Filed pursuant to Rule 424(b)(3)
Registration No. 333-72760
PROSPECTUS
FREEPORT-MCMORAN COPPER & GOLD INC.
FCX INVESTMENT LTD.
$603,750,000
8 1/4% CONVERTIBLE SENIOR NOTES DUE 2006
FREEPORT-MCMORAN COPPER & GOLD INC.
42,220,280 SHARES OF CLASS A COMMON STOCK
42,220,280 SHARES OF CLASS B COMMON STOCK
Freeport-McMoRan Copper & Gold Inc. and its wholly owned subsidiary,
FCX Investment Ltd., issued the notes at an issue price of $1,000 per note in a
private placement in August 2001. This prospectus may be used by selling
securityholders to resell notes or shares of our common stock into which the
notes are convertible.
Freeport-McMoRan Copper & Gold Inc. and FCX Investment Ltd. are jointly
and severally liable for the obligations under the notes. Except with respect to
descriptions of the notes, the terms "we," "us," "our" and "the company" refer
only to Freeport-McMoRan Copper & Gold Inc.
The notes are convertible at the option of the holder at any time on
or prior to maturity into, at the option of the holder, shares of class A or
class B common stock of the company. The notes are convertible at a conversion
price of $14.30 per share, which is equal to a conversion rate of 69.9301 shares
of class A or class B common stock per $1,000 principal amount of notes, subject
to adjustment. On March 12, 2002, the closing prices of our class A and class B
common stock as reported on the New York Stock Exchange were $15.65 and $15.78
per share, respectively.
We will pay interest on the notes on January 31 and July 31 of each
year. We made our first interest payment on the notes on January 31, 2002. The
notes will mature on January 31, 2006. We may redeem some or all of the notes at
any time after July 31, 2004 at the redemption prices described in this
prospectus.
The notes are our unsecured (except as described below) and
unsubordinated obligations and rank on a parity in right of payment with all our
existing and future unsecured and unsubordinated indebtedness. In addition, the
notes will effectively rank junior to our secured indebtedness and our
subsidiaries' liabilities. For further information, we refer you to the section
of the prospectus entitled "Description of the Notes - Ranking."
FCX Investment has pledged a portfolio of U.S. government securities as
security for the first six scheduled interest payments on the notes.
Our class A and class B common stock are traded on the New York Stock
Exchange under the symbols "FCXA" and "FCX," respectively.
INVESTING IN THE NOTES INVOLVES SIGNIFICANT RISKS THAT ARE DESCRIBED
IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed on the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is March 12, 2002.
TABLE OF CONTENTS
PAGE
----
Forward-Looking Statements..................................................................................... 2
Summary........................................................................................................ 3
Selected Historical Consolidated Financial and Operating Data.................................................. 8
Risk Factors ................................................................................................... 10
Refinancing Transactions........................................................................................ 18
Use of Proceeds................................................................................................. 22
Dividend Policy................................................................................................. 22
Ratio of Earnings to Fixed Charges.............................................................................. 22
Description of the Notes........................................................................................ 23
United States Federal Income Tax Considerations for Investors................................................... 36
Description of Common Stock..................................................................................... 39
Selling Securityholders......................................................................................... 43
Plan of Distribution............................................................................................ 47
Legal Matters................................................................................................... 49
Experts......................................................................................................... 49
Where You Can Find Additional Information....................................................................... 50
-----------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the initial purchaser has not,
authorized any person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. You should assume that the information appearing in this prospectus is
accurate only as of the date on the front cover of this prospectus. Our
business, financial condition, result of operations and prospects may have
changed since that date. In addition, we are not, and the initial purchaser is
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted.
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, both as amended. All statements other than
statements of historical fact are "forward-looking statements" for purposes of
federal and state securities laws, including statements about anticipated sales
volumes, production volumes, ore grades, capital expenditures and debt costs;
statements of the plans, strategies and objectives of management for future
operations; statements regarding future economic conditions or performance;
statements regarding exploration activities; statements about political
uncertainties, dealings with regulatory authorities or dealings with indigenous
people; statements of belief; and statements of assumptions underlying any of
the foregoing. Forward-looking statements may include the words "may," "will,"
"estimate," "intend," "continue," "believe," "expect," "plan" or "anticipate"
and other similar words. Such forward-looking statements may be contained in the
sections "Summary" and "Risk Factors," among other places.
Although we believe that the expectations expressed in our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in our forward-looking statements.
Our future financial condition and results of operations, as well as any
forward-looking statements, are subject to change and are subject to inherent
risks and uncertainties, such as those disclosed in this prospectus. All
forward-looking statements contained or incorporated by reference in this
prospectus are made as of the date of this prospectus. Except for our ongoing
obligations under the federal securities laws, we do not intend, and we
undertake no obligation, to update any forward-looking statement. Currently
known risk factors include, but are not limited to, the factors described in
this prospectus in the section "Risk Factors." We urge you to review carefully
the section
2
"Risk Factors" in this prospectus for a more complete discussion of the risks of
an investment in the notes or the common stock into which the notes are
convertible.
SUMMARY
The following summary is qualified by the more detailed information
appearing elsewhere in this prospectus or incorporated by reference and may not
contain all of the information that is important to you.
COMPANY OVERVIEW
We are one of the world's largest copper and gold mining companies in
terms of reserves and production. We believe we are one of the lowest cost
copper producers in the world, after taking into account customary credits for
related gold and silver production.
Our principal operating subsidiary is PT Freeport Indonesia, a
limited liability company organized under the laws of the Republic of Indonesia
and domesticated in Delaware. PT Freeport Indonesia explores for, develops,
mines and processes ore containing copper, gold and silver. Its operations are
located in the remote rugged highlands of the Sudirman Mountain Range in the
province of Papua (formerly Irian Jaya), Indonesia, which is located on the
western half of the island of New Guinea. PT Freeport Indonesia markets its
concentrates containing copper, gold and silver worldwide. During 2001, PT
Freeport Indonesia's share of production and sales totaled 1.4 billion pounds of
copper and 2.6 million ounces of gold. For 2002, PT Freeport Indonesia's share
of production and sales is expected to approximate 1.5 billion pounds of copper
and 2.1 million ounces of gold. After our repayment in February 2002 of certain
debt we guaranteed of PT Nusamba Mineral Industri, an Indonesian company
(Nusamba), we have an approximate 90.6 percent ownership interest in PT Freeport
Indonesia and the Government of Indonesia has the remaining 9.36 percent
ownership interest. For a more detailed discussion of the Nusamba debt and our
guarantee and repayment of the debt, see "Refinancing Transactions - Nusamba
Loan Guarantee" in this prospectus.
PT Freeport Indonesia's operations are conducted pursuant to an
agreement, called a Contract of Work, with the Government of Indonesia. The
Contract of Work allows us to conduct extensive exploration, mining and
production activities in a 24,700-acre area that we call Block A. In 1988, we
discovered our largest mine, Grasberg, in Block A. Grasberg contains the largest
single gold reserve and one of the largest copper reserves of any mine in the
world. The Contract of Work also allows us to explore for minerals in a 0.5
million-acre area that we call Block B. At December 31, 2001, PT Freeport
Indonesia's share of proven and probable reserves totaled 39.4 billion pounds of
copper and 50.2 million ounces of gold, all of which are located in Block A. Our
share of these proven and probable reserves totaled 35.7 billion pounds of
copper and 45.5 million ounces of gold.
PT Freeport Indonesia's Contract of Work governs our rights and
obligations relating to taxes, exchange controls, royalties, repatriation and
other matters. The Contract of Work provides a 35 percent corporate income tax
rate for PT Freeport Indonesia and a withholding tax rate of 10 percent (based
on the tax treaty between Indonesia and the United States) on dividends and
interest paid to us by PT Freeport Indonesia. The Contract of Work also provides
for royalties on the metals that PT Freeport Indonesia sells.
Another of our operating subsidiaries, PT Irja Eastern Minerals,
which we refer to as Eastern Minerals, holds an additional Contract of Work in
Papua covering approximately 1.25 million acres and is conducting exploration
activities under this Contract of Work. After our repayment of the Nusamba debt,
we have a 100 percent ownership interest in Eastern Minerals.
In 1996, we established joint ventures with Rio Tinto plc, an
international mining company with headquarters in London, England. One joint
venture covers PT Freeport Indonesia's mining operations in Block A. This joint
venture gives Rio Tinto, through 2021, a 40 percent interest in certain assets
and in production above specified levels from operations in Block A and, after
2021, a 40 percent interest in all production in Block A. Under our joint
venture arrangements, Rio Tinto also has a 40 percent interest in
3
PT Freeport Indonesia's Contract of Work and Eastern Minerals' Contract of Work.
In addition, Rio Tinto has the option to participate in 40 percent of any of our
other future exploration projects in Papua.
Under another joint venture agreement, we conduct exploration
activities in an area covering approximately 0.5 million acres contiguous to PT
Freeport Indonesia's Block B and one of Eastern Minerals' blocks. Rio Tinto has
elected to participate in 40 percent of our interest and cost in the venture.
We also smelt and refine copper concentrates in Spain, and market the
refined copper products, through our wholly owned subsidiary, Atlantic Copper,
S.A. Atlantic Copper produced 617.3 million pounds of new copper anodes during
2001. In addition, PT Freeport Indonesia has a 25 percent interest in PT
Smelting, an Indonesian company that operates a copper smelter and refinery in
Gresik, Indonesia. PT Smelting produced 479.4 million pounds of new copper
anodes during 2001.
For further information regarding the Contracts of Work, our joint
venture agreements, our smelting and refining operations, and other aspects of
our operations, we refer you to the section of our Annual Report on Form 10-K
for the fiscal year ended December 31, 2001 entitled "Business and Properties,"
which is incorporated by reference into this prospectus.
Our principal executive offices are located at 1615 Poydras Street,
New Orleans, Louisiana 70112 and our telephone number is (504) 582-4000.
FCX INVESTMENT LTD.
FCX Investment Ltd. is a wholly owned finance subsidiary of the
company incorporated as a Cayman Islands exempted limited liability company in
June 2001. We established FCX Investment for the purpose of co-issuing the notes
and purchasing and pledging U.S. government securities as security for the
benefit of the holders of the notes. See "Description of the Notes." FCX
Investment does not lease or own any material facilities or other property or
engage in any other material operations. FCX Investment is restricted from
issuing any capital stock to any person other than the company and its
subsidiaries. FCX Investment's registered office is located at Harbour Centre,
4th Floor, George Town, Grand Cayman, Cayman Islands, British West Indies.
4
REFINANCING TRANSACTIONS
In October 2001, we amended our existing bank credit facilities to
extend the maturities and to provide a mechanism for financing any obligations
resulting from our 1997 guarantee of a $253.4 million loan to Nusamba from a
syndicate of commercial banks, including JPMorgan Chase Bank as agent. The
$253.4 million loan enabled Nusamba to purchase an ownership interest in PT
Freeport Indonesia from another Indonesian entity. We guaranteed the loan in
order to facilitate the continuation of Indonesian ownership of PT Freeport
Indonesia. After Nusamba informed us that it did not expect to be able to repay
the bank loan, we repaid the loan in February 2002. For a more detailed
discussion of the Nusamba loan and our guarantee and repayment of the loan, see
"Refinancing Transactions - Nusamba Loan Guarantee" in this prospectus.
We believe that our amended credit facilities, together with our cash
flows from operations, will enable us to fund our planned capital expenditures
and meet our debt maturities over the next several years. The following
summarizes the terms of our amended credit facilities. For a more complete
description of our amended credit facilities, see "Refinancing Transactions" in
this prospectus.
- aggregate commitments of $734.0 million, including $253.4
million used to repay the Nusamba loan, leaving $480.6 million
currently available, all of which is available to PT Freeport
Indonesia and $265.0 million of which is available to the
company;
- required repayments from available cash and certain financing
proceeds and, subject to certain availability requirements,
reductions in commitments by those amounts;
- conversion to a term loan on December 31, 2003, except for a
$150.0 million revolver available for working capital
purposes; maturity on December 31, 2005;
- interest at LIBOR plus 4% with annual increases of 0.125%,
subject to potential reductions if our credit ratings improve;
- ability to fund our 7.20% senior notes due 2026, which we
expect to be required to repay in November 2003;
- limitations on the amount of preferred stock we may redeem
and, if by August 2003 we have not extended the maturity of a
specified amount of our redeemable preferred stock beyond
2005, then we will not thereafter be permitted to redeem or
pay dividends on any of our preferred stock;
- financial covenants providing for maximum debt to EBITDA
(earnings before interest expense, income taxes, depreciation
and amortization) levels and required debt service coverage
ratios; and
- prohibitions on our ability to repurchase and pay dividends on
our common stock; limitations on investments, liens and
capital expenditures to specified budgets; and a requirement
to implement minimum hedging protection at certain copper
prices.
5
THE OFFERING
The following is a brief summary description of the material terms of
this offering. For a more complete description of the terms of the notes, see
"Description of the Notes" and for a description of our common stock, see
"Description of Common Stock."
Notes and common stock offered.............. Selling securityholders resale of $603,750,000 aggregate principal
amount of 8 1/4% Convertible Senior Notes due January 31, 2006 or
shares of class A or class B common stock issuable upon conversion of
the notes.
Maturity.................................... January 31, 2006
Interest.................................... 8 1/4% per annum on the principal amount, payable semiannually on
January 31 and July 31. We made our first interest payment on the
notes on January 31, 2002.
Conversion rights .......................... The notes are convertible, at the option of the holder, at any time on or
prior to maturity into, at the option of the holder, shares of class A or
class B common stock of the company at a conversion price of $14.30
per share, which is equal to a conversion rate of approximately
69.9301 shares of class A or class B common stock per $1,000
principal amount of notes. The conversion rate is subject to
adjustment. If our class A and class B stockholders approve the
proposal to reclassify our shares of class A common stock into shares
of our class B common stock, the notes will only be convertible into
shares of our class B common stock at the same conversion price. See
"Description of the Notes - Conversion Rights" and "Description of
Common Stock - Voting Rights."
Security.................................... In connection with the issuance of the notes in August 2001, FCX
Investment purchased and pledged to the trustee under the indenture,
as security for the exclusive benefit of the holders of the notes, $139.8
million of U.S. government securities, which will be sufficient upon
receipt of scheduled principal and interest payments thereon, to
provide for the payment in full of the first six scheduled interest
payments due on the notes. See "Description of the Notes - Security."
Ranking..................................... The notes are unsecured (except as described above under "Security")
and unsubordinated obligations and rank on a parity in right of
payment with all our existing and future unsecured and unsubordinated
indebtedness. The indenture under which the notes have been issued
does not prevent us or our subsidiaries from incurring additional
indebtedness, which may be secured by some or all of our assets, or
other obligations. As of December 31, 2001, our secured indebtedness
was $511.3 million and our unsecured and unsubordinated
indebtedness was $932.9 million. In addition, we are structured as a
holding company and conduct substantially all of our business
operations through our subsidiaries. The notes are effectively
subordinated to all existing and future indebtedness and other
liabilities and commitments of our subsidiaries. As of December 31,
2001, our subsidiaries had aggregate indebtedness of $1.4 billion.
6
Optional redemption......................... We may redeem all or a portion of the notes for cash at any time after
July 31, 2004 at the redemption prices listed in this prospectus, plus
accrued and unpaid interest (including liquidated damages, if any) to,
but excluding, the redemption date. See "Description of the Notes -
Redemption of Notes at Our Option."
Change of control........................... Upon a change of control event, each holder of the notes may require
us to repurchase some or all of its notes at a repurchase price equal to
100% of the principal amount of the notes plus accrued and unpaid
interest. The repurchase price is payable:
- in cash; or
- at our option, subject to the satisfaction of certain conditions, in
our class A or class B (at the option of the holder) common stock.
The number of shares of common stock will equal the repurchase price
divided by 95% of the average of the closing sale prices of the
applicable common stock for the five consecutive trading days ending on
and including the third day prior to there purchase date.
See "Description of the Notes -Change of Control Permits Purchase of Notes at
the Option of the Holder."
Use of proceeds............................. The selling securityholders will receive all of the proceeds from the
sale of the notes and common stock under this prospectus. We will not
receive any of the proceeds from the sales by any selling
securityholders of notes or the underlying common stock.
Trading .................................... The notes sold pursuant to this prospectus will no longer be eligible for
trading on the PORTAL Market. Our class A and class B common
stock are traded on the New York Stock Exchange under the symbols
"FCXA" and "FCX," respectively.
Risk Factors................................ See "Risk Factors" and the other information in this prospectus for a
discussion of factors you should carefully consider before deciding to
invest in the notes.
7
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth our selected historical consolidated
financial data as of and for each of the five fiscal years ended December 31,
2001, which have been derived from our audited consolidated financial
statements. EBITDA and the operating data presented in the following table are
unaudited. This data should be read in conjunction with our full financial
statements and notes thereto, and management's discussion and analysis of
financial condition and results of operations incorporated by reference into
this prospectus.
