons participating from time to
time in COW Operations and all PTFI-Related Entities, their
respective officers, directors, employees, commissioners and
agents (each, a "PTFI Indemnitee") from and against any and all
losses, liabilities (including strict liability and liability to
third parties for toxic torts), damages, injuries, fines,
assessments, expenses, including reasonable attorneys' fees and
disbursements (except that PJP shall only bear the cost of
representation by one firm of attorneys in each jurisdiction as
is appropriate), (including any such losses, liabilities,
damages, injuries, expenses, costs, judgments or claims asserted
or arising under any law, statute, ordinance, code, rule,
regulation, order or decree regulating or imposing liability,
including strict liability, or standards of conduct concerning
any Hazardous Substance), costs of investigation and monitoring,
costs of remediation, costs of any lawsuit, settlement or
judgement and claims of any and every kind whatsoever paid,
incurred or suffered by, or asserted against, any PTFI Indemnitee
by any Person, for, with respect to, or as a direct or indirect
result of the escape, seepage, leakage, spillage, discharge,
emission, migration or release from PJP's Site or the Facilities
of any Hazardous Substance after the Closing Date, but only
the extent such escape, seepage, leakage, spillage, discharge,
emission, migration or release from PJP's Site or the Facilities
of any Hazardous Substance did not result from (i) with respect
to the New Facilities, a condition affecting the portion of PJP's
Site on which any component of the New Facilities is situated,
which condition existed prior to the date such component of the
New Facilities was Completed, or (ii) with respect to the
Existing Facilities, a condition arising on or prior to December
26, 1999 which is caused by any operational practice engaged in
by PTFI prior to its conveyance of the Existing Facilities to PJP
and continued thereafter by PJP with respect to the operation of
the Existing Facilities, which practice PTFI has not informed PJP
is in violation of Applicable Laws. Payments to be made by PJP
under this Section 11.01 shall be subordinated to payments to
Senior Secured Lenders and shall be payable only from and to the
extent of amounts otherwise available to PJP pursuant to the
terms of the Financing Documents for the payment of dividends,
and shall not be credited toward amounts owing from PTFI.
Interest shall accrue at the Default Interest Rate on any such
payments which PJP has failed to make when due.
Section 11.02. Environmental Indemnification by PTFI.
Subject to Section 18.03, PTFI hereby agrees to indemnify, defend
and hold harmless PJP, and its officers, directors,
commissioners, employees, shareholders and agents (each, a "PJP
Indemnitee") from and against any and all losses, liabilities
(including strict liability and liability to third parties for
toxic torts), damages, injuries, fines, assessments, expenses,
including reasonable attorneys' fees and disbursements (except
that PTFI shall only bear the cost of representation by one firm
of attorneys in each jurisdiction as is appropriate), (including
any such losses, liabilities, damages, injuries, expenses, costs,
judgment or claims asserted or arising under any law, statute,
ordinance, code, rule, regulation, order or decree regulating or
imposing liability, including strict liability, or standards of
conduct concerning any Hazardous Substance), costs of
investigation and monitoring, costs of remediation, costs of any
lawsuit, settlement or judgment and claims of any and every kind
whatsoever paid, incurred or suffered by, or asserted against,
any PJP Indemnitee by any Person for, with respect to, or as a
direct or indirect result of (i) with respect to the Existing
Facilities, the presence on or before December 26, 1994, on or
under such portion of PJP's Site on which any component of the
Existing Facilities is located, of any Hazardous Substance, (ii)
with respect to the New Facilities, the presence on or before the
date on which any component of the New Facilities is Completed,
on or under any portion of PJP's Site on which such component of
the New Facilities is situated, of Hazardous Substances (except
to the extent resulting from the acts or omissions of PJP or its
agents, contractors or employees) and (iii) the escape, seepage,
leakage, spillage, discharge, emission, migration or release of
any Hazardous Substance from the operations of PTFI or any
PTFI-Related Entity or PTFI's Site on or after the Closing Date.
Section 11.03. Notice or Knowledge Relating to Possible
Claims.
(a) If either party receives any notice of, or
knowledge of, an event, condition or occurrence which would
reasonably be expected to result in any claim for which
indemnification may be sought under the indemnification
provisions of this Article 11 from any Person, then such party
shall promptly notify the other party orally and in writing of
said notice; provided, however, that the failure by either party
to give the other party prompt notice shall not relieve the other
party from its indemnification obligations hereunder except to
the extent the rights of the other party are actually prejudiced
by such failure to give notice as required by this Section 11.03.
(b) The indemnified party may, at its own expense,
retain separate counsel and participate in the defense of any
such suit or action. The indemnified party shall not compromise
or settle a claim without the prior written consent of the
indemnifying party, which consent shall not be unreasonably
withheld.
Section 11.04. Release; Waiver of Subrogation. The
indemnity of the parties set forth in this Article 11 shall be
limited only to that portion of any such loss, damage, cost,
expense, fine, fee or claim which is not covered by insurance
maintained by or for the benefit of the PTFI Indemnitee or PJP
Indemnitee, as the case may be, seeking indemnification. PTFI
hereby releases each PJP Indemnitee and PJP hereby releases each
PTFI Indemnitee, in each case from any and all liability to PTFI
or PJP, as the case may be, or anyone claiming through or under
PTFI or PJP, as the case may be, by way of subrogation or
otherwise, for any loss, damage, cost, expense, fine, fee or
claim for which indemnification would otherwise be provided in
this Article 11 to the extent covered by insurance maintained by
or for the benefit of the releasing party to the extent such
release does not invalidate any insurance coverages. Each party
shall cause its insurance policies to provide that the insurer
waive all right to recover by way of subrogation or otherwise
against any PTFI Indemnitee or PJP Indemnitee, as the case may
be, for any such loss, damage, cost, expense, fine, fee or claim
under this Article 11 which is covered by such insurance policy.
Section 11.05. Survival. Any claims arising under this
Article 11 with respect to events occurring before the expiration
or termination of this Agreement shall survive the expiration or
earlier termination of this Agreement.
ARTICLE XII
ADDITIONAL AGREEMENTS
Section 12.01. Records. Each party shall keep complete
and accurate records appropriate for proper administration of
this Agreement. Without limiting the foregoing, PJP shall
maintain complete and accurate records of all O&M Charges, Fuel
Charges, amounts incurred in connection with CIL Adjustments, Tax
Adjustments, Required Alterations and all other amounts where one
party must pay the other and an accurate and up-to-date operating
log for each Facility, including records of electricity
production for each clock hour, changes in operating status,
maintenance periods and any unusual conditions found during
inspections. All such records shall be maintained for a minimum
of ten (10) years after the creation of such records and for any
additional length of time required by any Governmental Authority.
Either party shall have the right, upon fourteen (14) Days'
notice to the other party, at its own expense to examine and
audit the records of the other party relating to this Agreement.
Section 12.02. Access. (a) Each Facility shall be open
to PTFI or its agent for inspection at reasonable times and upon
reasonable notice to PJP, provideed that (i) PTFI or its agent
shall comply with all safety requirements imposed on PJP's
employees and contractors, and (ii) such access shall not
materially interfere with the operation, management and
maintenance of any Facility.
(b) Except as otherwise provided in this Agreement,
PTFI shall have no right to (x) direct the operations of any
Facility or any of the other ancillary assets comprising Property
or (y) control PJP or its respective agents, employees, or
independent contractors in the conduct of their duties. Any
rights created by this Agreement in PTFI to enter into or onto
the Property for purposes of reviewing the operation,
maintenance, efficiency or output of the Facilities or such other
assets are created by the express consent of PJP and are not
intended by such creation to transfer any rights or duties of
ownership, operation or control of the Property from PJP to PTFI.
Representatives of PTFI may enter into or onto the Property only
under the terms of this Agreement.
Section 12.03. Applicable Permits. Each of PTFI and
PJP shall use commercially reasonable efforts to cause to be
issued and maintained in full force and effect in its name all
Applicable Permits required or advisable under Applicable Laws
for the operation, maintenance and management, or in connection
with any Alteration, of any Facility or PTFI's Plant, as
applicable, and the consummation of any of the transactions
contemplated hereby and the performance of their respective
obligations hereunder. PTFI and PJP shall cooperate and, to the
extent necessary or appropriate, coordinate their efforts in
acquiring and maintaining all such Applicable Permits.
Section 12.04. Waste Heat. PTFI shall have the right
to utilize waste heat produced by the Coal Facility for use in
PTFI's concentrate drying operations. Upon PTFI's request, PJP
shall install such equipment as is necessary in order for PTFI to
utilize such waste heat. PTFI shall be responsible for all
incremental capital and operating costs incurred by PJP in making
such waste heat available to PTFI.
Section 12.05. No Other Charges. Except as expressly
provided herein, neither party shall be entitled to any charge,
fee, payment or other compensation for performing such party
obligations hereunder.
Section 12.06. Penalties Not Assessed Against PJP. The
parties agree that PJP shall not be liable for
(a) any Availability Penalty hereunder
(i) during the pendency of the Independent Engineer's
determination regarding the making of an
Alteration pursuant to Section 9.1;
(ii) during the pendency of a Force Majeure Event or a
Local Political Risk Event;
(iii) as a result of PJP's suspension of delivery
of Electricity due to an Event of Default by PTFI,
if such penalty would otherwise have arisen from
suspension of delivery of Electricity;
(iv) to the extent attributable to the failure of the
coal supplier to deliver Coal meeting the
specifications set forth in the Coal Supply
Agreement, unless such failure results from PJP's
own Fault or Breach (excluding a PJP Breach under
the Coal Supply Agreement resulting from PTFI's
failure to make payments due hereunder);
(v) resulting from PJP's inability to operate the Coal
Facility as a result of PTFI's use of the Coal
Dock;
(vi) to the extent attributable to the failure (1) of
PJP or any permitted assignee of PJP pursuant to
Section 11.7 of the Restated Services Agreement to
receive a service, or (2) of PTFI or any successor
or permitted assignee of PTFI to otherwise fulfill
an obligation, in each case, pursuant to the
Restated Services Agreement; or
(vii) if PJP is unable to operate the Facilities as
a result of PTFI's failure to provide, or cause to
be provided, the insurance coverage specified in
Section 10.01(a)(i);
(b) any Heat Rate Penalty hereunder
(i) at any time prior to January 1, 2000 with respect
to the Coal Facility;
(ii) during the pendency of the Independent Engineer's
determination regarding the making of an
Alteration pursuant to Section 9.1;
(iii) during the pendency of a Force Majeure Event
or a Local Political Risk Event;
(iv) as a result of PJP's suspension of delivery of
Electricity due to an Event of Default by PTFI, if
such penalty would otherwise have arisen from
suspension of delivery of Electricity;
(v) to the extent attributable to the failure of the
coal supplier to deliver Coal meeting the
specifications set forth in the Coal Supply
Agreement, unless such failure results from PJP's
own Fault or Breach (excluding a PJP Breach under
the Coal Supply Agreement resulting from PTFI's
failure to make payments due hereunder); or
(vi) to the extent attributable to the failure (1) of
PJP or any permitted assignee of PJP pursuant to
Section 11.7 of the Restated Services Agreement to
receive a service, or (2) of PTFI or any successor
or permitted assignee of PTFI to otherwise fulfill
an obligation, in each case, pursuant to the
Restated Services Agreement; or
(c) any Curtailment Penalty or Unexcused Outages assessed
hereunder
(i) during the pendency of the Independent Engineer's
determination regarding the making of an
Alteration pursuant to Section 9.1;
(ii) during the pendency of a Local Political Risk
Event;
(iii) as a result of PJP's suspension of delivery
of Electricity due to an Event of Default by PTFI,
if such penalty would otherwise have arisen from
suspension of delivery of Electricity;
(iv) to the extent attributable to the failure of the
coal supplier to deliver Coal meeting the
specifications set forth in the Coal Supply
Agreement, unless such failure results from PJP's
own Fault or Breach (excluding a PJP Breach under
the Coal Supply Agreement resulting from PTFI's
failure to make payments due hereunder);
(v) resulting from PJP's inability to operate the Coal
Facility as a result of PTFI's use of the Coal
Dock;
(vi) to the extent attributable to the failure (1) of
PJP or any permitted assignee of PJP pursuant to
Section 11.7 of the Restated Services Agreement to
receive a service, or (2) of PTFI or any successor
or permitted assignee of PTFI to otherwise fulfill
an obligation, in each case, pursuant to the
Restated Services Agreement;
(vi) if PJP is unable to operate the Facilities as a
result of PTFI's failure to provide, or cause to
be provided, the insurance coverage specified in
(vii) to the extent resulting from deficiencies in
the design of the New Transmission Line towers if
such deficiencies would reasonably have been
uncovered had a physical load test been performed
on the design of the towers.
ARTICLE XIII
FORCE MAJEURE AND LOCAL POLITICAL RISK
Section 13.01. Force Majeure Event Defined. As used
herein, "Force Majeure Event" shall mean any act, omission or
circumstance, including, without limitation, any event or
circumstances occasioned by or resulting from any acts of God,
acts of the public enemy, wars, blockades, insurrections, riots,
epidemics, landslides, lightning, earthquakes, tornadoes,
windstorms, volcanoes, fires, storms, floods, disasters, civil
disturbances, explosions, sabotage, Governmental Actions, the
failure to act of any Governmental Authority, the inability to
obtain, maintain or renew any Applicable Permits, changes in
Applicable Laws, shortages of labor or materials, strikes or
other labor disputes, failures or partial failures of any
Equipment, failure of transportation which, in each case, is not
within the commercially reasonable control of a party hereto, is
not due to a Local Political Risk Event, and wholly or partially
prevents or delays such party from performing its obligations
hereunder; provided, however, that "Force Majeure Event" shall
not include an act, omission or circumstance arising from the
Fault or Breach of, or economic hardship affecting, the party
claiming that a Force Majeure Event has occurred.
Section 13.02. Effect of Force Majeure Event. The
parties shall be excused from performing any of their respective
obligations hereunder (excluding (i) payment obligations
established in Article 7, including, without limitation, payment
in all circumstances of the Debt Component of the Capacity
Charge, (ii) any other undisputed payment obligations arising out
of this Agreement and (iii) all obligations under this Article 13
and Articles 18 and 19) and shall not be liable in damages (other
than the Penalty amounts calculated in Schedule I hereto, if
applicable) or otherwise on account of the non-performance of any
such obligation, for so long as and to the extent that either
party is unable to perform such obligation as a result of any
Force Majeure Event. For purposes of this Section 13.02, a Local
Political Risk Event shall be deemed to be a Force Majeure Event
with respect to PJP.
Section 13.03. Mitigation and Notice. The occurrence
of a Force Majeure Event shall not relieve a party of its
obligations and liability hereunder to the extent such party
fails to use commercially reasonable efforts to remove the cause
and remedy or mitigate the effects of the Force Majeure Event if,
using commercially reasonable efforts, such party could have
removed such cause or remedied or mitigated such effects. In
addition, during the duration of any Force Majeure Event, PJP
shall exercise reasonable efforts to reduce costs included in the
Fixed O&M Charge, and shall reimburse to PTFI any such reduction
in cost, subject to PJP's right to apply such reduction first to
pay or reimburse any loss or expense (other than Penalties due
hereunder) arising from such Force Majeure Event not covered by
insurance or borne by PTFI through payments made hereunder. In
addition, no Force Majeure Event shall relieve a party of its
obligations or liability hereunder unless such party shall give
notice (including a reasonable description of such Force Majeure
Event) to the other party within five (5) Days of such party
becoming aware of the occurrence of such Force Majeure Event.
Upon request and within a reasonable time period, the party whose
obligations were suspended shall provide the other party with a
plan for remedying the effects of such Force Majeure Event.
Notwithstanding anything to the contrary in this Section 13.03,
in no event shall PTFI or PJP take any action which violates
Applicable Law. For purposes of this Section 13.03, a Local
Political Risk Event shall be deemed to be a Force Majeure Event
with respect to PJP.
Section 13.04. Labor Disputes. This Article 13 shall
not require the settlement of any strike, walkout, lockout, or
other labor dispute on terms which, at the discretion of the
party involved, is contrary in any material way to its interests.
It is understood and agreed that the settlement of such labor
disputes shall be at the sole discretion of the party involved.
Section 13.05. Extended Force Majeure. If an Extended
Force Majeure Event occurs, then PTFI may, upon ten (10) days
prior written notice, terminate this Agreement. Upon such
termination, PTFI shall (i) purchase the Shares at an amount
equal to the Outstanding Investment, in accordance with the
Option Agreement and (ii) pay or assume the obligation to pay in
accordance with the terms of agreements between PJP and Senior
Secured Lenders, all outstanding principal, all interest thereon
and all other amounts payable to Senior Secured Lenders.
ARTICLE XIV
PTFI'S RIGHTS OF ENTRY
Section 14.01. Adverse Conditions. PJP shall promptly
notify PTFI of any Adverse Conditions. Such notice shall contain
a description of such Adverse Condition in reasonable detail and
the steps PJP proposes to take in order to remedy such Adverse
Condition. If any Adverse Condition comes to PTFI's attention
concerning which PJP has not given PTFI notice, PTFI shall
promptly provide PJP with notice thereof. Promptly upon receipt
of such notice from PTFI, PJP shall provide PTFI with a
description of such Adverse Condition in reasonable detail and
the steps PJP proposes to take in order to remedy such Adverse
Condition. If PJP shall not have commenced to take steps
reasonably calculated to remedy such Adverse Condition within a
reasonable time (depending on the nature of the Adverse Condition
and the threat it poses to PTFI's operations or the operations of
a PTFI-Related Entity at PTFI's Site), PTFI shall have the right,
exercisable in its sole discretion, after providing PJP with
reasonable notice, to enter onto PJP's Site or the Facilities (as
the case may be) and take such action as it deems necessary or
advisable (including the operation of any or all of the
Facilities) to remedy such Adverse Condition. During any period
that PTFI has entered and remained on PJP's Site pursuant to this
Section 14.01, PTFI shall continue to pay, without any setoffs or
other deductions against such amounts, PJP all amounts due in
accordance with Article 7, including, without limitation, the
Debt Component of the Capacity Charge. PTFI shall quit PJP's
Site or the Facilities, as the case may be, promptly upon
remedying such Adverse Condition. If PTFI exercises its right of
reentry purssuant to this Section 14.01, PTFI may quit PJP's Site
at any time upon fifteen (15) Days' prior written notice. PTFI
may invoice PJP for costs incurred by PTFI in performing the
actions described above and PJP shall pay such costs within
twenty (20) Business Days. PJP's payment of such invoice shall
be subordinated to payments to Senior Secured Lenders to the
extent that such payment shall only be required to be made by PJP
from funds which, in accordance with the agreements between PJP
and Senior Secured Lenders, are available for PJP to pay
dividends or amounts due in respect of subordinated debt to
Shareholders or their Affiliates. Interest shall accrue at the
Default Interest Rate on any such payments which PJP has failed
to make within such 20 Business Day period. PJP may dispute the
necessity of the actions and reasonableness of any costs incurred
in performing necessary actions, and any reimbursement by PTFI of
payments by PJP shall include accrued interest at the Default
Interest Rate from the date of payment by PJP.
Section 14.02. Extended Force Majeure. Upon the
occurrence of an Extended Force Majeure or the reasonable
expectation of PTFI that a Force Majeure Event affecting PJP
shall become an Extended Force Majeure, PTFI shall have the
right, at its sole cost and exercisable in its sole discretion,
upon reasonable notice to PJP, to enter onto PJP's Site or the
Facilities (as the case may be) and take such action as it deems
necessary or advisable (including the operation of any or all of
the Facilities) to remove the cause and remedy or mitigate the
effects of such Extended Force Majeure or Force Majeure Event, as
the case may be. During any period that PTFI has entered and
remained on PJP's Site pursuant to this Section 14.02, PTFI shall
continue to pay, without any setoffs or other deductions against
such amounts, PJP all amounts due in accordance with Article 7,
including, without limitation, the Debt Component of the Capacity
Charge. If PTFI exercises its right of reentry pursuant to this
Section 14.02, PTFI may quit PJP's Site at any time upon fifteen
(15) Days' prior written notice to PJP but in no event shall PTFI
remain on PJP's Site or the Facilities for more than fifteen (15)
Days after the cessation of the Extended Force Majeure or Force
Majeure Event giving rise to PTFI's right of entry. For purposes
of this Section 14.02, "Force Majeure Event" shall have the
meaning given in Section 13.01 without giving effect to the
proviso in such Section.
Section 14.03. Local Political Risk. Upon the
occurrence of a Local Political Risk Event affecting PJP, PTFI
shall have the right, at its sole cost and exercisable in its
sole discretion, after providing PJP with reasonable notice, to
enter onto PJP's Site or the Facilities (as the case may be) and
take such action as it deems necessary or advisable (including
the operation of any or all of the Facilities) to remove the
cause and remedy or mitigate the effects of such Local Political
Risk Event. During any period in which PTFI has entered and
remains on PJP's Site in accordance with this Section 14.03, PTFI
shall continue to pay, without any setoffs or other deductions
against such amounts, PJP all amounts due in accordance with
Article 7, including, without limitation, the Debt Component of
the Capacity Charge. If PTFI exercises its right of reentry
pursuant to this Section 14.03 PTFI may quit PJP's Site at any
time upon fifteen (15) Days' prior written notice to PJP but in
no event shall PTFI remain on PJP's Site or the Facilities for
more than fifteen (15) Days after the cessation of the Local
Political Risk Event giving rise to PTFI's right of entry.
Section 14.04. PJP Default. Upon the occurrence of an
Event of Default by PJP pursuant to Section 16.01(d) or (e), PTFI
shall have the right, at PJP's cost, to enter PJP's Site and
operate any or all of the Facilities. During any period in which
PTFI has entered and remains on PJP's Site in accordance with
this Section 14.04, PTFI shall pay to PJP all amounts due in
accordance with Article 7, except that PTFI may offset any
reasonable costs referred to in the previous sentence against
such amounts other than the Debt Component of the Capacity
Charge. If PTFI exercises its right of reentry pursuant to this
Section 14.04, PTFI may quit PJP's Site at any time upon fifteen
(15) Days' prior written notice to PJP but in no event shall PTFI
remain on PJP's Site or the Facilities for more than fifteen (15)
Days after the cessation of the Event of Default giving rise to
PTFI's right of entry.
Section 14.05. Adverse Effects; Effect on Other Rights
and Remedies.
(a) PTFI shall use commercially reasonable efforts to
minimize any adverse effects on the operations of PJP's Site or
the Facilities caused by the exercise of any right of reentry it
may have under this Article 14.
(b) Except as expressly provided in this Article 14,
PTFI's exercise, or the failure by PTFI to exercise, any of its
rights under this Article 14 shall not relieve PJP of its
obligations hereunder nor limit any right or remedy otherwise
available to PTFI.
(c) Notwithstanding anything to the contrary in this
Article 14, during the Renewal Term PTFI shall bear all costs
incurred by PTFI in connection with the exercise of its rights
under this Article 14, without any right of reimbursement from
PJP.
ARTICLE XV
ASSIGNMENT
Section 15.01. PJP. PJP may not assign its rights or
obligations hereunder without the prior written consent of PTFI,
which consent shall not be unreasonably withheld; provided,
however, that PJP shall have the right to assign all right, title
and interest of PJP herein to a Senior Secured Lender as security
for the obligations of PJP to such Senior Secured Lender.
Section 15.02. PTFI. PTFI shall have the right, with
the prior written consent of PJP, to assign its rights or
obligations hereunder; provided, however, that notwithstanding
the foregoing, if such assignment is made pursuant to and in
accordance with the Default Remedies Co-ordination Agreement,
PJP's consent shall not be so required. PJP shall, in the case of
any such assignment, cooperate with PTFI and any assignee and
take such reasonable steps and execute all such documents and
deeds as PTFI or such assignee may request or as may be necessary
to effect any such assignment. Any assignee (other than a Senior
Secured Lender, as collateral assignee) of PTFI hereunder shall
assume in writing all existing payment obligations, and all other
obligations arising after such assignment, of PTFI with respect
to this Agreement, but no such assignment by PTFI of its rights
hereunder shall relieve PTFI of any of its obligations hereunder,
whether arising prior to or after such assignment. PTFI shall
pay any and all reasonable out-of-pocket costs incurred by PJP in
connection with any such assignment by PTFI.
ARTICLE XVI
DEFAULT AND TERMINATION
Section 16.01. Events of Default. The following shall
be events of default ("Events of Default") hereunder:
(a) with respect to either party hereto, the failure
by such party to pay any payment due hereunder (except, in the
case of PJP, payments to be made to PTFI which are subordinated
pursuant to the terms hereof), and the continuation of such
failure for fifteen (15) Days after receipt by the nonpaying
party of written notice of the failure to pay;
(b) except as set forth in Section 16.01(a), with
respect to either party hereto, the failure by such party to
comply with any other material term, provision or covenant of
this Agreement, the Restated Services Agreement or the New Asset
Sale Agreement, and the continuation of such failure for forty-
five (45) Days after notice thereof to the nonperforming party;
provided, however, if such failure cannot reasonably be cured
within such forty-five (45) Days and the nonperforming party
shall commence to cure such failure within such forty-five (45)
Day period and shall thereafter proceed with reasonable diligence
and good faith to cure such failure, then such forty-five (45)
Day period shall be extended for such longer period as would be
reasonably necessary for such party to cure the same with all
reasonable diligence and good faith;
(c) with respect to either party hereto, such party
shall file a voluntary petition in bankruptcy, or shall be
adjudicated bankrupt or insolvent, or shall file any petition or
answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under
any present or future statute or law relating to bankruptcy,
insolvency, or other relief for debtors under Applicable Law or
shall seek, consent to, or acquiesce in the appointment of any
trustee, receiver, conservator or liquidator of such party or all
or any substantial part of its properties, or a court of
competent jurisdiction shall enter an order, judgment or decree
approving a petition filed against such party seeking a
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future statute or law relating to bankruptcy, insolvency or other
relief for debtors, whether state or federal, and such party
shall consent to or acquiesce in the entry of such order,
judgment or decree, or the same shall remain unvacated and
unstayed for an aggregate of sixty (60) Days from the date of
entry thereof, or any trustee, receiver, conservator or
liquidator of such party or of all or any substantial part of its
properties shall be appointed without the consent or acquiescence
of such party and such appointment shall remain unvacated and
unstayed for an aggregate of sixty (60) Days. (The terms
"acquiesce" and "acquiescence" as used in this Section 16.01(c)
shall include, but not be limited to, the failure to file a
petition or motion to vacate or discharge any order, judgment or
decree providing for such appointment within the time specified
by law);
(d) with respect to PJP, the occurrence of one or more
Major Unexcused Outages resulting from other than a Force Majeure
Event;
(e) with respect to PJP, PJP shall abandon the
operation of any Facility, which abandonment is not due to PTFI's
Fault or Breach, with the intent that such abandonment be
permanent, it being understood that such intent shall be presumed
upon PJP's failure to resume operation of the abandoned
Facility(ies) within three (3) Days after receipt by PJP of
written notice from PTFI asserting that PJP has abandoned such
Facility; provided, however, that the discontinuation by PJP of
operations at any Facility shall not be considered an abandonment
if PJP is prevented from operating such Facility by reason of the
occurrence and continuance of a Force Majeure Event or a Local
Political Risk Event, and it being further understood that
nothing contained herein is intended to relieve PJP of its
obligations under Section 13.03; and
(f) with respect to PTFI, the occurrence of one or
more of the following and the notice to PJP and PTFI by or on
behalf of the Senior Secured Lenders that such event or
occurrence constitutes an "event of default" under the Financing
Documents:
(i) the occurrence of an Event of Resignation (as
defined in the PTFI Participation Agreement as in
effect on the date of the PJP Credit Agreement) under
Section 9.5 of the PTFI Participation Agreement as in
effect on the date of the PJP Credit Agreement;
(ii) the COW shall for whatever reason be
terminated or cease to be in full force and effect
other than pursuant to a Permitted Contract of Work
Substitution (as defined in the PJP Credit Agreement);
(iii) PTFI shall default in the performance of
any provision of the Chase Credit Agreements (as
defined in the PJP Credit Agreement) as in effect from
time to time (and without giving effect to any waivers
to or amendments of such provision following any such
default) which requires PTFI to maintain a specified
EBITDA Coverage Ratio (as defined in the Chase Credit
Agreement) or any successor provision which is designed
to measure the adequacy of PTFI's earnings or revenues
to debt services (including any debt service coverage
ratio or fixed charges ratio); or if at any time in the
future PTFI is not a party to a Chase Credit Agreement,
PTFI shall fail to comply with the requirements of such
provisions (if any) contained in the most recent Chase
Credit Agreement of which PTFI was a party;
(iv) an event of default with respect to any
Indebtedness (as defined in the PJP Credit Agreement)
of PTFI if the effect of such default shall result,
directly or through action taken by holder(s) or
obligee(s) of Indebtedness of PTFI, in acceleration (x)
of the stated maturity of any Indebtedness of PTFI in
an aggregate amount in excess of $50,000,000 or (ii) of
any Indebtedness outstanding of PTFI under the Chase
Credit Agreements (as defined in the PJP Credit
Agreement);
(v) any representation, warranty or certificate
made or deemed made by PTFI in any Financing Document
or in any certificate, financial statement or other
document furnished by PTFI to any Financing Entity or
any Agent (as defined in the PJP Credit Agreement)
shall prove to have been false or misleading in any
material respect as of the time made or furnished and
the facts or circumstances upon which such breach of
representation or warranty is based if not cured within
30 days could reasonably be expected to have a Material
Adverse Effect (as defined in the PJP Credit
Agreement);
(vi) PTFI shall admit in writing its inability to,
or be generally unable to, pay its debts as such debts
become due;
(vii) PTFI shall (1) apply for or consent to
the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or
of all or a substantial part of its property, (2) make
a general assignment for the benefit of its creditors,
(3) commence a voluntary case under the Bankruptcy Code
(as defined in the PJP Credit Agreement) (as now or
hereafter in effect) or any other law relating to
bankruptcy, insolvency, reorganization, winding-up or
composition, readjustment or moratorium of debts, (4)
file a petition seeking to take advantage of any law
relating to bankruptcy, insolvency, reorganization,
winding-up, or composition, readjustment or moratorium
of debts, (5) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to any
petition filed against it in an involuntary case under
the Bankruptcy Code of any other law relating to
bankruptcy, insolvency, reorganization, winding-up or
composition, readjustment or moratorium of debts, or
(6) take any corporate action for the purpose of
effecting any of the foregoing;
(viii) a proceeding or case shall be commenced
involving PTFI without the application or consent of
PTFI, seeking (1) its liquidation, reorganization,
dissolution, winding-up, or the composition,
readjustment or moratorium of its debts, (2) the
appointment of a trustee, receiver, custodian,
liquidator or the like of PTFI or of all or any
substantial part of its assets, or (3) similar relief
in respect of PTFI under any law relating to
bankruptcy, insolvency, reorganization, winding-up or
composition, adjustment or moratorium of debts, and
such proceeding or case shall continue undismissed, or
an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed
and in effect, for a period of 60 or more days (or such
shorter period of time which such Person has pursuant
to such law to cause the dismissal of such proceeding
or case or stay the effectiveness of any such order,
judgment or decree); or an order for relief against
PTFI shall be entered in an involuntary case under the
Bankruptcy Code or any other law relating to
bankruptcy, insolvency, reorganization, winding-up or
composition, readjustment or moratorium of debts;
(ix) PTFI shall default in the performance of its
obligations under any Project Document (as defined in
the PJP Credit Agreement) to which it is a party, which
default could reasonably be expected to have or result
in a Material Adverse Effect;
(x) PTFI shall fail to obtain, renew, maintain or
comply in all material respects with all such Project
Governmental Approvals (as defined in the PJP Credit
Agreement) which shall at the time in question be
necessary (1) for the performance by PTFI of its
respective obligations under any Financing Document to
which it is party or for the performance by PTFI of its
respective material obligations under any Project
Documents to which it is party; or any such Project
Governmental Approval shall be revoked, terminated,
withdrawn, suspended, modified or withheld or shall
cease to be in full force and effect, and such failure
to obtain, renew, maintain or comply or such
revocation, termination or other event shall continue
unremedied for 30 days after receipt by PJP of written
notice from the Facility Agent or any Financing Entity
(through the Facility Agent (as defined in the PJP
Credit Agreement)); or any proceeding shall be
commenced by or before any Governmental Authority for
the purpose of so revoking, terminating, withdrawing,
suspending, modifying or withholding any such Project
Governmental Approval and such proceeding is not
dismissed or otherwise resolved favorably for PTFI
within 90 days;
(xi) any Project Document to which PJP and PTFI
are parties shall cease to be in full force and effect
against both PJP and PTFI, and such circumstance
results in a Material Adverse Effect; or
(xii) any Governmental Authority shall
condemn, seize, nationalize, assume the management of
or appropriate any material portion of the property,
assets or revenues of PTFI (without payment of
compensation adequate to repay all amounts outstanding
under the Financing Documents); or the Ministry of
Mines and Energy of Indonesia (or any successor entity)
or the Government of Indonesia (or any successor
entity, lawful or otherwise) shall have taken any
action (whether or not having the force of law) in
contravention of the COW which materially adversely
affects the ability of PJP or any Project Participant
(as defined in the PJP Credit Agreement) to perform its
obligations under any Major Document (as defined in the
PJP Credit Agreement) to which it is a party.
Section 16.02. [Reserved].Section 16.03. Remedies
on Default, Appointment of Successor Mine Operator. Subject to
Section 16.03(f), (a)upon the occurrence of an Event of Default
hereunder, the nondefaulting party may, at its option, (i)
terminate this Agreement as set forth in Section 16.03(b) or (c),
(ii) exercise any other right or remedy the nondefaulting party
may have hereunder or at law or in equity (subject to the
limitations on liability contained herein), or (iii) do any or
all of the foregoing. None of the remedies set forth herein
shall be exclusive of any of the other remedies, and all of them
shall be deemed cumulative. If, within 180 days of the
occurrence of an Event of Default by PJP pursuant to Section
16.01(d), PTFI fails to initiate action pursuant to this Section
16.03, PTFI shall be deemed to have waived such Event of Default
and any remedy it may otherwise have had pursuant to this Section
16.03. In the event of an Event of Default with respect to PTFI,
PJP, upon giving notice of such Event of Default to PTFI, (x)
shall have the right to suspend its deliveries of Electricity
hereunder, (y) shall not be liable for the payment of any Penalty
that would otherwise arise from suspension of delivery of
Electricity, and (z) shall have the right to terminate this
Agreement upon written notice to PTFI pursuant to subsection (b)
of this Section 16.03. In the event PJP shall terminate this
Agreement pursuant to Section 16.03(a)(i) above, PTFI shall have
the right to reenter the Facilities immediately upon satisfaction
of PTFI's payment obligations set forth in subsection (b) below.
The exercise by PJP of its right to suspend deliveries of
Electricity under this Section 16.03 shall not relieve PTFI of
its obligations hereunder, including the obligation to pay any
amounts payable by PTFI pursuant to Article 7 until such time as
this Agreement is terminated.
(b) Upon the occurrence of an Event of Default by
PTFI, PJP shall have the option, exercisable in its sole
discretion, to terminate this Agreement. Upon such termination,
PTFI shall be deemed to offer to acquire the Shares. If PJP
accepts such offer, PTFI shall immediately (in the case of an
Event of Default under Section 16.01(c)), within one hundred and
eighty (180) Days of such notice (in the case of an Event of
Default under Section 16.01(a) or (b), or within thirty (30) Days
of such notice (in the case of an Event of Default under Section
16.01(f)), (i) purchase, upon ten (10) Days' prior written notice
to PJP, the Shares in accordance with and for the amount set
forth in Article 4 of the Option Agreement and (ii) concurrently
with such purchase, pay, in the case of an Event of Default under
Section 16.01(a), (c) or (f), or assume the obligation to pay, in
the case of all other Events of Default hereunder, in accordance
with the terms of the agreements between PJP and Senior Secured
Lenders, all outstanding principal and all interest and other
amounts payable to Senior Secured Lenders.
(c) Within one hundred eighty (180) Days following an
Event of Default by PJP, PTFI shall have the option, exercisable
in its sole discretion, to terminate the Agreement, provided,
that, concurrently with such termination, PTFI shall (i) after
having so notified PJP in writing of its intent to do so,
purchase from PJP, in which case the Shareholders or PJP, as
applicable, shall sell to PTFI, all of the Shares or all of PJP's
right, title and interest in and to the Property for the amount
specified in Section 2.05 of the Option Agreement and in
accordance with the terms and conditions of the Option Agreement
and (ii) concurrently with such purchase, pay or assume the
obligation to pay, in accordance with the terms of agreements
between PJP and Senior Secured Lenders, all outstanding principal
and all interest and other amounts payable to Senior Secured
Lenders.
(d) If PTFI exercises its option to terminate this
Agreement in accordance with Section 16.03(c) by reason of an
Event of Default by PJP (other than an Event of Default under
Section 16.01(d)), PJP will be obligated to pay liquidated
damages to PTFI in an amount equal to twenty-five percent (25%)
of the Outstanding Investment as of the date of purchase referred
to in Section 16.03(c), which amount may, in the sole discretion
of PTFI, be offset against the purchase price of the Property or
the Shares, as the case may be. PJP and PTFI agree that the
exact amount of actual damages to PTFI would be difficult to
calculate in the event of such Event of Default and that the
liquidated damages provided for in this Section 16.03(d) are
reasonable considering the damage that PTFI would suffer and are
in lieu of any other damage payment.
(e) Upon the occurrence of an Event of Default by
PTFI, PJP shall have the option, exercisable in its sole
discretion, to require PTFI to offer to acquire the Shares. If
PJP accepts such offer, PTFI shall, within thirty (30) Days of
such notice, (i) purchase from PJP, upon ten (10) Days' prior
written notice to PJP, the Shares in accordance with and for the
amount set forth in Article 4 of the Option Agreement and (ii)
concurrently with such purchase, pay, in accordance with the
terms of the agreements between PJP and Senior Secured Lenders,
all outstanding principal and all interest and other amounts
payable to Senior Secured Lenders.
(f) All remedies of the parties set forth in this
Agreement shall be subject to the terms of the Default Remedies
Coordination Agreement.
ARTICLE XVII
REPRESENTATIONS AND WARRANTIES
Section 17.01. Representations and Warranties of PJP.
As of the date hereof, PJP hereby represents and warrants to PTFI
that:
(i) It is a limited liability company duly
organized and validly existing under the laws of
Indonesia;
(ii) It has the corporate power and authority to
execute this Agreement and perform its obligations
hereunder;
(iii) The execution and delivery of this
Agreement by PJP and the performance of its obligations
hereunder have been duly authorized by all necessary
corporate action and will not contravene any existing
law or statute or governmental regulation or decree
binding upon PJP or the Facilities, and will not
contravene or result in a breach of or default under
any indenture, mortgage, deed of trust, loan or credit
agreement, constituent document or other agreement or
instrument to which PJP is a party or by which it or
its property is bound;
(iv) This Agreement constitutes the legal, valid
and binding obligation of PJP, enforceable against it
in accordance with its terms;
(v) There is no claim, action, proceeding or
investigation pending or, to PJP's knowledge,
threatened against PJP before any Governmental
Authority reasonably likely to have a material adverse
effect on the business, operations, financial
condition, results of operations, or assets of PTFI or
PJP; and
(vi) It has obtained and complied with all
Applicable Permits necessary to conduct its business in
accordance with Applicable Laws and for the performance
of its obligations hereunder except to the extent that
the failure to obtain or maintain any such Applicable
Permit does not have a material adverse effect on PJP's
ability to conduct its business or perform its
obligations hereunder.
Section 17.02. Representations and Warranties of PTFI.
As of the date hereof, PTFI hereby represents and warrants to the
PJP that:
(i) It is a limited liability company duly
organized and validly existing under the laws of
Indonesia and the State of Delaware;
(ii) It has the corporate power and authority to
execute and deliver this Agreement and perform its
obligations hereunder;
(iii) The execution and delivery of this
Agreement by PTFI and the performance of its
obligations hereunder have been duly authorized by all
necessary corporate action and will not contravene any
Applicable Law, and will not contravene or result in a
breach of or default under any indenture, mortgage,
deed of trust, loan or credit agreement, corporate
charter or other agreement or instrument to which it is
a party or by which it or its property is bound;
(iv) This Agreement constitutes the legal, valid
and binding obligation of PTFI, enforceable against it
in accordance with its terms;
(v) There is no claim, action, proceeding or
investigation pending or, to PTFI's knowledge,
threatened against PTFI before any Governmental
Authority which is reasonably likely to have a material
adverse effect on the business, operations, financial
condition, results of operations, or assets of PTFI or
PJP; and
(vi) It has obtained and complied with all
Applicable Permits necessary to conduct its business in
accordance with Applicable Laws and for the performance
of its obligations hereunder except to the extent that
the failure to obtain or maintain any such Applicable
Permit does not have a material adverse effect on
PTFI's ability to conduct its business or perform its
obligations hereunder.
ARTICLE XVIII
INDEMNIFICATION/LIMITATION OF LIABILITY
Section 18.01. Indemnification by PTFI. Without
increasing or expanding the indemnity provided in Section 11.02,
PTFI shall defend, hold harmless, and indemnify each PJP
Indemnitee from and against all damages, liabilities, losses,
expenses including reasonable attorneys' fees and disbursements
(except that PTFI shall only bear the cost of representation by
one firm of attorneys in each jurisdiction as is appropriate) and
costs of investigation, costs, disputes, suits, claims, demands
or penalties of any kind or nature imposed upon or claimed
against any PJP Indemnitee by any third party (other than any
other PJP Indemnitee) caused by or on account of, or arising from
(i) the operation or use of PTFI's Plant or PTFI's Site; (ii) the
exercise by PTFI of any of its rights pursuant to the last
sentence of Section 3.02 or 3.06, or pursuant to Sections 5.01,
5.03, 14.01, 14.02, 14.03 or 14.04; or (iii) the performance by
PTFI of, or its unexcused failure to perform, its obligations
hereunder or under the Restated Services Agreement, except to the
extent resulting from the Fault of any of the PJP Indemnitees or
Fault or Breach of PJP. This Section shall be subject to the
terms of the waiver of subrogation provisions contained in
Sections 10.03 and 11.04. To the extent it does not invalidate
any required insurance coverage, PTFI's liability hereunder shall
be reduced to the extent PJP receives any insurance proceeds or
realizes any tax savings with respect to the indemnification
claim sought hereunder.
Section 18.02. Indemnification by PJP. Without
increasing or expanding the indemnity provided in Section 11.01,
PJP shall defend, hold harmless and indemnify each PTFI
Indemnitee from and against all damages, liabilities, losses,
expenses, including reasonable attorneys' fees and disbursements
(except that PJP shall only bear the cost of representation by
one firm of attorneys in each jurisdiction as is appropriate) and
costs of investigation, costs, disputes, suits, claims, demands
or penalties of any kind or nature imposed upon or claimed
against any such PTFI Indemnitee by any third party (other than
any other PTFI Indemnitee) caused by or on account of, or arising
from, (i) the use or operation of the Facilities (including any
sale of electric capacity and Electricity to parties other than
PTFI or any PTFI Related Entity), or (ii) the use by PJP, its
agents, subcontractors or invitees of PJPP's Site or any portion
of PTFI's Site or (iii) the performance by PJP of, or its
unexcused failure to perform, its obligations hereunder, except
to the extent resulting from the Fault of any of the PTFI
Indemnitees or the Fault or Breach of PTFI or, until five (5)
years from the date of transfer of any Existing Asset, from any
condition affecting any such Existing Asset which was in
existence on the date such asset was transferred to PJP pursuant
to the Original Asset Sale Agreement. This Section shall be
subject to the terms of the waiver of subrogation provisions
contained in Sections 10.03 and 11.04. To the extent it does not
invalidate any insurance coverage required hereunder, PJP's
liability hereunder shall be reduced to the extent PTFI receives
any insurance proceeds or realizes any tax savings with respect
to the indemnification claim sought hereunder. Payments to be
made by PJP under this Section 18.02 shall be subordinated to
payments to Senior Secured Lenders and shall be payable only from
and to the extent of amounts otherwise available to PJP pursuant
to the terms of the Financing Documents for the payment of
dividends, and shall not be credited toward amounts owing from
PTFI. Interest shall accrue at the Default Interest Rate on any
such payments which PJP has failed to make when due.
Section 18.03. Limitation of Liability.
Notwithstanding any other provision hereof (except as expressly
provided in the case of Penalties and the payment of interest on
certain amounts owed), or the failure of essential purposes of
any remedies set forth herein, each party shall only be liable
for direct damages resulting from or in connection with a breach,
misrepresentation or default by such party hereunder. In no
event shall either party (or their officers, shareholders,
directors, commissioners, employees or agents) be liable, whether
under contract, tort (including negligence), strict liability or
any other cause of or form of action whatsoever, for claims of
customers, cost of money, lost profits, loss of use of capital or
revenue, or any other incidental, special or consequential loss
or damage of any nature arising at any time or from any cause
whatsoever or for punitive or exemplary damages other than those
imposed for gross negligence or willful misconduct (collectively,
"Consequential Damages"); provided, however, that third-party
claims and associated recoveries (solely to the extent covered by
insurance of a party hereto) in connection with damages
proximately resulting from an act or omission of such party shall
not be deemed to be Consequential Damages. This Section shall
not be construed as providing any basis for liability of either
party.
