This Prospectus Supplement is filed under
Rule 424(b)(2) and relates to Registration
Statement No. 33-52503
Subject to Completion, dated July 12, 1994
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 2, 1994)
4,750,080 Depositary Shares
[LOGO] FREEPORT-MCMORAN COPPER & GOLD
Each Initially Representing 0.025 Shares of
Silver-Denominated Preferred Stock
Of the 4,750,080 Depositary Shares (the "Depositary Shares") being
offered, 3,800,000 Depositary Shares initially are being offered in the United
States by the U.S. Underwriters (the "United States Offering") and 950,080
Depositary Shares initially are being offered outside the United States by the
International Managers (the "International Offering" and, together with the
United States Offering, the "Offering"). The initial public offering price
and the underwriting discounts and commissions for the United States Offering
and for the International Offering are identical. See "Underwriting".
Each of the Depositary Shares will initially represent 0.025 shares of
Silver-Denominated Preferred Stock, par value $0.10 per share (the "Silver-
Denominated Preferred Stock"), of Freeport-McMoRan Copper & Gold Inc. (the
"Company" or "FCX"), to be deposited with Mellon Securities Trust Company, as
Depositary, and will entitle the holder to all proportional rights,
preferences and privileges of the Silver-Denominated Preferred Stock
represented thereby. As a result of the annual redemption of
Silver-Denominated Preferred Stock beginning on August 1, 1999 hereinafter
described, the number of shares of Silver-Denominated Preferred Stock
represented by each of the Depositary Shares will decrease in proportion to
the reduction in the Principal Silver Balance (as defined herein; initially
four ounces per Depositary Share). The Silver-Denominated Preferred Stock
will rank, as to payment of dividends, upon redemption and as to distribution
upon liquidation, pari passu with the Company's Gold-Denominated Preferred
Stock; Gold-Denominated Preferred Stock, Series II; 7% Convertible
Exchangeable Special Preference Stock and Step-Up Convertible Preferred Stock
and senior to the Company's Class A Common Stock and Class B Common Stock.
It is expected that the price to the public of the Depositary Shares will
be equal to approximately four times the London silver fixing price for one
ounce of silver in the London bullion market on the date of pricing. On July
11, 1994 the London fixing price for silver in the London bullion market was
$5.2475 per ounce of silver.
The Company will redeem from the Depositary annually on August 1
beginning in 1999, out of funds legally available therefor, Silver-Denominated
Preferred Stock having an aggregate liquidation preference equal to the Dollar
Equivalent Value (as defined herein) of 0.5 ounces of silver for each
Depositary Share. The proceeds of such redemption will be distributed to the
holders of the Depositary Shares on a pro rata basis. Each such redemption
payment will reduce the Principal Silver Balance by 0.5 ounces for each
Depositary Share.
Dividends on the Silver-Denominated Preferred Stock will be cumulative
from the date of original issuance thereof (the "Issue Date") and are payable
quarterly. For the first twenty quarters after the Issue Date, dividends will
be payable in an amount equal to the Dollar Equivalent Value of _____ ounces
of silver per Depositary Share per quarter, representing an annual dividend
rate of ___% (the "Annual Dividend Rate") of the Principal Silver Balance. For
the twenty-first and subsequent quarters after the Issue Date, dividends will
be payable in an amount equal to the Dollar Equivalent Value of the number of
ounces of silver constituting the then Principal Silver Balance multiplied by
the Annual Dividend Rate divided by four. The first quarterly dividend will
be payable on November 1, 1994 and will be based upon the number of days the
Depositary Shares are outstanding through such date.
Application will be made to list the Depositary Shares on the New York
Stock Exchange.
--------------------
See "Special Considerations with Respect to the Offering" in this
Prospectus Supplement and "Special Considerations" in the accompanying
Prospectus for information that should be considered by prospective investors.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
--------- ------------ -----------
Per Depositary Share . . . . $ $ $
Total(3) . . . . . . . . . . $ $ $
(1) The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deduction of expenses payable by the Company estimated at
$________.
(3) The Company has granted the U.S. Underwriters a 30-day option to
purchase up to 570,000 additional Depositary Shares solely to cover
over-allotments, if any. The International Managers have been granted a
similar option to purchase up to 142,320 additional Depositary Shares
solely to cover over-allotments, if any. If such options are exercised
in full, the total Price to Public, Underwriting Discount and Proceeds
to Company will be $_______, $_______, and $_________, respectively.
See "Underwriting."
The Depositary Shares offered by this Prospectus Supplement are offered
by the U.S. Underwriters subject to prior sale, to withdrawal, cancellation
or modification of the offer without notice, to delivery to and acceptance by
the U.S. Underwriters and to certain further conditions. It is expected that
delivery of the Depositary Receipts evidencing the Depositary Shares will be
made at the offices of Lehman Brothers Inc. in New York, New York on or about
July , 1994.
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
KIDDER, PEABODY & CO.
INCORPORATED
MERRILL LYNCH & CO.
S.G.WARBURG & CO. INC.
July , 1994
INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT
IS SUBJECT TO COMPLETION PURSUANT TO RULE 424 UNDER THE SECURITIES ACT OF
1933. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 415 UNDER THE SECURITIES ACT OF 1933. A FINAL PROSPECTUS SUPPLEMENT
AND ACCOMPANYING PROSPECTUS WILL BE DELIVERED TO PURCHASERS OF THESE
SECURITIES. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
IN CONNECTION WITH THIS OFFERING THE U.S. UNDERWRITERS AND THE INTERNATIONAL
MANAGERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICES OF THE DEPOSITARY SHARES AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
The following summary is qualified by the detailed information and
financial statements in this Prospectus Supplement and the accompanying
Prospectus. Unless otherwise indicated, the information contained in this
Prospectus Supplement assumes that the over-allotment options described under
"Underwriting" are not exercised.
The Company
Freeport-McMoRan Copper & Gold Inc., a Delaware corporation formed in
1987 (the "Company" or "FCX"), is a subsidiary of Freeport-McMoRan Inc.
("FTX"). FCX's principal operating subsidiary is P.T. Freeport Indonesia
Company ("PT-FI"), a limited liability company organized under the laws of the
Republic of Indonesia and domesticated in Delaware. PT-FI engages in the
exploration for and development, mining, and processing of copper, gold and
silver in Indonesia and in the marketing of concentrates containing such
metals worldwide. The Company believes that PT-FI has one of the lowest cost
copper producing operations in the world, taking into account customary
credits for related gold and silver production. At June 30, 1994, FTX owned
approximately 70% of the Company's common stock and FCX owned 81.28% of the
outstanding common stock of PT-FI. Of the remaining 18.72% of the outstanding
PT-FI common stock, 9.36% is owned by the government of the Republic of
Indonesia (the "Government") and 9.36% is owned by an Indonesian corporation,
P.T. Indocopper Investama Corporation ("PT-II"), in which FCX owns a 49%
equity interest. In 1993 FCX acquired the Spanish company Rio Tinto Minera,
S.A. ("RTM") which is principally engaged in the smelting and refining of
copper concentrates in Spain. RTM provides an additional market for a portion
of PT-FI's copper concentrates. FCX also owns Eastern Mining Company, Inc.
("Eastern Mining"), a separate subsidiary which has been granted certain
exploration rights in Irian Jaya, Indonesia.
FTX has announced that it intends to pursue a plan to separate its two
principal businesses, copper/gold and agricultural minerals, into two
independent financial and operating entities. To accomplish this, FTX would
distribute to FTX common shareholders its common stock ownership in FCX. See
"Recent Developments".
PT-FI's Grasberg deposit in Irian Jaya, Indonesia contains the largest
single gold reserve of any mine in the world and one of the three largest open
pit copper reserves. At December 31, 1993, PT-FI's total estimated proved and
probable recoverable(1) reserves were 26.8 billion pounds of copper, 39.1
million ounces of gold and 76.7 million ounces of silver. Net of 1993
production, PT-FI's total estimated proved and probable reserves increased
since December 31, 1992 by 5.9 billion recoverable pounds of copper (a 28%
increase), 7.0 million recoverable ounces of gold (a 22% increase), and 32.0
million recoverable ounces of silver (a 72% increase). These new reserves were
added primarily at the Grasberg deposit, but also include additions at the
Company's underground mine at the Deep Ore Zone (the "DOZ") deposit and the
recently discovered Big Gossan deposit. PT-FI's proved and probable reserves
at Grasberg do not include any reserves below the 3,100 meter level, where
additional exploration drilling will be required. PT-FI has begun driving an
additional horizontal access adit from the mill site to a point below the
currently delineated Grasberg ore body at the 2,900 meter level. This new
adit, expected to be completed in 1996, will facilitate further deep
exploration to delineate the extent of the Grasberg deposit below the 3,100
meter level. Preliminary drilling from the existing 3,700 meter level adit
indicates significant additional mineralization below the existing proved and
probable reserves. There can be no assurance, however, that PT-FI exploration
programs will result in the delineation of additional reserves in commercial
quantities.
- --------------------
(1) As used herein, "recoverable" reflects adjustments made in the metal
content of the feedstock ore for estimated losses in mining,
concentrating, smelting, and refining. FCX uses the terms "recoverable"
and "payable" interchangeably.
- --------------------
A contract of work signed by PT-FI and the Government on December 30,
1991 (the "COW") covers both PT-FI's original 24,700 acre mining area (the
"1967 Mining Area") and a contiguous 6.5 million acre exploration area
(together the "COW Area"). On April 29, 1993, Eastern Mining was granted
exclusive exploration rights on 2.5 million acres adjacent to the COW Area. In
addition to continued delineation of the Grasberg deposit and the other
existing deposits, PT-FI is continuing its ongoing exploration program for
copper, gold and silver mineralization within the 1967 Mining Area. Three
anomalous zones in the vicinity of PT-FI's current mining activities are under
active exploratory drilling. As a result of this exploration effort, the 1993
year-end reserves include reserves at Big Gossan. Big Gossan and the Wanagon
anomaly, another zone being currently investigated, are located west of the
Ertsberg open pit and south of the Grasberg copper/gold/silver ore body. A
third prospect within the 1967 Mining Area, Lembah Tembaga, is located
approximately one kilometer southwest of the Grasberg deposit. Preliminary
exploration of the COW Area has indicated many other promising targets.
Extensive stream sediment sampling within the new acreage has generated
analytical results which are being evaluated. No assurance can be given that
any of the exploration areas other than Big Gossan contains commercially
exploitable mineral deposits. Exploration expenditures in Irian Jaya are
expected to increase to approximately $38 million for 1994, compared to $31.7
million for 1993.
During 1993 PT-FI completed, within budget and ahead of schedule, the
production facilities designed to enable it to mine and mill at least 66,000
metric tons(1) of ore per day ("MTPD"). Average mill throughput during 1993
was 62,300 MTPD, an increase of 4,700 MTPD from the average level of ore
milled in 1992. The average mill throughput during 1994 is expected to be
more than 72,000 MTPD. Additionally, PT-FI has begun work on a further
expansion to 115,000 MTPD which is expected to be completed by year-end 1995
and to result in annual production rates approaching 1.1 billion pounds of
copper, 1.5 million ounces of gold, and 2.4 million ounces of silver.
PT-FI Silver Reserves and Production
Primarily as a result of the drilling operations at the Grasberg mine,
PT-FI's proved and probable silver reserves as of December 31, 1993 totaled
76.7 million recoverable ounces, and have increased since December 31, 1989 by
approximately 182% and since December 31, 1992 by approximately 72%. Since
1990, PT-FI silver production has averaged approximately 1,625,000 recoverable
ounces per year. In 1994, PT-FI expects to produce approximately 1,250,000
recoverable ounces of silver. As noted above, upon completion of the
expansion to 115,000 MTPD, annual silver production is expected to be
2,400,000 recoverable ounces. Based on currently anticipated production
levels, PT-FI's proved and probable reserves provide for an anticipated mine
life in excess of 25 years. See "The Company -- P.T. Freeport Indonesia
Company -- Ore Reserves".
[GRAPHIC 1]
Silver Reserves (2)
[Silver Reserves GRAPH]
(See Appendix)
- --------------
(1) As used herein, "ton" refers to a metric ton, which is equivalent to
2,204.62 pounds on a dry weight basis.
(2) Reflects 100% of PT-FI's estimated proved and probable silver
reserves at the end of each of the years shown, as verified by
Independent Mining Consultants, Inc. and has not been adjusted for
the minority ownership in PT-FI. (See "Special Considerations --
Reserves" in the accompanying Prospectus).
Recent Developments
Proposed Distribution by FTX of FCX Common Stock
In May 1994, FTX announced a proposed pro rata distribution of its common
stock ownership in FCX to the FTX shareholders on a tax-free basis. As a
result of this distribution, which will require a series of steps to
implement, FTX would no longer own any interest in FCX. The proposed
distribution, which is expected to take six to twelve months to implement,
would be contingent on a number of factors including (1) assurance that the
distribution of FCX shares to FTX shareholders will be tax-free, (2)
completion of a restructuring of the liabilities of FTX including its
long-term debt, which may include the use of a portion of the FCX shares
currently owned by FTX, and (3) changing the voting rights of FCX so that the
Class B stockholders elect 80% of the FCX directors and the Class A
stockholders and preferred stockholders elect the balance. The change in
voting rights will be subject to approval of the Class A shareholders. There
can be no assurances that these contingencies will be met. It is anticipated
that substantially all of the Board of Directors and management of the Company
after the distribution will be persons who are currently directors or officers
of FTX or the Company, and that such persons who are officers or directors of
FTX will also continue to serve in such capacities following the distribution.
Issuance of 9 3/4% Senior Notes Due 2001 by P.T. ALatieF Freeport Finance
Company B.V.
On April 12, 1994, P.T. ALatieF Freeport Finance Company B.V., a wholly
owned subsidiary of FCX, completed a public offering of $120 million of 9 3/4%
Senior Notes Due 2001 (the "9 3/4% Notes"), for net proceeds of $116.3 million.
The notes are guaranteed by FCX. The proceeds from the sale of the 9 3/4%
Notes have been loaned to PT-FI until they are required to be loaned to P.T.
ALatieF Freeport Infrastructure Corporation and one or more affiliated
infrastructure companies for the purchase of infrastructure assets from PT-FI.
Issuance of Gold-Denominated Preferred Stock, Series II
On January 21, 1994, FCX issued 4,305,580 Depositary Shares, Series II,
each representing 0.05 shares of Gold-Denominated Preferred Stock, Series II,
in an underwritten public offering. The net proceeds of $158.5 million were
used by PT-FI to fund capital expenditures associated with the expansion of
mining and milling activities and to reduce borrowings under the PT-FI Credit
Agreement, thereby increasing the facility's availability for general
corporate purposes.
Redemption of Zero Coupon Notes
Effective January 18, 1994, FCX redeemed its outstanding Zero Coupon
Exchangeable Notes due 2011 (the "Zero Coupon Notes"). Of the $118.6 million
principal amount of Zero Coupon Notes outstanding at the initiation of the
call for redemption, $118.3 million principal amount was converted into an
aggregate of approximately 6.7 million shares of FCX's Class A Common Stock.
The balance of the Zero Coupon Notes were redeemed for cash.
Expansion of RTM Smelter Capacity
In June 1994, RTM signed a contract to expand its smelter production
capacity from its current 150,000 tons of metal per year to approximately
270,000 tons of metal per year by early 1996 at a cost of approximately $215
million. The expansion is expected to be financed through project financing
and RTM's internal cash flows. During 1993, PT-FI supplied RTM with
approximately 90,000 tons of copper concentrate and is expected to supply
approximately 150,000 tons in 1994, providing for approximately 20% and 33%,
respectively, of RTM's requirements in those years. Beginning in 1996, PT-FI
is expected to provide the RTM smelter with approximately one-half of its
copper concentrate requirements. For further information concerning RTM, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" herein.
The Offering
Shares Offered by the Company 4,750,080 Depositary Shares,
initially representing 118,752
shares of Silver-Denominated
Preferred Stock. Of the Depositary
Shares offered, 3,800,000 shares are
being offered by the U.S.
Underwriters and 950,080 are being
offered by the International
Managers. Unless otherwise
indicated in this Prospectus
Supplement, references to the
rights, preferences and other terms
of the Depositary Shares are
descriptions of the rights,
preferences and other terms of the
underlying shares of
Silver-Denominated Preferred Stock
initially represented by each
Depositary Share, initially 0.025
shares. A holder of Depositary
Shares is not entitled to receive
the shares of Silver-Denominated
Preferred Stock underlying the
Depositary Shares.
Dividends Dividends on the Silver-Denominated
Preferred Stock will be cumulative
from the date of original issuance
thereof (the "Issue Date") and are
payable quarterly. For the first
twenty quarters after the Issue
Date, dividends will be payable in
an amount equal to the Dollar
Equivalent Value (as defined below)
of ounces of silver per
Depositary Share per quarter,
representing an annual dividend rate
of % (the "Annual Dividend Rate")
of the Principal Silver Balance.
For the twenty-first and subsequent
quarters after the Issue Date,
dividends will be payable in an
amount equal to the Dollar
Equivalent Value of the number of
ounces of silver constituting the
then Principal Silver Balance (as
defined below) multiplied by the
Annual Dividend Rate divided by
four. The first quarterly dividend
will be payable on November 1, 1994
and will be based upon the number of
days the Depositary Shares are
outstanding through such date. See
"Description of Silver-Denominated
Preferred Stock -- Dividends".
Rank The Silver-Denominated Preferred
Stock will rank, as to payment of
dividends, upon redemption and as to
distribution upon liquidation, pari
passu with the Company's
Gold-Denominated Preferred Stock;
Gold-Denominated Preferred Stock,
Series II; 7% Convertible
Exchangeable Special Preference
Stock (the "Special Preference
Stock"); and Step-Up Convertible
Preferred Stock (the "Step-Up
Preferred Stock") and senior to the
Company's Class A Common Stock and
Class B Common Stock.
Redemption - Annual The Company will redeem from the
Depositary annually on August 1
beginning in 1999, out of funds
legally available therefor,
Silver-Denominated Preferred Stock
having an aggregate liquidation
preference equal to the Dollar
Equivalent Value of 0.5 ounces of
silver for each Depositary Share.
The proceeds of such redemption will
be distributed to the holders of the
Depositary Shares on a pro rata
basis. Each such redemption payment
will reduce the Principal Silver
Balance (initially 4 ounces for each
Depositary Share) by 0.5 ounces for
each Depositary Share.
As a result of the annual redemption
of the Silver-Denominated Preferred
Stock, the number of shares of
Silver-Denominated Preferred Stock
represented by each of the
Depositary Shares will decrease in
proportion to the reduction in the
Principal Silver Balance.
Redemption - Other The Depositary Shares will not be
subject to redemption at the option
of the Company, except that, if at
any time the total number of
Depositary Shares outstanding shall
be less than 15% of the total number
of Depositary Shares outstanding
immediately after the Offering
(after giving effect to any exercise
of the over-allotment options), the
Company will have the right to
redeem the Depositary Shares, in
whole but not in part, on any
subsequent quarterly dividend date
at a redemption price equal to the
Dollar Equivalent Value of the
Principal Silver Balance per
Depositary Share plus a pro rata
portion of the accrued and unpaid
dividends on the underlying
Silver-Denominated Preferred Stock
to the date fixed for redemption.
The Company will not have the right
to make any mandatory or optional
redemption of any Depositary Shares
unless full cumulative dividends for
all past dividend periods shall have
been paid or declared and set aside
for payment upon all shares of the
Silver-Denominated Preferred Stock
and all other outstanding shares of
stock of the Company ranking, as to
dividends, on a parity with the
Silver-Denominated Preferred Stock.
Reserve Coverage Offer If the Company's Reserve Amount on
any Calculation Date, as shown on a
certificate prepared by the Company,
is less than the Aggregate Reserve
Requirement, the Company will be
required to offer to purchase, at a
price equal to the liquidation
preference applicable thereto, out
of funds legally available therefor,
a sufficient number of Depositary
Shares, so that, if all such shares
had been purchased on the relevant
Calculation Date, the Reserve Amount
on that date would have been greater
than or equal to the Aggregate
Reserve Requirement. The Reserve
Coverage Requirement with respect to
the Depositary Shares is 2.0 times
the liquidation preference
applicable thereto. See
"Description of Silver-Denominated
Preferred Stock -- Reserve Coverage
Offer" for a summary of these
provisions and the definitions of
"Reserve Amount", "Aggregate Reserve
Requirement", "Reserve Coverage
Requirement" and "Calculation Date".
Liquidation Rights Each Depositary Share will be
entitled to receive, upon
dissolution, liquidation or winding
up of the Company, the Dollar
Equivalent Value of the Principal
Silver Balance plus accrued and
unpaid dividends.
Principal Silver Balance Four ounces of silver, less the
cumulative reduction in the amount
of silver represented by the annual
redemption payments that have
theretofore been made (calculated on
a per Depositary Share basis).
Dollar Equivalent Value The "Dollar Equivalent Value" of a
specified number of ounces of silver
means the Reference Silver Price
multiplied by such number of ounces.
Reference Silver Price "Reference Silver Price" means, when
used to calculate the amount of any
dividend payable on any quarterly
dividend payment date or of any
annual or optional redemption
payment, the arithmetic average of
the London silver fixing price for
an ounce of silver in the London
bullion market on each of the twenty
trading days ending on the second
trading day prior to the last day of
the calendar quarter immediately
preceding such payment date. When
used to calculate any other amount
payable with respect to the
Silver-Denominated Preferred Stock,
the Depositary Shares or to purchase
any Depositary Shares on any date,
the "Reference Silver Price" means
the arithmetic average of the London
silver fixing price for an ounce of
silver in the London bullion market
on each of the twenty trading days
ending on the second trading day
prior to (i) in the case of a
Reserve Coverage offer, the date of
commencement thereof and (ii) in the
case of a liquidation event, the
date 30 days prior to the date fixed
for the liquidating distribution.
Listing Application will be made to list the
Depositary Shares on the New York
Stock Exchange.
Use of Proceeds The net proceeds from the sale of
the Depositary Shares are expected
to be used for general corporate
purposes, including continued
expansion of mining and milling
operations. See "Use of Proceeds".
Summary Financial Data
The financial data included in the following table have been derived
from the consolidated financial statements of the Company for the periods
shown and also reflect consolidation of RTM since March 1993.
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
--------------------------------------------------------- -------------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share amounts and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Income statement data:
Revenues(1) $367,886 $434,148 $467,522 $714,315 $925,932 $133,515 $266,153
Operating income 203,234 204,549 177,720 276,429 154,936 (2) 25,454 (3) 53,131
Minority interests (17,415) (13,726) (12,199) (31,075) (9,134) (1,398) (4,009)
Net income (loss) applicable
to common stock 98,927 90,179 96,159(4) 122,868 21,862 (2) (5,160)(3) 13,559
Net income (loss) per share .58 .52 .53(4) .66 .11 (2) (.03)(3) .07
Dividends paid:
Per share of common stock .56 .69 .55 .60 .60 .15 .15
Per depositary share representing:
Special Preference Stock -- -- -- .4910 1.75 .4375 .4375
Step-Up Preferred Stock -- -- -- -- .3993 -- .3125
Gold Denominated Preferred Stock -- -- -- -- .2805 -- .3385
Balance sheet data (at end of period):
Net property, plant and equipment 264,688 502,171 601,675 993,412 1,646,603 1,322,763 1,845,124
Total assets 415,072 676,727 1,157,615 1,694,005 2,116,653 1,971,601 2,322,773
Long-term debt (including current
portion and short-term borrowings) 130,000 294,000 631,961 723,583 260,659 784,351 163,274
Minority interests 19,632 8,899 14,237 21,449 46,781 15,084 57,378
Gold-Denominated Preferred Stock -- -- -- -- 232,620 -- 399,999
Stockholders' equity 113,759 176,557 172,545 646,457 947,927 635,611 1,026,153
Ratio of earnings to fixed charges
and minimum distributions(5) 9.5x 5.6x 3.3x 3.8x 1.4x --(6) 2.1x
<FN>
____________________
(1) Net of treatment charges, royalties to the Government, and amortization
of the cost of the price protection program.
(2) Includes charges totaling $37.1 million ($20.5 million to net income;
$.10 per share) related to restructuring the administrative organization
at FTX and adjustments to general and administrative expense and site
production and delivery costs and a non-cash charge of $9.9 million to net
income ($.05 per share) related to the cumulative effect of changes in
accounting principle.
(3) Includes restructuring charges of $3.4 million ($1.9 million to net
income; $.01 per share) related to restructuring the administrative
organization of FTX and the $9.9 million to net income ($.05 per share)
discussed in Note 2.
(4) Reflects a $5.8 million ($.03 per share) reduction for the cumulative
effect of the change in accounting for postretirement benefits and a $26.5
million ($.15 per share) reduction in PT-FI's income tax provision due to
the signing of the COW.
(5) For purposes of calculating the ratio of earnings to fixed charges and
minimum distributions, earnings consists of income from continuing
operations before income taxes, minority interest and fixed charges.
Fixed charges consist of interest and that portion of rent deemed
representative of interest. Minimum distributions consist of the minimum
required distributions on the Company's Class A Common Stock through May
1, 1993 (the date on which such distribution requirement terminated),
Special Preference Stock, Step-Up Preferred Stock, Gold-Denominated
Preferred Stock and Gold-Denominated Preferred Stock, Series II.
(6) Earnings were inadequate to cover fixed charges and minimum distributions
by $2.7 million. However, $12.4 million in minimum distributions were
attributable to the Company's Class A Common Stock requirements which
ended May 1, 1993; therefore, such minimum distributions are no longer
required.
</TABLE>
Selected Operating Data
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
------------------------------------------------------------------- -----------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share amounts and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
PT-FI Results(1)
Mill Operations:
Ore milled - MTPD 24,700 31,700 38,200 57,600 62,300 61,300 73,400
Average copper grade 1.84% 1.61% 1.77% 1.59% 1.57% 1.51% 1.37%
Grams of gold - per ton .60 .98 1.23 1.35 1.46 1.16 1.34
Grams of silver - per ton 10.30 6.96 5.90 4.79 4.02 4.17 3.00
Recoverable Metal
Production(2):
Copper - thousand pounds 317,400 361,800 466,700 619,100 658,400 150,600 160,500
Gold - ounces 139,000 284,000 420,800 641,000 786,700 146,800 190,800
Silver - thousand ounces 1,971 1,749 1,568 1,643 1,541 353 306
Recoverable Metal Sales:
Copper - thousand pounds 317,800 348,000 439,700 651,800 645,700 138,100 155,700
Gold - ounces 140,000 273,000 397,900 679,300 762,900 140,300 201,300
Silver - thousand ounces 1,979 1,664 1,621 1,804 1,481 330 304
Average Realizations:
Copper - per pound(3) 1.24 $ 1.20 $ 1.01 $ 1.03 $ .90 $ .97 $ .90
Gold - per ounce 383.28 378.30 358.76 340.11 361.74 326.93 381.67
Silver - per ounce 5.39 4.61 3.87 3.72 4.15 3.78 4.93
Gross Profit Per
Pound of Copper:
Average realized price 123.6 Cents 120.4 Cents 101.1 Cents 103.3 Cents 90.4 Cents 97.4 Cents 90.0 Cents
----- ----- ----- ----- ---- ---- ----
Production costs:
Site production
and delivery 37.2 46.0 46.5 47.4 49.3 50.2 59.4
Gold and silver credits (20.3) (32.0) (34.0) (36.2) (43.4) (33.3) (48.9)
Treatment charges 25.1 25.2 23.5 27.1 23.7 25.2 23.1
Royalty on recoverable
metals 3.4 3.1 2.4 2.4 1.5 2.2 1.4
----- ----- ----- ----- ---- ---- ----
Cash production costs 45.4 42.3 38.4 40.7 31.1 44.3 35.0
Depreciation and
amortization 7.8 10.2 8.7 7.4 8.7 8.7 8.1
----- ----- ----- ----- ---- ---- ----
Total production costs 53.2 52.5 47.1 48.1 39.8 53.0 43.1
----- ----- ----- ----- ---- ---- ----
Revenue adjustments(4) 0.4 0.7 (2.9) (0.4) (2.4) (6.6) 0.6
----- ----- ----- ----- ---- ---- ----
Gross profit per pound 70.8 Cents 68.6 Cents 51.1 Cents 54.8 Cents 48.2 Cents 37.8 Cents 47.5 Cents
===== ===== ===== ===== ==== ==== ====
RTM Results (since March 1993 acquisition)
Smelter operations:
Concentrate treated -- tons 330,200 -- 118,000
New Anode production -- tons 135,800 -- 37,900
Cathode production -- ton 103,100 -- 34,600
Gold operations:
Ore milled -- MTPD 17,900 -- 18,100
Grade -- grams per ton 1.05 -- 1.04
Sales -- recoverable ounces 132,500 -- 37,400
Average realized price $369.06 -- $346.33(5)
<FN>
(1) Mill operations, recoverable metal production, recoverable metal sales
and average realizations reflect 100% of PT-FI's results and have not
been adjusted for the minority ownership in PT-FI.
