Filed Pursuant to Rule 424(b)(3)
Registration No. 333-104564
PROSPECTUS
[FREEPORT-MCMORAN COPPER & GOLD INC. LOGO]
$575,000,000
FREEPORT-MCMORAN COPPER & GOLD INC.
7% CONVERTIBLE SENIOR NOTES DUE 2011 AND THE
COMMON STOCK ISSUABLE UPON CONVERSION OF THE
7% CONVERTIBLE SENIOR NOTES DUE 2011
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We issued the 7% convertible senior notes due 2011 in a private placement
in February 2003. This prospectus will be used by the selling securityholders to
resell their notes and the common stock issuable upon the conversion of their
notes.
The notes are convertible, at the option of the holder, at any time on or
prior to maturity into shares of our class B common stock. The notes are
convertible at a conversion price of $30.8720 per share, which is equal to a
conversion rate of 32.3918 shares of class B common stock per $1,000 principal
amount of notes, subject to adjustment.
We will pay interest on the notes on March 1 and September 1 of each year,
beginning September 1, 2003, and at maturity. The notes will mature on February
11, 2011.
The notes are our unsecured and unsubordinated obligations and rank
equally in right of payment with all our existing and future unsecured and
unsubordinated indebtedness. In addition, the notes effectively rank junior to
our secured indebtedness and our subsidiaries' liabilities.
Our class B common stock is listed on the New York Stock Exchange under
the symbol "FCX." On April 11, 2003, the closing price of our class B common
stock as reported on the New York Stock Exchange was $18.49 per share.
INVESTING IN THE NOTES OR THE COMMON STOCK ISSUABLE UPON THEIR CONVERSION
INVOLVES SIGNIFICANT RISKS THAT ARE DESCRIBED IN THE "RISK FACTORS" SECTION
BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is April 30, 2003.
TABLE OF CONTENTS
PAGE
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Cautionary Notice Regarding Forward-Looking Statements................... ii
Summary.................................................................. 1
The Offering............................................................. 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 13
Ratio of Earnings to Fixed Charges....................................... 13
Description of the Notes................................................. 14
Description of Common Stock.............................................. 25
Dividend Policy.......................................................... 29
Certain U.S. Federal Income Tax Consequences............................. 30
Selling Securityholders.................................................. 33
Plan of Distribution..................................................... 36
Legal Matters............................................................ 37
Independent Auditors..................................................... 37
Reserves................................................................. 38
Where You Can Find More Information...................................... 39
Freeport-McMoRan Copper & Gold Inc. is a Delaware corporation. Our
principal executive offices are located at 1615 Poydras Street, New Orleans,
Louisiana 70112 and our telephone number at that address is (504) 582-4000. Our
website is located at www.fcx.com. The information on our website is not part of
this prospectus.
In this prospectus, "we," "us," "our," "FCX" and "the company" refer to
Freeport-McMoRan Copper & Gold Inc. and its consolidated subsidiaries.
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You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
accurate only as of the date on the front cover of this prospectus. Our
business, financial condition, results of operations and prospects may have
changed since that date.
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i
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934 (the "Exchange Act"), both as amended. All statements other than
statements of historical fact are "forward-looking statements" for purposes of
federal and state securities laws, including statements about anticipated sales
volumes, production volumes, ore grades, commodity prices, development and
capital expenditures, mine production and development plans, environmental
reclamation and closure costs and plans, reserve estimates, economic and social
conditions in our areas of operations, and exploration efforts and results;
statements of the plans, strategies and objectives of management for future
operations; statements regarding future economic conditions or performance;
statements regarding exploration activities; statements about political
uncertainties, dealings with regulatory authorities or dealings with indigenous
people; statements of belief; and statements of assumptions underlying any of
the foregoing. Forward-looking statements may include the words "may," "will,"
"estimate," "intend," "continue," "believe," "expect," "plan" or "anticipate"
and other similar words. Such forward-looking statements may be contained in the
sections of this prospectus entitled "Summary" and "Risk Factors," among other
places.
Although we believe that the expectations expressed in our forward-looking
statements are reasonable, actual results could differ materially from those
projected or assumed in our forward-looking statements. Our future financial
condition and results of operations, as well as any forward-looking statements,
are subject to change and are subject to inherent risks and uncertainties, such
as those disclosed in this prospectus. All forward-looking statements contained
or incorporated by reference in this prospectus are made as of the date of this
prospectus. Except for our ongoing obligations under the federal securities
laws, we do not intend, and we undertake no obligation, to update any
forward-looking statement. Currently known risk factors include, but are not
limited to, the factors described in the section of this prospectus entitled
"Risk Factors." We urge you to review carefully this section for a more complete
discussion of the risks of an investment in the notes.
ii
SUMMARY
This summary highlights selected information we have included in or
incorporated by reference into this prospectus. It does not contain all
information that may be important to you. More detailed information about the
notes, our business and our financial and operating data is contained elsewhere
in this prospectus. We encourage you to read this prospectus, including the
section entitled "Risk Factors," and the financial statements and notes thereto
incorporated by reference in this prospectus, in their entirety before making an
investment decision.
COMPANY OVERVIEW
We are one of the world's largest copper and gold mining and production
companies in terms of reserves and production. We are also the lowest cost
copper producer in the world, after taking into account credits for related gold
and silver production. Our principal asset is the Grasberg mine, which we
discovered in 1988. Grasberg contains the largest single gold reserve and one of
the largest copper reserves of any mine in the world.
Our principal operating subsidiary is PT Freeport Indonesia, a limited
liability company organized under the laws of the Republic of Indonesia and
incorporated in Delaware. We own approximately 90.64 percent of PT Freeport
Indonesia, and the Government of Indonesia owns the remaining approximate 9.36
percent. PT Freeport Indonesia mines, processes and explores for ore containing
copper, gold and silver. It operates in the remote highlands of the Sudirman
Mountain Range in the province of Papua (formerly Irian Jaya), Indonesia, which
is on the western half of the island of New Guinea. PT Freeport Indonesia
markets its concentrates containing copper, gold and silver worldwide.
PT Freeport Indonesia conducts its operations pursuant to an agreement,
called a Contract of Work, with the Government of Indonesia. The Contract of
Work allows us to conduct extensive mining, production and exploration
activities in a 24,700-acre area that we call Block A, which contains the
Grasberg mine, and governs our rights and obligations relating to taxes,
exchange controls, royalties, repatriation and other matters. The Contract of
Work also allows us to explore for minerals in a 0.5-million-acre area that we
call Block B (currently in suspension). The term of our Contract of Work expires
in 2021, but we can extend it for two 10-year periods subject to Indonesian
government approval, which cannot be withheld or delayed unreasonably.
Another of our operating subsidiaries, PT Irja Eastern Minerals, which we
refer to as Eastern Minerals, holds an additional Contract of Work in Papua
covering approximately 1.2 million acres and conducts exploration activities
(currently suspended) under this Contract of Work. We have a 100 percent
ownership interest in Eastern Minerals.
In 1996, we established joint ventures with Rio Tinto plc, an
international mining company with headquarters in London, England. Rio Tinto
conducts mining operations in North America, South America, Asia, Europe and
southern Africa. For fiscal year 2002, Rio Tinto had revenues of $10.8 billion
and net income of $651 million. One of our joint ventures with Rio Tinto covers
PT Freeport Indonesia's mining operations in Block A. This joint venture gives
Rio Tinto, through 2021, a 40 percent interest in certain assets and in
production above specified levels from operations in Block A and, after 2021, a
40 percent interest in all production in Block A. Under our joint venture
arrangements, Rio Tinto also has a 40 percent interest in PT Freeport
Indonesia's Contract of Work and Eastern Minerals' Contract of Work. In
addition, Rio Tinto has the option to participate in 40 percent of any of our
other future exploration projects in Papua. To date, Rio Tinto has elected to
participate in all exploration projects, including PT Nabire Bakti Mining.
Under another joint venture agreement through PT Nabire Bakti Mining, we
conduct exploration activities (currently suspended) in an area covering
approximately 0.5 million acres in five parcels contiguous to PT Freeport
Indonesia's Block B and one of Eastern Minerals' blocks.
At December 31, 2002, PT Freeport Indonesia's share of proven and probable
recoverable reserves totaled 39.4 billion pounds of copper and 48.5 million
ounces of gold, all of which are located in Block A. Our approximate 90.64
percent equity share of those proven and probable recoverable reserves totaled
35.7 billion pounds of copper and 44.0 million ounces of gold (see "Ore
Reserves"). In this prospectus, we refer to (1) aggregate reserves, which means
all reserves for the operations we manage, (2) PT Freeport Indonesia's share of
reserves, which means the reserves net of Rio Tinto's interest under our joint
venture arrangements and which are the reserves reported as those of our
operations in our consolidated financial statements and (3) our equity share of
reserves, which means PT Freeport Indonesia's share net of the 9.36 percent
interest that the Government of Indonesia owns.
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We also smelt and refine copper concentrates in Spain, and market the
refined copper products, through our wholly owned subsidiary, Atlantic Copper,
S.A. In addition, PT Freeport Indonesia has a 25 percent interest in PT
Smelting, an Indonesian company that operates a copper smelter and refinery in
Gresik, Indonesia. These smelters play an important role in our concentrate
marketing strategy, as approximately one-half of PT Freeport Indonesia's
concentrate production is sold to Atlantic Copper and PT Smelting.
For further information regarding the Contracts of Work, our reserves, our
joint venture agreements, our smelting and refining operations, and other
aspects of our operations, we refer you to the section of our annual report on
Form 10-K for the year ended December 31, 2002 entitled "Business and
Properties," which is incorporated in this prospectus by reference.
2
THE OFFERING
The following is a brief summary description of some of the terms of
this offering. For a more complete description of the terms of the notes, see
"Description of the Notes" in this prospectus.
Issuer............................. Freeport-McMoRan Copper & Gold Inc.
Notes offered...................... $575,000,000 principal amount of 7% Convertible Senior
Notes due 2011.
Maturity........................... February 11, 2011
Interest........................... 7% per annum on the principal amount, payable
semiannually on March 1 and September 1, beginning on
September 1, 2003, and at maturity.
Conversion rights.................. The notes are convertible, at the option of the holder,
at any time on or prior to maturity into shares of our
class B common stock at a conversion price of $30.8720
per share, which is equal to a conversion rate of
32.3918 shares of our class B common stock per $1,000
principal amount of notes. The conversion rate is
subject to adjustment. See "Description of the Notes --
Conversion Rights."
Ranking............................ The notes will be unsecured and:
- will rank equally in right of payment with all
existing and future senior debt;
- will rank senior to any future subordinated debt;
- will be effectively subordinated to our secured
debt to the extent of the value of the assets
securing such debt; and
- will be effectively subordinated to all
liabilities and preferred stock of our
subsidiaries.
See "Description of the Notes -- Ranking."
Change of control.................. Upon a change of control event, each holder of the notes
may require us to repurchase some or all of its notes at
a repurchase price equal to 100% of the principal amount
of the notes plus accrued and unpaid interest. The
repurchase price is payable:
- in cash; or
- at our option, subject to the satisfaction of
certain conditions, in our class B common stock.
The number of shares of class B common stock will
equal the repurchase price divided by 95% of the
average of the closing sale prices of the class B
common stock for the five consecutive trading
days ending on and including the third day prior
to the repurchase date.
See "Description of the Notes -- Change of Control
Permits Purchase of Notes at the Option of the Holder."
Use of proceeds.................... We will not receive any of the proceeds from the sale by
the selling securityholders of the notes and the common
stock issuable upon
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conversion of the notes.
DTC eligibility.................... The notes were issued in book-entry form and are be
represented by permanent global certificates without
coupons deposited with a custodian for and registered in
the name of a nominee of The Depository Trust Company in
New York, New York. Beneficial interests in the notes
will be shown on, and transfers will be effected only
through, records maintained by The Depository Trust
Company and its direct and indirect participants, and
any such interest may not be exchanged for certificated
securities, except in limited circumstances. See
"Description of the Notes -- Form, Denomination and
Registration."
Trading............................ The notes are currently eligible for trading on the
PORTAL Market. However, notes sold using this
prospectus will no longer be eligible for trading in the
PORTAL market. Our class B common stock is traded on
the New York Stock Exchange under the symbol "FCX."
Risk Factors....................... See "Risk Factors" and the other information in this
prospectus for a discussion of factors you should
carefully consider before making an investment decision
with respect to the notes.
4
RISK FACTORS
You should carefully consider the risk factors set forth below, as well as
the other information appearing in this prospectus and the documents to which we
refer you, including those incorporated by reference in this prospectus, before
making an investment decision with respect to the notes. Realization of any of
the following risks could have a material adverse effect on our business,
financial condition, cash flow and results of operations.
RISKS RELATED TO OUR BUSINESS
BECAUSE OUR PRIMARY OPERATING ASSETS ARE LOCATED IN THE REPUBLIC OF INDONESIA,
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY INDONESIAN POLITICAL, ECONOMIC AND
SOCIAL UNCERTAINTIES BEYOND OUR CONTROL, IN ADDITION TO THE USUAL RISKS
ASSOCIATED WITH CONDUCTING BUSINESS IN A FOREIGN COUNTRY.
Indonesia continues to face political, economic and social uncertainties,
including separatist movements and civil and religious strife in a number of
provinces. In particular, several separatist groups are opposing Indonesian rule
over the province of Papua, where our mining operations are located, and have
sought political independence for the province. In response to these demands for
political independence, new Indonesian regional-autonomy laws became effective
January 1, 2001. However, the manner in which these new autonomy laws will be
implemented and the degree of political and economic autonomy that they may
bring to individual provinces, including Papua, is uncertain and is a current
issue in Indonesian politics. Moreover, there have been sporadic attacks on
civilians by separatists and sporadic but highly publicized conflicts between
separatists and the Indonesian military. Social, economic and political
instability in Papua could materially and adversely affect us if this
instability results in damage to our property or interruption of our activities.