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(FINANCIAL DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FINANCIAL DATA
Revenues $ 1,838,866 $ 1,868,610 $ 1,887,328 $ 1,757,132 $ 2,000,904
Operating income (a) 542,926(b) 492,293(c) 578,316(d) 579,585(e) 659,262(f)
Net income applicable to
common stock 76,496(b) 39,500(c) 100,787(d) 118,317(e) 208,541(f)
Basic net income per
common share .53(b) .26(c) .62(d) .67(e) 1.06(f)
Diluted net income per
common share .53(b) .26(c) .61(d) .67(e) 1.06(f)
Dividends paid per common
share -- -- -- .20 .90
Basic average shares
outstanding 143,952 153,997 163,613 175,353 196,392
Diluted average shares
outstanding 144,938 154,519 164,567 175,354 197,653
At End of Period:
Property, plant and equipment, net 3,457,277 3,248,710 3,381,465 3,504,221 3,558,736
Total assets 4,211,929 3,950,741 4,082,916 4,192,634 4,152,209
Total debt 2,338,600 2,190,025 2,148,259 2,456,793 2,388,982
Redeemable preferred stock 462,504 475,005 487,507 500,007 500,007
Stockholders' equity 104,444 37,931 196,880 103,416 278,892
Other Financial Data:
Interest expense, net 173,595 205,346 194,069 205,588 151,720
EBITDA(g) 736,959 687,975 783,722 771,878 805,431
Cash flow from operating
activities (h) 508,983 516,020 568,784 478,827 513,552
Capital expenditures 166,972 176,676 160,822 292,083 584,912
Cash flow provided by (used
in) financing activities (208,560) (333,536) (407,937) (194,803) 50,906
PT FREEPORT INDONESIA
OPERATING DATA, NET OF RIO
TINTO'S INTEREST
Copper
Production (000s of recoverable
pounds) 1,393,400 1,388,100 1,428,100 1,427,300 1,166,500
Sales (000s of recoverable
pounds) 1,399,100 1,393,700 1,441,000 1,419,500 1,188,600
Average realized price
(per pound) $ .69 $ .82 $ .75 $ .73 $ .94(i)
Net cash production cost
(cents per pound) 6.8 23.0 9.2 11.0 22.0
Gold
Production (recoverable
ounces) 2,634,900 1,899,500 2,379,100 2,227,700 1,798,300
Sales (recoverable
ounces) 2,644,800 1,921,400 2,423,900 2,190,300 1,888,100
Average realized price
(per ounce) $ 269.24 $ 276.06 $ 276.53 $ 290.57 $ 346.14(j)
8
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
PT FREEPORT INDONESIA, 100% OPERATING
DATA
Ore milled (metric tons per day) 237,800 223,500 220,700 196,400 128,600
Average ore grade
Copper (percent) 1.00 1.07 1.12 1.30 1.37
Gold (grams per metric ton) 1.41 1.10 1.37 1.49 1.51
Gold (ounce per metric ton) .045 .035 .044 .048 .049
Recovery rates (percent)
Copper 86.9 88.2 84.6 86.9 85.4
Gold 89.5 84.3 83.7 85.3 81.4
Copper (000s of
recoverable pounds)
Production 1,594,200 1,636,700 1,630,700 1,721,300 1,166,500
Sales 1,600,900 1,643,500 1,647,800 1,706,700 1,188,600
Gold (recoverable ounces)
Production 3,488,100 2,362,600 2,993,100 2,839,700 1,798,300
Sales 3,498,300 2,387,300 3,047,100 2,774,700 1,888,100
-------------
(a) Operating income for the year ended December 31, 2001 does not include
our 25 percent equity interest in the earnings of PT Smelting, which
was accounted for as non-operating income. Accordingly, operating
income data for fiscal years 2000, 1999, 1998 and 1997 has been revised
to exclude our equity interest in PT Smelting earnings.
(b) Includes net charges totaling $7.2 million ($6.1 million to net income
or $0.04 per share) consisting of a net $5.0 million charge primarily
for past service costs for an Atlantic Copper employee benefit plan and
a $2.2 million charge for initial funding of a trust established for
voluntary special recognition of tribal communities' traditional land
rights in the PT Freeport Indonesia operations area.
(c) Includes net charges totaling $12.4 million ($8.0 million to net income
or $0.05 per share) consisting of $6.0 million for contribution
commitments to support small business development programs within Papua
and $7.9 million for personnel severance costs, partly offset by a $1.5
million gain for the reversal of stock appreciation rights and related
costs caused by the decline in our common stock price.
(d) Includes charges totaling $8.8 million ($5.7 million to net income or
$0.03 per share) consisting of $3.6 million for an early retirement
program, $1.4 million for costs of stock appreciation rights caused by
the increase in our common stock price and $3.8 million primarily for
bank advisory fees.
(e) Includes net charges totaling $9.1 million ($4.4 million to net income
or $0.03 per share) associated with the sale of corporate aircraft.
(f) Includes a $25.3 million gain ($12.3 million to net income or $0.06 per
share) for the reversal of stock appreciation rights and related costs
caused by the decline in our common stock price.
(g) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. EBITDA does not represent and should not
be considered as an alternative to net income or cash flow from
operations as determined by generally accepted accounting principles,
and EBITDA does not necessarily indicate whether cash flow will be
sufficient for cash requirements. EBITDA may not necessarily be
comparable to similarly titled measures reported by other companies as
it is not calculated identically by all companies.
(h) Cash flow from operating activities represents net income before
non-cash charges including depreciation and amortization, deferred
income taxes, minority interests' share of net income, equity losses in
PT Smelting and other non-cash costs. Changes in working capital also
impact cash flow from operating activities.
(i) Amount was $0.90 before hedging adjustments.
(j) Amount was $326.08 before hedging adjustments.
9
RISK FACTORS
An investment in any security involves risks. Accordingly, before
purchasing any securities offered by this prospectus, you should carefully
consider the following factors, as well as the other information about us and
our business that is contained or incorporated by reference in this prospectus
and in any accompanying prospectus supplement. This prospectus includes, and any
accompanying prospectus supplement may include, "forward-looking statements"
within the meaning of the federal securities laws. Forward-looking statements
are all statements other than statements of historical facts, such as statements
regarding anticipated production volumes, sales volumes, ore grades, commodity
prices, reserve estimates, capital expenditures, environmental reclamation and
closure costs, political, economic and social conditions in our areas of
operations, and exploration efforts and results. We caution you that these
statements are not guarantees of future performance, and our actual results may
differ materially from those projected, anticipated or assumed in the
forward-looking statements. Important factors that can cause our actual results
to differ materially from those anticipated in the forward-looking statements
include the following:
RISKS RELATED TO OUR BUSINESS
THE TERRORIST ATTACKS IN THE UNITED STATES ON SEPTEMBER 11, 2001, AS WELL AS THE
UNITED STATES-LED RESPONSE AND THE POTENTIAL FOR ADDITIONAL FUTURE TERRORIST
ACTS, HAVE CREATED ECONOMIC AND POLITICAL UNCERTAINTIES THAT COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND THE PRICES OF OUR NOTES, COMMON
STOCK AND OTHER SECURITIES.
The terrorist attacks that took place in the United States on September
11, 2001, as well as the United States-led response to such attacks and the
potential for additional future terrorist acts, have caused uncertainty in the
world's financial and insurance markets and may significantly increase
political, economic and social instability in the geographic areas in which we
operate, including the Republic of Indonesia where our primary operating assets
are located. Moreover, there have been anti-American demonstrations in certain
sections of Indonesia reportedly led by radical Islamic activists. Radical
activists have also threatened to attack foreign assets and have called for the
expulsion of United States and British citizens and companies from Indonesia.
It is possible that further acts of terrorism may be directed against
the United States domestically or abroad, and such acts of terrorism could be
directed against properties and personnel of companies such as ours. The attacks
and the resulting economic and political uncertainties, including the potential
for further terrorist acts, may cause the premiums charged for our insurance
coverages to increase dramatically and may cause some coverages to be
unavailable altogether. These developments may materially and adversely affect
our business and profitability and the prices of our securities in ways we
cannot predict at this time.
BECAUSE OUR PRIMARY OPERATING ASSETS ARE LOCATED IN THE REPUBLIC OF INDONESIA,
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY INDONESIAN POLITICAL, ECONOMIC AND
SOCIAL UNCERTAINTIES BEYOND OUR CONTROL, IN ADDITION TO THE USUAL RISKS
ASSOCIATED WITH CONDUCTING BUSINESS IN A FOREIGN COUNTRY.
Maintaining a good working relationship with the Indonesian government
is important to us because all of our mining operations are located in Indonesia
and are conducted pursuant to Contracts of Work with the Indonesian government.
For a discussion of the risks relating to our Contracts of Work, see the risk
factor below.
Indonesia continues to face political and economic uncertainties,
including separatist movements and civil and religious strife in a number of
provinces. In particular, social, economic and political instability in the
province of Papua, where our mining operations are located, could have a
material adverse impact on us if this instability results in damage to our
property or interruption of our activities.
With the approval of the Indonesian government, we have temporarily
suspended our field exploration activities outside of Block A due to safety and
security issues and uncertainty relating to a possible conflict between our
mining and exploration rights in certain forest areas covered by the Contracts
of Work and an Indonesian law enacted in 1999 prohibiting open-pit mining in
forest preservation areas.
10
In August 1998, we suspended operations for three days at our Grasberg
mine in response to a wildcat work stoppage (not authorized by the workers'
union) by a group of workers, a majority of whom were employees of our
contractors. The workers cited employment issues as the reasons for their work
stoppage. In March 1996, local people engaged in acts of vandalism that caused
approximately $3.0 million of damages to our property and caused us to close the
Grasberg mine and mill for three days as a precautionary measure.
Several separatist groups are opposing Indonesian rule over Papua and
have sought political independence for the province. In response to the demands
for political independence from Indonesia, new regional autonomy laws became
effective January 1, 2001. However, the manner in which these new autonomy laws
will be implemented and the degree of political and economic autonomy that is
being provided to individual provinces, including Papua, is uncertain and is a
current issue in Indonesian politics.
In Papua, there have been sporadic attacks on civilians by separatists
and sporadic but highly publicized conflicts between separatists and the
Indonesian military. For example, on September 29, 2001, a group of separatists
set fire to facilities and took over an airfield in Ilaga, Papua, which is
approximately 50 miles northeast of our mining operations and separated by a
rugged, 14,000-foot mountain range through which there are no roads. The
separatists occupied the airfield for three days, after which Indonesian
security forces successfully reclaimed the airfield.
We are also subject to the usual risks associated with conducting
business in a foreign country, including the risk of forced modification of
existing contracts, changes in the country's laws or policies, including laws or
policies relating to taxation, royalties, imports, exports and currency, and the
risk of having to submit to the jurisdiction of a foreign court or having to
enforce the judgment of a foreign court or arbitration panel against a sovereign
nation within its own territory. In addition, we are subject to the risk of
expropriation and our insurance policies do not provide coverage for losses
caused by expropriation.
OUR CONTRACTS OF WORK ARE SUBJECT TO TERMINATION IF WE DO NOT COMPLY WITH OUR
CONTRACTUAL OBLIGATIONS AND, IF A DISPUTE ARISES, WE MAY HAVE TO SUBMIT TO THE
JURISDICTION OF A FOREIGN COURT OR PANEL. IN ADDITION, UNLESS THE INDONESIAN
GOVERNMENT PERMITS US TO SUSPEND ACTIVITIES UNDER OUR CONTRACTS OF WORK, WE ARE
REQUIRED TO CONTINUE THOSE ACTIVITIES OR POTENTIALLY BE DECLARED IN DEFAULT.
PT Freeport Indonesia's and Eastern Minerals' Contracts of Work were
entered into under Indonesia's 1967 Foreign Capital Investment Law, which
provides guarantees of remittance rights and protection against nationalization.
Our Contracts of Work can be terminated by the Government of Indonesia if we do
not satisfy our contractual obligations, which include the payment of royalties
and taxes to the government and the satisfaction of certain mining,
environmental, safety and health requirements. Indonesian government officials
have periodically raised questions regarding our compliance with Indonesian
environmental laws and regulations and the terms of the Contracts of Work. In
order to address these questions, the Government of Indonesia formed a
fact-finding team in 2000 that reviewed our compliance with all aspects of PT
Freeport Indonesia's Contract of Work. It is uncertain if or when the Indonesian
government will release its report on its investigation. In addition, we cannot
assure you that the Indonesian government's report, if and when released, will
conclude that we are in compliance with all of the provisions of PT Freeport
Indonesia's Contract of Work.
Moreover, in recent years, certain government officials and others in
Indonesia have called into question the validity of contracts entered into by
the Government of Indonesia prior to October 1999, including PT Freeport
Indonesia's Contract of Work, which was signed in December 1991. We cannot
assure you that the validity of, or our compliance with the terms of, the
Contracts of Work will not be challenged for political or other reasons. PT
Freeport Indonesia's and Eastern Minerals' Contracts of Work require that
disputes with the Indonesian government be submitted to international
arbitration. Notwithstanding the international arbitration provision, if a
dispute arises under the Contracts of Work, we face the risk of having to submit
to the jurisdiction of a foreign court or having to enforce the judgment of a
foreign court or arbitration panel against Indonesia within its own territory.
In addition, our Contracts of Work permit us to suspend activities
under the contracts for a period of one year by making a written request to the
Indonesian government. These suspension requests are subject to the approval of
the Indonesian government and are renewable annually. If we do not request a
suspension or are denied
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a suspension, then we are required to continue our activities under the Contract
of Work or potentially be declared in default. Moreover, if a suspension
continues for more than one year for reasons other than force majeure and the
Indonesian government has not approved such continuation, then the Indonesian
government would be entitled to declare a default under the Contract of Work.
SERVICING OUR DEBT WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, AND OUR ABILITY TO
GENERATE SUFFICIENT CASH DEPENDS ON MANY FACTORS, SOME OF WHICH ARE BEYOND OUR
CONTROL.
Our ability to make payments on and to refinance our debt depends on
our ability to generate sufficient cash flow. This, to a significant extent, is
subject to commodity prices and general economic, financial, regulatory,
political and other factors that are beyond our control. In addition, our
ability to borrow funds in the future to service our debt will depend on our
meeting the financial covenants in our amended bank credit facilities and other
debt agreements we may have in the future. Future borrowings may not be
available to us under our amended bank credit facilities or otherwise in amounts
sufficient to enable us to pay our debt or to fund other liquidity needs. As a
result, we may need to refinance all or a portion of our debt on or before
maturity. Any inability to generate sufficient cash flow or refinance our debt
on favorable terms could have a material adverse effect on our financial
condition.
Political and economic conditions in Indonesia have had a negative
effect on our credit ratings. The major credit rating agencies have generally
had a policy of limiting the credit ratings of companies with operations limited
to a particular country to the credit rating for the sovereign debt of that
country. The current sovereign credit ratings of Indonesia are B3 by Moody's
Investors Service and CCC by Standard & Poor's and our credit ratings on our
senior unsecured debt are currently B3 by Moody's Investors Service and CCC by
Standard & Poor's.
Our current credit ratings have an impact on the availability and cost
of capital to us. As a result, in connection with our amended bank credit
facilities, we have agreed to apply our future cash flows, after servicing
scheduled payments of other debt, funding permitted capital expenditures and
paying operating and other costs, to reducing amounts owed to the banks.
Although our amended credit facilities do not restrict our ability to
use funds for exploration and will not preclude us from funding our anticipated
exploration budget, the amended facilities do impose annual limitations on PT
Freeport Indonesia's capital expenditures that limit the amount of funds we can
use to develop new projects. These annual limitations are approximately $171
million for 2002, $188 million for 2003, $128 million for 2004 and $136 million
for 2005. If our capital expenditures in any year are less than 80% of the
annual limitation for the year, then the unused amount for the year below 80%
may be carried forward to the next two succeeding years, provided that the
unused amount may only be used for deferred mining projects. See "Refinancing
Transactions - Amended Credit Facilities - Maturities and Term Loan Conversion."
While PT Freeport Indonesia's currently anticipated capital
requirements do not exceed those limitations, funding significant new projects
would require us to seek alternate sources of capital. The availability and cost
of capital for projects in Indonesia is uncertain because of global financial
markets' assessment of Indonesia's political and economic conditions.
COVENANTS IN OUR AMENDED CREDIT FACILITIES IMPOSE RESTRICTIONS ON US.
Our amended bank credit facilities:
- prohibit the repurchase of, and payment of dividends on, our
common stock;
- limit, among other things, our ability to:
- redeem and pay dividends on our preferred stock in
certain circumstances;
- make investments;
- engage in transactions with affiliates; and
- create liens on our assets;
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and
- require us to maintain specified financial ratios and satisfy
financial condition tests.
