-----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, WHoV642HMVbD+qZF/jPhC+tqP7568hlIzCs1lHrQP5+pRCrpJMqDldGslj5vtaC+ TaFJdAGkvrPeNnqifksTiQ== 0001047469-97-005161.txt : 19971118 0001047469-97-005161.hdr.sgml : 19971118 ACCESSION NUMBER: 0001047469-97-005161 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 30 FILED AS OF DATE: 19971117 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREEPORT MCMORAN SULPHUR INC CENTRAL INDEX KEY: 0001046204 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-40375 FILM NUMBER: 97722798 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 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1997. REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- FREEPORT-McMoRan SULPHUR INC. (Exact name of registrant as specified in its charter) DELAWARE 1479 72-1392855 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation) Classification Code Number) Identification No.)
1615 POYDRAS STREET NEW ORLEANS, LOUISIANA 70112 (504) 582-4000 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ROBERT M. WOHLEBER PRESIDENT AND CHIEF EXECUTIVE OFFICER FREEPORT-MCMORAN SULPHUR INC. 1615 POYDRAS STREET NEW ORLEANS, LOUISIANA 70112 (504) 582-4000 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ COPIES TO: ROGER T. BAKER LISA M. BUCHANAN Vice President and General Counsel Jones, Walker, Waechter, Freeport-McMoRan Inc. Poitevent, Carrere & Denegre, L.L.P. 1615 Poydras Street 201 St. Charles Avenue New Orleans, Louisiana 70112 New Orleans, Louisiana 70170 (504) 582-4000 (504) 582-8000 ------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective and all other conditions to the merger described in the prospectus included herein have been satisfied or waived. -------------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the "1933 Act"), check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the 1933 Act, please check the following box and list the 1933 Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the 1933 Act, check the following box and list the 1933 Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE REGISTRATION FEE Common Stock, $0.01 par value per share (including Preferred Stock Purchase Rights(1)).................................. 5,338,513 shares $0 $0(2)
(1) Each share of Common Stock registered hereby includes a right under certain circumstances to purchase one one-hundredth of a share of Participating Preferred Stock, par value $.01 per share, of the Company. (2) All of the shares of Common Stock registered hereby are being delivered to the stockholders of Freeport-McMoRan Inc. ("FTX") upon consummation of the merger of FTX with and into IMC-Global Inc. ("IGL"), as more fully described in the prospectus included herein. Shares of common stock and warrants of IGL that will be delivered to stockholders of FTX upon consummation of the merger have been registered by IGL under a Registration Statement on Form S-4 to be filed by IGL with the Securities and Exchange Commission (the "Commission"). Because no separate consideration will be received for the shares of Common Stock to be delivered to the FTX stockholders, the maximum offering price is zero, and, pursuant to the 1933 Act, no fee is required to be paid in connection with the registration of such shares. -------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE 1933 ACT, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROSPECTUS 5,338,513 SHARES [LOGO] COMMON STOCK $.01 PAR VALUE PER SHARE This Prospectus relates to 5,338,513 shares of common stock (the "Common Stock") of Freeport-McMoRan Sulphur Inc. ("Freeport Sulphur" or the "Company") which will be delivered on a pro rata basis to the holders of common stock of Freeport-McMoRan Inc. ("FTX"), in connection with the proposed merger (the "Merger") of FTX into IMC Global Inc. ("IGL"). Freeport Sulphur is a newly-formed, wholly-owned subsidiary of Freeport-McMoRan Resource Partners, Limited Partnership, a Delaware limited partnership ("FRP"), of which FTX is the administrative managing general partner and the owner of a 51.6% partnership interest. In connection with the Merger, FRP has agreed to contribute to Freeport Sulphur the assets and liabilities of FRP's sulphur business and certain of FRP's oil and gas operations, including those businesses commonly referred to as the "Main Pass" operations, and IGL has agreed to transfer its separate interest in the Main Pass operations to FRP, which FRP will also contribute to Freeport Sulphur. Following those contributions, Freeport Sulphur will own an 83.3% interest in the Main Pass operations and will own 100% of the other assets contributed by FRP. Following the contributions, FRP will distribute all of the shares of Common Stock to FTX and the other holders of its units of partnership interest in accordance with their respective partnership interests, such that, following such distribution and immediately prior to the effective time of the Merger, FTX will own 5,338,513, or 51.6%, of the shares of Common Stock and FRP's public unitholders will own in the aggregate 5,008,065, or 48.4%, of the shares of Common Stock. Upon consummation of the Merger, each FTX stockholder will then receive a proportionate number of shares of Common Stock received by FTX from FRP. Under the terms of an Agreement and Plan of Merger dated August 26, 1997 between FTX and IGL (the "Merger Agreement"), and based on the approximately 25.1 million shares of FTX common stock outstanding as of the date of this Prospectus, each FTX stockholder would be entitled to receive approximately 0.2123 of a share of Common Stock for each share of FTX common stock held (or 0.1980 of a share of Common Stock if all outstanding options to acquire FTX common stock were exercised on or before such date). In connection with the solicitation of the vote of the FTX stockholders and the IGL stockholders on the Merger Agreement, FTX and IGL have delivered to their respective stockholders a Joint Proxy Statement/Prospectus (the "Proxy Statement") describing the material terms of the Merger, to which this Prospectus has been attached as Annex VIII. All of the shares of Common Stock being delivered hereby are being received by FTX from FRP and delivered to the FTX stockholders upon consummation and in consideration of the Merger. No separate consideration will be paid by FTX stockholders for the shares of Common Stock being delivered hereby. There is currently no public trading market for the shares of Common Stock. Freeport Sulphur has applied for listing of the Common Stock on the New York Stock Exchange upon notice of issuance and expects to receive approval of such listing prior to the distributions. RECIPIENTS OF THE COMMON STOCK SHOULD NOTE THE FACTORS DISCUSSED IN "RISK FACTORS" BEGINNING ON PAGE 10. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------------- The date of this Prospectus is November 17, 1997. PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE NOTED OR THE CONTEXT REQUIRES OTHERWISE, REFERENCES HEREIN TO THE HISTORICAL OPERATIONS AND PERFORMANCE OF THE "COMPANY" OR "FREEPORT SULPHUR" REFER ONLY TO THE OPERATIONS AND PERFORMANCE OF THE FRP TRANSFERRED BUSINESSES AND NOT OF THE IGL TRANSFERRED BUSINESSES, AND PROSPECTIVE STATEMENTS ABOUT THE "COMPANY" OR "FREEPORT SULPHUR" REFER TO FREEPORT SULPHUR AS IF EACH OF THE CONTRIBUTION AND THE DISTRIBUTIONS (AS DEFINED BELOW) HAD BEEN CONSUMMATED. THE MERGER AND THE DISTRIBUTIONS This Prospectus relates to 5,338,513 shares of Common Stock of the Company which are to be delivered on a pro rata basis to the holders of common stock, $.01 par value, of FTX (the "FTX Common Stock") in connection with the proposed Merger of FTX into IGL (the "FTX Stockholder Distribution"). Under the terms of the Merger Agreement, each share of FTX Common Stock that is issued and outstanding at the effective time of the Merger (the "Effective Time") will be converted into the right to receive, (i) 0.90 of a share of IGL common stock, $1.00 par value (the "IGL Common Stock"), (ii) one-third of a warrant to purchase a share of IGL Common Stock, with each whole warrant representing a right to purchase one share of IGL Common Stock for $44.50 per share, and (iii) a proportionate number of shares of Common Stock that will be held by FTX immediately prior to the Effective Time. Cash will be issued in lieu of fractional shares and fractional warrants. Based on the approximately 25.1 million shares of FTX Common Stock outstanding as of the date of this Prospectus, each FTX stockholder would be entitled to receive approximately 0.2123 of a share of Common Stock for each share of FTX Common Stock held at the Effective Time (or approximately 0.1980 of a share of Common Stock if all outstanding options to acquire FTX Common Stock were exercised on or before the Effective Time). If all outstanding options to acquire FTX Common Stock that are "in the money" as of the date of this Prospectus were exercised, there would be 25.9 million shares of FTX Common Stock outstanding and the exchange ratio would be 0.2064 of a share of Common Stock for each share of FTX Common Stock. In connection with the Merger, FRP and the Company have entered into a Contribution and Distribution Agreement dated August 26, 1997 (the "Distribution Agreement"), pursuant to which FRP has agreed to contribute to Freeport Sulphur the assets and liabilities of FRP's sulphur business, and of certain of FRP's oil and gas operations, including those businesses commonly referred to as the "Main Pass" operations, located offshore Louisiana in the Gulf of Mexico (the "FRP Transferred Businesses"). Also in connection with the Merger and under the terms of a separate contribution agreement, IGL has agreed to transfer to FRP its separate interest in the Main Pass operations (the "IGL Transferred Businesses"), which FRP will also contribute to Freeport Sulphur. The contributions by FRP and IGL of the FRP and IGL Transferred Businesses are referred to herein as the "Contribution," and the assets, liabilities and businesses so transferred are referred to collectively herein as the "Transferred Businesses." Following the Contribution, the Company will own an 83.3% interest in the Main Pass operations (with Homestake Sulphur Company ("Homestake") continuing to own the remaining 16.7%), and will own 100% of the other assets contributed by FRP pursuant to the Distribution Agreement. Following the Contribution, FRP will distribute all 10,346,578 shares of the Company's Common Stock to FTX and the other holders of its units of partnership interest (the "FRP Distribution" and together with the FTX Stockholder Distribution, the "Distributions") in accordance with their respective partnership interests, such that, following the FRP Distribution and immediately prior to the Effective Time, FTX will own 5,338,513, or 51.6%, of the outstanding shares of Common Stock and FRP's public unitholders will own in the aggregate 5,008,065, or 48.4%, of the outstanding shares of Common Stock. At the Effective Time, each FTX stockholder will be entitled to receive a proportionate number of shares of the Common Stock received by FTX in the FRP Distribution. The FRP Distribution will not be effected until approval of the Merger by the stockholders of FTX and IGL has been received and all other 3 conditions to the Merger (other than the FRP Distribution) have been satisfied or waived, and the FTX Stockholder Distribution will not be effected until the FRP Distribution and the Merger have been consummated. The 10,346,578 shares of Common Stock to be distributed to the FTX stockholders and to the FRP public unitholders in the Distributions will constitute all of the outstanding Common Stock immediately following the Distributions. There is currently no public market for the Common Stock, although it is expected that a "when-issued" trading market may develop on or about the Effective Time. Freeport Sulphur has applied for listing of the Common Stock on the New York Stock Exchange (the "NYSE") upon notice of issuance and expects to receive approval of such listing prior to the Distributions. See "Description of Capital Stock." THE COMPANY Freeport Sulphur is a Delaware corporation formed in August 1997 to succeed to the sulphur and certain oil and gas operations of FRP. 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's sulphur operations include the mining, purchase, transportation, terminaling and marketing of sulphur. Its oil and gas operations consist of the production and sale of oil and gas from its Main Pass facilities. The Main Pass sulphur deposit, which was discovered offshore Louisiana in the Gulf of Mexico in 1988, 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 (2,240 lbs.) per day over its life. The Company began operating the Culberson mine in West Texas in January 1995 following its acquisition of substantially all of the domestic sulphur assets of Pennzoil Company ("Pennzoil"). As of December 31, 1996, the Main Pass and Culberson mines were estimated to contain proved sulphur reserves totaling 53.1 million long tons net to the Company (or 69.7 million long tons net to the Company on a pro forma basis after the contribution of the IGL Transferred Business). 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% of the Company's sulphur sales. The Company's 1996 sulphur sales were approximately 2.9 million long tons representing 25% of domestic consumption (or 3.4 million long tons representing 30% of domestic consumption on a pro forma basis after the contribution of the IGL Transferred Businesses). Sales to IMC-Agrico Company, a joint venture partnership between IGL and FRP that is a manufacturer of phosphate fertilizers and the largest purchaser of elemental sulphur in the world, ("IMC-Agrico"), represented approximately 65% of the Company's sulphur sales (or 71% on a pro forma basis after the contribution of the IGL Transferred Businesses). Pursuant to a Sulphur Supply Agreement, the Company has agreed to supply and IMC-Agrico has agreed to purchase approximately 75% 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% 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. 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. 4 The Main Pass site also contains proved oil reserves from which the Company produces and sells oil for the Main Pass joint venture. Oil production averaged approximately 10,700 barrels per day (5,200 barrels net to the Company, or 7,400 barrels net to the Company on a pro forma basis after the contribution of the IGL Transferred Businesses) during the year ended December 31, 1996, and 9,400 barrels per day (4,600 barrels net to the Company, or 6,500 barrels net the Company on a pro forma basis after the contribution of the IGL Transferred Businesses) during the nine months ended September 30, 1997. As of December 31, 1996, Main Pass was estimated to contain 12.8 million barrels (5.2 million barrels net to the Company, or 7.4 million barrels net to the Company on a pro forma basis after the contribution of the IGL Transferred Businesses) of proved oil reserves. In 1997, such estimates were reduced to 8.2 million barrels (3.2 million barrels net to the Company, or 4.6 million barrels net to the Company on a pro forma basis after the contribution of the IGL Transferred Businesses) of proved oil reserves, which are expected to decline substantially in subsequent years and to be fully depleted by 2001. The Company's principal executive offices are located at 1615 Poydras Street, New Orleans, Louisiana 70112, and its telephone number is (504) 582-4000. SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES The following summary of the material United States federal income tax consequences of the receipt by the FTX stockholders of the Company's Common Stock in the Merger is based on an opinion of Miller & Chevalier, Chartered, tax counsel to FTX. This summary is qualified by, and amplified in, the discussion in the section of this Prospectus entitled "Certain Federal Income Tax Consequences." FTX stockholders will receive shares of Common Stock as part of the consideration in the Merger. Each stockholder will recognize gain, if any, but not loss, on the Merger to the extent of the fair market value of the shares of Common Stock (including the amount of cash received in lieu of a fractional share interest) received in the Merger. IGL will determine the fair market value of the Common Stock for this purpose, but its determination is not binding on the Internal Revenue Service (the "IRS"). While not free from doubt due to the absence of controlling precedent, gain recognized by an FTX stockholder who is not also an IGL stockholder should constitute capital gain, rather than dividend income, assuming that the stockholder held the FTX Common Stock with respect to which the Common Stock is received as a capital asset. FTX stockholders who also own IGL stock should consult their own tax advisors for special considerations that may apply in regard to the receipt of Common Stock or cash in lieu of a fractional share thereof. An individual stockholder's capital gain will be taxable at a maximum federal income tax rate of 20% or 28%, if the FTX stockholder held the surrendered shares of FTX Common Stock for more than 18 months or 12 months, respectively, as of the Effective Time. A "Non-U.S. Holder" (as defined in "Certain Federal Income Tax Consequences") will not be subject to United States federal income tax on any gain realized on the receipt of Common Stock in the Merger unless (a) the gain is derived from sources within the United States and the Non-U.S. Holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year in which the gain is realized; (b) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. federal tax law applicable to certain United States expatriates; (c) the gain is effectively connected with the conduct of a trade or business within the United States; or (d) the FTX Common Stock is a "United States real property interest" as defined in section 897(c)(1) of the Code and at any time during the five years prior to the Merger the Non-U.S. Holder held, directly or constructively, more than 5% of the FTX Common Stock. The basis of the Common Stock received by an FTX stockholder will be equal to its fair market value as of the Effective Time. The stockholders' holding periods for the Common Stock will begin on the day after the Effective Time. 5 SUMMARY FINANCIAL AND OPERATING DATA The summary financial data provided below reflect the historical results of operations and financial position of the FRP Transferred Businesses only and do not include the IGL Transferred Businesses. The historical financial information is not necessarily indicative of the financial position and results of operations that would have been achieved had the Company been operated as an independent entity during the periods covered or the results that may be achieved in the future. Historical net income and dividends per share amounts are not presented because the FRP Transferred Businesses were operated through divisions of FRP for the periods presented. See "Risk Factors--Limited Relevance of Historical Financial Information." The summary historical financial information as of December 31, 1996 and 1995 and for each of the years in the three-year period ended December 31, 1996 has been derived from the audited financial statements of the FRP Transferred Businesses included elsewhere herein and does not include the IGL Transferred Businesses. The summary financial information as of September 30, 1997 and for each of the nine-month periods ended September 30, 1997 and 1996 has been derived from the unaudited financial statements of the FRP Transferred Businesses, and in the opinion of management includes all adjusting entries (consisting only of normal recurring adjustments), necessary for a fair presentation of the results of the periods presented. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical audited financial statements of the FRP Transferred Businesses and notes thereto included elsewhere herein.
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ------------------------ ----------------------------------- 1997 1996 1996 1995 1994 ------------ --------- --------- ------------ --------- (IN THOUSANDS, EXCEPT REALIZED PRICE DATA) INCOME STATEMENT DATA: Revenues.............................. $158,304 $ 167,379 $ 221,426 $255,949 $ 151,795 Net income (loss) before income taxes(1)............................ (425,171)(2) 11,620 12,392 25,020(3) 7,353 Pro forma net income (loss) (unaudited)(1)...................... (269,558) 7,251 7,733 18,175 4,662 OPERATING DATA: Sulphur sales (long tons)............. 2,167 2,142 2,900 3,050 2,088 Sulphur average realized price........ $ 60.75 $ 63.01 $ 61.78 $ 70.44 $ 53.07 Oil sales (barrels)................... 1,248 1,508 1,896 2,218 2,534 Oil average realized price............ $ 18.37 $ 18.82 $ 19.49 $ 15.82 $ 13.74 CASH FLOW DATA: Operating............................. $ 20,834 $ 41,512 $ 51,844 $ 65,407 $ 34,202 Investing............................. (2,099) (3,743) (1,688) (3,335) (10,006) Financing............................. (19,279) (38,560) (49,814) (59,298) (24,596) OTHER DATA: EBITDA(4)............................. 26,468 41,614 50,192 68,720 47,284 Capital expenditures.................. 2,989 4,948 3,834 3,710 11,231
6
AS OF AS OF DECEMBER 31, SEPTEMBER 30, ---------------------- 1997 1996 1995 ------------- ---------- ---------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital......................................................... $ 27,205 $ 25,794 $ 42,059 Property, plant and equipment, net...................................... 92,562(2) 535,653 575,029 Total assets............................................................ 178,581 633,620 680,467 Net assets to be transferred............................................ 39,910 484,360 521,782
- ------------------------ (1) As a partnership, FRP pays no federal or state income taxes and historically has not provided for income taxes for the FRP Transferred Businesses. Pro forma net income includes an estimated tax provision for the applicable periods as if the FRP Transferred Businesses operated as a stand-alone taxpaying entity. (2) In 1995, the Financial Accounting Standards Board adopted Statement of Financial Accounting Standards No. 121 ("SFAS 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 may not be recoverable. In the third quarter of 1997, FRP and FTX determined that the sulphur assets were impaired within the meaning of SFAS No. 121 because their book value exceeded the estimated undiscounted net cash flow recoverable with respect thereto. Accordingly, in the third quarter of 1997, FRP and FTX recorded an impairment writedown totaling $425.4 million to reduce these properties to their fair value (measured by the difference between the carrying value of such assets and the current discounted value of estimated future net cash flows). (3) Includes charges totaling $7.0 million allocated to the FRP Transferred Businesses to reflect a compensation charge related to FTX stock appreciation rights, which was attributable to the significant rise in the price of FTX Common Stock during such period. Pursuant to a management services agreement with FTX, these costs were allocated to FRP, and thus to the FRP Transferred Businesses, based on payroll costs. (4) EBITDA represents net income before income taxes plus depreciation and amortization expense. EBITDA is not a measure of cash flow, operating results or liquidity as determined by generally accepted accounting principles. The Company has supplementally disclosed information concerning EBITDA because management believes that EBITDA is commonly accepted as providing useful information regarding a company's historical ability to incur and service debt. Management of the Company believes that factors that should be considered by investors in evaluating EBITDA include, but are not limited to, trends in EBITDA as compared to cash flow from operations, debt service requirements and capital expenditures. EBITDA as defined and measured by the Company may not be comparable to similarly titled measures of other companies. Further, EBITDA should not be considered in isolation or as an alternative to, or more meaningful than, net income or cash flow provided by operations as determined in accordance with generally accepted accounting principles as an indicator of the Company's profitability or liquidity. 7 SUMMARY PRO FORMA FINANCIAL AND OPERATING DATA The unaudited pro forma balance sheet data as of September 30, 1997 provided below gives effect to the transfer of the Transferred Businesses as if such transfer had occurred on September 30, 1997, and the unaudited pro forma income statement data for the nine-month period ended September 30, 1997 and the year ended December 31, 1996 gives effect to the transfer of the Transferred Businesses as if such transfer had occurred on January 1, 1996. The unaudited pro forma financial data does not purport to represent what the Company's financial position or results of operations would have been had such transfer occurred on the dates indicated or the results that may be achieved in the future.
NINE MONTHS YEAR ENDED ENDED SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- -------------- (IN THOUSANDS, EXCEPT PER SHARE AND REALIZED PRICE DATA) INCOME STATEMENT DATA: Revenues.................... $ 190,510 $268,919 Net income (loss) before income taxes(1)(2)........ (422,183) 25,326 Net income (loss)(1)........ (267,664) 15,803 Net income (loss) per share..................... (25.76) 1.52 Weighted average common shares.................... 10,390 10,409 OPERATING DATA: Sulphur sales (long tons)... 2,521 3,385 Sulphur average realized price..................... $ 61.87 $ 63.10 Oil sales (barrels)......... 1,782 2,708 Oil average realized price..................... $ 18.37 $ 19.49 OTHER DATA: EBITDA(3)................... $ 31,924 $ 66,326 Capital expenditures........ 4,203 5,346
AS OF SEPTEMBER 30, 1997 -------------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital................................................................................. $ 43,377 Property, plant and equipment, net(2)(4)........................................................ 114,462 Total assets(2)................................................................................. 278,144 Stockholder's equity(2)......................................................................... 107,677
- ------------------------ (1) As a partnership, FRP pays no federal or state income taxes and historically has not provided for income taxes for the Transferred Businesses. Pro forma net income includes an estimated tax provision for the applicable periods as if the Transferred Businesses operated as a stand-alone taxpaying entity. (2) In 1995, the Financial Accounting Standards Board adopted SFAS 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 may not be recoverable. In the third quarter of 1997, FRP and FTX determined that the sulphur assets were impaired within the meaning of SFAS No. 121 because their book value exceeded the estimated undiscounted net cash flow recoverable with respect thereto. Accordingly, in the third quarter of 1997, FRP and FTX recorded an impairment writedown totaling $425.4 million to reduce these properties to their fair value (measured by the difference between the carrying value of such assets and the current discounted value of estimated future net cash flows). 8 (3) EBITDA represents net income before income taxes plus depreciation and amortization expense. EBITDA is not a measure of cash flow, operating results or liquidity as determined by generally accepted accounting principles. The Company has supplementally disclosed information concerning EBITDA because management believes that EBITDA is commonly accepted as providing useful information regarding a company's historical ability to incur and service debt. Management of the Company believes that factors that should be considered by investors in evaluating EBITDA include, but are not limited to, trends in EBITDA as compared to cash flow from operations, debt service requirements and capital expenditures. EBITDA as defined and measured by the Company may not be comparable to similarly titled measures of other companies. Further, EBITDA should not be considered in isolation or as an alternative to, or more meaningful than, net income or cash flow provided by operations as determined in accordance with generally accepted accounting principles as an indicator of the Company's profitability or liquidity. (4) The property, plant and equipment to be contributed by IGL were estimated to have a fair value of approximately $21.9 million using the same assumptions applied in the impairment assessment of FRP's sulphur assets discussed in (2) above. 9 RISK FACTORS 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 125,000 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% 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 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 IGL AS CONTINUING CUSTOMER Approximately 65% of the Company's 1996 sulphur sales (71% on a pro forma basis after the contribution of the IGL Transferred Businesses) were made to IMC-Agrico, and, subsequent to the Distributions, 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 10 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 16.7% of the Company's 1996 revenues and 73.4% of its 1996 net income were generated from the sale of oil recovered from Main Pass. Oil revenues are expected to decline substantially in 1997 and subsequent years, and the Company currently estimates that proved oil reserves at the Main Pass site will be depleted by the year 2001. 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. 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 Distributions, the Company will be 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 nor FTX will have 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 the FRP Transferred Businesses 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 the IGL Transferred Businesses, which is presented only on a pro forma basis. See "Pro Forma Financial Statements (Unaudited) of Freeport-McMoRan Sulphur Inc.," including the discussion of 11 the assumptions reflected therein, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." ABSENCE OF TRADING MARKET There is currently no trading market for the Company's Common Stock and there can be no assurance that any such market will be established or maintained. The Company has applied for listing of the Common Stock on the NYSE. Even if an active trading market develops for the Common Stock, there can be no assurance that its trading volume will be adequate to assure liquidity of a stockholder's investment. TAXABLE RECEIPT OF FREEPORT SULPHUR COMMON STOCK An FTX stockholder will recognize gain, if any, but not loss, realized on the exchange of FTX Common Stock pursuant to the Merger to the extent of the value of the Common Stock and any cash received in lieu of a fractional share of Common Stock. While not free from doubt due to the absence of controlling precedent, the character of the gain recognized by an FTX stockholder who is not also an IGL stockholder arising from the receipt pursuant to the Merger of Common Stock and any cash in lieu of a fractional share of Common Stock should constitute capital gain, rather than dividend income, assuming that such stockholder holds the FTX Common Stock as a capital asset. FTX stockholders who are also stockholders of IGL should consult their tax advisors for special considerations that may apply in regard to the receipt of Common Stock or cash in lieu of a fractional share thereof. DIVIDENDS The Company intends to retain earnings to meet its working capital needs and finance its continuing operations. Thus, the Company does not plan to pay cash dividends to its stockholders for the foreseeable future. See "Dividend Policy." 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 12 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% 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. 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 13 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 Contribution, the Company has assumed responsibility for potential liabilities, including environmental liabilities, associated with the prior conduct of the Transferred Businesses. 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. 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 FM Services Company ("FMS"), a company that, prior to the Distributions was an affiliate of FTX and FRP and subsequent to the Distributions will be 25% owned by the Company, 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. DEPENDENCE ON MANAGEMENT AND ADMINISTRATIVE SERVICES The Company depends on certain management and administrative services provided by FMS. Pursuant to a management services agreement (the "Services Agreement") between the Company and FMS, FMS manages and supports certain of the Company's operations. The Services Agreement does not assure the Company unlimited access to all of the executive officers listed under "Management," and there may be competition between the Company and its former affiliates for the time and effort of the employees of FMS who provide services to the Company. If the Company were deprived of adequate access to certain key members of its management team or other personnel, or lost access to such services altogether, the Company's results of operations could be materially and adversely affected. See "Certain Transactions." 14 ANTI-TAKEOVER MEASURES The Company's charter documents contain provisions that may have the effect of discouraging a proposal for a takeover of the Company in which the Company's stockholders could receive a substantial premium for some or all of their shares. These provisions, among other things, authorize the issuance of "blank check" preferred stock and divide the board of directors into three classes, serving three-year staggered terms. The Company also intends to enter into a Stockholder Protection Rights Agreement (the "Rights Agreement"), pursuant to which each share of Common Stock will have an associated preferred stock purchase right that, if triggered by the acquisition of 15% or more of the outstanding Common Stock, would have the effect of significantly increasing the cost to a potential acquiror of a takeover of the Company. In addition, the Company is subject to certain provisions of Delaware law that limit, in some cases, the ability of the Company to engage in certain business combinations with significant stockholders. Such provisions, either alone, or in combination with each other and the Rights Agreement, may give the Company's current directors and executive officers a substantial ability to influence the outcome of a proposed takeover. See "Description of Capital Stock--Certain Charter and By-law Provisions." 15 THE MERGER AND THE DISTRIBUTIONS THE FOLLOWING DESCRIPTIONS OF THE MERGER AGREEMENT AND THE DISTRIBUTION AGREEMENT DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH DOCUMENTS, COPIES OF WHICH ARE ATTACHED AS ANNEX I TO THE PROXY STATEMENT, AND AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS FORMS A PART, RESPECTIVELY. ALL FTX STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT AND THE DISTRIBUTION AGREEMENT IN THEIR ENTIRETY. THE MERGER The Common Stock being registered pursuant to the Registration Statement of which this Prospectus forms a part is being delivered to FTX stockholders in connection with the Merger. As more fully described in the Proxy Statement under the caption "The Merger," at the Effective Time, FTX will be merged with and into IGL with IGL as the surviving corporation, and each outstanding share of FTX Common Stock (other than shares owned directly or indirectly by IGL or FTX, which will be canceled, or shares owned by any stockholder of FTX who is entitled to and properly exercises appraisal rights under the Delaware General Corporation Law (the "DGCL")) will be converted into the right to receive (i) 0.90 of a share of IGL Common Stock; (ii) one-third of a warrant to purchase a share of IGL Common Stock, with each whole warrant representing a right to purchase one share of IGL Common Stock for $44.50 per share and (iii) a proportionate number of shares of Common Stock that will be held by FTX immediately prior to the Effective Time. Under the terms of the Merger Agreement, the shares of Common Stock received by FTX in the FRP Distribution will be delivered to holders of FTX Common Stock as of the Effective Time. See "--The Distribution Agreement--The Distributions." FTX stockholders will receive cash in lieu of any fractional shares of Common Stock distributable in the FTX Stockholder Distribution. BACKGROUND OF AND REASONS FOR THE DISTRIBUTIONS Prior to entering into the Merger Agreement, each of FTX and IGL possessed a significant indirect investment in IMC-Agrico, a phosphate fertilizer joint venture, and also possessed a significant interest in the Main Pass operations, which involve the mining and production of sulphur and the production of oil and natural gas from deposits at the Main Pass site. During the course of negotiating the Merger, it became apparent to FTX's management that IGL's principal interest in pursuing the proposed Merger was in consolidating its ownership and control of the IMC-Agrico operations, and that IGL was unlikely to assign a value to the sulphur segment of FTX and FRP's business that would be acceptable to FTX. As a result, FTX concluded that a better way of assuring that the FTX stockholders would receive adequate value for the sulphur segment was to spin off such assets to the owners of FRP including, ultimately, the stockholders of FTX as part of the Merger consideration. For a discussion of the background of and FTX's reasons for the Merger, see the Proxy Statement, to which this Prospectus is attached. THE DISTRIBUTION AGREEMENT THE CONTRIBUTION The Distribution Agreement provides for the transfer to the Company of certain assets of IGL, FTX and FRP and the assumption by the Company of certain liabilities related to those assets. The assets to be received by the Company in the Contribution include substantially all of the assets used by FRP in the production, marketing and distribution of sulphur, including its interest in the Main Pass operations, as well as the oil and gas production operations at Main Pass. Pursuant to the Merger Agreement and under the terms of a separate contribution agreement, IGL's 25% interest in the Main Pass operations will also be transferred to FRP, which in turn will contribute that interest to the Company. The liabilities assumed by the Company are generally those liabilities associated with the ownership, acquisition, conduct or past operation of the assets received in the Contribution. See "Business." 16 THE DISTRIBUTIONS The Distribution Agreement provides that the FRP Distribution will be effected through the distribution to each holder of record of units of partnership interests in FRP as of the close of business on the record date for the FRP Distribution of one share of the Company's Common Stock for every 10 units of partnership interest held. In the FTX Stockholder Distribution, the FTX stockholders of record as of the Effective Time of the Merger will receive their pro rata share of the Common Stock received by FTX in the FRP Distribution. The FRP Distribution will not be effected until approval of the Merger by the stockholders of FTX and IGL has been received and all other conditions to the Merger (other than the FRP Distribution) have been satisfied or waived, and the FTX Stockholder Distribution will not be effected until the FRP Distribution and the Merger have been consummated. FRP will distribute 10,346,578 shares of Common Stock in the FRP Distribution, of which 51.6% or 5,338,513 shares will be distributed to FTX and 48.4% or 5,008,065 shares will be distributed to the FRP public unitholders. All of the shares of Common Stock received by FTX will be delivered to the FTX stockholders in the FTX Stockholder Distribution. Based on the approximately 25.1 million shares of FTX Common Stock outstanding as of the date of this Prospectus, the FTX stockholders will receive approximately 0.2123 of a share of Common Stock for each share of FTX Common Stock held (or approximately 0.1980 of a share of Common Stock for each share of FTX Common Stock held if all outstanding options to purchase FTX Common Stock were exercised on or prior to the Effective Time.) If all outstanding options to acquire FTX Common Stock that are "in the money" as of the date of this Prospectus were exercised, there would be 25.9 million shares of FTX Common Stock outstanding and the exchange ratio would be 0.2064 of a share of Common Stock for each share of FTX Common Stock. As a result of the Distributions, the FRP public unitholders and the FTX stockholders will own all of the outstanding shares of Common Stock of the Company. Under the terms of the Distribution Agreement, the Distribution Agent for each of the FRP Distribution and the FTX Stockholder Distribution will aggregate any fractional shares of Common Stock otherwise distributable in connection with the FRP Distribution and the FTX Stockholder Distribution, respectively, sell them in the open market, and make a pro rata distribution of the proceeds of such sales to FRP public unitholders or FTX stockholders, as appropriate, who would otherwise have received a fractional share in the FRP Distribution or the FTX Stockholder Distribution. MUTUAL INDEMNITIES The Distribution Agreement provides that FTX and FRP on the one hand and the Company on the other will indemnify one another against certain losses, damages, claims and liabilities assumed or retained by the indemnifying party. Among other things, FTX and FRP are obligated to indemnify the Company for an indefinite period against losses related to (i) the failure by FRP or FTX to perform their respective obligations under the Distribution Agreement, (ii) liabilities associated with any FRP assets not transferred to, and liabilities not assumed by, the Company , (iii) taxes relating to the operation of the Transferred Businesses prior to the Contribution, and (iv) the breach of any representation or warranty by FRP or FTX contained in the Distribution Agreement. The Company is obligated to indemnify FRP and FTX for an indefinite period against (i) the failure by the Company to perform its obligations under the Distribution Agreement, (ii) liabilities associated with any FRP assets transferred to the Company pursuant to the Contribution, and liabilities associated with the operation of the Transferred Businesses prior to the Contribution, (iii) taxes relating to the operation of the Transferred Businesses after the Contribution and (iv) the breach of any representation or warranty of the Company contained in the Distribution Agreement. 17 THE SOLVENCY OPINION The Company and FTX have received the opinion of Valuation Research Corporation that the FRP Distribution does not violate certain provisions of Delaware limited partnership law regarding the making of distributions and, after giving effect to the Contribution and the Distributions, that the Company (i) will be solvent after taking into account the liabilities and obligations undertaken in connection with and as a result of the Contribution, (ii) will be able to pay its debts and liabilities as they become due, and (iii) will not be left with insufficient capital with which to engage in its businesses. Receipt of this opinion is a condition precedent to the consummation of the Merger. A copy of the opinion has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. 18 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion is the opinion of Miller & Chevalier, Chartered, tax counsel to FTX and addresses all material United States federal income tax consequences of the receipt by the FTX stockholders of the Company's Common Stock in the Merger. The opinion that will be rendered has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. An opinion of counsel is not binding on the IRS or the courts, and no assurance can be given that the IRS will not challenge the treatment of certain matters discussed herein or, if it does, that it will not be successful. The discussion does not address any tax consequences of the receipt of Common Stock under applicable state, local or foreign tax laws. The discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), final and proposed Treasury regulations, administrative positions of the IRS, and court decisions in effect on the date of this Prospectus. All of the foregoing are subject to change, possibly with retroactive effect. The summary is included for general information purposes only and does not address all aspects of federal income taxation that may be relevant to a particular stockholder in light of his or its personal tax circumstances or all of the tax consequences that may be relevant to certain types of stockholders subject to special treatment under the federal income tax laws (such as individual retirement accounts, insurance companies, and tax-exempt organizations). The summary also does not address the tax consequences to subsequent purchasers of the Common Stock and is limited to stockholders who will hold the Common Stock as capital assets within the meaning of section 1221 of the Code. FTX stockholders should consult their own tax advisors as to the specific tax consequences to them of the Merger and with respect to the effects of any state, local, or foreign tax laws to which they may be subject. RECEIPT OF FREEPORT SULPHUR COMMON STOCK IN THE MERGER FTX stockholders will receive shares of Common Stock as part of the consideration in the Merger. Each stockholder will recognize gain, if any, but not loss, on the Merger to the extent of the fair market value of the shares of Common Stock (including the amount of cash received in lieu of a fractional share) received in the Merger. IGL will determine the fair market value of the Common Stock based on the average trading prices of such stock during a representative period on or following the Effective Time. IGL's determination of the fair market value of the Common Stock is not binding on the IRS. Capital gains realized by individuals (but not corporations) are taxed at preferential rates, while corporate (but not individual) stockholders may be eligible for tax relief in the form of a dividends received deduction with respect to dividends received from another corporation. While not free from doubt due to the absence of controlling precedent, the gain recognized by an FTX stockholder who is not also an IGL stockholder arising from the receipt of Common Stock (and cash in lieu of a fractional share) pursuant to the Merger should constitute capital gain, rather than dividend income, assuming that the stockholder held the FTX Common Stock with respect to which the Common Stock is received as a capital asset. FTX stockholders who also own IGL Common Stock should consult their own tax advisors for special considerations that may apply in regard to the receipt of Common Stock or cash in lieu of a fractional share thereof. An individual stockholder's capital gain will be taxable at a maximum federal income tax rate of 20% or 28%, if the FTX stockholder has held the surrendered shares of FTX Common Stock for more than 18 months or 12 months, respectively, as of the Effective Time. The basis for the Common Stock received by an FTX stockholder will be equal to its fair market value as of the Effective Time (determined as provided above). The stockholders' holding periods for the Common Stock will begin on the day after the Effective Time. SALE OR EXCHANGE OF COMMON STOCK In general, any gain or loss from the sale or exchange of the Common Stock will be characterized as capital gain or loss. The gain or loss will be measured by the difference between the amount realized on the 19 sale and the stockholder's adjusted tax basis in the Common Stock. An individual stockholder's capital gain generally will be taxed at a maximum rate of 20% if the stockholder has owned the Common Stock for more than 18 months at the time of the sale, or a maximum rate of 28% if the stockholder has owned the Common Stock for more than 12 months but not more than 18 months at the time of the sale. TAX TREATMENT OF INCOME OR LOSS OF FREEPORT SULPHUR The Company will be treated as a corporation for federal income tax purposes and its income will be subject to the federal corporate income tax. DISTRIBUTIONS FROM FREEPORT SULPHUR Distributions of cash or other property by the Company with respect to the Common Stock will be dividends to the extent they represent current or accumulated earnings and profits as determined for federal income tax purposes. To the extent that a distribution exceeds the Company's earnings and profits, it will be treated first as a nontaxable return of capital to a stockholder and then as capital gain if the amount exceeds the stockholder's basis in the Common Stock. Dividends received by corporate holders may be eligible for the corporate dividends received deduction, subject to the conditions and limitations applicable to the deduction, and in certain circumstances may be extraordinary dividends within the meaning of Code section 1059. Corporate stockholders should consult their own tax advisors regarding the dividends received deduction and extraordinary dividend rules. It should be noted, however, that the Company intends to retain earnings to meet its working capital needs and finance its continuing operations, and does not expect to pay dividends on its Common Stock for the foreseeable future. See "Dividend Policy." NON-U.S. HOLDERS The following summary addresses certain United States federal income and estate tax consequences of the receipt, ownership and disposition of Common Stock by a Non-U.S. Holder. Generally, for purposes of this discussion, a "Non-U.S. Holder" is a beneficial owner of Common Stock who or which is, for United States federal income tax purposes, a non-resident alien individual, a foreign corporation, a foreign partnership, or a foreign estate or trust. Different rules apply for United States federal estate tax purposes. See "--Federal Estate Taxes," below. RECEIPT OF COMPANY COMMON STOCK IN THE MERGER AND SALE OR EXCHANGE OF COMMON STOCK A Non-U.S. Holder will not be subject to United States federal income tax on any gain realized on the receipt of Common Stock (or cash in lieu of a fractional share thereof) pursuant to the Merger or on the subsequent sale or exchange of Common Stock unless (a) the gain is derived from sources within the United States and the Non-U.S. Holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year in which the gain is realized; (b) the Non-U.S. Holder is subject to tax pursuant to the provisions of the United States federal tax law applicable to certain United States expatriates; (c) the gain is effectively connected with the conduct of a trade or business within the United States; or (d) the FTX Common Stock or the Common Stock is a "United States Real Property Interest" as defined in section 897(c)(1) of the Code and at any time during the five years prior to the Merger or sale, the Non-U.S. Holder held, directly or constructively more than 5 percent of the FTX Common Stock or the Common Stock, as the case may be. The 183-day rule referred to above only applies in limited circumstances because generally an individual present in the United States for 183 days or more in the taxable year of the sale, exchange, or other disposition will be treated as a resident for United States federal income tax purposes and therefore will be subject to United States federal income tax at graduated rates applicable to individuals who are United States persons for such purposes. 20 Non-U.S. Holders should consult applicable tax treaties, which may result in United States federal income tax treatment on the sale, exchange or other disposition of stock different than as described above. DIVIDENDS ON COMMON STOCK Subject to the discussion below, dividends paid to a Non-U.S. Holder will be subject to withholding of United States federal income tax at a rate of 30% of the gross amount of such dividends or at such lower rate as may be specified by an applicable tax treaty. Proposed United States Treasury Regulations were issued on April 15, 1996 (the "Proposed Regulations"), which, if adopted, could affect the United States taxation of dividends on Common Stock paid to a Non-U.S. Holder by changing certain presumptions under current law and regulations upon which the Company may generally rely in determining whether, in the absence of documentation, a Non-U.S. Holder should be treated as qualified for the benefits of an applicable tax treaty. Dividends received by a Non-U.S. Holder that are effectively connected with the conduct of a United States trade or business of the Non-U.S. Holder will be exempt from the 30% withholding tax, but will be subject to United States federal income tax at graduated rates as if the Non-U.S. Holder were a United States person for federal income tax purposes. Non-U.S. Holders should consult their own tax advisors regarding the United States federal income taxation of any dividends, including the application of any treaties to such dividends. It should be noted, however, that the Company intends to retain earnings to meet its working capital needs and finance its continuing operations, and does not expect to pay dividends on its Common Stock for the foreseeable future. See "Dividend Policy." BACKUP WITHHOLDING TAX AND INFORMATION REPORTING Generally, the Company must report to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of United States federal income tax withheld. A similar report is sent to the holder. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence. Unless the Company has actual knowledge that a holder is a Non-U.S. Holder, dividends paid to a holder of Common Stock at an address within the United States may be subject to backup withholding at a rate of 31% if the holder is not an "exempt recipient" as defined in existing Treasury Regulations (which includes corporations) and fails to provide a correct taxpayer identification number and other information to the Company. Backup withholding will generally not apply to dividends paid to holders at an address outside the United States (unless the Company has knowledge that the holder is a United States person for United States federal income tax purposes). Proceeds from a disposition of Common Stock by a Non-U.S. Holder effected by or through a United States office of a broker will be subject to information reporting and to backup withholding at a rate of 31% of the gross proceeds, unless such Non-U.S. Holder certifies under penalties of perjury as to, among other things, his or its name, address and status as a Non-U.S. Holder or otherwise establishes an exemption. Generally, United States information reporting and backup withholding will not apply to a payment of disposition proceeds if the transaction is effected outside the United States by or through a non-United States office of a broker. However, United States information reporting requirements (but not backup withholding) will apply to a payment of disposition proceeds where the transaction is effected outside the United States if (a) the disposition is made by or through an office outside the United States of a broker that is either (i) a United States person for United States federal income tax purposes, (ii) a "controlled foreign corporation" for United States federal income tax purposes, or (iii) a foreign person which derives 50% or more of its gross income for certain periods from the conduct of a United States trade or business and (b) the broker fails to maintain documentary evidence in its files that the holder is a Non-U.S. Holder and that certain other conditions are met or that the holder otherwise is entitled to an exemption. 21 The Proposed Regulations would, if adopted, alter the foregoing rules in certain respects. Among other things, the Proposed Regulations would provide certain presumptions and other rules under which Non-U.S. Holders may be subject to backup withholding in the absence of required certifications and would revise the definition of an "exempt recipient" in the case of a corporation. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to 31% backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of United States federal income taxes, a refund may be obtained, provided that the required information is furnished to the IRS. FEDERAL ESTATE TAXES An individual Non-U.S. Holder who is treated as the owner of Common Stock at the time of his death, or has made certain lifetime transfers of an interest in Common Stock, will be required to include the value of such Common Stock in his gross estate for United States federal estate tax purposes and may be subject to United States federal estate tax, unless an applicable treaty provides otherwise. For United States federal estate tax purposes, a "Non-U.S. Holder" is an individual who is neither a citizen nor a domiciliary of the United States. Whether an individual is considered a "domiciliary" of the United States for federal estate tax purposes is generally determined on the basis of all of the facts and circumstances. 22 DIVIDEND POLICY 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 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. DISTRIBUTING SECURITY HOLDER All of the shares of Common Stock being delivered hereby have been received by FTX in the FRP Distribution and are being distributed to FTX stockholders in the FTX Stockholder Distribution in accordance with the terms of the Merger Agreement. No cash consideration is being paid by FTX stockholders in connection with the FTX Stockholder Distribution and neither the Company nor FTX will receive any proceeds from the FTX Stockholder Distribution. CAPITALIZATION The following table sets forth the unaudited pro forma capitalization of the Company as of September 30, 1997, after giving effect to the transactions described in the "Pro Forma Financial Statements (Unaudited) of Freeport-McMoRan Sulphur Inc." included elsewhere herein. The table set forth below should be read in conjunction with the Financial Statements of the FRP Transferred Businesses and the notes thereto, the "Pro Forma Financial Statements (Unaudited) of Freeport-McMoRan Sulphur Inc.," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Prospectus.
SEPTEMBER 30, 1997 PRO FORMA ------------------ (IN THOUSANDS) Long-term debt, less current maturities....................................................... $ 0 -------- Stockholders' equity: Preferred Stock, no par value per share, 50,000,000 shares authorized; none issued or outstanding............................................................................. -- Common Stock, $0.01 par value per share, 100,000,000 shares authorized; 10,346,578 million shares issued and outstanding........................................................... 103 Additional paid-in capital................................................................ 107,574 Total stockholders' equity............................................................ 107,677 -------- Total capitalization.......................................................................... $ 107,677 -------- --------
23 SELECTED FINANCIAL AND OPERATING DATA The selected financial data provided below reflect the historical results of operations and financial position of the FRP Transferred Businesses only and do not include the IGL Transferred Businesses. The historical financial information is not necessarily indicative of the financial position and results of operations that would have been achieved had the Company been operated as an independent entity during the periods covered or the results that may be achieved in the future. Historical net income and dividend per share amounts are not presented because the FRP Transferred Businesses were operated through divisions of FRP for the periods presented. See "Risk Factors--Limited Relevance of Historical Financial Information." The following selected financial data as of December 31, 1996 and 1995 and for each of the years in the three-year period ended December 31, 1996 has been derived from the audited financial statements of the FRP Transferred Businesses and does not include the IGL Transferred Businesses. The selected financial data as of December 31, 1994, 1993 and 1992 and for each of the years in the two-year period ended December 31, 1993 are unaudited and were derived from the accounting records of FRP. The selected financial data as of and for each of the nine-month periods ended September 30, 1997 and 1996, have been derived from the unaudited financial statements of the FRP Transferred Businesses, and in the opinion of management includes all adjusting entries (consisting only of normal recurring adjustments), necessary for a fair presentation of the results of the periods presented. The selected financial information of the FRP Transferred Businesses set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical audited financial statements of the FRP Transferred Businesses and notes thereto included elsewhere herein.
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, -------------------------- ------------------------------------------------------------------ 1997 1996 1996 1995 1994 1993 1992 ------------- ---------- ---------- ------------- ---------- ------------- ---------- (IN THOUSANDS, EXCEPT REALIZED PRICE DATA) INCOME STATEMENT DATA: Revenues.................... $ 158,304 $ 167,379 $ 221,426 $ 255,949 $ 151,795 $ 131,732 $ 163,852 Loss on valuation and sale of assets................. -- -- -- -- -- (86,631) -- Net income (loss) before income taxes(1)........... (425,171)(2) 11,620 12,392 25,020(3) 7,353 (122,253)(4) (11,641) Pro forma net income (loss) (unaudited)(1)............ (269,558) 7,251 7,733 18,175 4,662 (77,508) (7,380) OPERATING DATA: Sulphur sales (long tons)... 2,167 2,142 2,900 3,050 2,088 1,403 1,038 Sulphur average realized price..................... $ 60.75 $ 63.01 $ 61.78 $ 70.44 $ 53.07 $ 57.28 $ 82.69 Oil sales (barrels)......... 1,248 1,508 1,896 2,218 2,534 3,443 4,884 Oil average realized price..................... $ 18.37 $ 18.82 $ 19.49 $ 15.82 $ 13.74 $ 14.43 $ 15.91
AS OF SEPTEMBER 30, AS OF DECEMBER 31, ------------------ ------------------------------------------------- 1997 1996 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- --------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital............. $ 27,205 $ 38,271 $ 25,794 $ 42,059 $ 41,590 $ 25,105 $ 18,668 Property, plant and equipment, net............ 92,562(2) 542,454 535,653 575,029 551,916 577,491 662,878 Total assets................ 178,581 633,668 633,620 680,467 637,902 668,274 723,576 Net assets to be transferred............... 39,910 494,842 484,360 521,782 556,060 573,303 663,238
- ------------------------------ (1) As a partnership, FRP pays no federal or state income taxes and historically has not provided for income taxes for the FRP Transferred Businesses. Pro forma net income includes an estimated tax provision for the applicable periods as if the FRP Transferred Businesses operated as a stand-alone taxpaying entity. (2) In 1995, the Financial Accounting Standards Board adopted SFAS 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 the third quarter of 1997, FRP and FTX determined that the sulphur assets were impaired within the meaning of SFAS No. 121 because their book value exceeded the estimated undiscounted net cash flow recoverable with respect thereto. Accordingly, in the third quarter of 1997, FRP and FTX recorded an impairment writedown totaling $425.4 million to reduce these properties to their fair value (measured by the difference between the carrying value of such assets and the current discounted value of future net cash flows). (3) Includes charges totaling $7.0 million allocated to the FRP Transferred Businesses to reflect a compensation charge related to FTX stock appreciation rights, which was attributable to the significant rise in the price of FTX Common Stock during such period. Pursuant to a management services agreement with FTX, these costs were allocated to FRP, and thus to the FRP Transferred Businesses, based on payroll costs. (4) Includes charges totaling $11.6 million for restructuring and other related charges. 24 SELECTED PRO FORMA FINANCIAL AND OPERATING DATA The unaudited pro forma balance sheet data as of September 30, 1997 provided below gives effect to the transfer of the Transferred Businesses, as if such transfer had occurred on September 30, 1997, and the unaudited pro forma income statement data for the nine-month period ended September 30, 1997 and the year ended December 31, 1996 gives effect to the transfer of the Transferred Businesses as if such transfer had occurred on January 1, 1996. The unaudited pro forma financial data does not purport to represent what the Company's financial position or results of operations would have been had such transfer occurred on the dates indicated or the results that may be achieved in the future.
NINE MONTHS YEAR ENDED ENDED SEPTEMBER 30, DECEMBER 31, 1997 1996 -------------- -------------- (IN THOUSANDS, EXCEPT PER SHARE AND REALIZED PRICE DATA) INCOME STATEMENT DATA: Revenues....................................................................... $ 190,510 $ 268,919 Net income (loss) before income taxes(1)(2).................................... (422,183) 25,326 Net income (loss)(1)........................................................... (267,664) 15,803 Net income (loss) per share.................................................... (25.76) 1.52 Weighted average common shares................................................. 10,390 10,409 OPERATING DATA: Sulphur sales (long tons)...................................................... 2,521 3,385 Sulphur average realized price................................................. $ 61.87 $ 63.10 Oil sales (barrels)............................................................ 1,782 2,708 Oil average realized price..................................................... $ 18.37 $ 19.49 OTHER DATA: EBITDA(3)...................................................................... $ 31,924 $ 66,326 Capital expenditures........................................................... 4,203 5,346
AS OF SEPTEMBER 30, 1997 -------------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital................................................................................. $ 43,377 Property, plant and equipment, net(2)(4)........................................................ 114,462 Total assets(2)................................................................................. 278,144 Stockholder's equity(2)......................................................................... 107,677
- ------------------------ (1) As a partnership, FRP pays no federal or state income taxes and historically has not provided for income taxes for the Transferred Businesses. Pro forma net income includes an estimated tax provision for the applicable periods as if the Transferred Businesses operated as a stand-alone taxpaying entity. (2) In 1995, the Financial Accounting Standards Board adopted SFAS 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 the third quarter of 1997, FRP and FTX determined that the sulphur assets were impaired within the meaning of SFAS No. 121 because their book value exceeded the estimated undiscounted net cash flow recoverable with respect thereto. Accordingly, in the third quarter of 1997, FRP and FTX recorded an impairment writedown totaling $425.4 million to reduce these properties to their fair value (measured by the difference between the carrying value of such assets and the current discounted value of future net cash flows). 25 (3) EBITDA represents net income before income taxes plus depreciation and amortization expense. EBITDA is not a measure of cash flow, operating results or liquidity as determined by generally accepted accounting principles. The Company has supplementally disclosed information concerning EBITDA because management believes that EBITDA is commonly accepted as providing useful information regarding a company's historical ability to incur and service debt. Management of the Company believes that factors that should be considered by investors in evaluating EBITDA include but are not limited to, trends in EBITDA as compared to cash flow from operations, debt service requirements and capital expenditures. EBITDA as defined and measured by the Company may not be comparable to similarly titled measures of other companies. Further, EBITDA should not be considered in isolation or as an alternative to, or more meaningful than, net income or cash flow provided by operations as determined in accordance with generally accepted accounting principles as an indicator of the Company's profitability or liquidity. (4) The property, plant and equipment to be contributed by IGL were estimated to have a fair value of approximately $21.9 million using the same assumptions applied in the impairment assessment of FRP's sulphur assets discussed in (2) above. 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following Management's Discussion and Analysis of Financial Condition and Results of Operations relates to the historical results of operations and financial condition of the FRP Transferred Businesses only and does not include the IGL Transferred Businesses. Such information should be read in conjunction with the audited financial statements of the FRP Transferred Businesses and the Pro Forma Financial Statements of Freeport-McMoRan Sulphur Inc. included elsewhere herein. Prior to the Contribution, the Company's operations were conducted as an integral part of FRP's operations, and certain historical financial data has been extracted from FRP's books and records based on allocations between the FRP Transferred Businesses and FRP's other businesses, and based on other assumptions necessary to reflect the Company's operations as if they had been conducted as an independent enterprise. The results of operations described below are not necessarily indicative of the operating results that the Company would have achieved on an independent basis or of future operating results. The Company's 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. The Company'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 FRP's interest in the Main Pass operations. IMPAIRMENT ASSESSMENT OF SULPHUR ASSETS In 1995, the Financial Accounting Standards Board ("FASB") issued 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 of such assets may not be recoverable. As a result of its most recent review of its sulphur assets, FRP and FTX 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 (based on September 30, 1997 book values) 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 (based on September 30, 1997 book values) was required. Fair values were estimated using discounted estimated future net cash flows related to these assets. The writedowns to fair value were recorded by FRP and FTX in the third quarter of 1997 and are reflected in the unaudited September 30, 1997 financial statements as additional depreciation and amortization charges. Future operating results of the Company will reflect lower depreciation and amortization expense as a result of these writedowns. 27 RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ----------------------------- ------------------------------------------- 1997 1996 1996 1995 1994 --------------- ------------ ------------ --------------- ------------ (DOLLARS IN MILLIONS, EXCEPT REALIZED PRICES) Revenues............................ $ 158.3 $ 167.4 $ 221.4 $ 255.9 $ 151.8 Net income (loss)................... (425.2)(1) 11.6 12.4 25.0(2) 7.4 Sulphur sales (long tons)........... 2,167,000 2,141,800 2,900,000 3,049,700 2,087,800 Sulphur average realized price per ton................................ $ 60.75 $ 63.01 $ 61.78 $ 70.44 $ 53.07 Oil sales (barrels)................. 1,247,600 1,507,500 1,895,500 2,217,600 2,533,700 Oil average realized price per barrel............................. $ 18.37 $ 18.82 $ 19.49 $ 15.82 $ 13.74
- ------------------------ (1) Includes charges totaling $425.4 million for asset impairments. (2) Includes charges totaling $7.0 million allocated to the FRP Transferred Businesses to reflect a compensation charge related to FTX stock appreciation rights, which was attributable to the significant rise in the price of FTX Common Stock during such period. Pursuant to a management services agreement with FTX, these costs were allocated to FRP, and thus to the FRP Transferred Businesses, based on payroll costs. ------------------------ NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1996 Sulphur operations reported a net loss of $429.2 million in the nine-month 1997 period compared with net income of $4.7 million for the 1996 period, primarily because of the asset impairment charges and lower sulphur prices. Sulphur realized prices for the 1997 period were 4% lower than the 1996 period. Sulphur sales volumes for 1997 rose slightly from the 1996 period, primarily due to increased sales to IMC-Agrico. Production levels at the Main Pass and Culberson sulphur mines were reduced in early 1996 in response to lower domestic demand for sulphur, and these mines continue to operate at curtailed levels. Higher sales volumes in 1997 were met through inventory reductions and recovered sulphur purchases. Combined production from the two mines averaged 7,600 tons per day for the nine-month 1997 period compared with 8,000 tons per day for the 1996 period. Main Pass net income from oil and gas operations totaled $4.0 million in 1997 and $8.2 million in 1996 reflecting slightly lower average realizations and reduced production levels. Current estimates are that the proved oil reserves at the Main Pass site will be depleted by the year 2001. Production and delivery costs were higher in the 1997 period because of higher sulphur sales volumes, energy costs and drilling costs. Depreciation and amortization in the nine-month 1997 period includes the asset impairment charges, but without the charges was lower compared with the 1996 period because of the lower production rates. General and administrative expenses were lower in the 1997 period compared with the 1996 period. 1996 COMPARED WITH 1995 Sulphur net 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% 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. Production averaged 7,800 tons per day for 1996 compared with 8,500 tons per day in 1995. Sulphur market prices were 12% lower than the 1995 period, reflecting lower demand from the phosphate fertilizer industry and 28 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 net 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. 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 the FRP Transferred Businesses to reflect a compensation charge related to FTX stock appreciation rights, which was attributable to the significant rise in the price of FTX Common Stock during such period. Pursuant to a management services agreement with FTX, these costs were allocated to FRP, and thus to the FRP Transferred Businesses, based on payroll costs. 1995 COMPARED WITH 1994 Sulphur net income totaled $23.0 million for 1995 compared with $4.3 million for 1994. Sales increased by 46% due to the Company's acquisition in January 1995 of substantially all of Pennzoil's sulphur assets, including sales contracts for approximately 900,000 long tons per year, and to the strengthening in sulphur prices during 1995. Main Pass unit production costs for 1995 were virtually unchanged from 1994. Main Pass oil net income was $2.0 million in 1995 compared with $3.1 million in 1994. Lower production in 1995 was offset by higher average realized prices. Production and delivery and depreciation and amortization costs were higher in 1995 primarily because of the Company's acquisition of Pennzoil's sulphur assets in January 1995. General and administrative expenses were higher in 1995 primarily because of the FTX stock appreciation rights charges discussed above and the Pennzoil acquisition. CAPITAL RESOURCES AND LIQUIDITY Net cash provided by operating activities totaled $20.8 million for the nine-month 1997 period, $41.5 million for the nine-month 1996 period, $51.8 million for 1996, $65.4 million for 1995 and $34.2 million for 1994. Lower net income and increased working capital requirements resulted in lower net cash provided by operating activities in the nine-month 1997 period compared with the nine-month 1996 period. Net cash provided by operating activities in 1996 was lower than in 1995 primarily because of lower net income. Net cash provided by operating activities in 1995 was $31.2 million higher than in 1994 primarily because of higher net income and lower reclamation and shutdown expenditures. Capital expenditures primarily relate to maintaining current levels of production. Capital expenditures totaled $3.0 million for the nine-month 1997 period, $4.9 million for the nine-month 1996 period, $3.8 million for 1996, $3.7 million for 1995 and $11.2 million for 1994. Higher capital expenditures in 1994 related to drilling additional development wells at the Main Pass oil operations. Proceeds from asset sales included certain warehousing and supply assets of $0.9 million in the nine-month 1997 period, $1.2 million in the nine-month 1996 period and $2.1 million in 1996 mostly from the sale of certain marine assets, and $1.2 million from the sale of an airplane and certain marine assets in 1994. Capital expenditures for 1997 are expected to be slightly higher compared with 1996 and 1995 because of additional drilling activities scheduled in 1997 to maintain required levels of water treatment capacity for the sulphur operations. Funding for capital expenditures is provided by operating cash flows. Based on current projections, management believes that the Company will generate sufficient cash flow from operations to fund its ongoing working capital requirements, reclamation costs and projected 29 capital expenditures for the foreseeable future. Additionally, the Company is in discussions with various banks and expects to establish a revolving credit facility to further enhance its liquidity and financial flexibility. ENVIRONMENTAL The Company, through its predecessors, has a history of commitment to environmental responsibility. Since the 1940s, long before public attention focused on the importance of maintaining environmental quality, the 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 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. The Company has access to environmental specialists who have developed and implemented corporate-wide environmental programs. The Company 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. 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 September 30, 1997, the Company had accrued $45.6 million ($17.0 million of which will be reimbursed by third parties) for abandonment and restoration of its non-operating sulphur assets and $8.1 million for the dismantling of the Main Pass oil operations. Current liabilities include $11.5 million at September 30, 1997 for reclamation and mine shutdown, $2.5 million of which will be reimbursed by third parties. The Company's share of abandonment and restoration costs for its two operating sulphur mines is estimated to total approximately $50 million, $18.8 million of which had been accrued at September 30, 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. The Company 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 operations may require substantial capital expenditures and may affect its operations in other ways that cannot now be accurately predicted. The Company 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 This Prospectus contains forward-looking statements regarding the Company's business strategy, reserve expectations, demand for sulphur, competition, 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 IGL and FRP as continuing customers, the seasonality and volatility of sulphur markets, competition, and environmental issues as described in more detail under "Risk Factors." 30 BUSINESS GENERAL Freeport Sulphur is a Delaware corporation formed in August 1997 to succeed to the sulphur and certain oil and gas operations of FRP. 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. Pursuant to the Distribution Agreement, FRP will contribute to Freeport Sulphur all of its sulphur operations, and certain of its oil and gas operations, including FRP's 58.3% interest in the Main Pass operations and its sulphur mine in Culberson County, Texas. In addition, in connection with the Merger, IGL will transfer to FRP, which in turn will contribute to Freeport Sulphur, IGL's 25% interest in the Main Pass operations, with the result that the Company will have an 83.3% interest in the Main Pass operations, and Homestake will continue to own the remaining 16.7% interest. The Company also will continue to serve as the operator of the Main Pass operations. The Company's sulphur operations include the mining, purchase, transportation, terminaling and marketing of sulphur. Its oil and gas operations consist of the production and sale of oil and gas from its Main Pass facilities. 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 has 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 160,000,000 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, 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. 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, 1996, the Main Pass and Culberson mines were estimated to contain proved sulphur reserves totaling 53.1 million long tons net to the Company (or 69.7 million long tons net to the Company on a pro forma basis after the contribution of the IGL Transferred Businesses). 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 31 phosphate fertilizer industry generally accounts for approximately 90% of the Company's sulphur sales. The Company's 1996 sulphur sales were approximately 2.9 million long tons, representing 25% of domestic consumption (or 3.4 million long tons, representing 30% of domestic consumption, on a pro forma basis after the contribution of the IGL Transferred Businesses). Sales to IMC-Agrico, a manufacturer of phosphate fertilizers and the largest purchaser of elemental sulphur in the world, represented approximately 65% of the Company's sulphur sales (or 71% on a pro forma basis after the contribution of the IGL Transferred Businesses). Pursuant to a Sulphur Supply Agreement, the Company has agreed to supply and IMC-Agrico has agreed to purchase approximately 75% 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% 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. 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 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. 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 30% of the Company's 1996 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 10,700 barrels per day (5,200 barrels net to the Company, or 7,400 barrels net to the Company on a pro forma basis after the contribution of the IGL Transferred Businesses) during the year ended December 31, 1996, and 9,400 barrels per day (4,600 barrels net to the Company, or 6,500 barrels net the Company on a pro forma basis after the contribution of the IGL Transferred Businesses) during the nine months ended September 30, 1997. As of December 31, 1996, Main Pass was estimated to contain 12.8 million barrels (5.2 million barrels net to the Company, or 7.4 million barrels net to the Company on a pro forma basis after the contribution of the IGL Transferred Businesses) of proved oil reserves. In 1997, such estimates were reduced to 8.2 million barrels (3.2 million barrels net to the Company, or 4.6 million barrels net to the Company on a pro forma basis after the contribution of the IGL Transferred Businesses) of proved oil reserves, which are expected to decline substantially in subsequent years and to be fully depleted by 2001. STRATEGY The Company's strategy is to utilize its extensive production facilities and its transportation and other logistical 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 32 strategic alliances 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% of global production of elemental sulphur. Worldwide, over 56 million long tons of sulphur are consumed annually, of which over 90% 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% 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. 33 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. 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 DEG. 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 is used to fire steam boilers that produce the superheated water 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 and the Port Sulphur terminal, 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. 34 [PICTURE] DIAGRAMMATIC SKETCH OF A SALT DOME SULPHUR DEPOSIT 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, 1996, sulphur production at Main Pass averaged approximately 5,350 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, 1996, the Main Pass deposit was estimated to contain proved sulphur reserves totaling 66.2 million long tons (38.6 million long tons net to the Company, or 55.1 million long tons net to the Company on a pro forma basis after the contribution of the IGL Transferred Businesses). Production from the Main Pass mine is subject to a royalty of 12.5% 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 orebody located in the Upper Permian and Salado formations. For the year ended December 31, 1996, production at the Culberson mine averaged approximately 2,450 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 a Company-owned 95-car unit train that averages 8,400 long tons of liquid sulphur per trip. At December 31, 1996, the Culberson mine was estimated to contain proved sulphur reserves totaling 14.5 million long tons. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Impairment Assessment of Sulphur Assets." Production from the Culberson mine is subject to a royalty of 9% of net mine revenues that is payable to the State of Texas and several private land owners through a unitization agreement. 35 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 million and $1.5 million for fiscal 1996 and the first nine months of 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 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 reserves 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 reserves remaining. SULPHUR RESERVES. The table below sets forth the Company's portion of the proved developed reserves for the Company's two sulphur mines.
LONG TONS AT SEPTEMBER 30, PROVED DEVELOPED RESERVES(1) 1997(2) - ------------------------------------------------------------------------ -------------------- Main Pass 37.8 million(3) Culberson 7.8 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. (3) Or 54.0 million long tons on a pro forma basis after the contribution of the IGL Transferred Businesses. ------------------------ 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 southern Mississippi. 36 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 30% of the Company's 1996 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 of more than 500 cars, including a 95-car unit train 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 37 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 five 15,000-long ton 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 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% of the Company's total sulphur sales. Freeport Sulphur's domestic shipments to its five largest customers represented 91% of total shipments in 1996, 89% in 1995 and 94% in 1994. 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% of the Company's sulphur sales (or 71% on a pro forma basis after the contribution of the IGL Transferred Businesses) and 54% of its total revenues (or 57% on a pro forma basis after the contribution of the IGL Transferred Businesses) during 1996. Pursuant to a Sulphur Supply Agreement, the Company has agreed to supply and IMC-Agrico has agreed to purchase approximately 75% 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% 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. 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. Improved phosphate consumption rates, coupled with reduced imports and curtailed mine production, stabilized sulphur prices beginning in mid-year 1996 and continuing into the first-half of 1997. However, 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. 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." 38 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, 1996 was 12.8 million barrels (5.2 million barrels net to the Company or 7.4 million barrels net to the Company on a pro forma basis after the contribution of the IGL Transferred Businesses). After 1996 such estimates were reduced to 8.2 million barrels (3.2 million barrels net to the Company, or 4.6 million barrels net to the Company on a pro forma basis after the contribution of the IGL Transferred Businesses) due to adjustments made by the Company to the 1996 reserve estimate to account for production during the first half of fiscal 1997 and because certain reserves are no longer believed to be recoverable based on updated geologic information. No credit was taken in this adjustment for possible offsetting increases in reserves based on recent production history, but some offset additions may be possible when Ryder Scott Company performs a review of the reserves at the end of fiscal 1997. The Main Pass oil reserves are expected to decline substantially in subsequent years and to be fully depleted by 2001, 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, 1996, 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 audited financial statements of the FRP Transferred Businesses, 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 September 30, 1997 totaling 34.1 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. 39 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 fiscal 1996 or the first nine months of 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% 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% overriding royalty is limited to 50% 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. Since the beginning of 1997, oil prices have fallen by approximately 25%, with some experts speculating that prices may soften further prior to year end. 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 72% and 28%. 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 74% of oil revenues and 12% of the Company's total revenues for fiscal 1996. 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 1996, Freeport Sulphur estimates that its production of sulphur accounted for approximately 27% of domestic, and 6% of world, elemental sulphur production. The Company estimates that total domestic sulphur consumption in 1996 was 11.5 million tons, of which domestic Frasch sulphur accounted for approximately 25%, domestic recovered sulphur accounted for approximately 60%, and imported sulphur, primarily from Canada and Mexico, accounted for approximately 14%. The remaining 1% of domestic sulphur consumption was attributable to sulphuric acid produced in metal smelting operations and imported sulphuric acid. 40 The following table sets forth for each of the years 1994 through 1996 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
TOTAL CONSUMPTION (MILLIONS OF FRASCH DOMESTIC PERCENTAGE YEAR TONS) SUPPLIERS RECOVERED IMPORTED - ------------ --------------- ----------- ----------- ------------- 1996 11.5 25% 60% 14% 1995 11.7 27% 55% 17% 1994 10.9 28% 58% 13%
------------------------ Recovered sulphur from domestic and foreign sources is the major source of competition for Freeport Sulphur. Approximately 90% 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 9.8 million tons at year end 1996 and are expected to increase. Production of recovered sulphur in the United States has increased at an average rate of approximately 125,000 tons per year for the last three years, and totaled approximately 7.6 million tons in 1996. 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. CUSTOMERS IMC-Agrico is the Company's single largest sulphur customer, accounting for approximately 65% of sulphur sales and 54% of total sales for fiscal 1996 (or 71% and 57%, respectively, on a pro forma basis after the contribution of the IGL Transferred Businesses). The Company's next four largest customers represent approximately 25% of sulphur sales. These companies represent a mix of industrial companies and phosphate fertilizer manufacturers. 41 The oil produced from Main Pass is sold to two Gulf Coast refiners with sales volumes split 72% and 28%. AMOCO Production Company is the largest customer, accounting for 12% of the Company's total revenues for fiscal 1996. 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, FTX 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 Chase, 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. OPERATING HAZARDS The Company's oil and gas and sulphur production activities are subject to all of the risks normally incident to the development and production of hydrocarbons and sulphur, including 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. Additionally, its offshore sulphur mining, oil production and marine transportation operations are subject to marine perils, including collisions, hurricanes and other adverse weather conditions. Freeport Sulphur carries insurance for certain of these risks, with such coverage limits, retentions, deductibles, and other features as management deems appropriate. 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 will succeed 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 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. 42 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 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 substantial compliance with applicable regulations. 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. In connection with the Contribution, the Company has assumed responsibility for environmental liabilities associated with the prior conduct of the Transferred Businesses, 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 a reserve has been accrued for the estimated expense. 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. 43 Reclamation of the Company's two producing sulphur mines, Main Pass and Culberson, will be required upon the closure of those facilities, and a reserve account is being accumulated to cover this expense. 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 was donated to the State of Louisiana, which has assumed 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. EMPLOYEES As of September 30, 1997, Freeport Sulphur had 426 active employees. There are 402 employees working at the Company's mine sites and terminals, and 24 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 financial, legal and administrative and other related services through an administrative services agreement with FMS. See "Risk Factors--Dependence on Management and Administrative Services." 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. 44 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information with respect to the Company's directors (the "Directors") and executive officers (the "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............... 50 Vice Chairman of the Board Robert M. Wohleber................ 46 President, Chief Executive Officer and Director John G. Amato..................... 53 General Counsel J. Terrell Brown.................. 57 Director Thomas D. Clark, Jr............... 56 Director B. M. Rankin, Jr.................. 67 Director
James R. Moffett has served as the Chairman of the Board of each of Freeport-McMoRan Copper & Gold Inc. ("FCX") and FTX for the last five years. Mr. Moffett has also served as Chief Executive Officer of FCX since July 1995. Mr. Moffett is also President Commissioner of P.T. Freeport Indonesia Company ("PTFI"), an operating subsidiary of FCX, and Co-Chairman of the Board of McMoRan Oil & Gas Co. ("MOXY"), an oil and gas exploration company. Rene L. Latiolais has served as Vice Chairman of the Board of FCX since 1994. Since 1993 Mr. Latiolais has also served as a Commissioner of PTFI. Mr. Latiolais currently serves as President and Chief Executive Officer of FTX and FRP. He is also a Director of FTX. Mr. Latiolais held the office of Chief Operating Officer of FTX until 1995, the office of Executive Vice President of FTX until 1993, and the office of Senior Vice President of FTX from 1987 until 1992. Richard C. Adkerson has served as President and Chief Operating Officer of FCX since April 1997. Mr. Adkerson has also served as Chief Financial Officer of FCX since 1994 and, prior to April 1997, served FCX as Executive Vice President. Mr. Adkerson is also Vice Chairman of the Board of FTX, 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"), a real estate development company. From 1992 to 1995 Mr. Adkerson served as Senior Vice President and Chief Financial Officer of FTX. Mr. Adkerson also serves as a Director of Hi-Lo Automotive, Inc. Robert M. Wohleber has served as Senior Vice President of FRP and FTX since November 1996. From June 1994 to November 1996, Mr. Wohleber served as Vice President of FTX. He served as Vice President and Treasurer of FTX from May 1992 to June 1994 and served as Treasurer of FTX from May 1989 to May 1992. Mr. Wohleber was named a Senior Vice President of FCX in November 1997. 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 June 1994, and as Treasurer of FCX from August 1990 to June 1993. John G. Amato has served as General Counsel of MOXY since 1994, and has also served as the General Counsel of FMPO since 1995. Prior to August 1995, Mr. Amato served as General Counsel of FTX and FCX. Mr. Amato currently provides legal and business advisory services to FTX and FCX under a consulting arrangement. J. Terrell Brown is Chairman of the Board of Directors and Chief Executive Officer of United Companies Financial Corporation ("United Companies"), a provider of non-traditional consumer and mortgage lending. He is also Chairman of the Board of Directors and Chief Executive Officer of each of United Companies' subsidiaries. He has served as a director and executive officer of United Companies since 1969 and was named Chief Executive Officer in 1985. 45 Thomas D. Clark, Jr. has served as the Dean of E. J. Ourso College of Business Administration at Louisiana State University since 1995 and is the Ourso Distinguished Professor of Business. Prior to his current position, Mr. Clark held a variety of positions at Florida State University and the Air Force Institute of Technology, including Chairman of Information and Management Services and Director of the Center for Information Systems Research. Mr. Clark also serves as a director of Ocean Energy, Inc., an oil and gas exploration company. B. M. Rankin, Jr. is a private investor. Mr. Rankin has served as a Director of FTX since 1981, of MOXY since 1994 and of FCX since 1995. The Board of Directors consists of three classes, each serving a three-year term of office, with the members of one class being elected each year. Messrs. Brown and Latiolais are members of the class serving until the 1998 annual meeting of stockholders, Messrs. Clark and Wohleber are members of the class serving until the 1999 annual meeting of stockholders, and Messrs Adkerson, Moffet and Rankin are members of the class serving until the 2000 annual meeting of stockholders. DIRECTOR COMPENSATION Each Director who is not an employee of the Company will be paid an annual director's fee of $15,000 and an attendance fee of $500 for each committee meeting attended. All Directors will be paid an attendance fee of $1,000 for each board meeting attended. Each Director will be reimbursed for reasonable out-of-pocket expenses incurred in attending board and committee meetings. Each Director who is not an employee of the Company will also be eligible to receive options to purchase shares of Common Stock under the terms of the Director Plan described below. COMMITTEES OF THE BOARD OF DIRECTORS The Company's Board of Directors has established an Audit Committee and a Corporate Personnel Committee (the "Compensation Committee"). The Audit Committee is responsible for reviewing the Company's financial statements and annual audit and meeting with the Company's independent public accountants to review the Company's internal controls and financial management practices. The members of the Audit Committee are Messrs. Brown, Clark and Rankin. The Compensation Committee is responsible for recommending to the Board of Directors compensation for the Company's key employees, including its Executive Officers, and administering the Company's incentive plans and performing such other similar functions as may be assigned by the Board of Directors. The members of the Compensation Committee are Messrs. Brown and Clark. EXECUTIVE COMPENSATION The Company was not incorporated until August 26, 1997, and therefore did not have any Executive Officers or employees during the year ended December 31, 1996. The future compensation and employment arrangements of the Company's Executive Officers and employees will be determined by the Board of Directors and the Compensation Committee. The services of the Executive Officers who are not employed by the Company will be provided to the Company by FMS under a management services agreement. The Company will reimburse FMS at FMS' cost, including allocated overhead, for such services. Such Executive Officers will be compensated exclusively by FMS for their services to the Company. Those Executive Officers who are also employees of FMS are eligible to participate in certain FMS employee benefit plans and programs. The total costs to FMS for such Executive Officers, including the costs borne by FMS with respect to such plans and programs, will be allocated to the Company, to the extent practicable, in proportion to the time spent by such Executive Officers on Company affairs. No other payment will be made by the Company to FMS for providing such compensation and benefit plans and programs to such Executive Officers. 46 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Company's Compensation Committee are Messrs. Brown and Clark, neither of whom has ever been an officer or employee of the Company, nor has or has had any other significant relationship with the Company. No Executive Officer of the Company serves as a director or member of the compensation committee of another entity, one of whose executive officers will serve as a Director or on the Compensation Committee of the Company. THE EMPLOYEE BENEFITS AGREEMENT The Company, FTX and FRP have entered into the Employee Benefits Agreement 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 to FRP in connection with the FRP Transferred Businesses and to provide for the compensation and benefits of those employees who will become employees of the Company (the "Transferred Employees"). In accordance with the terms of the Employee Benefits Agreement, the Company will sponsor qualified and non-qualified defined contribution and defined benefit pension plans that initially will have substantially the same provisions as the FTX pension plans and will provide credit for prior FTX service. All liabilities under the FTX pension plans with regard to the Transferred Employees will be transferred to the Company's plans. Assets sufficient to fund the transferred qualified plan liabilities will be transferred from the FTX plans to the comparable Company plans, and assets sufficient to fund the transferred non-qualified plan liabilities will be transferred from FTX to the Company. The Company will establish new welfare benefit plans, such as medical, dental, life insurance, disability and sick leave plans, which will credit Transferred Employees with prior service at FTX and will credit items such as deductibles, limits and usage of and by Transferred Employees under similar FTX plans. FTX will pay the Company an actuarially-determined amount to cover the costs of post-retirement medical benefits for Transferred Employees. The Company will assume responsibility for all claims made after the Merger by Transferred Employees on sickness, disability or other leaves of absence. FTX will retain liability for retiree medical benefits for employees who retired prior to the Merger, but the Company has agreed to reimburse FTX quarterly for a portion of those expenses for former employees who provided services primarily for the Transferred Businesses. In addition, the Company will reimburse FTX for claims and premiums related to COBRA coverage for certain employees who lose medical coverage as a result of the Merger and related transactions. Pursuant to the Employee Benefits Agreement, each outstanding stock option, stock appreciation right, and stock incentive unit relating to FTX Common Stock that has been granted under an FTX stock option or stock incentive plan and that is held by any person other than an employee of IGL or the IMC-Agrico joint venture (collectively, the "FTX Awards") will be converted into an adjusted FTX stock option, stock appreciation right, or stock incentive unit, respectively (an "Adjusted FTX Award"), and a new non-qualified option to purchase Common Stock (a "Company Option") under the Company's Adjusted Stock Award Plan described below. Thus, after the FTX Stockholder Distribution, each holder of an FTX Award will hold an Adjusted FTX Award and a Company Option. The number of shares of FTX Common Stock subject to the Adjusted FTX Award will be the same as the number of shares of FTX Common Stock subject to the related FTX Award, and the number of shares of Common Stock subject to the Company Option will be the number of shares of Common Stock that a holder of record of the number of shares of FTX Common Stock subject to the related FTX Award would be eligible to receive in the FTX Stockholder Distribution. If the FTX Award that is converted contains a "tax-offset" payment right feature, the Company Option derived from such FTX Award will relate to a number of shares of Common Stock determined as described above multiplied by a factor of 1.6556. No Company Option will contain a "tax-offset" payment 47 right feature. Each Company Option will, however, have in-tandem "limited rights" equal in number to the number of shares of Common Stock subject to such Company Option. The exercise price of each FTX Award will be allocated between the Adjusted FTX Award and the Company Option based on the relative fair market values of FTX Common Stock and Common Stock at the time of the Merger. Each Company Option and each Adjusted FTX Award will have the same exercisability terms, remaining duration and change of control provisions as the FTX Award from which it was derived. In connection with the Merger, each outstanding Adjusted FTX Award, whether a stock option, stock appreciation right or stock incentive unit, will, in effect, be converted into an IGL stock option, stock appreciation right or stock incentive unit, respectively. In accordance with the terms of the Employee Benefits Agreement, FTX will calculate, as of the date of the FTX Stockholder Distribution, its liability under various non-qualified incentive plans in respect of the deferred compensation of the Transferred Employees. In consideration of a cash payment by FTX to the Company in an amount equal to such accrued liability, the Company will assume such liability in respect of the Transferred Employees. Similarly, FTX shall determine the total amount of cash bonus payments that it would have made to the Transferred Employees as a group under non-qualified incentive plans for 1997, and, in consideration of a cash payment by FTX to the Company in an amount equal thereto, the Company will assume the payment of such amounts to the Transferred Employees as soon as feasible after 1997 in accordance with procedures it may later establish for payment of cash incentives to its employees. STOCK OPTION PLANS COMPANY ADJUSTED STOCK AWARD PLAN The Company has adopted the Freeport-McMoRan Sulphur Inc. Adjusted Stock Award Plan (the "Company Adjusted Stock Award Plan"). The purpose of the Company Adjusted Stock Award Plan is to provide for the issuance of the Company Options as described under "The Employee Benefits Agreement" above. No other awards will be made under the Company Adjusted Stock Award Plan. The maximum number of shares of Common Stock in respect of which stock options may be granted under the Company Adjusted Stock Award Plan is expected to be approximately 450,000, and will be determined in accordance with the conversion procedures described under "The Employee Benefits Agreement" above. No individual will be granted awards under the Company Adjusted Stock Award Plan with respect to more than 200,000 shares of Common Stock. The shares of Common Stock to be delivered under the Company Adjusted Stock Award Plan will be made available from the authorized but unissued shares of Common Stock or from treasury shares. The Company Adjusted Stock Award Plan will be administered by the Compensation Committee, upon which no Director who is an officer of the Company may serve. Current and former employees, officers and directors of FTX who hold FTX Awards at the Effective Time of the Merger are eligible to receive stock options under the Company Adjusted Stock Award Plan. It is estimated that approximately 180 persons will receive stock options under the Company Adjusted Stock Award Plan pursuant to the conversion of FTX Awards described above. Stock options granted under the Company Adjusted Stock Award Plan will have the terms described under "The Employee Benefits Agreement" above. If the Compensation Committee determines that any dividend or other distribution (whether in the form of cash, securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares, issuance of warrants or other rights to purchase securities of the Company, or other similar corporate transaction or event affects the Common Stock such that an adjustment is appropriate to prevent dilution or enlargement of the benefits intended under the Company 48 Adjusted Stock Award Plan, then the Compensation Committee has discretion to (i) adjust the number and type of shares (or other securities or property) with respect to which options may be granted, (ii) make equitable adjustments in the number and kind of shares (or other securities or property) subject to outstanding stock options and the respective exercise prices thereof and (iii) if appropriate, provide for the payment of cash to a participant. The Company Adjusted Stock Award Plan may be amended at any time by the Board of Directors, except that stockholder approval will be required if determined by the Compensation Committee to be necessary or advisable in order to comply with any tax or regulatory requirement. The federal income tax consequences of the stock options are described below under "--Federal Income Tax Consequences." The following table sets forth information with respect to the stock options anticipated to be granted under the Company Adjusted Stock Award Plan, to (i) each of the Executive Officers, (ii) all Executive Officers as a group, (iii) each of the Directors who is not an Executive Officer, (iv) all Directors who are not Executive Officers as a group and (v) all employees of the Company, including all officers who are not Executive Officers as a group, based on the number of FTX Awards held by each of them as of October 31, 1997 and assuming that each share of FTX Common Stock converted in the Merger will entitle the holder to receive 0.2123 of a share of Common Stock. No associate of any Director or Executive Officer is anticipated to be eligible to participate in the Company Adjusted Stock Award Plan. Other than the persons identified in the following table, no person is anticipated to receive more than 5% of the awards anticipated to be granted under the Company Adjusted Stock Award Plan. Each option will be immediately exercisable in full and will have a term equal to the remaining term of the FTX Award. Each stock option is granted in conjunction with a limited right, the terms of which are as described under "--1997 Stock Option Plan" below. NEW PLAN BENEFITS UNDER THE COMPANY ADJUSTED STOCK AWARD PLAN
NUMBER OF SHARES UNDERLYING PERCENT OF TOTAL OPTIONS ANTICIPATED TO BE OPTIONS ANTICIPATED TO NAME AND POSITION GRANTED BE GRANTED TO EMPLOYEES - -------------------------------------------------------- ------------------------------- ----------------------- James R. Moffett, Co-Chairman of the Board.............. 74,897 16.9% Rene L. Latiolais, Co-Chairman of the Board............. 96,227 21.8% Richard C. Adkerson, Vice Chairman of the Board......... 23,609 5.3% Robert M. Wohleber, President, Chief Executive Officer 9,431 2.1% and Director........................................... John G. Amato, General Counsel.......................... 14,747 3.3% J. Terrell Brown, Director.............................. -- -- Thomas D. Clark, Jr., Director.......................... -- -- B.M. Rankin, Jr., Director.............................. 3,711 * Executive Officer Group................................. 218,911 49.5% Non-Executive Officer Director Group.................... 3,711 * Non-Executive Officer Employee Group.................... 219,615 49.7%
- ------------------------ * Less than 1%. ------------------------ 1997 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS The Company has adopted the Freeport-McMoran Sulphur Inc. 1997 Stock Option Plan for Non-Employee Directors (the "Director Plan"). The purpose of the Director Plan is to align more closely the interests of the Company's non-employee Directors with those of the Company's stockholders by providing 49 for the automatic grant of stock options to such Directors in accordance with the terms of the Director Plan. The maximum number of shares of Common Stock in respect of which options may be granted under the Director Plan is 75,000. The shares of Common Stock to be delivered under the Director Plan will be made available from the authorized but unissued shares of Common Stock or from treasury shares. Except for determinations with respect to the transferability of options, which will be made by the Compensation Committee, the Director Plan will be administered by the Board of Directors. All Directors who are not employees of the Company or a subsidiary will be "Eligible Directors" under the Director Plan. There will initially be three Eligible Directors. Each Eligible Director will be granted an option to purchase 5,000 shares of Common Stock upon the Distributions and an option to purchase 1,000 shares on May 1 of each year that the Director Plan is in effect. Options granted under the Director Plan will be non-qualified options. The exercise price of options granted under the Director Plan will be 100% of the fair market value of the underlying shares of Common Stock on the date of grant. Each option becomes exercisable in 25% annual increments beginning on the first anniversary of the date of grant, and will have a term of 10 years. Upon termination of Board service, except in the case of death or retirement, an option may be exercised, to the extent exercisable at the time of termination of Board service, for a period of three months, but no later than the expiration date of the option. Upon death or retirement from service as a Director, a Director's options that were exercisable on the date of death or retirement or could have become exercisable within one year after such date will remain exercisable until the earlier of (i) in the case of death, the first anniversary of the date of death, or in the case of retirement, the third anniversary of the date of such retirement or (ii) the expiration date of the option. An option will become exercisable in full upon a change of control of the Company, as defined in the Director Plan. The option exercise price may be satisfied in cash or by delivering shares of Common Stock owned by the optionee. If the Board determines that any dividend or other distribution (whether in the form of cash, securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities of the Company, issuance of warrants or other rights to purchase securities of the Company, or other similar corporate transaction or event affects the Common Stock such that an adjustment is appropriate to prevent dilution or enlargement of the benefits intended under the Director Plan, then the Board has discretion to (i) adjust the number and type of shares (or other securities or property) with respect to which options may be granted, (ii) make equitable adjustment in the number and kind of shares (or other securities or property) subject to outstanding stock options and the respective exercise prices thereof and (iii) if appropriate, provide for the payment of cash to a participant. In the event the Company is merged or consolidated into or with another corporation in a transaction in which the Company is not the survivor, or in the event that substantially all of the Company's assets are sold to another entity not affiliated with the Company, any holder of an option, whether or not then exercisable, will be entitled to receive (unless the Company takes such alternative action as may be necessary to preserve the economic benefit of the option for the optionee) on the effective date of any such transaction, in cancellation of such option, an amount in cash equal to the excess, if any, of the fair market value on the effective date of any such transaction of the shares underlying such option over the aggregate exercise price thereof. The Director Plan may be amended or terminated at any time by the Board of Directors, except that no amendment will be made without stockholder approval if stockholder approval is deemed necessary to comply with regulatory requirements. The federal income tax consequences of the stock options are described below under "--Federal Income Tax Consequences." 50 1997 STOCK OPTION PLAN The Company has adopted the Freeport-McMoRan Sulphur Inc. 1997 Stock Option Plan (the "Stock Plan"). The purpose of the Stock Plan is to motivate and reward key personnel by giving them a proprietary interest in the Company's success. Awards under the Stock Plan will be made by the Compensation Committee. The Compensation Committee has full power and authority to designate participants, set the terms of awards and to make any determinations necessary or desirable for the administration of the Plan. Those persons eligible to participate in the Stock Plan are: (a) officers and key employees of the Company and its existing or future subsidiaries, (b) officers and employees of any entity with which the Company has contracted to receive executive, management or legal services and who provide services to the Company or a subsidiary under such arrangement, (c) any consultant or advisor to the Company, a subsidiary or an entity with which the Company has contracted to receive executive, management or legal services and who provides services to the Company or a subsidiary under such arrangement and (d) any person who has agreed in writing to become eligible to participate within 30 days. A subsidiary is defined as (i) a corporation or other entity in which the Company possesses directly or indirectly equity interests representing at least 50% of the voting power or 50% of the total value of all classes of equity interests of such corporation or other entity and (ii) any other entity in which the Company has a direct or indirect economic interest that is designated as a subsidiary by the Compensation Committee. The Compensation Committee may delegate to certain Executive Officers of the Company the power to make awards to eligible persons who are not Executive Officers or Directors, subject to limitations to be established by the Compensation Committee. It is anticipated that the Compensation Committee's determinations of which eligible individuals will be granted awards and the terms thereof will be based on each individual's present and potential contribution to the success of the Company and its subsidiaries. It is estimated that approximately fifty persons will be granted awards under the Stock Plan. The maximum number of shares of Common Stock with respect to which awards payable in shares of Common Stock may be granted under the Stock Plan is 1,000,000, plus, to the extent authorized by the Board, the number of shares reacquired by the Company in the open market or in private transactions for an aggregate price no greater than the cash proceeds received by the Company from the exercise of Stock Plan options. Grants of stock appreciation rights, limited rights and other stock-based awards not granted in tandem with options and payable only in cash may relate to no more than 1,000,000 shares. No individual may receive in any year awards under the Stock Plan that relate to more than 200,000 shares of Common Stock. Shares subject to awards that are forfeited or canceled will again be available for award. In addition, to the extent that shares are delivered to pay the exercise price of options or are delivered or withheld by the Company in payment of the withholding taxes relating to an award under the Stock Plan, the number of shares withheld or delivered will again be available for grant under the Stock Plan. The shares to be delivered under the Stock Plan will be made available from the authorized but unissued shares of Common Stock or from treasury shares. Stock options, stock appreciation rights, limited rights, and other stock-based awards may be granted under the Stock Plan in the discretion of the Compensation Committee. Options granted under the Stock Plan may be either non-qualified or incentive stock options. Only employees of the Company and its subsidiaries will be eligible to receive incentive stock options. Stock appreciation rights and limited rights may be granted in conjunction with or unrelated to other awards and, if in conjunction with an outstanding option or other award, may be granted at the time of such award or thereafter, at the exercise price of such other award. The Compensation Committee has discretion to fix the exercise price of such options at a price not less than 100% of the fair market value of the underlying Common Stock at the time of grant thereof (or at the time of grant of the related award in the case of a stock appreciation right or limited right granted in conjunction with an outstanding award), except that this limitation on the Compensation Committee's discretion does not apply in the case of awards granted in substitution for outstanding awards previously granted by an acquired company or a company with which the Company combines. The 51 Compensation Committee has broad discretion as to the terms and conditions upon which options and stock appreciation rights are exercisable, but under no circumstances will an option, a stock appreciation right or a limited right have a term exceeding 10 years. The option exercise price may be satisfied in cash, or in the discretion of the Compensation Committee, by exchanging Common Stock owned by the optionee or by a combination of cash and Common Stock. The ability to pay the option exercise price in Common Stock would permit an optionee to engage in a series of successive stock-for-stock exercises of an option (sometimes referred to as "pyramiding") and thereby fully exercise an option with little or no cash investment; however, it is expected that the Compensation Committee's policy will be to require any stock tendered in payment of the exercise price to be in certificated form and to have been held by the exercising optionee for such time as is sufficient to avoid any adverse accounting consequences to the Company resulting from the permitting of stock-for-stock exercises. Upon the exercise of a stock appreciation right with respect to Common Stock, a participant would be entitled to receive, for each such share subject to the right, the excess of the fair market value of such shares on the date of exercise over the exercise price of such right. The Compensation Committee has the authority to determine whether the value of a stock appreciation right is paid in cash or Common Stock or a combination thereof. Limited rights generally are exercisable only during a period beginning not earlier than one day and ending not later than 90 days after the expiration date of any tender offer, exchange offer or similar transaction that results in any person or group becoming the beneficial owner of more than 40% of all classes and series of the Company's stock outstanding, taken as a whole that have voting rights with respect to the election of directors of the Company (not including shares of preferred stock which may be issued in the future that have the right to elect directors only if the Company fails to pay dividends). Upon the exercise of a limited right granted under the Stock Plan, a participant would be entitled to receive, for each share of Common Stock subject to such right, the excess, if any, of the highest price paid in or in connection with such transaction over the grant price of the limited right. The Stock Plan also authorizes the Compensation Committee to grant to participants awards of Common Stock and other awards that are denominated in, payable in, valued in whole or in part by reference to, or are otherwise based on the value of, Common Stock ("Other Stock-Based Awards"). The Compensation Committee has discretion to determine the participants to whom Other Stock-Based Awards are to be made, the times at which such awards are to be made, the size of such awards, the form of payment, and all other conditions of such awards, including any restrictions, deferral periods or performance requirements. The terms of the Other Stock-Based Awards will be subject to such rules and regulations as the Compensation Committee determines. Any award under the Stock Plan may provide that the participant has the right to receive currently or on a deferred basis dividends or dividend equivalents or other cash payments in addition to or in lieu of such awards, all as the Compensation Committee determines. If the Compensation Committee determines that any dividend or other distribution (whether in the form of cash, securities or other property), recapitalization, stock split, reverse stock split reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities of the Company, issuance of warrants or other rights to purchase securities of the Company, or other similar corporate transaction or event affects the Common Stock such that an adjustment is appropriate to prevent dilution or enlargement of the benefits intended under the Stock Plan, then the Compensation Committee has discretion to (i) adjust the number and kind of shares that may be the subject of future awards under the Stock Plan, (ii) make equitable adjustment in the number and kind of shares (or other securities or property) subject to outstanding awards and the respective grant or exercise prices thereof and (iii) if appropriate, provide for the payment of cash to a participant. 52 The Stock Plan may be amended or terminated at any time by the Board of Directors, except that no amendment may be made without stockholder approval if such approval is determined by the Compensation Committee to be necessary or advisable in order to comply with any tax or regulatory requirement, including any approval requirement that is necessary to qualify awards as "performance-based" compensation under Section 162(m) of the Code. The grant of awards under the Stock Plan is entirely in the discretion of the Compensation Committee. The Compensation Committee has not yet made a determination as to the awards to be granted under the Stock Plan. FEDERAL INCOME TAX CONSEQUENCES An optionee will not recognize any income for federal income tax purposes upon the grant of a non-qualified stock option, nor will the Company normally realize any deduction for federal income tax purposes at the time of grant. When an optionee exercises a non-qualified option, the difference between the exercise price and any higher fair market value of the Common Stock on the date of exercise will be ordinary income to the optionee (subject to withholding) and will generally be allowed as a deduction at that time for federal income tax purposes to the Company. Any gain or loss realized by an optionee on disposition of the Common Stock acquired upon exercise of a non-qualified option will generally be capital gain or loss to the optionee, long-term or short-term depending on the holding period, and will not result in any additional federal income tax consequences to the Company. The optionee's basis in the Common Stock for determining gain or loss on the disposition will be the fair market value of the Common Stock determined generally at the time of exercise. When an optionee exercises an incentive stock option while employed by the Company or a subsidiary or within three months (one year for disability) after termination of employment by reason of retirement or death, no ordinary income will be recognized by the optionee at that time, but the excess (if any) of the fair market value of the Common Stock acquired upon such exercise over the option price will be an adjustment to taxable income for purposes of the federal alternative minimum tax applicable to individuals. If the Common Stock acquired upon exercise of the incentive stock option is not disposed of prior to the expiration of one year after the date of acquisition and two years after the date of grant of the option, the excess (if any) of the sale proceeds over the aggregate option exercise price of such Common Stock will be long-term capital gain, but the Company will not be entitled to any tax deduction with respect to such gain. Generally, if the Common Stock is disposed of prior to the expiration of such periods (a "Disqualifying Disposition"), the excess of the fair market value of such Common Stock at the time of exercise over the aggregate option exercise price (but not more than the gain on the disposition if the disposition is a transaction on which a loss, if realized, would be recognized) will be ordinary income at the time of such Disqualifying Disposition (and the Company will generally be entitled to a federal income tax deduction in a like amount). Any gain realized by the optionee as the result of a Disqualifying Disposition that exceeds the amount treated as ordinary income will be capital in nature, long-term or short-term depending on the holding period. If an incentive stock option is exercised more than three months (one year for disability) after termination of employment, the federal income tax consequences are the same as described above for non-qualified stock options. If the exercise price of an option is paid by the surrender of previously owned shares, the basis of the previously owned shares carries over to the shares received in replacement therefor. If the option is a non-qualified option, the income recognized on exercise is added to the basis. If the option is an incentive stock option, the optionee will recognize gain if the shares surrendered were acquired through the exercise of an incentive stock option and have not been held for the applicable holding period. This gain will be added to the basis of the shares received in replacement of the previously owned shares. Awards that are granted, accelerated or enhanced upon the occurrence of a change of control may give rise, in whole or in part, to excess parachute payments within the meaning of Section 280G of the Code to the extent that such payments, when aggregated with other payments subject to Section 280G, 53 exceed the limitations contained therein. Such excess parachute payments will be nondeductible to the Company and subject the recipient of the payments to a 20% excise tax. If permitted by the Compensation Committee, at any time that a participant is required to pay to the Company the amount required to be withheld under applicable tax laws in connection with the exercise of a stock option or the issuance of Common Stock, the participant may elect to have the Company withhold from the shares that the participant would otherwise receive shares of Common Stock having a value equal to the amount to be withheld. This election must be made prior to the date on which the amount of tax to be withheld is determined. The foregoing discussion summarizes the federal income tax consequences of stock options that may be granted under the Company Adjusted Stock Award Plan, the Directors Plan and the Stock Plan, based on current provisions of the Code, which are subject to change. This summary does not cover any foreign, state or local tax consequences or participation in such plans. RETIREMENT BENEFIT PROGRAM The Company has adopted a retirement benefit program. Under the program, each participant, including Executive Officers, is entitled to benefits based upon the sum of his starting account balance, annual benefit credits and annual interest credits allocated to his "account." The starting account balance is equal to the value of the participant's accrued benefit under FTX's plan at the time of the FTX Stockholder Distribution. The annual benefit credit consists of two parts: (1) 4% of the participant's earnings for the year in excess of the social security wage base for the year; and (2) a percentage of the participant's total earnings for the year. The percentage of total earnings is determined as follows: - 15%, if as of January 1, 1997, the participant's age plus service totaled 65 or more, he was at least 50 years old and had at least 10 years of service; - 10%, if as of January 1, 1997, the participant's age plus service totaled 55 or more, he had at least 10 years of service, and he did not meet the requirements for a 15% allocation; - 7%, if as of January 1, 1997, the participant's age plus service totaled 45 or more, he had at least 5 years of service, and he did not meet the requirements for a greater allocation; - 4%, if the participant did not meet the requirements for a greater allocation. The annual interest credit is equal to the account balance at the end of the prior year multiplied by the annual yield on 10-year U.S. Treasury securities on the last day of the preceding year. Interest credits stop at the end of the year in which the participant reaches age 60. Upon retirement a participant's account balance is payable either in a lump sum or an annuity, as selected by the participant. A participant's "earnings" are comprised of annual base salary, plus a percentage of certain bonuses, which percentage is the lesser of 50% or the percentage of the bonus not deferred. Years of service include not only years with the Company but also any years with FTX and FRP and any of their predecessors. Benefits payable to a participant under the FTX retirement benefit program under which participants in the Company's plan have previously participated were at one time determined primarily by such individual's final average compensation and years of service. The Company's retirement benefit program does not incorporate this design. However, if a participant's age plus service equaled 65 or more as of January 1, 1997, and as of that date the participant had both attained age 50 and had at least 10 years of service, the participant is "grandfathered" into a benefit of no less than the benefit under the former FTX retirement benefit formula based on years of service and final average earnings. Currently no Executive Officers are participating in this program. 54 PRINCIPAL STOCKHOLDERS None of the individuals serving as a Director or Executive Officer of the Company currently owns any shares of Common Stock, all of which currently are owned by FRP. The Directors and Executive Officers will receive shares of Common Stock in respect of shares of FTX Common Stock and FRP units of partnership interest held by them at the time of the Distributions. In addition, the Company has agreed to issue to the Directors and Executive Officers and other holders of stock options, stock appreciation rights and other similar stock-based awards granted under certain FTX benefit plans options to purchase Common Stock under the Company Adjusted Stock Award Plan described above. The following table sets forth certain information regarding the number of shares of Common Stock expected to be beneficially owned by (i) each of the Directors and Executive Officers; (ii) all Directors and Executive Officers as a group and (iii) each person expected to own more than 5% of the outstanding Common Stock, immediately after the Distributions, determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934 (the "1934 Act"). In calculating the number of shares, it is assumed that each share of FTX Common Stock converted in the Merger will entitle the holder to receive 0.2123 of a share of Common Stock. Except as otherwise noted, each of the individuals will have sole voting and investment power with respect to such Common Stock.