On August 31, 2002, three people were killed and 11 others were wounded in
an ambush by a group of unidentified assailants, who shot at several vehicles
transporting international contract schoolteachers from our school in
Tembagapura, their family members, and other contractors to PT Freeport
Indonesia on the road near Tembagapura, the mining town where the majority of PT
Freeport Indonesia's personnel reside. The identity of the assailants remains
uncertain. Some press reports have indicated that members of the military may be
responsible for the attack, but military officials have denied these
allegations. Some press reports have also indicated that Papuan separatists may
be responsible for the attack, but representatives of the separatists have
denied these allegations. We, the U.S. government, the central Indonesian
government, the Papuan provincial and local governments, and leaders of the
local people residing in the area of our operations have condemned the attack.
Indonesian authorities continue to investigate the incident and we are
cooperating fully with the investigation. Representatives of the U.S. Federal
Bureau of Investigation also visited the site and are consulting with the
Indonesian authorities about the incident.
On October 12, 2002, a bombing killed approximately 200 people in the
Indonesian province of Bali, which is 1,500 miles west of our mining and milling
operations. Indonesian police, working cooperatively with Australian and U.S.
investigators, conducted an investigation that has led to the arrest of 15
suspects. Press reports indicate that some of the suspects may be linked to
international terrorist organizations. Our mining and milling operations were
not interrupted by either the August 31 or October 12 incidents.
The Government of Indonesia, which provides security for PT Freeport
Indonesia's personnel and operations, has expressed a strong commitment to
protect natural resources businesses operating in Indonesia, including PT
Freeport Indonesia, with heightened security following the Bali bombing and the
shooting incident discussed above.
We cannot predict whether or not there will be additional incidents
similar to the recent shooting or bombing. If there were to be additional
separatist or other violence in Indonesia, it could materially and adversely
affect our business and profitability in ways that we cannot predict at this
time.
With the approval of the Indonesian government in 2001, we temporarily
suspended our field exploration activities outside of Block A due to safety and
security issues and uncertainty relating to a possible conflict between our
mining and exploration rights in certain forest areas covered by the Contracts
of Work and an Indonesian law enacted in 1999 prohibiting open-pit mining in
forest preservation areas. We cannot predict when we will be able to resume our
exploration activities in these areas. We expect to continue to seek renewals of
these suspensions for each of the suspended areas if required.
In August 1998, we suspended operations for three days at our Grasberg
mine in response to a wildcat work stoppage (not authorized by the workers'
union) by a group of workers, a majority of whom were employees of our
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contractors. The workers cited employment issues as the reasons for their work
stoppage. In March 1996, local people engaged in acts of vandalism that caused
approximately $3 million of damages to our property. As a precautionary measure,
we closed the Grasberg mine and mill for three days.
Maintaining a good working relationship with the Indonesian government is
important to us because all of our mining operations are located in Indonesia
and are conducted pursuant to Contracts of Work with the Indonesian government.
For a discussion of the risks relating to our Contracts of Work, see the risk
factor below. Accordingly, we are also subject to the usual risks associated
with conducting business in a foreign country, including the risk of forced
modification of existing contracts; changes in the country's laws or policies,
including laws or policies relating to taxation, royalties, imports, exports and
currency; and the risk of having to submit to the jurisdiction of a foreign
court or having to enforce the judgment of a foreign court or arbitration panel
against a sovereign nation within its own territory. In addition, we are subject
to the risk of expropriation, and our insurance does not cover losses caused by
expropriation.
Our current credit ratings have an impact on the availability and cost of
capital to us. Because our primary business operations are in Indonesia,
reductions in the sovereign credit ratings of Indonesia have historically had an
adverse effect on our credit ratings, and we believe that this relationship is
likely to continue.
THE U.S. MILITARY ACTION IN IRAQ, THE TERRORIST ATTACKS IN THE UNITED STATES ON
SEPTEMBER 11, 2001, THE POTENTIAL FOR ADDITIONAL FUTURE TERRORIST ACTS AND OTHER
RECENT EVENTS, HAVE CREATED ECONOMIC AND POLITICAL UNCERTAINTIES THAT COULD
MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS AND THE PRICES OF OUR SECURITIES.
The U.S. military action in Iraq, the terrorist attacks that took place in
the United States on September 11, 2001, the potential for additional future
terrorist acts, and the growing tensions between the U.S. and North Korea have
caused uncertainty in the world's financial and insurance markets and may
significantly increase global political, economic and social instability,
including in Indonesia, the country in which we primarily operate. In addition
to the October 12, 2002, bombing in Bali, there have been anti-American
demonstrations in certain sections of Indonesia reportedly led by radical
Islamic activists. Radical activists have also threatened to attack foreign
assets and have called for the expulsion of United States and British citizens
and companies from Indonesia.
It is possible that further acts of terrorism may be directed against the
United States domestically or abroad, and such acts of terrorism could be
directed against properties and personnel of companies such as ours. The attacks
and the resulting economic and political uncertainties, including the potential
for further terrorist acts, have caused the premiums charged for our insurance
coverages to increase significantly. Moreover, while our property and business
interruption insurance covers damages to insured property directly caused by
terrorism, this insurance does not cover damages and losses caused by war.
Terrorism and war developments may materially and adversely affect our business
and profitability and the prices of our securities in ways that we cannot
predict at this time.
OUR CONTRACTS OF WORK ARE SUBJECT TO TERMINATION IF WE DO NOT COMPLY WITH OUR
CONTRACTUAL OBLIGATIONS AND, IF A DISPUTE ARISES, WE MAY HAVE TO SUBMIT TO THE
JURISDICTION OF A FOREIGN COURT OR PANEL. IN ADDITION, UNLESS THE INDONESIAN
GOVERNMENT PERMITS US TO SUSPEND ACTIVITIES UNDER OUR CONTRACTS OF WORK, WE ARE
REQUIRED TO CONTINUE THOSE ACTIVITIES OR POTENTIALLY BE DECLARED IN DEFAULT.
PT Freeport Indonesia's and Eastern Minerals' Contracts of Work were
entered into under Indonesia's 1967 Foreign Capital Investment Law, which
provides guarantees of remittance rights and protection against nationalization.
Our Contracts of Work can be terminated by the Government of Indonesia if we do
not satisfy our contractual obligations, which include the payment of royalties
and taxes to the government and the satisfaction of certain mining,
environmental, safety and health requirements. Indonesian government officials
have periodically raised questions regarding our compliance with Indonesian
environmental laws and regulations and the terms of the Contracts of Work. In
order to address these questions, the Indonesian government formed a
fact-finding team in 2000 that reviewed our compliance with all aspects of PT
Freeport Indonesia's Contract of Work. When or whether the Indonesian government
will release its report on its investigation is uncertain. In addition, we
cannot assure you that the Indonesian government's report, if and when they
release it, will conclude that we are complying with all of the provisions of PT
Freeport Indonesia's Contract of Work.
Moreover, in recent years, certain government officials and others in
Indonesia have questioned the validity of contracts entered into by the
Government of Indonesia prior to October 1999, including PT Freeport Indonesia's
Contract of Work, which was signed in December 1991. We cannot assure you that
the validity of, or our compliance with the terms of, the Contracts of Work will
not be challenged for political or other reasons. PT Freeport Indonesia's and
Eastern Minerals' Contracts of Work require that disputes with the Indonesian
government be submitted to international arbitration. Notwithstanding the
international arbitration provision, if a dispute arises under the Contracts of
Work, we face the risk of
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having to submit to the jurisdiction of a foreign court or having to enforce the
judgment of a foreign court or arbitration panel against Indonesia within its
own territory.
In addition, our Contracts of Work permit us to suspend certain
activities, including exploration, under the contracts for a period of one year
by making a written request to the Indonesian government. These suspension
requests are subject to the approval of the Indonesian government and are
renewable annually. If we do not request a suspension or are denied a
suspension, then we are required to continue our activities under the Contract
of Work or potentially be declared in default. Moreover, if a suspension
continues for more than one year for reasons other than force majeure and the
Indonesian government has not approved such continuation, then the Indonesian
government would be entitled to declare a default under the Contract of Work.
SERVICING OUR DEBT WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, AND OUR ABILITY TO
GENERATE SUFFICIENT CASH DEPENDS ON MANY FACTORS, SOME OF WHICH ARE BEYOND OUR
CONTROL.
Our ability to make payments on and to refinance our debt depends on our
ability to generate sufficient cash flow. This ability, to a significant extent,
is subject to commodity prices and general economic, financial, regulatory,
political and other factors that are beyond our control. In addition, our
ability to borrow funds in the future to service our debt will depend on our
meeting the financial covenants in our bank credit facility, our 10 1/8% senior
notes due 2010 and other debt agreements we may have in the future. Future
borrowings may not be available to us under our bank credit facility or
otherwise in amounts sufficient to enable us to pay our debt or to fund other
liquidity needs. As a result, we may need to refinance all or a portion of our
debt on or before maturity. Any inability to generate sufficient cash flow or
refinance our debt on favorable terms could materially and adversely affect our
financial condition.
COVENANTS IN THE DOCUMENTS GOVERNING OUR INDEBTEDNESS IMPOSE RESTRICTIONS ON US.
The documents governing our indebtedness:
- restrict the repurchase of, and payment of dividends on, our common
stock;
- limit, among other things, our ability to:
- make investments;
- engage in transactions with affiliates; and
- create liens on our assets; and
- require us to maintain specified financial ratios and satisfy
financial condition tests.
Events beyond our control, including changes in general economic and
business conditions, may affect our ability to satisfy these covenants, which
could result in a default under the documents governing our indebtedness.
OUR MINING OPERATIONS CREATE DIFFICULT AND COSTLY ENVIRONMENTAL CHALLENGES, AND
FUTURE CHANGES IN ENVIRONMENTAL LAWS, OR UNANTICIPATED ENVIRONMENTAL IMPACTS
FROM OUR OPERATIONS, COULD REQUIRE US TO INCUR INCREASED COSTS.
Mining operations on the scale of our operations in Papua involve
significant environmental risks and challenges. Our primary challenge is to
dispose of the large amount of crushed and ground rock material, called
tailings, that results from the process by which we physically separate the
copper, gold and silver from the ore that we mine. Under our tailings management
plan, the river system near our mine transports the tailings to the lowlands
where deposits of the tailings and natural sediments are controlled through a
levee system for future revegetation and reclamation. We incurred aggregate
costs of $7.0 million in 2002, $9.7 million in 2001 and $8.2 million in 2000 for
our tailings management plan.
Another of our major environmental challenges is managing overburden,
which is the rock that must be moved aside in order to reach the ore in the
mining process. In the presence of air, water and naturally occurring bacteria,
some overburden can cause acid rock drainage, or acidic water containing
dissolved metals which, if not properly managed, can have a negative impact on
the environment.
Certain Indonesian governmental officials have from time to time raised
issues with respect to our tailings
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management plan and overburden management plan, including a suggestion that a
pipeline system rather than our current system be implemented for tailings
disposal. Our ongoing assessment of tailings management has identified
significant unresolved technical, environmental and economic issues associated
with a pipeline system. Because our mining operations are remotely located in
steep mountainous terrain and in an active seismic area, a pipeline system would
be costly, difficult to construct and maintain, and more prone to catastrophic
failure. For these reasons, we do not believe that a pipeline system is
practical.
We anticipate that we will continue to spend significant financial and
managerial resources on environmental compliance. In addition, changes in
Indonesian environmental laws or unanticipated environmental impacts from our
operations could require us to incur significant additional costs.
THE VOLUME AND GRADE OF THE RESERVES WE RECOVER AND OUR RATES OF PRODUCTION MAY
BE MORE OR LESS THAN WE ANTICIPATE. IN ADDITION, WE DO NOT EXPECT TO MINE ALL OF
OUR RESERVES BEFORE THE INITIAL TERM OF OUR CONTRACT OF WORK EXPIRES.
Our reserve amounts are determined in accordance with established mining
industry practices and standards, but are only estimates of the mineral deposits
that can be economically and legally recovered. In addition, our mines may not
conform to standard geological expectations. Because ore bodies do not contain
uniform grades of minerals, our metal recovery rates will vary from time to
time, which will result in variations in the volumes of minerals that we can
sell from period to period. Some of our reserves may become unprofitable to
develop if there are unfavorable long-term market price fluctuations in copper
and gold, or if there are significant increases in our operating and capital
costs. In addition, our exploration programs may not result in the discovery of
additional mineral deposits that we can mine profitably.
All of our current proven and probable recoverable reserves, including the
Grasberg deposit, are located in Block A. The initial term of our Contract of
Work covering these reserves expires at the end of 2021. We can extend this term
for two successive 10-year periods, subject to the approval of the Indonesian
government, which cannot be withheld or delayed unreasonably. Our reserve
amounts reflect our estimates of the reserves that can be recovered before 2041
(i.e., before the expiration of the two 10-year extensions) and our current mine
plan has been developed and our operations are based on our receiving the two
10-year extensions. As a result, we do not anticipate the mining of all of our
reserves prior to the end of 2021 based on our current mine plan, and there can
be no assurance that the Indonesian government will approve the extensions.
Prior to the end of 2021, we expect to mine approximately 58 percent of
aggregate proven and probable ore, representing approximately 65 percent of PT
Freeport Indonesia's share of recoverable copper reserves and approximately 74
percent of PT Freeport Indonesia's share of recoverable gold reserves.
OUR PROFITABILITY CAN VARY SIGNIFICANTLY WITH FLUCTUATIONS IN THE MARKET PRICES
OF COPPER AND GOLD.
