Filed Pursuant to Rule 424(b)(5)
File No. 333-104627
PROSPECTUS SUPPLEMENT
(To Prospectus Dated July 15, 2003)
$150,000,000
(PHELPS DODGE CORPORATION LOGO)
6 1/8% SENIOR NOTES DUE 2034
------------------
The notes will bear interest at the rate of 6 1/8% per year. Interest on
the notes is payable on March 15 and September 15 of each year, beginning on
September 15, 2004. The notes will mature on March 15, 2034. We may redeem some
or all of the notes at any time. The redemption prices are discussed under the
caption "Description of the Notes--Optional Redemption."
The notes will be our senior obligations and will rank equally with all of
our other unsecured senior indebtedness.
------------------
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE S-3.
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.
------------------
PER SENIOR NOTE TOTAL
--------------- ---------------
Public Offering Price 99.874% $149,811,000
Underwriting Discount 0.875% $ 1,312,500
Proceeds to Phelps Dodge Corporation (before expenses) 98.999% $148,498,500
Interest on the notes will accrue from March 4, 2004 to date of delivery.
The underwriter expects to deliver the notes to purchasers on or about
March 4, 2004.
------------------
CITIGROUP
March 1, 2004
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
PROSPECTUS SUPPLEMENT
Forward-Looking Statements.................................. S-1
Phelps Dodge Corporation.................................... S-2
Risk Factors................................................ S-3
Use of Proceeds............................................. S-8
Capitalization.............................................. S-9
Ratio of Earnings to Fixed Charges.......................... S-10
Selected Financial Information.............................. S-11
Description of the Notes.................................... S-14
Underwriting................................................ S-17
Legal Matters............................................... S-18
PROSPECTUS
Cautionary Note............................................. 2
Phelps Dodge Corporation.................................... 3
The Trusts.................................................. 4
Use of Proceeds............................................. 5
Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred
Stock Dividends........................................... 6
Accounting Treatment........................................ 7
Description of the Common Shares............................ 8
Description of the Preferred Shares......................... 10
Description of Share Purchase Contracts and Share Purchase
Units..................................................... 18
Description of Depositary Shares............................ 19
Description of Warrants..................................... 21
Description of the Debt Securities.......................... 22
Description of the Preferred Securities..................... 33
Description of the Preferred Securities Guarantees.......... 42
Plan of Distribution........................................ 45
Experts..................................................... 46
Validity of the Securities.................................. 46
Where You Can Find More Information......................... 47
Incorporation by Reference.................................. 47
In connection with this offer, Citigroup Global Markets Inc. may effect
transactions with a view to supporting the market price of the notes at a level
higher than that which might otherwise prevail for a limited period after the
issue date. However, there may be no obligation on Citigroup Global Markets Inc.
to do this. Such stabilizing, if commenced, may be discontinued at any time and
must be brought to an end after a limited period.
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
of future events or results and are not guarantees of performance. We cannot
assure you that such statements will prove to be correct. All statements based
on future expectations rather than historical facts are forward-looking
statements and are subject to certain risks and uncertainties, including those
identified in "Management's Discussion and Analysis of Financial Condition and
Results of Operation" in our Annual Report on Form 10-K for the year ended
December 31, 2003, and in this prospectus supplement under the heading "Risk
Factors" below, which could cause actual results to differ materially from
historical or projected results. Forward-looking statements include, among other
things, discussions concerning our potential exposure to market risks and
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.
Factors that could cause actual results to differ materially include, among
others: risks and uncertainties relating to general U.S. and international
economic and political conditions; the cyclical and volatile price of copper and
other commodities; political and economic risks associated with foreign
operations; unanticipated ground and water conditions; geological problems;
metallurgical and other processing problems; availability of materials and
equipment; delays in the receipt of or failure to receive necessary government
permits; appeals of agency decisions or other litigation; volatility in the
price or availability of oil (the main feedstock for our carbon black
operations), diesel fuel, electricity and natural gas; currency fluctuations;
changes in laws or regulations or the interpretation and enforcement thereof
(including changes in treaties or laws governing international trade or
tariffs); the occurrence of unusual weather or operating conditions; force
majeure events; lower than expected ore grades; the failure of equipment or
processes to operate in accordance with specifications or expectations;
unanticipated difficulties consolidating acquired operations and obtaining
expected synergies; labor relations; accidents; delays in anticipated start-up
dates; environmental risks; the ability to obtain anticipated cost savings and
efficiencies; the ability to obtain satisfactory insurance coverages; the
ability to obtain surety bonds or other financial assurance for reclamation
obligations; and the results of financing efforts and financial market
conditions.
We caution you not to put undue reliance on forward-looking statements. We
disclaim any intent or obligation to update these forward-looking statements,
whether as a result of new information, future events or otherwise.
S-1
PHELPS DODGE CORPORATION
We are the world's second largest producer of copper, among the world's
largest carbon black and magnet wire producers, and are the world's largest
producer of continuous-cast copper rod. On October 16, 1999, we acquired Cyprus
Amax Minerals Company. As a result of that acquisition, we also became one of
the world's largest producers/processors of molybdenum and molybdenum products.
Phelps Dodge consists of two major divisions: Phelps Dodge Mining Company,
or PDMC, and Phelps Dodge Industries, or PDI.
PDMC includes our worldwide, vertically integrated copper operations from
mining through rod production, marketing and sales; molybdenum operations from
mining through conversion, marketing and sales; other mining operations and
investments; and worldwide mineral exploration, technology and development
programs. PDMC comprises 11 reportable segments -- Morenci, Bagdad/Sierrita,
Miami/ Bisbee, Chino/Cobre and Tyrone (located in the United States),
Candelaria/Ojos del Salado, Cerro Verde and El Abra (located in South America),
Manufacturing and Sales, Primary Molybdenum and Other Mining.
PDI is our manufacturing division comprising two reportable segments --
Specialty Chemicals and Wire and Cable. PDI produces engineered products
principally for the global energy, telecommunications, transportation and
specialty chemicals sectors. We produce specialty chemicals at operations in
North America, Europe, South America and Asia through Columbian Chemicals
Company, one of the world's largest producers of carbon black. Carbon black is a
reinforcing agent in natural and synthetic rubber that increases the service
life of tires, hoses, belts and other products for the rubber industry. We also
produce specialty carbon black for other industrial applications such as
pigments for printing, coatings, plastics and other non-rubber applications. Our
Wire and Cable segment has operations in the United States, Latin America, Asia,
Europe and Africa. This segment produces magnet wire, copper and aluminum energy
cables, telecommunications cables, specialty conductors and other products for
sale principally to original equipment manufacturers for use in electrical
motors, generators, transformers, medical applications and public utilities.
For more information about our business and properties, please see our
Annual Report on Form 10-K for the year ended December 31, 2003. More extensive
information concerning us is contained in that report. See "Incorporation by
Reference" in the accompanying prospectus.
RECENT DEVELOPMENTS
On March 1, 2004, we commenced cash tender offers for all of our (i) 6.625%
Notes due 2005, of which $217.96 million principal amount is outstanding and
(ii) 7.375% Notes due 2007, of which $175.49 million principal amount is
outstanding.
The purchase price for each debt security will be the price calculated at
the time of tender resulting from the yield to maturity equal to the
corresponding (i) fixed spread listed below plus (ii) the yield on the
applicable U.S. Treasury security listed below.
CUSIP
DESCRIPTION OF SECURITY NUMBER FIXED SPREAD U.S. TREASURY SECURITY
----------------------- --------- --------------- ----------------------------
6.625% notes due October 15,
2005............................. 23281PAD8 35 basis points 1.625% due October 31, 2005
7.375% notes due May 15, 2007...... 232809AD5 60 basis points 2.250% due February 15, 2007
On March 1, 2004, we announced that on March 31, 2004 we will redeem all of
our outstanding 8.375% debentures due 2023, of which $147.7 million principal
amount is outstanding, for an aggregate redemption price of $152.7 million
(excluding accrued and unpaid interest to and including March 30, 2004). We
expect to record a pre-tax charge in the first quarter of $3.9 million related
to the redemption.
