AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 2003
REGISTRATION NO. 333-104688
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM F-10
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INCO LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CANADA N/A 98-0000676
(PROVINCE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION (I.R.S. EMPLOYER IDENTIFICATION NUMBER
OF INCORPORATION OR ORGANIZATION) CODE NUMBER (IF APPLICABLE)) (IF APPLICABLE))
145 KING STREET WEST, SUITE 1500, TORONTO, ONTARIO, M5H 4B7 (416) 361-7511
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CT CORPORATION SYSTEM
111 EIGHTH AVENUE
NEW YORK, NEW YORK 10011
(212) 894-8940
(NAME, ADDRESS, (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA
CODE) OF AGENT FOR SERVICE IN THE UNITED STATES)
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COPIES TO:
DONALD R. CRAWSHAW, ESQ. STUART F. FEINER, ESQ.
SULLIVAN & CROMWELL LLP EXECUTIVE VICE-PRESIDENT,
125 BROAD STREET GENERAL COUNSEL & SECRETARY
NEW YORK, NEW YORK 10004-2498 INCO LIMITED
145 KING STREET WEST, SUITE 1500
TORONTO, ONTARIO M5H 4B7
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC:
FROM TIME TO TIME AFTER EFFECTIVENESS OF THIS REGISTRATION STATEMENT.
PROVINCE OF ONTARIO
(PRINCIPAL JURISDICTION REGULATING THIS OFFERING (IF APPLICABLE))
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It is proposed that this filing shall become effective (check appropriate box):
A.|_| Upon filing with the Commission, pursuant to Rule 467(a) (if in connection
with an offering being made contemporaneously in the United States and
Canada)
B.|X| At some future date (check the appropriate box below):
1.|_| pursuant to Rule 467(b) on at (designate a time not
sooner than 7 calendar days after filing)
2.|_| pursuant to Rule 467(b) on at (designate a time
7 calendar days or sooner after filing) because the securities
regulatory authority in the review jurisdiction has issued a receipt
or notification of clearance on .
3.|X| pursuant to Rule 467(b) as soon as practicable after notification of
the Commission by the Registrant or the Canadian securities
regulatory authority of the review jurisdiction that a receipt or
notification of clearance has been issued with respect hereto.
4.|_| After the filing of the next amendment to this form (if preliminary
material is being filed).
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to the home jurisdiction's shelf short
form prospectus offering procedures, check the following box. |X|
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE AS PROVIDED IN RULE 467 UNDER THE SECURITIES
ACT OF 1933 OR ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a)
OF THE ACT, MAY DETERMINE.
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This Amendment No. 1 to Registration Statement on Form F-10 (File No.
333-104688) (the "Registration Statement") is filed by Inco Limited, a
corporation duly organized and existing under the laws of Canada. Except as
amended hereby, the Registration Statement remains in full force and effect.
PART I
INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS
Part I of the Registration Statement is hereby amended and restated as follows:
$227,100,000
BASE SHELF PROSPECTUS
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INCO LIMITED
3 1/2% SUBORDINATED CONVERTIBLE DEBENTURES DUE 2052
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We issued $227,100,000 aggregate principal amount of 3 1/2% Subordinated
Convertible Debentures due 2052 (the "Subordinated Debentures") on a private
placement basis on March 7, 2003 and March 18, 2003. This prospectus may be used
by selling securityholders in connection with resales of the Subordinated
Debentures and the common shares issuable upon the conversion, redemption,
purchase or payment of the Subordinated Debentures. Such common shares are
sometimes referred to in this prospectus as the underlying shares.
The Subordinated Debentures are currently eligible for trading on the PORTAL
market of the National Association of Securities Dealers, Inc. Our common shares
currently trade under the symbol "N" on the New York Stock Exchange and the
Toronto Stock Exchange. The last reported sale price of our common shares on the
New York Stock Exchange on April 28, 2003 was $18.50 per share.
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INVESTING IN OUR COMMON SHARES OR THE SUBORDINATED DEBENTURES INVOLVES
RISKS. PLEASE CAREFULLY CONSIDER THE "RISK FACTORS" SECTION BEGINNING ON PAGE 4
OF THIS PROSPECTUS.
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The Subordinated Debentures and the underlying shares may be offered in
negotiated transactions or otherwise, at varying prices determined at the time
of the sale or at negotiated prices. In addition, the underlying shares may be
offered from time to time through ordinary brokerage transactions on the New
York Stock Exchange. See "Plan of Distribution". This prospectus has not been
filed in respect of, and will not qualify, any distribution of Subordinated
Debentures or underlying shares in Ontario or any other province or territory of
Canada. The selling securityholders may be deemed to be "underwriters" as
defined in the U.S. Securities Act of 1933, as amended. Any profits realized by
the selling securityholders may be deemed to be underwriting commissions. If the
selling securityholders use any broker-dealers, any commissions paid to
broker-dealers and, if broker-dealers purchase any Subordinated Debentures or
underlying shares as principals, any profits received by such broker-dealers on
the resale of the Subordinated Debentures or underlying shares, may be deemed to
be underwriting discounts or commissions under the Securities Act.
