FILED PURSUANT TO RULE 424(B)(2)
REGISTRATION STATEMENT NO. 333-67606
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 15, 2001)
2,000,000 MEDS(SM)
[PHELPS DODGE CORPORATION LOGO]
6.75% SERIES A MANDATORY CONVERTIBLE PREFERRED SHARES (MEDS)
Phelps Dodge will pay annual dividends on each of our MEDS in the amount of
$6.75. Dividends will be cumulative from the date of issuance and will accrue
and be paid quarterly. The first dividend payment will be made on August 15,
2002. The liquidation preference is $100 per MEDS, plus accrued and unpaid
dividends.
On August 15, 2005, each of our MEDS will automatically convert, subject to
adjustments described in this prospectus supplement, into between 2.083 and 2.5
of our common shares depending on the then current market price of our common
shares. At any time prior to August 15, 2005, holders may elect to convert each
of our MEDS, subject to adjustments described in this prospectus supplement,
into 2.083 of our common shares, although by doing so would forfeit any
undeclared dividend.
Concurrently with this offering of MEDS, Phelps Dodge is offering 10 million of
our common shares. The common shares will be offered pursuant to a separate
prospectus supplement. Neither offering is conditioned on the other.
Prior to this offering, there has been no market for our MEDS. We have applied
to list the MEDS on the New York Stock Exchange under the symbol PD PrA. Our
common shares are listed on the New York Stock Exchange under the symbol "PD."
The last reported sale price of our common shares on June 6, 2002 was $41.01 per
share.
INVESTING IN OUR MEDS INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE S-4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE RELATED PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
JPMorgan will purchase the MEDS at a price per MEDS of $97. The MEDS are
expected to be sold by JPMorgan in one or more transactions based on the market
prices of our common shares prevailing at the time of the sale or at prices
otherwise negotiated.
The underwriter expects to deliver the MEDS to purchasers on or about June 12,
2002.
JPMORGAN
June 6, 2002
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON
THE FRONT OF THIS PROSPECTUS SUPPLEMENT.
---------------------
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
Forward-Looking Statements............. S-1
The MEDS............................... S-2
Risk Factors........................... S-4
Phelps Dodge Corporation............... S-12
Use of Proceeds........................ S-15
Capitalization......................... S-16
Ratio of Earnings to Combined Fixed
Charges and Preferred Share
Dividends............................ S-17
Price Range of Phelps Dodge's Common
Shares and Dividend Policy........... S-18
Selected Financial Information......... S-19
Description of the MEDS................ S-22
Certain Federal Income Tax
Considerations....................... S-31
Underwriting........................... S-35
Concurrent Common Share Offering....... S-37
Legal Matters.......................... S-38
PAGE
PROSPECTUS
Cautionary Note........................ 2
Phelps Dodge Corporation............... 3
The Trusts............................. 6
Use of Proceeds........................ 7
Ratio of Earnings to Fixed Charges..... 7
Accounting Treatment................... 7
Description of the Common Shares....... 8
Description of the Preferred Shares.... 11
Description of Share Purchase Contracts
and Share Purchase Units............. 15
Description of Warrants................ 16
Description of the Debt Securities..... 17
Description of the Preferred
Securities........................... 30
Description of the Preferred Securities
Guarantees........................... 41
Plan of Distribution................... 44
Experts................................ 45
Validity of the Securities............. 45
Where You Can Find More Information.... 46
Incorporation by Reference............. 46
---------------
MEDS(SM) is a service mark of JPMorgan.
i
FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the information
incorporated by reference in them include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Securities Exchange Act"). We intend these forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements. You should be aware that these statements reflect our expectations
and are not guarantees of performance. These forward-looking statements are
subject to certain risks and uncertainties, including those identified in
"Management's Discussion and Analysis" in our Annual Report on Form 10-K for the
year ended December 31, 2001, our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002, and in this prospectus supplement under the heading "Risk
Factors," which could cause actual results to differ materially from historical
results or those projected. Forward-looking statements include, among other
things, discussions concerning our potential exposure to market risks, as well
as statements expressing management's expectations, beliefs, estimates,
forecasts, projections and assumptions. In some cases, you can identify
forward-looking statements by words such as "believe," "estimate," "intend,"
"anticipate," "expect," "should," "plan," "predict," "potential," "may," "will"
or similar expressions.
S-1
THE MEDS
The following summary is not intended to be complete. For a more detailed
description of the MEDS, see "Description of the MEDS."
Issuer........................ Phelps Dodge Corporation.
Securities Offered............ 2 million MEDS.
Liquidation Preference........ $100.00 per MEDS, plus accrued and unpaid
dividends.
Dividend Payment Dates........ The 15th calendar day (or the following
business day if the 15th is not a business day)
of each February, May, August and November,
beginning with August 15, 2002.
Dividend Rate................. $6.75 for each of our MEDS per year.
Mandatory Conversion Date..... August 15, 2005, which we call the conversion
date.
Mandatory Conversion.......... On the conversion date, each of our MEDS will
automatically convert into our common shares,
based on the conversion rate.
Conversion Rate............... The conversion rate for each of our MEDS will
be not more than 2.5 of our common shares and
not less than 2.083 of our common shares,
depending on the average market price of our
common shares, as described below.
The conversion rate is subject to adjustments
as described under "Description of the
MEDS--Anti-dilution Adjustments."
The average market price is the average of the
closing prices per share of our common shares
on each of the 20 consecutive trading days
ending on the third trading day immediately
preceding the conversion date. It will be
calculated as described under "Description of
the MEDS--Automatic Conversion of MEDS."
The following table illustrates the conversion rate of each of our MEDS and the
value of our common shares issuable upon conversion on the conversion date, at
the average market price shown, subject to anti-dilution adjustments:
AVERAGE MARKET PRICE ON CONVERSION
CONVERSION DATE RATE
----------------------- ----------
Equal to or less than $40.00.............. 2.5
between $40.01 and $48.00................. 2.5 to 2.083
greater than $48.00....................... 2.083
Optional Conversion........... At any time prior to August 15, 2005, you may
elect to convert each of your MEDS into 2.083
of our common shares. This conversion rate is
subject to adjustment as described below under
"Description of the MEDS--Anti-dilution
Adjustments."
S-2
Early Conversion Upon Cash
Merger........................ Prior to the conversion date, if we are
involved in a merger, acquisition or
consolidation in which at least 30% of the
consideration for our common shares consists of
cash or cash equivalents, which we refer to as
the "cash merger," then on or after the date of
the cash merger each holder of our MEDS will
have the right to convert our MEDS at the
conversion rate in effect immediately before
the cash merger.
Anti-dilution Adjustments..... The formula for determining the conversion rate
and the number of our common shares to be
delivered upon an early conversion may be
adjusted if certain events occur. See
"Description of the MEDS--Anti-dilution
Adjustments."
Voting Rights................. The holders of our MEDS are not entitled to any
voting rights, except as required by applicable
state law and as described under "Description
of the MEDS--Voting Rights."
S-3
RISK FACTORS
In addition to the other information contained or incorporated by reference in
this prospectus supplement and the accompanying prospectus (including risks and
uncertainties identified in "Management's Discussion and Analysis" in our Annual
Report on Form 10-K for the year ended December 31, 2001, and our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2002), the following factors
should be carefully considered prior to deciding whether or not to purchase the
MEDS.
OUR INDEBTEDNESS COULD AFFECT OUR OPERATIONS.
At March 31, 2002, we had outstanding debt of approximately $2.83 billion,
constituting approximately 50.8% of our total capitalization. This level of
indebtedness could reduce our flexibility in responding to changing business and
economic conditions, and limit our ability to pursue other business
opportunities and borrow money for operations or capital.
COPPER AND MOLYBDENUM PRICE VOLATILITY MAY REDUCE OUR INCOME.
Copper is an internationally traded commodity. Its prices are effectively
determined on the two major metals exchanges--the London Metal Exchange (LME)
and the New York Commodity Exchange (COMEX). The prices on these exchanges
reflect the worldwide balance of copper demand and supply and various U.S. and
international macroeconomic and political conditions. Prices are also sometimes
influenced significantly by numerous other factors, including speculative
actions, the availability and cost of substitute materials, and currency
exchange fluctuations. The copper market is volatile and cyclical, as
illustrated by the following charts showing the high, low and average LME and
COMEX spot prices per pound of copper cathode for the years indicated. The
average spot prices are the averages of the monthly averages for each year,
which we believe best reflect the manner in which we price copper for sale.
LME PRICES
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YEAR HIGH LOW AVERAGE
---------------------------------------------------------------------------------------
1992........................................................ $1.17 $0.95 $1.03
1993........................................................ 1.08 0.72 0.87
1994........................................................ 1.40 0.78 1.05
1995........................................................ 1.47 1.23 1.33
1996........................................................ 1.29 0.83 1.04
1997........................................................ 1.23 0.77 1.03
1998........................................................ 0.85 0.65 0.75
1999........................................................ 0.84 0.61 0.71
2000........................................................ 0.91 0.73 0.82
2001........................................................ 0.83 0.60 0.72
2002 (through June 6)....................................... 0.77 0.64 0.71
---------------------------------------------------------------------------------------
S-4
COMEX PRICES
---------------------------------------------------------------------------------------
YEAR HIGH LOW AVERAGE
---------------------------------------------------------------------------------------
1992........................................................ $1.16 $0.93 $1.03
1993........................................................ 1.07 0.72 0.85
1994........................................................ 1.40 0.78 1.07
1995........................................................ 1.46 1.21 1.35
1996........................................................ 1.31 0.86 1.06
1997........................................................ 1.23 0.76 1.04
1998........................................................ 0.86 0.64 0.75
1999........................................................ 0.85 0.61 0.72
2000........................................................ 0.93 0.74 0.84
2001........................................................ 0.87 0.60 0.73
2002 (through June 6)....................................... 0.78 0.65 0.73
---------------------------------------------------------------------------------------
On June 6, 2002, the closing spot price of copper cathode on the LME and the
COMEX was $0.77 and $0.78 per pound, respectively.
Any material change in the price we receive for copper, or in our unit
production costs, has a significant effect on our results. Our share of current
annual production, after our recently announced curtailments, is approximately
2.0 billion pounds of copper. Accordingly, each 1 cent per pound change in our
average annual realized copper price, or in average annual unit production
costs, causes a variation in annual operating income before taxes of
approximately $20 million. Consequently, low copper prices may reduce the value
of our equity securities and a sustained and uninterrupted period of unusually
low copper prices could reduce our ability to pay principal and interest on our
debt, dividends on our MEDS, or meet our other obligations.
While we have from time to time in the past entered into limited hedging
arrangements to reduce a portion of our exposure to the volatility of commodity
market prices, we may not do so in the future. In addition, depending upon the
specific arrangements, market conditions and other factors, these hedging
arrangements, if entered into, could reduce the earnings or cash flow that we
otherwise might realize or could result in losses. We did not have any
outstanding copper price protection contracts on June 6, 2002.
Molybdenum, like copper, is characterized by volatile and cyclical prices.
Prices are influenced by worldwide economic conditions, world supply/demand
balances, inventory levels, the U.S. dollar exchange rate, production costs of
U.S. and foreign competitors, and other factors. Molybdenum consumption depends
heavily on worldwide demand from the specialty steel industry and, to a lesser
extent, on chemical applications. A substantial portion of world molybdenum
production is a by-product of copper mining, which is relatively insensitive to
molybdenum prices. Due to declining consumption, following a brief period of
rising prices in the first half of 2001, prices reversed direction and weakened
throughout the second half of the year. Platts Metals Week dealer oxide prices
averaged $2.36 per pound for 2001, in contrast to 2000 and 1999 average prices
of $2.51 per pound and $2.66 per pound, respectively. We received an average
realized price of $3.64 per pound for molybdenum products in 2001, reflecting
the broad mix of upgraded molybdenum products as well as oxide (technical grade
molybdic oxide). Platts Metals Week dealer oxide prices averaged $2.74 per pound
in the first quarter of 2002.
S-5
INCREASED ENERGY COSTS COULD REDUCE OUR PROFITABILITY OR RESULT IN LOSSES.
Energy, including electricity, diesel fuel and natural gas, represents a
significant portion of the production costs for our operations. The principal
sources of energy for our mining operations are purchased petroleum products,
natural gas and electricity. Our wire and cable and specialty chemicals
operations generally use purchased electricity and natural gas as their
principal sources of energy. In addition, the price of residual oil feedstock is
a significant factor in the cost of our specialty chemicals products because the
carbon black we produce is made primarily from heavy residual oil.
During 2000 and 2001, our operations were adversely affected by increased energy
costs. In response to the volatile energy markets, we implemented a power cost
stabilization plan in early 2001 that reduced electricity-related costs at our
U.S. mining operations. Additionally, to mitigate our exposure to increases in
diesel fuel and natural gas prices, we entered into price protection programs in
late 2000 and early 2001 designed to protect us against significant upward
movements in prices while maintaining the flexibility to participate in any
favorable price movement.
Energy will continue to represent a significant portion of the production costs
for our operations, and we may be negatively impacted by future energy
availability issues or increases in energy prices. If we are unable to procure
sufficient energy at reasonable prices in the future, it could reduce the
earnings or cash flow that we otherwise might realize or could result in losses.
WE MAY NOT REALIZE THE REDUCTIONS IN OUR COPPER PRODUCTION COSTS AND OTHER
IMPROVEMENTS PROJECTED FOR OUR QUEST FOR ZERO OPERATIONAL IMPROVEMENT PROGRAM.
Our unit cost structure for copper production is higher than those of some major
producers outside the United States due to lower ore grades, higher labor costs
and, in some cases, stricter regulatory requirements. To address this situation,
in May 2001 we commenced Quest for Zero, our company-wide, comprehensive
lean-production program, which we believe will narrow these cost disadvantages
with respect to a number of our international competitors. Phelps Dodge Mining
Company is aggressively pursuing its target of an all-in 60 cents per pound
implied unit cost of copper production by the end of 2003, which is at the heart
of our Quest for Zero program.
Overall, the Quest for Zero program is designed to result in $400 million of
annual operating income improvements by the end of 2003 and reduce our overall
cost structure. $55 million of improvements were achieved in 2001. Based on $44
million of improvements achieved in the first quarter of 2002, the annualized
run-rate was $175 million as of March 31, 2002. Should we fail to achieve our
targets, our earnings may be lower or we may suffer losses.
ENVIRONMENTAL AND REGULATORY COMPLIANCE MAY IMPOSE SUBSTANTIAL COSTS ON US.
Our mining operations and exploration activities, both inside and outside the
United States, are subject to extensive laws and regulations governing
prospecting, development, production, exports, taxes, labor standards,
occupational health, waste disposal, protection and remediation of the
environment, protection of endangered and protected species, mine safety, toxic
substances and other matters. Mining is also subject to risks and liabilities
associated with pollution of the environment and the disposal of waste products
occurring as a result of mineral exploration and production. Compliance with
these laws and regulations imposes substantial costs and subjects the company to
significant potential liabilities.
S-6
Our operations in the United States are subject to stringent federal, state and
local laws and regulations relating to improving or maintaining environmental
quality. Our global operations are also subject to many environmental protection
laws. Environmental laws often require parties to pay for remedial action or to
pay damages regardless of fault. Environmental laws also often impose liability
with respect to divested or terminated operations, even if the operations were
terminated or divested many years ago. The federal Clean Air Act has had a
significant impact, particularly on our smelters and power plants. The amended
federal Bureau of Land Management regulations governing mined land reclamation
for mining on federal lands will likely increase our regulatory obligations and
compliance costs over time with respect to mine closure reclamation. We are also
subject to state laws and regulations that establish requirements for mined land
reclamation and financial assurance. Costs associated with environmental and
regulatory compliance have increased over time, and we expect these costs to
continue to rise in the future. In addition, the costs of environmental
obligations may exceed the reserves we have established for such liabilities.
MINE CLOSURE REGULATIONS MAY IMPOSE SUBSTANTIAL COSTS ON US.
We are pursuing approval of reclamation plans for our Chino, Tyrone and Cobre
operations in the State of New Mexico. The cost estimate to implement the draft
plan proposed jointly by us and the State for Chino is $386 million on an
undiscounted basis. Based upon our understanding of the State's position, the
net present value of the obligation when adjusted to reflect appropriate
escalation and discount rates is approximately $180 million to $200 million. We
are negotiating with the State regarding the amount of financial assurance
required to cover the cost estimate. The final plan is subject to the public
hearing process, consideration of public comments and any judicial appeals, and
a portion of the plan will require a waiver of certain mining standards as
authorized by the New Mexico Mining Act.
The State has proposed a plan for Tyrone with a cost estimate of $440 million
and with a financial estimate based on an adjusted net present value of $267
million. We believe the more appropriate cost estimate and actual reclamation
costs for the Tyrone operation should be comparable to the Chino plan, and the
differences in valuation will be the subject of the public hearing process. We
expect the cost estimate for the Cobre plan to be approximately $40 million.
These final plans, and their associated costs, are also subject to the public
hearing process, consideration of public comments and any judicial appeals.
Based on the current schedule, the obligations to post additional financial
assurance under the proposed reclamation plans for the New Mexico sites will
become effective in October 2002.
The cost estimate to implement reclamation plans for our Arizona operations is
approximately $70 million. These reclamation plans were approved by the State of
Arizona in 1997. They are reviewed and accepted annually, most recently in March
2002.
Although it will not affect the amount of required financial assurance, the
actual implementation cost for the reclamation plans may vary significantly from
the cost estimate based on a variety of factors, including changes in legal
standards over time, potential cost savings from use of our own personnel and
equipment (by law, the cost estimate assumes use of third-party contractors to
complete the work), advances in technology and reclamation techniques, and
possible improvements in site preparation.
New Mexico's mined land reclamation law requires that all companies deliver
financial assurance. Surety bonds are the traditional source of financial
assurance. However, the cost of surety bonds has increased significantly during
the past year and many surety companies are
S-7
now requiring an increased level of collateral supporting the bonds. The surety
bond market has become volatile and may not have sufficient capacity to meet our
maximum possible exposure. In addition, if we fail to maintain our investment
grade rating, a risk discussed in the paragraph below, our ability to obtain
surety bonds in the market could be limited further. If we are unable to satisfy
our financial assurance obligations in New Mexico with surety bonds, we will be
required to obtain one or more alternative forms of financial assurance, or a
combination thereof, such as letters of credit, pledges of real property, or
cash deposits (which cash deposits could require that we incur additional debt).
Arizona permits a company to satisfy its financial assurance requirements by
demonstrating sufficient financial strength rather than buying surety bonds. To
date we have demonstrated our financial strength through our investment grade
bond rating and by meeting certain balance sheet tests. However, our ratings are
presently one level above non-investment grade and we have been placed on
negative outlook for a possible downgrade by Moody's. Standard & Poor's affirmed
our current rating in April 2002. If we fail to maintain an investment grade
rating, we will need to provide financial assurance in Arizona by purchasing
surety bonds, or to the extent surety bonds are not available to us, by another
form of financial assurance.
THE BUSINESS OF MINING IS SUBJECT TO MANY RISKS.
The business of mining is subject to a number of risks and hazards, including:
- unanticipated ground and water conditions and adverse claims to water
rights;
- geological problems;
- metallurgical and other processing problems;
- the occurrence of unusual weather or operating conditions and other
force majeure events;
- lower than expected ore grades;
- accidents;
- delays in the receipt of or failure to receive necessary government
permits;
- delays in transportation;
- labor relations;
- unavailability of materials and equipment; and
- the failure of equipment or processes to operate in accordance with
specifications or expectations.
The risks associated with mining described above could cause personal injury or
death, environmental damage, delays in mining, monetary losses and possible
legal liability. Some of these risks also impact our non-mining operations.
Although we maintain and intend to continue to maintain property and liability
insurance, some risks cannot be insured, and our insurance contains exclusions
and limitations on coverage and may be unavailable in some circumstances.
S-8
OUR OPERATIONS OUTSIDE THE UNITED STATES ARE SUBJECT TO THE RISKS OF DOING
BUSINESS IN FOREIGN COUNTRIES.
In 2001, our international operations provided 22% of Phelps Dodge Mining
Company's sales and reduced its operating loss by 8%, and provided 64% and 67%
of Phelps Dodge Industries' sales and operating income, respectively. These
non-U.S. activities are conducted in Canada, Latin America, Europe, Asia and
Africa, and are subject to certain political and economic risks, including:
- political instability and civil strife;
- changes in foreign laws and regulations, including those relating to
the environment, labor and tax;
- foreign currency fluctuations;
- expropriation or nationalization of property;
- exchange controls; and
- import, export and trade regulations.
ORE RESERVE LEVELS ARE SUBJECT TO UNCERTAINTY.
There are a number of uncertainties inherent in estimating quantities of
reserves, including many factors beyond our control. The reserve data
incorporated by reference in this prospectus supplement and the accompanying
prospectus are in large part only estimates. The volume and grade of reserves
recovered and rates of production may be less than anticipated.
Declines in the market price of a particular metal also may render the
exploitation of reserves containing relatively lower grades of mineralization
uneconomical. If the price we realized for a particular commodity were to
decline substantially below the price at which ore reserves were calculated for
a sustained period of time, we could experience reductions in reserves and asset
write-downs. Under some such circumstances, we may discontinue the development
of a project or mining at one or more properties. Further, changes in operating
and capital costs and other factors, including but not limited to short-term
operating factors such as the need for sequential development of ore bodies and
the processing of new or different ore grades, may reduce reserves.
PURCHASERS OF OUR MEDS WILL BEAR THE RISK OF A DECLINE IN THE MARKET PRICE OF
OUR COMMON SHARES.
The market price of our common shares on August 15, 2005 may be less than $40
per share, which we call the initial price. If that market price is less than
the initial price, then holders of our MEDS will receive our common shares on
August 15, 2005 with a market price that is less than the initial price.
Accordingly, a holder of our MEDS will bear the entire risk that the market
price of our common shares may decline. Any such decline in the market price of
our common shares may be substantial.
THE OPPORTUNITY FOR EQUITY APPRECIATION PROVIDED BY AN INVESTMENT IN OUR MEDS IS
LESS THAN THAT PROVIDED BY A DIRECT INVESTMENT IN OUR COMMON SHARES.
The market value of our common shares you will receive upon mandatory conversion
on the conversion date will exceed the stated amount of $100 per MEDS only if
the average market
S-9
price equals or exceeds the threshold appreciation price of $48. The threshold
appreciation price represents an appreciation of 20% over the initial price.
Therefore, the opportunity for equity appreciation provided by an investment in
our MEDS is less than that provided by a direct investment in our common shares.
If the average market price of our common shares exceeds the initial price but
is less than the threshold appreciation price, a holder of our MEDS will realize
no equity appreciation on our common shares. Furthermore, if the average market
price exceeds the threshold appreciation price, the value of the common shares
received upon conversion will be approximately 83.33% of the value of the common
shares that could be purchased with $100 at the time of the offering.