Our revenues are derived primarily from the sale of copper concentrates,
which also contain significant amounts of gold and substantially less
significant amounts of silver, and from the sale of copper cathodes, anodes,
wire rod and wire. Although we sell most of our copper concentrates under
long-term contracts, the selling price is based on world metal prices at or near
the time of shipment and delivery.
Copper and gold prices fluctuated widely in 2001 and 2002, primarily due
to the slowdown in global economic activity and the economic and political
uncertainties created by the terrorist attacks in the United States on September
11, 2001. During 2002, the daily closing prices on the London spot market ranged
from 64 cents to 77 cents per pound for copper and $278 to $349 per ounce for
gold. During 2001, the daily closing prices on the London spot market ranged
from 60 cents to 83 cents per pound for copper and $256 to $293 per ounce for
gold.
World metal prices for copper have historically fluctuated widely and are
affected by numerous factors beyond our control, including:
- the strength of the United States economy and the economies of other
industrialized and developing nations;
- available supplies of copper from mine production and inventories;
- sales by holders and producers of copper;
- demand for industrial products containing copper; and
- speculation.
8
World gold prices have also historically fluctuated widely and are
affected by numerous factors beyond our control, including:
- the strength of the United States economy and the economies of other
industrialized and developing nations;
- global or regional political or economic crises;
- the relative strength of the United States dollar and other
currencies;
- expectations with respect to the rate of inflation;
- interest rates;
- sales of gold by central banks and other holders;
- demand for jewelry containing gold; and
- speculation.
Any material decrease in market prices of copper or gold would materially
and adversely affect our results of operations and financial condition.
IN ADDITION TO THE USUAL RISKS ENCOUNTERED IN THE MINING INDUSTRY, WE FACE
ADDITIONAL RISKS BECAUSE OUR OPERATIONS ARE LOCATED ON DIFFICULT TERRAIN IN A
VERY REMOTE AREA.
Our mining operations are located in steeply mountainous terrain in a very
remote area in Indonesia. Because of these conditions, we have had to overcome
special engineering difficulties and to develop extensive infrastructure
facilities. In addition, the area receives considerable rainfall, which has led
to periodic floods and mud slides. The mine site is also in an active seismic
area and has experienced earth tremors from time to time. In addition to these
special risks, we are also subject to the usual risks associated with the mining
industry, such as the risk of encountering unexpected geological conditions that
may result in cave-ins and flooding of mine areas. Our insurance may not
sufficiently cover an unexpected natural or operating disaster.
MOVEMENTS IN FOREIGN CURRENCY EXCHANGE RATES OR INTEREST RATES COULD NEGATIVELY
AFFECT OUR OPERATING RESULTS AND EARNINGS.
All of our revenues are denominated in U.S. dollars. However, some of our
costs, assets and liabilities are denominated in Indonesian rupiah, Australian
dollars or euros. As a result, we are generally less profitable when the U.S.
dollar weakens against these foreign currencies.
The rupiah/U.S. dollar daily closing exchange rate ranged from 8,425 to
10,510 rupiahs per U.S. dollar during 2002, and on December 31, 2002, the
closing exchange rate was 8,940 rupiahs per U.S. dollar compared with 10,160
rupiahs per U.S. dollar on December 31, 2001. The Australian dollar/U.S. dollar
daily closing exchange rate ranged from $0.51 to $0.58 per Australian dollar
during 2002, and on December 31, 2002, the closing exchange rate was $0.56 per
Australian dollar compared with $0.51 per Australian dollar on December 31,
2001. The euro/U.S. dollar daily closing exchange rate ranged from $0.84 to
$0.96 per euro during 2002, and on December 31, 2002, the closing exchange rate
was $1.05 per euro compared with $0.88 per euro on December 31, 2001.
From time to time we have in the past and may in the future implement
currency hedges intended to reduce our exposure to changes in foreign currency
exchange rates. However, our hedging strategies may not be successful, and any
of our unhedged foreign exchange payment requirements will continue to be
subject to market fluctuations. In addition, certain of our debt is based on
fluctuating interest rates. Accordingly, an increase in interest rates could
adversely affect our results of operations and financial condition.
9
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR
BUSINESS AND LIMIT OUR ABILITY TO OBTAIN ADDITIONAL FINANCING.
We have substantial indebtedness and, as a result, significant debt
service obligations. As of December 31, 2002, on a pro forma basis to give
effect to the sale in February 2003 of $575 million of the notes, the sale in
January 2003 of $500 million of our 10 1/8% senior notes due 2010 and the
application of the net proceeds of these offerings to repay all of our
borrowings under our bank credit facilities, our total indebtedness outstanding
would have aggregated approximately $2.8 billion. In addition to increasing our
total indebtedness, the sale of the notes and the 10 1/8% senior notes will also
increase the weighted average interest rate on our outstanding debt; as a
result, our interest expense will increase. For the year ended December 31,
2002, our interest expense was $171.2 million and our ratio of earnings to fixed
charges was 3.4:1. On a pro forma basis our interest expense for the year ended
December 31, 2002, would have been $233.3 million and our ratio of earnings to
fixed charges would have been 2.5:1.
Our substantial debt could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations, including
our obligations under the notes;
- require us to dedicate a substantial portion of our cash flow to
payments on our indebtedness, which would reduce the amount of cash
flow available to fund working capital, capital expenditures and
other corporate requirements;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to respond to business opportunities;
- limit our ability to borrow additional funds, which may be
necessary; and
- subject us to financial and other restrictive covenants, which, if
we fail to comply with these covenants and our failure is not waived
or cured, could result in an event of default under our debt.
BECAUSE WE ARE A HOLDING COMPANY, OUR ABILITY TO PAY OUR DEBTS DEPENDS UPON THE
ABILITY OF OUR SUBSIDIARIES TO PAY US DIVIDENDS AND TO ADVANCE US FUNDS. IN
ADDITION, OUR ABILITY TO PARTICIPATE IN ANY DISTRIBUTION OF OUR SUBSIDIARIES'
ASSETS IS GENERALLY SUBJECT TO THE PRIOR CLAIMS OF THE SUBSIDIARIES' CREDITORS.
Because we conduct business primarily through PT Freeport Indonesia, our
major subsidiary, and other subsidiaries, our ability to pay our debts depends
upon the earnings and cash flow of PT Freeport Indonesia and our other
subsidiaries and their ability to pay us dividends and to advance us funds.
Contractual and legal restrictions applicable to our subsidiaries could also
limit our ability to obtain cash from them. Our rights to participate in any
distribution of our subsidiaries' assets upon their liquidation, reorganization
or insolvency would generally be subject to the prior claims of the
subsidiaries' creditors, including any trade creditors and preferred
shareholders.
ARTHUR ANDERSEN LLP, OUR FORMER AUDITORS, AUDITED CERTAIN FINANCIAL INFORMATION
INCLUDED IN OUR ANNUAL REPORT ON FORM 10-K THAT IS INCORPORATED BY REFERENCE
INTO THIS PROSPECTUS. IN THE EVENT SUCH FINANCIAL INFORMATION IS LATER
DETERMINED TO CONTAIN FALSE OR MISLEADING STATEMENTS, YOU MAY BE UNABLE TO
RECOVER DAMAGES FROM ARTHUR ANDERSEN LLP.
Arthur Andersen LLP completed its audit of our financial statements for
the year ended December 31, 2001 and issued its report with respect to such
financial statements on February 8, 2002. Subsequently, Arthur Andersen was
convicted of obstruction of justice for activities relating to its previous work
for Enron Corp.
In July 2002, our board of directors, at the recommendation of our audit
committee, approved the appointment of Ernst & Young LLP as our independent
public accountants to audit our financial statements for 2002. Ernst & Young
replaced Arthur Andersen, which had served as our independent auditors since
1988. We had no disagreements with Arthur Andersen on any matter of accounting
principle or practice, financial statement disclosure or auditing scope or
procedure. Of the financial statements that we include in our Form 10-K for the
year ended December 31, 2002, Arthur Andersen audited the financial statements
as of December 31, 2001 and 2000, and for each of the years in the two-year
period ended December 31, 2001, as set forth in their reports therein.
10
In June of 2002, Arthur Andersen was convicted of obstructing justice,
which is a felony offense. The SEC prohibits firms convicted of a felony from
auditing public companies. Arthur Andersen is thus unable to consent to the
incorporation of its audit opinion on our 2000 and 2001 financial statements
into this Form 10-K. Under these circumstances, Rule 437a under the Securities
Act permitted us to file our Form 10-K for the year ended December 31, 2002,
which is incorporated by reference into registration statements on file with the
SEC, including the registration statement of which this prospectus is a part,
without a written consent from Arthur Andersen.
The Securities Act provides that if part of a registration statement at
the time it becomes effective contains an untrue statement of a material fact,
or omits a material fact required to be stated therein or necessary to make the
statements therein not misleading, any person acquiring a security pursuant to
such registration statement (unless it is proved that at the time of such
acquisition such person knew of such untruth or omission) may assert a claim
against, among others, an accountant who has consented to be named as having
certified any part of the registration statement or as having prepared any
report for use in connection with the registration statement. As a result, with
sales of our securities pursuant to our registration statements that occur after
our Form 10-K for the year ended December 31, 2002 was filed with the SEC,
Arthur Andersen will not have any liability under the Securities Act for any
untrue statements of a material fact contained in the financial statements
audited by Arthur Andersen or any omissions of a material fact required to be
stated therein. Accordingly, purchasers of those securities would be unable to
assert a claim against Arthur Andersen under the Securities Act.
RISKS RELATED TO THE NOTES
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
The trading price of our common stock has been and may continue to be
subject to large fluctuations and, therefore, the trading price of the notes may
fluctuate significantly, which may result in losses to investors. Our stock
price may increase or decrease in response to a number of events and factors,
including:
- current events affecting the political, economic and social
situation in Indonesia;
- trends in our industry and the markets in which we operate;
- changes in the market price of the commodities we sell;
- changes in financial estimates and recommendations by securities
analysts;
- acquisitions and financings;
- quarterly variations in operating results;
- the operating and stock price performance of other companies that
investors may deem comparable; and
- purchases or sales of blocks of our common stock.
This volatility may adversely affect the prices of our common stock and
the notes regardless of our operating performance.
THE PAYMENT OF DIVIDENDS ON OUR COMMON STOCK IS SUBJECT TO THE DISCRETION OF OUR
BOARD OF DIRECTORS AND LIMITATIONS IN OUR 10 1/8% SENIOR NOTES DUE 2010.
Subject to the termination of our existing bank credit facilities, which
currently prohibit common stock dividends, our board of directors has authorized
a cash dividend policy for our common stock. However, the declaration and
payment of dividends is at the discretion of our board of directors and will
depend on our financial results, cash requirements, future prospects, and other
factors deemed relevant by the board. In addition, payment of dividends on our
common stock is subject to limitations under our 10 1/8% senior notes due 2010.
We can provide no assurances that we will pay dividends on our common stock in
the future.
THERE IS NO PUBLIC MARKET FOR THE NOTES, AND WE CANNOT ASSURE YOU THAT A MARKET
FOR THE NOTES WILL DEVELOP.
The notes are currently eligible for trading on the PORTAL Market.
However, notes sold using this prospectus will
11
no longer be eligible for trading in the PORTAL market. In addition, there is no
established public trading market for the notes, and no assurance can be given
as to:
- the liquidity of any such market that may develop;
- the ability of holders of the notes to sell their notes; or
- the price at which the holders of the notes would be able to sell
their notes.
If such a market were to exist, the notes could trade at prices that may
be higher or lower than their principal amount or purchase price, depending on
many factors, including:
- prevailing interest rates and the markets for similar securities;
- the market price of our common stock;
- general economic conditions; and
- our financial condition, historic financial performance and future
prospects.
THE NOTES ARE UNSECURED AND EFFECTIVELY SUBORDINATED TO OUR EXISTING AND FUTURE
SECURED INDEBTEDNESS AND THE LIABILITIES OF OUR SUBSIDIARIES.
The notes are our senior unsecured obligations, junior in right of payment
to all of our existing and future secured debt, to the extent of the collateral,
including our obligations under our bank credit facilities. In addition, the
notes will be effectively junior in right of payment to the indebtedness and
other liabilities of our subsidiaries. For further information, see the section
of this prospectus entitled "Description of the Notes -- Ranking."
In the event that we are declared bankrupt, become insolvent or are
liquidated or reorganized, any debt that ranks ahead of the notes will be
entitled to be paid in full from our assets before any payment may be made with
respect to the notes. Holders of the notes will participate ratably with all
holders of our other senior unsecured indebtedness, based upon the respective
amounts owed to each holder or creditor, in our remaining assets. In any of the
foregoing events, we cannot assure you that there will be sufficient assets to
pay amounts due on the notes. As a result, holders of notes may receive less,
ratably, than holders of our secured indebtedness.
A FINANCIAL FAILURE BY ANY ENTITY IN WHICH WE HAVE AN INTEREST MAY HINDER THE
PAYMENT OF THE NOTES.
A financial failure by any entity in which we have an interest could
affect payment of the notes if a bankruptcy court were to "substantively
consolidate" that entity with our other subsidiaries and/or with us. If a
bankruptcy court substantively consolidated an entity in which we have an
interest with our other subsidiaries and/or with us, the assets of each entity
so consolidated would be subject to the claims of creditors of all entities so
consolidated. This could expose our creditors, including holders of the notes,
to potential dilution of the amount ultimately recoverable because of the larger
creditor base. Furthermore, forced restructuring of the notes could occur
through the "cram-down" provisions of the U.S. bankruptcy code. Under this
provision, the notes could be restructured over the note holders' objections as
to their general terms, primarily interest rate and maturity.