We will not receive any of the proceeds from the resale of the Subordinated
Debentures or the underlying shares by any of the selling securityholders.
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UNDER THE MULTIJURISDICTIONAL DISCLOSURE SYSTEM ADOPTED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION, WE ARE PERMITTED TO PREPARE THIS PROSPECTUS
IN ACCORDANCE WITH CANADIAN DISCLOSURE REQUIREMENTS, WHICH ARE DIFFERENT FROM
THOSE OF THE UNITED STATES. WE PREPARE OUR FINANCIAL STATEMENTS IN ACCORDANCE
WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, AND ARE SUBJECT TO
CANADIAN AUDITING AND AUDITOR INDEPENDENCE STANDARDS. THEY MAY BE NOT BE
COMPARABLE TO FINANCIAL STATEMENTS OF UNITED STATES COMPANIES.
OWNING SUBORDINATED DEBENTURES OR UNDERLYING SHARES MAY SUBJECT YOU TO TAX
CONSEQUENCES BOTH IN THE UNITED STATES AND CANADA. THIS PROSPECTUS MAY NOT
DESCRIBE THESE TAX CONSEQUENCES FULLY. YOU SHOULD READ THE TAX DISCUSSION UNDER
"CERTAIN INCOME TAX CONSIDERATIONS".
YOUR ABILITY TO ENFORCE CIVIL LIABILITIES UNDER THE UNITED STATES FEDERAL
SECURITIES LAWS MAY BE AFFECTED ADVERSELY BECAUSE WE ARE INCORPORATED IN CANADA,
SOME OF OUR OFFICERS AND DIRECTORS AND SOME OF THE EXPERTS NAMED IN THIS
PROSPECTUS ARE CANADIAN RESIDENTS, AND MOST OF OUR ASSETS ARE LOCATED OUTSIDE
THE UNITED STATES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR 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.
The date of this prospectus is April 29, 2003.
TABLE OF CONTENTS
Page
CURRENCY REFERENCES............................................................2
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS.........................3
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES....................................3
INCO LIMITED...................................................................4
RISK FACTORS...................................................................4
USE OF PROCEEDS...............................................................14
PRICE RANGE OF COMMON SHARES..................................................15
DIVIDEND POLICY...............................................................15
EARNINGS COVERAGE.............................................................15
RATINGS.......................................................................16
DESCRIPTION OF SUBORDINATED DEBENTURES........................................16
LEGAL OWNERSHIP...............................................................32
DESCRIPTION OF SHARE CAPITAL..................................................34
CERTAIN INCOME TAX CONSIDERATIONS.............................................38
PLAN OF DISTRIBUTION..........................................................42
VALIDITY OF THE SUBORDINATED DEBENTURES.......................................44
EXPERTS.......................................................................44
AVAILABLE INFORMATION.........................................................44
DOCUMENTS INCORPORATED BY REFERENCE...........................................44
LIST OF DOCUMENTS FILED WITH THE SEC..........................................45
SCHEDULE A - LIST OF ELECTING HOLDERS.........................................45
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. These securities are not
being offered or sold in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
and the documents incorporated by reference is accurate only as of their
respective dates. Our business, financial condition, results of operations and
prospects may have changed since those dates.
IN THIS PROSPECTUS, UNLESS WE STATE OTHERWISE, "INCO", THE "COMPANY", "WE",
"US" AND "OUR" REFER TO INCO LIMITED AND ALL OF ITS CONSOLIDATED SUBSIDIARIES,
UNINCORPORATED UNITS AND DIVISIONS.
CURRENCY REFERENCES
Unless we state otherwise or the context otherwise requires, all references
to dollar amounts in this prospectus are references to U.S. dollars. The
exchange rate between the Canadian dollar and the U.S. dollar used in this
prospectus varies depending on the date and context of the information contained
herein.
On April 28, 2003, the noon buying rate for U.S. dollars reported by the
Bank of Canada was Cdn.$1.4501 for each U.S.$1.00.
