Filed Pursuant to Rule 424(b)(3)
Registration No. 333-104563
PROSPECTUS
[FREEPORT-MCMORAN COPPER & GOLD INC. LOGO]
FREEPORT-MCMORAN COPPER & GOLD INC.
OFFER TO EXCHANGE
UP TO $500,000,000 REGISTERED 10 1/8% SENIOR NOTES DUE 2010
FOR
ANY AND ALL OUTSTANDING UNREGISTERED 10 1/8% SENIOR NOTES DUE 2010
---------------------------
We are offering to exchange 10 1/8% senior notes due 2010 that we
have registered under the Securities Act of 1933 (the "exchange notes") for all
outstanding 10 1/8% senior notes due 2010 (the "outstanding notes"). In this
prospectus we refer to the exchange notes and the outstanding notes collectively
as the "notes."
THE EXCHANGE OFFER
- We hereby offer to exchange all outstanding notes that are validly
tendered and not withdrawn for an equal principal amount of exchange
notes which are registered under the Securities Act of 1933.
- The exchange offer will expire at 5:00 p.m., New York City time, on
May 29, 2003, unless extended.
- You may withdraw tenders of your outstanding notes at any time
before the exchange offer expires.
- The exchange notes are substantially identical to the outstanding
notes, except that some of the transfer restrictions and
registration rights relating to the outstanding notes will not apply
to the exchange notes.
- We believe that the exchange of outstanding notes will not be a
taxable event for federal income tax purposes, but you should read
"Certain U.S. Federal Income Tax Considerations" beginning on page
66 for more information.
- We will not receive any proceeds from the exchange offer.
- The outstanding notes are issued on the Luxembourg Stock Exchange.
No public market currently exists for the exchange notes.
Application will be made to list the exchange notes on the
Luxembourg Stock Exchange.
INVESTING IN THE EXCHANGE NOTES INVOLVES RISKS THAT WE DESCRIBE IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 8.
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Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act of 1933. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for outstanding notes where
such outstanding notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. We have agreed that, for a
period of 180 days after the date the exchange offer expires, we will make this
prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
---------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE EXCHANGE NOTES OR PASSED
ON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 2003.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR REPRESENT
ANYTHING TO YOU OTHER THAN THE INFORMATION IN THIS PROSPECTUS. YOU MUST NOT RELY
ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. WE ARE NOT MAKING AN OFFER
TO SELL THE EXCHANGE NOTES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
--------------------
TABLE OF CONTENTS
PAGE
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Cautionary Notice Regarding Forward-Looking Statements................................... ii
Summary.................................................................................. 1
Risk Factors ............................................................................ 8
Selected Historical Consolidated Financial Data.......................................... 17
Ratio of Earnings to Fixed Charges....................................................... 19
Exchange Offer........................................................................... 20
Use of Proceeds.......................................................................... 27
Description of the Exchange Notes........................................................ 28
Certain U.S. Federal Income Tax Considerations........................................... 66
Plan of Distribution..................................................................... 70
Legal Matters............................................................................ 70
Independent Auditors..................................................................... 70
Reserves................................................................................. 71
Where You Can Find More Information...................................................... 72
THIS DOCUMENT INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT US
THAT IS NOT PRINTED IN THIS DOCUMENT BUT IS CONTAINED IN DOCUMENTS FILED WITH
THE SEC. THIS INFORMATION IS AVAILABLE AT THE INTERNET WEB SITE THE SEC
MAINTAINS AT HTTP://WWW.SEC.GOV, AS WELL AS FROM OTHER SOURCES. SEE "WHERE YOU
CAN FIND MORE INFORMATION" ON PAGE 72.
YOU ALSO MAY REQUEST COPIES OF THESE DOCUMENTS FROM US, WITHOUT CHARGE, UPON
WRITTEN OR ORAL REQUEST BY CONTACTING US AT: FREEPORT-MCMORAN COPPER & GOLD
INC., 1615 POYDRAS STREET, NEW ORLEANS, LOUISIANA 70112, ATTENTION: KATHLEEN L.
QUIRK, VICE PRESIDENT AND TREASURER. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE AT LEAST FIVE BUSINESS DAYS PRIOR TO THE
DATE ON WHICH AN INVESTMENT DECISION IS TO BE MADE WITH RESPECT TO THE EXCHANGE
NOTES OFFERED HEREBY AND IN ANY EVENT NO LATER THAN MAY 21, 2003, WHICH IS FIVE
BUSINESS DAYS PRIOR TO THE INITIAL EXPIRATION DATE OF THE EXCHANGE OFFER.
i
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 (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
1
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.
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
SUMMARY OF THE EXCHANGE OFFER
The Initial Offering of
Outstanding Notes.......... We sold the outstanding notes on January 29, 2003 to J.P.
Morgan Securities Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and UBS Warburg LLC. We collectively
refer to those parties in this prospectus as the "Initial
Purchasers." The Initial Purchasers subsequently resold
the outstanding notes to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as
amended, and to non-U.S. Persons within the meaning of
Regulation S under the Securities Act.
Registration Rights
Agreement.................. Simultaneously with the initial sale of the outstanding
notes, we entered into a registration rights agreement for
the exchange offer. In the registration rights agreement,
we agreed, among other things, to use our reasonable best
efforts to complete a registered exchange offer for the
outstanding notes or cause to become effective a shelf
registration statement for resales of the outstanding
notes. The exchange offer is intended to satisfy your
rights under the registration rights agreement. After the
exchange offer is complete, you will no longer be entitled
to any exchange or registration rights with respect to
your outstanding notes.
The Exchange Offer......... We are offering to exchange the exchange notes which have
been registered under the Securities Act for your
outstanding notes. In order to be exchanged, an
outstanding note must be properly tendered and accepted.
All outstanding notes that are validly tendered and not
validly withdrawn will be exchanged. We will issue
exchange notes promptly after the expiration of the
exchange offer.
Resales.................... We believe that the exchange notes issued in the exchange
offer may be offered for resale, resold and otherwise
transferred by you without compliance with the
registration and prospectus delivery provisions of the
Securities Act provided that:
- the exchange notes are being acquired in the
ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution of
the exchange notes issued to you in the exchange
offer; and
- you are not an affiliate of ours.
If any of these conditions are not satisfied and you
transfer any exchange notes issued to you in the exchange
offer without delivering a prospectus meeting the
requirements of the Securities Act or without an exemption
from registration of your exchange notes from these
requirements, you may incur liability under the Securities
Act. We will not assume, nor will we indemnify you against,
any such liability.
Each broker-dealer that is issued exchange notes in the
exchange offer for its own account in exchange for
outstanding notes that were acquired by that broker-dealer
as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with
any resale of the exchange notes. A broker-dealer may use
this prospectus for an offer to resell, resale or other
retransfer of the exchange notes issued to it in the
exchange offer.
3
Expiration Date............ The exchange offer will expire at 5:00 p.m., New York City
time, on May 29, 2003, unless we decide to extend the
expiration date.
Conditions to the Exchange
Offer...................... The exchange offer is subject to customary conditions,
including that it does not violate applicable law or any
applicable interpretation of the staff of the SEC.
Procedures for Tendering
Outstanding Notes.......... If you wish to tender your outstanding notes for exchange
in this exchange offer, you must transmit to the exchange
agent on or before the expiration date either:
- an original or a facsimile of a properly completed and
duly executed copy of the letter of transmittal, which
accompanies this prospectus, together with your
outstanding notes and any other documentation required
by the letter of transmittal, at the address provided
on the cover page of the letter of transmittal; or
- if the outstanding notes you own are held of
record by The Depository Trust Company, or "DTC," in
book-entry form and you are making delivery by
book-entry transfer, a computer-generated message
transmitted by means of the Automated Tender Offer
Program System of DTC, or "ATOP," in which you
acknowledge and agree to be bound by the terms of the
letter of transmittal and which, when received by the
exchange agent, forms a part of a confirmation of
book-entry transfer. As part of the book-entry
transfer, DTC will facilitate the exchange of your
outstanding notes and update your account to reflect
the issuance of the exchange notes to you. ATOP
allows you to electronically transmit your acceptance
of the exchange offer to DTC instead of physically
completing and delivering a letter of transmittal to
the exchange agent.
In addition, you must deliver to the exchange agent on or
before the expiration date:
- if you are effecting delivery by book-entry transfer,
a timely confirmation of book-entry transfer of your
outstanding notes into the account of the exchange
agent at DTC; or
- if necessary, the documents required for compliance
with the guaranteed delivery procedures.
Special Procedures for
Beneficial Owners.......... If you are the beneficial owner of book-entry interests
and your name does not appear on a security position
listing of DTC as the holder of the book-entry interests
or if you are a beneficial owner of outstanding notes that
are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to
tender the book-entry interest or outstanding notes in the
exchange offer, you should contact the person in whose
name your book-entry interests or outstanding notes are
registered promptly and instruct that person to tender on
your behalf.
Withdrawal Rights.......... You may withdraw the tender of your outstanding notes at
any time prior to 5:00 p.m., New York City time on May 29,
2003.
4
Federal Income Tax
Considerations............. We believe that the exchange of outstanding notes will not
be a taxable event for U.S. federal income tax purposes.
Use of Proceeds............ We will not receive any proceeds from the issuance of
exchange notes pursuant to the exchange offer. We will
pay all of our expenses incident to the exchange offer.
Exchange Agent............. The Bank of New York is serving as the exchange agent in
connection with the exchange offer.
5
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The form and terms of the exchange notes are the same as the form
and terms of the outstanding notes, except that the exchange notes will be
registered under the Securities Act. As a result, the exchange notes will not
bear legends restricting their transfer and will not contain the registration
rights and liquidated damages provisions contained in the outstanding notes. The
exchange notes represent the same debt as the outstanding notes. Both the
outstanding notes and the exchange notes are governed by the same indenture.
Unless otherwise required by the context, we use the term "notes" in this
prospectus to refer collectively to the outstanding notes and the exchange
notes. In the following discussion, "we," "us" and "our" refer only to
Freeport-McMoRan Copper & Gold Inc.
Issuer.................... Freeport-McMoRan Copper & Gold Inc.
Securities................ $500 million in aggregate principal amount of 10 1/8% Senior Notes
due 2010.
Maturity.................. February 1, 2010.
Interest Payment
Dates..................... February 1 and August 1 of each year, beginning on August 1, 2003.
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."
Optional
Redemption................ We may redeem the notes, in whole or in part, beginning on
February 1, 2007, at the redemption prices listed under
"Description of the Notes--Optional Redemption."
Before February 1, 2006, we may redeem up to 35% of the notes with
the net cash proceeds from certain equity offerings at the price
listed under "Description of the Notes--Optional Redemption."
In addition, before February 1, 2007, we may redeem the notes, in
whole or in part, at any time at the make-whole redemption price
described in "Description of the Notes--Optional Redemption."
Change of Control......... Upon the occurrence of a change of control, and unless we have
exercised our right to redeem all the notes as described above,
you will have the right to require us to purchase all or a
portion of your notes at a purchase price in cash equal to 101
percent of the principal amount plus accrued and unpaid interest
to the date of purchase. See "Description of the Notes--Change of
Control."
6
Basic Covenants........... The indenture governing the notes contains covenants that will
impose significant restrictions on our business. The restrictions
that these covenants will place on us and our restricted
subsidiaries include limitations on our ability and the ability
of our restricted subsidiaries to:
- incur indebtedness;
- pay dividends or make distributions in respect of our
capital stock or make certain other restricted payments or
investments;
- sell assets, including the capital stock of our restricted
subsidiaries;
- agree to payment restrictions affecting our restricted
subsidiaries;
- consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets;
- incur liens;
- enter into transactions with our affiliates; and
- designate our subsidiaries as unrestricted subsidiaries.
These covenants are subject to important exceptions and
qualifications, which are described under "Description of the
Notes--Certain Covenants."
Listing................... We will apply to list the exchange notes on the
Luxembourg Stock Exchange. The outstanding notes
are listed on the Luxembourg Stock Exchange.
Risk Factors.............. See "Risk Factors" and the other information in this prospectus
for a discussion of the factors you should carefully consider
before deciding to invest in the notes.
Luxembourg Listing
Agent................... The Bank of New York.
Luxembourg Paying
and Transfer Agent...... The Bank of New York.
7
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 THE EXCHANGE OFFER
YOUR NOTES WILL NOT BE ACCEPTED FOR EXCHANGE IF YOU FAIL TO FOLLOW THE EXCHANGE
OFFER PROCEDURES AND, AS A RESULT, YOUR NOTES WILL CONTINUE TO BE SUBJECT TO
EXISTING TRANSFER RESTRICTIONS AND YOU MAY NOT BE ABLE TO SELL YOUR NOTES.
We will not accept your outstanding notes for exchange if you do not
follow the exchange offer procedures. We will issue exchange notes as part of
this exchange offer only after a timely receipt of your outstanding notes, a
properly completed and duly executed letter of transmittal and all other
required documents. Therefore, if you want to tender your outstanding notes,
please allow sufficient time to ensure timely delivery. If we do not receive
your outstanding notes, letter of transmittal and other required documents by
the expiration date of the exchange offer, we will not accept your outstanding
notes for exchange. If there are defects or irregularities with respect to your
tender of outstanding notes, we will not accept such notes for exchange. We are
under no duty to give notification of defects or irregularities with respect to
the tenders of outstanding notes for exchange.
IF YOU DO NOT EXCHANGE YOUR NOTES, YOUR NOTES WILL CONTINUE TO BE SUBJECT TO THE
EXISTING TRANSFER RESTRICTIONS AND YOU MAY NOT BE ABLE TO SELL YOUR NOTES.
We did not register the outstanding notes, nor do we intend to do so
following the exchange offer. Outstanding notes that are not tendered will
therefore continue to be subject to the existing transfer restrictions and may
be transferred only in limited circumstances under the securities laws. If you
do not exchange your outstanding notes, you will lose your right to have such
notes registered under the federal securities laws. As a result, if you hold
outstanding notes after the exchange offer, you may not be able to sell your
outstanding notes.
THE REOFFERING AND RESALE OF THE OUTSTANDING NOTES IS SUBJECT TO SIGNIFICANT
LEGAL RESTRICTIONS.
The outstanding notes have not been registered under the Securities Act of
1933, as amended, or any state securities laws. As a result, holders of
outstanding notes may reoffer or resell outstanding notes only if:
- there is an applicable exemption from the registration requirement
of the Securities Act of 1933 and applicable state laws that applies
to the circumstances of the offer and sale, or
- we file a registration statement and it becomes effective.
RISKS RELATED TO THE NOTES
THERE IS NO PUBLIC MARKET IN THE UNITED STATES FOR THE EXCHANGE NOTES, AND WE
CANNOT ASSURE YOU THAT A MARKET FOR THE EXCHANGE NOTES WILL DEVELOP IN THE
UNITED STATES.
Although the outstanding notes are eligible for trading in the PORTAL
market, the exchange notes will be a new class of securities for which there is
no established public trading market in the United States, 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.
8
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 subsidiaries and/or with us. If a bankruptcy
court substantively consolidated an entity in which we have an interest with our
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.
WE MAY NOT HAVE THE ABILITY TO FINANCE THE CHANGE OF CONTROL REPURCHASE OFFER
REQUIRED BY THE INDENTURE GOVERNING THE NOTES.
