Filed Pursuant to
Rule 424(b)(2)
Registration Statement File
No. 333-144496
Prospectus supplement to
prospectus dated October 5, 2007
75,000 shares
McMoRan Exploration
Co.
8% Convertible
perpetual preferred shares
We are offering 75,000 shares of our 8% convertible
perpetual preferred stock.
Holders of our convertible perpetual preferred stock are
entitled to receive, when, as and if declared by our board of
directors, out of funds legally available therefor, cash
dividends at the rate of 8% per annum, payable quarterly in
arrears on February 15, May 15, August 15 and November
15 of each year, commencing August 15, 2009. Dividends on
our convertible perpetual preferred stock will be cumulative
from the date of initial issuance. Accumulated but unpaid
dividends cumulate at the annual rate of 8%.
Each share of convertible perpetual preferred stock has a
liquidation preference of $1,000 and is convertible at any time
into shares of our common stock at an initial conversion rate of
146.1454 shares of common stock for each share of
convertible perpetual preferred stock, subject to specified
adjustments, which is equal to an initial conversion price of
$6.8425 per share.
Beginning June 15, 2014, we may redeem shares of the
convertible perpetual preferred stock by paying cash, our common
stock or any combination thereof for $1,000 per share plus
accumulated and unpaid dividends, but only if our common stock
has exceeded 130% of the conversion price for at least 20
trading days within a period of 30 consecutive trading days
ending on the trading day before the date we give the redemption
notice.
Our shares of convertible perpetual preferred stock are new
securities for which there is currently no public market. We
cannot assure you that any active or liquid market will develop
for our convertible perpetual preferred stock. Our common stock
is listed on the New York Stock Exchange under the symbol
MMR. On June 16, 2009, the last reported sale
price of our common stock on the New York Stock Exchange was
$5.79 per share.
Concurrently with this offering of convertible perpetual
preferred stock, we are offering 14,500,000 shares of our
common stock (16,675,000 shares if the underwriters
exercise their over-allotment option in full). We are offering
the common stock pursuant to a separate prospectus supplement.
This prospectus supplement is not an offer to sell or a
solicitation of an offer to buy any of our shares of common
stock. Completion of this offering is not conditioned upon the
closing of the concurrent offering of our common stock.
Investing in our convertible perpetual preferred stock
involves certain risks. Before buying shares of our convertible
perpetual preferred stock, you should read the discussion of
material risks described in Risk factors beginning
on
page S-9
of this prospectus supplement for more information.
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Per share
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Total
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Public offering price
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$
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1,000
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$
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75,000,000
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Underwriting discount
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$
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32.50
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$
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2,437,500
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Proceeds, before expenses, to McMoRan Exploration Co.
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$
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967.50
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$
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72,562,500
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We have granted the underwriters an option for a period of
30 days to purchase up to 11,250 additional shares of our
convertible perpetual preferred stock at the public offering
price less the underwriting discount to cover over-allotments.
Delivery of the shares of convertible perpetual preferred will
be made on or about June 22, 2009.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Book-Running Manager
J.P. Morgan
Co-Managers
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Merrill
Lynch & Co.
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Dahlman Rose & Company
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The date of this prospectus
supplement is June 17, 2009.
Table of
contents
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Page
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Prospectus supplement
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S-ii
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S-ii
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S-iii
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S-1
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S-9
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S-14
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S-14
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S-14
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S-15
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S-16
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S-29
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S-38
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S-43
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S-43
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S-43
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S-44
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Prospectus
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About this prospectus
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1
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McMoRan Exploration Co.
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1
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Use of proceeds
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3
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Ratio of earnings to fixed charges
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4
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Description of McMoRan capital stock
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5
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Description of debt securities
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11
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Description of warrants
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20
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Description of purchase contracts
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21
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Description of units
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21
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Forms of securities
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22
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Plan of distribution
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23
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Where you can find more information
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25
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Information concerning forward-looking statements
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27
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Legal opinions
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28
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Experts
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28
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Reserves
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You should rely solely on the information contained in this
prospectus supplement, the accompanying prospectus, or in any
related free writing prospectus issued by us and the documents
incorporated by reference herein or therein. We have not, and
the underwriters have not, authorized any other person to
provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely
on it. We are not, and the underwriters are not, making an offer
to sell these securities in any jurisdiction where the offer or
sale is not permitted. You should assume that the information
contained or incorporated by reference in this prospectus
supplement, the accompanying prospectus, any related free
writing prospectus issued by us, or any document incorporated by
reference herein or therein is accurate only as of the date on
the front cover of those documents. Our business, financial
condition, results of operations and prospects may have changed
since that date.
S-i
About this
prospectus supplement
This document contains two parts. The first part is this
prospectus supplement, which describes the specific terms of
this offering and contains certain summary information regarding
our company. The second part, the accompanying prospectus,
provides more general information about us and our business,
some of which may not apply to this offering.
If the
description of the offering varies between this prospectus
supplement and the accompanying prospectus, you should rely on
the information in this prospectus supplement.
Before purchasing any securities, you should carefully read both
this prospectus supplement and the accompanying prospectus,
together with the additional information described under the
heading Where you can find more information.
Except as otherwise described herein or unless the context
otherwise requires, all references to McMoRan,
MMR, we, us, and
our in this prospectus supplement refer to McMoRan
Exploration Co. and all entities owned or controlled by McMoRan
Exploration Co.
Industry and
other information
Unless we indicate otherwise, we base the information concerning
the oil and gas industry that is presented or incorporated by
reference herein on our general knowledge of and expectations
concerning the industry. Statements regarding our market
position and market share are based on our assessment of data
available to us from various industry sources and assumptions
that we believe to be reasonable based on our knowledge of the
oil and gas industry. We have not independently verified data
obtained from industry sources and do not guarantee its accuracy
or completeness. In addition, we believe that data regarding the
oil and gas industry and our market position and market share
within such industry is inherently imprecise and therefore
should be used only as general guidance. Further, our estimates
involve risks and uncertainties and are subject to change based
on various factors, including those discussed in the Risk
factors section of this prospectus supplement and the
other information contained or incorporated by reference herein.
S-ii
Cautionary
statement regarding forward-looking statements
This prospectus supplement and the accompanying prospectus,
including the documents incorporated by reference herein and
therein, contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933,
as amended (the Securities Act) and Section 21E
of the Securities Exchange Act of 1934, as amended (the
Exchange Act). Such forward-looking statements are
intended to be covered by the safe harbor for
forward-looking statements provided by the Private
Securities Litigation Reform Act of 1995. These statements may
be made directly in this prospectus supplement or the
accompanying prospectus or may be incorporated in this
prospectus supplement or the accompanying prospectus by
reference to other documents and may include statements for the
period following the completion of this offering. Our
representatives may also make forward-looking statements.
Forward-looking statements are all statements other than
statements of historical fact, such as statements regarding our
financial plans; our indebtedness; acquisitions; our exploration
and development plans; our ability to satisfy our reclamation,
indemnification and environmental obligations; anticipated flow
rates of producing and new wells; drilling potential and
results; reserve estimates and depletion rates; general economic
and business conditions; risks and hazards inherent in the
production of oil and natural gas; our ability to fully insure
against the inherent risks and hazards of our operations at
commercially reasonable costs; demand and potential demand for
oil and natural gas; trends in oil and natural gas prices;
amounts and timing of capital expenditures and reclamation
costs; and our ability to obtain permits necessary for new
operations. The words anticipates, may,
can, plans, feels,
believes, estimates,
expects, projects, intends,
likely, will, should,
to be and any similar expressions and any other
statements that are not historical facts, in each case as they
relate to us or our management, are intended to identify those
assertions as forward-looking statements.
When we or our representatives make any such statements, we or
the person making them believes that the assumptions underlying
the expression of such expectations are reasonable. We caution
readers that these statements are not guarantees of future
performance, and our actual results may differ materially from
those anticipated, projected or assumed in the forward-looking
statements. Important factors that could cause actual results to
differ materially from our expectations include: adverse
conditions such as high temperature and pressure that could lead
to mechanical failures or increased costs; variations in the
market prices of oil and natural gas; drilling results;
unanticipated fluctuations in flow rates of producing wells; oil
and natural gas reserves expectations; the ability to satisfy
future cash obligations and environmental costs; as well as
other general exploration and development risks and hazards; and
other factors described in more detail under the heading
Risk factors.
Accordingly, we give no assurance that any of the events
anticipated by the forward-looking statements will transpire or
occur, or if any of them do so, what impact, if any, they will
have on our results of operations or financial condition. Except
for meeting our ongoing obligations under the federal securities
laws, we do not intend and undertake no obligation to update or
revise any forward-looking statements.
S-iii
Summary
The following summary does not contain all of the information
you should consider before buying shares of our convertible
perpetual preferred stock and is qualified in its entirety by
reference to the more detailed information and consolidated
financial statements appearing elsewhere or incorporated by
reference in this prospectus supplement and the accompanying
prospectus, as well as the materials filed with the Securities
and Exchange Commission (SEC) that are considered to be part of
this prospectus supplement and the accompanying prospectus. You
should read this prospectus supplement and the accompanying
prospectus carefully, including Risk factors, and
the documents incorporated by reference herein and therein
before making an investment decision.
McMoRan
Exploration Co.
Our
business
We engage in the exploration, development and production of oil
and natural gas offshore in the Gulf of Mexico and onshore in
the Gulf Coast area. We have one of the largest acreage
positions in the shallow waters of these areas, which are our
regions of focus. Our focused strategy enables us to capitalize
on our geological and technical capabilities, and our more than
35 years of operating experience in this region. We also
believe that the scale of our operations in the Gulf of Mexico
allows us to realize certain operating synergies and provides a
strong platform from which to pursue our business strategy. Our
oil and gas operations are conducted through McMoRan
Oil & Gas LLC (MOXY), our principal operating
subsidiary. At December 31, 2008, our proved oil and
natural gas reserves were approximately 345 billion cubic
feet equivalent, 84 percent of which were proved developed
and 70 percent of which were natural gas.
Our scope of
operations
We conduct substantially all of our operations in the shallow
waters of the Gulf of Mexico, commonly referred to as the
shelf, and onshore in the Gulf Coast region. We
believe that we have significant exploration opportunities in
large, deep geologic structures commonly referred to as
deep gas or the deep shelf (prospects
with drilling depths between 15,000 feet to
25,000 feet) that are located beneath the shallow waters of
the Gulf of Mexico shelf. These structures often lie beneath
shallow reservoirs where significant reserves have already been
produced. Our 2007 acquisition of substantially all of the
proved oil and gas property interests and related assets of
Newfield Exploration Company located on the outer continental
shelf of the Gulf of Mexico increased our deep gas exploration
potential, provided access to new ultra-deep
exploration opportunities (prospects with total drilling depths
in excess of 25,000 feet) and established us as a
significant producer on the traditional shelf
(prospects located at drilling depths not exceeding
15,000 feet) of the Gulf of Mexico. The proximity of our
shelf prospects to existing oil and gas infrastructure generally
lowers development costs and the time needed to bring production
on-line.
Our expertise and
experience
We have significant expertise in various exploration and
production technologies, including the incorporation of
3-D
seismic
interpretation capabilities with traditional structural
geological techniques, offshore drilling to significant total
depths and horizontal drilling. As of June 12,
S-1
2009, we employed 64 oil and gas technical professionals,
including geophysicists, geologists, petroleum engineers,
production and reservoir engineers and technical professionals,
most of whom have considerable experience in their respective
fields. We also own or have rights to an extensive seismic
database, including
3-D
seismic
data on substantially all of our acreage. We leverage our
in-house expertise and advanced technological capabilities to
benefit our operations and identify high potential, high risk
drilling prospects in the Gulf of Mexico. We continue to focus
on enhancing reserve and production growth in the Gulf of Mexico
by applying these technologies.
Our experience and recognition as an industry leader in drilling
deep gas wells in the Gulf of Mexico also provides us with
opportunities to partner with other established oil and gas
companies. These partnerships, which typically involve the
exploration of our identified prospects or prospects that are
brought to us by third parties, allow us to diversify our risks
and better manage costs.
Our exploration
strategy
Our exploration strategy, which we refer to as the deeper
pool concept, involves exploring prospects in the Deep
Miocene geologic trend that lie beneath shallower intervals that
have had significant past production. We believe our techniques
for identifying reservoirs using structural geology augmented by
3-D
seismic
data will enable us to identify and exploit additional
deeper pool prospects at drilling depths exceeding
15,000 feet. We are also pursuing a strategy to test
Miocene and earlier age formations within ultra-deep
prospects on the shelf of the Gulf of Mexico that we believe
have the potential to contain significant hydrocarbons.
We use our expertise and a rigorous analytical process in
conducting our exploration and development activities. While
implementing our drilling plans, we focus on:
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allocating investment capital based on the potential risk and
reward for each exploratory and developmental opportunity;
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utilizing advanced seismic applications in combination with
traditional analysis;
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employing professionals with geophysical and geological
expertise;
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using new technology applications in drilling and completion
practices; and
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increasing the efficiency of our production practices.
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Our
plans
We intend to continue to focus on pursuing deep gas and
ultra-deep prospects on the shelf of the Gulf of Mexico that we
believe have promise based on data we have obtained from our
prior exploratory wells. We will be responsive to market
conditions by prudently managing our capital spending as we
continue to seek to build asset values through our focused
drilling program. For 2009, we have allocated approximately
30 percent of our planned capital expenditures for
development activities associated with identified completions,
recompletions and other related activities. Future capital
expenditures for development activities will be driven by our
timing of the development of our proved reserves and the success
of our exploration activities.
S-2
Recent
Developments
On April 20, 2009, we announced our first quarter 2009
financial results and provided production guidance for the
second quarter and full year 2009. We announced that we expect
average daily production for 2009 to approximate
215 MMcfe/d net to us, including 180 MMcfe/d in the
second quarter 2009. These production estimates are dependent on
the timing of restoring downstream pipelines and facilities
damaged by the September 2008 hurricanes and production
performance from existing wells and new wells being completed.
Ammazzo
. The Ammazzo deep gas exploratory prospect
on South Marsh Island Block 251 commenced drilling on
November 22, 2008 and in May 2009 was evaluated to be
nonproductive. While the well was nonproductive, we gained
important geological information from the well that supports our
belief that there are large, deep structures with the potential
to contain significant hydrocarbon reserves available on the
Shelf. The Ammazzo well has been temporarily abandoned as future
plans are considered. Our partners in the well included Plains
Exploration & Production Company (NYSE: PXP) and
Energy XXI (NASDAQ: EXXI).
Cordage and Blueberry Hill
. The Cordage deep gas
exploratory prospect located in 50 feet of water on West
Cameron Block 207 commenced drilling on March 18,
2009. The Cordage well has been drilled to 20,061 feet and
will be deepened. The well has a permitted depth of
21,500 feet. We own a 38.0 percent working interest
and a 30.5 percent net revenue interest in the well.
Mariner Energy, Inc. (NYSE: ME) is the operator of the well and
holds a 50.0 percent working interest. Upon completion of
operations at Cordage, the rig will be moved to the Sherwood
prospect on High Island Block 133 to commence exploration
drilling activities. We own a 29.3 percent working interest
and a 23.5 percent net revenue interest in the Sherwood
prospect.
On March 29, 2009, we re-entered a previously existing well
bore and commenced sidetracking operations at the Blueberry Hill
deep gas prospect located on Louisiana State Lease 340 in
10 feet of water. The Blueberry Hill sidetrack well has
been drilled to 19,600 feet and has a proposed total depth
of 24,000 feet. We believe the Operc and Gyro sands
targeted in the sidetrack could be better developed in a
down-dip position on the flank of the structure than the Operc
and Gyro sands encountered in the original Blueberry Hill well.
Blueberry Hill lies three and a half miles southeast of the
shallower Mound Point field. Based on drilling data to date, we
are encouraged by the several zones that exhibited resistivity
as indicated by a log-while-drilling tool in the Rob-L section
that correlates to the Flatrock type Miocene-age sands
discovered below the shallower Tiger Shoal field located
approximately 10 miles to the west. Drilling at the
Blueberry Hill sidetrack has now encountered the upper Operc
section located between the shallower Rob-L section and the
targeted deeper Gyro section. The original Blueberry Hill well
encountered multiple Operc sands with apparent resistivity and
multiple thin Gyro sands deemed to be gas productive which will
also be tested by the sidetrack well. Determination of
commercial hydrocarbons depends on the results from further
drilling and evaluation by wireline log analysis. We own a
42.9 percent working interest and a 29.7 percent net
revenue interest in the well.
Davy Jones and Blackbeard West
. We are currently
conducting a feasibility assessment to determine the
practicality of reentering a previously abandoned well bore to
evaluate the Davy Jones ultra-deep prospect located in
20 feet of water, northwest of Ammazzo.
S-3
In May 2009, the Minerals Management Service granted our request
for a geophysical Suspension of Operations (SOO) to extend our
leases in the Blackbeard area, including South Timbalier
Block 168. The SOO will provide time for seismic
re-processing, which will provide a clearer picture of the deep
structure, and allow us to evaluate whether to drill deeper at
Blackbeard West, drill an offset location or complete the well
to test the existing zones.
Flatrock
. Following the Flatrock discovery in OCS
310 on South Marsh Island Block 212 in July 2007, we have
drilled five additional successful wells in the field. Four
wells in the Flatrock field produced an average of approximately
220 million cubic feet of natural gas equivalents
(MMcfe/d
(41 MMcfe/d net to us) in the first quarter of 2009.
Production from these wells was temporarily shut in during the
second quarter of 2009 for previously reported planned facility
expansion, maintenance and remediation activities. Certain of
this work has been completed and production is being
reestablished. Additionally, initial production recently
commenced from the No. 6 well, and the well is
currently being ramped up to its full production level. The
remaining maintenance and remedial activities and the completion
activities at the No. 5 well are ongoing, with
production expected from these wells by mid-year 2009. Following
these activities, we expect the gross production rate from the
six wells in the field to approximate 335 MMcfe/d,
62 MMcfe/d net to us.
We are evaluating a sidetrack of the Hurricane Deep well on the
southern flank of the Flatrock structure to test the significant
Gyro sand encountered in the Hurricane Deep well on South Marsh
Island Block 217. We control approximately
150,000 gross acres in the Tiger Shoal/Mound Point area
(OCS 310/Louisiana State Lease 340) and we believe that we
have multiple additional exploration opportunities with
significant potential on this large acreage position.
Second Quarter Update
. Our second quarter 2009
results will include the impact of an approximate
$24 million charge associated with the Ammazzo prospect.
Results may also be affected by the evaluation of our
exploration wells in progress, the timing of which is dependent
upon the completion of drilling and evaluation, and our periodic
assessments of the carrying values of our oil and gas properties
which, among other things, are dependent upon the results of
published commodity forward market prices and updated reserve
estimates as of June 30, 2009.
We are in discussions regarding a two-year commitment to a new
drilling rig which is expected to be available in early 2010
that would enable us to have two rigs available for our deep
drilling activities. We expect that the net additional
commitment associated with the additional drilling rig would
exceed $100 million, a portion of which we expect to share
with partners in our exploration program.
For Additional
Information
Our principal executive offices are located at 1615 Poydras
Street, New Orleans, Louisiana 70112, and our telephone number
is
(504) 582-4000.
Our website is located at
http://www.mcmoran.com
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The information on our website is not part of this prospectus
supplement or the accompanying prospectus.
S-4
The
offering
The following is a brief summary of selected terms of our
convertible perpetual preferred stock. For a more complete
description of the terms of our convertible perpetual preferred
stock, see Description of convertible perpetual preferred
stock.
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Issuer
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McMoRan Exploration Co.
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Securities offered
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75,000 shares of 8% convertible perpetual preferred stock,
par value $0.01 per share (86,250 shares if the
underwriters exercise their over-allotment option in full).
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Liquidation preference
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$1,000 per share of convertible perpetual preferred stock.
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Dividends
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Holders of convertible perpetual preferred stock are entitled to
receive, when, as and if declared by our board of directors, out
of funds legally available therefor, cash dividends at the rate
of 8% per annum, payable quarterly in arrears on
February 15, May 15, August 15 and November 15 of each
year, commencing August 15, 2009. Dividends on our
convertible perpetual preferred stock will be cumulative from
the date of initial issuance. Accumulated but unpaid dividends
cumulate at the annual rate of 8%.
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For so long as our convertible perpetual preferred stock remains
outstanding, (1) we will not declare, pay or set apart
funds for the payment of any dividend or other distribution with
respect to any junior stock or parity stock and (2) neither
we, nor any of our subsidiaries, will, subject to certain
exceptions, redeem, purchase or otherwise acquire for
consideration junior stock or parity stock through a sinking
fund or otherwise, in each case unless we have paid or set apart
funds for the payment of all accumulated and unpaid dividends
with respect to the shares of convertible perpetual preferred
stock and any parity stock for all preceding dividend periods.