Section 18.04. Notice and Cooperation.
(a) Each party shall promptly notify the other party
(but in no event later than ten (10) Business Days prior to the
time any response is required by law) after such party becomes
aware of any event or circumstance which might give rise to
indemnification under this Article; provided, however, the
failure of such party to give such notice shall not result in the
waiver of any of such party's rights under this Article, except
to the extent the rights of the other party are actually
prejudiced by such failure to give notice as required by this
Section 18.04(a).
(b) The indemnified party may, at its own expense,
retain separate counsel and participate in the defense of any
such suit or action. The indemnified party shall not compromise
or settle a claim hereunder without the prior written consent of
the indemnifying party.
Section 18.05. Dispute of Obligation. To the extent a
party disputes in good faith its obligation to indemnify the
other party pursuant to this Agreement, it shall not be
considered a breach of this Agreement for such party to fail to
perform under this Article until such time as such party is
determined to have the obligation to indemnify under this Article
pursuant to (i) an agreement reached by the parties or (ii) an
arbitration determination in accordance with the terms of Article
19.
Section 18.06. Survival. The provisions of this
Article 18 shall survive the expiration or earlier termination of
this Agreement with respect to events occurring before the
expiration or termination hereof.
ARTICLE XIX
DISPUTE RESOLUTION
Section 19.01. Negotiated Resolution. The parties
shall attempt in good faith to resolve all disputes arising
hereunder by mutual agreement in accordance with this Article.
If during the Term a dispute between PTFI and PJP arises, either
party wishing to resolve such dispute may give notice thereof to
the other party. Within five (5) Days after delivery of such
notice, each party's designated representative shall meet to
discuss and to attempt to resolve such dispute. If they are
unable to do so within fifteen (15) Days after delivery of such
notice, the dispute shall be referred to a Senior Officer of PJP
and a Senior Officer of PTFI for resolution or cure. Such Senior
Officers shall meet within five (5) Days of the expiration of
such 5-Day period to discuss and attempt to resolve such dispute.
If such Senior Officers are unable to agree on an appropriate
resolution within fifteen (15) Days after the dispute is
submitted to them, the dispute shall be resolved by binding
arbitration as hereinafter set forth. The failure or refusal of
either party to meet and discuss any dispute as provided in this
Section 19.01 shall entitle the other party to submit such
dispute immediately to arbitration pursuant to this Article 19.
Section 19.02. Procedure for Initiating Arbitration. A
party desiring to submit a dispute to arbitration pursuant to
this Article 19 shall serve notice to the other party (the
"Arbitration Notice"), stating that such party desires
arbitration of such dispute, setting forth a detailed description
of the nature and subject matter of the dispute, and a statement
of the amount involved, if the dispute involves sums of money,
the position on such issues of the party requesting arbitration
and the remedy sought by it, and the name of one independent
arbitrator recommended by the International Chamber of Commerce
("ICC"). Within twenty (20) Days after receipt of the
Arbitration Notice, the party receiving the same shall send a
notice to the notifying party containing (i) a response to the
claim, setting forth the responding party's position on the
matter and the remedy sought by it, if any, and (ii) an
acceptance of the arbitrator designated in the Arbitration Notice
or the designation of a second arbitrator recommended by the ICC.
If the parties designate separate arbitrators, the two
arbitrators shall designate a third independent arbitrator
recommended by the ICC, within ten (10) Days after the date of
the notice in response to the Arbitration Notice. If the two
arbitrators selected by the parties cannot or do not select a
third independent arbitrator within ten (10) Days of such second
notice, either party may apply to the ICC for the purpose of
appointing any person listed as an arbitrator with the ICC as the
third independent arbitrator. Each arbitrator appointed
hereunder shall be qualified by education or experience to decide
the particular matter submitted to arbitration, and shall not be
an employee or agent of either PJP or PTFI or any of their
Affiliates.
Section 19.03. General Arbitration Rules. A hearing
shall be held by the arbitrators (or arbitrator) promptly after
the selection thereof pursuant to Section 19.02, and a decision
of the matter submitted shall be rendered within thirty (30) Days
after the hearing. If the matter is heard by three arbitrators,
they shall act by the vote of a majority. The arbitration shall
be conducted pursuant to the commercial arbitration rules of the
ICC in effect on the date hereof, except to the extent such rules
conflict with the provisions hereof, in which case the provisions
hereof shall control. The parties specifically agree that, upon
application by each party, the arbitrators (or arbitrator) shall
set a reasonable limitation on the period for discovery related
to the arbitration. No party may present a position or make any
argument at the hearing that is not provided to the other party
in writing before the hearing, unless the arbitrators (or
arbitrator) determine that such position or argument could not
reasonably have been prepared in advance of such hearing. The
parties shall use all reasonable efforts, and shall instruct the
arbitrator or arbitrators to use all reasonable efforts, to
complete the arbitration and render a decision within sixty (60)
Days after appointment of the arbitrator or arbitrators pursuant
to Section 19.02. The parties specifically agree that all
arbitration proceedings brought under this Article 19 shall be
conducted in the English language.
Section 19.04. Necessary Parties. Any arbitration may
include any other person substantially involved in a common
question of fact or law whose presence is required if complete
relief is to be accorded in arbitration, provided that such other
person has agreed to be bound by such arbitration.
Section 19.05. Finality. The decision of an arbitrator
or arbitrators (including a decision pursuant to Section 19.07)
pursuant to this Article 19 shall be in writing (setting forth
the basis for the decision), final, binding, and conclusive upon
the parties and may be confirmed or embodied in any order or
judgment of any court having jurisdiction. The foregoing
agreement to arbitrate shall be specifically enforceable and the
award rendered by the arbitrators shall be final and judgment may
be entered upon it in accordance with applicable law in any court
having jurisdiction thereof.
Section 19.06. Venue. The venue of any arbitration
pursuant to this Article 19 shall be in Singapore or such other
place as is mutually agreed upon by the parties.
Section 19.07. Technical Dispute Resolutions. Any
dispute between PTFI and PJP over the determination of any
adjustment to the Target Capacity Level of any Facility pursuant
to Section 3.05 or in any amendment contemplated in Section 9.01;
any change in Reliability pursuant to Section 3.06; the matters
described in Section 9.01 as being subject to technical dispute
resolution; the appropriateness and magnitude of any adjustment
proposed pursuant to Section 7.03; the necessity of PTFI's entry
onto PJP's Site or the Facilities (as the case may be) in
connection with an Adverse Condition and the amount of costs
incurred by PTFI in respect of such entry; and other disputes
mutually agreed by the parties shall, instead of being submitted
to arbitration in accordance with Sections 19.01 through 19.06,
be submitted to an engineering firm unaffiliated with PTFI or PJP
which shall be selected by PTFI and PJP from the list attached
hereto as Appendix H or, if PTFI and PJP are unable to agree on
such selection, chosen by lot from such list. PTFI and PJP shall
submit all data, documents and other information supporting their
respective positions to the independent engineering firm within
30 Days of its selection. The independent engineering firm shall
render its determination within 30 Days following the submission
of such information.
Section 19.08. Costs of Arbitration. Each party shall
bear its respective costs incurred in connection with any
arbitration conducted pursuant to this Article 19 and fifty
percent (50%) of the fees and expenses of the arbitrators and the
other expenses of the arbitration; provided, however, that in the
event the arbitrator, or engineering firm, as the case may be,
determines that the non-prevailing claims or defenses were
substantially lacking in merit, the party who made such claims or
asserted such defenses shall pay all reasonable costs incurred by
the other party and all fees and expenses of the arbitrators and
the other expenses in connection with such arbitration.
Section 19.09. Performance Obligations. The pendency
of these dispute resolution procedures shall not in and of
themselves relieve either party of the duty to perform, or serve
to delay or suspend the performance of, its obligations
hereunder.
ARTICLE XX
MISCELLANEOUS
Section 20.01. Appendices and Schedules. All
appendices and schedules hereto shall be considered part hereof
as if fully set forth herein. In the event of a conflict between
the appendices and schedules to this Agreement and this Agreement
(exclusive of such appendices and schedules), this Agreement
(exclusive of such appendices and schedules) shall prevail. In
the event of a conflict among the appendices or schedules hereto,
the appendix or schedule which is of the latest date shall
prevail.
Section 20.02. Intention of the Parties. PJP and PTFI
intend and agree that PJP shall be treated as the owner of the
Facilities for all purposes and that PTFI shall not take any
position inconsistent with PJP's ownership of the Facilities.
Nothing in this Agreement or any other Transaction Document or
Financing Document is intended to convey ownership to, or vest
ownership in, any Person other than PJP. This Agreement is
intended to constitute a "service agreement", as that term is
defined in section 7701(e) of the Code (with PJP serving as the
"service provider" and PTFI serving as the "service recipient"),
and not a lease; the relationship which PJP and PTFI intend to
create hereunder is that of principal and independent contractor
and nothing contained herein nor the acts of the parties hereto
shall be construed to create the relationship of partners, or co-
venturers, or of lessee and lessor. PTFI shall not have the
right to direct or control the activities or practices of PJP.
Section 20.03. Confidentiality.
Each of PJP and PTFI and each of their respective Affiliates
will hold, and will use their reasonable efforts to cause their
respective officers, directors, employees, accountants, counsel,
consultants, advisers and agents to hold, in confidence for a
period of five (5) years commencing with the date of receipt
thereof, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all
documents and information furnished to PJP or PTFI, as
applicable, or any of its respective Affiliates in connection
with the transactions contemplated by this Agreement to the
extent that the documents or the context of their disclosure
indicate that they are intended to be confidential, except to the
extent that such information can be shown to have been (i)
previously known on a nonconfidential basis by it, (ii) in the
public domain through no fault of it, or (iii) later lawfully
acquired by it from sources other than PJP or PTFI, as
applicable; provided, that PJP may disclose such information to
its officers, directors, employees, accountants, counsel,
consultants, advisors and agents in connection with the
transactions contemplated by this Agreement and to prospective
lenders or purchasers of PJP debt instruments in connection with
obtaining the financing for the transactions contemplated by the
New Asset Sale Agreement and the refinancing of the Existing
Assets, so long as such Persons are informed by PJP of the
confidential nature of such information and are directed by PJP
to treat such information confidentially and, in the case of
prospective lenders or purchasers of PJP debt instruments, agree
in writing to be bound by the terms of this confidentiality
provision or other confidentiality provisions acceptable to PJP.
The obligation of PJP and its respective Affiliates to hold any
such information in confidence shall be satisfied if they
exercise the same care with respect to such information as they
would take to preserve the confidentiality of their own similar
information. If this Agreement is terminated, PJP and PTFI and
their respective Affiliates will, and will use their reasonable
efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to destroy
or deliver to PJP or PTFI, as applicable, upon request, all
documents and other materials, and all copies thereof, obtained
by either PJP or PTFI or its respective Affiliates or on their
behalf from PTFI or PJP, as applicable, in connection with this
Agreement that are subject to such confidence.
Section 20.04. Governing Law. This Agreement shall be
governed by and interpreted in accordance with the internal,
substantive laws of the State of New York without regard to its
conflict of laws provisions.
Section 20.05. Notices. All notices, consents,
directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be
given to any Person shall be in writing and shall be delivered by
hand or by an internationally recognized air courier service, or
by facsimile or telegram, directed to the address or facsimile
number of such Person as set forth on the signature page hereof
or, in the case of any notice or other communication to any
Person participating in COW Operations, to the address and
facsimile number of that Person as notified from time to time by
that Person to the parties. For the purposes of this Section
20.05, all notices or other communications to PT RTZ shall be
addressed to:
P.T. RTZ-CRA Indonesia
14th Floor, World Trade Centre
Jalan Jend Sudirman Kav. 29-31
Jakarta 12920
Indonesia
Attention: President Director
Telecopy: 62-21-521-1760 or 62-21-526-8658
with a copy to:
Rio Tinto plc
6 St. James' Square
London SW1Y 4LD
England
Attention: Secretary
Telecopy: 44-171-930-3249
Any such notice shall be deemed effective when received, as
confirmed by receipt or other confirmation signed by the
receiving party or by printed confirmation of transmission if by
facsimile transmission. From time to time, any party hereto or
any Person identified to PJP by PTFI as a Person participating in
COW Operations may designate a new address or facsimile number
for purposes of notice hereunder by notice to each of the parties
or other parties hereto.
Section 20.06. Severability. Any provision hereof that
shall be prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
To the extent permitted by Applicable Law, the parties hereto
hereby waive enforcement of any provision of law that renders any
provision hereof prohibited or unenforceable in any respect.
Section 20.07. Entire Agreement. This Agreement
(including all appendices and schedules hereto), constitutes the
entire agreement and understanding of the parties hereto with
respect to the subject matter hereof and supersedes all prior
written and oral agreements and understandings with respect to
such subject matter, including without limitation, the Original
Power SSalleess Agreement.
Secction 20.08. Amendmment. Neither this Agreement nor
any of the terms hereof may be terminated, amended, supplemented,
waived or modified, except by a document in writing signed by the
party against which the enforcement of such termination,
amendment, supplement, waiver or modification is sought.
Section 20.09. Waiver. Except as expressly provided in
Section 16.03(a), no failure or delay of any party hereto to
exercise 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 right or power, preclude any other or further
exercise thereof or the exercise of any other right or power.
Section 20.10. Table of Contents; Headings. The table
of contents, if any, and headings, if any, of the various
articles, sections and other subdivisions hereof are for
convenience of reference only and shall not modify, define or
limit any of the terms or provisions hereof.
Section 20.11. Counterparts. This Agreement may be
executed by the parties hereto in separate counterparts, each of
which when so executed and delivered shall be an original, but
all such counterparts shall together constitute but one and the
same document. All signatures need not be on the same
counterpart.
Section 20.12. Method of Payment. All amounts required
to be paid by any party hereunder to any other party hereunder
shall be paid in such freely transferable coin or currency of the
United States of America or of the Republic of Indonesia,
respectively, as may be called for in Schedule I hereto, and as
at the time of payment shall be legal tender for the payment of
public and private debts, and shall be paid by wire transfer to
an account as such party may specify by notice to the other
parties, or by other acceptable method of payment of immediately
available funds. No amount paid by a Designated PTFI-Related
Entity or any third party as contemplated hereby shall be deemed
to be received by PJP for the purposes hereof until such amount
is deposited, in Dollars or Rupiah, respectively, as called for
in Schedule I hereto, in immediately available funds, in the
account of PJP referred to in the preceding sentence.
Section 20.13. Date of Payment. If any payment
hereunder is required to be made on a Day other than a Business
Day, the date of payment shall be extended to the next Business
Day.
Section 20.14. Default Interest. Except as expressly
provided herein, all payments due hereunder shall accrue interest
at the Default Interest Rate (or the maximum interest rate
permitted by law, if lower) commencing three (3) Days from and
after the date such payment was first due.
Section 20.15. Attorneys' Fees. If either party hereto
brings any proceeding for the judicial interpretation,
enforcement, termination, cancellation or rescission hereof, or
for damages for the breach thereof, the prevailing party in any
such proceeding or appeal thereon shall be entitled to its
reasonable attorneys' fees and court and other reasonable costs
incurred, to be paid by the losing party as fixed by the court in
the same or a separate proceeding, and whether or not such
proceeding is pursued to decision or judgment.
Section 20.16. Third-Party Beneficiaries. Except as
otherwise expressly stated herein, this Agreement is intended to
be solely for the benefit of the parties hereto and their
permitted assignees and is not intended to and shall not confer
any rights or benefits on any other third party not a signatory
hereto other than Persons expressly benefited by the
indemnification provisions hereof.
Section 20.17. Further Documents. The parties hereto
shall execute and deliver all further documents and perform all
further acts that may be reasonably necessary to consummate the
transactions contemplated hereby.
Section 20.18. Performance of Obligations. A party
shall be deemed to have satisfied an obligation of such party
hereunder if the obligated party performs such obligation or
causes such obligation to be performed; provided, however, this
provision shall not be deemed to permit an assignment of such
obligation not otherwise permitted hereunder, nor to relieve the
obligated party from liability arising from the performance of
such obligation.
Section 20.19. Tax Cooperation. PTFI and PJP agree to
furnish or cause to be furnished to each other, upon request, as
promptly as practicable, such information and assistance relating
to the transactions contemplated hereby as is reasonably
necessary for the filing of all Tax returns, the making of any
election related to Taxes, the preparation for any audit by any
taxing authority, and the prosecution or defense of any claim,
suit or proceeding relating to any Tax return. PTFI and PJP
shall cooperate with each other in the conduct of any audit or
other proceeding related to Taxes and each shall execute and
deliver such documents as are necessary to carry out the intent
of Section 20.02 and this Section 20.19.
Section 20.20. Survival of Payment Obligations. The
obligation of the parties hereto to make payments hereunder shall
survive the expiration or earlier termination of this Agreement
without limitation.
IN WITNESS WHEREOF, PJP and PTFI have caused this
Agreement to be executed as of the date first above written.
P.T. PUNCAKJAYA POWER,
an Indonesian limited liability
company
By: Signed
Name:
Title:
Address for Notice: P.T. Puncakjaya Power
Plaza 89, 6th Floor
Jl. H.R. Rasuna Said Kav. X-7 No. 6
Jakarta 12940
INDONESIA
Attention: President Director
Telecopy: 011-62-21-850-8178
and
P.T. Puncakjaya Power
c/o Duke Energy International LLC
Suite 1800
400 South Tryon Street
Charlotte, North Carolina 28285
Attention: Puncakjaya Power Project
Administrator
Telecopy: 704-382-9325
P.T. FREEPORT INDONESIA COMPANY,
an Indonesian limited liability
company
By: Signed
Name:
Title:
Address for Notice: P.T. Freeport Indonesia Company
Plaza 89, 5th Floor
Jl. H.R. Rasuna Said, Kav. X-7, No. 6
Jakarta 12940
INDONESIA
Attention: President Director
Telecopy: 011-62-21-850-4535
and
P.T. Freeport Indonesia Company
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: General Counsel
Telecopy: 504-582-1603
APPENDIX A
DEFINITIONS
The terms defined below shall have the meanings set forth below
for all purposes, and such meanings are applicable equally to the
singular, plural and other conjugated forms of the terms defined.
"Acceptance Date" means, with respect to each item of
the New Facility, the date of Completion of such item.
"Acquired Shareholder" shall mean a Shareholder with
respect to whom a Change in Control has occurred.
"Actual Coal Price" has the meaning set forth in
Section 1.9 of Schedule I to the Restated Power Sales Agreement.
"Actual Generation from Coal" means, with respect to
any Coal Unit, for any period the amount of Electricity generated
by such Coal Unit during such period, as measured at the output
side of the main transformer of such Coal Unit.
"Actual Generation from Diesel Fuel" means for any
period the amount of Electricity generated at the Facilities
other than the Coal Facility during such period, as measured at
the relevant Interconnection Points.
"Actual Heat Rate" has the meaning set forth in Section
1.9 of Schedule I to the Restated Power Sales Agreement.
"Additional Output" means Electricity, measured in KWH,
generated in excess of the Nominal Capacity Level over the period
in question in effect at such time in response to a request by
PTFI or a PTFI-Related Entity for such additional Electricity
pursuant to Section 3.01 of the Restated Power Sales Agreement.
"Additional Output Bonus" means for any year, the
lesser of (i) the product of a) $0.02 and b) Additional Output
during such year, and (ii) $2,000,000.
"Administrative Services Agreement" means the Amended
and Restated Project Administrative Services Agreement dated as
of December 19, 1997 between PJP and DEII.
"Adverse Condition" means any condition arising on
PJP's Site or any of the Facilities which would, if not remedied,
be reasonably likely to have a material adverse effect on PTFI's
operations or the operations of a Designated PTFI-Related Entity
at PTFI's Site.
"Affiliate" means, with respect to any Person, any
other Person directly or indirectly controlling, controlled by or
under common control with such Person; provided, that for
purposes of the Restated Power Sales Agreement, PJP shall not be
deemed an Affiliate of any Shareholder. For purposes of this
definition, "control", with respect to any Person, means the
power (a) to direct or cause the direction of the management of
such person, directly or indirectly, whether by contract or
otherwise, or (b) to vote more than 50% of the securities or
beneficial ownership interests (in each case, on a fully diluted
basis) having ordinary voting power for the election of directors
or managing general partners.
"Allocation Percentage" means with respect to any
portion of the Facilities, the aggregate historical cost (without
taking account of any depreciation) of such portion of the
Facilities to the aggregate historical cost (excluding
depreciation) of all of the Facilities. For purposes of
determining the Allocation Percentage, such historical costs
shall be those reflected in PJP's most recent quarterly balance
sheet which, if not audited, shall be audited if so requested by
PJP or PTFI.
"Alteration" means any addition to, or any retirement,
modification, replacement or alteration of, the Facilities or any
portion thereof, other than (x) retirements, modifications,
replacements or alterations in the ordinary course of operation
and maintenance of the Facilities and (y) repairs required to be
made as a result of any Casualty.
"Alteration Costs" means, with respect to any
Alteration, the costs of acquisition, design, development,
construction or retirement incurred in connection with such
Alteration, including the financing of the construction or
acquisition thereof.
"Applicable Law" means, with respect to any Person, any
law, ordinance, judgment, decree, injunction, writ, order, rule,
regulation, determination, license and permit (including
Applicable Permits) of any Governmental Authority applicable to
or binding upon such Person or any of its property.
"Applicable Meter Precision" means, with respect to PML
meters, 0.4%, and, with respect to all other meters, 2.0%.
"Applicable Permit" means any permit, consent,
authorization, license, franchise, variance, waiver or exemption
from any Governmental Authority having jurisdiction over the
matter in question which is required for the development,
operation, management, maintenance, repair or any Alteration of
any Facility or operation of PTFI's Plant, as applicable in
accordance with the terms of the Restated Power Sale Agreement.
"Arbitration Notice" has the meaning set forth in
Section 19.02 of the Restated Power Sales Agreement.
"Articles" means the Articles of Association of the
Company in the form approved by the Minister of Justice of the
Republic of Indonesia and in effect on the date of the Restated
Power Sales Agreement, as amended from time to time.
"Ash Disposal Facility" means a permanent, fully
permitted, operational ash disposal facility, located on PJP's
Site, which is capable of disposing of ash at the Coal Facility
for at least one year.
"Assumed Liabilities" has the meaning set forth in
Section 2.03 of the New Asset Sale Agreement.
"Attachments" means PTFI's cable television facilities,
telephone and other communications lines.
"Available PJP Shares " means the Shares proposed to
be the subject of a PJP Share Issuance.
"Available Property Interest" means the Property
proposed to be the subject of a Property Transfer.
"Available Shareholder Shares" means the Shares and
Subordinated Loans proposed to be the subject of a Shareholder
Share Transfer.
"Availability" means the availability of a Coal Unit as
calculated in accordance with Section 1.10 of Schedule I to the
Restated Power Sales Agreement.
"Availability Bonus" is described in Section 1.10 of
Schedule I to the Restated Power Sales Agreement.
"Availability Penalty" is described in Section 1.10 of
Schedule I to the Restated Power Sales Agreement.
"Base Unit Heat Rate" has the meaning set forth in
Section 1.9 of Schedule I to the Restated Power Sales Agreement.
"BKPM" means Badan Koordinasi Penanaman Modal (the
Foreign Investment Coordinating Board of the Indonesian
Government).
"Block" means, on any date, the number of Shares that
is equal to 12% of the total number of Shares on such date.
"Bonus" means an Additional Output Bonus, Availability
Bonus or Heat Rate Bonus.
"BPN" means Badan Pertanahan National (the Ministry of
Agrarian Affairs of the Indonesian Government).
"Breach", with respect to a party to any Transaction
Document, means the breach, after giving effect to any cure
period provided in this Agreement, by such party of its
obligations under such Transaction Document.
"Business Day" means any Day other than a Saturday,
Sunday, or other day on which banks are authorized to be closed
in Jakarta, Indonesia or New York, New York, as applicable.
"Capacity Charge" for any Quarter, means the amount
calculated in accordance with Section 1.2 of Schedule I to the
Restated Power Sales Agreement for such Quarter.
"Casualty" means any damage to or destruction of any
Power Asset or any other event giving rise to any claim under any
insurance policy covering any Power Asset.
"Change in Law" means (i) the enactment, adoption or
promulgation by any Indonesian Governmental Authority of any
Applicable Law of Indonesia after the date of the Restated Power
Sales Agreement; (ii) the amendment, modification, supplement or
repeal by any Indonesian Governmental Authority of any Applicable
Law of Indonesia in effect on the date of the Restated Power
Sales Agreement or (iii) any adoption, modification or repeal of
any written interpretation of any Applicable Law of Indonesia by
any Indonesian Governmental Authority, in each case not
attributable to the Fault of PJP.
"Change of Control" means:
(i) with respect to DIJ or any transferee of
all the shares of voting stock of DIJ, the transfer of
direct beneficial ownership of more than 50% of the
outstanding shares of voting stock of DIJ or such
transferee, or any Special Purpose Parent of DIJ (other
than to an Affiliate of DIJ or such transferee), other
than any such transfer resulting from any order or
request or other action of any utility regulatory
authority having jurisdiction over DEII (whether or not
having the force of law); and
(ii) with respect to WPI or any transferee of
all the shares of voting stock of WPI, the transfer of
direct beneficial ownership of more than 50% of the
outstanding shares of voting stock of WPI or any such
transferee, or any Special Purpose Parent of WPI (other
than to an Affiliate of WPI or such transferee), other
than any such transfer resulting from any order or
request or other action of any utility or regulatory
authority having jurisdiction over Westcoast (whether
or not having the force of law).
"CIL Adjustment" has the meaning set forth in Section
7.03 of the Restated Power Sales Agreement.
"Closing" means the consummation of the transactions
contemplated by the New Asset Sale Agreement.
"Closing Costs" means all transfer and other taxes, all
notarial and filing costs and fees, and all similar third party
costs which are incurred as a result of any Transaction.
"Closing Date" means the date on which the Closing
occurs.
"Closing Model" means the closing model attached as
Exhibit A to Schedule III to the Restated Power Sales Agreement.
"Coal" has the meaning set forth in the Coal Supply
Agreement.
"Coal Dock" means the coal unloading dock constructed
by PTFI, as more specifically described in the New Asset Sale
Agreement.
"Coal Facility" means the 3 x 65 MW coal-fired
electrical generation assets described as such on Appendix J to
the Restated Power Sales Agreement, and all additions to, and
modifications, replacements and alterations of, the foregoing or
any portion thereof.
"Coal Facility Interconnection Point" means the point
at which the equipment owned by PJP and used to transmit
electricity from the Coal Facility to PTFI's Plant meets the
other equipment owned by PTFI and used for such purposes, as more
fully described in Appendix B to the Restated Power Sales
Agreement.
"Coal Fuel Charge" is the category of payment described
in Section 1.5 of Schedule I to the Restated Power Sales
Agreement.
"Coal Supply Agreement" means the Coal Supply/Purchase
Agreement dated as of July 1, 1996 by and between PTFI and PT
Kaltim Prima, and any additional, successor or replacement
contract for Coal supply for the Coal Facility entered into by
PJP with the consent of PTFI.
"Coal Unit" means any one of the electrical generating
units of the Coal Facility consisting of a discrete boiler,
turbine and generator train.
"Code" means the United States Internal Revenue Code of
1986, as amended.
"Company" means PJP.
"Completed" means with respect to any component of the
New Facilities, the attainment of the Completion Criteria
therefor, as described in Schedule 2.01 of the New Asset Sale
Agreement, and "Completion" shall have its correlative meaning.
"Completion Criteria" has the meaning set forth in
Schedule 2.01 of the New Asset Sale Agreement.
"Completion Date" means, with respect to any of the New
Facilities, the date on which such New Facilities are Completed.
"Commissioner Nominee" has the meaning set forth in
Section 4.1(a) of the Restated Shareholders Agreement.
"Consequential Damages" has the meaning set forth in
Section 18.03 of the Restated Power Sales Agreement.
"Contract Year" means, (i) with respect to the first
Contract Year, the period from the commencement of the Term until
December 31 of that year, (ii) with respect to succeeding
Contract Years, the calendar year; provided, however, that, in
the event this Agreement terminates or the Term expires on a Day
other than December 31, the final Contract Year shall be the
period from the January 1 immediately preceding such termination
until such termination date.
"Contracts" means those contracts, agreements, leases,
licenses, commitments, sales and purchase orders and other
instruments included in the New Facilities.
"Copper Deflator" means, for any given year, the
quotient obtained by dividing (x) the average London Metals
Exchange price for Grade "A" copper (as published by the London
Metals Exchange) for the previous calendar year by (y) the
average London Metals Exchange price for Grade "A" copper for the
year 1998.
"Counted Curtailment Hour" shall mean, with respect to
any Quarter, each Curtailment Hour occurring after the number of
Curtailment hours having already occurred during such year shall
have exceeded the Curtailment Hour Allowance for such year.
"COW" means the Contract of Work entered into between
PTFI and the Indonesian Ministry of Mines and Energy acting for
and on behalf of the Government of the Republic of Indonesia,
dated December 30, 1991, pursuant to which PTFI has been granted,
inter alia, the right to enter, occupy, use and construct certain
facilities on and covered by such Contract of Work.
"COW Area" means the area of PTFI's mining and milling
operations in Irian Jaya, Indonesia.
"COW Operations" means all operations within the COW
Area.
"Curtailment Hour" has the meaning set forth in Section
1.11 of Schedule I to the Restated Power Sales Agreement.
"Curtailment Hour Allowance" has the meaning set forth
in Section 1.11 of Schedule I to the Restated Power Sales
Agreement.
"Curtailment Penalty" has the meaning set forth in
Section 1.11 of Schedule I to the Restated Power Sales Agreement.
"Day" means a calendar day, including Saturdays,
Sundays and holidays.
"Debt" of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed
money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments and (iii) all Debt
of others guaranteed by such Person.
"Debt Component" has the meaning set forth in Section
1.2.1 of Schedule I to the Restated Power Sales Agreement.
"Default Interest Rate" means on any date the 3-month
LIBOR plus two percent (2%).
"Default Remedies Co-ordination Agreement" means that
certain Default Remedies Co-ordination Agreement dated as of
December 19, 1997 among PJP, PTFI, PT RTZ and Citicorp
International Limited, in its capacity as collateral agent for
the Secured Parties (as such term is defined in the PJP Credit
Agreement), as in effect on the date hereof.
"Default Notice" means the notice which shall be
provided by a party in default under the Administrative Services
Agreement to the non-defaulting party pursuant to Section 9.3
thereof.
"Definitive Documents" means the definitive documents
to be executed by the parties in connection with the Closing.
"DEII" means Duke Energy International, Inc., a North
Carolina corporation, and any successor corporation thereto.
"Designated PTFI-Related Entity" means a PTFI Related
Entity identified by PTFI in a written notice to PJP delivered
forty-five (45) Days prior to the proposed commencement of
deliveries of electric capacity and Electricity to such PTFI-
Related Entity, such notice to specify the amount of electric
capacity and Electricity to be made available to such PTFI-
Related Entity.
"Diesel Fuel" means diesel oil meeting the
specifications set forth in the Restated Services Agreement.
"Diesel Fuel Charge" is the category of payment
described in Section 1.5 of Schedule I to the Restated Power
Sales Agreement.
"Diesel Fuel Interconnection Points" means the points
shown on Appendix B to the Restated Power Sales Agreement at
which Diesel Fuel is delivered to PJP.
"DIJ" means Duke Irian Jaya, Inc., a Delaware
corporation.
"Director Nominee" has the meaning set forth in Section
4.1(a) of the Restated Shareholders Agreement.
"Dollars" or "$" means the lawful currency of the
United States of America.
"Electricity" means the electrical energy as measured
in kilowatt hours supplied to the Interconnection Point for each
Facility.
"Energy Price of Coal" has the meaning set forth in
Section 1.10 of Schedule I to the Restated Power Sales Agreement.
"Energy Price of Diesel Fuel" has the meaning set forth
in Section 1.10 of Schedule I to the Restated Power Sales
Agreement.
"Energy Price Delta" has the meaning set forth in
Section 1.10 of Schedule I to the Restated Power Sales Agreement.
"Equipment" means all equipment, materials, office
furnishings and equipment, apparatus, tools, instruments,
vehicles, software, structures, and other goods incorporated
into, or used for, or in connection with, the operation of the
Facilities or PTFI's Plant, as applicable, including spare parts
when incorporated into the Facilities or PTFI's Plant, as
applicable.
"Equity Component" has the meaning set forth in Section
1.2.2 of Schedule I to the Restated Power Sales Agreement.
"Evaluation Period" means the period beginning on the
Closing Date and ending on December 31, 1999.
"Event of Default" has the meaning set forth in Section
16.01 of the Restated Power Sales Agreement.
"Excluded Liabilities" has the meaning set forth in
Section 2.04 of the New Asset Sale Agreement.
"Existing Assets" means the existing electric power
assets owned by the Company as of the date of the Restated Power
Sales Agreement, which includes approximately 193 MW of diesel
and hydroelectric generating assets and related transmission and
other assets.
"Existing Facilities" means the collective reference to
the Mill Site Facility, the Timika Facility, the LIP Facility and
the Port Site Facility.
"Extended Force Majeure" means a Force Majeure Event
affecting PJP that remains in effect for more than six months,
during which PJP is not capable of producing Electricity at more
than 80% of the Target Capacity Level of all Facilities in the
aggregate, resulting in a continuous Milling Material Curtailment
or Shipping Material Curtailment during such period.
"Facility" means any of the Mill Site Facility, the
Coal Facility, the Timika Facility, the LIP Facility and the Port
Site Facility and "Facilities" means the collective reference to
the foregoing.
"Fair Market Value" means, on any date, the fair market
value of any asset (excluding any inventory of Diesel Fuel, Coal
or spare parts or equipment and any debt relating to such
inventory) as determined by an appraisal conducted by a qualified
independent appraiser selected by PTFI (with the reasonable
approval of PJP), which appraisal shall utilize the discounted
cash flow method of valuation.
"Fault" means negligence or willful misconduct.
"Financing Document" means any promissory note,
security document or other agreement pursuant to which PJP
obtains financing for the transactions contemplated by the New
Asset Sale Agreement or for any Alteration and the refinancing of
the Existing Assets.
"Financing Entities" means Senior Secured Lenders.
"Fixed O&M Charge" for any month, means the amount
calculated in accordance with Section 1.3 of Schedule I to the
Restated Power Sales Agreement for such month.
"Force Majeure Event" has the meaning set forth in
Section 13.01 to the Restated Power Sales Agreement.
"Fuel Charge" shall mean the sum of the Diesel Fuel
Charge and the Coal Fuel Charge.
"Fundamental Issue" has the meaning set forth in
Section 5.1 of the Restated Shareholders Agreement.
"Future Assets" means any assets owned by PJP
constructed, acquired, leased or otherwise obtained after the
Closing Date on the Untitled Land or the Land.
"GDP Deflator Index" means the United States Gross
Domestic Product Implicit Price Deflator Index published
quarterly by the Bureau of Economic Analysis of the U.S.
Department of Commerce or, if publication of that index ceases, a
similar index published by such other organization upon which PJP
and PTFI may mutually agree.
"GDP Deflator" means, for any given year, the ratio of
the last available GDP Deflator Index for the "III Quarter" of
the previous calendar year divided by that for the "III Quarter"
of the calendar year 1998.
"Generally Accepted Practices" means those practices,
methods, standards and acts approved or engaged in by a
substantial portion of Persons engaged in the construction,
operation and maintenance of sole-supplier electrical generating
facilities of a comparable nature, use and size as the
Facilities, which, in the exercise of reasonable judgment in
light of the facts known at the time a decision was made, would
have been expected to accomplish the desired result under the
circumstances with efficiency and dependability in accordance
with Applicable Law, safety and environmental protection;
provided, however, that, for a period of five (5) years from
December 26, 1994, PJP shall be presumed to have followed
Generally Accepted Practices to the extent that it engages in any
practices, methods, standards and acts engaged in by PTFI in the
ownership, operation and maintenance of the Existing Facilities
prior to December 26, 1994 (except to the extent PJP has actual
knowledge that any such practices, standards, methods or acts
would not otherwise constitute Generally Accepted Practices).
"General Manager" means the general manager of PJP,
which person shall be designated by PJP pursuant to Section 4.2
of the Technical Services Agreement and shall, among other
things, manage and administer PJP's affairs and act as liaison
with Contractor.
"Gold Deflator" means, for any given year, the quotient
obtained by dividing (x) the average of the daily "Final"
quotations for bullion quality gold on the London Free Bullion
Market (as published in "Metals Week") for the previous calendar
year by (y) the average of the daily "Final" quotations for
bullion quality gold on the London Free Bullion Market (as
published in "Metals Week") for the year 1998.
"Governmental Actions" means all proceedings, orders,
injunctions, authorizations, concessions, exceptions and other
similar actions of any Governmental Authority.
"Governmental Authority" means any federal, state,
local or foreign government, political subdivision, agency,
board, court, regulatory body or commission, any arbitrator with
authority to bind a party at law, any Person acting lawfully on
behalf of any of the foregoing, or any successor of any of the
foregoing.
"Hazardous Substances" means any pollutants,
contaminants, or toxic or hazardous substances or wastes
regulated under any Applicable Law now or hereafter in effect and
in each case as amended, and any judicial or administrative
interpretation thereof, or under any judicial or administrative
order, consent decree or judgment, relating to pollution, or the
environment, including laws relating to noise or to emissions,
discharges, releases or threatened releases of pollutants,
contaminants, toxic or hazardous substances or wastes into the
workplace, the community or the environment (including air,
surface water, ground water, land surface or subsurface strata),
or otherwise relating to the generation, manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, toxic or hazardous
substances or wastes.
"Heat Rate" means the amount of energy, expressed in
BTU/KWH, required to generate a kilowatt-hour of electricity.
"Heat Rate Bonus" has the meaning set forth in Section
1.9 of Schedule I to the Restated Power Sales Agreement.
"Heat Rate Penalty" has the meaning set forth in
Section 1.9 of Schedule I to the Restated Power Sales Agreement.
"HGB Title" means Hak Guna Bangunan title as provided
under Indonesian law.
"Hourly Availability" has the meaning set forth in
Section 1.10 of Schedule I to the Restated Power Sales Agreement.
"Hypothetical Taxpayer" means a hypothetical United
States corporation (i) whose taxable year is the calendar year,
(ii) that is subject to United States federal Taxes each taxable
year at the highest applicable marginal rate in effect for
calendar year corporations, (iii) that is a stand-alone United
States corporation not part of any consolidated, combined or
similar group with respect to United States federal Taxes and
that has no Affiliates, (iv) whose only assets consist of
Subordinated Loans to, and equity interests in, PJP, (v) whose
only income consists of income derived from the holding of
Subordinated Loans to, and equity interests in, PJP, (vi) whose
only expenses or other deductions for United States federal
income tax purposes each taxable year are (x) general and
administrative expenses equal to three percent (3%) of
distributions (gross of any Indonesian Taxes paid with respect to
such distributions) received from PJP during the year and (y)
interest expense for each quarter during the year equal to
1.23125% of the amount set forth on Schedule III to the Restated
Power Sales Agreement under the heading "Outstanding Investment"
with respect to such quarter, (vii) that makes an election under
section 1295 of the Code to treat PJP as a "qualified electing
fund" for the first taxable year for which it can make such
election, (viii) that is not subject to United States federal
alternative minimum tax under section 55 of the Code, as amended
from time to time, (ix) that is not an Indonesian resident
(unless the activities attributable to holding the Subordinated
Loans to, and equity interests in, PJP would cause such
corporation to be treated as an Indonesian resident), and (x)
that is treated as a corporation for United States federal income
tax purposes.
"ICC" means the "International Chamber of Commerce."
"Improvements" means all of the buildings, Facilities
and other structures, whether partially or fully completed as of
the date hereof or completed in the future pursuant to the New
Asset Sale Agreement or otherwise, located on, in or under the
Land and the Untitled Land, including, the Coal Facility, the
Coal Dock and the New Transmission Line (excluding the fiber
optics cable included in the New Transmission Line).
"Improvement-Related Property" means all plans,
specifications, surveys, contracts, permits, licenses, consents,
causes of action, books and records relating to the Improvements
to the extent they are assignable or transferable.
"Indemnified Party" has the meaning set forth in
Section 10.02 of the New Asset Sale Agreement.
"Indemnifying Party" has the meaning set forth in
Section 10.02 of the New Asset Sale Agreement.
"Independent Engineer" means any engineering firm
selected from the list on Appendix H to the Restated Power Sales
Agreement.
"Indonesian Government" means the government of the
Republic of Indonesia or any ministry, agency, department or
instrumentality thereof.
"Indonesian Inflation Index" means an index, to be
established in accordance with Section 1.7.3 of Schedule I to the
Restated Power Sales Agreement, that is intended to measure the
year-to-year change in per capita monetary compensation to
Indonesian nationals employed by PTFI.
"Indonesian Inflation Ratio" means, for any year, the
ratio of the Indonesian Inflation Index for the previous calendar
year divided by that for the calendar year 1997.
"Initial Term" has the meaning set forth in Section
2.01 of the Restated Power Sales Agreement.
"Interconnection Points" means, collectively, the Coal
Facility Interconnection Point, the Mill Site Interconnection
Point, the Port Site Interconnection Point, the LIP
Interconnection Point, and the Timika Interconnection Point, and
"Interconnection Point" means any one of the foregoing, each as
more fully described in Appendix B to the Restated Power Sales
Agreement.
"KWH" means kilowatt hours.
"Land" means the tract or parcel of land located in the
Province of Irian Jaya, Indonesia, shown on the map attached to
the New Asset Sale Agreement, as Exhibit A thereto, together with
all rights and appurtenances appertaining or belonging thereto.
"Letter Agreement" means that certain agreement dated
June 20, 1995 between PJP and PTFI, a copy of which is attached
to the Restated Power Sales Agreement as Schedule V.
"Letters" means (i) the letter from IR. Soni Harsono,
Minister for Agrarian Affairs/Head of BPN to the President
Director of PTFI concerning Landrights and
acknowledgments/Recognition Related to Sale and Transfer of
Infrastructure Assets, dated September 2, 1993, a copy of which
is attached to the New Asset Sale Agreement as Exhibit F-1, and
(ii) the letter from Ida Bagus Sudjana, Minister of Mines and
Energy to the President Director of PTFI concerning Consent to
the Sale of Supporting Infrastructure Assets, dated December 18,
1993, a copy of which is attached to the New Asset Sale Agreement
as Exhibit F-2.
"LIP Facility" means the electrical generation and
transmission assets described as such on Appendix K to the
Restated Power Sales Agreement, and all additions to, and
modifications, replacements and alterations of, the foregoing or
any portion thereof.
"LIP Interconnection Point" means the point at which
the equipment owned by PJP and used to transmit electricity from
the LIP Facility to PTFI's Plant meets the other equipment owned
by PTFI and used for such purposes.
"Lien" means, with respect to any property or asset,
any lien, mortgage, encumbrance, pledge, charge, lease, easement,
servitude, right of others or security interest of any kind,
including any of the foregoing arising under conditional sales or
other title retention agreements.
"Life Cycle Costs" means the incremental capital costs
and incremental operating costs of a Required Alteration over its
useful life.
"Local Political Risk Event" means any one of the
following events:
(i) ownership, operation or management of PJP or
the Facilities is adversely affected by a strike or
labor dispute involving laborers of PJP at PJP's Site
and laborers of PTFI at PTFI's Site;
(ii) ownership, operation or management of PJP or
the Facilities is adversely affected, directly or
indirectly, by any type of locally usurped power, local
insurrection, riot, civil strife or terrorism or
sabotage which, in any such case, occurs in Irian Jaya,
Indonesia;
(iii) the interruption or curtailment of the
operation of the Facilities or of PTFI's Plant as a
result of PTFI's noncompliance with any Applicable Law
or Applicable Permit of an Indonesian Governmental
Authority which renders PJP unable to fully perform its
obligations to deliver electric capacity or Electricity
under the Restated Power Sales Agreement.
"Loss" has the meaning set forth in Section 10.01 of
the New Asset Sale Agreement.
"Low Voltage Assets" means the low voltage distribution
assets of PTFI.
"Maintenance Agreement" means that certain Maintenance
Agreement dated as of December 19, 1997 between PJP and PTFI.
"Major Maintenance Outage" means a scheduled outage for
the purpose of inspecting a Coal Unit.