THE TRADING PRICE FOR OUR COMMON SHARES WILL DIRECTLY AFFECT THE TRADING PRICE
FOR OUR MEDS.
To the extent there is a secondary market for our MEDS, the trading price of our
common shares will directly affect the trading price of our MEDS. It is
impossible to predict whether the price of our common shares will rise or fall.
Our credit quality, operating results, economic and financial prospects, and
other factors will affect the trading price of our common shares. In addition,
market conditions can affect the capital markets generally, therefore affecting
the price of our common shares. These conditions may include the level of, and
fluctuations in, the trading prices of stocks generally and sales of substantial
amounts of our common shares in the market after the offerings or the perception
that those sales could occur.
YOU MAY SUFFER DILUTION OF OUR COMMON SHARES ISSUABLE UPON CONVERSION OF OUR
MEDS.
The number of our common shares issuable upon conversion of our MEDS is subject
to adjustment only for share splits and combinations, share dividends and
specified other transactions. The number of our common shares issuable upon
conversion is not subject to adjustment for other events, such as employee stock
option grants, offerings of our common shares for cash, or in connection with
acquisitions or other transactions which may reduce the price of our common
shares. The terms of our MEDS do not restrict our ability to offer common shares
in the future or to engage in other transactions that could dilute our common
shares. We have no obligation to consider the interests of the holders of our
MEDS in engaging in any such offering or transaction.
PURCHASERS OF OUR MEDS MAY SUFFER DILUTION OF OUR MEDS UPON THE ISSUANCE OF A
NEW SERIES OF PREFERRED SHARES RANKING EQUALLY WITH THE MEDS SOLD IN THIS
OFFERING.
The terms of our MEDS do not restrict our ability to offer a new series of
preferred shares that ranks equally with our MEDS in the future or to engage in
other transactions that could dilute our MEDS. We have no obligation to consider
the interests of the holders of our MEDS in engaging in any such offering or
transaction.
IF YOU PURCHASE OUR MEDS, YOU WILL HAVE NO RIGHTS AS A COMMON SHAREHOLDER UNTIL
THE MEDS ARE CONVERTED INTO OUR COMMON SHARES.
Until you acquire our common shares upon conversion, you will have no rights
with respect to our common shares, including voting rights (except as required
by applicable state laws and as described under "Description of the MEDS--Voting
Rights"), rights to respond to tender offers and rights to receive any dividends
or other distributions on our common shares. Upon conversion, you will be
entitled to exercise the rights of a holder of common shares only as to actions
for which the record date occurs after the conversion date.
S-10
NO MARKET FOR OUR MEDS CURRENTLY EXISTS. AN ACTIVE TRADING MARKET FOR OUR MEDS
MAY NOT DEVELOP.
The MEDS are a new issue of securities for which no market currently exists. If
our MEDS are traded after their initial issuance, they may trade at a discount
from the public offering price, depending on prevailing interest rates, the
market for similar securities, the trading price of our common shares and other
factors. A holder of MEDS may not be able to sell them in the future, and any
sale of MEDS may be at a price equal to or less than the public offering price
of the MEDS. An active market may not develop or be maintained for the MEDS. The
underwriters currently intend to make a market in the MEDS, subject to
applicable law and regulations. However, the underwriters are not obligated to
do so and may discontinue any market making at any time without notice.
S-11
PHELPS DODGE CORPORATION
We are the world's second largest producer of copper. We are also the world's
largest producer of molybdenum and continuous-cast copper rod, and are ranked
among the world's largest producers of carbon black and magnet wire. We were
incorporated under the laws of New York in 1885. On October 16, 1999, we
acquired Cyprus Amax Minerals Company thereby enhancing our copper assets with
significant operations in the United States and South America.
Phelps Dodge consists of two divisions: (i) Phelps Dodge Mining Company and (ii)
Phelps Dodge Industries.
(i) Phelps Dodge Mining Company is a business segment that includes our
worldwide copper operations from mining through rod production, marketing and
sales; molybdenum operations from mining through manufacturing, marketing and
sales; other mining operations and investments; and worldwide mineral
exploration and development programs.
(ii) Phelps Dodge Industries includes our specialty chemicals segment and our
wire and cable segment.
The following discussion is based on the description of our business and
properties included in our Annual Report on Form 10-K for the year ended
December 31, 2001, our Quarterly Report on Form 10-Q for the quarter ended March
31, 2002, and more extensive information concerning us is contained in such
reports. See "Incorporation by Reference" in the accompanying Prospectus.
PHELPS DODGE MINING COMPANY
Phelps Dodge Mining Company is our international business segment that comprises
a group of companies involved in vertically integrated copper operations
including mining, concentrating, electrowinning, smelting and refining, rod
production, marketing and sales, and related activities. Copper is sold
primarily to others as rod, cathode or concentrates, and as rod to our wire and
cable segment. In addition, Phelps Dodge Mining Company at times smelts and
refines copper and produces copper rod for customers on a toll basis. It is also
an integrated producer of molybdenum, with mining, roasting and processing
facilities producing molybdenum concentrate as well as metallurgical and
chemical products. In addition, it produces gold, silver, molybdenum, copper
sulfate, rhenium and copper chemicals as by-products, and sulfuric acid from its
air quality control facilities. This business segment also includes worldwide
mineral exploration and development programs and a process technology center
that directs its activities at improving existing processes and developing new
cost-competitive technologies.
We produce copper concentrate from open-pit mines and concentrators located in
Bagdad and Green Valley, Arizona; Silver City, New Mexico; and near Copiapo,
Chile. We produce electrowon copper cathode at solution
extraction/electrowinning (SX/EW) operations in Morenci, Miami, Bagdad and Green
Valley, Arizona; near Tyrone and Silver City, New Mexico; near Arequipa, Peru;
and near Calama, Chile.
In 2001, Phelps Dodge Mining Company produced 1,160,100 tons of copper in
concentrate and electrowon form for our account from worldwide mining
operations, and an additional 250,800 tons of such copper for the accounts of
our minority interest joint-venture partners. Production of copper for our own
account from our U.S. operations constituted approximately 52% of the copper
mined in the United States in 2001. Much of our U.S. cathode copper production,
S-12
together with additional copper purchased from others, is used to produce
continuous-cast copper rod, the basic feed for the electrical wire and cable
industry.
We are the world's leading producer of copper using the SX/EW process. In 2001,
we produced a total of 910,000 tons of cathode copper at our SX/EW facilities,
compared with 806,300 tons in 2000 and 511,500 tons in 1999. SX/EW is a
cost-effective process of extracting copper from certain types of ores. SX/EW is
a major factor in our continuing efforts to maintain internationally competitive
costs. Our total annual capacity of electrowon copper cathode production is
currently 410,000 tons at Morenci, 248,000 tons at El Abra (Chile), 75,000 tons
at Chino, 75,000 tons at Tyrone, 105,000 tons at Miami, 92,000 tons at Cerro
Verde (Peru), 16,000 tons at Bagdad and 35,000 tons at Sierrita (Green Valley).
We own and operate a copper smelter in Miami, Arizona, and, through Chino Mines
Company, operate the Chino smelter in Hurley, New Mexico. We own a two-thirds
interest in Chino Mines Company. We smelt virtually all of our share of our U.S.
copper concentrate production and occasionally some concentrate production from
Candelaria (Chile).
We refine our share of anode copper production from our smelters at our
refineries in El Paso, Texas, and Miami, Arizona. Our Miami refinery has an
annual production capacity of about 200,000 tons of copper cathode, and the El
Paso refinery has an annual production capacity of about 450,000 tons of copper
cathode.
We are the world's largest producer of continuous-cast copper rod, the basic
feed for the electrical wire and cable industry. Most of our refined copper, and
additional purchased copper, is converted into rod at our continuous-cast copper
rod facilities in El Paso, Texas; Norwich, Connecticut; Miami, Arizona; and
Chicago, Illinois. Our four plants have a collective annual capacity to convert
more than 1.1 million tons of refined copper into rod and other refined copper
products.
We own the underground Henderson molybdenum mine near Empire, Colorado. The
operation consists of an underground block-caving mine where molybdenite ore is
mined and transported to a conventional sulfide mill. The concentrator is
capable of operating at a rate of 32,000 tons of ore per day, producing
molybdenum disulfide concentrate containing up to 58% molybdenum. Most of the
concentrate is shipped to our Fort Madison roasting and chemical processing
facility in Iowa where a number of different products are made for final sale to
customers. A portion of Henderson's production is sold to customers as
molybdenum disulfide.
Molybdenum concentrate also is produced as a by-product at several of our U.S.
copper operations. The concentrate is roasted to produce molybdenum oxide at one
of our three roasting operations, and various molybdenum metallurgical and
chemical products are produced at our four conversion facilities.
PHELPS DODGE INDUSTRIES
Phelps Dodge Industries is our manufacturing division comprising two business
segments that produce engineered products principally for the global energy,
telecommunications, transportation and specialty chemicals sectors. Its
operations are characterized by products with significant market share,
internationally competitive costs and quality, and specialized engineering
capabilities. The two segments are specialty chemicals and wire and cable.
S-13
SPECIALTY CHEMICALS SEGMENT
Columbian Chemicals, headquartered in Marietta, Georgia, is an international
producer and marketer of carbon blacks. At Columbian Chemicals, we produce a
full range of rubber and industrial carbon blacks in 12 plants worldwide, with
approximately 40% of our production in North America and the remaining 60% at
facilities in Europe, Asia and Latin America. Our rubber carbon blacks improve
the tread wear and durability of tires and extend the service lives of many
rubber products such as belts and hoses. Our industrial carbon blacks are used
in such diverse applications as pigmentation of coatings, inks and plastics;
ultraviolet stabilization of plastics; and as conductive insulation for wire and
cable.
WIRE AND CABLE SEGMENT
The wire and cable segment, headquartered in Coral Gables, Florida, consists of
three worldwide product line businesses and a shared support services operation.
The three product line businesses are magnet wire, energy and telecommunications
cables, and specialty conductors.
Magnet wire, the insulated conductor used in most electrical motors, is
manufactured at three plants in the United States as well as facilities in
Austria, Mexico and Zambia. Energy and telecommunication cables for
international markets are manufactured in factories located in 10 countries. We
have majority interests in companies with production facilities in seven
countries--Brazil, Chile, Costa Rica, Honduras, Thailand, Venezuela and Zambia.
We also have minority interests in companies located in Hong Kong and Thailand,
accounted for on the equity basis, and in companies located in Greece and India,
accounted for on the cost basis. We manufacture specialty conductors at four
plants in the United States and market these products to the aerospace,
automotive, biomedical, computer and consumer electronics markets. The principal
products are highly engineered conductors of copper and copper alloy wire
electroplated with silver, tin or nickel for sophisticated, specialty product
niches.
S-14
USE OF PROCEEDS
We estimate the net proceeds from our sale of MEDS in this offering, after
deducting estimated expenses of $700,000, to be approximately $193.3 million. In
addition, we expect to receive net proceeds of approximately $398.7 million from
our concurrent common shares offering after deducting estimated expenses. We
intend to use the net proceeds of the offerings to repurchase or repay our
outstanding debt securities through tender offers, open market purchases,
privately negotiated transactions or otherwise in order to reduce interest
costs, reduce debt and better coordinate debt maturities with potential growth
opportunities. Our ability to effect such repurchases or repayments on
acceptable terms will depend upon numerous factors including market conditions.
To the extent we are unable to effect such repurchases or repayments on
acceptable terms, we may also use a portion of the proceeds for other general
corporate purposes. Pending such application, the proceeds will be invested
temporarily in short-term marketable securities.
S-15
CAPITALIZATION
The following table sets forth our short-term debt and total capitalization at
March 31, 2002, on an actual basis and on an as adjusted basis. The as adjusted
data are presented in two columns. The "As Adjusted" pro forma column reflects
this offering and the use of the estimated net proceeds from this offering to
repurchase some of our outstanding debt securities. The "As Further Adjusted"
pro forma column reflects both this offering and the concurrent common shares
offering and the use of the estimated net proceeds from this offering and the
concurrent common share offering to repurchase some of our outstanding debt
securities.
No other change in our consolidated capitalization since March 31, 2002 is
reflected in the table. The financial data at March 31, 2002 in the following
table are derived from our unaudited financial statements at and for the quarter
ended March 31, 2002. The following data are qualified in their entirety by our
financial statements and other information contained elsewhere in this
prospectus supplement and the accompanying prospectus or incorporated by
reference.
----------------------------------------------------------------------------------------------
MARCH 31, 2002
--------------------------------
AS AS FURTHER
ACTUAL ADJUSTED ADJUSTED
----------------------------------------------------------------------------------------------
(IN MILLIONS)
Short-term debt:
Short-term debt.......................................... $ 54.5 $ 54.5 $ 54.5
Current portion of long-term debt........................ 261.3 261.3 261.3
--------------------------------
Total................................................. 315.8 315.8 315.8
--------------------------------
Long-term debt.............................................. 2,515.2 2,321.9 1,923.2
Minority interest in consolidated subsidiaries.............. 59.6 59.6 59.6
6.75% Series A Mandatory Convertible Preferred Shares, $1.00
par value per share, no shares outstanding actual, 2.0
million outstanding as adjusted....................... - 193.3 193.3
Common shares, $6.25 par value per share, 200.0 million
shares authorized, 78.7 million shares outstanding
actual, shares outstanding as adjusted................ 492.0 492.0 554.5
Other equity................................................ 2,186.9 2,186.9 2,523.1
--------------------------------
Total long-term debt, minority interest in
consolidated subsidiaries, preferred shares, common
shares and other equity............................ 5,253.7 5,253.7 5,253.7
--------------------------------
Total Capitalization............................... $5,569.5 $5,569.5 $5,569.5
----------------------------------------------------------------------------------------------
S-16
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
The following table sets forth our ratio of earnings to combined fixed charges
and preferred share dividends for the periods indicated:
--------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------ ------------------------------------------
2002(B) 2001(C) 2000 1999(D) 1998 1997
--------------------------------------------------------------------------------------------------
Ratio of Earnings to Combined
Fixed Charges and Preferred
Share Dividends(a)............ -- -- 1.3 -- 4.4 8.2
--------------------------------------------------------------------------------------------------
(a) For purposes of computing the consolidated ratio of earnings to combined
fixed charges, earnings consist of income before taxes, minority interests
and equity in net earnings (losses) of affiliated companies and cumulative
effect of accounting charges. Minority interests in majority-owned
subsidiaries were not deducted from earnings as all such subsidiaries had
fixed charges. Fixed charges consist of interest (including capitalized
interest) on all indebtedness, amortization of debt discount and expense,
and that portion of rental expense which we believe to be representative of
interest. We did not pay any preferred share dividends during the periods
presented and no preferred shares were outstanding during such periods.
(b) Due to the loss recorded in the three-month period ended March 31, 2002, the
ratio coverage was less than 1:1. We would have needed to generate
additional earnings of $19.9 million to achieve a coverage of 1:1.
(c) Due to the loss recorded in 2001, the ratio coverage was less than 1:1. We
would have needed to generate additional earnings of $254.9 million to
achieve a coverage of 1:1.
(d) Due to the loss recorded in 1999, the ratio coverage was less than 1:1. We
would have needed to generate additional earnings of $419.3 million to
achieve a coverage of 1:1.
S-17
PRICE RANGE OF PHELPS DODGE'S COMMON SHARES
AND DIVIDEND POLICY
Our common shares are listed on the New York Stock Exchange under the symbol
"PD."
The following table sets forth the range of high and low closing sale prices of
our common shares for the periods indicated, as reported by the New York Stock
Exchange.
-----------------------------------------------------------------------------
HIGH LOW
-----------------------------------------------------------------------------
First Quarter Ended 3/31/99................................. $61.31 $41.88
Second Quarter Ended 6/30/99................................ $70.63 $48.88
Third Quarter Ended 9/30/99................................. $66.94 $54.00
Fourth Quarter Ended 12/31/99............................... $67.31 $50.56
First Quarter Ended 3/31/00................................. $73.00 $44.25
Second Quarter Ended 6/30/00................................ $53.00 $36.06
Third Quarter Ended 9/30/00................................. $46.75 $36.50
Fourth Quarter Ended 12/31/00............................... $57.00 $40.00
First Quarter Ended 3/31/01................................. $55.69 $39.55
Second Quarter Ended 6/30/01................................ $51.00 $37.82
Third Quarter Ended 9/30/01................................. $41.84 $25.74
Fourth Quarter Ended 12/31/01............................... $37.25 $26.30
First Quarter Ended 3/31/02................................. $42.51 $30.50
Second Quarter (through 6/6/02)............................. $42.10 $33.50
-----------------------------------------------------------------------------
As of June 6, 2002, there were approximately 28,532 holders of record of our
common shares.
During 1999 and 2000, the quarterly dividend rate was 50 cents on each common
share. Beginning in the second quarter of 2001, the dividend was reduced to 12.5
cents on each common share. The dividend was eliminated in the fourth quarter of
2001.
S-18
SELECTED FINANCIAL INFORMATION
With the exception of data as to Copper listed below, the following financial
information for each of the five years in the period ended December 31, 2001,
has been derived from our consolidated financial statements, audited by
PricewaterhouseCoopers LLP, independent accountants, and previously filed with
the Securities and Exchange Commission. The summary financial information in the
table below as of and for the three months ended March 31, 2001 and 2002, is
unaudited but in the opinion of management includes all adjustments necessary
for a fair presentation. The following information should be read in conjunction
with our consolidated financial statements and related notes, which are
incorporated by reference. See "Incorporation by Reference" in the accompanying
prospectus.
--------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2002(A) 2001(B) 2001(C) 2000(D) 1999(E) 1998(F) 1997(G)
--------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT FOR PER SHARE AND PER POUND FOR COPPER PRICE)
STATEMENT OF OPERATIONS DATA
Sales and other operating revenues............ $ 918.5 $1,100.7 $4,002.4 $4,525.1 $3,114.4 $3,063.4 $3,914.3
Operating income (loss)....................... 7.0 34.4 (44.9) 237.0 (315.6) 422.7 611.0
Net income (loss)(h).......................... (27.7) 14.2 (275.0) 29.0 (257.8) 190.9 408.5
Diluted earnings (loss) per share(h).......... $ (0.35) $ 0.18 $ (3.50) $ 0.37 $ (4.19) $ 3.26 $ 6.63
BALANCE SHEET DATA (AT PERIOD END)
Current assets................................ $1,583.1 $1,611.2 $1,504.2 $1,507.6 $1,693.4 $ 980.0 $1,051.1
Total assets.................................. 7,569.7 7,907.6 7,618.8 7,830.8 8,229.0 5,036.5 4,965.2
Total debt.................................... 2,831.0 2,850.2 2,851.0 2,687.7 2,755.0 1,021.0 1,003.3
Long-term debt................................ 2,515.2 1,853.2 2,522.0 1,963.0 2,172.5 836.4 857.1
Shareholders' equity.......................... 2,678.9 3,033.9 2,707.2 3,105.0 3,276.8 2,587.4 2,510.4
OTHER DATA
Net cash provided by (used in) operating
activities................................. $ 110.2 $ (9.9) $ 302.7 $ 511.2 $ 204.5 $ 378.4 $ 764.6
Capital expenditures and investments.......... 22.8 123.5 311.0 422.3 240.4 668.3 789.2
Depreciation, depletion and amortization...... 105.6 116.5 465.3 464.2 329.1 293.3 283.7
Common dividends declared..................... -- 39.4 59.1 157.5 124.3 117.3 122.7
DIVISION RESULTS
Phelps Dodge Mining Company operating income
(loss)..................................... $ 21.3 $ (5.1) $ (92.2) $ 243.3 $ (301.0) $ 110.3 $ 459.2
Phelps Dodge Industries operating income...... 16.0 26.7 74.0 70.3 49.7 353.6 207.8
COPPER
Copper production (own production--thousand
tons)(i)................................... 257.2 294.2 1,160.1 1,200.3 890.1 874.0 812.1
Copper sales (own production--thousand
tons)(i)................................... 268.5 289.7 1,170.8 1,200.6 884.2 876.3 812.8
LME copper price (per pound)(j)............... $ 0.71 $ 0.80 $ 0.72 $ 0.82 $ 0.71 $ 0.75 $ 1.03
COMEX copper price (per pound)(k)............. $ 0.72 $ 0.82 $ 0.73 $ 0.84 $ 0.72 $ 0.75 $ 1.04
Implied unit cost of copper production (per
pound)(i)(l)............................... $ 0.69 $ 0.81 $ 0.75 $ 0.72 $ 0.67 $ 0.68 $ 0.73
Commercially recoverable copper reserves
(million tons)(i)(m)....................... -- -- 23.0 24.1 24.4 14.5 13.7
--------------------------------------------------------------------------------------------------------------------------
S-19
Notes:
(a) For the three months ended March 31, 2002:
- SPECIAL ITEMS AND PROVISIONS
In the 2002 first quarter, reported amounts include an after-tax special
charge of $22.9 million, or 29 cents per common share, for the cumulative
effect of an accounting change relating to the accounting of goodwill and
intangible assets; a net after-tax charge of $12.1 million, or 15 cents
per common share, for environmental provisions; and a write-down of a
cost basis investment of $0.4 million; partially offset by an after-tax
special gain of $13.1 million, or 16 cents per common share, net of fees
and expenses, in recoveries associated with insurance settlements reached
with companies on historic environmental claims; and a tax benefit of
$38.5 million, or 49 cents per common share, recorded as a special item,
associated with the carry-back of 2001 net operating losses resulting
from the March enactment of the Job Creation and Worker Assistance Act of
2002.
- BENEFIT FOR TAXES ON INCOME
Our income tax benefit for the 2002 first quarter comprised the
following: (i) a tax benefit of $38.5 million, or 49 cents per common
share, recorded as a special item, associated with the carry-back of 2001
net operating losses resulting from the March enactment of the Job
Creation and Worker Assistance Act of 2002; (ii) a tax benefit of $12.9
million, or 17 cents per share, recognized for first quarter 2002 net
operating losses that, based on the new tax legislation, may also be
carried back to recover prior years' taxes paid; and (iii) an expense of
$11.7 million, or 15 cents per share, for taxes on earnings at
international operations.
- ADOPTION OF NEW ACCOUNTING STANDARD--GOODWILL AND OTHER INTANGIBLE
ASSETS (SFAS NO. 142)
Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." Under SFAS No. 142, goodwill and intangible assets
that have indefinite useful lives will not be amortized but rather will
be tested at least annually for impairment. Intangible assets that have
finite useful lives will continue to be amortized over their useful
lives. As of December 31, 2001, we had goodwill of $115.2 million less
amortization of $26.7 million for Columbian Chemicals and goodwill of
$70.8 million less accumulated amortization of $16.2 million for wire and
cable, for a total of $143.1 million, net. Upon completion of the
transitional impairment tests, the implied fair value of goodwill at
three of our international wire and cable reporting units was determined
to be less than the reporting units' carrying amount. This impairment
loss recognized upon adoption of SFAS No. 142 was $33.0 million, pre-tax
($22.9 million after-tax), and has been recognized as a cumulative effect
of a change in accounting principle. The pro forma effect of not
amortizing goodwill on the first quarter of 2001 would have reduced
goodwill amortization expense $1.9 million, increased net income $1.5
million, and increased basic and diluted earnings per share by 2 cents.
