-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VhiNYsfkd+n2aDLjWYN5yqeJa164WaksS8oBmK1Jd50SkLAcQQQlW6NjcmSIrfaZ fHQJGZI6bu13zEHyfuMJXg== 0001046204-98-000001.txt : 19980325 0001046204-98-000001.hdr.sgml : 19980325 ACCESSION NUMBER: 0001046204-98-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980324 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREEPORT MCMORAN SULPHUR INC CENTRAL INDEX KEY: 0001046204 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 721392855 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13617 FILM NUMBER: 98571995 BUSINESS ADDRESS: STREET 1: 1615 POYDRAS ST CITY: NEW ORLEANS STATE: LA ZIP: 70112 BUSINESS PHONE: 5045824000 MAIL ADDRESS: STREET 1: 1615 POYDRAS ST CITY: NEW ORLEANS STATE: LA ZIP: 70112 FORMER COMPANY: FORMER CONFORMED NAME: FREEPORT SULPHUR CO DATE OF NAME CHANGE: 19970916 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ________________ FORM 10-K (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-13617 FREEPORT-McMoRan SULPHUR INC. (Exact name of registrant as specified in its charter) Delaware 72-1392855 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1615 Poydras Street, 70112 New Orleans, Louisiana (zip code) (Address of principal executive offices) Registrant's telephone number, including area code: (504) 582-4000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------------------------- ----------------------- Common Stock Par Value $.01 per Share New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] The aggregate market value of the voting stock held by non- affiliates of the registrant was approximately $126,000,000 on March 2, 1998. On March 2, 1998, there were issued and outstanding 9,994,678 shares of the registrant's common stock (excluding treasury shares). Documents Incorporated by Reference Portions of the registrant's Proxy Statement submitted to the registrant's stockholders in connection with its 1998 Annual Meeting of Stockholders to be held on May 12, 1998 are incorporated by reference into Part III of this Report. Freeport-McMoRan Sulphur Inc. TABLE OF CONTENTS Page ---- PART I........................................................ 1 Items 1. and 2. Business and Properties.................. 1 Item 3. Legal Proceedings................................16 Item 4. Submission of Matters to a Vote of Security Holders..........................................16 Item 4(a). Executive officers............................16 PART II .......................................................17 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................17 Item 6. Selected Financial and Operating Data............18 Items 7. and 7A. Management's Discussion and Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures About Market Risk.................................................19 Item 8. Financial Statements and Supplementary Data......23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........37 PART III.......................................................37 Item 10. Directors and Executive Officers of the Registrant......................................37 Item 11. Executive Compensation..........................37 Item 12. Security Ownership of Certain Beneficial Owner and Management...........................37 Item 13. Certain Relationships and Related Transactions..37 PART IV........................................................37 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................37 SIGNATURES....................................................S-1 EXHIBIT INDEX.................................................E-1 [PAGE] i PART I Items 1. and 2. Business and Properties. General Freeport-McMoRan Sulphur Inc. ("Freeport Sulphur," "FSC" or the "Company") is a Delaware corporation formed in August 1997 to succeed to the sulphur and certain oil and gas operations of Freeport-McMoRan Resource Partners, Limited Partnership, a Delaware Limited Partnership ("FRP"), of which Freeport-McMoRan Inc. ("FTX") served as administrative managing general partner and was the owner of a 51.6 percent partnership interest. Effective December 22, 1997, FTX merged (the "Merger") into IMC Global Inc. ("IGL"), and FRP contributed to Freeport Sulphur all of its sulphur operations, and certain of its oil and gas operations, including FRP's 58.3 percent interest in those businesses commonly referred to as the "Main Pass" operations, and its sulphur mine in Culberson County, Texas. In addition, in connection with the Merger, IGL transferred to FRP, which in turn contributed to Freeport Sulphur, IGL's 25 percent interest in the Main Pass operations. Following the contributions, FRP distributed all of the shares of the Company's Common Stock to FTX and the other holders of its units of partnership interest, and, as part of the Merger Consideration, FTX distributed to its stockholders the shares of the Company's Common Stock that it received (the "Spin-Off"). Following the Merger, FRP's name was changed to Phosphate Resource Partners Limited Partnership ("PLP"). PLP, managed by IGL, is engaged in the production and sale of phosphate crop nutrients and animal feed ingredients as well as the exploration and development and production of oil and gas reserves. Unless otherwise noted or the context requires otherwise, references herein to the historical operations and performance of the "Company" or "Freeport Sulphur" refer to the businesses that FRP contributed to the Company; provided that IGL's 25 percent interest in Main Pass is only included in the Company's operations after December 22, 1997. Freeport Sulphur's operations include the mining, purchase, transportation, terminaling and marketing of sulphur and the production and sale of oil and gas from its Main Pass facilities. Management believes that Freeport Sulphur is the world's largest producer of mined, or "Frasch," sulphur and the largest supplier of elemental sulphur in the United States. The Company now has an 83.3 percent interest in the Main Pass operations, and Homestake Sulphur Company ("Homestake") owns the remaining 16.7 percent interest. The Company also continues to serve as the operator of the Main Pass operations. Sulphur, both in its elemental form and in the form of sulphuric acid, is essential to agriculture and industry. Sulphur is a base element primarily used in the production of sulphuric acid, which is used in the manufacture of phosphate fertilizers and other agricultural chemicals, and has numerous industrial applications, including ore and metal leaching, petroleum and mineral refining, and chemical manufacturing. While sulphur is essential in almost every segment of the economy, it is generally used as a processing agent and is seldom apparent in the final product. Freeport Sulphur is the successor to a line of business that had been conducted by FRP and its predecessors since 1912, making it the longest continuously operating sulphur company in the United States. Since its founding, the Company has introduced numerous innovations in the production and transportation of sulphur, including the development of a mine in marsh terrain near the mouth of the Mississippi River, the use of directional drilling (a critical technique for exploiting offshore sulphur deposits), and the development of technology for transporting molten sulphur, which has earned the acceptance of U.S. sulphur consumers as an environmentally and economically superior method. Freeport Sulphur was the first, and remains the only, company to superheat seawater for sulphur mining, and in 1960 constructed the first offshore sulphur mine, followed by a second offshore mine constructed in 1968, and a third offshore mine with the construction of the Main Pass mine in 1992. Freeport Sulphur remains the only company to successfully operate offshore sulphur mines. Over its history, the Company has mined more than 160 million long tons of sulphur, and in 1988 discovered the largest sulphur deposit in North America at Main Pass in the Gulf of Mexico. Through its 1995 acquisition of substantially all of the sulphur assets of Pennzoil Company ("Pennzoil"), Freeport Sulphur became the world's largest producer of mined sulphur and a leading supplier of sulphur to the United States market, and positioned itself as having the industry's largest molten sulphur handling system. [PAGE] 1 The Main Pass sulphur deposit is the largest known sulphur reserve in North America. The Company's Main Pass offshore mining complex is the largest structure of its type in the Gulf of Mexico and one of the largest in the world, and was designed to produce an average of 5,500 long tons per day over its life. The Company began operating the Culberson mine in January 1995 following its acquisition of substantially all of Pennzoil's domestic sulphur assets. As of December 31, 1997, the Main Pass and Culberson mines were estimated to contain proved sulphur reserves totaling 61.2 million long tons net to the Company. In addition to the Culberson mine, the Company also acquired from Pennzoil sulphur terminals and handling facilities in Galveston, Texas and Tampa, Florida, land and marine transportation equipment, and sales and other related commercial contracts and obligations. The Company's principal business is the sale of sulphur and the marketing of its terminaling and transportation assets for use by recovered sulphur producers and industrial consumers of sulphur. The phosphate fertilizer industry generally accounts for approximately 90 percent of the Company's sulphur sales. The Company's 1997 sulphur sales were approximately 2.9 million long tons, representing 24.8 percent of domestic consumption (or 3.4 million long tons, representing 29.1 percent of domestic consumption, on a pro forma basis after the contribution of IGL's Main Pass interest). Sales to IMC-Agrico Company, a joint venture partnership between IGL and PLP that is a manufacturer of phosphate fertilizers and the largest purchaser of elemental sulphur in the world ("IMC-Agrico"), represented approximately 65 percent of the Company's sulphur sales (or 72 percent on a pro forma basis after the contribution of IGL's Main Pass interest). Pursuant to a Sulphur Supply Agreement, the Company has agreed to supply and IMC-Agrico has agreed to purchase approximately 75 percent of IMC-Agrico's annual sulphur consumption for as long as IMC-Agrico has an operational need for sulphur. The price per ton for all sulphur delivered under the agreement is based upon the weighted average market price for sulphur delivered by other sources to IMC-Agrico's New Wales production plant in central Florida, except that the Company is entitled to a premium with respect to approximately 40 percent of the sulphur that it delivers under the agreement. IMC-Agrico also pays a portion of the freight costs associated with the delivery of sulphur under the agreement. Although this contract was entered into at a time when IMC-Agrico was an affiliate of the Company, management believes that the terms of the Sulphur Supply Agreement are no less favorable to the Company than those that could have been negotiated with an unaffiliated party. The Company operates the largest molten sulphur handling system in North America and has the capacity to transport and terminal over five million long tons of molten sulphur annually. The Company uses this system to support both the movement of its own mined and purchased sulphur and as a service that it markets to recovered sulphur producers and industrial consumers. Freeport Sulphur is a major purchaser of recovered sulphur, which is sulphur recovered from the refining of sour natural gas and sour crude oil, purchasing almost one million tons per year. Approximately 32.5 percent of the Company's 1997 sulphur sales were supplied from its recovered sulphur purchases. Substantially all of the sulphur purchased by the Company, along with the sulphur produced at the Main Pass and Culberson mines, is sold by the Company to industrial companies for use in the manufacture of sulphuric acid. The Main Pass operations also contain proved oil reserves from which the Company produces and sells oil for the Main Pass joint venture. Oil production averaged approximately 9,030 barrels per day (4,400 barrels net to the Company, or 6,300 barrels net to the Company on a pro forma basis after the contribution of IGL's Main Pass interest) during the year ended December 31, 1997. As of December 31, 1997, Main Pass was estimated to contain 8.7 million barrels (5.3 million barrels net to the Company) of proved oil reserves, which are expected to decline substantially in subsequent years and to be fully depleted by 2002. Strategy The Company's strategy is to utilize its extensive production facilities and its transportation and other logistical assets and capabilities to maintain its leadership position in the U.S. sulphur market and to capitalize on new marketing opportunities that are expected to develop from projected increases in global phosphate fertilizer demand and other uses of sulphur. In addition, the Company may expand its third party transportation and terminaling services business and seek opportunities to increase its recovered sulphur marketing activities. The Company is also evaluating related business opportunities including the possible construction and operation of sulphur recovery and sulphuric acid plants for third parties. The Company believes it can market its operational, technological and marketing expertise to other industrial concerns, and enter into strategic alliances [PAGE] 2 with enterprises having complementary expertise and shared growth objectives. The Company also plans to seek opportunities to expand its business in technologies related to its current Main Pass oil operations such as sour crude oil processing for others in the Gulf of Mexico region, and the application of its seawater heating technology to such uses as secondary oil recovery. Freeport Sulphur's future sulphur sales volumes and realizations will continue to depend on the level of demand from the phosphate fertilizer industry and the availability of competing supplies from recovered sulphur producers. Accordingly, the Company continually evaluates its sulphur business strategy in light of competitive factors and the dynamics of the sulphur market, including the possibility of adjusting overall production levels to match changes in market fundamentals. With respect to the Company's oil business, the Company does not currently intend to pursue oil operations that are not related to Main Pass. Sulphur Business Sources and Uses of Sulphur Sulphur is present in many areas of the world and its production is generally classified into three categories: elemental, pyrites and sulphur in other forms ("SOF"). Elemental sulphur represents over two-thirds of worldwide supplies of sulphur in all forms. Its sources include sulphur mined by the Frasch process from underground deposits and recovered sulphur. The remaining one-third of worldwide sulphur is in the form of pyrites (metal sulphides) and SOF, with the most significant source being sulphuric acid recovered as a by-product from the smelting of non-ferrous metals. In the United States, mined elemental sulphur is principally found in the caprock that covers salt domes in the coastal areas of the Gulf of Mexico and in strata-bound deposits in West Texas. Recovered elemental sulphur is produced from the processing of natural gas that contains hydrogen sulfide and from the refining of sour (high sulphur content) crude oil. Recovered sulphur is the largest source of sulphur in the world, representing approximately 85 percent of global production of elemental sulphur. Worldwide, over 56 million long tons of sulphur in all forms are consumed annually, of which over 90 percent is converted to sulphuric acid. The remainder is used in elemental form in fertilizer applications, chemical manufacturing and other applications. While sulphur is essential in almost every segment of the economy, it is generally used as a processing agent and is seldom apparent in the final product. Sulphur is used primarily in the manufacture of phosphate fertilizer, with over 60 percent of worldwide sulphur consumption being used for this purpose. Sulphur is burned to form sulphuric acid, which is then used to convert phosphate rock to phosphoric acid, the base material for the manufacture of phosphate fertilizer. Approximately 0.4 of a long ton of sulphur is required to produce one short ton of diammonium phosphate fertilizer, the principal form of phosphate fertilizer. Although the Company is highly dependent on the phosphate fertilizer market, management believes that the overall strength of the phosphate fertilizer market and the resulting demand for sulphuric acid should support production at current levels for the immediate future. Industry studies indicate that world demand for phosphate fertilizer, driven by anticipated population growth, increases in levels of grain consumption and other factors, will exceed production capacities in the next several years. This has led to plans to construct new capacity and feasibility studies evaluating the expansion of existing capacity and the addition of new capacity for the manufacture of phosphate fertilizer. Sulphur is itself an important plant nutrient, along with nitrogen, phosphorous and potassium. In 1996, 9.0 million tons of sulphur were applied to soils worldwide through fertilizer application. Sulphur is also a key raw material in the manufacture of many fungicides and other agricultural chemicals. The Sulphur Institute estimates the current annual worldwide plant nutrient sulphur deficit at 8.2 million tons and the outlook is for increasing deficiencies, thus making the use of sulphur as a fertilizer a developing and growing market. In addition to its agricultural applications, sulphur (usually in the form of sulphuric acid) is essential to the manufacturing processes of pharmaceuticals, paper, chemicals, paint, steel, petroleum and other products. Sulphuric acid is also used in the manufacture of detergents and animal feed. There is a growing demand for sulphur in the form of sulphuric acid for ore leaching by the non-ferrous metals industry mainly due to advancements in solvent extraction-electrowinning technology (SX/EW). This advancement has allowed the development of oxide ore bodies that previously were not considered commercially exploitable. [PAGE] 3 Sulphur Mine Operations Overview. Although sulphur is one of the most common elements in the earth's crust, discoveries of elemental sulphur in quantities that can be mined economically are rare. The Company is currently mining two such deposits, the Main Pass mine offshore Louisiana in the Gulf of Mexico and the Culberson mine in West Texas. The Company's sulphur discovery at Main Pass in 1988 was the first major sulphur discovery in North America in over 25 years. The Main Pass and Culberson mines utilize the Frasch mining process, which involves drilling wells and injecting superheated water into the underground sulphur deposit to melt solid sulphur, which is then recovered in liquid form. The Company has used the Frasch process for more than 80 years, and has developed technology using superheated seawater in the Frasch process, thereby enhancing offshore mining. The Frasch Process. The sulphur deposits at the Company's Culberson and Main Pass mines are located approximately 400 and 2,000 feet underground, respectively. Sulphur production wells are drilled into sulphur bearing formations by rotary drilling rigs employing a directional drilling technique that permits drilling from the well platform at angles of up to 85. from vertical, allowing sulphur within a radius of more than 3,700 feet to be mined from a single platform. In addition to production wells, pressure control wells must also be drilled to recover excess water from the underground formation and to facilitate water flow. The Frasch process used by the Company permits cost efficient extraction of sulphur from these underground deposits. Superheated water and compressed air are forced separately through concentric pipes towards the sulphur deposit where the heated water liquefies the sulphur and the compressed air helps lift the molten sulphur to the surface. The Frasch process was developed in the 1890s and Freeport Sulphur was only the second company to use this technology. The Company has also developed proprietary technology that enables it to use seawater in the Frasch process without experiencing the corrosion and scaling that otherwise would affect the heat exchangers and pipelines. Frasch mining of sulphur deposits at locations where large quantities of fresh water are unavailable, such as Main Pass, would not be commercially viable without these techniques. Natural gas and water are the two resources essential to the Frasch process. Natural gas fired boilers are used to produce steam to heat the water in heat exchanges to the superheated state necessary for sulphur liquefaction. The Company's mine operations currently consume approximately nine billion cubic feet of natural gas annually. The Company is dependent on others for the supply of natural gas, but has never experienced difficulty in obtaining the required supply of natural gas because it has long-term supply agreements in place with prices tied to market indices. At Main Pass, where the Company consumes the majority of its natural gas requirements, gas is supplied by a single supplier, but the Company has access to a large multiple-supplier pipeline should its primary supplier have difficulties in delivering its requirements. At the Culberson mine, natural gas is provided by multiple suppliers. In its Main Pass operations the Company also supplements its natural gas needs with the gas that is produced in conjunction with its Main Pass oil operations, which is provided to the sulphur mining operations in exchange for electricity used by the oil operations. In the event of a national shortage of natural gas, curtailment may be imposed by federal authorities and may interfere with the mining process, but the Company believes that the risk of such curtailment during the anticipated life of the mines is remote. Moreover, if necessary, the boilers can also operate on fuel oil. The availability of water for the Main Pass mine is not a factor for the Company because of its ability to use seawater. The Mines. The Main Pass deposit was discovered by the Company in 1988. The mine currently has the highest production rate of any sulphur mine in the world and contains the largest known Frasch sulphur reserve in North America. The free sulphur in the Main Pass deposit exists in the porous limestone that is part of the caprock covering a salt dome. The Main Pass offshore complex, which is more than a mile in length, is one of the largest structures of its type in the world and is the largest in the Gulf of Mexico. The Main Pass mine was designed to produce an average of 5,500 long tons per day over its life and has two sulphur storage tanks with a combined capacity of 24,000 long tons. The facility, which has housing capacity for 240 persons, is located in 210 feet of water and is designed to withstand hurricane force conditions. In the event of a major storm in the Gulf, personnel would be evacuated, but the mine is designed to remain in operation through a communications link to Freeport Sulphur's corporate office in New Orleans. During the year ended December 31, 1997, sulphur production at Main Pass averaged approximately 5,200 long tons per day. All Main Pass sulphur is transported to the Company's terminal in Port Sulphur, Louisiana in 7,500-ton self-propelled tankers. The Company receives a fee from Homestake for operating the Main Pass mine and for processing, transporting and marketing Homestake's share of the Main Pass sulphur. At December 31, 1997, the Main Pass deposit was estimated to contain proved sulphur reserves totaling 64.3 million long tons (53.6 million long tons net to the Company). Production from the Main Pass [PAGE] 4 mine is subject to a royalty of 12.5 percent of net mine revenues that is payable to the U.S. Department of Interior-Minerals Management Services (the "MMS"). The Company began operating the Culberson mine, which is located in West Texas south of the New Mexico border, in January 1995 after acquiring the mine from Pennzoil. The Culberson mine's free sulphur is part of a strata-bound ore body located in the Upper Permian and Salado formations. For the year ended December 31, 1997, production at the Culberson mine averaged approximately 2,400 long tons per day. A unique feature of the Culberson mine is a continuous water re-injection system, through which water recovered from pressure control wells is reheated and re-injected into the production wells. This recycling system results in significant cost savings. Once mined, the liquid sulphur is stored in on-site tanks with a combined capacity of 45,000 long tons until it is shipped to the Company's Galveston terminal by Company-owned railcars that average 8,400 long tons of liquid sulphur per trip. At December 31, 1997, the Culberson mine was estimated to contain proved sulphur reserves totaling 7.6 million long tons. Production from the Culberson mine is subject to a royalty of 9 percent of net mine revenues that is payable to the State of Texas and several private land owners through a unitization agreement. The agreement pursuant to which the Company obtained the Culberson mine requires the Company to make quarterly payments to Pennzoil, based on a unit volume payment multiplied by an assumed volume of sulphur, both of which are determined by the average market price of sulphur during the quarter. The Company is obligated to make these payments irrespective of whether the Culberson mine is operational. The payments terminate upon the earlier of January 2015 or the quarter in which the cumulative assumed volume of production exceeds 18.6 million long tons. Under this arrangement, the Company paid Pennzoil $2.0 million and $2.1 million for fiscal 1996 and 1997, respectively. The Company has the right, exercisable on January 1, 1999 (the "First Option Date") and each subsequent third anniversary of the First Option Date, to terminate its obligation to make further quarterly installment payments in exchange for a lump sum payment of $65 million less a cumulative inflation adjustment on the date such right is exercised, but in no event less than $10 million. If the Company does not exercise its right on any option date, Pennzoil may, within a defined time period after each option date, require the Company to make a single payment of $10 million in exchange for relinquishing its rights to receive any further payments under the agreement. The Company is currently operating its sulphur mines at less than designed capacity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company also has rights to sulphur deposits at its Caminada Mine, located eight miles from Grand Isle in the Gulf of Mexico, which the Company is not currently mining. The Company is maintaining its lease rights to the remaining sulphur resource under a "suspension of production" issued by the MMS. The Company estimates that the Caminada mine has approximately 1.8 million long tons of recoverable proved sulphur remaining. Sulphur Reserves. The table below sets forth the Company's portion of the proved developed reserves for the Company's two producing sulphur mines. Long Tons at December 31, Proved Developed Reserves(1) 1997(2) ---------------------------- ------------ Main Pass 53.6 million Culberson 7.6 million __________ (1) All sulphur reserves are considered proved because of the Company's extensive drilling and production experience. (2) Reserves represent long tons (2,240 lbs.) of sulphur that are expected to be recovered from the host formation. Long tons of sulphur are calculated in place and a recovery factor, based on the percentage of residual sulphur expected to be left behind, is applied to calculate the total estimated recoverable tons. Sulphur Purchases The Company is a major purchaser of recovered sulphur in the United States and management expects its sulphur purchasing program, which is currently averaging almost one million long tons per year, to increase and become a more significant component of the Company's business. The Company purchases recovered sulphur principally from oil refineries located along the lower Mississippi River and in the Louisiana and Texas Gulf Coast regions, and from gas processing plants in Mississippi and Texas. [PAGE] 5 The Company's recovered sulphur purchase program provides it with a source of sulphur that is as important as the production from its mines in enabling the Company to meet its sales contract commitments. Approximately 32.5 percent of the Company's 1997 sulphur sales volume was supplied through recovered sulphur purchases. The Company believes that its position as a leading sulphur supplier in the domestic market, coupled with its extensive sulphur handling capabilities, would allow it to replace any curtailed mine production with purchased recovered sulphur at price levels that would maintain the Company's profitability; however there can be no assurance that it will be able to do so. Sulphur Handling Operations Overview. The Company operates the largest molten sulphur handling system in North America and has the capacity to transport and terminal over five million long tons of molten sulphur annually. The Company uses this system both to support the movement of its own mined and purchased sulphur, and as a service that it markets to recovered sulphur producers and industrial consumers. The Company believes that the integration of the sulphur handling business with its production, purchasing and marketing operations gives the Company a synergistic competitive advantage over other suppliers of similar services. Marine Transportation. The Company operates two molten sulphur tankers, each having a capacity of approximately 25,000 tons. The two tankers have the combined capacity to transport 3.5 million long tons of sulphur per year across the Gulf of Mexico, which are loaded at the Company's Galveston and Port Sulphur terminals and delivered to its Tampa terminals. The Company's inland barge system is capable of transporting over one million tons annually. Each of the Company's barges has a capacity of approximately 2,500 long tons and serves the Texas, Louisiana and Mississippi Gulf Coast regions and the lower Mississippi River. Two 7,500-ton tankers are used to transport sulphur from the Main Pass mine's offshore production platform and can also be used in Gulf Coast service to transport sulphur from the Company's terminals to its customers. Land Transportation. The Company operates a rail car fleet that transports sulphur from the Culberson mine to the Galveston terminal for loading onto the Company's tankers for shipment to its Tampa terminals. The Company also makes other rail movements in connection with transporting sulphur directly to customers' plants. The Company also transports approximately 500,000 tons of molten sulphur per year through a third party trucking service used primarily to serve the Galveston, Texas, lower Mississippi River and Pensacola, Florida areas. Terminals. The Company owns and operates five sulphur terminals in the United States, the largest of which is located at Port Sulphur, Louisiana. The Port Sulphur facility is a combined liquid storage tank farm and stockpile area for solid sulphur. Liquid sulphur is stored in steam-heated, insulated tanks having an aggregate capacity of approximately 110,000 long tons. The solid storage area can hold approximately 1.3 million long tons of solid sulphur. Because substantially all of the Company's domestic customers consume sulphur in liquid form, the Company delivers all of its production in liquid form. This reduces the need to remelt the sulphur, conserves energy and reduces costs, and is an environmentally superior handling method. Sulphur can be solidified for long-term storage to maintain inventory reserves. The Company owns a high capacity sulphur melter that permits the conversion of solid sulphur into liquid sulphur to supplement mine production during periods of high demand and to cover shortfalls in mine production or in recovered sulphur purchases. Sulphur is transported from Port Sulphur by barge to customers' plants in Louisiana on the lower Mississippi River or along the Gulf Coast of Texas and Mississippi, or by tanker to the Company's terminals in Tampa. The Company's other terminals are located in Tampa and Pensacola, Florida and Galveston, Texas. There are two Tampa terminals, each of which has a liquid storage capacity of 90,000 long tons and is supplied with sulphur from Port Sulphur and Galveston by the Company's sulphur tankers. Each of the Tampa facilities ships molten sulphur to phosphate fertilizer producers in central Florida by tank truck. The Pensacola terminal has a storage capacity of 10,000 long tons and is used for the storage, handling and shipping of recovered sulphur purchases or transporting recovered sulphur for third parties. Molten sulphur is shipped by barge from the Pensacola terminal to either the Port Sulphur terminal or directly to lower Mississippi River customers. The Galveston terminal was acquired from Pennzoil in 1995 and has 75,000 long tons of liquid storage tanks and solid storage capacity of one million long tons. This terminal receives sulphur from the Company's Culberson mine by unit train, and recovered sulphur purchases by truck, barge or rail, and then ships sulphur to local customers by truck or barge or to the Tampa terminals by tanker. The Galveston terminal also has the ability to [PAGE] 6 load solid sulphur aboard large oceangoing vessels, giving the Company access to international markets should market conditions favor sulphur exports. Sulphur Sales Substantially all of the Company's sulphur is sold to the phosphate fertilizer industry for the manufacture of sulphuric acid, which is used to produce phosphoric acid, a base chemical used in the production of phosphate fertilizers. Typically, the phosphate fertilizer industry accounts for approximately 90 percent of the Company's total sulphur sales. Freeport Sulphur's domestic shipments to its five largest customers represented 88 percent of total shipments in 1997, 91 percent in 1996 and 89 percent in 1995. The majority of the Company's sulphur supply contracts, with the exception of its contract with IMC-Agrico discussed below, are for a term of one year or longer and generally call for the repricing of sulphur on a quarterly or six-month basis. The Company also processes, transports, and markets Homestake's share of production at the Main Pass mine for a fee. In addition to supplying the domestic sulphur market and providing transportation and terminaling services for others, Freeport Sulphur maintains the capability of marketing sulphur internationally should market conditions favor export sales. Sales to IMC-Agrico, a manufacturer of phosphate fertilizers and the largest purchaser of elemental sulphur in the world, represented approximately 65 percent of the Company's sulphur sales (or 72 percent on a pro forma basis after the contribution of IGL's Main Pass interest) and 55 percent of its total revenues (or 60 percent on a pro forma basis after the contribution of IGL's Main Pass interest) during 1997. Pursuant to a Sulphur Supply Agreement, the Company has agreed to supply and IMC-Agrico has agreed to purchase approximately 75 percent of IMC-Agrico's annual sulphur consumption for as long as IMC-Agrico has an operational need for sulphur. The price per ton for all sulphur delivered under the agreement is based upon the weighted average market price for sulphur delivered by other sources to IMC-Agrico's New Wales production plant in central Florida, except that the Company is entitled to a premium with respect to approximately 40 percent of the sulphur that it delivers under the agreement. IMC-Agrico also pays a portion of the freight costs associated with the delivery of sulphur under the agreement. Although this contract was entered into at a time when IMC-Agrico was an affiliate of the Company, management believes that the terms of the Sulphur Supply Agreement are no less favorable to the Company than those that could have been negotiated with an unaffiliated party. Revenues from the Company's sulphur sales depend significantly on production levels of phosphate fertilizer, the availability of sulphur that is recovered from high-sulphur oil and natural gas refining and the rate at which stored surpluses, particularly in Canada, are released into the market and depleted. Current prices are substantially weaker than the high levels of the early 1990's, primarily because of economic and political changes in Eastern Europe and the former Soviet Union, which led to the closure of plants consuming in excess of seven million tons of sulphur per year. Improved phosphate consumption rates, coupled with reduced imports and curtailed mine production, stabilized sulphur prices beginning mid-year 1996 and continued into 1997. To the extent that current United States phosphate fertilizer production remains strong, sustained sulphur demand is expected to continue; however, the current level of Canadian sulphur inventories limits the potential for significant price increases. See "Competition." Oil and Gas Business Overview The Main Pass site also contains oil and natural gas reserves located within the same caprock reservoir that contains the sulphur reserves. The Company's estimate of proved recoverable oil reserves at Main Pass at December 31, 1997 was 8.7 million barrels, (5.3 million barrels net to the Company). The Main Pass oil reserves are expected to decline substantially in subsequent years and to be fully depleted by 2002, and the Company does not intend to pursue oil and gas exploration operations that are not related to Main Pass. Reserves and Acreage For information relating to estimates of the Company's net interests in proved oil reserves as of December 31, 1997, and for supplementary information relating to estimates of discounted future net cash flows from proved oil reserves, and changes in such estimates, reference is made to the Company's financial statements [PAGE] 7 included elsewhere herein. At various times, the Company is required to report estimates of oil reserves to various governmental authorities. The basis for reporting estimates of reserves to these authorities may not be comparable to the reserves presented herein because of differences in the times at which such estimates are made and variances in reserve and other definitions of the particular governmental authority. Generally, however, the reserves data used for these governmental reports is computed from the same reserve information base as reported herein. The Company's interest in Main Pass, which is located in federal waters offshore Louisiana, constitutes the only oil and gas producing property owned by Freeport Sulphur. The property consists of 1,125 gross acres and is fully developed within the meaning of governmental reporting requirements. The Company possesses a leasehold interest in its Main Pass oil property that is maintained by production and will remain in effect until production and drilling and development operations cease. The Company believes that the lease terms are sufficient to allow for reasonable development of the reserves and that it has satisfactory title to such property. Production Recoverable hydrocarbons at Main Pass are located in the upper portion of the same caprock that hosts the sulphur reserves and in an overlying layer of sand. The limestone caprock reservoir and the overlying sand are in fluid contact with each other, share a common oil and gas composition and have the same pressure characteristics. Oil production commenced in the fourth quarter of 1991 with cumulative total production as of December 31, 1997 totaling 34.8 million barrels. Oil production has been enhanced by the injection of superheated water in the sulphur mining operations, which both lowers oil viscosity, allowing it to flow more freely, and maintains reservoir pressure, thereby enhancing recovery. Any associated gas that is produced with the oil is provided to the sulphur mining operation in exchange for electricity used in the oil operations. The co-development of the sulphur and oil reserves has yielded significant operating synergies and efficiencies. The purchase agreement pursuant to which the Company obtained the rights to the Main Pass oil lease obligates the Company under certain circumstances to make an annual production payment to Chevron U.S.A. Inc. The payment amount is based on the amount of annual oil production at the Main Pass site and the amount by which the average annual price of oil exceeds certain specified prices during the term of the contract. If the average annual price of oil does not exceed the specified prices, no payment is due. No payments were made for 1997 in connection with this obligation. This payment obligation will convert to a royalty right on behalf of Chevron upon the occurrence of certain events that the Company anticipates will occur in the first half of 1998. Under this royalty right, Chevron will be entitled to receive 25 percent of revenues (less transportation costs) of oil and gas production after the first to occur of (i) cumulative oil production at the Main Pass site in excess of 36 million barrels or (ii) 20 years from the date of first oil production (November 6, 1991); provided that this 25 percent overriding royalty is limited to 50 percent of net profit realized on oil production. Oil Sales Oil prices have historically exhibited, and can be expected to continue to exhibit, volatility as a result of such factors as conflicts in the Middle East, actions by the Organization of Petroleum Exporting Countries and changes in worldwide economic and political conditions. The oil produced at Main Pass contains sulphur and is generally heavier than other Gulf Coast crude oils. As a result, it sells at a discount relative to Gulf Coast crude oils containing less sulphur and to lighter grade crude oils. Oil produced at the Main Pass mine is sold to two Gulf Coast refiners with sales volumes split 71 percent and 29 percent. Both sales contracts are for a term of six months and are priced at market for the oil's grade. AMOCO Production Company is the Company's largest oil customer, accounting for 71 percent of oil revenues and 9 percent of the Company's total revenues for 1997. [PAGE] 8 Competition Sulphur In the United States, there are two principal sources of elemental sulphur: (i) mined sulphur produced by Freeport Sulphur and (ii) recovered sulphur produced by more than 50 companies at more than 130 refineries and gas treatment plants. There are four producers of mined sulphur worldwide, of which management believes Freeport Sulphur is the largest and the only mined sulphur producer serving the United States market. For 1997, Freeport Sulphur estimates that sulphur production at its Main Pass and Culberson mines accounted for approximately 27 percent of domestic, and 7 percent of world, elemental sulphur production. The Company estimates that total domestic sulphur consumption in 1997 was 11.7 million tons, of which domestic Frasch sulphur accounted for approximately 23 percent, domestic recovered sulphur accounted for approximately 60 percent, and imported sulphur, primarily from Canada and Mexico, accounted for approximately 17 percent. The following table sets forth for each of the years 1995 through 1997 the total estimated domestic sulphur consumption in tons, together with the percentage supplied by Frasch suppliers, domestic recovered sulphur and imported sulphur: Domestic Sulphur Consumption Year Total Frasch Domestic Percentage Consumption Suppliers Recovered Imported (Millions of tons) ----- ---------- -------- --------- ---------- 1997 11.7 23% 60% 17% 1996 11.5 25% 60% 14% 1995 11.7 27% 55% 17% Recovered sulphur from domestic and foreign sources is the major source of competition for Freeport Sulphur. Approximately 90 percent of the Western Hemisphere's sulphur inventories currently consist of sulphur recovered from natural gas in the province of Alberta in western Canada, primarily because United States recovered sulphur suppliers do not have the ability to store large inventories of sulphur. During the 1990s world sulphur supply has been in surplus resulting in a build up of Canadian sulphur inventories. Canadian sulphur inventories were estimated to be 10.6 million tons at year end 1997 and are expected to increase. Production of recovered sulphur in the United States has increased at an average rate of approximately 180,000 tons per year for the last three years, and totaled approximately 7.8 million tons in 1997. High-sulphur gas processing capacity in the U.S. is not expected to increase above current levels, but the sulphur content of crude oil feedstocks to U.S. oil refineries is expected to continue to increase. Although growth in U.S. recovered sulphur production is expected to continue, the rate of growth is expected to slow, as the refining industry is consolidating into a smaller number of large refineries, and it is estimated that total U.S. refinery processing will not increase substantially. Technology for recovery of sulphur from coal and oil-burning utility plants is well advanced and this and other sources of sulphur resulting from air pollution abatement efforts will have some impact on sulphur supplies. Industry studies vary in their forecast of the worldwide elemental sulphur balance; however it is widely accepted that a surplus currently exists and will continue into the foreseeable future. Recovered sulphur provides a major and lower cost source of supply for most sulphur customers. The supply of U.S. recovered sulphur alone, however, cannot satisfy total domestic demand, and mined sulphur, along with imported recovered sulphur obtained principally from Canada and Mexico are required to supply the balance. The principal competitive risk to the Company's ability to mine sulphur profitably is the potential for decreased domestic demand for sulphur, increased production from domestic recovered sulphur producers, increases in imported recovered sulphur, and the rate at which stored sulphur, particularly in Canada, is released into the market. Oil A large number of companies and individuals are engaged in the development and production of oil. A substantial number of the companies engaged in the development and production of oil possess financial resources considerably greater than those of the Company. [PAGE] 9 Customers IMC-Agrico is the Company's single largest sulphur customer, accounting for approximately 65 percent of sulphur sales and 55 percent of total sales for 1997 (or 72 percent and 60 percent, respectively, on a pro forma basis after the contribution of IGL's Main Pass interest). The Company's next four largest customers represent approximately 23 percent of