2
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in, or incorporated by reference into, this
document are forward-looking statements as defined in the U.S. federal
securities laws. Examples of such statements include, but are not limited to,
statements concerning: (1) the price volatility for nickel and other primary
metals products produced by us; (2) the long-term demand for and supply of
nickel, copper and other metals as well as the availability of, and prices for,
intermediates containing nickel purchased by us, and nickel-containing stainless
steel scrap and other substitutes for primary nickel; (3) our premiums realized
over London Metal Exchange cash prices and the sensitivity of our financial
results to changes in metals prices and interest rates; (4) our strategies and
objectives; (5) our interest and other expenses; (6) our energy, pension and
other costs; (7) our position as a low-cost producer of nickel; (8) our
debt-equity ratio and tangible net worth; (9) the political unrest or
instability in countries such as Indonesia and its impact on our Indonesian
subsidiary, PT International Nickel Indonesia Tbk, and political developments in
other countries in which we operate and elsewhere; (10) the completion and
results of a comprehensive review of the capital cost, scope, schedule and other
key aspects of our Goro project and the results of the bankable feasibility
study for our Voisey's Bay project; (11) the timing of the start of production
and the costs of construction with respect to, and the issuance of the necessary
permits and other authorizations required for, and engineering and construction
timetables for, and the necessary financing plans and arrangements for, our Goro
and Voisey's Bay projects, and, in the case of our Goro project, joint venture
or similar investment and other agreements or arrangements; (12) our estimates
of the quantity and quality of ore reserves; (13) planned capital expenditures;
(14) our costs of production and production levels, including the costs and
potential impact of complying with existing and proposed environmental laws and
regulations and net reductions in environmental emissions; (15) the impact of
changes in Canadian-U.S. dollar and other foreign exchange rates on our costs
and results; (16) sales of speciality nickel products; (17) our cost reduction
and other financial and operating objectives; (18) the commercial viability of
new production processes; (19) our productivity, exploration and research and
development initiatives as well as environmental, health and safety initiatives;
(20) the negotiation of collective agreements with unionized employees; (21) our
sales organization and personnel requirements; (22) business and economic
conditions and (23) the enforceability of certain liabilities. Inherent in
forward-looking statements are risks and uncertainties well beyond our ability
to predict or control. Actual results and developments are likely to differ, and
may differ materially, from those expressed or implied by the forward-looking
statements contained in, or incorporated by reference into, this document. Such
statements are based on a number of assumptions which may prove to be incorrect,
including, but not limited to, assumptions about: (a) business and economic
conditions, including exchange rates and energy, pension and other costs and
other anticipated and unanticipated costs; (b) the supply and demand for,
deliveries of, and the level and volatility of prices of, nickel, copper, cobalt
and our other metals products, purchased intermediates and nickel-containing
stainless steel scrap and other substitutes and competing products for the
primary nickel and other metal products we produce; (c) the timing of the
receipt of regulatory and governmental approvals for our Goro and Voisey's Bay
projects and other operations; (d) the availability of financing, including
partner or other investment arrangements in the case of our Goro project, for
our development projects on reasonable terms; (e) our costs of production and
our production and productivity levels, as well as those of our competitors; (f)
engineering and construction timetables and capital and operating costs for our
Goro and Voisey's Bay projects; (g) market competition; (h) mining, processing,
exploration and research and development activities; (i) the accuracy of ore
reserve estimates; (j) premiums realized over London Metal Exchange cash and
other benchmark prices; (k) tax benefits; (l) the resolution of environmental
and other proceedings and the impact on us of the Kyoto Protocol and various
other environmental regulations and initiatives; (m) political instability in
Indonesia and other countries or locations in which we operate or otherwise; and
(n) our ongoing relations with our employees at our operations throughout the
world. See "Risk Factors" for more information about certain factors that, among
others, may cause actual results and developments to differ from those expressed
or implied by forward-looking statements contained in, or incorporated by
reference into, this document.
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
We are a corporation organized under the laws of Canada and a majority of
our assets are located in, and most of our directors and officers are residents
of, Canada. As a result, it may be difficult for United States investors to
effect service of process within the United States upon those directors or
officers who are not residents of the United States, or to realize in the United
States upon judgments of courts of the United States predicated upon civil
liability of such directors or officers under U.S. federal securities laws. We
have been advised by Osler, Hoskin & Harcourt LLP, our Canadian counsel, that a
judgment of a U.S. court predicated solely upon civil liability under such laws
would probably be enforceable in Canada if the U.S. court in which the judgment
was obtained had a basis for jurisdiction in the matter that was recognized by a
Canadian court for such purposes. We have also been advised by such counsel,
however, that there is substantial doubt whether an action could be brought in
Canada in the first instance on the basis of liability predicated solely upon
such laws.
INCO LIMITED
Inco Limited is one of the world's premier mining and metals companies. We
are a leading producer of nickel, a hard, malleable metal which, given its
properties and wide range of applications, can be found in thousands of
products. We are also an important producer of copper, precious metals and
cobalt, and we produce sulphuric acid and liquid sulphur dioxide as by-products
of our operations at Sudbury, Ontario. Our principal mines and processing
operations are located in the Sudbury area of Ontario, the Thompson area of
Manitoba, and, through our 59 per cent-owned subsidiary, PT International Nickel
Indonesia Tbk ("PT Inco"), on the island of Sulawesi, Indonesia. We have
additional wholly-owned metals refineries at Port Colborne, Ontario and in the
United Kingdom at Clydach, Wales and Acton, England. We also have interests in
nickel refining capacity and nickel salts production facilities located in
Japan, Taiwan, South Korea and the People's Republic of China.
