UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Freeport-McMoRan Copper & Gold Inc.
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[FREEPORT-MCMORAN COPPER & GOLD LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 2, 2002
------------------------
March 27, 2002
DATE: Thursday, May 2, 2002
TIME: 1:00 p.m., Eastern Time
PLACE: Hotel du Pont
11th and Market Streets
Wilmington, Delaware
PURPOSE: - To elect six directors;
- To vote on the proposal to reclassify our two classes of
common stock into a single class by amending our certificate
of incorporation;
- To vote on two stockholder proposals, if presented at the
meeting; and
- To transact such other business as may properly come before
the meeting.
RECORD DATE: Close of business on March 14, 2002.
Your vote is important. Whether or not you plan to attend the meeting,
please complete, sign and date the enclosed proxy card and return it promptly in
the enclosed envelope. Your cooperation will be appreciated.
By Order of the Board of Directors.
/s/ William H. Hines
WILLIAM H. HINES
Secretary
INFORMATION ABOUT ATTENDING THE ANNUAL MEETING
If you plan to attend the meeting, please bring the following:
1. Proper identification.
2. Proof of Ownership if your shares are held in "Street Name."
Street Name means your shares are held of record by brokers, banks or other
institutions.
Acceptable Proof of Ownership is (a) a letter from your broker stating that you
owned Freeport-McMoRan Copper & Gold Inc. stock on the record date or (b) an
account statement showing that you owned Freeport-McMoRan Copper & Gold Inc.
stock on the record date.
Only stockholders of record on the record date may attend or vote at the annual
meeting.
POST-MEETING REPORT OF THE ANNUAL MEETING
A post-meeting report summarizing the proceedings of the meeting will be
available on our internet web site (fcx.com) within 10 days following the
meeting. A copy of the report will be mailed at no charge to any stockholder
requesting it.
FREEPORT-MCMORAN COPPER & GOLD INC.
1615 POYDRAS STREET
NEW ORLEANS, LOUISIANA 70112
The 2001 Annual Report to Stockholders, including financial statements, is
being mailed to stockholders together with these proxy materials on or about
March 27, 2002.
This proxy statement is furnished in connection with a solicitation of
proxies by the board of directors of Freeport-McMoRan Copper & Gold Inc. for use
at our Annual Meeting of Stockholders to be held on May 2, 2002, and at any
adjournments (the meeting).
WHO CAN VOTE
If you held any Company Stock on the record date then you will be entitled
to vote at the meeting. Company Stock refers to our common stock and preferred
stock described below. Our preferred stock is represented by depositary shares,
each of which represents a fraction of a share of our preferred stock.
Common Stock Outstanding on Record Date
NO. OF SHARES
NAME OF SECURITY OUTSTANDING
---------------- ------------------
Class A Common Stock 55,567,714
Class B Common Stock 88,602,724
Preferred Stock Outstanding on Record Date
NO. OF DEPOSITARY
NAME OF SECURITY SHARES OUTSTANDING
---------------- ------------------
Step-Up Convertible Preferred Stock 13,999,600*
Gold-Denominated Preferred Stock 6,000,000*
Gold-Denominated Preferred Stock, Series II 4,305,580*
Silver-Denominated Preferred Stock 4,760,000**
---------------
* Each depositary share represents 0.05 shares of our preferred stock.
** Each depositary share represents 0.015625 shares of our preferred stock.
VOTING RIGHTS
Each share of Company Stock that you hold entitles you to one vote on all
matters that holders of such stock are entitled to vote. In general, holders of
common stock may vote on all matters and holders of depositary shares may only
vote for the Class A director. As a holder of depositary shares, you vote by
instructing the depositary on how to vote the preferred stock represented by
your depositary shares.
Election of Directors. Our directors are elected by a plurality of shares
voted, with
- at least 80% of our board elected by holders of our Class B common
stock; and
- the remainder of our board elected by holders of our Class A common
stock and preferred stock, voting together as a single class.
Voting On All Other Matters. On all other matters, holders of our Class A
common stock and Class B common stock vote together as a single class.
Inspectors of election will count votes cast at the meeting. Our directors
are elected by plurality vote. All other matters are decided by majority vote of
our common stock present at the meeting, except as otherwise provided by
statute, our certificate of incorporation or our by-laws.
Brokers holding shares of record for customers generally are not entitled
to vote on certain matters unless they receive voting instructions from their
customers. When brokers do not receive voting instructions from their customers,
they notify the company on the proxy form that they lack voting authority. The
votes that could have been cast on the matter in question by brokers who did not
receive voting instructions are called "broker non-votes."
Abstentions and broker non-votes will have no effect on the election of
directors. Abstentions as to all other matters to come before the meeting will
be counted as votes against those matters. Broker non-votes as to all other
matters will not be counted as votes for or against and will not be included in
calculating the number of votes necessary for approval of those matters.
QUORUM
A quorum at the meeting is a majority of the Company Stock entitled to
vote, present in person or represented by proxy. The persons whom we appoint to
act as inspectors of election will determine whether a quorum exists. Shares of
Company Stock represented by properly executed and returned proxies will be
treated as present. Shares of Company Stock present at the meeting that abstain
from voting or that are the subject of broker non-votes will be counted as
present for purposes of determining a quorum.
HOW YOUR PROXY WILL BE VOTED
The board of directors is soliciting a proxy in the enclosed form to
provide you with an opportunity to vote on all matters scheduled to come before
the meeting, whether or not you attend in person.
Granting Your Proxy. If you properly execute and return a proxy in the
enclosed form, your stock will be voted as you specify. If you make no
specifications, your proxy representing
(1) our common stock will be voted:
- in favor of the proposed director nominees,
- for the amendment of our certificate of incorporation to reclassify
our two classes of common stock into a single class of common stock,
and
- against the two stockholder proposals; and
(2) our preferred stock will be voted in favor of the proposed director
nominee.
We expect no matters to be presented for action at the meeting other than
the items described in this proxy statement. The enclosed proxy will, however,
confer discretionary authority with respect to any other matter that may
properly come before the meeting. The persons named as proxies in the enclosed
proxy intend to vote in accordance with their judgment on any matters that may
properly come before the meeting.
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Revoking Your Proxy. If you submit a proxy, you may subsequently revoke it
or submit a revised proxy at any time before it is voted. You may also attend
the meeting in person and vote by ballot, which would cancel any proxy that you
previously submitted. If you attend the meeting and hold your stock in street
name, then you must have a proxy from your broker in order to vote at the
meeting.
PROXY SOLICITATION
We will pay all expenses of soliciting proxies for the meeting. In addition
to solicitations by mail, arrangements have been made for brokers and nominees
to send proxy materials to their principals, and we will reimburse them for
their reasonable expenses. We have retained Georgeson Shareholder Communications
Inc., 17 State Street, New York, New York, to assist with the solicitation of
proxies from brokers and nominees. It is estimated that the fees for Georgeson's
services will be $8,500 plus its reasonable out-of-pocket expenses. The fee
amount is not contingent on the number of stockholder votes in favor of the
common stock reclassification proposal. Georgeson will not make any
recommendation to our stockholders to either accept or reject the common stock
reclassification proposal or otherwise express an opinion concerning this
proposal. We may have our representatives, who will receive no compensation for
their services, solicit proxies by telephone, telecopy, personal interview or
other means.
STOCKHOLDER PROPOSALS
If you want us to consider including a proposal in next year's proxy
statement, you must deliver it in writing to our Corporate Secretary,
Freeport-McMoRan Copper & Gold Inc., 1615 Poydras St., New Orleans, Louisiana
70112 by November 23, 2002.
If you want to present a proposal at next year's annual meeting but do not
wish to have it included in our proxy statement, you must submit it in writing
to our Corporate Secretary, at the above address, by January 1, 2003 in
accordance with the specific procedural requirements in our by-laws. If you
would like a copy of these procedures, please contact our Corporate Secretary.
Failure to comply with our by-law procedures and deadlines may preclude
presentation of the matter at the meeting.
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CORPORATE GOVERNANCE
Our board of directors, which held five meetings during 2001, has primary
responsibility for directing the management of our business and affairs. Our
board currently consists of fifteen members. To provide for effective direction
and management of our business, our board has established an audit committee, a
corporate personnel committee, a nominating committee and a public policy
committee.
AUDIT MEETINGS
COMMITTEE MEMBERS FUNCTIONS OF THE COMMITTEE IN 2001
----------------- -------------------------- --------
Robert A. Day, Chairman - please refer to the Audit Committee Report 4
Robert W. Bruce III
Gerald J. Ford
H. Devon Graham, Jr.
Steven J. Green
Oscar Y. L. Groeneveld
CORPORATE PERSONNEL MEETINGS
COMMITTEE MEMBERS FUNCTIONS OF THE COMMITTEE IN 2001
------------------- -------------------------- --------
H. Devon Graham, Jr., Chairman - please refer to the Corporate Personnel 5
Robert J. Allison, Jr. Committee Report on Executive Compensation
Robert W. Bruce III
Bobby Lee Lackey
J. Taylor Wharton
NOMINATING MEETINGS
COMMITTEE MEMBERS FUNCTIONS OF THE COMMITTEE IN 2001
----------------- -------------------------- --------
B. M. Rankin, Jr., Chairman - makes recommendations to our board concerning 2
R. Leigh Clifford the structure of our board, corporate governance
Robert A. Day and proposed new members of our board
- nominates individuals to stand for election as
directors
- considers recommendations by our stockholders
of potential nominees for election as directors
Upon written request, our Corporate Secretary will furnish information
concerning the procedures required to be followed by a stockholder who wishes to
recommend to our nominating committee potential nominees for election as
directors.
PUBLIC POLICY MEETINGS
COMMITTEE MEMBERS FUNCTIONS OF THE COMMITTEE IN 2001
----------------- -------------------------- --------
J. Taylor Wharton, Chairman - oversees our governmental and community 3
Robert J. Allison, Jr. relationships and information programs
R. Leigh Clifford
Steven J. Green - oversees our various compliance programs and
Oscar Y. L. Groeneveld equal employment policies and practices
J. Bennett Johnston
Bobby Lee Lackey - oversees our charitable and philanthropic
Gabrielle K. McDonald contributions
B. M. Rankin, Jr.
J. Stapleton Roy - makes recommendations to our board regarding
these policies and programs
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During 2001, each of our directors, except Messrs. Allison, Ford and Green,
attended at least 75% of the aggregate number of meetings of our board and board
committees on which he served.
ELECTION OF DIRECTORS
Our board of directors has fixed the number of directors at fifteen, three
of whom are elected by the holders of our Class A common stock and preferred
stock (Class A Directors) and twelve of whom are elected by the holders of our
Class B common stock (Class B Directors). In addition, our board consists of
three classes, each of which serves for three years, with one class being
elected each year.
Pursuant to an agreement (Rio Tinto Agreement) among the company, Rio Tinto
plc (Rio Tinto), a worldwide mining and smelting company, and certain of Rio
Tinto's affiliates, Rio Tinto has the right to submit for nomination for
election by our stockholders the percentage of directors, rounded to the nearest
whole number, that is proportionately equal to the Rio Tinto affiliates'
aggregate percentage ownership of all of our outstanding common stock. The Rio
Tinto affiliates may nominate directors either as Class A Directors or Class B
Directors, but the percentage of Class B Directors nominated, if any, cannot
exceed the percentage of our Class B common stock outstanding that the Rio Tinto
affiliates own. As of the record date, Rio Tinto Indonesia Limited, a Rio Tinto
affiliate, owned 23,931,100 shares of our Class A common stock, or 16.6% of our
outstanding common stock. In the Rio Tinto Agreement, we agreed to include Rio
Tinto's nominees with the directors nominated by our board and to refrain from
taking any action that may hinder the election of Rio Tinto's nominees. Messrs.
Clifford and Groeneveld are the directors selected by Rio Tinto and both serve
as Class A Directors.
This table shows the members of the different classes of our board and the
expiration of their terms.
CLASS EXPIRATION OF TERM CLASS MEMBERS
----- ------------------ -------------
Class I 2002 Annual Meeting of Stockholders Class A: Steven J. Green
Class B: Robert W. Bruce III
Robert A. Day
H. Devon Graham, Jr.
Bobby Lee Lackey
Gabrielle K. McDonald
Class II 2003 Annual Meeting of Stockholders Class A: Oscar Y. L. Groeneveld
Class B: Gerald J. Ford
J. Bennett Johnston
Class III 2004 Annual Meeting of Stockholders Class A: R. Leigh Clifford
Class B: Robert J. Allison, Jr.
James R. Moffett
B. M. Rankin, Jr.
J. Stapleton Roy
J. Taylor Wharton
Our board has nominated each of the Class I directors named above for an
additional three-year term. The persons named as proxies in the enclosed form of
proxy intend to vote your proxy for the re-election of the Class I directors,
unless otherwise directed. If, contrary to our expectations, a nominee should
become
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unavailable for any reason, your proxy will be voted for a substitute nominee
designated by our board, unless otherwise directed.
INFORMATION ABOUT NOMINEES AND DIRECTORS
This table provides certain information as of February 26, 2002 with
respect to each director nominee and each other director. Unless otherwise
indicated, each person has been engaged in the principal occupation shown for
the past five years.
YEAR FIRST
NAME OF NOMINEE PRINCIPAL OCCUPATIONS, OTHER PUBLIC DIRECTORSHIPS ELECTED A
OR DIRECTOR AGE AND POSITIONS WITH THE COMPANY DIRECTOR
--------------- --- ------------------------------------------------- ----------
Robert J. Allison, Jr. 63 Chairman of the Board of Anadarko Petroleum 2001
Corporation. Chief Executive Officer of Anadarko
Petroleum Corporation from 1979 to 2002.
Robert W. Bruce III 57 President, The Robert Bruce Management Co., Inc., 1995
investment advisor.
R. Leigh Clifford 54 Director and Chief Executive of Rio Tinto plc and Rio 2000
Tinto Limited, worldwide mining and smelting.
Director of the Company from September 1995 to
August 1997.
Robert A. Day 58 Chairman of the Board and Chief Executive Officer of 1995
TCW Group Inc., an investment management company.
Chairman, President and Chief Executive Officer of
W. M. Keck Foundation, a national philanthropic
organization. Director of Fisher Scientific
International Inc., Syntroleum Corporation and
McMoRan Exploration Co. (McMoRan).
Gerald J. Ford 57 Chairman of the Board and Chief Executive Officer of 2000
California Federal Bank, A Federal Savings Bank and
its predecessors. Chairman of the Board and Chief
Executive Officer of Golden State Bancorp Inc., a
bank holding company, and its affiliates, Golden
State Holdings Inc. and California Federal Preferred
Capital Corporation. Chairman of the Board and Chief
Executive Officer of Liberte Investors Inc. Chairman
of the Board of First Nationwide Mortgage
Corporation. Director of McMoRan.
H. Devon Graham, Jr. 67 President of R.E. Smith Interests, an asset management 2000
company. United States Regional Managing Partner --
Southwest of Arthur Andersen LLP from 1985 until
1997. Director of McMoRan.
Steven J. Green 56 Chairman and Chief Executive Officer of Greenstreet 2001
Partners, a private merchant bank, and Auburndale
Properties Inc., a real estate acquisition and
management company, and k1 Ventures Limited, a
venture capital firm based in Singapore. United
States Ambassador to Singapore from 1997 to 2001.
Director of Global Crossing Ltd.
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YEAR FIRST
NAME OF NOMINEE PRINCIPAL OCCUPATIONS, OTHER PUBLIC DIRECTORSHIPS ELECTED A
OR DIRECTOR AGE AND POSITIONS WITH THE COMPANY DIRECTOR
--------------- --- ------------------------------------------------- ----------
Oscar Y. L. Groeneveld 48 Chief executive of the Rio Tinto Copper group and a 1999
director of Rio Tinto plc and Rio Tinto Limited.
Head of Technology of Rio Tinto until 1999. Group
Mining Executive of Rio Tinto until 1997.
Commissioner of PT Freeport Indonesia, our principal
operating subsidiary, since 1999.
J. Bennett Johnston 69 Chairman of Johnston & Associates, LLC, a legal and 1997
business consulting firm. Chairman of Johnston
Development Co. LLC, a project development firm.
United States Senator until 1997. Director of
ChevronTexaco Corporation.
Bobby Lee Lackey 64 Agricultural Consultant. President and Chief Executive 1995
Officer of McManus-Wyatt-Hidalgo Produce Marketing
Co., shipper of fruits and vegetables, until 2000.
Gabrielle K. McDonald 59 Judge, Iran-United States Claims Tribunal, The Hague, 1995
The Netherlands since November 2001. Special Counsel
on Human Rights to the Chairman of the Board of the
Company since 1999. Judge, International Criminal
Tribunal for the Former Yugoslavia from 1993 until
1999. Director of Golden State Bancorp Inc.,
California Federal Bank, A Federal Savings Bank and
McMoRan.