"Major Unexcused Outage" means an Unexcused Outage
during which (A)(i) the Mill Site Facility and the Coal Facility
in the aggregate produce Electricity at less than 80% of the
combined Target Capacity Levels for both such Facilities for any
continuous period of seventy-two (72) hours, or for one hundred
sixty-eight (168) hours in the aggregate during any Quarter, and
(ii) PTFI is caused to suffer and continues to suffer a Milling
Material Curtailment as a result of such Unexcused Outage; or
(B)(i) the Coal Facility produces Electricity at less than 80% of
its Target Capacity Level for any continuous 336-hour period, or
for four hundred eighty (480) hours in the aggregate during any
Quarter, and (ii) PTFI is caused to suffer a Shipping Material
Curtailment as a result of such Unexcused Outage.
"Mandatory Purchase Right" means the right granted by
PTFI to PJP requiring PTFI to offer to acquire all of the
Property, as more fully described in Section 4.01 of the Option
Agreement.
"Mandatory Purchase Right Exercise Notice" means the
written notice given by PJP to PTFI, as more fully described in
Section 4.04 of the Option Agreement.
"Mandatory Purchase Right Exercise Notice Date" means
the date of the Mandatory Purchase Right Exercise Notice.
"Mandatory Purchase Right Purchase Price" means the
price, as determined in accordance with Section 4.05 of the
Option Agreement, paid by PJP for the exercise of its Mandatory
Purchase Right.
"Material Adverse Effect" means (i) a material adverse
effect on the New Facilities, taken as a whole; and (ii) with
respect to the New Facilities, the inability of the New
Facilities to meet the respective Target Capacity Levels
applicable to such Facilities.
"Meters" means the metering and measurement devices
installed by PJP and used to measure the amount of Electricity
delivered by PJP to PTFI pursuant to Article VI of the Restated
Power Sales Agreement.
"Mill Site Facility" means the electrical generation
and transmission assets described as such on Appendix F to the
Restated Power Sales Agreement, and all additions to, and
modifications, replacements and alterations of, the foregoing or
any portion thereof.
"Mill Site Interconnection Point" means the point at
which the equipment owned by PJP and used to transmit electricity
from the Mill Site Facility to PTFI's Plant meets the other
equipment owned by PTFI and used for such purposes.
"Milling Material Curtailment" means a complete and
involuntary shutdown of any ball mill or any of the SAG mills or
the crushing and screening plant at PTFI's Plant caused by an
Unexcused Outage.
"Mine Operator" means the Person who, at any time and
from time to time, is the operator of COW Operations.
"MOME" means Menteri Pertambangan Dan Energi (the
Ministry of Mines and Energy of the Indonesian Government).
"MW" means megawatts.
"National Electrical Safety Code" shall mean the
National Electrical Safety Code of Indonesia.
"New Asset Sale Agreement" means that certain Second
Asset Sale Agreement, dated as of the date of the Restated Power
Sales Agreement, between PJP and PTFI.
"New Diesel Facilities" means the third, fourth and
fifth diesel generators installed or to be installed at the LIP
Facility.
"New Facilities" means (i) the Coal Facility; (ii) the
New Transmission Line; (iii) the Coal Dock; (iv) the New Diesel
Facilities; (v) the transmission line between the LIP Facility
and the substation at milepost 38/39; (vi) the Ash Disposal
Facility and (vii) any and all ancillary physical assets conveyed
under the New Asset Sale Agreement.
"New Transmission Line" means the new high voltage
230kv transmission line being constructed to connect the Coal
Facility and the Port Facility with the Mill Site Facility.
"Nominal Capacity Level" means 320MW, as adjusted
pursuant to the Letter Agreement.
"Nominee" means a Commissioner Nominee or a Director
Nominee.
"O&M Charge" means the Fixed O&M Charge and the
Variable O&M Charge.
"OM&M Termination Agreement" means the OM&M Termination
Agreement dated as of the date of the Restated Power Sales
Agreement, between PJP and P.T. Nusantara Power Services, which
terminates the Original OM&M Agreement.
"Option Agreement" means the Option, Mandatory Purchase
and Right of First Refusal Agreement between PTFI and PJP dated
the date of the Restated Power Sales Agreement pursuant to which
PTFI has the right, under certain circumstances, to repurchase
the Facilities in accordance with the terms thereof.
"Option Period" has the meaning set forth in Section
2.01 of the Option Agreement.
"Option Price" means, on any date, the amount set forth
on Schedule III to the Restated Power Sales Agreement under the
heading "Option Price" opposite the quarter in which such date
occurs.
"Original Asset Sale Agreement" means the Asset Sale
Agreement, dated as of December 27, 1994, between PTFI and PJP.
"Original OM&M Agreement" means the Operating,
Maintenance and Management Agreement dated December 27, 1994
between PJP and P.T. Nusantara Power Services as amended by First
Amendment to Operations, Maintenance and Management Agreement
dated as of April 15, 1996.
"Original Power Sales Agreement" means the Power Sales
Agreement dated December 27, 1994 between PJP and PTFI, as
amended by the First Amendment to the Power Sales Agreement dated
as of April 15, 1996.
"Original Services Agreement" means the Services
Agreement dated December 27, 1994 between PJP and PTFI.
"Original Shareholders" means DIJ, PIC, PTFI and PNJ.
"Original Shareholders Agreement" means the
Shareholders Agreement dated as of December 27, 1994 among the
Original Shareholders.
"Outstanding Investment" means, on any date, the amount
set forth on Schedule III to the Restated Power Sales Agreement
under the heading "Outstanding Investment" opposite the quarter
in which such date occurs.
"Penalty" means an Availability Penalty, Curtailment
Penalty or Heat Rate Penalty.
"Permit" has the meaning set forth in Section 3.08 of
the New Asset Sale Agreement.
"Permitted Lien" has the meaning set forth in Section
3.06(a) of the New Asset Sale Agreement.
"Person" means an individual, corporation, limited
liability company, partnership, joint venture, association,
joint-stock company, unincorporated organization, trust or other
entity or organization, including any Governmental Authority.
"PIC" means Powerlink Indonesia Company, L.L.C., a
Delaware limited liability company.
"PJP" means P.T. Puncakjaya Power, an Indonesian
limited liability company.
"PJP Credit Agreement" means that certain Credit
Agreement dated as of December 19, 1997 among PJP, each of the
financial institutions that is from time to time a Lender
thereunder, and Citicorp International Limited as Agent Bank and
Collateral Agent, as in effect on the date hereof.
"PJP Indemnitee" has the meaning set forth in Section
11.02 of the Restated Power Sales Agreement.
"PJP Share Issuance" shall mean each issuance of any
Shares of PJP, whether or not previously issued, which PJP
desires to issue, sell, convey, transfer or assign.
"PJP Share Issuance Intent Notice" means the written
notice given by PJP to PTFI stating PJP's intention to make a PJP
Share Issuance.
"PJP Share Sale Notice" has the meaning set forth in
Section 5.04 of the Option Agreement.
"PJP's Site" means the property described in Appendices
D, F, G, J and K to the Restated Power Sales Agreement, in the
aggregate.
"PLN" means PT PLN (Persero) (the national electric
company of the Indonesian Government).
"PNJ" means P.T. Prasarana Nusantara Jaya, an
Indonesian limited liability company, formerly P.T. Austindo
Nusantara Jaya.
"Pole Attachment Agreement" shall mean that certain
Pole Attachment Agreement dated as of December 19, 1997 between
PJP and PTFI.
"Port Site Facility" means the electrical generation
and transmission assets described as such on Appendix G to the
Restated Power Sales Agreement, and all additions to, and
modifications, replacements and alterations of, the foregoing or
any portion thereof.
"Port Site Interconnection Point" means the point at
which the equipment owned by PJP and used to transmit electricity
from the Port Site Facility to PTFI's Plant meet the equipment
owned by PTFI and used for such purposes, as more fully described
in Appendix B to the Restated Power Sales Agreement.
"Post-Closing Permit" has the meaning set forth in
Section 3.08 of the New Asset Sale Agreement.
"Post-Closing Tax Period" means, with respect to any of
the New Facilities, any and all Tax periods (or portion thereof)
ending after the Closing Date.
"Power Assets" means the collective reference to the
Existing Assets and the New Facilities.
"Power Plant A" means the 43.9 MW electric generating
facility consisting of sixteen (16) diesel generator sets and
forming part of the Mill Site Facility.
"Power Plant C" means the 72 MW electric generating
facility consisting of eighteen (18) diesel generator sets and
forming part of the Mill Site Facility.
"Pre-Approved Party" has the meaning set forth in
Sections 3.03, 5.03 and 7.03, respectively, of the Option
Agreement.
"Pre-Closing Tax Period" means any and all Tax periods
(or portions thereof) ending on or before the close of business
on the Closing Date.
"Project Area" means the area of PTFI's operations in
Irian Jaya, Indonesia.
"Project Services Fees" means those fees and expenses
for services performed and expenses incurred by DEII pursuant to
the Administrative Services Agreement.
"Property" means the Use Rights, the Land, the
Improvements and the Improvement-Related Property.
"Property Purchase Exercise Notice" means the written
notice given by PTFI to PJP pursuant to Section 2.04 of the
Option Agreement.
"Property Purchase Exercise Notice Date" means the date
of the Property Purchase Exercise Notice.
"Property Purchase Option" has the meaning set forth in
Section 2.01 of the Option Agreement.
"Property Purchase Option Price" means the amount, as
determined in accordance with Section 2.05 of the Option
Agreement, to be paid by PTFI to PJP for the sale and transfer of
the Property.
"Property Sale Notice" means the notice given by PJP to
PTFI of PJP's receipt of an offer from a Person to purchase all
or a portion of the Property and PJP's intent to accept such
offer.
"Property Transfer" means a sale, conveyance, transfer
or assignment of Property by PJP as described in Section 3.01 of
the Option Agreement.
"Property Transfer Intent Notice" means the written
notice given by PJP to PTFI stating PJP's intention to make a
Property Transfer.
"Proportionate Amount" means on any date, the
percentage derived by dividing (x) the number of Shares being
purchased, or sold, as the case may be, by a Shareholder by (y)
the total number of issued and outstanding Shares.
"Proposed Transferee" has the meaning set forth in
Section 3.4 of the Restated Shareholders Agreement.
"Prudent Utility Practices" means the practices,
methods and acts engaged in or internationally approved by the
majority of thermal electric generating companies that, at that
particular time, in the exercise of reasonable judgment in light
of the facts known or that reasonably should have been known at
the time a decision was made, would have been expected to
accomplish the desired result in a manner consistent with law,
regulation, reliability, safety, economy and environmental
protection.
"PSA Subordinated Debt" means debt of PJP to PTFI which
shall (i) bear interest at the Default Rate, (ii) be payable as
to principal and interest in quarterly installments equal to an
amount which, on the date of payment thereof, bears the same
ratio to the amount then being paid by PJP to its Shareholders as
dividends or in respect of Subordinated Loans, as the original
principal amount of the PSA Subordinated Debt bears to the
Outstanding Investment on the date the PSA Subordinated Debt is
made available, (iii) be payable by PJP solely from amounts
which, in accordance with the Financing Documents, are available
for PJP to pay dividends or amounts due in respect of
subordinated debt to Shareholders or their Affiliates, and (iv)
otherwise be subject and subordinate to all amounts owing by PJP
to Senior Secured Lenders on the basis set forth in Schedule VII
to the Restated Power Sales Agreement.
"PTFI" means P.T. Freeport Indonesia Company, an
Indonesian limited liability company, domesticated in the State
of Delaware, U.S.A.
"PTFI Indemnitee" has the meaning set forth in Section
11.01 of the Restated Power Sales Agreement.
"PTFI Participation Agreement" means that certain
Participation Agreement dated October 11, 1996 between PTFI and
PT RTZ, as amended, modified or supplemented from time to time.
"PTFI's Plant" means, collectively, the facilities
owned or operated by PTFI on PTFI's Site, any additions thereto,
and any modifications and replacements thereof, all as more
specifically described in Appendix C to the Restated Power Sale
Agreement.
"PTFI-Related Entity" means any Person conducting
business at PTFI's Site on or after the commencement of the Term,
as designated by PTFI from time to time.
"PTFI's Site" means the property set forth in Appendix
E to the Restated Power Sales Agreement.
"PT Kaltim Prima" means PT Kaltim Prima Coal, a company
incorporated under the laws of the Republic of Indonesia.
"PT RTZ" means P.T. RTZ-CRA Indonesia, an Indonesian
limited liability company.
"Purchase Price" has the meaning set forth in Section
2.01 of the New Asset Sale Agreement.
"Quarter" means each of the quarterly periods (or in
the case of the first and last thereof, the portion of such
period) ending on and including March 31, June 30, September 30
and December 31 of each Contract Year.
"Real Property" has the meaning set forth in Section
2.08 of the New Asset Sale Agreement.
"Refurbished Year" has the meaning set forth in Section
1.9 of Schedule I to the Restated Power Sales Agreement.
"Reliability" has the meaning set forth in Appendix L
to the Restated Power Sales Agreement.
"Renewal Term" has the meaning set forth in Section
2.01 of the Restated Power Sales Agreement.
"Representative" means, with respect to a party, any of
its or its Affiliates' officers, directors, employees, agents,
advisors or any Affiliate of such party.
"Required Alteration" has the meaning set forth in
Section 7.03(e) of the Restated Power Sales Agreement.
"Required Consent" has the meaning set forth in Section
3.05 of the New Asset Sale Agreement.
"Restated Power Sales Agreement" means the Amended and
Restated Power Sales Agreement dated as of December 18, 1997
between PJP and PTFI which amends and restates the Original Power
Sales Agreement.
"Restated Services Agreement" means that Amended and
Restated Services Agreement, dated as of the date of the Restated
Power Sales Agreement, between PTFI and PJP which amends and
restates the Original Services Agreement.
"Restated Shareholders Agreement" means that certain
Amended and Restated Shareholders Agreement, dated as of the date
of the Restated Power Sales Agreement, among DIJ, WPI, PNJ and
PJP.
"Restricted Transfer" has the meaning set forth in
Section 3.1 of the Restated Shareholders Agreement.
"Restricted Transfer Notice" has the meaning set forth
in Section 3.4 of the Restated Shareholders Agreement.
"Retained Right of Access" means any right of access
retained by PTFI to the Facilities, including, without
limitation, an easement in favor of PTFI with respect to the
Facilities and any right of reentry in favor of PTFI under the
Restated Power Sales Agreement.
"Right of First Refusal as to Portfolio Shares" has the
meaning set forth in Section 5.01 of the Option Agreement.
"Right of First Refusal as to Property" has the meaning
set forth in Section 3.01 of the Option Agreement.
"Rupiah" or "Rp" means the lawful currency of the
Republic of Indonesia.
"R.V." means the Reglement op de Rechtsvordering.
"Safety Program" has the meaning set forth in Section
8.03 of the Restated Power Sales Agreement.
"SCADA" means the computer management program known as
"supervisory control and data acquisition system."
"Second Renewal Term" has the meaning set forth in
Section 2.01 of the Restated Power Sales Agreement.
"Senior Officer" means any chief executive officer,
chief financial officer, president, executive vice president or
senior vice president.
"Senior Secured Lender" means any third party or
parties providing debt financing or refinancing for PJP's
acquisition of the Facilities or for any Alteration, including
any commercial banks, institutional lenders, holders of bonds, or
any trustee or collateral agent acting on behalf of any of the
foregoing.
"Services" means, collectively, those services that PJP
shall perform pursuant to Section 2.01 of the Maintenance
Agreement.
"Share" means any issued and outstanding share of
authorized share capital (voting common stock) of PJP.
"Shareholder" means each of DIJ, WPI and PNJ, in each
case for so long as it owns Shares, and its successors and, to
the extent permitted by the terms of the Restated Shareholders
Agreement and of the Articles, any transferee of any Shares it
owns.
"Shareholder Share Purchase Exercise Notice" means the
written notice given by PTFI to any Shareholder of PTFI's
election to exercise the Shareholder Share Purchase Option.
"Shareholder Share Purchase Exercise Notice Date" means
the date of the Shareholder Share Purchase Exercise Notice.
"Shareholder Share Purchase Option" has the meaning set
forth in Section 6.01 of the Option Agreement.
"Shareholder Share Purchase Option Price " means the
amount to be paid by PTFI to each Shareholder for the sale and
transfer of such Shareholder's Shares and Subordinated Loans, if
any, such amount to be determined in accordance with Section 6.05
of the Option Agreement.
"Shareholder Share Right of First Refusal" means the
exclusive right of first refusal granted by each of the
Shareholders to PTFI to acquire any Shares and Subordinated
Loans, if any, owned by such Shareholder which such Shareholder
desires to sell, convey, transfer or assign to any Person other
than a Shareholder or an Affiliate thereof.
"Shareholder Share Sale Notice" means the written
notice given by a Shareholder to PTFI of an offer from a Person
to purchase all or a portion of such Shareholder's Shares and
Subordinated Loans, as such notice is more fully described in
Section 7.04 of the Option Agreement.
"Shareholder Share Transfer" has the meaning set forth
in Section 7.01 of the Option Agreement.
"Shareholder Share Transfer Intent Notice" means the
written notice given by a Shareholder to PTFI of its intention to
make a Shareholder Share Transfer.
"Shipping Material Curtailment" means, with respect to
PTFI's shipping operations, any delay in the scheduled departure
of an ore transport ship from PTFI's port facilities caused by an
Unexcused Outage that results in PTFI incurring demurrage charges
not promptly reimbursed by PJP.
"Site Procedures" has the meaning set forth in Section
8.03(a) of the Restated Power Sales Agreement.
"Special Purpose Parent" means, with respect to DIJ or
WPI, or any transferee of either of them, any Person
substantially all of the assets of which consist of an indirect
ownership interest in PJP.
"Subordinated Loan" means a subordinated loan made by
any Shareholder to PJP and evidenced by one or more notes which
provide for the express subordination of such loans on the terms
and conditions set forth in Schedule VII to the Restated Power
Sales Agreement and are otherwise in form and substance
satisfactory to the parties to the Restated Shareholders
Agreement.
"Support Services" means those services identified in
Schedule 5.1 to the Restated Services Agreement.
"Target Capacity Level" means, with respect to the Port
Site Facility, 4.4 MW; with respect to the Coal Facility, 0 MW;
with respect to the Mill Site Facility, 125 MW; with respect to
the LIP Facility and the Timika Facility combined, 10.8 MW, in
each case at a generator power factor of not less than 0.85 as
such Target Capacity Levels are adjusted in accordance with
Section 3.05 of the Restated Power Sales Agreement.
"Target Heat Rate" has the meaning set forth in Section
1.9 of Schedule I to the Restated Power Sales Agreement.
"Tax" and "Taxes" means any and all present and future
taxes, charges, fees, levies, imposts, duties, and other
assessments, including, without limitation, any income,
alternative, minimum or add-on tax, gross income, gross receipts,
sales, use transfer, ad valorem, value added, franchise,
registration, title, license, capital, paid-up capital, profits,
withholding, payroll, employment, excise, severance, stamp,
occupation, premium, real property, personal property,
environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest, penalties, or additions
to tax.
"Tax Adjustment" has the meaning set forth in Section
7.03(b) of the Restated Power Sales Agreement.
"Tax Gross-Up" has the meaning set forth in Schedule
III to the Restated Power Sales Agreement.
"Tax Indemnity Agreement" means the Amended and
Restated Tax Indemnity Agreement dated as of December 27, 1994
between PTFI and DIJ, as amended by that certain letter agreement
dated December 19, 1997 between PTFI and DIJ.
"Term" shall mean, collectively, the Initial Term and
any Renewal Term(s).
"Third Party Asset" means any Future Asset of PJP
constructed, acquired, leased or otherwise obtained by PJP for
the purpose of generating and selling electric energy or capacity
to a third party.
"Third Party Asset Price" means, on any date, with
respect to any Third Party Assets, the greater of (i) the Fair
Market Value of such Third Party Assets on such date and (ii) the
net book value of such assets as reflected in the most recent
balance sheet of PJP.
"Timika Facility" means the electrical generation and
transmission assets described as such on Appendix D to the
Restated Power Sales Agreement, and all additions to, and
modifications, replacements and alterations of, the foregoing or
any portion thereof.
"Timika Interconnection Point" means the point at which
the equipment owned by PJP and used to transmit electricity from
the Timika Facility to PTFI's Plant meets the equipment owned by
PTFI and used for such purposes.
"Transaction Documents" means the Restated Power Sales
Agreement, the Restated Services Agreement, the New Asset Sale
Agreement, the Restated Shareholders Agreement, the Option
Agreement, the Technical Services Agreement, the Share Purchase
Agreement, the Pole Attachment Agreement, the Maintenance
Agreement, the Administrative Services Agreement, the OM&M
Termination Agreement, the Default Remedies Co-ordination
Agreement and any other documents or agreements executed and
delivered as a part of the Closing.
"Transferor" shall mean the transferor of Shares or
Property, as the case may be.
"Unexcused Outage" means, with respect to a specific
Facility, any failure by PJP to maintain an operating level equal
to the Target Capacity Level of such Facility to the extent such
failure is not the result of (i) one or more Local Political Risk
Events, (ii) the making of any Required Alteration during the
period thereof, the failure to have made a Required Alteration as
a result of PTFI's failure to consent thereto as contemplated in
the Restated Power Sales Agreement, or any delay in making a
Required Alteration during the pendency of arbitration
proceedings related to such Required Alteration, (iii) the
failure of PJP or any permitted assignee of PJP pursuant to
Section 11.07 of the Restated Services Agreement, to receive a
service or of PTFI or any successor or permitted assignee of PTFI
to otherwise fulfill an obligation, in each case, pursuant to the
Restated Services Agreement, including, without limitation, the
failure of PJP to receive Diesel Fuel whether or not as a result
of a Force Majeure Event affecting PTFI, a Local Political Risk
Event or any failure of the coal supplier to deliver Coal under
the Coal Supply Agreement (except any failure of PJP to receive
Diesel Fuel or Coal to the extent resulting from PJP's Fault or
Breach (other than a PJP Breach under the Coal Supply Agreement
resulting from PTFI's failure to make payments due under the
Restated Power Sales Agreement)), (iv) any action taken at the
direction of, or taken by, PTFI (including, without limitation,
interconnections pursuant to Section 5.01 of the Restated Power
Sales Agreement, PTFI's installation of check meters pursuant to
Section 6.01 of the Restated Power Sales Agreement, or its
purchase from third parties, or production of, Electricity, or
the curtailment or reduction in deliveries of Electricity,
pursuant to Section 3.02 or 3.06 of the Restated Power Sales
Agreement) which has a material adverse effect on PJP's ability
to perform its obligations under the Restated Power Sales
Agreement, (v) any outage or failure of the New Transmission Line
during the Evaluation Period, (vi) failure of PTFI to obtain any
Post-Closing Permit as provided in the New Asset Sale Agreement
or (vii) PTFI's Fault or Breach.
"Unit Major Maintenance Outage Year" has the meaning
set forth in Section 1.9 of Schedule I to the Restated Power
Sales Agreement.
"Unit Rating" means the capacity level of a unit of any
Facility determined in accordance with the Completion Criteria
for such unit, as adjusted pursuant to Section 3.05 of the
Restated Power Sales Agreement.
"Untitled Land" means those tracts or parcels of Land
located in the Province of Irian Jaya, Indonesia as to which PJP
has Use Rights but as to which PJP does not have HGB Title.
"Use Rights" means the right to enter, use, occupy and
construct building facilities on the Untitled Land.
"Variable O&M Charge" for any month, means the amount
calculated in accordance with Schedule I to the Restated Power
Sales Agreement for such month.
"Vendor" shall mean a party, including PTFI, that
provides services to PJP that assist PJP in the performance of
its obligations under the Restated Power Sales Agreement.
"Westcoast" has the meaning set forth in the first
paragraph of the Restated Shareholders Agreement.
"WPI" has the meaning set forth in the first paragraph
of the Restated Shareholders Agreement.
THE REMAINING APPENDICES AND SCHEDULES LISTED BELOW HAVE BEEN OMITTED AND
WILL BE PROVIDED UPON REQUEST.
APPENDIX B INTERCONNECTION POINTS
APPENDIX C PTFI'S PLANT
APPENDIX D TIMIKA FACILITY
APPENDIX E PTFI'S SITE
APPENDIX F MILL SITE FACILITY
APPENDIX G PORT SITE FACILITY
APPENDIX H ENGINEERING FIRMS
APPENDIX I TECHNICAL SPECIFICATIONS FOR ELECTRICITY AND
ELECTRIC CAPACITY
APPENDIX J COAL FACILITY
APPENDIX K LIP FACILITY
APPENDIX L TARGET CAPACITY LEVELS AND RELIABILITY
APPENDIX M FORM OF MONTHLY INVOICE
APPENDIX N OUTLINE OF SITE PROCEDURES
APPENDIX O OPERATOR'S PERSONNEL
SCHEDULE I SUMMARY OF CHARGES - INITIAL TERM
SCHEDULE II [RESERVED]
SCHEDULE III OUTSTANDING INVESTMENT AND OPTION PRICE
SCHEDULE IV PRINCIPLES GOVERNING USE BY THIRD PARTIES OF
PJP'S TRANSMISSION AND DISTRIBUTION LINES
SCHEDULE V LETTER AGREEMENT CONCERNING LIP FACILITY
DATED JUNE 20, 1995
SCHEDULE VI TAX INFORMATION AND ASSUMPTIONS
SCHEDULE VII TERMS OF SUBORDINATION
Exhibit 10.10
OPTION, MANNDATORY PURCHASE AND
RIGHT OF FIRST REFUSAL AGREEMENT
dated as of December 19, 1997
among
P.T. FREEPORT INDONESIA COMPANY
P.T. PUNCAKJAYA POWER
DUKE IRIAN JAYA, INC.
WESTCOAST POWER, INC.
and
P.T. PRASARANA NUSANTARA JAYA
This OPTION, MANDATORY PURCHASE AND RIGHT OF FIRST REFUSAL
AGREEMENT (as hereafter amended, modified or supplemented in
accordance with the terms hereof, this "Option Agreement") is
made as of December 19, 1997 among P.T. Freeport Indonesia
Company, an Indonesian limited liability company also
domesticated in Delaware ("PTFI"), acting in its individual
capacity; P.T. Puncakjaya Power, an Indonesian limited liability
company ("PJP"); Duke Irian Jaya, Inc., a Delaware corporation
("DIJ"); Westcoast Power, Inc., a Canadian corporation ("WPI");
and P.T. Prasarana Nusantara Jaya, an Indonesian limited
liability company ("PNJ")
WITNESSETH
WHEREAS, DIJ, WPI and PNJ constitute all of the Persons
owning any of the issued and outstanding shares of PJP ("Shares")
as of the effective date of this Option Agreement;
WHEREAS, PTFI operates a mining enterprise in Irian Jaya,
Indonesia pursuant to a Contract of Work dated December 30, 1991,
between PTFI and the Government of the Republic of Indonesia (as
the same may hereafter be amended, modified or supplemented, the
"COW");
WHEREAS, the Use Rights relating to the Untitled Land, the
Land, the Improvements, the Improvement-Related Property, and, if
any, the Future Assets (collectively, the "Property") are located
in the mining area covered by the COW;
WHEREAS, PTFI has requested from the Shareholders and (i)
the Shareholders have collectively agreed to grant to PTFI in
certain instances an exclusive right and option to purchase all
of the Shares owned by such Shareholders; and (ii) each of the
Shareholders has individually agreed to grant to PTFI a right of
first refusal to purchase any Shares which such Shareholder
intends to sell, convey, transfer or assign to the extent that
such Shares are not acquired by the Shareholders or Affiliates
thereof, with such right being exercisable in accordance with and
subject to the terms of this Option Agreement;
WHEREAS, PTFI has requested from PJP and PJP has agreed to
grant to PTFI (i) an exclusive right and option in certain
instances to purchase the Property; (ii) a right of first refusal
to purchase all or such part of the Property as PJP may in the
future decide to sell, convey, transfer or assign; and (iii) a
right of first refusal to purchase any Shares which PJP intends
to issue, sell, convey, transfer or assign which are not
subscribed for or acquired by the Shareholders or Affiliates
thereof, with each of such rights being exercisable in accordance
with and subject to the terms of this Option Agreement; and
WHEREAS, PJP and the Shareholders have requested from PTFI
and PTFI has agreed to provide to PJP and the Shareholders, the
exclusive right in certain instances to require PTFI to offer to
purchase the Shares or the Property at the option of PJP, with
such right being exercisable in accordance with and subject to
the terms of this Option Agreement.
NOW, THEREFORE, in consideration of the promises and mutual
covenants set forth herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS AND USAGE
Section 1.01 Definitions. Unless the express terms of
this Agreement shall otherwise provide, capitalized terms shall
have the meanings ascribed to them in Appendix A hereto.
Section 1.02 Usage. This Agreement shall be governed by
the following rules of usage:
(a) References to Persons. A reference herein to
a Person includes, unless the context otherwise requires,
its permitted assignees.
(b) References to Laws. A reference herein to an
Applicable Law includes any Governmental Authority's
amendment to, or modification or published written
interpretation of, such Applicable Law.
(c) References to Divisions. A reference herein
to an article, section, exhibit, schedule or appendix is to
the article, section, exhibit, or appendix of this Agreement
unless otherwise indicate
(d) References to Documents. References to any
document, instrument or agreement (a) shall be deemed to
include all appendices, exhibits, schedules and other
attachments thereto, and (b) shall mean such document,
instrument or agreement, as amended, modified and
supplemented from time to time in accordance with the terms
thereof and as the same is in effect as any given time.
(e) Use of "herein". Unless otherwise specified,
the words "hereby", "herein", "hereof" and "hereunder" and
word of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular
provision hereof.
(f) Use of "including". The words "include" and
"including" do not limit the generality of any description
following such term, and, for such purposes, the rule of
ejusdem generis shall not be applicable to limit a general
statement, which is followed by or referable to an
enumeration of specific matters, to matters similar to the
matters specifically mentioned.
ARTICLE 2
THE OPTION BY PTFI TO PURCHASE THE PROPERTY
Section 2.01 Granting of the Property Purchase Option.
PJP hereby grants to PTFI an exclusive right and option,
exercisable by PTFI (ii) at any time from the effective date of
this Option Agreement and continuing through the last day that
the COW or any successor agreement to the COW is in effect (in
the case of an exercise of such option pursuant to Section
2.05(a), 2.05(b), 2.05(d) or 2.05(e)) or (ii) on the fifth,
tenth, fifteenth and twentieth anniversary of the Closing Date
(if otherwise exercised) (the "Option Period"), to purchase the
Property in accordance with the terms of this Option Agreement
(the "Property Purchase Option"), it being understood and agreed
that PTFI's exercise of the Property Purchase Option shall be
subject to the provisions of Section 2.06 hereof and that PTFI
has no obligation to exercise the Property Purchase Option. PJP
hereby grants to PTFI an exclusive right and option, exercisable
by PTFI during the Option Period, to exercise the Property
Purchase Option during the fourteen-Day period following receipt
by PTFI of written notice from the administrative agent under the
PJP Credit Agreement to the effect that the lenders thereunder
have determined to accelerate the maturity of the loans
thereunder based solely on the occurrence of one or more events
of default, with respect to PJP, under the following sections of
the PJP Credit Agreement: 9(a) through (g), 9(k) through (p),
9(q), 9(s) and 9(t); provided that PTFI shall not have such right
if the specified event of default was the result of the Breach or
Fault of PTFI.
Section 2.02 Fee for the Property Purchase Option. As
full and complete consideration for the granting of the Property
Purchase Option by PJP, PTFI shall pay to PJP the fixed sum of
US$10 (Ten United States Dollars) upon the signing of this Option
Agreement, the receipt and sufficiency of which is hereby
acknowledged by PJP by its signing of this Option Agreement.
Section 2.03 Option Irrevocable and Binding. The Property
Purchase Option is irrevocable and effective for the Option
Period and shall be binding upon the parties hereto and their
respective permitted successors, transferees and assigns, and is
for the benefit of PTFI and its Affiliates, nominees, successors
in title and assigns.
Section 2.04 Procedures for Exercise of Option. If PTFI
elects to exercise the Property Purchase Option, PTFI shall do so
by giving written notice of such election to PJP during the
Option Period (the "Property Purchase Exercise Notice"; the date
of the Property Purchase Exercise Notice being the "Property
Purchase Exercise Notice Date"), which Property Purchase Exercise
Notice shall specify (a) the date on which PTFI desires for the
closing of the sale and transfer of the Property by PJP to PTFI
to be consummated, which date shall not be later than one hundred
eighty (180) Days from the Property Purchase Exercise Notice Date
and (b) PTFI's calculation of the Purchase Option Purchase Price
as defined and further described in Section 2.05.
Section 2.05 Property Purchase Option Price. The amount
to be paid by PTFI to PJP for the sale and transfer of the
Property (the "Property Purchase Option Price") shall vary and be
determined as set forth below.
(a) If PTFI is purchasing the Property concurrently
with its election to terminate the Restated Power Sales Agreement
following an Event of Default by PJP under any paragraph (other
than paragraph (d)) of Section 16.01 of the Restated Power Sales
Agreement, or pursuant to the last sentence of Section 2.
hereof then the Property Purchase Option Price shall be (i) the
Outstanding Investment, plus, if applicable, (ii) the lesser of
(A) the Net Book Value of any Third Party Assets and (B) the fair
market value of such Third Party Assets minus, if applicable,
(iii) the unpaid principal amount of any PSA Subordinated Debt
plus interest accrued and unpaid thereon and (iv) the liquidated
damages due under Section 16.03(d) of the Restated Power Sales
Agreement; in each case determined as of the date on which the
sale and transfer of the Property by PJP to PTFI is consummated
(the "Property Purchase Option Closing Date"). As used herein,
the "Net Book Value" of Third Party Assets shall mean the net
book value thereof as reflected in the most recent balance sheet
of PJP.
(b) If PTFI is purchasing the Property concurrently
with its election to terminate the Restated Power Sales Agreement
following an Event of Default by PJP under Section 16.01(d)
thereof, then the Property Purchase Option Price shall be (i) the
Outstanding Investment, plus, if applicable, (ii) the lesser of
(A) the Net Book Value of any Third Party Assets and (B) the fair
market value of such Third Party Assets, minus, if applicable,
(iii) the unpaid principal amount of any PSA Subordinated Debt
plus accrued and unpaid interest thereon; in each case determined
as of the Property Purchase Option Closing Date.
(c) If the Property Purchase Option Notice is given
for any reason other than those described in Section 2.05(a) or
(b) above or 2.05(d) or (e) below, then the Property Purchase
Option Price shall be the greater of (i) the Fair Market Value of
the Property (excluding, for such purpose, any Third Party
Assets), and (ii) the Option Price, plus, if applicable, (iii)
the Third Party Asset Price, minus, if applicable, (iv) the
unpaid principal amount of any PSA Subordinated Debt plus accrued
and unpaid interest thereon (except, in the case that the
Property Purchase Option Price is the Fair Market Value of the
Property, to the extent that such amount was taken into account
in determining such Fair Market Value); in each case determined
as of the Property Purchase Option Closing Date.
(d) If the Property Purchase Option Notice is given
for the reason set forth in Section 10.04 of the Restated Power
Sales Agreement (shortfall in insurance proceeds to repair
property damage), then the Property Purchase Option Price shall
be (i) the Outstanding Investment minus $250,000 (but not less
than zero), plus, if applicable, (ii) the Net Book Value of any
Third Party Assets, minus, if applicable, (iii) the unpaid
principal amount of any PSA Subbordinated Debt plus accrued and
unpaid interest thereon, in each case determined as of the
Propertyy Purchase Option Clossing Date.
(e) If the Property Purchase Option Notice is given
for the reason set forth in Section 13.05 of the Restated Power
Sales Agreement (Extended Force Majeure), then the Property
Purchase Option Price shall be (i) the Outstanding Investment,
plus, if applicable, (ii) the Net Book Value of any Third Party
Assets, minus, if applicable, (iii) the unpaid principal amount
of any PSA Subordinated Debt plus accrued and unpaid interest
thereon, in each case determined as of the Property Purchase
Option Closing Date.
Section 2.06 Consent Required. Unless the Property
Purchase Option is being exercised pursuant to the last sentence
of Section 2.01 or for the reasons described in Section 2.05(a),
the exercise of the Property Purchase Option (as opposed to the
Share Purchase Option) shall be subject to the consent of PJP.
Section 2.07 Fairness of Tax Gross-Up. If the Property
Purchase Option Price is determined pursuant to Section 2.05(c),
(d) or (e), then the Tax Gross-Up payable by PTFI to PJP will be
adjusted, if necessary, as follows:
(a) If the inaccuracy of any of the assumptions set
forth in Schedule VI to the Restated Power Sales Agreement with
respect to Indonesian Taxes or tax attributes shall result in an
increase or decrease in Indonesian taxes payable by PJP (other
than to the extent such increases or decreases are allocable to
sales of electricity or electric capacity to third parties) or
United States taxes payable by the Shareholders (as assumed in
the Closing Model), then the Closing Model shall be amended to
correct any inaccuracies set forth therein and the Tax Gross-Up
shall be equitably adjusted to maintain the Closing Model's
original project internal rate of return (i.e. 16.65%), with
differences in prior period payments being subject to interest at
the Default Interest Rate.
(b) If the highest marginal U.S. corporate income tax
rate at the Property Purchase Option Date is other than 35%, then
the Closing Model shall be amended to correct this difference
the Tax Gross-Up adjusted accordingly.
(c) If any change in Indonesian Taxes shall result in
an increase or decrease in the Tax Gross-Up payable by PJP
pursuant to the calculation of the Tax Gross-Up in the Closing
Model, then the Closing Model shall be adjusted to reflect such
increase or decrease and the Tax Gross-Up adjusted accordingly.
ARTICLE 3
THE RIGHT OF FIRST REFUSAL OF PTFI
TO PURCHASE THE PROPERTY
Section 3.01 Granting of the Right of First Refusal as to
Property. PJP does hereby grant to PTFI an exclusive right of
first refusal, exercisable by PTFI at any time within the Option
Period, to acquire any of the Property which PJP desires to sell,
convey, transfer or assign (each a "Property Transfer") to any
Person (the "Right of First Refusal as to Property"). PJP hereby
covenants and agrees that it will not engage in any Property
transfer except in compliance with this Article 3.
Section 3.02 Permitted Transfers. PJP may make the
following Property Transfers and no others: (a) inoperable,
broken, old or worn Property in the ordinary course of business
if such Property is replaced as necessary; (b) any of the
Property which is no longer used or useful in order for PJP to
perform its obligations under the Restated Power Sales Agreement;
(c) Property Transfers of Property as security in connection with
a financing which is approved by PTFI; (d) Property Transfers of
Third Party Assets; and (e) Property Transfers in accordance with
Sections 3.03 or 3.04 below.
Section 3.03 Transfer to a Pre-Approved Party. (a) PJP
may, at its option, seek a waiver by PTFI of the Right of First
Refusal as to Property as hereinafter provided.
(b) PJP may make a Property Transfer to the extent
that PJP (i) gives PTFI written notice of its intention to make a
Property Transfer of all or a portion of the Property (the
"Property Transfer Intent Notice"), (ii) PTFI does not notify
PJP, within thirty (30) Days after having received the Property
Transfer Intent Notice, of PTFI's intent to exercise its rights
pursuant to this Article, and (iii) otherwise complies with the
provisions of this Option Agreement. The Property Transfer
Intent Notice shall contain a description of the Property
proposed to be the subject of the Property Transfer (the
"Available Property Interest"), the names and addresses of not
more than ten proposed third party purchasers and a full,
accurate and complete description of the terms upon which the
sale, conveyance, transfer or assignment is proposed to be made.
Upon receipt of a Property Transfer Intent Notice, PTFI shall
have the option, but not the obligation, (x) to purchase the
Available Property Interest upon the terms proposed by PJP minus,
if applicable, the unpaid principal amount of any PSA
Subordinated Debt plus accrued and unpaid interest thereon
(except to the extent that such amount was taken into account in
determining the terms of such proposed Property Transfer) and
provided, that if such proposed terms include non-cash
compensation which would be difficult or impossible for PTFI to
provide, PTFI's purchase price shall include the fair market
value of such non-cash compensation, as determined by agreement
of PJP and PTFI, or by an appraiser selected jointly by PJP and
PTFI, if the parties are unable to agree, (y) to waive the Right
of First Refusal as to Property with regard to a Property
Transfer of the Available Property Interest to any or all of the
proposed third party purchasers (each such third party as to
which PTFI waives the Right of First Refusal as to Property, a
"Pre-Approved Party"), or (z) to effuse to waive the Right of
First Refusal as to Property as to any or all of the proposed
third party purchasers.
Section 3.04 Right of First Refusal. Notwithstanding any
failure by PJP to obtain a pre-approval of a Property Transfer
pursuant to Section 3.03(b), PJP may make a Property Transfer to
the extent that PJP (i) receives a written offer from a Person
to purchase all or a portion of the Property, which offer PJP
intends to accept if PTFI does not exercise its rights pursuant
to this Article, (ii) gives PTFI prior written notice of the
offer and PJP's intent to accept such offer (the "Property Sale
Notice") and PTFI does not notify PJP, within ninety (90) Days
after having received the Property Sale Notice, of PTFI's intent
to exercise its rights pursuant to this Article, and (iii)
otherwise complies with the provisions of this Option Agreement.
The Property Sale Notice shall contain a description of the
Available Property Interest, the name and address of the proposed
third party purchaser and a full, accurate and complete
description of the terms upon which the Property Transfer is
proposed to be made. The Property Sale Notice shall also contain
a copy of the written offer. Upon receipt of a Property Sale
Notice, PTFI shall have the option, but not the obligation, to
purchase the Available Property Interest upon the same terms and
conditions, minus, if applicable, the unpaid principal amount of
any PSA Subordinated Debt plus accrued and unpaid interest
thereon (except to the extent that such amount was taken into
account in determining such terms and conditions), that the
proposed Property Transfer to the third party is to be made, or
as otherwise agreed upon by PTFI and PJP; provided that if such
terms include non-cash compensation which would be commercially
difficult or impossible for PTFI to provide, PTFI's purchase
price shall include the fair market value of such non-cash
compensation, as determined by agreement of PJP and PTFI, or by
an appraiser selected jointly by PJP and PTFI, if the parties are
unable to agree.
Section 3.05 Duration of the Right of First Refusal as to
Property. The Right of First Refusal as to Property granted
herein is irrevocable for the Option Period, shall be binding
upon the parties hereto and their respective permitted
successors, transferees and assigns, and is for the benefit of
PTFI and its Affiliates, nominees, successors in title and
assigns.
Section 3.06 Right of First Refusal as to Property Closing
Matters. In the event that PTFI exercises its right to purchase
the Available Property Interest set forth in this Article, the
closing with respect to any Property to be so acquired by PTFI
shall occur within one hundred eighty (180) Days of the notice by
PTFI to PJP that it intends to exercise its rights and acquire
the Available Property Interest.
Section 3.07 PJP's Rights upon PTFI's Waiver. In the
event that PTFI does not exercise its (i) right to purchase any
Available Property Interest and waives the Right of First Refusal
as to Property as to such Available Property Interest with
respect to one or more of the proposed third party purchasers
specified in a Property Transfer Intent Notice, then PJP may make
a Property Transfer of that Available Property Interest to a Pre-
Approved Party on terms no more favorable to such Pre-Approved
Party than the terms proposed in the Property Transfer Intent
Notice, or (ii) Right of First Refusal as to Property as to such
Available Property Interest, then PJP may make a Property
Transfer of that Available Property Interest on the terms
specified in, and to the third party identified in, the Property
Sale Notice; provided, however, that in either case unless such
Property Transfer is consummated within one hundred eighty (180)
Days of PTFI's waiver or the expiration of the time period for
PTFI to exercise its right to purchase the Available Property
Interest set forth in this Article, PJP may not thereafter make
any Property Transfer without again complying with the provisions
of this Article.
ARTICLE 4
THE RIGHT OF PJP TO REQUIRE PTFI TO OFFER
TO PURCHASE THE PROPERTY OR THE SHARES
Section 4.01 Granting of the Right to Require the Offer to
Purchase Property or Shares. PTFI hereby grants to PJP a right
to require that PTFI offer to acquire all of the Property or
Shares, directly or indirectly, upon the occurrence of an Event
of Default by PTFI under the Restated Power Sales Agreement. If
PJP accepts such offer, PTFI shall be required to purchase the
Property or the Shares (and unless PJP shall otherwise agree,
such purchase shall be a purchase of Shares), as applicable (the
"Mandatory Purchase Right"), in accordance with Section 16.03(b)
or (e), as applicable, of the Restated Power Sales Agreement by,
at the election of PJP, either (i) purchasing such Property or
Shares, as applicable, from PJP or (ii) purchasing all of the
Shares and the Subordinated Loans, if any, from the Shareholders
and satisfy the requirements of Section 8.08 hereof. The offer
may only be required to be made within the Option Period and may
only be made under the conditions set forth in the Restated Power
Sales Agreement. By signing this Option Agreement, each of the
Shareholders acknowledges PJP's right to require PTFI to offer to
acquire the Shares and the Subordinated Loans, if any, owned by
it as provided above and agrees to sell its Shares and
Subordinated Loans, if any, to PTFI should PJP so elect and
accept PTFI's offer.