12
USE OF PROCEEDS
We will not receive any proceeds from the sale of the notes or the
underlying common stock by the selling securityholders.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges was as follows for the years
presented.
Years Ended December 31,
----------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Ratio of earnings to fixed charges 3.4x 2.9x 2.3x 3.0x 2.5x
Pro forma ratio of earnings to
charges(1) 2.5x
Ratio of earnings to fixed charges
and preferred stock dividends 2.5x 2.1x 1.7x 2.2x 1.9x
---------------
(1) On a pro forma basis to give effect to the sale in February 2003 of $575
million of our 7% convertible senior notes due 2011, the sale in January
2003 of $500 million of the outstanding notes and the application of the
net proceeds of these offerings to repay all of our borrowings under our
bank credit facilities.
For the ratio of earnings to fixed charges calculation, earnings consist
of pre-tax income from continuing operations before minority interests in
consolidated subsidiaries, income or loss from equity investees and fixed
charges. Fixed charges include interest and that portion of rent deemed
representative of interest. For the ratio of earnings to fixed charges and
preferred stock dividends calculation, we assumed that our preferred stock
dividend requirements were equal to the pre-tax earnings that would be required
to cover those dividend requirements. We computed those pre-tax earnings using
actual tax rates for each year.
13
DESCRIPTION OF THE NOTES
The notes were issued under an indenture between us and The Bank of New
York, as trustee, dated February 11, 2003. The following is a summary of the
material terms of the notes and the indenture. It does not purport to be
complete. This summary is subject to, and is qualified by reference in its
entirety to, all of the provisions of the notes and the indenture, including the
definitions of certain terms used in the indenture. We urge you to read the
indenture and form of note, which we have filed with the SEC as exhibits to the
registration statement of which this prospectus is a part, because they, and not
this description, define your rights as a holder of the notes. We will provide
you with a copy of any of the foregoing documents without charge upon request.
GENERAL
The notes are our general unsecured and unsubordinated obligations and are
convertible into our class B common stock as described under "Conversion Rights"
below. The notes will be limited to $575,000,000 aggregate principal amount and
will mature on February 11, 2011, unless earlier repurchased by us at the option
of the holder upon the occurrence of a Change of Control (as defined below). The
notes are not redeemable prior to maturity.
The notes will bear interest from February 11, 2003 at the rate of 7
percent per year. Interest is payable semi-annually on March 1 and September 1
of each year to holders of record at the close of business on the preceding
February 15 and August 15, respectively, beginning September 1, 2003, and on the
maturity date of February 11, 2011, to the holder to whom we pay the principal.
We may pay interest on notes represented by certificated notes by check mailed
to such holders. However, a holder of notes with an aggregate principal amount
in excess of $5,000,000 will be paid by wire transfer in immediately available
funds at the election of such holder. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months. Interest will cease to accrue
on a note upon its maturity, conversion or purchase by us upon a Change of
Control.
Principal will be payable, and the notes may be presented for conversion,
registration of transfer and exchange, without service charge, at our office or
agency in New York City, which shall initially be the office or agency of the
trustee in New York, New York. See "Form, Denomination and Registration" below.
The indenture does not contain any financial covenants or any restrictions
on the payment of dividends, the repurchase of our securities or the incurrence
of indebtedness. The indenture also does not contain any covenants or other
provisions that afford protection to holders of notes in the event of a highly
leveraged transaction or a Change of Control of Freeport-McMoRan except to the
extent described under "Change of Control Permits Purchase of Notes at the
Option of the Holder" below.
CONVERSION RIGHTS
The holders of notes may, at any time prior to the close of business on
the final maturity date of the notes, convert any outstanding notes (or portions
thereof) into our class B common stock, initially at a conversion price of
$30.8720 per share of class B common stock, which is equal to a conversion rate
of 32.3918 shares of class B common stock per $1,000 principal amount of notes.
The conversion rate is subject to adjustment upon the occurrence of some events
described below. Holders may convert notes only in denominations of $1,000 and
whole multiples of $1,000. Except as described below, no adjustment will be made
on conversion of any notes for interest accrued thereon or dividends paid on any
common stock. Notwithstanding the above, if notes are converted after a record
date but prior to the next succeeding interest payment date, holders of such
notes at the close of business on the record date will receive the interest
payable on such notes on the corresponding interest payment date notwithstanding
the conversion. Such notes, upon surrender for conversion, must be accompanied
by funds equal to the amount of interest payable on the principal amount of
notes so converted. We are not required to issue fractional shares of common
stock upon conversion of notes and instead will pay a cash adjustment based upon
the market price of the common stock on the last trading day before the date of
the conversion.
A holder may exercise the right of conversion by delivering the note to be
converted to the specified office of a conversion agent, with a completed notice
of conversion, together with any funds that may be required as described in the
preceding paragraph. The conversion date will be the date on which the notes,
the notice of conversion and any required funds have been so delivered. A holder
delivering a note for conversion will not be
14
required to pay any taxes or duties relating to the issuance or delivery of the
common stock for such conversion, but will be required to pay any tax or duty
which may be payable relating to any transfer involved in the issuance or
delivery of the common stock in a name other than the holder of the note.
Certificates representing shares of common stock will be issued or delivered
only after all applicable taxes and duties, if any, payable by the holder have
been paid. If any note is converted prior to the expiration of the holding
period applicable for sales thereof under Rule 144(k) under the Securities Act
(or any successive provision), the common stock issuable upon conversion will
not be issued or delivered in a name other than that of the holder of the note
unless the applicable restrictions on transfer have been satisfied.
The initial conversion rate will be adjusted for certain events,
including:
- the issuance of Freeport-McMoRan common stock as a dividend or
distribution on Freeport-McMoRan common stock;
- certain subdivisions and combinations of Freeport-McMoRan common
stock;
- the issuance to all holders of Freeport-McMoRan common stock of
certain rights or warrants to purchase Freeport-McMoRan common stock
(or securities convertible into Freeport-McMoRan common stock) at
less than (or having a conversion price per share less than) the
current market price of Freeport-McMoRan common stock;
- the dividend or other distribution to all holders of
Freeport-McMoRan common stock or shares of Freeport-McMoRan capital
stock (other than common stock) of evidences of indebtedness or
assets (including securities, but excluding (A) those rights and
warrants referred to above, (B) dividends and distributions in
connection with a reclassification, change, consolidation, merger,
combination, sale or conveyance resulting in a change in the
conversion consideration pursuant to the second succeeding paragraph
or (C) dividends or distributions paid exclusively in cash);
- dividends or other distributions consisting exclusively of cash to
all holders of Freeport-McMoRan common stock to the extent that such
distributions, combined together with (A) all other such all-cash
distributions made within the preceding 12 months for which no
adjustment has been made plus (B) any cash and the fair market value
of other consideration paid for any tender offers by
Freeport-McMoRan or any of its subsidiaries for Freeport-McMoRan
common stock concluded within the preceding 12 months for which no
adjustment has been made, exceeds 7 percent of our market
capitalization on the record date for such distribution; market
capitalization is the product of the then current market price of
Freeport-McMoRan common stock times the number of shares of
Freeport-McMoRan common stock then outstanding; and
- the purchase of Freeport-McMoRan common stock pursuant to a tender
offer made by Freeport-McMoRan or any of its subsidiaries to the
extent that the same involves an aggregate consideration that,
together with (A) any cash and the fair market value of any other
consideration paid in any other tender offer by Freeport-McMoRan or
any of its subsidiaries for Freeport-McMoRan common stock expiring
within the 12 months preceding such tender offer for which no
adjustment has been made plus (B) the aggregate amount of any
all-cash distributions referred to in the immediately preceding
bullet above to all holders of Freeport-McMoRan common stock within
12 months preceding the expiration of tender offer for which no
adjustments have been made, exceeds 7 percent of our market
capitalization on the expiration of such tender offer.
No adjustment in the conversion rate will be required unless such
adjustment would require a change of at least 1% in the conversion rate then in
effect at such time. Any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion rate will not be adjusted for the
issuance of our common stock or any securities convertible into or exchangeable
for our common stock or carrying the right to purchase any of the foregoing.
Under the Rights Agreement of Freeport-McMoRan, upon conversion of the
notes into Freeport-McMoRan
15
common stock, to the extent that the Rights Agreement is still in effect upon
conversion, you will receive, in addition to the Freeport-McMoRan common stock,
the rights under the Rights Agreement whether or not the rights have separated
from the Freeport-McMoRan common stock at the time of conversion, subject to
certain limited exceptions.
In the case of:
- any reclassification or change of Freeport-McMoRan common stock
(other than changes resulting from a subdivision or combination) or
- a consolidation, merger or combination involving Freeport-McMoRan or
a sale or conveyance to another corporation of all or substantially
all of Freeport-McMoRan's property and assets,
in each case as a result of which holders of Freeport-McMoRan common stock are
entitled to receive stock, other securities, other property or assets (including
cash or any combination thereof) with respect to or in exchange for
Freeport-McMoRan common stock, the holders of the notes then outstanding will be
entitled thereafter to convert those notes into the kind and amount of shares of
stock, other securities or other property or assets (including cash or any
combination thereof) which they would have owned or been entitled to receive
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance had such notes been converted into Freeport-McMoRan common stock
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance.
We may not become a party to any such transaction unless its terms are
consistent with the foregoing.
If a taxable distribution to holders of Freeport-McMoRan common stock or
other transaction occurs which results in any adjustment of the conversion
price, the holders of notes may, in certain circumstances, be deemed to have
received a distribution subject to U.S. income tax as a dividend. In certain
other circumstances, the absence of an adjustment may result in a taxable
dividend to the holders of common stock. See "Certain United States Federal
Income Tax Considerations."
We may from time to time, to the extent permitted by law, reduce the
conversion price of the notes by any amount for any period of at least 20 days.
In that case we will give at least 15 days' notice of such decrease. We may make
such reductions in the conversion price, in addition to those set forth above,
as the board of directors deems advisable to avoid or diminish any income tax to
holders of Freeport-McMoRan common stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes.
RANKING
The notes will be our unsecured and unsubordinated obligations. The notes
will rank equally in right of payment with all of our existing and future
unsecured and unsubordinated indebtedness. However, the notes will be
subordinated to our existing and future secured indebtedness as to the assets
securing such indebtedness. As of December 31, 2002, we had secured indebtedness
of $279.0 million and had unsecured and unsubordinated indebtedness of $1,126.1
million. After giving effect to the sale of the notes (assuming no exercise of
the overallotment option), the sale in January 2003 of our 10 1/8% senior notes
and the application of the proceeds from those offerings to repay all of the
borrowings under our bank credit facilities, we would have had no secured
indebtedness as of December 31, 2002 and our unsecured and unsubordinated
indebtedness as of December 31, 2002 would have been $2,126.1 million.
In addition, the notes are effectively subordinated to all existing and
future liabilities of our subsidiaries. Freeport-McMoRan is a holding company
and conducts business through its various subsidiaries. As a result,
Freeport-McMoRan's cash flow and consequent ability to meet its debt obligations
primarily depend on the earnings of its subsidiaries, and on dividends and other
payments from its subsidiaries. Under certain circumstances, contractual and
legal restrictions, as well as the financial condition and operating
requirements of Freeport-McMoRan's subsidiaries, could limit its ability to
obtain cash from its subsidiaries for the purpose of meeting debt service
obligations, including the payment of principal and interest on the notes. Any
rights to receive assets of any
16
subsidiary upon its liquidation or reorganization and the consequent right of
the holders of the notes to participate in those assets will be subject to the
claims of that subsidiary's creditors, including trade creditors, except to the
extent that Freeport-McMoRan is recognized as a creditor of that subsidiary, in
which case its claims would still be subordinate to any security interests in
the assets of that subsidiary. As of December 31, 2002, our subsidiaries had
total indebtedness of $2,263.2 million.
CHANGE OF CONTROL PERMITS PURCHASE OF NOTES AT THE OPTION OF THE HOLDER
If a Change of Control occurs, each holder of notes will have the right to
require us to repurchase all of that holder's notes, or any portion of those
notes that is equal to $1,000 or a whole multiple of $1,000, on the date that is
45 days after the date we give notice at a repurchase price equal to 100 percent
of the principal amount of the notes to be repurchased, together with interest
accrued and unpaid to, but excluding, the repurchase date.
Instead of paying the repurchase price in cash, we may pay the repurchase
price in our class B common stock if we so elect in the notice referred to
below. The number of shares of common stock a holder will receive will equal the
repurchase price divided by 95 percent of the average of the closing sale prices
of the applicable common stock for the five trading days immediately preceding
and including the third day prior to the repurchase date. However, we may not
pay in common stock unless we satisfy certain conditions prior to the repurchase
date as provided in the indenture.