(2) Derived by multiplying total throughput in tons times grade times
recovery times a recoverable factor of 0.965 for copper, 0.963 for gold,
and 0.785 for silver and multiplying the product by 2,204.62 (in the case
of copper) or dividing by 31.1035 (in the case of gold and silver).
(3) Includes amounts recognized on current period sales under the price
protection program. Excludes the adjustments discussed in Note 4.
(4) Reflects adjustments primarily for prior period concentrate sales
contractually priced (net of related amounts recognized under the price
protection program) or adjusted during the respective periods. In
addition, for periods subsequent to the year ended December 31, 1990,
reflects the cost of PT-FI's price protection program for such periods.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
(5) Includes a negative hedging adjustment of $37.91 per ounce.
</TABLE>
SPECIAL CONSIDERATIONS WITH RESPECT TO THE OFFERING
In addition to the special considerations outlined in the accompanying
Prospectus, an investment in the Depositary Shares involves certain risks
related to the terms of such securities. Accordingly, prospective investors
should consider carefully the following special considerations, in addition to
the other information concerning the Company and its business contained in
this Prospectus Supplement and the accompanying Prospectus, before purchasing
the Depositary Shares offered hereby.
Volatility of Payments on Silver-Denominated Preferred Stock
The amount payable by the Company with respect to the Depositary Shares
(and the underlying Silver-Denominated Preferred Stock) on each quarterly
dividend payment date, on each annual redemption date, upon liquidation and on
any date on which the Company is required to purchase or permitted to redeem
Depositary Shares is directly affected by the market price of silver. Market
silver prices can fluctuate widely and are affected by numerous factors beyond
the Company's control, including industrial and jewelry demand, expectations
with respect to the rate of inflation, the relative strength of the U.S.
dollar (the currency in which the price of silver is generally quoted) and of
other currencies, interest rates, central bank sales, forward sales by
producers, global or regional political or economic events, and production
costs and disruptions in major silver producing countries such as Mexico and
Peru. The demand for and supply of silver affect silver prices, but not
necessarily in the same manner as supply and demand affect the prices of other
commodities. The supply of silver consists of a combination of new mine
production and existing stocks of bullion and fabricated silver held by
governments, public and private financial institutions, industrial
organizations and private individuals. In addition, the price of silver has
on occasion been subject to very rapid short-term changes due to speculative
activities.
The annual redemption payment per Depositary Share will vary based on the
Reference Silver Price. Set forth below for certain assumed Reference Silver
Prices are the hypothetical annual redemption amounts that would be payable in
respect thereof:
Hypothetical Annual Redemption
Assumed Reference Payment per Depositary Share
Silver Price per Ounce (1999-2006)
----------------------- ------------------------------
$3.00 $1.50
4.00 2.00
5.00 2.50
6.00 3.00
7.00 3.50
8.00 4.00
9.00 4.50
10.00 5.00
The amount of each dividend payable on any date on which the Company
pays a dividend on the Silver-Denominated Preferred Stock will also vary
proportionally with the Reference Silver Price for the relevant payment date
and the then Principal Silver Balance. See "Description of Silver-Denominated
Preferred Stock -- Dividends".
In addition, the Reference Silver Price for any date is calculated by
averaging market silver prices over a period of twenty trading days ending on
a specified date prior to the date such payment is to be made. Accordingly,
the Reference Silver Price used to calculate any payment may well not be
representative of market silver prices over either the life of the Depositary
Shares or the period in respect of which such payment is made.
THE COMPANY
Freeport-McMoRan Copper & Gold Inc., a Delaware corporation formed in
1987 (the "Company" or "FCX"), is a subsidiary of Freeport-McMoRan Inc.
("FTX"). FCX's principal operating subsidiary is P.T. Freeport Indonesia
Company ("PT-FI"), a limited liability company organized under the laws of the
Republic of Indonesia and domesticated in Delaware. PT-FI engages in the
exploration for and development, mining, and processing of copper, gold and
silver in Indonesia and in the marketing of concentrates containing such
metals worldwide. The Company believes that PT-FI has one of the lowest cost
copper producing operations in the world, taking into account customary
credits for related gold and silver production. At June 30, 1994, FTX owned
approximately 70% of the Company's common stock and FCX owned 81.28% of the
outstanding common stock of PT-FI. Of the remaining 18.72% of the outstanding
PT-FI common stock, 9.36% is owned by the government of the Republic of
Indonesia (the "Government") and 9.36% is owned by an Indonesian corporation,
P.T. Indocopper Investama Corporation ("PT-II"), in which FCX owns a 49%
equity interest. The Company also has a subsidiary, Eastern Mining Company,
Inc. ("Eastern Mining") which on April 29, 1993 was granted an exploration
permit, giving exclusive rights for a limited period to explore for minerals
on 2.5 million acres adjacent to the 6.5 million acre exploration area covered
by the COW (as defined below). See "The Company--Eastern Mining Company, Inc."
On March 30, 1993, the Company acquired a 65% interest in the capital stock of
Rio Tinto Minera, S.A. ("RTM"), a company primarily engaged in the smelting
and refining of copper concentrates in Spain. In December 1993, RTM redeemed
the remaining 35% interest. In May 1994, FTX announced a proposed pro-rata
distribution of its common stock ownership in FCX to the FTX shareholders on a
tax-free basis. See "Recent Developments".
P.T. Freeport Indonesia Company
PT-FI's operations are located in the rugged highlands of the Sudirman
Mountain Range in the province of Irian Jaya, Indonesia, located on the
western half of the island of New Guinea. Over the last 25 years, PT-FI has
met an extraordinary combination of engineering and construction challenges to
develop its mining and milling complex and supporting infrastructure in one of
the least explored areas in the world. PT-FI's largest mine, Grasberg,
discovered in 1988, contains the largest single gold reserve and one of the
three largest open-pit copper reserves of any mine in the world. In order to
develop the Grasberg deposit, PT-FI undertook an expansion to 66,000 MTPD
which was completed in 1993 ahead of schedule and within budget. PT-FI has
begun work on a further expansion of its overall mining and milling rate to
115,000 MTPD which is expected to be completed by year-end 1995 and to result
in annual production rates approaching 1.1 billion pounds of copper, 1.5
million ounces of gold, and 2.4 million ounces of silver.
Contract of Work
From 1967 until the end of 1991, PT-FI's predecessor, Freeport Indonesia,
Incorporated ("FII"), a Delaware corporation, operated as the sole contractor
for the production and marketing of certain minerals from a 24,700 acre area
(the "1967 Mining Area") under a contract of work with the Government (the
"1967 COW").
On December 30, 1991, FII was merged into PT-FI and PT-FI and the
Government signed a new contract of work (the "COW"), which superseded the
1967 COW. The COW covers both the 1967 Mining Area and a contiguous 6.5
million acre area (the "COW Area"). The COW has a 30-year term, with
provisions for two 10-year extensions under certain conditions. The COW
contains a provision under which PT-FI must progressively relinquish its
rights to the parts of the COW Area in amounts equal to 25% of the 6.5 million
acres at the end of each of three specified periods, the first of which is
scheduled to expire on December 30, 1994, and the last of which is set to
expire five to seven years after the signing of the COW. In light of the
relinquishment provision, PT-FI has implemented an active exploration program
with a focus on both what it believes to be the most promising exploration
opportunities in the COW Area as well as identification of areas which appear
to hold the least promise. The COW also contains provisions for PT-FI to
conduct or cause to be conducted a feasibility study relating to the
construction of a copper smelting facility in Indonesia and for the eventual
construction of such a facility by PT-FI, if such facility is deemed to be
economically viable by PT-FI and the Government. FCX recently announced that
PT-FI and RTM have now taken the lead role in developing the proposed 150,000
to 200,000 tons of metal per year copper smelter in Gresik, Indonesia. It is
contemplated that PT-FI would provide approximately 50% of the annual
concentrate requirements of the Gresik smelter. Preliminary engineering on
the proposed smelter has been completed and the smelter could be operational
as early as 1998.
The COW provides that PT-FI may be required after 2001, if requested by
the Government, to meet the then existing requirements of Indonesian law, and
subject to certain other specified conditions, to sell up to an additional 25%
of its common stock through offerings on the Jakarta Stock exchange or up to
an additional 31% if sold otherwise to Indonesian nationals, with all such
sales to be at market prices to be determined at the times of sale. However,
the COW further stipulates that PT-FI is entitled to the benefit of any
changes in Indonesian law, regulations, or policy subsequent to the signing of
the COW that impose less burdensome divestiture requirements. Indonesian
regulations promulgated in 1992 require that 20% of the capital stock of a
corporation such as PT-FI ultimately be held by Indonesian investors. The
Investment Coordinating Board of Indonesia has indicated that such regulations
apply to PT-FI. In June 1994, Indonesian regulations reduced substantially
the requirements as to minimum Indonesian ownership.
Ore Reserves
The following table summarizes PT-FI's estimated proved and probable
reserves at the end of each of the years shown, as verified by Independent
Mining Consultants, Inc. (see "Special Considerations -- Reserves" in the
accompanying Prospectus):
December 31,
--------------------------------------
1989 1990 1991 1992 1993
----- ------ ------ ------ -------
(in millions)
Reserves:
Ore reserves - dry metric tons 256.4 445.7 768.0 733.2 1,074.1
Copper - Recoverable pounds 8,300 13,900 21,800 20,900 26,800
Gold - Recoverable ounces 8.1 19.5 32.4 32.1 39.1
Silver - Recoverable ounces 27.2 34.7 50.0 44.7 76.7
Primarily as a result of the drilling operations at the Grasberg mine
(see "Mines in Production" below), PT-FI's proved and probable copper, gold
and silver reserves as of December 31, 1993 have increased since December 31,
1989 by approximately 223%, 383% and 182%, respectively, and from year-end
1992 by 28%, 22% and 72%, respectively. The latest increase in proved and
probable reserves, net of production, reflects the addition of approximately
340.9 million tons of ore since December 31, 1992 (a 46% increase) as the
result of a drilling program that includes data obtained from the surface down
to the 3,100 meter elevation at the Grasberg copper/gold/silver ore body,
bringing total proved and probable ore reserves to approximately 1,074.1
million tons. PT-FI's proved and probable reserves at Grasberg do not include
reserves below the 3,100 meter level. PT-FI has begun driving an adit (the
"Amole adit") from the mill site to a point below the currently delineated
Grasberg ore body at the 2,900 meter level. The Amole adit, expected to be
completed in 1996, will facilitate further deep exploration to delineate the
extent of the Grasberg deposit below the 3,100 meter level where additional
exploration drilling will be required. Preliminary drilling from the existing
3,700 meter adit indicates significant additional mineralization below the
existing proved and probable reserves. There can be no assurance, however,
that PT-FI's exploration programs will result in the delineation of additional
reserves in commercial quantities.
PT-FI's proved and probable ore reserves at December 31, 1993 of
approximately 1,074.1 million tons had an average grade of 1.31% copper, 1.47
grams of gold per ton, and 4.04 grams of silver per ton compared with
approximately 733.2 million tons of ore with an average grade of 1.47% copper,
1.72 grams of gold per ton, and 3.87 grams of silver per ton at December 31,
1992.
The Grasberg mine reserves alone approximate 976.6 million tons of ore at
an average grade of 1.25% copper, 1.55 grams of gold per ton, and 3.45 grams
of silver per ton.
Mines in Production
PT-FI currently has two mines in operation: Grasberg and Ertsberg East,
both within the 1967 Mining Area. PT-FI milled ore at an average rate of
approximately 57,600 MTPD in 1992 and 62,300 MTPD in 1993.
Open pit mining of the Grasberg ore body commenced in January 1990. In
1993, Grasberg mine output totaled approximately 19.8 million tons of ore and
provided approximately 81% of total PT-FI ore production.
Ertsberg East is an underground mine which commenced production in 1980.
Block caving operations are conducted in two separate zones of the ore body
with a common haulage level at 3,530 meters elevation. In 1993, mine output
from Ertsberg East totaled approximately 4.4 million tons of ore and provided
approximately 18% of total PT-FI ore production. Production from Ertsberg
East averaged 12,200 MTPD during 1993. Ertsberg East is expected to deplete
during the second half of 1994 and production primarily from Grasberg,
supplemented by production from the Intermediate Ore Zone (the "IOZ") ore body
(see "Mines in Development" below), is expected to displace the lost Ertsberg
East production.
Mines in Development
Three major additions to PT-FI's underground mining operations, which are
intended to replace existing underground production areas when they become
depleted, have previously been developed: the DOM, the DOZ and the IOZ. The
IOZ is located vertically between the Ertsberg East and the DOZ ore bodies.
The DOM ore body's initial working level is some 380 meters above and
approximately 1.2 kilometers southeast of the Ertsberg East mining operation.
The DOM ore body will initially be mined using the block caving method.
Pre-production development is complete and the first block caving area has
been prepared. All maintenance, warehouse and service facilities are in
place. Production at the DOM has been deferred as a result of the continued
increase in the Grasberg ore reserves.
The mine being developed at the IOZ ore body is situated approximately
350 meters above the 2,900 meter level adit. Delineation drilling and
pre-production development began in 1991. The IOZ is being developed to
gradually replace production from the Ertsberg East mine using the same block
caving method. Mining will proceed downward from the IOZ to the DOZ.
The DOZ, also an underground mine within the 1967 Mining Area, lies
vertically below the IOZ ore body and is currently capable of production.
Initial production from the DOZ commenced in 1989. However, at the end of
1991, mine output from the DOZ was temporarily suspended, and it is
anticipated that it will resume once the IOZ ore body has been depleted
sometime after 1998.
Exploration
In addition to continued delineation of the Grasberg deposit and other
deposits discussed above, PT-FI is continuing its ongoing exploration program
for copper and gold mineralization within the 1967 Mining Area. Three
anomalous zones in the vicinity of PT-FI's current mining activities are under
active exploratory drilling. The Big Gossan and Wanagon mineralizations are
located west of the Ertsberg open pit, south of the Grasberg
copper/gold/silver ore body and anchor the ends of a clearly defined
mineralized structure trending roughly east-west for 4.5 kilometers. The Big
Gossan mineralization, as drilled to date, extends approximately 1,100 meters
from just east of the intersection of the Amole adit. The Amole adit is being
driven at the 2,900 meter level for approximately 4 kilometers from the mill
to the deep levels of the Grasberg deposit, providing a platform from which to
explore deeper mineral potential in a significant portion of the 1967 Mining
Area. The Lembah Tembaga prospect described below is located approximately one
kilometer southwest of the Grasberg deposit.
Over 150 holes have been drilled from the Amole adit and from an
exploration drift being driven from the Amole adit in a westerly direction
parallel to the Big Gossan structure. At December 31, 1993, PT-FI's total
proved and probable reserves included approximately 8.5 million tons of ore at
Big Gossan with an average grade of 2.4% copper, 0.77 grams of gold, and 13.35
grams of silver per ton. In May 1994, PT-FI announced that based upon prior
surface drilling and subsequent underground drilling the total Big Gossan
proved and probable reserves and geologic resource was estimated at
approximately 21.5 million tons (including 8.5 million tons of proved and
probable reserves) at an average grade of 3.3% copper, 1.4 grams of gold and
23 grams of silver per ton. Subsequent drilling indicates a substantial
probable increase in this reserve and resource figure.
Mine planning for development of Big Gossan has commenced with
development estimated to cost approximately $130 million and to begin in late
1994 or early 1995.
During the first quarter of 1993, PT-FI initiated helicopter-supported
surface drilling of the Wanagon gold/silver/copper prospect. Seven holes were
drilled during 1993 at Wanagon, located approximately 2 kilometers northwest
of Big Gossan and approximately 3 kilometers southwest of Grasberg.
Significant copper values have been encountered below the 2,900 meter
elevation. Evaluation of this prospect and similar potential mineral sites
along the Big Gossan-Wanagon structure will be undertaken as the Big Gossan
exploration drift is extended towards the Wanagon prospect.
PT-FI has intercepted mineralization along a 265 meter interval that
averages 1.34% copper, 0.13 grams of gold per ton and 9 grams of silver per
ton at its Lembah Tembaga prospect. The hole was drilled from a surface
elevation of 3,707 meters at a 45 degree angle for a distance of 1,192 meters.
"Stockwork-like" copper mineralization was intersected at 785 meters from
surface and continued in this mineralization through 1,050 meters. With only
one exploration hole into this intrusion, it is not possible to predict the
extent of the mineralization. Three rigs are currently drilling at Lembah
Tembaga to further evaluate the prospect. Target evaluation in other parts of
the 1967 Mining Area is also continuing.
Preliminary exploration of the contiguous 6.5 million acre area has
indicated many promising targets. Extensive stream sediment sampling within
the new acreage has generated analytical results which are being evaluated.
This sampling program, when coupled with the regional mapping completed on the
ground and from aerial photographs and air-magnetometer surveys, has led to
the outlining of over 70 exploration targets. Detailed follow-up exploration
of these anomalies by additional mapping and sampling and through the use of
ground magnetic surveys is now in progress. The extensive geologic data
gathered from surface sampling and the air-magnetometer survey will enable
PT-FI to efficiently direct future exploratory efforts. Drilling of several
of these targets has already commenced.
PT-FI has focused its initial drilling of the contiguous 6.5 million
acreage in an area 35 kilometers north of the Grasberg, an area called the
Hitalipa District, that displays anomalous geochemical and magnetic
characteristics. Although this area requires additional exploratory work,
initial results indicate a large mineralized district that covers three times
the aerial extent or approximately 75,000 acres when compared to the original
24,700-acre Ertsberg District that contains the Ertsberg, Ertsberg East, IOZ,
DOZ, Grasberg, Big Gossan and DOM ore bodies. The discovery of widespread
igneous activity, including volcanic rocks, in the Hitalipa District indicates
the potential for Grasberg-type stockwork and porphyry deposits as well as
skarn-type copper/gold/silver deposits similar to the ore bodies of the
Ertsberg District. Because of its size and number of geologic leads, the
Hitalipa District is likely to be explored for many years.
Site specific work within the Hitalipa District continues where the
drilling of 69 holes at the Wabu prospect has been completed. Approximately 30
of these holes have been concentrated in an area of 200 acres with 26 holes,
or 87%, each intersecting mineralization of at least 1.00 gram per ton gold
over a minimum 3 meter interval. Several holes contain intercepts with grades
exceeding 10 grams of gold per ton over intervals ranging from 6 to 45 meters.
Preliminary analysis indicated a mineral resource of 700,000 to 1.7 million
ounces of gold in the area evaluated by the drill holes. The variation is
dependent upon a 25 to 50 meter radius area of influence around the drill
holes, respectively. This area is open to the east and west and also at
depth. Further drilling will be required to determine the extent and
commercial potential of this resource. PT-FI has initiated drilling programs
on five other prospects within the Hitalipa District. Drilling results are
being interpreted.
No assurance can be given that any of these exploration areas (other than
with respect to amounts included in year-end 1993 reserves) contain
commercially exploitable mineral deposits.
Exploration expenditures in Irian Jaya are expected to be approximately
$38 million for 1994, compared to $31.7 million for 1993.
Milling and Production
Milling. Most of the ore from PT-FI's mines move by a conveyor system to
an ore pass through which it drops to the mill site. At the mill site, which
is located approximately 2,900 meters above sea level, the ore is crushed and
ground. The powdered ore is then mixed in tanks with chemical reagents and
continuously agitated with air. At this stage the copper-bearing concentrate
rises to the top of the tanks from which it is removed and thickened. The
product leaves the mill site as a thickened concentrate slurry, consisting of
approximately 65% solids by weight. During 1993, the recovery rates for the
milling facilities averaged approximately 87.0% of the copper content, 76.2%
of the gold content, and 67.2% of the silver content of the ore processed,
compared to 88.2%, 73.7%, and 65.5%, respectively, during 1992.
Production. In 1993 PT-FI achieved record copper production of 658.4
million recoverable pounds, approximately 6% more than in 1992. Gold
production was a record 786,700 recoverable ounces, an increase of
approximately 23% over 1992. 1993 silver production of 1,541,200 ounces
remained within 10% of its four year average of approximately 1,625,000
recoverable ounces. Copper, gold, and silver production for 1994 is estimated
to be in excess of 710 million recoverable pounds, 775,000 recoverable ounces,
and 1,250,000 recoverable ounces, respectively.
In 1993, PT-FI completed, within budget and ahead of schedule, the
expansion of its production facilities, increasing its mining and milling
capacity from 57,000 MTPD to 66,000 MTPD. Average mill throughput was 62,300
MTPD in 1993 and 57,600 MTPD in 1992. PT-FI has begun work on a further
expansion of its overall mining and milling rate to 115,000 MTPD at an
estimated cost of approximately $685 million, excluding the capital required
for the Enhanced Infrastructure Project (the "EIP") and other infrastructure
improvements. See "Transportation and Other Infrastructure" below. This
production expansion is expected to be completed by year end 1995. Funding
for this expansion will be obtained from cash flow from operations and
additional financing, if required. This expansion is expected to result in
annual production approaching 1.1 billion pounds of copper, 1.5 million ounces
of gold, and 2.4 million ounces of silver.
Transportation and Other Infrastructure
Transportation. From the mill site, the thickened concentrate is pumped
through two 115 kilometer pipelines to the port site facility at Amamapare.
At the port site the slurry is filtered, dried and stored for shipping. The
concentrate is transported by front-end loaders from the storage shed to a
conveyor belt shiploader system. When ships arrive, they are loaded at the
dock facilities at the port site until they draw their maximum water. The
ships then normally move to deeper water, where loading is completed from
shuttling barges.
Other Infrastructure. The location of PT-FI's operations in a remote and
undeveloped area requires that such operations be virtually self-sufficient.
The existing facilities, in addition to those described above, include an
airport, a heliport, a 119 kilometer road with bridges and tunnels, an aerial
service tramway to transport personnel, equipment and supplies to the mines, a
hospital and two town sites with schools, housing and other required
facilities sufficient to support approximately 12,000 persons, including
approximately 360 who are located at the port.
In conjunction with the expansion of the mining and processing facilities
to 115,000 MTPD, the first phase of the EIP is being implemented. The EIP is
a long term program created (1) to provide certain infrastructure facilities
needed for PT-FI's operations, (2) to enhance the quality of conditions for
PT-FI's employees and (3) to develop and promote the growth of local and other
third party activities and enterprises in Irian Jaya through the construction
of certain required physical support facilities. The full EIP includes plans
for various commercial, residential, educational, retail, medical,
recreational, environmental and other infrastructure facilities to be
constructed during the next ten to twenty years; the facilities will be
available for PT-FI's workforce and others. Depending on the long-term success
of PT-FI's exploration program, the total cost of the EIP could range between
$500 million and $600 million. The first phase of the EIP is needed to support
the 115,000 MTPD expansion. FCX anticipates that this will be completed by
mid-1996 and includes various residential, community and commercial
facilities, increases in electric generating capacity and an extension of the
principal road which will enable vehicle traffic to travel all the way to the
port site.
In March 1993, PT-FI entered into a joint venture agreement (the "ALatieF
Joint Venture") with P.T. ALatieF Nusakarya Corporation ("ALatieF"), an
Indonesian investor, pursuant to which PT-FI will sell to P.T. ALatieF
Freeport Infrastructure Corporation ("AFIC") certain existing infrastructure
assets and certain assets to be constructed as part of the EIP for total
consideration of $270 million. AFIC, which is owned one-third by PT-FI and
two-thirds by ALatieF, is expected to purchase approximately $90 million of
EIP assets annually over the period 1993-1995, with funding provided by equity
contributions from the ALatieF Joint Venture partners ($90 million) and debt
financing ($180 million). Debt financing has been secured by a $60 million
bank loan and a $120 million bond issue completed during the first quarter of
1994. The debt instruments are guaranteed by FCX. See "Recent Developments".
The sale of the first group of assets to AFIC, primarily dormitory-style
residential properties and associated food service facilities, was completed
in December 1993, for a price of $90 million. The remaining sales, which are
anticipated for 1994 and later, are subject to the execution of definitive
agreements and certain approvals of the Government. The acquired assets will
be made available to PT-FI and its employees and designees under arrangements
which will provide the ALatieF Joint Venture with a guaranteed minimum rate of
return on its investment.
In December 1993, PT-FI announced the execution of a Letter of Intent
with Duke Energy and PowerLink, pursuant to which PT-FI would sell its
existing and to be constructed power generation and transmission assets and
certain other power-related assets to a joint venture (the "Power Joint
Venture") whose ownership consists of Duke Energy (30%), PowerLink (30%),
PT-FI (30%) and an Indonesian investor (10%). The total value of the
transaction is estimated at $200 million and is expected to be concluded in
two phases. The first sale, representing the existing assets, is expected to
be approximately $100 million and to occur during the second half of 1994. The
other sale, representing the to-be-constructed expansion-related assets, is
expected to occur during the first half of 1995. Under the agreement, the
Power Joint Venture will own these assets and be responsible for providing the
electrical power services required by PT-FI at its mining, milling and support
operations in Irian Jaya, Indonesia including the power services required for
the expansion of ore throughput to 115,000 MTPD.
PT-FI has also entered into two separate letters of intent with respect
to the sale to joint ventures of certain aircraft, airport and related
operations (the "Airport Joint Venture") and certain construction equipment,
port facilities and related marine, logistics and related assets (the "Port
Joint Venture"). PT-FI would have a 25% equity interest in the Airport Joint
Venture, with certain Indonesian investors controlling the remainder. PT-FI
would enter into one or more agreements with the Airport Joint Venture for air
transport services for both passengers and cargo. It is expected that the
purchase price of the assets transferred to the Airport Joint Venture will be
approximately $35 million.
The Port Joint Venture is expected to be owned by a multinational
shipping concern and three to five Indonesian investors. PT-FI is not
expected to have an equity interest in the Port Joint Venture. PT-FI would
enter into one or more agreements with the Port Joint Venture for use of the
transferred assets. It is expected that the purchase price of the assets
transferred to the Port Joint Venture will not exceed $100 million.
The foregoing letters of intent are not binding and are subject to the
execution of definitive agreements, financing, and certain approvals from the
Government. No assurance can be given that any of these transactions will be
consummated.
Marketing
PT-FI's copper concentrates, which contain significant gold and silver
components, are sold primarily under long-term, U.S. dollar-denominated
contracts, pursuant to which the selling price is based on world metals
prices, generally the London Metal Exchange ("LME") settlement prices for
Grade A copper metal, less certain allowances. Under a major long-term
contract signed in late 1990, approximately 34% and 44% of the concentrates
produced by PT-FI in 1992 and 1993, respectively, were sold to a pool of
Japanese copper smelting companies. PT-FI also supplies copper concentrates
to other Asian, European, including RTM, and North American smelters and
international trading companies under long-term sales agreements.
Approximately 66% of 1992 copper production and 99% of 1993 copper production
was sold under long-term contracts, with the balance sold on the spot market.
During 1993, PT-FI supplied RTM with approximately 90,000 tons of copper
concentrate and is expected to supply approximately 150,000 tons in 1994,
providing 20% and 33%, respectively of RTM's requirements in those years.