Upon certain change of control events, as that term is defined in the
indenture, including a change of control caused by an unsolicited third party,
we will be required to make an offer in cash to repurchase all or any part of
each holder's notes at a price equal to 101 percent of the principal amount
thereof, plus accrued interest. The source of funds for any such repurchase
would be our available cash or cash generated from operations or other sources,
including borrowings, sales of equity or funds provided by a new controlling
person or entity. We cannot assure you that sufficient funds will be available
at the time of any change of control event to repurchase all tendered notes
pursuant to this requirement. Our failure to offer to repurchase notes, or to
repurchase notes tendered, following a change of control will result in a
default under the indenture, which could lead to a cross-default under our bank
credit facilities and under the terms of our other indebtedness. In addition,
our bank credit facilities prohibit us from making any such required
repurchases. Prior to repurchasing the notes upon a change of control event, we
must either repay outstanding indebtedness under our bank credit facilities or
obtain the consent of the lenders under those facilities. If we do not obtain
the required consents or repay our outstanding indebtedness under our bank
credit facilities, we would remain prohibited from offering to repurchase the
notes. For further information, see the section of this prospectus entitled
"Description of the Notes--Repurchase at the Option of Holder."
9
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
contractors. The workers cited employment issues as the reasons for their work
stoppage. In March 1996, local
10
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
11
Contract of Work, which was signed in December 1991. We cannot assure you that
the validity of, or our compliance with the terms of, the Contracts of Work will
not be challenged for political or other reasons. PT Freeport Indonesia's and
Eastern Minerals' Contracts of Work require that disputes with the Indonesian
government be submitted to international arbitration. Notwithstanding the
international arbitration provision, if a dispute arises under the Contracts of
Work, we face the risk of having to submit to the jurisdiction of a foreign
court or having to enforce the judgment of a foreign court or arbitration panel
against Indonesia within its own territory.
In addition, our Contracts of Work permit us to suspend 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, the notes 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
12
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 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
13
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.
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.
14
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.
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 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, our total indebtedness
outstanding would have aggregated approximately $2.8 billion. In addition to
increasing our total indebtedness, the sale of the 7% convertible senior notes
and the outstanding 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.
15
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.
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, including holders
of outstanding notes who participate in the exchange offer, would be unable to
assert a claim against Arthur Andersen under the Securities Act.
16
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected historical financial data for
the years ended December 31, 2002, 2001, 2000, 1999 and 1998, which have been
derived from our audited financial statements. The historical results presented
below are not necessarily indicative of results that you can expect for any
future period. You should read the table in conjunction with the section of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2002 entitled
"Management's Discussion and Analysis," and with our full financial statements
and notes thereto contained in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2002, which are incorporated by reference into this
prospectus. See "Where You Can Find Additional Information."
2002 2001 2000 1999 1998
----------- ---------- ---------- ---------- ----------
(Financial Data in Thousands, Except Per Share Amounts)
CONSOLIDATED FINANCIAL DATA
Years Ended December 31:
Revenues .................................. $ 1,910,462 $1,838,866 $1,868,610 $1,887,328 $1,757,132
Operating income .......................... 640,137 542,926(a) 492,293(b) 578,316(c) 579,585(d)
Net income before cumulative effect of
accounting change ....................... 130,099 76,496(a) 39,500(b) 100,787(c) 118,317(d)
Cumulative effect of accounting change,
net(e) .................................... (3,049) -- -- -- --
Net income applicable to common stock ..... 127,050 76,496(a) 39,500(b) 100,787(c) 118,317(d)
Pro forma net income, assuming
accounting change is applied
retroactively(e) ........................ 130,099 105,243(a) 42,736(b) 105,236(c) 112,665(d)
Basic net income per common share ......... .88 .53(a) .26b .62(c) .67(d)
Diluted net income per common share:
Applicable to common stock .............. .87 .53(a) .26(b) .61(c) .67(d)
Pro forma, assuming accounting change
is applied retroactively(e) ........... .89 .73(a) .28(b) .64(c) .64(d)
Dividends paid per common share ........... -- -- -- -- .20
Basic average shares outstanding .......... 144,649 143,952 153,997 163,613 175,353
Diluted average shares outstanding ........ 146,418 144,938 154,519 164,567 175,354
At December 31:
Property, plant and equipment, net ........ 3,320,561 3,409,687 3,230,564 3,363,291 3,474,451
Total assets .............................. 4,192,193 4,211,929 3,950,741 4,082,916 4,192,634
Long-term debt, including current portion
and short-term borrowings ............. 2,038,390 2,338,600 2,190,025 2,148,259 2,456,793
Redeemable preferred stock ................ 450,003 462,504 475,005 487,507 500,007
Stockholders' equity ...................... 266,826 104,444 37,931 196,880 103,416
----------
a. Includes net charges totaling $7.2 million ($6.1 million to net income or
$0.04 per share) consisting of a net $5.0 million charge primarily for
past service costs for an Atlantic Copper employee benefit plan and a $2.2
million charge for initial funding of a trust established for voluntary
special recognition of tribal communities' traditional land rights in the
PT Freeport Indonesia operations area.
b. Includes net charges totaling $12.4 million ($8.0 million to net income or
$0.05 per share) consisting of $6.0 million for contribution commitments
to support small business development programs within Papua (formerly
Irian Jaya) and $7.9 million for personnel severance costs, partly offset
by a $1.5 million gain for the reversal of stock appreciation rights and
related costs caused by the decline in our common stock price.
c. Includes charges totaling $8.8 million ($5.7 million to net income or
$0.03 per share) consisting of $3.6 million for an early retirement
program, $1.4 million for costs of stock appreciation rights caused by the
increase in our common stock price and $3.8 million primarily for bank
advisory fees.
d. Includes net charges totaling $9.1 million ($4.4 million to net income or
$0.03 per share) associated with the sale of corporate aircraft.
17
e. Effective January 1, 2002, we changed our methodology used in the
determination of depreciation associated with PT Freeport Indonesia's
mining and milling life-of-mine assets. See "Management's Discussion and
Analysis" and Note 1 of "Notes to Consolidated Financial Statements"
contained in our Annual Report on Form 10-K for the year ended December
31, 2002, which is incorporated by reference into this registration
statement.
18
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 fixed
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.
19
EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We and the subsidiary guarantors entered into a registration rights
agreement with the Initial Purchasers in connection with the issuance of the
outstanding notes. The registration rights agreement provides that we will take
the following actions, at our expense, for the benefit of the holders of the
outstanding notes:
- We will use our reasonable best efforts to file the exchange offer
registration statement, of which this prospectus is a part, relating
to the exchange offer. The exchange notes will have terms
substantially identical in all material respects to the outstanding
notes except that the exchange notes will not contain transfer
restrictions.
- We will use our reasonable best efforts to have the exchange offer
registration statement remain effective under the Securities Act
until 180 days after the date of closing of the exchange offer.
- We will keep the exchange offer open for a period of not less than
the minimum period required under applicable federal and state
securities laws to consummate the exchange offer; provided, however,
that in no event shall such period be less than 20 days after the
date notice of the exchange offer is mailed to the holders.
We will be required to file a shelf registration statement covering
resales of the outstanding notes if:
- because of any change in law or in currently prevailing
interpretations of the staff of the SEC, we are not permitted to
effect an exchange offer;
- for any reason the exchange offer is not completed on or before
September 29, 2003; or
- any initial purchaser of the notes so requests in connection with
any offering or sale of the notes within 120 days of the completion
of the exchange offer.
Under the registration rights agreement, if the exchange offer is not
completed (or, if required, the shelf registration statement is not declared
effective) on or before September 29, 2003, the annual interest rate borne by
the outstanding notes will be increased by 1.0% per annum until the exchange
offer is completed or the shelf registration statement is declared effective.
Following the consummation of the exchange offer, holders of the
outstanding notes who were eligible to participate in the exchange offer, but
who did not tender their outstanding notes, will not have any further
registration rights and the outstanding notes will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of the market for
the outstanding notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer. We will issue $1,000 principal amount
of exchange notes in exchange for each $1,000 principal amount of outstanding
notes accepted in the exchange offer. Any holder may tender some or all of its
outstanding notes pursuant to the exchange offer. However, outstanding notes may
be tendered only in integral multiples of $1,000.
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The form and terms of the exchange notes are the same as the form and
terms of the outstanding notes except that:
(1) the exchange notes bear a different CUSIP Number from the
outstanding notes;
(2) the exchange notes have been registered under the Securities Act and
hence will not bear legends restricting their transfer; and
(3) the holders of the exchange notes will not be entitled to certain
rights under the registration rights agreement, including additional
registration rights and the provisions providing for liquidated
damages in certain circumstances relating to the timing of the
exchange offer, all of which rights will terminate when the exchange
offer is terminated.
The exchange notes will evidence the same debt as the outstanding notes
and will be entitled to the benefits of the same indenture.
As of the date of this prospectus, $500,000,000 aggregate principal amount
of the outstanding notes were outstanding. We intend to conduct the exchange
offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the SEC thereunder.
We will be deemed to have accepted validly tendered outstanding notes
when, as and if we have given oral or written notice thereof to The Bank of New
York (the "exchange agent"). The exchange agent will act as agent for the
tendering holders for the purpose of receiving the exchange notes from us.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of specified other events set forth in this
prospectus or otherwise, the certificates for any unaccepted outstanding notes
will be returned, without expense, to the tendering holder thereof as promptly
as practicable after the expiration date of the exchange offer.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes pursuant to the exchange offer. We will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection with
the exchange offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" means 5:00 p.m., New York City time, on May 29,
2003, unless we, in our sole discretion, extend the exchange offer, in which
case the term "expiration date" will mean the latest date and time to which the
exchange offer is extended. We reserve the right to extend the exchange offer at
any time and from time to time prior to the expiration date by giving written
notice to the exchange agent and by timely public announcement communicated,
unless otherwise required by applicable law or regulation, by making a press
release. During any extension of the exchange offer, all outstanding notes
previously tendered pursuant to the exchange offer will remain subject to the
exchange offer.
We reserve the right, in our sole discretion, (1) to delay accepting any
outstanding notes, to extend the exchange offer or to terminate the exchange
offer if any of the conditions set forth below under "--Conditions" have not
been satisfied, or (2) to amend the terms of the exchange offer in any manner.
If any such termination or amendment occurs, we will notify the exchange agent
in writing and will either issue a press release or give written notice to the
holders of the outstanding notes as promptly as practicable.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from their date of issuance. Holders
of outstanding notes that are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the date of issuance of the
exchange notes. Such interest will be paid with the first interest payment on
the exchange notes on August 1, 2003.
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Interest on the outstanding notes accepted for exchange will cease to accrue
upon issuance of the exchange notes. Interest on the exchange notes is payable
semi-annually on each February 1 and August 1, commencing on August 1, 2003.
PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must complete, sign
and date the letter of transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the letter of transmittal or transmit an
agent's message in connection with a book-entry transfer, and mail or otherwise
deliver the letter of transmittal or the facsimile, together with the
outstanding notes and any other required documents, to the exchange agent prior
to 5:00 p.m., New York City time, on the expiration date. To be tendered
effectively, the outstanding notes, letter of transmittal or an agent's message
and other required documents must be completed and received by the exchange
agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m.,
New York City time, on the expiration date. Delivery of the outstanding notes
may be made by book-entry transfer in accordance with the procedures described
below. Confirmation of the book-entry transfer must be received by the exchange
agent prior to the expiration date.
The term "agent's message" means a message, transmitted by a book-entry
transfer facility to, and received by, the exchange agent forming a part of a
confirmation of a book-entry, which states that the book-entry transfer facility
has received an express acknowledgment from the participant in the book-entry
transfer facility tendering the outstanding notes that the participant has
received and agrees: (1) to participate in ATOP; (2) to be bound by the terms of
the letter of transmittal; and (3) that we may enforce the agreement against the
participant.
To participate in the exchange offer, each holder will be required to
furnish to us a written representation to the effect that:
- it is not an affiliate of ours,
- it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the exchange notes to be issued in the exchange
offer,
- it is acquiring the exchange notes in its ordinary course of
business, and
- if such holder is a broker-dealer that will receive exchange notes
for its own account in exchange for outstanding notes that were
acquired as a result of market making activities or other trading
activities, it will deliver a prospectus in connection with any
resale of the exchange notes.
The tender by a holder and our acceptance thereof will constitute
agreement between the holder and us in accordance with the terms and subject to
the conditions set forth in this prospectus and in the letter of transmittal or
agent's message.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL
OR AGENT'S MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT
THE ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD
BE SENT TO US. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member of the Medallion System unless the
outstanding notes tendered pursuant to the letter of transmittal are
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tendered (1) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions" on the
letter of transmittal or (2) for the account of a member firm of the Medallion
System. In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, the guarantee
must be by a member firm of the Medallion System.
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes listed in this prospectus, the
outstanding notes must be endorsed or accompanied by a properly completed bond
power, signed by the registered holder as the registered holder's name appears
on the outstanding notes with the signature thereon guaranteed by a member firm
of the Medallion System.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, the person signing should so indicate when signing, and evidence
satisfactory to us of its authority to so act must be submitted with the letter
of transmittal.
We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts with respect to the
outstanding notes at DTC for the purpose of facilitating the exchange offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of outstanding notes by
causing DTC to transfer the outstanding notes into the exchange agent's account
with respect to the outstanding notes in accordance with DTC's procedures for
the transfer. Although delivery of the outstanding notes may be effected through
book-entry transfer into the exchange agent's account at DTC, unless an agent's
message is received by the exchange agent in compliance with ATOP, an
appropriate letter of transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the exchange agent at its address
set forth below on or prior to the expiration date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under the procedures. Delivery of documents to DTC does not constitute
delivery to the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered outstanding notes and withdrawal of tendered
outstanding notes will be determined by us in our sole discretion, which
determination will be final and binding. We reserve the absolute right to reject
any and all outstanding notes not properly tendered or any outstanding notes our
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right in our sole discretion to waive any defects, irregularities or
conditions of tender as to particular outstanding notes. Our interpretation of
the terms and conditions of the exchange offer, including the instructions in
the letter of transmittal, will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of outstanding
notes must be cured within the time we determine. Although we intend to notify
holders of defects or irregularities with respect to tenders of outstanding
notes, neither we, the exchange agent nor any other person will incur any
liability for failure to give the notification. Tenders of outstanding notes
will not be deemed to have been made until the defects or irregularities have
been cured or waived. Any outstanding notes received by the exchange agent that
are not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the exchange agent to the tendering
holders, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their outstanding notes and (1) whose
outstanding notes are not immediately available, (2) who cannot deliver their
outstanding notes, the letter of transmittal or any other required documents to
the exchange agent or (3) who cannot complete the procedures for book-entry
transfer, prior to the expiration date, may effect a tender if:
(A) the tender is made through a member firm of the Medallion System;
(B) prior to the expiration date, the exchange agent receives from a
member firm of the Medallion System a properly completed and duly
executed Notice of Guaranteed Delivery by facsimile transmission,
mail or hand delivery setting forth the name and address of the
holder, the certificate
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number(s) of the outstanding notes and the principal amount of
outstanding notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange
trading days after the expiration date, the letter of transmittal or
facsimile thereof together with the certificate(s) representing the
outstanding notes or a confirmation of book-entry transfer of the
outstanding notes into the exchange agent's account at DTC, and any
other documents required by the letter of transmittal will be
deposited by the member firm of the Medallion System with the
exchange agent; and
(C) the properly completed and executed letter of transmittal or
facsimile thereof, as well as the certificate(s) representing all
tendered outstanding notes in proper form for transfer or a
confirmation of book-entry transfer of the outstanding notes into
the exchange agent's account at DTC, and all other documents
required by the letter of transmittal are received by the exchange
agent within three New York Stock Exchange trading days after the
expiration date.