Events beyond our control, including changes in general economic and
business conditions, may affect our ability to satisfy these covenants, which
could result in a default under our amended bank credit facilities. If an event
of default under our amended credit facilities occurs, the banks could elect to
declare all amounts outstanding thereunder, together with accrued interest, to
be immediately due and payable. An event of default under our amended bank
credit facilities may also give rise to an event of default under our existing
and future debt agreements.
WE HAVE PLEDGED SUBSTANTIALLY ALL OF OUR ASSETS TO SECURE THE REPAYMENT OF OUR
AMENDED CREDIT FACILITIES AND OTHER OBLIGATIONS.
The repayment of our amended credit facilities is secured by a lien on
over 80% of PT Freeport Indonesia's assets and by our pledge of 50.1% and 100%
of the outstanding capital stock of PT Freeport Indonesia and PT Indocopper
Investama, respectively. PT Freeport Indonesia's remaining assets secure other
of our obligations. In addition, PT Freeport Indonesia has pledged it rights
under its Contract of Work to secure its obligations under the amended credit
facilities.
If we are unable to generate sufficient cash flow to satisfy our
repayment obligations, our lenders could elect to foreclose on our pledged
assets, which would have a material adverse effect on our business and
profitability.
OUR MINING OPERATIONS CREATE DIFFICULT AND COSTLY ENVIRONMENTAL CHALLENGES, AND
FUTURE CHANGES IN ENVIRONMENTAL LAWS, OR UNANTICIPATED ENVIRONMENTAL IMPACTS
FROM OUR OPERATIONS, COULD REQUIRE US TO INCUR INCREASED COSTS.
Mining operations on the scale of our operations in Papua involve
significant environmental challenges. Our primary challenge is to dispose of the
large amount of crushed and ground rock material, called tailings, that results
from the process by which we physically separate the copper, gold and silver
from the ore that we mine. Under our tailings management plan, the river system
near our mine transports the tailings to the lowlands where deposits of the
tailings and natural sediments are controlled through a levee system for future
revegetation and reclamation. We incurred costs of $9.7 million in 2001, $8.2
million in 2000 and $11.7 million in 1999 for our tailings management plan.
Another of our major environmental challenges is managing overburden,
which is the rock that must be moved aside in order to reach the ore in the
mining process. In the presence of air, water and naturally occurring bacteria,
some overburden can cause acid rock drainage, or acidic water containing
dissolved metals which, if not properly managed, can have a negative impact on
the environment.
Certain Indonesian governmental officials have from time to time raised
issues with respect to our tailings management plan and overburden management
plan, including a suggestion that a pipeline system rather than our current
system be implemented for tailings disposal. Our ongoing assessment of tailings
management has identified significant unresolved technical, environmental and
economic issues associated with a pipeline system. Because our mining operations
are remotely located in steep mountainous terrain and in an active seismic area,
a pipeline system would be costly, difficult to construct and maintain, and more
prone to catastrophic failure. For these reasons, we do not believe that a
pipeline system is practical.
We anticipate that we will continue to spend significant financial and
managerial resources on environmental compliance. In addition, changes in
Indonesian environmental laws or unanticipated environmental impacts from our
operations could require us to incur significant additional costs.
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THE VOLUME AND GRADE OF THE RESERVES WE RECOVER AND OUR RATES OF PRODUCTION MAY
BE MORE OR LESS THAN ANTICIPATED. IN ADDITION, WE DO NOT ANTICIPATE THE MINING
OF ALL OF OUR RESERVES PRIOR TO THE EXPIRATION OF THE INITIAL TERM OF OUR
CONTRACT OF WORK.
Our reserve amounts are determined in accordance with established
mining industry practices and standards, but are only estimates of the mineral
deposits that can be economically and legally recovered. In addition, our mines
may not conform to standard geological expectations. Because ore bodies do not
contain uniform grades of minerals, our metal recovery rates will vary from time
to time, which will result in variations in the volumes of minerals that we can
sell from period to period. Some of our reserves may become unprofitable to
develop if there are unfavorable long-term market price fluctuations in copper
and gold, or if there are significant increases in our operating and capital
costs. In addition, our exploration programs may not result in the discovery of
additional mineral deposits that we can mine profitably.
All of our current proven and probable reserves, including the Grasberg
deposit, are located in Block A. The initial term of our Contract of Work
covering Block A expires at the end of 2021. We can extend this term for two
successive 10-year periods, subject to the approval of the Indonesian
government, which cannot be withheld or delayed unreasonably. Our reserve
amounts reflect our estimates of the reserves that can be recovered before 2041
(i.e., before the expiration of the two 10-year extensions) and our current mine
plan has been developed and our operations are based on our receiving the two
10-year extensions. As a result, we do not anticipate the mining of all of our
reserves prior to the end of 2021 based on our current mine plan, and there can
be no assurance that the Indonesian government will approve the extensions.
Prior to the end of 2021, we expect to mine approximately 63 percent of the
aggregate proven and probable ore, representing approximately 71 percent of PT
Freeport's Indonesia's share of recoverable copper reserves and approximately 77
percent of PT Freeport Indonesia's share of recoverable gold reserves.
OUR NET INCOME CAN VARY SIGNIFICANTLY WITH FLUCTUATIONS IN THE MARKET PRICES OF
COPPER AND GOLD.
Our revenues are derived primarily from the sale of copper
concentrates, which also contain significant amounts of gold, and from the sale
of copper cathodes, copper wire rod and copper wire. Most of our copper
concentrates are sold under long-term contracts, but the selling price is based
on world metal prices at or near the time of shipment and delivery.
Copper and gold prices fluctuated widely in 2001, primarily due to the
slowdown in global economic activity and the economic and political
uncertainties created by the terrorist attacks in the United States on September
11, 2001. During 2001, the daily closing price for copper on the London spot
market ranged from 60 cents per pound to 83 cents per pound and the daily
closing price for gold on the London spot market ranged from $256 per ounce to
$293 per ounce.
World metal prices for copper have historically fluctuated widely and
are affected by numerous factors beyond our control, including:
- the strength of the United States economy and the economies of
other industrialized and developing nations;
- available supplies of copper from mine production and
inventories;
- sales by holders and producers of copper;
- demand for industrial products containing copper; and
- speculation.
14
World gold prices have also historically fluctuated widely and are
affected by numerous factors beyond our control, including:
- the strength of the United States economy and the economies of
other industrialized and developing nations;
- global or regional political or economic crises;
- the relative strength of the United States dollar and other
currencies;
- expectations with respect to the rate of inflation;
- interest rates;
- sales of gold by central banks and other holders;
- demand for jewelry containing gold; and
- speculation.
Any material decrease in market prices of copper or gold would have a
material adverse impact on our results of operations and financial condition.
IN ADDITION TO THE USUAL RISKS ENCOUNTERED IN THE MINING INDUSTRY, WE FACE
ADDITIONAL RISKS BECAUSE OUR OPERATIONS ARE LOCATED AN DIFFICULT TERRAIN IN A
VERY REMOTE AREA OF THE WORLD.
Our mining operations are located in steeply mountainous terrain in a
very remote area in Indonesia. These conditions have required us to overcome
special engineering difficulties and to develop extensive infrastructure
facilities. In addition, the area receives considerable rainfall, which has led
to periodic floods and mud slides. The mine site is also in an active seismic
area and has experienced earth tremors from time to time. In addition to these
special risks, we are also subject to the usual risks associated with the mining
industry, such as the risk of encountering unexpected geological conditions that
may result in cave-ins and flooding of mine areas. Our insurance coverages may
not be sufficient to cover an unexpected natural or operating disaster. Our
insurance policies do not provide coverage for damages and losses caused by war.
Moreover, while our property and business interruption insurance policy
currently provides coverage for damages to insured property directly caused by
terrorism, this policy in the future may, in view of the events of September 11,
2001, exclude such coverage.
MOVEMENTS IN FOREIGN CURRENCY EXCHANGE RATES OR INTEREST RATES COULD HAVE A
NEGATIVE EFFECT ON OUR OPERATING RESULTS.
All of our revenues are denominated in U.S. dollars. However, some of
our costs and some of our asset and liability accounts are denominated in
Indonesian rupiah, Australian dollars or Spanish pesetas/euros. As a result, our
profitability is generally adversely affected when the U.S. dollar weakens
against these foreign currencies.
The Indonesian rupiah/U.S. dollar exchange rate was volatile during
2001. The rupiah/U.S. dollar daily closing exchange rate ranged from 8,470
rupiahs per U.S. dollar to 11,980 rupiahs per U.S. dollar during 2001, and on
December 31, 2001, the closing exchange rate was 10,160 rupiahs per U.S. dollar.
The Australian dollar/U.S. dollar and euro/U.S. dollar exchange rates also
fluctuated substantially in 2001. During 2001, the Australian dollar/U.S. dollar
daily closing exchange rate ranged from $0.48 per Australian dollar to $0.57 per
Australian dollar and the euro/U.S. dollar daily closing exchange rate ranged
from $0.84 per euro to $0.96 per euro. On December 31, 2001, the closing
exchange rates were $0.51 per Australian dollar and $0.88 per euro.
15
From time to time we have in the past and may in the future implement
currency hedges intended to reduce our exposure to changes in foreign currency
exchange rates. However, our hedging strategies may not be successful, and any
of our unhedged foreign exchange payment requirements will continue to be
subject to market fluctuations. In addition, our amended bank credit facilities
are based on fluctuating interest rates. Accordingly, an increase in interest
rates could have an adverse impact on our results of operations and financial
condition.
BECAUSE WE ARE PRIMARILY A HOLDING COMPANY, OUR ABILITY TO PAY OUR DEBTS DEPENDS
UPON THE ABILITY OF OUR SUBSIDIARIES TO PAY US DIVIDENDS AND TO ADVANCE US
FUNDS. IN ADDITION, OUR ABILITY TO PARTICIPATE IN ANY DISTRIBUTION OF OUR
SUBSIDIARIES' ASSETS IS GENERALLY SUBJECT TO THE PRIOR CLAIMS OF THE
SUBSIDIARIES' CREDITORS.
Because we conduct business primarily through PT Freeport Indonesia,
our major subsidiary, and other subsidiaries, our ability to pay our debts
depends upon the earnings and cash flow of PT Freeport Indonesia and our other
subsidiaries and their ability to pay us dividends and to advance us funds.
Contractual and legal restrictions applicable to our subsidiaries could also
limit our ability to obtain cash from them. Our rights to participate in any
distribution of our subsidiaries' assets upon their liquidation, reorganization
or insolvency would generally be subject to the prior claims of the
subsidiaries' creditors, including trade creditors and preferred stockholders,
if any.
RISKS RELATED TO THE NOTES
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
Our mining operations are conducted at a single location in a country
that is considered to have significant political risks and, unlike more
diversified mining companies, we mine only copper, gold and silver from a single
location. In addition, we have significant debt. As a result, our stock price
has historically been more volatile than the stock prices of many other
companies in the mining industry. Moreover, the trading price of our class A and
class B common stock has been and may continue to be subject to large
fluctuations and, therefore, the trading price of the notes may fluctuate
significantly, which may result in losses to investors. The price of our class A
and class B common stock may fluctuate in response to a number of events and
factors, including:
- current events affecting the political, economic and social
situation in Indonesia;
- trends in the mining industry and the markets in which we
operate;
- changes in the market price of gold and copper;
- changes in financial estimates and recommendations by
securities analysts;
- quarterly variations in operating results;
- the operating and stock price performance of other mining
companies; and
- purchases or sales of blocks of our class A or class B common
stock.
AN ACTIVE TRADING MARKET FOR THE NOTES MAY NOT DEVELOP.
Upon their original issuance, the notes became eligible for trading on
The PORTAL Market. The notes sold pursuant to this prospectus, however, will no
longer be eligible for trading on The PORTAL Market. Although we intend to apply
for listing on the New York Stock Exchange of the notes sold pursuant to this
prospectus, we cannot assure you that an active trading market for the notes
will develop or be sustained. If an active market for the notes fails to develop
or be sustained, the notes could trade at prices that may be lower than the
initial offering price of the notes. Whether or not the notes will trade at
lower prices depends on many factors, including:
- prevailing interest rates and the markets for similar
securities;
16
- the market price of our class A and class B common stock;
- general economic conditions; and
- our financial condition, historic financial performance and
future prospects.
POLITICAL AND ECONOMIC CONDITIONS IN INDONESIA HAVE HAD A NEGATIVE EFFECT ON OUR
CREDIT RATINGS AND ANY DECLINE IN THE RATING OF THE NOTES MAY CAUSE THEIR
TRADING PRICE TO FALL.
The major credit rating agencies have generally had a policy of
limiting the credit ratings of companies with operations limited to a particular
country to the credit rating for the sovereign debt of that country. As a result
of this policy, Standard & Poor's has assigned to the notes a rating of CCC,
which is its current sovereign credit rating for Indonesia. If Moody's Investors
Service or another major credit rating agency rates the notes, they may assign a
low rating. Rating agencies may also lower ratings on the notes in the future
and, if such a reduction is made, the trading price of the notes would likely
decline.
THE NOTES HAVE NO SINKING FUND.
We will not contribute funds to a separate account, commonly known as a
sinking fund, to make interest or principal payments on the notes, although
U.S. government securities secure the first six scheduled interest payments on
the notes. See "Description of the Notes - Security." Therefore, you will have
to rely on our cash flow from operations and our other sources of funds for
repayment. If our cash flow from operations and our other sources of funds are
not sufficient to make interest and principal payments on the notes, then you
may lose all or part of your investment.
INVESTORS MAY BE ADVERSELY AFFECTED BY FUTURE DEBT AND EQUITY OFFERINGS.
Our amended credit facilities provide that if we raise proceeds through
future debt or equity issuances, 75% of the proceeds from debt issuances and 50%
of the proceeds from equity issuances must be used to pay outstanding borrowings
under the amended credit facilities and the remainder may be used by us for
general corporate purposes. See "Refinancing Transactions - Amended Credit
Facilities - Mandatory Repayments and Reductions in Commitments." Any such debt
or equity issuances, if undertaken, may increase our outstanding debt and
interest costs or dilute the value of our outstanding stock and, as a result,
may adversely affect the trading prices of the notes and underlying class A and
class B common stock.
17
REFINANCING TRANSACTIONS
In October 2001, we amended our existing credit facilities to extend
the maturities and to provide a mechanism for financing any obligations
resulting from our 1997 guarantee of the commercial bank loan to Nusamba. See "-
Nusamba Loan Guarantee" below. We believe that our amended credit facilities
together with our cash flows from operations will enable us to fund our ongoing
capital expenditures and meet our debt maturities over the next several years.
In addition to the amended credit facilities and the issuance of the
notes (collectively the "refinancing transactions"), we intend to refinance or
restructure our series I gold-denominated preferred stock to extend its
mandatory redemption date. Our series I gold-denominated preferred stock, which
is represented by depositary shares each representing 0.05 shares of a share of
our gold-denominated preferred stock, is traded on the New York Stock Exchange
under the symbol "FCX Pr b." The quarterly dividend and the final redemption
payment on the underlying depositary shares are determined by the then-current
market price of gold.
NUSAMBA LOAN GUARANTEE
Nusamba used the proceeds of the $253.4 million bank loan which was to
be due in March 2002, plus approximately $61.6 million of its funds, for a total
of $315.0 million, to purchase stock in PT Indocopper Investama from another
Indonesian entity in 1997. PT Indocopper Investama's only significant assets are
9.36 percent of PT Freeport Indonesia's stock and 10.0 percent of Eastern
Minerals' stock. After the purchase, Nusamba owned approximately 51 percent of
PT Indocopper Investama's stock and we owned approximately 49 percent.
At the time of our guarantee of the Nusamba loan, we believed that it
was prudent and in our best interests to facilitate the continuation of
Indonesian ownership of PT Freeport Indonesia, although Indonesian law no longer
required Indonesian ownership in addition to the ownership interest held by the
Government of Indonesia. Because few Indonesian individuals or entities were
able to pay fair value for the ownership interest, it was necessary for us to
provide credit support to Nusamba.
Nusamba recently informed us that it did not expect to be able to repay
the bank loan, which was secured by a pledge of the PT Indocopper Investama
stock owned by Nusamba. Accordingly, on February 27, 2002, we repaid the bank
loan and acquired Nusamba's stock in PT Indocopper Investama. We funded our
obligation to repay the Nusamba bank loan through a term loan under our amended
credit facilities.
PREVIOUS CREDIT FACILITIES AND MATURITIES
Our previously existing bank credit facilities provided total
availability of $1.0 billion, subject to a borrowing base that was redetermined
annually. The facilities were scheduled to mature in December 2002. The
outstanding balance at September 30, 2001 was $214.0 million, with $336.0
million available to PT Freeport Indonesia and $450.0 million available to the
company and PT Freeport Indonesia.
In addition to our obligations under our amended credit facilities and
the convertible notes, significant debt maturities through 2006 for which we are
obligated include the expected repayment of our 7.20% senior notes of $250.0
million in 2003 and our 7.50% senior notes of $200.0 million in 2006, and the
redemption of our preferred stock totaling approximately $176.7 million in 2003
and $129.7 million in 2006, based on gold and silver prices as of December 31,
2001.