James R. Moffett 63 Chairman of the Board and Chief Executive Officer of 1992
the Company. President Commissioner of PT Freeport
Indonesia. Co-Chairman of the Board of McMoRan.
Co-Chairman of the Board of McMoRan Oil & Gas and of
Freeport-McMoRan Sulphur until 1998. Chairman of the
Board of Freeport-McMoRan Inc. until 1997.
B. M. Rankin, Jr. 72 Vice Chairman of the Board of the Company since 1995
January 2001. Private investor. Vice Chairman of the
Board of McMoRan. Director of Golden State Bancorp
Inc. and California Federal Bank, A Federal Savings
Bank.
J. Stapleton Roy 66 Managing Director of Kissinger Associates, Inc., 2001
international consultants and consultants to the
Company, since January 2001. Assistant Secretary of
State for Intelligence and Research from November
1999 until December 2000. United States Ambassador
to Indonesia from 1996 until 1999. Director of
Phillips Petroleum Company.
J. Taylor Wharton 63 Special Assistant to the President for Patient 1995
Affairs, Professor, Gynecologic Oncology, The
University of Texas M.D. Anderson Cancer Center.
Director of McMoRan.
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DIRECTOR COMPENSATION
Cash Compensation
Each non-employee director receives (a) an annual fee of $25,000 for
serving on our board, (b) a fee of $1,000 for attending each board committee
meeting and (c) an annual fee of $2,000 for each board committee of which a
director is the chairperson. Each director receives a fee of $1,000 for
attendance at each board meeting and reimbursement for reasonable out-of-pocket
expenses incurred in attending our board and committee meetings.
Retirement Plan for Non-Employee Directors
We have a retirement plan for the benefit of our non-employee directors who
reach age sixty-five. Under the retirement plan, an eligible director will be
entitled to an annual benefit equal to a percentage of the standard portion of
our annual directors' fee at the time of his or her retirement. The percentage,
which is at least 50% but not greater than 100%, will depend on the number of
years the retiree served as a non-employee director for us or our predecessors.
The benefit is payable from the date of retirement until the retiree's death.
Each eligible director who was also a director of Freeport-McMoRan Inc., our
former parent, and who did not retire from that board of directors, will receive
upon retirement from our board, an additional annual benefit of $20,000, which
is also payable from the date of retirement until the retiree's death.
Stock Option Plan for Non-Employee Directors
Each non-employee director is eligible for a grant of options under our
1995 Stock Option Plan for Non-Employee Directors, which was amended in 2000. On
August 1 of each year through 2004, each eligible director is granted a
non-qualified option to purchase 10,000 shares of our Class B common stock at
100% of the fair market value of the shares on the date of grant. Each option
granted under this plan vests over a four-year period and expires ten years
after the date of grant.
Prior to the amendment of the plan, each time a director exercised an
option we made a cash payment to the director calculated pursuant to a formula
that was intended to compensate the director fully for any federal income tax
liabilities incurred as a result of the option exercise and receipt of the cash
payment. Under the amended plan, these tax-offset cash payment rights were
canceled and, in exchange, each director received a number of stock appreciation
rights equal to the number of shares of our Class B common stock subject to the
director's outstanding options multiplied by 0.6556. As a result, each director
will be granted 6,556 stock appreciation rights on August 1 of each year through
2004.
Accordingly, on August 1, 2001, each non-employee director was granted an
option to purchase 10,000 shares of our Class B common stock and 6,556 stock
appreciation rights at a grant price of $11.1650.
MATCHING GIFTS PROGRAM
The Freeport-McMoRan Foundation (the Foundation) administers a matching
gifts program available to our directors, officers, employees, full-time
consultants and retirees. Under the program, the Foundation will match a
participant's gifts to eligible institutions, including educational
institutions, educational associations, educational funds, cultural
institutions, social service community organizations, hospital organizations and
environmental organizations. The Foundation provides the gifts directly to the
institution. The Foundation
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double matches gifts by a director not in excess of $1,000 and gifts by any
other participant not in excess of $500. The annual amount of our matching gifts
for any director may not exceed $40,000, and generally for any other participant
may not exceed $20,000. The matching gifts made by the Foundation in 2001 for
each of the participating directors were as follows: $11,000 for Mr. Bruce;
$7,700 for Mr. Lackey; $39,210 for Mr. Moffett; $34,670 for Mr. Rankin; $14,000
for Mr. Roy and $2,000 for Mr. Wharton.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Except as otherwise indicated below, this table shows the amount of our
Class A and Class B common stock each of our directors and named officers owned
on February 26, 2002. Our directors and executive officers as a group
beneficially owned approximately 46.8% of our Class A common stock and 9.3% of
our Class B common stock. Unless otherwise indicated, the persons shown below do
not beneficially own any of our preferred stock. Unless otherwise indicated, all
shares shown are held with sole voting and investment power and include, if
applicable, shares held in our Employee Capital Accumulation Program.
NUMBER OF SHARES OF
TOTAL NUMBER OF NUMBER OF SHARES OF CLASS B COMMON TOTAL NUMBER OF
SHARES OF CLASS A CLASS B COMMON STOCK SUBJECT TO SHARES OF CLASS B
NAME OF COMMON STOCK STOCK NOT SUBJECT EXERCISABLE COMMON STOCK
BENEFICIAL OWNER(1) BENEFICIALLY OWNED TO OPTIONS OPTIONS(2) BENEFICIALLY OWNED
------------------- ------------------ ------------------- ------------------- ------------------
Richard C. Adkerson(3)....... 96,790 121,258 1,923,957 2,045,215
Robert J. Allison, Jr........ 0 5,000 0 5,000
Robert W. Bruce III(4)....... 1,890,000 7,017 74,360 81,377
R. Leigh Clifford(5)......... 23,931,100 0 2,500 2,500
Robert A. Day(6)............. 7,992 166,031 74,360 240,391
Gerald J. Ford(7)............ 0 10,000 2,500 12,500
H. Devon Graham, Jr.......... 0 2,000 2,500 4,500
Steven J. Green.............. 0 0 0 0
Oscar Y. L. Groeneveld(5).... -- 0 2,500 2,500
J. Bennett Johnston.......... 700 0 25,000 25,000
Bobby Lee Lackey............. 60 861 74,360 75,221
Adrianto Machribie........... 0 0 256,424 256,424
Gabrielle K. McDonald........ 4,756 182 59,443 59,625
James R. Moffett(8).......... 0 755,002 4,479,169 5,234,171
B. M. Rankin, Jr.(9)......... 90,417 637,890 74,360 712,250
J. Stapleton Roy............. 0 0 0 0
J. Taylor Wharton(10)........ 5,193 38,041 66,869 104,910
Directors and executive
officers as a group (17
persons)................... 26,027,008 1,743,282 7,118,302 8,861,584
---------------
(1) With the exception of Mr. Adkerson (who beneficially owns 2.3% of our
outstanding Class B common stock), Mr. Bruce (who beneficially owns 3.4% of
our outstanding Class A common stock), Messrs. Clifford and Groeneveld (who
both are deemed to beneficially own 43.1% of our outstanding Class A common
stock held by a Rio Tinto affiliate) and Mr. Moffett (who beneficially owns
5.6% of
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our outstanding Class B common stock), each individual holds less than 1%
of each of our outstanding Class A common stock and Class B common stock.
(2) Class B common stock that could be acquired as of April 26, 2002, upon the
exercise of options granted pursuant to our stock option plans.
(3) Includes (a) 5,503 shares of our Class A common stock and 3,274 shares our
Class B common stock held in his IRA and (b) 10,000 shares of our Class A
common stock held in a foundation with respect to which Mr. Adkerson, as a
member of the board of trustees, shares voting and investment power, but as
to which he disclaims beneficial ownership.
(4) Includes 1,864,500 shares of our Class A common stock held by a limited
partnership with respect to which Mr. Bruce is a general partner.
(5) The Class A common stock listed is held by a Rio Tinto affiliate. Both
Messrs. Clifford and Groeneveld are executive directors of Rio Tinto.
Messrs. Clifford and Groeneveld share voting and investment power with
respect to these shares but Messrs. Clifford and Groeneveld disclaim
beneficial ownership. Messrs. Clifford and Groeneveld have also assigned
the benefits of their options to the affiliate.
(6) Includes 240 shares of our Class A common stock and 83,568 shares of our
Class B common stock held in accounts and funds managed by affiliates of a
corporation of which Mr. Day, as the chief executive officer, shares voting
and investment power but as to which he disclaims beneficial ownership.
(7) Includes 10,000 shares of our Class B common stock held by a revocable
trust with respect to which Mr. Ford is the sole trustee.
(8) Includes (a) 624,001 shares of our Class B common stock held by a limited
liability company with respect to which Mr. Moffett, as a member, shares
voting and investment power and (b) 77,000 shares of our Class B common
stock held by a foundation with respect to which Mr. Moffett, as president
and a director, shares voting and investment power but as to which he
disclaims beneficial ownership.
(9) Includes (a) 10,020 shares of our Class A common stock that may be acquired
upon the conversion of our Step-Up Convertible Preferred Stock and (b)
80,397 shares of our Class A common stock and 637,890 shares of our Class B
common stock held by a limited partnership in which Mr. Rankin is the sole
shareholder of the sole general partner of this limited partnership.
(10) Includes (a) 3,011 shares of our Class A common stock and 23,926 shares of
our Class B common stock held by Mr. Wharton's spouse, (b) 160 shares of
our Class A common stock held in an IRA for Mr. Wharton's spouse, (c) 420
shares of our Class A common stock held in his IRA, and (d) 332 shares of
our Class A common stock and 4,757 shares of our Class B common stock held
by Mr. Wharton as custodian for his daughters.
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
This table shows the owners of more than 5% of our outstanding Class A
common stock or Class B common stock based on filings with the Securities and
Exchange Commission (the SEC), other than Mr. Moffett who owns 5.6% of our
outstanding Class B common stock. See Stock Ownership of Directors and Executive
Officers for more detail about Mr. Moffett. Unless otherwise indicated, all
information is presented as of December 31, 2001, and all shares beneficially
owned are held with sole voting and investment power.
TITLE OF NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF PERSON CLASS BENEFICIALLY OWNED CLASS
-------------------------- -------- ------------------ ----------
Prudential Financial, Inc................................. A 11,828,294(1) 21.3%
751 Broad Street
Newark, New Jersey 07102
Rio Tinto Indonesia Limited............................... A 23,931,100 43.2%
6 St. James's Square
London SW1Y4LD
England
Putnam Investments, LLC................................... A 4,080,567(2) 7.4%
One Post Office Square B 10,976,887(3) 12.4%
Boston, Massachusetts 02109
FMR Corp. ................................................ B 17,885,850(4) 19.0%
82 Devonshire Street
Boston, Massachusetts 02109
Morgan Stanley Dean Witter & Co. ......................... B 8,243,882(5) 9.3%
1585 Broadway
New York, New York 10036
Pioneer Global Asset Management S.P.A. ................... B 5,306,011(6) 6.0%
Galleria San Carlo 6
20122 Milan, Italy
---------------
(1) Based on the Schedule 13G dated February 14, 2002 filed with the SEC,
Prudential Financial, Inc., the parent of The Prudential Insurance Company
of America, Jennison Associates LLC and other affiliated entities, shares
voting and investment power with respect to 10,750,094 of these shares, but
disclaims beneficial ownership. Jennison Associates LLC filed its own
Schedule 13G with the SEC dated February 4, 2002, indicating beneficial
ownership of 9,135,000 shares. Jennison Associates LLC shares investment
power with respect to all shares shown therein, but disclaims beneficial
ownership. The address of Jennison Associates LLC is 466 Lexington Avenue,
New York, New York, 10017.
(2) Based on the Schedule 13G dated February 13, 2002 filed with the SEC, Putnam
Investments, LLC shares voting power with respect to 47,383 of these shares
and shares investment power with respect to all shares shown, but disclaims
beneficial ownership.
(3) Based on the Schedule 13G dated February 13, 2002 filed with the SEC, Putnam
Investments, LLC shares voting power with respect to 513,910 of these shares
and shares investment power with respect to all shares shown, but disclaims
beneficial ownership.
(4) Based on the Schedule 13G dated February 14, 2002 filed with the SEC, FMR
Corp. has sole voting power with respect to 947,430 of these shares. The
total number of shares beneficially owned includes
11
5,624,680 shares of our Class B common stock resulting from the assumed
conversion of $80,433,000 principal amount of our 8 1/4 senior convertible
notes.
(5) Based on the Schedule 13G dated February 14, 2002 filed with the SEC, Morgan
Stanley Dean Witter & Co. shares voting power with respect to 3,929,079 of
these shares and shares investment power with respect to all shares shown.
(6) Based on the Schedule 13G dated December 21, 2001 filed with the SEC.
EXECUTIVE OFFICER COMPENSATION
This table shows the compensation paid to our chief executive officer, and
each of our two other executive officers (the named officers). During 2001,
Messrs. Moffett and Adkerson also provided services to and received compensation
from McMoRan Exploration Co. (McMoRan).
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUT
------------------------------------------ ----------------------- --------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND COMPENSA- STOCK OPTIONS/ LTIP COMPENSA-
PRINCIPAL POSITION YEAR SALARY BONUS TION(1) AWARDS(2) SARS PAYOUTS TION(3)
------------------ ---- ---------- ---------- --------- ---------- ---------- -------- ---------
James R. Moffett............. 2001... $2,500,000 $2,750,000 $172,044(4) $ -- -- $727,200 $545,425
Chairman of the Board 2000 1,375,000 2,750,000 146,398(4) -- -- 793,800 218,049
and Chief Executive Officer 1999 1,000,000 2,750,000 143,698(4) -- 1,800,000 912,600 84,775
Richard C. Adkerson.......... 2001 1,250,000 1,031,250 60,377(4) 515,620 -- 545,400 242,477
President and Chief 2000 875,000 687,500 56,049(4) 1,031,250 -- 441,000 102,706
Financial Officer 1999 650,000 343,750 64,596(4) 1,546,875 900,000 380,250 44,162
Adrianto Machribie........... 2001 406,250 600,000 438,105(5) -- 75,000 181,800 --
President Director 2000 406,250 550,000 465,453(5) -- 75,000 110,250 --
1999 437,500 550,000 441,602(5) -- 75,000 91,260 --
---------------
(1) In addition to items disclosed in notes 4 and 5 below, includes our payment
of taxes in connection with certain benefits we provided to the named
officers as follows:
NAME YEAR AMOUNT
---- ---- --------
Mr. Moffett................................................ 2001 $ 61,495
2000 45,805
1999 46,776
Mr. Adkerson............................................... 2001 17,577
2000 13,031
1999 19,871
Mr. Machribie.............................................. 2001 102,477
2000 81,631
1999 79,818
12
Does not include perquisites that we provided to each named officer unless
the aggregate amount in any year exceeded the threshold for disclosure
under the SEC rules.
(2) In December 1999, we adopted a restricted stock program. This program
provides certain executives with the opportunity to receive a grant of
restricted stock units (RSU) in lieu of all or part of their cash bonus for
a given year. The RSUs will ratably convert into shares of Class A common
stock over a three-year period on each grant date anniversary. The RSUs are
awarded at a premium in order to compensate for risk. Dividend equivalents
will be paid on the RSUs on the same basis as dividends are paid on Class A
or Class B common stock. In 2001, Mr. Adkerson elected to participate in the
program as follows:
12/31/01 GRANT DATE
NAME RSUS MARKET VALUE* MARKET VALUE*
---- ------ ------------- -------------
Mr. Adkerson........................... 36,962 N/A $515,620
---------------
* RSUs were granted in January 2002 for 2001 bonus amounts.
As of December 31, 2001, Mr. Adkerson held 160,607 restricted stock units
and the aggregate value of such units held, based upon the $12.75 market
value on December 31, 2001, was $2,047,740.
(3) In addition to items disclosed in the notes below, includes our
contributions to defined contribution plans, our premium payments for
universal life and personal excess liability insurance policies and director
fees as follows:
PLAN INSURANCE DIRECTOR
NAME YEAR CONTRIBUTIONS PREMIUMS FEES TOTAL
---- ---- ------------- --------- -------- --------
Mr. Moffett................. 2001 $497,378 $43,047 $5,000 $545,425
2000 178,847 34,202 5,000 218,049
1999 50,000 29,775 5,000 84,775
Mr. Adkerson................ 2001 236,320 6,157 -- 242,477
2000 95,702 7,004 -- 102,706
1999 32,375 11,787 -- 44,162
(4) Includes the following perquisites that we provided to Mr. Moffett and Mr.
Adkerson: (a) matching gifts under the matching gifts program, (b) payments
for financial counseling and tax return preparation and certification
services and (c) use of company facilities.