For further discussion of our adoption of SFAS No. 142, refer to our
consolidated financial statements and related notes included in our Form
10-Q for the quarter ended March 31, 2002.
(b) In the 2001 first quarter, reported amounts include an after-tax special
gain of $30.9 million, or 40 cents per common share, net of fees and expenses,
in recoveries associated with insurance settlements reached on historic
environmental liability claims; partially offset by a $2.0 million charge, or 3
cents per common share, for the cumulative effect of an accounting change.
(c) For the year ended December 31, 2001, reported amounts include after-tax,
special provisions of $29.8 million, or 38 cents per common share, for
restructuring activities; a net after-tax special charge for environmental
provisions of $31.1 million, or 40 cents per common share; an after-tax special
charge of $3.3 million, or 4 cents per common share, to write down the closed
Hopkinsville, Kentucky, magnet wire facility; a $12.9 million charge, or 16
cents per common share, for recognition of impairment on a cost and equity
investment; an after-tax special charge of $5.9 million, or 7 cents per common
share, for miscellaneous corporate items; and an after-tax special charge of
$2.0 million, or 3 cents per common share, to record the cumulative effect of
accounting change relating to the accounting for derivative instruments;
partially offset by net after-tax insurance recoveries of $61.8 million, or 79
cents per common share; an after-tax special gain of $39.9 million, or 51 cents
per common share, on the sale of our 50% interest in the Sossego Project; and an
after-tax special gain of $5.8 million, or 7 cents per common share, primarily
for interest income on prior years' tax refunds.
For further discussion, refer to our consolidated financial statements and
related notes included in our Form 10-K for the year ended December 31, 2001.
(d) For the year ended December 31, 2000, reported amounts include after-tax,
special provisions of $56.4 million, or 72 cents per common share, for
restructuring activities; offset by an income tax refund and related interest of
$10.1 million, or 13 cents per common share; and an insurance settlement refund
of $3.0 million, or 4 cents per common share, relating to a former Cyprus Amax
coal property.
(e) For the year ended December 31, 1999, reported amounts include after-tax,
special provisions of $224.3 million, or $3.64 per common share, for asset
impairments; $17.8 million, or 29 cents per common share, reflecting provisions
for environmental costs; $63.9 million, or $1.04 per common share, for costs
associated with restructuring activities; and $3.5 million, or 6 cents per
common share, for the cumulative effect of an accounting change relating to the
accounting for start-up costs, partially offset by an after-tax special gain of
$30.0 million, or 49 cents per common share, for an adjustment of prior year's
taxes. We acquired Cyprus Amax Minerals Company on October 16, 1999.
(f) For the year ended December 31, 1998, reported amounts include an after-tax
special gain of $131.1 million, or $2.24 per common share, from the disposition
of Accuride Corporation; an after-tax special loss of $26.4 million, or 45 cents
per common share, from the sale of our 44.6% interest in a South African mining
company; and a special, after-tax provision of $5.6 million, or 10 cents per
common share, for curtailments and indefinite closures primarily at Phelps Dodge
Mining Company.
(g) For the year ended December 31, 1997, reported amounts include after-tax
special charges of $29.0 million, or 47 cents per common share, reflecting
provisions for environmental costs, an early retirement program and asset
dispositions.
S-20
(h) Effective January 1, 2002, we adopted SFAS No. 142 as discussed in Note (a).
The pro forma effect of not amortizing goodwill on net income (loss) per share
for each of the periods presented is as following:
-------------------------------------------------------------------------------------------------------------------
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------ -----------------------------------------------
2001 2001 2000 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT FOR PER SHARE AMOUNTS)
ADJUSTED NET INCOME (LOSS)...................... $15.7 $(268.8) $35.7 $(250.8) $196.0 $414.0
ADJUSTED DILUTED EARNINGS (LOSS) PER SHARE...... $0.20 $ (3.42) $0.45 $ (4.07) $ 3.35 $ 6.72
-------------------------------------------------------------------------------------------------------------------
(i) Copper production and reserves and sales include that of Cyprus Amax since
October 16, 1999, the effective date of acquisition.
(j) London Metal Exchange annual average spot price per pound--cathodes.
(k) New York Commodity Exchange annual average spot price per pound--cathodes.
(l) Implied unit cost of copper production is based on our all-in operating
margin per pound of copper sold (i.e., our operating income (loss) before
special items, divided by pounds of Phelps Dodge-mined copper sold, plus or
minus the LME copper price).
(m) We calculate commercially recoverable copper reserves annually rather than
quarterly.
S-21
DESCRIPTION OF THE MEDS
The description in this prospectus supplement of the terms of our MEDS is only a
summary. The terms of our MEDS are contained in a certificate of amendment that
amends our restated certificate of incorporation. Our restated certificate of
incorporation is filed as an exhibit to our filings incorporated by reference in
the registration statement of which this prospectus supplement is a part and the
certificate of amendment will be filed as an exhibit to a Current Report on Form
8-K after the date of this prospectus supplement.
GENERAL
Our restated certificate of incorporation authorizes the issuance of 6,000,000
preferred shares of which no shares are currently issued and outstanding. The
MEDS constitute a series of these preferred shares. See "Description of the
Preferred Shares" in the accompanying prospectus for a description of our
capital stock.
Our MEDS constitute a single series consisting of 2 million preferred shares.
The holders of our MEDS will have no preemptive rights. The MEDS will be fully
paid and non-assessable.
Our MEDS will rank senior to all of our now outstanding common shares or common
shares that we may issue in the future. As of June 6, 2002, there are currently
78.7 million of our common shares outstanding.
The terms of our MEDS restrict our ability to issue capital stock that ranks
senior to our MEDS, as discussed below under "Voting Rights."
DIVIDENDS
GENERAL
Dividends on our MEDS will be payable quarterly, if declared, on the 15(th)
calendar day (or the following business day if the l5(th) is not a business day)
of August, November, February and May of each year (each a "Dividend Payment
Date") at the annual rate of $6.75 per MEDS. The initial dividend on the MEDS,
for the first dividend period, assuming our issue date is June 12, 2002 will be
$1.1813 per MEDS, and will be payable, if declared, on August 15, 2002. Each
subsequent quarterly dividend on our MEDS, if declared, will be $1.6875.
The amount of dividends payable on each of our MEDS for each full quarterly
period will be computed by dividing the annual dividend rate by four. The amount
of dividends payable for any other period that is shorter or longer than a full
quarterly dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
A dividend period is the period ending on the day before a Dividend Payment Date
and beginning on the preceding Dividend Payment Date or, if none, the date of
issue. Dividends payable, if declared, on a Dividend Payment Date will be
payable to holders of record as they appear on our stock register on the 1(st)
calendar day (or the following business day if the 1(st) is not a business day)
of the calendar month preceding the month in which the applicable Dividend
Payment Date falls.
We are obligated to pay a dividend on our MEDS only if our board of directors or
an authorized committee of our board declares the dividend payable and we have
assets that legally can be used to pay the dividend.
S-22
Dividends on our MEDS will be cumulative. This means that, if our board of
directors or an authorized committee of our board fails to declare a dividend,
the dividend will accumulate until declared and paid or are forfeited upon
optional conversion by the holder.
We are not obligated to pay holders of our MEDS any interest or sum of money in
lieu of interest on any dividend not paid on a Dividend Payment Date or any
other late payment. We are also not obligated to pay holders of our MEDS any
dividend in excess of the full dividends on the MEDS that are payable as
described above.
If our board of directors or an authorized committee of our board does not
declare a dividend for any dividend period, the board of directors or an
authorized committee may declare and pay the dividend on any other date, whether
or not a Dividend Payment Date. The persons entitled to receive the dividend in
such case will be holders of our MEDS as they appear on our stock register on a
date selected by the board of directors or an authorized committee. That date
must be not more than 60 days prior to this dividend payment date.
PAYMENT RESTRICTIONS
If we do not pay a dividend on a Dividend Payment Date, then, until all accrued
and unpaid dividends are paid and the full quarterly dividend on our MEDS for
the current and all prior dividend periods is declared and paid or set apart for
payment:
- We may not take any of the following actions with respect to any of our
capital stock that ranks junior to our MEDS as to payment of dividends or
the distribution of assets upon winding up, including our common shares:
- declare or pay any dividend or make any distribution of assets
on the junior capital stock, other than dividends or distributions
of our capital stock that ranks junior to our MEDS as to payment
of dividends and the distribution of assets upon winding up; or
- redeem, purchase or otherwise acquire the junior capital stock,
except upon conversion or exchange for our capital stock that
ranks junior to our MEDS as to payment of dividends and the
distribution of assets upon winding up.
- We may not redeem, purchase or otherwise acquire other of our capital
stock that ranks equally with our MEDS as to payment of dividends or the
distribution of assets upon winding up, except for conversion or exchange
for shares of our capital stock that rank junior to our MEDS as to
payment of dividends and the distribution of assets upon winding up.
AUTOMATIC CONVERSION OF OUR MEDS
Our MEDS, unless previously converted at your option or upon specified mergers
described below, will automatically convert, on August 15, 2005, the "conversion
date," into a number of newly issued common shares equal to the conversion rate.
Upon conversion, dividends on our MEDS will cease to accrue and we will make
arrangements for the payment of cash in respect of accrued and unpaid dividends.
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The conversion rate, which is the number of newly issued common shares issuable
upon conversion of our MEDS on the conversion date, will, subject to adjustment
under certain circumstances as described under "--Anti-Dilution Adjustment"
below, be as follows:
- If the "average market price" of our common shares, which is the
average of the closing prices per common share on each of the 20
consecutive trading days ending on the third trading day immediately
preceding the conversion date, is equal to or greater than $48.00, which
we call the threshold appreciation price, then the conversion rate will
be 2.083 of our common shares per MEDS. Accordingly, if the market price
for our common shares increases to an amount that is greater than $48.00
on the conversion date, the aggregate market value of our common shares
issued upon conversion of each of our MEDS, assuming that this market
value is the same as the average market price of our common shares, will
be greater than $100.00, and if the market price equals $48.00, the
aggregate market value of those shares, assuming that this market value
is the same as the average market price of our common shares, will equal
$100.00.
- If the average market price of our common shares is less than $48.00
but greater than $40.00, the conversion rate will be equal to $100.00
divided by the average market price of our common shares per MEDS.
Accordingly, if the market price for our common shares increases, but
that market price is less than $48.00 on the conversion date, the
aggregate market value of our common shares issued upon conversion of
each of our MEDS, assuming that this market value is the same as the
average market price of our common shares, will equal $100.00.
- If the average market price of our common shares is less than or equal
to $40.00, the conversion rate will be 2.5 of our common shares per MEDS.
Accordingly, if the market price for our common shares decreases to an
amount that is less than $40.00 on the conversion date, the aggregate
market value of our common shares issued upon conversion of each of our
MEDS, assuming that the market value is the same as the average market
price of our common shares, will be less than $100.00, and if the market
price equals $40.00, the average market price of those shares, assuming
that this market price is the same as the average market price of our
common shares, will equal $100.00.
For purposes of determining the average market price for our common shares, the
closing price of our common shares on any date of determination means the
closing sale price or, if no closing price is reported, the last reported sale
price of our common shares on the New York Stock Exchange on that date. If our
common shares are not listed on the New York Stock Exchange on any date, the
closing price of our common shares on any date of determination means the
closing sales price as reported in the composite transactions for the principal
U.S. securities exchange on which our common shares are so listed or quoted, or
if our common shares are not so listed or quoted on a U.S. national or regional
securities exchange, as reported by the Nasdaq Stock Market, or, if our common
shares are not so reported, the last quoted bid price for our common shares in
the over-the-counter market as reported by the National Quotation Bureau or
similar organization or, if that bid price is not available, the market value of
our common shares on that date as determined by a nationally recognized
independent investment banking firm retained by us for this purpose.
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A trading day is a day on which our common shares:
- are not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of
business; and
- have traded at least once on the national or regional securities
exchange or association or over-the-counter market that is the primary
market for the trading of our common shares.
CONVERSION
Conversion into common shares will occur on the conversion date, unless:
- you have converted prior to the conversion date, in the manner
described in "--Conversion at the Option of Holder"; or
- we are involved in a merger prior to the conversion date in which at
least 30% of the consideration for our common shares consists of cash or
cash equivalents, and you have converted through an early conversion as
described in "--Early Conversion Upon Cash Merger."
On the conversion date, our common shares will then be issued and delivered to
you or your designee, upon presentation and surrender of the certificate
evidencing our MEDS, if our MEDS is held in certificated form, and payment by
you of any transfer or similar taxes payable in connection with the issuance of
our common shares to any person other than you.
Prior to the date on which our common shares are issued on conversion, our
common shares underlying our MEDS will not be deemed to be outstanding for any
purpose and you will have no rights with respect to the common shares, including
voting rights, rights to respond to tender offers and rights to receive any
dividends or other distributions on our common shares by virtue of holding our
MEDS.
CONVERSION AT THE OPTION OF HOLDER
The holders of our MEDS have the right to convert them, in whole or in part, at
any time prior to the conversion date, into our common shares at the optional
conversion rate of 2.083 of our common shares for each of our MEDS, subject to
adjustment as described below. The optional conversion rate is equivalent to a
conversion price equal to the threshold appreciation price.
Holders of our MEDS at the close of business on a record date for any payment of
dividends will receive the dividend then payable on that MEDS on the
corresponding Dividend Payment Date even if optional conversion of our MEDS
occurs between that record date and the corresponding Dividend Payment Date.
However, if you surrender our MEDS for conversion after the close of business on
a record date for any payment of dividends and before the opening of business on
the next succeeding Dividend Payment Date, you must include with our MEDS
payment of an amount equal to the dividend on our MEDS which is to be paid on
that Dividend Payment Date.
Except as described above, upon any optional conversion of our MEDS, we will
make no payment or allowance for unpaid dividends, whether or not in arrears, on
that MEDS, or for dividends or distributions on our common shares issued upon
conversion.
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EARLY CONVERSION UPON CASH MERGER
Prior to the conversion date, if we are involved in a merger in which at least
30% of the consideration for our common shares consists of cash or cash
equivalents, which we refer to as the "cash merger," then on or after the date
of the cash merger each holder of our MEDS will have the right to convert our
MEDS at the conversion rate in effect immediately before the cash merger. We
refer to this right as the "merger early conversion right." We will provide each
of the holders with a notice of the completion of a cash merger within five
business days thereof. The notice will specify a date, which shall be not less
than 20 nor more than 30 days after the date of the notice, on which the merger
early conversion will occur and a date by which each holder's merger early
conversion right must be exercised. The notice will set forth, among other
things, the applicable conversion rate and the amount of the cash (including
amounts for accrued and unpaid dividends), securities and other consideration
receivable by the holder upon conversion. To exercise the merger early
conversion right, you must deliver to us, on or one business day before the
exercise date for the merger early conversion date, the certificate evidencing
your MEDS, if our MEDS is held in certificated form. If you exercise the merger
early conversion right, we will deliver to you on the merger early conversion
date the kind and amount of securities, cash or other property that you would
have been entitled to receive if you had converted your MEDS immediately before
the cash merger at the conversion rate in effect at such time. If you do not
elect to exercise your merger early conversion right, you will receive for your
MEDS cash, securities or other property into which our common shares were
converted at the conversion rate in effect on the conversion date.
ANTI-DILUTION ADJUSTMENTS
The formula for determining the conversion rate and the number of our common
shares to be delivered upon an early conversion may be adjusted if certain
events occur, including:
(1) the payment of a dividend or other distributions on our common shares
in common shares;
(2) the issuance to all holders of our common shares of rights or
warrants, other than any dividend reinvestment or share purchase or
similar plans, entitling them to subscribe for or purchase our common
shares at less than the current market price (as defined below);
(3) subdivisions, splits and combinations of our common shares;
(4) distributions to all holders of our common shares or evidences of our
indebtedness, shares of capital stock, securities, cash or other
assets (excluding any dividend or distribution covered by clause (1)
or (2) above and any dividend or distribution paid exclusively in
cash);
(5) distributions consisting exclusively of cash to all holders of our
common shares in an aggregate amount that, when combined with (a)
other all-cash distributions made within the preceding 12 months and
(b) the cash and the fair market value, as of the date of expiration
of the tender or exchange offer referred to below, of the
consideration paid in respect of any tender or exchange offer by us
or a subsidiary of ours for our common shares concluded within the
preceding 12 months, exceeds 15% of our aggregate market
capitalization (such aggregate market capitalization being the
product of the current market price of our common shares multiplied
by
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the number of common shares then outstanding) on the date fixed for
the determination of shareholders entitled to receive such
distribution; and
(6) the successful completion of a tender or exchange offer made by us or
any subsidiary of ours for our common shares that involves an
aggregate consideration that, when combined with (a) any cash and the
fair market value of other consideration payable in respect of any
other tender or exchange offer by us or a subsidiary of ours for our
common shares concluded within the preceding 12 months and (b) the
aggregate amount of any all-cash distributions to all holders of our
common shares made within the preceding 12 months, exceeds 15% of our
aggregate market capitalization on the date of expiration of such
tender or exchange offer.
The "current market price" per common share on any day means the average of the
daily closing prices for the five consecutive trading days preceding the earlier
of the day preceding the day in question and the day before the "ex date" with
respect to the issuance or distribution requiring such computation. For purposes
of this paragraph, the term "ex date," when used with respect to any issuance or
distribution, means the first date on which our common shares trade without the
right to receive the issuance or distribution.
In the case of reclassifications, consolidations, mergers, sales or transfers of
assets or other transactions that cause our common shares to be converted into
the right to receive other securities, cash or property, each share of our MEDS
then outstanding would, without the consent of the holders of our MEDS, become
convertible into such other securities, cash or property instead of our common
shares. In such event, on the conversion date the conversion rate then in effect
will be applied to the value on the conversion date of the securities, cash or
property a holder would have received if it had held the shares covered by our
MEDS when the applicable transaction occurred. Holders have the right to settle
their obligations under our MEDS early in the event of certain cash mergers as
described under "--Early Conversion Upon Cash Merger."
If at any time we made a distribution of property to our common shareholders
that would be taxable to the shareholders as a dividend for U.S. federal income
tax purposes (that is, distributions, evidences of indebtedness or assets, but
generally not stock dividends or rights to subscribe for capital stock), and,
pursuant to the conversion rate adjustment provisions of our MEDS, the
conversion rate is increased, that increase may be deemed to be the receipt of
taxable income to holders of our MEDS. See "Certain Federal Income Tax
Considerations--U.S. Investors--Adjustment of Conversion Rate."
In the case of the payment of a dividend or other distribution on our common
shares or shares of capital stock of any class or series, or similar equity
interests, of or relating to a subsidiary or other business unit, which we refer
to as a "spin-off," the conversion rate in effect immediately before the close
of business on the record date fixed for determination of shareholders entitled
to receive that distribution will be increased by multiplying:
- the conversion rate by
- a fraction, the numerator of which is current market price of our
common shares plus the fair market value, determined as described below,
of those shares of capital stock or similar equity interests so
distributed applicable to one common share and the denominator of which
is the current market price of our common shares.
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The adjustment to the conversion rate under the preceding paragraph will occur
on the date that is earlier of:
- the tenth trading day following the effective date of the spin-off; and
- the date of the securities being offered in the initial public offering
of the spin-off, if that initial public offering is effected
simultaneously with the spin-off.
For purposes of this section, "initial public offering" means the first time
securities of the same class or type as the securities being distributed in the
spin-off are offered to the public for cash.
In the event of a spin-off that is not effected simultaneously with an initial
public offering of the securities being distributed in the spin-off, the fair
market value of the securities to be distributed to holders of our common shares
means the average of the closing sale prices of those securities over the first
10 trading days following the effective date of the spin-off. Also, for purposes
of such a spin-off, the current market price of our common shares means the
average of the closing sales prices of our common shares over the first 10
trading days following the effective date of the spin-off.
If, however, an initial public offering of the securities being distributed in
the spin-off is to be effected simultaneously with the spin-off, the fair market
value of the securities being distributed in the spin-off means the initial
public offering price, while the current market price of our common shares means
the closing sale price of our common shares on the trading day on which the
initial public offering price of the securities being distributed in the
spin-off is determined.
In addition, we may increase the conversion rate if our board of directors deems
it advisable to avoid or diminish any income tax to holders of our common shares
resulting from any dividend or distribution of shares (or rights to acquire
shares) or from any event treated as a dividend or distribution for income tax
purposes or for any other reasons.
Adjustments to the conversion rate will be calculated to the nearest 1/10,000th
of a share. No adjustment in the conversion rate will be required unless the
adjustment would require an increase or decrease of at least one percent in the
conversion rate. If any adjustment is not required to be made because it would
not change the conversion rate by at least one percent, then the adjustment will
be carried forward and taken into account in any subsequent adjustment.
We will be required, as soon as practicable following the occurrence of an event
that requires or permits an adjustment in the conversion rate, to provide
written notice to the holders of shares of our MEDS of the occurrence of that
event. We will also be required to deliver a statement setting forth in
reasonable detail the method by which the adjustment to the conversion rate was
determined and setting forth the revised conversion rate.
Each adjustment to the conversion rate will result in a corresponding adjustment
to the number of our common shares issuable upon conversion of our MEDS.
FRACTIONAL SHARES
No fractional common shares will be issued upon conversion of our MEDS. In lieu
of any fractional share otherwise issuable in respect of the aggregate number of
shares of our MEDS
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of any holder which are converted upon automatic conversion or any optional
conversion, that holder will be entitled to receive an amount in cash equal to
the same fraction of:
- in the case of automatic conversion, the current market price; or
- in the case of an optional conversion by a holder, the closing price of
our common shares determined as of the second trading day immediately
preceding the effective date of conversion.
LIQUIDATION RIGHTS
In the event of the voluntary or involuntary liquidation, dissolution or winding
up of Phelps Dodge, the holders of our MEDS will be entitled to receive, out of
our assets legally available for distribution to shareholders--before any
distribution of assets is made on our common shares or any future class of
securities which ranks junior to our MEDS--a liquidating distribution in the
amount of $100, plus an amount equal to the sum of all accrued and unpaid
dividends, whether or nor earned or declared, for the then-current dividend
period and all prior dividend periods.
For the purpose of the preceding paragraph, none of the following will
constitute a voluntary or involuntary liquidation, dissolution or winding up of
Phelps Dodge:
- the sale of all or substantially all of the property or business;
- the merger or consolidation of Phelps Dodge into or with any other
corporation; or
- the merger or consolidation of any other corporation into or with
Phelps Dodge.