Upon request to the exchange agent, a Notice of Guaranteed Delivery will be sent
to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of outstanding
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date.
To withdraw a tender of outstanding notes in the exchange offer, a
telegram, telex, letter or facsimile transmission notice of withdrawal must be
received by the exchange agent at its address set forth in this prospectus prior
to 5:00 p.m., New York City time, on the expiration date of the exchange offer.
Any notice of withdrawal must:
(1) specify the name of the person having deposited the outstanding
notes to be withdrawn;
(2) identify the outstanding notes to be withdrawn, including the
certificate number(s) and principal amount of the outstanding notes,
or, in the case of outstanding notes transferred by book-entry
transfer, the name and number of the account at DTC to be credited;
(3) be signed by the holder in the same manner as the original signature
on the letter of transmittal by which the outstanding notes were
tendered, including any required signature guarantees, or be
accompanied by documents of transfer sufficient to have the trustee
with respect to the outstanding notes register the transfer of the
outstanding notes into the name of the person withdrawing the
tender; and
(4) specify the name in which any outstanding notes are to be
registered, if different from that of the person depositing the
outstanding notes to be withdrawn.
All questions as to the validity, form and eligibility, including time of
receipt, of the notices of withdrawal will be determined by us. Our
determination will be final and binding on all parties. Any outstanding notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer and no exchange notes will be issued with respect thereto unless
the outstanding notes so withdrawn are validly retendered. Any outstanding notes
which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to the holder as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn outstanding notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time prior
to the expiration date.
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CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange notes for, any outstanding notes,
and may terminate or amend the exchange offer as provided in this prospectus
before the acceptance of the outstanding notes, if:
(1) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange
offer which, in our sole judgment, might materially impair our
ability to proceed with the exchange offer or any material adverse
development has occurred in any existing action or proceeding with
respect to us or any of our subsidiaries; or
(2) any law, statute, rule, regulation or interpretation by the staff of
the SEC is proposed, adopted or enacted, which, in our sole
judgment, might materially impair our ability to proceed with the
exchange offer or materially impair the contemplated benefits of the
exchange offer to us; or
(3) any governmental approval has not been obtained, which approval we,
in our sole discretion, deem necessary for the consummation of the
exchange offer as contemplated by this prospectus.
If we determine in our sole discretion that any of the conditions are not
satisfied, we may (1) refuse to accept any outstanding notes and return all
tendered outstanding notes to the tendering holders, (2) extend the exchange
offer and retain all outstanding notes tendered prior to the expiration of the
exchange offer, subject, however, to the rights of holders to withdraw the
outstanding notes (see "--Withdrawal of Tenders") or (3) waive the unsatisfied
conditions with respect to the exchange offer and accept all properly tendered
outstanding notes which have not been withdrawn.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal and requests for Notice of
Guaranteed Delivery should be directed to the exchange agent addressed as
follows:
By Overnight Courier or Registered/Certified Mail:
The Bank of New York
Reorganization Unit
101 Barclay Street, 7East
New York, NY 10286
Attn: Mr. Kin Lau
Facsimile Transmission:
(212) 298-1915
For Information Telephone:
(212) 815-3750
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses incurred in connection with these services.
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We will pay the cash expenses to be incurred in connection with the
exchange offer. Such expenses include fees and expenses of the exchange agent
and trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
outstanding notes, which is face value, as reflected in our accounting records
on the date of exchange. Accordingly, we will not recognize any gain or loss for
accounting purposes as a result of the exchange offer. The expenses of the
exchange offer will be deferred and charged to expense over the term of the
exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The outstanding notes that are not exchanged for exchange notes pursuant
to the exchange offer will remain restricted securities. Accordingly, the
outstanding notes may be resold only:
(1) to us upon redemption thereof or otherwise;
(2) so long as the outstanding notes are eligible for resale pursuant to
Rule 144A, to a person inside the United States whom the seller
reasonably believes is a qualified institutional buyer within the
meaning of Rule 144A under the Securities Act in a transaction
meeting the requirements of Rule 144A, or pursuant to another
exemption from the registration requirements of the Securities Act,
which other exemption is based upon an opinion of counsel reasonably
acceptable to us;
(3) outside the United States to a non-U.S. person in a transaction
meeting the requirements of Rule 904 under the Securities Act; or
(4) pursuant to an effective registration statement under the Securities
Act, in each case in accordance with any applicable securities laws
of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of exchange notes, based on interpretations by the
staff of the SEC set forth in no-action letters issued to third parties, we
believe that a holder or other person who receives exchange notes, whether or
not the person is the holder, other than a person that is our affiliate within
the meaning of Rule 405 under the Securities Act, in exchange for outstanding
notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the exchange notes, will be allowed to
resell the exchange notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the exchange notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires exchange notes in the exchange offer for the
purpose of distributing or participating in a distribution of the exchange
notes, the holder cannot rely on the position of the staff of the SEC expressed
in the no-action letters or any similar interpretive letters, and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each broker-dealer that receives exchange notes
for its own account in exchange for outstanding notes, where the outstanding
notes were acquired by the broker-dealer as a result of market-making activities
or other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of the exchange notes.
26
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. The proceeds from the issuance of the exchange notes will be the
outstanding notes.
27
DESCRIPTION OF THE EXCHANGE NOTES
The Company issued the outstanding notes, and will issue the exchange
notes, under an Indenture, dated as of January 29, 2003 (the "Indenture"),
between the Company and The Bank of New York, as Trustee (the "Trustee"). The
Indenture contains provisions which define your rights under the notes. In
addition, the Indenture governs the obligations of the Company under the notes.
The terms of the notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(the "TIA"). For purposes of this section, the term "Company" refers only to
Freeport-McMoRan Copper & Gold Inc. and not to any of its subsidiaries.
The following description is meant to be only a summary of certain
provisions of the Indenture. It does not restate the terms of the Indenture in
their entirety. We urge that you carefully read the Indenture as it, and not
this description, governs your rights as holders of notes ("Holders").
OVERVIEW OF THE NOTES
The notes:
- will be general unsecured obligations of the Company;
- will rank equally in right of payment with all existing and future
Senior Indebtedness of the Company;
- will be senior in right of payment to any future Subordinated
Obligations of the Company;
- will be effectively subordinated to all Secured Indebtedness of the
Company and its Subsidiaries to the extent of the value of the
assets securing such Indebtedness; and
- will be effectively subordinated to all liabilities (including Trade
Payables) and Preferred Stock of each Subsidiary of the Company.
PRINCIPAL, MATURITY AND INTEREST
We issued the outstanding notes in an aggregate principal amount of $500
million. The notes will mature on February 1, 2010. We issued the outstanding
notes, and will issue the exchange notes, in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000.
Each note we issue will bear interest at a rate of 10 1/8% per annum
beginning on January 29, 2003 or from the most recent date to which interest has
been paid or provided for. We will pay interest semiannually to Holders of
record at the close of business on the January 15 or July 15 immediately
preceding the interest payment date on February 1 and August 1 of each year. We
will begin paying interest to Holders on August 1, 2003.
We will also pay additional interest to Holders under certain
circumstances described under the heading "--Registration Rights."
INDENTURE MAY BE USED FOR FUTURE ISSUANCES
We may issue from time to time additional notes having identical terms and
conditions to the notes we are currently offering (the "Additional Notes"). We
will only be permitted to issue such Additional Notes if at the time of such
issuance we are in compliance with the covenants contained in the Indenture. Any
Additional Notes will be part of the same issue as the notes that we are
currently offering and will vote on all matters with such notes.
PAYING AGENT AND REGISTRAR
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We will pay the principal of, premium, if any, and interest (including
additional interest, if any) on the notes at any office of ours or any agency
designated by us which is located in the Borough of Manhattan, The City of New
York. We have initially designated the corporate trust office of the Trustee to
act as the agent of the Company in such matters. The location of the corporate
trust office is 101 Barclay Street, New York, New York 10286. We, however,
reserve the right to pay interest to Holders by check mailed directly to Holders
at their registered addresses.
Holders may exchange or transfer their notes at the same location given in
the preceding paragraph. No service charge will be made for any registration of
transfer or exchange of notes. We, however, may require Holders to pay any
transfer tax or other similar governmental charge payable in connection with any
such transfer or exchange.
OPTIONAL REDEMPTION
Except as set forth in the following two paragraphs, we may not redeem the
notes prior to February 1, 2007. On and after this date, we may redeem the
notes, in whole or in part, at our option, upon not less than 30 nor more than
60 days' prior notice, at the following redemption prices (expressed as
percentages of the principal amount thereof), plus accrued and unpaid interest,
if any (including additional interest, if any), to the redemption date (subject
to the right of Holders of record on the relevant record date to receive
interest (including additional interest, if any) due on the relevant interest
payment date), if redeemed during the 12-month period commencing on February 1
of the years set forth below:
REDEMPTION
YEAR PRICE
---- ----------
2007 105.063%
2008 102.532%
2009 and thereafter 100.000%
At any time prior to February 1, 2007, the notes may be redeemed, in whole
or in part, at our option, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at a
redemption price equal to the greater of (i) 100% of the principal amount
thereof plus accrued and unpaid interest, if any (including additional interest,
if any), to the redemption date and (ii) the sum of (x) the present values of
the remaining scheduled payments of principal and interest thereon from the
redemption date to the maturity date (except for currently accrued but unpaid
interest) discounted to the redemption date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate plus 30
basis points and (y) accrued and unpaid interest, if any (including additional
interest, if any), to the redemption date.
In addition, prior to February 1, 2006, we may, on one or more occasions,
also redeem up to a maximum of 35% of the original aggregate principal amount of
the notes (calculated giving effect to any issuance of Additional Notes) with
the Net Cash Proceeds of one or more Equity Offerings by the Company, at a
redemption price equal to 110.125% of the principal amount thereof, plus accrued
and unpaid interest, if any (including additional interest, if any), to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that after giving effect to any such redemption:
(1) at least 65% of the original aggregate principal amount of the notes
(calculated giving effect to any issuance of Additional Notes)
remains outstanding; and
(2) any such redemption by the Company must be made within 60 days of
such Equity Offering and must be made in accordance with certain
procedures set forth in the Indenture.
SELECTION
If we partially redeem notes, the Trustee will select the notes to be
redeemed on a pro rata basis, by lot or by such other method as the Trustee in
its sole discretion shall deem to be fair and appropriate, although no note of
$1,000 in original principal amount or less will be redeemed in part. If we
redeem any note in part only, the notice of
29
redemption relating to such note shall state the portion of the principal amount
thereof to be redeemed. A new note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancelation of the original note. On and after the redemption date, interest
will cease to accrue on notes or portions thereof called for redemption so long
as we have deposited with the Paying Agent funds sufficient to pay the principal
of, plus accrued and unpaid interest on, the notes to be redeemed.
RANKING
The notes will be unsecured Senior Indebtedness of the Company, will rank
equally in right of payment with all existing and future Senior Indebtedness of
the Company and will be senior in right of payment to any future Subordinated
Obligations of the Company. The notes also will be effectively subordinated to
all Secured Indebtedness of the Company and its Subsidiaries to the extent of
the value of the assets securing such Indebtedness.
We currently conduct all our operations through our Subsidiaries.
Creditors of such Subsidiaries, including trade creditors, others having claims
against such Subsidiaries, and preferred stockholders (if any) of such
Subsidiaries will have priority with respect to the assets and earnings of such
Subsidiaries over the Company's creditors, including Holders. The notes,
therefore, will be effectively subordinated to the claims of creditors and
preferred stockholders (if any) of the Company's Subsidiaries.
Although the Indenture will limit the Incurrence of Indebtedness by the Company
and the Restricted Subsidiaries and the issuance of Capital Stock by the
Restricted Subsidiaries, such limitation is subject to a number of significant
qualifications. The Company and its Subsidiaries may be able to Incur
substantial amounts of Indebtedness in certain circumstances. Such Indebtedness
may be Senior Indebtedness.
The notes will rank equally in all respects with all other Senior
Indebtedness of the Company. Unsecured Indebtedness is not deemed to be
subordinate or junior to Secured Indebtedness merely because it is unsecured.
LISTING
The outstanding notes are currently listed, and application will be made
to list the exchange notes, on the Luxembourg Stock Exchange. The legal notice
relating to the issuance of the exchange notes and the Certificate of
Incorporation and By-laws of the Company will be registered prior to listing
with the Registrar of the District Court in Luxembourg, where such documents are
available for inspection and where copies thereof can be obtained upon request.
In addition, as long as the notes are listed on the Luxembourg Stock Exchange,
an agent for making payments on, and transfers of, notes will be maintained in
Luxembourg. If the application to list the exchange notes on the Luxembourg
Stock Exchange is approved, the Company will designate The Bank of New York as
its agent for such purposes.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to purchase
all or any part of such Holder's notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest (including
additional interest, if any) to the date of purchase (subject to the right of
Holders of record on the relevant record date to receive interest (including
additional interest, if any) due on the relevant interest payment date);
provided, however, that notwithstanding the occurrence of a Change of Control,
the Company shall not be obligated to purchase the notes pursuant to this
section in the event that it has exercised its right to redeem all the notes
under the terms of the section titled "Optional Redemption":
(1) any "person" or "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than the Company or a Subsidiary
of the Company, is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that for
purposes of this clause (1) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more
than 50% of the total voting power of the Voting Stock of the
Company (for the purposes of this clause (1), such person shall be
deemed to beneficially own any
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Voting Stock of an entity held by any other entity (the "parent
entity"), if such person is the beneficial owner (as defined in this
clause (1)), directly or indirectly, of more than 50% of the voting
power of the Voting Stock of such parent entity);
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of the
Company (together with any new directors whose election by such
board of directors of the Company or whose nomination for election
by the shareholders of the Company was approved by a vote of a
majority of the directors of the Company 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 the Company then in office;
(3) the adoption of a plan relating to the liquidation or dissolution of
the Company; or
(4) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or
the sale of all or substantially all the assets of the Company to
another Person, and, in the case of any such merger or
consolidation, the securities of the Company that are outstanding
immediately prior to such transaction and which represent 100% of
the aggregate voting power of the Voting Stock of the Company are
changed into or exchanged for cash, securities or property, unless
pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of
the surviving Person or transferee that represent, immediately after
such transaction, at least a majority of the aggregate voting power
of the Voting Stock of the surviving Person or transferee.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in the
immediately following paragraph but in any event within 30 days following any
Change of Control, the Company shall:
(1) repay in full all Bank Indebtedness or, if doing so will allow
the purchase of notes, offer to repay in full all Bank
Indebtedness and repay the Bank Indebtedness of each lender who
has accepted such offer; or
(2) obtain the requisite consent under the agreements governing the
Bank Indebtedness to permit the repurchase of the notes as
provided for in the immediately following paragraph.
Within 30 days following any Change of Control (except as provided in the
proviso in the first paragraph of this "Change of Control" section), the Company
shall mail a notice to each Holder with a copy to the Trustee (the "Change of
Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase all or a portion of such
Holder's notes at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest
(including additional interest, if any) to the date of purchase
(subject to the right of Holders of record on the relevant record
date to receive interest (including additional interest, if any) on
the relevant interest payment date);
(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
(3) the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
covenant, that a Holder must follow in order to have its notes
purchased.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the
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requirements set forth in the Indenture applicable to a Change of Control Offer
made by the Company and purchases all notes validly tendered and not withdrawn
under such Change of Control Offer.