FINANCIAL
MATCHING GIFTS COUNSELING FACILITIES
NAME YEAR PAYMENTS FEES USAGE TOTAL
---- ---- -------------- ---------- ---------- --------
Mr. Moffett............... 2001 $39,210 $14,000 $57,339 $110,549
2000 40,000 14,200 46,393 100,593
1999 40,000 16,000 40,922 96,922
Mr. Adkerson.............. 2001 40,000 2,800 -- 42,800
2000 40,000 3,018 -- 43,018
1999 40,000 4,725 -- 44,725
(5) Includes $335,628, $383,822 and $361,784 of perquisites that we provided to
Mr. Machribie in 2001, 2000 and 1999, respectively, consisting of (a)
$40,000 of principal payments on non-interest bearing loans to Mr. Machribie
from us that were forgiven in each of these years; (b) $3,071, $7,141 and
$8,930 of
13
imputed interest in 2001, 2000 and 1999 on these loans; (c) $286,822,
$336,681 and $306,451 for use of a company owned residence in Indonesia in
2001, 2000 and 1999; and (d) $5,735 and $6,403 for other perquisites in 2001
and 1999, respectively.
------------------------
This table shows all stock options that we granted to named officers in
2001.
OPTION GRANTS IN 2001
NUMBER OF PERCENT OF
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR GRANT DATE
NAME GRANTED(1) 2001 BASE PRICE EXPIRATION DATE PRESENT VALUE
---- ---------- ------------ ----------- --------------- -------------
Adrianto Machribie....... 75,000 6.42% $11.31 January 30, 2011 $471,000(2)
---------------
(1) The stock options will become exercisable over a four-year period. The stock
options will become immediately exercisable in their entirety if (a) any
person or group of persons acquires beneficial ownership of shares
representing 20% or more of the company's total voting power or (b) under
certain circumstances, the composition of the board of directors is changed
after a tender offer, exchange offer, merger, consolidation, sale of assets
or contested election or any combination thereof. In addition, each stock
option has an equal number of tandem "limited rights," which may be
exercisable only for a limited period in the event of a tender offer,
exchange offer, a series of purchases or other acquisitions or any
combination thereof resulting in a person or group of persons becoming a
beneficial owner of shares representing 40% or more of the company's total
voting power. Each limited right entitles the holder to receive cash equal
to the amount by which the highest price paid in such transaction exceeds
the exercise price.
(2) The Black-Scholes option pricing model was used to determine the grant date
present value of the stock options that we granted to the listed officer.
The grant date present value was calculated to be $6.28 per option. The
following facts and assumptions were used in making this calculation: (a) an
exercise price for each option as set forth under the column labeled
"Exercise or Base Price"; (b) a fair market value of $11.31 for one share of
our Class B common stock on the grant date; (c) no dividend; (d) a term of 7
years based on an analysis of the average historical term for such stock
options; (e) a stock volatility of 46.6%, based on an analysis of weekly
closing prices of our Class B common stock over the 284-week period that our
Class B common stock has been publicly traded; and (f) an assumed risk-free
interest rate of 5.1%, this rate being equivalent to the yield on the grant
date on a zero-coupon U.S. Treasury note with a maturity date comparable to
the expected term of the options. No other discounts or restrictions related
to vesting or the likelihood of vesting of the options were applied.
------------------------
14
This table shows all outstanding stock options held by each of the named
officers as of December 31, 2001. All of these options relate to our Class B
common stock and none of the named officers exercised stock options in 2001.
OPTIONS AT DECEMBER 31, 2001
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 2001 DECEMBER 31, 2001
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
James R. Moffett........................ 4,154,169/900,000 $2,244,125/$2,244,125
Richard C. Adkerson..................... 1,761,457/450,000 1,122,063/ 1,122,063
Adrianto Machribie...................... 183,924/185,000 129,469/ 285,469
------------------------
This table shows all long-term incentive plan awards that we made in 2001
to each of the named officers.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 2001
ESTIMATED
PERFORMANCE FUTURE
NUMBER OF OR OTHER PAYOUTS UNDER
SHARES, UNITS PERIOD UNTIL NON-STOCK
OR OTHER MATURATION PRICE-BASED
NAME RIGHTS(1) OR PAYOUT PLANS(2)
---- ------------- ------------ -------------
James R. Moffett............................. 250,000 12/31/04 $530,000
Richard C. Adkerson.......................... 200,000 12/31/04 424,000
Adrianto Machribie........................... 65,000 12/31/04 137,800
---------------
(1) Represents the number of performance units covered by performance awards we
granted in 2001 under our Long-Term Performance Incentive Plan (Long-Term
Plan). As of December 31 of each year, each named officer's performance
award account will be credited with an amount equal to the "annual earnings
per share" or "net loss per share" (as defined in the Long-Term Plan) for
that year multiplied by the number of performance units then credited to
such performance award account. Annual earnings per share or net loss per
share includes the net income or net loss of each of our majority-owned
subsidiaries that are attributable to equity interests that we do not own.
The corporate personnel committee may, however, in the exercise of its
discretion, prior to crediting the named officers' performance award
accounts with respect to a particular year, reduce or eliminate the amount
of the annual earnings per share that otherwise would be credited to any
performance award account for the year. The balance in the performance award
account is generally paid as soon as practicable after December 31 of the
year in which the third anniversary of the award occurs.
(2) These amounts were calculated using the 2001 earnings per share (as defined
in the Long-Term Plan) applied over a four-year period. Future payments
attributable to these awards will be determined based on future earnings.
------------------------
15
Employment Agreements and Change of Control Agreements
In April 2001, we entered into employment agreements and change of control
agreements with Messrs. Moffett and Adkerson. The corporate personnel committee
of our board, with the aid of an independent compensation consultant,
established the terms of these agreements, which were then approved by our
board. (See the Corporate Personnel Committee Report on Executive Compensation
for more details.)
Employment Agreements. The employment agreement with Mr. Moffett provides
for a base salary of $2,500,000 per year and eligibility for a maximum bonus of
$2,750,000 for each of 2001 and 2002 under our annual incentive plan. Mr.
Moffett continues to be eligible for all other benefits and compensation,
including stock options and long-term performance units, generally provided to
our most senior executives. The agreement will continue through April 30, 2006
with automatic one-year extensions unless a change of control occurs or our
corporate personnel committee notifies Mr. Moffett of its intent not to extend
the agreement.
The employment agreement with Mr. Adkerson provides for a base salary of
$1,250,000 per year and eligibility for a maximum bonus of $1,375,000 for each
of 2001 and 2002 under our annual incentive plan. Mr. Adkerson also continues to
be eligible for all other benefits and compensation, including stock options and
long-term performance units, generally provided to our most senior executives.
The agreement will continue through April 30, 2005 with automatic one-year
extensions unless a change of control occurs or our corporate personnel
committee notifies Mr. Adkerson of its intent not to extend the agreement.
The employment agreements also provide that if we terminate the executive's
employment without cause (as defined in the agreement) or the executive
terminates employment for good reason (as defined in the agreement), we will
make certain payments and provide certain benefits to the executive, including:
- payment of a pro rata bonus for the year in which the termination of
employment occurs;
- a cash payment equal to four times the sum of (a) the executive's base
salary plus (b) the lesser of (1) the highest bonus paid to the executive
for any of the preceding three years or (2) two times the executive's
base salary;
- continuation of insurance and welfare benefits for three years or until
the executive accepts new employment, if earlier; and
- acceleration of the vesting and payout of all stock options, restricted
stock units and long-term performance incentive plan units.
If the executive's employment terminates as a result of death, disability
or retirement, benefits to the executive or his estate include the payment of a
pro rata bonus for the year of termination, a cash payment ($1.8 million for Mr.
Moffett and $900,000 for Mr. Adkerson), the continuation of insurance and
welfare benefits, which in the case of retirement, will continue for three years
or until the executive accepts new employment, if earlier.
As a condition to receipt of these severance benefits, the executives must
retain in confidence all confidential information known to them concerning our
business and us so long as the information is not otherwise publicly disclosed.
Further, Messrs. Moffett and Adkerson have each agreed not to compete with us
for a period of two years after termination of employment.
16
Change of Control Agreements. The change of control agreements will
replace the employment agreements if a change of control of our company (as
defined in the change of control agreements) occurs. If the change of control
occurs prior to April 30, 2006 for Mr. Moffett or prior to April 30, 2005 for
Mr. Adkerson, the agreements provide generally that the executive's terms and
conditions of employment (including position, location, compensation and
benefits) will not be adversely changed for a three-year period.
If the executive is terminated without cause or if the executive terminates
for "good reason" during the three-year period after a change of control, the
executive is generally entitled to receive the same payments and benefits that
he would receive in the event of a similar termination under the employment
agreements, described above, except that in the event of an unsolicited change
of control (as defined in the change of control agreements), the cash payment
would be five times rather than four times, the sum of (a) the executive's base
salary plus (b) the lesser of (1) the highest bonus paid to the executive for
any of the preceding three years or (2) two times the executive's base salary.
The term "good reason" includes the failure of the acquiror to provide the
executive with substantially the same position, authority, duties and
responsibilities in the ultimate parent company of the entity resulting from the
transaction.
If employment terminates as a result of death, disability or retirement
following a change of control, the executive will receive the same benefits
described above under "Employment Agreements" in the event of death, disability
or retirement, except for the cash payment.
In addition, the change of control agreements provide that the executives
are entitled to receive a payment in an amount sufficient to make the executives
whole for any excise tax on amounts payable under the agreements that are
considered to be excess parachute payments under Section 4999 of the Internal
Revenue Code.
The confidentiality and non-competition provisions of the executives'
employment agreements continue to apply after a change of control.
------------------------
Retirement Benefit Program
Under our retirement benefit program and that of the Services Company (see
Certain Transactions for more detail about the Services Company), each
participant, including each of the named officers other than Mr. Machribie is
entitled to benefits based upon the sum of his starting account balance, annual
benefit credits and annual interest credits allocated to his "account." The
starting account balance is equal to the value of the participant's accrued
benefit as of June 30, 1996, under the prior plan. The annual benefit credits
consist of two parts: (1) 4% of the participant's earnings for the year in
excess of the social security wage base for the year; and (2) a percentage of
the participant's total earnings for the year. The percentage of total earnings
is determined as follows:
- 15%, if as of December 31, 1996, the participant's age plus service
totaled 65 or more, he was at least 50 years old and had at least 10
years of service;
- 10%, if as of December 31, 1996, the participant's age plus service
totaled 55 or more, he had at least 10 years of service, and he did not
meet the requirements for a 15% allocation;
17
- 7%, if as of December 31, 1996, the participant's age plus service
totaled 45 or more, he had at least 5 years of service, and he did not
meet the requirements for a greater allocation; and
- 4%, if the participant did not meet the requirements for a greater
allocation.
The annual interest credit is equal to the account balance at the end of
the prior year multiplied by the annual yield on 10-year U.S. Treasury
securities on the last day of the preceding year. This interest credit was 5.12%
for 2001. Interest credits cease at the end of the year in which the participant
reaches age 60. Upon retirement, a participant's account balance is payable
either in a lump sum or an annuity, as selected by the participant. A
participant's "earnings" are comprised of annual base salary (see "Salary" in
the Summary Compensation Table above), plus 50% of certain bonuses (see "Bonus"
in the Summary Compensation Table above). Years of service include not only
years with us or the Services Company but also any years with our predecessors.
Benefits payable to a participant under our and the Services Company's
retirement benefit programs are no longer determined primarily by the
individual's final average compensation and years of service. However, if a
participant's age plus service equaled 65 or more as of December 31, 1996, and
as of that date the participant had both attained age 50 and had at least 10
years of service, the participant is "grandfathered" into a benefit of no less
than the benefit under the former retirement benefit formula based on years of
service and final average earnings.
In 2000 we discontinued the foregoing retirement benefit program. All
benefit accruals ceased effective June 30, 2000, and as of that date we
increased the account balances of eligible participants by the final half-year
benefit credit plus a special benefit credit of 3.5% of the account balance. The
retirement benefit program consisted of two plans: a funded qualified plan and
an unfunded non-qualified plan.
The present value of the benefit earned by each participant under the
non-qualified plan was transferred, effective June 30, 2000, to our unfunded
non-qualified defined contribution plan. The amount transferred for each of the
named officers (other than Mr. Machribie) is as follows: $2,849,930 for Mr.
Moffett and $807,261 for Mr. Adkerson.
We have formally terminated the qualified plan and will distribute all
assets upon receiving IRS approval of the termination. Approval has been delayed
while the IRS develops a policy regarding all plans that have converted to the
account balance type of design. We will contribute to the plan any amount needed
to complete the funding of benefits. A participant can elect to receive his
accrued benefit under the qualified plan in the form of either an annuity
contract issued by an insurance company, or in a single lump sum that can be
transferred into our qualified defined contribution plan or an IRA, or received
in cash subject to applicable tax withholdings. If paid in a single lump sum as
of November 1, 2002, the amount paid to each of the named officers (other than
Mr. Machribie) would be as follows: $136,704 for Mr. Moffett and $94,329 for Mr.
Adkerson.
Under PT Freeport Indonesia's retirement plan, each participant, including
Mr. Machribie, is entitled to benefits based upon the participant's years of
service and monthly base salary at the time of retirement. All benefits under
the retirement plan are payable in rupiah, Indonesia's currency. A participant's
retirement benefit is calculated by multiplying 1.5 by the participant's years
of service by the participant's monthly base salary at the time of retirement.
Under Indonesian law and the retirement plan, Mr. Machribie was deemed retired
upon reaching the age of 60 on July 1, 2001. Mr. Machribie's annual retirement
benefit is an accrued
18
lump sum benefit of U.S. $67,500, which he has received paid in rupiah, and an
annual annuity payment of U.S. $42,218 for life beginning in 2002 (payable in
rupiah, translated at an exchange rate of approximately 9,838 rupiah per U.S.
$1.00).
Because Mr. Machribie is no longer eligible to participate in PT Freeport
Indonesia's retirement plan but he continues to work for us, PT Freeport
Indonesia has agreed to pay Mr. Machribie a one-time, lump sum cash payment to
him upon conclusion of his employment with us. This payment will be determined
by PT Freeport Indonesia in its sole discretion but in no event will be less
than U.S. $50,000 for each full year of service rendered by Mr. Machribie
beginning from July 1, 2001.
CORPORATE PERSONNEL COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The corporate personnel committee, which is composed of five independent
directors, determines the compensation of our executive officers and administers
our annual incentive, long-term incentive, and stock option plans. The
committee's executive compensation philosophy is to:
- emphasize performance-based compensation that balances rewards for both
short- and long-term results;
- tie compensation to the interests of stockholders; and
- provide a competitive level of total compensation that will attract and
retain talented executives.
A primary goal of the committee is to position us to attract and retain the
highest level of executive talent. To accomplish this goal, the committee
targets our executive compensation levels in the top quartile of comparable
companies. It also includes other companies whose operational, corporate
financing, and other activities are considered comparable to those activities in
which we engaged in recent years under the management of our executive officers.
In December 2000, the committee engaged William M. Mercer, Inc. (Mercer) as
an independent executive compensation consultant, to conduct an analysis on the
feasibility and suitability of the company entering an employment agreement and
a change of control agreement with each of James R. Moffett, Chairman of the
Board and Chief Executive Officer, and Richard C. Adkerson, President and Chief
Financial Officer. After analyzing industry practices, Mercer advised that such
agreements are prevalent and opined that the proposed terms and conditions of
the respective agreements were within acceptable industry norms. In April 2001,
with the approval of the board of directors and based on Mercer's
recommendations, the committee entered into an employment agreement and a change
of control agreement with each of Messrs. Moffett and Adkerson. (See "Employment
Agreements and Change of Control Agreements" under Executive Officer
Compensation for more details.)
Overview of 2001 Compensation
Executive officer compensation for 2001 included base salaries, annual
incentive awards, long-term incentive awards, stock options, and, in some cases,
restricted stock units. In 1998, we substantially revised our compensation
arrangements with Messrs. Moffett and Adkerson. As part of our program to
conserve cash, Messrs. Moffett and Adkerson agreed to cap their annual cash
incentive awards for the next five years at $2.75 million for Mr. Moffett and
$1.375 million for Mr. Adkerson. In April 2001, we entered into employment
19
agreements with Messrs. Moffett and Adkerson, which incorporate the provisions
of this arrangement. As such, these limits on annual cash incentive awards were
applied during 2001 and will apply during 2002. In return for caps on the annual
cash bonus, in 1998 we granted to Mr. Moffett immediately exercisable options to
purchase 1.75 million shares of Class B common stock and granted to Mr. Adkerson
immediately exercisable options to purchase 875,000 shares of Class B common
stock. These options have an eight-year term. The substitution of cash
compensation with stock options was intended to further align the interests of
these officers with the interests of stockholders.