See Description of convertible perpetual preferred
stockDividends.
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Use of proceeds
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We expect to receive approximately $72 million in net
proceeds from this offering, after deducting the
underwriters discount and our estimated offering expenses.
We intend to use the net proceeds from this offering for general
corporate purposes, including capital expenditures. See
Use of proceeds.
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Conversion
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Our convertible perpetual preferred stock is convertible, at the
option of the holder, at any time into shares of our common
stock at a conversion rate of shares of our common stock
per $1,000 liquidation preference of convertible perpetual
preferred stock, which is equal to an initial conversion price
of $6.8425 per share. The conversion rate is subject to
adjustment upon the occurrence of certain events, including if
we distribute to holders of outstanding shares of our common
stock quarterly cash dividends (subject to adjustment). See
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S-5
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Description of convertible perpetual preferred
stockAdjustments to the conversion rate.
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Adjustment to conversion rate upon certain fundamental changes
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If holders of shares of our convertible perpetual preferred
stock elect to convert their shares in connection with a
fundamental change that occurs on or prior to June 15,
2019, we will increase the conversion rate for shares of our
convertible perpetual preferred stock surrendered for conversion
by a number of additional shares determined based on the stock
price at the time of such fundamental change and the effective
date of such fundamental change.
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Optional redemption
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We may not redeem any shares of convertible perpetual preferred
stock at any time before June 15, 2014. On or after
June 15, 2014, we may redeem some or all of the convertible
perpetual preferred stock at a redemption price equal to 100% of
the liquidation preference, plus accumulated but unpaid
dividends to the redemption date, but only if the closing sale
price of our common stock for 20 trading days within a period of
30 consecutive trading days ending on the trading day before the
date we give the redemption notice exceeds 130% of the
conversion price of the convertible perpetual preferred stock,
subject to adjustment in a number of circumstances as described
under Description of convertible perpetual preferred
stockAdjustments to the conversion rate. We may also
redeem our convertible perpetual preferred stock at any time
after June 15, 2014 if the total number of shares of the
convertible perpetual preferred stock outstanding on any
quarterly dividend payment date is less than 15% of the total
number of shares of the convertible perpetual preferred stock
outstanding immediately following this offering, after giving
effect to the exercise of the underwriters over-allotment
option. We may choose to pay the redemption price in cash,
common stock, or a combination of cash and common stock. If we
elect to pay all or a portion of the redemption price in shares
of common stock, the common stock will be valued at a discount
of 5% below the average of the closing sale prices for the five
trading days ending on the third trading day prior to the
redemption date.
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Our convertible perpetual preferred stock is not subject to any
mandatory redemption or sinking fund provision.
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Voting rights
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Holders of convertible perpetual preferred stock will not have
any voting rights except as set forth below, as specifically
provided for in our amended and restated certificate of
incorporation or as otherwise from time to time required by law.
Whenever (1) dividends on the convertible perpetual
preferred stock or any other class or series of stock ranking on
parity with the convertible perpetual preferred stock with
respect to the payment of dividends are in arrears for dividend
periods, whether or not consecutive, containing in the
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S-6
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aggregate a number of days equivalent to six calendar quarters,
or (2) we fail to pay the redemption price on the date
shares of convertible perpetual preferred stock are called for
redemption, the holders of convertible perpetual preferred stock
(voting separately as a class with all other series of preferred
stock upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two of
the authorized number of our directors at the next annual
meeting of stockholders and at each subsequent meeting until all
dividends accumulated or the redemption price on the convertible
perpetual preferred stock have been fully paid or set apart for
payment. The term of office of all directors elected by the
holders of convertible perpetual preferred stock will terminate
immediately upon the termination of the rights of the holder of
convertible perpetual preferred stock to vote for directors.
Holders of shares of convertible perpetual preferred stock will
have one vote for each share of convertible perpetual preferred
stock held.
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Ranking
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Our convertible perpetual preferred stock will be, with respect
to dividend rights and rights upon liquidation, winding up or
dissolution:
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junior to all our existing and future debt
obligations;
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junior to each other class or series of our capital
stock other than (1) our common stock and any other class
or series of our capital stock the terms of which provide that
such class or series will rank junior to the convertible
perpetual preferred stock and (2) any other class or series
of our capital stock, the terms of which provide that such class
or series will rank on parity with the convertible perpetual
preferred stock;
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on parity with (1) our 6.75% mandatory
convertible preferred stock and (2) any other class or
series of our capital stock the terms of which provide that such
class or series will rank on parity with the convertible
perpetual preferred stock;
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senior to our common stock and any other class or
series of our capital stock, the terms of which provide that
such class or series will rank junior to the convertible
perpetual preferred stock; and
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effectively junior to all of our subsidiaries
(1) existing and future liabilities and (2) capital
stock held by others.
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Risk factors
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See Risk factors beginning on
page S-9
of this prospectus supplement and other information included or
incorporated by reference in this prospectus supplement and the
accompanying prospectus for a discussion of factors you should
carefully consider before deciding to invest in our convertible
perpetual preferred stock.
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S-7
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Absence of a public market for the convertible perpetual
preferred stock
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The shares of convertible perpetual preferred stock are new
securities for which there is currently no public market. We
cannot assure you that any active or liquid market will develop
for our convertible perpetual preferred stock.
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NYSE symbol for our common stock
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Our common stock is traded on the New York Stock Exchange under
the symbol MMR.
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Transfer agent and registrar
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BNY Mellon Shareowner Services.
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S-8
Risk
factors
An investment in our convertible perpetual preferred stock
involves certain risks. Before making an investment decision,
you should carefully consider the risks described below and the
risks relating to financial matters and our operations disclosed
in Item 1A of Part I of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 and
Item 1A of Part II of our Quarterly Report on
Form 10-Q
for the three months ended March 31, 2009, as well as the
other information included or incorporated by reference in this
prospectus supplement and the accompanying prospectus. We
caution readers that these, among other risks, may in some cases
have affected, and in the future could affect, our actual
consolidated results and could cause our actual consolidated
results in the future to differ materially from the expectations
expressed in forward-looking statements included in this
prospectus supplement and the accompanying prospectus, including
any documents incorporated herein or therein by reference. The
market or trading price of our convertible perpetual preferred
stock could decline due to any of these risks or other factors,
and you may lose all or part of your investment.
Risks related to
our convertible perpetual preferred stock
We may be
unable to pay, or could be prevented from paying, dividends on
shares of our convertible perpetual preferred
stock.
We have substantial indebtedness and, as a result, significant
debt service obligations. As of March 31, 2009, our
principal long-term indebtedness outstanding was approximately
$374.7 million, representing approximately
59.8 percent of our total capitalization, and our total
stockholders equity was $252.1 million. For fiscal
year 2008, our net interest expense was $50.9 million. We
sustained a net loss from continuing operations of
$211.2 million in 2008 and, as a result, were unable to
cover our fixed charges of $56.3 million. Our substantial
debt could make it difficult for us to satisfy our dividend and
other obligations under the convertible perpetual preferred
stock.
Under Delaware law, cash dividends on capital stock may only be
paid from surplus or, if there is no
surplus, from the corporations net profits for
the then-current or the preceding fiscal year. Unless we operate
profitably, our ability to pay cash dividends on the convertible
perpetual preferred stock would require the availability of
adequate surplus, which is defined as the excess, if
any, of our net assets (total assets less total liabilities)
over our capital. Further, even if adequate surplus is available
to pay cash dividends on the convertible perpetual preferred
stock, we may not have sufficient cash to pay dividends on the
convertible perpetual preferred stock.
In addition, because we are a holding company with no material
assets other than the capital stock of our subsidiaries, our
ability to repay our indebtedness or pay dividends is dependent
on the generation of cash flow by our subsidiaries and their
ability to make such cash available to us, by dividend, loan,
debt repayment or otherwise. Except with respect to any
guarantee of our 11.875% Senior Notes, our subsidiaries do
not have any obligation to make funds available to us to repay
our indebtedness or pay dividends. Dividends from subsidiaries
that are not wholly owned are shared with other equity owners.
Our subsidiaries may not be able to, or be permitted to, make
distributions to enable us to repay our indebtedness or pay
dividends. Each of our subsidiaries is a distinct legal entity
and, under certain circumstances, legal and contractual
restrictions, as well as the financial condition
S-9
and operating requirements of our subsidiaries, may limit our
ability to obtain cash from our subsidiaries. Our rights to
participate in any distribution of our subsidiaries assets
upon their liquidation, reorganization or insolvency would
generally be subject to the prior claims of the
subsidiaries creditors, including any trade creditors and
preferred stockholders.
Our
convertible perpetual preferred stock ranks junior to all of our
liabilities and will not limit our ability to incur future
indebtedness that will rank senior to the convertible perpetual
preferred stock.
The convertible perpetual preferred stock ranks junior to all of
our liabilities. In the event of our bankruptcy, liquidation or
winding-up,
our assets will be available to pay obligations on the
convertible perpetual preferred stock only after all of our
indebtedness and other liabilities have been paid. In addition,
the convertible perpetual preferred stock will effectively rank
junior to all existing and future liabilities of our
subsidiaries and any capital stock of our subsidiaries held by
others. The rights of holders of the convertible perpetual
preferred stock to participate in the distribution of assets of
our subsidiaries will rank junior to the prior claims of that
subsidiarys creditors and any such other equity holders.
As of March 31, 2009, we had total consolidated liabilities
of approximately $1.0 billion. Consequently, if we are
forced to liquidate our assets to pay our creditors, we may not
have sufficient assets remaining to pay amounts due on any or
all of the convertible perpetual preferred stock then
outstanding. We and our subsidiaries may incur substantial
amounts of additional debt and other obligations that will rank
senior to the convertible perpetual preferred stock, and the
terms of the convertible perpetual preferred stock will not
limit the amount of such debt or other obligations that we may
incur.
An active
trading market for the convertible perpetual preferred stock may
not develop and you may be unable to resell your shares of
preferred stock at or above the purchase price.
No trading market for the convertible perpetual preferred stock
currently exists. No assurance can be given that an active
trading market for the convertible perpetual preferred stock
will develop or be sustained. In addition, the underwriters have
advised us that they currently intend to make a market in the
convertible perpetual preferred stock. However, they are not
obligated to do so and may discontinue market-making activities
at any time without notice. As a result, you may be unable to
sell your shares of convertible perpetual preferred stock at a
price equal to or greater than that which you paid, if at all.
Our ability to
use our net operating loss carryforwards (NOLs) and
a portion of our tax basis deductions may be significantly
limited if we experience an ownership change as
defined in section 382 of the Internal Revenue Code of
1986, as amended (the Code).
As of March 31, 2009, we had approximately
$350 million of federal NOLs available to offset future
taxable income. Our ability to use our NOLs to offset future
taxable income may be significantly limited under
section 382 of the Code if we experience an ownership
change.
In general, an ownership change will occur if there is a
cumulative change in our ownership by 5%
shareholders (as defined in the Code) that exceeds
50 percent over a rolling three-year period. Shares issued
in this offering of our convertible perpetual preferred stock
and our concurrent offering of common stock will be included in
determining the cumulative change in our ownership for
section 382 purposes. We believe that our company would
incur an ownership change if we sell all of the shares of
convertible perpetual preferred stock offered
S-10
hereby and all of the shares of common stock offered
concurrently with this offering. If we do not exceed the
threshold triggering an ownership change in connection with
these offerings, future stock transactions that may not be
within our control may also cause us to experience an ownership
change.
If we experience an ownership change, the use of our NOLs will
be subject to limitations under section 382. We could also
be limited in our ability to use a portion of our tax basis
deductions. These limitations will depend on various factors,
including the market value of our company at the time of the
ownership change. As a result, our future period tax liability
could increase and, accordingly, adversely impact our future
period cash flows. Limitations pertaining to the use of our NOLs
could also result in the statutory expiration of a portion of
our NOLs prior to use.
Our ability to
issue preferred stock in the future could adversely affect the
rights of holders of the convertible perpetual preferred stock
and our common stock.
Our amended and restated certificate of incorporation authorizes
us to issue up to 50,000,000 shares of preferred stock in
one or more series on terms determined by our board of
directors. As of May 31, 2009, we had 1,589,340 shares
of 6.75% mandatory convertible preferred stock issued and
outstanding. Our board of directors, without limitation, may
authorize, increase the authorized amount of, or issue any
shares of any series of preferred stock, whether such stock
would rank junior, equal or senior to the convertible perpetual
preferred stock. Our future issuance of any series of preferred
stock under our certificate of incorporation could therefore
effectively diminish or supersede dividends on, and the
liquidation preference of, the convertible perpetual preferred
stock we are offering hereby and adversely affect our common
stock.
Sales, or the
availability for sale, of substantial amounts of our common
stock could adversely affect the value of the convertible
perpetual preferred stock and impair our ability to raise equity
capital.
Sales by us of a substantial amount of additional shares of our
common stock in the public market, and the availability of
shares for future sale, including shares of our common stock
issuable upon the conversion of shares of the convertible
perpetual preferred stock or upon exercise of outstanding
options or other rights to acquire shares of our common stock,
could adversely affect the prevailing market price of our common
stock. This would adversely affect the value of the convertible
perpetual preferred stock and could impair our future ability to
raise capital through an offering of our equity securities.
If you convert
your shares of convertible perpetual preferred stock, you will
experience immediate dilution.
You may, at any time, convert your shares of convertible
perpetual preferred stock into our common stock. If you convert
your shares of convertible perpetual preferred stock into shares
of our common stock, you will experience immediate dilution
because the per share conversion price of the convertible
perpetual preferred stock immediately after this offering will
be higher than the net tangible book value per share of the
outstanding common stock. In addition, you will also experience
dilution when and if we issue additional shares of common stock,
which we may be required to issue pursuant to options, warrants,
our stock option plan or other employee or director compensation
plans.
S-11
The price of
our common stock, and therefore of the convertible perpetual
preferred stock, may fluctuate significantly, which may make it
difficult for you to resell the convertible perpetual preferred
stock, or common stock issuable upon conversion of the
convertible perpetual preferred stock, when you want or at
prices you find attractive.
The price of our common stock on the New York Stock Exchange
changes constantly. We expect that the market price of our
common stock will continue to fluctuate. Because the convertible
perpetual preferred stock is convertible into our common stock,
volatility or depressed prices for our common stock could have a
similar effect on the trading price of the convertible perpetual
preferred stock. Holders who have received common stock upon
conversion will also be subject to the risk of volatility and
depressed prices.
In addition, the stock market in general has experienced extreme
volatility that has often been unrelated to the operating
performance of a particular company. These broad market
fluctuations may adversely affect the market price of our common
stock.
The trading
price for the convertible perpetual preferred stock will be
directly affected by the trading prices for our common stock,
which is impossible to predict.
The price of our common stock could be affected by possible
sales of our common stock by investors who view the convertible
perpetual preferred stock as a more attractive means of equity
participation in us and by hedging or arbitrage activity that
may develop involving our common stock. The arbitrage could, in
turn, affect the trading prices of the convertible perpetual
preferred stock.
Anti-takeover
provisions in our charter documents and Delaware law may make an
acquisition of us more difficult.
Anti-takeover provisions in our charter documents and Delaware
law may make an acquisition of us more difficult. These
provisions:
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authorize our board of directors to issue preferred stock
without stockholder approval and to designate the rights,
preferences and privileges of each class; if issued, such
preferred stock would increase the number of outstanding shares
of our capital stock and could include terms that may deter an
acquisition of us;
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require a supermajority vote of stockholders in order to
consummate a merger or other business combination transaction;
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establish advance notice requirements for nominations to the
board of directors or for proposals that can be acted on at
stockholder meetings; and
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limit who may call stockholder meetings.
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These provisions may discourage potential takeover attempts,
discourage bids for our common stock at a premium over market
price or adversely affect the market price of, and the voting
and other rights of the holders of, our common stock. These
provisions could also discourage proxy contests and make it more
difficult for stockholders to elect directors other than the
candidates nominated by our board of directors.
In addition, as a Delaware corporation, we are governed by the
provisions of Section 203 of the Delaware General
Corporation Law, which may prohibit large stockholders from
consummating
S-12
a merger with, or acquisition of, us for three years following
the date that they acquired their stock position.
These provisions may deter an acquisition of us that might
otherwise be attractive to stockholders.
The additional
shares of our common stock payable on our convertible perpetual
preferred stock in connection with a fundamental change may not
adequately compensate you for the lost option time value of your
shares of our preferred stock as a result of such fundamental
change.
If a fundamental change (as defined herein) occurs, you may be
entitled to receive, in addition to a number of shares equal to
the applicable conversion rate, an additional number of shares
(the additional shares or the make-whole
premium) upon conversion as described under
Description of the preferred stockAdjustment to
shares delivered upon conversion upon certain corporate
transactions. The number of additional shares of our
common stock will be determined based on the date on which the
fundamental change becomes effective and the price paid per
share of common stock in the fundamental change. While the
increase in the conversion rate upon conversion is designed to
compensate you for the lost option time value of your shares of
convertible perpetual preferred stock as a result of the
fundamental change, the increase is only an approximation of
this lost value and may not adequately compensate you for your
loss. If the stock price for such transaction (as determined
under Description of the preferred stockAdjustment
to shares delivered upon conversion upon certain corporate
transactions) is in excess of $32.00, or if such price is
less than or equal to $5.75, in each case subject to adjustment
in the same manner as such stock price, no make-whole premium
will be paid.
We may not
have sufficient earnings and profits in order for distributions
on the convertible perpetual preferred stock to be treated as
dividends.
The dividends payable by us on the convertible perpetual
preferred stock may exceed our current and accumulated earnings
and profits, as calculated for U.S. federal income tax
purposes, at the time of payment. If that occurs, it will result
in the amount of the dividends that exceed such earnings and
profits being treated first as a return of capital to the extent
of the holders adjusted tax basis in the preferred stock,
and the excess, if any, over such adjusted tax basis as capital
gain. Such treatment will generally be unfavorable for corporate
holders and may also be unfavorable to certain other holders.
See Material U.S. federal tax
considerationsU.S. holders Dividends.
S-13
Use of
proceeds
We intend to use the net proceeds from this offering, together
with the net proceeds from our concurrent offering of
14,500,000 shares of our common stock for general corporate
purposes, including capital expenditures.
Price range of
common stock
Our common stock is listed and traded on the New York Stock
Exchange under the symbol MMR. The following table
sets forth, for the periods indicated, the high and low sales
prices per share of our common stock on the New York Stock
Exchange.
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High
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Low
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Fiscal Year 2007
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First Quarter
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$
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15.53
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$
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11.01
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Second Quarter
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15.73
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12.51
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Third Quarter
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17.93
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12.94
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Fourth Quarter
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15.81
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10.70
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Fiscal Year 2008
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First Quarter
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18.62
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12.50
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Second Quarter
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35.52
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17.01
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Third Quarter
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29.88
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19.55
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Fourth Quarter
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23.26
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7.39
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Fiscal Year 2009
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First Quarter
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12.35
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3.14
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Second Quarter (through June 16, 2009)
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7.71
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4.26
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On June 16, 2009, there were 7,383 holders of record
of our common stock and the last reported sale price of our
common stock on the New York Stock Exchange was $5.79 per
share.
Dividend
policy
We have not in the past paid, and do not anticipate in the
future paying, cash dividends on our common stock. In addition,
our credit agreement currently prohibits our payment of
dividends on our common stock. At such time, if ever, that such
restrictions are lifted, the board of directors has the sole
discretion as to the timing and amount of any cash dividends.
S-14
Capitalization
The following table sets forth our consolidated cash and cash
equivalents and our consolidated capitalization as of
March 31, 2009 on an (i) actual basis and (ii) as
adjusted to reflect (a) our issuance and sale of
75,000 shares of 8% convertible perpetual preferred stock
in this offering, assuming no exercise of the underwriters
over-allotment option and (b) our concurrent issuance and
sale of 14,500,000 shares of common stock, assuming no
exercise of the underwriters over-allotment option.
This table is derived from, should be read together with, and is
qualified in its entirety by reference to (i) our unaudited
consolidated financial statements and the accompanying notes and
(ii) Managements Discussion and Analysis of
Financial Condition and Results of Operations, each
included in our Quarterly Report on
Form 10-Q
for the three months ended March 31, 2009, which is
incorporated herein by reference.