NUMBER OF SHARES ANTICIPATED TO BE BENEFICIALLY PERCENTAGE NAME OWNED(1) OF CLASS - ------------------------------------------------------------------------------ ----------------- ----------- James R. Moffett.............................................................. 77,501(2)(3) * Rene L. Latiolais............................................................. 43,241(2)(4) * Richard C. Adkerson........................................................... 9,985(2)(5) * Robert M. Wohleber............................................................ 2,684 * John G. Amato................................................................. 41,468(6) * J. Terrell Brown.............................................................. -- -- Thomas D. Clark, Jr........................................................... -- -- B.M. Rankin, Jr. ............................................................. 36,182(7) * All Directors and Executive Officers as a Group............................... 211,061(8) 2.0% Wellington Management Company, L.L.P. ........................................ 1,307,680 12.6% 75 State Street Boston, Massachusetts 02109 Merrill Lynch & Co., Inc. .................................................... 797,413 7.7% World Financial Center, North Tower 250 Vesey Street New York, New York 10281
- ------------------------ * Less than 1%. (1) Includes shares that would be acquired within sixty days after October 31, 1997, upon the exercise of outstanding FTX stock options or Company stock options to be granted pursuant to the Company Adjusted Stock Option Plan as follows: Mr. Moffett, 18,840 shares; Mr. Latiolais, 30,827 shares; Mr. Adkerson, 7,678 shares; Mr. Wohleber, 2,684 shares; Mr. Amato, 14,455 shares; Mr. Rankin, 2,822 shares; all Directors and Executive Officers as a group, 74,484 shares. (2) Includes shares held by the trustee under FTX's Employee Capital Accumulation Program as of October 31, 1997 as follows: Mr. Moffett, 917 shares; Mr. Latiolais, 639 shares and Mr. Adkerson, 178 shares. (3) Includes 9,614 shares held for the benefit of three trusts with respect to which Mr. Moffett, as co-trustee, shares voting and investment power, but as to which he disclaims beneficial ownership. (4) Includes 58 shares held by custodian of reinvestment plan for the benefit of Mr. Latiolais. 55 (5) Includes 52 shares held in a retirement trust for the benefit of Mr. Adkerson. (6) Includes 54 shares held in a retirement trust for the benefit of Mr. Amato; 3 shares held in a retirement trust for the benefit of Mr. Amato's wife; 617 shares held for trusts with respect to which Mr. Amato, as trustee, has sole voting and investment power but as to which he disclaims beneficial ownership and 17,151 shares held for the benefit of trusts with respect to which Mr. Amato, as co-trustee, shares voting and investment power but as to which he disclaims beneficial ownership. (7) Includes 12,281 shares with respect to which Mr. Rankin has sole voting and investment power under a power of attorney but as to which he disclaims beneficial ownership. (8) Includes the 41,544 shares discussed in footnotes (2) through (7) above. ------------------------ CERTAIN TRANSACTIONS FRP and the Company are parties to the Distribution Agreement and the Employee Benefits Agreement, which are discussed elsewhere in this Prospectus. See "The Merger and the Distributions" and "Management--Employee Benefits Agreement." At the time these agreements were negotiated and executed, the Company was a wholly-owned subsidiary of FRP. Prior to 1996, the Company received certain management and administrative services from FTX. Beginning in 1996, FMS began providing these services under a Management Services Agreement that was negotiated and executed when FMS was an affiliate of FTX and FRP, and the Company was a wholly-owned subsidiary of FRP. Subsequent to the Distributions, FMS will be 25% owned by the Company. Pursuant to these arrangements, the Company paid FTX $8.8 million and $15.9 million (including $7.0 million for stock appreciation right costs) for fiscal 1994 and 1995, respectively, and in 1996 paid FMS and FTX $6.7 million and $2.0 million, respectively. IMC-Agrico and the Company are parties to the Sulphur Supply Agreement. At the time this agreement was negotiated and executed, the Company was a wholly-owned subsidiary of FRP, which currently owns a 41.45% interest in IMC-Agrico. For fiscal 1994, 1995 and 1996, payments from IMC-Agrico represented 58%, 54% and 54% of the Company's total revenues, respectively. Prior to January 1, 1997, the Main Pass operations were managed by Freeport-McMoRan Oil and Gas Company ("FMOG"), an affiliate of FRP and FTX. For fiscal 1994, 1995 and 1996, the Company paid FMOG $0.8 million, $0.9 million and $1.0 million, respectively, for management services provided pursuant to this arrangement. Since January 1, 1997, the Main Pass operations have been managed by FRP and, after the Distributions, will be managed by the Company. Management believes that the terms of all of these agreements are, and expects that the terms of all future agreements with affiliates will be, on terms no less favorable to the Company than those that could be obtained in an arm's-length transaction with an unaffiliated party. 56 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock, $.01 par value per share, and 50,000,000 shares of preferred stock, $.01 par value per share (the "Preferred Stock"). Upon completion of the Distributions, approximately 10,346,578 shares of Common Stock will be outstanding, and no shares of Preferred Stock will be outstanding. Prior to the Distributions, there has been no public market for the Common Stock. Although application has been made to have the Common Stock listed on the NYSE, there can be no assurance that a market for the Common Stock will develop or, if developed, will be sustained. See "Risk Factors--Absence of Trading Market." The following summary description of the capital stock of the Company is qualified in its entirety by reference to the Company's Certificate of Incorporation ("Certificate") and By-laws, copies of which are filed as exhibits to the Registration Statement of which this Prospectus forms a part. COMMON STOCK Each holder of Common Stock is entitled to one vote for each share of Common Stock held of record on all matters as to which stockholders are entitled to vote and stockholders may not cumulate votes for the election of directors. Subject to any preferences accorded to the holders of the Preferred Stock, if and when issued by the Board of Directors, holders of Common Stock are entitled to dividends at such times and in such amounts as the Board of Directors may determine. The Company does not intend to pay dividends for the foreseeable future. See "Dividend Policy." Upon the dissolution, liquidation or winding up of the Company, after payment of debts, expenses and the liquidation preference plus any accrued dividends on any outstanding shares of Preferred Stock, the holders of Common Stock will be entitled to receive all remaining assets of the Company ratably in proportion to the number of shares held by them. Holders of Common Stock have no preemptive, subscription or conversion rights and are not subject to further calls or assessments, or rights of redemption by the Company. The shares of Common Stock being distributed in the Distributions will be validly issued, fully paid and nonassessable. PREFERRED STOCK The Company's Board of Directors has the authority, without approval of the stockholders, to issue shares of Preferred Stock in one or more series and to fix the number of shares and rights, preferences and limitations of each series. Among the specific matters that may be determined by the Board of Directors are the dividend rights, the redemption price, if any, the terms of a sinking fund, if any, the amount payable in the event of any voluntary liquidation, dissolution or winding up of the affairs of the Company, conversion rights, if any, and voting powers, if any. The existence of authorized but unissued Common Stock and undesignated Preferred Stock may enable the Board of Directors to make more difficult or to discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise. If, in the exercise of its fiduciary responsibilities, the Board of Directors were to determine that a takeover proposal was not in the Company's best interest, such shares could be issued by the Board of Directors without stockholder approval in one or more transactions that might prevent or make more difficult or costly the completion of the takeover transaction by diluting the voting or other rights of the proposed acquiror or insurgent stockholder group, by creating a substantial voting block in institutional or other hands that might undertake to support the position of the incumbent Board of Directors, by effecting an acquisition that might complicate or preclude the takeover, or otherwise. The Company's Certificate grants the Board of Directors broad power to establish the rights and preferences of the authorized and unissued Preferred Stock, one or more series of which could be issued entitling holders (i) to vote separately as a class on any proposed merger or consolidation, (ii) to cast a proportionately larger vote together with the Common Stock on any such transaction or for all purposes, (iii) to elect directors having terms of office or voting rights greater than those of other directors, (iv) to convert Preferred Stock into a greater number of shares of Common Stock or other securities, (v) to demand redemption at a specified price under prescribed circumstances related to a change of control or (vi) to exercise other rights that could have the effect of 57 impeding a takeover. The issuance of shares of Preferred Stock pursuant to the Board of Directors' authority described above may adversely effect the rights of holders of the Common Stock. In addition, certain other charter provisions that are described below may have the effect, either alone, in combination with each other, or combined with the existence of authorized but unissued capital stock, of making more difficult or discouraging an acquisition of the Company deemed undesirable by the Board of Directors. CERTAIN CHARTER AND BY-LAW PROVISIONS CLASSIFIED BOARD OF DIRECTORS The Company's Certificate and By-laws divide the members of the Board of Directors into three classes, with each class to be as nearly equal in number of directors as possible, serving staggered three-year terms. SIZE OF THE BOARD OF DIRECTORS; REMOVAL OF DIRECTORS; FILING OF VACANCIES ON THE BOARD OF DIRECTORS The Company's Certificate and By-laws provide that the number of directors shall be fixed from time to time by the Board of Directors, but shall not be fewer than the number required by Delaware law. Under the Company's Certificate, a vote of 80% of the outstanding shares of capital stock entitled to vote generally in an election of directors (the "Voting Stock") is required to remove a director, and a director may only be so removed for cause involving fraud or a violation of the duty of loyalty as determined by a final judgment of a court of competent jurisdiction. The Certificate also provides that a newly created directorship resulting from an increase in the number of directors may only be filled by the Board of Directors and any vacancies on the Board of Directors resulting from death, resignation, removal or other cause may be filled only by the affirmative vote of both (a) a majority of the remaining directors then in office and (b) a majority of all Continuing Directors (defined below), voting as a separate group. In addition, these provisions specify that any director elected to fill a vacancy on the Board of Directors will serve for the remainder of the full term of the class of directors in which the new directorship was created or in which the vacancy occurred. STOCKHOLDER ACTION BY UNANIMOUS CONSENT Under Delaware law, unless a corporation's certificate of incorporation specifies otherwise, any action that could be taken by its stockholders at an annual or special meeting may be taken, instead, without a meeting and without notice to or a vote of other stockholders, if a consent in writing is signed by holders of outstanding stock having voting power that would be sufficient to take such action at a meeting at which all outstanding shares were present and voted. The Company's Certificate provides that stockholder action may be taken only at an annual or special meeting of stockholders. As a result, the Company's stockholders may not act upon any matter except at a duly called meeting. AMENDMENT OF THE BY-LAWS Under Delaware law, the power to adopt, amend or repeal by-laws is conferred upon the stockholders; however, a corporation may in its certificate of incorporation also confer upon the board of directors the power to adopt, amend or repeal its By-laws. The Company's Certificate and By-laws grant the Board of Directors the power to adopt, amend and repeal the By-laws at any regular or special meeting of the Board of Directors but only upon the affirmative vote of both (i) a majority of the directors then in office and (ii) a majority of the Continuing Directors (defined below), voting as a separate group. The Company's stockholders may adopt, amend or repeal the By-laws but only at any regular or special meeting of stockholders by an affirmative vote of 80% of the Voting Stock. 58 ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND STOCKHOLDER BUSINESS The Company's By-laws permit stockholders to nominate a person for election as a director or bring other matters before a stockholders' meeting only if such stockholder has been, for at least one year, the beneficial owner of at least 1% of the Voting Stock and only if written notice of such intent to nominate or bring business before a meeting is given as described below. A stockholder intending to nominate a person for election as a director or to propose other matters at a stockholders' meeting must furnish notice of such intention to the Company's Secretary not more than 270 days and not less than 60 days in advance of the first anniversary of the preceding year's annual stockholders' meeting, subject to certain exceptions applicable principally to special meetings. The notice must, among other things, state the name, age and address of the stockholder submitting the notice and any persons acting in concert with such stockholder, the number of shares of Voting Stock held by the stockholder and the dates such stock was acquired, and must include a representation by such stockholder that he or she is a holder of record of the Company's capital stock and intends to appear at the meeting in person and make the nomination or bring up the specified matter. In the case of nominations for directors, the notice must also state (i) the name, age, address and principal occupation of each nominee, (ii) a description of all arrangements between the nominating stockholder and each nominee, (iii) other information required to be included in a proxy statement pursuant to the proxy rules of the Commission and (iv) the consent of each nominee to serve as a director of the Company if elected and an affidavit of each such nominee certifying that he meets the qualifications necessary to serve as a director of the Company. In the case of other proposed business, the notice must set forth a brief description of the business, the reasons for conducting such business at the meeting and any material interest of the stockholder therein. The Chairman of the stockholders' meeting will have the power to disregard any nomination or other matter that fails to comply with these procedures. In addition, the Company's Secretary may require any stockholders submitting a notice of intent to make a nomination or bring other business before a stockholders' meeting to furnish such documentary information as may be necessary to determine that such stockholder has been for at least one year the beneficial owner of at least 1% of the Voting Stock. With respect to any proposal by a stockholder to bring before a meeting any matter other than the nomination of directors, the Company's By-laws provide that the Company may disregard proposals that (i) are substantially duplicative of a prior-received proposal to be voted upon at an upcoming meeting, (ii) deal with substantially the same subject matter as a prior proposal that was voted upon within the preceding five years and that failed to receive affirmative votes in excess of certain specified levels, which range, depending on the circumstances, between 3% and 10%, or (iii) in the judgment of the Board of Directors, are not proper subjects for action by stockholders under Delaware law. AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION Under Delaware law, unless the certificate of incorporation specifies otherwise, a corporation's certificate of incorporation may be amended by the affirmative vote of the majority of the stockholders. The Company's Certificate requires the affirmative vote of 80% of the Voting Stock to amend, alter or repeal certain provisions of the Certificate regarding (i) stockholder unanimous written consents, (ii) the classification, filling of vacancies and removal of members of the Board of Directors, (iii) the limitation of liability of directors, (iv) business combinations and (v) amendments to the Certificate and the By-laws. SPECIAL MEETINGS OF THE STOCKHOLDERS The Company's By-laws provide that special meetings of stockholders may be called only by the Chairman of the Board of Directors, the Company's president or a majority of the Board of Directors. Stockholders do not have the power to call a special meeting. 59 BUSINESS COMBINATIONS Delaware law provides that, unless otherwise provided in a corporation's certificate of incorporation, a merger, sale of substantially all of the assets or dissolution of a company requires the approval of the holders of a majority of the outstanding capital stock. The Company's Certificate does not alter this vote requirement generally, but provides that, if one of these transactions or certain issuances, reclassifications or other transactions affecting the Company's capital stock involves an Interested Stockholder (defined below), the transaction must be approved (i) by a majority of both the directors then in office and a majority of the Continuing Directors (defined below), voting as a separate group and (ii) by the affirmative vote of (A) the holders of 80% of the Voting Stock, voting together as a single class, and (B) 75% of the Voting Stock other than Voting Stock beneficially owned by the Interested Stockholder. An Interested Stockholder is any person who (i) beneficially owns 15% or more of the Voting Stock or (ii) is an affiliate of the Company and, at any time within two years prior to the date in question, beneficially owned 15% or more of the then outstanding Voting Stock, other than the Company or its subsidiaries, or any person owning any shares of the capital stock of the Company as of the date of filing of the Company's Certificate and any person whose beneficial ownership of any capital of the Company arises solely as a result of a trusteeship or a custodial relationship with any employee stock ownership or other employee benefit plan of the Company. A Continuing Director is any member of the Board of Directors who is not an Interested Stockholder or an affiliate thereof and (i) was a director prior to the time the Interested Stockholder became an Interested Stockholder or (ii) was recommended or elected by a majority of the Continuing Directors at a meeting at which a quorum consisting of a majority of the Continuing Directors was present. In the absence of an Interested Stockholder, the Continuing Directors shall mean all the directors then in office. This additional voting requirement does not apply if the transaction has been approved by a majority of the Continuing Directors, or if all of the following conditions have been met: (i) the aggregate amount of consideration received per share by the holders meet certain "fair price" criteria, (ii) prior to the consummation of the transaction (a) there has been no failure to declare or pay dividends on any outstanding Preferred Stock or Common Stock, (b) the Interested Stockholder has not received the benefits (except proportionately as a stockholder) of any loans, advances or other financial assistance or tax advantages provided by the Company, and (c) the Interested Stockholder has not caused any material change in the Company's equity capital structure, and (iii) the Interested Stockholder has not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction that resulted in such Interested Stockholder becoming an Interested Stockholder or as a result of a pro rata stock dividend. The Company is also subject to Section 203 of the DGCL, which imposes a three-year moratorium on the ability of Delaware corporations to engage in a wide range of specified transactions with any interested stockholder, defined to include, among others, any person other than such corporation and any of its majority-owned subsidiaries who own 15% or more of any class or series of stock entitled to vote generally in the election of directors, unless, among other exceptions, the transaction is approved by (i) the Board of Directors prior to the date the interested stockholder obtained such status, or (ii) the holders of two-thirds of the outstanding shares of each class or series of stock entitled to vote generally in the election of directors, not including those shares owned by the interested stockholder. The provisions described above may tend to deter any potential unfriendly offers or other efforts to obtain control of the Company that are not approved by the Board of Directors and thereby deprive the stockholders of opportunities to sell shares of Common Stock at prices higher than the prevailing market price. On the other hand, these provisions will tend to assure continuity of management and corporate policies and to induce any person seeking control of the Company or a business combination with the Company to negotiate on terms acceptable to the then elected Board of Directors. 60 RIGHTS AGREEMENT The Company plans to adopt the Rights Agreement at or prior to the Distributions, pursuant to which each share of Common Stock will include an associated preferred share purchase right (a "Right"). Each Right will entitle the registered holder to purchase from the Company one one-hundredth of a share of Participating Preferred Stock, $.01 par value, for an exercise price to be determined by the Board of Directors (the "Exercise Price"), subject to adjustment. The Rights will be represented by the Common Stock certificates and will be exercisable only after an entity acquires 15% or more of the outstanding Common Stock or commences a tender offer that will result in the entity owning 15% or more of the Common Stock. After an entity acquires 15% or more of the outstanding Common Stock, each Right would then entitle the holder (other than the acquiring entity) to purchase, at the Exercise Price, the number of shares of Common Stock or other securities of the Company (or, in certain situations, the acquiring entity) having a market value of twice the Right's Exercise Price (the "Flip-in Date"). The Rights will expire on the tenth anniversary of the date it is entered into unless earlier redeemed by the Company, as described below. Until a Right is exercised, the holder, as such, will have no rights as a stockholder of the Company, including without limitation, the right to vote or to receive dividends. The Board of Directors of the Company may, at its option, at any time prior to the close of business on the Flip-in Date, redeem all (but not less than all) the then outstanding Rights at a price to be determined by the Board of Directors (the "Redemption Price"), as provided in the Rights Agreement. Immediately upon the action of the Board of Directors of the Company electing to redeem the Rights, without any further action and without any notice, the right to exercise the Rights will terminate and each Right will thereafter represent only the right to receive the Redemption Price in cash for each Right so held. The Rights will not prevent a takeover of the Company. However, the Rights may cause substantial dilution to a person or group that acquires 15% or more of the Common Stock unless the Rights are first redeemed by the Board of Directors of the Company. The Rights are intended to encourage any person desiring to acquire a controlling interest in the Company to do so through a transaction negotiated with the Company's Board of Directors rather than through a hostile takeover attempt. The Rights are intended to assure that any acquisition of control of the Company will be subject to review by the Board to take into account, among other things, the interests of all the Company's stockholders. TRANSFER AGENT The transfer agent and registrar for the Common Stock is ChaseMelon Shareholder Services, L.L.C. LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION In accordance with the DGCL, the Company's Certificate contains provisions eliminating the personal liability of the directors to the Company and its stockholders for monetary damages for breaches of their fiduciary duties as directors to the fullest extent permitted by Delaware law. By virtue of these provisions, under current Delaware law, a director of the Company will not be personally liable for monetary damages for a breach of his or her fiduciary duty except for liability for (a) a breach of his or her duty of loyalty to the Company or to its stockholders, (b) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (c) dividends or stock repurchases or redemptions that are unlawful under Delaware law and (d) any transaction from which he or she receives an improper personal benefit. In addition, the Certificate provides that if Delaware law is amended to authorize the further elimination or limitation of the liability of a director, then the liability of the directors shall be eliminated or limited to the fullest extent permitted by Delaware law, as amended. These provisions pertain only to breaches of duty by directors as directors and not in any other corporate capacity, such as officers, and limit liability only for breaches of fiduciary duties under Delaware corporate law and not for violations of other laws such as the federal securities laws. 61 As a result of the inclusion of such provisions, stockholders may be unable to recover monetary damages against directors for actions taken by them that constitute negligence or gross negligence or that are in violation of their fiduciary duties, even though it may be possible to obtain injunctive or other equitable relief with respect to such actions. If equitable remedies are found not to be available to stockholders in any particular case, stockholders may not have any effective remedy against the challenged conduct. These provisions may have the effect of reducing the likelihood of derivative litigation against directors that might have benefitted the Company. The Company believes that such provisions are necessary to attract and retain qualified individuals to serve as directors. In addition, such provisions will allow directors to perform their duties in good faith without concern for the application of monetary liability on a retrospective basis in the event that a court determines their conduct to have been negligent or grossly negligent. The Company's By-laws require the Company to indemnify its officers and directors against expenses and costs, judgments, settlements and fines incurred in the defense of any claim, including any claim brought by or in the right of the Company, to which they were made parties by reason of being or having been officers or directors. 62 COMPARISON OF THE RIGHTS OF STOCKHOLDERS The following is a summary of material differences between the rights of holders of the Company's Common Stock and the rights of holders of FTX Common Stock. As each of Freeport Sulphur and FTX is organized under the laws of Delaware, these differences arise principally from provisions of the certificate of incorporation and by-laws of each of Freeport Sulphur and FTX. See "Description of Capital Stock." The following summaries do not purport to be complete statements of the rights of Freeport Sulphur stockholders under the Freeport Sulphur Certificate and By-laws as compared with the rights of FTX stockholders under the FTX Restated Certificate of Incorporation, as amended (the "FTX Certificate"), and Amended and Restated By-laws (the "FTX By-laws") or a complete description of the specific provisions referred to herein. The identification of specific differences is not meant to indicate that other equal or more significant differences do not exist. These summaries are qualified in their entirety by reference to the DGCL and governing corporate instruments of Freeport Sulphur and FTX, to which stockholders are referred. DIRECTORS Freeport Sulphur directors may be removed at any time by the vote of 80% of the stockholders entitled to vote for such director, but only for cause. Vacancies or newly created directorships in the Freeport Sulphur Board of Directors may be filled for the unexpired term only by a majority vote of both the remaining directors and of the Continuing Directors, defined above. The FTX Certificate and FTX By-laws do not provide for removal of directors for cause, however, under the DGCL, where a corporation's board is classified, stockholders may remove directors only for cause. The FTX Certificate provides that a newly created directorship resulting from any increase in the number of directors and any vacancies on the FTX Board resulting from death, resignation, disqualification, removal or other reason may be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the FTX Board. RIGHTS AGREEMENT Freeport Sulphur has adopted the Rights Agreement as discussed above. Subject to the terms of the Rights Agreement, if an entity acquires 15% or more of the outstanding Common Stock, each holder of a Right (other than the acquiring entity) would be entitled to purchase a number of shares of Common Stock or other securities of Freeport Sulphur (or, in certain situations, the acquiring entity) having a market value of twice the Right's exercise price. FTX does not have a stockholder rights plan. BUSINESS COMBINATIONS Delaware law provides that, unless otherwise provided in a corporation's certificate of incorporation, a merger, sale of substantially all of the assets or dissolution of a company requires the approval of the holders of a majority of the outstanding capital stock. Freeport Sulphur's Certificate generally provides that if one of these transactions, or other reclassifications or transactions affecting Freeport Sulphur's capital stock, involves a party owning in excess of 15% of Freeport Sulphur's outstanding Common Stock, the transaction must be approved (i) by a majority of the directors then in office and a majority of the Continuing Directors and (ii) by the affirmative vote of 75% of the outstanding Common Stock entitled to vote, other than the stock held by the acquiring party. This additional voting requirement does not apply if the transaction has been approved by a majority of the Continuing Directors, or if certain other conditions discussed above have been met. See "Description of Capital Stock--Business Combinations." The FTX Certificate has similar provisions requiring that certain transactions involving holders of 20% or more of the FTX Common Stock be approved by the affirmative vote of the holders of at least 85% of the outstanding shares of FTX Common Stock entitled to vote. 63 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Distributions, the Company will have 10,346,578 shares of Common Stock outstanding, all of which will be owned by the FTX stockholders and the FRP public unitholders. All such shares will be freely transferable without restriction under the 1933 Act except by persons who are deemed to be an "affiliate" of the Company as defined in Rule 144 under the 1933 Act or by persons who may be deemed to be an "affiliate" of FTX or IGL as defined in paragraphs (c) and (d) of Rule 145 under the 1933 Act. Under the Company Adjusted Stock Award Plan, the Company will issue options to purchase Common Stock in substitution for certain options to purchase FTX Common Stock outstanding under various FTX employee benefit plans at the time of the Merger. See "Management--The Employee Benefits Agreement." In addition to such stock options, the Company may grant additional options to purchase Common Stock pursuant to the Directors Plan and Stock Plan subject to certain restrictions. See "Management--Stock Option Plans." The Company currently expects to file a registration statement under the 1933 Act to register shares reserved for issuance under the Stock Option Plans discussed above. Shares issued pursuant to the Company's Stock Option Plans after the effective date of such Registration Statement (other than shares issued to "affiliates" as such term is defined under the 1933 Act) generally will be freely tradeable without restriction or further registration under the 1933 Act. Pursuant to Rules 144 and 145 under the 1933 Act, the sale of Common Stock held by affiliates of the Company, former affiliates of FTX or affiliates of IGL will be subject to certain restrictions. Such persons may sell Common Stock under such rules only if (i) the Company has filed all reports required to be filed by Section 13 or 15(d) of the 1934 Act during the preceding twelve months, (ii) such Common Stock is sold in a "broker's transaction" which is defined under the 1933 Act as a sale in which (a) the seller does not solicit or arrange for orders to buy the securities, (b) the seller does not make any payment other than to the broker, (c) the broker does no more than execute the order and receive a normal commission and (d) the broker does not solicit customer orders to buy the securities, and (iii) such sale and all other sales made by such person within the preceding three months do not exceed the greater of (x) one percent of the outstanding shares of Common Stock or (y) the average weekly trading volume of Common Stock on the New York Stock Exchange during the four-week period preceding the sale. Any former affiliate of FTX who is not an affiliate of IGL or the Company after the Merger may sell Common Stock without restriction following the first anniversary of the Effective Time of the Merger. LEGAL MATTERS The legality of the shares of Common Stock offered hereby is being passed upon for the Company by Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., New Orleans, Louisiana. Miller & Chevalier, Chartered, special counsel to FTX will pass upon certain federal income tax consequences. EXPERTS The financial statements of Freeport-McMoRan Sulphur Inc., the FRP Transferred Businesses and the IGL Transferred Businesses appearing in this Prospectus and Registration Statement to the extent and for the periods indicated have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. The information included in this Prospectus regarding the gross quantities of reserves of the oil and gas properties described in this Prospectus and the future cash flows and the present values thereof from such reserves is based on estimates of such reserves and present values prepared by Ryder Scott Company, Petroleum Engineers in reliance upon the authority of such firm as experts in petroleum engineering. 64 AVAILABLE INFORMATION Following the Distributions, the Company will be subject to the information requirements of the 1934 Act and in accordance therewith will file reports, proxy statements and other information with the Commission. The reports, proxy statements and other information to be filed by the Company with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the Commission's Regional Offices, including the following: Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such information may be obtained by mail at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W. Street, N.W., Washington, D.C. 20549 or accessed electronically on the Commission's Web site at (http://www.sec.gov). The Company has applied for listing of the Common Stock on the NYSE upon notice of issuance and reports and other information concerning the Company can also be inspected at the NYSE offices, 20 Broad Street, New York, New York, 10005. The Company intends to furnish holders of Common Stock with annual reports containing consolidated financial statements prepared in accordance with United States generally accepted accounting principles and audited and reported on, with an opinion expressed, by an independent public accounting firm, as well as quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. The Company has filed with the Commission a Registration Statement on Form S-1 under the 1933 Act with respect to the Common Stock being distributed pursuant to this Prospectus. This Prospectus does not contain all information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Statements contained herein concerning the provisions of any documents are not necessarily complete and, in each instance, reference is made to the copy of such document filed or incorporated by reference as an exhibit to the Registration Statement. The Registration Statement and the related exhibits filed by the Company with the Commission may be inspected and copied at the public reference facilities of the Commission listed above. 65 INDEX TO FINANCIAL STATEMENTS
PAGE --------- FREEPORT-MCMORAN SULPHUR INC. Report of Independent Public Accountants................................................................. F-2 Balance Sheet as of August 26, 1997...................................................................... F-3 Note to Balance Sheet.................................................................................... F-3 FRP TRANSFERRED BUSINESSES Report of Independent Public Accountants................................................................. F-4 Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996 and 1995....................... F-5 Statements of Operations for the nine months ended September 30, 1997 and 1996 (unaudited) and the years ended December 31, 1996, 1995 and 1994................................................................. F-6 Statements of Cash Flow for the nine months ended September 30, 1997 and 1996 (unaudited) and the years ended December 31, 1996, 1995 and 1994................................................................. F-7 Statements of Changes in Net Assets to be Transferred for the nine months ended September 30, 1997 and 1996 (unaudited) and the years ended December 31, 1996, 1995 and 1994.................................. F-8 Notes to Financial Statements............................................................................ F-9 PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) OF FREEPORT-MCMORAN SULPHUR INC. Pro Forma Condensed Balance Sheet as of September 30, 1997............................................... F-21 Pro Forma Statement of Operations for the nine months ended September 30, 1997........................... F-22 Pro Forma Statement of Income for the year ended December 31, 1996....................................... F-23 Notes to Pro Forma Financial Statements.................................................................. F-24 IGL TRANSFERRED BUSINESSES Report of Independent Public Accountants................................................................. F-27 Statements of Gross Sulphur and Oil Revenues and Direct Operating Expenses for the nine months ended September 30, 1997 (unaudited) and for the year ended December 31, 1996................................ F-28 Notes to Financial Statements............................................................................ F-29
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Freeport-McMoRan Sulphur Inc.: We have audited the accompanying balance sheet of Freeport-McMoRan Sulphur Inc. (a Delaware corporation) as of August 26, 1997. This balance sheet is the responsibility of the Company's management. Our responsibility is to express an opinion on this balance sheet based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Freeport-McMoRan Sulphur Inc. as of August 26, 1997 in conformity with generally accepted accounting principles. Arthur Andersen LLP New Orleans, Louisiana, September 16, 1997 F-2 FREEPORT-MCMORAN SULPHUR INC. BALANCE SHEET AUGUST 26, 1997 Cash.............................................................. $ -- --------- --------- Preferred stock, par value $0.01, 50,000,000 shares authorized, none issued or outstanding...................................... $ -- Common stock, par value $0.01, 100,000,000 shares authorized, 100 shares issued and outstanding................................... 1.00 Additional paid-in capital........................................ 99.00 Less subscription receivable...................................... (100.00) --------- Total stockholder's equity.................................... $ -- --------- ---------
The accompanying note is an integral part of this financial statement. NOTE TO BALANCE SHEET On August 26, 1997, IMC Global Inc. ("IGL") and Freeport-McMoRan Inc. ("FTX") executed a definitive agreement for FTX to merge with and into IGL (the "Merger"). The terms of the Merger provide that each share of FTX common stock will be converted into the right to receive (i) 0.90 of a share of IGL common stock, (ii) one-third of a warrant exercisable for a share of IGL common stock and (iii) a proportionate number of shares of a newly formed company (Freeport-McMoRan Sulphur Inc.) that would be held by FTX immediately prior to consummation of the Merger. Completion of the Merger is subject to, among other things, approval of the definitive merger agreement by the IGL and FTX shareholders and the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (early termination having been granted). Both companies expect the Merger to be completed by the end of 1997. On August 26, 1997, Freeport-McMoRan Resource Partners, Limited Partnership ("FRP") acquired 100 shares of Freeport-McMoRan Sulphur Inc. (the "Company") common stock, par value $0.01 per share for a $100.00 subscription. The Company, a Delaware corporation, was formed for the purpose of owning and operating the sulphur business and the 58.3% interest in the Main Pass sulphur and oil operations owned by FRP, together with the 25.0% interest in Main Pass owned by IGL, a joint venture partner with FRP, (collectively, the "Transferred Businesses"). The Company will operate the Transferred Businesses and assume substantially all liabilities related to the Transferred Businesses. Immediately prior to the Merger, IGL will transfer its 25% interest in Main Pass to FRP. FRP will then contribute the Transferred Businesses to the Company. FRP intends to distribute 100% of the Company's common stock to its public unitholders and to FTX, the administrative managing general partner and the owner of 51.6% of FRP's partnership interest. FTX will then distribute the shares of common stock that it receives from FRP to the FTX stockholders on a pro rata basis. Until such distributions, the Company will be wholly owned by FRP. FTX shall bear all of the costs and expenses incurred in connection with the distributions. Each share of the Company's common stock will also represent one right under the Company's Preferred Stock Purchase Rights Plan. The rights are not currently exercisable. Under certain circumstances the rights become exercisable for the Company's preferred stock or the stock of a person effecting certain reorganizations, mergers or combinations with the Company. F-3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Freeport-McMoRan Sulphur Inc.: We have audited the accompanying balance sheets of the FRP Transferred Businesses (Note 1) of Freeport-McMoRan Resource Partners, Limited Partnership ("FRP") as of December 31, 1996 and 1995, and the related statements of operations, cash flow and changes in net assets to be transferred for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of FRP'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 FRP Transferred Businesses as of December 31, 1996 and 1995 and the results of their operations and cash flow for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. Arthur Andersen LLP New Orleans, Louisiana, September 16, 1997 F-4 FRP TRANSFERRED BUSINESSES BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ---------------------- 1996 1995 SEPTEMBER ---------- ---------- 30, 1997 ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................................... $ 2,572 $ 3,116 $ 2,774 Accounts receivable: Customers................................................................. 21,878 27,402 31,359 Other..................................................................... 11,460 15,849 9,018 Inventories: Products.................................................................. 24,216 21,859 22,221 Materials and supplies.................................................... 9,119 8,214 9,542 Prepaid expenses and other.................................................. 2,117 6,764 6,058 ----------- ---------- ---------- Total current assets...................................................... 71,362 83,204 80,972 ----------- ---------- ---------- Property, plant and equipment............................................... 918,870 916,858 932,102 Less accumulated depreciation and amortization.............................. 826,308 381,205 357,073 ----------- ---------- ---------- Net property, plant and equipment......................................... 92,562 535,653 575,029 ----------- ---------- ---------- Other assets................................................................ 14,657 14,763 24,466 ----------- ---------- ---------- Total assets................................................................ $ 178,581 $ 633,620 $ 680,467 ----------- ---------- ---------- ----------- ---------- ---------- LIABILITIES AND NET ASSETS TO BE TRANSFERRED Current liabilities: Accounts payable............................................................ $ 14,029 $ 6,610 $ 13,980 Accrued liabilities......................................................... 18,619 25,539 16,742 Current portion of reclamation and mine shutdown reserves................... 11,509 25,261 8,191 ----------- ---------- ---------- Total current liabilities................................................. 44,157 57,410 38,913 Reclamation and mine shutdown reserves...................................... 61,055 56,848 79,857 Other liabilities........................................................... 33,459 35,002 39,915 Net assets to be transferred................................................ 39,910 484,360 521,782 ----------- ---------- ---------- Liabilities and net assets to be transferred................................ $ 178,581 $ 633,620 $ 680,467 ----------- ---------- ---------- ----------- ---------- ----------
The accompanying notes are an integral part of these financial statements. F-5 FRP TRANSFERRED BUSINESSES STATEMENTS OF OPERATIONS (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ----------------------- ----------------------------------- 1997 1996 1996 1995 1994 ----------- ---------- ---------- ---------- ----------- (UNAUDITED) Revenues........................................... $ 158,304 $ 167,379 $ 221,426 $ 255,949 $ 151,795 Cost of sales: Production and delivery............................ 126,328 118,228 160,982 168,504 94,388 Depreciation and amortization...................... 451,639 29,994 37,800 43,700 39,931 ----------- ---------- ---------- ---------- ----------- Total cost of sales.............................. 577,967 148,222 198,782 212,204 134,319 General and administrative expenses................ 5,508 7,537 10,252 18,725 10,123 ----------- ---------- ---------- ---------- ----------- Total costs and expenses......................... 583,475 155,759 209,034 230,929 144,442 ----------- ---------- ---------- ---------- ----------- Net income (loss).................................. (425,171) 11,620 12,392 25,020 7,353 Pro forma income taxes (unaudited)................. 155,613 (4,369) (4,659) (6,845) (2,691) ----------- ---------- ---------- ---------- ----------- Pro forma net income (loss) (unaudited)............ $ (269,558) $ 7,251 $ 7,733 $ 18,175 $ 4,662 ----------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- ---------- -----------
The accompanying notes are an integral part of these financial statements. F-6 FRP TRANSFERRED BUSINESSES STATEMENTS OF CASH FLOW (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ------------------------ ------------------------------------- 1997 1996 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Cash flow from operating activities: Net income (loss)............................... $ (425,171) $ 11,620 $ 12,392 $ 25,020 $ 7,353 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization................. 451,639 29,994 37,800 43,700 39,931 Reclamation and mine shutdown expenditures................................ (15,188) (6,451) (7,504) (2,476) (11,193) Other......................................... (2,266) 3,462 6,421 4,642 6,074 (Increase) decrease in working capital: Accounts receivable......................... 14,671 11,578 (3,234) (17,504) (6,674) Inventories................................. (3,262) (2,050) 1,690 5,465 7,742 Prepaid expenses and other.................. (111) (508) 166 (1,605) (1,520) Accounts payable and accrued liabilities.... 522 (6,133) 4,113 8,165 (7,511) ----------- ----------- ----------- ----------- ----------- Net cash provided by operating activities....... 20,834 41,512 51,844 65,407 34,202 ----------- ----------- ----------- ----------- ----------- Cash flow from investing activities: Capital expenditures............................ (2,989) (4,948) (3,834) (3,710) (11,231) Sale of assets and other........................ 890 1,205 2,146 375 1,225 ----------- ----------- ----------- ----------- ----------- Net cash used in investing activities........... (2,099) (3,743) (1,688) (3,335) (10,006) ----------- ----------- ----------- ----------- ----------- Cash flow from financing activities: Net distributions to FRP........................ (19,279) (38,560) (49,814) (59,298) (24,596) ----------- ----------- ----------- ----------- ----------- Net cash used in financing activities........... (19,279) (38,560) (49,814) (59,298) (24,596) ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents................................... (544) (791) 342 2,774 (400) Cash and cash equivalents at beginning of year.......................................... 3,116 2,774 2,774 -- 400 ----------- ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period...... $ 2,572 $ 1,983 $ 3,116 $ 2,774 $ -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes, which include information in Note 8 regarding noncash transactions, are an integral part of these financial statements. F-7 FRP TRANSFERRED BUSINESSES STATEMENTS OF CHANGES IN NET ASSETS TO BE TRANSFERRED (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ---------------------- ---------------------------------- 1997 1996 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) Balance at beginning of year......................... $ 484,360 $ 521,782 $ 521,782 $ 556,060 $ 573,303 Net income (loss).................................... (425,171) 11,620 12,392 25,020 7,353 Net distributions to FRP............................. (19,279) (38,560) (49,814) (59,298) (24,596) ---------- ---------- ---------- ---------- ---------- Balance at end of period............................. $ 39,910 $ 494,842 $ 484,360 $ 521,782 $ 556,060 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements. F-8 FRP TRANSFERRED BUSINESSES NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND OPERATIONS AND BASIS OF PRESENTATION ORGANIZATION AND OPERATIONS. On August 26, 1997, Freeport-McMoRan Resource Partners, Limited Partnership ("FRP") acquired 100 shares of Freeport-McMoRan Sulphur Inc. (the "Company" or "Freeport Sulphur") common stock, par value $0.01 per share, for a $100 subscription. The Company, a Delaware corporation, was formed for the purpose of owning and operating the sulphur business and the 58.3% interest in the Main Pass sulphur and oil operations owned by FRP (the "FRP Transferred Businesses"), together with the 25.0% interest in Main Pass owned by IMC Global Inc. ("IGL"), a joint venture partner with FRP. FRP intends to transfer these assets and related liabilities to the Company in connection with the merger of Freeport-McMoRan Inc. ("FTX"), the administrative managing general partner and the owner of 51.6% of FRP's partnership interest, with and into IGL (the "Merger"). FRP intends to distribute 100% of the Company's common stock to its public unitholders and to FTX. FTX will then distribute the shares of Freeport Sulphur common stock that it receives from FRP to the FTX stockholders on a pro rata basis in connection with the Merger. BASIS OF PRESENTATION. The FRP Transferred Businesses operated as an integral part of FRP during the periods covered by these financial statements, which have been prepared from the books and records of FRP. Certain data has been extracted from FRP records, or in certain cases derived on the basis of allocations between the FRP Transferred Businesses and FRP's other businesses, for purposes of presentation in the accompanying financial statements. No interest expense has been allocated to the FRP Transferred Businesses as no interest costs have been incurred in the past and no debt previously recorded by FRP will be assumed by the Company. Intercompany balances between FRP and the FRP Transferred Businesses have related to various general and administrative and similar charges and have been settled monthly. FRP is not a taxable entity and historically has not provided income taxes related to the FRP Transferred Businesses. The related net deferred tax liability that would have been recorded by the Company is disclosed in Note 5, but is not included in the accompanying balance sheets. FTX provides benefit plans for those employees that are expected to become Freeport Sulphur employees upon completion of the Merger. FTX will transfer certain liabilities related to these plans to the Company and pay cash to the Company for the assumption of certain of these liabilities as discussed further in Note 6. The liabilities and cash amounts are not reflected in the accompanying balance sheets. The FRP Transferred Businesses balance sheet as of September 30, 1997 and the related statements of operations, cash flow and changes in net assets to be transferred for the nine-month periods ended September 30, 1997 and 1996 are unaudited. These unaudited financial statements have been prepared from the books and records of FRP and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the periods. All such adjustments are, in the opinion of management, of a normal recurring nature. Upon completion of the merger, the combined financial statements of the Company will include the operations of the FRP Transferred Businesses and the 25.0% interest in Main Pass owned by IGL. The Company will account for the 25.0% interest in Main Pass owned by IGL at fair value under purchase accounting. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES. The preparation of the FRP Transferred Businesses 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 F-9 FRP TRANSFERRED BUSINESSES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) more significant areas requiring the use of management estimates include 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 17 to 30 years for buildings and 5 to 25 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. As a result of its most recent review of its sulphur assets, FRP and FTX 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 (based on September 30, 1997 book values) 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 (based on September 30, 1997 book values) was required. Fair values were estimated using discounted estimated future net cash flows related to these assets. The writedowns to fair value were recorded by FRP and FTX in the third quarter of 1997 and are reflected in the unaudited September 30, 1997 financial statements as additional depreciation and amortization charges. Future operating results of Freeport Sulphur will reflect lower depreciation and amortization expense as a result of these writedowns. 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. ENVIRONMENTAL REMEDIATION AND COMPLIANCE. The FRP Transferred Businesses incur 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, 1996, the balance sheet included a $57.6 million accrual for abandonment and restoration of non-operating sulphur assets, including $22.5 million which will be reimbursed by third parties. Total estimated abandonment cost for Main Pass oil operations is $10 million and $6.2 million was accrued at December 31, 1996. The current F-10 FRP TRANSFERRED BUSINESSES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) portion of reclamation and mine shutdown reserves includes $7.9 million which will be reimbursed by third parties. The FRP Transferred Businesses' share of abandonment and restoration costs for its two operating sulphur mines is estimated to total approximately $50 million, $18.3 million of which had been accrued at December 31, 1996, 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. A rollforward of the reclamation and mine shutdown reserves follows (in thousands):
BALANCE AT CHARGED TO CHARGED TO OTHER - BALANCE AT BEGINNING COSTS AND OTHER ADD END OF OF PERIOD EXPENSE ACCOUNTS (DEDUCT) PERIOD ----------- ----------- ------------- ---------- ----------- 1996 Sulphur......................... $ 83,145 $ 3,920 $ -- $ (11,147)a $ 75,918 Oil............................. 4,903 1,288 -- -- 6,191 ----------- ----------- ----- ---------- ----------- $ 88,048 $ 5,208 $ -- $ (11,147)b $ 82,109 ----------- ----------- ----- ---------- ----------- ----------- ----------- ----- ---------- ----------- 1995 Sulphur......................... $ 59,446 $ 2,643 $ -- $ 21,056a $ 83,145 Oil............................. 3,657 1,257 -- (11) 4,903 ----------- ----------- ----- ---------- ----------- $ 63,103 $ 3,900 $ -- $ 21,045b $ 88,048 ----------- ----------- ----- ---------- ----------- ----------- ----------- ----- ---------- ----------- 1994 Sulphur......................... $ 68,742 $ 1,041 $ -- $ (10,337) $ 59,446 Oil............................. 1,609 2,385 -- (337) 3,657 ----------- ----------- ----- ---------- ----------- $ 70,351 $ 3,426 $ -- $ (10,674)b $ 63,103 ----------- ----------- ----- ---------- ----------- ----------- ----------- ----- ---------- -----------
a. Includes $23.5 million of liabilities assumed in 1995 in connection with the acquisition of the sulphur assets of Pennzoil Company which was subsequently reduced by $8.3 million in 1996. b. Includes expenditures of $7.5 million in 1996, $2.5 million in 1995 and $11.2 million in 1994. NEW ACCOUNTING STANDARDS. In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income," and SFAS 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS 130 establishes standards for the reporting and display of comprehensive income in the financial statements. Comprehensive income is the total of net income and all other nonowner changes in equity. SFAS 131 requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and measuring their performance. SFAS 130 and 131 are effective for 1998. Adoption of these standards is not expected to result in material changes to the FRP Transferred Businesses' financial statements, financial position or results of operations. F-11 FRP TRANSFERRED BUSINESSES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. PROPERTY PLANT AND EQUIPMENT, NET The components of net property, plant and equipment of the FRP Transferred Businesses follow (in thousands):
DECEMBER 31, ---------------------- 1996 1995 ---------- ---------- Buildings and facilities.............................................. $ 480,562 $ 496,336 Capitalized oil exploration and development costs..................... 201,517 200,460 Capitalized interest and start-up costs............................... 132,850 132,850 Transportation, terminaling and other assets.......................... 97,395 99,960 Machinery and equipment............................................... 4,534 2,496 ---------- ---------- Property, plant and equipment....................................... 916,858 932,102 Accumulated depreciation and amortization, including $192.5 million and $179.2 million for 1996 and 1995, respectively, for capitalized oil exploration and development costs............................... 381,205 357,073 ---------- ---------- Property, plant and equipment, net.................................... $ 535,653 $ 575,029 ---------- ---------- ---------- ----------
4. MANAGEMENT SERVICES FTX has provided certain management and administrative services to FRP (and thus the FRP Transferred Businesses) including technical, administrative, accounting, financial, tax and other services under a management services agreement. The costs of such services, which include related overhead, have been allocated to the FRP Transferred Businesses based on time spent by FTX employees in the conduct of the FRP Transferred Businesses' business activities. Such costs are non-interest bearing and reimbursed monthly. 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 the FRP Transferred Businesses. The total amount charged by FTX to the FRP Transferred Businesses for such services was $2.0 million in 1996, $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) and $8.8 million in 1994. Beginning in 1996, FM Services Company (FMS), an entity owned 50 percent each by FTX and Freeport-McMoRan Copper & Gold Inc., a former subsidiary of FTX, began providing most of the services previously provided by FTX on a similar cost-reimbursement basis, totaling $6.7 million for 1996. Prior to 1997, FTX operated the Main Pass oil facilities and charged the FRP Transferred Businesses $1.3 million in 1996, $1.0 million in 1995 and $0.8 million in 1994 for specified overhead and other costs. Beginning in 1997, FRP operated the facilities and upon consummation of the Merger, Freeport Sulphur will operate the Main Pass oil facilities. After the Merger, FMS will continue to provide similar management and administrative services to Freeport Sulphur pursuant to a management services agreement. As a result, management believes general and administrative expenses will not differ materially from those reported in these financial statements, except that Freeport Sulphur will not have stock appreciation rights and it is not possible to predict the impact of compensation expenses that are associated with performance. F-12 FRP TRANSFERRED BUSINESSES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES Because FRP is not a taxable entity, historically it has not provided for income taxes. Freeport Sulphur will record deferred income taxes pursuant to SFAS 109 immediately upon the transfer of assets and liabilities and will recognize the income tax effect of deferred taxes at that time. The components of deferred taxes that would have been recorded by Freeport Sulphur as of December 31, 1996 and 1995, based upon temporary differences existing at that time, including the estimated deferred compensation, postretirement and pension benefits related to the FRP Transferred Businesses, follow (in thousands):
DECEMBER 31, ------------------------ 1996 1995 ----------- ----------- Deferred tax asset: Reclamation and shutdown reserve.................................. $ 22,656 $ 21,743 Deferred compensation, postretirement and pension benefits........ 11,752 11,330 Other............................................................. 4,538 5,973 ----------- ----------- Total deferred tax asset........................................ 38,946 39,046 ----------- ----------- Deferred tax liability: Property, plant and equipment..................................... (121,668) (110,908) ----------- ----------- Net deferred tax liability........................................ $ (82,722) $ (71,862) ----------- ----------- ----------- -----------
The estimated net deferred tax liability at December 31, 1996 shown above does not reflect the impact of the sulphur impairment assessments discussed in Note 2. These impairment assessments will result in Freeport Sulphur having an estimated net deferred tax asset totaling approximately $62 million upon transfer of assets and liabilities from FRP. Unaudited pro forma income taxes consist of the following (in thousands):
1996 1995 1994 --------- --------- --------- Current....................................................... $ (6,201) $ 4,942 $ (9,520) Deferred...................................................... 10,860 1,903 12,211 --------- --------- --------- $ 4,659 $ 6,845 $ 2,691 --------- --------- --------- --------- --------- ---------
F-13 FRP TRANSFERRED BUSINESSES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES (CONTINUED) 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):
1996 1995 1994 ------------------------ ---------------------- ------------------------ AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT --------- ------------- --------- ----------- --------- ------------- Pro forma income taxes computed at the federal statutory tax rate... $ 4,337 35% $ 8,757 35% $ 2,500 34% Increase (decrease) attributable to: Statutory depletion................ -- -- (2,385) (10) -- -- State taxes........................ 322 3 473 2 191 3 -- -- -- --------- --------- --------- Pro forma income taxes............. $ 4,659 38% $ 6,845 27% $ 2,691 37% -- -- -- -- -- -- --------- --------- --------- --------- --------- ---------
6. PENSION AND OTHER EMPLOYEE BENEFITS PENSIONS. Substantially all employees have been covered by FTX's or FMS's defined benefit plans. Additionally, unfunded nonqualified 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 the FRP Transferred Businesses under these plans have not been material. In connection with the Merger, Freeport Sulphur will form its own defined benefit plans and FTX will transfer to the new Freeport Sulphur plan (for the qualified plan), or to Freeport Sulphur (for the nonqualified plan), assets and liabilities pertaining to those FTX employees who will become Freeport Sulphur employees. The Freeport Sulphur plans initially will have substantially the same provisions as the FTX plans and will provide credit for prior FTX service. The final actuarial valuation will be made as of the date of the consummation of the Merger. The estimated actuarial liability related to the new Freeport Sulphur plans as of January 1, 1998 follows (in thousands) and is not included in the FRP Transferred Businesses balance sheets. Accumulated Benefit Obligation..................................... $ 11,299 --------- --------- Projected Benefit Obligation (PBO)................................. $ 13,300 Less Plan assets................................................... 15,500 --------- Overfunded PBO................................................... (2,200) Unrecognized amounts: Transition asset................................................. 170 Prior service credit............................................. 7,829 Gains............................................................ 4,856 --------- Accrued pension liability.......................................... $ 10,655 --------- ---------
OTHER POSTRETIREMENT BENEFITS. FTX and FMS provide certain health care and life insurance benefits for retired employees. The related expense allocated to the FRP Transferred Businesses from FTX totaled $2.5 million in 1996 (including $0.2 million for service cost and $2.3 million in interest for prior period F-14 FRP TRANSFERRED BUSINESSES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED) services), $4.7 million in 1995 ($0.2 million and $4.5 million, respectively) and $4.3 million in 1994 ($0.2 million and $4.1 million, respectively). The FRP Transferred Businesses' share of the FMS plan was not significant for 1996. In connection with the Merger, Freeport Sulphur will assume the liability for the portion of FTX's postretirement benefit liability related to active employees transferred to Freeport Sulphur and FTX will pay Freeport Sulphur cash for the amount of the liability. The final actuarial determination will be made upon consummation of the Merger. The estimated actuarial information as of January 1, 1998 follows (in thousands) and neither the liability nor the cash payment is included in the FRP Transferred Businesses balance sheets: Accumulated postretirement benefits................................. $ 2,858 Unrecognized prior service credits.................................. 662 Unrecognized gains.................................................. 1,425 --------- Accrued postretirement liability.................................... $ 4,945 --------- ---------
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 7.75 percent. Freeport Sulphur will have the right to modify or terminate these benefits. In connection with the Merger, Freeport Sulphur will assume a liability to IGL for a portion of IGL's postretirement benefit costs relating to certain retired employees of FTX. An actuarial determination will be made of the liability associated with these employees upon consummation of the Merger. Freeport Sulphur estimates the liability to be approximately $10 million. STOCK OPTIONS. Freeport Sulphur will adopt an Adjusted Stock Award Plan to provide for the issuance of fixed options to holders of FTX fixed options and FTX stock appreciation rights (SARs). The fixed options granted under the Adjusted Stock Award Plan will reflect the option holder's economic position under the FTX options as adjusted for the proportionate market value of Freeport Sulphur shares at the time of the Merger. The number of fixed options to be issued by Freeport Sulphur will be 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 Freeport Sulphur shares to FTX shares. As of December 31, 1996, FTX had outstanding a total of 2.1 million fixed options and SARs, of which stock options representing 0.9 million shares were exercisable at an average option price of $19.01 per share. Compensation expense for the aggregate intrinsic value of the FTX SARs has already been recorded in the accompanying FRP Transferred Businesses financial statements through allocations of general and administrative costs from FTX. As these SARs will be converted to fixed options under the Freeport Sulphur Adjusted Stock Award Plan, the related accrued SAR liability will be recorded as additional paid-in capital in the Freeport Sulphur balance sheets. Freeport Sulphur will adopt the disclosure only provisions of SFAS 123 and will continue to apply 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, the FRP Transferred Businesses would have been allocated additional charges totaling $1.2 million ($0.7 million to pro forma net income) in 1996 and none in 1995. F-15 FRP TRANSFERRED BUSINESSES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED) Freeport Sulphur will adopt other benefit plans, certain of which are related to its performance, which costs will be recognized in general and administrative expense. Upon consummation of the Merger, Freeport Sulphur will also assume certain FTX liabilities totaling approximately $0.4 million under its plans related to those employees transferred from FTX to Freeport Sulphur in exchange for an equal cash payment. 7. COMMITMENTS AND CONTINGENCIES LONG-TERM CONTRACTS AND OPERATING LEASES. FRP Transferred Businesses' minimum annual contractual charges under noncancelable long-term contracts and operating leases total $176.9 million, with $18.2 million in 1997, $14.0 million in 1998, $13.6 million in 1999, $13.5 million in 2000 and $13.4 million in 2001. ENVIRONMENTAL. The FRP Transferred Businesses have made, and will continue to make, expenditures for protection of the environment. The FRP Transferred Businesses are 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 In January 1995, FRP acquired essentially all of the domestic assets of Pennzoil Co.'s sulphur division, including the Culberson sulphur mine in West Texas. Under the terms of the purchase, Pennzoil will receive quarterly payments from FRP over 20 years based on the prevailing price of sulphur. These payments totaled $2.0 million in 1996 and $5.2 million in 1995. The installment payments may be terminated earlier either by FRP 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. Freeport Sulphur will assume the terms of the purchase agreement with Pennzoil. 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............................................... $ -- --------- ---------
Accrued long-term liabilities include the estimated future installment payments based on the prevailing sulphur price at the time of acquisition. 9. BUSINESS SEGMENTS FRP Transferred Businesses operates in 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 F-16 FRP TRANSFERRED BUSINESSES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. BUSINESS SEGMENTS (CONTINUED) transportation assets, and purchases of recovered sulphur. Oil is produced at Main Pass from the same geologic formation that holds the deposit's sulphur. 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 FRP, 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 FRP Transferred Businesses revenues, sales to IMC-Agrico totaled 54% in 1996, 54% in 1995 and 58% in 1994. Oil produced from Main Pass is sold to two major Gulf Coast refining companies. As a percentage of total FRP Transferred Businesses revenues, oil sales to one of these refining companies, Amoco, totaled 12% in 1996, 11% in 1995 and 19% in 1994. No other single customer accounted for greater than 10% of total revenues in 1994 through 1996. The Company's definition of its business segments is not expected to change as a result of the adoption of SFAS 131.
SULPHUR OIL TOTAL ---------- --------- ---------- (IN THOUSANDS) 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 ---------- --------- ---------- Net 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 ---------- --------- ---------- Net income................................................. $ 23,040 $ 1,980 $ 25,020 ---------- --------- ---------- ---------- --------- ---------- Capital expenditures....................................... $ 2,148 $ 1,562 $ 3,710 ---------- --------- ---------- ---------- --------- ---------- Total assets............................................... $ 647,650 $ 32,817 $ 680,467 ---------- --------- ---------- ---------- --------- ---------- 1994 Revenues................................................... $ 116,908 $ 34,887 $ 151,795 Production and delivery.................................... 84,530 9,858 94,388 Depreciation and amortization.............................. 21,397 18,534 39,931 General and administrative expense......................... 6,711 3,412 10,123 ---------- --------- ---------- Net income................................................. $ 4,270 $ 3,083 $ 7,353 ---------- --------- ---------- ---------- --------- ---------- Capital expenditures....................................... $ 1,827 $ 9,404 $ 11,231 ---------- --------- ---------- ---------- --------- ---------- Total assets............................................... $ 593,829 $ 44,073 $ 637,902 ---------- --------- ---------- ---------- --------- ----------
F-17 FRP TRANSFERRED BUSINESSES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. SUPPLEMENTARY MINERAL RESERVE INFORMATION (UNAUDITED) Proved and probable mineral reserves follow:
DECEMBER 31, ----------------------------------------------------- 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- (IN THOUSANDS) Sulphur-long tons (a)........................ 53,149 55,185 41,018 38,637 41,570
- ------------------------ (a) Main Pass reserves are subject to a 12.5 percent royalty based on net mine revenues. Culberson reserves totaled 14.5 million tons at December 31, 1996 and 15.4 million tons at December 31, 1995 and are subject to a 9 percent royalty based on net mine revenues. Subsequent to December 31, 1996, Culberson reserves were revised downward to approximately 8 million tons to reflect recent production history. 11. SUPPLEMENTARY OIL INFORMATION The supplementary information presented below is prepared in accordance with requirements prescribed by the Financial Accounting Standards Board. Information regarding capitalized oil exploration and development costs is included in Note 3. Costs Incurred In Oil Property Acquisition, Exploration and Development Activities.
YEARS ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 --------- --------- --------- (IN THOUSANDS) Acquisition of properties Proved......................................................... $ -- $ -- $ -- Unproved....................................................... -- -- -- Exploration costs................................................ -- -- -- Development costs................................................ 1,057 1,562 9,404 --------- --------- --------- $ 1,057 $ 1,562 $ 9,404 --------- --------- --------- --------- --------- ---------
PROVED OIL RESERVES (UNAUDITED). Proved oil reserves at December 31, 1996, 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 the FRP Transferred Businesses, are based upon existing economic and operating conditions; they are only estimates and should not be construed as being exact. The reserves related to the FRP Transferred Businesses are located in F-18 FRP TRANSFERRED BUSINESSES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 11. SUPPLEMENTARY OIL INFORMATION (CONTINUED) offshore United States waters. Oil, including condensate and plant products, is stated in thousands of barrels.
OIL ------------------------------- 1996 1995 1994 --------- --------- --------- Proved reserves: Beginning of year........................................... 6,638 7,279 9,962 Revisions of previous estimates............................. 446 1,577 (149) Production.................................................. (1,896) (2,218) (2,534) --------- --------- --------- End of year................................................. 5,188 6,638 7,279 --------- --------- --------- --------- --------- --------- Proved developed reserves: End of year................................................. 4,108 5,155 5,383 --------- --------- --------- --------- --------- ---------
Subsequent to December 31, 1996, proved undeveloped reserve estimates were revised downward by approximately 1 million barrels to reflect recent drilling results. 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 the FRP Transferred Businesses were computed using reserve valuations based on regulations prescribed by the SEC. These regulations provide for the use of current 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, ---------------------------------- 1996 1995 1994 ---------- ---------- ---------- (IN THOUSANDS) Future cash flows........................................ $ 107,118 $ 113,231 $ 107,485 Future costs applicable to future cash flows: Production costs....................................... 47,114 39,720 33,588 Development and abandonment costs...................... 18,727 17,971 22,932 ---------- ---------- ---------- Future net cash flows before income taxes................ 41,277 55,540 50,965 Future income taxes...................................... -- -- -- ---------- ---------- ---------- Future net cash flows.................................... 41,277 55,540 50,965 Discount for estimated timing of net cash flows (10% discount rate).................................... 2,323 6,787 5,315 ---------- ---------- ---------- $ 38,954 $ 48,753 $ 45,650 ---------- ---------- ---------- ---------- ---------- ----------
Because Freeport Sulphur will have sufficient tax deductions to utilize against estimated future taxable income, in accordance with SFAS 69 no deductions for future income taxes have been made above. F-19 FRP TRANSFERRED BUSINESSES NOTES TO FINANCIAL STATEMENTS (CONTINUED) 11. SUPPLEMENTARY OIL INFORMATION (CONTINUED) CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS FROM PROVED OIL RESERVES (UNAUDITED).
YEARS ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 ---------- ---------- ---------- (IN THOUSANDS) Beginning of year......................................... $ 48,753 $ 45,650 $ 43,498 Revisions: Changes in prices....................................... 7,316 8,841 33,165 Accretion of discount................................... 4,875 4,565 4,350 Other changes (primarily revised estimates of development costs in 1994 and reserve quantities in 1995)................................................. 3,058 13,487 (19,738) Development costs incurred during the year................ 1,057 1,562 9,404 Revenues, less production costs........................... (26,105) (25,352) (25,029) ---------- ---------- ---------- End of year............................................... $ 38,954 $ 48,753 $ 45,650 ---------- ---------- ---------- ---------- ---------- ----------
Oil prices have declined subsequent to December 31, 1996. The future cash flows from proved reserves presented above do not reflect the decline. F-20 FREEPORT-MCMORAN SULPHUR INC. UNAUDITED PRO FORMA CONDENSED BALANCE SHEET SEPTEMBER 30, 1997
PRO FORMA ADJUSTMENTS --------------------------------------- FRP IGL TRANSFERRED TRANSFERRED FREEPORT BUSINESSES BUSINESSES OTHER SULPHUR (NOTE 1) (NOTE 1) (NOTE 2) PRO FORMA ----------- ----------- ----------- ------------- ----------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents......................... $ -- $ 2,572 $ 1,640 $ 8,280a $ 12,492 Accounts receivable............................... -- 33,338 -- 1,137b 34,475 Inventories....................................... -- 33,335 2,702 2,366c 38,403 Prepaid expenses and other........................ -- 2,117 -- -- 2,117 ----------- ----------- ----------- ------------- ----------- Total current assets............................ -- 71,362 4,342 11,783 87,487 ----------- ----------- ----------- ------------- ----------- Property, plant and equipment..................... -- 918,870 21,900 -- 940,770 Less accumulated depreciation and amortization.... -- 826,308 -- -- 826,308 ----------- ----------- ----------- ------------- ----------- Net property, plant and equipment................. -- 92,562 21,900 -- 114,462 ----------- ----------- ----------- ------------- ----------- Other assets...................................... -- 14,657 -- 61,538d 76,195 ----------- ----------- ----------- ------------- ----------- Total assets...................................... $ -- $ 178,581 $ 26,242 $ 73,321 $ 278,144 ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- ----------- LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities............................... $ -- $ 44,157 $ 3,052 $ (3,099)e $ 44,110 Reclamation and mine shutdown reserves............ -- 61,055 5,152 -- 66,207 Accrued postretirement benefits and other liabilities..................................... -- 33,459 -- 26,691a 60,150 Net assets to be transferred...................... -- 39,910 18,038 (57,948) -- Stockholder's equity.............................. -- -- -- 107,677 107,677 ----------- ----------- ----------- ------------- ----------- Total liabilities and stockholder's equity........ $ -- $ 178,581 $ 26,242 $ 73,321 $ 278,144 ----------- ----------- ----------- ------------- ----------- ----------- ----------- ----------- ------------- -----------
The accompanying notes are an integral part of these pro forma financial statements. F-21 FREEPORT-MCMORAN SULPHUR INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1997
PRO FORMA ADJUSTMENTS ------------------------------------------ FRP IGL TRANSFERRED TRANSFERRED FREEPORT BUSINESSES BUSINESSES OTHER SULPHUR (NOTE 1) (NOTE 1) (NOTE 2) PRO FORMA ----------- ----------- ----------- ---------------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNT) Revenues...................................... $ -- $ 158,304 $ 34,190 $ (1,984)f $ 190,510 Cost of sales: Production and delivery....................... -- 126,328 24,159 (409)f,g 150,078 Depreciation and amortization................. -- 451,639 -- 2,468h 454,107 ----------- ----------- ----------- ---------------- ----------- Total cost of sales......................... -- 577,967 24,159 2,059 604,185 General and administrative expenses........... -- 5,508 -- 3,000i 8,508 ----------- ----------- ----------- ---------------- ----------- Total costs and expenses.................... -- 583,475 24,159 5,059 612,693 ----------- ----------- ----------- ---------------- ----------- Net income (loss) before income taxes......... -- (425,171) 10,031 (7,043) (422,183) Income tax benefit............................ -- 155,613 -- (1,094)j 154,519 ----------- ----------- ----------- ---------------- ----------- Net income (loss)............................. $ -- $ (269,558) $ 10,031 $ (8,137) $ (267,664) ----------- ----------- ----------- ---------------- ----------- ----------- ----------- ----------- ---------------- ----------- Average shares outstanding.................... 10,390 ----------- ----------- Net income (loss) per share................... $ (25.76) ----------- -----------
The accompanying notes are an integral part of these pro forma financial statements. F-22 FREEPORT-MCMORAN SULPHUR INC. PRO FORMA STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
PRO FORMA ADJUSTMENTS ------------------------------------ FRP IGL TRANSFERRED TRANSFERRED FREEPORT BUSINESSES BUSINESSES OTHER SULPHUR (NOTE 1) (NOTE 1) (NOTE 2) PRO FORMA ----------- ----------- ----------- ---------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNT) Revenues.......................................... $ -- $ 221,426 $ 50,337 $ (2,844)f $ 268,919 Cost of sales: Production and delivery........................... -- 160,982 30,414 (2,644 f,g 188,752 Depreciation and amortization..................... -- 37,800 -- 3,200h 41,000 ----- ----------- ----------- ---------- ----------- Total cost of sales............................. -- 198,782 30,414 556 229,752 General and administrative expenses............... -- 10,252 -- 3,589i 13,841 ----- ----------- ----------- ---------- ----------- Total costs and expenses........................ -- 209,034 30,414 4,145 243,593 ----- ----------- ----------- ---------- ----------- Net income before income taxes.................... -- 12,392 19,923 (6,989) 25,326 Provision for income taxes........................ -- (4,659) -- (4,864)j (9,523) ----- ----------- ----------- ---------- ----------- Net income........................................ $ -- $ 7,733 $ 19,923 $ (11,853) $ 15,803 ----- ----------- ----------- ---------- ----------- ----- ----------- ----------- ---------- ----------- Average shares outstanding........................ 10,409 ----------- ----------- Net income per share.............................. $ 1.52 ----------- -----------
The accompanying notes are an integral part of these pro forma financial statements. F-23 FREEPORT-MCMORAN SULPHUR INC. NOTES TO PRO FORMA FINANCIAL STATEMENTS The accompanying Pro Forma Statements of Income have been prepared assuming the transaction discussed below occurred on January 1, 1996, whereas the Pro Forma Condensed Balance Sheet assumes the transaction occurred on September 30, 1997. The pro forma financial statements are not necessarily indicative of the results that would have been achieved nor are they indicative of future results. 1. FRP TRANSFERRED BUSINESSES AND IGL TRANSFERRED BUSINESSES BACKGROUND. On August 26, 1997, IMC Global Inc. ("IGL") and Freeport-McMoRan Inc. ("FTX") executed a definitive agreement for FTX to merge with and into IGL (the "Merger"). The terms of the Merger provide that each share of FTX common stock will be converted into the right to receive (i) 0.90 of a share of IGL common stock, (ii) one-third of a warrant exercisable for a share of IGL common stock and (iii) a proportionate number of shares of a newly formed company (Freeport-McMoRan Sulphur Inc.) that would be held by FTX immediately prior to consummation of the Merger. Completion of the Merger is subject to, among other things, approval of the definitive merger agreement by the IGL and FTX shareholders and the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (early termination having been granted). Both companies expect the Merger to be completed by the end of 1997. In connection with the Merger, Freeport-McMoRan Resource Partners, Limited Partnership, a Delaware limited partnership that is 51.6% owned by FTX ("FRP"), will contribute to Freeport-McMoRan Sulphur Inc. ("Freeport Sulphur"), a newly formed subsidiary of FRP, certain assets and liabilities described below and the shares of Freeport Sulphur will be distributed to the FRP unitholders, including FTX. FTX will then distribute its Freeport Sulphur shares to its stockholders as part of the Merger consideration. Among the assets that will be contributed by FRP to Freeport Sulphur is FRP's 58.3% interest in the Main Pass sulphur and oil joint venture (the "Main Pass Joint Venture") in which IGL also has a 25% interest. The Main Pass Joint Venture is primarily a sulphur mining operation, with the related oil deposit being located in the same caprock containing the sulphur reserves. Immediately prior to the Merger, IGL will transfer its 25% interest in the Main Pass Joint Venture to FRP (the "IGL Transferred Businesses"). FRP will then contribute to Freeport Sulphur the IGL Transferred Businesses, and the FRP Transferred Business; including FRP's interest in the Main Pass Joint Venture, FRP's Culberson sulphur mine in West Texas (acquired from Pennzoil Company in 1995) and various related sulphur terminaling and transportation assets in the Gulf Coast area. The pro forma balance sheet information reflects the pro forma effects of the contribution of the assets and liabilities attributable to the FRP Transferred Businesses and the IGL Transferred Businesses, reflected at September 30, 1997 historical cost. While no consideration will actually be paid by FRP to IGL for the IGL Transferred Businesses, the receipt of the IGL Transferred Businesses will be recorded by FRP at fair value. The estimated fair value of the property, plant and equipment to be contributed by IGL was based on the same assumptions applied in the impairment assessment of FRP's sulphur assets as discussed in Note 3. The pro forma income statement information reflects the pro forma results of the FRP Transferred Businesses and the historical revenues and direct operating expenses of the IGL Transferred Businesses for the periods presented. 2. OTHER ADJUSTMENTS a. Upon consummation of the Merger, FTX will (i) reimburse Freeport Sulphur $6.3 million for certain employee benefits obligations totaling $26.7 million which Freeport Sulphur will assume relating to F-24 FREEPORT-MCMORAN SULPHUR INC. NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED) 2. OTHER ADJUSTMENTS (CONTINUED) transferred employees who will become Freeport Sulphur employees and (ii) establish an operating cash balance of $2.0 million for ongoing Freeport Sulphur operations. b. Reflects estimated IGL Transferred Businesses customer receivable balance ($2.9 million) for its share of sulphur production taken in-kind less intercompany balances. c. Reflects estimated sulphur and oil inventory balances attributable to the IGL Transferred Businesses. d. Reflects net deferred tax asset associated with differences in book and tax asset and liability bases as per Statement of Financial Accounting Standards No. 109 (SFAS 109) after giving effect to the impairment assessment of FRP's sulphur assets discussed in Note 3. e. Reflects reductions in accounts payable related to amounts to be settled by IGL pursuant to the Merger and intercompany balances. f. Reflects elimination of management and similar fees charged IGL by FRP as operator of the Main Pass Joint Venture. g. Reflects estimated $1.0 million annual increase in insurance cost related to the IGL Transferred Businesses and an estimated reduction in employee benefit costs. h. Reflects estimated depreciation and amortization, including reclamation and shutdown reserve accruals, for the IGL Transferred Businesses based on their proportionate share of future costs and the estimated fair value of the property, plant and equipment to be contributed by IGL to FRP. i. Reflects estimated identifiable increase in Freeport Sulphur general and administrative expenses relative to public entity-related costs ($1.05 million annually) and estimated general and administrative expenses attributable to the IGL Transferred Businesses which were previously recovered from IGL. j. Reflects estimated applicable income tax provision associated with the IGL Transferred Businesses and other pro forma income statement adjustments. 3. IMPAIRMENT ASSESSMENT OF SULPHUR ASSETS. 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. As a result of its most recent review of its sulphur assets, FRP and FTX 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 (based on September 30, 1997 book values) 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 (based on September 30, 1997 book values) was required. Fair values were estimated using discounted estimated future cash flows related to these assets and the writedowns are reflected in the pro forma September 30, 1997 financial statements as additional accumulated depreciation and amortization charges. The writedowns to fair value were recorded by FRP and FTX in the third quarter of 1997. F-25 FREEPORT-MCMORAN SULPHUR INC. NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED) 4. PRO FORMA EARNINGS PER SHARE. Pro forma earnings per share is computed by dividing pro forma net income by pro forma common and common equivalent shares outstanding. Pro forma common and common equivalent shares are based on the number of Freeport Sulphur shares expected to be issued and outstanding (10,346,578) and the expected number of common stock equivalents under the Freeport Sulphur Adjusted Stock Award Plan. In February 1997, the FASB issued SFAS 128, "Earnings Per Share," which simplifies the computation of earnings per share (EPS). SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997 and requires restatement for all prior period EPS data presented. Adoption of SFAS 128 would not change Freeport Sulphur's pro forma EPS. F-26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Freeport-McMoRan Sulphur Inc.: We have audited the accompanying statement of gross sulphur and oil revenues and direct operating expenses of the assets to be acquired (IGL Transferred Businesses) by Freeport-McMoRan Sulphur Inc. (see Note 1) for the year ended December 31, 1996. This statement is the responsibility of management. Our responsibility is to express an opinion on the statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statements are free of material misstatements. 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 presentation of the statements. We believe our audit provides a reasonable basis for our opinion. The accompanying statement presents only the gross sulphur and oil revenues and direct operating expenses (see Note 1) and are not intended to be a complete presentation of the revenues and expenses of the Contributed Assets. In our opinion, the statement referred to above presents fairly, in all material respects, the gross sulphur and oil revenues and direct operating expenses of the IGL Transferred Businesses for the year ended December 31, 1996 in conformity with generally accepted accounting principles. Arthur Andersen LLP New Orleans, Louisiana, September 16, 1997 F-27 The following statement of gross sulphur and oil revenues and direct operating expenses of the assets to be acquired (IGL Transferred Businesses) by Freeport-McMoRan Sulphur Inc. ("Freeport Sulphur") for the year ended December 31, 1996 have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their accompanying report. The statement is presented to provide historical data about the IGL Transferred Businesses and may not be indicative of future results of operations of the IGL Transferred Businesses. Separate financial statements for the IGL Transferred Businesses have never been prepared. Depreciation, depletion and amortization has not been included because the historical expenses incurred by the predecessor owner may not be comparable to amounts to be incurred by Freeport Sulphur in future periods. Further, it is not possible to make a practicable or objective determination of the portion of general or administrative expenses or other indirect expenses which were attributable to the IGL Transferred Businesses and any such allocation would not be indicative of the level of such expenses to be incurred in the future. In addition, a provision for income taxes has not been included because the tax position of the predecessor owner will not affect Freeport Sulphur's future tax provisions. IGL TRANSFERRED BUSINESSES STATEMENTS OF GROSS SULPHUR AND OIL REVENUES AND DIRECT OPERATING EXPENSES (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996 NINE MONTHS ------------ ENDED SEPTEMBER 30, 1997 ------------- (UNAUDITED) Sulphur and Oil sales........................................... $ 34,190 $ 50,337 Production and delivery......................................... 24,159 30,414 ------------- ------------ Revenues over direct operating expenses......................... $ 10,031 $ 19,923 ------------- ------------ ------------- ------------
See accompanying notes to financial statements. F-28 NOTES TO STATEMENTS OF GROSS SULPHUR AND OIL REVENUES AND DIRECT OPERATING EXPENSES OF THE IGL TRANSFERRED BUSINESSES 1. BACKGROUND AND BASIS OF PRESENTATION BACKGROUND. On August 26, 1997, IMC Global Inc. ("IGL") and Freeport-McMoRan Inc. ("FTX") executed a definitive agreement for FTX to merge with and into IGL (the "Merger"). The terms of the Merger provide that each share of FTX common stock will be converted into the right to receive (i) 0.90 of a share of IGL common stock, (ii) one-third of a warrant exercisable for a share of IGL common stock and (iii) a proportionate number of shares of a newly formed company (Freeport-McMoRan Sulphur Inc.) that would be held by FTX immediately prior to consummation of the Merger. Completion of the Merger is subject to, among other things, approval of the definitive merger agreement by the IGL and FTX shareholders and the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (early termination having been granted). Both companies expect the Merger to be completed by the end of 1997. In connection with the Merger, Freeport-McMoRan Resource Partners, Limited Partnership, a Delaware limited partnership that is 51.6% owned by FTX ("FRP"), will contribute to Freeport-McMoRan Sulphur Inc. ("Freeport Sulphur"), a newly formed subsidiary of FRP, certain assets and liabilities described below and the shares of Freeport Sulphur will be distributed to the FRP unitholders, including FTX. FTX will then distribute its Freeport Sulphur shares to its stockholders as part of the Merger consideration. Among the assets that will be contributed by FRP to Freeport Sulphur is FRP's 58.3% interest in the Main Pass sulphur and oil joint venture (the "Main Pass Joint Venture") in which IGL also has a 25% interest. The Main Pass Joint Venture is primarily a sulphur mining operation, with the related oil deposit being located in the same caprock containing the sulphur reserves. Immediately prior to the Merger, IGL will transfer its 25% interest in the Main Pass Joint Venture to FRP (the "IGL Transferred Businesses"). FRP will then contribute to Freeport Sulphur the IGL Transferred Businesses, and the FRP Transferred Businesses; including FRP's interest in the Main Pass Joint Venture, FRP's Culberson sulphur mine in West Texas (acquired from Pennzoil Company in 1995) and various related sulphur terminaling and transportation assets in the Gulf Coast area. BASIS OF PRESENTATION. The accompanying statement of gross sulphur and oil revenues and direct operating expenses relates to the interests in IGL's producing sulphur and oil properties described above and may not be representative of future operations. The statement does not include federal and state income taxes, interest, depreciation, depletion and amortization or corporate general and administrative expenses because such amounts have historically not been allocated to the IGL Transferred Businesses or such amounts would not be indicative of those expenses which would be incurred by Freeport Sulphur. The statement includes gross sulphur and oil revenues and direct operating and production expenses, including production and ad valorem taxes, for the entire periods presented. With respect to Main Pass sulphur production, IGL takes its share of sulphur in kind and sells such production under a long-term contract to the IMC-Agrico Joint Venture (IMC-Agrico), a chemical fertilizer producer jointly owned by IGL and FRP. The contract price paid by IMC-Agrico for approximately the first 500,000 tons is based on a fixed premium over the per ton weighted average cost of IGL's purchases of sulphur on behalf of IMC-Agrico under other long-term supply contracts and tons sold in excess of that amount exclude the fixed premium. The unaudited statement of gross sulphur and oil revenues and direct operating expenses for the nine-month period ended September 30, 1997, in the opinion of management, was prepared on a basis consistent with the audited statement of gross sulphur and oil revenues and direct operating expenses and F-29 NOTES TO STATEMENTS OF GROSS SULPHUR AND OIL REVENUES (CONTINUED) AND DIRECT OPERATING EXPENSES OF THE IGL TRANSFERRED BUSINESSES 1. BACKGROUND AND BASIS OF PRESENTATION (CONTINUED) includes all adjustments (which includes normal recurring adjustments) necessary to present fairly the gross sulphur and oil revenues and direct operating and production expenses for this interim period and may not be indicative of future revenues and expenses. 2. SUPPLEMENTAL INFORMATION ON SULPHUR AND OIL RESERVES (UNAUDITED) Proved and probable sulphur mineral reserves at December 31, 1996 totaled 16.6 million long tons which are subject to a 12.5 percent royalty based on net mine revenues. The supplementary oil reserve information presented below is prepared in accordance with requirements prescribed by the Financial Accounting Standards Board. Proved oil reserves at December 31, 1996, 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 the IGL Transferred Businesses, are based upon existing economic and operating conditions; they are only estimates and should not be construed as being exact. The reserves related to the IGL Transferred Businesses are located in offshore United States waters. Oil, including condensate and plant products, is stated in thousands of barrels. An analysis of the estimated changes in quantities of proved oil reserves of the IGL Transferred Businesses for the year ended December 31, 1996 is shown below.
OIL --------- Proved reserves: Beginning of year................................................................... 2,845 Revisions of previous estimates..................................................... 191 Discoveries and extensions.......................................................... -- Production.......................................................................... (813) --------- End of period....................................................................... 2,223 --------- --------- Proved developed reserves: End of year......................................................................... 1,761 --------- ---------
Subsequent to December 31, 1996, proved undeveloped reserve estimates were revised downward by approximately 0.5 million barrels to reflect recent drilling results. The standardized measure of discounted future net cash flows and changes therein relating to the proved oil reserves of the IGL Transferred Businesses were computed using reserve valuations based on regulations prescribed by the SEC. These regulations provide for the use of current oil prices (escalated only when known and determinable price changes are provided by contract and law) in the projection of F-30 NOTES TO STATEMENTS OF GROSS SULPHUR AND OIL REVENUES (CONTINUED) AND DIRECT OPERATING EXPENSES OF THE IGL TRANSFERRED BUSINESSES 2. SUPPLEMENTAL INFORMATION ON SULPHUR AND OIL RESERVES (UNAUDITED) (CONTINUED) future net cash flows. The estimated standardized measure of discounted future net cash flows relating to proved reserves of the IGL Transferred Businesses at December 31, 1996 is shown below (in thousands). Future cash flows.................................................. $ 45,910 Future costs applicable to future cash flows: Production costs................................................. 20,193 Development and abandonment costs................................ 8,027 --------- Future net cash flows before income taxes.......................... 17,690 Future income taxes -- --------- Future net cash flows.............................................. 17,690 Discount for estimated timing of net cash flows (10% discount rate)............................................................ 995 --------- $ 16,695 --------- ---------
Because the tax position of the predecessor owner will not affect Freeport Sulphur's future tax provisions, no deductions for future income taxes have been made above. Oil prices have declined subsequent to December 31, 1996. The future cash flows from proved reserves presented above do not reflect the decline. An analysis of the sources of changes in the standardized measure of discounted future net cash flows relating to proved reserves of the IGL Transferred Businesses for the year ended December 31, 1996 is shown below (in thousands). Beginning of year.................................................. $ 20,895 Development costs incurred during the period....................... 453 Revisions: Changes in prices................................................ 3,136 Accretion of discount............................................ 2,090 Other changes.................................................... 1,309 Revenues, less production costs.................................... (11,188) --------- End of year........................................................ $ 16,695 ---------
F-31 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE FTX STOCKHOLDER DISTRIBUTION AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK DISTRIBUTED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. -------------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 Risk Factors.............................................................. 10 The Merger and the Distributions.......................................... 16 Certain Federal Income Tax Consequences................................... 19 Dividend Policy........................................................... 23 Distributing Security Holder.............................................. 23 Capitalization............................................................ 23 Selected Financial and Operating Data..................................... 24 Selected Pro Forma Financial and Operating Data........................... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 27 Business.................................................................. 31 Management................................................................ 45 Principal Stockholders.................................................... 55 Certain Transactions...................................................... 56 Description of Capital Stock.............................................. 57 Comparison of the Rights of Stockholders.................................. 63 Shares Eligible for Future Sale........................................... 64 Legal Matters............................................................. 64 Experts................................................................... 64 Available Information..................................................... 65 Index to Financial Statements............................................. F-1
-------------------------- UNTIL DECEMBER 12, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THE FTX STOCKHOLDER DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF THE DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS. 5,338,513 SHARES FREEPORT-MCMORAN SULPHUR INC. COMMON STOCK ($.01 PAR VALUE) --------------------- PROSPECTUS --------------------- November 17, 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Estimated expenses payable in connection with the proposed FTX Stockholder Distribution of Common Stock covered hereby are as follows: SEC registration fee.............................................. $ 0 NYSE listing fee.................................................. 100,000 Printing expenses................................................. 135,000 Legal fees and expenses........................................... 150,000 Accounting fees and expenses...................................... 60,000 Distribution agent fees and expenses.............................. 75,000 Miscellaneous expenses............................................ 30,000 --------- Total expenses................................................ $ 550,000 --------- ---------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law (the "DGCL") provides that a corporation may limit the liability of and indemnify its directors and officers against liability in a variety of circumstances. In accordance with the DGCL, the Company's Certificate of Incorporation contains provisions eliminating the personal liability of the directors except for liability for (a) a breach of his or her duty of loyalty to the Company or to its stockholders, (b) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (c) dividends or stock repurchases or redemptions that are unlawful under Delaware law and (d) any transaction from which he or she receives an improper personal benefit. In addition, the Company's By-laws require the Company to indemnify its officers and directors against expenses and costs, judgments, settlements and fines incurred in the defense of any claim, including any claim brought by or in the right of the Company, to which they were made parties by reason of being or having been officers or directors. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES On August 26, 1997 the Company issued 100 shares of Common Stock to FRP in exchange for $100.00 in cash. In connection with the Contribution, the Company will issue an additional 10,346,478 shares to FRP in exchange for FRP's contribution to the Company of the Transferred Businesses. All of the shares issued to FRP in each of these transactions are being distributed in the Distributions described in this Registration Statement. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS
EXHIBITS 2.1 Contribution and Distribution Agreement by and among the Company, FTX and FRP, dated as of August 26, 1997 2.2 Form of IGL Contribution Agreement 3.1 Certificate of Incorporation of the Company 3.2 By-laws of the Company 4.1 Form of the Company's Common Stock certificate 5.1 Opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. 8.1 Opinion of Miller & Chevalier, Chartered 10.1 Form of Employee Benefits Agreement by and between FTX and the Company
II-1
EXHIBITS 10.2 Asset Sale Agreement for Main Pass Block 299 between FRP and Chevron USA, Inc. dated as of May 2, 1990 10.3 Main Pass 299 Sulphur and Salt Lease, effective May 1, 1988 10.4 Joint Operating Agreement by and between FRP, IMC-Fertilizer, Inc. and Felmont Oil Corporation, dated June 5, 1990 10.5 Joint Operating Agreement by and between FRP, IMC-Fertilizer, Inc. and Felmont Oil Corporation, dated May 1, 1988 10.6 Agreement to Coordinate Operating Agreements by and between FRP, IMC-Fertilizer and Felmont Oil Corporation, dated May 1, 1988 10.7 Asset Purchase Agreement between FRP and Pennzoil Company dated as of October 22, 1994 (the "Asset Purchase Agreement") 10.8 Amendment No. 1 to the Asset Purchase Agreement dated as of January 3, 1995 10.9 Agreement for Sulphur Supply, as amended, dated as of July 1, 1993 among FRP, IMC Fertilizer and IMC-Agrico Company (the "Sulphur Supply Agreement")* 10.10 Side letter with IGL regarding the Sulphur Supply Agreement 10.11 Processing and Marketing Agreement between the Freeport Sulphur Company (a division of FRP) and Felmont Oil Corporation dated June 19, 1990 (the "Processing Agreement") 10.12 Amendment Number 1 to the Processing Agreement 10.13 Amendment Number 2 to the Processing Agreement 10.14 1997 Stock Option Plan for Non-Employee Directors 10.15 Company Adjusted Stock Award Plan 10.16 Freeport Sulphur 1997 Stock Option Plan 10.17 Form of Stockholder Protection Rights Agreement between Freeport-McMoRan Sulphur Inc. and Mellon Securities Trust Company, as Rights Agent 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Ryder Scott Company 23.3 Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. (included in Exhibit 5.1) 23.4 Consent of Miller & Chevalier, Chartered (included in Exhibit 8.1) 23.5 Consent of Valuation Research Corporation (included in Exhibit 99.1) 24.1 Powers of Attorney 27.1 Financial Data Schedule 99.1 Solvency Opinion of Valuation Research Corporation
- ------------------------ * Portions of this Exhibit have been omitted pursuant to a confidentiality request filed with the Commission. II-2 (B) FINANCIAL STATEMENT SCHEDULES None. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the 1933 Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New Orleans, State of Louisiana, on November 14, 1997. FREEPORT-MCMORAN SULPHUR INC. By: /s/ ROBERT M. WOHLEBER ----------------------------------------- Robert M. Wohleber, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the 1933 Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- * - ------------------------------ Co-Chairman of the Board November 14, 1997 James R. Moffett of Directors * - ------------------------------ Co-Chairman of the Board November 14, 1997 Rene L. Latiolais of Directors * - ------------------------------ Vice Chairman of the Board November 14, 1997 Richard C. Adkerson of Directors President, Chief Executive /s/ ROBERT M. WOHLEBER Officer and a Director - ------------------------------ (Principal Executive, November 14, 1997 Robert M. Wohleber Financial and Accounting Officer) * - ------------------------------ Director November 14, 1997 J. Terrell Brown * - ------------------------------ Director November 14, 1997 Thomas D. Clark, Jr. * - ------------------------------ Director November 14, 1997 B. M. Rankin, Jr. *By: /s/ ROBERT M. WOHLEBER ------------------------- Robert M. Wohleber ATTORNEY-IN-FACT S-1 EXHIBIT INDEX
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE - ----------- --------------------------------------------------------------------------------------- ----------------- 2.1 Contribution and Distribution Agreement by and among the Company, FTX and FRP, dated as of August 26, 1997 2.2 Form of IGL Contribution Agreement 3.1 Certificate of Incorporation of the Company 3.2 By-laws of the Company 4.1 Form of the Company's Common Stock certificate 5.1 Opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. 8.1 Opinion of Miller & Chevalier, Chartered 10.1 Form of 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 May 2, 1990 10.3 Main Pass 299 Sulphur and Salt Lease, effective May 1, 1988 10.4 Joint Operating Agreement by and between FRP, IMC-Fertilizer, Inc. and Felmont Oil Corporation, dated June 5, 1990 10.5 Joint Operating Agreement by and between FRP, IMC-Fertilizer, Inc. and Felmont Oil Corporation, dated May 1, 1988 10.6 Agreement to Coordinate Operating Agreements by and between FRP, IMC-Fertilizer and Felmont Oil Corporation, dated May 1, 1988 10.7 Asset Purchase Agreement between FRP and Pennzoil Company dated as of October 22, 1994 (the "Asset Purchase Agreement") 10.8 Amendment No. 1 to the Asset Purchase Agreement dated as of January 3, 1995 10.9 Agreement for Sulphur Supply, as amended, dated as of July 1, 1993 among FRP, IMC Fertilizer and IMC-Agrico Company (the "Sulphur Supply Agreement")* 10.10 Side letter with IGL regarding the Sulphur Supply Agreement 10.11 Processing and Marketing Agreement between the Freeport Sulphur Company (a division of FRP) and Felmont Oil Corporation dated June 19, 1990 (the "Processing Agreement") 10.12 Amendment Number 1 to the Processing Agreement 10.13 Amendment Number 2 to the Processing Agreement 10.14 1997 Stock Option Plan for Non-Employee Directors 10.15 Company Adjusted Stock Award Plan 10.16 Freeport Sulphur 1997 Stock Option Plan 10.17 Form of Stockholder Protection Rights Agreement between Freeport-McMoRan Sulphur Inc. and Mellon Securities Trust Company, as Rights Agent 23.1 Consent of Arthur Andersen LLP
E-1
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION OF EXHIBITS NUMBERED PAGE - ----------- --------------------------------------------------------------------------------------- ----------------- 23.2 Consent of Ryder Scott Company 23.3 Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. (included in Exhibit 5.1) 23.4 Consent of Miller & Chevalier, Chartered (included in Exhibit 8.1) 23.5 Consent of Valuation Research Corporation (included in Exhibit 99.1) 24.1 Powers of Attorney 27.1 Financial Data Schedule 99.1 Solvency Opinion of Valuation Research Corporation
- ------------------------ * Portions of this Exhibit have been omitted pursuant to a confidentiality request filed with the Commission. E-2 EX-2.1 2 CONTRIBUTION AND DISTRIBUTION AGREEMENT CONTRIBUTION AND DISTRIBUTION AGREEMENT CONTRIBUTION AND DISTRIBUTION AGREEMENT dated as of August 26, 1997 among 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 SULPHUR COMPANY, a Delaware corporation (together with its successors and permitted assigns, "COMPANY"). W I T N E S S E T H WHEREAS, capitalized terms used in the Recitals shall have the meanings set forth in Article I hereof, unless the context dictates otherwise; WHEREAS, the Company is a wholly-owned subsidiary of FRP; WHEREAS, FTX is the Administrative Managing General Partner and Special General Partner of FRP, and FMRP Inc., a Delaware corporation and a wholly owned subsidiary of FTX (together with its successors and permitted assigns, "FMRP"), is the Managing General Partner and Special General Partner of FRP; WHEREAS, FTX and FRP intend to contribute certain assets to the Company and the Company intends to assume certain liabilities, subject to the terms and conditions more particularly described herein (the "CONTRIBUTIONS"); WHEREAS, FRP intends to distribute (the "DISTRIBUTION") all of the outstanding shares of Company Common Stock and Rights to the holders of FMRP Units, Unit Equivalents and the Basic General Partnership Interest; WHEREAS, the Board of Directors of FTX has approved an Agreement and Plan of Merger between FTX and IMC Global Inc., a Delaware corporation ("IGL") dated the date hereof (the "MERGER AGREEMENT") pursuant to which, and subject to the terms and conditions thereof, FTX will merge with and into IGL (the "MERGER"); WHEREAS, in connection with the Merger and prior to the Contributions, IMC Global Operations Inc, a Delaware corporation ("IMC OPERATIONS"), intends to transfer and to confirm the prior transfer of certain assets to the Company and the Company intends to assume certain liabilities, pursuant to an Assignment and Assumption Agreement substantially in the form of EXHIBIT A hereto (the "ASSIGNMENT AGREEMENT"); and WHEREAS, the parties have determined that it is necessary and desirable to set forth the principal transactions required to effect the Contributions and the Distribution and to enter into other agreements that will govern certain matters following the Distribution; NOW, THEREFORE, in consideration of the mutual agreements and covenants contained in this Agreement, the parties hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. 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, as trustee or executor or otherwise; provided that (i) immediately following the Effective Time, the Company shall not be an Affiliate of IGL or FRP and (ii) the Company shall not be deemed to be an Affiliate of IMC-Agrico Company. "Agreement" means this Contribution and Distribution Agreement, including all exhibits and schedules hereto. "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 rendered by or entered into with any Governmental Authority. "Assignment Agreement" shall have the meaning set forth in the Recitals. "Assumed Liabilities" shall have the meaning set forth in Section 3.03 hereof. "Balance Sheet" shall have the meaning set forth in Section 3.01(a) hereof. "Basic General Partnership Interest" shall have the meaning set forth in the Partnership Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the United States Securities and Exchange Commission. -2- "Company Certificate" means the Certificate of Incorporation of the Company. "Company Bylaws" means the Bylaws of the Company as adopted by the Company's Board of Directors. "Company Common Stock" means shares of common stock, par value $.01 per share, of the Company. "Company Indemnitees" shall have the meaning set forth in Section 5.01(a) hereof. "Company Rights Plan" means the rights agreement of the Company as adopted by the Company's Board of Directors. "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 Transferred Assets or the performance of one or more actions identified herein. "Contaminant" 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. "Contributions" shall have the meaning set forth in the Recitals. "Database" means all geological, geophysical or other similar information including but not limited to, files, surveys, maps, studies, contracts, logs, computer programs, seismic cross sections, computer tapes and other technical data owned or licensed by or leased to FTX and/or FRP which are in existence on the date hereof and which are used primarily in connection with, or which are otherwise necessary or desirable to operate, the Transferred Businesses. "Distribution" shall have the meaning set forth in the Recitals. "Distribution Agent" means Chase Mellon Shareholder Services, L.L.C., as agent of the holders of FMRP Units, Unit Equivalents and the Basic General Partnership Interest. "Distribution Date" means the date on which the Distribution is effected. "Effective Time" shall mean the effective time of the Merger, as provided in Section 1.2 of the Merger Agreement. "Employee Benefits Agreement" means the agreement among FTX, FRP and Company, in substantially the form of EXHIBIT B hereto. -3- "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. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Assets" shall have the meaning set forth in Section 3.02 hereof. "Excluded Liabilities" shall have the meaning set forth in Section 3.04 hereof. "Fertilizer Business" means the business conducted by IMC-Agrico Company. "FM Services Agreement" means the Termination Agreement between FTX, FCX and FM Services Company, a Delaware corporation, substantially in the form of EXHIBIT C hereto, as such agreement may be amended from time to time. "FMRP" shall have the meaning set forth in the Recitals. "FMRP Unit" shall have the meaning set forth in the Partnership Agreement. "Form 10" means the registration statement on Form 10 with respect to the shares of Company Common Stock and Rights, to be filed with the Commission under the Exchange Act, together with any amendments thereto. "FRP Indemnitees" shall have the meaning set forth in Section 5.01(b). "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). "IGL" shall have the meaning set forth in the Recitals. "IMC Operations" shall have the meaning set forth in the Recitals. "Income Statement" shall have the meaning set forth in Section 3.01(a) hereof. "Indemnified Party" shall have the meaning set forth in Section 5.01(d) hereof. -4- "Indemnifying Party" shall have the meaning set forth in Section 5.01(d) hereof. "Indemnitee" shall mean any Company Indemnitee or any FRP Indemnitee, as the case may be. "Information Statement" means the information statement filed as part of the Form 10 to be sent to the holders of FMRP Units, Unit Equivalents and the Basic General Partnership Interest, in connection with the Distribution. "Insurance Proceeds" means any monies (i) received by an insured from an insurance carrier or (ii) paid by an insurance carrier on behalf of the insured, in either case net of any applicable premium adjustments (including reserves), retrospectively-rated premium adjustments, deductibles, retentions, or costs paid by such insured. "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 owned or leased by FRP or FTX that presently (or on the Distribution Date) are or will be located on the real property or other acreage subject to the Leases, and all of FRP's or FTX'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 real property leases, subleases, licenses and occupancy agreements set forth on Part 1 of Schedule 3.01 hereto pursuant to which FRP or FTX is the lessee, sublessee, licensee, or occupant. "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 -5- 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. "Losses" shall have the meaning set forth in Section 5.01(a) hereof. "Merger" shall have the meaning set forth in the Recitals. "Merger Agreement" shall have the meaning set forth in the Recitals. "NYSE" means the New York Stock Exchange. "Owned Real Property" means the real property identified on Part 1 of Schedule 3.01 that is owned by FRP or FTX in fee simple, together with all other structures, facilities, improvements, fixtures, systems, equipment, and items of real property that presently (or on the Distribution Date) are or will be located thereon or attached or appurtenant thereto and all easements, servitudes, licenses, rights, rights-of-way, operating rights, franchises and appurtenances relating to the foregoing. "Partnership Agreement" means the Amended and Restated Agreement of Limited Partnership of Freeport-McMoRan Resource Partners, Limited Partnership, dated May 29, 1987 (amending and restating the Agreement of Limited Partnership entered into as of April 17, 1986), as amended by amendments dated December 16, 1988, March 29, 1990, April 6, 1990, January 27, 1992 and October 14, 1992. "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 FRP or FTX necessary for the ownership or use of any Transferred Asset or the conduct of the Transferred Businesses 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. "Prior Business" shall have the meaning set forth in Section 3.03(c) hereof. "Prior Business Real Property" shall have the meaning set forth in Section 3.03(e) hereof. -6- "Real Property" shall mean the Owned Real Property and the Leased Real Property. "Record Date" means the date determined by FTX, in its capacity as the Administrative Managing General Partner of FRP, as the record date for determining the holders of FMRP Units, Unit Equivalents, and the Basic General Partnership Interest who are entitled to receive the Distribution. "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 Real Property, including the movement of Contaminants through or in the air, soil, surface water, groundwater or 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, in each case, to the extent required by an Environmental Law. "Rights" means the preferred stock purchase rights to be issued by the Company pursuant to the Company Rights Plan. "Securities Act" means the Securities Act of 1933, as amended. "Stock Incentive Plan" means the stock incentive plan or plans as adopted by the Company. "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. "Tax Cooperation Agreement" means the agreement among FTX, FRP and the Company, in substantially the form of EXHIBIT D hereto. "Transferred Assets" means the assets identified in Section 3.01(a) hereof, to the extent that such assets do not constitute Excluded Assets. -7- "Transferred Businesses" means, collectively: (i) the businesses and operations of FRP, FTX and their respective Affiliates 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 Real Property, but expressly excluding the purchase and processing of sulphur by IMC-Agrico Company; (ii) the businesses and operations of FRP, FTX and their respective Affiliates to the extent relating to the exploration, production, development, processing, transportation, sale, purchase or marketing of Hydrocarbons produced from or allocable to the Real Property, or the provision of other services in connection therewith; (iii) the businesses and operations of the entities identified on Part 2 of Schedule 3.01 as being transferred to the Company as part of the Transferred Assets; (iv) to the extent not already included in the descriptions set forth in (i) through (iii) of this definition, (A) all businesses and operations reflected on the Balance Sheet and Income Statement; and (B) all businesses and operations located on the Real Property or using or consuming any of the Transferred Assets. "Unit Equivalent" shall have the meaning set forth in the Partnership Agreement. ARTICLE II THE DISTRIBUTION Section 2.01. COOPERATION PRIOR TO THE DISTRIBUTION. (a) As soon as practicable after the execution of this Agreement, FRP and the Company shall prepare and file with the Commission, the Form 10, which shall include the Information Statement, setting forth appropriate disclosure concerning the Company, the Distribution and any other appropriate matters required to be stated therein. FRP shall use best reasonable efforts to cause the Form 10 to become effective under the Exchange Act, and thereafter FRP shall mail the Information Statement to holders of FMRP Units, Unit Equivalents and the Basic General Partnership Interest as of the Record Date. (b) FRP and the Company shall take all such action as may be reasonably necessary or appropriate under the securities or blue sky laws of states or other Governmental Authorities of the United States in connection with the transactions contemplated by this Agreement. (c) The Company shall prepare, file (not later than the date of filing of the Form 10 with the Commission) and pursue an application to list the Company Common Stock and associated Rights on the NYSE. Section 2.02. FTX BOARD ACTION; CONDITIONS PRECEDENT TO THE DISTRIBUTION. The Board of Directors of FTX shall, in its discretion, acting in its capacity as the Administrative Managing General Partner of FRP, (a) establish the Record Date and Distribution Date, and (b) establish any appropriate procedures in connection with the Distribution. In no event shall the Distribution Date be later than the Effective Time. In addition, in no event shall the Distribution occur unless each of the following conditions shall have been satisfied or waived by FRP and FTX: -8- (i) The Company shall have been duly formed and shall be validly existing; the Company's Board of Directors shall have been elected by FRP; the Company Certificate and Company Bylaws shall be in effect; and the Company's Board of Directors shall have adopted the Company Rights Plan and declared and paid a dividend of 1 Right for each share of Company Common Stock outstanding; (ii) the Form 10 shall have become effective under the Exchange Act; (iii) the Company Common Stock and Rights associated therewith shall have been approved for listing on the NYSE, subject to official notice of issuance; (iv) IMC Operations and FRP shall have executed the Assignment Agreement; (v) the Transferred Assets shall have been transferred to the Company, and the Assumed Liabilities shall have been assumed by the Company, in each case as contemplated by Article III hereof; (vi) the FM Services Agreement, the Tax Cooperation Agreement and the Employee Benefits Agreement shall have been duly and validly authorized, executed and delivered by the respective parties thereto; (vii) all conditions precedent to the Merger shall have occurred or been waived by the party enjoying the benefit thereof; (viii) the Company's Board of Directors shall have adopted, and FRP as the sole shareholder of the Company shall have approved, the Stock Incentive Plan and shall take all such actions as are necessary or desirable to cause all outstanding options to purchase FTX Common Stock and any awards related to FTX Common Stock to be converted into an adjusted option to purchase or award relating to FTX Common Stock and a new option to purchase or award relating to the Company Common Stock issued in accordance with the Stock Incentive Plan; and (ix) to the extent required by contract or Applicable Law in connection with the conveyance of the Transferred Assets, FRP shall have obtained the Consents identified on Schedule 2.02 hereto. Each of the parties hereto agrees to use its best reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper or advisable to satisfy and fulfill the foregoing conditions as soon as reasonably practicable and to cause the Distribution to be effective. Section 2.03. THE DISTRIBUTION. (a) On the Distribution Date, subject to the conditions set forth in this Agreement, FRP shall, except as otherwise provided in Section 2.04, cause the Distribution Agent to distribute to each holder of FMRP Units, Unit Equivalents and the Basic -9- General Partnership Interest on the Record Date (i) 1 share of Company Common Stock and the associated Right for each 10 FMRP Units, (ii) 1 share of Company Common Stock and the associated Right for each 10 Unit Equivalents, and (iii) 1 share of Company Common Stock and the associated Right for each 10 units of Basic General Partnership Interest, so held. (b) The Company shall provide all certificates for shares of Company Common Stock that FRP shall require in order to effect the Distribution. Section 2.04. SALE OF FRACTIONAL SHARES. Prior to the Distribution Date, FRP shall appoint the Distribution Agent as agent for all holders on the Record Date of FMRP Units, Unit Equivalents and the Basic General Partnership Interest who would receive in the Distribution any fractional share of Company Common Stock. The Distribution Agent shall aggregate all such fractional shares and sell them in an orderly manner after the Distribution Date in the open market and, after completion of such sales, distribute a prorated portion of the proceeds from such sales, based upon the average gross selling price of all such fractional shares, to each holder of FMRP Units, Unit Equivalents or Basic General Partnership Interest who would otherwise have received a fractional share. FTX shall reimburse the Distribution Agent for the costs and expenses incurred in connection with the foregoing. ARTICLE III CONVEYANCE AND ASSUMPTION Section 3.01. TRANSFER OF ASSETS. (a) Upon the terms and subject to the conditions of this Agreement, FRP and FTX shall take all such action as may be necessary or appropriate under Applicable Law to assign, transfer and deliver, or cause to be assigned, transferred and delivered, to the Company, on or prior to the Distribution Date, but effective as of the Distribution Date, all right, title and interest of FRP, FTX, or any of their respective Affiliates in and to all of the following assets, to the extent that such assets exist on the Distribution Date and do not constitute Excluded Assets, and except as set forth in Section 3.01(b) below (collectively, but expressly excluding any Excluded Assets, the "TRANSFERRED ASSETS"): (i) All assets owned by FTX, FRP or any of their Affiliates that are used primarily in connection with the Transferred Businesses, including all (A) assets reflected on the June 30, 1997, unaudited consolidated balance sheet of the Transferred Businesses attached as EXHIBIT E hereto (the "BALANCE SHEET"), as well as those acquired or generated by the Transferred Businesses or any Transferred Asset since the date of the Balance Sheet, and (B) those assets that generate any income reflected on the unaudited income statement of the Transferred Businesses for calender year 1996 and for the six month period ended June 30, 1997 attached as EXHIBIT F (the "INCOME STATEMENT") hereto less, in the case of (A) or (B), any assets disposed of since the date of the respective statements; PROVIDED THAT the parties -10- hereto acknowledge that the actual values attributed to the assets included in the Balance Sheet and Income Statement may change prior to the Effective Time. (ii) All right, title and interest of FRP, FTX or any of their Affiliates in and to any and all of the assets listed on Schedule 3.01 hereto; (iii) All right, title and interest of FRP, FTX or any of their Affiliates in and to any and all of the assets physically located on any of the Real Property; (iv) All books, records and information of FTX, FRP and their Affiliates recorded on any form of media whether owned, leased or licensed by FTX, FRP or an Affiliate thereof, including magnetic disk, computer drives or microfiche, to the extent the same primarily relate to or are used primarily by or primarily in connection with the Transferred Businesses or any Transferred 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 or are used primarily by or primarily in connection with the Transferred Businesses or any Transferred Asset. (v) Cash in amount of $2,000,000; (vi) All credits, prepaid expenses, deferred charges, advance payments, security deposits and prepaid items owned by, accrued in favor of or held by FRP, FTX or any Affiliate thereof to the extent relating primarily to the Transferred Businesses or any Transferred Asset. (vii) All notes, accounts receivable, rights to payment or other evidence of indebtedness generated by FRP and/or FTX primarily in connection with the Transferred Businesses or any Transferred 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. (viii) All of the right, title and interest of FRP, FTX or any of their Affiliates in and to all contracts and agreements between FRP, FTX and/or any of their Affiliates, on the one hand and any third party to the extent made by or for the primary benefit of the Transferred Businesses or any Transferred Asset. -11- (ix) All asserted and unasserted Actions now owned by FRP and/or FTX that are related primarily to or arise primarily out of the Transferred Businesses or any of the Transferred Assets, including any claim for royalty refunds or rebates from any land owner, including the United States, and any claim for balancing of Hydrocarbons. (x) All Consents and Permits held by FRP, FTX or any of their Affiliates for the primary benefit of the Transferred Businesses or any Transferred Asset. (xi) 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 Transferred Asset. (xii) All servitudes, easements, rights of way, water rights, grazing leases, operating rights, exploration rights, sharing agreements, balancing agreements, pooling or unitization agreements, farmout or farmin 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 Transferred Asset. (xiii) All sulphur, Hydrocarbons or other minerals to the extent produced from or are allocable to the interest of FTX, FRP or any of their Affiliates in and to any of the Leased Real Property. (xiv) All Intellectual Property owned or licensed by FRP, FTX or any of their Affiliates 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 Transferred 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; (xv) All Owned Real Property and Leases and all licenses, permits, approvals and qualifications relating to any Real Property issued to FRP, FTX or any of their Affiliates by any Governmental Authority; (xvi) To the extent not otherwise described above, the Database, to the extent permitted by contractual arrangements and agreements relating to the Database and applicable law; -12- (xvii) To the extent not otherwise described above, the assets acquired, or intended to be acquired, by FRP from Pennzoil Company or its Affiliates pursuant to the Asset Purchase Agreement dated as of October 22, 1994; (xviii) To the extent not otherwise described above, the assets acquired or intended to be acquired by FRP pursuant to the Assignment Agreement, or, at FRP's discretion, the right to acquire such assets; (xix) Any amounts reserved by FTX prior to the Distribution Date in any self-insured accrual accounts to the extent relating to the self- insured portion or deductible of any Assumed Liabilities; and (xx) Any payments made to or on behalf of FTX or any Actions in favor of FTX under any insurance policies retained by FTX to the extent that the same relate to any Assumed Liabilities; provided that the past and present insurance policies themselves shall be Excluded Assets. (xxi) Any goodwill associated with the Transferred Businesses or Transferred Assets. (xxii) Any assets intended to be transferred to the Company pursuant to the Employee Benefits Agreement. The parties acknowledge and agree that the right, title and interest of FRP, FTX and their Affiliates in and to the Excluded Assets are to be retained by FRP, FTX or such Affiliate, as the case may be, and are not being transferred to the Company pursuant to this Agreement or otherwise. (b) In the event that FTX or FRP, or any other relevant Person, shall be unable to transfer any of the Transferred Assets to the Company prior to the Distribution Date due to the failure of FTX, FRP or any other Person to obtain any necessary Consents, FTX, FRP or such other Person, as appropriate: (i) shall continue to seek the necessary Consents, in accordance with Section 3.05(b) hereof; (ii) shall hold such Transferred Assets for the benefit of the Company and cooperate with the Company in any lawful and economically feasible arrangement to insure that the Company shall receive the benefits thereof, (iii) shall hold or cause to be held for the account of the Company all accounts receivable or accounts payable related to the Company's interest in any such Transferred Assets accrued as, and accruing after, the Distribution Date, (iv) shall make available to the Company all information relating to such Transferred Assets to the extent making such information available is permitted by Applicable Law and the contractual arrangements relating to such Transferred Assets, (v) shall not, and shall cause all Affiliates not to, assign, transfer, otherwise dispose of or grant a Lien upon any such Transferred Assets to any Person other than the Company, and (vi) shall upon obtaining the necessary Consents relating to such Transferred Assets, promptly take such action, and cause all other relevant Persons to promptly take, such action as may be necessary to complete the transfer to the Company of such Transferred Assets, including without -13- limitation, all accrued accounts payable and accrued accounts receivable related to such Transferred Assets. Any transfer of a Transferred Asset after the Distribution Date shall be effective as of the Distribution Date. It is agreed and understood that no party shall be liable in any manner to any other party for any failure of any of the transfers contemplated by this Article III to be consummated prior to the Distribution Date. Nothing in this Article III shall be deemed to require the transfer of any Transferred Assets which by their terms or operation of law cannot be transferred. Section 3.02 EXCLUDED ASSETS. (a) Notwithstanding anything contained in this Agreement or in any conveyance document to the contrary, the following assets (collectively, the "EXCLUDED ASSETS") are not Transferred Assets and shall not be transferred to Company hereunder: (a) Any and all present and past insurance policies under the FTX and FM Services Insurance Program, provided however, that any payments to or on behalf of FTX under such policies to the extent that the same relate to any Assumed Liabilities shall be a Transferred Asset; (b) Any direct or indirect interest of FRP, FTX or any Affiliate in or to (i) IMC-Agrico Company, (ii) FMRP, (iii) Agrico, Limited Partnership or (iv) IMC-Agrico MP, Inc.; and (c) Any assets used or consumed primarily in connection with or otherwise primarily related to the Fertilizer Business other than sulphur. Section 3.03. ASSUMPTION OF ASSUMED LIABILITIES. Subject to the terms and conditions set forth in this Agreement, the Company 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 Distribution Date, all Liabilities arising primarily from or primarily in connection with the ownership, acquisition, conduct or operation (past, present or future) of the Transferred Businesses (or any businesses, assets or operations managed or operated by FTX or FRP or any past or present Affiliate thereof that have been sold, liquidated, merged or otherwise disposed of or discontinued prior to the Distribution Date to the extent that such businesses, assets or operations would have been part of the "Transferred Businesses" had they been owned by FTX or FRP on the Distribution Date (such businesses, assets or operations being herein referred to as the "Prior Businesses")) or any Transferred Assets or relating primarily to the ownership or use of the Transferred Assets, whether arising before, on or after the Distribution Date and whether related to the current, past or future operations of the Transferred Businesses, other than Excluded Liabilities (collectively, the "ASSUMED LIABILITIES"). Without limitation of the foregoing, Assumed Liabilities include, to the extent that they do not include any Excluded Liabilities: (a) Any and all Liabilities reflected on the Balance Sheet or incurred after the date of the Balance Sheet in connection with the Transferred Businesses or any Transferred Asset other than Excluded Liabilities; -14- (b) Liabilities in respect of present or former FTX or FRP employees, to the extent specifically assumed by the Company pursuant to the Employee Benefits Agreement; (c) Any and all Liabilities primarily arising out of the contracts and agreements described in Section 3.01(a)(viii) above; (d) All Liabilities primarily related to, primarily associated with or arising out of (i) the occupancy, operation, use or control of any of the Real Property or any other real property occupied, operated, used or controlled by the Prior Businesses (the "Prior Business Real Property"), (ii) the operations of the Transferred Businesses or the Prior Businesses (or in each case, any predecessor thereto, but in every such case, only with respect to that portion of such predecessors' businesses that now constitute the Transferred Businesses or previously constituted the Prior Businesses), 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 Real Property or any Prior Business 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), (iii) the generation, handling transportation, storage, discharge or disposal of any Contaminant primarily in connection with the Transferred Businesses or the Prior Businesses, (iv) any Remedial Action required under any Environmental Law primarily in connection with the Transferred Businesses or the Prior Businesses; or (v) any violation of any Environmental Law primarily in connection with the operations of the Transferred Businesses or the Prior Businesses; and (e) Any Liabilities arising out of or related to litigation to the extent related to the current, past or future operations of the Transferred Businesses. Section 3.04 EXCLUDED LIABILITIES. Notwithstanding any provision of this Agreement or any conveyance or assumption agreement to the contrary, the Company shall not assume any of the following Liabilities (collectively, the "EXCLUDED LIABILITIES"): (a) Any Liabilities, obligations or commitments of FRP, FTX or any other Person relating primarily to or arising primarily out of the Fertilizer Business or any business other than the Transferred Businesses or the Prior Businesses; (b) Any and all Taxes relating to or arising out of the business operations or activities of FRP, FTX or any of their Affiliates accruing, or with respect to any event or time period occurring, at or prior to the Distribution Date; (c) Any and all Liabilities relating to, arising out of or in connection with, any businesses, assets or operations managed or operated by FTX or FRP have been sold, -15- liquidated, merged or otherwise disposed of or discontinued prior to the Distribution Date, other than the Transferred Businesses or Prior Businesses; (d) Any and all Liabilities relating to the Excluded Assets; (e) Any and all Liabilities for money borrowed by FTX, FRP or any of their Affiliates; (f) Any and all Liabilities for which the Company is relieved of liability under the Employee Benefits Agreement; (g) All Liabilities related to, associated with or arising out of (i) the occupancy, operation, use or control of any Real Property other than the Real Property or the Prior Business Real Property, (ii) the operations of the businesses and operations of FTX or FRP or any of their Affiliates other than the Transferred Businesses or the Prior Businesses (or in each case, 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 any real estate other than the Real Property or the Prior Business 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), (iii) the generation, handling transportation, storage, discharge or disposal of any Contaminant relating to any business or operation of FTX, FRP or any of their Affiliates other than the Transferred Businesses or the Prior Businesses; (iv) any Remedial Action required under any Environmental Law relating to any business or operation of FTX, FRP or any of their Affiliates other than the Transferred Businesses or the Prior Businesses; or (v) any violation of any Environmental Law in connection with the operations of the business or operations of FTX, FRP or and of their Affiliates other than the Transferred Businesses or the Prior Businesses; or (h) Any Liabilities arising out of or related to litigation to the extent related to the current, past or future operations of the business or operations of FTX, FRP or any of their Affiliates other than the Transferred Businesses or the Prior Businesses. (i) Any amounts for which checks or other drafts have been drawn, in the ordinary course of business but which have not yet been paid by the financial institution upon which they are drawn, to the extent that such amounts constitute Liabilities. Section 3.05. FURTHER ASSURANCES AND CONSENTS. (a) The transfer of the Transferred Assets and the assumption of the Assumed Liabilities contemplated herein shall be further evidenced by the execution and delivery by FRP, FTX, the Company and any other relevant Person 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, -16- 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 Company title to or other applicable rights in the Transferred Assets and (ii) the delivery of originals of stock certificates, motor vehicle titles and other similar documents of title) as any other party may reasonably request in order to effectuate the purposes of this Agreement. (b) Each of the parties hereto shall use its reasonable efforts to take all actions necessary to consummate the transactions contemplated by this Agreement, including obtaining any Consents before or after the Distribution Date, until such time as such Consent has been obtained. Any and all out-of-pocket expenses and costs of seeking to obtain or of obtaining any such Consent whether before or after the Distribution Date shall be borne by FTX (subject to the terms of Section 8.11 hereof). Section 3.06. "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 Transferred Assets or (b) as to the legal sufficiency to convey title to any Transferred Asset, it being understood that except as otherwise set forth in this Agreement or in any ancillary transfer document, the Transferred Assets are being conveyed "As-is, Where-is," except for rights or actions in warranty against predecessors in title (other than FRP, FTX or any prior or current Affiliates thereof). It is understood and agreed that except for the obligations of FTX, FRP and other Affiliates under Section 3.01(b) and 3.05(b), the Company shall bear the economic and legal risk that any conveyance of the Transferred Assets shall prove to be insufficient or that the Company'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, in this Agreement or in any other agreement or document contemplated by this Agreement or otherwise, 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 except for the obligation of FTX, FRP and their Affiliates under Section 3.01(b) and 3.05(b) the Company shall bear the economic and legal risk that any necessary consents or approvals are not obtained or that any requirements of law or judgments are not complied with. Section 3.07. USE OF NAME "FREEPORT SULPHUR COMPANY". FTX and FRP consent to the use by the Company of the name "Freeport Sulphur Company". Section 3.08. RIGHT TO AUDIT. FTX and its successor shall have the right to audit all amounts in respect of Section 3.01(a)(vi) and (vii) to insure that such amounts are properly allocable to the Transferred Businesses or Transferred Assets by the giving of written notice to the Company within 30 days of the Distribution Date. -17- Section 3.09. ADMINISTRATION OF INSURANCE POLICIES. FTX, FRP and the Company agree to cooperate with each other with respect to the processing of any claims that are covered by any insurance policy in existence prior to the Distribution Date. The parties agree to execute an agreement pursuant to which FM Services will administer insurance claims on behalf of FTX, FRP, the Company, certain other Persons that are also beneficiaries of insurance policies covering periods prior to the Effective Time and their respective Affiliates. Among other things, this agreement will provide that (a) FTX and FM Services will continue to own those insurance policies that each of FTX and FM Services owns at the Effective Time; (b) FM Services will administer all claims made (whether before or after the Effective Time) under any policies owned by FTX and FM Services at the Effective Time subject to the payment by all such beneficiaries of the reasonable costs of FM Services to handle such matters with such administration activities being subject to the direction of the respective beneficiaries and their respective successors and/or assigns in accordance with criteria typical to and customary with third party administration relationships common in the industry; (c) FTX will transfer to FM Services or the appropriate Person any accruals for the self-insured portion or deductible relating to any claims or threatened claims against such Person other than FTX or FRP covered by one or more insurance policies owned by FTX, as funds are required to meet those obligations; and (d) the FM Services insurance policies under which FTX is a beneficiary shall be supplemented with the following endorsement or an endorsement that is otherwise reasonably acceptable to IMC Global Inc. and the parties hereto: "In consideration of premiums paid, it is understood and agreed that IMC Global Inc. is an Additional Named Insured under this policy as their interests may appear with respect to all operations of FTX which have been acquired by IMC Global Inc. as of (date of merger)" for all losses covered by the policy and occurring prior to the Effective Time of the merger. Section 3.10. OTHER ACTIONS OF THE COMPANY. In addition to the specific actions required to be taken by virtue of this Agreement, the Company agrees to take all such lawful action with respect to the Company Common Stock as may be necessary or appropriate in order to comply with legal requirements applicable to the Distribution, the Merger or any of the other transactions contemplated by this Agreement. Section 3.11. POST-CLOSING OBLIGATIONS. (a) In the event that any party to this Agreement (the "Paying Party") makes any payment in respect of any obligation for which any other Person (the "Obligated Party") is obligated pursuant to this Agreement or otherwise, the Obligated Party shall reimburse the Paying Party within 30 days of receiving a written request from the Paying Party containing reasonable evidence that the Paying Party has made such payment. To the extent that any pay period for any Transferred Employees (as such term is defined in the Employee Benefits Agreement) spans a period of time which includes days both before and after the Effective Time, the obligation of FTX and the Company for such amounts shall be prorated, with FTX being obligated to pay an amount equal to the total employee pay check for such pay period (including all withholdings) times a fraction the numerator of which is the number of days in the pay period prior to the date of the Effective Time and the denominator of which is the total number of days in the pay period, and the Company being -18- obligated to pay an amount equal to the total pay check for such pay period (including all withholdings) times a fraction the numerator of which is the number of days during the pay period on or after the Effective Time and the denominator of which is the total number of days in the pay period. The Company shall make the payment to the Transferred Employees for such pay period and FTX shall reimburse the Company for its pro rata portion thereof in accordance with the procedures set forth in the immediately preceding sentence. ARTICLE IV EMPLOYEES, EMPLOYEE BENEFIT PLANS AND TAXES Section 4.01. TERMINATION OF EMPLOYMENT; EMPLOYEES BENEFITS AGREEMENT. FTX, FRP and Company agree to execute and be bound by the Employee Benefits Agreement. Immediately prior to the Effective Time, FTX and FRP shall terminate any of their remaining employees who are actively at work at the Effective Time that have not been transferred to the Company or have not previously left the employ of FTX. FTX and FRP acknowledge that the Company intends to offer employment to many of the employees currently employed by FTX and FRP. Section 4.02. WORK RELATED CLAIMS. From and after the Distribution Date, FTX and FRP shall remain solely responsible for any and all Liabilities to or in respect of any employee, excluding any Transferred Employee (as defined in the Employee Benefits Agreement), relating to or arising in connection with any and all claims under applicable workmen's compensation laws, the Jones Act, 46 U.S.C. Section 688, the Longshore and Harbor Workers' Compensation Act, 33 U.S.C. Section 901, ET SEQ. or under similar laws, or arising in connection with any occupational injury or disease, in each case occurring or existing on or prior to the Distribution Date. FTX and FRP will comply with and shall be responsible for all Liabilities incurred in connection with noncompliance with the Worker Adjustment and Retraining Notification Act of 1989, 29 U.S.C. Section 2101 ET SEQ., as amended with respect to the respective employees of each such company. Section 4.03. EMPLOYMENT TAXES. (a) FTX and Company will (i) treat Company as a "successor employer" and FTX as a "predecessor" within the meaning of Sections 3121(a)(1) and 3306(b)(1) of the Code, with respect to transferred employees who are employed by the Company for purposes of Taxes imposed under the United States Federal Unemployment Tax Act (FICA) or the United States Federal Insurance Contribution Act (FUTA) and (ii) cooperate with each other to avoid, to the extent possible, the filing of more than one Internal Revenue Service form W-2 with respect to each such transferred employee for the calendar year within which the Distribution Date occurs. ARTICLE V INDEMNIFICATION Section 5.01 (a) BY FTX AND FRP. FTX and FRP jointly and severally covenant and agree (except in the case of subsection (vii) of this Section 4.2(a), in which case FTX individually covenants and agrees) to defend, indemnify and hold harmless the Company, its officers, directors, -19- employees, agents, advisors, representatives, contractors, subcontractors, and those entities that are Affiliates of the Company immediately following the Effective Time and each of the heirs, executors, successors, and assigns of any of the foregoing (collectively the "COMPANY INDEMNITEES"), from and against, and pay or reimburse the Company Indemnitees for, any and 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 (collectively "LOSSES"), to the extent resulting from or arising out of: (i) any failure of FTX, FRP or any of their Affiliates to perform any covenant or agreement hereunder or fulfill any other obligation in respect hereof; (ii) any Excluded Liabilities; (iii) any Excluded Assets; (iv) any and all Taxes of FTX, FRP and/or their respective Affiliates immediately following the Effective Time relating to or arising out of the Transferred Businesses or any Transferred Asset accruing, or with respect to any event or time period occurring, at or prior to the Distribution Date and which FTX or FRP has assumed responsibility pursuant to the provisions of this Agreement; (v) any and all Liabilities in respect of employees of FTX, FRP or any of their Affiliates prior to or as of the Distribution Date, except to the extent expressly assumed by the Company pursuant to the Employee Benefits Agreement; (vi) any failure of FTX, FRP or any of their Affiliates to comply with applicable bulk sales laws (in consideration of which indemnification obligation the Company hereby waives compliance by FRP, FTX and their Affiliates with applicable bulk sales laws); or (vii) any breach of any warranty or inaccuracy of any representation of FTX or FRP contained herein, except, to the extent such Losses result from or arise out of the Assumed Liabilities or constitute Losses for which the Company is required to indemnify the FRP Indemnitees under Section 5.01(b). (b) BY COMPANY. The Company covenants and agrees to defend, indemnify, and hold harmless FRP and FTX and their respective officers, directors, employees, agents, advisors, representatives, contractors, subcontractors and those entities that are Affiliates of FRP and FTX immediately following the Effective Time and each of the heirs, executors, successors, and assigns of any of the foregoing (collectively, the "FRP INDEMNITEES") from and against any and all Losses to the extent resulting from or arising out of: (i) any failure of the Company to perform any covenant or agreement hereunder or fulfill any other obligation in respect hereof; (ii) any Assumed Liabilities or Transferred Assets; (iii) any and all Taxes relating to or arising out of the Transferred Businesses or any Transferred Asset accruing, or with respect to any event or time period occurring, subsequent to the Distribution Date or in respect of which the Company has assumed responsibility pursuant to the provisions of this Agreement; (iv) any Liabilities in respect of employees of FTX, FRP or their Affiliates to the extent expressly assumed by the Company pursuant to the Employee Benefits Agreement; except, to the extent such Losses result from or arise out of the Excluded Liabilities or constitute Losses for which FRP and/or FTX are required to indemnify Company Indemnitees under Section 5.01(a); or (v) any breach of any warranty or inaccuracy of any representation of the Company contained herein. (c) ADJUSTMENTS TO INDEMNIFICATION PAYMENTS. Any payment made by FRP and/or FTX to the Company Indemnitees, on the -20- one hand, or by the Company to the FRP Indemnitees, on the other hand, pursuant to this Article V in respect of any claim shall be net of any insurance proceeds received by the Indemnified Party in respect of such claim. The Indemnified Party shall use its reasonable efforts to pursue insurance claims relating to any claim for which it is seeking indemnification pursuant to this Section 5.01; PROVIDED that the Indemnified Party shall not be obligated to pursue an insurance claim if the Indemnified Party in its reasonable judgment believes the cost of pursing such an insurance claim exceed the value of the claim for which the Indemnified Party is seeking indemnification. If any Indemnitee shall have received the payment required by this Agreement from an Indemnifying Party in respect of an indemnifiable Loss and shall subsequently receive insurance proceeds, then such Indemnitee shall pay to such Indemnifying Party a sum equal to the amount of such insurance proceeds. (d) INDEMNIFICATION PROCEDURES. In the case of any claim for indemnification pursuant to this Agreement by a party entitled to indemnification under this Agreement (the "INDEMNIFIED PARTY"), notice shall be given by the Indemnified Party to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and the Indemnified Party shall permit the Indemnifying Party (at the expense of such Indemnifying Party) to assume the defense of any claim or litigation resulting therefrom, PROVIDED that (i) the Indemnified Party may participate in such defense at such Indemnified Party's expense, and (ii) the omission by any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its indemnification obligations under this Agreement except to the extent that such omission results in a failure of actual notice to the Indemnifying Party and such Indemnifying Party is materially damaged as a result of such failure to give notice. Except with the prior written consent of the Indemnified Party, no Indemnifying Party, in the defense of any such claim or litigation, shall consent to the entry of any judgment or enter into any settlement that provides for injunctive or other non-monetary relief affecting the Indemnified Party where it does not include as an unconditional term thereof the giving by each claimant or plaintiff to such Indemnified Party of a release from all Liability with respect to such claim or litigation. Unless an Indemnifying Party elects not to assume the defense of or to seek to settle or compromise a third party claim, such Indemnifying Party shall not be liable to such Indemnitee under this Article V for any legal or other expenses subsequently incurred by such Indemnitee in connection with the defense thereof; and in the event that the Indemnifying Party does not accept the defense of any matter as above provided, the Indemnified Party shall have the full right to defend against any such claim or demand and shall be entitled to settle or agree to pay in full such claim or demand. In any event, the Indemnifying Party and the Indemnified Party shall cooperate in the defense of any claim or litigation subject to this Section 5.01 and the records of each shall be available to the other with respect to such defense. Upon written demand of an Indemnitee, an Indemnifying Party shall reimburse such Indemnitee for all direct, out of pocket Losses reasonably incurred by it in connection with investigating or defending any third party claim at the request of the Indemnifying Party in advance of its final disposition; PROVIDED, that such reimbursement need be made only upon delivery to the Indemnifying Party of an undertaking by such Indemnitee to repay all amounts so reimbursed or advanced if it shall ultimately be determined that such Indemnitee is not entitled to indemnification under this Article V or otherwise. -21- (e) All claims for indemnification under this Article V shall survive indefinitely after the Effective Time. ARTICLE VI INFORMATION Section 6.01. ACCESS TO INFORMATION. From and after the date hereof, each party shall afford each other party and its accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and information in such party's possession relating to the business and affairs of such other party (other than data and information subject to any attorney/client or other privilege or otherwise required to be kept confidential pursuant to binding agreements), insofar as such access is reasonably required by such other party including, without limitation, for audit, accounting and litigation purposes, as well as for purposes of fulfilling disclosure and reporting obligations. Section 6.02. LITIGATION COOPERATION. Each party shall use reasonable efforts to make available to each other party, upon written request, the officers, directors, employees and agents of such parties and those entities that are Affiliates immediately following the Effective Time as witnesses to the extent that such persons may reasonably be required in connection with any Action arising out of the business of the Company and its predecessors in which the requesting party may from time to time be involved. Section 6.03. REIMBURSEMENT. Each party providing information or witnesses under Sections 6.01 or 6.02 to any other party shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payment for all reasonable, direct, out-of-pocket costs and expenses as may be reasonably incurred in providing such information or witnesses. Section 6.04. RETENTION OF RECORDS. Except as otherwise required by law or agreed to in writing, each party shall preserve and retain all information relating to each other party's business throughout the term of the and for a period of seven (7) years thereafter. ARTICLE VII REPRESENTATIONS AND WARRANTIES Section 7.01. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents and warrants to FRP and FTX as follows: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and has full corporate power and authority to enter into this Agreement and perform its obligations hereunder and to own or lease its properties and conduct its business as currently owned, -22- leased or conducted or as proposed to be owned, leased or conducted by reason of the transactions contemplated by this Agreement. (ii) This Agreement, the Employee Benefits Agreement and the Tax Cooperation Agreement have been duly authorized by the Company and, upon the due execution and delivery hereof and thereof by the parties hereto and thereto, will constitute valid and binding obligations of the Company enforceable in accordance with their respective terms. Section 7.02. REPRESENTATIONS AND WARRANTIES BY FTX. FTX represents and warrants to FRP and the Company as follows: (i) FTX has been duly incorporated and is validly existing as a corporation in good standing under the laws of the Delaware and has full corporate power and authority to enter into this Agreement and perform its obligations hereunder. (ii) This Agreement, the Employee Benefits Agreement and the Tax Cooperation Agreement have been duly authorized by FTX and, upon the due execution and delivery hereof and thereof by the parties hereto and thereto, will constitute valid and binding obligations of FTX enforceable in accordance with their respective terms. Section 7.03. REPRESENTATIONS AND WARRANTIES BY FRP. FRP represents and warrants to FTX and the Company as follows: (i) FRP is validly existing as a limited partnership under the provisions of the Delaware Revised Uniform Limited Partnership Act and has full partnership power and authority to enter into this Agreement and perform its obligations hereunder. (ii) This Agreement has been duly authorized, executed and delivered by FRP and, assuming the due execution and delivery hereof by the other parties hereto, constitutes a valid and binding obligation of FRP enforceable in accordance with its terms. ARTICLE VIII MISCELLANEOUS Section 8.01. EXPENSES. FTX shall bear the expenses, costs and fees (including attorneys', auditors' and financing commitment fees) in connection with the Merger, the Contributions and the Distribution, except as set forth in the following sentence. The listing fees of the N.Y.S.E. incurred with respect to the listing of the Company Common Stock, the printing and mailing costs relating to the Form 10 and Registration Statement, the filing fees with the Commission in connection with the Distribution, the costs of the Distribution Agent, any filing or recordation costs associated with the Contributions, and any sales, use, transfer, stamp, recording, documentary or similar Taxes or charges arising out of the Contributions will be divided evenly between FTX and the Company. -23- Section 8.02. 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 FTX, to: Freeport-McMoRan Inc. 1615 Poydras Street New Orleans, LA 70112 Attention: General Counsel Telecopier: (504) 582-4227 With a copy to: IMC Global, Inc. 2100 Sanders Road Northbrook, IL 60062 Attention: General Counsel Telecopier: (847) 205-4894 If to FRP, to: Freeport-McMoRan Resource Partners Limited Partnership c/o Freeport-McMoRan Inc. 1615 Poydras Street New Orleans, LA 70112 Attention: General Counsel Telecopier: (504) 582-4227 With a copy to: IMC Global, Inc. 2100 Sanders Road Northbrook, IL 60062 Attention: General Counsel Telecopier: (847) 205-4894 If to the Company, to: Freeport Sulphur Company 1615 Poydras Street New Orleans, Louisiana 70112 -24- Attention: President Telecopier: (504) 582-1611 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 8.02. Section 8.03. 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. Notwithstanding anything contained herein to the contrary, prior to the Effective Time, this Agreement may not be altered or amended, nor may FTX or FRP waive any of its respective rights hereunder, without the express written consent of IGL. 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. Section 8.04. 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. Section 8.05. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF DELAWARE. Section 8.06. ENTIRE AGREEMENT. This Agreement and the attachments hereto (and, in the case of FTX and IGL, the Agreement and Plan of Merger and the attachments thereto) constitute the entire understanding of the parties hereto with respect to the subject matter hereof, superseding all negotiations, prior discussions and prior agreements and understandings relating to such subject matter. Section 8.07. PARTIES IN INTEREST. This Agreement shall be binding upon, and shall inure to the benefit of, each of the parties hereto and their respective successors and permitted assigns (which shall include IGL as a result of the Merger). Nothing contained in this Agreement, express or implied, is intended to confer upon any person or entity other than the parties hereto, any benefits, rights or remedies, provided, however, that notwithstanding anything contained herein to the contrary, it is expressly agreed that IGL is an express third party beneficiary of the rights of FRP and FTX hereunder by virtue of the transactions contemplated by the Agreement and Plan of Merger between FTX and IGL. -25- Section 8.08. SPECIFIC ENFORCEMENT. Each party acknowledges that the other parties hereto would be irreparably harmed by any breach of any of the terms or conditions of this Agreement and that there would be no adequate remedy at law or in damages to compensate such party for such breach. Each party agrees that any other party shall be entitled to injunctive relief requiring specific performance by the parties hereto of any provision of this Agreement, and each of the parties consents to the entry thereof. Section 8.09 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto without the prior written consent of the other party. Section 8.10 SEVERABILITY. If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other terms, provisions and conditions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party hereto. Upon any determination that any term or other provision hereof is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of such parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible. Section 8.11 FTX ALLOCATION TO FRP. Nothing in this Agreement shall preclude FTX or any successor thereto from allocating any expenses for which it is responsible hereunder to FRP to the extent that it is permitted to do so under the Partnership Agreement. [SIGNATURES ON NEXT PAGE] -26- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. Freeport-McMoRan Resource Partners, Limited Partnership By: Freeport-McMoRan Inc., its Administrative Managing General Partner and Special General Partner By: /s/ Rene L. Laitolais -------------------------------------------- Name: Rene L. Latiolais Title: President and Chief Executive Officer Freeport-McMoRan Inc. By: /s/ Rene L. Laitolais -------------------------------------------- Name: Rene L. Latiolais Title: President and Chief Executive Officer Freeport Sulphur Company By: /s/ Robert M. Wohleber -------------------------------------------- Name: Robert M. Wohleber Title: President EX-2.2 3 FORM OF IGL CONTRIBUTION AGREEMENT EXHIBIT A ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), is made and entered into as of the ___ day of __________, 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. EXHIBIT A "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). 2 EXHIBIT A "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 3 EXHIBIT 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 4 EXHIBIT A 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 5 EXHIBIT A 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; and (xiii) The Leases. 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) (ii) 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, 6 EXHIBIT A 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 7 EXHIBIT A 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 8 EXHIBIT A 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 9 EXHIBIT A 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. 10 EXHIBIT A ASSIGNOR IMC GLOBAL OPERATIONS INC. By: ------------------------------------- Name: Title: ASSIGNEE FREEPORT-MCMORAN RESOURCE PARTNERS, LIMITED PARTNERSHIP By: ------------------------------------- Name: Title: 11 EXHIBIT A This Exhibit excludes Schedule 1 to the Assignment and Assumption Agreement which contained a general description of certain assets, contracts and agreements being assigned to the Company. The Company will furnish the Commission a copy of this Schedule upon request. 12 EX-3.1 4 CERTIFICATE OF INCORPORATION COMPOSITE COPY OF THE CERTIFICATE OF INCORPORATION OF FREEPORT-MCMORAN SULPHUR INC. ARTICLE I NAME The name of this corporation is Freeport-McMoRan Sulphur Inc. (the "Corporation"). ARTICLE II REGISTERED OFFICE AND REGISTERED AGENT The address of the Corporation's registered office in the State of Delaware and its registered agent at such address is: The Corporation Trust Company Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 County of New Castle ARTICLE III PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law (the "DGCL") . ARTICLE IV CAPITAL 1. AUTHORIZED STOCK. The Corporation shall be authorized to issue an aggregate of 150,000,000 shares of capital stock, of which 100,000,000 shares shall be Common Stock, $.01 par value per share (the "Common Stock"), and 50,000,000 shares shall be Preferred Stock, $.01 par value per share (the "Preferred Stock"). 2. PREFERRED STOCK. Preferred Stock may be issued from time to time in one or more series. All shares of any one series of Preferred Stock shall be identical except as to the dates of issue and the dates from which dividends on shares of the series issued on different dates will cumulate if cumulative. (a) Authority is hereby expressly granted to the Board of Directors to authorize the issuance of one or more series of Preferred Stock, and to fix by resolution or resolutions providing for the issuance of each such series the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of such series, to the full extent now or hereafter permitted by law, including, without limitation, the following: (1) the number of shares of such series, which may subsequently be increased, except as otherwise provided by the resolution or resolutions of the Board of Directors providing for the issuance of such series, or decreased, to a number not less than the number of shares of such series then outstanding, by resolution or resolutions of the Board of Directors, and the distinctive designation thereof; (2) the dividend rights of such series, the preferences, if any, over any other class or series of stock, or of any other class or series of stock over such series, as to dividends, the extent, if any, to which shares of such series will be entitled to participate in dividends with shares of any other series or class of stock, whether dividends on shares of such series will be fully, partially or conditionally cumulative, or a combination thereof, and any limitations, restrictions or conditions on the payment of such dividends; (3) the rights of such series, and the preferences, if any, over any other class or series of stock, or of any other class or series of stock over such series, in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation and the extent, if any, to which shares of any such series will be entitled to participate in such event with any other series or class of stock; (4) the time or times during which, the price or prices at which, and the terms and conditions on which the shares of such series may be redeemed; (5) the terms of any purchase, retirement or sinking funds that may be provided for the shares of such series; and (6) the terms and conditions, if any, upon which the shares of such series will be convertible into or exchangeable for shares of any other series, class or classes, or any other securities. (b) The shares of Preferred Stock shall have no voting power or voting rights with respect to any matter whatsoever, except as may be otherwise required by law or may be provided in the resolution or resolutions of the Board of Directors creating the series of Preferred Stock of which such shares are a part. (c) No holders of any series of Preferred Stock will be entitled to receive any dividends thereon other than those specifically provided for by the Certificate of Designation providing for the issuance of such series of Preferred Stock, nor will any accumulated dividends on Preferred Stock bear any interest. 2 (d) In the event of any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the holders of Preferred Stock of each series will be entitled to receive only such amount or amounts as will have been fixed by the Certificate of Designation for the issuance of such series. ARTICLE V INCORPORATOR The name and address of the incorporator of the Corporation is: Robert M. Wohleber 1615 Poydras Street New Orleans, Louisiana 70112 ARTICLE VI STOCKHOLDER ACTION Action shall be taken by the stockholders only at an annual or special meeting of stockholders and may not be effected by any written consent of such holders. ARTICLE VII BOARD OF DIRECTORS 1. POWERS. All of the powers of the Corporation are hereby conferred upon the Board of Directors of the Corporation, insofar as such powers may be lawfully vested by this Certificate of Incorporation in the Board of Directors. In furtherance and not in limitation of those powers, the Board of Directors shall have the power to make, adopt, alter, amend and repeal from time to time the Corporation's Bylaws, subject to the provisions of Article X, section 2. 2. NUMBER OF DIRECTORS. Subject to the restriction that the number of directors shall not be less than the number required by the DGCL, the number of directors may be fixed from time to time pursuant to the Corporation's Bylaws; provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office. 3. CLASSIFICATION. The members of the Board of Directors, other than those who may be elected by the holders of any one or more series of Preferred Stock voting separately, shall be classified, with respect to the term during which they shall hold office, into three classes, designated Class I, II and III, as nearly equal in number as possible. Any increase or decrease in the number of directors shall be apportioned by the Board of Directors so that all classes of directors shall be as nearly equal in number as possible. At each annual meeting of stockholders, directors chosen to succeed those whose terms then expire shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election and until their successors are duly elected and qualified. 3 4. VACANCIES. Subject to any requirements of law and the rights of any class or series of Capital Stock having a preference over the Common Stock as to dividends or upon liquidation, and except as provided in Article VII, section 6, any vacancy on the Board of Directors (including any vacancy resulting from an increase in the authorized number of directors or from a failure of the stockholders to elect the full number of authorized directors) may, notwithstanding any resulting absence of a quorum of directors, be filled only by the Board of Directors, acting by vote of both (a) a majority of the directors then in office and (b) a majority of all the Continuing Directors, voting as a separate group, and any director so appointed shall serve until the next stockholders' meeting held for the election of directors of the class to which such director shall have been appointed and until his successor is duly elected and qualified. 5. REMOVAL. Subject to Article VII, section 6, and notwithstanding any other provisions of this Certificate of Incorporation or the Corporation's Bylaws, any director or the entire Board of Directors may be removed at any time, but only for cause involving fraud or a violation of the duty of loyalty as determined by a final judgment of a court of competent jurisdiction, and only by the affirmative vote of holders of not less than 80% of the Voting Stock, voting together as a single class, at a stockholders' meeting called for such purpose. At the same meeting in which the stockholders remove one or more directors, the stockholders may elect one or more successors for the unexpired term or terms of the director or directors removed. Except as set forth in this Article VII, section 5, directors shall not be subject to removal. 6. DIRECTORS ELECTED BY PREFERRED STOCKHOLDERS. Notwithstanding anything in this Certificate of Incorporation to the contrary, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the provisions of this Certificate of Incorporation (as amended from time to time) fixing the rights and preferences of such Preferred Stock shall govern with respect to the nomination, election, term, removal, vacancies or other related matters with respect to such directors. ARTICLE VIII CERTAIN BUSINESS COMBINATIONS 1. SUPERMAJORITY VOTE. In addition to any affirmative vote required by law or this Certificate of Incorporation (notwithstanding the fact that a lesser percentage may be specified by law or this Certificate of Incorporation) and except as otherwise expressly provided in Article VIII, section 2: (a) any merger, consolidation or share exchange of the Corporation or any Subsidiary with an Interested Stockholder or with any other corporation, whether or not itself an Interested Stockholder, which is, or after such merger, consolidation or share exchange would be, an Affiliate or Associate of an Interested Stockholder; (b) any sale, lease, transfer, exchange, mortgage, pledge, loan, advance or other similar disposition (in one or more series of transactions), with or for the direct or indirect benefit of any Interested Stockholder or any Affiliate or Associate thereof, of any assets of the Corporation or any Subsidiary having, measured at the time the transaction or 4 transactions are approved by the Board of Directors, an aggregate book value or Market Value as of the end of the Corporation's most recently ended fiscal quarter of 5% or more of the lesser of (i) the total Market Value of the outstanding stock of the Corporation or (ii) the Corporation's net worth as of the end of its most recently ended fiscal quarter; (c) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation or any Subsidiary; (d) the issuance or transfer by the Corporation or any Subsidiary, in one transaction or in a series of transactions in any twelve-month period, of any Equity Securities of the Corporation or any Subsidiary that have an aggregate Market Value of $1 million or more to any Interested Stockholder or any Affiliate or Associate thereof, except pursuant to the exercise of warrants or rights to purchase securities offered pro rata to all holders of the Corporation's Voting Stock or by any other method affording substantially proportionate treatment to the holders of Voting Stock; (e) any reclassification or recapitalization of securities of the Corporation, including any reverse stock split, any merger, consolidation or share exchange of the Corporation with any Subsidiary, or any other transaction (whether or not involving an Interested Stockholder) that has the effect, directly or indirectly, in one transaction or a series of transactions, of increasing by 5% or more the voting power (regardless of when exercisable) or the proportionate amount of the outstanding shares of any class or series of Equity Securities of the Corporation or any Subsidiary directly or indirectly Beneficially Owned by any Interested Stockholder or any Affiliate or Associate thereof; (f) any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation or any Subsidiary to an Interested Stockholder or any Affiliate or Associate thereof, except proportionately as a stockholder; or (g) any agreement, contract or other arrangement providing directly or indirectly for any of the foregoing; shall require (i) the approval by a majority of both the directors then in office and a majority of the Continuing Directors, voting as a separate group, and (ii) the affirmative vote of both (A) holders of not less than 80% of the Voting Stock, voting together as a single class, and (B) holders of not less than 75% of the Voting Stock (other than Voting Stock Beneficially Owned by the Interested Stockholder who is, or whose Affiliate or Associate is, a party to the proposed Business Combination) voting as a separate class. In addition, a proxy or information statement describing the proposed Business Combination and complying with the requirements of the Exchange Act and the rules and regulations promulgated thereunder shall be mailed to all stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (regardless of whether such proxy or information statement is required pursuant to such act). 5 2. EXCEPTIONS TO SUPERMAJORITY VOTE REQUIREMENTS. If all conditions specified in either of paragraphs (a) or (b) below are met, the provisions of Article VIII, section 1, shall not be applicable to any Business Combination, and such Business Combination shall require only such vote, if any, as may be required by any other provisions of this Certificate of Incorporation or the Corporation's Bylaws, as well as such vote, if any, of the holders of any class or series of stock of the Corporation as may be required by law, and shall further require only the delivery of such proxy or information statements, if any, as may be required by law: (a) The Business Combination shall have been approved prior to the time such Interested Stockholder became an Interested Stockholder by a majority of the directors then in office and a majority of the Continuing Directors, voting as a separate group; or (b) All of the following five conditions have been met: (1) The aggregate amount of the cash and the Market Value as of the Valuation Date of consideration other than cash to be received per share by holders of Common Stock in such Business Combination is at least equal to the highest of the following: (A) the highest per share price, including any brokerage commissions, transfer taxes and soliciting dealer's fees, paid by the Interested Stockholder for any shares of Common Stock acquired by it within the two-year period immediately prior to the Announcement Date or in the transaction in which it became an Interested Stockholder, whichever is higher; (B) the Market Value per share of Common Stock on the Announcement Date or on the Determination Date, whichever is higher; or (C) the price per share equal to the Market Value per share of Common Stock determined pursuant to clause (B) immediately preceding, multiplied by a fraction, the numerator of which is the highest per share price, including any brokerage commissions, transfer taxes and soliciting dealers' fees, paid by the Interested Stockholder for any shares of Common Stock acquired by it within the two-year period immediately prior to the Announcement Date, and the denominator of which is the Market Value per share of Common Stock on the first date in such two- year period on which the Interested Stockholder acquired any shares of Common Stock. (2) The aggregate amount of the cash and the Market Value as of the Valuation Date of consideration other than cash to be received per share by holders of shares of any class or series of outstanding stock other than Common Stock is at least equal to the highest of the following, whether or not the Interested Stockholder has previously acquired any shares of any such class or series of stock: 6 (A) the highest per share price, including any brokerage commissions, transfer taxes and soliciting dealers' fees, paid by the Interested Stockholder for any shares of such class or series of stock acquired by it within the two-year period immediately prior to the Announcement Date or in the transaction in which it became an Interested Stockholder, whichever is higher; (B) the highest preferential amount per share to which the holders of shares of such class or series of stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (C) the Market Value per share of such class or series of stock on the Announcement Date or on the Determination Date, whichever is higher; or (D) the price per share equal to the Market Value per share of such class or series of stock, determined pursuant to clause (C) immediately preceding, multiplied by a fraction, the numerator of which is the highest per share price, including any brokerage commissions, transfer taxes and soliciting dealers' fees, paid by the Interested Stockholder for any shares of any such class or series of Voting Stock acquired by it within the two-year period immediately prior to the Announcement Date, and the denominator of which is the Market Value per share of the same class or series of voting stock on the first day in such two-year period on which the Interested Stockholder acquired any shares or the same class or series of Voting Stock. (3) The holders of any class or series of the Corporation's outstanding stock shall receive the consideration in cash or in the same form as the Interested Stockholder has previously paid for shares of the same class or series of stock. If the Interested Stockholder has paid for shares of any class of stock with varying forms of consideration, the form of consideration for such class of stock shall be either in cash or the form used to acquire the largest number of shares of such class or series of stock previously acquired by it. In making any price calculation under paragraph (b) of Article VIII, section 2, appropriate adjustments shall be made to reflect any reclassification or stock split (including any reverse stock split), stock dividend, recapitalization, reorganization or any similar transaction which has the effect or increasing or reducing the number of outstanding shares of stock. (4) After the Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (A) there shall have been no failure to declare and pay at the regular date therefor any full periodic dividends, whether or not cumulative, on any outstanding Preferred Stock of the Corporation or other Capital Stock 7 entitled to a preference over the Common Stock as to dividends or upon liquidation; (B) there shall have been no reduction in the annual rate of dividends paid on the Common Stock, except as necessary to reflect any subdivision of the Common Stock, and no failure to increase the annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or other similar transaction which has the effect of reducing the number of outstanding shares of Common Stock; and (C) the Interested Stockholder did not become the Beneficial Owner of any additional shares of stock of the Corporation except as part of the transaction that resulted in such Interested Stockholder becoming an Interested Stockholder or by virtue of proportionate stock splits or stock dividends. The provisions of clauses (A) and (B) immediately preceding shall not apply if no Interested Stockholder or any Affiliate or Associate thereof voted as a director of the Corporation in favor of foregoing or reducing dividends in the manner specified in such clauses and the Interested Stockholder, within ten days after any such act or failure to act that resulted in such loss or diminution of dividends, notifies the Board of Directors of the Corporation in writing that the Interested Stockholder disapproves thereof and requests in good faith that the Board of Directors rectify such act or failure to act. (5) After the Interested Stockholder has become an Interested Stockholder, the Interested Stockholder shall not have received the benefit, directly or indirectly, except proportionately as a stockholder, of any loans, advances, guarantees, pledges or other financial assistance provided by the Corporation or any Subsidiary, whether in anticipation of or in connection with such Business Combination or otherwise. 3. DETERMINATIONS. For the purpose of this Article VIII, so long as Continuing Directors constitute at least a majority of the entire Board of Directors, the Board of Directors shall have the power to make a good faith determination, on the basis of information known to them, of: (a) the number of shares of Capital Stock of which any person or entity is the Beneficial Owner, (b) whether any person or entity is an Interested Stockholder or an Affiliate or Associate thereof, (c) whether any person or entity has an agreement, arrangement or understanding with another as to the matters referred to in the definition of Beneficial Owner herein, (d) whether any transaction constitutes a Business Combination (including the power to determine in good faith the book value or market value of the assets of the Corporation or any Subsidiary) or is a transaction with or for the benefit of an Interested Stockholder, (e) whether any of the events referred to in paragraph (b)(4) of Article VIII, section 2, have occurred, and (f) such other matters with respect to which a determination is required under this Article VIII. All such good faith determinations by the Board of Directors shall 8 be conclusive and binding on the Corporation and its stockholders for all purposes of this Article VIII. ARTICLE IX LIMITATION OF LIABILITY AND INDEMNIFICATION 1. LIMITATION OF LIABILITY. No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except (a) for breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or that involve intentional misconduct of a knowing violation of law, (c) pursuant to Section 174 of the DGCL, or (d) for any transaction from which such director derived an improper personal benefit. 2. AUTHORIZATION OF FURTHER ACTIONS. The Board of Directors may (a) cause the Corporation to enter into contracts with directors providing for the limitation of liability set forth in this Article IX to the fullest extent permitted by law, (b) adopt Bylaws or resolutions, or cause the Corporation to enter into contracts, providing for indemnification of directors and officers of the Corporation and other persons (including without limitation directors and officers of the Corporation's direct and indirect subsidiaries) to the fullest extent permitted by law, and (c) cause the Corporation to exercise the powers set forth in Section 145(g) of the DGCL, notwithstanding that some or all of the members of the Board of Directors acting with respect to the foregoing may be parties to such contracts or beneficiaries thereof. 3. SUBSIDIARIES. The Board of Directors may cause the Corporation to approve for its direct and indirect subsidiaries limitation of liability and indemnification provisions comparable to the foregoing. 4. AMENDMENTS. Any amendment or repeal of this Article IX shall not adversely affect any elimination or limitation of liability of a director of the Corporation under this Article IX with respect to any action or inaction occurring prior to the time of such amendment or repeal. No amendment or repeal of any Bylaw or resolution relating to indemnification shall adversely affect any person's entitlement to indemnification whose claim thereto results from conduct occurring prior to the date of such amendment or repeal. ARTICLE X AMENDMENTS; DEFINITIONS 1. AMENDMENTS TO CERTIFICATE OF INCORPORATION. Articles VII, VIII, IX and X of this Certificate of Incorporation shall not be amended in any manner (whether by modification or repeal of an existing Article or Articles or by addition of a new Article or Articles), except upon resolutions adopted by the affirmative vote of holders of not less than 80% of the Voting Stock, voting together as a single class; provided, however, that if such resolutions shall first be adopted by both a majority of the directors then in office and a majority of the Continuing Directors, voting as a separate group, then such resolutions shall be deemed adopted by the stockholders upon the affirmative vote of holders of not less than a majority of the Voting Stock, voting as a single class. 9 2. AMENDMENTS TO BYLAWS. The Corporation's Bylaws may be altered, amended or repealed, or new Bylaws may be adopted by: (a) the stockholders, but only upon the affirmative vote of holders of not less than 80% of the Voting Stock, voting together as a single class; or (b) the Board of Directors, but only upon the affirmative vote of both (i) a majority of the directors then in office and (ii) a majority of the Continuing Directors, voting as a separate group. 3. DEFINITIONS. For purposes of this Certificate of Incorporation: (a) "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations promulgated under the Exchange Act (the term "registrant" in such Rule 12b-2 meaning in this case the Corporation); provided, however, that in no event shall the Corporation, any of its Subsidiaries, any Employee Benefit Plan or any of the other persons or entities exempted from the definition of Interested Stockholder in this Article X, section 3, be deemed to be an Affiliate or Associate of any Interested Stockholder. (b) "Announcement Date" means the first general public announcement of the proposal or intention to make a proposal to consummate a Business Combination or its first communication generally to stockholders of the Corporation, whichever is earlier. (c) A person shall be deemed to be the "Beneficial Owner" of and be deemed to "Beneficially Own" any shares of capital stock (regardless whether owned of record): (1) Which that person or any of its Affiliates or Associates, directly or indirectly, owns beneficially; or (2) Which such person or any of its Affiliates or Associates has (A) the right to acquire (whether exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or understanding; or (3) Which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of voting capital stock of the Corporation or any Subsidiaries. (d) "Business Combination" means any transaction referred to in any one or more of the clauses (a) through (g) of Article VII, section 1. 10 (e) "Capital Stock" means any Common Stock, Preferred Stock or other shares of capital stock of the Corporation. (f) "Continuing Director" means (i) any member of the Board of Directors who is not an Interested Stockholder or an Affiliate or Associate thereof, and who was a director of the Corporation prior to the time the Interested Stockholder became an Interested Stockholder, and (ii) any other member of the Board of Directors who is not an Interested Stockholder or an Affiliate or Associate thereof, and was recommended or elected by a majority of the Continuing Directors at a meeting at which a quorum consisting of a majority of the Continuing Directors was present, provided that, in the absence of an Interested Stockholder, any reference to "Continuing Directors" shall mean all the directors then in office. (g) "Determination Date" means the date on which an Interested Stockholder first became an Interested Stockholder. (h) "Employee Benefit Plan" means any option, bonus, profit sharing, employee stock ownership, dividend reinvestment, savings or similar plan of the Corporation or any Subsidiary, or any trust related thereto. (i) "Equity Security" means (1) any stock or similar security, certificate of interest, or participation in any profit-sharing agreement, voting trust certificate, or certificate of deposit for the foregoing, (2) any security convertible, with or without consideration, into an equity security, or any warrant or other security carrying any right to subscribe to or purchase an equity security, or (3) any put, call, straddle, or other option, right or privilege to acquire an equity security from or to sell an equity security to another without being bound to do so. (j) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (k) "Interested Stockholder" means any person (other than the Corporation, any Subsidiary, any Employee Benefit Plan, any fiduciary with respect to an Employee Benefit Plan acting in such capacity, any person owning Capital Stock as of the date of filing this Certificate of Incorporation, or any Affiliate or Associate of any of the foregoing) who (1) is the Beneficial Owner, directly or indirectly, of shares of Capital Stock (including two or more classes or series voting together as a single class) representing 15% or more of the Voting Stock or (2) is an Affiliate or Associate of the Corporation and at any time within the two-year period immediately prior to the date in question was the Beneficial Owner, directly or indirectly, of shares of Capital Stock (including two or more classes or series voting together as a single class) representing 15% or more of the Voting Stock. For the purpose of determining whether a person is an Interested Stockholder, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by the person through application of paragraph (c) of Article IX, section 3 but shall not include any other shares of Voting Stock that may be issuable pursuant to any agreement, arrangement, or understanding or upon exercise of conversion rights, warrants or options, or otherwise. 11 (l) "Market Value" means: (1) in the case of stock, the highest closing sale price during the 30 calendar day period immediately preceding the date in question of a share of such stock on the New York Stock Exchange, or, if such stock is not listed on the New York Stock Exchange, then on any national securities exchange on which the Common Stock is listed, or if neither listed on a national securities exchange nor quoted on the Nasdaq National Market, the highest closing sales price during the 30 calendar day period immediately preceding the date in question, the closing bid quotation with respect to a share of such stock during the 30 calendar day period preceding the date in question as quoted by Nasdaq or another generally recognized reporting system, or if no such quotation is available, the fair market value on the date in question of a share of such stock as determined by a majority of the Continuing Directors at a meeting of the Board of Directors at which a quorum consisting of at least a majority of the then Continuing Directors is present; and (2) in the case of property other than cash or stock, the fair market value or such property on the date in question as determined by a majority of the Continuing Directors at a meeting of the Board of Directors at which a quorum consisting of at least a majority of the then Continuing Directors is present. (m) A "person" means any individual, firm, corporation or other entity, or a group of persons acting or agreeing to act together in the manner set forth in Rule 13d-5 under the Exchange Act. (n) "Subsidiary" means any corporation, partnership or other entity of which the Corporation, directly or indirectly, owns voting stock or similar interests having a majority of the votes entitled to be cast. (o) "Valuation Date" means: (1) for a Business Combination voted upon by stockholders, the later of the day prior to the date of the stockholders' vote or the date 20 business days prior to the consummation of the Business Combination; and (2) for a Business Combination not voted upon by stockholders, the date of the consummation of the Business Combination. (p) "Voting Stock" means the outstanding shares of Capital Stock entitled to vote generally in an election of directors. ---------------------------------- 12 EX-3.2 5 BY-LAWS FREEPORT-MCMORAN SULPHUR INC. BY-LAWS AS AMENDED SECTION 1 OFFICES 1.1 REGISTERED OFFICE. The registered office of Freeport-McMoRan Sulphur Inc. (the "Corporation") shall be in the City of Wilmington, County of New Castle, State of Delaware. 1.2 OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Corporation's Board of Directors may from time to time determine or the business of the Corporation may require. SECTION 2 MEETINGS OF STOCKHOLDERS 2.1 ANNUAL MEETINGS. Annual meetings of stockholders shall be held for the election of directors at such date, time and place either within or without the State of Delaware as shall be designated by the Board of Directors and stated in the notice of the meeting. 2.2 SPECIAL MEETINGS. Subject to any rights of the holders of shares of Preferred Stock to call special meetings of stockholders, special meetings of the stockholders for any purpose or purposes may be called only by the Chairman or either Co-Chairman of the Board of Directors, the Corporation's President or upon a vote of the majority of the Board of Directors, at such date, time and place either within or without the State of Delaware as shall be stated in the notice of the meeting. 2.3 NOTICE OF STOCKHOLDER NOMINATIONS AND STOCKHOLDER BUSINESS. (a) At any meeting of stockholders, only such business shall be conducted as is properly before the meeting. No business shall be deemed to have been properly brought before a special meeting of stockholders unless (i) the matter is submitted by the person or persons calling the special meeting and (ii) the matter is contained in the notice of the meeting. Except as otherwise provided in the Certificate of Incorporation or required by applicable law, nominations for the election of directors at a meeting at which directors are to be elected or other matters to be properly brought before any annual meeting of stockholders must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, including matters covered by Rule 14a-8 of the Securities and Exchange Commission, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by any person who (A) has been for at least one year the Beneficial Owner of at least 1% of any class or series of outstanding Voting Stock entitled to be voted on the proposed business and (B) complies with the procedures set forth below. (b) A notice of the intent of a stockholder to make a nomination or to bring any other matter before the meeting shall be made in writing and received by the Corporation's Secretary not more than 270 days and not less than 60 days in advance of the first anniversary of the preceding year's annual meeting of stockholders or, in the case of an annual meeting of stockholders scheduled to be held either 30 days earlier or later than such anniversary date, such notice shall be received by the Corporation's Secretary within 15 days of the earlier of the date on which notice of such meeting is first mailed to stockholders or public disclosure of the meeting date is made. (c) Every such notice by a stockholder shall set forth: (i) the name, age, business address and residential address of (A) the stockholder who intends to make a nomination or bring up any other matter, and (B) any person acting in concert with such stockholder; (ii) the number of shares of Voting Stock of which the stockholder is the Beneficial Owner and the dates on which such person acquired his or her Voting Stock; (iii) a representation that the stockholder intends to appear in person at the meeting to make the nomination or bring up the matter specified in the notice; (iv) with respect to notice of an intent to make a nomination, a description of all agreements, arrangements or understandings among the stockholder, any person acting in concert with the stockholder, each proposed nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (v) with respect to notice of an intent to make a nomination, (A) the name, age, business address and residential address of each person proposed for nomination, (B) the principal occupation or employment of such person, (C) the class and number of shares of capital stock of the Corporation of which such person is the beneficial owner, and (D) any other information relating to such person that would be required to be disclosed in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had such nominee been nominated by the Board of Directors; and (vi) with respect to notice of an intent to bring up any other matter, a complete and accurate description of the matter not to exceed 500 words, the reasons for conducting such business at the meeting, and any material interest of the stockholder in the matter. (d) The Corporation's Secretary may require any stockholder submitting a notice of an intent to make a nomination or bring up other business to furnish such documentary information as may be reasonably required by the Corporation to determine that such stockholder has been for at least one year the Beneficial Owner of at least 1% of any class or series of outstanding Voting Stock entitled to be voted on the proposed business. 2 (e) Notice of an intent to make a nomination shall be accompanied by the written consent of each nominee to serve as a director of the Corporation if so elected and an affidavit of each such nominee certifying that he or she meets the qualifications necessary to serve as a director of the Corporation. The Corporation may require any proposed nominee to furnish such other information as may be reasonably required by the Corporation to determine the eligibility and qualifications of such person to serve as a director. (f) With respect to any proposal by a stockholder to bring before a meeting any matter other than the nomination of directors, the following shall govern: (i) If the Corporation's Secretary has received sufficient notice of a proposal that may properly be brought before the meeting, a proposal sufficient notice of which is subsequently received by the Secretary and that is substantively duplicative of the first proposal shall not be deemed properly brought before the meeting. If in the judgment of the Board of Directors a proposal deals with substantially the same subject matter as a prior proposal submitted to stockholders at a meeting held within the preceding five years, it shall not be properly brought before any meeting held within three years after the latest such previous submission if (A) the proposal was submitted at only one meeting during such preceding period and it received affirmative votes representing less than 3% of the total number of votes cast in regard thereto, (B) the proposal was submitted at only two meetings during such preceding period and it received at the time of its second submission affirmative votes representing less than 6% of the total number of votes cast in regard thereto, or (C) the proposal was submitted at three or more meetings during such preceding period and it received at the time of its latest submission affirmative votes representing less than 10% of the total number of votes cast in regard thereto. (ii) Notwithstanding compliance with all of the procedures set forth above in this Section, no proposal shall be deemed to be properly brought before a meeting of stockholders if, in the judgment of the Board of Directors, it is not a proper subject for action by stockholders under Delaware Law. (g) At the meeting of stockholders, the chairman shall declare out of order and disregard any nomination or other matter that is not presented in accordance with the foregoing procedures or that is otherwise contrary to the foregoing terms and conditions. (h) Nothing in this Section shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement or to solicit their own proxies pursuant to the proxy rules of the Securities and Exchange Commission. 2.4 NOTICE OF MEETING. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and time of the meeting, and the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given to each stockholder entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States 3 mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. 2.5 STOCKHOLDER LIST. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 2.6 QUORUM. Except as otherwise provided by law, the Certificate of Incorporation or these By-laws, with respect to each matter considered and voted upon at any stockholders' meeting, the holders of a majority of the outstanding shares of each class of Capital Stock, or series thereof, entitled to vote thereon, present in person or represented by proxy, shall constitute a quorum, provided that two or more classes or series shall be considered a single class if the holders thereof are entitled to vote together as a single class with respect to such matter. If, however, a quorum shall not be present or represented at any meeting of the stockholders (or with respect to any matter to be considered and voted upon thereat), the holders of any class of Capital Stock or series thereof entitled to vote thereat (or with respect to any such matter), present in person or represented by proxy, shall have the power to adjourn the meeting (or the vote upon such matter, without prejudice to the right of the stockholders to vote upon any matter as to which a quorum does exist) from time to time, without notice other than announcement at the meeting, until a quorum shall be presented or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted that might have been transacted at the meeting as originally notified. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting (or with respect to such matter). 2.7 VOTE REQUIRED. When a quorum is present with respect to any matter considered at any meeting of stockholders, the vote of the holders of a majority of the Voting Stock shall decide such matter, unless the matter is one upon which by express provision of law, the Certificate of Incorporation or these By-laws, a different vote is required, in which case such express provision shall govern and control the decision of such matter. 2.8 VOTING RIGHTS OF STOCKHOLDERS. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of Voting Stock held of record by such holder. If the Certificate of Incorporation provides for more or less than one vote for any share of Voting Stock on any matter, every reference in these By-laws to a majority or other proportion of Voting Stock shall refer to such majority or other proportion of the total votes accorded such shares of stock. 4 2.9 PROXIES. (a) Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. (b) Execution of a proxy may be accomplished by a stockholder or his or her authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, without limitation, by facsimile signature. A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors shall specify the information upon which they relied. (c) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. (d) A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary. 2.10 NO UNANIMOUS WRITTEN CONSENT. Unless otherwise provided in the Certificate of Incorporation, any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders, and may not be effected by any written consent of such holders. 2.11 TREASURY STOCK. Shares of Capital Stock held in the treasury of the Corporation shall not be deemed to be outstanding shares for the purpose of voting or determining the presence of a quorum or the total number of shares entitled to vote on any matter. 2.12 PRESIDING OFFICER. All meetings of stockholders shall be presided over by the Chairman or either Co-Chairman of the Board of Directors, or in his absence, by a chairman designated by the Board of Directors. The Secretary shall act as secretary of the meeting, or in the absence of the Secretary by an Assistant Secretary, or in their absence the chairman of the meeting may appoint any person to act as secretary of the meeting. 5 2.13 INSPECTORS. Prior to a meeting of stockholders, the Board shall appoint one or more inspectors to act at the meeting and make a written report thereof. Each inspector shall take and sign an oath faithfully to execute the duties of with strict impartiality and according to the best of his or her ability. The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of the proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots, and (vi) perform such other functions as the presiding officer of the meeting shall determine. The inspectors may appoint or retain other persons or entities to assist them in the performance of their duties. 2.14 ADJOURNMENTS. Any annual or special meeting of stockholders may be adjourned by the presiding officer from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 3 DIRECTORS 3.1 POWERS. The business and affairs of the Corporation shall be managed under the direction of a Board of Directors (the "Board"), except as otherwise provided by law or by the Certificate of Incorporation. 3.2 NUMBER. Subject to the restriction that the number of directors shall not be less than the number required by Delaware Law, and subject further to the creation or lapse of directorships upon the occurrence of events specified in the Certificate of Incorporation, the number of directors shall be fixed, from time to time, by a resolution adopted by a majority of the Continuing Directors. Until otherwise fixed by the directors, the number of directors constituting the entire Board shall be one. The Secretary shall have the power to certify at any time as to the number of directors authorized and as to the class to which each director has been elected or assigned. 3.3 CLASSIFICATION OF BOARD. The members of the Board, other than those who may be elected by holders of any one or more series of Preferred Stock voting separately, shall be classified, with respect to the time during which they hold office, into three classes, designated Class I, II and III, as nearly equal in number as possible. The initial directors in Class I shall be elected for a term expiring at the annual meeting of stockholders to be held in 1998, the initial directors in Class II shall be elected for a term expiring at the annual meeting of stockholders to be held in 1999 and the initial directors in Class III shall be elected for a term expiring at the annual meeting of stockholders to be held in 2000. 6 3.4 RESIGNATION. Any director may resign at any time upon written notice to the Board, the President or the Secretary. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. 3.5 NOMINATIONS. Only persons who are nominated in accordance with the procedures set forth in Section 2.3 shall be eligible for election as directors. Notwithstanding any provision of these By-laws to the contrary, the provisions of Section 2.3 shall not apply to the election of any directors which the holders of any class or series of Preferred Stock, voting separately as a class, may be entitled to elect. 3.6 ELECTION OF DIRECTORS. Unless otherwise provided in the Certificate of Incorporation, at each meeting of the stockholders for the election of directors at which a quorum is present, directors shall be elected by a plurality of the votes cast with respect to shares of Voting Stock present in person or represented by proxy at the meeting. 3.7 COMPENSATION. Unless otherwise restricted by the Certificate of Incorporation or of these By-laws, the Board shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board. The directors may be paid a stated salary as director or a fixed sum for attendance at each meeting of the Board or committee. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 4 MEETINGS OF THE BOARD 4.1 MEETINGS. The Board may hold meetings, both regular and special, either within or without the State of Delaware. 4.2 REGULAR MEETINGS. Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board. 4.3 SPECIAL MEETINGS. Special meetings of the Board may be called by the Chairman or either Co-Chairman of the Board or the President on at least 24 hours' notice to each director, either personally or by mail, telephone or telegram. Special meetings shall be called by the Chairman or either Co-Chairman of the Board or the President in like manner and on like notice on the written request of any director. Any notice to call a special meeting pursuant to this section may be executed by the Secretary of the Company acting on behalf of the person calling the meeting. 4.4 QUORUM. At all meetings of the Board a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board, except as may be otherwise specifically provided by law or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 7 4.5 ACTION AT MEETING. If a quorum is present when any meeting of the Board is convened, the directors may continue to do business, taking action by vote of a majority of a quorum as fixed in Section 4.4, until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum or the refusal of any director present to vote. 4.6 ACTION BY CONSENT. Unless otherwise restricted by the Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. 4.7 MEETINGS BY TELEPHONE. Unless otherwise restricted by the Certificate of Incorporation or these By-laws, members of the Board or any committee designated by the Board may participate in a meeting of the Board or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 4.8 PRESIDING OFFICER. The Chairman or either Co-Chairman of the Board shall preside at all meetings of the Board or, in his absence, a chairman appointed by the Board. The Secretary or in the absence of the Secretary, an Assistant Secretary, shall act as secretary of each meeting, but in the absence of the Secretary and an Assistant Secretary, the chairman of the meeting may appoint any person to act as secretary of the meeting. SECTION 5 COMMITTEES OF THE BOARD 5.1 DESIGNATION OF COMMITTEES. The Board may, by resolution passed by a majority of the Continuing Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. 5.2 AUTHORITY OF COMMITTEES. Any committee designated by the Board shall have those powers and authority of the Board in the management of the business and affairs of the Corporation provided in the resolution of the Board designating such committee, provided that no such committee shall have the power or authority to (a) approve, adopt or recommend to the stockholders any action or matter expressly required by Delaware Law to be submitted to stockholders for approval, or (b) adopt, amend or repeal any Bylaw of the Corporation. 8 5.3 MINUTES. Each committee shall keep regular minutes of its meetings and report the same to the Board when required. SECTION 6 NOTICES 6.1 FORM OF NOTICE. Unless provided otherwise by law, the Certificate of Incorporation or these By-laws, any notice that is required to be given to stockholders shall be given in writing, by mail, addressed to such stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may be given in like manner or may be given by telephone, telex or facsimile transmission or by sending the same by national commercial courier service for next-day delivery. 6.2 WAIVER. Whenever any notice is required to be given under law, the Certificate of Incorporation or these By-laws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 7 OFFICERS 7.1 GENERAL. The officers of the Corporation shall be chosen by the Board at its first meeting after each annual meeting of stockholders and shall be a President, a Secretary and a Treasurer. The Board may also choose a Chairman or Co-Chairmen of the Board and a Vice Chairman of the Board from among the directors and may choose a General Counsel, a Controller and one or more Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person, unless the Certificate of Incorporation or the By-laws otherwise provide. 7.2 OTHER OFFICERS. The Board may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. 7.3 COMPENSATION. The salaries of all officers and agents of the Corporation shall be fixed by the Board. 7.4 TERM. The officers of the Corporation shall hold office until their successors are chosen and qualify. Subject to such obligations of the Corporation as may exist under any contract of employment, any officer elected or appointed by the Board may be removed at any time by the President or by the affirmative vote of a majority of the Continuing Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board. 9 7.5 CHAIRMAN OR CO-CHAIRMEN OF THE BOARD. The Chairman or Co-Chairmen of the Board shall have the general powers, duties and responsibilities of supervision and management inherent in such office as well as such additional powers and duties as the Board may from time to time prescribe. He or they shall control and direct the Corporation's business and supervise, direct and control the management of the business of the Corporation. He or either one of them shall preside at all meetings of the stockholders and the Board. 7.6 VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board shall have such powers and duties as may be delegated to him by the Board of Directors or the Co-Chairmen of the Board. 7.7 PRESIDENT. The President shall be the Chief Executive Officer of the Corporation. The President shall, except as the Board may otherwise direct, supervise the daily operations of the business of the Corporation and have general charge of and authority over the Corporation's property and supervision over the Corporation's officers, employees and agents. At the request of the Chairman or either Co-Chairman of the Board, or in his absence or during his disability, the President shall perform the duties and exercise the functions of the Chairman of the Board. Except as the Board may otherwise authorize, the President shall execute bonds, mortgages and any other contracts of any nature on behalf of the Corporation. 7.8 EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS, ASSISTANT VICE PRESIDENTS, CONTROLLER AND GENERAL COUNSEL. The Executive Vice Presidents, Senior Vice Presidents, Assistant Vice Presidents, Controller and General Counsel shall have such powers and duties as may be delegated to them by the Board of Directors or the Co-Chairmen of the Board. 7.9 VICE PRESIDENTS. In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall perform such other duties and have such other powers as the Board, the Chairman or either Co-Chairman of the Board, or the President may from time to time prescribe. 7.10 SECRETARY. The Secretary shall attend all meetings of the Board and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board, and shall perform such other duties as may be prescribed by the Board or President, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. 10 7.11 ASSISTANT SECRETARY. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board (or if there be no such determination, then in the order of their election) shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board may from time to time prescribe. 7.12 TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board. He shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the President and the Board, at its regular meetings, or when the Board so requires, an account of all his transactions as treasurer and of the financial condition of the Corporation. If required by the Board, he shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. 7.13 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board (or if there be no such determination, then in the order of their election) shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board may from time to time prescribe. SECTION 8 STOCK 8.1 CERTIFICATED OR UNCERTIFICATED. The shares of the Corporation shall be uncertificated or shall be represented by certificates signed in the name of the Corporation by the Chairman or either Co-Chairman of the Board or the President or a Vice President and by the Secretary or an Assistant Secretary of the Corporation. Upon the face or back of each stock certificate issued to represent any partly paid shares, or upon the books and records of the Corporation in the case of uncertificated partly paid shares, shall be set forth the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. 8.2 SUMMARY OF RIGHTS. The powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series of each class of stock, and of each series of any class, and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided that, except as otherwise provided in Section 202 of Delaware Law, or in any act amending, supplementing or substituted for such section, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the 11 Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights. 8.3 NOTICE TO HOLDERS OF UNCERTIFICATED STOCK. Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send, or cause to be sent, to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of Delaware Law or a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights. 8.4 FACSIMILE SIGNATURES. Any of or all the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. 8.5 LOST CERTIFICATES. The Board may direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 8.6 TRANSFER OF STOCK. Upon surrender to the Corporation or the transfer agent of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares such uncertificated shares shall be cancelled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation. 8.7 REGISTERED STOCKHOLDERS. Except as otherwise provided by law, the Corporation, and its directors, officers and agents, may recognize and treat a person registered on its records as the owner of shares, as the owner in fact thereof for all purposes, and as the person exclusively entitled to have and to exercise all rights and privileges incident to the ownership of such shares, and rights 12 under this Section 8.7 shall not be affected by any actual or constructive notice that the Corporation, or any of its directors, officers or agents, may have to the contrary. SECTION 9 INDEMNIFICATION 9.1 INDEMNITY. (a) Except with respect to an action or Claim (other than as authorized in Section 9.2) commenced by an Indemnitee against the Corporation or by an Indemnitee as a derivative action by or in the right of the Corporation that has not been authorized by the Board, the Corporation shall indemnify, defend and hold harmless any Indemnitee against Expenses reasonably incurred or suffered in connection with any Claim against Indemnitee, whether the basis of such Claim is alleged action or inaction in an official capacity as Indemnitee or in any other capacity while serving as an Indemnitee (including appearances as a witness or in connection with giving testimony or evidence), if: (i) the Indemnitee is successful in his defense of the Claim on the merits or otherwise, or (ii) the Indemnitee has been found by the Determining Body to have met the Standard of Conduct (as determined in accordance with the procedures set forth in this Section 9.1), provided that no indemnification shall be made in respect of any Claim by or in the right of the Corporation as to which Indemnitee shall have been adjudicated in a final judgment to be liable to the Corporation, unless, and only to the extent that the court in which such Claim was brought shall determine upon application that, despite such adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such Expenses which the court shall deem proper. (b) For purposes of this Section 9, the "Standard of Conduct" is met when conduct by an Indemnitee with respect to which a Claim is asserted was conduct performed in good faith which he reasonably believed to be in, or not opposed to, the best interest of the Corporation, and, in the case of a Claim which is a criminal action or proceeding, conduct that the Indemnitee had no reasonable cause to believe was unlawful. The termination of any Claim by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not meet the Standard of Conduct. (c) Promptly upon becoming aware of the existence of any Claim as to which Indemnitee may be indemnified hereunder, Indemnitee shall notify the Chief Executive Officer of the Corporation, but the failure to promptly notify the Chief Executive Officer shall not relieve the Corporation from any obligation under this Section 9. Upon receipt of such request, the Chief Executive Officer shall promptly advise the members of the Board of the request and that the establishment of a Determining Body with respect to Indemnitee's request for indemnification as to the Claim will be presented at the next regularly scheduled meeting of the Board. If a meeting of the Board is not regularly scheduled within 120 calendar days of the date the Chief Executive Officer receives notice of the Claim, the Chief Executive Officer shall cause a special meeting of the Board of Directors to be called within such period in accordance with the provisions of the By-laws. After 13 the Determining Body has been established, the Determining Body shall inform the Indemnitee of the constitution of the Determining Body and Indemnitee shall provide the Determining Body with all facts relevant to the Claim known to such Indemnitee, and deliver to the Determining Body all documents relevant to the Claim in Indemnitee's possession. Before the 60th day after its receipt from the Indemnitee of such information (the "Determination Date"), together with such additional information as the Determining Body may reasonably request of Indemnitee prior to such date (the receipt of which shall not begin a new 60-day period) the Determining Body shall determine whether or not Indemnitee has met the Standard of Conduct and shall advise Indemnitee of its determination. If Indemnitee shall have supplied the Determining Body with all relevant information, including all additional information reasonably requested by the Determining Body, any failure of the Determining Body to make a determination by or on the Determination Date as to whether the Standard of Conduct was met shall be deemed to be a determination that the Standard of Conduct was met by Indemnitee. (d) If at any time during the 60-day period ending on the Determination Date, Indemnitee becomes aware of any relevant facts not theretofore provided by him to the Determining Body, Indemnitee shall inform the Determining Body of such facts, unless the Determining Body has obtained such facts from another source. The provision of such facts to the Determining Body shall not begin a new 60 day period. (e) The Determining Body shall have no power to revoke a determination that Indemnitee met the Standard of Conduct unless Indemnitee (i) submits to the Determining Body at any time during the 60 days prior to the Determination Date fraudulent information, (ii) fails to comply with the provisions of Section 9.1(d), or (iii) intentionally fails to submit information or documents relevant to the Claim reasonably requested by the Determining Body prior to the Determination Date. (f) In the case of any Claim not involving any threatened or pending criminal proceeding: (i) if prior to the Determination Date the Determining Body has affirmatively made a determination that Indemnitee met the Standard of Conduct (not including a determination deemed to have been made by inaction), the Corporation may, in its sole discretion, after notice to Indemnitee, assume all responsibility for the defense of the Claim with counsel satisfactory to Indemnitee (who shall not, except with the written consent of Indemnitee, be counsel to the Corporation), and, in any event, the Corporation and the Indemnitee each shall keep the other informed as to the progress of the defense of the Claim, including prompt disclosure of any proposals for settlement; provided that if the Corporation is a party to the Claim and Indemnitee reasonably determines that there is any conflict between the positions of the Corporation and Indemnitee, with respect to the Claim or otherwise, then Indemnitee shall be entitled to conduct his defense with counsel of his choice at the Corporation's expense in accordance with the terms and conditions of this Section 9; and provided further that Indemnitee shall in any event be entitled at his expense to employ counsel chosen by him to participate in the defense of the Claim; and 14 (ii) The Corporation shall not be obligated to indemnify Indemnitee for any amount paid in a settlement that the Corporation has not approved. The Corporation shall fairly consider any proposals by Indemnitee for settlement of the Claim. If the Corporation proposes a settlement of the Claim and such settlement is acceptable to the person asserting the Claim, or the Corporation believes a settlement proposed by the person asserting the Claim should be accepted, it shall inform Indemnitee of the terms of such proposed settlement and shall fix a reasonable date by which Indemnitee shall respond. If Indemnitee agrees to such terms, he shall execute such documents as shall be necessary to make final the settlement. If Indemnitee does not agree with such terms, Indemnitee may proceed with the defense of the Claim in any manner he chooses, provided that if Indemnitee is not successful on the merits or otherwise, the Corporation's obligation to indemnify such Indemnitee as to any Expenses incurred following his disagreement shall be limited to the lesser of (A) the total Expenses incurred by Indemnitee following his decision not to agree to such proposed settlement or (B) the amount that the Corporation would have paid pursuant to the terms of the proposed settlement. (g) In the case of any Claim involving a proposed, threatened or pending criminal proceeding, Indemnitee shall be entitled to conduct the defense of the Claim with counsel of his choice and to make all decisions with respect thereto; provided, that the Corporation shall not be obliged to indemnify Indemnitee for any amount paid in settlement of such a Claim unless the Corporation has approved such settlement. (h) After notifying the Corporation of the existence of a Claim in accordance with Section 9.1(c), Indemnitee may from time to time request the Corporation to pay the Expenses (other than judgments, fines, penalties or amounts paid in settlement) that he incurs in pursuing a defense of the Claim prior to the time that the Determining Body determines whether the Standard of Conduct has been met. The Disbursing Officer shall pay to Indemnitee the amount requested (regardless of Indemnitee's ability to repay such amount) upon receipt of an undertaking by or on behalf of Indemnitee to repay such amount along with any other amounts advanced or paid after the Determination Date in accordance with the provisions of this Section 9.1, if (i) the Determining Body determines prior to the Determination Date that Indemnitee did not meet the Standard of Conduct or (ii) Indemnitee is prohibited from being indemnified by the Corporation by virtue of the provisions of Delaware Law. (i) After it has been determined that the Standard of Conduct has been met, for so long as and to the extent that the Corporation is required to indemnify Indemnitee under this Section 9, the provisions of Section 9.1(h) shall continue to apply with respect to Expenses incurred after such time except that (i) no undertaking shall be required of Indemnitee and (ii) the Disbursing Officer shall pay to Indemnitee the amount of any fines, penalties or judgments against him that have become final and for which he is entitled to indemnification hereunder, and any amount of indemnification ordered to be paid to him by a court. (j) Any determination by the Corporation with respect to settlement of a Claim shall be made by the Determining Body. 15 (k) All determinations and judgments made by the Determining Body hereunder shall be made in good faith. (l) The Corporation and Indemnitee shall keep confidential to the extent permitted by law and their fiduciary obligations all facts and determinations provided pursuant to or arising out of the operation of this Section 9 and the Corporation and Indemnitee shall instruct its or his agents and employees to do likewise. 9.2 ENFORCEMENT. (a) The rights provided by this Section 9 shall be enforceable by Indemnitee in any court of competent jurisdiction. (b) If Indemnitee seeks a judicial adjudication of his rights under this Section 9 Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all Expenses actually and reasonably incurred by him in connection with such proceeding but only if he prevails therein. If it shall be determined that Indemnitee is entitled to receive part but not all of the relief sought, then the Indemnitee shall be entitled to be reimbursed for all Expenses incurred by him in connection with such judicial adjudication if the amount to which he is determined to be entitled exceeds 50% of the amount of his claim. Otherwise, the Expenses incurred by Indemnitee in connection with such judicial adjudication shall be appropriately prorated. (c) In any judicial proceeding described in this Section 9.2, the Corporation shall bear the burden of proving that Indemnitee is not entitled to the relief sought, even if the Determining Body prior to the Determination Date determined that Indemnitee failed to meet the Standard of Conduct. If prior to the Determination Date the Determining Body failed to make a determination that Indemnitee did not meet the Standard of Conduct, it shall not be a defense to such suit that Indemnitee did not meet the Standard of Conduct. 9.3 REFORMATION. If any provision of this Section 9 is determined by a court having jurisdiction over the matter to violate or conflict with applicable law, the court shall be empowered to modify or reform such provision so that, as modified or reformed, such provision provides the maximum indemnification permitted by Delaware Law, and such provision, as so modified or reformed, and the balance of this Section 9 shall be applied in accordance with their terms. Without limiting the generality of the foregoing, if any portion of this Section 9 shall be invalidated on any ground, the Corporation shall nevertheless indemnify an Indemnitee to the full extent permitted by any applicable portion of this Section 9 that shall not have been invalidated and to the full extent permitted by law with respect to that portion that has been invalidated. 9.4 SUCCESSORS AND ASSIGNS. This Section 9 shall be binding upon the Corporation, its successors and assigns, and shall inure to the benefit of the Indemnitee's heirs, administrators, executors, personal representatives and assigns and to the benefit of the Corporation, its successors and assigns. 9.5 AMENDMENTS. No amendment to or modification of this Section 9 or any portion hereof shall limit any Indemnitee's entitlement to indemnification in accordance with the provisions 16 hereof with respect to any acts or omissions of Indemnitee which occur or accrue prior to such amendment or modification. 9.6 CONTRIBUTION. If the indemnity provided for in this Section 9 is for any reason unavailable or insufficient to hold harmless an Indemnitee with respect to any Expenses, the Corporation shall make a contribution to the Indemnitee for such liabilities to which the Indemnitee may be subject in such proportion as is appropriate to reflect the intent of this Section 9. 9.7 RELIANCE. Each person who is serving as an Indemnitee shall be deemed to be doing so in reliance upon the indemnification provided for in this Section 9. The rights of an Indemnitee hereunder shall be contract rights and shall vest in the Indemnitee upon the occurrence of the event, or the first event in a chain of events, giving rise to such Claim; provided that the adoption of the By-laws shall not affect any right or obligation of the Corporation or of any Indemnitee which existed prior to such adoption. 9.8 NONEXCLUSIVITY. (a) The rights conferred herein on any person shall (i) be severable, (ii) not be exclusive of any other rights which such person may have or hereafter acquire under any statute, certificate of incorporation, contract or other agreement, authorization of stockholders or disinterested directors or otherwise, and (iii) continue as to an Indemnitee who has ceased to serve on behalf of the Corporation in respect of all claims arising out of action (or inaction) occurring prior to such time. (b) It is the intent of the Corporation to indemnify and hold harmless Indemnitee to the fullest extent permitted by Delaware Law, as such law exists or may be amended after the date the By-laws are adopted, but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than Delaware Law permitted prior to the amendment, notwithstanding any provision in Section 9 to the contrary. 9.9 INSURANCE. The Corporation may procure or maintain insurance or other similar arrangement on behalf of any Indemnitee or any person who is or was an employee or agent of the Corporation, or is serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against or incurred by him in his capacity as such, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of Delaware Law. Without limiting the power of the Corporation to procure or maintain any other kind of insurance or similar arrangement, the Corporation may create a trust fund or other form of self-insurance arrangement for the benefit of any Indemnitee or such other person to the fullest extent authorized by Delaware Law. SECTION 10 GENERAL PROVISIONS 10.1 FIXING RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to 17 exercise any rights in respect to any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix in advance a record date which shall not be more than 60 nor less than ten days before the date of such meeting, nor more than 60 days prior to any other action. Except as otherwise provided in the By-laws, a determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, provided, however, that the Board may fix a new record date for the adjourned meeting. 10.2 DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. 10.3 CHECKS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board may from time to time designate. 10.4 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board. 10.5 SEAL. The corporate seal shall have inscribed thereon the name of the Corporation and shall be in such form as may be approved from time to time by the incorporator, or, after the appointment of directors, the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. SECTION 11 DEFINITIONS The following terms, for all purposes of the By-laws, shall have the following meaning: "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended (the term "registrant" in such Rule 12b-2 meaning in this case the Corporation); provided, however, that in no event shall the Corporation, any of its Subsidiaries, any employee benefit plan or any of the other persons or entities exempted from the definition of Interested Stockholder as provided in the Certificate of Incorporation be deemed to be an Affiliate or Associate of any Interested Stockholder. 18 A person shall be deemed to be the "Beneficial Owner" of any shares of Capital Stock (regardless whether owned of record): (1) Which that person or any of its Affiliates or Associates, directly or indirectly, owns beneficially; (2) Which such person or any of its Affiliates or Associates has (A) the right to acquire (whether exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or understanding; or (3) Which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of voting capital stock of the Corporation or any Subsidiaries. "Capital Stock" means any Common Stock, Preferred Stock or other shares of capital stock of the Corporation. "Certificate of Incorporation" shall mean the certificate of incorporation of the Corporation, as it may be amended from time to time. "Claim" shall mean any threatened, pending or completed claim, action, suit or proceeding, including appeals, whether civil, criminal, administrative or investigative and whether made judicially or extra-judicially, including any action by or in the right of the Corporation, or any separate issue or matter therein, as the context requires. "Common Stock" shall mean the common stock of the Corporation, as provided for in the Certificate of Incorporation. "Continuing Director" shall have the meaning ascribed to it in the Certificate of Incorporation. "Delaware Law" shall mean the General Corporation Law of the State of Delaware. "Determining Body" shall mean (i) those members of the Board of Directors who do not have a direct or indirect interest the Claim for which indemnification is being sought ("Impartial Directors"), if there are at least two Impartial Directors, (ii) a committee of at least two Impartial Directors appointed by the Board or a duly authorized committee thereof (regardless of whether the directors voting on such appointment are Impartial Directors) and composed of Impartial Directors or (iii) if there are fewer than two Impartial Directors or if the Board or a duly authorized committee thereof so directs (regardless whether the members 19 thereof are Impartial Directors), independent legal counsel, which may be the regular outside counsel of the Corporation, as determined by the Impartial Directors or, if no such directors exist, the full Board. "Disbursing Officer" shall mean the Chief Financial Officer of the Corporation or, if the Chief Financial Officer has a direct or indirect interest in the Claim for which indemnification is being sought, any officer who does not have such an interest and who is designated by the Chief Executive Officer to be the Disbursing Officer with respect to indemnification requests related to the Claim, which designation shall be made promptly after receipt of the initial request for indemnification with respect to such Claim. "Expenses" shall mean any expenses or costs, including, without limitation, attorney's fees, judgments, punitive or exemplary damages, fines, excise taxes or amounts paid in settlement. "Indemnitee" shall mean any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, employee benefit plans of the Corporation). "Preferred Stock" shall mean the preferred stock of the Corporation, as provided for in the Certificate of Incorporation. "Subsidiary" means any corporation, partnership or other entity of which the Corporation, directly or indirectly, owns voting stock or similar interests having a majority of the votes entitled to be cast. "Voting Stock" means the outstanding shares of Capital Stock entitled to vote generally in an election of directors. SECTION 12 AMENDMENTS The Corporation's By-laws may be altered, amended, or repealed or new By-laws may be adopted by: (a) the stockholders, but only upon the affirmative vote of holders of not less than 80% of the Voting Stock, voting together as a single class; or (b) the Board, but only upon the affirmative vote of both (i) a majority of the directors then in office and (ii) a majority of the Continuing Directors, voting as a separate group. 20 EX-4.1 6 FORM OF STOCK CERTIFICATE COMMON STOCK COMMON STOCK [VIGNETTE] NUMBER SHARES FSC Incorporated under the laws CUSIP _____________________________ of the State of Delaware See Reverse for Certain Definitions FREEPORT-MCMORAN SULPHUR INC. THIS IS TO CERTIFY THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES, OF THE PAR VALUE OF ONE CENT ($.01) PER SHARE, OF THE COMMON STOCK OF Freeport-McMoRan Sulphur Inc., transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation, as amended, copies of which are on file with the Transfer Agent, to all of which the holder by acceptance hereof assents. This certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. Witness the seal of the Corporation and the signatures of its duly authorized officers. Dated [SEAL OF FREEPORT-MCMORAN SULPHUR INC.] COUNTERSIGNED AND REGISTERED: MELLON SECURITIES TRUST COMPANY (New York) Transfer Agent /s/ James R. Moffett and Registrar Co-Chairman of the Board By /s/ Michael C. Kilanowski, Jr. Authorized Signature Secretary The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act ____________ in common (State)
Additional abbreviations may also be used though not in the above list. For value received, _______________ hereby sell, assign and transfer unto Please insert social security or other identifying number of assignee _________________________________ _________________________________ ______________________________________________________________________ (Please print or typewrite name and address, including zip code, of assignee) ______________________________________________________________________ ______________________________________________________________________ _______________________________________________________________ shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint_____________________________ ________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated _______________ ____________________________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: _____________________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN ANY APPROVED SIGNATURE GUARANTEED MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. This certificate also evidences certain Rights as set forth in a Rights Agreement between Freeport-McMoRan Sulphur Inc. and Mellon Securities Trust Company, as Rights Agent dated as of _________ __, 1997 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Corporation. The Corporation will mail to the holder of this certificate a copy of the Rights Agreement without charge promptly after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be evidenced by separate certificates and no longer be evidenced by this certificate, may be redeemed or exchanged or may expire. As set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may be null and void. EX-5.1 7 OPINION OF JONES, WALKER EXHIBIT 5.1 JONES, WALKER, WAECHTER, POITEVENT, CARRERE & DENEGRE, L.L.P. November 17, 1997 Freeport-McMoRan Sulphur Inc. 1615 Poydras Street New Orleans, Louisiana 70112 Dear Sirs: We have acted as counsel to Freeport-McMoRan Sulphur Inc. (the "Company") in connection with the preparation of the registration statement on Form S-1 (the "Registration Statement") filed by you with the Securities and Exchange Commission on the date hereof, with respect to the distribution of up to 5,338,513 shares of Common Stock, $.01 par value per share together with associated preferred stock purchase rights (the "Shares") in connection with the merger of Freeport-McMoRan Inc. with and into IMC Global Inc. pursuant to the terms of a Merger Agreement dated August 26, 1997 (the "Merger Agreement"). In so acting, we have examined original, or photostatic or certified copies, of such records of the Company, certificates of officers of the Company and of public officials, and such other documents as we have deemed relevant. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such documents. Based upon the foregoing, we are of the opinion that the Shares, when issued in accordance with the terms of the Merger Agreement, shall be duly authorized, validly issued, fully paid and non-assessable shares of the Company's Common Stock. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and the reference to us under the caption "Legal Matters" as counsel for the Company. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the general rules and regulations of the Commission. Very truly yours, /s/ Jones, Walker, Waechter, Poitevent, Carrere & Denegre L.L.P. JONES, WALKER, WAECHTER, POITEVENT, CARRERE & DENEGRE, L.L.P. EX-8.1 8 OPINION OF MILLER CHEVALIER [MILLER & CHEVALIER, CHARTERED LETTERHEAD] November 17, 1997 Freeport-McMoRan Inc. 1615 Poydras Street New Orleans, LA 70161 Ladies and Gentlemen: We have reviewed the IMC Global Inc. Registration Statement on Form S-4, dated November 12, 1997, which includes the Joint Proxy Statement and Prospectus of IMC Global Inc. and Freeport-McMoRan Inc. (the "Prospectus") and the Freeport-McMoRan Sulphur Inc. Registration Statement on Form S-1, dated November 12, 1997, relating to the merger of Freeport-McMoRan Inc. into IMC Global Inc. (the "Merger"), and the distribution of Freeport-McMoRan Sulphur Inc. common stock in the Merger, respectively. This will confirm that our opinions are set forth under the headings "Certain United States Federal Income Tax Consequences" in the Prospectus and "Certain Federal Income Tax Consequences" in the Form S-1, and such discussions are fair, complete, and accurate in all material respects. Our opinions are subject to the qualifications stated under each heading. We consent to the use of this opinion as an exhibit to the Form S-4 Registration Statement and the Form S-1 Registration Statement filed with the SEC in connection with the Merger and the distribution of Freeport-McMoRan Sulphur Inc. common stock, and to the references to us as tax counsel to FTX in such filings. Very truly yours, MILLER & CHEVALIER, CHARTERED By: /s/ Thomas W. Mahoney, Jr. ---------------------------- Thomas W. Mahoney, Jr. EX-10.1 9 FORM OF EMPLOYEE BENEFITS AGREEMENT EXHIBIT B TO CONTRIBUTION AND DISTRIBUTION AGREEMENT EMPLOYEE BENEFITS AGREEMENT This EMPLOYEE BENEFITS AGREEMENT, dated as of __________, 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 $______ 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. 2 (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. 3 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 4 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 5 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. 6 (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. Section 688, 7 the Longshore and Harbor Workers' Compensation Act, 33 U.S.C. Section 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. Section 603 as a result of the transactions contemplated in the Contribution and Distribution Agreement and the Merger 8 Agreement and who elect COBRA continuation group health coverage under 29 U.S.C. Sections 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. 9 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: ------------------------------ Name: Title: FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP By: FREEPORT-McMoRan INC., Administrative Managing General Partner By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: 10 EX-10.2 10 ASSET SALE AGREEMENT ASSET SALE AGREEMENT MAIN PASS BLOCK 299 THIS AGREEMENT, dated May 2, 1990, between: CHEVRON U.S.A. INC., a Pennsylvania corporation with its principal place of business in Louisiana at 935 Gravier Street, New Orleans, Louisiana 70112 ("Seller); and FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP, a Delaware limited partnership ("Freeport"), with its principal place of business in Louisiana at 1615 Poydras Street, New Orleans, Louisiana 70112, referred to herein as "Buyer", W I T N E S S E T H: That Seller desires to sell to Buyer and Buyer desires to purchase from Seller on the terms set forth in this Agreement those certain oil and gas interests and associated assets identified in Exhibits "A" and "B" attached hereto and made a part hereof. Accordingly, Seller and Buyer agree as follows: 1. SALE AND PURCHASE OF ASSETS 1.1 ASSETS TO BE SOLD. Seller shall sell, transfer, and assign, or cause others to sell, transfer and assign to Buyer, and Buyer shall purchase and receive the following, to-wit: 1.1.1 All of Seller's right, title and interests in and to the Segregated Lease, as defined in Exhibit "A". Seller reserves all other rights in the "Lease" (as identified in Exhibit "A"), such other rights being the "Retained Lease". 1.1.2 All of Seller's right, title and interest in and to the materials, equipment, services and contract rights described in Exhibit "B" ("Physical Assets"). The Segregated Lease and Physical Assets are hereinafter collectively referred to as "the Assets". Such transfer of interests will be made and be effective at Closing. 1.2 INSTRUMENTS. Except as may be otherwise noted in this Agreement, the Assets to be conveyed by Seller to Buyer Pursuant to Section 1.1 shall be conveyed by instruments in form and substance similar to Exhibits "F-1" and "F-2," provided that the Physical Assets shall be conveyed on an "as is" basis. Seller shall execute such other Bills of Sale as may be required by Buyer for the Physical Assets. The interests to be conveyed by Buyer to Seller shall be conveyed by an instrument in form and substance similar to Exhibit "F-3" or "F-4", as applicable. 1.3 SELLER'S ELECTION TO EFFECT IRC Section 1031 EXCHANGE. In the event Seller so elects, Buyer agrees to attempt in good faith to accommodate Seller in effecting a tax-deferred exchange of the properties identified in Section 1.1.1, at the value referred to in Section 2.1.1, under Internal Revenue Code Section 1031, as amended. Seller shall have the right to elect this tax-deferred exchange at any time prior to the date of Closing. If Seller elects to effect a tax-deferred exchange, Buyer agrees to execute additional escrow instructions, documents, agreements, or instruments to effect the exchange, provided that Buyer shall incur no additional costs, expenses, fees, taxes (including any state or local sales, use or transfer taxes) or liabilities as a result of or connected with the exchange. Further, in the event Seller elects to effect a tax-deferred exchange, such transaction shall be subject to the terms and provisions of Section 7.3 hereof and of an agreement similar in form and substance to that attached hereto as Exhibit "F-5." In connection with any such exchange, Buyer does not warrant or represent that any such property selected by Seller will be suitable for Sellers purpose nor that such exchange will qualify for tax deferred treatment under Internal Revenue Code Section 1031. Seller will indemnify Buyer for any costs, expenses, fees, taxes or liabilities arising from or in connection with any such exchange, and for any claims made by any third party relating to such exchange. 2. TERMS OF SALE 2.1 PRICE. As consideration for the sale of the Assets, Buyer shall pay to Seller or its designee the following amounts: 2.1.1 For the Segregated Lease, One Hundred Thirty-Seven Million United States dollars ($137,000,000). 2.1.2 For the Physical Assets, the amounts set forth in said Exhibit "B" (as adjusted for the costs and expenses incurred up to the Closing). The amounts set forth in Sections 2.1.1 shall be paid at Closing by wire transfer in Federal Funds to a bank account to be designated by Seller. An invoice with supplier's documentation for the items identified in Section 2.1.2 will be forwarded to Freeport under separate cover within thirty (30) days after Closing. This invoice will contain payment instructions and information as to the status and condition of the materials and equipment being transferred. 2.2 ASSUMPTION OF OBLIGATIONS AND LIABILITIES. As additional consideration for the sale of the Assets, Buyer shall assume all obligations and liabilities relating to the ownership or use of the Assets, including but by no means limited to the payment of Production Payments, overriding royalty payments or the Final Payment (if applicable) owing to Seller hereunder, and reclamation and the plugging and abandonment of all wells drilled on the Segregated Lease (but not including wells heretofore drilled through the Segregated Lease to depths deeper than a subsea depth of 1,900 feet), whether now or hereafter located on the Segregated Lease. Buyer shall also assume all accounting and reporting duties and obligations associated with use and ownership of the Assets subsequent to the Closing. Such reclamation and plugging and abandonment shall be performed in a good and workmanlike manner and in accordance with the rules and regulations of the Minerals Management Service and all other applicable laws. The sale will be made subject to, and Buyer assumes all rights and obligations arising under and in accordance with, the terms of the Segregated Lease, and the agreements listed on Exhibit "A" hereto which affect the Segregated Lease. Buyer shall assume and be responsible for all obligations of Seller accruing under such agreements after the Closing, to the extent such agreements apply to the Segregated Lease. 2.3 INDEMNIFICATION BY BUYER. Buyer shall defend and indemnify Seller, and shall save and hold Seller (and Sellers assignee under an exchange agreement) free and harmless, from and against any and all liabilities, penalties, fines, losses, injuries including death, demands, damages, claims and causes of action, of any nature whatsoever, arising directly or indirectly from or in connection with: 2.3.1 Seller's #11 well, previously drilled within the Segregated Lease and which Seller represents was properly plugged and abandoned by Seller; 2.3.2 Buyer's ownership or use of the Segregated Lease, or operations conducted or caused to be conducted by or on behalf of Buyer on, in, under or adjacent to the Segregated Lease for the exploration for or development and production, gathering, transportation, processing or treatment of oil or gas or sulphur or any other mineral or substance from or allocable to the Segregated Lease, 2 except to the extent that such liabilities, losses, injuries including death, demands, damages, claims and causes of action are finally established, in a ruling from a court of competent jurisdiction not subject to appeal, to be the result of Seller's (or, pursuant to an exchange agreement, Seller's assignee's) negligence or other legal fault. 2.4 INDEMNIFICATION BY SELLER. Seller shall save and hold Buyer free and harmless from and against any and all liabilities, penalties, fines, losses, injuries including death, demands, damages, claims and causes of action, of any nature whatsoever, arising directly or indirectly from or in connection with Seller's ownership or use of the Retained Lease, or operations conducted or caused to be conducted by or on behalf of Seller on, in, or under the Retained Lease for the exploration for or development and production, gathering, transportation, processing or treatment of oil or gas or sulphur or any other mineral or substance from or allocable to the Retained Lease, except to the extent that such liabilities, losses, injuries including death, demands, damages, claims and causes of action are finally established, in a ruling from a court of competent jurisdiction not subject to appeal, to be the result of Buyer's negligence or other legal fault. 2.5 CLOSING. The Closing of the transactions contemplated herein and the transfer of the Assets shall occur on or before June 1, 1990 (unless additional time is required to satisfy the conditions precedent to Closing, as provided in Section 7 hereof), at Chevron's office at 935 Gravier Street, New Orleans, Louisiana, at 10:00 a.m., local time, or such other date, time, and place as Seller and Buyer may agree in writing. 3. INTERESTS TO BE GRANTED TO BUYER BY SELLER 3.1 PRODUCTION PAYMENT. 3.1.1 Buyer shall grant, transfer, assign and convey to Seller a "Production Payment" with regard to Buyer's oil production from or attributable to the Segregated Lease (or any extension, renewal or replacement of the Segregated Lease acquired hereafter by Buyer or a parent, subsidiary or affiliate of Buyer). Said Production Payment shall be conveyed by an instrument in form and substance similar either to Exhibit "F-3" or Exhibit "F-4" hereto, as applicable pursuant to Section 3.2 or 3.3, and is to be calculated on a calendar year basis, in accordance with Exhibits "C" and "D" attached hereto. Buyer shall pay such Production Payment to Seller on or before a date thirty (30) days after the end of the calendar year to which such payment applies, or on or before a date sixty (60) days after the discontinuation of Production Payments as provided in Section 3.2 hereof. 3.1.2 Concurrently with any such payment made pursuant to Section 3.1.1, Buyer shall furnish Seller a statement which shall include information and data supporting and verifying the amount of the Production Payment being tendered. Said payment and said statement shall be sent to the following address: Chevron U.S.A. Inc. P. 0. Box J, Section 724E Concord, CA 94524 3.1.3 If Buyer does not make such a payment as required by Section 3.1.1 by the date such payment is due, the amount owed to Seller shall accrue interest from the due date at the prime interest rate posted from time to time by Chase Manhattan Bank, New York, New York, or by such other bank as the parties may hereafter mutually select in writing, plus two percent (2%). 3 3.2 OVERRIDING ROYALTY INTEREST - NO EXCHANGE. 3.2.1 This Section 3.2 shall apply only in the event Seller elects not to effect a tax-deferred exchange as provided in Section 1.3. 3.2.2 After cumulative oil production from or allocable to the Segregated Lease produced, saved or used equals or exceeds 36 million stock tank barrels of oil, measured at Buyer's production facility platform located on or adjacent to the Segregated Lease (the ability to produce and save such volumes of oil not being guaranteed by Buyer), or after a date twenty (20) years from the date of first such oil production, whichever occurs first, Seller's Production Payment as provided for in Section 3.1.1 above shall convert to an overriding royalty of 25% of the value of oil and gas production thereafter produced and saved or used from or allocable to the Segregated Lease. Such conversion shall be set forth in an instrument similar in form and substance to that attached hereto as Exhibit "F-3." Notwithstanding anything foregoing in this Section 3.2 to the contrary, said overriding royalty shall be calculated, determined and paid on the same volumes of production on which the lessors royalty is calculated, determined and paid; provided, this 25% overriding royalty due in any one month shall never exceed 50% of the "net operating revenue" for such month. For purposes of this Section 3.2, "net operating revenue" is defined as gross value realized by the Buyer on production saved and sold or used in the calendar month, less the lessor's royalty and normal operating expenses as outlined in Exhibit "E" attached hereto (excluding major workover expenses (i.e., well work requiring a drilling or workover rig), plugging and abandoning costs, and other expenditures of a capital nature). Said overriding royalty shall be calculated on the same basis as the lessors royalties as provided for in the Segregated Lease and, based on such calculation, shall be paid concurrently with payment of royalties under the lease covering the Segregated Lease. Additionally, said overriding royalty shall bear its proportionate share of present or future severance, windfall profits, excise or similar taxes. Any adjustments to the overriding royalties so paid required by the 50% of net operating revenue limitation set forth above shall be based on accrued expenses in accordance with generally accepted accounting principles adjusted to actual expenses in succeeding months and as consistently applied. Resulting adjustments to the 25% overriding royalty interest payment shall be made during such succeeding month or by direct payment (after confirmation of the appropriate adjustments) to the party due such payment. 3.3 OVERRIDING ROYALTY INTEREST AND FINAL PAYMENT - EXCHANGE. 3.3.1 This Section 3.3 shall apply only if Seller elects to effect a tax-deferred exchange as provided in Section ?. 3.3.2 After a date twenty (20) years from the date of first oil production from or allocable to the Segregated Lease, Seller's Production Payment as provided for in Section ? above shall convert to an overriding royalty of 25% of the value of oil and gas production thereafter produced and saved or used from or allocable to the Segregated Lease. Such conversion shall be set forth in an instrument similar in form and substance to that attached hereto as Exhibit "F-4." Notwithstanding anything foregoing in this Section 3.3 to the contrary, said overriding royalty shall be calculated, determined and paid on the same volumes of production on which the lessor's royalty is calculated, determined and paid; provided, this 25% overriding royalty due in any one month shall never exceed 50% of the "net operating revenue" for such month. For purposes of this Section ?, "net operating revenue" is defined as gross value realized by the Buyer on production saved and sold or used in the calendar month, less the lessor's royalty and normal operating expenses as outlined in Exhibit 'E' attached hereto (excluding major workover expenses (i.e., well work requiring a drilling or workover rig), plugging and abandoning costs, and other expenditures of a capital nature). 4 Said overriding royalty shall be calculated on the same basis as the lessor's royalties as provided for in the Segregated Lease and, based on such calculation, shall be paid concurrently with payment of royalties under the lease covering the Segregated Lease. Additionally, said overriding royalty shall bear its proportionate share of present or future severance, windfall profits, excise or similar taxes. Any adjustments to the overriding royalties so paid required by the 50% of net operating revenue limitation set forth above shall be based on accrued expenses in accordance with generally accepted accounting principles adjusted to actual expenses in succeeding months and as consistently applied. Resulting adjustments to the 25% overriding royalty interest payment shall be made during such succeeding month or by direct payment ( after confirmation of the appropriate adjustments) to the party due such payment. 3.3.3 If, prior to a date twenty (20) years from the date of first oil production from or allocable to the Segregated Lease, oil production from or allocable to the Segregated Lease equals or exceeds 36 million stock tank barrels, as measured at Buyer's production facility platform located on or adjacent to the Segregated Lease, then Section 3.3.2 shall be inapplicable, and Section 3.3.4 shall apply . 3.3.4 After cumulative oil production from or allocable to the Segregated Lease produced, saved or used equals or exceeds 36 million stock tank barrels of oil, measured at Buyer's production facility platform located on or adjacent to the Segregated Lease (the ability to produce and save such volumes of oil not being guaranteed by Buyer, and the date of such point in time being referred to as the "Final Payment Determination Date"), Seller's Production Payment or overriding royalty, as applicable, shall terminate, and in lieu thereof the "Final Payment," as defined hereafter, from Buyer to Seller shall be due. Within thirty (30) days after the Final Payment Determination Date, the parties hereto shall meet and agree on the total cumulative recoverable oil reserves ("Recoverable Reserves") which will be produced and saved from or attributable to the Segregated Lease during its economically productive life. If the parties cannot agree on the Recoverable Reserves within ten (10) days after their initial meeting on the matter, then DeGolyer and MacNaughton, or another mutually acceptable consultant, shall conclusively determine such Recoverable Reserves, with Seller and Buyer equally sharing the fees and expenses of such determination. Following determination of Recoverable Reserves, the parties shall determine Seller's "Final Payment" due from Buyer. The Final Payment shall be calculated as set forth in Exhibit "G," attached hereto and made a part hereof. Once the Final Payment has been made by Buyer to Seller, Seller shall have no further interest in the Segregated Lease or the production therefrom. 3.4 MANNER OF DEVELOPMENT AND PRODUCTION. The parties recognize the unique nature, risks and rewards of the simultaneous exploitation of sulphur and oil and gas reserves from the same geologic trap. Buyer shall have the exclusive right to determine the manner of development and production of the Segregated Lease and Buyer's sulphur lease. 4. TAXES PAYMENT OF TAXES. All ad valorem, property, and other similar forms of taxes for 1990 allocable to the Assets, which have been paid by Seller or which have accrued on or before the Closing, shall be prorated between Seller and Buyer as of the Closing. Buyer shall be responsible for all oil and gas production taxes, and any other similar taxes applicable to oil and gas production occurring on and after the Closing, except as otherwise provided for in this Agreement. Buyer shall be responsible for all sales, use and similar taxes arising out of the sale of the Assets. Buyer shall provide Seller with an offshore exemption certificate or any other documentation if required under applicable law. Buyer shall hold harmless and shall indemnify Seller for any sales or use taxes 5 assessed against Seller by any taxing authority in respect of this sale, including the amounts of any penalties, interest and attorneys' fees. The parties expect that this purchase and sale will constitute an isolated or occasional sale and will not be subject to sales or use tax with any of the taxing authorities having jurisdiction over this transaction, and as such, no sales tax will be collected by Seller from Buyer at the date of Closing. Seller agrees to cooperate with Buyer in demonstrating that the requirements for an isolated or occasional sale or any other sales tax exemption have been met. 5. REPRESENTATIONS AND WARRANTIES 5.1 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and warrants: 5.1.1 Seller is a corporation duly organized and validly existing, in good standing, under the laws of the Commonwealth of Pennsylvania. Seller has the corporate power and authority to own its property and to carry on its business as now conducted and to enter into and to carry out the terms of this Agreement. 5.1.2 The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on behalf of Seller and Seller is not subject to any charter, by-law, lien, or encumbrance of any kind, agreement, instrument, order, or decree of any court or governmental body (other than any governmental approval required) which would prevent consummation of the transactions contemplated by this Agreement. 5.1.3 The Segregated Lease is not subject to any preferential right to purchase or right of first refusal in favor of any third party. 5.1.4 Seller's operations on the Segregated Lease have been conducted as a prudent operator and in accord with all applicable rules or regulations of governmental bodies. 5.1.5 Seller has the right to assign the Physical Assets, except as to contract rights of which it has previously advised Buyer. 5.1.6 Seller has incurred no liability, contingent or otherwise, for brokers' or finders' fees in respect of this transaction for which Buyer shall have any responsibility whatsoever. 5.1.7 No suit, action or other proceeding is pending or threatened before any court or governmental agency which might result in impairment or loss of Seller's title to any part of the Assets or the value thereof or which might hinder or impede the operation of the Assets, and Seller shall promptly notify Buyer of any such proceeding arising or threatened prior to the Closing. 5.1.8 Seller shall use its best efforts to take or cause to be taken all such actions as may be necessary and advisable to consummate and make effective the sale of the Assets and the other transactions contemplated by this Agreement and to assure that as of the date of the Closing it will not be under any material corporate, legal or contractual restriction that would prohibit or delay the timely consummation of such transactions. 5.1.9 The assignment of the Segregated Lease shall be made without any warranty of title of any kind, express or implied, except that Seller shall warrant and defend good and defensible title to the Segregated Lease unto Buyer against every person whomsoever lawfully claiming or to claim the Segregated Lease, or a portion thereof by, through or under Seller, but not 6 otherwise, and such assignment shall be made with full substitution and subrogation of Buyer in and to all covenants and warranties by others heretofore given. 5.1.10 Seller shall warrant title to the Physical Assets solely to the extent delivery and acceptance (actual or constructive) of any such Physical Assets by Seller have occurred, and to the extent Seller has rights and entitlements to receive Physical Assets under the existing service contracts and purchase orders pertinent to such Physical Assets. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE PHYSICAL ASSETS ARE TO BE SOLD AS IS, AND SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED IN FACT OR BY LAW WHETHER OF OPERATING CONDITION, SAFETY, COMPLIANCE WITH GOVERNMENT REGULATIONS, MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSES, CONDITION OR OTHERWISE, CONCERNING ANY OF THE PHYSICAL ASSETS. ALL WELLS, PERSONAL PROPERTY, MACHINERY, EQUIPMENT AND FACILITIES THEREIN, THEREON AND APPURTENANT THERETO ARE TO BE CONVEYED BY SELLER AND ACCEPTED BY BUYER PRECISELY AND ONLY "AS IS, WHERE IS." SELLER DOES NOT WARRANT THE PHYSICAL ASSETS FREE FROM REDHIBITORY VICES OR DEFECTS. 5.2 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and warrants: 5.2.1 Freeport is a limited partnership validly existing, in good standing, under the laws of the State of Delaware and has the power and authority to own its property and to carry on its business as now conducted and to enter into and to carry out the terms of this Agreement. Freeport Administrative Managing General Partner is Freeport-McMoRan Inc., a corporation validly existing, in good standing, under the laws of the State of Delaware, and has the power and authority, by virtue of its articles of incorporation, by-laws, articles of partnership or other applicable documents, to enter into this Agreement on behalf of Freeport. 5.2.2 The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary partnership or corporate action on behalf of Buyer and Buyer is not subject to any articles, charter, by-law, lien or encumbrance of any kind, agreement, instrument, order or decree of any court or governmental body which would prevent consummation of the actions contemplated by this Agreement. 5.2.3 Buyer is in all respects qualified to own and operate the Segregated Lease under applicable laws, rules, regulations and order of any governmental body or agency having jurisdiction. 5.2.4 Buyer is not a party to, or in any way obligated under, nor does Buyer have any knowledge of any contract or outstanding claim for the payment of any brokers or finders fee in connection with the origin, negotiation, execution, or performance of this Agreement. 5.2.5 Buyer shall be fully responsible for compliance with all applicable laws, ordinances, rules and regulations and shall promptly obtain and maintain all permits required by public authorities in connection with the Assets purchased. 5.2.6 Buyer has made or arranged for others to make an inspection of the Assets. Subject to Seller's foregoing representations and warranties, Buyer accepts all Physical Assets in "as is and where is" condition, with an express acceptance and understanding of the representations and disclaimers contained herein. 5.2.7 Buyer acknowledges that the Physical Assets have been used or planned for use for oil and gas drilling and producing operations, related oil field operations and possibly the storage 7 and disposal of waste materials incidental to or occurring in connection with such operations, and that Buyer has entered into this Agreement on the basis of Buyer's own investigation of the physical condition of the Physical Assets. Buyer hereby agrees to assume full responsibility for compliance with all obligations or regulations concerning all of such conditions, known or unknown, and further agrees to indemnify Seller for same. 6. ADDITIONAL COVENANTS 6.1 APPROVALS AND CONSENTS. 6.1.1 FORM OF TITLE OF ASSIGNED LEASEHOLD RIGHTS. The transfer and assignment of the Segregated Lease, in the manner intended by Seller and Buyer hereunder, are subject to the approval by the Minerals Management Service ("MMS"), United States Department of the Interior. It is the intent and desire of the parties that the Segregated Lease will be effectively segregated by the MMS from the Retained Lease, it being contemplated by Seller and Buyer that the Segregated Lease and Retained Lease will become separate and distinct leases and that the anticipated segregation will be approved by the appropriate officer of the MMS simultaneously with, and effective as of the Closing. Seller and Buyer shall work together to obtain such approvals as appropriate, and will attempt to obtain concurrence in such segregation from the Secretary of the Interior ("Secretary"); provided, however, that such approval by the Secretary shall not be a condition precedent to Closing, but rather a condition subsequent to which Section 6.1.3 shall apply if such Secretary's approval is not granted. Seller shall execute and deliver to Buyer such instruments, subject to the provisions of this Agreement, as may be required by the MMS to induce the MMS to segregate the Segregated Lease. It is the intent of the parties hereto that Seller shall retain no obligation or responsibility to operate the Segregated Lease after same has been assigned to Buyer, that Seller shall execute any and all necessary Designations of Operator to a company designated by Buyer and acceptable to the parties; and that such Designations of Operator shall be approved by the appropriate officer of the MMS simultaneously with, and effective as of, the Closing. 6.1.2 DISAPPROVAL BY MMS. If the MMS will not, or does not, approve the segregation of the Segregated Lease from the Retained Lean as contemplated in Section 6.1.1, after Seller's and Buyer's good faith attempts to obtain such approval, the parties shall meet and determine whether an alternative means can be found which would provide Buyer with the intended rights in the Segregated Lease, as defined herein, and be acceptable in form and effect to Seller, Buyer and the MMS under its delegated authority. If an alternative which is acceptable to Seller, Buyer and the MMS cannot be found to the contemplated transfer as set forth in Section 6.1.1, within six (6) months after the rejection by the MMS of the contemplated segregating assignment and transfer of the Segregated Lease, this Agreement will terminate without liability or obligation on the part of Seller or Buyer, except for (a) the obligation of Buyer to reassign the Segregated Lease to Seller, (b) the obligation of the Seller to return the purchase price to Buyer, and (c) other settlement of accounts provided for herein, or necessary and appropriate under the circumstances. 6.1.3 DISAPPROVAL BY SECRETARY. If the MMS approves the segregation of the Segregated Lease from the Retained Lease as contemplated in Section 6.1.1, and the Secretary does not approve such segregation, after Seller's and Buyer's good faith attempts to obtain such approval, then at Buyer's request the parties shall meet and determine (1) whether the transfer instruments theretofore executed, as interpreted by the Secretary, effect a form of transfer and assignment which is acceptable to the parties under the circumstances, or (2) whether additional documents or agreements need be executed to effect the intended transfer more perfectly, or (3) whether an alternative means can be found which would provide 8 Buyer with the intended rights in the Segregated Lease, as defined herein, and be acceptable in form and effect to Seller, Buyer and the applicable governmental authority (i.e., the MMS or the Secretary). If an alternative which is acceptable to Seller, Buyer and the applicable governmental authority cannot be found to the contemplated transfer as set forth in Section 6.1.1, within six (6) months after the rejection by the Secretary of the contemplated segregating assignment and transfer of the Segregated Lease, this Agreement will terminate without liability or obligation on the part of Seller or Buyer, except for (a) the obligation of Buyer to reassign the Segregated Lease to Seller, (b) the obligation of the Seller to return the purchase price to Buyer, and (c) other settlement of accounts provided for herein, or necessary and appropriate under the circumstances. 6.2 SERVICE CONTRACTS, PURCHASE ORDERS. Certain of the service contracts and purchase orders entered into by Seller, with respect to the Physical Assets listed in Exhibit B, are not assignable by Seller; consequently, Buyer and Seller shall work together in good faith to the end that Buyer receive the benefit of such service contracts and purchase orders, including all warranties, to the extent that such affect the materials, equipment and services to be received by Buyer pursuant hereto; provided, however, it is not the intent hereof that Seller shall undertake any obligation or warranty in lieu of the obligations of any vendor or contractor. Seller and Buyer shall execute appropriate documentation required by either vendors, contractors or Seller to effectuate a substitution of Buyer for Seller under such service contracts and purchase orders. 6.3 OPERATIONS PRIOR TO CLOSING. After the date of this Agreement and prior to the Closing, Seller shall use and maintain the Assets in substantially the same manner in which they have been used and maintained prior to this Agreement The parties have previously agreed and by this Agreement confirm and establish that as of February 19, 1990, all obligations, liabilities, duties, rights and benefits associated with the physical Assets and their existing purchase orders and service contracts as set forth in Exhibit "B" shall be assumed by and same shall inure to the benefit of Buyer The parties further agree that, if for any reason the Closing under this Agreement is not consummated, they will use their good faith efforts to release, exchange and balance the costs incurred by the parties as a result of the allocation of costs before and after such date, by payment to Buyer or Seller (as required), within sixty (60) days following the termination of this Agreement, of an agreed-upon amount of money, along with execution and delivery of such documents as are required. 6.4 SELLER'S OPERATIONS AFTER CLOSING. From and after the Closing, Seller shall not conduct thereafter any oil and gas exploration and development operations on Block 299, Main Pass Area, by drilling or producing through the horizons and formations from the surface down to a subsea depth of 1900 feet on the Segregated Lease. Accordingly, unless otherwise consented to or waived by Buyer, which consent shall not be unreasonably withheld, Seller shall conduct all oil and gas exploration, development and production operations on the Retained Lease below the subsea depth of 1900 feet under the Segregated Lease by drilling directional wells from surface locations totally outside the area covered by the Segregated Lease to bottomhole locations below the subsea depth of 1900 feet under the Segregated Lease. Such wells shall not at any point intersect the Segregated Lease. If through inadvertence any portion of a well drilled by Seller does penetrate the Segregated Lease at any depth, then upon discovery of such penetration Seller shall advise Buyer in writing, and unless waived by Buyer, Seller shall sidetrack such well out of the Segregated Lease and into the Retained Lease. Waiver by Buyer of such sidetracking shall not be construed a waiver of Seller's indemnity hereunder, but an attempt by Buyer to mitigate Seller's damages. 6.5 ACCESS TO ASSETS. At all times prior to the Closing, if this Agreement shall not have first been terminated, Buyer and the employees and agents of Buyer shall have access to the Assets at Buyer's sole cost, risk and expense, and during normal business hours. Seller shall have the right to regulate reasonably the hours and frequency of Buyer's access to the Assets, so as not to interfere unreasonably with Seller's other business and so as to allow Seller to have a representative present 9 (at Seller's option) during Buyer's access. Buyer shall give Seller at least forty-eight (48) hours' notice, during normal business hours, of Buyer's desire to access the Assets. 