Item 1.01 Entry into a Material Definitive Agreement.
On June 25, 2006, Inco Limited (“Inco”), together with Falconbridge Limited (“Falconbridge”) and
Phelps Dodge Corporation (“Phelps Dodge”), announced that they had entered into a number of
agreements, described below, relating to (i) an increase in the consideration under Inco’s
outstanding offer to acquire all of the common shares of Falconbridge and (ii) a proposed
combination of Inco and Phelps Dodge, pursuant to a statutory plan of arrangement under which Inco
would amalgamate with a wholly-owned subsidiary of Phelps Dodge and become a wholly-owned
subsidiary of Phelps Dodge. If both Inco’s offer to acquire all the outstanding shares of
Falconbridge and the proposed arrangement are successfully completed, the three companies would
continue as “Phelps Dodge Inco Corporation”.
Fifth Amendment to Support Agreement between Inco and Falconbridge
On June 25, 2006, Inco entered into a fifth amending agreement (the “Fifth Amendment”) with
Falconbridge for the purpose of amending the support agreement (as amended, the “Support
Agreement”) originally entered into by Inco and Falconbridge on October 10, 2005, as subsequently
amended on January 12, 2006, February 20, 2006, March 21, 2006 and May 13, 2006, respectively.
Under the terms of the Fifth Amendment, Inco has agreed to increase the cash consideration and the
share consideration offered to holders of Falconbridge common shares pursuant to Inco’s offer (the
“Offer”) to acquire all of the issued and outstanding Falconbridge common shares to Cdn.$53.83 in
cash and to 0.82419 of an Inco common share, respectively, per Falconbridge common share. As a
result, Falconbridge shareholders will be entitled to elect to receive either Cdn.$53.83 in cash
for each Falconbridge common share held or 0.82419 of a common share of Inco plus Cdn.$0.05 in cash
for each Falconbridge common share held, subject in each case to proration based upon the maximum
amount of cash available and the maximum number of Inco common shares issuable under the Offer.
The maximum amount of cash consideration available under the Offer has been increased to
Cdn.$6,700,377,653 and the maximum number of Inco common shares available for issuance under the
Offer has been increased to 213,171,558 Inco common shares. Assuming full proration of these
maximum amounts, Falconbridge shareholders would be entitled to receive Cdn.$17.50 in cash and
0.55676 of an Inco common share for each Falconbridge common share tendered to the Offer, subject
to adjustment for fractional shares. Inco and Falconbridge have also agreed to a corresponding
adjustment to the number of Inco common shares to be received by holders of Falconbridge options
following the completion of the take-over bid.
The Fifth
Amendment also amends the Support Agreement to provide that the Support Agreement may be
terminated by either Inco or Falconbridge in the event (i) the other party has not complied in all
material respects with its covenants or obligations under the Support Agreement, or (ii) any
representation or warranty of the other party under the Support
Agreement shall have been untrue or
incorrect as at October 10, 2005 (being the first date of the Support Agreement) or shall have
become untrue or incorrect at any time prior to the Expiry Time (as defined in the Support
Agreement) and such untrue or incorrect representation or warranty is not curable or, if curable,
is not cured by the earlier of such date which is 30 days from the notice of such breach and the
Expiry Time except, in the case of a termination by Falconbridge, for any untrue representations or
warranties of Inco which, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect (as defined in the Support Agreement) with respect to Inco, or, in
the case of a termination by Inco, for any untrue representations or
warranties of Falconbridge which, individually or in the aggregate, would not, or would not
reasonably be expected to, have a Material Adverse Effect with respect to Falconbridge or would
not, or would not reasonably be expected to, prevent or materially delay the completion of the
Offer or a subsequent acquisition transaction prior to the Expiry Time.
In light of the proposed transaction involving Inco and Phelps Dodge, under the terms and subject
to the conditions of the Fifth Amendment, Falconbridge has agreed to use its reasonable best
efforts to co-operate with Inco and to obtain all necessary consents and approvals with respect to
the transactions contemplated by the Combination Agreement. Falconbridge has also agreed to
furnish Inco with all information concerning it and its shareholders as may be required (and, in
the case of its shareholders, available to it) for the preparation, filing and mailing of the
management information circular to be delivered to Inco shareholders in connection with the
arrangement, as well as the making of regulatory filings, as required under the Combination
Agreement (discussed below).