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As of March 31, 2009
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(in thousands)
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Actual
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As adjusted
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Cash and cash equivalents
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$
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95,435
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$
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246,963
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Long-term debt (including current portion):
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Senior secured revolving credit facility
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11.875% senior notes
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300,000
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300,000
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5
1
/
4
%
convertible senior notes
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74,720
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74,720
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Total long-term debt
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$
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374,720
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$
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374,720
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Stockholders equity:
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Preferred stock(a)
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158,934
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233,934
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Common stock, par value $0.01 per share(b)
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730
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875
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Capital in excess of par value of common stock
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975,642
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1,052,025
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Accumulated deficit
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(836,712
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)
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(836,712
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)
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Accumulated other comprehensive loss
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(32
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)
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(32
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)
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Common stock held in treasury(c)
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(46,443
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)
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(46,443
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)
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Total stockholders equity
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$
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252,119
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$
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403,647
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Total capitalization
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$
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626,839
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$
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778,367
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(a)
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50,000,000 shares authorized;
1,589,340 shares of our 6.75% mandatory convertible
preferred stock issued and outstanding as of March 31,
2009. As adjusted, reflects 75,000 shares of our
convertible perpetual preferred stock offered hereby recorded at
the aggregate liquidation preference thereof.
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(b)
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150,000,000 shares authorized;
70,475,267 shares issued and outstanding at March 31,
2009; 84,975,267 shares issued and outstanding as adjusted
for our concurrent offering of shares of our common stock.
Excludes shares of our common stock issuable upon conversion of
our 8% convertible perpetual preferred stock offered hereby, our
6.75% mandatory convertible preferred stock, our
5
1
/
4
%
convertible senior notes due 2011, and upon exercise of
outstanding stock options and restricted stock units or upon the
vesting of restricted stock awards.
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(c)
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2,508,660 shares held in
treasury at an average price of $18.51 per share.
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S-15
Description of
convertible perpetual preferred stock
The shares of convertible perpetual preferred stock are to be
issued pursuant to a certificate of designations to be dated as
of June 22, 2009. You may request a copy of the certificate
of designations from us in the manner described above under
Where you can find more information.
The following description is a summary of the material
provisions of our convertible perpetual preferred stock and the
certificate of designations. It does not purport to be complete.
This summary is subject to and is qualified in its entirety by
reference to all the provisions of the certificate of
designations, including the definitions of terms used therein.
Wherever particular provisions or defined terms of the
certificate of designations or form of convertible perpetual
preferred stock are referred to, these provisions or defined
terms are incorporated in this prospectus supplement by
reference. We urge you to read the certificate of designations
because it, and not this description, defines your rights as a
holder of shares of convertible perpetual preferred stock.
As used in this Description of convertible perpetual
preferred stock section, references to
McMoRan, we, our or
us refer solely to McMoRan Exploration Co. and not
to our subsidiaries.
General
Under our amended and restated certificate of incorporation, our
board of directors is authorized, without further stockholder
action, to issue up to 50,000,000 shares of preferred
stock, par value $0.01 per share, in one or more series, with
such voting powers or without voting powers, and with such
designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or
restrictions, as shall be set forth in the resolutions providing
therefor. As of May 31, 2009, there were issued and
outstanding 1,589,340 shares of 6.75% mandatory convertible
preferred stock, which are convertible into
12,817,232 shares of our common stock (assuming the maximum
conversion rate of 8.0645 shares).
Upon consummation of this offering, we will issue
75,000 shares, or up to 86,250 shares if the
underwriters exercise their over-allotment option in full,
of our 8% convertible perpetual preferred stock, $0.01 par
value per share and $1,000 liquidation preference per share.
When issued against the consideration therefor, the shares of
convertible perpetual preferred stock will be validly issued,
fully paid and nonassessable.
The holders of the shares of convertible perpetual preferred
stock will have no preemptive rights or preferential rights to
purchase or subscribe for stock, obligations, warrants or any
other of our securities.
Ranking
Our convertible perpetual preferred stock, with respect to
dividend rights and upon liquidation, winding up and
dissolution, ranks:
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junior to all our existing and future debt obligations;
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junior to senior stock, which is each class or
series of our capital stock other than (1) our common stock
and any other class or series of our capital stock the terms of
which provide
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S-16
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that such class or series will rank junior to the convertible
perpetual preferred stock and (2) any other class or series
of our capital stock the terms of which provide that such class
or series will rank on parity with the convertible perpetual
preferred stock;
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on parity with parity stock, which is (1) our
6.75% mandatory convertible preferred stock and (2) any
other class or series of our capital stock that has terms which
provide that such class or series will rank on parity with the
convertible perpetual preferred stock;
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senior to junior stock, which is our common stock
and each class or series of our capital stock that has terms
which provide that such class or series will rank junior to the
convertible perpetual preferred stock; and
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effectively junior to all of our subsidiaries
(1) existing and future liabilities and (2) capital
stock held by others.
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The term senior stock includes warrants, rights,
calls or options exercisable for or convertible into that type
of stock.
Dividends
Holders of shares of our convertible perpetual preferred stock
are entitled to receive, when, as and if declared by our board
of directors, out of funds legally available for payment,
cumulative cash dividends on each outstanding share of
convertible perpetual preferred stock at the annual rate of 8%
of the liquidation preference per share. The dividend rate is
initially equivalent to $80 per share annually. The right of
holders of shares of our convertible perpetual preferred stock
to receive dividend payments is subject to the rights of any
holders of shares of senior stock and parity stock.
Dividends are payable quarterly in arrears on February 15,
May 15, August 15 and November 15 of each year, beginning
on August 15, 2009. If any of those dates is not a business
day, then dividends will be payable on the next succeeding
business day. Dividends will accumulate from the most recent
date as to which dividends will have been paid or, if no
dividends have been paid, from the date of original issuance of
the convertible perpetual preferred stock. Dividends are payable
to holders of record as they appear in our stock records at the
close of business on February 1, May 1, August 1 and
November 1 of each year or on a record date that may be fixed by
our board of directors and that will be not more than
60 days nor fewer than 10 days before the applicable
quarterly dividend payment date. Dividends will be cumulative
from each quarterly dividend payment date, whether or not we
have funds legally available for the payment of those dividends.
Dividends payable on the shares of convertible perpetual
preferred stock for any period shorter than a full quarterly
period will be computed on the basis of a
360-day
year
consisting of twelve
30-day
months. Dividends on shares of our convertible perpetual
preferred stock will be payable in cash. Accumulated unpaid
dividends cumulate at the annual rate of 8% and are payable in
the manner provided above.
For so long as our convertible perpetual preferred stock is
outstanding, (1) we will not declare, pay or set apart
funds for the payment of any dividend or other distribution with
respect to any junior stock or parity stock and (2) neither
we, nor any of our subsidiaries, will redeem, purchase or
otherwise acquire for consideration junior stock or parity stock
through a sinking fund or otherwise, in each case unless we have
paid or set apart funds for the payment of all accumulated and
unpaid dividends with respect to the shares of convertible
perpetual preferred
S-17
stock and any parity stock for all preceding dividend periods.
As an exception to clause (2), we will be able to redeem,
purchase or otherwise acquire for consideration parity stock
pursuant to a purchase or exchange offer made on the same terms
to all holders of convertible perpetual preferred stock and such
parity stock.
Holders of our convertible perpetual preferred stock will not
have any right to receive dividends that we may declare on our
common stock. The right to receive dividends declared on our
common stock will be realized only after conversion of such
holders shares of convertible perpetual preferred stock
into shares of our common stock.
Conversion
rights
Holders of our convertible perpetual preferred stock may, at any
time, convert shares of convertible perpetual preferred stock
into fully paid and nonassessable shares of our common stock at
a conversion rate of 146.1454 shares of common stock per
$1,000 liquidation preference of convertible perpetual preferred
stock, subject to adjustments as described under
Adjustments to the Conversion Rate. This
represents an initial conversion price of $6.8425 per share
of convertible perpetual preferred stock.
A holder of shares of our convertible perpetual preferred stock
may convert any or all of those shares by surrendering to us at
our principal office or at the office of the conversion agent,
as may be designated by our board of directors, the certificate
or certificates for those shares of convertible perpetual
preferred stock accompanied by a written notice stating that the
holder elects to convert all or a specified whole number of
those shares in accordance with the provisions described in this
prospectus supplement and specifying the name or names in which
the holder wishes the certificate or certificates for shares of
common stock to be issued. In case the notice specifies a name
or names other than that of the holder, the notice will be
accompanied by payment of all transfer taxes payable upon the
issuance of shares of common stock in that name or names. Other
than those taxes, we will pay any documentary, stamp or similar
issue or transfer taxes that may be payable in respect of any
issuance or delivery of shares of common stock upon conversion
of the shares of convertible perpetual preferred stock. As
promptly as practicable after the surrender of that certificate
or certificates and the receipt of the notice relating to the
conversion and payment of all required transfer taxes, if any,
or the demonstration to our satisfaction that those taxes have
been paid, we will deliver or cause to be delivered
(1) certificates representing the number of validly issued,
fully paid and nonassessable full shares of our common stock to
which the holder, or the holders transferee, of the shares
of convertible perpetual preferred stock being converted will be
entitled and (2) if less than the full number of shares of
convertible perpetual preferred stock evidenced by the
surrendered certificate or certificates is being converted, a
new certificate or certificates, of like tenor, for the number
of shares evidenced by the surrendered certificate or
certificates less the number of shares being converted. This
conversion will be deemed to have been made at the close of
business on the date of giving the notice and of surrendering
the certificate or certificates representing the shares of
convertible perpetual preferred stock to be converted so that
the rights of the holder thereof as to the shares being
converted will cease except for the right to receive shares of
common stock, and the person entitled to receive the shares of
common stock will be treated for all purposes as having become
the record holder of those shares of common stock at that time.
In lieu of the foregoing procedures, if our convertible
perpetual preferred stock is held in global form, you must
comply with The Depository Trust Company (DTC)
procedures to convert your
S-18
beneficial interest in respect of convertible perpetual
preferred stock evidenced by a global share of convertible
perpetual preferred stock.
If a holder of shares of convertible perpetual preferred stock
exercises conversion rights, upon delivery of the shares for
conversion, those shares will cease to cumulate dividends as of
the end of the day immediately preceding the date of conversion.
Holders of shares of convertible perpetual preferred stock who
convert their shares into our common stock will not be entitled
to, nor will the conversion rate be adjusted for, any
accumulated and unpaid dividends. A holder of shares of
convertible perpetual preferred stock on a dividend payment
record date who converts such shares into shares of our common
stock prior to the corresponding dividend payment date will be
entitled to receive the dividend payable on such shares of
convertible perpetual preferred stock on such dividend payment
date. Accordingly, shares of convertible perpetual preferred
stock surrendered for conversion after the close of business on
any record date for the payment of dividends declared and before
the opening of business on the dividend payment date relating to
that record date must be accompanied by a payment in cash of an
amount equal to the dividend payable in respect of those shares
for the dividend period in which the shares are converted.
Notwithstanding the foregoing, if shares of convertible
perpetual preferred stock are converted during the period
between the close of business on any dividend payment record
date and the opening of business on the corresponding dividend
payment date, and we have called such shares of convertible
perpetual preferred stock for redemption during such period
(which period includes the dividend payment date), the holder
who tenders such shares for conversion will receive the dividend
payable on such dividend payment date and need not include
payment of the amount of such dividend upon surrender of shares
of convertible perpetual preferred stock for conversion.
In case any shares of convertible perpetual preferred stock are
to be redeemed, the right to convert those shares of convertible
perpetual preferred stock will terminate at 5:00 p.m.,
New York City time, on the business day immediately
preceding the date fixed for redemption unless we default in the
payment of the redemption price of those shares.
In connection with the conversion of any shares of convertible
perpetual preferred stock, no fractional shares of common stock
will be issued, but we will pay a cash adjustment in respect of
any fractional interest in an amount equal to the fractional
interest multiplied by the closing sale price of our common
stock on the date the shares of convertible perpetual preferred
stock are surrendered for conversion. If more than one share of
convertible perpetual preferred stock will be surrendered for
conversion by the same holder at the same time, the number of
full shares of common stock issuable on conversion of those
shares will be computed on the basis of the total number of
shares of convertible perpetual preferred stock so surrendered.
We will at all times reserve and keep available, free from
preemptive rights, for issuance upon the conversion of shares of
convertible perpetual preferred stock a number of our authorized
but unissued shares of common stock that will from time to time
be sufficient to permit the conversion of all outstanding shares
of convertible perpetual preferred stock.
Before the delivery of any securities that we will be obligated
to deliver upon conversion of the convertible perpetual
preferred stock, we will comply with all applicable federal and
state laws and regulations that require action to be taken by
us. All shares of common stock delivered upon conversion of the
convertible perpetual preferred stock will upon delivery be duly
and
S-19
validly issued, fully paid and nonassessable, free of all liens
and charges and not subject to any preemptive rights.
Adjustment to
shares delivered upon conversion upon certain corporate
transactions
If you elect to convert your shares of convertible perpetual
preferred stock at any time from, and including, the effective
date of a fundamental change, as defined below, to,
and including, the 25th trading day immediately following
the effective date of such fundamental change (such period, the
fundamental change period), the applicable
conversion rate will be increased by an additional number of
shares of our common stock (these shares being referred to as
the additional shares) as described below. We will notify
holders of the anticipated effective date of such fundamental
change and issue a press release as soon as practicable after we
first determine the anticipated effective date of such
fundamental change, and use commercially reasonable efforts to
make such determination in time to deliver such notice 50
business days in advance of such anticipated effective date;
provided that we will not be required to give such notice or
issue such press release more than 50 business days in advance
of such anticipated effective date.
A fundamental change will be deemed to have occurred
at such time after the original issuance of the convertible
perpetual preferred stock when the following has occurred:
(1) any person or group (as such
terms are used in Sections 13(d) and 14(d) of the Exchange
Act), acquires the beneficial ownership (as defined in
Rules 13d-3
and
13d-5
under the Exchange Act, except that a person shall be deemed to
have beneficial ownership of all securities that
such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time),
directly or indirectly, through a purchase, merger or other
acquisition transaction, of more than 50% of the total voting
power of our total outstanding voting stock other than an
acquisition by us, any of our subsidiaries or any of our
employee benefit plans;
(2) we consolidate with, or merge with or into, another
person or convey, transfer, lease or otherwise dispose of all or
substantially all of our assets to any person, or any person
consolidates with or merges with or into us.
Notwithstanding the foregoing, in the case of a transaction or
event described above, a fundamental change will not be deemed
to have occurred if at least 90% of the consideration, excluding
cash payments for fractional shares, in the transaction or
transactions constituting the fundamental change consists of
shares of common stock, depositary receipts or other
certificates representing common equity interests, in each case,
that are traded on a national securities exchange or that will
be so traded when issued or exchanged in connection with a
fundamental change (these securities being referred to as
publicly traded securities) and as a result of this
transaction or transactions the shares become convertible into
such publicly traded securities, excluding cash payments for
fractional shares (subject to the provisions set forth above
under Conversion rights).
The definition of fundamental change includes a phrase relating
to the lease, transfer, conveyance or other disposition of
all or substantially all of our assets. There is no
precise established definition of the phrase substantially
all under applicable law. Accordingly, whether there may
be an adjustment to the applicable conversion rate as a result
of a lease, transfer, conveyance or other disposition of less
than all of our assets may be uncertain.
S-20
The number of additional shares by which the conversion rate for
the shares of convertible perpetual preferred stock will be
increased for conversions that occur during the fundamental
change period will be determined by reference to the table
below, based on the date on which the fundamental change occurs
(the effective date) and the price (the stock
price) paid or deemed paid per share of our common stock
in the fundamental change. If holders of our common stock
receive only cash in the case of a fundamental change described
above, the stock price shall be the cash amount paid per share
of our common stock. In the case of any other fundamental
change, the stock price shall be the average of the last
reported sales prices of our common stock over the five
trading-day
period ending on the trading day immediately preceding the
effective date of such fundamental change.
The stock prices set forth in the first row of the table below
(i.e., column headers) will be adjusted as of any date on which
the applicable conversion rate of the shares of convertible
perpetual preferred stock is otherwise adjusted. The adjusted
stock prices will equal the stock prices applicable immediately
prior to such adjustment, multiplied by a fraction, the
numerator of which is the applicable conversion rate in effect
immediately prior to the adjustment giving rise to the stock
price adjustment and the denominator of which is the applicable
conversion rate as so adjusted. The number of additional shares
will be adjusted in the same manner as the applicable conversion
rate as set forth under Adjustments to the
conversion rate.
The following table sets forth numbers of additional shares to
be received per share of convertible perpetual preferred stock
based on hypothetical stock prices and effective dates:
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Stock price
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Effective Date
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$5.75
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$8.00
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$10.00
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$12.00
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$14.00
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$16.00
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$18.00
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$20.00
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$22.00
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$24.00
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$26.00
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$28.00
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$30.00
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$32.00
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June 22, 2009
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27.7676
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19.9580
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15.9664
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13.3053
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11.4046
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9.9790
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8.8702
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7.9832
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7.2574
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6.6527
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6.1409
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5.7023
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5.3221
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4.9895
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June 15, 2010
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27.7676
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19.9580
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15.9664
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13.3053
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11.4046
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9.9790
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8.8702
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7.9832
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7.2574
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6.6527
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6.1409
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5.7023
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5.3221
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4.9895
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June 15, 2011
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27.7676
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18.2770
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14.2340
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11.7298
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10.0061
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8.7368
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7.7586
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6.9796
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6.3436
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5.8143
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5.3668
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4.9832
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4.6510
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4.3602
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June 15, 2012
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27.7676
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13.4514
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9.9233
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7.9967
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6.7645
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5.8885
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5.2237
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4.6975
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4.2690
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3.9126
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3.6114
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3.3534
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3.1298
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2.9342
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June 15, 2013
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27.7676
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7.9810
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4.4364
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3.1299
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2.5393
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2.1885
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1.9377
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1.7422
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1.5834
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1.4513
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1.3397
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1.2440
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1.1611
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1.0885
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June 15, 2014
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27.7676
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4.1617
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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June 15, 2015
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27.7676
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4.1617
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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June 15, 2016
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27.7676
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4.1617
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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June 15, 2017
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27.7676
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4.1617
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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June 15, 2018
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27.7676
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4.1617
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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June 15, 2019
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27.7676
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4.1617
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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The exact stock prices and effective dates may not be set forth
in the table above, in which case:
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if the stock price is between two stock prices in the table or
the effective date is between two effective dates in the table,
the number of additional shares will be determined by a
straight-line interpolation between the number of additional
shares set forth for the higher and lower stock prices and the
earlier and later effective dates, based on a
365-day
year, as applicable;
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if the stock price is greater than $32.00 per share (subject to
adjustment), no additional shares will be issued upon
conversion; and
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if the stock price is less than $5.75 per share (subject to
adjustment), no additional shares will be issued upon conversion.
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S-21
Notwithstanding the foregoing, in no event will the total number
of shares of our common stock issuable upon conversion of the
shares of convertible perpetual preferred stock exceed 173.9130
per share of convertible perpetual preferred stock, subject to
adjustments in the same manner as the applicable conversion rate
as set forth under Adjustments to conversion
rate.
Our obligation to increase the applicable conversion rate as
described above could be considered a penalty, in which case the
enforceability thereof would be subject to general principles of
economic remedies.
Adjustments to
the conversion rate
The conversion rate is subject to adjustment from time to time
if any of the following events occur:
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the issuance of our common stock as a dividend or distribution
on our common stock;
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certain subdivisions and combinations of our common stock;
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the issuance to all holders of our common stock of certain
rights or warrants to purchase our common stock at less than the
current market price of our common stock;
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the dividend or other distribution to all holders of our common
stock of shares of our capital stock (other than common stock)
or evidences of indebtedness or assets (including securities,
but excluding (1) those rights and warrants referred to
above or (2) dividends or distributions paid exclusively in
cash);
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In the event that we make a distribution to all holders of our
common stock consisting of capital stock of, or similar equity
interest in, a subsidiary or other business unit of ours, the
conversion rate will be adjusted based on the market value of
the securities so distributed relative to the market value of
our common stock, in each case based on the average closing sale
prices of those securities for the 10 trading days commencing on
and including the fifth trading day after the date on which
ex-dividend trading commences for such dividend or
distribution on the New York Stock Exchange or such other
national or regional exchange or market on which the securities
are then listed or quoted;
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distributions consisting exclusively of cash to all holders of
shares of our common stock (excluding any dividend or
distribution in connection with our liquidation, dissolution or
winding up); if there is a dividend or distribution to which
this bullet point applies, the conversion rate will be adjusted
by multiplying the applicable conversion rate by a fraction,
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the numerator of which will be the current market price of our
common stock; and
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the denominator of which will be the current market price of our
common stock minus the amount per share of such dividend or
distribution; and
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we or one of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common stock to the
extent that the cash and value of any other consideration
included in the payment per share of common stock exceeds the
closing sale price per share of common stock on the trading day
next succeeding the last date on which tenders or exchanges may
be made pursuant to such tender or exchange offer.