Base Salaries
We established the base salaries of the executive officers at appropriate
levels after consideration of each executive officer's responsibilities. In
October 2000, we announced a management reorganization and reduction in our
senior management group. As part of this restructuring, Messrs. Moffett and
Adkerson assumed significantly increased roles in the management of the affairs
of our company. Because of the increased duties and resulting cost savings to
the company, we decided to increase the annual base salary of Mr. Moffett from
$1.0 million to $2.5 million and Mr. Adkerson from $750,000 to $1.25 million,
effective October 1, 2000. Pursuant to the employment agreements discussed
above, Messrs. Moffett and Adkerson's annual base salaries will continue at
these present levels through April 30, 2006 and April 30, 2005, respectively.
Annual Incentive Awards
We provide annual cash incentives to executive officers through our annual
incentive plan and performance incentive awards program. Awards paid under these
plans in 2001 were based on a return on investment threshold, the level of cash
flow from operations, and operational and strategic accomplishments during 2001,
including accomplishments in the areas of exploration, production, management,
and strategic planning.
Annual Incentive Plan. The annual incentive plan is designed to provide
performance-based awards to those executive officers whose performance can have
a significant impact on our profitability and future growth. All of our named
officers participated in the annual incentive plan for 2001. At the beginning of
2001, each participant was assigned a percentage share of the aggregate award
pool for 2001 based on that person's position and level of responsibility. Under
the terms of the annual incentive plan, no awards will be made for any year if
the five-year average return on investment (generally, consolidated net income
divided by consolidated stockholders' equity and long-term debt, including the
minority interests' share of subsidiaries' income and stockholders' equity) is
less than 6%. During the five-year period ending in 2001, the average return on
investment was 10.1%. When determining the aggregate awards granted under the
annual incentive plan for 2001, the committee considered as a guideline 2.5% of
net cash flow from operations in 2001, which is the maximum amount that may be
awarded under the annual incentive plan to executive officers whose compensation
is subject to the limitation on deductible compensation imposed by Section
162(m) of the Internal Revenue Code.
After reviewing the performance factors and accomplishments described
above, the committee concluded that our performance had exceeded expectations
and approved an incentive pool of approximately 1.04% of net operating cash
flow. As explained above, the individual cash awards paid to Messrs. Moffett and
Adkerson under the annual incentive plan were capped. Without the caps, Mr.
Moffett's award would have been
20
approximately $7.62 million and Mr. Adkerson's award would have been $3.81
million, and the aggregate awards under the annual incentive plan would have
been approximately 2.5% of net operating cash flow.
Performance Incentive Awards Program. Our performance incentive awards
program is designed to provide performance-based annual cash awards to certain
officers and managers who do not participate in the annual incentive plan. In
2001, each participant in the performance incentive awards program was assigned
a target award based upon level of responsibility. After a review of the
performance measures and accomplishments described above, the committee
established an award pool for 2001 that totaled 1.24% of net operating cash
flow. Individual performance is an important factor considered in determining
the actual awards paid under the performance incentive awards program.
Restricted Stock Unit Plan
As part of our efforts to conserve cash and to further align the interests
of the executives with those of the stockholders, in 1999 the committee approved
a program that allowed certain officers and managers the opportunity to receive
a grant of restricted stock units with respect to shares of Class A common stock
in lieu of all or part of their cash bonus for a given year. The restricted
stock units will vest ratably over a three-year period. To compensate for the
restrictions and risk of forfeiture, the restricted stock units were awarded at
a 50% premium to the market value on the grant date. The program was not
intended to increase the overall compensation of the officers and managers. An
independent executive consulting firm reviewed the program and concluded that
its design was appropriate and in line with other similarly situated companies.
Stock Options and Long-Term Incentives
Stock option and long-term incentive award guidelines are intended to
provide a significant potential value to reinforce the importance of stockholder
value creation. The committee encourages executive officers to accumulate
significant equity ownership in our company by granting stock options. The
committee believes that larger, multi-year stock option awards rather than
smaller, annual awards provide a more powerful incentive to the company's most
senior executive officers to achieve sustained growth in stockholder value over
the long term. As a result, the committee grants Messrs. Moffett and Adkerson
stock option awards every three years. In keeping with the committee philosophy,
the committee granted stock options to them in 1999 and did not grant stock
option awards to them in 2000 or 2001.
The committee continues to make annual stock option grants to other
officers. In 2001, our other named officer received stock options based on
guidelines that relate to the position of each participating officer. The
exercise price of each stock option is equal to the fair market value of a share
of Class B common stock on the grant date.
The committee also compensates officers for long-term performance with
annual grants of performance units. Performance units are designed to link a
portion of executive compensation to cumulative earnings per share because we
believe that sustained profit performance will help support increases in
stockholder value. Each outstanding performance unit is annually credited with
an amount equal to the annual earnings per share, as defined in the plan, for a
four-year period. These credits are paid in cash after the end of the four-year
period.
21
Section 162(m)
Section 162(m) limits to $1 million a public company's annual tax deduction
for compensation paid to each of its most highly compensated executive officers.
Qualified performance-based compensation is excluded from this deduction
limitation if certain requirements are met. The committee's policy is to
structure compensation awards that will be deductible where doing so will
further the purposes of our executive compensation programs. The committee also
considers it important to retain flexibility to design compensation programs
that recognize a full range of criteria important to our success, even where
compensation payable under the programs may not be fully deductible.
The committee believes that the stock options, annual incentive awards, and
performance units qualify for the exclusion from the deduction limitation under
Section 162(m). With the exception of a portion of the salary paid to our chief
executive officer and our president, the committee anticipates that the
remaining components of individual executive compensation that do not qualify
for an exclusion from Section 162(m) should not exceed $1 million in any given
year and therefore will qualify for deductibility.
H. Devon Graham, Jr., Chairman Bobby Lee Lackey
Robert J. Allison, Jr. J. Taylor Wharton
Robert W. Bruce III
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of our corporate personnel committee are Messrs.
Allison, Bruce, Graham, Lackey and Wharton. In 2001, none of our executive
officers served as a director or member of the compensation committee of another
entity, where an executive officer of the entity served as our director or on
our corporate personnel committee.
AUDIT COMMITTEE REPORT
The audit committee is currently composed of six directors. The members of
our committee are independent, as defined in the New York Stock Exchange's
listing standards. We operate under a written charter approved by our committee
and adopted by the board of directors. Our primary function is to assist the
board of directors in fulfilling the board's oversight responsibilities by
monitoring (1) the company's continuing development of its system of financial
reporting, auditing, internal controls and legal compliance, (2) the operation
of the system and (3) the independence and performance of the company's external
and internal auditors.
Financial Statement Review; Discussions with Management and Independent Auditors
We have reviewed and discussed the company's audited financial statements
for the year 2001 with management and the company's independent auditors.
Management represented to us that the audited financial statements were prepared
in accordance with accounting principles generally accepted in the United
States.
We have received and reviewed the written disclosures and the letter from
the independent auditors required by Independence Standards Board Standard No.
1, Independence Discussions with Audit Committees, as amended, by the
Independence Standards Board, and have discussed with the independent auditors
22
their independence from the company and management. We have also discussed with
the independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as amended, by
the Auditing Standards Board of the American Institute of Certified Public
Accountants.
In addition, we have discussed with the independent auditors the overall
scope and plans for their audit, and have met with the independent auditors and
management to discuss the results of their examination, their understanding and
evaluation of the company's internal controls as they considered necessary to
support their opinion on the financial statements for the year 2001, and various
factors affecting the overall quality of the company's financial reporting. The
independent auditors also have had opportunities to meet with us without
management being present to discuss any of these matters.
Based on these reviews and discussions, we recommended to the board of
directors that the financial statements referred to above be included in the
company's annual report on Form 10-K for the year 2001.
Internal Audit
We also oversee the company's internal audit function, including the
selection and compensation of the company's internal auditors, which is a
separate and independent accounting firm from our external auditors. We have
discussed with the company's internal auditors the scope of their audit plan,
and have met with the internal auditors to discuss the results of their reviews,
their evaluation of the company's processes and internal controls, any
difficulties or disputes with management encountered during the course of their
reviews, and other matters relating to the internal audit process.
Fees and Related Disclosures for Accounting Services
AUDIT AND REVIEW FEES. The independent auditors billed the company
$449,775 for professional services rendered for the audit of the company's
financial statements for 2001 and for the reviews of the unaudited interim
financial statements included in the company's Forms 10-Q for 2001.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. The
independent auditors did not provide any financial information systems design
and implementation services for 2001.
ALL OTHER FEES. For 2001, the independent auditors billed the company
$561,225 for professional services rendered, other than described above under
"Audit and Review Fees" and "Financial Information Systems Design and
Implementation Fees." These services primarily related to the following:
- tax compliance services, preparation of the company's federal and state
tax returns and preparation of the company's estimated tax payments;
- services rendered for statutory audits required under Indonesian law,
services rendered for audits of the company's employee benefit plans and
accounting consultations;
- services rendered with respect to the sale of convertible notes and the
related registration statement filed with the SEC in 2001 and subsequent
review by the SEC; and
- providing personnel to work on a temporary basis under the direction of
the human resource department of PT Freeport Indonesia in Indonesia.
23
CONSIDERATION OF AUDITORS' INDEPENDENCE. We have considered whether the
provision of services covered under the sections entitled "Financial Information
Systems Design and Implementation Fees" and "All Other Fees" for 2001 is
compatible with maintaining the auditors' independence and have discussed with
the auditors their independence from the company and management.
Robert A. Day, Chairman H. Devon Graham, Jr.
Robert W. Bruce III Steven J. Green
Gerald J. Ford Oscar Y. L. Groeneveld
SELECTION OF THE INDEPENDENT AUDITORS
Our board of directors customarily asks that stockholders ratify the
board's appointment of our independent auditors. Arthur Andersen LLP has served
as our independent auditors since 1988. Because of the uncertainties regarding
Arthur Andersen continuing as our independent auditors, our audit committee and
board of directors have recently asked other firms with the capability to serve
as our independent auditors to submit proposals to conduct the audit of our
financial statements for 2002.
Arthur Andersen audited our financial statements for 2001 and we have
invited one or more of their representatives to attend the meeting. We have
asked the representatives to be available to respond to appropriate questions
and we will provide them with an opportunity to make a statement.
24
PERFORMANCE GRAPH
The following graph compares the change in the cumulative total stockholder
return on our Class B common stock with the cumulative total return of the S&P
500 Stock Index and the cumulative total return of the Dow Jones Other
Non-Ferrous Metals Group Index (Americas) from 1997 through 2001. This
comparison assumes $100 invested on December 31, 1996 in (a) Freeport-McMoRan
Copper & Gold Inc. Class B common stock, (b) S&P 500 Stock Index and (c) Dow
Jones Other Non-Ferrous Metals Group Index (Americas).
COMPARISON OF CUMULATIVE TOTAL RETURN*
FREEPORT-MCMORAN COPPER & GOLD INC.,
S&P 500 STOCK INDEX AND DOW JONES
OTHER NON-FERROUS METALS GROUP INDEX (AMERICAS)
[GRAPH]
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ------------ ------------
Freeport-McMoRan Copper
& Gold Inc........... $100.00 $ 54.42 $ 36.56 $ 74.00 $ 29.99 $ 46.90
S&P 500 Stock Index.... $100.00 $133.53 $171.69 $207.81 $188.90 $166.44
Dow Jones Other Non-
Ferrous Metals Group
Index (Americas)..... $100.00 $ 74.06 $ 52.47 $ 90.79 $ 67.10 $ 50.03
* Total Return Assumes Reinvestment of Dividends
25
CERTAIN TRANSACTIONS
We and McMoRan each own 50% of the Services Company. The Services Company's
sole director is also an executive officer of our company. We are parties to a
services agreement with the Services Company under which the Services Company
provides us with executive, technical, administrative, accounting, financial,
tax and other services. The Services Company also provides these services to
McMoRan. We pay an allocable portion of expenses from consulting arrangements
that the Services Company has entered into, some of which are described below.
B. M. Rankin, Jr. and the Services Company are parties to an agreement
under which Mr. Rankin renders services to us and McMoRan relating to finance,
accounting and business development. The Services Company provides Mr. Rankin
compensation, medical coverage and reimbursement for taxes in connection with
those medical benefits. In 2001, the Services Company paid Mr. Rankin $469,167
($243,334 of which was allocated to us) pursuant to this agreement. Mr. Rankin
also received reimbursement of $65,290 for a portion of his office rent and the
services of an executive secretary employed by the Services Company and received
$24,952 of imputed income for his use of company chartered aircraft.
J. Stapleton Roy, who was appointed to our board in March 2001, is Managing
Director of Kissinger Associates, Inc. Kissinger Associates and the Services
Company are parties to agreements under which Kissinger Associates provides to
us and our affiliates advice and consultation on specified world political,
economic, strategic and social developments affecting our affairs. Under these
agreements, Kissinger Associates receives an annual fee of $200,000, additional
consulting fees based on the services rendered, and reimbursement of reasonable
out-of-pocket expenses incurred in connection with providing such services. In
2001, the Services Company paid Kissinger Associates $200,000, excluding
reasonable out-of-pocket expenses, for all services rendered under these
agreements (all of which was allocated to us).
J. Bennett Johnston and the Services Company are parties to an agreement,
renewable annually, under which Mr. Johnston provides consulting services to us
and our affiliates relating to international relations and commercial matters.
Under this agreement, Mr. Johnston receives an annual consulting fee of $250,000
and reimbursement of reasonable out-of-pocket expenses incurred in connection
with providing services. In 2001, the Services Company paid Mr. Johnston
$250,000, excluding reasonable out-of-pocket expenses, pursuant to this
agreement, $200,000 of which was allocated to us. The annual consulting fee
includes Mr. Johnston's annual fee for serving on our board.
Gabrielle K. McDonald and the Services Company are parties to an agreement,
renewable in December 2002, under which Ms. McDonald renders consulting services
to us and our affiliates in connection with her role as Special Counsel on Human
Rights to our Chairman. Under this agreement, Ms. McDonald received an annual
fee of $500,000 in 2001, and will receive an annual fee of $250,000 in 2002,
plus reimbursement of reasonable out-of-pocket expenses incurred in connection
with rendering consulting services. In 2001, the Services Company paid Ms.
McDonald $500,000, exclusive of reasonable out-of-pocket expenses, pursuant to
this agreement, all of which was allocated to us. The annual consulting fee
includes Ms. McDonald's annual fee for serving on our board.
26
PROPOSAL TO RECLASSIFY OUR TWO CLASSES OF COMMON STOCK INTO A SINGLE CLASS BY
AMENDING OUR CERTIFICATE OF INCORPORATION
Our board of directors has authorized, and recommends for your approval, an
amendment to our certificate of incorporation to reclassify our two classes of
common stock into a single class of common stock by converting each outstanding
share of our Class A common stock into one share of our Class B common stock.
Because this is a summary of the proposed amendment, it may not contain all of
the information that is important to you. You should read the proposed amended
and restated certificate of incorporation attached as Annex A to this proxy
statement carefully before you decide how to vote.
The proposed amendment would
- reclassify our Class A common stock and Class B common stock into a
single class of common stock by converting each outstanding share of our
Class A common stock into one share of our Class B common stock;
- provide for the election of all of our directors by the holders of our
Class B common stock and the holders of our outstanding preferred stock,
voting together as a single class; and
- eliminate all references to our Class A common stock and authorize the
issuance of an additional 211.8 million shares of our Class B common
stock, which is the number of shares of our Class A common stock
currently authorized for issuance by our certificate of incorporation.
We will refer to the proposed amendment to our certificate of incorporation
as the "Amendment." In order for the Amendment to be validly authorized, 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,
must approve the Amendment. Moreover, by voting to approve the Amendment, our
Class A and Class B common stockholders will be authorizing the company, without
further stockholder approval, to make any immaterial changes to the Amendment as
our officers executing the Amendment may approve. If approved, the Amendment
will be effective on the date it is filed with the Delaware Secretary of State;
we will refer to this date as the "effective date." The effective date is
expected to occur as soon as practicable after the annual meeting of
stockholders.
BACKGROUND OF OUR DUAL-CLASS STRUCTURE
Our dual-class common stock structure was created in connection with the
initial public offering of our Class A common stock in May 1988. Following the
offering, our former sole stockholder, Freeport-McMoRan Inc., owned all of our
outstanding Class B common stock. In connection with its proposal in May 1994 to
distribute all of our outstanding Class B common stock to its stockholders,
Freeport-McMoRan Inc. sought and received a letter ruling from the Internal
Revenue Service that the distribution would be tax-free for federal income tax
purposes to Freeport-McMoRan Inc. and its stockholders. In order to receive the
letter ruling and ensure that our Class B common stock could be distributed on a
tax-free basis, we were required to make certain changes to our capital
structure and corporate governance. The changes included an amendment to our
certificate of incorporation to provide that
- at least 80% of our directors would be elected by the holders of our
Class B common stock, voting as a separate class; and
27
- the remainder of our directors would be elected by the holders of our
Class A common stock and the holders of our preferred stock, voting
together as a separate class.