The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the purchase of notes pursuant to this covenant.
To the extent that the provisions of any securities laws or regulations conflict
with provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the initial purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or recapitalizations, that
would not constitute a Change of Control under the Indenture, but that could
increase the amount of indebtedness outstanding at such time or otherwise affect
the Company's capital structure or credit ratings. Restrictions on the ability
of the Company to Incur additional Indebtedness are contained in the covenants
described under "Certain Covenants--Limitation on Indebtedness," "--Limitation
on Liens" and "--Limitation on Sale/Leaseback Transactions." Such restrictions
can only be waived with the consent of the Holders of a majority in principal
amount of the notes then outstanding. Except for the limitations contained in
such covenants, however, the Indenture will not contain any covenants or
provisions that may afford Holders protection in the event of a highly leveraged
transaction.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may contain prohibitions of certain events which
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased or repaid upon a Change of Control. Moreover, the exercise by the
Holders of their right to require the Company to purchase the notes could cause
a default under such Senior Indebtedness, even if the Change of Control itself
does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the Holders upon a purchase may be
limited by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required purchases. The provisions under the Indenture relative to the Company's
obligation to make an offer to purchase the notes as a result of a Change of
Control may be waived or modified with the written consent of the Holders of a
majority in principal amount of the notes.
CERTAIN COVENANTS
The Indenture will contain covenants including, among others, those
summarized below.
Covenant Suspension. Following the first day (the "Suspension Date") that:
(a) the notes have an Investment Grade Rating from both the Rating
Agencies and
(b) no Default or Event of Default has occurred and is continuing under
the Indenture, the Company and the Restricted Subsidiaries will not be subject
to the following provisions of the Indenture:
- "--Limitation on Indebtedness,"
- "--Limitation on Restricted Payments,"
- "--Limitation on Restrictions on Distributions from Restricted
Subsidiaries,"
- "--Limitation on Sales of Assets and Subsidiary Stock,"
- "--Limitation on Transactions with Affiliates,"
- "--Future Note Guarantors" and
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- "--Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries."
(collectively, the "Suspended Covenants"). In the event that the Company and the
Restricted Subsidiaries are not subject to the Suspended Covenants for any
period of time as a result of the preceding sentence and, on any subsequent
date, (i) a Default or Event of Default (other than as a result of any breach of
the Suspended Covenants) occurs and is continuing or (ii) one or both of the
Rating Agencies withdraws its ratings or downgrades the ratings assigned to the
notes below the required Investment Grade Ratings, then the Company and the
Restricted Subsidiaries will thereafter again be subject to the Suspended
Covenants and compliance with the Suspended Covenants with respect to Restricted
Payments made after the time of such withdrawal, downgrade, Default or Event of
Default will be calculated in accordance with the terms of the covenant
described below under "--Limitation on Restricted Payments" as though, for
purposes of determining whether new Restricted Payments can be made after such
time, such covenant had been in effect during the entire period of time from the
date the notes are issued.
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company or any Restricted Subsidiary that is a Note
Guarantor may Incur Indebtedness if on the date of such Incurrence and after
giving effect thereto the Consolidated Coverage Ratio would be greater than 2:1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Facilities in an
aggregate principal amount not to exceed $1 billion less the
aggregate amount of all prepayments of principal from Asset
Dispositions;
(2) Indebtedness of the Company owed to and held by any Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owed to
and held by the Company or any Restricted Subsidiary;
provided, however, that (A) any subsequent issuance or
transfer of any Capital Stock or any other event that results
in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or a Restricted Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such
Indebtedness by the issuer thereof and (B) if the Company is
the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of
all obligations with respect to the notes;
(3) Indebtedness (A) represented by the notes (not including any
Additional Notes), (B) outstanding on the Closing Date (other
than the Indebtedness described in clauses (1) and (2) above),
(C) consisting of Refinancing Indebtedness Incurred in respect
of any Indebtedness described in this clause (3) (including
Indebtedness that is Refinancing Indebtedness) or the
foregoing paragraph (a) and (D) consisting of Guarantees of
any Indebtedness permitted under clauses (1) and (2) of this
paragraph (b);
(4) Indebtedness (A) in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds
provided by the Company and the Restricted Subsidiaries in the
ordinary course of their business, and (B) under Interest Rate
Agreements, Currency Agreements and Commodity Price Protection
Agreements entered into for bona fide hedging purposes (not
for speculation) of the Company in the ordinary course of
business; provided, however, that such Interest Rate
Agreements do not increase the Indebtedness of the Company
outstanding at any time other than as a result of fluctuations
in interest rates or by reason of fees, indemnities and
compensation payable thereunder;
33
(5) Purchase Money Indebtedness and Capitalized Lease Obligations
(in an aggregate principal amount not in excess of $75 million
at any time outstanding);
(6) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to the foregoing paragraph (a) or any other clause of
this paragraph (b)) in an aggregate principal amount on the
date of Incurrence that, when added to all other Indebtedness
Incurred pursuant to this clause (6) and then outstanding,
will not exceed $30 million; or
(7) with respect to any Restricted Subsidiary that is not a Note
Guarantor, Indebtedness if (A) on the date of such Incurrence
and after giving effect thereto the Consolidated Coverage
Ratio would be greater than 3:1 and (B) proceeds are invested
(i) in Additional Assets (or used to refinance other
Indebtedness the proceeds of which were invested in Additional
Assets after the Closing Date) or (ii) for general corporate
purposes in an amount not to exceed $250,000,000 in the
aggregate for all Indebtedness incurred in reliance on this
clause (7)(b)(ii). Pending the final application of the net
proceeds of the Indebtedness described under this clause (7),
such proceeds may be (A) used to reduce revolving credit
borrowings or (B) otherwise invested in Temporary Cash
Investments.
(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness pursuant to paragraph (b) above if the proceeds thereof
are used, directly or indirectly, to repay, prepay, redeem, defease,
retire, refund or refinance any Subordinated Obligations unless such
Indebtedness will be subordinated to the notes on substantially the
same terms, taken as a whole, as such Subordinated Obligations.
(d) For purposes of determining this covenant:
(1) Indebtedness Incurred pursuant to the Credit Agreement prior
to or on the Closing Date shall be treated as Incurred
pursuant to clause (1) of paragraph (b) above,
(2) Indebtedness permitted by this covenant need not be permitted
solely by reference to one provision permitting such
Indebtedness but may be permitted in part by one such
provision and in part by one or more other provisions of this
covenant permitting such Indebtedness, and
(3) in the event that Indebtedness meets the criteria of more than
one of the types of Indebtedness described in this covenant,
the Company, in its sole discretion, shall classify such
Indebtedness and only be required to include the amount of
such Indebtedness in one of such clauses.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to:
(1) declare or pay any dividend, make any distribution on or in
respect of its Capital Stock or make any similar payment
(including any payment in connection with any merger or
consolidation involving the Company or any Subsidiary of the
Company) to the direct or indirect holders of its Capital
Stock, except (x) dividends or distributions payable solely in
its Capital Stock (other than Disqualified Stock or Preferred
Stock) and (y) dividends or distributions payable to the
Company or a Restricted Subsidiary (and, if such Restricted
Subsidiary has shareholders other than the Company or other
Restricted Subsidiaries, to its other shareholders on a pro
rata basis),
(2) purchase, repurchase, redeem, retire or otherwise acquire for
value any Capital Stock of the Company or any Restricted
Subsidiary held by Persons other than the Company or a
Restricted Subsidiary,
(3) purchase, repurchase, redeem, retire, defease or otherwise
acquire for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment any Subordinated
Obligations
34
(other than the purchase, repurchase, redemption, retirement,
defeasance or other acquisition for value of Subordinated
Obligations acquired in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in
each case due within one year of the date of acquisition), or
(4) make any Investment (other than a Permitted Investment) in any
Person (any such dividend, distribution, payment, purchase,
redemption, repurchase, defeasance, retirement, or other
acquisition or Investment being herein referred to as a
"Restricted Payment") if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(A) a Default will have occurred and be continuing (or would
result therefrom);
(B) the Company could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant
described under "--Limitation on Indebtedness"; or
(C) the aggregate amount of such Restricted Payment and all
other Restricted Payments (the amount so expended, if
other than in cash, to be determined in good faith by
the Board of Directors, whose determination will be
conclusive and evidenced by a resolution of the Board of
Directors) declared or made subsequent to the Closing
Date would exceed the sum, without duplication, of:
(i) 50% of the Consolidated Net Income accrued during
the period (treated as one accounting period) from
the beginning of the fiscal quarter ending
September 30, 2002 to the end of the most recent
fiscal quarter for which financial statements are
available prior to the date of such Restricted
Payment (or, in case such Consolidated Net Income
will be a deficit, minus 100% of such deficit);
(ii) the aggregate Net Cash Proceeds received by the
Company from the issue or sale of its Capital
Stock (other than Disqualified Stock) subsequent
to the Closing Date (other than an issuance or
sale to (x) a Subsidiary of the Company or (y) an
employee stock ownership plan or other trust
established by the Company or any of its
Subsidiaries);
(iii) the amount by which Indebtedness of the Company or
its Restricted Subsidiaries is reduced on the
Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary of the
Company) subsequent to the Closing Date of any
Indebtedness of the Company or its Restricted
Subsidiaries which is convertible or exchangeable
for Capital Stock (other than Disqualified Stock)
of the Company (less the amount of any cash or the
Fair Market Value of other property distributed by
the Company or any Restricted Subsidiary upon such
conversion or exchange); and
(iv) the amount equal to the net reduction in
Investments in Unrestricted Subsidiaries resulting
from (x) payments of dividends, repayments of the
principal of loans or advances or other transfers
of assets to the Company or any Restricted
Subsidiary from Unrestricted Subsidiaries or (y)
the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to
exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments previously
made by the Company or any Restricted Subsidiary
in such Unrestricted Subsidiary, which amount was
included in the calculation of the amount of
Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any purchase, repurchase, redemption, retirement or other
acquisition for value of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the
35
proceeds of the substantially concurrent sale or incurrence
of, Capital Stock of the Company (other than Disqualified
Stock and other than Capital Stock issued or sold to a
Subsidiary of the Company or an employee stock ownership plan
or other trust established by the Company or any of its
Subsidiaries); provided, however, that:
(A) such purchase, repurchase, redemption, retirement or
other acquisition for value will be excluded in the
calculation of the amount of Restricted Payments, and
(B) the Net Cash Proceeds from such sale applied in the
manner set forth in this clause (1) will be excluded
from the calculation of amounts under clause (4)(C)(ii)
of paragraph (a) above;
(2) any prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value of
Subordinated Obligations of the Company made by exchange for,
or out of the proceeds of the substantially concurrent sale or
incurrence of, Indebtedness of the Company that is permitted
to be Incurred pursuant to paragraph (b) of the covenant
described under "--Limitation on Indebtedness"; provided,
however, that such prepayment, repayment, purchase,
repurchase, redemption, retirement, defeasance or other
acquisition for value will be excluded in the calculation of
the amount of Restricted Payments;
(3) any prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value of
Subordinated Obligations from Net Available Cash to the extent
permitted by the covenant described under "--Limitation on
Sales of Assets and Subsidiary Stock"; provided, however, that
such prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value will be
excluded in the calculation of the amount of Restricted
Payments;
(4) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividends would
have complied with this covenant; provided, however, that such
dividends will be included in the calculation of the amount of
Restricted Payments;
(5) any purchase, repurchase, redemption, retirement or other
acquisition for value of shares of, or options to purchase
shares of, common stock of the Company or any of its
Subsidiaries from employees, former employees, directors or
former directors of the Company or any of its Subsidiaries (or
permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of
agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under
which such individuals purchase or sell, or are granted the
option to purchase or sell, shares of such common stock;
provided, however, that the aggregate amount of such
purchases, repurchases, redemptions, retirements and other
acquisitions for value will not exceed $10 million in any
calendar year; provided further, however, that such purchases,
repurchases, redemptions, retirements and other acquisitions
for value shall be excluded in the calculation of the amount
of Restricted Payments;
(6) any declaration and payment of dividends to holders of any
class of Preferred Stock of the Company or any Restricted
Subsidiary; provided, however, that such dividends will be
excluded in the calculation of the amount of Restricted
Payments;
(7) any redemptions or repurchases of Series I Gold-Denominated
Preferred Stock, Series II Gold-Denominated Preferred Stock or
Silver-Denominated Preferred Stock, in each case paid at
maturity, as the same may be extended; provided, however, that
any such redemptions or repurchases of Series I
Gold-Denominated Preferred Stock may also be effected prior to
its maturity so long as such redemption or repurchase occurs
no later
36
than August 1, 2003; provided further, however, that such
redemptions or repurchases will be excluded in the calculation
of the amount of Restricted Payments; or
(8) the PT Freeport Indonesia Guarantee; provided, however, that
an amount equal to such PT Freeport Indonesia Guarantee will
be excluded in the calculation of the amount of Restricted
Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company will not, and will not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
or pay any Indebtedness or other obligations owed to the Company;
(2) make any loans or advances to the Company; or
(3) transfer any of its property or assets to the Company.
The preceding provisions will not prohibit:
(A) any encumbrance or restriction pursuant to applicable law or an
agreement in effect at or entered into on the Closing Date;
(B) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary prior to the date on which
such Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred as consideration in, in contemplation of, or
to provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was otherwise acquired by the Company) and
outstanding on such date;
(C) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (A) or (B) of this covenant or this clause (C)
or contained in any amendment to an agreement referred to in clause
(A) or (B) of this covenant or this clause (C); provided, however,
that the encumbrances and restrictions contained in any such
Refinancing agreement or amendment, taken as a whole, are no less
favorable to the Holders than the encumbrances and restrictions
contained in such predecessor agreements;
(D) in the case of clause (3) above, any encumbrance or restriction
(i) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is
subject to a lease, license or similar contract, or
(ii) contained in security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or
restriction restricts the transfer of the property subject to
such security agreements;
(E) with respect to a Restricted Subsidiary, any restriction imposed
pursuant to an agreement entered into for the sale or disposition of
all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or
disposition; and
(F) customary restrictions in connection with Indebtedness incurred
pursuant to the covenants described under "--Limitation on
Indebtedness" and "--Limitation on Liens"; provided that such
limitations are no more restrictive when taken as a whole than
Sections 6.01(a), 6.05(b) and 6.08(a) of the Credit Agreement as in
effect on the date of the Indenture.