Combination Agreement between Inco and Phelps Dodge
Also on June 25, 2006, Inco and Phelps Dodge entered into a combination agreement (the “Combination
Agreement”). The Combination Agreement provides that, upon the terms and subject to the conditions
set forth therein, a newly-formed, wholly-owned subsidiary (“Subco”) of Phelps Dodge will acquire
all of the issued and outstanding common shares of Inco by way of a statutory plan of arrangement effected under
the Canada Business Corporations Act (the “Arrangement”). As a result of the transactions
contemplated by the Combination Agreement, Inco will become a wholly-owned subsidiary of Phelps
Dodge.
Pursuant to the terms of the Arrangement, Subco and Inco will amalgamate and each outstanding
common share of Inco (other than (x) common shares held by a holder who has validly exercised its
dissent rights or by Phelps Dodge or by any subsidiary of Phelps
Dodge and (y) restricted Inco common shares) will be exchanged by the holder thereof for Cdn.$17.50 in cash (the “Cash Amount”) and 0.672
of a common share of Phelps Dodge (the “Exchange Ratio”).
Each outstanding restricted common share of
Inco awarded under Inco’s 2001 Key Executive Incentive Plan and 2005 Key Executive Incentive Plan
will be converted into that number of restricted Phelps Dodge common shares equal to the Exchange
Ratio plus the quotient of the Cash Amount divided by the closing price of Phelps Dodge’s
common shares on the New York Stock Exchange (“NYSE”) on the trading day immediately prior to the closing date of the Arrangement expressed
in Canadian dollars (such sum, the “Stock Award Exchange Ratio”). Each outstanding option to
acquire Inco common shares, whether or not vested, shall be cancelled in exchange for a fully
vested option to acquire that number of Phelps Dodge common shares equal to the number of Inco
common shares subject to such Inco option multiplied by the Stock Award Exchange Ratio. The
exercise price for each Phelps Dodge common share subject to any such converted option will be an
amount equal to the quotient of the exercise price per Inco common share subject to such Inco
option divided by the Stock Award Exchange Ratio, subject to certain adjustments as set out in the
Combination Agreement.
The combined entity resulting from the Arrangement will be named Phelps Dodge Inco Corporation
(“Phelps Dodge Inco”). The board of directors of Phelps Dodge Inco will consist of 15 members, 11
of whom will be selected from the board of directors of Phelps Dodge and four of whom will be
selected from the boards of directors of Inco and Falconbridge, respectively. J. Stephen Whisler,
currently chairman and chief executive officer of Phelps Dodge, will be
chairman and chief executive officer of Phelps Dodge Inco. Scott M. Hand, currently chairman and
chief executive officer of Inco, will become vice chairman of Phelps Dodge Inco. Derek Pannell,
currently chief executive officer of Falconbridge, will become president of the nickel division of
Phelps Dodge Inco, to be called Inco Nickel, and will head Phelps Dodge Inco’s nickel, zinc and
aluminium operations. Timothy R. Snider, currently president and chief operating officer of
Phelps Dodge, will hold the same position with Phelps Dodge Inco and Ramiro G. Peru, currently
executive vice president and chief financial officer of Phelps Dodge, will be the chief financial
officer of Phelps Dodge Inco. Mssrs. Whisler, Snider and Peru will continue to be based in
Phoenix, Arizona, while Mssrs. Hand and Pannell will continue to be based in Toronto, Ontario.
Under the terms of the Combination Agreement, Inco and Phelps Dodge have made customary
representations, warranties and covenants, including, among others, covenants that during the
interim period between the execution of the Combination Agreement and the effective time of the
Arrangement, (a) each of Inco and Phelps Dodge will conduct its respective business in the ordinary
course consistent with past practice and in compliance in all material respects with applicable
laws and not take any action that would be expected to prevent or materially impair or delay the
consummation of the transactions contemplated by the Combination Agreement; (b) Inco and Phelps
Dodge will use their reasonable best efforts to take all actions required for the consummation of
the transactions contemplated by the Combination Agreement; (c) Inco will not engage in
combinations or other significant transactions; (d) subject to certain exceptions, Inco’s board of
directors will recommend to holders of Inco common shares that they vote in favour of the
Arrangement, and will not withdraw such recommendation or modify or qualify such recommendation in
any manner adverse to Phelps Dodge; (e) subject to certain exceptions, Phelps Dodge’s board of
directors will recommend to holders of Phelps Dodge common shares that they vote in favour of an
amendment to Phelps Dodge’s restated certificate of incorporation to increase Phelps Dodge’s
authorized common stock, change the name of Phelps Dodge to “Phelps Dodge Inco Corporation” and
increase the maximum size of Phelps Dodge’s board from 12 to 15 directors and the issuance of
Phelps Dodge common shares pursuant to the terms of the Arrangement (f) subject to certain
exceptions, Inco will not solicit any proposals relating to alternative acquisition transactions;
and (g) subject to certain exceptions, Inco will not engage in any discussions or negotiations or
provide confidential information in connection with any proposals for alternative acquisition
transactions.