S-2
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 of
Financial Condition and Results of Operation" in our Annual Report on Form 10-K
for the year ended December 31, 2003), the following factors should be carefully
considered prior to deciding whether or not to purchase the notes.
RISKS RELATING TO OUR BUSINESS
OUR INDEBTEDNESS COULD AFFECT OUR OPERATIONS.
At December 31, 2003, we had outstanding debt of approximately $1.96
billion, constituting approximately 39% 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 and is traded on the London
Metal Exchange (LME), the New York Commodity Exchange (COMEX) and the Shanghai
Futures Exchange (SHFE). The prices on these exchanges generally 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 we sell.
LME PRICES
LOW
YEAR HIGH --- AVERAGE
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........................................................ 0.77 0.64 0.71
2003........................................................ 1.05 0.70 0.81
2004 (through February 27).................................. 1.36 1.06 1.18
S-3
COMEX PRICES
YEAR HIGH LOW AVERAGE
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........................................................ 0.78 0.65 0.72
2003........................................................ 1.04 0.71 0.81
2004 (through February 27).................................. 1.35 1.06 1.18
On February 27, 2004, the closing spot price of copper cathode on the LME
and the COMEX was $1.35 and $1.34 per pound, respectively.
Any material change in the price we receive for copper, or in our cost of
copper production, has a significant effect on our results. Our share of
expected 2004 annual production is approximately 2.35 billion pounds of copper.
Accordingly, each 1 cent per pound change in our average annual realized copper
price, or in average annual production costs, causes a variation in annual
operating income before taxes of approximately $23 million. Consequently, a
sustained and uninterrupted period of unusually low copper prices could reduce
our ability to pay principal and interest on our debt, including the notes, 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 choose not to 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 for expected future mine
production as of February 27, 2004.
Molybdenum, like copper, is characterized by volatile and cyclical prices.
Prices are influenced by worldwide economic conditions, world supply/demand
balances, inventory levels, the currency exchange rate, production costs of U.S.
and foreign competitors, and other factors. Molybdenum consumption depends
heavily on worldwide demand from the 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. Platts Metals Week Dealer Oxide mean prices averaged $5.32 per pound for
2003, in contrast to 2002 and 2001 average prices of $3.77 per pound and $2.36
per pound, respectively. We received an average realized price of $5.79 per
pound for molybdenum products in 2003, reflecting the broad mix of upgraded
molybdenum products as well as technical grade molybdic oxide. Platts Metals
Week Dealer Oxide mean prices averaged $7.94 per pound in January 2004.
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. The principal sources of energy in our wire and
cable and specialty chemicals operations are purchased electricity and natural
gas. 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.
S-4
In response to the volatile energy markets in 2000 and 2001, we implemented
a power cost stabilization plan that has reduced the electricity-related costs
at our U.S. mining operations. Additionally, we entered into price protection
programs for our diesel fuel and natural gas purchases to protect us against
significant upward movements in energy prices while maintaining the flexibility
to participate in any favorable price movements. However, because energy is a
significant portion of our production costs, we could be negatively impacted by
future energy availability 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 INTENDED REDUCTIONS IN OUR COPPER PRODUCTION COSTS.
Our unit cost structure for copper production is higher than those of some
major producers, whose principal mines are located outside the United States,
due to lower ore grades, higher labor costs and, in some cases, stricter
regulatory requirements. Our long-term goal is to achieve an implied unit cost
of copper production for PDMC of $0.60 per pound, however we cannot assure you
that we will be able to meet this target. Should we fail to achieve our target,
our earnings may be lower or we may suffer losses.
ENVIRONMENTAL AND REGULATORY COMPLIANCE MAY IMPOSE SUBSTANTIAL COSTS ON US.
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. We also have potential liability for certain sites we currently
operate or formerly operated and for certain third-party sites under the federal
superfund law and similar state laws.
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 disposal of waste products
occurring as a result of mineral exploration and production. Compliance with
these laws and regulations imposes substantial costs on us and subjects us to
significant potential liabilities.
Costs associated with environmental liabilities and compliance have
increased over time, and we expect these costs to continue to increase 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.
Our mines in the southwestern United States are subject to various federal
and state mine closure and mined-land reclamation laws. The requirements of
these laws vary depending upon the jurisdiction. Over the last several years,
there have been substantial changes in these laws and regulations in the states
in which our mines are located, as well as the regulations promulgated by the
federal Bureau of Land Management for mining operations located on unpatented
mining claims located on federal public lands. These changes, which are
continuing, have resulted in increases in the estimated costs to meet new
closure and reclamation standards and requirements. As estimated costs increase,
our mines are required to post increasing amounts of financial assurance to
ensure the availability of funds to perform future closure and reclamation.
As a result of an agreement we reached with two New Mexico state agencies
in May and September 2003, the amount of required financial assurance for our
three New Mexico mines will increase from an interim total of approximately $116
million established in the late 1990's to a total of approximately $484 million.
Approximately 70 percent of such financial assurance either is, or is expected
to be, provided
S-5
in the form of third-party guarantees issued by us on behalf of our operating
subsidiaries and approximately 30 percent is expected to be provided in the form
of trust funds and collateral, including cash and liens on certain parcels of
our non-mining real estate located in New Mexico. In addition, we have committed
to expend at least $30 million on accelerated closure and reclamation work over
the next 10 years. The actual amount to be required for financial assurance is
subject to the completion of additional permitting procedures, final agency
determinations and the results of administrative appeals, all of which could
result in some changes to the closure and reclamation plans and further
increases in the cost estimates and our related financial assurance obligations.
Our Arizona mining operations have obtained approval of reclamation plans
for our mined land and approval of financial assurance totaling approximately
$105 million, but applications for approval of closure plans for groundwater
quality protection are pending for some portions of our mines. We also have
approved mined-land reclamation plans and financial assurance in place for our
two Colorado mines in the total amount of $62.5 million.
Most of the financial assurance provided for our mines in the southwestern
United States require a demonstration that we meet financial tests showing our
capability to perform the required closure and reclamation. Demonstrations of
financial capability have been made for all of the financial assurance for our
Arizona mines. The financial tests required for continued use of the financial
capability demonstrations and third-party guarantees include maintaining an
"investment grade" rating on our senior debt securities. If, in the future, we
should no longer maintain the investment grade rating, we will be required to
replace most of the financial assurance currently satisfied through financial
demonstrations and third-party guarantees with other forms of financial
assurance, such as letters of credit, real property or cash.
THE BUSINESS OF MINING IS SUBJECT TO MANY RISKS.
The business of mining is subject to a number of risks and hazards,
including but not limited to:
- 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 disputes;
- 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.
OUR OPERATIONS OUTSIDE THE UNITED STATES ARE SUBJECT TO THE RISKS OF DOING
BUSINESS IN FOREIGN COUNTRIES.
In 2003, our international operations provided 26% of PDMC's sales
(including sales through PDMC's U.S. based sales company). In addition, during
2003 our international operations (including international exploration)
contributed 63% of the division's operating income. In 2003, our international
S-6
operations provided 62% of PDI's sales and contributed 105% of the division's
operating income. 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 but not limited to:
- 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.
LEVELS OF OUR ORE RESERVES AND MILL AND LEACH STOCKPILES ARE SUBJECT TO
UNCERTAINTY.
There are a number of uncertainties inherent in estimating quantities of
reserves and copper recovered from stockpiles, including many factors beyond our
control. Ore reserve estimates are based upon engineering evaluations of assay
values derived from samplings of drill holes and other openings. The quantity of
copper contained in mill and leach stockpiles is based upon surveyed volumes of
mined material and daily production records. The reserve and recoverable copper
in stockpiles data incorporated by reference in this prospectus supplement and
the accompanying prospectus are estimates. The volume and grade of reserves
recovered, rates of production and recovered copper from stockpiles may be less
than we anticipate.
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 realize 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 resulting
in increased depreciation charges and potential 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.