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No adjustment in the conversion rate will be required unless
such adjustment would require a change of at least 1% in the
conversion rate then in effect at such time. Any adjustment
S-22
that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion rate will not be adjusted
for the issuance of our common stock or any securities
convertible into or exchangeable for our common stock or
carrying the right to purchase any of the foregoing.
We do not currently have a stockholders rights plan. To the
extent that we have a rights plan in effect upon conversion of
any shares of convertible perpetual preferred stock into common
stock, you will receive, in addition to any shares of common
stock received in connection with such conversion, the rights
under the rights plan with respect to such common stock, unless
prior to any conversion, the rights have separated from our
common stock, in which case, and only in such case, the
conversion rate will be adjusted at the time of separation as if
we distributed to all holders of our common stock, shares of our
capital stock, evidences of indebtedness, assets, property,
rights or warrants as described above, subject to readjustment
in the event of expiration, termination or redemption of such
rights.
Trading day means a day during which trading in
securities generally occurs on the New York Stock Exchange or,
if our common stock is not listed on the New York Stock
Exchange, on the principal other national or regional securities
exchange on which our common stock is then listed or, if our
common stock is not listed on a national or regional securities
exchange on the principal other market on which our common stock
is then traded.
The closing sale price of our common stock on any
date means the closing sale price per share (or if no closing
sale price is reported, the average of the closing bid and ask
prices or, if more than one in either case, the average of the
average closing bid and the average closing ask prices) on such
date as reported on the principal United States securities
exchange on which our common stock is traded or, if our common
stock is not listed on a United States national or regional
securities exchange, the closing sales price will be
the last quoted bid price for our common stock in the
over-the-counter market on the relevant date as reported by Pink
OTC Markets Inc. or similar organization. If our common stock is
not so quoted, the last reported sale price will be
the average of the mid-point of the last bid and ask prices for
our common stock on the relevant date from each of at least
three nationally recognized independent investment banking firms
selected by us for this purpose. The closing sale price shall be
determined without reference to any extended or
after-hours
trading.
Current market price of our common stock on any day
means the average of the closing price per common stock for each
of the ten consecutive trading days ending on the earlier of the
day in question and the day before the ex-date with
respect to the issuance or distribution requiring such
computation. For purposes of this paragraph, ex-date
means the first date on which the shares of common stock trade
on the applicable exchange or in the applicable market, regular
way, without the right to receive such issuance or distribution.
In the event of:
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any reclassification of our common stock;
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a consolidation, merger or combination involving us; or
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a sale or conveyance to another person or entity of all or
substantially all of our property and assets;
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in which holders of our common stock would be entitled to
receive stock, other securities, other property, assets or cash
for their common stock, upon conversion of your convertible
perpetual
S-23
preferred stock, you will be entitled to receive the same type
of consideration that you would have been entitled to receive if
you had converted the convertible perpetual preferred stock into
our common stock immediately prior to any of these events. If
the transaction causes our common stock to be converted into the
right to receive more than a single type of consideration
(determined based in part upon any form of stockholder
election), the reference property into which the shares will be
convertible will be deemed to be the weighted average of the
types and amounts of consideration received by the holders of
our common stock that affirmatively make such an election.
We may not become a party to any such transaction unless its
terms are consistent with the foregoing.
You may in certain situations be deemed to have received a
distribution subject to United States federal income tax as a
dividend in the event of any taxable distribution to holders of
common stock or in certain other situations requiring a
conversion rate adjustment. See Material U.S. federal
tax considerations.
We may, from time to time, increase the conversion rate if our
board of directors has made a determination that this increase
would be in our best interests. Any such determination by our
board will be conclusive. In addition, we may increase the
conversion rate if our board of directors deems it advisable to
avoid or diminish any income tax to holders of common stock
resulting from any stock or rights distribution. See
Material U.S. federal tax considerations for
non-U.S. holders
of common stock.
Except as described above in this section, we will not adjust
the conversion rate for any issuance of our common stock or
convertible or exchangeable securities or rights to purchase our
common stock or convertible or exchangeable securities.
Optional
redemption
We may not redeem any shares of convertible perpetual preferred
stock before June 15, 2014. On or after June 15, 2014,
we will have the option to redeem some or all the shares of
convertible perpetual preferred stock at a redemption price of
100% of the liquidation preference, plus accumulated and unpaid
dividends to the redemption date, but only if the closing sale
price of our common stock for 20 trading days within a period of
30 consecutive trading days ending on the trading day before the
date we give the redemption notice exceeds 130% of the
conversion price in effect on each such day. In addition, if on
or after June 15, 2014, on any quarterly dividend payment
date, the total number of shares of convertible perpetual
preferred stock outstanding is less than 15% of the total number
of shares of the convertible perpetual preferred stock
outstanding after this offering (after giving effect to the
exercise of the underwriters over-allotment option
described under Underwriting), we will have the
option to redeem the shares of outstanding convertible perpetual
preferred stock, in whole but not in part, at a redemption price
of 100% of the liquidation preference, plus accumulated and
unpaid dividends to the redemption date. If full cumulative
dividends on the convertible perpetual preferred stock have not
been paid, the convertible perpetual preferred stock may not be
redeemed and we may not purchase or acquire any shares of
convertible perpetual preferred stock otherwise than pursuant to
a purchase or exchange offer made on the same terms to all
holders of convertible perpetual preferred stock and any parity
stock.
We may elect to pay the redemption price in cash, common stock,
or a combination of cash and common stock. The number of shares
of common stock a holder will receive will equal the
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relevant amount of the redemption price divided by 95% of the
average of the closing sale prices of our common stock for the
five trading days ending on the third trading day prior to the
redemption date. However, we may not pay the purchase price in
common stock or a combination of common stock and cash unless we
satisfy certain conditions prior to the redemption date as
provided in the certificate of designations, including:
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registration of the shares of our common stock, to be issued
upon redemption under the Securities Act and the Exchange Act,
if required;
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qualification of the shares of our common stock to be issued
upon redemption under applicable state securities laws, if
necessary, or the availability of an exemption
therefrom; and
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listing of our common stock on a United States national
securities exchange.
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In the event of an optional redemption, we will send a written
notice by first class mail to each holder of record of our
convertible perpetual preferred stock at such holders
registered address, not fewer than 20 nor more than 90 days
prior to the redemption date, stating, among other things,
whether the redemption price will be paid in cash or common
stock, or a combination thereof and, if a combination,
specifying the portions payable in cash and common stock. In
addition, we will (1) publish such information once in a
daily newspaper printed in the English language and of general
circulation in the Borough of Manhattan, City of New York,
(2) issue a press release containing such information and
(3) publish such information on our website on the World
Wide Web.
Because the average closing sale price of our common stock will
be determined prior to the redemption date, holders of
convertible perpetual preferred stock bear the market risk that
our common stock will decline in value between the date the
average closing sale price is calculated and the redemption
date. In addition, because the number of shares of our common
stock that you will receive upon any redemption for shares is
based on the average closing sale price for a 5 trading day
period, the market value of those shares on the date of receipt
may be less than the value of those shares based on the average
closing sale price.
If we give notice of redemption, then, by 12:00 p.m., New
York City time, on the redemption date, to the extent funds are
legally available, we shall, with respect to:
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shares of convertible perpetual preferred stock held by DTC or
its nominees, deposit or cause to be deposited, irrevocably with
DTC, cash or common stock sufficient to pay the redemption price
and will give DTC irrevocable instructions and authority to pay
the redemption price to holders of such shares of convertible
perpetual preferred stock; and
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shares of convertible perpetual preferred stock held in
certificated form, deposit or cause to be deposited, irrevocably
with the paying agent, cash or common stock sufficient to pay
the redemption price and will give the paying agent irrevocable
instructions and authority to pay the redemption price to
holders of such shares of convertible perpetual preferred stock
upon surrender of their certificates evidencing their shares of
convertible perpetual preferred stock.
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If on the redemption date DTC and the paying agent hold cash or
common stock sufficient to pay the redemption price for the
shares of convertible perpetual preferred stock delivered for
redemption in accordance with the terms of the certificate of
designations, dividends will cease to accumulate on those shares
of convertible perpetual preferred stock called for redemption
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and all rights of holders of such shares will terminate except
for the right to receive the redemption price.
Payment of the redemption price for the shares of convertible
perpetual preferred stock is conditioned upon book-entry
transfer of or physical delivery of certificates representing
our convertible perpetual preferred stock, together with
necessary endorsements, to the paying agent, or to the paying
agents account at DTC, at any time after delivery of the
redemption notice. Payment of the redemption price for the
convertible perpetual preferred stock will be made (1) if
book-entry transfer of or physical delivery of the convertible
perpetual preferred stock has been made by or on the redemption
date, on the redemption date, or (2) if book-entry transfer
of or physical delivery of the convertible perpetual preferred
stock has not been made by or on such date, at the time of
book-entry transfer of or physical delivery of the convertible
perpetual preferred stock.
If the redemption date falls after a dividend payment record
date and before the related dividend payment date, holders of
the shares of convertible perpetual preferred stock at the close
of business on that dividend payment record date will be
entitled to receive the dividend payable on those shares on the
corresponding dividend payment date. In that case, the
redemption price payable on such redemption date will include
only the liquidation preference, and will not include any amount
in respect of dividends declared and payable on such
corresponding dividend payment date.
In the case of any partial redemption, we will select the shares
of convertible perpetual preferred stock to be redeemed on a pro
rata basis, by lot or any other method that we, in our
discretion, deem fair and appropriate.
Our amended and restated certificate of incorporation provides
that we may not redeem our common stock or other junior stock
(as defined in Description of convertible perpetual
preferred stockRanking) if we have not paid or set
apart for payment all accumulated dividends for the current and
prior dividend periods in respect of shares that have a right to
cumulative dividends.
Voting
rights
Unless otherwise determined by our board of directors, holders
of shares of convertible perpetual preferred stock will not have
any voting rights except as described below, as provided in our
amended and restated certificate of incorporation or as
otherwise required from time to time by law. Whenever
(1) dividends on any shares of convertible perpetual
preferred stock or any other class or series of stock ranking on
parity with the convertible perpetual preferred stock with
respect to the payment of dividends shall be in arrears for
dividend periods, whether or not consecutive, containing in the
aggregate a number of days equivalent to six calendar quarters
or (2) we fail to pay the redemption price on the date
shares of convertible perpetual preferred stock are called for
redemption, the holders of shares of convertible perpetual
preferred stock (voting separately as a class with all other
series of other convertible perpetual preferred stock on parity
with the convertible perpetual preferred stock upon which like
voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two of the authorized
number of our directors at the next annual meeting of
stockholders and each subsequent meeting until the redemption
price or all dividends accumulated on the convertible perpetual
preferred stock have been fully paid or set aside for payment.
The term of office of all directors elected by the holders of
convertible perpetual preferred stock will terminate
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immediately upon the termination of the right of the holders of
convertible perpetual preferred stock to vote for directors.
Each holder of shares of our convertible perpetual preferred
stock will have one vote for each share of convertible perpetual
preferred stock held.
So long as any shares of our convertible perpetual preferred
stock remain outstanding, we will not, without the consent of
the holders of at least two-thirds of the shares of convertible
perpetual preferred stock outstanding at the time, voting
separately as a class with all other series of convertible
perpetual preferred stock upon which like voting rights have
been conferred and are exercisable issue or increase the
authorized amount of any class or series of stock ranking senior
to the outstanding convertible perpetual preferred stock as to
dividends or upon liquidation. In addition, we will not amend,
alter or repeal provisions of our amended and restated
certificate of incorporation or of the resolutions contained in
the certificate of designations, whether by merger,
consolidation or otherwise, so as to amend, alter or affect any
power, preference or special right of the outstanding
convertible perpetual preferred stock or the holders thereof
without the affirmative vote of not less than two-thirds of the
issued and outstanding convertible perpetual preferred stock;
provided, however, that any increase in the amount of the
authorized common stock or authorized preferred stock or the
creation and issuance of other series of common stock or
preferred stock ranking on parity with or junior to the
convertible perpetual preferred stock as to dividends and upon
liquidation will not be deemed to materially and adversely
affect such powers, preference or special rights.
Liquidation
preference
Upon any voluntary or involuntary liquidation, dissolution or
winding up of our company resulting in a distribution of assets
to the holders of any class or series of our capital stock, each
holder of shares of convertible perpetual preferred stock will
be entitled to payment out of our assets available for
distribution of an amount equal to the liquidation preference
per share of convertible perpetual preferred stock held by that
holder, plus all accumulated and unpaid dividends on those
shares to the date of that liquidation, dissolution, or winding
up, before any distribution is made on any junior stock,
including our common stock, but after any distributions on any
of our indebtedness. After payment in full of the liquidation
preference and all accumulated and unpaid dividends to which
holders of shares of convertible perpetual preferred stock are
entitled, holders will not be entitled to any further
participation in any distribution of our assets. If, upon any
voluntary or involuntary liquidation, dissolution or winding up
of our company, the amounts payable with respect to shares of
convertible perpetual preferred stock and all other parity stock
are not paid in full, holders of shares of convertible perpetual
preferred stock and holders of the parity stock will share
equally and ratably in any distribution of our assets in
proportion to the liquidation preference and all accumulated and
unpaid dividends to which each such holder is entitled.
Neither the voluntary sale, conveyance, exchange or transfer,
for cash, shares of stock, securities or other consideration, of
all or substantially all of our property or assets nor the
consolidation, merger or amalgamation of our company with or
into any corporation or the consolidation, merger or
amalgamation of any corporation with or into our company will be
deemed to be a voluntary or involuntary liquidation, dissolution
or winding up of our company.
We are not required to set aside any funds to protect the
liquidation preference of the shares of convertible perpetual
preferred stock, although the liquidation preference will be
substantially in excess of the par value of the shares of
convertible perpetual preferred stock.
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Transfer agent,
paying agent, conversion agent and registrar
The transfer agent, paying agent, conversion agent and registrar
for our convertible perpetual preferred stock is BNY Mellon
Shareowner Services.
Book-entry
system
Our convertible perpetual preferred stock will only be issued in
the form of global securities held in book-entry form. DTC or
its nominee will be the sole registered holder of the
convertible perpetual preferred stock. Owners of beneficial
interests in the convertible perpetual preferred stock
represented by the global securities will hold their interests
pursuant to the procedures and practices of DTC. As a result,
beneficial interests in any such securities will be shown on,
and transfers will be effected only through, records maintained
by DTC and its direct and indirect participants and any such
interest may not be exchanged for certificated securities,
except in limited circumstances. Owners of beneficial interests
must exercise any rights in respect of their interests,
including any right to convert or require repurchase of their
interests in the convertible perpetual preferred stock, in
accordance with the procedures and practices of DTC. Beneficial
owners will not be holders and will not be entitled to any
rights provided to the holders of the convertible perpetual
preferred stock under the global securities or the certificate
of designations. Our company and any of our agents may treat DTC
as the sole holder and registered owner of the global securities.
DTC has advised us as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a
banking organization within the meaning of the New
York Uniform Commercial Code, and a clearing agency
registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC facilitates the settlement of transactions
among its participants through electronic computerized
book-entry changes in participants accounts. eliminating
the need for physical movement of securities certificates.
DTCs participants include securities brokers and dealers,
including the underwriters, banks, trust companies, clearing
corporations and other organizations, some of whom
and/or
their
representatives own DTC. Access to DTCs book-entry system
is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Exchange of
global securities
Our convertible perpetual preferred stock, represented by one or
more global securities, will be exchangeable for certificated
securities with the same terms only if:
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DTC is unwilling or unable to continue as depositary or if DTC
ceases to be a clearing agency registered under the Exchange Act
and a successor depositary is not appointed by us within
90 days; or
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we decide to discontinue use of the system of book-entry
transfer through DTC (or any successor depositary).
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S-28
Material U.S.
federal tax considerations
The following is a summary of the material U.S. federal
income tax and, for
non-U.S. holders
(as defined below), estate tax consequences of the purchase,
ownership and disposition of our convertible perpetual preferred
stock and our common stock. Except where noted, this summary
deals only with our preferred stock and our common stock held as
capital assets. As used herein, the term
U.S. holder means a beneficial owner of our
convertible perpetual preferred stock or our common stock that
is for U.S. federal income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or any other entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States, any state thereof or the
District of Columbia;
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) has a valid election in effect under
applicable U.S. Treasury Regulations to be treated as a
United States person.
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The term
non-U.S. holder
means a beneficial owner of our preferred stock or our common
stock (other than a partnership) that is not a U.S. holder.
This summary is not a detailed description of the
U.S. federal income tax consequences applicable to you if
you are subject to special treatment under the U.S. federal
income tax laws, including if you are:
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a dealer in securities;
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a financial institution;
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a regulated investment company;
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a real estate investment trust;
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a tax-exempt organization;
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an insurance company;
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a person holding our preferred stock or our common stock as part
of a hedging, integrated, conversion or constructive sale
transaction or a straddle;
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a trader in securities that has elected the
mark-to-market
method of accounting for your securities;
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a person liable for alternative minimum tax;
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a person who is an investor in a pass-through entity;
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a United States person whose functional currency is
not the U.S. dollar;
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a controlled foreign corporation;
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S-29
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a passive foreign investment company;
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a United States expatriate; or
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a
non-U.S. holder
(as defined below) that owns, or is deemed to own, more than 5%
of our common stock, more than 5% of the preferred stock or
preferred stock having a fair market value greater than the fair
market value of 5% of our common stock.
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This summary is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the Code), and
regulations, rulings and judicial decisions as of the date
hereof. Those authorities may be changed, perhaps retroactively,
so as to result in U.S. federal income and estate tax
consequences different from those summarized below.
If a partnership holds our preferred stock or our common stock,
the tax treatment of a partner will generally depend upon the
status of the partner and the activities of the partnership. If
you are a partner of a partnership holding our preferred stock
or our common stock, you should consult your own tax advisors.
This summary does not address all aspects of U.S. federal
income and estate tax consequences to you in light of your
particular circumstances and does not address any tax
consequences under the laws of any state, local or foreign
jurisdiction.
If you are considering the purchase of our
convertible perpetual preferred stock, you should consult your
own tax advisors concerning the particular U.S. federal
income and estate tax consequences to you of the ownership of
our convertible perpetual preferred stock, as well as the
consequences to you arising under the laws of any other taxing
jurisdiction.
U.S.
holders
Dividends
Distributions on our preferred stock or our common stock will be
dividends for U.S. federal income tax purposes to the
extent paid out of our current or accumulated earnings and
profits, as determined for U.S. federal income tax
purposes, and will be taxable as ordinary income, although
possibly at reduced rates, as discussed below. Although we
expect that our current and accumulated earnings and profits
will be such that all distributions paid with respect to our
preferred stock or our common stock will qualify as dividends
for U.S. federal income tax purposes, we cannot guarantee
that result. Our accumulated earnings and profits and our
current earnings and profits in future years will depend in
significant part on our future profits or losses, which we
cannot accurately predict. To the extent that the amount of any
distribution paid on our preferred stock or our common stock
exceeds our current and accumulated earnings and profits
attributable to that share of our preferred stock or our common
stock, the distribution first will be treated as a tax-free
return of capital and will be applied against and will reduce
the U.S. holders adjusted tax basis (but not below
zero) in that share of our preferred stock or our common stock.
This reduction in basis will increase any gain, or reduce any
loss realized by the U.S. holder on the subsequent sale,
redemption or other disposition of our preferred stock or our
common stock. The amount of any such distribution in excess of
the U.S. holders adjusted tax basis will be taxed as
capital gain.
For purposes of the remainder of the discussion under this
heading, it is assumed that distributions paid on our preferred
stock or our common stock will constitute dividends for
U.S. federal income tax purposes.
S-30
If a U.S. holder is a corporation, dividends that are
received by it will generally be eligible for a 70%
dividends-received deduction under the Code. However, the Code
disallows this dividends-received deduction in its entirety if
our preferred stock or our common stock with respect to which
the dividend is paid is held by such U.S. holder for less
than 46 days during the
91-day
period beginning on the date that is 45 days before the
date on which our preferred stock or our common stock became
ex-dividend with respect to such dividend. Other exceptions and
restrictions may apply to reduce or eliminate the benefits of
the dividends-received deduction to a corporate U.S. holder.
Under current law, provided certain holding period requirements
are satisfied, dividends received by U.S. holders that are
individuals generally will be subject to a reduced maximum tax
rate of 15% through December 31, 2010, after which the rate
applicable to dividends is scheduled to return to the tax rate
generally applicable to ordinary income. The rate reduction does
not apply to dividends received to the extent that
U.S. holders elect to treat the dividends as
investment income, for purposes of the rules
relating to the limitation on the deductibility of
investment-related interest, which may be offset by investment
expense.
