UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
Freeport-McMoRan Copper & Gold Inc.
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(Name of Registrant as Specified In Its Charter)
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PRELIMINARY PROXY MATERIALS
AS OF MARCH 1, 2002
[FCX LOGO TO BE INSERTED]
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 2, 2002
-----------------
March __, 2002
DATE: Thursday, May 2, 2002
TIME: 1:00 p.m., Eastern Time
PLACE: Hotel du Pont
11th and Market Streets
Wilmington, Delaware
PURPOSE: o To elect six directors;
o To ratify the appointment of the independent auditors;
o To vote on the proposal to reclassify our two classes of common
stock into a single class by amending our certificate of
incorporation;
o To vote on two stockholder proposals, if presented at the
meeting; and
o To transact such other business as may properly come before the
meeting.
RECORD DATE: Close of business on March 14, 2002.
Your vote is important. Whether or not you plan to attend the meeting,
please complete, sign and date the enclosed proxy card and return it promptly in
the enclosed envelope. Your cooperation will be appreciated.
By Order of the Board of Directors.
[Signature to be inserted]
WILLIAM H. HINES
Secretary
INFORMATION ABOUT ATTENDING THE ANNUAL MEETING
If you plan to attend the meeting, please bring the following:
1. Proper identification.
2. Proof of Ownership if your shares are held in "Street Name."
Street Name means your shares are held of record by brokers, banks or other
institutions.
Acceptable Proof of Ownership is (a) a letter from your broker stating that you
owned Freeport-McMoRan Copper & Gold Inc. stock on the record date or (b) an
account statement showing that you owned Freeport-McMoRan Copper & Gold Inc.
stock on the record date.
Only stockholders of record on the record date may attend or vote at the annual
meeting.
POST-MEETING REPORT OF THE ANNUAL MEETING
A post-meeting report summarizing the proceedings of the meeting will be
available on our internet web site (fcx.com) within 10 days following the
meeting. A copy of the report will be mailed at no charge to any stockholder
requesting it.
FREEPORT-MCMORAN COPPER & GOLD INC.
1615 POYDRAS STREET
NEW ORLEANS, LOUISIANA 70112
The 2001 Annual Report to Stockholders, including financial statements,
is being mailed to stockholders together with these proxy materials on or about
March __, 2002.
This proxy statement is furnished in connection with a solicitation of
proxies by the board of directors of Freeport-McMoRan Copper & Gold Inc. for use
at our Annual Meeting of Stockholders to be held on May 2, 2002, and at any
adjournments (the meeting).
WHO CAN VOTE
If you held any Company Stock on the record date then you will be
entitled to vote at the meeting. Company Stock refers to our common stock and
preferred stock described below. Our preferred stock is represented by
depositary shares, each of which represents a fraction of a share of our
preferred stock.
Common Stock Outstanding on Record Date
NO. OF SHARES
NAME OF SECURITY OUTSTANDING
---------------- -----------
Class A Common Stock
Class B Common Stock
Preferred Stock Outstanding on Record Date
NO. OF DEPOSITARY
NAME OF SECURITY HARES OUTSTANDING
---------------- -----------------
Step-Up Convertible Preferred Stock 13,999,600*
Gold-Denominated Preferred Stock 6,000,000*
Gold-Denominated Preferred Stock, Series II 4,305,580*
Silver-Denominated Preferred Stock 4,760,000**
------------
* Each depositary share represents 0.05 shares of our preferred stock.
** Each depositary share represents 0.015625 shares of our preferred stock.
VOTING RIGHTS
Each share of Company Stock that you hold entitles you to one vote on
all matters that holders of such stock are entitled to vote. In general, holders
of common stock may vote on all matters and holders of depositary shares may
only vote for the Class A director. As a holder of depositary shares, you vote
by instructing the depositary on how to vote the preferred stock represented by
your depositary shares.
Election of Directors. Our directors are elected by a plurality of
shares voted, with
o at least 80% of our board elected by holders of our Class B
common stock; and
o the remainder of our board elected by holders of our Class A
common stock and preferred stock, voting together as a single
class.
Voting On All Other Matters. On all other matters, holders of our Class
A common stock and Class B common stock vote together as a single class.
Inspectors of election will count votes cast at the meeting. Our
directors are elected by plurality vote. All other matters are decided by
majority vote of our common stock present at the meeting, except as otherwise
provided by statute, our certificate of incorporation or our by-laws.
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Brokers holding shares of record for customers generally are not
entitled to vote on certain matters unless they receive voting instructions from
their customers. When brokers do not receive voting instructions from their
customers, they notify the company on the proxy form that they lack voting
authority. The votes that could have been cast on the matter in question by
brokers who did not receive voting instructions are called "broker non-votes."
Abstentions and broker non-votes will have no effect on the election of
directors. Abstentions as to all other matters to come before the meeting will
be counted as votes against those matters. Broker non-votes as to all other
matters will not be counted as votes for or against and will not be included in
calculating the number of votes necessary for approval of those matters.
QUORUM
A quorum at the meeting is a majority of the Company Stock entitled to
vote, present in person or represented by proxy. The persons whom we appoint to
act as inspectors of election will determine whether a quorum exists. Shares of
Company Stock represented by properly executed and returned proxies will be
treated as present. Shares of Company Stock present at the meeting that abstain
from voting or that are the subject of broker non-votes will be counted as
present for purposes of determining a quorum.
HOW YOUR PROXY WILL BE VOTED
The board of directors is soliciting a proxy in the enclosed form to
provide you with an opportunity to vote on all matters scheduled to come before
the meeting, whether or not you attend in person.
Granting Your Proxy. If you properly execute and return a proxy in the
enclosed form, your stock will be voted as you specify. If you make no
specifications, your proxy representing
(1) our common stock will be voted:
o in favor of the proposed director nominees,
o for the ratification of the appointment of the
independent auditors,
o for the amendment of our certificate of incorporation to
reclassify our two classes of common stock into a single
class of common stock, and
o against the two stockholder proposals; and
(2) our preferred stock will be voted in favor of the proposed
director nominee.
We expect no matters to be presented for action at the meeting other
than the items described in this proxy statement. The enclosed proxy will,
however, confer discretionary authority with respect to any other matter that
may properly come before the meeting. The persons named as proxies in the
enclosed proxy intend to vote in accordance with their judgment on any matters
that may properly come before the meeting.
Revoking Your Proxy. If you submit a proxy, you may subsequently revoke
it or submit a revised proxy at any time before it is voted. You may also attend
the meeting in person and vote by ballot, which would cancel any proxy that you
previously submitted. If you attend the meeting and hold your stock in street
name, then you must have a proxy from your broker in order to vote at the
meeting.
PROXY SOLICITATION
We will pay all expenses of soliciting proxies for the meeting. In
addition to solicitations by mail, arrangements have been made for brokers and
nominees to send proxy materials to their principals, and we will reimburse them
for their reasonable expenses. We have retained Georgeson Shareholder
Communications Inc., 17 State Street, New York, New York, to assist with the
solicitation of proxies from brokers and nominees. It is
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estimated that the fees for Georgeson's services will be $8,500 plus its
reasonable out-of-pocket expenses. The fee amount is not contingent on the
number of stockholder votes in favor of the common stock reclassification
proposal. Georgeson will not make any recommendation to our stockholders to
either accept or reject the common stock reclassification proposal or otherwise
express an opinion concerning this proposal. We may have our representatives,
who will receive no compensation for their services, solicit proxies by
telephone, telecopy, personal interview or other means.
STOCKHOLDER PROPOSALS
If you want us to consider including a proposal in next year's proxy
statement, you must deliver it in writing to our Corporate Secretary,
Freeport-McMoRan Copper & Gold Inc., 1615 Poydras St., New Orleans, Louisiana
70112 by November __, 2002.
If you want to present a proposal at next year's annual meeting but do
not wish to have it included in our proxy statement, you must submit it in
writing to our Corporate Secretary, at the above address, by January 1, 2003 in
accordance with the specific procedural requirements in our by-laws. If you
would like a copy of these procedures, please contact our Corporate Secretary.
Failure to comply with our by-law procedures and deadlines may preclude
presentation of the matter at the meeting.
CORPORATE GOVERNANCE
Our board of directors, which held five meetings during 2001, has
primary responsibility for directing the management of our business and affairs.
Our board currently consists of fifteen members. To provide for effective
direction and management of our business, our board has established an audit
committee, a corporate personnel committee, a nominating committee and a public
policy committee.
AUDIT MEETINGS
COMMITTEE MEMBERS FUNCTIONS OF THE COMMITTEE IN 2001
----------------- -------------------------- ---------
Robert A. Day, Chairman o please refer to the Audit Committee Report 4
Robert W. Bruce III
Gerald J. Ford
H. Devon Graham, Jr.
Steven J. Green
Oscar Y. L. Groeneveld
CORPORATE PERSONNEL MEETINGS
COMMITTEE MEMBERS FUNCTIONS OF THE COMMITTEE IN 2001
----------------- -------------------------- ----------
H. Devon Graham, Jr., Chairman o please refer to the Corporate Personnel Committee 5
Robert J. Allison, Jr. Report on Executive Compensation
Robert W. Bruce III
Bobby Lee Lackey
J. Taylor Wharton
NOMINATING MEETINGS
COMMITTEE MEMBERS FUNCTIONS OF THE COMMITTEE IN 2001
----------------- -------------------------- ----------
B. M. Rankin, Jr., Chairman o makes recommendations to our board concerning the 2
R. Leigh Clifford structure of our board, corporate governance and
Robert A. Day proposed new members of our board
o nominates individuals to stand for election as directors
o considers recommendations by our stockholders of
potential nominees for election as directors
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Upon written request, our Corporate Secretary will furnish information
concerning the procedures required to be followed by a stockholder who wishes to
recommend to our nominating committee potential nominees for election as
directors.
PUBLIC POLICY MEETINGS
COMMITTEE MEMBERS FUNCTIONS OF THE COMMITTEE IN 2001
----------------- -------------------------- ----------
J. Taylor Wharton, Chairman o oversees our governmental and community 3
Robert J. Allison, Jr. relationships and information programs
R. Leigh Clifford
Steven J. Green o oversees our various compliance programs and
Oscar Y. L. Groeneveld equal employment policies and practices
J. Bennett Johnston
Bobby Lee Lackey o oversees our charitable and philanthropic
Gabrielle K. McDonald contributions
B. M. Rankin, Jr.
J. Stapleton Roy o makes recommendations to our board regarding
these policies and programs
During 2001, each of our directors, except Messrs. Allison, Ford and
Green, attended at least 75% of the aggregate number of meetings of our board
and board committees on which he or she served.
ELECTION OF DIRECTORS
Our board of directors has fixed the number of directors at fifteen,
three of whom are elected by the holders of our Class A common stock and
preferred stock (Class A Directors) and twelve of whom are elected by the
holders of our Class B common stock (Class B Directors). In addition, our board
consists of three classes, each of which serves for three years, with one class
being elected each year.
Pursuant to an agreement (Rio Tinto Agreement) among the company, Rio
Tinto plc (Rio Tinto), a worldwide mining and smelting company, and certain of
Rio Tinto's affiliates, Rio Tinto has the right to submit for nomination for
election by our stockholders the percentage of directors, rounded to the nearest
whole number, that is proportionately equal to the Rio Tinto affiliates'
aggregate percentage ownership of all of our outstanding common stock. The Rio
Tinto affiliates may nominate directors either as Class A Directors or Class B
Directors, but the percentage of Class B Directors nominated, if any, cannot
exceed the percentage of our Class B common stock outstanding that the Rio Tinto
affiliates own. As of the record date, Rio Tinto Indonesia Limited, a Rio Tinto
affiliate, owned 23,931,100 shares of our Class A common stock, or ____% of our
outstanding common stock. In the Rio Tinto Agreement, we agreed to include Rio
Tinto's nominees with the directors nominated by our board and to refrain from
taking any action that may hinder the election of Rio Tinto's nominees. Messrs.
Clifford and Groeneveld are the directors selected by Rio Tinto and both serve
as Class A Directors.
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This table shows the members of the different classes of our board and
the expiration of their terms.
CLASS EXPIRATION OF TERM CLASS MEMBERS
----- ------------------ -------------
Class I 2002 Annual Meeting of Stockholders Class A: Steven J. Green
Class B: Robert W. Bruce III
Robert A. Day
H. Devon Graham, Jr.
Bobby Lee Lackey
Gabrielle K. McDonald
Class II 2003 Annual Meeting of Stockholders Class A: Oscar Y. L. Groeneveld
Class B: Gerald J. Ford
J. Bennett Johnston
Class III 2004 Annual Meeting of Stockholders Class A: R. Leigh Clifford
Class B: Robert J. Allison, Jr.
James R. Moffett
B. M. Rankin, Jr.
J. Stapleton Roy
J. Taylor Wharton
Our board has nominated each of the Class I directors named above for
an additional three-year term. The persons named as proxies in the enclosed form
of proxy intend to vote your proxy for the re-election of the Class I directors,
unless otherwise directed. If, contrary to our expectations, a nominee should
become unavailable for any reason, your proxy will be voted for a substitute
nominee designated by our board, unless otherwise directed.
INFORMATION ABOUT NOMINEES AND DIRECTORS
This table provides certain information as of February 26, 2002 with
respect to each director nominee and each other director. Unless otherwise
indicated, each person has been engaged in the principal occupation shown for
the past five years.
YEAR FIRST
NAME OF NOMINEE PRINCIPAL OCCUPATIONS, OTHER PUBLIC DIRECTORSHIPS ELECTED A
OR DIRECTOR AGE AND POSITIONS WITH THE COMPANY DIRECTOR
----------------------------- -------- --------------------------------------------------------------- ----------
Robert J. Allison, Jr. 63 Chairman of the Board of Anadarko Petroleum Corporation. 2001
Chief Executive Officer of Anadarko Petroleum Corporation
from 1979 to 2002.
Robert W. Bruce III 57 President, The Robert Bruce Management Co., Inc., 1995
investment advisor.
R. Leigh Clifford 54 Director and Chief Executive of Rio Tinto plc and Rio Tinto 2000
Limited, worldwide mining and smelting.
Robert A. Day 58 Chairman of the Board and Chief Executive Officer of Trust 1995
Company of the West, an investment management company.
Chairman, President and Chief Executive Officer of W. M.
Keck Foundation, a national philanthropic organization.
Director of Fisher Scientific International Inc. and
McMoRan Exploration Co. (McMoRan).
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YEAR FIRST
NAME OF NOMINEE PRINCIPAL OCCUPATIONS, OTHER PUBLIC DIRECTORSHIPS ELECTED A
OR DIRECTOR AGE AND POSITIONS WITH THE COMPANY DIRECTOR
----------------------------- -------- --------------------------------------------------------------- ----------
Gerald J. Ford 57 Chairman of the Board and Chief Executive Officer of 2000
California Federal Bank, A Federal Savings Bank and its
predecessors. Chairman of the Board and Chief Executive
Officer of Golden State Bancorp Inc., a bank holding
company, and its affiliates, Golden State Holdings Inc.
and California Federal Preferred Capital Corporation.
Chairman of the Board and Chief Executive Officer of
Liberte Investors Inc. Chairman of the Board of First
Nationwide Mortgage Corporation. Director of McMoRan.
H. Devon Graham, Jr. 67 President of R.E. Smith Interests, an asset management 2000
company. United States Regional Managing Partner -
Southwest of Arthur Andersen LLP from 1985 until 1997.
Director of McMoRan.
Steven J. Green 56 Chairman and Chief Executive Officer of Greenstreet 2001
Partners, a private merchant bank, and Auburndale
Properties Inc. a real estate acquisition and management
company, and k1 Ventures Limited, a venture capital firm
based in Singapore. Vice Chairman of Pacific Capital
Group, Inc., an international merchant bank. United
States Ambassador to Singapore from 1997 to 2001.
Director of Global Crossing Ltd.
Oscar Y. L. Groeneveld 48 Chief Executive Copper of Rio Tinto plc and Rio Tinto 1999
Limited. Head of Technology of Rio Tinto plc until
1999. Group Mining Executive of Rio Tinto until 1997.
Commissioner of PT Freeport Indonesia, our principal
operating subsidiary, since 1999.
J. Bennett Johnston 69 Chairman of Johnston & Associates, LLC, a legal and business 1997
consulting firm. Chairman of Johnston Development Co.
LLC, a project development firm. United States Senator
until 1997. Director of ChevronTexaco Corporation.
Bobby Lee Lackey 64 Agricultural Consultant. President and Chief Executive 1995
Officer of McManus-Wyatt-Hidalgo Produce Marketing Co.,
shipper of fruits and vegetables, until 2000.
Gabrielle K. McDonald 59 Judge, Iran-United States Claims Tribunal, The Hague, The 1995
Netherlands since November 2001. Special Counsel on
Human Rights to the Chairman of the Board of the Company
since 1999. Judge, International Criminal Tribunal for
the Former Yugoslavia from 1993 until 1999. Director of
Golden State Bancorp, Inc., California Federal Bank, A
Federal Savings Bank and McMoRan.