RISKS RELATING TO THE NOTES
THE NOTES WILL BE SUBORDINATED TO ALL SECURED INDEBTEDNESS OF PHELPS DODGE
CORPORATION AND ALL LIABILITIES OF OUR SUBSIDIARIES.
The notes will be effectively subordinated to all of our existing and
future secured indebtedness to the extent of the value of the assets securing
that indebtedness. The notes will also be structurally subordinated to all
existing and future liabilities of our subsidiaries. At December 31, 2003,
outstanding debt of our subsidiaries (excluding inter-company debt) equaled
approximately $400 million.
NO MARKET FOR THE NOTES CURRENTLY EXISTS AND AN ACTIVE TRADING MARKET FOR THE
NOTES MAY NOT DEVELOP.
The notes are a new issue of securities for which no market currently
exists. If the notes 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 and other factors. A holder of notes
may not be able to sell them in the future, and any sale of notes may be at a
price equal to or less than the public offering price of the notes. An active
market may not develop or be maintained for the notes. We do not intend to apply
for listing of the notes on any securities exchange or to seek their admission
for trading on any inter-dealer quotation system. The underwriter currently
intends to make a market in the notes, subject to applicable law and
regulations. However, the underwriter is not obligated to do so and may
discontinue such market making at any time without notice.
S-7
USE OF PROCEEDS
We estimate the net proceeds to us from our sale of notes in this offering
will be approximately $148.2 million, after deducting underwriting discounts and
estimated offering expenses payable by us. We intend to use the net proceeds of
this offering to redeem all of our outstanding 8.375% debentures due 2023, of
which approximately $147.7 million principal amount is outstanding. Pending any
such application, the proceeds will be invested temporarily in short-term
marketable securities.
S-8
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2003,
on an actual basis, and on an as adjusted basis to give effect to the sale of
the notes (after reflecting the underwriting discount and payment of expenses)
and the use of the proceeds of the offering to redeem $147.7 million aggregate
principal amount of our outstanding 8.375% debentures due 2023.
No other change in our consolidated capitalization since December 31, 2003
is reflected in the table. The financial data as of December 31, 2003 in the
table have been derived from our audited consolidated financial statements at
and for the year ended December 31, 2003. The following data is qualified in its
entirety by our audited consolidated financial statements and other information
contained elsewhere in this prospectus supplement and the accompanying
prospectus or incorporated by reference.
AS OF DECEMBER 31, 2003
------------------------
(IN MILLIONS)
------------------------
ACTUAL AS ADJUSTED
--------- ------------
(UNAUDITED)
Short-term debt:
Short-term debt........................................... $ 50.5 $ 50.5
Current portion of long-term debt......................... 204.6 204.6
-------- --------
Total.................................................. 255.1 255.1
-------- --------
Long-term debt:
Notes and debentures (other than the notes)............... 1,703.9 1,555.1
Notes offered hereby...................................... -- 150.0
-------- --------
Total.................................................. 1,703.9 1,705.1
Minority interests in consolidated subsidiaries............. 70.2 70.2
Shareholders' equity........................................ 3,063.8 3,060.7(1)
-------- --------
Total long-term debt, minority interests in
consolidated subsidiaries, and shareholders' equity... 4,837.9 4,836.0
-------- --------
Total capitalization................................. $5,093.0 $5,091.1
======== ========
---------------
(1) The As Adjusted amount reflects a $3.9 million charge ($3.1 million after
tax) for the difference between the redemption price and the carrying value
of the 8.375% debentures due 2023.
S-9
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
each of the five years in the period ended December 31, 2003. The ratios for the
years ended December 31, 2001, 2000, and 1999 reflect financial statement
restatements that are discussed in further detail in our Annual Report on Form
10-K for the year ended December 31, 2002, as amended, and the related notes
thereto.
YEAR ENDED DECEMBER 31,
--------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges(a)....................... 1.5 (b) (c) 1.4 (d)
---------------
(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 we believe to be representative of
interest.
(b) Due to the loss recorded in 2002, the ratio coverage was less than 1:1. We
would have needed to generate additional earnings of $417.9 million to
achieve a coverage of 1:1 in 2002. The additional earnings to achieve a
coverage of 1:1 has changed from the amount previously reported in the
accompanying prospectus due to the adoption of SFAS No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections," which resulted in our reclassifying the 2002 third
quarter extraordinary item for debt extinguishment costs to a recurring
item.
(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 $240.4 million to
achieve a coverage of 1:1 in 2001.
(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 $465.3 million to
achieve a coverage of 1:1 in 1999.
S-10
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, 2003 has been derived from our consolidated financial statements, audited by
PricewaterhouseCoopers LLP, independent accountants, and previously filed with
the SEC. 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.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003(A) 2002(B) 2001(C) 2000(D) 1999(E)
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT FOR PER SHARE AND
PER POUND FOR COPPER PRICE)
STATEMENT OF OPERATIONS DATA
Sales and other operating revenues.......................... $4,142.7 3,722.0 4,002.4 4,525.1 3,114.4
Operating income (loss)..................................... 197.6 (209.3) (28.8) 268.2 (361.6)
Income (loss) before extraordinary item and cumulative
effect of accounting changes.............................. 18.1 (315.2) (329.5) 56.3 (278.3)
Net income (loss)........................................... 94.8 (338.1) (331.5) 56.3 (281.8)
Basic earnings (loss) per common share before extraordinary
item and cumulative effect of accounting changes.......... 0.06 (3.86) (4.19) 0.72 (4.51)
Diluted earnings (loss) per common share before
extraordinary item and cumulative effect of accounting
changes................................................... 0.06 (3.86) (4.19) 0.72 (4.51)
Basic earnings (loss) per common share...................... 0.92 (4.13) (4.22) 0.72 (4.57)
Diluted earnings (loss) per common share.................... 0.91 (4.13) (4.22) 0.72 (4.57)
BALANCE SHEET DATA (at period end)
Current assets.............................................. $1,790.0 1,428.2 1,531.2 1,542.7 1,735.7
Total assets................................................ 7,272.9 7,029.0 7,584.3 7,841.2 8,212.1
Total debt.................................................. 1,959.0 2,110.6 2,871.6 2,687.7 2,755.0
Long-term debt.............................................. 1,703.9 1,948.4 2,538.3 1,963.0 2,172.5
Shareholders' equity........................................ 3,063.8 2,813.6 2,730.1 3,184.4 3,328.9
Cash dividends declared per common share.................... -- -- 0.75 2.00 2.00
OTHER DATA
Net cash provided by operating activities................... $ 470.5 348.0 302.7 511.2 204.5
Capital expenditures and investments........................ 102.4 133.2 311.0 422.3 240.4
Net cash provided by (used in) investing activities......... (87.7) (140.3) (266.8) (274.2) 6.0
Net cash provided by (used in) financing activities......... (48.8) (244.8) 101.1 (221.2) (198.0)
Common dividends declared................................... -- -- 59.1 157.5 124.3
DIVISION RESULTS
PDMC operating income (loss)................................ $ 265.2 (65.0) (83.6) 276.0 (346.6)
PDI operating income........................................ 68.5 30.6 74.0 70.3 49.7
Corporate and Other operating loss.......................... (136.1) (174.9) (19.2) (78.1) (64.7)
-------- -------- -------- -------- --------
$ 197.6 (209.3) (28.8) 268.2 (361.6)
======== ======== ======== ======== ========
COPPER
Copper production (own production - thousand tons).......... 1,059.3 1,028.8 1,160.1 1,200.3 890.1
Copper sales (own production - thousand tons)............... 1,069.3 1,051.1 1,170.8 1,200.6 891.9
COMEX copper price (per pound)(f)........................... $ 0.81 0.72 0.73 0.84 0.72
LME copper price (per pound)(g)............................. $ 0.81 0.71 0.72 0.82 0.71
Implied full unit cost of copper production (per
pound)(h)................................................. $ 0.68 0.68 0.75 0.71 0.69
Commercially recoverable copper reserves (million tons)
Ore reserves.............................................. 19.5 19.6 22.1 23.1 23.7
Stockpiles and in-process inventories..................... 1.6 1.4 0.9 1.0 0.7
-------- -------- -------- -------- --------
21.1 21.0 23.0 24.1 24.4
======== ======== ======== ======== ========
S-11
---------------
All references to per share earnings or loss are based on diluted earnings
(loss) per share.