6.6 CASUALTY LOSS. In the event any Physical Asset, including fixtures and improvements, to be sold hereunder is damaged by fire or other calamity before Closing, Seller may repair the damage at its cost or, at its sole option, either reduce the purchase price by the cost of the damage or withdraw the damaged Physical Asset from the sale and reduce the purchase price by the undamaged value thereof. 7. CONDITIONS PRECEDENT TO CLOSING 7.1 SELLER'S CONDITIONS PRECEDENT. The obligations of Seller to consummate the transactions contemplated by this Agreement are subject to each of the following conditions: 7.1.1 Buyer shall have performed and complied with all terms of this Agreement required to be performed or complied with by Buyer prior to Closing. 7.1.2 No action or proceeding by or before any governmental authority shall have been instituted or threatened (and not subsequently dismissed, settled or otherwise terminated) which might restrain, prohibit or invalidate any of the transactions contemplated by this Agreement, other than an action or proceeding instituted or threatened by Seller or any of its affiliates. 7.1.3 Seller shall have executed appropriate amendments to the existing federal unit agreement and unit operating agreement to delete and exclude the Segregated Lease from such unit agreement and unit operating agreement. It is anticipated that such amendments will be approved by the MMS simultaneously with, and effective as of the Closing. The parties intend and desire that the Segregated Lease will be owned by Buyer, subject to the terms and provisions of this Agreement, but not subject to the existing federal unit agreement or any existing operating agreement, and that Seller shall retain no obligation or responsibility to operate the Segregated Lease. 7.1.4 Pursuant to application therefor by Buyer, and simultaneously with segregation of the Segregated Lease from the Retained Lease, the MMS shall have approved a Suspension of Production or a Suspension of Operations, such that the Segregated Lease can be maintained in force and effect for a period of at least two (2) years, or until actual production of oil and/or gas can be established, whichever occurs first. 7.1.5 All necessary parties shall have executed instruments, in forms substantially similar to those attached as Exhibits "F-1," "F-2," either "F-3" or "F-4," and "F-5," whereby Seller transfers its right, title and interest in the Assets to Buyer, and whereby Buyer assigns to Seller, the interests contemplated in Sections 3.1.1, 3.2 and/or 3.3. Further, if required by any vendor, contractor or either party hereto, all necessary parties shall execute separate Bills of Sale with respect to Physical Assets. 7.2 BUYER'S CONDITIONS PRECEDENT. The obligations of Buyer to consummate the transactions contemplated by this Agreement are subject to each of the following conditions: 7.2.1 Seller shall have performed and complied with all terms of this Agreement required to be performed or complied with by Seller prior to Closing. 7.2.2 Buyer and Chevron Pipe Line Company shall have reached a mutually satisfactory agreement with regard to transportation of the oil produced from or allocable to the Segregated Lease. 10 7.2.3 No action or proceeding by or before any governmental authority shall have been instituted or threatened (and not subsequently dismissed, settled, or otherwise terminated) which might restrain, prohibit or invalidate any of the transactions contemplated by this Agreement, other than an action or proceeding instituted or threatened by Buyer or any of its affiliates. 7.2.4 All necessary parties shall have executed instruments, in forms substantially similar to those attached as Exhibits "F-1," "F-2," either "F-3" or "F-4," and "F-5," whereby Seller transfers its right, title and interest in the Assets to Buyer, and whereby Buyer assigns to Seller, the interests contemplated in Sections 3.1.1, 3.2 and/or 3.3. Further, if required by any vendor, contractor or either party hereto, all necessary parties shall execute separate Bills of Sale with respect to Physical Assets. 7.3 EFFECTS OF TAX-DEFERRED EXCHANGE. If Seller elects to effect a tax-deferred exchange pursuant to Section 1.3, Buyer and Seller agree to cooperate and execute additional assignments as prudently required to effect the exchange, and in such event Seller shall guarantee the performance of any intermediary corporation used as a part of such exchange transaction. The parties contemplate execution of a direct assignment from Seller to Buyer in the form attached hereto as Exhibit "F-1", at the direction of the intermediary corporation as set forth in Exhibit "F-5," which assignment shall be filed for approval by the MMS and the Secretary of the Interior as set forth in Section 6.1.1. 8. MISCELLANEOUS 8.1 PAYMENT OF EXPENSES AND FEES. Buyer and Seller shall each bear its own costs and expenses, including but not limited to attorney's fees incurred in connection with the transactions contemplated in this Agreement; provided, however; Buyer shall pay all recording fees or transfer taxes in connection with the recording of any instrument of transfer of Assets from Seller to Buyer hereunder. 8.2 NORM. Any assignment of the Physical Assets shall contain the following provision: 8.2.1 It is expressly recognized and acknowledged that naturally occurring radioactive material ("NORM") is normally associated with oil and gas producing operations, and as a result the Physical Assets transferred herein may be contaminated by NORM in that certain of the Physical Assets have previously been used in oil and gas producing operations. Accordingly, Buyer shall comply with applicable federal and applicable state laws and regulations governing NORM and governing Physical Assets contaminated by or containing NORM. 8.2.2 The Physical Assets herein transferred which have previously been used in oil and gas producing operations shall be used only in connection with oil and gas producing activities, and shall not be subsequently transferred for unrestricted use unless the concentrations of NORM associated therewith are below the levels specified as allowable for unrestricted transfer as set forth in the Louisiana Radiation Regulations and subsequent amendments thereto, as adopted by the Louisiana Department of Environmental Quality. 8.2.3 Buyer shall comply with all provisions of the Louisiana Radiation Regulations and all subsequent amendments thereto to the extent that the regulations are applicable to the Physical Assets herein transferred. 8.2.4 Buyer shall include the provisions of this Section 8.2 in any subsequent sale or assignment of the Physical Assets herein transferred which have previously been used in oil and gas producing operations. 8.3 TRANSPORTATION OF OIL. Subject to partial reimbursement by Seller of certain costs as provided herein, and except as may be negotiated between Buyer and the purchaser of the oil produced and saved from 11 the Segregated Lease, Buyer shall be responsible for all costs associated with transporting oil from or attributable to the Segregated Lease to the designated sales point. If such oil is transported through the common carrier pipeline system owned and operated by Chevron Pipe Line Company ("CPL") from Main Pass 299B to Main Pass 69 to the outermost flange of the Empire Terminal located in Plaquemines Parish, Louisiana, then Buyer or the purchaser of such oil will bear any and all costs and expenses associated with the metering and transportation of production through such system to the outermost flange of the Empire Terminal, including but not limited to the following: 8.3.1 Costs of pipeline installation, tie-in and maintenance associated with Buyer's connection of its production to Chevron Pipe Line Company's facilities on Seller's Main Pass 299B platform, it being understood and agreed that any plans or drawings for such installation or tie-in, and the actual work ultimately performed, shall be subject to Seller's prior review and approval, and subject to such further notice, oversight and considerations of safety as customarily apply under such circumstances; and 8.3.2 Transportation charges and terminal exit fees associated with transport of oil from or attributable to the Segregated Lease through Chevron Pipe Line Company's common carrier pipeline system from Main Pass 299B platform to Main Pass 69 into and through Chevron Pipe Line Company's Empire Terminal. Seller, however, agrees to reimburse Buyer for a certain portion of transportation charges and exit fees, in the manner and in the amounts set forth in Exhibit "H" attached hereto. The parties understand and agree that Buyer, separately and independently of this transaction, shall make its own arrangements with Chevron Pipe Line Company for metering, transportation and delivery of production through the said system and for tying into said system. 8.4 PIPELINE ACCESS. 8.4.1 For purposes of this Section 8.4, the terms "sweet crude oil" and "sour crude oil" are used to describe oil produced from the Retained Lease and from the Segregated Lease, respectively The parties do not intend to indicate any particular characteristics of either oil, the terms being merely a convenient means of relative comparison and reference. 8.4.2 If requested by Chevron Pipe Line Company ("CPL"), Seller will notify CPL in writing that Seller has no objection to CPL's use of the existing 10-inch O.D. pipeline from Main Pass 299B platform to Main Pass 69 for transportation of the sour crude oil to be produced from the Segregated Lease. Further, Seller agrees to provide Buyer with such platform space on Main Pass 299B platform as is reasonably required for the tie-in of production to CPL's pipeline system, subject to such mutually agreeable terms and conditions as customarily apply under such circumstances. 8.4.3 The parties contemplate that sweet crude oil produced and saved from the Retained Lease and other leases in the area, and sour crude oil produced and saved from the Segregated Lease, will be transported by CPL in separate pipelines from platforms on Main Pass Block 299 to Main Pass 69, and that the sour crude oil will be "batched" from Main Pass 69 to the Empire Terminal. The parties further understand and acknowledge CPL's role in the determination of which facilities shall be used for transportation of crude oil. 8.5 CALL ON OIL. From time to time and at any time, Seller shall have the option, but not the obligation, to purchase or designate a purchaser financially acceptable to Buyer of the oil produced from or attributable to the Segregated Lease. If purchased by Seller or a designee, such crude oil would be delivered to a sales point designated by Seller or its designee, which sales point shall be on CPL's system and shall never be beyond the outermost flange of CPL's Empire Terminal located in 12 Plaquemines Parish, Louisiana, unless the parties mutually agree otherwise. The price to be paid to Buyer shall be the higher of (1) fair market value for oil of like gravity and quality, or (2) the price offered to Buyer from a bona fide third party in a written offer by a third party, non-affiliated purchaser ready and able to purchase, which offer Buyer is willing to accept, with comparable terms and conditions. Buyer shall notify Seller in writing of any such bona fide offer, giving the terms and conditions of such acceptable offer. Upon receiving such notice, Seller shall have ten (10) days to elect to purchase such oil on the same terms and conditions as contained in the bona fide offer. Further, Seller and Buyer agree that in the event Buyer receives at any time and from time to time such a bona fide offer from a third party to purchase Buyer's crude oil at a price higher than that otherwise provided for pursuant to this Section 8.5, Buyer may furnish Seller a copy of such offer, and Seller shall have ten (10) days from receipt of such offer either to agree to pay said higher price or to release Buyer's oil production for sale to such third party in accordance with such offer, including the term thereof. In no event, however, shall Seller be obligated to discontinue purchase of such crude oil sooner than the first day of the month on or following the thirtieth (30th) day following receipt of such bona fide offer. If at any time and from time to time Seller is purchasing such crude oil hereunder, the purchase of such crude oil by Seller shall be terminable at Seller's option with at least ninety (90) days' prior written notice to Buyer, such termination to be effective on the first day of the calendar month on or following the end of such 90-day notice period, or upon the expiration of the term theretofore offered by a third party and matched by Seller, whichever is later: If purchased by Seller or a designee, Buyer shall be obligated, at its sole cost and expense, to deliver the oil to Seller at standard sour crude pipeline quality, limited to three percent (3%) sulphur by weight and fifty parts per million (50 ppm) hydrogen sulphide. 8.6 ANTITRUST REVIEW. Seller and Buyer recognize that they have been advised that the Federal Trade Commission has granted an early termination of the thirty (30) day waiting period required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Each party hereto acknowledges that it has satisfied itself that its obligations under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 have been fulfilled. 8.7 GAS CONTRACT. Gas production from the Segregated Lease has been permanently released by Southern Natural Gas Company ("Southern") from an Omnibus Contract entered into between Southern and Seller effective January 1, 1988. The Omnibus Contract covered gas previously sold to Southern under long-term interstate contract which were terminated and abandoned under FERC Order No. 490. 8.8 F.E.R.C. 500. Any assignment of the Segregated Lease shall be subject to the following provision: It is understood that interstate pipelines may refuse to transport under 18 C.F.R. Part 284 gas produced from the properties hereby assigned unless Seller agrees to offer take-or-pay or take-and-pay credit to such pipelines, and the parties hereby agree that Seller may withhold such an offer at its sole discretion, even if the result is to completely bar Buyer's gas from the interests hereby assigned from open access transportation in such pipelines. Notwithstanding the foregoing, Seller agrees to execute offers of credit necessary to render the assigned gas eligible for open access transportation if Seller determines, in its sole discretion, that such gas is exempt from crediting pursuant to FERC rules and regulations or that Seller can otherwise execute such offers of credit without risk of adverse economic consequences to Seller. Any offers of credit executed by Seller pursuant to this provision shall be limited in scope or term as Seller deems necessary. 8.9 PROVISION OF DATA. Seller shall have the right to receive from Buyer, at no charge to Seller, all basic data and test results obtained in the course of drilling, testing, evaluating and producing on, in or under the Segregated Lease, to which no proprietary interpretive notes, marks or comments have been added and exclusive of any proprietary extrapolations derived therefrom ("Data"). Seller shall furnish Buyer, at no charge to Buyer, any such Data obtained from Seller's test well drilled on and in the 13 Segregated Lease, which is reasonably necessary to qualify said well as producible under 30 CFR Section 250.11. All such Data which is provided by one party to the other party pursuant to the provisions of this Section 8.9 shall be maintained by the receiving party on a confidential basis in accordance with the provision of Section 8.18. 8.10 LOCATION AND/OR RELOCATION OF FLOWLINES OR FACILITIES. 8.10.1 Should any of Buyer's operations require or reasonably necessitate the removal, replacement, modification or relocation of any presently existing flowlines or facilities owned and operated by Seller or an affiliate of Seller; including but not limited to CPL, then such removal, replacement, modification or relocation shall be accomplished at Buyer's sole cost, risk and expense. 8.10.2 Seller shall not locate any new flowlines or facilities on the surface area extent encompassed by the Segregated Lease without Buyer's prior written consent. 8.10.3 It is understood that it will be necessary for Buyer to install flowlines and facilities on the surface area encompassed by the Retained Lease. Prior to installation of any such flowlines or facilities, Buyer shall consult with Seller in an effort to minimize interference with Seller's current and future operations. Seller shall not unreasonably withhold consent to such installations, it being understood that final approval for any such installations is vested in the MMS. 8.11 PUBLICITY. Except as modified by Section 8.18, Seller and Buyer shall jointly coordinate the timing and substance of any press releases or publicity concerning the transactions contemplated by this Agreement. 8.12 ASSIGNMENT. Buyer or Seller may not assign this Agreement or delegate any duties hereunder without the prior written consent of the other, which consent shall not be unreasonably withheld. Such assignment or delegation shall not relieve the assigning party of liability for the performance of its duties and obligations hereunder, and any such assignment shall contain the express assumption by the assignee of all duties and obligations incumbent on its assignor pursuant to this Agreement, the performance of which such assignor guarantees. The terms and conditions of this Agreement shall be real rights attached to and appendages running with the interests in the Segregated Lease and Physical Assets covered and affected by this Agreement, and shall be binding upon and inure to the benefit of the parties hereto, their respective successors and assigns, and their successors and assigns. The following shall not be considered a violation of this Section 8.12: 8.12.1 The assignment by Freeport of an undivided one-fourth (1/4th) interest in this Agreement to IMC Fertilizer, Inc., a Delaware corporation ("IMC"), and the assignment by Freeport of an undivided one-sixth (1/6th) interest in this Agreement to Felmont Oil Corporation, a Delaware corporation ("Felmont"). In the event of such assignments, Freeport, IMC and Felmont shall assume, solidarily with each other, all obligations and liabilities provided for in Section 2.2 hereof except as may be otherwise provided with respect to Section 2.3 hereof and such parties, severally and to the extent of their respective interests, shall defend and indemnify Seller in accordance with the provisions of Section 2.3 hereof. 8.12.2 The designation and appointment of Freeport as operator and of Freeport-McMoRan Oil & Gas Company as acting operator. 8.12.3 The assignment by Buyer or Seller to an affiliate or subsidiary, or the execution of a mortgage, deed of trust, financing statement or other instrument for borrowing purposes, 14 provided that any such instrument for financing purposes shall be subordinate to the terms and provisions of this Agreement. 8.13 RIGHT TO AUDIT. Seller shall have the right to question the appropriateness of the payments made to Seller by Buyer pursuant to Section 3 hereof and of charges for partial reimbursement of transportation costs incurred by Buyer pursuant to Section 8.3.2 hereof including without limitation the figures on which such payments or charges were based, the amounts deducted therefrom, and the calculation thereof. Seller shall have the right, either itself or by an accounting firm of Seller's choosing, to audit Buyer's books and records to confirm or question the correctness of such payments or charges, together with subsequent adjustments thereto, during normal business hours and with no less than thirty (30) days' prior written notice to Buyer. It is provided, however, that any payment, charge or adjustment shall be considered correct and appropriate if not challenged by Seller in writing within two (2) years after the date the payment or invoice for the charge was received by Seller, or within two (2) years after Seller's receipt of notice of a payment adjustment, as applicable. All statements and records shall be maintained for two (2) years after payments have been made. Buyer shall have the right to audit Seller's books and records, within the above time frame, to confirm the accuracy and appropriateness of those costs estimated on Exhibit "B" and billed to Buyer in accordance with Section 2.1.2 of this Agreement. 8.14 CONFLICT OF INTEREST. Buyer and Seller, for themselves and their directors, employees and agents, acknowledge that they are familiar with and will comply with each other's Conflict of Interest policies. Each party shall promptly notify the other party of any violation of this Section 8.14, and any consideration received by a party as a result of such violation shall be paid over or credited to the other party. Each party, or its designated representative(s), may audit, for reasonable cause, any pertinent records of the other party for the sole purpose of determining whether there has been compliance with this Section 8.14. 8.15 TERM. This Agreement shall remain in force and effect for so long as the Segregated Lease, or any extension, renewal or replacement thereof remains in effect, and as long thereafter as necessary to achieve full performance of all obligations assumed by the Buyer and Seller hereunder. 8.16 ENTIRE AGREEMENT. As used herein, the term "this Agreement" includes not only this Asset Sale Agreement but also all exhibits referred to herein, which exhibits are hereby incorporated by reference for all purposes. This Agreement constitutes the entire agreement between Seller and Buyer with respect to the transactions contemplated herein, and supersedes all prior oral or written agreements, commitments, understandings, or information otherwise furnished by Seller to Buyer with respect to such matters; provided, however, that certain Agreement of Indemnity dated as. of the date of Closing, by and between Chevron U.S.A. Inc. and Freeport-McMoRan Inc. is not merged herein and survives the execution hereof. No amendment shall be binding unless in writing and signed by representatives of both parties. Headings used in this Agreement are only for convenience of reference and shall not be used to define the meaning of any provision. This Agreement is for the benefit of Seller and Buyer only and not for the benefit of any other party. 8.17 SURVIVAL. The terms and provisions of this Agreement shall survive any assignment, pledge or delegation of any right, duty or obligation covered and affected hereby. 8.18 CONFIDENTIALITY . The contents of this Agreement, and any notes, summaries, compilations, analyses or other material derived from this Agreement, are confidential, and neither party shall release any of such contents, notes, summaries, compilations, analyses or other material to a third party without first obtaining the express written consent of the other party hereto, except that this prohibition shall not apply to disclosures: 15 8.18.1 To any parent corporation, any subsidiary of any parent corporation of or any subsidiary of either party hereto, or to any banking, accounting, engineering or other consultant firms to any party hereto, provided that any such recipient shall have first agreed in writing to be bound by the provisions of this Section 8.18; 8.18.2 Required by law (including the rules and regulations of the appropriate stock exchange); 8.18.3 Of information that is already in the public domain through no fault of the party then disclosing it; 8.18.4 Of information which either Buyer or Seller may have or hereafter lawfully may obtain from any party or parties who are legally entitled to such data. The parties furthermore agree that a party may disclose any of such information to courts, governmental bodies or agencies or stock exchanges if the disclosing party believes in good faith that such disclosure is required by applicable law, regulation or regulatory body policy. The parties acknowledge that the press release or publicity under Section 8.11 will render this Section 8.18 moot as to the content thereof. 8.19 NOTICES. All notices and consents to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered personally telexed with receipt acknowledged, mailed by registered mail, or delivered by a recognized commercial courier to the party at the address set forth on the first page of this Agreement or such other address as any party shall have designated by ten days' notice to the other parties. 8.20 GOVERNING LAW. This Agreement shall be governed by the law of the State of Louisiana, without regard to rules concerning conflicts of law. IN WITNESS WHEREOF, this Agreement is executed on the date first above written. WITNESSES: CHEVRON U.S.A. INC., Seller /s/ Gordon R. Cain By: /s/ F. Robin - ----------------------------------- -------------------------- F. Robin /s/ Brian P. Roberts Regional Vice-President - ----------------------------------- FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP, Buyer /s/ Robert M. Wohleber By: /s/ Rene L. Latiolais - ----------------------------------- -------------------------- Rene L. Latiolais /s/ John F. Gateshall Senior Vice-President - ----------------------------------- 16 STATE OF LOUISIANA PARISH OF ORLEANS On this 2nd day of May, 1990, before me appeared F. ROBIN, to me personally known, who being by me duly sworn, did say that he is the Regional Vice-President of CHEVRON U.S.A. INC., a Pennsylvania corporation, and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its Board of Directors, and said appearer acknowledged that he executed the same as the free act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my official hand and seal on the date hereinabove written. /s/ signed but illegible ---------------------------------- Notary Public in and for Orleans Parish, Louisiana My Commission expires at death. STATE OF LOUISIANA PARISH OF ORLEANS On this 2nd day of May, 1990, before me appeared RENE' L. LATIOLAIS, to me personally known, who being by me duly sworn did say that he is the Senior Vice-President of Freeport-McMoRan Inc., a Delaware corporation, as Administrative Managing General Partner of FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP, a Delaware limited partnership, and that the foregoing instrument was signed on behalf of and as duly authorized by, said limited partnership acting through the aforesaid corporation with the authority of its Board of Directors, and said appearer acknowledged said instrument to be the free act and deed of said partnership. IN WITNESS WHEREOF, I have hereunto set my official hand and seal on the date hereinabove written. /s/ Henry J. Berthelot ---------------------------------- Notary Public in and for Jefferson Parish, Louisiana My Commission expires at death. 17 EX-10.3 11 LEASE EFFECTIVE 5/1/98 UNITED STATES Office Serial number DEPARTMENT OF THE INTERIOR NEW ORLEANS, LA OCS-G 9372 MINERALS MANAGEMENT SERVICED Rental rate per acre, or fraction SULPHUR AND SALT LEASE OF Cash bonus thereof SUBMERGED LANDS UNDER THE OUTER $ 3,401,757.00 $ 3.00 PER ACRE CONTINENTAL SHELF LANDS ACT THIS FORM DOES NOT CONSTITUTE AN INFORMATION COLLECTION AS DEFINED BY 44 U.S.C. 3502 AND THEREFORE DOES NOT REQUIRE Minimum royalty rate APPROVAL BY THE OFFICE OF MANAGEMENT AND BUDGET. per acre, or fraction thereof Royalty rate $ 3.00 12 1/2 PERCENT - SULPHUR 5 PERCENT - SALT TAKEN OFFSITE
- ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ This lease is effective as of May 1, 1988 (hereinafter called the "Effective Date") and shall continue for an initial period of TEN years (hereinafter called the "Initial Period") by and between the United States of America (hereinafter called the "Lessor"), by the REGIONAL DIRECTOR, GULF OF MEXICO OCS REGION, Minerals Management Service, its authorized officer, and FREEPORT-MCMORAN RESOURCE PARTNERS, LIMITED PARTNERSHIP 58.33000% IMC FERTILIZER, INC. 25.00000% FELMONT OIL CORPORATION 16.67000% (hereinafter called the "Lessee"). In consideration of any cash payment heretofore made by the Lessee to the Lessor and in consideration of the promises, terms, conditions, and covenants contained herein, including the Stipulation(s) numbered 1 AND 3 attached hereto, the Lessee and Lessor agree as follows: SEC. 1. STATUTES AND REGULATIONS. This lease is issued pursuant to the Outer Continental Shelf (OCS) Lands Act (43 U.S.C. 1331-1356, (1953)), as amended, and the regulations issued thereunder (30 CFR Part 256). The lease is issued subject to the Act; all regulations issued pursuant to the Act and in existence upon the Effective Date of this lease; all regulations issued pursuant to the statute in the future which provide for the prevention of waste and conservation of the natural resources of the Outer Continental Shelf and the protection of correlative rights therein; and all other applicable statutes and regulations. SEC. 2. RIGHTS OF LESSEE. The Lessor hereby grants and leases to the Lessee the exclusive right and privilege to drill for, develop, and produce sulphur and salt resources in the submerged lands of the Outer Continental Shelf containing approximately 4,560.81 acres (hereinafter referred to as the "leased area"), described as follows: ALL OF BLOCK 299, MAIN PASS AREA, SOUTH AND EAST ADDITION, OCS LEASING MAP, LOUISIANA MAP NO. 10A. These rights include: (a) the nonexclusive right to conduct within the leased area geological and geophysical exploration in accordance with applicable regulations; (b) the nonexclusive right to drill water wells within the leased area, unless the water is part of geopressured-geothermal and associated resources, and to use the water produced therefrom for operations pursuant to the Act free of cost, on the condition that the drilling is conducted in accordance with procedures approved by the Director of the Minerals Management Service or the Director's delegate (hereinafter called the "Director"); and (c) the right to construct or erect and to maintain within the leased area artificial islands, installations, and other devices permanently or temporarily attached to the seabed and other works and structures necessary to the full enjoyment of the lease, subject to compliance with applicable laws and regulations. SEC. 3. TERM. This lease shall continue from the Effective Date of the lease for the Initial Period and so long thereafter as sulphur and/or salt are produced from the leased area in paying quantities, or drilling or well reworking operations, as approved by the Lessor, are conducted thereon, or as otherwise provided by regulations. SEC. 4. RENTALS. The Lessee shall pay the Lessor, on or before the first day of each lease year which commences prior to a discovery in paying quantities of sulphur and/or salt on the leased area, a rental as shown on the face hereof. SEC. 5. MINIMUM ROYALTY. The Lessee shall pay the Lessor, at the expiration of each lease year which commences after a discovery of sulphur and/or salt in paying quantities, a minimum royalty as shown on the face hereof or, if there is production, the difference between the actual royalty required to be paid with respect to such lease year and the prescribed minimum royalty if the actual royalty paid is less than the minimum royalty. SEC. 6. ROYALTY ON PRODUCTION. (a) The Lessee shall pay a fixed royalty as shown on the face hereof in value of production saved, removed, or sold from the leased area. Any Lessee is liable for royalty payments on sulphur and/or salt lost or wasted from a lease site when such loss or waste is due to negligence on the part of the operator of the lease, or due to the failure to comply with any rule or regulation, order, or citation issued under the Act. (b) The value of production for purposes of computing royalty on production from this lease shall never be less than 5 percent of the gross production or value of the sulphur at the mine. The value of production shall be the estimated reasonable value of the production as determined by the Lessor, due consideration being given to the highest price paid for a part or for a majority of sulphur and/or salt of like quality in the same general area, to the price received by the Lessee, to posted prices, and to other relevant matters. Except when the Lessor, in its discretion, determines not to consider special pricing relief from otherwise applicable Federal regulatory requirements, the value of production for the purposes of computing royalty shall not be deemed to be less than the gross proceeds accruing to the Lessee from the sale thereof. in the absence of good reason to the contrary, value computed on the basis of the highest price paid or offered at the time of production in a fair and open market for the major portion of like quality sulphur produced and sold from the field or area where the leased area is situated will be considered to be a reasonable value. (c) Royalties shall be due and payable by the last day of the next month following the month in which the sulphur and/or salt is produced, unless the Lessor prescribes a later date. SEC. 7. PAYMENTS. The Lessee shall make all payments (rentals, royalties, and any other payments required by this lease) to the Lessor by electronic transfer of funds, check, draft on a solvent bank, or money order unless otherwise provided by regulations or by direction of the Lessor. Rentals, royalties, and any other payments required by this lease shall be made payable to the Minerals Management Service and tendered to the Director. Determinations made by the Lessor as to the amount of payment due shall be presumed to be correct and paid as due. SEC. 8. BONDS. The Lessee shall maintain at all times the bond(s) required by regulation prior to the issuance of the lease and shall furnish such additional security as may be required by the Lessor if, after operations have begun, the Lessor deems such additional security to be necessary. SEC. 9. PLANS. The Lessee shall conduct all operations on the leased area in accordance with approved exploration plans and approved development and production plans as are required by regulations. The Lessee may depart from an approved plan only as provided by applicable regulations. SEC. 10. PERFORMANCE. The Lessee shall comply with all regulations and Orders. After due notice in writing, the Lessee shall drill such wells and produce at such rates as the Lessor may require in order that the leased area or any part thereof may be properly and timely developed and produced in accordance with sound operating principles. SEC. 11. SAFETY REQUIREMENTS. The Lessee shall: (a) maintain all places of employment within the leased area in compliance with occupational safety and health standards and, in addition, free from recognized hazards to employees of the Lessee or of any contractor or subcontractor operating within the lease area; (b) maintain all operation within the leased area in compliance with regulations or orders intended to protect persons, property, and the environment on the Outer Continental Shelf; and (c) allow prompt access, at the site of any operation subject to safety regulations, to any authorized Federal inspector and shall provide any documents and records which are pertinent to occupational or public health, safety, or environmental protection as may be requested. SEC. 12. SUSPENSION AND CANCELLATION. (a) The Lessor may suspend or cancel this lease pursuant to Section 5 of the Act, and compensation shall be paid when provided by the Act. (b) The lessor may, upon recommendation of the secretary of Defense, during a state of war or national emergency declared by Congress or the President of the United States, suspend operations under the lease, as provided in section 12(c) of the Act, and just compensation shall be paid to the Lessee for such suspension. SEC. 13. INDEMNIFICATION. The Lessee shall indemnify the Lessor for, and hold it harmless from, any claim, including claims for loss or damage to property or injury to person caused by or resulting from any operation on the leased area conducted by or on behalf of the Lessee. However, the Lessee shall not be held responsible to the Lessor under this section for any loss, damage, or injury caused by or resulting from: (a) negligence of the Lessor other than the commission or omission of a discretionary function or duty on the part of a Federal Agency whether or not the discretion involved is abused; or (b) the Lessee's compliance with an order or directive of the Lessor against which an administrative appeal by the Lessee is filed before the cause of action for the claim arises and is pursued diligently thereafter. SEC. 14. PURCHASE OF PRODUCTION. In time of war or when the President of the United States shall so prescribe, the Lessor shall have the right of first refusal to purchase at the market price all or any portion of the sulphur and/or salt produced from the leased area, as provided in Section 12(b) of the Act. SEC. 15. EQUAL OPPORTUNITY CLAUSE. During the performance of this lease, the Lessee shall fully comply with paragraphs (1) through (7) of section 202 of Executive Order 11246, as amended (reprinted in 41 CFR 60-1.4(a)), and the implementing regulations which are for the purpose of preventing employment discrimination against persons on the basis of race, color, religion, sex, or national origin. paragraphs (1) through (7) of section 202 of Executive Order 11246, as amended, are incorporated in this lease by reference. SEC. 16. CERTIFICATION OF NONSEGREGATED FACILITIES. By entering into this lease, the Lessee certifies, as specified in 41 CFR 60-1.8, that it does not and will not maintain or provide for its employees any segregated facilities at any of its establishments and that it does not and will not permit its employees to perform their services at any location under its control where segregated facilities are maintained. As used in this certification, the term "segregated facilities" means, but is not limited to, any waiting rooms, work areas, restrooms and washrooms, restaurants and other eating areas, timeclocks, locker rooms and other storage or dressing areas, parking lots, drinking fountains, recreation or entertainment areas, transportation, and housing facilities provided for employees which are segregated by explicit directive or are in fact segregated on the basis of race, color, religion, or national origin, because of habit, local custom, or otherwise. The Lessee further agrees that it will obtain identical certifications from proposed contractors and subcontractors prior to award of contracts or subcontracts unless they are exempt under 41 CFR 60-1.5. SEC. 17. RESERVATIONS TO LESSOR. All rights in the leased area not expressly granted to the Lessee by the Act, the regulations, or this lease are hereby reserved to the Lessor. Without limiting the generality of the foregoing, reserved rights included: (a) the right to authorize geological and geophysical exploration in the lease area which does not unreasonably interfere with or endanger actual operations under the lease, and the right to grant such easements or rights-of-way upon, through, or in the leased area as may be necessary or appropriate to working of other lands or to the treatment and shipment of products thereof by or under authority of the Lessor; (b) the right to grant leases for any minerals other than sulphur and/or salt within the leased area, except that operations under such leases shall not unreasonably interfere with or endanger operations under this lease; (c) the right, as provided in section 12(d) of the Act, to restrict operations in the leased area or any part thereof which may be designated by the Secretary of Defense, with approval of the President, as being within an area needed for national defense and, so long as such designation remains in effect, no operations may be conducted on the surface of the leased area or the part thereof included within the designation except with the concurrence of the Secretary of Defense. If operations or production under this lease within any designated area are suspended pursuant to this paragraph, any payments of rentals and royalty prescribed by this lease likewise shall be suspended during such period of suspension of operations and production, the term of this lease shall be extended by adding thereto any such suspension period, and the Lessor shall be liable to the Lessee for such compensation as is required to be paid under the Constitution of the United States. SEC. 18. TRANSFER OF LEASE. The Lessee shall file for approval with the appropriate field office of the Minerals Management Service any instrument of assignment or other transfer of this lease, or any interest therein, in accordance with applicable laws and regulations. SEC. 19. SURRENDER OF LEASE. The Lessee may surrender this entire lease or any officially designated subdivision of the leased area by filing with the appropriate field office of the Minerals Management Service a written relinquishment, in triplicate, which shall be effective as of the date of filing. No surrender of this lease or of any portion of the leased area shall relieve the Lessee or its surety of the obligation to pay all accrued rentals, royalties, and other financial obligations or to abandon all works on the area to be surrendered in a manner satisfactory to the Director. SEC. 20. REMOVAL OF PROPERTY ON TERMINATION OF LEASE. Within a period of 1 year after termination of this lease in whole or in part, the Lessee shall remove all devices, works, and structures from the premises no longer subject to the lease in accordance with applicable regulations and orders of the Director. However, the Lessee may, with the approval of the Director, continue to maintain devices, works, and structures on the leased area for drilling or producing on other Leases. SEC. 21. REMEDIES IN CASE OF DEFAULT. (a) Whenever the Lessee fails to comply with any of the provisions of the Act, the regulations issued pursuant to the Act, or the terms of this lease, the lease shall be subject to cancellation in accordance with the provisions of section 5(c) and (d) of the Act and the Lessor may exercise any other remedies which the Lessor may have, including the penalty provisions of section 24 of the Act. Furthermore, pursuant to section 8(o) of the Act, the Lessor may cancel the lease if it is obtained by fraud or misrepresentation. (b) Nonenforcement by the Lessor of a remedy for any particular violation of the provisions of the Act, the regulations issued pursuant to the Act, or the terms of this lease shall not prevent the cancellation of this lease or the exercise of any other remedies under paragraph (a) of this section for any other violation or for the same violation occurring at any other time. SEC. 22. UNLAWFUL INTEREST. No member of, or Delegate to, Congress, or Resident Commissioner, after election or appointment, or either before or after they have qualified, and during their continuance in office, and no officer, agent, or employee of the Department of the Interior, except as provided in 43 CFR Part 20, shall be admitted to any share or part in this lease or derive any benefit that may arise therefrom. The provisions of Section 3741 of the Revised Statutes, as amended, 41 U.S.C. 22, and the Act of June 25, 1948, 62 Stat. 702, as amended, 18 U.S.C. 431-433, relating to contracts made or entered into or accepted by or on behalf of the United States, form a part of this lease insofar as they may be applicable. SEC. 23. SPECIAL PROVISIONS. (a) Any lease issued for an initial period of 10 years will be canceled after 5 years, following notice pursuant to the Outer Continental Shelf Lands Act, where drilling of an exploratory well has not been commenced before the end of the 5th year, or if the well has not been drilled in conformance with the approved exploration plan criteria, or if there is not a suspension of operations in effect. (b) The Lessee is granted the exclusive right to drill salt wells within the leased area and to use the salt produced therefrom for sulphur-mining operations pursuant to the Act free of royalty on the lease, on the condition that the drilling is conducted in accordance with procedures approved by the Director. (c) The Lessee shall pay no royalty on salt produced and consumed or otherwise used on the lease for the production of sulphur. The Lessee shall pay a fixed royalty of 5% at the mine for any salt produced and used or otherwise disposed of off the leased area for purposes other than sulphur production. United States Department of the Interior Minerals Management Service Outer Continental Shelf, Central Gulf of Mexico Sulphur and Salt Lease Sale OCS-G 9372 STIPULATION NO. 1--PROTECTION OF ARCHAEOLOGICAL RESOURCES (1) "Archaeological resource" means any prehistoric or historic district, site, building, structure, or object (including shipwrecks); such term includes artifacts, records, and remains which are related to such a district, site, building, structure, or object (Section 301(5), National Historic Preservation Act, as amended, 16 U.S.C. 470w(5)). "Operations" means any drilling, mining, or construction or placement of any structure for exploration, development, or production of the lease. (2) If the Regional Director (RD) believes an archaeological resource may exist in the lease area, the RD will notify the lessee in writing. The Lessee shall then comply with subparagraphs (a) through (c). (a) Prior to commencing any operations, the lessee shall prepare a report, as specified by the RD, to determine the potential existence of any archaeological resource that may be affected by operations. The report, prepared by an archaeologist and a geophysicist, shall be based on an assessment of data from remote-sensing surveys and of other pertinent archaeological and environmental information. The lessee shall submit this report to the RD for review. (b) If the evidence suggests that an archaeological resource may be present, the lessee shall either: (i) Locate the site of any operation so as not to adversely affect the area where the archaeological resource may be; or (ii) Establish to the satisfaction of the RD that an archaeological resource does not exist or will not be adversely affected by operations. This shall be done by further archaeological investigation, conducted by an archaeologist and a geophysicist, using survey equipment and techniques deemed necessary by the RD. A report on the investigation shall be submitted to the RD for review. (c) If the RD determines that an archaeological resource is likely to be present in the lease area and may be adversely affected by operations, the RD will notify the lessee immediately. The lessee shall take no action that may adversely affect the archaeological resource until the RD has told the lessee how to protect it. (3) If the lessee discovers any archaeological resource while conducting operations on the lease area, the lessee shall report the discovery immediately to the RD. The lessee shall make every reasonable effort to preserve the archaeological resource until the RD has told the lessee how to protect it. STIPULATION NO. 3--HYDROCARBON DISCOVERIES STIPULATION Sulphur and salt leases are granted separately from oil and gas leases. Therefore, any hydrocarbons discovered by the sulphur and salt lessee cannot be produced under this lease. If the lessee discovers hydrocarbons while conducting sulphur and salt operations on the lease area, the lessee shall report the discovery immediately to the Regional Director (RD). If the RD determines that the discovery is significant and the Director determines that release of the information is necessary for the proper development of the filed or area, then a public announcement of the significant hydrocarbon discovery will be made pursuant to 30 CFR 250.3. IMC Fertilizer, Inc. Felmont Oil Corporation - ---------------------------------- ---------------------------------- (Lessee) (Lessee) /s/ James L. Frye /s/ Richard A. Mills - ---------------------------------- ---------------------------------- (Signature of Authorized Officer (Signature of Authorized Officer) James L. Frye Richard A. Mills - ---------------------------------- ---------------------------------- (Name of Signatory) (Name of Signatory) Vice President, Service Operations Vice president - ---------------------------------- ---------------------------------- (Title) (Title) March 28, 1988 March 30, 1988 - ---------------------------------- ---------------------------------- (Date) (Date) 2315 Sanders Rd. 350 Glenborough, Ste. 300 Northbrook, Il 60062 Houston, TX 77067 - ---------------------------------- ---------------------------------- (Address of Lessee) (Address of Lessee) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ---------------------------------- ---------------------------------- (Lessee) (Lessee) - ---------------------------------- ---------------------------------- (Signature of Authorized Officer) (Signature of Authorized Officer) - ---------------------------------- ---------------------------------- (Name of Signatory) (Name of Signatory) - ---------------------------------- ---------------------------------- (Title) (Title) - ---------------------------------- ---------------------------------- (Date) (Date) - ---------------------------------- ---------------------------------- (Address of Lessee) (Address of Lessee) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ IF THIS LEASE IS EXECUTED BY A CORPORATION, IT MUST BEAR THE CORPORATE SEAL. - ---------------------------------- ---------------------------------- (Lessee) (Lessee) - ---------------------------------- ---------------------------------- (Signature of Authorized Officer) (Signature of Authorized Officer) - ---------------------------------- ---------------------------------- (Name of Signatory) (Name of Signatory) - ---------------------------------- ---------------------------------- (Title) (Title) - ---------------------------------- ---------------------------------- (Date) (Date) - ---------------------------------- ---------------------------------- (Address of Lessee) (Address of Lessee) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ---------------------------------- ---------------------------------- (Lessee) (Lessee) - ---------------------------------- ---------------------------------- (Signature of Authorized Officer) (Signature of Authorized Officer) - ---------------------------------- ---------------------------------- (Name of Signatory) (Name of Signatory) - ---------------------------------- ---------------------------------- (Title) (Title) - ---------------------------------- ---------------------------------- (Date) (Date) - ---------------------------------- ---------------------------------- (Address of Lessee) (Address of Lessee) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ IF THIS LEASE IS EXECUTED BY A CORPORATION, IT MUST BEAR THE CORPORATE SEAL. OCS-G 9372 - ---------------------------------- ---------------------------------- (Lessee) (Lessee) - ---------------------------------- ---------------------------------- (Signature of Authorized Officer) (Signature of Authorized Officer) FREEPORT-MCMORAN RESOURCE PARTNERS Limited Partnership THE UNITED STATES OF AMERICA, Lessor - ---------------------------------- (Lessee) /s/ R. J. Becnel /s/ Ralph J. Melancon - ---------------------------------- ---------------------------------- (Signature of Authorized Officer) (Signature of Authorized Officer) R. J. Becnel Ralph J. Melancon - ---------------------------------- ---------------------------------- (Name of Signatory) (Name of Signatory) Acting Regional Director Vice President Gulf of Mexico OCS Region Freeport Sulphur Company Division Minerals Management Service - ---------------------------------- ---------------------------------- (Title) (Title) March 31, 1988 April 7, 1988 - ---------------------------------- ---------------------------------- (Date) (Date) 1615 Poydras Street New Orleans, LA 70112 - ---------------------------------- (Address of Lessee) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ IF THIS LEASE IS EXECUTED BY A CORPORATION, IT MUST BEAR THE CORPORATE SEAL. EX-10.4 12 JOINT OPERATING AGREEMENT DATED 6/5/90 OPERATING AGREEMENT DATED JUNE 5, 1990 -------------------- MAIN PASS BLOCK 299 LEASE NO. OCS-G 1316A TABLE OF CONTENTS ARTICLE PAGE ------- ---- DEFINITIONS I INTERESTS OF PARTIES II COSTS AND EXPENSES III OPERATOR IV ACCOUNTING PROCEDURE V MINIMUM ROYALTIES AND RENTALS VI EXPENDITURE LIMITATION VII POLICY COMMITTEE AND WORK PLANS VIII AND BUDGETS SURRENDER OR ABANDONMENT IX SUNDRY RIGHTS AND DUTIES OF OPERATOR X ACCESS AND RIGHTS OF NON-OPERATORS XI ASSIGNMENT OF INTEREST AND XII PREFERENTIAL RIGHT TO PURCHASE RELATIONSHIP OF THE PARTIES AND TAX XIII ELECTIONS FORCE MAJEURE XIV INSURANCE AND LIABILITY XV CLAIMS AND LITIGATION XVI DURATION XVII NOTICES XVIII TOPICAL HEADINGS XIX SUCCESSORS AND ASSIGNS XX LIENS XXI LAWS AND REGULATIONS XXII DISPUTES XXIII NO PARTITION XXIV WAIVER XXV SEVERABILITY XXVI DECLARATION OF OPERATING AGREEMENT XXVII OPERATING AGREEMENT THIS OPERATING AGREEMENT is made and entered into as of the 5th day of June, 1990, by and between Freeport-McMoRan Resource Partners, Limited Partnership, hereinafter designated as "Operator" or "Freeport", IMC Fertilizer, Inc. ("IMC") and Felmont Oil Corporation ("Felmont"), IMC and Felmont hereinafter sometimes collectively referred to as "Non-operators" or sometimes individually referred to as a "Non-operator". RECITALS WHEREAS, the Parties are the joint owners of the oil and gas lease covering the Property; and WHEREAS, the Parties desire to enter into an Agreement pursuant to which they will explore for, develop, and produce oil and gas from the Property. Now, THEREFORE, in consideration of the mutual covenants and agreements set forth below, the Parties agree as follows: I. DEFINITIONS "Affiliate" shall have the meaning set forth in Paragraph 12.1 hereof. "COLLATERAL" shall mean (i) all equipment, inventory, improvements, fixtures, accessions, goods and other personal or movable property of whatever nature now or hereafter located on or held for use in connection with the Property (or in connection with the operation thereof or the treating, handling, storing, transportation, processing or marketing of the Hydrocarbons) and all renewals or replacements thereof or substitutions therefor; (ii) all Hydrocarbons, now or hereafter produced from the Property; and (iii) all accounts and general intangibles, now or hereafter arising from the sale or other disposition of the Hydrocarbons now or hereafter produced from the Property, or from any Hydrocarbon sales contracts, present or future, relating to the Property. "DECLARATION" shall mean that Declaration of Operating Agreement dated of even date herewith between the Parties, in the form of Exhibit "D" hereto. "EQUIPMENT" shall mean all surface or subsurface machinery, equipment, fixtures, inventory, facilities, materials and other property of whatever kind or nature now or hereafter located on the Lease which are useful for the production, gathering, treatment, processing, storage, or transportation of Hydrocarbons, including, but not by way of limitation, all oil wells, gas wells, water wells, injection wells, casing, tubing, tubular goods, rods, pumping units, engines, christmas trees, platforms, derricks, separators, compressors, flowlines, tanks, gas systems (for gathering, treating and compression), pipelines, chemicals, solutions, water systems, power plants, lines, transformers, starters and controllers, tools, telegraph, telephone, loading racks, loading docks and shipping facilities. "HYDROCARBONS" shall mean all oil, gas and other liquid or gaseous hydrocarbons in, under or that may be produced from the Property, and all products processed or obtained therefrom. "LEASE" means that certain Oil and Gas Lease granted by the United States of America as Lessor to Freeport-McMoRan Resource Partners, Limited Partnership, as Lessee, effective June 5, 1990, designated by Lease No. OCS-G 1316A, covering the therein described portion of Block 299, Main Pass Area, South and East Addition, as shown on official leasing map LA No. 10A, Outer Continental Shelf Leasing Map, Louisiana Offshore Operations. "LENDER" shall mean a lending institution, group of lending institutions, or any other third party or parties who is the mortgagee, grantee, beneficiary, or secured party under any Mortgage, and any successor or assignee thereof, and any parent, subsidiary, or affiliate thereof. 1 "MORTGAGE" shall mean a mortgage, pledge, lien, assignment, and/or other encumbrance of, or security interest in, a Party's rights under this Agreement and/or the Party's interest in the Property. "MORTGAGOR" shall mean the Party executing a Mortgage and its successors and assigns. "PARTIES" shall mean Freeport, IMC and Felmont, and their respective successors and assigns. "PROPERTY" shall mean and include, the Lease, the Equipment, the Collateral, all Hydrocarbons in, under and upon the Lease, all easements, mineral rights associated with or attributable to the Lease, and all appurtenances and improvements to the Lease. II. INTERESTS OF PARTIES 2.1 Except as otherwise provided in this Agreement, the Property shall be owned as shown on Exhibit "A" attached hereto and made a part hereof for all purposes. 2.2 Subject to the rights of Chevron U.S.A. Inc. to purchase production from the Lease and to the other provisions hereof, each Party shall own and shall have the right to receive in kind and to separately dispose of its proportionate share of the oil and gas production from the Lease which shall be delivered to such Party, at its option, at the outlet of the production facilities on the production facilities platform(s); or to its credit in the pipeline to which the well or wells or production facilities platform(s) may be connected. Any extra expenditure incurred in the receiving in kind or separate disposition by any Party of its proportionate share of the production shall be borne by such Party. Where a Party hereto elects to receive in kind or separately dispose of its share of production, such Party shall have the obligation to make payment of all royalties and other burdens (including the Production Payment reserved or owned by Chevron U.S.A. Inc.) attributable to the share of production taken or disposed of by such electing Party and such Party shall furnish Operator with full information regarding such royalty and other payments. In the event that a Party does not elect to receive in kind or separately dispose of its share of production and such share is sold by Operator pursuant to the provisions of Paragraph 2.3, Operator shall make the royalty and other payments on production attributable to such share, but shall not be liable to the party(s) that owns such share for any good faith failure to make any such payment properly or punctually. 2.3 In the event any Party shall fail to take in kind or separately dispose of its proportionate share of production from the Lease, Operator shall have the right, but not the obligation to purchase such production or sell it to others for the time being, at the best price obtainable which shall in no event be less than the price which Operator receives for its portion of the production from the Lease. Operator's authority to sell such production shall be revocable at the will of the owner thereof, and the term of any contract for the sale of such production shall be for no longer period than is commensurate with the minimum needs of the industry under the particular circumstances and in no event longer than one year. Any such purchase or sale by Operator shall be subject always to the right of the owner of the production to exercise at any time its right to take in kind, or separately dispose of, its share of all production not previously delivered to a purchaser. Notwithstanding the foregoing, the Parties agree to apply and be bound by the terms and provisions of the Gas Balancing Agreement in the form attached hereto as Exhibit "C" and made a part hereof for all purposes. 2.4 Each Party shall execute all division orders and contracts of sale relating to its interest in production from the Lease, or authorize execution by Operator on its behalf; provided, however, no Party shall be forced to share an available market with any other Party hereto. III. COSTS AND EXPENSES 3.1 All costs, expenses and liabilities accruing or resulting from the operation and/or ownership of the Property pursuant to this Agreement shall be determined in accordance with the applicable provisions of this Agreement and shall be shared and borne (except as hereinafter provided) by the Parties hereto in the percentages stated in Exhibit "A" hereof (such percentages referred to therein and herein as the "Participating Interests"). 2 3.2 Operator may, at any time, require each Non-operator to pay in advance, its proportionate part of reasonable expenditures for the development, operation, abandonment and reclamation of the Property for the Joint Account (as that term is defined in Exhibit "B" hereto) for the succeeding month's operation. Operator shall adjust each monthly billing to reflect advances received from the Non-operators. Each Non-operator shall pay its proportion of all bills within thirty (30) days after receipt or before the first day of the month for which the advance payment is made, whichever is later. If such payment is not so made when due, the amount thereof, or any unpaid balance, shall bear interest at the rate as provided in Paragraph 3.3. Adjustment between estimated expenditures for which advance payments are made, and the actual expenditures, shall be made by Operator monthly. 3.3 Unpaid sums, until paid, shall bear interest at the rate of two percent (2%) over the prime rate of interest from time to time charged by Manufacturers Hanover Trust Company, but in no event more than the maximum rate permitted by applicable law; provided however, if Louisiana is the applicable law then the interest rate shall be 2% over the prime rate of interest from time to time charged by Manufacturers Hanover Trust Company. IV. OPERATOR 4.1 Freeport shall act as Operator of the Property and subject to the terms, conditions, and provisions herein set forth, shall have complete charge and control thereof and the management, operation, exploration and development thereof for the Joint Account of the Parties hereto. Freeport, IMC and Felmont are concurrently entering into a separate agreement effective as of the date of this Agreement and entitled "Agreement Designating Acting Operator" whereby Freeport-McMoRan Oil & Gas Company ("FMOG"), a Delaware corporation and an affiliate of Freeport is designated as the "Acting Operator" for the Property, pursuant to the terms and conditions of said agreement. Such designation of FMOG as Acting Operator shall not constitute a resignation or termination by Freeport of its duties as Operator hereunder. The Parties hereto recognize and agree that, as a result of FMOG being designated as Acting Operator pursuant to such separate agreement, costs and expenses otherwise paid hereunder to Freeport as Operator shall be paid to FMOG as Operator as long as FMOG is Acting Operator under such separate agreement and that Freeport, as an owner of interest in this Agreement, shall make payments to FMOG for its proportionate share of such costs and expenses, including the overhead charges provided for in the Exhibit "B" attached hereto and made a part hereof for all purposes. Should Operator or any successor Operator hereunder (1) dissolve, liquidate or terminate its corporate existence or partnership structure, (2) become insolvent, bankrupt, or subject to receivership, (3) no longer own an interest in the Property or (4) fail materially to perform its duties hereunder, it shall cease to be Operator hereunder effective as of the date a new Operator is elected. Change of the partnership name or structure of Operator or transfer of Operator's interest to any subsidiary, parent, affiliate, successor corporation or surviving corporation or partnership in consolidation or merger, shall not automatically cause the removal of Operator. 4.2 Operator or any successor Operator may resign its duties as Operator hereunder; provided, however, that the Non-operators shall written notice of such resignation at least sixty (60) days prior to the effective date of resignation. 4.3 In the event the total of the Participating Interests owned by Operator and/or any Affiliate or Affiliates of Operator should at any time fall below a percentage equal to 50%, less the lowest percentage Participating Interest owned by a Non-operator at such time, the Non-operators shall have the right to remove the Operator without cause upon 30 days written notice, provided such removal is by the unanimous agreement of the Non-operators. 4.4 Should any Operator or any successor Operator for any cause cease to be Operator hereunder, a successor Operator shall be designated by the vote of the Parties owning a majority in interest. If the removed Operator fails to vote or votes only to succeed itself, the successor Operator shall be selected by the affirmative vote of Non-operators having a majority of the interest in the Property remaining after excluding the interest of the removed Operator. Should Operator or any successor Operator hereunder cease to be Operator for any cause, its rights, titles and interests in the Property shall be unaffected by such cessation, but it shall thereupon become one of the Non-operators hereunder and shall henceforth be bound by the terms and provisions hereof, as a Non-operator. 3 4.5 Any Party hereto designated as Operator to succeed the Operator herein named or any successor Operator shall thereupon succeed to all the duties, powers, obligations, rights and authority given to the Operator herein named with respect to all operations of every kind thereafter conducted on or in respect of the Property. All Equipment acquired for the account of the Parties and devoted to operations hereunder shall be surrendered promptly to any appointed successor Operator. V. ACCOUNTING PROCEDURE 5.1 All costs incurred in the operations hereunder and all credits received shall be charged or credited to the account of the Parties hereto in accordance with the provisions of Exhibit "B" attached hereto and made a part hereof; provided, however, that if any provision of said Exhibit "B" conflicts with any provision of this Agreement, this Agreement shall control. VI. MINIMUM ROYALTIES AND RENTALS 6.1 Operator shall pay and charge to the Joint Account the rental, minimum royalty, and any similar payments provided for in the Lease. VII. EXPENDITURE LIMITATION 7.1 No operation shall be conducted on or in respect of the Property except as hereinafter provided for by this Agreement. No expenditure shall be made by Operator for the Joint Account in developing and operating the Property or for capital investment in excess of $100,000 unless made pursuant to a Work Plan and Budget approved as provided in Paragraphs 8.5 or 8.6 below or in connection with an operation or proposal approved pursuant to the non-consent provisions of Article VIII hereof, except in the case of expenses reasonably incurred in safeguarding life and property in case of a blowout, explosion, fire, flood, storm, hurricane, catastrophe or other sudden emergency. 7.2 Upon written request, a copy of each of Operator's internal Authorizations for Expenditure which covers a gross amount of TWENTY-FIVE THOUSAND DOLLARS ($25,000.00) or more for the Joint Account shall be furnished to Non-operators for information. VIII. POLICY COMMITTEE AND WORK PLANS AND BUDGETS 8.1 The Parties establish a Policy Committee to be composed of one representative designated by each Party. A representative designated pursuant to this Paragraph 8.1 shall serve until replaced by the Party that designated such representative. Each Party also may designate one or more alternates for any representative designated by it. An alternate shall exercise voting rights only in the event of a representative's absence. Each representative may bring to Policy Committee meetings such advisors as the representative deems necessary or desirable; however, such advisors shall have no right to vote on matters before the Policy Committee. Each Party promptly shall advise the other Parties in writing as to the names and addresses of its representative and alternate representative who shall have the authority to represent and bind the advising Party with respect to any matter to be acted upon by the Policy committee. A Party's representative or alternate representative may be changed from time to time upon written notice to the other Parties. 8.2 The Operator will provide to the Non-operators and the members of the Policy Committee a proposed Work Plan and Budget for the following calendar year not later than September 15 of each year. As used herein the term "Work Plan" means a detailed program for Joint Operations to be conducted during a Budget Year, adopted pursuant to this Article VIII; the term "Budget" means a detailed projection of costs and expenses required for Joint Operations during a Budget Year; the term "Budget Year" means January 1 to December 31, or such period as is mutually agreed upon; and the term "Joint Operations" shall have the meaning ascribed to such term in Exhibit "B" hereof. The 4 designated representatives of Non-operators shall respond by October 15 of each year with the regular meeting to be held between October 15 and November 1 of each year. Special meetings shall be called by the Operator as and when the Operator should deem necessary. Any of the other Parties to this Agreement shall have the right to call a special meeting provided that no such special meeting shall be called sooner than three months after the last such special meeting. During the fifth month of each Budget Year the Operator shall call an advisory meeting for the sole purpose of informing the Policy Committee of the progress of Joint Operations for the current Budget Year to date. The Parties and Operator shall attend all regular, special and advisory meetings of the Policy Committee. All meetings shall be held at Operator's offices, unless all Parties agree to another location. Written notice of the time and place of each regular, special and advisory meeting, shall be submitted by the Operator to the Parties, not less than 15 days before any such meeting, unless such requirement of notice is waived in writing by the Parties. The holding of any advisory meeting may be waived provided all Parties consent to such waiver. The designated representative, or alternate, of Operator shall act as chairman at all Policy Committee meetings. Each Party shall bear its own cost of attendance. If Operator deems it necessary for any personnel who are assigned duties in connection with the conduct of Joint Operations to attend any meeting, the additional cost incurred therefor shall be charged to the Joint Account. 8.3 The annual Work Plan shall describe in reasonable detail (i) the maintenance, exploration, development and/or production, and abandonment and reclamation objectives for the Budget Year covered thereby; (ii) the work to be performed in attaining the objectives; (iii) the portion of the Lease on which Joint Operations are to be performed; (iv) the technical basis for the type of Joint Operation proposed; and (v) such other information as the Operator may deem appropriate or as reasonably requested by one (1) or more Non-operators. In addition to the foregoing: (a) Work Plans involving development operations shall include: (i) any pertinent geological and engineering information; (ii) number, location and proposed depth of any wells proposed to be drilled; (iii) reworking operations on or abandonment of any well; and (iv) plans for the installation of necessary flowlines, facilities and/or platforms; and (b) Work Plans involving production operations shall include: (i) expected production of oil and gas; and (ii) unit costs of such production. Each Budget shall describe in reasonable detail the anticipated costs to be incurred under the applicable Work Plan and the date or dates funds from the Parties are expected to be required. 8.4 The Policy Committee shall approve all Work Plans and Budgets and supplements thereto and revisions thereof, settlement of claims and suits in accordance with the provisions of this Agreement, and shall have the right and authority to wind up the activities of the Joint Operations following termination of this Agreement. 8.5 Only those Parties owning an interest in the Property of ten percent (10%) or more may vote on matters before the Policy Committee. Policy Committee approval of any matter requiring Policy Committee approval hereunder, shall require the vote of Operator and the vote of at least one other Party entitled to vote which is not an Affiliate of the Operator; provided, however, that if only one Party other than Operator should be entitled to vote then Policy Committee approval of any such matter shall require only the vote of Operator. With respect to any matter submitted by Operator for Policy Committee approval, should Operator be unable to obtain the vote of at least one other Party entitled to vote which is not an Affiliate of the Operator, then in such event all Parties entitled to vote shall continue good faith negotiations to resolve outstanding differences. In the event the Policy Committee is unable to secure approval of a proposed Work Plan and Budget within 60 days, the Operator shall submit an alternate proposed Work Plan and Budget. In any event, the Operator shall incur for the Joint Account such expenditures as it reasonably determines to be necessary for the continued maintenance of the Lease and shall be permitted to operate the Property at a level and in a manner which preserves the value thereof, to the extent that 5 such expenditures and operations are not subject to the non-consent provisions of this Article VIII. No formal Policy Committee approval shall be necessary for such expenditures or for such operations. In lieu of deciding any matter at any meeting, the Policy Committee may act (a) by instrument(s) in writing signed by the representative of each interest owner, which instrument(s) (in one or more counterparts) shall be conclusively deemed to be the act of the Policy Committee, or (b) by telephone communication provided that such action is unanimous and is confirmed in writing by each Party or each Party's representative. 8.6 The Initial Work Plan and Budget for calendar years 1990 and 1991 has been submitted to the Non-operators prior to the execution of this Agreement and is attached hereto as Exhibit "E". By their execution of this Agreement, all Parties hereto hereby approve said initial Work Plan and Budget and, accordingly, the Operator is authorized to make the expenditures provided for therein. The Parties further recognize that certain of the expenditures included in such initial Work Plan and Budget have already been expended in anticipation of the execution of this Agreement and the approval of such expenditures is hereby confirmed. 8.7 Operator shall have the sole right to propose Work Plans and Budgets and supplements and revisions thereto. Operator shall not be deemed to have exceeded any approved Work Plan and Budget provided the total of actual costs and expenses incurred by the implementation of such Work Plan and Budget does not exceed by more than fifteen percent the total costs and expenses authorized for such Work Plan and Budget; provided, however, if such actual costs and expenses will exceed such percentage of authorized costs and expenses, Operator shall be required to submit a revised Work Plan and Budget in respect of such excess costs and expenses for Policy Committee approval. Operator shall have discretion in deciding which costs and expenses shall or shall not be incurred for purposes of keeping costs and expenses of an approved Work Plan and Budget within the limits authorized therefor. The Policy Committee shall consider all Work Plans and Budgets submitted by Operator pursuant to the provisions hereof and, except otherwise provided in Paragraph 8.5 above, shall take action thereon in accordance with Paragraph 8.9 below. In the event that (1) the Operator has committed to the construction of a platform or related facilities, the drilling of a well, or any other operation, included in an approved Work Plan and Budget, (2) it subsequently develops that the cost of such operation when added to costs incurred pursuant to such approved Work Plan and Budget has exceeded ten percent (10%) of the total estimated cost of the approved Work Plan and Budget, (3) the Non-operators have declined to approve such excess expenditures in a supplemental or revised Work Plan and Budget submitted pursuant to Paragraph 8.8 below, and (4) the Operator under its commitment diligently pursues such operation, then such excess costs so expended or to be incurred by Operator shall be considered an approved budget expenditure in the Work Plan and Budget adopted for the succeeding year and paid by the Parties in the ordinary course of business as set out herein; provided, however, at any time subsequent to the beginning of such succeeding year, Operator may bill the Non-operators their unpaid respective shares of such expenditures made by Operator in conducting such operation in the preceding year, plus interest at the rate provided for in Paragraph 3.3 above on the amount so billed; provided further, however, such excess costs expended or incurred and paid by Operator pursuant to Item (4) of this sentence considered approved in the succeeding year's Work Plan and Budget shall not exceed fifteen percent (15%) of the total estimated cost of the said approved Work Plan and Budget for the preceding year and further provided, any supplemental or revised budget (or a portion thereof ) submitted pursuant to Item 3 of this sentence shall not be subject to the non-consent provisions of Article VIII. 8.8 From time to time, Operator, pursuant to Paragraph 8.7 above, may propose supplemental or revised Work Plans and Budgets to the Policy Committee which shall consider and take action thereon in accordance with Paragraph 8.9 below. Any such supplement or revision shall be prepared as provided in Paragraph 8.3 above and shall be submitted to the Policy Committee as far in advance of implementing the supplemental or revised Work Plan and Budget as is reasonably practicable. 8.9 The Policy Committee shall consult in a good faith effort either to approve or adopt each proposed Work Plan and Budget (or revision thereof or supplement thereto) as submitted, or to formulate an alternative Work Plan and Budget acceptable to the Parties. Actions on all Work Plans and Budgets shall be taken as provided for in Paragraph 8.5 above. Once approved as provided in Paragraph 8.5 above, the annual Work Plan and Budget, any approved supplement thereto or any approved revision thereof, shall be binding on the Parties and shall be carried out by Operator. Notwithstanding the foregoing, in the event that the installation of a platform provided for in the Initial Work Plan and 6 Budget has not been commenced prior to the end of 1992, then in such event such platform and any equipment related directly thereto as well as any wells proposed to be drilled therefrom shall ipso facto be deleted from the Initial Work Plan and Budget and the approval granted by Non-operators herein for such platform, related equipment and wells shall accordingly terminate and be of no further force and effect. 8.10 The foregoing provisions of this Article VIII shall apply to platforms, any wells drilled therefrom and any other operations that are included in the Initial Work Plan and Budget for the calendar years 1990 and 1991 ("the Initial Work Plan and Budget"). For the purposes of this Article VIII, an Extraordinary Operation is defined as (1) the setting of a platform and related facilities that is not included in the said Initial Work Plan and Budget, (2) the drilling of a well or wells (but not including salt water disposal wells) on any part of the Lease that are not included in the Initial Work Plan and Budget, (3) a proposal to conduct an enhanced oil recovery operation on the Lease, or (4) a proposal to make a capital expenditure (not including the cost of drilling a well) not included in the Initial Work Plan and Budget in excess of $1,000,000. For the purposes of the immediately preceding sentence, the phrase "not included in the Initial Work Plan and Budget" shall be deemed to include any operations which were included in the Initial Work Plan and Budget but are no longer included therein pursuant to the operation of Paragraphs 8.7 and 8.9 hereof . The foregoing provisions of Paragraphs 8.1 through 8.9 of this Article VIII shall also apply to Extraordinary Operations that are approved by all Parties. The following provisions of this Article VIII shall however apply to Extraordinary Operations that are not approved by all Parties. 8.11 Without the consent of all Parties in interest, no Extraordinary Operation shall be conducted on the Property except as hereinafter provided for by this Agreement and the following provisions of this Article VIII will apply only to such Extraordinary Operations conducted on the Property. Once an Extraordinary Operation has been considered by the Policy Committee and has not received approval of all Parties, any Party, Operator or Non-Operator, may at any time thereafter propose such an operation. 8.12 Such proposal shall be made to all Parties and, in the case of a well proposal, shall designate the surface and bottomhole location, the proposed depth, the sands or horizons expected to be penetrated and tested, the tentative programs for casing, surveying and testing the well, estimated cost and the portion thereof to be borne by each Party entitled to participate therein, and other relevant information and, in the case of a platform, the proposal shall include the estimated cost of designing, fabricating, transporting and installing such platform and any other information that may be related thereto and, in the case of a proposal to conduct an enhanced oil recovery operation, the proposal shall include detailed information relating thereto. 8.13 (a) Within thirty (30) days (60 days in the case of a platform proposal) after its receipt of such proposal and data to be used to make an election, each Party to whom the proposal was made may elect to participate in the proposed operation or operations to the extent of its interest as stated in the proposal, by giving notice thereof to the Operator. Failure to give timely notice of an election to participate shall constitute an election not to participate in the proposed operation. Operator shall notify each Party immediately of all of the elections which are made. Parties who elect not to participate are hereinafter each referred to as a "Non-participant" or collectively as "Non-participants". (b) In the event fewer than all of the parties elect to participate, Operator shall by telex or other written notice advise the Parties electing to participate of the aggregate Participating Interests not participating and of the pro rata increase in participation which is available to those Parties which have elected to participate. Within 72 hours after receipt of such notice from the Operator, each such notified Party shall notify the Operator by telex or other written notice whether or not it will assume some or all of the obligations which would have been assumed by the Non-participants had they elected to participate. Failure to respond shall be deemed an election not to increase participation. If the Participating Parties elect to assume all of the obligations which would have been assumed by the Non-participants had they elected to participate, the Operator shall proceed with such operation for the account of and at the sole risk and expense and in the agreed percentages of those Parties electing to participate. If one or more of the Participating Parties do not agree to assume all of the obligations which would have been assumed by the Non-participants, the Operator shall not proceed with such operation and it will be considered as if no proposal had been made. 7 8.14 In the event that there are proposals made hereunder to drill more than one well, the proposals shall take precedence in the order in which such proposals are made. Although a Party may propose more than one well or operation at the same time, the Parties receiving such proposal shall have the right to consent or not to consent separately as to each individual well or operation being proposed; provided however, that the response to all such wells or operations shall be made within the time period specified in Section 8.13(a) hereof. 8.15 If all Parties receiving the proposal elect to participate in such operation, it shall be conducted at the cost and risk of such Parties. If less than all such Parties elect to participate in such operation, the Party who proposed such operation and any Parties who elected to participate therein (herein called "Participating Parties" or "Participants" whether one or more) shall cause such operation (hereinafter called "non-consent operation") to be conducted by Operator at their cost and risk; provided, however, that if such operation is not commenced within one hundred eighty (180) days after the date of its proposal and thereafter continued with reasonable diligence, it may not be conducted without again being proposed to all Parties. 8.16 All costs and risks of a non-consent operation will be borne and shared by the Participating Parties proportionately to their interests stated in Exhibit "A" hereof, or proportionately to their interests in the operation which is to be conducted, if different from their interests stated in Exhibit "A". 8.17 Subject to the other provisions of this Agreement, including this Article VIII, all material and equipment placed in or on a well by the Participant(s), whether one or more, in a non-consent operation shall be owned by them, and, if the non-consent operation results in production, the Participant(s) therein shall own all operating rights therein and all production thereby obtained until such time as they shall have received currently an amount equal to 400% of the costs incurred by the Participating Parties in such operation which would have been paid by the Non-Participant(s) had it been a Participant out of (i) the proceeds of the sale of the share of such production to which such Non-participant(s) would have been entitled had it been a Participant, and (ii) 20% of the proceeds of the sale of the share of production to which such Non-participant(s) is entitled from production from other portions of the Lease, after deduction of the portion of operating expenses, royalty, other payments under Article VI hereof, and severance, production or other tax on such production which would have been paid by such Non-participant(s) had it been a Participant(s) ("non-consent deductions"). Notwithstanding the foregoing, the Participants shall not be entitled to the aforesaid 20% of proceeds of the sale of the share of production on other portions of the Lease in the event that the well which was the occasion of the non-consent is not completed as a producer of oil or gas nor shall the Participants be entitled to the aforesaid 20% share of production from other portions of the Lease from any period of time after which production of oil and gas from the well which was the occasion of the non-consent has ceased to produce. In the case of the installation of a platform or equipment where all of the Parties do not participate therein, such platform or equipment shall be owned by the Participants until such time as Participants have received an amount equal to 400% of the cost incurred by the Participant(s) in designing, fabricating, transporting and installing such platform or equipment which would have been paid by the Non-participant(s) had it been a Participant(s). In the case of the installation of a non-consent platform, Non-participants shall have no ownership in such platform and shall be deemed to non-consent any proposals to drill a well from such platform until such time as Participants have recouped (i) 400% of the aforesaid portion of the cost of such platform, and (ii) 400% of the costs incurred by Participant(s) in drilling wells thereon which would have been paid by the Non-participant(s) had it been a Participant(s), out of the proceeds of the sale of the share of production from all wells drilled on such platform to which such Non-participant(s) would have been entitled had it been a Participant(s), less non-consent deductions. Non-participant(s) shall have the right at any time to become an owner of the platform or equipment by paying to Participant(s) in cash the then unrecouped balance in the recoupment account. It is further provided that the Participants shall not be entitled to the aforesaid 20% of proceeds from other portions of the Lease in connection with such non-consent platform and wells drilled thereon. In the case of the installation of equipment pursuant to the non-consent provisions of this Article VIII, the Participant(s) shall be entitled to recover 400% of the aforesaid cost of such equipment out of 20% of the proceeds of the sale of the share of production to which such Non-participant(s) is entitled from production from all wells which benefited from or are serviced by such equipment, less non-consent deductions. If a well is drilled hereunder as a non-consent operation, and such well is drilled from a facility other than a permanent platform, such as from a jackup rig or floating drilling vessel, and results in the discovery or extension 8 of productive formations, 400% of the costs incurred by Participant(s) in the drilling of such a well which would have been paid by the Non-participant(s) had it been a Participant(s) shall be recouped out of the proceeds of the sale of the share of the production to which such Non-participant(s) would have been entitled had it been a Participant(s), less non-consent deductions, from said well and from the production from all other wells which develop the newly discovered or extended productive area completed from any platform subsequently located on the Lease, provided such a platform is located within three thousand feet (3,000') from the vertical projection of the bottomhole location of such non-consent well. The above mentioned proceeds shall be received and shared by the Participants in the proportions in which they participated in the non-consent operation. 8.18 After the recovery of a Non-participant's recoupment account by Participants, such Non-participant shall own the interest in the well and all material and equipment therein and all subsequent production therefrom which it would have owned initially had it been a Participant. If the Participating Parties are unable to recover a Non-participant's recoupment account they shall continue to own the share of all material and equipment placed in or on said well by them which would have been owned by such Non-participant had it been a Participant and shall be entitled to the salvage value thereof, provided, however, that if the net salvage value is in excess of the unrecovered portion of such recoupment account the excess shall be credited to such Non-participant. 8.19 Any Party or Parties owning an interest in the platform may use it free of charge for conducting drilling operations on the Property in accordance with this Agreement, but shall indemnify the other Parties against any loss, risk or expense resulting from such use. 8.20 All operating, maintenance and repair expenses and liabilities attributable solely to the platform, and not to the drilling or producing of, or conducting of other operations in connection with, a particular well or wells, and all cost, risk and expense of salvaging the platform, and the net salvage thereof, will be shared on the basis of the then ownership of the platform. All such expenses and liabilities attributable to or arising out of the drilling or producing of, or the conducting of other operations in connection with, a particular well or wells will be charged to and borne by the then owners of such well or wells. The cost and expense of removing and returning the drilling rig initially placed on the platform will be shared on the basis of ownership of the platform at the time of its removal. The cost and expense of again placing a drilling rig on the platform, and of its removal, will be prorated on a well basis to the owners of wells on which it is used. 8.21 At the request of any Party owning an interest in a platform, Operator shall furnish to the owners thereof the estimated net deficit or net value resulting from the salvage and removal of the platform, and any disagreement as to the amount of such deficit or value will be settled by a majority in interest of such owners. Within thirty (30) days after the fixing of such estimate, any Party owning an interest in a platform may propose to the other owners thereof that it be salvaged and removed from the lease, at the same time agreeing to convey its interest therein to any owner thereof desiring to retain the platform and to pay to or accept from such other owners such proposing Party's share of such estimated net deficit or net value, as the case may be. Any such other owner may, within thirty (30) days after receipt of such proposal, elect to retain the platform by giving notice thereof to the other owners, at the same time agreeing to accept its pro rata share of the interest of any Parties desiring salvage and removal and to make or accept payment for the estimated net value or net deficit attributable to such interest as hereinabove provided. The Parties will promptly thereafter make such payments and execute a conveyance, effective as of the date of the earliest notice given by a Party desiring to retain the platform, of the interest of the Parties desiring to salvage and abandon to the Parties desiring to retain such platform. From and after such effective date the Parties so conveying their interest will have no further rights, obligations or liabilities thereafter accruing with respect to such platform. If no Party desires to retain the platform, Operator shall proceed promptly to have same salvaged and removed at the cost of the owners thereof. IX. SURRENDER OR ABANDONMENT 9 9.1 Unless otherwise provided for in this Agreement, the Parties shall not surrender or abandon any of the Property unless all Parties consent to the same in writing; provided, however, that such consent shall not unreasonably be withheld. X. SUNDRY RIGHTS AND DUTIES OF OPERATOR 10.1 Operator shall conduct its activities under this agreement as a reasonable prudent operator, in a good and workmanlike manner, with due diligence and dispatch, in accordance with good oilfield practice, and in compliance with applicable law and regulation, but in no event shall it have any liability as Operator to the other Parties for losses sustained or liabilities incurred except such as may result from gross negligence or willful misconduct. Operator shall have the rights and discharge the duties set forth in this Article X, except as may be expressly provided otherwise elsewhere in this Agreement. 10.2 Operator shall have control and supervision of all operations hereunder for the exploration and development for oil and gas production from, and for the abandonment and reclamation of, the Property. The approval of the drilling of any well hereunder shall include all necessary expenditures incurred by Operator in connection with drilling the well, including but not limited to testing and completing it for production. 10.3 All wells drilled and all operations performed upon the Property by outside contractors shall be drilled or performed by qualified, responsible, independent contractors on a competitive contract basis to the extent competitive bids are available, or, if the wells are drilled under multi-well contracts, at the contract rates. Operator may, if approved by Non-operators, employ any of its own drilling equipment, tools or machinery in performing any operations under this Agreement, but such work shall be performed by Operator acting as an independent contractor under a written contract containing the same terms and conditions and at the same rate for using such equipment, tools and machinery as is customary, usual and prevailing in competitive contracts of independent contractors who are doing work of similar nature in the vicinity of the Lease. 10.4 Operator shall have the right (subject to the provisions of the Accounting Procedure, Exhibit "B") to dispose of any salvaged material or equipment resulting from operations hereunder. The accounts of the Parties shall be credited with the proceeds thereof in proportion to their interest therein. 10.5 Operator shall use reasonable diligence to see to the performance of all of the obligations of the Lease affecting the Property. Operator shall endeavor to comply with all laws, rules and regulations governing the operations hereunder. Operations conducted hereunder shall be subject to applicable Executive Orders and applicable provisions of the Code of Federal Regulations. Operator shall endeavor to keep the Property free and clear of all liens in favor of third Parties resulting from construction or operations on or in respect of such Property. Operator shall undertake to see to the payment, on or before the date when they become due and payable, of all taxes assessed or levied against the Property, the respective interest of the Parties herein, or the production therefrom, including ad valorem taxes, production, severance and other taxes (other than income taxes) and governmental charges, except to the extent that any such taxes or charges may be paid or payable by the purchaser of any of the production. Operator shall be authorized to make payments to the Fisherman's Contingency Fund, to the Offshore Oil Pollution Fund and to any other similar funds, and shall charge Non-operators for their share of such payments. 10.6 The number of employees, the selection of such employees, the hours of labor and compensation for services to be paid any and all such employees shall be determined by the Operator and, as among the Parties hereto, such employees shall be the employees of Operator. 10.7 Operator shall keep accurate books, accounts, and records of operations, which shall be available at reasonable times to each Party or its authorized representatives. 10.8 Operator shall make all required reports to governmental authorities that it has the duty to make as Operator. Operator shall give timely written notice to the Parties of all litigation and hearings which affect the Lease or operations hereunder. 10 10.9 Upon written request, Operator shall, as soon as practicable, furnish each Party the following information pertaining to each well being drilled: a) copy of application for permit to drill and all amendments thereto; b) daily drilling report; c) complete report of all core analyses; d) copies of any logs and surveys made in the well as run and upon completion of the well a composite of all electrical type logs and mud logs (if any); e) upon written request received by Operator prior to the commencement of drilling, samples of cuttings and cores marked as to depth to be packaged and shipped at the expense of the requesting Party; f) copies of any well tests, bottomhole pressure surveys, gas and condensate analysis, or any other pertinent information; g) copies of all routine reports to any governmental agency; h) reports of production, crude oil runs and stocks; i) reports on status of wells including wells not producing and not abandoned; and j) reports of inventory and any other information pertaining to operations. The cost of gathering and furnishing information not ordinarily furnished to all Parties shall be charged to the Party(s) that requests such information. XI. ACCESS AND RIGHTS OF NON-OPERATORS 11.1 Each of the Non-operators hereto, for so long as such Non-operator has a Participating Interest, at its sole risk and expense shall have access at all reasonable times to the Property, including access to the rig floor, to inspect and observe any and all operations thereon. Each of the Non-operators, for so long as such Non-operator has a Participating Interest and upon reasonable notice, shall also have access at all reasonable times during normal office hours to any and all information pertaining to the operation, exploration, and development of the Property and the production secured therefrom, including Operator's books, records and vouchers relating thereto in the office in which such books, records and vouchers are kept. Operator shall, upon request, furnish any Party entitled thereto with copies of any and all drilling contracts, drilling reports, electric well survey logs, well logs, test data, tank tables, daily gauge and run tickets, and reports of production and stock on hand on the first day of each calendar month. Operator shall also, upon request, make available to any Party entitled thereto samples of any and all cores, cuttings or fluids taken from or encountered in any wells drilled on the Property. XII. ASSIGNMENT OF INTEREST AND PREFERENTIAL RIGHT TO PURCHASE 12.1 For the purposes of this Agreement "Affiliate" shall mean when used in relation to the Parties hereto any corporation, partnership, joint venture or other entity other than a Party hereto that shall be directly or indirectly under the common control of, controlled by, or which controls, that Party. 12.2 Except as provided in Paragraphs 12.3 and 12.4 below and subject to the provisions of Paragraph 12.5 below, no Party shall assign or transfer all or any part of its interest in the Property or this Agreement, or any of its rights and interests hereunder. 11 12.3 Subject to the provisions of Paragraph 12.5 below, any Party may convey, assign or transfer all or any part of its interest in this Agreement and the Property to an Affiliate or to a successor by reason of merger, consolidation or reorganization or sale of substantially all of such Party's assets. 12.4 If any Party receives from a person or entity, other than an Affiliate or successor as provided for in Paragraph 12.3 above, a bona fide offer to purchase or otherwise acquire all or any part of the offeree's interest in the Property, which the offeree is willing to accept, the offeree shall furnish in writing to the other Parties the complete terms of the offer; provided, however, if any part of the consideration offered is other than cash, in submitting such offer to the other Parties the offeree shall place a reasonable cash value on such non-cash part of the consideration and support such cash value with appropriate information and data upon which it is based. Each other Party shall have the right (in the proportion that its Participating Interest bears to the total Participating Interest of the Parties hereto other than the Participating Interest of the offeree Party, or in such other proportions as the Parties other than the offeree Party shall agree) for a period of 30 days after receipt of the offer to elect in writing to purchase or otherwise acquire the same interest upon the same terms and conditions as the proposed offer, but with the right to pay the entire consideration in cash; provided however, if a majority in interest of the other Parties do not agree that cash value of the non-cash part of the offer is reasonable, and the offeree and the other Parties are unable to agree within ten (10) days after the latest date on which any of the other Parties receive the offer (the "Receipt Date"), then both the offeree and the other Parties shall select a resident partner of one of the so-called "Big Eight" accounting firms (if such Parties are unable to agree on such a person within thirteen (13) days after Receipt Date, each side shall immediately designate such a partner and the two partners so designated shall within fifteen (15) days from Receipt Date select such a partner who shall act solely as hereinafter provided) furnish him with information, data and reasons supporting their respective cash values, and such partner, on or before twenty (20) days from Receipt Date, shall determine the reasonable cash value of the non-cash part of the consideration, which determination shall be final, unappealable, binding on all Parties and enforceable in a court of law, and shall be used in establishing the price at which the offeree may elect to reject the offer entirely and, if not, at which the other Parties shall elect to acquire or not acquire the interest offered. If the offer is not accepted by the other Parties, the offeree Party may sell or otherwise dispose of the interest described in the offer at the price and upon the terms and conditions of the proposed offer, provided (i) the provisions of Paragraph 12.5 below are satisfied, and (ii) that the sale or other disposition is effectuated within 120 days after the other Parties' right of election has expired. After the 120 day period has expired, the provisions of this Paragraph 12.4 shall again apply to the proposed offer for another 30 day period, if that offer is still effective. The failure of the other Parties to exercise their rights to acquire an interest under this Paragraph 12.4 shall not be deemed to be a waiver of their rights under this Paragraph 12.4 with respect to subsequent offers. The preferential right to purchase and the procedures for implementing it set forth in this Paragraph 12.4 shall apply to all sales or other dispositions of all or any portion of a Party's interest in all or any portion of the Property, regardless of whether other interests or assets of the offeree Party also are included in such sale or other disposition. If the offeree Party is disposing of all or any portion of its interest in all or any portion of the Property together with other interests or assets held by the offeree Party, in its notice of offer to the other Parties, the offeree Party shall state the offered consideration for the interest in the Property, as it is set forth in the offer, including offeree's determination of a reasonable cash value for any non-cash part of the consideration, and if it is not set forth in the offer separately from the consideration offered for the other interests or assets of the offeree Party that are the subject of the offer, the offer shall state the reasonable cash value of the offered price or consideration relating to the interest in the Property. If the offeree and the other Parties cannot agree as to the reasonable cash value of the offered price or consideration relating to the interest in the Property, such reasonable cash value and the rights of the Parties thereunder shall be established as between the offeree and the other Parties following the same procedures set out in this Paragraph 12.4 for a determination of the reasonable cash value of the non-cash part of the consideration therein involved, however, the price so stated for the interest in the Property shall not exceed the fair market value of the same. The other Parties may elect, in the manner provided above in this Paragraph 12.4, to accept the offer as to only the interest in the Property but shall have no right as to the other interests and assets described in the notice. 12.5 Any transfer, sale, assignment or other disposition of all or any part of the Property which is allowed under Paragraphs 12.3 or 12.4 hereof shall be subject to the following additional conditions: (a) any sale, transfer, assignment or other disposition shall be made only to a financially responsible Party or Parties; (b) all outstanding 12 obligations and liabilities of the transferring Party under this Agreement due and owing as of the date of said transfer must be paid; (c) the transferee shall execute and deliver to the other Parties an agreement whereby it assumes and agrees to keep, observe and perform all of the terms, covenants and conditions of this Agreement and the Declaration to be kept, observed and performed on the part of the transferor, including without limitation a ratification and adoption by such transferee of the restrictions upon transfer and encumbrance contained in Article 2 of the Declaration and Article XII hereof and the lien and security interest granted under Section 2.5 of the Declaration and Paragraph 21.1 hereof, (d) any sale, transfer, assignment or other disposition shall be subject to obtaining the approval of all required governmental authorities, and (e) if the original interest of any Party is at any time transferred to four (4) or more transferees, Operator may, at its discretion, require such transferees to appoint a single trustee with full authority to receive notices and payments, approve expenditures, and pay the share of costs which are chargeable against such transferees. 12.6 No Party may execute a Mortgage affecting any part of its interest under this Agreement or the Property (other than the lien and security interest granted under Paragraph 21.1 hereof and Section 2.5 of the Declaration) unless the following conditions are first satisfied: (a) The Mortgage and the rights of the Lender thereunder shall be made expressly subject to this Agreement and the Declaration as amended by the Agreement to Coordinate Operating Agreements and the Agreement Designating Acting Operator, executed among the Parties in connection herewith, and as further amended from time to time, (as so amended, the "Documents") and the rights of the Parties hereunder and thereunder and the Mortgage shall contain a provision which binds the adjudicatee at a foreclosure sale arising out of the Mortgage or the transferee in a deed in lieu of such foreclosure to (i) assume and agree to keep, observe and perform all of the terms, covenants and conditions of the Documents to be kept, observed and performed on the part of the Mortgagor, including without limitation a ratification and adoption of the restrictions on transfer and encumbrance contained in Article 2 of the Declaration and Article XII hereof and the lien and security interest granted under Section 2.5 of the Declaration and Paragraph 21.1 hereof, (ii) pay, within thirty (30) days of the date on which the said adjudicatee or transferee succeeds to any interest of the Mortgagor in this Agreement or the Property all amounts owed by the Mortgagor under this Agreement which remain unpaid as of the date that the said adjudicatee or transferee succeeds to any interest of the Mortgagor in this Agreement or the Property, (iii) execute an agreement whereby such adjudicatee or transferee evidences its assumption provided for under (i) above and agreement provided for under (iv) below, and (iv) include in any conveyance of any interest in this Agreement or the Property an agreement by the transferee thereto to assume and agree to keep, observe and perform all of the terms, covenants and conditions of the Documents to be kept, observed and performed on the part of the Mortgagor, including without limitation a ratification and adoption by such transferee of the restrictions on transfer and encumbrance contained in Article 2 of the Declaration and Article XII hereof and the lien and security interest granted under Section 2.5 of the Declaration and Paragraph 21.1 hereof. (b) The Lender shall agree in writing at the time the Mortgage is granted that if the Lender is the adjudicatee at a foreclosure sale arising out of the Mortgage or the transferee in a deed in lieu of such foreclosure, such Lender shall: (i) assume and agree to keep, observe and perform all of the terms, covenants and conditions of the Documents to be kept, observed and performed on the part of the Mortgagor, including without limitation a ratification and adoption of the restrictions on transfer and encumbrance contained in Article 2 of the Declaration and Article XII hereof and the lien and security interest granted under Section 2.5 of the Declaration and Paragraph 21.1 hereof, (ii) pay, within thirty (30) days of the date on which the Lender succeeds to any interest of the Mortgagor in this Agreement or the Property, all amounts owed by the Mortgagor under this Agreement which remain unpaid as of the date that the Lender succeeds to any interest of the Mortgagor in this Agreement or the Property, (iii) execute an agreement whereby it evidences its assumption provided for under (i) above and agreement provided for under (iv) below, and (iv) include in any conveyance of any interest in this Agreement or the Property by the Lender an agreement by the transferee thereto to assume and 13 agree to keep, observe and perform all of the terms, covenants and conditions of the Documents to be kept, observed and performed on the part of the Mortgagor, including without limitation a ratification and adoption by such transferee of the restrictions on transfer and encumbrance contained in Article 2 of the Declaration and Article XII hereof and the lien and security interest granted under Section 2.5 of the Declaration and Paragraph 21.1 hereof. XIII. RELATIONSHIP OF THE PARTIES AND TAX ELECTIONS 13.1 This Agreement is not intended and shall not be construed to create a partnership within the meaning of the federal common law nor under the applicable laws of any state nor under the laws of any state in which any Party hereto is incorporated, organized or conducting business. The Parties expressly agree that no Party hereto shall be responsible for the obligations of any other Party, each Party being severally responsible only for its obligations arising hereunder and liable only for its allocated share of the costs and expenses incurred hereunder. It is not the purpose or intention of this Agreement to create, and this Agreement should never be construed as creating, a relationship whereby any of the Parties shall be held liable for acts, either of omission or commission, of any other Party hereto. 13.2 The Parties agree to make an election under Internal Revenue Code section 761(a) out of the provisions of subchapter K of the Internal Revenue Code of 1986. Further, the Parties agree to take no action in contravention of this election including but not limited to entering into any agreement, contract, undertaking or any other act which would jeopardize the ability to make such election. The Parties also agree that, to the extent permissible under applicable law, their relationship shall be treated for state income tax purposes in the same manner as it is for federal income tax purposes. XIV. FORCE MAJEURE 14.1 In the event of any Party hereto being rendered unable, wholly or in part, by force majeure applying to its operations, to carry out its obligations under this Agreement (other than to make payments of amounts due hereunder), it is agreed that upon such Party's giving detailed written notice within a reasonable time of such force majeure to all Parties in interest, then the obligations of such Party so far as they are affected by such force majeure shall be suspended during the continuance of any inability so caused and such cause shall, so far as possible, be remedied with all reasonable dispatch. The term "force majeure" as employed herein shall mean acts of God, strikes, lockouts, or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests, and restraints of rulers and peoples, including unusual difficulty in obtaining pipe or other material or other unusual difficulty in carrying out operations hereunder because of government edict or regulations, civil disturbances, explosions, breakage or accident to machinery or lines of pipe, and any other cause whether of the kind herein enumerated or otherwise not within the control of the Party claiming suspension, all of which by the exercise of due diligence such Party is unable to foresee or overcome; however, the settlement of strikes or lockouts shall be entirely within the discretion of the Party having the difficulty, and the above requirement that any force majeure shall be remedied with the exercise of due diligence shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the Party having the difficulty. XV. INSURANCE AND LIABILITY 15.1 Operator shall at all times while operations are conducted by it for the Joint Account on the Property carry, pay for and charge to the Joint Account such insurance in such amounts and covering such risks as Operator deems appropriate, as follows: (a) WORKER'S COMPENSATION: Such insurance shall be in full compliance with the law in the state where the work is to take place and shall contain a voluntary compensation endorsement and a waiver of subrogation as to Non-operators. Where applicable, coverage shall also be provided to comply with the: 14 (i) U. S. Longshoremen's and Harbor Worker's Compensation Act, and the (ii) Outer Continental Shelf Lands Act. (b) EMPLOYER'S LIABILITY: Such insurance shall have a limit of liability of $1,000,000 per accident and shall be endorsed, where applicable, to provide: (i) Maritime (Amendment to Coverage B), to include transportation, wages, maintenance and cure. (ii) A claim "in rem" will be treated as a claim "in personam". (iii) A waiver of subrogation as to Non-operators. It is agreed that the Operator, subject to the laws in the state or jurisdiction where the work is to take place, may elect to self-insure all or any portion of the Worker's Compensation and Employer's Liability exposures arising out of operations conducted hereunder, provided all Non-operators consent in writing to such election. (c) All vessels owned or chartered by Operator shall be adequately covered by Hull and Protection and Indemnity Insurance. (d) No insurance other than as specified above shall be provided by the Operator. (e) The premiums for all insurance policies obtained under this article shall be charged to the Joint Account of the Parties hereto in accordance with Exhibit "B" and Operator, upon written request, shall furnish evidence certifying such insurance. (f) The Operator shall require contractors and subcontractors performing work for the Joint Account to provide such insurance as deemed reasonable by the Operator in relation to the work to be performed by said contractors or subcontractors. (g) Upon request, certificates of insurance evidencing the insurance obtained by Operator hereunder shall be furnished to each Non-operator and each Non-operator shall furnish to Operator certificates of insurance evidencing the insurance obtained by Non-operator in compliance with the provisions hereof. (h) Unless otherwise agreed in writing, Operator and Non-operator shall separately carry their own policies of the following insurance: (i) Control of Well Insurance in the minimum amount of $50,000,000 for the total loss. (ii) Where applicable, Blanket Charterers' Legal Liability and Cargo Legal Liability with a limit of liability of $500,000. (iii) Umbrella Liability Insurance in the amount of $25,000,000 excess of all primary limits. (iv) Above insurance coverages, including but not limited to any and all deductibles, self-insured retentions or primary layers, shall contain waivers of subrogation as to the Parties hereto. 15.2 Notwithstanding anything contained in this Agreement to the contrary, each Party shall be responsible for all costs, liabilities, claims, damages and liens for property or personal injury, as well as pollution cost and damage, 15 arising out of any operation on the Property in proportion to its Participating Interest, except as to such costs, liabilities, claims, damages and liens caused by the gross negligence or willful misconduct of any Party to this Agreement, in which case such Party shall be liable therefor. 15.3 Operator shall at any time requested furnish any Non-operator with full information concerning the kind, character and amounts of insurance carried. Operator shall promptly notify Non-operators of any loss, damage or claim not covered by insurance carried by the Operator for the benefit of the Joint Account or individual Non-operators. 15.4 Operator shall not be liable for loss, damage or destruction to any property of Non-operators in connection with operations hereunder for the Joint Account on or in respect of the Property, except those arising out of willful misconduct or gross negligence of Operator. 15.5 Each Party, in proportion to its Participating Interest shall be liable for any losses and expenses that exceed the amount collectable under the insurance carried by Operator for the Joint Account (as set forth in Paragraph 15.1) on account of personal injury or death to any person in connection with operations hereunder; provided however, all Parties shall share in the loss to the extent of their interest unless such loss is caused by the willful misconduct or gross negligence of one of the Parties hereto; then in such event the loss shall be borne entirely by that Party. 15.6 Subject to the other provisions of this Agreement, each Party, to the extent of its Participating Interest, shall indemnify and save harmless the other Parties hereto for claims and losses that exceed the amounts collectible under the insurance carried by Operator for the Joint Account (as set forth in Paragraph 15.1), regardless of the negligent acts or omissions of Operator. Nothing contained in this Paragraph 15.6 shall be deemed to release the Operator from its obligation under Article X hereof. 15.7 Liability for (1) damages to property of "third persons" (as used in this paragraph, the term "third persons" shall not include the employees, agents or representatives of Operator or any Non-operator), (2) fines, penalties, damages, losses, etc., arising out of claims, either civil or criminal, public or private, relating to actual or alleged pollution of water, air, or the environment, or (3) injury to or death of third persons arising from operations on or in respect of the Property including the expenses incurred in defending claims or actions asserting liabilities of this character, shall be borne by the Parties in proportion to said Parties' respective Participating Interests, except that when such damage is caused by the gross negligence or willful misconduct of Operator, then Operator shall be responsible for such liability. In the event such damage is caused by one or more of the Non-operators, then in that event, the liability for such damage shall be borne by the Non-operator or Non-operators responsible, except when a Non-operator is expressly authorized to act for the Joint Account, then any such damage except that caused by the gross negligence or willful misconduct of such Non-operator shall be borne by the Parties in proportion to their respective Participating Interests. 15.8 In the event of a judgment against Operator as the result of a personal injury, death and/or property loss or damage case arising out of operations hereunder and brought by a party or parties other than a Party to this Agreement, which judgment includes a finding of gross negligence on the part of Operator, the Court's finding of gross negligence shall not be binding for purposes of determining whether or not any Non-operator is obligated hereunder to share the burdens of any such judgment unless the gross negligence was found to be attributable to an act or omission of an officer or director of Operator. In the event the gross negligence was found to be attributable to an act or omission of an employee of Operator other than an officer or director, the facts and circumstances giving rise to such judgment shall be submitted to a board of arbitration, as hereinafter provided, for an independent determination, in light of applicable law and generally accepted standards in the offshore oil and gas producing industry, of the degree of negligence exhibited by the Operator; provided, however, that the previous finding of gross negligence on the part of Operator shall not be admitted in evidence in such arbitration proceeding. For purposes of this Paragraph 15.8, Operator shall, as soon as practicable following the judgment containing the gross negligence finding, give notice of submission to the Non-operators, which notice shall name one arbitrator. The Non-operators shall, within thirty (30) days after the date such notice is given, agree among themselves to the appointment of one arbitrator and give notice of such appointment to the Operator, failing in which the arbitrator shall be appointed by the then senior United States District 16 Judge for the Eastern District of Louisiana. The two arbitrators so selected shall select a third arbitrator or umpire within twenty (20) days after the giving of notice of the appointment of the second arbitrator. Should the two arbitrators selected by Operator and the Non-operators fail so to agree upon a third arbitrator or umpire, either Operator or the Non-operators may upon ten (10) days' written notice to the other apply to the then senior United States District Judge for the Eastern District of Louisiana for the appointment of such third arbitrator or umpire. The arbitrators so appointed shall promptly hear and determine (after due notice of hearing and giving the Parties a reasonable opportunity to be heard) the negligence issue submitted, and shall render their decision which shall be final and nonappealable and absolutely binding and conclusive upon Operator and Non-operators. The expenses of the arbitrator selected by Operator shall be paid by Operator and the expenses of the arbitrator selected by the Non-operators shall be paid by the Non-operators. The expenses of the third arbitrator shall be borne one-half by Operator and one-half by the Non-operators. Operator's attorney fees and expenses attributable to the arbitration shall be paid by Operator and Non-operators' attorney fees and expenses attributable to the arbitration shall be paid by the Non-operators. 15.9 All references in this Article XV to the extent of or in proportion to Participating Interest shall refer to those cases in which all Parties participated in an operation, but in the case of an operation in which fewer than all of the Parties participated, the reference shall be to the Participating Parties and shall apply in proportion to such Parties' interests in such operation. 15.10 Notwithstanding anything contained in this Agreement to the contrary, no Party, including the Operator, shall be responsible or liable for any consequential loss or damage of the other Parties hereto, included but not limited to, inability to produce oil or gas, loss of reserves, loss of production or loss of profits. XVI. CLAIMS AND LITIGATION 16.1 All investigation, litigation and settlements in connection with the titles, claims and causes of action of every kind and joint rights and interests hereunder shall be carried on, conducted and defended for and on behalf of all Parties involved. Each Party shall notify the others of any process served upon it in any suit or claims hereunder. The Policy Committee shall decide whether the handling and defense of such suit or claim shall be handled by the attorneys of all Parties or by joint counsel selected by a majority in interest of the Parties. When such selection has not been made in time to permit preparation, filing, appearance or other representation in accordance with legal requirements, Operator is authorized to provide such legal services as in its discretion are necessary to preserve the rights of the Parties and shall charge the cost and expense of same to the Joint Account. If less than all Parties participate through their attorneys in such litigation, a reasonable charge for legal services provided by participating counsel shall be made to the Joint Account. If the attorneys of all Parties participate, no fee or expense for their services shall be charged to the Joint Account. The fee and expense of any joint counsel selected by the Policy Committee shall be charged to the Joint Account. 16.2 All settlements of all claims and suits shall be subject to the approval and agreement of the Policy Committee, except that Operator may settle any claim under $100,000 without consulting Non-operators, provided the payment is in complete settlement. Operator agrees to keep Non-operators advised as to claims for which Non-operators may be partly responsible hereunder. The amount of settlement shall be charged to the Joint Account. 16.3 All references in this Article XVI to charges to the "Joint Account" shall refer to those cases in which all Parties participated in an operation, but in the case of an operation in which fewer than all of the Parties participated, the reference shall be to the Participating Parties and shall apply in proportion to such Parties' interests in such operation. XVII. DURATION 17.1 This Agreement shall continue in full force and effect for as long as the Lease, or any extensions or renewals thereof, is continued in force as to any part of the Property, whether by production or otherwise, and thereafter until all Equipment has been salvaged and disposed of and final settlement and accounting had between the Parties, unless otherwise mutually agreed upon by all Parties hereto. 17 XVIII. NOTICES 18.1 All notices, billings, or other communications between the Parties required or authorized hereunder shall be given or sent by prepaid mail, a prepaid telegram, TWX, telex or by telecopied letter addressed to the Party to whom such notice is given or communication sent. The names of the Parties to receive such notices are shown on Exhibit "A" hereof. A notice shall be effective only when received by the Party to whom given and any response thereto shall be effective only when received. Notices requiring a response within a twenty-four (24) hour period and responses thereto may be made orally and shall be followed by written confirmation as soon as is reasonably possible. 18.2 Any Party may change its address specified above to another address by notice of such change to each of the other Parties. XIX. TOPICAL HEADINGS 19.1 The topical headings appearing at the top of each numbered paragraph have been inserted for convenience only and are to be given no force or effect whatever. The provisions of this Agreement shall control in the event of any conflict or inconsistency with the provisions of any Exhibit attached hereto. XX. SUCCESSORS AND ASSIGNS 20.1 This Agreement shall be binding upon and inure to the benefit of the Parties hereto, their successors and permitted assigns, and the terms, conditions and provisions hereof shall constitute covenants running with the lands and leasehold estates covered hereby. XXI. LIENS 21.1 Each other Party hereby mortgages, pledges and hypothecates to Operator and the Acting Operator, and grants Operator and the Acting Operator a security interest, and Operator hereby mortgages, pledges and hypothecates to the other Parties and the Acting Operator and grants the other Parties and the Acting Operator a security interest, in any interest each Party now owns or may hereafter acquire in and to: (i) the Property, (ii) the Equipment, (iii) the Collateral, and any (iv) Hydrocarbons, as security for the payment and performance of all obligations, liabilities and indebtedness of each Party under this Agreement or under the Agreement Designating Acting Operator, now or hereafter arising, up to the Limit for each Party as hereinafter set forth (as to each Party, the "Secured Obligations"). The lien and security interest granted by each Party secures the Secured Obligations of such Party and the lien and security granted by the Operator also secures the obligations, liabilities and indebtedness of the Acting Operator up to the limit for the Operator as hereinafter set forth. Any person acquiring an interest in this Agreement and the Property, whether by assignment, merger, mortgage, operation of law, or otherwise, shall be deemed to have taken such interest subject to the liens and security interests granted by this Paragraph 21.1 as to all Secured Obligations attributable to such interest being acquired whether or not such Secured Obligations arose before or after such interest is acquired. The secured Parties hereunder shall be entitled to exercise the rights and remedies of a secured creditor under applicable Louisiana law, including but not limited to Chapter 9 of the Louisiana Commercial Laws, R.S. 10:9-101 ET SEQ. (the "Act"). The bringing of a suit and obtaining of judgment by a Party for Secured Obligations shall not be deemed an election of remedies or otherwise affect the lien rights or security interests and security for the payment thereof. This Paragraph 21.1 shall constitute a security agreement under the Act. The lien and security interest herein granted shall be superior to and have priority over any Mortgage. The maximum amount of the Secured Obligations of each Party to be secured hereunder (the "Limit") is fixed as $65,910,000, with reference to Freeport, $28,250,000 with reference to IMC, and $18,840,000 with reference to Felmont. To perfect the lien and security interest herein provided, each Party hereto shall execute and acknowledge any financing statement or other instrument prepared or submitted by any Party hereto in connection therewith or at any time following execution thereof, and Operator and/or the Acting Operator are authorized to file this Agreement as a lien and mortgage in applicable real estate records and as a financing statement with the proper office under the Act. 18 Each Party represents and warrants to the other Parties hereto and to the Acting Operator that the lien and security interest granted by such Party to the other Parties and to the Acting Operator shall be a first and prior lien and security interest, and each Party agrees to maintain the priority of said lien and security interest against all persons acquiring an interest in the Property by, through or under such Party. If any Party does not perform all of its Secured Obligations hereunder, and the failure to perform will subject such Party to foreclosure or execution proceedings, the defaulting Party waives any available right of redemption from and after the date of judgment, any required valuation or appraisement of the mortgaged or secured property prior to sale, any available right to stay execution or to require a marshalling of assets and any required bond in the event a receiver is appointed. In addition, to the extent permitted by applicable law, each Party hereby grants to the other Parties a power of sale as to any property that is subject to the lien and security interest granted hereunder, such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable manner and upon reasonable notice. Each Party agrees that the other Parties shall be entitled to utilize the provisions of any applicable oil and gas lien law or other lien law to enforce the Secured Obligations of each Party hereunder. 21.2 In the event any Non-operator should fail to pay its share of the charges, costs and expenses incurred under this Agreement within forty-five (45) days after actual receipt of a statement of same for any month, except as to amounts which are being disputed in good faith, such Non-operator shall be deemed delinquent. If after fifteen (15) days following actual receipt of notice of delinquency by a Non-Operator (or by an officer of the Non-operator if it is a corporation), Operator has not received payment, or the Non-operator has not made other arrangements for payment satisfactory to Operator, the delinquent Non-operator shall be deemed to be in default and Operator, without prejudice to other existing remedies, is authorized, at its election, to collect from the purchaser or purchasers of Hydrocarbons, the proceeds accruing to the working interest or interests in the Property of the delinquent Non-operator free and clear of all liens and encumbrances and of any burdens thereon to the extent provided in Paragraph 21.5, up to the amount owed by such Non-operator plus interest thereon at the rate specified in Paragraph 3.3, and each purchaser of oil and gas is authorized to rely upon Operator's statement as to the amount owed by such Non-operator. 21.3 In the event of neglect or failure of any Non-operator promptly to pay its share of the costs and expenses of development and operation when due, and provided that the Operator has asserted its lien granted under Paragraph 21.1 and 21.2 to production proceeds, and the proceeds from the sale of oil and gas, if any, accruing to the delinquent Non-Operator's Participating Interest in the Property are being paid to the Operator by the purchaser or purchasers, the other Non-operators and Operator, within thirty (30) days after the rendition of statements therefor by Operator, shall, in proportion to their Participating Interests, contribute to the payment of such delinquent indebtedness and the Non-operators so contributing shall be entitled to the same lien rights as are granted in Paragraphs 21.1 and 21.2 to Operator. Upon the payment by the delinquent or defaulting Non-operator to Operator of any amount or amounts on such delinquent indebtedness, or upon any recovery on behalf of the Parties under the lien conferred in Paragraph 21.1, the amount or amounts so paid or recovered shall be distributed and paid by Operator to the other Non-operators and Operator proportionately in accordance with the contributions theretofore made by them. 21.4 Any Party in default shall, until such time as such Party's payments are current, have no access to the maps, records, data, interpretations or other information obtained in connection with the operations under this Agreement after the default has occurred, shall not be represented in the Policy Committee and shall not be entitled to vote on any matter. Furthermore, such Party shall not be entitled to receive any notice of meetings or decisions of the Policy Committee. 21.5 If any Party hereto should create any overriding royalty, production payment, or other burden against its working interest production and if any other Party or Parties shall become entitled to receive the working interest production otherwise belonging to another Party hereto pursuant to any provisions of this Agreement, the Party or Parties entitled to receive the working interest production of the other Party shall receive such production free and clear of such burdens against such production which may have been created, except as to such Party's or Parties' proportionate part of any overriding royalty interest, production payment or other burden that proportionately burdens the interests of all Parties hereto, and the Party or Parties creating such burdens shall save the other Party or Parties harmless with respect to the receipt of such working interest production. 19 21.6 The Non-operators have acquired their respective interests in the Lease and the Equipment from the Operator pursuant to that certain Assignment and Conveyance effective June 5, 1990 (the "Assignment and Conveyance") and that certain Bill of Sale effective June 5, 1990 (the "Bill of Sale"). Pursuant to the Assignment and Conveyance and the Bill of Sale, each Non-operator has agreed to indemnify and defend the Operator for certain obligations, liabilities and indemnities more particularly described therein, and the Operator has agreed to indemnify and defend the Non-operators for certain obligations, liabilities and indemnities more particularly described therein. As used herein, the term "Secured Obligations" of each of the respective Parties shall include without limitation the respective obligations, liabilities and indemnities owed by each of the Non-operators to the Operator, and owed by the Operator to the Non-operators, under the Assignment and Conveyance and the Bill of Sale. XXII. LAWS AND REGULATIONS 22.1 All the terms and provisions of this Agreement are hereby expressly made subject to all federal and state laws and to all orders, rules and regulations of any duly constituted authority having jurisdiction in the premises, and no Party shall suffer a forfeiture or be liable in damages for failure to comply with any of the provisions of this Agreement if such compliance is prevented by or if such failure results from compliance with any such law, order, rule or regulation. XXIII. DISPUTES 23.1 In the event of disagreement between any of the Parties as to the intent and interpretation hereof, this Agreement shall be subject to and interpreted in accordance with the laws of the State of Louisiana and the laws of the United States. XXIV. NO PARTITION 24.1 Prior to the termination of this Agreement, a Party or its successors or assigns shall not resort to any action to partition the Property and, to such extent, each Party waives the benefits of all laws authorizing such action. XXV. WAIVER 25.1 The failure or omission by either Party to enforce any provision of this Agreement shall not be considered to be a waiver of that provision or of the default of another Party of its obligations under that provision or under any other provision of this Agreement. XXVI. SEVERABILITY 26.1 It is understood and agreed by the Parties that if any part, term or provision of this Agreement is held by a court of competent jurisdiction to be illegal or unenforceable or both, the Parties desire that the court of competent jurisdiction reform that part, term or provision in such a manner as to approximate the intent of the Parties as expressed in this Agreement, and the validity of the remaining portions or provisions shall not be affected. XXVII. DECLARATION OF OPERATING AGREEMENT 27.1 The Parties hereto agree to execute the Declaration for the purpose of imparting notice to all persons of the rights and obligations of the Parties under this Agreement and for the further purpose of perfecting those rights capable of perfection. The Parties hereto further agree to execute and thereafter register, file or record or cause to be registered, filed or recorded, in any appropriate governmental office, any document or instrument supplemental to or confirmatory of this Agreement or the Declaration or otherwise which may be necessary or desirable for the continued validity, perfection or priority of the rights of the Parties under this Agreement and the Declaration. 20 IN WITNESS WHEREOF, this instrument is executed as of the date hereinabove first written. This document may be executed in one or more counterpart copies hereof, each of which shall constitute an original hereof upon execution by every Party of such a counterpart. Witnesses: Freeport-McMoRan Resource Partners, Limited Partnership /s/ signed but illegible By: /s/ Robert B. Foster - ------------------------------------------ ------------------------ Robert B. Foster /s/ signed but illegible Senior Vice President - ------------------------------------------ Witnesses: IMC Fertilizer, Inc. /s/ Mary J. Smith By: /s/ R. E. Jones, Jr. - ------------------------------------------ ------------------------ R. E. Jones, Jr. /s/ Virginia H. Germond Vice President - ------------------------------------------ Witnesses: Felmont Oil Corporation /s/ Linda C. Sellers By: /s/ W. J. Gedwed - ------------------------------------------ ------------------------ W.J. Gedwed /s/ Suzanne Pyle Executive Vice President - ------------------------------------------ 21 EX-10.5 13 JOINT OPERATING AGREEMENT DATED 5/1/88 JOINT OPERATING AGREEMENT Sulphur/Salt Lease OCS-G 9372 Main Pass Block 299 MAY 1, 1988 Freeport-McMoRan Resource Partners IMC Fertilizer, Inc. Felmont Oil Corporation OCS-G-9372 JOINT OPERATING AGREEMENT THIS JOINT OPERATING AGREEMENT is made and entered into this 1st day of May, 1988, to be effective as of the Effective Date between FREEPORT-MCMORAN RESOURCE PARTNERS, LIMITED PARTNERSHIP, a Delaware limited partnership ("Freeport") , IMC FERTILIZER, INC. , a Delaware corporation ("IMC"), and FELMONT OIL CORPORATION, a Delaware corporation ("Felmont"). RECITALS WHEREAS, the Parties are the joint owners of the sulphur and salt lease covering the Property; and WHEREAS, the Parties desire to enter into an Agreement pursuant to which they will explore for, develop, mine and produce sulphur within the Property. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, the Parties agree as follows: I. DEFINITIONS Whenever used in this Agreement, the terms set forth below shall have the meanings assigned to them in this Article I. Such meanings shall apply equally to the singular and plural forms of these terms. Unless otherwise expressly specified therein, the terms defined in this Article I shall have the same meanings when used in any attachments to this Agreement. 1.01 "Accounting Procedures" shall mean the accounting procedures contained in Attachment 3 to this Agreement. 1.02 "Affiliate" shall mean when used in relation to the Parties, any corporation, partnership, joint venture or other entity other than a Party hereto, that shall be directly or indirectly under joint control of, controlled by or controls that Party. 1.03 "Agreement" shall mean this Joint Operating Agreement and all attachments to it, which attachments are incorporated into this Agreement by this reference. To the extent that the terms and provisions of this Agreement are in conflict with the terms and provisions of any such attachment, this Agreement shall control. 1.04 "Approval Date" shall mean the date on which the Policy Committee approves a Work Plan and Budget or other item or activity that requires Policy Committee approval. 1.05 "Average Price" shall have the meaning prescribed for such term in Section 18.02 hereof. 1.06 "Budget" shall mean a detailed projection of costs and expenses required for any Joint Operations during a Budget Year. 1.07 "Budget Year" shall mean January 1 to December 31, or such period as is mutually agreed upon. 1.08 "Data" shall mean data and information concerning sulphur and sulphur exploration, development and production arising out of the conduct of Joint Operations hereunder, including but not limited to the following: logs and drill hole records; maps showing the location of drilled holes; land surveys (including maps and listings of coordinates); all analytical and interpretive data and information (including, without limitation, all chemical or other assays); all 2 geophysical records; all ore reserve and Feasibility Studies; all documents filed with governmental entities having jurisdiction; and all other similar records whatever their form and nature. 1.09 "Development Operations" shall mean all activity or work involved in providing a Mine for the production of sulphur from the Property. Development Operations cease upon commencement of Steaming Operations. 1.10 "Development Program" shall mean all approved Work Plans and Budgets for Development Operations on the Property. 1.11 "Effective Date" shall mean May 1, 1988. 1.12 "Exploration Operations" shall mean the search for sulphur within the Property by usual offshore methods and, after the discovery and location of sulphur, the investigation of the sulphur by drilling, sampling and testing to determine the extent, mode of occurrence and recoverable grade of sulphur, as well as all activity or work involved in delineating and testing an ore body or deposit of sulphur, together with all work required for the preparation of Feasibility Studies. Such work includes but is not limited to related infrastructure activities such as surveying, mapping, drilling, soil testing, engineering design, cost analysis, preparation of environmental impact statements or studies and pilot testing programs. Exploration Operations cease and Development Operations commence upon approval by the Policy Committee of the first Work Plan and Budget of the Development Program. 