37
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise)
at the time of such Asset Disposition at least equal to the Fair
Market Value of the shares and assets subject to such Asset
Disposition,
(2) at least 85% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash; provided, that
this requirement shall not apply in the case of the sale for noncash
consideration of up to 4.78% of the Capital Stock of PT Freeport
Indonesia relating to the PT Freeport Indonesia Guarantee, and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be)
(A) first, to the extent the Company elects (or is required by the
terms of any Indebtedness), to prepay, repay, purchase,
repurchase, redeem, retire, defease or otherwise acquire for
value amounts payable under or in respect of the Credit
Facilities or Indebtedness (other than obligations in respect
of Preferred Stock) of a Restricted Subsidiary (in each case
other than Indebtedness owed to the Company or an Affiliate of
the Company and other than obligations in respect of
Disqualified Stock) within 180 days after the later of the
date of such Asset Disposition or the receipt of such Net
Available Cash; provided, however, that any such Indebtedness
of the Company has been guaranteed by PT Freeport Indonesia
without its having guaranteed the notes in accordance with the
terms of the Indenture;
(B) second, to the extent of the balance of Net Available Cash
after application in accordance with clause (A), to the extent
the Company or such Restricted Subsidiary elects, to reinvest
in Additional Assets (including by means of an Investment in
Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the Company or another Restricted
Subsidiary) within 180 days from the later of such Asset
Disposition or the receipt of such Net Available Cash;
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to
make an Offer (as defined in paragraph (b) of this covenant
below) to purchase notes pursuant to and subject to the
conditions set forth in paragraph (b) of this covenant;
provided, however, that if the Company elects (or is required
by the terms of any other Senior Indebtedness), such Offer may
be made ratably to purchase the notes and other Senior
Indebtedness of the Company, and
(D) fourth, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A), (B) and
(C), for any general corporate purpose permitted by the terms
of the Indenture;
provided, however that in connection with any prepayment, repayment,
purchase, repurchase, redemption, retirement, defeasance or other
acquisition for value of Indebtedness pursuant to clause (A), (C) or
(D) above, the Company or such Restricted Subsidiary will retire
such Indebtedness and will cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the principal
amount so prepaid, repaid, purchased, repurchased, redeemed,
retired, defeased or otherwise acquired for value; provided further,
however, that the Net Cash Proceeds of the sale of any of the
Capital Stock of PT Freeport Indonesia shall be applied as provided
for under the covenant "--Limitation on the Sale or Issuance of
Capital Stock of Restricted Subsidiaries."
38
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions that is not applied in accordance
with this covenant exceeds $50 million.
For the purposes of this covenant, the following are deemed to be cash:
- the assumption of Indebtedness of the Company (other than
obligations in respect of Disqualified Stock of the Company) or any
Restricted Subsidiary and the release of the Company or such
Restricted Subsidiary from all liability on such Indebtedness in
connection with such Asset Disposition, and
- securities received by the Company or any Restricted Subsidiary from
the transferee that are promptly converted by the Company or such
Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
notes pursuant to clause (a)(3)(C) of this covenant, the Company
will be required (i) to purchase notes tendered pursuant to an offer
by the Company for the notes (the "Offer") at a purchase price of
100% of their principal amount plus accrued and unpaid interest
(including additional interest, if any) to the date of purchase
(subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date)
in accordance with the procedures (including prorating in the event
of oversubscription) set forth in the Indenture and (ii) to purchase
other Senior Indebtedness of the Company on the terms and to the
extent contemplated thereby (provided that in no event shall the
Company offer to purchase such other Senior Indebtedness of the
Company at a purchase price in excess of 100% of its principal
amount (without premium), plus accrued and unpaid interest thereon.
If the aggregate purchase price of notes (and other Senior
Indebtedness) tendered pursuant to the Offer is less than the Net
Available Cash allotted to the purchase of the notes (and other
Senior Indebtedness), the Company will apply the remaining Net
Available Cash in accordance with clause (a)(3)(D) of this covenant.
The Company will not be required to make an Offer for notes (and
other Senior Indebtedness) pursuant to this covenant if the Net
Available Cash available therefor (after application of the proceeds
as provided in clauses (a)(3)(A) and (B)) is less than $10 million
for any particular Asset Disposition (which lesser amount will be
carried forward for purposes of determining whether an Offer is
required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other
securities laws or regulations in connection with the repurchase of
notes pursuant to this covenant. To the extent that the provisions
of any securities laws or regulations conflict with provisions of
this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have
breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
such transaction is on terms:
(1) that are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person
who is not such an Affiliate,
(2) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $15 million,
(A) are set forth in writing, and
39
(B) have been approved by a majority of the members of the Board
of Directors having no personal stake in such Affiliate
Transaction, and
(3) that, in the event such Affiliate Transaction involves an amount in
excess of $30 million, have been determined by a nationally
recognized appraisal or investment banking firm to be fair, from a
financial standpoint, to the Company and its Restricted
Subsidiaries; provided, however, that this clause 3 shall not apply
in the case of any issuance or sale of securities in a public
offering or private placement to any Affiliate of the Company so
long as the majority of such securities are purchased by Persons who
are not Affiliates of the Company and the securities are sold on the
same terms to all purchasers.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any Restricted Payment permitted to be paid pursuant to the
covenant described under "--Limitation on Restricted
Payments,"
(2) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors,
(3) the grant of stock options or similar rights to employees and
directors of the Company pursuant to plans approved by the
Board of Directors,
(4) loans or advances to employees in the ordinary course of
business in accordance with past practices of the Company, but
in any event not to exceed $3 million in the aggregate
outstanding at any one time,
(5) the payment of reasonable fees to directors of the Company and
its Subsidiaries who are not employees of the Company or its
Subsidiaries,
(6) any transaction between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries,
(7) any transaction entered into in connection with the RTZ
Interests (as such term is defined in the Credit Agreement) as
in effect on the Closing Date, or pursuant to the
Participation Agreement (as such term is defined in the Credit
Agreement) as in effect on the Closing Date, in each case
relating to our joint venture arrangements with Rio Tinto plc,
as the same may be amended from time to time, and on terms
that are not disadvantageous to the Holders, or
(8) any transaction pursuant to the Management Services Agreement
as in effect on the date of the Indenture as the same may be
amended from time to time in any manner not materially less
favorable taken as a whole to the Holders of the notes.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except:
(1) to the Company or a Wholly Owned Subsidiary,
(2) if, immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary,
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving
effect thereto would have been permitted to be made under the
covenant described under "--
40
Limitation on Restricted Payments" if made on the date of such
issuance, sale or other disposition (and such Investment shall be
deemed to be an Investment for the purposes of such covenant), or
(4) the Capital Stock of PT Freeport Indonesia; provided, however, that
(i) after giving effect to such transaction the Company shall own at
least 67% of the Capital Stock of PT Freeport Indonesia and (ii) the
Net Cash Proceeds from any such sale of the Capital Stock of PT
Freeport Indonesia (other than any noncash proceeds from the sale of
up to 4.78% of the Capital Stock of PT Freeport Indonesia relating
to the PT Freeport Indonesia Guarantee) shall be used to prepay,
repay, purchase, repurchase, redeem, retire, defease or otherwise
acquire for value Senior Indebtedness, in which case the Company or
such Restricted Subsidiary will retire such Senior Indebtedness and
will cause the related loan commitment (if any) to be permanently
reduced in an amount equal to the principal amount so prepaid,
repaid, purchased, repurchased, redeemed, retired, defeased or
otherwise acquired for value.
Except as provided in clause (4) above, the proceeds of any sale of such Capital
Stock permitted hereby will be treated as Net Available Cash from an Asset
Disposition and must be applied in accordance with the terms of the covenant
described under "--Limitation on Sales of Assets and Subsidiary Stock."
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any of its property or assets (including
Capital Stock of a Restricted Subsidiary), whether owned at the Closing Date or
thereafter acquired, other than Permitted Liens, without effectively providing
that the notes shall be secured equally and ratably with (or prior to) the
obligations so secured for so long as such obligations are so secured; provided,
however, that the Company may Incur other Liens (in addition to Permitted Liens)
to secure Indebtedness as long as the amount of outstanding Indebtedness secured
by Liens Incurred pursuant to this proviso does not exceed 5% of Consolidated
Net Tangible Assets, as determined based on the consolidated balance sheet of
the Company as of the end of the most recent fiscal quarter ending for which
financial statements are available prior thereto.
SEC Reports. The Company will file with the SEC and provide the Trustee
and Holders and prospective Holders (upon request) within 15 days after it files
them with the SEC, copies of its annual report and the information, documents
and other reports that are specified in Sections 13 and 15(d) of the Exchange
Act. The Company also will comply with the other provisions of Section 314(a) of
the TIA.
Future Note Guarantors. The Company will cause each Subsidiary that enters
into a Guarantee of any of the Company's future Indebtedness, other than
Indebtedness outstanding from time to time under the Credit Facilities not in
excess of the amount permitted under clause (1) of subparagraph (b) of the
covenant described under "--Limitation on Indebtedness", to become a Note
Guarantor, and, if applicable, execute and deliver to the Trustee a supplemental
indenture in the form set forth in the Indenture pursuant to which such
Subsidiary will Guarantee payment of the notes. Each Note Guarantee will be
limited to an amount not to exceed the maximum amount that can be Guaranteed by
that Note Guarantor without rendering the Note Guarantee, as it relates to such
Note Guarantor voidable under applicable law relating to fraudulent conveyance
or fraudulent transfer or similar laws affecting the rights of creditors
generally.
Limitation on Sale/Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless:
(1) the Company or such Restricted Subsidiary would be entitled to:
(A) Incur Indebtedness in an amount equal to the Attributable Debt
with respect to such Sale/Leaseback Transaction pursuant to
the covenant described under "--Limitation on Indebtedness,"
and
(B) create a Lien on such property securing such Attributable Debt
without equally and ratably securing the notes pursuant to the
covenant described under "--Limitation on Liens,"
41
(2) the net proceeds received by the Company or such Restricted
Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the Fair Market Value of such property; and
(3) the transfer of such property is permitted by, and the Company
applies the proceeds of such transaction in compliance with, the
covenant described under "--Limitation on Sales of Assets and
Subsidiary Stock."
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") will be a corporation organized and existing under the
laws of the United States of America, any State thereof or the
District of Columbia and the Successor Company (if not the Company)
will expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the notes and the Indenture;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor
Company or any Restricted Subsidiary as a result of such transaction
as having been Incurred by the Successor Company or such Restricted
Subsidiary at the time of such transaction), no Default shall have
occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness
under paragraph (a) of the covenant described under "--Limitation on
Indebtedness";
(4) immediately after giving effect to such transaction, the Successor
Company will have Consolidated Net Worth in an amount which is not
less than the Consolidated Net Worth of the Company immediately
prior to such transaction;
(5) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture
(if any) comply with the Indenture; and
(6) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Holders will not recognize income,
gain or loss for Federal income tax purposes as a result of such
transaction and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such transaction had not occurred.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but the
predecessor Company in the case of a conveyance, transfer or lease of all or
substantially all its assets will not be released from the obligation to pay the
principal of and interest on the notes.
Notwithstanding the foregoing:
(A) any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company,
and
(B) the Company may merge with an Affiliate incorporated solely for the
purpose of reincorporating the Company in another jurisdiction to
realize tax or other benefits.
DEFAULTS
Each of the following is an Event of Default:
42
(1) a default in any payment of interest (including additional interest,
if any) on any note when due and payable continued for 30 days,
(2) a default in the payment of principal of any note when due and
payable at its Stated Maturity, upon required redemption or
repurchase, upon declaration or otherwise,
(3) the failure by the Company or any Restricted Subsidiary to comply
with its obligations under the covenant described under "Merger and
Consolidation" above,
(4) the failure by the Company or any Restricted Subsidiary to comply
for 30 days after notice with any of its obligations under the
covenants described under "Change of Control" or "Certain Covenants"
above (in each case, other than a failure to purchase notes),
(5) the failure by the Company or any Restricted Subsidiary to comply
for 60 days after notice with its other agreements contained in the
notes or the Indenture,
(6) the failure by the Company or any Restricted Subsidiary to pay any
Indebtedness or any interest thereon within any applicable grace
period after final maturity or the acceleration of any such
Indebtedness by the holders thereof because of a default if the
total amount of such Indebtedness unpaid or accelerated exceeds
$10.0 million or its foreign currency equivalent (the "cross
acceleration provision"),
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions"),
or
(8) the rendering of any judgment or decree for the payment of money in
excess of $10.0 million or its foreign currency equivalent against
the Company or a Subsidiary if:
(A) an enforcement proceeding thereon is commenced by any creditor
or
(B) such judgment or decree remains outstanding for a period of 60
days following such judgment and is not discharged, waived or
stayed (the "judgment default provision").
The foregoing will constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
However, a default under clauses (4), (5) or (6) will not constitute an
Event of Default until the Trustee notifies the Company or the Holders of at
least 25% in principal amount of the outstanding notes notify the Company and
the Trustee of the default and the Company or the Restricted Subsidiary, as
applicable, does not cure such default within the time specified in clauses (4),
(5) or (6) hereof after receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding notes by notice to the Company and the Trustee may declare the
principal of and accrued but unpaid interest on all the notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs, the principal of
and interest on all the notes will become immediately due and payable without
any declaration or other act on the part of the Trustee or any Holders. Under
certain circumstances, the Holders of a majority in principal amount of the
outstanding notes may rescind any such acceleration with respect to the notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive
43
payment of principal, premium (if any) or interest when due, no Holder may
pursue any remedy with respect to the Indenture or the notes unless:
(1) such Holder has previously given the Trustee notice that an Event of
Default is continuing,
(2) Holders of at least 25% in principal amount of the outstanding notes
have requested the Trustee in writing to pursue the remedy,
(3) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense,
(4) the Trustee has not complied with such request within 60 days after
the receipt of the request and the offer of security or indemnity,
and
(5) the Holders of a majority in principal amount of the outstanding
notes have not given the Trustee a direction inconsistent with such
request within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding notes will be given the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder or that would involve the Trustee in personal liability.
Prior to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
If a Default occurs and is continuing and is known to the Trustee, the
Trustee must mail to each Holder notice of the Default within the earlier of 90
days after it occurs or 30 days after it is known to a Trust Officer or written
notice of it is received by the Trustee. Except in the case of a Default in the
payment of principal of, premium (if any) or interest on any note (including
payments pursuant to the mandatory redemption provisions of such note), the
Trustee may withhold notice if and so long as a committee of its Trust Officers
in good faith determines that withholding notice is in the interests of the
Holders. In addition, the Company will be required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Company will also be required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Events of Default, their status and what action the
Company is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture or the notes may be amended
with the written consent of the Holders of a majority in principal amount of the
notes then outstanding and any past default or compliance with any provisions
may be waived with the consent of the Holders of a majority in principal amount
of the notes then outstanding. However, without the consent of each Holder of an
outstanding note affected, no amendment may, among other things:
(1) reduce the amount of notes whose Holders must consent to an
amendment,
(2) reduce the rate of or extend the time for payment of interest
(including additional interest, if any) on any note,
(3) reduce the principal of or extend the Stated Maturity of any note,
(4) reduce the premium payable upon the redemption of any note or change
the time at which any note may be redeemed as described under
"Optional Redemption" above,
(5) make any note payable in money other than that stated in the note,
44
(6) impair the right of any Holder to receive payment of principal of,
and interest (including additional interest, if any) on, such
Holder's notes on or after the due dates therefor or to institute
suit for the enforcement of any payment on or with respect to such
Holder's notes, or
(7) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions.
Without the consent of any Holder, the Company and the Trustee may amend
the Indenture or the notes to:
- cure any ambiguity, omission, defect or inconsistency,
- provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture,
- provide for uncertificated notes in addition to or in place of
certificated notes (provided, however, that the uncertificated notes
are issued in registered form for purposes of Section 163(f) of the
Code, or in a manner such that the uncertificated notes are
described in Section 163(f)(2)(B) of the Code),
- add Guarantees with respect to the notes or to secure the notes,
- add to the covenants of the Company for the benefit of the Holders
or to surrender any right or power conferred upon the Company,
- make any change that does not adversely affect the rights of any
Holder, subject to the provisions of the Indenture,
- provide for the issuance of Exchange Notes or Additional Notes, or
- comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA.
The consent of the Holders will not be necessary to approve the particular
form of any proposed amendment. It will be sufficient if such consent approves
the substance of the proposed amendment.