(a) Reported amounts include after-tax, special gains of $68.3 million, or 76
cents per common share, recognized for our acquisition of Heisei Minerals
Corporation's one-third interest in Chino Mines Company; $8.4 million, or 9
cents per common share, for cumulative effect of an accounting change due to
the adoption of SFAS No. 143; $6.4 million, or 7 cents per common share, for
the sale of a wire and cable cost investment; $2.4 million, or 3 cents per
common share, for the termination of a foreign postretirement benefit plan;
$1.0 million, or 1 cent per common share, for the tax benefit relating to
the net operating loss carryback prior to 2002; and $0.5 million, or 1 cent
per common share, for environmental insurance recoveries. These were
partially offset by special provisions of $27.0 million, or 30 cents per
common share, for environmental provisions; $8.0 million, or 9 cents per
common share, for a probable Texas franchise tax matter; $2.9 million, or 3
cents per common share, for historic Cyprus Amax Minerals Company legal
matters; $1.7 million, or 2 cents per common share, for asset impairment
charges at our Wire and Cable segment; and $0.9 million, or 1 cent per
common share, for goodwill impairment at our Wire and Cable segment.
(b) Reported amounts included after-tax, special charges of $146.5 million, or
$1.74 per common share, for asset impairment charges at Cobre of $115.5
million, Hidalgo of $12.9 million and Ajo of $18.1 million; $53.0 million,
or 63 cents per common share, for settlement of lawsuits related to Cyprus
Amax Minerals Company; $45.0 million, or 54 cents per common share, for a
binding arbitration award for Plateau Mining Corporation (a subsidiary of
Cyprus Amax Minerals Company); $26.6 million, or 32 cents per common share,
for early debt extinguishment costs; $23.0 million, or 27 cents per common
share, for restructuring activities; $22.9 million, or 27 cents per common
share, for cumulative effect on an accounting change due to the adoption of
SFAS No. 142; $14.0 million, or 17 cents per common share, for environmental
provisions; $7.0 million, or 8 cents per common share, for estimated
remaining closure cost obligation at Hidalgo; $1.2 million, or 1 cent per
common share, for the write-off of two cost basis investments; and $1.0
million, or 1 cent per common share, for the settlement of legal matters.
These were partially offset by $29.1 million, or 35 cents per common share,
for environmental insurance recoveries; $22.6 million, or 27 cents per
common share, for the sale of non-core parcel of real estate in New Mexico;
$13.0 million, or 15 cents per common share, for the release of deferred
taxes for Plateau Mining Corporation; and $66.6 million, or 79 cents per
common share, for the tax benefit relating to the net operating loss
carryback prior to 2002.
(c) Reported amounts included after-tax, special gains of $61.8 million, or 79
cents per common share, for environmental insurance recoveries; $39.9
million, or 51 cents per common share, for the gain on the sale of Sossego;
and $9.0 million, or 11 cents per common share, for an insurance settlement
associated with legal matters. These were partially offset by special
provisions of $57.9 million, or 74 cents per common share, to increase the
deferred tax valuation allowance; $31.1 million, or 40 cents per common
share, reflecting provisions for environmental costs; $29.8 million, or 38
cents per common share, for restructuring activities; $12.9 million, or 16
cents per common share, for investment impairments; $2.0 million, or 3 cents
per common share, for the cumulative effect of an accounting change due to
the adoption of SFAS Nos. 133 and 138; and $3.4 million, or 4 cents per
common share, for other items, net.
(d) Reported amounts included 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.
(e) Reported amounts included after-tax, special provisions of $222.5 million,
or $3.61 per common share, for asset impairments; $17.8 million, or 29 cents
per common share, reflecting provisions for environmental costs; $65.7
million, or $1.07 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. These were partially offset by a
special gain of $30.0 million, or 49 cents per common share,
S-12
for an adjustment of prior year's taxes. We acquired Cyprus Amax Minerals
Company on October 16, 1999.
(f) COMEX annual average spot price per pound - cathodes.
(g) LME annual average spot price per pound - cathodes.
(h) Based on PDMC's "all-in operating margin per pound of copper sold" (i.e.,
PDMC operating income (loss) excluding special items, divided by pounds of
copper sold from PDMC mines for its own account, plus or minus the LME
copper price).
S-13
DESCRIPTION OF THE NOTES
The following description of the particular terms of the notes offered by
this prospectus supplement supplements the description of the general terms and
provisions of the notes set forth in "Description of the Debt Securities" in the
accompanying prospectus (the notes are referred to in the accompanying
prospectus as the "debt securities"). You should carefully read the entire
prospectus and prospectus supplement to understand fully the terms of the notes.
All of the information set forth below is qualified in its entirety by the more
detailed explanation set forth in the accompanying prospectus.
The notes are a separate series of senior debt securities and will be
issued under an indenture, dated as of September 22, 1997, between Phelps Dodge
Corporation and Wachovia Bank, National Association, as successor trustee,
referred to as the "indenture." The notes will be issued in fully registered
form without coupons and in denominations of $1,000 and any integral multiple of
$1,000.
We may, without notice to or consent of the holders or beneficial owners of
the notes, issue additional notes having the same ranking, interest rate,
maturity and other terms as the notes. Any such additional notes issued could be
considered part of the same series of notes under the indenture as the notes.
The notes offered hereby will be initially limited to $150,000,000
aggregate principal amount and will mature on March 15, 2034. Each note will
bear interest at the rate of 6 1/8% per annum. The notes will bear interest from
March 4, 2004 or from the most recent interest payment date to which interest
has been paid or provided for, payable semiannually on March 15 and September 15
of each year, beginning on September 15, 2004. Interest shall be paid to the
person in whose name such note is registered at the close of business on the
March 1 or September 1, as the case may be, preceding such interest payment
date. Interest will be computed on the basis of a 360-day year, consisting of
twelve 30-day months.
If either a date for payment of principal or interest on the notes or the
maturity date of the notes falls on a day that is not a business day, the
related payment of principal or interest will be made on the next succeeding
business day as if made on the date the payment was due. No interest will accrue
on any amounts payable for the period from and after the date for payment of
principal or interest on the notes or the maturity date of the notes. For these
purposes, "business day" means any day which is a day on which commercial banks
settle payments and are open for general business in New York City.
OPTIONAL REDEMPTION
We may redeem the notes at any time in accordance with the redemption
provisions described under "Description of the Debt Securities--Redemption of
Debt Securities" in the accompanying prospectus. The redemption price will equal
any accrued and unpaid interest plus the greater of:
- 100% of the principal amount of the notes to be redeemed, and
- a "make whole" amount, which will be calculated as described below.
The "make whole" amount will equal the sum of the present values of the
Remaining Scheduled Payments discounted to the redemption date, on a semiannual
basis, at the Treasury Yield, plus 25 basis points.
"Remaining Scheduled Payments" means the remaining scheduled payments of
the principal and interest that would be due after the redemption date of a note
if such note were not redeemed. However, if the redemption date is not a
scheduled interest payment date, the amount of the next succeeding scheduled
interest payment on such note will be reduced by the amount of interest accrued
on such note to such redemption date.
"Treasury Yield" means, with respect to any redemption date, the annual
rate equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
the redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable to
the remaining term of the notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices, for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount), on the third
business day preceding such redemption date, as set forth in the most
S-14
recent Federal Reserve Statistical Release H.15(519) or (ii) if such release (or
any successor release), is not published, or does not contain such prices on
such business day, (A) the average of the Reference Treasury Dealer Quotations
for such redemption date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations, or (B) if the Independent Investment Banker obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such Reference Treasury Dealer Quotations.
"Independent Investment Banker" means an independent investment banking
institution of international standing appointed by us.
"Reference Treasury Dealer" means any primary U.S. Government securities
dealer in New York City selected by the Independent Investment Banker after
consultation with us.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Independent Investment Banker, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Independent Investment Banker by the
Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such
redemption date.