1.13 "Exploration Program" shall mean all approved Work Plans and Budgets for Exploration operations. 1.14 "Feasibility Study" shall mean a report showing the feasibility of placing a prospective ore body or deposit of sulphur within the Property into production and shall include, without limiting the generality of the foregoing, (a) reasonable assessments of the size and quality of the minable reserves of sulphur; (b) reasonable assessments of the amenability of the sulphur to metallurgical treatment; (c) reasonable descriptions of the work, equipment, supplies, transportation, storage and permitting required to bring the prospective ore body or deposit of sulphur into production and the estimated costs thereof; (d) a mining plan; (e) conclusions and recommendations regarding the economic and commercial feasibility and timing for bringing the prospective ore body or deposit of sulphur into production, taking into account items (a) through (d) above; and (f) such other information as may be required to allow banking or other financial institutions familiar with the mining business to make a decision to loan funds sufficient to construct the Mine with security based solely on the reserves and mine described in the Feasibility Study. 1.15 "Joint Account" shall mean the accounts maintained by Operator showing the charges and credits accruing because of Joint operations. 1.16 "Joint Assets" shall mean and include the Property, the sulphur and salt lease covering the Property, a Mine and all tangible and intangible assets (including but not limited to personal property) obtained by acquisition, lease, license or any other manner in connection with and in furtherance of Joint operations, including the proceeds, profits, benefits and all Data, Reports, and other data or information that results from Joint Operations, but excluding New Technology. 1.17 "Joint Expenses" shall mean all costs, expenses and liabilities accruing or resulting from Joint Operations. 1.18 "Joint Operations" shall mean and include Exploration, Development, and Production Operations undertaken and conducted pursuant to approved Work Plans and Budgets or otherwise in accordance with the terms of this Agreement; preparation of Feasibility Studies; and/or all other activities of similar import in the performance and furtherance of this Agreement. 3 1.19 "Mine" shall mean, (a) a plant for the production of sulphur by the Frasch process and all wells (including sulphur, bleedwater and salt wells) facilities, fixtures, buildings, improvements and equipment required for such production; (b) all facilities, fixtures, buildings, improvements and equipment at such plant required for storage and handling of sulphur produced at such plant and for loading such sulphur into transportation equipment; (c) all associated gas, water, and sulphur pipelines; and (d) all associated shore facilities and transportation facilities. 1.20 "New Technology" shall mean technology, know-how, trade secrets, proprietary information, ideas, inventions, computer programs, methods, designs, processes, procedures and formulas, whether or not patented or able to be patented, or registered or able to be registered with any governmental authority, developed or acquired pursuant to this Agreement and paid for by the Joint Account after the Effective Date, and prior to the date upon which this Agreement should terminate or the relationship among the Parties has otherwise ceased to exist, and related to the Joint Operations. 1.21 "Non-Operator" shall mean any Party that is not currently an Operator on the Property, or all Parties if an independent operator is designated. 1.22 "Non-Party" shall have the meaning prescribed for such term in Section 4.05 hereof. 1.23 "Operating Provisions" shall mean the Operating Provisions attached to this Agreement as Attachment 4, pursuant to which Operator shall conduct Joint Operations within the Property. 1.24 "Operator" shall mean Freeport, except that if Freeport shall have resigned or shall have been removed as Operator in accordance with the provisions of this Agreement, such term shall mean any Party or independent contractor designated as, and serving in the capacity of, Operator pursuant to Article VI of this Agreement. 1.25 "Partial Relinquished Interest" shall have the meaning prescribed for such term in Section 9.01 hereof. 1.26 "Participating Interest" shall mean a Party's undivided interest in the Joint Assets as the same may appear from time to time. 1.27 "Participating Interest Owner" shall mean a Party having or owning a Participating Interest. 1.28 "Parties" shall mean Freeport, IMC and Felmont. 1.29 "Policy Committee" shall mean the Policy Committee established pursuant to Article V of this Agreement. 1.30 "Production Operations" shall mean the work or activity of mining sulphur by the Frasch process (in quantities larger than those required for purposes of sampling, analysis, or evaluation) ; all activities necessary to operate and maintain the Mine; all additions to, replacements of, and removal of such Mine; and all reclamation and restoration performed upon or for the benefit of the Property as a result of Joint Operations conducted pursuant to this Agreement. 1.31 "Production Program" shall mean all approved Work Plans and Budgets for Production Operations on the Property. 1.32 "Property" shall mean and include, so long as they are subject to this Agreement, the real property more particularly described in Attachment 2 to this Agreement, together with all sulphur in, under and upon that property, all easements, salt and salt rights associated with or attributable to that property, and all appurtenances and improvements on that property. 1.33 "Receipt Date" shall have the meaning prescribed for such term in Section 17-03 hereof. 4 1.34 "Relinquished Interest" shall have the meaning prescribed for such term in Section 9.01 hereof. 1.35 "Steaming Operations" shall mean the injection of hot water or other heat carrying substance into the cap rock formation in an attempt in good faith to produce sulphur therefrom in commercial quantities. 1.36 "Tampa Posting" shall have the meaning prescribed for such term in Section 18-02 hereof. 1.37 "Work Plan" shall mean a detailed program for Joint operations to be conducted during a Budget Year, adopted pursuant to Article VII of this Agreement. II. PURPOSES The Parties have entered into this Agreement for the purposes of developing and profitably producing sulphur from the Property and maximizing the value from the sulphur reserves. III. TERM This Agreement shall continue in full force and effect for as long as two or more of the Parties jointly own any interest in the Property, unless sooner terminated pursuant to Article XX below. IV. CONTRIBUTIONS, INTERESTS AND RELATIONSHIP OF PARTIES 4.01 INITIAL PROPERTY AND DATA. The Parties subject to this Agreement shall share the rights and interests owned by them jointly in the Property and in the Data. 4.02 PARTICIPATING INTERESTS. Upon the Effective Date of this Agreement, the Participating Interests of the Parties shall be as follows: Freeport 58.33 percent IMC 25.00 percent Felmont 16.67 percent 4.03 RELATIONSHIP OF THE PARTIES. It is not the purpose or intention of this Agreement to create a partnership, tax partnership, mining partnership, commercial partnership, or any other partnership relation between the Parties. Each Party shall be responsible only for its obligations and liabilities as set forth in this Agreement. Nothing contained in this Agreement shall be deemed to constitute any Party the partner of any other Party, or except as otherwise expressly provided, to constitute any Party the agent or legal representative of any other Party, or to create any fiduciary relationship among them. No Party shall have any authority to act for or to assume any obligation or responsibility on behalf of the other Party except as expressly provided in this Agreement. Each of the Parties agrees to indemnify and hold harmless each of the other Parties, its directors, officers, and employees from and against any and all losses, claims, damages, and liabilities arising out of any act or any assumption of any obligation or liability by the first mentioned Party, or any of its directors, officers, agents, or employees, done or undertaken, or apparently done or undertaken, on behalf of such other Party, except pursuant to the authority expressly granted herein or otherwise agreed to by the Parties. 4.04 DISTRIBUTION OF COSTS AND REVENUES. All costs, expenses and liabilities accruing or resulting from Joint operations pursuant to this Agreement shall be Joint Expenses and shall be shared and borne by, and all dispositions arising out of Joint Operations or pursuant to this Agreement, shall be made to the Parties in the proportions of their current Participating Interests in the Joint Assets. 5 4.05 OWNERSHIP. Except as otherwise provided in this Agreement, the Parties shall own any and all sulphur produced from the Property in proportion to their respective Participating Interests (as such Participating Interests may be adjusted from tine to time under the provisions hereof) subject to the payment of royalties payable to the lessor of the sulphur and salt mining rights within the Property. Subject to the further provisions of this Section 4.05 regarding New Technology, the Parties also shall jointly own any and all Joint Assets held or acquired pursuant to this Agreement in the same proportion as their respective Participating Interests in the Property. Should any Party, subsequent to the date of this Agreement, burden any of the Property with any minimum or overriding royalties or other payments out of production, the same shall be borne and paid entirely by the Party creating such burden out of that Party's proportionate part of production from the Property. All New Technology shall be owned by the Operator, who shall be free to deal with and use such New Technology in connection with any commercial or other operations outside the Joint Operations and to license or otherwise grant licenses in respect to such New Technology to parties other than Parties to this Agreement ("NonParties") on such terms and conditions as it may deem fit; provided, however, that any proceeds derived by the Operator from any such licenses to Non-Parties shall be divided among the Parties in proportion to their Participating Interests; and further provided that the Operator hereby grants each of the Parties a worldwide, nonexclusive, royalty-free license and right to use the New Technology at any project or venture in which any such Party, either directly or indirectly through an affiliate or affiliates of said Party, has an equity of at least sixteen and two-thirds percent (16 2/3%) for as long as such project or venture remains in commercial operation and such Party continues to hold said equity of at least said sixteen and two-thirds percent. Each Party shall treat as confidential all information and data pertaining to the New Technology, and shall refrain from disclosing any such information and data to any Non-Party, except to the extent required for compliance with applicable laws and rules, regulations and orders of a governmental authority, or as may be required by any such commercial project or venture in which any such Party has said equity of at least sixteen and two-thirds percent. Any Party entering into any such commercial project or venture shall secure from any Non-Party involved in said commercial project or venture adequate confidentiality agreements to protect the confidentiality of New Technology data and information to the same extent as that to which such Party is obligated hereunder. V. POLICY COMMITTEE 5.01 COMPOSITION. The Parties establish a Policy Committee to be composed of one representative designated by each Party. A representative designated pursuant to this Section 5.01 shall serve until replaced by the Party that designated such representative. Each Party also may designate one or more alternates for any representative designated by it. An alternate shall exercise voting rights only in the event of a representative's absence. Each representative may bring to Policy Committee meetings such advisors as the representative deems necessary or desirable; however, such advisors shall have no right to vote on matters before the Policy Committee. Each Party promptly shall advise the other Parties in writing as to the names and addresses of its representative and alternate representative who shall have the authority to represent and bind the advising Party with respect to any matter to be acted upon by the Policy Committee. A Party's representative or alternate representative may be changed from time to time upon written notice to the other Parties. 5.02 MEETINGS. The Operator will provide to the Non-operators a proposed Work Plan and Budget not later than September 15 of each year. The Non-operators shall respond by October 15 of each year with the regular meeting to be held between October 15 and November 1 of each year; provided, however, that the first regular meeting shall be held not later than ninety (90) days after the Effective Date and shall be for the purpose of review and approval of the Work Plan and Budget for the period commencing on the Effective Date and ending on December 31, 1988. Special meetings shall be called by the Operator as and when the Operator should deem necessary. Any of the Parties to this 6 Agreement shall have the right to call a special meeting provided that no such special meeting shall be called sooner than three months after the last such special meeting. During the fifth month of each Budget Year the Operator shall call an advisory meeting for the sole purpose of informing the Policy Committee of the progress of Joint Operations for the current Budget Year to date. The Parties and Operator shall attend all regular, special and advisory meetings of the Policy Committee. All meetings shall be held at operator's offices, unless all Parties agree to another location. Written notice of the time and place of each regular, special and advisory meeting, shall be submitted by the Operator to the Parties, not less than 15 days before any such meeting, unless such requirement of notice is waived in writing by the Parties. The holding of any advisory meeting may be waived provided all Parties consent to such waiver. Operator shall act as chairman at all Policy Committee meetings. Each Party shall bear its own cost of attendance. If Operator deems it necessary for any personnel who are assigned duties in connection with the conduct of Joint Operations to attend any meeting, the cost incurred therefor shall be charged to the Joint Account. 5.03 POLICY COMMITTEE POWERS. The Policy Committee shall approve all Work Plans and Budgets and supplements thereto and revisions thereof, settlement of claims and suits in accordance with the provisions of Section 13.02, and shall have the right and authority to wind up the activities of the Joint Operations following termination of this Agreement as provided in Section 20.02. Any contract proposed to be entered into by operator pursuant to an approved Work Plan and Budget for a capital expenditure in excess of $1,000,000 shall be on a competitive bid basis; provided, however, that in no event shall any contract be entered into for a capital expenditure in excess of $5,000,000 without Policy Committee approval of the amount of such expenditure. 5.04 POLICY COMMITTEE ACTION. Only those Parties owning a Participating Interest of ten percent (10%) or more may vote on matters before the Policy Committee. Policy Committee approval of any matter requiring Policy Committee approval hereunder, shall require the vote of Operator and the vote of at least one other Party entitled to vote; provided, however, that if only one Party other than Operator should be entitled to vote then Policy Committee approval of any such matter shall require only the vote of Operator. With respect to any matter submitted by Operator for Policy Committee approval (other than approval of a Feasibility Study), should Operator be unable to obtain the vote of at least one other Party entitled to vote, then in such event all Parties entitled to vote shall continue good faith negotiations to resolve outstanding differences. In the event the Policy Committee is unable to secure approval of a proposed Work Plan and Budget within 60 days, the Operator shall submit an alternate proposed Work Plan and Budget. In any event, the Operator shall incur for the Joint Account such expenditures as it reasonably determines to be necessary for the continued maintenance of the lease covering the Property and shall be permitted to operate the Mine at a level which preserves the value of the Joint Assets. No formal Policy Committee approval shall be necessary for such expenditures or for such operations. In lieu of deciding any matter at any meeting, the Policy Committee (a) may act by instrument(s) in writing signed by the representative of each Participating Interest Owner, which instrument(s) (in one or more counterparts) shall be conclusively deemed to be the act of the Policy Committee, or (b) by telephone communication provided that such action is unanimous and is confirmed in writing by each Party or each Party's representative. VI. OPERATOR 6.01 FREEPORT AS OPERATOR. Freeport is designated as Operator for all Joint Operations on the Property. Subject to approved Work Plans and Budgets and Budget Supplements and to the terms and conditions of this Agreement and of the Operating Provisions, the operator, shall manage, conduct and have full control of all such Joint operations until removed or replaced as provided in the Operating Provisions. 7 VII. WORK PLANS AND BUDGETS; FEASIBILITY STUDIES 7.01 WORK PLANS AND BUDGETS; EXPLORATION BUDGET LIMITATION; BUDGET OVERRUNS. Operator shall have the sole right to propose work Plans and Budgets and Budget Supplements. The Work Plan and Budget for the period commencing on the Effective Date and ending on December 31, 1988, shall be prepared by the Operator and submitted to the Policy Committee not later than 30 days prior to the first regular meeting. Operator shall prepare and submit to the Policy Committee a Work Plan and Budget for each Budget Year, not less than thirty (30) days prior to the regular meeting called to review and approve such Work Plan and Budget, all as more particularly provided in the Operating Provisions. No Exploration Work Plan and Budget submitted by Operator for a Budget Year shall provide for costs and expenses for such Budget Year to exceed a total of $1,500,000. Operator shall not be deemed to have exceeded any approved Work Plan and budget provided the total of actual costs and expenses incurred by the implementation of such Work Plan and Budget does not exceed by more than twenty-five percent the total costs and expenses authorized for such Work Plan and Budget; provided, however, if such actual costs and expenses will exceed such percentage of authorized costs and expenses, Operator shall be required to submit a revised Work Plan and Budget in respect of such excess costs and expenses for Policy Committee approval. Operator shall have absolute discretion in deciding which costs and expenses shall or shall not be incurred for purposes of keeping costs and expenses of an approved Work Plan and Budget within the limits authorized therefor. The Policy Committee shall consider all Work Plans and Budgets submitted by Operator pursuant to the Operating Provisions and, except as otherwise provided in Section 5.04 above, shall take action thereon in accordance with Section 7.03 below. 7.02 SUPPLEMENTAL AND REVISED WORK PLANS AND BUDGETS. From time to time, Operator, pursuant to the Operating Provisions or pursuant to Section 7.01 above, may propose supplemental or revised Work Plans and Budgets to the Policy Committee which shall consider and take action thereon in accordance with Section 7.03 below. Any such supplement or revision shall be prepared as provided in the operating Provisions and shall be submitted to the Policy Committee as far in advance of implementing the supplemental or revised Work Plan and Budget as is reasonably possible. 7.03 REVIEW AND APPROVAL OF PROPOSED WORK PLANS AND BUDGETS. The Policy Committee shall consult in a good faith effort either to approve or adopt each proposed Work Plan and Budget (or revision thereof or supplement thereto) as submitted, or to formulate an alternative Work Plan and Budget acceptable to the Parties. Actions on all Work Plans and Budgets shall be taken as provided for in Section 5.04. Once approved as provided in Section 5.04 and, subject to the rights of the Parties to elect not to participate or to limit their participation pursuant to Article VIII, the annual Work Plan and Budget, any approved supplement thereto or any approved revision thereof, shall be binding on the Parties and shall be carried out by Operator. 7.04 FEASIBILITY STUDIES AND FIRST DEVELOPMENT OPERATIONS WORK PLAN AND BUDGET A. PROPOSAL TO CONDUCT FEASIBILITY STUDY AND APPROVAL OF WORK PLAN AND BUDGET FOR FEASIBILITY STUDY. At such times as the operator is of the good faith and reasonable opinion that an economically viable mining operation may be possible on the Property, the Operator will propose that a Feasibility Study be conducted on the Property. Such proposal shall be made in writing to the Policy Committee, shall reference the Data upon which the operator has based its opinion and shall include a Work Plan and Budget for the proposed Feasibility Study. The Operator shall at the same time call a special meeting of the Policy Committee pursuant to Section 5.02 above. The Work Plan and Budget for such Feasibility Study shall be deemed to be a revised or supplemental Work Plan and Budget for Exploration Operations pursuant to the Operating Provisions for the Budget Year during which the Feasibility Study is proposed to be commenced. The Policy Committee shall have 30 days in which to approve or disapprove of the Work Plan and Budget proposed for the Feasibility Study. Upon approval by the Policy Committee of the Work Plan and Budget for the Feasibility Study in accordance with Section 7.03 and this Section 7.04A, Operator shall prepare or cause to be prepared a Feasibility Study in accordance with the approved Work Plan and Budget therefor. 8 B. APPROVAL OF FEASIBILITY STUDY AND COMMENCEMENT OF DEVELOPMENT OPERATIONS. Upon completion of the Feasibility Study, operator shall submit the Feasibility Study to the Policy Committee which, notwithstanding anything to the contrary expressed or implied in Section 5.04 or Section 7.03 above, shall have 90 days in which to approve or disapprove of the Feasibility Study. If the Feasibility Study is approved, the Operator shall prepare and submit in accordance with the Operating Provisions, the first Development Operations Work Plan and Budget to commence no later than the beginning of the next ensuing Budget Year. Once approved by the Policy Committee as provided in Section 7.03 and this Section 7.04B and subject to the rights of the Parties to elect not to participate or to limit their participation pursuant to Section 8.01, the first Development Operations Work Plan and Budget shall be binding on the Parties and shall be carried out by Operator. VIII. CONDUCT OF OPERATIONS BY LESS THAN ALL PARTIES 8.01 EXPLORATION PROGRAM. During the Exploration Program, Party may elect to terminate participation in the Joint Operations by giving written notice to Operator of its termination at any regular or special meeting of the Policy Committee. If a Party makes such election, such Party shall relinquish and assign all of its interest in and to the Joint Assets and the Agreement to the then remaining Participating Interest Owners in accordance with Section 9.01 and without any recompense whatsoever from such remaining owners for such relinquishment and assignment. 8.02 DEVELOPMENT OPERATIONS; FREEPORT'S DEFERRAL RIGHT. Each Participating Interest Owner shall have a period of 30 days after the Approval Date of the Feasibility Study to elect by notice to Operator prior to the end of such period (a) to participate in the Development and Production Programs at such owner's then Participating Interest, or (b) to participate in the Development and Production Programs at a Participating Interest lower than such owner's then Participating Interest (provided such lower Participating Interest is not less than ten percent), or (c) to not participate in the Development and Production Programs. Should a Participating Interest Owner elect (b), such owner's Participating Interest shall be adjusted downward in accordance with Section 9.02. Should a Participating Interest Owner elect (c), such owner shall sell all of its interest in and to the Joint Assets and this Agreement to the then remaining Participating Interest Owners in accordance with Section 9.03. If the Operator votes to disapprove a Feasibility Study but all other Participating Interest Owners entitled to vote should vote to approve such Feasibility Study, the Operator shall have the right, exercisable within 10 days after Operator's vote of disapproval, to declare a Development Moratorium. As used in this Agreement, the term "Development Moratorium" shall mean a period of up to 3 years after the date of such declaration during which the operator may defer commencement of Development Operations on the Property, subject to Operator reviewing its position on deferral with the Policy Committee at each annual regular meeting of such committee held during such period, subject to maintenance of the Joint Assets during such period, and subject to the condition that in no event shall the Development Moratorium endure beyond the commencement of the eighth year of the sulphur lease covering the Property. At any time during the Development Moratorium, Operator shall have the right to submit to the Policy Committee a first Work Plan and Budget for Development Operations, and, upon submission of such Work Plan and Budget, the operator shall be deemed to have approved the Feasibility Study and the Development Moratorium shall be deemed to have terminated as of such time. Such Work Plan and Budget shall then be submitted to the Policy Committee for approval. For purposes of this Section 8.02, the word "Year" shall mean a period of 365 consecutive days. Within the aforementioned 10-day period during which Operator may declare a Development Moratorium, Operator may, in lieu of making such declaration, elect, by notice to each of the Parties prior to the end of such period, any of the following courses of action or any compatible combination thereof: (i) resignation as Operator; (ii) participation in the Development and Production Programs at Operator's then Participating Interest; 9 (iii) participation in the Development and Production Programs at a Participating Interest lower than the operator's then Participating Interest (provided such lower Participating Interest is not less than ten percent) in accordance with and subject to the provisions of Section 9.02; (iv) no participation in the Development Program and mandatory sale of all of its interest in and to the Joint Assets and this Agreement to the then remaining Participating Interest Owners in accordance with Section 9.03. (The courses of action outlined in items (i) - (iv) above, are hereinafter collectively referred to as "Operator Development Options"). Operator shall also have the right to elect any or all of the Operator Development Options by notice to each of the Parties at any time during the Development Moratorium or at such time as the Development Moratorium shall have terminated without Operator having submitted to the Policy Committee a first Work Plan and Budget for Development Operations. IX. CHANGE IN PARTICIPATING INTERESTS 9.01 READJUSTMENT OF INTERESTS WITH RESPECT TO THE EXPLORATION PROGRAM. Any Participating Interest Owner electing during the Exploration Program pursuant to Section 8.01 to cease further participation in the Joint Operations, shall, upon the date such election becomes effective, relinquish and assign all of its interest in and to the Joint Assets and this Agreement free and clear of all liens and encumbrances to the then remaining Participating Interest Owners in proportion to the ratio of their then Participating Interests as of the time immediately prior to such relinquishment and assignment. For example, assume that immediately prior to the relinquishment and assignment the Participating Interest of Operator is 50% and the Participating Interests of Participating Interest Owners A, B, and C is 16-2/3% each. Assume further that during the Exploration Program owner C elects to cease further participation in the Joint Operations. In such case the portion of the 16-2/3% share owned by owner C (hereinafter referred to as the "Relinquished Interest") to be allocated to each of Operator, Owner A and Owner B would be calculated as follows: EXAMPLE A: Participating Interest Immediately Proportional Share Adjusted Prior to of Relinquished Participating Party Relinquishment Interest Interest - ----- -------------- ------------------ ------------- Operator 50.00% + .6000 X 16.67% = 60.00% Owner A 16.66% + .1999 X 16.67% = 19.99% Owner B 16.67% + .2000 X 16.67% = 20.00% For purposes of any readjustment of the percentage interests or burdens of the Parties hereunder, whether as the result of allocation of a Relinquished Interest as aforesaid, or pursuant to any other provision of this agreement, fractions of a percentage shall be rounded off to two decimal places, and, if as a result of such rounding off the sum of the readjusted percentage interests or burdens, as the case may be, (i) should total less than one hundred percent, Operator's interest or burden, as the case may be, shall be increased to the extent necessary for such sum to equal one hundred percent; or (ii) should such sum total more than one hundred percent, Operator's interest or burden, as the case may be, shall be decreased to the extent necessary for such sum to equal one hundred percent. In Example A above the sum of the adjusted Participating Interests is 99.99%. In such case, operator's adjusted Participating Interest of 60.00% would be increased to 60.01% in order for the sum of the adjusted Participating Interests to total one hundred percent. 10 9.02 READJUSTMENT OF INTERESTS WITH RESPECT TO THE DEVELOPMENT AND PRODUCTION PROGRAMS. Any Participating Interest owner electing pursuant to Section 8.02 to participate in the Development and Production Programs at a Participating Interest lower than such owner's Participating Interest prior to such election, shall in its notice to Operator of such election declare the percentage constituting the lower Participating Interest at which such owner desires to participate (which percentage shall in no event be less than 10 percent), and, within 30 days after the date such notice is given, the percentage interest representing the difference between such owner's Participating Interest immediately prior to and immediately after such election (hereinafter referred to as the "Partial Relinquished Interest") shall be relinquished and assigned free and clear of all liens and encumbrances to the then remaining Participating Interest Owners as hereinafter in this Section 9.02 provided. The aforesaid relinquishment and assignment of the Partial Relinquished Interest shall be made to the then Remaining Participating Interest Owners in proportion to the ratio of their then Participating Interests as of the time immediately prior to such election. For example, assume that immediately prior to the election the Participating Interest of Operator is 50% and the Participating Interests of Participating Interest Owners A, B, and C is 16-2/3% each. Assume further that Owner C elects to participate in the Development Program at a Participating Interest of 10% rather than its then current Participating Interest of 16-2/3%. For such case the portion of the 6-2/3% Partial Relinquished Interest to be allocated to each of Operator, Owner A and Owner B would be calculated as follows: EXAMPLE B: Participating Interest Immediately Proportional Share Adjusted Prior to of Relinquished Participating Party Relinquishment Interest Interest - ----- -------------- ------------------- ------------- Operator 50.00% + .6000 X 6.66% = 54.00% Owner A 16.66% + .1999 X 6.66% = 17.99% Owner B 16.66% + .1999 X 6.66% = 17.99% Owner C 16.66% + NONE = 10.00% 9.03 MANDATORY SALE OF PARTICIPATING INTEREST. Should a Party elect pursuant to Section 8.02 to not participate in the Development and Production Programs, such Party shall within 30 days after giving appropriate notice of such election, sell, transfer and assign, all of its interest in and to the Joint Assets and this Agreement free and clear of all liens and encumbrances to the then remaining Participating Interest Owners for a total purchase price equal to the sum of (i) the total amount paid by such Party to lessor to acquire such Party's interest in the sulphur lease covering the Property, plus (ii) the sum of all expenditures made by such Party for Joint Operations on the Property. The portion of such purchase price to be paid by each of the then remaining Participating Interest Owners, and the portion of such Party's Participating Interest to be sold, transferred and assigned to each such remaining owner shall be allocated proportionately using the proportionate allocation methodology employed in Sections 9.01 and 9.02 above (with necessary changes in points and details). X. LIENS AND ENCUMBRANCES 10.01 As security for the payment and performance of all obligations, liabilities and indebtedness of each Party hereto arising under or pursuant to this Agreement, up to the aggregate sum at any one time outstanding of $134,159,000 as to the operator, $57,500,000 as to IMC, and $38,341,000 as to Felmont (the "Obligations"), each Party shall grant to the other Parties hereto a mortgage lien and pledge affecting such granting Party's interest in (i) the sulphur lease covering the Property, (ii) all corporeal movables placed on said lease, and (iii) all minerals produced from said lease together with all proceeds thereof. At the time of the execution and delivery of this Agreement, each party shall execute and deliver to the other Parties hereto the instruments necessary to create the aforementioned mortgage lien and 11 pledge, conforming to the form and substance of that collateral mortgage and pledge, collateral mortgage note and collateral pledge agreement attached hereto as Attachment 1. Any Party may furnish substitute security which must be acceptable to all other Parties hereto. If such offered substitute security is not acceptable to all other Parties hereto, and such offering Party is unable because of prior corporate contractual commitments to furnish the mortgage, note and pledge referred to above, then the other Parties shall have the right to purchase the non-performing Party's interest in the sulphur lease covering the Property at a price equal to that Party's share of the bid price and first annual rental of such lease. The right of the other Parties to purchase the interest in such lease from the nonperforming Party shall be in the proportions as their respective interests in such lease bear to the total of their interests in such lease, or in such other proportions as they may agree. 10.02 Subject to Section 10.01 above, no Party shall encumber or cause or permit a lien to be placed upon such Party's interest in or under this Agreement or upon any of the Joint Assets without the prior written consent of the other Parties. Consent shall not be withheld if the purpose of the Party proposing the encumbrance is to obtain funds to carry out or maintain its position under this Agreement. If the other Parties do not give the Party proposing the encumbrance notice of their objections to the proposed encumbrance and request for consent within thirty (30) days following receipt of notice, the other Parties shall be deemed to have consented to it. No encumbrance made pursuant to this Article X shall impair or reduce the rights of any other Party in any way and all security interests created by such encumbrance shall be subordinate to all rights of the other Parties under this Agreement. XI. INSURANCE 11.01 Operator shall at all times while operations are conducted by it for the Joint Account on the Property and the Mine, carry, pay for and charge to the Joint Account such insurance in such amounts and covering such risks as Operator deems appropriate, as follows: (a) WORKER'S COMPENSATION: Such insurance shall be in full compliance with the law in the state where the work is to take place and shall contain a voluntary compensation endorsement and a waiver of subrogation as to Non-Operators. Where applicable, coverage shall also be provided to comply with the: (i) U. S. Longshoremen's and Harbor Worker's Compensation Act, and the (ii) Outer Continental Shelf Lands Act. (b) EMPLOYER'S LIABILITY: Such insurance shall have a limit of liability of $1,000,000 per accident and shall be endorsed, where applicable, to provide: (i) Maritime (Amendment to Coverage B), to include transportation, wages, maintenance and cure. (ii) A claim "in rem" will be treated as a claim "in personam". (iii) A waiver of subrogation as to Non-Operators. (c) No insurance other than as specified above shall be provided by the Operator. Operator may elect to self-insure as to the insurance specified above provided all Non-Operators consent in writing to such election. 12 (d) Operator shall require contractors and subcontractors performing work for the Joint Account to provide such insurance as deemed reasonable by the Operator in relation to the work to be performed by said contractors or subcontractors. (e) All vessels owned or chartered by Operator shall be adequately covered by Hull and Protection and Indemnity Insurance. (f) Upon request, certificates of insurance evidencing the insurance obtained by operator hereunder shall be furnished to each Non-Operator and each Non-Operator shall furnish to Operator certificates of insurance evidencing the insurance obtained by Non-Operator in compliance with the provisions hereof. 11.02 Unless otherwise agreed in writing, Operator and Non-Operator shall separately carry their own policies of the following insurance: (i) Control of Well Insurance in the minimum amount of $25,000,000 for the total loss. (ii) Where applicable, Blanket Charterers' Legal Liability and Cargo Legal Liability with a limit of liability of $500,000. (iii) Umbrella Liability Insurance in the amount of $25,000,000 excess of all primary limits. (iv) Above insurance coverages, including but not limited to any and all deductibles, self-insured retentions or primary layers, shall contain waivers of subrogation as to the Parties hereto. 11.03 Notwithstanding anything contained in this Agreement to the contrary, those Parties participating in any operation on the Property or the Mine shall be responsible for all costs, liabilities, claims, damages and liens for loss or damage to property or personal injury or death, as well as pollution cost and damage, arising out of such operation in the proportion that such Parties participated in the operation including reclamation and abandonment costs that gave rise to such costs, liabilities, claims, damages and liens unless caused by the gross negligence or willful misconduct of any Party to this agreement, in which case such Party shall be liable therefor; provided, however, such participating Parties shall not be responsible or liable for any consequential loss or damage of the other Parties hereto, including but not limited to, inability to produce sulphur, loss of reserves, loss of production or loss of profits. 11.04 Operator shall at any time requested furnish any Non-Operator with full information concerning the kind, character and amounts of insurance carried. Operator shall promptly notify Non-Operators of loss, damage or claim not covered by insurance carried by the Operator for the benefit of the Joint Account or individual Non-Operators. 11.05 Operator shall not be liable for loss, damage or destruction to any property of Non-Operators in connection with operations hereunder for the Joint Account on the Property or the Mine, except those arising out of willful misconduct or gross negligence of Operator. 11.06 Each Party, in proportion to its Participating Interest, or in the case of Joint Operations in which fewer than all the Parties participate, in proportion to such Party's Participating Interest shall be liable for any losses and expenses that exceed the amount collectable under the insurance carried by operator for the Joint Account (as set forth in Paragraph 11.01) on account of personal injury or death to any person in connection with Joint Operations hereunder; provided however, all Parties shall share in the loss to the extent of their respective Participating Interests unless such loss is caused by the gross negligence or willful misconduct of one of the Parties hereto; then in such event the loss shall be borne entirely by that Party. 13 11.07 Subject to the other provisions of this Agreement, each Party shall indemnify and save harmless the other Parties hereto for claims and losses that exceed the amounts collectible under the insurance carried by Operator for the Joint Account (as set forth in Section 11-01), regardless of the negligent acts or omissions of Operator. Nothing contained in this Section 11.06 shall be deemed to release the Operator from its obligations under this Agreement. 11.08 Liability for (1) damages to property of "third persons" (as used in this paragraph, the term "third persons" shall not include the employees, agents or representative of operator or any Non-Operator), (2) fines, penalties, damages, losses, etc., arising out of claims, either civil or criminal, public or private, relating to actual or alleged pollution of water, air, or the environment, or (3) injury to or death of third persons arising from operations on the Property or the Mine including the expenses incurred in defending claims or actions asserting liabilities of this character, shall be borne by the Parties in proportion to said Parties, respective Participating Interests, or in the case of Joint operations in which fewer than all the Parties participate, in proportion to such Party's Participating Interest except that when such damage is caused by the gross negligence or willful misconduct of Operator, then operator shall be responsible for such liability. In the event such damage is caused by one or more of the Non-Operators, then in that event, the liability for such damage shall be borne by the Non-Operator or Non-Operators responsible, except when a Non-Operator is expressly authorized to act for the Joint Account, then any such damage except that caused by the gross negligence or willful misconduct of such Non-Operator shall be borne by the Parties in proportion to their respective Participating Interests. 11.09 In the event of a judgment against operator as the result of a personal injury, death and/or property loss or damage case arising out of operations hereunder and brought by a Non-Party or Non-Parties, which judgment includes a finding of gross negligence on the part of Operator, the court's finding of gross negligence shall not be binding for purposes of determining whether or not any Non-Operator is obligated hereunder to share the burdens of any such judgment unless the gross negligence was found to be attributable to an act or omission of an officer or director of Operator. In the event the gross negligence was found to be attributable to an act or omission of an employee of Operator other than an officer or director, the facts and circumstances giving rise to such judgment shall be submitted to a board of arbitration, as hereinafter provided, for an independent determination, in light of applicable law and generally accepted standards in the offshore mineral producing industry, of the degree of negligence exhibited by the Operator; provided, however, that the previous finding of gross negligence on the part of Operator shall not be admitted in evidence in such arbitration proceeding. For purposes of this Section 11.09, operator shall, as soon as practicable following the judgment containing the gross negligence finding, give notice of submission to the Non-Operators, which notice shall name one arbitrator. The Non-Operators shall, within thirty (30) days after the date such notice is given, agree among themselves to the appointment of one arbitrator and give notice of such appointment to the Operator, failing in which the arbitrator shall be appointed by the then senior United States District Judge for the Eastern District of Louisiana. The two arbitrators so selected shall select a third arbitrator or umpire within twenty (20) days after the giving of notice of the appointment of the second arbitrator. Should the two arbitrators selected by Operator and the Non-Operators fail so to agree upon a third arbitrator or umpire, either Operator or the Non-Operators may upon ten (10) days' written notice to the other apply to the then senior United States District Judge for the Eastern District of Louisiana for the appointment of such third arbitrator or umpire. The arbitrators so appointed shall promptly hear and determine (after due notice of hearing and giving the parties a reasonable opportunity to be heard) the negligence issue submitted, and shall render their decision which shall be final and nonappealable and absolutely binding and conclusive upon Operator and Non-Operators. The expenses of the arbitrator selected by Operator shall be paid by Operator and the expenses of the arbitrator selected by the Non-Operators shall be paid by the Non-Operators. The expenses of the third arbitrator shall be borne one-half by Operator and one-half by the Non-Operators. Operator's attorney fees and expenses attributable to the arbitration shall be paid by Operator and Non-Operators' attorney fees and expenses attributable to the arbitration shall be paid by the Non-Operators. XII. TAX ELECTIONS The Parties agree to make an election under Internal Revenue Code section 761(a) out of the provisions of subchapter K of the Internal Revenue Code of 1986. Further, the Parties agree to, take no action in contravention of this 14 election including but not limited to entering into any agreement, contract, undertaking or any other act which would jeopardize the ability to make such election. The Parties also agree that, to the extent permissible under applicable law, their relationship shall be treated for state income tax purposes in the same manner as it is for federal income tax purposes. XIII. CLAIMS AND LITIGATION 13.01 All investigation, litigation and settlements in connection with the titles, claims and causes of action of every kind and joint rights and interests hereunder shall be carried on, conducted and defended for and on behalf of all Parties involved. Each Party shall notify the others of any process served upon it in any suit or claims hereunder. The Parties shall decide by a majority in interest whether the handling and defense of such suit or claim shall be handled by the attorneys of all Parties or by joint counsel selected by a majority in interest of the Parties. When such selection has not been made in time to permit preparation, filing, appearance or other representation in accordance with legal requirements, Operator is authorized to provide such legal services as in its discretion are necessary to preserve the rights of the Parties and shall charge the cost and expense of same to the Joint Account. If less than all Parties participate through their attorneys in such litigation, a reasonable charge for legal services provided by participating counsel shall be made to the Joint Account. If the attorneys of all Parties participate, no fee or expense for their services shall be charged to the Joint Account. The fee and expense of any joint counsel selected by a majority in interest shall be charged to the Joint Account. 13.02 All settlements of all claims and suits shall be subject to the approval and agreement of the Policy Committee, except that operator may settle any claim under $100,000 without consulting or obtaining the approval of the Policy Committee, provided the payment is in complete settlement. Operator agrees to keep Non-Operators advised as to claims for which Non-Operators may be partly responsible hereunder. The amount of settlement shall be charged to the Joint Account. 13.03 All references in this Article XIII to charges to the "Joint Account" shall refer to those cases in which all Parties participated in such operation, but in the case of an operation in which fewer than all of the Parties participated, the reference shall be to the participating Parties and shall apply in proportion to such Parties' interests in such operation. XIV. COMPETITION With respect to any property rights outside of the Property, each Party shall have the free and unrestricted right, independently or in combination with others, to engage in and receive the full benefits of any and all business endeavors of any sort whatsoever, including but not limited to the acquisition of properties, interests, or rights in and the exploration for production and sale of sulphur whether or not competitive with the endeavors contemplated herein. Except as provided in this Article XIV or in Article XV below, it is expressly agreed that a Party shall not have any fiduciary obligation or other duty of whatsoever character to the other Parties that would prevent it from engaging in or enjoying the benefits of such competing endeavors or would require it to consult with or allow such other Parties to participate therein. XV. NO PARTITION OR OTHER USES Prior to the termination of this Agreement, a Party or its successors or assigns shall not (a) resort to any action to partition the Property and, to such extent, each Party waives the benefits of all laws authorizing such action; or (b) utilize or attempt to utilize all of any portion of the Property for uses or purposes other than those set forth in Article II of this Agreement without the prior written consent of the other Parties. 15 XVI. SURRENDER OR ABANDONMENT The Parties shall not surrender or abandon any of the Property unless all Parties consent to the same in writing; provided, however, that such consent shall not unreasonably be withheld. XVII. ASSIGNMENT AND PREFERENTIAL RIGHT TO PURCHASE 17.01 ASSIGNMENT. Except as provided in Section 17.02 below, and except as to the right of a Party to receive in kind and separately dispose of such Party's share of sulphur produced at the Mine as provided in Article XVIII hereof, no Party shall assign or transfer all or any part of its interest in the Property, the Joint Assets, this Agreement or any of its rights and interests hereunder to any party other than a Party or an Affiliate unless it shall have first offered to make such assignment to the other Parties pursuant to Section 17.03 below. 17.02 EXEMPT TRANSFERS. Any Party may convey, assign or transfer all or any part of its interest in this Agreement the Property, and/or the Joint Assets, to an Affiliate, or to a successor by reason of sale of substantially all of a Party's assets, merger, consolidation or reorganization; provided, however, that the Affiliate, or successor shall in writing assume and agree to carry out all, or a corresponding portion, of the transferring Party's obligations arising under this Agreement. 17.03 PREFERENTIAL RIGHT TO PURCHASE. A. PROCEDURE. If any Party receives from a person or entity, other than those described in Section 17.02 above, a bona fide offer to purchase or otherwise acquire all or any part of the offeree's interest in this Agreement, the Property, and/or the Joint Assets which the offeree is willing to accept, the offeree shall furnish in writing to the other Parties the complete terms of the offer; provided, however, if any part of the consideration offered is other than cash, in submitting such offer to the other Parties the offeree shall place a reasonable cash value on such non-cash part of the consideration and support such cash value with appropriate information and data upon which it is based. The other Parties shall have the right for a period of 30 days after receipt of the offer to elect in writing to purchase or otherwise acquire the same interest upon the same terms and conditions as the proposed offer, but with the right to pay the entire consideration in cash; provided, however, if a majority in interest of the other Parties do not agree that cash value of the non-cash part of the offer is reasonable, and the offeree and the other Parties are unable to agree within ten (10) days after the latest date on which any of the other Parties receive the offer (the "Receipt Date") , then both the offeree and the other Parties shall select a resident partner of one of the "Big Eight" accounting firms (if such parties are unable to agree on such a person within thirteen (13) days after Receipt Date, each side shall immediately designate such a partner and the two partners so designated shall within fifteen (15) days from Receipt Date select such a partner who shall act solely as hereinafter provided) furnish him with information, data and reasons supporting their respective cash values, and such partner, on or before twenty (20) days from Receipt Date, shall determine the reasonable cash value of the non-cash part of the consideration, which determination shall be final, unappealable, binding on all Parties and enforceable in a court of law, and shall be used in establishing the price at which the offeree may elect to reject the offer entirely and, if not, at which the other Parties shall elect to acquire or not acquire the interest offered. If the offer is not accepted by the other Parties, the offeree Party may sell or otherwise dispose of the interest described in the offer at the price and upon the terms and conditions of the proposed offer, provided (i) that all other Parties consent in writing to such sale or disposition (which consent shall not be unreasonably withheld), (ii) that the sale or other disposition is effectuated within 120 days after the other Party's right of election has expired, and (iii) that the transferee agrees in writing to assume all of the transferring Party's obligations and liabilities under this Agreement. After the 120 day period has expired, the provisions of this Section 17.03 shall again apply to the proposed offer for another 30 day period, if that offer is still effective. The failure of the other Parties to exercise their rights to acquire an interest under this Section 17.03 shall not be deemed to be a waiver of their rights under this Section 17.03 with respect to subsequent offers. B. APPLICATION GENERALLY. The preferential right to purchase and the procedures for implementing it set forth in Section 17.03A shall apply to all sales or other dispositions of all or any portion of a Party's interest in all or 16 any portion of this Agreement, the Property, and/or the Joint Assets, regardless of whether other interests or assets of the offeree Party also are being sold or otherwise subjected to disposition. If the offeree Party is disposing of all or any portion of its interest in all or any portion of this Agreement, the Property, and/or the Joint Assets, together with other interests or assets held by the offeree Party, in its notice of offer to the other Parties, the offeree Party shall state the offered consideration for the interest in this Agreement, the Property, and/or the Joint Assets, as it is set forth in the offer, including offeree's determination of a reasonable cash value for any non-cash part of the consideration, and if it is not set forth in the offer separately from the consideration offered for the other interests or assets of the offeree Party that are the subject of the offer, the offer shall state the reasonable cash value of the offered price or consideration relating to the interest in this Agreement, the Property, and/or the Joint Assets. If the offeree and the other Parties cannot agree as to the reasonable cash value of the offered price or consideration relating to the interest in this Agreement, the Property, and/or the Joint Assets, such reasonable cash value and the rights of the Parties thereunder shall be established as between the offeree and the other Parties following the same procedures set out in this Section 17.03A for a determination of the reasonable cash value of the non-cash part of the consideration therein involved, however, the price so stated for the interest in this Agreement, the Property, and/or the Joint Assets, shall not exceed the fair market value of the same. The other Parties may elect, in the manner provided above in this Section 17.03, to accept the offer as to only the interest in this Agreement, the Property, and/or the Joint Assets, but shall have no right as to the other interests and assets described in the notice. C. APPLICATION TO OPERATOR'S INTEREST. In the event Operator should sell or otherwise dispose of a portion of its interest in all or any portion of this Agreement, the Property, and/or the Joint Assets, but retain its rights as Operator, Operator shall continue to be obligated to act as a reasonable and prudent Operator in the conduct of operations and the performance of its obligations hereunder. The provisions of this Article XVII shall not be construed to allow the sale or transfer of this operatorship of the Property separate and apart from its interest in the Property. 17.04 TRANSFERRING PARTY NOT RELEASED FROM AGREEMENT. A transferring Party shall not be relieved of any of its obligations or liabilities (including but not limited to reclamation obligations owing to a landowner or governmental entity) under this Agreement existing at the time of transfer, unless the other Parties consent thereto in writing and the transferee agrees in writing to assume all of the transferring Party's obligations and liabilities under this Agreement. 17.05 EVIDENCE OF CHANGE OF OWNERSHIP. No change in ownership of any interest in all or any portion of this Agreement, the Property, and/or the Joint Assets shall be binding upon the other Parties until a certified copy of all instruments executed and delivered in connection with the transfer or assignment shall have been delivered to the other Parties. 17.06 AGENT OF ASSIGNEE CO-OWNERS. If, at any time the interest of any original Party to this Agreement is divided among and owned by two (2) or more co-owners, Operator, at its discretion, may require such co-owners to appoint a single trustee or agent with full authority to receive notices, approve expenditures, receive billings for and approve and pay such assignees' share of the Joint Expenses, and to deal generally with, and with power to bind, the assignees of such interest within the scope of operations embraced by this Agreement. XVIII. DISPOSITION OF PRODUCTION 18.01 PARTICIPATING INTEREST OWNERS. Pursuant to the terms of the Operating Provisions and this Article XVIII, each Participating Interest Owner shall receive in kind and separately dispose of a portion of the sulphur produced at the Mine equal to its Participating Interest as of the time of commencement of Steaming Operations, exclusive of any sulphur which the lessor of the sulphur lease covering the Property should elect to take in kind and exclusive of any sulphur that may be unavoidably lost. Any extra expenditures (including but not limited to expenditures incurred in the construction, operation and maintenance of any and all facilities that may be necessary to receive, store and dispose of a Party's share of production) 17 in excess of the cost of constructing, maintaining and operating the Joint Assets incurred by the reason of taking in kind or separate disposition by such Party of its proportionate share of the sulphur so produced shall be borne by that Party. It is the intent of the Parties that any sulphur mine constructed hereunder will include such facilities beyond the wellhead as are necessary to transport the sulphur production to a permanent short-term storage facility or other point from which separate delivery may be taken and to provide or construct such storage or other facility and its ancillary load-out facilities as may be necessary. 18.02 ELECTION TO NOT RECEIVE AND NOT PAY. Each Party other than the Operator shall have the right, exercisable by notice to Operator within 15 days after its receipt from Operator of the Production Work Plan and Budget for the Budget Year covered by such Work Plan and Budget, to elect (i) not to receive such Party's share of sulphur produced at the Mine during such Budget Year, and (ii) not to pay such Party's share of Joint Expenses for such Budget Year; provided, however, that such Party shall not have such right with respect to any Budget Year if the Work Plan and Budget for such Budget Year received from the operator indicates that the estimated total unit cost (less depreciation) per ton of sulphur to be produced at the Mine during such Budget Year exceeds the Tampa Posting as of the time such Work Plan and Budget is received by such Party from Operator; nor shall such party have such right if at the time of such election there remains to be produced less than thirty percent of the largest total of proven, recoverable reserves underlying the Property (such total being the same as reported to the Securities and Exchange Commission by Operator in its Form 10K). The term "Tampa Posting" as used herein shall mean the arithmetic average of the high and low contract price per ton of Frasch Sulfur FOB Tampa published in GREEN MARKETS FERTILIZER MARKET INTELLIGENCE WEEKLY, under the heading Green Markets Price-Scan U.S. Domestic Spot Quotes, for Contracts. If such Party makes such election, such Party shall forfeit its right to receive its share of sulphur produced at the Mine during such Budget Year and shall have no obligation to pay its share of Joint Expenses for such Budget Year except as hereinafter in this Section 18.02 provided. Such Party's share of Joint Expenses for such Budget Year shall be allocated proportionately to the other Parties using the proportionate allocation methodology employed in Sections 9.01 and 9.02 above (with necessary changes in points and details). If at the end of the Budget Year for which such Party made the election provided for by this Section 18.02, the Operator determines that the actual total unit cost (less depreciation) per ton to produce sulphur at the Mine during such year exceeds the time weighted per ton average price for such year based on prices reported to the Minerals Management Service for payment of royalties for such year (hereinafter referred to as the "Average Price") . then such Party shall pay to the Joint Account within 15 days after receipt of operator's invoice therefor, an amount calculated by (i) subtracting the "Average Price" per ton for such year from (ii) the actual total unit cost (less depreciation) per ton of sulphur produced at the Mine during such year, and (iii) multiplying the remainder by (iv) the number of tons representing such Party's proportionate share of sulphur produced at the Mine during such year. IX. DEFAULT In the event of any default by any Party or Operator in the performance of any of its obligations under this Agreement, other than payment of dollar amounts due Operator for the Joint Account, the non-defaulting Party or Parties shall give to the defaulting Party written notice of the default. If the default is not cured within 60 days after receipt of the notice, or if the defaulting Party has not within that time begun action to cure the same and does not thereafter diligently prosecute such action to completion, the non-defaulting Party or Parties may bring an action in a court of competent jurisdiction for any and all damages of whatsoever nature incurred by it as a result of the default. If the defaulting Party disagrees that a default occurred, it shall so advise the nondefaulting Party or Parties in writing within 30 days after receipt of the notice of default. The Parties shall attempt to resolve the dispute by mutual agreement, but if they are unable to do so within 60 days after the notice of default, the issue of default shall be submitted to a court of competent jurisdiction. The defaulting Party shall not be deemed to be in default unless it is so adjudged by such court and until all appeals from said decision have either been exhausted or waived. If the defaulting Party is found to be in default by the court, it shall have 60 days after the date on which all appeals have been exhausted or waived in which to either cure the default, begin action to diligently cure the same, or pay damages awarded by such court to the non-defaulting Party or Parties. 18 If at any time during the Exploration and Development Programs, a Party which is a Participating Interest Owner at such time should default in making payments due Operator for the Joint Account, operator, in addition to any other rights and remedies it may have in law or at equity or pursuant to this Agreement, shall have the right, exercisable at any time after the expiration of the ninetieth (90th) day following such defaulting Party's receipt of Operator's written notice of such default, to give such defaulting Party a notice of forfeiture, upon receipt of which notice such defaulting Party shall, within 15 days of its receipt thereof, relinquish and assign all of such Party's interest in and to the Joint Assets and this Agreement, effective as of the date such notice is given, to the remaining other Participating Interest Owners and such defaulting Party shall be due no recompense whatsoever from such owners for such relinquishment and assignment. Such defaulting Party's unpaid share of the Joint Expenses prior to and after any such forfeiture, and such Party's forfeited interest shall be allocated proportionately to the then remaining other Participating Interest Owners by Operator using the same proportionate allocation methodology employed in Sections 9.01 and 9.02 above with respect to allocation of Relinquished Interests and Partial Relinquished Interests (with necessary changes in points and details) and such then remaining other owners shall have no right to decline such allocation and shall pay their respective proportionate shares of such unpaid share within 15 days of each such owner's receipt of operator's notice of such allocation and accompanying invoice. Should such a default by such a Party occur during the Production Program and remain uncured for a period of 365 consecutive days after Operator's notice of default, operator shall have the same right to effect forfeiture of such Party's interests as hereinabove provided in this paragraph with respect to default during the Exploration and Development Programs; provided, however, that in addition to such right to effect forfeiture, Operator shall have the right prior to such forfeiture, exercisable at the time notice of default is given to such Party, to sell such Party's share of sulphur produced during the period following Operator's notice of default for the purpose of applying the proceeds of such sale to such Party's unpaid share of the Joint Expenses during such period, and Operator shall have no obligation to account to any such Party for any of such proceeds so applied. XX. TERMINATION 20.01 EVENTS OF TERMINATION. This Agreement shall terminate upon the earlier to occur of the following: (a) The mutual agreement of the Parties; (b) Such time as none of the Parties own jointly any interest in the Property; (c) The fiftieth anniversary of the Effective Date. 20.02 PROCEDURE. Upon termination of this Agreement pursuant to (a) or (c) or Section 20.01, the Parties shall satisfy all liabilities resulting from Joint operations, including but in no way limited to expenditures that Operator has firmly committed to make pursuant to an approved Work Plan and Budget, and shall sell or otherwise agree on the disposition of all Joint Assets other than the Property. All liabilities and expenses shall be several and not joint and shall be borne and paid by the Parties in proportion to their respective Participating Interests. The proceeds of sale shall be distributed to the Parties in proportion to their Participating Interests. At termination the Parties shall retain their undivided interests in the Property as joint owners, equal to their respective Participating Interests therein, and such undivided interests shall cease being subject to the terms and conditions of this Agreement. The Parties shall execute such assignments and cross-assignments as may be necessary to reflect their ownership of their undivided interests in the Property. Upon termination, the Policy Committee, or its appointee, shall have the right and authority to take all action necessary to wind up the activities being terminated and all costs and expenses so incurred by the Policy Committee, or its appointee, shall be expenses for the Joint Account. Termination of this Agreement shall not relieve any Party from any liability that has accrued or attached prior to the date of such termination. 20.03 RECLAMATION AND ABANDONMENT SECURITY. Unless prior to the commencement of Steaming Operations the Parties agree to another procedure to be utilized for charging abandonment and reclamation costs to the Joint Account (examples of other possible procedures set forth hereinbelow), Operator shall charge each Non-Operator, in each monthly billing to such Non-Operator after Steaming Operations commence, an amount equal to such Non- 19 Operator's proportionate share of the total cost for abandonment and reclamation of the Property and Joint Assets (including costs required by government or other authority) apportioned ratably over the Operator's estimated life of commercially producible reserves at the Mine as such cost may be reasonably estimated by Operator and revised from time to time as operator shall deem necessary. EXAMPLES: A. The Operator will charge the Joint Account monthly with a reasonably estimated cost for abandonment and reclamation, including costs required by government or other authority. In so doing receivable accounts for each Party will be debited for each Party's proportionate share of such charges and a reserve account will be credited for the total monthly charge. Each Non-Operator will post a bond with the Operator for its proportionate share of the total estimated abandonment and reclamation costs. As required, such bonds will be revised to reflect each Non-Operator's proportionate share of revised abandonment and reclamation costs. At the time abandonment and reclamation costs are incurred by the Operator, each Party will be billed its proportionate share of such costs. Cash remitted to the operator in payment of such billings will be applied against each Party's receivable account. At the end of the operating life of the Joint Operations, the difference between the total abandonment costs incurred and the total charges to the reserve account will be charged or credited to the reserve account of the Parties' receivable accounts in proportion to their respective interests. B. A reasonably estimated cost for abandonment and reclamation of the Joint Property, including costs required by government or other regulatory authority, will be provided for in the Joint Account and included in a reserve account. A charge for these estimated costs will be included by the Operator in each monthly billing to the Non-Operators. Interest will be earned on the total reserve account balance and credited to the Joint Account on a monthly basis based upon an interest rate to be agreed to by the Parties. At the end of the operating life of the Joint Operations, the difference between the total abandonment and reclamation costs incurred and the total charged to the reserve account will be charged or credited to the Joint Account. XXI. NOTICES Any notice, election, payment or other correspondence required or permitted under this Agreement shall be made in writing and shall be sufficiently delivered if delivered personally to the Party to whom directed by courier or otherwise deposited in the United States certified or registered mail, sent by Western Union telegram or mailgram, or sent by telecopy if followed immediately by written Notice by U.S. certified or registered mail, with all necessary postage or charges fully prepaid, return receipt requested (or in the case of a telecopy, telegram or mailgram, confirmation of delivery), and addressed to the Party to whom directed at its below specified address, to wit: As to Freeport: Freeport Sulphur Company Division Freeport-McMoRan Resource Partners, Limited Partnership P. 0. Box 61520 New Orleans, Louisiana 70161 Attention: Mr. Robert W. Noel Telecopy: (504) 582-4064 20 As to IMC: IMC Fertilizer, Inc. 2315 Sanders Road Northbrook, Illinois 60062 Attention: Corporate Secretary Telecopy: (312) 564-8600 Telephone:(312) 564-8600 As to Felmont: Felmont Oil Corporation 350 Glenborough, Suite 300 Houston, Texas 77067 Attention: Vice President, Special Projects Telecopy: (713) 872-7838 Telephone: (713) 872-9741 Such notice, election, payment or other correspondence shall be deemed to have been properly given upon receipt by the Party to whom directed. A Party may change its address for the purpose of notices or communications under this Agreement by furnishing notice of the change to the other Parties in compliance with this Article XXI. XXII. GOVERNING LAW Except with respect to issues relating to the title to the Property, this Agreement shall be construed and enforced in accordance with the laws of the State of Louisiana and the United States. XXIII. CONSTRUCTION The headings used in this Agreement are for convenience only and shall not be taken or construed to define or limit any of the terms or provisions of this Agreement. Unless otherwise provided or unless the context shall otherwise require, words importing the singular shall include the plural, words importing the masculine gender shall include the feminine gender, and vice versa. XXIV. WAIVER The failure or omission by either Party to enforce any provision of this Agreement shall not be considered to be a waiver of that provision or of the default of another Party of its obligations under that provision or under any other provision of this Agreement. XXV. SEVERABILITY It is understood and agreed by the Parties that if any part, term or provision of this Agreement is held by a court of competent jurisdiction to be illegal or unenforceable or both, the Parties desire that the court of competent jurisdiction reform that part, term or provision in such a manner as to approximate the intent of the Parties as expressed in this Agreement, and the validity of the remaining portions or provisions shall not be affected. XXVI. FURTHER ASSURANCES The Parties shall execute such further agreements, conveyances and other documents as may be reasonably requested by any Party to effectuate the intent and any provisions of this Agreement. 21 XXVII. CONFIDENTIALITY 27.01 INFORMATION. Except as otherwise provided in this Agreement, all information obtained in connection with the performance of this Agreement shall be the exclusive property of the Parties and shall not be disclosed, whether by press release or otherwise, to third Parties other than Affiliates that have a bona fide need to be informed and that undertake to abide by this Article XXVII, without the prior written consent of the other Parties. Consent shall not be unreasonably withheld. Each Party shall be bound by the confidentiality provisions of this Article XXVII until the Property is surrendered pursuant to Article XV above or until one year after termination of this Agreement, whichever occurs first. 27.02 DISCLOSURE PURSUANT TO LAWS OR REGULATIONS. Nothing contained in this Article XXVII shall prohibit either Party from furnishing to any governmental agency to which it is subject, any information that it believes in good faith is required to be so furnished or required to be disclosed by pertinent law or regulation. A Party making such disclosure shall use its best efforts to restrict, to the full extent permitted by such law or regulation, its distribution. 27.03 DISCLOSURE FOR PURPOSES OF SALE OR TRANSFER OF AN INTEREST. Nothing in this Article XXVII shall prohibit a Party from furnishing to any entity with which it is in good faith negotiating for the sale of its interest such information as may reasonably be required by such entity. The intended recipient of such information shall be required to give a written secrecy commitment that the information will not be disseminated to any persons other than those involved directly in the evaluation of the proposed acquisition and that the information will not be utilized for any purpose other than the evaluation of the proposed acquisition. 27.04 PUBLIC ANNOUNCEMENTS. The Parties will consult with each other before issuing any press releases or otherwise making any public statements with respect to this Agreement and the transactions contemplated hereby and none of them shall issue any such press release or make any such public statement prior to such consultation except, in the case of each Party, as may be required by law or by obligations pursuant to any listing agreement with any national securities exchange. 27.05 COPIES OF INFORMATION AND/OR RELEASES TO PARTIES. Complete copies of information disclosed and/or released pursuant to this Article XXVII shall be sent to each Party at the time of disclosure and/or release. 27.06 FILING AND RECORDING. Notwithstanding anything contained to the contrary in this Article XXVII, the Policy Committee, with the consent of all Parties, shall cause to be recorded, in such manner and at such times and in such places, such instrument or instruments as, in the opinion of legal counsel, may be necessary to preserve the validity of the right of first refusal created by Section 17.03, or any other rights created under this Agreement. XXVIII. INTEREST Notwithstanding anything to the contrary contained in this Agreement, no interest shall be payable pursuant to this Agreement at a rate or in an amount in excess of that allowed under applicable law. XXIX. LAWS AND REGULATIONS This Agreement shall be subject to all valid and applicable laws, rules and regulations. XXX. ENTIRE AGREEMENT This Agreement takes precedence over all correspondence and written or oral agreements among any two or more of the Parties prior to the Effective Date covering the subject matter of this Agreement and not specifically identified and incorporated in this Agreement. No agent or representative of any Party has authority to make, and the Parties shall not be bound by, or be liable for, any statement, representation, promises or agreement not specifically set 22 forth in this Agreement. No changes, amendments or modifications of the terms of this Agreement shall be valid unless reduced to writing and signed by the Parties. The terms and provisions of this Agreement shall survive the execution and delivery of any and all instruments of assignment provided for in this Agreement. XXXI. INUREMENT Subject to the provisions of Article XVII above, the terms, conditions, covenants and agreements contained in this Agreement shall extend to, be binding upon, and inure to the benefit of the successors and assigns of the Parties. EXECUTED as of the date first written above. WITNESSES: FREEPORT-MCMORAN RESOURCE PARTNERS, LIMITED PARTNERSHIP /s/ John M. Ackerman - ------------------------------ /s/ Scarlett L. Navia By: /s/ Robert B. Foster - ------------------------------ --------------------------- Robert B. Foster, President FREEPORT SULPHUR DIVISION IMC FERTILIZER, INC. /s/ Denise H. Hieber - ------------------------------ /s/ Peter Aucoin By: /s/ James L. Frye - ------------------------------ --------------------------- James L. Frye, Vice President, Special Projects and Uranium Marketing FELMONT OIL CORPORATION /s/ Arlene Murdock - ------------------------------ /s/ Leslie A. Thepocki By: /s/ Leroy L. Wal - ------------------------------ --------------------------- Leroy L. Wal Vice President 23 EX-10.6 14 AGREEMENT TO COORDINATE OPERATING AGREEMENTS AGREEMENT TO COORDINATE OPERATING AGREEMENTS ---------------------------------------- THIS AGREEMENT (the "Agreement") made and entered into between Freeport- McMoRan Resource Partners, Limited Partnership, a Delaware limited partnership (sometimes "FMRP" and sometimes "Operator") , IMC Fertilizer, Inc., a Delaware corporation ("IMC") , and Felmont Oil Corporation, a Delaware corporation ("Felmont"), FMRP, IMC and Felmont hereinafter each a "Party" and collectively the "Parties", as the owners in indivision in the percentages, respectively, of 58.33%, 25%, and 16.67% of the following described rights and interests: A. That certain Sulphur and Salt Lease, designated by Serial No. OCS-G 9372, granted effective as of May 1, 1988 by the United States Department of the Interior, Minerals Management Service, as Lessor, to Freeport-McMoRan Resource Partners, Limited Partnership, IMC Fertilizer, Inc., and Felmont Oil Corporation, as Lessee, covering lands described as follows: All of Block 299, Main Pass Area, South and East Addition, OCS Leasing Map, Louisiana Map No. 10A. hereinafter referred to as the "Sulphur Lease"; B. That certain Oil and Gas Lease, designated by Serial No. OCS-G 1316A, granted by the United States of America, as lessor, to Freeport- McMoRan Resource Partners, Limited Partnership, as lessee, effective June 5, 1990, covering and affecting the therein described portion of Block 299, Main Pass Area, South and East Addition, as shown on official leasing map La. No. 10A, Outer Continental Shelf Leasing Map, Louisiana Offshore operations. which lease is hereinafter referred to as the "Oil and Gas Lease", to-wit: WHEREAS, the Parties entered into an operating agreement dated May 1, 1988, designating FMRP as Operator, governing their exploration, development, production and transportation of sulphur under the Sulphur Lease, such operating agreement hereinafter being referred to as the "Sulphur Agreement"; and WHEREAS, the Parties entered into an operating agreement dated of even date herewith, designating FMRP as the Operator, governing their exploration, development, production and transportation of oil and gas under the Oil and Gas Lease, said operating agreement hereinafter being referred to as the "Oil and Gas Agreement"; and WHEREAS, the Parties recognize that the development and production of oil and gas from the Oil and Gas Lease in certain respects will be unusual and different from oil and gas operations normally conducted Offshore Louisiana due to the shallow subsea depth of the oil and gas reserves, the location of oil and gas reserves on top of a salt dome and in the same formations, horizons and zones in which sulphur deposits are present and from which sulphur is to be mined and produced along with the oil and gas, and that the technical and engineering problems likely to be encountered in the operations and facilities for the development and production of oil and gas from the Oil and Gas Lease may involve or require technology which is unusual and novel with respect to oil and gas operations Offshore Louisiana, the results of which have not been proven by usage or experience: and WHEREAS, it is the desire and intent of the Parties that such oil and gas reserves be developed and produced in coordination with the sulphur reserves, utilizing the technology and facilities which are customary for the development and production of sulphur and for the development and production of oil and gas, it being recognized, however, that it is necessary for the operations for the development and production of the sulphur reserves and the oil and gas reserves to be closely coordinated to insure the optimum total net value of the combined sulphur reserves and oil and gas reserves consistent with safety and conservation of the natural resources. NOW, THEREFORE, in consideration of the premises, and for the mutual benefit of the Parties hereto, the Parties agree that they will coordinate the exploration, development, production and transportation under the Sulphur Lease and the Oil and Gas Lease in accordance with the terms of the Sulphur Agreement and the oil and Gas Agreement, respectively, by modifying and amending those agreements as hereinafter set out. A. UNITY OF OWNERSHIP The Parties recognize that continuity of the joint ownership among themselves, their successors and assigns, is essential to the efficient operation of the above described leases with the undivided interest owned by each Party being and remaining identical in both the Sulphur Lease and the Oil and Gas Lease. To that effect, no Party shall sell, assign, transfer or otherwise dispose of its interest in either the Sulphur Lease or the Oil and Gas Lease, or in any agreements relating to the ownership of, operations on or production from such leases, including the Sulphur Agreement and the Oil and Gas Agreement, unless it simultaneously sells, assigns, transfers or otherwise disposes to the acquiring party an identical interest in the other lease and related agreements. Any sale, assignment, transfer or other disposition by a Party shall be made under the terms and provisions of the respective Operating Agreements and must specifically be made subject thereto as such agreements are modified and amended herein. Notwithstanding any of the foregoing, this paragraph shall not be construed to prevent a party from granting a mortgage, pledge or other security interest affecting one but not the other of (i) the Sulphur Lease and related agreements and (ii) the Oil and Gas Lease and related agreements, nor shall it be construed to prevent a party from assigning, pledging or granting a security interest in such party's share of sulphur or oil and gas production or the proceeds therefrom. B. COORDINATING POLICY COMMITTEE The Parties shall establish a Coordinating Policy Committee ("CPC") to be composed of one representative designated by each Party which is a party to both the Sulphur Agreement and the Oil and Gas Agreement, for the purpose of coordinating the exploration, development, production, transportation and abandonment operations under the Sulphur Lease and the Oil and Gas Lease in the manner hereinbelow provided. A representative designated pursuant to this provision shall serve until replaced by the Party that designated such representative. Each Party also may designate one or more alternates for any representative designated by it. An alternate shall exercise voting rights only in the event of a representative's absence. Each representative may bring to CPC meetings such advisors as the representative deems necessary or desirable; however, such advisors shall have no right to vote on matters before the CPC. Each Party promptly shall advise the other Parties in writing as to the names and addresses of its representative and alternate representative who shall have the authority to represent and bind the advising Party with respect to any matter to be acted upon by the Policy Committee. A Party's representative or alternate representative may be changed from time to time upon written notice to the other Parties. The Operator for each Operating Agreement will submit to the CPC the Work Plan and Budget for the following calendar year for the particular operating agreement as soon as it is approved, but not later than November 15th of each year. The CPC will review such Work Plans and Budgets to be assured that there are no provisions therein which would result in a conflict between the two operations, and, in such event, will approve and adopt such Work Plans and Budgets. Should the CPC believe that there is a conflict or a potential conflict between the two Work Plans and Budgets, it shall work to an acceptable modification of one or both so as to remove such conflict or potential conflict and, thereupon, shall approve and adopt both Work Plans and Budgets as modified. Should the Parties to either operating agreement be unable to agree on the Work Plan and Budget for the following calendar year by November 15th of the preceding year, the alternate proposals shall, at that time, be referred to the CPC which shall work to the resolution thereof and the approval of the particular Work Plan and Budget. Upon such approval, the CPC shall proceed to a review of both Work Plans and Budgets for possible conflicts, approving both if no conflict is found or, in the event of a potential conflict, working to an acceptable modification one or both of the Work Plans and Budgets so as to remove such conflict as potential conflict and, thereupon, shall approve and adopt both Work Plans and Budgets as modified. The Work Plan and Budget for the Sulphur Lease for all of the calendar year of 1990 has been approved and adopted by the Parties and the Work Plans and Budgets for the Oil and Gas Lease for the calendar years of 1990 and 1991 have been approved and adopted by the Parties, and such Work Plans and Budgets are to be implemented as approved and adopted. The CPC shall also approve all supplements and revisions to the Work Plans and Budgets, and the actions taken to wind up the activities and operations on either lease under the provisions of its applicable operating agreement, all in the manner provided above. Special meetings shall be called by operator as and when the operator should deem necessary. Any other Party shall have the right to call a special meeting provided that no such special meeting shall be called sooner than three months after the last such special meeting. During the fifth month of each Budget Year the operator shall call an advisory meeting for the sole purpose of informing the CPC of the progress of operations for the current Budget Year to date. The Parties shall attend all regular, special and advisory meetings of the CPC. All meetings shall be held at Operator's offices, unless all Parties agree to another location. Written notice of the time and place of each regular, special and advisory meeting, shall be submitted by the Operator to the Parties, not less than 15 days before any such meeting, unless such requirement of notice is waived in writing by the Parties. The holding of any advisory meeting may be waived provided all Parties consent to such waiver. The designated representative, or alternate, of operator shall act as chairman at all CPC meetings. Each Party shall bear its own cost of attendance. If Operator deems it necessary for any personnel who are assigned duties in connection with the conduct of operations to attend any meeting, the additional cost incurred therefor shall be charged to the Joint Account of the operating agreement on whose behalf such personnel is appearing. Only those Parties owning an interest of ten percent (10%) or more in both leases may vote on matters before the CPC. CPC approval of any matter requiring CPC approval hereunder, shall require the vote of Operator and the vote of at least one other Party entitled to vote which is not an affiliate of Operator; provided, however, that if only one Party other than Operator should be entitled to vote then CPC approval of any such matter shall require only the vote of Operator. With respect to any matter submitted for CPC approval, should Operator be unable to obtain a concurring vote to its proposal of at least one other party entitled to vote, then in such event all Parties entitled to vote shall continue good faith negotiations to resolve outstanding differences. In the event the CPC is unable to secure approval of proposed Work Plans and Budgets within 60 days, the Operator shall submit alternate proposed Work Plans and Budgets and the Parties shall vote and negotiate thereon until approval is obtained. In any event, until CPC approval of Work Plans and Budgets, Operator is authorized to continue operating the Sulphur Lease for the joint account of the Sulphur Agreement in accordance with its latest approved Work Plan and Budget, and to continue operating the Oil and Gas Lease in the manner provided in the second paragraph of Section 8.5 of the Oil and Gas Agreement. No formal CPC approval shall be necessary for such expenditures or for such operations. Upon approval of the Work Plans and Budgets they shall be implemented and followed. In lieu of deciding any matter at any meeting, the CPC (a) may act by instrument(s) in writing signed by the representative of each Participating Interest Owner, which instrument(s) (in one or more counterparts) shall be conclusively deemed to be the act of the CPC, or (b) by telephone communication provided that such action is unanimous and is confirmed in writing by each Party or each Party's representative. A Work Plan and Budget for both the Sulphur Lease and the Oil and Gas Lease must be adopted by the CPC before the adoption of either Work Plan and Budget shall become effective. At such time as a Work Plan and Budget for both the Sulphur Lease and the Oil and Gas Lease have been adopted by the CPC, it shall be binding on all Parties as adopted and shall then be implemented as to each the Sulphur Lease and the Oil and Gas Lease under the terms and conditions provided therefor in the Sulphur Agreement and the Oil. and Gas Agreement, respectively, and may not be changed except by action of the CPC provided for herein. Each capitalized term herein shall have the same meaning as in the Oil and Gas Agreement unless such term is defined herein or a different meaning is otherwise clearly indicated. C. DEFAULTS Reference is made to Article XIX of the Sulphur Agreement and to Article XXI of the Oil and Gas Agreement. The Parties agree that a default under the Sulphur Agreement by any Participating Interest Owner (as defined therein), which activates the provisions of the second paragraph of Article XIX thereof shall be grounds for a default under the provisions of Article XXI of the Oil and Gas Agreement, but with the sole and limited effect of conferring on the Operator of the Sulphur Agreement the right under the provisions of Section 21.2 of the oil and Gas Agreement ("Section 21.2") to have the proceeds from the sale of production of oil and gas accruing to the defaulting party paid to the operator of the Oil and Gas Agreement and remitted to the Operator of the Sulphur Agreement in discharge of the defaulting Participating Interest Owner's unpaid share of the Joint Expenses under the Sulphur Agreement. The Operator of the Sulphur Agreement may exercise such right by requesting in writing that the operator of the Oil and Gas Agreement collect from purchasers of oil and gas the proceeds identified in Section 21.2 and remit the proceeds to the Operator of the Sulphur Agreement; provided, however, that no such collection or remittance of proceeds shall occur unless the defaulting party receives at least fifteen (15) days prior written notice thereof from the Operator of the Oil and Gas Agreement and does not cure the default within such fifteen (15) day period. Neither the Operator of the Sulphur Agreement nor the Operator of the Oil and Gas Agreement shall have any other right or remedy with respect to the working interest or interests in the Property of the defaulting party under the Oil and Gas Agreement as a consequence of a default under the Sulphur Agreement, nor shall any default under the Sulphur Agreement give rise under any circumstances to any foreclosure, or the like, or the defaulting party's working interest or interests in the Property under the Oil and Gas Agreement. Conversely, the Parties agree that a default of any party under the Oil and Gas Agreement which activates the provisions of Section 21.2 shall be grounds for a default under the provisions of the second paragraph of Article XIX of the Sulphur Agreement, but with the sole and limited effect of conferring on the operator of the Oil and Gas Agreement the right to have sold the defaulting party's share of sulphur produced after the notice of default provided for in such paragraph is given, and the proceeds from such sale remitted to the Operator of the Oil and Gas Agreement in discharge of such defaulting party's delinquent obligations under the Oil and Gas Agreement. The Operator of the Oil and Gas Agreement may exercise such right after expiration of the fifteen (15) day period provided for in Section 21.2 by requesting in writing that the Operator of the Sulphur Agreement sell such defaulting party's share of such sulphur and remit the proceeds from such sale to the Operator of the Oil and Gas Agreement; provided, however, that no such sale or remittance shall take place unless the defaulting party has received at least fifteen (15) days prior written notice of such sale from the Operator of the Sulphur Agreement and does not cure the default within such fifteen (15) day period. Neither the operator of the Oil and Gas Agreement nor the Operator of the Sulphur Agreement shall have any other right or remedy with respect to the Participating Interest or share of sulphur of the defaulting party arising as a consequence of a default under the Oil and Gas Agreement, nor shall any default arising under the oil and Gas Agreement give rise under any circumstances to any forfeiture, foreclosure, or the like, of the defaulting party's Participating Interest under the Sulphur Agreement. Neither the Operator of the Sulphur Agreement nor of the oil and Gas Agreement shall be required to comply with the request from the other pursuant to this subparagraph C, if a defaulting party is in default under both Agreements. Any Operator may cease honoring such a request from the other Operator at such time as any party in default under one Agreement defaults under the other. It is the intention of the Parties hereto that each Operator shall have priority in enforcing default under its Agreement against one of its own participating Interest Owners or parties, as the case may be. D. CONFLICTS To the extent necessary, the Sulphur Agreement and the Oil and Gas Agreement are amended and modified to conform with the terms and provisions hereof. Consequently, in the event of any conflict between the terms and provisions of this Agreement and those of either the Sulphur Agreement or the Oil and Gas Agreement, the terms and provisions of this Agreement shall prevail. E. GENERAL PROVISIONS (a) This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns. This Agreement may not be assigned by any Party without the written consent of all other Parties being first had and obtained, except any assignments that are consistent with assignments made pursuant to the Sulphur Agreement and the Oil and Gas Agreement. (b) In the event that the interests of any Party in the Sulphur Lease and the Oil and Gas Lease become subject to separate ownership as the result of the foreclosure of any separate mortgage, pledge, or security interest permitted under Section A hereof or as a result of the transfer of any interest in the Sulphur Lease or the Oil and Gas Lease by deed in lieu of foreclosure of any separate mortgage, pledge, or security interest permitted under Section A hereof, this Agreement shall remain in full force and effect and shall remain binding upon all other Parties. Further, in the event that a single entity subsequently becomes the owner of such separate interests in the Sulphur Lease and the Oil and Gas Lease, such entity shall be a Party hereunder and this Agreement shall be binding upon such Party. (c) This Agreement shall be considered an amendment to both the Sulphur Agreement and the Oil and Gas Agreement and may not be amended except by an agreement in writing executed by all the Parties. (d) This Agreement shall be construed and enforced in accordance with the laws of the State of Louisiana and the United States. EXECUTED this 5th day of June, 1990, but effective as of the 5th day of June, 1990. FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP By: /s/ Robert B. Foster ----------------------------- Robert B. Foster Senior Vice-President IMC FERTILIZER, INC. By: /s/ R. E. Jones, Jr. ----------------------------- R. E. Jones, Jr. Vice President Sulfur Operations FELMONT OIL CORPORATION By: /s/ W. J. Gedwed ----------------------------- W. J. Gedwed Executive Vice President EX-10.7 15 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT dated as of October 22, 1994 between FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP and PENNZOIL COMPANY TABLE OF CONTENTS Page ---- ARTICLE 1 DEFINITIONS 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2 PURCHASE AND SALE 2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.3 Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.4 Excluded Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.5 Assignment of Contracts and Rights. . . . . . . . . . . . . . . . . . . 17 2.6 Other Sulphur Properties. . . . . . . . . . . . . . . . . . . . . . . . 17 2.7 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.8 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.9 Allocation of Purchase Price for Tax Purposes . . . . . . . . . . . . . 20 2.10 Liquid Sulphur Inventory Adjustment. . . . . . . . . . . . . . . . . . 21 2.11 Tampa Average Sulphur Price . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PENNZOIL 3.1 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . 24 3.2 Corporate Authorization . . . . . . . . . . . . . . . . . . . . . . . . 25 3.3 Governmental Authorization. . . . . . . . . . . . . . . . . . . . . . . 25 3.4 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.5 Required Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.7 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . . . . 26 3.8 Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 3.9 Sufficiency of the Purchased Assets . . . . . . . . . . . . . . . . . . 30 3.10 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . 30 3.11 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.12 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.13 Licenses and Permits. . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.14 Insurance Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . 32 i Page ---- 3.15 Compliance with Laws and Court Orders . . . . . . . . . . . . . . . . . 33 3.16 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 3.17 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . 33 3.18 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.19 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.21 Customers and Suppliers.. . . . . . . . . . . . . . . . . . . . . . . . 35 3.22 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.23 Representations Cumulative. . . . . . . . . . . . . . . . . . . . . . . 36 3.24 Scope of Representations of Pennzoil. . . . . . . . . . . . . . . . . . 36 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF FRP 4.1 Organization and Existence. . . . . . . . . . . . . . . . . . . . . . . 36 4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.3 Governmental Authorization. . . . . . . . . . . . . . . . . . . . . . . 37 4.4 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.5 Required Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.7 Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . . . . 37 4.8 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 4.9 Compliance with Laws and Court Orders . . . . . . . . . . . . . . . . . 38 4.10 Main Pass Production Cost . . . . . . . . . . . . . . . . . . . . . . . 38 4.11 Representations Cumulative. . . . . . . . . . . . . . . . . . . . . . . 38 4.12 Scope of Representations of FRP. . . . . . . . . . . . . . . . . . . . 38 ARTICLE 5 COVENANTS OF PENNZOIL 5.1 Conduct of the Business . . . . . . . . . . . . . . . . . . . . . . . . 39 5.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.3 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.4 Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . . . 42 5.5 Noncompetition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.6 Trademarks; Trade Names . . . . . . . . . . . . . . . . . . . . . . . . 44 5.7 Environmental Obligations . . . . . . . . . . . . . . . . . . . . . . . 44 5.8 Damage, Destruction or Condemnation . . . . . . . . . . . . . . . . . . 48 ii Page ---- 5.9 Gas Supply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5.10 Transition Services Agreement . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 6 COVENANTS OF FRP 6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 6.2 Marketing Solid Sulphur . . . . . . . . . . . . . . . . . . . . . . . . 50 6.3 Prepaid Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE 7 COVENANTS OF BOTH PARTIES 7.1 Best Efforts; Further Assurances. . . . . . . . . . . . . . . . . . . . 52 7.2 Certain Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.3 Public Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . 53 7.4 Proration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 ARTICLE 8 TAX MATTERS 8.1 Tax Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 8.2 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 8.3 Tax Cooperation: Allocation of Taxes. . . . . . . . . . . . . . . . . . 55 ARTICLE 9 EMPLOYEE BENEFITS 9.1 Employee Benefits Definitions . . . . . . . . . . . . . . . . . . . . . 55 9.2 ERISA Representations . . . . . . . . . . . . . . . . . . . . . . . . . 56 9.3 Employees and Offers of Employment. . . . . . . . . . . . . . . . . . . 57 9.4 Pennzoil's Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 58 9.5 Continuation of Certain Administrative Services and Insurance Coverage. 60 iii Page ---- 9.6 WARN Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 9.7 No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . 60 ARTICLE 10 CONDITIONS TO CLOSING 10.1 Conditions to the Obligations of Each Party. . . . . . . . . . . . . . 61 10.2 Conditions to Obligation of FRP. . . . . . . . . . . . . . . . . . . . 61 10.3 Conditions to Obligation of Pennzoil . . . . . . . . . . . . . . . . . 62 ARTICLE 11 SURVIVAL; INDEMNIFICATION 11.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 11.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 11.3 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 ARTICLE 12 TERMINATION 12.1 Grounds for Termination. . . . . . . . . . . . . . . . . . . . . . . . 65 12.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . 66 ARTICLE 13 MISCELLANEOUS 13.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 13.2 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . 67 13.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 13.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 68 13.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 13.6 Counterparts; Effectiveness. . . . . . . . . . . . . . . . . . . . . . 68 13.7 Entire Agreement; Third Party Beneficiaries. . . . . . . . . . . . . . 68 13.8 Bulk Sales Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 13.9 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 iv ASSET PURCHASE AGREEMENT AGREEMENT dated as of October 22, 1994 between Freeport-McMoRan Resource Partners, Limited Partnership, a Delaware limited partnership ("FRP"), and Pennzoil Company, a Delaware corporation ("PENNZOIL"), W I T N E S S E T H : WHEREAS, Pennzoil conducts a sulphur mining and marketing business through Pennzoil Sulphur Company, a division of Pennzoil (the "BUSINESS"); WHEREAS, FRP desires to purchase substantially all of the assets of the Business (other than the Excluded Assets) from Pennzoil, and Pennzoil desires to sell substantially all of such assets of the Business to FRP, upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements herein contained, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS a. DEFINITIONS. The following terms, as used herein, have the following meanings: "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such other Person, with the concept of control in such context meaning the possession of the power to direct or cause the direction of the management and policies of another, whether through the ownership of voting securities, by contract or otherwise. "BALANCE SHEET" means the unaudited balance sheet of the Business as of June 30, 1994 that is referred to in Section 3.6. "BALANCE SHEET DATE" means June 30, 1994. "BASE COST" means $13,233,000 which is the product of (i) $44.11 (the current per ton cash cost of Main Pass sulphur production FOB Tampa Terminal through August 31, 1994) and (ii) 300,000. "BASE PAD SULPHUR" means (i) all solid sulphur in the sulphur vats at the Galveston Facility that is below the surface defined by a grid of elevations which originate at the outer edge of the stored blocks and proceed along the line separating the bottom of the stored blocks and the top of the sulphur foundation and (ii) all formed berms and aprons located outside the perimeter of the sulphur blocks in the sulphur vats at the Galveston Facility. "BASE SULPHUR INVENTORY" means 90,000 long tons of sulphur, net of any sulphur owned by parties other than Pennzoil and any sulphur that is sold on Pennzoil's books as of the Closing Date, consisting of 30,000 long tons at the Tampa Facility, 39,000 long tons at the Galveston Facility, 16,000 long tons at the Culberson Facility and 5,000 long tons of Pennzoil at Savannah, in each case net of any sulphur owned by parties other than Pennzoil and any sulphur that is sold on Pennzoil's books as of the Closing Date (the "TAMPA BASE SULPHUR INVENTORY", the "GALVESTON BASE SULPHUR INVENTORY", the "CULBERSON BASE SULPHUR INVENTORY" and the "SAVANNAH BASE SULPHUR INVENTORY", respectively). "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time and any rules or regulations promulgated thereunder. "CLOSING DATE" means the date of the Closing. 2 "CONVEYANCE, ASSIGNMENT, BILL OF SALE AND ASSUMPTION AGREEMENT" means the Conveyance, Assignment, Bill of Sale and Assumption Agreement between FRP and Pennzoil to be dated the Closing Date in substantially the form attached hereto as Exhibit A. Pennzoil and FRP agree that this Conveyance is a master form of conveyance and that for purposes of recordation, counterpart forms of the Conveyance may be prepared that refer to properties outside the county, parish or state where that Conveyance is to be recorded and contain such other variations from the master Conveyance as the parties agree upon. "CULBERSON UNIT" means the pooled unit created by the Culberson Unit Agreement. "CULBERSON UNIT AGREEMENT" means the Sulphur Unitization Agreement dated as of January 7, 1969, by and among Duval Corporation and certain royalty owners, filed for recordation on May 12, 1970, with the Clerk, County Court, Culberson County, Texas, in volume 7 at page 389 of the Mineral Records of Culberson County, Texas. "CULBERSON FACILITY" means (i) Pennzoil's facilities on the Culberson Unit for producing, processing, storing and loading sulphur and (ii) all related wells, buildings, fixtures and equipment. "CUMULATIVE INFLATION ADJUSTMENT" means, for any Option Date, the sum of the Inflation Adjustments for each Quarterly Period ending on or before such Option Date. "DEBT" means, with respect to any Person, (i) indebtedness of such Person for borrowed money, (ii) indebtedness for the deferred purchase price of services or property, (iii) obligations of such Person under leases which have been, or, in accordance with generally accepted accounting principles, should be, recorded as capitalized leases, (iv) indebtedness of such Person consisting of unpaid reimbursement obligations in respect of all outstanding drawings under letters of credit issued for its account and (v) Debt of others guaranteed by such Person. "DEED OF TRUST" means the Deed of Trust, Mortgage, Security Agreement, Financing Statement, and Assignment of Production between FRP and Pennzoil to be dated the Closing Date in substantially the form attached hereto as Exhibit B. 3 "ENVIRONMENTAL INVESTIGATION OR AUDIT" means, without limitation, any final audits, studies, reports and monitoring data relating to any Regulated Environmental Activity, conducted internally (for purposes other than day-to-day routine monitoring and data analysis) or by outside consultants or engineers, but shall not include publicly available studies or reports submitted to regulatory agencies. "ENVIRONMENTAL LAWS" means any and all Laws relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into the environment including without limitation ambient air, surface water, ground water or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof. "ENVIRONMENTAL LIABILITIES" means any and all liabilities arising in connection with the Business, the Purchased Assets or activities or operations occurring or conducted at the Real Property (including without limitation offsite disposal and failure to have any required Environmental Permits), whether accrued, contingent, absolute, determined, determinable or otherwise, actual or potential, known or unknown, which (iii) arise under or relate to Environmental Laws (including without limitation any matter disclosed or required to be disclosed in SCHEDULE 3.20(a)) and (iv) relate to actions occurring or conditions existing on or prior to the Closing Date. "ENVIRONMENTAL PERMITS" means all permits, licenses, authorizations, certificates and approvals of Governmental Authorities relating to or required by Environmental Laws and necessary or proper for the Business as currently conducted. "GALVESTON FACILITY" means (i) Pennzoil's facility in Galveston County, Texas, located on the Galveston County Real Property described in SCHEDULE 3.8(a), for receiving, storing, and loading sulphur and (ii) all related buildings, fixtures and equipment. "GOOD TITLE" means (i) with respect to all Purchased Assets other than Mineral Interests, good and marketable title to the Purchased Assets, free and clear of all Liens, except 4 Permitted Liens, or in the case of leased Real Property, valid leasehold interests in the Purchased Assets, and (ii) with respect to the Mineral Interests in the Culberson Unit, such title that (A) entitles Pennzoil to receive all of the Net Revenue Interest set forth on SCHEDULE 3.8(b) with respect to the Minerals produced from or allocated to the Mineral Interests in the Culberson Unit, or of the full proceeds from the sale or other disposition of such Minerals; (B) obligates Pennzoil to bear a proportion of the costs and expenses relating to operations on, and the maintenance and development of, the Mineral Interests in the Culberson Unit, not greater than the Working Interest set forth on SCHEDULE 3.8(b); and (C) is free and clear of Mineral Title Defects and Liens, except the Permitted Liens. "GOVERNMENTAL AUTHORITY" means the United States of America, any state thereof, and any political subdivision of the foregoing, including but not limited to any court, federal, state or local governmental or regulatory body, agency, official or authority. "HAZARDOUS SUBSTANCES" means any toxic, radioactive, corrosive or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics, regulated as such under Environmental Laws. "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "INFLATION ADJUSTMENT" means, for any Quarterly Period, the product of (i) the Base Cost, (ii) an amount obtained by subtracting one from the PPI Factor for such Quarterly Period and (iii) the Inflation Sharing Ratio for such Quarterly Period. "INFLATION SHARING RATIO" means, for any Quarterly Period, the ratio shown under the column "Inflation Sharing Ratio" on SCHEDULE 1.1 next to the applicable Tampa Average Sulphur Price for that Quarterly Period; PROVIDED that if the Tampa Average Sulphur Price for a Quarterly Period falls between any two prices shown on SCHEDULE 1.1, the Inflation Sharing Ratio for that Quarterly Period will be determined by interpolation 5 between the "Inflation Sharing Ratio" amounts shown on SCHEDULE 1.1 for those two prices. "KNOWLEDGE" of any party means actual knowledge of its officers and senior managers, including, in the case of Pennzoil, the officers and senior managers of the Business (grade 5 or higher) responsible for the principal operating and administrative functions of the Business. "LAW" means any law, statute, judicial decision, ordinance, decree, requirement, order, judgment, injunction, rule or regulation of, including the terms of any license or permit issued by, any Governmental Authority. "LIEN" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance, limitation, preferential right to purchase, consent to assignment, irregularity, burden, defect or other adverse claim of any kind in respect of such property or asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien, not only a property or asset owned directly by that Person but also any property or asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset. "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, assets, condition (financial or otherwise), result of operations of the Business (other than the Excluded Assets) taken as a whole. "MINERAL TITLE DEFECT" means a Lien, fact, circumstance or occurrence that renders incorrect or untrue any of the representations or warranties of Pennzoil in Section 3.8(i) of this Agreement. "NET REVENUE INTEREST" means the interest of Pennzoil, expressed as a percentage, in the Minerals produced from or allocated to a Mineral Interest, or in and to the full proceeds from the sale or other disposition of such Minerals, after deducting applicable Production Burdens. "1934 ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 6 "OPTION DATE" means the fourth anniversary of the Closing Date (the "First Option Date") and each subsequent third anniversary of the First Option Date. "OPTION PRICE" means, for any Option Date, an amount equal to (i) $65,000,000 less (ii) the Cumulative Inflation Adjustment on that Option Date; PROVIDED that in no event will the Option Price be less than $10,000,000. "PERMITTED LIENS" means (i) lessors' royalties and the terms and conditions of the Mineral Interests; (ii) Liens for taxes not yet due and payable; (iii) operators' liens or mechanics' or materialmen's liens for amounts not yet due and payable, arising in the ordinary course of business and incidental to the incurrence of reasonable expenses with respect to the Mineral Interests; (iv) easements, rights of way, servitudes, permits or surface leases on, over or in respect of the Mineral Interests, including those described in Schedule 3.8(a), Exhibit C, or elsewhere in this Agreement or its schedules that singly or in the aggregate do not affect the operation or value of the Mineral Interests in any material respect; (v) such sales contracts, operating agreements, unitization and pooling agreements and other similar agreements as are customarily found in connection with properties comparable to the Mineral Interests, none of which, singly or in the aggregate, affects the operation or value of the Mineral Interests in any material respect; (vi) all consents by, notices to, filings with or other actions by Governmental Authorities in connection with the transfer of state or federal leases or interests therein if the same are customarily obtained subsequent to such transfer; and 7 (vii) minor irregularities of title affecting any Mineral Interest that a reasonable, prudent operator would consider immaterial or waive as a title defect. "PERSON" means an individual, corporation, partnership, association, trust or other entity or organization, including a Governmental Authority. "PPI FACTOR" means, for any Quarterly Period, the amount obtained by dividing (i) the producer price index for finished goods (the "PPI"), as reported in PRODUCER PRICE INDEXES (or any successor publication) published by the U.S. Bureau of Labor Statistics, for the last month in such Quarterly Period by (ii) the PPI for October 1994; PROVIDED that if the PPI Factor as so calculated for any Quarterly Period would be less than one, the PPI Factor for that Quarterly Period shall be deemed to be one. "PRODUCTION BURDEN" means a royalty interest, overriding royalty interest, production payment interest, net profit interest or other similar interest that constitutes a burden on, or is measured by or is payable out of the production of, Minerals or the proceeds realized from the sale or other disposition of Minerals. "QUARTERLY INSTALLMENT PAYMENT" means, for any Quarterly Period, the amount shown on SCHEDULE 1.1 under the column "Quarterly Installment Payment" next to the Tampa Average Sulphur Price for that Quarterly Period; PROVIDED that: (i) if the Tampa Average Sulphur Price for a Quarterly Period falls between any two prices shown on SCHEDULE 1.1, the Quarterly Installment Payment for that Quarterly Period will be determined by interpolation between the "Quarterly Installment Payment" amounts shown on SCHEDULE 1.1 next to those two prices; (ii) if the first and/or last Quarterly Period covers only a portion of a full calendar quarter, the Quarterly Installment Payment for that Quarterly Period will be determined by multiplying the Quarterly Installment Payment that would be payable if that Quarterly Period covered a full calendar quarter by a fraction of which (A) the numerator is the number of days in that Quarterly Period and 8 (B) the denominator is the number of days in the full calendar quarter of which that Quarterly Period is a part; and (iii) if at the end of any Quarterly Period ending on or prior to the twentieth anniversary of the Closing Date, (A) FRP calculates the Quarterly Installment Payment that would be due for such Quarterly Period but for the adjustment required by this Section (iii) (such amount being referred to as the "PRE- ADJUSTMENT AMOUNT") and (B) the number of tons of sulphur with respect to which the calculation of the Pre-Adjustment Amount would be deemed to be made (the "PRO FORMA TONNAGE"), when added to the aggregate number of tons of sulphur with respect to which calculations of Quarterly Installment Payments are deemed to have been made in all previous Quarterly Periods, would exceed 18.6 million tons (such excess being referred to as the "EXCESS TONNAGE"), then the Quarterly Installment Payment for that Quarterly Period will be calculated by multiplying the Pre- Adjustment Amount by a fraction of which (I) the numerator is obtained by subtracting the Excess Tonnage from the Pro Forma Tonnage and (II) the denominator is the Pro Forma Tonnage. For purposes of this calculation, the number of tons of sulphur with respect to which a calculation of the Quarterly Installment Payment due in any Quarterly Period will be deemed to have been made is the amount shown on SCHEDULE 1.1 under the column "Deemed Quarterly Volumes" next to the Tampa Average Sulphur Price for that Quarterly Period, PROVIDED that (i) if the Tampa Average Sulphur Price for that Quarterly Period is between any two prices shown on SCHEDULE 1.1, the number of such tons shall be determined by interpolating between the Deemed Quarterly Volumes shown on SCHEDULE 1.1 next to those two prices, (ii) if the first Quarterly Period covers only a portion of a full calendar quarter, the number of tons of sulphur with respect to which a calculation of the Quarterly Installment Payment due in that Quarterly Period will be deemed to have been made will be determined by multiplying the number of such tons as to which a 9 calculation would have been made if that Quarterly Period had covered a full calendar quarter by a fraction of which (A) the numerator is the number of days in that Quarterly Period and (B) the denominator is the number of days in the full calendar quarter of which that Quarterly Period is a part. "QUARTERLY PERIOD" means a calendar quarter during the period commencing on the day after the Closing Date and ending on the earlier of (iv) the twentieth anniversary of the Closing Date and (v) the last day of the calendar quarter in which calculations of Quarterly Installment Payments are deemed to have been made with respect to an aggregate of at least 18.6 million tons of sulphur, as contemplated by Section (iii) of the definition of "Quarterly Installment Payment"; PROVIDED that if the Closing Date does not occur on the last day of a calendar quarter: (A) the first Quarterly Period will commence on the day after the Closing Date and end on the last day of the calendar quarter during which the Closing Date occurs; and (B) unless the last Quarterly Period is the period contemplated by Section (v) of this definition, the last Quarterly Period will commence on the first day of the calendar quarter in which the twentieth anniversary of the Closing Date falls and end on such twentieth anniversary. "REGULATED ENVIRONMENTAL ACTIVITY" means any generation, treatment, storage, recycling, transportation or Release of any Hazardous Substance, as such activities are regulated under Environmental Laws. "RELEASE" means any "release" as such term as defined in CERCLA at 42 U.S.C. Section 9601(22). The term "RELEASED" has a corresponding meaning. "TAMPA AVERAGE SULPHUR PRICE" means for any Quarterly Period the average market price per ton for sulphur FOB Tampa Terminal during that Quarterly Period calculated by (i) FIRST, taking the arithmetic average of the high and low Tampa Contract prices, as published in "Green Markets", for each week that is partially or wholly within that Quarterly Period (each such average being referred to as a "WEEKLY AVERAGE") and (ii) SECOND, calculating the arithmetic average of the Weekly Averages for all 10 weeks that are partially or wholly within that Quarterly Period; PROVIDED that if any Weekly Average relates to a week of which only part is within that Quarterly Period, the weight given to that Weekly Average in calculating this arithmetic average will be proportionately reduced to reflect the portion of such week that is within the Quarterly Period. If "Green Markets" ceases publication or the required prices are no longer published or if the prices published in "Green Markets" are no longer representative of prevailing contract sulphur prices in Tampa, FRP and Pennzoil shall agree on an alternative basis for determining the Tampa Average Sulphur Price in accordance with the procedures set forth in Section 2.11 of this Agreement. "TAMPA FACILITY" means (i) Pennzoil's facility in Hillsborough County, Florida, located on the Hillsborough County Real Property described in SCHEDULE 3.8(a), for receiving, storing and loading sulphur and (ii) all related buildings, fixtures and equipment. "TRANSITION SERVICES AGREEMENT" means the Transition Services Agreement between FRP and Pennzoil to be dated the Closing Date in substantially the form attached hereto as Exhibit C. "WARN ACT" means the Worker Adjustment and Retraining Notification Act. "WORKING INTEREST" means (i) the interest of Pennzoil, expressed as a percentage, in a Mineral Interest before giving effect to applicable Production Burdens and (ii) the percentage of all costs and expenses associated with the ownership, exploration, development and operation of the Mineral Interest required to be borne by Pennzoil. (b) Each of the following terms is defined in the Section set forth opposite such term: Term Section ---- ------- Accounting Referee 2.9 active employee 9.3 Allocation Statement 2.9 Applicable Price 6.2 11 Term Section ---- ------- Assumed Liabilities 2.3 Benefit Arrangements 9.2 Books and Records 2.1 Business Recitals Call Option 2.7 Call Option Notice 2.7 Closing 2.8 Closing Sulphur Inventory 2.10 Code 8.1 Conveyance Documents 2.8 Contracts 2.1 Culberson Adjustment 2.10 DTPA 3.8 employee benefit plan 9.2 Employee Plans 9.2 ERISA 9.1 ERISA Affiliate 9.1 Excluded Assets 2.2 Excluded Liabilities 2.4 Financial Statements 3.6 FRP Preamble FRP Balance Sheet 4.6 FRP Retention 11.2 Galveston Adjustment 2.10 Galveston Environmental Operations 5.7 Generated Materials 5.7 Indemnified Party 11.3 Indemnifying Party 11.3 Intellectual Property Rights 2.1 Known Remedial Conditions 5.7 Loss 11.2 Mineral Interests 2.1 Minerals 2.1 Other Sulphur Properties 2.6 Panel 2.11 Pennzoil Preamble Pennzoil Trade Names 5.6 Permit 3.13 Personal Property 2.1 Personnel Costs 9.4 Petty Cash 2.1 12 Term Section ---- ------- Post-Closing Tax Period 8.1 Pre-Closing Tax Period 8.1 Purchase Amount 6.2 Purchased Assets 2.1 Purchase Price 2.7 Put Option 2.7 Put Option Notice 2.7 RCRA 5.7 Real Property 3.8 Remedial Activities 5.7 Required Consent 3.5 Savannah Adjustment 2.10 Solid Sulphur Amount 6.2 Solid Sulphur Option Date 6.2 Storage Area 5.7 Tampa Adjustment 2.10 Tax 8.1 Transferred Employee 9.3 Transfer Date 9.3 Written Notice 2.11 ARTICLE 2 2 PURCHASE AND SALE 2.1 PURCHASE AND SALE. Except as otherwise provided below, upon the terms and subject to the conditions of this Agreement, FRP agrees to purchase from Pennzoil and Pennzoil agrees to sell, convey, transfer, assign and deliver, or cause to be sold, conveyed, transferred, assigned and delivered, to FRP at Closing all of the assets, properties and business, of every kind and description, wherever located, real, personal or mixed, tangible or intangible, owned, held or used in the conduct of the Business, as the same shall exist on the Closing Date (collectively, the "PURCHASED ASSETS"), and including without limitation: (a) all real property and leases of, and other rights, options and other interests in, real property used or 13 previously used or held for use in the conduct of the Business, other than the Mineral Interests (as defined below), in each case together with all buildings, fixtures and improvements erected thereon, and all easements, rights of way and other rights of whatever nature relating thereto, including without limitation the items listed on SCHEDULE 3.8(a) (collectively referred to as the "REAL PROPERTY"); (b) insofar as they relate to the Business, all of Pennzoil's right, title and interest in and to sulphur and other minerals ("MINERALS") in, on and under, and that may be produced from, lands subject to or included in: (i) sulphur leases, mineral leases, sulphur patents, mineral patents, patented and unpatented mining claims and awards, deeds and other instruments and agreements, including without limitation fee mineral interests, leasehold mineral interests, royalty interests, overriding royalty interests, interests in production payments, net profits interests and other rights to own, explore for, produce and market Minerals (or to receive a share of the Minerals produced or the proceeds from the sale or other disposition of the Minerals), including without limitation contract rights and reversionary interests in, to and under such instruments and agreements; (ii) unitization, unit operating, pooling, communitization and other similar agreements and orders covering the Real Property or the other Mineral Interests, and the units, pools and communitized areas formed thereunder (including without limitation units formed under orders, regulations, rules, approvals, decisions or other official acts of any Governmental Authority having jurisdiction), including without limitation the Culberson Unit; and (iii) the Real Property; including without limitation the properties listed on SCHEDULE 3.8(b), together with all other rights, titles and interests of Pennzoil in and to the lands they cover, and all easements, rights-of-way, surface rights and other rights of whatever nature relating thereto but excluding the 14 Other Sulphur Properties listed on SCHEDULE 2.6 (collectively, the "MINERAL INTERESTS," which term also refers, as the context requires, to the instruments and agreements that create and govern the Mineral Interests); (c) all of Pennzoil's right, title and interest in and to all personal property, equipment, fixtures and improvements on the Real Property or the Mineral Interests, or used or held for use in the Business (excluding the Excluded Assets), including goods, equipment, fixtures, inventory, facilities, supplies, motor vehicles and other property of every kind and nature that are used or held for use for the production, gathering, treatment, processing, storage or transportation of sulphur, other minerals, water or other substances produced therewith, together with all accessions, additions and attachments thereto, including wells, wellhead equipment, casing, tubing, tubular goods, motors, engines, pumping units, flowlines, tanks, injection facilities, chemicals, solutions, machinery, pipelines, pipes, tools, surface and subsurface equipment, storage yards and the goods stored in them, water systems (for injection, treating and disposal), power plants, power lines, buildings, furniture, office and communications equipment, computing and all computer related hardware except as provided in Section 2.2(g), transportation equipment, including all assets associated with the loading, receiving and transportation of sulphur (including rail cars, barges, tankers and marine vessels and including loading and receiving docks, equipment and facilities), storage tanks, spare and replacement parts, fuel and all trade fixtures, fixed assets and tangible property relating to or used or held for use in the Business, including without limitation the items listed on SCHEDULE 3.8(c) (collectively, the "PERSONAL PROPERTY"); (d) all raw materials, work-in-process, finished goods, supplies, Closing Sulphur Inventory and the Base Pad Sulphur relating to or used in the Business; (e) all rights under all contracts, agreements (including marketing agreements), personal property leases, licenses, commitments, sales and purchase orders and other instruments, relating to or used in the Business, including 15 without limitation the items listed on SCHEDULE 3.12(a) (collectively, the "CONTRACTS"); (f) all prepaid expenses attributable to the Business, including but not limited to ad valorem taxes, leases, rentals and industry association dues and fees; (g) all petty cash located at operating facilities of the Business ("PETTY CASH"); (h) all of Pennzoil's rights, claims, credits, causes of action or rights of set-off against third parties relating to the Purchased Assets with respect to any period on or after the Closing Date, including without limitation unliquidated rights under manufacturers' and vendors' warranties; (i) all patents, copyrights, trademarks, trade names, service marks, service names, inventions, trade secrets, know-how, processes, technologies, formulae, research, proprietary data, market and development data and libraries and computer software (including any registrations or applications for registration of any of the foregoing) and other similar types of proprietary intellectual property rights, in each case which is owned or licensed by Pennzoil or any Affiliate of Pennzoil and used or held for use in the Business (excluding the "Pennzoil" and "Duval" names and any derivative thereof, but including the right to use the "alchemist" symbol in the Pennzoil Sulphur Company logo (so long as it is not used together with the Pennzoil yellow oval or the word "Pennzoil")), including without limitation the items listed on SCHEDULE 3.17(a) (collectively, the "INTELLECTUAL PROPERTY RIGHTS"); (j) all transferable licenses, permits or other governmental authorizations affecting or relating to the Business, including without limitation the items listed on SCHEDULE 3.13; (k) all books, records, files and papers, whether in hard copy or computer format, relating to or used in connection with the Purchased Assets or the Assumed Liabilities, including without limitation engineering information, seismic records and surveys, maps and logs, 16 geological or geophysical data, sales and promotional literature, manuals and data, sales and purchase correspondence, lists of present and former suppliers, lists of present and former customers, copies of current and former contracts and other arrangements with all such customers, personnel and employment records, and any information relating to Tax imposed on the Purchased Assets ("BOOKS AND RECORDS"); and (l) all goodwill associated with the Business or the Purchased Assets. 2.2 EXCLUDED ASSETS. FRP expressly understands and agrees that the following assets and properties of Pennzoil (the "EXCLUDED ASSETS") shall be excluded from the Purchased Assets: (a) Pennzoil's facilities at Antwerp, the stock of Duval Sales International and all assets and contracts that relate primarily to Pennzoil's Antwerp operations; (b) the Solid Sulphur Amount; (c) all of Pennzoil's cash and cash equivalents on hand and in banks except for Petty Cash and all accounts, notes and other receivables attributable to the operation of the Business prior to the Closing Date; (d) insurance policies and any reserves or funds related to any employee benefit plans, programs or practices; (e) the water rights owned by Pennzoil in Jefferson Davis County; (f) the Other Sulphur Properties and those properties and contracts listed on SCHEDULE 2.2(f); (g) all personal property of Pennzoil that is located in Houston other than those items included in the Intellectual Property Rights and the Books and Records; and (h) Pennzoil's gas supply contract with Texaco Inc. 17 2.3 ASSUMED LIABILITIES. Upon the terms and subject to the conditions of this Agreement, FRP agrees, effective at the time of Closing, to assume the following liabilities (the "ASSUMED LIABILITIES"): (a) all obligations of Pennzoil to perform the Contracts after the Closing Date; (b) all liabilities arising from the ownership or operation of the Purchased Assets after the Closing Date other than the Excluded Liabilities; (c) the obligation to reimburse Pennzoil for its payments of royalties (based on Pennzoil's calculation) for all Closing Sulphur Inventory that has been produced by Pennzoil and that is conveyed to FRP on the Closing Date; PROVIDED, that Pennzoil will retain all responsibility for actually paying such royalty obligations, which responsibility shall be an Excluded Liability; (d) the obligation to reimburse Pennzoil for 50 percent of any royalties that may be payable as a result of the transfer of the Base Pad Sulphur to FRP at the Closing; provided that (i) the parties will cooperate and will use all reasonable efforts to seek to confirm that no such royalties are payable (or to minimize the amount of any such royalties) as a result of such transfer to FRP and (ii) FRP will be responsible for any royalties payable on the subsequent sale of the Base Pad Sulphur; (e) any liabilities assumed by FRP pursuant to Section 5.7; and (f) all liabilities for (i) the plugging and abandonment of sulphur wells, (ii) the shutdown or abandonment of any Purchased Assets including without limitation the removal and disposal of the sulphur vats (including the Base Pad Sulphur) at the Galveston Facility and (iii) the abatement of asbestos-insulated pipe (up to 14,000 linear feet of asbestos-insulated pipe) located in the plant area at the Culberson Facility as well as any asbestos containing material located elsewhere at the Culberson Facility. Pennzoil shall retain responsibility for such abatement for asbestos- insulated pipe in excess of 18 14,000 linear feet located in the plant area at the Culberson Facility. 2.4 EXCLUDED LIABILITIES. Notwithstanding any provision in this Agreement or any other writing to the contrary, FRP is assuming only the Assumed Liabilities and is not assuming any other liability or obligation of Pennzoil (or any predecessor owner of all or part of the Business and the Purchased Assets) of whatever nature, whether presently in existence or arising hereafter and whether accrued, contingent, absolute, determined, determinable or otherwise, actual or potential, known or unknown. All such other liabilities and obligations shall be retained by and remain obligations and liabilities of Pennzoil (all such liabilities and obligations not being assumed being herein referred to as the "EXCLUDED LIABILITIES"), and, without in any way limiting this Section 2.4, none of the following shall be Assumed Liabilities for purposes of this Agreement: (a) all accounts payable attributable to the operation of the Business prior to the Closing Date and all obligations with respect to any Debt; (b) any obligation or liability for Tax arising from or with respect to the Purchased Assets or the operations of the Business which is incurred in or attributable to the Pre-Closing Tax Period; (c) any liabilities or obligations relating to employee benefits or compensation arrangements with respect to any Pennzoil employee who is not a Transferred Employee or with respect to any Transferred Employee for any period on or prior to the Transfer Date for such Transferred Employee; (d) except as provided in Sections 2.3(e) and 2.3(f), any Environmental Liability; (e) any liability or obligation relating to an Excluded Asset; and (f) subject to Section 11.2, any other obligation or liability associated with the Business or the operation of the Purchased Assets on or prior to the Closing Date. 2.5 ASSIGNMENT OF CONTRACTS AND RIGHTS. Anything in this Agreement to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign any Purchased Asset or any claim or right or any benefit arising thereunder or resulting therefrom if an attempted assignment thereof, without the consent of a third party thereto, would constitute a breach or other contravention thereof or in any way adversely affect the rights of FRP or Pennzoil thereunder. Pennzoil and FRP will use all commercially reasonable efforts (but without any obligation on the part of Pennzoil or FRP to pay money) to obtain the 19 consent of the other parties to any such Purchased Asset or any claim or right or any benefit arising thereunder for the assignment thereof to FRP. If such consent is not obtained, or if an attempted assignment thereof would be ineffective or would adversely affect the rights of Pennzoil thereunder so that FRP would not in fact receive all such rights, Pennzoil and FRP will cooperate in a mutually agreeable arrangement under which FRP will obtain the benefits and assume the obligations thereunder in accordance with this Agreement, including sub-contracting, sub-licensing or sub-leasing to FRP, or under which Pennzoil will enforce for the benefit of FRP, with FRP assuming Pennzoil's obligations, any and all rights of Pennzoil against a third party thereto; PROVIDED, HOWEVER, that Pennzoil does not guarantee performance by any other party to a Purchased Asset. Pennzoil will promptly pay to FRP when received all monies received by Pennzoil under any Purchased Asset or any claim or right or any benefit arising thereunder, except to the extent the same represents an Excluded Asset. 2.6 OTHER SULPHUR PROPERTIES. (a) Pennzoil hereby grants FRP an exclusive option, effective from and after the date of this Agreement and through the date six months after the Closing Date, to acquire some or all of the properties listed on SCHEDULE 2.6, including the lands they cover, all interests in the surface and minerals and all appurtenant rights, interests and properties (collectively, the "OTHER SULPHUR PROPERTIES"), on the terms provided in this Section 2.6. Pennzoil represents that the Other Sulphur Properties constitute all of the properties owned by Pennzoil, other than the Real Property and the Mineral Interests described in SCHEDULES 3.8(a) OR 3.8(b), that are now predominantly sulphur prospects or properties. (b) To exercise the option, FRP must give written notice, identifying the Other Sulphur Property or Properties FRP wishes to acquire, to Pennzoil at any time from the date of this Agreement to the date six months after the Closing Date. On the date six months after the Closing Date the option shall expire, except for Pennzoil's obligation to convey the Other Sulphur Properties selected by FRP during the six-month option period. (c) Within ten days after FRP gives each such written notice to Pennzoil, Pennzoil shall convey to FRP the Other Sulphur Property or Properties selected by FRP by form of conveyance substantially in the form of the Conveyance, 20 Assignment, Bill of Sale and Assumption Agreement, but without warranty of title. FRP shall be responsible for all Environmental Liabilities that relate to the Other Sulphur Property or Properties selected by and conveyed to FRP. (d) Each such conveyance shall be made without additional consideration. 2.7 PURCHASE PRICE. (a) In consideration for Pennzoil's sale of the Purchased Assets to FRP, FRP agrees to pay to Pennzoil the Quarterly Installment Payment for each Quarterly Period, subject, however, to Section 5.6 of the Deed of Trust. The Quarterly Installment Payment payable for each Quarterly Period will be due on the date 45 days after the last day of that Quarterly Period (or, if such date is not a Business Day, the next succeeding Business Day) and will be accompanied by a schedule prepared by FRP showing, in reasonable detail, its calculation of such Quarterly Installment Payment. The obligation of FRP to make Quarterly Installment Payments as provided above is referred to herein as the "PURCHASE PRICE" for the Purchased Assets. (b) On each Option Date, FRP will have the right, by notice given to Pennzoil (a "CALL OPTION NOTICE") on or before the thirtieth day (or, if such date is not a Business Day, the next succeeding Business Day) after such Option Date, to acquire all rights to all Quarterly Installment Payments occurring after that Option Date for an amount equal to the Option Price for that Option Date (such right being referred to as the "CALL OPTION"). A Call Option Notice shall be accompanied by a schedule prepared by FRP showing, in reasonable detail, its calculation of the Option Price. If FRP delivers a Call Option Notice in respect of any Option Date, the Option Price shall be due on the date 45 days after that Option Date. Payment of the Option Price shall satisfy in full all of FRP's obligations to pay any Quarterly Installment Payments occurring after the applicable Option Date, and all rights of Pennzoil to receive any such Quarterly Installment Payments shall be extinguished. (c) If FRP does not exercise the Call Option with respect to any Option Date by delivering a Call Option Notice on or before the thirtieth day (or, if such date is not a Business Day, the next succeeding Business Day) after such Option Date, Pennzoil will have the right, by notice given to FRP (a "PUT 21 OPTION NOTICE") on or before the sixtieth day (or, if such date is not a Business Day, the next succeeding Business Day) after such Option Date, to require FRP to purchase all rights to all future Quarterly Installment Payments for an amount equal to $10,000,000 (such right being referred to as the "PUT OPTION"); PROVIDED that Pennzoil will not have any Put Option with respect to any Option Date occurring after the earliest to occur of (i) the sixteenth anniversary of the Closing Date and (ii) the date on which FRP has completed all Quarterly Installment Payments. If Pennzoil delivers a Put Option Notice in respect of any Option Date, such amount shall be due on the date 75 days after that Option Date (or, if such date is not a Business Day, on the next succeeding Business Day). Payment of the Option Price shall satisfy in full all of FRP's obligations to pay any Quarterly Installment Payments occurring after the applicable Option Date, and all rights of Pennzoil to receive any such Quarterly Installment Payments shall be extinguished. (d) Each payment under this Section 2.7 shall be made by delivery by FRP of a certified or official bank check payable in immediately available funds to Pennzoil or by causing such payment to be credited to such account of Pennzoil as Pennzoil may designate in writing from time to time. Any payment under this Section 2.7 that is not paid on the date when due shall bear interest from and including the due date to but excluding the date of payment at a rate per annum equal to the rate publicly announced from time to time by Chase Manhattan Bank, N.A. in New York City (i) as its prime rate in the case of payments as to which there exists a genuine dispute between the parties regarding the amount of the payment or (ii) as its prime rate plus 2% in the case of payments as to which no such genuine dispute exists, in each case during the period from the due date to the date of payment. Such interest shall be payable at the same time as the payment to which it relates and shall be calculated daily on the basis of a year of 365 days and the actual number of days elapsed. (e) Upon the payment of the last installment of the Purchase Price or upon payment pursuant to the exercise of the Call Option or the Put Option, all Liens under the Deed of Trust and all other Liens held by Pennzoil or its assignee in the Purchased Assets shall be released and discharged automatically. At any time and from time to time prior to such termination, the parties may agree to a total or partial release of any such Lien 22 in the Purchased Assets. Upon such total or partial release of any such Lien, Pennzoil will execute and deliver to FRP such releases and other documents as FRP shall reasonably request to evidence or effect such release. 