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AMENDED CREDIT FACILITIES
The following summarizes the terms of our amended credit facilities.
Commitments and Availability
The aggregate commitments under our amended credit facilities total
$734.0 million, including $253.4 million used to repay the Nusamba loan.
Borrowings as of February 27, 2002, after repayment of the Nusamba loan, totaled
$143.0 million for PT Freeport Indonesia and $361.0 million for the company.
Maturities and Term Loan Conversion
Amounts that we borrowed under our amended credit facilities mature on
December 31, 2005. On December 31, 2003, all revolving loans will become term
loans, except for a $150.0 million revolving loan for working capital purposes.
While scheduled payments of interest will be required under these term loans,
scheduled principal payments will not be required until maturity. Instead, we
will repay the principal amount of the term loans through semiannual payments of
any excess operating cash flows remaining after scheduled payments of other
debts, permitted capital expenditures and payment of operating and other costs.
Any remaining balance on the term loans will be due on December 31, 2005. Any
outstanding balance on the remaining $150.0 million revolving loan will be due
on the earlier of December 31, 2005 or one year following repayment in full of
the term loans.
We are able to use the amounts available under the amended facilities
to satisfy interest and principal requirements on our other debt when due. We
are currently required to use all operating cash flows remaining after scheduled
payments of other debt, permitted capital expenditures and payment of operating
and other costs to reduce our borrowings under the amended facilities. Thus, no
portion of our operating cash flows is currently available for general corporate
purposes. At such time that our aggregate borrowings and unused commitments
under the amended facilities are less than $200 million and our ratio of
consolidated debt to EBITDA (earnings before interest expense, income taxes,
depreciation and amortization) is less than or equal to 3.0:1.0, 25% of our
operating cash flows will be available for general corporate purposes and 75%
will reduce our borrowings under the amended facilities.
Our amended facilities do not restrict our planned exploration
activities. The amended credit facilities, however, do impose annual limitations
on PT Freeport Indonesia's capital expenditures, which limit the amount of funds
that we can use for development activities. These annual limitations are
approximately $171 million for 2002, $188 million for 2003, $128 million for
2004 and $136 million for 2005. If our capital expenditures in any year are less
than 80% of the annual limitation for the year, then the unused amount for the
year below 80% may be carried forward to the next two succeeding years, provided
that the unused amount may only be used for deferred mining projects.
Mandatory Repayments and Reductions in Commitments
If we raise proceeds through future offerings, 25% of the proceeds from
debt issuances and 50% of the proceeds from equity issuances will be available
to us for general corporate purposes, provided that the balance of such
financing proceeds are used to repay borrowings and to reduce commitments under
our amended credit facilities. All other proceeds from financings and all
available cash of the company and PT Freeport Indonesia will be used to pay
outstanding borrowings under the amended credit facilities and the commitments
under the facilities will be reduced by those amounts, except as necessary to
maintain our availability to repay $250.0 million for the 7.20% senior notes and
to preserve the $150.0 million revolving facility that will continue to be
available through December 31, 2005.
Interest Rates and Fees
Interest rates on all loans under the amended facilities, including the
term loan used to fund our obligation to repay the Nusamba loan, are LIBOR plus
4.0% with annual increases of 0.125% on each anniversary of the
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closing of the amended facilities. As of December 31, 2001, the interest rate on
the amended facilities was 5.9% based on a LIBOR rate of 1.9%.
Series I Gold-Denominated Preferred Stock Due in 2003
Under the amended credit facilities, we have limitations on the amount
of preferred stock we may redeem and, if by August 2003 we have not extended the
maturity of 80% of the series I gold-denominated preferred stock beyond 2005, we
will not thereafter be permitted to redeem or pay dividends on any of our
preferred stock. Therefore, prior to the August 2003 mandatory redemption date
of the depositary shares representing our series I gold-denominated preferred
stock, we intend to refinance or restructure our redemption obligation as to at
least 80% of the outstanding 6.0 million depositary shares. On March 12, 2002,
the closing price of the depositary shares representing our series I
gold-denominated preferred stock as reported on the New York Stock Exchange was
$26.40 per depositary share.
Other Covenants
The covenants under the amended credit facilities include (a) a minimum
consolidated debt service coverage ratio of 1.25:1.0 through December 31, 2002,
and thereafter 1.5:1.0, and (b) a maximum ratio of consolidated debt to EBITDA
equal to 4.25:1.0 through September 30, 2002, and thereafter 3.5:1.0. The
covenants also include prohibitions on common stock dividends and common stock
repurchases, prohibitions on changes in control of the company or PT Freeport
Indonesia, limitations on capital expenditures to specified budgets, limitations
on investments, limitations on liens and limitations on transactions with
affiliates. In addition, the covenants include a requirement that we implement
minimum hedging protection for copper prices under certain circumstances. These
covenants will require us to hedge at least 33% of our exposure to declines in
copper prices for a period of up to one year if put options providing for the
sale of copper at a floor price of at least $0.90 per pound become available at
a cost of $0.02 or less per pound of copper. These put options would protect
operating cash flow from the impact of declines in copper prices below the floor
price while continuing to provide full participation at higher prices. The price
of copper would have to increase substantially for put options to be available
at this price.
Security and Guarantees
The obligations of the company and PT Freeport Indonesia under the
amended credit facilities are secured by a first security lien on over 80% of PT
Freeport Indonesia's total assets (the remaining assets secure other
obligations) and by the company's pledge of 50.1% of the outstanding capital
stock of PT Freeport Indonesia and 100% of the outstanding capital stock of PT
Indocopper Investama, including the PT Indocopper Investama stock pledged by
Nusamba and acquired by us upon our repayment of the Nusamba loan. PT Freeport
Indonesia's obligations continue to be secured by its pledge of its rights under
the Contract of Work. In addition, PT Freeport Indonesia has guaranteed the
company's obligations under the amended credit facilities.
20
REVISED DEBT AND REDEEMABLE PREFERRED STOCK MATURITIES
Following is a summary of our debt and redeemable preferred stock
maturities under the amended credit facilities based on loan balances as of
December 31, 2001, and gold and silver prices (which determine the preferred
stock redemption amounts) as of December 31, 2001:
2002 2003 2004 2005 2006 THEREAFTER
-------- -------- -------- -------- -------- ----------
(IN MILLIONS)
Bank credit facilities(a) $ -- $ -- $ -- $ 475.4 $ -- $ --
Infrastructure financings and
equipment loans 113.6 57.7 63.1 46.0 48.3 190.4
7.20% Senior Notes due 2026(b) -- 250.0 -- -- -- --
7.50% Senior Notes due 2006(c) -- -- -- -- 200.0 --
8 1/4% Convertible Senior Notes
due 2006 -- -- -- -- 603.8 --
Atlantic Copper facilities and other 91.8 20.1 10.1 24.1 24.1 120.1
-------- -------- -------- -------- -------- --------
Total debt maturities 205.4 327.8 73.2 545.5 876.2 310.5
Redeemable preferred stock(d) 10.8 176.7 10.8 10.8 129.7 --
-------- -------- -------- -------- -------- --------
Total maturities $ 216.2 $ 504.5 $ 84.0 $ 556.3 $1,005.9 $ 310.5
======== ======== ======== ======== ======== ========
(a) Reflects December 2005 maturity based on amended bank credit
facilities closed on October 19, 2001, including the term loan used to
repay the Nusamba bank loan in February 2002.
(b) Although due in 2026, the holders of the 7.20% senior notes may, and
are expected to, elect early repayment in November 2003.
(c) Due November 15, 2006, after the maturity of the convertible senior
notes.
(d) Represents $10.8 million each year for our silver-denominated
preferred stock, $165.9 million in August 2003 for our series I
gold-denominated preferred stock, and $118.9 million in February 2006
for our series II gold-denominated preferred stock.
INCREASED COST OF DEBT
In connection with the amended bank credit facilities, we incurred
premiums, fees and expenses that resulted in a cash outlay of approximately
$20.7 million. This cash outlay, together with the refinancing transactions,
resulted in an approximate 128 basis-point increase in our average borrowing
cost at the time of the refinancing transactions.
21
USE OF PROCEEDS
We received $442.9 million from the initial sale of the convertible
notes, after deducting fees and amounts required to fund an escrow reserve for
interest payments. We used these funds to reduce the amount owed under our
revolving bank loans.
The selling securityholders will receive all of the proceeds from the
sale of the notes and common stock under this prospectus. We will not receive
any of the proceeds from the sale by any selling shareholders of notes or the
underlying common stock.
DIVIDEND POLICY
In December 1998, in response to low commodity market prices for copper
and gold, our board of directors authorized the elimination of the regular
quarterly cash dividend on our common stock. Our amended bank credit facilities
prohibit the payment of dividends on our common stock. As a result, for the
foreseeable future, we do not anticipate declaring or paying any cash dividends
on our common stock. Any future determination to declare or pay cash dividends
will be made by our board of directors in light of our credit facilities,
earnings, financial position, capital requirements and such other factors as our
board of directors deems relevant at such time.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges was as follows for the years and
periods indicated.
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
2.9x 2.3x 2.9x 2.5x 3.8x
For this calculation, earnings consist of (1) income from continuing
operations before income taxes, (2) minority interests and (3) fixed charges.
Fixed charges include interest and that portion of rent our management believes
to be representative of interest.
22
DESCRIPTION OF THE NOTES
The notes were issued under an indenture between us and The Bank of New
York, as trustee, dated August 7, 2001. The terms of the notes include those
provided in the indenture and those provided in the registration rights
agreement, which we entered into with the initial purchaser of the notes. As
used in this description, the words "we," "us," or "our" refers to
Freeport-McMoRan Copper & Gold Inc. and FCX Investment Ltd., as co-obligors on
the notes, and the name "Freeport-McMoRan" refers to Freeport-McMoRan Copper &
Gold Inc.
The following description of the notes is not complete and is subject
to, and qualified in its entirety by reference to, the notes, indenture and
registration rights agreement. We will provide you with a copy of any of these
documents without charge upon your request.
GENERAL
The notes are our general unsecured (except to the extent described
under "Security" below) and unsubordinated obligations and are convertible into
class A or class B common stock of Freeport-McMoRan, at the option of the
holders, as described under "Conversion Rights" below. The notes are limited to
an aggregate principal amount of $603,750,000 and will mature on January 31,
2006, unless earlier redeemed by us or repurchased by us at the option of the
holder upon the occurrence of a Change of Control (as defined below).
The notes bear interest from August 7, 2001 at the rate of 8 1/4% per
year. Interest is payable semi- annually on January 31 and July 31 of each year
to holders of record at the close of business on the preceding January 15 and
July 15, respectively. We made our first interest payment on the notes on
January 31, 2002. We may pay interest on notes represented by certificated notes
by check. However, a holder of notes with an aggregate principal amount in
excess of $5,000,000 may elect to be paid by wire transfer in immediately
available funds. Interest is computed on the basis of a 360-day year comprised
of twelve 30-day months. Interest will no longer accrue on a note upon its
maturity, conversion, redemption or purchase by us upon a Change of Control.
Principal is payable, and the notes may be presented for conversion,
registration of transfer and exchange, without service charge, at our office or
agency in New York City, which shall initially be the office or agency of the
trustee in New York, New York. See "Form, Denomination and Registration" below.
The indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the repurchase of our securities or
the incurrence of indebtedness. The indenture also does not contain any
covenants or other provisions that afford protection to holders of notes in the
event of a highly leveraged transaction or a Change of Control of
Freeport-McMoRan, except to the extent described under "Change of Control
Permits Purchase of Notes at the Option of the Holder" below.
SECURITY
FCX Investment has purchased and pledged to the trustee, as security
for the exclusive benefit of the holders of the notes, U.S. Treasury strips and
bills in the aggregate amount of $139.8 million to provide for payment in full
of the first six scheduled interest payments due on the notes.
These U.S. government securities are held by the trustee in a pledge
account for the exclusive benefit of the holders of the notes. Immediately prior
to an interest payment date, the trustee will release from the pledge account
proceeds sufficient to pay interest then due on the notes. A failure to pay
interest on the notes when due through the first six scheduled interest payment
dates will constitute an event of default under the indenture, with no grace
period.
The pledged U.S. government securities and the pledge account also
secure the repayment of the principal amount and premium on the notes. If prior
to July 31, 2004
- an event of default under the notes occurs and is continuing
and
23
- the trustee or the holders of 25% of the aggregate principal
amount of the notes accelerate the notes by declaring the
principal amount of the notes to be immediately due and
payable (by written consent, at a meeting of note holders or
otherwise), except for the occurrence of an event of default
relating to our bankruptcy, insolvency or reorganization, upon
which the notes will be accelerated automatically,
then the proceeds from the pledged U.S. government securities will be promptly
released to note holders, subject to the automatic stay provisions of bankruptcy
law, if applicable. Distributions from the pledge account will be applied:
- first, to any accrued and unpaid interest on the notes, and
- second, to the extent available, to the repayment of a portion
of the principal amount of the notes.
However, if any event of default is cured prior to the acceleration of
the notes by the trustee or holders of the notes referred to above, the trustee
and the holders of the notes will not be able to accelerate the notes as a
result of that event of default.
For example, if the first two interest payments were made when due but
the third interest payment was not made when due and the note holders promptly
exercised their right to declare the principal amount of the notes to be
immediately due and payable then, assuming automatic stay provisions of
bankruptcy law are inapplicable and the proceeds of the pledged U.S. government
securities are promptly distributed from the pledge account,
- an amount equal to the interest payment due on the third
interest payment would be distributed from the pledge account
as accrued interest and
- the balance of the proceeds of the pledge account would be
distributed as a portion of the principal amount of the notes.
In addition, note holders would have an unsecured claim against the issuer for
the remainder of the principal amount of their notes.
Once we make the first six scheduled interest payments on the notes,
all of the remaining pledged U.S. government securities, if any, will be
released to FCX Investment from the pledge account thereafter, the notes will be
unsecured.
CONVERSION RIGHTS
The holders of notes may, at any time prior to the close of business on
the final maturity date of the notes, convert any outstanding notes (or portions
thereof) into, at the option of the holders, class A or class B common stock of
Freeport-McMoRan, initially at a conversion price of $14.30 per share of class A
or class B common stock. This conversion price is equal to a conversion rate of
approximately 69.9301 shares of class A or class B common stock per $1,000
principal amount of notes. The conversion rate is subject to adjustment upon the
occurrence of the events described below. Holders may convert notes only in
denominations of $1,000 and whole multiples of $1,000. If the class A and class
B stockholders of Freeport-McMoRan approve the proposal to reclassify the shares
of Freeport-McMoRan's class A common stock into shares of Freeport-McMoRan's
class B common stock, the notes will only be convertible into shares of class B
common stock at the same conversion price. See "Description of Common Stock -
Voting Rights" in this prospectus.
Except as described below, no adjustment will be made for interest
accrued on converted notes or dividends paid on any common stock. However, if
notes are converted after a record date but prior to the next succeeding
interest payment date, holders of such notes at the close of business on the
record date will receive the interest payable on such notes on the corresponding
interest payment date. Such notes, upon surrender for conversion, must be
accompanied by funds equal to the amount of interest payable on the principal
amount of notes
24
so converted, unless such notes have been called for redemption on a redemption
date that occurs after a regular record date and on or prior to the third
business day after the interest payment date to which it relates, in which case
no such payment shall be required.
We are not required to issue fractional shares of common stock upon
conversion of notes and instead will pay a cash adjustment based upon the market
price of the common stock on the last trading day before the date of the
conversion. In the case of notes called for redemption, conversion rights will
expire at the close of business on the business day preceding the date fixed for
redemption, unless we default in payment of the redemption price.
A holder may exercise the right of conversion by delivering the note to
be converted to the specified office of a conversion agent, with a completed
notice of conversion and any funds that may be required as described above. The
conversion date will be the date on which the notes, the notice of conversion
and any required funds have been so delivered. A holder delivering a note for
conversion will not be required to pay any taxes or duties relating to the
issuance or delivery of the common stock, but will be required to pay any tax or
duty which may be payable relating to any transfer involved in the issuance or
delivery of the common stock in a name other than the holder of the note.
Certificates representing shares of common stock will be issued or delivered
only after all applicable taxes and duties have been paid. If any note is
converted prior to the expiration of the holding period applicable for sales
under Rule 144(k) under the Securities Act (or any successive provision), the
common stock issuable upon conversion will not be issued or delivered in a name
other than that of the holder of the note unless the applicable restrictions on
transfer have been satisfied.