The obligations of Inco and Phelps Dodge to effect the Arrangement and complete the transactions
contemplated by the Combination Agreement are subject to the satisfaction of certain conditions
including, among others, (a) approval of Phelps Dodge’s shareholders (by a vote of a majority of
Phelps Dodge’s common shares entitled to vote) of an amendment to its restated certificate of
incorporation to increase Phelps Dodge’s authorized common stock, change the name of Phelps Dodge
to “Phelps Dodge Inco Corporation” and increase the maximum size of Phelps Dodge’s board from 12 to
15 directors; (b) approval by Phelps Dodge’s shareholders (by a vote of majority of the votes cast
at the special meeting as long as the total votes cast represents a majority of Phelps Dodge’s
common shares entitled to vote) of the issuance of Phelps Dodge common shares pursuant to the terms
of the Arrangement; (c) approval of Inco’s shareholders of the Arrangement by special resolution
(being a resolution approved by 66 2/3% of the votes cast on the special resolution by holders of
Inco common shares present in person or by proxy at the Inco shareholder meeting); (d) expiration
or termination of the applicable waiting periods under the United States Hart-Scott Rodino
Antitrust Improvements
Act of 1976 and the European Commission anti-trust Council Regulation (EC) 139/2004 of 20 January
2004; (e) approval under the Competition Act (Canada) and the Investment Canada Act; (f) receipt of
an interim order in connection with the Arrangement and a final order approving the Arrangement, in
each case, from the Ontario Superior Court of Justice; (g) either (i) Inco having acquired at
least two-thirds of the outstanding common shares of Falconbridge
under the Offer and having
completed a compulsory acquisition or a subsequent acquisition transaction, or (ii) the Support
Agreement having been terminated in accordance with its terms; and (h) the Phelps Dodge common
shares issuable pursuant to the Arrangement having been approved for
listing on the NYSE and the Toronto Stock Exchange (“TSX”), subject to notice of issuance. In
addition, Phelps Dodge will not be obligated to consummate the Combination if holders of more than
10% (or, in certain circumstances, 15%) of all of the issued and outstanding Inco common shares
have exercised dissent rights in respect of the Arrangement.
Each party’s obligation to complete the transactions contemplated by the Combination Agreement
is also subject to certain other conditions, including (i) subject to certain exceptions, the
accuracy as of the Closing Date of the representations and warranties of the other party under the
Combination Agreement, except for such inaccuracies as would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on such party, (ii) performance in all
material respects by the other party of its material covenants and obligations under the
Combination Agreement, and (iii) the absence of material adverse changes in respect of the other
party.
The Combination Agreement contains certain termination rights in favour of each of Inco and Phelps
Dodge and further provides that, upon termination of the Combination Agreement under certain
specified circumstances, Inco may be required to pay Phelps Dodge a termination payment equal to
US$425 million, provided that such amount will be increased to US$925 million from and after the
date that Inco has acquired at least two-thirds of the outstanding common shares of Falconbridge.
The Combination Agreement also provides that Phelps Dodge may be required to pay Inco a termination
payment equal to US$500 million in certain specified circumstances. The Combination Agreement
further provides that each of Phelps Dodge and Inco may be required to pay the other party a
termination payment equal to US$125 million in certain specified circumstances.
Note Purchase Agreement between Inco and Phelps Dodge
On June 25, 2006, in connection with the entering into of the Combination Agreement, Inco and
Phelps Dodge also entered into a note purchase agreement (the “Note Purchase Agreement”) pursuant
to which Phelps Dodge has agreed, subject to certain conditions, to purchase up to
U.S.$3,000,000,000 aggregate principal amount of Inco 8.0% convertible subordinated notes due April 1, 2012
(the “Notes”). Inco may require the purchase of Notes only to the extent that it requires the
proceeds of the Notes for certain permitted uses, being (a) the acquisition of Falconbridge common
shares as contemplated by the Support Agreement and/or (b) the satisfaction of the obligations of
Inco and Falconbridge to any shareholders who properly exercise dissent rights in respect of a
compulsory acquisition or a subsequent acquisition transaction to enable Inco to acquire all of the
Falconbridge common shares not acquired under the Offer. Phelps
Dodge’s obligation to purchase Notes is subject to, among other
things, receipt of customary certificates and opinions from Inco and to (i)
approval by the TSX of the issuance and sale of the Notes, the issuance of the Inco common shares
issuable upon conversion of the Notes and the listing of such Inco common shares on the TSX and
(ii) application having been being made for the listing of such Inco common shares on the NYSE.