sulphur sales. These companies represent a mix of industrial companies and phosphate fertilizer manufacturers. The oil produced from Main Pass is sold to two Gulf Coast refiners with sales volumes split 71 percent and 29 percent. AMOCO Production Company is the largest customer, accounting for 9 percent of the Company's total revenues for 1997. Engineering, Research and Development Crescent Technology, Inc. ("Crescent") furnishes certain engineering consulting, research and development, environmental and safety services to the Company. Many of Crescent's employees are former employees of the Company and other formerly related companies who formed Crescent in 1993 to provide technical services to such companies and others on an outsourced basis. Crescent owns and operates laboratory and pilot plant facilities at Belle Chasse, Louisiana, where minerals analysis, metallurgical work and other research and testing are conducted, which contributes to the Company's technical operations and commercial activities. Additionally, Crescent maintains engineering consulting and mine development groups in New Orleans, Louisiana, which provide the engineering consulting, environmental services and design and construction supervision activities required to implement new ventures and apply improvements to the Company's existing operations. Regulatory Matters The Company's mining, production and exploration activities are subject to various federal, state and local laws governing exploration, development, production, exports, taxes, labor standards, occupational health and safety, toxic substances and other matters. Regulations pertaining to the environment mandate, among other things, the maintenance of air and water quality standards, solid and hazardous waste standards, protection of underground sources of drinking water, and protection and regulation of wetland areas. The Company succeeded to all licenses, permits or other authorizations obtained or held by FRP or any of its affiliates insofar as they relate to the sulphur and Main Pass oil and gas businesses. All material licenses, permits and other authorizations currently required of each existing operation have been obtained or timely applied for. To comply with these federal, state and local laws, material capital and operating expenditures on environmental projects, both with respect to maintaining current operations and initiating new operations, may be required in the future. The amount of such expenditures cannot be estimated at this time, but such costs could have an adverse effect on the Company's financial condition and results of operations. There is also a risk that more stringent laws affecting the operation of mining companies could be enacted, and although such regulations would affect the industry as a whole, compliance with such new regulations could be costly. Domestic oil operations are subject to extensive state and federal regulation. Compliance is often burdensome, and failure to comply carries substantial penalties. The heavy and increasing regulatory burden on the oil industry increases the cost of doing business and consequently affects profitability. Environmental Matters Federal laws and regulations have expanded greatly in recent years with respect to environmental considerations. The United States Department of Interior, the U.S. Environmental Protection Agency (the "EPA") and the Coast Guard administer laws and regulations that impose liability upon the lessee under a federal lease for the cost of cleanup of pollution damages. A serious incident of pollution may also result in any one of these agencies requiring lessees under federal leases to suspend or cease operations in the particular area. The Company carries insurance against some, but not all, of these risks. The Company, through its predecessors, has a history of commitment to environmental responsibility. Since the 1940s, long before the general public recognized the importance of maintaining environmental quality, the [PAGE] 10 Company has conducted pre-operational, bioassay, marine ecological and other environmental surveys to ensure the environmental compatibility of its operations. The Company's environmental policy commits its operations to compliance with applicable laws and regulations. The Company has implemented corporate-wide environmental programs and continues to study methods to reduce discharges and emissions. The largest effluent from sulphur mining operations is the pressure control water recovered from the sulphur-bearing formation. At Main Pass, pressure control wells remove water from the formation and discharge the water under the terms of a National Pollutant Discharge Elimination System permit issued by the EPA. At the Culberson mine, the pressure control water is removed from the formation and reused in the Frasch mining process. The injection of mine water at Culberson is authorized by an Underground Injection Control permit issued by the EPA. Other water discharges at the two mines and five terminals are made under permits issued by the EPA, state regulatory agencies in the States of Texas, Louisiana or Florida, or local regulatory authorities. All of these discharges are in compliance with applicable regulations in all material respects. The Company has various other permits with respect to air emissions, solid waste production and disposal, dredging of bottom sediment and the operation of port facilities that facilitate its business activities. Agencies that provide these permits and authorizations include the MMS, the U.S. Coast Guard, the Louisiana Department of Environmental Quality, the Louisiana Department of Natural Resources, the Texas Natural Resources Conservation Commission, and the Florida Department of Environmental Protection. The Company believes it is in compliance in all material respects with the terms and conditions of these permits and does not anticipate any significant new costs to obtain new permits or to maintain compliance with existing permits. The Company assumed responsibility for environmental liabilities associated with the prior conduct of the businesses that FRP contributed to the Company, including reclamation responsibilities at three previously producing sulphur mines. Sulphur production was suspended at the Company's Caminada offshore sulphur mine in 1994, and the Company will be required to salvage the mining facilities once the remaining reserves are produced or it becomes certain that such reserves will not be economically recoverable. The Company's salvage expense will be shared on a 50/50 basis with Exxon Corporation, and the estimated expense has been accrued. The Company's Grande Ecaille mine, which was depleted in 1978, was salvaged in accordance with applicable regulations at the time of closure. Although the Company has no legal obligation to do so, it has undertaken to reclaim wellheads and other materials, none of which are classified as hazardous, that are being exposed through coastal erosion, and it is anticipated that these reclamation activities will continue for several more years. Additional expenditures may be required from time to time if erosion continues, although the Company does not expect such expenditures to be material. Additional expenditures may be necessary in the future to remove building foundations should the Company decide it is in the best interest of the Company to do so. Reclamation of the Company's two producing sulphur mines, Main Pass and Culberson, will be required upon the closure of those facilities, and the related future costs are being accrued. The Company has also closed nine other sulphur mines, all of which have been reclaimed in accordance with applicable regulations and customary industry practices. In September 1997 the Company completed the salvage of its Grand Isle mine in the Gulf of Mexico, which was depleted in 1991, by converting it into an artificial reef for the enhancement of marine life. The reef was constructed at the request of the State of Louisiana as part of its "Rigs-to-Reefs" program through which the State and private industry are cooperating to provide useful marine habitats using offshore structures that are no longer needed for commercial activities. The Grand Isle reef is the first in shallow water and is the largest in the Gulf of Mexico. The reef is in the process of being donated to the State of Louisiana, after which time the State will assume all responsibility for its upkeep, although the Company will retain responsibility for any environmental liabilities that may arise from previous mining activities with respect to this site. Although the Company believes that its prior reclamation activities were carried out in compliance with then applicable laws and regulations and that it is accruing adequate reserves to cover future reclamation costs, no assurance can be given that the Company will not incur materially greater reclamation costs than those anticipated. [PAGE] 11 Employees As of December 31, 1997, Freeport Sulphur had 402 active employees. There are 382 employees working at the Company's mine sites and terminals, and 20 employees located at its New Orleans headquarters. None of the employees of Freeport Sulphur is represented by any union or covered by any collective bargaining agreement. The Company believes its employee relations are satisfactory. The Company also uses contract personnel to perform many of the technical tasks customarily conducted by Company employees at its Main Pass mine, which minimizes development costs and allows the Company to use its management staff to direct the efforts of both the sulphur mine and oil operations. Freeport Sulphur also receives executive, financial, legal and administrative and other related services through a services agreement with FM Services Company ("FMS"), a company that is 25 percent owned by the Company. CAUTIONARY STATEMENTS This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are all statements other than statements of historical fact included in this report, including, without limitation, the statements under the headings "Business and Properties," "Market for Registrant's Common Equity and Related Stockholder Matters," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position and liquidity, payment of dividends, the Company's strategic alternatives, future capital needs, development and capital expenditures (including the amount and nature thereof), reserve estimates and future net revenues attributable thereto, business strategies, and other plans and objectives of management of the Company for future operations and activities. Forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. These statements are subject to a number of assumptions, risks and uncertainties, including the risk factors discussed below and in the Company's other filings with the Securities and Exchange Commission (the "Commission"), general economic and business conditions, the business opportunities that may be presented to and pursued by the Company, changes in law or regulations and other factors, many of which are beyond the control of the Company. Readers are cautioned that these statements are not guarantees of future performance, and the actual results or developments may differ materially from those projected in the forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Important factors that could cause actual results to differ materially from the Company's expectations include, among others, the following. Competition There are two principal sources of elemental sulphur: (i) mined sulphur and (ii) recovered sulphur produced as a by-product by oil refineries and gas treatment plants. Recovered sulphur from domestic and foreign sources is a major and lower cost source of supply for most sulphur customers and is the major source of competition for the Company. As a by-product of the producer's refining operations, the principal cost recognized by such producers is the cost of handling and transportation to customers. Production of recovered sulphur from high-sulphur gas processing plants and oil refineries in the United States has increased at an average rate of approximately 180,000 tons per year for the last three years. Because U.S. recovered sulphur producers do not have the ability to store large inventories of sulphur, they must move it to market and, depending on the proximity of their plants to the principal sulphur market of central Florida, such producers may enjoy a significant cost advantage over the Company. Because the supply of U.S. recovered sulphur alone cannot meet total domestic demand, mined sulphur, along with imported recovered sulphur obtained principally from Canada and Mexico, are required to supply the balance. Canadian recovered sulphur producers have facilities for storing excess sulphur production in solid form, and approximately 90 percent of the Western Hemisphere's sulphur inventories currently consist of sulphur recovered from natural gas in the province of Alberta in western Canada. At certain price levels in the U.S. sulphur [PAGE] 12 markets, and depending on prices in the foreign markets they supply, Canadian producers can be expected to increase sulphur sales to U. S. buyers in competition with the Company. The principal competitive risk to the Company's ability to mine sulphur profitably is the potential for decreased domestic demand for sulphur, increased production from domestic recovered sulphur producers, increases in imported recovered sulphur and the rate at which stored sulphur, particularly in Canada, is released into the market. In addition, the current level of Canadian sulphur inventories limits the potential of the Company to realize significant price increases for its sulphur. See "Business-Competition." Reliance on IMC-Agrico as Continuing Customer Approximately 65 percent of the Company's 1997 sulphur sales (72 percent on a pro forma basis after the contribution of the IGL's Main Pass interest) were made to IMC-Agrico, and IMC-Agrico will continue to account for a substantial percentage of the Company's sulphur sales. Sales of sulphur to IMC-Agrico are generally made at market prices, with a portion of such sales receiving additional price consideration. Although the Company has a long-term supply contract with IMC-Agrico that requires IMC-Agrico to purchase sulphur from the Company as long as IMC-Agrico's phosphate fertilizer operations require the use of sulphur, the loss of or a significant decline in its sales of sulphur to IMC-Agrico could have a material adverse effect on the Company's business and operating results. Effect of Prices on Sulphur Mining Operations Although current sulphur prices allow the Company to generate positive cash flows from its mining operations, any significant decline in the market price of sulphur for a sustained period would require the Company to consider the suspension or curtailment of mining operations at either or both of its operating mines. In such event, it is likely that the Culberson mine would be closed first, because of the higher transportation costs associated with that site. Because of the costs associated with closing and re-opening mine sites, as well as the potential loss of mining or mineral development rights if mining operations were suspended, the Company could decide to operate its mines for some period even if they did not generate positive cash flow, and if operations were suspended, it could be difficult and expensive for the Company to subsequently re-open a mine. Seasonality and Volatility of Sulphur Markets Because the principal use of sulphur is in the manufacture of phosphate fertilizers, the Company's ability to successfully market its sulphur is materially dependent on prevailing agricultural conditions and the worldwide demand for fertilizers. Although phosphate fertilizer sales are fairly constant month-to-month, seasonal increases occur in the domestic market prior to the fall and spring planting season. Generally, domestic phosphate fertilizer sales are at reduced levels after the spring planting season, although the decline in domestic sales generally coincides with the time when major commercial and governmental buyers in China, India and Pakistan purchase product for mid-year delivery. Sales are also influenced by current and projected grain inventories and prices, quantities of fertilizers imported to and exported from North America, domestic fertilizer consumption and the agricultural policies of certain foreign governments. Like other commodities, the market and prices for sulphur have been and may continue to be volatile. The Company's operating margins and cash flow are subject to substantial fluctuations in response to changes in supply and demand for sulphur, conditions in the domestic and foreign agriculture industry, market uncertainties and other factors beyond its control. Depletion of Oil and Gas Reserves Approximately 14 percent of the Company's 1997 revenues were generated from the sale of oil recovered from Main Pass. Oil revenues are expected to decline substantially in 1998 and subsequent years, and the Company currently estimates that proved oil reserves at the Main Pass site will be depleted by the year 2002. The Main Pass site is the Company's only oil and gas property, and the Company currently does not intend to pursue oil and gas exploration activities after the Main Pass reserves are depleted. [PAGE] 13 Absence of Independent Operating History In recent years the Company's operations have been conducted by FRP, FTX and their predecessors as part of a diversified business that was partly integrated with FRP's other business activities and not as a stand-alone business. Following the Spin- Off, the Company has been operated as an independent entity engaged, except for the production of oil and gas at the Main Pass operations, exclusively in the sulphur business, and neither FRP (now PLP) nor FTX has any obligation to provide financial or operational support to the Company. Limited Relevance of Historical Financial Information Because the Company has not been operated in recent years as an independent entity, the historical financial information included herein was derived from the audited financial statements of FRP and is not necessarily indicative of the results of operations, financial position and cash flows that would have been achieved if the Company had been an independent entity during the periods presented or that will be achieved in the future. The Company's operations were an integral part of FRP's operations during the periods covered by the historical financial statements included herein, and certain historical financial data included herein has been extracted from FRP's books and records based on allocations between FRP's sulphur and oil operations and FRP's other businesses, and based on other assumptions necessary to reflect the Company's operations as if they had been operated as an independent enterprise. Additionally, the historical financial information included herein does not give effect to the contribution of IGL's Main Pass interest. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Reserve Estimates and Future Net Cash Flows The Company's reporting of proved sulphur and oil and gas reserves is based upon engineering estimates. Reserve engineering is a subjective process of estimating the recovery from underground accumulations of sulphur, oil and natural gas that are not susceptible to exact measurement, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Estimates of economically recoverable sulphur and oil and gas reserves and of future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effects of governmental regulations and assumptions concerning future sulphur and oil and gas prices, future operating costs, severance and excise taxes, development costs and workover and remedial costs, all of which may vary considerably from actual results. Because all reserve estimates are to some degree speculative, the quantities of sulphur and oil and natural gas that are ultimately recovered, production and operating costs, the amount and timing of future development and reclamation expenditures, and future sulphur and oil and natural gas sales prices may all vary materially from those assumed in these estimates. In addition, different reserve engineers may make different estimates of reserve quantities and cash flows based on the same data. All of the Company's sulphur reserves are considered proved because of extensive drilling and production experience; nevertheless, reserves are estimates and the amount of sulphur actually produced may vary from the estimates, and such variances could be material. The present values of estimated future net cash flows referred to in this Prospectus should not be construed as the current market value of the Company's estimated proved oil and gas reserves. In accordance with applicable requirements of the Commission, the estimated discounted future net cash flows from proved reserves are generally based on prices and costs as of the date of the estimate, while actual future prices and costs may be materially higher or lower. Actual net cash flows also will be affected by factors such as the amount and timing of production, supply and demand for oil and gas, curtailments or increases in consumption by gas purchasers and changes in governmental regulations and taxation. The timing of future net cash flows from proved reserves, and thus their actual present value, will be affected by the timing of production and the incurrence of expenses in the development and production of oil and gas properties. In addition, the 10 percent discount factor required by the Commission to be used to calculate discounted future net cash flows for reporting purposes is not necessarily the most appropriate discount factor based on interest rates in effect from time to time and risks associated with the oil and gas reserves owned by the Company or the oil and gas industry in general. [PAGE] 14 Environmental Matters The Company's operations include exploration, mining, development and production of natural resources, and the extraction, handling, production, storage, transportation and disposal of materials and waste products that may be toxic or hazardous. Consequently, the Company is subject to numerous environmental laws and regulations. The Company has incurred, and expects to continue to incur, significant capital expenditures and operating expenses based on these laws and regulations. Continued governmental and public emphasis on environmental issues may result in increased capital and operating costs in the future, although the impact of future laws and regulations or future changes to existing laws and regulations cannot be predicted or quantified. Federal legislation (sometimes referred to as "Superfund" legislation) imposes liability, without regard to fault, for clean-up of certain waste sites, even though waste management activities at the site may have been performed in compliance with regulations applicable at the time. Under the Superfund legislation, one responsible party may be required to bear more than its proportional share of clean-up costs if payments cannot be obtained from other responsible parties. In addition, federal and state regulatory programs and legislation mandate clean-up of certain wastes at operating sites. Governmental authorities have the power to enforce compliance with these regulations and permits, and violators are subject to civil and criminal penalties, including fines, injunctions or both. Third parties also have the right to pursue legal actions to enforce compliance. Liability under these laws can be significant and unpredictable. The Company may receive in the future notices from governmental agencies that it is one of many potentially responsible parties at certain sites under relevant federal and state environmental laws. Some of these sites may involve significant clean-up costs. The ultimate settlement of liability for the clean- up of such sites usually occurs many years after the receipt of notices identifying potentially responsible parties because of the many complex, technical and financial issues associated with site clean-up. The Company cannot predict its potential liability for clean-up costs that it may incur in the future. The recent trend toward stricter standards in environmental legislation and regulation is likely to continue. For instance, legislation has been proposed in Congress from time to time that would reclassify certain crude oil and natural gas exploration and production wastes as "hazardous wastes," which would make the wastes subject to significantly more stringent handling, disposal and clean-up requirements. If such legislation were to be enacted, it could have a significant impact on the Company's operating costs, as well as the oil and gas industry in general. Initiatives to further regulate the disposal of crude oil and natural gas wastes are also pending in certain states and could have a similar impact. In addition to compliance costs, government entities and other third parties may assert substantial liabilities against owners and operators of oil and gas properties for oil spills, discharges of hazardous materials, remediation and clean-up costs and other environmental damages, including damages caused by previous property owners. The imposition of any such liabilities on the Company could have a material adverse effect on the Company's financial condition and results of operations. The Oil Pollution Act of 1990 imposes a variety of regulations on "responsible parties" related to the prevention of oil spills. The implementation of new, or the modification of existing, environmental laws or regulations, including regulations promulgated pursuant to the Oil Pollution Act of 1990, could have a material adverse impact on the Company. In connection with the Spin-Off, the Company assumed responsibility for potential liabilities, including environmental liabilities, associated with the prior conduct of the businesses contributed by FRP to the Company. Among these are potential liabilities arising from sulphur mines that were depleted and closed in the past in accordance with reclamation and environmental laws in effect at the time, particularly in coastal or marshland areas that have experienced subsidence or erosion. The Company believes that it is in compliance with existing laws regarding such closed operations, and has implemented controls in some areas that it believes exceed its legal responsibilities. Nevertheless, it is possible that new laws or actions by governmental agencies could result in significant unanticipated additional reclamation costs. For additional information regarding certain reclamation obligations, see "Business- Environmental Matters." The Company could also be subject to potential liability for personal injury or property damage relating to wellheads and other materials at closed mines in coastal areas that have become exposed through coastal erosion. Although the Company has insurance in place to protect it against certain of these liabilities, there can be no assurance that such insurance coverage would be sufficient. There can also be no assurance that the Company's current or future accruals for reclamation costs will be sufficient to fully cover such costs. [PAGE] 15 Operating Hazards The Company's offshore sulphur mining, oil production and marine transportation operations are subject to marine perils, including collisions, hurricanes and other adverse weather conditions. All of the Company's oil and sulphur production activities are subject to blowouts, cratering, fires and other risks, any of which could result in serious personal injury or death and substantial damage to property and the environment. The Company's operations may be subject to significant interruption, and the Company may be subject to significant liability, due to industrial accidents, severe weather or other natural disasters occurring at one or more of its mining operations. The Company has in place, through FMS certain liability, property damage, business interruption and other insurance coverages in types and amounts that it considers reasonable and believes to be customary in the Company's business. This insurance provides protection against loss from some, but not all, potential liabilities incident to the ordinary conduct of the Company's business, including coverage for certain types of damages associated with environmental and other liabilities that arise from sudden, unexpected and unforeseen events, with such coverage limits, retentions, deductibles and other features as management deems appropriate. The occurrence of an event that is not fully covered by insurance could have a material adverse effect on the Company's financial condition and results of operations. Item 3. Legal Proceedings. The Company is involved from time to time in various legal proceedings of a character normally incident to its businesses. The Company believes that its potential liability in any such pending or threatened proceedings will not have a material adverse effect on the financial condition or results of operations of the Company. The Company, through FMS, maintains liability insurance to cover some, but not all, potential liabilities normally incident to the ordinary course of its businesses with such coverage limits as management deems prudent. Item 4. Submission of Matters to a Vote of Security Holders. None Item 4(a). Executive officers. The following table sets forth certain information as of March 2, 1998 with respect to the Company's executive officers. Name Age Position James R. Moffett ........ 59 Co-Chairman of the Board Rene L. Latiolais ....... 55 Co-Chairman of the Board Richard C. Adkerson ..... 51 Vice Chairman of the Board Robert M. Wohleber ...... 47 President and Chief Executive Officer John G. Amato ........... 54 General Counsel James R. Moffett has served as Co-Chairman of the Board of FSC since November 1997. He also serves as the Chairman of the Board and Chief Executive Officer of Freeport-McMoRan Copper & Gold Inc. ("FCX"), and as Co-Chairman of the Board of McMoRan Oil & Gas Co. ("MOXY"). Mr. Moffett also serves as a director of IGL. Mr. Moffett served as Chairman of the Board of FTX from May 1992 to December 1997 and as President of FTX from May 1992 to April 1993. Rene L. Latiolais has served as Co-Chairman of the Board of FSC since November 1997. He also serves as Vice Chairman of the Board of FCX and as a director of IGL. He served as a director of FTX from August 1993 to December 1997, President and Chief Executive Officer of FTX from August 1995 until December 1997, President of FTX from May 1993 until August 1995 and Executive Vice President of FTX from May 1992 until May 1993. Richard C. Adkerson has served as Vice Chairman of the Board of FSC since November 1997. He is also President, Chief Operating Officer and Chief Financial Officer of FCX, Co-Chairman of the Board and Chief Executive Officer of MOXY and Chairman of the Board and Chief Executive Officer of FM Properties Inc. ("FMPO"). Mr. Adkerson served as Executive Vice President of FCX from July 1995 to April 1997 and as Senior Vice President of FCX from February 1994 to July 1995. He served as Vice Chairman of the Board of FTX from [PAGE] 16 August 1995 until December 1997 and as Senior Vice President of FTX from May 1992 to August 1995. Robert M. Wohleber has served as President, Chief Executive Officer and director of the Company since November 1997. He is also Senior Vice President of FCX. He served as a Vice President of FCX from July 1994 to November 1997, as Vice President and Treasurer of FCX from July 1993 to May 1994 and as Treasurer from August 1990 to May 1993. Mr. Wohleber served as Senior Vice President and Chief Financial Officer of FTX from November 1996 to December 1997. He was Vice President of FTX from June 1994 to November 1996 and Vice President and Treasurer of FTX from May 1992 and June 1994. John G. Amato has served as General Counsel of the Company since November 1997. Mr. Amato also serves as General Counsel of MOXY and FMPO. Prior to August 1995, Mr. Amato served as General Counsel of FTX and FCX. Mr. Amato currently provides legal and business advisory services to FCX under a consulting arrangement. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Since the Spin-Off on December 23, 1997, the Company's Common Stock has been traded on the New York Stock Exchange under the symbol FSC. Prior to December 23, 1997 there was no public market for the Company's Common Stock. The following table sets forth, for the period indicated, the range of high and low sales prices, as reported by the New York Stock Exchange: High Low ------- ------ 1997 Fourth Quarter (from December 23, 1997 $13-1/6 $11-5/8 through December 1997..................... The Company currently intends to retain its earnings to meet its working capital requirements and finance its business operations and does not plan to pay cash dividends to its stockholders for the foreseeable future. Any future determination to pay cash dividends will be made by the Board of Directors in light of the Company's earnings, cash flow, financial position, capital requirements, credit agreements and such other factors as the Board of Directors deems relevant at that time. The Company's ability to pay dividends is restricted by the terms of its credit agreement. As of March 2, 1998, there were approximately 13,733 record holders of Company's Common Stock. [PAGE] 17 Item 6. Selected Financial and Operating Data. The following table presents selected audited historical and unaudited pro forma financial information, as well as, unaudited operating data for FSC for each of the five years in the period ended December 31, 1997. FSC was spun-off from PLP on December 22, 1997. The information presented below reflects periods during which FSC did not operate as an independent company, and, therefore, may not necessarily reflect the consolidated results of operations or financial position that would have existed if FSC had been an independent company during the periods shown or the future performance of FSC as an independent company. Additionally, the results of operations shown below only include IGL's 25.0 percent interest in Main Pass since December 22, 1997. The financial information below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements and notes thereto contained elsewhere in this Form 10-K.
1997 1996 1995 1994 1993 --------- -------- -------- -------- --------- (In Thousands,Expect per Share and Realized Price Amounts) FINANCIAL DATA Years Ended December 31: Revenues $ 211,945 $221,426 $255,949 $151,795 $ 131,732 Operating income (loss) (439,316)a 12,392 25,020b 7,353 (122,253)c Net income (loss) d (374,199)a 12,392 25,020b 7,353 (122,253)c Net income (loss)per share (36.16)a 1.20 2.42b .71 (11.82)c Unaudited pro forma data: d Net income (loss) before income taxes $(439,304) $12,392 $25,020 $7,353 $(122,253) Pro forma benefit (provision) for income taxes 151,999 (4,659) (6,845) (2,691) 44,745 --------- ------- ------- ------ --------- Pro forma net income (loss) $(287,305) $ 7,733 $18,175 $4,662 $ (77,508) ========= ======= ======= ====== ========= Pro forma net income (loss) per share $(27.77) $.75 $1.76 $.45 $(7.49) Pro forma average shares 10,347 10,347 10,347 10,347 10,347 At December 31: Working capital$ 65,604 $ 25,794 $ 42,059 $ 41,590 $ 25,105 Property, plant and equipment, net 109,833a 535,653 575,029 551,916 577,491 Total assets 273,033 633,620 680,467 637,902 668,274 Stockholders' equity 114,397a, 484,360 521,782 556,060 573,303 d OPERATING DATA Sulphur Sales (long tons) 2,900 2,900 3,050 2,088 1,403 Average realized price $61.04 $61.78 $70.44 $53.07 $57.28 Oil Sales (barrels) 1,625 1,896 2,218 2,534 3,443 Average realized price $18.15 $19.49 $15.82 $13.74 $14.43
a. Includes charges totaling $425.4 million ($41.11 per share) for an impairment assessment of sulpher assets and $9.9 million ($0.96 per share) for an increase in estimated reclamation costs for sulpher properties, for drilling costs of an additional brine well and a reduction of sulpher inventory book value to market value. b. Includes charges totaling $7.0 million ($0.68 per share) allocated to FSC to reflect a compensation charge pursuant to a management services agreement. c. Includes charges totaling $86.6 million ($8.37 per share) for a loss on valuation and sale of assets, and $11.6 million ($1.12 per share) for restructuring and other related charges. d. As a partnership, PLP paid no federal or state income taxes and historically has not provided for income taxes on the results of operations of FSC. Upon the formation of FSC as a wholly owned taxable subsidiary of PLP prior to being spun-off to PLP unitholders, a deferred tax asset of $63.8 million was recognized in 1997 income to reflect the excess of tax over book basis in the related assets. Pro forma net income includes an estimated tax provision for the applicable periods as if FSC operated as a stand-alone taxable entity. [Page] 18 Items 7. and 7A. Management's Discussion and Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures About Market Risk. Overview FSC became an independent, publicly held company as of December 22, 1997, when PLP distributed to its unitholders its sulphur business, including its 58.3 percent interest in Main Pass sulphur and oil operations, together with the 25.0 percent interest in Main Pass previously owned by IGL (Note 8), a joint venture partner with PLP (the Distribution). The results of operations discussed below only include IGL's 25.0 percent interest in Main Pass since December 22, 1997. FSC operated as an integral part of PLP prior to the Distribution. FSC's financial statements have been prepared from the books and records of PLP. Certain data have been extracted from PLP records, or in certain cases derived on the basis of allocations between FSC and PLP's other businesses. The results of operations described below are not necessarily indicative of the operating results that FSC would have achieved on an independent basis or of future operating results. FSC's sulphur business consists of the sale of sulphur, the marketing of logistics services, the operation of two sulphur mines and a logistics system consisting of sulphur transportation and terminaling assets. FSC's operations include the Main Pass mine located offshore Louisiana in the Gulf of Mexico, the Culberson mine located in West Texas, five sulphur terminals located across the Gulf Coast, and marine and rail transportation assets. The oil operations consist of FSC's interest in the Main Pass operations. Impairment Assessment of Sulphur Assets In 1995 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 which requires an assessment of the carrying value of long-lived assets and a reduction of such carrying value to fair value when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. In September 1997 FSC concluded that the carrying value of the Main Pass sulphur assets exceeded the undiscounted estimated future net cashflows, such that an impairment writedown of $416.4 million was required. A similar analysis of the Culberson mine sulphur assets, based on a reassessment of recoverable reserves utilizing recent production history, also indicated that a writedown of $9.0 million was required. Fair values were estimated using discounted estimated future net cash flows related to these assets. The writedowns to fair value were recorded in the third quarter of 1997 and are reflected in the financial statements as additional depreciation and amortization charges. Future operating results of FSC will reflect lower depreciation and amortization expense as a result of these writedowns. Results of Operations
Years Ended December 31, ----------------------------------- 1997 1996 1995 --------- --------- --------- (Dollars in millions, except realized prices) Revenues $211.9 $221.4 $255.9 Operating income (loss) (439.3) 12.4 25.0 Sulphur sales (long tons) 2,907,500 2,900,000 3,049,700 Sulphur average realized price per ton $61.04 $61.78 $70.44 Oil sales (barrels) 1,625,200 1,895,500 2,217,600 Oil average realized price per barrel $18.15 $19.49 $15.82