DEFEASANCE
The notes are subject to general defeasance or covenant defeasance, at any
time, at our option, in accordance with the provisions contained in Sections
4.3, 4.4, 4.5 and 4.6 of the indenture, provided that we satisfy the stated
conditions. Among other conditions, we must deposit with the trustee as trust
funds the entire amount sufficient to pay all notes at maturity and deliver to
the trustee an opinion of counsel that holders of the notes shall be subject
only to the same Federal income tax that they would have incurred had we not
elected to make the defeasance and an officer's certificate that we have
fulfilled each of the conditions precedent to the defeasance.
BOOK-ENTRY; DELIVERY AND FORM
The notes will be represented by one or more global notes that will be
deposited with and registered in the name of DTC or its nominee. We will not
issue certificated notes, except in the limited circumstances described below.
Transfers of ownership interests in the global notes will be effected only
through entries made on the books of DTC participants acting on behalf of
beneficial owners. You, as a beneficial owner of notes, will not receive
certificates representing ownership interests in the global notes, except in the
event that use of the book-entry system for the notes is discontinued. You will
not receive written confirmation from DTC of your purchase. The direct or
indirect participants through whom you purchased your notes should send you
written confirmations providing details of your transactions and periodic
statements of your holdings. The direct and indirect participants are
responsible for keeping accurate account of the holdings of their customers like
you. 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 own, transfer or pledge beneficial interests in
the global notes.
So long as DTC or its nominee is the registered owner and holder of the
global notes, DTC or its nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by the global notes for all
purposes under the indenture relating to the notes. Except as provided below,
you, as a beneficial owner of interests in the global notes, will not be
entitled to have notes registered in your name, will not receive or be entitled
to receive physical delivery of notes in definitive form and will not be
considered the owner or holder thereof under the indenture. Accordingly, you, as
a beneficial owner, must rely on the procedures of DTC and, if you are not a DTC
participant, on the procedures of the DTC participants through which you own
your interest to exercise any rights of a holder under the indenture.
Neither we, the trustee, nor any agent of ours or agent of the trustee will
have any responsibility or liability for any aspect of the records relating to,
or payments made on account of, beneficial ownership interests in global notes
or for maintaining, supervising or reviewing any records relating to the
beneficial ownership interests. DTC's practice is to credit the accounts of
DTC's direct participants with payment in amounts proportionate to their
respective holdings in principal amount of beneficial interest in a security as
shown on the records of DTC, unless DTC has reason to believe that it will not
receive payment on the payment date. The underwriters will initially designate
the accounts to be credited. Beneficial owners may
S-15
experience delays in receiving distributions on their notes because
distributions will initially be made to DTC, and they must be transferred
through the chain of intermediaries to the beneficial owner's account. Payments
by DTC participants to you will be the responsibility of the DTC participant and
not of DTC, the trustee or us. Accordingly, we and any paying agent will have no
responsibility or liability for: (a) any aspect of DTC's records relating to, or
payments made on account of, beneficial ownership interests in notes represented
by a global securities certificate; (b) any other aspect of the relationship
between DTC and its participants or the relationship between those participants
and the owners of beneficial interests in a global securities certificate held
through those participants; or (c) the maintenance, supervision or review of any
of DTC's records relating to those beneficial ownership interests.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants and by direct
participants and indirect participants to beneficial owners, will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
We have been informed that, under DTC's existing practices, if we request
any action of holders of senior notes, or an owner of a beneficial interest in a
global security such as you, desires to take any action that a holder of notes
is entitled to take under the indenture, DTC would authorize the direct
participants holding the relevant beneficial interests to take such action, and
those direct participants and any indirect participants would authorize
beneficial owners owning through those direct and indirect participants to take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
DTC has provided us with the following information and neither we nor the
underwriters take any responsibility for its accuracy: DTC, the world's largest
depository, is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act. DTC holds and provides asset servicing for over 2 million issues of U.S.
and non-U.S. equity issues, corporate and municipal debt issues, and money
market instruments from over 85 countries that its direct participants deposit
with DTC. DTC also facilitates the post-trade settlement among direct
participants of sales and other securities transactions in deposited securities,
through electronic computerized book-entry transfers and pledges between direct
participants' accounts. This eliminates the need to exchange certificated
securities. Direct participants include both U.S. and non-U.S. securities
brokers and dealers, banks, trust companies, clearing corporations, and certain
other organizations.
DTC is a wholly-owned subsidiary of The Depository Trust & Clearing
Corporation, or DTCC. DTCC, in turn, is owned by a number of direct participants
of DTC and members of the National Securities Clearing Corporation, Government
Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets
Clearing Corporation (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC),
as well as by the New York Stock Exchange Inc., the American Stock Exchange, LLC
and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others such as both U.S. and
non-U.S. securities brokers and dealers, banks, trust companies, and clearing
corporations that clear through or maintain a custodial relationship with a
direct participant, either directly or indirectly. DTC has Standard & Poor's
highest rating: AAA. The DTC rules applicable to its participants are on file
with the SEC. More information about DTC can be found at www.dtcc.com.
CLEARANCE AND SETTLEMENT PROCEDURES
Initial settlement for the notes will be made in immediately available
funds. Secondary market trading between DTC participants will occur in the
ordinary way in accordance with DTC rules and will be settled in immediately
available funds using DTC's Same Day Funds Settlement System.
S-16
UNDERWRITING
Citigroup Global Markets Inc. is acting as sole underwriter of the
offering. Subject to the terms and conditions stated in the underwriting
agreement dated the date of this prospectus supplement, the underwriter has
agreed to purchase, and we have agreed to sell to the underwriter, the principal
amount of notes set forth opposite the underwriter's name.
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
----------- ------------
Citigroup Global Markets Inc................................ $150,000,000
------------
Total.................................................. $150,000,000
============
The underwriting agreement provides that the obligations of the underwriter
to purchase the notes included in this offering are subject to approval of legal
matters by counsel and to other conditions. The underwriter is obligated to
purchase all the notes if it purchases any of the notes.
The underwriter proposes to offer some of the notes directly to the public
at the public offering price set forth on the cover page of this prospectus
supplement and some of the notes to dealers at the public offering price less a
concession not to exceed 0.50% of the principal amount of notes. The underwriter
may allow, and dealers may reallow, a concession not to exceed 0.25% of the
principal amount of notes on sales to other dealers. After the initial offering
of the notes to the public, the underwriter may change the public offering price
and concessions.
The following table shows the underwriting discounts and commissions that
we are to pay to the underwriter in connection with this offering (expressed as
a percentage of the principal amount of the notes).
PAID BY
PHELPS DODGE
------------
Per note.................................................... 0.875%
In connection with the offering Citigroup may purchase and sell notes in
the open market. These transactions may include over-allotment, syndicate
covering transactions and stabilizing transactions. Over-allotment involves
syndicate sales of notes in excess of the principal amount of notes to be
purchased by the underwriter in the offering, which creates a syndicate short
position. Syndicate covering transactions involve purchases of the notes in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of notes in the open market while the offering is in progress.
Any of these activities may have the effect of preventing or retarding a
decline in the market price of the notes. They may also cause the price of the
notes to be higher than the price that would otherwise exist in the open market
in the absence of these transactions. The underwriter may conduct these
transactions in the over-the-counter market, or otherwise. If the underwriter
commences any of these transactions, it may discontinue them at any time.
We estimate that our total expenses of this offering will be $270,000.
The underwriter has performed investment banking and advisory services for
us from time to time for which it has received customary fees and expenses. The
underwriter may, from time to time, engage in transactions with and perform
services for us in the ordinary course of its business.
A prospectus in electronic format may be made available on the website
maintained by the underwriter. In addition, notes may be sold by the underwriter
to securities dealers who resell notes to online brokerage account holders.
We have agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriter may be required to make because of any of those liabilities.