Sale or other
disposition
A sale, exchange, or other disposition of our preferred stock or
our common stock will generally result in gain or loss equal to
the difference between the amount realized upon the disposition
and a U.S. holders adjusted tax basis in our
preferred stock or our common stock, as the case may be. Such
gain or loss will be capital gain or loss, and will be long-term
capital gain or loss if the U.S. holders holding
period for our preferred stock or our common stock exceeds one
year. Under current law, net long-term capital gain realized by
U.S. holders that are individuals is subject to a reduced
maximum tax rate of 15%. After December 31, 2010, the
maximum rate is scheduled to return to the previously effective
20% rate. The deduction of capital losses is subject to
limitations.
Conversion of
preferred stock into common stock
As a general rule, a U.S. holder will not recognize any
gain or loss in respect of the receipt of common stock upon the
conversion of our preferred stock. The adjusted tax basis of
common stock received on conversion will equal the adjusted tax
basis of the preferred stock converted (reduced by the portion
of adjusted tax basis allocated to any fractional common stock
exchanged for cash, as described below), and the holding period
of such common stock received on conversion will generally
include the period during which the converted preferred stock
was held prior to conversion.
Cash received in lieu of a fractional common share will
generally be treated as a payment in a taxable exchange for such
fractional common share, and capital gain or loss will be
recognized on the receipt of cash in an amount equal to the
difference between the amount of cash received and the amount of
adjusted tax basis allocable to the fractional common share.
Adjustment of
conversion rate
The conversion rate of the preferred stock is subject to
adjustment under certain circumstances. U.S. Treasury
Regulations promulgated under Section 305 of the Code would
treat a U.S. holder of our preferred stock as having
received a constructive distribution includable in such
U.S. holders income in the manner as described above
under U.S. holdersDividends, if and
S-31
to the extent that certain adjustments in the conversion rate
increase the proportionate interest of a U.S. holder in our
earnings and profits. For example, an increase in the conversion
ratio to reflect a taxable dividend to holders of common stock
or to reflect an undeclared dividend on the preferred stock will
generally give rise to a deemed taxable dividend to the holders
of preferred stock to the extent of our current and accumulated
earnings and profits. Thus, under certain circumstances,
U.S. holders may recognize income in the event of a
constructive distribution even though they may not receive any
cash or property. Adjustments to the conversion rate made
pursuant to a bona fide reasonable adjustment formula which has
the effect of preventing dilution in the interest of the
U.S. holders of the preferred stock, however, will
generally not be considered to result in a constructive dividend
distribution.
Redemption for
cash
U.S. holders will generally recognize capital gain or loss
on the redemption of their preferred stock for cash, provided
that the redemption meets at least one of the following
requirements as determined under federal income tax principles:
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the redemption is not essentially equivalent to a dividend;
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the redemption results in a complete termination of their
interest in our stock (preferred and common); or
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the redemption is substantially disproportionate with respect to
U.S. holders.
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In determining whether any of the above requirements applies,
shares considered to be owned by a U.S. holder by reason of
certain attribution rules must be taken into account. A
redemption is not essentially equivalent to a dividend if the
redemption results in a meaningful reduction in the
holders proportionate interest in the corporation. It may
be more difficult for a person who owns, actually or
constructively by operation of the attribution rules, any of our
common stock to satisfy any of the above requirements, including
the requirements that there be a meaningful reduction in the
holders proportionate interest in us.
If the redemption satisfies any of the above requirements, such
capital gain or loss will be equal to the difference between the
amount of cash received by U.S. holders and their tax basis
in their redeemed preferred stock. The capital gain or loss will
be long-term if the holding period for the preferred stock is
more than one year. Notwithstanding the previous sentence, any
cash received that is attributable to any accrued, declared and
unpaid dividends on our preferred stock will be taxed as
described above under
U.S. holdersDividends.
If the redemption does not satisfy any of the above
requirements, then the entire amount received (without offset
for their tax basis in their preferred stock redeemed) will be
treated as a distribution taxable as described in Taxation
of Distributions above. In such case, their tax basis in
their redeemed preferred stock will be allocated to their
remaining stock, if any. Prospective investors should consult
their own tax advisors as to the U.S. federal income tax
consequences of a redemption of the preferred stock.
Redemption solely
for common stock
U.S. holders will not recognize gain or loss on our
redemption of their preferred stock solely for our common stock
(except that the value of common stock received that is
attributable to either declared and unpaid dividends or any
dividends in arrears on their preferred stock will be taxed
S-32
as described above under
U.S. holdersDividends). The tax basis of
the common stock received will equal the tax basis of the
preferred stock redeemed, and the holding period for the common
stock received will include the holding period of the preferred
stock redeemed (except that the portion, if any, of common stock
received that constitutes a payment in respect of dividends will
have a tax basis equal to its fair market value at the time of
the redemption and a new holding period commencing on the day
following the redemption).
Redemption for a
combination of cash and common stock
The U.S. federal income tax treatment of a
U.S. holders redemption of the preferred stock for a
combination of cash and our common stock is uncertain.
U.S. holders should consult their own tax advisor to
determine the correct treatment of such a redemption.
Such a redemption could be treated by the IRS as a single
recapitalization with the receipt of boot. Under this treatment,
U.S. holders would recognize gain, but not loss, equal to
the lesser of (1) the excess of the fair market value of
our common stock plus the cash received in redemption of the
preferred stock over their adjusted tax basis in their preferred
stock redeemed and (2) the amount of cash received in the
redemption. Notwithstanding the previous sentence, any cash or
shares of common stock that are determined to constitute a
payment in respect of declared and unpaid dividends or any
dividends in arrears on the preferred stock will be taxed as
described above under
U.S. holdersDividends.
U.S. holders basis for our common stock received will
equal their basis in their preferred stock redeemed plus any
gain recognized and minus the cash received. Their holding
period for the common stock will include their holding period in
the preferred stock redeemed. The gain recognized upon such
redemption will be capital gain, and will be long-term if the
holding period for the preferred stock redeemed is more than one
year, unless the redemption has the effect of the distribution
of a dividend (See discussion of essentially equivalent to
a dividend under U.S. holderRedemption
for cash). In that case, the gain recognized upon the
redemption, as determined above, will be treated as a dividend
to the extent of the U.S. holders ratable share of
our earnings and profits. For purposes of determining whether
gain will be treated as a dividend, stock (including our common
stock) owned by U.S. holders actually and constructively
through attribution rules will be taken into account.
Alternatively, such a redemption could be bifurcated by the IRS
and treated as a separate conversion of preferred stock into
common stock and a separate redemption of preferred stock solely
for cash. In that event, the portion of the preferred stock
converted into common stock would be treated as described above
under U.S. holderRedemption solely for common
stock. The portion of the preferred stock converted into
cash would be treated as described above under
U.S. holderRedemption for cash.
U.S. holders generally would allocate their adjusted tax
basis in their preferred stock among the portion of the
preferred stock that is deemed to have been converted into
common stock and the portion of the preferred stock that is
deemed to have been converted solely for cash based on the
relative fair market value of the common stock and the amount of
cash received upon conversion.
Information
reporting and backup withholding on U.S. holders
In general, information reporting will apply to dividends in
respect of our preferred stock or our common stock and the
proceeds from the sale, exchange or other disposition of our
preferred stock or our common stock, unless a U.S. holder
is an exempt recipient such as a corporation. Backup withholding
may apply to such payments if a U.S. holder fails to
provide a taxpayer
S-33
identification number or certification of other exempt status or
fails to report in full dividend and interest income.
Any amounts withheld under the backup withholding rules will be
allowed as a credit against a U.S. holders
U.S. federal income tax liability and may entitle the
holder to a refund provided the required information is
furnished to the IRS.
Non-U.S.
holders
Dividends
Generally, dividends (including distributions in the form of our
common stock taxable as dividends, any constructive
distributions taxable as dividends as described below and any
cash or shares of our common stock paid if a
non-U.S. holder
elects to convert the preferred stock held by such
non-U.S. holder
in certain circumstances and that is treated as a dividend) paid
to a
non-U.S. holder
with respect to our preferred stock or our common stock will be
subject to a 30% U.S. withholding tax, or such lower rate
as may be specified by an applicable tax treaty so long as the
non-U.S. holder
can provide an IRS
Form W-8BEN
certifying its entitlement to benefits under a treaty. If,
however, the dividends are (i) effectively connected with
the conduct of a trade or business carried on by the
non-U.S. holder
within the United States and (ii) if a tax treaty applies,
attributable to a U.S. permanent establishment maintained
by the
non-U.S. holder,
such dividends will generally be subject to U.S. federal
income tax on a net basis at applicable individual or corporate
rates but will not be subject to U.S. withholding tax if
certain certification requirements are satisfied.
Non-U.S. holders
can generally meet the certification requirements by providing a
properly executed IRS
Form W-8ECI
or appropriate substitute form to us or our paying agent. A
non-U.S. holder
that is a corporation may also be subject to a branch
profits tax at a 30% rate (or such lower rate as may be
specified by an applicable income tax treaty) on the deemed
repatriation from the United States of its effectively
connected earnings and profits, subject to certain
adjustments. Under applicable U.S. Treasury regulations, a
non-U.S. holder
(including, in certain cases of
non-U.S. holders
that are entities, the owner or owners of such entities) will be
required to satisfy certain certification requirements in order
to claim a reduced rate of withholding pursuant to an applicable
income tax treaty.
Sale or other
disposition
A
non-U.S. holder
will generally not be subject to U.S. federal income tax on
any gain realized on the sale or exchange of our preferred stock
or our common stock unless:
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the gain is effectively connected with a U.S. trade or
business of the
non-U.S. holder
(and, if a tax treaty applies, the gain is attributable to a
U.S. permanent establishment maintained by such
non-U.S. holder);
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in the case of a nonresident alien individual, such
non-U.S. holder
is present in the United States for 183 or more days in the
taxable year of the sale or disposition and certain other
conditions are met; or
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we are or have been a United States real property holding
corporation (USRPHC), as described below, at
any time within the five-year period preceding the disposition
or the
non-U.S. holders
holding period, whichever period is shorter, and either our
common stock has ceased to be traded on an established
securities market prior to the beginning
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of the calendar year in which the sale or disposition occurs or
the
non-U.S. holder
owns or has owned a threshold amount of our preferred or common
stock, as described below.
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We believe that we are a USRPHC because the fair market value of
our U.S. real property interests, as defined in the Code
and applicable regulations, equals or exceeds 50% of the
aggregate fair market value of our worldwide real property
interests and our other assets used or held for use in a trade
or business. Assuming this is and remains the case, a
non-U.S. holder
will be subject to U.S. federal income and withholding tax
on income or gain realized on the sale or exchange of our
preferred stock or our common stock, unless our common stock
continues to be regularly traded (within the meaning of
applicable U.S. Treasury regulations) and:
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such
non-U.S. holder
of our preferred stock has not owned and is not deemed to have
owned more than 5% of our preferred stock during a specified
period prior to the disposition of any of the stock, if our
preferred stock is regularly traded (within the meaning of
applicable U.S. Treasury regulations);
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such
non-U.S. holder
of our preferred stock has not owned and is not deemed to have
owned preferred stock having a fair market value greater than
the fair market value of 5% of our common stock during a
specified period prior to the disposition of any of the stock,
if our preferred stock is not regularly traded (within the
meaning of applicable U.S. Treasury regulations); and
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such
non-U.S. holder
of our common stock has not owned and is not deemed to have
owned more than 5% of our common stock during a specified period
prior to the disposition of any of the stock.
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Non-U.S. holders
that may be treated as actually or constructively owning more
than 5% of our preferred stock or our common stock, or as owning
preferred stock having a fair market value greater than the fair
market value of 5% of our common stock, should consult their own
tax advisors with respect to the U.S. federal income tax
consequences of the ownership and disposition of preferred stock
or common stock.
Conversion into
common stock
Non-U.S. holders
will generally not recognize any gain or loss in respect of the
receipt of common stock upon the conversion of our preferred
stock, except with respect to any cash received in lieu of a
fractional share, which will be taxed as described above under
Non-U.S. holdersSale
or other disposition. However, a conversion of our
preferred stock into our common stock by certain
non-U.S. holders
may be subject to U.S. federal income tax and withholding,
including in particular the conversion by a
non-U.S. holder
of our preferred stock with a fair market value greater than the
fair market value of 5% of our publicly traded common stock into
common stock with a fair market value of no more than 5% of the
fair market value of our publicly traded common stock.
Adjustment of
conversion rate
As described above under U.S. holdersAdjustment
of conversion rate, adjustments in the conversion rate (or
failures to adjust the conversion rate) that increase the
proportionate interest of a
non-U.S. holder
in our earnings and profits could result in deemed distributions
to the
non-U.S. holder
that are taxed as described under
Non-U.S. holdersDividends.
It is
S-35
possible that U.S. federal tax on the deemed distributions
would be withheld from dividends, shares of common stock or
sales proceeds subsequently paid or credited to a
non-U.S. holder.
A
non-U.S. holder
who is subject to withholding tax under such circumstances
should consult its own tax advisors as to whether it can obtain
a refund for all or a portion of the withholding tax.
Redemption for
cash
A
non-U.S. holder
will generally not be subject to U.S. federal income tax on
any gain realized on the receipt of cash in redemption of the
preferred stock unless one of the three conditions described in
the first set of bullet points under
Non-U.S. holdersSale
or other disposition above applies. However, as described
above under
Non-U.S. holderSale
or other disposition, we believe that we are a USRPHC.
Assuming this is and remains the case, redemptions of preferred
stock for cash will be taxed as described under
U.S. holdersRedemption for cash, unless
our common stock continues to be regularly traded (within the
meaning of applicable U.S. Treasury regulations) and the
non-U.S. holder
satisfies the three threshold requirements described in the
second set of bullet points under
Non-U.S. holdersSale
or other disposition.
Redemption solely
for common stock
Redemptions of preferred stock solely for common stock will be
taxed as described under U.S. holders
Redemption solely for common stock.
Redemption for a
combination of cash and common stock
A
non-U.S. holder
will generally not be subject to U.S. federal income tax on
any gain realized on the receipt of cash and common stock in
redemption of the preferred stock unless one of the three
conditions described in the first set of bullet points under
Non-U.S. holdersSale
or other disposition above applies. However, as described
above under
Non-U.S. holderSale
or other disposition, we believe that we are a USRPHC.
Assuming this is and remains the case, redemptions of preferred
stock for a combination of cash and common stock will be taxed
as described under U.S. holdersRedemption for a
combination of cash and common stock, unless our common
stock continues to be regularly traded (within the meaning of
applicable U.S. Treasury regulations) and the
non-U.S. holder
satisfies the three threshold requirements described in the
second set of bullet points under
Non-U.S. holdersSale
or other disposition.
Federal estate
tax
Our preferred stock and common stock owned or treated as owned
by an individual who is not a citizen or resident of the United
States (as specially defined for U.S. federal estate tax
purposes) at the time of death will be included in the
individuals gross estate for U.S. federal estate tax
purposes and may be subject to U.S. federal estate tax,
unless an applicable estate tax or other treaty provides
otherwise.
Information
reporting and backup withholding on
non-U.S.
holders
We must report annually to the IRS and to each
non-U.S. holder
the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns
reporting such dividends and
S-36
withholding may also be made available to the tax authorities in
the country in which the
non-U.S. holder
resides under the provisions of an applicable income tax treaty.
A
non-U.S. holder
will be subject to backup withholding with respect to dividends
paid to such holder unless such holder certifies under penalty
of perjury that it is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that such holder is a United States person as defined in the
Code), or such holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances,
backup withholding will apply to the proceeds of a sale of our
preferred stock or our common stock within the United States or
conducted through certain United States-related financial
intermediaries, unless the holder certifies under penalty of
perjury that it is not a United States person (and the payor
does not have actual knowledge or reason to know that the
beneficial owner is a United States person as defined under the
Code), or such holder otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
non-U.S. holders
U.S. federal income tax liability, provided the required
information is furnished to the IRS.
S-37
Underwriting
We are offering shares of our 8% convertible perpetual preferred
stock described in this prospectus supplement through a number
of underwriters. J.P. Morgan Securities Inc. is acting as
book-running manager of the offering and as representative of
the underwriters. We have entered into an underwriting agreement
with the underwriters. Subject to the terms and conditions of
the underwriting agreement, we have agreed to sell to the
underwriters, and each underwriter has severally agreed to
purchase, at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this
prospectus supplement, the number of shares of convertible
perpetual preferred stock listed next to its name in the
following table:
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Name
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Number of Shares
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J.P. Morgan Securities Inc.
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56,250
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Merrill Lynch, Pierce, Fenner & Smith Incorporated
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11,250
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Dahlman Rose & Company, LLC
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7,500
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Total
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75,000
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The underwriters are committed to purchase all the shares of our
8% convertible perpetual preferred shares offered by us if they
purchase any shares. The underwriting agreement also provides
that if an underwriter defaults, the purchase commitments of
non-defaulting underwriters may also be increased or the
offering may be terminated.
Pursuant to our written instructions, the underwriters allocated
a certain number of shares of convertible perpetual preferred
stock to certain individuals, including 500 shares to
Richard C. Adkerson, our Co-Chairman of the Board and
1,000 shares to Gerald J. Ford, one of our directors.
The underwriters propose to offer the shares of our 8%
convertible perpetual preferred stock directly to the public at
the initial public offering price set forth on the cover page of
this prospectus and to certain dealers at that price less a
concession not in excess of $19.50 per share. After the initial
public offering of the shares, the offering price and other
selling terms may be changed by the underwriters. Sales of
shares made outside of the United States may be made by
affiliates of the underwriters.
The underwriters have an option to buy up to 11,250 additional
shares of 8% convertible perpetual preferred stock from us to
cover sales of shares by the underwriters which exceed the
number of shares specified in the table above. The underwriters
have 30 days from the date of this prospectus to exercise
this over-allotment option. If any shares are purchased with
this over-allotment option, the underwriters will purchase
shares in approximately the same proportion as shown in the
table above. If any additional shares of convertible perpetual
preferred stock are purchased, the underwriters will offer the
additional shares on the same terms as those on which the shares
are being offered.
The underwriting fee is equal to the public offering price per
share of convertible perpetual preferred stock less the amount
paid by the underwriters to us per share of convertible
perpetual preferred stock. The underwriting fee is $32.50 per
share. The following table shows
S-38
the per share and total underwriting discounts and commissions
to be paid to the underwriters assuming both no exercise and
full exercise of the underwriters over-allotment option.
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Without
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With full
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over-allotment
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over-allotment
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exercise
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exercise
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Per Share
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$
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32.50
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$
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32.50
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Total
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$
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2,437,500
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$
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2,803,125
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We estimate that the total expenses of this offering payable by
us, excluding the underwriting discounts and commissions, will
be approximately $225,000 , including approximately $62,500 for
accounting fees and expenses, $85,000 for legal fees and
expenses, $65,000 for printing fees and expenses and $12,500 for
miscellaneous other fees and expenses.
A prospectus in electronic format may be made available on the
websites maintained by one or more underwriters, or selling
group members, if any, participating in the offering. The
underwriters may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the representatives to underwriters and selling
group members that may make Internet distributions on the same
basis as other allocations.
Other than our concurrent offering of common stock, we have
agreed that we will not (i) offer, pledge, announce the
intention to sell, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of
our convertible perpetual preferred stock or our common stock or
any securities convertible into or exercisable or exchangeable
for shares of our convertible perpetual preferred stock or our
common stock or (ii) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic
consequences of ownership of shares of our convertible perpetual
preferred stock or our common stock, whether any such
transaction described in clause (i) or (ii) above is
to be settled by delivery of common stock or such other
securities, in cash or otherwise, without the prior written
consent of J.P. Morgan Securities Inc., other than
(A) shares of our common stock issuable upon exercise of an
option or the conversion of securities outstanding as of the
date hereof 9in addition to shares of our common stock issuable
upon conversion of our 8% convertible perpetual preferred stock
offered hereby) and (B) any shares of our common stock
issued upon the exercise of options granted under existing
employee stock option plans.