1997 Compared With 1996 Sulphur operations reported an operating loss of $441.2 million in 1997 compared with operating income of $3.3 million for 1996, primarily because of the asset impairment charges. The 1997 period also includes charges totaling $9.9 million for an increase in estimated reclamation costs for sulphur properties, for drilling costs of an additional brine well and a reduction of sulphur inventory book value to market value. Sulphur average realized prices for the 1997 period were only slightly lower than the 1996 period while sulphur sales volumes rose slightly, primarily because of increased sales to the IMC-Agrico. FSC has a long-term supply contract with IMC-Agrico that extends for as long as IMC-Agrico's operations have a requirement for sulphur. As a percentage of total FSC revenues, sales to IMC-Agrico totaled 55 percent in 1997 and 54 percent in 1996 and 1995. Production levels at the Main Pass and Culberson sulphur mines were reduced in early 1996 in response to lower domestic demand for [Page] 19 sulphur. Combined production from the two mines averaged 7,600 tons per day for 1997 compared with 7,800 tons per day for 1996. Unit production and delivery costs for 1997, excluding the charges discussed above, were 12 percent higher than for 1996 because of higher maintenance costs, and natural gas usage and prices. Main Pass operating income from oil operations totaled $1.9 million in 1997 and $9.1 million in 1996 reflecting lower average realizations and reduced production levels. Current estimates are that the proved oil reserves at the Main Pass site will be fully depleted by the year 2002. Total production and delivery costs were higher in the 1997 period because of higher maintenance costs, energy costs and the charges discussed above. Depreciation and amortization in 1997 includes the asset impairment charges. Excluding these charges and the additional reclamation charge, depreciation expense was lower compared with 1996 because of the lower production rates. General and administrative expenses were lower in 1997 compared with 1996 primarily because of lower incentive compensation costs and a reimbursement in 1997 for certain costs expensed by FSC in 1996. 1996 Compared With 1995 Sulphur operating income totaled $3.3 million for 1996 compared with $23.0 million for 1995 primarily because of lower prices and volumes and slightly higher unit costs. Sulphur sales volumes for 1996 were 5 percent lower than the 1995 level. Production levels at the Main Pass and Culberson mines were reduced in early 1996 in response to lower domestic sulphur sales to U.S. phosphate fertilizer producers. Combined production averaged 7,800 tons per day for 1996 compared with 8,500 tons per day in 1995. Sulphur realizations were 12 percent lower than the 1995 period, reflecting lower demand from the phosphate fertilizer industry and higher recovered sulphur supplies. Unit production costs for 1996 rose slightly from 1995 levels because of the reduced production levels and increased energy costs. Main Pass oil operating income for 1996 totaled $9.1 million compared with $2.0 million for 1995. Despite lower sales volumes, net income benefited in 1996 from a significant increase in average realizations caused by the overall rise in world oil prices which occurred in mid-1996 and again in late 1996. Lower production for 1996 reflected declining reservoir production levels. Total production and delivery, and depreciation and amortization costs were lower in 1996 because of the reduced production levels. General and administrative expenses were lower in 1996 primarily because of a $7.0 million charge ($5.2 million to sulphur operations and $1.8 million to oil operations) that was allocated to FSC in 1995 to reflect compensation costs related to FTX stock appreciation rights. Pursuant to a management services agreement with FTX, these costs were allocated to PLP, and thus to FSC, based on relative payroll costs. Outlook In early 1998 FSC announced its decision to reduce annual sulphur production by approximately 400,000 long tons in response to a developing near-term imbalance in U.S. sulphur supply. This reduction is being achieved primarily by curtailing production at FSC's Culberson, Texas mine, with overall production continually being reassessed to ensure customer requirements are met while still being responsive to market conditions. Management believes phosphate fertilizer market fundamentals remain strong, with the long-range outlook for sulphur consumption equally positive. Disclosures About Market Risks FSC's revenues are derived from the sale of sulphur and crude oil. In addition, natural gas purchases comprise a significant portion of FSC's production costs. FSC's net income can vary significantly with fluctuations in the market prices of these commodities. Based on projected 1998 annual sales volumes, each $5 per ton change in the average price realized on sulphur sales would have an approximate $17 million impact on revenues and an approximate $6 million impact on net income. Each $2 per barrel change in the average price realized on annual crude oil sales would have an approximate $3 million impact on revenues and an approximate $2 million impact on net income. A $0.50 per mmbtu change in the average cost of annual natural gas purchases would have an approximate $4 million impact on production costs and an approximate $3 million impact on net income. [Page] 20 At the present time FSC does not hedge or otherwise enter into price protection contracts for its principal products, although FSC has entered into a price protection program for its anticipated natural gas purchase requirements for the first quarter of 1998 which provides for a cost of no more than $2.65 per million british thermal unit (mmbtu) and no less than $2.33 per mmbtu on 1,350,000 mmbtu's. The fair value of these contracts was $(0.1) million at December 31, 1997. As FSC has no outstanding debt, conducts all its operations within the U.S. in U.S. dollars and has no investments in equity securities, it is currently not subject to interest rate risk, foreign currency exchange risk or equity price risk. Capital Resources and Liquidity Net cash provided by operating activities totaled $16.7 million for 1997, $51.8 million for 1996 and $65.4 million for 1995. Lower net income and an increase in reclamation and mine shutdown expenditures related to a Rigs-to-Reefs program resulted in lower net cash provided by operating activities in 1997 compared with 1996, while lower net income was the primary reason for the decline in 1996 compared with 1995. Capital expenditures, which primarily relate to maintaining current levels of production, totaled $3.5 million for 1997, $3.8 million for 1996 and $3.7 million for 1995. Proceeds from asset sales included certain warehousing and supply assets totaling $0.9 million in 1997, and totaled $2.1 million in 1996, mostly from the sale of certain marine assets. Capital expenditures for 1998 are expected to be slightly higher compared with 1997 because of additional drilling activities scheduled in 1998 to maintain required levels of water treatment capacity for sulphur operations plus the addition of IGL's 25.0 percent interest. Based on current projections, management believes that FSC will generate sufficient cash flow from operations to fund its ongoing working capital requirements, reclamation costs and projected capital expenditures for the foreseeable future. Additionally, in December 1997 FSC established a $100 million revolving credit facility to further enhance its liquidity and financial flexibility (Note 7). FSC also announced an open market share purchase program for up to 1.0 million shares of its common stock, representing approximately 10 percent of the shares outstanding. The timing of the purchases is dependent upon many factors, including the price of the common shares; FSC's operating results, cash flows and financial position; and general economic and market conditions. FSC has purchased 351,900 shares, all in 1998, for $4.8 million (an average of $13.53 per share) through March 2, 1998. FSC has assessed its year 2000 information systems cost issues and believes its current plans for system upgrades will adequately address these issues internally at no material cost. Environmental FSC, through its predecessors, has a history of commitment to environmental responsibility. Since the 1940's, long before public attention focused on the importance of maintaining environmental quality, FSC has conducted pre-operational, bioassay, marine ecological and other environmental surveys to ensure the environmental compatibility of its operations. FSC's environmental policy commits its operations to compliance with local, state and federal laws and regulations, and prescribes the use of periodic environmental audits of all facilities to evaluate compliance status and communicate that information to management. FSC believes that its operations are being conducted pursuant to necessary permits and are in compliance in all material respects with applicable laws, rules and regulations. FSC has access to environmental specialists who have developed and implemented corporate- wide environmental programs. FSC continues to study methods to reduce discharges and emissions. Federal legislation (sometimes referred to as "Superfund" legislation) requires payments for cleanup of certain waste sites, even though waste management activities were performed in compliance with regulations applicable at the time. Under the Superfund legislation, one party may, under certain circumstances, be required to bear more than its proportional share of cleanup costs at a site where it has responsibility pursuant to the legislation, if payments cannot be obtained from other responsible parties. Other legislation mandates cleanup of certain wastes at operating sites. States also have regulatory programs that can mandate waste cleanup. Liability under these laws involves inherent uncertainties. FSC has, at this time, no known significant liability under these laws. [Page] 21 Estimated future expenditures to restore properties and related facilities to a condition that complies with environmental and other regulations are accrued over the life of the properties. The future expenditures are estimated based on current costs, laws and regulations. As of December 31, 1997, FSC has accrued $36.5 million ($10.8 million of which will be reimbursed by third parties) for abandonment and restoration of its non-operating sulphur assets. Total estimated abandonment cost for Main Pass oil operations is $9.7 million and was fully accrued at December 31, 1997. FSC's share of abandonment and restoration costs for its two operating sulphur mines is estimated to total approximately $78 million, $26.0 million of which had been accrued at December 31, 1997, with essentially all such costs expected to be incurred after mine closure. These estimates are by their nature imprecise and can be expected to be revised over time because of changes in government regulations, operations, technology and inflation. FSC has made, and will continue to make, expenditures at its operations for protection of the environment. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls, which will be charged against income from future operations. Present and future environmental laws and regulations applicable to current opperations may require substantial capital expenditures and may affect its operations in other ways that cannot now be accurately predicted. FSC maintains insurance coverage in amounts deemed prudent for certain types of damages associated with environmental liabilities that arise from sudden, unexpected and unforeseen events. Cautionary Statement Management's discussion and analysis of financial condition and results of operations contains forward-looking statements, including without limitation, FSC's reserve expectations, demand for sulphur, the availability of financing, the ability to satisfy future cash obligations and environmental costs. Important factors that might cause future results to differ from these projections include the reliance on IMC-Agrico as a continuing customer, the seasonality and volatility of sulphur markets, competition and environmental issues as described in more detail elsewhere in this Form 10-K under "Cautionary Statements." [Page] 22 Item 8. Financial Statements and Supplementary Data. REPORT OF MANAGEMENT Freeport-McMoRan Sulphur Inc. (the Company) is responsible for the preparation of the financial statements and all other information contained in this Annual Report. The financial statements have been prepared in conformity with generally accepted accounting principles and include amounts that are based on management's informed judgments and estimates. The Company maintains a system of internal accounting controls designed to provide reasonable assurance at reasonable costs that assets are safeguarded against loss or unauthorized use, that transactions are executed in accordance with management's authorization and that transactions are recorded and summarized properly. The system is tested and evaluated on a regular basis by the Company's internal auditors, Price Waterhouse LLP. In accordance with generally accepted auditing standards, the Company's independent public accountants, Arthur Andersen LLP, have developed an overall understanding of our accounting and financial controls and have conducted other tests as they consider necessary to support their opinion on the financial statements. The Board of Directors, through its Audit Committee composed solely of non-employee directors, is responsible for overseeing the integrity and reliability of the Company's accounting and financial reporting practices and the effectiveness of its system of internal controls. Arthur Andersen LLP and Price Waterhouse LLP meet regularly with, and have access to, this committee, with and without management present, to discuss the results of their audit work. Robert M. Wohleber President and Chief Executive Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF FREEPORT-McMoRan SULPHUR INC.: We have audited the accompanying balance sheets of Freeport-McMoRan Sulphur Inc. (the Company), a Delaware Corporation, and its predecessors as of December 31, 1997 and 1996, and the related statements of operations, cash flow and changes in stockholders' equity for each of the years in the three-year period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company and its predecessors as of December 31, 1997 and 1996 and the results of its operations and its cash flow for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Arthur Andersen LLP New Orleans, Louisiana January 20, 1998 [Page] 23 FREEPORT-McMoRan SULPHUR INC. BALANCE SHEETS
December 31, ------------------------ 1997 1996 ---------- ---------- (In Thousands) ASSETS Current assets: Cash and cash equivalents $ 21,293 $ 3,116 Accounts receivable: Customers 27,266 27,402 Other 6,473 15,849 Inventories: Products 24,841 21,859 Materials and supplies 9,580 8,214 Deferred tax asset 4,768 - Prepaid expenses and other 1,214 6,764 ---------- ---------- Total current assets 95,435 83,204 ---------- ---------- Property, plant and equipment 841,222 916,858 Less accumulated depreciation and amortization (731,389) (381,205) ---------- ---------- Net property, plant and equipment 109,833 535,653 ---------- ---------- Deferred tax asset 56,757 - Other assets 11,008 14,763 ---------- ---------- Total assets $ 273,033 $ 633,620 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 25,175 $ 32,149 Current portion of reclamation and mine shutdown reserves 4,656 25,261 ---------- --------- Total current liabilities 29,831 57,410 Reclamation and mine shutdown reserves 67,518 56,848 Accrued postretirement and pension benefits 15,594 - Other liabilities 45,693 35,002 Stockholders' equity: Net assets from PLP - 484,360 Preferred stock, par value $0.01 per share, 50,000,000 authorized - - Common stock, par value $0.01 per share, 100,000,000 shares authorized, 10,346,578 shares issued and outstanding 103 - Capital in excess of par value of common stock 116,780 - Accumulated deficit (2,486) - ---------- --------- 114,397 484,360 ---------- --------- Liabilities and stockholders' equity $ 273,033 $ 633,620 ========== =========
The accompanying notes are an integral part of these financial statements. [Page] 24 FREEPORT-McMoRan SULPHUR INC. STATEMENTS OF OPERATIONS
Years Ended December 31, -------------------------------- 1997 1996 1995 --------- -------- -------- (In Thousands) Revenues $ 211,945 $221,429 $255,949 Cost of sales: Production and delivery 183,227 160,982 168,504 Depreciation and amortization 461,084 37,800 43,700 --------- -------- -------- Total cost of sales 644,311 198,782 212,204 General and administrative expenses 6,950 10,252 18,725 --------- -------- -------- Total costs and expenses 651,261 209,034 230,929 --------- -------- -------- Operating income (loss) (439,316) 12,392 25,020 Other income, net 12 - - --------- -------- -------- Net income (loss) before income taxes (439,304) 12,392 25,020 Income tax benefit 65,105 - - --------- -------- -------- Net income (loss) $(374,199) $ 12,392 $ 25,020 ========= ======== ======== Net income (loss) per share $(36.16) $1.20 $2.42 ======= ===== ===== UNAUDITED PRO FORMA DATA (NOTE 1) Net income (loss) before income taxes reported above $(439,304) $12,392 $25,020 Pro forma benefit (provision) for income taxes 151,999 (4,659) (6,845) --------- ------- ------- Pro forma net income (loss) $(287,305) $ 7,733 $18,175 ========= ======= ======= Pro forma net income (loss) per share $(27.77) $.75 $1.76 ======= ==== ===== Pro forma average shares outstanding 10,347 10,347 10,347 ====== ====== ======
The accompanying notes are an integral part of these financial statements. [Page] 25 FREEPORT-McMoRan SULPHUR INC. STATEMENTS OF CASH FLOW
Years Ended December 31, ------------------------------ 1997 1996 1995 --------- ------- ------- (In Thousands) Cash flow from operating activities: Net income (loss) $(374,199) $12,392 $25,020 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 461,084 37,800 43,700 Reclamation and mine shutdown expenditures (20,562) (7,504) (2,476) Deferred income taxes (65,105) - - Other 3,653 6,421 4,642 (Increase) decrease in working capital net of effect of acquisitions: Accounts receivable 18,946 (3,234) (17,504) Inventories 399 1,690 5,465 Prepaid expenses and other 4,816 166 (1,605) Accounts payable and accrued liabilities (12,304) 4,113 8,165 --------- ------- ------- Net cash provided by operating activities 16,728 51,844 65,407 --------- ------- ------- Cash flow from investing activities: Capital expenditures (3,513) (3,834) (3,710) Sale of assets and other 890 2,146 375 --------- ------- ------- Net cash used in investing activities (2,623) (1,688) (3,335) --------- ------- ------- Cash flow from financing activities: Net distributions from (to) PLP 4,072 (49,814) (59,298) --------- ------- ------- Net cash provided by (used in) financing activities 4,072 (49,814) (59,298) --------- ------- ------- Net increase in cash and cash equivalents 18,177 342 2,774 Cash and cash equivalents at beginning of year 3,116 2,774 - --------- ------- ------- Cash and cash equivalents at end of year $ 21,293 $ 3,116 $ 2,774 ========= ======= =======
The accompanying notes, which include information in Notes 1, 2 and 8 regarding non-cash transactions, are an integral part of these financial statements. [Page] 26 FREEPORT-McMoRan SULPHUR INC. STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, -------------------------------- 1997 1996 1995 -------- -------- -------- (In Thousands) Net assets from PLP: Balance at beginning of year $484,360 $521,782 $556,060 Net income (loss) before distribution to PLP unitholders (371,713) 12,392 25,020 Contribution of IGL Main Pass interest 18,458 - - Net PLP liabilities allocated to FSC (18,294) - - Net distributions from (to) PLP 4,072 (49,814) (59,298) Distribution of shares to PLP unitholders (116,883) - - -------- -------- -------- Balance at end of year - 484,360 521,782 -------- -------- -------- Preferred stock: -------- -------- -------- Balance at beginning and end of year - - - -------- -------- -------- Common stock: Balance at beginning of year - - - Shares issued to PLP unitholders 103 - - -------- -------- -------- Balance at end of year 103 - - -------- -------- -------- Capital in excess of par value of common stock: Balance at beginning of year - - - Shares issued to PLP unitholders 116,780 - - -------- -------- -------- Balance at end of year 116,780 - - -------- -------- -------- Accumulated deficit: Balance at beginning of year - - - Net loss subsequent to December 22,1997 (2,486) - - -------- -------- -------- Balance at end of year (2,486) - - -------- -------- -------- Total stockholders' equity $114,397 $484,360 $521,782 ======== ======== ========
The accompanying notes are an integral part of these financial statements. [Page] 27 FREEPORT-McMoRan SULPHUR INC. NOTES TO FINANCIAL STATEMENTS 1. BACKGROUND AND BASIS OF PRESENTATION Background. Freeport-McMoRan Sulphur Inc. (FSC) became an independent, publicly held company as of December 22, 1997, when Phosphate Resource Partners Limited Partnership (PLP), formerly Freeport-McMoRan Resource Partners, Limited Partnership, distributed to its unitholders its sulphur business, including its 58.3 percent interest in Main Pass sulphur and oil operations, together with the 25.0 percent interest in Main Pass previously owned by IMC Global Inc. (IGL) (Note 8), a joint venture partner with PLP (the Distribution). PLP distributed 10,346,578 shares of FSC common stock pro rata to its unitholders in connection with the merger of Freeport-McMoRan Inc. (FTX), the former administrative general partner and majority owner of PLP, with and into IGL (the Merger). FTX distributed the shares of FSC common stock that it received from PLP to FTX stockholders on a pro rata basis in connection with the Merger. Basis of Presentation. FSC operated as an integral part of PLP prior to the Distribution. FSC's financial statements have been prepared from the books and records of PLP. Certain data has been extracted from PLP records, or in certain cases derived on the basis of allocations between FSC and PLP's other businesses, for purposes of presentation in the accompanying financial statements. FSC's investment in the Main Pass joint venture is reflected using the proportionate consolidation method in accordance with standard industry practice. No interest expense has been allocated to FSC as no interest costs have been incurred in the past by FSC and no debt previously recorded by PLP was assumed by FSC. Intercompany balances between PLP and FSC have related to various general and administrative and similar charges and have been settled monthly. PLP is not a taxable entity and historically has not provided income taxes on the results of operations of FSC. Upon formation of FSC as a wholly owned taxable subsidiary of PLP prior to being spun-off to PLP unitholders, a deferred tax asset of $63.8 million was recognized in 1997 income to reflect the excess of tax over book basis in the related assets. Unaudited pro forma income taxes are included in the statements of operations as if FSC had been a separate taxable entity for the periods presented. FTX provided benefit plans for certain employees that became FSC employees upon completion of the Merger. FTX transferred certain liabilities related to these plans to FSC and paid cash to FSC for the assumption of certain of these liabilities as discussed further in Note 6. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates. The preparation of FSC's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. The more significant areas requiring the use of management estimates include valuation allowances for deferred tax assets, reclamation and environmental obligations, postretirement and other employee benefits, future cash flows associated with assets and useful lives for depreciation and amortization. Actual results could differ from those estimates. Cash and Cash Equivalents. Highly liquid investments purchased with a maturity of three months or less are considered cash equivalents. Inventories. Inventories are stated at the lower of average cost or market. Property, Plant and Equipment. Property, plant and equipment are carried at cost, including interest capitalized during the construction and development period. Expenditures for replacements and improvements are capitalized. Depreciation for mining and production assets, including mineral interests, is determined using the unit-of-production method based on estimated recoverable reserves. Other assets are depreciated on a straight-line basis over estimated useful lives of 15 to 20 years for buildings and 5 to 15 years for machinery and equipment. In 1995 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 121 (SFAS 121) which requires an assessment of the carrying value of long-lived assets and a reduction of such carrying value to fair value when events or changes in circumstances indicate that the carrying amount may not be recoverable. In September 1997 FSC concluded that the carrying value of the Main Pass sulphur assets exceeded the undiscounted estimated future net cash flows, such that an impairment writedown of $416.4 million was required. A similar analysis of the Culberson sulphur assets, based on a reassessment of recoverable reserves utilizing recent production history, also indicated an impairment writedown of $9.0 million was required. Fair values were estimated using discounted estimated future net cash flows related to these assets. The writedowns to fair value were recorded as additional depreciation and amortization charges. Future operating results of FSC will reflect lower depreciation and amortization expense as a result of these writedowns. [Page] 28 Oil Capitalized Costs. Oil producing operations are reflected using the successful efforts method of accounting. Costs of leases, productive exploratory wells and development activities are capitalized. Other exploration costs are expensed. Depreciation and amortization is determined on a field-by-field basis using the unit- of-production method. Gain or loss is included in income when properties are sold. Financial Instruments and Contracts. FSC had outstanding contracts at December 31, 1997 to purchase 1,350,000 million british thermal units (mmbtu) of natural gas in the first quarter of 1998 at no more than $2.65 per mmbtu and no less than $2.33 per mmbtu. These contracts had a fair value of $(0.1) million at December 31, 1997. Environmental Remediation and Compliance. FSC incurs significant costs for environmental programs and projects. Expenditures pertaining to future revenues from operations are capitalized. Expenditures resulting from the remediation of conditions caused by past operations which do not contribute to future revenue generation are expensed. Liabilities are recognized for remedial activities when the efforts are probable and the cost can be reasonably estimated. Estimated future expenditures to restore properties and related facilities to a condition that complies with environmental and other regulations are accrued over the life of the properties. The future expenditures are estimated based on current costs, laws and regulations. As of December 31, 1997, FSC had a $36.5 million accrual for abandonment and restoration of non-operating sulphur assets, offset by $10.8 million in Other Assets which will be reimbursed by third parties. Total estimated abandonment cost for Main Pass oil operations is $9.7 million and was fully accrued at December 31, 1997. FSC's share of abandonment and restoration costs for its two operating sulphur mines is estimated to total approximately $78 million, $26.0 million of which had been accrued at December 31, 1997, with essentially all costs being incurred after mine closure. These estimates are by their nature imprecise and can be expected to be revised over time because of changes in government regulations, operations, technology and inflation. Earnings Per Share. In February 1997 the FASB issued SFAS 128, "Earnings Per Share," which simplifies the computation of earnings per share (EPS). FSC adopted SFAS 128 in the fourth quarter of 1997. Net income (loss) per share and pro forma net income (loss) per share for all periods presented was calculated by dividing the applicable net income (loss) amount by the number of shares outstanding (10,346,578 shares) as of December 22, 1997, the date of the spin off from PLP. Options to purchase 790,517 shares of common stock at a weighted average price of $10.93 per share were outstanding for the last nine days of 1997, but were excluded from the calculation of EPS as they are anti-dilutive considering the loss reported in 1997. No options were outstanding prior to 1997. In December 1997, FSC announced an open market share purchase program for up to 1.0 million shares of its common stock, representing approximately 10 percent of the shares outstanding. The timing of the purchases is dependent upon many factors, including the price of the common shares; FSC's operating results, cash flows and financial position; and general economic and market conditions. FSC has purchased 49,800 shares, all in 1998, for $0.5 million (an average of $10.77 per share) through January 20, 1998. 3. PROPERTY,PLANT AND EQUIPMENT,NET The components of net property, plant and equipment follow (in thousands):
December 31, ------------------------ 1997 1996 ---------- ---------- Buildings and facilities $ 555,616 $ 613,412 Capitalized oil exploration and development costs 203,946 201,517 Transportation, terminaling and other assets 81,660 101,929 ---------- ---------- Property, plant and equipment 841,222 916,858 Accumulated depreciation and amortization, including $203.9 million and $192.5 million at December 31, 1997 and 1996, respectively, for capitalized oil exploration and development costs 731,389 381,205 ---------- ---------- Property, plant and equipment, net $ 109,833 $ 535,653 ========== ==========
[Page] 29 4. MANAGEMENT SERVICES FTX provided certain management and administrative services to PLP (and thus FSC), including technical, administrative, accounting, financial, tax and other services under a management services agreement. The costs of such services, which include related overhead, were allocated to FSC based on time spent by FTX employees in the conduct of FSC's business activities. Such costs were non-interest bearing and reimbursed monthly. The total amount charged by FTX to FSC for such services was $2.0 million in 1996 and $15.9 million in 1995 (including $7.0 million for stock appreciation rights costs resulting from the rise in FTX's common stock price during the year). Beginning in 1996, FM Services Company (FMS), an entity now owned 25 percent by FSC, began providing most of the services previously provided by FTX on a similar cost-reimbursement basis, totaling $5.1 million in 1997 and $6.7 million in 1996. Management believes the costs for such services do not differ materially from the costs that would have been incurred had the relevant personnel providing these services been employed directly by FSC. Prior to 1997, FTX operated the Main Pass oil facilities and charged FSC $1.3 million in 1996 and $1.0 million in 1995 for specified overhead and other costs. Beginning in 1997, PLP operated the facilities and charged FSC $1.0 million. Subsequent to consummation of the Merger, FSC operates the Main Pass oil facilities. 5. INCOME TAXES Because PLP is not a taxable entity, historically it has not provided for income taxes. FSC recorded a deferred income tax asset pursuant to SFAS 109 immediately upon the transfer of assets and liabilities from PLP (Note 1). The financial statements reflect an unaudited pro forma tax provision as if FSC had been a taxable entity as FSC believes this is a more meaningful presentation. The components of deferred taxes based upon temporary differences existing at December 31, 1997 and the estimated amounts as of December 31, 1996 follow (in thousands):
December 31, ------------------------ 1997 1996 ---------- ---------- Deferred tax asset: Property, plant and equipment $ 23,189 $ - Reclamation and shutdown reserve 21,158 22,656 Deferred compensation, postretirement and pension benefits 11,571 11,752 Other 5,607 4,538 ---------- ---------- Total deferred tax asset 61,525 38,946 Deferred tax liability: Property, plant and equipment - (121,668) ---------- ---------- Net deferred tax asset (liability) 61,525 (82,722) Current portion (4,768) (8,889) ---------- ---------- Deferred tax asset (liability) $ 56,757 $ (91,611) ========== ==========
FSC believes it will generate sufficient income to realize its deferred tax assets such that no valuation reserve is required. Unaudited pro forma income taxes consist of the following (in thousands):
1997 1996 1995 --------- ------- ------- Current $ (7,752) $(6,201) $ 4,942 Deferred (144,247) 10,860 1,903 --------- ------- ------- $(151,999) $ 4,659 $ 6,845 ========= ======= =======
Unaudited reconciliations of the differences between pro forma income taxes computed at the federal statutory tax rate and pro forma income taxes recorded follow (dollars in thousands):
1997 1996 1995 -------------------- --------------- --------------- Amount Percent Amount Percent Amount Percent --------- ------- ------ ------- ------ ------- Pro forma income taxes computed at the federal statutory tax rate $(153,756) 35% $4,337 35% $8,757 35% Increase (decrease) attributable to: Statutory depletion - - - - (2,385) (10) State taxes and other 1,757 - 322 3 473 2 --------- --- ------ --- ------ --- Pro forma income taxes $(151,999) 35% $4,659 38% $6,845 27% ========= === ====== === ====== ===
[Page] 30 6. PENSION AND OTHER EMPLOYEE BENEFITS Pensions. Substantially all employees have been covered by FTX's or FMS's defined benefit plans. Additionally, unfunded non-qualified plans are sponsored for those participants in the qualified defined benefit plans whose benefits are limited under federal income tax laws. The accumulated benefits and plan assets were not separately determined and amounts allocated to FSC under these plans have not been material. In connection with the Merger, FSC formed its own defined benefit plans and FTX transferred to the new FSC plan (for the qualified plan), or to FSC (for the non-qualified plan), assets and liabilities pertaining to those FTX employees who became FSC employees. The FSC plans have substantially the same provisions as the FTX plans and provide credit for prior FTX service. The estimated actuarial liability related to the FSC plans as of January 1, 1998 follows (in thousands): Accumulated Benefit Obligation $ (10,159) ========== Projected Benefit Obligation (PBO) $ (12,694) Less Plan assets 14,116 ---------- Overfunded PBO 1,422 Unrecognized amounts: Transition asset (145) Prior service credit (7,829) Gains (4,464) ---------- Accrued pension liability $ (11,016) ==========
In determining the present value of benefit obligations, FSC used a discount rate of 7.25 percent in 1997, a 5 percent annual increase in future compensation levels and a 9 percent average expected rate of return on assets. Other Postretirement Benefits. FTX and FMS provided certain health care and life insurance benefits for retired employees. The related expense allocated to FSC from FTX totaled $2.7 million in 1997 (including $0.7 million for service cost and $2.0 million in interest for prior period services), $2.5 million in 1996 ($0.2 million and $2.3 million, respectively) and $4.7 million in 1995 ($0.2 million and $4.5 million, respectively). FSC's share of the FMS plan was not significant for 1997 and 1996. In connection with the Merger, FSC assumed the liability for the portion of FTX's postretirement benefit liability related to active employees transferred to FSC and FTX paid FSC cash for the amount of the liability. The estimated actuarial information as of January 1, 1998 follows (in thousands): Accumulated postretirement benefits $ (2,730) Unrecognized prior service credits (662) Unrecognized gains (1,186) ---------- Accrued postretirement liability $ (4,578) ==========
The initial health care cost trend rate used was 8 percent for 1998, decreasing 0.5 percent per year until reaching 5 percent. A one percent increase in the trend rate would increase the amounts by approximately 10 percent. The discount rate used was 7.25 percent. FSC has the right to modify or terminate these benefits. Stock Options. In December 1997 FSC adopted an Adjusted Stock Award Plan to provide for the issuance of fixed stock options to holders of FTX fixed stock options and FTX stock appreciation rights (SARs). FSC granted 425,517 fully vested fixed stock options on December 22, 1997 at a weighted average option price of $10.38 under the Adjusted Stock Award Plan to reflect the FTX option holder's economic position under the FTX stock options as adjusted for the proportionate market value of FSC shares at the time of the Merger. The number of fixed options issued by FSC was based upon the number of FTX options and SARs outstanding as of the date of consummation of the Merger, adjusted for the distribution ratio of FSC shares to FTX shares. Compensation expense for the aggregate intrinsic value of the FTX SARs has already been recorded in the accompanying FSC financial statements through allocations of general and administrative costs from FTX. As these SARs were converted to fixed options under the FSC Adjusted Stock Award Plan, the related accrued SAR liability was recorded as additional paid-in capital in the FSC balance sheets. FSC also adopted the 1997 Stock Option Plan (the 1997 Plan) in December 1997 to provide for the issuance of stock options at no less than market value at the time of grant. Under this plan, FSC can grant options to eligible [Page] 31 participants to purchase up to 1.0 million common shares. FSC also adopted the 1997 Stock Option Plan for Non-Employee Directors (the Director Plan) authorizing FSC to grant options to purchase up to 75,000 shares. Options granted under the 1997 Plan and the Director Plan generally are exercisable in 25 percent annual increments beginning one year from the date of grant and expire 10 years after the date of grant. Options for 650,000 shares under the 1997 Plan and 60,000 shares under the Director Plan were available for new grants as of December 31, 1997. A summary of FSC stock options outstanding follows:
Weighted Number Average of Option Options Price ------- -------- Balance at January 1, 1997 - $ - Granted upon PLP spin off 425,517 10.38 Granted 365,000 11.56 Exercised - - Expired/Forfeited - - ------- Balance at December 31, 1997 790,517 10.93 =======
Summary information of stock options outstanding at December 31, 1997 follows:
Options Options Outstanding Exercisable ----------------------------- ---------------- Weighted Weighted Weighted Number Average Average Number Average of Remaining Option of Option Range of Exercise Prices Options Life Price Options Price - ------------------------ ------- --------- -------- ------- -------- $4.89 to $7.23 60,552 3.3 years $6.56 60,552 $6.56 $7.43 to $11.06 162,019 5.5 years 8.3 162,019 8.30 $11.56 to $13.84 567,946 9.4 years 12.14 202,946 13.19 ------- ------- 790,517 425,517 ======= =======
FSC has adopted the disclosure only provisions of SFAS 123 and applies APB Opinion No. 25 and related interpretations in accounting for its stock based compensation plans. Had compensation cost for FTX's fixed stock option grants been determined in accordance with SFAS 123, FSC would have been allocated additional charges totaling $1.5 million ($1.0 million to pro forma net loss or $0.09 per share) in 1997, $1.2 million ($0.7 million to pro forma net income or $0.07 per share) in 1996 and none in 1995. FSC recognized a $7.0 million charge in 1995 for the cost of FTX SARs as discussed earlier. Had compensation cost for FSC's December 23, 1997 stock option grants been determined based on the fair value at the grant date for awards under those plans consistent with SFAS 123, FSC's stock-based compensation costs would have increased by $12,600 in 1997. For the pro forma computations, the fair values of the option grants were estimated on the date of grant using the Black-Scholes option- pricing model. The weighted average fair value for stock option grants was $5.62 per option. The weighted average assumptions used include a risk-free interest rate of 5.83 percent, expected volatility of 21 percent, expected lives of 10 years and no annual dividend. The pro forma effects on net income for 1997 are not representative of future years because FSC first adopted its stock option plans in 1997. No other discounts or restrictions related to vesting or the likelihood of vesting of fixed stock options were applied. FSC has adopted other benefit plans, certain of which are related to its performance, which costs are recognized in general and administrative expense. Upon consummation of the Merger, FSC also assumed certain FTX liabilities totaling approximately $0.4 million under its plans related to those employees transferred from FTX to FSC in exchange for an equal cash payment. 7. COMMITMENTS AND CONTINGENCIES Credit Facility. In December 1997 FSC established a $100 million variable rate revolving credit facility with a group of banks. The variable rate facility matures in December 2002, provides specified cash flow to interest coverage and maximum allowable debt to cash flow levels. The facility is subject to a negative pledge on FSC's assets. Facility fees on the unused amount are variable at a minimum 0.2 percent annually. No amounts were outstanding under the facility as of December 31, 1997. [Page] 32 Long-Term Contracts and Operating Leases. FSC's minimum annual contractual charges under non-cancelable long-term contracts and operating leases total $194.9 million, with $19.7 million in 1998, $16.1 million in 1999, $13.5 million in 2000, $13.5 million in 2001 and $13.5 million in 2002. Other Liabilities. In connection with the Merger, FSC assumed a liability to IGL for a portion of IGL's postretirement benefit costs relating to certain retired employees of FSC. At December 31, 1997 the liability was estimated to total $13.7 million, including $2.0 million in current liabilities. Future changes to this estimate because of changes in assumptions or actual results varying from projected results will be recorded in earnings. Environmental. FSC has made, and will continue to make, expenditures for protection of the environment. FSC is subject to contingencies as a result of environmental laws and regulations. The related future cost is indeterminable because of such factors as the unknown timing and extent of the corrective actions that may be required and the application of joint and several liability. 8. ACQUISITIONS Pennzoil Company. In 1995 PLP acquired essentially all of the domestic assets of Pennzoil Company's sulphur division, including the Culberson sulphur mine in West Texas. FSC assumed the terms of the purchase agreement with Pennzoil. Under the terms of the purchase agreement, Pennzoil will receive quarterly payments from FSC over 20 years based on the prevailing price of sulphur. The estimated future installment payments, based on the prevailing sulphur price at the time of acquisition, are included in accrued long-term liabilities. These payments totaled $2.1 million in 1997, $2.0 million in 1996 and $5.2 million in 1995. The installment payments may be terminated earlier either by FSC through the exercise of a $65 million call option or by Pennzoil through the exercise of a $10 million put option. Neither option may be exercised prior to 1999. The purchase price allocation follows (in thousands): Current assets $ 5,635 Property, plant and equipment 48,837 Current liabilities (7,499) Reclamation and mine shutdown reserves (15,200) Accrued long-term liabilities (31,773) -------- Net cash investment $ - ========
IGL Interest in Main Pass. Immediately prior to and as part of the Merger, IGL transferred its 25.0 percent interest in the Main Pass Joint Venture to PLP for no consideration. The transfer was accounted for using purchase accounting and recorded at fair value. The allocation of fair value follows (in thousands): Current assets $ 8,020 Property, plant and equipment 22,500 Current liabilities (3,863) Reclamation and mine shutdown reserves (5,492) Other, net (2,707) Net assets from PLP (18,458) -------- Net cash investment $ - ========
The following selected unaudited pro forma information assumes that the acquisition of the 25.0 percent interest in Main Pass and the Distribution occurred on January 1, 1996. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of results that would have been realized had the acquisition occurred on January 1, 1996, nor are they indicative of future results.
Years Ended December 31, ------------------------- 1997 1996 ----------- ---------- (In Thousands, Except per Share Amounts) Revenues $ 253,523 $ 268,919 Operating income (loss) (436,452) 25,576 Net income (loss) (285,440) 15,959 Net income (loss) per share (27.59) 1.53
[Page] 33 9. BUSINESS SEGMENTS FSC has adopted SFAS 131, "Disclosures About Segments of an Enterprise and Related Information" which requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and measuring their performance. FSC has two business segments, sulphur and oil. Frasch sulphur is produced through the offshore Louisiana Main Pass mine and the Culberson mine in West Texas. The sulphur business segment also includes an extensive logistics network, including sulphur terminaling and transportation assets, and purchases of recovered sulphur. Oil is produced at Main Pass from the same geologic formation that holds the deposit's sulphur. The segment data presented below was prepared on the same basis as FSC's financial statements. A significant portion of the sulphur production is sold to the IMC-Agrico Joint Venture (IMC-Agrico), a chemical fertilizer producer jointly owned by IGL and PLP, under a long-term supply contract that extends for as long as IMC-Agrico's operations have a requirement for sulphur. As a percentage of total FSC's revenues, sales to IMC-Agrico totaled 55 percent in 1997 and 54 percent in 1996 and 1995. As a percentage of total customer accounts receivable, receivables from IMC-Agrico totaled 39 percent at December 31, 1997 and 47 percent at December 31, 1996. Oil produced from Main Pass is sold to two major Gulf Coast refining companies. As a percentage of total FSC revenues, oil sales to one of these refining companies, Amoco, totaled 9 percent in 1997, 12 percent in 1996 and 11 percent in 1995. No other single customer accounted for greater than 10 percent of total revenues in 1995 through 1997. All of FSC's customers are located in the United States.
Sulphur Oil Total ---------- ---------- ---------- (In Thousands) 1997 Revenues $ 182,380 $ 29,565 $ 211,945 Production and delivery 167,050 16,177 183,227 Depreciation and amortization 449,870 11,214 461,084 General and administrative expense 6,667 283 6,950 ---------- ---------- ---------- Operating income (loss) $ (441,207) $ 1,891 $ (439,316) ========== ========== ========== Capital expenditures $ 1,406 $ 2,107 $ 3,513 ========== ========== ========== Total assets $ 246,794 $ 26,239 $ 273,033 ========== ========== ========== 1996 Revenues $ 184,425 $ 37,001 $ 221,426 Production and delivery 150,086 10,896 160,982 Depreciation and amortization 23,006 14,794 37,800 General and administrative expense 8,040 2,212 10,252 ---------- ---------- ---------- Operating income $ 3,293 $ 9,099 $ 12,392 ========== ========== ========== Capital expenditures $ 2,777 $ 1,057 $ 3,834 ========== ========== ========== Total assets $ 612,051 $ 21,569 $ 633,620 ========== ========== ========== 1995 Revenues $ 220,796 $ 35,153 $ 255,949 Production and delivery 158,703 9,801 168,504 Depreciation and amortization 24,564 19,136 43,700 General and administrative expense 14,489 4,236 18,725 ---------- ---------- ---------- Operating income $ 23,040 $ 1,980 $ 25,020 ========== ========== ========== Capital expenditures $ 2,148 $ 1,562 $ 3,710 ========== ========== ========== Total assets $ 647,650 $ 32,817 $ 680,467 ========== ========== ==========
[Page] 34 10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Pro forma Operating Pro forma Net Income Income Net Income (Loss) per Revenues (Loss) (Loss) share a -------- --------- --------- ---------- (In Thousands, Except per Share Amounts) 1997 1ST Quarter $ 53,395 $ 549 $ 359 $0.03 2nd Quarter 54,355 711 465 0.04 3rd Quarter 50,554 (426,431)b (278,886) (26.95)b 4th Quarter 53,641 (14,145)c (9,243 (0.89)c -------- --------- --------- $211,945 $(439,316) $(287,305) (27.77) ======== ========= ========= 1996 1ST Quarter $ 60,133 $ 5,286 $ 3,298 $0.32 2nd Quarter 54,447 2,450 1,529 0.15 3rd Quarter 52,799 3,884 2,424 0.23 4th Quarter 54,047 772 482 0.05 -------- ---------- --------- $221,426 $ 12,392 $ 7,733 0.75 ======== ========== =========
a. Pro forma per share amounts shown were calculated using the number of shares outstanding (10,346,578 shares) as of December 22, 1997, the date of the Merger (Note 1). b. Includes charges totaling $425.4 million ($278.2 million to pro forma net loss or $26.89 per share) for an impairment assessment of sulphur assets. c. Includes charges totaling $9.9 million ($6.5 million to pro forma net loss or $0.63 per share) for an increase in estimated reclamation costs for sulphur properties, for drilling costs of an additional brine well and a reduction of sulphur inventory book value to market value. 11. SUPPLEMENTARY MINERAL RESERVE INFORMATION (UNAUDITED) Proved and probable mineral reserves follow (in thousands):
December 31, ---------------------------------------------- 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ Sulphur-long tons 61,184 53,149 55,185 41,018 38,637
a. Main Pass reserves are subject to a 12.5 percent royalty based on net mine revenues. Culberson reserves totaled 7.6 million tons at December 31, 1997, 14.5 million tons at December 31, 1996 and 15.4 million tons at December 31, 1995 and are subject to a 9.0 percent royalty based on net mine revenues. 12. SUPPLEMENTARY OIL INFORMATION The supplementary information presented below is prepared in accordance with requirements prescribed by SFAS 69. Note 3 includes information regarding capitalized oil exploration and development costs. Costs Incurred in Oil Property Acquisition, Exploration and Development Activities. Costs incurred (all of which were development costs) totaled $2.1 million in 1997, $1.1 million in 1996 and $1.6 million in 1995. Proved Oil Reserves (Unaudited). Proved oil reserves at December 31, 1997 have been estimated by independent petroleum engineers in accordance with guidelines established by the Securities and Exchange Commission (SEC). There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production and timing of development expenditures. Thus, the following reserve estimates, which relate to reserves attributable to FSC, are based upon existing economic and operating conditions; they are only estimates and should not be construed as being exact. The reserves related to FSC are located in offshore United States waters. Oil, including condensate and plant products, is stated in thousands of barrels. [Page] 35
1997 1996 1995 ------ ------ ------ Proved reserves: Beginning of year 5,188 6,638 7,279 Revisions of previous estimates 85 446 1,577 Production (1,597) (1,896) (2,218) Reserves transferred from IGL 1,578 - - ------ ------ ------ End of year 5,254 5,188 6,638 ====== ====== ====== Proved developed reserves: Beginning of year 4,108 5,155 5,383 ====== ====== ====== End of year 5,254 4,108 5,155 ====== ====== ======
Standardized Measure of Discounted Future Net Cash Flows From Proved Oil Reserves (Unaudited). The standardized measure of discounted future net cash flows and changes therein relating to the proved oil reserves of FSC were computed using reserve valuations based on regulations prescribed by the SEC. These regulations provide for the use of year-end realized oil prices (escalated only when known and determinable price changes are provided by contract and law) in the projection of future net cash flows.
December 31, ------------------------------ 1997 1996 1995 ------- -------- -------- (In Thousands) Future cash flows $79,209 $107,118 $113,231 Future costs applicable to future cash flows: Production costs 61,640 50,590 39,720 Development and abandonment costs 14,252 15,251 17,971 ------- ------- -------- Future net cash flows before income taxes 3,317 41,277 55,540 Future income taxes - - - ------- ------- -------- Future net cash flows 3,317 41,277 55,540 Discount for estimated timing of net cash flows (10 percent discount rate) (3,704)a 2,323 6,787 ------- -------- -------- $ 7,021 $ 38,954 $ 48,753 ======= ======== ========
a. Amount is negative due to the effect of discounting to present value abandonment costs to be incurred in future periods once production ceases. Because FSC will have sufficient tax deductions to utilize against estimated future taxable income, in accordance with SFAS 69 no deductions for future income taxes arising subsequent to the Merger have been made above. Main Pass oil prices used in the above disclosures declined approximately $1.25 per barrel through January 20, 1998. Additionally, subsequent to year-end FSC has signed a letter of intent with an oil producing company to treat their oil production at the Main Pass Facility for a fee. This company would also assume a portion of the total estimated future abandonment costs shown above. This arrangement, which is not reflected in the above future cash flows, is subject to completion of a definitive agreement. Changes in Standardized Measure of Discounted Future Net Cash Flows From Proved Oil Reserves (Unaudited).