Section 4.02 Fee for the Mandatory Purchase Right. As
full and complete consideration for the granting of the Mandatory
Purchase Right by PTFI, PJP shall pay to PTFI the fixed sum of
US$10 (Ten United States Dollars) upon the signing of this Option
Agreement, the receipt and sufficiency of which is hereby
acknowledged by PTFI by its signing of this Option Agreement.
Section 4.03 Mandatory Purchase Right Irrevocable and
Binding. The Mandatory Purchase Right is irrevocable and
effective for the Option Period and shall be binding upon the
parties hereto and their respective permitted successors,
transferees and assigns.
Section 4.04 Procedures for Exercise of Mandatory Purchase
Right. If PJP elects to accept the offer referred to in the
first sentence of Section 4.01, PJP shall do so by giving written
notice of such election to PTFI and the Shareholders during the
Option Period (the "Mandatory Purchase Right Exercise Notice",
the date of the Mandatory Purchase Right Exercise Notice being
the "Mandatory Purchase Right Exercise Notice Date"), which
Mandatory Purchase Right Exercise Notice shall specify (a) the
date on which PJP desires for the closing of the sale and
transfer of the Property or Shares to PTFI to be consummated,
which date shall not be earlier than sixty (60) Days or later
than one hundred eighty (180) Days from the Mandatory Purchase
Right Exercise Notice Date; provided, however, that such sale
shall be consummated (1) within thirty (30) Days of the Mandatory
Purchase Right Exercise Notice Date, if such sale consists of
Shares and is made subsequent to a PTFI Event of Default under
Section 16.01(f) of the Restated Power Sales Agreement or
subsequent to the event described in clause (y) of Section 4.01
hereof or (2) immediately, if such sale is made subsequent to an
Event of Default under Section 16.01(c) of the Restated Power
Sales Agreement and (b) PJP's calculation of the Mandatory
Purchase Right Purchase Price as defined and further described in
Section 4.05. In the event that PJP accepts PTFI's offer to
acquire the Shares and Subordinated Loans, if any, following the
exercise by PJP of the Mandatory Purchase Right, each of the
Shareholders hereby agrees to sell, transfer, assign and convey
to PTFI all of its Shares and Subordinated Loans, if any, for its
allocable share of the Mandatory Purchase Right Purchase Price
and otherwise on the terms set forth in this Article 4.
Section 4.05 Mandatory Purchase Right Purchase Price. The
Mandatory Purchase Right Purchase Price for the purchase of all
of the Property or all of the Shares and Subordinated Loans, if
any, pursuant to PJP's acceptance of the offer referred to in the
first sentence of Section 4.01 shall be the greatest of (i) the
Fair Market Value of the Property or the Shares, (ii) the Option
Price and (iii) 125% of the Outstanding Investment, plus, if
applicable, (iv) the Third Party Asset Price, minus, if
applicable, (v) the unpaid principal amount of any PSA
Subordinated Debt plus accrued and unpaid interest thereon
(except, in the case in which the Mandatory Purchase Price is the
Fair Market Value of the Property or the Shares, to the extent
such amount was taken into account in determining the Option
Price); in each case determined as of the date on which the sale
and transfer of the Property or the Shares and Subordinated
Loans, if any, by PJP or the Shareholders to PTFI is consummated.
ARTICLE 5
THE RIGHT OF FIRST REFUSAL BY PTFI
TO PURCHASE SHARES FROM PJP
Section 5.01 Granting of the PJP Right of First Refusal as
to Portfolio Shares. PJP does hereby grant to PTFI an exclusive
right of first refusal, exercisable by PTFI at any time within
the Option Period, to acquire any Shares of PJP, whether or not
previously issued, which PJP desires to issue, sell, convey,
transfer or assign (each a "PJP Share Issuance") to any Person,
other than a Shareholder or an Affiliate thereof, (the "Right of
First Refusal as to Portfolio Shares"), such Right of First
Refusal as to Portfolio Shares to be maintained and honored by
PJP according to the terms of this Option Agreement. PJP hereby
covenants and agrees that it will not engage in any PJP Share
Issuance except in compliance with this Article 5.
Section 5.02 Permitted Transfers. PJP may make the
following PJP Share Issuances and no others: (a) PJP Share
Issuances to the Shareholders or Affiliates thereof in accordance
with the terms of the Restated Shareholders Agreement, and (b)
PJP Share Issuances in accordance with Sections 5.03 or 5.04
below.
Section 5.03 Issuance to a Pre-Approved Party. (a) PJP
may, at its option, seek a waiver by PTFI of the Right of First
Refusal as to Portfolio Shares as hereinafter provided.
(b) PJP may make a PJP Share Issuance to the extent
that PJP (i) gives PTFI written notice of its intention to make a
PJP Share Issuance of any Shares (the "PJP Share Issuance Intent
Notice"), (ii) PTFI does not notify PJP, within thirty (30) Days
after having received the PJP Share Issuance Intent Notice, of
PTFI's intent to exercise its rights pursuant to this Article,
and (iii) otherwise complies with the provisions of this Option
Agreement. The PJP Share Issuance Intent Notice shall contain a
description of the Shares proposed to be the subject of the PJP
Share Issuance (the "Available PJP Shares"), the names and
addresses of not more than ten proposed third party purchasers
and a full, accurate and complete description of the terms upon
which the PJP Share Issuance is proposed to be made. Upon
receipt of a PJP Share Issuance Intent Notice, PTFI shall have
the option, but not the obligation, to (x) purchase the Available
PJP Shares upon the terms proposed by PJP provided that if such
terms include non-cash compensation which would be commercially
difficult or impossible for PTFI to provide, PTFI's purchase
price shall include the fair market value of such non-cash
compensation, as determined by agreement of PJP and PTFI, or by
an appraiser selected jointly by PJP and PTFI, if the parties are
unable to agree, (y) to waive the Right of First Refusal as to
Portfolio Shares with regard to a PJP Share Issuance of the
Available PJP Shares to any or all of the proposed third party
purchasers (each such third party as to which PTFI waives the
Right of First Refusal as to Portfolio Shares, a "Pre-Approved
Party"), or (z) to refuse to waive the Right of First Refusal as
to Portfolio Shares as to any or all of the proposed third party
purchasers.
Section 5.04 PJP Share Right of First Refusal.
Notwithstanding any failure by PJP to obtain a pre-approval of a
PJP Share Issuance pursuant to Section 5.03(b), PJP may make a
PJP Share Issuance to the extent that PJP (i) receives a written
offer from a Person (other than a Shareholder or an Affiliate
thereof) to purchase Shares, which offer PJP intends to accept if
the Shareholders do not exercise their rights under the Restated
Shareholders Agreement and PTFI does not exercise its rights
pursuant to this Article, (ii) gives PTFI prior written notice of
the offer and PJP's intent to accept such offer (the "PJP Share
Sale Notice") and PTFI does not notify PJP, within ninety (90)
Days after having received the PJP Share Sale Notice, of PTFI's
intent to exercise its rights pursuant to this Article, and (iii)
otherwise complies with the provisions of this Option Agreement.
The PJP Share Sale Notice shall contain a description of the
Available PJP Shares, the name and address of the proposed third
party purchaser and a full, accurate and complete description of
the terms upon which the PJP Share Issuance is proposed to be
made. The PJP Share Sale Notice shall also contain a copy of the
written offer. Upon receipt of a PJP Share Sale Notice, PTFI
shall have the option, but not the obligation, to purchase the
Available PJP Shares upon the same terms and conditions provided
that if such terms include non-cash compensation which would be
commercially difficult or impossible for PTFI to provide, PTFI's
purchase price shall include the fair market value of such non-
cash compensation, as determined by agreement of PJP and PTFI, or
by an appraiser selected jointly by PJP and PTFI, if the parties
are unable to agree.
Section 5.05 Duration of the PJP Right of First Refusal as
to Portfolio Shares. The Right of First Refusal as to Portfolio
Shares granted herein is irrevocable for the Option Period, shall
be binding upon the parties hereto and their respective permitted
successors, transferees and assigns, and is for the benefit of
PTFI and its Affiliates, nominees, successors in title and
assigns.
Section 5.06 Right of First Refusal as to Portfolio Shares
Closing Matters. In the event that PTFI exercises its right to
purchase the Available PJP Shares set forth in this Article (and
none of the Shareholders exercise their rights under the Restated
Shareholders Agreement), the closing with respect to any Shares
to be so acquired by PTFI shall occur within one hundred eighty
(180) Days of the notice by PTFI to PJP that it intends to
exercise its rights and acquire the Available PJP Shares.
Section 5.07 PJP's Rights upon PTFI's Waiver. In the
event that PTFI does not exercise its (i) right to purchase the
Available PJP Shares and waives the Right of First Refusal as to
Portfolio Shares as to such Available PJP Shares with respect to
one or more of the proposed third party purchasers specified in a
PJP Share Issuance Intent Notice, then PJP may make a PJP Share
Issuance of those Available PJP Shares to an Pre-Approved Party
on terms no more favorable to such Pre-Approved Party than the
terms proposed in the PJP Share Issuance Intent Notice, or (ii)
Right of First Refusal as to Portfolio Shares as to such
Available PJP Shares (and none of the Shareholders exercise their
rights under the Restated Shareholders Agreement), then PJP may
make a PJP Share Issuance of such Available PJP Shares on the
terms specified in, and to the third party identified in, the PJP
Share Sale Notice; provided, however, in either case unless such
PJP Share Issuance is consummated within one hundred eighty (180)
Days of PTFI's waiver or the expiration of the time period for
PTFI to exercise its rights to purchase the Available PJP Shares
set forth in this Article, PJP may not thereafter make any PJP
Share Issuance without again complying with the provisions of
this Article.
ARTICLE 6
THE OPTION BY PTFI
TO PURCHASE SHARES FROM THE SHAREHOLDERS
Section 6.01 Granting of the Shareholder Share Purchase
Option. Each of the Shareholders hereby grants to PTFI an
exclusive right and option, subject to the terms of the Financing
Documents, exercisable by PTFI at any time during the Option
Period in the case that PTFI is exercising its option pursuant to
Section 6.05(a) or (b), or on the fifth, tenth, fifteenth, or
twentieth anniversary of the Closing Date (if otherwise
exercised), to purchase the Shares and the Subordinated Loans, if
any, owned by such Shareholder in accordance with the terms of
this Option Agreement (the "Shareholder Share Purchase Option").
PTFI shall also have the right to exercise the Shareholder Share
Purchase Option in the circumstances described in the last
sentence of Section 2.01. It is understood and agreed that PTFI
has no obligation to exercise its rights under the Shareholder
Share Purchase Option and provided, however, that PTFI shall only
be entitled to exercise the Shareholder Share Purchase Option to
purchase all Shares and all Subordinated Loans held by all
Shareholders in a single transaction.
Section 6.02 Fee for the Shareholder Share Purchase
Option. As full and complete consideration for the granting of
the Shareholder Share Purchase Option by each of the
Shareholders, PTFI shall pay to each of the Shareholders the
fixed sum of US$10 (Ten United States Dollars) upon the signing
of this Option Agreement, the receipt and sufficiency of which is
hereby acknowledged by each of the Shareholders by its signing of
this Option Agreement.
Section 6.03 Option Irrevocable and Binding. The
Shareholder Share Purchase Option is irrevocable and effective
for the Option Period and shall be binding upon the parties
hereto and their respective permitted successors, transferees and
assigns, and is for the benefit of PTFI and its Affiliates,
nominees, successors in title and assigns.
Section 6.04 Procedures for Exercise of Option. If PTFI
elects to exercise the Shareholder Share Purchase Option, PTFI
shall do so by giving written notice of such election to each
Shareholder during the Option Period (the "Shareholder Share
Purchase Exercise Notice"; the date of the Shareholder Share
Purchase Exercise Notice being the "Shareholder Share Purchase
Exercise Notice Date"), which Shareholder Share Purchase Exercise
Notice shall specify (a) the date on which PTFI desires for the
closing of the sale and transfer of the Shares and Subordinated
Loans, if any, by the Shareholder to PTFI to be consummated,
which date shall not be later than one hundred eighty (180) Days
from the Shareholder Share Purchase Exercise Notice Date and (b)
PTFI's calculation of the Shareholder Share Purchase Option Price
as defined and further described in Section 6.05.
Section 6.05 Shareholder Share Purchase Option Price. The
amount to be paid by PTFI to each Shareholder for the sale and
transfer of such Shareholder's Shares and Subordinated Loans, if
any (the "Shareholder Share Purchase Option Price"), shall vary
and be determined as set forth below and shall, in each case, be
the Proportionate Amount of each amount set forth below.
(a) If PTFI is purchasing the Shares and Subordinated
Loans, if any, concurrently with its election to terminate the
Restated Power Sales Agreement following an Event of Default by
PJP under any paragraph (other than paragraph (d)) of Section
16.01 of the Restated Power Sales Agreement, or in accordance
with the second to last sentence of Section 6.01, then the
Shareholder Share Purchase Option Price shall be (i) the
Outstanding Investment applicable to such Shares and (ii) any
cash and cash equivalents remaining in PJP due to a legal or
contractual prohibition against distributing such funds to
shareholders, plus, if applicable (iii) the lesser of the Net
Book Value and the fair market value of any Third Party Assets,
minus, if applicable, (iv) the unpaid principal amount of any PSA
Subordinated Debt plus accrued and unpaid interest thereon; in
each case determined as of the date on which the sale and
transfer of the Shares by such Shareholder to PTFI is consummated
(the "Shareholder Share Purchase Option Closing Date") and (v)
the liquidated damages due under Section 16.03(d) of the Restated
Power Sales Agreement.
(b) If PTFI is purchasing the Shares and Subordinated
Loans, if any, concurrently with its termination of the Restated
Power Sales Agreement following an Event of Default by PJP under
Section 16.01(d) thereof or as a result of a Change in Control,
then the Shareholder Share Purchase Option Price shall be the (i)
the Outstanding Investment applicable to such Shares and (ii) any
cash and cash equivalents remaining in PJP due to a legal or
contractual prohibition against distributing such funds to
shareholders, plus, if applicable, (iii) the lesser of (A) the
Net Book Value (as shown on the most recent balance sheet of PJP)
of any Third Party Assets and (B) the fair market value of such
Third Party Assets, minus, if applicable, (iv) the unpaid
principal amount of any PSA Subordinated Debt plus accrued and
unpaid interest thereon; in each case determined as of the
Shareholder Share Purchase Option Closing Date.
(c) If the Shareholder Share Purchase Option Notice is
given for any reason other than those described in Section
6.05(a) or (b) above, or 6.05(d) or (e) below, then the
Shareholder Share Purchase Option Price shall be (i) the greater
of (A) the Fair Market Value of the Property and (B) the Option
Price applicable to such Shares and (ii) any cash and cash
equivalents remaining in PJP due to a legal or contractual
prohibition against distributing such funds to shareholders,
plus, if applicable, (iii) the Third Party Asset Price (except,
in the case that the Shareholder Share Purchase Option Price is
the Fair Market Value of the Shares, to the extent that such
amount was taken into account in determining such Fair Market
Value, minus, if applicable, (iv) the unpaid principal amount of
any PSA Subordinated Debt plus accrued and unpaid interest
thereon (except, in the case that the Shareholder Share Purchase
Option Price is the Fair Market Value of the Shares, to the
extent that such amount was taken into account in determining
such Fair Market Value); in each case determined as of the
Shareholder Share Purchase Option Closing Date.
(d) If the Shareholder Share Purchase Option Notice is
given for the reason set forth in Section 10.04 of the Restated
Power Sales Agreement (shortfall in insurance proceeds to repair
property damage), then the Shareholder Share Purchase Option
Price shall be (i) the Outstanding Investment applicable to such
Shares minus $250,000 (but not less than zero), and (ii) any cash
and cash equivalents remaining in PJP due to a legal or
contractual prohibition against distributing such funds to
shareholders, plus, if applicable, (iii) the Net Book Value of
any Third Party Assets, minus, if applicable, (iv) the unpaid
principal amount of any PSA Subordinated Debt plus accrued and
unpaid interest thereon, in each case determined as of the
Shareholder Share Purchase Option Closing Date.
(e) If the Shareholder Share Purchase Option Notice is
given for the reason set forth in Section 13.05 of the Restated
Power Sales Agreement (Extended Force Majeure), then the
Shareholder Share Purchase Option Price shall be (i) the
Outstanding Investment and (ii) any cash and cash equivalents
remaining in PJP due to a legal or contractual prohibition
against distributing such funds to shareholders, plus, if
applicable, (iii) the Net Book Value of any Third Party Assets,
minus, if applicable, (iv) the unpaid principal amount of any PSA
Subordinated Debt plus accrued and unpaid interest thereon, in
each case determined as of the Shareholder Share Purchase Option
Closing Date.
Section 6.06 Fairness of Tax Gross-Up. If the Shareholder
Share Purchase Option Price is determined pursuant to Section
6.05(c), (d) or (e), then the Tax Gross-Up payable by PTFI to PJP
will be adjusted, if necessary, as follows:
(a) If the inaccuracy of any of the assumptions set
forth in Schedule VI to the Restated Power Sales Agreement with
respect to Indonesian Taxes or tax attributes shall result in an
increase or decrease in Indonesian taxes payable by PJP (other
than to the extent such increases or decreases are allocable to
sales of electricity or electric capacity to third parties) or
United States taxes payable by the Shareholders (as assumed in
the Closing Model), then the Closing Model shall be amended to
correct any inaccuracies set forth therein and the Tax Gross-Up
shall be equitably adjusted to maintain the Closing Model's
original project internal rate of return (i.e. 16.65%), with
differences in prior period payments being subject to interest at
the Default Interest Rate.
(b) If the highest marginal U.S. corporate income tax
rate at the Shareholder Share Purchase Option Date is other than
35%, then the Closing Model shall be amended to correct this
difference and the Tax Gross-Up adjusted accordingly.
(c) If any change in Indonesian Taxes shall result in
an increase or decrease in the Tax Gross-Up payable by PJP
pursuant to the calculation of the Tax Gross-Up in the Closing
Model, then the Closing Model shall be adjusted to reflect such
increase or decrease and the Tax Gross-Up adjusted accordingly.
ARTICLE 7
THE RIGHT OF FIRST REFUSAL BY PTFI
TO PURCHASE SHARES FROM THE SHAREHOLDERS
Section 7.01 Granting of the Shareholder Share Right of
First Refusal. Each of the Shareholders does hereby grant to
PTFI an exclusive right of first refusal, exercisable by PTFI at
any time within the Option Period, to acquire any Shares and
Subordinated Loans, if any, owned by such Shareholder which such
Shareholder desires to sell, convey, transfer or assign (each a
"Shareholder Share Transfer") to any Person other than a
Shareholder or an Affiliate thereof (the "Shareholder Share Right
of First Refusal"), such Shareholder Share Right of First Refusal
to be maintained and honored by each Shareholder, respectively,
according to the terms of this Option Agreement. Each
Shareholder hereby covenants and agrees that it will not engage
in any Shareholder Share Transfer except in compliance with this
Article 7.
Section 7.02 Permitted Transfers. Any Shareholder may
make the following Shareholder Share Transfers and no others:
(a) Shareholder Share Transfers to the Shareholders or Affiliates
thereof in accordance with the terms of the Restated Shareholders
Agreement; (b) Shareholder Share Transfers as security in
connection with a financing which is approved by PTFI; and (c)
Shareholder Share Transfers in accordance with Sections 7.03 or
7.04 below.
Section 7.03 Transfer to a Pre-Approved Party. (a) Each
of the Shareholders may, at its option, seek a waiver by PTFI of
the Shareholder Share Right of First Refusal as hereinafter
provided.
(b) Each Shareholder may make a Shareholder Share
Transfer to the extent that such Shareholder (i) gives PTFI
written notice of its intention to make a Shareholder Share
Transfer of any Shares and Subordinated Loans, if any (the
"Shareholder Share Transfer Intent Notice"), (ii) PTFI does not
notify such Shareholder, within thirty (30) Days after having
received the Shareholder Share Transfer Intent Notice, of PTFI's
intent to exercise its rights pursuant to this Article, and (iii)
otherwise complies with the provisions of this Option Agreement.
The Shareholder Share Transfer Intent Notice shall contain a
description of the Shares and Subordinated Loans, if any,
proposed to be the subject of the Shareholder Share Transfer (the
"Available Shareholder Shares"), the names and addresses of not
more than ten proposed third party purchasers and a full,
accurate and complete description of the terms upon which the
Shareholder Share Transfer is proposed to be made. Upon receipt
of a Shareholder Share Transfer Intent Notice, PTFI shall have
the option, but not the obligation, (x) to purchase the Available
Shareholder Shares upon the terms proposed by such Shareholder
provided that if such proposed terms include non-cash
compensation which would be commercially difficult or impossible
for PTFI to provide, PTFI's purchase price shall include the fair
market value of such non-cash compensation as determined by
agreement of PTFI and such Shareholder, or by an appraiser
jointly-selected by PTFI and such shareholder of the parties are
unable to agree, (y) to waive the Shareholder Share Right of
First Refusal with regard to a Shareholder Share Transfer of the
Available Shareholder Shares to any or all of the proposed third
party purchasers (each such third party as to which PTFI waives
the Shareholder Share Right of First Refusal, a "Pre-Approved
Party"), or (z) to refuse to waive the Shareholder Share Right of
First Refusal as to any or all of the proposed third party
purchasers.
Section 7.04 Shareholder Share Right of First Refusal.
Notwithstanding the failure by any Shareholder to obtain a pre-
approval of a Shareholder Share Transfer pursuant to Section
7.03(b), any Shareholder may make a Shareholder Share Transfer to
the extent that such Shareholder (i) receives a written offer
from a Person to purchase all or a portion of its Shares and
Subordinated Loans, if any, which offer such Shareholder intends
to accept if the other Shareholders do not exercise their rights
under the Restated Shareholders Agreement and PTFI does not
exercise its rights pursuant to this Article, (ii) gives PTFI
prior written notice of the offer and such Shareholder's intent
to accept such offer (the "Shareholder Share Sale Notice") and
PTFI does not notify such Shareholder, within ninety (90) Days
after having received the Shareholder Share Sale Notice, of
PTFI's intent to exercise its rights pursuant to this Article,
and (iii) otherwise complies with the provisions of this Option
Agreement. The Shareholder Share Sale Notice shall contain a
description of the Available Shareholder Shares, the name and
address of the proposed third party purchaser and a full,
accurate and complete description of the terms upon which the
Shareholder Share Transfer is proposed to be made. The
Shareholder Share Sale Notice shall also contain a copy of the
written offer. Upon receipt of a Shareholder Share Sale Notice,
PTFI shall have the option, but not the obligation, to purchase
the Available Shareholder Shares upon the same terms and
conditions, that the proposed Shareholder Share Transfer to the
third party is to be made, or as otherwise agreed upon by PTFI
and the selling Shareholder.
Section 7.05 Duration of the Shareholder Share Right of
First Refusal. The Shareholder Share Right of First Refusal
granted herein is irrevocable for the Option Period, shall be
binding upon the parties hereto and their respective permitted
successors, transferees and assigns, and is for the benefit of
PTFI and its Affiliates, nominees, successors in title and
assigns.
Section 7.06 Shareholder Share Right of First Refusal
Closing Matters. In the event that PTFI exercises its right to
purchase the Available Shareholder Shares set forth in this
Article (and none of the Shareholders exercise their rights
under the Restated Shareholders Agreement), the closing with
respect to any Shares and Subordinated Loans, if any, to be so
acquired by PTFI shall occur within one hundred eighty (180) Days
of the notice by PTFI to PJP that it intends to exercise its
rights and acquire the Available Shareholder Shares.
Section 7.07 Shareholder's Rights upon PTFI's Waiver. In
the event that PTFI does not exercise its (i) right to purchase
the Available Shareholder Shares and waives the Shareholder Share
Right of First Refusal as to such Available Shareholder Shares
with respect to one or more of the proposed third party
purchasers specified in a Shareholder Share Transfer Intent
Notice, then such Shareholder may make a Shareholder Share
Transfer of those Available Shareholder Shares to a Pre-Approved
Party on terms no more favorable to such Pre-Approved Party than
the terms proposed in the Shareholder Share Transfer Intent
Notice, or (ii) Shareholder Share Right of First Refusal as to
such Available Shareholder Shares (and none of the Shareholders
exercise their rights under the Restated Shareholders Agreement),
then the selling Shareholder may make a Shareholder Share
Transfer of such Available Shareholder Shares on the terms
specified in, and to the third party identified in, the
Shareholder Share Sale Notice; provided, however, in either case
unless such Shareholder Share Transfer shall be consummated
within one hundred eighty (180) Days of PTFI's waiver or the
expiration of the time period for PTFI to exercise its rights to
purchase the Available Shareholder Shares set forth in this
Article, such Shareholder may not thereafter make any Shareholder
Share Transfer without again complying with the provisions of
this Article.
Section 7.08 PJP Acknowledgment. PJP hereby acknowledges
the Shareholder Share Right of First Refusal and agrees that it
will not register or permit the registration of any Shareholder
Share Transfer that is not made in compliance with the provisions
of this Article 7.
ARTICLE 8
PROVISIONS APPLICABLE TO THE CLOSING
Section 8.01 Pre-Closing Obligations. Within a reasonable
period of time following the giving of the notice that initiates
any of the transactions set forth in this Option Agreement (each
a "Notice") and a reasonable period of time prior to the closing
of any of the transactions whereby PTFI acquires all of the
Shares or all or substantially all of the Property as
contemplated by this Option Agreement (each a "Transaction"), PJP
shall deliver to PTFI: (a) a list of all Property owned by PJP;
(b) a list of all employees of PJP or any Affiliate of PJP who
devote all or a substantial amount of their time to the
operations of PJP (the "Key Employees"); (c) copies of all
contracts, licenses and permits held by PJP; (d) all other
information delivered by PTFI to PJP in connection with the
transfer of the New Facilities from PTFI to PJP pursuant to the
New Asset Sale Agreement, including all information reflected in
the schedules attached thereto; and (e) all other information and
documentation that is reasonably requested by PTFI with respect
to the transferor, the assets being transferred, liabilities
being assumed or the operations of PJP.
Section 8.02 Closing. The closing of any Transaction
(each a "Closing") shall occur on such date and in such location
as the parties may agree; provided that, if the parties cannot
agree, the closing shall occur in the offices of PTFI in either
New Orleans, Louisiana or Jakarta, Indonesia, at PTFI's option,
on the Business Day immediately following the occurrence or
waiver by PTFI of the last of the conditions to closing set forth
in Article 9, except that, absent such agreement in the case of a
Transaction under Article 4, the Closing shall occur at such
place in New York, New York as PJP shall specify (i) immediately
(in the case of an Event of Default under Section 16.01(c) of the
Restated Power Sales Agreement), (ii) within one hundred and
eighty (180) Days of the Mandatory Purchase Right Exercise Notice
Date (in the case of an Event of Default under Section 16.01(a)
or (b) of the Restated Power Sales Agreement), or (iii) within
thirty (30) Days of the Mandatory Purchase Right Exercise Notice
Date (in the case of an Event of Default under Section 16.01(f)
of the Restated Power Sales Agreement), or if any such day is not
a Business Day, on the next succeeding Business Day. At the
Closing, each of the parties shall execute and deliver to the
other party any and all documents and agreements that are
reasonably requested by the other party to effectuate the
Transaction and PTFI shall deliver the appropriate purchase price
to the transferor by wire transfer or cashier's check.
Section 8.03 Representations and Warranties at Closing.
Except in the case of a Transaction under Article 4, the
definitive documents to be executed by the parties in connection
with the Closing (the "Definitive Documents") shall contain
representations, warranties and covenants by the transferor of
Shares or Property, as the case may be (the "Transferor"), that
are substantially similar to (i) the representations and
warranties set forth in Sections 3.01, 3.02, 3.03, 3.07, 3.10 and
3.13 of the New Asset Sale Agreement and a representation and
warranty that PJP has no material liabilities not disclosed on
its most recent audited balance sheet or otherwise disclosed to
PTFI in writing, and (ii) the covenants set forth in Sections
5.01, 5.02 5.04 and Article 7 of the New Asset Sale Agreement
with regard to PTFI, to the extent applicable. In connection
with any Transaction set forth in Articles 5, 6 or 7, the
Definitive Documents shall also include representations and
warranties by the transferor: (a) that the Shares being acquired
by PTFI are fully paid, non-assessable, (b) that legal and
beneficial title to such Shares is held by the Transferor free
and clear of any and all Liens (except Liens in favor of the
Senior Secured Lenders), and (c) that the transfer documents are
sufficient to transfer to PTFI all of the Transferor's right,
title and interest in and to the Shares being transferred.
Section 8.04 Indemnity. Except in the case of a
Transaction under Article 4, the Definitive Documents shall
contain an indemnity by the Transferor that is substantially
similar to the indemnification provisions that are set forth in
Section 10.01 of the New Asset Sale Agreement with regard to
PTFI.
Section 8.05 No Contravention. Except in the case of a
Transaction under Article 4, the Definitive Documents in
connection with any Transaction set forth in Articles 2, 3 or 4
shall contain a provision substantially similar to Section 2.
of the New Asset Sale Agreement.
Section 8.06 Closing Costs. Each party to any Transaction
shall bear all of the costs of its personnel, attorneys and
advisors in connection with the preparation and negotiation of
the Definitive Documents, other documents to be furnished by it
and, except as provided below in this Section 8.06, otherwise in
connection with any Transaction; provided, that if any
Transaction hereunder occurs subsequent to a PTFI Event of
Default, PTFI shall bear all attorneys' costs incurred in
connection with such Transaction. All transfer and other taxes,
all notarial and filing costs and fees, and all similar third
party costs which are incurred as a result of any Transaction
(the "Closing Costs") shall be paid by PTFI; provided, however,
if the Transaction results from PTFI's exercise of its rights
under Sections 2.05(a), 2.05(b), 6.05(a) or 6.05(b), then PJP or
the Shareholders, as applicable, shall pay such Closing Costs.
Section 8.07 Employees. In connection with any
Transaction involving all of the Shares or all or substantially
all of the Property set forth in Articles 2, 3, 4 or 6, PTFI
shall be permitted to hire from PJP or its Affiliates any or all
of the Key Employees that PTFI identifies to PJP in writing, and
PJP agrees that it will terminate at, but not prior to, the
Closing any Key Employees that PTFI so indicates that it would
like to hire. Except in the case of a transaction under Article
4, each of PJP and the Shareholders agrees that neither PJP, any
Shareholder nor any Affiliate of any of them will give any new
offer of employment (or any offer which is similar to employment,
such as a consulting arrangement) to any such Key Employee for an
eighteen (18) month period beginning on the date of any Notice
under this Option Agreement. PJP agrees not to interfere with
the hiring by PTFI of any Key Employees, and PJP hereby waives
any claims or rights that PJP may have with respect to any such
hiring.
Section 8.08 Assumption or Payment of Obligations by PTFI.
In connection with and as a condition to any purchase of all or
substantially all of the Property pursuant to Articles 2, 3 or 4,
PTFI shall assume, indemnify and hold PJP harmless from, unless
there has occurred and is continuing an Event of Default under
the Restated Power Sales Agreement relating to PTFI, in which
case PTFI shall pay and discharge in full (i) all outstanding
principal, interest and other amounts payable by PJP, or an
Affiliate of PJP, to the Senior Secured Lenders under the
Financing Documents and, to the extent approved by PTFI, other
Debt of PJP, (ii) all of the other obligations and liabilities of
PJP as to which PTFI has an obligation to reimburse PJP pursuant
to the Restated Power Sales Agreement or would have been required
to reimburse PJP pursuant to the Restated Power Sales Agreement
if PJP had continued to operate the Property or portioon of the
Property so purchased by PTFI, (iii) all obligations and
liabilities of PJP under contracts for the sale of electricity to
third parties to which PTFI has previously consented pursuant to
the Restated Power Sales Agreement and (iv) for the period after
the closing date of such purchase, all obligations and
liabilities of PJP under all contracts between PJP and one or
more third parties that are assumed by PTFI. It is expressly
understood by the parties that the obligations of PTFI under
clause (i) of this Section 8.08 are absolute and unconditional
and shall be performed by PTFI (A) on the date on which the
Restated Power Sales Agreement is terminated due to an Event of
Default by either PTFI or PJP and (B) regardless of whether or
not PJP complies with any Section of this Article 8 and
regardless of whether any of the conditions set forth in Article
9 is satisfied.
Section 8.09 No Liens. In connection with each of the
Transactions set forth in Articles 2, 3 or 4, all of the Property
shall be transferred to PTFI free and clear of any and all Liens
other than Permitted Liens or Liens created by the acts or
omissions of PTFI.
Section 8.10 Post-Closing Transition Obligations. For a
reasonable period of time following the Closing, each of PJP and
the Shareholders shall provide to PTFI any and all reasonable
assistance requested by PTFI in connection with the transition of
the ownership, operation and maintenance of the Facilities. PTFI
shall reimburse PJP and the Shareholders within a reasonable
period of time following receipt of an invoice for any direct,
reasonable, out-of-pocket expenses in connection with any such
transitional assistance.
Section 8.11 Risk of Loss. Pending any Closing, the risk
of loss or damage to the Property or Shares being transferred by
fire or other casualty or its taking or damage by condemnation
shall be on the Transferor.
ARTICLE 9
CONDITIONS TO CLOSING
Section 9.01 Conditions to the Obligations of Each Party
at the Closing. The obligations of each party to consummate the
Closing are subject to the satisfaction of the following
conditions (except that, in the case of a transaction under
Article 4, any condition which cannot be satisfied as a result of
any act or omission on the part of PTFI shall be waived):
(a) No provision of any applicable law or
regulation and no judgment, injunction, order or decree
shall (i) prohibit the consummation of the Closing or (ii)
restrain, prohibit or otherwise materially interfere with
the effective operation of all or any portion of the
Property.
(b) All actions by or in respect of or filings
with any governmental body, agency, official or authority
required to permit the consummation of the Closing,
including, without limitation, all approvals set forth in
any Schedule produced by the Transferor pursuant to Section
8.01 or 8.03 hereto, any approval of the BKPM, PLN, MOME,
BPN, the Bank of Indonesia and any other department,
Ministry or agency of the Indonesian Government necessary
for the transfer scheduled to be consummated at the Closing,
for the parties to execute the Definitive Documents and for
the continued operation of the Property.
(c) There shall have been no Material Adverse
Effect with respect to the Property since the date of the
Notice.
(d) PTFI shall have obtained all approvals and
consents required under its contractual arrangements in
connection with the execution of the Definitive Documents.
(e) As of the date of the Closing, PJP shall not
be in violation of any law or regulation relating to the
Property, except for violations which could not reasonably
be expected to have a Material Adverse Effect, and there
shall be no action, suit, investigation or proceeding
pending, or to PJP's knowledge threatened, against or
affecting the Property before any court or arbitrator or any
governmental body, agency or official which is reasonably
likely to be determined or resolved in a manner which could
reasonably be expected to have a Material Adverse Effect or
which in any manner challenges or seeks to prevent, enjoin
or materially alter or delay the transactions contemplated
hereby or by the Definitive Documents.
(f) Each of the Definitive Documents shall have
been executed and delivered in form and substance
satisfactory to the parties thereto and shall be in full
force and effect, and no default by any party thereto in the
performance of its obligations thereunder shall have
occurred and be continuing.
Section 9.02 Conditions to Obligation of the Transferor at
the Closing. The obligation of the Transferor to consummate the
Closing is also subject to the satisfaction of the following
further conditions:
(a) PTFI shall have performed in all material
respects all of its obligations hereunder required to be
performed by it on or prior to the Closing, the
representations and warranties of PTFI set forth in the
Definitive Documents shall be true in all material respects
at and as of the Closing, as if made at and as of such date
and the Transferor shall have received a certificate signed
by an authorized officer of PTFI to the foregoing effect.
(b) With respect to the Closing, (i) the
Transferor shall have received all consents, authorizations
or approvals from governmental agencies which are required
to effectuate the Transfer, in each case in form and
substance reasonably satisfactory to the Transferor and no
such consent, authorization or approval shall have been
revoked and no proceeding or formal investigation shall have
been commenced to revoke such consent, authorization or
approval and (ii) the Transferor shall have received such
legal opinions as it shall reasonably request.
Section 9.03 Conditions to the Obligations of PTFI at the
Closing. The obligations of PTFI to consummate the Closing is
also subject to the satisfaction of the following further
conditions (except that, in the case of a transaction under
Article 4, any conditionn which cannot be satisfied as a result of
any act or omission on the part of PTFI shall be waived):
(a) the Transferor shall have performed in all
material respects all of its obligations hereunder required
to be performed by it at or prior to the Closing, the
representations and warranties of the Transferor set forth
in the Definitive Documents shall be true in all material
respects at and as of the Closing, as if made at and as of
such date and PTFI shall have received a certificate signed
by an authorized representative of the Transferor to the
foregoing effect.
(b) PTFI shall have received all consents,
permits, authorizations or approvals from any governmental
agencies required to effectuate the Transfer to be
consummated at the Closing, and each shall be in form and
substance reasonably satisfactory to PTFI, and no such
consent, permit, authorization or approval shall have been
revoked and no proceeding or formal investigation shall have
been commenced to revoke such consent, authorization or
approval.
ARTICLE 10
COVENANTS
Section 10.01 Single Purpose Entity. Each of the
Shareholders hereby covenants and agrees that during the Option
Period it shall vote its Shares, and shall instruct any of PJP's
commissioners and directors nominated by it, to retain PJP's
status as a single purpose entity whose only business is the
ownership and operation of electric generation, transmission and
distribution facilities in the area in which PTFI conducts its
operations pursuant to the COW.
Section 10.02 Transferee to be Bound. PJP hereby covenants
and agrees to cause any Person to whom any Property (other than
non-essential Property as contemplated by Section 3.01) is sold,
conveyed, transferred or assigned to execute such document or
documents, in form and substance reasonably satisfactory to each
other party, as will expressly bind such transferee to the terms
of this Option Agreement. PJP and each of the Shareholders
hereby covenants and agrees to cause any Person to whom it
issues, sells, conveys, transfers or assigns any Shares to
execute such document or documents, in form and substance
reasonably satisfactory to each other party, as will expressly
bind such transferee to the terms of this Option Agreement.
Section 10.03 Notification of Changes. PJP and each of the
Shareholders hereby covenants and agrees that during the Option
Period it shall promptly inform PTFI of any (i) proposed change
to the Articles, the Restated Shareholders Agreement and any
other document or agreement governing the relationship between
the Shareholders or between the Shareholders and PJP, (ii)
proposed transfer of non-essential Property to a Shareholder or
an Affiliate thereof as contemplated by Section 3.01, (iii)
proposed issuance, sale, conveyance, transfer or assignment of
Shares by PJP to any Shareholder or Affiliate thereof, (iv)
proposed sale, conveyance, transfer or assignment of Shares to
any Shareholder to any other Shareholder or an Affiliate thereof,
(v) any proposed Change in Control and (vi) incurrence of any
material liability by PJP.
Section 10.04 Cooperation. Each party hereto hereby
covenants and agrees to use all reasonable efforts to cooperate
with each other Party to this Agreement in fulfilling its
obligations hereunder including, but not limited to, executing
consents and other documents, attending meetings and doing such
other things as are reasonably necessary in order that the
Conditions to Closing set forth in Article 9 are fulfilled prior
to the Closing Date of any Transaction, even though not a party
to such Transaction.
ARTICLE 11
MISCELLANEOUS
Section 11.01 Notices. All notices, requests and other
communications to either party hereunder (i) shall be in writing
(including facsimile transmissions), (ii) shall be given
if to PTFI, to:
P.T. Freeport Indonesia Company
Plaza 89, 5th Floor
Jl. HR. Rasuna Said, Kav. X-7, No. 6
Jakarta 12940
INDONESIA
Attention: President Director
Telecopy: 011-62-21-850-4535
with a copy to:
P.T. Freeport Indonesia Company
1615 Poydras Street
New Orleans, Louisiana 70112
U.S.A.
Attention: General Counsel
Telecopy: 504-582-1603
if to PJP, to:
P.T. Puncakjaya Power
Plaza 89, 6th Floor
Jl. HR. Rasuna Said Kav. X-7 No. 6
Jakarta 12940
INDONESIA
Attention: President Director
Telecopy: 011-62-21-850-8178
with a copy to:
P.T. Puncakjaya Power
c/o Duke Energy International LLC
Suite 1800
400 South Tryon Street
Charlotte, North Carolina 28285
U.S.A.
Attention: Puncakjaya Power Project Administrator
Telecopy: 704-382-9325
if to DIJ, to:
Duke Irian Jaya, Inc.
1105 North Market Street
Suite 1300
P.O. Box 8985
Wilmington, Delaware 19899
U.S.A.
Attention: President
Telecopy: 302-427-7663
if to WPI, to:
Westcoast Power, Inc.
Suite 600, Park Place
666 Burrard Street
Vancouver, British Columbia V6C 3M8
CANADA
Attention: Vice President, Indonesia
Telecopy: 604-488-8140
and if to PNJ, to:
P.T. Prasarana Nusantara Jaya
Plaza 89, Suite 601
Jl. HR. Rasuna Said, Kav. X-7, No. 6
Jakarta
INDONESIA
Attn: Managing Director
Telecopy: 011-62-21-850-6743
and (iii) shall be sent either (A) internationally recognized
express courier service (postage prepaid) that guarantees
delivery to the intended destination within a specified number of
days or (B) by telecopier with a hard copy sent in accordance
with (A) above. All such notices, requests and other
communications shall be deemed received two days after they are
sent if sent in accordance with (B) above and if sent by in
accordance with (A) above, in accordance with (A) above, in the
number of days following the
delivery to the carrier which is equal to the number of days
within which the carrier guarantees delivery to the intended
destination.
Section 11.02 Amendments and Waivers.(a) Any provision of
this Option Agreement may be amended or waived if and only if
such amendment or waiver is in writing and is signed, in the case
of an amendment, by each party to this Option Agreement, or in
the case of a waiver, by the party against whom the waiver is to
be effective.
(b) No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or
remedies provided by law, subject to the limitations herein set
forth.
Section 11.03 Expenses. Except as otherwise provided
herein, all costs and expenses incurred in connection with this
Option Agreement shall be paid by the party incurring such cost
or expense.
Section 11.04 Successors and Assigns. The provisions of
this Option Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns; provided, that no party may assign, delegate or
otherwise transfer any of its rights or obligations under this
Option Agreement without the prior written consent of the other
party hereto.
Section 11.05 Assignment. PTFI shall not be permitted to
assign its rights or obligations under this Option Agreement
without the prior written consent of the other parties.
Section 11.06 Governing Law. This Option Agreement shall
be governed by and construed in accordance with the law of the
State of New York without regard to principles of conflicts of
laws.
Section 11.07 Counterparts; Effectiveness. This Option
Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This
Option Agreement shall become effective when signed by all
parties hereto.
Section 11.08 Entire Agreement; Third Party Beneficiaries.
This Option Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter
of this Option Agreement. Nothing in this Option Agreement is
intended to confer upon any Person other than the Parties hereto
and their successors and assigns any rights or remedies
hereunder. This Option Agreement shall remain in full force and
effect and shall not be terminated by either of the Parties
during the Option Period.
Section 11.09 Confidentiality. Each party hereto will
hold, and will use its reasonable efforts to cause its respective
officers, directors, employees, accountants, counsel,
consultants, advisers and agents to hold, in confidence for a
period of five (5) years commencing with the date of receipt
thereof, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all
documents and information furnished to such party, as applicable,
or any of its respective Affiliates in connection with the
transactions contemplated by this Option Agreement to the extent
that the documents or the context of their disclosure indicate
that they are intended to be confidential, except to the extent
that such information can be shown to have been (i) previously
known on a nonconfidential basis by it, (ii) in the public domain
through no fault of it, or (iii) later lawfully acquired by it
from sources other than such party, as applicable; provided, that
PJP may disclose such information to its officers, directors,
employees, accountants, counsel, consultants, advisors and agents
in connection with the transactions contemplated by the Restated
Power Sales Agreement and to prospective lenders or purchasers of
PJP debt instruments in connection with obtaining the financing
for the transactions contemplated by the New Asset Sale Agreement
and the refinancing of the Existing Assets, so long as such
Persons are informed by PJP of the confidential nature of such
information and are directed by PJP to treat such information
confidentially and, in the case of prospective lenders or
purchasers of PJP debt instruments, agree in writing to be bound
by the terms of this confidentiality provision or other
confidentiality provisions acceptable to PJP. The obligation of
each party and its respective Affiliates to hold any such
information in confidence shall be satisfied if they exercise the
same care with respect to such information as they would take to
preserve the confidentiality of their own similar information.
If this Option Agreement is terminated, each party and its
respective Affiliates will, and will use their reasonable efforts
to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to,
destroy or deliver to each other party, as applicable, upon
request, all documents and other materials, and all copies
thereof, obtained by each such party or its Affiliates or on its
behalf from each other party, as applicable, in connection with
this Option Agreement that are subject to such confidence.
Section 11.10 Captions. The captions herein are included
for convenience of reference only and shall not be used in the
construction of interpretation hereof.