After the payment to the holders of our MEDS of the full preferential amounts
provided above, the holders of our MEDS will have no right or claim to any of
our remaining assets.
In the event our assets available for distribution to the holders of our MEDS
upon any liquidation, dissolution or winding up of Phelps Dodge, whether
voluntary or involuntary, are insufficient to pay in full all amounts to which
the holders are entitled as provided above, no such distribution will be made on
account of any other shares ranking equally with our MEDS as to the distribution
of assets upon that liquidation, dissolution or winding up unless a pro rata
distribution is made on our MEDS, with the amount allocable to each series of
parity shares determined on the basis of the aggregate liquidation preference of
the outstanding shares of each series and distributions to the shares of each
series being made on a pro rata basis.
VOTING RIGHTS
The holders of the shares of our MEDS are not entitled to any voting rights,
except as required by applicable state law and as described below.
If the equivalent of six quarterly dividends payable on our MEDS, or any other
class or series of preferred shares ranking equally with our MEDS as to the
payment of dividends has not been paid, the number of directors on our board
shall be increased by two, without duplication of any increase made pursuant to
the terms of any other series of our preferred shares. The holders of our
MEDS--voting as a single class with the holders of shares of any other class of
preferred shares ranking equally with our MEDS either as to dividends or
distributions of assets and upon which like voting rights have been conferred
and are exercisable--will be entitled to elect two directors at any meeting of
our shareholders at which directors are to be elected
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during the period their dividends remain in arrears. This voting right will
continue until we have paid, or declared and set apart for payment, full
cumulative dividends for all past periods on all of that class of preferred
shares, and our MEDS.
We will not, without the approval of the holders of at least 66 2/3% of our MEDS
then outstanding, amend any of the provisions of our charter so as to affect
adversely the powers, preferences, privileges or rights of the holders of our
MEDS.
We will not, without the approval of the holders, voting together as a single
class, of at least 66 2/3% of our MEDS then outstanding and all shares of any
other series of our preferred shares ranking equally with our MEDS as to
dividends or upon dissolution:
- issue, authorize or increase the authorized amount of, or issue or
authorize any obligation or security convertible into or evidencing a
right to purchase, any share of any class ranking prior to our MEDS as to
dividends or upon dissolution; or
- reclassify any of our authorized share into any share of any class, or
any obligation or security convertible into or evidencing a right to
purchase such share, ranking prior to our MEDS,
provided that no such vote will be required for us to take any of these actions
to issue, authorize or increase the authorized amount of, or issue or authorize
any obligation or security convertible into or evidencing a right to purchase,
any share ranking equally with or junior to our MEDS.
AUTHORIZED COMMON SHARES
We will at all times reserve and keep available out of our authorized and
unissued common shares, solely for issuance upon the conversion of our MEDS,
that number of our common shares as shall from time to time be issuable upon the
conversion of all our MEDS then outstanding. Our MEDS converted into our common
shares or otherwise reacquired by us shall resume the status of authorized and
unissued preferred shares, undesignated as to series, and shall be available for
subsequent issuance.
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Mellon Investor Services LLC will act as transfer agent, registrar, and paying
agent for the payment of dividends for our MEDS.
SETTLEMENT
Settlement for the MEDS will be made by the underwriters in immediately
available funds. All payments of dividends on the MEDS will be made by us in
immediately available funds. The MEDS will trade in DTC's settlement system
until maturity.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax consequences
relevant to the purchase, ownership, and disposition of our MEDS and common
shares acquired upon conversion of our MEDS. The following summary is based upon
current provisions of the Internal Revenue Code of 1986 (the "Code"), Treasury
regulations and judicial or administrative authority, all of which are subject
to change, possibly with retroactive effect. The summary is limited to the U.S.
federal income tax consequences to investors, except for the limited discussion
below under the heading "Foreign Investors," who are citizens or residents of
the U.S. or that are U.S. corporations. State, local and foreign tax
consequences are not summarized, nor are tax consequences to special classes of
investors, including, but not limited to tax-exempt organizations, insurance
companies, banks or other financial institutions, dealers in securities, persons
liable for the alternative minimum tax, traders in securities that elect to use
a mark-to-market method of accounting for their securities holdings, persons
that will hold Phelps Dodge shares as a position in a hedging transaction,
"straddle," "conversion transaction" or other risk reduction transaction and
holders whose "functional currency" is not the U.S. dollar. Tax consequences may
vary depending upon the particular status of an investor. The summary is limited
to taxpayers who will hold our MEDS and our common shares received in exchange
therefor as "capital assets" within the meaning of Section 1221 of the Code.
There can be no assurance that future changes in applicable law or
administrative and judicial interpretations thereof will not adversely affect
the tax consequences summarized herein or that there will not be differences of
opinion as to the interpretation of applicable law.
Each potential investor should consult with its own tax adviser as to the
federal, state, local, foreign and any other tax consequences of the purchase,
ownership, conversion, and disposition of our MEDS and common shares.
Definition of U.S. Holder and Non-U.S. Holder
As used in this discussion, (i) the term "U.S. holder" means a beneficial owner
of our common shares that is a U.S. person and is not a partnership for U.S.
federal income tax purposes and (ii) the term "non-U.S. holder" means a
beneficial owner of our common shares that is not a U.S. person and is not a
partnership for U.S. federal income tax purposes. A U.S. person means a person
that is for U.S. federal income tax purposes:
(i) an individual who is a citizen or resident of the United States;
(ii) a corporation or partnership created or organized in or under the laws of
the United States or of any State or political subdivision thereof or
therein, including the District of Columbia (other than a partnership that
is not treated as a U.S. person under applicable Treasury regulations);
(iii) an estate the income of which is subject to U.S. federal income tax
regardless of the source thereof; or
(iv) a trust with respect to which a court within the United States is able to
exercise primary supervision over its administration and one or more U.S.
persons have the authority to control all of its substantial decisions, or
certain electing trusts that were in existence on August 19, 1996 and were
treated as domestic trusts on that date.
An individual may, subject to certain exceptions, be deemed to be a resident of
the United States for a calendar year by reason of being present in the United
States for at least 31 days
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in such calendar year and for an aggregate of at least 183 days during a
three-year period ending with such current calendar year (counting for such
purposes all of the days present in such current calendar year, one-third of the
days present in the immediately preceding calendar year, and one-sixth of the
days present in the second preceding calendar year).
U.S. INVESTORS
DIVIDENDS
Dividend distributions with respect to our MEDS and common shares will be
taxable as ordinary income to the extent of Phelps Dodge's current or
accumulated earnings and profits. To the extent that the amount of a dividend
distribution with respect to our MEDS or common shares exceeds our current or
accumulated earnings and profits, such distribution will be treated first as a
tax-free return of capital to the extent of the holder's adjusted tax basis in
such MEDS or common shares, as the case may be, and thereafter as capital gain.
Dividend distributions paid to corporate holders out of our current or
accumulated earnings and profits may be eligible for the 70% dividends received
deduction as provided in Section 243 of the Code, subject to the minimum holding
period requirement under Section 246(c) of the Code (generally at least 46 days)
and other applicable requirements.
In general, a corporate holder that receives an "extraordinary dividend", as
defined in Section 1059(c) of the Code, will be required, if it does not meet
certain minimum holding period requirements (generally two years), to reduce its
basis in the shares with respect to which such "extraordinary dividend" is
received by the portion of such dividend that is not taxed because of the
dividends received deduction.
In determining entitlement to dividends received deductions, corporate holders
should also consider the "debt-financed portfolio stock" rules of Section 246A
of the Code, under which the dividends received deduction could be reduced to
the extent that a holder incurs indebtedness directly attributable to such
holder's investment in our MEDS or common shares.
DISPOSITIONS
A holder will generally recognize capital gain or loss on a sale or exchange of
our MEDS or our common shares equal to the difference between the amount
realized upon the sale or exchange and the holder's tax basis in the shares sold
or exchanged. Such capital gain or loss will be long-term capital gain or loss
if the holder's holding period for the shares sold or exchanged is more than one
year.
CONVERSION INTO COMMON SHARES
As a general rule, no gain or loss will be recognized by a holder on the
conversion of our MEDS into our common shares. The tax basis of the common
shares received upon conversion will generally be equal to the tax basis of our
MEDS converted, adjusted to reflect any income or gain recognized on the
conversion. The holding period of our common shares received will include the
holding period of our MEDS converted.
A holder generally will recognize gain (or loss) upon conversion of our MEDS
into our common shares to the extent that any cash the holder is paid in lieu of
a fractional share of common shares exceeds (or is less than) the holder's tax
basis in such fractional share.
Holders of our MEDS should also consider the possible application of the
conversion premium rules of Section 305 of the Code and the Treasury regulations
promulgated thereunder, under
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which a holder of convertible preferred shares may, under certain circumstances,
be required to include into income as a constructive dividend the excess of the
redemption price of such preferred shares over its issue price.
ADJUSTMENT OF CONVERSION RATE
Holders of our MEDS might be treated as receiving a constructive distribution
from Phelps Dodge if:
- a conversion rate is adjusted and as a result of the adjustment the
proportionate interest of holders of our MEDS in the assets or earnings
and profits of Phelps Dodge increased; and
- the adjustment is not made pursuant to a bona fide, reasonable
antidilution formula. An adjustment in a conversion rate would not be
considered made pursuant to a reasonable antidilution formula if the
adjustment were made to compensate for certain taxable distributions with
respect to Phelps Dodge common shares.
Thus, certain adjustments to the Conversion Rate and the Optional Conversion
Rate to reflect Phelps Dodge's distribution of certain rights, warrants,
evidences of indebtedness, securities or other assets to holders of common
shares may result in constructive distributions taxable as dividends to the
holders of our MEDS. The distribution would be treated in the manner described
above under "Dividends".
INFORMATION REPORTING AND BACKUP WITHHOLDING ON U.S. INVESTORS
Certain U.S. holders may be subject to backup withholding at a rate of 30% for
2002 and 2003, 29% for 2004 and 2005, 28% for 2006 through 2010 and 31% after
2010 with respect to the payment of dividends on our MEDS or common shares and
to certain payments of proceeds on the sale or redemption of our MEDS unless
such holders provide proof of an applicable exemption or a correct taxpayer
identification number, and otherwise comply with applicable requirements of the
backup withholding rules.
Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against such holder's U.S. federal income tax,
which may entitle the holder to a refund, provided that the holder provides the
required information to the IRS. Moreover, certain penalties may be imposed by
the IRS on a holder who is required to furnish information but does not do so in
the proper manner.
FOREIGN INVESTORS
DIVIDENDS
Generally, dividends (including constructive distributions taxable as dividends)
paid to a non-U.S. holder with respect to our MEDS or our common shares will be
subject to a 30% U.S. withholding tax, or such lower rate as may be specified by
an applicable tax treaty, unless the dividends are (i) effectively connected
with a trade or business carried on by the non-U.S. holder within the United
States (and the non-U.S. holder provides the payor with a Form W-8ECI) or (ii)
if a tax treaty applies, attributable to a U.S. permanent establishment
maintained by the non-U.S. holder. Dividends effectively connected with such
trade or business or attributable to such permanent establishment will generally
be subject to U.S. federal income tax on a net basis at applicable individual or
corporate rates and, in the case of a non-
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U.S. holder which is a corporation, may be subject to a "branch profits tax" at
a 30% rate or such lower rate as may be specified by an applicable income tax
treaty.
A non-U.S. holder generally would be subject to U.S. withholding tax at the
backup withholding rates discussed above, unless such non-U.S. holder provides
to the payor a Form W-8BEN (or other applicable form) certifying the status of
such holder as a nonresident of the United States.
DISPOSITIONS
A non-U.S. holder generally will not be subject to U.S. federal income tax with
respect to gain realized on a sale, exchange or redemption of our MEDS or our
common shares so long as:
- the gain is not effectively connected with a U.S. trade or business of
the holder (or if a tax treaty applies, the gain is not effectively
connected with the conduct by the non-U.S. holder of a trade or business
within the U.S. and attributable to a U.S. permanent establishment
maintained by such non-U.S. holder);
- in the case of a nonresident alien individual who holds our MEDS or
common shares as a capital asset, such holder is not present in the U.S.
for 183 or more days in the taxable year of the sale or disposition and
certain other conditions are met; and
- Phelps Dodge is not and has not been a "United States real property
holding corporation," within the meaning of Section 897 of the Code at
any time within the shorter of the five-year period preceding such
disposition or the non-U.S. holder's holding period in such MEDS or
common shares. Liability to tax by reason of such status is subject to
detailed exceptions in favor of certain small holders (5% or less) of our
MEDS or common shares.
INFORMATION REPORTING AND BACKUP WITHHOLDING ON NON-U.S. INVESTORS
Payment of dividends (including constructive dividends), and the tax withheld
with respect thereto, is subject to information reporting requirements. These
information reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable income tax treaty or withholding was not
required because the dividends were effectively connected with a trade or
business in the United States conducted by the non-U.S. holder. Copies of the
information returns reporting such dividends and withholding may also be made
available under the provisions of an applicable income tax treaty or agreement
to the tax authorities in the country in which the non-U.S. holder resides. As
discussed above in "Dividends", United States backup withholding at the rates
discussed above will generally apply on payment of dividends to non-U.S. holders
unless such holders furnish to the payor a Form W-8BEN (or other applicable
form), or otherwise establish an exemption.
Payment by a U.S. office of a broker of the proceeds of a sale of our MEDS or
common shares is subject to both backup withholding and information reporting
unless the non-U.S. holder, or beneficial owner thereof, as applicable,
certifies that it is a non-U.S. holder on Form W-8BEN, or otherwise establishes
an exemption. Subject to exceptions, backup withholding and information
reporting generally will not apply to a payment of proceeds from the sale of our
MEDS or common shares if such sale is effected through a foreign office of a
broker.
S-34
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement dated
the date of this prospectus supplement, J.P. Morgan Securities Inc. has agreed
to purchase, and we have agreed to sell to that underwriter, 2,000,000 MEDS.
The underwriting agreement provides that the obligations of J.P. Morgan
Securities Inc. to purchase the MEDS included in this offering are subject to
approval of legal matters by counsel and to other conditions. J.P. Morgan
Securities Inc. is obligated to purchase all the MEDS if it purchases any of the
MEDS.
We and certain of our officers and directors have agreed that, for a period of
90 days from the date of this prospectus supplement, we and they will not
without the prior written consent of J.P. Morgan Securities Inc. dispose of or
hedge any MEDS, any of our common shares or any securities convertible into or
exchangeable for our common shares. However, we may issue any common shares into
which the MEDS may be converted, we may issue our common shares in the
concurrent offering, and we may grant options to purchase common shares and
issue common shares upon the exercise of outstanding options under our existing
stock option plans.
The MEDS are a new issue of securities with no established trading market. We
have been advised by J.P. Morgan Securities Inc. that it intends to make a
market in the MEDS but is not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the MEDS.
We have applied to list our MEDS on the New York Stock Exchange under the symbol
"PD PrA." J.P. Morgan Securities Inc. will undertake to sell a minimum of
100,000 MEDS, with an aggregate market value of at least $2,000,000 to not less
than 100 U.S. holders of MEDS to meet the New York Stock Exchange distribution
requirements for trading.
J.P. Morgan Securities Inc. will purchase the MEDS at a price per MEDS of $97.
The MEDS are expected to be sold by J.P. Morgan Securities Inc. in one or more
transactions based on the market prices of our common shares prevailing at the
time of the sale or at prices otherwise negotiated.
In connection with the offering, J.P. Morgan Securities Inc. may purchase and
sell shares in the open market. These transactions may include short sales and
purchases to cover positions created by short sales. Short sales involve the
sale by J.P. Morgan Securities Inc. of a greater number of MEDS than it is
required to purchase in this offering.
Any of these activities by J.P. Morgan Securities Inc. may have the effect of
preventing or retarding a decline in the market price of the MEDS. They may also
cause the price of the MEDS to be higher than the price that otherwise would
exist in the open market in the absence of these transactions. If J.P. Morgan
Securities Inc. commences any of these transactions, it may discontinue them at
any time.
We estimate that our portion of the total expenses of this offering will be
$700,000.
J.P. Morgan Securities Inc. and certain of its affiliates have engaged and may
continue to engage in transactions with, and have performed and may continue to
perform, investment and commercial banking services for, us and our subsidiaries
and affiliates in the ordinary course of business.
S-35
We have agreed to indemnify J.P. Morgan Securities Inc. against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments J.P. Morgan Securities Inc. may be required to make
because of any of those liabilities.
S-36
CONCURRENT COMMON SHARE OFFERING
Concurrently with this offering of MEDS, Phelps Dodge is offering 10 million
common shares. The common shares will be offered pursuant to a separate
prospectus supplement. Neither offering is contingent upon the other.
S-37
LEGAL MATTERS
The validity of the securities offered will be passed upon for Phelps Dodge by
Debevoise & Plimpton, 919 Third Avenue, New York, New York 10022 and for the
underwriter by Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York,
New York 10006.
S-38
(THIS PAGE INTENTIONALLY LEFT BLANK)
$750,000,000
[PHELPS DODGE CORPORATION LOGO]
COMMON SHARES
PREFERRED SHARES
SHARE PURCHASE CONTRACTS
SHARE PURCHASE UNITS
WARRANTS
SENIOR DEBT SECURITIES
JUNIOR SUBORDINATED DEBT SECURITIES
PD CAPITAL TRUST I
PD CAPITAL TRUST II
PREFERRED SECURITIES
GUARANTEED BY PHELPS DODGE CORPORATION
- By this prospectus, we may offer from time to time up to $750,000,000 of any
combination of the securities described in this prospectus.
- We will provide you with the specific terms of the securities we are offering
in supplements to this prospectus. A supplement may also change or update
information contained in this prospectus.
- You should read this prospectus, including the documents and other information
we have referred to under the heading "Where You Can Find More Information," and
the prospectus supplement relating to the specific issue of securities carefully
before you invest.
- We may only use this prospectus to sell securities if it is accompanied by a
prospectus supplement.
- Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is August 15, 2001.
CAUTIONARY NOTE
GENERAL
You should rely only on the information contained or incorporated by reference
in this prospectus and in any supplement. "Incorporation by reference" means
that we can disclose important information to you by referring you to another
document filed separately with the SEC. We have not authorized any other person
to provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We will not make an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus and any supplement to this prospectus is current only as of the dates
on their covers. Our business, financial condition, results of operations and
prospects may have changed since that date.
PD Capital Trust I and PD Capital Trust II, each of which is referred to in this
prospectus as a trust and which are collectively referred to as the trusts, have
no independent function other than to issue securities and to purchase junior
subordinated debt securities. This prospectus does not contain separate
financial statements for the trusts. Phelps Dodge Corporation files consolidated
financial information with the SEC that will include financial information
regarding the trusts.
FORWARD-LOOKING STATEMENTS
This prospectus, any prospectus supplement and the documents and information
incorporated by reference in them may contain forward-looking statements within
the meaning of the federal securities laws. We intend these forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements. You should be aware that these statements only reflect our
expectations and are not guarantees of performance. These statements involve
risks, uncertainties and assumptions. Actual events or results may differ
materially from our expectations. Important factors that could cause our actual
results to be materially different from our expectations include those discussed
under the caption "Risk Factors" in each prospectus supplement. In some cases,
you can identify these statements by our use of forward-looking words such as
"may," "will," "should," "anticipate," "estimate," "expect," "plan," "believe,"
"predict," "potential" and "intend". The safe harbor provisions for
forward-looking statements only apply to companies that have previously offered
securities to the public. Because each trust's offer of the preferred securities
constitutes each trust's initial public offering of securities, the safe harbor
provisions of the federal securities laws do not apply to the trusts. We
undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
2
PHELPS DODGE CORPORATION
We are the world's second largest producer of copper. We are also the world's
largest producer of molybdenum and continuous-cast copper rod, and are ranked
among the world's largest producers of carbon black and magnet wire. We were
incorporated under the laws of New York in 1885. On October 16, 1999, we
acquired Cyprus Amax Minerals Company thereby enhancing our copper assets with
significant operations in the U.S. and South America.
Phelps Dodge consists of two divisions: (i) Phelps Dodge Mining Company and (ii)
Phelps Dodge Industries.
(i) Phelps Dodge Mining Company is a business segment that includes our
worldwide copper operations from mining through rod production, marketing
and sales; molybdenum operations from mining through manufacturing,
marketing and sales; other mining operations and investments; and worldwide
mineral exploration and development programs.
(ii) Phelps Dodge Industries includes our specialty chemicals segment and
our wire and cable segment.
The following discussion is based on the description of our business and
properties included in our Annual Report on Form 10-K for the year ended
December 31, 2000, and more extensive information concerning us is contained in
such report. See "Incorporation by Reference" in this prospectus.
PHELPS DODGE MINING COMPANY
Phelps Dodge Mining Company is our international business segment comprised of a
group of companies involved in vertically integrated copper operations including
mining, concentrating, electrowinning, smelting and refining, rod production,
marketing and sales, and related activities. Copper is sold primarily to others
as rod, cathode or concentrates, and as rod to our wire and cable segment. In
addition, Phelps Dodge Mining Company at times smelts and refines copper and
produces copper rod for customers on a toll basis. It is also an integrated
producer of molybdenum, with mining, roasting and processing facilities
producing molybdenum concentrate as well as metallurgical and chemical products.
In addition, it produces gold, silver, molybdenum, copper sulfate, rhenium and
copper chemicals as by-products, and sulfuric acid from its air quality control
facilities. This business segment also includes worldwide mineral exploration
and development programs.
We produce copper concentrate from open-pit mines and concentrators located in
Bagdad and Green Valley, Arizona; Santa Rita, New Mexico; and near Copiapo,
Chile. We produce electrowon copper cathode at solution
extraction/electrowinning (SX/EW) operations in Morenci, Miami, Bagdad and Green
Valley, Arizona; Santa Rita and Tyrone, New Mexico; near Arequipa, Peru; and
near Calama, Chile.
In 2000, Phelps Dodge Mining Company produced 1,200,300 tons of copper in
concentrate and electrowon form for our account from worldwide mining
operations, and an additional 258,700 tons of such copper for the accounts of
our minority interest joint-venture partners. Production of copper for our own
account from our U.S. operations constituted approximately 60 percent of the
copper mined in the U.S. in 2000. Much of our U.S. cathode copper production,
together with additional copper purchased from others, is used to produce
continuous-cast copper rod, the basic feed for the electrical wire and cable
industry.
3
We are the world's leading producer of copper using the SX/EW process. In 2000,
we produced a total of 806,300 tons of cathode copper at our SX/EW facilities,
compared with 511,500 tons in 1999 and 430,800 tons in 1998. SX/EW is a
cost-effective process of extracting copper from certain types of ores. SX/EW is
a major factor in our continuing efforts to maintain internationally competitive
costs. Our total annual capacity of electrowon copper cathode production is
currently 410,000 tons at Morenci, 248,000 tons at El Abra (Chile), 75,000 tons
at Santa Rita, 75,000 tons at Tyrone, 105,000 tons at Miami, 75,000 tons at
Cerro Verde (Peru), 16,000 tons at Bagdad and 35,000 tons at Sierrita (Green
Valley).