Beginning in 1996, PT-FI is expected to provide RTM with approximately
one-half of its copper concentrate requirements.
In June 1994, copper prices on the LME rose to above $1.10 per pound, due
to strong demand in the United States and reduced LME copper stocks, compared
with 1993 prices which dropped to the lowest levels since 1987, reflecting
lower demand, particularly in Europe and Japan, caused by a global recession.
PT-FI recently entered into certain contracts that establish price
realizations for substantially all of its expected sales of copper for the
remainder of 1994 resulting in prices of approximately $1.07 per pound for the
second quarter (including a positive adjustment of approximately $9.5 million
to its first quarter sales resulting from price increases on copper pounds
that were not final priced at March 31, 1994 and 64 million pounds of copper
that were priced prior to May 1994), $1.04 per pound for the third quarter and
$1.05 per pound for the fourth quarter. These actions by PT-FI provide it
assured realizations for its 1994 copper concentrate sales that reflect the
relatively high recent price of copper. Copper sales in the first quarter of
1994 averaged $.90 per pound, which exceeded the then current market price as
a result of its $.90 per pound price protection program established during
late 1993. For 1994, PT-FI's average realized copper price is expected to
approximate $1.02 per pound as a result of entering into these contracts.
PT-FI recently extended its price protection program, at a cost of $21.7
million, to cover anticipated copper sales through 1995. For the first half
of 1995, PT-FI's program established a minimum average selling price of $.875
per pound, with full participation in any price increase above an average of
approximately $.97 per pound. For the second half of 1995, PT-FI's program
established an average floor price of $.83 per pound, while allowing full
benefit from prices above that amount.
As conditions warrant, PT-FI may enter into other contracts to lock in
more favorable copper prices during the period covered under the price
protection program. PT-FI has sales commitments from various parties for
virtually all of its estimated 1994 and 1995 production.
Eastern Mining Company, Inc.
FCX's subsidiary, Eastern Mining Company, Inc. ("Eastern Mining") was
granted an exploration permit (the "SIPP") on April 29, 1993 which gives
exclusive rights for a limited period to explore for minerals on 2.5 million
acres (the "SIPP Area") adjacent to the 6.5 million acre exploration area
covered by PT-FI's COW. Preliminary exploration of the SIPP Area is under
way.
A draft of a contract of work ("Eastern Mining Draft") was initialled on
January 30, 1993 by the Ministry of Mines and Energy of Indonesia and Eastern
Mining which covers the SIPP Area. The Eastern Mining Draft will be submitted
to the President of Indonesia, with execution of a definitive contract of work
expected in 1994. The Eastern Mining Draft, as initialled, provides for a
30-year term and for two 10-year extensions under certain circumstances. Upon
execution, an Indonesian limited liability company will be formed to hold the
definitive contract of work which initially is to be owned 80% by Eastern
Mining and 10% by each of PT-II and an unrelated Indonesian corporation.
Reconnaissance activity, including air-magnetometer analysis on the SIPP Area,
has indicated a number of interesting magnetic anomalies, one of which is
located near sea level in an area known as Etna Bay. It is believed that this
expansive magnetic anomaly indicates igneous material intruding sedimentary
rocks and appears to be on trend with and contains geologic characteristics
similar to those exhibited in the 1967 Mining Area. FCX is currently drilling
with one rig at its Etna Bay prospect and is in the process of bringing a
second rig into the area.
RTM
In March 1993, FCX acquired a 65% interest in RTM, which is principally
engaged in the smelting and refining of copper concentrates in Spain, for
approximately $50 million, excluding transaction costs. In December 1993, RTM
redeemed the remaining 35% interest for approximately $19 million. RTM has
signed a contract to expand its smelter production capacity from its current
150,000 tons of metal per year to approximately 270,000 tons of metal per year
by early 1996 at a cost of approximately $215 million. The expansion is
expected to be financed through project financing and RTM's internal cash
flows. During 1993, PT-FI supplied RTM with approximately 90,000 tons of
copper concentrates and is expected to supply approximately 150,000 tons in
1994, providing for approximately 20% and 33%, respectively, of RTM's
requirements in those years. Beginning in 1996, PT-FI is expected to provide
the RTM smelter with approximately one-half of its copper concentrate
requirements. RTM also conducts gold mining operations in Spain with an
estimated mine life of less than four years. For further information
concerning RTM, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" herein.
USE OF PROCEEDS
The net proceeds from the sale of the Depositary Shares offered hereby
(estimated to be approximately $ million before deduction of expenses,
assuming no exercise of the over-allotment options described under
"Underwriting") will be used for general corporate purposes, including
continued expansion of mining and milling activities. See "Capitalization".
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 1994 and as adjusted to give effect to the sale of the
Depositary Shares offered hereby (assuming no exercise of the over-allotment
option) and the sale of the 9 3/4% Senior Notes due 2001, as described under
"Recent Developments".
March 31, 1994
-----------------------
Actual As Adjusted
---------- -----------
Cash and short-term investments $ 37,651 $
========== ==========
RTM short-term borrowings and
current portion of long-term debt $ 42,455 $ 42,455
Current portion of RTM gold and
silver denominated loans(1) 13,774 13,774
Current portion of ALatieF medium-term bank loan 3,000 3,000
---------- ----------
Total current debt 59,229 59,229
---------- ----------
RTM notes payable to banks 1,936 1,936
RTM gold and silver denominated loans(1) 22,066 22,066
Note payable to FTX 23,793 23,793
ALatieF medium-term bank loan 56,250 56,250
9 3/4% Senior Notes due 2001 -- 119,876
---------- ----------
Total long-term debt 104,045 223,921
---------- ----------
Minority interests 57,378 57,378
---------- ----------
Gold-Denominated Preferred Stock
represented by depositary shares, issued and
outstanding 300,000 shares 232,620 232,620
Gold-Denominated Preferred Stock, Series II,
represented by depositary shares, Series II,
issued and outstanding 215,279 shares 167,379 167,379
Silver-Denominated Preferred Stock represented
by the Depositary Shares offered hereby --
---------- ---------
399,999
---------- ----------
Stockholders' equity:
Preferred Stock, par value $.10,
2,000,000 shares authorized:(2)
Step-Up Convertible Preferred Stock represented
by depositary shares, issued and
outstanding 700,000 shares(3) 350,000 350,000
Special Stock, par value $.10,
110,000,000 shares authorized:(2)
Special Preference Stock represented
by depositary shares, issued and
outstanding 26,400,000 shares 224,400 224,400
Class A Common Stock, issued and
outstanding 63,803,313 shares(4) 6,380 6,380
Class B Common Stock, par value $.10,
authorized 200,000,000 shares, issued
and outstanding 142,129,602 shares 14,213 14,213
Capital in excess of par value 423,486
Cumulative foreign currency translation adjustment (5,886) (5,886)
Retained earnings 13,560 13,560
--------- ----------
Total stockholders' equity 1,026,153
--------- ----------
Total capitalization $1,646,804 $
========== ==========
(1) Payable with the cash equivalent of 98,600 ounces of gold (of which
36,800 ounces are due within one year) and 847,200 ounces of silver (of
which 423,600 ounces are due within one year) which are carried at the
market prices of gold ($331.70 per ounce) and silver ($3.70 per ounce),
respectively, at the date of acquisition.
(2) The number of authorized shares of Preferred Stock and Special Stock were
increased to 50,000,000 and 250,000,000, respectively, at the May 5, 1994
annual meeting of stockholders.
(3) In addition to the 515,279 currently outstanding shares of
Gold-Denominated Preferred Stock.
(4) Does not include (a) approximately 11.6 million shares of Class A Common
Stock authorized for issuance upon conversion of the Step-Up Preferred
Stock, or (b) approximately 9.1 million shares of Class A Common Stock
authorized for issuance upon conversion of the Special Preference Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1994 Compared with Three Months Ended March 31,
1993
The results of FCX include its majority owned subsidiaries, including
PT-FI and RTM. First-quarter 1993 operating results do not include RTM, since
the acquisition took place at the end of March 1993.
FCX's first-quarter 1994 net income applicable to common stock totaled
$13.6 million ($.07 per share) compared with a loss of $5.2 million ($.03 per
share) for the 1993 period. Income for the 1993 period was negatively
impacted by restructuring charges of $3.4 million ($1.9 million to net income
or $.01 per share) for personnel costs relating to a reduction in staff
engaged in administrative services on behalf of FCX by FTX. First-quarter 1993
earnings also reflect the cumulative effect of changes in accounting principle
reducing net income by $9.9 million ($.05 per share).
A reconciliation of first-quarter revenues is presented below (in
millions):
First Quarter
-------------
Revenues - 1993 $133.5
Increases (decreases):
RTM revenues 111.9
Elimination of intercompany sales (31.0)
PT-FI sales:
Price realizations:
Copper (9.7)
Gold 7.7
Volumes:
Copper 15.8
Gold 23.3
Treatment charges 5.0
Adjustments to prior period concentrate sales 9.6
Other 0.1
------
Revenues - 1994 $266.2
======
Revenues were negatively impacted by a 7% decrease in copper price
realizations partially offset by a 17% increase in gold price realizations.
Copper sales volumes increased 13% between periods. Increased mill throughput
was partially offset by lower grades which were 9% lower. Gold sales volumes
increased 43% over the 1993 period reflecting increased mill throughput and a
16% increase in gold grades. See operating statistics below. Treatment
charges declined due to a tightening in the concentrate market as the
industry's inventories were reduced for much of 1993 and into 1994 and because
of lower copper prices as treatment charges vary to an extent with the price
of copper. Adjustments to prior period concentrate sales for the current
quarter resulted in a positive adjustment of $2.6 million, primarily caused by
favorable adjustments to the gold content of prior period sales, compared to
the 1993 period when falling copper prices resulted in a $7.0 million negative
adjustment.
In June 1994, copper prices on the LME rose to above $1.10 per pound, due
to strong demand in the United States and reduced LME copper stocks, compared
with 1993 prices which dropped to the lowest levels since 1987, reflecting
lower demand, particularly in Europe and Japan, caused by a global recession.
PT-FI recently entered into certain contracts that establish price
realizations for substantially all of its expected sales of copper for the
remainder of 1994 resulting in prices of approximately $1.07 per pound for the
second quarter (including a positive adjustment of approximately $9.5 million
to its first quarter sales resulting from price increases on copper pounds
that were not final priced at March 31, 1994 and 64 million pounds of copper
that were priced prior to May 1994), $1.04 per pound for the third quarter and
$1.05 per pound for the fourth quarter. These actions by PT-FI provide it
assured realizations for its 1994 copper concentrate sales that reflect the
relatively high recent price of copper. Copper sales in the first quarter of
1994 averaged $.90 per pound, which exceeded the then current market price as
a result of its $.90 per pound price protection program established during
late 1993. For 1994, PT-FI's average realized copper price is expected to
approximate $1.02 per pound as a result of entering into these contracts.
PT-FI recently extended its price protection program, at a cost of $21.7
million, to cover anticipated copper sales through 1995. For the first half
of 1995, PT-FI's program established a minimum average selling price of $.875
per pound, with full participation in any price increase above an average of
approximately $.97 per pound. For the second half of 1995, PT-FI's program
established an average floor price of $.83 per pound, while allowing full
benefit from prices above that amount.
As conditions warrant, PT-FI may enter into other contracts to lock in
more favorable copper prices during the period covered under the price
protection program. PT-FI has sales commitments from various parties for
virtually all of its estimated 1994 and 1995 production.
PT-FI OPERATIONS
Three Months Ended
March 31,
---------------------
1993 1994
------- -------
Ore milled (MTPD) 61,300 73,400
Ore grade:
Copper 1.51% 1.37%
Gold (grams per ton) 1.16 1.34
Silver (grams per ton) 4.17 3.00
Recovery rate:
Copper 86.1% 83.0%
Gold 73.7% 69.7%
Silver 63.8% 61.2%
Copper (000s of recoverable pounds):
Production 150,600 160,500
Sales 138,100 155,700
Average realized price(1) $.97 $.90
Gold (recoverable ounces):
Production 146,800 190,800
Sales 140,300 201,300
Average realized price $326.93 $381.67
Silver (recoverable ounces):
Production 352,500 306,000
Sales 329,600 304,400
Average realized price $3.78 $4.93
Gross profit per pound of copper:
Average realized price 97.4 Cents 90.0 Cents
------- -------
Production costs:
Site production and delivery 50.2 59.4
Gold and silver credits (33.3) (48.9)
Treatment charges 25.2 23.1
Royalty on recoverable metals 2.2 1.4
------- ------
Cash production costs 44.3 35.0
Depreciation and amortization 8.7 8.1
------- ------
Total production costs 53.0 43.1
------- ------
Revenue adjustments(2) (6.6) 0.6
------- ------
Gross profit per pound 37.8 Cents 47.5 Cents
======= ======
- --------------
(1) FCX recognized $6.3 million (excluding $1.5 million in amortized cost)
in the first quarter of 1994 as a result of the price protection program
discussed above. Excluding amounts recognized under this program, the
realization for the first quarter of 1994 would have been $.86 per pound.
(2) Reflects adjustments primarily for prior period concentrate sales (net of
related amounts recognized under the price protection program) and
amortization of the cost of the price protection program.
PT-FI's first-quarter mill throughput rate increased 20% compared with
the 1993 period as the expansion activities continue toward a level of 115,000
MTPD by year-end 1995. PT-FI site production and delivery costs totaled $92.5
million for the first quarter of 1994, a 33% increase over the 1993 period.
Unit site production and delivery costs during the 1994 quarter increased by
18% over the year ago period resulting from lower production per ton mined
(the result of lower copper grades and recoveries), higher jobsite
administrative expenses, and expansion related activities. Unit site
production and delivery costs increased 20% over the fourth quarter of 1993
when production was 26% higher. The lower copper grades alone accounted for
approximately one-half of the per unit cost increase over the year ago period
and about two-thirds of the increase over the previous quarter. For the
second quarter of 1994, site production and delivery costs per pound are
expected to approximate those of the first quarter. Site production and
delivery costs per pound are expected to decline in the second half of the
year as grades and recoveries are anticipated to increase.
First-quarter 1994 per pound gold and silver credits increased 47% over
the 1993 period because of higher gold grades (16%) and realizations (17%).
Effective January 1, 1994, as a result of reserve additions, PT-FI's
depreciation rate decreased to 7.5 cents per pound compared with 8.3 cents for
1993. Additionally, FCX is amortizing costs in excess of book value ($.9
million for first-quarter 1994 and $.6 million for first-quarter 1993)
relating to certain capital stock transactions with PT-FI.
First-quarter 1994 general and administrative expenses were $23.1
million, compared with $16.9 million in the 1993 quarter as a result of
additional personnel and administrative effort required to manage the
expanding operations, financing for the expansions at PT-FI and RTM, and the
inclusion of RTM results during the current period. In the first quarter of
1994, FCX recorded a $1.9 million reduction to its general and administrative
expenses resulting from a change in the estimate of cost relating to excess
office space. The initial estimated cost, recorded in the second quarter of
1993, resulted from the restructuring of FTX's administrative organization.
Further increases in future general and administrative expenses by FCX are
anticipated in conjunction with continuing expansion at PT-FI and RTM.
Exploration expenses, currently budgeted at $44 million for 1994,
including $6 million for RTM, totaled $8.0 million in the first quarter of
1994 compared with $6.4 million in the 1993 period, as FCX aggressively
explored prospects in Irian Jaya and Spain.
FCX's total interest cost (before capitalization) was reduced to $5.9
million in the first quarter of 1994 from $10.8 million in the 1993 period as
a result of (i) a lower interest rate from the restructuring of PT-FI's credit
agreement in June 1993; (ii) a reduction in debt using proceeds from the sale
of preferred stock in the second half of 1993 and the first quarter of 1994;
and (iii) conversions of FCX's zero coupon exchangeable notes, partially
offset by $2.7 million of interest cost from RTM. FCX's preferred stock
dividends totaled $12.3 million in 1994 and $3.9 million in 1993.
The COW provides a 35% corporate income tax rate for PT-FI and a 15%
withholding tax on interest for debt incurred after the signing of the COW and
on dividends paid to FCX by PT-FI. The additional withholding required on
interest and dividends paid to FCX by PT-FI totaled $7.1 million for 1994 and
$5.1 million for 1993 resulting in an effective tax rate of 44% in the first
quarter of 1994 compared with 52% in the 1993 period.
RTM OPERATIONS Three Months Ended
March 31, 1994
------------------
Smelter operations (tons):
Concentrate treated 118,000
Anode production 37,900
Cathode production 34,600
Gold operations:
Ore milled (MTPD) 18,100
Gold grade (grams per ton) 1.04
Sales (recoverable ounces) 37,400
Average realized price(1) $346.33
- ------------
(1) Includes a negative hedging adjustment of $37.91 per ounce.
For the first quarter of 1994, RTM contributed earnings of $1.7 million.
RTM's smelter operated at 92% of capacity for the first quarter of 1994,
approximately 5% below budget, primarily due to an absorption tower breakdown
in March which was repaired within a few days. Smelter operating rates are
forecast to be at 97% for the remainder of 1994. RTM has commitments from
most of its suppliers for 1994 treatment charge rates in excess of current
spot market rates. Cathode refinery operations were not affected by this
breakdown as there was sufficient anode inventory on hand to continue to run
the tankhouse at full capacity. RTM's gold operations realized a mill
throughput level slightly above fourth-quarter 1993 levels, although current
quarter gold production was 15% below fourth-quarter 1993 primarily due to
lower ore grades and lower gold recovery rates. Gold production for the
remainder of 1994 is expected to remain at current levels.
Capital Resources and Liquidity
Cash flow from operations increased to $81.6 million during the first
quarter of 1994, compared with $47.9 million for the 1993 period, reflecting
higher net income, a decrease in accounts receivable from collection of
fourth-quarter 1993 sales, and an increase in accounts payable and accrued
liabilities related to expansion activities.
First-quarter 1994 cash flow used in investing activities totaled $174.2
million, reflecting a $67.5 million increase in capital expenditures for
continued plant expansion at PT-FI, the EIP as discussed below, and capital
expenditures at RTM. Cash flow provided by financing activities totaled
$116.5 million compared with $39.4 million used in financing activities during
the 1993 period. Dividend payments increased by $8.1 million because of
increased common shares outstanding and dividends paid on depositary shares
issued during the second half of 1993. In January 1994, FCX received $158.5
million from the sale of depositary shares representing its Gold-Denominated
Preferred Stock, Series II. See "Recent Developments".
In April 1994, a subsidiary of FCX completed a public offering of 9 3/4%
Senior Notes due 2001, which resulted in net proceeds of $116.3 million to be
used to purchase infrastructure assets from PT-FI as discussed below.
At March 31, 1994, FCX had $37.7 million of cash and short-term
investments, compared with $13.8 million at December 31, 1993. These funds
along with the $272.0 million availability at June 30, 1994 under the PT-FI
credit facility, anticipated cash flow from operations, third-party financing
for RTM's smelter expansion discussed below, the net proceeds from the sale of
the 9 3/4% Senior Notes, and proceeds from the sale of assets to the EIP joint
venture, provide flexibility for dividend payments and ongoing operational,
developmental, and exploratory needs. Capital expenditures for 1994, net of
the anticipated infrastructure asset sales, are estimated to be approximately
$380 million.
The full EIP (currently expected to involve aggregate cost of as much as
$500 million to $600 million to be completed in stages) includes plans for
commercial, residential, educational, retail, medical, recreational,
environmental and other infrastructure facilities to be constructed during the
next 20 years for PT-FI operations. The EIP will develop and promote the
growth of local and other third-party activities and enterprises in Irian Jaya
through the creation of certain necessary support facilities. The initial
phase of the EIP is under construction and is scheduled for completion in
1996. Additional expenditures for EIP assets beyond the initial phase depend
on the long-term growth of PT-FI's operations and would be expected to be
funded by third-party financing sources, which may include debt, equity or
asset sales. As discussed below, certain portions of the EIP and other
existing infrastructure assets are expected to be sold in the near future to
provide additional funds for the expansion to 115,000 MTPD.
During 1993, PT-FI entered into a joint venture agreement with ALatieF
which provides for the sale of certain portions of the to-be-constructed
infrastructure assets and certain existing assets by PT-FI to AFIC (owned
one-third by PT-FI and two-thirds by ALatieF) for total consideration of $270
million. The sale of the first group of assets to AFIC was completed in
December 1993 for a price of $90 million. Debt financing for the remaining
sales, which are anticipated for 1994 and later, was finalized in April 1994
through the public offering of $120 million of 9 3/4% Senior Notes Due 2001,
which are guaranteed by FCX.
PT-FI has also entered into Letters of Intent to sell: (i) existing and
to-be-constructed power generation and transmission assets and certain other
power-related assets; (ii) certain aircraft, airport and related operations;
and (iii) certain construction equipment, port facilities and related marine,
logistics and related assets to other joint ventures. The sales to these
joint ventures are expected to generate approximately $315 million (net of
equity contributions) over the next two years to be used to fund the EIP and
the expansion to 115,000 MTPD. The foregoing letters of intent are not
binding and are subject to the execution of definitive agreements, financing,
and certain approvals of the Government.
RTM's principal operations currently consist of a copper smelter with an
annual capacity of 150,000 tons of metal. In June 1994, RTM signed a turnkey
contract with a German company to complete an expansion program of its smelter
to 270,000 tons of metal per year by early 1996. The contract requires
payments in both deutsche marks and pesetas; however RTM has hedging
arrangements that fix the cost of the expansion program at approximately $215
million. A project financing, which is nonrecourse to FCX, of $270 million
has been arranged, relating primarily to the expansion. This project financing
will also provide funds for refinancing RTM's gold and silver loans and
working capital loans. RTM's future cash flow is dependent on a number of
variables including fluctuations in the exchange rate between the U.S. dollar
and the Spanish peseta, future prices and sales volumes of gold, the timing of
the completion of the smelter expansion, and the supply/demand for smelter
capacity and its impact on related treatment and refining charges. PT-FI has
a long-term contract with RTM to provide the smelter with a significant
portion of its copper concentrate requirements.
Through 1995, FCX's capital expenditures are expected to be greater than
cash flow from operations. Upon completion of the previously announced
115,000 MTPD expansion by year-end 1995, annual production is expected to
approach 1.1 billion pounds of copper, 1.5 million ounces of gold and 2.4
million ounces of silver. Subsequently, capital expenditures will be
determined by the results of FCX's exploration activities and ongoing capital
maintenance programs. Estimated capital expenditures for 1994 and 1995 for
the expansion to 115,000 MTPD, the initial phase of the EIP, ongoing capital
maintenance expenditures, and the expansion of RTM's smelter to 270,000 tons
of metal per year are expected to range from $1.1 billion to $1.2 billion and
will be funded by operating cash flow, sales of existing and to-be-constructed
infrastructure assets and a wide range of financing sources FCX believes are
available as a result of the future cash flow from PT-FI's mineral reserve
asset base and RTM's smelter operations. These sources include, but are not
limited to, PT-FI's credit facility and the public and private issuances of
securities. The Company's long-lived, low-cost reserve base provides its
potential access to a broad range of sources of capital.
The COW contains provisions for PT-FI to conduct or cause to be conducted
a feasibility study relating to the construction of a copper smelting facility
in Indonesia and for the eventual construction of such a facility by PT-FI, if
it is deemed to be economically viable by PT-FI and the Government. FCX
recently announced that PT-FI and RTM have now taken the lead role in
developing the proposed 150,000 to 200,000 tons of metal per year copper
smelter in Gresik, Indonesia. It is contemplated that PT-FI would provide
approximately 50% of the annual concentrate requirements of the Gresik
smelter. Preliminary engineering on the proposed smelter has been completed,
and the smelter could be operational as early as 1998.
Payment of future dividends by FCX will depend on the payment of
dividends by PT-FI, which, in turn, depends on PT-FI's economic resources,
profitability, cash flow, and capital expenditures. It is the policy of PT-FI
to maximize its dividend payments to stockholders, taking into account its
operational cash needs including debt service requirements. FCX currently pays
an annual cash dividend of 60 cents per share to its common shareholders.
Management anticipates that this dividend will continue at this level through
completion of the expansion in 1995, absent significant changes in the prices
of copper and gold. However, FCX's Board of Directors determines its dividend
payment on a quarterly basis and in its discretion may change or maintain the
dividend payment. In determining dividend policy, the Board of Directors
considers many factors, including current and expected future prices and sales
volumes, future capital expenditure requirements, and the availability and
cost of financing from third parties.
In May 1994, FTX announced that it intends to pursue a plan to separate
its two principal businesses, copper/gold and agricultural minerals, into two
independent financial and operating entities. To accomplish this, FTX would
make a pro rata distribution of its common stock ownership in FCX to the FTX
shareholders. As a result of this distribution, which will require a series
of steps to implement over the next six to twelve months, FTX would no longer
own any interest in FCX. Under the plan, the FTX and FCX senior management
team would retain their positions with the independent companies. In
connection with this restructuring plan, the existing revolving credit
agreement of FCX and FTX will be repaid and a new facility of FCX will be put
in place. It is anticipated that the new facility will relate only to FCX and
PT-FI, eliminating any ties to FTX or to the level of FTX borrowings. It is
anticipated that no debt of FTX or its other subsidiaries will be assumed by
FCX in the restructuring. The proposed restructuring is contingent on a
number of factors including changing the voting rights of FCX so that the
Class B stockholders elect 80% of the FCX directors and the Class A
stockholders and preferred stockholders elect the balance. This change in
voting rights will be subject to approval of the Class A shareholders.
DESCRIPTION OF SILVER-DENOMINATED PREFERRED STOCK
General
The following summary description of the Silver-Denominated Preferred
Stock offered hereby supplements the description of the terms of the Preferred
Stock set forth under the caption "Description of Preferred Stock" in the
accompanying Prospectus. The statements herein and in the Prospectus are
summaries of certain provisions relating to the capital stock of the Company
and are qualified in their entirety by the provisions of the Company's
Certificate of Incorporation, a copy of which has been filed with the
Securities and Exchange Commission as an exhibit to the Registration Statement
of which the Prospectus forms a part and the Certificate of Designations for
the Silver-Denominated Preferred Stock which will be filed with the Secretary
of State of the State of Delaware. A holder of the Depositary Shares offered
hereby is not entitled to receive the shares of Silver-Denominated Preferred
Stock underlying the Depositary Shares, and the description of the
Silver-Denominated Preferred Stock should therefore be read in connection with
the discussion under "Description of Depositary Shares".
The Company will serve as transfer agent and registrar with respect to
the Silver-Denominated Preferred Stock.
No payment of dividends or any other amounts due in respect of the
Depositary Shares is or will be secured by any silver reserves of the Company
or PT-FI.
Dividends
The Depositary (as defined below under "Description of Depositary
Shares"), as the holder of record of all outstanding shares of
Silver-Denominated Preferred Stock, will be entitled to receive, out of funds
legally available therefor, cumulative cash dividends, payable quarterly, in
an amount equal to the Dollar Equivalent Value (as defined below) of
ounces of silver per share of Silver-Denominated Preferred Stock, in each case
when, as and if declared by the Board of Directors of the Company.
The Depositary will distribute dividends paid in respect of the
Silver-Denominated Preferred Stock to holders of Depositary Receipts in
proportion to the number of Depositary Shares held, as described under
"Description of Depositary Shares -- Dividends and other Distributions". For
the first twenty quarters after the Issue Date, holders of Depositary Shares
will be entitled to receive, out of funds legally available therefor,
cumulative cash dividends payable quarterly in an amount equal to the Dollar
Equivalent Value of ounces of silver per Depositary Share per quarter
(representing an annual dividend rate of % (the "Annual Dividend Rate") of
the Principal Silver Balance), in each case when, as and if the related
dividend in respect of the Silver-Denominated Preferred Stock is declared by
the Board of Directors of the Company. For the twenty-first and subsequent
quarters after the Issue Date, the holders of Depositary Shares will be
entitled to receive, out of funds legally available therefor, cumulative cash
dividends, payable quarterly, in an amount equal to the Dollar Equivalent
Value of the number of ounces of silver constituting the then Principal Silver
Balance multiplied by the Annual Dividend Rate divided by four, in each case
when, as and if the related dividend in respect of the Silver-Denominated
Preferred Stock is declared by the Board of Directors of the Company.