The initial conversion rate will be adjusted for certain events,
including:
- the issuance of Freeport-McMoRan common stock as a dividend or
distribution on Freeport-McMoRan common stock;
- certain subdivisions and combinations of Freeport-McMoRan
common stock;
- the issuance to all holders of Freeport-McMoRan common stock
of certain rights or warrants to purchase Freeport-McMoRan
common stock (or securities convertible into Freeport-McMoRan
common stock) at less than (or having a conversion price per
share less than) the current market price of Freeport-McMoRan
common stock;
- the dividend or other distribution to all holders of
Freeport-McMoRan common stock or shares of Freeport-McMoRan
capital stock (other than common stock) of evidences of
indebtedness or assets (including securities, but excluding
(A) those rights and warrants referred to above, (B) dividends
and distributions in connection with a reclassification,
change, consolidation, merger, combination, sale or conveyance
resulting in a change in the conversion consideration pursuant
to the second succeeding paragraph or (C) dividends or
distributions paid exclusively in cash);
- dividends or other distributions consisting exclusively of
cash to all holders of Freeport-McMoRan common stock to the
extent that such distributions, combined together with (A) all
other such all-cash distributions made within the preceding 12
months for which no adjustment has been made plus (B) any cash
and the fair market value of other consideration paid for any
tender offers by Freeport-McMoRan or any of its subsidiaries
for Freeport-McMoRan common stock concluded within the
preceding 12 months for which no adjustment has been made,
exceeds 5% of our market capitalization on the record date for
such distribution; market capitalization is the product of the
then-current market price of Freeport-McMoRan common stock
times the number of shares of Freeport-McMoRan common stock
then outstanding; and
- the purchase of Freeport-McMoRan common stock pursuant to a
tender offer made by Freeport-McMoRan or any of its
subsidiaries to the extent that the same involves an aggregate
consideration that, together with (A) any cash and the fair
market value of any other consideration paid in any other
tender offer by Freeport-McMoRan or any of its subsidiaries
for Freeport-
25
McMoRan common stock expiring within the 12 months preceding
such tender offer for which no adjustment has been made plus
(B) the aggregate amount of any all-cash distributions
referred to in the immediately preceding bullet above to all
holders of Freeport-McMoRan common stock within 12 months
preceding the expiration of the tender offer for which no
adjustments have been made, exceeds 5% of our market
capitalization on the expiration of the tender offer.
No adjustment in the conversion rate will be required unless such
adjustment would require a change of at least 1% in the conversion rate then in
effect. Any adjustment that would otherwise be required to be made shall be
carried forward and taken into account in any subsequent adjustment. Except as
stated above, the conversion rate will not be adjusted for the issuance of our
common stock or any securities convertible into or exchangeable for our common
stock or carrying the right to purchase any of the foregoing.
Under the Rights Agreement of Freeport-McMoRan, upon conversion of the
notes into Freeport-McMoRan common stock, to the extent that the Rights
Agreement is still in effect upon conversion, you will receive, in addition to
the Freeport-McMoRan common stock, the rights under the Rights Agreement whether
or not the rights have separated from the Freeport-McMoRan common stock at the
time of conversion, subject to certain limited exceptions.
In the case of:
- any reclassification or change of Freeport-McMoRan common
stock (other than changes resulting from a subdivision or
combination) or
- a consolidation, merger or combination involving
Freeport-McMoRan or a sale or conveyance to another
corporation of all or substantially all of Freeport-McMoRan's
property and assets,
in each case as a result of which holders of Freeport-McMoRan common stock are
entitled to receive stock, other securities, other property or assets (including
cash or any combination thereof) with respect to or in exchange for
Freeport-McMoRan common stock, the holders of the notes then outstanding will be
entitled to convert those notes into the kind and amount of shares of stock,
other securities or other property or assets (including cash or any combination
thereof) which they would have owned or been entitled to receive upon such
reclassification, change, consolidation, merger, combination, sale or conveyance
had such notes been converted into Freeport-McMoRan common stock immediately
prior to such reclassification, change, consolidation, merger, combination, sale
or conveyance. We may not become a party to any such transaction unless its
terms are consistent with the foregoing.
If a taxable distribution to holders of Freeport-McMoRan common stock
or another transaction occurs which results in any adjustment of the conversion
price, the holders of notes may, in certain circumstances, be deemed to have
received a distribution subject to U.S. income tax as a dividend. In certain
other circumstances, the absence of an adjustment may result in a taxable
dividend to the holders of Freeport-McMoRan common stock. See "Certain United
States Federal Income Tax Considerations."
Moreover, in order to avoid or diminish any income tax to holders of
Freeport-McMoRan common stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for income
tax purposes, we may from time to time reduce the conversion price of the notes
for any period of at least 20 days. Such a reduction will be in whatever amount
and for whatever period that our board of directors deems advisable. We will
give at least 15 days notice prior to such reduction in the conversion price. In
addition, the reduction will be irrevocable during the period determined by our
board. We are not permitted to reduce the conversion price of the notes for any
other reason.
RANKING
The notes are our unsecured (except to the extent described under
"Security" above) and unsubordinated obligations. The notes rank on a parity
(except to the extent described under "Security" above) in right of payment with
all of our existing and future unsecured and unsubordinated indebtedness.
However, the notes are
26
subordinated to our existing and future secured indebtedness as to the assets
securing such indebtedness. As of December 31, 2001, our secured indebtedness
was $511.3 million and our unsecured and unsubordinated indebtedness was $932.9
million.
In addition, the notes are subordinated to all existing and future
liabilities of our subsidiaries. Freeport- McMoRan is a holding company and
conducts business through its various subsidiaries. As a result, Freeport-
McMoRan's cash flow and ability to meet its debt obligations primarily depend on
the earnings of its subsidiaries, and on dividends and other payments from its
subsidiaries. Under certain circumstances, contractual and legal restrictions,
as well as the financial condition and operating requirements of
Freeport-McMoRan's subsidiaries, could limit its ability to obtain cash from its
subsidiaries for the purpose of meeting debt service obligations, including the
payment of principal and interest on the notes. Any rights to receive assets of
any subsidiary upon its liquidation or reorganization and the right of the
holders of the notes to participate in the distribution of those assets will be
subject to the claims of that subsidiary's creditors, including trade creditors,
except to the extent that Freeport-McMoRan is recognized as a creditor of that
subsidiary, in which case its claims would still be subordinate to any security
interests in the assets of that subsidiary. As of December 31, 2001, our
subsidiaries had aggregate indebtedness of $1.4 billion.
REDEMPTION OF NOTES AT OUR OPTION
The notes are not redeemable prior to July 31, 2004. At any time on or
after that date, we may redeem the notes for cash, in whole or in part, on at
least 30 but not more than 60 days' notice, at the following prices (expressed
in percentages of the principal amount), together with accrued and unpaid
interest to, but excluding, the date fixed for redemption. However, if a
redemption date is an interest payment date, the semi-annual payment of interest
becoming due on such date shall be payable to the holder of record as of the
relevant record date and the redemption price shall not include such interest
payment.
FOR THE TWELVE MONTH PERIOD COMMENCING JULY 31, REDEMPTION PRICE
2004 .......................................... 102.75%
2005 and thereafter ........................... 100.92%
If we do not redeem all of the notes, the trustee will select the notes
to be redeemed in principal denomination amounts of $1,000 or whole multiples of
$1,000 by lot or on a pro rata basis. If any notes are to be redeemed in part
only, a new note or notes in principal amount equal to the unredeemed principal
portion thereof will be issued. If a portion of a holder's notes is selected for
partial redemption and the holder converts a portion of its notes, the converted
portion will be deemed to be taken from the portion selected for redemption. No
sinking fund is provided for the notes.
CHANGE OF CONTROL PERMITS PURCHASE OF NOTES AT THE OPTION OF THE HOLDER
If a Change of Control occurs, each holder of notes will have the right
to require us to repurchase all of that holder's notes not previously called for
redemption, or any portion of those notes that is equal to a multiple of $1,000,
on the date that is 45 days after the date we give notice at a repurchase price
equal to 100% of the principal amount of the notes to be repurchased, together
with interest accrued and unpaid to, but excluding, the repurchase date.
Instead of paying the repurchase price in cash, we may pay the
repurchase price in either, at the option of the holder, class A or class B
common stock of Freeport-McMoRan if we so elect in the notice referred to below.
The number of shares of common stock a holder will receive will equal the
repurchase price divided by 95% of the average of the closing sale prices of the
applicable common stock for the five trading days immediately preceding and
including the third day prior to the repurchase date. However, we may not pay in
common stock unless we satisfy certain conditions prior to the repurchase date
as provided in the indenture.
27
Within 30 days after the occurrence of a Change of Control, we are
required to give notice to all holders of notes, as provided in the indenture,
of the occurrence of the Change of Control and of their resulting repurchase
right. We must also deliver a copy of our notice to the trustee. To exercise the
repurchase right, a holder of notes must deliver prior to or on the repurchase
date irrevocable written notice to the trustee of the holder's exercise of its
repurchase right, together with the notes with respect to which the right is
being exercised. A "Change of Control" will be deemed to have occurred at such
time after the original issuance of the notes when the following has occurred:
- any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), acquires the beneficial
ownership (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has
the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or
indirectly, through a purchase, merger or other acquisition
transaction, of 50% or more of the total voting power of the
total outstanding voting stock of Freeport-McMoRan other than
in an acquisition by us, any of our subsidiaries or any of our
employee benefit plans;
- Freeport-McMoRan consolidates with, or merges with or into,
another person or conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any
person, or any person consolidates with or merges with or into
Freeport-McMoRan, other than:
- any transaction (A) that does not result in any
reclassification (excluding a reclassification
combining Freeport-McMoRan's class A and class B
common stock into one class), conversion, exchange or
cancellation of outstanding shares of Freeport-
McMoRan's capital stock and (B) pursuant to which
holders of Freeport-McMoRan's capital stock
immediately prior to the transaction have the
entitlement to exercise, directly or indirectly, 50%
or more of the total voting power of all shares of
Freeport- McMoRan's capital stock entitled to vote
generally in the election of directors of the
continuing or surviving person immediately after the
transaction; or
- any merger solely for the purpose of changing
Freeport-McMoRan's jurisdiction of incorporation and
resulting in a reclassification, conversion or
exchange of outstanding shares of common stock solely
into shares of common stock of the surviving entity;
- during any consecutive two-year period, individuals who at the
beginning of that two-year period constituted the board of
directors of Freeport-McMoRan (together with any new directors
whose election to such board of directors, or whose nomination
for election by stockholders, was approved by a vote of a
majority of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for
any reason to constitute a majority of the board of directors
of Freeport-McMoRan then in office; or
- Freeport-McMoRan's stockholders pass a special resolution
approving a plan of liquidation or dissolution and no
additional approvals of stockholders are required under
applicable law to cause a liquidation or dissolution.
The definition of Change of Control includes a phrase relating to the
lease, transfer, conveyance or other disposition of "all or substantially all"
of Freeport-McMoRan's assets. There is no precise established definition of the
phrase "substantially all" under applicable law. Accordingly, the ability of a
holder of notes to require us to repurchase such notes as a result of a lease,
transfer, conveyance or other disposition of less than all of Freeport-McMoRan's
assets may be uncertain.
Our right to pay the repurchase price in common stock is subject to our
satisfying various conditions, including:
28
- the registration of the common stock under the Securities Act
and the Exchange Act, if required; and
- any necessary qualification or registration under applicable
state securities law or the availability of an exemption from
such qualification and registration.
If such conditions are not satisfied with respect to a holder prior to
the close of business on the repurchase date, we will pay the repurchase price
of the notes to the holder entirely in cash. We may not change the form of
consideration to be paid for the notes once we have given the notice that we are
required to give to holders of notes, except as described in the first sentence
of this paragraph.
We will comply with the provisions of any tender offer rules under the
Exchange Act that may then be applicable, and will file any schedule required
under the Exchange Act in connection with any offer by us to purchase notes upon
a Change of Control. In some circumstances, the Change of Control purchase
feature of the notes may make more difficult or discourage a takeover of us and
the removal of incumbent management. The Change of Control purchase feature,
however, is not the result of management's knowledge of any specific effort to
accumulate shares of common stock or to obtain control of us by means of a
merger, tender offer, solicitation or otherwise, or part of a plan by management
to adopt a series of anti-takeover provisions. Instead, the Change of Control
purchase feature is the result of negotiations between us and the initial
purchaser.
We may at any time purchase the notes in the open market or by tender
at any price or by private agreement. Any note so purchased by us may be
reissued or resold or may be surrendered to the trustee for cancellation. Any
notes surrendered to the trustee may not be reissued or resold and will be
canceled promptly.
These provisions would not necessarily protect holders of the notes if
highly leveraged or other transactions involving us occur that may adversely
affect holders. Our ability to repurchase notes upon the occurrence of a Change
of Control is subject to important limitations. The occurrence of a Change of
Control could cause an event of default under, or be prohibited or limited by,
the terms of indebtedness that we may incur in the future. Further, we cannot
assure you that we would have the financial resources, or would be able to
arrange financing, to pay the repurchase price for all the notes that might be
delivered by holders of notes seeking to exercise the repurchase right. Any
failure by us to repurchase the notes when required following a Change of
Control would result in an event of default under the indenture. Any such
default may, in turn, cause a default under indebtedness that we may incur in
the future.
EVENTS OF DEFAULT
Each of the following will constitute an event of default under the
indenture:
(1) our failure to pay when due the principal of or premium, if
any, on any of the notes at maturity, upon redemption or upon
exercise of a repurchase right or otherwise;
(2) our failure to pay an installment of interest (including
liquidated damages, if any) on any of the notes for 30 days
after the date when due; provided that a failure to make any
of the first six scheduled interest payments on the notes on
the applicable interest payment date will constitute an event
of default with no grace or cure period;
(3) failure by us to deliver shares of common stock, together with
cash instead of fractional shares, when those shares of common
stock, or cash instead of fractional shares, are required to
be delivered following conversion of a note, and that default
continues for 10 days;
(4) failure by us to give the notice regarding a Change of Control
within 30 days of the occurrence of the Change of Control;
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(5) our failure to perform or observe any other term, covenant or
agreement contained in the notes or the indenture for a period
of 60 days after written notice of such failure, requiring us
to remedy the same, shall have been given to us by the trustee
or to us and the trustee by the holders of at least 25% in
aggregate principal amount of the notes then outstanding;
(6) in the event of either (a) our failure or the failure of any
of our significant subsidiaries to make any payment by the end
of the applicable grace period, if any, after the final
scheduled payment date for such payment with respect to any
indebtedness for borrowed money in an aggregate principal
amount in excess of $10 million, or (b) the acceleration of
indebtedness for borrowed money of the company or any of our
significant subsidiaries in an aggregate amount in excess of
$10 million because of a default with respect to such
indebtedness, without such indebtedness referred to in either
(a) or (b) above having been discharged, cured, waived,
rescinded or annulled, for a period of 30 days after written
notice to us by the trustee or to us and the trustee by
holders of at least 25% in aggregate principal amount of the
notes then outstanding;
(7) certain events of bankruptcy, insolvency or reorganization;
and
(8) the failure of the pledge agreement to be in full force and
effect or to give the trustee the liens, rights powers and
privileges intended to be created thereby.
The term "significant subsidiary" means a subsidiary, including its
subsidiaries, that meets any of the following conditions:
- Freeport-McMoRan's and its other subsidiaries' investments in
and advances to the subsidiary exceed 20% of the total assets
of Freeport-McMoRan and its subsidiaries consolidated as of
the end of the most recently completed fiscal year;
- Freeport-McMoRan's and its other subsidiaries' proportionate
share of the total assets (after intercompany eliminations) of
the subsidiary exceeds 20% of the total assets of Freeport-
McMoRan and its subsidiaries consolidated as of the end of the
most recently completed fiscal year; or
- Freeport-McMoRan's and its other subsidiaries' equity in the
income from continuing operations before income taxes,
extraordinary items and cumulative effect of a change in
accounting principle of the subsidiary exceeds 20% of such
income of Freeport-McMoRan and its subsidiaries consolidated
for the most recently completed fiscal year.
The indenture provides that the trustee shall, within 90 days of the
occurrence of a default, give to the registered holders of the notes notice of
all uncured defaults known to it, but the trustee shall be protected in
withholding such notice if it, in good faith, determines that the withholding of
such notice is in the best interest of such registered holders, except in the
case of a default in the payment of the principal of, premium on, or interest on
any of the notes when due or in the payment of any redemption or repurchase
obligation.
If an event of default specified in clause (7) above occurs and is
continuing, then the principal of all the notes and the interest thereon shall
become immediately due and payable. If an event of default shall occur and be
continuing, other than with respect to clause (7) above (the default not having
been cured or waived as provided under "Modifications and Waiver" below), the
trustee or the holders of at least 25% in aggregate principal amount of the
notes then outstanding may declare the notes due and payable at their principal
amount together with accrued interest, and thereupon the trustee may, at its
discretion, proceed to protect and enforce the rights of the holders of notes by
appropriate judicial proceedings. Such declaration may be rescinded or annulled
with the written consent of the holders of a majority in aggregate principal
amount of the notes then outstanding upon the conditions provided in the
indenture. However, if an event of default is cured prior to such declaration by
the trustee or holders of the notes as discussed above, the trustee and the
holders of the notes will not be able to make such declaration as
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a result of that cured event of default. Overdue payments of interest,
liquidated damages, premium, and principal shall accrue interest at 10-1/4%.