Years Ended December 31, ------------------------------- 1997 1996 1995 -------- -------- -------- (In Thousands) Beginning of year $ 38,954 $ 48,753 $ 45,650 Revisions: Changes in prices (21,111) 7,316 8,841 Accretion of discount 3,895 4,875 4,565 Other changes (primarily revised estimates of quantities in 1995) (5,554) 3,058 13,487 Development costs incurred during the year 2,107 1,057 1,562 Reserves transferred from IGL 2,118 - - Revenues, less production costs (13,388) (26,105) (25,352) -------- -------- -------- End of year $ 7,021 $ 38,954 $ 48,753 ======== ======== ========
[Page] 36 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information regarding executive officers required by Item 10 may be found under item 4(a) of this report. The information regarding directors required by Item 10 is incorporated by reference from the registrant's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders. Item 11. Executive Compensation. Incorporated by reference from the registrant's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders. Item 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated by reference from the registrant's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders. Item 13. Certain Relationships and Related Transactions. Incorporated by reference from the registrant's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) Financial Statements Reference is made to Item 8 hereof. (a)(2) Financial Statement Schedules REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited, in accordance with generally accepted auditing standards, the financial statements as of December 31, 1997 and 1996 for each of the three years in the period ended December 31, 1997 included in Freeport-McMoRan Sulphur Inc.'s annual report to shareholders included elsewhere in this Form 10-K, and have issued our report thereon dated January 20, 1998. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule below is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP New Orleans, Louisiana, January 20, 1998 [Page] 37 Schedule VIII - Valuation and Qualifying Accounts
Additions -------------------------- Balance at Charged to Charged to Other- Balance at Beginning of Costs and Other Add End of of Period Expenses Accounts (Deduct) Period ------------ --------- ----------- --------- ----------- (In Thousands) Reclamation and mine shutdown reserves: 1997 Sulphur $ 75,918 $9,349 $- $(22,762) a,b $62,505 Oil 6,191 (248) - 3,726 a 9,669 $ 82,109 $9,101 $- $(19,036) $72,174 1996 Sulphur $ 83,145 $3,920 $- $(11,147) b,c $75,918 Oil 4,903 1,288 - - 6,191 $ 88,048 $5,208 $- $(11,147) $82,109 1995 Sulphur $ 59,446 $2,643 $- $21,056 b,c $83,145 Oil 3,657 1,257 - (11) 4,903 $ 63,103 $3,900 $- $21,045 $88,048
a. Includes $5.5 million of liabilities assumed ($1.8 million for sulphur and $3.7 million for oil) in connection with the acquisition of IGL's 25.0 percent interest in Main Pass. b. Includes expenditures of $20.6 million in 1997, $7.5 million in 1996 and $2.5 million in 1995. c. Includes $23.5 million of liabilities assumed in 1995 in connection with the acquisition of the sulphur assets of Pennzoil which was subsequently reduced by $8.3 million in 1996. ____________________ No other schedules have been included because they are not required, not applicable or the information has been included elsewhere herein. (a)(3) Exhibits Reference is made to the Exhibit Index beginning on page E-1 hereof. (b) Reports on Form 8-K The registrant filed a Current Report on Form 8-K dated December 16,1997 to report under Item 5 the adoption by the registrant's Board of Directors of a Stockholder Protection Rights Agreement. [Page] 38 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 24, 1998. FREEPORT-McMoRan SULPHUR INC. By: /s/ Robert M. Wohleber ---------------------- Robert M. Wohleber, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 24, 1998. Signature Title - ----------------------- ------------- /s/ James R. Moffett James R. Moffett Co-Chairman of the Board of Directors * Rene L. Latiolais Co-Chairman of the Board of Directors * Richard C. Adkerson Vice Chairman of the Board of Directors * Robert M. Wohleber President, Chief Executive Officer and a Director (Principal Executive and Financial Officer) * C. Donald Whitmire, Jr. Vice President and Controller - Financial Reporting (Principal Accounting Officer) * J. Terrell Brown Director * Thomas D. Clark, Jr. Director * B. M. Rankin, Jr. Director *By:/s/ James R. Moffett -------------------- James R. Moffett Attorney-in-Fact [Page] S-1 EXHIBIT INDEX Exhibit Number Description of Exhibits - -------- ----------------------------------------------- 2.1 Contribution and Distribution Agreement by and among the Company, FTX and FRP, dated as of August26, 1997(1) 2.2 Assignment and Assumption Agreement by and between IGL and FRP dated as of December 22, 1997 3.1 Certificate of Incorporation of the Company(1) 3.2 By-laws of the Company(1) 4.1 Form of the Company's Common Stock certificate(1) 4.2 Stockholder Protection Rights Agreement between Freeport-McMoRan Sulphur Inc. and Mellon Securities Trust Company, as Rights Agent(2) 10.1 Employee Benefits Agreement by and between FTX and the Company 10.2 Asset Sale Agreement for Main Pass Block 299 between FRP and Chevron USA, Inc. dated as of May2, 1990(1) 10.3 Main Pass 299 Sulphur and Salt Lease, effective May1, 1988(1) 10.4 Joint Operating Agreement by and between FRP, IMC-Fertilizer, Inc. and Felmont Oil Corporation, dated June5, 1990(1) 10.5 Joint Operating Agreement by and between FRP, IMC-Fertilizer, Inc. and Felmont Oil Corporation, dated May1, 1988(1) 10.6 Agreement to Coordinate Operating Agreements by and between FRP, IMC-Fertilizer and Felmont Oil Corporation, dated May1, 1988(1) 10.7 Asset Purchase Agreement between FRP and Pennzoil Company dated as of October22, 1994 (the "Asset Purchase Agreement")(1) 10.8 Amendment No. 1 to the Asset Purchase Agreement dated as of January3, 1995(1) 10.9 Agreement for Sulphur Supply, as amended, dated as of July1, 1993 among FRP, IMC Fertilizer and IMC-Agrico Company (the "Sulphur Supply Agreement")(1)(3) 10.10 Side letter with IGL regarding the Sulphur Supply Agreement(1) 10.11 Processing and Marketing Agreement between the Freeport Sulphur Company (a division of FRP) and Felmont Oil Corporation dated June19, 1990 (the "Processing Agreement")(1) 10.12 Amendment Number 1 to the Processing Agreement(1) 10.13 Amendment Number 2 to the Processing Agreement(1) 10.14 Services Agreement dated as of December 23, 1997 between the Company and FMS 10.15 Credit Agreement dated as of December 12, 1997 among the Company, as borrower, the financial institutions party thereto, the Chase Manhattan Bank, as administrative agent and documentary agent, and Hibernia National Bank, as co-agent Executive Compensation Plans and Arrangements (Exhibits 10.16 through 10.19) 10.16 1997 Stock Option Plan for Non-Employee Directors(1) 10.17 Company Adjusted Stock Award Plan(1) 10.18 Freeport Sulphur 1997 Stock Option Plan(1) 10.19 Letter Agreement dated December 22, 1997 between FMS and Rene L. Latiolais 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Ryder Scott Company 24.1 Certified resolution adopted by the Company's Board of Directors authorizing this report to be signed on behalf of any officer or director pursuant to a Power of Attorney 24.2 Powers of Attorney 27.1 Financial Data Schedule - ---------------------- (1) Incorporated by reference from the Company's Registration Statement on Form S-1 (Registration No. 333-40375) filed with the Commission on November 17, 1997. (2) Incorporated by reference from the Company's Current Report on Form 8-K dated December 16, 1997. (3) Portions of this Exhibit have been omitted pursuant to a confidentiality request filed with the Commission in connection with the filing of the Registration Statement on Form S-1. [Page] E-1 EX-2 2 Exhibit 2.2 ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), is made and entered into as of the 22nd day of December, 1997, by and between IMC Global Operations Inc., a Delaware corporation (together with its successors and assigns, "Assignor") and Freeport-McMoRan Resource Partners, Limited Partnership, a Delaware limited partnership (together with its successors and assigns,"Assignee"). W I T N E S S E T H: WHEREAS, Assignor holds an interest in certain sulphur and oil and gas producing properties and certain facilities and other interests relating thereto; and WHEREAS, in connection with the proposed merger between Assignor's parent company, IMC Global Inc., and an Affiliate of Assignor, Freeport-McMoRan Inc., (the "Merger"), Assignor hereby agrees to transfer to Assignee the interest in the sulphur and oil and gas producing properties and the facilities and other interests relating thereto which are identified herein. NOW, THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Assignor and Assignee, Assignor and Assignee hereby agree as follows: 1. Definitions. As used herein, the following terms, when capitalized, shall have the following meanings, unless the context dictates otherwise: "Action" means any claim, suit, chose in action, arbitration, mediation, inquiry, proceeding or investigation by or before any court, governmental or other regulatory or administrative agency or commission or any other tribunal. "Affiliate" means with respect to any Person, any Person that directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person. As used in this definition, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Person, whether through ownership of voting securities, by contract or credit agreement, as trustee or executor or otherwise. "Applicable Law" means all applicable provisions of all (i) constitutions, treaties, statutes, laws (including the common law), rules, regulations, ordinances, codes or orders of any Governmental Authority, (ii) Consents by Governmental Authorities and (iii) orders, decisions, injunctions, judgments, awards and decrees of or agreements with any Governmental Authority. "Code" means the Internal Revenue Code of 1986, as amended. "Consent" means any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration, or filing with, or report or notice to, any Person, including but not limited to any Governmental Authority that is required as a precondition to the transfer of one or more of the Assets. "Containment" means any waste, pollutant, hazardous or toxic substance or waste, petroleum, petroleum-based substance or waste, special waste, or any constituent of any such substance or waste. "Environmental Law" means all Applicable Law relating to or addressing the environment, health or safety, including but not limited to OSHA and RCRA and any state equivalent thereof or any successor statute. "Fertilizer Business" means the business conducted by IMC- Agrico Company. "Governmental Authority" means any federal, state, county, municipal or other government, department, commission, board, court, agency, authority, or any other instrumentality of any of them, or any other organization exercising legislative, executive or judicial authority over any of the foregoing. "Hydrocarbons" means crude oil and/or condensate, natural gas, distillate, natural gas liquids and all products recovered in the processing of natural gas liquids, including, without limitation natural gasoline, iso-butane, normal butane, propane and ethane (including such methane allowable in commercial ethane). "Intellectual Property" means any and all United States and foreign (a) patents (including design patents, industrial designs and utility models) and patent applications (including docketed patent disclosures awaiting filing, reissues, divisions, continuations-in-part and extensions), patent disclosures awaiting filing determination, inventions, and improvements thereto, (b) trademarks, service marks, trade names, trade dress, logos, business and product names, slogans, and registrations and applications for registration thereof, together with the goodwill of the businesses attributable thereto, (c) copyrights (including software) and registrations thereof, (d) inventions, processes, designs, formulae, trade secrets, know-how, industrial models, confidential and technical information, manufacturing, engineering and technical drawings, product specifications and confidential business information, (e) intellectual property rights similar to the foregoing, and (f) copies and tangible embodiments thereof (in whatever form or medium, including electronic media). "Leased Real Property" means all interests (including offshore acreage) leased pursuant to the Leases, together with all structures, facilities, improvements, fixtures, systems, equipment, and items of real property which are owned or leased by Assignor and presently located on the real property or other acreage subject to the Leases, and all of Assignor's right, title and interest in and to all easements, servitudes, licenses, rights, rights-of-way, operating rights, franchises and appurtenances relating to the foregoing. "Leases" means the leases set forth on Schedule 1 hereto. "Liabilities" means any and all claims, debts, costs, indebtedness, liabilities and obligations, absolute or contingent, matured or not matured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, including all costs and expenses related thereto and including, without limitation, those claims, debts, costs, indebtedness, liabilities and obligations arising under any law, rule, regulation, Action, threatened Action, order or consent decree of any governmental entity or any award of any arbitrator of any kind, and those arising under any contract, commitments or undertaking. "Lien" means any interest in property held by someone other than the owner of the property, including a mortgage, pledge, hypothecation, claim, security interest, pledge, encumbrance, lease, sublease, license, occupancy agreement, adverse claim or interest, conditional sale, easement, servitude, covenant, encroachment, burden, title defect, title retention agreement, voting trust agreement, option, lien, right of first refusal, right of rescission, charge or other restriction or limitation of any nature whatsoever. "Permit" means any foreign, federal, state, municipal and local permit, license, registration, consent, order, administrative consent order, certificate, approval or other authorization with respect to Assignor necessary for the ownership or use of any Asset or the conduct of the Transferred Business as it is currently conducted or has been previously conducted. "Person" means any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, Governmental Authority or other entity. "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration of a Contaminant into the indoor or outdoor environment or into or out of any Leased Real Property, including the movement of Contaminants through or in the air, soil, surface water, groundwater or Leased Real Property. "Remedial Action " means actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment; (ii) prevent the Release or threatened Release or minimize the further Release of Contaminants or (iii) investigate and determine if a remedial response is needed and to design such a response and post- remedial investigation, monitoring, operation and maintenance and care. "Tax" means any federal, state, provincial, local, foreign or other income, alternative minimum, accumulated earnings, personal holding company, franchise, capital stock, net worth, capital, profits, windfall profits, gross receipts, value added, sales, use, goods and services, excise, customs duties, transfer, conveyance, mortgage, registration, stamp, documentary, recording, premium, severance, environmental (including taxes under Section 59(A) of the Code), real property, personal property, ad valorem, intangible, rent, occupancy, license, occupational, employment, unemployment insurance, social security, disability, workers' compensation, payroll, healthcare, withholding, estimated or similar tax, duty or other governmental charge or assessment or deficiencies thereof, including all interest and penalties thereon and additions thereto whether disputed or not. "Transferred Businesses" means, collectively: (i) the businesses and operations of Assignor to the extent relating to the exploration, production, development, processing, transportation, storage, terminalling, sale, purchase or marketing of sulphur, in whatever form, and of sulphuric acid, or the provision of other services in connection therewith, including, without limitation, the operations conducted from the Leased Real Property, but expressly excluding the purchase and processing of sulphur by IMC-Agrico Company; (ii) the businesses and operations of Assignor to the extent relating to the exploration, production, development, processing, transportation, sale, purchase or marketing of Hydrocarbons produced or allocable to the Leased Real Property, or the provision of other services in connection therewith; (iii) to the extent not already included in the description set forth in (i) or (ii) of this definition, all businesses and operations located on the Leased Real Property or using or consuming any of the Assets. 2. Assignment. Assignor hereby conveys, sells, assigns, transfers and delivers to Assignee any and all right, title and interest of Assignor in or to (collectively, the "Assets"): (i) The assets listed on Schedule 1 attached hereto and made a part hereof; (ii) All of the assets physically located on any of the Leased Real Property; (iii) All books, records and information of Assignor recorded on any form of media whether owned, leased or licensed by Assignor, including magnetic disk, computer drives or microfiche, to the extent the same primarily relate to and primarily used by or primarily in connection with the Transferred Business or any Asset; all advertising materials, catalogs, price lists, correspondence, mailing lists, lists of customers, distribution lists, photographs, production data, sales and promotional materials and records, purchasing materials and records, personnel records, manufacturing and quality control records and procedures, blueprints, specifications, drawings, schematics, research and development files, records, data and laboratory books, Intellectual Property filings or registrations, media materials and plates, accounting records, sales order files, litigation files, logs, seismic and geophysical information, geological and chemical data and information, reserve studies and evaluations, fluid samples, well cores, title abstracts and opinions, production data and reports, well testing data and reports, and maps, to the extent that same primarily relate to and are used primarily by or primarily in connection with the Transferred Business or any Asset; (iv) All cash, credits, prepaid expenses, amounts on deposit, deferred charges, advance payments, security deposits and prepaid items owned by, accrued in favor of or held by Assignor thereof to the extent relating primarily to the Transferred Businesses or any Asset; (v) All notes, accounts receivable, rights to payment or other evidence of indebtedness generated by Assignor primarily in connection with the Transferred Businesses or any Asset; all cash and cash equivalents paid in respect of any such notes, accounts receivable, rights to payment or other indebtedness; and all Liens, letters of credit, guarantees or bonds to secure the payment of all such amounts; (vi) All of the right, title and interest of Assignor in and to all contracts and agreements between Assignor, on the one hand and any third party to the extent made by or for the primary benefit of the Transferred Businesses or any Asset; provided that the Assignor assigns the rights under the Agreement for Sulphur Supply dated as of July 1, 1993 (the "IMCAC Sulphur Agreement") among Assignor, Assignee and IMC-Agrico Company ("IMCAC") other than its rights to act as a buyer on behalf of IMCAC; (vii) All asserted and unasserted Actions now owned by Assignor and that are related primarily arise primarily out of the Transferred Businesses or any of the Assets, including any claim for royalty refunds or rebates from any land owner, including the United States, and any claim for balancing of Hydrocarbons; (viii) All Consents and Permits held by Assignor for the primary benefit of the Transferred Businesses or any Asset; (ix) All machinery, equipment, furniture, furnishings, automobiles, trucks, vehicles, vessels, boats, aircraft, tools, dies, molds, wells, casing, tubing, pumping units, engines, platforms, derricks, separators, compressors, flow lines, tanks, pipelines, chemicals, power generation and transmission equipment, communication systems, meters, motors, parts and similar property (including, but not limited to, any of the foregoing purchased subject to any conditional sales or title retention agreement in favor of any other Person or subject to any financed lease in favor of any other Person) to the extent used primarily in connection with the Transferred Businesses or any Asset; (x) All servitudes, easements, rights of way, operating rights, exploration rights, sharing agreements, balancing agreements, pooling or unitization agreements, farmout or farming agreements, unit designation and pooling orders or other rights or agreements which bear primarily upon or are for the primary benefit of the Transferred Businesses or any Asset; (xi) All sulphur, Hydrocarbons or other minerals to the extent produced from or are allocable to the interest of Assignor in and to any of the Leased Real Property. (xii) All Intellectual Property owned or licensed by Assignor and all rights thereunder or in respect thereof to the extent relating primarily to or used primarily or held primarily for use in connection with the Transferred Businesses or any Asset, including, but not limited to, rights to sue for and remedies against past, present and future infringements thereof, and rights of protection of interests therein under the laws of any jurisdiction worldwide; (xiii) The Leases; and (xiv) any payments made to or on behalf of Assignor or any Actions in favor of Assignor under any insurance policies retained by Assignor to the extent that the same relate to any Assumed Liabilities; provided that, notwithstanding Section 2(iv), Assignor shall retain all claim reserves, prepaid expenses, accruals and all other rights to the insurance policies. Assignor shall amend its "occurrence" insurance policies, if any, to include Assignees as an additional insured with respect to any Assumed Liabilities covered by any and all policies held by Assignor. 3. Assumption of Assumed Liabilities. Subject to the terms and conditions set forth in this Agreement, Assignee shall assume and agree to pay, honor and discharge when due, and take all action necessary or appropriate under Applicable Law to assume, effective on or prior to the date hereof, all Liabilities arising from or in connection with the ownership, acquisition, conduct or operation (past, present or future) of the Transferred Businesses (or any predecessor to the Transferred Businesses) or any Assets or relating to the ownership or use of the Assets, whether arising before, on or after the date hereof and whether related to the current, past or future operations of the Transferred Businesses (collectively, the "Assumed Liabilities"). Without limitation of the foregoing, Assumed Liabilities include: (a) Any and all Liabilities related to the contracts and agreements described in Section 2 above; (b) (i) All Liabilities related to, associated with or arising out of (A) the occupancy, operation, use or control of any of the Leased Real Property, (B) the operations of the Transferred Businesses (or any predecessor thereto), in each case incurred under or imposed by any Environmental Law (including without limitation any Release or threatened Release of any Contaminant on, in, at, to, beneath or from the Leased Real Property, including, without limitation, all facilities, improvements, structures and equipment thereon, surface water thereon or adjacent thereto and soil or groundwater thereunder or any conditions whatsoever on, in, at, under or in the vicinity of such real property), (C) the generation, handling transportation, storage, discharge or disposal of any Contaminant in connection with the Transferred Businesses, (D) any Remedial Action required under any Environmental Law in connection with the Transferred Businesses; or (E) any violation of any Environmental Law in connection with the operations of the Transferred Businesses; (c) Any sales, use, transfer, stamp, recording, documentary or similar Taxes or any fees and disbursements of counsel, accountants, real estate agents, appraisers, financial advisors, actuaries, consultants or title companies or other similar charges, in each case arising out of the assignment, transfer or delivery to the Company of the Transferred Businesses or Assets pursuant to Section 2 in each case; and (d) Any Liabilities arising out of or related to litigation related to the current, past or future operations of the Transferred Businesses. 4. Consents. In the event that Assignor shall be unable to transfer any of the Assets to Assignee prior to the date hereof due to the failure of Assignor to obtain any necessary Consents, Assignor: (i) shall continue to seek the necessary Consents, in accordance with this Agreement; (ii) shall hold such Assets for the benefit of Assignee and cooperate with Assignee in any lawful and economically feasible arrangement to insure that Assignee shall receive the benefits thereof, (iii) shall hold or cause to be held for the account of Assignee all accounts receivable or accounts payable related to Assignee's interest in any such Assets accrued as, and accruing after, the date hereof, (iv) shall make available to Assignee all information relating to such Assets to the extent making such information available is permitted by Applicable Law and the contractual arrangements relating to such Assets, (v) shall not assign, transfer, otherwise dispose of or grant a Lien upon any such Assets to any Person other than Assignee, and (vi) shall upon obtaining the necessary Consents relating to such Assets, promptly take such action as may be necessary to complete the transfer to Assignee of such Assets, including without limitation, all accrued accounts payable and accrued accounts receivable related to such Assets. Any transfer of an Asset after the date hereof shall be effective as of the date hereof. 5. Further Assurances. (a) The transfer of the Assets and the assumption of the liabilities and obligations contemplated herein shall be further evidenced by the execution and delivery by the parties hereto of such acts of transfer, conveyance and assumption as may be reasonably requested by any party. Each of the parties hereto will execute and deliver, and cause all other relevant Persons to execute and deliver, such further instruments of conveyance, assumption and assignment and will take such other actions (including, without limitation, (i) any changes or amendments to or redelivery of such instruments of conveyance, assumption and assignment that may be necessary to vest in the Assignee title to or other applicable rights in the Assets and (ii) the delivery of originals of stock certificates and other similar documents of title) as any other party may reasonably request in order to effectuate the purposes of this Agreement. (b) Assignor shall execute and deliver such further instruments of conveyance, assumption and assignment and shall take such other actions, including, without limitation, any changes or amendments to or redelivery of such instruments of conveyance, assumption and assignment, that may be necessary to vest in the Assignee title to or other applicable rights in the Assets, including without limitation any assets that may arise in the future. Without limiting the foregoing in any manner, Assignor shall immediately notify the appropriate Assignee in the event Assignor obtains knowledge of or reason to believe that certain assets have not been properly transferred to Assignee and shall take all action necessary to have such assets properly transferred to Assignee as set forth herein. (c) Notwithstanding anything herein to the contrary, Assignor agrees to cause IMCAC prior to the date of the Merger (i) to consent to the assignment to Assignee of Assignor's interest in the IMCAC Sulphur Agreement; and (ii) to execute an amendment to the IMCAC Sulphur Agreement reasonably necessary to reflect the fact that Assignee is the successor in interest to Assignor and that the rights and obligations of the parties have been divided as set forth in Section 2(a)(vi) above. In addition to the foregoing, Assignee and IMC Global Inc. (which will become the indirect parent of IMCAC following the Merger) have previously executed a letter agreement clarifying the provisions of Section III of the IMCAC Sulphur Agreement. 6. "As-is, Where-is." Each of the parties hereto understands and agrees that no party hereto is, in this Agreement or in any other agreement or document contemplated by this Agreement or otherwise, representing or warranting in any way (a) as to the value or freedom from encumbrance of, or any other matter concerning, any of the Assets or (b) as to the legal sufficiency to convey title to any Asset, it being understood that except as otherwise set forth in this Agreement or in any ancillary transfer document, the Assets are being conveyed "As- is, Where-is," except for rights or actions in warranty against predecessors in title (other than Assignor or any prior or current Affiliates thereof). It is understood and agreed that Assignee shall bear the economic and legal risk that any conveyance of the Assets shall prove to be insufficient or that Assignor's title to any such assets shall be other than good and marketable and free from encumbrances. Similarly, each party hereto understands and agrees that no party hereto is representing or warranting in any way that the obtaining of any Consents or approvals or the making of any filings or applications contemplated by this Agreement will satisfy the provisions of any or all applicable agreements or the requirements of any or all applicable laws or judgments, it being agreed and understood that Assignee shall bear the economic and legal risk that any necessary Consents are not obtained or that any requirements of law or judgments are not complied with. Notwithstanding the foregoing, the parties shall use reasonable efforts to obtain all Consents, and to make all filings and applications which may be required for the consummation of the transactions contemplated by this Agreement, including, without limitation, all applicable regulatory filings or consents under federal or state environmental laws. 7. Consents. Assignor and Assignee hereby acknowledge that, under certain conditions, under certain of the contracts and agreements described on Schedule 1 hereto, Homestake Mining Company (formerly Felmont Oil Corporation) may have a right of first refusal and a right to consent to certain transfers of Assignor's rights and interests under such documents (the "Homestake Refusal Right"). Without acknowledging that any of the transfers made pursuant to this Agreement are subject to the Homestake Refusal Right, Assignor and Assignee hereby agree as follows: (a) Assignor agrees that it will comply with the instructions of Assignee with respect to whether and in what manner Assignor treats any of the assignments described in this Agreement as being subject to the Homestake Refusal Right:; (b) Assignor agrees that it will structure the assignments pursuant to this Agreement in any manner that Assignee reasonably requests, including, without limitation, as a contribution of the Transferred Businesses and the Assets into a newly-formed subsidiary followed by a transfer of the stock of said subsidiary; and (c) Assignee hereby covenants and agrees to defend, indemnify and hold harmless Assignor and its officers, directors, employees, agents, advisors, representatives, contractors and subcontractors and each of their respective heirs, executors, successors and assigns from and against all claims, liabilities, obligations, losses, fines, costs, royalties, penalties, proceedings, deficiencies, or damages (whether absolute or accrued, conditional or otherwise and whether or not resulting from third party claims), including out-of-pocket expenses and reasonable attorneys' and accountants' fees incurred in the investigation or defense of any of the same or asserting any of their respective rights hereunder, to the extent resulting from or arising out of the compliance by Assignor with any of the directions or requests made by Assignee in respect of subsections (a) and (b) of this section. 8. Notices. All notices, requests and other communications under this Agreement to any party hereto shall be in writing (including facsimile or similar writing) and shall be given If to Assignor, to: IMC Global Operations Inc. 2100 Sanders Road Northbrook, Illinois 60662 Attention: General Counsel Telecopier: (847) 205-4894 If to Assignee, to: Freeport-McMoRan Resource Partners, Limited Partnership 1615 Poydras Street New Orleans, Louisiana 70112 Attention: General Counsel Telecopier: (504) 582-4227 or to such other address or telecopier number as such party may hereafter specify for the purpose by notice to the other parties. Each such notice, request or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the telecopier number specified in this Section and transmission of the appropriate number of pages is confirmed or (ii) if given by any other means, when delivered at the address specified in this Section 6. 9. Amendment and Waiver. This Agreement may not be altered or amended, nor may rights hereunder be waived, except by an instrument in writing executed by each party, or in the case of a waiver by an instrument in writing executed by the party against whom such waiver is to be effective. No waiver of any term, provision or condition of or failure to exercise or delay in exercising any rights or remedies under this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, provision, condition, right or remedy or as a waiver of any other term, provision or condition of this Agreement. 10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original instrument but all of which together shall constitute but one and the same Agreement. 11. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF DELAWARE. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. ASSIGNOR IMC Global Operations Inc. By: /s/ Marshall I. Smith Name: Marshall I. Smith Title: Senior Vice President ASSIGNEE Freeport-McMoRan Resource Partners, Limited Partnership By: Freeport-McMoRan Inc., its Administrative Managing General Partner By: /s/ Michael J. Arnold Name: Michael J. Arnold Title: Senior Vice President EX-10 3 Exhibit 10.1 EMPLOYEE BENEFITS AGREEMENT This EMPLOYEE BENEFITS AGREEMENT, dated as of December 22, 1997, entered into by FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP, a Delaware limited partnership (together with its successors and permitted assigns, "FRP"), FREEPORT- McMoRan INC., a Delaware corporation (together with its successors and permitted assigns, "FTX") and FREEPORT-McMoRan SULPHUR INC., a Delaware corporation (together with its successors and permitted assigns, "Company"), WITNESSETH: WHEREAS, the parties hereto have entered into a CONTRIBUTION AND DISTRIBUTION AGREEMENT, which includes covenants regarding assets and liabilities of FRP that are to be transferred to Company; and WHEREAS, the parties desire to provide for the transfer of assets and liabilities pertaining to certain employee-benefit plans maintained by FTX for the benefit of FTX employees who have in the past provided services for FRP, and to provide regarding the compensation and benefits of those of such employees who will be employees of Company; NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. For purposes of this Agreement, the following terms shall have the meaning set forth below. (a) "Adjusted Company Award" shall mean a non- qualified stock option to purchase Company Shares with in tandem "limited rights" that results from the adjustment and conversion of an FTX Award pursuant to Paragraph 5. (b) "Adjusted FTX Award" shall mean an FTX Award that is adjusted in accordance with the provisions of Paragraph 5. (c) "Adjusted Stock Award Plan" shall mean the Company Adjusted Stock Award Plan, adopted pursuant to Paragraph 5. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Company Pension Plan" shall mean a defined- benefit pension plan sponsored by Company for the benefit of Transferred Employees. (f) "Company Shares" shall mean Common Stock, par value $.01 per share, of the Company. (g) "Distribution Date" shall mean the effective date of the Distributions. (h) "Effective Time" shall mean the date of the merger of Freeport-McMoRan Inc. into IMC Global Inc. (i) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. (j) "Former Sulphur Employee" shall mean an employee who (i) either (A) retired from FTX or an Affiliate under circumstances making him eligible under one or more plans or arrangements of FTX or the Affiliate to receive medical, dental or life insurance benefits during retirement, or (B) terminated employment from FTX or an Affiliate under circumstances making him eligible for benefits under the FTX Pension Plan, and (ii) during all of his or her last three years of employment, provided services primarily for the Transferred Businesses. (k) "FTX AIP" shall mean the Freeport-McMoRan Inc. Annual Incentive Plan. (l) "FTX Award" shall mean a stock option, stock appreciation right, limited right, stock incentive unit or other award relating to FTX Shares that has been granted under an FTX Stock Plan and is outstanding on the Distribution Date and held by any person other than an employee of IMC-Agrico Company. (m) "FTX Benefit Arrangements" shall mean each employment, severance, termination, consulting, retirement or similar contract, arrangement or policy, and each plan or arrangement (whether or not written) providing for severance benefits, insurance coverage (including any self-insured arrangements), disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits, deferred compensation, profit-sharing, bonuses, stock options, stock appreciation rights or other forms of incentive compensation or post-retirement insurance, compensation or benefits that (i) is not an FTX Employee Plan, (ii) is entered into, maintained, or contributed to, as the case may be, by FTX or any of its affiliates and (iii) covers any Transferred Employee. (n) "FTX EBP" shall mean the Freeport-McMoRan Inc. Excess Benefits Plan. (o) "FTX Employee Plans" shall mean each "employee benefit plan," as defined in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is maintained, administered or contributed to by FTX and (iii) covers any Transferred Employee. (p) "FTX ECAP" shall mean the Freeport-McMoRan Inc. Employee Capital Accumulation Program. (q) "FTX Grandfathered Plan" shall mean the Freeport- McMoRan Inc. Grandfathered Retirement Benefit Plan. (r) "FTX LTPIP" shall mean either or both of the Freeport-McMoRan Inc. 1987 Long-Term Performance Incentive Plan and the Freeport-McMoRan Inc. 1992 Long-Term- Performance Incentive Plan. (s) "FTX Pension Plan" shall mean the FMI Employee Retirement Plan. (t) "FTX PIAP" shall mean the Freeport-McMoRan Inc. Performance Incentive Awards Program. (u) "FTX PAP" shall mean the Freeport-McMoRan Inc. President's Award Program. (v) "FTX SECAP" shall mean the Freeport-McMoRan Inc. Supplemental Executive Capital Accumulation Plan. (w) "FTX Shares" shall mean shares of FTX common stock, par value $.01 per share. (x) "Retired Employees" shall mean all former and retired employees of FTX and its subsidiaries, and long-term disabled employees of FTX and its subsidiaries who did not work primarily for the Transferred Businesses, as of the Effective Time, including those persons who retire from FTX at any time up to the date of the Merger. (y) "Rule 16b-3" shall mean Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, and any successor provision. (z) "Section 162(m)" shall mean Section 162(m) of the Code and any memoranda or decisions issued by the Internal Revenue Service or the Department of the Treasury with respect thereto. (aa) "Securities Act" shall mean the Securities Act of 1933, as amended. (bb) "Transferred Employees" shall mean those employees of FTX or its subsidiaries who by mutual agreement between FTX and Company become employees of Company on or about the Effective Time, or who are actively employed in the Transferred Businesses (as defined in the Contribution and Distribution Agreement) on the Effective Time. Employees of FM Services Inc. and its subsidiaries are not Transferred Employees. Capitalized terms used in this document that are not defined herein shall have the meanings set forth in the Contribution and Distribution Agreement having the same date and entered into by the same parties. 2. Employment by the Company. (a) Each Transferred Employee will become an employee of Company on or before the Effective Time. Except as otherwise provided in this Agreement, Company will not assume the liabilities of FTX in respect of the Transferred Employees for accrued but unpaid salaries, wages, or other compensation or benefits with respect to service prior to the Effective Time, which liabilities shall remain with FTX. (b) No provision of this Agreement shall preclude or impair the ability of Company to terminate the employment of any Transferred Employee or to change the terms, conditions or location of employment following the Effective Time. 3. Pension Plans. (a) As of the Effective Time, FTX shall cause to be transferred to a newly-created separate defined-benefit pension plan (the "Spin-Off Plan") the assets and liabilities of the FTX Pension Plan that are attributable to the Transferred Employees. The Spin-Off Plan shall have substantially the same terms and conditions as the FTX Pension Plan, subject to any limitation required by Company regarding accrual of benefits after the Effective Time. In connection with the transfer, FTX shall make all filings and submissions to governmental agencies as are required by law, and shall make all amendments to the FTX Pension Plan and related trust agreement as are necessary. The accrued benefits attributable to the Transferred Employees shall be 100% vested. The transfer shall be made as of the "Transfer Date", which shall be the Effective Time, or at such other time as is mutually agreed upon by FTX and Company. (b) The amount of the assets required under Paragraph (a) to be transferred (the "Transfer Amount") shall be equal to the Account Balances of the Transferred Employees under the FTX Plan as of the Effective Time, including Annual Additions with respect to Earnings throught the Effective Time and Annual Interest Credits through the Effective Time. The Transfer Amount shall in no event be less than the minimum amount necessary to satisfy all requirements of the Code and regulations. The Transfer Amount shall be transferred within 30 days after the Effective Time. The terms Account Balance, Earnings, Annual Additions, and Annual Interest Credits as used in this paragraph have the same meaning as in the FTX Pension Plan. (c) As of the Effective Time (or such other date as agreed to by the Company and FTX) Company shall become the sponsor of the Spin-Off Plan referred to in Paragraph (a) (hereafter "Company Pension Plan") and its related trust, which will hold the Transfer Amount. Company shall take all necessary steps, including the prompt filing of an application to the Internal Revenue Service for a favorable determination letter, to assure that the Company Pension Plan is qualified under Internal Revenue Code Section 401(a). As of the date of the transfer of the Transfer Amount, the Company Pension Plan shall assume the liabilities of the FTX Pension Plan that are attributable to the Transferred Employees, and the FTX Pension Plan (and FTX as sponsor of the FTX Pension Plan) shall have no further liability with respect to the Transferred Employees. Company shall be under no obligation to accrue benefits under the Company Pension Plan after the Effective Time at the same rate as under the FTX Pension Plan, and may terminate the Company Pension Plan. Company shall have no obligations or liabilities arising under or attributable to the FTX Pension Plan, other than as described above. (d) As of the Effective Time, Company shall assume the liabilities in respect of Transferred Employees under the FTX EBP and the FTX Grandfathered Plan, and FTX shall have no further obligation under such plans with respect to such employees. As consideration for the assumption of such liabilities by Company, FTX shall pay to Company an amount, estimated at $700,000, that the plans' actuary shall determine is equal to the value as of the Effective Time of the benefits accrued under the plans by the Transferred Employees. The value of a Transferred Employee's accrued benefit under the FTX EBP shall be equal to the difference between the Participant's actual Account Balance under the FTX Pension Plan and the Account Balance the Participant would have had under the assumptions set forth in the FTX EBP. The value of a Transferred Employee's accrued benefit under the FTX Grandfathered Plan shall be determined under the assumptions of that plan as if the Transferred Employee had retired as of the Effective Time and elected to receive an immediate lump-sum benefit. The payment with respect to the FTX Grandfathered Plan shall be made only with respect to the Transferred Employees (if any) who have reached the age of 55 by the Effective Time. Company shall have no obligation to allow Transferred Employees to continue to accrue benefits under such plans after the Effective Time. 4. Individual Account Plans (a) As of the Effective Time, Company shall adopt the FTX ECAP and its related trust, and the documents governing said plan and trust shall be amended by FTX and the Company to provide that, commencing at the Effective Time, FTX will no longer have any powers or duties with respect to said plan and trust, and the Company will have all powers and duties with respect to the plan and trust that pertain to a plan sponsor. Within 15 days following the Effective Time, FTX shall pay to the trustee of said trust any amounts payable to the trust that it has received or withheld from participants, and any matching contributions due under said plan. (b) The FTX ECAP will be amended prior to the Effective Time to permit it to hold Company shares. (c) As of the Effective Time, the FTX SECAP document shall be amended by FTX and the Company to provide that the Company assumes all liabilities in respect of Transferred Employees under the FTX SECAP, and that FTX has no further obligation under the FTX SECAP with respect to the account balances of Transferred Employees. As consideration for the assumption of such liabilities by Company, FTX shall pay to Company an amount equal to the account balances of the Transferred Employees valued as of the date of the transfer. As the vehicle for satisfying the liabilities assumed under this Paragraph (c), Company shall establish a Company SECAP. All account balances of Transferred Employees in the Company SECAP shall be 100% vested. Company shall have the right to amend or terminate the Company SECAP at any time, provided that no amendment shall reduce participant account balances. (d) The FTX SECAP will be amended prior to the Effective Time to require immediate payout with respect to all participants other than the Transferred Employees. 5. Stock Plan Adjustments; Establishment of New Adjusted Stock Award Plan. (a) Effective as of the Distribution Date, the Company shall adopt the Adjusted Stock Award Plan and shall take all action necessary in regard to such Plan, the benefits provided thereunder, and the transactions contemplated thereby to ensure compliance with Rule 16b-3, Section 162(m) and the Securities Act, as applicable and as deemed desirable by the Company. The Adjusted Stock Award Plan shall be established for the exclusive purpose of granting the Adjusted Company Awards as described in this Paragraph 5. (b) Each outstanding FTX Award on the Distribution Date shall be converted, in accordance with the procedures described in this Paragraph 5, into an Adjusted FTX Award and an Adjusted Company Award. The number of Company Shares subject to an Adjusted Company Award shall be that number of Company Shares that a record holder of the number of FTX Shares underlying the related FTX Award would have received in the FTX Distribution. Notwithstanding the foregoing, if the FTX Award from which the Adjusted Company Award is derived contains a right to receive a cash payment upon exercise of such FTX Award related to and intended to defray the income tax liability associated therewith, the number of Company Shares to be subject to the Adjusted Company Award, determined according to the provisions of this Paragraph 5(b) (without disregarding fractional Company Shares), shall be multiplied by 1.6556 and any fractional Company Share resulting from such adjustment shall be disregarded. Such adjustment shall not affect the calculation of the per Company Share exercise price of the Adjusted Company Award as set forth in Paragraph 5(e) below. (c) Each Adjusted Company Award and each Adjusted FTX Award will have the same remaining duration as the FTX Award from which it was derived. (d) The exercise price of an Adjusted FTX Award shall be determined by multiplying the exercise price of the FTX Award from which such Adjusted FTX Award was derived by a fraction, the numerator of which is the FTX Net Distribution Value, as defined below, and the denominator of which is the FTX Distribution Value, as defined below. (e) The exercise price of an Adjusted Company Award shall be determined by multiplying the exercise price of the FTX Award from which such Adjusted Company Award was derived by a fraction, the numerator of which is the Company Distribution Value, as defined below, and the denominator of which is the FTX Distribution Value. (f) For purposes of the foregoing, the "Company Distribution Value" shall be the weighted average per share price of the Company Shares on the New York Stock Exchange on the first day that Company Shares are traded on the New York Stock Exchange after the effective date of the merger of Freeport-McMoRan Inc. into IMC Global Inc.; the "FTX Distribution Value" shall be the weighted average per share price of the FTX Shares on the New York Stock Exchange on the last day that FTX Shares are traded on the New York Stock Exchange before the effective date of the merger of Freeport-McMoRan Inc. into IMC Global Inc. and the "FTX Net Distribution Value" shall be (i) the FTX Distribution Value minus (ii) the product of the Distribution Ratio, as hereinafter defined, and the Company Distribution Value. The "Distribution Ratio" shall mean the number of Company Shares distributed in the FTX Distribution per FTX Share, rounded to the nearest one- millionth (.000001) of a Company Share. 