James R. Moffett 63 Chairman of the Board and Chief Executive Officer of the 1992
Company. President Commissioner of PT Freeport
Indonesia. Co-Chairman of the Board of McMoRan.
Co-Chairman of the Board of McMoRan Oil & Gas and of
Freeport-McMoRan Sulphur until 1998. Chairman of the
Board of Freeport-McMoRan Inc. until 1997.
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YEAR FIRST
NAME OF NOMINEE PRINCIPAL OCCUPATIONS, OTHER PUBLIC DIRECTORSHIPS ELECTED A
OR DIRECTOR AGE AND POSITIONS WITH THE COMPANY DIRECTOR
----------------------------- -------- --------------------------------------------------------------- ----------
B. M. Rankin, Jr. 72 Vice Chairman of the Board of the Company since January 1995
2001. Private investor. Vice Chairman of the Board of
McMoRan. Director of Golden State Bancorp Inc. and
California Federal Bank, A Federal Savings Bank.
J. Stapleton Roy 66 Managing Director of Kissinger Associates, Inc., international 2001
consultants and consultants to the Company, since January
2001. Assistant Secretary of State for Intelligence and
Research from November 1999 until December 2000. United
States Ambassador to Indonesia from 1996 until 1999.
Director of Phillips Petroleum Company.
J. Taylor Wharton 63 Special Assistant to the President for Patient Affairs,
Professor, Gynecologic Oncology, The University of Texas
M.D. Anderson Cancer Center. Director of McMoRan. 1995
DIRECTOR COMPENSATION
Cash Compensation
Each non-employee director receives (a) an annual fee of $25,000 for
serving on our board, (b) a fee of $1,000 for attending each board committee
meeting and (c) an annual fee of $2,000 for each board committee of which a
director is the chairperson. Each director receives a fee of $1,000 for
attendance at each board meeting and reimbursement for reasonable out-of-pocket
expenses incurred in attending our board and committee meetings.
Retirement Plan for Non-Employee Directors
We have a retirement plan for the benefit of our non-employee directors
who reach age sixty-five. Under the retirement plan, an eligible director will
be entitled to an annual benefit equal to a percentage of the standard portion
of our annual directors' fee at the time of his or her retirement. The
percentage, which is at least 50% but not greater than 100%, will depend on the
number of years the retiree served as a non-employee director for us or our
predecessors. The benefit is payable from the date of retirement until the
retiree's death. Each eligible director who was also a director of
Freeport-McMoRan Inc., our former parent, and who did not retire from that board
of directors, will receive upon retirement from our board, an additional annual
benefit of $20,000, which is also payable from the date of retirement until the
retiree's death.
Stock Option Plan for Non-Employee Directors
Each non-employee director is eligible for a grant of options under our
1995 Stock Option Plan for Non-Employee Directors, which was amended in 2000. On
August 1 of each year through 2004, each eligible director is granted a
non-qualified option to purchase 10,000 shares of our Class B common stock at
100% of the fair market value of the shares on the date of grant. Each option
granted under this plan vests over a four-year period and expires ten years
after the date of grant.
Prior to the amendment of the plan, each time a director exercised an
option we made a cash payment to the director calculated pursuant to a formula
that was intended to compensate the director fully for any federal income tax
liabilities incurred as a result of the option exercise and receipt of the cash
payment. Under the amended plan, these tax-offset cash payment rights were
canceled and, in exchange, each director received a number of stock appreciation
rights equal to the number of shares of our Class B common stock subject to the
director's outstanding options multiplied by 0.6556. As a result, each director
will be granted 6,556 stock appreciation rights on August 1 of each year through
2004.
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Accordingly, on August 1, 2001, each non-employee director was granted
an option to purchase 10,000 shares of our Class B common stock and 6,556 stock
appreciation rights at a grant price of $11.1650.
MATCHING GIFTS PROGRAM
The Freeport-McMoRan Foundation (the Foundation) administers a matching
gifts program available to our directors, officers, employees, full-time
consultants and retirees. Under the program, the Foundation will match a
participant's gifts to eligible institutions, including educational
institutions, educational associations, educational funds, cultural
institutions, social service community organizations, hospital organizations and
environmental organizations. The Foundation provides the gifts directly to the
institution. The Foundation double matches gifts by a director not in excess of
$1,000 and gifts by any other participant not in excess of $500. The annual
amount of our matching gifts for any director may not exceed $40,000, and
generally for any other participant may not exceed $20,000. The matching gifts
made by the Foundation in 2001 for each of the participating directors were as
follows: $11,000 for Mr. Bruce; $7,700 for Mr. Lackey; $39,210 for Mr. Moffett;
$34,670 for Mr. Rankin; $14,000 for Mr. Roy and $2,000 for Mr. Wharton.
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STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Except as otherwise indicated below, this table shows the amount of our
Class A and Class B common stock each of our directors and named officers owned
on February 26, 2002. Our directors and executive officers as a group
beneficially owned approximately 46.8% of our Class A common stock and 9.3% of
our Class B common stock. Unless otherwise indicated, the persons shown below do
not beneficially own any of our preferred stock. Unless otherwise indicated, all
shares shown are held with sole voting and investment power and include, if
applicable, shares held in our Employee Capital Accumulation Program.
NUMBER OF SHARES
TOTAL NUMBER OF NUMBER OF SHARES OF CLASS B TOTAL NUMBER OF
SHARES OF CLASS A OF CLASS B COMMON STOCK SHARES OF CLASS B
COMMON STOCK COMMON STOCK SUBJECT TO COMMON STOCK
NAME OF BENEFICIALLY NOT SUBJECT TO EXERCISABLE BENEFICIALLY
BENEFICIAL OWNER (1) OWNED OPTIONS OPTIONS (2) OWNED
-------------------- ---------------- ---------------- ---------------- -----------------
Richard C. Adkerson (3)..................... 96,790 121,258 1,923,957 2,045,215
Robert J. Allison, Jr....................... 0 5,000 0 5,000
Robert W. Bruce III (4)..................... 1,890,000 7,017 74,360 81,377
R. Leigh Clifford (5)....................... 23,931,100 0 2,500 2,500
Robert A. Day (6)........................... 7,992 166,031 74,360 240,391
Gerald J. Ford (7).......................... 0 10,000 2,500 12,500
H. Devon Graham, Jr......................... 0 2,000 2,500 4,500
Steven J. Green ............................ 0 0 0 0
Oscar Y. L. Groeneveld (5).................. - 0 2,500 2,500
J. Bennett Johnston......................... 700 0 25,000 25,000
Bobby Lee Lackey............................ 60 861 74,360 75,221
Adrianto Machribie.......................... 0 0 256,424 256,424
Gabrielle K. McDonald....................... 4,756 182 59,443 59,625
James R. Moffett (8)........................ 0 755,002 4,479,169 5,234,171
B. M. Rankin, Jr. (9)....................... 90,417 637,890 74,360 712,250
J. Stapleton Roy............................ 0 0 0 0
J. Taylor Wharton (10)...................... 5,193 38,041 66,869 104,910
Directors and executive
officers as a group
(17 persons).............................. 26,027,008 1,743,282 7,118,302 8,861,584
(1) With the exception of Mr. Adkerson (who beneficially owns 2.3% of our
outstanding Class B common stock), Mr. Bruce (who beneficially owns 3.4%
of our outstanding Class A common stock), Messrs. Clifford and Groeneveld
(who both are deemed to beneficially own 43.1% of our outstanding Class A
common stock held by a Rio Tinto affiliate) and Mr. Moffett (who
beneficially owns 5.6% of our outstanding Class B common stock), each
individual holds less than 1% of each of our outstanding Class A common
stock and Class B common stock.
(2) Class B common stock that could be acquired as of April 26, 2002, upon
the exercise of options granted pursuant to our stock option plans.
(3) Includes (a) 5,503 shares of our Class A common stock and 3,274 shares of
Class B common stock held in his IRA and (b) 10,000 shares of our Class A
common stock held in a foundation with respect to which Mr.
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Adkerson, as a member of the board of trustees, shares voting and
investment power, but as to which he disclaims beneficial ownership.
(4) Includes 1,864,500 shares of our Class A common stock held by a limited
partnership with respect to which Mr. Bruce is a general partner.
(5) The Class A common stock listed is held by a Rio Tinto affiliate of which
Messrs. Clifford and Groeneveld are both executive officers. Messrs.
Clifford and Groeneveld share voting and investment power with respect to
these shares but Messrs. Clifford and Groeneveld disclaim beneficial
ownership. Messrs. Clifford and Groeneveld have also assigned the
benefits of their options to the affiliate.
(6) Includes 240 shares of our Class A common stock and 83,568 shares of our
Class B common stock held in accounts and funds managed by affiliates of
a corporation of which Mr. Day, as the chief executive officer, shares
voting and investment power but as to which he disclaims beneficial
ownership.
(7) Includes 10,000 shares of our Class B common stock held by a revocable
trust with respect to which Mr. Ford is the sole trustee.
(8) Includes (a) 624,001 shares of our Class B common stock held by a limited
liability company with respect to which Mr. Moffett, as a member, shares
voting and investment power and (b) 77,000 shares of our Class B common
stock held by a foundation with respect to which Mr. Moffett, as
president and a director, shares voting and investment power but as to
which he disclaims beneficial ownership.
(9) Includes (a) 10,020 shares of our Class A common stock that may be
acquired upon the conversion of our Step-Up Convertible Preferred Stock
and (b) 80,397 shares of our Class A common stock and 637,890 shares of
our Class B common stock held by a limited partnership in which Mr.
Rankin is the sole shareholder of the sole general partner of this
limited partnership.
(10) Includes (a) 3,011 shares of our Class A common stock and 23,926 shares
of our Class B common stock held by Mr. Wharton's spouse, (b) 160 shares
of our Class A common stock held in an IRA for Mr. Wharton's spouse, (c)
420 shares of our Class A common stock held in his IRA, and (d) 332
shares of our Class A common stock and 4,757 shares of our Class B common
stock held by Mr. Wharton as custodian for his daughters.
10
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
This table shows the owners of more than 5% of our outstanding Class A
common stock or Class B common stock based on filings with the Securities and
Exchange Commission (the SEC), other than Mr. Moffett who owns 5.6% of our
outstanding Class B common stock. See Stock Ownership of Directors and Executive
Officers for more detail about Mr. Moffett. Unless otherwise indicated, all
information is presented as of December 31, 2001, and all shares beneficially
owned are held with sole voting and investment power.
TITLE OF NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF PERSON CLASS BENEFICIALLY OWNED CLASS
--------------------------- ---------- ------------------- -------------
Prudential Financial, Inc......................................... A 11,828,294(1) 21.3%
751 Broad Street
Newark, New Jersey 07102
Rio Tinto Indonesia Limited....................................... A 23,931,100 43.2%
6 St. James's Square
London SW1Y4LD
England
Putnam Investments, LLC........................................... A 4,080,567(2) 7.4%
One Post Office Square B 10,976,887(3) 12.4%
Boston, Massachusetts 02109
FMR Corp.......................................................... B 17,885,850(4) 19.0%
82 Devonshire Street
Boston, Massachusetts 02109
Morgan Stanley Dean Witter & Co................................... B 8,243,882(5) 9.3%
1585 Broadway
New York, New York 10036
Pioneer Global Asset Management S.P.A............................. B 5,306,011(6) 6.0%
Galleria San Carlo 6
20122 Milan, Italy
--------------
(1) Based on the Schedule 13G dated February 14, 2002 filed with the SEC,
Prudential Financial, Inc., the parent of The Prudential Insurance Company
of America, Jennison Associates LLC and other affiliated entities, shares
voting and investment power with respect to 10,750,094 of these shares, but
disclaims beneficial ownership. Jennison Associates LLC filed its own
Schedule 13G with the SEC dated February 4, 2002, indicating beneficial
ownership of 9,135,000 shares. Jennison Associates LLC shares investment
power with respect to all shares shown therein, but disclaims beneficial
ownership. The address of Jennison Associates LLC is 466 Lexington Avenue,
New York, New York, 10017.
(2) Based on the Schedule 13G dated February 13, 2002 filed with the SEC,
Putnam Investments, LLC shares voting power with respect to 47,383 of these
shares and shares investment power with respect to all shares shown, but
disclaims beneficial ownership.
(3) Based on the Schedule 13G dated February 13, 2002 filed with the SEC,
Putnam Investments, LLC shares voting power with respect to 513,910 of
these shares and shares investment power with respect to all shares shown,
but disclaims beneficial ownership.
(4) Based on the Schedule 13G dated February 14, 2002 filed with the SEC, FMR
Corp. has sole voting power with respect to 947,430 of these shares. The
total number of shares beneficially owned includes 5,624,680 shares of
Class B common stock resulting from the assumed conversion of $80,433,000
principal amount of our 8 1/4 senior convertible notes.
11
(5) Based on the Schedule 13G dated February 14, 2002 filed with the SEC,
Morgan Stanley Dean Witter & Co. shares voting power with respect to
3,929,079 of these shares and shares investment power with respect to all
shares shown.
(6) Based on the Schedule 13G dated December 21, 2001 filed with the SEC.
EXECUTIVE OFFICER COMPENSATION
This table shows the compensation paid to our chief executive officer,
and each of our two other executive officers (the named officers). During 2001,
Messrs. Moffett and Adkerson also provided services to and received compensation
from McMoRan Exploration Co. (McMoRan).
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUT
------------------------------------------ ------------------------ --------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND COMPENSA- STOCK OPTIONS/ LTIP COMPENSA-
PRINCIPAL POSITION YEAR SALARY BONUS TION SWARDS(2) SARS PAYOUTS TION(3)
------------------ ---- ------ ----- --------- --------- ---------- ------- ----------
James R. Moffett......... 2001 $2,500,000 $2,750,000 $172,044(4) -- -- $727,200 $545,425
Chairman of the Board 2000 1,375,000 2,750,000 146,398(4) -- -- 793,800 218,049
and Chief Executive 1999 1,000,000 2,750,000 143,698(4) -- 1,800,000 912,600 84,775
Officer
Richard C. Adkerson...... 2001 1,250,000 1,031,250 60,377(4) $ 515,620 -- 545,400 242,477
President and Chief 2000 875,000 687,500 56,049(4) 1,031,250 -- 441,000 102,706
Financial Officer 1999 650,000 343,750 64,596(4) 1,546,875 900,000 380,250 44,162
Adrianto Machribie....... 2001 406,250 600,000 438,105(5) -- 75,000 181,800 --
President Director 2000 406,250 550,000 465,453(5) -- 75,000 110,250 --
1999 437,500 550,000 441,602(5) -- 75,000 91,260 --
----------------
(1) In addition to items disclosed in notes 4 and 5 below, includes our payment
of taxes in connection with certain benefits we provided to the named
officers as follows:
NAME YEAR AMOUNT
-------------- --------------
Mr. Moffett.......................................................................... 2001 $ 61,495
2000 45,805
1999 46,776
Mr. Adkerson......................................................................... 2001 17,577
2000 13,031
1999 19,871
Mr. Machribie........................................................................ 2001 102,477
2000 81,631
1999 79,818
Does not include perquisites that we provided to each named officer unless
the aggregate amount in any year exceeded the threshold for disclosure
under the SEC rules.
12
(2) In December 1999, we adopted a restricted stock program. This program
provides certain executives with the opportunity to receive a grant of
restricted stock units (RSU) in lieu of all or part of their cash bonus for
a given year. The RSUs will ratably convert into shares of Class A common
stock over a three-year period on each grant date anniversary. The RSUs are
awarded at a premium in order to compensate for risk. Dividend equivalents
will be paid on the RSUs on the same basis as dividends are paid on Class A
or Class B common stock. In 2001, Mr. Adkerson elected to participate in
the program as follows:
12/31/01 GRANT DATE
NAME RSUS MARKET VALUE* MARKET VALUE*
------- ---------------- --------------- ------------------
Mr. Adkerson....................................... 36,962 N/A $ 515,620
----------------
* RSUs were granted in January 2002 for 2001 bonus amounts.
As of December 31, 2001, Mr. Adkerson held 160,607 restricted stock units
and the aggregate value of such units held, based upon the $12.75 market
value on December 31, 2001, was $2,047,740.
(3) In addition to items disclosed in the notes below, includes our
contributions to defined contribution plans, our premium payments for
universal life and personal excess liability insurance policies and
director fees as follows:
PLAN INSURANCE DIRECTOR
NAME YEAR CONTRIBUTIONS PREMIUMS FEES TOTAL
---- ------------- --------------- ------------- ------------ -------------
Mr. Moffett................. 2001 $ 497,378 $ 43,047 $ 5,000 $ 545,425
2000 178,847 34,202 5,000 218,049
1999 50,000 29,775 5,000 84,775
Mr. Adkerson................ 2001 236,320 6,157 -- 242,477
2000 95,702 7,004 -- 102,706
1999 32,375 11,787 -- 44,162
(4) Includes the following perquisites that we provided to Mr. Moffett and Mr.