We currently have two major development projects, our Goro and Voisey's Bay
projects. We indirectly own an 85 per cent interest in Goro Nickel which holds a
number of claims covering nickel-cobalt properties in the French Overseas
Territory of New Caledonia, which we refer to as our Goro deposit. Our
wholly-owned subsidiary, Voisey's Bay Nickel Company Limited, holds the mineral
licenses covering the Voisey's Bay deposit and certain other mineral licenses
and claims in the Province of Newfoundland and Labrador. We are currently in the
process of undertaking a review of our Goro project. See "Risk Factors--Risks
Associated with, and Importance of, Future Low-Cost Nickel Projects--Uncertainty
of Production and Capital and Other Cost Estimates".
Our executive offices are located at 145 King Street West, Suite 1500,
Toronto, Ontario, Canada M5H 4B7. You should refer to our annual report on Form
10-K for the year ended December 31, 2002 (the "2002 10-K") for additional
information regarding us and our operations throughout the world, including our
exploration programs and our ore reserves.
RISK FACTORS
Investment in the Subordinated Debentures involves certain risks.
Prospective purchasers of the Subordinated Debentures should consider carefully
the risk factors set forth below as well as the other information contained and
incorporated by reference in this prospectus before purchasing the Subordinated
Debentures, including the information contained in our 2002 10-K.
RISKS RELATING TO OUR BUSINESS
VOLATILITY OF PRICE OF NICKEL AND OTHER PRICES AND THEIR EFFECT ON OUR FINANCIAL
RESULTS
The price of nickel has represented, and is currently expected to continue
to represent, the principal determinant of our profitability. Accordingly, our
financial performance has been, and is expected to continue to be, closely
linked to the price of nickel and, to a lesser extent, the price of copper and
other primary metals produced by us. Since we sell our nickel products in all
major geographical markets, the prices for primary nickel and other primary
metals products realized by us are influenced by both global and regional supply
and demand factors and by the availability and prices of secondary or
metal-containing scrap material, including nickel-containing scrap generated by
the stainless steel industry, and other substitute or competing commodity
products for the primary nickel and other metal products produced by us. In
recent times, the world's nickel and copper markets have been adversely affected
by excess supply conditions. Based upon available data, we believe that between
mid-1999 and the second half of 2000, global nickel demand exceeded supply, but
for most, if not all, of 2001, a surplus condition existed in the global nickel
market. For 2002, we estimate that, with the improvement in global nickel
demand, the global nickel market experienced a modest surplus position. There
can be no assurance that the excess supply situations which have existed
historically in the nickel markets will not occur in the future. Any such excess
supply condition would have an adverse effect on the prices realized by us for
our nickel products. Other international economic trends, including an uncertain
global economic environment, expectations of inflation and political events in
major nickel-producing and consuming countries can also affect nickel prices and
the prices of other metals produced by us. These factors are beyond our control
and have resulted, and are expected to continue to result, in a high degree of
price volatility for nickel and other primary metals produced by us. There can
be no assurance that the price for nickel or other metals produced by us will
not decline significantly from current levels. A return to the relatively low
price of nickel reflected by the London Metal Exchange ("LME") cash nickel price
which prevailed through most of 1998 and into the first half of 1999 and during
a portion of the second half of 2001 would have a material adverse impact on our
business, results of operations, financial condition and liquidity.
The price of nickel, as the principal determinant of our profitability, has
fluctuated significantly for many years. Over the past two years, there have
been significant fluctuations in the LME cash nickel price. The LME cash nickel
price on January 2, 2001 was $6,995 per tonne ($3.17 per pound) and fell during
the course of that year through the end of October 2001, reaching a low of
$4,420 per tonne ($2.00 per pound) on October 31, 2001. The LME cash nickel
price improved during the remainder of the fourth quarter of 2001, averaging
$5,039 per tonne ($2.29 per pound) for that quarter and was $5,680 per tonne
($2.58 per pound) on December 31, 2001. The LME cash nickel price opened 2002 at
$5,680 per tonne ($2.58
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per pound) and increased during the first half of 2002 as the economies of
certain industrialized countries began to recover from their relatively low
fourth quarter 2001 levels, ending the first half of the year at $7,080 per
tonne ($3.21 per pound). Prices declined through the third quarter, reaching a
low of $6,305 per tonne ($2.86 per pound) as concern over the pace of economic
recovery and uncertainty about a potential war with Iraq adversely affected the
nickel markets. Prices increased in the fourth quarter of 2002, and the LME cash
nickel price ended 2002 at $7,100 per tonne ($3.22 per pound). As of April 28,
2003, the LME cash nickel price was $7,815 per tonne ($3.54 per pound). We
believe that the improvement in the LME cash nickel price in late 2002 and
through April 28, 2003 has been due principally to the recovery in stainless
steel production levels and demand for certain other end-use applications for
nickel in certain geographic regions. However, we have not seen any recovery in
certain other important end-use markets for nickel, in particular the high
nickel alloys industry, during 2002 and into 2003. Global nickel demand has
historically been closely correlated with global industrial production.