Dividends on the Silver-Denominated Preferred Stock will accrue and be
cumulative from the date of its original issue and will be payable to the
holder of record on such respective record dates as may be fixed by the Board
of Directors in advance of the payment of each dividend. See "Description of
Preferred Stock--Dividends" in the accompanying Prospectus. After full
cumulative dividends on the Silver-Denominated Preferred Stock for all past
and current quarterly dividend periods have been paid in full, the
Silver-Denominated Preferred Stock will not be entitled to participate in any
further distributions of the Company. The first quarterly dividend will be
payable on November 1, 1994 and will be based upon the number of days the
Depositary Shares are outstanding through such date. On or before the fifth
business day preceding each record date for the payment of a dividend in
respect of the Silver-Denominated Preferred Stock, the Company will cause to
be published in The Wall Street Journal (Eastern Edition) or, if such
newspaper is not then published, in a newspaper or other publication of
national circulation, the amount of the dividend payable in respect of each
Depositary Share on the next succeeding dividend payment date.
The "Principal Silver Balance" in respect of any Depositary Share will be
four ounces of silver less the cumulative reduction in the amount of silver
represented by the annual redemption payments that have theretofore been made
(calculated on a per Depositary Share basis). See "-- Redemption" below.
The following table sets forth the hypothetical quarterly dividend
payments at an assumed Annual Dividend Rate of 3.75% and at various assumed
Reference Silver Prices:
<TABLE>
<CAPTION>
Each of
four
quarterly Hypothetical Quarterly Dividend Payment at Assumed Annual
dividend Principal Dividend Rate of 3.75% and an Assumed Reference
payments Silver Silver Price per Ounce of:
commencing Balance --------------------------------------------------------------
Nov. 1, (Oz.): $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00
- ---------- --------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994(1) 4.0 $0.113 $0.150 $0.188 $0.225 $0.263 $0.300 $0.338 $0.375
1995 4.0 0.113 0.150 0.188 0.225 0.263 0.300 0.338 0.375
1996 4.0 0.113 0.150 0.188 0.225 0.263 0.300 0.338 0.375
1997 4.0 0.113 0.150 0.188 0.225 0.263 0.300 0.338 0.375
1998 4.0 0.113 0.150 0.188 0.225 0.263 0.300 0.338 0.375
1999 3.5 0.098 0.131 0.164 0.197 0.230 0.263 0.295 0.328
2000 3.0 0.084 0.113 0.141 0.169 0.197 0.225 0.253 0.281
2001 2.5 0.070 0.094 0.117 0.141 0.164 0.188 0.211 0.234
2002 2.0 0.056 0.075 0.094 0.113 0.131 0.150 0.169 0.188
2003 1.5 0.042 0.056 0.070 0.084 0.098 0.113 0.127 0.141
2004 1.0 0.028 0.038 0.047 0.056 0.066 0.075 0.084 0.094
2005 0.5 0.014 0.019 0.023 0.028 0.033 0.038 0.042 0.047
<FN>
- -------------
(1) Initial dividend will be based on the number of days the Depositary
Shares are outstanding through November 1, 1994.
</TABLE>
Whenever the Silver-Denominated Preferred Stock provides for the Company
to make a payment of accrued and unpaid dividends (i) in the case of any offer
to purchase Depositary Shares due to a failure to meet the Reserve Coverage
Ratio on any Calculation Date, (ii) in the case of any optional redemption of
the Depositary Shares and (iii) in the case of a liquidation event, such
accrued and unpaid dividends per Depositary Share will be equal to the sum of
(a) the aggregate amount of any accrued and unpaid dividends on such
Depositary Share through the end of the next preceding quarterly dividend
period plus (b) a proportionate amount of the Dollar Equivalent Value of the
then Principal Silver Balance for the period from the day following the
immediately preceding quarterly payment date through the redemption date, the
Purchase Date (as defined below) or date of a liquidating distribution
(calculated on the basis of a year of 360 days consisting of twelve 30-day
months), multiplied by %, where the Reference Silver Price (as defined
below) is the amount used to calculate the other amounts payable to holders of
Depositary Shares in connection with such redemption, purchase or liquidation
event. If a quarterly dividend is not declared and paid as provided above, the
unpaid dividend that shall cumulate for such quarter will be the amount of the
dividend that would have been payable on the quarterly dividend payment date
if such dividend had been timely paid.
Voting Rights
Except for the voting rights described below and in the Prospectus and
except as otherwise provided by law, the holders of shares of
Silver-Denominated Preferred Stock will not be entitled to vote on any matter
or to receive notice of, or to participate in, any meeting of stockholders of
the Company.
In lieu of the voting rights described in the last sentence of the first
paragraph under "Description of Preferred Stock--Voting" in the accompanying
Prospectus, and so long as any shares of Silver-Denominated Preferred Stock
remain outstanding, the Company will not, without the affirmative vote or
consent of the holders of at least two-thirds of the shares of the
Silver-Denominated Preferred Stock (voting separately as a class), given in
person or by proxy, either in writing or at a meeting, amend, alter or repeal,
whether by merger, consolidation or otherwise, the provisions of the
Certificate of Incorporation, so as to materially and adversely affect any
right, preference, privilege or voting power of the Silver-Denominated
Preferred Stock or the holders thereof or create, authorize or issue any
series or class of stock ranking senior to the shares of Silver-Denominated
Preferred Stock with respect to dividends or distribution of assets upon
liquidation, dissolution or winding up; provided, however, that any increase
in the total number of authorized shares of Class A Common Stock, Special
Stock or Preferred Stock or the creation, authorization or issuance of any
series of stock of the Company ranking, as to dividends or distribution of
assets upon liquidation, dissolution or winding up of the affairs of the
Company, on a parity with, or junior to the shares of the Silver-Denominated
Preferred Stock will not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers. See "Description of
Preferred Stock--Voting" in the accompanying Prospectus.
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, after payment or provision for payment of the debts
and other liabilities of the Company and of dividends and liquidation
preferences in respect of any other stock of the Company ranking senior to the
Silver-Denominated Preferred Stock as to such payments, the holders of
Depositary Shares will be entitled to receive, out of the remaining net assets
of the Company, the Dollar Equivalent Value of the Principal Silver Balance
per Depositary Share in cash plus accrued and unpaid dividends (calculated as
described above under "--Dividends") on a pari passu basis with the holders of
the Gold-Denominated Preferred Stock; the Gold-Denominated Preferred Stock,
Series II; the Special Preference Stock; the Step-Up Preferred Stock; and any
other stock of the Company ranking on a parity with the Silver-Denominated
Preferred Stock and senior to any distribution being made or set apart for the
holders of the Class A or Class B Common Stock or any other stock of the
Company ranking junior to the Silver-Denominated Preferred Stock as to
dividends and distribution of assets upon liquidation, dissolution or winding
up of the affairs of the Company. See "Description of Preferred
Stock--Liquidation" in the accompanying Prospectus. For purposes of this
section, a consolidation or merger of the Company with one or more other
companies or the sale of all or substantially all of the assets of the Company
shall not be deemed to be a voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company.
Redemption
The shares of Silver Denominated Preferred Stock will be redeemed by the
Company on August 1 of each year beginning in 1999, out of funds legally
available therefor, in the quantities set forth in the table below. The
proceeds of such redemption will be distributed to the holders of the
Depositary Shares on a pro rata basis. The redemption payment amount per share
of Silver-Denominated Preferred Stock will be the Dollar Equivalent Value of
160 ounces of silver (equivalent to 0.5 ounces of silver annually per
Depositary Share), plus accrued and unpaid dividends to the redemption date.
Each such redemption payment will reduce the Principal Silver Balance
(initially four ounces for each Depositary Share) by 0.5 ounces for each
Depositary Share. As a result of such annual redemption of the
Silver-Denominated Preferred Stock, the number of shares of Silver-Denominated
Preferred Stock represented by each of the Depositary Shares will decrease in
proportion to the reduction in the Principal Silver Balance, as set forth
below:
Portion of one
share of Silver-
Denominated
Reduction in Preferred Stock
Principal Portion of then- Represented by
Silver Balance outstanding Silver- one Depositary
per Depositary Denominated Preferred Share after such
August 1, Share Stock to be redeemed redemption
--------- -------------- --------------------- -----------------
1999 0.5 ounces one eighth .021875
2000 0.5 ounces one seventh .018750
2001 0.5 ounces one sixth .015625
2002 0.5 ounces one fifth .012500
2003 0.5 ounces one fourth .009375
2004 0.5 ounces one third .006250
2005 0.5 ounces one half .003125
2006 0.5 ounces all remaining shares --
The Depositary Shares will not be subject to redemption at the option of
the Company, except that if at any time the total number of Depositary Shares
outstanding shall be less than 15% of the total number of Depositary Shares
outstanding immediately after the Offering (after giving effect to any
exercise of the over-allotment options described under "Underwriting"), the
Company shall have the option to redeem such outstanding Depositary Shares in
whole but not in part, on any subsequent quarterly dividend payment date, out
of funds legally available therefor, at a redemption price equal to the Dollar
Equivalent Value of the Principal Silver Balance plus accrued and unpaid
dividends on the underlying Silver-Denominated Preferred Stock to the dated
fixed for redemption (calculated as described above under "-- Dividends"). For
purposes of determining the number of Depositary Shares outstanding on any
payment date, Depositary Shares acquired by the Company on or prior to such
payment date and not theretofore delivered to the Depositary for cancellation
shall be deemed to be outstanding. Notice of any such optional redemption will
be mailed to holders of Depositary Shares within 30 days after such payment
date, and such notice shall specify a date for redemption not less than 30
days nor more than 60 days after the date of such mailing.
The Company will not have the right to redeem the Depositary Shares
pursuant to the foregoing mandatory or optional redemption provisions unless
full cumulative dividends for all past dividend periods shall have been paid
or declared and set aside for payment upon all Depositary Shares and all
outstanding shares of other series of stock of the Company ranking, as to
dividends, on a parity with the Depositary Shares.
If the Company shall have failed to make any required annual redemption,
then, until it shall have redeemed all outstanding Silver-Denominated
Preferred Stock then required to be redeemed, the Company may not (i) declare,
pay or set apart any amounts for dividends on, or make any other distribution
in cash or other property in respect of, any Junior Stock (as defined in the
accompanying Prospectus) other than a dividend payable solely in Junior Stock,
(ii) purchase, redeem or otherwise acquire for value any shares of Junior
Stock, directly or indirectly, other than as a result of a reclassification,
exchange or conversion of one Junior Stock for or into another Junior Stock,
or other than through the use of proceeds of a substantially contemporaneous
sale of other Junior Stock, (iii) make any payment on account of, or set aside
money for, a sinking or other like fund for the purchase, redemption or other
acquisition for value of any shares of Junior Stock or (iv) purchase, redeem
or otherwise acquire for value any shares of Silver-Denominated Preferred
Stock or any other class of stock ranking on a parity with the
Silver-Denominated Preferred Stock as to dividends or distribution of assets
upon liquidation, dissolution or winding up, or any depositary shares in
respect thereof ("Parity Stock"). If the funds available for such mandatory
redemption are insufficient to redeem all outstanding shares of
Silver-Denominated Preferred Stock and any other series of Parity Stock which
the Company is then obligated to redeem or purchase, the total available funds
shall be divided among the Silver-Denominated Preferred Stock and such other
series in proportion to the aggregate amount of redemption or other purchase
obligations with respect to such Silver-Denominated Preferred Stock and such
other series.
If, at the time of any redemption or a Reserve Coverage Offer, the funds
of the Company legally available for redemption or repurchase of the
Depositary Shares are insufficient to redeem or repurchase such Depositary
Shares, those funds legally available shall be used to redeem or repurchase
the maximum possible number of Depositary Shares, pro rata based upon the
number of Depositary Shares to be redeemed or delivered for purchase, as the
case may be. At any time thereafter when additional funds of the Company
become legally available for such purpose, such funds shall immediately be
used to redeem or purchase, as the case may be, any additional Depositary
Shares which the Company is obligated to redeem or purchase, as the case may
be, but which it has not so redeemed or purchased.
Reserve Coverage Offer
Within 90 days following each Calculation Date (as defined below), the
Company shall be required to prepare a certificate setting forth its
determination of the Reserve Amount (as defined below) as of such Calculation
Date. If the Reserve Amount, as shown on the certificate prepared by the
Company (a "Company Certificate") with respect to any Calculation Date, is
less than the Aggregate Reserve Requirement (as defined below) as of such
Calculation Date, the Company will be required to make an offer to purchase,
out of funds legally available therefor, at a price equal to the liquidation
preference applicable thereto as of the Purchase Date (as defined below), plus
accrued and unpaid dividends on the underlying Silver-Denominated Preferred
Stock to the date of repurchase, a sufficient number of Depositary Shares and
of other Silver Parity Stock (as defined below) (or the depositary shares, if
any, issued with respect thereto) so that, if all such shares had been
repurchased on the relevant Calculation Date, the Reserve Amount on that date
would have been greater than or equal to the Aggregate Reserve Requirement on
such date. If the Company Certificate prepared with respect to any Calculation
Date shows that the Reserve Amount is less than the Aggregate Reserve
Requirement on such date, the Company shall include in such Company
Certificate its calculation of the number of Depositary Shares and the number
of shares of other Silver Parity Stock (or related depositary shares) it
intends to offer to purchase to satisfy the foregoing requirements (such
number with respect to any series being referred to as the "Offer Amount" with
respect to such series). The Company, in its sole discretion, may determine
the number of shares of each series of Silver Parity Stock (or related
depositary shares) including the Depositary Shares to which an offer (a
"Reserve Coverage Offer") will be made so long as such requirements are
satisfied.
At December 31, 1993, the Reserve Amount would have been approximately
3.45 times the aggregate liquidation preference applicable to 4,750,080
Depositary Shares.
If required to make a Reserve Coverage Offer, the Company will commence
such offer not more than 60 days after the date of the Company Certificate
prepared with respect to the applicable Calculation Date, such offer to be
completed on a date (the "Purchase Date") not less than 30 nor more than 60
days after the date of commencement of such offer. If the offer includes any
Depositary Shares, the Company will mail to all holders of record of the
Depositary Shares a notice stating the terms of such Reserve Coverage Offer.
On the Purchase Date, the Company will accept for payment the number of shares
tendered pursuant to the Reserve Coverage Offer to the holders of any series
equal to the Offer Amount with respect to such series or such lesser number of
shares of such series as shall have been tendered. If the aggregate number of
shares tendered with respect to such series exceeds the applicable Offer
Amount with respect to such series, the Company shall select the shares of
such series to be purchased on a pro rata basis as nearly as may be
practicable. The Company shall, as promptly as reasonably practicable after
the Purchase Date, cause payment to be mailed or delivered to each tendering
holder in the amount of the purchase price, and any unpurchased shares to be
returned to the holder thereof.
The Company will not consummate or permit any subsidiary to consummate
any transaction which would cause the Reserve Amount to fall below the
Aggregate Reserve Requirement immediately after consummation of such
transaction unless the Company has sufficient legally available funds
immediately following consummation of such transaction to complete any Reserve
Coverage Offer required as a result thereof.
If funds available for any Reserve Coverage Offer are insufficient to
purchase a number of Depositary Shares equal to the Offer Amount (or such
lesser number of Depositary Shares as are tendered in response to such offer)
and any other series of Parity Stock which the Company is then obligated to
redeem or purchase, the total available funds shall be divided among the
Depositary Shares and such other series in proportion to the aggregate amount
of redemption and other purchase obligations with respect to the Depositary
Shares and such other series.
"Calculation Date" means (i) December 31 of each year and (ii) the date
of consummation of each transaction undertaken by the Company or any
subsidiary of the Company which would either (a) cause the Reserve Amount, as
estimated by the Company, to decrease by 50% or more from the next preceding
Calculation Date or (b) cause the Reserve Amount, as estimated by the Company,
to fall below the Aggregate Reserve Requirement on such date.
"Silver Parity Stock" means the Silver-Denominated Preferred Stock and
any other series of Parity Stock the liquidation preference of which is
expressed in silver or the Dollar Equivalent Value thereof.
The "Aggregate Reserve Requirement" as of any Calculation Date means the
sum of the individual Reserve Coverage Requirements with respect to each
series of Silver Parity Stock, including the Silver-Denominated Preferred
Stock.
The "Reserve Coverage Requirement" with respect to any series of Silver
Parity Stock shall mean the product of (x) the aggregate liquidation
preference of all outstanding shares of such series (expressed in ounces of
silver) times (y) the Required Coverage Multiplier (as defined below)
applicable to such series. With respect to the Silver-Denominated Preferred
Stock and any other series of Silver Parity Stock with respect to which
depositary shares have been issued, the liquidation preference of such series
shall be determined on the basis of the number of such depositary shares as
are issued and outstanding as of the applicable Calculation Date (excluding
any depositary shares which have been acquired by the Company or any affiliate
thereof on or prior to the date of the preparation of the Company Certificate
with respect to such Calculation Date).
The "Required Coverage Multiplier" means (i) 2.0 with respect to the
Silver-Denominated Preferred Stock, (ii) with respect to any other series of
Silver Parity Stock having the benefit of a provision requiring an offer
similar to the Reserve Coverage Offer, the multiplier applicable thereto under
the terms of such other series, and (iii) 1.0 with respect to any other series
of Silver Parity Stock.
The "Reserve Amount" as of any Calculation Date means the Company's
Proportionate Interest in the estimated proved and probable silver reserves of
the Company and of any entity in which the Company has a direct or indirect
beneficial ownership interest. The estimated proved and probable silver
reserves shall be determined based upon evaluation methods generally applied
by the mining industry. The Company's "Proportionate Interest" in any
estimated proved and probable silver reserves shall be the Company's direct or
indirect beneficial ownership interest in such reserves, giving effect to
reductions required to reflect any beneficial ownership interest of any person
other than the Company in such reserves.
Dollar Equivalent Value and Reference Silver Price
"Dollar Equivalent Value" means the Reference Silver Price multiplied by
the applicable number of ounces of silver.
"Reference Silver Price" means when used to calculate the amount of any
dividend payable on any quarterly dividend payment date or of any annual or
optional redemption payment, the arithmetic average of the London silver
fixing price for an ounce of silver in the London bullion market on each of
the twenty trading days ending on the second trading day prior to the last day
of the calendar quarter immediately preceding such quarterly date, as
published in the Wall Street Journal (or, if such prices are not published in
the Wall Street Journal, as published in the Financial Times). When used to
calculate any other amount payable with respect to the Depositary Shares or to
purchase any Depositary Shares on any date, the "Reference Silver Price" means
the arithmetic average of the London silver fixing price for an ounce of
silver in the London bullion market on each of the twenty trading days ending
on the second trading day prior to (i) in the case of a Reserve Coverage
offer, the date of commencement thereof and (ii) in the case of a liquidation
event, the date 30 days prior to the date fixed for the liquidating
distribution. If for any reason silver is not traded during any relevant
period in the London bullion market or is not quoted in U.S. dollars in such
market, silver will be valued during such period or portion thereof, as the
case may be, on the basis of trading prices, quoted in U.S. dollars, in the
then principal international trading market for silver as determined by the
Company's Board of Directors.
DESCRIPTION OF DEPOSITARY SHARES
Each Depositary Share will initially represent 0.025 shares of
Silver-Denominated Preferred Stock deposited under the Deposit Agreement,
dated as of July , 1994 (the "Deposit Agreement"), among the Company, Mellon
Securities Trust Company, as Depositary (the "Depositary"), and all holders
from time to time of depositary receipts issued thereunder (the "Depositary
Receipts"). Subject to the terms of the Deposit Agreement, each owner of a
Depositary Share is entitled, proportionately, to all the rights, preferences
and privileges of the Silver-Denominated Preferred Stock represented thereby
(including dividend, voting, redemption, and liquidation rights), and subject
to all of the limitations of the Silver-Denominated Preferred Stock
represented thereby, contained in the Company's Certificate of Incorporation
and the Certificate of Designations for the Silver-Denominated Preferred Stock
and summarized under "Description of Silver-Denominated Preferred Stock".
The Depositary Shares are evidenced by the Depositary Receipts. The
following summary of the terms and provisions of the Depositary Shares does
not purport to be complete and is subject to, and qualified in its entirety
by, the Deposit Agreement (which contains the form of the Depositary Receipt),
which is filed as an exhibit to the Registration Statement of which the
accompanying Prospectus is a part. Copies of the Deposit Agreement are
available for inspection at the New York Office (as defined in the Deposit
Agreement) of the Depositary, located as of the date of this Prospectus
Supplement at 120 Broadway, New York, New York.
The Depositary will act as transfer agent and registrar and paying agent
with respect to the Depositary Shares.
Issuance of Depositary Receipts
Immediately following the issuance of the Silver-Denominated Preferred
Stock by the Company, the Company will deposit the Silver-Denominated
Preferred Stock with the Depositary, which will then issue and deliver the
Depositary Receipts to the Company. The Company will, in turn, deliver the
Depositary Receipts to the Underwriters. Depositary Receipts will be issued
evidencing only whole Depositary Shares. A holder of Depositary Shares is not
entitled to receive the shares of Silver-Denominated Preferred Stock
underlying the Depositary Shares.
Redemption of Depositary Shares
As described under "Description of Silver-Denominated Preferred
Stock--Redemption", the Silver-Denominated Preferred Stock is subject to
redemption annually, out of funds legally available therefor, beginning on the
twenty-first quarterly dividend payment date. The proceeds of such redemption
will be distributed to the holders of the Depositary Shares on a pro rata
basis. The Depositary Shares will not be subject to redemption upon such
annual redemption of the Silver-Denominated Preferred Stock but the number of
shares of Silver-Denominated Preferred Stock represented by each of the
Depositary Shares will decrease in proportion to the reduction in the
Principal Silver Balance. See "Description of Silver-Denominated Preferred
Stock-- Redemption".
Dividends and Other Distributions
The Depositary will distribute all cash dividends or other cash
distributions in respect of the Silver-Denominated Preferred Stock to the
record holders of Depositary Receipts in proportion to the numbers of such
Depositary Shares owned by such holders.
In the event of a distribution other than cash in respect of the
Silver-Denominated Preferred Stock, the Depositary will distribute property
received by it to the record holders of Depositary Receipts entitled thereto,
unless the Depositary determines that it is not feasible to make such
distributions, in which case the Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
The amount distributed in any of the foregoing cases will be reduced by
any amount required to be withheld by the Company or the Depositary with
respect to tax liability.
Record Date
Whenever (i) any cash dividends or other cash distributions (including in
respect of annual redemptions of Silver-Denominated Preferred Stock) shall
become payable, any distribution other than cash shall be made, or any rights,
preferences or privileges shall be offered with respect to the
Silver-Denominated Preferred Stock, or (ii) the Depositary shall receive
notice of any meeting at which holders of Silver-Denominated Preferred Stock
are entitled to vote or of which holders of Silver-Denominated Preferred Stock
are entitled to notice, the Depositary upon instruction by the Company shall
in each such instance fix a record date (which shall be the same date as the
record date for the Silver-Denominated Preferred Stock) for the determination
of the holders of Depositary Receipts (x) who shall be entitled to receive
such dividends, distributions, rights, preferences or privileges or the net
proceeds of the sale thereof or (y) who shall be entitled to give instructions
for the exercise of voting rights at any such meeting or to receive notice of
such meeting, subject to the provisions of the Deposit Agreement.
Voting of Silver-Denominated Preferred Stock
Upon receipt of notice of any meeting at which holders of
Silver-Denominated Preferred Stock are entitled to vote, the Depositary will
mail the information contained in such notice of meeting to the record holders
of Depositary Receipts. Each record holder of Depositary Receipts on the
record date (which will be the same date as the record date for the
Silver-Denominated Preferred Stock) will be entitled to instruct the
Depositary as to the exercise of the voting rights pertaining to the number of
shares of Silver-Denominated Preferred Stock represented by such holder's
Depositary Shares. The Depositary will endeavor, insofar as practicable, to
vote the number of shares of Silver-Denominated Preferred Stock represented by
such Depositary Shares in accordance with such instructions, and the Company
has agreed to take all reasonable action which may be deemed necessary by the
Depositary in order to enable the Depositary to do so. To the extent the
Depositary does not receive specific instructions from the holders of
Depositary Shares relating to such Silver-Denominated Preferred Stock, it will
not vote shares of Silver-Denominated Preferred Stock.
Amendment of Deposit Agreement
The form of Depositary Receipts and any provision of the Deposit
Agreement may at any time be amended by agreement between the Company and the
Depositary. However, any amendment which materially and adversely alters the
rights of holders of Depositary Shares will not take effect unless such
amendment has been approved by the record holders of at least a majority of
the Depositary Shares then outstanding.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary is based on the advice of Miller & Chevalier,
Chartered, tax counsel to the Company, and describes all material federal
income tax consequences of acquiring and owning Depositary Shares representing
shares of Silver-Denominated Preferred Stock that relate to the Depositary
Shares and the stock itself rather than to the tax status or particular
circumstances of the holder; thus, for example, the summary does not discuss
the treatment of holders that are subject to special tax rules, such as banks,
insurance companies, personal holding companies and tax-exempt entities. The
summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, court decisions and Internal Revenue Service
("IRS") rulings now in effect, all of which are subject to change. The summary
assumes that holders will hold their Depositary Shares representing shares of
Silver-Denominated Preferred Stock as "capital assets." Since this summary is
not intended as a substitute for careful tax planning and opinions of counsel
are not binding on the courts, prospective purchasers are advised to consult
their own tax advisors regarding the tax consequences of acquiring, holding or
disposing of the Depositary Shares representing shares of Silver-Denominated
Preferred Stock in light of their personal investment circumstances, and the
consequences under state, local and foreign tax laws.
Depositary Shares
Owners of Depositary Shares will be treated for federal income tax
purposes as owning the number of shares of Silver-Denominated Preferred Stock
represented by the Depositary Shares. Accordingly, a holder of Depositary
Shares will be treated as having a tax basis in the shares of
Silver-Denominated Preferred Stock represented by those Depositary Shares
equal to the holder's tax basis in the Depositary Shares, and such holder will
be required to include in income any dividends or other distributions with
respect to the Silver-Denominated Preferred Stock on the same basis as the
holder would have if the holder had held the Silver-Denominated Preferred
Stock directly. Each annual payment beginning August 1, 1999, in redemption of
a portion of the Silver-Denominated Preferred Stock will reduce the Principal
Silver Balance, as described above, and the number of shares of
Silver-Denominated Preferred Stock represented by each Depositary Share will
decrease in proportion to the reduction in the Principal Silver Balance. Each
such redemption payment will be treated for federal income tax purposes, and
reported by the Company, as a distribution in redemption of a portion of the
holder's Silver-Denominated Preferred Stock. See "Redemption for Cash" below.
The following summary relates only to the Silver-Denominated Preferred Stock
since the holders of the Depositary Shares are treated as owning the shares of
Silver-Denominated Preferred Stock represented thereby.
Dividends on Silver-Denominated Preferred Stock
Miller & Chevalier, Chartered has advised the Company that, in its
opinion, under existing law, the Silver-Denominated Preferred Stock will be
treated as stock of the Company for federal income tax purposes. There are,
however, no court cases, federal income tax regulations, or IRS rulings
dealing with certain features of the Silver-Denominated Preferred Stock, and
differing conclusions are possible. Assuming the Silver-Denominated Preferred
Stock is treated as stock of the Company, distributions with respect thereto
will constitute dividends to the extent that the Company has either current or
accumulated earnings and profits for federal income tax purposes. Dividends
paid to corporations will generally be eligible for the corporate dividends
received deduction under section 243 of the Code (the "dividends-received
deduction"), subject to the limitations contained in sections 246 and 246A of
the Code.