6. Deferred Compensation Liabilities. As of the Distribution, FTX shall calculate the liability of FTX and its subsidiaries in respect of the Transferred Employees' deferred compensation, including without limitation deferred awards under the FTX PIAP, FTX AIP, FTX LTPIP, and predecessor plans, if any. In consideration of a cash payment made promptly after the Distribution Date by FTX to the Company in an amount equal to such accrued liability, the Company will assume such liability in respect of Transferred Employees. 7. Welfare Plans. (a) As of the Effective Time, Transferred Employees shall cease participation in all FTX Employee Plans and FTX Benefit Arrangements. Except as otherwise set forth in this Agreement or in the Merger Agreement, FTX shall retain all obligations and liabilities under the FTX Employee Plans and FTX Benefit Arrangements. (b) FTX and its FTX Employee Plans and FTX Benefit Arrangements shall retain responsibility for the administration, liability, cost of coverage and all amounts payable by reason of claims incurred by Transferred Employees (and their dependents and beneficiaries) on or before the Effective Time, by reason of claims incurred by Retired Employees, and by reason of claims incurred by FTX employees who as of the Effective Time were on a leave of absence or were receiving long term disability benefits, sick leave benefits, or similar benefits. However, the Company shall assume responsibility for the administration, liability, cost of coverage, and all amounts payable by reason of employee benefit plan claims incurred by FTX employees (and their dependents) who at the time the employees ceased active work for FTX performed services primarily for the Transferred Businesses and who as of the Effective Time were on a leave of absence or were receiving long term disability benefits, sick leave benefits, or similar benefits. For such purpose, unless otherwise agreed by FTX and the Company, a claim is deemed incurred on the date of the occurrence of (i) death, dismemberment, accident, or other loss in the case of claims under life insurance and accidental death and dismemberment benefits, (ii) in the case of a hospital stay, based on the date any such hospitalization is initiated, or (iii) the date on which the treatment or other service was rendered or the medicine, equipment, supply or other material was furnished, as the case may be, which resulted in the charge or expense giving rise to the claim in the case of all other claims. This paragraph 7(b) shall not apply to claims under applicable workman's compensation laws, the Jones Act, 46 U.S.C. S 688, the Longshore and Harbor Workers' Compensation Act, 33 U.S.C. S 901, et. seq., or under similar laws, or arising in connection with any occupational injury or disease. (c) As of the Effective Time, Company shall be responsible for post-retirement benefit liabilities in respect of Transferred Employees and FTX shall have no further obligation for such liabilities with respect to such employees. FTX shall pay to Company an amount that equals the liability that has been accrued for such employees in accordance with the Financial Accounting Standard Board No. 106 as provided in the Freeport- McMoRan Inc. Retiree Benefit Plan's January 1, 1997 valuation report. (d) The Company shall reimburse FTX for any payment (a "Reimbursable Payment") that FTX properly makes to or on behalf of a Former Sulphur Employee with respect to claims made after the Effective Time (or to an insurance company to provide coverage for a Former Sulphur Employee after the Effective Time) under the terms of any retiree medical, dental or life insurance plan or arrangement of FTX. No later than 30 days following the end of each calendar quarter, FTX shall provide the Company with a report providing in reasonable detail its calculation of the total amount of Reimbursable Payments made by FTX during the quarter, less any refunds or other offsetting payments or credits received by FTX. The amount that Company shall reimburse FTX shall be equal to the net amount of Reimbursable Payments by FTX, less the Credit Amount. The Credit Amount for each calendar quarter shall be equal to 25% of 9.5% of a fraction of the "Surplus", as defined below, which fraction shall be derived by dividing the liabilities under the FTX Pension Plan as of the Effective Time attributable to the Former Sulphur Employees by the total liabilities of the FTX Pension Plan as of the Effective Time. The Surplus shall be the fair market value of the assets of the FTX Pension Plan, less the total liabilities of the FTX Pension Plan, as of the Effective Time. The assets and liabilities used in this Paragraph 7(d) to calculate the Surplus and the appropriate fraction of the Surplus shall be determined as of the Effective Time, but only with regard to the portion of the FTX Pension Plan that remains after the transfer described in Section 3(b) of this Agreement. Furthermore, for purposes of this Section 7(d), the assets and liabilities of the FTX Pension Plan (after the transfer described in Section 3(b) shall be determined on a FAS 87/88 basis. If the Credit Amount for the current calendar quarter (plus any carried-forward excess from the preceding calendar quarter) exceeds the Reimbursable Payments in a quarter no payment shall be made between the parties. Any excess Credit Amount for the current calendar quarter shall be carried forward to the next calendar quarter. Company shall have the right to request an annual audit of the Reimbursable Payments by an independent certified public accountant. This paragraph is not intended to limit any rights that FTX may have to reduce its obligations under any such plans or arrangements. However, FTX shall have no right to increase its cost of benefits for any Former Sulphur Employee without obtaining 30-days advance approval from Company. Nor shall FTX have the right to reduce the cost of coverage for any Retired Employees who are not Former Sulphur Employees without likewise reducing the cost of coverage for the Former Sulphur Employees. (e) With respect to employees and their dependents (other than Transferred Employees) who experience a qualifying event as defined in 29 U.S.C. S 603 as a result of the transactions contemplated in the Contribution and Distribution Agreement and the Merger Agreement and who elect COBRA continuation group health coverage under 29 U.S.C. SS 601, et. seq. ("COBRA Coverage"), the Company shall reimburse FTX for any Reimbursable Payment that FTX properly makes to or on behalf of such employees or dependents with respect to claims made after the Effective Time under the plan providing such COBRA coverage (or to an insurance company to provide COBRA Coverage for such employees or dependents after the Effective Time) in accordance with the procedures set forth in 7(d) above. (f) The employee benefit plans established by the Company for the benefit of Transferred Employees shall give effect, in determining or applying any copayments, benefit limits, deductibles and maximum out-of-pocket limitations to claims incurred, amounts paid by, and amounts reimbursed to, such employees under the corresponding FTX Employee Plans or FTX Benefit Arrangements maintained by FTX for their benefit immediately prior to the Effective Time. Further, the employee benefit plans established by the Company for the Transferred Employees shall give credit for service at FTX and its subsidiaries for purposes of any eligibility waiting periods and pre-existing condition limitations. The employee benefit plans established by the Company that provide a maximum annual benefit, such as a vacation plan or wage and salary continuation, will take into account benefits used by the Transferred Employees under the corresponding FTX Employee Plans or FTX Benefit Arrangements maintained by FTX for their benefit immediately prior to the Effective Time. (g) The Company will give Transferred Employees full credit for purposes of eligibility, vesting, benefit accrual and benefit entitlement (as such purposes may be applicable) under the employee benefit plans of the Company for such employees' respective service recognized or applied for such purposes under the corresponding FTX Employee Plan or FTX Benefit Arrangement, to the extent applicable. (h) FTX and the Company shall provide each other with copies of such records as are reasonably required to enable the parties to perform their obligations hereunder. 8. Cash Bonuses. As of the Effective Time, FTX shall in good faith determine the total amount of cash incentive payments that it would have made to the Transferred Employees under the FTX PIAP and the FTX PAP for 1997 (without proration for a partial year), which determination shall be subject to the limitations and other terms and conditions of Schedule 5.8(c) to the Merger Agreement. In consideration of a cash payment made promptly after the Effective Time by FTX to the Company in an amount equal thereto, the Company will assume the payment of such amounts to the Transferred Employees, which will be made as soon as feasible after 1997 in accordance with any procedures it may establish with respect to the payment of any cash incentive payments to Company employees. 9. Expenses. Each of the Company and FTX shall pay its own expenses in connection with the performance of its obligations under this Agreement. 10. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Louisiana. 11. Amendment and Waiver. This Agreement may not be altered or amended, nor may rights hereunder be waived, except by an instrument in writing executed by each party, or in the case of a waiver by an instrument in writing executed by the party against whom such waiver is to be effective. No waiver of any term, provision or condition of or failure to exercise or delay in exercising any rights or remedies under this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, provision, condition, right or remedy or as a waiver of any other term, provision or condition of this Agreement. 12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original instrument but all of which together shall constitute but one and the same Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. FREEPORT-McMoRan INC. By: /s/ Michael J. Arnold Name: Michael J. Arnold Title: Senior Vice President FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP By: FREEPORT-McMoRan INC., Administrative Managing General Partner By: /s/ Michael J. Arnold Name: Michael J. Arnold Title: Senior Vice President FREEPORT-McMoRan SULPHUR INC. By: /s/ Robert M. Wohleber Name: Robert M. Wohleber Title: President and Chief Executive Officer EX-10 4 Exhibit 10.14 SERVICES AGREEMENT THIS SERVICES AGREEMENT (this "Agreement"), dated as of December 23, 1997 by and between FM Services Company, a Delaware corporation ("FMS"), and Freeport-McMoRan Sulphur Inc., a Delaware corporation ("FSC"). WHEREAS, FSC desires that FMS furnish FSC and its affiliates, as that term is defined in Rule 405 under the Securities Act of 1933 (collectively, the "FSC Group"), with Services, as defined below, to support and complement the services provided by its officers, employees and other available resources. NOW THEREFORE, in consideration of the covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Services. During the term of this Agreement FMS shall furnish the following services (collectively, the "Services") to the FSC Group: (a) accounting, treasury and financial, (b) tax, (c) insurance and risk management (including the purchase and maintenance on behalf of FSC of such insurance as FSC deems necessary or appropriate), (d) human resources (including employee benefit services), (e) management information and system support, (f) governmental relations, (g) community relations, (h) investor relations, (i) facilities management and security, (j) marketing; business development, (k) executive support, (l) aviation, (m) contract administration and (n) such other services as may mutually be agreed upon by the parties hereto. Services shall be provided directly by FMS or, in the discretion of FMS, by affiliated or non-affiliated third parties. Section 2. Administration of Services. FMS shall keep the appropriate officers and employees of FSC and other members of the FSC Group fully informed and shall cooperate with such officers and employees with respect to the performance of Services by FMS. Each member of the FSC Group shall have complete and full access to all data, records, files, statements, invoices, billings and other information generated by or in the custody of FMS relating to Services provided to such entity. Section 3. Compensation. (a) As compensation for the performance of the Services, FSC shall reimburse, or cause another member of the FSC Group to reimburse, FMS for: (i) All expenses of the Services incurred by FMS that are readily identifiable to the FSC Group, including personnel related costs (which shall be based upon department head allocations), facilities related costs (based upon personnel cost allocations) and aviation costs ("Direct Charges"); (ii) All costs of goods, services or other items purchased from third parties by FMS for the FSC Group, to the extent such costs are paid by FMS ("Third Party Charges"); and (iii) The portion of all other expenses incurred by FMS in connection with providing the Services to the FSC Group and similar services to Freeport-McMoRan Copper & Gold Inc. ("FCX"), McMoRan Oil & Gas Co. ("MOXY") and FM Properties Inc. ("FMPO") and their respective affiliates as directed from time to time by the joint written instructions of FSC, FCX, MOXY and FMPO pursuant to the Stockholder Agreement of even date herewith among FSC, FCX, MOXY and FMPO ("Allocated Charges"). (b) FMS shall invoice FSC by the last day of each month for all Direct Charges, Third Party Charges and Allocated Charges incurred for the immediately preceding month. All invoices shall provide FSC with an account of all such charges and an accounting for all Advances, as defined below, during such month. All amounts shown on each invoice shall be due and payable within five (5) days of the date of the invoice. In the event of a dispute as to the propriety of any invoiced amount, FSC shall pay, or cause the payment of, all undisputed amounts on each invoice, but shall be entitled to withhold payment of any amount in dispute and shall promptly notify FMS of the basis of the dispute. (c) FSC shall advance, or cause the advancement of, funds to FMS for Direct Charges, Third Party Charges and Allocated Charges from time to time during the term of this Agreement (which may be as often as daily) as requested by FMS, such funds to serve as an advance of the amounts to be invoiced hereunder (the "Advances"). Section 4. Use of FMS Facilities. FMS shall provide the FSC Group with a non-exclusive right to utilize its properties and facilities, subject to such limitations, if any, as may be imposed by leases and other agreements and instruments governing the use of such properties and facilities. Section 5. Terms of Agreement; Termination. (a) This Agreement shall commence as of the date first above written and shall continue in effect until (i) the parties mutually agree in writing to terminate this Agreement, (ii) 90 days after receipt by FMS of written notice from FSC of its request to terminate this Agreement, or (iii) a Change in Control. A "Change in Control" shall be deemed to have occurred if any Person or group (within the meaning of Rule 13d-5 of the SEC as in effect on the date hereof) shall own directly or indirectly, beneficially or of record, shares representing 50% or more of the aggregate ordinary voting power represented by the issued and outstanding capital stock of FSC. (b) Upon termination of this Agreement, FSC shall be liable for (i) Direct Charges, Third Party Charges and Allocated Charges incurred in accordance with Section 3 prior to termination, (ii) its proportionate share of all costs incurred by FMS or which FMS is obligated to incur in connection with providing the Services after termination, because of the anticipated long-term nature of this Agreement or otherwise, and (iii) all costs of such termination, whether direct or indirect and including costs incurred by FMS in connection with the termination by FMS of obligations entered into in connection with the Services. Section 6. Limitation of Liability. (a) FMS makes no representation or warranty whatsoever, express or implied, with respect to the Services. In no event shall FMS be liable to FSC for (i) any loss, cost or expense resulting from any act or omission taken at the express direction of any member of the FSC Group or (ii) any special, indirect or consequential damages resulting from any error or omission in the performance of the Services or from the breach of this Agreement. (b) Neither FMS nor FSC shall be liable for any loss or damage or any nonperformance, partial or whole, under this Agreement, caused by any strike, labor troubles, riot act of a public enemy, insurrection, act of God, or any law, rule or regulation promulgated by any governmental body or agency, or any demand or requisition of any governmental body or agency, or any other cause beyond the control of the parties hereto. Section 7. Confidentiality. FMS will hold and will use its best efforts to cause its officers, directors, employees and other agents (collectively, its "Agents") to hold, in confidence, all confidential documents and information concerning the FSC Group furnished to such party in connection with this Agreement, except to the extent that such information can be shown to have been (a) previously known by such party on a nonconfidential basis, (b) in the public domain through no fault of such party or (c) later lawfully acquired by such party on a nonconfidential basis from a source other than the FSC Group; provided that FMS may disclose such information in connection with this Agreement to its Agents so long as such persons are informed by FMS of the confidential nature of such information and are directed by FMS to keep such information confidential and not to use it for any purpose other than its intended use. Notwithstanding the foregoing, FMS or its Agents may disclose such information if (i) compelled to disclose by judicial or administrative process or by other requirements of law or (ii) necessary to establish such party's position in any litigation or any arbitration or other proceeding based upon or in connection with the subject matter of this Agreement. Prior to any disclosure pursuant to the preceding sentence, FMS or its Agent(s) shall give reasonable prior notice to FSC of such intended disclosure, and if requested by FSC, FMS shall use all reasonable efforts to obtain a protective order or similar protection for such information and shall otherwise disclose only such information as is legally required. If all or any part of the Services are terminated, FMS will, and will use its best efforts to cause its Agents to, destroy or deliver to FSC, upon request, all documents and other materials, and all copies thereof, containing confidential information obtained from the FSC Group in connection with the Services so terminated. Section 8. Technology. FMS hereby grants to FSC a royalty free, non-exclusive right and license to use (but not to sublicense outside of the FSC Group) any and all technology, whether or not patented, developed by or on behalf of FMS, relating to the business of FSC; provided that the license hereby granted shall not extend to (i) any technology developed for a person not affiliated with FMS, pursuant to an arrangement granting such person exclusive rights to such technology, or (ii) any technology developed after the termination of this Agreement. Section 9. Dispute Resolution. FSC and FMS shall use all reasonable efforts to amicably resolve all disputes arising under this Agreement. If despite such efforts any matter cannot be amicably resolved the matter shall be referred to the Presidents of FSC and FMS who shall promptly meet for the purpose of resolving such dispute. If despite such efforts and meetings the matter remains unresolved, then any affected party may refer the matter to arbitration for final resolution in accordance with the commercial rules of the American Arbitration Association. Any matter submitted to arbitration shall be decided by a single arbitrator selected by mutual agreement of the parties (or if the parties cannot agree then such arbitrator shall be selected by the appropriate official or designee of the American Arbitration Association). Any such arbitration proceeding shall be held in New Orleans, Louisiana. Each party shall bear its own costs and expenses, and the arbitrator's fees and expenses and the costs and expenses of the proceeding itself shall be borne by the parties in such proportions as the arbitrator shall decide. The decision of the arbitrator shall be final and non-appealable, and may be enforced in any court of competent jurisdiction. Section 10. Miscellaneous. (a) The parties hereto are independent contractors. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, franchise or joint venture relationship between the parties. Neither party shall incur any debts or make any commitments upon the other, except to the extent specifically provided herein. (b) This Agreement constitutes the entire agreement between the parties hereto with respect to the matters set forth in this Agreement. This Agreement shall not be amended, modified or supplemented except by an instrument in writing executed by each of the parties hereto. (c) All notices and other communications hereunder shall be in writing and shall be given by hand delivery, certified or registered mail, return receipt requested or telecopy transmission with confirmation of receipt to the address of each of the parties set forth opposite the signature of such party on the signature page hereof. All notices and communications shall be deemed given upon receipt thereof. (d) This Agreement shall be governed by and construed in accordance with the internal laws of the State of Louisiana without the application of any conflicts of laws principles. (e) This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. This Agreement shall not be assignable by any party hereto without the prior written consent of the other party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. Address for Notices: FM SERVICES COMPANY 1615 Poydras Street New Orleans, LA 70112 By:/s/ Michael J. Arnold Attention: General Counsel Michael J. Arnold President Address for Notices: FREEPORT-McMoRan SULPHUR INC. 1615 Poydras Street New Orleans, LA 70112 By:/s/ Robert M. Wohleber Attention: General Counsel Robert M. Wohleber President and Chief Executive Officer EX-10 5 Exhibit 10.15 CREDIT AGREEMENT dated as of December 12, 1997, among FREEPORT-McMoRan SULPHUR INC., a Delaware corporation (the "Borrower"); the undersigned financial institutions (collectively, the "Lenders"), THE CHASE MANHATTAN BANK, a New York banking corporation ("Chase"), as administrative agent for the Lenders (in such capacity, the "Administrative Agent"), and as documentary agent for the Lenders (in such capacity, the "Documentary Agent"; the Administrative Agent and the Documentary Agent being, collectively, the "Agents") and HIBERNIA NATIONAL BANK, a national banking association ("Hibernia"), as co-agent for the Lenders (the "Co-Agent"). The Borrower has requested the Lenders to extend credit to it in order to enable it to borrow on a revolving credit basis at any time and from time to time prior to the Maturity Date (as herein defined). The aggregate principal amount of all revolving credit loans at any time outstanding hereunder shall not exceed $100,000,000. The Lenders are willing to make loans to the Borrower upon the terms and subject to the conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Definitions. As used in this Agreement, the following terms have the meanings indicated (any term defined in this Article I or elsewhere in this Agreement in the singular and used in this Agreement in the plural shall include the plural, and vice versa): "Administrative Questionnaire" means an Administrative Questionnaire in the form of Exhibit A. "Affiliate" means, when used with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Alternate Base Rate" means for any day, a rate per annum (rounded upwards, if not already a whole multiple of 1/100 of 1%, to the next higher 1/100 of l%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect for such day plus 1/2 of 1%. For purposes hereof, the term "Prime Rate" means the rate of interest per annum publicly announced from time to time by Chase as its prime rate in effect at its principal office in The City of New York; each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective. "Base CD Rate" means the sum of (x) the product of (i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (y) the Assessment Rate. "Three-Month Secondary CD Rate" means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three- month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. "Federal Funds Effective Rate" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate, the Three- Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "Applicable LIBO Rate" means on a per annum basis, in respect of any LIBO Rate Loan, for each day during the Interest Period for such Loan, the sum of (i) the LIBO Rate as determined by the Administrative Agent plus (ii) the Applicable Margin. "Applicable Margin" means, with respect to any LIBO Rate Loan or Reference Rate Loan, or with respect to the Commitment Fees, as the case may be, the applicable percentage set forth on Schedule I under the caption "LIBOR Spread", "ABR Spread" or "Commitment Fee Percentage", as the case may be, based upon the Leverage Ratio as of the most recent determination date; provided that until the delivery to the Administrative Agent, pursuant to Section 5.01(a), of the Borrower's consolidated financial statements for the fiscal year ending December 31, 1997, the "Applicable Margin" shall be the applicable rate per annum set forth on Schedule I under the caption "Below 2.5x". For purposes of the foregoing, (i) the Leverage Ratio shall be determined as of the end of each fiscal quarter of the Borrower's fiscal year based upon the Borrower's consolidated financial statements delivered pursuant to Section 5.01(a) and (ii) each change in the Applicable Rate resulting from a change in the Leverage Ratio shall be effective during the period commencing on and including the third day after the date of delivery to the Administrative Agent of such consolidated financial statements indicating such change and ending on the date immediately preceding the effective date of the next such change; provided that the Leverage Ratio shall be deemed to be the applicable rate per annum set forth on Schedule I under the caption "Above 3.5x" (x) at any time that an Event of Default has occurred and is continuing or (y) if the Borrower fails to deliver the consolidated financial statements required to be delivered by it pursuant to Section 5.01(a), during the period from the expiration of the time for delivery thereof until such consolidated financial statements are delivered. "Applicable Percentage" of any Lender means the percentage set opposite such Lender's name on Schedule II, as modified from time to time as provided hereby. "Applicable Reference Rate" means on a per annum basis in respect of any Reference Rate Loan, for any day, the sum of the Alternate Base Rate plus the Applicable Margin. "Assessment Rate" means, with respect to each day during an Interest Period, the annual assessment rate (rounded upwards, if not already a whole multiple of 1/100 of l%, to the next highest whole multiple of 1/100 of 1%) in effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders. "Board" means the Board of Governors of the Federal Reserve System of the United States. "Borrowing Date" means, with respect to any Loan the date on which such Loan is disbursed. "Business Day" means any day other than a Saturday, Sunday or a day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a LIBO Rate Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in Dollar deposits in the London interbank market. "Capitalized Lease Obligation" means the obligation of any Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property which obligation is, or in accordance with GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board) is required to be, classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and for purposes of this Agreement the amount of such obligation shall be the capitalized amount thereof determined in accordance with GAAP. "CERCLA" means, collectively, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. SS 9601 et seq. A "Change in Control" shall be deemed to have occurred if (a) any Person or group (within the meaning of Rule 13d-5 of the SEC as in effect on the Effective Date) shall own directly or indirectly, beneficially or of record, shares representing 30% or more of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; or (b) a majority of the seats (other than vacant seats) on the Board of Directors of the Borrower shall at any time be occupied by Persons who were not (i) members of the Board of Directors of the Borrower on the Effective Date or (ii) appointed as, or nominated for election as, directors by a majority of the directors who are (x) referred to in clause (i) and (y) other directors who are appointed or nominated in accordance with this clause (ii). "Closing Date" means December 12, 1997. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Lender, the commitment of such Lender hereunder to make revolving loans as set forth on Schedule II, or in the Commitment Transfer Supplement pursuant to which such Lender assumed its Commitment, as the same may be permanently terminated or reduced from time to time pursuant to Section 2.07 and pursuant to assignments by such Lender pursuant to Section 9.03. The Commitment of each Lender shall automatically and permanently terminate on the Maturity Date. "Commitment Fee", has the meaning assigned to such term in Section 2.06(a). "Commitment Termination Date" has the meaning assigned to such term in Section 2.06(a). "Commitment Transfer Supplement" means a Commitment Transfer Supplement entered into by a Lender and an assignee, and accepted by the Administrative Agent, in the form of Exhibit B or such other form as shall be approved by the Administrative Agent. "Confidential Information Memorandum" means the Confidential Information Memorandum of the Borrower dated October 17, 1997. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and "Controlling" and "Controlled" shall have meanings correlative thereto. "Credit Event" means the making of a Loan. "Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person for the unearned balance of any payment received under any contract outstanding for 180 days, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property or assets purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding (x) the Pennzoil Obligations and (y) trade accounts payable and accrued obligations incurred in the ordinary course of business so long as the same are not 180 days overdue or, if overdue, are being contested in good faith and by appropriate proceedings), (f) all Debt of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees by such Person of Debt of others, (h) all Capitalized Lease Obligations of such Person, (i) all recourse obligations of such Person with respect to sales of accounts receivable which would be shown under GAAP on the balance sheet of such Person as a liability, (j) all obligations of such Person as an account party (including reimbursement obligations to the issuer of a letter of credit) in respect of bankers' acceptances and letters of credit Guaranteeing Debt and (k) all noncontingent obligations of such Person as an account party (including reimbursement obligations to the issuer of a letter of credit) in respect of letters of credit other than those referred to in clause (j) above. The Debt of any Person shall include the Debt of any partnership in which such Person is a general partner but shall exclude obligations under leases which are characterized as Operating Leases. "Default" means any event or condition which upon the giving of notice or lapse of time or both would become an Event of Default. "Dollars" or "$" means United States Dollars. "Domestic Office" means, for any Lender, the Domestic Office set forth for such Lender on the signature pages hereof, unless such Lender shall designate a different Domestic Office by notice in writing to the Administrative Agent and the Borrower. "EBITDA" means, for any fiscal quarter, the sum of (a) the Borrower's consolidated net income (loss) (before deducting minority interests in net income (loss) of consolidated subsidiaries, but disregarding all extraordinary or unusual noncash items in calculating such net income); (b) consolidated interest paid or accrued on the Loans to the Borrower and on other consolidated Debt of the Borrower during such quarter and deducted in determining the Borrower's consolidated net income; and (c) the Borrower's consolidated depreciation, depletion and amortization charges deducted in computing the Borrower's consolidated net income; provided that such calculations of items (a) through (c) will exclude items relating to Nonrestricted Subsidiaries. "EBITDA Ratio" means at the end of any fiscal quarter, the cumulative sum, for the four consecutive fiscal quarters ending with such quarter, of (a) the Borrower's EBITDA to (b) interest expense and capitalized interest paid or accrued on consolidated Debt of the Borrower, including the Loans, during such four consecutive fiscal quarters. "Effective Date" means the date on which the conditions specified in Article IV are satisfied (or waived in accordance with Section 9.07). "environment" shall mean ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata or as otherwise defined in any Environmental Law. "Environmental Claim" means any written notice of violation, claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any Person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Remedial Action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the environment caused by any Hazardous Material, or for fines, penalties or restrictions, resulting from or based upon: (a) the threat or existence, or the continuation of the existence, of a Release (including sudden or non-sudden, accidental or nonaccidental Releases); (b) exposure to any Hazardous Material; (c) the presence, use, handling, transportation, storage, treatment or disposal of any Hazardous Material; or (d) the violation of any Environmental Law or Environmental Permit. "Environmental Law" means any and all applicable treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters, including CERCLA, the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Amendments of 1984, 42 U.S.C. SS 6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. 1251 et seq., the Clean Air Act of 1970, as amended 42 U.S.C. 7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. SS 2601 et seq., the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. SS 651 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. SS 11001 et seq., the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. SS 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. SS 1801 et seq., and any similar or implementing state or local law, and all amendments or regulations promulgated thereunder. "Environmental Permit" means any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law. "Equity Payment" means any dividend or distribution on, or purchase, redemption or other payment in respect of, the capital stock of the Borrower, whether in cash or in kind. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated), that together with a Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (i) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan; (ii) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code; (iii) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code), whether or not waived; (iv) the incurrence of any liability under Title IV of ERISA with respect to any Plan or Multiemployer Plan, other than any liability for contributions not yet due or payment of premiums not yet due; (v) the receipt by a Borrower or any ERISA Affiliate from the PBGC of any notice relating to the intention of the PBGC to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (vi) the receipt by a Borrower or any ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; and (vii) any other similar event or condition with respect to a Plan or Multiemployer Plan that could reasonably result in liability of a Borrower. "Event of Default" means any Event of Default defined in Article VII. "Financial Officer" of any corporation means the principal financial officer, principal accounting officer, treasurer, assistant treasurer or controller of such corporation. "FRP" means Freeport-McMoRan Resource Partners, Limited Partnership, a Delaware limited partnership. "GAAP" has the meaning assigned to such term in "Governmental Authority" means any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Governmental Rule" means any statute, law, treaty, rule, code, ordinance, regulation, permit, certificate or order of any Governmental Authority or any judgment, decree, injunction, writ, order or like action of any court, arbitrator or other judicial or quasi judicial tribunal. "Guarantee" means, with respect to any Person, any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Debt or obligation of any other Person in any manner, whether directly or indirectly, and including, without limitation, any agreement or obligation (i) to pay dividends or other distributions upon the stock of such other Person, or any obligation of such other Person, direct or indirect, (ii) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or obligation or to purchase (or advance or supply funds for the purchase of) any security for the payment of such Debt, obligation, dividend or distribution, (iii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Debt or obligation or the holder of such stock of the payment of such Debt, obligation, dividend or distribution including, without limitation, any take-or-pay contract or agreement to buy a minimum amount or quantity of production or to provide an operating subsidy which, in each case, is utilized for a third party financing, or (iv) to maintain working capital, equity capital or any other financial statement condition of the primary obligor, so as to enable the primary obligor to pay such Debt, obligation, dividend or distribution; provided, however, that the term Guarantee shall not include any endorsement for collection or deposit in the ordinary course of business. "Hazardous Materials" means all explosive or radioactive materials, substances or wastes, hazardous or toxic materials, substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedge Agreement" means any interest rate, currency or commodity swap, cap, floor or collar agreement or similar hedging arrangement providing for the transfer or mitigation of interest rate, commodity price or currency value or exchange rate risks, either generally or under specific contingencies. "Interest Payment Date" means (i) as to any Reference Rate Loan, the next succeeding March 31, June 30, September 30 or December 31 (subject to Section 2.16), or if earlier, the Maturity Date, and (ii) as to any LIBO Rate Loan, the last day of the Interest Period applicable to such Loan (and, in the case of any Interest Period of more than three months' duration, the date that would be the last day of such Interest Period if such Interest Period were of three months' duration) and the date of any continuation or conversion of any Loan as or into a Loan of the same or a different type. "Interest Period" means (i) as to any LIBO Rate Loan, the period commencing on the date of such LIBO Rate Loan or on the last day of the immediately preceding Interest Period applicable to such Loan, as the case may be, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect, and (ii) as to any Reference Rate Loan, the period commencing on the date of such Reference Rate Loan or on the last day of the immediately preceding Interest Period applicable to such Loan, as the case may be, and ending on the earliest of (x) the next succeeding March 31, June 30, September 30 or December 31, (y) the Maturity Date and (z) the date such Loan is prepaid or converted as permitted hereby; provided, however, that (1) if any Interest Period would end on a day that shall not be a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, with respect to LIBO Rate Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (2) no Interest Period with respect to any Loan shall end later than the Maturity Date and (3) interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Lender" means each financial institution signatory hereto and its successors and permitted assigns under Section 9.03. "Leverage Ratio" means, on any date, the ratio of (a) Total Debt as of such date to (b) EBITDA for the period of four consecutive fiscal quarters of the Borrower most recently ended as of such date, all determined on a consolidated basis in accordance with GAAP. "LIBO Rate" means, with respect to any LIBO Rate Loan for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided in such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Rate. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such LIBO Rate Loan for such Interest Period shall be the rate at which Dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "LIBO Rate Loan" means any Loan for which interest is determined, in accordance with the provisions hereof, at the Applicable LIBO Rate. "LIBOR Office" means, for any Lender, the LIBOR Office set forth for such Lender on the signature pages hereof or as otherwise notified in writing to the Administrative Agent and the Borrower, unless such Lender shall designate a different LIBOR Office by notice in writing to the Administrative Agent and the Borrower. "Lien" means with respect to any asset, (a) a mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset, (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities and (d) other encumbrances of any kind, including, without limitation, production payment obligations. "Loan" means any loan made pursuant to Section 2.01. "Loan Documents" means this Agreement and all other agreements, certificates and instruments now or hereafter entered into in connection therewith or in furtherance thereof, in each case as amended and modified from time to time. "Margin Stock" has the meaning assigned to such term in Regulation U. "Material Adverse Effect" means (a) a materially adverse effect on the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and its Restricted Subsidiaries taken as a whole, (b) material impairment of the ability of the Borrower or any of its Subsidiaries to perform any of its obligations under any Loan Document to which it is or will be a party or (c) material impairment of the rights of or benefits available to the Lenders under any Loan Document. "Maturity Date" means the fifth anniversary of the Effective Date, or, if earlier, the date of termination of the Commitments pursuant to the terms hereof. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Net Proceeds" means (i) the gross fair market value of the consideration or other amounts payable to or receivable by the Borrower or any of its Restricted Subsidiaries in respect of any sales, transfers, distributions or other dispositions (including by merger or consolidation) of assets or properties (including any capital or other equity interests owned), less (ii) the amount, if any, of all taxes (but only to the extent such Person reasonably estimates that such taxes will be paid on the date of the next tax filing by such Person or such Affiliate of such Person), and reasonable and customary fees, commissions, costs and other expenses (other than those payable to the Borrower or any of its Restricted Subsidiaries) which are incurred in connection with such sales, transfers, distributions or other dispositions and are payable by the seller or the transferor of the assets or property to which such sales, transfers, distributions or other dispositions relate, but only to the extent not already deducted in arriving at the amount referred to in clause (i), and less (iii) amounts used within 120 days from the date of closing or effectiveness of the original transaction in question by the seller or transferor to purchase other assets used in the business of it and its Wholly-Owned Restricted Subsidiaries and not pledged or encumbered to any other Person. "Non-Excluded Taxes" has the meaning assigned such term in Section 2.17(a). "Nonrestricted Subsidiary" means (i) any of the Subsidiaries listed on Schedule III hereto as a Nonrestricted Subsidiary, (ii) any Subsidiary of any Nonrestricted Subsidiary and (iii) any surviving Person (other than a Borrower or a Restricted Subsidiary) into which any of such Persons referred to in clause (i) or (ii) is merged or consolidated, subject to Section 5.02(c), and (iv) any Subsidiary organized after the date of this Agreement for the purpose of acquiring the stock or other ownership interests or assets of another Person or for start-up ventures or exploration programs or activities and designated as a Nonrestricted Subsidiary by the Borrower as of the time of its organization. By written notice to the Administrative Agent, the Borrower may (x) declare any Nonrestricted Subsidiary to be a Restricted Subsidiary and such former Nonrestricted Subsidiary shall thereafter be deemed to be a Restricted Subsidiary for all purposes of this Agreement or (y) at any time other than when a Default or Event of Default has occurred and is continuing or would exist after giving effect to such declaration, in any fiscal year, declare one or more Restricted Subsidiaries, the interest of the Borrower in all of which has an equity value or loan investment of less than $5,000,000 in the aggregate, to be a Nonrestricted Subsidiary and any such former Restricted Subsidiary shall thereafter be deemed to be a Nonrestricted Subsidiary for all purposes of this Agreement. "Operating Lease" means any lease other than a lease giving rise to a Capitalized Lease Obligation. "Other Taxes" has the meaning assigned such term in Section 2.17(b). "Participants" has the meaning assigned such term in Section 9.03(b). "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA. "Pennzoil Obligations" means the deferred purchase price obligations incurred by FRP in connection with the purchase from Pennzoil Company of the Culberson mining operations and associated physical assets. "Permitted Investments" means customary portfolio cash management investments made pursuant to prudent cash management practices. "Person" means any natural person, corporation, partnership, joint venture, trust, incorporated or unincorporated association, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) which is subject to the provisions of Title IV of ERISA or Section 412 of the Code and in respect of which a Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Properties" has the meaning assigned such term in Section 3.01(n)(1). "Purchasing Lender" has the meaning assigned such term in Section 9.03(c). "Reference Rate Loan" means any Loan for which interest is determined, in accordance with the provisions hereof, at the Applicable Reference Rate. "Register" has the meaning assigned such term in Section 9.03(d). "Regulation D" means Regulation D of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation G" means Regulation G of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation U" means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation X" means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "Remedial Action" means (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. S 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, (i) or (ii) above. "Required Lenders" means, subject to Section 9.07(b), at any time Lenders having Commitments representing more than 50% of the aggregate Commitments hereunder or, if the Commitments have been terminated, Lenders holding Loans representing more than 50% of the aggregate principal amount of the Loans. "Responsible Officer" of any corporation means any executive officer or Financial Officer of such corporation and any other officer or similar official thereof responsible for the administration of the obligations of such corporation in respect of this Agreement. "Restricted Subsidiary" means any Subsidiary that is not a Nonrestricted Subsidiary. "SEC" means the Securities and Exchange Commission. "Spin-Off" means the distribution by FRP to its unitholders of the shares of capital stock of the Borrower, thereby leaving the Borrower as a publicly held company. "Statutory Reserves" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority, domestic or foreign, to which the Administrative Agent or any Lender (including any branch, Affiliate, or other funding office making or holding a Loan) is subject (a) with respect to the Base CD Rate (as such term is used in the definition of "Alternate Base Rate"), for new negotiable nonpersonal time deposits in Dollars of over $100,000 with maturities approximately equal to the applicable Interest Period, and (b) with respect to the LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include, without limitation, those imposed under Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subsidiary" means as to any Person, any corporation at least a majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) are at the time owned by such Person and/or one or more other Subsidiaries of such Person and any partnership (other than joint ventures for which the intention under the applicable agreements, including operating agreements, if any, is that such joint ventures be partnerships solely for purposes of the Code) in which such Person or a Subsidiary of such Person is a general partner; provided that unless otherwise specified, "Subsidiary" means a Subsidiary of the Borrower. "Sulphur Supply Agreement" has the meaning assigned to such term in clause (r) of Article IV. "Third Party" has the meaning assigned to such term in Section 5.02(j). "Total Commitment" means the sum of all the then effective Commitments. "Total Debt" means, as of any date of determination, without duplication, the aggregate principal amount of Debt of the Borrower and the Restricted Subsidiaries outstanding as of such date, determined on a consolidated basis in accordance with GAAP. "Transfer Effective Date" has the meaning assigned to such term in each Commitment Transfer Supplement. "Transferee" means any Participant or Purchasing Lender, as such terms are defined in Sections 9.03(b) and (c), respectively. "Wholly-Owned Restricted Subsidiary" means any Subsidiary, all of the stock of which is at the time owned by the Borrower and/or one or more other Wholly-Owned Restricted Subsidiaries of the Borrower. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Accounting Terms. Except as otherwise herein specifically provided, each accounting term used herein shall have the meaning given it under United States generally accepted accounting principles in effect from time to time (with such changes thereto as are approved or concurred in from time to time by the Borrower's independent public accountants, as applicable) applied on a basis consistent with those used in preparing the financial statements referred to in Section 5.01(a) ("GAAP"); provided, however, that each reference in Section 5.02, or in the definition of any term used in Section 5.02, to GAAP shall mean generally accepted accounting principles as in effect on the Effective Date and as applied by the Borrower in preparing the financial statements referred to in Section 3.01(e). In the event any change in GAAP materially affects any provision of this Agreement, the Lenders and the Borrower agree that they shall negotiate in good faith in order to amend the affected provisions in such a way as will restore the parties to their respective positions prior to such change, and until such amendment becomes effective the Borrower's compliance with such provisions shall be determined on the basis of GAAP as in effect immediately before such change in GAAP became effective. SECTION 1.03. Section, Article, Exhibit and Schedule References, etc. Unless otherwise stated, Section, Article, Exhibit and Schedule references made herein are to Sections, Articles, Exhibits or Schedules, as the case may be, of this Agreement. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". Except as otherwise expressly provided herein, any reference in this Agreement to any Loan Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time. ARTICLE II The Loans SECTION 2.01. Revolving Credit Facility. Upon the terms and subject to the conditions and relying upon the representations and warranties herein set forth, each Lender, severally and not jointly, agrees to make Loans to the Borrower, at any time and from time to time on or after the Effective Date, and until the earlier of the Maturity Date and the termination of the Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount at any one time outstanding not to exceed such Lender's Applicable Percentage of the then effective unused Total Commitment on the Borrowing Date for such Loan. Within the foregoing limits, the Borrower may borrow, repay and reborrow, prior to the Maturity Date, Loans subject to the terms, provisions and limitations set forth herein. SECTION 2.02. Loans. (a) The Loans made by the Lenders to the Borrower on any one date shall be in an aggregate principal amount which is (i) an integral multiple of $1,000,000 and not less than $5,000,000 or (ii) equal to the remaining available balance of the applicable Commitments. (b) Each Loan shall be either a Reference Rate Loan or a LIBO Rate Loan as the Borrower may request pursuant to Section 2.03. Subject to the provisions of Sections 2.03 and 2.10, Loans of more than one type may be outstanding at the same time. (c) Each Lender shall make its portion, as determined under Section 2.14, of each Loan hereunder on the proposed date thereof by paying the amount required to the Administrative Agent in New York, New York in immediately available funds not later than 2:00 p.m., New York City time, and the Administrative Agent shall by 3:00 p.m., New York City time, credit the amounts so received to the general deposit account of the Borrower with the Administrative Agent or, if Loans shall not be made on such date because any condition precedent to a borrowing herein specified is not met, return the amounts so received to the respective Lenders. Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Loan that such Lender will not make available to the Administrative Agent such Lender's portion of such Loan, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Loan in accordance with this paragraph (c) and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If the Administrative Agent shall have so made funds available, then to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay without duplication to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent at an interest rate equal to (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such borrowing and (ii) in the case of such Lender, a rate determined by the Administrative Agent to represent its cost of overnight or short-term funds (which determination shall be conclusive absent manifest error). If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender's Loan for purposes of this Agreement. SECTION 2.03. Notice of Loans. (a) The Borrower shall request a Loan by giving the Administrative Agent telephonic (promptly confirmed in writing), written, telecopy or telex notice in the form of Exhibit C with respect to each Loan (i) in the case of a LIBO Rate Loan, not later than 10:30 a.m., New York City time, three Business Days before a proposed borrowing, and (ii) in the case of a Reference Rate Loan, not later than 10:30 a.m., New York City time, on the date of a proposed borrowing. Such notice shall be irrevocable (except that in the case of a LIBO Rate Loan, the Borrower may, subject to Section 2.13, revoke such notice by giving written or telex notice thereof to the Administrative Agent not later than 10:30 a.m., New York City time, two Business Days before such proposed borrowing) and shall in each case refer to this Agreement and specify (1) whether the Loan then being requested is to be a Reference Rate Loan or LIBO Rate Loan, (2) the date of such Loan (which shall be a Business Day) and amount thereof, and (3) if such Loan is to be a LIBO Rate Loan, the Interest Period or Interest Periods (which shall not end after the Maturity Date) with respect thereto. If no election as to the type of Loan is specified in any such notice by the Borrower, such Loan shall be a Reference Rate Loan. If no Interest Period with respect to any LIBO Rate Loan is specified in any such notice by the Borrower, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (b) The Borrower may continue or convert all or any part of any Loan as or into a Loan of the same or a different type in accordance with Section 2.10 and subject to the limitations set forth herein. If the Borrower shall not have delivered a borrowing notice in accordance with this Section 2.03 prior to the end of the Interest Period then in effect for any Loan requesting that such Loan be converted or continued as permitted hereby, then the Borrower shall (unless the Borrower has notified the Administrative Agent, not less than three Business Days prior to the end of such Interest Period, that such Loan is to be repaid at the end of such Interest Period) be deemed to have delivered a borrowing notice pursuant to this Section 2.03 requesting that such Loan be converted into or continued as a Reference Rate Loan of equivalent amount. (c) Notwithstanding any provision to the contrary in this Agreement, the Borrower shall not in any borrowing notice under this Section 2.03 request any LIBO Rate Loan which, if made, would result in more than 10 separate LIBO Rate Loans of any Lender. For purposes of the foregoing, Loans having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Loans. SECTION 2.04. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally agrees to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of all Loans of such Lender on the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain accounts for (i) the type of each Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraphs (b) and (c) of this Section 2.04 shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that any Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.03) be represented by one or more promissory notes in such form payable to the order of the payee named therein (of if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.05. Interest on Loans. (a) Subject to the provisions of Section 2.08, each Reference Rate Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when determined by reference to the Prime Rate, and over a year of 360 days at all other times), equal to the Applicable Reference Rate. (b) Subject to the provisions of Section 2.08, each LIBO Rate Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Applicable LIBO Rate for the Interest Period in effect for such Loan. (c) Interest on each Loan shall be payable on each applicable Interest Payment Date. The Applicable Reference Rate and the Applicable LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. The Administrative Agent shall promptly advise the Borrower and each Lender of such determination. SECTION 2.06. Fees. (a) The Borrower shall pay each Lender, through the Administrative Agent, on the last Business Day of each March, June, September and December, and on the date on which the Commitment of such Lender shall be terminated as provided herein (the "Commitment Termination Date"), in immediately available funds, a commitment fee (a "Commitment Fee") from and including the earlier of the Closing Date and the Effective Date through and including the Commitment Termination Date on the amount of such Lender's Applicable Percentage of the Total Commitment during the quarter ending on such date (or shorter period commencing with the earlier of the Closing Date and the Effective Date or ending with the Commitment Termination Date) equal to the applicable Commitment Fee Percentage set forth in Schedule I. (b) All Commitment Fees under this Section 2.06 shall be computed on the basis of the actual number of days elapsed in a year of 365 or 366 days, as the case may be. The Commitment Fees due to each Lender shall cease to accrue on the earlier of the Maturity Date and the termination of the Commitment of such Lender pursuant to Section 2.07. (c) The Borrower agrees to pay to the Administrative Agent, for its own account, on the Effective Date and on each anniversary thereof, an administration fee (the "Administrative Fee") as agreed between the Borrower and the Administrative Agent. (d) All such fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders. Once paid, all such fees shall be fully earned and non- refundable under any and all circumstances. SECTION 2.07. Maturity and Reduction of Commitments. (a) Upon at least five days' prior written, telecopied or telex notice to the Administrative Agent, the Borrower may without penalty at any time in whole permanently terminate, or from time to time permanently reduce, the Total Commitment, ratably among the Lenders in accordance with the amounts of their respective Commitments; provided, however, that each partial reduction of the Commitment Amount shall be in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000; provided further, that the Total Commitment may not be reduced to an amount which is less than the aggregate principal amount of all Loans outstanding after such reduction. (b) The Total Commitment shall be automatically and permanently reduced by an amount equal to the Net Proceeds of any nonordinary course asset disposition by the Borrower and its Restricted Subsidiaries (other than in each case, (i) dispositions of obsolete and worn-out property or real estate not used or useful in its business and (ii) sales of accounts receivable), in excess of a cumulative aggregate amount of $25,000,000 for all such transactions during the term of this Agreement; provided that such aggregate amount shall not include any permitted Capitalized Lease Obligations. The Commitment reductions required by this Section 2.07(b) shall be effective as of the date of closing or effectiveness of any transaction subject hereto; provided that with respect to any noncash Net Proceeds, such Commitment reductions shall be effective as of the date of receipt of cash proceeds thereof; and provided further that to the extent prepayment of any LIBO Rate Loan is required pursuant to this Section 2.07(b), such prepayment may be made at the end of the current Interest Period for such LIBO Rate Loan if the required prepayment would otherwise give rise to breakage costs under Section 2.13(a)(i). (c) On the Maturity Date, the Commitments shall automatically terminate and any outstanding Loans shall be due and payable in full. SECTION 2.08. Interest on Overdue Amounts; Alternative Rate of Interest. (a) If the Borrower shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder or under any other Loan Document, by acceleration or otherwise, the Borrower shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount up to the date of actual payment (after as well as before judgment): (i) in the case of the payment of principal of or interest on a LIBO Rate Loan, at a rate 2% per annum above the rate which would otherwise be payable under Section 2.05(b) until the last date of the Interest Period then in effect with respect to such Loan and thereafter as provided in clause (ii) below; and (ii) in the case of the payment of principal of or interest on a Reference Rate Loan or any other amount payable hereunder (other than principal of or interest on any LIBO Rate Loan to the extent referred to in clause (i) above), at a rate 2% per annum above the Applicable Reference Rate. (b) In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a LIBO Rate Loan the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower absent manifest error) that (i) Dollar deposits in the requested principal amount of such LIBO Rate Loan are not generally available in the London interbank market, (ii) the rates at which Dollar deposits are being offered will not adequately and fairly reflect the cost to any Lender of making or maintaining such LIBO Rate Loan during such Interest Period or (iii) reasonable means do not exist for ascertaining the Applicable LIBO Rate, the Administrative Agent shall as soon as practicable thereafter give written, telecopied or telex notice of such determination to the Borrower and the other Lenders, and any request by the Borrower for the making of a LIBO Rate Loan pursuant to Section 2.03 or 2.10 shall, until the Administrative Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, be deemed to be a request for a Reference Rate Loan; provided, however, that if the Administrative Agent makes the determination specified in (ii) above, at the option of the Borrower such request shall be deemed to be a request for a Reference Rate Loan only from such Lender referred to in (ii) above; provided further, however, that such option shall not be available to the Borrower if the Administrative Agent makes the determination specified in (ii) above with respect to three or more Lenders. Each determination of the Administrative Agent hereunder shall be conclusive absent manifest error. SECTION 2.09. Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any of its Loans, in whole or in part, subject to the requirements of Section 2.13 but otherwise without premium or penalty, upon prior written or telex notice to the Administrative Agent by 10:30 a.m., New York City time, on the date of such prepayment; provided, however, that each such partial prepayment shall be in a minimum amount of $5,000,000 and an integral multiple of $1,000,000. (b) In the event of any termination of the Commitments, the Borrower shall repay or prepay all its outstanding Loans on the date of such termination. On the date of any partial reduction of the Commitments pursuant to Section 2.07, the Borrower shall pay or prepay so much of its Loans as shall be necessary in order that the aggregate principal amount of the Loans (after giving effect to any other prepayment of Loans on such date) outstanding will not exceed the Total Commitment immediately following such reduction. (c) All prepayments under this Section 2.09 shall be subject to Section 2.13. Each notice of prepayment delivered pursuant to paragraph (a) above shall specify the prepayment date and the principal amount of each Loan (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such Loan by the amount stated therein on the date stated therein. All prepayments shall be applied first to Reference Rate Loans and then to LIBO Rate Loans and shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment. Any amounts prepaid may be reborrowed to the extent permitted by the terms of this Agreement. SECTION 2.10. Continuation and Conversion of Loans. The Borrower shall have the right, subject to the provisions of Section 2.08, (i) on three Business Days' prior irrevocable notice by such Borrower to the Administrative Agent, to continue or convert any type of Loans as or into LIBO Rate Loans, or (ii) with irrevocable notice by the Borrower to the Administrative Agent by 10:30 a.m. on the date of such proposed continuation or conversion, to continue or convert any type of Loans as or into Reference Rate Loans, in each case subject to the following further conditions: (a) each continuation or conversion shall be made pro rata as to each type of Loan of the Borrower to be continued or converted among the Lenders in accordance with the respective amounts of their commitments and the notice given to the Administrative Agent by the Borrower shall specify the aggregate principal amount of Loans to be continued or converted; (b) in the case of a continuation or conversion of less than all Loans of the Borrower, the Loans continued or converted shall be in a minimum aggregate principal amount of $5,000,000 and an integral multiple of $1,000,000; (c) accrued interest on each Loan (or portion thereof) being continued or converted shall be paid by the Borrower at the time of continuation or conversion; (d) the Interest Period with respect to any Loan made in respect of a continuation or conversion thereof shall commence on the date of the continuation or conversion; (e) any portion of a Loan maturing or required to be prepaid in less than one month may not be continued as or converted into a LIBO Rate Loan; (f) a LIBO Rate Loan may be continued or converted on the last day of the applicable Interest Period and, subject to Section 2.13, on any other day; (g) no Loan (or portion thereof) may be continued as or converted into a LIBO Rate Loan if, after such continuation or conversion, an aggregate of more than 10 separate LIBO Rate Loans of any Lender would result, determined as set forth in Section 2.03(c); (h) no Loan shall be continued or converted if such Loan by any Lender would be greater than the amount by which its Commitment exceeds the amount of its other Loans at the time outstanding or if such Loan would not comply with the other provisions of this Agreement; and (i) any portion of a LIBO Rate Loan which cannot be converted into or continued as a LIBO Rate Loan by reason of clause (e) or (g) above shall be automatically converted at the end of the Interest Period in effect for such Loan into a Reference Rate Loan. The Administrative Agent shall communicate the information contained in each irrevocable notice delivered by the Borrower pursuant to this Section 2.10 to the other Lenders promptly after its receipt of the same. The Interest Period applicable to any LIBO Rate Loan resulting from a continuation or conversion shall be specified by the Borrower in the irrevocable notice of continuation or conversion delivered pursuant to this Section 2.10; provided, however, that if no such Interest Period for a LIBO Rate Loan shall be specified, the Borrower shall be deemed to have selected an Interest Period of one month's duration. For purposes of this Section 2.10, notice received by the Administrative Agent from the Borrower after 10:30 a.m., New York time, on a Business Day shall be deemed to be received on the immediately succeeding Business Day. SECTION 2.11. Reserve Requirements; Change in Circumstances. (a) The Borrower shall pay to each Lender on the last day of each Interest Period for any LIBO Rate Loan so long as such Lender may be required to maintain reserves against eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) (or so long as such Lender may be required to maintain reserves against any other category of liabilities which includes deposits by reference to which the interest rate on any LIBO Rate Loan is determined as provided in this Agreement or against any category of extensions of credit or other assets of such Lender which includes any LIBO Rate Loan) an additional amount (determined by such Lender and notified to the Borrower), equal to the product of the following for each affected LIBO Rate Loan for each day during such Interest Period: (i) the principal amount of such affected LIBO Rate Loan outstanding on such day; (ii) the remainder of (x) the product of Statutory Reserves on such date times the Applicable LIBO Rate on such day minus (y) the Applicable LIBO Rate on such day; and (iii) 1/360. Each Lender shall separately bill the Borrower directly for all amounts claimed pursuant to this Section 2.11(a). (b) Notwithstanding any other provision herein, if after the Effective Date any change in condition or applicable law or regulation or in the interpretation or administration thereof (whether or not having the force of law and including, without limitation, Regulation D of the Board) by any Governmental Authority charged with the administration or interpretation thereof shall occur which shall: (i) subject any Lender (which shall for the purpose of this Section include any assignee or lending office of any Lender) to any tax of any kind whatsoever with respect to its LIBO Rate Loans or other fees or amounts payable hereunder or change the basis of taxation of any of the foregoing (other than taxes (including Non-Excluded Taxes) described in Section 2.17 and other than any franchise tax or tax or other similar governmental charges, fees or assessments based on the overall net income of such Lender by the U.S. Federal government or by any jurisdiction in which such Lender maintains an office, unless the presence of such office is solely attributable to the enforcement of any rights hereunder with respect to an Event of Default); (ii) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by any Lender; (iii) impose on any such Lender or the London interbank market any other condition affecting this Agreement or LIBO Rate Loans made by such Lender; or (iv) impose upon any Lender any other condition with respect to any amount paid or to be paid by any Lender with respect to its LIBO Rate Loans or this Agreement; and the result of any of the foregoing shall be to increase the cost to any Lender of making or maintaining its LIBO Rate Loans or Commitment hereunder, or to reduce the amount of any sum (whether of principal, interest or otherwise) received or receivable by such Lender or to require such Lender to make any payment, in respect of any such Loan, in each case by or in an amount which such Lender in its sole judgment shall deem material, then the Borrower shall pay to such Lender on demand such an amount or amounts as will compensate the Lender for such additional cost, reduction or payment. (c) If any Lender shall have determined that the applicability of any law, rule, regulation, agreement or guideline adopted after the Effective Date regarding capital adequacy, or any change after the Effective Date in any such law, rule, regulation, agreement or guideline (whether such law, rule, regulation, agreement or guideline has been adopted) or in the interpretation or administration of any of the foregoing by any Governmental Authority charged with the interpretation or administration thereof, or compliance by any Lender (or any lending office of such Lender) or any Lender's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority made or issued after the Effective Date, has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made pursuant hereto to a level below that which such Lender or such Lender's holding company could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (d) If and on each occasion that a Lender makes a demand for compensation pursuant to paragraph (a), (b) or (c) above, or under Section 2.17 (it being understood that a Lender may be reimbursed for any specific amount under only one such paragraph or Section) the Borrower may, upon at least three Business Days' prior irrevocable written or telex notice to each of such Lender and the Administrative Agent, in whole permanently replace the Commitment of such Lender; provided that such notice must be given not later than the 90th day following the date of a demand for compensation made by such Lender; and provided that the Borrower shall replace such Commitment with the Commitment of a commercial bank satisfactory to the Administrative Agent. Such notice from the Borrower shall specify an effective date for the termination of such Lender's Commitment which date shall not be later than the 180th day after the date such notice is given. On the effective date of any termination of such Lender's Commitment pursuant to this clause (d), the Borrower shall pay to the Administrative Agent for the account of such Lender (A) any Commitment Fees on the amount of such Lender's Commitment so terminated accrued to the date of such termination, (B) the principal amount of any outstanding Loans held by such Lender plus accrued interest on such principal amount to the date of such termination and (C) the amount or amounts requested by such Lender pursuant to clause (a), (b) or (c) above or Section 2.17, as applicable. The Borrower will remain liable to such terminated Lender for any loss or expense that such Lender may sustain or incur as a consequence of such Lender's making any LIBO Rate Loan or any part thereof or the accrual of any interest on any such Loan in accordance with the provisions of this Section 2.11(d) as set forth in Section 2.13. Upon the effective date of termination of any Lender's Commitment pursuant to this Section 2.11(d) such Lender shall cease to be a "Lender" hereunder; provided that no such termination of any such Lender's Commitment shall affect (i) any liability or obligation of the Borrower or any other Lender to such terminated Lender which accrued on or prior to the date of such termination or (ii) such terminated Lender's rights hereunder in respect of any such liability or obligation. (e) A certificate of a Lender (or Transferee) setting forth such amount or amounts as shall be necessary to compensate such Lender (or Transferee) as specified in paragraph (a), (b) or (c) (and in the case of paragraph (c), such Lender's holding company) above or Section 2.17, as the case may be, shall be delivered as soon as practicable to the Borrower, and in any event within 90 days of the change giving rise to such amount or amounts, and shall be conclusive absent manifest error. The Borrower shall pay each Lender the amount shown as due on any such certificate within 15 days after its receipt of the same. In preparing such a certificate, each Lender may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable. The failure of any Lender (or Transferee) to give the required 90-day notice shall excuse the Borrower from its obligations to pay additional amounts pursuant to such Sections incurred for the period that is 90 days or more prior to the date such notice was required to be given. (f) Failure on the part of any Lender to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital within the 90 days required pursuant to Section 2.11(e) shall not constitute a waiver of such Lender's rights to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital for any period after the date that is 90 days prior to the date of the delivery of demand for compensation. The protection of this Section 2.11 shall be available to each Lender regardless of any possible contention of invalidity or inapplicability of the law, regulation or condition which shall have occurred or been imposed. The Borrower shall not be required to make any additional payment to any Lender pursuant to Section 2.11(a) or (b) in respect of any such cost, reduction or payment that could be avoided by such Lender in the exercise of reasonable diligence, including a change in the lending office of such Lender if possible without material cost to such Lender. Each Lender agrees that it will promptly notify the Borrower and the Administrative Agent of any event of which the responsible account officer shall have knowledge which would entitle such Lender to any additional payment pursuant to this Section 2.11. The Borrower agrees to furnish promptly to the Administrative Agent official receipts evidencing any payment of any tax. SECTION 2.12. Change in Legality. (a) Notwithstanding anything to the contrary herein contained, if after the Effective Date any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Lender to make or maintain any LIBO Rate Loan or to give effect to its obligations as contemplated hereby with respect to any LIBO Rate Loan, then, by written notice to the Borrower and to the Administrative Agent, such Lender may: (i) declare that LIBO Rate Loans will not thereafter (for the duration of such unlawfulness or impracticality) be made by such Lender hereunder, whereupon the Borrower shall be prohibited from requesting LIBO Rate Loans from such Lender hereunder unless such declaration is subsequently withdrawn; and (ii) require that all outstanding LIBO Rate Loans made by it be converted to Reference Rate Loans, in which event (A) all such LIBO Rate Loans shall be automatically converted to Reference Rate Loans as of the end of the applicable Interest Period, unless an earlier conversion date is legally required, (B) all payments and prepayments of principal which would otherwise have been applied to repay the converted LIBO Rate Loans shall instead be applied to repay the Reference Rate Loans resulting from the conversion of such LIBO Rate Loans and (C) the Reference Rate Loans resulting from the conversion of such LIBO Rate Loans shall be prepayable only at the times the converted LIBO Rate Loans would have been prepayable, notwithstanding the provisions of Section 2.09. (b) Before giving any notice to the Borrower and the Administrative Agent pursuant to this Section 2.12, such Lender shall designate a different LIBOR Office if such designation will avoid the need for giving such notice and will not in the judgment of such Lender, be otherwise disadvantageous to such Lender. For purposes of Section 2.12(a), a notice to the Borrower by any Lender shall be effective on the date of receipt by the Borrower. SECTION 2.13. Indemnity. The Borrower shall indemnify each Lender against any funding, redeployment or similar loss or expense which such Lender may sustain or incur as a consequence of (a) any event, other than a default by such Lender in the performance of its obligations hereunder, which results in (i) such Lender receiving or being deemed to receive any amount on account of the principal of any LIBO Rate Loan prior to the end of the Interest Period in effect therefor (any of the events referred to in this clause (i) being called a "Breakage Event") or (ii) any Loan to be made by such Lender not being made after notice of such Loan shall have been given by the Borrower hereunder or (b) any default in the making of any payment or prepayment of any amount required to be made hereunder. In the case of any Breakage Event, such loss shall include an amount equal to the excess, as reasonably determined by such Lender, of (i) its cost of obtaining funds for the Loan which is the subject of such Breakage Event for the period from the date of such Breakage Event to the last day of the Interest Period in effect (or which would have been in effect) for such Loan over (ii) the amount of interest (as reasonably determined by such Lender) that would be realized by such Lender in reemploying the funds so paid, prepaid or converted or not borrowed, continued or converted by making a LIBO Rate Loan in such principal amount and with a maturity comparable to such period. A certificate of any Lender setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. SECTION 2.14. Pro Rata Treatment. Except as permitted under any of Section 2.08(b), 2.11, 2.12, 2.13 or 2.17, each borrowing under each type of Loan, each payment or prepayment of principal of the Loans, each payment of interest on the Loans, each other reduction of the principal or interest outstanding under the Loans, however achieved, including by setoff by any Person, each payment of the Commitment Fees, each reduction of the Commitments and each conversion or continuation of Loans shall be allocated pro rata among the Lenders in the proportions that their respective Commitments bear to the Total Commitment (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Loans). Each Lender agrees that in computing such Lender's portion of any borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Lender's percentage of such borrowing to the next higher or lower whole Dollar amount. SECTION 2.15. Sharing of Setoffs. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Borrower or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means obtain payment (voluntary or involuntary) in respect of any Loan of the Borrower held by it as a result of which the unpaid principal portion of the Loans of the Borrower held by it shall be proportionately less than the unpaid principal portion of the Loans of the Borrower held by any other Lender (other than as permitted under any of Section 2.08(b), 2.11, 2.12, 2.13 or 2.17), it shall be deemed to have simultaneously purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Loans of the Borrower held by such other Lender, so that the aggregate unpaid principal amount of the Loans of the Borrower and participation in Loans of the Borrower held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Loans of the Borrower then outstanding as the principal amount of the Loans of the Borrower held by it prior to such exercise of banker's lien, setoff or counterclaim was to the principal amount of all Loans of the Borrower outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.15 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. To the fullest extent permitted by applicable law, the Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in a Loan of the Borrower deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower hereunder to such Lender as fully as if such Lender had made a Loan directly to the Borrower in the amount of such participation. SECTION 2.16. Payments. (a) Except as otherwise provided in this Agreement, all payments and prepayments to be made by the Borrower to the Lenders hereunder, whether on account of Commitment Fees, payment of principal or interest on any Loan or other amounts at any time owing hereunder or under any other Loan Document, shall be made to the Administrative Agent at its office at 270 Park Avenue, New York, New York, for the account of the several Lenders in immediately available funds. All such payments shall be made to the Administrative Agent as aforesaid not later than 10:30 a.m., New York City time, on the date due; and funds received after that hour shall be deemed to have been received by the Administrative Agent on the following Business Day. (b) As promptly as possible, but no later than 2:00 p.m., New York City time, on the date of each borrowing, each Lender participating in the Loans made on such date shall pay to the Administrative Agent such Lender's Applicable Percentage of such Loan plus, if such payment is received by the Administrative Agent after 2:00 p.m., New York City time, on the date of such borrowing, interest at a rate per annum equal to the rate in effect on such day, quoted by the Administrative Agent at its office at 270 Park Avenue, New York, New York, for the overnight "sale" to such Lender of Federal funds. At the time of, and by virtue of, such payment, such Lender shall be deemed to have made its Loan in the amount of such payment. The Administrative Agent agrees to pay any moneys, including such interest, so paid to it by the lending Lenders promptly, but no later than 3:00 p.m., New York City time, on the date of such borrowing, to the Borrower in immediately available funds. (c) If any payment of principal, interest, Commitment Fee or any other amount payable to the Lenders hereunder on any Loan shall fall due on a day that is not a Business Day, then (except in the case of payments of principal of or interest on LIBO Rate Loans, in which case such payment shall be made on the next preceding Business Day if the next succeeding Business Day would fall in the next calendar month) such due date shall be extended to the next succeeding Business Day, and interest shall be payable on principal in respect of such extension. (d) Unless the Administrative Agent shall have been notified by the Borrower prior to the date on which any payment or prepayment is due hereunder (which notice shall be effective upon receipt) that the Borrower does not intend to make such payment or prepayment, the Administrative Agent may assume that the Borrower has made such payment or prepayment when due and the Administrative Agent may in reliance upon such assumption (but shall not be required to) make available to each Lender on such date an amount equal to the portion of such assumed payment or prepayment such Lender is entitled to hereunder, and, if the Borrower has not in fact made such payment or prepayment to the Administrative Agent, such Lender shall, on demand, repay to the Administrative Agent the amount made available to such Lender, together with interest thereon in respect of each day during the period commencing on the date such amount was made available to such Lender and ending on (but excluding) the date such Lender repays such amount to the Administrative Agent, at a rate per annum equal to the rate, determined by the Administrative Agent to represent its cost of overnight or short-term funds (which determination shall be conclusive absent manifest error). (e) All payments of the principal of or interest on the Loans or any other amounts to be paid to any Lender or the Administrative Agent under this Agreement or any of the other Loan Documents shall be made in Dollars, without reduction by reason of any currency exchange expense. SECTION 2.17. U.S. Taxes. (a) Any and all payments by the Borrower hereunder shall be made, in accordance with Section 2.16, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto imposed by the United States or any political subdivision thereof, excluding taxes imposed on the net income of an Agent or any Lender (or Transferee) and franchise taxes of an Agent or any Lender (or Transferee), as applicable, as a result of a connection between the jurisdiction imposing such taxes and such Agent or such Lender (or Transferee), as applicable, other than a connection arising solely from such Agent or such Lender (or Transferee), as applicable, having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Non-Excluded Taxes"). If the Borrower shall be required by law to deduct any Non-Excluded Taxes from or in respect of any sum payable hereunder to the Lenders (or any Transferee) or an Agent, (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.17) such Lender (or Transferee) or an Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law; provided, however, that no Transferee of any Lender shall be entitled to receive any greater payment under this Section 2.17 than such Lender would have been entitled to receive with respect to the rights assigned, participated or otherwise transferred unless such assignment, participation or transfer shall have been made at a time when the circumstances giving rise to such greater payment did not exist. (b) In addition, the Borrower agrees to bear and to pay to the relevant Governmental Authority in accordance with applicable law any current or future stamp or documentary taxes or any other similar excise taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery, registration or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document and any property taxes that arise from the enforcement of this Agreement or any other Loan Document ("Other Taxes"). (c) The Borrower will indemnify each Lender (or Transferee) and each Agent for the full amount of Non- Excluded Taxes and Other Taxes (including Non-Excluded Taxes or Other Taxes imposed on amounts payable under this Section 2.17) paid by such Lender (or Transferee) or such Agent, as the case may be, and any liability (including penalties, interest and expenses (including reasonable attorney's fees and expenses)) arising therefrom or with respect thereto. A certificate as to the amount of such payment or liability prepared by a Lender or Agent, or the Administrative Agent on behalf of such Lender or Agent, absent manifest error, shall be final, conclusive and binding for all purposes. Such indemnification shall be made within 30 days after the date such Lender (or Transferee) or such Agent, as the case may be, makes written demand therefor. (d) Within 30 days after the date of any payment of Non-Excluded Taxes or Other Taxes by the Borrower to the relevant Governmental Authority, the Borrower will furnish to the Administrative Agent, at its address referred to on the signature page, the original or a certified copy of a receipt issued by such Governmental Authority evidencing payment thereof. (e) At the time it becomes a party to this Agreement or a Transferee, each Lender (or Transferee) that is organized under the laws of a jurisdiction outside the United States shall (in the case of a Transferee, subject to the immediately succeeding sentence) deliver to the Borrower either a valid and currently effective Internal Revenue Service Form 1001 or Form 4224 or, in the case of a Lender (or Transferee) claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W- 8, or any subsequent version thereof or successors thereto, (and if such Lender (or Transferee) delivers a Form W-8, a certificate representing that such Lender (or Transferee) is not a bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Lender (or Transferee) establishing that such payment is (i) not subject to United States Federal withholding tax under the Code because such payment is effectively connected with the conduct by such Lender (or Transferee) of a trade or business in the United States or (ii) totally exempt from (or in case of a Transferee, entitled to a reduced rate of) United States Federal withholding tax. Notwithstanding any other provision of this Section 2.17(e), no Transferee shall be required to deliver any form pursuant to this Section 2.17(e) that such Transferee is not legally able to deliver. In addition, each Lender (or Transferee) shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered, but only, in such case, to the extent such Lender (or Transferee) is legally able to do so. (f) Notwithstanding anything to the contrary contained in this Section 2.17, the Borrower shall not be required to pay any additional amounts to any Lender (or Transferee) in respect of United States Federal withholding tax pursuant to paragraph (a) above if the obligation to pay such additional amounts would not have arisen but for a failure by such Lender (or Transferee) to comply with the provisions of paragraph (e) above. (g) Any Lender (or Transferee) claiming any additional amounts payable pursuant to this Section 2.17 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Borrower or to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender (or Transferee). (h) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.17 shall survive the payment in full of the principal of and interest on all Loans made hereunder. (i) Nothing contained in this Section 2.17 shall require any Lender (or Transferee) or the Administrative Agent to make available any of its income tax returns (or any other information that it deems to be confidential or proprietary). ARTICLE III Representations and Warranties SECTION 3.01. Representations and Warranties. As of the Effective Date and each other date upon which such representations and warranties are required to be made or deemed made pursuant to Section 6.01(i), the Borrower represents and warrants to each Lender and Agent as follows: (a) Organization, Powers. The Borrower (i) is duly organized, validly existing and in good standing under the laws of the State of Delaware, (ii) has the requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, and (iii) is qualified to do business in every jurisdiction where such qualification is required, except where the failure so to qualify would not have a material adverse effect on its condition, financial or otherwise. The Borrower has the corporate power to execute, deliver and perform its obligations under this Agreement and the other Loan Documents to which it is or is to be a party and to borrow hereunder. The Borrower has all requisite corporate power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its own assets and carry on its business as now being or as proposed to be conducted. (b) Authorization. The execution, delivery and performance of this Agreement (including, without limitation, performance of the obligations set forth in Section 5.0l(l)) and the other Loan Documents to which the Borrower is or is to be a party and the borrowings hereunder (i) have been duly authorized by all requisite corporate and, if required, stockholder, action on the part of the Borrower and (ii) will not (A) violate (x) any Governmental Rule or the Borrower's certificate of incorporation or By- laws or (y) any provisions of any indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower or any of its properties or assets are or may be bound, (B) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in (ii)(A)(y) above or (C) result in the creation or imposition of any Lien, charge or encumbrance of any nature whatsoever upon any property or assets of the Borrower. (c) Governmental Approvals. Except for those consents, approvals and registrations listed on Schedule IV hereto, each of which has been obtained and is in full force and effect, no registration with or consent or approval of, or other action by, any Governmental Authority is or will be required in connection with the execution, delivery and performance by the Borrower of this Agreement or any other Loan Document to which it is, or is to be, a party or the borrowings hereunder by the Borrower. Other than routine authorizations, permissions or consents which are of a minor nature and which are customarily granted in due course after application or the denial of which would not materially adversely affect the business, financial condition or operations of the Borrower, the Borrower has all franchises, licenses, certificates, authorizations, approvals or consents from all national, state and local governmental and regulatory authorities required to carry on its business as now conducted and as proposed to be conducted. (d) Enforceability. This Agreement and each of the other Loan Documents to which it is a party constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its respective terms (subject, as to the enforcement of remedies against the Borrower, to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights against the Borrower generally in connection with the bankruptcy, reorganization or insolvency of the Borrower or a moratorium or similar event relating to the Borrower). (e) Financial Statements. The Borrower has heretofore furnished to each of the Lenders an unaudited pro forma statement of operations for the fiscal year ended December 31, 1996, and an unaudited pro forma consolidated balance sheet and statement of operations as of and for the six-month period ended June 30, 1997. All such balance sheets and statements of operations and cash flow present fairly the financial condition and results of operations of the Borrower and its Subsidiaries as of the dates and for the periods indicated. Such financial statements and the notes thereto disclose all material liabilities, direct or contingent, of the Borrower and its Subsidiaries as of the dates thereof which are required to be disclosed in the footnotes to financial statements prepared in accordance with GAAP. The financial statements referred to in this Section 3.01(e) have been prepared in accordance with GAAP. There has been no material adverse change since August 26, 1997, in the businesses, assets, operations, prospects or condition, financial or otherwise, of the Borrower and its Subsidiaries taken as a whole. (f) Litigation; Compliance with Laws; etc. (i) There are no actions, suits or proceedings at law or in equity or by or before any governmental instrumentality or other agency or regulatory authority now pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Subsidiary or the businesses, assets or rights of the Borrower or any Subsidiary (i) which involve this Agreement or any of the other Loan Documents or any of the transactions contemplated hereby or thereby or (ii) as to which there is a reasonable possibility of an adverse determination and which, if adversely determined, could, individually or in the aggregate, materially impair the ability of the Borrower to conduct its business substantially as now conducted, or materially and adversely affect the businesses, assets, operations, prospects or condition, financial or otherwise, of the Borrower, or impair the validity or enforceability of, or the ability of the Borrower to perform its obligations under, this Agreement or any of the other Loan Documents to which it is a party. (ii) Neither the Borrower nor any Subsidiary is in violation of any Governmental Rule, or in default with respect to any judgment, writ, injunction, decree, rule or regulation of Governmental Authority, where such violation or default could result in a Material Adverse Effect. (g) Title, etc. The Borrower and the Subsidiaries have good and valid title to their respective material properties, assets and revenues (exclusive of oil, gas and other mineral properties on which no development or production activities are being conducted and commercially exploitable reserves have not been discovered), in the case of the Borrower and its Restricted Subsidiaries, free and clear of all Liens except such Liens as are permitted by Section 5.02(d) and except for covenants, restrictions, rights, easements and minor irregularities in title which do not individually or in the aggregate interfere with the occupation, use and enjoyment by the Borrower or any of its Restricted Subsidiaries of such properties and assets in the normal course of business as presently conducted or materially impair the value thereof for use in such business. (h) Federal Reserve Regulations; Use of Proceeds. (i) Neither the Borrower nor any Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock. (ii) No part of the proceeds of the Loans will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose which entails a violation of, or which is inconsistent with, the provisions of the Regulations of the Board, including, without limitation, Regulations G, U or X thereof. (iii) The Borrower will use the proceeds of all Loans made to it for the funding of capital expenditures, working capital and general corporate purposes. (i) Taxes. The Borrower and the Subsidiaries have filed or caused to be filed all material Federal, state, local and foreign tax returns which are required to be filed by them, and have paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessments received by any of them, other than any taxes or assessments the validity of which the Borrower or the relevant Subsidiary is contesting in good faith by appropriate proceedings, and with respect to which the Borrower or such Subsidiary shall, to the extent required by GAAP, have set aside on its books adequate reserves. (j) Employee Benefit Plans. Each of the Borrower and its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, could materially and adversely affect the financial condition and operations of the Borrower and the ERISA Affiliates, taken as a whole. The present value of all benefit liabilities under each Plan, determined on a plan termination basis (based on