After an amendment becomes effective, the Company is required to mail to
Holders a notice briefly describing such amendment. However, the failure to give
such notice to all Holders, or any defect therein, will not impair or affect the
validity of the amendment.
TRANSFER AND EXCHANGE
A Holder will be able to transfer or exchange notes. Upon any transfer or
exchange, the registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes required by law or permitted by
the Indenture. The Company will not be required to transfer or exchange any note
selected for redemption or to transfer or exchange any note for a period of 15
days prior to a selection of notes to be redeemed. The notes will be issued in
registered form and the Holder will be treated as the owner of such note for all
purposes.
DEFEASANCE
The Company may at any time terminate all its obligations under the notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the notes, to replace mutilated, destroyed, lost or
stolen notes and to maintain a registrar and paying agent in respect of the
notes.
45
In addition, the Company may at any time terminate:
(1) its obligations under "Change of Control" and the covenants
described under "Certain Covenants," and
(2) the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment
default provision described under "Defaults" above and the
limitations contained in clauses (3) and (4) under the first
paragraph of "Merger and Consolidation" above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the notes may not be accelerated because of an
Event of Default specified in clause (4), (6) or (7) (with respect only to
Significant Subsidiaries), (8) (with respect only to Significant Subsidiaries)
under "Defaults" above or because of the failure of the Company to comply with
clause (3) or (4) under the first paragraph of "Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money in
an amount sufficient or U.S. Government Obligations, the principal of and
interest on which will be sufficient, or a combination thereof sufficient, to
pay the principal of, premium (if any) and interest (including additional
interest, if any) on, in respect of the notes to redemption or maturity, as the
case may be, and must comply with certain other conditions, including delivery
to the Trustee of an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the notes.
CONCERNING THE LUXEMBOURG AGENTS
The Bank of New York has been appointed the Luxembourg Listing Agent and
is to be the Luxembourg Paying and Transfer Agent.
NOTICES
As long as the notes are listed on the Luxembourg Stock Exchange, in
addition to any notice required by the Indenture, notices to Holders, including
but not limited to any notices related to the changing of a paying agent or
transfer agent or their specified offices, will be published in a newspaper
having general circulation in Luxembourg (which is currently expected to be the
Luxemburger Wort). If and so long as the notes are listed on any other
securities exchange, notices will also be given in accordance with any
applicable requirements of that securities exchange. Any notice shall be deemed
to have been given on the date of mailing and publication or, if published more
than once, on the date of first publication.
GOVERNING LAW
The Indenture and the notes will be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
46
"Additional Assets" means:
(1) any property or assets (other than Indebtedness and Capital Stock)
to be used by the Company or a Restricted Subsidiary in a Permitted
Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary; provided, however, that:
any such Restricted Subsidiary described in clauses (2) or (3) above
is primarily engaged in a Permitted Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "Certain Covenants--Limitation on
Transactions with Affiliates" and "Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial
owner of shares representing 5% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Voting Stock (whether or not currently exercisable) and any Person
who would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted
Subsidiary),
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary, or
(3) any other assets of the Company or any Restricted Subsidiary outside
of the ordinary course of business of the Company or such Restricted
Subsidiary
other than, in the case of (1), (2) and (3) above,
(A) disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Restricted
Subsidiary,
(B) for purposes of the provisions described under "Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock"
only, a disposition subject to the covenant described under
"Certain Covenants--Limitation on Restricted Payments," and
(C) a disposition of assets with a Fair Market Value of less than
$1,000,000.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as
at the time of determination, the present value (discounted at the interest rate
borne by the notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
47
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal
payment of such Indebtedness or scheduled redemption or similar
payment with respect to such Preferred Stock multiplied by the
amount of such payment by
(2) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement and any Refinancing Indebtedness with respect thereto,
as amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof. It is understood and agreed that Refinancing
Indebtedness in respect of the Credit Agreement may be Incurred from time to
time after termination of the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors of
the Company.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Closing Date" means the date of the Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Price Protection Agreement" means any forward contract,
commodity swap, commodity option or other similar agreement or arrangement
relating to, or the value of which is dependent upon or which is designed to
protect such Person against, fluctuations in commodity prices.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of:
(1) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending prior to the date of such
determination for which financial statements are available, to
(2) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that:
(A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains
outstanding on such date of determination or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio
is an Incurrence of Indebtedness, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving effect on a
pro forma basis to such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period and the discharge of
any other Indebtedness repaid, repurchased, defeased or
48
otherwise discharged with the proceeds of such new Indebtedness as
if such discharge had occurred on the first day of such period,
(B) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other
than Indebtedness Incurred under any revolving credit facility
unless such Indebtedness has been permanently repaid and has not
been replaced) on the date of the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio, EBITDA and
Consolidated Interest Expense for such period shall be calculated on
a pro forma basis as if such discharge had occurred on the first day
of such period and as if the Company or such Restricted Subsidiary
has not earned the interest income actually earned during such
period in respect of cash or Temporary Cash Investments used to
repay, repurchase, defease or otherwise discharge such Indebtedness,
(C) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets that are the subject
of such Asset Disposition for such period or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for
such period and Consolidated Interest Expense for such period shall
be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is
sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to
the extent the Company and its continuing Restricted Subsidiaries
are no longer liable for such Indebtedness after such sale),
(D) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person that becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition
of assets occurring in connection with a transaction causing a
calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and
Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on
the first day of such period, and
(E) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment
pursuant to clause (C) or (D) above if made by the Company or a
Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or
acquisition of assets occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets or other Investment, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of the Company and shall comply with the requirements of Rule
11-02 of Regulation S-X promulgated by the SEC.
If any Indebtedness bears a floating rate of interest and is being given
pro forma effect, the interest expense on such Indebtedness shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term as at the date of determination in excess of 12 months).
49
"Consolidated Current Liabilities" as of the date of determination means
the aggregate amount of liabilities of the Company and its Consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), on a Consolidated basis, after
eliminating:
(1) all intercompany items between the Company and any Restricted
Subsidiary, and
(2) all current maturities of long-term Indebtedness, all as determined
in accordance with GAAP consistently applied.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Consolidated Restricted Subsidiaries, plus, to
the extent Incurred by the Company and its Consolidated Restricted Subsidiaries
in such period but not included in such interest expense, without duplication:
(1) interest expense attributable to Capitalized Lease Obligations and
the interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction,
(2) amortization of debt discount and debt issuance costs,
(3) capitalized interest,
(4) noncash interest expense,
(5) commissions, discounts and other fees and charges attributable to
letters of credit and bankers' acceptance financing,
(6) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by the Company or any
Restricted Subsidiary,
(7) net costs associated with Hedging Obligations (including
amortization of fees),
(8) dividends in respect of all Disqualified Stock of the Company and
all Preferred Stock of any of the Subsidiaries of the Company, to
the extent held by Persons other than the Company or a Restricted
Subsidiary,
(9) interest Incurred in connection with investments in discontinued
operations, and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan
or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or
trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its Consolidated Subsidiaries for such period; provided, however,
that there shall not be included in such Consolidated Net Income:
(1) any net income of any Person (other than the Company) if such Person
is not a Restricted Subsidiary, except that:
(A) subject to the limitations contained in clause (4) below, the
Company's equity in the net income of any such Person for such
period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution made to a
Restricted Subsidiary, to the limitations contained in clause
(3) below) and
(B) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net
Income;
50
(2) any net income (or loss) of any Person acquired by the Company or a
Subsidiary of the Company in a pooling of interests transaction for
any period prior to the date of such acquisition;
(3) any net income (or loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly,
to the Company, provided, however, that Section 6.08(a) under the
Credit Agreement as in effect on the date of the Indenture or any
substantially equivalent provision shall not be deemed to be such a
restriction, except that:
(A) subject to the limitations contained in clause (4) below, the
Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such
period to the Company or another Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a
dividend or other distribution made to another Restricted
Subsidiary, to the limitation contained in this clause) and
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining
such Consolidated Net Income;
(4) any gain (but not loss) realized upon the sale or other disposition
of any asset of the Company or its Consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) that is not
sold or otherwise disposed of in the ordinary course of business and
any gain (but not loss) realized upon the sale or other disposition
of any Capital Stock of any Person;
(5) any extraordinary gain or loss; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purpose of the covenant described
under "Certain Covenants--Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(4)(C)(iv) thereof.
"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a consolidated balance sheet of
the Company and its Consolidated Restricted Subsidiaries, determined on a
Consolidated basis in accordance with GAAP, and after giving effect to purchase
accounting and after deducting therefrom Consolidated Current Liabilities and,
to the extent otherwise included, the amounts of:
(1) minority interests in consolidated Subsidiaries held by Persons
other than the Company or a Restricted Subsidiary;
(2) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by the Board of Directors;
(3) any revaluation or other write-up in book value of assets subsequent
to the Closing Date as a result of a change in the method of
valuation in accordance with GAAP consistently applied;
(4) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks,
trade names, copyrights, licenses, organization or developmental
expenses and other intangible items;
(5) treasury stock;
51
(6) cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of
Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities; and
(7) Investments in and assets of Unrestricted Subsidiaries.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its Restricted Subsidiaries, determined on a
Consolidated basis, as of the end of the most recent fiscal quarter of the
Company prior to the taking of any action for the purpose of which the
determination is being made and for which financial statements are available, as
(1) the par or stated value of all outstanding Capital Stock of the
Company plus
(2) paid-in capital or capital surplus relating to such Capital Stock
plus
(3) any retained earnings or earned surplus less
(A) any accumulated deficit and
(B) any amounts attributable to Disqualified Stock.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
"Credit Agreement" means the amended and restated credit agreement dated
as of October 19, 2001, as amended, restated, supplemented, waived, replaced
(whether or not upon termination, and whether with the original lenders or
otherwise), refinanced, restructured or otherwise modified from time to time,
among the Company, PT Freeport Indonesia, the lenders party thereto, the issuing
banks party thereto, JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as
administrative agent, security agent, JAA security agent and documentation
agent, U.S. Bank Trust National Association, as trustee, and J.P. Morgan
Securities Inc., as arranger (except to the extent that any such amendment,
restatement, supplement, waiver, replacement, refinancing, restructuring or
other modification thereto would be prohibited by the terms of the Indenture,
unless otherwise agreed to by the Holders of at least a majority in aggregate
principal amount of notes at the time outstanding).
"Credit Facilities" means (1) one or more debt facilities (including,
without limitation, the Credit Agreement) or commercial paper facilities, in
each case with banks or other lenders providing for revolving credit loans, term
loans, receivables financing or letters of credit, and (2) any notes, bonds or
other instruments issued and sold in a public offering, Rule 144A, or other
private transaction (together with any related indentures, note purchase
agreements or similar agreements), in each case as to clause (1) and (2), as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreements or other similar agreement or arrangement to
which such Person is a party or of which it is a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
52
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock (excluding Capital Stock convertible or exchangeable solely at
the option of the Company or a Restricted Subsidiary; provided,
however, that any such conversion or exchange shall be deemed an
Incurrence of Indebtedness or Disqualified Stock, as applicable), or
(3) is redeemable at the option of the holder thereof, in whole or in
part,
in the case of each of clauses (1), (2) and (3), on or prior to the first
anniversary of the Stated Maturity of the notes; provided, however, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the first anniversary of the Stated Maturity of the
notes shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are not more favorable to
the holders of such Capital Stock than the provisions of the covenants described
under "Change of Control" and "Certain Covenants--Limitation on Sale of Assets
and Subsidiary Stock."
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus, without duplication, the following to the extent deducted in calculating
such Consolidated Net Income:
(1) income tax expense of the Company and its Consolidated Restricted
Subsidiaries,
(2) Consolidated Interest Expense,
(3) depreciation expense of the Company and its Consolidated Restricted
Subsidiaries,
(4) amortization expense of the Company and its Consolidated Restricted
Subsidiaries (excluding amortization expense attributable to a
prepaid cash item that was paid in a prior period), and
(5) all other noncash charges of the Company and its Consolidated
Restricted Subsidiaries (excluding any such noncash charge to the
extent it represents an accrual of or reserve for cash expenditures
in any future period) less all noncash items of income (other than
accrual of revenue in the ordinary course of business) of the
Company and its Restricted Subsidiaries in each case for such
period.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and noncash charges of, a
Restricted Subsidiary of the Company shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Equity Offering" means a primary offering of Capital Stock other than (i)
Disqualified Stock, (ii) Preferred Stock or (iii) public offerings with respect
to the Company's common stock registered on Form S-8.
"Escrow Funds" means with respect to any Indebtedness issued in accordance
with the covenant described under "Certain Covenants--Limitation on
Indebtedness" funds in an amount not to exceed the sum of the regularly
scheduled interest payments due during the initial three years after the
issuance of such Indebtedness and from the
53
proceeds of such Indebtedness, which funds shall be placed in an interest
reserve escrow account in connection with the issuance of, and to secure the
obligations under, such Indebtedness.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company that
is not organized or domesticated under the laws of the United States of America
or any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting Standards
Board,
(3) such other statements by such other entities as approved by a
significant segment of the accounting profession, and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in
periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the
accounting staff of the SEC.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP.
"Governmental Authority" means the government of the United States of
America or the Republic of Indonesia, as the case may be, any other nation or
any political subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by
agreement to keep-well, to purchase assets, goods, securities or
services, to take-or-pay, or to maintain financial statement
conditions or otherwise), or
(2) entered into for the primary purpose of assuring in any other manner
the obligee of such Indebtedness or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof
(in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement, Currency Agreement or Commodity Price
Protection Agreement entered into in the ordinary course of business and not for
speculation.
54
"Holder" means the Person in whose name a note is registered on the
Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination, without duplication:
(1) the principal of and premium (if any) in respect of indebtedness of
such Person for borrowed money;
(2) the principal of and premium (if any) in respect of obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments;
(3) all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with
respect thereto);
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables),
which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title
thereto or the completion of such services;
(5) all Capitalized Lease Obligations and all Attributable Debt of such
Person;
(6) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock
or, with respect to any Subsidiary of such Person, any Preferred
Stock (but excluding, in each case, any accrued dividends);
(7) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of Indebtedness of such
Person shall be the lesser of:
(A) the Fair Market Value of such asset at such date of
determination and
(B) the amount of such Indebtedness of such other Persons;
(8) Hedging Obligations of such Person; and
(9) all obligations of the type referred to in clauses (1) through (8)
of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise,
including by means of any Guarantee.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement to which such Person is party or of which it is a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
55
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "Certain
Covenants--Limitation on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market
Value of the net assets of any Subsidiary of the Company at the time
that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to
have a permanent "Investment" in an Unrestricted Subsidiary in an
amount (if positive) equal to:
(A) the Company's "Investment" in such Subsidiary at the time of
such redesignation less
(B) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the Fair Market Value of the net assets of
such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its Fair Market Value at the time of such transfer.
"Investment Grade Rating" means a rating equal to or higher than Baa3 (or
the equivalent) by Moody's and BBB- (or the equivalent) by S&P.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions are not required by law or regulation to be open in the State of
New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Local Party" means a Governmental Authority of the Republic of Indonesia
(including a regional Governmental Authority) or an investment vehicle wholly
owned and Controlled by such a Governmental Authority.
"Management Services Agreement" means the management services agreement
dated as of January 1, 1996, between the Company and FM Services Company, as
amended by Amendment No. 1, dated as of September 21, 1999.
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to the properties or assets that are the subject of such
Asset Disposition or received in any other noncash form) therefrom, in each case
net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial,
foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition,
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect
to such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law be
repaid out of the proceeds from such Asset Disposition,
56
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition, and
(4) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such
Asset Disposition.