In addition, in order to satisfy the IRS' requirements, we were required to
represent that there would be no change in, or any vote to change, the special
voting rights for five years after the distribution. On July 17, 1995,
Freeport-McMoRan Inc. completed the distribution of our Class B common stock to
its stockholders, and the changes to our capital structure and corporate
governance became effective. The rights of holders of our Class A and Class B
common stock have not changed since that date.
In December 2001 and in January 2002, our management discussed with our
board of directors the possibility of combining our two classes of common stock
into a single class. In January 2002, we formally engaged J.P. Morgan Securities
Inc. ("JPMorgan") as our financial advisor to assist us in connection with a
possible combination of our two classes of common stock.
On February 26, 2002, our board of directors formally considered and
authorized a proposal to combine our Class A common stock and Class B common
stock into a single class of common stock on a one share-for-one share basis by
amending our certificate of incorporation. At this meeting, JPMorgan made a
presentation to our board and rendered its opinion that, as of February 26, 2002
and subject to and based on the considerations described in its opinion, the
one-to-one exchange ratio was fair, from a financial point of view, to the
holders of our Class A and Class B common stock. The full text of JPMorgan's
opinion is attached as Annex B to this proxy statement. Also see the section
entitled "Fairness Opinion" below.
REASONS FOR THE AMENDMENT; FACTORS CONSIDERED
In authorizing the Amendment and recommending that our stockholders approve
it, our board of directors considered the following benefits that may result
from the elimination of the dual-class common stock structure:
- our capital structure would be simplified;
- potential investor confusion resulting from our dual-class structure
would be reduced;
- the liquidity and trading efficiencies of our common stock would
potentially increase;
- flexibility to structure transactions using our common stock would
improve; and
- certain administrative expenses of the dual-class structure would be
reduced.
Our board of directors also considered the following factors in connection
with its approval and recommendation of the Amendment:
- the opinion of JPMorgan that, as of February 26, 2002 and subject to and
based on the considerations described in such opinion, the one-to-one
exchange ratio was fair, from a financial point of view, to the holders
of our Class A and Class B common stock;
- the holders of the Class A and Class B common stock have the same
economic rights with the special voting rights for the election of
directors representing the only material difference in our Class A and
Class B common stock;
28
- in a merger or reorganization transaction, each holder of a share of
Class A common stock and each holder of a share of Class B common stock
would be entitled to receive the same kind and amount of shares,
securities or other property, except that the holders of our Class A and
Class B common stock could be offered different kinds of shares if the
only difference would be the special voting rights for the election of
directors;
- the effect on future elections of directors that will result from the
Amendment, as more fully described in the section below entitled "Certain
Effects of the Amendment;"
- the historical trading prices and trading volume differentials of our
Class A and Class B common stock;
- the historical trading price and trading volume differentials between the
two classes of stock of other companies with dual-class capital
structures;
- the exchange ratios adopted by other companies that have eliminated their
dual-class structures;
- the trend of publicly held companies away from dual-class capital
structures, consistent with the policies of the New York Stock Exchange
and the other major stock exchanges in favor of one-vote, one-share
common stock capitalization;
- the Amendment is not expected to result in taxable income to the holders
of our Class A and Class B common stock or the company; and
- as discussed above in the section entitled "Background of Our Dual-Class
Structure," the expiration of the time period during which we represented
to the IRS that there would be no change in the special voting rights for
the election of directors.
In authorizing and recommending the approval of the Amendment, our board of
directors considered the enumerated factors and potential benefits set forth
above as a whole and did not quantify or otherwise assign relative weights to
the different factors or potential benefits. Although one of the potential
benefits that our board considered was the administrative cost savings that may
result from a simplified capital structure, we cannot assure you that the
reclassification of our shares of Class A common stock into shares of our Class
B common stock will result in any material cost savings. We also cannot assure
you when or if the other potential benefits will be realized.
CERTAIN EFFECTS OF THE AMENDMENT
If the Amendment is approved and filed, each share of our outstanding Class
A common stock will automatically be converted into one share of our Class B
common stock. After the effective date, the holders of our Class B common stock
will vote with the holders of our outstanding preferred stock for the election
of all directors. The Amendment will also have the following effects, among
others, on the holders of our Class A and Class B common stock and on the
company:
Voting Power of Holders of Our Class A and Class B Common Stock
- Elections of Directors
Currently, the holders of our Class B common stock elect at least 80% of
our directors and are entitled to cast 100% of the votes entitled to be cast in
such elections. The holders of our Class A common stock currently
29
vote with the holders of our outstanding preferred stock to elect the remainder
of our directors. As of March 14, 2002, holders of our Class A common stock were
entitled to cast approximately 97.7% of the votes entitled to be cast in such
elections and the holders of our preferred stock were entitled to cast 2.3% of
the votes. As further discussed in the section of the proxy statement entitled
Election of Directors, under Rio Tinto's agreement with us, Rio Tinto has the
right to nominate certain directors. As a result of Rio Tinto's beneficial
ownership of 23.9 million shares of our Class A common stock, two of our
directors are selected by Rio Tinto and both serve as Class A directors.
After the effective date, the current holders of our Class A common stock,
as new holders of our Class B common stock, and the current holders of our Class
B common stock will vote together with the holders of our outstanding preferred
stock for the election of all of our directors. Thus, after the effective date,
the holders of our preferred stock will vote in the election of all of our
directors with the holders of our Class B common stock. Based on the shares
outstanding as of March 14, 2002, immediately after the effective date, the
current holders of our Class A common stock, as new holders of our Class B
common stock, and the current holders of our Class B common stock will be
entitled to cast approximately 38.2% and 60.9%, respectively, of the votes
entitled to be cast for the election of directors. The holders of our preferred
stock will be entitled to cast approximately 0.9% of the votes entitled to be
cast for the election of directors. After the effective date, Rio Tinto will
continue to have the right to nominate directors based on its aggregate
percentage ownership of our Class B common stock. See Election of Directors.
- All Other Matters
As to all other matters on which our stockholders are entitled to vote, the
Amendment will have no impact on the voting power of holders of our Class A and
Class B common stock. On such matters, the holders of our Class A and Class B
common stock are currently entitled to cast approximately 38.5% and 61.5%,
respectively, of the votes entitled to be cast. After the effective date, the
current holders of our Class A common stock, as new holders of our Class B
common stock, and the current holders of our Class B common stock will be
entitled to cast approximately 38.5% and 61.5%, respectively, of the votes
entitled to be cast based on the shares outstanding as of March 14, 2002.
Equity Interest of Holders of Our Class A and Class B Common Stock
In addition, the Amendment will have no impact on the equity interest of
holders of our Class A and Class B common stock. The shares held by the holders
of our Class A and Class B common stock currently represent 38.5% and 61.5%,
respectively, of our total outstanding common stock. After the effective date,
the shares of our Class B common stock received by the current holders of our
Class A common stock pursuant to the Amendment and the Class B shares held by
our current Class B stockholders will represent approximately 38.5% and 61.5%,
respectively, of our outstanding common stock based on the shares outstanding as
of March 14, 2002.
Our Capitalization
The Amendment will have no impact on our total outstanding shares of common
stock. As of March 14, 2002, we had 144,170,438 shares of common stock
outstanding, consisting of 55,567,714 shares of Class A common stock and
88,602,724 shares of Class B common stock. After the effective date, we will
have 144,170,438 shares of our Class B common stock outstanding. In addition,
the Amendment will involve no
30
increase in our total number of authorized shares of common stock. The Amendment
authorizes the issuance of an additional 211.8 million shares of our Class B
common stock, which is the number of shares of our Class A common stock
currently authorized by our certificate of incorporation.
Market Price of Our Common Stock
After the effective date, the market price of shares of our Class B common
stock will depend, as before the Amendment, on many factors, including our
future performance, general market conditions and conditions in the industry in
which we operate. Accordingly, we cannot predict the price at which our Class B
common stock will trade following the Amendment, just as we could not predict
the prices at which our Class A common stock and Class B common stock would
trade absent the Amendment. On March 14, 2002, the per-share closing prices of
our Class A common stock and Class B common stock on the New York Stock Exchange
were $15.35 and $15.39, respectively.
NYSE Listing of Our Common Stock
After the effective date, the shares of our Class B common stock, including
the additional shares of our Class B common stock issued pursuant to the
Amendment, will continue to be listed on the New York Stock Exchange under the
symbol "FCX." We will cause our Class A common stock to be delisted from the
NYSE after the effective date.
Our Operations
The Amendment will have no impact on our operations.
Resale of New Common Stock
Shares of our Class B common stock issued pursuant to the Amendment, other
than any shares issued to "affiliates" of the company within the meaning of the
Securities Act of 1933, may be sold in the same manner as the Class A common
stock converted pursuant to the Amendment without registration under the
Securities Act. Affiliates of the company will continue to be subject to the
restrictions specified in Rule 144 under the Securities Act.
Stock Options and Our Other Stock-Based Awards
In order to appropriately account for reclassifying the Class A common
stock into Class B common stock, we will cause each option to purchase shares of
our Class A common stock to become an option to purchase shares of our Class B
common stock. Our other stock-based awards will also be adjusted appropriately.
Step-Up Convertible Preferred Stock
After the effective date, our Step-Up Convertible Preferred Stock, which is
currently convertible into shares of our Class A common stock, will be
convertible into shares of our Class B common stock at the same conversion
price.
31
Convertible Senior Notes
After the effective date, our convertible senior notes, which are currently
convertible into shares of either our Class A or Class B common stock, will only
be convertible into shares of our Class B common stock.
Rights Agreement
Under our stockholder rights agreement, each outstanding share of our Class
A and Class B common stock currently includes an associated preferred stock
purchase right. These rights trade with our outstanding shares of Class A and
Class B common stock. The rights become exercisable upon the acquisition by a
person or affiliated group of 20% or more of our outstanding Class A or Class B
common stock or the commencement or announcement of a tender offer which, if
consummated, would result in the acquisition of 20% or more of our outstanding
Class A or Class B common stock.
After the effective date, each share of our Class B common stock issued
pursuant to the Amendment will include an identical associated preferred stock
purchase right that will trade with such shares. As with the rights included
with the currently outstanding shares of our Class B common stock, these rights
will become exercisable upon the acquisition by a person or affiliated group of
20% or more of our outstanding Class B common stock or the commencement or
announcement of a tender offer which, if consummated, would result in the
acquisition of 20% or more of our outstanding Class B common stock.
DIFFERENCES BETWEEN OUR CLASS A AND CLASS B COMMON STOCK
The current rights and privileges of our Class A and Class B common stock
are set forth in Article Fourth of our certificate of incorporation. Except for
differences regarding the special voting rights for the election of our
directors and related rights (i.e., filling of director vacancies), the rights
and privileges of holders of our Class A common stock are identical to the
rights and privileges of holders of our Class B common stock.
Holders of our Class B common stock currently vote for the election of at
least 80% of our directors; our remaining directors are elected by the holders
of our Class A common stock voting with the holders of our outstanding preferred
stock. Any vacancy in the office of a director elected by the holders of our
Class B common stock may be filled by the vote of our Class B common
stockholders. Similarly, any vacancy in the office of a director elected by the
holders of our Class A common stock and preferred stock may be filled by the
vote of our Class A common stockholders and preferred stockholders, voting
together.
After the effective date, the current holders of our Class A common stock,
as new holders of our Class B common stock, and the current holders of our Class
B common stock will vote with the holders of our outstanding preferred stock for
the election of all of our directors. Moreover, any vacancy in the office of a
director may be filled by the vote of the current holders of our Class A common
stock, as new holders of our Class B common stock, the current holders of our
Class B common stock and our preferred stockholders, voting together as a class.
FAIRNESS OPINION
Pursuant to an engagement letter dated January 31, 2002, we retained J.P.
Morgan Securities Inc. ("JPMorgan") to render an opinion to our board of
directors as to the fairness, from a financial point of view, of the exchange
ratio to be used in reclassifying our Class A common stock into our Class B
common stock
32
(the "transaction"). At the February 26, 2002 meeting of our board of directors,
JPMorgan rendered to our board an oral opinion, which was confirmed in writing
as of the same date, to the effect that as of that date and based upon and
subject to the assumptions, qualifications and limitations set forth in the
written opinion, the one-for-one exchange ratio pursuant to the proposed
reclassification transaction was fair to both the holders of our Class A and
Class B common stock.
THE FULL TEXT OF JPMORGAN'S OPINION, WHICH SETS FORTH, AMONG OTHER THINGS,
THE ASSUMPTIONS MADE, THE PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND
QUALIFICATIONS AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY JPMORGAN
IN RENDERING ITS OPINION, IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT. THE
OPINION SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY. JPMORGAN PROVIDED ITS
OPINION TO OUR BOARD OF DIRECTORS FOR ASSISTANCE IN CONNECTION WITH ITS
CONSIDERATION OF THE PROPOSED RECLASSIFICATION TRANSACTION, AND THE OPINION
ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW
TO THE HOLDERS OF OUR CLASS A AND CLASS B COMMON STOCK AS OF THE DATE OF THE
OPINION. THE OPINION WAS ONE OF SEVERAL FACTORS TAKEN INTO CONSIDERATION BY OUR
BOARD IN AUTHORIZING THE RECLASSIFICATION TRANSACTION. THE OPINION DOES NOT
CONSTITUTE AN OPINION AS TO THE PRICES AT WHICH OUR CLASS A COMMON STOCK AND
CLASS B COMMON STOCK WILL ACTUALLY TRADE AT ANY TIME AND THE OPINION DOES NOT
ADDRESS THE RELATIVE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF
OUR COMMON STOCK. FURTHERMORE, THE OPINION DOES NOT ADDRESS THE RELATIVE MERITS
OF THE RECLASSIFICATION TRANSACTION COMPARED TO OTHER BUSINESS STRATEGIES
CONSIDERED BY OR AVAILABLE TO OUR BOARD, NOR DOES IT ADDRESS OUR BOARD'S
DECISION TO PROCEED WITH THE RECLASSIFICATION TRANSACTION. THE OPINION IS NOT A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH
RESPECT TO THE RECLASSIFICATION TRANSACTION OR ANY OTHER MATTER AND SHOULD NOT
BE RELIED UPON BY ANY STOCKHOLDER AS SUCH. THIS SUMMARY OF JPMORGAN'S OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION ATTACHED
AS ANNEX B.
In rendering its opinion, JPMorgan, among other things:
- reviewed our certificate of incorporation and bylaws as they relate to
the rights and privileges of our Class A and Class B common stock and
held discussions with our outside counsel regarding such rights and
privileges;
- reviewed the historical trading performance and trading liquidity of both
classes of our common stock;
- reviewed the historical trading performance and trading liquidity for
other dual-class companies;
- compared the financial terms of the proposed transaction and the exchange
ratio to be used in the transaction with the publicly available financial
terms of selected recent reclassification transactions that JPMorgan
deemed relevant and the exchange ratios used in such transactions;
- reviewed the historical trading performance, trading liquidity and
post-announcement stock price performance for securities in such relevant
reclassification transactions; and
- performed such other financial studies and analyses and considered such
other information as JPMorgan deemed appropriate for the purpose of its
opinion.
In addition, JPMorgan held discussions with certain members of our
management with respect to the original creation of our dual-class common stock
structure, certain aspects of the transaction and the strategic and other
reasons behind our decision to propose the transaction. JPMorgan was not
requested to, and did not,
33
provide advice concerning the structure, the specific exchange ratio, or any
other aspect of the transaction, and JPMorgan did not provide any services other
than the delivery of its opinion.
In rendering its opinion, JPMorgan relied upon and assumed, without
assuming any responsibility or liability for independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by us or otherwise reviewed by or for it. JPMorgan did not
conduct any valuation or appraisals of any of our assets or liabilities, nor
were any such valuations or appraisals provided to it. JPMorgan also assumed
that the transaction would qualify as a tax-free exchange and recapitalization
for United States federal income tax purposes. JPMorgan noted that it is not a
legal or tax expert and relied upon, without assuming any responsibility for
independent verification or liability therefor, the assessment of our legal and
tax advisors with respect to the legal and tax matters related to the
transaction.
The JPMorgan opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to it as of, the
date of its opinion. Subsequent developments may affect its opinion and JPMorgan
does not have any obligation to update, revise, or reaffirm its opinion. The
JPMorgan opinion is limited to the fairness, from a financial point of view, to
the holders of our Class A common stock and Class B common stock of the exchange
ratio in the transaction. JPMorgan has not expressed any opinion as to the
underlying decision by us to engage in the transaction. JPMorgan also has not
expressed any opinion as to the price at which our Class A common stock or Class
B common stock will trade at any future time.
The following is a brief summary of the analyses JPMorgan performed in
connection with preparing its fairness opinion:
Historical Trading Analysis of our Class A and Class B Common
Stock. JPMorgan reviewed the historical trading performance and the trading
liquidity of our Class A and Class B common stock. This analysis included the
examination of the percentage by which the daily closing price per share of our
Class A common stock traded at a premium or a discount to the daily closing
price per share of our Class B common stock. The trading premium or discount was
calculated for all trading days between July 11, 1995, when our Class A common
stock first began trading, to February 8, 2002. For the period from July 11,
1995 to February 8, 2002, our Class A common stock had an average trading
discount of 5.3% relative to our Class B common stock. For the five-year,
three-year and one-year periods, each ending February 8, 2002, our Class A
common stock had average trading discounts of 6.0%, 6.9% and 8.2%, respectively,
relative to our Class B common stock.