Adkerson: (a) matching gifts under the matching gifts program, (b) payments
for financial counseling and tax return preparation and certification
services and (c) use of company facilities.
FINANCIAL
MATCHING COUNSELING FACILITIES
NAME YEAR GIFTS PAYMENTS FEES USAGE TOTAL
---- ------------- --------------- ------------- ------------ -------------
Mr. Moffett................. 2001 $ 39,210 $ 14,000 $ 57,339 $ 110,549
2000 40,000 14,200 46,393 100,593
1999 40,000 16,000 40,922 96,922
Mr. Adkerson................ 2001 40,000 2,800 -- 42,800
2000 40,000 3,018 -- 43,018
1999 40,000 4,725 -- 44,725
(5) Includes $335,628, $383,822 and $361,784 of perquisites that we provided to
Mr. Machribie in 2001, 2000 and 1999, respectively, consisting of (a)
$40,000 of principal payments on non-interest bearing loans to Mr.
Machribie from us that were forgiven in each of these years; (b) $3,071,
$7,141 and $8,930 of imputed interest in 2001, 2000 and 1999 on these
loans; (c) $286,822, $336,681 and $306,451 for use of a company owned
residence in Indonesia in 2001, 2000 and 1999; and (d) $5,735 and $6,403
for other perquisites in 2001 and 1999, respectively.
--------------------
13
This table shows all stock options that we granted to named officers in 2001.
OPTION GRANTS IN 2001
NUMBER OF PERCENT OF
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR GRANT DATE
NAME GRANTED (1) 2001 BASE PRICE EXPIRATION DATE PRESENT VALUE
------ ------------- -------------- -------------- ----------------- ---------------
Adrianto Machribie....... 75,000 6.42% $11.31 January 30, 2011 $ 471,000 (2)
----------------
(1) The stock options will become exercisable over a four-year period. The
stock options will become immediately exercisable in their entirety if (a)
any person or group of persons acquires beneficial ownership of shares
representing 20% or more of the company's total voting power or (b) under
certain circumstances, the composition of the board of directors is changed
after a tender offer, exchange offer, merger, consolidation, sale of assets
or contested election or any combination thereof. In addition, each stock
option has an equal number of tandem "limited rights," which may be
exercisable only for a limited period in the event of a tender offer,
exchange offer, a series of purchases or other acquisitions or any
combination thereof resulting in a person or group of persons becoming a
beneficial owner of shares representing 40% or more of the company's total
voting power. Each limited right entitles the holder to receive cash equal
to the amount by which the highest price paid in such transaction exceeds
the exercise price.
(2) The Black-Scholes option pricing model was used to determine the grant date
present value of the stock options that we granted to the listed officer.
The grant date present value was calculated to be $6.28 per option. The
following facts and assumptions were used in making this calculation: (a)
an exercise price for each option as set forth under the column labeled
"Exercise or Base Price"; (b) a fair market value of $11.31 for one share
of our Class B common stock on the grant date; (c) no dividend; (d) a term
of 7 years based on an analysis of the average historical term for such
stock options; (e) a stock volatility of 46.6%, based on an analysis of
weekly closing prices of our Class B common stock over the 284-week period
that our Class B common stock has been publicly traded; and (f) an assumed
risk-free interest rate of 5.1%, this rate being equivalent to the yield on
the grant date on a zero-coupon U.S. Treasury note with a maturity date
comparable to the expected term of the options. No other discounts or
restrictions related to vesting or the likelihood of vesting of the options
were applied.
------------------
This table shows all outstanding stock options held by each of the
named officers as of December 31, 2001. All of these options relate to our Class
B common stock and none of the named officers exercised stock options in 2001.
OPTIONS AT DECEMBER 31, 2001
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 2001 DECEMBER 31, 2001
Name EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------------ ---------------------------
James R. Moffett............................ 4,154,169/ 900,000 $2,244,125/ $2,244,125
Richard C. Adkerson......................... 1,761,457/ 450,000 1,122,063/ 1,122,063
Adrianto Machribie.......................... 183,924/ 185,000 129,469/ 285,469
------------------
14
This table shows all long-term incentive plan awards that we made in
2001 to each of the named officers.
LONG-TERM INCENTIVE PLANS--AWARDS IN 2001
Estimated
Performance Future
or Other Payouts
Number of Period Under
Shares, Units Until Non-Stock
or Other Maturation Price-Based
Name Rights (1) or Payout Plans (2)
------- ---------------- ------------- ---------------
James R. Moffett............................................. 250,000 12/31/04 $530,000
Richard C. Adkerson.......................................... 200,000 12/31/04 424,000
Adrianto Machribie........................................... 65,000 12/31/04 137,800
-------------------
(1) Represents the number of performance units covered by performance awards we
granted in 2001 under our Long-Term Performance Incentive Plan (Long-Term
Plan). As of December 31 of each year, each named officer's performance
award account will be credited with an amount equal to the "annual earnings
per share" or "net loss per share" (as defined in the Long-Term Plan) for
that year multiplied by the number of performance units then credited to
such performance award account. Annual earnings per share or net loss per
share includes the net income or net loss of each of our majority-owned
subsidiaries that are attributable to equity interests that we do not own.
The corporate personnel committee may, however, in the exercise of its
discretion, prior to crediting the named officers' performance award
accounts with respect to a particular year, reduce or eliminate the amount
of the annual earnings per share that otherwise would be credited to any
performance award account for the year. The balance in the performance
award account is generally paid as soon as practicable after December 31 of
the year in which the third anniversary of the award occurs.
(2) These amounts were calculated using the 2001 earnings per share (as defined
in the Long-Term Plan) applied over a four-year period. Future payments
attributable to these awards will be determined based on future earnings.
------------------------
Employment Agreements and Change of Control Agreements
In April 2001, we entered into employment agreements and change of
control agreements with Messrs. Moffett and Adkerson. The corporate personnel
committee of our board, with the aid of an independent compensation consultant,
established the terms of these agreements, which were then approved by our
board. (See the Corporate Personnel Committee Report on Executive Compensation
for more details.)
Employment Agreements. The employment agreement with Mr. Moffett
provides for a base salary of $2,500,000 per year and eligibility for a maximum
bonus of $2,750,000 for each of 2001 and 2002 under our annual incentive plan.
Mr. Moffett continues to be eligible for all other benefits and compensation,
including stock options and long-term performance units, generally provided to
our most senior executives. The agreement will continue through April 30, 2006
with automatic one-year extensions unless a change of control occurs or our
corporate personnel committee notifies Mr. Moffett of its intent not to extend
the agreement.
The employment agreement with Mr. Adkerson provides for a base salary
of $1,250,000 per year and eligibility for a maximum bonus of $1,375,000 for
each of 2001 and 2002 under our annual incentive plan. Mr. Adkerson also
continues to be eligible for all other benefits and compensation, including
stock options and long-term performance units, generally provided to our most
senior executives. The agreement will continue through April 30, 2005 with
automatic one-year extensions unless a change of control occurs or our corporate
personnel committee notifies Mr. Adkerson of its intent not to extend the
agreement.
15
The employment agreements also provide that if we terminate the
executive's employment without cause (as defined in the agreement) or the
executive terminates employment for good reason (as defined in the agreement),
we will make certain payments and provide certain benefits to the executive,
including:
o payment of a pro rata bonus for the year in which the
termination of employment occurs;
o a cash payment equal to four times the sum of (a) the
executive's base salary plus (b) the lesser of (1) the highest
bonus paid to the executive for any of the preceding three
years or (2) two times the executive's base salary;
o continuation of insurance and welfare benefits for three years
or until the executive accepts new employment, if earlier; and
o acceleration of the vesting and payout of all stock options,
restricted stock units and long-term performance incentive
plan units.
If the executive's employment terminates as a result of death,
disability or retirement, benefits to the executive or his estate include the
payment of a pro rata bonus for the year of termination, a cash payment ($1.8
million for Mr. Moffett and $900,000 for Mr. Adkerson) the continuation of
insurance and welfare benefits, which in the case of retirement, will continue
for three years or until the executive accepts new employment, if earlier.
As a condition to receipt of these severance benefits, the executives
must retain in confidence all confidential information known to them concerning
our business and us so long as the information is not otherwise publicly
disclosed. Further, Messrs. Moffett and Adkerson have each agreed not to compete
with us for a period of two years after termination of employment.
Change of Control Agreements. The change of control agreements will
replace the employment agreements if a change of control of our company (as
defined in the change of control agreements) occurs. If the change of control
occurs prior to April 30, 2006 for Mr. Moffett or prior to April 30, 2005 for
Mr. Adkerson, the agreements provide generally that the executive's terms and
conditions of employment (including position, location, compensation and
benefits) will not be adversely changed for a three-year period.
If the executive is terminated without cause or if the executive
terminates for "good reason" during the three-year period after a change of
control, the executive is generally entitled to receive the same payments and
benefits that he would receive in the event of a similar termination under the
employment agreements, described above, except that in the event of an
unsolicited change of control (as defined in the change of control agreements),
the cash payment would be five times rather than four times, the sum of (a) the
executive's base salary plus (b) the lesser of (1) the highest bonus paid to the
executive for any of the preceding three years or (2) two times the executive's
base salary. The term "good reason" includes the failure of the acquiror to
provide the executive with substantially the same position, authority, duties
and responsibilities in the ultimate parent company of the entity resulting from
the transaction.
If employment terminates as a result of death, disability or retirement
following a change of control, the executive will receive the same benefits
described above under "Employment Agreements" in the event of death, disability
or retirement, except for the cash payment.
In addition, the change of control agreements provide that the
executives are entitled to receive a payment in an amount sufficient to make the
executives whole for any excise tax on amounts payable under the agreements that
are considered to be excess parachute payments under Section 4999 of the
Internal Revenue Code.
The confidentiality and non-competition provisions of the executives'
employment agreements continue to apply after a change of control.
------------------------
16
Retirement Benefit Program
Under our retirement benefit program and that of the Services Company
(see Certain Transactions for more detail about the Services Company), each
participant, including each of the named officers other than Mr. Machribie is
entitled to benefits based upon the sum of his starting account balance, annual
benefit credits and annual interest credits allocated to his "account." The
starting account balance is equal to the value of the participant's accrued
benefit as of June 30, 1996, under the prior plan. The annual benefit credits
consist of two parts: (1) 4% of the participant's earnings for the year in
excess of the social security wage base for the year; and (2) a percentage of
the participant's total earnings for the year. The percentage of total earnings
is determined as follows:
o 15%, if as of December 31, 1996, the participant's age plus
service totaled 65 or more, he was at least 50 years old and
had at least 10 years of service;
o 10%, if as of December 31, 1996, the participant's age plus
service totaled 55 or more, he had at least 10 years of
service, and he did not meet the requirements for a 15%
allocation;
o 7%, if as of December 31, 1996, the participant's age plus
service totaled 45 or more, he had at least 5 years of
service, and he did not meet the requirements for a greater
allocation; and
o 4%, if the participant did not meet the requirements for a
greater allocation.
The annual interest credit is equal to the account balance at the end
of the prior year multiplied by the annual yield on 10-year U.S. Treasury
securities on the last day of the preceding year. This interest credit was 5.12%
for 2001. Interest credits cease at the end of the year in which the participant
reaches age 60. Upon retirement, a participant's account balance is payable
either in a lump sum or an annuity, as selected by the participant. A
participant's "earnings" are comprised of annual base salary (see "Salary" in
the Summary Compensation Table above), plus 50% of certain bonuses (see "Bonus"
in the Summary Compensation Table above). Years of service include not only
years with us or the Services Company but also any years with our predecessors.
Benefits payable to a participant under our and the Services Company's
retirement benefit programs are no longer determined primarily by the
individual's final average compensation and years of service. However, if a
participant's age plus service equaled 65 or more as of December 31, 1996, and
as of that date the participant had both attained age 50 and had at least 10
years of service, the participant is "grandfathered" into a benefit of no less
than the benefit under the former retirement benefit formula based on years of
service and final average earnings.
In 2000 we discontinued the foregoing retirement benefit program. All
benefit accruals ceased effective June 30, 2000, and as of that date we
increased the account balances of eligible participants by the final half-year
benefit credit plus a special benefit credit of 3.5% of the account balance. The
retirement benefit program consisted of two plans: a funded qualified plan and
an unfunded non-qualified plan.
The present value of the benefit earned by each participant under the
non-qualified plan was transferred, effective June 30, 2000, to our unfunded
non-qualified defined contribution plan. The amount transferred for each of the
named officers (other than Mr. Machribie) is as follows: $2,849,930 for Mr.
Moffett and $807,261 for Mr. Adkerson.
We have formally terminated the qualified plan and will distribute all
assets upon receiving IRS approval of the termination. Approval has been delayed
while the IRS develops a policy regarding all plans that have converted to the
account balance type of design. We will contribute to the plan any amount needed
to complete the funding of benefits. A participant can elect to receive his
accrued benefit under the qualified plan in the form of either an annuity
contract issued by an insurance company, or in a single lump sum that can be
transferred into our qualified defined contribution plan or an IRA, or received
in cash subject to applicable tax withholdings. If paid in a single lump sum as
of November 1, 2002, the amount paid to each of the named officers (other than
Mr. Machribie) would be as follows: $136,704 for Mr. Moffett and $94,329 for Mr.
Adkerson.
Under PT Freeport Indonesia's retirement plan, each participant,
including Mr. Machribie, is entitled to benefits based upon the participant's
years of service and monthly base salary at the time of retirement. All benefits
17
under the retirement plan are payable in rupiah, Indonesia's currency. A
participant's retirement benefit is calculated by multiplying 1.5 by the
participant's years of service by the participant's monthly base salary at the
time of retirement. Under Indonesian law and the retirement plan, Mr. Machribie
was deemed retired upon reaching the age of 60 on July 1, 2001. Mr. Machribie's
annual retirement benefit is an accrued lump sum benefit of U.S. $67,500, which
he has received paid in rupiah, and an annual annuity payment of U.S. $42,218
for life beginning in 2002 (payable in rupiah, translated at an exchange rate of
approximately 9,838 rupiah per U.S. $1.00).
Because Mr. Machribie is no longer eligible to participate in PT
Freeport Indonesia's retirement plan but he continues to work for us, PT
Freeport Indonesia has agreed to pay Mr. Machribie a one-time, lump sum cash
payment to him upon conclusion of his employment with us. This payment will be
determined by PT Freeport Indonesia in its sole discretion but in no event will
be less than U.S. $50,000 for each full year of service rendered by Mr.
Machribie beginning from July 1, 2001.
CORPORATE PERSONNEL COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The corporate personnel committee, which is composed of five
independent directors, determines the compensation of our executive officers and
administers our annual incentive, long-term incentive, and stock option plans.
The committee's executive compensation philosophy is to:
o emphasize performance-based compensation that balances rewards
for both short- and long-term results;
o tie compensation to the interests of stockholders; and
o provide a competitive level of total compensation that will
attract and retain talented executives.
A primary goal of the committee is to position us to attract and retain
the highest level of executive talent. To accomplish this goal, the committee
targets our executive compensation levels in the top quartile of comparable
companies. It also includes other companies whose operational, corporate
financing, and other activities are considered comparable to those activities in
which we engaged in recent years under the management of our executive officers.
In December 2000, the committee engaged William M. Mercer, Inc.
(Mercer) as an independent executive compensation consultant, to conduct an
analysis on the feasibility and suitability of the company entering an
employment agreement and a change of control agreement with each of James R.
Moffett, Chairman of the Board and Chief Executive Officer, and Richard C.
Adkerson, President and Chief Financial Officer. After analyzing industry
practices, Mercer advised that such agreements are prevalent and opined that the
proposed terms and conditions of the respective agreements were within
acceptable industry norms. In April 2001, with the approval of the board of
directors and based on Mercer's recommendations, the committee entered into an
employment agreement and a change of control agreement with each of Messrs.
Moffett and Adkerson. (See "Employment Agreements and Change of Control
Agreements" under Executive Officer Compensation for more details.)
Overview of 2001 Compensation
Executive officer compensation for 2001 included base salaries, annual
incentive awards, long-term incentive awards, stock options, and, in some cases,
restricted stock units. In 1998, we substantially revised our compensation
arrangements with Messrs. Moffett and Adkerson. As part of our program to
conserve cash, Messrs. Moffett and Adkerson agreed to cap their annual cash
incentive awards for the next five years at $2.75 million for Mr. Moffett and
$1.375 million for Mr. Adkerson. In April 2001, we entered into employment
agreements with Messrs. Moffett and Adkerson, which incorporate the provisions
of this arrangement. As such, these limits on annual cash incentive awards were
applied during 2001 and will apply during 2002. In return for caps on the annual
cash bonus, in 1998 we granted to Mr. Moffett immediately exercisable options to
purchase 1.75 million shares of Class B common stock and granted to Mr. Adkerson
immediately exercisable options to purchase 875,000 shares of
18
Class B common stock. These options have an eight-year term. The substitution of
cash compensation with stock options was intended to further align the interests
of these officers with the interests of stockholders.