Phelps Dodge’s obligation to purchase Notes may continue or be terminated after the Combination
Agreement is terminated, depending on the circumstances of the termination of such agreement.
The Notes
are convertible by the holder, in whole or in part and from time to time, into Inco common shares at a
conversion rate equal to 95% of the average closing price of Inco’s common shares on the NYSE over
the five trading days preceding the date of conversion, provided, however, that the Notes may not
be converted (i) prior to the six-month anniversary of the issuance of the Notes or (ii) if the
holder of the Notes and its affiliates would own, together with any persons acting jointly or in
concert with the holder and its affiliates, after such conversion, an aggregate of more than 20% of
Inco’s outstanding common shares. Inco may deliver cash in lieu
of part or all of the amount due upon
conversion of the Notes at stated principal amount plus accrued interest.
Phelps Dodge is entitled to customary U.S. registration rights in respect of the Inco common shares
issuable upon conversion of the Notes. Upon the conversion of any Note by Phelps Dodge, it may
either hold the resulting Inco common shares, in which case it may not vote those shares except pro
rata with other voting shareholders, or it may sell the resulting common shares. Such sales may
either be in (i) broad, underwritten distributions, or (ii) block sales each representing 5% or
less of Inco’s issued and outstanding common shares, provided that Phelps Dodge will use its
commercially reasonable efforts in the context of the block trade market to avoid such trade being
made to mining industry participants having an equity market capitalization of $10 billion or more.
The Notes are redeemable by Inco at its option for cash, in whole or in part at any time
(including following notice by the noteholder of its intent to convert) at their stated principal
amount plus accrued interest and are mandatorily redeemable by Inco for cash at their stated
principal amount plus accrued interest upon a change of control of Inco (other than a change of
control resulting in Phelps Dodge controlling Inco).
Phelps Dodge’s commitment to purchase Notes may be terminated: (i) at any time by the mutual
written consent of Phelps Dodge and Inco, (ii) if there has been a material breach of (a) any
representation or warranty of Inco contained in the Note Purchase Agreement or (b) any of the
covenants or agreements contained in the Note Purchase Agreement on the part of Inco, which breach
is not curable or, if curable, is not cured within 10 business days after written notice of such
breach is given by Phelps Dodge to Inco, (iii) in the case of a change of control of Inco, or (iv)
at any time after March 31, 2007. The Note Purchase Agreement can be terminated prior to the
initial issuance of Notes if any law is passed that makes the consummation of the transaction
contemplated by the Note Purchase Agreement or the Support Agreement illegal or otherwise
prohibited.
Co-operation Agreement between Falconbridge and Phelps Dodge
In connection with the Combination Agreement, on June 25, 2006, Falconbridge and Phelps Dodge
entered into a co-operation agreement (the “Co-operation Agreement”) pursuant to which Falconbridge
has agreed to take certain actions and refrain from taking certain actions in order to facilitate
the Arrangement. Among other things, each of Falconbridge and Phelps Dodge has agreed to afford
the other with reasonable access to information, subject to the terms and
conditions of the confidentiality agreement previously entered into by Falconbridge and Phelps
Dodge. In addition, Falconbridge has agreed to furnish Phelps Dodge with information concerning
Falconbridge and (to the extent available to Falconbridge) its shareholders for the preparation,
filing and mailing of the proxy statement of Phelps Dodge proposed to be delivered to its
shareholders in connection with the shareholder approval required to be obtained by Phelps Dodge of
the transactions contemplated by the Combination Agreement and the regulatory filings required to
consummate the transactions contemplated by the Combination Agreement. Phelps Dodge and
Falconbridge have made customary representations, warranties and covenants in the Co-operation
Agreement, and the Co-operation Agreement shall terminate upon termination of the Support Agreement
by either Inco or Falconbridge or termination of the Combination Agreement by either Phelps Dodge or Inco.
The foregoing descriptions of the Combination Agreement, the Fifth Amendment, the Note Purchase
Agreement and the Co-operation Agreement do not purport to be complete and are qualified in their
entirety by reference to the Combination Agreement, the Fifth Amendment, the Note Purchase
Agreement and the Co-operation Agreement, which are filed as Exhibits
2.1–2.4 hereto and are
incorporated into this report by reference.