We own and operate a copper smelter in Miami, Arizona, and, through Chino Mines
Company, operate the Chino smelter in Hurley, New Mexico. We own a two-thirds
interest in Chino Mines Company. We smelt virtually all of our share of our U.S.
copper concentrate production and occasionally some concentrate production from
Candelaria.
We refine our share of anode copper production from our smelters at our
refineries in El Paso, Texas, and Miami, Arizona. Our Miami refinery has an
annual production capacity of about 200,000 tons of copper cathode, and the El
Paso refinery has an annual production capacity of about 450,000 tons of copper
cathode.
We are the world's largest producer of continuous-cast copper rod, the basic
feed for the electrical wire and cable industry. Most of our refined copper, and
additional purchased copper, is converted into rod at our continuous-cast copper
rod facilities in El Paso, Texas; Norwich, Connecticut; Miami, Arizona; and
Chicago, Illinois. Our four plants have a collective annual capacity to convert
more than 1.1 million tons of refined copper into rod and other refined copper
products.
We own the underground Henderson molybdenum mine near Empire, Colorado. This
operation consists of an underground block-caving mine where molybdenite ore is
mined and transported to a conventional sulfide mill. The concentrator is
capable of operating at a rate of 32,000 tons of ore per day, producing
molybdenum disulfide concentrate containing up to 58 percent molybdenum. Most of
the concentrate is shipped to our Fort Madison roasting and chemical processing
facility in Iowa where a number of different products are made for final sale to
customers. A portion of Henderson's production is sold to customers as
molybdenum disulfide.
Molybdenum concentrate also is produced as a by-product at several of our U.S.
copper operations. The concentrate is roasted to produce molybdenum oxide at one
of our three roasting operations, and various molybdenum metallurgical and
chemical products are produced at our four conversion facilities.
PHELPS DODGE INDUSTRIES
Phelps Dodge Industries, our manufacturing division, comprises two business
segments that produce engineered products principally for the global energy,
telecommunications, transportation and specialty chemicals sectors. Its
operations are characterized by products with significant market share,
internationally competitive costs and quality, and specialized engineering
capabilities. The two segments are specialty chemicals and wire and cable.
SPECIALTY CHEMICALS SEGMENT
Columbian Chemicals, headquartered in Marietta, Georgia, is an international
producer and marketer of carbon blacks. At Columbian Chemicals, we produce a
full range of rubber and industrial carbon blacks in 12 plants worldwide, with
approximately 40 percent of our
4
production in North America and the remaining 60 percent at facilities in
Europe, Asia and Latin America. Our rubber carbon blacks improve the tread wear
and durability of tires and extend the service life of many rubber products such
as belts and hoses. Our industrial carbon blacks are used in such diverse
applications as pigmentation of coatings, inks and plastics; ultraviolet
stabilization of plastics; and conductive insulation for wire and cable.
WIRE AND CABLE SEGMENT
The wire and cable segment, headquartered in Coral Gables, Florida, consists of
three worldwide product line businesses and a shared support services operation.
The three product line businesses are magnet wire, energy and telecommunications
cables, and specialty conductors.
Magnet wire, the insulated conductor used in most electrical motors, is
manufactured at three plants in the United States, as well as at facilities in
Austria, Mexico and Zambia. Energy and telecommunication cables for
international markets are manufactured in factories located in 12 countries. In
Brazil and Venezuela, we wholly own companies with production facilities.
Additionally, we have majority interests in companies with production facilities
in five other countries--Chile, Costa Rica, Honduras, Thailand and Zambia. We
also have minority interests in companies located in Hong Kong, China, Thailand
and the Philippines, accounted for on the equity basis, and in companies located
in Greece and India, accounted for on the cost basis. We manufacture specialty
conductors at four plants in the United States, and market these products to the
aerospace, automotive, biomedical, computer and consumer electronics markets.
The principal products are highly engineered conductors of copper and copper
alloy wire electroplated with silver, tin or nickel for sophisticated, specialty
product niches.
Our principal executive offices are located at 2600 North Central Avenue,
Phoenix, Arizona 85004-3089, and our telephone number is (602) 234-8100. After
November 30, 2001, our principal executive offices will be located at 1 North
Central Avenue, Phoenix, Arizona 85004.
5
THE TRUSTS
We created each trust as a statutory Delaware business trust pursuant to a trust
agreement. We will enter into an amended and restated trust agreement for each
trust, which will state the terms and conditions for the trust to issue and sell
its preferred securities and common securities.
Each trust exists solely to:
- issue and sell to the public preferred securities, representing
undivided beneficial interests in the assets of the trust;
- issue and sell to us common securities, representing undivided
beneficial interests in the assets of the trust;
- use the gross proceeds from the sale of its preferred and common
securities to purchase a series of our junior subordinated debt
securities;
- distribute the cash payments it receives from the junior subordinated
debt securities it owns to the holders of the preferred and common
securities; and
- engage in other activities that are necessary or incidental to these
purposes.
We will purchase all of the common securities of each trust. The common
securities will represent an aggregate liquidation amount equal to at least 3%
of each trust's total capitalization. The preferred securities will represent
the remaining approximately 97% of each trust's total capitalization. The common
securities will have terms substantially identical to, and will rank equal in
priority of payment with, the preferred securities. Payments will be made on
both the common securities and the preferred securities when payments of
interest are made on the junior subordinated debt securities, upon redemption of
the junior subordinated debt securities or in some circumstances upon
liquidation of the trust. However, if a default on the payments on the related
junior subordinated debt securities occurs, then cash distributions and
redemption, liquidation and other amounts payable on the common securities will
be subordinate in priority of payment to the amounts payable on the preferred
securities.
Each of the trusts is a legally separate entity and the assets of one are not
available to satisfy the obligations of any of the others. We will guarantee the
preferred securities as described later in this prospectus. We will appoint five
trustees to conduct each trust's business and affairs:
- First Union National Bank, which will act as the property trustee;
- First Union Trust Company, N.A., which will act as the Delaware
trustee; and
- Three of our officers, who will act as the administrative trustees.
We will pay all fees and expenses related to each trust and the offering of the
preferred securities and will pay all ongoing costs, expenses and liabilities of
each trust, except the trust's obligations under the preferred and common
securities.
The trusts will not have separate financial statements. The statements would not
be material to holders of the preferred securities because the trusts will not
have any independent operations and exist solely for the reasons summarized
above.
The principal offices of each trust will be located at c/o Phelps Dodge
Corporation, 2600 N. Central Avenue, Phoenix, Arizona 85004, prior to November
30, 2001 and at 1 North Central Avenue, Phoenix, Arizona 85004 thereafter, and
the telephone number of each trust will be 602-234-8100.
6
USE OF PROCEEDS
Unless stated otherwise in the applicable prospectus supplement, we will use the
net proceeds from the sale of the securities for general corporate purposes,
which may include financing our acquisitions, capital expenditures and daily
operations and those of our subsidiaries, and refinancing debt. We may also use
the proceeds for temporary investments until we need them for general corporate
purposes. Unless stated otherwise in the applicable prospectus supplement, the
net proceeds from the sale of the securities offered by each trust will be used
by the trust to purchase a series of junior subordinated debt securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for each
of the periods indicated:
--------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------
2001 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------
Ratio of Earnings to Fixed Charges(a)... b 1.3 c 4.4 8.2 10.5
--------------------------------------------------------------------------------------------
(a) For purposes of computing the consolidated ratio of earnings to fixed
charges, earnings consist of income before taxes, minority interests and equity
in net earnings (losses) of affiliated companies and cumulative effect of
accounting changes. Minority interests in majority-owned subsidiaries were not
deducted from earnings as all such subsidiaries had fixed charges. Fixed charges
consist of interest (including capitalized interest) on all indebtedness,
amortization of debt discount and expense, and that portion of rental expense
which we believe to be representative of interest. A statement setting forth the
computation of the unaudited ratios of earnings to fixed charges is filed as
Exhibit 12.1 to the registration statement that includes this prospectus.
(b) Fixed charges exceeded earnings for the six-month period ended June 30,
2001. As a result, the ratio coverage was less than 1:1. We would have needed to
generate additional earnings of $75.0 million to achieve a coverage of 1:1 for
the period.
(c) Due to the loss recorded in 1999, the ratio coverage was less than 1:1. We
would have needed to generate additional earnings of $419.3 million to achieve a
coverage of 1:1 in 1999.
ACCOUNTING TREATMENT
Each trust will be treated as our wholly-owned subsidiary for financial
reporting purposes. Accordingly, each trust's financial statements will be
included in our consolidated financial statements. The preferred securities of
each trust may be classified as a separate line item in our consolidated balance
sheet following long-term debt but preceding shareholders' equity or may be
classified as debt, with appropriate disclosures about the preferred securities
included in the footnotes to the consolidated financial statements. We will
record distributions payable on preferred securities as interest expense or
other non-operating expense (consistent with the balance sheet classification)
in our statement of consolidated operations. Included in a footnote to our
consolidated financial statements will be disclosure that the sole assets of
each trust are the junior subordinated debt securities, the principal amount,
interest rate and maturity date of the junior subordinated debt securities held.
In October 2000, the Financial Accounting Standards Board released an exposure
draft, "Accounting for Financial Instruments with Characteristics of
Liabilities, Equity, or Both." The exposure draft, if enacted, would alter the
accounting treatment described above by requiring the preferred securities of
each trust to be classified as debt on our consolidated statements of financial
position and the related distributions payable as a component of interest
expense in our consolidated statements of operations.
7
DESCRIPTION OF THE COMMON SHARES
GENERAL
Pursuant to our Restated Certificate of Incorporation, we are authorized to
issue 200 million common shares having a par value of $6.25 per share. Our
common shares are listed on the New York Stock Exchange under the trading symbol
"PD." The transfer and dividend paying agent and registrar for our common shares
is ChaseMellon Shareholder Services, LLC.
We summarize below all of the material features of our common shares. The
summary is not complete and is qualified in its entirety by all of the
provisions of our Restated Certificate of Incorporation, our By-Laws and the
Rights Agreement. Those documents are incorporated by reference as exhibits to
the registration statement that includes this prospectus, and we encourage you
to read them.
The common shares when offered by this prospectus will, when issued, be fully
paid and nonassessable and will not have, or be subject to, any preemptive or
similar rights.
DIVIDENDS
Subject to the preferential rights of any holders of any outstanding series of
our preferred shares, each holder of common shares is entitled to receive
dividends, if declared by our board of directors, out of funds that we can
legally use to pay dividends.
VOTING RIGHTS
The holders of common shares will possess exclusive voting rights in our
company, except to the extent that our board of directors will have designated
voting power with respect to any preferred shares issued. Each holder of common
shares is entitled to one vote for each share registered in that holder's name
on our books on each matter submitted for a vote of holders of common shares.
LIQUIDATION RIGHTS
In the event of our liquidation, dissolution or winding-up, the holders of
common shares will be entitled to share proportionately in the distribution of
all of our assets remaining after payment of all of our debts and liabilities
and of all sums to which holders of any preferred shares may be entitled.
PREEMPTIVE RIGHTS
Holders of common shares are not entitled to preemptive rights with respect to
any shares of our capital stock or other securities convertible into or carrying
rights or options to purchase any of our shares.
RIGHTS AGREEMENT
Each of our common shares, including those that may be issued in an offering
under this prospectus, carries with it one preferred share purchase right. If
these rights become exercisable, each right entitles the registered holder to
purchase one two-hundredth of a Junior Participating Cumulative Preferred Share
(subject to a proportionate decrease in the fractional number of Junior
Participating Cumulative Preferred Shares that may be purchased if
8
a stock split, stock dividend or similar transaction occurs with respect to the
common shares and a proportionate increase in the event of a reverse stock
split). Until a right is exercised, the holder of the right has no right to vote
or receive dividends or any other rights as a shareholder as a result of holding
the right. The terms of the rights are described in the Rights Agreement, dated
as of February 5, 1998, between us and The Chase Manhattan Bank, as rights
agent. We summarize below all of the material features of the Rights Agreement.
The summary is not complete and is qualified in its entirety by all of the
provisions of the Rights Agreement. The Rights Agreement is incorporated by
reference as an exhibit to the registration statement that includes this
prospectus, and we encourage you to read it.
The rights trade automatically with our common shares. A holder of common shares
may exercise the rights only under the circumstances described below. The rights
are designed to protect our interests and the interests of our shareholders
against coercive takeover tactics. The rights are also designed to encourage
potential acquirors to negotiate with our board of directors before attempting a
takeover and to increase the ability of our board of directors to negotiate
terms of any proposed takeover that benefit our shareholders. The rights may,
but are not intended to, deter potential acquirors from making takeover
proposals.
Junior Participating Cumulative Preferred Shares will rank junior to all other
series of our preferred shares, including any preferred shares offered under
this prospectus, if our board of directors, in creating such preferred shares,
provides that they will rank senior to the Junior Participating Cumulative
Preferred Shares.
The purchase price for each one two-hundredth of a Junior Participating
Cumulative Preferred Share is $210. We must adjust the purchase price if
specified events occur, such as:
- if we pay stock dividends on the Junior Participating Cumulative
Preferred Shares or effect a stock split or reverse stock split with
respect to the Junior Participating Cumulative Preferred Shares; or
- if we issue any shares of our capital stock in a reclassification of
the Junior Participating Cumulative Preferred Shares.
Holders may exercise their rights only following a distribution date. A
distribution date will occur on the earlier of the following: (1) ten days after
a public announcement or we otherwise receive notice that a person or group has
acquired 20% or more of our outstanding common shares or (2) ten business days
(or such later date as may be determined by our board of directors) after a
person or group makes or announces an offer to purchase our common shares,
which, if successful, would result in that person or group owning 20% or more of
our outstanding common shares. However, a distribution date will not occur, and
the rights cannot be exercised, as long as our board of directors has the
ability to redeem the rights, as described below.
The rights have some additional features that will be triggered upon the
occurrence of specified events, including:
- if a person or group acquires 20% or more of our outstanding common
shares, holders of the rights, other than such person or group, may
purchase our common shares (instead of our Junior Participating
Cumulative Preferred Shares) at 50% of the market value of the purchased
common shares;
- if a person or group acquires 20% or more of our outstanding common
shares, our board of directors may, at any time before the person or
group acquires 50% or more
9
of the outstanding common shares, exchange all or part of the rights
(other than rights held or previously held by the 20% or greater
shareholder) for common shares at an exchange ratio equal to one common
share per right, subject to adjustment; and
- if we are involved in specified business combinations or the sale of
50% or more of our assets or earning power, the holders of the rights may
purchase common shares of the acquiror or an affiliated company at 50% of
market value.
Any time before a person or group acquires 20% or more of our outstanding common
shares, our board of directors may redeem the rights in whole, but not in part,
at a rights redemption price of $0.01 per right, subject to adjustment for stock
dividends, stock splits and similar transactions. Our board of directors in its
sole discretion may establish the effective time, basis and conditions of the
redemption. Immediately upon redemption of the rights, the holder (1) can no
longer exercise such rights and (2) can only receive the redemption price.
The rights will expire on February 24, 2008, unless we redeem them before then.
At any time before a person or group acquires 20% or more of our outstanding
common shares, our board of directors may amend the terms of the rights without
the consent of the holders of the rights in any manner our board of directors
deems desirable. Thereafter, our board of directors may amend the terms of the
rights without the consent of the holders of the rights only if the amendment
does not adversely affect the interests of the holders of the rights.
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DESCRIPTION OF THE PREFERRED SHARES
We are authorized by our Restated Certificate of Incorporation to issue 6
million preferred shares having a par value of $1.00 per share, of which 400,000
have been designated Junior Participating Cumulative Preferred Shares and are
described below. As of today, we have not issued any preferred shares.
We summarize below all of the material features of our preferred shares. The
summary is not complete and is qualified in its entirety by all of the
provisions of our Restated Certificate of Incorporation, our By-Laws and the
Rights Agreement. Those documents are incorporated by reference as exhibits to
the registration statement that includes this prospectus, and we encourage you
to read them.
Subject to limitations prescribed by the New York Business Corporation Law, our
Restated Certificate of Incorporation and our By-Laws, our board of directors is
authorized to fix the number of shares constituting each series of preferred
shares and the designations, preferences, rights and limitations related to each
series, including those provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or
exchange, and such other subjects or matters as may be fixed by resolution of
our board of directors or a committee authorized by our board of directors. The
preferred shares when offered by this prospectus will, when issued, be fully
paid and nonassessable and will not have, or be subject to, any preemptive or
similar rights. As described above under "Description of the Common
Shares -- Rights Agreement," each of our common shares carries with it one
preferred share purchase right. The rights are designed to protect our interests
and the interests of our shareholders against coercive takeover tactics. The
rights are also designed to encourage potential acquirors to negotiate with our
board of directors before attempting a takeover and to increase the ability of
our board of directors to negotiate terms of any proposed takeover that benefit
our shareholders. The rights may, but are not intended to, deter potential
acquirors from making takeover proposals.
We will describe in a prospectus supplement some or all of the following terms
of the series of preferred shares being offered:
- title;
- the number of shares offered;
- the liquidation preference per share;
- the purchase price;
- the dividend rates, periods and/or payment dates or methods of
calculation of the dividend rates;
- whether dividends will be cumulative or non-cumulative and, if
cumulative, the date from which dividends will accumulate;
- the procedures for any auction or remarketing, if any;
- the provisions for a sinking fund, if any;
- the provisions for redemption, if applicable;
- any listing of the preferred shares on any securities exchange or
market;
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- the terms and conditions, if applicable, upon which the preferred
shares will be convertible into our common shares, including the
conversion price, or manner of calculation of the conversion price, and
conversion period;
- the terms and conditions, if applicable, upon which preferred shares
will be exchanged into debt securities, including the exchange price, or
manner of calculating the exchange price, and the exchange period;
- voting rights, if any;
- the relative ranking and preferences of the preferred shares as to
dividend rights upon liquidation, dissolution or winding up of our
affairs;
- any limitations on issuance of any series of preferred shares ranking
senior to or equal to the series of preferred shares as to dividend
rights upon our liquidation, dissolution or winding up; and
- any other specific terms, preferences, rights, limitations or
restrictions.
The applicable prospectus supplement will describe all of the material United
States federal income tax considerations applicable to the particular series of
preferred shares being offered.
Unless otherwise specified in the prospectus supplement, the preferred shares
will, with respect to dividend rights and rights upon our liquidation,
dissolution or winding up, rank:
- senior to all series of our common shares, and to all equity securities
issued by us the terms of which specifically provide that such equity
securities rank junior to the preferred shares with respect to dividend
rights or rights upon our liquidation, dissolution or winding up;
- equal to all equity securities issued by us, the terms of which
specifically provide that those equity securities will rank equal to the
preferred shares with respect to dividend rights or rights upon our
liquidation, dissolution or winding up; and
- junior to all equity securities issued by us, the terms of which
specifically provide that those equity securities rank senior to the
preferred shares with respect to dividend rights or rights upon our
liquidation, dissolution or winding up.
JUNIOR PARTICIPATING CUMULATIVE PREFERRED SHARES
GENERAL
In connection with the Rights Agreement, 400,000 Junior Participating Cumulative
Preferred Shares have been reserved and authorized for issuance by our board of
directors. No Junior Participating Cumulative Preferred Shares are outstanding
as of the date of this prospectus. We summarize below all of the material
features of our Junior Participating Cumulative Preferred Shares. The summary is
not complete and is qualified in its entirety by all of the provisions of our
Restated Certificate of Incorporation. That document is incorporated by
reference as an exhibit to the registration statement that includes this
prospectus, and we encourage you to read it.
RANKING
The Junior Participating Cumulative Preferred Shares shall rank junior to all
other series of our preferred shares as to the payment of dividends and the
distribution of assets, unless the terms of any such series shall provide
otherwise.
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DIVIDENDS AND DISTRIBUTIONS
Subject to the prior and superior rights of the holders of any share of any
series of preferred shares ranking prior to and superior to the Junior
Participating Cumulative Preferred Shares with respect to dividends, the holders
of Junior Participating Cumulative Preferred Shares, in preference to the
holders of common shares and of any other junior shares which may be
outstanding, shall be entitled to receive, if declared by our board of directors
out of funds legally available for that purpose, quarterly dividends payable in
cash, in an amount per share equal to the greater of (1) $2.50 per share ($10.00
per annum) and (2) subject to adjustment upon certain dilutive events, 100 times
the aggregate per share amount of, with certain exceptions, all cash and
non-cash dividends or other distributions, declared on the common shares, since
the immediately preceding quarterly dividend payment date, or, with respect to
the first quarterly dividend payment date, since the first issuance of any
Junior Participating Cumulative Preferred Share.
If no dividend or distribution is declared on the common shares during the
period between any quarterly dividend payment date and the next subsequent
quarterly dividend payment date, a dividend of $2.50 per share ($10.00 per
annum) on the Junior Participating Cumulative Preferred Shares will nevertheless
be payable on such subsequent quarterly dividend payment date.
VOTING RIGHTS
The holders of Junior Participating Cumulative Preferred Shares will have the
following voting rights:
- subject to adjustment upon certain dilutive events, each Junior
Participating Cumulative Preferred Share shall entitle the holder to 100
votes (and each one two-hundredth of a Junior Participating Cumulative
Preferred Share shall entitle the holder thereof to one-half of one vote)
on all matters submitted to a vote of our shareholders; and
- except as otherwise provided by law, the holders of Junior
Participating Cumulative Preferred Shares and the holders of common
shares shall vote together as one class.
LIQUIDATION, DISSOLUTION OR WINDING UP
Upon our liquidation, dissolution or winding up, after distribution of the
liquidation price to the holders of shares ranking senior as to distribution of
assets to the Junior Participating Cumulative Preferred Shares, the holders of
Junior Participating Cumulative Preferred Shares will be entitled to receive the
greater of (1) $100 per share and (2) an aggregate amount per share, subject to
adjustment upon certain dilutive events, equal to 100 times the aggregate amount
to be distributed per share to holders of common shares; or a pro-rata portion
of such amount if the assets are not sufficient to pay the full amount.
CONSOLIDATION, MERGER, ETC.
In the event that we enter into any consolidation, merger, combination or other
transaction in which our common shares are exchanged for or changed into other
stock or securities, cash and/or any other property, each Junior Participating
Cumulative Preferred Share shall at the same time be similarly exchanged or
changed into an amount per share (subject to adjustment
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upon certain dilutive events) equal to 100 times the aggregate amount of the
instrument into which or for which each common share is changed or exchanged.
CERTAIN RESTRICTIONS
Whenever quarterly dividends or other dividends or distributions payable on the
Junior Participating Cumulative Preferred Shares are in arrears, we will not:
- declare or pay dividends, or make any other distributions, other than
in common shares, on our common shares;
- purchase any Junior Participating Cumulative Preferred Shares, unless
paid for with our common shares; or
- permit any entity controlled by us to purchase any of our common shares
or Junior Participating Cumulative Preferred Shares;
until such accrued dividends and distributions are paid in full or an amount
sufficient for such payment as been set aside.