Within 30 days after the occurrence of a Change of Control, we are
required to give notice to all holders of notes, as provided in the indenture,
of the occurrence of the Change of Control and of their resulting repurchase
right. We must also deliver a copy of our notice to the trustee. To exercise the
repurchase right, a holder of notes must deliver prior to or on the repurchase
date irrevocable written notice to the trustee of the holder's exercise of its
repurchase right, together with the notes with respect to which the right is
being exercised. A "Change of Control" will be deemed to have occurred at such
time after the original issuance of the notes when the following has occurred:
- any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), acquires the beneficial ownership (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly
or indirectly, through a purchase, merger or other acquisition
transaction, of 50 percent or more of the total voting power of the
total outstanding voting stock of Freeport-McMoRan other than an
acquisition by us, any of our subsidiaries or any of our employee
benefit plans;
- Freeport-McMoRan consolidates with, or merges with or into, another
person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person
consolidates with or merges with or into Freeport-McMoRan, other
than:
- any transaction (A) that does not result in any
reclassification, conversion, exchange or cancellation of
outstanding shares of Freeport-McMoRan's capital stock and (B)
pursuant to which holders of Freeport-McMoRan's capital stock
immediately prior to the transaction have the entitlement to
exercise, directly or indirectly, 50% or more of the total
voting power of all shares of Freeport-McMoRan's capital stock
entitled to vote generally in the election of directors of the
continuing or surviving person immediately after the
transaction; and
- any merger solely for the purpose of changing
Freeport-McMoRan's jurisdiction of incorporation and resulting
in a reclassification, conversion or exchange of outstanding
shares of common stock solely into shares of common stock of
the surviving entity;
- during any consecutive two-year period, individuals who at the
beginning of that two-year period constituted the board of directors
of Freeport-McMoRan (together with any new directors whose election
to such board of directors, or whose nomination for election by
stockholders, was
17
approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or
whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the board
of directors of Freeport-McMoRan then in office; or
- Freeport-McMoRan's stockholders pass a special resolution approving
a plan of liquidation or dissolution and no additional approvals of
stockholders are required under applicable law to cause a
liquidation or dissolution.
The definition of Change of Control includes a phrase relating to the
lease, transfer, conveyance or other disposition of "all or substantially all"
of Freeport-McMoRan's assets. There is no precise established definition of the
phrase "substantially all" under applicable law. Accordingly, the ability of a
holder of notes to require us to repurchase such notes as a result of a lease,
transfer, conveyance or other disposition of less than all of Freeport-McMoRan's
assets may be uncertain.
Our right to pay the repurchase price in common stock is subject to our
satisfying various conditions, including:
- the registration of the common stock under the Securities Act and
the Exchange Act, if required; and
- any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such
qualification and registration.
If such conditions are not satisfied with respect to a holder prior to the
close of business on the repurchase date, we will pay the repurchase price of
the notes to the holder entirely in cash. We may not change the form of
consideration to be paid for the notes once we have given the notice that we are
required to give to holders of notes, except as described in the first sentence
of this paragraph.
We will comply with the provisions of any tender offer rules under the
Exchange Act that may then be applicable, and will file any schedule required
under the Exchange Act in connection with any offer by us to purchase notes at
the option of the holders of notes upon a Change of Control. In some
circumstances, the Change of Control purchase feature of the notes may make more
difficult or discourage a takeover of us and thus the removal of incumbent
management. The Change of Control purchase feature, however, is not the result
of management's knowledge of any specific effort to accumulate shares of common
stock or to obtain control of us by means of a merger, tender offer,
solicitation or otherwise, or part of a plan by management to adopt a series of
anti-takeover provisions. Instead, the Change of Control purchase feature is the
result of negotiations between us and Merrill Lynch, the initial purchaser of
the notes.
We may to the extent permitted by applicable law, at any time purchase the
notes in the open market or by tender at any price or by private agreement. Any
note so purchased by us may, to the extent permitted by applicable law, be
reissued or resold or may be surrendered to the trustee for cancellation. Any
notes surrendered to the trustee may not be reissued or resold and will be
canceled promptly.
The foregoing provisions would not necessarily protect holders of the
notes if highly leveraged or other transactions involving us occur that may
adversely affect holders. Our ability to repurchase notes upon the occurrence of
a Change of Control is subject to important limitations. The occurrence of a
Change of Control could cause an event of default under, or be prohibited or
limited by, the terms of indebtedness that we may incur in the future. Further,
we cannot assure you that we would have the financial resources, or would be
able to arrange financing, to pay the repurchase price for all the notes that
might be delivered by holders of notes seeking to exercise the repurchase right.
Any failure by us to repurchase the notes when required following a Change of
Control would result in an event of default under the indenture. Any such
default may, in turn, cause a default under indebtedness that we may incur in
the future.
EVENTS OF DEFAULT
Each of the following will constitute an event of default under the
indenture:
18
(1) our failure to pay when due the principal of or premium, if any, on any of
the notes at maturity or exercise of a repurchase right or otherwise;
(2) our failure to pay an installment of interest (including liquidated
damages, if any) on any of the notes for 30 days after the date when due;
(3) failure by us to deliver shares of common stock, together with cash
instead of fractional shares, when those shares of common stock, or cash
instead of fractional shares, are required to be delivered following
conversion of a note, and that default continues for 10 days;
(4) failure by us to give the notice regarding a Change of Control within 30
days of the occurrence of the Change of Control;
(5) our failure to perform or observe any other term, covenant or agreement
contained in the notes or the indenture for a period of 60 days after
written notice of such failure, requiring us to remedy the same, shall
have been given to us by the trustee or to us and the trustee by the
holders of at least 25 percent in aggregate principal amount of the notes
then outstanding;
(6) in the event of either (a) our failure or the failure of any of our
significant subsidiaries to make any payment by the end of the applicable
grace period, if any, after the final scheduled payment date for such
payment with respect to any indebtedness for borrowed money in an
aggregate principal amount in excess of $10 million, or (b) the
acceleration of indebtedness for borrowed money of the company or any of
our significant subsidiaries in an aggregate amount in excess of $10
million because of a default with respect to such indebtedness, without
such indebtedness referred to in either (a) or (b) above having been
discharged, cured, waived, rescinded or annulled, for a period of 30 days
after written notice to us by the trustee or to us and the trustee by
holders of at least 25 percent in aggregate principal amount of the notes
then outstanding; and
(7) certain events of our bankruptcy, insolvency or reorganization.
The term "significant subsidiary" means a subsidiary, including its
subsidiaries, that meets any of the following conditions:
- Freeport-McMoRan's and its other subsidiaries' investments in and
advances to the subsidiary exceed 20 percent of the total assets of
Freeport-McMoRan and its subsidiaries consolidated as of the end of
the most recently completed fiscal year;
- Freeport-McMoRan's and its other subsidiaries' proportionate share
of the total assets (after intercompany eliminations) of the
subsidiary exceeds 20 percent of the total assets of
Freeport-McMoRan and its subsidiaries consolidated as of the end of
the most recently completed fiscal year; or
- Freeport-McMoRan's and its other subsidiaries' equity in the income
from continuing operations before income taxes, extraordinary items
and cumulative effect of a change in accounting principle of the
subsidiary exceeds 20 percent of such income of Freeport-McMoRan and
its subsidiaries consolidated for the most recently completed fiscal
year.
The indenture provides that the trustee shall, within 90 days of the
occurrence of a default, give to the registered holders of the notes notice of
all uncured defaults known to it, but the trustee shall be protected in
withholding such notice if it, in good faith, determines that the withholding of
such notice is in the best interest of such registered holders, except in the
case of a default in the payment of the principal of, or premium, if any, or
interest on, any of the notes when due or in the payment of any repurchase
obligation.
If an event of default specified in clause (7) above occurs and is
continuing, then automatically the principal of all the notes and the interest
thereon shall become immediately due and payable. If an event of default
19
shall occur and be continuing, other than with respect to clause (7) above (the
default not having been cured or waived as provided under "Modifications and
Waiver" below), the trustee or the holders of at least 25 percent in aggregate
principal amount of the notes then outstanding may declare the notes due and
payable at their principal amount together with accrued interest, and thereupon
the trustee may, at its discretion, proceed to protect and enforce the rights of
the holders of notes by appropriate judicial proceedings. Such declaration may
be rescinded or annulled with the written consent of the holders of a majority
in aggregate principal amount of the notes then outstanding upon the conditions
provided in the indenture. However, if an event of default is cured prior to
such declaration by the trustee or holders of the notes as discussed above, the
trustee and the holders of the notes will not be able to make such declaration
as a result of that cured event of default.
Overdue payments of interest, liquidated damages and premium, if any, and
principal shall accrue interest at 9.00 percent.
The indenture contains a provision entitling the trustee, subject to the
duty of the trustee during default to act with the required standard of care, to
be indemnified by the holders of notes before proceeding to exercise any right
or power under the indenture at the request of such holders. The indenture
provides that the holders of a majority in aggregate principal amount of the
notes then outstanding through their written consent may direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
or exercising any trust or power conferred upon the trustee.
We are required to furnish annually to the trustee a statement as to the
fulfillment of our obligations under the indenture.
CONSOLIDATION, MERGER OR ASSUMPTION
We may, without the consent of the holders of notes, consolidate with,
merge into or transfer all or substantially all of our assets to any other
corporation organized under the laws of the United States or any of its
political subdivisions provided that:
- the surviving corporation assumes all our obligations under the
indenture and the notes;
- at the time of such transaction, no event of default, and no event
which, after notice or lapse of time, would become an event of
default, shall have happened and be continuing; and
- certain other conditions are met.
MODIFICATIONS AND WAIVER
The indenture (including the terms and conditions of the notes) may be
modified or amended by us and the trustee, without the consent of the holder of
any note, for the purposes of, among other things:
- adding to our covenants for the benefit of the holders of notes;
- surrendering any right or power conferred upon us;
- providing for the assumption of our obligations to the holders of
notes in the case of a merger, consolidation, conveyance, transfer
or lease;
- reducing the conversion price, provided that the reduction will not
adversely affect the interests of holders of notes in any material
respect;
- complying with the requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act of 1939, as amended;
- making any changes or modification to the indenture necessary in
connection with the registration
20
of the notes under the Securities Act as contemplated by the
registration rights agreement, provided that this action does not
adversely affect the interest of the holders of the notes in any
material respects;
- curing any ambiguity or correcting or supplementing any defective
provision contained in the indenture; provided that such
modification or amendment does not adversely affect the interests of
the holders of the notes in any material respect; or
- adding or modifying any other provisions which we and the trustee
may deem necessary or desirable and which will not adversely affect
the interests of the holders of notes in any material respect.
Modifications and amendments to the indenture or to the terms and
conditions of the notes may also be made, and past default by us may be waived
with the written consent of the holders of at least a majority in aggregate
principal amount of the notes at the time outstanding. However, no such
modification, amendment or waiver may, without the written consent or the
affirmative vote of the holder of each note so affected:
- change the maturity of the principal of or any installment of
interest on that note (including any payment of liquidated damages);
- reduce the principal amount of, or any premium or interest on
(including any payment of liquidated damages), any note;
- change the currency of payment of such note or interest thereon;
- impair the right to institute suit for the enforcement of any
payment on or with respect to any note;
- except as otherwise permitted or contemplated by provisions
concerning corporate reorganizations, adversely affect the
repurchase option of holders upon a Change of Control or the
conversion rights of holders of the notes; or
- reduce the percentage in aggregate principal amount of notes
outstanding necessary to modify or amend the indenture or to waive
any past default.
FORM, DENOMINATION AND REGISTRATION
The notes were issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and whole multiples of $1,000.
Global Notes: Book-Entry Form. Except as provided below, the notes will be
evidenced by one or more global notes deposited with the trustee as custodian
for The Depository Trust Company, New York, New York ("DTC"), and registered in
the name of Cede & Co. as DTC's nominee. The global notes and any notes issued
in exchange therefor are subject to certain restrictions on transfer set forth
in the global notes and in the indenture and bear a restrictive legend. Record
ownership of the global notes may be transferred, in whole or in part, only to
another nominee of DTC or to a successor of DTC or its nominee, except as set
forth below. A Qualified Institutional Buyer (a "QIB") may hold its interests in
a global note directly through DTC if such QIB is a participant in DTC, or
indirectly through organizations which are direct DTC participants. Transfers
between direct DTC participants will be effected in the ordinary way in
accordance with DTC's rules and will be settled in same-day funds. QIBs may also
beneficially own interests in the global notes held by DTC through certain
banks, brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a direct DTC participant, either directly
or indirectly. So long as Cede & Co., as nominee of DTC, is the registered owner
of the global notes, Cede & Co. for all purposes will be considered the sole
holder of the global notes. Except as provided below, owners of beneficial
interests in the global notes will not be entitled to have certificates
registered in their names, will not receive or be entitled to receive physical
delivery of certificates in definitive form, and will not be considered holders
thereof. The laws of some states require that certain persons take physical
delivery of securities
21
in definitive form. Consequently, the ability to transfer a beneficial interest
in the global notes to such persons may be limited. We will wire, through the
facilities of the trustee, principal, premium, if any, and interest payments on
the global notes to Cede & Co., the nominee for DTC, as the registered owner of
the global notes. We, the trustee and any paying agent will have no
responsibility or liability for paying amounts due on the global notes to owners
of beneficial interests in the global notes. It is DTC's current practice, upon
receipt of any payment of principal of and premium, if any, and interest on the
global notes, to credit participants' accounts on the payment date in amounts
proportionate to their respective beneficial interests in the notes represented
by the global notes, as shown on the records of DTC, unless DTC believes that it
will not receive payment on the payment date. Payments by DTC participants to
owners of beneficial interests in notes represented by the global notes held
through DTC participants will be the responsibility of DTC participants, as is
now the case with securities held for the accounts of customers registered in
"street name."