Base Salaries
We established the base salaries of the executive officers at
appropriate levels after consideration of each executive officer's
responsibilities. In October 2000, we announced a management reorganization and
reduction in our senior management group. As part of this restructuring, Messrs.
Moffett and Adkerson assumed significantly increased roles in the management of
the affairs of our company. Because of the increased duties and resulting cost
savings to the company, we decided to increase the annual base salary of Mr.
Moffett from $1.0 million to $2.5 million and Mr. Adkerson from $750,000 to
$1.25 million, effective October 1, 2000. Pursuant to the employment agreements
discussed above, Messrs. Moffett and Adkerson's annual base salaries will
continue at these present levels through April 30, 2006 and April 30, 2005,
respectively.
Annual Incentive Awards
We provide annual cash incentives to executive officers through our
annual incentive plan and performance incentive awards program. Awards paid
under these plans in 2001 were based on a return on investment threshold, the
level of cash flow from operations, and operational and strategic
accomplishments during 2001, including accomplishments in the areas of
exploration, production, management, and strategic planning.
Annual Incentive Plan. The annual incentive plan is designed to provide
performance-based awards to those executive officers whose performance can have
a significant impact on our profitability and future growth. All of our named
officers participated in the annual incentive plan for 2001. At the beginning of
2001, each participant was assigned a percentage share of the aggregate award
pool for 2001 based on that person's position and level of responsibility. Under
the terms of the annual incentive plan, no awards will be made for any year if
the five-year average return on investment (generally, consolidated net income
divided by consolidated stockholders' equity and long-term debt, including the
minority interests' share of subsidiaries' income and stockholders' equity) is
less than 6%. During the five-year period ending in 2001, the average return on
investment was 10.1%. When determining the aggregate awards granted under the
annual incentive plan for 2001, the committee considered as a guideline 2.5% of
net cash flow from operations in 2001, which is the maximum amount that may be
awarded under the annual incentive plan to executive officers whose compensation
is subject to the limitation on deductible compensation imposed by Section
162(m) of the Internal Revenue Code.
After reviewing the performance factors and accomplishments described
above, the committee concluded that our performance had exceeded expectations
and approved an incentive pool of approximately 1.04% of net operating cash
flow. As explained above, the individual cash awards paid to Messrs. Moffett and
Adkerson under the annual incentive plan were capped. Without the caps, Mr.
Moffett's award would have been approximately $7.62 million and Mr. Adkerson's
award would have been $3.81 million, and the aggregate awards under the annual
incentive plan would have been approximately 2.5% of net operating cash flow.
Performance Incentive Awards Program. Our performance incentive awards
program is designed to provide performance-based annual cash awards to certain
officers and managers who do not participate in the annual incentive plan. In
2001, each participant in the performance incentive awards program was assigned
a target award based upon level of responsibility. After a review of the
performance measures and accomplishments described above, the committee
established an award pool for 2001 that totaled 1.24% of net operating cash
flow. Individual performance is an important factor considered in determining
the actual awards paid under the performance incentive awards program.
Restricted Stock Unit Plan
As part of our efforts to conserve cash and to further align the
interests of the executives with those of the stockholders, in 1999 the
committee approved a program that allowed certain officers and managers the
opportunity to receive a grant of restricted stock units with respect to shares
of Class A common stock in lieu of all or part of their cash bonus for a given
year. The restricted stock units will vest ratably over a three-year period. To
19
compensate for the restrictions and risk of forfeiture, the restricted stock
units were awarded at a 50% premium to the market value on the grant date. The
program was not intended to increase the overall compensation of the officers
and managers. An independent executive consulting firm reviewed the program and
concluded that its design was appropriate and in line with other similarly
situated companies.
Stock Options and Long-Term Incentives
Stock option and long-term incentive award guidelines are intended to
provide a significant potential value to reinforce the importance of stockholder
value creation. The committee encourages executive officers to accumulate
significant equity ownership in our company by granting stock options. The
committee believes that larger, multi-year stock option awards rather than
smaller, annual awards provide a more powerful incentive to the company's most
senior executive officers to achieve sustained growth in stockholder value over
the long term. As a result, the committee grants Messrs. Moffett and Adkerson
stock option awards every three years. In keeping with the committee philosophy,
the committee granted stock options to them in 1999 and did not grant stock
option awards to them in 2000 or 2001.
The committee continues to make annual stock option grants to other
officers. In 2001, our other named officer received stock options based on
guidelines that relate to the position of each participating officer. The
exercise price of each stock option is equal to the fair market value of a share
of Class B common stock on the grant date.
The committee also compensates officers for long-term performance with
annual grants of performance units. Performance units are designed to link a
portion of executive compensation to cumulative earnings per share because we
believe that sustained profit performance will help support increases in
stockholder value. Each outstanding performance unit is annually credited with
an amount equal to the annual earnings per share, as defined in the plan, for a
four-year period. These credits are paid in cash after the end of the four-year
period.
Section 162(m)
Section 162(m) limits to $1 million a public company's annual tax
deduction for compensation paid to each of its most highly compensated executive
officers. Qualified performance-based compensation is excluded from this
deduction limitation if certain requirements are met. The committee's policy is
to structure compensation awards that will be deductible where doing so will
further the purposes of our executive compensation programs. The committee also
considers it important to retain flexibility to design compensation programs
that recognize a full range of criteria important to our success, even where
compensation payable under the programs may not be fully deductible.
The committee believes that the stock options, annual incentive awards,
and performance units qualify for the exclusion from the deduction limitation
under Section 162(m). With the exception of a portion of the salary paid to our
chief executive officer and our president, the committee anticipates that the
remaining components of individual executive compensation that do not qualify
for an exclusion from Section 162(m) should not exceed $1 million in any given
year and therefore will qualify for deductibility.
H. Devon Graham, Jr., Chairman Bobby Lee Lackey
Robert J. Allison, Jr. J. Taylor Wharton
Robert W. Bruce III
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of our corporate personnel committee are Messrs.
Allison, Bruce, Graham, Lackey and Wharton. In 2001, none of our executive
officers served as a director or member of the compensation committee of another
entity, where an executive officer of the entity served as our director or on
our corporate personnel committee.
20
AUDIT COMMITTEE REPORT
The audit committee is currently composed of six directors. The members
of our committee are independent, as defined in the New York Stock Exchange's
listing standards. We operate under a written charter approved by our committee
and adopted by the board of directors. Our primary function is to assist the
board of directors in fulfilling the board's oversight responsibilities by
monitoring (1) the company's continuing development of its system of financial
reporting, auditing, internal controls and legal compliance, (2) the operation
of the system and (3) the independence and performance of the company's external
and internal auditors.
Financial Statement Review; Discussions with Management and Independent Auditors
We have reviewed and discussed the company's audited financial
statements for the year 2001 with management and the company's independent
auditors. Management represented to us that the audited financial statements
were prepared in accordance with accounting principles generally accepted in the
United States.
We have received and reviewed the written disclosures and the letter
from the independent auditors required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees, as amended, by the
Independence Standards Board, and have discussed with the independent auditors
their independence from the company and management. We have also discussed with
the independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as amended, by
the Auditing Standards Board of the American Institute of Certified Public
Accountants.
In addition, we have discussed with the independent auditors the
overall scope and plans for their audit, and have met with the independent
auditors and management to discuss the results of their examination, their
understanding and evaluation of the company's internal controls as they
considered necessary to support their opinion on the financial statements for
the year 2001, and various factors affecting the overall quality of the
company's financial reporting. The independent auditors also have had
opportunities to meet with us without management being present to discuss any of
these matters.
Based on these reviews and discussions, we recommended to the board of
directors that the financial statements referred to above be included in the
company's annual report on Form 10-K for the year 2001.
Internal Audit
We also oversee the company's internal audit function, including the
selection and compensation of the company's internal auditors. We have discussed
with the company's internal auditors the scope of their audit plan, and have met
with the internal auditors to discuss the results of their reviews, their
evaluation of the company's processes and internal controls, any difficulties or
disputes with management encountered during the course of their reviews, and
other matters relating to the internal audit process.
Fees and Related Disclosures for Accounting Services
Audit and Review Fees. The independent auditors billed the company
$449,775 for professional services rendered for the audit of the company's
financial statements for 2001 and for the reviews of the unaudited interim
financial statements included in the company's Forms 10-Q for 2001.
Financial Information Systems Design and Implementation Fees. The
independent auditors did not provide any financial information systems design
and implementation services for 2001.
All Other Fees. For 2001, the independent auditors billed the company
$561,225 for professional services rendered, other than described above under
"Audit and Review Fees" and "Financial Information Systems Design and
Implementation Fees." These services primarily related to the following:
o tax compliance services, preparation of the company's federal
and state tax returns and preparation of the company's
estimated tax payments;
21
o services rendered for statutory audits required under
Indonesian law, services rendered for audits of the company's
employee benefit plans and accounting consultations;
o services rendered with respect to the sale of convertible
notes and the related registration statement filed with the
SEC in 2001 and subsequent review by the SEC; and
o providing personnel to work on a temporary basis under the
direction of the human resource department of PT Freeport
Indonesia in Indonesia.
Consideration of Auditors' Independence. We have considered whether the
provision of services covered under the sections entitled "Financial Information
Systems Design and Implementation Fees" and "All Other Fees" for 2001 is
compatible with maintaining the auditors' independence and have discussed with
the auditors their independence from the company and management.
Robert A. Day, Chairman H. Devon Graham, Jr.
Robert W. Bruce III Steven J. Green
Gerald J. Ford Oscar Y. L. Groeneveld
PERFORMANCE GRAPH
The following graph compares the change in the cumulative total
stockholder return on our Class B common stock with the cumulative total return
of the S&P 500 Stock Index and the cumulative total return of the Dow Jones
Other Non-Ferrous Metals Group Index (Americas) from 1997 through 2001. This
comparison assumes $100 invested on December 31, 1996 in (a) Freeport-McMoRan
Copper & Gold Inc. Class B common stock, (b) S&P 500 Stock Index and (c) Dow
Jones Other Non-Ferrous Metals Group Index (Americas).
COMPARISON OF CUMULATIVE TOTAL RETURN*
FREEPORT-MCMORAN COPPER & GOLD INC.,
S&P 500 STOCK INDEX AND DOW JONES
OTHER NON-FERROUS METALS GROUP INDEX (AMERICAS)
[insert graph]
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ------------ ------------
Freeport-McMoRan Copper & Gold Inc. $100.00 $54.42 $36.56 $74.00 $29.99 $46.90
S&P 500 Stock Index $100.00 $133.53 $171.69 $207.81 $188.90 $166.44
Dow Jones Other Non-Ferrous Metals
Group Index (Americas) $100.00 $74.06 $52.47 $90.79 $67.10 $50.03
* Total Return Assumes Reinvestment of Dividends
CERTAIN TRANSACTIONS
We and McMoRan each own 50% of the Services Company. The Services
Company's sole director is also an executive officer of our company. We are
parties to a services agreement with the Services Company under which the
Services Company provides us with executive, technical, administrative,
accounting, financial, tax and other services. The Services Company also
provides these services to McMoRan. We pay an allocable portion of expenses from
consulting arrangements that the Services Company has entered into, some of
which are described below.
22
B. M. Rankin, Jr. and the Services Company are parties to an agreement
under which Mr. Rankin renders services to us and McMoRan relating to finance,
accounting and business development. The Services Company provides Mr. Rankin
compensation, medical coverage and reimbursement for taxes in connection with
those medical benefits. In 2001, the Services Company paid Mr. Rankin $469,167
($243,334 of which was allocated to us) pursuant to this agreement. Mr. Rankin
also received reimbursement of $65,290 for a portion of his office rent and the
services of an executive secretary employed by the Services Company and received
$24,952 of imputed income for his use of company chartered aircraft.
J. Stapleton Roy, who was appointed to our board in March 2001, is
Managing Director of Kissinger Associates, Inc. Kissinger Associates and the
Services Company are parties to agreements under which Kissinger Associates
provides to us and our affiliates advice and consultation on specified world
political, economic, strategic and social developments affecting our affairs.
Under these agreements, Kissinger Associates receives an annual fee of $200,000,
additional consulting fees based on the services rendered, and reimbursement of
reasonable out-of-pocket expenses incurred in connection with providing such
services. In 2001, the Services Company paid Kissinger Associates $200,000,
excluding reasonable out-of-pocket expenses, for all services rendered under
these agreements (all of which was allocated to us).
J. Bennett Johnston and the Services Company are parties to an
agreement, renewable annually, under which Mr. Johnston provides consulting
services to us and our affiliates relating to international relations and
commercial matters. Under this agreement, Mr. Johnston receives an annual
consulting fee of $250,000 and reimbursement of reasonable out-of-pocket
expenses incurred in connection with providing services. In 2001, the Services
Company paid Mr. Johnston $250,000, excluding reasonable out-of-pocket expenses,
pursuant to this agreement, $200,000 of which was allocated to us. The annual
consulting fee includes Mr. Johnston's annual fee for serving on our board.
Gabrielle K. McDonald and the Services Company are parties to an
agreement, renewable in December 2002, under which Ms. McDonald renders
consulting services to us and our affiliates in connection with her role as
Special Counsel on Human Rights to our Chairman. Under this agreement, Ms.
McDonald received an annual fee of $500,000 in 2001, and will receive an annual
fee of $250,000 in 2002, plus reimbursement of reasonable out-of-pocket expenses
incurred in connection with rendering consulting services. In 2001, the Services
Company paid Ms. McDonald $500,000, exclusive of reasonable out-of-pocket
expenses, pursuant to this agreement, all of which was allocated to us. The
annual consulting fee includes Ms. McDonald's annual fee for serving on our
board.
RATIFICATION OF THE APPOINTMENT OF AUDITORS
Our board of directors seeks stockholder ratification of the board's
appointment of _________________ to act as the independent auditors of our and
our subsidiaries' financial statements for the year 2002. Our board has not
determined what, if any, action would be taken should the appointment of
_______________ not be ratified. One or more representatives of _______________
will be available at the meeting to respond to appropriate questions, and those
representatives will also have an opportunity to make a statement.
23
PROPOSAL TO RECLASSIFY SHARES OF OUR CLASS A COMMON STOCK INTO SHARES OF OUR
CLASS B COMMON STOCK BY AMENDING OUR CERTIFICATE OF INCORPORATION
Our board of directors has authorized, and recommends for your
approval, an amendment to our certificate of incorporation to combine our two
classes of common stock into a single class of common stock by reclassifying
each outstanding share of our Class A common stock into one share of our Class B
common stock. Because this is a summary of the proposed amendment, it may not
contain all of the information that is important to you. You should read the
proposed amended and restated certificate of incorporation attached as Annex A
to this proxy statement carefully before you decide how to vote.
The proposed amendment would
o combine our Class A common stock and Class B common stock into
a single class of common stock by converting each outstanding
share of our Class A common stock into one share of our Class
B common stock;
o provide for the election of all of our directors by the
holders of our Class B common stock and the holders of our
outstanding preferred stock, voting together as a single
class; and
o eliminate all references to our Class A common stock and
authorize the issuance of an additional 211.8 million shares
of our Class B common stock, which is the number of shares of
our Class A common stock currently authorized for issuance by
our certificate of incorporation.
We will refer to the proposed amendment to our certificate of
incorporation as the "Amendment." In order for the Amendment to be validly
authorized, holders of a majority of our outstanding shares of Class A common
stock and a majority of our outstanding shares of Class B common stock, voting
as separate classes, must approve the Amendment. Moreover, by voting to approve
the Amendment, our Class A and Class B common stockholders will be authorizing
the company, without further stockholder approval, to make any immaterial
changes to the Amendment as our officers executing the Amendment may approve. If
approved, the Amendment will be effective on the date it is filed with the
Delaware Secretary of State; we will refer to this date as the "effective date."
The effective date is expected to occur as soon as practicable after the annual
meeting of stockholders.
BACKGROUND OF OUR DUAL-CLASS STRUCTURE
Our dual-class common stock structure was created in connection with
the initial public offering of our Class A common stock in May 1988. Following
the offering, our former sole stockholder, Freeport-McMoRan Inc., owned all of
our outstanding Class B common stock. In connection with its proposal in May
1994 to distribute all of our outstanding Class B common stock to its
stockholders, Freeport-McMoRan Inc. sought and received a letter ruling from the
Internal Revenue Service that the distribution would be tax-free for federal
income tax purposes to Freeport-McMoRan Inc. and its stockholders. In order to
receive the letter ruling and ensure that our Class B common stock could be
distributed on a tax-free basis, we were required to make certain changes to our
capital structure and corporate governance. The changes included an amendment to
our certificate of incorporation to provide that
o at least 80% of our directors would be elected by the holders
of our Class B common stock, voting as a separate class; and
o the remainder of our directors would be elected by the holders
of our Class A common stock and the holders of our preferred
stock, voting together as a separate class.