Copper is also an important product for us and, like nickel, copper prices
have been volatile for many years. For 2001, while the early part of the year
saw some improvement in global copper demand, copper prices declined during the
course of the year based upon the overall global economic slowdown and increased
copper inventories. The COMEX first position cash copper price, the principal
price upon which our copper sales are based, averaged $1,600 per tonne ($0.73
per pound) in 2001, down 14 per cent from its average of $1,851 per tonne ($0.84
per pound) in 2000. Copper prices for 2002 did not change significantly from the
2001 average, with the average COMEX first position cash copper price at $1,560
per tonne ($0.72 per pound) for 2002. On April 28, 2003 the COMEX first position
cash copper price was $1,575 per tonne ($0.72 per pound).
Our development projects discussed under "Risks Associated with, and
Importance of, Future Low-Cost Nickel Projects" below, in addition to the
quantities of nickel projected to be produced by them, are expected to produce
significant quantities of cobalt given the currently estimated quantities of
cobalt in the mineral deposits to be mined as part of these projects. With
significant increases in the global supply of cobalt and changes in demand, the
price of cobalt has fluctuated significantly over the past several years,
reaching a high of $70.30 per kilogram ($31.90 per pound) in January 1996 and
declining significantly from that peak to an average price, based upon the Metal
Bulletin 99.8 per cent average cobalt reference price, of $15.66 per kilogram
($7.10 per pound) for 2002 and was $20.83 per kilogram ($9.45 per pound) on
April 28, 2003. The financial analyses undertaken by us in support of the
substantial investment to be made with respect to these projects has been based
upon a long-term price of cobalt of $15.40 per kilogram ($7.00 per pound). If
realized cobalt prices, as well as realized prices for the other metals to be
produced by these projects, were to be below the long-term prices assumed by us,
the expected financial returns from, and expected cash and other unit costs of
production for, these projects would be adversely affected.
For information concerning the sensitivity of our results of operations to
certain changes in the price of nickel and other metals refer to "Risks and
Uncertainties--Sensitivities" in the Management's Discussion and Analysis
included as an exhibit to our 2002 10-K.
RISKS ASSOCIATED WITH, AND IMPORTANCE OF, FUTURE LOW-COST NICKEL PROJECTS
As part of our strategy to be the world's lowest-cost and most profitable
nickel producer, we have continued our efforts to develop new low-cost sources
of nickel. Following the completion of the PT Inco expansion project in late
1999, we have focused on potential future projects to commercialize our Goro
nickel-cobalt deposit and Voisey's Bay nickel-copper-cobalt deposit. A number of
risks and uncertainties are associated with the development of these projected
low-cost sources of nickel and other metals, including political, regulatory,
design, construction, labor, operating, technical and technological risks,
uncertainties relating to capital and other costs and financing risks and, in
the case of Goro, those risks related to the possible transition to independence
in the future of the French overseas territorial community of New Caledonia.
In addition to the risks and uncertainties referred to above, there are
certain issues that must be resolved to enable the commercial development of
each of these deposits to proceed. For the Goro deposit, we still need to
receive the necessary environmental and operating permits, complete our
comprehensive review of the schedule, capital costs, scope and other key aspects
of this project and develop an acceptable updated capital cost estimate (as
discussed under "Uncertainty of Production and Capital and Other Cost Estimates"
below) and, as discussed below, complete the required financing, including
bringing in a partner for the project, on acceptable terms. In the case of our
Voisey's Bay deposit, the principal issues that would have to be resolved before
commercial development can begin include issuance of the necessary construction
and operating permits, meeting the conditions to be met with respect to the
overall effectiveness of the definitive agreements on the development of the
Voisey's Bay deposit reached in October 2002 between the Government of
Newfoundland and Labrador and us and the availability of financing required for
development on acceptable terms.