If you would like to convert your notes into common stock pursuant to the
terms of the notes, you should contact your broker or other direct or indirect
DTC participant to obtain information on procedures, including proper forms and
cut-off times, for submitting those requests. Because DTC can only act on behalf
of DTC participants, who in turn act on behalf of indirect DTC participants and
other banks, your ability to pledge your interest in the notes represented by
global notes to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate. Neither we nor the trustee (nor any registrar,
paying agent or conversion agent under the indenture) will have any
responsibility for the performance by DTC or direct or indirect DTC participants
of their obligations under the rules and procedures governing their operations.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes, including, without limitation, the presentation of notes for
conversion as described below, only at the direction of one or more direct DTC
participants to whose account with DTC interests in the global notes are
credited and only for the principal amount of the notes for which directions
have been given.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created
to hold securities for DTC participants and to facilitate the clearance and
settlement of securities transactions between DTC participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations such as Merrill Lynch. Certain DTC
participants or their representatives, together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with, a participant, either directly or indirectly. Although DTC
has agreed to the foregoing procedures in order to facilitate transfers of
interests in the global notes among DTC participants, it is under no obligation
to perform or continue to perform such procedures, and such procedures may be
discontinued at any time. If DTC is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by us within 90 days,
we will cause notes to be issued in definitive form in exchange for the global
notes. None of us, the trustee or any of their respective agents will have any
responsibility for the performance by DTC or direct or indirect DTC participants
of their obligations under the rules and procedures governing their operations,
including maintaining, supervising or reviewing the records relating to, or
payments made on account of, beneficial ownership interests in global notes.
According to DTC, the foregoing information with respect to DTC has been
provided to its participants and other members of the financial community for
informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
Certificated notes may be issued in exchange for beneficial interests in
notes represented by the global notes only in the limited circumstances set
forth in the indenture.
Restrictions on Transfer; Legends. The notes are subject to certain
transfer restrictions and certificates evidencing the notes will bear a
restrictive legend to such effect.
GOVERNING LAW
The indenture and the notes are governed by, and construed in accordance
with, the law of the State of New
22
York.
CONCERNING THE TRUSTEE
The Bank of New York, as trustee under the indenture, has been appointed
by us as paying agent, conversion agent, registrar and custodian with regard to
the notes. Mellon Investor Services LLC is the transfer agent and registrar for
Freeport-McMoRan's common stock. The trustee or its affiliates may from time to
time in the future provide banking and other services to us in the ordinary
course of their business.
REGISTRATION RIGHTS
We have agreed, at our expense, to file with the SEC not later than the
date that is 90 days after the earliest date of original issuance of any of the
notes, subject to certain conditions set forth below, this shelf registration
statement on Form S-3 covering resales by holders of the notes and the common
stock issuable upon conversion of the notes. Under the terms of the registration
rights agreement, we agreed to use our best efforts to:
- cause the registration statement to become effective as promptly as
is practicable, but in no event later than 240 days after the
earliest date of original issuance of any of the notes; and
- keep the registration statement effective until such date that the
holders of the notes and the common stock issuable upon conversion
of the notes are able to sell all such securities immediately
without restriction pursuant to the volume limitations of Rule 144
under the Securities Act or any successor rule thereto or otherwise.
We will also agreed to provide to each registered holder copies of the
prospectus, notify each registered holder when the shelf registration statement
has become effective and take certain other actions as are required to permit
unrestricted resales of the notes and the common stock issuable upon conversion
of the notes. A holder who sells those securities pursuant to the shelf
registration statement generally will be required to be named as a selling
stockholder in the related prospectus and to deliver a prospectus to purchasers
and will be bound by the provisions of the registration rights agreement, which
are applicable to that holder (including certain indemnification provisions). If
a shelf registration statement covering those securities is not effective, they
may not be sold or otherwise transferred except pursuant to an exemption from
registration under the Securities Act and any other applicable securities laws
or in a transaction not subject to those laws. Each holder must notify us not
later than three business days prior to any proposed sale by that holder
pursuant to the shelf registration statement. This notice will be effective for
five business days. We may suspend the holder's use of the prospectus for a
reasonable period not to exceed 30 days in any 90-day period, and not to exceed
an aggregate of 90 days in any 12-month period, if we, in our reasonable
judgment, believe we may possess material non-public information the disclosure
of which would have a material adverse effect on us and our subsidiaries taken
as a whole. Each holder, by its acceptance of a note, agrees to hold any
communication by us in response to a notice of a proposed sale in confidence.
If,
- on the 90th day following the earliest date of original issuance of
any of the notes, the shelf registration statement has not been
filed with the SEC; or
- on the 240th day following the earliest date of original issuance of
any of the notes, the shelf registration statement has not been
declared effective; or
- the registration statement shall cease to be effective or fail to be
usable without being succeeded within five business days by a
post-effective amendment or a report filed with the SEC pursuant to
the Exchange Act that cures the failure of the registration
statement to be effective or usable; or
- on the 30th day of any period that the prospectus has been suspended
as described in the preceding paragraph, such suspension has not
been terminated
23
(each, a "registration default"), additional interest as liquidated damages will
accrue on the notes, from and including the day following the registration
default to but excluding the day on which the registration default has been
cured.
Liquidated damages will be paid semi-annually in arrears, with the first
semi-annual payment due on the first interest payment date, as applicable,
following the date on which such liquidated damages begin to accrue, and will
accrue at a rate per year equal to:
- an additional 0.25 percent of the principal amount to and including
the 90th day following such registration default; and
- an additional 0.5 percent of the principal amount from and after the
91st day following such registration default.
In no event will liquidated damages accrue at a rate per year exceeding
0.5 percent. If a holder has converted some or all of its notes into common
stock, the holder will be entitled to receive equivalent amounts based on the
principal amount of the notes converted.
The summary herein of certain provisions of the registration rights
agreement between us and the initial purchaser is subject to, and is qualified
in its entirety by reference to, all the provisions of the registration rights
agreement, a copy of which has been filed as an exhibit to the registration
statement of which this prospectus is a part or is available upon request to the
Company.
Upon their original issuance, the notes became eligible for trading on The
PORTAL Market. The notes sold pursuant to this prospectus, however, will no
longer be eligible for trading on The PORTAL Market. We cannot assure you that
an active trading market for the notes will develop or as to the liquidity or
sustainability of any such market, the ability of the holders to sell their
notes or the price at which holders of the notes will be able to sell their
notes. Future trading prices of the notes will depend on many factors,
including, among other things, prevailing interest rates, our operating results,
the price of our common stock and the market for similar securities.
24
DESCRIPTION OF COMMON STOCK
GENERAL
As of the date of this prospectus, our certificate of incorporation
authorized us to issue up to 423,600,000 shares of class B common stock, par
value $0.10 per share and up to 50,000,000 shares of preferred stock, par value
$0.10 per share. As of December 31, 2002, 144,909,983 shares of our class B
common stock were outstanding. Our class B common stock is listed on the New
York Stock Exchange.
In 2002, we amended our certificate of incorporation to reclassify our
class A common stock and class B common stock into a single class designated as
class B common stock. As a result, we do not have any class A common stock.
We have outstanding the following four series of preferred stock:
- Step-Up Convertible Preferred Stock;
- Gold-Denominated Preferred Stock;
- Gold-Denominated Preferred Stock, Series II; and
- Silver-Denominated Preferred Stock.
For additional information about the terms of our preferred stock, see
Exhibit 3.1 to our quarterly report on Form 10-Q for the quarter ended March 31,
2002 (filed May 7, 2002) and Notes 6 and 7 to our audited consolidated financial
statements incorporated into this prospectus by reference to our Annual Report
on Form 10-K for the fiscal year ended December 31, 2002.
VOTING RIGHTS
Holders of class B common stock, voting together with holders of our
outstanding preferred stock, are entitled to elect all of the authorized number
of members of our board of directors, excluding those directors that holders of
preferred stock have the exclusive right to elect if we fail to make specified
dividend payments. Each share of class B common stock and each share of our
outstanding preferred stock has one vote. With respect to all other matters
submitted to a vote of our shareholders, except as required by law, the holders
of the class B common stock vote together as a single class, and record holders
of each class have one vote per share.
Pursuant to an agreement with us, 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 Rio Tinto's
aggregate percentage ownership of all of our outstanding common stock. We have
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.
DIVIDENDS
Holders of our class B common stock will share ratably in any cash
dividend that may from time to time be declared by our board of directors. See
"Dividend Policy."
OTHER RIGHTS
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of our company, prior to any distributions to the holders of our
class B common stock, the holders of preferred stock will receive any payments
to which they are entitled. Subsequent to those payments, the holders of our
class B common stock will share ratably, according to the number of shares held
by them, in our remaining assets, if any.
Shares of our class B common stock are not redeemable and have no
subscription, conversion or
25
preemptive rights. Shares of our class B common stock are freely transferable,
except for any restrictions imposed under the Securities Act of 1933 on the
common stock issuable upon conversion of the notes and our 8 1/4% Convertible
Senior Notes due 2006.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
Our certificate of incorporation contains provisions that are designed in
part to make it more difficult and time-consuming for a person to obtain control
of our company unless they pay a required value to our stockholders. Some
provisions also are intended to make it more difficult for a person to obtain
control of our board of directors. These provisions reduce the vulnerability of
our company to an unsolicited takeover proposal. On the other hand, these
provisions may have an adverse effect on the ability of stockholders to
influence the governance of our company. You should read our certificate of
incorporation and bylaws for a more complete description of the rights of
holders of our common stock.
Classified Board of Directors. Our certificate of incorporation divides
the members of our board of directors, other than those that may be elected
solely by the holders of our preferred stock, into three classes serving
three-year staggered terms. The classification of directors has the effect of
making it more difficult for our stockholders to change the composition of our
board. At least two annual meetings of stockholders may be required for the
stockholders to change a majority of the directors, whether or not a majority of
stockholders believes that this change would be desirable.
Supermajority Voting/Fair Price Requirements. Our certificate of
incorporation provides that the approval of the holders of two-thirds of our
outstanding common stock is required for:
- any merger or consolidation of our company or any of our
subsidiaries with or into any person or entity, or any affiliate of
that person or entity, who was within the two years prior to the
transaction a beneficial owner of 20 percent or more of our common
stock or any class of our common stock (an "interested party");
- any merger or consolidation of an interested party with or into our
company or any of our subsidiaries;
- any sale, lease, mortgage, pledge or other disposition of more than
10 percent of the fair market value of the assets of our company or
any of our subsidiaries in one or more transactions involving an
interested party;
- the adoption of any plan or proposal for liquidation or dissolution
of our company proposed by or on behalf of any interested party;
- the issuance or transfer by our company or any of our subsidiaries
of securities having a fair market value of $10.0 million or more to
any interested party; or
- any recapitalization, reclassification, merger or consolidation of
our company or any of our subsidiaries that would increase an
interested party's voting power in our company or any of our
subsidiaries.
However, the two-thirds voting requirement is not applicable if:
- our board approves the transaction, or approves the acquisition of
the common stock that caused the interested person to become an
interested person, and the vote includes the affirmative vote of a
majority of our directors who are not affiliates of the interested
party and who were members of our board prior to the time the
interested party became the interested party;
- the transaction is solely between us and any of our wholly owned
subsidiaries or between any of our wholly owned subsidiaries; or
26
- the transaction is a merger or consolidation and the consideration
to be received by our common stockholders is at least as high as the
highest price per share paid by the interested party for our common
stock on the date the common stock was last acquired by the
interested party or during a period of two years prior.
Supermajority Voting/Amendments to Certificate of Incorporation. The
affirmative vote of at least two-thirds of our company's outstanding common
stock is required to amend, alter, change or repeal the provisions in our
certificate of incorporation providing for the fair price requirements described
above or our classified board of directors with staggered three-year terms.
Removal of Directors; Filling Vacancies on Board of Directors. Directors
may be removed, with cause, by the vote of the holders of all classes of stock
entitled to vote at an election of directors, voting together as a single class.
Directors may not be removed without cause by stockholders. Vacancies in a
directorship may be filled by the vote of the class or classes of shares that
had previously elected the director creating the vacancy, or by the remaining
directors. The board may increase the number of directors and fill the newly
created directorships.
RIGHTS AGREEMENT
Our Rights Agreement is designed to deter abusive takeover tactics and to
encourage prospective acquirors to negotiate with our board rather than attempt
to acquire the company in a manner or on terms that the board deems
unacceptable. Under our Rights Agreement, each outstanding share of class B
common stock includes an associated preferred stock purchase right. If the
rights become exercisable, each right will entitle its holder to purchase one
one-hundredth ( 1/100) of a share of our series A participating cumulative
preferred stock at an exercise price of $60 per unit, subject to adjustment. The
rights trade with all outstanding shares of our class B common stock. The rights
will separate from our class B common stock and become exercisable upon the
earlier of:
- the tenth day following a public announcement that a person or group
of affiliated or associated persons (other than Rio Tinto Indonesia
Limited and its affiliates or associates) has acquired beneficial
ownership of 20 percent or more of our outstanding common stock, or
20 percent or more of our class B common stock (an "acquiring
person"); or
- the tenth business day, or any later date as determined by our board
prior to the time that any person or group becomes an acquiring
person, following the commencement of or announcement of an
intention to make a tender offer or exchange offer that, if
consummated, would result in the person or group becoming an
acquiring person.
Term of Rights. The rights will expire on May 3, 2010, unless we extend
this date or redeem or exchange the rights as described below.
Exercise After Someone Becomes An Acquiring Person. After any person or
group becomes an acquiring person, each holder of a right will be entitled to
receive upon exercise that number of shares of our class B common stock having a
market value of two times the exercise price of the right. However, this right
will not apply to an acquiring person, whose rights will be void.
Upon the occurrence of certain events after someone becomes an acquiring
person, each holder of a right, other than the acquiring person, will be
entitled to receive, upon exercise of the right, common stock of the acquiring
company having a market value equal to two times the exercise price of the
right. These rights will arise only if after a person or group becomes an
acquiring person:
o we are acquired in a merger or other business combination; or
o we sell or otherwise transfer 50 percent or more of our assets or earning
power.
Adjustment. The exercise price, the number of rights outstanding, and the
number of preferred shares issuable upon exercise of the rights are subject to
adjustment from time to time to prevent certain types of dilution.
27
We will not issue fractional preferred stock shares. Instead, we will make a
cash adjustment based on the market price of the preferred stock prior to the
date of exercise.