REDEMPTION
The shares of Junior Participating Cumulative Preferred Shares are not
redeemable.
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DESCRIPTION OF SHARE PURCHASE CONTRACTS
AND SHARE PURCHASE UNITS
We summarize below the general terms and provisions of our share purchase
contracts and share purchase units that may be offered by this prospectus. When
we offer to sell a particular series of the share purchase contracts or share
purchase units, we will describe the specific terms of the series in a
supplement to this prospectus. The description in the applicable supplement to
this prospectus will be a summary of all the material features of the share
purchase contracts or share purchase units. Reference will be made to the share
purchase contracts, and, if applicable, collateral arrangements and depositary
arrangements, relating to the share purchase contracts or share purchase units,
which will be filed or incorporated by reference as exhibits to the registration
statement that includes this prospectus, and we encourage you to read them.
We may issue and sell, from time to time, share purchase contracts, representing
contracts obligating holders to purchase from us, and for us to sell to the
holders, a specified number of our common shares at a future date or dates. The
price per share of our common shares may be fixed at the time the share purchase
contracts are issued or may be determined by reference to a specified formula
set forth in the share purchase contracts. The share purchase contracts may be
issued separately or as parts of units. The share purchase units will consist of
the following:
- a share purchase contract; and
- one or more of the following, each of which secures the holders'
obligations to purchase the common shares under the share purchase
contracts:
- senior notes;
- junior subordinated notes;
- trust preferred securities; or
- debt obligations of third parties, including U.S. treasury
securities.
The share purchase contracts may require (1) us to make periodic payments to
holders of the share purchase units or (2) the holders of the share purchase
units to make periodic payments to us. The share purchase contracts may require
holders to secure their obligations under the stock purchase contracts in a
specified manner.
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DESCRIPTION OF WARRANTS
We summarize below the general terms and provisions of the warrants that may be
offered by this prospectus. When we offer to sell warrants, we will describe the
particular terms of the warrants in a supplement to this prospectus. The
description in the applicable supplement to this prospectus will be a summary of
all of the material features of the warrants. Reference will be made to the
warrant agreement and warrant certificate relating to such warrants. A copy of
the form of warrant agreement will be filed or incorporated by reference as
exhibits to the registration statement that includes this prospectus, and we
encourage you to read them.
We may offer warrants, including warrants to purchase common shares, and
warrants to purchase debt securities, as well as other types of warrants. We may
issue the warrants independently or together with any other securities and the
warrants may be attached to or separate from the other securities. The warrants
are to be issued under warrant agreements to be entered into between us and a
warrant agent, as shall be set forth in the prospectus supplement relating to
the warrants being offered pursuant thereto.
The warrant agreement relating to any series of warrants will include the
specific terms of the warrants. We will describe in a prospectus supplement some
or all of the terms of the warrants being offered:
- the title and aggregate number of warrants;
- the price or prices at which the warrants will be issued;
- the currency or currency units or composite currencies in which the
price for the warrants may be payable;
- the designation and terms of the securities for which the warrants can
be exercised and the price or the manner of determining the price and
currency or other consideration to purchase the securities;
- the date on which the right to exercise the warrants begins and the
date on which the right expires;
- if applicable, the maximum or minimum amount of warrants that may be
exercised at any one time;
- if applicable, the date on which the warrants and the related
securities will be separately transferable;
- any mandatory or optional redemption provision;
- the identity of the warrant agent;
- information with respect to book-entry procedures, if any; and
- any other terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants.
The warrants will be represented by certificates. The warrants may be exchanged
under the terms outlined in the warrant agreement. We will not charge any
service charges for any transfer or exchange of warrant certificates, but we may
require payment for tax or other governmental charges in connection with the
exchange or transfer. Unless the prospectus supplement states otherwise, until a
warrant is exercised, a holder will not be entitled to any payments on or have
any rights with respect to the securities issuable upon exercise of the warrant.
The applicable prospectus supplement will describe all of the material United
States federal income tax considerations applicable to the particular series of
warrants being offered.
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DESCRIPTION OF THE DEBT SECURITIES
We may offer unsecured general obligations, which may be senior debt securities
or junior subordinated debt securities. The senior debt securities and the
junior subordinated debt securities are together referred to in this prospectus
as the "debt securities." The senior debt securities will have the same rank as
all of our other unsecured, unsubordinated obligations. The junior subordinated
debt securities will be subordinate and junior in right of payment to the extent
and in the manner set forth in the subordinated indenture to all of our senior
debt as defined below under "Description of the Debt Securities--Provisions
Applicable Only to Junior Subordinated Debt Securities--Subordination."
We will issue senior debt securities in one or more series under an indenture,
sometimes referred to as the senior indenture, dated as of September 22, 1997
between us and The Chase Manhattan Bank, as the trustee. Pursuant to the
Tripartite/Conversion Agreement, dated as of August 8, 2000, First Union
National Bank succeeded The Chase Manhattan Bank as trustee under the senior
indenture. The junior subordinated debt securities will be issued under an
indenture, sometimes referred to as the subordinated indenture, dated as of
August 11, 2000 between us and First Union National Bank, as trustee.
We summarize below all of the material features of the debt securities. The
summary is not complete and is qualified in its entirety by all of the
provisions of the indentures and the provisions of the Trust Indenture Act of
1939. The indentures are incorporated by reference as exhibits to the
registration statement that includes this prospectus, and we encourage you to
read them. You should also read the applicable prospectus supplement, which will
contain additional information and may update or change some of the information
below. References in parentheses below to sections or articles are to sections
or articles of the indentures.
The debt securities will be issuable in one or more series pursuant to one or
more indentures supplemental to the original indentures, or a resolution of our
board of directors or a duly authorized committee of our board of directors.
(Section 3.1 of each indenture.)
The indentures do not contain any covenants or provisions which may afford
holders of debt securities protection in the event that we engage in a highly
leveraged transaction or other transaction that may adversely affect the holders
of the debt securities, including the incurrence or issuance of other secured or
unsecured debt.
Most of our assets are owned by our subsidiaries and, accordingly, the debt
securities are effectively subordinated to all existing and future liabilities
of our subsidiaries. Our rights and the rights of our creditors, including
holders of debt securities, to participate in any distribution of the assets of
any subsidiary upon its liquidation, recapitalization or insolvency would be
subject to the prior claims of the subsidiary's creditors, except to the extent
that we might ourselves be a creditor with recognized claims against the
subsidiary.
GENERAL TERMS OF THE DEBT SECURITIES
The aggregate principal amount of debt securities that we may issue under the
indentures is unlimited. The debt securities may be issued in one or more
series. You should refer to the applicable prospectus supplement for the
specific terms of the debt securities, including the following:
- title and aggregate principal amount;
- indenture under which the debt securities are issued;
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- any applicable subordination provisions;
- percentage or percentages of principal amount at which the debt
securities will be issued and percentage or percentages of principal
amount payable upon declaration of acceleration of the maturity of the
debt securities;
- maturity date(s);
- interest rate(s) or the method for determining the interest rate(s);
- dates on which interest will accrue or the method for determining dates
on which interest will accrue and dates on which interest will be
payable;
- interest deferral provisions, if any;
- conversion or exchange provisions, if any;
- place or places where principal, premium and interest will be payable;
- redemption or early repayment provisions;
- authorized denominations;
- amount of discount with which such debt securities will be issued;
- whether the debt securities will be issued in whole or in part in the
form of one or more global securities;
- identity of the depositary for global securities;
- whether a temporary security is to be issued with respect to the debt
securities and whether any interest payable prior to the issuance of
definitive debt securities of the series will be credited to the account
of the persons entitled thereto;
- the terms upon which beneficial interests in a temporary global debt
security may be exchanged in whole or in part for beneficial interests in
a definitive global debt security or for individual definitive debt
securities and the terms upon which such exchanges may be made;
- currency, currencies or currency units in which the purchase price for,
the principal of and any premium and any interest on, the debt securities
will be payable;
- time period within which, the manner in which and the terms and
conditions upon which the purchaser of the debt securities can select the
payment currency;
- securities exchange(s) on which the debt securities will be listed, if
any;
- additions to or changes in the events of default with respect to the
debt securities and any change in the right of the trustee or the holders
to declare the principal, premium and interest with respect to such debt
securities to be due and payable; and
- additional terms not inconsistent with the provisions of the
indentures.
One or more series of debt securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. One or more series of debt
securities may be variable rate debt securities that may be exchanged for fixed
rate debt securities. The applicable prospectus supplement will describe all of
the material United States federal income tax considerations applicable to the
particular series of debt securities being offered.
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Debt securities may be issued where the amount of principal and/or interest
payable is determined by reference to:
- the price of one or more commodities, derivatives or securities;
- one or more securities, derivatives or commodities exchange indices or
other indices;
- a currency, currencies or any currency units other than the currency in
which such debt securities are issued or other factors; or
- any other variable or the relationship between any variables or
combination of variables.
Holders of debt securities may receive a principal amount or a payment of
interest that is greater than or less than the amount of principal or interest
otherwise payable on such dates, depending upon the value of the applicable
currencies, commodities, securities, derivatives, indices or other factors.
Information as to the methods for determining the amount of principal or
interest, if any, payable on any date, and the currencies, commodities,
securities, derivatives, indices or other factors to which the amount payable on
such date is linked will be described in the applicable prospectus supplement.
The term "debt securities" includes debt securities denominated in U.S. dollars
or, if specified in the applicable prospectus supplement, in any other freely
transferable currency or units based on or relating to foreign currencies.
We expect most debt securities to be issued in fully registered form without
coupons and in denominations of $1,000 and any integral multiple of $1,000.
(Section 3.2 of each indenture.) Subject to the limitations provided in the
indentures and in the prospectus supplement, debt securities which are issued in
registered form may be registered, transferred or exchanged at the principal
corporate trust office of the trustee or at the office or agency that we will
maintain for such purpose in the Borough of Manhattan, The City of New York,
without the payment of any service charge, other than any tax or other
governmental charge payable in connection with the registration or transfer or
exchange. (Sections 3.5 and 9.2 of each indenture.)
We may issue debt securities of any series in whole or in part in definitive
form or in the form of one or more global debt securities as described below
under "Global Securities." We may issue debt securities of a series at different
times. In addition, we may issue debt securities within a series with terms
different from the terms of other debt securities of that series. (Section
3.1(c) of each indenture.)
Subject to applicable law, we or any of our affiliates may at any time purchase
or repurchase debt securities of any series in any manner and at any price. Debt
securities of any series purchased by us or any of our affiliates may be held or
surrendered by the purchaser of the debt securities for cancellation.
GLOBAL SECURITIES
We expect the following provisions to apply to all debt securities.
We may issue the debt securities of a series in whole or in part in the form of
one or more global securities that will be deposited with, or on behalf of, a
depositary identified in the applicable prospectus supplement. We will issue
global securities in registered form and in either temporary or definitive form.
Unless and until it is exchanged in whole or in part for the
19
individual debt securities, a global security may not be transferred except as a
whole by the depositary for such 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. (Section 2.4 of each indenture.)
The specific terms of the depositary arrangement with respect to any debt
securities of a series and the rights of and limitations upon owners of
beneficial interests in a global security will be described in the prospectus
supplement. We expect that the provisions set forth below will generally apply
to depositary arrangements.
Upon the issuance of a global security, the depositary for such global security
or its nominee will credit, on its book-entry registration and transfer system,
the respective principal amounts of the individual debt securities represented
by such global security to the accounts of persons that have accounts with such
depositary or its nominee. Such accounts shall be designated by the dealers,
underwriters or agents with respect to the debt securities or by us if such debt
securities are offered and sold directly by us. Ownership of beneficial
interests in a global security will be limited to persons that have accounts
with the applicable depositary, who are referred to in this prospectus as
participants, or persons that may hold interests through participants. Ownership
of beneficial interests in such global security will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the applicable depositary or its nominee with respect to interests of
participants and the records of participants with respect to interests of
persons other than participants. The laws of some states 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 transfer beneficial
interests in a global security.
So long as the depositary for a global security, or its nominee, is the
registered owner of a 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 that global security for all purposes under the indenture
governing those debt securities. Except as provided below, owners of beneficial
interests in a global security will not be entitled to have any of the
individual debt securities of the series represented by that global security
registered in their names, will not receive or be entitled to receive physical
delivery of any debt securities of such series in definitive form and will not
be considered the owners or holders thereof under the indenture governing such
debt securities.
Payments of principal, premium, if any, and interest, if any, on individual debt
securities represented by a global security registered in the name of a
depositary or its nominee will be made to the depositary or its nominee, as the
case may be, as the registered owner of the global security representing the
debt securities. Neither we, the trustee for the debt securities, any paying
agent, nor the registrar for the debt securities will have any responsibility or
liability for any aspect of the records relating to or payments made by the
depositary or any participants on account of beneficial ownership interests in
the global security for the debt securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
We expect that the depositary for a series of debt securities or its nominee,
upon receipt of any payment of principal, premium or interest in respect of a
permanent global security representing the debt securities, will immediately
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such
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global security for the debt securities as shown on the records of the
depositary or its nominee. We also expect that payments by participants to
owners of beneficial interests in a global security held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." Such payments will be the responsibility of
such participants.
If the depositary for a series of debt securities notifies us at any time that
it is unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by us within 90 days, we will issue definitive debt
securities of that series in exchange for the global security or securities
representing that series of debt securities. In addition, we may at any time and
in our sole discretion, subject to any limitations described in the prospectus
supplement relating to the debt securities, determine not to have any debt
securities of a series represented by one or more global securities, and, in
such event, will issue definitive debt securities of that series in exchange for
the global security or securities representing that series of debt securities.
If definitive debt securities are issued, an owner of a beneficial interest in a
global security will be entitled to physical delivery of definitive debt
securities of the series represented by that global security equal in principal
amount to that beneficial interest and to have the debt securities registered in
its name. Definitive debt securities of any series so issued will be issued in
denominations, unless otherwise specified by us, of $1,000 and integral
multiples of $1,000.
REDEMPTION OF DEBT SECURITIES
If the debt securities of a series provide for redemption at our election,
unless otherwise provided in the applicable prospectus supplement, such
redemption shall be on not less than 30 nor more than 60 days' notice and, in
the event of redemption in part, the debt securities to be redeemed will be
selected by the trustee by such method as it shall deem fair and appropriate.
Notice of such redemption will be mailed to holders of debt securities of such
series to their last addresses as they appear on the register of the debt
securities of such series. (Sections 1.6, 10.3 and 10.4 of each indenture.)
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each indenture provides that, if an event of default in respect of any series of
debt securities shall have occurred and be continuing, either the trustee or the
holders of at least 25% in aggregate principal amount of the outstanding debt
securities of that series may declare the principal (or a portion thereof in the
case of certain debt securities issued with original issue discount or indexed
debt securities) and accrued interest of all the debt securities of that series
to be due and payable, by written notice to us (and by written notice to the
trustee if given by the holders). The consequence of this action is that the
principal and accrued interest of the debt securities shall be immediately due
and payable by us. (Section 5.2 of each indenture.)
Each indenture defines events of default in respect of any series of debt
securities as:
- default for 30 days in payment of any interest installment or
additional amount when due;
- default in payment of the principal of or any premium on or any
mandatory sinking fund payment with respect to debt securities of such
series when due;
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- failure to comply with certain obligations for 60 days after written
notice of non-compliance to us by the trustee or the holders of at least
25% in principal amount of the outstanding debt securities of such
series;
- our commencement of a voluntary case under Title 11 of the U.S. Code or
any similar federal or state bankruptcy law;
- our consent to the entry of an order for relief against us in an
involuntary case under any such law or to the appointment of a receiver,
trustee, assignee, liquidator or similar official under any such law;
- a general assignment by us for the benefit of our creditors under any
such law;
- the entry by a court of competent jurisdiction of an order or decree
granting relief against us in an involuntary case under any such law
where such order or decree remains unstayed and in effect for 60 days;
- the entry by a court of competent jurisdiction of an order or decree
appointing a receiver, trustee, assignee, liquidator or similar official
for us or for substantially all of our property where such order or
decree remains unstayed and in effect for 60 days; and
- any other event of default provided for in the indenture with respect
to the debt securities of such series.
(Section 5.1 of each indenture.)
The Trust Indenture Act of 1939 and Section 6.6 of each indenture provide that
the trustee will, within 90 days after the occurrence of a default in respect of
any series of debt securities, give to the holders of that series written notice
of all uncured and unwaived defaults known to it; provided that, except in the
case of default in the payment of the principal of, premium on, if any, or
interest on, if any, or any sinking fund installment or analogous obligation
with respect to, any of the debt securities of that series, the trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the holders of that series.
"Default" means any event which is, or after notice or passage of time or both
would be, an event of default with respect to debt securities of such series.
Each indenture provides that the holders of a majority in aggregate principal
amount of the outstanding debt securities of any series may, subject to
limitations, direct the time, method and place of conducting proceedings for any
remedy available to the trustee, or exercising any trust or power conferred on
the trustee, in respect of the debt securities of that series. (Section 5.8 of
each indenture.)
Each indenture includes a covenant that we will file annually with the trustee a
certificate of compliance with all conditions and covenants under each
indenture. (Section 9.7 of each indenture.)
In certain cases, the holders of a majority in aggregate principal amount of the
outstanding debt securities of a series may, by providing written notice to the
trustee on behalf of the holders of all debt securities of that series, waive
any past default or event of default, except for defaults or events of default
not already cured in the payment of the principal of, or premium, if any, or
interest on any of the debt securities of that series or any coupon related to
such debt securities or compliance with certain covenants or provisions.
(Section 5.7 of each indenture.)
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CERTAIN COVENANTS OF PHELPS DODGE
LIMITATION ON LIENS
Each indenture provides that we will not, and will not permit certain of our
subsidiaries to, (a) issue, assume or guarantee any debt for money borrowed if
such debt is secured by a mortgage upon, or (b) secure any outstanding debt by a
mortgage upon, certain of the principal properties that we now or may own
without providing that the debt securities offered under this prospectus are
secured equally with such debt, except that these restrictions shall not apply
to:
- mortgages on any principal property acquired, constructed or improved
after the date of the indenture to secure or provide for the payment of
the related purchase price or cost;
- mortgages on any principal property acquired in connection with a
merger;
- mortgages to secure debt of a restricted subsidiary owed to us or
another restricted subsidiary;
- any extension, renewal or replacement of any mortgage referred to
above;
- the sale or other transfer of any interest in property commonly
referred to as a "production payment"; and
- mortgages in favor of governmental bodies to secure advance or progress
payments under any contract or statute or debt incurred for the purpose
of financing the purchase price or cost of constructing or improving the
related property subject.
(Section 9.9 of each indenture.)
Notwithstanding the foregoing, we and our subsidiaries may, without securing the
debt securities, issue, assume or guarantee secured debt which would otherwise
be subject to the foregoing restrictions in an aggregate amount which, together
with all other such debt of ours and our subsidiaries and the rental payments
related to sale and lease-back transactions (other than sale and lease-back
transactions in which the property involved would have been permitted to be
mortgaged under the preceding paragraph or the proceeds of which have been
applied to the retirement of long-term debt), does not at the time exceed 15% of
our consolidated shareholders' equity. (Section 9.9 of each indenture.)
SALE AND LEASE-BACK TRANSACTIONS
Sale and lease-back transactions by us or certain of our subsidiaries are
prohibited unless the proceeds of such transaction are at least equal to the
fair value of the property leased and either (i) we or the restricted subsidiary
would be entitled to incur debt secured by a mortgage on the property to be
leased without equally securing the debt securities or (ii) we apply an amount
equal to the fair value of the property leased to the retirement of our
long-term debt. Sale and lease-back transactions do not include arrangements
with governmental bodies entered into for the purpose of financing the purchase
price or the cost of constructing or improving the property subject to such
arrangements. (Section 9.10 of each indenture.)
Notwithstanding the preceding paragraph, we and our subsidiaries may enter into
any sale and lease-back transaction which would otherwise be subject to the
foregoing restrictions if the amount of the rental payments related to such
transaction, together with all secured debt of ours and our restricted
subsidiaries and all other rental payments related to sale and lease-back
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transactions (other than sale and lease-back transactions permitted because we
would be entitled to incur debt secured by a mortgage on the property to be
leased without equally securing the debt securities, and other than sale and
lease-back transactions the proceeds of which have been applied in accordance
with clause (ii) of the preceding paragraph), does not at the time exceed 15% of
our consolidated shareholders' equity. (Section 9.10 of each indenture.)
MODIFICATION OF THE INDENTURES
Each indenture contains provisions permitting us and the trustee to enter into
one or more supplemental indentures without the consent of the holders of any of
the debt securities in order to:
- evidence the succession of another corporation to us and the assumption
of our covenants and obligations by our successor;
- add to our covenants for the benefit of the holders of debt securities
or surrender any of our rights or powers;
- add additional events of default with respect to any series of debt
securities;
- add to or change any provisions of the indenture to such extent as
necessary to facilitate the issuance of debt securities in bearer form or
to facilitate the issuance of debt securities in global form;
- change or eliminate any provision of the indenture if such change or
elimination does not affect any series of debt securities created prior
to the execution of any such supplemental indenture that is entitled to
the benefit of such provision;
- secure the debt securities;
- establish the form or terms of debt securities;
- evidence and provide for successor trustees and/or to add to or change
any provisions of the indenture to such extent as necessary to provide
for or facilitate the appointment of a separate trustee or trustees for
specific series of debt securities;
- permit payment of principal, premium or interest in respect of debt
securities in bearer form or coupons, if any, in the United States and
other areas subject to its jurisdiction; or
- correct or supplement any inconsistent provisions or make any other
provisions with respect to matters or questions arising under the
indenture, provided that any such action does not adversely affect the
interests of any holder of debt securities of any series. (Section 8.1 of
each indenture.)
Each indenture also contains provisions permitting us and the trustee, with the
consent of the holders of not less than a majority of the aggregate principal
amount of the outstanding debt securities of the affected series, to execute
supplemental indentures adding any provisions to or changing or eliminating any
of the provisions of the indenture or modifying the rights of the holders of
debt securities of that series. No supplemental indenture may, without the
consent of the holders of all of the affected debt securities, among other
things:
- change the maturity of any debt securities;
- change the currency in which such debt securities are payable;
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- reduce the principal amount thereof or the rate of interest thereon or
any premium payable upon the redemption thereof;
- change the manner in which the amount of any principal thereof or
premium, if any, or interest thereon is determined;
- impair the right to institute suit for the enforcement of any payment
on such debt securities at maturity or upon redemption;
- reduce the percentage of the outstanding principal amount of debt
securities the holders of which must consent to any such supplemental
indenture;
- modify the indenture provisions concerning modification of the
indenture or the waiver of past defaults or specified covenants other than
to increase the required percentage to effect a modification or provide
that additional provisions may not be waived without the consent of each
holder of that series of debt securities; or
- in the case of the subordinated indenture, modify the subordination
provisions thereof in a manner adverse to the holders of junior
subordinated debt securities then outstanding. (Section 8.2 of each
indenture.)