In addition, in order to satisfy the IRS' requirements, we were
required to represent that there would be no change in, or any vote to change,
the special voting rights for five years after the distribution. On July 17,
1995, Freeport-McMoRan Inc. completed the distribution of our Class B common
stock to its stockholders, and the
24
changes to our capital structure and corporate governance became effective. The
rights of holders of our Class A and Class B common stock have not changed since
that date.
In December 2001 and in January 2002, our management discussed with our
board of directors the possibility of combining our two classes of common stock
into a single class. In January 2002, we formally engaged J. P. Morgan
Securities Inc. ("JPMorgan") as our financial advisor to assist us in connection
with a possible combination of our two classes of common stock.
On February 26, 2002, our board of directors formally considered and
authorized a proposal to combine our Class A common stock and Class B common
stock into a single class of common stock on a one share-for-one share basis by
amending our certificate of incorporation. At this meeting, JPMorgan made a
presentation to our board and rendered its opinion that, as of February 26, 2002
and subject to and based on the considerations described in its opinion, the
one-to-one exchange ratio was fair, from a financial point of view, to the
holders of our Class A and Class B common stock. The full text of JPMorgan's
opinion is attached as Annex B to this proxy statement. Also see the section
entitled "Fairness Opinion" below.
REASONS FOR THE AMENDMENT; FACTORS CONSIDERED
In authorizing the Amendment and recommending that our stockholders
approve it, our board of directors considered the following benefits that may
result from the elimination of the dual-class common stock structure:
o our capital structure would be simplified;
o potential investor confusion resulting from our dual-class
structure would be reduced;
o the liquidity and trading efficiencies of our common stock
would potentially increase;
o flexibility to structure transactions using our common stock
would improve; and
o certain administrative expenses of the dual-class structure
would be reduced.
Our board of directors also considered the following factors in
connection with its approval and recommendation of the Amendment:
o the opinion of JPMorgan that, as of February 26, 2002 and
subject to and based on the considerations described in such
opinion, the one-to-one exchange ratio was fair, from a
financial point of view, to the holders of our Class A and
Class B common stock;
o the holders of the Class A and Class B common stock have the
same economic rights with the special voting rights for the
election of directors representing the only material
difference in our Class A and Class B common stock;
o in a merger or reorganization transaction, each holder of a
share of Class A common stock and each holder of a share of
Class B common stock would be entitled to receive the same
kind and amount of shares, securities or other property,
except that the holders of our Class A and Class B common
stock could be offered different kinds of shares if the only
difference would be the special voting rights for the election
of directors;
o the effect on future elections of directors that will result
from the Amendment, as more fully described in the section
below entitled "Certain Effects of the Amendment;"
o the historical trading prices and trading volume differentials
of our Class A and Class B common stock;
o the historical trading price and trading volume differentials
between the two classes of stock of other companies with
dual-class capital structures;
25
o the exchange ratios adopted by other companies that have
eliminated their dual-class structures;
o the trend of publicly held companies away from dual-class
capital structures, consistent with the policies of the New
York Stock Exchange and the other major stock exchanges in
favor of one-vote, one-share common stock capitalization;
o the Amendment is not expected to result in taxable income to
the holders of our Class A and Class B common stock or the
company; and
o as discussed above in the section entitled "Background of Our
Dual-Class Structure," the expiration of the time period
during which we represented to the IRS that there would be no
change in the special voting rights for the election of
directors.
In authorizing and recommending the approval of the Amendment, our
board of directors considered the enumerated factors and potential benefits set
forth above as a whole and did not quantify or otherwise assign relative weights
to the different factors or potential benefits. Although one of the potential
benefits that our board considered was the administrative cost savings that may
result from a simplified capital structure, we cannot assure you that the
reclassification of our shares of Class A common stock into shares of our Class
B common stock will result in any material cost savings. We also cannot assure
you when or if the other potential benefits will be realized.
CERTAIN EFFECTS OF THE AMENDMENT
If the Amendment is approved and filed, each share of our outstanding
Class A common stock will automatically be converted into one share of our Class
B common stock. After the effective date, the holders of our Class B common
stock will vote with the holders of our outstanding preferred stock for the
election of all directors. The Amendment will also have the following effects,
among others, on the holders of our Class A and Class B common stock and on the
company:
Voting Power of Holders of Our Class A and Class B Common Stock
o Elections of Directors
Currently, the holders of our Class B common stock elect at least 80%
of our directors and are entitled to cast 100% of the votes entitled to be cast
in such elections. The holders of our Class A common stock currently vote with
the holders of our outstanding preferred stock to elect the remainder of our
directors. As of March 14, 2002, holders of our Class A common stock were
entitled to cast approximately 97.7% of the votes entitled to be cast in such
elections and the holders of our preferred stock were entitled to cast 2.3% of
the votes. As further discussed in the section of the proxy statement entitled
Election of Directors, under Rio Tinto's agreement with us, Rio Tinto has the
right to nominate certain directors. As a result of Rio Tinto's beneficial
ownership of 23.9 million shares of our Class A common stock, two of our
directors are selected by Rio Tinto and both serve as Class A directors.
After the effective date, the current holders of our Class A common
stock, as new holders of our Class B common stock, and the current holders of
our Class B common stock will vote together with the holders of our outstanding
preferred stock for the election of all of our directors. Thus, after the
effective date, the holders of our preferred stock will vote in the election of
all of our directors with the holders of our Class B common stock. Based on the
shares outstanding as of March 14, 2002, immediately after the effective date,
the current holders of our Class A common stock, as new holders of our Class B
common stock, and the current holders of our Class B common stock will be
entitled to cast approximately 38.2% and 60.9%, respectively, of the votes
entitled to be cast for the election of directors. The holders of our preferred
stock will be entitled to cast approximately 0.9% of the votes entitled to be
cast for the election of directors. After the effective date, Rio Tinto will
continue to have the right to nominate directors based on its aggregate
percentage ownership of our Class B common stock. See Election of Directors.
26
o All Other Matters
As to all other matters on which our stockholders are entitled to vote,
the Amendment will have no impact on the voting power of holders of our Class A
and Class B common stock. On such matters, the holders of our Class A and Class
B common stock are currently entitled to cast approximately 38.5% and 61.5%,
respectively, of the votes entitled to be cast. After the effective date, the
current holders of our Class A common stock, as new holders of our Class B
common stock, and the current holders of our Class B common stock will be
entitled to cast approximately 38.5% and 61.5%, respectively, of the votes
entitled to be cast based on the shares outstanding as of March 14, 2002.
Equity Interest of Holders of Our Class A and Class B Common Stock
In addition, the Amendment will have no impact on the equity interest
of holders of our Class A and Class B common stock. The shares held by the
holders of our Class A and Class B common stock currently represent 38.5% and
61.5%, respectively, of our total outstanding common stock. After the effective
date, the shares of our Class B common stock received by the current holders of
our Class A common stock pursuant to the Amendment and the Class B shares held
by our current Class B stockholders will represent approximately 38.5% and
61.5%, respectively, of our outstanding common stock based on the shares
outstanding as of March 14, 2002.
Our Capitalization
The Amendment will have no impact on our total outstanding shares of
common stock. As of March 14, 2002, we had [144,151,813] shares of common stock
outstanding, consisting of [55,567,714] shares of Class A common stock and
[88,584,099] shares of Class B common stock. After the effective date, we will
have [144,151,813] shares of our Class B common stock outstanding. In addition,
the Amendment will involve no increase in our total number of authorized shares
of common stock. The Amendment authorizes the issuance of an additional 211.8
million shares of our Class B common stock, which is the number of shares of our
Class A common stock currently authorized by our certificate of incorporation.
Market Price of Our Common Stock
After the effective date, the market price of shares of our Class B
common stock will depend, as before the Amendment, on many factors, including
our future performance, general market conditions and conditions in the industry
in which we operate. Accordingly, we cannot predict the price at which our Class
B common stock will trade following the Amendment, just as we could not predict
the prices at which our Class A common stock and Class B common stock would
trade absent the Amendment. On March __, 2002, the per-share closing prices of
our Class A common stock and Class B common stock on the New York Stock Exchange
were $_____ and $_____, respectively.
NYSE Listing of Our Common Stock
After the effective date, the shares of our Class B common stock,
including the additional shares of our Class B common stock issued pursuant to
the Amendment, will continue to be listed on the New York Stock Exchange under
the symbol "FCX." We will cause our Class A common stock to be delisted from the
NYSE after the effective date.
Our Operations
The Amendment will have no impact on our operations.
Resale of New Common Stock
Shares of our Class B common stock issued pursuant to the Amendment,
other than any shares issued to "affiliates" of the company within the meaning
of the Securities Act of 1933, may be sold in the same manner as the Class A
common stock converted pursuant to the Amendment without registration under the
Securities Act.
27
Affiliates of the company will continue to be subject to the restrictions
specified in Rule 144 under the Securities Act.
Stock Options and Our Other Stock-Based Awards
In order to appropriately account for reclassifying the Class A common
stock into Class B common stock, we will cause each option to purchase shares of
our Class A common stock to become an option to purchase shares of our Class B
common stock. Our other stock-based awards will also be adjusted appropriately.
Step-Up Convertible Preferred Stock
After the effective date, our Step-Up Convertible Preferred Stock,
which is currently convertible into shares of our Class A common stock, will be
convertible into shares of our Class B common stock at the same conversion
price.
Convertible Senior Notes
After the effective date, our convertible senior notes, which are
currently convertible into shares of either our Class A or Class B common stock,
will only be convertible into shares of our Class B common stock.
Rights Agreement
Under our stockholder rights agreement, each outstanding share of our
Class A and Class B common stock currently includes an associated preferred
stock purchase right. These rights trade with our outstanding shares of Class A
and Class B common stock. The rights become exercisable upon the acquisition by
a person or affiliated group of 20% or more of our outstanding Class A or Class
B common stock or the commencement or announcement of a tender offer which, if
consummated, would result in the acquisition of 20% or more of our outstanding
Class A or Class B common stock.
After the effective date, each share of our Class B common stock issued
pursuant to the Amendment will include an identical associated preferred stock
purchase right that will trade with such shares. As with the rights included
with the currently outstanding shares of our Class B common stock, these rights
will become exercisable upon the acquisition by a person or affiliated group of
20% or more of our outstanding Class B common stock or the commencement or
announcement of a tender offer which, if consummated, would result in the
acquisition of 20% or more of our outstanding Class B common stock.
DIFFERENCES BETWEEN OUR CLASS A AND CLASS B COMMON STOCK
The current rights and privileges of our Class A and Class B common
stock are set forth in Article Fourth of our certificate of incorporation.
Except for differences regarding the special voting rights for the election of
our directors and related rights (i.e., filling of director vacancies), the
rights and privileges of holders of our Class A common stock are identical to
the rights and privileges of holders of our Class B common stock.
Holders of our Class B common stock currently vote for the election of
at least 80% of our directors; our remaining directors are elected by the
holders of our Class A common stock voting with the holders of our outstanding
preferred stock. Any vacancy in the office of a director elected by the holders
of our Class B common stock may be filled by the vote of our Class B common
stockholders. Similarly, any vacancy in the office of a director elected by the
holders of our Class A common stock and preferred stock may be filled by the
vote of our Class A common stockholders and preferred stockholders, voting
together.
After the effective date, the current holders of our Class A common
stock, as new holders of our Class B common stock, and the current holders of
our Class B common stock will vote with the holders of our outstanding preferred
stock for the election of all of our directors. Moreover, any vacancy in the
office of a director may be filled by the vote of the current holders of our
Class A common stock, as new holders of our Class B common stock, the current
holders of our Class B common stock and our preferred stockholders, voting
together as a class.
28
FAIRNESS OPINION
Pursuant to an engagement letter dated January 31, 2002, we retained
J.P. Morgan Securities Inc. ("JPMorgan") to render an opinion to our board of
directors as to the fairness, from a financial point of view, of the exchange
ratio to be used in reclassifying our Class A common stock into our Class B
common stock (the "transaction"). At the February 26, 2002 meeting of our board
of directors, JPMorgan rendered to our board an oral opinion, which was
confirmed in writing as of the same date, to the effect that as of that date and
based upon and subject to the assumptions, qualifications and limitations set
forth in the written opinion, the one-for-one exchange ratio pursuant to the
proposed reclassification transaction was fair to both the holders of our Class
A and Class B common stock.
THE FULL TEXT OF JPMORGAN'S OPINION, WHICH SETS FORTH, AMONG OTHER
THINGS, THE ASSUMPTIONS MADE, THE PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND
QUALIFICATIONS AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY JPMORGAN
IN RENDERING ITS OPINION, IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT. THE
OPINION SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY. JPMORGAN PROVIDED ITS
OPINION TO OUR BOARD OF DIRECTORS FOR ASSISTANCE IN CONNECTION WITH ITS
CONSIDERATION OF THE PROPOSED RECLASSIFICATION TRANSACTION, AND THE OPINION
ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW
TO THE HOLDERS OF OUR CLASS A AND CLASS B COMMON STOCK AS OF THE DATE OF THE
OPINION. THE OPINION WAS ONE OF SEVERAL FACTORS TAKEN INTO CONSIDERATION BY OUR
BOARD IN AUTHORIZING THE RECLASSIFICATION TRANSACTION. THE OPINION DOES NOT
CONSTITUTE AN OPINION AS TO THE PRICES AT WHICH OUR CLASS A COMMON STOCK AND
CLASS B COMMON STOCK WILL ACTUALLY TRADE AT ANY TIME AND THE OPINION DOES NOT
ADDRESS THE RELATIVE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF
OUR COMMON STOCK. FURTHERMORE, THE OPINION DOES NOT ADDRESS THE RELATIVE MERITS
OF THE RECLASSIFICATION TRANSACTION COMPARED TO OTHER BUSINESS STRATEGIES
CONSIDERED BY OR AVAILABLE TO OUR BOARD, NOR DOES IT ADDRESS OUR BOARD'S
DECISION TO PROCEED WITH THE RECLASSIFICATION TRANSACTION. THE OPINION IS NOT A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH
RESPECT TO THE RECLASSIFICATION TRANSACTION OR ANY OTHER MATTER AND SHOULD NOT
BE RELIED UPON BY ANY STOCKHOLDER AS SUCH. THIS SUMMARY OF JPMORGAN'S OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION ATTACHED
AS ANNEX B.
In rendering its opinion, JPMorgan, among other things:
o reviewed our certificate of incorporation and bylaws as they
relate to the rights and privileges of our Class A and Class B
common stock and held discussions with our outside counsel
regarding such rights and privileges;
o reviewed the historical trading performance and trading
liquidity of both classes of our common stock;
o reviewed the historical trading performance and trading
liquidity for other dual-class companies;
o compared the financial terms of the proposed transaction and
the exchange ratio to be used in the transaction with the
publicly available financial terms of selected recent
reclassification transactions that JPMorgan deemed relevant
and the exchange ratios used in such transactions;
o reviewed the historical trading performance, trading liquidity
and post-announcement stock price performance for securities
in such relevant reclassification transactions; and
o performed such other financial studies and analyses and
considered such other information as JPMorgan deemed
appropriate for the purpose of its opinion.
In addition, JPMorgan held discussions with certain members of our
management with respect to the original creation of our dual-class common stock
structure, certain aspects of the transaction and the strategic and other
reasons behind our decision to propose the transaction. JPMorgan was not
requested to, and did not, provide
29
advice concerning the structure, the specific exchange ratio, or any other
aspect of the transaction, and JPMorgan did not provide any services other than
the delivery of its opinion.
In rendering its opinion, JPMorgan relied upon and assumed, without
assuming any responsibility or liability for independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by us or otherwise reviewed by or for it. JPMorgan did not
conduct any valuation or appraisals of any of our assets or liabilities, nor
were any such valuations or appraisals provided to it. JPMorgan also assumed
that the transaction would qualify as a tax-free exchange and recapitalization
for United States federal income tax purposes. JPMorgan noted that it is not a
legal or tax expert and relied upon, without assuming any responsibility for
independent verification or liability therefor, the assessment of our legal and
tax advisors with respect to the legal and tax matters related to the
transaction.
The JPMorgan opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to it as of, the
date of its opinion. Subsequent developments may affect its opinion and JPMorgan
does not have any obligation to update, revise, or reaffirm its opinion. The
JPMorgan opinion is limited to the fairness, from a financial point of view, to
the holders of our Class A common stock and Class B common stock of the exchange
ratio in the transaction. JPMorgan has not expressed any opinion as to the
underlying decision by us to engage in the transaction. JPMorgan also has not
expressed any opinion as to the price at which our Class A common stock or Class
B common stock will trade at any future time.
The following is a brief summary of the analyses JPMorgan performed in
connection with preparing its fairness opinion:
Historical Trading Analysis of our Class A and Class B Common Stock.