The indenture contains a provision entitling the trustee, subject to
the duty of the trustee during default to act with the required standard of
care, to be indemnified by the holders of notes before proceeding to exercise
any right or power under the indenture at the request of such holders. The
indenture provides that the holders of a majority in aggregate principal amount
of the notes then outstanding through their written consent may direct the time,
method and place of conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred upon the trustee. We are
required to furnish annually to the trustee a statement as to the fulfillment of
our obligations under the indenture.
CONSOLIDATION, MERGER OR ASSUMPTION
We may, without the consent of the holders of notes, consolidate with,
merge into or transfer all or substantially all of our assets to any other
corporation organized under the laws of the United States or any of its
political subdivisions provided that:
- the surviving corporation assumes all our obligations under
the indenture and the notes;
- at the time of such transaction, no event of default, and no
event which, after notice or lapse of time, would become an
event of default, shall have happened and be continuing; and
- certain other conditions are met.
MODIFICATIONS AND WAIVER
The indenture (including the terms and conditions of the notes) may be
modified or amended by us and the trustee, without the consent of the holder of
any note, for the purposes of, among other things:
- adding to our covenants for the benefit of the holders of
notes;
- surrendering any right or power conferred upon us;
- providing for the assumption of our obligations to the holders
of notes in the case of a merger, consolidation, conveyance,
transfer or lease;
- reducing the conversion price, provided that the reduction
will not adversely affect the interests of holders of notes in
any material respect;
- complying with the requirements of the SEC in order to effect
or maintain the qualification of the indenture under the Trust
Indenture Act of 1939, as amended;
- making any changes or modification to the indenture necessary
in connection with the registration of the notes under the
Securities Act as contemplated by the registration rights
agreement, provided that this action does not adversely affect
the interest of the holders of the notes in any material
respects;
- curing any ambiguity or correcting or supplementing any
defective provision contained in the indenture; provided that
such modification or amendment does not adversely affect the
interests of the holders of the notes in any material respect;
or
- adding or modifying any other provisions which we and the
trustee may deem necessary or desirable and which will not
adversely affect the interests of the holders of notes in any
material respect.
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Modifications and amendments to the indenture or to the terms and
conditions of the notes may also be made, and past default by us may be waived
with the written consent of the holders of at least a majority in aggregate
principal amount of the notes at the time outstanding. However, no such
modification, amendment or waiver may, without the written consent or the
affirmative vote of the holder of each note so affected:
- change the maturity of the principal of or any installment of
interest on that note (including any payment of liquidated
damages);
- reduce the principal amount of, or any premium or interest on
(including any payment of liquidated damages), any note;
- change the currency of payment of such note or interest
thereon;
- impair the right to institute suit for the enforcement of any
payment on or with respect to any note;
- except as otherwise permitted or contemplated by provisions
concerning corporate reorganizations, adversely affect the
repurchase option of holders upon a Change of Control or the
conversion rights of holders of the notes;
- modify the provisions of the indenture relating to the pledge
of securities as contemplated under "Security" above in a
manner that adversely affects the interests of the holders of
notes; or
- reduce the percentage in aggregate principal amount of notes
outstanding necessary to modify or amend the indenture or to
waive any past default.
FORM, DENOMINATION AND REGISTRATION
The notes were issued without coupons and in denominations of $1,000
principal amount and whole multiples of $1,000.
Global Notes: Book-Entry Form. The notes were offered only to qualified
institutional buyers as defined in Rule 144A under the Securities Act ("QIBs").
Except as provided below, the notes are evidenced by one or more global notes
deposited with the trustee as custodian for The Depository Trust Company, New
York, New York ("DTC"), and registered in the name of Cede & Co. as DTC's
nominee. The global notes and any notes issued in exchange therefor are subject
to certain restrictions on transfer set forth in the global notes and in the
indenture and bear a restrictive legend. Record ownership of the global notes
may be transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee, except as set forth below. A QIB may hold its
interests in a global note directly through DTC if such QIB is a participant in
DTC, or indirectly through organizations which are direct DTC participants.
Transfers between direct DTC participants will be effected in the ordinary way
in accordance with DTC's rules and will be settled in same-day funds. QIBs may
also beneficially own interests in the global notes held by DTC through certain
banks, brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a direct DTC participant, either directly
or indirectly. So long as Cede & Co., as nominee of DTC, is the registered owner
of the global notes, Cede & Co. for all purposes will be considered the sole
holder of the global notes. Except as provided below, owners of beneficial
interests in the global notes will not be entitled to have certificates
registered in their names, will not receive or be entitled to receive physical
delivery of certificates in definitive form, and will not be considered holders
thereof. The laws of some states require that certain persons take physical
delivery of securities in definitive form. Consequently, the ability to transfer
a beneficial interest in the global notes to such persons may be limited. We
will wire, through the facilities of the trustee, principal, premium, if any,
and interest payments on the global notes to Cede & Co., the nominee for DTC, as
the registered owner of the global notes. We, the trustee and any paying agent
will have no responsibility or liability for paying amounts due on the global
notes to owners of beneficial interests in the global notes. It is DTC's current
practice, upon receipt of any payment of principal of and premium, if any, and
interest on the global notes, to credit participants' accounts on the payment
date in amounts proportionate to their respective beneficial interests in the
notes represented by the global notes, as shown on the records of DTC, unless
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DTC believes that it will not receive payment on the payment date. Payments by
DTC participants to owners of beneficial interests in notes represented by the
global notes held through DTC participants will be the responsibility of DTC
participants, as is now the case with securities held for the accounts of
customers registered in "street name."
If you would like to convert your notes into common stock pursuant to
the terms of the notes, you should contact your broker or other direct or
indirect DTC participant to obtain information on procedures, including proper
forms and cut-off times, for submitting those requests. Because DTC can only act
on behalf of DTC participants, who in turn act on behalf of indirect DTC
participants and other banks, your ability to pledge your interest in the notes
represented by global notes to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate. Neither we nor the trustee (nor
any registrar, paying agent or conversion agent under the indenture) will have
any responsibility for the performance by DTC or direct or indirect DTC
participants of their obligations under the rules and procedures governing their
operations. DTC has advised us that it will take any action permitted to be
taken by a holder of notes, including, without limitation, the presentation of
notes for conversion as described below, only at the direction of one or more
direct DTC participants to whose account with DTC interests in the global notes
are credited and only for the principal amount of the notes for which directions
have been given.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created
to hold securities for DTC participants and to facilitate the clearance and
settlement of securities transactions between DTC participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations such as the initial purchaser of the
notes. Certain DTC participants or their representatives, together with other
entities, own DTC. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global notes among DTC participants, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
us within 90 days, we will cause notes to be issued in definitive form in
exchange for the global notes. None of us, the trustee or any of their
respective agents will have any responsibility for the performance by DTC or
direct or indirect DTC participants of their obligations under the rules and
procedures governing their operations, including maintaining, supervising or
reviewing the records relating to, or payments made on account of, beneficial
ownership interests in global notes. According to DTC, the foregoing information
with respect to DTC has been provided to its participants and other members of
the financial community for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
Certificated notes may be issued in exchange for beneficial interests
in notes represented by the global notes only in the limited circumstances set
forth in the indenture.
GOVERNING LAW
The indenture and the notes are governed by, and construed in
accordance with, the law of the State of New York.
CONCERNING THE TRUSTEE
The Bank of New York, as trustee under the indenture, has been
appointed by us as paying agent, conversion agent, registrar and custodian with
regard to the notes. Mellon Investor Services LLC is the transfer agent and
registrar for Freeport-McMoRan's common stock. The trustee or its affiliates may
from time to time in the future provide banking and other services to us in the
ordinary course of their business.
33
REGISTRATION RIGHTS
When we issued the notes, we entered into a registration rights
agreement with the initial purchaser of the notes. As required under that
agreement, we have filed with the SEC, at our expense, a shelf registration
statement, of which this prospectus forms a part, covering resales by holders of
the notes and the common stock issuable upon conversion of the notes. Under the
terms of the registration rights agreement, we have agreed to use our best
efforts to:
- cause the registration statement to become effective as
promptly as is practicable, but in no event later than 180
days after the earliest date of original issuance of any of
the notes; and
- keep the registration statement effective until such date that
the holders of the notes and the common stock issuable upon
conversion of the notes are able to sell all such securities
immediately without restriction pursuant to the volume
limitations of Rule 144 under the Securities Act or any
successor rule thereto or otherwise.
We also agreed to provide to each registered holder copies of the
prospectus, notify each registered holder when the shelf registration statement
has become effective and take certain other actions as are required to permit
unrestricted resales of the notes and the common stock issuable upon conversion
of the notes. A holder who sells those securities pursuant to the shelf
registration statement generally will be required to be named as a selling
stockholder in the related prospectus and to deliver a prospectus to purchasers
and will be bound by the provisions of the registration rights agreement, which
are applicable to that holder (including certain indemnification provisions).
Each holder must notify us not later than three business days prior to any
proposed sale by that holder pursuant to the shelf registration statement. This
notice will be effective for five business days. We may suspend the holder's use
of the prospectus for a reasonable period not to exceed 30 days in any 90-day
period, and not to exceed an aggregate of 90 days in any 12-month period, if we,
in our reasonable judgment, believe we may possess material non-public
information the disclosure of which would have a material adverse effect on us
and our subsidiaries taken as a whole. Each holder, by its acceptance of a note,
agrees to hold any communication by us in response to a notice of a proposed
sale in confidence.
If
- on the 90th day following the earliest date of original
issuance of any of the notes, the shelf registration
statement, of which this prospectus forms a part, has not been
filed with the SEC; or
- on the 180th day following the earliest date of original
issuance of any of the notes, the shelf registration statement
has not been declared effective; or
- the registration statement shall cease to be effective or fail
to be usable without being succeeded within five business days
by a post-effective amendment or a report filed with the SEC
pursuant to the Exchange Act that cures the failure of the
registration statement to be effective or usable; or
- on the 30th day of any period that the prospectus has been
suspended as described in the preceding paragraph, such
suspension has not been terminated (each, a "registration
default"),
additional interest as liquidated damages will accrue on the notes, from and
including the day following the registration default to but excluding the day on
which the registration default has been cured.
Liquidated damages will be paid semi-annually in arrears, with the
first semi-annual payment due on the first interest payment date, as applicable,
following the date on which such liquidated damages begin to accrue, and will
accrue at a rate per year equal to:
- an additional 0.25% of the principal amount to and including
the 90th day following such registration default; and
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- an additional 0.5% of the principal amount from and after the
91st day following such registration default.
In no event will liquidated damages accrue at a rate per year exceeding
0.5%. If a holder has converted some or all of its notes into common stock, the
holder will be entitled to receive equivalent amounts based on the principal
amount of the notes converted.
The summary herein of certain provisions of the registration rights
agreement between us and the initial purchaser is subject to, and is qualified
in its entirety by reference to, all the provisions of the registration rights
agreement, a copy of which has been filed as an exhibit to the registration
statement of which this prospectus is a part or is available upon request to the
Company.
Upon their original issuance, the notes became eligible for trading on
The PORTAL Market. The notes sold pursuant to this prospectus, however, will no
longer be eligible for trading on The PORTAL Market. Although we intend to apply
for listing on the New York Stock Exchange of the notes sold pursuant to this
prospectus, we cannot assure you that an active trading market for the notes
will develop or as to the liquidity or sustainability of any such market, the
ability of the holders to sell their notes or the price at which holders of the
notes will be able to sell their notes. Future trading prices of the notes will
depend on many factors, including, among other things, prevailing interest
rates, our operating results, the price of our common stock and the market for
similar securities.
35
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR INVESTORS
The following is a general discussion of material U.S. federal income
tax consequences with respect to the purchase, ownership and disposition of the
notes and the common stock acquired upon conversion. This summary is generally
limited to holders who will hold the notes and the shares of common stock into
which the notes are convertible as "capital assets" within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code") and
who acquire the notes in this offering at the initial offering price, and does
not deal with special situations including those that may apply to particular
holders such as exempt organizations, holders subject to the U.S. federal
alternative minimum tax, non-U.S. citizens and foreign corporations or other
foreign entities, dealers in securities, commodities or foreign currencies,
financial institutions, insurance companies, regulated investment companies,
holders whose "functional currency" is not the U.S. dollar and persons who hold
the notes or shares of common stock in connection with a "straddle," "hedging,"
"conversion" or other risk reduction transaction.
The federal income tax considerations set forth below are based upon
the Code, Treasury Regulations promulgated thereunder, court decisions, and
Internal Revenue Service ("IRS") rulings now in effect, all of which are subject
to change. Prospective investors should particularly note that any such change
could have retroactive application so as to result in federal income tax
consequences different from those discussed below. We have not sought any ruling
from the IRS with respect to statements made and conclusions reached in this
discussion and there can be no assurance that the IRS will agree with such
statements and conclusions.
Based on currently applicable authorities, we will treat the notes as
indebtedness for U.S. federal income tax purposes. However, since the notes have
certain equity characteristics, it is possible that the IRS will contend that
the notes should be treated as an equity interest in, rather than indebtedness
of our company. Except as otherwise noted, the remainder of this discussion
assumes that the notes will constitute indebtedness for U.S. tax purposes.
INVESTORS CONSIDERING THE PURCHASE OF THE NOTES ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL
INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY
STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
TAXATION OF INTEREST
Holders will be required to recognize as ordinary income any interest
paid or accrued on the notes, in accordance with their regular method of tax
accounting.
CONVERSION OR REPURCHASE FOR COMMON STOCK
A holder will not recognize income, gain or loss upon conversion of the
notes solely into our common stock (except with respect to any amounts
attributable to accrued interest on the notes, which will be treated as interest
for federal income tax purposes), and except with respect to cash received in
lieu of fractional shares. If we repurchase a note in exchange for common stock
pursuant to exercise of the repurchase right upon a change of control, although
the matter is not entirely clear, such exchange should be treated in the same
manner as a conversion of the note as described in the preceding sentence. The
holder's tax basis in the common stock received on conversion or repurchase of a
note for common stock pursuant to the repurchase right will be the same as the
holder's adjusted tax basis in the notes exchanged therefore at the time of
conversion or repurchase (reduced by any basis allocable to a fractional share),
and the holding period for the common stock received on conversion or repurchase
will include the holding period of the notes that were converted or repurchased.
Cash received in lieu of a fractional share of common stock upon
conversion of the notes into common stock or upon a repurchase for common stock
of a note pursuant to exercise of the repurchase right upon a change of control
will generally be treated as a payment in exchange for the fractional share of
common stock.
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Accordingly, the receipt of cash in lieu of a fractional share of common stock
generally will result in capital gain or loss measured by the difference between
the cash received for the fractional share and the holder's adjusted tax basis
in the fractional share.
DIVIDENDS ON COMMON STOCK
We do not anticipate paying any dividends on our common stock in the
foreseeable future. However, if we do make distributions on our common stock,
the distributions will constitute dividends for U.S. federal income tax purposes
to the extent of our current or accumulated earnings and profits as determined
under U.S. federal income tax principles. To the extent that a holder receives
distributions on shares of common stock that would otherwise constitute
dividends for U.S. federal income tax purposes but that exceed our current and
accumulated earnings and profits, such distributions will be treated first as a
non-taxable return of capital reducing the holder's basis in the shares of
common stock. Any such distributions in excess of the holder's basis in the
shares of common stock will generally be treated as capital gain. Subject to
applicable limitations, dividends paid to holders that are U.S. corporations
will qualify for the dividends-received deduction so long as there are
sufficient earnings and profits.
DISPOSITION, REDEMPTION OR REPURCHASE FOR CASH
Except as set forth above under "Conversion or Repurchase for Common
Stock," holders generally will recognize capital gain or loss upon the sale,
redemption, including a repurchase by us for cash pursuant to the repurchase
right, or other taxable disposition of the notes or common stock in an amount
equal to the difference between:
- the holder's adjusted tax basis in the notes or common stock
(as the case may be); and
- the amount of cash and fair market value of any property
received from such disposition (other than amounts
attributable to accrued interest on the notes, which will be
treated as interest for federal income tax purposes).
A holder's adjusted tax basis in a note generally will equal the cost
of the note to such holder. (For a discussion of the holder's basis in shares of
our common stock, see "Conversion or Repurchase for Common Stock").
Gain or loss from the taxable disposition of the notes or common stock
generally will be long-term capital gain or loss if the notes and/or shares of
common stock were held for more than one year at the time of the disposition.
The deductibility of capital losses is subject to limitations.