In general, under section 246(c), the dividends-received deduction is
available only if the stock in respect of which the dividends are paid is held
for at least 46 days (at least 91 days in the case of a dividend attributable
to a period or periods aggregating more than 366 days). A taxpayer's holding
period for these purposes is reduced by periods during which the taxpayer has
diminished its risk of loss by holding one or more other positions in or with
respect to substantially similar or related property. Prospective purchasers
who hold or intend to hold other positions in silver or other property that is
substantially similar to Silver-Denominated Preferred Stock should consult
their tax advisors regarding these rules. Under section 246A, the
dividends-received deduction will be reduced or eliminated if a corporation
has indebtedness "directly attributable to its investment" in portfolio stock.
Shares of Silver-Denominated Preferred Stock generally will be portfolio stock
for purposes of these rules. Prospective corporate purchasers of
Silver-Denominated Preferred Stock should consult their tax advisors to
determine whether these limitations might apply to them.
If distributions with respect to the shares of Silver-Denominated
Preferred Stock exceed the Company's current and accumulated earnings and
profits, the excess would be treated as a return of capital to the extent of
the holder's tax basis in the Silver-Denominated Preferred Stock. Any amount
in excess of the amount of the dividend and the return of capital would be
treated as capital gain.
Extraordinary Dividends
If a corporate holder of Silver-Denominated Preferred Stock receives an
"extraordinary dividend" from the Company with respect to the stock, the basis
of the Silver-Denominated Preferred Stock must be reduced (but not below zero)
by the portion of the dividend which is not taxed because of the
dividends-received deduction. In general, a dividend will be "extraordinary"
if (1) the amount of such dividend, alone or when aggregated with all
dividends which have ex-dividend dates within the same period of 365
consecutive days, exceeds a certain percentage of the stockholder's adjusted
basis in the Silver-Denominated Preferred Stock (or, if the holder so elects
and certain other conditions are met, the fair market value of the stock on
the date before the ex-dividend date) and the stockholder has not held the
stock for two years (determined under the principles of section 246(c)
described above) as of the earliest of the date on which the Company declares,
announces, or agrees to the payment of such dividend, or (2) it is received in
a redemption of Silver-Denominated Preferred Stock that is treated, in whole
or in part, as a dividend and that either is not pro rata as to all
stockholders or is part of a partial liquidation within the meaning of section
302(e) of the Code. Additionally, it is possible that the Silver-Denominated
Preferred Stock could be treated as "disqualified preferred stock" under
section 1059(f) because the issue price of the stock is considered to exceed
its liquidation "rights" or its "stated redemption price," in which case all
dividends would be treated as extraordinary dividends. There are no
regulations under section 1059(f), and it is unclear how the section would be
applied to the Silver-Denominated Preferred Stock. If any part of the
non-taxed portion of an extraordinary dividend does not reduce basis as a
result of the limitation on reducing basis below zero, such part will be
treated as gain upon sale or exchange of the Silver-Denominated Preferred
Stock in the taxable year in which the sale or disposition of the
Silver-Denominated Preferred Stock occurs.
Redemption Premium
Under current Treasury regulations under section 305(c) of the Code, if a
corporation issues stock which may be redeemed after a specified period of
time at a price that exceeds the issue price by an amount greater than a
reasonable redemption premium, the entire amount of such excess will be
considered to be a constructive distribution to the holders and a dividend to
the extent of the corporation's current and accumulated earnings and profits
which is constructively received by the holders ratably over the period of
time during which the stock cannot be called for redemption. Additionally, the
Treasury is authorized to issue regulations under which a redemption premium
that is greater than a specified de minimis amount on preferred stock that is
subject to mandatory redemption will be treated as a distribution of
additional stock to the holders on an economic accrual basis over the period
that the stock is outstanding. On June 22, 1994, the Treasury issued proposed
regulations regarding the treatment under section 305 of stock redeemable at a
premium by the issuer, including rules applicable to preferred stock subject
to mandatory redemption. It is unclear how the statutory provisions or the
proposed regulations would apply to the Silver- Denominated Preferred Stock,
because the amount to be paid upon redemption cannot be determined until the
time of redemption. Based upon current law and in the absence of future
developments, the Company has no current intention to report any amount as a
constructive distribution.
Redemption for Cash
The redemption of shares of Silver-Denominated Preferred Stock by the
Company for cash on each annual redemption date, at maturity, or as a result
of a Reserve Coverage Offer will be a taxable event. For this purpose, each
annual payment beginning on August 1, 1999, in redemption of a portion of the
Silver-Denominated Preferred Stock will be treated as a payment in redemption
of a portion of the holder's Silver-Denominated Preferred Stock, rather than a
redemption of all or part of a Depositary Share. See "Depositary Shares"
above. The amount of cash received upon redemption, excluding any amounts
representing accrued, declared, but unpaid dividends and any amounts treated
as constructive distributions under section 305(c), will be treated as a
distribution taxable as a dividend to redeeming stockholders to the extent of
the Company's current or accumulated earnings and profits unless the
redemption (a) results in a complete termination of the stockholder's interest
in the Company (within the meaning of section 302(b)(3) of the Code), (b) is
substantially disproportionate (within the meaning of section 302(b)(2)) with
respect to the holder, or (c) is "not essentially equivalent to a dividend"
(within the meaning of section 302(b)(1)) with respect to the holder. In
determining whether any of these tests is met, shares considered to be owned
by the holder by reason of the constructive ownership rules described in
section 318 of the Code, as well as shares actually owned, will be taken into
account. If any of the foregoing tests are met, the redemption of shares of
Silver-Denominated Preferred Stock for cash will result in taxable gain or
loss based on the difference between the amount of cash received and the
holder's tax basis in the redeemed share or fraction of a share (rather than
the holder's tax basis in the Depositary Share) (see "Depositary Shares"
above), and the gain or loss would be capital gain or loss. Based on a
published IRS ruling, the redemption of a stockholder's Silver-Denominated
Preferred Stock for cash will be treated as "not essentially equivalent to a
dividend" if, taking into account the constructive ownership rules, (1) the
stockholder's relative stock interest in the Company is minimal, (2) the
stockholder exercises no control over the Company's affairs and (3) the
stockholder experiences a reduction in his proportionate interest in the
Company.
Backup Withholding
Under the backup withholding provisions of the Code and applicable
Treasury regulations, a holder of shares of Silver-Denominated Preferred Stock
may be subject to backup withholding at the rate of 31% with respect to
dividends or the proceeds of a sale, exchange or redemption of shares of
Silver-Denominated Preferred Stock unless (a) such holder is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact or (b) provides a taxpayer identification number, certifies as to no
loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. The amount of any
backup withholding from a payment to a holder will be allowed as a credit
against the holder's U.S. federal income tax liability and may entitle such
holder to a refund, provided that the required information is furnished to the
IRS.
Special Tax Rules Applicable to Foreign Holders
For purposes of the following discussion, a "United States Alien Holder"
is any holder who, for U.S. federal income tax purposes, is a foreign
corporation, a nonresident alien individual, an estate or trust the income of
which is not subject to United States taxation regardless of source, or a
foreign partnership to the extent it has as a member any of the foregoing
persons.
A United States Alien Holder generally will be taxed in the same manner
as a U.S. corporation or resident with respect to dividends paid by the
Company on Silver-Denominated Preferred Stock, if the dividend income is
effectively connected with a U.S. trade or business. If such dividend income
is not so effectively connected, then the dividends paid on the
Silver-Denominated Preferred Stock (except in the circumstances described in
the following paragraphs) will be subject to a U.S. federal withholding tax at
a 30% (or, if applicable, lower treaty) rate upon the actual payment of the
dividends. Effectively connected dividends received by a corporate United
States Alien Holder may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% (or, if applicable, lower treaty)
rate.
If at least 80% of the Company's gross income for the relevant period is
foreign source income attributable to non-U.S. active business operations,
payment of dividends on the Silver-Denominated Preferred Stock will be subject
to U.S. federal withholding tax only to the extent of that portion of the
dividend which corresponds to the portion of the Company's total gross income
for the relevant period that is derived from U.S. sources. The relevant period
is the three-year period ending with the close of the taxable year of the
Company preceding its taxable year in which the dividend is paid. For 1993,
the Company has determined that only 1.25% of dividends paid to United States
Alien Holders were subject to U.S. federal withholding tax.
For purposes of this exception to the U.S. federal withholding tax,
interest received by the Company from PT-FI and dividends received by the
Company from PT-FI are characterized as active foreign business income in the
same proportion as PT-FI's active foreign business income bears to its total
gross income. Significantly more than 80% of PT-FI's income has been and is
likely to continue to be active foreign business income and, consequently,
significantly less than 20% of the dividend distributions from the Company to
United States Alien Holders is likely to be subject to U.S. federal
withholding tax. If, however, less than 80% of PT-FI's income were active
foreign business income (or the Company earned sufficient income from sources
other than active foreign business income so that less than 80% of its gross
income were active foreign business income), then all of the Company's
dividend distributions to United States Alien Holders would be subject to U.S.
federal withholding tax.
A United States Alien Holder generally will not be subject to U.S.
federal income or withholding tax on any gain realized on the sale or exchange
of the Silver-Denominated Preferred Stock unless (i) the gain is derived from
sources within the United States and the holder is an individual who was
present in the United States for 183 days or more during the taxable year or
(ii) the gain is effectively connected with a U.S. trade or business.
Generally, dividends paid to United States Alien Holders outside the
United States that are subject to the 30% (or a reduced treaty) rate of
withholding tax will be exempt from United States backup withholding tax and
United States information reporting requirements (other than reporting of
dividend payments for purposes of the withholding tax noted above). Generally,
the payor of the dividends may rely on a payee's address outside the United
States in determining that the withholding discussed above applies, and
consequently, that the backup withholding provisions do not apply.
The payment of the proceeds of the sale of Silver-Denominated Preferred
Stock to or through the United States office of a broker is subject to
information reporting and possible backup withholding at a rate of 31% unless
the owner certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption. The payment of the proceeds of the sale of
Silver-Denominated Preferred Stock to or through the foreign office of a
broker generally will not be subject to this backup withholding tax. In the
case of the payment of proceeds from the disposition of Silver-Denominated
Preferred Stock through a foreign office of a broker that is a U.S. person or
a "U.S. related person," existing regulations require information reporting on
the payment unless the broker has documentary evidence in its files that the
owner is a non-U.S. Person and the broker has no actual knowledge to the
contrary. For this purpose, a "U.S. related person" is (i) a "controlled
foreign corporation" for United States federal income tax purposes, or (ii) a
foreign person 50% or more of whose gross income from all sources for a
specified period is derived from activities that are effectively connected
with the conduct of a U.S. trade or business. While regulations currently in
effect reserve on the question of whether reportable payments made through
foreign offices of a broker that is a U.S. person or "U.S. related person"
will be subject to backup withholding, proposed regulations state that backup
withholding will not apply to such payments (absent actual knowledge that the
payee is a U.S. person). Any amounts withheld under the backup withholding
rules from a payment to a United States Alien Holder (as defined above) will
be allowed as a refund or a credit against such United States Alien Holder's
United States federal income tax, provided that the required information is
furnished to the IRS.
LEGAL MATTERS
The validity of the Silver-Denominated Preferred Stock represented by
the Depositary Shares will be passed upon for the Company by Davis Polk &
Wardwell and for the U.S. Underwriters and the International Managers by
Sullivan & Cromwell. The tax matters under "Certain Federal Income Tax
Consequences" will be passed upon for the Company by Miller & Chevalier,
Chartered, tax counsel to the Company. Certain matters arising under the
commodities laws of the United States will be passed upon for the U.S.
Underwriters and the International Managers by Cleary, Gottlieb, Steen &
Hamilton.
UNDERWRITING
The underwriters of the U.S. Offering (the "U.S. Underwriters"), for
whom Lehman Brothers Inc., Goldman, Sachs & Co., Kidder, Peabody & Co.
Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
S.G.Warburg & Co. Inc. are acting as representatives (the "Representatives"),
have severally agreed, subject to the terms and conditions of the U.S.
Underwriting Agreement, to purchase from the Company the aggregate number of
Depositary Shares set forth opposite their names below:
Number of
U.S. Underwriters Depositary Shares
----------------- -----------------
Lehman Brothers Inc.
Goldman, Sachs & Co.
Kidder, Peabody & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
S.G.Warburg & Co. Inc.
---------
Total 3,800,000
=========
The managers of the concurrent offering of Depositary Shares outside the
United States (the "International Managers"), for whom Lehman Brothers
International (Europe), Goldman Sachs International, Kidder, Peabody
International plc, Merrill Lynch International Limited and S.G. Warburg
Securities Ltd. are acting as the lead managers (the "Lead Managers"), have
severally agreed, subject to the terms and conditions of the International
Underwriting Agreement, to purchase from the Company the aggregate number of
Depositary Shares set forth opposite their names below:
Number of
International Managers Depositary Shares
---------------------- -----------------
Lehman Brothers International (Europe)
Goldman Sachs International
Kidder, Peabody International plc
Merrill Lynch International Limited
S.G. Warburg Securities Ltd.
-------
Total 950,080
=======
The U.S. Underwriting Agreement and the International Underwriting
Agreement provide that the obligations of the U.S. Underwriters and the
International Managers to purchase the Depositary Shares are subject to
certain conditions, including that, if any of the Depositary Shares are
purchased by the U.S. Underwriters pursuant to the U.S. Underwriting Agreement
or by the International Managers pursuant to the International Underwriting
Agreement, all of the Depositary Shares must be so purchased under the U.S.
Underwriting Agreement and the International Underwriting Agreement. The
offering price and underwriting discounts and commissions under the
underwriting agreements are identical. The closing under the International
Underwriting Agreement is a condition to the closing under the U.S.
Underwriting Agreement, and the closing under the U.S. Underwriting Agreement
is a condition to the closing under the International Underwriting Agreement.
The Company has granted to the U.S. Underwriters and the International
Managers options to purchase up to an additional 570,000 Depositary Shares and
142,320 Depositary Shares, respectively, exercisable solely to cover
overallotments, at the same offering price as the initial offering price to
the public, less the underwriting discount, shown on the cover page of this
Prospectus Supplement. Either or both of such options may be exercised at any
time until 30 days after the date of the U.S. Underwriting Agreement and the
International Underwriting Agreement, respectively. To the extent that either
option is exercised, each U.S. Underwriter or International Manager, as the
case may be, will be committed, subject to certain conditions, to purchase the
number of Depositary Shares proportionate to such U.S. Underwriter's or
International Manager's initial commitment as indicated in the preceding
tables.
The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers, pursuant to
which each U.S. Underwriter has agreed that, as part of the distribution of
the 3,800,000 Depositary Shares (plus any of the 570,000 Depositary Shares to
cover over-allotments) offered in the U.S. Offering, (i) it is not purchasing
any such Depositary Shares for the account of anyone other than a U.S. Person
(as defined below) and (ii) it has not offered or sold, and will not offer,
sell, resell or deliver, directly or indirectly, any of such shares or
distribute any prospectus relating to the United States offering to anyone
other than a U.S. Person. In addition, pursuant to such agreement each
International Manager has agreed that, as part of the distribution of the
950,080 Depositary Shares (plus any of the 142,320 Depositary Shares to cover
over-allotments) offered in the International Offering, (i) it is not
purchasing any such Depositary Shares for the account of a U.S. Person and
(ii) it has not offered or sold, and will not offer, sell, resell or deliver,
directly or indirectly, any of such Depositary Shares or distribute any
prospectus relating to the international offering to any U.S. Person. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the U.S. Underwriting Agreement or the
International Underwriting Agreement and the Agreement Between U.S.
Underwriters and International Managers, including (i) certain purchases and
sales between the U.S. Underwriters and the International Managers, (ii)
certain offers, sales, resales, deliveries or distributions to or through
investment advisors or other persons exercising investment discretion, (iii)
purchases, offers or sales by a U.S. Underwriter who is also acting as an
International Manager or by an International Manager who is also acting as a
U.S. Underwriter and (iv) other transactions specifically approved by the
Representatives and the Lead Managers.
As used herein, (a) the term "United States" means the United States of
America (including the states thereof and the District of Columbia) and its
territories, its possessions and other areas subject to its jurisdiction and
(b) the term "U.S. Person" means any resident or national of the United
States, any corporation, partnership or other entity created or organized in
or under the laws of the United States or any estate or trust, the income of
which is subject to United States federal income taxation regardless of its
source (other than a foreign branch of any U.S. Person), and includes a United
States branch of a person other than a U.S. Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made among the U.S. Underwriters and the International
Managers of such number of Depositary Shares as may be mutually agreed upon.
The price of any Depositary Shares sold shall be the public offering price as
then in effect for Depositary Shares being sold by the U.S. Underwriters and
the International Managers, less the selling concession allocable to such
Depositary Shares. To the extent that there are sales between the U.S.
Underwriters and the International Managers pursuant to the Agreement Between
U.S. Underwriters and International Managers, the number of Depositary Shares
initially available for sale by the U.S. Underwriters or by the International
Managers may be more or less than the amount appearing on the cover page of
this Prospectus Supplement.
Each International Manager has stated and agreed that (i) it is not
carrying on investment business in the United Kingdom in contravention of
Section 3 of the Financial Services Act of 1986; (ii) it has not offered or
sold and, for so long as Part III of the Companies Act, 1985 remains in force,
it will not offer or sell in the United Kingdom by means of any document, any
Depositary Shares other than to persons whose ordinary business it is to buy
or sell shares or debentures, whether as principle or agent (except under
circumstances which do not constitute an offer to the public within the
meaning of the Companies Act, 1985); and (iii) it has not issued or caused to
be issued and it will not issue or cause to be issued in the United Kingdom
any investment advertisement (within the meaning of the Financial Services Act
1986) relating to the Depositary Shares or (subject to and upon Part V of the
Financial Services Act 1986 coming into operation) any advertisement offering
the Depositary Shares, which advertisement is a primary or secondary offer
within the meaning of the Financial Services Act of 1986, except, in any such
case, in compliance with provisions applicable under the Financial Services
Act of 1986 and, in particular, it has not given and will not give copies of
this document to any person in the United Kingdom who does not fall within
Article 9(3) of the Financial Services Act of 1986 (Investment Advertisements)
(Exemptions) Order 1988.
The Company has agreed that until 90 days after the date of the U.S.
Underwriting Agreement, without the prior written consent of the U.S.
Underwriters, it will not offer, sell, contract to sell or otherwise dispose
of any securities of the Company which are, or which are convertible into or
exchangeable or exercisable for securities which are, substantially similar to
the Depositary Shares offered hereby or the underlying Silver-Denominated
Preferred Stock other than the Depositary Shares offered hereby and the
underlying Silver-Denominated Preferred Stock offered hereby.
Purchasers of the Depositary Shares offered hereby may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.
The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments that the U.S.
Underwriters or the International Managers may be required to make in respect
thereof.
The U.S. Underwriters have from time to time provided investment banking
services to the Company for which they have received customary fees.
EXPERTS
The Company's reserves as of December 31 for the years 1989 through 1993
included herein and incorporated by reference in the accompanying Prospectus
have been verified by Independent Mining Consultants, Inc., and such reserve
information has been included herein and incorporated by reference in the
accompanying Prospectus in reliance upon the authority of such firm as experts
in mining, geology and ore reserve determination.
APPENDIX
Set forth at page S-4 herein is a graph. The graph shows the
Company's annual silver reserves from 1989 to 1993 with millions of
recoverable ounces from zero to one hundred on the vertical axis and the
years 1989, 1990, 1991, 1992 and 1993 on the horizontal axis. The graph
indicates that the Company's silver reserves, in millions of ounces, were
27.2 in 1989, 34.7 in 1990, 50.0 in 1991, 44.7 in 1992 and 76.7 in 1993.
Set forth below is an ASCII approximation of the graph.
Silver Reserves (2)
100:-----------------------------------------
: :
: :
80: 76.7 :
: XXXX :
: XXXX :
60: XXXX :
Millions of : 50.0 XXXX :
Recoverable : XXXX 44.7 XXXX :
Ounces 40: 34.7 XXXX XXXX XXXX :
: 27.2 XXXX XXXX XXXX XXXX :
: XXXX XXXX XXXX XXXX XXXX :
20: XXXX XXXX XXXX XXXX XXXX :
: XXXX XXXX XXXX XXXX XXXX :
: XXXX XXXX XXXX XXXX XXXX :
0:-----------------------------------------
1989 1990 1991 1992 1993
- --------------
(1) As used herein, "ton" refers to a metric ton, which is equivalent to
2,204.62 pounds on a dry weight basis.
(2) Reflects 100% of PT-FI's estimated proved and probable silver reserves at
the end of each of the years shown, as verified by Independent Mining
Consultants, Inc. and has not been adjusted for the minority ownership in
PT-FI. (See "Special Considerations -- Reserves" in the accompanying
Prospectus).
PROSPECTUS
$400,000,000
Freeport-McMoRan Copper & Gold Inc.
Debt Securities
Preferred Stock
and Warrants
Freeport-McMoRan Copper & Gold Inc. (the "Company" or "FCX") may offer
and issue from time to time in one or more series (i) debt securities ("Debt
Securities"), (ii) shares of the Company's Preferred Stock, par value $0.10
("Preferred Stock") or (iii) Warrants ("Warrants") to purchase Debt
Securities, Preferred Stock or the Company's Special Stock, which includes
Class A Common Stock ("Special Stock"). The Debt Securities, Preferred Stock
and Warrants are herein collectively referred to as the "Securities". The
Company will offer Securities to the public on terms determined by market
conditions. Securities may be issuable in registered form (in the case of
Debt Securities, without coupons) or in bearer form (in the case of Debt
Securities, with or without coupons). Any Securities may be offered with
other Securities or separately. Securities may be sold for U.S. dollars,
foreign currency or currency units; amounts payable with respect to any
Securities may likewise be payable in U.S. dollars, foreign currency or
currency units--in each case, as the Company specifically designates. The
amounts payable by the Company in respect of Securities may be calculated by
reference to the value, rate or price of one or more specified commodities,
currencies or indices as set forth in an accompanying Prospectus Supplement.
Any accompanying Prospectus Supplement relating to Debt Securities will
set forth the ranking as senior or subordinated Debt Securities, the specific
designation, aggregate principal amount, purchase price, maturity, interest
rate (or manner of calculation thereof) and time of payment of interest (if
any), and the terms (if any) for the redemption, conversion or exchange
thereof, listing (if any) on a securities exchange and any other specific
terms of the Debt Securities. Any accompanying Prospectus Supplement relating
to Preferred Stock will set forth the specific designation, number of shares,
purchase price and the rights, preferences and privileges thereof and any
qualifications or restrictions thereon (including dividends, liquidation
value, voting rights, terms of conversion or exchange (if any), terms for
mandatory or optional redemption (if any) and any other specific terms of the
Preferred Stock) and listing (if any) on a securities exchange and whether the
Company has elected to offer the Preferred Stock in the form of depositary
shares. Any accompanying Prospectus Supplement relating to Warrants will set
forth the specific designation, the number, purchase price and terms thereof,
any listing of the Warrants or the underlying securities on a securities
exchange and any other terms in connection with the offering, sale and
exercise of the Warrants, as well as the terms of the securities that can be
purchased with such Warrants.
Securities may be offered through dealers, underwriters or agents
designated from time to time, as set forth in the accompanying Prospectus
Supplement. Net proceeds to the Company will be the purchase price in the case
of a dealer, the public offering price less discount in the case of an
underwriter or the purchase price less commission in the case of an agent --
in each case, less other expenses attributable to issuance and distribution.
The Company may also sell Securities directly to investors on its own behalf.
In the case of sales made directly by the Company, no commission will be
payable. See "Plan of Distribution" for possible indemnification arrangements
for dealers, underwriters and agents.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
May 2, 1994
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or any underwriter, dealer or agent. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create an implication that there has been no change in the
affairs of the Company since the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy Securities by
anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such offer
or solicitation.
AVAILABLE INFORMATION
----------------
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and
other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at its Regional
Offices located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and 13th Floor, 7 World Trade Center, New
York, New York 10048, and copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Certain of the Company's
securities are listed on the New York Stock Exchange (the "NYSE") and on The
Australian Stock Exchange. Reports, proxy statements and other information
concerning the Company can be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
The Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus omits certain of the information contained in the Registration
Statement in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and related exhibits
for further information with respect to the Company and the Securities.
Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety
by such reference.
----------------
IN CONNECTION WITH THE OFFERING OF CERTAIN SECURITIES, THE UNDERWRITERS
MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET
PRICES OF SUCH OFFERED SECURITIES OR OTHER SECURITIES OF THE COMPANY AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December
31, 1993 and Quarterly Report on Form 10-Q for the quarter ended March
31, 1994 have been filed with the Commission and are incorporated herein
by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of the above documents (excluding exhibits unless specifically
incorporated by reference into the documents that this Prospectus
incorporates) may be obtained upon request without charge from the Company,
1615 Poydras Street, New Orleans, Louisiana 70112 (telephone (504) 582-4000),
attention: Michael C. Kilanowski, Jr., Secretary.
THE COMPANY
Freeport-McMoRan Copper & Gold Inc., a Delaware corporation formed in
1987 (the "Company" or "FCX"), is an approximately 70% owned subsidiary of
Freeport-McMoRan Inc. ("FTX"). FCX owns approximately 81.28% of the
outstanding common stock of its operating subsidiary, P.T. Freeport
Indonesia Company ("PT-FI"), a limited liability company organized under
the laws of the Republic of Indonesia and domesticated in Delaware. Of the
remaining 18.72%, approximately 9.36% is owned by the government of the
Republic of Indonesia (the "Government"), and approximately 9.36% is owned
by an Indonesian corporation in which FCX owns a 49% interest. PT-FI
engages in the exploration for and development, mining, and processing of
copper, gold and silver in Indonesia and in the marketing of concentrates
containing such metals worldwide. The Company's principal executive office
is located at First Interstate Bank Building, One East First Street, Suite
1600, Reno, Nevada 89501 and its telephone number is (702) 688-3000.
Contract of Work
From 1967 until the end of 1991, PT-FI's predecessor, Freeport Indonesia
Incorporated, a Delaware corporation ("FII"), operated as the sole contractor
for the production and marketing of certain minerals from a 24,700 acre area
(the "1967 Mining Area") under a contract of work with the Government (the
"1967 COW").
On December 30, 1991, FII was merged into PT-FI and PT-FI and the
Government signed a new contract of work (the "New COW"), which superseded the
1967 COW. The New COW covers both the 1967 Mining Area and an additional 6.5
million adjacent acre exploration area (the "New COW Area"). The New COW has a
30-year term, with provisions for two 10-year extensions under certain
conditions.
The New COW contains a provision under which PT-FI must progressively
relinquish its rights to the nonprospective parts of the New COW Area in
amounts equal to 25% of the 6.5 million acres at the end of each of three
specified periods, the first of which is set to expire December 30, 1994,
and the last of which is set to expire five to seven years after the
signing of the New COW, in each case unless further extended by the
Ministry of Mines. In light of these relinquishment provisions, PT-FI has
implemented an active exploration program with a focus on both what it
believes to be the most promising exploration opportunities in the New COW
Area as well as identification of areas which appear to hold the least
promise. The New COW also contains provisions for PT-FI to conduct or
cause to be conducted a feasibility study relating to the construction of a
copper smelting facility in Indonesia and for the eventual construction of
such a facility by PT-FI, if such facility is deemed to be economically
viable by PT-FI and the Government and if such facility is not constructed
by others prior to construction by PT-FI. FCX, through PT-FI and Rio Tinto
Minera, S.A., a wholly owned subsidiary of FCX, has assumed the lead role
in developing a proposed 150,000 to 200,000 metric tons of metal per year
copper smelter in Gresik, Indonesia. Assuming that PT-FI supplies one-half
of the requirements of both FCX's expanding smelter in Huelva, Spain and
the proposed Indonesian smelter, these combined concentrate supplies would
represent approximately 50 percent of PT-FI's copper concentrate production
at its expanded mine and mill capacity rate of 115,000 metric tons per day
(``MTPD'').