JPMorgan reviewed the historical trading performance and the trading liquidity
of our Class A and Class B common stock. This analysis included the examination
of the percentage by which the daily closing price per share of our Class A
common stock traded at a premium or a discount to the daily closing price per
share of our Class B common stock. The trading premium or discount was
calculated for all trading days between July 11, 1995, when our Class A common
stock first began trading, to February 8, 2002. For the period from July 11,
1995 to February 8, 2002, our Class A common stock had an average trading
discount of 5.3% relative to our Class B common stock. For the five-year,
three-year and one-year periods, each ending February 8, 2002, our Class A
common stock had average trading discounts of 6.0%, 6.9% and 8.2%, respectively,
relative to our Class B common stock.
JPMorgan also analyzed the ratio of the average daily trading volume of
our Class B common stock traded relative to the average daily trading volume of
our Class A common stock, which is referred to as the relative trading
liquidity. For the period from July 11, 1995 to February 8, 2002, the relative
trading liquidity was 2.9 times. For the five-year, three-year and one-year
periods, each ending February 8, 2002, the relative trading liquidity was 3.9
times, 5.5 times and 7.8 times, respectively.
Analysis of Publicly Traded Companies with Dual-Class Capital
Structures. JPMorgan identified and analyzed a group of companies that, as of
the time of the analysis, had two classes of publicly traded common stock with
different voting rights and had market capitalizations of equal to or greater
than $750 million. The companies included in the analysis were classified into
two groups as follows:
o companies where the high vote shares had greater trading
liquidity than the low vote shares, and
o companies where the low vote shares had greater trading
liquidity than the high vote shares.
The analysis indicated that in the cases where the high vote shares had
higher trading liquidity, the low vote shares traded at average trading
discounts relative to the high vote shares of 7.7%, 16.7% and 14.1% for the one
year, three years and five years periods, each ending February 8, 2002,
respectively. In cases where the low vote shares that had greater trading
liquidity, the low vote shares traded at average trading premiums relative to
the high vote shares of 1.3%, 0.9% and 0.9% for the one year, three years and
five years periods, each ending February 8, 2002, respectively. For the one
year, three year and five year periods, each ending February 8, 2002, shares of
our Class A common stock traded at average trading discounts relative to shares
of our Class B common stock of 8.2%,
30
6.9% and 6.0%, respectively. JPMorgan noted that unlike many companies in its
sample, the special voting rights with respect to our Class A and Class B common
stock related to the election of directors only.
Analysis of Historical Reclassification Transactions. JPMorgan
identified and analyzed selected reclassification transactions involving
companies whose high vote shares had higher trading liquidity than their low
vote shares.
In each selected reclassification transaction, two classes of a single
company with differential voting rights were reclassified or combined into a
single class of common stock. JPMorgan noted that the ratio of new shares
received by both classes of common stock in each of the selected transactions
was one-for-one. In one transaction, the high vote shareholders received a one
time special dividend equal to approximately 7.0% of the high vote share price
the day prior to announcement. For these selected reclassification transactions,
the average trading discount for the low vote shares relative to the high vote
shares over the one year, three years and five years periods, each ending the
day prior to the public announcement of the reclassification transactions, was
5.4%, 4.7% and 5.9%, respectively.
JPMorgan also analyzed the post-announcement stock price performance of
the high and low vote shares of the companies that engaged in these selected
reclassification transactions. On average, the market trading prices of the high
vote shares increased 1.9% and the market trading prices of the low vote shares
increased 4.1% on the trading day immediately upon the announcement of the
reclassification transactions. JPMorgan noted that the post announcement trading
performance in previous reclassification transactions has no bearing on how our
Class A and Class B common stock may trade upon the announcement of our proposed
reclassification transaction.
JPMorgan performed a variety of financial and comparative analyses for
purposes of rendering its opinion. The summary set forth above does not purport
to be a complete description of the analyses or data presented by JPMorgan. The
preparation of a fairness opinion is a complex process and is not susceptible to
partial analysis or summary description. In arriving at its opinion, JPMorgan
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any analysis or factor considered by it. Furthermore,
JPMorgan believes that the summary provided and the analyses described above
must be considered as a whole and that selecting any portion of its analyses,
without considering all of them, would create an incomplete view of the process
underlying its analyses and opinion.
Our board of directors selected JPMorgan as its financial advisor
because of its reputation as an internationally recognized investment banking
and advisory firm with experience in transactions similar to the proposed
transaction and because JPMorgan is familiar with our company and our business.
As part of its investment banking and financial advisory business, JPMorgan is
continually engaged in structuring and executing a wide range of domestic and
international transactions, including acquisitions, divestitures, mergers, joint
ventures, corporate restructurings, leveraged buyouts, defenses against
unsolicited takeover attempts, recapitalizations, negotiated underwritings,
secondary distributions of listed and unlisted securities and private
placements.
JPMorgan provides a full range of financial advisory and securities
services and in the past, JPMorgan and its affiliates have provided financial
advisory and financing services for us and our affiliates and received fees for
the rendering of such services and also may provide such services to us and our
affiliates in the future for which they would expect to receive fees. Certain
JPMorgan affiliates have outstanding loans to us. In addition, in the course of
their business, JPMorgan and its affiliates may actively trade the debt and
equity securities of our company for their own accounts or for the accounts of
their customers and, accordingly, may at any time hold long or short positions
in such securities.
Pursuant to our engagement letter with JPMorgan, we agreed to pay
JPMorgan a customary fee upon the delivery of its opinion. We also agreed to
reimburse JPMorgan for its reasonable out-of-pocket expenses incurred in
connection with the engagement, including attorneys' fees, and to indemnify
JPMorgan and its related parties from and against certain liabilities, including
liabilities under the federal securities laws.
31
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is summary information as of February 26, 2002 with
respect to
o the amount of our Class A and Class B common stock (excluding
stock-based awards) that our directors and executive officers
beneficially own; and
o the amount of stock-based awards (i.e., stock options,
restricted stock units and stock appreciation rights) relating
to our Class A and Class B common stock that each of our
directors and executive officers hold.
As noted below, Rio Tinto, which has two director representatives on our board,
beneficially owns 43.1% of our outstanding Class A common stock. Another of our
directors beneficially owns 3.4% of our outstanding Class A common stock. For
further information, see the section of the proxy statement entitled "Stock
Ownership of Directors and Executive Officers."
Class A Common Stock
o STOCK OWNERSHIP (EXCLUDING STOCK-BASED AWARDS)
o Messrs. Clifford and Groeneveld are executive officers of
Rio Tinto and currently serve on our board as Rio Tinto's
nominees. See the section of the proxy statement entitled
"Election of Directors." Rio Tinto beneficially owns
23,931,100 shares of our Class A common stock,
representing 43.1% of our outstanding Class A common
stock.
o Another of our directors, Robert W. Bruce III,
beneficially owns 1,890,000 shares of our Class A common
stock, representing 3.4% of our outstanding Class A common
stock.
o Our remaining directors and executive officers as a group
beneficially own 205,908 shares of our Class A common
stock, representing 0.4% of our outstanding Class A common
stock.
o STOCK OPTIONS
o None of our non-employee directors hold stock options
relating to our Class A common stock.
o Our three executive officers hold stock options relating
to an aggregate of 1,322,500 shares of our Class A common
stock, none of which are currently exercisable and all of
which are scheduled to vest over the next four years.
o RESTRICTED STOCK UNITS
o None of our directors hold restricted stock units relating
to our Class A common stock.
o One of our executive officers holds restricted stock units
relating to 133,291 shares of our Class A common stock,
which are scheduled to vest over the next three years.
o STOCK APPRECIATION RIGHTS -- None of our directors or
executive officers hold stock appreciation rights relating to
our Class A common stock.
32
Class B Common Stock
o STOCK OWNERSHIP (EXCLUDING STOCK-BASED AWARDS) -- Our
directors and executive officers as a group beneficially own
1,743,282 shares of our Class B common stock, representing
2.0% of our outstanding Class B common stock.
o STOCK OPTIONS
o Our non-employee directors hold stock options relating to
an aggregate of 723,752 shares of our Class B common
stock, of which 458,752 are currently exercisable and the
remainder are scheduled to vest over the next three and
one-half years.
o Our executive officers hold an aggregate of 8,797,050
options relating to our Class B common stock, of which
6,659,550 are currently exercisable and the remainder are
scheduled to vest over the next four years.
o RESTRICTED STOCK UNITS - None of our directors or executive
officers hold restricted stock units relating to our Class B
common stock.
o STOCK APPRECIATION RIGHTS
o Our non-employee directors hold stock appreciation rights
relating to 474,484 shares of our Class B common stock, of
which 300,750 are currently exercisable and the remainder
are scheduled to vest over the next three and one-half
years.
o None of our executive officers hold stock appreciation
rights relating to our Class B common stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
We have summarized below certain federal income tax consequences of the
Amendment based on the Internal Revenue Code of 1986, as amended and currently
in effect. This summary does not discuss all aspects of federal income taxation
that may be relevant to you in light of your individual circumstances. In
addition, this summary is included for general information purposes only and is
not intended to constitute advice regarding the federal income tax consequences
of the Amendment. You are urged to consult your own tax advisor with respect to
the tax consequences of the Amendment, including tax reporting requirements and
tax consequences under state, local or foreign law.
We believe that the reclassification of shares of our Class A common
stock into shares of our Class B common stock pursuant to the Amendment will be
treated as a tax-free exchange under Section 1036 of the Code and as a tax-free
recapitalization under Section 368(a)(1)(E) of the Code. As a result of the
Amendment,
o no gain or loss will be recognized for federal income tax
purposes by the holders of our Class A common stock upon the
reclassification and conversion of their shares of our Class A
common stock into shares of our Class B common stock;
o the basis of the Class B common stock received by a Class A
stockholder will be the same as the stockholder's aggregate
basis in the Class A common stock surrendered therefor;
o the holding period of the Class B common stock received by a
Class A stockholder will include such stockholder's holding
period for the Class A common stock surrendered therefor,
provided that each share of Class A common stock was held by
such stockholder as a capital asset as defined in Section 1221
of the Code on the effective date of the Amendment; and
33
o no gain or loss will be recognized for federal income tax
purposes by the company upon the reclassification and
conversion of shares of our Class A common stock into shares
of our Class B common stock.
ACCOUNTING CONSIDERATIONS
Management currently expects that the Amendment will not have any
material effect on our earnings or book value per share.
CLASS A AND CLASS B COMMON STOCK CERTIFICATES
If the Amendment is approved and filed, your certificates representing
shares of our Class A common stock will represent an equal number of shares of
our Class B common stock. ACCORDINGLY, IT WILL NOT BE NECESSARY FOR RECORD
HOLDERS OF OUR CLASS A COMMON STOCK HOLDING CERTIFICATED SHARES TO EXCHANGE
THEIR EXISTING CERTIFICATES FOR NEW CERTIFICATES. However, such holders may at
any time after the effective date exchange their existing certificates for
certificates representing shares of our Class B common stock by contacting our
transfer agent.
RESERVATION OF RIGHTS
Our board of directors reserves the right to abandon the Amendment
without further action by our Class A and Class B common stockholders at any
time before the filing of the Amendment with the Delaware Secretary of State,
even if the Amendment has been approved by our Class A and Class B common
stockholders at the meeting. We further reserve the right to make such
immaterial changes to the Amendment as our officers executing the Amendment may
approve, without further action by our Class A and Class B common stockholders.
APPRAISAL RIGHTS
Dissenting holders of our Class A common stock and Class B common stock
do not have appraisal rights under Delaware state law or under our certificate
of incorporation or bylaws in connection with the Amendment.
VOTE REQUIRED FOR APPROVAL OF THE AMENDMENT
Approval of the Amendment requires (1) the affirmative vote of the
holders of a majority of the outstanding shares of our Class A common stock,
voting as a separate class, and (2) the affirmative vote of the holders of a
majority of the outstanding shares of our Class B common stock, voting as a
separate class. Proxies solicited by our board of directors will be voted FOR
this proposal, unless you specify otherwise in your proxy.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
34
STOCKHOLDER PROPOSALS
Two stockholders have each advised the company of their intention to
present a proposal at the meeting. In accordance with applicable proxy
regulations, the two proposals and supporting statements are set forth below.
Approval of these proposals would require the affirmative vote of a majority of
the shares of our Class A and Class B common stock present in person or by
proxy, voting together as a single class.
Upon request, we will provide the names and addresses of the proponents
of these stockholder proposals and the number of shares of our Class A and Class
B common stock that they hold. In each case the proponent holds less than 50,000
shares of our common stock. Requests may be sent to the Corporate Secretary,
Freeport-McMoRan Copper & Gold Inc., 1615 Poydras Street, New Orleans, Louisiana
70112, or submitted by calling (504) 582-4000.
STOCKHOLDER PROPOSAL 1
RESOLVED: That the stockholders of Freeport-McMoRan Copper & Gold,
Inc., hereby request that the Board of Directors take the needed steps
to provide that, at future elections of directors, new directors be
elected annually and not by classes, as is now provided, and that on
expiration of present terms of directors their subsequent election
shall also be on an annual basis.
REASONS
Strong support was shown at the last annual meeting when 54.54%*, 62,292,641
shares, approved this proposal. The real significance of this vote is reflected
in the shares held, controlled, or directed by insiders where directors were in
unanimous opposition to the proposal. The Board and executive management were
essentially voting to entrench themselves.
Classification of the Board of Directors is not in the best interest of
Freeport-McMoRan Copper and Gold, Inc., and its shareholders. This proponent
believes that it makes a Board less accountable to shareholders when directors
do not stand for election each year insulating directors and senior management
from the impact of poor performance.
ACCOUNTABILITY TO SHAREHOLDERS SHOULD START WITH DIRECTORS
SHOWING UP FOR THE ANNUAL MEETING.
For the third consecutive year, Mr. Moffett and all directors failed to attend
the annual meeting of shareholders.
"Shareholders who turned up for the annual meeting of Freeport-McMoRan
Copper and Gold this month in Wilmington, Del., never had a chance to
hear James R. Moffett, the chief executive, discuss the company's
performance or a proposal, from a fellow stockholder, to change the way
board members are elected. Mr. Moffett didn't bother to show up.
Neither did any other director."
THE NEW YORK TIMES -- May 13, 2001
If you are appalled as we are, by this company's indifference and lack of
accountability to shareholders, please vote to have the performance of all
directors measured annually.
Last year the holders of more than 18% of the FCX class B common shares cast,
withheld their vote from each of four director nominees elected. In Mr.
Moffett's case, 24.70% of the FCX class B common votes cast, were withheld from
his election.
Freeport directors adhere to a double standard by accepting votes for their own
election while rejecting a proposal adopted by the same shareholders.
35
Success builds upon success and your favorable vote will help build upon the
54.54%* approval rate established last year.
PLEASE MARK YOUR PROXY IN FAVOR OF THIS PROPOSAL; otherwise, it is automatically
cast as a vote against even if you abstain.
* 54.54% of the yes/no votes cast.
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL 1
At the annual meeting held in May 2001, the stockholders adopted a
proposal requesting the board of directors take those steps necessary to provide
for the annual election of all directors. The proposal was approved by 53.93% of
the total votes cast, which represented 43.28% of the total shares outstanding.
Our nominating committee and our board of directors have carefully considered
both the proposal to declassify the board and the stockholder vote on that
proposal. For the reasons stated below, our board of directors continues to
believe that this proposal is not in the best interests of the company or our
stockholders.
We have had a "classified" board of directors since 1995. Our board
members are divided into three classes serving staggered three-year terms, with
one class being elected each year. We believe that a classified board is
advantageous to the company and our stockholders and that our view is shared by
most publicly held corporations, as 63% of the corporations included in the S&P
500 index currently have classified boards.
o We believe that a classified board reduces the vulnerability of
the company to potentially abusive takeover tactics and encourages
potential acquirers to negotiate with our board. A classified
board does not preclude unsolicited acquisition proposals but, by
eliminating the threat of imminent removal, positions the
incumbent board to act to maximize the value of a potential
acquisition to all stockholders by giving the company time and
bargaining power to negotiate and consider alternative proposals.
o Further, the classified board structure encourages a long-term
focus rather than a solely short-term focus in the company's
strategic direction and management. Each member of our board
brings valuable knowledge and experience to the company and a
majority of our directors at any given time will have prior
experience as directors of the company and will be familiar with
our business strategies and operations.
o We also believe that directors who are elected to three-year terms
are just as accountable to stockholders as directors who are
elected on an annual basis. Directors have fiduciary duties that
do not depend on how often they are elected. In addition, we
believe that there is little evidence to indicate that electing
directors to either annual or staggered terms directly influences
stock performance.
Finally, stockholders should be aware that approval of this proposal
would not declassify the board. To declassify the board, the board must propose
to the stockholders an amendment to the relevant section of the certificate of
incorporation, following which 66 2/3% of the total outstanding shares of common
stock must approve the proposed amendment.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
PROPOSAL.