JPMorgan also analyzed the ratio of the average daily trading volume of our
Class B common stock traded relative to the average daily trading volume of our
Class A common stock, which is referred to as the relative trading liquidity.
For the period from July 11, 1995 to February 8, 2002, the relative trading
liquidity was 2.9 times. For the five-year, three-year and one-year periods,
each ending February 8, 2002, the relative trading liquidity was 3.9 times, 5.5
times and 7.8 times, respectively.
Analysis of Publicly Traded Companies with Dual-Class Capital
Structures. JPMorgan identified and analyzed a group of companies that, as of
the time of the analysis, had two classes of publicly traded common stock with
different voting rights and had market capitalizations of equal to or greater
than $750 million. The companies included in the analysis were classified into
two groups as follows:
- companies where the high vote shares had greater trading liquidity than
the low vote shares, and
- companies where the low vote shares had greater trading liquidity than
the high vote shares.
34
The analysis indicated that in the cases where the high vote shares had
higher trading liquidity, the low vote shares traded at average trading
discounts relative to the high vote shares of 7.7%, 16.7% and 14.1% for the one
year, three years and five years periods, each ending February 8, 2002,
respectively. In cases where the low vote shares that had greater trading
liquidity, the low vote shares traded at average trading premiums relative to
the high vote shares of 1.3%, 0.9% and 0.9% for the one year, three years and
five years periods, each ending February 8, 2002, respectively. For the one
year, three year and five year periods, each ending February 8, 2002, shares of
our Class A common stock traded at average trading discounts relative to shares
of our Class B common stock of 8.2%, 6.9% and 6.0%, respectively. JPMorgan noted
that unlike many companies in its sample, the special voting rights with respect
to our Class A and Class B common stock related to the election of directors
only.
Analysis of Historical Reclassification Transactions. JPMorgan identified
and analyzed selected reclassification transactions involving companies whose
high vote shares had higher trading liquidity than their low vote shares.
In each selected reclassification transaction, two classes of a single
company with differential voting rights were reclassified or combined into a
single class of common stock. JPMorgan noted that the ratio of new shares
received by both classes of common stock in each of the selected transactions
was one-for-one. In one transaction, the high vote shareholders received a one
time special dividend equal to approximately 7.0% of the high vote share price
the day prior to announcement. For these selected reclassification transactions,
the average trading discount for the low vote shares relative to the high vote
shares over the one year, three years and five years periods, each ending the
day prior to the public announcement of the reclassification transactions, was
5.4%, 4.7% and 5.9%, respectively.
JPMorgan also analyzed the post-announcement stock price performance of the
high and low vote shares of the companies that engaged in these selected
reclassification transactions. On average, the market trading prices of the high
vote shares increased 1.9% and the market trading prices of the low vote shares
increased 4.1% on the trading day immediately upon the announcement of the
reclassification transactions. JPMorgan noted that the post announcement trading
performance in previous reclassification transactions has no bearing on how our
Class A and Class B common stock may trade upon the announcement of our proposed
reclassification transaction.
JPMorgan performed a variety of financial and comparative analyses for
purposes of rendering its opinion. The summary set forth above does not purport
to be a complete description of the analyses or data presented by JPMorgan. The
preparation of a fairness opinion is a complex process and is not susceptible to
partial analysis or summary description. In arriving at its opinion, JPMorgan
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any analysis or factor considered by it. Furthermore,
JPMorgan believes that the summary provided and the analyses described above
must be considered as a whole and that selecting any portion of its analyses,
without considering all of them, would create an incomplete view of the process
underlying its analyses and opinion.
Our board of directors selected JPMorgan as its financial advisor because
of its reputation as an internationally recognized investment banking and
advisory firm with experience in transactions similar to the proposed
transaction and because JPMorgan is familiar with our company and our business.
As part of its investment banking and financial advisory business, JPMorgan is
continually engaged in structuring and executing a wide range of domestic and
international transactions, including acquisitions, divestitures,
35
mergers, joint ventures, corporate restructurings, leveraged buyouts, defenses
against unsolicited takeover attempts, recapitalizations, negotiated
underwritings, secondary distributions of listed and unlisted securities and
private placements.
JPMorgan provides a full range of financial advisory and securities
services and in the past, JPMorgan and its affiliates have provided financial
advisory and financing services for us and our affiliates and received fees for
the rendering of such services and also may provide such services to us and our
affiliates in the future for which they would expect to receive fees. Certain
JPMorgan affiliates have outstanding loans to us. In addition, in the course of
their business, JPMorgan and its affiliates may actively trade the debt and
equity securities of our company for their own accounts or for the accounts of
their customers and, accordingly, may at any time hold long or short positions
in such securities.
Pursuant to our engagement letter with JPMorgan, we agreed to pay JPMorgan
a customary fee upon the delivery of its opinion. We also agreed to reimburse
JPMorgan for its reasonable out-of-pocket expenses incurred in connection with
the engagement, including attorneys' fees, and to indemnify JPMorgan and its
related parties from and against certain liabilities, including liabilities
under the federal securities laws.
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is summary information as of February 26, 2002 with respect
to
- the amount of our Class A and Class B common stock (excluding stock-based
awards) that our directors and executive officers beneficially own; and
- the amount of stock-based awards (i.e., stock options, restricted stock
units and stock appreciation rights) relating to our Class A and Class B
common stock that each of our directors and executive officers hold.
As noted below, Rio Tinto, which has two director representatives on our board,
beneficially owns 43.1% of our outstanding Class A common stock. Another of our
directors beneficially owns 3.4% of our outstanding Class A common stock. For
further information, see the section of the proxy statement entitled "Stock
Ownership of Directors and Executive Officers."
Class A Common Stock
- STOCK OWNERSHIP (EXCLUDING STOCK-BASED AWARDS)
- Messrs. Clifford and Groeneveld are executive directors of Rio Tinto
and currently serve on our board as Rio Tinto's nominees. See the
section of the proxy statement entitled "Election of Directors." Rio
Tinto beneficially owns 23,931,100 shares of our Class A common stock,
representing 43.1% of our outstanding Class A common stock.
- Another of our directors, Robert W. Bruce III, beneficially owns
1,890,000 shares of our Class A common stock, representing 3.4% of our
outstanding Class A common stock.
- Our remaining directors and executive officers as a group beneficially
own 205,908 shares of our Class A common stock, representing 0.4% of
our outstanding Class A common stock.
36
- STOCK OPTIONS
- None of our non-employee directors hold stock options relating to our
Class A common stock.
- Our three executive officers hold stock options relating to an
aggregate of 1,322,500 shares of our Class A common stock, none of
which are currently exercisable and all of which are scheduled to vest
over the next four years.
- RESTRICTED STOCK UNITS
- None of our directors hold restricted stock units relating to our
Class A common stock.
- One of our executive officers holds restricted stock units relating to
133,291 shares of our Class A common stock, which are scheduled to
vest over the next three years.
- STOCK APPRECIATION RIGHTS -- None of our directors or executive officers
hold stock appreciation rights relating to our Class A common stock.
Class B Common Stock
- STOCK OWNERSHIP (EXCLUDING STOCK-BASED AWARDS) -- Our directors and
executive officers as a group beneficially own 1,743,282 shares of our
Class B common stock, representing 2.0% of our outstanding Class B common
stock.
- STOCK OPTIONS
- Our non-employee directors hold stock options relating to an aggregate
of 723,752 shares of our Class B common stock, of which 458,752 are
currently exercisable and the remainder are scheduled to vest over the
next three and one-half years.
- Our executive officers hold an aggregate of 8,797,050 options relating
to our Class B common stock, of which 6,659,550 are currently
exercisable and the remainder are scheduled to vest over the next four
years.
- RESTRICTED STOCK UNITS -- None of our directors or executive officers
hold restricted stock units relating to our Class B common stock.
- STOCK APPRECIATION RIGHTS
- Our non-employee directors hold stock appreciation rights relating to
474,484 shares of our Class B common stock, of which 300,750 are
currently exercisable and the remainder are scheduled to vest over the
next three and one-half years.
- None of our executive officers hold stock appreciation rights relating
to our Class B common stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
We have summarized below certain federal income tax consequences of the
Amendment based on the Internal Revenue Code of 1986, as amended and currently
in effect. This summary does not discuss all aspects of federal income taxation
that may be relevant to you in light of your individual circumstances. In
addition,
37
this summary is included for general information purposes only and is not
intended to constitute advice regarding the federal income tax consequences of
the Amendment. You are urged to consult your own tax advisor with respect to the
tax consequences of the Amendment, including tax reporting requirements and tax
consequences under state, local or foreign law.
We believe that the reclassification of shares of our Class A common stock
into shares of our Class B common stock pursuant to the Amendment will be
treated as a tax-free exchange under Section 1036 of the Code and as a tax-free
recapitalization under Section 368(a)(1)(E) of the Code. As a result of the
Amendment,
- no gain or loss will be recognized for federal income tax purposes by the
holders of our Class A common stock upon the reclassification and
conversion of their shares of our Class A common stock into shares of our
Class B common stock;
- the basis of the Class B common stock received by a Class A stockholder
will be the same as the stockholder's aggregate basis in the Class A
common stock surrendered therefor;
- the holding period of the Class B common stock received by a Class A
stockholder will include such stockholder's holding period for the Class
A common stock surrendered therefor, provided that each share of Class A
common stock was held by such stockholder as a capital asset as defined
in Section 1221 of the Code on the effective date of the Amendment; and
- no gain or loss will be recognized for federal income tax purposes by the
company upon the reclassification and conversion of shares of our Class A
common stock into shares of our Class B common stock.
ACCOUNTING CONSIDERATIONS
Management currently expects that the Amendment will not have any material
effect on our earnings or book value per share.
CLASS A AND CLASS B COMMON STOCK CERTIFICATES
If the Amendment is approved and filed, your certificates representing
shares of our Class A common stock will represent an equal number of shares of
our Class B common stock. ACCORDINGLY, IT WILL NOT BE NECESSARY FOR RECORD
HOLDERS OF OUR CLASS A COMMON STOCK HOLDING CERTIFICATED SHARES TO EXCHANGE
THEIR EXISTING CERTIFICATES FOR NEW CERTIFICATES. However, such holders may at
any time after the effective date exchange their existing certificates for
certificates representing shares of our Class B common stock by contacting our
transfer agent.
RESERVATION OF RIGHTS
Our board of directors reserves the right to abandon the Amendment without
further action by our Class A and Class B common stockholders at any time before
the filing of the Amendment with the Delaware Secretary of State, even if the
Amendment has been approved by our Class A and Class B common stockholders at
the meeting. We further reserve the right to make such immaterial changes to the
Amendment
38
as our officers executing the Amendment may approve, without further action by
our Class A and Class B common stockholders.
APPRAISAL RIGHTS
Dissenting holders of our Class A common stock and Class B common stock do
not have appraisal rights under Delaware state law or under our certificate of
incorporation or bylaws in connection with the Amendment.
VOTE REQUIRED FOR APPROVAL OF THE AMENDMENT
Approval of the Amendment requires (1) the affirmative vote of the holders
of a majority of the outstanding shares of our Class A common stock, voting as a
separate class, and (2) the affirmative vote of the holders of a majority of the
outstanding shares of our Class B common stock, voting as a separate class.
Proxies solicited by our board of directors will be voted FOR this proposal,
unless you specify otherwise in your proxy.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
STOCKHOLDER PROPOSALS
Two stockholders have each advised the company of their intention to
present a proposal at the meeting. In accordance with applicable proxy
regulations, the two proposals and supporting statements are set forth below.
Approval of these proposals would require the affirmative vote of a majority of
the shares of our Class A and Class B common stock present in person or by
proxy, voting together as a single class.
Upon request, we will provide the names and addresses of the proponents of
these stockholder proposals and the number of shares of our Class A and Class B
common stock that they hold. Requests may be sent to the Corporate Secretary,
Freeport-McMoRan Copper & Gold Inc., 1615 Poydras Street, New Orleans, Louisiana
70112, or submitted by calling (504) 582-4000.
STOCKHOLDER PROPOSAL 1
RESOLVED: That the stockholders of Freeport-McMoRan Copper & Gold, Inc.,
hereby request that the Board of Directors take the needed steps to provide
that, at future elections of directors, new directors be elected annually
and not by classes, as is now provided, and that on expiration of present
terms of directors their subsequent election shall also be on an annual
basis.
REASONS
Strong support was shown at the last annual meeting when 54.54%*, 62,292,641
shares, approved this proposal. The real significance of this vote is reflected
in the shares held, controlled, or directed by insiders where directors were in
unanimous opposition to the proposal. The Board and executive management were
essentially voting to entrench themselves.
Classification of the Board of Directors is not in the best interest of
Freeport-McMoRan Copper and Gold, Inc., and its shareholders. This proponent
believes that it makes a Board less accountable to shareholders
39
when directors do not stand for election each year insulating directors and
senior management from the impact of poor performance.
ACCOUNTABILITY TO SHAREHOLDERS SHOULD START WITH DIRECTORS
SHOWING UP FOR THE ANNUAL MEETING.
For the third consecutive year, Mr. Moffett and all directors failed to attend
the annual meeting of shareholders.
"Shareholders who turned up for the annual meeting of Freeport-McMoRan
Copper and Gold this month in Wilmington, Del., never had a chance to hear
James R. Moffett, the chief executive, discuss the company's performance or
a proposal, from a fellow stockholder, to change the way board members are
elected. Mr. Moffett didn't bother to show up. Neither did any other
director."
THE NEW YORK TIMES -- May 13, 2001
If you are appalled as we are, by this company's indifference and lack of
accountability to shareholders, please vote to have the performance of all
directors measured annually.
Last year the holders of more than 18% of the FCX class B common shares cast,
withheld their vote from each of four director nominees elected. In Mr.
Moffett's case, 24.70% of the FCX class B common votes cast, were withheld from
his election.
Freeport directors adhere to a double standard by accepting votes for their own
election while rejecting a proposal adopted by the same shareholders.
Success builds upon success and your favorable vote will help build upon the
54.54%* approval rate established last year.
PLEASE MARK YOUR PROXY IN FAVOR OF THIS PROPOSAL; otherwise, it is automatically
cast as a vote against even if you abstain.
*54.54% of the yes/no votes cast.
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL 1
At the annual meeting held in May 2001, the stockholders adopted a proposal
requesting the board of directors take those steps necessary to provide for the
annual election of all directors. The proposal was approved by 53.93% of the
total votes cast, which represented 43.28% of the total shares outstanding. Our
nominating committee and our board of directors have carefully considered both
the proposal to declassify the board and the stockholder vote on that proposal.
For the reasons stated below, our board of directors continues to believe that
this proposal is not in the best interests of the company or our stockholders.
We have had a "classified" board of directors since 1995. Our board members
are divided into three classes serving staggered three-year terms, with one
class being elected each year. We believe that a classified board is
advantageous to the company and our stockholders and that our view is shared by
most publicly held corporations, as 63% of the corporations included in the S&P
500 index currently have classified boards.
40
- We believe that a classified board reduces the vulnerability of the
company to potentially abusive takeover tactics and encourages potential
acquirers to negotiate with our board. A classified board does not
preclude unsolicited acquisition proposals but, by eliminating the threat
of imminent removal, positions the incumbent board to act to maximize the
value of a potential acquisition to all stockholders by giving the
company time and bargaining power to negotiate and consider alternative
proposals.
- Further, the classified board structure encourages a long-term focus
rather than a solely short-term focus in the company's strategic
direction and management. Each member of our board brings valuable
knowledge and experience to the company and a majority of our directors
at any given time will have prior experience as directors of the company
and will be familiar with our business strategies and operations.
- We also believe that directors who are elected to three-year terms are
just as accountable to stockholders as directors who are elected on an
annual basis. Directors have fiduciary duties that do not depend on how
often they are elected. In addition, we believe that there is little
evidence to indicate that electing directors to either annual or
staggered terms directly influences stock performance.
Finally, stockholders should be aware that approval of this proposal would
not declassify the board. To declassify the board, the board must propose to the
stockholders an amendment to the relevant section of the certificate of
incorporation, following which 66 2/3% of the total outstanding shares of common
stock must approve the proposed amendment.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
PROPOSAL.