SATISFACTION AND DISCHARGE OF THE INDENTURES; DEFEASANCE AND COVENANT DEFEASANCE
Each indenture shall generally cease to be of any further effect with respect to
a series of debt securities when:
- we have delivered to the trustee for cancellation all debt securities
of that series; or
- all debt securities of that series not theretofore delivered to the
trustee for cancellation shall have become due and payable, or are by
their terms to become due and payable within one year or are to be called
for redemption within one year, and we shall have deposited with the
trustee as trust funds the entire amount sufficient to pay at maturity or
upon redemption all debt securities of that series (and if, in either
case, we shall also pay or cause to be paid all other sums payable under
the indenture by us in respect of all debt securities of that series and
deliver to the trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent in the indenture have been
complied with) and we shall have made any other payments due under the
indenture and delivered to the trustee an officer's certificate and
opinion of counsel saying that we have fulfilled each of the conditions
mentioned above. (Section 4.1 of each indenture.)
The trustee shall hold in trust all money deposited with it as described above
and shall apply the deposited money, in accordance with the provisions of the
debt securities of the defeased series and the indenture, to the payment, either
directly or through any paying agent, as the trustee may determine, to the
persons entitled thereto, of principal, premium, if any and any interest for
whose payment such money has been deposited with or received by the trustee.
(Section 4.2 of each indenture.)
The indenture provides, unless the terms of the particular series of debt
securities provide otherwise, that:
- we may elect to be discharged from our obligations with respect to any
debt securities or series of debt securities, which we refer to as
"defeasance;" and/or
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- we may elect to be released from our obligations under any covenants
described in any prospectus supplement or included in any supplemental
indenture with respect to any debt securities or series of debt
securities, which we refer to as "covenant defeasance."
In connection with any defeasance or covenant defeasance, we must irrevocably
deposit with the trustee of the indenture, in trust, money and/or government
obligations which, through the scheduled payment of principal and interest on
those obligations, would provide sufficient moneys to pay all amounts due on the
debt securities on the maturity dates or upon redemption and by any mandatory
sinking fund or analogous payments thereon. In connection with any defeasance or
covenant defeasance, we must also deliver to the trustee an opinion of counsel
to the effect that the holders of the debt securities will not recognize income
gain or loss for United States federal income tax purposes as a result of the
defeasance or covenant defeasance and will be subject to United States federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if the defeasance or covenant defeasance had not
occurred. In the case of defeasance, the opinion of counsel must refer to and be
based upon a letter ruling of the Internal Revenue Service received by the
issuing company or published by the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
indenture. In addition, defeasance or covenant defeasance shall not result in a
breach or default or event of default under the indenture or a default under any
other material agreement or instrument to which we are a party or by which we
are bound.
Upon a defeasance, the following rights and obligations will continue: (1) the
rights of the holders of debt securities of any series to receive from the
defeasance trust any amounts due on the debt securities when payments are due;
(2) our obligations regarding the registration, transfer and exchange of debt
securities of any series; (3) our obligation to maintain an office or agency in
each place of payment; and (4) the survival of the indenture trustee's rights,
powers, trusts, duties and immunities under the indenture.
The indenture permits defeasance with respect to any debt securities of a series
even if a prior covenant defeasance has occurred with respect to the debt
securities of that series. If we exercise our defeasance option, payment of such
debt securities may not be accelerated because of an event of default. If we
exercise our covenant defeasance option, payment of the debt securities may not
be accelerated because of an event of default with respect to the covenants
affected by the covenant defeasance. However, if an acceleration were to occur
by reason of another event of default, the realizable value at the acceleration
date of the money and government obligations in the defeasance trust could be
less than the amounts then due on the debt securities, since the required
deposit in the defeasance trust would be based upon scheduled cash flows rather
than market value, which would vary depending upon interest rates and other
factors. (Sections 4.3, 4.4, 4.5 and 4.6 of each indenture)
RECORD DATES
We will generally be entitled to set any date as the record date for the purpose
of determining the holders of debt securities entitled to give or take any
action under either indenture in the manner specified in such indenture. If a
record date is set, action may only be taken by persons who are holders of debt
securities on the record date. Also, unless otherwise specified in the
prospectus supplement applicable to a series of debt securities, to be
effective, any action must
26
become effective under the applicable indenture within six months of the record
date. (Section 1.4(f) of each indenture.)
NOTICE
Notices to holders of debt securities will be given by mail to the addresses of
holders appearing in the applicable securities register. We and the trustee may
treat the person in whose name a debt security is registered as the owner
thereof for all purposes. (Sections 1.6 and 3.8 of each indenture.)
GOVERNING LAW
Each indenture and the debt securities will be governed by, and construed in
accordance with, the laws of the State of New York. (Section 1.11 of each
indenture.)
CONSOLIDATION, MERGER OR TRANSFER OF ASSETS
Each indenture provides that we may not merge or consolidate with or into any
other corporation or other entity or lease or transfer all or substantially all
of our assets, unless:
- the entity formed by or surviving such consolidation or merger or to
which the lease or transfer is made is a corporation organized under the
laws of the United States, any state thereof or the District of Columbia;
and
- immediately after giving effect to such transaction, no default or
event of default exists.
We must deliver to the trustee prior to such transaction an officer's
certificate to the foregoing effect and an opinion of counsel stating that such
transaction and supplemental indenture complies with the indenture and that all
conditions precedent under the indenture to the consummation of such transaction
have been met.
Upon any such consolidation, merger or transfer, the successor corporation
formed by such consolidation or into which we are merged or to which such
transfer is made shall succeed to and be substituted for us under the indenture.
(Section 7.1 of each indenture.)
CONCERNING THE TRUSTEES
First Union National Bank, which is the senior indenture trustee under the
senior indenture and the subordinated indenture trustee under the subordinated
indenture, also serves as the property trustee for each trust and the guarantee
trustee under each preferred securities guarantee described below. It is an
affiliate of First Union Trust Company, N.A., which serves as the Delaware
trustee for each trust.
We may from time to time maintain credit facilities and have other customary
banking relationships with First Union National Bank.
PROVISIONS APPLICABLE ONLY TO SENIOR DEBT SECURITIES
RANKING
Senior debt securities will be direct, unconditional and unsecured obligations
of our company and, except for certain debts required to be preferred by law
will rank equal among themselves and equally with all of our other unsecured and
unsubordinated obligations. The
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senior debt securities will rank senior to our subordinated obligations,
including any subordinated debt securities.
PROVISIONS APPLICABLE ONLY TO JUNIOR SUBORDINATED DEBT SECURITIES
SUBORDINATION
In the subordinated indenture, we have agreed that any junior subordinated debt
securities issued thereunder are subordinated in right of payment to all senior
indebtedness, as defined below, to the extent provided in the subordinated
indenture.
In the event of any:
- insolvency, bankruptcy, receivership, liquidation, reorganization,
readjustment, composition or other similar proceeding relating to us, our
creditors or our property;
- any proceeding for our liquidation, dissolution or other winding up,
voluntary or involuntary, whether or not involving insolvency or
bankruptcy proceedings;
- any assignment by us for the benefit of creditors; or
- any other marshalling of our assets.
The holders of senior indebtedness will be entitled to receive payment in full
on such senior indebtedness before the holders of junior subordinated debt
securities will be entitled to receive or retain any payment on the junior
subordinated debt securities. (Section 12.3 and 12.5 of the subordinated
indenture.)
No payments on account of the junior subordinated debt securities or interest
thereon may be made if:
- we default in any payment with respect to senior indebtedness; or
- an event of default occurs with respect to any senior indebtedness
resulting in the acceleration of the maturity of the senior indebtedness.
For purposes of the subordination provisions, the payment, issuance and delivery
of cash, property or securities, other than shares and certain of our
subordinated securities, upon conversion of any junior subordinated debt
security will be deemed to constitute payment on account of the principal of
such junior subordinated debt security. (Section 12.13 of the subordinated
indenture.)
When we use the term "senior indebtedness" we mean the principal, premium, if
any, and interest on:
- all of our indebtedness, whether outstanding on the date of the
subordinated indenture or thereafter created, incurred or assumed, that
is for borrowed money, or evidenced by a note or similar instrument given
in connection with the acquisition of any business, properties or assets,
including securities;
- any indebtedness of any other person of the kind described in the
preceding bullet for the payment of which we are responsible or liable as
guarantor or otherwise; and
- amendments, renewals, extensions and refundings of any such
indebtedness;
provided, however, that senior indebtedness does not include indebtedness
incurred for the purchase of goods or materials or for services obtained in the
ordinary course of business or
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any indebtedness which by its express terms is equal with or subordinated to the
junior subordinated debt securities. (Section 12.2 of the subordinated
indenture.)
The subordinated indenture provides that the foregoing subordination provisions,
insofar as they relate to any particular issue of junior subordinated debt
securities, may be changed prior to such issuance. Any such change would be
described in the prospectus supplement relating to such junior subordinated debt
securities. (Section 3.1 of the subordinated indenture.)
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DESCRIPTION OF THE PREFERRED SECURITIES
The preferred securities of each trust will be issued pursuant to a trust
agreement for that trust, as subsequently amended and restated, among us, the
issuer of the related junior subordinated debt securities, First Union National
Bank, as the property trustee, and First Union Trust Company, N.A., as the
Delaware trustee, the three administrative trustees and the holders from time to
time of the applicable trust's preferred and common securities. We summarize
below all of the material features of the preferred securities. The summary is
not complete and is qualified in its entirety by all of the provisions of the
applicable trust agreements and forms of each amended and restated trust
agreement. Those documents are filed or incorporated by reference as exhibits to
the registration statement that includes this prospectus, and we encourage you
to read them. You also may request a copy of the trust agreements from the
property trustee at its corporate trust office in New York, New York. Each trust
agreement will be qualified under the Trust Indenture Act of 1939. The terms of
the preferred securities of each trust will include those stated in the
applicable trust agreement and those made part of the trust agreement by
reference to the Trust Indenture Act. The amended and restated trust agreement
for each trust will be executed at the time the trust issues any preferred
securities and will be filed with the SEC on Form 8-K or by a post-effective
amendment to the registration statement that includes this prospectus. You
should also read the applicable prospectus supplement, which will contain
additional information and may update or change some of the information below.
GENERAL
The trust agreement for each trust authorizes the administrative trustees to
issue on behalf of the trust preferred securities that have the terms described
in this prospectus and in the applicable prospectus supplement. The preferred
securities will represent undivided beneficial interests in the assets of the
applicable trust. The proceeds from the sale of each trust's preferred and
common securities will be used by the trust to purchase a series of junior
subordinated debt securities that we issue. The junior subordinated debt
securities will be held in trust by the property trustee for the benefit of the
holders of the preferred and common securities of the applicable trust.
The terms of the preferred securities of each trust will mirror the terms of the
junior subordinated debt securities held by the applicable trust. If interest
payments on the junior subordinated debt securities held by the applicable trust
are deferred as described below, distributions on the preferred securities will
also be deferred. The assets of the trust available for distribution to the
holders of its preferred securities generally will be limited to payments under
the series of junior subordinated debt securities held by the trust.
Under the preferred securities guarantee for each trust, we will agree to make
payments of distributions and payments on redemption or liquidation with respect
to the trust's preferred securities, but only to the extent the trust has funds
available to make those payments and has not made the payments. Our obligations
under the applicable preferred securities guarantee, trust agreement,
subordinated indenture and related junior subordinated debt securities will
provide a full, irrevocable and unconditional commitment by us regarding amounts
due on the preferred securities issued by each trust.
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The prospectus supplement relating to the preferred securities of each trust
will describe some or all of the following terms of the preferred securities:
- the name of the preferred securities;
- the dollar amount and number of preferred securities issued;
- the annual distribution rate, or method of determining the rate, of
distributions on the preferred securities, and date or dates from which
any distributions will accrue;
- the payment date and the record date used to determine the holders who
are to receive distributions on the preferred securities;
- the right, if any, to defer distributions on the preferred securities
upon extension of the interest payment periods of the related junior
subordinated debt securities;
- the applicable trust's obligation, if any, to redeem or purchase the
preferred securities and the terms and conditions on which the preferred
securities may be redeemed or purchased pursuant to any obligation;
- the terms and conditions, if any, on which the preferred securities may
be redeemed at the applicable trust's option or at the option of the
holders;
- the terms and conditions, if any, on which preferred securities may be
converted or exchanged;
- the terms and conditions, if any, upon which the related junior
subordinated debt securities may be distributed to holders of the
preferred securities;
- the voting rights, if any, of the holders of the preferred securities;
- whether the preferred securities are to be issued in book-entry form
and represented by one or more global securities and, if so, the
depository and any provisions for the transfer or exchange of the global
securities, if different from those described below under "-- Global
Securities"; and
- any other relevant rights, preferences, privileges, limitations or
restrictions of the preferred securities.
The applicable prospectus supplement will describe all of the material United
States federal income tax considerations applicable to the particular series of
preferred securities being offered.
GLOBAL SECURITIES
We may issue the preferred securities of a series in whole or in part in the
form of one or more global securities that will be deposited with or on behalf
of one or more depositaries identified in the applicable prospectus supplement.
The specific terms of the depositary arrangement with respect to any preferred
securities of a series and the rights and limitations upon owners of beneficial
interest in a global security will be described in the prospectus supplement. We
expect that the provisions set forth below will generally apply to depositary
arrangements.
Preferred securities represented by a global security deposited with or on
behalf of a depositary will be registered in the name of that depositary or its
nominee. Upon the issuance of a global security in registered form, the
depositary for the global security will credit, on its
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book-entry registration and transfer system, the respective principal amounts of
the preferred securities represented by the global security to the accounts of
institutions that have accounts with the depositary or its nominee. These
institutions are generally brokers, dealers, banks and other financial
institutions and are often referred to as participants. The accounts to be
credited will be designated by the underwriters or agents of the preferred
securities or by the applicable trust, if the preferred securities are offered
and sold directly by the trust. Ownership of beneficial interests in the global
securities will be limited to participants or persons that may hold interests
through participants. Any person who holds a brokerage account with a
participant may purchase the preferred securities through the participant.
Ownership of beneficial interests by participants in the global securities will
be shown on, and the transfer of any ownership interest will be effected only
through, records maintained by the depositary or its nominee for the global
security. Ownership of beneficial interests in global securities by persons that
hold through participants will be effected only through records maintained by
the applicable participant. Some insurance companies and other institutions are
required by law to hold their investment securities in definitive form, so an
investor may not be able to sell its preferred securities to those entities.
So long as the depositary for a global security or its nominee is the registered
owner of the global security, the depositary or the nominee, as the case may be,
will be considered the sole owner or holder of the preferred securities
represented by the global security for all purposes under the applicable trust
agreement. Except as set forth below, owners of beneficial interests in the
global security will not be entitled to have the preferred securities
represented by the global security registered in their names, will not receive
or be entitled to receive physical delivery of the preferred securities in
definitive form and will not be considered the owners or holders of the
preferred securities under the applicable trust agreement.
Payments on preferred securities registered in the name of or held by a
depositary or its nominee will be made in immediately available funds to the
depositary or its nominee, as the case may be, as the registered owner or the
holder of the global security representing the preferred securities. None of us,
the trusts, the property trustee, the Delaware trustee, any administrative
trustee, any paying agent or the registrar and transfer agent for the preferred
securities will have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in a global security for the preferred securities or for maintaining,
supervising or reviewing any records relating to the beneficial ownership
interests.
We expect that a depositary for the preferred securities of a series, upon
receipt of any payments in respect of a global security, will immediately credit
participants' accounts with payment in amounts proportionate to their respective
beneficial interests in the principal amount of the global security as shown on
the records of the depositary. We also expect that payments by participants to
owners of beneficial interests in the global security held through the
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in "street name," and will be the responsibility of each participant.
So long as the depositary for a global security or its nominee is the registered
owner of the global security, the depositary or its nominee, as the case may be,
will be entitled to direct the actions of the property trustee upon an event of
default. However, we expect that a depositary for the preferred securities of a
series, upon receiving notice of an event of default, will immediately solicit
the participants regarding any action to be taken. We also expect that the
participants will
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act in accordance with standing instructions and customary practices, as is now
the case with securities held for the accounts of customers registered in
"street name," and will, in turn, solicit the owners of the beneficial interests
regarding any action to be taken upon any event of default.
A global security may not be transferred, in whole or in part, except by the
depositary for the global security, to a nominee of the depositary or by a
nominee of the depositary to the depositary or another nominee of the depositary
or by the depositary or any nominee to a successor depositary or a nominee of
the successor depositary. If a depositary for the preferred securities of a
series is at any time unwilling or unable to continue as depositary and a
qualified successor depositary is not appointed by the administrative trustees
within 90 days or if at any time the depositary ceases to be a clearing agency
registered under the Exchange Act when the depositary is required to be
registered to act as the depositary and no qualified successor is appointed by
the administrative trustees within 90 days or if an event of default has
occurred and is continuing, then the applicable trust will issue the preferred
securities in definitive registered form in exchange for the global security or
global securities representing the preferred securities. In addition, the
administrative trustees may, at any time, determine not to have any preferred
securities represented by one or more global securities and, in that event, the
applicable trust will issue the preferred securities in definitive registered
form in exchange for the global securities representing the preferred
securities. In any of these instances, an owner of a beneficial interest in a
global security will be entitled to physical delivery in definitive form of the
preferred securities represented by the global security equal in principal
amount to its beneficial interest and to have the preferred securities
registered in its name.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Unless otherwise specified in an applicable prospectus supplement, each trust
agreement will provide that the trust will be dissolved:
- upon the expiration of the term of the trust;
- upon our bankruptcy, dissolution or liquidation;
- upon our direction to the property trustee to dissolve the trust and
distribute the related junior subordinated debt securities directly to
the holders of the preferred and common securities of the trust;
- upon the redemption of all of the common and preferred securities of
the trust in connection with the redemption of all of the related junior
subordinated debt securities; or
- upon entry of a court order for the dissolution of the trust.
Unless otherwise specified in an applicable prospectus supplement, in the event
of a dissolution as described above other than in connection with redemption,
after the trust satisfies all liabilities to its creditors as provided by
applicable law, each holder of the preferred or common securities of a trust
will be entitled to receive:
- the related junior subordinated debt securities in an aggregate
principal amount equal to the aggregate liquidation amount of the
preferred or common securities held by the holder; or
- if any distribution of the related junior subordinated debt securities
is determined by the property trustee not to be practical, cash equal to
the aggregate liquidation
33
amount of the preferred or common securities held by the holder, plus
accumulated and unpaid distributions to the date of payment.
If a trust cannot pay the full amount due on its preferred and common securities
because insufficient assets are available for payment, then the amounts payable
by the trust on its preferred and common securities will be paid on a pro rata
basis. However, if an event of default under the subordinated indenture has
occurred and is continuing with respect to any related junior subordinated debt
securities, the total amounts due on the preferred securities of the trust will
be paid before any distribution on the common securities of the trust is made.
EVENTS OF DEFAULT
The following will be events of default under each trust agreement:
- an event of default under the subordinated indenture occurs with
respect to any related junior subordinated debt securities;
- the trust fails to pay any redemption price on any preferred securities
on its due date;
- the trust fails to pay any distribution on the preferred securities
within 30 days from its due date;
- the trustees fail to perform any of the covenants in the trust
agreement, other than the covenants in the two prior bullet points, for
30 days after the holders of at least 25% of the aggregate liquidation
amount of the outstanding preferred securities give us and the trustees
written notice of the default and require that they remedy the breach
(however, the 30-day period may be extended by the holders of at least
the same aggregate liquidation amount of the outstanding preferred
securities that had initially given notice of the default); or
- the property trustee files for bankruptcy or other events of
bankruptcy, insolvency or reorganization occur with respect to the
property trustee and a successor property trustee is not appointed within
90 days.
If an event of default with respect to related junior subordinated debt
securities occurs and is continuing under the subordinated indenture, and the
subordinated indenture trustee or the holders of not less than 25% in principal
amount of the related junior subordinated debt securities outstanding fail to
declare the unpaid principal of and all other amounts with respect to all of the
related junior subordinated debt securities to be immediately due and payable,
the holders of at least 25% in aggregate liquidation amount of the outstanding
preferred securities will have the right to declare the unpaid principal of and
all other amounts with respect to the related junior subordinated debt
securities immediately due and payable by providing notice to Phelps Dodge, the
property trustee and the subordinated indenture trustee.
At any time after a declaration of acceleration has been made with respect to a
series of related junior subordinated debt securities and before a judgment or
decree for payment of the money due has been obtained, the holders of a majority
in aggregate liquidation amount of the preferred securities may rescind any
declaration of acceleration with respect to the related junior subordinated debt
securities and its consequences:
- if we deposit with the subordinated indenture trustee funds sufficient
to pay all overdue principal of and premium, interest and additional
amounts on the related junior
34
subordinated debt securities and any other amounts due to the
subordinated indenture trustee and the property trustee; and
- if all existing events of default with respect to the related junior
subordinated debt securities have been cured or waived except non-payment
of principal on the related junior subordinated debt securities that has
become due solely because of the acceleration.
The holders of a majority in liquidation amount of the preferred securities of a
trust may waive any past default under the subordinated indenture with respect
to the related junior subordinated debt securities, other than a default in any
payment on any related junior subordinated debt securities or a default with
respect to a covenant or provision that cannot be amended or modified without
the consent of the holder of each outstanding related junior subordinated debt
security affected. In addition, the holders of at least a majority in
liquidation amount of the preferred securities of a trust may waive any past
default under the trust agreement.
The holders of a majority in liquidation amount of the preferred securities of a
trust shall have the right to direct the time, method and place of conducting
any proceedings for any remedy available to the property trustee or to direct
the exercise of any trust or power conferred on the property trustee under the
applicable trust agreement.
A holder of preferred securities of a trust may institute a legal proceeding
directly against us without first instituting a legal proceeding against the
property trustee or any other person or entity, for enforcement of payment to
the holder of the principal of and any premium, interest or additional amounts
on related junior subordinated debt securities having a principal amount equal
to the aggregate liquidation amount of the preferred securities of the holder if
we fail to pay any amounts on the related junior subordinated debt securities
when payable. We and the subordinated indenture trustee may not amend or modify
the subordinated indenture to eliminate the preferred securities holders' right
to institute a direct legal action without the consent of the holders of each
outstanding preferred security.
NOTICE OF DEFAULT
If an event occurs which is or would become an event of default with respect to
any preferred securities, and the property trustee knows of the event, the
property trustee shall mail to the holders of the affected preferred securities
a notice of the default within 90 days, unless the default has been cured or
waived by the holders of the affected preferred securities. However, except in
the case of a default in the payment of any amounts due on preferred securities,
the property trustee may withhold the notice if and so long as the directors
and/or responsible officers of the property trustee determine in good faith that
withholding the notice is in the interest of the holders of the affected
preferred securities.