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the
net proceeds from the sale of the Securities will be used for general
corporate purposes, including the repayment of existing indebtedness, capital
expenditures and additions to working capital of the Company or its
subsidiaries. The Company anticipates that it and its subsidiaries will raise
additional funds from time to time through equity or debt financings,
including borrowings under its revolving credit agreements, to finance their
businesses.
SPECIAL CONSIDERATIONS
An investment in any of the Securities involves certain risks.
Accordingly, prospective investors should consider carefully the following
special considerations, in addition to the other information concerning the
Company and its business contained in this Prospectus and any accompanying
Prospectus Supplement, before purchasing any of the Securities registered
hereby.
Prices of Minerals
Because PT-FI's revenues are derived almost entirely from the sale of
concentrates containing copper, gold and silver, the Company's earnings are
directly related to market prices for copper, gold and, to a lesser extent,
silver. Prices for such minerals have historically fluctuated widely and are
affected by numerous factors beyond the Company's control. A price protection
program has been implemented for substantially all of PT-FI's estimated copper
sales for 1994 and 1995.
Location and Industry Risks
The current mining area and most of the new 6.5 million acre exploration
area are located in steeply mountainous country, which makes access to certain
parts of these areas difficult. These areas are subject to considerable
rainfall, which has in the past led to periodic floods and mud slides. The
mining area is located in an area of known seismic activity, and some earth
tremors have been experienced from time to time. None of these factors has
caused personal injury to Company employees or significant property damage not
covered by insurance or any significant interruptions to production, although
no assurance can be given that delays, injury or damage will not occur in the
future. The climate and remoteness of the area have required PT-FI to overcome
special engineering difficulties. PT-FI is also subject to the usual risks
encountered in the mining industry, including unexpected geological conditions
resulting in cave-ins, flooding and rock-bursts and unexpected changes in rock
stability conditions. FTX purchases, for the benefit of PT-FI, insurance
involving such amounts and types of coverage as it believes are appropriate
for PT-FI's exploration, development, mining and processing activities in
Indonesia.
Political Factors
Maintaining a good relationship with the Government is of particular
importance to PT-FI because its operations are located solely in Indonesia.
PT-FI operates in Indonesia by virtue of the New COW, which has a 30-year term
and provides for two 10-year extensions under certain conditions. The 1967
Foreign Capital Investment Law, which expresses Indonesia's foreign investment
policy, provides basic guarantees of remittance rights and protection against
nationalization, a framework for incentives and some basic rules as to the
other rights and obligations of foreign investors. PT-FI's rights and
obligations relating to taxes, royalties, exchange controls, repatriation and
other matters are governed by the New COW, which was concluded pursuant to the
1967 Foreign Capital Investment Law.
Indonesia has a presidential republic system of government. Elections for
the Indonesian Parliament and the office of President are held every five
years. President Suharto, who assumed power following an attempted communist
coup, was reelected in March 1993 to serve a sixth consecutive five-year term.
Reserves
With respect to PT-FI's reserves, it should be noted that such quantities
are estimates only. The mines from which PT-FI's reserves are presently being
or are expected to be produced may not conform to geological or other
expectations, with the result that the volume and grade of reserves recovered
and the rates of production may be more or less than anticipated. Further,
market price fluctuations in copper, gold and, to a lesser extent, silver, and
changes in operating and capital costs may render certain ore reserves
uneconomic to develop. No assurance can be given that PT-FI's exploration
programs will result in the replacement of current reserves with new reserves.
Relationship of the Company and Freeport-McMoRan Inc.
FTX currently owns approximately 70% of the combined total outstanding
shares of FCX's Class A Common Stock and Class B Common Stock, par value $0.10
per share (the "Class B Common Stock"). Through this ownership, FTX has
control over FCX, and through FCX, over PT-FI. FTX thus controls the
composition of the Board of Directors of FCX and the Board of Commissioners of
PT-FI, the dividend policies of both and also has sufficient voting control
under Delaware law to effect major corporate actions at FCX such as "going
private" transactions and mergers without the concurrence of other
stockholders, subject to certain limitations. Among the various companies
owned or controlled by FTX, it is intended that FCX and its subsidiaries will
have priority with respect to the exploration, development and mining of
copper and associated minerals in Indonesia. However, if any conflict of
interest arises between FCX or one of its subsidiaries and FTX or another
company owned or controlled by FTX relating to business opportunities in
Indonesia FTX will resolve such dispute. In addition, FCX and PT-FI are
parties, with FTX, to a Management Services Agreement, pursuant to which FTX
provides a variety of services to FCX and PT-FI. Under the terms of this
Agreement, FCX and PT-FI reimburse FTX on a monthly basis at FTX's cost for
such services, including allocated overhead. In addition, FTX is a party to a
credit agreement, pursuant to which, under certain circumstances, FTX might be
required to pledge the stock of FCX owned by FTX and its affiliates to secure
its outstanding borrowings under such credit agreement.
Environmental Matters
Although the management of FCX believes that it and its subsidiaries are
in compliance with all relevant environmental laws, rules and regulations, and
that there will be no significant adverse impact on the environment as a
result of the planned expansion of its operations, environmental laws and
regulations may be revised periodically. The impact, if any, of such possible
revisions on FCX's current or future operations cannot be accurately
predicted. In February 1994, the Government approved an environmental impact
study submitted by PT-FI with respect to the proposed expansion of copper
production to 115,000 MTPD.
Holding Company Structure
The Company is a holding company which conducts its business through
subsidiaries. As a result, the Company's cash flow and consequent ability to
make dividend payments and meet its debt obligations are primarily dependent
upon the earnings of its subsidiaries and on dividends and other payments
therefrom. Because the Company is a holding company, the Securities would be
effectively subordinated to all existing and future liabilities and Preferred
Stock, if any, of its subsidiaries. Any right of the Company to participate
in any distribution of the assets of its subsidiaries upon the liquidation,
reorganization or insolvency of such subsidiaries (and the consequent right of
the holders of the Securities to participate in the distribution of those
assets) would, with certain exceptions, be subject to the claims of the
creditors (including trade creditors) and preferred stockholders, if any, of
such subsidiaries.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges,
preferred stock dividends and minimum required distributions on stock of the
Company's Class A Common Stock for the periods indicated.
<TABLE>
<CAPTION> Three Months
Years Ended December 31, Ended March 31,
----------------------------------- ---------------
1989 1990 1991 1992 1993 1993 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges and minimum
distributions(1)
(unaudited).................... 9.5x 5.6x 3.3x 3.8x 1.4x (2) 2.1X
<FN>
- ----------
(1)For purposes of calculating the ratio of earnings to fixed charges,
preferred stock dividends and minimum required distributions on stock of
the Company's Class A Common Stock, earnings consist of income from
continuing operations before income taxes, minority interest and fixed
charges. Fixed charges consist of interest and that portion of rent which
is deemed representative of interest. Minimum distributions on the
Company's Class A Common Stock consist of the minimum required
distributions on the Company's Class A Common Stock (minimum distribution
requirements in respect of Class A Common Stock ended May 1, 1993).
(2)Earnings were inadequate to cover fixed charges, preferred stock
dividends and minimum distributions by $2.6 million.
</TABLE>
RELATIONSHIP OF THE COMPANY GROUP WITH THE FTX GROUP
Ownership of Stock
As of April 28, 1994, FTX, through its ownership of all of the
Company's Class B Common Stock and 2,145,200 shares of Class A Common Stock,
owned approximately 70% of the total outstanding shares of the Company's Class
A Common Stock and Class B Common Stock. Through this direct ownership, FTX
has the ultimate ability to control the Company and its subsidiaries. In
addition to such other obligations as it may assume, FTX, as a controlling
stockholder of the Company, has a fiduciary obligation under Delaware law to
act in good faith and to exercise its rights of control in a manner that is
fair and reasonable to the other stockholders. As used in this Prospectus,
the "Company Group" means the Company and its subsidiaries and the "FTX Group"
means FTX and its subsidiaries other than those within the Company Group.
Although PT-FI has in the past relied on FTX to provide many management,
administrative and technical services and will continue, under the Management
Services Agreement discussed below, to make use of these services, it has
always functioned as a separate operating unit of the FTX Group and will
continue to do so.
Under the terms of a credit agreement, dated as of June 1, 1993, as
amended (the "PT-FI Credit Agreement"), between PT-FI and a syndicate of
banks, FTX must own directly or indirectly 50.1% of the Company's common stock
and the Company must own directly or indirectly 50.1% of the PT-FI common
stock. FTX also must maintain directly or indirectly at least 40% ownership
interest in PT-FI and such voting power as provides effective control of the
policy and direction of PT-FI and the Company. Similarly, for the Company to
retain the benefits of insurance provided by the Overseas Private Investment
Corporation, it is necessary for at least a majority of the Company's capital
stock and of each class thereof to be held beneficially by U.S. persons.
Conflicts of Interests
FTX is involved in the exploration for and extraction of natural
resources. To avoid conflicts between the interests of the various FTX
entities with respect to any future opportunities which may arise, it is
anticipated that the Company Group will have a priority with respect to the
exploration, development and mining of copper and associated minerals in
Indonesia. It is further anticipated that the Company will determine which
entity within the Company Group will exercise any such priority. If the
Company Group determines for any reason not to pursue any opportunity within
its area of priority, then FTX will be free to offer it to another FTX entity
as it sees fit. It may be determined that it would be impractical for the
Company Group to act with respect to a particular exploration or development
opportunity outside the 1967 Mining Area. For example, due to the size of the
New COW Area, development of certain mineral prospects may be beyond the
financial or other resources of the Company and might be undertaken with a
member of the FTX Group alone or in conjunction with one or more third
parties. In addition, acquisition of certain mineral prospects or mining
companies may be beyond the financial or other resources of the Company and
might be undertaken by a member of the FTX Group. Such development or
acquisitions could lead to competition between the Company Group and
members of the FTX Group.
Management Services Agreement
Pursuant to the terms of a Management Services Agreement (the "Management
Agreement") among the Company, PT-FI (as successor to Freeport Indonesia,
Incorporated) and FTX, dated as of May 1, 1988, FTX furnishes general
executive, administrative, financial, accounting, legal, environmental, tax,
research and development, marketing and certain other services to the Company
and PT-FI. The nature and extent of the services provided under the
Management Agreement are similar to those historically provided by FTX. The
services of each of the executive officers of the Company and certain officers
and employees of PT-FI are provided to the Company and PT-FI under the
Management Agreement.
The Management Agreement is subject to termination by any party on any
December 31 provided that not less than six months' written notice is
given. The Company and PT-FI have agreed to reimburse FTX at FTX's cost,
including allocated overhead, for such services. The Management Agreement
also provides for the use of the services of certain of the Company's and
PT-FI's employees by FTX and its subsidiaries on a similar cost
reimbursement basis. The cost of such services is reimbursed monthly. The
total amount charged by FTX to the Company and PT-FI, excluding any amounts
paid with respect to employees seconded to PT-FI from FTX, was $33.4
million, $44.9 million and $59.7 million, including $10.7 million of
restructuring costs, for the years ended December 31, 1991, 1992 and 1993,
respectively.
In February 1993, FTX outsourced its corporate engineering, research and
development, environmental and safety functions and, to that end, contracted
with a new company initially owned and staffed by former employees of FTX.
The new company will furnish services similar to services provided by FTX in
the past, and is anticipated to save FTX significant costs.
Debt Instruments
The FTX Group maintains a revolving credit agreement with a syndicate of
banks, dated as of June 1, 1993, as amended and restated (the "FTX Credit
Agreement"), to provide funds for FTX's general corporate purposes. The FTX
Credit Agreement provides that, under certain circumstances relating to excess
borrowings thereunder or events of default thereunder, FTX and such affiliates
must pledge stock owned by them, including the Class B and any Class A Common
Stock of FCX owned directly by FTX, to secure outstanding borrowings under
such Agreement. As of the date of this Prospectus, no FCX stock was pledged
under the FTX Credit Agreement. To the extent FTX and its other subsidiaries
incur additional debt, the amount available to PT-FI under the PT-FI Credit
Agreement may be reduced.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will constitute either senior or subordinated debt
of the Company and will be issued, in the case of senior debt, under a Senior
Indenture (the "Senior Debt Indenture"), as it may be amended or supplemented
from time to time, between the Company and The Chase Manhattan Bank, N.A., as
Trustee, and, in the case of subordinated debt, under a Subordinated Indenture
(the "Subordinated Debt Indenture"), as it may be amended or supplemented from
time to time, between the Company and Chemical Bank, as Trustee. The Senior
Debt Indenture and the Subordinated Debt Indenture are sometimes hereinafter
referred to individually as an "Indenture" and collectively as the
"Indentures." The Chase Manhattan Bank, N.A. and Chemical Bank are
hereinafter referred to individually as a "Trustee" and collectively as the
"Trustees." The Indentures are filed as exhibits to the Registration
Statement of which this Prospectus is a part. The following summaries of
certain provisions of the Indentures and the Debt Securities do not purport to
be complete and such summaries are subject to the detailed provisions of the
applicable Indenture to which reference is hereby made for a full description
of such provisions, including the definition of certain terms used herein, and
for other information regarding the Debt Securities. Numerical references in
parentheses below are to sections in the applicable Indenture. Wherever
particular sections or defined terms of the applicable Indenture are referred
to, such sections or defined terms are incorporated herein by reference as
part of the statement made, and the statement is qualified in its entirety by
such reference. The Indentures are substantially identical, except for
provisions relating to subordination. See "Subordinated Debt."
General
Except as provided in the Prospectus Supplement, neither of the
Indentures limits the amount of Debt Securities or other indebtedness that the
Company or any of its subsidiaries may incur. The Debt Securities will be
unsecured senior or subordinated obligations of the Company.
Most of the assets of the Company are owned by its subsidiaries.
Therefore, the Company's rights and the rights of its creditors, including
holders of Debt Securities, to participate in the assets of any subsidiary
upon the liquidation or recapitalization of such subsidiary will be subject to
the prior claims of the subsidiary's creditors, except to the extent that the
Company may itself be a creditor with recognized claims against the
subsidiary.
The Indentures provide that Debt Securities may be issued from time to
time in one or more series.
Reference is made to the Prospectus Supplement for the following terms of
and information relating to the Debt Securities of any series (to the extent
such terms are applicable to such Debt Securities): (i) classification as
senior or subordinated Debt Securities, the specific designation, aggregate
principal amount and purchase price; (ii) whether such Debt Securities are
convertible or exchangeable and, if so, the securities or rights into which
such Debt Securities are convertible or exchangeable, the terms and conditions
upon which such conversion or exchange will be effected including the initial
conversion or exchange price or rate, the conversion or exchange period and
any other related provisions; (iii) the currency or units based on or relating
to currencies in which such Debt Securities are denominated and/or in which
principal (and premium, if any) and/or interest, if any, will or may be
payable; (iv) the date or dates of maturity; (v) any redemption, repayment or
sinking fund provisions; (vi) any interest rate or rates and the dates on
which any such interest will be payable (or the method by which such rates or
dates will be determined); (vii) the method by which amounts payable in
respect of principal, premium, if any, or interest, if any, on such Debt
Securities may be calculated, and any commodities, currencies or indices, or
value, rate or price, relevant to such calculation; (viii) the place or places
where the principal of and premium, if any, and interest, if any, on such Debt
Securities will be payable; (ix) whether such Debt Securities will be issuable
in registered form, without coupons, or bearer form, with or without coupons
("Bearer Debt Securities"), or both and, if Bearer Debt Securities are
issuable, any restrictions applicable to the exchange of one form for another
and to the offer, sale and delivery of Bearer Debt Securities; (x) whether
such Debt Securities are to be issued in whole or in part in the form of one
or more temporary or permanent global Debt Securities and if so, the identity
of the depositary, if any, for such global Debt Securities; (xi) any
applicable United States federal income tax consequences, including whether
and under what circumstances the Company will pay additional amounts on any
such Debt Securities held by a person who is not a U.S. person (as defined in
the Prospectus Supplement) in respect of any tax, assessment or governmental
charge withheld or deducted and, if so, whether the Company will have the
option to redeem such Debt Securities rather than pay such additional amounts;
(xii) the terms and conditions upon which and the manner in which such Debt
Securities may be defeased or discharged if different from the defeasance
provisions described below; and (xiii) any other specific terms of such Debt
Securities, including any additional events of default, remedies or covenants
provided for with respect to such Debt Securities, and any terms which may be
required by or advisable under applicable laws or regulations. (Senior and
Subordinated Debt Indentures, Section 2.3).
Debt Securities may be presented for exchange and registered Debt
Securities may be presented for transfer in the manner, at the places and
subject to the restrictions set forth in the Debt Securities and the
applicable Indenture. Such services will be provided without charge, other
than any tax or other governmental charge payable in connection therewith, but
subject to the limitations provided in the applicable Indenture. Bearer Debt
Securities and the coupons, if any, appertaining thereto will be transferable
by delivery. (Senior and Subordinated Debt Indentures, Section 2.8).
Debt Securities may bear interest at a fixed rate or a floating rate.
Debt Securities bearing no interest or interest at a rate that at the time of
issuance is below the prevailing market rate may be sold at a discount below
their stated principal amount. Special United States federal income tax
considerations applicable to any such discounted Debt Securities or to certain
Debt Securities issued at par which are treated as having been issued at a
discount for United States federal income tax purposes will be described in
the relevant Prospectus Supplement.
Debt Securities may be issued from time to time with payment terms which
are calculated by reference to the value, rate or price of one or more
commodities, currencies or indices. Holders of such Debt Securities may
receive a principal amount (including premium, if any) on any principal
payment date, or a payment of interest on any interest payment date, that is
greater than or less than the amount of principal (including premium, if any)
or interest otherwise payable on such dates, depending upon the value, rate or
price on the applicable dates of the applicable currency, commodity or index.
Information as to the methods for determining the amount of principal, premium
(if any) or interest payable on any date, the currencies, commodities or
indices to which the amount payable on such date is linked and certain
additional tax considerations will be set forth in the applicable Prospectus
Supplement.
Unless otherwise set forth in the Prospectus Supplement, the Debt
Securities do not contain any provisions which may afford holders of the Debt
Securities protection in the event of a change in control of the Company or in
the event of a highly leveraged transaction (whether or not such transaction
results in a change in control of the Company).
Global Securities
Registered Global Securities. The registered Debt Securities of a series
may be issued in the form of one or more fully registered global Securities (a
"Registered Global Security") that will be deposited with (and registered in
the name of) a depositary (a "Depositary") identified in the Prospectus
Supplement relating to such series or with a nominee of a Depositary. In such
case, one or more Registered Global Securities will be issued in an aggregate
principal amount equal to the portion of the aggregate principal amount of
outstanding registered Debt Securities of the series to be represented by such
Registered Global Security or Securities. Unless and until it is exchanged in
whole for Debt Securities in definitive registered form, a Registered Global
Security may not be transferred except as a whole by the Depositary for such
Registered Global Security to a nominee of such Depositary or by a nominee of
such Depositary to such Depositary or another nominee of such Depositary or by
such Depositary or any such nominee to a successor of such Depositary or a
nominee of such successor.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Registered
Global Security will be described in the Prospectus Supplement relating to
such series. The Company anticipates that the following provisions will apply
to all depositary arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Depositary for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the
Depositary for such Registered Global Security will credit, on its book-entry
registration and transfer system, the participant's accounts with the
respective principal amounts of the Debt Securities represented by such
Registered Global Security beneficially owned by or through such participant.
The accounts to be credited initially shall be designated by any dealers,
underwriters or agents participating in the distribution of such Debt
Securities or by the Company, if such Debt Securities are offered and sold
directly by the Company. Ownership of beneficial interests in such Registered
Global Security will be shown on, and the transfer of such ownership interest
will be effected only through, records maintained by the Depositary for such
Registered Global Security (with respect to interests of participants) or on
the records of participants (with respect to interests of persons holding
through participants). The laws of some states and countries other than
the United States may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to own, transfer or pledge beneficial interests in
Registered Global Securities.
So long as the Depositary for a Registered Global Security, or its
nominee, is the registered owner of such Registered Global Security, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Debt Securities represented by such Registered Global
Security for all purposes under the applicable Indenture. Except as set forth
below, owners of beneficial interests in a Registered Global Security will not
be entitled to have the Debt Securities represented by such Registered Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of such Debt Securities in definitive form and will not be
considered the owners or holders thereof under the applicable Indenture.
Accordingly, each person owning a beneficial interest in a Registered Global
Security must rely on the procedures of the Depositary for such Registered
Global Security and, if such person is not a participant, on the procedures of
the participant through which such person owns its interest, to exercise any
rights of a holder under the applicable Indenture. The Company understands
that under existing industry practices, if the Company requests any action of
holders or if an owner of a beneficial interest in a Registered Global
Security desires to give or take any action which a holder is entitled to give
or take under the Indenture, the Depositary for such Registered Global
Security generally either (i) authorizes the participants holding the relevant
beneficial interests to give or take such action, and such participants would
authorize beneficial owners owning through such participants to give or take
such action or (ii) otherwise acts upon the instructions of beneficial owners
holding through them.
Payments of principal, premium, if any, and interest, if any, on Debt
Securities represented by a Registered Global Security registered in the name
of a Depositary or its nominee will be made to such Depositary or its nominee,
as the case may be, as the registered owner of such Registered Global
Security. None of the Company, the applicable Trustee or any paying agent for
such Debt Securities will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interest in such Registered Global Security or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Company expects that the Depositary for any Debt Securities
represented by a Registered Global Security, upon receipt of any payment of
principal, premium or interest, will immediately credit participants' accounts
with payments in amounts proportionate to their respective beneficial
interests in such Registered Global Security as shown on the records of such
Depositary. The Company also expects that payments by participants to owners
of beneficial interest in such Registered Global Security held through such
participants will be the responsibility of such participant and will be
governed by standing customer instructions and customary practices, as is now
the case with the securities held for the accounts of customers registered in
"street name".
If the Depositary for any Debt Securities represented by a Registered
Global Security is at any time unwilling or unable to continue as Depositary
and a successor Depositary is not appointed by the Company within 90 days, the
Company will issue such Debt Securities in definitive form in exchange for
such Registered Global Security. In addition, the Company may at any time and
in its sole discretion determine not to have any of the Debt Securities of a
series represented by one or more Registered Global Securities and, in such
event, will issue Debt Securities of such series in definitive form in
exchange for all of the Registered Global Security or Securities representing
such Debt Securities. Any Debt Securities issued in definitive form in
exchange for a Registered Global Security will be registered in such name or
names as the Depositary shall instruct the applicable Trustee. It is expected
that such instructions will be based upon directions received by the
Depositary from participants with respect to ownership of beneficial interests
in such Registered Global Security.
Bearer Global Securities. The Debt Securities of a series may also be
issued in the form of one or more bearer global Debt Securities (a "Bearer
Global Security") that will be deposited with a common depositary for Morgan
Guaranty Trust Company of New York, Brussels office, as operator of the
Euro-clear System and Centrale de Livraison de Valeurs Mobilieres S.A., or
with a nominee for such depositary identified in the Prospectus Supplement
relating to such series. The specific terms and procedures, including the
specific terms of the depositary arrangement, with respect to any portion of a
series of Debt Securities to be represented by a Bearer Global Security will
be described in the relevant Prospectus Supplement.
Senior Debt
The Debt Securities (and in the case of Bearer Debt Securities, any
coupons appertaining thereto) issued under the Senior Debt Indenture will rank
pari passu with all other unsecured and unsubordinated debt of the Company and
senior to the Subordinated Debt Securities (as hereinafter defined).
Subordinated Debt
The Debt Securities (and in the case of Bearer Debt Securities, any
coupons appertaining thereto) (the "Subordinated Debt Securities") issued
under the Subordinated Debt Indenture will be subordinate and junior in
right of payment, to the extent and in the manner set forth in the
Subordinated Debt Indenture, to all "Senior Indebtedness" (as such terms
are defined in the Subordinated Debt Indenture). The Subordinated Debt
Indenture defines "Senior Indebtedness" as all Debt of the Company (other
than the Subordinated Debt Securities and the Company's 7% Convertible
Subordinated Debentures due 2007 issuable upon exchange of Special
Preference Stock), including principal and interest (including, without
limitation, any interest that would accrue but for the filing of a petition
initiating any bankruptcy, insolvency, reorganization or similar
proceeding) on such Debt, created, incurred or assumed on or after the date
of the first issuance of any Subordinated Debt Securities, unless such
Debt, by its terms or the terms of the instrument creating or evidencing
it, is subordinate in right of payment to, or pari passu with, the
Subordinated Debt Securities; provided that the term Senior Indebtedness
shall not include (a) any Debt of the Company which, when incurred and
without respect to any election under Section 1111(b) of Title 11, United
States Code, was without recourse to the Company, (b) any Debt of the
Company to an affiliate of the Issuer and any refinancing thereof, (c)
Debt to any employee of the Company and (d) Trade Payables. The
Subordinated Debt Indenture defines "Debt" as without duplication (i) all
obligations of any person for borrowed money, (ii) all obligations of such
person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such person in respect of letters of credit or
other similar instruments (or reimbursement obligations with respect
thereto), (iv) all obligations of such person to pay the deferred purchase
price of property or services, except Trade Payables, (v) all obligations
of such person as lessee under capital leases, (vi) all Debt of others
secured by a lien on any asset of such person, whether or not such Debt is
assumed by such person, (vii) all Debt of others guaranteed by such person
and (viii) to the extent not otherwise included, obligations under currency
agreements and interest rate agreements and defines "Trade Payables" as
accounts payable or any other indebtedness or monetary obligations to trade
creditors created or assumed by the Company or any subsidiary of the
Company in the ordinary course of business in connection with the obtaining
of materials or services. (Subordinated Debt Indenture, Section 1.1).
In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, dissolution, winding-up, total or partial liquidation,
reorganization or other similar proceedings in respect of the Company or a
substantial part of its property, whether voluntary or involuntary, or (b)
that (i) a default shall have occurred with respect to the payment of
principal of (and premium, if any) or any interest on or other monetary
amounts due and payable on any Senior Indebtedness or (ii) there shall have
occurred an event of default (other than a default in the payment of
principal, premium, if any, or interest or other monetary amounts due and
payable) in respect of any Senior Indebtedness, as defined therein or in the
instrument under which the same is outstanding, permitting the holder or
holders thereof to accelerate the maturity thereof and in the case of (i) and
(ii) above, such default or event of default shall not have been cured or
waived or shall not have ceased to exist, or (c) that the principal of and
accrued interest on any Subordinated Debt Securities shall have been declared
due and payable upon an Event of Default pursuant to the Subordinated Debt
Indenture and such declaration shall not have been rescinded and annulled as
provided therein, then the holders of all Senior Indebtedness shall first be
entitled to receive payment of all amounts due or to become due thereon, or
provision shall be made, in accordance with the relevant Senior Indebtedness,
for such payment in money or money's worth, before the holders of any of the
Subordinated Debt Securities or any coupons appertaining thereto are entitled
to receive any payment on account of the principal of (and premium, if any) or
any interest on the indebtedness evidenced by such Subordinated Debt
Securities or any coupons appertaining thereto or any cash payments to
repurchase such Subordinated Debt Securities or any coupons appertaining
thereto at the option of the holders thereof or otherwise. (Subordinated Debt
Indenture, Section 14.2). By reason of such subordination, in the event of
insolvency, creditors of the Company (including holders of Subordinated Debt
Securities) who are not holders of Senior Indebtedness may recover less,
ratably, than holders of Senior Indebtedness.
If this Prospectus is being delivered in connection with a series of
Subordinated Debt Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Indebtedness outstanding as of the end of the most recent
fiscal quarter.
Convertibility and Exchangeability
The terms, if any, on which Debt Securities of any series may be
exchanged for or converted (mandatorily or otherwise) into other Debt
Securities or shares of Preferred Stock or Special Stock (including Class A
Common Stock) or other securities or rights of the Company (including rights
to receive payments in cash or securities based on the value, rate or price of
one or more specified commodities, currencies or indices) will be set forth in
the Prospectus Supplement relating thereto.