36
STOCKHOLDER PROPOSAL 2
ELECTION OF SHAREHOLDERS TO ADVISE COMPENSATION COMMITTEE
RESOLVED: Beginning in 2003, the Board of Directors is requested to take the
steps necessary to provide shareholders, at their annual meeting, the
opportunity to elect three of their members to serve as advisors to the
Compensation Committee. The elected advisors shall serve as a liaison between
the Shareholders and the Compensation Committee. The Advisors shall attend
Compensation Committee meetings, and they shall advise and make recommendations
regarding salaries, benefits, incentive compensation, and retirement
compensation of executive officers, directors, and key employees of the Company,
including transactions involving the Board of Directors. They will provide
written recommendations to the Board of Directors regarding management
compensation, and they shall report to shareholders at the Annual Meeting.
Their term of advisement shall be for one year, from annual meeting to annual
meeting. They shall receive the same compensation for meetings attended as
committee members.
SUPPORTING STATEMENT FOR ELECTING ADVISORS
It is important to shareholders that the Directors and Executive
Officers of our Company be compensated fairly for their leadership and service.
Providing incentives and a "just right" amount of compensation for executives is
a very difficult task for the Compensation Committee. Shareholder Advisors would
assist the Committee by providing objective input and a shareholder perspective.
SEVERAL REASONS SEEM TO WARRANT THE ELECTION OF ADVISORS TO ASSIST WITH
COMPENSATION AND BENEFIT RECOMMENDATIONS.
1. Bonuses and incentive compensation for executive officers are often skewed
beyond reasonable and appropriate incentives for outstanding job performance.
From 1999 through 2000, Freeport's Chairman of the Board James R. Moffett
received nearly $8 million in salary, bonus, and other annual compensation.
However, since the last quarter of 1997, the price of FCX stock has dropped from
above $25/share to $10/share by the end of 1998 and on 1 May 1999 to below
$10/share. Freeport's own 2000 proxy statement (p. 21) shows that since 1996 FCX
stock has dramatically under performed both the S&P 500 Stock Index and the Dow
Jones Other Non-Ferrous Metals Group Index. Thus, there is no relationship
between Executive Officer Compensation and performance, nor is this compensation
consistent with the Corporate Personnel Committee's policy as set out on p. 17
of the 2000 proxy statement.
2. In 2000, six out of fifteen Board of Directors received fees and benefits
ranging from $60K to 348K, which far exceeds the $25,000 annual fee for serving
on the board. Thus, 40% of the Board of Directors, in effect, also are hired to
provide consulting services with no accounting to shareholders. This is a
conflict of interest with their duties toward the shareholders. Advisors could
provide objective input into compensation and benefit recommendations for
Directors and for Executive Officers. The recommendations of Advisors for
compensation and benefits of Directors and Executive Officers would be from a
Shareholder perspective.
3. Shareholder value and Executive compensation are not in balance. Executive
pay is growing much faster than dividend payout (which has been eliminated) and
stock value. We need a better compensation and value balance.
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL 2
We believe that our Corporate Personnel Committee is best suited to
determine the compensation of our executive officers. The committee is composed
of five independent directors, all of whom are also stockholders of the company.
As directors, the members of the committee are committed to excellent relations
with our stockholders. Our stockholders may and do express their thoughts,
questions or concerns to the committee as well as the full board throughout the
year by phone, letter and e-mail.
37
The scope and nature of the powers and obligations of the proposed
stockholder advisory positions are vague and ill-defined, and the positions
would be needlessly cumbersome and bureaucratic additions to the company's
management. For example, the extent to which the advisors would participate in
the proceedings of our board and the committee is not addressed in the proposal.
Moreover, the advisors' activities outlined in the proposal would duplicate the
existing efforts and activities of our board and management in communicating
with our stockholders and keeping them informed about the business and affairs
of the company. We believe that the proposed stockholder advisory positions are
likely to interfere with and reduce the efficiency of management, and would also
result in increased costs with no benefit to our stockholders.
The Corporate Personnel Committee Report on Executive Compensation,
which we include in our proxy statement each year, presents an extensive
discussion of the factors that the committee considers in determining the
compensation of our executive officers. As stated in this year's report, the
committee's primary goal is to attract and retain the highest level of executive
talent. To accomplish this goal, the committee targets the company's executive
compensation levels in the top quartile of comparable companies so as to provide
an appropriate amount of compensation to our executives as well as proper
incentives for outstanding job performance. The committee also engages
professional independent compensation advisors.
Our stockholders elect our directors and thus they are fully
accountable to the stockholders. Moreover, all directors have fiduciary duties
irrespective of any arrangement with the company. We fully disclose in our proxy
statements all arrangements pursuant to which any of our directors are
compensated as directors and for other services to the company (See "Director
Compensation" and "Certain Transactions" above). We do not believe that any of
the current arrangements with directors creates a conflict with their duties to
our stockholders.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
PROPOSAL.
FINANCIAL INFORMATION
A copy of our 2001 annual report accompanies this proxy statement. The
financial statements which are included in our 2001 annual report are
incorporated herein by reference. Additional copies of our 2001 annual report
and copies of our annual report to stockholders on Form 10-K for the year ended
December 31, 2001 (except for exhibits, unless the exhibits are specifically
incorporated by reference) are available without charge upon request. You may
request copies by writing or calling us at:
Freeport-McMoRan Copper & Gold Inc.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Investor Relations
(504) 582-4000
38
ANNEX A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
FREEPORT-MCMORAN COPPER & GOLD INC.
Freeport-McMoRan Copper & Gold Inc. (the "Corporation"), a corporation
organized and existing under the laws of the State of Delaware, does hereby
certify as follows:
1. The Corporation was originally incorporated under the name
"Freeport-McMoRan Mineral Holdings Inc." The Corporation's original
Certificate of Incorporation was filed with the Delaware Secretary of
State on November 10, 1987.
2. Pursuant to Section 242 of the Delaware General Corporation Law (the
"DGCL"), the amendments to the Corporation's Certificate of
Incorporation contained herein have been duly adopted and declared
advisable by resolution of the Board of Directors of the Corporation
and have been approved by the affirmative vote of the holders of a
majority of the outstanding Class A Common Stock of the Corporation,
par value $0.10 per share (the "Class A Common Stock"), and the holders
of a majority of the outstanding Class B Common Stock of the
Corporation, par value $0.10 per share (the "Class B Common Stock),
voting as separate classes, at the Corporation's annual meeting of
stockholders held on May 2, 2002.
3. Pursuant to Section 245 of the DGCL, this Amended and Restated
Certificate of Incorporation was duly adopted by the Board of Directors
of the Corporation and (a) restates in their entirety the provisions of
the Corporation's Certificate of Incorporation; (b) amends the
Corporation's Certificate of Incorporation by adding those provisions
approved by the holders of the outstanding Class A Common Stock and
Class B Common Stock pursuant to Section 242 of the DGCL; and (c)
provides for the deletion of provisions intentionally omitted in
reliance upon Section 245(c) of the DGCL.
4. The Amended and Restated Certificate of Incorporation shall read as
follows:
FIRST: The name of the corporation is Freeport-McMoRan Copper & Gold
Inc.
SECOND: The address of the registered office of the corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle, and the name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted are:
(a) To enter into, maintain, operate and carry on the business of
mining in all its branches in the United States of America and in any other part
of the world, and to quarry, mine, pump, extract, remove and otherwise produce,
and to grind, treat, concentrate, smelt, refine, dress and otherwise prepare,
produce, buy, sell and in every way deal in and with minerals, ores,
concentrates and other mineral and chemical substances of all kinds, metallic
and nonmetallic, including, but without in any way limiting the generality of
the foregoing, antimony, barite, chromium, coal, cobalt, copper, gas, gold,
iron, lead, molybdenum, nickel, oil, potash, salt, silica, sand, silver,
sulphur, tantalum, tin, titanium, tungsten, uranium, zinc, and ores and
concentrates thereof.
(b) To purchase, locate, denounce or otherwise acquire, take, hold and
own, and to assign, transfer, lease, exchange, mortgage, pledge, sell or
otherwise dispose of and in any manner deal with and contract with reference to,
mines, wells, mining claims, mining rights, mineral lands, mineral leases,
mineral rights, royalty rights, water rights, timber lands, timber and timber
rights, and real and personal property of every kind, and any interest therein,
in the United States of America or in any other country, to prospect, explore,
work, exercise, develop, manage, operate and turn the same to account, and to
engage in mining, geological, economic, feasibility, development, and other
studies in the United States of America or in any other country.
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(c) To make, manufacture, treat, process, produce, buy, sell and in
every way deal in and with minerals, ores, concentrates and chemicals of every
description, organic or inorganic, natural or synthetic, in the form of raw
materials, intermediate or finished products and any other related products and
substances whatsoever related thereto or of a like or similar nature or which
may enter into the manufacture of any of the foregoing or be used in connection
therewith, and derivatives and by-products derived from the manufacture thereof
and products to be made therefrom and generally without limitation by reference
of the foregoing, all other products and substances of every kind, character and
description.
(d) To engage in any lawful act or activity, whether or not related to
the foregoing, for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: (a) Authorized Stock. The total number of shares of capital
stock that the corporation shall have authority to issue is 473,600,000 shares,
consisting of 50,000,000 shares of Preferred Stock, par value $0.10 per share,
and 423,600,000 shares of Class B Common Stock, par value $0.10 per share. Of
the authorized number of shares of Preferred Stock, 700,000 of such shares shall
be a series of Preferred Stock designated as "Step-Up Convertible Preferred
Stock"; 300,000 of such shares shall be a series of Preferred Stock designated
as "Gold-Denominated Preferred Stock"; 215,279 of such shares shall be a series
of Preferred Stock designated as "Gold-Denominated Preferred Stock, Series II";
119,000 of such shares shall be a series of Preferred Stock designated as
"Silver-Denominated Preferred Stock" (the Step-Up Convertible Preferred Stock,
the Gold-Denominated Preferred Stock, the Gold-Denominated Preferred Stock,
Series II, and the Silver-Denominated Preferred Stock together referred to
herein as the "Existing Preferred Stock"); and 2,500,000 of such shares shall be
a series of Preferred Stock designated as "Series A Participating Cumulative
Preferred Stock."
(b) Class B Common Stock. The powers, preferences, rights,
qualifications, limitations and restrictions of the shares of Class B Common
Stock shall be as follows:
(1) Cash or Property Dividends. Subject to the rights and
preferences of the Preferred Stock as set forth in any resolution or
resolutions of the Board of Directors providing for the issuance of
such stock pursuant to Section (c) of this Article FOURTH, and except
as otherwise provided for herein, the holders of Class B Common Stock
are entitled to receive dividends out of assets legally available
therefor at such times and in such per share amounts as the Board of
Directors may from time to time determine.
(2) Voting. (A) With respect to the election of directors,
holders of Class B Common Stock and holders of Voting Preferred Stock
(as defined below), shall vote together for the election of members of
the Board of Directors. Each share of Class B Common Stock and each
share of Voting Preferred Stock shall have one vote in the election of
directors. The "Voting Preferred Stock" means (i) each series of the
Existing Preferred Stock, in each case so long as such series remains
outstanding and (ii) any other series of Preferred Stock upon which the
right to vote for directors pursuant to this Section (b)(2) has been
conferred in accordance with Section (c)(6) of this Article FOURTH.
(B) Any director may be removed, with cause, by a
vote of the holders of Class B Common Stock and the holders of Voting
Preferred Stock, voting together.
(3) Vacancies; Increases or Decreases in Size of the Board of
Directors. Any vacancy in the office of a director created by the
death, resignation or removal of a director may be filled by a vote of
holders of Class B Common Stock and holders of Voting Preferred Stock,
voting together. Notwithstanding anything in this Section (b)(3) to the
contrary, any vacancy in the office of a director may also be filled by
the vote of the majority of the remaining directors, regardless of any
quorum requirements set out in the by-laws. Any director elected to
fill a vacancy shall hold office for the remainder of the full term of
the director whose vacancy is being filled and until such director's
successor shall have been
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elected and qualified unless removed and replaced pursuant to Section
(b)(2)(B) of this Article FOURTH and this Section (b)(3). The Board of
Directors may increase the number of directors and any newly-created
directorship so created may be filled by the Board of Directors. Any
director elected (or appointed) in accordance with the preceding
sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created and until
such director's successor shall have been elected and qualified unless
removed and replaced pursuant to Section (b)(2)(B) of this Article
FOURTH and this Section (b)(3). No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any
incumbent director. If the number of directors is changed, any increase
or decrease shall be apportioned among the classes of directors
established pursuant to Article FIFTH so as to maintain the number of
directors in each class as nearly equal as possible.
(c) Preferred Stock. The Preferred Stock may be divided into and issued
in series. The Board of Directors is hereby expressly authorized, at any time or
from time to time, to divide any or all of the shares of the Preferred Stock
into series, and in the resolution or resolutions establishing a particular
series, before issuance of any of the shares thereof, to fix and determine the
powers, designations, preferences and relative, participating, optional or other
rights, and any qualifications, limitations or restrictions, of the series so
established, to the fullest extent now or hereafter permitted by the laws of the
State of Delaware, including, but not limited to, the variations between the
different series in the following respects:
(1) The distinctive serial designation of such series;
(2) The annual dividend rate for such series, and the date or
dates from which dividends shall commence to accrue;
(3) The redemption price or prices, if any, for shares of such
series and the terms and conditions on which such shares may be
redeemed;
(4) The sinking fund provisions, if any, for the redemption or
purchase of shares of such series;
(5) The preferential amount or amounts payable upon shares of
such series in the event of the voluntary or involuntary liquidation of
the corporation;
(6) The voting rights of shares of such series;
(7) The terms and conditions, if any, upon which shares of
such series may be converted and the class or classes or series of
shares of the corporation into which such shares may be converted; and
(8) Such other terms, limitations and relative rights and
preferences, if any, of shares of such series as the Board of Directors
may, at the time of such resolutions, lawfully fix and determine under
the laws of the State of Delaware.
All shares of the Preferred Stock shall be of equal rank with each
other, regardless of series.
The number, voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of the Step-Up Convertible
Preferred Stock shall be as set forth in Exhibit A attached hereto.
The number, voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of the Gold-Denominated
Preferred Stock shall be as set forth in Exhibit B attached hereto.
The number, voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of the Gold-Denominated
Preferred Stock, Series II shall be as set forth in Exhibit C attached
hereto.
The number, voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of the Silver-Denominated
Preferred Stock shall be as set forth in Exhibit D attached hereto.
The number, voting powers, designations, preferences, rights,
qualifications, limitations and restrictions of the Series A
Participating Cumulative Preferred Stock shall be as set forth in
Exhibit E attached hereto.
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(d) General.
(1) Except as otherwise required by law and except for such voting
powers with respect to the election of directors as are provided for herein for
the Existing Preferred Stock or as may be stated in the resolution or
resolutions of the Board of Directors providing for the issue of any series of
Preferred Stock, the holders of any such series of Preferred Stock shall have no
voting power whatsoever. Subject to such restrictions as may be stated in the
resolution or resolutions of the Board of Directors providing for the issue of
any series of Preferred Stock, any amendment to this Amended and Restated
Certificate of Incorporation which shall increase or decrease the authorized
stock of any class or classes may be adopted by the affirmative vote of the
holders of a majority of the outstanding shares of Class B Common Stock of the
corporation irrespective of the provisions of Section 242(b)(2) of Delaware
General Corporation Law.
(2) No holder of stock of any series or class of stock of the
corporation shall as such holder have under this Amended and Restated
Certificate of Incorporation any preemptive or preferential right of
subscription to any stock of any series or class of stock of the corporation or
to any obligations convertible into stock of the corporation, issued or sold, or
to any right of subscription to, or to any warrant or option for the purchase of
any thereof.
(3) Except as otherwise stated in this Amended and Restated Certificate
of Incorporation, the corporation may from time to time issue and dispose of any
of the authorized and unissued shares of Class B Common Stock or Preferred Stock
for such consideration, not less than its par value, as may be fixed from time
to time by the Board of Directors, without action by the stockholders. The Board
of Directors may provide for payment therefor to be received by the corporation
in cash, property or services rendered. Any and all such shares of Class B
Common Stock or Preferred Stock the issuance of which has been so authorized,
and for which consideration so fixed by the Board of Directors has been paid or
delivered, shall be deemed fully paid stock and shall not be liable to any
further call or assessment thereon.
FIFTH: (a) Subject to such rights to elect additional directors under
specified circumstances as may be granted to holders of any shares of the
Preferred Stock pursuant to the provisions of Article FOURTH, the number of
directors of the corporation shall be fixed from time to time by the Board of
Directors but shall not be less than five. The directors, other than those who
may be elected solely by the holders of any class or series of Preferred Stock,
if any, shall be classified, with respect to the time for which they severally
hold office, into three classes, as nearly equal in number as possible, as
determined by the Board of Directors, one class ("Class I") to hold office for a
term expiring at the 2005 annual meeting of stockholders, another class ("Class
II") to hold office for a term expiring at the 2003 annual meeting of
stockholders, and another class ("Class III") to hold office for a term expiring
at the 2004 annual meeting of stockholders, with the members of each class to
hold office until their successors are elected and qualified. Directors shall be
divided as evenly as possible, as determined by the Board of Directors, among
Class I, Class II and Class III. At each annual meeting of stockholders, the
successors of the class of directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the annual meeting of stockholders
held in the third year following the year of their election.