those assumptions used for financial disclosure purposes in accordance with Statement of Financial Accounting Standards No. 87 of the Financial Accounting Standards Board ("SFAS 87") did not, as of the last annual valuation date applicable thereto, exceed by more than $5,000,000 the value of the assets of such Plan, and the present value of all benefit liabilities of all underfunded Plans, determined on a plan termination basis (based on those assumptions used for financial disclosure purposes in accordance with SFAS 87) did not, as of the last annual valuation dates applicable thereto, exceed by more than $5,000,000 the value of the assets of all such underfunded Plans. (k) Investment Company Act. Neither the Borrower nor any Subsidiary is an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended from time to time. (1) Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended from time to time. (m) Subsidiaries. Schedule III constitutes a complete and correct list, as of the Effective Date or the date of any update thereof required by Section 5.01(a)(6), of all Restricted Subsidiaries with at least $1,000,000 in total assets, indicating the jurisdiction of incorporation or organization of each corporation or partnership and the percentage of shares or units owned on such date directly or indirectly by the Borrower in each. Each entity shown as a parent company owns on such date, free and clear of all Liens (other than the Liens permitted by Section 5.02(d)(iii)), the percentage of voting shares or partnership interests outstanding of its Restricted Subsidiaries shown on Schedule III, and all such shares or partnership interests are validly issued and fully paid. (n) Environmental Matters. (1) The properties owned, leased or operated by the Borrower and its Subsidiaries (the "Properties") and all operations of the Borrower and its Subsidiaries are in compliance, and in the last three years have been in compliance, with all Environmental Laws, and all necessary Environmental Permits have been obtained and are in effect, except to the extent that such noncompliance or failure to obtain any necessary permits, in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (2) There have been no Releases or threatened Releases at, from, under or proximate to the Properties or otherwise in connection with the operations of the Borrower or its Subsidiaries, which Releases or threatened Releases, in the aggregate, could reasonably be expected to result in a Material Adverse Effect. (3) Neither the Borrower nor any of its Subsidiaries has received any notice of an Environmental Claim in connection with the Properties or the operations of the Borrower or its Subsidiaries or with regard to any Person whose liabilities for environmental matters the Borrower or its Subsidiaries has retained or assumed, in whole or in part, contractually, by operation of law or otherwise, which, in the aggregate, could reasonably be expected to result in a Material Adverse Effect, nor does the Borrower or its Subsidiaries have reason to believe that any such notice will be received or is being threatened. (4) Hazardous Materials have not been transported from the Properties, nor have Hazardous Materials been generated, treated, stored or disposed of at, on or under any of the Properties in a manner that could give rise to liability under any Environmental Law, nor has the Borrower or its Subsidiaries retained or assumed any liability, contractually, by operation of law or otherwise, with respect to the generation, treatment, storage or disposal of Hazardous Materials, which transportation, generation, treatment, storage or disposal, or retained or assumed liabilities, in the aggregate, could reasonably be expected to result in a Material Adverse Effect. (o) No Material Misstatements. No information, report (including any exhibit, schedule or other attachment thereto or other document delivered in connection therewith), financial statement, exhibit or schedule prepared or furnished by the Borrower to the Administrative Agent or any Lender in connection with this Agreement or any of the other Loan Documents or included therein contained or contains any material misstatement of fact or omitted or omits to state any material fact necessary to make the statements therein, taken as a whole in the light of the circumstances under which they were made, not misleading. ARTICLE IV Conditions to Initial Credit Event Subject to satisfaction of the conditions to each Credit Event required by Section 6.01, the Borrower may not borrow Loans hereunder until the first date upon which the following conditions have been satisfied: (a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature of this Agreement) that such party has signed a counterpart to this Agreement. (b) The Administrative Agent and the Documentary Agent shall have received, on behalf of themselves and the Lenders, a favorable written opinion of (i) the General Counsel of the Borrower, substantially to the effect set forth in Exhibit D and (ii) Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., counsel for the Borrower, substantially to the effect set forth in Exhibit E, in each case (A) dated the Effective Date, (B) addressed to the Agents and the Lenders, and (C) covering such other matters relating to the Spin-Off, the Loan Documents and the transactions contemplated thereby as the Administrative Agent and the Documentary Agent shall reasonably request, and the Borrower hereby instructs such counsel to deliver such opinions. (c) All legal matters incident to this Agreement, the borrowings and extensions of credit hereunder, the other Loan Documents or the Spin-Off shall be satisfactory to the Lenders and to Cravath, Swaine & Moore, special counsel for the Agents. (d) The Administrative Agent and the Documentary Agent shall have received (i) a copy of the certificate of incorporation, including all amendments thereto, of the Borrower, certified as of a recent date by the Secretary of State of the state of its organization, and a certificate as to the good standing of the Borrower as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary of the Borrower dated the Effective Date and certifying (A) that attached thereto is a true and complete copy of the By-laws of the Borrower as in effect on the Effective Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of the Borrower authorizing the execution, delivery and performance of the Loan Documents to which the Borrower is a party and the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate of incorporation and By-laws of the Borrower have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above or the date of the certificate furnished pursuant to clause (ii) above, as applicable, and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of the Borrower; (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above; and (iv) such other documents as the Lenders or Cravath, Swaine & Moore, special counsel for the Agents, may reasonably request. (e) The Administrative Agent and the Documentary Agent shall have received a certificate, dated the Effective Date and signed by a Financial Officer of the Borrower, confirming compliance with the conditions precedent set forth in paragraphs (i) and (iii) of Section 6.01. (f) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder or under any other Loan Document. (g) (i) All actions related to the Spin-Off shall have been completed on a generally tax-free basis with respect to the Borrower (subject to exceptions approved by the Administrative Agent), including arrangements in connection with the Spin-Off with respect to existing indebtedness of FTX and FRP, all on terms substantially the same as those described in the Form S-1 filed with the SEC in connection with the Spin-Off or otherwise satisfactory to the Lenders (including all tax, accounting, corporate and partnership matters) and all in accordance with applicable law and documentation reasonably satisfactory to the Lenders; and (ii) the Lenders shall be satisfied with the capitalization and structure of the Borrower after the consummation of the Spin-Off. (h) After giving effect to the Spin-Off and the other transactions contemplated hereby, the Borrower and its Restricted Subsidiaries shall have outstanding no Debt or preferred stock other than (i) the Loans and other extensions of credit under this Agreement and (ii) the Debt permitted under Section 5.02(g); provided, however, that such Debt that shall remain outstanding after the Effective Date pursuant to the terms of Section 5.02(g) shall be satisfactory in all respects to the Lenders (including, but not limited to, terms and conditions relating to the interest rates, fees, amortization, maturity, subordination, covenants, events of default and remedies). (i) The Borrower shall have delivered to each Lender a reserve report, in a form satisfactory to the Administrative Agent, the Co-Agent and the Lenders, on the sulphur properties of the Borrower and its Restricted Subsidiaries. (j) The Lenders shall have received (i) an unaudited pro forma consolidated statement of operations of the Borrower for the 1996 fiscal year, (ii) an unaudited pro forma consolidated balance sheet and related statement of operations of the Borrower for the six-month period ended June 30, 1997 and (iii) other financial information, including projections, all in form and substance satisfactory to the Administrative Agent. Such financial statements and other financial information provided to the Lenders by the Borrower shall not be materially inconsistent with such financial statements or other financial information previously provided to the Lenders. (k) There shall be no litigation or administrative proceedings or other legal or regulatory developments, actual or threatened, that, in the reasonable judgment of the Lenders, involve a reasonable possibility of a Material Adverse Effect or which would be materially inconsistent with the assumptions underlying the projections contained in the Confidential Information Memorandum. (l) The Lenders shall be satisfied that the consummation of the transactions contemplated by this Agreement and the Spin-Off will not (i) violate any applicable law, statute, rule or regulation (including, but not limited to, ERISA, margin regulations and Environmental Laws) or (ii) conflict with, or result in a default or event of default under (x) any indenture relating to any existing indebtedness of the Borrower or any of its Restricted Subsidiaries that is not being repaid, repurchased or redeemed in full on or prior to the Effective Date in connection with the Spin-Off or (y) any other material agreement of the Borrower or any of its Restricted Subsidiaries, and the Administrative Agent shall have received one or more legal opinions to such effect satisfactory to the Administrative Agent, from counsel to the Borrower satisfactory to the Administrative Agent. (m) The Lenders shall be reasonably satisfied as to the amount and nature of any environmental and employee health and safety exposures to which the Borrower and its Restricted Subsidiaries may be subject, and the plans of the Borrower with respect thereto. (n) The Borrower and each Restricted Subsidiary shall have in place insurance with reputable insurance companies or associations (or, to the extent consistent with prudent business practice, through its own program of self- insurance) in such amounts and covering such risks as is usually carried by companies in similar businesses and owning similar properties in the same general areas in which the Borrower or such Restricted Subsidiary operates. (o) There shall have been no material adverse change in the business, assets, operations, properties, financial condition, contingent liabilities, prospects or material agreements of the Borrower and its Restricted Subsidiaries, taken as a whole, since August 26, 1997. (p) The Lenders shall be reasonably satisfied in all respects with the tax position and the contingent tax and other liabilities of the Borrower and its Restricted Subsidiaries and the plans of the Borrower with respect thereto. (q) All requisite material Governmental Authorities and Third Parties shall have approved of or consented to the Spin-Off and the other transactions contemplated hereby to the extent required, all applicable appeal periods shall have expired and there shall be no governmental or judicial action, actual or threatened, that could reasonably be expected to restrain, prevent or impose burdensome conditions on the Spin-Off or the other transactions contemplated hereby. (r) The Lenders shall have received a copy, in a form satisfactory to the Administrative Agent, of the Agreement for Sulphur Supply dated as of July 1, 1993, between FRP, IMC Fertilizer, Inc. and IMC-Agrico Company, as such agreement shall be amended in connection with the Spin- Off (the "Sulphur Supply Agreement"). (s) The Borrower shall have delivered to each Lender a calculation of its Leverage Ratio and EBITDA Ratio as of the fiscal quarter ended September 30, 1997. ARTICLE V Covenants SECTION 5.01. Affirmative Covenants of the Borrower. The Borrower covenants and agrees with each Lender and Agent that from and after the Effective Date and so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all fees and all other expenses or amounts payable under any Loan Document shall have been paid in full, that, unless the Required Lenders otherwise provide prior written consent: (a) Financial Statements, etc. The Borrower shall furnish each Lender: (1) within 95 days after the end of each fiscal year, a consolidated balance sheet of the Borrower and its Subsidiaries as at the close of such fiscal year and consolidated statements of operation and changes in retained earnings and cash flow of it and its Subsidiaries for such year, with the opinion thereon of Arthur Andersen LLP or other independent public accountants of national standing selected by it to the effect that such consolidated financial statements fairly present the financial condition and results of operations of the Borrower on a consolidated basis in accordance with GAAP consistently applied, except as disclosed in such auditor's report; (2) within 50 days after the end of each of the first three quarters of each of its fiscal years, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarter and consolidated statements of income of the Borrower and its Subsidiaries, for such quarter and for the period from the beginning of the fiscal year to the end of such quarter, certified by a Financial Officer of the Borrower as fairly presenting the financial condition and results of operations of the Borrower on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments; (3) promptly after their becoming available, (a) copies of all financial statements, reports and proxy statements which the Borrower shall have sent to its stockholders generally, (b) copies of all registration statements (excluding registration statements relating to employee benefit plans) and regular and periodic reports, if any, which it shall have filed with the SEC, or any governmental agency substituted therefor, and (c) if requested by any Lender, copies of each annual report filed with any Governmental Authority pursuant to ERISA with respect to each Plan of the Borrower or any of the Subsidiaries; (4) on or prior to April 1 of each year, commencing with the April 1 immediately following the Effective Date, the Borrower shall provide to each Lender (i) an update with respect to the sulphur reserves of the Borrower and its Restricted Subsidiaries and (ii) projections for the Borrower's business operations, in each case in a form satisfactory to the Administrative Agent; (5) promptly upon the occurrence of any Default or Event of Default, the occurrence of any default under any other Loan Document, the commencement of any proceeding regarding the Borrower or any of its Subsidiaries under any Federal or state bankruptcy law, any other development that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect, notice thereof, describing the same in reasonable detail; (6) at the time of provision of the financial statements referred to in clauses (1) and (2) above, an update of Schedule III to correct, add or delete any required information; and (7) from time to time, such further information regarding the business, affairs and financial condition of the Borrower or any Subsidiary as any Lender may reasonably request. At the time the Borrower furnishes financial statements pursuant to the foregoing clauses (1) and (2), it also will furnish each Lender a certificate signed by its Treasurer or other authorized Financial Officer setting forth the calculation of: (a) its Leverage Ratio as determined in accordance with Section 5.02(e) and (b) its EBITDA Ratio as determined in accordance with Section 5.02(f); provided, however, that, with respect to data included in such calculations related to the period prior to the consummation of the Spin-Off, such data shall be determined on a pro forma basis, and it will furnish a certificate signed by its Treasurer or other authorized Financial Officer certifying that no Default or Event of Default has occurred, or if such a Default or Event of Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto. (b) Obligations, Taxes and Claims. The Borrower shall, and shall cause each of its Subsidiaries to, pay its material obligations promptly and pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any property belonging to it, prior to the date on which material penalties attach thereto, as well as all lawful claims for labor, materials and supplies or otherwise that, with respect to any of the foregoing, if unpaid, could reasonably be expected to give rise to a Lien upon such properties or any part thereof which is not permitted by Section 5.02(d); provided that neither the Borrower nor any Subsidiary shall be required to pay or discharge any such obligation, tax, assessment, charge, levy or claim, the payment of which is being contested in good faith by proper proceedings and with respect to which the Borrower or such Subsidiary shall have, to the extent required by GAAP, set aside on its books adequate reserves and such contest operates to suspend collection of the contested obligation, tax, assessment or charge and enforcement of such Lien and, in the case of a mortgaged property, there is no risk of forfeiture of such property. (c) Maintenance of Existence; Conduct of Business. The Borrower shall preserve and maintain its corporate existence and all its rights, privileges and franchises necessary or desirable in the normal conduct of its business; provided that nothing herein shall prevent any transaction permitted by Section 5.02(c). (d) Compliance with Applicable Laws. The Borrower shall, and shall cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority, a breach of which would materially and adversely affect its consolidated financial condition or business, except where contested in good faith and by proper proceedings and with respect to which the Borrower or such Subsidiary shall have, to the extent required by GAAP, set aside on its books adequate reserves. (e) Litigation. The Borrower shall promptly give to each Lender notice in writing of all litigation and all proceedings before any Governmental Authority or arbitration authorities affecting the Borrower or any Subsidiary, except those which, if adversely determined, do not relate to the Loan Documents and which would not have a material adverse effect on the business, assets, operations or financial condition of the Borrower or the Borrower's ability to comply with its obligations under the Loan Documents. (f) ERISA. The Borrower shall, and shall cause each of its ERISA Affiliates to, comply in all material respects with the applicable provisions of ERISA and the Code and furnish to the Administrative Agent as soon as possible, and in any event within 30 days after any Responsible Officer of the Borrower or any ERISA Affiliate knows or has reason to know that any ERISA Event has occurred that alone or together with any other ERISA Event could reasonably be expected to result in liability of the Borrower in an aggregate amount exceeding $25,000,000 or requires payment exceeding $10,000,000 in any year, a statement of a Financial Officer of the Borrower setting forth details as to such ERISA Event and the action that the Borrower proposes to take with respect thereto. (g) Compliance with Environmental Laws. The Borrower shall comply, and cause its Subsidiaries and all lessees and other Persons occupying the Properties to comply, in all material respects with all Environmental Laws and Environmental Permits applicable to its operations and Properties; obtain and renew all material Environmental Permits necessary for its operations and Properties; and conduct any Remedial Action in accordance with Environmental Laws; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to undertake any Remedial Action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP. (h) Preparation of Environmental Reports. If a default caused by reason of a breach of Section 3.01(n) or 5.01(g) shall have occurred and be continuing, at the request of the Required Lenders through the Administrative Agent, the Borrower shall provide to the Lenders within 45 days after such request, at the expense of the Borrower, an environmental site assessment report for the Properties (which are the subject of such default) prepared by an environmental consulting firm acceptable to the Administrative Agent, indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance or Remedial Action in connection with such Properties. (i) Insurance. The Borrower and each Restricted Subsidiary shall (i) keep its insurable properties adequately insured at all times; (ii) maintain such other insurance, to such extent and against such risks, including fire, flood and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses; (iii) maintain in full force and effect public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it in such amount as it shall reasonably deem necessary; and (iv) maintain such other insurance as may be required by law. (j) Access to Premises and Records. The Borrower and each Subsidiary shall maintain financial records in accordance with GAAP, and, at all reasonable times and as often as any Lender may reasonably request, permit representatives of any Lender to have access to its financial records and its premises and to the records and premises of any of its Subsidiaries and to make such excerpts from and copies of such records as such representatives deem necessary and to discuss its affairs, finances and accounts with its officers and its independent certified public accountants or other parties preparing consolidated or consolidating statements for it or on its behalf. (k) Maintenance of Property. The Borrower shall, and shall cause each of its Restricted Subsidiaries to, keep and maintain all property material to the conduct of the business of the Borrower and its Restricted Subsidiaries, taken as a whole, in good working order and condition, ordinary wear and tear excepted. (l) Further Assurances. The Borrower shall, and shall cause its Subsidiaries to, execute any and all further documents, financing statements, agreements and instruments, and take all further actions, which may be required under applicable law, or which the Required Lenders, the Administrative Agent or the Documentary Agent may reasonably request, in order to effectuate the transactions contemplated by this Agreement and the other Loan Documents. SECTION 5.02. Negative Covenants of the Borrower. The Borrower covenants and agrees with each Lender and Agent that, from and after the Effective Date and so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all fees and all other expenses or amounts payable under any Loan Document have been paid in full, without the prior written consent of the Required Lenders: (a) Conflicting Agreements. The Borrower shall not, and shall cause its Restricted Subsidiaries not to, enter into any agreement with any Person containing any provision which (i) would be violated or breached by the performance of its obligations under any Loan Document or under any instrument or document delivered or to be delivered by it hereunder or thereunder or in connection herewith or therewith, (ii) would prohibit or restrict the Borrower or any of its Restricted Subsidiaries in the payment of dividends or other distributions or (iii) would prohibit or restrict the ability of the Borrower or any of its Restricted Subsidiaries to create Liens on any of their assets (other than assets which are subject to Liens permitted pursuant to paragraphs (ii), (iii), (iv) and (v) of Section 5.02(d) and extensions and renewals and replacements thereof to the extent permitted pursuant to Section 5.02(d)(vii). (b) Hedge Transactions. The Borrower and the Restricted Subsidiaries shall enter into or become obligated with respect to Hedge Agreements only in the ordinary course of business to hedge or protect against actual or reasonably anticipated exposures and not for speculation. (c) Consolidation or Merger; Disposition of Assets and Capital Stock. The Borrower shall not, and shall not permit any Restricted Subsidiary to, merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it, or sell, lease, transfer or otherwise dispose of (in one transaction or a series of transactions) all or any substantial part of its assets (whether now owned or hereafter acquired) or any capital stock or other ownership interests of any Restricted Subsidiary, except for (i) dispositions of accounts receivable and dispositions of inventory in the ordinary course of business, (ii) dispositions of obsolete or worn- out property, or real estate not used or useful in its business, (iii) subject to Sections 5.02(l) and (m), dispositions of assets by the Borrower or a Restricted Subsidiary to another Restricted Subsidiary or the Borrower, (iv) subject to Section 5.02(j), dispositions of assets by a Borrower or the Restricted Subsidiary to a Third Party, (v) to the extent permitted by Section 5.02(n), the payment of Equity Payments by the Borrower or any Restricted Subsidiary, (iv) subject to Section 2.07(b), sale and leaseback transactions and (vii) investments in Permitted Investments and dispositions thereof; and except that: (x) the Borrower or any Restricted Subsidiary may merge or liquidate any other Person into itself; (y) any Restricted Subsidiary may be merged into any other Person; provided that such other Person, immediately following such merger, shall be deemed a Restricted Subsidiary; and (z) subject to Section 2.07(b), the Borrower or any Restricted Subsidiary may sell or otherwise dispose of (including by merger or consolidation) any assets or securities of any Subsidiary; provided, however, that in the case of a merger permitted by clause (x) above, immediately thereafter and giving effect thereto, the Borrower or, as the case may be, a Restricted Subsidiary would be the surviving Person and, in the case of a merger permitted by clause (x) or (y) above or of any disposition of assets or securities permitted by clause (z) above, no Default or Event of Default would, immediately thereafter and giving effect thereto, have occurred and be continuing. Each sale or other disposition permitted by clause (z) above shall be permitted only if the Borrower or the Restricted Subsidiary shall receive fair consideration therefor, as determined by the Board of Directors of the Borrower or of such Restricted Subsidiary, as the case may be, and certified by its Treasurer or another of its Financial Officers to the Administrative Agent. (d) Liens. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of their respective properties, revenues or assets (including stock or other securities of any Person, including any Subsidiary), now owned or hereafter acquired, except: (i) required margin deposits on permitted Hedge Agreements and foreign currency exchange agreements, surety and appeal bonds and materialmen's, suppliers', tax and other like Liens arising in the ordinary course of its or such Restricted Subsidiary's business securing obligations which are not overdue or are being contested in good faith by appropriate proceedings and as to which adequate reserves have been set aside on its books to the extent required by GAAP, Liens arising in connection with workers' compensation, unemployment insurance and progress payments under government contracts, and other Liens incident to the ordinary conduct of its or such Restricted Subsidiary's business or the ordinary operation of property or assets and not incurred in connection with the obtaining of any Debt or Guarantee; (ii) Liens on assets or properties not owned as of the Effective Date by the Borrower or any Restricted Subsidiary securing only purchase money Debt of the Borrower or such Restricted Subsidiary permitted by Section 5.02(g)(v), which Liens are limited to the specific property the purchase of which is financed by such Debt; (iii) Liens, existing at the time of the acquisition by the Borrower or any Restricted Subsidiary of the majority of the capital stock or other ownership interests or substantially all of the assets of any other Person or existing at the time of the merger of any such other Person into the Borrower or a Restricted Subsidiary, on such capital stock or other ownership interests or assets so acquired or on the assets of the Person so merged into the Borrower or such Restricted Subsidiary; provided, however, that such acquisition or merger (and the discharge of such Liens referred to in the immediately succeeding proviso) shall not otherwise result in an Event of Default or Default; and provided further that all such Liens shall be discharged within 180 days after the date of the respective acquisition or merger; (iv) Liens (as in effect on the Effective Date) securing the Pennzoil Obligations on only the related assets purchased from Pennzoil Company in an amount not exceeding the amount of the Pennzoil Obligations; (v) Liens of lessors of property (in such capacity) leased by the Borrower or a Restricted Subsidiary pursuant to an Operating Lease or a permitted Capitalized Lease Obligation, which Lien in any such case is limited to the property leased thereunder; (vi) zoning restrictions, easements, rights-of- way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (vii) extensions, renewals and replacements of Liens referred to in paragraphs (i), (ii), (v), (vi) and (viii) of this Section 5.02(d); provided that any such extension, renewal or replacement Lien shall be limited to the property or assets covered by the Lien extended, renewed or replaced and that the obligations secured by any such extension, renewal or replacement Lien shall be in an amount not greater than the amount of the obligations secured by the Lien extended, renewed or replaced; and (viii) Liens on equity or debt investments in Third Parties owned by the Borrower or a Restricted Subsidiary (which Lien in any case is limited to such pledged equity or debt investment) which secure Debt of Third Parties or other Third Party obligations (or Guarantees thereof); provided that such pledged investments were initially acquired in accordance with Section 5.02(j). (e) Leverage Ratio. The Borrower shall not permit the Leverage Ratio to exceed 4.00 to 1.00. (f) EBITDA Ratio. The Borrower shall not permit the EBITDA Ratio to be less than 3.00 to 1.00 at the end of any fiscal quarter. (g) Debt. Neither the Borrower nor any Restricted Subsidiary shall incur, create, assume or permit to exist any Debt of any of them except: (i) the Loans; (ii) Debt secured by the Liens permitted by Section 5.02(d)(iii); provided that such Debt is discharged within 180 days of the relevant acquisition or merger; (iii) unsecured recourse liabilities (not in excess of the uncollectible amounts of the accounts receivable sold) of the Borrower arising from the sale of accounts receivable; (iv) unsecured loans and advances between the Restricted Subsidiaries, to any Restricted Subsidiary from the Borrower and to the Borrower from any Restricted Subsidiary; (v) purchase money Debt of the Borrower secured by Liens referred to in Section 5.02(d)(ii) not in excess of the purchase price of the related asset in each individual case and not in excess of $15,000,000 principal amount for all such outstanding purchase money Debt in the aggregate; (vi) unsecured Debt of the Borrower with a maturity less than 90 days pursuant to uncommitted lines of credit with an outstanding aggregate principal amount not at any time in excess of $10,000,000; (vii) additional Debt (including Guarantees of any Debt of a Third Party and Capitalized Lease Obligations) of the Borrower with an outstanding aggregate principal amount not at any time in excess of $25,000,000 which shall, except for Liens of Capitalized Lease Obligations permitted by Section 5.02(d)(ii) or (vi), be unsecured; (viii) additional Debt of the Borrower fully subordinated to the Loans on terms approved by the Administrative Agent; and (ix) Debt consisting of a pledge of investments in Nonrestricted Subsidiaries permitted by Section 5.02(d)(viii); provided that such Debt is recourse solely to the investment so pledged. (h) Subordinated Debt Payments. The Borrower and the Restricted Subsidiaries shall not, directly or indirectly, make any principal payment on, or repurchase of, any subordinated debt referred to in clause (viii) of Section 5.02(g) with proceeds of the Loans. (i) Fiscal Year. The Borrower shall not change its fiscal year to end on any date other than December 31. (j) Investments in Nonrestricted Subsidiaries and Persons Not Subsidiaries. The Borrower and its Restricted Subsidiaries shall not make or permit to exist (x) any Guarantee by it or a Restricted Subsidiary of the Debt of any Person which is not a Restricted Subsidiary, including Nonrestricted Subsidiaries (each such Person being a "Third Party"), in excess of available amounts of Debt of the Borrower permitted under Section 5.02(g)(vii), or (y) any loans or advances to, or purchase any stock, other securities or evidences of indebtedness of, or permit to exist any investment (whether by transfer of assets or otherwise) or acquire any investment whatsoever in or any other payment for the benefit of, any Third Parties the aggregate outstanding amount of which under this clause (y) at any time exceeds by more than $50,000,000 the largest aggregate amount thereof outstanding at any time in the Borrower's preceding fiscal year; provided that, notwithstanding the provisions of clauses (x) and (y) above, the Borrower and the Restricted Subsidiaries may invest in Permitted Investments all of which shall not be included in the calculation of such $50,000,000 annual limit. (k) Federal Reserve Regulations. The Borrower shall not, and shall cause its Subsidiaries not to, use the proceeds of any Loan in any manner that would result in a violation of, or be inconsistent with, the provisions of Regulations G, U or X. The Borrower shall not, and shall cause its Subsidiaries not to, take any action at any time that would (A) result in a violation of the substitution and withdrawal requirements of said Regulations, in the event the same should become applicable to this Agreement or any Loan or (B) cause the representation and warranty contained in Section 3.01(h) at any time to be other than true and correct. (l) Borrower Transfers. The Borrower shall not make any contribution or transfer of any substantial portion of its assets to any Restricted Subsidiary other than a Wholly-Owned Restricted Subsidiary. (m) Transactions with Affiliates. Other than the transactions constituting the Spin-Off, the Borrower and its Restricted Subsidiaries shall not sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates (other than among Wholly-Owned Restricted Subsidiaries), except that as long as no Default or Event of Default shall have occurred and be continuing, the Borrower or any Restricted Subsidiary may engage in any of the foregoing transactions (i) in the case of a transaction between the Borrower or a Restricted Subsidiary of the Borrower and a non-Wholly-Owned Restricted Subsidiary, the Borrower, or such Restricted Subsidiary, as the case may be, has determined that such transaction is in the best interests of the Borrower, or such Restricted Subsidiary, as the case may be, and (ii) in the case of any other transaction between the Borrower or a Restricted Subsidiary and an Affiliate which is not a Restricted Subsidiary, at prices and on terms and conditions not less favorable to the Borrower or such Restricted Subsidiary than could be obtained on an arm's-length basis from unrelated third parties. Notwithstanding the foregoing, (x) the Borrower or a Restricted Subsidiary may engage in the foregoing transactions with a Wholly-Owned Restricted Subsidiary and (y) a Wholly Owned Restricted Subsidiary may engage in the foregoing transactions with another Wholly- Owned Restricted Subsidiary. (n) Equity Payments. The Borrower shall not make an Equity Payment if there is then continuing any Default or Event of Default (or a Default or Event of Default would result therefrom or exist after giving effect thereto); provided, however, that no such Equity Payment shall be made to the extent that, after giving effect thereto, stockholders' equity of the Borrower (adjusted to exclude the effect of extraordinary and unusual noncash items) is less than $60,000,000. (o) Scope of Borrower's Business. As of the Effective Date, the Borrower and its Restricted Subsidiaries (i) produce, purchase, process, transport and sell elemental sulphur; (ii) produce and process oil and gas and sell oil; and (iii) through a joint venture, purchase, transport and sell sulphuric acid. The Borrower and its Restricted Subsidiaries may expand its business into new areas associated with oil, gas, sulphur, sulphuric acid and other related products, including, without limitation, designing, building, owning and operating sulphuric acid plants and sulphur recovery units. The Borrower and its Restricted Subsidiaries shall not materially expand the nature of its business from that described above. ARTICLE VI Conditions to Credit Events SECTION 6.01. Conditions Precedent to Each Credit Event. Each Credit Event shall be subject to the following conditions precedent: (i) the representations and warranties on the part of the Borrower contained in the Loan Documents shall be true and correct in all material respects at and as of the date of such Credit Event as though made on and as of such date; (ii) the Administrative Agent shall have received a notice of such borrowing as required by Section 2.03; (iii) no Event of Default shall have occurred and be continuing on the date of such Credit Event or would result after giving effect to such Credit Event; (iv) the Loans to be made by the Lenders on such date, and the use of the proceeds thereof and the security arrangements contemplated hereby shall not result in a violation of Regulation G, Regulation U or Regulation X, as in effect on the date of such borrowing. If required by Regulation U as a result of such use of proceeds, the Borrower shall have delivered to the Lenders a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U; (v) there shall have been no amendments to the Certificate of Incorporation or By-laws of the Borrower since the date of the Certificates furnished by the Borrower on the Effective Date, other than amendments, if any, copies of which have been furnished to the Administrative Agent; and (vi) there shall be no proceeding for the dissolution or liquidation of the Borrower or any proceeding to revoke the Certificate of Incorporation of the Borrower or its corporate existence, which is pending or, to the knowledge of the Borrower, threatened against or affecting it. SECTION 6.02. Representations and Warranties with Respect to Credit Events. Each Credit Event shall be deemed a representation and warranty by the Borrower that the conditions precedent to such Credit Event, unless otherwise waived in accordance herewith, shall have been satisfied. ARTICLE VII Events of Default SECTION 7.01. Events of Default. If any of the following acts or occurrences (an "Event of Default") shall occur and be continuing: (a) default for three or more days in the payment when due of any principal of any Loan; (b) default for five or more days in the payment when due of any interest on any Loan, or of any other amount payable under the Loan Documents; (c) any representation or warranty made or deemed made in or in connection with any Loan Document or in any certificate, letter or other writing or instrument furnished or delivered to the Lenders or the Agents pursuant to any Loan Document shall prove to have been incorrect in any material respect when made or effective or reaffirmed and repeated, as the case may be; (d) default by the Borrower in the due observance or performance of any covenant, condition or agreement in Section 5.01(a)(5) with respect to notices of Defaults or Events of Default, 5.01(c) or 5.01(k), other than the covenant to preserve and maintain all of the Borrower's rights, privileges and franchises desirable in the normal conduct of its business; (e) default by the Borrower or any Restricted Subsidiary in the due observance or performance of any covenant, condition or agreement in Section 5.02 other than Section 5.02(i); (f) default by the Borrower or any Restricted Subsidiary in the due observance or performance of any other covenant, condition or agreement in the Loan Documents which shall remain unremedied for 30 days after written notice thereof shall have been given to such Borrower by the Administrative Agent or any Lender; (g) either the Borrower or any Restricted Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, liquidation or similar law, (ii) consent to the institution of, or fail to contravene in a timely and appropriate manner, any proceeding or the filing of any petition described in clause (h) below, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Borrower or such Restricted Subsidiary or for a substantial part of its property or assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Borrower or any Restricted Subsidiary, or of a substantial part of the property or assets of the Borrower or any Restricted Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Borrower or any Restricted Subsidiary or for a substantial part of the property of the Borrower or any Restricted Subsidiary or (iii) the winding-up or liquidation of the Borrower or any Restricted Subsidiary; and such proceeding or petition shall continue undismissed for 60 days, or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for 30 days; (i) default shall be made with respect to (x) the Pennzoil Obligations or (y) Hedge Agreements or (z) any Debt of the Borrower or any Restricted Subsidiary if the effect of any such default shall be to accelerate, or to permit the holder or obligee of any such obligations or Debt (or any trustee on behalf of such holder or obligee) to accelerate (with or without notice or lapse of time or both), the maturity of such Debt, the payment of any net termination value in respect of Hedge Agreements and/or the payment of the Pennzoil Obligations, as applicable, in an aggregate amount in excess of $10,000,000; or any payment, regardless of amount, of (A) net termination value on any such obligation in respect of Hedge Agreements, (B) any deferred purchase amount on the Pennzoil Obligations and/or (C) any Debt of the Borrower or a Restricted Subsidiary, as applicable, in an aggregate principal amount (or in the case of a Hedge Agreement, net termination value) in excess of $10,000,000, shall not be paid when due, whether at maturity, by acceleration or otherwise (after giving effect to any period of grace specified in the instrument evidencing or governing such Debt or other obligation); (j) an ERISA Event shall have occurred with respect to any Plan or Multi-Employer Plan that, when taken together with all other ERISA Events, reasonably could be expected to result in liability of the Borrower and/or any Restricted Subsidiary and the Borrower's ERISA Affiliates in an aggregate amount exceeding $25,000,000 or requires payments exceeding $10,000,000 in any year; (k) one or more judgments for the payment of money in an aggregate amount in excess of $10,000,000 shall be rendered by a court or other tribunal against the Borrower or any Restricted Subsidiary and shall remain undischarged for a period of 45 consecutive days during which execution of such judgment shall not have been effectively stayed; or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any Restricted Subsidiary to enforce any such judgment; (l) there shall have occurred a Change in Control; or (m) the termination of, or a material adverse change (in the Agent's reasonable judgment) in the terms of, the Sulphur Supply Agreement. then, and in any such event (other than an event with respect to the Borrower described in clause (g) or (h) above), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by written, telecopied, telex or telegraphic notice to the Borrower, take one or more of the following actions at the same or different times: (i) declare the Total Commitment to be terminated, whereupon the Total Commitment shall forthwith terminate or (ii) declare the Loans and all other sums then owing by the Borrower under the Loan Documents to be forthwith due and payable, whereupon all the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall become and be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein to the contrary notwithstanding; provided, however, that upon the occurrence of any event described in clause (g) or (h) of this Section 7.01 as to which the Borrower is the entity involved, the Commitments will forthwith terminate and all sums then owing by the Borrower to the Lenders on the Loans or otherwise hereunder shall, without any declaration or other action by any Lender or Agent hereunder, be immediately due and payable and the Total Commitment hereunder shall be immediately terminated without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding. Promptly following the making of any such declaration, the Administrative Agent shall give notice thereof to the Borrower but failure to do so shall not impair the effect of such declaration. ARTICLE VIII The Agents (a) For convenience of administration and to expedite the transactions contemplated by this Agreement, Chase is hereby appointed as Administrative Agent and Documentary Agent and Hibernia is appointed Co-Agent for the Lenders under this Agreement. None of the Agents or Co- Agent shall have any duties or responsibilities with respect hereto except those expressly set forth herein or in the other Loan Documents. Each Lender and its successors and permitted assigns hereby irrevocably appoints and expressly authorizes the Agents, without hereby limiting any implied authority, to take such action as the Agents may deem appropriate on its behalf and to exercise such powers under this Agreement as are specifically delegated to such Person by the terms hereof, together with such powers as are reasonably incidental thereto. The Administrative Agent is hereby expressly authorized by the Lenders, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders all payments of principal of and interest on the Loans and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender its proper share of each payment so received; (b) to give notice on behalf of the Lenders to the Borrower of any Event of Default specified in this Agreement of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder or as directed by the Required Lenders; and (c) to distribute to each Lender copies of all notices, financial statements and other materials delivered by the Borrower pursuant to this Agreement as received by the Administrative Agent. The Co-Agent is hereby expressly authorized to assist the Administrative Agent as requested by the Administrative Agent. (b) None of the Agents or any of their respective directors, officers, agents or employees shall be liable as such for any action taken or omitted to be taken by any of them except for its or his own gross negligence or wilful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrower or any other party of any of the terms, conditions, covenants or agreements contained in any Loan Document. The Agents shall not be responsible to the Lenders for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or any other Loan Documents or other instruments or agreements. The Agents shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders and each successor or permitted assign. Each Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper Person or Persons. None of the Agents nor any of their respective directors, officers, employees or agents shall have any responsibility to the Borrower or any other party on account of the failure of or delay in performance or breach by any Lender of any of its obligations hereunder or to any Lender on account of the failure of or delay in performance or breach by any other Lender or the Borrower or any other party of any of their respective obligations hereunder or under any other Loan Document or in connection herewith or therewith. Each of the Agents may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. The Lenders hereby acknowledge that none of the Agents shall be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Lenders. (c) To the extent that any Agent shall not be reimbursed by the Borrower for any costs, liabilities or expenses incurred in such capacity, each Lender agrees (i) to reimburse the Agents, on demand (in the amount of its Applicable Percentage hereunder) of any expenses incurred for the benefit of the Lenders by the Agents, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders and (ii) to indemnify and hold harmless each Agent and any of its directors, officers, employees or agents, on demand, in the amount of such Applicable Percentage, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against it in its capacity as Agent or any of them in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by it or any of them under this Agreement or any other Loan Document; provided, however, that no Lender shall be liable to an Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or wilful misconduct of such Agent or of its directors, officers, employees or agents. (d) With respect to the Loans made by it hereunder, each Agent in its individual capacity and not as Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not an Agent, and the Agents and their Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent. (e) Subject to the appointment and acceptance of a successor Agent as provided below, any Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint, and the Borrower shall have the right to approve (such approval not to be unreasonably withheld or delayed) a successor Administrative Agent or Documentary Agent, as the case may be. If no successor Agent or Documentary Agent, as the case may be, shall have been so appointed and approved and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Person may, on behalf of the Lenders, appoint a successor Administrative Agent or Documentary Agent, as the case may be, which shall be a Lender with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such Lender. Upon the acceptance of any appointment as Administrative Agent or Documentary Agent hereunder by a successor Administrative Agent or Documentary Agent, as the case may be, such successor Administrative Agent or Documentary Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall from and after such date be discharged from its duties and obligations hereunder. After any such retiring Agent's resignation hereunder as Administrative Agent or Documentary Agent, as applicable, the provisions of this Article VIII and Section 9.04 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was acting as the Administrative Agent or Documentary Agent, as applicable. (f) The Administrative Agent and the Documentary Agent shall be responsible for supervising the preparation, execution and delivery of this Agreement and the other agreements and instruments contemplated hereby, any amendment or modification thereto and the closing of the transactions contemplated hereby and thereby. (g) The obligations of the Administrative Agent and the Documentary Agent shall be separate and several and neither of them shall be responsible or liable for the acts or omissions of the other, except, to the extent that any such Agent serves in more than one agent capacity, such Agent shall be responsible for the acts and omissions relating to each such agency function. (h) Each Lender acknowledges that it has, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document, any related agreement or any document furnished hereunder or thereunder. ARTICLE IX Miscellaneous SECTION 9.01. Notices. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight or same day courier service or mailed or sent by telex, telecopy, graphic scanning or other telegraphic communications equipment of the sending party to the appropriate party's address set forth on the signature pages hereof. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if hand delivered or delivered by any telecopy, telegraphic or telex communications equipment or three days after being sent by registered or certified mail, postage prepaid, return receipt requested, in each case addressed to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party. SECTION 9.02. Survival of Agreement. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments prepared or delivered in connection with this Agreement or any other Loan Document shall be considered to have been relied upon by the Lenders and the Agents and shall survive the making by the Lenders of the Loans regardless of any investigation made by the Lenders or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan hereunder, any Commitment Fee or any other fee or amount payable under the Loan Documents is outstanding and unpaid and so long as the Commitments have not been terminated. SECTION 9.03. Successors and Assigns; Participation; Purchasing Lenders. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Agents and their respective successors and assigns, except that the Borrower may not assign, delegate or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. Any Lender may at any time pledge or assign all or any portion of its rights under this Agreement to a Federal Reserve Bank to secure extensions of credit by such Federal Reserve Bank to such Lender; provided that no such pledge or assignment shall release a Lender from any of its obligations hereunder or substitute any such Federal Reserve Bank for such Lender as a party hereto. (b) Any Lender may, in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in all or a portion of any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof and the Borrower and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. The Borrower agrees that if amounts outstanding under this Agreement are due and unpaid, or shall have been declared due or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement; provided that such right of setoff shall be subject to the obligation of such Participant to share with the Lenders, and the Lenders agree to share with such Participant, as provided in Section 2.15. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.11, 2.12, 2.13, 2.15, 2.17 and 9.05 with respect to its participation in the Commitments and the Loans outstanding from time to time as if it were a Lender; provided that no Participant shall be entitled to receive any greater payment pursuant to such Sections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant unless such participation shall have been made at a time when the circumstances giving rise to such greater payment did not exist; and provided that the voting rights of any Participant would be limited to amendments, modifications or waivers decreasing any fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loans, extending any scheduled principal payment date or date fixed for the payment of interest on the Loans or changing or extending the Commitments. (c) Any Lender may, in accordance with applicable law and subject to Section 9.03(h), at any time assign by novation all or any part of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) (I) to any Lender or any Affiliate thereof, without the Borrower's consent, or (II) to one or more additional banks or financial institutions (any such entity referred to in clause (I) or (II) being a "Purchasing Lender") with the consent of the Administrative Agent and the Borrower, such consent not to be unreasonably withheld (it being understood that the Borrower may withhold its consent to a Purchasing Lender (i) which is not a commercial bank or savings and loan institution or (ii) which would, as of the effective date of such assignment, be entitled to claim compensation under Section 2.11 which the transferor Lender would not be entitled to claim as of such date), pursuant to a Commitment Transfer Supplement in the form of Exhibit B, executed by such Purchasing Lender and such transferor Lender (and, in the case of a Purchasing Lender that is not then a Lender or an Affiliate thereof, by the Borrower and the Administrative Agent), and delivered for its recording in the Register to the Administrative Agent, together with the registration and processing fee required by Section 9.03(e) and an Administrative Questionnaire for the Purchasing Lender if it is not already a Lender. Assignments shall be by novation only and a proportionate interest in the Loans and Commitments to the Borrower must be assigned. Upon such execution, delivery and recording (and, if required, consent of the Borrower and the Administrative Agent), from and after the Transfer Effective Date determined pursuant to such Commitment Transfer Supplement (which shall be at least five days after the execution and delivery thereof), (x) the Purchasing Lender thereunder shall (if not already a party hereto) be a party hereto and have the rights and obligations of a Lender hereunder with a Commitment as set forth in such Commitment Transfer Supplement, and (y) the transferor Lender thereunder shall, to the extent assigned by such Commitment Transfer Supplement, be released from its obligations under this Agreement (and, in the case of a Commitment Transfer Supplement covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto). Such Commitment Transfer Supplement shall be deemed to amend this Agreement (including Schedule II hereto) to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender (if not already a party hereto) and the resulting adjustment of Applicable Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement. (d) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Commitment Transfer Supplement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the parties hereto may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the parties hereto at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a Commitment Transfer Supplement executed by a transferor Lender and a Purchasing Lender (and, in the case of a Purchasing Lender that is not then a Lender or an Affiliate thereof, by the Borrower and the Administrative Agent) together with payment to the Administrative Agent of a registration and processing fee of $3,500, the Administrative Agent shall (i) promptly accept such Commitment Transfer Supplement and (ii) on the Transfer Effective Date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Borrower. (f) Subject to Section 9.15, the Borrower authorizes each Lender to disclose to any Participant or Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all financial and other information in such Lender's possession concerning the Borrower and its Affiliates which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender's credit evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement. (g) If, pursuant to this Section 9.03, any interest in this Agreement is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall immediately notify the Administrative Agent of such transfer, describing the terms thereof and indicating the identity and country of residence of each Transferee. Such transferor Lender or Transferee shall indemnify and hold harmless the Borrower and the Administrative Agent from and against any tax, interest, penalty or other expense that the Borrower and the Administrative Agent may incur as a consequence of any failure to withhold United States taxes applicable because of any transfer or participation arrangement that is not fully disclosed to them as required hereunder. (h) By executing and delivering a Commitment Transfer Supplement, the transferor Lender thereunder and the Purchasing Lender thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such transferor Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Commitment, and the outstanding balance of its Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Commitment Transfer Supplement; (ii) except as set forth in (i) above, such transferor Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, or the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower or any Subsidiary of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (iii) such Purchasing Lender represents and warrants that it is legally authorized to enter into such Commitment Transfer Supplement; (iv) such Purchasing Lender confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements, if any, delivered pursuant to Section 5.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Commitment Transfer Supplement; (v) such Purchasing Lender will independently and without reliance upon the Agents, such transferor Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such Purchasing Lender appoints and authorizes the Agents to take such action as agent on its behalf and to exercise such respective powers under this Agreement and the other Loan Documents as are delegated to the Agents by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such Purchasing Lender agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender. SECTION 9.04. Expenses of the Lenders; Indemnity. (a) The Borrower agrees to pay all out-of-pocket expenses reasonably incurred by the Agents in connection with the preparation and administration of this Agreement and the other Loan Documents or with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby contemplated shall be consummated) or reasonably incurred by the Agents or any Lender in connection with the enforcement or protection of their rights in connection with this Agreement and the other Loan Documents or with the Loans made hereunder (whether through negotiations, legal proceedings or otherwise), including, but not limited to, the reasonable fees and disbursements of Cravath, Swaine & Moore, special counsel for the Agents, and, in connection with such enforcement or protection, the reasonable fees and disbursements of other counsel for any Lender. The Borrower further agrees that they shall indemnify the Lenders and the Agents from and hold them harmless against any documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution and delivery of or in connection with the performance of this Agreement or any of the other Loan Documents. Further, the Borrower agrees to pay, and to protect, indemnify and save harmless each Lender, each Agent, the Co-Agent and each of their respective officers, directors, stockholders, employees, agents and servants from and against, any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, damages, costs or expenses (including, without limitation, attorneys' fees and expenses) in connection with any investigative, administrative or judicial proceeding, whether or not such Lender, Agent or Co-Agent shall be designated a party thereto of any nature arising from or relating to (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the transactions contemplated hereby and thereby (including the Spin-Off) or (ii) the use of the proceeds of the Loans; and the Borrower also agrees to pay, and to protect, indemnify and save harmless each Lender, each Agent, the Co-Agent and each of their respective officers, directors, stockholders, employees, agents and servants from and against, any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, damages, costs or expenses (including, without limitation, attorneys' fees and expenses in connection with any investigative, administrative or judicial proceeding, whether or not such Lender, Agent or Co-Agent shall be designated a party thereto) of any nature arising from or relating to any actual or alleged presence or Release or threatened Release of Hazardous Materials on any of the Properties or any Environmental Claim related in any way to the Borrower or the Subsidiaries; provided that any such indemnity referred to in this sentence shall not, as to any indemnified Person, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such indemnified Person. If any action, suit or proceeding arising from any of the foregoing is brought against any Lender, Agent or other Person indemnified or intended to be indemnified pursuant to this Section 9.04, the Borrower, to the extent and in the manner directed by such indemnified party, shall resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel designated by the Borrower (which counsel shall be satisfactory to such Lender, Agent or other Person indemnified or intended to be indemnified). If the Borrower shall fail to do any act or thing which it has covenanted to do hereunder or any representation or warranty on the part of the Borrower contained in this Agreement shall be breached, any Lender or Agent may (but shall not be obligated to) do the same or cause it to be done or remedy any such breach, and may expend its funds for such purpose. Any and all amounts so expended by any Lender or Agent shall be repayable to it by the Borrower immediately upon such Lender's or such Agent's demand therefor. (b) The provisions of this Section 9.04 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby or thereby, the repayment of any of the Loans, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of any Lender or any Agent. All amounts due under this Section 9.04 shall be payable on written demand therefor. SECTION 9.05. Right of Setoff. If an Event of Default shall have occurred and be continuing and the Loans shall have been accelerated or any Lender shall have requested the Administrative Agent to declare the Loans immediately due and payable pursuant to Article VII, then each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such setoff and application made by such Lender, but the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section 9.05 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which such Lender may have. SECTION 9.06. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 9.07. Waivers; Amendments. (a) No failure or delay of any Lender or Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Lenders and the Agents hereunder and under the other documents and agreements entered into in connection herewith are cumulative and not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of this Agreement, any other Loan Document or any other such document or agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. (b) This Agreement (including any provision hereof or thereof) may not be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders; provided, however, that no such agreement shall (i) change the principal amount of, or extend or advance the maturity of or any date for the payment (other than pursuant to Section 2.07(b), which may be amended by the Required Lenders) of any principal of or interest on, any Loan (including, without limitation, any such payment pursuant to Section 2.07(c) or paragraph (a) or (b) of Section 2.09), or waive or excuse any such payment or any part thereof, or change the rate of interest on any Loan, without the written consent of each holder affected thereby, (ii) change or extend the Commitment of any Lender without the written consent of such Lender, or change any fees to be paid to any Lender or Agent hereunder without the written consent of such Lender or the Agent, as applicable, or (iii) amend or modify the provisions of this Section 9.07, Sections 2.08 through 2.15 or Section 9.04 or the definition of "Required Lenders", without the written consent of each Lender; and provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of an Agent hereunder without the written consent of such Agent. SECTION 9.08. Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 9.09. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective when copies hereof which, when taken together, bear the signatures of each of the parties hereto shall be delivered or mailed to the Administrative Agent and the Borrower. SECTION 9.10. Headings. Article and Section headings and the table of contents included herein are for convenience of reference only and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 9.11. Entire Agreement. This Agreement, the other Loan Documents, the fee letters between the Agents and the Borrower and the exhibits and schedules hereto contain the entire agreement among the parties hereto with respect to the Loans and the related transactions. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement, such fee letters and the other Loan Documents. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents. SECTION 9.12. WAIVER OF JURY TRIAL, ETC. (A) EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.12. (b) Except as prohibited by law, each party hereto hereby waives any right it may have to claim or recover in any litigation referred to in paragraph (a) of this Section 9.12 any special, indirect, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. (c) Each party hereto (i) certifies that no representative, agent or attorney of any Lender has represented, expressly or otherwise, that such Lender would not, in the event of litigation, seek to enforce the foregoing waivers and (ii) acknowledges that it has been induced to enter into this Agreement or any other document, as applicable, by, among other things, the mutual waivers and certifications herein. SECTION 9.13. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively, the "Charges"), as provided for herein or in any other document executed in connection herewith, or otherwise contracted for, charged, received, taken or reserved by any Lender, shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by such Lender in accordance with applicable law, the rate of interest in respect of such Loan hereunder, together with all Charges payable to such Lender, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section 9.13 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 9.14. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (A) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT ANY LENDER OR AGENT MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AGAINST ANY BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION. (B) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT. (C) EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 9.01. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. SECTION 9.15. Confidentiality. Each Lender agrees (which agreement shall survive the termination of this Agreement) that financial information, information from the Borrower's and its Subsidiaries' books and records, information concerning the Borrower's and its Subsidiaries' trade secrets and patents and any other information received from the Borrower and its Subsidiaries hereunder shall be treated as confidential by such Lender, and each Lender agrees to use its best efforts to ensure that such information is not published, disclosed or otherwise divulged to anyone other than employees or officers of such Lender and its counsel and agents; provided that it is understood that the foregoing shall not apply to: (i) disclosure made with the prior written authorization of the Borrower; (ii) disclosure of information (other than that received from the Borrower and its Subsidiaries prior to or under this Agreement) already known by, or in the possession of, such Lender without restrictions on the disclosure thereof at the time such information is supplied to such Lender by the Borrower or its Subsidiaries hereunder; (iii) disclosure of information which is required by applicable law or to a governmental agency having supervisory or regulatory authority over any party hereto; (iv) disclosure of information in connection with any suit, action or proceeding in connection with the enforcement of rights hereunder or under the other Loan Documents or in connection with the transactions contemplated hereby or thereby; (v) disclosure to any bank (or other financial institution) which may acquire a participation or other interest in the Loans or rights of any Lender hereunder; provided that such bank (or other financial institution) agrees to maintain any such information to be received in accordance with the provisions of this Section 9.15; (vi) disclosure by any party hereto to any other party hereto or their counsel or agents; (vii) disclosure by any party hereto to any entity, or to any Subsidiary of such an entity, which owns, directly or indirectly, more than 50% of the voting stock of such party, or to any Subsidiary of such an entity; or (viii) disclosure of information that prior to such disclosure has become public knowledge through no violation of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. FREEPORT-McMoRan SULPHUR INC., by /s/ Robert M. Wohleber ---------------------- Name: Robert M. Wohleber Title:President and Chief Executive Officer ADDRESS FOR NOTICES: 1615 Poydras Street New Orleans, Louisiana 70112 Attention: Robert M. Wohleber President and Chief Executive Officer Telephone: 504-582-1758 Telecopy: 504-582-1611 THE CHASE MANHATTAN BANK, individually and as Administrative Agent and Documentary Agent, by /s/ James H. Ramage ------------------- Name:James H. Ramage Title:Vice President ADDRESS FOR NOTICES: Loan & Agency Services One Chase Manhattan Plaza 8th Floor New York, NY 10081 Attention: Laura Rebecca Telephone: 212-552-7253 Telecopy: 212-552-7490 With a copy to: James Ramage Telephone: 212-270-1373 Telecopy: 212-270-4724 HIBERNIA NATIONAL BANK, by /s/ Steven Nance ----------------- Name: Steven Nance Title: Assistant Vice President ADDRESS FOR NOTICES: 313 Carondelet Street New Orleans, LA 70130 Attention: Steven Nance Telephone: 504-533-5384 Telecopy: 504-533-2060 BANK OF MONTREAL, by /s/ Michael P. Sassos --------------------- Name: Michael P. Sassos Title: Director ADDRESS FOR NOTICES: 115 South LaSalle Street 11th Floor Chicago, IL 60603 Attention: Daniel Scharfee Telephone: 312-750-3758 Telecopy: 312-750-4345 THE BANK OF NOVA SCOTIA, by /s/ F.C.H. Ashby ---------------- Name: F.C.H. Ashby Title: Senior Manager Loan Operations ADDRESS FOR NOTICES: 600 Peachtree Street, N.E. Suite 2700 Atlanta, GA 30308 Attention: Robert Ahern Telephone: 404-877-1565 Telecopy: 404-888-8998 THE BANK OF TOYKO-MITSUBISHI, LTD., HOUSTON AGENCY, by /s/ John W. McGhee ------------------ Name: John W. McGhee Title: Vice President and Manager ADDRESS FOR NOTICES: 1100 Louisiana Street Suite 2800 Houston, TX 77002-5216 Attention: Barrie Hogue Telephone: 713-655-3835 Telecopy: 713-658-0116 FIRST NATIONAL BANK OF COMMERCE, by /s/ Joseph P. Maxwell --------------------- Name: Joseph P. Maxwell Title: Assistant Vice President ADDRESS FOR NOTICES: 201 St. Charles Avenue 28th Floor New Orleans, LA 70170 Attention: Lisa Glennon Telephone: 504-623-1352 Telecopy: 504-623-1316 THE FUJI BANK LIMITED-HOUSTON AGENCY, by /s/ Nate Ellis -------------- Name: Nate Ellis Title: Vice President & Manager ADDRESS FOR NOTICES: 1221 McKinney Suite 4100 Houston, TX 77010 Attention: Jenny Lin Telephone: 713-650-7821 Telecopy: 713-951-0590 MELLON BANK, N.A., by /s/ Charles A. Gilbert ---------------------- Name: Charles A. Gilbert Title: Banking Officer ADDRESS FOR NOTICES: Three Mellon Bank Center Room 1203 Pittsburgh, PA 15259 Attention: Patricia L. Martin Telephone: 412-234-4710 Telecopy: 412-236-2027 SCHEDULE I APPLICABLE MARGIN FOR LOANS AND COMMITMENT FEES Debt to EBITDA LIBOR ABR Commitment Fee Leverage Ratio Spread* Spread* Percentage Below 2.5x 0.300% 0.000% 0.200% 2.5x - 3.5x 0.375% 0.000% 0.250% Above 3.5x 0.500% 0.000% 0.375% * At any time when more than $50,000,000 is borrowed under this Agreement, the applicable spread shall be increased by 0.125%. SCHEDULE II LENDER COMMITMENTS Lender Applicable Commitment Percentage THE CHASE MANHATTAN BANK 15% $15,000,000 HIBERNIA NATIONAL BANK 15% 15,000,000 THE BANK OF MONTREAL 12% 12,000,000 THE BANK OF NOVA SCOTIA 12% 12,000,000 THE BANK OF TOKYO-MITSUBISHI, LTD., HOUSTON AGENCY 12% 12,000,000 FIRST NATIONAL BANK OF 10% 10,000,000 COMMERCE THE FUJI BANK LIMITED-HOUSTON AGENCY 12% 12,000,000 MELLON BANK, N.A. 12% 12,000,000 TOTAL: 100% $100,000,000 SCHEDULE III SUBSIDIARIES None. SCHEDULE IV GOVERNMENTAL APPROVALS None. EX-10 6 Exhibit 10.19 FM FM Services Affiliate of Freeport-McMoRan & Freeport-McMoRan Copper & Gold FM Services Company Telephone: (504) 582-4000 1615 Poydras Street New Orleans, LA 70112 P.O. Box 61119 New Orleans, LA 70161 December 22, 1997 Mr. Rene L. Latiolais 2305 Barton Creek Blvd. Villa 42 Austin, TX 78735 Dear Rene: This will confirm the agreement between the undersigned, FM Services Company (the "Company"), and you with respect to the provision by you of certain consulting services to the Company and its subsidiaries and corporate affiliates (which includes client companies for which services are provided). 1. From January 1, 1998 through December 31, 1998 (the "Consulting Term"), you agree to serve as a consultant to the Company. In your capacity as a consultant, you will provide to the Company, subject to the instruction and direction of its executive officers, consulting advice related to the businesses, operations and prospects of the Company and its subsidiaries and corporate affiliates. You agree to devote such of your time, skill, labor and attention to the performance of any consulting services requested by the Company hereunder as may be necessary for you to render the prompt and effective performance thereof, provided that it is generally understood that you shall only be required to devote yourself to the performance of such duties to the extent contemplated by paragraph 2(vi) of this letter. 2. It is understood and agreed with respect to your undertaking to provide the consulting services described herein, that: (i) you will perform such consulting services as an independent contractor to, and not as an agent (except in any capacity as an elected officer or director) or employee of the Company or any of its subsidiaries or affiliates, and that, as an independent contractor, you shall have the sole and exclusive right to control and direct details incident to any consulting services required to be provided hereby; (ii) this agreement shall not be deemed or construed to create a partnership, a joint venture, a principal and agent relationship, or any other relationship between you and the Company that would create liability for the Company for your actions; (iii) nothing herein contained shall be construed as giving you any right to be elected or appointed an officer or director of the Company or any of its subsidiaries or corporate affiliates or to retain any such position during the Consulting Term or any extension thereof; (iv) except as otherwise authorized in writing by the Chairman of the Board of the Company, you will not (A) represent or hold yourself out to others that you are an employee or agent of the Company or any of its subsidiaries or corporate affiliates, or (B) have any authority to negotiate or execute any agreements, contracts commitments on behalf of, or otherwise binding upon, the Company or such subsidiary or corporate affiliate other than such authority which derives from your occupying the position of an elected officer or director of the Company or any of its subsidiaries or corporate affiliates; (v) the executive officers of the Company or the subsidiary or corporate affiliate seeking your consulting services will, insofar as it is reasonably practicable, consider your convenience in the timing of their requests, and your failure or inability, by reason of temporary illness or other cause beyond your control or because of absence for reasonable periods, to respond to such requests during any such temporary period shall not be deemed to constitute a default on your part in the performance hereunder of such services; (vi) subject to the provisions of the foregoing clause (v), during the Consulting Term you will make yourself available for the performance of services hereunder for fifteen (15) percent of your time, it being understood that this shall constitute, on the average, three (3) days per month during the Consulting Term. 3. As an independent contractor of the Company, you acknowledge and agree that, except as otherwise specifically provided herein, (i) you will not be entitled to any insurance, pension, vacation or other benefits customarily afforded to employees of the Company; (ii) you will not be treated by the Company as an employee for purposes of any federal or state law regarding income tax withholding or for purposes of contributions required by any unemployment, insurance or compensatory program; and (iii) you will be solely responsible for the payment of any taxes or assessments imposed on you on account of the payment of the consulting fee to, or performance of consulting services by you pursuant to this agreement. 4. During the term hereof, you agree that you will not, without the prior written consent of the Company, (i) render any services, whether or not for compensation, to other individuals, firms, corporations or entities in connection with any matters that may involve interests adverse to the Company or any of its subsidiaries or affiliates, or (ii) engage in any business or activity detrimental to the business or interests of the Company or any of its subsidiaries or affiliates. 5. You acknowledge and agree that any inventions or discoveries, whether or not patentable, which you may make (either alone or in conjunction with others) as a result of performing services hereunder shall be the sole and exclusive property of the Company. You agree to communicate to the Company or its representatives all facts known to you concerning such matters, and to execute any documents or instruments necessary to transfer to the Company any inventions or discoveries to which the Company may become entitled under this agreement, and should the Company decide to patent any such invention or discovery, you will assist in the preparation of patent applications and execute and assign such patent applications, and execute such other documents, as may be necessary. 6. You acknowledge and agree to comply with the confidentiality and other provisions set for in Appendix A to this Agreement, the terms of which are incorporated by reference into, and made a part of, this Agreement. 7. In the event of a breach or threatened breach by you of Sections 5 or 6 of this agreement during or after the term hereof, the Company shall be entitled to injunctive relief restraining you from violating such paragraphs. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedy at law or in equity it may have in the event of your breach or threatened breach of this agreement. 8. For the consulting services provided by you hereunder during the Consulting Term, the Company agrees: (i)to pay to you an annual consulting fee of $230,000, such fee to be payable monthly in arrears in $19,166.66 amounts, it being understood by you that the amounts payable to you pursuant to this Consulting Agreement shall be in full satisfaction of any compensation to which you would otherwise be entitled as a director of the Company or any of its subsidiaries or affiliates, with you hereby relinquishing any claim to such amounts; (ii)to reimburse you for, or advance to you, all reasonable out-of-pocket travel and other expenses incurred by you at the request of the Company in connection with your performance of services hereunder. Such expenses will be reimbursed or advanced promptly after your submission to the Company of expense statements in such reasonable detail as the Company may require; (iii)to make available to you secretarial assistance, the use of a portable phone and laptop computer, and a suitable office at the Company's headquarters, for which you will pay to the Company a monthly amount of $2,500, such amount to be paid no later than the last day of each month; (iv)to make available to you, at no additional charge, an annual physical, a parking space, access to the executive dining room and fitness center, and membership privileges at the City Energy Club and English Turn Country Club for business entertainment purposes. Any expenses incurred at these clubs that are not business related will be borne by you personally. 9. Nothing in this agreement shall affect in any way any of your previously accrued and vested pension or other rights or benefits under any of the plans or agreements of the Company or any of its subsidiaries or affiliates. 10.(i) The term of this agreement shall be the Consulting Term, subject to any earlier termination of your status as a consultant pursuant to the terms of subparagraph (ii) of this paragraph. This agreement shall be automatically continued for like Consulting Terms of one year unless and until canceled by either party upon thirty (30) days written notice prior to the end of any Consulting Term. Following the termination of this agreement, each party shall have the right to enforce all rights, and shall be bound by all obligations of each party that are continuing rights and obligations under the terms of this agreement. (ii) This agreement may be terminated, upon notice given in the manner provided in paragraph 12 hereof, prior to the expiration of the Consulting Term: (A) by the mutual written consent of the Company and you; (B) by the Company, upon your death, or your physical or mental incapacity; (C) by the Company in the event of your (1) willful failure to perform substantially the consulting services contemplated hereby, (2) breach of any of the other covenants of this agreement, or (3) engaging in gross misconduct detrimental to the Company. (D) by the Company for any other reason. If this agreement is terminated by the Company prior to the expiration of the Consulting Term for any reason other than those set forth in subparagraphs 9(ii)(A), (B) or (C) above, then the Company shall pay in a lump sum in cash within 30 days of such termination, the aggregate amount of previously unpaid consulting fees that you would have earned had you served as a consultant through the expiration of the Consulting Term. 11.It is hereby understood and agreed that the Company shall indemnify you for serving at the request of the Company as an elected officer or director of any of its subsidiaries or affiliates to the fullest extent permitted by applicable law, and the determination as to whether you have met the standard required for indemnification shall be made in accordance with the articles and bylaws of the applicable entity and with applicable law. It is further understood and agreed that while serving in such capacity you will be covered by the Company's directors and officers insurance policy. 12.Any notice or other communication required hereunder shall be in writing, shall be deemed to have been given and received when delivered in person, or, if mailed, shall be deemed to have been given when deposited in the United States mail, first class, registered or certified, return receipt requested, with proper postage prepaid, and shall be deemed to have been received on the third business day hereafter, and shall be addressed as follows: If to the Company, addressed to: Mr. Richard C. Adkerson Chairman of the Board FM Services Company 1615 Poydras Street New Orleans, Louisiana 70112 If to you: Mr. Rene L. Latiolais 2305 Barton Creek Blvd. Villa 42 Austin, Texas 78735 or such other address to which either party shall have notified the other in writing. 13.This agreement is personal to you and the Company and its subsidiaries and shall not be assignable by either party without the prior written consent of the other. This agreement shall be governed by and construed in accordance with the laws of the State of Louisiana. This agreement contains the entire understanding between the Company and you with respect to the subject matter hereof. Further, Consultant confirms that he has not relied upon any representations or statements by the Company as a basis for entering into this agreement that are not contained herein. This agreement may not be amended, modified or extended otherwise than by a written agreement executed by the parties thereto. Please confirm that the foregoing correctly sets forth the agreement between the Company and you by signing and returning to the Company one of the enclosed copies of this letter. Very truly yours, /S/ Michael J. Arnold Michael J. Arnold President FM Services Company I hereby confirm that the foregoing correctly sets forth the agreement between FM Services Company and myself. /S/ Rene L. Latiolais Rene L. Latiolais December 25 1997 APPENDIX A CONFIDENTIALITY TERMS This Appendix A to the Consulting Agreement (the "Agreement") by and between FM Services Company (the "Company") and Rene' L. Latiolais (the "Consultant") sets forth the parties' mutual understanding and agreement with respect to the obligations of the Consultant to maintain the confidentiality of certain information related to the Company and its Affiliates (as defined below). Any terms not otherwise defined in this Appendix A shall have the meaning normally ascribed to them but in the context necessary to fulfill the purpose of this Agreement. 1. Definitions (A) "Affiliate" shall mean, with respect to any person or entity, (i) any other person or entity directly or indirectly controlling, controlled by or under common control with such person or entity, or (ii) any employee of such person or entity or any independent contractor contracted by such person or entity to perform work for the Company. For the purposes of this definition, "control" (including the correlative meanings, the terms "controlling", "controlled by" and "under common control with") as used with respect to any person or entity, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person entity, whether through the ownership of voting securities, by contract or otherwise; and, for the purposes of this agreement this term shall be interpreted to include client companies to which services are provided to by the Company or Company Personnel. (B) "Company Personnel" means, collectively (i) any Affiliate or joint venture partner of the Company, (ii) any consultant or independent contractor employed by the Company, (iii) any entity in which the Company or any Affiliate of the Company has an investment interest and (iv) any employee, independent contractor or consultant employed by any of the entities described in subparts (i)-(iii) of this definition. (C) "Confidential Information" means any and all information and Know-How (i)(A) which is proprietary to the Company or any Company Personnel, or (B) which is or has been disclosed to the Consultant by the Company or any Company Personnel with the understanding that it is confidential and is to remain so, and (ii) which the Consultant has obtained or about which he has become aware during his prior employment by the Company or any of its Affiliates or during the Consulting Term. Confidential Information includes, without limitation: business plans; environmental reports and plans; information contained in internal and external memoranda and correspondence by or to the Company or any Company Personnel, together with the memoranda and correspondence themselves; information contained in bulletins and newsletters created by the Company or an Company Personnel, together with the bulletins and newsletters themselves; information learned and notes taken in connection with meetings or teleconferences conducted during the period of prior employment of the Consultant or during the Consultant Term with the Company or any of its Affiliates or consultants; information and other data recorded in the databases, files, diskettes, directories, magnetic tape and other storage media of the Company's computer systems or any computer systems on which information or data of the Company is stored or processed; any information relating to decisions or actions taken by the Company or the reasons for such decisions or actions; financial information; trade secrets of the Company; and information relating to the Company's Know-How, products, operations, technology, computer programs, source codes, data bases, schematics, other original Works of Authorship, research and development, engineering, design, construction, manufacturing, purchasing, finance, marketing, product development, business acquisitions, personnel, promotion, distribution and selling activities. (D) "Intellectual Property" means any and all Know-How, Works of Authorship, patents, trademarks, and copyrights which (i) relate directly to the business of the Company or its Affiliates or to the actual or demonstratively anticipate research or development of the Company or its Affiliates, (ii) any of the Company's Know-How, equipment, supplies, facilities or trade secret information is used to develop or improve, or (iii) are not developed entirely on the Consultant's own time, including, in each case, any such Know- How, Works of Authorship, patents, trademarks and copyrights developed by the Consultant. (E) "Know-How" means any designs, formulas, developmental or experimental work, new ideas, inventions, know-how, innovations, new applications, techniques, data, devices, computer and other programs, products, processes, concepts, discoveries, patterns, methods, information, improvements or creative work, whether or not any of them are reduced to writing or reduced to practice and whether or not they are patentable. The term "Know-How" shall include any written manifestations of any of the intangible information described in the first sentence of this definition, including, without limitation, related drawings, charts, blueprints, manuals and formulae. (F) "Works of Authorship" mean those works fixed in any tangible medium of expression from which they can be perceived, reproduced or otherwise communicated, either directly or with the aid of a machine or device, whether or not they are copyrightable. 2. Confidentiality. The Consultant hereby acknowledges that during the term of his employment by the Company and/or any of its Affiliates, and during the Consulting Term, the Consultant has been and will be exposed to certain Confidential Information. The Consultant agrees during the Consulting Term and thereafter, without limitation as to time, to hold such Confidential Information in strictest confidence, and not to use, except for the benefit of the Company or to disclose, transfer or reveal, directly or indirectly to any person or entity, any Confidential Information without the prior written authorization of the Chairman of the Board of the Company. All Confidential Information is and shall remain the sole and exclusive property of the Company, subject to its sole discretion as to use. The Consultant agrees not to use (and not to permit any of his Affiliates to use) any Confidential Information for his own benefit or for the benefit of any person or entity other than the Company. Without limiting the generality of the foregoing, the Consultant shall presume that all information and Know-How related in any manner to the Company or Affiliates which he has obtained or of which he has become aware during the course of his prior employment by the Company and/or any of its Affiliates, or which he obtains or of which he becomes aware during the Consulting Term, is Confidential Information, whether such information or Know-How was or is developed by the Consultant or by other people associated with the Company and notwithstanding that such information or Know-How may be otherwise available to the public. 3. Third Party Information The Consultant acknowledges that the Company has received, and in the future will receive confidential or proprietary information from third parties, subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. The Consultant agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person or entity (except as necessary in performing Consultant's obligations under the Agreement consistent with the Company's agreement with such third party) or to use (or permit his Affiliates to use) it for the benefit of anyone other than for the Company or such third party (consistent with the Company's agreement with such third party) without the express written authorization of the Chairman of the Board of the Company. 4. No Additional Consideration. The Consultant agrees that no additional compensation in addition to that provided in the Consulting Agreement shall be due him from the Company in consideration of the obligations required of the Consultant by this Appendix A. 5. Return of Materials. At the request of the Company or on the termination of the Consultant's association with or employment by the Company, the Consultant agrees to immediately deliver to the Consultant's primary contact at the Company all papers, notes, data, reference materials, sketches, drawings, memoranda, documentation, software, tools, apparatus and any other materials furnished to the Consultant by the Company or prepared or made, in whole or part, by the Consultant at any time during the Consultant's association with the Company. 4. Notice. The Consultant authorizes the Company to notify others, including any person to whom the Consultant has disclosed Confidential Information in violation of this Agreement of the terms of this Agreement and his obligations hereunder. EX-23 7 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports included herein or incorporated by reference in this Form 10-K, into Freport- McMoRan Sulphur Inc.'s previously filed Registration Statement on Form S-8 (File No. 333-44449). /s/ Arthur Andersen LLP ----------------------------- Arthur Andersen LLP New Orleans, Louisiana, March 24, 1998 EX-23 8 Exhibit 23.2 CONSENT OF INDEPENDENT PETROLEUM ENGINEER As independent petroleum engineers, we hereby consent to the use of our name included herein or incorporated by reference in this Form 10-K by Freeport-McMoRan Sulphur Inc. and to the reference to our estimates of reserves and present value of future net reserves as of December 31, 1997, into Freeport-McMoRan Sulphur Inc.'s previously filed Registration Statement on Form S-8 (File No. 333-44449). /s/ Ryder Scott Company Petroleum Engineers Ryder Scott Company Petroleum Engineers Houston, Texas March 24, 1998 EX-24 9 Exhibit 24.1 FREEPORT-McMoRan SULPHUR INC. SECRETARY'S CERTIFICATE I, Michael C. Kilanowski, Jr., Secretary of Freeport-McMoRan Sulphur Inc. (the "Corporation", a Delaware corporation, do hereby certify that the following resolution was duly adopted by the Board of Directors of the Corporation at a meeting held on February 2, 1998, and that such resolution has not been amended, modified or rescinded and is in full force and effect: RESOLVED, that any report, registration statement or other form filed on behalf of this corporation pursuant to the Securities Exchange Act of 1934, or any amendment to such report, registration statement or other form, may be signed on behalf of any director or officer of this corporation pursuant to a power of attorney executed by such director or officer. IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of the Company on this the 24th day of March, 1998. /s/ Michael C. Kilanowski, Jr. ------------------------------ Michael C. Kilanowski, Jr. Secretary EX-24 10 Exhibit 24.2 POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Sulphur Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1997, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 2nd day of February, 1998. /s/ J. Terrell Brown J. Terrell Brown POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Sulphur Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1997 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 2nd day of February, 1998. /s/ James R. Moffett James R. Moffett POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Sulphur Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1997 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 2nd day of February, 1998. /s/ Richard C. Adkerson Richard C. Adkerson POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Sulphur Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1997, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 2nd day of February, 1998. /s/ Thomas D. Clark, Jr. Thomas D. Clark, Jr. POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Sulphur Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1997, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 2nd day of February, 1998. /s/ Robert M. Wohleber Robert M. Wohleber POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Sulphur Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1997, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 2nd day of February, 1998. /s/ B.M. Rankin, Jr. B.M. Rankin, Jr. POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Sulphur Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1997, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 2nd day of February, 1998. /s/ Rene L. Latiolais Rene L. Latiolais POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Sulphur Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1997, and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 2nd day of February, 1998. /s/ C.Donald Whitmire C.Donald Whitmire EX-27 11
5 This schedule contains summary financial information extracted from Freeport-McMoRan Sulpher Inc. financial statements at December 31, 1997 and for the 12 months then ended, and is qualified in its entirety by reference to such financial statements. The earnings per share (EPS) data shown below was prepared in accordance with Statement of Financial Accounting Standard No. 128,"Earnings Per Share," and basic and diluted EPS have been entered in place of primary and fully diluted, respectively. 0001046204 FREEPORT-MCMORAN SULPHER INC. 1,000 YEAR DEC-31-1997 DEC-31-1997 21,293 0 27,266 0 34,421 95,435 841,222 731,389 273,033 29,831 0 0 0 103 114,294 273,033 211,945 211,945 644,311 644,311 0 0 0 (439,316) (65,105) (374,199) 0 0 0 (374,199) (36.16) (36.16)
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