Our executive officers, including our co-chairmen of the board,
have entered into
lock-up
agreements with the underwriters prior to the commencement of
this offering pursuant to which we and each of these persons,
with limited exceptions, for a period of 90 days after the
date of this prospectus supplement, may not, without the prior
written consent of J.P. Morgan Securities Inc.,
(1) offer, pledge, announce the intention to sell, contract
to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant
to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of our common stock or convertible
perpetual preferred stock or any securities convertible into or
exercisable or exchangeable for our common stock (including
without limitation, common stock or convertible perpetual
preferred stock which may be deemed to be beneficially owned by
the undersigned in accordance with the rules and regulations of
the SEC and securities which may be issued upon exercise of a
stock option or warrant) or (2) enter into any swap or
other agreement that transfers, in whole or in part, any of the
economic consequences of ownership
S-39
of the common stock or convertible perpetual preferred stock,
whether any such transaction described in clause (1) or
(2) above is to be settled by delivery of common stock or
convertible perpetual preferred stock or such other securities,
in cash or otherwise. The foregoing restrictions will not apply
to (a) transfers of shares of our convertible perpetual
preferred stock or options to purchase our convertible perpetual
preferred stock made as a bona fide gift or gifts, provided that
the donee or donees thereof agree to be bound by the
restrictions set forth herein, (b) transfers of shares of
our convertible perpetual preferred stock or options to purchase
our convertible perpetual preferred stock made to any trust for
the direct or indirect benefit of the undersigned or the
immediate family of the undersigned, provided that the trustee
of the trust agrees to be bound by the restrictions set forth
herein, and provided further that any such transfer shall not
involve a disposition for value or (c) transfers of shares
of our convertible perpetual preferred stock to us in
satisfaction of any tax withholding obligation of the
undersigned or in payment of the exercise price for any stock
option exercised by the undersigned; provided, however, that in
the case of any transfer clause (a), (b), or (c) of the
prior sentence, neither the party subject to the
lock-up
agreement nor the recipient shall be required to, or
voluntarily, file a report under Section 16 of the Exchange
Act of 1934, as amended reporting a reduction in beneficial
ownership of our convertible perpetual preferred stock during
the
lock-up
period.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933.
In connection with this offering, the underwriters may engage in
stabilizing transactions, which involves making bids for,
purchasing and selling shares of our convertible perpetual
preferred stock in the open market for the purpose of preventing
or retarding a decline in the market price of the convertible
perpetual preferred stock while this offering is in progress.
These stabilizing transactions may include making short sales of
the convertible perpetual preferred stock, which involves the
sale by the underwriters of a greater number of shares of
convertible perpetual preferred stock than they are required to
purchase in this offering, and purchasing shares of convertible
perpetual preferred stock on the open market to cover positions
created by short sales. Short sales may be covered
shorts, which are short positions in an amount not greater than
the underwriters over-allotment option referred to above,
or may be naked shorts, which are short positions in
excess of that amount. The underwriters may close out any
covered short position either by exercising their over-allotment
option, in whole or in part, or by purchasing shares in the open
market. In making this determination, the underwriters will
consider, among other things, the price of shares available for
purchase in the open market compared to the price at which the
underwriters may purchase shares through the over-allotment
option. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the convertible perpetual preferred
stock in the open market that could adversely affect investors
who purchase in this offering. To the extent that the
underwriters create a naked short position, they will purchase
shares in the open market to cover the position.
The underwriters have advised us that, pursuant to
Regulation M of the Securities Act of 1933, they may also
engage in other activities that stabilize, maintain or otherwise
affect the price of the 8% convertible perpetual preferred
stock, including the imposition of penalty bids. This means that
if the representatives of the underwriters purchase shares of
our convertible perpetual preferred stock in the open market in
stabilizing transactions or to cover short sales, the
representatives can require the underwriters that sold those
shares as part of this offering to repay the underwriting
discount received by them.
S-40
These activities may have the effect of raising or maintaining
the market price of the convertible perpetual preferred stock or
preventing or retarding a decline in the market price of the
convertible perpetual preferred stock, and, as a result, the
price of the convertible perpetual preferred stock may be higher
than the price that otherwise might exist in the open market. If
the underwriters commence these activities, they may discontinue
them at any time. The underwriters may carry out these
transactions in the
over-the-counter
market or otherwise.
Other than in the United States, no action has been taken by us
or the underwriters that would permit a public offering of the
securities offered by this prospectus in any jurisdiction where
action for that purpose is required. The securities offered by
this prospectus may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering
material or advertisements in connection with the offer and sale
of any such securities be distributed or published in any
jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that
jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and to observe any
restrictions relating to the offering and the distribution of
this prospectus. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities offered
by this prospectus in any jurisdiction in which such an offer or
a solicitation is unlawful.
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling with Article 49(2)(a)
to (d) of the Order (all such persons together being
referred to as relevant persons). The securities are
only available to, and any invitation, offer or agreement to
subscribe, purchase or otherwise acquire such securities will be
engaged in only with, relevant persons. Any person who is not a
relevant person should not act or rely on this document or any
of its contents.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), from and including the date
on which the European Union Prospectus Directive (the EU
Prospectus Directive) is implemented in that Relevant
Member State (the Relevant Implementation Date) an
offer of securities described in this prospectus may not be made
to the public in that Relevant Member State prior to the
publication of a prospectus in relation to the shares which has
been approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the EU Prospectus
Directive, except that it may, with effect from and including
the Relevant Implementation Date, make an offer of shares to the
public in that Relevant Member State at any time:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the EU Prospectus Directive)
subject to obtaining the prior consent of the book-running
manager for any such offer; or
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in any other circumstances which do not require the publication
by the Issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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For the purposes of this provision, the expression an
offer of securities to the public in relation to any
securities in any Relevant Member State means the communication
in any form and by any means of sufficient information on the
terms of the offer and the securities to be offered so as to
enable an investor to decide to purchase or subscribe for the
securities, as the same may be varied in that Member State by
any measure implementing the EU Prospectus Directive in that
Member State and the expression EU Prospectus Directive means
Directive
2003/71/EC
and includes any relevant implementing measure in each Relevant
Member State.
Certain of the underwriters and their affiliates have provided
in the past to us and our affiliates and may provide from time
to time in the future certain commercial banking, financial
advisory, investment banking and other services for us and such
affiliates in the ordinary course of their business, for which
they have received and may continue to receive customary fees
and commissions. Under our senior secured credit agreement,
effective August 6, 2007, JPMorgan Chase Bank N.A., is
administrative agent, and J.P. Morgan Securities Inc. is a
joint bookrunner and joint lead arranger. In addition, from time
to time, certain of the underwriters and their affiliates may
effect transactions for their own account or the account of
customers, and hold on behalf of themselves or their customers,
long or short positions in our debt or equity securities or
loans, and may do so in the future. In addition,
J.P. Morgan Securities Inc. acted as financial advisors to
us in connection with our 2007 acquisition of certain oil and
natural gas properties from Newfield Exploration Company, and is
currently acting as an underwriter in connection with our
concurrent offering of our common stock.
S-42
Legal
matters
The validity of the shares of our convertible perpetual
preferred stock being offered by us has been passed upon by
Jones, Walker, Waechter, Poitevent, Carrère &
Denègre, L.L.P., New Orleans, Louisiana and certain
legal matters will be passed upon for the underwriters by Davis
Polk & Wardwell, New York, New York.
Experts
Our consolidated financial statements appearing in our Annual
Report on
Form 10-K
for the year ended December 31, 2008 and the effectiveness
of our internal control over financial reporting as of
December 31, 2008 included therein, have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their reports thereon included
therein, and incorporated herein by reference. Such consolidated
financial statements are, and audited financial statements to be
included in subsequently filed documents will be, incorporated
herein in reliance upon the reports of Ernst & Young
LLP pertaining to such financial statements and the
effectiveness of our internal control over financial reporting
as of the respective dates (to the extent covered by consents
filed with the SEC) given on the authority of such firm as
experts in accounting and auditing.
With respect to our unaudited condensed consolidated interim
financial information as of March 31, 2009 and for the
three-month periods ended March 31, 2009 and 2008
incorporated by reference in this prospectus supplement,
Ernst & Young LLP reported that they have applied
limited procedures in accordance with professional standards for
a review of such information. However, their separate report
dated May 5, 2009, included in our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009, which report is
incorporated by reference herein, states that they did not audit
and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report
on such information should be restricted in light of the limited
nature of the review procedures applied. Ernst & Young
LLP is not subject to the liability provisions of
Section 11 of the Securities Act of 1933 (the
Securities Act) for their report on the unaudited
interim financial information because that report is not a
report or a part of the Registration
Statement prepared or certified by Ernst & Young LLP
within the meaning of Sections 7 and 11 of the Securities
Act.
Reserves
The information regarding our proved oil and gas reserves as of
December 31, 2008, 2007 and 2006 that is included or
incorporated by reference herein, has been reviewed and verified
by Ryder Scott Company, L.P. (Ryder Scott). This
reserve information has been included or incorporated by
reference herein upon the authority of Ryder Scott, as experts
in petroleum engineering and oil and gas reserve determination.
S-43
Where you can
find more information
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. These SEC filings are
available to the public over the Internet at the SECs
website at
http://www.sec.gov
and our website at
http://www.mcmoran.com
.
You may also read and copy any document we file with the SEC at
the SECs public reference room at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room.
We are incorporating by reference into this
prospectus supplement specific documents that we filed with the
SEC, which means that we can disclose important information to
you by referring you to those documents that are considered part
of this prospectus supplement and accompanying prospectus.
Information that we file subsequently with the SEC will
automatically update and supersede this information. We
incorporate by reference the documents listed below, and any
future documents that we file with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the Exchange Act),
until the termination of the offerings of all of the securities
covered by this prospectus supplement and accompanying
prospectus. This prospectus supplement and accompanying
prospectus are part of a registration statement filed with the
SEC.
We are incorporating by reference into this
prospectus supplement the following documents filed with the SEC
(excluding any portions of such documents that have been
furnished but not filed for purposes of
the Exchange Act):
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Our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008;
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Our Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009;
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The portions of our definitive Proxy Statement filed on
April 22, 2009 incorporated by reference in our Annual
Report on
Form 10-K
for the year ended December 31, 2008; and
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Registration Statement on
Form 8-A,
as amended, for a description of our capital stock, filed on
June 15, 2009, including any amendments or reports filed
for the purpose of updating such description, which is also
incorporated by reference herein.
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We will provide to each person, including any beneficial owner,
to whom a prospectus supplement and accompanying prospectus is
delivered, upon written or oral request and without charge, a
copy of the documents referred to above that we have
incorporated by reference. You can request copies of such
documents if you call or write us at the following address or
telephone number: McMoRan Exploration Co., 1615 Poydras Street,
New Orleans, Louisiana 70112,
(504) 582-4000.
This prospectus supplement and any accompanying prospectus or
information incorporated by reference herein or therein,
contains summaries of certain agreements that we have filed as
exhibits to various SEC filings, as well as certain agreements
that we will enter into in connection with the offering of
securities covered by this prospectus supplement. The
descriptions of these agreements contained in this prospectus
supplement and accompanying prospectus or information
incorporated by reference herein or therein do not purport to be
complete and are subject to, or qualified in their entirety by
reference to, the definitive agreements. Copies of the
definitive agreements will be made available without charge to
you by making a written or oral request to us.
S-44
You should rely only upon the information contained in this
prospectus supplement, the accompanying prospectus or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not authorized anyone to
provide you with different information. You should not assume
that the information in this document is accurate as of any date
other than that on the front cover of this prospectus supplement.
Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this prospectus
supplement to the extent that a statement contained herein, in
any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified and superseded, to
constitute a part of this prospectus supplement.
S-45
PROSPECTUS
$1,500,000,000
McMoRan Exploration
Co.
Common stock, preferred
stock, debt securities,
warrants, purchase contracts
and units
We may from time to time sell any combination of common stock,
preferred stock, debt securities, warrants, purchase contracts
and units described in this prospectus in one or more offerings.
The aggregate initial offering price of all securities sold
under this prospectus will not exceed $1,500,000,000. The
preferred stock, debt securities, warrants and units described
in this prospectus may be convertible into or exercisable or
exchangeable for common stock or preferred stock or other
securities. The securities offered by this prospectus may be
sold separately or sold as units with other securities offered
hereby.
This prospectus provides a general description of the securities
we may offer. Each time we sell securities, we will provide
specific amounts, prices and terms of the securities offered in
a supplement to this prospectus. The prospectus supplement may
also add, update or change information contained in this
prospectus. You should read carefully this prospectus and the
applicable prospectus supplement, together with the additional
information described below, before you invest in any securities.
We may sell these securities directly to our stockholders or to
purchasers or through underwriters, dealers or other agents as
designated from time to time. If any underwriters or dealers are
involved in the sale of any securities offered by this
prospectus and any prospectus supplement, the prospectus
supplement will set forth their names and any applicable fees,
commissions or discounts.
Our common stock is listed on the New York Stock Exchange under
the trading symbol MMR.
Investing in these securities involves certain risks. See
Risk Factors in the applicable Prospectus Supplement
and in our annual report on
Form 10-K
for the year ended December 31, 2006, and in our subsequent
quarterly reports, which are incorporated by reference
herein.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities, or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
This prospectus may not be used to sell securities unless
accompanied by a prospectus supplement.
The date of this prospectus is
October 5, 2007
You should rely only on the information contained in or
incorporated by reference in this prospectus. We have not
authorized anyone to provide you with different information. We
are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the
information contained in or incorporated by reference in this
prospectus is accurate as of any date other than the date on the
front of this prospectus. The terms McMoRan,
MMR, we, us, and
our refer to McMoRan Exploration Co. and all
entities owned or controlled by McMoRan Exploration Co.
Table of
contents
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i
About this
prospectus
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, or the SEC,
utilizing a shelf registration process. Under this
shelf process, we may sell any combination of the securities
described in this prospectus in one or more offerings. This
prospectus provides you with a general description of the
securities we may offer. Each time we sell securities, we will
provide a prospectus supplement that will contain specific
information about the amounts, prices and terms of the
securities offered. The prospectus supplement may also add,
update or change information contained in this prospectus. You
should read both this prospectus and any prospectus supplement
together with additional information described under the heading
Where You Can Find More Information.
We have filed or incorporated by reference exhibits to the
registration statement of which this prospectus forms a part.
You should read the exhibits carefully for provisions that may
be important to you.
McMoRan
Exploration Co.
We engage in the exploration, development and production of oil
and natural gas offshore in the Gulf of Mexico and onshore in
the Gulf Coast area. We have one of the largest acreage
positions in the shallow waters of the Gulf of Mexico and Gulf
coast areas, which are our regions of focus. Our oil and gas
operations are conducted through McMoRan Oil & Gas LLC
(MOXY), our principal operating subsidiary. Since 2004, we have
participated in 17 discoveries on 31 prospects that have been
drilled and evaluated, including four discoveries announced in
2007. We recently announced a potentially significant discovery
called Flatrock on OCS Block 310 at South Marsh Island
Block 212. Four additional prospects are either in progress
or not fully evaluated.
On August 6, 2007, we completed our acquisition of
substantially all of the proved property interests and related
assets of Newfield Exploration Company (Newfield) on
the outer continental shelf of the Gulf of Mexico for total cash
consideration of approximately $1.08 billion and the
assumption of the related reclamation obligations. This
acquisition had an effective date of July 1, 2007.
We conduct substantially all of our operations in the shallow
waters of the Gulf of Mexico, commonly referred to as the
shelf, and onshore in the Gulf coast region. We
believe that we have significant exploration opportunities in
large, deep geologic structures located beneath the shallow
waters of the Gulf of Mexico shelf and often lying below shallow
reservoirs where significant reserves have been produced,
commonly referred to as deep gas or the deep
shelf (from below 15,000 feet to 25,000 feet).
Our acquisition of the Newfield properties significantly
enhances our portfolio of shelf opportunities by increasing our
gross acreage position, increasing our deep gas exploration
potential, providing access to new ultra deep
opportunities (below 25,000 feet) and establishing us as
one of the largest producers in the traditional
shelf (above 15,000 feet) of the Gulf of Mexico.
Further, our shelf prospects are in proximity to existing oil
and gas infrastructure, which generally allows production to be
brought on line quickly and at lower development costs.
In addition to our oil and gas operations, we are pursuing the
development of the Main Pass Energy
Hub
TM
(MPEH
TM
)
project for the development of an LNG regasification and storage
facility through our other wholly-owned subsidiary,
Freeport-McMoRan Energy LLC (Freeport
1
Energy). The
MPEH
TM
project is located at our Main Pass facilities located offshore
in the Gulf of Mexico, 38 miles east of Venice, Louisiana.
Following an extensive review, the Maritime Administration
(MARAD) approved our license application for the
MPEH
TM
project in January 2007. The
MPEH
TM
facility is approved with a capacity of regasifying LNG at a
peak rate of 1.6 Bcf per day, storing 28 Bcf of
natural gas in salt caverns and delivering 3.1 Bcf of
natural gas per day, including gas from storage, to the
U.S. market.
Our principal executive offices are located at 1615 Poydras
Street, New Orleans, Louisiana 70112, and our telephone number
is
(504) 582-4000.
Our website is located at
www.mcmoran.com
. The
information on our website is not part of this prospectus.
2
Use of
proceeds
Unless otherwise indicated in the applicable prospectus
supplement, the net proceeds from the sale of the securities
will be used for general corporate purposes, including working
capital, acquisitions, retirement of debt and other business
opportunities.
3
Ratio of earnings
to fixed charges
The following table sets forth our ratio of earnings to fixed
charges for the periods indicated.
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Six months ended
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June 30,
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Years ended December 31,
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2007
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2006
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2005
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2004
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2003
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2002
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Ratio of earnings to fixed charges
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(a
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(a
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(a
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(a
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(a
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20.2x
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Ratio of earnings to fixed
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charges and preferred stock
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dividends
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(b
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(b
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(b
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10.3x
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(a)
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We sustained a net loss from
continuing operations of $21.1 million in the six months
ended June 30, 2007, $44.7 million in 2006,
$31.5 million in 2005, $52.0 million in 2004 and
$41.8 million in 2003. We did not have any earnings from
continuing operations to cover our fixed charges of
$7.2 million for the six-month period ended June 30,
2007, $15.5 million in 2006, $17.5 million in 2005,
$11.2 million in 2004 and $4.7 million in 2003.
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(b)
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We did not have any earnings from
continuing operations to cover our charges and preferred stock
dividends of $7.2 million for the six months ended
June 30, 2007, $17.0 million in 2006,
$19.0 million in 2005, $12.7 million in 2004 and
$6.3 million in 2003.
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For the ratio of earnings to fixed charges calculation, earnings
consist of income (loss) from continuing operations and fixed
charges. Fixed charges include interest and that portion of rent
deemed representative of interest. For the ratio of earnings to
fixed charges and preferred stock dividends calculation, we
assumed that our preferred stock dividend requirements were
equal to the earnings that would be required to cover those
dividend requirements.
4
Description of
McMoRan
capital
stock
This section describes the general terms and provisions of the
capital stock offered by this prospectus. The applicable
prospectus supplement will describe the specific terms of the
capital stock offered under that applicable prospectus
supplement and any general terms outlined in this section that
will not apply to the capital stock.
The following summary of the terms of our capital stock is not
meant to be complete and is qualified by reference to the
relevant provisions of the General Corporation Law of the State
of Delaware, or the DGCL, and our amended and restated
certificate of incorporation and our amended and restated
bylaws. Copies of our amended and restated certificate of
incorporation and our amended and restated bylaws are
incorporated herein by reference and will be sent to you at no
charge upon request. See Where You Can Find More
Information below.
Authorized
capital stock
As of the date of this prospectus, our amended and restated
certificate of incorporation authorizes us to issue up to
150,000,000 shares of common stock, par value
$0.01 per share, and up to 50,000,000 shares of
preferred stock, par value $0.01 per share. As of
August 31, 2007, 34.7 million shares of our common
stock were issued and outstanding (not including the
2.5 million shares held in treasury).
In addition, as of August 31, 2007, we had options
exercisable for an aggregate 7.9 million shares of our
common stock outstanding at an average exercise price of
$15.01 per share. Moreover, as of August 31, 2007, our
outstanding 6% Convertible Senior Notes were convertible
into approximately 7.1 million shares of our common stock
at a conversion price of $14.25 per share, and our
outstanding
5
1
/
4
% Convertible
Senior Notes were convertible into approximately
6.9 million shares of our common stock at a conversion
price of $16.575 per share. Furthermore, we have warrants
outstanding to purchase approximately 2.5 million shares of
our common stock at an exercise price of $5.25 per share
with 1.74 million of these warrants scheduled to expire in
December 2007 and the remainder scheduled to expire in September
2008.
Common
stock
Common stock outstanding.
The issued and outstanding
shares of common stock are, and the shares of common stock that
we may issue in the future will be, validly issued, fully paid
and nonassessable, and not subject to any preemptive or other
similar right.
Voting rights.
Each holder of our common stock is
entitled to one vote for each share of common stock held of
record on all matters as to which stockholders are entitled to
vote. Holders of our common stock may not cumulate votes for the
election of directors.