S-17
LEGAL MATTERS
The validity of the notes offered will be passed upon for Phelps Dodge
Corporation by Debevoise & Plimpton LLP, 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-18
$750,000,000
[PHELPS DODGE CORPORATION LOGO]
COMMON SHARES
PREFERRED SHARES
SHARE PURCHASE CONTRACTS
SHARE PURCHASE UNITS
DEPOSITARY SHARES
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 July 15, 2003.
CAUTIONARY NOTE
GENERAL
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission utilizing a "shelf" registration process.
Under this shelf process, we may sell the securities described in the prospectus
from time to time. This prospectus provides you with a general description of
the securities we may offer. We may also add, update or change information
contained in this prospectus through one or more supplements to this prospectus.
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 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 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 one of
the world's largest producers and processors of molybdenum and molybdenum
products, the world's largest producer of 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: Phelps Dodge Mining Company and
Phelps Dodge Industries.
PHELPS DODGE MINING COMPANY
Phelps Dodge Mining Company is our international business division that
comprises our vertically integrated copper operations from mining through rod
production, primary molybdenum operations through conversion, marketing and
sales, and worldwide exploration in 11 reportable segments. Our copper mines
comprise five reportable segments in the United States (Morenci,
Bagdad/Sierrita, Miami/Bisbee, Chino/Cobre and Tyrone) and three reportable
segments in South America (Candelaria, Cerro Verde and El Abra). The other
reportable segments are Manufacturing and Sales, Primary Molybdenum and Other
Mining.
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 reportable segments are Specialty Chemicals and Wire and
Cable.
See the description of our business and properties included in our Annual
Report on Form 10-K for the year ended December 31, 2002, as amended by our
Forms 10-K/A. More extensive information concerning us is contained in such
report. See "Incorporation by Reference" in this prospectus.
Our principal executive offices are located at One North Central Avenue,
Phoenix, Arizona 85004-4415, and our telephone number is (602) 366-8100.
3
THE TRUSTS
We created each trust as a Delaware statutory 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 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:
- Wachovia Bank, National Association, which will act as the property
trustee;
- Wachovia Trust Company, National Association, 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 trust preferred securities because the
trusts will not have 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, One North Central Avenue, Phoenix, Arizona 85004-4415, and the
telephone number of each trust will be 602-366-8100.
4
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 our junior subordinated
debt securities.
5
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth our ratio of earnings to fixed charges and
earnings to combined fixed charges and preferred stock dividends for the three
months ended March 31, 2003 and for each of the five years in the period ended
December 31, 2002. The ratios for the years ended December 31, 2001, 2000, 1999
and 1998 reflect financial statement restatements that are discussed in further
detail in our Annual Report on Form 10-K for the year ended December 31, 2002,
as amended, and the related notes thereto.
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED ------------------------------------------
MARCH 31, 2003 2002 2001 2000 1999 1998
------------------ ---------- ---- ---- ---- ----
Ratio of Earnings to Fixed
Charges(a).................. 0.9 (b) (d) 1.4 (e) 4.3
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividend
Requirements(a)............. 0.8 (c) N/A N/A N/A N/A
---------------
(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. For purposes of calculating the ratio of earnings to combined
fixed charges and preferred stock dividends, the preferred stock dividend
requirements were assumed to be equal to the pre-tax earnings which would be
required to cover such dividend requirements. The amount of pre-tax earnings
required to cover such preferred stock dividends was computed using the tax
rate for each applicable year. 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) Due to the loss recorded in 2002, the ratio coverage was less than 1:1.
Phelps Dodge would have needed to generate additional earnings of $386.6
million to achieve coverage of 1:1 in 2002.
(c) Due to the loss recorded in 2002, the ratio coverage was less than 1:1.
Phelps Dodge would have needed to generate additional earnings of $395.7
million to achieve a coverage of 1:1 in 2002.
(d) Due to the loss recorded in 2001, the ratio coverage was less than 1:1. We
would have needed to generate additional earnings of $240.4 million to
achieve a coverage of 1:1.
(e) Due to the loss recorded in 1999, the ratio coverage was less than 1:1. We
would have needed to generate additional earnings of $465.3 million to
achieve a coverage of 1:1 in 1999.
6
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 classification of the
preferred securities of each trust is dependent upon the type of security
issued. The preferred securities of each trust will be classified as a separate
line item in our consolidated balance sheet following long-term debt but
preceding shareholders' equity, 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 other
non-operating expense 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 investments in our junior subordinated debt
securities, the principal amount, interest rate and maturity date of the junior
subordinated debt securities held.
7
DESCRIPTION OF THE COMMON SHARES
GENERAL
Pursuant to our Restated Certificate of Incorporation, as amended, 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 Mellon 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, as amended, 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 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.
8
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, our board of directors may delay the
distribution date, as long as no person or group has acquired 20% or more of our
outstanding shares.
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 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 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.
9
DESCRIPTION OF THE PREFERRED SHARES
We are authorized by our Restated Certificate of Incorporation, as amended,
to issue 6 million preferred shares having a par value of $1.00 per share, of
which 2 million have been designated 6.75% Series A Mandatory Convertible
Preferred Shares and 400,000 have been designated Junior Participating
Cumulative Preferred Shares and are described below. As of today, we have issued
2 million 6.75% Series A Mandatory Convertible Preferred Shares and no other
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, as amended, 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, as amended, 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;
- 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;
10
- 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.
6.75% SERIES A MANDATORY CONVERTIBLE PREFERRED SHARES
General
Our Restated Certificate of Incorporation, as amended, authorizes the
issuance of 6,000,000 preferred shares. Our 6.75% Series A Mandatory Convertible
Preferred Shares (the "Mandatory Convertible Preferred Shares") constitute a
single series consisting of 2 million preferred shares. We summarize below the
material features of our Mandatory Convertible Preferred Shares. The summary is
not complete and is qualified in its entirety by the terms of the Certificate of
Amendment to our Restated Certificate of Incorporation containing the terms of
our Mandatory Convertible Preferred Shares. Our Restated Certificate of
Incorporation and the Certificate of Amendment are filed as exhibits to the
registration statement that includes this prospectus, and we encourage you to
read them.
Ranking
The Mandatory Convertible Preferred Shares rank with respect to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the Corporation (i) senior to (a) the Common Shares, (b) the Junior
Participating Cumulative Preferred Shares, and (c) to each other class or series
of stock of Phelps Dodge, the terms of which do not expressly provide that it
ranks senior to or on a parity with the Mandatory Convertible Preferred Shares
as to dividend distributions and distributions upon the liquidation, winding-up
or dissolution of Phelps Dodge and (ii) junior to any equity security, the terms
of which expressly provide that such class or series will rank senior to the
Mandatory Convertible Preferred Shares as to dividend distributions and
distributions upon liquidation, winding-up or dissolution of Phelps Dodge.
Dividends
General
Dividends on our Mandatory Convertible Preferred Shares will be payable
quarterly, if declared, on the 15th calendar day (or the following business day
if the l5th is not a business day) of August, November, February and May of each
year at the annual rate of $6.75 per Mandatory Convertible
11
Preferred Share. The amount of dividends payable on each of our Mandatory
Convertible Preferred Shares 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.
We are obligated to pay a dividend on our Mandatory Convertible Preferred
Shares 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.
Dividends on our Mandatory Convertible Preferred Shares 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 Mandatory Convertible Preferred
Shares 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 Mandatory Convertible Preferred Shares any dividend in
excess of the full dividends on the Mandatory Convertible Preferred Shares that
are payable as described in the preceding paragraphs.
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
Mandatory Convertible Preferred Shares 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 Mandatory Convertible Preferred
Shares 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 Mandatory Convertible Preferred
Shares 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 Mandatory Convertible Preferred Shares 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 Mandatory Convertible Preferred Shares
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 Mandatory Convertible Preferred Shares as to payment
of dividends and the distribution of assets upon winding up.
Automatic Conversion of Our Mandatory Convertible Preferred Shares
Our Mandatory Convertible Preferred Shares, unless previously converted at
the option of a holder thereof 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.
The conversion rate, which is the number of newly issued common shares
issuable upon conversion of our Mandatory Convertible Preferred Shares 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
12
threshold appreciation price, then the conversion rate will be 2.083 of
our common shares per Mandatory Convertible Preferred Share.