In connection with raising the significant financing which we currently
believe will be required for the commercial development of the Goro and Voisey's
Bay deposits, we currently expect that, in order to meet such financing needs,
we will be required to borrow additional funds and/or issue additional debt
and/or equity or arrange other forms of financing and/or enter
5
into strategic or other arrangements. Our current plans for development of Goro
contemplate finalization of at least approximately $350 million in
tax-advantaged financing under an existing French legislative program. Our plans
also contemplate finalization of the terms and conditions under which a Japanese
consortium to be led by Sumitomo Metal Mining Co., Ltd. would acquire a 25 per
cent interest in Goro and assume, subject to certain limitations, the obligation
to fund 25 per cent of the capital costs of the Goro project. There can be no
assurance that these arrangements will be finalized or that we will be able to
raise additional required funds on acceptable terms when financing is needed for
either project. As discussed under "Uncertainty of Production and Capital and
Other Cost Estimates" below, while we have certain potential new mine
development projects at existing operations in Canada, as well as additional
resources that could be developed in Indonesia, in addition to the Voisey's Bay
and Goro projects, if sufficient new low-cost sources of nickel are not
developed by us on a timely basis, our overall nickel production, particularly
at our Manitoba operations, could decline by 2004, and our unit cost of
production could increase significantly with any material decline in mine
production from the Canadian operations if such operations were not
significantly restructured. These developments could materially adversely affect
our business, results of operations, financial condition and liquidity.
CONSTRUCTION RISKS AND TECHNOLOGICAL RISKS
The mine, processing plant and related infrastructure required for
development of the Goro and Voisey's Bay deposits have not yet been constructed
and no commercial mining has commenced. While certain necessary construction
permits have been obtained in respect of the Goro deposit and detailed
exploration and related studies with respect to the Goro deposit and a portion
of the Voisey's Bay deposit have been completed based on (1) significant surface
exploratory drilling, (2) extensive investigations of certain of the
mineralization delineated to date, (3) construction and mine plans, and (4)
production and cost estimates, we are not currently in a position to predict
when all of the required approvals would be in place for us to develop either
project and, in the case of the Goro project, when construction would be
restarted given the status of the comprehensive review, as discussed under
"Uncertainty of Production and Capital and Other Cost Estimates", currently
being undertaken, and, in the case of the Voisey's Bay deposit, when
construction will be able to commence. Depending on the severity of winter
conditions and other factors applicable to the Voisey's Bay deposit, a period of
approximately 36 months from site mobilization will be required to complete
construction of the initial phase, the mine, mill and related facilities
necessary for the commercial development of such deposit after all necessary
approvals and permits have been secured.
Unforeseen conditions or developments could arise during the construction
period for either project which could delay or prevent completion, and/or
substantially increase the cost of construction of the necessary facilities and
infrastructure to develop the Goro and the Voisey's Bay deposits. Such events
may include, without limitation, shortages of equipment, materials or labor,
delays in delivery of equipment or materials, labor disruptions, political
events, local or political opposition, civil disturbances, litigation, adverse
weather conditions, unanticipated increases in costs, natural or man-made
disasters, accidents and unforeseen engineering, technical and technological,
design, environmental, geological or geotechnical problems. Any delay in
construction would delay the production of nickel and other products from the
Goro and/or the Voisey's Bay deposits, and the expected significant source of
revenue for us that production from these deposits would represent. Any such
delay could also materially adversely impact our business, results of
operations, financial condition and liquidity.
Our Goro project will involve the application of new processing and other
technologies and, depending upon the results of the hydrometallurgical process
research and development program we plan to conduct for our Voisey's Bay
project, that project could also utilize new processing and other technologies
to produce one or more refined or finished nickel products. There can be no
assurance that these technologies will be successfully developed and applied on
a commercial basis or that the costs associated with and/or the timing of their
implementation will not have a material adverse effect on the timing of the
start-up of commercial production, the capital and/or operating costs for either
or both projects and on other factors impacting the profitability of these
projects. These developments could materially adversely impact our business,
results of operations, financial condition and liquidity.
UNCERTAINTY OF PRODUCTION AND CAPITAL AND OTHER COST ESTIMATES
In the case of our Goro project, in September 2002, at the time the project
was experiencing certain labor disruptions, we initiated a review of the status
of certain key aspects of the project, including the necessary permitting,
capital cost estimate, schedule and organization. Work over the September --
November 2002 period on certain critical parts of the project, including
engineering, continued during this initial review. On December 5, 2002, we
announced that we would be undertaking a comprehensive review of the Goro
project. The objective of the comprehensive review is to assess all information
on our Goro project, including the various cost estimates and trends, and
determine what changes in the capital cost estimate and the project can be made
to maintain the project's economic feasibility. The review of the capital cost
estimate will cover what downward adjustments can be made in such estimate
through scope or design changes, modifications to construction and related plans
and civil and other contractual arrangements, and alternative project execution
strategies. Since that announcement, we have been evaluating what onsite and
offsite work should be curtailed or stopped and what work should be
6
continued while this review is ongoing. The comprehensive review was commenced
in response to information we received from the principal firms providing
project engineering, procurement and construction management services that, if
confirmed, would indicate an increase in the capital cost for the project in the
range of 30 to 45 per cent above the then current capital cost estimate of
$1,450 million. As a result of the temporary suspension of certain development
activities and other actions which had been taken by year-end 2002 during this
review process, we recorded a pre-tax charge of $25 million in the fourth
quarter of 2002. This charge was comprised of pre-tax expenses of $62 million
relating to the cancellation or termination of certain outstanding contractual
obligations, to accrue for demobilization costs and to reduce the carrying value
of certain assets relating to the project, partially offset by currency gains of
$37 million from the early settlement of certain forward currency contracts that
had been entered into for hedging purposes. Based upon this ongoing evaluation,
we have also been reviewing various contractual and other arrangements covering
construction and other work relating to the Goro project and implementing
certain actions to suspend or terminate certain of those contractual
arrangements.