Dividend rights; rights upon liquidations.
Subject
to the preferences accorded to the holders of any series of
preferred stock if and when issued by the board of directors,
holders of our common stock are entitled to dividends at such
times and amounts as the board of directors may determine. We
have not in the past paid, and do not anticipate paying in the
foreseeable future, cash dividends on our common stock. In the
event of a voluntary or involuntary liquidation, dissolution or
winding up of our company, prior to any distributions to the
holders of our common stock, our creditors will receive any
payments to which they are entitled. Subsequent to those
payments, the holders of our common stock will share ratably,
according to the number of shares held by them, in our remaining
assets, if any.
5
Other rights.
Shares of our common stock are not
redeemable or subject to any sinking fund provisions, and have
no subscription, conversion or preemptive rights.
Transfer agent.
The transfer agent and registrar for
the common stock is Mellon Investor Services LLC.
NYSE.
Our common stock is listed on the New York
Stock Exchange under the symbol MMR.
Preferred
stock
General.
No shares of our preferred stock are
currently outstanding. Our board of directors is authorized,
subject to the limits imposed by the DGCL to issue one or more
series of preferred stock, to fix the number of shares to be
included in each series of preferred stock, and to determine the
designation of any series of preferred stock. Our board of
directors is also authorized to determine the powers, rights,
preferences and privileges and the qualifications, limitations
and restrictions granted to or imposed upon any wholly unissued
series of preferred stock.
Our board of directors may authorize the issuance of preferred
stock with voting or conversion rights that adversely affect the
voting power or other rights of our common stockholders. The
issuance of preferred stock, while providing flexibility in
connection with possible acquisitions, financings and other
corporate purposes, could have the effect of delaying, deferring
or preventing our change in control and may cause the market
price of our common stock to decline or impair the voting and
other rights of the holders of our common stock.
Prior to the issuance of shares of preferred stock of each
series, we are required to file a certificate of designation
with the Secretary of State of the State of Delaware. The
certificate of designation fixes for each class or series the
designations, powers, preferences, rights, qualifications,
limitations and restrictions, including, but not limited to, the
following:
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the number of shares constituting each class or series;
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voting rights;
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rights and terms of redemption (including sinking fund
provisions);
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dividend rights and rates;
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dissolution;
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terms concerning the distribution of assets;
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conversion or exchange terms;
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redemption prices; and
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liquidation preferences.
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All shares of preferred stock offered hereby will, when issued,
be fully paid and non-assessable and will not have any
preemptive or similar rights. We will set forth in a prospectus
supplement relating to the class or series of preferred stock
being offered the following terms:
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the title or series and stated value of the preferred stock;
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the number of shares of the preferred stock offered, the
liquidation preference per share and the offering price of the
preferred stock;
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the dividend rate(s), period(s)
and/or
payment date(s) or method(s) of calculation applicable to the
preferred stock;
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whether dividends are cumulative or non-cumulative and, if
cumulative, the date from which dividends on the preferred stock
will accumulate;
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the procedures for any auction and remarketing, if any, for the
preferred stock;
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the provisions for a sinking fund, if any, for the preferred
stock;
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the provision for redemption or repurchase, if applicable, of
the preferred stock;
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any listing of the preferred stock on any securities exchange;
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the terms and conditions, if applicable, upon which the
preferred stock will be convertible into common stock, including
the conversion price (or manner of calculation) and conversion
period;
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voting rights, if any, of the preferred stock;
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whether interests in the preferred stock will be represented by
depositary shares;
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a discussion of any material
and/or
special United States Federal income tax considerations
applicable to the preferred stock;
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the relative ranking and preferences of the preferred stock as
to dividend rights and rights upon the liquidation, dissolution
or winding up of our affairs;
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any limitations on issuance of any class or series of preferred
stock ranking senior to or on a parity with the class or series
of preferred stock as to dividend rights and rights upon
liquidation, dissolution or winding up of our affairs; and
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any other specific terms, preferences, rights, limitations or
restrictions of the preferred stock.
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Rank.
Unless we specify otherwise in the applicable
prospectus supplement, the preferred stock will rank, with
respect to dividends and upon our liquidation, dissolution or
winding up:
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senior to all classes or series of our common stock and to all
of our equity securities ranking junior to the preferred stock;
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on a parity with all of our equity securities the terms of which
specifically provide that the equity securities rank on a parity
with the preferred stock; and
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junior to all of our equity securities the terms of which
specifically provide that the equity securities rank senior to
the preferred stock.
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The term equity securities does not include
convertible debt securities.
Anti-takeover
effects of provisions of our amended and restated certificate of
incorporation and amended and restated bylaws
General.
Provisions of our amended and restated
certificate of incorporation and amended and restated bylaws may
have the effect of making it more difficult for a third party to
acquire, or
7
discourage a third party from attempting to acquire, control of
our company by means of a tender offer, a proxy contest or
otherwise. These provisions may also make the removal of
incumbent officers and directors more difficult. These
provisions are intended to discourage certain types of coercive
takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of us to first negotiate with
us. For a complete description of these provisions, please refer
to our amended and restated certificate of incorporation and our
amended and restated bylaws, which are incorporated herein by
reference.
Specifically, our amended and restated certificate of
incorporation and amended and restated bylaws provide for the
following:
No written consent of stockholders.
Any action to be
taken by our stockholders must be effected at a duly called
annual or special meeting and may not be effected by written
consent.
Special meetings of stockholders.
Special meetings
of our stockholders may be called only by the chairman,
co-chairman, or any vice-chairman of the board of directors, or
by our president and chief executive officer, or by a majority
of the members of the board of directors.
Advance notice requirement.
Stockholder proposals to
be brought before an annual meeting or a special meeting of our
stockholders must comply with advance notice procedures. These
advance notice procedures require timely notice and apply in
several situations, including stockholder proposals relating to
the nominations of persons for election to the board of
directors.
Supermajority voting/fair price requirements.
Our
amended and restated certificate of incorporation provides that
a supermajority vote of our stockholders and the approval of our
directors is required in connection with certain transactions
that would result in a change of control of our company.
Amendment.
The affirmative vote of at least 80% of
our companys outstanding common stock is required to
amend, alter, change or repeal by stockholder action the
provisions in our amended and restated certificate of
incorporation providing for the following: the fair price
requirements described above; the restriction on shareholder
action by written consent; limitation of liability and
indemnification for officers and directors; and the
supermajority vote required to amend our certificate of
incorporation. The affirmative vote of at least 80% of our
companys outstanding common stock is also required to
amend our amended and restated bylaws by stockholder action.
Anti-takeover
effects of certain provisions of Delaware law
We are subject to Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general,
Section 203 prohibits a Delaware corporation from engaging
in any business combination with any
interested stockholder for a period of three years
following the date that the stockholder became an interested
stockholder, unless:
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prior to that date, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
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upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of
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determining the number of shares of voting stock outstanding
(but not the voting stock owned by the interested stockholder)
those shares owned by persons who are directors and also
officers and by excluding employee stock plans in which employee
participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a
tender or exchange offer; or
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on or subsequent to that date, the business combination is
approved by the board of directors of the corporation and
authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least
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2
/
3
%
of the outstanding voting stock that is not owned by the
interested stockholder.
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Section 203 defines business combination to
include the following:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested
stockholder;
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subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning
15% or more of the outstanding voting stock of the corporation,
or who beneficially owns 15% or more of the outstanding voting
stock of the corporation at anytime within a three year period
immediately prior to the date of determining whether such person
is an interested stockholder, and any entity or person
affiliated with or controlling or controlled by any of these
entities or persons.
Shareholder
rights agreement
Our board of directors adopted a shareholder rights plan in
November 1998 and amended the plan in December 1998. Our rights
plan is designed to deter abusive takeover tactics and to
encourage prospective acquirors to negotiate with our board of
directors rather than attempt to acquire the company in a manner
or on terms that the board deems unacceptable. Under the rights
plan, we distributed one preferred stock purchase right to each
holder of record of our common stock at the close of business on
November 13, 1998. Once exercisable, each right will
entitle stockholders to buy one one-hundredth of a share of our
Series A participating cumulative preferred stock, par
value $0.01 per share, at a purchase price of $80 per one
one-hundredth of a share of Series A participating
cumulative preferred stock. Prior to the time the rights become
exercisable, the rights will be transferred with our common
stock.
The rights do not become exercisable until a person or group
acquires 25% or more of our common stock or announces a tender
offer which would result in that person or group owning 25% or
more of our common stock. However, if the person or group that
acquires 25% or more of our common stock agrees to
standstill arrangements described in the rights
plan, the rights
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will not become exercisable until the person or group acquires
35% or more of our common stock.
Once a person or group acquires 25% or more (or 35% or more
under the conditions described above) of our common stock, each
right will entitle its holder (other than the acquirer) to
purchase, for the $80 purchase price, the number of shares of
common stock having a market value of twice the purchase price.
The rights will also entitle holders to purchase shares of an
acquirers common stock under specified circumstances. In
addition, the board may exchange rights (other than the
acquirers) for shares of our common stock.
Prior to the time a person or group acquires 25% or more (or 35%
or more under the conditions described above) of our common
stock, the rights may be redeemed by our board of directors at a
price of $0.01 per right. As long as the rights are redeemable,
our board of directors may amend the rights agreement in any
respect. The terms of the rights are set forth in a rights
agreement between us and Mellon Investor Services LLC, as rights
agent. The rights expire on November 13, 2008 (unless
extended).
The rights may cause substantial dilution to a person that
attempts to acquire our company, unless the person demands as a
condition to the offer that the rights be redeemed or declared
invalid. The rights should not interfere with any merger or
other business combination approved by our board of directors
because our board may redeem the rights as described above. The
rights are intended to encourage any person desiring to acquire
a controlling interest in our company to do so through a
transaction negotiated with our board of directors rather than
through a hostile takeover attempt. The rights are intended to
assure that any acquisition of control of our company will be
subject to review by our board to take into account, among other
things, the interests of all of our stockholders.
For a complete description of the foregoing, please refer to our
shareholder rights agreement, which is incorporated herein by
reference.
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Description of
debt securities
We may issue debt securities from time to time in one or more
distinct series. This section summarizes the terms of the debt
securities that are common to all series. All of the financial
terms and other specific terms of any series of debt securities
that we offer will be described in a prospectus supplement
relating to that series of debt securities. Since the terms of
specific debt securities may differ from the general information
we have provided below, you should rely on information in the
applicable prospectus supplement that may modify or replace any
information below. If there are differences between the
applicable prospectus supplement and this prospectus, the
prospectus supplement will control.
We may issue senior debt securities under a senior indenture
that we will enter into with a trustee named in the senior
indenture. We may issue subordinated debt securities under a
subordinated indenture that we will enter into with a trustee
named in the subordinated indenture. Except as we may otherwise
indicate, the terms of the senior indenture and the subordinated
indenture are identical. We have filed forms of these documents
as exhibits to the registration statement which includes this
prospectus. We use the term indentures in this
prospectus to refer to both the senior indenture and the
subordinated indenture.
The indentures will be qualified under the Trust Indenture
Act of 1939, or the Trust Indenture Act. We use the term
trustee to refer to either the senior trustee or the
subordinated trustee, as applicable.
The following are summaries of the anticipated material
provisions of the senior debt securities, the subordinated debt
securities and the indentures and are subject to, and qualified
in their entirety by reference to, all the provisions of the
indenture applicable to a particular series of debt securities.
There may also be provisions in the indentures which are
important to you. We urge you to read the indenture applicable
to a particular series of debt securities because it, and not
this description, defines your rights as a holder of such debt
securities.
General
We may issue debt securities in distinct series. The prospectus
supplement relating to any series of debt securities will set
forth:
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whether the debt securities will be senior or subordinated;
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the offering price;
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the title;
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any limit on the aggregate principal amount that may be issued;
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the maturity date(s);
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the interest rate(s), which may be fixed or variable, or the
method for determining the interest rate(s), the date(s)
interest will accrue, the interest payment date(s) and the
regular record date(s) or the method for determining such
date(s);
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the person who shall be entitled to receive interest, if other
than the record holder on the record date;
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the place(s) where payments may be made;
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any mandatory or optional redemption provisions;
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our right, if any, to defer payment of interest and the maximum
length of any such deferral period;
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if applicable, the method for determining how the principal,
premium, if any, or interest will be calculated by reference to
an index or formula;
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if other than U.S. currency, the currency or currency units
in which principal, premium, if any, or interest will be payable
and whether we or the holder may elect payment to be made in a
different currency;
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the portion of the principal amount that will be payable upon
acceleration of stated maturity, if other than the entire
principal amount;
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if the principal amount payable at stated maturity will not be
determinable as of any date prior to stated maturity, the amount
which will be deemed to be the principal amount;
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any defeasance provisions if different from those described
below under Satisfaction and Discharge;
Defeasance;
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any conversion or exchange provisions;
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the terms and conditions, if any, pursuant to which the notes
are secured;
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any obligation to redeem or purchase the debt securities
pursuant to a sinking fund;
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whether the debt securities will be issuable in the form of a
global security and the identity of the depositary for the
global securities, if different then described below under
FORMS OF SECURITIES;
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any subordination provisions, if different from those described
below under Subordinated Debt Securities;
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any deletions of, or changes or additions to, the events of
default or covenants;
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any provisions granting special rights to holders when a
specified event occur; and
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any other specific terms of such debt securities which are not
inconsistent with the provisions of the indentures.
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Unless otherwise specified in the prospectus supplement, the
debt securities will be registered debt securities.
Security
Our obligations under any debt securities issued may be secured
by some or all of our assets or by guarantees of one or more of
our subsidiaries. The terms and conditions pursuant to which our
debt securities may be secured will be described in the
applicable prospectus supplement.
In addition, as security for any debt securities issued, we may
use the net proceeds from an offering to acquire
U.S. government securities and pledge those securities to a
trustee for the exclusive benefit of the holders of the debt
securities (and not for the benefit of other creditors). The
amount of U.S. government securities acquired will be
sufficient upon receipt of scheduled interest and principal
payments of such securities to provide for payment in full of a
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certain number of scheduled interest payments due on the debt
securities. The amount of net proceeds from an offering used to
acquire U.S. government securities and the number of
scheduled interest payments to be secured for a particular
offering of debt securities will be described in the applicable
prospectus supplement. In addition, the terms and conditions
pursuant to which we would pledge the U.S. government
securities for the benefit of the holders of the debt securities
will be described in the applicable prospectus supplement.
Special terms of
the debt securities
The debt securities may be issued as original issue discount
securities. An original issue discount security is a debt
security, including any zero-coupon note, which:
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is issued at a price lower than the amount payable upon its
state maturity; and
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provides that upon redemption or acceleration of the maturity,
an amount less than the amount payable upon the stated maturity
shall become due and payable.
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The material United Stated federal income tax consequences
applicable to debt securities sold at an original issue discount
will be described in the applicable prospectus supplement.
The debt securities of any series may be convertible into or
exchangeable for our common stock or other securities. If so, we
will describe the specific terms on which the debt securities
may be converted or exchanged in the applicable prospectus
supplement. The conversion or exchange may be mandatory, at the
holders option, or at our option. The applicable
prospectus supplement will describe the manner in which the
shares of our common stock or other securities the holder would
receive would be converted or exchanged.
Exchange and
transfer
Except as may be described in the applicable prospectus
supplement, debt securities of any series will be exchangeable
for other debt securities of the same series. Debt securities
may be transferred or exchanged at the office of the security
registrar or at the office of any transfer agent designated by
us.
We will not impose a service charge for any transfer or
exchange, but we may require holders to pay any taxes,
assessments or other governmental charges associated with any
transfer or exchange.
In the event of any potential redemption of debt securities of
any series, we will not be required to:
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issue, register the transfer of, or exchange, any debt security
of that series during a period beginning at the opening of
business 15 days before the day of mailing of a notice of
redemption and ending at the close of business on the day of the
mailing; or
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register the transfer of or exchange any debt security of that
series selected for redemption, in whole or in part, except the
unredeemed portion being redeemed in part.
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We may initially appoint the trustee as the security registrar.
Any transfer agent, in addition to the security registrar,
initially designated by us will be named in the prospectus
supplement. We may designate additional transfer agents or
change transfer agents or change the office of the transfer
agent. However, we will be required to maintain a transfer agent
in each place of payment for the debt securities of each series.
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Payment and
paying agent
The provisions of this paragraph will apply to the debt
securities unless otherwise indicated in the prospectus
supplement. Payment of interest on a debt security on any
interest payment date will be made to the person in whose name
the debt security is registered at the close of business on the
regular record date. Payment on debt securities of a particular
series will be payable at the office of a paying agent or paying
agents designated by us. However, at our option, we may pay
interest by mailing a check to the record holder. Unless
otherwise indicated in a prospectus supplement, the corporate
trust office of the trustee in the City of New York will be
designated as our sole paying agent.
We may name any other paying agents in the prospectus
supplement. We may designate additional paying agents, change
paying agents or change the office of any paying agent. However,
we will be required to maintain a paying agent in each place of
payment for the debt securities of a particular series.
All moneys paid by us to a paying agent for payment on any debt
security which remain unclaimed at the end of two years after
such payment was due will be repaid to us. Thereafter, the
holder may look only to us for such payment.
Consolidation,
merger and sale of assets
The indentures may contain covenants that restrict our ability
to merge or consolidate with another person, or sell, convey,
transfer or otherwise dispose of all or substantially all of our
assets. Any successor or acquirer of such assets must assume all
of our obligations under the indentures and the debt securities.
Events of
default
Unless we inform you otherwise in the prospectus supplement, the
indentures will define an event of default with respect to any
series of debt securities as one or more of the following events:
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failure to pay principal of or any premium on any debt security
of that series when due;
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failure to pay any interest on any debt security of that series
for 30 days when due;
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failure to perform any other covenant in the indenture continued
for 60 days after being given the notice required in the
indenture;
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our bankruptcy, insolvency or reorganization; and
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any other event of default specified in the prospectus
supplement.
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An event of default of one series of debt securities is not
necessarily an event of default for any other series of debt
securities.
If an event of default, other than an event of default described
in the fourth bullet point above, shall occur and be continuing,
either the trustee or the holders of at least 25% in aggregate
principal amount of the outstanding debt securities of a series,
by notice in writing to us, and to the trustee if notice is
given by such holders, may declare the principal amount of the
debt securities of that series to be due and payable immediately.
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If an event of default described in the fourth bullet point
above shall occur, the principal amount of all debt securities
of that series will automatically become immediately payable.
Any payment by us on the subordinated debt securities following
any such acceleration will be subject to the subordination
provisions described below under Subordinated Debt
Securities.
The holders of a majority in principal amount of the outstanding
debt securities of an affected series may waive any default or
event of default with respect to such series and it
consequences, except a continuing default or events of default
in the payment of principal, premium, if any, or interest on the
debt securities of such series.
After acceleration, the holders of a majority in aggregate
principal amount of the outstanding debt securities of an
affected series may, under certain circumstances, rescind and
annul such acceleration if all events of default, other than the
non-payment of accelerated principal, or other specified
amounts, have been cured or waived.
Other than the duty to act with the required care during an
event of default, the trustee will not be obligated to exercise
any of its rights or powers at the request of the holders unless
the holders shall have offered to the trustee reasonable
indemnity. Generally, the holders of a majority in aggregate
principal amount of the outstanding debt securities of any
series will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred on the
trustee.
A holder will not have any right to institute any proceeding
under the indentures, or for the appointment of a receiver or a
trustee, or for any other remedy under the indentures, unless:
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the holder has previously given to the trustee written notice of
a continuing event of default with respect to the debt
securities of that series;
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the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series have made a written
request and have offered reasonable indemnity to the trustee to
institute the proceeding; and
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the trustee has failed to institute the proceeding and has not
received direction inconsistent with the original request from
the holders of a majority in aggregate principal amount of the
outstanding debt securities of that series within 60 days
after the original request.
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A holder of debt securities may, however, sue to enforce the
payment of principal, premium or interest on any debt security
on or after the due date or to enforce the right, if any, to
convert any debt security without following the procedures
listed above.
We will periodically file statements with the trustee regarding
our compliance with certain of the covenants in the indentures.
Modification and
waiver
We and the trustee may change an indenture without the consent
of any holders with respect to certain matters, including:
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to fix any ambiguity, defect or inconsistency in such
indenture; and
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to change anything that does not materially adversely affect the
interests of any holder of the debt securities of any series.