- 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 Mandatory
Convertible Preferred Share.
- 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
Mandatory Convertible Preferred Share.
Conversion
Conversion into common shares will occur on August 15, 2005, unless a
holder has converted at his or her option prior to the conversion date, as
described below, 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 such holder has converted through an early conversion
as described below.
Prior to the date on which our common shares are issued on conversion, our
common shares underlying our Mandatory Convertible Preferred Shares will not be
deemed to be outstanding for any purpose and a holder thereof 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 Mandatory
Convertible Preferred Shares.
Conversion at the Option of Holder
The holders of our Mandatory Convertible Preferred Shares 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 Mandatory Convertible Preferred Shares, subject to
adjustment as described below.
With limited exceptions, upon any optional conversion of our Mandatory
Convertible Preferred Shares, we will make no payment or allowance for unpaid
dividends, whether or not in arrears, on those Mandatory Convertible Preferred
Shares, or for dividends or distributions on our common shares issued upon
conversion.
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 Mandatory Convertible Preferred Shares
will have the right to convert our Mandatory Convertible Preferred Shares at the
conversion rate in effect immediately before the cash merger. We refer to this
right as the "merger early conversion right."
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);
13
(5) distributions consisting exclusively of cash to all holders of our
common shares in an aggregate amount that, when combined with certain other cash
distributions and the fair value of tender or exchange offer payments 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 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 certain other cash distributions and the
fair value of tender or exchange offer payments within the preceding 12 months,
exceeds 15% of our aggregate market capitalization on the date of expiration of
such tender or exchange offer.
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
Mandatory Convertible Preferred Share then outstanding would, without the
consent of the holders of our Mandatory Convertible Preferred Shares, become
convertible into such other securities, cash or property instead of our common
shares.
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 according to a specified
formula.
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.
Each adjustment to the conversion rate will result in a corresponding
adjustment to the number of our common shares issuable upon conversion of our
Mandatory Convertible Preferred Shares.
Liquidation Rights
In the event of the voluntary or involuntary liquidation, dissolution or
winding up of Phelps Dodge, the holders of our Mandatory Convertible Preferred
Shares 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
Mandatory Convertible Preferred Shares -- 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 Mandatory Convertible Preferred
Shares of the full preferential amounts provided above, the holders of our
Mandatory Convertible Preferred Shares 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
Mandatory Convertible Preferred Shares 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,
14
no such distribution will be made on account of any other shares ranking equally
with our Mandatory Convertible Preferred Shares as to the distribution of assets
upon that liquidation, dissolution or winding up unless a pro rata distribution
is made on our Mandatory Convertible Preferred Shares, 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 Mandatory Convertible Preferred Shares 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 Mandatory
Convertible Preferred Shares, or any other class or series of preferred shares
ranking equally with our Mandatory Convertible Preferred Shares 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
Mandatory Convertible Preferred Shares -- voting as a single class with the
holders of shares of any other class of preferred shares ranking equally with
our Mandatory Convertible Preferred Shares 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 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 Mandatory Convertible
Preferred Shares.
We will not, without the approval of the holders of at least 66 2/3% of our
Mandatory Convertible Preferred Shares 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 Mandatory Convertible Preferred
Shares.
We will not, without the approval of the holders, voting together as a
single class, of at least 66 2/3% of our Mandatory Convertible Preferred Shares
then outstanding and all shares of any other series of our preferred shares
ranking equally with our Mandatory Convertible Preferred Shares 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 Mandatory
Convertible Preferred Shares 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 Mandatory Convertible Preferred
Shares,
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 Mandatory Convertible Preferred
Shares.
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 Mandatory
Convertible Preferred Shares, that number of our common shares as shall from
time to time be issuable upon the conversion of all our Mandatory Convertible
Preferred Shares then outstanding. Our Mandatory Convertible Preferred Shares
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.
15
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, as amended. 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.
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
16
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 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.
17
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 and/or preferred
shares at a future date or dates. The price per share of our common shares or
preferred 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:
- share purchase contract; and
- one or more of the following, each of which secures the holders'
obligations to purchase the common shares and/or preferred 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.
18
DESCRIPTION OF DEPOSITARY SHARES
We summarize below the general terms and provisions of the depositary
shares that may be offered by this prospectus. When we offer to sell depositary
shares, we will describe the particular terms of the depositary shares 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 depositary
shares. Reference will be made to the deposit agreement relating to such
depositary shares. A copy of the form of deposit agreement will be filed with
the SEC as an exhibit to a report on Form 8-K or by a post-effective amendment
to the registration statement that includes this prospectus, and we encourage
you to read them.
We may offer depositary shares representing receipts for fractional
interests in senior debt securities, junior subordinated debt securities or
preferred shares. In this case, we will issue receipts for depositary shares,
each of which will represent a fraction of a senior debt security, junior
subordinated debt security or share of a particular series of preferred shares,
as the case may be.
We will deposit the senior debt securities, junior subordinated debt
securities or shares of any series of preferred shares represented by depositary
shares under a deposit agreement between us and a depositary which we will name
in the applicable prospectus supplement. Subject to the terms of the deposit
agreement, as an owner of a depositary share you will be entitled, in proportion
to the applicable fraction of a senior debt security, junior subordinated debt
security or preferred share represented by the depositary share, to all the
rights and preferences of the senior debt security, junior subordinated debt
security or preferred share, as the case may be, represented by the depositary
share, including, as the case may be, interest, dividend, voting, redemption,
sinking fund, repayment at maturity, subscription and liquidation rights.
INTEREST, DIVIDENDS AND OTHER DISTRIBUTIONS
The depositary will distribute all payments of interest, cash dividends or
other cash distributions received on the senior debt securities, junior
subordinated debt securities or preferred shares, as the case may be, to you in
proportion to the number of depositary shares that you own.
In the event of a payment of interest or distribution other than in cash,
the depositary will distribute property received by it to you in an equitable
manner, unless the depositary determines that it is not feasible to make a
distribution. In that case the depositary may sell the property and distribute
the net proceeds from the sale to you.
REDEMPTION OF DEPOSITARY SHARES
If we redeem a series of senior debt securities, junior subordinated debt
securities or preferred shares represented by depositary shares, the depositary
will redeem your depositary shares from the proceeds received by the depositary
resulting from the redemption. The redemption price per depositary share will be
equal to the applicable fraction of the redemption price per senior debt
security, junior subordinated debt security or preferred share, as the case may
be, payable in relation to the redeemed series of senior debt securities, junior
subordinated debt securities or preferred shares. Whenever we redeem senior debt
securities, junior subordinated debt securities or preferred shares held by the
depositary, the depositary will redeem as of the same redemption date the number
of depositary shares representing, as the case may be, the senior debt
securities, junior subordinated debt securities or preferred shares redeemed. If
fewer than all the depositary shares are to be redeemed, the depositary shares
to be redeemed will be selected by lot, proportionately or by any other
equitable method as the depositary may determine.
VOTING THE PREFERRED SHARES OR EXERCISE OF RIGHTS UNDER THE SENIOR INDENTURE OR
THE SUBORDINATED INDENTURE
Upon receipt of notice of any meeting at which you are entitled to vote, or
of any request for instructions or directions from you as holder of senior debt
securities or junior subordinated debt securities, the depositary will mail to
you the information contained in that notice. Each record holder of the
depositary shares on the record date will be entitled to instruct the depositary
how to vote the amount of the preferred shares represented by that holder's
depositary shares or how to give instructions or directions
19
with respect to the senior debt securities or junior subordinated debt
securities, as the case may be, represented by that holder's depository shares.
The record date for the depositary shares will be the same date as the record
date for the preferred shares, senior debt securities or junior subordinated
debt securities, as the case may be. The depositary will endeavor, to the extent
practicable, to vote the amount of the preferred shares, or to give instructions
or directions with respect to the senior debt securities or junior subordinated
debt securities, as the case may be, represented by the depositary shares in
accordance with those instructions. We will agree to take all reasonable action
which the depositary may deem necessary to enable the depositary to do so. The
depositary will abstain from voting the preferred shares or giving instructions
or directions with respect to the senior debt securities or junior subordinated
debt securities, as the case may be, if it does not receive specific
instructions from you.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
We and the depositary may amend the form of depositary receipt evidencing
the depositary shares and any provision of the deposit agreement at any time.