"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock, the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Recourse Obligation" means, at any date, Indebtedness substantially
related to (1) the acquisition of property or assets not owned by the Company or
any of its Subsidiaries as of the date of original issuance of the notes or (2)
the financing of a project involving the acquisition or development of any
property or assets of the Company or any of its Subsidiaries, as to which in the
case of clause (1) or (2) the obligee with respect to such Indebtedness has no
recourse to the general corporate funds or the property or assets, in general,
of the Company or any of its Restricted Subsidiaries.
"Note Guarantee" means each Guarantee of the obligations with respect to
the notes issued by a Subsidiary of the Company pursuant to the terms of the
Indenture.
"Note Guarantor" means any Subsidiary that has issued a Note Guarantee.
"Officer" means the Chairman of the Board, the Chief Executive Officer,
the Chief Financial Officer, the President, any Vice President, the Treasurer or
the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Business" means any business engaged in by the Company or any
Restricted Subsidiary on the Closing Date and any Related Business.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is
a Permitted Business;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Restricted
Subsidiary; provided, however, that such Person's primary business
is a Permitted Business;
(3) Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable
or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade
terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary
course of business;
57
(6) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such
Restricted Subsidiary and not exceeding $3 million in the aggregate
outstanding at any one time;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company
or any Restricted Subsidiary or in satisfaction of judgments;
(8) any Person to the extent such Investment represents the noncash
portion of the consideration received for an Asset Disposition that
was made pursuant to and in compliance with the covenant described
under "Certain Covenants--Limitation on Sale of Assets and
Subsidiary Stock";
(9) Hedging Obligations entered into in the ordinary course of business;
(10) Unrestricted Subsidiaries and other Persons, valued in each case on
the date of such investment, in an aggregate amount not to exceed
$10 million; provided, however, that the primary business of such
Unrestricted Subsidiary or Person is a Permitted Business; and
(11) any Person which is primarily engaged in the business of smelting
concentrate and in which the Company or any Restricted Subsidiary
has, or will have after such Investment, an equity interest;
provided, however, that the aggregate amount of such Investment will
not exceed $25 million per year.
"Permitted Liens" means, with respect to any Person:
(1) pledges or deposits by such Person under worker's compensation laws,
unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for
the payment of Indebtedness) or leases to which such Person is a
party, or deposits to secure public or statutory obligations of such
Person or deposits of cash or United States government bonds to
secure surety or appeal bonds to which such Person is a party, or
deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of
business;
(2) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, in each case for sums not yet due or being
contested in good faith by appropriate proceedings or other Liens
arising out of judgments or awards against such Person with respect
to which such Person shall then be proceeding with an appeal or
other proceedings for review;
(3) Liens for property taxes not yet due or payable or subject to
penalties for non-payment or which are being contested in good faith
by appropriate proceedings;
(4) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person
in the ordinary course of its business; provided, however, that such
letters of credit do not constitute Indebtedness;
(5) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, licenses, rights-of-way,
sewers, electric lines, telegraph and telephone lines and other
similar purposes, or zoning or other restrictions as to the use of
real property or Liens incidental to the conduct of the business of
such Person or to the ownership of its properties which were not
Incurred in connection with Indebtedness and which do not in the
aggregate materially adversely affect the value of said properties
or materially impair their use in the operation of the business of
such Person;
(6) Liens securing Indebtedness Incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to,
property of such Person; provided, however, that the Lien may not
extend to any other property owned by such Person or any of its
Subsidiaries at the time the Lien
58
is Incurred, and the Indebtedness (other than any interest thereon)
secured by the Lien may not be Incurred more than 180 days after the
later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the
property subject to the Lien;
(7) Liens to secure Indebtedness permitted pursuant to clause (b)(1) of
the covenant described under "Certain Covenants--Limitation on
Indebtedness";
(8) Liens existing on the Closing Date;
(9) Liens on property or shares of stock of another Person at the time
such other Person becomes a Subsidiary of such Person; provided,
however, that such Liens are not created, Incurred or assumed in
connection with, or in contemplation of, such other Person becoming
such a Subsidiary; provided further, however, that such Liens do not
extend to any other property owned by such Person or any of its
Subsidiaries;
(10) Liens on property at the time such Person or any of its Subsidiaries
acquires the property, including any acquisition by means of a
merger or consolidation with or into such Person or any Subsidiary
of such Person; provided, however, that such Liens are not created,
Incurred or assumed in connection with, or in contemplation of, such
acquisition; provided further, however, that the Liens do not extend
to any other property owned by such Person or any of its
Subsidiaries;
(11) Liens created in connection with a project financed with, and
created to secure a Non-Recourse Obligation, provided that such
Liens are limited (i) to the property or assets acquired,
constructed or improved with the proceeds of such Non-Recourse
Obligation and (ii) to the Capital Stock of a special purpose
Subsidiary of the Company created to issue or incur such
Non-Recourse Obligation;
(12) Liens arising from or in connection with the conveyance of any
production payment or similar obligation or instrument with respect
to any mineral or natural resource that is not in production on the
date of the Indenture;
(13) Liens to secure Debt incurred in connection with the construction,
installation or financing of pollution control or abatement
facilities or other forms of industrial revenue or development bond
financing, which Liens extend solely to the property which is the
subject thereof;
(14) Liens in favor of governmental bodies to secure progress, advance
and other payments required in connection with the acquisition,
possession or use of any property or assets of the Company;
(15) Liens in favor of customs and revenue authorities or incurred upon
any property or assets in accordance with customary banking practice
to secure any indebtedness incurred in connection with the exporting
of goods to, or between, or the marketing of goods, or the importing
of goods from, foreign countries, which Liens extend only to the
property or asset being so exported or imported;
(16) Liens securing Indebtedness or other obligations of a Subsidiary of
such Person owing to such Person or a Restricted Subsidiary of such
Person;
(17) Liens securing obligations under Hedging Agreements permitted under
the Indenture;
(18) Liens on any Escrow Fund securing only the Indebtedness associated
therewith;
(19) Liens on the Capital Stock of an Unrestricted Subsidiary in order to
secure Indebtedness of such Unrestricted Subsidiary;
(20) Liens securing Indebtedness of a Restricted Subsidiary, other than a
Note Guarantor, permitted pursuant to the covenant described under
"Certain Covenants--Limitation on Indebtedness";
59
(21) RTZ Interests, as such term is defined in the Credit Agreement as in
effect on the Closing Date; and
(22) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred
to in the foregoing clauses (6), (8), (9), (10), (11), (12), (13),
(14) and (15); provided, however, that:
(A) such new Lien shall be limited to all or part of the same
property that secured the original Lien (plus improvements to
or on such property), and
(B) the Indebtedness secured by such Lien at such time is not
increased to any amount greater than the sum of:
(i) the outstanding principal amount or, if greater,
committed amount of the Indebtedness secured by Liens
described under clauses (6), (8), (9), (10), (11), (12),
(13), (14), or (15), at the time the original Lien
became a Permitted Lien under the Indenture, and
(ii) an amount necessary to pay any fees and expenses,
including premiums, related to such Refinancings.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"principal" of a note means the principal of the note plus the premium, if
any, payable on the note which is due or overdue or is to become due at the
relevant time.
"PT Freeport Indonesia Guarantee" means any Guarantee by the Company or
any Restricted Subsidiary of Indebtedness incurred by a third party in
connection with such third party's acquisition of up to 4.78% of the Capital
Stock of PT Freeport Indonesia (the percentage interest acquired in connection
with the Nusamba transactions described elsewhere herein); provided, however,
that (i) such third party is and shall continue to be wholly owned and
Controlled by a Local Party and (ii) any dividends paid on such Capital Stock of
PT Freeport Indonesia acquired by such third party shall be applied to pay the
Indebtedness incurred by such third party in connection with its acquisition of
such Capital Stock until such Indebtedness has been repaid in full.
"Purchase Money Indebtedness" means Indebtedness:
(1) consisting of the deferred purchase price of an asset, conditional
sale obligations, obligations under any title retention agreement
and other purchase money obligations, in each case where the
maturity of such Indebtedness does not exceed the anticipated useful
life of the asset being financed, and
(2) Incurred to finance the acquisition by the Company or a Restricted
Subsidiary of such asset, including additions and improvements;
provided, however, that such Indebtedness is incurred within 180 days after the
acquisition by the Company or such Restricted Subsidiary of such asset.
60
"Rating Agencies" means Moody's and S&P or if S&P or Moody's or both shall
not make a rating on the notes publicly available, a nationally recognized
statistical rating agency or agencies, as the case may be, selected by the
Company (as certified by a resolution of the Board of Directors) which shall be
substituted for S&P or Moody's or both, as the case may be.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, replace, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to
Refinance (including pursuant to any defeasance or discharge mechanism) any
Indebtedness of the Company or any Restricted Subsidiary existing on the Closing
Date or Incurred in compliance with the Indenture (including Indebtedness of the
Company that Refinances Refinancing Indebtedness); provided, however, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced,
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater
than the Average Life of the Indebtedness being refinanced,
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal
amount (or if issued with original issue discount, the aggregate
accreted value) then outstanding, or, if greater, the committed
amount, of the Indebtedness being Refinanced, plus an amount
necessary to pay any fees and expenses, including premiums, related
to such Refinancing, and
(4) if the Indebtedness being Refinanced is subordinated in right of
payment to the notes, such Refinancing Indebtedness is subordinated
in right of payment to the notes on substantially the same terms,
taken as a whole, as the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include:
(A) Indebtedness of a Restricted Subsidiary that Refinances Indebtedness
of the Company, or
(B) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company and the Restricted Subsidiaries on the Closing
Date.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc. or any successor to the rating agency business
thereof.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary whereby
the Company or a Restricted Subsidiary transfers such property to a Person and
the Company or such Restricted Subsidiary leases it from such Person, other than
leases between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
61
"Senior Indebtedness" of the Company means the principal of, premium (if
any) and accrued and unpaid interest on (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization of the Company,
regardless of whether or not a claim for post-filing interest is allowed in such
proceedings), and fees and other amounts owing in respect of, Bank Indebtedness
and all other Indebtedness of the Company whether outstanding on the Closing
Date or thereafter Incurred, unless in the instrument creating or evidencing the
same or pursuant to which the same is outstanding it is provided that such
obligations are subordinated in right of payment to the notes; provided,
however, that Senior Indebtedness of the Company shall not include:
(1) any obligation of the Company to any Subsidiary of the Company;
(2) any liability for Federal, state, local or other taxes owed or owing
by the Company;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness or obligation of the Company (and any accrued and
unpaid interest in respect thereof) that by its terms is subordinate
or junior in any respect to any other Indebtedness or obligation of
the Company, including any Senior Subordinated Indebtedness and any
Subordinated Obligations of the Company;
(5) any obligations with respect to any Capital Stock; or
(6) any Indebtedness Incurred in violation of the Indenture.
"Series I Gold-Denominated Preferred Stock" means the shares of the
Company's Gold-Denominated Preferred Stock mandatorily redeemable in August
2003.
"Series II Gold-Denominated Preferred Stock" means the shares of the
Company's Gold-Denominated Preferred Stock mandatorily redeemable in February
2006.
"Silver-Denominated Preferred Stock" means the shares of the Company's
Silver-Denominated Preferred Stock mandatorily redeemable in February 2006.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Closing Date or thereafter Incurred) that is subordinate or
junior in right of payment to the notes pursuant to a written agreement;
provided, however, that such Indebtedness shall exclude Disqualified Stock.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
Controlled, directly or indirectly, by:
(1) such Person,
(2) such Person and one or more Subsidiaries of such Person, or
(3) one or more Subsidiaries of such Person.
62
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America
or any agency thereof or obligations Guaranteed by the United States
of America or any agency thereof,
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company that is
organized under the laws of the United States of America, any state
thereof or any foreign country recognized by the United States of
America having capital, surplus and undivided profits aggregating in
excess of $250,000,000 (or the foreign currency equivalent thereof)
and whose long-term debt is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities
Act),
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above
entered into with a bank meeting the qualifications described in
clause (2) above,
(4) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than
an Affiliate of the Company) organized and in existence under the
laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time
as of which any investment therein is made of "P-1" (or higher)
according to Moody's or "A-1" (or higher) according to S&P, and
(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at
least "A" by S&P or "A" by Moody's.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the Closing Date.
"Trade Payables" means, with respect to any Person, any accounts payable
or any indebtedness or monetary obligation to trade creditors created, assumed
or Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two Business Days prior to the date
fixed for redemption of the notes (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the period from the redemption date to the maturity date of the notes;
provided, however, that if the period from the redemption date to the maturity
date of the notes is not equal to the constant maturity of a United States
Treasury security for which a weekly average yield is given, the Treasury Rate
shall be obtained by linear interpolation (calculated to the nearest one-twelfth
of a year) from the weekly average yields of United States Treasury securities
for which such yields are given, except that if the period from the redemption
date to the maturity date of the notes is less than one year, the weekly average
yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means:
63
(1) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below,
(2) Atlantic Copper, S.A.,
(3) Freeport-McMoRan Spain Inc., and
(4) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary of the Company) to be
an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that
either:
(A) the Subsidiary to be so designated has total Consolidated assets of
$1,000 or less, or
(B) if such Subsidiary has Consolidated assets greater than $1,000, then
such designation would be permitted under the covenant described
under "Certain Covenants--Limitation on Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation:
(x) the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "Certain
Covenants--Limitation on Indebtedness," and
(y) no Default shall have occurred and be continuing.
Any such designation of a Subsidiary as a Restricted Subsidiary or
Unrestricted Subsidiary by the Board of Directors shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of the resolution of the
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or another Wholly Owned Subsidiary.
REGISTRATION RIGHTS
We entered into a registration rights agreement with the initial
purchasers on the Closing Date. In that agreement, we agreed for the benefit of
the Holders that we will use our reasonable best efforts to file with the SEC
and cause to become effective a registration statement relating to an offer to
exchange the outstanding notes for an issue of SEC-registered notes with terms
identical to the notes (except that the exchange notes will not be subject to
restrictions on transfer or to any increase in annual interest rate as described
below).
When the SEC declares the exchange offer registration statement effective,
we will offer the exchange notes in return for the outstanding notes. The
exchange offer will remain open for at least 20 business days after the
64
date we mail notice of the exchange offer to Holders. For each outstanding note
surrendered to us under the exchange offer, the Holder will receive an exchange
note of equal principal amount. The exchange notes will bear interest from their
date of issuance. Holders of outstanding notes that are accepted for exchange
will receive, in cash, accrued interest thereon to, but not including, the date
of issuance of the exchange notes. Such interest will be paid with the first
interest payment on the exchange notes on August 1, 2003. Interest on the
outstanding notes accepted for exchange will cease to accrue upon issuance of
the exchange notes. Interest on the exchange notes is payable semi-annually on
each February 1 and August 1, commencing on August 1, 2003.
If applicable interpretations of the staff of the SEC do not permit us to
effect the exchange offer, we will use our reasonable best efforts to cause to
become effective a shelf registration statement relating to resales of the
outstanding notes and to keep that shelf registration statement effective until
the expiration of the time period referred to in Rule 144(k) under the
Securities Act, or such shorter period that will terminate when all outstanding
notes covered by the shelf registration statement have been sold. We will, in
the event of such a shelf registration, provide to each Holder copies of a
prospectus, notify each Holder when the shelf registration statement has become
effective and take certain other actions to permit resales of the outstanding
notes. A Holder that sells outstanding notes under the shelf registration
statement generally will be required to be named as a selling security holder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with those sales and will be bound by the provisions of the
registration rights agreement that are applicable to such a Holder (including
certain indemnification obligations).