Rights, Preferences, and Limitations of Rights. Preferred stock
purchasable upon exercise of the rights will not be redeemable. Each share of
preferred stock will entitle the holder to receive a preferential quarterly
dividend payment of the greater of $1.00 or 100 times the dividend declared per
share of our common stock. In the event of liquidation, the holders of each
share of our preferred stock will be entitled to a preferential liquidation
payment of the greater of $0.10 per share or 100 times the payment made per
share of our common stock. Each share of our preferred stock will entitle the
holder to 100 votes and will vote together with our class B common stock.
Finally, in the event of any merger, consolidation or other transaction in which
our common stock is exchanged, each share of our preferred stock will entitle
the holder to receive 100 times the amount received per share of class B common
stock. These rights are protected by customary antidilution provisions. Because
of the nature of our preferred stock's dividend, liquidation and voting rights,
the value of each one one-hundredth interest in a share of preferred stock
should approximate the value of one share of our class B common stock.
Exchange and Redemption. After a person or group becomes an acquiring
person, we may exchange the rights, in whole or in part, at an exchange ratio,
subject to adjustment, of one share of our class B common stock, or one
one-hundredth of a share of preferred stock, per right. We generally may not
make an exchange after any person or group becomes the beneficial owner of 50
percent or more of our class B common stock.
We may redeem the rights in whole, but not in part, at a price of $.01 per
right, subject to adjustment, at any time prior to any person or group becoming
an acquiring person. The redemption of the rights may be made effective at such
time, on such basis and with such conditions as our board of directors in its
sole discretion may establish. Once redeemed, the rights will terminate
immediately and the only right of the rights holders will be to receive the cash
redemption price.
Amendments. We may amend the terms of the rights without the consent of
the rights holders, including an amendment to lower the thresholds described
above. However, after any person or group becomes an acquiring person, we may
not amend the terms of the rights in any way that adversely affects the
interests of the rights holders.
28
DIVIDEND POLICY
In December 1998, in response to low commodity market prices for copper
and gold, our board of directors authorized the elimination of the regular
quarterly cash dividend on our common stock. On February 6, 2003, we announced
that our board of directors has authorized a new cash dividend policy for our
common stock. The new dividend policy provides for an annual cash dividend of
$0.36 per share to be payable quarterly ($0.09 per quarter). The initial
quarterly dividend has been declared to be paid on May 1, 2003.
The declaration and payment of dividends is at the discretion of our board
of directors and will depend on our financial results, cash requirements, future
prospects and other factors deemed relevant by the board. In addition, payment
of dividends on our common stock is subject to limitations under our 10 1/8%
senior notes. Pursuant to the limitations in the indenture governing our 10 1/8%
senior notes, the amount available to us as of March 31, 2003 for the payment of
dividends on common stock was approximately $90 million.
29
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
consequences to a holder with respect to the purchase, ownership and disposition
of the notes or our common stock acquired upon conversion of a note as of the
date hereof. This summary is generally limited to holders who will hold the
notes and the shares of common stock into which the notes are convertible as
"capital assets" within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code") and who acquire the notes in this offering at
the initial offering price, and does not deal with special situations including
those that may apply to particular holders such as exempt organizations, holders
subject to the U.S. federal alternative minimum tax, non-U.S. citizens and
foreign corporations or other foreign entities, dealers in securities,
commodities or foreign currencies, financial institutions, insurance companies,
regulated investment companies, holders whose "functional currency" is not the
U.S. dollar and persons who hold the notes or shares of common stock in
connection with a "straddle," "hedging," "conversion" or other risk reduction
transaction.
The federal income tax considerations set forth below are based upon the
Code, Treasury Regulations promulgated thereunder, court decisions, and Internal
Revenue Service ("IRS") rulings now in effect, all of which are subject to
change. Prospective investors should particularly note that any such change
could have retroactive application so as to result in federal income tax
consequences different from those discussed below. We have not sought any ruling
from the IRS with respect to statements made and conclusions reached in this
discussion and there can be no assurance that the IRS will agree with such
statements and conclusions.
Based on currently applicable authorities, we will treat the notes as
indebtedness for U.S. federal income tax purposes. However, since the notes have
certain equity characteristics, it is possible that the IRS will contend that
the notes should be treated as an equity interest in, rather than indebtedness
of our company. Except as otherwise noted, the remainder of this discussion
assumes that the notes will constitute indebtedness for U.S. tax purposes.
INVESTORS CONSIDERING THE PURCHASE OF THE NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS
TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE
FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
TAXATION OF INTEREST
Holders will be required to recognize as ordinary income any interest paid
or accrued on the notes, in accordance with their regular method of tax
accounting. Interest income will generally be foreign source income.
MARKET DISCOUNT
If the purchaser of a note purchases the note for an amount that is less
than the stated redemption price of the note, the excess of the stated
redemption price of the note over the purchase price is referred to as market
discount. Gain recognized by the purchaser upon the disposition of the note will
be treated as ordinary income to the extent of the market discount that has
accrued from the date of purchase to the date of disposition, unless the
purchaser of the note makes an election under the Code to include accrued market
discount in gross income for the tax years to which the discount is
attributable.
MARKET PREMIUM
If the purchaser of a note purchases the note for an amount that is
greater than the stated redemption price of the note, the excess of the purchase
price over the stated redemption price of the note is referred to as bond
premium. The purchaser may elect to amortize the bond premium over the term of
the note. If the purchaser makes the election, the amortized bond premium is
offset against the amount of interest otherwise attributable to the applicable
period.
CONVERSION OR REPURCHASE FOR COMMON STOCK
30
A Holder will not recognize income, gain or loss upon conversion of the
notes solely into our common stock (except with respect to any amounts
attributable to accrued interest on the notes, which will be treated as interest
for federal income tax purposes, as discussed above), and except with respect to
cash received in lieu of fractional shares. The holder's tax basis in the common
stock received on conversion of a note for common stock pursuant to the
repurchase right will be the same as the holder's adjusted tax basis in the
notes exchanged therefore at the time of conversion (reduced by any basis
allocable to a fractional share), and the holding period for the common stock
received on conversion will include the holding period of the notes that were
converted. If we repurchase a note in exchange for common stock pursuant to
exercise of the repurchase right upon a change of control, although the matter
is not entirely clear, such exchange should be treated in the same manner as a
conversion of the note as described in the preceding sentences.
Cash received in lieu of a fractional share of common stock upon
conversion of the notes into common stock or upon a repurchase for common stock
of a note pursuant to exercise of the repurchase right upon a change of control
will generally be treated as a payment in exchange for the fractional share of
common stock. Accordingly, the receipt of cash in lieu of a fractional share of
common stock generally will result in capital gain or loss measured by any
difference between the cash received for the fractional share and the holder's
adjusted tax basis in the fractional share.
DIVIDENDS ON COMMON STOCK
Distributions on our common stock will constitute dividends for U.S.
federal income tax purposes to the extent of our current or accumulated earnings
and profits as determined under U.S. federal income tax principles. To the
extent that a holder receives distributions on shares of common stock that would
otherwise constitute dividends for U.S. federal income tax purposes but that
exceed our current and accumulated earnings and profits, such distributions will
be treated first as a non-taxable return of capital reducing the holder's basis
in the shares of common stock. Any such distributions in excess of the holder's
basis in the shares of common stock will generally be treated as capital gain.
Subject to applicable limitations, dividends paid to holders that are U.S.
corporations will qualify for the dividends-received deduction so long as there
are sufficient earnings and profits. Enactment of the dividend exclusion
proposal included in the Administration's fiscal year 2004 budget, or similar
legislation, could affect the U.S. federal income tax treatment of dividends. It
is uncertain whether and in what form any such proposal might be adopted.
DISPOSITION, REDEMPTION OR REPURCHASE FOR CASH
Except as set forth above under "Conversion or Repurchase for Common
Stock," holders generally will recognize capital gain or loss upon the sale,
redemption, including a repurchase by us for cash pursuant to the repurchase
right, or other taxabledisposition of the notes or common stock in an amount
equal to the difference between:
- the holder's adjusted tax basis in the notes or common stock (as the
case may be); and
- the amount of cash and fair market value of any property received
from such disposition (other than amounts attributable to accrued
interest on the notes, which will be treated as interest for federal
income tax purposes).
A holder's adjusted tax basis in a note generally will equal the cost of
the note to such holder. (For a discussion of the holder's basis in shares of
our common stock, see "Conversion or Repurchase for Common Stock").
Gain or loss from the taxable disposition of the notes or common stock
generally will be long-term capital gain or loss if the notes and/or shares of
common stock were held for more than one year at the time of the disposition.
The deductibility of capital losses is subject to limitations.
31
ADJUSTMENT OF CONVERSION PRICE
The conversion price of the notes is subject to adjustment under certain
circumstances. Under Section 305 of the Code and the Treasury Regulations issued
thereunder, certain adjustments to (or the failure to make such adjustments to)
the conversion price of the notes that increase the proportionate interest of a
holder in our assets or earnings and profits may result in a taxable
constructive distribution to the holders of the notes, whether or not the
holders ever convert the notes. Such constructive distribution will be treated
as a dividend, resulting in ordinary income (and a possible dividends received
deduction in the case of corporate holders) to the extent of our current or
accumulated earnings and profits, with any excess treated first as a tax-free
return of capital which reduces the holder's tax basis in the notes to the
extent thereof and thereafter as gain from the sale or exchange of the notes.
Generally, a holder's tax basis in a note will be increased to the extent any
such constructive distribution is treated as a dividend. Moreover, if there is
an adjustment (or a failure to make an adjustment) to the conversion price of
the notes that increases the proportionate interest of the holders of
outstanding common stock in our assets or earnings and profits, then such
increase in the proportionate interest of the holders of the common stock
generally will be treated as a constructive distribution to such holders,
taxable as described above. As a result, holders of notes could have taxable
income as a result of an event pursuant to which they receive no cash or
property.
BACKUP WITHHOLDING AND INFORMATION REPORTING
We or our designated paying agent will, where required, report to holders
of notes or common stock and the IRS the amount of any interest paid on the
notes or dividends paid with respect to the common stock (or other reportable
payments) in each calendar year and the amount of tax, if any, withheld with
respect to such payments.
Under the backup withholding provisions of the Code and the applicable
Treasury Regulations, a holder of notes or our common stock acquired upon the
conversion of a note may be subject to backup withholding at the rate provided
in Code section 3406(a)(1), which is currently 30 percent, with respect to
dividends or interest paid on, or the proceeds of a sale, exchange or redemption
of, the notes or the common stock, unless:
- such holder is a corporation or comes within certain other exempt
categories and when required demonstrates this fact; or
- provides a correct taxpayer identification number, certifies as to
no loss of exemption from backup withholding and otherwise complies
with applicable requirements of the backup withholding rules.
The amount of any backup withholding from a payment to a holder will be
allowed as a credit against the holder's federal income tax liability and may
entitle such holder to a refund, provided that the required information is
furnished to the IRS.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
YOU SHOULD CONSULT YOUR OWN TAX ADVISER AS TO PARTICULAR TAX CONSEQUENCES TO YOU
OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND OUR COMMON STOCK,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
32
SELLING SECURITYHOLDERS
We originally issued the notes in a private placement in February 2003.
The notes were resold by the initial purchasers to qualified institutional
buyers within the meaning of Rule 144A under the Securities Act in transactions
exempt from registration under the Securities Act. The notes and the shares of
our class B common stock issuable upon conversion of the notes that may be
offered pursuant to this prospectus will be offered by the selling
securityholders, which includes their transferees, distributees, pledgees or
donees or their successors. The following table sets forth certain information
known to us as of the date of this prospectus concerning the principal amount of
notes beneficially owned by each selling securityholder and the number of shares
of our class B common stock issuable upon conversion of the notes that may be
offered from time to time pursuant to this prospectus.
The number of shares of our class B common stock shown in the table below
assumes conversion of the full amount of notes held by such holder at the
initial conversion rate of 32.3918 shares of class B common stock per $1,000
principal amount of notes. This conversion rate is subject to certain
adjustments. Accordingly, the shares of class B common stock issuable upon
conversion of the notes may increase or decrease from time to time. Under the
terms of the indenture, fractional shares will not be issued upon conversion of
the notes. Cash will be paid in lieu of fractional shares, if any. As of March
31, 2003, we had 145,391,374 shares of our class B common stock outstanding.
Principal Amount Number of
At Maturity of Shares of
Notes Class B
Beneficially Percentage of Common Stock
Owned That May Notes That May Be
Name Be Sold Outstanding Sold
------------------------------------------------------ ----------------- ----------------- -----------------
AIG DKR SoundShore Opportunity Holding Fund Ltd. 2,000,000 * 64,783
Akela Capital Master Fund, Ltd. 5,000,000 * 161,959
Alpine Associates 4,200,000 * 136,045
Alpine Partners, L.P. 500,000 * 16,195
Amaranth LLC 26,138,000 4.55% 846,657
BNP Paribas Equity Strategies, SNC 2,480,000 * 80,331
BP Amoco PLC Master Trust 482,000 * 15,612
CALAMOS Convertible Growth and Income Fund - CALAMOS 4,000,000 * 129,567
Investment Trust
CALAMOS Market Neutral Fund - CALAMOS Investment 4,000,000 * 129,567
Trust
CooperNeff Convertible Strategies (Cayman) Master 1,696,000 * 54,936
Fund, L.P.