ADJUSTMENT OF CONVERSION PRICE
The conversion price of the notes is subject to adjustment under
certain circumstances. Under Section 305 of the Code and the Treasury
Regulations issued thereunder, certain adjustments to (or the failure to make
such adjustments to) the conversion price of the notes that increase the
proportionate interest of a holder in our assets or earnings and profits may
result in a taxable constructive distribution to the holders of the notes,
whether or not the holders ever convert the notes. Such constructive
distribution will be treated as a dividend, resulting in ordinary income (and a
possible dividends received deduction in the case of corporate holders) to the
extent of our current or accumulated earnings and profits, with any excess
treated first as a tax-free return of capital which reduces the holder's tax
basis in the notes to the extent thereof and thereafter as gain from the sale or
exchange of the notes. Generally, a holder's tax basis in a note will be
increased to the extent any such constructive distribution is treated as a
dividend. Moreover, if there is an adjustment (or a failure to make an
adjustment) to the conversion price of the notes that increases the
proportionate interest of the holders of outstanding common stock in our assets
or earnings and profits, then such increase in the proportionate interest of the
holders of the common stock generally will be treated as a constructive
distribution to such holders, taxable as described above. As a result, holders
of notes could have taxable income as a result of an event pursuant to which
they receive no cash or property.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
We or our designated paying agent will, where required, report to
holders of notes or common stock and the IRS the amount of any interest paid on
the notes or dividends paid with respect to the common stock (or other
reportable payments) in each calendar year and the amount of tax, if any,
withheld with respect to such payments.
Under the backup withholding provisions of the Code and the applicable
Treasury Regulations, a holder of notes or our common stock acquired upon the
conversion of a note may be subject to backup withholding at the rate of 31%
with respect to dividends or interest paid on, or the proceeds of a sale,
exchange or redemption of, the notes or the common stock, unless:
- such holder is a corporation or comes within certain other
exempt categories and when required demonstrates this fact; or
- provides a correct taxpayer identification number, certifies
as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup
withholding rules.
The amount of any backup withholding from a payment to a holder will be
allowed as a credit against the holder's federal income tax liability and may
entitle such holder to a refund, provided that the required information is
furnished to the IRS.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISER AS TO PARTICULAR TAX CONSEQUENCES
TO YOU OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND OUR COMMON STOCK,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
38
DESCRIPTION OF COMMON STOCK
GENERAL
As of the date of this prospectus, our certificate of incorporation
authorized us to issue up to 211,800,000 shares of class A common stock, par
value $0.10 per share, and 211,800,000 shares of class B common stock, par value
$0.10 per share. As of December 31, 2001, 55,459,026 shares of our class A
common stock and 88,516,599 shares of our class B common stock were outstanding.
Our class A common stock and class B common stock are listed on the New York
Stock Exchange.
VOTING RIGHTS
With respect to the election of directors, holders of our class A
common stock, voting together with holders of our preferred stock, are entitled
to elect 20 percent of the authorized number of members of our board of
directors, excluding those directors that holders of our preferred stock have
the exclusive right to elect. Each share of our class A common stock and each
share of our preferred stock has one vote. Holders of our class B common stock
are entitled to elect the remaining directors. Each holder of our class B common
stock has one vote per share. With respect to all other matters submitted to a
vote of our stockholders, except as required by law, the holders of our class A
and class B common stock vote together as a single class, and record holders of
each class have one vote per share.
In February 2002, we announced that our board of directors had
authorized, and had recommended to our stockholders, a proposal to amend our
certificate of incorporation to reclassify each outstanding share of our class A
common stock into one share of our class B common stock. The reclassification
proposal will require the affirmative vote of the holders of a majority of our
outstanding shares of class A common stock and a majority of our outstanding
shares of class B common stock, voting as separate classes, at our annual
meeting of stockholders scheduled to be held on May 2, 2002. If the proposal is
approved, the holders of our class B common stock, including our former class A
stockholders who receive class B shares pursuant to the reclassification, will
vote together with our preferred stockholders for the election of all of our
directors.
In addition to our annual meeting of stockholders, special meetings of
stockholders may be called by the chairman or vice chairman of our board of
directors, the president of the company, or a majority of our board of
directors. Our bylaws require that notice of a stockholders meeting be given to
each stockholder at least 10 days but not more than 60 days before the date of
the meeting. The holders of a majority of our outstanding stock entitled to vote
at a stockholders' meeting constitutes a quorum for the purpose of transacting
business at the meeting.
DIVIDENDS
Holders of our class A and class B common stock will share ratably in
any cash dividend that may from time to time be declared by our board of
directors. Dividends consisting of shares of class A or class B common stock
also may be declared and will be paid as follows:
- shares of class A common stock may be paid only to holders of
shares of class A common stock, and shares of class B common
stock may be paid only to holders of shares of class B common
stock; and
- shares will be paid proportionately with respect to each
outstanding class A or class B common share.
Our amended credit facilities prohibit the payment of dividends on our common
stock. See "Refinancing Transactions" and "Dividend Policy."
39
OTHER RIGHTS
In the case of any reorganization or consolidation or merger of our
company with another company, holders of shares of class A or class B common
stock will be entitled to receive stock, other securities and property of the
same kind and amount as that received by the other class. However, holders of
each class may receive different kinds of shares if the only difference in the
shares is the inclusion of voting rights that continue the special voting rights
regarding the election of directors described above.
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of our company, prior to any distributions to the holders of our
common stock, the holders of preferred stock will receive any payments to which
they are entitled. Subsequent to those payments, the holders of our class A and
class B common stock will share ratably, according to the number of shares held
by them, in our remaining assets, if any.
Shares of our class A and class B common stock are not redeemable and
have no subscription, conversion or preemptive rights. Both classes of common
stock are freely transferable, except for the common stock issuable upon
conversion of the notes.
In 1995, in connection with Rio Tinto plc's purchase of 23.9 million
shares of our class A common stock, we entered into an agreement that provided
Rio Tinto with certain preemptive rights and first offer rights if we issued
common stock, including securities convertible into common stock, in a future
public or non-public offering. In addition, the agreement provides Rio Tinto
with registration rights. Although Rio Tinto has rights under the agreement to
purchase notes in this offering, Rio Tinto has waived its rights to purchase any
of the notes.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
Our certificate of incorporation contains provisions that are designed
in part to make it more difficult and time-consuming for a person to obtain
control of our company unless they pay a required value to our stockholders.
Some provisions also are intended to make it more difficult for a person to
obtain control of our board of directors. These provisions reduce the
vulnerability of our company to an unsolicited takeover proposal. On the other
hand, these provisions may have an adverse effect on the ability of stockholders
to influence the governance of our company. You should read our certificate of
incorporation and bylaws for a more complete description of the rights of
holders of our common stock.
Classified Board of Directors. Our certificate of incorporation divides
the members of our board of directors, other than those that may be elected
solely by the holders of our preferred stock, into three classes serving
three-year staggered terms. The classification of directors has the effect of
making it more difficult for our stockholders to change the composition of our
board. At least two annual meetings of stockholders may be required for the
stockholders to change a majority of the directors, whether or not a majority of
stockholders believes that this change would be desirable.
Supermajority Voting/Fair Price Requirements. Our certificate of
incorporation provides that the approval of the holders of two-thirds of our
outstanding common stock is required for:
- any merger or consolidation of our company or any of our
subsidiaries with or into any person or entity, or any
affiliate of that person or entity, who was within the two
years prior to the transaction a beneficial owner of 20
percent or more of our common stock or any class of our common
stock (an "interested party");
- any merger or consolidation of an interested party with or
into our company or any of our subsidiaries;
- any sale, lease, mortgage, pledge or other disposition of more
than 10 percent of the fair market value of the assets of our
company or any of our subsidiaries in one or more transactions
involving an interested party;
40
- the adoption of any plan or proposal for liquidation or
dissolution of our company proposed by or on behalf of any
interested party;
- the issuance or transfer by our company or any of our
subsidiaries of securities having a fair market value of $10.0
million or more to any interested party; or
- any recapitalization, reclassification, merger or
consolidation of our company or any of our subsidiaries that
would increase an interested party's voting power in our
company or any of our subsidiaries.
However, the two-thirds voting requirement is not applicable if:
- our board approves the transaction, or approves the
acquisition of the common stock that caused the interested
person to become an interested person, and the vote includes
the affirmative vote of a majority of our directors who are
not affiliates of the interested party and who were members of
our board prior to the time the interested party became the
interested party;
- the transaction is solely between us and any of our wholly
owned subsidiaries or between any of our wholly owned
subsidiaries; or
- the transaction is a merger or consolidation and the
consideration to be received by our common stockholders is at
least as high as the highest price per share paid by the
interested party for our common stock on the date the common
stock was last acquired by the interested party or during a
period of two years prior.
Supermajority Voting/Amendments to Certificate of Incorporation. The
affirmative vote of at least two-thirds of our company's outstanding common
stock is required to amend, alter, change or repeal the provisions in our
certificate of incorporation providing for the fair price requirements described
above or our classified board of directors with staggered three-year terms.
Removal of Directors; Filling Vacancies on Board of Directors.
Directors may be removed, with cause, by the vote of the holders of all classes
of stock entitled to vote at an election of directors, voting together as a
single class. Directors may not be removed without cause by stockholders.
Vacancies in a directorship may be filled by the vote of the class or classes of
shares that had previously elected the director creating the vacancy, or by the
remaining directors or director elected by that class. The board may increase
the number of directors and fill the newly created directorships, but following
the enlargement, 80 percent of the members of the enlarged board must consist of
directors elected by the holders of our class B common stock.
RIGHTS AGREEMENT
Our Rights Agreement is designed to deter abusive takeover tactics and
to encourage prospective acquirors to negotiate with our board rather than
attempt to acquire the company in a manner or on terms that the board deems
unacceptable. Under our Rights Agreement, each outstanding share of class A and
class B common stock includes an associated preferred stock purchase right. If
the rights become exercisable, each right will entitle its holder to purchase
one one-hundredth (1/100) of a share of our series A participating cumulative
preferred stock at an exercise price of $60 per unit, subject to adjustment. The
rights trade with all outstanding shares of our class A and class B common
stock. The rights will separate from our common stock and become exercisable
upon the earlier of-
- the tenth day following a public announcement that a person or group
of affiliated or associated persons (other than Rio Tinto Indonesia Limited and
its affiliates or associates) has acquired beneficial ownership of 20 percent or
more of our outstanding common stock, or 20 percent or more of either our class
A common stock or class B common stock (an "acquiring person"); or
41
- the tenth business day, or any later date as determined by our board
prior to the time that any person or group becomes an acquiring person,
following the commencement of or announcement of an intention to make a tender
offer or exchange offer that, if consummated, would result in the person or
group becoming an acquiring person.
Term of Rights. The rights will expire on May 3, 2010, unless we extend
this date or redeem or exchange the rights as described below.
Exercise After Someone Becomes An Acquiring Person. After any person or
group becomes an acquiring person, each holder of a right will be entitled to
receive upon exercise that number of shares of our class B common stock having a
market value of two times the exercise price of the right. However, this right
will not apply to an acquiring person, whose rights will be void. Upon the
occurrence of certain events after someone becomes an acquiring person, each
holder of a right, other than the acquiring person, will be entitled to receive,
upon exercise of the right, common stock of the acquiring company having a
market value equal to two times the exercise price of the right. These rights
will arise only if after a person or group becomes an acquiring person:
- we are acquired in a merger or other business combination; or
- we sell or otherwise transfer 50 percent or more of our assets
or earning power.
Adjustment. The exercise price, the number of rights outstanding, and
the number of preferred shares issuable upon exercise of the rights are subject
to adjustment from time to time to prevent certain types of dilution. We will
not issue fractional preferred stock shares. Instead, we will make a cash
adjustment based on the market price of the preferred stock prior to the date of
exercise.
Rights, Preferences, and Limitations of Rights. Preferred stock
purchasable upon exercise of the rights will not be redeemable. Each share of
preferred stock will entitle the holder to receive a preferential quarterly
dividend payment of the greater of $1.00 or 100 times the dividend declared per
share of our common stock. In the event of liquidation, the holders of each
share of our preferred stock will be entitled to a preferential liquidation
payment of the greater of $0.10 per share or 100 times the payment made per
share of our common stock. Each share of our preferred stock will entitle the
holder to 100 votes and will vote together with our class B common stock, or if
we no longer have separate classes of common stock, our common stock. Finally,
in the event of any merger, consolidation or other transaction in which our
common stock is exchanged, each share of our preferred stock will entitle the
holder to receive 100 times the amount received per share of common stock. These
rights are protected by customary antidilution provisions. Because of the nature
of our preferred stock's dividend, liquidation and voting rights, the value of
each one one-hundredth interest in a share of preferred stock should approximate
the value of one share of our class B common stock.
Exchange and Redemption. After a person or group becomes an acquiring
person, we may exchange the rights, in whole or in part, at an exchange ratio,
subject to adjustment, of one share of our class B common stock, or one
one-hundredth of a share of preferred stock, per right. We generally may not
make an exchange after any person or group becomes the beneficial owner of 50
percent or more of our common stock or 50 percent or more of our class A common
stock or class B common stock.
We may redeem the rights in whole, but not in part, at a price of $0.01
per right, subject to adjustment, at any time prior to any person or group
becoming an acquiring person. The redemption of the rights may be made effective
at such time, on such basis and with such conditions as our board of directors
in its sole discretion may establish. Once redeemed, the rights will terminate
immediately and the only right of the rights holders will be to receive the cash
redemption price.
Amendments. We may amend the terms of the rights without the consent of
the rights holders, including an amendment to lower the thresholds described
above. However, after any person or group becomes an acquiring person, we may
not amend the terms of the rights in any way that adversely affects the
interests of the rights holders.
42
SELLING SECURITYHOLDERS
The notes originally were issued by us and sold by Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as the initial purchaser in
transactions exempt from the registration requirements of the Securities Act, to
persons reasonably believed by the initial purchaser to be qualified
institutional buyers. Selling securityholders, including their transferees,
pledgees or donees or their successors, may from time to time offer and sell any
or all of the notes and the common stock into which the notes are convertible
pursuant to this prospectus. The selling securityholders may offer all, some or
none of the notes and the common stock into which the notes are convertible.
The table below sets forth information, as of March 12, 2002, with
respect to the selling securityholders and the principal amounts of notes and
amounts of common stock beneficially owned by each selling securityholder that
may be offered under this prospectus by the selling securityholders. The
information is based on information provided by or on behalf of the selling
securityholders. The selling securityholders identified below may have sold,
transferred or otherwise disposed of all or a portion of their notes or common
stock since the date on which they provided the information regarding their
notes or common stock in transactions exempt from the registration requirements
of the Securities Act.
Because the selling securityholders may offer all or some portion of
the notes or the common stock to be offered by them, we cannot estimate the
amount of any sales.
The initial purchaser of the notes or its affiliates have engaged in,
and may in the future engage in, investment banking and other commercial
dealings in the ordinary course of business with us. They have received
customary fees and commissions for these transactions. The initial purchaser of
the notes is an affiliate of a lender under our bank credit facility. Such
affiliates of the initial purchaser received their proportionate share of the
repayment by us of amounts outstanding under our bank credit facility from the
sale of the notes to the initial purchaser. To our knowledge, none of the other
selling securityholders has had any position, office or other material
relationship with us or our affiliates within the past three years.