STOCKHOLDER PROPOSAL 2
ELECTION OF SHAREHOLDERS TO ADVISE
COMPENSATION COMMITTEE
RESOLVED: Beginning in 2003, the Board of Directors is requested to take the
steps necessary to provide shareholders, at their annual meeting, the
opportunity to elect three of their members to serve as advisors to the
Compensation Committee. The elected advisors shall serve as a liaison between
the Shareholders and the Compensation Committee. The Advisors shall attend
Compensation Committee meetings, and they shall advise and make recommendations
regarding salaries, benefits, incentive compensation, and retirement
compensation of executive officers, directors, and key employees of the Company,
including transactions involving the Board of Directors. They will provide
written recommendations to the Board of Directors regarding management
compensation, and they shall report to shareholders at the Annual Meeting.
Their term of advisement shall be for one year, from annual meeting to annual
meeting. They shall receive the same compensation for meetings attended as
committee members.
SUPPORTING STATEMENT FOR ELECTING ADVISORS
It is important to shareholders that the Directors and Executive Officers
of our Company be compensated fairly for their leadership and service. Providing
incentives and a "just right" amount of compensation for
41
executives is a very difficult task for the Compensation Committee. Shareholder
Advisors would assist the Committee by providing objective input and a
shareholder perspective.
SEVERAL REASONS SEEM TO WARRANT THE ELECTION OF ADVISORS TO
ASSIST WITH COMPENSATION AND BENEFIT RECOMMENDATIONS.
1. Bonuses and incentive compensation for executive officers are often skewed
beyond reasonable and appropriate incentives for outstanding job performance.
From 1999 through 2000, Freeport's Chairman of the Board James R. Moffett
received nearly $8 million in salary, bonus, and other annual compensation.
However, since the last quarter of 1997, the price of FCX stock has dropped from
above $25/share to $10/share by the end of 1998 and on 1 May 1999 to below
$10/share. Freeport's own 2000 proxy statement (p. 21) shows that since 1996 FCX
stock has dramatically under performed both the S&P 500 Stock Index and the Dow
Jones Other Non-Ferrous Metals Group Index. Thus, there is no relationship
between Executive Officer Compensation and performance, nor is this compensation
consistent with the Corporate Personnel Committee's policy as set out on p. 17
of the 2000 proxy statement.
2. In 2000, six out of fifteen Board of Directors received fees and benefits
ranging from $60K to 348K, which far exceeds the $25,000 annual fee for serving
on the board. Thus, 40% of the Board of Directors, in effect, also are hired to
provide consulting services with no accounting to shareholders. This is a
conflict of interest with their duties toward the shareholders. Advisors could
provide objective input into compensation and benefit recommendations for
Directors and for Executive Officers. The recommendations of Advisors for
compensation and benefits of Directors and Executive Officers would be from a
Shareholder perspective.
3. Shareholder value and Executive compensation are not in balance. Executive
pay is growing much faster than dividend payout (which has been eliminated) and
stock value. We need a better compensation and value balance.
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL 2
We believe that our Corporate Personnel Committee is best suited to
determine the compensation of our executive officers. The committee is composed
of five independent directors, all of whom are also stockholders of the company.
As directors, the members of the committee are committed to excellent relations
with our stockholders. Our stockholders may and do express their thoughts,
questions or concerns to the committee as well as the full board throughout the
year by phone, letter and e-mail.
The scope and nature of the powers and obligations of the proposed
stockholder advisory positions are vague and ill-defined, and the positions
would be needlessly cumbersome and bureaucratic additions to the company's
management. For example, the extent to which the advisors would participate in
the proceedings of our board and the committee is not addressed in the proposal.
Moreover, the advisors' activities outlined in the proposal would duplicate the
existing efforts and activities of our board and management in communicating
with our stockholders and keeping them informed about the business and affairs
of the company. We believe that the proposed stockholder advisory positions are
likely to interfere with and reduce the efficiency of management, and would also
result in increased costs with no benefit to our stockholders.
The Corporate Personnel Committee Report on Executive Compensation, which
we include in our proxy statement each year, presents an extensive discussion of
the factors that the committee considers in
42
determining the compensation of our executive officers. As stated in this year's
report, the committee's primary goal is to attract and retain the highest level
of executive talent. To accomplish this goal, the committee targets the
company's executive compensation levels in the top quartile of comparable
companies so as to provide an appropriate amount of compensation to our
executives as well as proper incentives for outstanding job performance. The
committee also engages professional independent compensation advisors.
Our stockholders elect our directors and thus they are fully accountable to
the stockholders. Moreover, all directors have fiduciary duties irrespective of
any arrangement with the company. We fully disclose in our proxy statements all
arrangements pursuant to which any of our directors are compensated as directors
and for other services to the company (See Director Compensation and Certain
Transactions above). We do not believe that any of the current arrangements with
directors creates a conflict with their duties to our stockholders.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
PROPOSAL.
FINANCIAL INFORMATION
A copy of our 2001 annual report accompanies this proxy statement. The
financial statements which are included in our 2001 annual report are
incorporated herein by reference. Additional copies of our 2001 annual report
and copies of our annual report to stockholders on Form 10-K for the year ended
December 31, 2001 (except for exhibits, unless the exhibits are specifically
incorporated by reference) are available without charge upon request. You may
request copies by writing or calling us at:
Freeport-McMoRan Copper & Gold Inc.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Investor Relations
(504) 582-4000
43
ANNEX A
------------------------
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
FREEPORT-MCMORAN COPPER & GOLD INC.
------------------------
Freeport-McMoRan Copper & Gold Inc. (the "Corporation"), a corporation
organized and existing under the laws of the State of Delaware, does hereby
certify as follows:
1. The Corporation was originally incorporated under the name "Freeport-McMoRan
Mineral Holdings Inc." The Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State on November 10,
1987.
2. Pursuant to Section 242 of the Delaware General Corporation Law (the "DGCL"),
the amendments to the Corporation's Certificate of Incorporation contained
herein have been duly adopted and declared advisable by resolution of the
Board of Directors of the Corporation and have been approved by the
affirmative vote of the holders of a majority of the outstanding Class A
Common Stock of the Corporation, par value $0.10 per share (the "Class A
Common Stock"), and the holders of a majority of the outstanding Class B
Common Stock of the Corporation, par value $0.10 per share (the "Class B
Common Stock), voting as separate classes, at the Corporation's annual
meeting of stockholders held on May 2, 2002.
3. Pursuant to Section 245 of the DGCL, this Amended and Restated Certificate of
Incorporation was duly adopted by the Board of Directors of the Corporation
and (a) restates in their entirety the provisions of the Corporation's
Certificate of Incorporation; (b) amends the Corporation's Certificate of
Incorporation by adding those provisions approved by the holders of the
outstanding Class A Common Stock and Class B Common Stock pursuant to Section
242 of the DGCL; and (c) provides for the deletion of provisions
intentionally omitted in reliance upon Section 245(c) of the DGCL.
4. The Amended and Restated Certificate of Incorporation shall read as follows:
FIRST: The name of the corporation is Freeport-McMoRan Copper & Gold Inc.
SECOND: The address of the registered office of the corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle, and the name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
are:
(a) To enter into, maintain, operate and carry on the business of
mining in all its branches in the United States of America and in any other
part of the world, and to quarry, mine, pump, extract, remove and otherwise
produce, and to grind, treat, concentrate, smelt, refine, dress and
otherwise prepare, produce, buy, sell and in every way deal in and with
minerals, ores, concentrates and other mineral and chemical substances of
all kinds, metallic and nonmetallic, including, but without in any way
limiting the generality of the foregoing, antimony, barite, chromium, coal,
cobalt, copper, gas, gold, iron, lead,
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molybdenum, nickel, oil, potash, salt, silica, sand, silver, sulphur,
tantalum, tin, titanium, tungsten, uranium, zinc, and ores and concentrates
thereof.
(b) To purchase, locate, denounce or otherwise acquire, take, hold and
own, and to assign, transfer, lease, exchange, mortgage, pledge, sell or
otherwise dispose of and in any manner deal with and contract with
reference to, mines, wells, mining claims, mining rights, mineral lands,
mineral leases, mineral rights, royalty rights, water rights, timber lands,
timber and timber rights, and real and personal property of every kind, and
any interest therein, in the United States of America or in any other
country, to prospect, explore, work, exercise, develop, manage, operate and
turn the same to account, and to engage in mining, geological, economic,
feasibility, development, and other studies in the United States of America
or in any other country.
(c) To make, manufacture, treat, process, produce, buy, sell and in
every way deal in and with minerals, ores, concentrates and chemicals of
every description, organic or inorganic, natural or synthetic, in the form
of raw materials, intermediate or finished products and any other related
products and substances whatsoever related thereto or of a like or similar
nature or which may enter into the manufacture of any of the foregoing or
be used in connection therewith, and derivatives and by-products derived
from the manufacture thereof and products to be made therefrom and
generally without limitation by reference of the foregoing, all other
products and substances of every kind, character and description.
(d) To engage in any lawful act or activity, whether or not related to
the foregoing, for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: (a) Authorized Stock. The total number of shares of capital stock
that the corporation shall have authority to issue is 473,600,000 shares,
consisting of 50,000,000 shares of Preferred Stock, par value $0.10 per share,
and 423,600,000 shares of Class B Common Stock, par value $0.10 per share. Of
the authorized number of shares of Preferred Stock, 700,000 of such shares shall
be a series of Preferred Stock designated as "Step-Up Convertible Preferred
Stock"; 300,000 of such shares shall be a series of Preferred Stock designated
as "Gold-Denominated Preferred Stock"; 215,279 of such shares shall be a series
of Preferred Stock designated as "Gold-Denominated Preferred Stock, Series II";
119,000 of such shares shall be a series of Preferred Stock designated as
"Silver-Denominated Preferred Stock" (the Step-Up Convertible Preferred Stock,
the Gold-Denominated Preferred Stock, the Gold-Denominated Preferred Stock,
Series II, and the Silver-Denominated Preferred Stock together referred to
herein as the "Existing Preferred Stock"); and 2,500,000 of such shares shall be
a series of Preferred Stock designated as "Series A Participating Cumulative
Preferred Stock."
(b) Class B Common Stock. The powers, preferences, rights,
qualifications, limitations and restrictions of the shares of Class B
Common Stock shall be as follows:
(1) Cash or Property Dividends. Subject to the rights and
preferences of the Preferred Stock as set forth in any resolution or
resolutions of the Board of Directors providing for the issuance of such
stock pursuant to Section (c) of this Article FOURTH, and except as
otherwise provided for herein, the holders of Class B Common Stock are
entitled to receive dividends out of assets legally available therefor
at such times and in such per share amounts as the Board of Directors
may from time to time determine.
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(2) Voting. (A) With respect to the election of directors, holders
of Class B Common Stock and holders of Voting Preferred Stock (as
defined below), shall vote together for the election of members of the
Board of Directors. Each share of Class B Common Stock and each share of
Voting Preferred Stock shall have one vote in the election of directors.
The "Voting Preferred Stock" means (i) each series of the Existing
Preferred Stock, in each case so long as such series remains outstanding
and (ii) any other series of Preferred Stock upon which the right to
vote for directors pursuant to this Section (b)(2) has been conferred in
accordance with Section (c)(6) of this Article FOURTH.
(B) Any director may be removed, with cause, by a vote of
the holders of Class B Common Stock and the holders of Voting
Preferred Stock, voting together.
(3) Vacancies; Increases or Decreases in Size of the Board of
Directors. Any vacancy in the office of a director created by the
death, resignation or removal of a director may be filled by a vote of
holders of Class B Common Stock and holders of Voting Preferred Stock,
voting together. Notwithstanding anything in this Section (b)(3) to the
contrary, any vacancy in the office of a director may also be filled by
the vote of the majority of the remaining directors, regardless of any
quorum requirements set out in the by-laws. Any director elected to fill
a vacancy shall hold office for the remainder of the full term of the
director whose vacancy is being filled and until such director's
successor shall have been elected and qualified unless removed and
replaced pursuant to Section (b)(2)(B) of this Article FOURTH and this
Section (b)(3). The Board of Directors may increase the number of
directors and any newly-created directorship so created may be filled by
the Board of Directors. Any director elected (or appointed) in
accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created and until such director's successor shall have
been elected and qualified unless removed and replaced pursuant to
Section (b)(2)(B) of this Article FOURTH and this Section (b)(3). No
decrease in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director. If the number of
directors is changed, any increase or decrease shall be apportioned
among the classes of directors established pursuant to Article FIFTH so
as to maintain the number of directors in each class as nearly equal as
possible.
(c) Preferred Stock. The Preferred Stock may be divided into and
issued in series. The Board of Directors is hereby expressly authorized, at
any time or from time to time, to divide any or all of the shares of the
Preferred Stock into series, and in the resolution or resolutions
establishing a particular series, before issuance of any of the shares
thereof, to fix and determine the powers, designations, preferences and
relative, participating, optional or other rights, and any qualifications,
limitations or restrictions, of the series so established, to the fullest
extent now or hereafter permitted by the laws of the State of Delaware,
including, but not limited to, the variations between the different series
in the following respects:
(1) The distinctive serial designation of such series;
(2) The annual dividend rate for such series, and the date or dates
from which dividends shall commence to accrue;
(3) The redemption price or prices, if any, for shares of such
series and the terms and conditions on which such shares may be
redeemed;
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(4) The sinking fund provisions, if any, for the redemption or
purchase of shares of such series;
(5) The preferential amount or amounts payable upon shares of such
series in the event of the voluntary or involuntary liquidation of the
corporation;
(6) The voting rights of shares of such series;
(7) The terms and conditions, if any, upon which shares of such
series may be converted and the class or classes or series of shares of
the corporation into which such shares may be converted; and
(8) Such other terms, limitations and relative rights and
preferences, if any, of shares of such series as the Board of Directors
may, at the time of such resolutions, lawfully fix and determine under
the laws of the State of Delaware.
All shares of the Preferred Stock shall be of equal rank with each
other, regardless of series.
The number, voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of the Step-Up Convertible
Preferred Stock shall be as set forth in Exhibit A attached hereto.
The number, voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of the Gold-Denominated
Preferred Stock shall be as set forth in Exhibit B attached hereto.
The number, voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of the Gold-Denominated
Preferred Stock, Series II shall be as set forth in Exhibit C attached
hereto.
The number, voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of the Silver-Denominated
Preferred Stock shall be as set forth in Exhibit D attached hereto.
The number, voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of the Series A
Participating Cumulative Preferred Stock shall be as set forth in
Exhibit E attached hereto.
(d) General.
(1) Except as otherwise required by law and except for such voting
powers with respect to the election of directors as are provided for
herein for the Existing Preferred Stock or as may be stated in the
resolution or resolutions of the Board of Directors providing for the
issue of any series of Preferred Stock, the holders of any such series
of Preferred Stock shall have no voting power whatsoever. Subject to
such restrictions as may be stated in the resolution or resolutions of
the Board of Directors providing for the issue of any series of
Preferred Stock, any amendment to this Amended and Restated Certificate
of Incorporation which shall increase or decrease the authorized stock
of any class or classes may be adopted by the affirmative vote of the
holders of a majority of the outstanding shares of Class B Common Stock
of the corporation irrespective of the provisions of Section 242(b)(2)
of Delaware General Corporation Law.
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(2) No holder of stock of any series or class of stock of the
corporation shall as such holder have under this Amended and Restated
Certificate of Incorporation any preemptive or preferential right of
subscription to any stock of any series or class of stock of the
corporation or to any obligations convertible into stock of the
corporation, issued or sold, or to any right of subscription to, or to
any warrant or option for the purchase of any thereof.
(3) Except as otherwise stated in this Amended and Restated
Certificate of Incorporation, the corporation may from time to time
issue and dispose of any of the authorized and unissued shares of Class
B Common Stock or Preferred Stock for such consideration, not less than
its par value, as may be fixed from time to time by the Board of
Directors, without action by the stockholders. The Board of Directors
may provide for payment therefor to be received by the corporation in
cash, property or services rendered. Any and all such shares of Class B
Common Stock or Preferred Stock the issuance of which has been so
authorized, and for which consideration so fixed by the Board of
Directors has been paid or delivered, shall be deemed fully paid stock
and shall not be liable to any further call or assessment thereon.
FIFTH: (a) Subject to such rights to elect additional directors under
specified circumstances as may be granted to holders of any shares of the
Preferred Stock pursuant to the provisions of Article FOURTH, the number of
directors of the corporation shall be fixed from time to time by the Board of
Directors but shall not be less than five. The directors, other than those who
may be elected solely by the holders of any class or series of Preferred Stock,
if any, shall be classified, with respect to the time for which they severally
hold office, into three classes, as nearly equal in number as possible, as
determined by the Board of Directors, one class ("Class I") to hold office for a
term expiring at the 2005 annual meeting of stockholders, another class ("Class
II") to hold office for a term expiring at the 2003 annual meeting of
stockholders, and another class ("Class III") to hold office for a term expiring
at the 2004 annual meeting of stockholders, with the members of each class to
hold office until their successors are elected and qualified. Directors shall be
divided as evenly as possible, as determined by the Board of Directors, among
Class I, Class II and Class III. At each annual meeting of stockholders, the
successors of the class of directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the annual meeting of stockholders
held in the third year following the year of their election.