However, any amendment that materially and adversely alters the rights of the
holders of the depositary shares will not be effective unless the amendment has
been approved by the holders of at least a majority of the depositary shares
then outstanding.
The deposit agreement will terminate if:
- all outstanding depositary shares have been redeemed; or
- there has been a final distribution in respect of the preferred shares,
including in connection with our liquidation, dissolution or winding up,
or a complete repayment or redemption of the senior debt securities or
junior subordinated debt securities and the distribution, repayment or
redemption proceeds, as the case may be, have been distributed to you.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering to us notice of its
election to do so. We also may, at any time, remove the depositary. Any
resignation or removal will take effect upon the appointment of a successor
depositary and its acceptance of such appointment. We must appoint the successor
depositary within 60 days after delivery of the notice of resignation or
removal. The successor depositary must be a bank or trust company having its
principal office in the United States and having a combined capital and surplus
of at least $50,000,000.
CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We will pay charges of
the depositary in connection with the initial deposit of the preferred shares,
senior debt securities or junior subordinated debt securities, as the case may
be, and issuance of depositary receipts, all withdrawals of preferred shares,
senior debt securities or junior subordinated debt securities, as the case may
be, by you and any repayment or redemption of the preferred shares, senior debt
securities or junior subordinated debt securities, as the case may be. You will
pay other transfer and other taxes and governmental charges, as well as the
other charges that are expressly provided in the deposit agreement to be for
your account.
MISCELLANEOUS
The depositary will forward all reports and communications from us which
are delivered to the depositary and which we are required or otherwise determine
to furnish to holders of senior debt securities, junior subordinated debt
securities or preferred shares, as the case may be.
Neither we nor the depositary will be liable under the deposit agreement to
you other than for the depositary's gross negligence, willful misconduct or bad
faith. Neither we nor the depositary will be obligated to prosecute or defend
any legal proceedings relating to any depositary shares, senior debt securities,
junior subordinated debt securities or preferred shares unless satisfactory
indemnity is furnished.
20
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 with the SEC as an exhibit
to a report on Form 8-K or by a post-effective amendment 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.
21
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 trustee. Pursuant to the
Tripartite/Conversion Agreement, dated as of August 8, 2000, Wachovia Bank,
National Association (formerly known as 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 Wachovia Bank, National Association (formerly known as 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;
- 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);
22
- 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.
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
23
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 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
24
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 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. (Section 3.5 of each indenture.)
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.)
25
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;
- 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.)
26
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.)
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
27
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 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;
- 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;
28
- 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
- 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
29
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 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
30
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
Wachovia Bank, National Association, 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 Wachovia Trust Company, National Association, 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 Wachovia Bank, National Association.
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 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
31
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 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.)
32
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, Wachovia Bank,
National Association, as the property trustee, and Wachovia Trust Company,
National Association, 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 as an exhibit to
a report 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.
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;
33
- 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, a depositary identified in the applicable prospectus supplement. We
will issue global securities in registered form and in either temporary or
definitive form.
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.
Upon the issuance of a global security, the depositary for such global
security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the individual preferred securities represented
by the 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 preferred securities or by the
applicable trust, if the preferred securities are offered and sold directly by
the trust. Ownership of beneficial interests in such global security will be
limited to persons that may hold interests through participants.
Ownership of beneficial interests by participants in such global security
will be shown on, and the transfer of any ownership interest 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 preferred
securities represented by a global security for all purposes under the
applicable trust agreement. Except as set forth below, owners of beneficial
interests in a global security will not be entitled to have the individual
preferred securities represented by that global security registered in their
names, will
34
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 individual preferred 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 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 by the depositary or any participants on
account of, such beneficial ownership interests in the global security for the
preferred securities or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
We expect that a depositary for the preferred securities of a series or its
nominee, upon receipt of any payments in respect of a permanent global security
representing the preferred securities, will immediately credit participants'
accounts with payment in amounts proportionate to their respective beneficial
interests in the principal amount of such global security for the preferred
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 payment will be the responsibility of such participants.
If a depositary for the preferred securities of a series notifies us at any
time that it is unwilling, unable or ineligible to continue as depositary and a
qualified successor depositary is not appointed by the administrative trustees
within 90 days, the applicable trust will issue definitive preferred securities
in exchange for the global security or securities representing the preferred
securities. In addition, the administrative trustees may, at any time, and in
their sole discretion, subject to any limitations described in the prospectus
supplement relating to the preferred securities, determine not to have any
preferred securities represented by one or more global securities and, in such
event, the applicable trust will issue definitive preferred securities in
exchange for the global security or securities representing the preferred
securities. If definitive preferred securities are issued, an owner of a
beneficial interest in a global security will be entitled to physical delivery
of definitive preferred securities represented by the global security equal in
principal amount to that 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
35
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 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
36
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 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 below. A trust may, without the
consent of the holders of the outstanding preferred securities, consolidate or
merge with
37
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.
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.
38
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 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.
39
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.
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.
40
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.
Wachovia Bank, National Association, 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 Wachovia Trust Company, National Association,
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.
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.
41
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
The preferred securities guarantee for each trust will be issued pursuant
to a guarantee between us and Wachovia Bank, National Association, 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.
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
42
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.
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.
43
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.
Wachovia Bank, National Association, 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 Wachovia Trust Company, National
Association, 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 Wachovia Bank, National Association.
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.
44
PLAN OF DISTRIBUTION
We may sell our common or preferred shares, senior or junior subordinated
debt securities or our warrants, depositary shares, 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.
We may also offer and sell securities, if so indicated in the applicable
prospectus supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms referred to as remarketing firms, acting as principals for
their own accounts or as our agents. Any remarketing firm will be identified and
the terms of its agreement, if any, with us, and its compensation will be
described in the applicable prospectus supplement. Remarketing firms may be
deemed to be underwriters under the Securities Act in connection with the
securities they remarket.
Underwriters, agents, dealers and remarketing firms 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.
We may authorize our agents and underwriters to solicit offers by certain
institutions to purchase the securities at the public offering price under
delayed delivery contracts.
- If we use delayed delivery contracts, we will disclose that we are using
them in the applicable prospectus supplement and will tell you when we
will demand payment and delivery of the securities under the delayed
delivery contracts.
- These delayed delivery contracts will be subject only to the conditions
that we described in the applicable prospectus supplement.
We will describe in the applicable prospectus supplement the commission
that underwriters and agents soliciting purchases of the securities under
delayed contracts will be entitled to receive.
45
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to our Annual Report on Form 10-K for the year ended December 31,
2002, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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, depositary shares, share purchase contracts or share
purchase units, senior debt securities, the junior subordinated debt securities
and the preferred securities guarantees for us.
46
WHERE YOU CAN FIND MORE 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 Public Reference Room of the SEC,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
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 shares are listed on the New York Stock Exchange, under the
symbol "PD." Our 6.75% Series A Mandatory Convertible Preferred Shares are
listed on the New York Stock Exchange under the symbol "PD PrA." 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,
2002;
(b) Our amendment to our Annual Report on Form 10-K for the year ended
December 31, 2002 on Form 10-K/A as filed with the SEC on April 15, 2003;
(c) Our amendment No. 2 to our Annual Report on Form 10-K for the year
ended December 31, 2002 on Form 10-K/A as filed with the SEC on April 24,
2003;
(d) Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2003;
(c) Our Current Reports on Form 8-K filed with the SEC on April 15,
2003, April 24,2003 and July 11, 2003; and
(d) 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: One North
Central Avenue, Phoenix, Arizona 85004-4415, Attention: Vice President and
Corporate Secretary. Telephone requests may be directed to such person at (602)
366-8100. Some of these filings are also available on our Internet web site. The
address of that site is http://www.phelpsdodge.com.
47