Section 11.11 Survival. Except as expressly provided in
this Option Agreement, the covenants, agreements, representations
and warranties of the parties hereto set forth in this Option
Agreement or in any certificate or other writing pursuant hereto
or in connection herewith shall not survive the Closing at which
they were made.
IN WITNESS WHEREOF, the parties hereto have caused this
Option Agreement to be duly executed by their respective
authorized officers as of the day and year first written above.
P.T. FREEPORT INDONESIA COMPANY
By: Signed
Name:
Title:
P.T. PUNCAKJAYA POWER
By: Signed
Name:
Title:
DUKE IRIAN JAYA, INC.
By: Signed
Name:
Title:
WESTCOAST POWER, INC.
By: Signed
Name:
Title:
P.T. PRASARANA NUSANTARA JAYA
By: Signed
Name:
Title:
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS AND USAGE................................2
SECTION 1.01 DEFINITIONS......................................2
SECTION 1.02 USAGE............................................2
ARTICLE 2 THE OPTION BY PTFI TO PURCHASE THE PROPERTY..........2
SECTION 2.01 GRANTING OF THE PROPERTY PURCHASE OPTION.........2
SECTION 2.02 FEE FOR THE PROPERTY PURCHASE OPTION.............3
SECTION 2.03 OPTION IRREVOCABLE AND BINDING...................3
SECTION 2.04 PROCEDURES FOR EXERCISE OF OPTION................3
SECTION 2.05 PROPERTY PURCHASE OPTION PRICE...................3
SECTION 2.06 CONSENT REQUIRED.................................4
SECTION 2.07 FAIRNESS OF TAX GROSS-UP.........................5
ARTICLE 3 THE RIGHT OF FIRST REFUSAL OF PTFI TO PURCHASE THE
PROPERTY.......................................................5
SECTION 3.01 GRANTING OF THE RIGHT OF FIRST REFUSAL AS TO
PROPERTY.........................................5
SECTION 3.02 PERMITTED TRANSFERS..............................5
SECTION 3.03 TRANSFER TO A PRE-APPROVED PARTY.................6
SECTION 3.04 RIGHT OF FIRST REFUSAL...........................6
SECTION 3.05 DURATION OF THE RIGHT OF FIRST REFUSAL AS TO
PROPERTY.........................................7
SECTION 3.06 RIGHT OF FIRST REFUSAL AS TO PROPERTY CLOSING
MATTERS..........................................7
SECTION 3.07 PJP'S RIGHTS UPON PTFI'S WAIVER..................7
ARTICLE 4 THE RIGHT OF PJP TO REQUIRE PTFI TO OFFER TO PURCHASE
THE PROPERTY OR THE SHARES.....................................7
SECTION 4.01 GRANTING OF THE RIGHT TO REQUIRE THE OFFER TO
PURCHASE PROPERTY OR SHARES ..................................7
SECTION 4.02 FEE FOR THE MANDATORY PURCHASE RIGHT.............8
SECTION 4.03 MANDATORY PURCHASE RIGHT IRREVOCABLE AND BINDING.8
SECTION 4.04 PROCEDURES FOR EXERCISE OF MANDATORY PURCHASE
RIGHT............................................8
SECTION 4.05 MANDATORY PURCHASE RIGHT PURCHASE PRICE..........9
ARTICLE 5 THE RIGHT OF FIRST REFUSAL BY PTFI TO PURCHASE SHARES
FROM PJP.......................................................9
SECTION 5.01 GRANTING OF THE PJP RIGHT OF FIRST REFUSAL AS TO
PORTFOLIO SHARES .............................................9
SECTION 5.02 PERMITTED TRANSFERS..............................9
SECTION 5.03 ISSUANCE TO A PRE-APPROVED PARTY.................9
SECTION 5.04 PJP SHARE RIGHT OF FIRST REFUSAL................10
SECTION 5.05 DURATION OF THE PJP RIGHT OF FIRST REFUSAL AS TO
PORTFOLIO SHARES ............................................10
SECTION 5.06 RIGHT OF FIRST REFUSAL AS TO PORTFOLIO SHARES
CLOSING MATTERS .............................................10
SECTION 5.07 PJP'S RIGHTS UPON PTFI'S WAIVER.................11
ARTICLE 6 THE OPTION BY PTFI TO PURCHASE SHARES FROM THE
SHAREHOLDERS..................................................11
SECTION 6.01 GRANTING OF THE SHAREHOLDER SHARE PURCHASE OPTION.11
SECTION 6.02 FEE FOR THE SHAREHOLDER SHARE PURCHASE OPTION...11
SECTION 6.03 OPTION IRREVOCABLE AND BINDING..................11
SECTION 6.04 PROCEDURES FOR EXERCISE OF OPTION...............12
SECTION 6.05 SHAREHOLDER SHARE PURCHASE OPTION PRICE.........12
SECTION 6.06 FAIRNESS OF TAX GROSS-UP........................13
ARTICLE 7 THE RIGHT OF FIRST REFUSAL BY PTFI TO PURCHASE SHARES
FROM THE SHAREHOLDERS.........................................14
SECTION 7.01 GRANTING OF THE SHAREHOLDER SHARE RIGHT OF FIRST
REFUSAL......................................................14
SECTION 7.02 PERMITTED TRANSFERS.............................14
SECTION 7.03 TRANSFER TO A PRE-APPROVED PARTY................14
SECTION 7.04 SHAREHOLDER SHARE RIGHT OF FIRST REFUSAL........15
SECTION 7.05 DURATION OF THE SHAREHOLDER SHARE RIGHT OF FIRST
REFUSAL......................................................15
SECTION 7.06 SHAREHOLDER S HARE RIGHT OF FIRST REFUSAL CLOSING
MATTERS......................................................16
SECTION 7.07 SHAREHOLDER'S RIGHTS UPON PTFI'S WAIVER.........16
SECTION 7.08 PJP ACKNOWLEDGMENT..............................16
ARTICLE 8 PROVISIONS APPLICABLE TO THE CLOSING................15
SECTION 8.01 PRE-CLOSING OBLIGATIONS.........................16
SECTION 8.02 CLOSING.........................................17
SECTION 8.03 REPRESENTATIONS AND WARRANTIES AT CLOSING......17
SECTION 8.04 INDEMNITY.......................................17
SECTION 8.05 NO CONTRAVENTION................................17
SECTION 8.06 CLOSING COSTS...................................18
SECTION 8.07 EMPLOYEES.......................................18
SECTION 8.08 ASSUMPTION OR PAYMENT OF OBLIGATIONS BY PTFI....18
SECTION 8.09 NO LIENS........................................19
SECTION 8.10 POST-CLOSING TRANSITION OBLIGATIONS.............19
SECTION 8.11 RISK OF LOSS....................................19
ARTICLE 9 CONDITIONS TO CLOSING...............................19
SECTION 9.01 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY AT THE
CLOSING......................................................19
SECTION 9.02 CONDITIONS TO OBLIGATION OF THE TRANSFEROR AT THE
CLOSING......................................................20
SECTION 9.03 CONDITIONS TO THE OBLIGATIONS OF PTFI AT THE
CLOSING......................................................20
ARTICLE 10 COVENANTS..........................................21
SECTION 10.01 SINGLE PURPOSE ENTITY..........................21
SECTION 10.02 TRANSFEREE TO BE BOUND.........................21
SECTION 10.03 NOTIFICATION OF CHANGES........................21
SECTION 10.04 COOPERATION....................................22
ARTICLE 11 MISCELLANEOUS......................................22
SECTION 11.01 NOTICES........................................22
SECTION 11.02 AMENDMENTS AND WAIVERS.........................24
SECTION 11.03 EXPENSES.......................................24
SECTION 11.04 SUCCESSORS AND ASSIGNS.........................24
SECTION 11.05 ASSIGNMENT.....................................25
SECTION 11.06 GOVERNING LAW..................................25
SECTION 11.07 COUNTERPARTS; EFFECTIVENESS....................25
SECTION 11.08 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES....25
SECTION 11.09 CONFIDENTIALITY................................25
SECTION 11.10 CAPTIONS.......................................26
SECTION 11.11 SURVIVAL.......................................26
Exhibit 10.15
FREEPORT-McMoRan COPPER & GOLD INC.
((DDeeffined terms shall have the same meaning as in the Plan
unless otherwise defined herein)
1. Option with Limited Right Awards. Awards of
Options under the Plan that include Limited Rights but that do
not contain a tax-offset payment right feature pursuant to
Section 6(c) of the Plan shall have the terms and conditions set
forth in the form of Nonqualified Stock Option and Limited Right
Agreement attached hereto as Exhibit A.
2. Option with Tax-Offset Payment Right and Limited
Right Awards. Awards of Options under the Plan that include a
tax-offset payment right feature pursuant to Section 6(c) of the
Plan and Limited Rights shall have the terms and conditions set
forth in the form of Nonqualified Tax-Offset Stock Option and
Limited Right Agreement attached hereto as Exhibit B.
3. Option with Tax-Offset Payment Right Awards.
Awards of Options under the Plan that include a tax-offset
payment right feature pursuant to Section 6(c) of the Plan but
that do not include Limited Rights shall have the terms and
conditions set forth in the form of Nonqualified Tax-Offset Stock
Option Agreement attached hereto as Exhibit C.
4. SAR Awards. Awards of freestanding SARs under the
Plan shall have the terms and conditions set forth in the form of
Stock Appreciation Rights Agreement attached hereto as Exhibit D.
5. Stock Incentive Unit Awards. Awards of Stock
Incentive Units under the Plan shall have the terms and
conditions set forth in the form of Stock Incentive Unit
Agreement attached hereto as Exhibit E.
6. Designation of Beneficiary. A Participant shall be
entitled to designate one or more beneficiaries to receive all or
any portion of the amounts distributable or the benefits due to
such Participant in connection with any Award in the event of
such Participant's death. Such designation shall be filed with
such department or officer of the Company, and in accordance with
such procedures, as the Secretary or such officer's designee
shall determine, shall be filed on the form adopted by such
officer from time to time for such purpose, and shall be
immediately effective upon receipt by such department or officer.
In the case of conflicting or inconsistent designations, the
Committee shall be entitled to honor and shall be fully protected
in complying with the most recently received such designation.
All decisions as to the validity or adequacy of such designations
shall be made by the Committee in its sole discretion; however,
the acceptance or receipt of any such designation shall imply no
conclusion on the part of the Committee as to the validity or
adequacy thereof. There shall be no limit on the number of
designations that a Participant may file or the timing thereof.
In the event of a Participant's death, amounts distributable to
any such Participant under the Plan that are subject to any such
designation, to the extent such designation is valid and
enforceable under applicable law, shall be distributed to the
respective designee(s). Any other amounts distributable to such
Participant under the Plan shall be distributable to such
Participant's estate. If there shall be any question as to the
legal right of any designee or beneficiary to receive any such
distribution, or the legal obligation of the employer in respect
thereto, the amount or property in question may be distributed to
such Participant's estate, in which event neither the Committee
nor the Participant's employer shall have any further liability
to anyone with respect to any such amount or property.
7. Fair Market Value. For any purpose relevant under
the Plan other than the determination of the exercise price or
grant price of Awards made immediately prior to the Distribution
pursuant to Sections 6, 7, 8, and 9 of the Plan, the fair market
value of a Share shall be the average of the high and low quoted
per Share sale prices on the Composite Tape for New York Stock
Exchange-Listed Stocks on the date in question or, if there are
no reported sales on such date, on the last preceding date on
which any reported sale occurred. If on the date in question the
Shares are not listed on such Composite Tape, the fair market
value shall be the average of the high and low quoted sale prices
on the New York Stock Exchange on such date or, if no sales
occurred on such date, on the last previous day on which a sale
on the New York Stock Exchange is reported.
8. Method of Exercise. Awards must be exercised by
delivering written notice to the Company on forms promulgated by
the Office of the Secretary and, with respect to Options or
portions thereof, payment of the purchase price thereof in full.
Any such exercise shall be effective upon receipt by the Company
of such notice and, if applicable, such payment. Unless the
Committee shall determine otherwise in any particular case, such
payment may be made in cash, cash equivalent (which may be the
personal check of the exercising holder of the Award or ancillary
payments assigned in accordance with Section 10 hereof) or Shares
already owned by such holder, or a combination thereof, having an
aggregate fair market value equal to the aggregate exercise price
of the Shares with respect to which the Option is exercised.
Shares tendered or identified for payment must be held by the
exercising holder of the Award in certificated form.
9. Withholding. Exercising Participants in respect of
whom the Company is obligated to remit withholding or other
payroll taxes must remit any applicable amounts in cash or cash
equivalent (which may be the personal check of the exercising
Participant) at the time of an Award exercise or promptly
thereafter; provided, however, the Company shall have no
obligation to deliver Shares pursuant to the exercise of an
Award, in whole or in part, until such taxes are remitted.
10. Assignment of Ancillary Payments. Any amounts due
upon exercise of an Award may be offset by the waiver or
assignment of any cash payment associated with such Award to
which the holder of the Award is entitled or any cash payments to
which the holder of the Award is entitled in connection with
another Award under the Plan that is exercised effective the same
date.
11. Retirement. Any Participant who ceases to provide
services to the Related Entities (as that capitalized term is
defined in the forms of agreements attached hereto as Exhibits A,
B, D, and E) and who is determined by the Company to have
provided significant services to any of the Related Entities in
the course of his or her career shall be deemed to have retired
for purposes of the Plan or any Award Agreement thereunder,
whether or not such Participant satisfies the criteria for
retirement under any tax qualified retirement plan of any of the
Related Entities.
Exhibit 10.17
FREEPORT-McMoRan COPPER & GOLD INC.
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
PURPOSE OF THE PLAN
The purpose of the 1995 Stock Option Plan for
Non-Employee Directors (the "Plan") is to align more closely the
interests of the non-employee directors of Freeport-McMoRan
Copper & Gold Inc. (the "Company") with that of the Company's
stockholders by providing for the automatic grant to such
directors of stock options ("Options") to purchase Shares (as
hereinafter defined), in accordance with the terms of the Plan.
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following terms
shall have the meanings indicated:
Applicable Rate: With respect to the exercise of an
Option, the rate, expressed as a percentage, determined according
to the following formula:
x divided by (1-x)
in which x equals the maximum federal income tax rate applicable
to individuals in effect on the date of such exercise of such
Option.
Board: The Board of Directors of the Company.
Change in Control: A Change in Control shall be deemed
to have occurred if either (a) any person, or any two or more
persons acting as a group, and all affiliates of such person or
persons, shall, otherwise than as a result of the Distribution,
beneficially own more than 20% of all classes and series of the
Company's stock outstanding, taken as a whole, that has voting
rights with respect to the election of directors of the Company
(not including any series of preferred stock of the Company that
has the right to elect directors only upon the failure of the
Company to pay dividends) pursuant to a tender offer, exchange
offer or series of purchases or other acquisitions, or any
combination of those transactions, or (b) there shall be a change
in the composition of the Board at any time within two years
after any tender offer, exchange offer, merger, consolidation,
sale of assets or contested election, or any combination of those
transactions (a "Transaction"), so that (i) the persons who were
directors of the Company immediately before the first such
Transaction cease to constitute a majority of the Board of
Directors of the corporation which shall thereafter be in control
of the companies that were parties to or otherwise involved in
such Transaction, or (ii) the number of persons who shall
thereafter be directors of such corporation shall be fewer than
two-thirds of the number of directors of the Company immediately
prior to such first Transaction. A Change in Control shall be
deemed to take place upon the first to occur of the events
specified in the foregoing clauses (a) and (b).
Code: The Internal Revenue Code of 1986, as amended
from time to time.
Committee: A committee of the Board designated by the
Board to administer the Plan and composed of not fewer than two
directors, each of whom, to the extent necessary to comply with
Rule 16b-3 only, is a "non-employee director" within the meaning
of Rule 16b-3 and, to the extent necessary to comply with Section
162(m) only, is an "outside director" under Section 162(m).
Until otherwise determined by the Board, the Committee shall be
the Corporate Personnel Committee of the Board.
Distribution: The distribution by Freeport-McMoRan
Inc. ("FTX") of all the then outstanding Shares owned by FTX to
the holders of FTX common stock.
Eligible Director: A director of the Company who is
not, and within the preceding one year has not been, an officer
or an employee of the Company or a Subsidiary, an officer or an
employee of an entity with which the Company has contracted to
receive executive or management services, or otherwise eligible
for selection to participate in any plan of the Company or any
Subsidiary that entitles the participants therein to acquire
stock, stock options or stock appreciation rights of the Company
or its Subsidiaries.
Exchange Act: The Securities Exchange Act of 1934, as
amended from time to time.
Fair Market Value: The average of the per Share high
and low quoted sale prices on the date in question (or, if there
is no reported sale on such date, on the last preceding date on
which any reported sale occurred) on the principal exchange or
market where such Shares are quoted.
Grant Date: The first day of the first month following
the month in which the Distribution occurs.
Option Cancellation Gain: With respect to the
cancellation of an Option pursuant to Section 3 of Article IV
hereof, the excess of the Fair Market Value as of the Option
Cancellation Date (as that term is defined in Section 3 of
Article IV hereof) of all the outstanding Shares covered by such
Option, whether or not then exercisable, over the purchase price
of such Shares under such Option.
Option Gain: The excess of the Fair Market Value of
the Shares covered by the exercise of an Option over the purchase
price of such Shares under such Option, as such Fair Market Value
is determined on the date of such exercise.
Rule 16b-3: Rule 16b-3 promulgated by the SEC under
the Exchange Act, or any successor rule or regulation thereto as
in effect from time to time.
SEC: The Securities and Exchange Commission, including
the staff thereof, or any successor thereto.
Section 162(m): Section 162(m) of the Code and all
regulations promulgated thereunder as in effect from time to
time.
Shares: Shares of Class B Common Stock, par value
$0.10 per share, of the Company and any shares into which such
Shares may be converted or combined in accordance with the terms
of the Company's Certificate of Incorporation.
Subsidiary: Any corporation of which stock
representing at least 50% of the ordinary voting power is owned,
directly or indirectly, by the Company; and any other entity of
which equity securities or interests representing at least 50% of
the ordinary voting power or 50% of the total value of all
classes of equity securities or interests of such entity are
owned, directly or indirectly, by the Company.
ARTICLE III
ADMINISTRATION OF THE PLAN
This Plan shall be administered by the Board. The
Board will interpret this Plan and may from time to time adopt
such rules and regulations for carrying out the terms and
provisions of this Plan as it may deem best; however, the Board
shall have no discretion with respect to the selection of
directors who receive Options, the timing of the grant of
Options, the number of Shares subject to any Options or the
purchase price thereof. Notwithstanding the foregoing, the
Committee shall have the authority to make all determinations
with respect to the transferability of Options in accordance with
Article VIII hereof. All determinations by the Board or the
Committee shall be made by the affirmative vote of a majority of
its respective members, but any determination reduced to writing
and signed by a majority of its respective members shall be fully
as effective as if it had been made by a majority vote at a
meeting duly called and held. Subject to any applicable
provisions of the Company's By-Laws or of this Plan, all
determinations by the Board and the Committee pursuant to the
provisions of this Plan, and all related orders or resolutions of
the Board and the Committee, shall be final, conclusive and
binding on all persons, including the Company and its
stockholders, employees, directors and optionees. In the event
of any conflict or inconsistency between determinations, orders,
resolutions, or other actions of the Committee and the Board
taken in connection with this Plan, the action of the Board shall
control.
ARTICLE IV
STOCK SUBJECT TO THE PLAN
SECTION 1. The Shares to be issued or delivered upon
exercise of Options shall be made available, at the discretion of
the Board, either from the authorized but unissued Shares of the
Company or from Shares reacquired by the Company, including
Shares purchased by the Company in the open market or otherwise
obtained; provided, however, that the Company, at the discretion
of the Board, may, upon exercise of Options granted under this
Plan, cause a Subsidiary to deliver Shares held by such
Subsidiary.
SECTION 2. Subject to the provisions of Section 3 of
this Article IV, the aggregate number of Shares which may be
purchased pursuant to Options shall not exceed 2,000,000.
SECTION 3. In the event that the Committee determines
that any dividend or other distribution (whether in the form of
cash, Shares, Subsidiary securities, other securities or other
property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities
of the Company, issuance of warrants or other rights to purchase
Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate to
prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the
Committee may, in its sole discretion and in such manner as it
may deem equitable, adjust any or all of (i) the number and type
of Shares (or other securities or property) subject to
outstanding Options, and (ii) the grant or exercise price with
respect to any Option or, if deemed appropriate, make provision
for a cash payment to the holder of an outstanding Option;
provided, that the number of Shares subject to any Option
denominated in Shares shall always be a whole number. In the
event the Company is merged or consolidated into or with another
corporation in a transaction in which the Company is not the
survivor, or in the event that substantially all of the Company's
assets are sold to another entity not affiliated with the
Company, any holder of an Option whether or not then exercisable,
shall be entitled to receive (unless the Company shall take such
alternative action as may be necessary to preserve the economic
benefit of the Option for the optionee) on the effective date of
any such transaction (the "Option Cancellation Date"), in
cancellation of such Option, an amount in cash equal to the
Option Cancellation Gain relating thereto, determined as of the
Option Cancellation Date.
ARTICLE V
PURCHASE PRICE OF OPTIONED SHARES
The purchase price per Share under each Option shall be
100% of the Fair Market Value of a Share at the time such Option
is granted, but in no case shall such price be less than the par
value of the Shares subject to such Option.
ARTICLE VI
ELIGIBILITY OF RECIPIENTS
Options will be granted only to individuals who are
Eligible Directors at the time of such grant.
ARTICLE VII
GRANT OF OPTIONS
SECTION 1. Each Option shall constitute a nonqualified
stock option which is not intended to qualify under Section 422
of the Code.
SECTION 2. On the Grant Date in 1995 and on the
anniversary of such date in each subsequent year through and
including 2004, each Eligible Director, as of each such date,
shall be granted an Option to purchase 10,000 Shares. Each
Option shall become exercisable with respect to 2,500 Shares on
each of the first, second, third and fourth anniversaries of the
date of grant and may be exercised by the holder thereof with
respect to all or any part of the Shares comprising each
installment as such holder may elect at any time after such
installment becomes exercisable but no later than the termination
date of such Option; provided that each Option shall become
exercisable in full upon a Change in Control.
SECTION 3. Each Option shall provide that, promptly
following the exercise of all or any portion of such Option, the
Company shall pay to the holder of such Option an amount in cash
equal to the Option Gain multiplied by the Applicable Rate. If
an Option has been transferred pursuant to clause (c) of Article
VIII hereof, the right to any payment under this Article VII,
Section 3 remains with the original holder of the Option, except
that in the case of a transfer pursuant to a domestic relations
order, such payment shall be made to the spouse responsible for
the federal income tax related to the Option exercise.
ARTICLE VIII
TRANSFERABILITY OF OPTIONS
No Options granted hereunder may be transferred,
pledged, assigned or otherwise encumbered by an optionee except:
(a) by will;
(b) by the laws of descent and distribution; or
(c) if permitted by the Committee and so provided
in the Option or an amendment thereto, (i) pursuant to
a domestic relations order, as defined in the Code,
(ii) to Immediate Family Members, (iii) to a
partnership in which Immediate Family Members, or
entities in which Immediate Family Members are the
owners, members or beneficiaries, as appropriate, are
the partners, (iv) to a limited liability company in
which Immediate Family Members, or entities in which
Immediate Family Members are the owners, members or
beneficiaries, as appropriate, are the members, or (v)
to a trust for the benefit of Immediate Family Members;
provided, however, that no more than a de minimus
beneficial interest in a partnership, limited liability
company or trust described in (iii), (iv) or (v) above
may be owned by a person who is not an Immediate Family
Member or by an entity that is not beneficially owned
solely by Immediate Family Members. "Immediate Family
Members" shall be defined as the spouse and natural or
adopted children or grandchildren of the optionee and
their spouses.
Any attempted assignment, transfer, pledge, hypothecation or
other disposition of Options, or levy of attachment or similar
process upon Options not specifically permitted herein, shall
null and void and without effect.
ARTICLE IX
EXERCISE OF OPTIONS
SECTION 1. Each Option shall terminate 10 years after
the date on which it was granted.
SECTION 2. Except in cases provided for in Article X
hereof, each Option may be exercised by the holder thereof only
while the optionee to whom such Option was granted is an Eligible
Director.
SECTION 3. A person electing to exercise an Option or
any portion thereof then exercisable shall give written notice to
the Company of such election and of the number of Shares such
person has elected to purchase, and shall at the time of purchase
tender the full purchase price of such Shares, which tender shall
be made in cash or cash equivalent (which may be such person's
personal check) or in Shares already owned by such person (which
Shares shall be valued for such purpose on the basis of their
Fair Market Value on the date of exercise), or in any combination
thereof. The Company shall have no obligation to deliver Shares
pursuant to the exercise of any Option, in whole or in part,
until such payment in full of the purchase price of such Shares
is received by the Company. No optionee, or legal
representative, legatee, distributee, or assignee of such
optionee shall be or be deemed to be a holder of any Shares
subject to such Option or entitled to any rights of a stockholder
of the Company in respect of any Shares covered by such Option
distributable in connection therewith until such Shares have been
paid for in full and certificates for such Shares have been
issued or delivered by the Company.
SECTION 4. Each Option shall be subject to the
requirement that if at any time the Board shall be advised by
counsel that the listing, registration or qualification of the
Shares subject to such Option upon any securities exchange or
under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Option
or the issue or purchase of Shares thereunder, such Option may
not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained free from any conditions not reasonably
acceptable to such counsel for the Board
SECTION 5. The Company may establish appropriate
procedures to provide for payment or withholding of such income
or other taxes as may be required by law to be paid or withheld
in connection with the exercise of Options, and to ensure that
the Company receives prompt advice concerning the occurrence of
any event which may create, or affect the timing or amount of,
any obligation to pay or withhold any such taxes or which may
make available to the Company any tax deduction resulting from
the occurrence of such event.
ARTICLE X
TERMINATION OF SERVICE
AS AN ELIGIBLE DIRECTOR
SECTION 1. If and when an optionee shall cease to be
an Eligible Director for any reason other than death or
retirement from the Board, all of the Options granted to such
optionee shall be terminated except that any Option, to the
extent then exercisable, may be exercised by the holder thereof
within three months after such optionee ceases to be an Eligible
Director, but not later than the termination date of the Option.
SECTION 2. If and when an optionee shall cease to be
an Eligible Director by reason of the optionee's retirement from
the Board, all of the Options granted to such optionee shall be
terminated except that any Option, to the extent then exercisable
or exercisable within one year thereafter, may be exercised by
the holder thereof within three years after such retirement, but
not later than the termination date of the Option.
SECTION 3. Should an optionee die while serving as an
Eligible Director, all the Options granted to such optionee
shall be terminated, except that any Option to the extent
exercisable by the holder thereof at the time of such death,
together with the unmatured installment (if any) of such Option
which at that time is next scheduled to become exercisable, may
be exercised within one year after the date of such death, but
not later than the termination date of the Option, by the holder
thereof, the optionee's estate, or the person designated in the
optionee's last will and testament, as appropriate.
SECTION 4. Should an optionee die after ceasing to be
an Eligible Director, all of the Options granted to such
optionee shall be terminated, except that any Option, to the
extent exercisable by the holder thereof at the time of such
death, may be exercised within one year after the date of such
death, but not later than the termination date of the Option, by
the holder thereof, the optionee's estate, or the person
designated in the optionee's last will and testament, as
appropriate.
ARTICLE XI
AMENDMENTS TO PLAN AND OPTIONS
The Board may at any time terminate or from time to
time amend, modify or suspend this Plan; provided, however, that
no such amendment or modification without the approval of the
stockholders shall:
(a) except pursuant to Section 3 of Article IV,
increase the maximum number (determined as provided in
this Plan) of Shares which may be purchased pursuant to
Options, either individually or in aggregate;
(b) permit the granting of any Option at a
purchase price other than 100% of the Fair Market Value
of the Shares at the time such Option is granted,
subject to adjustment pursuant to Section 3 of
Article IV;
(c) permit the exercise of an Option unless the
full purchase price of the Shares as to which the
Option is exercised is paid at the time of exercise;
(d) extend beyond May 1, 2004 the period during
which Options may be gr
(e) modify in any respect the class of individuals
who constitute Eligible Directors; or
(f) materially increase the benefits accruing to
participants hereunder.
Exhibit 10.21
CONSULTING AGREEMENT
CONSULTING AGREEMENT, dated as of December 22, 1988 by
and between KISSINGER ASSOCIATES, INC., a Delaware
corporation ("Kissinger Associates"), and Freeport-McMoRan
Inc., a Delaware corporation ("the Client").
The parties hereby agree as follows:
1. Consulting Engagement. Subject to the terms and
conditions hereinafter set forth, the Client hereby engages
Kissinger Associates to provide advice and consultation as
to the world political, economic, strategic and social
developments affecting the Client's affairs, and Kissinger
Associates hereby agrees to act as a consultant to the
Client with respect to such matters.
2. Compensation. As compensation for the services to
be provided by Kissinger Associates hereunder the Client
agrees to pay Kissinger Associates the sum of $200,000 per
annum (the "Fee"). The Client shall also pay or reimburse
to Kissinger Associates all reasonable out-of-pocket
expenses incurred by or on behalf of Kissinger Associates in
connection with the services provided hereunder
("Expenses"), including disbursements to third party
consultants engaged by Kissinger Associates with the
Client's prior approval, such approval not to be
unreasonably withheld.
3. Payment of Fees and Expenses. The Fee shall be
paid by the Client in semi-annual installments in advance,
the first such installment to be made on the date hereof.
Expenses shall be paid by the Client to Kissinger Associates
or as otherwise directed by Kissinger Associates within 30
days after the presentation to the Client of expense
statements, invoices, vouchers or other supporting
information.
4. Term. The term of the Agreement (the "Term")
shall commence on the date hereof and shall end on the TERM
anniversary thereof; provided, that the term of the
Agreement shall automatically be extended for additional
periods each of 12 months unless and until either party
shall give written notice of termination to the other party
not more than 120 days and not less than 90 days prior to
the scheduled commencement of any such extended period.
5. No Liability. Neither Kissinger Associates nor
any of its stockholders, officers, directors, controlling
persons, employees or agents shall have any liability to the
client with respect to, or arising out of, any of the
services provided by Kissinger Associates hereunder, other
than as a result of Kissinger Associates' willful misconduct
or gross negligence, as determined by a final judgment of a
court of competent jurisdiction. The Client hereby agrees
to indemnify and hold harmless Kissinger Associates and all
of its stockholders, officers, directors, controlling
persons, employees and agents (each, an "Indemnified Party")
against any and all losses, claims, damages, liabilities and
expenses (including attorney fees and expenses reasonably
incurred in connection therewith and amounts paid in
settlement of any claim) which any Indemnified Party may
incur or become subject to arising out of or based upon this
Agreement. Kissinger Associates agrees to furnish prompt
written notice to the Client of any claim, suit or
proceeding which might entitle an Indemnified Party to
indemnification hereunder provided that the failure by
Kissinger Associates to provide such notice shall not affect
the rights of any Indemnified Party hereunder. The
provisions of this paragraph 5 shall survive any termination
of this Agreement.
6. Confidentiality; No Publicity. The Client hereby
agrees, for itself and on behalf of each of its officers,
directors, employees and agents, to maintain the
confidentiality of all information, reports, studies, oral
advice, or other documents or information provided hereunder
to the Client by Kissinger Associates. Kissinger Associates
hereby agrees for itself, and on behalf of its officers,
directors, employees and agents, that it will maintain the
confidentiality of all nonpublic information regarding the
Client supplied hereunder to Kissinger Associates. Neither
party hereto shall make or cause to permit to be made an
announcement or disclosure of the existence of, or the
subject matter, of this Agreement, without the express prior
written consent of the other party. Notwithstanding
anything to the contrary set forth herein, the
confidentiality obligations referred to in this paragraph 6
shall not apply to (i) information publicly known through no
wrongful act of either party hereto or (ii) information
required to be disclosed by applicable law, regulation or
judicial or regulatory process, provided that advance
written notice of any required announcement or disclosure is
given to the other party.
7. Nature of Relationship. Kissinger Associates and
the Client are not, shall not be deemed to be, and shall not
represent themselves as being partners or joint venturers
with each other. Notwithstanding anything to the contrary
set forth in this Agreement, Kissinger Associates shall be
under no obligation to provide any service to the Client if
such service (i) would require Kissinger Associates, under
any applicable law or governmental rule, regulation or order
to register as a foreign agent or be deemed a domestic or
foreign agent of the Client or lobbyist for the Client or
(ii) would otherwise violate any applicable law or
governmental rule, regulation or order.
8. Parties in Interest; Assignment and Amendment.
This Agreement is binding upon and is for the benefit of the
parties hereto and their respective successors, legal
representatives, heirs and permitted assigns. This
Agreement is personal in nature and the rights hereunder
cannot be assigned nor can the duties hereunder be delegated
without the prior written consent of the parties hereto.
This Agreement cannot be amended or modified, except by a
written agreement executed by the parties hereto.
9. Entire Agreement. This Agreement supersedes any
and all oral or written agreements and understandings
heretofore made relating to the subject matter hereof and
contains the entire agreement of the parties relating to the
subject matter hereof.
10. Notices. All notices or other communications
required or permitted hereunder shall be in writing and
shall be delivered personally, telegraphed, telexed, sent by
facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Such notice shall be deemed
given when so delivered personally, telegraphed, telexed, or
sent by facsimile transmission or, if mailed, five days
after the date of deposit in the United States mail as
follows:
(i) if to Kissinger Associates, to:
Kissinger Associates, Inc.
350 Park Avenue
New York, New York 10022
Attention: Jeff Cunningham
(ii) if to the Client, to:
Freeport-McMoRan Inc.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Milton H. Ward
11. Governing Law, Consent to Jurisdiction. This
Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York applicable to
agreements made and to be performed entirely within such
State. The parties hereto (i) agree that any legal suit,
action or proceeding arising out of or relating to this
Agreement may be instituted in the State or Federal Court in
the City of New York, State of New York, (ii) waive any
objection which they may have now or hereafter to the laying
of the venue of any such suit, action or proceeding and
(iii) irrevocably submit to the non-exclusive jurisdiction
of the United States District Court for the Southern
District of New York, or any court of the State of New York
located in the City of New York in any such suit, action or
proceeding. Further, the parties hereto agree that the
mailing of any process by registered mail, postage prepaid,
in any such suit, action or proceeding to any party at its
address set forth in paragraph 10 above shall, upon receipt,
constitute personal service thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above
written by their respective officers thereunto duly
authorized.
KISSINGER ASSOCIATES, INC.
By:/S/ Henry A. Kissinger
NAME OF CLIENT
By:/S/ James R. Moffett
Exhibit 10.22
FREEPORT McMoRan
Freeport-McMoRan Inc. James R. Moffett
1615 Poydraas Street Chairman of the Board
P.O. Box 61119 Chief Executive Officer
New Orleans, La. 70161 (504) 582-1615
May 1, 1989
Dr. Henry A. Kissinger
Kent Associates, Inc.
350 Park Avenue, 26th Floor
New York, NY 10022
Dear Dr. Kissinger:
This letter, upon your acceptance by signing and returning
the enclosed copy hereof, will evidence the agreement between
Kent Associates, Inc. ("Kent") and Freeport-McMoRan Inc.
("Freeport") with respect to certain consulting services of Henry
A. Kissinger ("Kissinger") to be provided by Kent to Freeport, as
hereinafter provided. This agreement is in addition to, and not
in lieu of, that certain Consulting Agreement dated December 22,
1988, between Kissinger Associates, Inc. and Freeport.
Services to be Performed
Kissinger, as from time to time requested by Freeport, will
provide consulting and related advisory services to Freeport and
its affiliates on international matters.
Compensation
As compensation for the services of Kissinger hereunder,
Freeport or its affiliates will pay to Kent:
(a) $100,000 per month for each separately identifiable
matter upon which consultation is provided; provided however,
that such consulting fees will not exceed in the aggregate $2
million in any one calendar year, subject to the credit
provisions of subparagraph (d) below; and
(b) For consultation services on matters which do result in
a capital investment by Freeport or its affiliates, an amount
equal to 5% of such investment if the amount of such investment
is $10 million or less and 2% of such investment if the amount of
such investment is $100 million or more. To determine the
compensation payable with respect to investments ranging from
more than $10 million to less than $100 million, the above stated
percentages will be extrapolated. "Capital investment" shall be
deemed to be the investment or capital expenditure amount
reflected in the final feasibility study approved by Freeport.
The amounts due under this subparagraph will be payable over the
lesser of five years or the projected economic life of the
investment in equal semi-annual installments commencing within 90
days of Freeport's decision to proceed with the investment.
(c) For consultation services on matters where the value of
Kissinger's efforts does not reasonably relate to either the per
diem amount in (a) above or the capital investment made as
provided in (b) above, Kent shall receive a percentage of the
value to be contributed by Kissinger. "Value" is to be
determined by agreement between Freeport and Kissinger prior to
Kent and Kissinger rendering their services. The percentage of
value to be received by Kent as compensation shall be based on
the dollar amount of agreed value to be contributed and shall be
determined and paid in the same manner as set forth in (b) above.
(d) Any fee paid pursuant to subparagraph (a) above will be
credited against the compensation payable pursuant to
subparagraphs (b) or (c).
Freeport also agrees to reimburse Kent for all reasonable
out-of-pocket expenses incurred by Kissinger while performing
services for Freeport or its affiliates. Before committing to
any such expenditures however Kent must receive the prior
approval of Freeport or its affiliates.
General
In connection with your services hereunder, Kent agrees that
anyone acting on its behalf will fully and faithfully comply with
the provisions of the Foreign Corrupt Practices Act of 1977
prohibiting payments to foreign officials and persons for the
purposes of obtaining or retaining business or business
opportunities on behalf of United States companies (to which Act
Freeport and its affiliates are subject), as well as all other
laws applicable to the activities of Kent and Kissinger under the
Agreement.
Freeport hereby agrees, for itself and on behalf of each of
its officers, directors, employees and agents, to maintain the
confidentiality of all information, reports, studies, oral
advice, or other documents or information provided hereunder to
Freeport by Kent. Kent hereby agrees for itself, and on behalf
of its officers, directors, employees and agents, that it will
maintain the confidentiality of all nonpublic information
regarding Freeport supplied hereunder to Kent. Neither party
hereto shall make or cause to permit to be made an announcement
or disclosure of the existence of, or the subject matter, of this
agreement, without the express prior written consent of the other
party. Notwithstanding anything to the contrary set forth
herein, the confidentiality obligations referred to in this
paragraph shall not apply to (i) information publicly known
through no wrongful act of either party hereto or (ii)
information required to be disclosed by applicable law,
regulation or judicial or regulatory process, provided that, to
the extent practicable, advance written notice of any required
announcement or disclosure is given to the other party.
Although day-to-day operations with respect to this
Agreement will be carried on with certain executive officers of
Freeport, all determinations of when to utilize Kissinger on any
particular matter will be made by the Office of the Chairman of
Freeport.
Neither Kissinger nor Kent nor any of its stockholders,
officers, employees or agents shall have any liability to
Freeport or any of its affiliates with respect to, or arising out
of, any of the services provided by Kent or Kissinger hereunder,
other than as a result of Kent's or Kissinger's willful
misconduct or gross negligence, as determined by the final
judgment of a court of competent jurisdiction. Freeport shall
indemnify and hold harmless Kissinger and Kent and all of its
stockholders, officers, directors, controlling persons,
affiliates, employees and agents (each an "indemnified party")
against any losses, claims, liabilities or expenses (including
attorneys' fees and expenses reasonably incurred in connection
therewith and amounts paid in settlement of any claim) which any
indemnified party may incur, or become subject to, arising out
of, or based upon, this agreement. Kent and Kissinger shall
furnish Freeport with prompt written notice of any claim, suit or
proceeding that might entitle an indemnified party to
indemnification hereunder; provided, however, that failure to
provide such notice shall not affect the rights of any
indemnified party hereunder.
Freeport and Kent shall have the right to terminate this
Agreement at any time, but only as to consultation assignments
which have not been theretofore initiated. In the event of such
termination, neither party shall have any further obligations to
the other hereunder other than for compensation earned but not
paid.
The validity, operation and performance of this Agreement
shall be covered by the laws of the state of New York and its
terms shall be construed and interpreted in accordance with such
Very truly yours,
By:/S/ James R. Moffett
James R. Moffett
Accepted as of the date
first above written:
KENT ASSOCIATES, INC.
By: /S/ Henry A. Kissinger
Exhibit 10.24
AGREEMENT FOR CONSULTING SERVICES
THIS AGREEMENT, entered into effeective as of the 1st
day of January, 1991, between Freeport-McMooRan Inc. ("FMI"),
whose mailing address is P.O. Box 61520, New Orleans,
Louisiana 70161, and B. M. Rankin, Jr. ("Consultant"),
whose mailing address is 4500 Roland Avenue, Unit 604,
Dallas, Texas 75219.
W I T N E S S E T H:
1. Consultant agrees to perform for FMI the services
described in Section A of the annexed Schedule. Such
services shall be performed during the period mentioned in
Section B of this Schedule and at times and locations
specified in the Schedule.
2. For satisfactory performance of the services
described herein, FMI shall pay to Consultant the
compensation provided for in Section C of the Schedule.
3. In performing services under this Agreement,
Consultant shall operate as and have the status of an
independent contractor and shall not act as or be an agent
or employee of FMI.
All services performed by Consultant hereunder
shall meet the approval of FMI, but the detailed manner and
method of performing the services shall be under the control
of Consultant, FMI being interested only in the results
obtained.
Nothing in this agreement shall affect in any way
any of Consultant's other agreements or arrangements with
FMI.
4. Consultant agrees that he will perform the
services with that standard of care, skill, and diligence
normally provided in the performance of such services in
respect to work similar to that hereunder. Consultant is
hereby given notice that FMI will be relying on the accuracy,
competence accuracy, competence and completeness of Consultant's
services hereunder in utilizing the results of such
services.
5. Consultant agrees that he will not divulge to
third parties, without the written consent of FMI, any
information obtained from or through FMI in connection with
the performance of this Agreement unless (a) the information
is known to Consultant prior to obtaining same from FMI, (b)
the information is, at the time of disclosure by Consultant,
then in the public domain, or (c) the information is
obtained by Consultant from a third party who did not
receive same, directly or indirectly, from FMI. Consultant
further agrees that he will not, without the prior written
consent of FMI, disclose to any third party any information
developed or obtained by Consultant in the performance of
this Agreement, except to the extent that said information
falls within one of the categories in (a), (b), (c) above.
6. Unless otherwise agreed by FMI in writing,
Consultant shall personally perform the services specified
herein. This contract shall not be assigned by Consultant,
whether by operation of law or otherwise, without the
express prior written consent of FMI.
7. Consultant agrees to immediately notify FMI in
writing of any existing or proposed association, contract or
other business relationship with any individual, corporation
or other organization which directly or indirectly has
interests adverse to FMI.
8. The validity, operation and performance of this
Agreement shall be governed and controlled by the law of the
State of Louisiana, and its terms shall be construed and
interpreted in accordance with said law.
WITNESSES: FREEPORT-McMoRan INC
/S/ Ursula L. Joseph By: /S/ Thomas J. Egan
Thomas J. Egan
/S/ Elizabeth J. Mancuso Vice President
& CEO
CONSULTANT
/S/ Shirley Raines By: /S/ B. M. Rankin, Jr.
B. M. Rankin, Jr.
/S/ Sandra McGuire
SCHEDULE
SECTION A - Scope of Work
Consultant is to provide business consulting
services including, without limitation, consulting services
relating to finance, accounting and business development.
SECTION B - Period of Performance
This Agreement shall be effective from January 1, 1991
and shall continue for one year. Said Agreement shall be
automatically continued for like terms unless and until
cancelled by either party upon thirty (30) days' written
notice prior to the end of any contract term.
SECTION C - Compensation
1. A fee of $14,000.00 per calendar quarter shall be
paid to Consultant for performance of the services described
in Section A above during the contract term, to be paid
quarterly in arrears.
2. Reasonable direct expenses, such as hotel and
other lodging accommodations, transportation and travel
associated with Section A above, will be reimbursable when
authorized by FMI and supported by appropriate receipts.
Exhibit 10.25
FM SERVICES
Affiliate of
Freeport-McMoRan Copper & Gold Inc.
FM Services Company Telephone:(504) 582-4000
1615 Poydras Street
New Orleans, LA 70112
P.O. Box 61119
New Orleans, LA 70161
FM Services Company Telephone: (504) 582-4000
1615 Poydras Street
New Orleans, LA 70112
Supplemental Agreement Providing an Extension to
Consulting Agreement of January 1, 1991
Dear Mr. Rankin:
Reference is made to the consulting agreement of January 1,
1991 (the "Consulting Agreement") between you and Freeport-
McMoRan Inc. (the "Company").
By way of this Supplemental Agreement, the Company would
like to extend your Consulting Agreement through December
31, 1998, with an increase in your quarterly consulting fee,
effective January 1, 1998, to $51,500. This Supplemental
Agreement shall also serve to substitute, effective
immediately, FM Services Company for Freeport-McMoRan Inc.
as the Company for all purposes in the Consulting Agreement.