Source of Funds for Offer to Acquire Falconbridge
In connection with Inco having increased the consideration under its Offer and entered into the
Combination Agreement and the Note Purchase Agreement, Inco also entered into an amendment letter
(the “Amendment Letter”) dated June 25, 2006 with its lead arrangers (the “Lead Arrangers”) under
the previously disclosed loan agreement dated as of December 22, 2005 among Inco, as borrower,
Royal Bank of Canada, as administrative agent, the Lead Arrangers and the other banks and other
financial institutions party thereto as lenders (such loan agreement, as amended by a First
Amendment Agreement dated as of January 31, 2006 and a Second Amendment Agreement dated as of
February 20, 2006, the “Existing Acquisition Facilities Credit Agreement”). The Existing
Acquisition Facilities Credit Agreement was amended to provide for the following: (i) a “Change of
Control” of Inco will be deemed to occur on the effective date of the Combination Agreement, with
the result that amounts outstanding under the Existing Acquisition Facilities Credit Agreement may
be required to be prepaid and the Existing Acquisition Facilities Credit Agreement terminated
within 10 business days of such date, and (ii) an increase in the amount of cash which may be used
by Inco to finance its increased Offer and related expenses (collectively, the “Transaction
Expenses”).
Inco and the Lead Arrangers also agreed to amend the Existing Acquisition Facilities Credit
Agreement to provide, among other things, for the following: (i) an increase in the amount of debt
which may be used by Inco to finance the Transaction Expenses, with additional adjustments in the
event dissent or appraisal rights are exercised in connection with Inco’s Offer, and (ii) in the
event of a credit rating downgrade by two of three credit rating agencies to BB (or equivalent) or
lower in respect of Inco, for an additional financial covenant and the grant of security for Inco’s
obligations under the Existing Acquisition Facilities Agreement by Inco and each of its
subsidiaries located in the United States or Canada over all assets located in the United States or
Canada. The first advance under these loan facilities is available until August 10, 2006.
In addition, on June 25, 2006, Inco accepted a commitment from the Lead Arrangers to provide
additional financing for the Transaction Expenses, on terms and conditions substantially similar to
those under the Existing Acquisition Credit Facilities Agreement (as amended by the Amendment
Letter).
Inco intends to finance the cash payable in connection with the Offer through the committed loan
facilities referred to above and available cash resources. Inco may also issue Notes pursuant to
the Note Purchase Agreement to obtain additional liquidity in connection with the Offer, subject to
the requirements of the Note Purchase Agreement.
Important Legal Information
This Form 8-K may be deemed to be solicitation material in respect of Inco’s proposed combination
with Falconbridge. Inco filed with the U.S. Securities and Exchange Commission (the “SEC”), on
October 24, 2005, a registration statement on Form F-8 (containing an offer to purchase and a share
exchange take-over bid circular) and has filed amendments thereto, and will file further amendments
thereto as required, in connection with the proposed combination. Inco has also filed, and will
file (if required), other documents with the SEC in connection with the proposed combination.
Falconbridge has filed a Schedule 14D-9F in connection with Inco’s offer and has filed, and will
file (if required), other documents regarding the proposed combination, in each case with the SEC.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT
DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION.
INVESTORS AND SECURITYHOLDERS ARE URGED TO READ INCO’S SOLICITATION/RECOMMENDATION STATEMENT ON
SCHEDULE 14D-9 THAT INCO FILED WITH THE SEC ON MAY 31, 2006, AND ANY AMENDMENTS INCO MAY FILE
THERETO, AS IT CONTAINS, AND SUCH AMENDMENTS, IF ANY, WILL CONTAIN, IMPORTANT INFORMATION REGARDING
TECK COMINCO’S PROPOSED COMBINATION WITH INCO.
This Form 8-K is not a solicitation of a proxy from any security holder of Inco or Phelps Dodge in
respect of Inco’s proposed combination with Phelps Dodge. Inco intends to file a Management
Information Circular regarding the proposed transaction with the securities commissions or
equivalent regulatory authorities in Canada and to provide the Management Information Circular to
Inco shareholders. WE URGE INVESTORS TO CAREFULLY READ THE MANAGEMENT INFORMATION CIRCULAR WHEN IT
BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT INCO AND THE PROPOSED
TRANSACTION.
Inco and its executive officers and directors may be deemed to be participants in the solicitation
of proxies from Inco and Phelps Dodge security holders in favor of Inco’s proposed combination with
Phelps Dodge. Information regarding the security ownership