Chrysler Corporation Master Retirement Trust 2,900,000 * 93,936
Credit Suisse First Boston LLC 2,050,000 * 66,403
Delta Air Lines Master Trust (c/o Oaktree Capital 1,060,000 * 34,335
Management, LLC)
Delta Pilots D & S Trust (c/o Oaktree Capital 520,000 * 16,843
Management, LLC)
Dodeca Fund, L.P. 2,000,000 * 64,783
Fore Convertible Masterfund Ltd. 9,000,000 1.57% 291,526
Gainer Investor Holdings Ltd. 500,000 * 16,195
Grace Convertible Arbitrage Fund, Ltd. 2,000,000 * 64,783
Guggenheim Portfolio Co. XV, LLC 1,000,000 * 32,391
Highbridge International LLC 37,500,000 6.52% 1,214,692
33
Principal Amount Number of
At Maturity of Shares of
Notes Class B
Beneficially Percentage of Common Stock
Owned That May Notes That May Be
Name Be Sold Outstanding Sold
------------------------------------------------------ ----------------- ----------------- -----------------
Hotel Union and Hotel Industry of Hawaii Pension Plan 214,000 * 6,931
HSBC Trustee, Zola Managed Trust 300,000 * 9,717
Jefferies and Company Inc. 9,000 * 291
Lyxor Master Fund c/o Zola Capital Management 1,500,000 * 48,587
McMahan Securities Co. L.P. 3,500,000 * 113,371
Microsoft Corporation 1,480,000 * 47,939
MLQA Convertible Securities Arbitrage, Ltd 8,000,000 1.39% 259,134
Motion Picture Industry Health Plan - Active Member 265,000 * 8,583
Fund
Motion Picture Industry Health Plan - Retiree Member 165,000 * 5,344
Fund
Nicholas Applegate Capital Management 25,000 * 809
OCM Convertible Trust 2,665,000 * 86,324
Partner Reinsurance Company Ltd. 860,000 * 27,856
Pioneer High Yield Fund 81,750,000 14.22% 2,648,030
Qwest Occupational Health Trust 290,000 * 9,393
RAM Trading LTD. 5,000,000 * 161,959
Ramius Capital Group 500,000 * 16,195
Ramius Partners II, LP 200,000 * 6,478
RCG Halifax Master Fund, Ltd. 750,000 * 24,293
RCG Latitude Master Fund, Ltd. 4,325,000 * 140,094
RCG Multi Strategy A/C, LP 4,325,000 * 140,094
RCG Multi Strategy Master Fund, Ltd 400,000 * 12,956
Royal Bank of Canada 14,000,000 2.43% 453,485
Sage Capital 3,000,000 * 97,175
SG Cowen Securities - Convertible Arbitrage 2,000,000 * 64,783
Sphinx Convertible Arb Fund SPC 157,000 * 5,085
State Employees' Retirement Fund of the State of 1,135,000 * 36,764
Delaware
Sturgeon Limited 324,000 * 10,494
Sunrise Partners Limited Partnership 14,612,000 2.54% 473,309
TD Securities (USA) Inc. 10,000,000 1.74% 323,918
Vanguard Convertible Securities Fund, Inc. 6,160,000 1.07% 199,533
Viacom Inc. Pension Plan Master Trust 17,000 * 550
Wachovia Securities Inc. 1,000,000 * 32,391
Wachovia Securities International Ltd. 15,000,000 2.61% 485,877
Wake Forest Convertible Arb 225,000 * 7,288
Whitebox Convertible Arbitrage Partners, LP 7,500,000 1.30% 242,938
Xavex Convertible Arbitrage #5 500,000 * 16,195
Xavex Convertible Arbitrage 1 Fund 200,000 * 6,478
Zurich Institutional Benchmarks Master Fund Ltd. 1,121,000 * 36,311
----------- ----- ---------
Total 302,500,000 52.61% 9,798,522
=========== ===== =========
34
------------
* Less than 1%
** Based on total notes in the principal amount of $575,000,000 outstanding,
of which $302,500,000 principal amount are registered hereunder.
None of the selling securityholders has had any position, office or other
material relationship with us or our affiliates within the past three years.
The preceding table has been prepared based upon the information known to
us as of the date of this prospectus. Information concerning the selling
securityholders may change from time to time and, if necessary, we will
supplement this prospectus accordingly. We cannot give an estimate as to the
amount of the notes or class B common stock issuable upon conversion of the
notes that will be held by the selling securityholders upon the termination of
this offering because the selling securityholders may offer some or all of their
notes or shares of class B common stock issuable upon conversion of the notes
pursuant to the offering contemplated by this prospectus.
35
PLAN OF DISTRIBUTION
The selling securityholders and their successors, including their
transferees, pledgees or donees or their successors, may sell the notes and our
common stock into which the notes are convertible directly to purchasers or
through underwriters, brokers-dealers or agents, who may receive compensation in
the form of discounts, concessions or commissions from the selling
securityholders or the purchasers. These discounts, concessions or commissions
as to any particular underwriter, broker-dealer or agent may be in excess of
those customary in the types of transactions involved.
The notes and common stock issuable upon conversion of the notes may be
sold in one or more transactions at fixed prices, at prevailing market prices at
the time of sale, at prices related to the prevailing market prices, at varying
prices determined at the time of sale, or at negotiated prices. These sales may
be effected in transactions, which may involve crosses or block transactions:
- on any national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the notes or our
common stock may be listed or quoted at the time of sale;
- in the over-the-counter market;
- otherwise than on these exchanges or systems or in the
over-the-counter market;
- through the writing of options, whether the options are listed on an
options exchange or otherwise; or
- through the settlement of short sales.
In connection with the sale of the notes and common stock issuable upon
conversion of the notes, the selling securityholders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the notes or common stock in the course of hedging
the positions they assume. The selling securityholders also may sell the notes
or common stock issuable upon conversion of the notes, short and deliver these
securities to close out their short positions, or loan or pledge the notes or
common stock to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling securityholders from the sale of the
notes or common stock offered by them will be the purchase price of the notes or
common stock less discounts and commissions, if any. Each of the selling
securityholders reserves the right to accept and, together with their agents
from time to time, to reject, in whole or in part, any proposed purchase of
notes or common stock to be made directly or through agents. We will not receive
any of the proceeds from the sales by selling securityholders.
Our class B common stock is traded on the New York Stock Exchange under
the symbol "FCX." The notes sold pursuant to this prospectus will no longer be
eligible for trading on The PORTAL Market. We do not intend to list the notes
for trading on any national securities exchange or on the New York Stock
Exchange and can give no assurance about the development of any trading market
for the notes.
In order to comply with the securities laws of some states, if applicable,
the notes and common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in some states the notes
and common stock may not be sold unless they have been registered or qualified
for sale or an exemption from registration or qualification requirements is
available and is complied with.
The selling securityholders and any underwriters, broker-dealers or agents
that participate in the sale of the notes and common stock may be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling securityholders who are "underwriters" within the meaning of Section
2(11) of the Securities Act of 1933 will be subject to the prospectus delivery
requirements of the Securities Act of 1933. The selling securityholders have
acknowledged that they understand their obligations to
36
comply with the provisions of the Securities Exchange Act of 1934 and the rules
thereunder relating to stock manipulation, particularly Regulation M.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act of 1933 may be sold
under Rule 144 or Rule 144A rather than under this prospectus. A selling
securityholder may not sell any notes or common stock described in this
prospectus and may not transfer, devise or gift these securities by other means
not described in this prospectus.
To the extent required, the specific notes or shares of our common stock
to be sold, the names of the selling securityholders, the respective purchase
prices and public offering prices, the names of any agent, dealer or
underwriter, and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying prospectus supplement or,
if appropriate, a post-effective amendment to the registration statement of
which this prospectus is a part.
We entered into a registration rights agreement for the benefit of holders
of the notes to register their notes and our common stock under applicable
federal and state securities laws under specific circumstances and at specific
times. The registration rights agreement provides for cross-indemnification of
the selling securityholders and us and our respective directors, officers and
controlling persons against specific liabilities in connection with the offer
and sale of the notes and our common stock, including liabilities under the
Securities Act of 1933.
We have agreed to pay substantially all of the expenses of registering the
notes and common stock under the Securities Act of 1933 and of compliance with
blue sky laws, including registration and filing fees, printing and duplicating
expenses, legal fees of our counsel, fees for one legal counsel retained by the
selling securityholders and fees of the trustee under the indenture pursuant to
which we originally issued the notes and of the registrar and transfer agent of
our common stock. If the notes or the common stock into which the notes may be
converted are sold through underwriters or broker-dealers, the selling
securityholders will be responsible for underwriting discounts, underwriting
commissions and agent commissions.
Under the registration rights agreement, we are obligated to use
reasonable efforts to keep the registration statement effective until, and
therefore this offering will terminate on, the earlier of: (1) the date on which
all securities offered under this prospectus have been sold pursuant to this
prospectus, and (2) the date on which all outstanding securities held by
non-affiliates of ours may be resold without registration under the Securities
Act of 1933 pursuant to Rule 144(k) under the Securities Act of 1933.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us
by Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.
INDEPENDENT AUDITORS
Our audited financial statements as of December 31, 2002 and for year
ended December 31, 2002 included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2002 have been incorporated by reference herein
on reliance upon the report of Ernst & Young LLP, independent public
accountants, and upon authority of said firm as experts in accounting and
auditing.
Our consolidated financial statements as of December 31, 2001 and for each
of the years in the two-year period ended December 31, 2001 included in our
Annual Report on Form 10-K for the year ended December 31, 2002 have been
audited by Arthur Andersen LLP, independent public accountants, as stated in
their reports with respect thereto contained in our annual report on Form 10-K
for the year ended December 31, 2002, and are incorporated by reference in this
prospectus on the authority of Arthur Andersen LLP as experts in giving that
report. Arthur Andersen LLP has not consented to the inclusion of its report in
this prospectus, and we have dispensed with the requirement to file their
consent in reliance on Rule 437a under the Securities Act. Because Arthur
Andersen LLP has not consented to the inclusion of its report in this
prospectus, you will not be able to recover against Arthur Andersen LLP under
Section 11 of the Securities Act for any untrue statement of a material
37
fact contained in the financial statements audited by Arthur Andersen LLP or any
omissions to state a material fact required to be stated therein.
In July 2002, our board of directors, at the recommendation of our audit
committee, approved the appointment of Ernst & Young LLP as our independent
public accountants to audit our financial statements for fiscal year 2002. Ernst
& Young replaced Arthur Andersen LLP, which served as our independent auditors
since 1988. The decision to change auditors was not the result of any
disagreement between Arthur Andersen and us on any matter of accounting
principle or practice, financial statement disclosure or auditing scope or
procedure.
RESERVES
The information regarding our reserves as of December 31, 2002 that is
either included in this prospectus or incorporated by reference to our Annual
Report on Form 10-K for the fiscal year ended December 31, 2002 has been
reviewed and verified by Independent Mining Consultants, Inc. This reserve
information has been included in this prospectus and incorporated by reference
herein on reliance upon the authority of Independent Mining Consultants, Inc. as
experts in mining, geology and reserve determination.
38
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You can read and copy that information at the public
reference room of the SEC at 450 Fifth Street, NW, Washington, D.C. 20549. You
may call the SEC at 1-800-SEC-0330 for more information about the public
reference room. The SEC also maintains an Internet site that contains reports,
proxy and information statements and other information regarding registrants,
like us, that file reports with the SEC electronically. The SEC's Internet
address is http://www.sec.gov.
This prospectus provides you with a general description of the notes and
common stock being registered. This prospectus is part of a registration
statement that we have filed with the SEC. To see more detail, you should read
the exhibits and schedules filed with, or incorporated by reference into, our
registration statement.
Rather than include in this prospectus certain information that has been
included in reports filed with the SEC, we are incorporating this information by
reference, which means that we can disclose important information to you by
referring to those publicly filed documents containing the information. The
information that we incorporate by reference is considered to be part of this
prospectus and future information that we file with the SEC after the date of
this prospectus will automatically update and supersede the information in this
prospectus. We incorporate by reference the documents that we have filed with
the SEC and that we list below and any future filings we make with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until all the securities
offered under this prospectus are sold:
- Annual Report on Form 10-K for the fiscal year ended December 31,
2002 (filed March 27, 2003);
- Our Definitive Proxy Statement, dated March 24, 2003, with respect
to our 2003 Annual Meeting of Stockholders to be held on May 1,
2003; and
- Current Reports on Form 8-K dated January 15, 2003 (filed January
16, 2003), January 16, 2003 (filed January 17, 2003), January 24,
2003 (filed January 29, 2003), January 29, 2003 (filed January 29,
2003), two reports dated February 6, 2003 (filed February 6, 2003),
February 11, 2003 (filed February 11, 2003); February 11, 2003
(filed February 25, 2003), March 6, 2003 (filed March 6, 2003),
April 3, 2003 (filed April 3, 2003), April 4, 2003 (filed
April 7, 2003), April 17, 2003 (filed April 17, 2003), April 17,
2003 (filed April 18, 2003) and April 24, 2003 (filed April 24,
2003).
At your request, we will provide you with a free copy of any of these
filings (except for exhibits, unless we specifically incorporate them by
reference into the filing). You may request copies by writing or telephoning us
at:
Freeport-McMoRan Copper & Gold Inc.
1615 Poydras Street
New Orleans, Louisiana 70112
(504) 582-4000
YOU SHOULD RELY ONLY ON INFORMATION THAT WE INCORPORATE BY REFERENCE OR
PROVIDE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU
WITH DIFFERENT INFORMATION.
39
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$575,000,000
[FREEPORT-MCMORAN COPPER & GOLD INC. LOGO]
FREEPORT-MCMORAN COPPER & GOLD INC.
7% CONVERTIBLE SENIOR NOTES DUE 2011 AND THE
COMMON STOCK ISSUABLE UPON CONVERSION OF THE
7% CONVERTIBLE SENIOR NOTES DUE 2011
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PROSPECTUS
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APRIL 30, 2003
================================================================================