Certain Covenants of the Company
Each Indenture provides that the Company will not merge or consolidate
with, or sell, lease or convey all or substantially all its assets to, any
entity, unless the Company shall be the surviving entity, or the surviving or
successor entity shall be a corporation or partnership organized under the
laws of the United States or a State thereof or the District of Columbia and
shall expressly assume all obligations of the Company under such Indenture and
the Debt Securities issued thereunder, and immediately after such merger,
consolidation, sale, lease or conveyance, the Company or such other entity
shall not be in default in the performance of the covenants and conditions of
such Indenture to be performed or observed by the Company. (Senior and
Subordinated Debt Indentures, Section 9.1). Thereafter, except in the case of
a lease, all such obligations of the Company with respect to the Debt
Securities shall terminate. (Senior and Subordinated Debt Indentures, Section
9.3)
Events of Default
An Event of Default is defined under each Indenture with respect to Debt
Securities of any series issued under such Indenture as being: (a) default for
30 days in payment of any interest on the Debt Securities of such series; (b)
default in payment of any principal of or premium, if any, on the Debt
Securities of such series, either at maturity, upon any redemption, by
declaration or otherwise; provided that, if such default is a result of the
voluntary redemption by the holders of such Debt Securities, the amount
thereof shall be in excess of $10,000,000 or the equivalent thereof in any
other currency or composite currency; (c) default for 60 days after written
notice in the observance or performance of any other covenant or agreement in
the Debt Securities of such series or the Indenture other than a covenant or
agreement included in the Indenture which is not applicable to the Debt
Securities of such series; (d) certain events of bankruptcy, insolvency or
reorganization; (e) failure to pay at maturity, or other default which results
in the acceleration of any Debt in an amount in excess of $50,000,000 or the
equivalent thereof in any other currency or composite currency without such
Debt having been discharged or such acceleration having been cured, waived,
rescinded or annulled for a period of 30 days after written notice thereof
("Debt" being defined to mean obligations (other than non-recourse obligations
or the Debt Securities of such series) of, or guaranteed or assumed by, the
Company for borrowed money or evidenced by bonds, debentures, notes or other
similar instruments); or (f) default for 45 days in the conversion of any Debt
Securities of such series; provided, however, that, if any such failure or
acceleration referred to in clause (e) or default referred to in the proviso
to clause (b) above shall cease to exist or be cured, waived, rescinded or
annulled, then the Event of Default by reason thereof shall be deemed likewise
to have been thereupon cured. (Senior and Subordinated Debt Indentures,
Section 5.1).
Each Indenture provides that (a) if an Event of Default due to the
default in payment of principal of, premium, if any, or interest on, any
series of Debt Securities issued under such Indenture or due to the default in
the performance of any other covenant or agreement applicable to the Debt
Securities of such series but not applicable to Debt Securities of any other
series issued under such Indenture shall have occurred and be continuing,
either the Trustee or the holders of not less than 25% in principal amount of
the outstanding Debt Securities of such series may declare the principal (or
such portion thereof as may be specified in the terms thereof) of all Debt
Securities of such series and interest accrued thereof to be due and payable
immediately; and (b) if an Event of Default due to a default in the
performance of any covenants or agreements applicable to outstanding Debt
Securities of more than one series issued under such Indenture or an Event of
Default described in clause (e) above shall have occurred and be continuing,
either the Trustee or the holders of not less than 25% in principal amount of
the outstanding Debt Securities of all such affected series (treated as one
class) may declare the principal (or such portion thereof as may be specified
in the terms thereof) of all such Debt Securities and interest accrued thereon
to be due and payable immediately. If an Event of Default due to certain
events of bankruptcy, insolvency or reorganization shall occur, the principal
(or such portion thereof as may be specified in the terms thereof) of and
interest accrued on all Debt Securities then outstanding shall become due and
payable immediately, without action by the Trustees or the holders of any such
Debt Securities. (Senior and Subordinated Debt Indentures, Section 5.1). Upon
certain conditions such declarations may be annulled and past defaults may be
waived (except a continuing default in payment of principal of (or premium, if
any) or interest on, or in respect of the conversion of, such Debt Securities)
by the holders of a majority in principal amount of the outstanding Debt
Securities of all such affected series (treated as one class) (Senior and
Subordinated Debt Indentures, Sections 5.1 and 5.10).
Each Indenture provides that the Trustee, subject to the duty of the
Trustee during a default to act with the required standard of care, has no
obligation to exercise any right or power granted it under such Indenture at
the request of holders of Debt Securities unless the Trustee is indemnified by
such holders. (Senior and Subordinated Debt Indentures, Section 6.2).
Subject to such provisions in each Indenture for the indemnification of the
Trustee and certain other limitations, the holders of a majority in principal
amount of the outstanding Debt Securities of all affected series issued under
such Indenture (treated as one class) may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee with respect to such
series. (Senior and Subordinated Debt Indentures, Section 5.9).
Each Indenture provides that no holder of Debt Securities of any series
issued under such Indenture may institute any action against the Company under
such Indenture (except actions for payment of overdue principal, premium (if
any) or interest or to enforce conversion rights (if any)) unless (1) such
holder previously shall have given to the Trustee written notice of default
and continuance thereof, (2) the holders of not less than 25% in principal
amount of the Debt Securities of all affected series issued under such
Indenture (treated as one class) shall have made a written request upon the
Trustee to institute such action and shall have offered the Trustee reasonable
indemnity, (3) the Trustee shall not have instituted such action within 60
days of such request and (4) the Trustee shall not have received directions
inconsistent with such written request by the holders of a majority in
principal amount of the outstanding Debt Securities of all affected series
issued under such Indenture (treated as one class). (Senior and Subordinated
Debt Indentures, Sections 5.6 and 5.9).
Each Indenture contains a covenant that the Company will file annually
with the Trustee a certificate of no default or a certificate specifying any
default that exists. (Senior and Subordinated Debt Indentures, Section 3.5).
Defeasance
Each Indenture provides that the Company may defease and be discharged
from any and all obligations (except as otherwise described in (a) below) with
respect to the Debt Securities of any series which have not already been
delivered to the Trustee for cancellation and which have either become due and
payable or are by their terms due and payable within one year (or scheduled
for redemption within one year) by irrevocably depositing with the Trustee, as
trust funds, money or, in the case of Debt Securities payable only in U.S.
dollars, U.S. Government Obligations (as defined) which through the payment of
principal and interest in accordance with their terms will provide money, in
an amount certified to be sufficient to pay at maturity (or upon redemption)
the principal of (and premium, if any) and interest on such Debt Securities.
(Senior and Subordinated Debt Indentures, Section 10.1)
In addition, each Indenture provides that with respect to each series of
Debt Securities issued under such Indenture, the Company may elect either (a)
to defease and be discharged from any and all obligations with respect to the
Debt Securities of such series (except for the obligations to register the
transfer of or exchange or convert the Debt Securities of such series, to
replace temporary or mutilated, destroyed, lost or stolen Debt Securities of
such series, to maintain an office or agency in respect of the Debt Securities
of such series and to hold moneys for payment in trust) or (b) to be released
from the restrictions described under "Merger or Consolidation" and, to the
extent specified in connection with the issuance of such series of Debt
Securities, other covenants applicable to such series of Debt Securities, upon
the deposit with the Trustee (or other qualifying trustee), as trust funds, of
money or, in the case of Debt Securities payable only in U.S. dollars, U.S.
Government Obligations which through the payment of principal and interest in
accordance with their terms will provide money, in an amount certified to be
sufficient to pay at maturity (or upon redemption) the principal of (and
premium, if any) and interest on the Debt Securities of such series. Such a
trust may only be established if, among other things, the Company has
delivered to the Trustee an opinion of counsel (as specified in the Indenture)
to the effect that the holders of the Debt Securities of such series will not
recognize income, gain or loss for Federal income tax purposes as a result of
such defeasance 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
defeasance had not occurred. Such opinion, in the case of a defeasance under
clause (a) above, must refer to and be based upon a ruling of the Internal
Revenue Service or a change in applicable Federal income tax law occurring
after the date of such Indenture. (Senior and Subordinated Debt Indentures,
Section 10.1)
In the event of any "legal" defeasance of any series of Subordinated Debt
Securities issued thereunder, the Subordinated Debt Indenture provides that
holders of all outstanding Senior Indebtedness will receive written notice of
such defeasance.
The foregoing provisions relating to defeasance may be modified in
connection with the issuance of any series of Debt Securities, and any such
modification will be described in the accompanying Prospectus Supplement.
Modification of the Indenture
Each Indenture provides that the Company and the Trustee may enter into
supplemental indentures without the consent of the holders of Debt Securities
to: (a) secure such Debt Securities, (b) evidence the assumption by a
successor entity of the obligations of the Company, (c) add covenants or
Events of Default for the protection of the holders of any Debt Securities,
(d) establish the form or terms of such Debt Securities of any series, (e)
evidence the acceptance of appointment by a successor trustee or (f) cure any
ambiguity or correct any inconsistency in the Indenture, amend the Indenture
in any other manner which the Company may deem necessary or desirable, if such
action will not adversely affect the interests of the holders of Debt
Securities issued thereunder. (Senior and Subordinated Debt Indentures,
Section 8.1).
Each Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of Debt Securities of all series issued under such Indenture
then outstanding and affected (voting as a single class), to add any
provisions to, or change in any manner or eliminate any of the provisions of,
such Indenture or modify in any manner the rights of the holders of the Debt
Securities of each such series; provided that the Company and the Trustee may
not, without the consent of the holder of each outstanding Debt Security
affected thereby, (a) extend the final maturity of any Debt Security, or
reduce the principal amount thereof, or reduce or alter the method of
computation of any amount payable in respect of interest thereon or extend the
time for payment thereof, or reduce or alter the method of computation of any
amount payable on redemption thereof or extend the time for payment thereof,
or change the currency in which the principal thereof, premium, if any, or
interest thereon is payable, or reduce the amount payable upon acceleration or
alter certain provisions of the Indenture relating to the Debt Securities
issued thereunder not denominated in U.S. dollars, or impair the right to
institute suit for the enforcement of any conversion or any payment on any
Debt Security when due or materially and adversely affect any conversion
rights, (b) reduce the aforesaid percentage in principal amount of Debt
Securities of any series issued under such Indenture, the consent of the
holders of which is required for any such modification. (Senior and
Subordinated Debt Indentures, Section 8.2).
The Subordinated Debt Indenture may not be amended to alter the
subordination of any outstanding Subordinated Debt Securities without the
consent of each holder of Senior Indebtedness then outstanding that would be
adversely affected thereby.
Concerning the Trustees
The Chase Manhattan Bank, N.A. and Chemical Bank are two of a number of
banks with which the Company maintains ordinary banking relationships and with
which the Company maintains credit facilities.
DESCRIPTION OF PREFERRED STOCK
The following is a description of certain general terms and provisions
of the Preferred Stock. The particular terms of any series of Preferred Stock
will be described in the applicable Prospectus Supplement. If so indicated in
a Prospectus Supplement, the terms of any such series may differ from the
terms set forth below. The summary of terms of the Company's Preferred Stock
contained in this Prospectus and the applicable Prospectus Supplement does not
purport to be complete and is subject to, and qualified in its entirety by,
the provisions of the Company's Certificate of Incorporation and the
certificate of designations relating to the applicable series of the Preferred
Stock (the "Certificate of Designations"), which will be filed as an exhibit
to or incorporated by reference in the Registration Statement of which this
Prospectus is a part at the time of issuance of such series of the Preferred
Stock.
The Company's Certificate of Incorporation authorizes the issuance of
2,000,000 shares of Preferred Stock, par value of $0.10 per share. The
Company's Preferred Stock may be issued from time to time by the Board of
Directors in one or more series, without stockholder approval. The Board of
Directors is authorized to determine the voting powers (if any), designation,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, for each series of
Preferred Stock that may be issued, and to fix the number of shares of each
such series. Thus, the Board of Directors, without stockholder approval, could
authorize the issuance of Preferred Stock with voting, conversion and other
rights that could adversely affect the voting power and other rights of
holders of Special Stock (including Class A Common Stock) and Class B Common
Stock or other series of Preferred Stock or that could have the effect of
delaying, deferring or preventing a change in control of the Company. The
series of Preferred Stock that have been issued to date are the Step-Up
Convertible Preferred Stock, of which 700,000 shares are currently outstanding
and the Gold-Denominated Preferred Stock (as defined below) of which 515,279
shares are currently outstanding. See "--Step-Up Convertible Preferred Stock
and--Gold-Denominated Preferred Stock."
General
Reference is made to the Prospectus Supplement for the following terms of
and information relating to the Preferred Stock of any series (to the extent
such terms are applicable to such Preferred Stock): (i) the specific
designation, number of shares, seniority and purchase price; (ii) any
liquidation preference per share; (iii) any date of maturity; (iv) any
redemption, payment or sinking fund provisions; (v) any dividend rate or rates
and the dates on which any such dividends will be payable (or the method by
which such rates or dates will be determined); (vi) any voting rights; (vii)
the currency or units based on or relating to currencies in which such
Preferred Stock are denominated and/or in which payments will or may be
payable; (viii) the methods by which amounts payable in respect of such
Preferred Stock may be calculated and any commodities, currencies or indices,
or value, rate or price, relevant to such calculation; (ix) whether the
Preferred Stock is convertible or exchangeable and, if so, the securities or
rights into which such Preferred Stock is convertible or exchangeable, the
terms and conditions upon which such conversions or exchanges will be effected
including the initial conversion or exchange prices or rates, the conversion
or exchange period and any other related provisions; (x) the place or places
where dividends and other payments on the Preferred Stock will be payable;
(xi) and any additional voting, dividend, liquidation, redemption, sinking
fund and other rights, preferences, privileges, limitations and restrictions.
The Preferred Stock offered hereby will be issued in one or more series.
The holders of Preferred Stock will have no preemptive rights. Preferred
Stock, upon issuance against full payment of the purchase price therefor, will
be fully paid and nonassessable. Neither the par value nor the liquidation
preference is indicative of the price at which the Preferred Stock will
actually trade on or after the date of issuance. All shares of Preferred Stock
shall be of equal rank with each other, regardless of series.
As described under "Description of Depositary Shares," the Company may,
at its option, elect to offer depositary shares ("Depositary Shares")
evidenced by depositary receipts ("Depositary Receipts"), each representing an
interest (to be specified in the Prospectus Supplement relating to the
particular series of the Preferred Stock) in a share of the particular series
of the Preferred Stock issued and deposited with a Depositary (as defined
below).
Dividends
Holders of shares of Preferred Stock of each series shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds of
the Company legally available for payment, cash dividends, payable at such
dates and at such rates per share per annum as set forth in the applicable
Prospectus Supplement. Such rate may be fixed or variable or both. Each
declared dividend shall be payable to holders of record as they appear on the
stock books of the Company on such record dates determined by the Board of
Directors or a duly authorized committee thereof.
Dividends on any series of the Preferred Stock may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. If
dividends on a series of Preferred Stock are noncumulative and if the Board of
Directors fails to declare a dividend in respect of a dividend period with
respect to such series, then holders of such Preferred Stock will have no
right to receive a dividend in respect of such dividend period, and the
Company will have no obligation to pay the dividend for such period, whether
or not dividends are declared payable on any future dividend payment dates.
Unless full cumulative dividends for all past dividend periods on all
outstanding shares of cumulative Preferred Stock and any other series of
capital stock of the Company ranking on a parity with the Preferred Stock have
been paid, or declared and set apart for payment, the Company may not (i)
declare, pay or set apart any amounts for dividends on, or make any other
distribution in cash or other property in respect of, the Class A or Class B
Common Stock or any other stock of the Company ranking junior to the Preferred
Stock as to dividends or distribution of assets upon liquidation, dissolution
or winding up of the affairs of the Company (the Class A or Class B Common
Stock and such other stock being referred to herein as "Junior Stock") other
than a dividend payable solely in Junior Stock, (ii) purchase, redeem or
otherwise acquire for value any shares of Junior Stock, directly or
indirectly, other than as a result of a reclassification of Junior Stock, or
the exchange or conversion of one Junior Stock for or into another Junior
Stock, or other than through the use of proceeds of a substantially
contemporaneous sale of other Junior Stock, or (iii) make any payment on
account of, or set aside money for, a sinking or other like fund for the
purchase, redemption or other acquisition for value of any shares of Junior
Stock. If the funds available for the payment of dividends are insufficient
to pay in full the dividends payable on all outstanding shares of cumulative
Preferred Stock and any other series of capital stock of the Company ranking
on a parity with the Preferred Stock, the total available funds to be paid in
partial dividends on such Preferred Stock and such other series shall be
divided among the Preferred Stock and such other series in proportion to the
aggregate amount of dividends accrued and unpaid with respect to such
Preferred Stock and such other series. Accruals of dividends will not bear
interest.
Convertibility and Exchangeability
The terms, if any, on which shares of Preferred Stock of any series may
be exchanged for or converted (mandatorily or otherwise) into shares of
Preferred Stock or Special Stock (including Class A Common Stock) or other
securities or rights of the Company (including rights to receive payments in
cash or securities based on the value, rate or price of one or more specified
commodities, currencies or indices) will be set forth in the Prospectus
Supplement relating thereto.
Redemption
The terms, if any, on which shares of Preferred Stock of any series may
be redeemed will be set forth in the related Prospectus Supplement.
If fewer than all of the outstanding shares of any series of Preferred
Stock are to be redeemed, the number of shares of such series and the method
of effecting such redemption, whether by lot or pro rata, will be as
determined by the Company (with adjustment to avoid redemption of fractional
shares).
Liquidation
Unless otherwise specified in the applicable Prospectus Supplement, in
the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Company, after payment or provision for payment of the debts and
other liabilities of the Company, the holders of shares of any series of the
Preferred Stock, together with any other Preferred Stock and any other series
of capital stock of the Company ranking on a parity with such series of the
Preferred Stock, will be entitled to receive out of the remaining net assets
of the Company an amount per share as set forth in the related Prospectus
Supplement plus accrued and unpaid dividends before any distribution is made
or set apart for the holders of Junior Stock. If the amounts payable with
respect to such Preferred Stock are not paid in full, the holders of such
Preferred Stock and any stock of the Company on a parity with such Preferred
Stock as to distribution of assets upon the liquidation, dissolution or
winding up of the Company will have the right to share ratably in any
distribution of the remaining assets of the Company in proportion to the full
respective preferential amounts to which they are entitled. After payment of
the full amount of the liquidating distribution to which they are entitled,
the holders of such series of Preferred Stock will not be entitled to any
further participation in any distribution of the remaining assets by the
Company. A consolidation or merger of the Company with one or more
corporations or the sale of all or substantially all of the assets of the
Company will not be deemed to be a liquidation, dissolution or winding up of
the Company.
Voting
The Preferred Stock of a series will not be entitled to vote, except as
provided below or in the applicable Prospectus Supplement and as required by
applicable law. Unless otherwise indicated in the Prospectus Supplement
relating to a series of Preferred Stock, each share of such series will be
entitled to one vote on matters which holders of such series are entitled to
vote. Unless otherwise specified in the related Prospectus Supplement, at any
time dividends in an amount equal to six quarterly dividend payments on the
Preferred Stock of such series shall have accrued and be unpaid, holders of
such Preferred Stock shall have the right to a separate class vote together
with the holders of shares of other series of stock of the Company ranking on
a parity with such series of Preferred Stock either as to dividends or the
distribution of assets upon liquidation, dissolution or winding up and upon
which like voting rights have been conferred and are exercisable (such other
series of stock being herein referred to as "Other Voting Stock") to elect two
members to the Board of Directors until dividends on such Preferred Stock have
been paid in full or declared and set apart in trust for payment. In such
case, the Board of Directors will be increased by two directors, and the
holders of Preferred Stock of such series (either alone or with the holders of
Other Voting Stock) will have the exclusive right as members of such class, as
outlined above, to elect two directors at the next annual meeting of
stockholders. Additionally, without the affirmative vote of the holders of a
majority of the shares of Preferred Stock of such series then outstanding,
voting as a separate class, the Company may not (i) create, authorize or issue
any series or class of stock ranking prior to the shares of Preferred Stock of
such series with respect to dividends or distributions of assets upon
liquidation, dissolution or winding up or (ii) change the rights, powers or
preferences or qualifications, limitations or restrictions thereof with
respect to the Preferred Stock of such series if such action would materially
adversely affect such holders.
As more fully described under "Description of Depositary Shares" below,
if the Company elects to issue Depositary Shares, each representing a fraction
of a share of a series of the Preferred Stock, each such Depositary Share
will, in effect, be entitled to such fraction of a vote per Depositary Share.
No Other Rights
The shares of a series of Preferred Stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except as set forth above or in the related Prospectus Supplement, the
Certificate of Incorporation or the applicable certificate of designations or
as otherwise required by law.
Transfer Agent and Registrar
The transfer agent for each series of Preferred Stock will be described
in the related Prospectus Supplement.
Step-Up Convertible Preferred Stock
As of December 31, 1993, the Company had outstanding 700,000 shares of
Step-Up Convertible Preferred Stock, par value $0.10 per share. The Step-Up
Convertible Preferred Stock is represented by Depositary Shares, each of which
represents 0.05 shares of such stock. The Step-Up Convertible Preferred Stock
ranks, as to payment of dividends and distribution upon liquidation, pari
passu with the Company's Special Preference Stock (as defined below) and
Gold-Denominated Preferred Stock (as defined below) and senior to the
Company's Class A Common Stock and Class B Common Stock.
The Depositary Shares have a liquidation preference of $25.00 per share
(equivalent to $500.00 per share of Step-Up Convertible Preferred Stock) and
are convertible at the option of the holder at any time, unless previously
redeemed, into approximately 0.826 shares of Class A Common Stock (equivalent
to a conversion price of $30.28 per share of Class A Common Stock), subject to
adjustment in certain circumstances. Dividends on the Step-Up Convertible
Preferred Stock are cumulative and are payable quarterly commencing November
1, 1993 in an amount equivalent to $1.25 per annum per Depositary Share
through August 1, 1996 and thereafter in an amount equivalent to $1.75 per
annum per Depositary Share until redemption or conversion.
The Depositary Shares are not redeemable prior to August 1, 1996.
Thereafter and prior to August 1, 1999, the Depositary Shares are redeemable
at the option of the Company, in whole or in part, for such number of shares
of Class A Common Stock as are issuable at a conversion rate of approximately
0.826 shares of Class A Common Stock for each Depositary Share, subject to
adjustment in certain circumstances. The Company may exercise this option
only if the trading prices of the Class A Common Stock as measured for a
specified number of trading days prior to public notice of the redemption have
exceeded $38.44 per share, subject to adjustment in certain circumstances. On
and after August 1, 1999, the Depositary Shares are redeemable, in whole or in
part, at the option of the Company, at a redemption price of $25.00 per
Depositary Share plus accrued and unpaid dividends. The Company may, at its
option, subject to certain exceptions, pay the redemption price in cash, Class
A Common Stock or any combination thereof.
The Step-Up Convertible Preferred Stock has limited voting rights
triggered by the failure of the Company to pay dividends in an amount equal to
six full quarterly dividends or by the Company's proposed amendment to its
Certificate of Incorporation so as to adversely affect the rights of holders
of Step-Up Convertible Preferred Stock. Voting rights are not triggered upon
amendment to the Certificate of Incorporation to authorize other series of
stock of the Company ranking on a parity with or junior to the Step-Up
Convertible Preferred Stock as to dividends or rights upon liquidation.
Gold-Denominated Preferred Stock
As of December 31, 1993, FCX had outstanding 300,000 shares of
Gold-Denominated Preferred Stock (referred to herein as "Series I") and on
January 21, 1994 FCX issued 215,279 shares of Gold-Denominated Preferred
Stock, Series II (collectively, "Gold-Denominated Preferred Stock"). The
Gold-Denominated Preferred Stock is represented by Depositary Shares, each of
which represents 0.05 shares of such stock. The Gold-Denominated Preferred
Stock ranks, as to the payment of dividends and distribution upon liquidation
pari passu with the Special Preference Stock and the Step-Up Convertible
Preferred Stock and senior to FCX's Class A and Class B Common Stock.
The Depositary Shares have a liquidation preference equal to the dollar
equivalent value of 0.10 ounces of gold per Depositary Share plus accrued and
unpaid dividends. Dividends on the Gold-Denominated Preferred Stock are
cumulative and are payable quarterly, in the case of Gold-Denominated
Preferred Stock, Series I, commencing November 1, 1993 in an amount equal to
the dollar equivalent value of 0.000875 ounces of gold per Depositary Share
per quarter, and, in the case of Gold-Denominated Preferred Stock, Series II,
commencing May 1, 1994 in an amount equal to the dollar equivalent value of
0.0008125 ounces of gold per Depositary Share per quarter.
The Depositary Shares are subject to mandatory redemption, out of funds
legally available therefor, on August 1, 2003 and on February 1, 2006,
respectively, at an amount equal to the dollar equivalent value of 0.10 ounces
of gold per Depositary Share plus accrued and unpaid dividends. The Depositary
Shares are not subject to redemption at the option of FCX, except in limited
circumstances. FCX does not have the right to make any mandatory or optional
redemption of any Depositary Shares unless full cumulative dividends for all
past dividend periods shall have been paid or declared and set aside for
payment upon all Depositary Shares and all other outstanding shares of stock
of FCX ranking, as to dividends, on a parity with the Depositary Shares. For
purposes of this discussion, the "dollar equivalent value" of a specified
number of ounces of gold means that number of ounces multiplied by a reference
price determined by taking the average of the London P.M. gold fixing price
for an ounce of gold on a specified number of days prior to the date of
determination.
The Gold-Denominated Preferred Stock has limited voting rights triggered
by the failure of FCX to pay dividends in an amount equal to six full
quarterly dividends or by any amendment to FCX's Certificate of Incorporation
that would adversely affect the rights of holders of Gold-Denominated
Preferred Stock or create, authorize or issue any series or class of stock
ranking senior to the shares of Gold-Denominated Preferred Stock with respect
to dividends or distribution of assets upon liquidation, dissolution or
winding up of FCX. Voting rights are not triggered upon amendment to the
Certificate of Incorporation to authorize other series of stock of FCX ranking
on a parity with or junior to the Gold-Denominated Preferred Stock as to
dividends or rights upon liquidation, dissolution or winding up.
DESCRIPTION OF SPECIAL STOCK AND CLASS B COMMON STOCK
Special Stock (including Class A Common Stock) of the Company is offered
hereby only in connection with the conversion or exchange of Debt Securities
or Preferred Stock or upon the exercise of Warrants offered hereby. The Board
of Directors has the power to fix various terms with respect to each series of
Special Stock, including voting powers, designations, preferences and other
rights, qualifications, limitations, restrictions and redemption, conversion
or exchangeability provisions.
Class A Common Stock and Class B Common Stock
All authorized shares of Class B Common Stock are held by FTX. All
outstanding shares of Class A Common Stock are publicly held (except for
2,145,200 such shares which are held by FTX as of April 28, 1994). The
Class A Common Stock is listed on the New York Stock Exchange; the Class B
Common Stock is not listed on any securities exchange. On May 1, 1993, all
provisions of Class A Common Stock that varied from those of Class B Common
Stock ceased to have effect.
Each outstanding share of Class A Common Stock and Class B Common Stock
is entitled to one vote on all matters submitted to a vote of stockholders.
There is no cumulative voting. The Class A Common Stock and the Class B
Common Stock vote as a single class.
The holders of outstanding shares of Class A Common Stock and Class B
Common Stock are entitled to receive dividends out of assets legally available
therefor at such times and in such equal per share amounts as the Board of
Directors may from time to time determine, and upon liquidation, dissolution
or winding up of the Company, the holders of Class A Common Stock and Class B
Common Stock are entitled to receive on an equal per share basis the assets of
the Company which are legally available for distribution, after payment of all
debts and other liabilities and payment of dividends and liquidation
preferences in respect of any other stock of the Company ranking senior to
Class A Common Stock and Class B Common Stock as to such payments. The shares
of Class A Common Stock and Class B Common Stock are neither redeemable nor
convertible, and the holders thereof have no preemptive or subscription rights
to purchase any securities of the Company. The outstanding shares of Class A
Common Stock and Class B Common Stock are, and the shares of Class A Common
Stock to be offered pursuant to any Prospectus Supplement hereto will be,
validly issued, fully paid and nonassessable.