FM Services Company succeeds Freeport-McMoRan Inc. as the
entity which administers the Consulting Agreement.
Additionally, by way of this Supplemental Agreement, the
Company would like to amend your Consulting Agreement to
provide for medical coverage for you and your eligible
dependents under the FMS Medical Plan. Coverage under the
FMS Medical Plan will replace your current coverage through
Freeport-McMoRan Inc. Any benefits under the FMS Medical
Plan which are paid to you or on your behalf will be
considered taxable income to you, and will be grossed-up for
tax purposes by the Company. Such tax gross-up payment will
be calculated using the formula detailed on the attached
Schedule A. All other terms and conditions of the
Consulting Agreement shall remain unchanged.
Please confirm that the foregoing correctly sets forth our
understanding with respect to this matter by signing both
originals of this Supplemental Agreement and returning one
to me.
Very truly yours,
By:/S/ Michael J. Arnold
Michael J. Arnold
President
FM Services Company
AGREED TO AND ACCEPTED
BY: /S/ B. M. Rankin, Jr.
B. M. Rankin, Jr.
DATE: 12/18/97
SCHEDULE A
Formula for Calculating Tax Gross-up Payment for FMS Medical
Plan Benefits Paid To Or On Behalf Of B. M. Rankin
_ Amount of Medical Plan benefits paid = A
_ Maximum federal tax rate applicable to
individuals for the year in which Medical
Plan benefits are paid = B
_ Maximum tax rate for the State of Texas
applicable to individuals for the year in
which Medical Plan benefits are paid = C
Tax Gross-Up Payment = [A x (B+C)] / [1-(B+C)]
Exhibit 10.28
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
1
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
2
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.
3
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
4
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
5
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
6
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
Date
7
EXHIBIT 12.1
FREEPORT-McMoRan COPPER & GOLD INC.
Computation of Ratio of Earnings to Fixed Charges
Years Ended December 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(In Thousands)
Income from continuing
operations $60,670 $130,241 $253,618 $226,249 $245,108
Add:
Provision for income
taxes 67,589 123,412 234,044 247,168 231,315
Minority interests'
share of net
income 9,134 25,439 57,100 48,529 40,343
Interest expense 15,327 - 50,080 117,291 151,720
Rental expense
factor(a) 3,190 2,333 1,002 457 240
-------- -------- -------- -------- --------
Earnings available
for fixed charges $155,910 $281,425 $595,844 $639,694 $668,726
======== ======== ======== ======== ========
Interest expense $ 15,327 $ - $ 50,080 $117,291 $151,720
Capitalized
interest 24,519 35,110 49,758 22,979 23,021
Rental expense
factor(a) 3,190 2,333 1,002 457 240
-------- -------- -------- -------- --------
Fixed charges $ 43,036 $ 37,443 $100,840 $140,727 $174,981
======== ======== ======== ======== ========
Ratio of earnings
to fixed
charges(b) 3.6x 7.5x 5.9x 4.5x 3.8x
==== ==== ==== ==== ====
Computation of Ratio of Earnings to Fixed Charges,
Preferred Stock Dividends and Minimum Distributions
Years Ended December 31,
---------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(In Thousands)
Income from continuing
operations $ 60,670 $130,241 $253,618 $226,249 $245,108
Add:
Provision for
income taxes 67,589 123,412 234,044 247,168 231,315
Minority interests'
share of net
income 9,134 25,439 57,100 48,529 40,343
Interest expense 15,327 - 50,080 117,291 151,720
Rental expense
factor(a) 3,190 2,333 1,002 457 240
-------- -------- -------- -------- --------
Earnings available
for fixed charges $155,910 $281,425 $595,844 $639,694 $668,726
======== ======== ======== ======== ========
Interest expense $ 15,327 $ - $ 50,080 $117,291 $151,720
Capitalized
interest 24,519 35,110 49,758 22,979 23,021
Rental expense
factor(a) 3,190 2,333 1,002 457 240
Preferred
dividends 52,643 94,251 101,125 101,083 65,896
Minimum required
Class A distributions
(c) 29,447 - - - -
-------- -------- -------- -------- --------
Fixed charges $125,126 $131,694 $201,965 $241,810 $240,877
======== ======== ======== ======== ========
Ratio of earnings
to fixed charges
(b) 1.2x 2.1x 3.0x 2.6x 2.8x
==== ==== ==== ==== ====
a. Portion of rent deemed representative of an interest factor.
b. For purposes of this calculation, earnings consist of income
from continuing operations before income taxes, minority
interests and fixed charges. Fixed charges include interest
and that portion of rent deemed representative of interest.
c. Minimum required distributions on Class A Common Stock ended on
May 1, 1993.
Exhibit 13.1
1997 / ENVIRONMENTAL &
SOCIAL RESPONSIBILITY REPORT
ENVIRONMENTAL REPORT
ENVIRONMENTAL POLICY STATEMENT. Freeport-McMoRan Copper &
Gold Inc. (FCX) has a formal Environmental Policy Statement
and Environmental Auditing Policy which provides guidance
and a framework under which these important programs are
conducted. FCX is committed to environmental compliance and
high performance of its environmental programs, a safe
working environment for its employees and a healthy socio-
economic environment for the local people in the areas in
which the company operates.
In last year's Annual Report, FCX described its
Environmental Policy and programs in some detail. This
year's report will primarily discuss 1997 activities under
these ongoing programs.
1997 FCX ENVIRONMENTAL PROGRAMS UPDATE
P.T. FREEPORT INDONESIA COMPANY (PT-FI). On December 22,
1997, PT-FI received approval from the Government of
Indonesia's (GOI) Minister of Environment for its Regional
AMDAL (Analysis Concerning Environmental Impact) study,
which is a comprehensive environmental assessment that
includes a monitoring and management plan. The Regional
AMDAL approval was necessary to allow PT-FI to expand its
milling rate up to a maximum of 300,000 MTPD (300K). The
300K Regional AMDAL study document was submitted to BAPEDAL
(the Indonesian Environmental Impact Management Agency) and
the governmental AMDAL Commission on September 1, 1997, for
review and revision. The study was the culmination of a
multi-year effort to develop environmental analyses of the
impacts and benefits of the proposed expansion. The 300K
Regional AMDAL study prepared by PT-FI was termed "...the most
comprehensive BAPEDAL has ever seen" by the AMDAL Commission
Chairman. Forty-two specific environmental studies were
conducted during the AMDAL process by Indonesian and
internationally recognized experts. An extensive analysis
of the social situation in PT-FI's area of operations was
also included in the study. PT-FI subjected the most
sensitive studies to peer review to ensure their accuracy
and independence. Additionally, PT-FI and its consultants
presented the findings of these studies at five workshops on
major social and environmental issues, which were attended
by the AMDAL Commissioners and over 600 interested parties.
[Photo]
AMDAL Study / AMDAL studies include monitoring of local
waterways and aquatic fauna by teams of
Indonesian and internationally recognized
scientists.
PT-FI has numerous ongoing environmental management programs
that include monitoring, reclamation, waste management and
recycling, all of which are being expanded in accordance
with the 300K Regional AMDAL approval. The following is an
update on 1997 activities under these programs.
LONG TERM ENVIRONMENTAL MONITORING PLAN: In 1997, PT-FI
continued to conduct its Long Term Environmental Monitoring
Plan (LTEMP), which evaluates the potential impact of
operations on water quality, biology, hydrology, sediments
and air quality within its area of operations. Significant
environmental data and analyses have been developed from
this monitoring program over
[PAGE] 8
the past seven years. The
centerpiece of the LTEMP program is PT-FI's state-of-the-art
environmental laboratory located in Timika, which, in 1997,
received the GOI's highest certification for analytical
laboratories. The laboratory is also expecting to soon be
certified by the National Association of Testing and
Analysis.
[Photo]
Revegetation / Significant research programs continue to
demonstrate that a wide variety of native plants
and agronomic species, such as pineapples, will
grow on deposited tailings.
TAILINGS MANAGEMENT PLAN: One of PT-FI's key programs is
its Tailings Management Plan (TMP) which manages the river
transport and deposition of tailings, which are the crushed
rock particles that remain following the physical separation
of commercially valuable minerals from the mined ore. This
multimillion-dollar program controls the transport and
deposition of tailings through the use of a levee system on
the flood plain in the Ajkwa River within a defined area
called the Ajkwa Deposition Area (ADA). The levee system
was completed in January 1997 under a plan approved by the
GOI. The updated plan was again approved in late 1997 as a
key element in the comprehensive 300K Regional AMDAL
process. The performance of the TMP has been
comprehensively studied and will be continuously monitored
in the future. Information to date indicates that the
system is working well within engineering expectations and,
as discussed later, tailings reclamation studies show that
the ADA can readily be revegetated once mining is completed.
OVERBURDEN MANAGEMENT PLAN: The Overburden Management Plan
(OMP) controls the relocation of non-commercial rock
(overburden) generated by the Grasberg open-pit mining
operation. The latest OMP was submitted to the GOI in
conjunction with the 300K Regional AMDAL study and was
approved. The OMP includes a program to manage potential
acid rock drainage (ARD) in the Grasberg overburden disposal
areas through a combination of prevention and mitigation
techniques. Significant activities continued in 1997 to
successfully reduce and/or prevent ARD.
WASTE MANAGEMENT AND RECYCLING PLAN: PT-FI's comprehensive
waste management and recycling plan, which conforms with GOI
regulations and PT-FI's waste management policies, continued
with success in 1997. The plan provides a practical means
of managing all wastes in an environmentally acceptable
manner, with an emphasis on recycling or re-use of wastes
and substitution of materials where feasible.
[PAGE] 9
RECLAMATION AND REVEGETATION PLAN: Programs to revegetate
and reclaim the ADA have been in place for several years and
there were a number of achievements in 1997 including the
demonstration that additional species of native plants,
agricultural crops and fruit trees grow well in deposited
tailings. PT-FI has other successful reclamation and
revegetation projects that involve wetlands and lakes, as
well as forest and agricultural areas.
PT-FI has also developed a program, which continued in 1997,
to manage and monitor the reclamation of overburden
placement areas that includes, among other things, a topsoil
salvaging program, hydro-mulching, and the collection and
planting of local plants and seeds. The reclamation program
will provide a stable vegetative cover for the impacted
areas and form an ecosystem for suitable land use following
mining operations.
PT-FI has now established a fund designed to accumulate at
least $100 million by the end of its mine's life for
eventual mine closure and reclamation. The fund, to which
PT-FI continues to contribute, will be used to restore
properties and related facilities to a state required to
comply with current Indonesian environmental and other
regulations.
ENVIRONMENTAL AUDITING: In 1997, PT-FI completed the
implementation of all of the 33 recommendations made from
the external environmental audit conducted by Dames & Moore
in 1996. An internal environmental audit of PT-FI's
operations was conducted for 1997 in accordance with the FCX
Environmental Auditing Policy. This program an annual
internal audits, as well as external audits every three
years, will continue throughout the life of the mining
operations to ensure that PT-FI's environmental programs
remain sound.
ATLANTIC COPPER, S.A. (ATLANTIC). As part of the follow-up
to the completion of the 1996 environmental improvement
project, additional water collection and discharge treatment
system enhancements were completed in 1997.
Furthermore, an Environmental Management System (EMS) was
developed and fully implemented in 1997. An environmental
training and awareness plan was also fully developed and an
internal site auditing system was established to ensure
conformance to the EMS. The EMS will allow Atlantic to be
certified under the International Standards Organization
(ISO) 14001 Standard. The ISO 14001 Standard is a
management standard that provides an internationally
recognized blueprint for managing the environmental aspects
and impacts of a business. Atlantic expects to have
completed ISO 14001 certification in 1998 and is already
certified under the ISO 9000 Standard for Quality
Management. Atlantic continued to maintain excellent
relations with local and regional environmental authorities
in 1997 and worked closely with their representatives in
monitoring and interpreting data from emissions and
effluents.
SOCIAL RESPONSIBILITY REPORT
P.T. FREEPORT INDONESIA COMPANY (PT-FI). FCX and PT-FI
recognize the importance of establishing strong
relationships with the people in the area of its operations
and the important role that those relationships have in
defining a truly world-class mining operation. FCX also
recognizes the need for thoughtful and sensitive
developmental programs, in conjunction with local and
national government and non-governmental organizations
(NGOs), to support the relationship building and development
process. When PT-FI initiated operations in Irian Jaya
nearly 30 years ago, there were only approximately 400 local
Amungme and Kamoro people living in the highlands and
lowlands areas near our mining
[PAGE] 10
operations. Today, over
60,000 people have moved into the area because of the
opportunities offered by our mine and other businesses now
operating in the area. In last year's Annual Report, FCX
described the social situation around its operations in some
detail. During 1997 and early 1998, several events occurred
and processes begun which will enhance the social and
economic development of the local people and their
relationship with PT-FI.
THE FREEPORT FUND FOR IRIAN JAYA DEVELOPMENT AND THE GOI'S
DEVELOPMENT PLANS: In 1997, PT-FI and the GOI continued to
work with expert consultants and the local people within its
area of operations to create comprehensive land use and
human resource development plans. An integral part of that
plan is the Freeport Fund for Irian Jaya Development
(FFIJD), by which PT-FI would make available funding and
expertise to support the economic and social development of
the area. As with many large-scale developmental projects,
the implementation of the plan proved to be a complex
undertaking. In the fourth quarter of 1997 and with the
support of the government and the recommendation of the
LABAT-Anderson Social Audit (discussed in detail below), PT-
FI has undertaken a restructuring of its part of the GOI's
development plan for the Timika (Mimika) area. PT-FI is
setting up the mechanism to become an independent fund
provider for developmental projects in and around its
operations area. A local community oversight board is being
actively recruited and trained to evaluate and monitor
developmental projects. The oversight board is being
actively recruited and trained to evaluate and monitor
development projects. The oversight board will be made up
of local and church leaders, NGO's, local government
officials and representatives of PT-FI.
To improve the administration of the FFIJD, project funding
is being changed from an ethno-linguistic group (tribal)
basis to one that is village-based (geographic). The
village-based method is "bottom-up development recommended
by most international developmental agencies. The FFIJD
will work closely with the GOI's local and regional planning
boards to coordinate developmental projects and activities.
PT-FI remains committed to providing one percent of its
revenue for the development of the local people through the
FFIJD.
LABAT-ANDERSON INDEPENDENT SOCIAL AUDIT: In early 1996, the
international consulting firm of LABAT-Anderson undertook a
comprehensive independent audit of social programs at PT-
FI's operations in Irian Jaya. The team included LABAT-
Anderson personnel as well as nationally recognized
Indonesian scientists and other experts from around the
world. In July 1997, the LABAT-Anderson
[Photo]
Social Audit / Local leaders discuss social issues with
Willy Tjen (far left), LABAT-Andersen team
leaders, as part of the independent social audit.
[PAGE] 11
team submitted its final report to the Minister of the
Environment and PT-FI. It noted the remarkable complexity
of the issues in Irian Jaya and especially those in the
Mimika district caused by rapid social and economic
development, unceasing migration into the area and the
mixing of ethno-linguistic groups. The report further noted
that PT-FI had gone beyond requirements or expectations in
providing assistance for the development of the local
people. Nevertheless, the report made a number of
recommendations designed to make PT-FI's programs more
effective, all of which have been accepted and are being
implemented. LABAT-Anderson recommended that (1) PT-FI's
participation in the GOI's developmental plan for the area
be restructured to provide for more direct input by local
people through their leaders, (2) input be village-based
rather than tribe-based and (3) programs for "capacity-
building" among the local people be enhanced. As discussed
above, PT-FI is restructuring its FFIJD program and several
international and local NGOs as well as the United Nations
Development Program have been invited to undertake village
development and capacity-building for the local people.
LAND RIGHTS AGREEMENT WITH KAMORO VILLAGES: In 1997, land
use agreements with two separate Kamoro villages were
reached. The agreements cover land used for tailing
deposition and the expanded portsite. The agreements
established programs in the respective villages for
education, enhanced health care, social and economic
development, and infrastructure enhancement. The agreements
stipulate a multi-year timetable for implementation.
Public Health / A Young child is treated at one of the
public health clinics in our COW area.
[Photo]
PUBLIC HEALTH AND MALARIA CONTROL: PT-FI continues to
be proud of the work of its Public Health and Malaria
Control Department which has become internationally
recognized for its remarkable record in the control of
mortality and morbidity from malaria and other tropical
diseases. Beginning in late 1997 and continuing into 1998,
the department has been actively supporting the work of the
GOI, the Indonesian Red Cross and the International
Committee of the Red Cross in providing famine relief to
areas east of our operations area that were severely
affected by drought conditions.
In early 1998, PT-FI initiated discussions with the Roman
Catholic diocese of Jayapura to establish an independent
hospital in Timika, funded substantially by the FFIJD, to
provide primary medical care to all local people who were
not PT-FI employees or employee dependents. This would be
the first independent medical facility in the area. PT-FI
would continue to accept case referrals from the hospital
(as it currently does from the government's clinic) for
patients whose condition requires additional care.
INSTITUTIONAL AND COMMUNITY DEVELOPMENT: One of the major
developmental challenges for the local people is the
establishment of institutions that can help them relate to
government as well as to PT-FI and each other. Tribal
culture
[PAGE] 12
has intended to be very individual, which has made
effective communication between the people and other
institutions difficult. As the entire area develops and
changes, helping the people create the institutions
necessary for communication, negotiation and problem solving
is essential. In addition, villages such as Kwamki Lama
have residents of several different tribes which has not
been typical in the past. These "mixed villages" require a
geographic rather than a tribal identity. Through the
expertise of the government, NGOs, including churches and
church groups in the region, and others, positive steps are
being taken to foster institution and community development
throughout the area.
RESEARCH PROJECTS: The people of Irian Jaya have a rich
cultural heritage and traditions which are different from
"western" societies. Often, problems are caused by
misunderstandings about cultures and cultural change. To
address this issue, PT-FI has enhanced its anthropological
expertise by the addition of staff anthropologists. To
supplement their work, a joint team from University
Cenderawasih in Jayapura, Irian Jaya and Australian National
University in Canberra has undertaken a project to establish
a "social mapping" and to collect other ethnographic data
about all local residents. The multi-year project is
currently approximately 50 percent complete.
HUMAN RIGHTS: PT-FI and FCX have strongly condemned human
rights violations in Irian Jaya and believe in protecting
the human rights of all people and especially those who live
and work in the area in which PT-FI has operations. PT-FI
works actively with KOMNAS-Ham, the official human rights
organization in Indonesia, to monitor and resolve situations
which might impinge upon the human rights of individuals and
groups.
ATLANTIC COMMUNITY PROGRAMS. Atlantic has a continuing
Program of Support and Protection of the Arts and Sciences,
Public Communication and Community Relations. This program
is carried out both individually and in conjunction with the
Association of Chemical Industries in Huelva. In 1997,
Atlantic completed two significant programs, the restoration
of the Church of La Milagrossa in Huelva and donation of
significant support for the Latin American Film Festival
held in Huelva.
[PAGE] 13
<TABLE>
<CAPTION>
1997 / SELECTED FINANCIAL AND FREEPORT-McMoRan COPPER & GOLD INC.
OPERATING DATA
1997 1996 1995 1994 1993
---------- ---------- ----------- ---------- ----------
(Financial Data In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
FCX FINANCIAL DATA
Years Ended December 31:
Revenues $2,000,904 $1,905,036 $1,834,335 $1,212,284 $ 925,932
Operating income 664,215 638,261b 596,432c 280,134d 155,319e
Net income
applicable to
common stock 208,541a 174,680b 199,465c 78,403d 21,862e,f
Net income per
common share 1.06a .90b .98c .38d .11e,f
Dividends paid
per common share .90 .90 .675 .60 .60
Average
common shares
outstanding 196,392 194,910 203,536 205,755 197,929
At December 31:
Property,
plant and
equipment, net 3,521,715 3,088,644 2,845,625 2,360,489 1,646,603
Total assets 4,152,209 3,865,534 3,581,746 3,040,197 2,116,653
Long-term debt,
including current
portion and
short-term
borrowings 2,388,982 1,562,916 1,167,232 549,710 260,659
Mandatory
redeemable
preferred stock 500,007 500,007 500,007 500,007 232,620
Stockholders'
equity 278,892 675,379 881,674 994,975 947,927
PT-FI OPERATING DATA
Ore milled (metric
tons per day) 128,600 127,400 111,900 72,500 62,300
Copper grade
(percent) 1.37 1.35 1.32 1.51 1.57
Gold grade
Grams per
metric ton 1.51 1.52 1.39 1.31 1.46
Ounce per
metric ton .049 .049 .045 .042 .047
Silver grade
Grams per
metric ton 3.11 3.10 3.17 3.02 4.02
Ounce per
metric ton .100 .100 .102 .097 .129
Recovery rates (percent)
Copper 85.4 83.8 85.0 83.7 87.0
Gold 81.4 77.1 74.3 72.8 76.2
Silver 65.6 64.6 63.2 64.7 67.2
Copper
Production
(000s of
recoverable
pounds) 1,166,500 1,118,800 978,000 710,300 658,400
Sales
000s of
recoverable
pounds) 1,188,600 1,097,000 985,100 700,800 645,700
Average
realized
price g $.94 $1.02 $1.22 $1.02 $.90
Gold
Production
(recoverable
ounces) 1,798,300 1,695,200 1,310,400 784,000 786,700
Sales
(recoverable
ounces) 1,888,100 1,698,900 1,353,400 794,700 762,900
Average
realized
price $ 346.14h $390.96h $383.73h $381.13 $361.74
Silver
Production
(recoverable
ounces) 2,568,700 2,360,600 2,303,000 1,305,400 1,541,200
Sales
(recoverable
ounces) 2,724,300 2,532,000 2,349,400 1,335,400 1,480,900
Average
realized
price $4.68 $4.95 $4.99 $5.08 $4.15
ATLANTIC COPPER OPERATING DATA (since acquisition)
Concentrate
treated
(metric tons) 929,700 804,500 434,400i 485,300 330,200
Anodes (000s of pounds)
Production 639,800 547,900 296,000 347,500 299,300
Sales 133,500 77,300 44,600 38,300 3,300
Cathodes (000s of pounds)
Production 505,600 462,900 258,200 312,100 227,300
Sales
(including
wire rod) 505,300 461,100 280,200 309,400 294,800
Cathode cash
production cost
per pound $.12 $.15 $.18 $.17 $.18
</TABLE>
a. Includes a $25.3 million gain ($12.3 million to net income or
$0.06 per share) for the reversal of stock appreciation rights
costs caused by the decline in FCX's common stock price in
1997.
b. Includes charges totaling $17.4 million ($8.0 million to net
income or $0.04 per share) consisting of $12.7 million for
costs of stock appreciation rights caused by the increase in
FCX's common stock price in 1996, $3.0 million for costs
related to a civil disturbance and $1.7 million for an early
retirement program.
c. Includes charges totaling $49.6 million ($26.9 million to net
income or $0.13 per share) consisting of $29.8 million for
costs of stock appreciation rights caused by the increase in
FCX's common stock price in 1995, $12.5 million for a materials
and supplies inventory reserve adjustment in connection with
the completion of PT-FI's 118,000 metric tons per day expansion
program and $7.3 million for an early retirement program.
d. Includes a $32.6 million insurance settlement gain ($17.4
million to net income or $0.08 per share).
e. Includes charges totaling $37.1 million ($20.5 million to net
income or $0.10 per share) for restructuring and other related
costs.
f. Includes a $9.9 million cumulative charge ($0.05 per share) for
changes in accounting principle.
g. Amounts were $0.90 in 1997, $0.97 in 1996, $1.28 in 1995, $1.15
in 1994 and $0.82 in 1993 before hedging adjustments.
h. Amounts were $326.08 in 1997, $382.62 in 1996 and $380.85 in
1995 before hedging adjustments.
i. Reflects shutdowns caused by a strike at an adjacent plant,
expansion equipment tie-ins and normal maintenance turnarounds.
[PAGE] 14
1997 / MANAGEMENT'S DISCUSSION FREEPORT-McMoRan COPPER & GOLD INC.
AND ANALYSIS
OVERVIEW
To enhance understanding of Freeport-McMoRan Copper & Gold Inc.'s
(FCX) financial results, the components of Management's Discussion
and Analysis are presented adjacent to the pertinent financial data.
Accordingly, in addition to the discussion that begins on this page
and continues through page 22, further analyses of consolidated
results of operations can be found on page 25, cash flows and
liquidity on page 27, and capital resources and financial condition
on page 29, as well as the Environmental & Social Responsibility
Report on pages 8 through 13. The results of operations reported and
summarized throughout are not necessarily indicative of future
operating results.
FCX operates through its majority-owned subsidiaries, P.T. Freeport
Indonesia Company (PT-FI) and P.T. IRJA Eastern Minerals Corporation
(Eastern Mining), and through Atlantic Copper, S.A. (Atlantic), a
wholly owned subsidiary. PT-FI's operations involve mineral
exploration and development, mining and milling of ore containing
copper, gold and silver in Irian Jaya, Indonesia and the worldwide
marketing of concentrates containing those metals. PT-FI also has a
25 percent interest in P.T. Smelting Co. (PT Smelting), an
Indonesian company formed to construct and operate a copper smelter
and refinery in Gresik, Indonesia. Eastern Mining conducts mineral
exploration activities in Irian Jaya. Atlantic is engaged in the
smelting and refining of copper concentrates in Spain and marketing
refined copper products.
In 1996, FCX and Rio Tinto plc (Rio Tinto) established exploration
and expansion joint ventures. Pursuant to the exploration joint
ventures, Rio Tinto has a 40 percent interest in future development
projects under PT-FI's Contract of Work (COW) and Eastern Mining's
COW. Rio Tinto also has a 40 percent interest in certain assets and
future production exceeding specified annual amounts of copper, gold
and silver through 2021.
The FCX/Rio Tinto exploration joint ventures are continuing their
exploration activities within the original 24,700 acre PT-FI Block A
area, the adjacent approximate 3.25 million acre PT-FI Block B area
and the approximate 1.8 million acre Eastern Mining area. As
required by the applicable COW, PT-FI has relinquished its rights to
approximately 3.25 million acres in Block B and is required to make
one final relinquishment of approximately 1.6 million acres no later
than December 1998. Eastern Mining has relinquished an approximate
0.7 million acre area and must relinquish an additional
approximately 1.2 million acres in two equal installments no later
than August 1998 and August 2001. For a discussion of exploration
cost sharing arrangements with Rio Tinto, see "Exploration Expenses"
on page 25.
FCX and Rio Tinto are expected to complete construction on the "fourth
concentrator mill expansion" of PT-FI's facilities during the first
half of 1998. The expanded mill facilities provide FCX an opportunity
to increase throughput beyond 200,000 metric tons of ore per day (MTPD)
and improve profitability by optimizing the ore available from PT-FI's
mines. See Note 2 of the Notes to Financial Statements for a discussion of
the joint venture arrangements. In December 1997, PT-FI received approval
from the Indonesian authorities to expand its milling rate up to a maximum of
300,000 MTPD. FCX and Rio Tinto have initiated pre-feasibility studies
to consider further expansion of the mining and milling facilities beyond
the current fourth concentrator mill expansion.
In December 1997, FCX signed a letter of intent to acquire an ownership
interest in P.T. Iriana Mutiara Mining (Iriana). Iriana holds a COW area
covering approximately 1.2 million acres in central Irian Jaya, in part
contiguous to Eastern Mining's COW area. The transaction is subject to
execution of definitive documentation pursuant to which FCX would become
operator of the Iriana COW area. As operator, FCX would be required to
spend at least $0.5 million on exploration in 1998. If FCX elects to
continue participation beyond June 30, 1999, it would acquire a 90 percent
ownership interest and would fund all exploration cost up to and including
a feasibility study. FCX would also be responsible for arranging
construction financing for Iriana for any economically feasible projects
in the Iriana COW area. Pursuant to the joint venture arrangements with
Rio Tinto, Rio Tinto has the option to participate with respect to 40 percent
of FCX's interest in this 1.2 million acre COW area.
During 1997, additions and revisions to the aggregate proved and
probable reserves of the Grasberg and other Block A ore bodies
totaled approximately 204.8 million metric tons of ore representing
5.0 billion recoverable pounds of copper, 9.2 million recoverable
ounces of gold and 22.3 million recoverable ounces of silver.
December 31, 1997 aggregate proved and probable recoverable
reserves, net of 1997 production, totaled 2.17 billion metric tons
of ore averaging 1.20 percent copper, 1.20 grams of gold per metric
ton and 3.95 grams of silver per metric ton representing 47.1 billion
[PAGE] 15
1997 / MANAGEMENT'S DISCUSSION FREEPORT-McMoRan COPPER & GOLD INC.
AND ANALYSIS
pounds of copper, 62.7 million ounces of gold and 138.4
million ounces of silver. Pursuant to joint venture arrangements,
Rio Tinto has a 40 percent interest in future production exceeding
specified annual amounts of copper, gold and silver through 2021
calculated by reference to PT-FI's proved and probable reserves as
of December 31, 1994. Rio Tinto's 40 percent share of joint venture
proved and probable reserves as of December 31, 1997 was
approximately 9.3 billion pounds of copper, 11.4 million ounces of
gold and 27.1 million ounces of silver. Net of Rio Tinto's share,
additions and revisions to PT-FI's proved and probable copper, gold
and silver reserves represent 2.6 times 1997 copper production, over
3 times 1997 gold production and over 5 times 1997 silver
production. Net of Rio Tinto's share, PT-FI's share of proved and
probable recoverable copper, gold and silver reserves was 37.8
billion pounds of copper, 51.3 million ounces of gold and 111.3
million ounces of silver as of December 31, 1997 (Note 14).
Estimated recoverable reserves were assessed using a copper price of
$0.90 per pound and a gold price of $325 per ounce. Using prices of
$0.75 per pound of copper and $280 per ounce of gold would reduce
estimated recoverable reserves by approximately 12 percent for
copper, 9 percent for gold and 15 percent for silver.
RESULTS OF OPERATIONS
FCX has two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes PT-FI's copper and gold mining operations in Indonesia and
the Indonesian exploration activities of both PT-FI and Eastern
Mining. The smelting and refining segment includes Atlantic's
operations in Spain and PT-FI's equity investment in PT Smelting.
Summary operating results by segment follow (in millions):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Mining and exploration $ 630.8 $ 648.0 $675.7
Smelting and refining 30.6 6.4 (24.1)
Intercompany eliminations and other a 2.8 (16.1) (55.2)
---------- ---------- --------
Operating income $ 664.2 $ 638.3 $596.4
========== ========== ========
</TABLE>
a. Profit on PT-FI sales to Atlantic is not reflected in FCX's
consolidated results until completion of the smelting and
refining process. The eliminations totaled $19.0 million
in 1997, $2.7 million in 1996 and $(40.4) million in 1995.
The increased level of PT-FI concentrate sales to Atlantic
at the end of 1995 to support the expanded smelter capacity
resulted in significant intercompany eliminations.
MINING AND EXPLORATION
A summary of increases (decreases) in PT-FI revenues follows (in
millions):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Sales volumes:
Copper $ 93.4 $ 136.7
Gold 74.0 132.6
Price realizations:
Copper (88.8) (222.7)
Gold (84.6) 12.3
Adjustments to prior year open sales 59.0 (4.7)
Treatment charges, royalties and other (33.5) (46.3)
---------- ----------
Net increase in revenues
over prior year $ 19.5 $ 7.9
========== ==========
</TABLE>
[PAGE] 16
1997 / MANAGEMENT'S DISCUSSION FREEPORT-McMoRan COPPER & GOLD INC.
AND ANALYSIS
PT-FI Operating Results - 1997 Compared with 1996. PT-FI's
1997 revenues were slightly higher than 1996 revenues as record
sales volumes were substantially offset by a decline in price
realizations. Copper sales volumes rose 8 percent and gold sales
volumes rose 11 percent primarily as a result of improvements in
recovery rates (see Selected Financial and Operating Data). Average
copper realizations declined 8 percent from $1.02 per pound in 1996
to $0.94 per pound in 1997. PT-FI's revenues include net additions
totaling $42.6 million in 1997 and $38.2 million in 1996 recognized
under PT-FI's copper price protection program. Average 1997 gold
realizations declined 11 percent or nearly $45 per ounce compared to
1996. PT-FI's revenues also include additions totaling $37.6 million
in 1997 and $14.1 million in 1996 recognized on gold forward sales
contracts. Adjustments to prior year open sales totaled $54.9
million in 1997 compared with $(4.1) million in 1996. Treatment
charges increased in 1997 because of higher sales volumes and
tighter market conditions. Royalties and a portion of treatment
charges vary with the price of copper.
<TABLE>
<CAPTION>
PT-FI Gross Profit Per Pound of Copper(cents)
Years Ended December 31,
---------------------------------
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Average realized price a 94.4 101.9 122.2
---------- ---------- --------
Production costs:
Site production and delivery 50.6 52.4 54.0b
Gold and silver credits (55.5) (61.3) (53.8)
Treatment charges 24.4 22.9 19.6
Royalty on metals 2.6 2.8 4.3
---------- ---------- --------
Cash production costs 22.1 16.8 24.1
Depreciation and amortization 15.0 13.0 10.4
---------- ---------- --------
Total production costs 37.1 29.8 34.5
---------- ---------- --------
Revenue adjustments c 3.7 (2.0) (2.1)
---------- ---------- --------
61.0 70.1 85.6
========== ========== ========
</TABLE>
a. Amounts were $0.90 in 1997, $0.97 in 1996 and $1.28 in 1995
before hedging adjustments.
b. Excludes an inventory reserve adjustment of $12.5 million (1.3
cents per pound).
c. Reflects adjustments for prior year concentrate sales and
amortization of the price protection program cost.
Average cash production costs in 1997 of 22.1 cents per pound
of copper were higher than the comparable 1996 average primarily
because of lower gold credits. Lower gold realizations offset
record gold sales and reduced unit gold credits by 9 percent. Site
production and delivery costs per pound declined primarily because
of lower labor costs offset by higher treatment charges that
reflected tightened smelter capacity. Treatment charge rates for a
significant portion of PT-FI's 1998 projected sales were negotiated
in the fourth quarter of 1997 based on then current market
conditions. As a result of a continued tight smelter market,
treatment charges are expected to increase slightly in 1998. PT-
FI's copper royalty rate varies from 1.5 percent, at a copper price
of $0.90 or less, to 3.5 percent, at a copper price over $1.10, on
the value of copper sold (after delivery costs, treatment charges
and other selling costs); the gold and silver royalty rate is 1.0
percent. PT-FI has agreed with the Government of Indonesia (GOI)
that on metal production from mill throughput in excess of 200,000
MTPD it will pay a second royalty.
PT-FI's 1997 depreciation rate of 15.0 cents per pound of
copper reflects an increase over the 1996 rate because of the first
phase of the enhanced infrastructure program (EIP) and other 1997
capital additions. The EIP is designed to provide the
infrastructure needed for PT-FI's growing operations and expected
future growth, to enhance the living conditions of PT-FI's
employees, and to develop and promote the growth of local and third
party activities and enterprises in Irian Jaya. The first phase of
the EIP was completed in 1996; therefore, the 1996 rate of 13.0
cents per pound did not include the EIP for a full year. The 1998
depreciation rate is expected to increase to 17.0 cents per pound of
copper to reflect a half year of depreciation on the fourth
concentrator mill expansion and other capital additions.
[PAGE] 17
1997 / MANAGEMENT'S DISCUSSION FREEPORT-McMoRan COPPER & GOLD INC.
AND ANALYSIS
PT-FI Outlook. PT-FI's copper concentrates are sold primarily
under dollar-denominated long-term sales agreements, mostly to
companies in Asia and Europe. PT-FI has commitments from various
parties, including Atlantic, to purchase virtually all of its
estimated 1998 production at market prices. With PT-FI's fourth
concentrator mill expansion set to begin operations during the first
half of 1998, PT-FI's share of sales for 1998 is expected to
approximate 1.4 billion pounds of copper and 2.2 million ounces of
gold. Strong 1998 copper and gold sales reflect the expectation of
producing at higher mill throughput rates than in 1997 because of
the fourth concentrator mill expansion, partially offset by lower
average grades than during 1997. PT-FI has a long-term contract to
provide Atlantic with approximately 60 percent of its copper
concentrate requirements at market prices.
Exploration. FCX continues an aggressive exploration program in
Irian Jaya, in the Block A, Block B, and Eastern Mining blocks. In
Block A, delineation drilling is currently under way in seven
underground drill stations at Kucing Liar. In addition, two surface
drills are working to test deep Kucing Liar-type targets on the west
and northeast flanks of the Grasberg intrusive complex. Delineation
drilling at the Grasberg and DOZ ore bodies is scheduled to continue
throughout 1998. In Block B, drilling and trenching continues at
the Wabu Ridge Gold Project. A pre-feasibility study is ongoing
with all aspects of a potential commercial operation being studied.
Elsewhere in Block B, condemnation work, geology and drilling
continues in anticipation of the final land relinquishment. In the
Eastern Mining COW areas, geologic mapping and sampling have
identified several new targets which will be scheduled for drilling
during early 1998.
PT-FI Operating Results - 1996 Compared with 1995. PT-FI's 1996
revenues were slightly higher than 1995 revenues as higher sales
volumes were substantially offset by a decline in copper
realizations. Copper sales volumes rose 11 percent and gold sales
volumes rose 26 percent as a result of a 14 percent increase in
average mill throughput and improvements in copper and gold ore
grades and gold recovery rates. Copper realizations declined from
$1.22 per pound in 1995 to $1.02 per pound in 1996. PT-FI's 1996
revenues include net additions totaling $38.2 million recognized
under PT-FI's copper price protection program, compared with net
reductions totaling $68.6 million in 1995. Average 1996 gold
realizations were slightly higher compared to 1995. PT-FI's revenues
also include additions totaling $14.1 million in 1996 and $3.9
million in 1995 recognized on gold forward sales contracts.
Treatment charges increased in 1996 because of the increased sales
volumes coupled with higher negotiated rates because of tighter
market conditions. Despite higher sales volumes, royalties were
lower because of lower copper prices.
Average cash production costs in 1996 of 16.8 cents per pound
of copper were 30 percent lower than the comparable 1995 average.
Higher gold sales and realizations resulted in improved gold
credits. Higher treatment charges reflect tightening smelter
capacity. PT-FI's 1996 depreciation rate of 13.0 cents per pound of
copper reflects depreciation for the expanded operations and a half
year of depreciation for the first phase of the EIP. The 1995 rate
did not include the EIP costs.
SMELTING AND REFINING
Atlantic Operating Results - 1997 Compared with 1996. Atlantic
reported higher revenues ($874.5 million compared to $778.1 million
in 1996) and cost of sales ($831.2 million compared to $759.4
million in 1996) because of increases in production from its newly
expanded facilities. Atlantic reached its full production capacity
of 270,000 metric tons of metal per year in June 1996 and completed
a $13.0 million "debottlenecking" project in June 1997 which
increased annual production capacity by 20,000 metric tons.
Atlantic also benefited from higher treatment and refining rates in
1997 ($0.26 per pound compared with $0.23 per pound in 1996).
Cathode cash production costs ($0.12 per pound) in 1997 were 20
percent lower than in 1996. Higher treatment charges, which
negatively affect PT-FI, benefit Atlantic. The effect of an
equivalent change in treatment charges on PT-FI and Atlantic largely
offset in FCX's consolidated financial results, after taking into
account income taxes and minority interests.
PT Smelting Operating Results - 1997. PT-FI accounts for its 25
percent interest in PT Smelting under the equity method (Note 10).
Construction of PT Smelting's smelting and refining facilities in
Gresik, Indonesia is expected to be completed in mid-1998 and first
production is expected in the fourth quarter of 1998. PT-FI's share
of PT Smelting's 1997 operating loss totaled $1.5 million,
consisting of administrative costs.
[PAGE] 18
1997 / MANAGEMENT'S DISCUSSION FREEPORT-McMoRan COPPER & GOLD INC.
AND ANALYSIS
Atlantic Operating Results - 1996 Compared with 1995. Atlantic
completed the expansion of its smelter from 150,000 to 270,000
metric tons of metal per year and reached full production capacity
in June 1996. For 1996, Atlantic reported higher revenues ($778.1
million compared to $541.3 million in 1995) and cost of sales
($759.4 million compared to $546.5 million in 1995) primarily
because of increases in production. Shutdowns in 1995 caused by a
strike at an adjacent plant, expansion equipment tie-ins and normal
maintenance turnarounds impacted results adversely. Atlantic also
benefited from lower cathode cash production costs, $0.15 per pound
in 1996 compared with $0.18 per pound in 1995.
DISCLOSURES ABOUT MARKET RISKS
Commodity Price Risk. FCX's revenues are derived primarily
from PT-FI's sale of copper concentrates, which also contain
significant amounts of gold, and the sale of copper cathodes and
wire rod by Atlantic. FCX's net income can vary significantly with
fluctuations in the market prices of copper and gold. At various
times, in response to market conditions, FCX has entered into copper
and gold price protection contracts for some portion of its expected
future mine production to mitigate the risk of adverse price
fluctuations. Based on PT-FI's projected 1998 sales volumes, each
$0.01 per pound change in the average price realized on copper sales
would have an approximate $14 million impact on revenues and an
approximate $7 million impact on net income. Each $10 per ounce
change in the average price realized on PT-FI annual gold sales
would have an approximate $22 million impact on revenues and an
approximate $11 million impact on net income.
The significant decline in gold prices in early 1997 increased
the value of PT-FI's forward gold sales contracts covering 876,000
ounces of gold sales at an average price of $376.08 per ounce from
February 1997 through August 1997. In February 1997, PT-FI closed
these contracts and received $30.1 million cash. As a result, PT-FI
reported gold revenues through August 1997 at a higher price than
realized under its contract terms with customers, but no longer has
any forward gold sales positions. PT-FI has suspended its program
of selling gold forward on a six-month basis but may reinstate the
program in the future. Future gold sales will be priced at then
current market prices as long as the forward sales program is
suspended.
The significant decline in copper prices during 1996 increased
the value of put option contracts that PT-FI purchased under its
price protection program to provide a floor price of $0.90 per pound
for essentially all copper sales through the second quarter of 1997
at an average cost of approximately $0.02 per pound. During the
third quarter of 1996, PT-FI sold all of its put option contracts
covering approximately 1.2 billion pounds of copper for $97.2
million cash. As a result, PT-FI reported copper revenues through
June 30, 1997 at a higher price than realized under its copper
concentrate sales contracts, but PT-FI no longer has any price
protection on its copper sales. As conditions warrant, PT-FI may
enter into new contracts for its future copper sales.
PT-FI's concentrate sales agreements, with regard to copper,
provide for provisional billings when shipped with final settlement
generally based on the average London Metal Exchange (LME) price for
a specified future month. Copper revenues on provisionally priced
open pounds are adjusted monthly based on then current prices. At
December 31, 1997, FCX had consolidated copper sales totaling 323.3
million pounds recorded at an average price of $0.74 per pound
remaining to be finally priced. Approximately 70 percent of these
open pounds are expected to be finally priced during the first
quarter of 1998 with the remaining pounds to be priced during the
second quarter of 1998. A one cent movement in the average price
used for these open pounds will have an approximate $1.6 million
impact on FCX's 1998 net income.
[PAGE] 19
1997 / MANAGEMENT'S DISCUSSION FREEPORT-McMoRan COPPER & GOLD INC.
AND ANALYSIS
FCX has redeemable preferred stock indexed to gold and silver
prices which hedge future production and are carried at their
original issue value. As redemption payments occur, differences
between the carrying value and the redemption payment will be
recorded as an adjustment to revenues. Future mandatory redemption
payments in ounces and equivalent value in dollars based on December
31, 1997 gold and silver prices follow (dollars in millions):
<TABLE>
<CAPTION>
Gold Silver
(Ozs.) Amount (Ozs.) Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998 - $- - $-
1999 - - 2,380,000 14.3
2000 - - 2,380,000 14.3
2001 - - 2,380,000 14.3
2002 - - 2,380,000 14.3
Thereafter 1,030,000 297.9 9,520,000 57.1
At December 31, 1997:
Fair value $242.0 $92.2
========== ==========
Carrying value $400.0 $100.0
========== ==========
</TABLE>
Atlantic's purchases of copper concentrate are priced at
approximately the same time as its sales of the refined copper,
thereby protecting Atlantic from most copper price risk. Atlantic
enters into futures contracts to hedge its price risk whenever its
physical purchases and sales pricing periods do not match. At
December 31, 1997, Atlantic had contracts, with a fair value of less
than $0.1 million, to sell 2.0 million pounds of copper at an
average price of $0.80 per pound in January 1998 and contracts, with
a fair value of $(1.5) million, to purchase 20.3 million pounds of
copper at an average price of $0.87 per pound through December 1999.