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We and the trustee may make modifications and amendments to an
indenture with the consent of the holders of a majority in
aggregate principal amount of the outstanding debt securities of
each series affected by the modification or amendment. However,
neither we nor the trustee may make any modification or
amendment without the consent of the holder of each outstanding
debt security of that series affected by the modification or
amendment if such modification or amendment would:
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change the stated maturity of any debt security;
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reduce the principal, premium, if any, or interest on any debt
security;
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reduce the principal of an original issue discount security or
any other debt security payable on acceleration of maturity;
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change the currency in which any debt security is payable;
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impair the right to enforce any payment after the stated
maturity or redemption date;
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waive any default or event of default in payment of the
principal of, premium or interest on any debt security;
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waive a redemption payment or modify any of the redemption
provisions of any debt security;
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in the case of the subordinated debt securities, modifying the
subordination provisions in a manner adverse to the holders of
the subordinated debt securities;
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in the case of secured debt securities, changing the terms and
conditions pursuant to which the debt securities are secured in
a manner adverse to the holders of such secured debt securities;
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adversely affect the right to convert or exchange any debt
security in any material respect; or
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change the provisions in an indenture that relate to modifying
or amending such indenture.
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Satisfaction and
discharge; defeasance
We may be discharged from our obligations on the debt securities
of any series that have matured or will mature or be redeemed
within one year if we deposit with the trustee enough cash to
pay all the principal, interest and any premium due to the
stated maturity date or redemption date of the debt securities.
Each indenture contains a provision that permits us to elect:
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to be discharged from all of our obligations, subject to limited
exceptions, with respect to any series of debt securities then
outstanding; and/or
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to be released from our obligations under certain covenants
described in the indentures and from the consequences of an
event of default resulting from a breach of these covenants.
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We refer to the first bullet point above as legal
defeasance and the second bullet point above as
covenant defeasance. Our legal defeasance or
covenant defeasance option may be exercised only if:
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we deposit in trust with the trustee enough money in cash
and/or
U.S. government obligations to pay in full the principal of
and interest and premium, if any, on the debt securities.
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the deposit of the money by us does not result in a breach or
violation of, or constitute a default under the applicable
indenture or any other agreement or instrument to which we are a
party.
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no default or event of default with respect to the debt
securities of such series shall have occurred and be continuing
on the date of the deposit of the money or during the preference
period applicable to us.
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we deliver to the trustee an opinion of counsel to the effect
that the holders of the debt securities will not recognize
income, gain or loss for Federal income tax purposes as a result
of such deposit and defeasance and will be subject to federal
income tax on the same amount in the same manner and at the same
times as would have been the case if such deposit and defeasance
had not occurred. In the case of legal defeasance this opinion
must be based on a ruling of the Internal Revenue Service or a
change in the United Stated federal income tax law.
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in the case of legal defeasance, such legal defeasance does not
result in the trust arising from the deposit of the money
constituting an investment company, as defined in the Investment
Company Act of 1940, as amended, or the 1940 Act, or such trust
shall be qualified under the 1940 Act or exempt from regulation
thereunder.
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we deliver to the trustee an officers certificate and
opinion of counsel, each stating that all conditions precedent
with respect to such defeasance have been complied with.
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If any of the above events occurs, the holders of the debt
securities of the series will not be entitled to the benefits of
the applicable indenture, except for the rights of holders to
receive payments on debt securities or the registration of
transfer and exchange of debt securities and replacement of
lost, stolen or mutilated debt securities.
Governing
law
The indentures and the debt securities will be governed by, and
construed in accordance with the law of the State of New York.
Regarding the
trustee
We may appoint a separate trustee for any series of debt
securities. The trustee will have all the duties and
responsibilities of an indenture trustee specified in the
Trust Indenture Act. The trustee is not required to spend
or risk its own money or otherwise become financially liable
while performing its duties unless it reasonably believes that
it will be repaid or receive adequate indemnity.
Each indenture limits the right of the trustee, should it become
a creditor of us, to obtain payment of claims or secure its
claims.
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The trustee is permitted to engage in certain other
transactions. However, if the trustee acquires any conflicting
interest, and there is a default under the debt securities of
any series for which they are trustee, the trustee must
eliminate the conflict or resign.
Subordinated debt
securities
Payment on the subordinated debt securities will, to the extent
provided in the subordinated indenture, be subordinated in right
of payment to the prior payment in full of all of our senior
indebtedness. The subordinated debt securities also will be
effectively subordinated to all debt and other liabilities,
including trade payables and lease obligations, if any, of our
subsidiaries, if any.
Upon any distribution of our assets upon any dissolution,
winding up, liquidation or reorganization, the payment of the
principal of and interest on the subordinated debt securities
will be subordinated in right of payment to the prior payment in
full in cash or other payment satisfactory to the holders of our
senior indebtedness. In the event of any acceleration of the
subordinated debt securities because of an event of default, the
holders of any of our senior indebtedness would be entitled to
payment in full in cash or other payment satisfactory to such
holders of all senior indebtedness obligations before the
holders of the subordinated debt securities are entitled to
receive any payment or distribution. The subordinated indenture
requires us or the trustee to promptly notify holders of
designated senior indebtedness if payment of the subordinated
debt securities is accelerated because of an event of default.
We may not make any payment on the subordinated debt securities,
including upon redemption at the option of the holder of any
subordinated debt securities or at our option, if:
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a default in the payment of the principal, premium, if any,
interest, rent or other obligations in respect of senior
indebtedness occurs and is continuing beyond any applicable
period of grace, which is called a payment default;
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a default other than a payment default on any designated senior
indebtedness occurs and is continuing that permits holders of
designated senior indebtedness to accelerate its maturity, and
the trustee receives notice of such default, which is called a
payment blockage notice from us or any other person
permitted to give such notice under the subordinated indenture,
which is called a non-payment default; or
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any judicial proceeding is pending in connection with a default.
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If the trustee or any holder of the subordinated debt securities
receives any payment or distribution of our assets in
contravention of the subordination provisions on the
subordinated debt securities before all senior indebtedness is
paid in full in cash, property or securities, including by way
of set-off, or other payment satisfactory to holders of senior
indebtedness, then such payment or distribution will be held in
trust for the benefit of holders of senior indebtedness or their
representatives to the extent necessary to make payment in full
in cash or payment satisfactory to the holders of senior
indebtedness of all unpaid senior indebtedness.
In the event of our bankruptcy, dissolution or reorganization,
holders of senior indebtedness may receive more, ratably, and
holders of the subordinated debt securities may receive less,
ratably, than our other creditors (including our trade
creditors). This subordination will not prevent the occurrence
of any event of default under the subordinated indenture.
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We are obligated to pay reasonable compensation to the trustee
and to indemnify the trustee against certain losses, liabilities
or expenses incurred by the trustee in connection with its
duties relating to the subordinated debt securities. The
trustees claims for these payments will generally be
senior to those of noteholders in respect of all funds collected
or held by the trustee.
The subordinated indenture allows us to change the subordination
provisions relating to any particular issue of subordinated debt
securities prior to issuance. We will describe any change in the
prospectus supplement relating to the subordinated debt
securities.
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Description of
warrants
We may issue warrants to purchase our debt or equity securities
or securities of third parties or other rights, including rights
to receive payment in cash or securities based on the value,
rate or price of one or more specified commodities, currencies,
securities or indices, or any combination of the foregoing.
Warrants may be issued independently or together with any other
securities and may be attached to, or separate from, such
securities. Each series of warrants will be issued under a
separate warrant agreement to be entered into between us and a
warrant agent. The terms of any warrants to be issued and a
description of the material provisions of the applicable warrant
agreement will be set forth in the applicable prospectus
supplement.
The applicable prospectus supplement will describe the following
terms of any warrants in respect of which this prospectus is
being delivered:
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the title of such warrants;
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the aggregate number of such warrants;
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the price or prices at which such warrants will be issued;
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the currency or currencies, in which the price of such warrants
will be payable;
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the securities or other rights, including rights to receive
payment in cash or securities based on the value, rate or price
of one or more specified commodities, currencies, securities or
indices, or any combination of the foregoing, purchasable upon
exercise of such warrants;
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the price at which and the currency or currencies, in which the
securities or other rights purchasable upon exercise of such
warrants may be purchased;
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the date on which the right to exercise such warrants shall
commence and the date on which such right shall expire;
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if applicable, the minimum or maximum amount of such warrants
which may be exercised at any one time;
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if applicable, the designation and terms of the securities with
which such warrants are issued and the number of such warrants
issued with each such security;
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if applicable, the date on and after which such warrants and the
related securities will be separately transferable;
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information with respect to book-entry procedures, if any;
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if applicable, a discussion of material United States federal
income tax considerations; and
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any other terms of such warrants, including terms, procedures
and limitations relating to the exchange and exercise of such
warrants.
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20
Description of
purchase contracts
We may issue purchase contracts for the purchase or sale of:
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debt or equity securities issued by us or securities of third
parties, a basket of such securities, an index or indices of
such securities or any combination of the above as specified in
the applicable prospectus supplement;
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currencies; or
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commodities.
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Each purchase contract will entitle the holder thereof to
purchase or sell, and obligate us to sell or purchase, on
specified dates, such securities, currencies or commodities at a
specified purchase price, which may be based on a formula, all
as set forth in the applicable prospectus supplement. We may,
however, satisfy our obligations, if any, with respect to any
purchase contract by delivering the cash value of such purchase
contract or the cash value of the property otherwise deliverable
or, in the case of purchase contracts on underlying currencies,
by delivering the underlying currencies, as set forth in the
applicable prospectus supplement. The applicable prospectus
supplement will also specify the methods by which the holders
may purchase or sell such securities, currencies or commodities
and any acceleration, cancellation or termination provisions or
other provisions relating to the settlement of a purchase
contract.
The purchase contracts may require us to make periodic payments
to the holders thereof or vice versa, which payments may be
deferred to the extent set forth in the applicable prospectus
supplement, and those payments may be unsecured or prefunded on
some basis. The purchase contracts may require the holders
thereof to secure their obligations in a specified manner to be
described in the applicable prospectus supplement.
Alternatively, purchase contracts may require holders to satisfy
their obligations thereunder when the purchase contracts are
issued. Our obligation to settle such pre-paid purchase
contracts on the relevant settlement date may constitute
indebtedness. Accordingly, pre-paid purchase contracts will be
issued under either the senior indenture or the subordinated
indenture.
Description of
units
We may issue units consisting of two or more securities
described in this prospectus, in any combination. Each unit will
be issued so that the holder of the unit is also the holder of
each security included in the unit. The holder of a unit,
therefore, will have the rights and obligations of a holder of
each underlying security. The applicable prospectus supplement
will describe:
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the terms of the units and of the underlying securities,
including whether and under what circumstances the securities
comprising the units may be traded separately;
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a description of the terms of any unit agreement governing the
units; and
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a description of the provisions for the payment, settlement,
transfer or exchange of the units.
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21
Forms of
securities
Each debt security, warrant and unit will be represented by one
or more global securities representing the entire issuance of
securities. Global securities will be issued in registered form.
Global securities name a depositary or its nominee as the owner
of the debt securities, warrants or units represented by these
global securities. The depositary maintains a computerized
system that will reflect each investors beneficial
ownership of the securities through an account maintained by the
investor with its broker/dealer, bank, trust company or other
representative, as will be explained more fully in the
applicable prospectus supplement.
22
Plan of
distribution
We may sell the securities in one or more of the following ways
(or in any combination) from time to time:
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through underwriters or dealers for resale to the public or to
investors;
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directly to a limited number of purchasers or to a single
purchaser; or
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through agents.
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The prospectus supplement will state the terms of the offering
of the securities, including:
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the name or names of any underwriters, dealers or agents;
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the purchase price of such securities and the proceeds to be
received by us, if any;
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any underwriting discounts or agency fees and other items
constituting underwriters or agents compensation;
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any initial public offering price;
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any discounts or concessions allowed or reallowed or paid to
dealers; and
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any securities exchanges on which the securities may be listed.
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Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be
changed from time to time.
If we use underwriters in the sale, the securities will be
acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including:
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negotiated transactions,
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at a fixed public offering price or prices, which may be changed,
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at market prices prevailing at the time of sale,
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at prices related to prevailing market prices or
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at negotiated prices.
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Unless otherwise stated in a prospectus supplement, the
obligations of the underwriters to purchase any securities will
be conditioned on customary closing conditions and the
underwriters will be obligated to purchase all of such series of
securities, if any are purchased.
We may authorize underwriters, dealers or agents to solicit
offers by certain purchasers to purchase the securities from us
at the public offering price set forth in the prospectus
supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. These
contracts will be subject only to those conditions set forth in
the prospectus supplement, and the prospectus supplement will
set forth any commissions we pay for solicitation of these
contracts.
We may sell the securities through agents from time to time. The
prospectus supplement will name any agent involved in the offer
or sale of the securities and any commissions we pay to them.
Generally, any agent will be acting on a best efforts basis for
the period of its appointment.
23
Underwriters and agents may be entitled under agreements entered
into with us to indemnification by us against certain civil
liabilities, including liabilities under the Securities Act, or
to contribution with respect to payments which the underwriters
or agents may be required to make. Underwriters and agents may
be customers of, engage in transactions with, or perform
services for us and our affiliates in the ordinary course of
business.
Unless otherwise specified in the applicable prospectus
supplement, each series of securities will be a new issue of
securities and will have no established trading market, other
than the common stock which is listed on the New York Stock
Exchange. We may elect to list any other class or series of
securities on any exchange or market, but we are not obligated
to do so. Any underwriters to whom securities are sold for
public offering and sale may make a market in the securities but
such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. We
cannot give any assurance as to the liquidity of the trading
market for any of the securities.
24
Where you can
find more information
Government
filings
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as
amended. You may read and copy this information at the following
location of the Securities and Exchange Commission:
Public Reference Room
100 F Street, N.E.
Room 1580
Washington, D.C. 20549
You may also obtain copies of this information by mail from the
Public Reference Section of the Securities and Exchange
Commission, 100 F Street, N.E., Room 1580,
Washington, D.C. 20549, at prescribed rates. You may obtain
information on the operation of the Securities and Exchange
Commissions Public Reference Room by calling the
Securities and Exchange Commission at
1-800-SEC-0330.
The Securities and Exchange Commission also maintains an
Internet worldwide web site that contains reports, proxy
statements and other information about issuers like us who file
electronically with the Securities and Exchange Commission. The
address of the site is
http://www.sec.gov
.
Information
incorporated by reference
The Securities and Exchange Commission allows us to incorporate
by reference information into this document. This means that we
can disclose important information to you by referring you to
another document filed separately with the Securities and
Exchange Commission. The information incorporated by reference
is considered to be a part of this document, except for any
information superseded by information that is included directly
in this document or incorporated by reference subsequent to the
date of this document.
This prospectus incorporates by reference the documents listed
below and any future filings that we make with the Securities
and Exchange Commission under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (other
than information in the documents or filings that is deemed to
have been furnished and not filed), until all the securities
offered under this prospectus are sold.
25
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McMoRan Exploration Co.
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Securities and exchange commission filings
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Period or date filed
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Annual Report on
Form 10-K
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Fiscal year ended December 31, 2006
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Quarterly Report on
Form 10-Q
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First quarter ended March 31, 2007 and second quarter ended
June 30, 2007
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Current Reports on
Form 8-K
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January 5, 2007, January 11, 2007, January 18,
2007, January 23, 2007, January 30, 2007,
February 26, 2007, March 21, 2007, April 17,
2007, May 29, 2007, June 22, 2007, July 2, 2007,
July 3, 2007, July 12, 2007, July 19, 2007,
August 3, 2007, August 10, 2007, August 16, 2007
and September 27, 2007
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Proxy Statement on Schedule 14A
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Filed on March 26, 2007
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Documents incorporated by reference are available from us
without charge, excluding any exhibits to those documents unless
the exhibit is specifically incorporated by reference as an
exhibit in this document. You can obtain documents incorporated
by reference in this document by requesting them in writing or
by telephone from the company at the following address:
McMoRan Exploration Co.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Investor Relations
Telephone:
(504) 582-4000
26
Information
concerning forward-looking statements
This prospectus and our financial statements and other documents
incorporated by reference in this prospectus contain statements
relating to future results, which are forward-looking statements
as that term is defined in the Private Securities Litigation Act
of 1995. When used in this document, the words
anticipates, may, can,
plans, feels, believes,
estimates, expects,
projects, intends, likely,
will, should, to be and any
similar expressions and any other statements that are not
historical facts, in each case as they relate to us or company
management are intended to identify those assertions as
forward-looking statements. In making any of those statements,
the person making them believes that its expectations are based
on reasonable assumptions. However, these forward-looking
statements are subject to numerous risks and uncertainties that
could cause actual results to differ materially from those
expressed in, or implied or projected by, the forward-looking
information and statements. Any such statement may be influenced
by factors that could cause actual outcomes and results to be
materially different from those projected or anticipated. These
factors include, but are not limited to, those which may be set
forth in the accompanying prospectus supplement and those under
the heading Risk Factors included in Item 1A of
our annual report on
Form 10-K
for the year ended December 31, 2006, and other factors
described in our periodic reports filed from time to time with
the Securities and Exchange Commission.
Some other risks and uncertainties include, but are not limited
to:
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general industry conditions, such as fluctuations in the market
prices of oil and natural gas;
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our ability to obtain additional capital;
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environmental and related indemnification obligations;
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adverse weather conditions and natural disasters, such as
hurricanes;
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the speculative nature of oil and gas exploration;
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adverse financial market conditions;
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shortage of supplies, equipment and personnel;
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regulatory and litigation matters and risks; and
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changes in tax and other laws.
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Our actual results or performance could differ materially from
those expressed in, or implied by, any forward-looking
statements relating to those matters. Accordingly, no assurances
can be given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of
them do so, what impact they will have on the results of our
operations or financial condition. Except as required by law, we
are under no obligation, and expressly disclaim any obligation,
to update, alter or otherwise revise any forward-looking
statement, whether written or oral, that may be made from time
to time, whether as a result of new information, future events
or otherwise.
27
Legal
opinions
The validity of the securities in respect of which this
prospectus is being delivered will be passed on for us by Jones,
Walker, Waechter, Poitevent, Carrère &
Denègre, L.L.P., New Orleans, Louisiana.
Experts
The consolidated financial statements of McMoRan Exploration Co.
appearing in McMoRan Exploration Co.s Annual Report on
Form 10-K
for the year ended December 31, 2006 and McMoRan
Exploration Co. managements assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2006 included therein, have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their reports thereon included
therein, and incorporated herein by reference. Such financial
statements and managements assessment are, and audited
financial statements and McMoRan Exploration Co.
managements assessments of the effectiveness of internal
control over financial reporting to be included in subsequently
filed documents will be, incorporated herein in reliance upon
the reports of Ernst & Young LLP pertaining to such
financial statements and managements assessments (to the
extent covered by consents filed with the SEC) given on the
authority of such firm as experts in accounting and auditing.
With respect to the unaudited condensed consolidated interim
financial information of McMoRan Exploration Co. as of
March 31, 2007 and for the three-month periods ended
March 31, 2007 and 2006, and as of June 30, 2007 and
for the three-month and six-month periods ended June 30,
2007 and 2006, incorporated by reference in this prospectus,
Ernst & Young LLP reported that they have applied
limited procedures in accordance with professional standards for
a review of such information. However, their separate report
dated April 30, 2007, included in McMoRan Exploration
Co.s Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2007, and their separate
report dated August 6, 2007 included in McMoRan Exploration
Co.s Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007, both of which reports
are incorporated by reference herein, state that they did not
audit and they do not express opinions on that interim financial
information. Accordingly, the degree of reliance on their report
on such information should be restricted in light of the limited
nature of the review procedures applied. Ernst & Young
LLP is not subject to the liability provisions of
Section 11 of the Securities Act of 1933 (the
Securities Act) for their reports on the unaudited
interim financial information because those reports are not
reports or parts of the Registration
Statement prepared or certified by Ernst & Young LLP
within the meaning of Sections 7 and 11 of the Securities
Act.
The audited historical statements of revenues and direct
operating expenses of certain oil and gas properties acquired
from Newfield Exploration Company included on pages 1 through 8
of Exhibit 99.1 of McMoRan Exploration Co.s Current
Report on
Form 8-K/A
dated August 16, 2007, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
28
Reserves
The information regarding our reserves as of December 31,
2006 that is either included in this prospectus or incorporated
by reference to our annual report on
Form 10-K
for the year ended December 31, 2006 has been reviewed and
verified by Ryder Scott Company, L.P. This reserve information
has been included in this prospectus and incorporated by
reference herein in reliance upon the authority of Ryder Scott
as experts in reserve determination.
29
75,000 shares
McMoRan Exploration
Co.
8% Convertible perpetual
preferred shares
Prospectus supplement
Book-Running Manager
J.P. Morgan
Co-Managers
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Merrill
Lynch & Co.
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Dahlman Rose & Company
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June 17, 2009
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