As of December 31, 2002, we had spent approximately $385 million on the Goro
project since July 1, 2001 when this project was formally launched. This amount
excludes a current estimate of approximately $260 million that would still have
to be spent for equipment, services and other requirements under existing
contracts and commitments, and accruals of approximately $120 million relating
to such requirements as of year-end 2002, most of which is expected to have
value for the project.
Since the Goro project review process is still in its preliminary stages
given its planned scope, we do not currently expect to be in a position to
report on the results of this review, including an updated capital cost estimate
for the project and the additional effect, if any, that this review could have
on our financial results, until at least the end of the second quarter or early
in the third quarter of 2003. We have been working with various parties to
assist us in the review process. While the key objective of this comprehensive
review is to implement such actions and steps, if required, to have a project
that will meet an acceptable rate of return on the investment to be made in this
project, if, upon completion of the review, we were to conclude that the Goro
project could not be restructured to meet our rate of return on investment
requirements, we would likely write off all or a substantial portion of the
carrying value of the Goro project and we would also lose the expected future
production from Goro. Such a result would have a material adverse effect on our
business, results of operations, financial condition and liquidity.
During 2002, as mine production at our Manitoba operations transitioned from
the Thompson mine to the lower grade Birchtree mine, we experienced lower mine
production. As this transition moves forward, we expect to see declining mine
production in Manitoba in 2003 and in future years. We have recently been
relying upon, and will continue to rely upon, on an increasing basis, the
availability of purchased intermediates to maintain Manitoba's nickel production
at around the 45,000 tonne annual level. While we have entered into agreements
and other arrangements to purchase intermediates to maintain Manitoba's
production levels at or near the 45,000 tonne annual level for the next few
years, until the Voisey's Bay project produces intermediates in the form of
concentrates for further processing at the Manitoba and Ontario operations, if
suppliers of the purchased intermediates were to experience production problems
or other disruptions, this could have a material adverse effect on our nickel
production, business, results of operations, financial condition and liquidity.
While we have certain potential new mine development projects at our existing
operations in Canada, if sufficient new low-cost sources of nickel such as our
Voisey's Bay and Goro projects are not developed on a timely basis, our overall
nickel production, particularly at our Manitoba operations, could decline by
2004, and our unit cost of production could increase significantly with any
material decline in mine production from our Canadian operations if such
operations were not significantly restructured. These developments could
materially adversely impact our business, results of operations, financial
condition and liquidity.
The level of production and capital and operating cost estimates relating to
the Goro project, the Voisey's Bay project and other projects of ours, which are
used in establishing ore reserve estimates and for determining and obtaining
financing and other purposes, are based on certain assumptions and are
inherently subject to significant uncertainties. In the case of our Goro
project, as discussed above, the review by us could result in a capital cost
estimate substantially higher than the 15 per cent increase in the estimate that
we had indicated in the third quarter of 2002 could occur given the then current
state of project procurement and engineering.
We announced on March 20, 2003 (i) the results of our bankable feasibility
study for the mine for the Ovoid and adjacent surface deposits, concentrator and
related facilities representing part of the initial phase of the Voisey's Bay
project and (ii) that we plan to proceed with this initial phase.
7
Based upon the results of the study, the estimated total capital cost for
the mine and 6,000-tonne per-day concentrator and related facilities
representing the mine, concentrator and related facilities and infrastructure in
the Voisey's Bay area (the "Mine/Concentrator Project") will be $582 million,
including $35 million spent since July 2002 on infrastructure and related work.
The $582 million amount represents an increase of $77 million or about 15 per
cent over the prefeasibility study estimates for the Mine/Concentrator Project.