The transfer agent and registrar for the Class A Common Stock is Mellon
Securities Trust Company.
Special Preference Stock
As of December 31, 1993, the Company had outstanding 26,400,000 shares of
7% Convertible Exchangeable Special Preference Stock, par value $0.10 per
share (the "Special Preference Stock"), a series of Special Stock. The Special
Preference Stock is represented by depositary shares, each of which represents
2 16/17 shares of Special Preference Stock. The Special Preference Stock is
redeemable at the option of the Company, in whole or in part, at prices
declining to $25 per depositary share, commencing on August 1, 1995. The
Special Preference Stock ranks, as to payments of dividends and distributions
upon liquidation, pari passu with the Step-Up Convertible Preferred Stock and
the Gold-Denominated Preferred Stock and prior to Class A and Class B Common
Stock. Holders of shares of Special Preference Stock will be entitled to
receive cumulative cash dividends at an annual rate equivalent to $0.595 per
share ($1.75 per Depositary Share) when and as and if declared by the Board of
Directors of the Company, which dividends are payable quarterly. After full
cumulative dividends on Special Preference Stock for all past and current
quarterly dividend periods have been paid in full, the Special Preference
Stock will not be entitled to participate with the Class A and Class B Common
Stock in any further distributions by the Company (except upon liquidation,
dissolution or winding up of the Company). In the event of any such
liquidation, dissolution or winding up, after payment or provision for payment
of the debts and other liabilities of the Company, the holders of Special
Preference Stock will be entitled to receive out of the remaining net assets
of the Company $8.50 per share ($25 per Depositary Share) in cash plus accrued
and unpaid dividends before any distribution is made or set apart for the
holders of the Class A and Class B Common Stock or any other stock of the
Company ranking junior to the Special Preference Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up of the
affairs of the Company.
Each depositary share representing Special Preference Stock is
convertible at the option of the holder at any time, unless previously
redeemed, into approximately 1.009 shares of Class A Common Stock (equivalent
to a conversion price of $24.77 per share of Class A Common Stock), subject to
adjustment in certain circumstances. The depositary shares are exchangeable in
whole at the option of the Company on any quarterly dividend payment date,
commencing August 1, 1994, for the Company's 7% Convertible Subordinated
Debentures due 2007 (the "Debentures") at a rate of $25.00 principal amount of
Debentures for each depositary share. The Debentures, if issued, will be
convertible at the option of the holder at any time, unless previously
redeemed, into Class A Common Stock at the conversion price for depositary
shares for which the Debentures have previously been exchanged, subject to
adjustments in certain circumstances.
The Special Preference Stock has limited voting rights triggered by the
failure of the Company to pay dividends in an amount equal to six full
quarterly dividends or by the Company's proposed amendment to its Certificate
of Incorporation so as to adversely affect the rights of holders of Special
Preference Stock. Voting rights are not triggered upon amendment to the
Certificate of Incorporation to authorize other series of stock of the
Company, whether ranking senior to, on a parity with or junior to the Special
Preference Stock as to dividends or rights upon liquidation.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any Prospectus Supplement of
certain provisions of the Deposit Agreement (as defined below) and of the
Depositary Shares and Depositary Receipts does not purport to be complete and
is subject to, and qualified in its entirety by reference to, the form of
Deposit Agreement and form of Depositary Receipts relating to each series of
the Preferred Stock or Special Stock which will be filed with the Commission
as an exhibit to the Registration Statement of which this Prospectus is a
part.
General
The Company may, at its option, elect to have shares of Preferred Stock
or Special Stock be represented by Depositary Shares. The shares of any
series of the Preferred Stock or Special Stock underlying the Depositary
Shares will be deposited under a separate deposit agreement (the "Deposit
Agreement") between the Company and a bank or trust company selected by the
Company (the "Depositary"). The Prospectus Supplement relating to a series of
Depositary Shares will set forth the name and address of the Depositary.
Subject to the terms of the Deposit Agreement, each owner of a Depositary
Share will be entitled, in proportion to the applicable interest in the number
of shares of Preferred Stock or Special Stock underlying such Depositary
Share, to all the rights and preferences of the Preferred Stock or Special
Stock underlying such Depositary Share (including dividend, voting,
redemption, conversion, exchange and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement, each of which will represent the applicable
interest in a number of shares of a particular series of the Preferred Stock
or Special Stock described in the applicable Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement, a holder of
Depositary Shares is not entitled to receive the shares of Preferred Stock or
Special Stock underlying the Depositary Shares.
Dividends and Other Distributions
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the Preferred Stock or Special Stock to
the record holders of Depositary Shares representing such Preferred Stock or
Special Stock in proportion to the numbers of such Depositary Shares owned by
such holders on the relevant record date.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto or the Depositary may, with the approval of the Company, sell
such property and distribute the net proceeds from such sale to such holders.
The Deposit Agreement also contains provisions relating to the manner in
which any subscription or similar rights offered by the Company to holders of
Preferred Stock or Special Stock shall be made available to holders of
Depositary Shares.
Conversion and Exchange
If any Preferred Stock or Special Stock underlying the Depositary Shares
is subject to provisions relating to its conversion or exchange as set forth
in the Prospectus Supplement relating thereto, each record holder of
Depositary Shares will have the right or obligation to convert or exchange
such Depositary Shares into other securities of the Company or rights or
payments (including rights to receive payments in cash or securities based on
the value, rate or price of one or more specified commodities, currencies or
indices) pursuant to the terms thereof.
Redemption of Depositary Shares
If Preferred Stock or Special Stock underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the
proceeds received by the Depositary resulting from the redemption, in whole or
in part, of the Preferred Stock or Special Stock held by the Depositary. The
redemption price per Depositary Share will be equal to the aggregate
redemption price payable with respect to the number of shares of Preferred
Stock or Special Stock underlying the Depositary Shares. Whenever the Company
redeems Preferred Stock or Special Stock from the Depositary, the Depositary
will redeem as of the same redemption date a proportionate number of
Depositary Shares representing the shares of Preferred Stock or Special Stock
that were redeemed. If less than all the Depositary Shares are to be redeemed,
the Depositary Shares to be redeemed will be selected by lot or pro rata as
may be determined by the Company.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
redemption price payable upon such redemption. Any funds deposited by the
Company with the Depositary for any Depositary Shares which the holders
thereof fail to redeem shall be returned to the Company after a period of two
years from the date such funds are so deposited.
Voting
Upon receipt of notice of any meeting or action in lieu of any meeting at
which the holders of any shares of Preferred Stock or Special Stock underlying
the Depositary Shares are entitled to vote, the Depositary will mail the
information contained in such notice to the record holders of the Depositary
Shares relating to such Preferred Stock or Special Stock. Each record holder
of such Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock or Special Stock) will be entitled to
instruct the Depositary as to the exercise of the voting rights pertaining to
the number of shares of Preferred Stock or Special Stock underlying such
holder's Depositary Shares. The Depositary will endeavor, insofar as
practicable, to vote the number of shares of Preferred Stock or Special Stock
underlying such Depositary Shares in accordance with such instructions, and
the Company will agree to take all action which may be deemed necessary by the
Depositary in order to enable the Depositary to do so.
Amendment of the Deposit Agreement
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the Depositary, provided, however, that any amendment
which materially and adversely alters the rights of the existing holders of
Depositary Shares will not be effective unless such amendment has been
approved by the record holders of at least a majority of the Depositary Shares
then outstanding.
Charges of Depositary
The Company will pay all transfer and other taxes and governmental
charges that arise solely from the existence of the depositary arrangements.
The Company will pay charges of the Depositary in connection with the initial
deposit of the Preferred Stock or Special Stock and any exchange or redemption
of the Preferred Stock or Special Stock. Holders of Depositary Shares will
pay all other transfer and other taxes and governmental charges, and, in
addition, such other charges as are expressly provided in the Deposit
Agreement to be for their accounts.
Miscellaneous
The Company, or at the option of the Company, the Depositary, will
forward to the holders of Depositary Shares all reports and communications
from the Company which the Company is required to furnish to the holders of
Preferred Stock or Special Stock.
Neither the Depositary nor the Company will be liable if it is prevented
or delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and
the Depositary under the Deposit Agreement will be limited to performance in
good faith of their duties thereunder and they will not be obligated to
prosecute or defend any legal proceeding in respect of any Depositary Share or
Preferred Stock or Special Stock unless satisfactory indemnity has been
furnished. The Company and the Depositary may rely upon written advice of
counsel or accountants, or information provided by persons presenting
Preferred Stock or Special Stock for deposit, holders of Depositary Shares or
other persons believed to be competent and on documents believed to be
genuine.
Resignation and Removal of Depositary; Termination of the Deposit Agreement
The Depositary may resign at any time by delivering to the Company notice
of its election to do so, and the Company may at any time remove the
Depositary, any such resignation or removal to take effect upon the
appointment of a successor Depositary and its acceptance of such appointment.
Such successor Depositary will be appointed by the Company within 60 days
after delivery of the notice of resignation or removal. The Deposit Agreement
may be terminated at the direction of the Company or by the Depositary if a
period of 90 days shall have expired after the Depositary has delivered to the
Company written notice of its election to resign and a successor depositary
shall not have been appointed. Upon termination of the Deposit Agreement, the
Depositary will discontinue the transfer of Depositary Receipts, will suspend
the distribution of dividends to the holders thereof, and will not give any
further notices (other than notice of such termination) or perform any further
acts under the Deposit Agreement except that the Depositary will continue to
deliver Preferred Stock or Special Stock certificates, together with such
dividends and distributions and the net proceeds of any sales of rights,
preferences, privileges or other property in exchange for Depositary Receipts
surrendered. Upon request of the Company, the Depositary shall deliver all
books, records, certificates evidencing Preferred Stock or Special Stock,
Depositary Receipts and other documents relating to the subject matter of the
Deposit Agreement to the Company.
DESCRIPTION OF WARRANTS
General
The Company may issue Warrants, including Warrants to purchase Debt
Securities ("Debt Warrants"), as well as other types of Warrants. Warrants may
be issued independently or together with any Debt Securities or Preferred
Stock and may be attached to or separate from such Debt Securities or
Preferred Stock. Each series of Warrants will be issued under a separate
warrant agreement (each a "Warrant Agreement") to be entered into between the
Company and a warrant agent ("Warrant Agent"). The following sets forth
certain general terms and provisions of the Warrants offered hereby. Further
terms of the Warrants and the applicable Warrant Agreement are set forth in
the applicable Prospectus Supplement.
Debt Warrants
The applicable Prospectus Supplement will describe the following terms of
the Debt Warrants in respect of which this Prospectus is being delivered: (1)
the title of such Debt Warrants; (2) the aggregate number of such Debt
Warrants; (3) the price or prices at which such Debt Warrants will be issued;
(4) the currency or currencies, including composite currencies, in which the
price of such Debt Warrants may be payable; (5) the designation, aggregate
principal amount and terms of the Debt Securities purchasable upon exercise of
such Debt Warrants; (6) the price at which and currency or currencies,
including composite currencies, in which the Debt Securities purchasable upon
exercise of such Debt Warrants may be purchased; (7) the date on which the
right to exercise such Debt Warrants shall commence and the date on which such
right shall expire; (8) if applicable, the minimum or maximum amount of such
Debt Warrants which may be exercised at any one time; (9) if applicable, the
designation and terms of the Debt Securities or Preferred Stock with which
such Debt Warrants are issued and the number of such Debt Warrants issued with
each such Debt Security or Preferred Stock; (10) if applicable, the date on
and after which such Debt Warrants and the related Debt Securities or
Preferred Stock will be separately transferable; (11) information with respect
to book-entry procedures, if any; (12) if applicable, a discussion of certain
United States Federal income tax considerations; and (13) any other terms of
such Debt Warrants, including terms, procedures and limitations relating to
the exchange and exercise of such Debt Warrants.
Other Warrants
The Company may issue other Warrants. The applicable Prospectus
Supplement will describe the following terms of any such other Warrants in
respect of which this Prospectus is being delivered: (1) the title of such
Warrants; (2) the aggregate number of such Warrants; (3) the price or prices
at which such Warrants will be issued; (4) the currency or currencies,
including composite currencies, in which the price of such Warrants may be
payable; (5) the securities, which may include Preferred Stock or Special
Stock (including Class A Common Stock) or other rights (including rights to
receive payments in cash or securities based on the value, rate or price of
one or more specified commodities, currencies or indices), purchasable upon
exercise of such Warrants; (6) the price at which and the currency or
currencies, including composite currencies, in which the securities
purchasable upon exercise of such Warrants may be purchased; (7) the date on
which the right to exercise such Warrants shall commence and the date on which
such right shall expire; (8) if applicable, the minimum or maximum amount of
such Warrants which may be exercised at any one time; (9) if applicable, the
designation and terms of the Debt Securities or Preferred Stock with which
such Warrants are issued and the number of such Warrants issued with each such
Debt Security or share of Preferred Stock; (10) if applicable, the date on and
after which such Warrants and the related Debt Securities or Preferred Stock
will be separately transferable; (11) information with respect to book-entry
procedures, if any; (12) if applicable, a discussion of certain United
States Federal income tax considerations; and (13) any other terms of such
Warrants, including terms, procedures and limitations relating to the exchange
and exercise of such Warrants.
LIMITATIONS ON ISSUANCE OF BEARER DEBT SECURITIES AND
BEARER DEBT WARRANTS
Except as may otherwise be provided in the Prospectus Supplement
applicable thereto, in compliance with United States federal income tax laws
and regulations, Debt Securities that are Bearer Securities (including Bearer
Securities in global form) and Debt Warrants that are Bearer Warrants will not
be offered, sold, resold or delivered, directly or indirectly, in the United
States or its possessions or to United States persons (as defined below),
except as otherwise permitted by United States Treasury Regulations Section
1.163-5(c)(2)(i)(D). Any underwriters, agents and dealers participating in
the offerings of such Bearer Securities or such Bearer Warrants, directly or
indirectly, must agree that (i) they will not, in connection with the
original issuance of any such Bearer Securities or during the period set forth
in the Prospectus Supplement following the original issuance of such Bearer
Securities, offer, sell, resell or deliver, directly or indirectly, any such
Bearer Securities in the United States or its possessions or to United States
persons (other than as permitted by the applicable Treasury Regulations
described above) and (ii) they will not, at any time, offer, sell, resell or
deliver, directly or indirectly, any such Bearer Warrants in the United States
or its possessions or to United States persons (other than as permitted by the
applicable Treasury Regulations described above). In addition, any such
underwriters, agents and dealers must have procedures reasonably designed to
ensure that its employees or agents who are directly engaged in selling such
Bearer Securities or such Bearer Warrants are aware of the above restrictions
on the offering, sale, resale or delivery of such Bearer Securities or such
Bearer Warrants. Moreover, such Bearer Securities (other than temporary
global Debt Securities) and any coupons appertaining thereto will not be
delivered in definitive form unless the Company has received a signed
certificate in writing (or an electronic certificate described in United
States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(3)(ii)) stating that
on such date (i) such Bearer Security is owned by a person that is not a
United States person or, if such person is a United States person, that it is
a financial institution (as defined in United States Treasury Regulations
Section 1.165-12(c)(1)(v)) purchasing for its own account or the account of a
customer, or (ii) such Bearer Security is owned by a financial institution
(described above) for purposes of resale during the period set forth in the
Prospectus Supplement following the original issuance of such Bearer Security
and has not been acquired for the purposes of resale directly or indirectly
within the United States or to United States persons (other than as permitted
by the applicable Treasury Regulations described above). Such Bearer Warrants
will not be issued in definitive form.
Such Bearer Securities (other than temporary global Debt Securities) and
any coupons appertaining thereto will bear a legend substantially to the
following effect: "Any United States person who holds this obligation will be
subject to limitations under the United States federal income tax laws,
including the limitations provided in Sections 165(j) and 1287(a) of the
United States Internal Revenue Code." The sections referred to in such legend
provide that a United States person (other than a United States financial
institution described above or a United States person holding through such a
financial institution) who holds such Bearer Security or coupon will not be
allowed to deduct any loss realized on the sale, exchange or redemption of
such Bearer Security and any gain (which might otherwise be characterized as
capital gain) recognized on such sale, exchange or redemption will be treated
as ordinary income.
As used herein, "United States person" means a citizen, national or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source.
PLAN OF DISTRIBUTION
The Company may sell the Securities being offered hereby in four ways:
(i) through agents, (ii) through underwriters, (iii) through dealers and (iv)
directly to other purchasers, or any combination of the foregoing.
Offers to purchase Securities may be solicited by agents designated by
the Company from time to time. Any such agent, who may be deemed to be an
underwriter as the term is defined in the Securities Act, involved in the
offer or sale of any Securities will be named, and any commissions payable by
the Company to such agent set forth, in the Prospectus Supplement relating to
such Securities. Unless otherwise indicated in the Prospectus Supplement, any
such agent will be acting on a best efforts basis for the period of its
appointment. Agents may be entitled under agreements which may be entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for the Company
in the ordinary course of business.
If any underwriters are utilized in the sale of any Securities, the
Company will enter into an underwriting agreement with such underwriters at
the time of such sale to them and the names of the underwriters and the terms
of the transaction will be set forth in the Prospectus Supplement relating to
such Securities, which will be used by the underwriters to make resales of
such Securities. The underwriters may be entitled, under the relevant
underwriting agreement, to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for the Company
in the ordinary course of business.
If a dealer is utilized in the sale of any Securities, the Company will
sell such Securities to the dealer, as principal. The dealer may then resell
such Securities to the public at varying prices to be determined by such
dealer at the time of resale. Dealers may be entitled under agreements which
may be entered into with the Company to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act, and may
be customers of, engage in transactions with or perform services for the
Company in the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company will authorize
agents, underwriters or dealers to solicit offers by certain purchasers to
purchase any Securities from the Company at the public offering price set
forth in the Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the future. Such
contracts will be subject to only those conditions set forth in the Prospectus
Supplement, and the Prospectus Supplement will set forth the commission
payable for solicitation of such offers.
LEGAL MATTERS
The validity of the Securities will be passed upon for the Company by
Davis Polk & Wardwell.
EXPERTS
The audited financial statements and schedules of the Company
incorporated in this Prospectus by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993 have been audited by
Arthur Andersen & Co., independent public accountants as indicated in their
report with respect thereto and are incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and
auditing in giving said report. Future audited financial statements and
schedules of the Company and the reports thereon of the Company's
independent public accountants also will be incorporated by reference in
this Prospectus in reliance upon the authority of those accountants as
experts in giving those reports to the extent said firm has audited those
financial statements and consented to the use of their reports thereon.
No dealer, salesperson or other person has been authorized to give any
information or make any representations in connection with this offering not
contained or incorporated by reference in this Prospectus Supplement and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company or any of the U.S. Underwriters. This
Prospectus Supplement and the Prospectus do not constitute any offer of any
security other than those to which this Prospectus Supplement relates or an
offer to sell or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither
the delivery of this Prospectus Supplement or the Prospectus nor any sale made
hereunder or thereunder shall, under any circumstances, create an implication
that the information contained herein or therein is correct as of any time
subsequent to the respective dates hereof or thereof or that there has been no
change in the affairs of the Company since their respective dates.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Prospectus Summary S-3
Special Considerations with Respect to
the Offering S-11
The Company S-12
Use of Proceeds S-19
Capitalization S-20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations S-21
Description of Silver-Denominated
Preferred Stock S-26
Description of Depositary Shares S-32
Certain Federal Income Tax Consequences S-33
Legal Matters S-37
Underwriting S-38
Experts S-40
Prospectus
Available Information 2
Incorporation of Documents by Reference 2
The Company 3
Use of Proceeds 4
Special Considerations 4
Ratio of Earnings to Fixed Charges 6
Relationship of the Company Group
with the FTX Group 6
Description of Debt Securities 8
Description of Preferred Stock 15
Description of Special Stock and
Class B Common Stock 20
Description of Depositary Shares 21
Description of Warrants 24
Limitations on Issuance of Bearer Debt
Securities and Bearer Debt Warrants 25
Plan of Distribution 26
Legal Matters 26
Experts 26
4,750,080 Depositary Shares
FREEPORT-MCMORAN
COPPER & GOLD
[LOGO]
Each Initially Representing
0.025 Shares of
Silver-Denominated
Preferred Stock
-----------------------
PROSPECTUS SUPPLEMENT
July , 1994
-----------------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
KIDDER, PEABODY & CO.
INCORPORATED
MERRILL LYNCH & CO.
S.G.WARBURG & CO. INC.
Subject to Completion, dated July 12, 1994
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 2, 1994)
4,750,080 Depositary Shares
[LOGO] FREEPORT-MCMORAN COPPER & GOLD
Each Initially Representing 0.025 Shares of
Silver-Denominated Preferred Stock
Of the 4,750,080 Depositary Shares (the "Depositary Shares") being
offered, 950,080 Depositary Shares initially are being offered outside the
United States by the International Managers (the "International Offering") and
3,800,000 Depositary Shares initially are being offered in the United States
by the U.S. Underwriters (the "United States Offering" and, together with the
International Offering, the "Offering"). The initial public offering price
and the underwriting discounts and commissions for the International Offering
and for the United States Offering are identical. See "Underwriting".
Each of the Depositary Shares will initially represent 0.025 shares of
Silver-Denominated Preferred Stock, par value $0.10 per share (the "Silver-
Denominated Preferred Stock"), of Freeport-McMoRan Copper & Gold Inc. (the
"Company" or "FCX"), to be deposited with Mellon Securities Trust Company, as
Depositary, and will entitle the holder to all proportional rights,
preferences and privileges of Silver-Denominated Preferred Stock represented
thereby. As a result of the annual redemption of Silver-Denominated
Preferred Stock beginning on August 1, 1999 hereinafter described, the number
of shares of Silver-Denominated Preferred Stock represented by each of the
Depositary Shares will decrease in proportion to the reduction in the
Principal Silver Balance (as defined herein; initially four ounces per
Depositary Share). The Silver-Denominated Preferred Stock will rank, as to
payment of dividends upon redemption and as to distribution upon liquidation,
pari passu with the Company's Gold-Denominated Preferred Stock;
Gold-Denominated Preferred Stock Series II; 7% Convertible Exchangeable
Special Preference Stock and Step-Up Convertible Preferred Stock and senior to
the Company's Class A Common Stock and Class B Common Stock.
It is expected that the price to the public of the Depositary Shares will
be equal to approximately four times the London silver fixing price for one
ounce of silver in the London bullion market on the date of pricing. On July
11, 1994 the London fixing price for silver in the London bullion market was
$5.2475 per ounce of silver.
The Company will redeem from the Depositary annually on August 1
beginning in 1999, out of funds legally available therefor, Silver-Denominated
Preferred Stock having an aggregate liquidation preference equal to the Dollar
Equivalent Value (as defined herein) of 0.5 ounces of silver for each
Depositary Share. The proceeds of such redemption will be distributed to the
holders of the Depositary Shares on a pro rata basis. Each such redemption
payment will reduce the Principal Silver Balance by 0.5 ounces for each
Depositary Share.
Dividends on the Silver-Denominated Preferred Stock will be cumulative
from the date of original issuance thereof (the "Issue Date") and are payable
quarterly. For the first twenty quarters after the Issue Date, dividends will
be payable in an amount equal to the Dollar Equivalent Value of _____ ounces
of silver per Depositary Share per quarter, representing an annual dividend
rate of ___% (the "Annual Dividend Rate") of the Principal Silver Balance. For
the twenty-first and subsequent quarters after the Issue Date, dividends will
be payable in an amount equal to the Dollar Equivalent Value of the number of
ounces of silver constituting the then Principal Silver Balance multiplied by
the Annual Dividend Rate divided by four. The first quarterly dividend will
be payable on November 1, 1994 and will be based upon the number of days the
Depositary Shares are outstanding through such date.
Application will be made to list the Depositary Shares on the New York
Stock Exchange.
See "Special Considerations with Respect to the Offering" in this
Prospectus Supplement and "Special Considerations" in the accompanying
Prospectus for information that should be considered by prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
--------- ------------ -----------
Per Depositary Share . . . . $ $ $
Total(3) . . . . . . . . . . $ $ $
(1) The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deduction of expenses payable by the Company estimated at
$________.
(3) The Company has granted the International Managers a 30-day option to
purchase up to 142,320 additional Depositary Shares solely to cover
over-allotments, if any. The U.S. Underwriters have been granted a
similar option to purchase up to 570,000 additional Depositary Shares
solely to cover over-allotments, if any. If such options are exercised
in full, the total Price to Public, Underwriting Discount and Proceeds
to Company will be $_______, $_______, and $_________, respectively.
See "Underwriting."
The Depositary Shares offered by this Prospectus Supplement are offered
by the U.S. Underwriters subject to prior sale, to withdrawal, cancellation
or modification of the offer without notice, to delivery to and acceptance by
the U.S. Underwriters and to certain further conditions. It is expected that
delivery of the Depositary Receipts evidencing the Depositary Shares will be
made at the offices of Lehman Brothers Inc. in New York, New York on or about
July , 1994.
LEHMAN BROTHERS
GOLDMAN SACHS INTERNATIONAL
KIDDER, PEABODY
INTERNATIONAL plc
MERRILL LYNCH INTERNATIONAL LIMITED
S.G. WARBURG SECURITIES
July 11, 1994
INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT
IS SUBJECT TO COMPLETION PURSUANT TO RULE 424 UNDER THE SECURITIES ACT OF
1933. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 415 UNDER THE SECURITIES ACT OF 1933. A FINAL PROSPECTUS SUPPLEMENT
AND ACCOMPANYING PROSPECTUS WILL BE DELIVERED TO PURCHASERS OF THESE
SECURITIES. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
IN CONNECTION WITH THIS OFFERING THE INTERNATIONAL MANAGERS AND THE U.S.
UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN
THE MARKET PRICES OF THE DEPOSITARY SHARES AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No dealer, salesperson or other person has been authorized to give any
information or make any representations in connection with this offering not
contained or incorporated by reference in this Prospectus Supplement and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Company or any of the U.S. Underwriters. This
Prospectus Supplement and the Prospectus do not constitute any offer of any
security other than those to which this Prospectus Supplement relates or an
offer to sell or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither
the delivery of this Prospectus Supplement or the Prospectus nor any sale made
hereunder or thereunder shall, under any circumstances, create an implication
that the information contained herein or therein is correct as of any time
subsequent to the respective dates hereof or thereof or that there has been no
change in the affairs of the Company since their respective dates.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Prospectus Summary S-3
Special Considerations with Respect to
the Offering S-11
The Company S-12
Use of Proceeds S-19
Capitalization S-20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations S-21
Description of Silver-Denominated
Preferred Stock S-26
Description of Depositary Shares S-32
Certain Federal Income Tax Consequences S-33
Legal Matters S-37
Underwriting S-38
Experts S-40
Prospectus
Available Information 2
Incorporation of Documents by Reference 2
The Company 3
Use of Proceeds 4
Special Considerations 4
Ratio of Earnings to Fixed Charges 6
Relationship of the Company Group
with the FTX Group 6
Description of Debt Securities 8
Description of Preferred Stock 15
Description of Special Stock and
Class B Common Stock 20
Description of Depositary Shares 21
Description of Warrants 24
Limitations on Issuance of Bearer Debt
Securities and Bearer Debt Warrants 25
Plan of Distribution 26
Legal Matters 26
Experts 26
4,750,080 Depositary Shares
FREEPORT-MCMORAN
COPPER & GOLD
[LOGO]
Each Initially Representing
0.025 Shares of
Silver-Denominated
Preferred Stock
-----------------------
PROSPECTUS SUPPLEMENT
July , 1994
-----------------------
LEHMAN BROTHERS
GOLDMAN SACHS INTERNATIONAL
KIDDER, PEABODY
INTERNATIONAL plc
MERRILL LYNCH INTERNATIONAL LIMITED
S.G. WARBURG SECURITIES