We and the administrative trustees of each trust are required to furnish
annually to the property trustee an officers' certificate to the effect that, to
the best knowledge of the officers providing the certificate, it is not in
default under the applicable trust agreement or, if there has been a default,
specifying the default and its status.
CONSOLIDATION, MERGER OR AMALGAMATION OF THE TRUST
None of the trusts may consolidate or merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to any entity, except as described
35
below. A trust may, without the consent of the holders of the outstanding
preferred securities, consolidate or merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized under the laws of any state if:
- the successor entity either:
- expressly assumes all of the obligations of the trust relating
to its preferred securities; or
- substitutes for the trust's preferred securities other
securities having substantially the same terms as the preferred
securities, so long as the substituted successor securities rank
the same as the preferred securities for distributions and
payments upon liquidation, redemption and otherwise;
- a trustee of the successor entity who has substantially the same powers
and duties as the property trustee of the trust is appointed;
- the preferred securities are listed or traded, or any substituted
successor securities will be listed upon notice of issuance, on the same
national securities exchange or other organization on which the preferred
securities are then listed or traded;
- the event does not cause the preferred securities or any substituted
successor securities to be downgraded by any national rating agency;
- the event does not adversely affect the rights, preferences and
privileges of the holders of the preferred securities or any substituted
successor securities in any material respect;
- the successor entity has a purpose substantially identical to that of
the trust;
- prior to the merger event, we have received an opinion of counsel from
a nationally recognized law firm stating that:
- the event does not adversely affect the rights, preferences and
privileges of the holders of the trust's preferred securities or
any successor securities in any material respect;
- following the event, neither the trust nor the successor entity
will be required to register as an investment company under the
Investment Company Act of 1940; and
- neither the trust nor the successor entity will be taxable as a
corporation or classified other than as a grantor trust for United
States federal income tax purposes; and
- We or our permitted transferee own all of the common securities of the
successor entity and the substituted successor securities are guaranteed
at least to the extent provided under the preferred securities guarantee.
In addition, unless all of the holders of the preferred securities of a trust
approve otherwise, the trust may not consolidate, amalgamate, merge with or
into, or be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into or replace it if the transaction
would cause the trust or the successor entity to be taxable as a corporation or
classified other than as a grantor trust for United States federal income tax
purposes.
36
VOTING RIGHTS
Unless otherwise specified in the prospectus supplement, the holders of the
preferred securities of a trust will have no voting rights except as discussed
below and under "-- Events of Default," "-- Amendment of the Trust Agreement,"
"-- Removal and Replacement of Trustees" and "Description of the Preferred
Securities Guarantees -- Amendments and Assignment," and as otherwise required
by law.
If any proposed amendment to a trust agreement provides for, or the
administrative trustees of a trust otherwise propose to effect:
- any action that would adversely affect the powers, preferences or
special rights of the preferred securities of the trust in any material
respect, whether by way of amendment to the applicable trust agreement or
otherwise; or
- the dissolution, winding-up or termination of the trust other than
pursuant to the terms of the applicable trust agreement,
then the holders of the preferred securities of the trust as a class will be
entitled to vote on the amendment or proposal. In that case, the amendment or
proposal will be effective only if approved by the holders of at least a
majority in aggregate liquidation amount of the preferred securities of the
trust.
Without obtaining the prior approval of the holders of at least a majority in
aggregate liquidation amount of the preferred securities of a trust, the
trustees of a trust may not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the subordinated indenture trustee for any related
junior subordinated debt securities or direct the exercise of any trust
or power conferred on the property trustee with respect to the preferred
securities of the trust;
- waive any default that is waivable under the subordinated indenture
with respect to any related junior subordinated debt securities;
- cancel an acceleration of the principal of any related junior
subordinated debt securities; or
- consent to any amendment, modification or termination of the
subordinated indenture or any related junior subordinated debt securities
where consent is required.
However, if a consent under the subordinated indenture requires the consent of
each affected holder of the related junior subordinated debt securities, then
the property trustee must obtain the prior consent of each holder of the
preferred securities of the trust. In addition, before taking any of the
foregoing actions, the property trustee shall obtain an opinion of counsel
experienced in such matters to the effect that, as a result of such actions, the
trust will not be taxable as a corporation or classified as other than a grantor
trust for United States federal income tax purposes. The property trustee will
notify all preferred securities holders of the trust of any notice of default
received from the subordinated indenture trustee with respect to the junior
subordinated debt securities held by the trust. Any required approval of the
holders of the preferred securities of a trust may be given at a meeting of the
holders of the preferred securities convened for the purpose or pursuant to
written consent.
The property trustee will cause a notice of any meeting at which holders of
securities are entitled to vote to be given to each holder of record of the
preferred securities at the holder's
37
registered address, or to any other address which has been specified in writing,
at least 15 days and not more than 90 days before the meeting.
Notwithstanding that the holders of the preferred securities of a trust are
entitled to vote or consent under any of the circumstances described above, any
of the preferred securities that are owned by us, the trustees of the trust or
any of our affiliates or any affiliate of the trustees of the trust, shall, for
purposes of any vote or consent, be treated as if they were not outstanding.
AMENDMENT OF THE TRUST AGREEMENT
Each trust agreement may be amended from time to time by us, the property
trustee and the administrative trustees of the trust without the consent of the
holders of the preferred securities of the trust to:
- cure any ambiguity, correct or supplement any provision which may be
inconsistent with any other provision or make provisions not inconsistent
with any other provisions with respect to matters or questions arising
under the applicable trust agreement;
- modify, eliminate or add to any provisions to the extent necessary to
ensure that the trust will not be taxable as a corporation or classified
as other than a grantor trust for United States federal income tax
purposes, to ensure that the junior subordinated debt securities held by
the trust are treated as indebtedness for United States federal income
tax purposes or to ensure that the trust will not be required to register
as an investment company under the Investment Company Act; or
- add to our covenants, restrictions or obligations, in each case to the
extent that the amendment does not adversely affect the interests of any
holder of the preferred securities of the trust in any material respect.
Other amendments to a trust agreement may be made by us, the property trustee
and the administrative trustees of a trust upon approval of the holders of at
least a majority in aggregate liquidation amount of the outstanding preferred
securities of the trust and receipt by the trustees of an opinion of counsel to
the effect that the amendment will not cause the trust to be taxable as a
corporation or classified as other than a grantor trust for United States
federal income tax purposes, affect the treatment of the junior subordinated
debt securities held by the trust as indebtedness for United States federal
income tax purposes or affect the trust's exemption from the Investment Company
Act.
Notwithstanding the foregoing, without the consent of each affected holder of
common or preferred securities of a trust, the applicable trust agreement may
not be amended to:
- change the amount or timing of any distribution on the common or
preferred securities of the trust or otherwise adversely affect the
amount of any distribution required to be made in respect of the
securities as of a specified date;
- restrict the right of a holder of any securities to institute suit for
the enforcement of any payment on or after the distribution date; or
- reduce the percentage of preferred securities required to waive
compliance with provisions of or defaults under the trust agreement.
38
In addition, no amendment may be made to a trust agreement if the amendment
would:
- cause the applicable trust to be taxable as a corporation or
characterized as other than a grantor trust for United States federal
income tax purposes;
- cause the junior subordinated debt securities held by the applicable
trust to not be treated as indebtedness for United States federal income
tax purposes;
- cause the applicable trust to be deemed to be an investment company
required to be registered under the Investment Company Act; or
- impose any additional obligation on any trustee of the applicable trust
without its consent.
REGISTRATION AND TRANSFER
If the preferred securities of a series are to be redeemed, the applicable trust
will not be required to register the transfer of or exchange any preferred
security selected for redemption, in whole or in part, except for the unredeemed
portion of a preferred security being redeemed in part.
PAYMENT AND PAYING AGENT
Unless the applicable prospectus supplement states otherwise, distributions on
the preferred securities will be payable, at the applicable trust's option, (1)
by check mailed to the address of the person entitled to the distribution as the
address appears in the security register for the preferred securities or (2) by
wire transfer to an account specified by the holder in accordance with
procedures established by the administrative trustees and acceptable to the
paying agent. Payments upon the redemption of the preferred securities will be
paid only against surrender of the preferred securities.
Unless the applicable prospectus supplement states otherwise, the property
trustee will act as paying agent for the preferred securities, and the principal
corporate trust office of the property trustee will serve as the office through
which the paying agent acts. The applicable trust may designate additional
paying agents, rescind the designation of any paying agents and/or approve a
change in the office through which any paying agent acts.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
For matters relating to compliance with the Trust Indenture Act, the property
trustee will have all of the duties and responsibilities of an indenture trustee
under the Trust Indenture Act.
First Union National Bank, which is the property trustee for each trust, also
serves as the guarantee trustee under each preferred securities guarantee
described below, the senior indenture trustee under the senior indenture and the
subordinated indenture trustee under the subordinated indenture. It is an
affiliate of First Union Trust Company, N.A., which serves as the Delaware
trustee for each trust.
We may from time to time maintain credit facilities and have other customary
banking relationships with First Union National Bank.
39
MISCELLANEOUS
The administrative trustees of each trust are authorized and directed to conduct
the affairs of and to operate the trust in such a way that:
- it will not be taxable as a corporation or classified as other than a
grantor trust for United States federal income tax purposes;
- the junior subordinated debt securities held by it will be treated as
our indebtedness for United States federal income tax purposes; and
- it will not be deemed to be an investment company required to be
registered under the Investment Company Act.
We and the trustees of each trust are authorized to take any action, so long as
it is consistent with applicable law, the applicable certificate of trust or
trust agreement, that we and the trustees of the trust determine to be necessary
or desirable for the above purposes.
Holders of the preferred securities of the trusts have no preemptive or similar
rights.
None of the trusts may incur indebtedness or place a lien on any of its assets.
GOVERNING LAW
Each trust agreement and the preferred securities of each trust will be governed
by and construed in accordance with the laws of the State of Delaware, without
regard to the conflict of laws provisions thereof.
40
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
The preferred securities guarantee for each trust will be issued pursuant to a
guarantee between us and First Union National Bank, as the guarantee trustee. We
summarize below all of the material features of the preferred securities
guarantees. The summary is not complete and is qualified in its entirety by all
of the provisions of the form of the applicable guarantees. That document is
incorporated by reference as an exhibit to the registration statement that
includes this prospectus, and we encourage you to read it. Each guarantee will
be qualified under the Trust Indenture Act of 1939. The terms of each preferred
securities guarantee will include those stated in the applicable guarantee and
those made part of the guarantee by reference to the Trust Indenture Act. Each
guarantee will be executed at the time any trust issues any preferred securities
and will be filed with the SEC on a Form 8-K or by a post-effective amendment to
the registration statement that includes this prospectus.
Each guarantee will be held by the guarantee trustee for the benefit of the
holders of the preferred securities of the applicable trust.
GENERAL
We will irrevocably and unconditionally agree to pay in full to the holders of
the preferred securities of each trust the guarantee payments described below,
except to the extent previously paid. We will pay the guarantee payments when
and as due, regardless of any defense, right of set-off or counterclaim that the
applicable trust may have or assert. The following payments, to the extent not
paid by a trust, will be covered by the applicable preferred securities
guarantee:
- any accumulated and unpaid distributions required to be paid on the
preferred securities of the trust, to the extent that the trust has funds
available to make the payment;
- the redemption price, including all accumulated and unpaid
distributions, to the extent that the trust has funds available to make
the payment; and
- upon a voluntary or involuntary dissolution, termination, winding-up or
liquidation of the trust, other than in connection with a distribution of
related junior subordinated debt securities to holders of the preferred
securities, the lesser of:
- the aggregate of the liquidation amounts specified in the
prospectus supplement for each preferred security of the trust
plus all accumulated and unpaid distributions on the preferred
security of the trust to the date of payment, to the extent the
trust has funds available to make the payment; and
- the amount of assets of the trust remaining available for
distribution to holders of its preferred securities upon
liquidation of the trust.
Our obligation to make a guarantee payment with respect to the preferred
securities of a trust may be satisfied by directly paying the required amounts
to the holders of the preferred securities of the trust or by causing the trust
to pay the amounts to the holders.
Each preferred securities guarantee will be subject to the subordination
provisions described below and will not apply to the payment of distributions
and other payments on the preferred securities of a trust when the trust does
not have sufficient funds legally and immediately available to make the
distributions or other payments.
41
ADDITIONAL AMOUNTS
We will make all payments under each of our preferred securities guarantees
without withholding or deduction for any taxes, fees, duties, assessments or
governmental charges imposed or levied by New York or any other jurisdiction in
which we or any of our successors is organized or resident for tax purposes or
any political subdivision or taxing authority of New York or any of those other
jurisdictions. If any withholding or deduction is required by law, we will pay
to the holder of the preferred securities additional amounts as may be necessary
so that every net payment made to the holder after the withholding or deduction
will not be less than the amount provided for in the applicable preferred
securities guarantee. We will not be required to pay any additional amounts as a
result of:
- the imposition of any tax, fee, duty, assessment or governmental charge
that would not have been imposed but for the fact that the holder or
beneficial owner of the preferred securities was a resident or national
of or had other specified connections with the relevant taxing authority
or presented the preferred securities for payment in the relevant taxing
jurisdiction unless it could not have been presented elsewhere;
- the imposition of any tax, fee, duty, assessment or governmental charge
that would not have been imposed but for the fact that the holder or
beneficial owner of the preferred securities presented the preferred
security for payment more than 30 days after it was due and payable;
- any estate, inheritance, gift, sale or other similar tax, assessment or
governmental charge; or
- the imposition of any tax, fee, duty, assessment or governmental charge
that would not have been imposed but for the fact that the holder or
beneficial owner of the preferred securities failed to comply, within 90
days, with any reasonable request by Phelps Dodge addressed to the holder
or beneficial owner relating to the provision of information or the
making of a declaration required by the taxing jurisdiction as a
precondition to exemption from all or part of the tax, fee, duty,
assessment or governmental charge.
SUBORDINATION
Each preferred securities guarantee will be unsecured indebtedness of our
company and will be subordinated in right of payment to all of our existing and
future senior indebtedness. Each preferred securities guarantee will be
effectively subordinated to any of our secured indebtedness to the extent of the
value of the assets securing the secured indebtedness. Each preferred securities
guarantee will also rank equally with any other preferred securities guarantee
issued by us. As a result, in the event of our bankruptcy, liquidation or
reorganization or upon an event of default under any of its preferred securities
guarantees, our assets will be available to pay our obligations on the preferred
securities guarantee only after all of our secured and senior indebtedness has
been paid in full in cash or other payment satisfactory to the holders of the
secured and senior indebtedness has been made. There may not be sufficient
assets remaining to pay amounts due on any or all of its the preferred
securities guarantees. Each preferred securities guarantee will also be
effectively subordinated to the indebtedness and other liabilities of us and our
subsidiaries. The incurrence of additional secured and senior indebtedness and
other liabilities by us or our subsidiaries could adversely affect our ability
to pay our obligations on the preferred securities guarantees.
42
Each preferred securities guarantee will constitute a guarantee of payment and
not of collection. This means that the holder of the guaranteed security may sue
us to enforce its rights under the preferred securities guarantee without first
suing any other person or entity.
AMENDMENTS AND ASSIGNMENT
No consent of the holders of the preferred securities of a trust will be
required with respect to any changes to the preferred securities guarantee that
do not adversely affect the rights of the holders of the preferred securities of
the applicable trust in any material respect. Other amendments to the preferred
securities guarantee may be made only with the prior approval of the holders of
at least a majority in aggregate liquidation amount of the preferred securities
of the applicable trust. All guarantees and agreements contained in the
preferred securities guarantee will be binding on our successors, assigns,
receivers, trustees and representatives and are for the benefit of the holders
of the preferred securities of the applicable trust.
EVENTS OF DEFAULT
An event of default under a preferred securities guarantee occurs if we:
- fail to make any required payments; or
- fail to perform any of our other obligations under the preferred
securities guarantee and such failure continues for 30 days.
The holders of at least a majority in aggregate liquidation amount of the
preferred securities of a trust will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the guarantee
trustee relating to the preferred securities guarantee of the trust or to direct
the exercise of any trust or power given to the guarantee trustee under the
preferred securities guarantee of the trust.
If and to the extent that we do not make payments on the related junior
subordinated debt securities the trust will not have funds available to make
payments of distributions or other amounts due on its preferred securities. In
those circumstances, a holder of the preferred securities of the trust will not
be able to rely upon the applicable preferred securities guarantee for payment
of these amounts. Instead, the holder may directly sue us under the junior
subordinated debt securities to collect its pro rata share of payments owed. If
a holder so sues us to collect payment, then we will assume the holder's rights
as a holder of preferred securities under the applicable trust agreement to the
extent we make a payment to the holder in any legal action.
The holders of at least a majority in liquidation amount of preferred securities
of a trust may waive any past event of default and its consequences.
INFORMATION CONCERNING GUARANTEE TRUSTEE
For matters relating to compliance with the Trust Indenture Act, the guarantee
trustee will have all of the duties and responsibilities of an indenture trustee
under the Trust Indenture Act. In case an event of default shall occur and be
continuing, the guarantee trustee must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. Before proceeding to exercise any right or power under any guarantee
agreement at the direction of the holders of preferred securities, the guarantee
trustee will be entitled to receive from the holders reasonable security or
indemnity against the costs, expenses and liabilities that it might incur.
43
First Union National Bank, which is the guarantee trustee, also serves as the
property trustee for each trust, the senior indenture trustee under the senior
indenture and the subordinated indenture trustee under the subordinated
indenture. It is an affiliate of First Union Trust Company, N.A., which serves
as the Delaware trustee for each trust.
TERMINATION OF THE PREFERRED SECURITIES GUARANTEES
Each preferred securities guarantee will terminate once the preferred securities
of the applicable trust are paid in full or redeemed in full or upon
distribution of the related junior subordinated debt securities to the holders
of the preferred securities of the trust in accordance with the applicable trust
agreement. Each preferred securities guarantee will continue to be effective or
will be reinstated if at any time any holder of preferred securities of the
applicable trust must restore payment of any sums paid under the preferred
securities or the preferred securities guarantee for the applicable trust.
GOVERNING LAW
Each preferred securities guarantee will be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflict of laws provisions thereof.
PLAN OF DISTRIBUTION
We may sell our common or preferred shares, senior or junior subordinated debt
securities or our warrants, stock purchase contracts or stock purchase units and
each trust may sell its preferred securities in one or more of the following
ways from time to time:
- through agents;
- to or through underwriters;
- through dealers; and
- directly to purchasers.
The applicable prospectus supplement for each series of securities will set
forth the terms of the offering of those securities, including the name or names
of any underwriters or agents. The prospectus supplement for each series of
securities will also set forth the purchase price of the securities, the
proceeds to us or the applicable trust from the sale, any underwriting discounts
or agency fees and other items constituting underwriters' or agents'
compensation, the initial public offering price, any discounts or concessions
allowed or reallowed or paid to dealers and the securities exchange, if any, on
which the securities may be listed.
If underwriters participate in selling the securities, the securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
Unless the applicable prospectus supplement states otherwise, the obligations of
the underwriters to purchase any series of securities will be subject to
conditions precedent, and the underwriters will be obligated to purchase all of
the series of securities if any are purchased.
44
Underwriters and agents may be entitled to indemnification against specific
civil liabilities under agreements entered into with us and/or a trust,
including liabilities under the Securities Act. Underwriters and agents may
engage in transactions with, or perform services for, us in the ordinary course
of business.
Each series of securities other than common stock will be a new issue of
securities and will have no established trading market. Any underwriters to whom
the securities are sold for public offering and sale may make a market in those
securities. However, those underwriters will not be obligated to do so and may
discontinue any market making at any time without notice.
EXPERTS
PricewaterhouseCoopers LLP, independent auditors, have audited our consolidated
financial statements and schedules included in our Annual Report on Form 10-K
for the year ended December 31, 2000, as set forth in their report, which is
incorporated by reference in this prospectus and the registration statement that
includes this prospectus. Our financial statements and schedules are
incorporated by reference in reliance on PricewaterhouseCoopers LLP's report,
given on their authority as experts in accounting and auditing.
VALIDITY OF THE SECURITIES
Richards, Layton & Finger, P.A., Wilmington, Delaware, will pass upon the
validity of the preferred securities for us and each trust. Debevoise &
Plimpton, New York, New York, will pass upon the validity of the common shares,
preferred shares, warrants, share purchase contracts or share purchase units,
senior debt securities, the junior subordinated debt securities and the
preferred securities guarantees for us.
45
WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
This prospectus is part of a registration statement that we filed with the SEC.
The registration statement, including the attached exhibits, contains additional
relevant information about us and the trusts. The rules and regulations of the
SEC allow us to omit some of the information included in the registration
statement from this prospectus. In addition, we file reports, proxy statements
and other information with the SEC under the Exchange Act. You can read and copy
any of this information at the following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2551
You may also obtain copies of this information by mail from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
at prescribed rates. You may obtain information on the operation of the SEC's
Public Reference Room in Washington, D.C. by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet web site that contains reports, proxy
statements and other information about issuers, like Phelps Dodge, that file
electronically with the SEC. The address of that site is http://www.sec.gov. The
SEC file number for documents filed by us under the Exchange Act is 1-82.
Our common stock is listed on the New York Stock Exchange, and its stock symbol
is "PD." You can inspect reports, proxy statements and other information
concerning Phelps Dodge at the offices of the New York Stock Exchange at 20
Broad Street, New York, New York 10005.
INCORPORATION BY REFERENCE
The rules of the SEC allow us to incorporate by reference information into this
prospectus. The information incorporated by reference is considered to be a part
of this prospectus, and information that we file later with the SEC will
automatically update and supersede this information. This prospectus
incorporates by reference the documents listed below:
(a) Our Annual Report on Form 10-K for the year ended December 31, 2000;
(b) Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001
and June 30, 2001; and
(c) all documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this prospectus.
You may request a copy of any filings referred to above (excluding exhibits), at
no cost, by contacting us at the following address prior to November 30, 2001:
2600 North Central Avenue, Phoenix, Arizona 85004-3089, Attention: Vice
President and Corporate Secretary. After November 30, 2001, our address will be:
1 North Central Avenue, Phoenix, Arizona 85004. Telephone requests may be
directed to such person at (602) 234-8100. Some of these filings are also
available on our Internet website. The address of that site is
http://www.phelpsdodge.com.
46
2,000,000 MEDS(SM)
[PHELPS DODGE CORPORATION LOGO]
6.75% Series A Mandatory Convertible Preferred Shares (MEDS)
PROSPECTUS SUPPLEMENT
June 6, 2002
JPMORGAN
---------------
MEDS(SM) is a service mark of JPMorgan.