PRINCIPAL
AMOUNT OF NOTES PERCENTAGE OF NUMBER OF SHARES
OWNED AND NOTES OF COMMON STOCK
NAME OF SELLING SECURITYHOLDER OFFERED OUTSTANDING THAT MAY BE SOLD(1)
------------------------------ ------- ----------- -------------------
AAM Zazove International Convertible
Fund L.P. .............................. $ 500,000 * 34,965
Absolute Return Fund Ltd. ................... 150,000 * 10,489
Advent Convertible Master Cayman L.P. ....... 5,190,000 * 362,937
AIG/National Union Fire Insurance ........... 930,000 * 65,034
AIG SoundShore Holdings Ltd. ................ 7,556,000 1.25% 528,391
AIG SoundShore Opportunity Holding
Fund Ltd. .............................. 4,354,000 * 304,475
AIG SoundShore Strategic Holding
Fund Ltd. .............................. 2,590,000 * 181,118
Alpine Associates ........................... 9,400,000 1.56% 657,343
Alpine Partners, L.P. ....................... 1,300,000 * 90,909
American Motorist Insurance Company ......... 658,000 * 46,013
American Samoa Government ................... 27,000 * 1,888
Arapahoe County Colorado .................... 64,000 * 4,475
Aristeia International Limited .............. 8,340,000 1.38% 583,216
Aristeia Trading LLC ........................ 2,660,000 * 186,013
BP Amoco PLC, Master Trust .................. 1,084,000 * 75,804
43
PRINCIPAL
AMOUNT OF NOTES PERCENTAGE OF NUMBER OF SHARES
OWNED AND NOTES OF COMMON STOCK
NAME OF SELLING SECURITYHOLDER OFFERED OUTSTANDING THAT MAY BE SOLD(1)
------------------------------ ------- ----------- -------------------
Bank of America Pension Plan................. 1,500,000 * 104,895
Beta Equities Inc. .......................... 6,115,000 1.01% 427,622
Boilermakers Blacksmith Pension Trust ....... 1,035,000 * 72,377
CALAMOS Market Neutral Fund -
CALAMOS Investment Trust ............... 2,000,000 * 139,860
CIBC WG International Arbitrage ............. 7,000,000 1.16% 489,510
Circlet (IMA) Limited ....................... 3,000,000 * 209,790
City of New Orleans ......................... 264,000 * 18,461
City University of New York ................. 158,000 * 11,048
Commonfund Global Macro Company ............. 842,000 * 58,881
CSFB Convertible and Quantitative
Strategies ............................. 3,750,000 * 262,237
Credit Suisse First Boston,
London Branch .......................... 19,500,000 3.23% 1,363,636
1976 Distribution Trust FBO A.R.
Lauder/Zinterhofer ..................... 9,000 * 629
1976 Distribution Trust FBO Jane A.
Lauder ................................. 17,000 * 1,188
Delaware PERS ............................... 1,155,000 * 80,769
Deutsche Banc Alex Brown Inc. ............... 31,496,000 5.22% 2,202,517
DNB Investment .............................. 1,000,000 * 69,930
Dredsner Kleinwort Wasserstein-
Gratchester Inc. ....................... 1,000,000 * 69,930
Estate of James Campbell .................... 172,000 * 12,027
Fidelity Contrafund: Fidelity
Contrafund ............................. 19,805,000 3.28% 1,384,965
Fidelity Devonshire Trust: Fidelity Equity-
Income Fund ............................ 14,830,000 2.46% 1,037,062
Fidelity Financial Trust: Fidelity
Convertible Securities Fund ............ 7,310,000 1.21% 511,188
Fidelity Puritan Trust: Fidelity Balanced
Fund ................................... 4,000,000 * 279,720
Fidelity Puritan Trust: Fidelity Puritan Fund 8,380,000 1.39% 586,013
Fidelity Summer Street Trust: Fidelity
Capital & Income Fund .................. 3,713,000 * 259,650
FR. Convt. Sec. Fn. ......................... 145,000 * 10,139
Global Bermuda Limited Partnership .......... 2,600,000 * 181,818
GM Employees Global Grp Pen Tr (Abs
Return Portfolio) ...................... 1,500,000 * 104,895
General Motor Welfare Benefit Trust
(VEBA) ................................ 3,000,000 * 209,790
Goldman Sachs and Company ................... 8,975,000 1.49% 627,622
Grady Hospital Foundation ................... 139,000 * 9,720
HBK Master Fund L.P. ........................ 2,500,000 * 174,825
HFR Convertible Arbitrage Account ........... 435,000 * 30,419
44
PRINCIPAL
AMOUNT OF NOTES PERCENTAGE OF NUMBER OF SHARES
OWNED AND NOTES OF COMMON STOCK
NAME OF SELLING SECURITYHOLDER OFFERED OUTSTANDING THAT MAY BE SOLD(1)
------------------------------ ------- ----------- -------------------
HFR Zazove Master Trust ..................... 150,000 * 10,489
Highbridge International LLC ................ 14,500,000 2.40% 1,013,986
Hotel Union & Hotel Industry of Hawaii ...... 291,000 * 20,349
ICI American Holdings Trust ................. 425,000 * 29,720
Independence Blue Cross ..................... 280,000 * 19,580
James Campbell Corporation, The ............. 226,000 * 15,804
Jefferies & Company Inc. .................... 7,000 * 489
KBC Financial Products USA Inc. ............. 50,000 * 3,496
Lakeshore International, Ltd. ............... 10,650,000 1.76% 744,755
Lexington (IMA) Limited ..................... 80,000 * 5,594
Lipper Convertibles, L.P. ................... 5,000,000 * 349,650
Lipper Offshore Convertibles, L.P. .......... 2,500,000 * 174,825
Local Initiatives Support Corporation ....... 66,000 * 4,615
McMahan Securities Co. L.P. ................. 1,450,000 * 101,398
Merced Partners Limited Partnership ......... 4,500,000 * 314,685
Merrill Lynch International Limited ......... 13,000,000 2.15% 909,090
Minnesota Power and Light ................... 285,000 * 19,930
Morgan Stanley Dean Witter Convertible
Securities Trust ....................... 2,250,000 * 157,342
Municipal Employees ......................... 239,000 * 16,713
Nabisco Holdings ............................ 37,000 * 2,587
New Orleans Firefighters Pension/
Relief Fund ........................... 144,000 * 10,069
Oakwood Healthcare Inc. (Pension)............ 120,000 * 8,392
Occidental Petroleum Corporation ............ 267,000 * 18,671
Omega Capital Investors, L.P. ............... 761,000 * 53,216
Omega Capital Partners, L.P. ................ 9,407,000 1.56% 657,832
Omega Overseas Partners, Ltd. ............... 7,875,000 1.30% 550,699
Ondeo Nalco ................................. 180,000 * 12,587
Oppenheimer Convertible Securities Fund ..... 3,500,000 * 244,755
Oz Master Fund, Ltd. ........................ 4,770,000 * 333,566
Peoples Benefit Life Insurance Company
TEAMSTERS .............................. 3,250,000 * 227,272
Pioneer High Yield Fund ..................... 23,120,000 3.83% 1,616,783
Pioneer High Yield VCT Portfolio ............ 1,200,000 * 83,916
Pioneer Strategic Income Fund ............... 160,000 * 11,188
Pioneer Strategic Income VCT Portfolio ...... 20,000 * 1,398
Policeman and Firemen Retirement System
of the City of Detroit ................. 693,000 * 48,461
Pro-mutual .................................. 780,000 * 54,545
R2 Investments, LDC ......................... 10,000,000 1.66% 699,300
Ramius Capital Group ........................ 279,000 * 19,510
Raytheon Master Pension Trust ............... 219,000 * 15,314
RCG Latitude Master Fund Ltd. ............... 1,115,000 * 77,972
45
PRINCIPAL
AMOUNT OF NOTES PERCENTAGE OF NUMBER OF SHARES
OWNED AND NOTES OF COMMON STOCK
NAME OF SELLING SECURITYHOLDER OFFERED OUTSTANDING THAT MAY BE SOLD(1)
------------------------------ ------- ----------- -------------------
RCG Multi Strategy LP ...................... 106,000 * 7,412
RJR Reynolds ................................ 112,000 * 7,832
Retail Clerks Pension Trust ................. 1,500,000 * 104,895
Retail Clerks Pension Trust #2 .............. 1,000,000 * 69,930
2000 Revocable Trust FBO A.R.
Lauder/Zinterhofer ..................... 9,000 * 629
St. Albans Partners Ltd. .................... 3,249,000 * 227,202
San Diego County Employees Retirement
Association ............................ 650,000 * 45,454
SG Cowen Securities Corporation ............. 200,000 * 13,986
Shell Pension Trust ......................... 653,000 * 45,664
Southern Farm Bureau Life Insurance ......... 955,000 * 66,783
Stark International ......................... 4,000,000 * 279,720
Starvest Combined Portfolio ................. 990,000 * 69,230
Starvest Managed Portfolio .................. 45,000 * 3,146
State of Maryland Retirement Agency ......... 3,342,000 * 233,706
State of Oregon/Equity ...................... 3,675,000 * 256,993
State of Oregon/SAIF Corporation ............ 1,240,000 * 86,713
Susquehanna Capital Group ................... 11,500,000 1.90% 804,195
Syngenta AG ................................. 195,000 * 13,636
Tamarack International, Ltd. ................ 4,750,000 * 332,167
TD Securities (USA) Inc. .................... 12,573,000 2.08% 879,230
Tempo Master Fund LP ........................ 8,465,000 1.40% 591,958
TQA Master Fund Ltd. ........................ 3,000,000 * 209,790
TQA Master Plus Fund Ltd. ................... 3,000,000 * 209,790
The Class I C Company ....................... 1,500,000 * 104,895
Tribeca Investments, L.L.C. ................. 4,500,000 * 314,685
Van Kampen Equity Income Fund ............... 17,400,000 2.88% 1,216,783
Van Kampen Harbor Fund ...................... 2,600,000 * 181,818
Variable Insurance Products Fund: Equity-
Income Portfolio ....................... 6,790,000 1.12% 474,825
Variable Insurance Products Fund II:
Contrafund Portfolio ................... 5,025,000 * 351,398
Viacom Inc. Pension Plan Master Trust ....... 31,000 * 2,167
Zazove Hedged Convertible Fund L.P. ......... 600,000 * 41,958
Zazove Income Fund L.P. ..................... 500,000 * 34,965
Zeneca Holdings Trust ....................... 290,000 * 20,279
Zurich Institutional Benchmarks ............. 162,000 * 11,328
Zurich Institutional Benchmarks Master
Fund Ltd. .............................. 600,000 * 41,958
----------- ----- ----------
TOTAL .............................. 431,201,000 71.42% 30,153,866
=========== ===== ==========
---------------------
* less than 1%
(1) The notes are convertible into shares of class A or class B common
stock at a conversion price of $14.30 per share.
46
PLAN OF DISTRIBUTION
The selling securityholders and their successors, including their
transferees, pledgees or donees or their successors, may sell the notes and our
common stock into which the notes are convertible directly to purchasers or
through underwriters, brokers-dealers or agents, who may receive compensation in
the form of discounts, concessions or commissions from the selling
securityholders or the purchasers. These discounts, concessions or commissions
as to any particular underwriter, broker-dealer or agent may be in excess of
those customary in the types of transactions involved.
The notes and common stock issuable upon conversion of the notes may be
sold in one or more transactions at fixed prices, at prevailing market prices at
the time of sale, at prices related to the prevailing market prices, at varying
prices determined at the time of sale, or at negotiated prices. These sales may
be effected in transactions, which may involve crosses or block transactions:
- on any national securities exchange or U.S. inter-dealer
system of a registered national securities association on
which the notes or our common stock may be listed or quoted at
the time of sale;
- in the over-the-counter market;
- otherwise than on these exchanges or systems or in the
over-the-counter market;
- through the writing of options, whether the options are listed
on an options exchange or otherwise; or
- through the settlement of short sales.
In connection with the sale of the notes and common stock issuable upon
conversion of the notes, the selling securityholders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the notes or common stock in the course of hedging
the positions they assume. The selling securityholders also may sell the notes
or common stock issuable upon conversion of the notes, short and deliver these
securities to close out their short positions, or loan or pledge the notes or
common stock to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling securityholders from the sale of
the notes or common stock offered by them will be the purchase price of the
notes or common stock less discounts and commissions, if any. Each of the
selling securityholders reserves the right to accept and, together with their
agents from time to time, to reject, in whole or in part, any proposed purchase
of notes or common stock to be made directly or through agents. We will not
receive any of the proceeds from the sales by selling securityholders.
Our class A and class B common stock are traded on the New York Stock
Exchange under the symbols "FCXA" and "FCX," respectively. The notes sold
pursuant to this prospectus will no longer be eligible for trading on The PORTAL
Market. Although we intend to apply for the listing of the notes on the New York
Stock Exchange, we cannot assure you that an active trading market for the notes
will develop or be sustained.
In order to comply with the securities laws of some states, if
applicable, the notes and common stock may be sold in these jurisdictions only
through registered or licensed brokers or dealers. In addition, in some states
the notes and common stock may not be sold unless they have been registered or
qualified for sale or an exemption from registration or qualification
requirements is available and is complied with.
The selling securityholders and any underwriters, broker-dealers or
agents that participate in the sale of the notes and common stock may be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933. Any discounts, commissions, concessions or profit they earn on any resale
of the shares may be underwriting discounts and commissions under the Securities
Act. Selling securityholders who are "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933 will be subject to the prospectus
delivery requirements of
47
the Securities Act of 1933. The selling securityholders have acknowledged that
they understand their obligations to comply with the provisions of the
Securities Exchange Act of 1934 and the rules thereunder relating to stock
manipulation, particularly Regulation M.
In addition, any securities covered by this prospectus which qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act of 1933 may be
sold under Rule 144 or Rule 144A rather than under this prospectus. A selling
securityholder may not sell any notes or common stock described in this
prospectus and may not transfer, devise or gift these securities by other means
not described in this prospectus.
To the extent required, the specific notes or shares of our common
stock to be sold, the names of the selling securityholders, the respective
purchase prices and public offering prices, the names of any agent, dealer or
underwriter, and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus supplement or,
if appropriate, a post-effective amendment to the registration statement of
which this prospectus is a part.
We entered into a registration rights agreement for the benefit of
holders of the notes to register their notes and our common stock under
applicable federal and state securities laws under specific circumstances and at
specific times. The registration rights agreement provides for
cross-indemnification of the selling securityholders and us and our respective
directors, officers and controlling persons against specific liabilities in
connection with the offer and sale of the notes and our common stock, including
liabilities under the Securities Act of 1933.
We have agreed to pay substantially all of the expenses of registering
the notes and common stock under the Securities Act of 1933 and of compliance
with blue sky laws, including registration and filing fees, printing and
duplicating expenses, legal fees of our counsel, fees for one legal counsel
retained by the selling securityholders and fees of the trustee under the
indenture pursuant to which we originally issued the notes and of the registrar
and transfer agent of our common stock. If the notes or the common stock into
which the notes may be converted are sold through underwriters or
broker-dealers, the selling securityholders will be responsible for underwriting
discounts, underwriting commissions and agent commissions.
Under the registration rights agreement, we are obligated to use
reasonable efforts to keep the registration statement effective until, and
therefore this offering will terminate on, the earlier of: (1) the date on which
all securities offered under this prospectus have been sold pursuant to this
prospectus, and (2) the date on which all outstanding securities held by
non-affiliates of ours may be resold without registration under the Securities
Act of 1933 pursuant to Rule 144(k) under the Securities Act of 1933.
48
LEGAL MATTERS
The validity of the securities will be passed upon for us by Jones,
Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.
EXPERTS
Our audited financial statements and schedules included in this
prospectus and incorporated by reference to our Annual Report on Form 10-K for
the year ended December 31, 2001 have been audited by Arthur Andersen LLP,
independent public accountants as indicated in their reports contained in our
Annual Report on Form 10-K. We have relied upon their authority as experts in
accounting and auditing in giving these reports. Our future audited financial
statements and schedules and the reports of our independent public accountants
also will be incorporated by reference in this prospectus in reliance upon the
authority of our accountants as experts in giving those reports to the extent
our auditors have audited those financial statements and consented to the use of
their reports thereon.
Our reserves as of December 31, 2001 included in this prospectus and
incorporated by reference to our Annual Report on Form 10-K for the year ended
December 31, 2001, have been verified by Independent Mining Consultants, Inc.
This reserve information has been included in this prospectus and incorporated
by reference herein in reliance upon the authority of Independent Mining
Consultants, Inc. as experts in mining, geology and reserve determination.
49
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended, under which we file periodic
reports, proxy statements and other information with the SEC. Copies of these
reports, proxy statements and other information may be examined without charge
at the SEC public reference room located at 450 Fifth Street, N.W. Room 1024,
Washington, D.C. 20549. We also file information electronically with the SEC.
Our electronic filings are available from the SEC's Internet site at
http://www.sec.gov. Copies of all or a portion of our filings may also be
obtained from the Public Reference Section of the SEC upon payment of prescribed
fees. Please call the SEC at 800-SEC-0330 for further information.
We have agreed that if, at any time that the notes or the common stock
issuable upon conversion of the notes are "restricted securities" within the
meaning of the Securities Act of 1933 and we are not subject to the information
reporting requirements of the Securities Exchange Act of 1934, we will furnish
to holders of the notes and such common stock and to prospective purchasers
designated by them the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act of 1933 to permit compliance with Rule 144A
in connection with resales of the notes and such common stock.
We are "incorporating by reference" specified documents that we file
with the SEC, which means:
- incorporated documents are considered part of this prospectus;
- we are disclosing important information to you by referring
you to those documents, and
- information that we file in the future with the SEC will
automatically update and supersede this prospectus.
We incorporate by reference our annual report on Form 10-K for the
fiscal year ended December 31, 2001, filed March 8, 2002, and any documents that
we file with the SEC under Section 13(c) or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), after the date of this prospectus and
before the end of the offering of the notes.
At your request, we will provide you with a free copy of any of these
filings (except for exhibits, unless the exhibits are specifically incorporated
by reference into the filing). You may request copies by writing or calling us
at:
Freeport-McMoRan Copper & Gold Inc.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Christopher D. Sammons
Investor Relations
(504) 582-4000
50
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FREEPORT-MCMORAN COPPER & GOLD INC.
FCX INVESTMENT LTD.
$603,750,000
8 1/4% CONVERTIBLE SENIOR NOTES DUE 2006
FREEPORT-MCMORAN COPPER & GOLD INC.
42,220,280 SHARES OF CLASS A COMMON STOCK
42,220,280 SHARES OF CLASS B COMMON STOCK
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PROSPECTUS
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MARCH 12, 2002
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