(b) Notwithstanding any other provision of this Amended and Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, the affirmative vote of the holders of 66 2/3%
or more of the outstanding shares of Class B Common Stock shall be required to
amend, alter, change or repeal this Article FIFTH.
SIXTH: In furtherance and not in limitation of the powers conferred by
law, (a) the Board of Directors is expressly authorized to adopt, amend or
repeal the by-laws of the corporation in any manner not inconsistent with the
laws of the State of Delaware or the Amended and Restated Certificate of
Incorporation of the corporation, subject to the power of the stockholders to
adopt, amend or repeal the by-laws or to limit or restrict the power of the
Board of Directors to adopt, amend or repeal the by-laws, and (b) the
corporation may in its by-laws confer powers and authorities upon its Board of
Directors in addition to those conferred upon it by statute.
SEVENTH: The affirmative vote of the holders of not less than 66 2/3%
of the outstanding shares of Class B Common Stock shall be required for the
approval or authorization of any Business Combination; provided, however, that
the 66 2/3% voting requirement shall not be applicable if
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(a) the Board of Directors of the corporation by affirmative vote which
shall include not less than a majority of the entire number of Continuing
Directors (1) has approved in advance the acquisition of those outstanding
shares of Class B Common Stock which caused the Interested Party to become an
Interested Party or (2) has approved the Business Combination;
(b) the Business Combination is solely between the corporation and one
or more other corporations all of the common stock of each of which other
corporations is owned directly or indirectly by the corporation or between two
or more of such other corporations; or
(c) the Business Combination is a merger or consolidation and the cash
and/or fair market value of the property, securities or other consideration to
be received per share by holders of Class B Common Stock in the Business
Combination is at least equal to the highest price per share (after giving
effect to appropriate adjustments for any recapitalizations and for any stock
splits, stock dividends and like distributions) paid by the Interested Party in
acquiring any shares of Class B Common Stock on the date when last acquired or
during a period of two years prior thereto.
(d) For purposes of this Article SEVENTH:
(1) The terms "affiliate" and "associate" shall have the
respective meanings assigned to those terms in Rule 12b-2 under the
Securities Exchange Act of 1934, as such Rule was in effect on the
Initial Filing Date.
(2) A person shall be deemed to be a "beneficial owner" of any
Class B Common Stock
(A) which such person or any of its affiliates or
associates beneficially owns, directly or indirectly; or
(B) which such person or any of its affiliate or
associates has the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or has the right to vote
pursuant to any agreement, arrangement or understanding; or
(C) which are beneficially owned, directly or
indirectly, by any other person with which such person or any
of its affiliates or associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of Class B Common Stock.
(3) The term "Business Combination" shall mean (A) any merger
or consolidation of the corporation or a subsidiary of the corporation
with or into an Interested Party, (B) any merger or consolidation of an
Interested Party with or into the corporation or a subsidiary, (C) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition
(in one transaction or a series of transactions) of all or any
Substantial Part of the assets either of the corporation (including
without limitation any voting securities of a subsidiary) or of a
subsidiary, in which an Interested Party is involved, (D) the adoption
of any plan or proposal for the liquidation or dissolution of the
corporation proposed by or on behalf of any Interested Party, (E) the
issuance or transfer (in one transaction or a series of transactions)
by the corporation or a subsidiary of the corporation to an Interested
Party of any securities of the corporation or such subsidiary, which
securities have a fair market value of $10,000,000 or more, or (F) any
recapitalization, reclassification, merger or consolidation involving
the corporation or a subsidiary of the corporation that would have the
effect of increasing, directly or indirectly, the Interested Party's
voting power in the corporation or such subsidiary.
(4) The term "Interested Party" shall mean and include (A) any
individual, corporation, partnership, trust or other person or entity
which, together with its affiliates and associates, is (or with respect
to a Business Combination was within two years prior thereto) a
beneficial owner of shares
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aggregating 20% or more of the outstanding Class B Common Stock or any
class thereof, and (B) any affiliate or associate of any such
individual, corporation, partnership, trust or other person or entity.
For the purposes of determining whether a person is an Interested Party
the number of shares deemed to be outstanding shall include shares
deemed beneficially owned through application of subclause (B) of the
foregoing clause (2) but shall not include any other shares of Class B
Common Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
(5) The term "Substantial Part" shall mean more than 10% of
the fair market value of the total assets of the particular
corporation.
(6) The term "Continuing Director" shall mean a director who
is not an affiliate of an Interested Party and who was a member of the
Board of Directors of the corporation immediately prior to the time
that the Interested Party involved in a Business Combination became an
Interested Party, and any successor to a Continuing Director who is not
such an affiliate and who is nominated to succeed a Continuing Director
by a majority of the Continuing Directors in office at the time of such
nomination.
(7) For the purposes of Section (c) of this Article SEVENTH,
the term "other consideration to be received" shall include without
limitation Class B Common Stock retained by its existing public
stockholders in the event of a Business Combination in which the
corporation is the surviving corporation.
(e) The provisions of this Article SEVENTH shall be construed liberally
to the end that the consideration paid to holders whose Class B Common Stock is
acquired by an Interested Party in connection with a Business Combination to
which Section (c) of this Article SEVENTH is applicable shall be not less
favorable than that paid to holders of such Common Stock prior to such Business
Combination. Nothing contained in this Article SEVENTH shall be construed to
relieve any Interested Party from any fiduciary duties or obligations imposed by
law, nor shall anything herein be deemed to supersede any vote of holders of any
series or class of stock other than Class B Common Stock that shall be required
by law, by or pursuant to this Amended and Restated Certificate of Incorporation
or by the by-laws of the corporation.
(f) Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or the by-laws of the corporation and
notwithstanding the fact that a lesser percentage may be specified by law, this
Amended and Restated Certificate of Incorporation or the by-laws of the
corporation, the affirmative vote of the holders of 66 2/3% or more of the
shares of the outstanding Class B Common Stock shall be required to amend or
repeal, or adopt any provisions inconsistent with, this Article SEVENTH.
EIGHTH: (a) A director of this corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (3) under Section 174 of the Delaware General Corporation
Law, or (4) for any transaction from which the director derived an improper
personal benefit.
(b) The corporation shall indemnify any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, to
the fullest extent permitted by applicable law. The determination as to whether
such person has met the standard required for indemnification shall be made in
accordance with applicable law.
Expenses incurred by such a director, officer, employee or agent in
defending a civil or criminal action, suit or proceeding shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized in this Article EIGHTH.
(c) The provisions of this Article EIGHTH shall be deemed to be a
contract between the corporation and each person who serves as such director,
officer, employee or agent of the corporation in any such capacity at any time
while this Article EIGHTH is in effect. No repeal or modification of the
foregoing provisions of this
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Article EIGHTH nor, to the fullest extent permitted by law, any modification of
law shall adversely affect any right or protection of a director, officer,
employee or agent of the corporation existing at the time of such repeal or
modification.
The foregoing indemnification shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any
applicable law, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
NINTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
------------------------------
Effective at 5:00 p.m. Eastern Time on the date of the filing of this
Amended and Restated Certificate of Incorporation with the Delaware Secretary of
State (the "Effective Time"), each issued and outstanding share of the Class A
Common Stock (including treasury shares) shall automatically be changed,
reclassified, converted and thereafter constitute one share of the Class B
Common Stock without any action on the part of the holder thereof. Upon the
Effective Time, any certificates that, immediately prior to the Effective Time,
represented shares of the Class A Common Stock, shall represent shares of the
Class B Common Stock.
Also upon the Effective Time, pursuant to Section 7(e) of the
Certificate of Designations of Step-Up Convertible Preferred Stock of the
corporation as in effect immediately prior to the Effective Time, each holder of
an issued and outstanding share of Step-Up Convertible Preferred Stock shall
have the right thereafter to convert such share into a number of shares of the
Class B Common Stock equal to the number of shares of the Class A Common Stock
into which such shares of Step-Up Convertible Preferred Stock might have been
converted immediately prior to the Effective Time. Accordingly, the Certificate
of Designations of Step-Up Convertible Preferred Stock has been revised to
replace all references to Class A Common Stock with Class B Common Stock.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed in its corporate name by
its duly authorized President and Chief Financial Officer on this ___ day of
May, 2002.
FREEPORT-MCMORAN COPPER & GOLD INC.
By:
----------------------------------------
Richard C. Adkerson
President and Chief Financial Officer
[The exhibits to this Amended and Restated Certificate of Incorporation
have been intentionally omitted.]
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Annex B
[JPMorgan letterhead]
February 26, 2002
The Board of Directors
Freeport-McMoRan Copper & Gold Inc.
1615 Poydras Street
New Orleans, LA 70112
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of Class A Common Stock, par value $0.10 per share (the
"Class A Stock") and the holders of Class B Common Stock, par value $0.10 per
share (the "Class B Stock," together with the Class A Stock, the "Common
Stock"), of Freeport-McMoRan Copper & Gold Inc. (the "Company") of the Exchange
Ratio (as defined below) in a proposed reclassification transaction (the
"Transaction") in which the Company would reclassify each outstanding share of
Class A Stock into one share (the "Exchange Ratio") of Class B Stock.
In arriving at our opinion we have (i) reviewed the Company's certificate of
incorporation and bylaws as they relate to the rights and privileges of both
classes of Common Stock and held discussions with the Company's outside counsel
regarding such rights and privileges; (ii) reviewed the historical trading
performance and trading liquidity of both classes of Common Stock; (iii)
reviewed the historical trading performance and trading liquidity for other
dual-class companies; (iv) compared the financial terms of the Transaction and
the Exchange Ratio with the publicly available financial terms of selected
recent reclassification transactions that we deemed relevant and the exchange
ratios used in such transactions; (v) reviewed the historical trading
performance, trading liquidity and post-announcement stock price performance for
securities in such relevant reclassification transactions; and (vi) performed
such other financial studies and analyses and considered such other information
as we deemed appropriate for the purpose of this opinion.
In addition, we have held discussions with certain members of the management of
the Company with respect to the original creation of a dual class structure,
certain aspects of the Transaction and the strategic and other reasons behind
the decision of the Company to engage in the Transaction.
In giving our opinion, we have relied upon and assumed, without assuming any
responsibility or liability for independent verification, the accuracy and
completeness of all information that was publicly available or was furnished to
us by the Company or otherwise reviewed by or for us. We have not conducted any
valuation or appraisals of any assets or liabilities, nor have any such
valuations or appraisals been provided to us. We have also assumed that the
Transaction will qualify as a tax-free exchange and recapitalization for United
States federal income tax purposes. We note that we are not legal or tax experts
and have relied upon, without assuming any responsibility for independent
verification or liability therefor, the assessment of the Company's legal and
tax advisors with respect to the legal and tax matters related to the
Transaction.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
Our opinion is limited to the fairness, from a financial point of view, to the
holders of the Common Stock of the Exchange Ratio in the Transaction and we
express no opinion as to the underlying decision by the Company to engage in the
Transaction. We are expressing no opinion herein as to the price at which the
Class A Stock or the Class B Stock will trade at any future time and the opinion
does not address the relative fairness of the consideration to be received by
the holders of Common Stock.
JPMorgan was not requested to, and did not, provide any services with respect to
the Transaction other than the delivery of this opinion; specifically, JPMorgan
was not requested to, and did not, provide any advice concerning
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the structure, the specific Exchange Ratio, or any other aspect of the
Transaction. We will receive a fee from the Company for the delivery of this
opinion. In the past, JPMorgan has provided financing, advisory and other
investment banking services to the Company, and certain of our affiliates have
outstanding loans to the Company. In the ordinary course of our businesses, we
and our affiliates may actively trade the debt and equity securities of the
Company for our own account and for the accounts of customers, and, accordingly,
we may at any time hold long or short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the Exchange Ratio in the Transaction is fair, from a financial
point of view, to the holders of Common Stock.
This letter is provided for the Board of Directors of the Company in connection
with and for the purposes of its evaluation of the Transaction. This opinion
does not constitute a recommendation to any holder of Class A Stock or Class B
Stock as to how such holder should vote with respect to the Transaction or any
other matter. This opinion may not be disclosed, referred to, or communicated
(in whole or in part) publicly or to any third party for any purpose whatsoever
except with our prior written approval; provided, however that this opinion may
be reproduced in full in any proxy or information statement mailed to
shareholders of the Company but may not otherwise be disclosed publicly in any
manner without our prior written approval.
Very truly yours,
J.P. MORGAN SECURITIES INC.
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FREEPORT-MCMORAN COPPER & GOLD INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF
STOCKHOLDERS, MAY 2, 2002
The undersigned hereby appoints James R. Moffett and Richard C.
Adkerson, or either of them, as proxies, with full power of substitution, to
vote the shares of the undersigned in Freeport-McMoRan Copper & Gold Inc. at the
Annual Meeting of Stockholders to be held on Thursday, May 2, 2002, at 1:00
p.m., and at any adjournment thereof, on all matters coming before the meeting.
THE PROXIES WILL VOTE: (1) AS YOU SPECIFY ON THE BACK OF THIS CARD, (2) AS THE
BOARD OF DIRECTORS RECOMMENDS WHERE YOU DO NOT SPECIFY YOUR VOTE ON A MATTER
LISTED ON THE BACK OF THIS CARD, AND (3) AS THE PROXIES DECIDE ON ANY OTHER
MATTER.
If you wish to vote on all matters as the Board of Directors
recommends, please sign, date and return this card. If you wish to vote on items
individually, please also mark the appropriate boxes on the back of this card.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE
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Please mark
your votes as [X]
indicated in
this example
YOU MAY SPECIFY YOUR VOTES BY MARKING THE APPROPRIATE BOXES ON THIS SIDE. YOU
NEED NOT MARK ANY BOXES, HOWEVER, IF YOU WISH TO VOTE ALL ITEMS IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATION. IF YOUR VOTES ARE NOT SPECIFIED,
THIS PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 3 AND AGAINST ITEMS 4 AND 5.
Your Board of Directors recommends a vote FOR Items 1, 2 and 3 below.
1. Election of the nominee for director: Mr. Green
FOR [ ] WITHHOLD [ ]
2. Ratification of appointment of _________ as independent auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Approval of the proposed amendment to the certificate of incorporation to
reclassify our common stock into a single class of common stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Your Board of Directors recommends a vote AGAINST Items 4 and 5 below.
4. Stockholder proposal regarding the classification of the board of directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Stockholder proposal regarding the election of advisors to the compensation
committee.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
SIGNATURE(S) DATE: ,2002
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FREEPORT-MCMORAN COPPER & GOLD INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF
STOCKHOLDERS, MAY 2, 2002
The undersigned hereby appoints James R. Moffett and Richard C.
Adkerson, or either of them, as proxies, with full power of substitution, to
vote the shares of the undersigned in Freeport-McMoRan Copper & Gold Inc. at the
Annual Meeting of Stockholders to be held on Thursday, May 2, 2002, at 1:00
p.m., and at any adjournment thereof, on all matters coming before the meeting.
THE PROXIES WILL VOTE: (1) AS YOU SPECIFY ON THE BACK OF THIS CARD, (2) AS THE
BOARD OF DIRECTORS RECOMMENDS WHERE YOU DO NOT SPECIFY YOUR VOTE ON A MATTER
LISTED ON THE BACK OF THIS CARD, AND (3) AS THE PROXIES DECIDE ON ANY OTHER
MATTER.
If you wish to vote on all matters as the Board of Directors
recommends, please sign, date and return this card. If you wish to vote on items
individually, please also mark the appropriate boxes on the back of this card.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE
(continued on reverse side)
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Please mark
your votes as X
indicated in
this example
YOU MAY SPECIFY YOUR VOTES BY MARKING THE APPROPRIATE BOXES ON THIS SIDE. YOU
NEED NOT MARK ANY BOXES, HOWEVER, IF YOU WISH TO VOTE ALL ITEMS IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATION. IF YOUR VOTES ARE NOT SPECIFIED,
THIS PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 3 AND AGAINST ITEMS 4 AND 5.
Your Board of Directors recommends a vote FOR Items 1, 2 and 3 below.
1. Election of 5 Directors. Nominees are: Messrs. Bruce, Day, Graham and
Lackey and Ms. McDonald.
FOR [ ] WITHHOLD [ ]
FOR, except withhold vote from following nominees:
---------------------
2. Ratification of appointment of ____________________ as independent
auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Approval of the proposed- amendment to the certificate of incorporation
to reclassify our common stock into a single class of common stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Your Board of Directors recommends a vote AGAINST Items 4 and 5 below.
4. Stockholder proposal regarding the classification of the board of
directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Stockholder proposal regarding the election of advisors to the
compensation committee.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
SIGNATURE(s) Date: ,2002
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