Foreign Currency Exchange Risk. FCX conducts the majority of its
operations in Indonesia and Spain where its functional currencies
are U.S. dollars. All of FCX's revenues are denominated in U.S.
dollars; however, some costs are denominated in either Indonesian
rupiah or Spanish pesetas. FCX's results are positively affected
when the U.S. dollar strengthens against these foreign currencies
and adversely affected when the U.S. dollar weakens against these
foreign currencies.
Over the past several years, and more dramatically in the
second half of 1997, the Indonesian rupiah has weakened against the
U.S. dollar and PT-FI has benefited primarily through lower labor
costs. PT-FI previously has not entered into financial contracts for
the rupiah; however, it is currently reviewing its rupiah hedging
policy in view of current circumstances.
Assuming estimated 1998 rupiah payments of 500 billion and an
exchange rate of 7,500 rupiah to one U.S. dollar, each one thousand
rupiah change in the exchange rate could result in an approximate
$4.5 million change in FCX's annual net income. PT-FI had net
rupiah-denominated monetary assets at December 31,1997 totaling
$14.2 million recorded at an exchange rate of 7,450 rupiah to one
U.S. dollar. Adjustments to these net assets to reflect changes in
the exchange rate are recorded as currency transaction gains or
(losses) in production costs and totaled $(6.3) million in 1997.
A portion of Atlantic's operating costs and certain Atlantic
assets and liabilities are denominated in Spanish pesetas. Based on
estimated 1998 pesetas payments of 15 billion and an exchange rate
of 150.7 pesetas to one U.S. dollar, each ten peseta change in the
U.S. dollar and Spanish peseta exchange rate results in an
approximate $6 million change in FCX's annual net income before any
hedging effects. Atlantic had net peseta-denominated monetary
liabilities at December 31, 1997 totaling $70.3 million recorded at
an exchange rate of 150.7 pesetas to one U.S. dollar. Adjustments
to these net liabilities to reflect changes in the exchange rate are
recorded as currency transaction gains or (losses) in Other Income
and totaled $16.6 million in 1997 and $10.3 million in 1996.
[PAGE] 20
1997 / MANAGEMENT'S DISCUSSION FREEPORT-McMoRan COPPER & GOLD INC.
AND ANALYSIS
During 1996, Atlantic implemented a currency hedging program to
reduce its exposure to changes in the U.S. dollar and Spanish peseta
exchange rate that involves foreign exchange option and forward
contracts. These contracts currently hedge approximately 80 percent
of Atlantic's projected net peseta cash outflows through January
1999 (Note 11). In addition to the currency transaction gains noted
above, Atlantic recorded losses to Other Income related to its
forward currency contracts, which under current accounting do not
qualify for hedge accounting, totaling $6.5 million in 1997 and $1.0
million in 1996.
At December 31, 1997, Atlantic had contracts, with a fair value
of $(2.0) million, to purchase 6.3 billion Spanish pesetas at an
average exchange rate of 143.8 pesetas to one U.S. dollar through
January 1999 and option contracts, with a fair value of $0.5
million, to purchase 6.3 billion Spanish pesetas at an average
strike price of 140.6 pesetas to one U.S. dollar through January
1999.
Interest Rate Risk. FCX has interest rate swap contracts to fix
interest rates on a portion of its floating rate debt. The costs
associated with these contracts are amortized to interest expense over
the terms of the agreements. The table below presents future maturities of
principal (or notional amount) for outstanding debt and interest swaps
at December 31, 1997 and fair value at December 31, 1997 (dollars in
millions):
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Thereafter Fair Value
----- ------ ------ ------ ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term debt (Note 8):
Fixed rate $7.0 $7.0 $7.0 $148.0 $- $450.0 $632.9
Average interest
rate 8.1% 8.1% 8.1% 9.4% -% 7.3% 7.9%
Variable rate $73.9 $69.1 $104.3 $74.0 $380.0 $1,068.2 $1,770.0
Average interest
rate 7.8% 9.6% 8.9% 9.0% 8.3% 9.1% 8.9%
Interest rate swaps (Note 11):
Amount $32.1 $32.1 $97.8 $- $- $- $(1.2)
Average interest
rate 7.0% 7.0% 6.1% -% -% -% 6.4%
</TABLE>
RECENT DEVELOPMENTS IN INDONESIA
Recently, unfavorable economic developments have negatively impacted
Southeast Asia in general and Indonesia in particular. Indonesia's
national debt ratings have been downgraded, the Indonesian rupiah
has devalued significantly and the Indonesian economic growth rate
and stock market values have declined. The International Monetary
Fund and certain countries are making loans and other commitments to
Indonesia, as well as certain other Asian nations, to stabilize
their currencies' values and their ability to service debt. In
return, changes in these countries' financial and regulatory
practices are being required. Repercussions of these and other
economic developments have also negatively affected commodity
markets, including copper and gold prices, because of anticipated
declines in Asian demand.
PT-FI and Eastern Mining believe there are a number of factors which
mitigate the above concerns related to their operations, all of
which are in Indonesia. PT-FI's and Eastern Mining's operations are
conducted through the PT-FI and Eastern Mining COWs, both of which
have 30-year terms, provide for two 10-year extensions under certain
conditions, and govern PT-FI's and Eastern Mining's rights and
obligations relating to taxes, exchange controls, repatriation and
other matters. Both COWs were concluded pursuant to the 1967 Foreign
Capital Investment Law, which expresses Indonesia's foreign
investment policy and provides basic guarantees of remittance rights
and protection against nationalization, a framework for economic
incentives and basic rules regarding other rights and obligations of
foreign investors. Specifically, the COWs provide that the GOI will
not nationalize or expropriate PT-FI's or Eastern Mining's mining
operations. Any disputes under the COWs are subject to
international arbitration.
[PAGE] 21
1997 / MANAGEMENT'S DISCUSSION FREEPORT-McMoRan COPPER & GOLD INC.
AND ANALYSIS
The Company has had positive relations with the GOI since it
commenced business activities in Indonesia in 1967 and contributes
significantly to the economy of Irian Jaya and Indonesia. PT-FI is
one of the largest taxpayers in Indonesia and is a significant
employer in a remote and undeveloped area of the country. PT-FI
intends to continue to maintain positive working relationships with
the central, provincial and local branches of the GOI regarding its
operations and development efforts.
All PT-FI sales revenues and all debt and debt service are
denominated in U.S. dollars; whereas, a portion of PT-FI's
expenditures are paid in rupiah. As a result, the decline in the
value of the rupiah has benefited current operating results by
reducing certain operating costs in terms of U.S. dollars.
OTHER MATTERS
In March 1997, P.T. Nusamba Mineral Industri (NMI), a subsidiary of
P.T. Nusantara Ampera Bakti, acquired from a third party
approximately 51 percent of the capital stock of P.T. Indocopper
Investama Corporation (PT-II). FCX owns the remaining 49 percent of
PT-II, which is a 9.4 percent owner of PT-FI. NMI financed $254.0
million of the $315.0 million purchase price with a variable rate
commercial loan maturing in March 2002. The purchase price was
based in part on FCX's market value using its publicly traded common
stock price at the time of the transaction. FCX has agreed that if
NMI defaults on the loan, FCX will purchase the PT-II stock or the
lenders' interest in the commercial loan for the amount then due by
NMI under the loan. FCX also agreed to lend to NMI any shortfalls
between the interest payments due on the commercial loan and the
dividends received by NMI from PT-II. At December 31, 1997, $7.6
million was due in March 2002 from NMI because of interest payment
shortfalls. The amount of any future shortfalls will depend
primarily on the level of PT-FI's dividends to PT-II.
FCX believes that PT-FI's operations are being conducted
pursuant to applicable permits and are in compliance in all
material respects with applicable Indonesian environmental
laws, rules and regulations. In 1996, PT-FI began contributing
to a fund designed to accumulate at least $100 million by the
end of its Indonesian mine's life for eventual mine closure and
reclamation. Although the ultimate amount of reclamation and
closure costs to be incurred is currently indeterminable, based
on recent analyses PT-FI estimates that ultimate reclamation
and closure costs may require as much as $100 million but would
not exceed $150 million. These costs will be incurred
throughout the remaining life of the mine, which is currently
estimated to exceed 30 years. FCX had $5.5 million accrued on
a unit-of-production basis at December 31, 1997 for mine
closure and reclamation costs, included in other liabilities.
An increasing emphasis on environmental issues and future
changes in regulations could require FCX to incur additional
costs which would be charged against future operations.
Estimates involving environmental matters are by their nature
imprecise and can be expected to be revised over time because
of changes in government regulations, operations, technology
and inflation. See FCX's Environmental Report beginning on
page 8 for information about FCX's environmental programs.
Since early 1996, PT-FI has participated in an independent
social/cultural audit of its Irian Jaya operations under a voluntary
program monitored by the GOI. The audit was conducted by LABAT-
Anderson, an internationally recognized consulting firm, and their
final report was made public in August 1997. All of the
recommendations in LABAT-Anderson's report have been agreed to by
PT-FI and are in the process of being implemented. See FCX's Social
Responsibility Report beginning on page 10 for information about
FCX's social programs.
FCX has assessed its year 2000 information systems cost issues
and believes that its current plans for system upgrades will
adequately address these issues internally at no material cost.
CAUTIONARY STATEMENT
Management's discussion and analysis contains forward-looking
statements regarding market risks, mineral reserves, treatment
charge rates, depreciation rates, copper and gold grades and sales
volumes, exploration activities, capital expenditures, expansion
costs, Gresik smelter costs, the availability of financing, future
environmental costs and relations with the indigenous population of
Irian Jaya. Important factors that might cause future results to
differ from these projections are described in more detail in FCX's
Form 10-K for the year ended December 31, 1997 filed with the
Securities and Exchange Commission.
________________________
[PAGE] 22
1997 FREEPORT-McMoRan COPPER & GOLD INC.
REPORT OF MANAGEMENT
Freeport-McMoRan Copper & Gold 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.
/s/ James R. Moffett /s/Richard C. Adkerson
James R. Moffett Richard C. Adkerson
Chairman of the Board and President, Chief Operating Officer
Chief Executive Officer and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
FREEPORT-McMoRan COPPER & GOLD INC.:
We have audited the accompanying balance sheets of Freeport-
McMoRan Copper & Gold Inc. (the Company), a Delaware Corporation, as
of December 31, 1997 and 1996, and the related statements of income,
cash flow and stockholders' equity for each of the three years in
the 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 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>
<CAPTION>
1997 / STATEMENTS OF INCOME FREEPORT-McMoRan COPPER & GOLD INC.
Years Ended December 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
Revenues $2,000,904 $1,905,036 $1,834,335
Cost of sales:
Production and delivery 1,008,604 951,863 934,707
Depreciation and
amortization 213,855 173,978 124,055
---------- ---------- ----------
Total cost of sales 1,222,459 1,125,841 1,058,762
Exploration expenses 17,629 - 13,888
General and administrative
expenses 96,601 140,934 165,253
---------- ---------- ----------
Total costs and
expenses 1,336,689 1,266,775 1,237,903
---------- ---------- ----------
Operating income 664,215 638,261 596,432
Interest expense, net (151,720) (117,291) (50,080)
Other income (expense),
net 4,271 976 (1,590)
---------- ---------- ----------
Income before income
taxes and minority
interests 516,766 521,946 544,762
Provision for income
taxes (231,315) (247,168) (234,044)
Minority interests in
net income of
consolidated subsidiaries (40,343) (48,529) (57,100)
---------- ---------- ----------
Net income 245,108 226,249 253,618
Preferred dividends (36,567) (51,569) (54,153)
---------- ---------- ----------
Net income applicable
to common stock $ 208,541 $ 174,680 $ 199,465
========== ========== ==========
Net income per share of common stock:
Basic $1.06 $.90 $.98
===== ==== ====
Diluted $1.06 $.89 $.98
====== ==== ====
Average common shares outstanding:
Basic 196,392 194,910 203,536
======= ======= =======
Diluted 197,653 196,682 204,406
======= ======= =======
Dividends paid per
common share $.90 $.90 $.675
==== ==== =====
</TABLE>
The accompanying Notes to Financial Statements are an integral part
of these financial statements.
[PAGE] 24
1997 / MANAGEMENT'S DISCUSSION FREEPORT-McMoRan COPPER & GOLD INC.
AND ANALYSIS
CONSOLIDATED RESULTS OF OPERATIONS
Revenues. Increased production from expansions resulted in higher
sales volumes in each of the past three years. Lower copper and
gold realizations in 1997 compared with 1996 and lower copper
realizations in 1996 compared with 1995 have partially offset the
impact of higher sales volumes.
Cost of Sales. Production and delivery costs have risen with the
corresponding increases in production volumes; however, cost
reduction efforts and efficiencies from the expansions partially
offset some of those increases. Increases in depreciation and
amortization were caused by additions to property, plant and
equipment to support the expanded operating levels, and by increased
production as certain assets are depreciated on the unit-of-
production method.
Exploration Expenses. The FCX/Rio Tinto joint ventures incurred
exploration costs of $44.6 million in 1997 and $39.2 million in 1996
as they continued to aggressively explore the COW areas. During
1997, FCX reported $17.6 million of exploration expense primarily
for costs incurred in the Eastern Mining and PT-FI Block B areas.
Costs in these areas are now being shared 60 percent by FCX and 40
percent by Rio Tinto. All 1996 exploration costs and 1995
exploration costs after May 1995 were reimbursed by Rio Tinto's $100
million exploration funding received in 1996. Approximately $11.4
million in PT-FI's Block A remains to be applied to the Rio Tinto
$100 million exploration funding. The FCX/Rio Tinto joint ventures'
1998 exploration budgets total approximately $40 million, most of
which will be shared 60 percent by FCX and 40 percent by Rio Tinto.
General and Administrative Expenses. General and
administrative expenses declined 31 percent from 1996 to 1997
primarily because of the reversal of $25.3 million of costs of stock
appreciation rights caused by the decline in FCX's common stock
price during the fourth quarter of 1997. General and administrative
expenses for 1996 and 1995 include $13.2 million and $37.1 million,
respectively, for costs of stock appreciation rights when FCX's
stock price rose and early retirement charges. As a percentage of
revenues, general and administrative expenses were 4.8 percent in
1997, 7.4 percent in 1996 and 9.0 percent in 1995.
Interest Expense, Net. FCX's total interest cost (before
capitalization) rose to $174.7 million in 1997, compared to $140.3
million in 1996 and $99.9 million in 1995, because of an overall
increase in debt levels associated with the expansions and the FCX
share purchase programs. Capitalized interest relating primarily to
the fourth concentrator mill expansion totaled $23.0 million in 1997
and capitalized interest related to the PT-FI and Atlantic
expansions and the first phase of the EIP in 1996 and 1995 totaled
$23.0 million and $49.8 million, respectively. Interest expense is
expected to increase during 1998 because of higher debt levels and
reduced capitalized interest. Additionally, in connection with
rating agency downgrades of Indonesia's national debt ratings, FCX's
credit ratings were also downgraded in early 1998. As a result of
the downgrade, the spread on the FCX/PT-FI revolver borrowings
increased by 112.5 basis points.
Provision for Income Taxes. FCX's effective tax rate was 45 percent
in 1997, 47 percent in 1996 and 43 percent in 1995 (Note 7). PT-
FI's COW provides a 35 percent corporate income tax rate for PT-FI
and a 10 percent withholding on dividends paid to FCX by PT-FI and
on interest for debt incurred after the signing of the COW. The
withholding rate declined from 15 percent to 10 percent beginning
February 1997 because of an amendment to the United States/Indonesia
tax treaty. Included in the 1997 provision for income taxes is $9.6
million representing additional amounts payable pursuant to an
Indonesian Presidential Decree. No income taxes are recorded at
Atlantic, which is subject to taxation in Spain, because it has not
generated taxable income in recent years.
The FCX United States federal income tax returns for the years
1990-1992 and PT-FI's 1994 Indonesian income tax return are
currently under examination. In January 1998, PT-FI settled and
paid assessments from the Indonesian tax authorities for the years
1989-1993 with no material adverse effect on the financial condition
or results of operations of FCX.
Minority Interests and Preferred Dividends. Minority interests in
net income of consolidated subsidiaries is primarily related to net
income levels at PT-FI. Preferred dividends declined in 1997
primarily because in December 1996 FCX's Convertible Exchangeable
Preferred Stock was converted to FCX common stock or redeemed for
cash (Note 6).
[PAGE] 25
<TABLE>
<CAPTION>
1997 / STATEMENTS OF CASH FLOW FREEPORT-McMoRan COPPER & GOLD INC.
Years Ended December 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 245,108 $ 226,249 $ 253,618
Adjustments to reconcile
net income to net cash provided by
operating activities:
Depreciation and
amortization 213,855 173,978 124,055
Deferred income taxes 61,717 54,194 22,735
Deferral of unearned
income 30,102 97,173 -
Recognition of unearned
income (76,595) (51,066) (36,207)
Minority interests'
share of net income 40,343 48,529 57,100
Deferred stock
appreciation rights
costs, mining costs
and other (53,131) (9,625) 35,492
(Increase) decrease in working capital:
Accounts receivable 80,611 6,860 2,095
Inventories 51,957 (6,474) (47,308)
Prepaid expenses and
other 32 3,906 (4,593)
Accounts payable and
accrued liabilities (8,963) 42,155 (86,747)
Accrued income taxes (71,484) 14,645 72,876
---------- ---------- ----------
(Increase) decrease in
working capital 52,153 61,092 (63,677)
---------- ---------- ----------
Net cash provided by
operating activities 513,552 600,524 393,116
---------- ---------- ----------
Cash flow from investing activities:
Capital expenditures:
PT-FI (530,191) (401,538) (435,475)
Investment in
PT Smelting (36,243) (38,845) (4,101)
Atlantic Copper (18,478) (51,855) (141,742)
Other (9,575) - (2,168)
Investment in Freeport
Copper Company - - (25,000)
Other 1,870 3,535 (9,656)
---------- ---------- ----------
Net cash used in
investing activities (592,617) (488,703) (618,142)
---------- ---------- ----------
Cash flow from financing activities:
Proceeds from sale of:
7.50% Senior notes - 197,525 -
7.20% Senior notes - 248,045 -
Borrowings from Rio Tinto 371,040 75,360 -
Proceeds from debt 831,927 241,640 617,535
Repayment of debt (723,398) (372,633) (259,885)
Net proceeds from
infrastructure financing 265,843 - 242,775
Purchase of FCX common
shares (438,388) (220,997) (177,755)
Cash dividends paid:
Common stock (178,341) (175,766) (137,563)
Preferred stock (40,543) (52,437) (50,591)
Minority interests (33,773) (44,045) (38,897)
Other (3,461) 1,722 12,038
---------- ---------- ----------
Net cash provided by
(used in) financing
activities 50,906 (101,586) 207,657
---------- ---------- ----------
Net increase (decrease)
in cash and cash
equivalents (28,159) 10,235 (17,369)
Cash and cash equivalents
at beginning of year 37,118 26,883 44,252
---------- ---------- ----------
Cash and cash equivalents
at end of year $ 8,959 $ 37,118 $ 26,883
========== ========== ==========
Interest paid $ 155,658 $ 142,170 $ 91,291
========== ========== ==========
Income taxes paid $ 259,434 $ 178,328 $ 138,433
========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements, which include
information in Notes 1 and 6 regarding noncash transactions, are an
integral part of these financial statements.
[PAGE] 26
1997 / MANAGEMENT'S DISCUSSION FREEPORT-McMoRan COPPER & GOLD INC.
AND ANALYSIS
CASH FLOWS AND LIQUIDITY
FCX's primary sources of cash are operating cash flows and
borrowings, while its primary cash outflows over the last three
years have been capital expenditures, dividends and purchases of its
common stock. PT-FI is on schedule to complete construction of the
fourth concentrator mill expansion in the first half of 1998, a
project that is being funded almost entirely with nonrecourse
borrowings from Rio Tinto. In December 1997, the FCX Board of
Directors announced a reduction in FCX's regular quarterly cash
dividend on its common stock to $0.05 per share, or $0.20 per share
annually, from the 1997 annual dividend of $0.90 per share. This
reduction reflects the impact of significantly lower copper and gold
prices and is effective for 1998. The reduced dividend and other
cost containment measures undertaken by FCX are expected to provide
FCX the financial flexibility to continue to invest in operations
and maintain its aggressive exploration program.
Operating Activities. Operating cash flow declined 14 percent or
$87.0 million in 1997. Record copper and gold sales volumes in 1997
were offset by lower realizations. FCX received $97.2 million of
cash proceeds from the sale of copper put option contracts in 1996
and recognized $46.1 million in 1997 revenues and $51.1 million in
1996 revenues. Working capital, excluding cash, decreased $52.2
million in 1997 primarily because decreases in accounts receivable
offset decreases in taxes payable. The $61.1 million decrease in
1996 primarily relates to exploration advances from Rio Tinto and an
increase in accrued income taxes payable because of higher taxable
income. Net cash provided by operating activities during 1996 rose
53 percent or $207.4 million over 1995, primarily reflecting the
proceeds from the sale of copper put option contracts and working
capital changes.
Investing Activities. FCX's 1997 capital expenditures increased
compared to 1996 primarily because of PT-FI's fourth concentrator
mill expansion. Atlantic completed its $225 million expansion to
270,000 metric tons per year in 1996 and its $13.0 million
debottlenecking project in June 1997. Atlantic received grants from
the Spanish government of $7.5 million in 1997, $29.5 million in
1996 and a total of $52.8 million through December 31, 1997. These
grants are recorded as a reduction of capital expenditures and are
contingent on Atlantic meeting specified conditions.
FCX's capital expenditures declined by $91.2 million in 1996
compared with 1995 primarily because of the completion of PT-FI's
118,000 MTPD expansion during 1995, the completion of Atlantic's
smelter expansion during 1996 and the completion of the first phase
of PT-FI's EIP during 1996. Partially offsetting the reduction in
PT-FI's other capital expenditures was an increase in expenditures
for the fourth concentrator mill expansion. In 1995, FCX purchased
Freeport Copper Company from Freeport-McMoRan Inc., FCX's former
parent, for $25.0 million.
Financing Activities. Nonrecourse borrowings from Rio Tinto totaled
$371.0 million in 1997 and $75.4 million in 1996. In 1996, FCX sold
publicly its 7.50% and 7.20% Senior Notes for net proceeds of $445.6
million. Net proceeds from debt totaled $108.5 million and net
proceeds from infrastructure financing totaled $265.8 million in
1997 while net repayments of debt totaled $131.0 million in 1996.
The net proceeds from infrastructure financing in 1997 included
$36.5 million from the sale of PT-FI's ownership interest in the
related joint ventures (see "Infrastructure Asset Sales" under
Capital Resources and Financial Condition). The 1995 period
included $357.7 million of net proceeds from debt and $242.8 million
of proceeds from infrastructure financing.
In 1995, FCX announced an open market share purchase program
for up to 20 million shares of its Class A and Class B common shares
and in August 1997 FCX announced a new program for an additional 20
million shares. During 1997, FCX acquired 18.3 million of its
shares for $439.8 million (an average of $24.07 per share). From
inception through February 20, 1998, FCX has purchased a total of
33.5 million shares for $818.2 million (an average of $24.41 per
share) and approximately 6.5 million shares remain available under
FCX's 40 million open market share purchase programs. The timing of
purchases is dependent upon many factors, including the price of
common shares, FCX's business and financial condition, and general
economic and market conditions. During 1996, FCX acquired 7.6
million of its shares for $221.6 million (an average of $29.24 per
share). During 1995, FCX acquired 7.7 million of its shares for
$177.8 million (an average of $23.13 per share).
As discussed above, the 1998 regular quarterly cash dividend on
common stock is expected to be $0.05 per share. The 1996 increase in
cash dividends paid on common stock compared with 1995 results from
the fourth-quarter 1995 increase in the regular quarterly dividend
from $0.15 to $0.225 per share.
[PAGE] 27
<TABLE>
<CAPTION>
1997 / BALANCE SHEETS FREEPORT-McMoRan COPPER & GOLD INC.
December 31,
--------------------------
1997 1996
---------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,959 $ 37,118
Accounts receivable:
Customers 89,599 176,920
Other 40,012 59,830
Inventories:
Product 120,794 161,901
Materials and supplies 194,006 213,811
Prepaid expenses and other 9,719 11,636
---------- ----------
Total current assets 463,089 661,216
Property, plant and equipment, net 3,521,715 3,088,644
Investment in PT Smelting 83,061 46,817
Other assets 84,344 68,857
---------- ----------
Total assets $4,152,209 $3,865,534
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 261,866 $ 311,797
Unearned customer receipts 101,428 46,458
Current portion of long-term
debt and short-term borrowings 80,852 136,617
Accrued income taxes 31,519 103,003
---------- ----------
Total current liabilities 475,665 597,875
Long-term debt, less current portion 1,843,770 1,350,099
Note payable to Rio Tinto 464,360 76,200
Accrued postretirement benefits
and other liabilities 125,980 200,646
Deferred income taxes 403,047 359,684
Minority interests 60,488 105,644
Mandatory redeemable preferred stock 500,007 500,007
Stockholders' equity:
Step-up convertible preferred stock 349,990 349,990
Class A common stock, par value $0.10,
97,071,944 shares issued and outstanding 9,707 9,707
Class B common stock, par value $0.10,
121,404,858 shares and 120,979,123 shares
issued and outstanding, respectively 12,140 12,098
Capital in excess of par value of
common stock 649,792 636,100
Retained earnings 107,679 77,479
Cumulative foreign currency translation
adjustment 10,244 10,244
Common stock held in treasury -
34,221,720 shares and
15,930,693 shares, at cost, respectively (860,660) (420,239)
---------- ----------
Total stockholders' equity 278,892 675,379
---------- ----------
Total liabilities and stockholders'
equity $4,152,209 $3,865,534
========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part
of these financial statements.
[PAGE] 28
1997 / MANAGEMENT'S DISCUSSION FREEPORT-McMoRan COPPER & GOLD INC.
AND ANALYSIS
CAPITAL RESOURCES AND FINANCIAL CONDITION
Assets. FCX's assets increased by $286.7 million over 1996
primarily because of expenditures for property, plant and equipment.
Accounts receivable from customers decreased 49 percent primarily
because of lower copper and gold prices. Other assets increased
during 1997 primarily because of a $19.6 million increase in
deferred mining costs partially offset by PT-FI's sale of its
ownership interest in certain infrastructure asset joint ventures,
discussed below.
PT-FI's 1998 capital expenditures are expected to approximate
$225 million (other than for the fourth concentrator mill expansion
discussed below), representing mine and mill sustaining capital and
other long-term enhancement projects. Funding is expected to be
provided by operating cash flow, PT-FI's bank credit facilities
($641.0 million commitment available at February 20, 1998, subject
to $547.4 million borrowing base availability) and other financing
sources. Capital expenditures in 1998 for the fourth concentrator
mill expansion are expected to approximate $160 million, including
the coal-fired power plant and related facilities. The new power
plant facilities will not only provide the required power for the
expanded operations but also improve the profitability of existing
operations, which currently use power generated by higher cost
diesel-fueled facilities. Rio Tinto will finance approximately $60
million of these capital expenditures in accordance with the joint
venture arrangements (Note 2). Incremental cash flow attributable
to such expansion projects will be shared 60 percent PT-FI and 40
percent Rio Tinto. PT-FI has assigned its interest in such
incremental cash flow to Rio Tinto until Rio Tinto has received an
amount equal to the funds loaned to PT-FI plus interest based on Rio
Tinto's cost of borrowing. The incremental production from the
expansion, as well as production from PT-FI's existing operations,
will share proportionately in operating and administrative costs.
PT-FI will continue to receive 100 percent of cash flow from
specified annual amounts of copper, gold and silver through 2021
calculated by reference to its proved and probable reserves as of
December 31, 1994.
Construction began in 1996 on PT Smelting's 200,000 metric tons of
metal per year copper smelter/refinery complex in Gresik, Indonesia.
The estimated aggregate project cost, before working capital
requirements, is approximately $625 million. The project is being
financed with a $300 million nonrecourse term loan and a $110
million working capital facility from a group of commercial banks.
The remaining funding is being provided pro-rata by PT-FI (25
percent) and the other owners (75 percent). PT-FI expects its 1998
cash investment in the smelter to total approximately $3 million.
Upon completion of the Gresik smelter in mid-1998 and the PT-FI
fourth concentrator mill expansion, FCX anticipates that
approximately 50 percent of PT-FI's annual concentrate production
will be sold to Atlantic and PT Smelting at market prices.
Infrastructure Asset Sales. In March 1997, PT-FI completed the
final $75 million sale of infrastructure assets to joint ventures
owned one-third by PT-FI and two-thirds by P.T. ALatieF Nusakarya
Corporation (ALatieF), an Indonesian investor. The sales to the
ALatieF joint ventures totaled $270.0 million during the period from
December 1993 to March 1997. PT-FI subsequently sold its one-third
interest in the joint ventures to ALatieF and is leasing the assets
under infrastructure asset financing arrangements. PT-FI continues
to guarantee an approximate $50 million bank loan associated with
the purchases. PT-FI no longer consolidates the joint ventures.
Because of PT-FI's sale of its interest in the joint ventures and
the resulting change in accounting for these transactions as
infrastructure asset financings rather than consolidation, PT-FI's
interest expense is higher and minority interest charges are lower.
In December 1997, PT-FI completed a $366.4 million sale, including
$74.4 million for the remaining costs expected to be incurred to
complete construction, of the new power plant facilities associated
with the fourth concentrator mill expansion to the joint venture
that owns the assets which already provide electricity to PT-FI.
The purchase price included $123.2 million for Rio Tinto's share of
the new power plant facilities. Sales to the power joint venture
totaled $581.4 million through 1997 including $458.2 million of PT-
FI owned assets. PT-FI subsequently sold its 30 percent interest in
the joint venture to the other partners and is purchasing power
under infrastructure asset financing arrangements pursuant to a
power sales agreement.
Liabilities and Stockholders' Equity. FCX's liabilities rose by
$683.2 million over 1996, primarily reflecting an increase in total
debt. Current liabilities decreased primarily because of a $45.7
million decrease in the current portion of long-term debt at
Atlantic and a $71.5 million decrease in accrued income taxes
partially offset by an increase in unearned customer receipts
because of lower copper and gold prices. Deferred income taxes
increased $43.4 million because of timing differences related to tax
and book depreciation of property, plant and equipment. Equity
declined by $396.5 million from 1996 primarily because of $439.8
million of FCX common stock purchases.
[PAGE] 29
<TABLE>
<CAPTION>
1997 / STATEMENTS OF FREEPORT-McMoRan COPPER & GOLD INC.
STOCKHOLDERS' EQUITY
Years Ended December 31,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Convertible Exchangeable Preferred Stock:
Balance at beginning
of year $ - $ 223,900 $ 223,900
Conversions to Class A
common stock - (221,093) -
Redemptions - (2,807) -
---------- ---------- ----------
Balance at end of year - - 223,900
---------- ---------- ----------
Step-Up Convertible Preferred Stock:
Balance at beginning
of year 349,990 350,000 350,000
Conversions to Class A
common stock - (10) -
---------- ---------- ----------
Balance at end of year 349,990 349,990 350,000
---------- ---------- ----------
Class A common stock:
Balance at beginning
of year 9,707 8,804 6,597
Conversions of preferred
stock and Class B
common stock - 903 2,207
---------- ---------- ----------
Balance at end of year 9,707 9,707 8,804
---------- ---------- ----------
Class B common stock:
Balance at beginning
of year 12,098 11,862 13,998
Conversions to Class A
common stock - - (2,207)
Exercised stock options 42 236 71
---------- ---------- ----------
Balance at end of year 12,140 12,098 11,862
---------- ---------- ----------
Capital in excess of par value of common stock:
Balance at beginning
of year 636,100 376,054 362,557
Conversions of preferred
stock - 220,073 -
Exercised stock options 13,692 39,973 13,497
---------- ---------- ----------
Balance at end of year 649,792 636,100 376,054
---------- ---------- ----------
Retained earnings:
Balance at beginning
of year 77,479 78,565 41,663
Net income 245,108 226,249 253,618
Cash dividends on
common stock (178,341) (175,766) (137,563)
Dividends on preferred
stock (36,567) (51,569) (54,153)
Purchase of Freeport
Copper Company - - (25,000)
---------- ---------- ----------
Balance at end of year 107,679 77,479 78,565
---------- ---------- ----------
Cumulative foreign currency translation adjustment:
Balance at beginning
of year 10,244 10,244 (3,740)
Adjustment - - 13,984
---------- ---------- ----------
Balance at end of year 10,244 10,244 10,244
---------- ---------- ----------
Common stock held in treasury:
Balance at beginning
of year (420,239) (177,755) -
Purchase of 18,270,500,
7,576,500 and 7,685,100
shares, respectively (439,827) (221,565) (177,755)
Tender of 20,527 and
669,093 shares,
respectively, to FCX to
exercise stock options (594) (20,919) -
---------- ---------- ----------
Balance at end of year (860,660) (420,239) (177,755)
---------- ---------- ----------
Total stockholders'
equity $ 278,892 $ 675,379 $ 881,674
========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part
of these financial statements.
[PAGE] 30
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements of
Freeport-McMoRan Copper & Gold Inc. (FCX) include its majority-owned
subsidiaries, P.T. Freeport Indonesia Company (PT-FI) and P.T. IRJA
Eastern Minerals Corporation (Eastern Mining), as well as its wholly
owned subsidiary, Atlantic Copper, S.A. (Atlantic). FCX's
unincorporated joint ventures with Rio Tinto plc (Rio Tinto) are
reflected using the proportionate consolidation method in accordance
with standard industry practice (Note 2). PT-FI's investment in
P.T. Smelting Co. (PT Smelting) is accounted for under the equity
method (Note 10). All significant intercompany transactions have
been eliminated. Certain prior year amounts have been reclassified
to conform to the 1997 presentation.
Use of Estimates. The preparation of FCX'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 the pricing of open concentrate sales, useful lives for
depreciation and amortization, allowances for obsolete inventory,
reclamation and environmental obligations, postretirement and other
employee benefits, valuation allowances for deferred tax assets,
future cash flow associated with assets and proved and probable
reserves. 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 cost or market.
PT-FI uses the average cost method and Atlantic uses the first-in,
first-out (FIFO) cost method.
Property, Plant and Equipment. Property, plant and equipment are
carried at cost. Mineral exploration costs are expensed as
incurred, except in the year a property is deemed to contain a
viable mineral deposit, in which case they are capitalized.
Development costs, including interest incurred during the
construction and development period, are capitalized. Expenditures
for replacements and improvements are capitalized. Depreciation for
mining and milling life-of-mine assets is determined using the unit-
of-production method based on estimated recoverable copper reserves.
Other assets are depreciated on a straight-line basis over estimated
useful lives of 15 to 20 years for buildings and 3 to 25 years for
machinery and equipment.
Income Taxes. FCX accounts for income taxes pursuant to Statement
of Financial Accounting Standards No. 109 (SFAS 109). Deferred income
taxes are provided to reflect the future tax consequences of differences
between the tax bases of assets and liabilities and their reported
amounts in the financial statements.
Reclamation and Mine Closure. Estimated reclamation and mine
closure costs for PT-FI's current mining operations in Indonesia are
accrued and charged to income over the estimated life of the mine by
the unit-of-production method based on estimated recoverable copper
reserves. Expenditures resulting from the remediation of conditions
caused by past operations which do not contribute to future revenue
generation are expensed.
Financial Contracts. FCX has entered into financial contracts to
manage certain market risks resulting from fluctuations in commodity
prices (primarily copper and gold), foreign exchange rates and
interest rates by creating offsetting market exposures. FCX views
all of its financial contracts as hedges as it does not engage in
speculative activity. Costs or premiums and gains or losses on the
contracts, including closed contracts, are recognized with the
hedged transaction. Also, gains or losses are recognized if the
hedged transaction is no longer expected to occur or if deferral
criteria are not met. FCX monitors its credit risk on an ongoing
basis and considers this risk to be minimal because its contracts
are with a diversified group of financially strong counterparties.
At December 31, 1997, FCX had redeemable preferred stock indexed to
commodities, deferred costs on foreign exchange option contracts, open
foreign exchange forward contracts, open forward copper sales and
purchase contracts, and interest rate swap contracts (Note 11).
Redeemable preferred stock indexed to commodities is treated as a
hedge of future produciton and is carried at its original issue value.
As redemption payments occur, differences between the carrying value
and the redemption payment will be recorded as an adjustment to revenues.
[PAGE] 31
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
Atlantic hedges its anticipated Spanish peseta cash flows with
foreign exchange option contracts and foreign exchange forward
contracts. Gains and losses, including costs, on option contracts
that qualify as hedges for accounting purposes are recognized in
income when the underlying hedged transaction is recognized or when
a previously anticipated transaction is no longer expected to occur.
Changes in market value of forward exchange contracts which protect
anticipated transactions are recognized in the period incurred.
Atlantic's purchases of copper concentrate are priced at
approximately the same time as its sales of the refined copper,
thereby protecting Atlantic from most copper price risk. Atlantic
enters into futures contracts to hedge its price risk whenever its
physical purchases and sales pricing periods do not match. Gains and
losses on futures contracts are recognized with the hedged
transaction.
FCX has interest rate swap contracts to fix the interest rates
on a portion of its floating rate debt. The costs associated with
these contracts are amortized to interest expense over the terms of
the agreements.
Concentrate Sales. Revenues from PT-FI's concentrate sales are
recorded net of royalties, treatment costs and the impact of the
price protection program (Note 11). PT-FI's concentrate sales
agreements, including its sales to Atlantic, provide for provisional
billings based on world metals prices when shipped, primarily using
then current prices on the London Metal Exchange (LME), with actual
settlement on the copper portion generally based on the average LME
price for a specified future month (quotational period). Copper
revenues on provisionally priced open pounds are adjusted monthly
based on then current prices. At December 31, 1997, FCX had
consolidated copper sales totaling 323.3 million pounds recorded at
an average price of $0.74 per pound remaining to be finally priced.
Approximately 70 percent of these open pounds are expected to be
finally priced during the first quarter of 1998 with the remaining
pounds to be priced during the second quarter of 1998. A one cent
movement in the average price used for these open pounds will have
an approximate $1.6 million impact on FCX's 1998 net income. Gold
sales are priced according to individual contract terms, generally
the average London Bullion Market Association price for the month of
shipment.
In December 1991, PT-FI and the Government of Indonesia (GOI)
signed a Contract of Work (COW) with a 30-year term and two 10-year
extensions permitted. Under the COW PT-FI pays the GOI a royalty of
1.5 percent to 3.5 percent on the value of copper sold, net of
delivery costs, treatment charges and other selling costs, and a 1.0
percent royalty on gold and silver sales. The royalties totaled
$31.4 million in 1997, $30.4 million in 1996 and $42.0 million in
1995. PT-FI has agreed with the GOI that on production in excess of
200,000 metric tons of ore per day (MTPD) it will pay a second
royalty.
Foreign Currencies. Effective January 1, 1996, Atlantic changed its
functional currency from the Spanish peseta to the U.S. dollar.
This resulted from the significant changes in Atlantic's operations
related to its expansion and the sale of its mining operations in
Spain. Previously, Atlantic's assets and liabilities that were
denominated in pesetas were translated to U.S. dollars using the
exchange rate in effect at the balance sheet date, with translation
adjustments recorded as a component of stockholders' equity.
Transaction gains and losses associated with Atlantic's peseta-
denominated and PT-FI's rupiah-denominated monetary assets and
liabilities are included in net income. Net Atlantic transaction
gains totaled $16.6 million in 1997 and $10.3 million in 1996.
Atlantic's net peseta-denominated monetary liabilities totaled $70.3
million at December 31, 1997 based on an exchange rate of 150.7
pesetas to one dollar. PT-FI's net rupiah-denominated monetary
assets totaled $14.2 million at December 31, 1997 based on an
exchange rate of 7,450 rupiah to one dollar. Net PT-FI transaction
losses related to these net rupiah-denominated monetary assets
totaled $6.3 million in 1997, and were not material in 1996 and
1995.
Earnings Per Share. In February 1997, the Financial Accounting
Standards Board (FASB) issued SFAS 128, "Earnings Per Share," which
simplifies the computation of earnings per share (EPS). FCX adopted
SFAS 128 in the fourth quarter of 1997 and restated prior years' EPS
data as required by SFAS 128.
Basic net income per share of common stock was calculated by
dividing net income applicable to common stock by the weighted-
average number of common shares outstanding during the year. From
January 1, 1998 through January 20, 1998, FCX purchased 3.3 million
shares under its open market share purchase program. Diluted net
income per share of common stock was calculated by dividing net
income applicable to common stock by the weighted-average number
[PAGE] 32
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
of common shares outstanding during the year plus dilutive stock
options which represented 1.3 million shares in 1997, 1.8 million
shares in 1996 and 0.9 million shares in 1995.
Options to purchase common stock that were outstanding during
the years presented but were not included in the computation of
diluted EPS totaled 2.3 million options at an average exercise price
of approximately $33 per share in 1997 and 1.8 million options at an
average exercise price of approximately $35 per share in 1996. These
were excluded because the options' exercise price was greater than
the average market price of the common shares. The FCX preferred
stock outstanding was not included in the computation of diluted EPS
because including them would have increased EPS. The preferred
stock was convertible into 11.7 million shares of common stock in
1997 and 1996, and 20.8 million shares of common stock in 1995.
Dividends accrued on convertible preferred stock totaled $21.0
million in 1997 and 1996, and $36.7 million in 1995.
2. OWNERSHIP AND JOINT VENTURES WITH RIO TINTO
In 1995, Freeport-McMoRan Inc. (FTX), the former parent of FCX,
completed its restructuring by distributing all the shares of FCX
Class B common stock which it owned to FTX common stockholders. As a
result of this distribution, FTX no longer owns any interest in FCX.
Prior to the distribution, Rio Tinto purchased 23.9 million shares
of FCX Class A common stock (approximately 12 percent of the then
outstanding common stock of FCX) from FTX.
FCX's direct ownership in PT-FI totaled 81.3 percent at
December 31, 1997 and 1996. FCX also owns 49 percent of P.T.
Indocopper Investama Corporation (PT-II), a 9.4 percent owner of PT-
FI, bringing FCX's total ownership in PT-FI to 85.9 percent at
December 31, 1997 and 1996. At December 31, 1997, PT-FI's net
assets totaled $485.5 million, including $281.9 million of retained
earnings. FCX has various intercompany loans to PT-FI totaling
$982.5 million at December 31, 1997. In March 1997, PT Nusamba
Mineral Industri (NMI), a subsidiary of P.T. Nusantara Ampera Bakti,
acquired from a third party approximately 51 percent of the capital
stock of PT-II. NMI financed $254.0 million of the $315.0 million
purchase price with a variable rate commercial loan maturing in
March 2002. The purchase price was based in part on FCX's market
value using its publicly traded common stock price at the time of
the transaction. FCX has agreed that if NMI defaults on the loan,
FCX will purchase the PT-II stock or the lenders' interest in the
commercial loan for the amount then due by NMI under the loan. FCX
also agreed to lend to NMI any shortfalls between the interest
payments due on the commercial loan and the dividends received by
NMI from PT-II. At December 31, 1997, $7.6 million was due in March
2002 from NMI because of interest payment shortfalls. The amount of
any future shortfalls will depend primarily on the level of PT-FI's
dividends to PT-II.
FCX's direct ownership in Eastern Mining totaled 90
percent at December 31, 1997 and 1996. PT-II owns the remaining 10
percent of Eastern Mining, bringing FCX's total ownership in Eastern
Mining to 94.9 percent at December 31, 1997 and 1996.
FCX owns 100 percent of the outstanding Atlantic stock. At December
31, 1997, Atlantic's net assets totaled $47.3 million and FCX had
outstanding advances to Atlantic totaling $30.3 million. Atlantic is
not expected to pay dividends in the near future.
Joint Ventures With Rio Tinto. FCX and Rio Tinto have established
exploration and expansion joint ventures. Pursuant to the
exploration joint ventures, Rio Tinto has a 40 percent interest in
future development projects under PT-FI's COW and Eastern Mining's
COW. Under the arrangements, Rio Tinto funded $100 million in 1996
for approved exploration costs in the areas covered by the PT-FI COW
and Eastern Mining COW. As of December 31, 1997, $11.4 million in
PT-FI's Block A remains to be applied to the $100 million Rio Tinto
exploration funding and is classified as a current liability.
Mutually agreed upon exploration costs in PT-FI's Block B and
Eastern Mining's COW areas are now being shared 60 percent by FCX
and 40 percent by Rio Tinto.
Pursuant to the expansion joint venture, Rio Tinto has a 40
percent interest in certain assets and future production exceeding
specified annual amounts of copper, gold and silver through 2021.
FCX and Rio Tinto are expected to complete construction on the
"fourth concentrator mill expansion" of PT-FI's facilities during
the first half of 1998. Costs for the expansion are expected to
approximate $960 million, including both working capital and a coal-
fired power plant and related facilities. The new power plant
facilities were sold in December 1997 to a joint venture that owns
assets which provide electricity to PT-FI (Note 8).