2.8 CLOSING. The closing (the "CLOSING") of the purchase and sale of the Purchased Assets and the assumption of the Assumed Liabilities hereunder shall take place at the offices of Pennzoil in Houston as soon as possible, but in no event later than 10 Business Days, after satisfaction of the conditions set forth in Article 10, or at such other time or place as FRP and Pennzoil may agree. At the Closing (or from time to time thereafter), Pennzoil and FRP shall enter into the Conveyance, Assignment, Bill of Sale and Assumption Agreement, and Pennzoil shall execute, acknowledge and deliver to FRP such deeds, bills of sale, endorsements, consents, assignments and other good and sufficient instruments of conveyance and assignment (the "CONVEYANCE DOCUMENTS") as the parties and their respective counsel shall deem reasonably necessary or appropriate to vest in FRP Good Title in and to the Purchased Assets. The parties will also execute and deliver (i) the Deed of Trust, (ii) a Transition Services Agreement and (iii) each other deed, certificate, agreement or other document contemplated by this Agreement. Any payment required under this Section 2.8 and not made at the Closing shall bear interest at the rate per annum equal to the rate publicly announced from time to time by Chase Manhattan Bank, N.A. in New York City (i) as its prime rate in the case of payments as to which there exists a genuine dispute between the parties regarding the amount of the payment and (ii) as its prime rate plus 2% in the case of payments as to which no such genuine dispute exists. 2.9 ALLOCATION OF PURCHASE PRICE FOR TAX PURPOSES. (a) The parties agree that for tax purposes, the Purchase Price will be deemed to be $22,500,000. As soon as practicable after the Closing Date, FRP shall deliver to Pennzoil a statement (the "ALLOCATION STATEMENT"), setting forth the value of the Purchased Assets for tax purposes which shall be used for the allocation of the Purchase Price (together with the Assumed Liabilities) among the Purchased Assets. (b) Pennzoil shall have a period of 30 days after the delivery of the Allocation Statement to present in writing to FRP notice of any objections Pennzoil may have to the allocation set 23 forth in the Allocation Statement. Unless Pennzoil timely objects, the Allocation Statement shall be binding on the parties without further adjustment. (c) If Pennzoil shall raise any objections within the 30 day period, FRP and Pennzoil shall negotiate in good faith and use their best efforts to resolve such dispute. If the parties fail to agree within 5 days after the delivery of the notice, then the disputed items shall be resolved by Arthur Andersen, or if such firm declines to act in such capacity, by such other firm of independent nationally recognized accountants chosen and mutually accepted by both parties (the "ACCOUNTING REFEREE"). The Accounting Referee shall resolve the dispute within 30 days of having the item referred to it. The costs, fees and expenses of the Accounting Referee shall be borne equally by Pennzoil and FRP. (d) Pennzoil and FRP agree to report an allocation of the Purchase Price among the Purchased Assets in a manner entirely consistent with the Allocation Statement and agree to act in accordance with such Allocation Statement in the preparation and filing of all tax returns (including without limitation filing Form 8594 with its Federal income tax return for the taxable year that includes the date of the Closing) and in the course of any tax audit, tax review or tax litigation relating thereto. (e) Not later than 10 days prior to the filing of their respective Form 8594 relating to this transaction, each party shall deliver to the other party a copy of its Form 8594. 2.10 LIQUID SULPHUR INVENTORY ADJUSTMENT. (a) On the Closing Date (or on such other date or dates as close as possible to the Closing Date as may be mutually agreed by the parties, one or more representatives designated by each of Pennzoil and FRP (who may be employees or officers of Pennzoil or FRP, as the case may be) shall jointly conduct on behalf of each party respectively a measurement by tank strapping of the level of Pennzoil's liquid sulphur inventory (net of any sulphur owned by parties other than Pennzoil and any sulphur that is sold on Pennzoil's books as of the Closing Date) included in the Purchased Assets at Closing (the "CLOSING SULPHUR INVENTORY"). Inventory in transit, including in tank cars and barges, will be measured by tank strapping at destination and will be deemed to 24 be at its destination as of the Closing Date. If the parties' respective measurements of Pennzoil's liquid sulphur inventory at the Tampa Facility, the Galveston Facility, the Culberson Facility and/or Pennzoil's Savannah facility differ, the level of inventory at that facility shall be the average of the parties' respective measurements for that facility. (b)(i) Subject to Section 2.10(b)(v) below, if the Closing Sulphur Inventory at the Tampa Facility is greater than the Tampa Base Sulphur Inventory, then FRP shall pay to Pennzoil a cash amount equal to the difference multiplied by the Tampa Average Sulphur Price as of the Closing Date minus $3.75; if the Closing Sulphur Inventory at the Tampa Facility is less than the Tampa Base Sulphur Inventory then Pennzoil shall pay to FRP a cash amount equal to the difference multiplied times the Tampa Average Sulphur Price as of the Closing Date minus $3.75 (the payment under this Section 2.10(b)(i) being the "TAMPA ADJUSTMENT"). (ii) Subject to Section 2.10(b)(v) below, if the Closing Sulphur Inventory at the Galveston Facility is greater than the Galveston Base Sulphur Inventory, then FRP shall pay to Pennzoil a cash amount equal to the difference multiplied by the Tampa Average Sulphur Price as of the Closing Date minus $17.75; if the Closing Sulphur Inventory at the Galveston Facility is less than the Galveston Base Sulphur Inventory, then Pennzoil shall pay to FRP a cash amount equal to the difference multiplied times the Tampa Average Sulphur Price as of the Closing Date minus $17.75 (the payment under this Section 2.10(b)(ii) being the "GALVESTON ADJUSTMENT"). (iii) Subject to Section 2.10(b)(v) below, if the Closing Sulphur Inventory at the Culberson Facility is greater than the Culberson Base Sulphur Inventory, then FRP shall pay to Pennzoil a cash amount equal to the difference multiplied by the Tampa Average Sulphur Price as of the Closing Date minus $39.50; if the Closing Sulphur Inventory at the Culberson Facility is less than the Culberson Base Sulphur Inventory, then Pennzoil shall pay to FRP a cash amount equal to the difference multiplied times the Tampa Average Sulphur Price as of the Closing Date minus $39.50 (the payment under this Section 2.10(b)(iii) being the "CULBERSON ADJUSTMENT"). 25 (iv) Subject to Section 2.10(b)(v) below, if the Closing Sulphur Inventory at Savannah is greater than the Savannah Base Sulphur Inventory, then FRP shall pay to Pennzoil a cash amount equal to the difference multiplied by the Tampa Average Sulphur Price as of the Closing Date plus $2.75; if the Closing Sulphur Inventory at Pennzoil's Savannah facility is less than the Savannah Base Sulphur Inventory, then Pennzoil shall pay to FRP a cash amount equal to the difference multiplied times the Tampa Average Sulphur Price as of the Closing Date plus $2.75 (the payment under this Section 2.10(b)(iv) being the "SAVANNAH ADJUSTMENT"). (v) The dollar amount of the Tampa Adjustment, the Galveston Adjustment, the Culberson Adjustment and the Savannah Adjustment shall be netted, and, if the Closing Sulphur Inventory is greater than the Base Sulphur Inventory, the net amount shall be adjusted in FRP's favor by 50 percent of the royalties payable on such excess inventory. Pennzoil shall pay to FRP, or FRP shall pay to Pennzoil, as the case may be, the net adjusted amount in the manner and with interest as provided in Section 2.10(c). Any such payment of the net adjusted amount pursuant to this Section 2.10(b) shall be made at a mutually convenient time and place within 20 days after the Closing Date. (c) Any payments pursuant to this Section 2.10 shall be made by delivery by FRP, or Pennzoil, as the case may be, of a certified or official bank check payable in immediately available funds to the other party or by causing such payments to be credited to such account of such other party as may be designated by such other party. The amount of any payment to be made pursuant to this Section 2.10 shall bear interest from and including the due date to but excluding the date of payment at a rate per annum equal to the rate publicly announced from time to time by Chase Manhattan Bank, N.A. in New York City (i) as its prime rate in the case of payments as to which there exists a genuine dispute between the parties regarding the amount of the payment and (ii) as its prime rate plus 2% in the case of payments as to which no such genuine dispute exists, in each case during the period from the Closing Date to the date of payment. Such interest shall be payable at the same time as the payment to which it relates and shall be calculated daily on the basis of a year of 365 days and the actual number of days elapsed. 26 (d) If Pennzoil advises FRP that the relative amounts of inventory at Tampa, Galveston and Culberson have been materially changed due to FRP's use of the "Marine Duval", Pennzoil will propose an appropriate adjustment to reflect the amounts that would have been paid under this Section 2.10 if FRP had not used the "Marine Duval". The amount of such adjustment will be negotiated in good faith by the parties. If the parties are unable to agree upon the amount of such adjustment within 60 days of Pennzoil's initial proposal, then the arbitration procedure outlined in Section 2.11(b) shall be used by the parties to establish the amount of the adjustment. Each party will be entitled to make one proposal, the Panel will be required to choose one of those two proposals and its decision will be binding on the parties. Costs of arbitration will also be allocated in accordance with Section 2.11(b). 2.11 TAMPA AVERAGE SULPHUR PRICE. (a) If, for purposes of calculating the Tampa Average Sulphur Price, "Green Markets" ceases publication or no longer publishes the required prices or if the prices published in "Green Markets" are no longer representative of prevailing contract sulphur prices in Tampa, FRP and Pennzoil shall agree upon an alternative basis for determining the Tampa Average Sulphur Price that will be representative of prevailing contract (rather than spot) sulphur prices in Tampa from time to time. Such agreement shall be made following good faith negotiations which shall commence promptly upon the provision of written notice by either party to the other party ("WRITTEN NOTICE") that an alternative basis is necessary. (b) If the parties are unable to agree on such an alternative basis within 60 days of the provision of Written Notice, the new basis shall be finally and conclusively determined by a panel of arbitrators (the "PANEL") consisting of three members unaffiliated with either party and selected as hereinafter provided. Each of Pennzoil and FRP shall select one member of the Panel within five Business Days after the 60 day period referred to above and the third member shall be selected by mutual agreement of the two members so selected within an additional ten Business Days. If either party does not appoint its member of the Panel as provided above, then the alternative basis proposed by the other party Section shall prevail. Panel members shall be chosen on the basis of their knowledge of the agricultural minerals industry in general and the sulphur industry in particular. The Panel shall meet in New York, New 27 York or such other place as a majority of the members of the Panel determines more appropriate. Each party shall provide the Panel within 30 Business Days of its formation with one or more proposals as to the appropriate alternative basis for determining the prevailing contract market price for sulphur FOB Tampa Terminal. The parties shall be given the opportunity to submit in writing supporting information or data for their proposals and to each make an oral presentation to the Panel. The Panel shall then decide (by a majority) within 45 Business Days of its formation which one of the proposed bases will most accurately reflect the prevailing contract sulphur price in Tampa. It is understood and agreed that the Panel will not have discretion to select any basis for the Tampa Average Sulphur Price other than one of the bases proposed by the parties, and will not have authority to modify or amend such proposal. The basis adopted by the Panel shall be binding on the parties for future determinations of the Tampa Average Sulphur Price. The costs associated with the arbitration procedure described in this Section 2.11(b), including the fees and expenses of the arbitrators and the costs reasonably incurred by the parties themselves in preparing their proposals, shall be borne by the party whose proposals are not selected by the Panel. (c) Until such time as such an alternative basis has been mutually agreed as described in Section 2.11(a), or determined by the Panel as described in Section 2.11(b), the Tampa Average Sulphur Price shall be determined utilizing prices published in "Green Markets" as described in the definition of "Tampa Average Sulphur Price"; PROVIDED that once an alternative basis has been agreed upon that new basis shall be applied retroactively to any payments made with respect to periods after receipt by a party of Written Notice. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PENNZOIL Pennzoil represents and warrants to FRP as of the date hereof and as of the Closing Date that: 3.1 CORPORATE EXISTENCE AND POWER. Pennzoil is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and 28 has all corporate powers and all material governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. Pennzoil is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary in connection with the conduct of the Business, except for those jurisdictions where failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect. Pennzoil has heretofore delivered to FRP true and complete copies of its certificate of incorporation and bylaws as currently in effect. 3.2 CORPORATE AUTHORIZATION. The execution, delivery and performance by Pennzoil of this Agreement are within Pennzoil's corporate powers and have been duly authorized by all necessary corporate action on the part of Pennzoil. This Agreement constitutes a valid and binding agreement of Pennzoil, enforceable against Pennzoil in accordance with its terms, except as enforcement hereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting enforcement of creditors' rights generally and except as enforcement hereof is subject to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law). 3.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by Pennzoil of this Agreement require no action by or in respect of, or filing with, any Governmental Authority other than (i) compliance with any applicable requirements of the HSR Act; and (ii) compliance with any applicable requirements of the 1934 Act. 3.4 NON-CONTRAVENTION. The execution, delivery and performance by Pennzoil of this Agreement do not and will not (i) violate the certificate of incorporation or bylaws of Pennzoil, (ii) assuming compliance with the matters referred to in Section 3.3, violate any applicable Law, (iii) assuming the obtaining of all Required Consents, constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation relating to the Business or to a loss of any benefit relating to the Business to which Pennzoil is entitled under (a) any provision of any agreement, contract or other instrument binding upon Pennzoil or by which any of the Purchased Assets is or may be bound or (b) any Permit or (iv) result in the 29 creation or imposition of any Lien on any Purchased Asset, other than Permitted Liens. From August 22, 1994 through the date of this Agreement, Pennzoil has not taken any action that would have resulted in a breach of any covenant or agreement contained in this Agreement if this Agreement had been executed on August 22, 1994. 3.5 REQUIRED CONSENTS. SCHEDULE 3.5 sets forth each agreement, contract or other instrument binding upon Pennzoil or any Permit requiring a consent or other form of approval as a result of or a waiver of rights to permit the execution, delivery and performance of this Agreement (each such consent, a "REQUIRED CONSENT" and together the "REQUIRED CONSENTS"). 3.6 FINANCIAL STATEMENTS. The unaudited balance sheet for the Business as of December 31, 1993 and the related unaudited statements of operations and cash flows for the Business for the year ended December 31, 1993 and the Balance Sheet and the related unaudited interim statement of operations and cash flows for the six months ended June 30, 1994 (collectively, the "FINANCIAL STATEMENTS") fairly present, in conformity with generally accepted accounting principles applied on a consistent basis (except as may be indicated in the notes thereto), the financial position as of the dates thereof and its results of operations and cash flows for the periods then ended (subject to normal year-end adjustments in the case of any unaudited interim financial statements). 3.7 ABSENCE OF CERTAIN CHANGES. Except as reported in monthly financial and operating reports that are delivered to FRP before the date of this Agreement, since the Balance Sheet Date, the Business has been conducted in the ordinary course consistent with past practices, and there has not been: (a) any event, occurrence, development or state of circumstances or facts which has had or could reasonably be expected to have a Material Adverse Effect other than those that may be deemed to have occurred by virtue of general changes in economic conditions or conditions generally affecting the sulphur mining and marketing business; (b) any creation or other incurrence of any Lien (other than Permitted Liens) on any Purchased Asset; 30 (c) any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the Business or any Purchased Asset which, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect; (d) any transaction or commitment made, or any contract or agreement entered into, by Pennzoil relating to the Business or any Purchased Asset (including the acquisition or disposition of any assets) or any relinquishment by Pennzoil of any contract or other right, in either case, material to the Business taken as a whole, other than transactions and commitments in the ordinary course of business consistent with past practices and those contemplated by this Agreement; (e) any change in any method of accounting or accounting practice by Pennzoil with respect to the Business except for any such change after the date hereof required by reason of a concurrent change in generally accepted accounting principles; (f) any (i) employment, deferred compensation, severance, retirement or other similar agreement entered into with any employee of the Business (or any amendment to any such existing agreement), (ii) grant of any severance or termination pay to any such employee or (iii) change in compensation or other benefits payable to any such employee pursuant to any severance or retirement plans or policies; (g) any labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of the Business, which employees were not subject to a collective bargaining agreement at the Balance Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees; or (h) any capital expenditure, or commitment for a capital expenditure, for additions or improvements to property, plant and equipment. 3.8 PROPERTIES. (a) SCHEDULE 3.8(a) contains a correct summary description of all Real Property. 31 (b) SCHEDULE 3.8(b) correctly describes the Mineral Interests. (c) To the knowledge of Pennzoil, SCHEDULE 3.8(c) correctly describes all Personal Property with a book value in excess of $100,000 and any Liens thereon, specifying in the case of leases or subleases, the name of the lessor or sublessor, the lease term and basic annual rent. (d) Pennzoil has, and at Closing will have and will convey to FRP, and upon consummation of the transactions contemplated hereby, FRP will acquire, Good Title to each of the Purchased Assets. (e)(i) The real property summarized on SCHEDULE 3.8(a) includes all Real Property (other than Excluded Assets), and only such real property, as is used or held for use in connection with the conduct and operations of the Business as heretofore conducted. Except for the Other Sulphur Properties and other Excluded Assets, the mineral interests described on SCHEDULE 3.8(b) include all Mineral Interests, and only such mineral interests, as are used or held for use in connection with the conduct and operations of the Business as heretofore conducted. (ii) All leases of and other instruments and agreements relating to Real Property, Mineral Interests described on SCHEDULE 3.8(b) or Personal Property are in good standing and are valid, binding and enforceable in accordance with their respective terms, and there does not exist under any such lease, instrument or agreement any material default or any event which with notice or lapse of time or both would constitute a material default. (iii) Except as provided in SCHEDULE 3.8(e), the plants, buildings, structures and equipment included in the Purchased Assets and currently used in the Business are in satisfactory operating condition and repair and have been reasonably maintained consistent with standards generally followed in the industry (giving due account to the age and length of use of same, ordinary wear and tear excepted), are suitable for their present uses and, in the case of plants, buildings and other structures currently used in the Business (including without limitation the roofs thereof), are, to the knowledge of Pennzoil, structurally sound. Except as expressly 32 provided in this Section 3.8(e)(iii), the Personal Property is sold "AS, IS, WHERE IS," and Pennzoil MAKES NO, AND DISCLAIMS ANY, REPRESENTATION OR WARRANTY, WHETHER EXPRESS OR IMPLIED, AND WHETHER BY COMMON LAW, STATUTE, OR OTHERWISE, AS TO (i) MERCHANTABILITY, (ii) FITNESS FOR ANY PARTICULAR PURPOSE, (iii) CONFORMITY TO MODELS OR SAMPLES OF MATERIALS AND (iv) CONDITION. FRP EXPRESSLY WAIVES THE PROVISIONS OF CHAPTER XVII, SUBCHAPTER E, SECTIONS 17.41 THROUGH 17.63, INCLUSIVE (OTHER THAN SECTION 17.555, WHICH IS NOT WAIVED), VERNON'S TEXAS CODE ANN., BUSINESS AND COMMERCE CODE (THE "DTPA"). Pennzoil and FRP agree that the preceding disclaimers of warranty are "conspicuous" disclaimers for purposes of any applicable law, rule or order. FRP expressly recognizes that the consideration for which Pennzoil has agreed to sell the Purchased Assets and perform its obligations under this Agreement has been predicated upon the inapplicability of the DTPA and this waiver of the DTPA. FRP further recognizes that Pennzoil, in determining to proceed with the entering in to of this Agreement, has expressly relied on this waiver and the inapplicability of the DTPA. (iv) The plants, buildings and structures included in the Purchased Assets currently have access to (A) public roads or valid easements over private streets or private property for such ingress to and egress from all such plants, buildings and structures and (B) water supply, telephone, gas and electrical connections, drainage and other utilities, as are necessary for the conduct of the Business as it is presently conducted. (v) None of the material structures on the Real Property encroaches upon real property of another person, and no structure of any other person substantially encroaches upon any Real Property. (f) No Purchased Asset is subject to any Lien, except Permitted Liens. (g) There are no developments affecting any of the Purchased Assets pending or, to the knowledge of Pennzoil threatened, which might materially detract from the value of such Purchased Assets, materially interfere with any present use of any such Purchased Assets or materially adversely affect the marketability of such Purchased Assets (other than those developments as may be deemed to have occurred by virtue of 33 business and economic conditions in general and those relating generally to the sulphur mining and marketing business). (h) Pennzoil has delivered or made available to FRP, true and complete copies of all records, title policies and reports, leases, contracts and other materials relating to the Real Property and Mineral Interests. (i) (i) In this Subsection 3.8(i), "Mineral Interest" refers only to the Culberson Unit Agreement and each Mineral Interest described in items 1-18 (Culberson County, Texas) of SCHEDULE 3.8(b). (ii) Each Mineral Interest has been maintained in full force and effect according to its terms. Pennzoil has made or caused to be made all payments, including royalties, delay rentals and shut-in royalties, due under each Mineral Interest. (iii) To the knowledge of Pennzoil, no other party to a Mineral Interest is in breach or default of any obligation under the Mineral Interest. (iv) Except for matters asserted by the General Land Office in audits of royalty payments to the State of Texas, there has not occurred an event, fact or circumstance that with the lapse of time or the giving of notice, or both, would constitute a breach or default of any obligation under a Mineral Interest by Pennzoil or, to the knowledge of Pennzoil, by any other party to the Mineral Interest. (v) Neither Pennzoil nor any other party to a Mineral Interest described on has given or threatened to give notice of any action to terminate, cancel, rescind or procure a judicial reformation of the Mineral Interest or any provision of the Mineral Interest. (vi) There are no obligations under a Mineral Interest to engage in continuous development operations to maintain the Mineral Interest in full force and effect. (vii) There are no provisions in a Mineral Interest or other applicable instrument or agreement that increases the royalty share of the lessor under that Mineral Interest. 34 (viii) Except for matters asserted by the General Land Office in audits of royalty payments to the State of Texas, no provision in any Mineral Interest (other than a provision allowing a lessor to take Minerals in kind) requires the payment of a royalty or other Production Burden on any basis other than the basis of the proceeds actually received by Pennzoil from the sale or other disposition of the Minerals. (ix) Pennzoil is not obligated by (A) any prepayment arrangement, (B) a "take-or-pay" provision or other similar provision, (C) a production payment, (D) a minerals "balancing" agreement, or (E) any other arrangements to deliver Minerals produced from the Mineral Interests described on at some future time without then or thereafter receiving full payment for the Minerals. (x) Payments for Minerals sold under each Material Contract are current (subject to adjustment in accordance with the Material Contracts) and in accordance with the prices set forth in the Material Contracts. (xi) All wells drilled and completed on the Culberson Unit have been drilled and completed within the boundaries of the applicable Mineral Interests or within the limits otherwise permitted by contract, by pooling or unit agreement or by law. 3.9 SUFFICIENCY OF THE PURCHASED ASSETS. The Purchased Assets constitute, and on the Closing Date will constitute, all of the assets or property (other than Excluded Assets) used or held for use in the Business. 3.10 NO UNDISCLOSED LIABILITIES. Other than liabilities disclosed on SCHEDULE 3.10, there are no liabilities of the Business (other than Excluded Liabilities) of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, actual or potential, known or unknown, and there is no existing condition, situation or set of circumstances which could reasonably be expected to result in such a liability, and which, in any such case, could be asserted against FRP or the Purchased Assets other than liabilities provided for in the Balance Sheet or disclosed in the notes thereto. 35 3.11 LITIGATION. Except as set forth on SCHEDULE 3.11 there is no action, suit, investigation or proceeding pending against, or to the knowledge of Pennzoil, threatened against or affecting, the Business or any Purchased Asset before any arbitrator or Governmental Authority which, if determined or resolved adversely in accordance with the plaintiff's demands, would reasonably be expected to have a Material Adverse Effect or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated hereby. 3.12 MATERIAL CONTRACTS. (a) Except for the Contracts disclosed in SCHEDULE 3.12(a) with respect to the Business (other than the Excluded Assets), Pennzoil is not a party to or bound by: (i) any lease of personal property providing for annual rentals of $100,000 or more; (ii) any agreement for the purchase of materials, supplies, goods, services, equipment or other assets providing for either (A) annual payments by Pennzoil of $100,000 or more or (B) aggregate payments by Pennzoil of $500,000 or more; (iii) any agreement with reference to all or a substantial portion of the output of a plant, a mine or other production facility or all or a substantial portion of all requirements of a customer of Pennzoil or of Pennzoil or to any other Person providing for annual payments that exceed $1,000,000 or more or extending beyond two years; (iv) any sales, distribution or other similar agreement providing for the sale by Pennzoil of materials, supplies, goods, services, equipment or other assets that provides for either (A) annual payments to Pennzoil of $100,000 or more or (B) aggregate payments to Pennzoil of $500,000 or more; (v) any partnership, tax partnership, joint venture or other similar agreement or arrangement; (vi) any option agreement, license agreement, franchise, or agreement in respect of similar rights granted or held by Pennzoil; 36 (vii) any agency, dealer, sales representative, marketing or other similar agreement providing for annual payments of $100,000 or more; (viii) any agreement that limits the freedom of Pennzoil to compete in any aspect of the sulphur business or with any Person or in any area or to own, operate, sell, transfer, pledge or otherwise dispose of or encumber any Purchased Asset or which would so limit the freedom of FRP after the Closing Date; (ix) any agreement (other than an Excluded Asset) with or for the benefit of any Affiliate of Pennzoil; (x) any labor union contract; (xi) any agreement (other than an Excluded Asset) with respect to property, casualty or other forms of insurance; or (xii) any other agreement, commitment, arrangement or plan not made in the ordinary course of business which is material to the Business (other than the Excluded Assets) taken as a whole. (b) Each Contract disclosed in any schedule to this Agreement or required to be disclosed pursuant to this Section 3.12 is a valid and binding agreement of Pennzoil and is in full force and effect, and neither Pennzoil nor, to the knowledge of Pennzoil, any other party thereto is in default or breach in any material respect under the terms of any such Contract, nor, to the knowledge of Pennzoil, has any event or circumstance occurred that, with notice or lapse of time or both, would constitute any event of default thereunder. True and complete copies of each such contract have been delivered to FRP. (c) Pennzoil's net per ton cost of transportation for sulphur (excluding rail car costs) from the Culberson Facility under its agreement with the Santa Fe Railway Company currently does not exceed $20.00 per ton. This freight cost is subject to annual escalation and is subject to adjustment when the Tampa price exceeds $92.00 per ton. 37 3 LICENSES AND PERMITS. SCHEDULE 3.13 correctly describes each license, franchise, permit or other similar authorization affecting, or relating in any way to, the Business insofar as it relates to the Purchased Assets (including Environmental Permits), together with the name of the Governmental Authority issuing such license or permit (the "PERMITS"). Except as set forth on SCHEDULE 3.13, such Permits are valid and in full force and effect. 3.14 INSURANCE COVERAGE. There is no claim by Pennzoil relating to the Business pending under any of its insurance policies or fidelity bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds or in respect of which such underwriters have reserved their rights. All premiums payable under all such policies and bonds have been timely paid and Pennzoil has otherwise complied fully with the terms and conditions of all such policies and bonds. Such policies of insurance and bonds (or other policies and bonds providing substantially similar insurance coverage) have been in effect since October 1989 and remain in full force and effect. Such policies and bonds are of the type and in amounts customarily carried by Persons conducting businesses similar to the Business. Except as disclosed in SCHEDULE 3.14, after the Closing Pennzoil shall continue to have coverage under such policies and bonds with respect to events occurring prior to Closing. 3.15 COMPLIANCE WITH LAWS AND COURT ORDERS. Pennzoil is not in violation of, has not since January 1, 1991 violated, and to Pennzoil's knowledge is not under investigation with respect to or has not been threatened to be charged with or given notice of any violation of, any Law (including without limitation any Law relating to zoning, city planning or similar matters) applicable to the Purchased Assets or the conduct of the Business, except for violations that have not had and could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and except for environmental matters, which are addressed in Section 3.20. 3.16 INVENTORIES. The inventories set forth in the Balance Sheet were properly stated therein in accordance with accounting principles consistently maintained and applied by Pennzoil. Since the Balance Sheet Date, the inventories of the Business have been maintained in the ordinary course of business. 38 All such inventories are owned free and clear of all Liens. All of the inventory recorded on the Balance Sheet consists of, and all inventory related to the Business on the Closing Date will consist of, items of a quality usable or saleable in the normal course of the Business consistent with past practices and are and will be in quantities sufficient for the normal operation of the Business in accordance with past practice. 3.17 INTELLECTUAL PROPERTY. (a) SCHEDULE 3.17(a) sets forth a list of all patents, patent applications, and registered marks specifying as to each, as applicable: (i) the nature of such Intellectual Property Right; (ii) the owner of such Intellectual Property Right; (iii) the jurisdictions by or in which such Intellectual Property Right is recognized without regard to registration or has been issued or registered or in which an application for such issuance or registration has been filed, including the respective registration or application numbers; and (iv) material licenses, sublicenses and other agreements as to which Pennzoil or any of its Affiliates is a party and pursuant to which any Person is authorized to use such Intellectual Property Right, including the identity of all parties thereto, a description of the nature and subject matter thereof, the applicable royalty and the term thereof. SCHEDULE 3.17(a) is an accurate and complete list of all patents, patent applications, and registered marks used by Pennzoil in the operation or conduct of the Business as currently or heretofore conducted. (b)(i) Except as set forth in Section 3.17, Pennzoil has not, during the three years preceding the date of this Agreement, been sued or charged in writing with or been a defendant in any claim, suit, action or proceeding relating to the Business that has not been finally terminated prior to the date hereof and that involves a claim of infringement of any patents, trademarks, service marks or copyrights, and (ii) Pennzoil has no knowledge of any other and no knowledge of any continuing infringement by any other Person of any Intellectual Property Rights. No Intellectual Property Right is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by Pennzoil with respect to the Business or restricting the licensing thereof by Pennzoil to any Person. Pennzoil has not entered into any agreement to indemnify any other Person against any charge of infringement of any patent, trademark, service mark or copyright. 39 3.18 EMPLOYEES. Pennzoil has previously provided to FRP a true and complete list of the names, titles, annual salaries or wage rates of all employees of the Business. 3.19 FINDERS' FEES. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Pennzoil who might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement. 3.20 ENVIRONMENTAL MATTERS. (a) Except as disclosed on SCHEDULE 3.20(a): (i) in connection with or relating to the Purchased Assets or the Business within the preceding five years, no written notice, notification, demand, request for information, citation, summons, complaint or order has been issued, no written complaint has been filed, no penalty has been assessed and no investigation or review is pending or, to the best knowledge of Pennzoil, threatened by any Governmental Authority or other Person with respect to any (A) alleged violation of any Environmental Law or liability thereunder, (B) alleged failure to have any Environmental Permit, (C) Regulated Environmental Activity or (D) Release of Hazardous Substances; (ii) the Purchased Assets are in compliance with all Environmental Laws and all Environmental Permits required for operations have been obtained; (iii) other than in compliance with Environmental Laws or Environmental Permits, no polychlorinated biphenyls, radioactive materials (including naturally occurring radioactive materials and sealed radioactive sources), urea formaldehyde, lead, asbestos, asbestos-containing material or underground storage tank (active or abandoned) is or has been present within the past five years on, at or under any Purchased Asset; (iv) there has been no material Release of any Hazardous Substance within the past five years (and no notification of such Release has been filed or made within the past five years) at, on or under any Purchased Asset; 40 (v) none of the Purchased Assets is listed or proposed for listing, on the National Priorities List promulgated pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any similar federal or state list of sites requiring investigation or clean-up; (vi) Neither Pennzoil nor its former subsidiary Pennzoil Sulphur Company has placed any Hazardous Substance, other than Hazardous Substances ordinarily associated with water treatment processes, in (A) the sludge lagoon, (B) the sanitary lagoons or (C) the salt mixing pit, in each case at the Culberson Facility; and (vii) there are no liens under Environmental Laws on any of the Purchased Assets, no government actions have been taken or, to the knowledge of Pennzoil, are in process, which could subject any of such Purchased Assets to such liens, and Pennzoil would not be required to place any notice or restriction relating to Hazardous Substances at any Real Property owned by it in any deed to such property. (b) With respect to the Business, there has been no Environmental Investigation or Audit which Pennzoil has in its possession in relation to any Purchased Asset which has not been delivered to FRP at least two days prior to the date hereof other than an environmental audit of the Tampa Facility which is in the process of being finalized. 3.21 CUSTOMERS AND SUPPLIERS. Except as set forth on SCHEDULE 3.21, Pennzoil is not engaged in any material disputes with any customers or suppliers of the Business, and to the best of its knowledge, no customer or supplier representing revenues or expenses in excess of $250,000 per year has indicated that it intends to terminate, not renew or adversely modify its arrangements with Pennzoil in relation to the Business. 3.22 BOOKS AND RECORDS. The Books and Records (true and complete copies of which have been made available to FRP) are accurate and complete in all material respects. 3.23 REPRESENTATIONS CUMULATIVE. The representations and warranties of Pennzoil in this Agreement are cumulative and independent of, and not limited by, any covenants, representations and warranties in any agreement or document 41 (including any conveyance document) contemplated hereby and the covenants, representations and warranties contained herein shall not be deemed to be merged into any such agreement or document. 3.24 SCOPE OF REPRESENTATIONS OF PENNZOIL. Except as and to the extent set forth in this Article 3, Pennzoil makes no representations or warranties whatsoever, and disclaims all liability and responsibility for any representation, warranty, statement or information made or communicated (orally or in writing) to FRP (including, but not limited to, any opinion, information or advice that may have been provided to FRP by any officer, stockholder, director, employee, agent, consultant or representative of Pennzoil, Pennzoil's counsel or any other agent, consultant or representative). Without limiting the generality of the foregoing, except as and to the extent expressly set forth in this Article 3, Pennzoil makes no representations or warranties as to (a) the title to any of the properties of the Business, (b) the amounts of sulphur reserves attributable to such properties or (c) any geological or other interpretations or economic evaluations. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF FRP FRP represents and warrants to Pennzoil as of the date hereof and as of the Closing Date that: 4.1 ORGANIZATION AND EXISTENCE. FRP is a limited partnership duly organized, validly existing and in good standing under the laws of Delaware, which has all powers and all material governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted. 4.2 AUTHORIZATION. The execution, delivery and performance by FRP of this Agreement are within FRP's powers and have been duly authorized by all necessary action on the part of FRP. This Agreement constitutes a valid and binding agreement of FRP, enforceable against FRP in accordance with its terms, except as enforcement hereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting enforcement of creditors' rights generally and except as enforcement hereof is subject to general principles of equity (regardless of whether 42 such enforcement is considered in a proceeding in equity or at law). 4.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by FRP of this Agreement require no action by or in respect of, or filing with, any Governmental Authority other than (i) compliance with any applicable requirements of the HSR Act; and (ii) compliance with any applicable requirements of the 1934 Act. 4.4 NON-CONTRAVENTION. The execution, delivery and performance by FRP of this Agreement, do not and will not (i) contravene or conflict with the partnership agreement of FRP, (ii) assuming compliance with the matters referred to in Section 4.3, violate any applicable Law or (iii) assuming the obtaining of all Required Consents, constitute a default under or give rise to any right of termination, cancellation or acceleration of a Debt of FRP. 4.5 REQUIRED CONSENTS. SCHEDULE 4.5 sets forth each agreement, contract or other instrument binding upon FRP or any Permit requiring a consent as a result of the execution, delivery and performance of this Agreement. 4.6 FINANCIAL STATEMENTS. The balance sheet (the "FRP BALANCE SHEET") and the related audited statements of operations for FRP for the years ended December 31, 1993, 1992 and 1991, the unaudited interim balance sheet June 30, 1994 and the related unaudited interim statement of operations and cash flow for the six months ended June 30, 1994, fairly present, in conformity with generally accepted accounting principles applied on a consistent basis (except as may be indicated in the notes thereto), the financial position of FRP taken as a whole as of the dates thereof and its results of operations and cash flows for the periods then ended (subject to normal year-end adjustments in the case of any unaudited interim financial statements). 4.7 ABSENCE OF CERTAIN CHANGES. Since the date of the FRP Balance Sheet, FRP's business has been conducted in the ordinary course consistent with past practices, and there has not been any event, occurrence, development or state of circumstances or facts which has had or could reasonably be expected to have a 43 material adverse effect on the ability of FRP to fulfill its obligations under this Agreement. 4.8 LITIGATION. There is no action, suit, investigation or proceeding pending against, or, to the knowledge of FRP, threatened against or affecting FRP before any court or arbitrator or any Governmental Authority which, if determined or resolved adversely in accordance with the plaintiff's demands, would reasonably be expected to have a material adverse effect on the ability of FRP to fulfill its obligations under this Agreement or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated hereby. 4.9 COMPLIANCE WITH LAWS AND COURT ORDERS. FRP is not in violation of, has not since January 1, 1991 violated, and to FRP's knowledge is not under investigation with respect to or has not been threatened to be charged with or given notice of any violation of, any Law, except for violations that have not had and could not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of FRP to fulfill its obligations under this Agreement. 4.10 MAIN PASS PRODUCTION COST. The average per ton cash cost of Main Pass Sulphur Production FOB Tampa Terminal from January 1, 1994 through August 31, 1994, determined in accordance with FRP's normal accounting practices and policies which are consistent with generally accepted accounting principles, is not less than $44.11. 4.11 REPRESENTATIONS CUMULATIVE. The representations and warranties of FRP in this Agreement are cumulative and independent of, and not limited by, any covenants, representations and warranties in any agreement or document (including any conveyance document) contemplated hereby and the covenants, representations and warranties contained herein shall not be deemed to be merged into any such agreement or document. 4.12 SCOPE OF REPRESENTATIONS OF FRP. Except as and to the extent set forth in this Article 4, FRP makes no representations or warranties whatsoever, and disclaims all liability and responsibility for any representation, warranty, statement or information made or communicated (orally or in writing) to Pennzoil (including, but not limited to, any opinion, 44 information or advice that may have been provided to Pennzoil by any officer, stockholder, director, employee, agent, consultant or representative of FRP or its managing general partner, Freeport-McMoRan Inc., FRP's counsel or any other agent, consultant or representative). ARTICLE 5 COVENANTS OF PENNZOIL Pennzoil agrees that: 5.1 CONDUCT OF THE BUSINESS. (a) From the date hereof until the Closing Date or the earlier termination of this Agreement, Pennzoil shall (except as otherwise provided in this Agreement or as FRP may consent in writing) conduct the Business in the ordinary course of business consistent with past practice and shall use its commercially reasonable efforts to, in connection with the Business: (i) preserve intact its business organization and relationships with third parties, PROVIDED that FRP shall be consulted in the closing of contracts for fourth quarter business; (ii) keep available the services of the present employees of the Business; (iii) continue making marketing, advertising, promotional, and other similar expenditures in the ordinary course of business consistent with past practice; (iv) duly comply in all material respects with all Laws, including without limitation all Environmental Laws, applicable to the Business; (v) maintain all of the Books and Records in the ordinary course of business consistent with past practice; (vi) continue the maintenance and repair of the Purchased Assets and the Business (including the making of scheduled capital expenditures and the plugging and abandonment of sulphur wells but excluding any budgeted tank 45 repairs) in the ordinary course of business consistent with past practice; (vii) maintain in effect insurance with respect to the Purchased Assets related to the Business in the ordinary course of business and against risks, with carriers and in amounts (including deductibles) consistent with past practice; (viii) maintain material and supply inventory and equipment primarily related to the Business at levels consistent with recent past practice; (ix) comply in all material respects with all material Contracts to which it is a party; and (x) maintain the Culberson Unit Agreement and the Mineral Interests described in items 1-18 (Culberson County, Texas) on SCHEDULE 3.8(b) in full force and effect and pay all Production Burdens and perform all obligations on and under the Culberson Unit Agreement and such Mineral Interests. (b) Without limiting the generality of the foregoing, without the prior written consent of FRP, from the date hereof until the Closing Date or the earlier termination of this Agreement, Pennzoil will not: (i) merge or consolidate with any other Person; (ii) acquire from any other Person, other than in the ordinary course of business, assets relating to the Business having a fair market value in excess of an aggregate of $500,000; (iii) sell, lease, license, pledge or otherwise dispose of any Purchased Assets except (A) pursuant to existing contracts or commitments and (B) in the ordinary course of business consistent with past practice; (iv) create or suffer to exist any new Lien or encumbrance on any of the Purchased Assets, other than Permitted Liens; 46 (v) enter into any material contract or agreement that would be an Assumed Liability except in the ordinary course of business consistent with past practice; (vi) except in the ordinary course of business consistent with past practice, accept, receive or allow any customer to make any prepayment related to the Business or the Purchased Assets; (vii) except in the ordinary course of business consistent with past practice, waive or release any right of value relating to the Purchased Assets or the Business; (viii) permit the Culberson Unit Agreement or any Mineral Interest described in items 1-18 (Culberson County, Texas) on SCHEDULE 3.8(b) to expire or terminate; (ix) settle any court proceedings or other dispute with the State of Texas for royalties owed where the terms of such settlement would increase the future royalty obligations of Pennzoil unless Pennzoil has received the prior approval of FRP; (x) take any action that would make any representation and warranty of Pennzoil hereunder inaccurate in any respect at, or as of any time prior to, Closing Date or omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time; or (xi) agree or commit to do any of the foregoing. 5.2 CONFIDENTIALITY. Pennzoil and its Affiliates will hold, and will use their best efforts to cause their respective officers, directors, employees, accountants, counsel, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information concerning the Business or FRP furnished to Pennzoil or its Affiliates in connection with the transactions contemplated by this Agreement, except to the extent that such information can be shown to have been (i) previously known on a nonconfidential basis by Pennzoil, (ii) in the public domain through no fault of Pennzoil or (iii) later lawfully acquired by 47 Pennzoil from sources other than FRP; PROVIDED that Pennzoil may disclose such information to its officers, directors, employees, accountants, counsel, consultants, advisors and agents in connection with the transactions contemplated by this Agreement so long as such Persons are informed by Pennzoil of the confidential nature of such information and are directed by Pennzoil to treat such information confidentially. Without limiting the foregoing, Pennzoil will enter into confidentiality agreements with its officers, directors and employees pursuant to which such officers, directors and employees will agree to comply with the foregoing confidentiality obligations. The obligations in this Section 5.2 shall continue upon any termination of this Agreement. If this Agreement is terminated, Pennzoil and its Affiliates will, and will use their best efforts to cause their respective officers, directors, employees, accountants, counsel, consultants, advisors and agents to, destroy or deliver to FRP, upon request, all documents and other materials, and all copies thereof, obtained by Pennzoil or its Affiliates or on their behalf from FRP in connection with this Agreement that are subject to such confidence. 5.3 ACCESS TO INFORMATION. (a) From the date hereof until the Closing Date (or, in the case of information relating to Other Sulphur Properties, until the date six months after the Closing Date), Pennzoil (i) will give FRP, its counsel, financial advisors, auditors and other authorized representatives full access during normal business hours to the offices, properties, books and records of Pennzoil relating to the Business, (ii) will furnish to FRP, its counsel, financial advisors, auditors and other authorized representatives such financial, exploration and operating data and other information relating to the Business as such Persons may reasonably request and (iii) will instruct the employees, counsel and financial advisors of Pennzoil to cooperate with FRP in its investigation of the Business; PROVIDED that no investigation by FRP or other information received by FRP shall operate as a waiver or otherwise affect any representation, warranty or agreement given or made by Pennzoil hereunder. Any investigation pursuant to this Section shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of Pennzoil. (b) From the date hereof until the Closing Date, Pennzoil will furnish to FRP, (i) within 30 days after the end of each fiscal quarter, the unaudited interim balance sheet for the 48 Business and the related unaudited interim statements of income and cash flows for the Business for that quarter and (ii) within 45 days after the end of a fiscal year, the audited balance sheet for the Business and the related audited statements of income and cash flow for that fiscal year. (c) No later than 45 days after the date of this Agreement, Pennzoil will cause the balance sheet for the Purchased Assets and Assumed Liabilities as of December 31, 1993 and the related statement of operations and cash flows for the twelve months then ended to be audited by its independent public accountants and will cause such audited statements to be delivered to FRP. FRP will bear the reasonable expense of the independent public accountants. 5.4 NOTICES OF CERTAIN EVENTS. Pennzoil shall promptly notify FRP of: (i) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement; (iii) any actions, suits, claims, investigations or proceedings commenced or, to its knowledge threatened against, relating to or involving or otherwise affecting Pennzoil or the Business that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 3.11 or that relate to the consummation of the transactions contemplated by this Agreement; and (iv) the damage or destruction by fire or other casualty of any Purchased Asset or part thereof or in the event that any Purchased Asset or part thereof becomes the subject of any proceeding or, to the knowledge of Pennzoil, threatened proceeding for the taking thereof or any part thereof or any right relating thereto by condemnation, eminent domain or other similar governmental action. 49 5.5 NONCOMPETITION. (a) Pennzoil agrees that for a period of five full years from the Closing Date, neither it nor any of its Affiliates shall engage, either directly or indirectly, as a principal or for its own account or solely or jointly with others, or as stockholders in any corporation or joint stock association, in any business that competes with the Business anywhere in the Western Hemisphere; PROVIDED that nothing herein shall prohibit (i) the acquisition by Pennzoil or any of its Affiliates of a business (including any interest in an oil or natural gas field) which is predominantly engaged in a business other than the production or marketing of sulphur, (ii) Pennzoil's conduct of operations at its facilities in Antwerp so long as sales from such operations are not made in the North American market, (iii) the sale of sulphur recovered by Pennzoil from the refining of oil and natural gas at facilities owned by it or any Affiliate and (iv) the conduct of the Business at any time on or after the date that Pennzoil takes title to the Purchased Assets pursuant to the exercise of remedies under the Deed of Trust; PROVIDED that, in the case of Section 5.5(a)(i) or Section 5.5(a)(iii) if more than 20% of the sales of any business which Pennzoil or its Affiliates owns or proposes to acquire are attributable to sulphur sales, Pennzoil provides FRP with the opportunity to negotiate on a good faith basis and on reasonable commercial terms for FRP to act as Pennzoil's exclusive marketing agent for the sale of any sulphur produced by the operations of such business. (b) If any provision contained in this Section shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Section, but this Section shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. It is the intention of the parties that if any of the restrictions or covenants contained herein is held to cover a geographic area or to be for a length of time which is not permitted by applicable law, or in any way construed to be too broad or to any extent invalid, such provision shall not be construed to be null, void and of no effect, but to the extent such provision would be valid or enforceable under applicable law, a court of competent jurisdiction shall construe and interpret or reform this Section to provide for a covenant having the maximum enforceable geographic area, time period and other provisions (not greater than those contained herein) as shall be valid and enforceable 50 under such applicable law. Pennzoil acknowledges that FRP would be irreparably harmed by any breach of this Section and that there would be no adequate remedy at law or in damages to compensate FRP for any such breach. Pennzoil agrees that FRP shall be entitled to injunctive relief requiring specific performance by Pennzoil of this Section, and Pennzoil consents to the entry thereof. 5.6 TRADEMARKS; TRADE NAMES. (a) Except as set forth in the other subsections of this Section 5.6, after the Closing, FRP and its affiliates shall not use the name "Pennzoil" or "Duval" or any tradename incorporating the name "Pennzoil" or "Duval"; PROVIDED that FRP will have full and unrestricted rights with respect to the "alchemist" symbol used in connection with the Pennzoil Sulphur Company logo. The name "Pennzoil" and "Duval" and any tradename incorporating the name "Pennzoil" or "Duval" shall be referred to, collectively or individually as the context requires, as the "PENNZOIL TRADE NAMES". (b) After the Closing, FRP shall have the right to sell existing inventory and to use existing packaging, labelling, containers, supplies, advertising materials, brochures, technical data sheets and any similar materials bearing any Pennzoil Trade Name until the earlier of (i) six months after the Closing Date and (ii) the date existing stocks are exhausted. (c) FRP agrees to discontinue the use of the Pennzoil Trade Name on buildings, cars, trucks and other fixed assets as soon as practicable after the Closing and in no event later than six months after the Closing. 5.7 ENVIRONMENTAL OBLIGATIONS. In addition to Pennzoil's obligations under this Agreement as to Environmental Liabilities generally, with respect to those environmental conditions specifically set forth in this Section 5.7, it is understood and agreed that: (a) Pennzoil shall be responsible for any and all costs and expenses incurred in connection with any investigation, assessment, testing, clean- up, remediation, removal, containment, disposal, treatment or monitoring, including any costs for capital expenditures associated therewith (the "REMEDIAL ACTIVITIES"), in connection with the following: 51 (i) the scrap sulphur located at the Michigan Vent area at the Culberson Facility, PROVIDED HOWEVER that Pennzoil shall have no environmental obligations if FRP disposes of sulphur materials at such area after the Closing Date; (ii) the solid waste landfill located on property owned by the State of Texas adjacent to the Culberson Facility; (iii) compliance with any future National Pollutant Discharge Elimination System permit limitations on copper in stormwater at the Galveston Facility resulting from elevated concentrations of copper in existence as of the Closing Date; and (iv) any barium, radium or gross alpha contamination at the Tampa Facility. (Sections 5.7(a)(i) to 5.7(a)(iv), the "KNOWN REMEDIAL CONDITIONS"). (b) Pennzoil shall be responsible for any and all liabilities associated with: (x) any stormwater runoff and wastewater within or adjacent to the vat sulphur storage area at the Galveston Facility and any sludge that is generated through the treatment of such waters (the "GENERATED MATERIALS"); and (y) the operation of the vat sulphur storage area and the adjacent vat drainage collection and treatment system (the "STORAGE AREA"; collectively with the Generated Materials, the "GALVESTON ENVIRONMENTAL OPERATIONS"); arising under the Resource Conservation and Recovery Act as in effect on the Closing Date (including any rules and regulations promulgated thereunder as of such date) ("RCRA"), PROVIDED that the parties agree as follows: (i) If the Generated Materials and the Galveston Environmental Operations are in compliance with RCRA, as of the Closing Date, and a change in the operation of the Storage Area by FRP after the Closing Date as compared with 52 the operation of such area by Pennzoil prior to the Closing Date results in noncompliance with RCRA, FRP will be responsible for any liabilities associated with such noncompliance. (ii) FRP shall be responsible for payment of operating costs after the Closing Date in connection with the Galveston Environmental Operations as part of the Assumed Liabilities, PROVIDED that to the extent such costs are greater than the historical operating costs of Pennzoil in connection with the Galveston Environmental Operations for the two years prior to the date hereof, Pennzoil shall be responsible for any such increased amounts. (iii) If, as of the Closing Date, the Galveston Environmental Operations are not in compliance with RCRA and Pennzoil's obligations pursuant to this Section 5.7(b) are increased as a result of the operation of the Storage Area by FRP after the Closing Date in a manner that is not substantially similar to the operation of the Storage Area by Pennzoil prior to the Closing Date, FRP shall be responsible for the amount by which such obligations have been increased. (iv) FRP shall, within a reasonable time period after the Closing Date, conduct a compliance review of the Galveston Environmental Operations. If, after conducting such review, FRP determines that the Generated Materials or the Galveston Environmental Operations are not in compliance with RCRA, then FRP will consult and cooperate with Pennzoil (in coordination with governmental agencies and personnel) in good faith to resolve the problem in a mutually satisfactory and cost effective manner consistent with prudent business practices. If, after such consultations, FRP reasonably determines that expenditures are necessary in order for the Galveston Environmental Operations to be in compliance with RCRA, FRP shall, after consultation with Pennzoil and taking into account the cost effectiveness of any proposed solution, perform any appropriate measures (including without limitation any Remedial Activities and any necessary construction or installation of control equipment) to put the Generated Materials and the Galveston Environmental Operations into compliance with RCRA, and Pennzoil shall reimburse FRP for such expenditures up to a 53 maximum of $2,000,000 promptly upon submission of invoices and any other supporting documentation that Pennzoil may reasonably request. If the measures performed by FRP require expenditures in excess of $2,000,000, the parties shall split such costs equally and Pennzoil shall reimburse FRP for Pennzoil's share promptly upon the submission of the documentation identified in the preceding sentence. (v) If the Generated Materials and the Galveston Environmental Operations remain in compliance with RCRA three years after completion of all appropriate measures, if any are required, in accordance with the provisions of Section 5.7(b)(iv), Pennzoil shall have no further liability in connection with noncompliance with RCRA at the Galveston Environmental Operations. (vi) To the extent any fines or penalties are imposed on FRP or its Affiliates after the Closing Date in connection with any noncompliance with RCRA of the Galveston Environmental Operations at the time of Closing, notwithstanding anything herein to the contrary, Pennzoil shall be responsible for all such fines or penalties and no such fines or penalties shall be included in the cost allocation described in Section 5.7(b)(iv). (vii) As used herein, the term "in compliance with RCRA" means that (A) the Generated Materials are not a "hazardous waste" pursuant to RCRA, (B) the Galveston Environmental Operations are exempt from RCRA permitting requirements, regardless of whether the Generated Materials are a "hazardous waste" pursuant to RCRA or (C) the Galveston Environmental Operations and the Generated Materials are otherwise in compliance with RCRA (including RCRA permitting requirements). (c) With respect to Known Remedial Conditions and any other environmental condition forming the basis for a claim for indemnification pursuant to Section 11.2(a)(iv), FRP shall notify Pennzoil of the assertion of any such claim. Other than in connection with conditions identified in Section 5.7(b), Pennzoil shall have the right to conduct Remedial Activities itself or reimburse FRP for performing such Remedial Activities and Pennzoil shall provide FRP with prompt notification of any such decision. 54 (d) If Pennzoil elects to perform any such Remedial Activities, Pennzoil shall implement such Remedial Activities in a timely fashion and in accordance with applicable Environmental Laws. FRP agrees to provide Pennzoil with access to the facility at which such Remedial Activities are to be conducted, and shall cooperate with Pennzoil and Pennzoil's agents in the performance of any such Remedial Activities, PROVIDED that Pennzoil shall not unreasonably interfere with the operation of FRP's business at such facility and shall use its best efforts to minimize impairment to the value of FRP's property. Pennzoil agrees to (i) prepare any necessary or appropriate remedial plans and afford FRP a reasonable opportunity to review such plans prior to their completion and, prior to the finalization of any such plan, consider FRP's comments and suggestions in good faith, (ii) furnish FRP with copies of any test results, environmental reports and investigations and correspondence between Pennzoil and the applicable Governmental Authorities and (iii) indemnify FRP and its Affiliates against (A) any and all fines or penalties; (B) any damage to property; and (C) any claims, actions, suits and other proceedings, damages, liabilities, costs and expenses sought by any third party (whether or not an agent or employee of Pennzoil), in each case as a result of the activities of Pennzoil, its agents or its contractors in managing, controlling or implementing any Remedial Activities. (e) If Pennzoil elects not to perform any such Remedial Activities, FRP shall perform or cause to be performed such Remedial Activities in a timely fashion and in accordance with applicable Environmental Laws. FRP agrees to (i) prepare any necessary or appropriate remedial plans (taking into account the cost effectiveness of any proposed remedy or remedial activity) and afford Pennzoil a reasonable opportunity to review such plans prior to their completion, and, prior to the finalization of any such plan, consider FRP's comments and suggestions in good faith and (ii) furnish Pennzoil with copies of any test results, environmental reports and investigations and correspondence between FRP and the applicable Governmental Authorities. Pennzoil shall reimburse FRP for all reasonable costs and expenses actually incurred by FRP or its Affiliates in connection with the performance of such Remedial Activities promptly upon the submission of invoices and any other supporting documentation that Pennzoil may reasonably request. 55 (f) Notwithstanding anything in this Agreement to the contrary, Pennzoil shall not be responsible for performing any Remedial Activities or reimbursing or indemnifying FRP or its Affiliates for any Remedial Activities unless Pennzoil or FRP or its Affiliates is required to perform such Remedial Activities (i) pursuant to any Environmental Law or (ii) by any Governmental Authority (other than Remedial Activities in connection with Section 5.7(b), as to which this Section 5.7(f) shall not apply). 5.8 DAMAGE, DESTRUCTION OR CONDEMNATION. If prior to the Closing there occurs any damage to or destruction of any Purchased Asset or part thereof by fire or other casualty or any taking of any Purchased Asset or part thereof or right relating thereto by condemnation, eminent domain or other similar governmental action, Pennzoil and FRP agree, in addition to any other rights that either party may have under this Agreement, that: (a) all condemnation awards or similar payments relating to any such taking and any and all rights thereto shall constitute part of the Purchased Assets and shall be transferred to FRP pursuant to this Agreement; and (b) subject to the provisions in Section 12.1(d), in the event of any such fire or other casualty, Pennzoil shall be obligated at its sole cost and expense, (i) and as promptly as reasonably practicable, to repair or replace the damaged or destroyed Purchased Assets to restore them to the condition they were in prior to the damage or destruction or (ii) if the parties agree, which agreement shall not be unreasonably withheld, to provide at Closing in immediately available funds an amount sufficient to enable FRP to carry out the repair or replacement, in either case whether or not any insurance proceeds relating to such damage or destruction are received by Pennzoil, and whether or not any such insurance proceeds received by Pennzoil are sufficient for such purpose. Pennzoil shall be entitled to retain any insurance proceeds relating to any such damage or destruction to pay for the cost of such restoration. Pennzoil shall cause such restoration to be completed promptly, but in no event later than 90 days after the applicable casualty event, shall pay the entire cost of such restoration, and shall cause any and all mechanics', materialmen's and other liens relating thereto to be paid and discharged the record promptly, but in no event less 56 than 20 days after the completion of such restoration. Pennzoil agrees that its obligation under this Section 5.8 to repair or replace any Purchased Asset shall continue after the Closing (and Pennzoil shall be responsible for obtaining and maintaining insurance in amounts and covering risks that Pennzoil customarily obtains) for all Purchased Assets (including inventory and transportation equipment such as rail cars, barges, tankers, marine vessels, trucks and other vehicles) that are in transit or in the process of being transported on the Closing Date, in each case until such Purchased Assets reach their appointed destinations. 5.9 GAS SUPPLY. Pennzoil agrees to supply to FRP upon FRP's request for use at the Culberson Facility all or any portion of the natural gas that is the subject of a gas purchase contract with Texaco Inc., dated July 11, 1984 (relating to the D.C. Ponder Gas Unit and the Williams Gas Unit located in Ward County, Texas). Pennzoil agrees to charge FRP the same rate for the provision of natural gas as is charged by Texaco Inc. under the above mentioned contract. 5.10 TRANSITION SERVICES AGREEMENT. Pennzoil agrees to continue to operate the Purchased Assets in accordance with and pursuant to the Transition Services Agreement. ARTICLE 6 COVENANTS OF FRP FRP agrees that: 6.1 CONFIDENTIALITY. Prior to the Closing Date and after any termination of this Agreement, FRP and its Affiliates will hold, and will use their best efforts to cause their respective officers, directors, employees, accountants, counsel, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information concerning the Business or Pennzoil furnished to FRP or its Affiliates in connection with the transactions contemplated by this Agreement, except to the extent that such information can be shown to have been (i) previously known on a nonconfidential basis by FRP, (ii) in the public domain through 57 no fault of FRP or (iii) later lawfully acquired by FRP from sources other than Pennzoil; PROVIDED that FRP may disclose such information to its officers, directors, employees, accountants, counsel, consultants, advisors and agents in connection with the transactions contemplated by this Agreement so long as such Persons are informed by FRP of the confidential nature of such information and are directed by FRP to treat such information confidentially. If this Agreement is terminated, FRP and its Affiliates will, and will use their best efforts to cause their respective officers, directors, employees, accountants, counsel, consultants, advisors and agents to, destroy or deliver to Pennzoil, upon request, all documents and other materials, and all copies thereof, obtained by FRP or its Affiliates or on their behalf from Pennzoil in connection with this Agreement that are subject to such confidence. 6.2 MARKETING SOLID SULPHUR. (a) Prior to the Closing, the parties will retain Saybolt (or, if Saybolt is not available, another independent surveyor selected by the parties) to conduct a survey of the amount of solid sulphur inventory above the Base Pad Sulphur at the Galveston Facility using procedures approved by the parties. The surveyed volume components will be multiplied by the densities of solid sulphur for each volume component, as are proposed by the independent surveyor and approved by the parties, to derive the weight of the solid sulphur. The sum of the weights of all the component volumes shall be referred to as the "SOLID SULPHUR AMOUNT". (b) The parties agree that an amount of solid sulphur equal to the Solid Sulphur Amount will be marketed on the following terms: (i) On or before the date 90 days after the Closing (the "SOLID SULPHUR OPTION DATE"), Pennzoil will have the right to sell any amount of solid sulphur up to the Solid Sulphur Amount outside the United States. On or before the Solid Sulphur Option Date, Pennzoil will notify FRP in writing as to the proportion of the Solid Sulphur Amount with respect to which it has exercised such right, together with the loading schedule for such solid sulphur. Pennzoil will pay FRP $3.50 per ton for loading the solid sulphur sold by Pennzoil pursuant to this Section 6.2(b)(i). 58 (ii) During each of the ten Quarterly Periods beginning with the first Quarterly Period to commence 90 days after the Solid Sulphur Option Date, FRP shall purchase solid sulphur equal to one-tenth of the Solid Sulphur Amount that has not been nominated for sale by Pennzoil as provided in Section 6.2(a) (the "PURCHASE AMOUNT"), PROVIDED that FRP will have the right to increase the amount purchased in any Quarterly Period (A) up to an amount equal to two-tenths of the Solid Sulphur Amount under the payment conditions set out in Section 6.2(b)(iii) or (B) above an amount equal to two-tenths of the Solid Sulphur Amount so long as the parties have agreed upon a price for the amount of sulphur which is greater than two-tenths of the Solid Sulphur Amount, in either case with the amount of the increase above the Purchase Amount for such Quarterly Period being applied to reduce equally the Purchase Amount in each of the remaining Quarterly Periods. (iii) On the date 45 days after the end of each of the ten Quarterly Periods, FRP will pay to Pennzoil an amount equal to the product of: (A) the greater of (x) the Purchase Amount for such Quarterly Period and (y) the amount of solid sulphur that FRP has elected to purchase pursuant to Section 6.2(b)(ii) and (B) the Tampa Average Sulphur Price for such Quarterly Period less $25.00 (or, in the case of sulphur sold as contemplated by Section 6.2(b)(iii)(B), such other price as the parties have agreed). Each payment pursuant to this Section 6.2 shall be made in accordance with the requirements of Section 2.7, and subject to payment of interest on any late payment calculated as provided therein. 6.3 PREPAID EXPENSES. No later than 10 days prior to the Closing Date, Pennzoil will deliver to FRP a schedule of all prepaid expenses attributable to the Business. Prior to the Closing Date, Pennzoil will provide FRP with such information as it may reasonably request with respect to the items listed on that schedule, FRP and Pennzoil will consult in good faith to resolve any issues raised by FRP as to whether the items listed on that schedule will be available to FRP after the Closing Date 59 and as to the amount of such items. On the Closing Date, FRP will pay to Pennzoil, in accordance with Section 2.7, the amount of all such prepaid expenses that the parties have agreed will be available to FRP after the Closing. ARTICLE 7 COVENANTS OF BOTH PARTIES FRP and Pennzoil agree that: 7.1 BEST EFFORTS; FURTHER ASSURANCES. (a) Subject to the terms and conditions of this Agreement, FRP and Pennzoil will each use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable Laws to consummate the transactions contemplated by this Agreement. FRP and Pennzoil each agree to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable (including without limitation communicating and negotiating with any appropriate Governmental Authority) in order to consummate or implement expeditiously the transactions contemplated by this Agreement and to vest in FRP Good Title to the Purchased Assets. In addition, the parties will fully cooperate with each other and will use all reasonable efforts to investigate the transferability of all Permits and to ensure the transfer to FRP of all transferable Permits. For non- transferable Permits, FRP will use all reasonable efforts to seek to obtain new Permits. (b) Pennzoil agrees that, effective as of the Closing Date, FRP and its successors and assigns shall have the right (i) to collect for the account of FRP any items of Purchased Assets and (ii) to institute and prosecute all proceedings which FRP may in its sole discretion deem proper in order to assert or enforce any right, title or interest in, to or under the Purchased Assets, and to defend or compromise any and all actions, suits or proceedings in respect of the Purchased Assets. Pennzoil agrees to cooperate fully in such efforts. FRP shall be entitled to retain for its own account any amounts collected pursuant to the foregoing powers, including any amounts payable as interest in respect thereof. 60 (c) Pennzoil and FRP undertake to make such filings as are required pursuant to the HSR Act as soon as practicable after the date of this Agreement. 7.2 CERTAIN FILINGS. Pennzoil and FRP shall cooperate with one another (a) in determining whether any action by or in respect of, or filing with, any Governmental Authority is required, or any actions, consents, approvals or waivers are required to be obtained from parties to any material contracts, in connection with the consummation of the transactions contemplated by this Agreement and (b) in taking such actions or making any such filings, furnishing information required in connection therewith and seeking timely to obtain any such actions, consents, approvals or waivers. 7.3 PUBLIC ANNOUNCEMENTS. The parties agree to consult with each other before issuing any press release or making any public statement with respect to this Agreement or the transactions contemplated hereby and, except as may be required by applicable Law or any listing agreement with any national securities exchange, will not issue any such press release or make any such public statement prior to such consultation. 7.4 PRORATION. (a) All sewer, water, electricity and other utility charges, rentals (including those under equipment leases), other contractual payments and like items (including without limitation security deposits and prepayments, but excluding Taxes, which are addressed in Section 8.3(b) and excluding the royalty obligations which are addressed in Section 7.4(b)) with respect to the Purchased Assets shall be apportioned between Pennzoil and FRP based on the number of days of the applicable billing period on or prior to the Closing Date and the number of days of such period after the Closing Date. Pennzoil shall be liable for the proportionate amount of such payments and charges that is attributable to the period on or prior to the Closing Date, and FRP shall be liable for the proportionate amount of such payments and charges that is attributable to the period after the Closing Date. Notwithstanding the previous sentence, Pennzoil shall be liable for all costs associated with inventory in transit at the time of the Closing. (b) Except as otherwise provided in this Agreement, royalty obligations with respect to the Purchased Assets shall be apportioned between Pennzoil and FRP as of the Closing Date. 61 Subject to the provisions of Section 2.3(c), royalty obligations in respect of sulphur production that occurs prior to the time of Closing shall be Pennzoil's responsibility; any royalty obligations in respect of sulphur production that occurs after the time of Closing shall be FRP's responsibility. (c) With respect to the amounts to be prorated as provided in Section 7.4(a), Pennzoil shall pay all such amounts as they become due and shall provide FRP with a statement in reasonable detail showing the amounts paid and its proration calculation, together with such supporting evidence as is reasonably necessary to calculate such amounts. FRP shall reimburse Pennzoil for such amounts in accordance with the terms of the Transition Services Agreement. ARTICLE 8 TAX MATTERS 8.1 TAX DEFINITIONS. The following terms, as used herein, have the following meanings: "CODE" means the Internal Revenue Code of 1986, as amended. "POST-CLOSING TAX PERIOD" means any Tax period (or portion thereof) ending after the Closing Date. "PRE-CLOSING TAX PERIOD" means any Tax period (or portion thereof) ending on or before the close of business on the Closing Date. "TAX" means any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, franchise, capital, paid-up capital, profits, greenmail, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment or charge or any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any governmental authority (domestic or foreign) responsible for the imposition of any such tax. 62 8.2 TAX MATTERS. Pennzoil hereby represents and warrants to FRP that: (a) Pennzoil has timely paid all Taxes, and all interest and penalties due thereon and payable by it for the Pre-Closing Tax Period which will have been required to be paid on or prior to the Closing Date, the non-payment of which would result in a Lien on any Purchased Asset, would otherwise adversely affect the Business or would result in FRP becoming liable or responsible therefor. (b) Pennzoil has established, in accordance with generally accepted accounting principles applied on a basis consistent with that of preceding periods, adequate reserves for the payment of, and will timely pay all Tax liabilities, assessments, interest and penalties which arise from or with respect to the Purchased Assets or the operation of the Business and are incurred in or attributable to the Pre-Closing Tax Period, the non-payment of which would result in a Lien on any Purchased Asset, would otherwise adversely affect the Business or would result in FRP becoming liable therefor. 8.3 TAX COOPERATION: ALLOCATION OF TAXES. (a) FRP and Pennzoil agree to furnish or cause to be furnished to each other, upon request, as promptly as practicable, such information and assistance relating to the Purchased Assets and the Business as is reasonably necessary for the filing of all Tax returns, the making of any election related to Taxes, the preparation for any audit by any taxing authority, and the prosecution or defense of any claim, suit or proceeding relating to any Tax return. Pennzoil and FRP shall cooperate with each other in the conduct of any audit or other proceeding related to Taxes involving the Business and each shall execute and deliver such powers of attorney and other documents as are necessary to carry out the intent of this Section 8.3(a). (b) All real property taxes, personal property taxes and similar AD VALOREM obligations levied with respect to the Purchased Assets for a taxable period which includes (but does not end on) the Closing Date shall be apportioned between Pennzoil and FRP based on the number of days of such taxable period included in the Pre-Closing Tax Period and the number of days of such taxable period included in the Post-Closing Period. 63 Pennzoil shall be liable for the proportionate amount of such taxes that is attributable to the Pre-Closing Tax Period, and FRP shall be liable for the proportionate amount of such taxes that is attributable to the Post-Closing Tax Period. (c) With respect to the amounts of taxes to be prorated as provided in Section 8.3(b), Pennzoil shall pay all such amounts as they become due and shall provide FRP with a statement in reasonable detail showing the amounts paid and its proration calculation, together with such supporting evidence as is reasonably necessary to calculate such amounts. FRP shall reimburse Pennzoil for such amounts in accordance with the terms of the Transition Services Agreement. (d) Any transfer, documentary, sales, use or other Taxes assessed upon or with respect to the transfer of the Purchased Assets to FRP and any recording or filing fees with respect thereto shall be the responsibility of Pennzoil. ARTICLE 9 EMPLOYEE BENEFITS 9.1 EMPLOYEE BENEFITS DEFINITIONS. The following terms, as used herein, having the following meanings: "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ERISA AFFILIATE" of any entity means any other entity which, together with such entity, would be treated as a single employer under Section 414 of the Code. 9.2 ERISA REPRESENTATIONS. Pennzoil hereby represents and warrants to FRP that: (a) SCHEDULE 9.2(a) lists each "EMPLOYEE BENEFIT PLAN", as such term is defined in Section 3(3) of ERISA, which (i) is subject to any provision of ERISA, (ii) is maintained, administered, contributed or has been contributed to by Pennzoil or any of its Affiliates (as defined below) and (iii) covers any employee of the Business (hereinafter referred to collectively as the "EMPLOYEE 64 PLANS"). With respect to each Employee Plan, Pennzoil has provided a true and complete copy of such plan document, the most recently filed Form 5500 and an accurate summary description of such plan. Pennzoil has provided FRP with, or has caused to be provided to FRP, complete actuarial data (including age, salary, service and related data) as of the most recent practicable date for employees of the Business. (b) SCHEDULE 9.2(b) includes a list of each employment, severance or other similar contract, arrangement, practice or policy (written or oral) and each plan or arrangement (written or oral) providing for group health or other insurance coverage (including any self-insured arrangements), workers' compensation, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits or for deferred compensation, profit-sharing, bonuses, stock options, stock appreciation or other forms of incentive compensation or post-retirement insurance, compensation or benefits which (i) is not an Employee Plan, (ii) is entered into, maintained or contributed to, as the case may be, by Pennzoil or any of its Affiliates and (iii) covers any employee of the Business. Such contracts, plans and arrangements as are described above, copies or descriptions of all of which have been made available or furnished previously to FRP are hereinafter referred to collectively as the "BENEFIT ARRANGEMENTS." (c) Except as disclosed in writing to FRP prior to the date hereof, there has been no amendment to, written interpretation of or announcement (whether written or not written) by Pennzoil or any of its Affiliates relating to, or change in employee participation, benefits or coverage under, any Employee Plan or Benefit Arrangement which, on a monthly per employee basis, would increase the expense of maintaining such Employee Plan or Benefit Arrangement above the level of the expense incurred, on a monthly per employee basis, in respect thereof for the most recent prior fiscal year. (d) The Purchased Assets are not now nor will they after the passage of time be subject to any Lien imposed under Code Section 412(n) by reason of the failure of 65 Pennzoil or its Affiliates to make timely installments or other payments required by Code Section 412. (e) No Transferred Employee will become entitled to any retirement, severance or similar benefit or enhanced benefit for which FRP could be responsible pursuant to Section 9.4(a)(ii) solely as a result of the transactions contemplated hereby. 9.3 EMPLOYEES AND OFFERS OF EMPLOYMENT. (a) At any time on or after the Closing Date, FRP shall have the right at its sole discretion to offer employment to any or all active employees of the Business; PROVIDED, that FRP may terminate at any time after the Closing Date the employment of any employee who accepts such offer. FRP agrees to notify Pennzoil as soon as is reasonably practicable for FRP in light of its business objectives, and in any event within six months of the Closing Date, of the names of active employees of the Business to whom FRP intends to offer employment and FRP will offer employment to such employees within the six-month period. For purposes of this Article 9, the term "ACTIVE EMPLOYEE" shall mean any Person who, on the Closing Date, is actively employed by Pennzoil or who is on short-term disability leave, authorized leave of absence, military service or lay-off with recall rights as of the Closing Date (FRP will have the right at its sole discretion to offer such inactive employees employment at any time on or after the date they return to active employment with Pennzoil), but shall exclude any other inactive or former employee including any Person who has been on long-term disability leave or unauthorized leave of absence or who has terminated his or her employment, retired or died on or before the Closing Date. Any such offers shall be at such salary or wage and benefit levels and on such other terms and conditions as FRP shall in its sole discretion deem appropriate. Each active employee of the Business who commences employment with FRP on or prior to the termination of the Transition Services Agreement is hereinafter referred to as the "TRANSFERRED EMPLOYEE" and the date on which a Transferred Employee commences employment with FRP shall be referred to as the "TRANSFER DATE" with respect to such Transferred Employee. Pennzoil will not take, and will cause each of its subsidiaries not to take, any action which would impede, hinder, interfere or otherwise compete with FRP's effort to hire any active employee of the Business; PROVIDED, HOWEVER, that if during that six-month period Pennzoil desires to solicit any active employee of the 66 Business to continue as a Pennzoil employee, Pennzoil will notify FRP, and FRP will not unreasonably withhold its consent to Pennzoil's request. FRP shall not assume responsibility for any Transferred Employee until such employee commences employment with FRP. FRP shall have no obligation to offer employment to any Pennzoil employee. Subject to any contrary provision in the Transition Services Agreement, until such time as a Transferred Employee is hired by FRP and commences employment with FRP, he or she shall remain and shall be considered as a Pennzoil employee, and FRP will have no obligation to such employee for statutory or other purposes. 9.4 PENNZOIL'S EMPLOYEE BENEFIT PLANS. (a)(i) Subject to Section 9.4(a)(ii), Pennzoil shall retain all obligations and liabilities under the Employee Plans and Benefit Arrangements in respect of each employee or former employee (including any beneficiary thereof) who is not a Transferred Employee. Except as expressly set forth herein, Pennzoil shall retain all liabilities and obligations under the Employee Plans and Benefit Arrangements for each Transferred Employee in respect of benefits accrued as of the Transfer Date for the Transferred Employee, and neither FRP nor any of its Affiliates shall have any liability with respect thereto. Accrued benefits or account balances of each Transferred Employee under the Employee Plans and Benefit Arrangements qualified under Section 401(a) of the Code shall be fully vested as of that Transferred Employee's Transfer Date. (ii) FRP shall be responsible to Pennzoil for up to a maximum aggregate amount of $8 million in severance pay (as provided for under Pennzoil's existing severance plans), pension and benefit liabilities incurred in connection with existing severance plans and incentive pay under the 1994 IBITDA plan, associated with Pennzoil's active employees of the Business and for which liability is incurred by Pennzoil at any time from the Closing Date until the later of the date nine months after the Closing Date or the expiration of the Transition Services Agreement ("PERSONNEL COSTS"). The parties agree that if FRP terminates any Transferred Employee on or prior to the date nine months after the Closing, such Transferred Employee will be entitled to the same severance payment that he would have received from Pennzoil (as provided for under Pennzoil's existing severance plans) if he had not accepted employment with FRP, and the amount of such payments shall constitute Personnel Costs for all purposes of this Agreement. On the day nine months after the 67 Closing Date, FRP shall calculate the cumulative amount of such Personnel Costs. If the Personnel Costs amount to less than $8 million, FRP shall pay Pennzoil the Personnel Costs, and in addition, 50 percent of the amount calculated by subtracting the Personnel Costs from $8 million. Pennzoil shall be responsible for any portion of the Personnel Costs that exceeds $8 million, PROVIDED that Pennzoil will not be responsible for any portion of such excess that results from stay bonuses (other than those paid at Pennzoil's direction) or other increases in benefits implemented by FRP after the Closing Date. Likewise, FRP shall not be responsible for any increase in benefits implemented by Pennzoil after the Closing Date. (b) With respect to each Transferred Employee (including any beneficiary or dependent thereof), Pennzoil shall retain (i) all liabilities and obligations arising under any group life, accident, medical, dental or disability plan or similar arrangement (whether or not insured) to the extent that such liability or obligation relates to contributions or premiums accrued (whether or not payable), or to claims incurred (whether or not reported), on or prior to that Transferred Employee's Transfer Date, (ii) all liabilities and obligations arising under any worker's compensation arrangement to the extent such liability or obligation relates to the period prior to that Transferred Employee's Transfer Date, including liability for any retroactive workman's compensation premiums attributable to such period and all other liabilities and obligations arising under the Employee Plans and the Benefit Arrangements to the extent any such liability or obligation relates to the period prior to that Transferred Employee's Transfer Date, including proportional accruals through that Transfer Date and including without limitation liabilities and obligations in respect of accruals through that Transfer Date under any bonus plan or arrangement, any vacation plans, arrangements and policies. (c) FRP will recognize Pennzoil service for Transferred Employees for the purposes of (i) vesting in FRP's 401(k) and pension plans, (ii) vacation eligibility, (iii) service award eligibility, (iv) wage and salary continuation and (v) severance benefits. FRP will not recognize Pennzoil service for Transferred Employees for purposes of pension accruals and for determining eligibility for retiree medical, dental or other retiree coverage. 68 (d) Subject to the provisions of Section 9.4(e), after the Transfer Date, Transferred Employees and their dependents shall be covered under FRP's medical insurance policies without any exclusions for pre-existing medical conditions or other retiree coverage. Co-payments and deductibles of Transferred Employees under Pennzoil's medical insurance policies shall be credited against co-payment and deductible requirements under FRP's medical insurance policies. (e) With respect to any Transferred Employee (including any beneficiary or dependent thereof) who enters a hospital or is on short-term disability under any Benefit Arrangement on or prior to that Transferred Employee's Transfer Date and continues in a hospital or on short-term disability after that Transfer Date, Pennzoil shall be responsible for claims and expenses incurred both before and after that Transfer Date in connection with such Person, to the extent that such claims and expenses are covered by a Benefit Arrangement, until such time, (if any) that, in the case of a Transferred Employee, such Person resumes full-time employment with FRP or one of its Affiliates and, in the case of any beneficiary or dependent of a Transferred Employee, such Person's hospitalization has terminated. With respect to any Benefit Arrangements covering medical expenses and other costs relating to pregnancies and maternity leave, Pennzoil shall be responsible for all claims (whether or not reported) and expenses incurred during the period prior to and ending on that Transfer Date, and FRP or one of its Affiliates shall be responsible for such benefit arrangements covering such pregnancies and maternity leave for the period subsequent to that Transfer Date. 9.5 CONTINUATION OF CERTAIN ADMINISTRATIVE SERVICES AND INSURANCE COVERAGE. The parties agree that Pennzoil will continue certain administrative services and continue to provide insurance coverage after the Closing Date to the extent provided in and in accordance with the provisions of the Transition Services Agreement. 9.6 WARN ACT. The parties agree to cooperate in good faith to determine whether any notification may be required under the WARN Act as a result of the transactions contemplated by this Agreement. FRP will be responsible for providing any notification that may be required under the WARN Act with respect to any Transferred Employees. Pennzoil will be responsible for 69 providing any notification that may be required under the WARN Act with respect to any employees of the Business that are not Transferred Employees, PROVIDED that FRP has given sufficient notice to enable Pennzoil to provide such timely notification. If FRP fails to provide sufficient notice, FRP shall be liable for any additional expenditure resulting from the failure to provide notification required under the WARN Act with respect to any employees of the Business. 9.7 NO THIRD PARTY BENEFICIARIES. No provision of this Article shall create any third party beneficiary or other rights in any employee or former employee (including any beneficiary or dependent thereof) of Pennzoil or of any of its subsidiaries in respect of continued employment (or resumed employment) with either FRP or the Businesses or any of their Affiliates and no provision of this Article 9 shall create any such rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any Employee Plan or Benefit Arrangement or any plan or arrangement which may be established by FRP or any of its Affiliates. No provision of this Agreement shall constitute a limitation on rights to amend, modify or terminate after the Closing Date any such plans or arrangements of FRP or any of its Affiliates. ARTICLE 10 CONDITIONS TO CLOSING 10.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of FRP and Pennzoil to consummate the Closing are subject to the satisfaction of the following conditions: (a) Any applicable waiting period under the HSR Act relating to the transactions contemplated hereby shall have expired or been terminated. (b) No provision of any applicable Law shall (i) prohibit the consummation of the Closing or (ii) restrain, prohibit or otherwise interfere with the effective operation or enjoyment by FRP of all or any material portion of the Purchased Assets. 70 (c) No proceeding challenging this Agreement or the transactions contemplated hereby, seeking to prohibit, alter, prevent or materially delay the Closing or otherwise relating to the Purchased Assets or to the conduct of the Business after the Closing Date shall have been instituted by any Person before any arbitrator or Governmental Authority and be pending. (d) Each of FRP and Pennzoil shall have executed and delivered to the other party (i) the Deed of Trust, (ii) the Transition Services Agreement and (iii) each other deed, certificate, agreement or other document contemplated by this Agreement. 10.2 CONDITIONS TO OBLIGATION OF FRP. The obligation of FRP to consummate the Closing is subject to the satisfaction of the following further conditions: (a)(i) Pennzoil shall have performed in all material respects all of its obligations hereunder required to be performed by it on or prior to the Closing Date, (ii) the representations and warranties of Pennzoil contained in this Agreement and in any certificate or other writing delivered by Pennzoil pursuant hereto shall be true in all material respects at and as of the Closing Date, as if made at and as of such date and (iii) FRP shall have received a certificate signed by the President, the Group Vice President -- Sulphur or the Group Vice President -- Accounting and Controller of Pennzoil to the foregoing effect. (b) Pennzoil shall have received all Required Consents and all consents, authorizations or approvals from the Governmental Authorities referred to in Section 3.3, in each case in form and substance reasonably satisfactory to FRP, and no such consent, authorization or approval shall have been revoked. (c) Any title reports that FRP shall have elected to receive with respect to the Real Property and Mineral Interests shall disclose no Liens or defects in title that would prevent FRP from acquiring Good Title to the Real Property and Mineral Interests. 71 (d) FRP shall have received all documents it may reasonably request relating to the existence of Pennzoil and the authority of Pennzoil for this Agreement, all in form and substance reasonably satisfactory to FRP. (e) FRP shall have received the consent of its credit facility banks to incur the obligations contemplated hereby and to establish the Liens created in the Deed of Trust. (f) All Permits reasonably necessary for the operation of the Business (other than the Excluded Assets) shall have been transferred to FRP prior to the Closing Date (with the only change being the identity of the holder thereof) or FRP shall be satisfied, in its reasonable judgment, that (i) such Permits can be transferred within six months subsequent to the Closing Date (with the only change being the identity of the holder thereof) or (ii) FRP shall be able to obtain new Permits reasonably necessary for the operation of the Business (other than the Excluded Assets) within such period with substantially similar terms (and requiring FRP to expend similar amounts) to those of the Permits in effect prior to the Closing Date, and PROVIDED that in the case of Permits to be transferred or obtained in accordance with the provisions of clauses (i) and (ii), FRP shall be satisfied, in its reasonable judgment, that no fines or penalties shall be imposed on FRP as a result of operating without such a Permit that will not be reimbursed by Pennzoil and FRP shall be able to operate the Business (other than the Excluded Assets) during such six-month period without any delay or interruption attributable to operating without any such Permit. 10.3 CONDITIONS TO OBLIGATION OF PENNZOIL. The obligation of Pennzoil to consummate the Closing is subject to the satisfaction of the following further conditions: (a)(i) FRP shall have performed in all material respects all of its obligations hereunder required to be performed by it at or prior to the Closing Date, (ii) the representations and warranties of FRP contained in this Agreement and in any certificate or other writing delivered by FRP pursuant hereto shall be true in all material respects at and as of the Closing Date, as if made at and as of such date and (iii) Pennzoil shall have received a 72 certificate signed by the President or Chief Financial Officer of FRP to the foregoing effect. (b) FRP shall have received all consents, authorizations or approvals from the Governmental Authorities referred to in Section 4.3, in each case in form and substance reasonably satisfactory to Pennzoil, and no such consent, authorization or approval shall have been revoked. (c) Pennzoil shall have received all documents it may reasonably request relating to the existence of FRP and the authority of FRP for this Agreement, all in form and substance reasonably satisfactory to Pennzoil. ARTICLE 11 SURVIVAL; INDEMNIFICATION 11.1 SURVIVAL. (a) The representations and warranties of the parties hereto contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith shall not be limited or affected by any investigation undertaken by either party hereto, and shall survive the Closing until the second anniversary of the Closing Date or (i) in the case of Sections 3.1, 3.2, 4.1 and 4.2, indefinitely, (ii) in the case of Section 3.20(a), until the fifth anniversary of the Closing and (iii) in the case of the representations and warranties relating to Taxes or contained in Article 9, until expiration of the applicable statutory period of limitations (giving effect to any waiver, mitigation or extension thereof), if later, and shall thereafter terminate, together with any associated right of indemnification pursuant to Section 11.2(a)(i). Notwithstanding the preceding sentence any representation or warranty in respect of which indemnity may be sought under Section 11.2(a)(i) and the associated right of indemnification under Section 11.2(a)(i), shall survive the time at which it would otherwise terminate pursuant to the preceding sentence, with respect to any matter identified in a notice (which notice shall identify the representation or warranty claimed to have been breached or to have been inaccurate, and shall state with reasonable particularity the nature of the 73 asserted breach or inaccuracy) given prior to such time to the party against whom such indemnity may be sought. (b) Except as expressly provided in this Agreement, the covenants and agreements of the parties hereto contained in this Agreement (including without limitation the obligation to make Quarterly Installment Payments) or in any certificate or other writing delivered pursuant hereto or in connection herewith shall not be limited or affected by any investigation undertaken by either party hereto, and shall survive indefinitely together with any associated right of indemnification. Without limiting the generality of the preceding sentence, the indemnification obligation of Pennzoil pursuant to Section 11.2 with respect to Excluded Liabilities (other than Environmental Liabilities) shall survive indefinitely whether or not the Excluded Liability involves any misrepresentation or breach of warranty by Pennzoil under Article 3. (c) Except as provided in Section 5.7(b), the indemnification obligation of Pennzoil for Environmental Liabilities shall survive for five years after the Closing Date (other than in connection with Known Remedial Conditions, as to which the indemnification obligation of Pennzoil shall survive indefinitely and shall include all future changes in Environmental Laws), PROVIDED that if within such five-year period FRP notifies Pennzoil of the existence of any Environmental Liability that requires remediation (whether at the time of notification or at some future date) under Environmental Laws in effect at the time of such notification, Pennzoil shall indemnify FRP and its Affiliates for all Losses incurred or suffered by FRP or its Affiliates in connection with such Environmental Liability and, in accordance with the provisions of Section 5.7 relating to remediation, Pennzoil shall be responsible for all Remedial Activities relating to any such Environmental Liability (including Remedial Activities that might be required due to changes in Environmental Laws after such five-year period) and such obligations shall survive indefinitely. 11.2 INDEMNIFICATION. (a) Pennzoil hereby indemnifies FRP and its Affiliates against and agrees to hold each of them harmless from any and all damage, loss, liability and expense (including without limitation reasonable expenses of investigation (including the cost of environmental consultants, engineers or technical personnel) and reasonable attorneys' fees 74 and expenses in connection with any action, suit or proceeding) (collectively, "LOSS") incurred or suffered by FRP or any of its Affiliates arising out of or in connection with: (i) any misrepresentation or breach of warranty by Pennzoil under this Agreement, PROVIDED, HOWEVER, that Pennzoil shall be liable only if the aggregate amount of any such Losses exceeds $500,000 and PROVIDED FURTHER that for purposes of making such calculation the representation set forth in Section 3.20(a)(iv) shall be read without any materiality qualification (the "FRP Retention") and then only to the extent of such excess; (ii) any breach of any covenant or agreement made or to be performed by Pennzoil pursuant to this Agreement; (iii) the failure of Pennzoil to discharge or perform any Excluded Liability; (iv) subject to and consistent with the provisions of Section 5.7, any Environmental Liabilities; or (v) any liability to the State of Texas for royalties owed as a result of sulphur production carried out prior to the Closing. The FRP Retention shall not apply to Losses covered by Subsections 11.2(a)(ii) through 11.2(a)(v) above whether or not such Losses are also covered by Section 11.2(a)(i). (b) FRP hereby indemnifies Pennzoil and its Affiliates against and agrees to hold each of them harmless from any and all Loss incurred or suffered by Pennzoil or any of its Affiliates arising out of or in connection with any misrepresentation or breach of warranty, covenant or agreement made or to be performed by FRP pursuant to this Agreement. 11.3 PROCEDURES. The party seeking indemnification under Section 11.2 (the "INDEMNIFIED PARTY") agrees to give prompt notice to the party against whom indemnity is sought (the "INDEMNIFYING PARTY") of the assertion of any claim, or the commencement of any suit, action or proceeding in respect of which indemnity may be sought under such Section. The Indemnifying Party may, and at the request of the Indemnified 75 Party shall, participate in and control the defense of any such suit, action or proceeding at its own expense. The Indemnifying Party shall not be liable under Section 11.2 or for any settlement effected without its consent of any claim, litigation or proceeding in respect of which indemnity may be sought hereunder. In addition, if a claim for indemnification for Environmental Liabilities involves Remedial Activities, such claim shall be processed in accordance with the applicable provisions of Section 5.7. ARTICLE 12 TERMINATION 12.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written agreement of Pennzoil and FRP; (b) by either Pennzoil or FRP if the Closing shall not have been consummated on or before December 31, 1995; (c) by either Pennzoil or FRP if there shall be any Law that makes the consummation of the transactions contemplated hereby illegal or otherwise prohibited or if consummation of the transactions contemplated hereby would violate any nonappealable final order, decree or judgment of any Governmental Authority having competent jurisdiction; or (d) by either Pennzoil or FRP if there shall occur any damage to or destruction of any Purchased Asset or part thereof by fire or other casualty if, in any such case, the cost of repair or replacement of the damaged or destroyed Purchased Assets (net, in the case of Pennzoil, of the estimated insurance proceeds related thereto) exceeds $2,000,000; PROVIDED, HOWEVER, that Pennzoil may not terminate this Agreement pursuant to this Section 12.1(d) if FRP waives Pennzoil's obligations pursuant to Section 5.8(b) in connection with the event of destruction of or damage to any Purchased Assets. 76 The party desiring to terminate this Agreement pursuant to SECTIONS 12.1(b), 12.1(c) OR 12.1(d) shall give notice of such termination to the other party. 12.2 EFFECT OF TERMINATION. If this Agreement is terminated as permitted by Section 12.1, such termination shall be without liability of either party (or any stockholder, director, officer, employee, agent, consultant or representative of such party) to the other party to this Agreement; PROVIDED that if such termination shall result from the willful failure of either party to fulfill a condition to the performance of the obligations of the other party, failure to perform a covenant of this Agreement or breach by either party to this Agreement of any representation or warranty or agreement contained herein, such party shall be fully liable for any and all Losses incurred or suffered by the other party as a result of such failure or breach. The provisions of Sections 5.2, 6.1 and 13.3 shall survive any termination hereof pursuant to Section 12.1. ARTICLE 13 MISCELLANEOUS 13.1 NOTICES. All notices, requests and other communications to either party hereunder shall be in writing (including facsimile transmission) and shall be given, if to FRP to: Roger T. Baker, Esq. Vice President - Law Freeport-McMoRan Resource Partners, Limited Partnership 1615 Poydras Street New Orleans, LA 70112 Telecopy: 504-582-4416 77 with a copy to: David W. Ferguson, Esq. Davis Polk & Wardwell 450 Lexington Avenue New York, NY 10017 Telecopy: (212) 450-4800 if to Pennzoil, to: James W. Shaddix, Esq. General Counsel Pennzoil Company Pennzoil Place 700 Milam Street Houston, TX 77002 Telecopy: with a copy to: Frank W.R. Hubert, Jr., Esq. Baker & Botts, L.L.P. One Shell Plaza Houston, TX 77002 Telecopy: (713) 229-1522 All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. 13.2 AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement may be amended or waived prior to the Closing Date if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude 78 any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 13.3 EXPENSES. Except as otherwise provided herein, all costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense. 13.4 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto except that (i) FRP may transfer or assign, in whole or from time to time in part, to one or more of its Affiliates, the right to purchase all or a portion of the Purchased Assets, but no such transfer or assignment will relieve FRP of its obligations hereunder and (ii) Pennzoil may assign its rights to receive one or more Quarterly Installment Payments to another Person or Persons, it being understood that FRP shall not be required to make any such payment to any Person other than Pennzoil and that Pennzoil may not transfer or delegate to any other Person any right or obligation to resolve any dispute, amend any provision hereof or exercise or waive any right hereunder, all of which rights or obligations shall be retained solely by Pennzoil. 13.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE, EXCEPT TO THE EXTENT THAT THE LAWS OF THE STATE WHERE A PURCHASED ASSET IS LOCATED NECESSARILY MUST BE CONSULTED ON ISSUES RELATED TO THE OWNERSHIP OR TRANSFER OF THAT PURCHASED ASSET. 13.6 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. 13.7 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement constitutes the entire agreement between the 79 parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of this Agreement. No representation, inducement, promise, understanding, condition or warranty not set forth herein has been made or relied upon by either party hereto. Neither this Agreement nor any provision hereof is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. 13.8 BULK SALES LAWS. FRP hereby waives compliance by Pennzoil with the provisions of the "bulk sales", "bulk transfer" or similar laws of any state. Pennzoil agrees to indemnify and hold FRP harmless against any and all claims, losses, damages, liabilities, costs and expenses incurred by FRP or any of its affiliates as a result of any failure to comply with any such "bulk sales", "bulk transfer" or similar laws. 13.9 CAPTIONS. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. FREEPORT-McMoRan RESOURCE PARTNERS, Limited Partnership By: FREEPORT-McMoRan INC. Managing General Partner By/s/ Charles W. Goodyear -------------------------------- Title: Senior Vice President PENNZOIL COMPANY By/s/ Mark A. Malenski -------------------------------- Title: Group Vice President-- Accounting and Controller 80 EX-10.8 16 AMENDMENT 1 TO ASSET PURCHASE AGREEMENT AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT AMENDMENT NO. 1 dated as of January 3, 1995 to the Asset Purchase Agreement (the "Agreement") dated as of October 22, 1994 between Freeport-McMoRan Resource Partners Limited Partnership, a Delaware limited partnership ("FPR") and Pennzoil Company, a Delaware corporation ("Pennzoil"). W T I N E S S E T H : WHEREAS, FRP and Pennzoil desire to amend the Agreement as set forth in this Amendment No. 1; NOW, THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof," "hereunder," "herein" and "hereby" and each reference to "this Agreement" and each other similar reference contained in the Agreement shall refer to the agreement as amended by this Amendment No. 1. 2. ACCOUNTING ADJUSTMENT. The parties have agreed, as an accounting convenience, to establish a financial accounting cut-off time (the "Accounting Cut-Off") for the transaction of 12.:01 a.m. on January 1, 1995. Accordingly, upon the occurrence of the Closing, the parties will make all appropriate financial and accounting adjustments (including appropriate payments to each other and to third parties) as if the Closing had occurred at the Accounting Cut-Off. In particular, FRP will be entitled to record and receive (and receive the benefit of) all operating revenues, inventories, receivables and prepaid expenses generated from or with respect to the Purchased Assets from and after the Accounting Cut-Off and shall record and pay all payables and contract obligations incurred in connection with the Purchased Assets (and all obligations of FRP to reimburse Pennzoil for royalties as provided in the Agreement shall commence) from and after the Accounting Cut-Off. Pennzoil's cash and cash equivalents on hand and in banks as of the Accounting Cut-Off (except for Petty Cash as of that time) and all accounts, notes and other receivables attributable to the operation of the Business prior to the Accounting Cut-Off shall continue to be Excluded Assets, but all such items generated on or after the Accounting Cut-Off shall be Purchased Assets. Similarly, all accounts payable attributable to the operation of the Business prior to the Accounting Cut-Off shall continue to be Excluded Liabilities, but all accounts payable attributable to the operation of the Business on or after the Accounting Cut-Off shall be Assumed Liabilities. The liquid sulphur inventory adjustment contemplated by Section 2.10 of the Agreement shall be conducted as of the Accounting Cut-Off, and sales of liquid sulphur inventory (or other inventory constituting Purchased Assets) on or after the Accounting Cut-Off shall be for the account and benefit of FRP. The prepaid expense adjustment contemplated by Section 6.3 of the Agreement shall be made in respect of prepaid expenses as they exist at the Accounting Cut-Off. The proration provisions set forth in Sections 7.4 and 8.3 of the Agreement shall be made as of the Accounting Cut-Off rather than as of the Closing Date. The first Quarterly Period shall commence on January 1, 1995, and the last Quarterly Period shall end on the earlier of December 31, 2014 and the date specified in clause (v) of the definition of Quarterly Period. The term "Option Date" shall mean January 1, 1999 and each subsequent third anniversary of the First Option Date. For all other purposes of the Agreement, including without limitation, determining the Purchased and Excluded Assets and the Assumed and Excluded Liabilities, compliance with the representations and covenants set forth in the Agreement, responsibility for damage, destruction or condemnation of the assets and satisfaction of the conditions to Closing, the references in the Agreement to the Closing Date shall mean the actual date of the Closing. 3. VALUATION OF PURCHASE ASSETS IN FLORIDA. The parties agree that for tax purposes, the portion of the Purchase Price attributable to all Purchased Assets located in the State of Florida shall be deemed to be $966,500. 4. GAS SUPPLY. Section 2.2(h) of the Agreement is hereby deleted in its entirety, and it is understood that Pennzoil's gas contract with Texaco Inc. shall be deemed to be added to Schedule 3.12(a) of the Agreement and shall be a "Contract" to be assigned by Pennzoil to FRP at the Closing. Section 5.9 of the Agreement is hereby deleted in its entirety. 5. SOLID SULPHUR AMOUNT. Section 6.2(a) of the Agreement is hereby amended and restated to read in its entirety: "6.2 MARKETING SOLID SULPHUR. (a) The parties will retain an independent surveyor acceptable to all of the parties to conduct a survey of the amount of solid sulphur inventory above the Base Pad Sulphur at the Galveston Facility using procedures approved by the parties, such survey to be completed within 90 days of the Closing. The surveyed volume components will be multiplied by the densities of solid sulphur for each volume component, as are proposed by the independent surveyor and approved by the parties, to derive the weight of the solid sulphur. The sum of the weights of all of the component volumes shall be referred to as the "Solid Sulphur Amount." 2 6. OTHER SULPHUR PROPERTIES. The parties agree that the exploration projects, "Bayou Dorcheat, Nevada Co., Arkansas" and "Wild Dog Creek, Richland Parish, Louisiana" shall be deleted from Schedule 2.2(f) to the Asset Purchase Agreement and inserted in Schedule 2.6 to the Asset Purchase Agreement as items (7) and (8) under paragraph B. 7. GOVERNING LAW. THIS AMENDMENT NO. 1 SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE, EXCEPT TO THE EXTENT THAT THE LAWS OF THE STATE WHERE A PURCHASED ASSET IS LOCATED NECESSARILY MUST BE CONSULTED ON ISSUES RELATED TO THE OWNERSHIP OR TRANSFER OF THAT PURCHASED ASSET. 8. COUNTERPARTS; EFFECTIVENESS. This Amendment No. 1 may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment No. 1 shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. Except as expressly amended by this Amendment No. 1, the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed by their respective authorized officers as of the day and year first above written. FREEPORT-McMoRan RESOURCE PARTNERS, Limited Partnership By: FREEPORT-McMoRan INC. Managing General Partner By /s/ Charles W. Goodyear ------------------------------- Title: Senior Vice President PENNZOIL COMPANY By /s/ Mark A. Malenski ------------------------------- Title: Group Vice President-- Accounting and Controller 3 EX-10.9 17 AGREEMENT FOR SULPHUR SUPPLY AS AMENDED THE PORTIONS OF THIS EXHIBIT 10.9 MARKED "[CONFIDENTIAL*]" HAVE BEEN OMITTED HEREFROM AND CONFIDENTIALLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. DO NOT COPY - NOT FOR DISTRIBUTION AGREEMENT FOR SULPHUR SUPPLY dated as of July 1, 1993 among Freeport-McMoRan Resource Partners, Limited Partnership, IMC Fertilizer, Inc. and IMC-Agrico Company TABLE OF CONTENTS PAGE I. Definitions ........................................................ 2 II. Agreements to Purchase and Sell .................................... 8 III. Contract Term ...................................................... 9 lV. Quantity; Pricing Allocation ....................................... 9 V. Price .............................................................. 13 VI. Scheduling ......................................................... 19 VII. Deliveries ......................................................... 22 VIII. Weights and Measures ............................................... 29 IX. Quality and Form ................................................... 30 X. Title and Risk ..................................................... 31 XI. Invoicing and Payment .............................................. 31 XII. Safety, Lability, Warranties ....................................... 35 XIII. Taxes .............................................................. 36 XIV. Audit .............................................................. 36 XV. Force Majeure ...................................................... 37 XVI. Sulphur Sales by FRP to IMC ........................................ 39 XVII. FRP Use of Partnership Facilities .................................. 39 XVIII. Commercial Impracticability ........................................ 41 XIX. Successor Manager .................................................. 42 XX. Notices ............................................................ 43 XXI. FRP/IMC Agreements ................................................. 45 XXII. SATCO Exchanges .................................................... 46 XXIII. Assignment ......................................................... 46 XXIV. Confidentiality .................................................... 47 XXV. Damages ............................................................ 48 XXVI. Amendments ......................................................... 48 XXVII. Governing Law ...................................................... 48 XXVIII. Successors and Assigns ............................................. 49 XXIX. Conflict of Interest ............................................... 49 XXX. Headings ........................................................... 49 Schedule A - Agreed basis for determining Base Sulphur to Supplemental Sulphur Supply Ratios Schedule B - Sulphur Allocation Worksheet Addendum No. 1 to Agreement for Sulphur Supply - Excess IMC Sulphur Addendum No. 2 to Agreement for Sulphur Supply - Deleting Pennzoil Supply Contract as an Exclusion to [Confidential*] Addendum No. 3. to Agreement for Sulphur Supply - Faustina Plant Exception December 1, 1994 AGREEMENT FOR SULPHUR SUPPLY This Agreement is made and entered into this 1st day of July, 1993 among Freeport-McMoRan Resource Partners, Limited Partnership ("FRP") IMC Fertilizer, Inc. (ZINCS), and IMC-Agrico Company, a Delaware general partnership ("Partnership"). RECITALS A. Partnership owns and operates phosphate chemical manufacturing plants and wishes to secure a long-term supply of sulphur for its manufacturing requirements; B. IMC wishes to supply sulphur to Partnership on a long term basis; C. FRP wishes to supply sulphur to Partnership on a long term basis; THEREFORE the parties agree as follows: I. DEFINITIONS Whenever used in this Agreement, the terms set forth below shall have the meanings assigned to them in this Article I. Unless otherwise expressly specified therein, the terms defined in this Article I shall have the same meanings when used in any attachments to this Agreement. 1.01 "AFFILIATE" means when used in relation to a party to this Agreement, any firm, corporation, partnership, joint venture or other entity, that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with such party. 1.02 "AGREEMENT" means this Agreement for Sulphur Supply and Schedules A and B attached hereto, which Schedules are incorporated into this Agreement by reference, and any amendments hereto. 1.03 "ALLOWED SPOT PURCHASES" shall have the meaning prescribed for such term in Section 1.12 hereof. 1.04 "BASE SULPHUR" means a category into which sulphur supplied by FRP and IMC hereunder shall be allocated for purposes of pricing sulphur to be sold under this Agreement, all as more fully set forth in Article IV hereof. 1.05 "BASE TONNAGE" shall have the meaning prescribed for such term in subparagraph (c) of Article IV hereof. 1.06 "CONTRACT TERM" means the period of time beginning as of the date hereof and continuing thereafter for so long as the business of Partnership has a requirement for sulphur. 1.07 "DELIVERED PRICE PER TON" means, when used with respect to sulphur delivered to a particular Partnership plant, the amount per ton paid by [Confidential*] for such sulphur delivered to such plant [Confidential*] from point of origin to such plant. In the case where sulphur destined for a central Florida Partnership plant is delivered into Partnership-furnished trucks at a marine sulphur terminal located in the Port of Tampa, Florida and transported therein from such terminal to such plant at Partnership's expense, the "Delivered Price Per Ton" in such case shall mean with respect to such plant an amount per ton equal to the sum of [Confidential*]. 1.08 "EXCESS IMC SULPHUR" means sulphur obtained by whatever means by IMC for the purpose of supplying hereunder the sulphur requirements of Partnership, but which sulphur proves to be in excess of such requirements. 1.09 "FAUSTINA PLANT" means the fertilizer plant owned and operated by Partnership and located at Donaldsonville, Louisiana. 1.10 "IMC MAIN PASS SULPHUR" means all sulphur produced for the account of IMC from the offshore Louisiana Main Pass 299 sulphur mine. 1.11 [CONFIDENTIAL*] means, with respect to a month [Confidential*] paid by IMC to FRP and to parties other than FRP that are not affiliated with IMC or Partnership for sulphur purchased by IMC and delivered to Partnership's phosphoric acid manufacturing plants located in central Florida (excluding the Nichols plant) during such period of time; exclude. (i) purchases from IMC's existing sulphur purchase contract with Pennzoil Sulphur Company dated November 25, 1985, (ii) any and all purchases from whatever source that are not equivalent to arm's length contract transactions representative of the then current. market for like quantities, terms and deliveries, and (iii) transactions such as, but not limited to, those involving an exchange of an unlike commodity for sulphur and those involving payment and other contract terms which would not customarily be available from sulphur suppliers in general at the time the agreement governing the transaction was entered into, and (iv) [Confidential*] (purchases under contracts of less than one year's duration) excepts for Allowed Spot Purchases. [Confidential*] shall have the following meaning: Of the total sulphur purchased by Partnership during such month (excluding purchases during such month of the kind described in subclauses (i), (ii) and (iii) of the preceding sentence and excluding [Confidential*] during such month which meet the criteria set forth in subclauses (ii) and (iii) of the preceding sentence), the portion of such total sulphur which is purchased on a [Confidential*] up to a maximum of [Confidential*] of such total sulphur, shall be considered [Confidential*]. The quantity of the [Confidential*] if any, shall be deemed to have been purchased at a price per ton equal to the [Confidential*]. The [Confidential*] shall mean the [Confidential*] of all sulphur purchased by IMC on a [Confidential*] basis during such month (excluding [Confidential*] during such month meeting the criteria of subclauses (ii) and (iii) of the first sentence of this Section 1.12); provided however, that for purposes of calculating the [Confidential*] for such month: (i) should the [Confidential*] for such month exceed by more than [Confidential*] the [Confidential*] for such month, the [Confidential*] for such month in such event shall be deemed to be an amount equal to the [Confidential*] for such month plus [Confidential*]; or (ii) should the [Confidential*] for such month exceed by more than [Confidential*] the [Confidential*] for such month, the [Confidential*] for such month in such event shall be deemed to be an amount equal to the [Confidential*] for such month less [Confidential*]. 1.12 [CONFIDENTIAL*] means, with respect to month, the actual [Confidential*] paid by IMC to FRP and to parties other than FRP that are not affiliated with IMC or Partnership for sulphur purchased by IMC and delivered to Partnership's phosphoric acid manufacturing plants located in central Florida (excluding the Nichols plant) during such month; excluding (i) purchases from IMC's existing sulphur purchase contract with Pennzoil Sulphur Company dated November 25, 1985, (ii) any and all purchases from whatever source that are not equivalent to arm's length contract transactions representative of the then current market for like quantities, terms and deliveries, and (iii) transactions such as, but not limited to, those involving an exchange of an unlike commodity for sulphur, those involving payment and other contract terms which would not customarily be available from sulphur supplies in general at the time the agreement governing the transaction was entered into, and (iv) [Confidential*] (purchases under contracts of less than one year's duration). 1.13 "NEW WALES PLANT" means the fertilizer plant owned and operated by Partnership and located at New Wales, Florida. 1.14 "NICHOLS PLANT" means the fertilizer plant owned and operated by Partnership and located at Nichols, Florida. 1.16 "PARTNERSHIP" means IMC-Agrico Company, a Delaware general partnership. 1.17 "PARTNERSHIP PLANT" means any of the New Wales plant, the South Pierce plant, the Faustina plant, the Uncle Sam plant and the Nichols plant. 1.18 "SHORTFALL" shall have the meaning prescribed for such term in subparagraph (b) of Article IV hereof. 1.19 "SOUTH PIERCE PLANTS" means the phosphoric acid fertilizer plant owned and operated by Partnership and located at Bartow, Florida. 1.20 [CONFIDENTIAL*] shall have the meaning prescribed for such term in Section 1.12 hereof. 1.21 "SUPPLEMENTAL SULPHUR" means a category into which sulphur supplied by FRP and IMC hereunder shall be allocated for purposes of pricing sulphur to be sold under this Agreement; all as more fully set forth in Article IV hereof. 1.22 "SUPPLEMENTAL TONNAGE" shall have the meaning prescribed for such term in subparagraph (c) of Article IV hereof. 1.23 "TAFT PLANTS" means the fertilizer plant owned and operated by Partnership and located at Taft, Louisiana. 1.24 "TON" means a long ton of 2240 pounds. 1.25 "UNCLE SAME PLANT" means the fertilizer plant owned and operated by Partnership and located at Uncle Sam, Louisiana. II. AGREEMENTS TO PURCHASE AND SELL FRP and IMC will sell and deliver, and Partnership will purchase and accept, during the Contract Term, the quantities of sulphur described in Article IV hereof at the prices set forth in Article V hereof. III. CONTRACT TERM The term of thin Agreement shall begin as of the date hereof and shall continue thereafter for so long as the business of Partnership has a requirement for sulphur. IV. QUANTITY PRICING ALLOCATION FRP and IMC shall collectively, supply 100% of Partnership's sulphur requirements during the Contract Term with the quantity to be supplied by each of FRP and IMC being determined as set forth in subparagraphs (a) through (d) below of this Article IV, unless otherwise agreed by each of Partnership, FRP and IMC. The sulphur sold by FRP and IMC to the Partnership shall be allocated as prescribed it subparagraphs (a) through (d) below of this Article IV between the categories "Base Sulphur" [Confidential*] and "Supplemental Sulphur." Schedule A attached hereto and made a part hereof represents the agreement of the parties hereto as to the manner in which quantities of sulphur to be supplied by FRP and IMC would be allocated among Partnership plants shown on such schedule, as well as the allocation of such quantities as between Base Sulphur and Supplemental Sulphur, in the event Partnership's requirement for sulphur for a year should be exactly 3,025,000 tons. Schedule B attached hereto and made a part hereof is a sulphur allocation worksheet which incorporates the allocation ratios of Schedule A, as supplemented and modified by subparagraphs (a) through (d) below of this Article IV, and as such constitutes the mechanism by which quantities to be supplied hereunder to Partnership plants shown on Schedule A hereof, and the allocation of such quantities for purposes of the pricing provisions hereof, shall be calculated. (a) FRP will supply 100% of the requirements of the Faustina, Uncle Sam and South Pierce plants, with the allocation of Base Sulphur and Supplemental Sulphur to each of such plants to be calculated by the use of the Sulphur Allocation Worksheet set forth on Schedule B. (b) All sulphur requirements for the New Wales plant will be supplied by FRP and IMC with the portion of such requirements to be supplied by each of FRP and IMC for the New Wales plant, and the allocation of each such portion as between Base Sulphur and Supplemental Sulphur, to be determined by the use of the Sulphur Allocation Worksheet set forth on Schedule B, except if at any time IMC has insufficient IMC Main Pass Sulphur to meet IMC's Base Sulphur supply obligation at such time as determined from Schedule B, it shall so notify FRP and the number of tons of IMC Main Pass Sulphur required to meet such obligation (the Shortfall) may be supplied by FRP at FRP's election, provided notice of FRP's election to supply is furnished to IMC within 30 days of FRP's receipt of IMC's notice of the Shortfall. Should FRP decline or fail to elect to supply the Shortfall, the Shortfall shall be supplied by IMC. In the event of a Shortfall the tonnage supplied by either FRP or IMC, as the case may be, to make up the Shortfall shall be deemed to be Supplemental Sulphur. c) Notwithstanding subparagraphs (a) and (b) above of this Article IV it is intended that (i) if the total sulphur consumed by all of Partnership's then operating plants (excluding the Nichols plant) during any calendar year is 1,275,000 tons (the "Base Tonnage"), then FRP shall supply 775,000 tons and IMC shall supply 500,000 tons and all such tonnage shall be Base Sulphur (except as provided otherwise in subparagraph (b) above of this Article IV in respect of any Shortfall), (ii) if the total sulphur consumed by all of Partnership's then operating plants (excluding the Nichols plant) during any calendar year is less than the Base Tonnage, then FRP shall supply 60.78% of such total and IMC shall supply 39.22% of such total and all such sulphur shall be deemed to be Base Sulphur, and (iii) if the total sulphur consumed by all of Partnership's then operating plants (excluding the Nichols plant) during any calendar year is greater then the Base Tonnage (with tonnage in excess of the Base Tonnage being hereinafter referred to as "Supplemental Tonnage"), then FRP shall supply 64.52% of such Supplemental Tonnage and IMC shall supply 35.48% of such Supplemental Tonnage, except that if in such year the quantity of IMC Main Pass Sulphur available for sale exceeds 500,000 tons, IMC shall deliver such excess IMC Main Pass Sulphur to Partnership and the quantity of Supplemental Tonnage shall be reduced by the quantity of such excess IMC Main Pass Sulphur so delivered. All Supplemental Tonnage and all such excess IMC Main Pass Sulphur shall be deemed to be Supplemental Sulphur. (d) All sulphur requirements of the Nichols plant will be supplied by FRP and IMC in equal quantities and all such sulphur supplied to such plant shall be deemed to be Supplemental Sulphur. V. PRICE 5.1 PRICE: GENERAL. The price to be paid by Partnership to FRP and IMC for all sulphur purchased and sold hereunder shall, unless otherwise agreed by each of Partnership, FRP and IMC, be determined an set forth in Sections 5.2 and 5.3 below. 5.2 FRP SALES TO PARTNERSHIP. (a) The price to be paid by Partnership to FRP for all sulphur which is deemed to be Base Sulphur pursuant to Article IV above shall be as follows: i. f.o.b. plant for consumption at a Partnership plant located in central Florida excluding the Nichols plant, a price per ton equal to the [Confidential*]. ii. f.o.b. plant for consumption at the Faustina and Uncle Sam plants, a price per ton equal to the [Confidential*] per ton for the month which includes the date of delivery [Confidential*]. (b) The price to be paid by Partnership to FRP for all sulphur which is deemed to be Supplemental Sulphur pursuant to Article IV above shall be as follows: i. f.o.b. plant for consumption at a Partnership plant located in central Florida, excluding the Nichols plant a price per ton [Confidential*] for the month which includes the date of delivery. ii. f.o.b. plant for consumption at the Faustina and Uncle Sam plants, a price per ton equal to the [Confidential*] the month which includes the date of delivery [Confidential*]. iii. f.o.b. plant for consumption at the Nichols plant, a price per ton [Confidential*] and to parties other than FRP that are not affiliated with IMC or Partnership for sulphur which IMC supplied to the Nichols plant during the month which includes the date of delivery but excluding from such [Confidential*] (i) any and all purchases from whatever source that are not equivalent to arm's length contract transactions representative of the then current market for like quantities, terms and deliveries, (ii) transactions such as, but not limited to, those involving an exchange of an unlike commodity for sulphur and those involving payment and other contract terms which would not customarily be available from sulphur suppliers in general at the time the agreement governing the transaction was entered into, and (iii) [Confidential*] (purchases under contracts of less than one year's duration). 5.3 IMC SALES TO PARTNERSHIP (a) The price to be paid by Partnership to IMC for all sulphur which is deemed to be Base Sulphur pursuant to Article IV above shall be as follows: i. f.o.b. plant for consumption at a Partnership plant located in central Florida, excluding the Nichols plant, [Confidential*] the month which includes the date of delivery [Confidential*]. ii. f.o.b. plant for consumption at the Faustina and Uncle Sam plants (in the event IMC supplies sulphur to those plants pursuant to subparagraph (c) of Article IV), a price per ton [Confidential*] the month which includes the date of delivery [Confidential*]. (b) The price to be paid by Partnership to IMC for all sulphur which is deemed to be Supplemental Sulphur pursuant to Article IV above shall be as follows: i. f.o.b. plant for consumption at a Partnership plant located in central Florida, excluding the Nichols plant, a price per ton [Confidential*] Per Ton [Confidential*] to third parties for such sulphur. ii. f.o.b. plant for consumption at the Faustina and Uncle Sam plants, a price per ton equal to the [Confidential*]. iii. f.o.b. plant for consumption at the Nichols plant, a price per ton [Confidential*]. 5.4 PRICE REDETERMINATION: BASEBALL ARBITRATION. If (i) at the end of any period of six calendar months which began on January 1 or July 1 of any calendar year of the Contract Term the aggregate total of the monthly tonnages during such period used to calculate the [Confidential*] for each month of such period should be less than 100,000 tons, or (ii) at the end of any month of the Contract Term the [Confidential*] for such month cannot be calculated because no sulphur properly includible in such calculation has been purchased by IMC and delivered during such month, then, in either such event, the parties shall have the rights and obligations hereinafter net forth in this Article V. 5.4.1 At the end of any six-month period described in subclause (i) of Section 5.4 above, FRP, IMC or Partnership may by written notice to the other parties given within 5 days after the end of such period request redetermination of the price payable for sulphur delivered hereunder during such period. Not later than five days after the end of any month described in subclause (ii) of Section 5.4 above IMC shall confirm by written notice to FRP the absence of a basis for calculating the [Confidential*] for such month and the parties shall proceed pursuant to Section 5.4.2 below to [Confidential*] sulphur delivered hereunder during such month. Sulphur delivered during a month for which a price is unavailable pending a price redetermination pursuant to this Article V, shall be invoiced and paid for at the price which would have been applicable to such sulphur if delivered in the most recent prior month for which the [Confidential*]. With respect to any final price redetermination made during a month, any billing adjustments required to be made by FRP or IMC as the result thereof shall be accomplished in the billing party's next monthly invoice. 5.4.2 In the event a notice of either kind contemplated by Section 5.4.1 is given, FRP, IMC and Partnership shall have a period of 10 days after the day such notice is given in which to commence redetermination of and agree upon the price payable for sulphur delivered hereunder during the period to which the notice is applicable. In the event the parties are unable to agree upon a redetermined price by the end of such 10 day period, the price shall be determined through a proceeding for resolution of disputes submitted to Endispute Incorporated ("Endispute") in San Francisco, California, with the party whose position is upheld by Endispute in such proceeding being entitled to recover its reasonable attorneys' fees and expenses from the other party. If at the time the dispute occurs Endispute is not in the business of resolving disputes in San Francisco, California, either party may ask the Chief Judge of the United States Court of Appeals for the Ninth Circuit to select a similar firm located in San Francisco, California. The determination of Endispute or such similar firm shall be final and binding on the parties. 