If the exchange offer is not completed (or, if required, the shelf
registration statement is not declared effective) on or before the date that is
240 days after the Closing Date, the annual interest rate borne by the
outstanding notes will be increased by 1.0% per annum until the exchange offer
is completed or the shelf registration statement is declared effective.
If we effect the exchange offer, we will be entitled to close the exchange
offer 20 business days after its commencement, provided that we have accepted
all outstanding notes validly surrendered in accordance with the terms of the
exchange offer. Outstanding notes not tendered in the exchange offer shall bear
interest at their initial rate and be subject to all the terms and conditions
specified in the Indenture, including transfer restrictions.
In the event of a registered exchange offer, (a) notice will be given to
the Luxembourg Stock Exchange and published in a Luxembourg newspaper announcing
the beginning of the registered exchange offer and, following completion of the
exchange offer, the results of the exchange offer, (b) a Luxembourg exchange
agent, through which all relevant documents with respect to the registered
exchange offer will be made available, will be appointed and (c) the Luxembourg
exchange agent will be able to perform all agency functions to be performed by
any exchange agent, including providing a letter of transmittal and other
relevant documents to Holders, and accepting such documents on behalf of us.
This summary of the provisions of the registration rights agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all of the provisions of the registration rights agreement.
65
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following discussion is a summary of the material United States
federal income tax consequences relevant to the exchange of the outstanding
notes pursuant to this exchange offer and the ownership and disposition of the
exchange notes, but does not purport to be a complete analysis of all potential
tax effects. The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), United States Treasury Regulations issued thereunder,
Internal Revenue Service rulings and pronouncements and judicial decisions now
in effect, all of which are subject to change at any time. Any such change may
be applied retroactively in a manner that could adversely affect a holder of the
notes. This discussion does not address all of the United States federal income
tax consequences that may be relevant to a holder in light of such holder's
particular circumstances or to holders subject to special rules, such as certain
financial institutions, U.S. expatriates, insurance companies, dealers in
securities or currencies, traders in securities, holders whose functional
currency is not the U.S. dollar, tax-exempt organizations and persons holding
the notes as part of a "straddle," "hedge," "conversion transaction" or other
integrated transaction. Moreover, the effect of any applicable state, local or
foreign tax laws is not discussed. The discussion deals only with notes held as
"capital assets" within the meaning of Section 1221 of the Code.
We have not sought and will not seek any rulings from the Internal Revenue
Service (the "IRS") with respect to the matters discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the purchase, ownership or disposition of the notes or that any
such position would not be sustained. If a partnership or other entity taxable
as a partnership holds the notes, the tax treatment of a partner will generally
depend on the status of the partner and the activities of the partnership.
YOU SHOULD CONSULT YOUR TAX ADVISORS AS TO THE PARTICULAR TAX
CONSIDERATIONS TO YOU OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE
NOTES, INCLUDING THE EFFECT AND APPLICABILITY OF LOCAL, STATE OR FOREIGN TAX
LAWS.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of the outstanding notes for the exchange notes in the
exchange offer will not be treated as an "exchange" for federal income tax
purposes, because the exchange notes will not be considered to differ materially
in kind or extent from the outstanding notes. Accordingly, the exchange of
outstanding notes for exchange notes will not be a taxable event to holders for
federal income tax purposes. Moreover, the exchange notes will have the same tax
attributes as the outstanding notes and the same tax consequences to holders as
the outstanding notes have to holders, including without limitation, the same
issue price, adjusted issue price, adjusted tax basis and holding period.
Therefore, references to "notes" apply equally to the exchange notes and the
outstanding notes.
TAX CONSEQUENCE TO U.S. HOLDERS
For purposes of this discussion, a "U.S. Holder" means a holder of a note
that is any of the following:
(i) an individual who is a citizen or resident (as defined in Section
7701(b) of the Code) of the United States for U.S. federal income
tax purposes;
(ii) a corporation (or an entity treated as a corporation) created or
organized in or under the laws of the United States or any state or
the District of Columbia;
(iii) an estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
(iv) a trust if (A) a U.S. court is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the trust
or (B) it has a valid election in effect under applicable Treasury
Regulation to be treated as a U.S. person.
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THE NOTES
Treatment of Interest.
Stated interest on the notes will be taxable to a U.S. Holder as ordinary
income as the interest accrues or is paid (in accordance with the U.S. Holder's
method of tax accounting). Interest income will generally be foreign source
income.
We are obligated to pay additional interest on the notes to the holders
under certain circumstances described under "Description of the Notes -
Registration Rights." We intend to treat the possibility that such payments will
be made as a remote or incidental contingency, within the meaning of the
applicable Treasury Regulations, and therefore, we believe that this possibility
will not affect the determination of the yield to maturity on the notes upon
their issuance. In the unlikely event that an additional amount becomes due on
the notes, we believe U.S. Holders will be taxable on such amount at the time it
accrues or is received (in accordance with the U.S. Holder's method of tax
accounting). As described under "Description of Notes - Change of Control,"
under certain circumstances, the holders of the notes will have the right to
require us to purchase their notes at a price in excess of the aggregate
principal amount, plus accrued interest. We intend to take the position that the
likelihood of any such repurchase is remote and do not intend to treat the
possibility as affecting the yield and maturity of the notes. Our determination
that the possibilities of a repurchase at the option of the Holders on the
repayment of additional interest are remote is binding on each U.S. Holder
unless the holder explicitly discloses to the IRS that its determination is
different than ours in the manner required by the applicable Treasury
Regulations. Our determination is not binding on the IRS, which may take a
different position that could affect the timing of both a U.S. Holder's income
and our deduction with respect to such additional payments and could also affect
the character of any gain or loss on the disposition of the note.
Sale, Exchange or Retirement of a Note.
Each U.S. Holder generally will recognize capital gain or loss upon a
sale, exchange (other than for an exchange note) or retirement of a note
measured by the difference, if any, between (i) the amount of cash and the fair
market value of any property received (except to the extent that the cash or
other property received in respect of a note is attributable to the payment of
accrued interest on the note not previously included in income, which amount
will be taxable as ordinary income) and (ii) the holder's adjusted tax basis in
the note. The gain or loss will be long-term capital gain or loss if the note
has been held for more than one year at the time of the sale, exchange or
retirement. The deductibility of capital losses is subject to limitations.
Prospective investors should be aware that the resale of a note may be
affected by the "market discount" rules of the Code, under which a portion of
any gain realized on the retirement or other disposition of a note by a
subsequent holder that acquires the note at a market discount generally would be
treated as ordinary income to the extent of the market discount that accrues
while that holder holds the note.
BACKUP WITHHOLDING AND INFORMATION REPORTING
We or our designated paying agent will, where required, report to U.S.
Holders and the IRS the amount of any interest paid on the notes 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 U.S. Holder 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, unless:
- The U.S. Holder is a corporation or comes within certain other
exempt categories and when required demonstrates this fact; or
- The U. S. Holder provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the
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backup withholding rules.
The amount of any backup withholding from a payment to a U.S. Holder will
be allowed as a credit against the U.S. Holder's federal income tax liability
and may entitle such holder to a refund, provided that the required information
is furnished to the IRS.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following general discussion is limited to certain U.S. federal income
tax consequences to a purchaser of a note that is a "Non-U.S. Holder." As used
herein, a "Non-U.S. Holder" is a beneficial owner of a note, that, for U.S.
federal income tax purposes, is not a U.S. Holder. For purposes of the
withholding tax discussed below (other than backup withholding), a Non-U.S.
Holder includes a nonresident fiduciary of an estate or trust. For purposes of
the discussion below, interest and gain on the sale, exchange or other
disposition of the notes will be considered to be "U.S. trade or business
income" if such income or gain is:
- effectively connected with the conduct of a U.S. trade or business;
or
- in the case of a treaty resident, attributable to a U.S. permanent
establishment (or, in the case of an individual, a fixed base) in
the United States.
THE NOTES
U.S. Federal Withholding Tax.
The 30% U.S. federal withholding tax (or, if applicable, a lower treaty
rate) will not apply to any payment of principal, interest, or premium made to a
Non-U.S. Holder provided that:
- the Non-U.S. Holder does not actually or constructively own 10% or
more of the total combined voting power of all classes of our stock;
- the Non-U.S. Holder is not a controlled foreign corporation that is
related to us through stock ownership; or
- the Non-U.S. Holder is not a bank whose receipt of interest on the
notes is pursuant to a loan agreement entered into in the ordinary
course of business.
In each case, (a) a Non-U.S. Holder must provide its name and address on
an IRS Form W-8BEN (or successor form), and certify, under penalty of perjury,
that it is not a U.S. Person, or (b) a financial institution holding the notes
on a Non-U.S. Holder's behalf certifies, under penalty of perjury, that it has
received an IRS Form W-8BEN (or successor form) from the beneficial owner and
provides us with a copy.
If you cannot satisfy the requirements described above, payments of
premium and interest made to you will be subject to the 30% U.S. federal
withholding tax, unless you provide us with a properly executed (1) IRS Form
W-8BEN (or successor form) claiming an exemption from (or reduction of)
withholding under the benefit of a tax treaty, or (2) IRS Form W-8ECI (or
successor form) stating that interest paid on the note is not subject to
withholding tax because it is effectively connected with your conduct of a trade
or business in the United States.
Payments of additional interest described under "Description of Notes -
Exchange Offer; Registration Rights," may be subject to United States federal
withholding tax. We intend to withhold tax at a rate of 30% on any payment of
such interest made to the Non-U.S. Holders unless we receive an IRS Form W-8BEN
(or successor form) or an IRS Form W-8ECI (or successor form) from the Non-U.S.
Holder claiming, respectively, that such payments are subject to reduction or
elimination of withholding under an applicable treaty or that such payments are
effectively connected with the holder's conduct of a trade or business in the
United States. If we withhold tax from any payment of additional interest made
to a Non-U.S. Holder and such payment were determined not to be subject to
United States federal tax, a Non-U.S. Holder would be entitled to a refund of
any tax withheld.
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Sale or Exchange of Notes
A non-United States Holder will generally not be subject to United States
federal income tax or withholding tax on gain recognized on the sale, exchange,
redemption, retirement or other disposition of a note. However, a non-United
States Holder may be subject to tax on such gain if such holder is an individual
who was present in the United States for 183 days or more in the taxable year of
the disposition and certain other conditions are met, in which case such holder
may have to pay a United States federal income tax of 30% (or, if applicable, a
lower treaty rate) on such gain.
If interest or gain from a disposition of the notes is effectively
connected with a non-United States Holder's conduct of a United States trade or
business, or if an income tax treaty applies and the non-United States Holder
maintains a United States "permanent establishment" to which the interest or
gain is generally attributable, the non-United States Holder may be subject to
United States federal income tax on the interest or gain on a net basis in the
same manner as if it were a United States Holder. If interest income received
with respect to the notes is taxable on a net basis, the 30% withholding tax
described above will not apply (assuming an appropriate certification is
provided). A foreign corporation that is a holder of a note also may be subject
to a branch profits tax equal to 30% of its effectively connected earnings and
profits for the taxable year, subject to certain adjustments, unless it
qualifies for a lower rate under an applicable income tax treaty. For this
purpose, interest on a note or gain recognized on the disposition of a note will
be included in earnings and profits if the interest or gain is effectively
connected with the conduct by the foreign corporation of a trade or business in
the United States.
Treatment of the Notes for United States Federal Estate Tax Purposes.
Notes held (or treated as held) by an individual who is a Non-U.S. Holder
at the time of his or her death will not be subject to U.S. federal estate tax,
provided that, at the time of death, the Non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all classes
of our stock and payments of interest on such notes would not have been
considered U.S. trade or business income.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
We will, when required, report to the IRS and to each Non-U.S. Holder the
amount of any interest paid on the notes in each calendar year, and the amount
of tax withheld, if any, with respect to such payments.
In general, you will not be subject to information reporting and backup
withholding with respect to payments that we make to you provided that we do not
have actual knowledge that you are a U.S. Person and we have received from you
the statement described above under "U.S. Federal Withholding Tax."
Information reporting requirements and backup withholding generally will
not apply to any payments of the proceeds of the sale of a note effected outside
the U.S. by a foreign office or a foreign broker (as defined in applicable
Treasury regulations). However, unless such broker has documentary evidence in
its records that the beneficial owner is a Non-U.S. Holder and certain other
conditions are met, or the beneficial owner otherwise establishes an exemption,
information reporting (but not backup withholding) will apply to any such
payments effected outside the U.S. by such a broker if it (1) derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the U.S.; (2) is a controlled foreign corporation for U.S. federal
income tax purposes; or (3) is a foreign partnership that, at any time during
its taxable year, has 50% or more of its income or capital interests owned by
U.S. persons or is engaged in the conduct of a U.S. trade or business.
In addition, you will generally not be subject to information reporting
and backup withholding with respect to the proceeds of the sale of a note
effected by the U.S. office of a broker, if the payor receives the statement
described above and does not have actual knowledge that you are a U.S. Person,
or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or credit against your U.S. federal income tax liability provided that
the required information is furnished to the IRS.
69
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes that it acquired as a result of market-making
activities or any other trading activities must acknowledge that it will deliver
a prospectus together with any resale of those exchange notes. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in the resales of such exchange notes. We have agreed that for a
period of up to 180 days after the consummation of the exchange offer, we will
make this prospectus, as amended or supplemented, available to any participating
broker-dealer for use in any such resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers or any other persons. Exchange notes received by broker-dealers
for their own account pursuant to the exchange offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the exchange notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
exchange notes. Any broker-dealer that resells exchange notes may be deemed to
be an "underwriter" within the meaning of the Securities Act, and any profit on
any such resale of exchange notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any participating broker-dealer that requests such documents in
the letter of transmittal.
Prior to the exchange offer, there has not been any public market in the
United States for the outstanding notes. The outstanding notes have not been
registered under the Securities Act and will be subject to restrictions on
transferability to the extent that they are not exchanged for exchange notes by
holders who are entitled to participate in this exchange offer. The holders of
outstanding notes, other than any holder who is our affiliate within the meaning
of Rule 405 under the Securities Act, who are not eligible to participate in the
exchange offer are entitled to certain registration rights, and we are required
to file a shelf registration statement with respect to their outstanding notes.
The exchange notes will constitute a new issue of securities with no established
trading market. We do not intend to list the exchange notes on any national
securities exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. Accordingly, no
assurance can be given that an active public or other market will develop for
the exchange notes or as to the liquidity of the trading market for the exchange
notes. If a trading market does not develop or is not maintained, holders of the
exchange notes may experience difficulty in reselling the exchange notes or may
be unable to sell them at all. If a market for the exchange notes develops, any
such market may be discontinued at any time.
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
70
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 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 in reliance upon the authority of Independent Mining Consultants, Inc. as
experts in mining, geology and reserve determination.
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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 exchange
notes 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.
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$500,000,000
[FREEPORT-MCMORAN COPPER & GOLD INC. LOGO]
FREEPORT-MCMORAN COPPER & GOLD INC.
OFFER TO EXCHANGE
REGISTERED 10 1/8% SENIOR NOTES DUE 2010
FOR ANY AND ALL OUTSTANDING
UNREGISTERED 10 1/8% SENIOR NOTES DUE 2010
PROSPECTUS
APRIL 30, 2003
================================================================================