(b) Notwithstanding any other provision of this Amended and Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, the affirmative vote of the holders of
66 2/3% or more of the outstanding shares of Class B Common Stock shall be
required to amend, alter, change or repeal this Article FIFTH.
SIXTH: In furtherance and not in limitation of the powers conferred by law,
(a) the Board of Directors is expressly authorized to adopt, amend or repeal the
by-laws of the corporation in any manner not inconsistent with the laws of the
State of Delaware or the Amended and Restated Certificate of Incorporation of
the corporation, subject to the power of the stockholders to adopt, amend or
repeal the by-laws or to limit or restrict the power of the Board of Directors
to adopt, amend or repeal the by-laws, and (b) the corporation may in its
by-laws confer powers and authorities upon its Board of Directors in addition to
those conferred upon it by statute.
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SEVENTH: The affirmative vote of the holders of not less than 66 2/3% of
the outstanding shares of Class B Common Stock shall be required for the
approval or authorization of any Business Combination; provided, however, that
the 66 2/3% voting requirement shall not be applicable if
(a) the Board of Directors of the corporation by affirmative vote
which shall include not less than a majority of the entire number of
Continuing Directors (1) has approved in advance the acquisition of those
outstanding shares of Class B Common Stock which caused the Interested
Party to become an Interested Party or (2) has approved the Business
Combination;
(b) the Business Combination is solely between the corporation and one
or more other corporations all of the common stock of each of which other
corporations is owned directly or indirectly by the corporation or between
two or more of such other corporations; or
(c) the Business Combination is a merger or consolidation and the cash
and/or fair market value of the property, securities or other consideration
to be received per share by holders of Class B Common Stock in the Business
Combination is at least equal to the highest price per share (after giving
effect to appropriate adjustments for any recapitalizations and for any
stock splits, stock dividends and like distributions) paid by the
Interested Party in acquiring any shares of Class B Common Stock on the
date when last acquired or during a period of two years prior thereto.
(d) For purposes of this Article SEVENTH:
(1) The terms "affiliate" and "associate" shall have the respective
meanings assigned to those terms in Rule 12b-2 under the Securities
Exchange Act of 1934, as such Rule was in effect on the Initial Filing
Date.
(2) A person shall be deemed to be a "beneficial owner" of any
Class B Common Stock
(A) which such person or any of its affiliates or associates
beneficially owns, directly or indirectly; or
(B) which such person or any of its affiliate or associates has
the right to acquire (whether such right is exercisable immediately
or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or has
the right to vote pursuant to any agreement, arrangement or
understanding; or
(C) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Class B Common Stock.
(3) The term "Business Combination" shall mean (A) any merger or
consolidation of the corporation or a subsidiary of the corporation with
or into an Interested Party, (B) any merger or consolidation of an
Interested Party with or into the corporation or a subsidiary, (C) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition
(in one transaction or a series of transactions) of all or any
Substantial Part of the assets either of the corporation (including
without limitation any voting securities of a subsidiary) or of a
subsidiary, in which an Interested Party is involved, (D) the adoption
of any plan or proposal for the liquidation or dissolution of the
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corporation proposed by or on behalf of any Interested Party, (E) the
issuance or transfer (in one transaction or a series of transactions) by
the corporation or a subsidiary of the corporation to an Interested
Party of any securities of the corporation or such subsidiary, which
securities have a fair market value of $10,000,000 or more, or (F) any
recapitalization, reclassification, merger or consolidation involving
the corporation or a subsidiary of the corporation that would have the
effect of increasing, directly or indirectly, the Interested Party's
voting power in the corporation or such subsidiary.
(4) The term "Interested Party" shall mean and include (A) any
individual, corporation, partnership, trust or other person or entity
which, together with its affiliates and associates, is (or with respect
to a Business Combination was within two years prior thereto) a
beneficial owner of shares aggregating 20% or more of the outstanding
Class B Common Stock or any class thereof, and (B) any affiliate or
associate of any such individual, corporation, partnership, trust or
other person or entity. For the purposes of determining whether a person
is an Interested Party the number of shares deemed to be outstanding
shall include shares deemed beneficially owned through application of
subclause (B) of the foregoing clause (2) but shall not include any
other shares of Class B Common Stock which may be issuable pursuant to
any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(5) The term "Substantial Part" shall mean more than 10% of the
fair market value of the total assets of the particular corporation.
(6) The term "Continuing Director" shall mean a director who is not
an affiliate of an Interested Party and who was a member of the Board of
Directors of the corporation immediately prior to the time that the
Interested Party involved in a Business Combination became an Interested
Party, and any successor to a Continuing Director who is not such an
affiliate and who is nominated to succeed a Continuing Director by a
majority of the Continuing Directors in office at the time of such
nomination.
(7) For the purposes of Section (c) of this Article SEVENTH, the
term "other consideration to be received" shall include without
limitation Class B Common Stock retained by its existing public
stockholders in the event of a Business Combination in which the
corporation is the surviving corporation.
(e) The provisions of this Article SEVENTH shall be construed
liberally to the end that the consideration paid to holders whose Class B
Common Stock is acquired by an Interested Party in connection with a
Business Combination to which Section (c) of this Article SEVENTH is
applicable shall be not less favorable than that paid to holders of such
Common Stock prior to such Business Combination. Nothing contained in this
Article SEVENTH shall be construed to relieve any Interested Party from any
fiduciary duties or obligations imposed by law, nor shall anything herein
be deemed to supersede any vote of holders of any series or class of stock
other than Class B Common Stock that shall be required by law, by or
pursuant to this Amended and Restated Certificate of Incorporation or by
the by-laws of the corporation.
(f) Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or the by-laws of the corporation and
notwithstanding the fact that a lesser percentage may be specified by law,
this Amended and Restated Certificate of Incorporation or the by-laws of
the
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corporation, the affirmative vote of the holders of 66 2/3% or more of the
shares of the outstanding Class B Common Stock shall be required to amend
or repeal, or adopt any provisions inconsistent with, this Article SEVENTH.
EIGHTH: (a) A director of this corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (3) under Section 174 of the Delaware General Corporation
Law, or (4) for any transaction from which the director derived an improper
personal benefit.
(b) The corporation shall indemnify any person who is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, to the fullest extent permitted by applicable law. The
determination as to whether such person has met the standard required for
indemnification shall be made in accordance with applicable law.
Expenses incurred by such a director, officer, employee or agent in
defending a civil or criminal action, suit or proceeding shall be paid by
the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this Article
EIGHTH.
(c) The provisions of this Article EIGHTH shall be deemed to be a
contract between the corporation and each person who serves as such
director, officer, employee or agent of the corporation in any such
capacity at any time while this Article EIGHTH is in effect. No repeal or
modification of the foregoing provisions of this Article EIGHTH nor, to the
fullest extent permitted by law, any modification of law shall adversely
affect any right or protection of a director, officer, employee or agent of
the corporation existing at the time of such repeal or modification.
The foregoing indemnification shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under
any applicable law, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
NINTH: The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
* * * * * * * * * *
Effective at 5:00 p.m. Eastern Time on the date of the filing of this
Amended and Restated Certificate of Incorporation with the Delaware Secretary of
State (the "Effective Time"), each issued and outstanding share of the Class A
Common Stock (including treasury shares) shall automatically be changed,
reclassified, converted and thereafter constitute one share of the Class B
Common Stock without any action on the part of the holder thereof. Upon the
Effective Time, any certificates that, immediately prior to the Effective Time,
represented shares of the Class A Common Stock, shall represent shares of the
Class B Common Stock.
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Also upon the Effective Time, pursuant to Section 7(e) of the Certificate
of Designations of Step-Up Convertible Preferred Stock of the corporation as in
effect immediately prior to the Effective Time, each holder of an issued and
outstanding share of Step-Up Convertible Preferred Stock shall have the right
thereafter to convert such share into a number of shares of the Class B Common
Stock equal to the number of shares of the Class A Common Stock into which such
shares of Step-Up Convertible Preferred Stock might have been converted
immediately prior to the Effective Time. Accordingly, the Certificate of
Designations of Step-Up Convertible Preferred Stock has been revised to replace
all references to Class A Common Stock with Class B Common Stock.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be executed in its corporate name by its duly
authorized President and Chief Financial Officer on this day of May, 2002.
FREEPORT-MCMORAN COPPER & GOLD INC.
By:
--------------------------------------
Richard C. Adkerson
President and Chief Financial Officer
[The exhibits to this Amended and Restated Certificate of Incorporation have
been intentionally omitted.]
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ANNEX B
[JP MORGAN LOGO]
February 26, 2002
The Board of Directors
Freeport-McMoRan Copper & Gold Inc.
1615 Poydras Street
New Orleans, LA 70112
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of Class A Common Stock, par value $0.10 per share (the
"Class A Stock") and the holders of Class B Common Stock, par value $0.10 per
share (the "Class B Stock," together with the Class A Stock, the "Common
Stock"), of Freeport-McMoRan Copper & Gold Inc. (the "Company") of the Exchange
Ratio (as defined below) in a proposed reclassification transaction (the
"Transaction") in which the Company would reclassify each outstanding share of
Class A Stock into one share (the "Exchange Ratio") of Class B Stock.
In arriving at our opinion we have (i) reviewed the Company's certificate
of incorporation and bylaws as they relate to the rights and privileges of both
classes of Common Stock and held discussions with the Company's outside counsel
regarding such rights and privileges; (ii) reviewed the historical trading
performance and trading liquidity of both classes of Common Stock; (iii)
reviewed the historical trading performance and trading liquidity for other
dual-class companies; (iv) compared the financial terms of the Transaction and
the Exchange Ratio with the publicly available financial terms of selected
recent reclassification transactions that we deemed relevant and the exchange
ratios used in such transactions; (v) reviewed the historical trading
performance, trading liquidity and post-announcement stock price performance for
securities in such relevant reclassification transactions; and (vi) performed
such other financial studies and analyses and considered such other information
as we deemed appropriate for the purpose of this opinion.
In addition, we have held discussions with certain members of the
management of the Company with respect to the original creation of a dual class
structure, certain aspects of the Transaction and the strategic and other
reasons behind the decision of the Company to engage in the Transaction.
In giving our opinion, we have relied upon and assumed, without assuming
any responsibility or liability for independent verification, the accuracy and
completeness of all information that was publicly available or was furnished to
us by the Company or otherwise reviewed by or for us. We have not conducted any
valuation or appraisals of any assets or liabilities, nor have any such
valuations or appraisals been provided to us. We have also assumed that the
Transaction will qualify as a tax-free exchange and recapitalization for United
States federal income tax purposes. We note that we are not legal or tax experts
and have relied upon, without assuming any responsibility for independent
verification or liability therefor, the assessment of the Company's legal and
tax advisors with respect to the legal and tax matters related to the
Transaction.
B-1
Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. It should be understood that subsequent developments may affect this
opinion and that we do not have any obligation to update, revise, or reaffirm
this opinion. Our opinion is limited to the fairness, from a financial point of
view, to the holders of the Common Stock of the Exchange Ratio in the
Transaction and we express no opinion as to the underlying decision by the
Company to engage in the Transaction. We are expressing no opinion herein as to
the price at which the Class A Stock or the Class B Stock will trade at any
future time and the opinion does not address the relative fairness of the
consideration to be received by the holders of Common Stock.
JPMorgan was not requested to, and did not, provide any services with
respect to the Transaction other than the delivery of this opinion;
specifically, JPMorgan was not requested to, and did not, provide any advice
concerning the structure, the specific Exchange Ratio, or any other aspect of
the Transaction. We will receive a fee from the Company for the delivery of this
opinion. In the past, JPMorgan has provided financing, advisory and other
investment banking services to the Company, and certain of our affiliates have
outstanding loans to the Company. In the ordinary course of our businesses, we
and our affiliates may actively trade the debt and equity securities of the
Company for our own account and for the accounts of customers, and, accordingly,
we may at any time hold long or short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the Exchange Ratio in the Transaction is fair, from a financial
point of view, to the holders of Common Stock.
This letter is provided for the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the Transaction. This
opinion does not constitute a recommendation to any holder of Class A Stock or
Class B Stock as to how such holder should vote with respect to the Transaction
or any other matter. This opinion may not be disclosed, referred to, or
communicated (in whole or in part) publicly or to any third party for any
purpose whatsoever except with our prior written approval; provided, however
that this opinion may be reproduced in full in any proxy or information
statement mailed to shareholders of the Company but may not otherwise be
disclosed publicly in any manner without our prior written approval.
Very truly yours,
J.P. MORGAN SECURITIES INC.
B-2
FREEPORT-MCMORAN COPPER & GOLD INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS, MAY 2, 2002
The undersigned hereby appoints James R. Moffett and Richard C.
Adkerson, or either of them, as proxies, with full power of substitution, to
vote the shares of the undersigned in Freeport-McMoRan Copper & Gold Inc. at the
Annual Meeting of Stockholders to be held on Thursday, May 2, 2002, at 1:00
p.m., and at any adjournment thereof, on all matters coming before the meeting.
THE PROXIES WILL VOTE: (1) AS YOU SPECIFY ON THE BACK OF THIS CARD, (2) AS THE
BOARD OF DIRECTORS RECOMMENDS WHERE YOU DO NOT SPECIFY YOUR VOTE ON A MATTER
LISTED ON THE BACK OF THIS CARD, AND (3) AS THE PROXIES DECIDE ON ANY OTHER
MATTER.
If you wish to vote on all matters as the Board of Directors
recommends, please sign, date and return this card. If you wish to vote on items
individually, please also mark the appropriate boxes on the back of this card.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE
--------------------------------------------------------------------------------
(continued on reverse side)
- FOLD AND DETACH HERE -
Please mark [X]
your votes as
indicated in
this example
YOU MAY SPECIFY YOUR VOTES BY MARKING THE APPROPRIATE BOXES ON THIS SIDE. YOU
NEED NOT MARK ANY BOXES, HOWEVER, IF YOU WISH TO VOTE ALL ITEMS IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATION. IF YOUR VOTES ARE NOT SPECIFIED,
THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2 AND AGAINST ITEMS 3 AND 4.
Your Board of Directors recommends a vote FOR Items 1 and 2 below.
1. Election of the nominee for director: FOR [ ] WITHHOLD [ ]
Mr. Green
2. Approval of the proposed amendment to the certificate of incorporation to
reclassify our common stock into a single class of common stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Your Board of Directors recommends a vote AGAINST Items 3 and 4 below.
3. Stockholder proposal regarding the classification of the board of directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Stockholder proposal regarding the election of advisors to the compensation
committee.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
SIGNATURE(S) DATE: , 2002
----------------------------------- ----------------
- FOLD AND DETACH HERE -
FREEPORT-MCMORAN COPPER & GOLD INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS, MAY 2, 2002
The undersigned hereby appoints James R. Moffett and Richard C.
Adkerson, or either of them, as proxies, with full power of substitution, to
vote the shares of the undersigned in Freeport-McMoRan Copper & Gold Inc. at the
Annual Meeting of Stockholders to be held on Thursday, May 2, 2002, at 1:00
p.m., and at any adjournment thereof, on all matters coming before the meeting.
THE PROXIES WILL VOTE: (1) AS YOU SPECIFY ON THE BACK OF THIS CARD, (2) AS THE
BOARD OF DIRECTORS RECOMMENDS WHERE YOU DO NOT SPECIFY YOUR VOTE ON A MATTER
LISTED ON THE BACK OF THIS CARD, AND (3) AS THE PROXIES DECIDE ON ANY OTHER
MATTER.
If you wish to vote on all matters as the Board of Directors
recommends, please sign, date and return this card. If you wish to vote on items
individually, please also mark the appropriate boxes on the back of this card.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE
--------------------------------------------------------------------------------
(continued on reverse side)
- FOLD AND DETACH HERE -
Please mark [X]
your votes as
indicated in
this example
YOU MAY SPECIFY YOUR VOTES BY MARKING THE APPROPRIATE BOXES ON THIS SIDE. YOU
NEED NOT MARK ANY BOXES, HOWEVER, IF YOU WISH TO VOTE ALL ITEMS IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATION. IF YOUR VOTES ARE NOT SPECIFIED,
THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2 AND AGAINST ITEMS 3 AND 4.
Your Board of Directors recommends a vote FOR Items 1 and 2 below.
1. Election of 5 Directors. Nominees are: FOR [ ] WITHHOLD [ ]
Messrs. Bruce, Day, Graham and Lackey and Ms. McDonald
FOR, except withhold vote from following nominees:
---------------------------
2. Approval of the proposed amendment to the certificate of incorporation to
reclassify our common stock into a single class of common stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Your Board of Directors recommends a vote AGAINST Items 3 and 4 below.
3. Stockholder proposal regarding the classification of the board of directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Stockholder proposal regarding the election of advisors to the compensation
committee.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
SIGNATURE(S) DATE: , 2002
------------------------------------------- -----------
- FOLD AND DETACH HERE -