[PAGE] 33
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
To finance the expansion, Rio Tinto agreed to make available
to PT-FI a nonrecourse loan of up to $450 million. Through December
31, 1997, Rio Tinto has funded $744.0 million of expansion costs
($446.4 million loaned to PT-FI and the remainder funded directly by
Rio Tinto). Expansion costs above $750 million will be funded 60
percent by PT-FI and 40 percent by Rio Tinto except for
approximately $80 million for costs to be funded by PT-FI to enhance
the profitability of PT-FI's existing operations. Incremental cash
flow attributable to such expansion projects will be shared 60
percent PT-FI and 40 percent Rio Tinto. PT-FI has assigned its
interest in such incremental cash flow to Rio Tinto until Rio Tinto
has received an amount equal to the funds lent to PT-FI plus
interest based on Rio Tinto's cost of borrowing. The incremental
production from the expansion, as well as production from PT-FI's
existing operations, will share proportionately in operating and
administrative costs. PT-FI will continue to receive 100 percent of
cash flow from specified annual amounts of copper, gold and silver
through 2021 calculated by reference to its proved and probable
reserves as of December 31, 1994 (Note 14).
3. INVENTORIES
The components of product inventories follow (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
PT-FI: Concentrates - Average Cost $ 16,118 $ 36,043
Atlantic: Concentrates -FIFO 72,088 78,374
Work in process - FIFO 26,501 40,719
Finished goods - FIFO 6,087 6,765
-------- --------
Total product inventories $120,794 $161,901
======== ========
</TABLE>
The average cost method was used to determine the cost of
essentially all materials and supplies inventory at December 31,
1997 and 1996. Materials and supplies inventory is net of
obsolescence reserves totaling $29.5 million at December 31, 1997
and $19.3 million at December 31, 1996.
4. 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>
Exploration, development and other $ 929,844 $ 815,869
Buildings and infrastructure 717,518 973,850
Machinery and equipment 1,281,903 1,217,872
Mobile equipment 355,802 256,570
Infrastructure assets 930,399 368,612
Construction in progress 397,272 344,580
---------- ---------
Property, plant and equipment 4,612,738 3,977,353
Accumulated depreciation and
amortization (1,091,023) (888,709)
---------- ----------
Property, plant and equipment, net $3,521,715 $3,088,644
========== ==========
</TABLE>
Exploration, development and other include $124.8 million of excess
costs related to investments in consolidated subsidiaries which are
amortized over the lives of the related assets. Property, plant and
equipment are net of grants from the Spanish government totaling
$52.8 million. The grants are contingent on Atlantic meeting
specified conditions.
[PAGE] 34
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
5. REDEEMABLE PREFERRED STOCK
FCX has outstanding 6.0 million depositary shares representing
300,000 shares of its Gold-Denominated Preferred Stock. Each
depositary share has a cumulative quarterly cash dividend equal to
the value of 0.000875 ounce of gold and will be redeemed in August
2003 for the cash value of 0.1 ounce of gold.
FCX has outstanding 4.3 million depositary shares representing
215,279 shares of its Gold-Denominated Preferred Stock, Series II.
Each depositary share has a cumulative quarterly cash dividend equal
to the value of 0.0008125 ounce of gold and will be redeemed in
February 2006 for the cash value of 0.1 ounce of gold.
FCX has outstanding 4.8 million depositary shares representing
119,000 shares of its Silver-Denominated Preferred Stock. Each
depositary share has a cumulative quarterly cash dividend equal to
the value of 0.04125 ounce of silver. Beginning in August 1999, FCX
will redeem the underlying Silver-Denominated Preferred Stock in
eight equal annual installments.
6. STOCKHOLDERS' EQUITY
Common Stock. FCX has 473.6 million authorized shares of capital
stock consisting of 423.6 million shares of common stock and 50.0
million shares of preferred stock. FCX has two classes of common
stock which differ only as to their voting rights for the directors
of FCX. Holders of Class B common stock elect 80 percent of the FCX
directors while holders of Class A common stock and preferred stock
elect 20 percent.
Preferred Stock. In 1996, FCX called for redemption its
depositary shares representing Convertible Exchangeable Preferred
Stock. Prior to the redemption date, holders of 8.8 million
depositary shares converted their shares into 9.0 million FCX Class
A common shares. FCX paid $2.9 million in January 1997 to redeem
the remaining 0.1 million depositary shares.
FCX has outstanding 14.0 million depositary shares representing
700,000 shares of its Step-Up Convertible Preferred Stock. Each
depositary share has a cumulative $1.75 annual cash dividend
(payable quarterly) and a $25 liquidation preference, and is
convertible at the option of the holder into 0.835 shares of FCX
Class A common stock. Through August 1999, FCX may redeem these
depositary shares for 0.835 shares of FCX Class A common stock per
depositary share if the market price of FCX Class A common stock
exceeds $37.43 per share for 20 trading days within any period of 30
consecutive trading days. Thereafter, FCX may redeem these
depositary shares at $25 per share (payable in FCX Class A common
stock, cash or a combination of both, at FCX's option) plus accrued
and unpaid dividends.
Stock Options. In 1995, FCX's shareholders adopted the Adjusted
Stock Award Plan to provide for the issuance of certain stock awards
to employees, officers and directors of FTX in connection with FTX's
distribution of FCX shares. Under this plan, FCX made a one time
grant of awards to purchase up to 10.7 million Class B common
shares, including stock appreciation rights (SARs), at prices
equivalent to the original FTX price at date of grant as adjusted
for the proportionate market value of FCX shares at the time of the
distribution. All options granted under this plan expire 10 years
from the original FTX date of grant.
FCX's shareholders adopted the 1995 Stock Option Plan (the 1995
Plan) to provide for the issuance of stock options and other stock-
based awards (including SARs) at no less than market value at the
time of grant. Under this plan, FCX can grant options to eligible
participants to purchase up to 10 million Class B common shares.
Options granted under the 1995 Plan expire 10 years after the date
of grant. FCX's shareholders also adopted the 1995 Stock Option Plan
for Non-Employee Directors (the Director Plan) authorizing FCX to
grant options to purchase up to 2 million shares. Options granted
under the Director Plan are exercisable in 25 percent annual
increments beginning one year from the date of grant and expire 10
years after the date of grant. Under certain options, FCX will pay
cash to the optionee equal to an amount based on the maximum
individual federal income tax rate in effect at the time of
exercise. Options for 7.6 million shares under the 1995 Plan and 1.7
million shares under the Director Plan were available for new grants
as of December 31, 1997. A summary of stock options outstanding,
including 1.4 million SARs, follows:
[PAGE] 35
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- -------------------- -----------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Option of Option of Option
Options Price Options Price Options Price
---------- ---------- ---------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1 7,990,083 $23.04 9,770,040 $18.59 - $ -
Granted upon
FTX restructuring - - - - 10,715,351 18.53
Granted 856,900 29.18 1,909,200 34.71 170,000 26.69
Exercised (579,612) 18.47 (3,538,945) 17.07 (1,075,868) 19.11
Expired/
Forfeited (201,534) 30.45 (150,212) 22.66 (39,443) 22.49
---------- ---------- ----------
Balance at
December 31 8,065,837 23.84 7,990,083 23.04 9,770,040 18.59
========== ========== ==========
</TABLE>
Summary information of fixed stock options outstanding at
December 31, 1997 follows:
<TABLE>
<CAPTION>
Options Outstanding Options 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>
$13.10 to $19.37 1,265,326 3.2 years $17.71 1,265,326 $17.71
$19.93 to $29.19 3,711,767 5.6 years 21.89 2,814,235 20.26
$30.44 to $35.50 1,660,342 8.3 years 34.95 352,183 34.75
---------- ----------
6,637,435 4,431,744
========== ==========
</TABLE>
FCX has adopted the disclosure-only provisions of SFAS No. 123
and continues to apply APB Opinion No. 25 and related
interpretations in accounting for its stock-based compensation
plans. FCX recognized a $25.3 million gain in 1997 and charges
totaling $12.7 million in 1996 and $29.8 million in 1995 for the
cost of SARs caused by the fluctuations in FCX's common stock price.
Had compensation cost for FCX's fixed stock option grants been
determined based on the fair value at the grant dates for awards
under those plans consistent with SFAS 123, FCX's stock-based
compensation costs would have increased by $6.3 million ($3.4
million to net income or $0.02 per share) in 1997, $2.4 million
($1.3 million to net income or $0.01 per share) in 1996 and $0.2
million ($0.1 million to net income) in 1995. For the pro forma
computations, the fair values of the fixed option grants were
estimated on the dates of grant using the Black-Scholes option-
pricing model. The weighted average fair value for fixed stock
option grants was $10.24 per option in 1997, $12.09 per option in
1996 and $8.34 per option in 1995. The weighted average assumptions
used include a risk-free interest rate of 6.9 percent in 1997, 6.6
percent in 1996 and 6.4 percent in 1995; expected volatility of 30
percent in 1997, 26 percent in 1996 and 29 percent in 1995; expected
lives of 10 years and an annual dividend of $0.90 per share. The
pro forma effects on net income for 1997, 1996 and 1995 are not
representative of future years because FCX first adopted its stock
option plans in 1995. No other discounts or restrictions related to
vesting or the likelihood of vesting of fixed stock options were
applied.
[PAGE] 36
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
7. INCOME TAXES
The components of FCX's deferred taxes follow (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax asset:
Foreign tax credits $ 137,784 $ 103,578
U.S. alternative minimum tax credits 49,946 43,906
Atlantic net operating loss carryforwards 97,400 85,858
Deferred compensation 5,898 16,607
Intercompany profit elimination 8,141 16,217
Obsolescence reserve 8,095 5,089
Valuation allowance (285,130) (233,342)
---------- ----------
Total deferred tax asset 22,134 37,913
---------- ----------
Deferred tax liability:
Property, plant and equipment (423,515) (396,493)
Other (1,666) (1,104)
---------- ----------
Total deferred tax liability (425,181) (397,597)
---------- ----------
Net deferred tax liability $ (403,047) $ (359,684)
========== ==========
</TABLE>
FCX has provided a valuation allowance equal to its tax credit
carryforwards ($187.7 million at December 31, 1997 and $147.5
million at December 31, 1996) as these would only be used should
FCX be required to pay regular U.S. tax, which is considered
unlikely for the foreseeable future. Atlantic is subject to
taxation in Spain and FCX has provided a valuation allowance equal
to the future tax benefits resulting from $278.3 million of net
operating losses at December 31, 1997 which expire through the year
2004 and $245.3 million of net operating losses at December 31,
1996, because Atlantic has not generated taxable income in recent
years.
FCX's U.S. federal income tax returns for the years 1990-1992
and PT-FI's 1994 Indonesian income tax return are currently under
examination. In January 1998, PT-FI settled and paid assessments
from the Indonesian tax authorities for the years 1989-1993 with no
material adverse effect on the consolidated financial condition or
results of operations of FCX.
The provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current income taxes:
Indonesian $ 159,713 $ 182,354 $ 197,409
United States and other 9,885 10,620 13,900
---------- ---------- ----------
169,598 192,974 211,309
Deferred Indonesian taxes 61,717 54,194 22,735
---------- ---------- ----------
$ 231,315 $ 247,168 $ 234,044
========== ========== ==========
[PAGE] 37
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
Reconciliations of the differences between income taxes
computed at the contractual Indonesian tax rate and income taxes
recorded follow (dollars in thousands):
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- ------------------ ----------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Income taxes
computed at the
contractual
Indonesian
tax rate $ 180,868 35% $ 182,681 35% $190,667 35%
Indonesian withholding tax on:
Earnings/
dividends 21,886 4 37,097 7 24,025 4
Interest 6,818 1 7,590 1 8,256 2
Increase (decrease)
attributable to:
Intercompany
interest
expense (24,192) (5) (21,260) (4) (23,780) (4)
Parent company
costs 24,926 5 11,498 2 5,978 1
Indonesian
presidential
decree 9,643 2 - - - -
U.S. alternative
minimum tax 8,500 2 9,500 2 13,900 3
Atlantic net
loss (income) (1,187) - 8,378 2 13,225 2
Other, net 4,053 1 11,684 2 1,773 -
---------- ------- ---------- ------- --------- ------
Provision for
income taxes $ 231,315 45% $ 247,168 47% $234,044 43%
========== ======= ========== ======= ========= ======
</TABLE>
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
---------- ----------
(In Thousands)
<S> <C> <C>
Notes payable:
FCX and PT-FI credit facilities,
average rate 6.4% in 1997
and 6.2% in 1996 $ 250,000 $ 95,000
Rio Tinto loan including accrued
interest, average rate 5.8%
in 1997 and 5.7% in 1996 (Note 2) 464,360 76,200
Atlantic facility, average rate
7.2% in 1997 and 7.3% in 1996 291,276 277,500
Equipment loan, average rate
8.1% in 1997 and 1996 49,000 56,000
ALatieF loan, average rate
8.2% in 1996 - 51,000
Other, primarily Atlantic borrowings 78,273 103,697
9 3/4% Senior Notes due 2001 120,000 120,000
7.50% Senior Notes due 2006 200,000 200,000
7.20% Senior Notes due 2026 250,000 250,000
Infrastructure asset financings, net 686,073 333,519
---------- ----------
2,388,982 1,562,916
Less current portion and
short-term borrowings 80,852 136,617
---------- ----------
$2,308,130 $1,426,299
========== ==========
</TABLE>
Notes Payable. In 1996, the FCX and PT-FI credit facilities were
amended to increase the availability under the facilities by $250
million to a combined total of $1 billion. PT-FI retained its $550
million facility ($485.0 million of additional borrowings available
at December 31, 1997) and FCX and PT-FI now have a separate $450
million facility ($265.0 million of additional borrowings available
at December 31, 1997). These credit facilities are also subject to a
borrowing base, scheduled to be redetermined during the second quarter
by the banks, which had $656.0 million
[PAGE] 38
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
available at December 31, 1997. These variable rate revolving facilities
are available until December 2002, provide for minimum working capital
requirements, specified cash flow to interest coverage and restrictions
on other borrowings. PT-FI assigned its existing and future sales
contracts and pledged its rights under the COW and most of its assets as
security for its borrowings.
In October 1997, Atlantic restructured its variable rate
project financing (the Atlantic Facility) to include the balance of
the original $225 million term loan ($206.3 million balance), the
original $65 million working capital facility ($65 million balance)
and a new $20 million term loan, all nonrecourse to FCX. The term
portion of the facility will be repaid quarterly beginning April
1999 and matures October 2004. The working capital facility matures
April 2003. The Atlantic Facility requires certain hedging
arrangements, restricts other borrowings and specifies certain
minimum coverage ratios. The Atlantic Facility is secured by 51
percent of Atlantic's capital stock.
In 1994, FCX entered into a $70 million variable rate equipment
loan secured by certain PT-FI assets. In 1995, FCX fixed the
interest rate on the loan at 8.1 percent. Principal payments total
$7.0 million annually with a final payment in December 2001.
Senior Notes. In 1996, FCX sold publicly its 7.50% Senior Notes Due
2006 (the 2006 Notes) for net proceeds of $197.5 million and its
7.20% Senior Notes Due 2026 (the 2026 Notes) for net proceeds of
$248.0 million. Interest is payable semiannually in May and
November of each year. The holder of each 2026 Note may elect early
repayment in November 2003. The Notes are redeemable at the option
of FCX at the greater of (a) their principal amount or (b) the
remaining scheduled payments of principal and interest discounted to
the date of redemption on a semiannual basis at the applicable
treasury rate plus 30 basis points, together with, in either case,
accrued interest to the date of redemption.
Infrastructure Asset Financings. In March 1997, PT-FI
completed the final $75.0 million sale of infrastructure assets to
joint ventures owned one-third by PT-FI and two-thirds by P.T.
ALatieF Nusakarya Corporation (ALatieF), an Indonesian investor.
The sales to the ALatieF joint ventures totaled $270.0 million
during the period from December 1993 to March 1997. PT-FI
subsequently sold its one-third interest in the joint ventures to
ALatieF and is leasing the infrastructure assets under
infrastructure asset financing arrangements. PT-FI continues to
guarantee an approximate $50 million bank loan associated with the
purchases. PT-FI no longer consolidates the joint ventures. At
December 31, 1997, the ALatieF infrastructure asset financings
totaled $141.0 million.
In December 1997, PT-FI completed a $366.4 million sale, including
$74.4 million for the remaining costs expected to be incurred to
complete construction, of the new power plant facilities associated
with the fourth concentrator mill expansion to the joint venture
that owns the assets which already provide electricity to PT-FI.
The purchase price included $123.2 million for Rio Tinto's share of
the new power plant facilities. Sales to the power joint venture
totaled $581.4 million through 1997 including $458.2 million of PT-
FI owned assets. PT-FI subsequently sold its 30 percent interest in
the joint venture to the other partners and is purchasing power
under infrastructure asset financing arrangements. At December 31,
1997, the infrastructure asset financing obligations pursuant to the
power sales agreement totaled $436.7 million.
In 1995, PT-FI sold certain of its port, marine, logistics and
construction equipment and facilities for $100.0 million and sold
$48.0 million of its aviation assets to a joint venture, 25 percent
owned by PT-FI. PT-FI guarantees certain of the bank loans totaling
approximately $80 million associated with these sales. PT-FI is
leasing these assets under infrastructure asset financing
arrangements. At December 31, 1997, the obligations under these
infrastructure asset financings totaled $103.1 million.
Maturities. Maturities of debt instruments and infrastructure asset
financings based on the amounts and terms outstanding at December
31, 1997 totaled $80.9 million in 1998, $76.1 million in 1999,
$111.3 million in 2000, $222.5 million in 2001, $380.0 million in
2002 and $1,518.2 million thereafter.
Capitalized Interest. Capitalized interest totaled $23.0 million in
1997, $23.0 million in 1996 and $49.8 million in 1995.
[PAGE] 39
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
9. TRANSACTIONS WITH FTX AND FMS, AND EMPLOYEE BENEFITS
Management Services Agreement. Through December 31, 1995, FTX
furnished certain management and administrative services to FCX
under a management services agreement. These costs, which included
related overhead, totaled $55.5 million in 1995. In 1996, FM
Services Company (FMS), a newly formed entity owned 40 percent by
FCX, began providing certain administrative, financial and other
services that were previously provided by FTX on a similar cost-
reimbursement basis. These costs totaled $44.7 million in 1997 and
$45.2 million in 1996. Management believes these costs do not
differ materially from the costs that would have been incurred had
the relevant personnel providing these services been employed
directly by FCX. Through December 31, 1995, all U.S.-based
employees as well as expatriate employees overseas were employed by
FTX. In 1996, all U.S. and expatriate employees performing direct
services for FCX or its affiliates other than those employed by FMS
became FCX employees.
Pension Plans. In 1996, FCX and FMS established defined benefit
pension plans to cover substantially all U.S. and certain overseas
employees. Employees transferred from FTX retained their accumulated
benefits. In 1996, FCX and FMS changed the pension benefit formula
to a cash balance formula from the prior benefit calculation based
on years of service and final average pay. Under the amended plan,
FCX and FMS credit each participant's account annually with at least
4 percent of the participant's qualifying compensation.
Additionally, interest is credited annually to each participant's
account balance. FCX and FMS fund their respective pension
liabilities in accordance with Internal Revenue Service guidelines.
Additionally, for those employees in the qualified defined benefit
plan whose benefits are limited under federal income tax laws, FCX
and FMS sponsor unfunded, nonqualified plans. Information on the
FCX plans follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1996
------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations
(projected unit credit method):
Vested $ 10,889 $ 6,993
Nonvested 787 293
-------- --------
Accumulated benefit obligations $ 11,676 $ 7,286
======== ========
Projected benefit obligations
(projected unit credit method) $(13,652) $(12,292)
Less plan assets at fair value 7,660 6,639
-------- --------
Projected benefit obligations
in excess of plan assets (5,992) (5,653)
Unrecognized net loss 328 1,615
Unrecognized prior service costs (927) (1,075)
Unrecognized transition asset (402) (460)
-------- ---------
Accrued pension cost $ (6,993) $ (5,573)
======== =========
</TABLE>
In determining the present value of benefit obligations, FCX used
discount rates of 7.25 percent in 1997 and 7.75 percent in 1996, a
5 percent annual increase in future compensation levels and a 9
percent average expected rate of return on assets. Net periodic
pension costs for the FCX plans totaled $1.4 million for 1997 and
$2.1 million for 1996.
PT-FI has a defined benefit plan denominated in Indonesian
rupiah covering substantially all of its Indonesian national
employees. PT-FI funds the plan in accordance with Indonesian
pension guidelines. The actuarial present value of the accumulated
benefit obligation, determined by the projected credit method, was
$3.9 million and $9.2 million at December 31, 1997 and 1996,
respectively, based on corresponding exchange rates of 7,450 rupiah
to one U.S. dollar and 2,342 rupiah to one U.S. dollar. The
projected benefit obligation at December 31, 1997 and 1996, was $7.2
million and $18.0 million, respectively, based on a discount rate of
11 percent and a 9 percent annual increase in future compensation
levels on both dates. PT-FI's plan assets totaled $2.0 million at
December 31, 1997 and $1.7 million at December 31, 1996.
[PAGE] 40
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
Atlantic has an unfunded contractual obligation denominated in
Spanish pesetas to supplement amounts paid to retired employees.
The accrued liability totaled $69.4 million and $80.4 million at
December 31, 1997 and 1996, respectively, based on corresponding
exchange rates of 150.7 pesetas to one U.S. dollar and 131.4 pesetas
to one U.S. dollar. Atlantic expensed $5.8 million in 1997, $6.8
million in 1996 and $7.1 million in 1995 for interest on this
obligation. Cash payments were $7.5 million in 1997, $8.5 million in
1996 and $8.9 million in 1995. Under Spanish law, Atlantic is
required to fund this obligation by mid-1999. The actuarial
valuation of this obligation was $87.9 million at December 31, 1997
and $93.7 million at December 31, 1996, based on discount rates of
6 percent and 7 percent, respectively.
Other Benefits. FCX and FMS provide certain health care and life
insurance benefits for retired employees, the cost of which was not
material to the financial statements. The actuarial present value
of FCX's accumulated postretirement obligation totaled $1.0 million
at December 31, 1997 and $1.1 million at December 31, 1996. The
initial health care cost trend rate used was 8.5 percent for 1997,
decreasing 0.5 percent per year until reaching 5 percent. Based on
the current plan provisions, a change in the trend rate would have
no impact. The discount rate used was 7.25 percent for 1997 and
7.75 percent for 1996. FCX has the right to modify or terminate
these benefits. FCX and FMS have other employee benefit plans,
certain of which are related to FCX's performance, which costs are
recognized currently in general and administrative expense.
10. COMMITMENTS AND CONTINGENCIES
Environmental, Reclamation and Mine Closure. FCX believes that its
operations are being conducted pursuant to applicable permits
and are in compliance in all material respects with applicable
environmental laws, rules and regulations. FCX incurs
significant costs for environmental programs and projects.
In 1996, FCX began contributing to a fund designed to
accumulate at least $100 million by the end of its Indonesian
mine's life for eventual mine closure and reclamation.
Although the ultimate amount of reclamation and closure costs
to be incurred is currently indeterminable, based on recent
analyses PT-FI estimates that ultimate reclamation and closure
costs may require as much as $100 million but would not exceed
$150 million. These costs will be incurred throughout the
remaining life of the mine, which is currently estimated to
exceed 30 years. FCX had $5.5 million accrued on a unit-of-
production basis at December 31, 1997 for mine closure and
reclamation costs, included in other liabilities. An
increasing emphasis on environmental issues and future changes
in regulations could require FCX to incur additional costs
which would be charged against future operations. Estimates
involving environmental matters are by their nature imprecise
and can be expected to be revised over time because of changes
in government regulations, operations, technology and inflation.
Long-Term Contracts and Operating Leases. Atlantic has commitments
with parties other than PT-FI to purchase concentrate totaling
425,000 metric tons in 1998, 405,000 metric tons in 1999, 370,000
metric tons in 2000, 340,000 metric tons in 2001, 270,000 metric
tons in 2002 and a total of 220,000 metric tons thereafter, at
market prices.
FCX's minimum annual contractual charges under noncancelable
long-term contracts and operating leases which extend to 2000 total
$1.7 million, with $1.4 million in 1998, $0.2 million in 1999 and
$0.1 million in 2000. Total rental expense under long-term
contracts and operating leases amounted to $2.2 million in 1997,
$3.8 million in 1996 and $7.2 million in 1995.
Gresik Smelter. PT Smelting, an Indonesian company, commenced
construction in 1996 on a copper smelter in Gresik, Indonesia having
a design capacity of 200,000 metric tons of copper cathode per year.
PT-FI, Mitsubishi Materials Corporation (Mitsubishi Materials),
Mitsubishi Corporation (Mitsubishi) and Nippon Mining & Metals Co.,
Ltd. (Nippon) own 25 percent, 60.5 percent, 9.5 percent and 5
percent, respectively, of the outstanding PT Smelting stock. The
estimated aggregate project cost, before working capital
requirements, is approximately $625 million. PT Smelting has a $300
million nonrecourse term loan and a $110 million working capital
facility with a group of banks. The remaining funding will be
provided by PT-FI, Mitsubishi Materials, Mitsubishi and Nippon in
accordance with their interests. Construction is expected to be
completed in mid-1998. It is anticipated that PT-FI would provide
all of the smelter's copper concentrate requirements at market
rates; however, for the first fifteen years of operations the
treatment and refining charges would not fall below a certain
minimum rate. PT-FI has also agreed to assign, if necessary, its
earnings in PT Smelting to support a 13 percent cumulative annual
return to Mitsubishi Materials, Mitsubishi and Nippon for the first
20 years of commercial operations.
[PAGE] 41
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
11. FINANCIAL INSTRUMENTS
Summarized below are financial instruments whose carrying
amounts are not equal to their fair value at December 31, 1997 and
1996. Fair values are based on quoted market prices and other
available market information.
<TABLE>
<CAPTION>
1997 1996
---------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Price protection program:
Open contracts
in asset
position $ - $ 16 $ - $ 17,314
Open contracts
in liability position - (1,494) - -
Debt:
Long-term debt (Note 8) (2,388,982) (2,402,862) (1,562,916) (1,575,929)
Interest rate swaps - (1,210) - (1,331)
Foreign exchange contracts:
$U.S./Deutsche marks - - - (30)
$U.S./Spanish pesetas 1,148 471 908 300
Redeemable preferred stock
(Note 5) (500,007) (334,177) (500,007) (405,855)
</TABLE>
Price Protection Program. From time to time, PT-FI enters into
forward and option contracts to hedge the market risk associated
with fluctuations in the prices of commodities it sells. At
December 31, 1997, PT-FI had no outstanding forward or option
contracts. FCX's revenues include net additions totaling $42.6
million in 1997 and $38.2 million in 1996, and net reductions
totaling $68.6 million in 1995 related to PT-FI's copper price
protection program. Revenues also include net additions totaling
$37.6 million in 1997, $14.1 million in 1996 and $3.9 million in
1995 from gold forward contracts.
At December 31, 1997, Atlantic had sold forward 2.0 million
pounds of copper at an average price of $0.80 per pound and
purchased forward 20.3 million pounds of copper at an average price
of $0.87 per pound to minimize the copper price risk of its
concentrate inventory.
Debt. PT-FI entered into an interest rate swap in 1991 and Atlantic
entered into interest rate swaps in 1995 to manage exposure to
interest rate changes on a portion of their variable rate debt. PT-
FI pays 8.3 percent on $28.6 million of financing at December 31,
1997, reducing annually through 1999. Atlantic pays an average of
6.1 percent on $133.3 million of financing at December 31, 1997,
reducing annually through 2000. Interest on comparable floating rate
debt averaged 5.7 percent in 1997, 5.6 percent in 1996 and 6.1
percent in 1995, resulting in additional interest costs of $1.5
million, $2.2 million and $1.5 million, respectively.
Foreign Exchange Contracts. During 1996, Atlantic implemented a
currency hedging program to reduce its exposure to changes in the
U.S. dollar and Spanish peseta exchange rate. As of December 31,
1997, Atlantic has options through January 1999 on a total of 6.3
billion Spanish pesetas with an average strike price of 140.6
pesetas at a cost of $1.1 million. Atlantic also has entered into
foreign exchange contracts which mature through January 1999,
totaling $43.8 million on another 6.3 billion Spanish pesetas.
Atlantic is a party to letters of credit totaling $8.5 million
at December 31, 1997. Fair value of these letters of credit is not
material at December 31, 1997.
[PAGE] 42
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
12. BUSINESS SEGMENTS
FCX 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.
FCX has two operating segments: "mining and exploration" and
"smelting and refining." The mining and exploration segment
includes PT-FI's copper and gold mining operations in Indonesia and
the Indonesian exploration activities of both PT-FI and Eastern
Mining. The smelting and refining segment includes Atlantic's
operations in Spain and PT-FI's equity investment in PT Smelting in
Gresik, Indonesia. The segment data presented below were prepared
on the same basis as the consolidated FCX financial statements.
<TABLE>
<CAPTION>
Mining Smelting
and and Eliminations FCX
Exploration Refining and Other Total
---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
1997
Revenues $1,505,295 $ 874,514 $ (378,905) $2,000,904
Production and delivery 604,851 800,997a (397,244) 1,008,604
Depreciation and
amortization 178,289 31,693 3,873 213,855
Exploration expense 14,758 - 2,871 17,629
General and administrative
expenses 76,549 11,197 8,855 96,601
---------- ---------- ---------- ----------
Operating income $ 630,848 $ 30,627 $ 2,740 $ 664,215
========== ========== ========== ==========
Capital expenditures $ 529,731 $ 54,721 $ 10,035 $ 594,487
========== ========== ========== ==========
Total assets $3,406,539 $ 742,184a $ 3,486 $4,152,209
========== ========== ========== ==========
1996
Revenues $1,485,848 $ 778,120 $ (358,932) $1,905,036
Production and delivery 575,781 731,651 (355,569) 951,863
Depreciation and
amortization 142,605 27,783 3,590 173,978
General and administrative
expenses 119,492 12,301 9,141 140,934
---------- ---------- ---------- ----------
Operating income $ 647,970 $ 6,385 $ (16,094) $ 638,261
========== ========== ========== ==========
Capital expenditures $ 398,986 $ 90,086 $ 3,166 $ 492,238
========== ========== ========== ==========
Total assets $3,168,837 $ 775,336a $ (78,639) $3,865,534
========== ========== ========== ==========
1995
Revenues $1,477,919 $ 541,291 $ (184,875) $1,834,335
Production and delivery 547,716 528,904 (141,913) 934,707
Depreciation and
amortization 102,664 17,572 3,819 124,055
Exploration expenses 10,828 2,248 812 13,888
General and administrative
expenses 141,014 16,705 7,534 165,253
---------- ---------- ---------- ----------
Operating income (loss) $ 675,697 $ (24,138) $ (55,127) $ 596,432
========== ========== ========== ==========
Capital expenditures $ 434,383 $ 143,958 $ 5,145 $ 583,486
========== ========== ========== ==========
Total assets $2,888,535 $ 783,123a $ (89,912) $3,581,746
========== ========== ========== ==========
</TABLE>
a. PT-FI recorded losses related to PT Smelting totaling $1.5 million in
1997. Total assets include PT-FI's equity investment in PT Smelting totaling
$83.1 million at December 31, 1997, $46.8 million at December 31, 1996 and
$8.0 million at December 31, 1995.
[PAGE] 43
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
FCX markets its products worldwide primarily pursuant to the
terms of long-term contracts. The following table details the
percentage of consolidated revenues attributable to various
contracts:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Long-term contracts:
Japanese companies 16% 17% 16%
Swiss firm 8 10 11
German firm 4 5 14
Other 64 62 47
Spot sales 8 6 12
</TABLE>
PT-FI's contracts with a group of Japanese companies, the Swiss
firm and the German firm extend through 2000, 2003 and 1999,
respectively. There are several other long-term agreements in
place, each representing less than ten percent of sales. Certain
terms of these long-term contracts are negotiated annually.
FCX revenues attributable to foreign countries based on the
location of the customer follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
Japan $ 470,373 $ 474,443 $ 383,635
Spain 402,276 342,373 313,949
Switzerland 297,821 353,776 302,726
Germany 108,519 98,076 263,137
Others 721,915 636,368 570,888
---------- ---------- ----------
Total $2,000,904 $1,905,036 $1,834,335
========== ========== ==========
</TABLE>
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Net Income Net Income
Applicable Per Share
Operating to Common --------------
Revenues Income Stock Basic Diluted
---------- ---------- ---------- ----- -----
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
1997
1st Quarter $ 523,780 $ 197,608 $ 62,451 $.31 $.31
2nd Quarter 566,950 213,701 69,852 .35 .35
3rd Quarter 489,522 136,417 36,577 .19 .19
4th Quarter a 420,652 116,489 39,661 .21 .21
---------- ---------- ----------
$2,000,904 $ 664,215 $ 208,541 1.06 1.06
========== ========== ==========
1996
1st Quarter b $ 388,392 $ 105,543 $ 22,450 $.11 $.11
2nd Quarter 424,348 111,627 29,045 .15 .15
3rd Quarter 474,664 170,322 46,126 .24 .24
4th Quarter 617,632 250,769 77,059 .40 .39
---------- ---------- ----------
$1,905,036 $ 638,261 $ 174,680 .90 .89
========== ========== ==========
</TABLE>
a. Includes a $25.3 million gain ($12.3 million to net income or
$0.06 per share) for the reversal of SAR costs caused by the
decline in FCX's common stock price.
b. Includes charges totaling $18.7 million ($8.6 million to net
income or $0.04 per share) consisting of $12.7 million for
costs of SARs caused by the increase in FCX's common stock
price, $3.0 million (reduced to $1.7 million in the second
quarter) for an early retirement program and $3.0 million for
costs related to a civil disturbance.
[PAGE] 44
1997 / NOTES TO FINANCIAL STATEMENTS FREEPORT-McMoRan COPPER & GOLD INC.
14. SUPPLEMENTARY MINERAL RESERVE INFORMATION (UNAUDITED)
Total estimated proved and probable mineral reserves at the Grasberg
and other Block A ore bodies in Indonesia follow:
<TABLE>
<CAPTION>
Average Ore Grade Per Ton Recoverable Reserves
---------------------------------- --------------------
Year-End Ore Copper Gold Silver Copper Gold Silver
- --------------------- ---------------------------------- --------------------
(Metric Tons) (%) (Grams)(Ounce)(Grams)(Ounce) (Billions (Millions
of Lbs.) of Ozs.)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1,074,100,000 1.31 1.47 .047 4.04 .130 26.8 39.1 76.7
1994 1,125,640,000 1.30 1.42 .046 4.06 .131 28.0 39.6 80.8
1995 1,899,244,000 1.17 1.18 .038 3.78 .121 40.3 52.1 111.1
1996 2,008,285,000 1.19 1.18 .038 3.80 .122 43.2 55.3 118.7
1997 2,166,212,000 1.20 1.20 .039 3.95 .127 47.1 62.7 138.4
By Deposit at December 31, 1997
Grasberg:
Open pit1,087,800,000 1.06 1.27 .041 2.90 .093 20.9 33.3 50.8
Under-
ground 670,846,000 1.22 1.09 .035 3.73 .120 14.8 17.7 40.3
Kucing
Liar 221,871,000 1.42 1.57 .050 5.12 .165 5.7 8.4 18.3
DOZ 79,306,000 1.41 0.83 .027 7.04 .226 2.1 1.7 9.5
IOZ 38,148,000 1.18 0.45 .014 7.65 .246 0.9 0.4 5.0
Big Gossan 37,349,000 2.69 1.02 .033 16.42 .528 1.8 0.9 9.9
DOM 30,892,000 1.67 0.42 .014 9.63 .310 0.9 0.3 4.6
--------------------------------------------------------------------
Total 2,166,212,000 1.20 1.20 .039 3.95 .127 47.1 62.7 138.4
</TABLE>
Estimated recoverable reserves were assessed using a copper
price of $0.90 per pound and a gold price of $325 per ounce. Using
prices of $0.75 per pound of copper and $280 per ounce of gold would
reduce estimated recoverable reserves by approximately 12 percent
for copper, 9 percent for gold and 15 percent for silver.
In PT-FI's Block A, Rio Tinto agreed to make available to PT-FI
a nonrecourse loan of up to $450 million to fund the cost of the
fourth concentrator mill expansion (Note 2). Incremental cash flow
attributable to such expansion projects will be shared 60 percent
PT-FI and 40 percent Rio Tinto. PT-FI has assigned its interest in
such incremental cash flow to Rio Tinto until Rio Tinto has received
an amount equal to the funds lent to PT-FI plus interest based on
Rio Tinto's cost of borrowing. Incremental cash flow consists of
amounts generated from production in excess of specified annual
amounts based on the December 31, 1994 reserves and mine plan. The
incremental production from the expansion, as well as production
from PT-FI's existing operations, will share proportionately in
operating and administrative costs. FCX will continue to receive
100 percent of cash flow from its existing production facilities as
specified by the contractual arrangements. PT-FI's estimated net
share of recoverable reserves follows:
<TABLE>
<CAPTION>
Year-End Copper Gold Silver
---------- ---------- ---------- ------------
(Billions of Lbs.) (Millions of Ozs.) (Millions of Ozs.)
<S> <C> <C> <C>
1993 26.8 39.1 76.7
1994 28.0 39.6 80.8
1995 34.6 46.0 96.7
1996 35.9 47.4 100.4
1997 37.8 51.3 111.3
</TABLE>
[PAGE] 45
1997 / SHAREHOLDER INFORMATION FREEPORT-McMoRan COPPER & GOLD INC.
FCX CLASS A COMMON SHARES. Our Class A common shares trade
on the New York Stock Exchange (NYSE) under the symbol
"FCX.A." The FCX.A share price is reported daily in the
financial press under "FMCGA" in most listings of NYSE
securities. At year-end 1997, the number of holders of
record of our Class A common shares was 9,819. NYSE
composite tape Class A common share price ranges during 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $33.50 $25.38 $32.88 $27.50
Second Quarter 30.38 25.88 34.88 28.75
Third Quarter 28.75 25.75 31.25 26.63
Fourth Quarter 28.88 14.63 31.25 26.38
</TABLE>
FCX CLASS B COMMON SHARES. Our Class B common shares trade
on the NYSE under the symbol "FCX." The FCX share price is
reported daily in the financial press under "FMCG" in most
listings of NYSE securities. At year-end 1997, the number
of holders of record of our Class B common shares was
15,103.
NYSE composite tape Class B common share price ranges during
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $34.88 $27.50 $33.75 $27.38
Second Quarter 31.88 26.50 36.13 30.00
Third Quarter 30.75 27.19 33.00 28.38
Fourth Quarter 29.94 14.94 32.88 28.00
</TABLE>
COMMON SHARE DIVIDENDS. FCX Class A and Class B common
share cash dividends declared and paid for the quarterly
periods of 1997 and 1996 were:
<TABLE>
<CAPTION>
1997
Amount
Per Record
Share Date Payment Date
<S> <C> <C> <C>
First Quarter $.225 Apr. 15, 1997 May 1, 1997
Second Quarter .225 Jul. 15, 1997 Aug. 1, 1997
Third Quarter .225 Oct. 15, 1997 Nov. 1, 1997
Fourth Quarter .05 Jan. 16, 1998 Feb. 1, 1998
<CAPTION>
1996
Amount
Per Record Payment
Share Date Date
<S> <C> <C> <C>
First Quarter $.225 Apr. 15, 1996 May 1, 1996
Second Quarter .225 Jul. 15, 1996 Aug. 1, 1996
Third Quarter .225 Oct. 15, 1996 Nov. 1, 1996
Fourth Quarter .225 Jan. 15, 1997 Feb. 1, 1997
</TABLE>
[INSIDE BACK COVER]
Exhibit 21.1
List of Subsidiaries of
FREEPORT-McMoRan COPPER & GOLD INC.
Name Under Which
Entity Organized It Does Business
------------------------------- -------------- ----------------
P.T. Freeport Indonesia Company Indonesia and Same
Delaware
P.T. IRJA Eastern Minerals Indonesia Same
Corporation
Atlantic Copper, S.A. Spain Same
FM Services Company Delaware Same
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 the Form 10-K, into Freeport-McMoRan
Copper & Gold Inc.'s previously filed Registration Statements on
Form S-3 (File Nos. 33-45787, 33-63376, 33-52503 and 333-2699) and
on Form S-8 (File Nos. 33-63267, 33-63269 and 33-63271).
Arthur Andersen LLP
New Orleans, Louisiana
March 27, 1998
Exhibit 23.2
CONSENT OF INDEPENDENT MINING CONSULTANTS, INC.
We hereby consent to the incorporation by reference of of our
reports included herein or incorported by reference in this Form 10-K,
into Freeport-McMoRan Copper & Gold Inc.'s previously filed Registration
Statements on Form S-3 (File Nos. 33-45787, 33-63376, 33-52503 and 333-2699)
and on Form S-8 (File Nos. 33-63267, 33-63269 and 33-63271).
/s/ John. M. Marek
John M. Marek
President
Tucson, Arizona
March 27, 1998
Exhibit 24.1
FREEPORT-McMoRan COPPER & GOLD INC.
SECRETARY'S CERTIFICATE
I, Michael C. Kilanowski, Jr., Secretary of Freeport-McMoRan
Copper & Gold 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
December 13, 1988, 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 30th day of March,
1998.
(Seal) /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 Copper & Gold 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 3rd day of February, 1998.
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 Copper & Gold 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 3rd day of February, 1998.
Robert W. Bruce III
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 Copper & Gold 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 3rd day of February, 1998.
Jonathan C.A. Leslie
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 Copper & Gold 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 attornies
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 3rd of February, 1998.
Leonard A. Davis
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 Copper & Gold 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 3rd day of February, 1998.
Robert A. Day
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 Copper & Gold 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 3rd day of February, 1998.
J. Bennett Johnston
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 Copper & Gold 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 3rd day of February, 1998.
William B. Harrison, 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 Copper & Gold 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 At
EXECUTED this 3rd day of February, 1998.
Henry A. Kissinger
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 Copper & Gold 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
foegoing 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 3rd day of February, 1998
Bobby Lee Lackey
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 Copper & Gold 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 attornies
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 3rd day of February, 1998.
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 Copper & Gold 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 3rd day of February, 1998.
Gabrielle K. McDonald
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 Copper & Gold 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 3rd day of February, 1998.
George A. Mealey
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 Copper & Gold 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 3rd day of February, 1998.
George Putnam
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 Copper & Gold 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 3rd day of February, 1998.
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 Copper & Gold 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 3rd day of February, 1998.
C. Donald Whitmire
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 Copper & Gold 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 attornies
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 3rd day of February, 1998.
J. Taylor Wharton
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 Copper & Gold Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and
appoint 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 3rd day of February, 1998.
James R. Moffett
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Freeport-McMoRan Copper & Gold 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.
</LEGEND>
<CIK> 0000831259
<NAME> FREEPORT-MCMORAN COPPER & GOLD INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,959
<SECURITIES> 0
<RECEIVABLES> 89,599
<ALLOWANCES> 0
<INVENTORY> 314,800
<CURRENT-ASSETS> 463,089
<PP&E> 4,612,738
<DEPRECIATION> 1,091,023
<TOTAL-ASSETS> 4,152,209
<CURRENT-LIABILITIES> 475,665
<BONDS> 2,308,130
500,007
349,990
<COMMON> 21,847
<OTHER-SE> (92,945)
<TOTAL-LIABILITY-AND-EQUITY> 4,152,209
<SALES> 2,000,904
<TOTAL-REVENUES> 2,000,904
<CGS> 1,222,459
<TOTAL-COSTS> 1,222,459
<OTHER-EXPENSES> 17,629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 151,720
<INCOME-PRETAX> 516,766
<INCOME-TAX> 231,315
<INCOME-CONTINUING> 245,108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 245,108
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Freeport-McMoRan Copper & Gold Inc. adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," (SFAS 128) in the
fourth quarter of 1997 and restated prior years' earnings per share
(EPS) data as required by SFAS 128. Presented below are the restated
EPS amounts for the years ended December 31, 1996 and 1995, as well as,
the 3-month periods ended March 31, 1997 and 1996, the 6-month period
ended June 30, 1997.
</LEGEND>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1997 DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 DEC-31-1995 MAR-31-1997 MAR-31-1996 JUN-30-1997
<CASH> 0 0 0 0 0
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 0 0 0 0
<ALLOWANCES> 0 0 0 0 0
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 0 0 0 0 0
<PP&E> 0 0 0 0 0
<DEPRECIATION> 0 0 0 0 0
<TOTAL-ASSETS> 0 0 0 0 0
<CURRENT-LIABILITIES> 0 0 0 0 0
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 0 0 0 0 0
<OTHER-SE> 0 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0 0 0 0
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 0 0 0 0 0
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 0 0 0 0 0
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0 0
<INCOME-PRETAX> 0 0 0 0 0
<INCOME-TAX> 0 0 0 0 0
<INCOME-CONTINUING> 0 0 0 0 0
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 0 0 0 0 0
<EPS-PRIMARY> .90 .98 .31 .11 .66
<EPS-DILUTED> .89 .98 .31 .11 .66
</TABLE>