5.4.3 Unless otherwise agreed by the parties in any particular instance, a proceeding for dispute resolution under Section 5.4.2 shall be based on a "baseball arbitration" pursuant to which each party shall produce a written statement setting forth the price it believes to be the [Confidential*] located in central Florida for the time period in issue. The dispute shall be resolved by adoption of one of such prices submitted by the parties and not at a third price. VI. SCHEDULING 6.1 GENERAL; PLANT ACCESS. Partnership shall cooperate in good faith with each of FRP and IMC for the purpose of obtaining information required for scheduling sulphur supply logistics, including a rights in each of FRP and IMC to enter upon the premises of any Partnership plant when such entry is reasonably required to obtain such information and subject to the prior consent of Partnership (which consent shall not be unreasonably withheld). Required information would include, but not be limited to, plant sulphur inventory levels in tanks and railcars, mechanical condition of transportation equipment, and sulphur logistic limitations, e.g., dock outage, sulphur pit repairs. Partnership shall also permit access to Partnership plants from time to time by FRP and/or IMC contractors as may be reasonably required for purposes of conducting repairs on transportation equipment, provided reasonable advance notice is given and provided the conduct of such repairs would not unreasonably interfere with plant operations. 6.2 DAILY REPORT. On any day or from day to day as either FRP or IMC should request, Partnership shall provide to the requesting party, by telecopy and for each Partnership plant, a report setting forth all deliveries of sulphur made by each of FRP and IMC to such plant during the preceding day, as well as the number of tons of sulphur consumed at such plant during such preceding day. 6.3 OPERATING FORECASTS. Partnership shall provide to each of FRP and IMC, as and when FRP and/or IMC shall request from time to time during the Contract Term, a timely forecast of sulphur consumption by plant using the Sulphur Allocation Worksheet attached hereto as Schedule B and of expected delivered prices, as well as periodic updates revising such forecast as needed for purposes of budgeting and providing uninterrupted sulphur supply. 6.4 MONTHLY DELIVERY BALANCING. For purposes of maintaining a balance between the quantities of sulphur each of FRP and IMC are entitled to deliver hereunder to a Partnership plant and their respective actual deliveries thereto, Partnership shall, in addition to any other consumption forecasts which Partnership may be requested to provide under Section 6.3 hereof and by use of the Sulphur Allocation Worksheet attached as Schedule B hereto, provide to each of FRP and IMC not later than 30 days prior to the beginning of each calendar month, or any other period of time as may be mutually agreed upon, a forecast allocation of the quantities of sulphur to be delivered by each of FRP and IMC during such month, to each of Partnership plants. Within 5 business days after the end of such month, Partnership shall utilize such worksheet to determine the actual allocation of such quantities for such month. Should it appear from the actual allocation that FRP or IMC, as the case may be, delivered during such month to a particular Partnership plant a quantity of sulphur greater than the quantity it was entitled to deliver to such plant during such month, the quantity in excess of such entitled quantity shall be referred to as an "over-delivery". Within such 5-day period, Partnership shall provide to each of FRP and IMC an amended allocation forecast for the then current calendar month which reflects, for each Partnership plant to which an over-delivery was made during the preceding calendar month a reduction in the tonnage to be delivered during such current month to such plant by the over-delivering party and a corresponding increase in the tonnage to be delivered during such current month to such plant by the under-delivering party. VII. DELIVERIES 7.1 DELIVERIES: GENERAL. Partnership's written orders specifying the tonnage of sulphur which Partnership shall wish to take from each of FRP and IMC during each month shall be placed with FRP and IMC, respectively, within the first ten days of the month preceding the month in which deliveries are desired. Deliveries shall be made and taken at a reasonably uniform rate during the Contract Term. All shipments of sulphur hereunder will be made on commercial bills of lading. There is reserved to each of FRP and IMC the right to route shipments of and to select the carriers for the sulphur to be shipped by each hereunder. All shipments of sulphur hereunder shall be on [Confidential*], with the shipping party (FRP or IMC, as applicable) responsible for [Confidential*] on the sulphur shipped by it from point of origin to such plant; EXCEPT THAT in the case of sulphur designated by FRP or IMC (as applicable) for delivery to Partnership at a marine sulphur terminal located in the Port of Tampa, Florida, Partnership shall provide the trucks required to take delivery of such sulphur at such terminal and transport same to the Partnership plant for which such sulphur in destined and all costs of providing such trucks and transporting such sulphur from such terminal to such plant shall be paid by [Confidential*]. 7.2 FACILITIES. Partnership will provide, maintain, and make available facilities, at Partnership plants for unloading rail cars, trucks and barges, as applicable, delivering sulphur pursuant to this Agreement including but not limited to rail track to receive railcars and to steam railcars, necessary transfer lines, pumps, storage tanks, and any other necessary or related facilities. Such unloading shall be accomplished promptly and any demurrage and/or detention charges which become due shall be paid by Partnership, unless the delay is directly attributable to FRP or IMC. Partnership will provide, maintain and make available a safe berth for FRP's barges at each of the Uncle Sam plant and the Faustina plant. Each such safe berth will provide adequate unloading facilities to accommodate a towboat and a two barge tow. 7.3 DAMAGE TO TRANSPORTATION EQUIPMENT. Partnership agrees to (i) compensate each of FRP and IMC for loss or damage, excepting sulphur corrosion and ordinary wear and tear, to the property of each and (ii) indemnify and save each of FRP and IMC harmless from any damage to property other than the property of each and from any injuries to persons relating in any way to the use of such railcar(s), trucks(s) and barge(s) which is due to the fault or negligence of Partnership. Partnership further agrees to promptly report to each of FRP and IMC, as appropriate, any damage which may be sustained by the railcars(s), truck(s) or barge(s). FRP and IMC agree to (i) compensate Partnership for loss or damage, excepting ordinary wear and tear, to the property of Partnership and (ii) indemnify and save Partnership harmless from any loss or damage to property other than the property of Partnership and from any injuries to persons related in any way to the use of such railcar(s), truck(s) and barge(s) which is due to the fault or negligence of either FRP or IMC or their agents or employees. 7.4 UNLOADING; DEMURRAGE. BARGE - Barge deliveries shall be made by FRP into Partnership's shorelines at the Uncle Sam and Faustina plants. The sulphur shall be deemed to have been delivered as it is progressively discharged into such shorelines. Partnership shall use reasonable efforts to accept multi-barge deliveries: In no event shall the number of deliveries by barge to the Uncle Sam and Faustina plants obliged to be made by FRP during a month exceed a combined total of 25 such deliveries, nor shall FRP be obligated to make barge deliveries in lots less than approximately 4,000 tons. Partnership shall provide, [Confidential*] proper dock facilities where FRP's barges can moor, together with such flexible connections, shorelines and other facilities as may be needed to connect such lines with the discharge lines on FRP's barges and to receive discharge from the barges at a rate of not less than 500 tons per hour. Partnership shall also provide, without cost to FRP, such shore labor and facilities as may be needed for the prompt and proper handling of mooring lines, the making and breaking of shore connections and the handling of sulphur into and through Partnership's shorelines. Discharge of the sulphur shall commence promptly following berthing of the barges, and shall continue with all reasonable dispatch and without interruption, including nights, Saturdays, Sundays, and holidays. The parties agree to cooperate in scheduling the arrival of barges and the use of Partnership's docks to the end that an open berth will be provided for FRP's barges upon their arrival. If at any time during the Contract Term a barge is presented at the Uncle Sam plant or the Faustina plant for unloading and Partnership is unable at such plant to receive any and/or all of the sulphur available for unloading from such barge at such time, then, unless such inability, is the fault of the employees and/or equipment of FRP or its agents, Partnership shall be responsible for payment of any freight or other associated costs incurred by FRP in redirecting or diverting the barge in order to discharge therefrom the sulphur which Partnership was unable to receive as aforesaid. In the event delays are experienced in the unloading of sulphur from FRP' barges into shorelines at either of the Uncle Sam or Faustina plants, regardless of the cause of such delay except fault of the employees or equipment of FRP or its agents or force majeure, Partnership shall for each barge so delayed pay FRP Barge Demurrage for each hour and any fraction of an hour by which actual laytime for unloading FRP's barges exceeds twelve hours for a single barge tow or twenty-four hours for a two barge tow; such Barge Demurrage to be an hourly rate reflecting the full operating cost of the towboat and barge (or towboat and barges, as the case may be) during the period of time with respect to which the Barge Demurrage is chargeable. Laytime for unloading shall commence when the barge is tendered to the plant, berth or no berth, day or night, including Saturday, Sunday and holidays. Laytime shall end when all shore connections have been disconnected and removed from FRP's barge, or when notice is given that Partnership is unable to load the barge. TRUCKS - Partnership will provide and maintain a daily tank truck unloading capability at each of the Partnership plants equal to the average number of tank trucks unloaded per day at such plant during the period of one year immediately preceding the date of this Agreement. Necessary personnel and safety equipment will be provided to accommodate the unloading of tank trucks 7 days a week, including holidays, 365 days per year. Tank trucks will be unloaded on a "first come-first served" basis. Any truck detention or demurrage charges incurred by FRP or IMC at a Partnership plant shall be reimbursed to the incurring party at cost by Partnership unless such charges were imposed through the fault of the incurring party. RAILCARS - Partnership will unload railcars promptly at destination and return them to the carrier in accordance with the routing instructions of FRP or IMC, as applicable. Partnership will not divert any rail car from the destination to which it was originally consigned by FRP or IMC without prior notification to and approval by such consigning party (followed by written confirmation of such approval). FRP and IMC will use best efforts to supply railcars in good working order. Should a railcar require minor repair, Partnership will provide available trackage for repair crews as long as in Partnership's judgment it does not interfere with plant operations. Should a railcar require repairs that cannot be accomplished in the plants, notification will be given to FRP or IMC, as applicable for railcar disposition. Partnership shall not be responsible for railcar repairs. FRP or IMC, as applicable, agree to indemnify and hold harmless Partnership from any and all liability arising out of or in any way related to the trackage provided for railcar repair, railcar repair services or the presence of railcars awaiting repair as well as instructions for dispatch after repair. Said liability and indemnification shall include but not be limited to injury, sickness, death or property damage. Partnership will provide and maintain a daily railcar unloading capability at each Partnership plant equal to the average number of railcars unloaded per day at such plant during the period of one year immediately preceding the date of this Agreement. Unloading of railcars will be performed 7 days a week, 365 days per year, including holidays. Railcars will be unloaded in the order of their arrival. Partnership will have a maximum of 5 free days unloading time starting at 7:00 a.m. on the morning following the time of the railroad's notification to Partnership of the railcar's constructive placement and ending with official notice to the railroad of release of the railcar as empty. After such 5 free days Railcar Demurrage will be assessed against and paid by Partnership per day or fraction of a day, per railcar, at a rate reflecting the actual cost incurred by FRP or IMC, as applicable, as the result of the railcar being held by the Partnership for a period longer than the allowed free time. FRP and IMC shall each have the right, exercisable on December 31 of each year during the Contract Term by notice to Partnership given on or before such date, to decrease the number of free days then being allowed hereunder for unloading at a particular Partnership plant to the lowest number of free days then being allowed pursuant to its published tariffs of any railroad carrier for unloading of cars at such plant (provided that such lowest number of free days is less than 5 free days). VIII. WEIGHTS AND MEASURED The quantity of sulphur delivered by each of FRP and IMC to Partnership shall be determined based upon a certified bill of lading. The quantity determination made by such delivering party will govern (except in case of proven error) when the delivery is by truck or barge. Railcar quantities shall be determined as follows: The quantity placed on the bill of lading will be determined by certified rail scales at point of railcar loading. In the event rail scales are unavailable at origin, the railcar will be weighted in transit to destination on railroad certified scales. In the event the quantity was not determined at railcar loading or in transit to the destination, the railcar will be weighed upon arrival at destination on certified rail scales. If the railcar was not previously weighed prior to reaching destination and should rail scales be unavailable or incapacitated at destination, the quantity will be determined by tank car outage tables provided by the tank car owner or lessee for that particular railcar, taking into consideration correction factors for temperature. Barge quantities shall be determined by volumetric measurements of shore tank(s) prior to, and at the conclusion of, loading appropriately adjusted to changes in density resulting from varying temperatures and carbonaceous impurities. Partnership shall have the right to be represented, at Partnership's expense, during any barge loading. IX. QUALITY AND FORM 9.1 SPECIFICATIONS. Except as otherwise provided in Sections 9.2 and 9.3 below the sulphur to be purchased and sold hereunder shall meet the following specifications: Crude sulphur guaranteed 99.50% pure on a dry basis which shall be commercially free of arsenic, selenium, and tellurium and which shall contain not more than 0.25% carbon, not more than 50 parts per million (ppm) ash, and not more than 10 ppm acidity: if over 99.50% purity, no charges shall be made for the excess; if under, a pro-rata allowance shall be made or, at Partnership's option, acceptance of delivery thereof may be refused by Partnership (provided that such refusal shall not relieve the selling party (FRP or IMC, as applicable) of its obligation to replace the quantity so refused with an equal quantity of sulphur conforming to the specifications set forth in this Article IX). The sulphur shall be in liquid (molten) form of not less than 260 degrees Fahrenheit when loaded into Partnership receiving facilities. 9.2 AMENDMENT OF SPECIFICATIONS. At any time or from time to time during the Contract Term as a material change should occur in the quality specifications which are usual and customary in sulphur supply agreements in effect at the time between sulphur suppliers in general and their customers, the parties hereto shall confer in good faith and amend this Agreement to accord with such changed specifications. 9.3 UNCLE SAM PLANT EXCEPTION. The specifications set forth in Section 9.1 above shall apply to all sulphur delivered hereunder to the Uncle Sam plant except that such sulphur shall contain not more carbon than would raise the calculated percentage of carbon in a storage tank at the Uncle Sam plant to a level greater than 0.4%. X. TITLE AND RISK Title to sulphur sold hereunder and risk of loss with respect thereto shall pass to Partnership upon delivery. XI. INVOICING AND PAYMENT 11.1 GENERAL. Within 5 days following the close of each calendar month, Partnership shall furnish each of FRP and IMC a report setting forth the quantities of sulphur delivered by each of FRP and IMC to each of Partnership plants during the preceding month. On the basis of such report FRP and IMC shall each invoice Partnership within 7 days following the close of each calendar month for the quantities of sulphur delivered by each of them respectively to each of Partnership plants during the preceding month. Within fifteen days from the date of FRP's or IMC's invoice, Partnership shall make payment for the sulphur so invoiced by electronic transfer of same-day funds. Partnership agrees to pay FRP, or IMC, as the case may be, a service charge equal to .050% per day (approximately 1-1/2% per month) on all payments due by Partnership not received into FRP's or IMC's account, as the case may be, on or before the due date. For invoicing purposes hereunder, the first quantities of sulphur delivered by FRP and IMC hereunder to a Partnership plant during any month shall be deemed to be in fulfillment of the quantity of Base Sulphur which the delivering party is entitled to deliver to such plant during such month. Notwithstanding the preceding sentence, with respect to the quantity of Base Sulphur delivered by FRP during any calendar year, FRP shall endeavor, to the extent Partnership plant consumption rates permit, to invoice Partnership for such annual quantity in such manner as will permit such annual quantity to be distributed in approximately equal portions over the twelve monthly invoices applicable to deliveries made in such year. 11.2 FREIGHT REIMBURSEMENT. The monthly report of deliveries to be furnished each of FRP and IMC pursuant to Section 11.1 above shall also contain a per ton [Confidential*] (as more fully described hereinafter in this Section 11.2) applicable to the month covered in the monthly report. FRP and IMC shall in their respective invoices for sulphur delivered during the month covered by the report, [Confidential*] applicable to that month times the number of tons of the invoicing party's sulphur delivered to Partnership at a marine sulphur terminal(s) located in the Port of Tampa, Florida during such month. The [Confidential*] for any month shall be [Confidential*] of transporting sulphur from marine sulphur terminals located in the Port of Tampa, Florida to Partnership plants in Florida during such month. Such [Confidential*] shall also be used for purposes of calculating the terminable-to-plant truck delivery costs contemplated by the definition of "Delivered Price Per Ton" set forth at Section 1.08 hereinabove. In calculating such [Confidential*]; (i) the per-ton cost of a truck movement from terminal to plant with no [Confidential*] shall be the total cost of such [Confidential*] in such movement, and (ii) the per- ton cost of a truck movement from terminal to plant, with a [Confidential*] of another commodity from the plant for Partnership's account, shall be determined by [Confidential*]. 11.3 ANNUAL ASSESSMENT OF [Confidential*] PERIOD. An annual price adjustment calculation shall be made hereunder by each of FRP and IMC within 30 days after the end of each calendar year to compare the invoiced amount for sulphur delivered hereunder during such year against the amount which would have been payable for such sulphur had the [Confidential*] and the [Confidential*] each been computed on a quarterly, as opposed to a monthly, basis. Such calculation, the details of which the parties agree to develop prior to January 1, 1994, would provide, for each [Confidential*] of such year, the total amount which would have been owed by FRP and/or IMC to Partnership, or owed by Partnership to FRP and/or IMC, as the case may be, had invoicing been conducted on the [Confidential*] utilized in the calculation. Such [Confidential*] total amounts for the year would be added together and the net amount obtained thereby, constituting either an overpayment or underpayment by Partnership, as applicable, would be duly billed or credited as appropriate in the next regular invoices of FRP and IMC. XII. SAFETY, LIABILITY, WARRANTIES 12.1 SAFETY DATA SHEETS. FRP and IMC shall each furnish to Partnership Material Safety Data Sheets, including warnings and safety and health information concerning the products sold hereunder. Partnership agrees to disseminate such information so as to give warning of possible hazards to persons who Partnership can reasonably foresee may be exposed to such hazards, including but not limited to Partnership's employees, agents, contractors or customers. 12.2 PRODUCT LIABILITY. FRP and IMC shall not, under any circumstances, be liable for any special, indirect or consequential damages of any kind of the Partnership arising from the handling, storage or use of the sulphur when delivered, whether used singly or in combination with other materials. No claim of any kind, whether in contract, tort or otherwise, arising out of such handling, storage or use, shall be greater than, nor shall FRP or IMC in any event be liable for, an amount in excess of the purchase price of the quantity of sulphur in respect of which such claim is made. 12.3 WARRANTIES. FRP AND IMC MAKE NO WARRANTY OF ANY KIND, EXPRESS OR IMPLIED EXCEPT THAT THE SULPHUR SOLD HEREUNDER SHALL CONFORM TO THE SPECIFICATIONS SET FORTH IN ARTICLE IX OF THIS AGREEMENT AND THAT FRP AND IMC WILL CONVEY GOOD TITLE THERETO, FREE FROM ANY LAWFUL SECURITY INTEREST. FRP AND IMC ASSUME NO OTHER LIABILITY WITH RESPECT TO THE SULPHUR AND MAKE NO OTHER WARRANTY, WHETHER OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR OTHERWISE, EXPRESSED OR IMPLIED, WITH RESPECT THERETO. XIII. TAXES Partnership shall be responsible for the payment or satisfaction of any and all taxes which may be imposed by Federal, State or local taxation authorities after title to sulphur delivered hereunder has passed to Partnership, and shall either (i) pay or (ii) demonstrate its exemption from any such taxes imposed upon or levied coincident with the transfer of title to sulphur delivered hereunder from the selling party (FRP or IMC, as applicable) to Partnership, including but not limited to sales, use, gross receipts or other similar taxes, but excluding income, excess profit, franchise, severance or production taxes. XIV. AUDIT FRP shall have the right to request and IMC will provide to FRP through such nationally recognized independent firm of certified public accountants as IMC shall designate a certified statement verifying that the calculation of the [Confidential*] the [Confidential*] and IMC's [Confidential*] of sulphur delivered to the Nichols plant have been accurately calculated and are in accordance with the terms of this Agreement, and a certified statement that the auditor has reviewed the records of Partnership's plants to the extent necessary to verify that sulphur delivered to and consumed by Partnership has been accurately calculated in accordance with the terms of this Agreement. In the event IMC or an Affiliate of IMC shall cease to be the "Operating Partner" under Partnership's Partnership Agreement, FRP and IMC shall thereafter during the Contract Term each have the right through such nationally recognized independent firm of certified public accountants as FRP and IMC shall respectively designate (other than any such firm then serving as Partnership's auditor at the time of the audit) to audit the records of Partnership's plants to the extent necessary to provide the same [Confidential*] and sulphur delivery and consumption verifications as theretofore were provided FRP by IMC's auditor pursuant to the preceding sentence. XV. FORCE MAJEURE Provided a party hereto promptly notifies the other parties hereto thereof, such party shall not be liable for any failure or delay in performance hereunder which may be due in whole or in part to fire, explosion, earthquake, storm, flood, drought or other adverse weather condition, accident, breakdown of machinery or facilities including, but not limited to, the transportation, terminal and handling facilities which may be employed in making deliveries hereunder, transportation or handling difficulties, faults or errors in navigation (including, but not limited to, any act or omission of carriers or terminal operators), strike, lockout, combination of workmen or other labor difficulties (from whatever cause arising, and whether or not the demands of the employees are reasonable or within such party's power to grant), war, insurrection, riot, act of God or the public enemy, law, act, order, proclamation degree, regulation, ordinance, instruction or request of Government or other public authorities, judgment or decree of a court of competent jurisdiction, delay or failure of carriers or contractors, labor shortage, or inability to obtain transportation equipment, operating materials, plant equipment or materials required for maintenance or repairs, curtailment or suspension of operations to remedy or avoid an actual or alleged violation or violations of Federal, State, or local environmental, health or safety standards as may be in effect from time to time during the contract period, or any other contingency or delay or failure or cause of any nature beyond the reasonable control of such party, whether or not of the kind hereinabove specified and whether or not any such contingency is presently occurring or occurs in this future. In the event that the transportation, handling or delivery capability of FRP is impeded due to any such cause or causes FRP shall have the right to reduce deliveries and to allocate its facilities in such manner as appears to it to fairly apportion the consequences of such cause or causes among FRP's customers, and FRP shall not be obligated to take any action which would remelt in increasing its cost of performance beyond the cost which it would have incurred in the absence of such cause or causes. XVI. SULPHUR SALES BY FRP TO IMC FRP and IMC shall not be precluded from entering into agreements whereby FRP could sell to IMC a portion of the Supplemental Sulphur which IMC would be obligated to supply to Partnership. XVII. FRP USE OF PARTNERSHIP FACILITIES 17.1 STORAGE AND REDELIVERY. FRP may deliver sulphur to any Partnership plant for redelivery therefrom at such time and in such manner as FRP shall specify, subject to Partnership's agreement that any such Delivery and redelivery will not disrupt operations at such plant. FRP shall reimburse Partnership for actual costs incurred by Partnership in connection with and reasonably related to any such delivery and redelivery. 17.2 BARGE FACILITIES. FRP shall have the right to fleet barges at docks or other line-up facilities at the Faustina, Taft and/or Uncle Sam plants at any time or from time to time provided Partnership determines such fleeting does not cause interference with plant operations. FRP shall reimburse Partnership for any actual costs incurred by Partnership as the result of, and reasonably related to, such fleeting. 17.3 OTHER USES. With respect to Partnership facilities at the plants owned by FRP prior to formation of Partnership, FRP shall be entitled to continue to use such facilities provided (i) such use will not unduly interfere with operations of Partnership, (ii) FRP reimburses Partnership for any actual costs incurred by Partnership as the result of, and reasonably related to, such use and (iii) FRP shall have first obtained the consent of Partnership (which consent shall not be unreasonably withheld). 17.4 INDEMNITY. FRP shall defend, indemnify and hold harmless Partnership against any and all liability arising out of or in any way connected with FRP's use of Partnership facilities pursuant to this Article XVII including but not limited to liability for injury, sickness, death and property damage provided, however, that if Partnership has contributed to such liability through gross negligence or willful misconduct, FRP's indemnity to Partnership shall be reduced by the proportion in which Partnership's grows negligence or willful misconduct contributed to such liability. In the event any claim or demand as to which such indemnity relates is made on Partnership, Partnership shall provide FRP with reasonable notice and opportunity to defend. FRP shall carry liability insurance adequate to the liability assumed by it hereunder. FRP shall reimburse Partnership for the actual cost of any additional insurance which Partnership deems reasonably necessary to insure its facilities against any and all liabilities which may arise due to FRP's use fief Partnership facilities pursuant to this Article XVII. XVIII. COMMERCIAL IMPRACTICABILITY The parties acknowledge that the allocation and pricing provisions of Articles IV and V are based on assumptions about Partnership operations and sulphur and sulphur transportation markets in accordance with which those provisions are expected to yield generally balanced and equitable results. If fundamental changes in those operations or markets render such an assumption invalid and performance of this Agreement by a party becomes commercially impracticable or grossly inequitable, that party may so notify the other parties, setting forth its reasons in reasonable detail. The parties will negotiate in good faith toward amending the affected provisions of the Agreement in a manner intended to restore its balance and equity. Ordinary cyclical changes in markets shall not be grounds for invoking negotiation under this Article. A party invoking negotiation will have the burden of proving that an assumption upon which the Agreement was based has fundamentally altered. XIX. SUCCESSOR MANAGER In the event IMC or an Affiliate of IMC shall cease to be the "Operating Partner" under Partnership's Partnership Agreement, then with respect Into IMC's rights and obligations to supply sulphur hereunder: (a) IMC Main Pass Sulphur will be supplied to the Partnership by IMC and otherwise dealt with hereunder in the same manner as would be the case if IMC continued having responsibility for general management of the Partnership; and (b) the rights and obligations of IMC to supply hereunder sulphur other than IMC Main Pass Sulphur shall vest in Partnership. As the result of the vesting of such rights and obligations pursuant to subclause (b) above, the Partnership shall assume the Sulphur purchasing functions theretofore performed by IMC in connection with IMC's non-IMC Main Pass Sulphur supply obligations hereunder, and, accordingly the pricing provisions of Article V, [Confidential*] shall thenceforward be based upon the [Confidential*] of the [Confidential*]. XX. NOTICES Any notice, election, payment or other correspondence required or permitted under this Agreement shall be made in writing and shall be sufficiently delivered if delivered personally to the party to whom directed by courier or otherwise deposited in the United States certified or registered mail, sent by Western Union telegram or mailgram, or sent by telecopy if followed immediately by written notice by U. S. certified or registered mail, with all necessary postage or chores fully prepaid, return receipt requested (or in the case of a telecopy, telegram or mailgram, confirmation of delivery), and addressed to the party to whom directed at its below specified address, to wit: As to FRP: Freeport Sulphur Company Division Freeport-McMoRan Resource Partners, Limited Partnership P. O. Box 61520 New Orleans, Louisiana 70161 Attention: President Telecopy: (504) 582-4440 Telephone: (504) 582-4000 As to IMC: IMC Fertilizer, Inc. 2100 Sanders Road Northbrook, Illinois 60062 Attention: Corporate Secretary Telecopy: (708) 205-4804 Telephone: (708) 272-9200 As to IMC-Agrico Company: IMC-Agrico Company 5000 Old Highway 37 P. O. Box 2000 Mulberry, Florida 33860 Attention: Corporate Secretary Telecopy: (813) 428-2695 Telephone: (813) 428-1431 Such notice, election, payment or other correspondence shall be deemed to have been properly given upon receipt by the party to whom directed. A party may change its address for the purpose of notices or communications under this Agreement by furnishing notice of the change to the other parties in compliance with this Article XIX. XXI. FRP/IMC AGREEMENTS 21.1 EXCESS IMC SULPHUR. As soon as practicable after the date hereof, FRP and IMC shall negotiate in good faith the terms and conditions of, and execute, an agreement whereunder FRP shall be obligated to dispose of any Excess IMC Sulphur. Included in the terms and conditions of such Agreement shall be an equitable commercial arrangement to compensate FRP for its services in liquidating such Excess IMC Sulphur. 21.2. IMC MARINE TRANSPORTATION AND TERMINAL REQUIREMENTS. Not later than the fourth quarter of each calendar year of the Contract Term, FRP and IMC shall commence good faith negotiations for the provision by FRP, during the next succeeding calendar year, and to the extent FRP at that time has existing and available infrastructure therefor, of all marine transportation and sulphur terminaling services required by IMC to fulfil its sulphur supply obligations to Partnership during such succeeding year (except as to IMC sulphur produced at the offshore Louisiana Main Pass 299 sulphur mine and transported by FRP under that certain Restated Processing and Transportation Agreement between FRP and IMC made as of July 1, 1990). [Confidential*]. XXII. SATCO EXCHANGES FRP, directly or through FRP's affiliate, Sulphuric Acid Trading Company ("SATCO"), shall have the right at any time and from time to time to deliver to any Partnership plant sulphuric acid of generally accepted commercial specification in exchange for a grade-adjusted equivalent quantity of higher grade sulphuric acid, provided such exchange in Partnership's judgment would not adversely affect Partnership and provided FRP or SATCO, as the case may be, reimburses Partnership for any actual cost incurred by Partnership in connection with, and reasonably related to, the effectuation of the exchange. XXIII. ASSIGNMENT No party hereto shall have the right to assign, directly or indirectly, any of such party's rights, interests or duties under this Agreement, without the prior written consent of the other parties hereto, and any attempted such assignment shall be void, except that such consent shall not be required in the event of an assignment of this contract by a party hereto pursuant to a merger, reorganization, amalgamation or sale or transfer of substantially all of such party's assets. XXIV. CONFIDENTIALITY The parties agree that all terms and conditions of this Agreement and any amendment or amendments thereof are confidential and shall not be disclosed during the Contract Term by any party hereto to any party that is not a party to this Agreement without the prior written consent of the other parties hereto; provided, however, that such consent shall not be required in the case of a party's disclosure thereof to such party's Affiliates, financial institutions, legal and business advisers and consultants, or to parties with whom a party is negotiating in good faith for the purpose of the sale of all or part of its assets or for merger or consolidation or to any governmental agency pursuant to any law, regulation or legal process. A party making such disclosure shall notify the other parties hereto as to the identity of the party to whom disclosure is made and shall direct the party to whom disclosure is made to exercise a level of care sufficient to preserve the confidential nature of the disclosed information, or in the case of disclosure to a governmental agency, use its best efforts to restrict, to the full extent permitted by law or regulation, its distribution. XXV. DAMAGES No claim shall be made by or allowed against any party hereto for indirect or consequential damages of another party hereto, including loss of revenues or loss of profits, or for punitive damages. XXVI. AMENDMENTS This Agreement may be amended or modified only by due agreement of all the particle hereto and execution of a written amendment(s) thereto. XXVII. GOVERNING LAW The validity, operation and performance of this contract shall be governed and controlled by the law of the State of Florida, and its terns shall bail construed and interpreted in accordance with said law without reference to principles of conflict of laws. XXVIII. SUCCESSORS AND ASSIGNS The terms, conditions, covenants and agreements contained in this Agreement shall extend to, be binding upon, and inure to the benefit of the successors and permitted assignees of the parties. XXIX. CONFLICT OF INTEREST All parties hereto shall exercise reasonable care and diligence to prevent any actions or conditions which could result in a conflict of interest. XXX. HEADINGS The headings used in this Agreement are for convenience only and shall not be taken or construed to define or limit any of the terms or provisions of this Agreement. IN WITNESS WHEREOF, this Agreement is executed by the parties on the date first set out above. FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP By: /s/ John G. Amato ---------------------------------- Title:General Counsel -------------------------------- IMC FERTILIZER, INC. BY: /s/ James D. Speir ---------------------------------- Title: Executive Vice President -------------------------------- IMC-AGRICO COMPANY By: /s/ Robert Brauneker ---------------------------------- Title: Vice President -------------------------------- Schedule A Agreed basis for determining Base Sulphur to Supplemental Sulphur Supply Ratios [CONFIDENTIAL] Schedule B Sulphur Allocation Worksheet [CONFIDENTIAL] ADDENDUM NO. 1 TO AGREEMENT FOR SULPHUR SUPPLY This Addendum No. 1, dated as of January 1, 1994 ("Addendum") to AGREEMENT FOR SULPHUR SUPPLY, dated July 1, 1993 ("Agreement") is entered into among Freeport-McMoRan Resource Partners, Limited Partnership ("FRP"), IMC Fertilizer, Inc. ("IMC"), and IMC-Agrico Company ("IMC-Agrico"). Captioned terms used herein without definition shall have the same meaning given them in the Agreement. Now, therefore FRP, IMC and IMC-Agrico hereby agree to determine the quantity of ''Excess IMC Sulphur" (EIS), defined in Section 1.08 of the Agreement as of the close of any month as follows: Quantity of IMC sulphur over/(under) supplied to "Partnership Plant" as calculated by Schedule B of the Agreement......................................# Plus...IMC sulphur held by FRP in liquid inventory for whatever reason from all sources including but not limited to, sulphur acquired from arms-length purchase contracts, sulphur residing with FRP under transportation or terminating agreements, sulphur sales by FRP to IMC pursuant to Section XVI fit the Agreement, IMC sulphur acquired through exchanges, and sulphur withdrawn from solid inventory for IMC's account by FRP, but excluding Allowable IMCF Working Liquid Inventory ("IMCWLI") and IMCF Sulphur as defined below..........# Less IMCWLI...........................................................12,000 Equals EIS.................................................................# Upon mutual agreement of all parties, the IMCWLI may be revised upward or downward from time-to-time. Adjustments, for the most part will be determined by transportation and/or terminal contractual agreement(s) between IMC and FRP for the use of FRP facilities by IMC. Within seven business days following IMC's receipt of a written notice from FRP to IMC of the existence of EIS, IMC shall notify FRP in writing of the liquidation option that FRP shall use to dispose of the EIS. Liquidation options shall include the following: A. FRP markets EIS on behalf of IMC when market conditions allow, or B. EIS is vatted by FRP for IMC's account. FRP's notice to IMC of the existence of an EIS shall include the market sales price which FRP can obtain and the commercial arrangements to compensate FRP for its services under liquidation option A and FRP's solid sulphur inventory costs associated with liquidation option B. Depending upon IMC's liquidation option, IMC shall execute a sulphur marketing agreement or solid storage agreement with FRP containing the cost terms contained in the EIS notice. Should IMC fail to execute such an agreement within seven business days following IMC's receipt of notice from FRP to IMC of the existence of EIS, all EIS shall be considered as placed in solid inventory for IMC's account pursuant to liquidation option B. ADDENDUM NO 1 TO AGREEMENT FOR SULPHUR SUPPLY The storage cost of sulphur and solid inventory is time sensitive. Labor, fuel, equipment and environmental costs will change over time. From time-to-time, and/or as required, revised costs will be provided to IMC. Accordingly, Freeport will make best efforts to identify representative costs associated with vatting and melting sulphur in parcels of 50,000 tons. Requests by IMC to vat or melt in quantities less than 50,000 tons could result in additional costs. FRP's 1994 solid sulphur inventory handling costs are as follows: Vatting Charge .......... [Confidential*] (invoiced as EIS is placed into solid inventory) Melting Charge ......... [Confidential*] (invoiced as EIS is withdrawn from solid inventory) IMCF SULPHUR In determining solid storage vatting and melting requirements and the costs attributable thereto, the terms and provisions of the Processing and Transportation Agreement, as amended, between Freeport Sulphur Company, a division of Freeport McMoRan Resource Partners Limited Partnership, and IMC Fertilizer, Inc., dated December 1, 1989, shall apply. In witness hereof, the parties hereto have caused this Addendum to be executed as of the date first above written. FREEPORT-McMoRan RESOURCE PARTNERS, Limited Partnership By: /s/ J. R. Combs ---------------------------------- Title: VICE PRESIDENT IMC FERTILIZER, INC. By: /s/ James D. Speir ---------------------------------- Title. EXECUTIVE VICE PRESIDENT- OPERATIONS IMC-AGRICO COMPANY By: /s/ James D. Speir ---------------------------------- Title: EXECUTIVE VICE PRESIDENT- OPERATIONS AMENDMENT NO. 2 TO AGREEMENT FOR SULPHUR SUPPLY This Amendment, dated July 1, 1994 by and between Freeport-McMoRan Resource Partners, Limited Partnership ("FRP"), IMC Fertilizer, Inc. ("IMC") and IMC-Agrico Company ("IMC-Agrico"). W I T N E S S E T H: WHEREAS, FRP, IMC and IMC-Agrico entered into that certain Agreement for Sulphur Supply, dated July 1, 1993 and Addendum No. 1 thereto, dated January 1, 1994 (hereinafter collectively called the "Agreement"); and WHEREAS, the parties to the Agreement desire to amend same as hereinafter provided. NOW, THEREFORE, it is hereby agreed by and among FRP, IMC and IMC-Agrico to amend the Agreement as follows: 1. Article I. Definitions, Section 1.11 is amended by deleting therefrom any and all references to subclause (i) thereof. 2. Article I. Definitions, Section 1.12 is amended by deleting therefrom any and all references to subclause (i) thereof. 3. The effective date of this Amendment shall be July 1, 1994. All of the terms and conditions of the Agreement, as amended, shall remain in full force and effect. IN WITNESS WHEREOF, FRP, IMC and IMC-Agrico have executed this Amendment on the date first hereinabove set forth. Freeport-McMoRan Resource Partners, Limited Partnership By: /s/ J. R. Combs ---------------------------------- Its: Vice President IMC Fertilizer, Inc. By: /s/ James D. Speir ---------------------------------- Its: President & COO IMC-Agrico Company By: /s/ James D. Speir ---------------------------------- Its: Vice President FORM OF AMENDMENT NO. 3 TO AGREEMENT FOR SULPHUR SUPPLY This Amendment, dated October 1, 1997, by and between Freeport-McMoRan Resource Partners, Limited Partnership ("FRP"), IMC Fertilizer Inc.("IMC") and IMC-Agrico Company ("IMC-Agrico"), W I T N E S S T H: WHEREAS, FRP, IMC and IMC-Agrico are parties to that certain Agreement for Sulphur Supply, dated July 1, 1993, as amended, (the "Agreement"), and WHEREAS, the parties to the Agreement desire to amend it as hereinafter provided, NOW, THEREFORE, FRP, IMC and IMC-Agrico hereby agree to amend the Agreement as follows: 1. Article IX is amended by adding a new Section 9.4: "FAUSTINA PLANT EXCEPTION. The specifications set forth in Section 9.1 above shall apply to all sulphur delivered hereunder to the Faustina plant except that such sulphur shall contain not more carbon than would raise the calculated percentage of carbon in a storage tank at the Faustina plant to a level greater than 0.6%." 2. The effective date of this amendment shall be October 1, 1997. 3. All of the terms and conditions of the Agreement, as amended, shall remain in full force and effect. IN WITNESS WHEREOF, FRP, IMC and IMC-Agrico have executed this Amendment on the date first hereinabove set forth. Freeport-McMoRan Resource Partners, Limited Partnership By: ---------------------------------- Its: ---------------------------------- IMC Fertilizer Inc. By: ---------------------------------- Its: ---------------------------------- IMC-Agrico Company By: ---------------------------------- Its: ---------------------------------- EX-10.10 18 SIDE LETTER WITH IGL [FRP LETTERHEAD] August 26, 1997 IMC Global, Inc. 2100 Sanders Road Northbrook, IL 60092 RE: Agreement for Sulphur Supply dated July 1, 1993 among Freeport-McMoRan Resource Partners, Limited Partnership, IMC Fertilizer Inc. and IMC- Agrico Company (the "Sulphur Supply Agreement") Gentlemen: In connection with the transactions contemplated in the Agreement and Plan of Merger dated August 26, 1997 between IMC Global Inc. and Freeport-McMoRan Inc. (the "Merger Agreement"), FRP will transfer its interest in the Sulphur Supply Agreement to the company referred to in the Merger Agreement as "Newco". (Terms not otherwise defined in this letter will have the meaning ascribed to them in the Merger Agreement.) A question has arisen in connection with Article III of the Sulphur Supply Agreement relating to its term. In consideration of the benefits anticipated by them in connection with the transactions contemplated in the Merger Agreement, FRP and IGL wish to record their understanding as follows. IGL and FRP acknowledge that, while not contemplated at this time, a transaction or series of transactions could take place in the future as a result of which IMC-Agrico Company's (the "Partnership's") phosphate fertilizer operations could be acquired by transfer tor by operation of law by IGL or a company controlling, controlled by or under common control with IGL (an "Affiliate"), with or without the consequent termination of the Partnership (an "IGL Acquisition Transaction"). IGL and FRP acknowledge and agree that the "business of the Partnership" and the term of the Sulphur Supply Agreement, as intended by Article III of the Agreement, will not be deemed to end as a result of an IGL Acquisition Transaction. IMC Global, Inc. August 26, 1997 Page 2 This agreement is not intended to amend Article III or any other term of the Sulphur Supply Agreement and is intended to be for the benefit of and binding on FRP, Newco, IGL and its Affiliates, and the successors and assigns of any of them. Yours truly, Freeport-McMoRan Resource Partners, Limited Partnership By: Freeport-McMoRan Inc. Managing General Partner By: /s/ Robert M. Wohleber ----------------------------------- Robert M. Wohleber Senior Vice President APPROVED AND AGREED: By: /s/ Lynn F. White --------------------- Lynn F. White Vice President EX-10.11 19 PROCESSING AND MARKETING AGREEMENT PROCESSING AND MARKETING AGREEMENT BETWEEN FREEPORT SULPHUR COMPANY, A Division of Freeport-McMoRan Resource Partners, Limited Partnership AND FELMONT OIL CORPORATION TABLE OF CONTENTS Page ---- PREAMBLE 1 I: DEFINITIONS 2 II: SCOPE OF AGREEMENT 12 III: QUANTITY 14 IV: TERM 15 V: SERVICES 16 VI: PRICE 19 VII: BLENDING 25 VIII: VATTING 29 IX: OPERATIONAL AND PROCESS LOSSES 30 X: ADDITIONAL CAPITAL 31 XI: ADDITIONAL CAPITAL DISPUTE RESOLUTION 43 XII: WARRANTIES 46 XIII: SALES AGENCY 47 XIV: TERMINATION PURCHASE REQUIREMENT 49 XV: TITLE; RISK OF LOSS 51 XVI: INSURANCE 51 XVII: AUDIT 54 XVIII: TAXES 55 XIX: ASSIGNMENT 55 XX: FORCE MAJEURE 56 XXI: NOTICES 58 XXII: GOVERNING LAW 59 XXIII: MISCELLANEOUS 59 PROCESSING AND MARKETING AGREEMENT THIS AGREEMENT, made as of the 19th day of June, 1990, between FREEPORT SULPHUR COMPANY, a division of Freeport-McMoRan Resource Partners, Limited Partnership ("Freeport"), a Delaware limited partnership, and Felmont Oil Corporation ("Felmont") a Delaware corporation. W I T N E S S E T H: WHEREAS, Freeport, Felmont and IMC Fertilizer, Inc. ("IMCF") are Lessees under that certain Sulphur and Salt Lease, designated by Serial No. OCS-G 9372 granted effective as of May 1, 1988 by the United States Department of the Interior, Minerals Management Service, as Lessor, covering all of Block 299, Main Pass Area, South and East Addition, OCS Leasing Map, Louisiana Map No. 10A (the "Sulphur Lease"), and WHEREAS, Freeport, Felmont and IMCF are parties to that certain Joint Operating Agreement, made as of May 1, 1988 for the exploration, development and production of sulphur from the Sulphur Lease (the "Joint Operating Agreement"), and WHEREAS, pursuant to operations under the Joint Operating Agreement a deposit of sulphur has been discovered on the Sulphur Lease and plans are in progress for the construction of a mine to produce such deposit (the "Main Pass Mine"), and WHEREAS, Felmont is desirous of entering into an agreement whereunder, with respect to the sulphur produced for the account of Felmont from the Main Pass Mine, Freeport would provide storage, filtration, blending, purification, vatting, melting, loading into transportation equipment, marketing and associated transportation services, and WHEREAS, Freeport is desirous of rendering the aforesaid services to Felmont, NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, Felmont and Freeport agree as follows: I. Definitions 1.1 "AGREEMENT" shall mean this Processing and Marketing Agreement and all schedules attached to it, which schedules are incorporated into this Agreement by this reference. 1.2 "AVERAGE SALES REALIZATION" means the average revenue per ton realized by Freeport from Combined Sulphur sold to customers in arm's length transactions during a month (excluding sales to Freeport and Freeport Related Parties) less the per ton average of all appropriate adjustments such as discounts, transfer-related taxes and bad debt losses and subsequent bad debt loss recoveries (excluding sales to Freeport and Freeport Related Parties). 1.3 "CLOSURE COST" means the total cost incurred by Freeport as the result of the abandonment (by sale or otherwise) or permanent closure of a facility utilized in the performance of this Agreement in order to comply with all applicable environmental laws and regulations (including, for example, and without limitation, dismantlement and/or removal of structures and equipment, site restoration, reclamation, clean up and/or protection) and in order to discharge all obligations to, and claims of, third parties (including for example and without limitation, that portion of the direct costs of employee terminations attributable to the period that this Agreement was in effect prior to such terminations), and any other reasonable cost incurred by Freeport for purposes of effecting such closure or abandonment. In the event Freeport sells any Facility to a third party, Closure Cost shall also include all obligations to, and claims of, such purchaser, including for example, and without limitation, environmental-related claims of, such purchaser; provided, however, in the event of the sale of an Initial Facility, Freeport shall first apply the full proceeds received from the sale to satisfy such obligation to or claim of a purchaser and only the excess above such proceeds shall be included in Closure Cost. Closure Cost is intended to include only those costs which a reasonable businessman in similar circumstances would incur using his own funds and not taking into account any reimbursement or indemnification such as those which may be owed by Felmont to Freeport under this Agreement or by third parties to Freeport under other agreements providing for similar reimbursement or indemnification. 1.4 "COMBINED SULPHUR" means with respect to any time period the total commingled Freeport Sulphur and Felmont Sulphur sold during such time period to customers other than Freeport or Freeport Related Parties. 1.5 "COMMENCEMENT DATE" means a date designated by Freeport, in a written notice to Felmont, as being the date upon which production of sulphur in commercial quantities (that is, quantities larger than those required for purposes of sampling, analysis or evaluation) shall have commenced at the Main Pass Mine. 1.6 "DAY" means a 24-hour period commencing at midnight and ending on the next following midnight. 1.7 "EARLY TERMINATION FACILITY" means any Replacement Facility, New Facility or any facility identified in the Facilities Improvement Schedule for expansion or modification of an Existing Facility as contemplated therein which, as of the date of termination of this Agreement under Section 4.2 (provided such date is prior to the tenth anniversary of the Commencement Date), has been approved by Felmont for acquisition and for construction by Freeport (if such approval is required), and which has been acquired and/or constructed by Freeport, or with respect to which a binding contract or contracts for acquisition and/or construction has been entered into by Freeport, prior to Freeport's receipt of Felmont's notice of termination given as provided in Section 4.2. 4 1.8 "EXISTING FACILITIES" means Freeport's currently existing facilities which shall be made available for use in performing its obligations under the Agreement and which are listed on Schedule A hereto. 1.9 "FACILITIES" means any or all of the Existing Facilities. Initial Facilities, New Facilities or Replacement Facilities provided for in this Agreement, as the context may require. 1.10 "FACILITIES CHARGE" means the fee determined as provided in Section 6.3 hereof, payable by Felmont to Freeport for the use of Freeport's Facilities in rendering the services to be performed under this Agreement. 1.11 "FACILITIES FEE" shall have the meaning for such term set forth in Article XIV hereof. 1.12 "FACILITIES IMPROVEMENT SCHEDULE" means expansions and modifications to be made by Freeport, at Freeport's sole expense, in respect of facilities set forth in the Existing Facilities Schedule, which such expansions and modifications are set forth on Schedule B attached hereto. 1.13 "FELMONT BLENDING SULPHUR" means recovered Sulphur or other high-quality sulphur used for blending purposes which is furnished by Freeport and is credited to Felmont's account pursuant to Article VII. 1.14 "FELMONT MAIN PASS SULPHUR" means the sulphur produced for the account of Felmont from the Main Pass Mine. 1.15 "FELMONT SULPHUR" means Felmont Main Pass Sulphur plus Felmont Blending Sulphur after taking into account operational, process and other gains and losses as provided in Article IX. 1.16 "FELMONT TONNAGE" means the quantity of Combined Sulphur which from time to time constitutes Felmont Sulphur, which has been sold, such quantity to be determined in a manner consistent with the principles of the Sales Allocation Procedure in Schedule C hereof. 1.17 "FREEPORT EMPLOYEE" means an employee of Freeport-McMoRan Inc. or any of Freeport's Related Parties. 1.18 "FREEPORT SULPHUR" means sulphur owned by Freeport which is produced at the Main Pass Mine or at Freeport's other mines located in the Gulf Coast area, or purchased by Freeport in the Gulf Coast area, or purchased by Freeport outside the Gulf Coast area and delivered to a Freeport facility in the Gulf coast area. 1.19 "G & A" means the portion of the corporate general and administrative overhead costs of Freeport-McMoRan Inc. borne by Freeport. 5 1.20 "GULF COAST AREA" means any of the land, littoral, state and federal continental shelf and offshore waters in, of or adjacent to the states of Texas, Louisiana, Mississippi, Alabama and Florida and all other areas within any of those states. 1.21 "INITIAL FACILITY OR FACILITIES" means any one of or the collective capital facilities identified on the Existing Facilities Schedule and the Facilities Improvements Schedule. 1.22 "MANAGEMENT FEE" means the fee specified in Section 6.2 hereof, payable by Felmont to Freeport as a fee for performing certain services under this Agreement. 1.23 "MARKETING FEE" means the fee specified in Section 6.4 hereof, for performing certain marketing services under this Agreement. 1.24 "MONTH" means a calendar month. 1.25 "NEW FACILITY" means a facility or group of related facilities that of itself will perform a function related to sulphur from the Main Pass Mine not performable by the Initial Facilities; a facility or group of related facilities which by its addition would cause a function performable by the Initial Facilities related to sulphur from the Main Pass Mine to be substantially enlarged; a facility or group of related facilities which is different in kind from any of the Initial Facilities and which is required primarily or exclusively to improve the economics of overall operations related to sulphur from the Main Pass Mine; or a facility or group of facilities which, in combination with other facilities, is required for the conduct of a new function related to sulphur from the Main Pass Mine. 1.26 "OPERATING CHARGE" shall have the meaning for such term set forth in Article XIV hereof. 1.27 "OPERATING COST REIMBURSEMENT" means a fee payable by Felmont to Freeport, in the manner described in Section 6.1, equal to all actual operating costs (including costs from Related Parties) incurred by Freeport in rendering the services described in Article V hereof. 1.28 "PORT SULFUR TERMINAL" means Freeport's Terminal at Port Sulphur, Louisiana. 1.29 "PURCHASE REQUIREMENT PERIOD" shall have the meaning for such term set forth in Article XIV hereof. 1.30 "PURCHASE REQUIREMENT PRICE" shall have the meaning for such term set forth in Article XIV hereof. 1.31 "QUARTER" means a calendar quarter. 1.32 "REASONABLE COST OF CAPITAL" means, regardless of the method of conventional or alternative (e.g. sales/leaseback) financing or acquisition actually chosen by Freeport to obtain a 6 Facility, the costs, including interest at a fixed rate, fees and other charges, if any, which are or would have been incurred in obtaining the funds actually required to obtain the Facility from a third party in an arm's-length transaction until such funds are repaid or recovered. 1.33 "RECEIVING POINT" means the Port Sulphur Terminal or such other location as Freeport may designate from time to time for the first shoreside receipt by Freeport of Felmont Main Pass Sulphur. 1.34 "RELATED PARTY" means when used in relation to one of the parties to this Agreement, any corporation, partnership, joint venture or other entity or form of enterprise other than a party hereto, that shall be directly or indirectly under joint or common control of, controlled by or controls that party. 1.35 "REPLACEMENT FACILITY" means a facility or group of related facilities which replaces an Initial Facility (or a previously acquired Replacement Facility) essentially in kind; a facility or group of facilities which replaces an Initial Facility (or a previously acquired Replacement Facility) and which, although different in kind from such Initial Facility (or a previously acquired Replacement Facility), performs essentially the same function as the Initial Facility (or a previously acquired Replacement Facility) in respect of sulphur from the Main Pass Mine and involves some improvement in the economics of overall operations; or a facility or group of related facilities provided or modified to perform an existing work requirement in respect of sulphur from the Main Pass Mine using a different method where use of such different method is dictated by factors not within the control of Freeport. 1.36 "REQUIREMENT DISCOUNT" shall have the meaning for such term set forth in Article XIV hereof. 1.37 "REQUIREMENT PERIOD AVERAGE SALES REALIZATIONS" shall have the meaning for such term set forth in Article XIV hereof. 1.38 "REQUIREMENT PERIOD CHARGE" shall have the meaning for such term set forth in Article XIV hereof. 1.39 "REQUIREMENT PERIOD SALES TONNAGE" shall have the meaning for such term set forth in Article XIV hereof. 1.40 "TAMPA TERMINAL" means Freeport's terminal at Tampa, Florida. 1.41 "TERMINATION PURCHASE REQUIREMENT" means the obligation of Freeport to purchase and of Felmont to sell Felmont Sulphur in the event of certain circumstances of termination as described in more detail in Article XIV hereof. 1.42 "TON" means a ton of 2240 pounds. 7 II. SCOPE OF AGREEMENT 2.1 GENERAL. Freeport will take receipt of the Felmont Sulphur at the Receiving Point, commingle the same with Freeport Sulphur, and sell Felmont's share of such commingled sulphur to purchasers. Freeport will perform, in accordance with the terms and conditions hereinafter set forth, all services required between receipt and sale of such sulphur, including storage, filtration, blending, purification (by means other than blending, if required), vatting, melting, loading into transportation equipment, marketing and associated transporting and terminalling services. 2.2 OTHER AGREEMENTS. Freeport's entry into this Agreement shall in no way limit Freeport's right to enter into agreements with other parties to perform for such parties any services of the kind to be rendered hereunder; provided, however, Freeport shall not knowingly enter into any agreement that would adversely affect performance of Freeport's obligations under this Agreement, and further provided, that no such third party agreement shall provide to any such third party any priority that is above that afforded to Felmont or otherwise Consistent with the following: (i) With respect to the use of Initial Facilities, no third party shall have any priority that is above the priority afforded to Felmont; (ii) With respect to the use of New and Replacement Facilities for which Felmont pays any adjustment to the Facilities recharge pursuant to Article 10, all such third party priorities shall be below the priority afforded to Felmont unless such third party is obligated to pay a proportionate share of the capital cost (including the Reasonable Cost of Capital associated therewith) of such New or Replacement Facility in which latter case such third party priority shall be equal to the priority afforded Felmont. 2.3 SPARE CAPACITY. In the event Freeport enters into any agreement to provide services to any third party utilizing the spare or idle capacity of any Facility, the revenue received by Freeport for such services shall be retained by Freeport. All operating costs for such services shall be for the account of Freeport. For purposes of this Section 2.3, "operating costs" shall have the same meaning as it has in Section 6.1(i). No reduction to the base Facilities Charge or to any adjustment to the Facilities Charge shall be made as a consequence of the use of such spare or idle capacity for provision of such services to third parties unless such Facility is a New or Replacement Facility that has incremental or surplus capacity in which case the adjustment shall be made as provided in Section 10.3. III. QUANTITY This Agreement shall apply to 100% (one hundred percent) of the Felmont Main Pass Sulphur produced during the term of this Agreement, including the Purchase Requirement Period, and 100% (one hundred percent) of the Felmont Blending Sulphur delivered to the Port Sulphur Terminal as provided in Article VII. 8 IV. TERM 4.1 The term of this Agreement will commence on the date of its execution by the parties and shall remain in effect thereafter so long as economically recoverable reserves of sulphur remain at the Main Pass Mine unless sooner terminated as provided herein. 4.2 Notwithstanding any other provision of this Agreement, Felmont shall have the continuing right to terminate this Agreement at any time for any reason or no reason effective on a date specified by Felmont in a notice thereof to Freeport given not more than 25 days nor less than 20 days in advance of the effective date of termination. Notwithstanding termination pursuant to Section 4.2, this Agreement shall remain in effect during the Purchase Requirement Period. 4.3 Each party hereto shall have the right to terminate this Agreement for any reason or no reason on the tenth, fifteenth or twentieth anniversaries of the Commencement Date by notice thereof to the other party given not less than 3 years in advance of any such anniversary dates, and absent exercise by Felmont of its continuing right to terminate under Section 4.2, this Agreement shall terminate as of the date specified in such notice and the Termination Purchase Requirement shall not be applicable. 4.4 No termination of this Agreement, whether under Section 4.2 or 4.3, shall affect any provision of this Agreement which by its terms or necessary operation continues after termination. V. SERVICES From and after the Commencement Date Freeport shall provide the following services, which services shall be rendered by Freeport as principal and exclusively in Freeport's name: 5.1 Receipt at the Receiving Point of Felmont Main Pass Sulphur (such sulphur to be transported from the Main Pass Mine to the Receiving Point pursuant to the Joint Operating Agreement) and the short term storage thereof at the Receiving Point to the extent required under normal operating circumstances prior to its loading into transportation equipment. 5.2 Filtration of Felmont Main Pass Sulphur to reduce average ash content to meet commercial specifications (currently 30 parts per million or less). 5.3 Purification (currently anticipated to be accomplished by blending with higher grade sulphur) of Felmont Main Pass Sulphur by reducing the carbon content thereof to meet commercial specifications (currently 0.25% or less). 5.4 As Freeport should deem necessary from time to time, the introduction of liquid Felmont Sulphur into solid storage vats at the Receiving Point for long term storage and the melting thereof upon withdrawal of such sulphur from the solid storage vats. At any point in time, 9 the proportionate solid storage capacity available for Felmont Sulphur shall be (i) 134,000 tons at the Port Sulphur Terminal, plus (ii) in the event such 134,000 ton capacity at the Port Sulphur Terminal becomes insufficient for the quantity of Felmont Sulphur then being vatted, such additional solid storage capacity at the Port Sulphur Terminal or other storage capacity at other storage facilities as Freeport shall arrange. 5.5 Identifying and obtaining purchasers for Felmont Sulphur commingled in Combined Sulphur, negotiating, preparing and executing, solely in Freeport's name, all sales contracts and administration of all sales contracts (including all accounting, legal, credit analysis and collection services, invoicing and technical service support required therefor and providing to Felmont monthly sales and inventory reports related to all such activities). Monthly sales reports provided to Felmont shall indicate the total quantity sold in each market served by Freeport and the average sales realization in each such market. All marketing information to be furnished by Freeport hereunder is deemed by Freeport to be confidential and Felmont agrees that it shall treat such information in the same manner Felmont treats its own confidential information. 5.6 Arranging for all transportation equipment and labor required to deliver Felmont Sulphur to customers, including use of Freeport's own transportation equipment and labor and such equipment and labor as Freeport may contract from Freeport's Related Parties and third parties. 5.7 Loading and delivery of Felmont Sulphur into transportation equipment. In the event of a shortage in sulphur vessel capacity subject to Freeport's control, first and equal priority shall be given to the transport of Freeport's sales tonnage (including tonnage sold by Freeport on Felmont's behalf and tonnage consumed by Freeport or Freeport's Related Parties), sulphur produced at the Main Pass Mine, sulphur to be moved for others pursuant to shared transportation equipment commitments, and sulphur used for blending or vatting; second priority shall be given to all other Freeport uses of its transportation equipment. 5.8 With respect to customers taking delivery of Felmont Sulphur at or through the Tampa Terminal or another Freeport receiving facility as designated by Freeport, unloading of Felmont Sulphur at such facility from marine transportation equipment and short-term storage of such sulphur to the extent required under normal operating circumstances prior to its delivery Into transportation equipment for final shipment to customers. VI. PRICE From and after the Commencement Date, for the services rendered by Freeport pursuant to Article V hereinabove and pursuant to Articles VII, VIII and XVI hereinafter, Felmont shall pay Freeport the Operating Cost Reimbursement plus the Management Fee plus the Facilities Charge plus the Marketing Fee as described below: 10 6.1 OPERATING COST REIMBURSEMENT. (i) Freeport shall be entitled to reimbursement of its actual operating costs incurred in rendering services under this Agreement (except for the services described in Section 5.5 hereinabove for which Freeport shall be compensated by the Marketing Fee described in Section 6.4 below) without duplication of any item of cost incurred under this Agreement and any other agreement between Freeport and Felmont. Charges from Freeport's Related Parties which are included in Operating Cost Reimbursement shall be no less favorable to Felmont than would be the case if such services were purchased in an arm's-length transaction; provided however, such charges from Related Parties shall in any event fully reimburse Freeport, without any profit, for any and all direct and indirect costs incurred. Freeport shall keep accurate records of such actual operating cost (including costs from Freeport's Related Parties or other third parties, but excluding G & A [subject to the provisions of Section 6.5 hereof] and depreciation) incurred each month in rendering the services described in Articles V, VII, VIII and XVI in respect of Felmont Sulphur. In this regard Freeport shall cause cost records to be kept for each activity center (e.g. purification, vatting, etc.) so that an average cost incurred per ton of all sulphur moved through such activity center during a month may be determined and charged proportionally to each quantity of sulphur moved through the activity center during such month. Such actual operating cost shall include the full cost of services rendered by any Freeport Employee specifically for the performance of this Agreement, the charges for such services shall reflect not only an allocation of such Freeport Employee's wages (including bonuses), but also a fair and equitable allocation of that Freeport Employee's benefits and departmental overhead (as opposed to G & A). Operating Cost Reimbursement shall include, at Freeport's option, Felmont's estimated proportionate share of Closure Costs of any Facility or Facilities, the amount of such accrual to be determined on a net present value basis or other basis which reflects Felmont's pre-payment of such estimated proportionate share of Closure Costs. (ii) Freeport shall invoice Felmont for reimbursement of such actual cost, and for payment of the associated Management Fee described in Section 6.2 below, during the following month. 6.2 MANAGEMENT FEE. Freeport shall be entitled to a Management Fee for performing the services described in Articles V (other than those described in Section 5.5), VII, VIII and XVI, which such fee shall be payable monthly and shall be equal to 5% of the total Operating Cost Reimbursement applicable tic such month; provided, however, that for the month during which 11 the Commencement Date occurs and for each of the next succeeding 35 months thereafter, the Management Fee shall in no event exceed sixty cents ($.60) per ton of Felmont Main Pass Sulphur received at the Receiving Point during any such month. The Management Fee shall not be applicable to any G & A for which Freeport may become entitled to reimbursement through the Operating Cost Reimbursement pursuant to the provisions of Section 6.5 hereof, nor to the amount paid for purchased sulphur pursuant to Section 7.3 nor to Felmont's share of Closure Costs. 6.3 FACILITIES CHARGE. Freeport shall be entitled to a fee for the use of Freeport's facilities in rendering the services described in Articles V (other than those described in Section 5.5), VII and VIII. Fifteen (15) days after the beginning of each quarter after the Commencement Date, Freeport shall estimate the quantity of Felmont Main Pass Sulphur to be received during such quarter and shall invoice Felmont a Facilities Charge which shall be $3.00 (three dollars) per ton of such estimated tonnage until and unless such amount is adjusted as provided in Article X. The actual tonnage of Felmont Main Pass Sulphur received in a current quarter will be indicated in the Facilities Charge invoice for the next succeeding quarter, with appropriate adjustment being made to the Facilities Charge for such succeeding quarter to reflect the actual tonnage received in the current quarter. 6.4 MARKETING FEE. For each ton of Felmont Tonnage determined to have been sold during a month, Felmont shall pay Freeport a Marketing Fee equal to a specified percentage of the Average Sales Realization for such month, which such percentage shall be either 3% as proposed by Freeport or 2 1/4% as proposed by Felmont, depending upon the outcome of the arbitration procedure hereinafter described in this Section 6.4. On or before 30 days after the date of execution of this Agreement the parties shall engage the services of one arbitrator who shall be Dr. Russell Coleman, retired Chairman of the Sulphur Institute, or if he is unavailable, Mr. Douglas Borne, President of Battle Mountanin Gold, or if he is unavailable, Dr. Robert Wagner, Chairman of the Potash and Phosphate Institute, or if he is unavailable, such other person as the parties shall mutually agree. On or before 30 days after such arbitrator is engaged each of the parties shall submit to such arbitrator a statement, which shall be limited to 10 single spaced typewritten pages and supporting documentation, setting forth such party's arguments in favor of the percentage proposed by it. Within 10 days after the day upon which the arbitrator is in receipt of the statements of both parties, the arbitrator will choose either the 3% proposed by Freeport or the 2 1/4% proposed by Felmont and not substitute his own judgment that a percentage different from either of those would constitute a fair and equitable resolution. The decision of the arbitrator will be final and binding upon both parties. 6.5 G & A. Freeport bears a portion of the G & A. Freeport has chosen to allocate the G & A (not otherwise allocated to a specific project) by dividing the G & A for a specific billing period by the total number of tons produced during such period from Freeport's own mines and the Main Pass Mine (disregarding purchased sulphur). The Main Pass Mine is treated as a special project for G & A allocation during the pre-production phase. After the Commencement Date all G & A not allocated to a specific project will be allocated to sulphur production. Felmont agrees 12 to bear its fair and equitable share of such G & A without duplication through the Joint Operating Agreement and through charges under this Agreement. If the method for allocation of Felmont's share of such G&A under the Joint Operating Agreement should be changed by Freeport with the result that Felmont ceases to bear its fair share of such G&A through charges under the Joint Operating Agreement, Felmont agrees to bear its share of such G&A without duplication though a combination of charges under the Joint Operating Agreement and this Agreement. 6.6 PAYMENT. Felmont shall make payment for each of the Operating Cost Reimbursement, the Management Fee and the Facilities Charge within thirty days from the date of postmark of Freeport's invoice therefor and shall send such payment to the address set out in such invoice for receipt of remittances. Freeport shall be deemed to have received such payment on the date it is received at such address; provided, however, that if the date of post mark of a payment is a date 25 days or less from the date of postmark of Freeport's invoice, such payment shall be deemed to have been timely received hereunder. Felmont agrees to pay Freeport a service charge equal to the lesser of (i) 0.05% per day (approximately one and one-half percent (1-1/2%) per month), or (ii) the highest percentage interest rate then permitted by law, on all payments due by Felmont not received by Freeport on or before the date due. Payment of the Marketing Fee shall be made as provided in Section 13.2 hereof. VII. BLENDING Because of impurities which may be present in sulphur produced from the Main Pass Mine, it may be necessary from time to time to blend higher quality sulphur with Felmont Main Pass Sulphur in order for Felmont Main Pass Sulphur to meet commercial specifications. Freeport agrees to use its best efforts, and in the order of priority provided in Sections 7.1 through 7.3 below (unless transportation charges can be reduced by altering the order of priority), to obtain recovered sulphur or other higher quality sulphur for purposes of such blending in a manner to minimize the cost thereof. The following provisions shall apply from time to time in determining Operating Cost Reimbursement under Article VI, the quality of Felmont Sulphur sold and the quantity of Felmont Tonnage for the purposes of Schedule C. Freeport agrees that in allocating blending sulphur Felmont Sulphur will be treated on a parity with Freeport Sulphur in priority of allocation of sulphur under Section 7.1 through 7.3. 7.1 WATERBORNE SULPHUR PROVIDED BY FREEPORT. Freeport currently transports recovered sulphur by barge and by tanker for third parties and for its own use at phosphoric acid plants which Freeport owns and operates in Louisiana. Provided that Freeport (a) has the right to exchange recovered sulphur being transported for third parties, and/or (b) can utilize less than commercial grade sulphur in its phosphoric acid plants without operational difficulties or increased operating costs, then Freeport agrees to exchange (without charge to Felmont to reflect the differences in quality between the tonnages exchanged) that quantity of recovered sulphur which is necessary for blending with Felmont Main Pass Sulphur for an equal quantity Of Felmont Main Pass Sulphur. The exchanges contemplated herein shall be on a ton per ton basis and shall not result in 13 any increase or decrease in the total quantity of Felmont Sulphur then held by Freeport. Risk of loss to each quantity of sulphur so exchanged shall pass from one party to the other at the time the blending occurs. For each ton of recovered sulphur so exchanged for a ton of Felmont Main Pass Sulphur, Freeport shall be entitled to payment as provided in Article VI hereof for performing the services utilized pursuant to Article V associated with such Felmont Blending Sulphur, except that Operating Cost Reimbursement shall also include one-half (but only one-half) of the transportation costs associated with transporting such quantity of recovered sulphur from the place of receipt at a port facility to the Port Sulphur Terminal. Felmont shall bear no portion of any cost of shipment of Felmont Main Pass Sulphur so exchanged from the Port Sulphur Terminal to another location. 7.2 SULPHUR PROVIDED BY FREEPORT FROM ITS PHOSPHORIC ACID PLANTS. Freeport also currently transports recovered sulphur by rail and truck for use at its phosphoric acid plants in Louisiana. Provided that Freeport (a) can utilize less than commercial grade sulphur in its phosphoric acid plants without operational difficulties or increased operating costs, and (b) has recovered sulphur available, then Freeport agrees to exchange (without charge to Felmont to reflect the differences in quality between the tonnages exchanged) that quantity of recovered sulphur which is necessary for blending with Felmont Main Pass Sulphur for an equal quantity of Felmont Main Pass Sulphur. The exchanges contemplated herein shall be on a ton per ton basis and shall not result in any increase or decrease in the total quantity of Felmont Sulphur then held by Freeport. Risk of loss or damage to each quantity of sulphur so exchanged shall pass from one party to the other at the time the blending occurs. For each ton of liquid recovered sulphur so exchanged for a ton of Felmont Main Pass Sulphur, Freeport shall be entitled to payment as provided in Article VI hereof for performing the services utilized pursuant to Article V associated with such Felmont Blending Sulphur, except that Operating Cost Reimbursement shall also include the full cost of loading such liquid recovered sulphur into a barge at Freeport's phosphoric acid plant and transporting such recovered sulphur from the phosphoric acid plant to the Port Sulphur Terminal, and transporting the exchanged Felmont Main Pass Sulphur from such terminal to Freeport's phosphoric acid plant. 7.3 SULPHUR PURCHASED BY FREEPORT FOR BLENDING. If the quantity of recovered sulphur available pursuant to Sections 7.1 and 7.2 above is less than the quantity required for blending with Felmont Main Pass Sulphur, Freeport shall consult with and obtain Felmont's approval (which shall not be unreasonably withheld) before purchasing any sulphur for blending with Felmont Main Pass Sulphur. If Freeport purchases recovered sulphur for blending with Felmont Main Pass Sulphur, Freeport shall be entitled to payment as provided in Article VI hereof for performing the services utilized pursuant to Article V associated with such Felmont Blending Sulphur, except that Operating Cost Reimbursement shall also include Felmont's proportionate share of the full cost of purchasing and transporting such recovered sulphur from the point of purchase to the Port Sulphur Terminal. All such Felmont Blending Sulphur so purchased for Felmont's account shall be added to the quantity of Felmont Sulphur then in the possession of Freeport and risk of loss or damage to such Felmont Blending Sulphur so purchased shall pass to Felmont at the shoreline 14 flange at the Port Sulphur Terminal as such Felmont Blending Sulphur is progressively discharged into such Facility from the transportation equipment transporting such sulphur to such terminal. VIII. VATTING In determining solid storage vatting costs attributable to Felmont Sulfur, Freeport shall be entitled to reimbursement as an Operating Cost Reimbursement for the full cost of the vatting and melting of such sulphur if undertaken as the result of a decision by Freeport in its capacity as marketing agent that it expects such vatting to benefit Average Sales Realization, or if as the result of a force majeure affecting Freeport's terminalling and/or transportation system. Should it become necessary, because of anticipated future shortages of recovered sulphur or for other reasons, to vat Felmont Blending Sulphur obtained for blending with Felmont Main Pass Sulphur, Freeport shall consult with and obtain Felmont's approval (which shall not be unreasonably withheld) before any such Felmont Blending Sulphur is vatted. If Freeport vats any Felmont Blending Sulphur, Freeport shall be entitled to reimbursement as an Operating Cost Reimbursement, for the full cost of the vatting and melting of such Felmont Blending Sulphur. Should Freeport elect to vat a quantity of Freeport Sulphur or sulphur of any Freeport Related Party at the Port Sulphur Terminal principally for the economic benefit of Freeport or such Related Party is a party, or principally for purposes of maintenance of recovered sulphur purchase contracts to which Freeport or any Freeport Related Party is a party, and not substantially for the benefit of Felmont, Felmont shall bear no portion of the cost of services specified in Articles V, VII, VIII and XVI with respect to such quantity of sulphur. IX. OPERATIONAL AND PROCESS LOSSES The parties acknowledge that in the course of operations and processes required for receiving, handling, storing, purifying, filtering, transporting, loading and unloading Felmont Sulphur, some portion of such sulphur will be lost and, from time to time, gained. The parties agree that such operational and process losses and gains shall be estimated and allocated among the particular processes in which such changes occur, by such method or methods as Freeport shall from time to time determine, subject to adjustment based on total loss or gain determinations made from time to time by actual physical measurement. The quantity of Felmont Sulphur which is held be Freeport from time to time shall be determined by totaling all receipts of Felmont Main Pass Sulphur and Felmont Blending Sulphur and subtracting (or adding in the case of the operational gains) therefrom (i) the operational and process losses and gains) (ii) all deliveries of Felmont Sulphur made to purchasers, and (iii) any Felmont Sulphur which is lost or destroyed due to reasons beyond Freeport's reasonable control. Freeport shall from time to time make analyses of sulphur in the course of such operations and processes in order to establish the quantities and characteristics of such sulphur. Freeport shall deliver to Felmont reports of such analyses at least monthly. Felmont shall have the right at Felmont's expense to have such records of such analyses audited by a chemist from time to time 15 designated by Felmont and to take splits of such analyses for the purpose of making Felmont's own determinations of such quantities and characteristics. X. ADDITIONAL CAPITAL 10.1 FREEPORT'S COMMITMENT RELATED TO FACILITIES IMPROVEMENT, SCHEDULE. Freeport represents, in good faith, that the expansions and modifications of Existing Facilities set forth in the Facilities Improvement Schedule will bring the processing and storage facilities at the Port Sulphur Terminal and at the Tampa Terminal into a condition suitable for providing the services to be rendered under the Agreement: but it is expressly understood that the transgulf transportation facilities listed on Schedule A hereof may not be sufficient to provide adequate reserve transportation capacity so that additional capital expenditures in respect thereof may be required at some future time. Freeport shall invest, at Freeport's sole expense, the additional capital required to accomplish the expansions and modifications indicated in the Facilities Improvements Schedule and shall notify Felmont in writing of the date upon which such expansions and modifications have been accomplished. 10.2 OTHER PRE-COMMENCEMENT DATE CAPITAL EXPENDITURES. Notwithstanding the foregoing provisions of Section 10.1, if an additional capital expenditure not shown on Schedule B is determined by Freeport to be required prior to the Commencement Date: (i) for Existing Facility expansion and modification as the result of changes in applicable environmental or other laws and/or regulations in effect as of December 31, 1989, or new interpretations of such applicable environmental or other laws and/or regulations in effect as of such date which are made after such date, or other event beyond the reasonable control of Freeport; or (ii) for replacement of Initial Facilities as the result of loss or damage beyond the reasonable control of Freeport and such replacement, after taking into account salvage value and/or insurance proceeds, requires additional capital to improve the economics of overall operations or is dictated by factors not within the control of Freeport (Freeport agrees to maintain, from the date of execution of this Agreement until the Commencement Date, insurance on the Initial Facilities in an amount which it, in good faith, believes will reflect in the case of vessels, adequate Hull insurance coverage and, in the case of all other such Initial Facilities, the replacement cost thereof); such determination having been made on the basis that such capital expenditure is substantially for the purpose of providing services in respect of sulphur to be produced from the Main Pass Mine, Felmont shall bear its proportionate share (determined on the same basis as provided in Section 10.3 below) of such additional capital expenditure (including the Reasonable Costs of 16 Capital associated therewith) through an adjustment of the Facilities Charge in the same manner as provided in Section 10.3 below with respect to a Replacement Facility of a New Facility, except that any such expansion or modification project undertaken or any replacement for a Facility constructed or otherwise acquired prior to the Commencement Date with a cost in excess of $500,000 (which amount is subject to adjustment as provided in Section 10.7) shall be subject to Felmont's approval which shall not be unreasonably withheld. Except as otherwise provided in this Section 10.2, any such expansion or modification project undertaken as contemplated by this Section 10.2 shall for all other purposes of this Agreement be deemed to be a New Facility and any such replacement for a Facility constructed or otherwise acquired as contemplated by this Section 10.2 shall for all other purposes of this Agreement be deemed to be a Replacement Facility. 10.3 NEW AND REPLACEMENT FACILITIES. From and after the Commencement Date, a proportionate share of the cost of each capital expenditure made by Freeport in respect of Facilities used by it to perform services under this Agreement, whether made in respect of a Replacement Facility or in respect of a New Facility, plus the Reasonable Cost of Capital associated therewith, shall be borne by Felmont in the form of an adjustment to the basic $3.00 per ton Facilities Charge specified in Section 6.3 hereof. If in determining the size or capacity, of a New Facility or Replacement Facility, Freeport includes in the size or capacity of such Facility incremental or surplus capacity (in excess of that reasonably needed for contingencies) in order to provide services to third parties, then the adjustment to the Facilities Charge shall (i) be no greater than it would have been had such Facility been sized not to exceed the reasonable service requirements of sulphur production from the Main Pass Mine plus Freeport's other sulphur mines in the Gulf Coast area, and (ii) reflect for the benefit of Felmont any reduction in the Facilities Charge adjustment resulting from such incremental or surplus capacity as compared to the Facilities Charge adjustment that would have resulted from such a Facility without incremental or surplus capacity. Felmont's proportionate share of such capital expenditure shall be determined (and thereafter fixed) at the time of the capital expenditure is made for such Facility based on the percentage of the capacity of such Facility reasonably estimated to be for the benefit of Felmont Sulphur. The adjustment to the Facilities Charge in accordance with the preceding paragraph will reflect Felmont's proportionate share of the cost of the Facility so constructed or acquired, plus the Reasonable Cost of Capital associated therewith, as depreciated over the useful life of the Facility in accordance with a schedule of depreciation to be provided at the time of construction or acquisition. When Felmont has paid Freeport its full proportionate share of a capital expenditure, plus the Reasonable Cost of Capital associated therewith, which is attributable to Felmont Sulphur, the adjustment to the basic $3.00 per ton Facilities Charge associated with such capital expenditure shall no longer be applied. Any Freeport decision to replace any of the Initial Facilities with a Replacement Facility requiring an expenditure in excess of $3,000,000 (which amount is subject to adjustment as provided in Section 10.7) or to add any New Facility requiring an expenditure in excess of $500,000 (which amount is subject to adjustment as provided if Section 10.7), shall be subject to Felmont's approval, with approval shall not be unreasonably withheld. 17 10.4 REFERRAL TO CHIEF EXECUTIVE OFFICERS. In the event that representatives of Felmont and Freeport are unable to agree on the need to add a Replacement Facility, or a New Facility, its the case may be, which requires the approval of Felmont in accordance with Sections 10.2 or 10.3 above, the matter shall be referred to the chief executive officers of Felmont's intimate parent company and Freeport's ultimate parent company for their decision. If the parties remain unable to agree at the end of 30 days after such referral, the matter shall be resolved in accordance with the provisions of Article XI hereof entitled "Additional Capital Dispute Resolution." Notwithstanding anything in this Agreement, or any decision rendered pursuant to Article XI, to the contrary, Freeport reserves the right at all times to proceed in its sole discretion with any capital expenditure for its own use and for its own accounts, and the only effect of Felmont's approval or disapproval of a capital expenditure will be whether such capital expenditure shall be utilized by Freeport in performing services under this Agreement and whether Felmont has an obligation to pay a Facilities Charge associated therewith. 10.5 ENVIRONMENTAL AUDITS. Felmont shall have the right to conduct, at Felmont's expense, an environmental audit prior to use of, and/or upon abandonment of, and/or upon notice to Felmont pursuant to Section 10.6.3 of Freeport's continued use of, and/or upon Felmont's termination of this Agreement, any Facilities utilized by Freeport in the performance of this Agreement (inclusive of the Initial Facilities plus all replacements and additions thereto); provided, however, that in the conduct of any such environmental audit no contact shall be made with any personnel of any federal, state, local or other government, and none of the information obtained in the conduct of such audit shall be released to any person other than a director, officer, employee or consultant of Felmont or of a Felmont Related Party, without the prior written consent of Freeport unless Felmont determines that it is legally obligated to disclose such information and gives Freeport reasonable advance written notice of its intention to make such a disclosure. 10.6 DISPOSITION OF FACILITIES. Subject to the further provisions of this Section 10.6, the disposition of any Initial Facility, Replacement Facility or New Facility (i) after this Agreement has terminated, or (ii) at any time after Freeport has determined that any such Facility is no longer appropriate for the performance of this Agreement, shall be made as Freeport in its sole discretion shall decide. 10.6.1 Should Freeport in its discretion choose to scrap or sell a Facility, Felmont shall bear a proportionate share of (i) the Closure Coat of the Facility, and (ii) any remaining unrecovered cost of the Facility (but excluding the unrecovered cost of any Initial Facility identified on the Existing Facilities Schedule), if any, after taking salvage value (or sales proceeds, as the case may be) into account. In the case of a Replacement Facility or a New Facility such proportionate share shall be the proportionate share determined to be Felmont's proportionate share for purposes of adjusting the Facilities Charge to reflect the addition of such Replacement Facility or New Facility. In the case of an Initial Facility such proportionate share 18 shall be based upon the percentage of utilization of such Initial Facility for the benefit of Felmont Sulphur during the period this Agreement was in effect prior to scrapping or sale, as the case may be; provided, however, that with respect to the Closure Cost, if any, of an Initial Facility, the parties recognize that a portion of such cost may be the result of Freeport's use of the Initial Facility prior to or after performing services under this Agreement and will develop a fair and equitable method or methods for relieving Felmont of responsibility for such portion of such cost. If Freeport has elected to charge Felmont an amount as an accrual for Closure Cost as provided in Section 6.1(i) and Felmont's proportionate share of the actual Closure Cost is more or less than Felmont's proportionate share of the estimated Closure Cost on which the accrual was calculated or the amount actually accrued, then Freeport will develop a fair and equitable method for reimbursing or crediting Felmont for such excess amount accrued for Closure Cost and Felmont shall reimburse Freeport for any under accrual for Closure Cost. 10.6.2 Should Freeport in its discretion sell a Facility (other than an Initial Facility) and the sales proceeds therefrom are greater than the depreciated book value (cost less depreciation), Freeport will develop a fair and equitable method for reimbursing Felmont for any overpayment of Facilities Charges in a manner which takes into account the extent that Felmont has contributed to the depreciation of such Facility. Neither this Section 10.6.2 nor any other provision of this Agreement shall be construed or is intended to grant to Felmont any ownership right, lien, encumbrance, equitable or beneficial interest in any Facility (whether an Initial Facility or a Replacement Facility or a New Facility) now or at any time in the future or impose any liability or responsibility on Felmont to third parties with respect thereto. 10.6.3 Should Freeport in its discretion choose to continue to use or permit a Freeport Related Party to use a Facility exclusively for purposes other than performing the services to be rendered under this Agreement, either after having determined that such Facility is no longer necessary or appropriate for the performance of this Agreement or after termination of this Agreement (provided such Facility does not qualify as an Early Termination Facility subject to the provisions of Section 10.6.4 below), Freeport shall so notify Felmont and Felmont shall, except as otherwise provided in the next following sentence, be relieved of all further financial responsibility for and right to surplus proceeds from such Facility as of the date of such notice from Freeport. If after giving such notice of continued use, Freeport should choose to scrap or sell such Facility, as the case may be, and such 19 scrapping or sale entails a Closure Cost, Felmont shall bear its proportionate share of such Closure Cost. Felmont's proportionate share shall be determined in the manner provided in Section 10.6.1 above for the period of time when this Agreement was in effect, and Felmont shall have no responsibility for any portion of such Closure Cost relating to utilization of the Facility before or after that period of time. Further, if the Facility so used exclusively for purposes other than performing the services to be rendered under this Agreement is a New Facility or a Replacement Facility for which an adjustment to the Facilities Charge is still being charged to Felmont, then for the period of time that the Facility is so used for other purposes, Felmont shall receive a credit for and be forever relieved of the obligation to pay the Facilities Charge adjustment associated with such Facility. 10.6.4 In the event this Agreement should terminate prior to the tenth anniversary of the Commencement Date, and Freeport in its discretion should choose to continue to use an Early Termination Facility exclusively for purposes other than performing the services to be rendered under this Agreement, Freeport shall so notify Felmont and Felmont shall, within 30 days after the date of Freeport's notice, pay to Freeport an amount which shall be specified in such notice from Freeport and equal to the difference between (i) the total amount Freeport would otherwise have recovered through the Facilities Charge in accordance with the depreciation schedule applicable to such Early Termination Facility) during the period beginning on the Commencement Date and ending as of the tenth anniversary of the Commencement Date, for Felmont's proportionate share (determined as provided in Section 10.3) of the cost of such Early Termination Facility after taking into account amounts to be paid by Felmont as a Facilities Fee with respect to such a Facility during the Purchase Requirement Period (including the Reasonable Cost of Capital associated therewith), and (ii) the portion, if any, of such total amount which shall have been recovered by Freeport through the Facilities Charge and any adjustments to the Facilities Charge pursuant to Section 10.3 as of the date of termination. Upon making such payment, Felmont shall, except as provided in the next following sentence, thereafter be relieved of all further financial responsibility for and right to surplus proceeds from such Early Termination Facility. If after having received such payment from Felmont as aforesaid, Freeport should choose to scrap or sell such Early Termination Facility, as the case may be, and such scrapping or sale entails a Closure Cost, Felmont shall bear its proportionate share of such Closure Cost. Felmont's proportionate share of such Closure Cost shall be determined in the manner provided in Section 10.6.1 above for the period of time when this Agreement was in effect, and 20 Felmont shall have no responsibility for any portion of such Closure Cost relating to utilization of such Early Termination Facility before or after that period of time. 10.6.5 Should Freeport sell or otherwise permanently dispose of a Facility to a Freeport Related Party, for all purposes of this Agreement, Freeport shall be deemed to have received the fair market value of such Facility after taking into account all relevant matters as agreed by the parties or if they fail to agree as determined by appraisal. If the parties fail to agree and such value is to be fixed by appraisal, each party shall select an appraiser who is familiar with the valuation of similar assets and operations. The two appraisers so selected shall choose a third similarly qualified appraiser. The three appraisers shall simultaneously submit their appraisals with a brief statement of the basis therefor. The appraised value shall be the average of the two appraisals which are closest to each other unless such value is determined to be clearly unreasonable. 10.7 APPROVAL LEVEL ADJUSTMENT PROCEDURE. The dollar amounts associated with Felmont's rights to approve capital expenditures specified in Sections 10.2 and 10.3 hereof shall be adjusted annually commencing on December 31, 1990 and on each December 31 thereafter by multiplying such dollar amount by the percentage change in the "Implicit Price Deflator for Gross National Product (Index number 1982 = 00)" as published by the Bureau of Economic Analysis of the United States Department of Commerce in the monthly publication "Survey of Current Business" for the second calendar quarter (seasonally adjusted) if the year in which the adjustment is made form a base of 125.9. For example, assuming an increase in the index of 10% from the base of 125.9, each of the dollar amounts specified in Sections 10.2 and 10.3 hereof shall be increased 10%. Should the index specified above cease to be published at any time during the term of this Agreement, the parties shall select a substitute index which in their judgement as nearly as possible approximates the results obtained by use of the index specified above. 10.8 ESTIMATE OF CLOSURE COST; PREPAYMENT. Should Freeport in its direction choose to continue to use a Facility exclusively for purposes other than performing the services pursuant to this Agreement after termination of this Agreement, Freeport shall promptly so notify Felmont. Felmont shall have the right to require Freeport to prepare an estimate of Closure Cost for such Facility and to calculate the present value of such Closure Cost using the publicly announced fluctuating prime rate of interest then in effect charged by Chase Manhattan Bank, New York, New York, on 90-day loans to its most responsible and substantial customers, plus 2% (but in no event in excess of the maximum rate of interest which it is permitted to charge from time to time under applicable law), and shall reimburse Freeport for the costs reasonably incurred by Freeport in preparing such estimate (except that if a third party jointly with Felmont directs the preparation of such estimate, reimbursement to Freeport of such preparation costs shall be borne between Felmont and such third party in the proportion the respective interests of Felmont and such third 21 party in sulphur production from the Main Pass Mine bear to each other). Within 90 days after receipt of such estimate, Felmont shall have the right to pay Felmont's proportionate share of such present value of such estimated Closure Cost and upon Freeport's receipt of such amount Felmont shall have no further obligation, express or implied, to Freeport for Closure Cost for such Facility. XI. ADDITIONAL CAPITAL DISPUTE RESOLUTION In then event of the failure of the chief executive officers of Felmont's ultimate parent and Freeport's ultimate parent to leach a decision on a matter referred to them pursuant to Section 10.4 hereof by the end of the 30 day period provided for therein, the matter shall be determined through the "Baseball Arbitration" procedure described hereinafter in this Article XI and such determination shall be binding on the parties 11.1 Within 20 days after the expiration of the 30 day period referred to above, Felmont and Freeport shall simultaneously exchange a written statement of their respective positions as to the matter in dispute, which statement shall be limited to 10 single spaced typewritten pages plus supporting documentation. 11.2 On or before the fifth day after the exchange of statements under Section 11.1 above, each party must name its choice of an arbitrator. Within 20 days thereafter, the two arbitrators so chosen shall name a third arbitrator. If any of the three arbitrators has not been named within the appointed time, then either party may apply to the American Arbitration Association for appointment of the arbitrator(s) necessary to complete the panel within 20 days thereafter. All arbitrators shall be individuals who are not and never have been officers, directors or employees of either party or of any Related Party, and who are not currently officers, directors or employees of any supplier which by reason of the volume of business between the party appointing such arbitrator and that supplier can reasonably be expected to have a conflict of interest. All arbitrators shall be qualified by education, knowledge and experience to determine the matters submitted to them. Each party shall each pay the compensation and expenses of the arbitrators named by or for it, and both shall share equally the compensation and expenses of the third arbitrator, subject to reimbursement of the prevailing party as provided in Section 11.3 below. Within 30 days following the date that a three-person panel is established, the three arbitrators shall evaluate the statements of each party and select a position which must be either the Felmont position set forth in its statement or the Freeport position set forth in its statement. The decision cannot be one that creates an alternative position other than those set forth in the parties' statements. The decision of the arbitration panel, or a majority thereof, shall be final and binding as to the matters submitted for arbitration by the parties. Notwithstanding anything in this Agreement, or any decision rendered pursuant to this Article XI, to the contrary, Freeport reserves the right at all times to proceed in its sole discretion with any 22 capital expenditure for its own use and for its own account, and the only effect of Felmont's approval or disapproval of a capital expenditure will be whether such capital expenditure shall be utilized by Freeport in performing services under this Agreement and whether Felmont has an obligation to pay a Facilities Charge associated therewith. 11.3 The party whose position is selected by the arbitration panel pursuant to Section 11.2 above (the "prevailing party"), shall be entitled to reimbursement from the other party of all costs and expenses reasonably incurred by it as the result of preparing and submitting the matter at issue to arbitration pursuant to this Article XI (including but not limited to reasonable attorneys fees and all amounts paid pursuant to Section 11.2 above) within 30 days after its submission of a statement of such costs and expenses to the other party for payment, and the other party shall pay all other costs and expenses of such arbitration over and above those incurred by the prevailing party. 11.4 Felmont understands that Freeport is also entering into a similar agreement with IMCF concerning cervices to be performed by Freeport in connection with Main Pass sulphur produced for IMCF's account. In the event that Freeport proposes a capital expenditure that is subject to the approval of both Felmont and IMCF and neither approves, and the chief executive officers of Freeport, Felmont and IMCF are unable to reach a decision on such capital expenditure, then, in order to avoid the potential of inconsistent results, Freeport and Felmont agree that the arbitration of such dispute shall be conducted in a single proceeding with Freeport, Felmont and IMCF all participating in that single proceeding. In the event of such a three party arbitration, the procedures provided in Section 11.2 shall govern but Freeport, individually, and Felmont and IMCF, collectively, shall have the right to name an arbitrator and the two arbitrators so named shall name three additional arbitrators. If the panel has not been completed within the time contemplated above, any party may apply to the American Arbitration Association to complete the panel. The arbitrators shall select the position of one of the three parties. Each party of the arbitration shall simultaneously exchange a written statement of its respective position as to the matters in dispute. The prevailing party's expenses shall be borne by the other two parties in the proportion that their respective interests in sulphur production from the Main Pass Mine bear to each other. Agreement by Freeport and IMCF or Felmont and IMCF on any such matter shall not preclude the exercise by the other party hereto of its right to arbitrate under Section 11.1 through Section 11.3. 23 XII. WARRANTIES 12.1 TITLE. Felmont warrants title to all Felmont Sulphur received by Freeport from Felmont hereunder free from all liens encumbrances, taxes or claims arising by, through or under Felmont. Freeport warrants title to all Felmont Blending Sulphur. 12.2 WARRANTY OBLIGATION. Under current conditions in the sulphur market, Freeport markets sulphur to purchasers on the basis that sulphur delivered will confirm to written specifications agreed to between Freeport and its sulphur purchasers with price allowances for sulphur not meeting such specifications and on the basis that Freeport shall not be liable for indirect or consequential damages including loss of revenues or loss of profits. Freeport otherwise makes no express warranties nor does it disclaim any warranties. Felmont warrants Felmont Sulphur to Freeport to the extent required to permit Freeport to market Combined Sulphur on the basis above described. Should Freeport find it necessary in order to market Combined Sulphur at any time or from time to time during the term of this Agreement to accept terms and conditions different than described above, Freeport shall so notify Felmont and continue to market Combined Sulphur in accordance with this Agreement unless Felmont should choose to terminate this Agreement as the result of such notification. Felmont agrees that from and after any such notification from Freeport, Felmont shall warrant Felmont Sulphur to the extent necessary to permit Freeport to market Combined Sulphur on the basis of such revised terms and conditions described in such notice. XIII. SALES AGENCY 13.1 EXCLUSIVE AGENT. As sales agent for Felmont, Freeport will sell the Felmont Sulphur in exclusively Freeport's name and will be the sole and exclusive seller of Felmont Sulphur during the time this Agreement is in force and effect but will have no actual or apparent authority to make commitments on Felmont's behalf except with respect to Felmont Sulphur to be sold and delivered under the terms of this Agreement. 13.2 DETERMINATION AND PAYMENT OF SALES PROCEEDS DUE FELMONT. Of the Combined Sulphur determined by Freeport to have been sold during a month, the portion thereof which is Felmont Tonnage shall be determined in the manner prescribed in Schedule C hereof. Within 45 days after the end of a month Freeport will remit to Felmont an amount equal to the Felmont Tonnage multiplied by the per-ton Average Sales Realization for the month less the per ton Marketing Fee applicable to such month, and Freeport agrees to pay Felmont a service charge equal to the lesser of (i) 0.05% per day (approximately one and one-half percent (1-1/2%) per month), or (ii) the highest percentage interest rate then permitted by law, on all remittances due from Freeport not received by Felmont on or before the date due. 13.3 INVENTORY REMAINING ON TERMINATION. In the event that this Agreement terminates and Freeport has not remitted to Felmont the sales proceeds due Felmont for any quantities of 24 Felmont Sulphur previously received by Freeport other than Requirement Period Sales Tonnage, the provisions of this Article XIII and the allocation procedures of Schedule C shall continue to apply to such Felmont Sulphur until Felmont has received payment: in full therefor. XIV. TERMINATION PURCHASE REQUIREMENT Should Felmont give notice of termination pursuant to Article IV hereof, then upon and notwithstanding such termination, except as otherwise provided in Section 4.3 hereof, Freeport shall be obligated to purchase from Felmont and Felmont shall be obligated to sell to Freeport all Felmont Main Pass Sulphur produced at the Main Pass Mine during the period beginning on the date of termination of the sales agency and ending as of December 31 of the year next following the year during which the sales agency terminated (such purchase and sale obligations as described in more detail hereinafter in this Article XIV being herein referred to as the "Termination Purchase Requirement" and such period being hereinafter referred to as the "Purchase Requirement Period"). For each month of the Purchase Requirement Period Freeport shall determine the number of tons of Freeport Sulphur sold by Freeport to all customers during the month (such tonnage hereinafter called the "Requirement Period Sales Tonnage"). Freeport shall then calculate the Requirement Period Average Sales Realization for the month which shall be the average revenue per ton realized by Freeport from sale to customers (excluding sales to Freeport and Freeport Related Parties) of the Requirement Period Sales Tonnage (excluding sales to Freeport and Freeport Related Parties) for such month, less the per ton average of all proper adjustments such as discounts and transfer-related taxes paid (but excluding sales to Freeport and Freeport Related Parties and excluding bad debt losses) in respect of the Requirement Period Sales Tonnage for such month. The Purchase Requirement Price payable for Felmont Main Pass Sulphur received by Freeport during the month shall be the Reimbursement Period Average Sales Realization for the month less the Requirement Period Charge for such month. As used herein the term "Requirement Period Charge" means the sum of the Operating Charge for the month plus the Facilities Fee plus the Requirement Discount for the month as those terms are defined hereinafter: (i) OPERATING CHARGE. For each month of the Purchase Requirement Period Freeport shall determine an amount calculated in the same manner as the Operating Cost Reimbursement but excluding any vatting and melting costs. Such amount shall by multiplied by 105% and the product thereof divided by the number of tons of Felmont Main Pass Sulphur received by Freeport during such month. The amount thus obtained shall be the Operating Charge for such month. (ii) FACILITIES FEE. The Facilities Fee shall be an amount per ton equal to the Facilities Charge in effect at the time of termination of the agreement. Appropriate credit shall be made by Freeport for any pre-payment of the Facilities Charge made prior to Termination. 25 (iii) REQUIREMENT DISCOUNT. The Requirement Discount for any month of the Purchase Requirement Period shall be an amount equal to 5% of the Requirement Period Average Sales Realization for such month. Payment for the total tonnage of Felmont Main Pass Sulphur received by Freeport during a particular month shall be made by Freeport to Felmont within 45 days after the end of such month. Title and risk of loss shall pass to Freeport at the Receiving Point. XV. TITLE: RISK OF LOSS Title to Felmont Sulphur shall pass to Freeport at the shoreline flange at the Port Sulphur Terminal as the Felmont Sulphur is progressively discharged into such Facility from the transportation equipment transporting such sulphur from the Main Pass Mine to such terminal; provided, however, that if the sulphur produced from the Main Pass Mine is transported to a Receiving Point other than the Port Sulphur Terminal, the title to Felmont Sulphur shall pass to Freeport at the flange of the vessel transporting such sulphur from the Main Pass Mine to such other location. Risk of loss of Felmont Sulphur shall remain in Felmont until delivery thereof to a purchaser, except as may be otherwise provided in Article VII hereof. XVI. INSURANCE 16.1 FREEPORT'S INSURANCE. At all times after the Commencement Date (except as otherwise provided in Section 16.1.5 below) Freeport shall provide or cause to be provided the following insurance and Felmont's proportionate share of the cost thereof, including in the event of a loss Felmont's proportionate share of any deductibles and self insured retentions, shall be included in Operating Cost Reimbursement; provided however,the Management Fee shall not be applied to any deductibles and self-insured retentions so included in Operating Cost Reimbursement: 16.1.1 Worker's Compensation in accordance with the laws of the state where the services will be performed and endorsed, where applicable, to comply with the United States Longshoreman and Harbor Worker's Compensation Act. 16.1.2 Employer's Liability with a limit of liability of $1,000,000 per occurrence. 16.1.3 Comprehensive General Liability, including a broad form contractual provision, to cover the liability assumed by Freeport under this Agreement. This insurance shall provide a combined single limit for bodily injury and property damage of $2,000,000 per occurrence. 16.1.4 Automobile Liability, covering all owned, non-owned and hired vehicles, with a combined single limit of $2,000,000 per occurrence. 26 16.1.5 At all times during the term of this Agreement, Freeport shall at all times during such period maintain, or cause to be maintained, property insurance, on all Facilities subject to this Agreement in an amount which it, in good faith, believes will reflect in the case of vessels, adequate Hull insurance coverage, and in the case of all other Facilities, the replacement cost thereof; provided, however, that Freeport shall credit the amount of any recovery under such property insurance to the cost of repair or replacement of the Facility damaged. 16.1.16 With respect to all of the above insurance, Freeport shall furnish Felmont with Certificates of Insurance evidencing the issuing of the required policies and that they are in force and stating such policies will not be canceled or altered without giving Felmont 30 days' notice. 16.2 INSURANCE ON FELMONT SULPHUR. At least thirty days prior to the annual renewal of Freeport's blanket All Risk Property Insurance and Cargo Insurance programs, Freeport shall advise Felmont of the principal provisions thereof, including deductibles and premium. Within fifteen days after receipt of such information from Freeport, Felmont shall advise Freeport whether, for the next annual period corresponding to the policy year off Freeport's insurance, Felmont elects (i) to have Freeport provide insurance for Felmont Sulphur under the terms quoted by Freeport (in which case Felmont's recovery in the event of a loss involving Felmont Sulphur shall be limited to its proportionate share of the actual amount recovered under Freeport's insurance after any deductible has been proportionately applied, (ii) to carry its own insurance on Felmont Sulphur, or (iii) to self insure Felmont Sulphur. In any event Felmont hereby waives, on behalf of itself and any of its insurers, any right of recovery or subrogation against Freeport in the event of a loss of Felmont Sulphur, and each insurance policy shall be so endorsed. 16.3 INDEMNITY. Each party hereby agrees to indemnify and hold harmless the other party, its Related Parties, and their officers, directors and employees, from and against any claim for bodily injury or property damage caused by or resulting from the negligence of the indemnifying party, its Related Parties, or any of their officers, directors or employees. XVII. AUDIT Felmont shall have the right through such nationally recognized independent firm of public accountants as it shall designate (other than any such firm then serving as Freeport's auditor at the time of the audit) to audit the records of Freeport for the purpose of verifying that fees charged and capital additions made by Freeport have been accurately calculated and are in accordance with the terms of this Agreement, and to audit the records of Freeport-McMoRan, Inc. or any of its affiliates only to the extent necessary to verify that costs charged to Freeport by Freeport-McMoRan Inc. or any affiliate thereof in connection with Freeport's performance of this Agreement have been accurately calculated and are in accordance with the 27 terms of this Agreement. Such audit shall be conducted at a time mutually agreed upon by Freeport and Felmont within the twenty-four (24) month period following the end of each calendar year. The costs of such audit, including Freeport's cost associated with the audit work, shall be borne by Felmont. It is understood and agreed that information reviewed by the designated firm of certified public accountants which is deemed to be confidential by Freeport (including, but not limited to, corporate minutes and unitholder records) shall not be disclosed to Felmont by such designated firm of certified public accountants except in connection with those matters, if any, as to which the findings of the accountants are at variance with the statements of Freeport. XVIII. TAXES Felmont shall be responsible for and shall indemnify Freeport for all taxes (other than taxes on Freeport's net income), assessments, fees and charges including any penalties and interest levied and imposed as a result of this Agreement relating to the ownership of, and services performed in respect of, Felmont Sulphur. XIX. ASSIGNMENT This Agreement and either Freeport or Felmont's rights and obligations under it may be assigned to a financially responsible third party (one whose net work, excluding assets related to this Agreement, is at least $25,000,000) by either party without the consent of the other party as part of or in connection with a merger, reorganization, amalgamation or sale or other transfer of all or substantially all of such party's assets related to this Agreement Except as provided above, neither party shall assign this Agreement or any of its rights and obligations hereunder without the prior written consent of the other party and any attempt to assign without such consent shall be void. XX. FORCE MAJEURE 20.1 EVENTS OF FORCE MAJEURE. Neither party shall be liable for any failure or delay in performance hereunder (except with respect to payments of amounts due) which may be due in whole or in part to fire, explosion, earthquake, storm, flood, or other adverse weather condition, accident, breakdown of machinery or facilities, explosions, breakage or accident to machinery or equipment, the necessity for making repairs to or alterations of machinery or equipment, any act or omission by parties not controlled by the party claiming suspension, strikes, lockout, combination of workmen or other labor difficulties, war, insurrection, riot, act of God or the public enemy, law, act, order, proclamation, decree, regulation, ordinance, instruction or request of Government or other public authorities, order, judgment or decree of a court of competent jurisdiction, delay or failure of carriers or contractors, labor shortage, or inability to obtain transportation equipment, operating materials, plant equipment or materials required for maintenance or repairs, or any other contingency or delay or failure or cause of any kind whether or not herinabove specified beyond the reasonable control of the party claiming suspension and 28 which, by the exercise of due diligence, such party is unable to prevent or overcome; provided, however, that the settlement of strikes, lockouts, combination of workmen or other labor difficulties (from whatever cause arising, and whether or not the demands are reasonable or within the power of the party having the difficulty to grant) shall be entirely within the discretion of the party whose performance is affected. 20.2 NOTIFICATION. No such causes or contingencies affecting performance hereunder shall relieve any party hereto of liability unless the party whose performance is affected thereby shall promptly notify the other in writing of the full particulars thereof and shall take all reasonable steps to remedy the force majeure. 20.3 ALTERNATE MEANS OF DELIVERY. In the event any such cause or contingency should prevent Freeport from transporting Felmont Sulphur from the Port Sulphur Terminal or other location, Felmont shall have the right to take delivery of such sulphur at said terminal or other location in marine transportation equipment and dispose of same as Felmont shall deem fit for so long as Freeport is prevented from transporting as aforesaid by virtue of such cause or contingency. XXI. NOTICES Any notice, election, payment or other correspondence required or permitted under this Agreement shall be made in writing and shall be sufficiently delivered if delivered personally to the party to whom directed by courier or otherwise deposited in the United States certified or registered mail, sent by Western Union telegram or mailgram, or sent by telecopy if followed immediately by written notice by U.S. certified or registered mail, with all necessary postage or charges fully prepaid, return receipt requested (or in the case of a telecopy, telegram or mailgram, confirmation of delivery), and addressed to the party to whom directed at its below specified address, to wit: As to Freeport: Freeport Sulphur Company Division Freeport-McMoRan Resource Partners, Limited Partnership P.O. Box 61520 New Orleans, Louisiana 70161 Attention: President Telecopy: (504) 582-4064 29 As to Felmont: Felmont Oil Corporation 250 Glenborough, Suite 300 Houston, Texas 77067 Attention: W. J. Gedwed Executive Vice President Telecopy: (713) 872-7838 Telephone: (713) 872-9741 with copy to: Land Administrator HOMESTAKE MINING COMPANY OF CALIFORNIA 650 California Street San Francisco, California 94108 Such notice, election payment or other correspondence shall be deemed to have been properly given upon receipt by the party to whom directed. A party may change its address for the purpose of notices or communications under this Agreement by furnishing notice of the change to the other parties in compliance with this Article XXI. XXII. GOVERNING LAW This Agreement shall be construed and enforced in accordance with the laws of the State of Louisiana. XXIII. MISCELLANEOUS 23.1 WAIVER. No waiver by either party of any breach of any of the terms or conditions herein contained shall be construed as a waiver of any succeeding breach of the same or any other term condition. 23.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties, and there are no oral understandings, representations or warranties affecting it, including that certain Preliminary Agreement between Freeport and Felmont pertaining to the subject matter hereof and dated December 1, 1990, which such Preliminary Agreement is superseded and canceled by this Agreement as of the date first hereinabove written. 23.3 AMENDMENTS. This Agreement may be amended or modified only by due agreement and execution of a written amendment(s) thereto. 23.4 COMPLIANCE WITH LAWS. In performance of this Agreement, the parties shall comply with all applicable laws, regulations and orders of all applicable governing authorities. 30 23.5 ASSIGNS. Subject to the provisions of Article XIX above, the terms, conditions, covenants and agreements contained in this Agreement shall extend to, be binding upon, and inure to the benefit of the successors and permitted assignees of the parties. 23.6 HARDSHIP. In entering into this long-term Agreement, the parties hereto recognize that it is impracticable to make provision for every contingency which may arise during the term of this Agreement and the parties declare it to be their intention that this Agreement shall operate between them with fairness. If during the term of this Agreement a situation arises which is beyond the reasonable control of either party and which in not covered by any of the provisions under this Agreement and if such situation results in a material disadvantage to one party and a corresponding material advantage to the other or results in substantial hardship to one party without an advantage to the other party, the parties agree to promptly negotiate in good faith towards reaching a mutually acceptable agreement dealing with such situation. 23.7 HEADINGS. The headings used in this Agreement are for convenience only and shall not be taken or construed to define or limit any of the terms or provisions of this Agreement. Unless otherwise provided, or unless the context shall otherwise require, words importing the singular shall include the plural. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective authorized officers. WITNESSES: FELMONT OIL CORPORATION /s/Richard A. Holway By: /S/DAVID FAGIN - ------------------------------- -------------------------- President FREEPORT SULPHUR COMPANY, a division of FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP /s/Paul S. Murphy By: /S/ROBERT B. FOSTER - ------------------------------ -------------------------- Name: Robert B. Foster ------------------------- Title: President ------------------------- 31 EX-10.12 20 AMENDMENT 1 TO PROCESSING AGREEMENT AMENDMENT NO. 1 TO PROCESSING AND MARKETING AGREEMENT THIS AMENDATORY AGREEMENT, made as of August 3, 1990 by and between FREEPORT SULPHUR COMPANY, a division of Freeport-McMoRan Resource Partners, Limited Partnership ("Freeport") and FELMONT OIL CORPORATION ("Felmont"). W I T N E S S E T H: WHEREAS, under date of June 19, 1990, Freeport and Felmont entered into that certain Processing and Marketing Agreement ("Agreement") covering storage, filtration, blending, purification, vatting, melting, loading into transportation equipment, marketing and associated transportation services to be provided by Freeport with respect to sulphur produced for the account of Felmont from the Main Pass Mine (as that term is defined in the Agreement), and WHEREAS, Freeport and Felmont now desire to amend the Agreement in the manner hereinafter set forth. NOW, THEREFORE, it is mutually agreed by and between Freeport and Felmont that the Agreement is hereby amended, effective as of August 3, 1990, in the following respects: 1. Section 6.4 of the Agreement, such section being entitled "MARKETING FEE", shall be amended to read in its entirety as follows: "6.4 MARKETING FEE. For each ton of Felmont Tonnage determined to have been sold during a month, Felmont shall pay Freeport a Marketing Fee equal to 2.625% of the Average Sales Realization for such month.'" 2. Except as specifically amended hereby, all of the terms and conditions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, Freeport and Felmont have caused this Amendment No. 1 to be executed by their respective authorized officers as of the day and year first above written. WITNESSES: FELMONT OIL CORPORATION /s/ Richard A. Holway By: /s/ David Fagin - ------------------------------------- ---------------------------- Title: President ---------------------- FREEPORT SULPHUR COMPANY, a division of FREEPORT-MCMORAN RESOURCE PARTNERS, LIMITED PARTNERSHIP /s/ Paul S. Murphy By: /s/ Robert Foster - ------------------------------------- ---------------------------- Title: President ---------------------- 2 EX-10.13 21 AMENDMENT 2 TO PROCESSING AGREEMENT SUPPLEMENT AND AMENDMENT NO. 2 TO PROCESSING AND MARKETING AGREEMENT THIS SUPPLEMENTAL AND AMENDATORY AGREEMENT, made as of January 1, 1994 by and between FREEPORT SULPHUR COMPANY, a division of Freeport-McMoRan Resource Partners, Limited Partnership ("Freeport") and HOMESTAKE SULPHUR COMPANY ("Homestake"), W I T N E S S E T H: WHEREAS, under date of June 19, 1990, Freeport and Homestake Sulphur Company, formerly named Felmont Oil Corporation, entered into that certain Processing and Marketing Agreement ("Agreement") covering storage, filtration, blending, purification, vatting, melting, loading into transportation equipment, marketing and associated transportation services to be provided by Freeport with respect to sulphur produced for the account of Homestake from the Main Pass Mine (as that term is defined in the Agreement), and WHEREAS, effective July 1, 1993, Freeport and IMC Fertilizer, Inc. formed a partnership to which they contributed their phosphate fertilizer manufacturing assets and operations (the "Freeport-IMC Joint Venture"), and WHEREAS, Freeport and Homestake now desire to amend the Agreement in the manner hereinafter set forth. NOW, THEREFORE, it is mutually agreed by and between Freeport and Homestake that the Agreement is hereby amended, effective as of January 1, 1994, in the following respects: 1. Throughout the Agreement the term "Felmont" shall be amended to "Homestake" and the terms "Felmont Blending Sulphur", "Felmont Main Pass Sulphur", "Felmont Sulphur" and "Felmont Tonnage" shall be amended, respectively, to "Homestake Blending Sulphur", "Homestake Main Pass Sulphur", "Homestake Sulphur" and "Homestake Tonnage". 2. For purposes of the determination of Average Sales Realization under Section 1.2 of the Agreement, sales of sulphur by Freeport to the Freeport-lMC Joint Venture shall be deemed to be sales in arm's length transactions (including purchased sulphur so resold) and not sales to a Freeport-related party. 3. The present Schedule C to the Agreement shall be deleted and replaced in its entirety by Revised Schedule C attached to this Supplemental and Amendatory Agreement. 4. For purposes of allocation of sales between Freeport and Homestake in accordance with Revised Schedule C of the Agreement, sales of sulphur by Freeport (except all sulphur purchased by Freeport) to the Freeport-lMC Joint Venture shall be deemed to be sales to a customer who is not a Freeport related party. 5. Article XXI is amended to provide for the substitution of the following for notices to Felmont: As to Felmont: Homestake Sulphur Company c/o Homestake Mining Company 650 California Street, 11th Floor San Francisco, CA 94108-2788 Attention: Gene G. Elam, Vice President Telecopy: (415) 397-5038 Telephone: (415) 981-8150 with copies to: Vice President and General Counsel Homestake Mining Company 650 California Street, 11th Floor San Francisco, CA 94108-2788 Telecopy: (415) 397-0952 Telephone: (415) 981-8150 and Stuart T. Peeler 7601 North Calle Sin Controversia P.O. Box 35852 Tucson, AZ 85718 6. Except as specifically amended hereby, all of the terms and conditions of the Agreement shall remain in full force and effect. 2 IN WITNESS WHEREOF, Freeport and Homestake have caused this Supplement and Amendment No. 2 to be executed by their respective authorized officers as of the day and year first above written. WITNESSES: HOMESTAKE SULPHUR COMPANY /s/ Wayne Kirt By: /s/ Jan Berger - -------------------------------- ------------------------------------- Title: Treasurer ------------------------------- FREEPORT SULPHUR COMPANY, a Division of FREEPORT-MCMORAN RESOURCE PARTNERS, LIMITED PARTNERSHIP /s/ R. R. Simms By: /s/ J. R. Combs - -------------------------------- ------------------------------------------ J. R. Combs Title: Vice President ------------------------------- 3 EX-10.14 22 1997 STOCK OPTION PLAN/NON-EMPLOYEE DIR. DRAFT OF 10-29-97 FREEPORT-MCMORAN SULPHUR INC. 1997 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS ARTICLE I PURPOSE OF THE PLAN The purpose of the 1997 Stock Option Plan for Non-Employee Directors (the "Plan") is to align more closely the interests of the non-employee directors of Freeport-McMoRan Sulphur Inc. (the "Company") with that of the Company's stockholders by providing for the automatic grant to such directors of stock options ("Options") to purchase Shares (as hereinafter defined), in accordance with the terms of the Plan. ARTICLE II DEFINITIONS For the purposes of this Plan, the following terms shall have the meanings indicated: BOARD: The Board of Directors of the Company. CHANGE IN CONTROL: A Change in Control shall be deemed to have occurred if either (a) any person, or any two or more persons acting as a group, and all affiliates of such person or persons, shall own beneficially more than 20% of the Common Stock outstanding (exclusive of shares held in the Company's treasury or by the Company's Subsidiaries) pursuant to a tender offer, exchange offer or series of purchases or other acquisitions, or any combination of those transactions, or (b) there shall be a change in the composition of the Board at any time within two years after any tender offer, exchange offer, merger, consolidation, sale of assets or contested election, or any combination of those transactions (a "Transaction"), so that (i) the persons who were directors of the Company immediately before the first such Transaction cease to constitute a majority of the Board of Directors of the corporation which shall thereafter be in control of the companies that were parties to or otherwise involved in such Transaction, or (ii) the number of persons who shall thereafter be directors of such corporation shall be fewer than two-thirds of the number of directors of the Company immediately prior to such first Transaction. A Change in Control shall be deemed to take place upon the first to occur of the events specified in the foregoing clauses (a) and (b). CODE: The Internal Revenue Code of 1986, as amended from time to time. COMMITTEE: A committee of the Board designated by the Board to administer the Plan and composed of not fewer than two directors, each of whom, to the extent necessary to comply with Rule 16b-3 only, is a "non-employee director" within the meaning of Rule 16b-3 and, to the extent necessary to comply with Section 162(m) only, is an "outside director" under Section 162(m). -1- Until otherwise determined by the Board, the Committee shall be the Corporate Personnel Committee of the Board. ELIGIBLE DIRECTOR: A director of the Company who is not an officer or an employee of the Company or a Subsidiary. EXCHANGE ACT: The Securities Exchange Act of 1934, as amended from time to time. FAIR MARKET VALUE: The average of the per Share high and low quoted sale prices on the date in question (or, if there is no reported sale on such date, on the last preceding date on which any reported sale occurred) on the principal exchange or market on which such Shares are quoted. OPTION CANCELLATION GAIN: With respect to the cancellation of an Option pursuant to Section 3 of Article IV hereof, the excess of the Fair Market Value as of the Option Cancellation Date (as that term is defined in Section 3 of Article IV hereof) of all the outstanding Shares covered by such Option, whether or not then exercisable, over the purchase price of such Shares under such Option. RULE 16B-3: Rule 16b-3 under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. SECTION 162(M): Section 162(m) of the Code and all regulations promulgated thereunder as in effect from time to time. SHARES: Shares of common stock, par value $0.01 per share, of the Company (including any attached Preferred Stock Purchase Rights). SUBSIDIARY: Any corporation of which stock representing at least 50% of the ordinary voting power is owned, directly or indirectly, by the Company; and any other entity of which equity securities or interests representing at least 50% of the ordinary voting power or 50% of the total value of all classes of equity securities or interests of such entity are owned, directly or indirectly, by the Company. ARTICLE III ADMINISTRATION OF THE PLAN This Plan shall be administered by the Board. The Board will interpret this Plan and may from time to time adopt such rules and regulations for carrying out the terms and provisions of this Plan as it may deem best. Notwithstanding the foregoing, the Committee shall have the authority to make all determinations with respect to the transferability of Options in accordance with Article VIII hereof. All determinations by the Board or the Committee shall be made by the affirmative vote of a majority of its respective members, but any determination reduced to writing and signed by a majority of its respective members shall be fully as effective as if it had been made -2- by a majority vote at a meeting duly called and held. Subject to any applicable provisions of the Company's By-Laws or of this Plan, all determinations by the Board and the Committee pursuant to the provisions of this Plan, and all related orders or resolutions of the Board and the Committee, shall be final, conclusive and binding on all persons, including the Company and its stockholders, employees, directors and optionees. In the event of any conflict or inconsistency between determinations, orders, resolutions, or other actions of the Committee and the Board taken in connection with this Plan, the action of the Board shall control. ARTICLE IV STOCK SUBJECT TO THE PLAN SECTION 1. The Shares to be issued or delivered upon exercise of Options shall be made available, at the discretion of the Board, either from the authorized but unissued Shares of the Company or from Shares reacquired by the Company, including Shares purchased by the Company in the open market or otherwise obtained. SECTION 2. Subject to the provisions of Section 3 of this Article IV, the aggregate number of Shares which may be purchased pursuant to Options shall not exceed 75,000. To the extent an Option is forfeited or cancelled prior to exercise, the Shares subject to such forfeited or cancelled Option shall again be available for grant under the Plan. To the extent that Shares are delivered to pay the exercise price of an Option, the number of Shares so delivered shall again be available for grant under the Plan. SECTION 3. In the event that the Board determines that any dividend or other distribution (whether in the form of cash, Shares, Subsidiary securities, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Board to be appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Board may, in its sole discretion and in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or property) with respect to which Options may be granted, (ii) the number and type of Shares (or other securities or property) subject to outstanding Options, and (iii) the grant or exercise price with respect to any Option and, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Option, PROVIDED that the number of Shares subject to any Option shall always be a whole number. SECTION 4. In the event the Company is merged or consolidated into or with another corporation in a transaction in which the Company is not the survivor, or in the event that substantially all of the Company's assets are sold to another entity not affiliated with the Company, any holder of an Option, whether or not then exercisable, shall be entitled to receive (unless the Company shall take such alternative action as may be necessary to preserve the economic benefit -3- of the Option for the optionee) on the effective date of any such transaction (the "Option Cancellation Date"), in cancellation of such Option, an amount in cash equal to the Option Cancellation Gain relating thereto, determined as of the Option Cancellation Date. ARTICLE V PURCHASE PRICE OF OPTIONED SHARES The purchase price per Share under each Option shall be 100% of the Fair Market Value of a Share at the time such Option is granted, but in no case shall such price be less than the par value of the Shares subject to such Option. ARTICLE VI ELIGIBILITY OF RECIPIENTS Options will be granted only to individuals who are Eligible Directors at the time of such grant. ARTICLE VII GRANT OF OPTIONS SECTION 1. Each Option shall constitute a nonqualified stock option which is not intended to qualify under Section 422 of the Code. SECTION 2. Effective upon the distribution of shares to shareholders of Freeport-McMoRan Inc. ("FTX") under the Contribution and Distribution Agreement dated August 26, 1997 among FTX, Freeport-McMoRan Resource Partners and the Company, each Eligible Director shall be granted an Option to purchase 5,000 Shares. On May 1, 1998 and May 1 of each subsequent year that the Plan remains in effect, each Eligible Director, as of each such date, shall be granted an Option to purchase 1,000 Shares. SECTION 3. Each Option shall become exercisable with respect to one-fourth of the Shares subject thereto on each of the first, second, third and fourth anniversaries of the date of grant and may be exercised by the holder thereof with respect to all or any part of the Shares comprising each installment as such holder may elect at any time after such installment becomes exercisable but no later than the termination date of such Option; provided that each Option shall become exercisable in full upon a Change in Control. SECTION 4. The purchase price of Shares subject to any Option shall be the Fair Market Value thereof on the respective date of grant. -4- ARTICLE VIII TRANSFERABILITY OF OPTIONS No Options granted hereunder may be transferred, pledged, assigned or otherwise encumbered by an optionee except: (a) by will; (b) by the laws of descent and distribution; or (c) if permitted by the Committee and so provided in the Option or an amendment thereto, (i) pursuant to a domestic relations order, as defined in the Code, (ii) to Immediate Family Members, (iii) to a partnership in which Immediate Family Members, or entities in which Immediate Family Members are the owners, members or beneficiaries, as appropriate, are the partners, (iv) to a limited liability company in which Immediate Family Members, or entities in which Immediate Family Members are the owners, members or beneficiaries, as appropriate, are the members, or (v) to a trust for the benefit of Immediate Family Members; provided, however, that no more than a DE MINIMUS beneficial interest in a partnership, limited liability company or trust described in (iii), (iv) or (v) above may be owned by a person who is not an Immediate Family Member or by an entity that is not beneficially owned solely by Immediate Family Members. "Immediate Family Members" shall be defined as the spouse and natural or adopted children or grandchildren of the optionee and their spouses. Any attempted assignment, transfer, pledge, hypothecation or other disposition of Options, or levy of attachment or similar process upon Options not specifically permitted herein, shall be null and void and without effect. ARTICLE IX EXERCISE OF OPTIONS SECTION 1. Each Option shall terminate 10 years after the date on which it was granted. SECTION 2. Except in cases provided for in Article X hereof, each Option may be exercised by the holder thereof only while the optionee to whom such Option was granted is an Eligible Director. SECTION 3. A person electing to exercise an Option or any portion thereof then exercisable shall give written notice to the Company of such election and of the number of Shares such person has elected to purchase, and shall at the time of purchase tender the full purchase price -5- of such Shares, which tender shall be made in cash or cash equivalent (which may be such person's personal check) or in Shares already owned by such person (which Shares shall be valued for such purpose on the basis of their Fair Market Value on the date of exercise), or in any combination thereof. The Company shall have no obligation to deliver Shares pursuant to the exercise of any Option, in whole or in part, until such payment in full of the purchase price of such Shares is received by the Company. No optionee, or legal representative, legatee, distributee, or assignee of such optionee shall be or be deemed to be a holder of any Shares subject to such Option or entitled to any rights of a stockholder of the Company in respect of any Shares covered by such Option distributable in connection therewith until such Shares have been paid for in full and certificates for such Shares have been issued or delivered by the Company. SECTION 4. Each Option shall be subject to the requirement that if at any time the Board shall be advised by counsel that the listing, registration or qualification of the Shares subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the issue or purchase of Shares thereunder, such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free from any conditions not reasonably acceptable to such counsel for the Board. SECTION 5. The Company may establish appropriate procedures to provide for payment or withholding of such income or other taxes as may be required by law to be paid or withheld in connection with the exercise of Options, and to ensure that the Company receives prompt advice concerning the occurrence of any event which may create, or affect the timing or amount of, any obligation to pay or withhold any such taxes or which may make available to the Company any tax deduction resulting from the occurrence of such event. ARTICLE X TERMINATION OF SERVICE AS AN ELIGIBLE DIRECTOR SECTION 1. If and when an optionee shall cease to be an Eligible Director for any reason other than death or retirement from the Board, all of the Options granted to such optionee shall be terminated except that any Option, to the extent then exercisable, may be exercised by the holder thereof within three months after such optionee ceases to be an Eligible Director, but not later than the termination date of the Option. SECTION 2. If and when an optionee shall cease to be an Eligible Director by reason of the optionee's retirement from the Board, all of the Options granted to such optionee shall be terminated except that any Option, to the extent then exercisable or exercisable within one year thereafter, may be exercised by the holder thereof within three years after such retirement, but not later than the termination date of the Option. -6- SECTION 3. Should an optionee die while serving as an Eligible Director, all the Options granted to such optionee shall be terminated, except that any Option to the extent exercisable by the holder thereof at the time of such death, together with the unmatured installment (if any) of such Option which at that time is next scheduled to become exercisable, may be exercised within one year after the date of such death, but not later than the termination date of the Option, by the holder thereof, the optionee's estate, or the person designated in the optionee's last will and testament, as appropriate. SECTION 4. Should an optionee die after ceasing to be an Eligible Director, all of the Options granted to such optionee shall be terminated, except that any Option, to the extent exercisable by the holder thereof at the time of such death, may be exercised within one year after the date of such death, but not later than the termination date of the Option, by the holder thereof, the optionee's estate, or the person designated in the optionee's last will and testament, as appropriate. ARTICLE XI AMENDMENTS TO PLAN AND OPTIONS The Board may at any time terminate or from time to time amend, modify or suspend this Plan; provided, however, that no such amendment or modification shall be made without stockholder approval if such approval is deemed necessary to comply with any regulatory requirements. -7- EX-10.15 23 COMPANY ADJUSTED STOCK AWARD PLAN DRAFT OF 10-29-97 FREEPORT-MCMORAN SULPHUR INC. ADJUSTED STOCK AWARD PLAN SECTION 1 PURPOSE. The purpose of the Freeport-McMoRan Sulphur Inc. Adjusted Stock Award Plan (the "Plan") is to provide for the issuance and administration of certain awards relating to common stock of the Company for the benefit of present and former employees, officers, directors and consultants of Freeport-McMoRan Inc. ("FTX"), an affiliate of the Company, in connection with the distribution by FTX to its stockholders of all the common stock of the Company held by FTX and the subsequent merger of FTX into IMC Global Inc. SECTION 2 DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below: "Award" shall mean any Option or Limited Right granted under this Plan. "Award Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Award, which may, but need not, be executed or acknowledged by a Participant. "Board" shall mean the Board of Directors of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" shall mean a committee of the Board designated by the Board to administer the Plan and composed of not fewer than two directors, each of whom, to the extent necessary to comply with Rule 16b-3 only, is a "non-employee director" within the meaning of Rule 16b-3 and, to the extent necessary to comply with Section 162(m) only, is an "outside director" under Section 162(m). In the absence of such a designation, "Committee" shall mean the Board. "Company" shall mean Freeport Sulphur Company. "Designated Beneficiary" shall mean the beneficiary designated by the Participant, in a manner determined by the Committee, to receive the benefits due the Participant under the Plan in the event of the Participant's death. In the absence of an effective designation by the Participant, Designated Beneficiary shall mean the Participant's estate. "Distribution" shall mean the distribution by FTX of all the outstanding Shares held by FTX to the holders of FTX common stock. -1- "Distribution Date" shall mean the effective date of the Distribution. "Eligible Individual" shall mean any present or former employee, officer, director, or consultant of FTX who on the Distribution Date holds an FTX Award. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "FTX Award" shall mean any of the FTX Options, FTX SARs and FTX SIUs. "FTX Option" shall mean an option to purchase FTX common stock granted by FTX to a present or former employee, officer, director, or consultant of FTX that is outstanding and unexercised on the Distribution Date. "FTX SAR" shall mean a stock appreciation right granted to a present or former employee, officer, or consultant of FTX that is outstanding and unexercised on the Distribution Date. "FTX SIU" shall mean a stock incentive unit granted under the FTX 1992 Stock Incentive Unit Plan that is outstanding and unexercised on the Distribution Date. "Limited Right" shall mean any right granted under Section 7 of the Plan. "Merger" shall mean the merger of FTX into IMC Global Inc. "Offer" shall mean any tender offer, exchange offer or series of purchases or other acquisitions, or any combination of those transactions, as a result of which any person, or any two or more persons acting as a group, and all affiliates of such person or persons, shall own beneficially more than 40% of the Shares outstanding (exclusive of Shares held in the Company's treasury or by the Company's Subsidiaries). "Offer Price" shall mean the highest price per Share paid in any Offer that is in effect at any time during the period beginning on the ninetieth day prior to the date on which a Limited Right is exercised and ending on and including the date of exercise of such Limited Right. Any securities or property that comprise all or a portion of the consideration paid for Shares in the Offer shall be valued in determining the Offer Price at the higher of (i) the valuation placed on such securities or property by the person or persons making such Offer, or (ii) the valuation, if any, placed on such securities or property by the Committee or the Board. "Option" shall mean a nonqualified stock option granted under Section 6 of the Plan. "Participant" shall mean any Eligible Individual granted an Award under the Plan. "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. -2- "Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. "SEC" shall mean the Securities and Exchange Commission, including the staff thereof, or any successor thereto. "Section 162(m)" shall mean Section 162(m) of the Code and all regulations promulgated thereunder as in effect from time to time. "Shares" shall mean the shares of common stock, par value $.01 per share, of the Company, including any attached preferred stock purchase rights, and such other securities of the Company or a Subsidiary as the Committee may from time to time designate. "Subsidiary" shall mean any corporation or other entity in which the Company possesses directly or indirectly equity interests representing at least 50% of the total ordinary voting power or at least 50% of the total value of all classes of equity interests of such corporation or other entity. SECTION 3 ADMINISTRATION. The Plan shall be administered by the Committee. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. The Committee shall have no discretion relating to the timing, pricing and size of Awards granted under the Plan, which shall be determined in accordance with the provisions of Sections 6 and 7. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all Persons, including the Company, any Subsidiary, any Participant, any holder or beneficiary of any Award, any stockholder of the Company and any Eligible Individual. SECTION 4 ELIGIBILITY. Each Eligible Individual shall be granted an Award in accordance with the provisions of the Plan. SECTION 5 (a) SHARES AVAILABLE FOR AWARDS. Subject to adjustment as provided in Section 5(b): -3- (i) CALCULATION OF NUMBER OF SHARES AVAILABLE. The number of Shares with respect to which Awards may be granted under the Plan shall be such number of Shares as results from the application of the award formulas set forth in Sections 6 and 7. If, after the effective date of the Plan, an Award granted under the Plan expires or is exercised, forfeited, canceled or terminated without the delivery of Shares, then the Shares covered by such Award or to which such Award relates, or the number of Shares otherwise counted against the aggregate number of Shares with respect to which Awards may be granted, to the extent of any such expiration, exercise, forfeiture, cancellation or termination, shall not thereafter be available for grants or Awards under the Plan. (ii) SOURCES OF SHARES DELIVERABLE UNDER AWARDS. Any Shares delivered pursuant to an Award may consist of authorized and unissued Shares or of treasury Shares, including Shares held by the Company or a Subsidiary and acquired in the open market or otherwise obtained by the Company or a Subsidiary. (iii) INDIVIDUAL LIMIT. Any provision of the Plan to the contrary notwithstanding, no individual may receive in any year Awards under the Plan, whether payable in cash or Shares, that relate to more than 200,000 Shares. (b) ADJUSTMENTS. In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Shares, Subsidiary securities, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee may, in its sole discretion and in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or property) with respect to which Awards may be granted, (ii) the number and type of Shares (or other securities or property) subject to outstanding Awards, and (iii) the grant or exercise price with respect to any Award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; PROVIDED, that the number of Shares subject to any Award denominated in Shares shall always be a whole number. SECTION 6 (a) STOCK OPTIONS. Immediately prior to the Distribution, each holder of an FTX Award shall receive an Option to purchase such number of Shares (disregarding any fractional Share) as such holder would be eligible to receive in the Distribution with respect to the number of shares of FTX common stock subject to such FTX Award if such holder were the owner of record of such FTX shares on the record date for the Distribution. Except as set forth in Sections 6(b) and 6(c), each such Option shall have the same remaining term and other terms and conditions (whether such terms and conditions are contained in the related FTX Award agreement or in the plan under which such FTX Award was made) and shall be immediately exercisable in full, as were the FTX -4- Awards from which they were derived as a result of the change of control of FTX, with such changes and modifications as are necessary to substitute the Company for FTX as the issuer of the Option. (b) EXERCISE PRICE. The per Share exercise price of each Option granted pursuant to Section 6(a) shall be the per share exercise price or grant price of the FTX Award from which such Option was derived multiplied 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," as defined below. For purposes of this Section 6(b), the "Company Distribution Value" shall be the weighted average per Share price of the Shares on the New York Stock Exchange on the first day that Shares are traded on the New York Stock Exchange after the effective date of the Merger, and the FTX Distribution Value shall be the weighted average per share price of the FTX common stock on the New York Stock Exchange on the last day that shares of FTX common stock are traded on the New York Stock Exchange before the effective date of the Merger. (c) TAX-OFFSET RIGHT ADJUSTMENT. Notwithstanding the foregoing, if the FTX Option from which the Option granted under this Section 6 derives contained a right to receive a cash payment upon exercise of such FTX Option related to and intended to defray the income tax liability associated therewith, the number of Shares to be subject to the Option, determined according to the provisions of Section 6(a) (without disregarding fractional Shares), shall be multiplied by 1.6556 and any fractional Share resulting from such adjustment shall be disregarded. Such adjustment shall not affect the calculation of the per Share exercise price of the Option as set forth in Section 6(b). (d) PAYMENT. No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the option price therefor is received by the Company. Such payment may be made in cash, or its equivalent, or, if and to the extent permitted by the Committee, by applying cash amounts payable by the Company upon the exercise of such Option or other Awards by the holder thereof or by exchanging whole Shares owned by such holder (which are not the subject of any pledge or other security interest), or by a combination of the foregoing, provided that the combined value of all cash, cash equivalents, cash amounts so payable by the Company upon exercises of Awards and the fair market value of any such whole Shares so tendered to the Company, valued (in accordance with procedures established by the Committee) as of the effective date of such exercise, is at least equal to such option price. SECTION 7 (a) LIMITED RIGHTS. Each holder of an FTX Award shall receive, at the same time as and in tandem with each Option granted to such holder under Section 6, Limited Rights equal in number to the number of Shares subject to such Option with which such Limited Rights are in tandem. Such Limited Rights shall have a grant price equal to the exercise price of the Option under Section 6 with which it is in tandem, and shall in all other respects contain the same terms and conditions as the agreement pertaining to the FTX Award from which they derived. (b) A Limited Right shall entitle the holder thereof to receive an amount equal to the excess, if any, of the Offer Price on the date of exercise of the Limited Right over the grant price. -5- Any Limited Right may be settled in cash, Shares or a combination of cash and Shares, as determined by the Committee or the Board at the time of exercise, and shall only be exercisable during a period beginning not earlier than one day and ending not more than ninety days after the expiration date of an Offer. SECTION 8 (a) AMENDMENTS TO THE PLAN. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that no amendment shall be made without stockholder approval if such approval is necessary to comply with any tax or regulatory requirement, including for these purposes any approval necessary to qualify Awards as "performance based" compensation under Section 162(m) or any successor provision if such qualification is deemed necessary or desirable by the Committee. Notwithstanding anything to the contrary contained herein, (i) the Committee may amend the Plan in such manner as may be necessary for the Plan to conform with local rules and regulations in any jurisdiction outside the United States and (ii) any amendment, suspension or termination made in accordance with this Section 8(a) that would adversely affect a holder's rights under an Award made under the Plan may not be made without such holder's consent. (b) AMENDMENTS TO AWARDS. The Committee may amend, modify or terminate any outstanding Award with the holder's consent at any time prior to payment or exercise in any manner not inconsistent with the terms of the Plan, including without limitation, a change in the date or dates as of which an Award becomes exercisable. (c) ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR NONRECURRING EVENTS. The Committee is hereby authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 5(b) hereof) affecting the Company, or the financial statements of the Company or any Subsidiary, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. (d) CANCELLATION. Any provision of this Plan or any Award Agreement to the contrary notwithstanding, the Committee may cause any Award granted hereunder to be canceled in consideration of a cash payment or alternative Award made to the holder of such canceled Award equal in value to such canceled Award. The determinations of value under this subsection shall be made by the Committee in its sole discretion. SECTION 9 (a) AWARD AGREEMENTS. Each Award hereunder shall be evidenced by a writing delivered to the Participant that shall specify the terms and conditions thereof and any rules applicable thereto and that shall, in accordance with the provisions of the Plan, replicate as closely -6- as possible the terms, conditions and other contractual attributes of the FTX Award from which the Award is derived, as in effect on the Distribution Date. (b) WITHHOLDING. (i) A Participant may be required to pay to the Company, and the Company shall have the right to deduct from all amounts paid to a Participant (whether under the Plan or otherwise), any taxes required by law to be paid or withheld in respect of Awards hereunder to such Participant. (ii) At any time that a Participant is required to pay to the Company an amount required to be withheld under the applicable tax laws in connection with the issuance of Shares under the Plan, the Participant may, if permitted by the Committee, satisfy this obligation in whole or in part by electing (the "Election") that the Company withhold from the issuance Shares having a value equal to the amount required to be withheld. The value of the Shares withheld shall be based on the fair market value of the Shares on the date that the amount of tax to be withheld shall be determined in accordance with applicable tax laws (the "Tax Date"). (iii) Each Election must be made prior to the Tax Date. The Committee may suspend or terminate the right to make Elections at any time. (iv) A Participant may also satisfy his total tax liability related to the Award by delivering Shares owned by the Participant. The value of the Shares delivered shall be based on the fair market value of the Shares on the Tax Date. (c) TRANSFERABILITY. No Awards granted hereunder may be transferred, pledged, assigned or otherwise encumbered by a Participant except: (i) by will; (ii) by the laws of descent and distribution; (iii) pursuant to a domestic relations order, as defined in the Code, if permitted by the Committee and so provided in the Award Agreement or an amendment thereto; or (iv) if permitted by the Committee and so provided in the Award Agreement or an amendment thereto, (a) to Immediate Family Members, (b) to a partnership in which Immediate Family Members, or entities in which Immediate Family Members are the owners, members or beneficiaries, as appropriate, are the partners, (c) to a limited liability company in which Immediate Family Members, or entities in which Immediate Family Members are the owners, members or beneficiaries, as appropriate, are the members, or (d) to a trust for the benefit of Immediate Family Members; provided, however, that no more than a DE MINIMUS beneficial interest in a partnership, limited liability company or trust described in (b), (c) or (d) above may be owned by a person who is not an Immediate Family Member or by an entity that is not beneficially owned solely by Immediate Family Members. "Immediate Family Members" shall be defined as the spouse and natural or adopted children or grandchildren of the Participant and their spouses. Any attempted assignment, transfer, pledge, hypothecation or other disposition of Awards, or levy of attachment or similar process upon Awards not specifically permitted herein, shall be null and void and without effect. The designation of a Designated Beneficiary shall not be a violation of this Section 9(c). (d) SHARE CERTIFICATES. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, -7- and other requirements of the SEC, any stock exchange upon which such Shares or other securities are then listed, and any applicable federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (e) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the Plan shall prevent the Company from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of options and other types of Awards provided for hereunder (subject to stockholder approval of any such arrangement if approval is required), and such arrangements may be either generally applicable or applicable only in specific cases. (f) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be construed as giving a Participant the right to be engaged or employed by or retained in the employ of FTX, the Company or any Subsidiary. FTX, the Company or any Subsidiary may at any time dismiss a Participant from engagement or employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement or any agreement relating to the engagement or employment of the Participant by FTX, the Company or any Subsidiary. (g) GOVERNING LAW. The validity, construction, and effect of the Plan, any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of Delaware. (h) SEVERABILITY. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect. (i) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company. (j) NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine, in accordance with the terms of the Plan, as applicable, whether cash, other securities or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated. (k) HEADINGS. Headings are given to the subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. -8- SECTION 10 EFFECTIVE DATE OF THE PLAN. The Plan shall be effective as of the date of its approval by the stockholder of the Company. SECTION 11 TERM OF THE PLAN. Subject to Section 5(b), no Award shall be granted under the Plan except the Awards provided for in Sections 6 and 7. Awards granted hereunder shall continue until their respective expiration dates, and the authority of the Committee to administer, interpret, amend, alter, adjust, suspend, discontinue, or terminate, in accordance with the provisions of the Plan, any such Award or to waive any conditions or rights under any such Award shall extend until the latest such date. -9- EX-10.16 24 FREEPORT SULPHUR 1997 STOCK OPTION PLAN DRAFT OF 10-29-97 FREEPORT-MCMORAN SULPHUR INC. 1997 STOCK OPTION PLAN SECTION 1 PURPOSE. The purpose of the Freeport-McMoRan Sulphur Inc. 1997 Stock Option Plan (the "Plan") is to motivate and reward key employees, consultants and advisers by giving them a proprietary interest in the Company's continued success. SECTION 2 DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below: "Award" shall mean any Option, Stock Appreciation Right, Limited Right or Other Stock-Based Award. "Award Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Award, which may, but need not, be executed or acknowledged by a Participant. "Board" shall mean the Board of Directors of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Committee" shall mean a committee of the Board designated by the Board to administer the Plan and composed of not fewer than two directors, each of whom, to the extent necessary to comply with Rule 16b-3 only, is a "non-employee director" within the meaning of Rule 16b-3 and, to the extent necessary to comply with Section 162(m) only, is an "outside director" under Section 162(m). Until otherwise determined by the Board, the Committee shall be the Corporate Personnel Committee of the Board. "Company" shall mean Freeport-McMoRan Sulphur Inc. "Designated Beneficiary" shall mean the beneficiary designated by the Participant, in a manner determined by the Committee, to receive the benefits due the Participant under the Plan in the event of the Participant's death. In the absence of an effective designation by the Participant, Designated Beneficiary shall mean the Participant's estate. "Eligible Individual" shall mean (i) any person providing services as an officer of the Company or a Subsidiary, whether or not employed by such entity, including any such person who -1- is also a director of the Company, (ii) any employee of the Company or a Subsidiary, including any director who is also an employee of the Company or a Subsidiary, (iii) any officer or employee of an entity with which the Company has contracted to receive executive, management or legal services who provides services to the Company or a Subsidiary through such arrangement, (iv) any consultant or adviser to the Company, a Subsidiary or to an entity described in clause (iii) hereof who provides services to the Company or a Subsidiary through such arrangement and (v) any person who has agreed in writing to become a person described in clauses (i), (ii), (iii) or (iv) within not more than 30 days following the date of grant of such person's first Award under the Plan. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Incentive Stock Option" shall mean an option granted under Section 6 of the Plan that is intended to meet the requirements of Section 422 of the Code or any successor provision thereto. "Limited Right" shall mean any right granted under Section 8 of the Plan. "Nonqualified Stock Option" shall mean an option granted under Section 6 of the Plan that is not intended to be an Incentive Stock Option. "Offer" shall mean any tender offer, exchange offer or series of purchases or other acquisitions, or any combination of those transactions, as a result of which any person, or any two or more persons acting as a group, and all affiliates of such person or persons, shall beneficially own more than 40% of all classes and series of the Company's stock outstanding, taken as a whole, that has voting rights with respect to the election of directors of the Company (not including any series of preferred stock of the Company that has the right to elect directors only upon the failure of the Company to pay dividends). "Offer Price" shall mean the highest price per Share paid in any Offer that is in effect at any time during the period beginning on the ninetieth day prior to the date on which a Limited Right is exercised and ending on and including the date of exercise of such Limited Right. Any securities or property that comprise all or a portion of the consideration paid for Shares in the Offer shall be valued in determining the Offer Price at the higher of (i) the valuation placed on such securities or property by the person or persons making such Offer, or (ii) the valuation, if any, placed on such securities or property by the Committee or the Board. "Option" shall mean an Incentive Stock Option or a Nonqualified Stock Option. "Other Stock-Based Award" shall mean any right or award granted under Section 9 of the Plan. "Participant" shall mean any Eligible Individual granted an Award under the Plan. -2- "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. "Rule 16b-3" shall mean Rule 16b-3 under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time. "SAR" shall mean any Stock Appreciation Right. "SEC" shall mean the Securities and Exchange Commission, including the staff thereof, or any successor thereto. "Section 162(m)" shall mean Section 162(m) of the Code and all regulations promulgated thereunder as in effect from time to time. "Shares" shall mean the shares of Common Stock, par value $0.01 per share, of the Company and such other securities of the Company or a Subsidiary as the Committee may from time to time designate. "Stock Appreciation Right" shall mean any right granted under Section 7 of the Plan. "Subsidiary" shall mean (i) any corporation or other entity in which the Company possesses directly or indirectly equity interests representing at least 50% of the total ordinary voting power or at least 50% of the total value of all classes of equity interests of such corporation or other entity and (ii) any other entity in which the Company has a direct or indirect economic interest that is designated as a Subsidiary by the Committee. SECTION 3 (a) ADMINISTRATION. The Plan shall be administered by the Committee. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to an Eligible Individual; (iii) determine the number of Shares to be covered by, or with respect to which payments, rights or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, whole Shares, other whole securities, other Awards, other property or other cash amounts payable by the Company upon the exercise of that or other Awards, or canceled, forfeited or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited or suspended; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property, and other amounts payable by the Company with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; -3- (viii) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all Persons, including the Company, any Subsidiary, any Participant, any holder or beneficiary of any Award, any stockholder of the Company and any Eligible Individual. (b) DELEGATION. Subject to the terms of the Plan and applicable law, the Committee may delegate to one or more officers of the Company the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to, or to cancel, modify or waive rights with respect to, or to alter, discontinue, suspend, or terminate Awards held by, Eligible Individuals who are not officers or directors of the Company for purposes of Section 16 of the Exchange Act, or any successor section thereto, or who are otherwise not subject to such Section. SECTION 4 ELIGIBILITY. Any Eligible Individual shall be eligible to be granted an Award. SECTION 5 (a) SHARES AVAILABLE FOR AWARDS. Subject to adjustment as provided in Section 5(b): (i) CALCULATION OF NUMBER OF SHARES AVAILABLE. (A) The number of Shares with respect to which Awards payable in Shares may be granted under the Plan shall be 1,000,000, plus, to the extent authorized by the Board, the number of Shares reacquired by the Company in the open market or in private transactions for an aggregate price no greater than the cash proceeds received by the Company from the exercise of options granted under the Plan. Awards that by their terms may be settled only in cash shall not be counted against the maximum number of Shares provided herein. (B) Grants of Stock Appreciation Rights, Limited Rights and Other Stock-Based Awards not granted in tandem with Options and payable only in cash may relate to no more than 1,000,000 Shares. (C) Any Shares granted under the Plan that are forfeited because of failure to meet an Award contingency or condition shall again be available for grant pursuant to new Awards under the Plan. -4- (D) To the extent any Shares covered by an Award are not issued because the Award is forfeited or cancelled or the Award is settled in cash, such Shares shall again be available for grant pursuant to new Awards under the Plan. (E) To the extent that Shares are delivered to pay the exercise price of an Option or are delivered or withheld by the Company in payment of the withholding taxes relating to an Award, the number of Shares so delivered or withheld shall become Shares with respect to which Awards may be granted. (ii) SUBSTITUTE AWARDS. Any Shares delivered by the Company, any Shares with respect to which Awards are made by the Company, or any Shares with respect to which the Company becomes obligated to make Awards, through the assumption of, or in substitution for, outstanding awards previously granted by an acquired company or a company with which the Company combines, shall not be counted against the Shares available for Awards under the Plan. (iii) SOURCES OF SHARES DELIVERABLE UNDER AWARDS. Any Shares delivered pursuant to an Award may consist of authorized and unissued Shares or of treasury Shares, including Shares held by the Company or a Subsidiary and Shares acquired in the open market or otherwise obtained by the Company or a Subsidiary. (iv) INDIVIDUAL LIMIT. Any provision of the Plan to the contrary notwithstanding, no individual may receive in any year Awards under the Plan, whether payable in cash or Shares, that relate to more than 200,000 Shares. (b) ADJUSTMENTS. In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Shares, Subsidiary securities, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee may, in its sole discretion and in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or property) with respect to which Awards may be granted, (ii) the number and type of Shares (or other securities or property) subject to outstanding Awards, and (iii) the grant or exercise price with respect to any Award and, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award and, if deemed appropriate, adjust outstanding Awards to provide the rights contemplated by Section 9(b) hereof; PROVIDED, in each case, that with respect to Awards of Incentive Stock Options no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code or any successor provision thereto and, with respect to all Awards under the Plan, no such adjustment shall be authorized to the extent that such authority would be inconsistent with the requirements for full deductibility under Section 162(m); and PROVIDED FURTHER, that the number of Shares subject to any Award denominated in Shares shall always be a whole number. -5- SECTION 6 (a) STOCK OPTIONS. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Eligible Individuals to whom Options shall be granted, the number of Shares to be covered by each Option, the option price therefor and the conditions and limitations applicable to the exercise of the Option. The Committee shall have the authority to grant Incentive Stock Options, Nonqualified Stock Options or both. In the case of Incentive Stock Options, the terms and conditions of such grants shall be subject to and comply with such rules as may be required by Section 422 of the Code, as from time to time amended, and any implementing regulations. Except in the case of an Option granted in assumption of or substitution for an outstanding award of a company acquired by the Company or with which the Company combines, the exercise price of any Option granted under this Plan shall not be less than 100% of the fair market value of the underlying Shares on the date of grant. (b) EXERCISE. Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement or thereafter, provided, however, that in no event may any Option granted hereunder be exercisable after the expiration of 10 years after the date of such grant. The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any condition relating to the application of Federal or state securities laws, as it may deem necessary or advisable. (c) PAYMENT. No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the option price therefor is received by the Company. Such payment may be made in cash, or its equivalent, or, if and to the extent permitted by the Committee, by applying cash amounts payable by the Company upon the exercise of such Option or other Awards by the holder thereof or by exchanging whole Shares owned by such holder (which are not the subject of any pledge or other security interest), or by a combination of the foregoing, provided that the combined value of all cash, cash equivalents, cash amounts so payable by the Company upon exercises of Awards and the fair market value of any such whole Shares so tendered to the Company, valued (in accordance with procedures established by the Committee) as of the effective date of such exercise, is at least equal to such option price. SECTION 7 (a) STOCK APPRECIATION RIGHTS. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Eligible Individuals to whom Stock Appreciation Rights shall be granted, the number of Shares to be covered by each Award of Stock Appreciation Rights, the grant price thereof and the conditions and limitations applicable to the exercise thereof. Stock Appreciation Rights may be granted in tandem with another Award, in addition to another Award, or freestanding and unrelated to any other Award. Stock Appreciation Rights granted in tandem with or in addition to an Option or other Award may be granted either at the same time as the Option or other Award or at a later time. Stock Appreciation Rights shall not be exercisable after the expiration of 10 years after the date of grant. Except in the case of a Stock -6- Appreciation Right granted in assumption of or substitution for an outstanding award of a company acquired by the Company or with which the Company combines, the grant price of any Stock Appreciation Right granted under this Plan shall not be less than 100% of the fair market value of the Shares covered by such Stock Appreciation Right on the date of grant or, in the case of a Stock Appreciation Right granted in tandem with a then outstanding Option or other Award, on the date of grant of such related Option or Award. (b) A Stock Appreciation Right shall entitle the holder thereof to receive upon exercise, for each Share to which the SAR relates, an amount equal to the excess, if any, of the fair market value of a Share on the date of exercise of the Stock Appreciation Right over the grant price. Any Stock Appreciation Right shall be settled in cash, unless the Committee shall determine at the time of grant of a Stock Appreciation Right that it shall or may be settled in cash, Shares or a combination of cash and Shares. SECTION 8 (a) LIMITED RIGHTS. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Eligible Individuals to whom Limited Rights shall be granted, the number of Shares to be covered by each Award of Limited Rights, the grant price thereof and the conditions and limitations applicable to the exercise thereof. Limited Rights may be granted in tandem with another Award, in addition to another Award, or freestanding and unrelated to any Award. Limited Rights granted in tandem with or in addition to an Award may be granted either at the same time as the Award or at a later time. Limited Rights shall not be exercisable after the expiration of 10 years after the date of grant and shall only be exercisable during a period determined at the time of grant by the Committee beginning not earlier than one day and ending not more than ninety days after the expiration date of an Offer. Except in the case of a Limited Right granted in assumption of or substitution for an outstanding award of a company acquired by the Company or with which the Company combines, the grant price of any Limited Right granted under this Plan shall not be less than 100% of the fair market value of the Shares covered by such Limited Right on the date of grant or, in the case of a Limited Right granted in tandem with a then outstanding Option or other Award, on the date of grant of such related Option or Award. (b) A Limited Right shall entitle the holder thereof to receive upon exercise, for each Share to which the Limited Right relates, an amount equal to the excess, if any, of the Offer Price on the date of exercise of the Limited Right over the grant price. Any Limited Right shall be settled in cash, unless the Committee shall determine at the time of grant of a Limited Right that it shall or may be settled in cash, Shares or a combination of cash and Shares. SECTION 9 (a) OTHER STOCK-BASED AWARDS. The Committee is hereby authorized to grant to Eligible Individuals an "Other Stock-Based Award", which shall consist of an Award, the value of -7- which is based in whole or in part on the value of Shares, that is not an instrument or Award specified in Sections 6 through 8 of this Plan. Other Stock-Based Awards may be awards of Shares or may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible or exchangeable into or exercisable for Shares), as deemed by the Committee consistent with the purposes of the Plan. The Committee shall determine the terms and conditions of any such Other Stock-Based Award and may provide that such awards would be payable in whole or in part in cash. Except in the case of an Other Stock-Based Award granted in assumption of or in substitution for an outstanding award of a company acquired by the Company or with which the Company combines, the price at which securities may be purchased pursuant to any Other Stock-Based Award granted under this Plan, or the provision, if any, of any such Award that is analogous to the purchase or exercise price, shall not be less than 100% of the fair market value of the securities to which such Award relates on the date of grant. (b) DIVIDEND EQUIVALENTS. In the sole and complete discretion of the Committee, an Award, whether made as an Other Stock-Based Award under this Section 9 or as an Award granted pursuant to Sections 6 through 8 hereof, may provide the holder thereof with dividends or dividend equivalents, payable in cash, Shares, Subsidiary securities, other securities or other property on a current or deferred basis. SECTION 10 (a) AMENDMENTS TO THE PLAN. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that no amendment shall be made without stockholder approval if such approval is necessary to comply with any tax or regulatory requirement, including for these purposes any approval necessary to qualify Awards as "performance based" compensation under Section 162(m) or any successor provision if such qualification is deemed necessary or advisable by the Committee. Notwithstanding anything to the contrary contained herein, the Committee may amend the Plan in such manner as may be necessary for the Plan to conform with local rules and regulations in any jurisdiction outside the United States. (b) AMENDMENTS TO AWARDS. The Committee may amend, modify or terminate any outstanding Award at any time prior to payment or exercise in any manner not inconsistent with the terms of the Plan, including without limitation, to change the date or dates as of which an Award becomes exercisable. Notwithstanding the foregoing, no amendment, modification or termination may impair the rights of a holder of an Award under such Award without the consent of the holder. (c) ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR NONRECURRING EVENTS. The Committee is hereby authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 5(b) hereof) affecting the Company, or the financial statements of the Company or any Subsidiary, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are -8- appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. (d) CANCELLATION. Any provision of this Plan or any Award Agreement to the contrary notwithstanding, the Committee may cause any Award granted hereunder to be canceled in consideration of a cash payment or alternative Award made to the holder of such canceled Award equal in value to such canceled Award. The determinations of value under this subparagraph shall be made by the Committee in its sole discretion. SECTION 11 (a) AWARD AGREEMENTS. Each Award hereunder shall be evidenced by a writing delivered to the Participant that shall specify the terms and conditions thereof and any rules applicable thereto, including but not limited to the effect on such Award of the death, retirement or other termination of employment of the Participant and the effect thereon, if any, of a change in control of the Company. (b) WITHHOLDING. (i) A Participant may be required to pay to the Company, and the Company shall have the right to deduct from all amounts paid to a Participant (whether under the Plan or otherwise), any taxes required by law to be paid or withheld in respect of Awards hereunder to such Participant. The Committee may provide for additional cash payments to holders of Awards to defray or offset any tax arising from the grant, vesting, exercise or payment of any Award. (ii) At any time that a Participant is required to pay to the Company an amount required to be withheld under the applicable tax laws in connection with the issuance of shares of Common Stock under the Plan, the Participant may, if permitted by the Committee, satisfy this obligation in whole or in part by electing (the "Election") to have the Company withhold from the issuance shares of Common Stock having a value equal to the amount required to be withheld. The value of the shares withheld shall be based on the fair market value of the Common Stock on the date that the amount of tax to be withheld shall be determined in accordance with applicable tax laws (the "Tax Date"). (iii) Each Election must be made prior to the Tax Date. The Committee may suspend or terminate the right to make Elections at any time. (iv) A Participant may also satisfy his or her total tax liability related to the Award by delivering Shares owned by the Participant. The value of the Shares delivered shall be based on the fair market value of the Shares on the Tax Date. (c) TRANSFERABILITY. No Awards granted hereunder may be transferred, pledged, assigned or otherwise encumbered by a Participant except: (i) by will; (ii) by the laws of descent and distribution; (iii) pursuant to a domestic relations order, as defined in the Code, if permitted by the Committee and so provided in the Award Agreement or an amendment thereto; or (iv) if permitted -9- by the Committee and so provided in the Award Agreement or an amendment thereto, Options and Limited Rights granted in tandem therewith may be transferred or assigned (a) to Immediate Family Members, (b) to a partnership in which Immediate Family Members, or entities in which Immediate Family Members are the owners, members or beneficiaries, as appropriate, are the partners, (c) to a limited liability company in which Immediate Family Members, or entities in which Immediate Family Members are the owners, members or beneficiaries, as appropriate, are the members, or (d) to a trust for the benefit of Immediate Family Members; provided, however, that no more than a DE MINIMUS beneficial interest in a partnership, limited liability company or trust described in (b), (c) or (d) above may be owned by a person who is not an Immediate Family Member or by an entity that is not beneficially owned solely by Immediate Family Members. "Immediate Family Members" shall be defined as the spouse and natural or adopted children or grandchildren of the Participant and their spouses. To the extent that an Incentive Stock Option is permitted to be transferred during the lifetime of the Participant, it shall be treated thereafter as a Nonqualified Stock Option. Any attempted assignment, transfer, pledge, hypothecation or other disposition of Awards, or levy of attachment or similar process upon Awards not specifically permitted herein, shall be null and void and without effect. The designation of a Designated Beneficiary shall not be a violation of this Section 11(c). (d) SHARE CERTIFICATES. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Shares or other securities are then listed, and any applicable federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (e) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the Plan shall prevent the Company from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of options, stock appreciation rights and other types of Awards provided for hereunder (subject to stockholder approval of any such arrangement if approval is required), and such arrangements may be either generally applicable or applicable only in specific cases. (f) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of or as a consultant or adviser to the Company or any Subsidiary or in the employ of or as a consultant or adviser to any other entity providing services to the Company. The Company or any Subsidiary or any such entity may at any time dismiss a Participant from employment, or terminate any arrangement pursuant to which the Participant provides services to the Company or a Subsidiary, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. No Eligible Individual or other person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Eligible Individuals, Participants or holders or beneficiaries of Awards. -10- (g) GOVERNING LAW. The validity, construction, and effect of the Plan, any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of Delaware. (h) SEVERABILITY. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect. (i) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company. (j) NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated. (k) HEADINGS. Headings are given to the subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. SECTION 12 TERM OF THE PLAN. Subject to Section 10(a), the Plan shall remain in effect until all Awards permitted to be granted under the Plan have either been satisfied, expired or cancelled under the terms of the Plan and any restrictions imposed on Shares in connection with their issuance under the Plan have lapsed. -11- EX-10.17 25 FORM OF STOCKHOLDER PROTECTION RIGHTS AGREEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- STOCKHOLDER PROTECTION RIGHTS AGREEMENT dated as of ____________, 1997 between FREEPORT-McMoRan SULPHUR INC. and MELLON SECURITIES TRUST COMPANY, as Rights Agent - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- STOCKHOLDER PROTECTION RIGHTS AGREEMENT Table of Contents
Page ---- ARTICLE I. CERTAIN DEFINITIONS 1.1 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II. THE RIGHTS 2.1 Summary of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.2 Legend on Common Stock Certificates. . . . . . . . . . . . . . . . . . . . . . 9 2.3 Exercise of Rights; Separation of Rights . . . . . . . . . . . . . . . . . . . 10 2.4 Adjustments to Exercise Price; Number of Rights. . . . . . . . . . . . . . . . 13 2.5 Date on Which Exercise is Effective. . . . . . . . . . . . . . . . . . . . . . 15 2.6 Execution, Authentication, Delivery and Dating of Rights Certificates. . . . . 15 2.7 Registration, Registration of Transfer and Exchange. . . . . . . . . . . . . . 16 2.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates. . . . . . . . . . . 17 2.9 Persons Deemed Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.10 Delivery and Cancellation of Certificates. . . . . . . . . . . . . . . . . . . 18 2.11 Agreement of Rights Holders. . . . . . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE III. ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS 3.1 Flip-in. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.2 Flip-over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE IV. THE RIGHTS AGENT 4.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4.2 Merger or Consolidation or Change of Name of Rights Agent. . . . . . . . . . . 25 4.3 Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.4 Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE V. MISCELLANEOUS 5.1 Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.2 Expiration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.3 Issuance of New Rights Certificates. . . . . . . . . . . . . . . . . . . . . . 31 5.4 Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 32 5.5 Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 5.6 Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 5.7 Holder of Rights Not Deemed a Stockholder. . . . . . . . . . . . . . . . . . . 33 5.8 Notice of Proposed Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.9 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 5.10 Suspension of Exercisability . . . . . . . . . . . . . . . . . . . . . . . . . 35 i 5.11 Costs of Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.12 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.13 Benefits of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.14 Determination and Actions by the Board of Directors, etc.. . . . . . . . . . . 36 5.15 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.16 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5.17 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5.18 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ii STOCKHOLDER PROTECTION RIGHTS AGREEMENT STOCKHOLDER PROTECTION RIGHTS AGREEMENT (as amended from time to time, this "Agreement"), dated as of ____________, 1997, between Freeport-McMoRan Sulphur Inc., a Delaware corporation (the "Company"), and MELLON SECURITIES TRUST COMPANY, a NEW YORK corporation, as Rights Agent (the "Rights Agent", which term shall include any successor Rights Agent hereunder). W I T N E S S E T H: WHEREAS, the Board of Directors of the Company has (a) authorized and declared a dividend of one right ("Right") in respect of each share of Common Stock (as hereinafter defined) held of record as of the close of business on ____________, 1997 (the "Record Time") and (b) authorized the issuance of one Right in respect of each share of Common Stock issued after the Record Time and prior to the Separation Time (as hereinafter defined) and, to the extent provided in Section 5.3, each share of Common Stock issued after the Separation Time; WHEREAS, subject to the terms hereof, each Right entitles the holder thereof, after the Separation Time, to purchase securities of the Company (or, in certain cases, of certain other entities) pursuant to the terms and subject to the conditions set forth herein; and WHEREAS, the Company desires to appoint the Rights Agent to act on behalf of the Company, and the Rights Agent is willing so to act, in connection with the issuance, transfer, exchange and replacement of Rights Certificates (as hereinafter defined), the exercise of Rights and other matters referred to herein; NOW THEREFORE, in consideration of the premises and the respective agreements set forth herein, the parties hereby agree as follows: -1- ARTICLE I CERTAIN DEFINITIONS 1.1 CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: "Acquiring Person" shall mean any Person who is a Beneficial Owner of 15% or more of the outstanding shares of Common Stock; PROVIDED, HOWEVER, that the term "Acquiring Person" shall not include (i) any Person who shall become the Beneficial Owner of 15% or more of the outstanding shares of Common Stock solely as a result of an acquisition by the Company of shares of Common Stock, until such time thereafter as such Person shall become the Beneficial Owner (other than by means of a stock dividend or stock split) of any additional shares of Common Stock, (ii) any Person who shall become the Beneficial Owner of 15% or more of the outstanding shares of Common Stock but who acquired shares of Common Stock without any plan or intention to seek or affect control of the Company, if such Person promptly thereafter enters into and delivers to the Company an irrevocable commitment promptly to divest, and thereafter promptly divests (without exercising or retaining any power, including voting, with respect to such shares), sufficient shares of Common Stock (or securities convertible into, exchangeable into or exercisable for Common Stock) so that such Person ceases to be the Beneficial Owner of 15% or more of the outstanding shares of Common Stock or (iii) any Person who Beneficially Owns shares of Common Stock consisting solely of one or more of (A) shares of Common Stock Beneficially Owned pursuant to the grant or exercise of an option granted to such Person by the Company in connection with an agreement to merge with, or acquire, the Company at a time at which there is no Acquiring Person, (B) shares of Common Stock (or securities convertible into, exchangeable into or exercisable for Common Stock) Beneficially Owned by such Person or its Affiliates or Associates at the time of grant of such option or (C) shares of Common Stock (or securities -2- convertible into, exchangeable into or exercisable for Common Stock) acquired by Affiliates or Associates of such Person after the time of such grant which, in the aggregate, amount to less than 1% of the outstanding shares of Common Stock. In addition, the Company, any wholly-owned Subsidiary of the Company and any employee benefit plan of the Company or a wholly-owned Subsidiary of the Company shall not be an Acquiring Person. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as such Rule is in effect on the date of this Agreement. A Person shall be deemed the "Beneficial Owner," and to have "Beneficial Ownership" of, and to "Beneficially Own," any securities as to which such Person or any of such Person's Affiliates or Associates is or may be deemed to be the beneficial owner of pursuant to Rule 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as such Rules are in effect on the date of this Agreement, as well as any securities as to which such Person or any of such Person's Affiliates or Associates has the right to become Beneficial Owner (whether such right is exercisable immediately or only after the passage of time or the occurrence of conditions) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed the "Beneficial Owner," or to have "Beneficial Ownership" of, or to "Beneficially Own," any security (i) solely because such security has been tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered security is accepted for payment or exchange or (ii) solely because such Person or any of such Person's Affiliates or Associates has or shares the power to vote or direct the voting of such security pursuant to a revocable proxy given in response -3- to a public proxy or consent solicitation made to more than ten holders of shares of a class of stock of the Company registered under Section 12 of the Securities Exchange Act of 1934 and pursuant to, and in accordance with, the applicable rules and regulations under the Securities Exchange Act of 1934, except if such power (or the arrangements relating thereto) is then reportable under Item 6 of Schedule 13D under the Securities Exchange Act of 1934 (or any similar provision of a comparable or successor report). For purposes of this Agreement, in determining the percentage of the outstanding shares of Common Stock with respect to which a Person is the Beneficial Owner, all shares as to which such Person is deemed the Beneficial Owner shall be deemed outstanding. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in New York, New York are generally authorized or obligated by law or executive order to close. "Close of business" on any given date shall mean 5:00 p.m. New York, New York time on such date (or, if such date is not a Business Day, 5:00 p.m. New York, New York time on the next succeeding Business Day) or such other time at which the New York, New York office of the transfer agent for the Common Stock (or, after the Separation Time, the New York, New York office of the Rights Agent) is closed to the public. "Common Stock" shall mean the shares of Common Stock, $.01 par value, of the Company. "Exchange Time" shall mean the time at which the right to exercise the Rights shall terminate pursuant to Section 3.1(c) hereof. -4- "Exercise Price" shall mean, as of any date, the price at which a holder may purchase the securities issuable upon exercise of one whole Right. Until adjustment thereof in accordance with the terms hereof, the Exercise Price shall equal $_____. "Expiration Time" shall mean the earliest of (i) the Exchange Time, (ii) the Redemption Time, (iii) the close of business on the tenth-year anniversary of the Record Time and (iv) upon the merger of the Company into another corporation pursuant to an agreement entered into when there is no Acquiring Person. "Flip-in Date" shall mean the tenth business day after any Stock Acquisition Date which is not the result of a Flip-over Transaction or Event. "Flip-over Entity," for purposes of Section 3.2, shall mean (i) in the case of a Flip-over Transaction or Event described in clause (i) of the definition thereof, the Person issuing any securities into which shares of Common Stock are being converted or exchanged and, if no such securities are being issued, the other party to such Flip-over Transaction or Event and (ii) in the case of a Flip-over Transaction or Event referred to in clause (ii) of the definition thereof, the Person receiving the greatest portion of the assets or earning power being transferred in such Flip-over Transaction or Event; provided in all cases that if such Person is a subsidiary of a corporation, the parent corporation shall be the Flip-over Entity. "Flip-over Stock" shall mean the capital stock (or similar equity interest) with the greatest voting power in respect of the election of directors (or other persons similarly responsible for direction of the business and affairs) of the Flip-over Entity. "Flip-over Transaction or Event" shall mean a transaction or series of transactions after the time when an Acquiring Person has become such in which, directly or indirectly, (i) the Company shall consolidate or merge or participate in a share exchange with any other Person if, at the time of the -5- consolidation, merger or share exchange or at the time the Company enters into any agreement with respect to any such consolidation, merger or share exchange, the Acquiring Person controls the Board of Directors of the Company and any term of or arrangement concerning the treatment of shares of capital stock in such consolidation, merger or share exchange relating to the Acquiring Person is not identical to the terms and arrangements relating to other holders of the Common Stock or (ii) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer) assets (A) aggregating more than 50% of the assets (measured by either book value or fair market value) or (B) generating more than 50% of the operating income or cash flow, of the Company and its Subsidiaries (taken as a whole) to any Person (other than the Company or one or more of its wholly owned Subsidiaries) or to two or more such Persons which are Affiliates or Associates or otherwise acting in concert, if, at the time of the entry by the Company (or any such Subsidiary) into an agreement with respect to such sale or transfer of assets, the Acquiring Person controls the Board of Directors of the Company. "Market Price" per share of any securities on any date shall mean the average of the daily closing prices per share of such securities (determined as described below) on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date; PROVIDED, HOWEVER, that if an event of a type analogous to any of the events described in Section 2.4 hereof shall have caused the closing prices used to determine the Market Price on any Trading Days during such period of 20 Trading Days not to be fully comparable with the closing price on such date, each such closing price so used shall be appropriately adjusted in order to make it fully comparable with the closing price on such date. The closing price per share of any securities on any date shall be the last reported sale price, regular way, or, in case no such sale takes place or is quoted on such date, the average of the closing bid and asked prices, regular way, for each -6- share of such securities, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange, Inc. or, if the securities are not listed on such exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the securities are listed or admitted to trading or, if on any such date the securities are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use, or, if on any such date the securities are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securities as selected by the Board of Directors of the Company; PROVIDED, HOWEVER, that if on any such date the securities are not listed or admitted to trading on a national securities exchange or quoted by NASDAQ and no such market maker is making a market in the securities, the closing price per share of such securities on such date shall mean the fair value per share of securities on such date as determined in good faith by the Board of Directors of the Company, after consultation with a nationally recognized investment banking firm, and set forth in a certificate delivered to the Rights Agent. "Person" shall mean any individual, firm, partnership, association, group (as such term is used in Rule 13d-5 under the Securities Exchange Act of 1934, as such Rule is in effect on the date of this Agreement), corporation or other entity. "Preferred Stock" shall mean the series of Participating Preferred Stock, $.01 par value, of the Company created by Articles of Amendment in substantially the form set forth in Exhibit B hereto appropriately completed. -7- "Redemption Price" shall mean an amount equal to $0.01. "Redemption Time" shall mean the time at which the right to exercise the Rights shall terminate pursuant to Section 5.1 hereof. "Separation Time" shall mean the close of business on the earlier of (i) the tenth business day (or such later date as the Board of Directors of the Company may from time to time fix by resolution adopted prior to the Separation Time that would otherwise have occurred) after the date on which any Person commences a tender or exchange offer which, if consummated, would result in such Person's becoming an Acquiring Person and (ii) the Flip-in Date; PROVIDED, that if the foregoing results in the Separation Time being prior to the Record Time, the Separation Time shall be the Record Time and PROVIDED FURTHER, that if any tender or exchange offer referred to in clause (i) of this paragraph is cancelled, terminated or otherwise withdrawn prior to the Separation Time without the purchase of any shares of Common Stock pursuant thereto, such offer shall be deemed, for purposes of this paragraph, never to have been made. "Stock Acquisition Date" shall mean the first date of public announcement by the Company (by any means) that an Acquiring Person has become such. "Subsidiary" of any specified Person shall mean any corporation or other entity of which a majority of the voting power of the equity securities or a majority of the equity interest is Beneficially Owned, directly or indirectly, by such Person. "Trading Day," when used with respect to any securities, shall mean a day on which the New York Stock Exchange, Inc. is open for the transaction of business or, if such securities are not listed on such exchange, a day on which the principal national securities exchange on which such securities are listed or admitted to trading is open for the transaction of business or, if such securities are not listed or admitted to trading on any national securities exchange, a Business Day. -8- ARTICLE II THE RIGHTS 2.1 SUMMARY OF RIGHTS. As soon as practicable after the Record Time, the Company will mail a letter summarizing the terms of the Rights to each holder of record of Common Stock as of the Record Time, at such holder's address as shown by the records of the Company. 2.2 LEGEND ON COMMON STOCK CERTIFICATES. Certificates for the Common Stock issued after the Record Time but prior to the Separation Time shall evidence one Right for each share of Common Stock represented thereby and shall have impressed on, printed on, written on or otherwise affixed to them the following legend: Until the Separation Time (as defined in the Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement, dated as of ____________, 1997 (as such may be amended from time to time, the "Rights Agreement"), between Freeport-McMoRan Sulphur Inc. (the "Company") and MELLON SECURITIES TRUST COMPANY, as Rights Agent, the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be redeemed, may be exchanged for shares of Common Stock or other securities or assets of the Company or a Subsidiary of the Company, may expire, may become void (if they are "Beneficially Owned" by an "Acquiring Person" or an Affiliate or Associate thereof, as such terms are defined in the Rights Agreement, or by any transferee of any of the foregoing) or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Company will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge within five days after the receipt of a written request therefor. -9- Certificates representing shares of Common Stock that are issued and outstanding at the Record Time shall evidence one Right for each share of Common Stock evidenced thereby notwithstanding the absence of the foregoing legend. 2.3 EXERCISE OF RIGHTS; SEPARATION OF RIGHTS. (a) Subject to Sections 3.1, 5.1 and 5.10 and subject to adjustment as herein set forth, each Right will entitle the holder thereof, after the Separation Time and prior to the Expiration Time, to purchase, for the Exercise Price, one one-hundredth of a share of Preferred Stock. (b) Until the Separation Time, (i) no Right may be exercised and (ii) each Right will be evidenced by the certificate for the associated share of Common Stock (together, in the case of certificates issued prior to the Record Time, with the letter mailed to the record holder thereof pursuant to Section 2.1) and will be transferable only together with, and will be transferred by a transfer (whether with or without such letter) of, such associated share. (c) Subject to the terms hereof, after the Separation Time and prior to the Expiration Time, the Rights (i) may be exercised and (ii) may be transferred independent of shares of Common Stock. Promptly following the Separation Time, the Rights Agent will mail to each holder of record of Common Stock as of the Separation Time (other than any Person whose Rights have become void pursuant to Section 3.1(b)), at such holder's address as shown by the records of the Company (the Company hereby agreeing to furnish copies of such records to the Rights Agent for this purpose), (x) a certificate (a "Rights Certificate") in substantially the form of Exhibit A hereto appropriately completed, representing the number of Rights held by such holder at the Separation Time and having such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the -10- provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any national securities exchange or quotation system on which the Rights may from time to time be listed or traded, or to conform to usage, and (y) a disclosure statement describing the Rights. (d) Subject to the terms hereof, Rights may be exercised on any Business Day after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent the Rights Certificate evidencing such Rights with an Election to Exercise (an "Election to Exercise") substantially in the form attached to the Rights Certificate duly completed, accompanied by payment in cash, or by certified or official bank check or money order payable to the order of the Company, of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for shares or depositary receipts (or both) in a name other than that of the holder of the Rights being exercised. (e) Upon receipt of a Rights Certificate, with an Election to Exercise accompanied by payment as set forth in Section 2.3(d), and subject to the terms hereof, the Rights Agent will thereupon promptly (i)(A) requisition from the Company's transfer agent stock certificates evidencing such number of shares or other securities to be purchased (the Company hereby irrevocably authorizing its transfer agent to comply with all such requisitions) and (B) if the Company elects pursuant to Section 5.5 not to issue certificates representing fractional shares, requisition from the depositary selected by the Company depositary receipts representing the fractional shares to be purchased or requisition from the Company the amount of cash to be paid in lieu of fractional shares in accordance with Section 5.5 and (ii) after receipt of such certificates, depositary receipts and/or -11- cash, deliver the same to or upon the order of the registered holder of such Rights Certificate, registered (in the case of certificates or depositary receipts) in such name or names as may be designated by such holder. (f) In case the holder of any Rights shall exercise less than all the Rights evidenced by such holder's Rights Certificate, a new Rights Certificate evidencing the Rights remaining unexercised will be issued by the Rights Agent to such holder or to such holder's duly authorized assigns. (g) The Company covenants and agrees that it will (i) take all such action as may be necessary to ensure that all shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Exercise Price), be duly and validly authorized, executed, issued and delivered and fully paid and nonassessable; (ii) take all such action as may be necessary to comply with any applicable requirements of the Securities Act of 1933 or the Securities Exchange Act of 1934, and the rules and regulations thereunder, and any other applicable law, rule or regulation, in connection with the issuance of any shares upon exercise of Rights; and (iii) pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the original issuance or delivery of the Rights Certificates or of any shares issued upon the exercise of Rights, provided that the Company shall not be required to pay any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for shares in a name other than that of the holder of the Rights being transferred or exercised. 2.4 ADJUSTMENTS TO EXERCISE PRICE; NUMBER OF RIGHTS. (a) In the event the Company shall at any time after the Record Time and prior to the Separation Time (i) declare or pay a dividend on Common Stock payable in -12- Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares of Common Stock, (x) the Exercise Price in effect after such adjustment will be equal to the Exercise Price in effect immediately prior to such adjustment divided by the number of shares of Common Stock (the "Expansion Factor") that a holder of one share of Common Stock immediately prior to such dividend, subdivision or combination would hold thereafter as a result thereof and (y) each Right held prior to such adjustment will become that number of Rights equal to the Expansion Factor, and the adjusted number of Rights will be deemed to be distributed among the shares of Common Stock with respect to which the original Rights were associated (if they remain outstanding) and the shares issued in respect of such dividend, subdivision or combination, so that each such share of Common Stock will have exactly one Right associated with it. Each adjustment made pursuant to this paragraph shall be made as of the payment or effective date for the applicable dividend, subdivision or combination. In the event the Company shall at any time after the Record Time and prior to the Separation Time issue any shares of Common Stock otherwise than in a transaction referred to in the preceding paragraph, each such share of Common Stock so issued shall automatically have one new Right associated with it, which Right shall be evidenced by the certificate representing such share. To the extent provided in Section 5.3, Rights shall be issued by the Company in respect of shares of Common Stock that are issued or sold by the Company after the Separation Time. (b) In the event the Company shall at any time after the Record Time and prior to the Separation Time issue or distribute any securities or assets in respect of, in lieu of or in exchange for Common Stock (other than -13- pursuant to a regular periodic cash dividend or a dividend paid solely in Common Stock) whether by dividend, in a reclassification or recapitalization (including any such transaction involving a merger, consolidation or share exchange), or otherwise, the Company shall make such adjustments, if any, in the Exercise Price, number of Rights and/or securities or other property purchasable upon exercise of Rights as the Board of Directors of the Company, in its sole discretion, may deem to be appropriate under the circumstances in order to adequately protect the interests of the holders of Rights generally, and the Company and the Rights Agent shall amend this Agreement as necessary to provide for such adjustments. (c) Each adjustment to the Exercise Price made pursuant to this Section 2.4 shall be calculated to the nearest cent. Whenever an adjustment to the Exercise Price is made pursuant to this Section 2.4, the Company shall (i) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (ii) promptly file with the Rights Agent and with each transfer agent for the Common Stock a copy of such certificate and (iii) mail a brief summary thereof to each holder of Rights. (d) Irrespective of any adjustment or change in the securities purchasable upon exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the securities so purchasable which were expressed in the initial Rights Certificates issued hereunder. 2.5 DATE ON WHICH EXERCISE IS EFFECTIVE. Each person in whose name any certificate for shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Exercise Price for such Rights (and any applicable taxes and other governmental charges payable by the exercising holder hereunder) was -14- made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a date upon which the stock transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the stock transfer books of the Company are open. 2.6 EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF RIGHTS CERTIFICATES. (a) The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, President or its Treasurer, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Rights Certificates may be manual or facsimile. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the countersignature and delivery of such Rights Certificates. Promptly after the Company learns of the Separation Time, the Company will notify the Rights Agent of such Separation Time and will deliver Rights Certificates executed by the Company to the Rights Agent for countersignature, and, subject to Section 3.1(b), the Rights Agent shall manually countersign and deliver such Rights Certificates to the holders of the Rights pursuant to Section 2.3(c) hereof. No Rights Certificate shall be valid for any purpose unless manually countersigned by the Rights Agent. (b) Each Rights Certificate shall be dated the date of countersignature thereof. 2.7 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. (a) After the Separation Time, the Company will cause to be kept a register (the "Rights Register") in which, subject to such reasonable regulations as it may -15- prescribe, the Company will provide for the registration and transfer of Rights. The Rights Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the Rights Register for the Company and registering Rights and transfers of Rights after the Separation Time as herein provided. In the event that the Rights Agent shall cease to be the Rights Registrar, the Rights Agent will have the right to examine the Rights Register at all reasonable times after the Separation Time. After the Separation Time and prior to the Expiration Time, upon surrender for registration of transfer or exchange of any Rights Certificate, and subject to the provisions of Section 2.7(c) and (d), the Company will execute, and the Rights Agent will countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the holder's instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificate so surrendered. (b) Except as otherwise provided in Section 3.1(b), all Rights issued upon any registration of transfer or exchange of Rights Certificates shall be the valid obligations of the Company, and such Rights shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or exchange. (c) Every Rights Certificate surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company or the Rights Agent, as the case may be, duly executed by the holder thereof or such holder's attorney duly authorized in writing. As a condition to the issuance of any new Rights Certificate under this Section 2.7, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. -16- (d) The Company shall not be required to register the transfer or exchange of any Rights after such Rights have become void under Section 3.1(b), been exchanged under Section 3.1(c) or been redeemed or terminated under Section 5.1. 2.8 MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES. (a) If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, then, subject to Sections 3.1(b) and 5.1, the Company shall execute and the Rights Agent shall countersign and deliver in exchange therefor a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so surrendered. (b) If there shall be delivered to the Company and the Rights Agent prior to the Expiration Time (i) evidence to their satisfaction of the destruction, loss or theft of any Rights Certificate and (ii) such security or indemnity as may be required by them to save each of them and any of their agents harmless, then, subject to Sections 3.1(b) and 5.1 and in the absence of notice to the Company or the Rights Agent that such Rights Certificate has been acquired by a BONA FIDE purchaser, the Company shall execute and upon its request the Rights Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen. (c) As a condition to the issuance of any new Rights Certificate under this Section 2.8, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) connected therewith. (d) Every new Rights Certificate issued pursuant to this Section 2.8 in lieu of any destroyed, lost or stolen Rights Certificate shall -17- evidence an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Rights duly issued hereunder. 2.9 PERSONS DEEMED OWNERS. Prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Stock certificate) for registration of transfer, the Company, the Rights Agent and any agent of the Company or the Rights Agent may deem and treat the person in whose name such Rights Certificate (or, prior to the Separation Time, such Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever, including the payment of the Redemption Price and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. As used in this Agreement, unless the context otherwise requires, the term "holder" of any Rights shall mean the registered holder of such Rights (or, prior to the Separation Time, the associated shares of Common Stock). 2.10 DELIVERY AND CANCELLATION OF CERTIFICATES. All Rights Certificates surrendered upon exercise or for registration of transfer or exchange shall, if surrendered to any person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Company may at any time deliver to the Rights Agent for cancellation any Rights Certificates previously countersigned and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificates shall be countersigned in lieu of or in exchange for any Rights Certificates cancelled as provided in this Section 2.10, except as expressly permitted by this Agreement. The Rights Agent shall destroy all cancelled Rights Certificates and deliver a certificate of destruction to the Company. -18- 2.11 AGREEMENT OF RIGHTS HOLDERS. Every holder of Rights by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of Rights that: (a) prior to the Separation Time, each Right will be transferable only together with, and will be transferred by a transfer of, the associated share of Common Stock; (b) after the Separation Time, the Rights Certificates will be transferable only on the Rights Register as provided herein; (c) prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Stock certificate) for registration of transfer, the Company, the Rights Agent and any agent of the Company or the Rights Agent may deem and treat the person in whose name the Rights Certificate (or, prior to the Separation Time, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary; (d) Rights beneficially owned by certain Persons will, under the circumstances set forth in Section 3.1(b), become void; and (e) this Agreement may be supplemented or amended from time to time pursuant to Section 2.4(b) or 5.4 hereof. ARTICLE III ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS 3.1 FLIP-IN. (a) In the event that prior to the Expiration Time a Flip-in Date shall occur, the Company shall take such action as shall be -19- necessary to ensure and provide that, except as provided in this Section 3.1, each Right shall constitute the right to purchase from the Company, upon exercise thereof in accordance with the terms hereof (but subject to Section 5.10), that number of shares of Common Stock having an aggregate Market Price on the Stock Acquisition Date equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such right to be appropriately adjusted in order to protect the interests of the holders of Rights generally in the event that on or after such Stock Acquisition Date an event of a type analogous to any of the events described in Section 2.4(a) or (b) shall have occurred with respect to the Common Stock). (b) Notwithstanding the foregoing, any Rights that are or were Beneficially Owned on or after the Stock Acquisition Date by an Acquiring Person or an Affiliate or Associate thereof or by any transferee, direct or indirect, of any of the foregoing shall become void and any holder of such Rights (including transferees) shall thereafter have no right to exercise or transfer such Rights under any provision of this Agreement. If any Rights Certificate is presented for assignment or exercise and the Person presenting the same will not complete the certification set forth at the end of the form of assignment or notice of election to exercise and provide such additional evidence of the identity of the Beneficial Owner and its Affiliates and Associates (or former Beneficial Owners and their Affiliates and Associates) as the Company shall reasonably request, then the Company shall be entitled conclusively to deem the Beneficial Owner thereof to be an Acquiring Person or an Affiliate or Associate thereof or a transferee of any of the foregoing and accordingly will deem the Rights evidenced thereby to be void and not transferable or exercisable. (c) The Board of Directors of the Company may, at its option, at any time after a Flip-in Date and prior to the time that an Acquiring Person -20- becomes the Beneficial Owner of more than 50% of the outstanding shares of Common Stock, elect to exchange all (but not less than all) the then outstanding Rights (which shall not include Rights that have become void pursuant to the provisions of Section 3.1(b)) for shares of Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted in order to protect the interests of holders of Rights generally in the event that after the Separation Time an event of a type analogous to any of the events described in Section 2.4(a) or (b) shall have occurred with respect to the Common Stock (such exchange ratio, as adjusted from time to time, being hereinafter referred to as the "Exchange Ratio"). Immediately upon the action of the Board of Directors of the Company electing to exchange the Rights, without any further action and without any notice, the right to exercise the Rights will terminate and each Right (other than Rights that have become void pursuant to Section 3.1(b)) will thereafter represent only the right to receive a number of shares of Common Stock equal to the Exchange Ratio. Promptly after the action of the Board of Directors electing to exchange the Rights, the Company shall give notice thereof (specifying the steps to be taken to receive shares of Common Stock in exchange for Rights) to the Rights Agent and the holders of the Rights (other than Rights that have become void pursuant to Section 3.1(b)) outstanding immediately prior thereto by mailing such notice in accordance with Section 5.9. Each Person in whose name any certificate for shares is issued upon the exchange of Rights pursuant to this Section 3.1(c) or Section 3.1(d) shall for all purposes be deemed to have become the holder of record of the shares represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of any applicable taxes and other governmental charges payable by the holder was made; PROVIDED, HOWEVER, that if the date of such surrender -21- and payment is a date upon which the stock transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the stock transfer books of the Company are open. (d) Whenever the Company shall become obligated under Section 3.1(a) or (c) to issue shares of Common Stock upon exercise of or in exchange for Rights, the Company, at its option, may substitute therefor shares of Preferred Stock, at a ratio of one one-hundredth of a share of Preferred Stock for each share of Common Stock so issuable. (e) In the event that there shall not be sufficient treasury shares or authorized but unissued shares of Common Stock or Preferred Stock of the Company to permit the exercise or exchange in full of the Rights in accordance with Section 3.1(a) or (c), the Company shall either (i) call a meeting of stockholders seeking approval to cause sufficient additional shares to be authorized (provided that if such approval is not obtained the Company will take the action specified in clause (ii) of this sentence) or (ii) take such action as shall be necessary to ensure and provide, to the extent permitted by applicable law and any agreements or instruments in effect on the Stock Acquisition Date to which it is a party, that each Right shall thereafter constitute the right to receive, (x) at the Company's option, either (A) in return for the Exercise Price, debt or equity securities or other assets (or a combination thereof) having a fair value equal to twice the Exercise Price, or (B) without payment of consideration (except as otherwise required by applicable law), debt or equity securities or other assets (or a combination thereof) having a fair value equal to the Exercise Price, or (y) if the Board of Directors of the Company elects to exchange the Rights in accordance with Section 3.1(c), debt or equity securities or other assets (or a combination thereof) having a fair value equal to the product of the Market Price of a share of Common Stock on the Flip-in Date times the Exchange Ratio in effect on the Flip-in Date, where in -22- any case set forth in (x) or (y) above the fair value of such debt or equity securities or other assets shall be as determined in good faith by the Board of Directors of the Company, after consultation with a nationally recognized investment banking firm. 3.2 FLIP-OVER. (a) Prior to the Expiration Time, the Company shall not enter into any agreement with an Acquiring Person (or any of its Affiliates or Associates) with respect to, consummate or permit to occur any Flip-over Transaction or Event unless and until it shall have entered into a supplemental agreement with the Flip-over Entity, for the benefit of the holders of the Rights, providing that, upon consummation or occurrence of the Flip-over Transaction or Event (i) each Right shall thereafter constitute the right to purchase from the Flip-over Entity, upon exercise thereof in accordance with the terms hereof, that number of shares of Flip-over Stock of the Flip-over Entity having an aggregate Market Price on the date of consummation or occurrence of such Flip-over Transaction or Event equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such right to be appropriately adjusted in order to protect the interests of the holders of Rights generally in the event that after such date of consummation or occurrence an event of a type analogous to any of the events described in Section 2.4(a) or (b) shall have occurred with respect to the Flip-over Stock) and (ii) the Flip-over Entity shall thereafter be liable for, and shall assume, by virtue of such Flip-over Transaction or Event and such supplemental agreement, all the obligations and duties of the Company pursuant to this Agreement. The provisions of this Section 3.2 shall apply to successive Flip-over Transactions or Events. (b) Prior to the Expiration Time, unless the Rights will be redeemed pursuant to Section 5.1 hereof in connection therewith, the Company shall not enter into any agreement with respect to, consummate or permit to -23- occur any Flip-over Transaction or Event if at the time thereof there are any rights, warrants or securities outstanding or any other arrangements, agreements or instruments that would eliminate or otherwise diminish in any material respect the benefits intended to be afforded by this Rights Agreement to the holders of Rights upon consummation of such transaction. ARTICLE IV THE RIGHTS AGENT 4.1 GENERAL. (a) The Company hereby appoints the Rights Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted to be done by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any certificate for securities purchasable upon exercise of Rights, Rights Certificate, certificate for other securities of the Company, instrument of -24- assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons. 4.2 MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the stockholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 4.4 hereof. In case at the time such successor Rights Agent succeeds to the agency created by this Agreement any of the Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates have not been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates will have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior -25- name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. 4.3 DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel will be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by a person believed by the Rights Agent to be the Chairman of the Board, the President or any Vice President and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate will be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent will be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent will not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates for securities purchasable upon exercise of Rights or the Rights -26- Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and will be deemed to have been made by the Company only. (e) The Rights Agent will not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any certificate for securities purchasable upon exercise of Rights or Rights Certificate (except its countersignature thereof); nor will it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor will it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 3.1(b) hereof) or any adjustment required under the provisions of Section 2.4, 3.1 or 3.2 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of the certificate contemplated by Section 2.4 describing any such adjustment); nor will it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any securities purchasable upon exercise of Rights or any Rights or as to whether any securities purchasable upon exercise of Rights will, when issued, be duly and validly authorized, executed, issued and delivered and fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. -27- (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any person believed by the Rights Agent to be the Chairman of the Board, the President, the Secretary or any Assistant Secretary or the Treasurer of the Company, and to apply to such persons for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such person. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in Common Stock, Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. 4.4 CHANGE OF RIGHTS AGENT. The Rights Agent may resign and be discharged from its duties under this Agreement upon 90 days' notice (or such lesser notice as is acceptable to the Company) in writing mailed to the Company and to each transfer agent of Common Stock by registered or certified -28- mail, and to the holders of the Rights in accordance with Section 5.9. The Company may remove the Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent and to each transfer agent of the Common Stock by registered or certified mail, and to the holders of the Rights in accordance with Section 5.9. If the Rights Agent should resign or be removed or otherwise become incapable of acting, the Company will appoint a successor to the Rights Agent. If the Company fails to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of any Rights (which holder shall, with such notice, submit such holder's Rights Certificate for inspection by the Company), then the holder of any Rights may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or of the State of New York, in good standing, having its principal office in the State of New York, which is authorized under such laws to exercise the powers of the Rights Agent contemplated by this Agreement and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000. After appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company will file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock, and mail a notice thereof in writing to the holders of the Rights. Failure to give any notice provided for in this Section 4.4, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. -29- ARTICLE V MISCELLANEOUS 5.1 REDEMPTION. (a) The Board of Directors of the Company may, at its option, at any time prior to the close of business on the Flip-in Date, elect to redeem all (but not less than all) the then outstanding Rights at the Redemption Price and the Company, at its option, may pay the Redemption Price either in cash or shares of Common Stock or other securities of the Company deemed by the Board of Directors, in the exercise of its sole discretion, to be at least equivalent in value to the Redemption Price. (b) Immediately upon the action of the Board of Directors of the Company electing to redeem the Rights (or, if the resolution of the Board of Directors electing to redeem the Rights states that the redemption will not be effective until the occurrence of a specified future time or event, upon the occurrence of such future time or event), without any further action and without any notice, the right to exercise the Rights will terminate and each Right will thereafter represent only the right to receive the Redemption Price in cash or securities, as determined by the Board of Directors. Promptly after the Rights are redeemed, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice in accordance with Section 5.9. 5.2 EXPIRATION. The Rights and this Agreement shall expire at the Expiration Time and no Person shall have any rights pursuant to this Agreement or any Right after the Expiration Time, except, if the Rights are exchanged or redeemed, as provided in Section 3.1(c), 3.1(d), 3.1(e), 3.2 or 5.1 hereof. -30- 5.3 ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the number or kind or class of shares of stock purchasable upon exercise of Rights made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock by the Company following the Separation Time and prior to the Redemption Time or Expiration Time pursuant to the terms of securities convertible or redeemable into shares of Common Stock or to options, in each case issued or granted prior to, and outstanding at, the Separation Time, the Company shall issue to the holders of such shares of Common Stock, Rights Certificates representing the appropriate number of Rights in connection with the issuance or sale of such shares of Common Stock; PROVIDED, HOWEVER, in each case, (i) no such Rights Certificate shall be issued, if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or to the Person to whom such Rights Certificates would be issued, (ii) no such Rights Certificates shall be issued if, and to the extent that, appropriate adjustment shall have otherwise been made in lieu of the issuance thereof, and (iii) the Company shall have no obligation to distribute Rights Certificates to any Acquiring Person or Affiliate or Associate of an Acquiring Person or any transferee of any of the foregoing. 5.4 SUPPLEMENTS AND AMENDMENTS. The Company and the Rights Agent may from time to time supplement or amend this Agreement without the approval of any holders of Rights (i) prior to the close of business on the Flip-in Date, in any respect and (ii) after the close of business on the Flip-in Date, to make any changes that the Company may deem necessary or desirable and which shall not materially adversely affect the interests of the holders -31- of Rights generally or in order to cure any ambiguity or to correct or supplement any provision contained herein which may be inconsistent with any other provisions herein or otherwise defective. The Rights Agent will duly execute and deliver any supplement or amendment hereto requested by the Company which satisfies the terms of the preceding sentence. 5.5 FRACTIONAL SHARES. If the Company elects not to issue certificates representing fractional shares upon exercise or redemption of Rights, the Company shall, in lieu thereof, in the sole discretion of the Board of Directors, either (a) evidence such fractional shares by depositary receipts issued pursuant to an appropriate agreement between the Company and a depositary selected by it, providing that each holder of a depositary receipt shall have all of the rights, privileges and preferences to which such holder would be entitled as a beneficial owner of such fractional share, or (b) sell such shares on behalf of the holders of Right and pay to the registered holder of such Rights the appropriate fraction of price per share received upon such sale. 5.6 RIGHTS OF ACTION. Subject to the terms of this Agreement (including Section 3.1(b)), rights of action in respect of this Agreement, other than rights of action vested solely in the Rights Agent, are vested in the respective holders of the Rights; and any holder of any Rights, without the consent of the Rights Agent or of the holder of any other Rights, may, on such holder's own behalf and for such holder's own benefit and the benefit of other holders of Rights, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder's right to exercise such holder's Rights in the manner provided in such holder's Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not -32- have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. 5.7 HOLDER OF RIGHTS NOT DEEMED A STOCKHOLDER. No holder, as such, of any Rights shall be entitled to vote, receive dividends or be deemed for any purpose the holder of shares or any other securities which may at any time be issuable on the exercise of such Rights, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 5.8 hereof), or to receive dividends or subscription rights, or otherwise, until such Rights shall have been exercised or exchanged in accordance with the provisions hereof. 5.8 NOTICE OF PROPOSED ACTIONS. In case the Company shall propose after the Separation Time and prior to the Expiration Time (i) to effect or permit (in cases where the Company's permission is required) occurrence of any Flip-in Date or Flip-over Transaction or Event or (ii) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Right, in accordance with Section 5.9 hereof, a notice of such proposed action, which shall specify the Flip-in Date or the date on which such Flip-over Transaction or Event, liquidation, dissolution, or winding up is to take place, and such notice shall be so given at least 20 Business Days prior to the date of the taking of such proposed action. -33- 5.9 NOTICES. Notices or demands authorized or required by this Agreement to be given or made by the Rights Agent or by the holder of any Rights to or on the Company shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Freeport-McMoRan Sulphur Inc. 1615 Poydras Street New Orleans, Louisiana 70112 Attention: ________________ Any notice or demand authorized or required by this Agreement to be given or made by the Company or by the holder of any Rights to or on the Rights Agent shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: MELLON SECURITIES TRUST COMPANY 85 Challenger Park Overpeck Centre Ridgefield Park, New Jersey 07660 Attention: ____________________ Notices or demands authorized or required by this Agreement to be given or made by the Company or the Rights Agent to or on the holder of any Rights shall be sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as it appears upon the registry books of the Rights Agent or, prior to the Separation Time, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. -34- 5.10 SUSPENSION OF EXERCISABILITY. To the extent that the Company determines in good faith that some action will need to be taken pursuant to Section 3.1(a), (b), (d) or (e) or to comply with federal or state securities laws, the Company may suspend the exercisability of the Rights for a period of up to ninety (90) days following the date of the occurrence of the Separation Time or the Flip-in Date in order to take such action or comply with such laws. In the event of any such suspension, the Company shall issue as promptly as practicable a public announcement stating that the exercisability or exchangeability of the Rights has been temporarily suspended. Notice thereof pursuant to Section 5.9 shall not be required. Failure to give a notice pursuant to the provisions of this Agreement shall not affect the validity of any action taken hereunder. 5.11 COSTS OF ENFORCEMENT. The Company agrees that if the Company or any other Person the securities of which are purchasable upon exercise of Rights fails to fulfill any of its obligations pursuant to this Agreement, then the Company or such Person will reimburse the holder of any Rights for the costs and expenses (including legal fees) incurred by such holder in actions to enforce such holder's rights pursuant to any Rights or this Agreement. 5.12 SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 5.13 BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the holders of the Rights any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the holders of the Rights. -35- 5.14 DETERMINATION AND ACTIONS BY THE BOARD OF DIRECTORS, ETC. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement. All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board of Directors of the Company to any liability to the holders of the Rights. 5.15 DESCRIPTIVE HEADINGS. Descriptive headings appear herein for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 5.16 GOVERNING LAW. This Agreement and each Right issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and performed entirely within such state. 5.17 COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 5.18 SEVERABILITY. If any term or provision hereof or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the -36- remaining terms and provisions hereof or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. FREEPORT-McMoRan SULPHUR INC. By: __________________________________ Chairman of the Board MELLON SECURITIES TRUST COMPANY By: _____________________________________ Name: Title: EX-23.1 26 CONSENT OF ARTHUR ANDERSEN EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants we hereby consent to the use of our reports (and to all references to our Firm) included or incorporated by reference in the registration statement on Form S-1 of Freeport-McMoRan Sulphur Inc. /s/ ARTHUR ANDERSEN LLP New Orleans, Louisiana November 17, 1997 EX-23.2 27 CONSENT OF RYDER SCOTT EXHIBIT 23.2 CONSENT OF INDEPENDENT PETROLEUM ENGINEER As independent petroleum engineers, we hereby consent to the use of our name in this Form S-1 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, 1996 in the Form S-1. /s/ RYDER SCOTT COMPANY -------------------------------------- PETROLEUM ENGINEERS Houston, Texas November 17, 1997 EX-24.1 28 EXHIBIT 24.1 POWER OF ATTORNEY POWER OF ATTORNEY BE IT KNOWN, that the undersigned, in his capacity or capacities as an officer or a member of the Board of Directors of Freeport-McMoRan Sulphur Inc., a Delaware corporation (the "Company"), does hereby make, constitute and appoint RENE L. LATIOLAIS, RICHARD C. ADKERSON and ROBERT M. WOHLEBER, 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 and resubstitution, to execute a Registration Statement of the Company and any of the Company's wholly-owned subsidiaries on Form S-1 (or on such other form as may be determined to be applicable) providing for the registration under the Securities Act of 1933, as amended, of common stock and of other securities, if any, into which such common stock may be converted or exchanged, and any amendment or amendments to such Registration Statement, and to file same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting to such attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that such 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 that such attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 3rd day of November, 1997. /s/ James R. Moffett ------------------------------ James R. Moffett POWER OF ATTORNEY BE IT KNOWN, that the undersigned, in his capacity or capacities as an officer 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, RICHARD C. ADKERSON, RENE L. LATIOLAIS and ROBERT M. WOHLEBER, 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 and resubstitution, to execute a Registration Statement of the Company on Form S-1 (or on such other form as may be determined to be applicable) providing for the registration under the Securities Act of 1933, as amended, of common stock and of other securities, if any, into which such common stock may be converted or exchanged, and any amendment or amendments to such Registration Statement, and to file same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting to such attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that such 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 that such attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 3rd day of November, 1997. /s/ J. Terrell Brown ------------------------- J. Terrell Brown POWER OF ATTORNEY BE IT KNOWN, that the undersigned, in his capacity or capacities as an officer 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, RICHARD C. ADKERSON, RENE L. LATIOLAIS and ROBERT M. WOHLEBER, 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 and resubstitution, to execute a Registration Statement of the Company on Form S-1 (or on such other form as may be determined to be applicable) providing for the registration under the Securities Act of 1933, as amended, of common stock and of other securities, if any, into which such common stock may be converted or exchanged, and any amendment or amendments to such Registration Statement, and to file same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting to such attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that such 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 that such attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 3rd day of November, 1997. /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 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, RICHARD C. ADKERSON, RENE L. LATIOLAIS and ROBERT M. WOHLEBER, 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 and resubstitution, to execute a Registration Statement of the Company on Form S-1 (or on such other form as may be determined to be applicable) providing for the registration under the Securities Act of 1933, as amended, of common stock and of other securities, if any, into which such common stock may be converted or exchanged, and any amendment or amendments to such Registration Statement, and to file same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting to such attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that such 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 that such attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 3rd day of November, 1997. /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 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, RENE L. LATIOLAIS and ROBERT M. WOHLEBER, 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 and resubstitution, to execute a Registration Statement of the Company on Form S-1 (or on such other form as may be determined to be applicable) providing for the registration under the Securities Act of 1933, as amended, of common stock and of other securities, if any, into which such common stock may be converted or exchanged, and any amendment or amendments to such Registration Statement, and to file same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting to such attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that such 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 that such attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 3rd day of November, 1997. /s/ Richard C. Adkerson ----------------------------- Richard C. Adkerson POWER OF ATTORNEY BE IT KNOWN, that the undersigned, in his capacity or capacities as an officer 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, RICHARD C. ADKERSON and ROBERT M. WOHLEBER, 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 and resubstitution, to execute a Registration Statement of the Company and any of the Company's wholly-owned subsidiaries on Form S-1 (or on such other form as may be determined to be applicable) providing for the registration under the Securities Act of 1933, as amended, of common stock and of other securities, if any, into which such common stock may be converted or exchanged, and any amendment or amendments to such Registration Statement, and to file same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting to such attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that such 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 that such attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 3rd day of November, 1997. /s/ Rene L. Latiolais ---------------------------- Rene L. Latiolais POWER OF ATTORNEY BE IT KNOWN, that the undersigned, in his capacity or capacities as an officer 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, RENE L. LATIOLAIS 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 and resubstitution, to execute a Registration Statement of the Company and any of the Company's wholly-owned subsidiaries on Form S-1 (or on such other form as may be determined to be applicable) providing for the registration under the Securities Act of 1933, as amended, of common stock and of other securities, if any, into which such common stock may be converted or exchanged, and any amendment or amendments to such Registration Statement, and to file same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting to such attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that such 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 that such attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 3rd day of November, 1997. /s/ Robert M. Wohleber --------------------------- Robert M. Wohleber EX-27.1 29 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FRP TRANSFERRED BUSINESSES FINANCIAL STATEMENTS AT SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND FOR THE 9 AND 12 MONTHS THEN ENDED, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS YEAR DEC-31-1997 DEC-31-1996 SEP-30-1997 DEC-31-1996 2,572 3,116 0 0 21,878 27,402 0 0 33,335 30,073 71,362 83,204 918,870 916,858 826,308 381,205 178,581 633,620 44,157 57,410 0 0 0 0 0 0 0 0 0 0 178,581 633,620 158,304 221,426 158,304 221,426 577,967 198,782 577,967 198,782 0 0 0 0 0 0 (425,171) 12,392 0 0 (425,171) 12,392 0 0 0 0 0 0 (425,171) 12,392 0 0 0 0
EX-99.1 30 FORM OF SOLVENCY OPINION VALUATION RESEARCH CORPORATION November 5, 1997 Board of Directors Board of Directors Freeport-McMoRan Inc. Freeport-McMoRan Sulphur Inc. 1615 Poydras Street 1615 Poydras Street New Orleans, LA 70112 New Orleans, LA 70112 Board of Directors FMRP Inc. 1615 Poydras Street New Orleans, LA 70112 Board of Directors IMC Global Inc. 2100 Sanders Road Northbrook, IL 60062-6146 Ladies and Gentlemen: This letter is provided by Valuation Research Corporation ("Valuation") reporting the performance of certain limited procedures at the request of the Board of Directors of IMC Global Inc., a Delaware Corporation ("IGL"), Freeport-McMoRan Inc., a Delaware Corporation ("FTX"), FMRP, Inc., a Delaware Corporation ("FMRP"), and Freeport-McMoRan Sulphur Inc., a Delaware Corporation ("NEWCO") and a newly formed, wholly-owned subsidiary of Freeport-McMoRan Resource Partners, Limited Partnership, a Delaware limited partnership ("FRP") to assist in complying with certain conditions to the transactions described in the Agreement and Plan of Merger between FTX and IGL (the "Merger Agreement") and the Contribution and Distribution Agreement among FTX, NEWCO and FRP (the "Contribution and Distribution Agreement"), both dated August 26, 1997, pursuant to which specified sulphur and other assets will be transferred from FRP and others to NEWCO. Pursuant to the Merger Agreement, FTX will merge with and into IGL (the "Merger"). FTX is the Administrative Managing General Partner and Special General Partner of FRP. FTX and FMRP, collectively own, approximately 51.6% of the equity interest in FRP. FMRP is a wholly owned subsidiary of FTX, and is the Managing General Partner and Special General Partner of, and an equity owner in, FRP. IGL owns 100% of the issued and outstanding stock of IMC Global Operations Inc. (formerly IMC Fertilizer Inc.) ("IMC Operations"). In connection with the Merger: (1) IMC Operations intends to transfer to FRP various assets (collectively, the "IMC Main Pass Interests") and FRP intends to assume various liabilities, relating to the sulphur, oil and gas exploration and development operations in Main Pass Block 299, Offshore, Louisiana ("Main Pass") including a 25% working interest in the sulphur, oil and gas operations located thereon and (2) FRP intends to convey to NEWCO, various assets (including the IMC Main Pass Interests that FRP will acquire from IMC Operations and FRP's 58.3% working interest in the sulphur, oil and gas operations in Main Pass) and NEWCO intends to assume various liabilities, relating to the sulphur and certain oil and gas operations of FRP (collectively, the "FRP Sulphur Operations"). Following the transfer of the FRP Sulphur Operations to NEWCO, FRP intends to distribute the stock of NEWCO to its equity holders, including FTX and FMRP. FMRP intends to distribute to FTX the NEWCO stock it receives from FRP (the "FMRP Dividend"). As part of the consideration to be received by FTX stockholders in the Merger, NEWCO stock held by FTX prior to the Merger will be transferred to FTX stockholders. Collectively, the transactions described in this paragraph will be hereinafter referred to as the "Transaction". Based on the foregoing description of the Transaction, Valuation has been asked to provide its opinion as of October 21, 1997, assuming that the entire Transaction has been consummated on October 21, 1997 that immediately before and after for FRP and FMRP, and immediately after for NEWCO, and giving effect to the consummation of the entire Transaction: (i) The Fair Value of the aggregate assets of FRP exceeds and will exceed FRP's liabilities (including, without limitation, Stated Liabilities and Identified Contingent Liabilities). (ii) The Present Fair Saleable Value of the assets of FRP exceeds and will exceed probable liabilities on its debts (including, without limitation, Stated Liabilities and Identified Contingent Liabilities) as such debts become absolute and mature. (iii) FRP is and will be able to pay its debts, liabilities and other obligations (including, without limitation, Stated Liabilities and Identified Contingent Liabilities) as such debts, liabilities and other obligations become absolute and mature. (iv) FRP will not have Unreasonably Small Capital with which to conduct its present and anticipated business. (v) The Fair Value of the aggregate assets of NEWCO will exceed NEWCO's liabilities (including, without limitation, Stated Liabilities and Identified Contingent Liabilities). (vi) The Present Fair Saleable Value of the assets of NEWCO will exceed NEWCO's probable liabilities on its debts (including, without limitation, Stated Liabilities and Identified Contingent Liabilities), if any, as such debts become absolute and mature. (vii) NEWCO will be able to pay its debts, liabilities and other obligations (including, without limitation, Stated Liabilities and Identified Contingent Liabilities), if any, as such debts, liabilities and other obligations become absolute and mature. (viii) NEWCO will not have Unreasonably Small Capital with which to conduct its present and anticipated business. (ix) FRP and FTX will not, by virtue of the Transaction, violate Section 17-607 of the Delaware Revised Uniform Limited Partnership Act. (x) The value of the Dividend does not exceed FMRP's Surplus. (xi) The Fair Value of the aggregate assets of FMRP exceeds and will exceed FMRP's liabilities (including, without limitations, Stated Liabilities and Identified Contingent Liabilities). (xii) The Present Fair Saleable Value of the assets of FMRP exceeds and will exceed FMRP's probable liabilities on its debts (including, without limitation, Stated Liabilities and Identified Contingent Liabilities) as such debts become absolute and mature). (xiii) FMRP is and will be able to pay its debts, liabilities and other obligations (including, without limitation, Stated Liabilities and Identified Contingent Liabilities) as such debts, liabilities and other obligations become absolute and mature. (xiv) FMRP will not have Unreasonably Small Capital with which to conduct its present and anticipated business. In addition, for purposes of the opinion set forth in item (x) on page 9, we have assumed that: 1. FMRP's sole asset is 20,740 partnership units or unit equivalents of FRP which constitute the General Partnership Interest (as defined in the Amended and Restated Partnership Agreement of FRP (the "FRP Partnership Agreement")) which are subject to the transfer restrictions set forth in the FRP Partnership Agreement. 2. FMRP has no liabilities other than those liabilities of FRP for which FMRP may be responsible in its capacity as Managing General Partner and Special General Partner of FRP. 3. The assets of FRP will be available to satisfy the liabilities of FRP or will be available to reimburse FMRP through a right of subrogation if FMRP is required to satisfy the liabilities of FRP because of FMRP's status as a Managing General Partner and Special General partner of FRP. Valuation has also been asked to provide an update of this letter as of the date of the Merger. For the purposes of this opinion letter, the following terms are defined: (a) Present Fair Saleable Value The aggregate amount that may be realized by an independent willing seller from an independent willing buyer if the aggregate assets of FRP and NEWCO are sold with reasonable promptness in an arms-length transaction under present conditions for the sale of comparable business enterprises in an existing and not theoretical market. This definition does not contemplate a distress sale. (b) Fair Value The amount at which the aggregate assets of each of FRP and NEWCO would change hands between a willing buyer and a willing seller, within a commercially reasonable period of time, each having reasonable knowledge of the relevant facts, neither being under any compulsion to act, with equity to both. This definition does not contemplate a distress sale. (c) Stated Liabilities The recorded liabilities of FRP, FMRP and NEWCO as of June 30, 1997. Valuation has made inquiries of management of FRP, FMRP and NEWCO (the "Management") and has been advised by them that there are no material adverse changes in the Stated Liabilities between the date of the information shown on such balance sheet and date of opinion. (d) Identified Contingent Liabilities The maximum reasonably estimated liabilities that may result from pending litigation, asserted claims and assessments, guaranties, environmental conditions, uninsured risks, and other contingent liabilities as identified and explained to us in terms of their nature and estimated dollar magnitude by responsible officers of FRP and NEWCO. These contingent liabilities may not meet the criteria for accrual under Statement of Financial Accounting Standards No. 5 and therefore may not be recorded as liabilities under GAAP. (e) Unreasonably Small Capital This phrase relates to the ability of each of FRP, FMRP and NEWCO, after giving effect to consummation of the entire Transactions, to continue as a going concern and not lack sufficient capital for the needs and anticipated needs of the operation, including Identified Contingent Liabilities, without substantial disposition of assets outside the ordinary course of business, restructuring of debt, externally forced revisions of its operations, or similar actions. Our determination of adequate capital is made from an economic rather than financial accounting perspective. (f) Net Assets The amount by which total assets exceed total liabilities, including contingent liabilities identified to us by FMRP's management, as well as their respective accountants, legal advisors and financial advisors, and such other experts as we deemed necessary to consult, and valued by Valuation after consultation with responsible officers and employees of FMRP and/or such industry, economic and other experts as we deemed necessary to consult (the valuation of contingent liabilities to be computed in light of all the facts and circumstances existing at the time of such valuation as the maximum amount that can reasonably be expected to become an actual or matured liability). Capital and Surplus are not liabilities for the purposes of determining Net Assets. (g) Capital The par value of the consideration received for the issuance of FMRP's par stock. (h) Surplus The Fair Value of FMRP's Net Assets in excess of Capital. We believe the foregoing definitions are reasonable and appropriate for purposes of rendering our opinions, and we believe that the methodologies we use in our analysis are appropriate for determining Fair Value and Present Fair Saleable Value as defined herein. Based on our inquiry, we believe it is appropriate for us to value each of FRP and NEWCO as a going concern as part of our analysis relating to our opinions. In expressing its opinions, Valuation has relied, to the extent deemed appropriate in its independent judgements, on information and analyses furnished by and/or discussions held with FRP's management, accountants, advisors and other experts. Information and analysis supplied by FRP's management was reviewed and utilized to form our valuation opinions of FRP, FMRP and NEWCO. Although Valuation does not assume any responsibility for the sufficiency and accuracy of the information provided by FRP or NEWCO, nothing has come to Valuation's attention in the course of this engagement which would lead it to believe that any such information is incorrect in any material respect or that it was unreasonable for Valuation to utilize and rely upon the information. Such data has been accepted as reasonably reflecting the Transaction, FRP and NEWCO's financial condition and their future operations. All items generally considered subject to audit pursuant to generally accepted auditing standards and in conformity with generally accepted accounting principles have been relied upon without review, check, or verification. Nothing has come to our attention; however, in the course of this engagement which would cause us to believe that any information is incorrect in any material respect or that it was unreasonable for Valuation to utilize and rely upon the information. Valuation has performed certain analyses, studies, and investigations more fully described herein in support of its opinions. Further, all opinions expressed herein are subject to the General Limiting Conditions and Assumptions attached hereto as Exhibit A. Valuation has reviewed the historical financial results of the business which includes FRP and NEWCO, as well as extensive background data and material considered appropriate to the opinions expressed. Such area of investigation have included but are not limited to: - Industry overviews, including an analysis of companies engaged in similar lines of business, as well as reviewing recent acquisitions of companies engaged in similar lines of business. - Inquiries of Management as to the impact of future trends on FRP and NEWCO and also the industry, including expected demand for their products; estimated future levels of working capital and capital expenditures; competitive conditions and advantages; and key actions to be taken in the near term, among other factors. - Merger Agreement. - Contribution and Distribution Agreement. - Form 10-Q for six months ended June 30, 1997 Freeport-McMoRan Resource Partners, Limited Partnership. - Form 10-K for fiscal year ended December 31, 1996 for Freeport-McMoRan Resource Partners, Limited Partnership. - Form S-1 for Freeport Sulphur Company dated September 13, 1997. - Audited annual reports for Freeport-McMoRan Resource Partners, Limited Partnership for years ended December 31, 1993 through December 31, 1996. - FTX/FRP five year plan, 1997-2001. - FRP five year plan without Sulphur and Oil. - NEWCO financial projections, 1997-2001. - IMC Global Inc. and Freeport-McMoRan Inc. joint proxy statement dated September 15, 1997. - Inquiries of Management who have responsibility for legal, financial and accounting matters, and of counsel, accountants, advisors and other experts to FRP and NEWCO as to the existence and magnitude of potential Identified Contingent Liabilities. - Unaudited financial statements for FMRP as of September 30, 1997. For the purposes of this opinion, Valuation has assumed that there will be no material change in any documents in Valuation's possession on October 21, 1997. Valuation has, to the extent necessary, discussed FRP and NEWCO and its financial and operating matters with Management and advisors to FRP and NEWCO. Valuation has reviewed the forecasts of earnings, cash flows, and balance sheets of FRP and NEWCO prepared by Management and discussed, to the extent necessary, such forecasts with Management. Nothing has come to our attention that would cause us to believe the basic assumptions used in the forecasts are unreasonable. We believe that the review we have conducted and the analyses and procedures undertaken are those generally considered appropriate for expressing the opinions herein. On the basis of the review, procedures, and analyses performed, we express the following opinions as of the date of this letter, assuming that the entire Transaction has been consummated on the date hereof, that immediately before and after for FRP and FMRP, and immediately after for NEWCO, giving effect to the consummation of the entire Transaction, all predicated on the General Limiting Conditions and Assumptions and FRP and NEWCO continuing to operate the business in a manner consistent with current practices, that: (i) The Fair Value of the aggregate assets of FRP exceeds and will exceed FRP's liabilities (including, without limitation, Stated Liabilities and Identified Contingent Liabilities). (ii) The Present Fair Saleable Value of the assets of FRP exceeds and will exceed FRP's probable liabilities on its debts (including, without limitation, Stated Liabilities and Identified Contingent Liabilities) as such debts become absolute and mature. (iii) FRP is and will be able to pay its debts, liabilities and other obligations (including, without limitation, Stated Liabilities and Identified Contingent Liabilities) as such debts, liabilities and other obligations become absolute and mature. (iv) FRP will not have Unreasonably Small Capital with which to conduct its present and anticipated business. (v) The Fair Value of the aggregate assets of NEWCO will exceed NEWCO's liabilities (including, without limitation, Stated Liabilities, and Identified Contingent Liabilities). (vi) The Present Fair Saleable Value of the assets of NEWCO will exceed NEWCO's probable liabilities on its debts (including, without limitation, Stated Liabilities and Identified Contingent Liabilities), if any, as such debts become absolute and mature. (vii) NEWCO will be able to pay its debts, liabilities and other obligations (including, without limitation, Stated Liabilities and Identified Contingent Liabilities), if any, as they such debts, liabilities and other obligations become absolute and mature. (viii) NEWCO will not have Unreasonably Small Capital with which to conduct its present and anticipated business. (ix) FRP and FTX will not, by virtue of the Transaction, violate Section 17-607 of the Delaware Revised Uniform Limited Partnership Act. (x) The value of the Dividend does not exceed FMRP's Surplus. (xi) The Fair Value of the aggregate assets of FMRP exceeds and will exceed FMRP's liabilities (including, without limitations, Stated Liabilities and Identified Contingent Liabilities). (xii) The Present Fair Saleable Value of the assets of FMRP exceeds and will exceed FMRP's probable liabilities on its debts (including, without limitation, Stated Liabilities and Identified Contingent Liabilities) as such debts become absolute and mature). (xiii) FMRP is and will be able to pay its debts, liabilities and other obligations (including, without limitation, Stated Liabilities and Identified Contingent Liabilities) as such debts, liabilities and other obligations become absolute and mature. (xiv) FMRP will not have Unreasonably Small Capital with which to conduct its present and anticipated business. This letter is solely for the information and assistance to the parties to whom it is addressed for matters in connection with the proposed Transaction, including disclosing the final opinion in any Proxy Statement or Prospectus. Any other use is expressly prohibited and neither this letter nor any of its parts may be circulated, quoted, or otherwise referred to for any other purpose without the written consent of Valuation, the exercise of which will be at the sole discretion of Valuation not unreasonably withheld. If given, such consent shall not be without sufficient review by Valuation as to the precise language of such disclosure and the time and place of its potential release. The above limitations do not apply to related parties who you believe have a legitimate business interest in receiving such copies, including counsel, potential and participating lenders, courts, administrative agencies, the persons and entities to whom disclosure is permitted under the General Limiting Conditions and Assumptions and other appropriate parties. However, in such instances, this opinion must be provided to such parties in its entirety. The term "related parties" shall not exclude participants and assignees, regulators, additional lenders, successors, or appropriate parties involved in litigation or court proceedings involving this Transaction or under other similar circumstances. Valuation has no responsibility to update the opinions stated herein for events and circumstances occurring after the date of this letter other than the update that the addressees have requested as of the date of the Merger. Respectfully submitted, VALUATION RESEARCH CORPORATION Engagement Number: 02-3104-00 EXHIBIT A GENERAL LIMITING CONDITIONS AND ASSUMPTIONS In accordance with recognized professional standards as generally practiced in the valuation industry, the fee for these services is not contingent upon the conclusions of value contained herein. Valuation has determined to the best of its knowledge and in good faith that neither it nor any of its agents or employees have a material financial interest in FRP or NEWCO. Neither Valuation, nor its agents or employees, assume any responsibility for matters legal in nature, nor do they render any opinion as to any title to, or legal status of, property which may be involved, both real and personal, tangible and intangible. Valuation assumes that all laws, statutes, ordinances, or other regulations, or regulations of any governmental authority relevant to and in connection with this engagement are complied with unless express written noncompliance is brought to the attention of Valuation and is stated and defined by those relied on by Valuation. Valuation has relied on certain information furnished by others, including but not limited to FRP and NEWCO, without verification, other than the procedures specified in Valuation's letter attached hereto. Valuation believes such information to be reliable as to accuracy and completeness but offers no warranty or representation to that effect; however, nothing has come to our attention in the course of this engagement that would cause us to believe that any information is inaccurate in any material respect or unreasonable to utilize and rely upon such information. Valuation assumes in the case of leases of real and other property that this transaction will not trigger any renegotiations of such leases to market rates based upon the change in the financial condition of the properties leased by the Borrower arising out of this Transaction that would, in aggregate, be material to the Borrower. Based upon inquiries in connection with this matter, we have no reason to believe that there will be any material adverse effect on FRP or NEWCO arising from the consummation of the Transaction. In some instances, public information and statistical information have been obtained from sources Valuation has accepted as being reliable; however, Valuation makes no representation as to the accuracy or completeness of such information and has accepted the information without further verification. However, nothing has come to our attention in the course of this engagement that would cause us to believe that any such information is inaccurate in any material respect. The opinion of Valuation does not represent an assurance, guarantee, or warranty that FRP or NEWCO will not default on any debt obligations or covenants associated with the Transaction. Valuation has analyzed and reviewed the Transaction and provided an opinion for the purposes set forth in this letter only and for no other purpose. Valuation's opinion is in no way given as an indication of the fairness of the Transaction to any shareholder of FRP or NEWCO or any other participant in the Transaction. The opinions expressed herein are valid only for the express and stated purposes of providing information and assistance to the parties to whom it is addressed and their specific agents engaged in conducting and documenting their independent investigations concerning FRP and NEWCO and are not in any way, implied or expressed, to be construed, used, circulated, quoted, relied upon or otherwise referred to for any other purpose, except as set forth in the Opinion to which these General Limiting Conditions and Assumptions are attached. In addition, Valuation hereby consents to (i) the filing and disclosure of the Opinion with the Securities and Exchange Commission (the "SEC") and any state securities commission or blue sky authority, or other governmental authority or agency if such filing or disclosure is required pursuant to the rules, statutes, and regulations thereof, or required by applicable law, (ii) the disclosure of the Opinion upon demand, order or request of any court, administrative or governmental agency, regulatory body or examiner (whether or not such demand, order or request has the force of law) or as may be required or appropriate in response to any summons, subpoena, or discovery requests, (iii) the use or disclosure of the Opinion in any pending or threatened litigation, judicial, or administrative proceeding (including, without limitation, any proceeding in bankruptcy) or inquiry, or government investigation, (iv) the attachment of the Opinion as an exhibit to the Merger document or as an exhibit to any documents related to the Transaction, (v) the disclosure of the Opinion in connection with (a) the prospective sale, assignment, participation or any other disposition by any Lender or financing source of any right or interest in the debt financing by such Lender or financing source, (b) an audit of any Lender or financing source by an independent public accountant or any administrative agency or regulatory body or examiner or (c) the exercise of any right or remedy by any Lender or financing source in connection with the debt financing, (vi) the disclosure of the Opinion as may be requested, required or ordered in, or to protect a Lender's or financing source's interest in, any litigation, administrative, judicial or governmental proceeding, or investigation to which any Lender or financing source is subject or purported to be subject, or (vii) the disclosure of the Opinion as otherwise required by, or as reasonably determined by any Lender or financing source to be required by, any law, order, statute, regulation or ruling applicable to such Lender or financing source. Any further consultation, testimony, attendance or research in reference to the present engagement beyond the opinions expressed herein as of the date of valuation are subject to agreement by Valuation in specific written arrangements between the parties. In preparing this Solvency Opinion, Valuation conducted certain procedures and analysis which have been described in the body of this opinion. In order to render such an opinion, Valuation developed a range of valuation conclusions with respect to FRP and NEWCO's assets. The range of indicated values was arrived at through the use of generally accepted valuation procedures. These procedures included the Income Approach, and Market Approach as both such approaches are defined in forthcoming paragraphs which we believe to be procedures appropriate to express the opinions herein. The Income Approach utilized cash flow projections discounted to a present value. The discount rate selected was based on risk and return requirements deemed appropriate by Valuation, given the facts and circumstances surrounding the Transaction under consideration. In arriving at an appropriate discount rate, Valuation considered FRP's weighted average cost of capital, the weighted average cost of capital for other companies in the industry, and the rate of return on alternative investments. In addition, the risk inherent in the business was also considered. In addition to discounting the projected cash flows of FRP and NEWCO, Valuation performed sensitivity analysis which included varying the discount rates, sales growth rates, and profit margins of the projections in estimating a range of values. The Market Approach compared the subject company with publicly-traded companies engaged in businesses which Valuation deemed reasonably similar to the subject's. The companies selected were either competitors of FRP and NEWCO or operating in the same industry. Ratios such as invested capital to earnings before interest and taxes; invested capital to earnings before interest, depreciation, and taxes; invested capital to sales; and invested capital to debt free net income were employed. Recent acquisitions of sulphur companies or companies in related industries were also reviewed. Our opinion is necessarily based on economic, market, financial and other conditions as they exist on the date of this letter. While various judgments and estimates which we consider reasonable and appropriate under the circumstances were made by us in the determination of value, no assurance can be given by us that the sale price which might ultimately be realized in any actual transaction, if and when effected, will be at the Present Fair Saleable Value or Fair Value concluded in our analysis. Our conclusions of Present Fair Saleable Value and Fair Value of assets are for the aggregate or total assets of FRP and NEWCO. Nothing has come to our attention which would cause us to believe that the Present Fair Saleable Value of the aggregate assets is materially different from the Fair Value of such aggregate assets. Valuation has discussed Identified Contingent Liabilities with representatives of FRP, FMRP and NEWCO, respectively. FRP, FMRP and NEWCO have advised Valuation that there are no other outstanding claims or proceedings or other contingent liabilities that, in the aggregate would materially affect the financial position of FRP, FMRP, or NEWCO. The respective officers of FRP, FMRP and NEWCO expressed their opinions that adequate provisions for contingent liabilities have been made by insurance or accrual or that the ultimate cost resulting from such liabilities will not materially affect the financial position of FRP, FMRP and NEWCO. Valuation expresses no opinion as to the completeness or adequacy of Identified Contingent Liabilities but nothing has come to Valuation's attention which would lead it to believe that such estimates are unreasonable. Valuation has made inquiries of the management of FRP and NEWCO and been advised that there has been no material adverse change in the financial position of FRP and NEWCO (except for any changes related to the Transaction between June 30, 1997 and October 21, 1997. Material changes in the industry or in market conditions which might affect FRP and NEWCO's business from and after the effective date of the proposed Transactions and which are not reasonably foreseeable are not taken into account. -----END PRIVACY-ENHANCED MESSAGE-----