This estimate includes a $54 million contingency. The initial phase of the
Voisey's Bay project will also involve a research and development program
covering hydrometallurgical processing technologies (the "Hydromet R&D Program")
for the treatment of the Voisey's Bay nickel and cobalt-containing concentrates
to be produced into finished nickel and cobalt product, including the
demonstration plant to be constructed in Argentia, Newfoundland. The Hydromet
R&D Program is expected to cost approximately $134 million or about 14 per cent
above the initial estimate for this program. In addition to the
Mine/Concentrator Project and the Hydromet R&D Program, the initial phase will
include handling facilities to be constructed at our Canadian operations for the
nickel and cobalt-containing concentrates to be processed over the 2006 - 2011
period once the Mine/Concentrator Project and the demonstration plant are in
operation, at an estimated cost of $47 million, and an exploration program at an
estimated cost of $13 million. The total capital cost estimate for all four
parts of the initial phase of the Voisey's Bay project is $776 million, or about
14 per cent above the prefeasibility study estimates of $680 million.
The engineering firm retained to complete the study has indicated that it
believes that the capital cost estimate is within a range of plus 15% and minus
5% of the $547 million figure still to be spent for the Mine/Concentrator
Project.
It is very likely that actual results for these projects will differ from
our current estimates and assumptions, and these differences may be material. In
addition, experience from actual mining or processing operations may identify
new or unexpected conditions which could reduce production below, and/or
increase capital and/or operating costs above, our current estimates. If actual
results are less favorable than we currently estimate, our business, results of
operations, financial condition and liquidity could be materially adversely
impacted.
RISKS ASSOCIATED WITH PT INCO
Our investment in PT Inco at book value as of December 31, 2002 totalled
$364 million. Approximately 30 per cent of our 2003 planned total production of
primary nickel, including intermediate product, is currently expected to come
from PT Inco.
8
In 1999, to meet PT Inco's cash shortfalls attributable principally to the
increase in the capital cost of the new hydroelectric facilities which were part
of PT Inco's expansion project, the relatively low nickel prices, and
constraints on PT Inco's production attributable to then reduced hydroelectric
power generation caused by below average rainfall, we advanced $88 million in
total to PT Inco. These advances have since been repaid. PT Inco may experience
cash shortfalls in the future, particularly if there were to be a significant
decline in primary nickel demand and nickel prices. In the event of such a cash
shortfall, we may again conclude that it would be necessary to advance cash to
PT Inco in order to meet PT Inco's cash needs.
The uncertain political situation in Indonesia, primarily as a result of the
ongoing economic and political problems facing that country, could adversely
affect PT Inco's ability to operate. While there has been no indication that the
Government of the Republic of Indonesia is considering currency controls,
nationalization of certain properties or facilities or other similar actions,
regional and local governmental authorities have sought to take greater control
of the development of their resources and these or other political developments,
including, but not limited to, the possibility of disruptions in PT Inco's
operations arising out of the actions of non-governmental organizations or
community activist groups, could have a material adverse effect on PT Inco's,
and therefore our, nickel production, business, results of operations, financial
condition and liquidity.
ENVIRONMENTAL RISKS
Environmental legislation affects nearly all aspects of our operations
worldwide. These laws apply to us along with other companies in the mining and
metals industry. This type of legislation requires us to obtain operating
licenses, permits and other approvals and imposes standards and controls on
activities relating to mining, exploration, development, production, closure and
the refining, distribution and marketing of nickel and other metals products.
Environmental assessments are required before initiating most new projects or
undertaking significant changes to existing operations. In addition to current
requirements, we expect that additional environmental regulations will likely be
implemented to protect the environment and quality of life, given issues of
sustainable development and other similar requirements which governmental and
supragovernmental organizations and other bodies have been pursuing. Some of the
issues currently under review by environmental regulatory agencies include (1)
further reducing or stabilizing various emissions, including sulphur dioxide,
metal and greenhouse gas emissions, (2) mine reclamation and restoration, and
(3) water, air and soil quality and waste treatment and disposal.
Although the ultimate amount to be incurred is uncertain, the total
liability for future removal and site restoration costs in respect of our
worldwide operations, to be incurred primarily after cessation of operations, is
estimated to be approximately $415 million at December 31, 2002, up from $315
million at December 31, 2001. The increase was primarily due to the inclusion of
new estimates for certain sites. In recognition of this future liability, we
have recorded annually commencing in 1995 an accounting provision of $10 million
for future removal and site restoration costs, which is included in cost of
sales and operating expenses. This amount is based upon the estimated remaining
lives of our applicable ore reserves and facilities and is in addition to
ongoing operating and capital expenditures. The estimate of the total liability
for future removal and site restoration costs has been developed from
independent environmental studies, which include an evaluation of, among other
factors, currently available information with respect to closure plans and
closure alternatives, the anticipated method and extent of site restoration
using current costs and existing technology, and compliance required by
presently enacted laws, regulations and existing industry standards. The total
liability for future removal and site restoration costs represents estimated
expenditures associated with closure, progressive rehabilitation and
post-closure care and maintenance. Potential recoveries of funds from the future
sale of assets upon the ultimate closure of operations have not been reflected
in the estimate of the total liability or related annual provision. Future
changes, if any, to the estimated total liability, as a result of amended
requirements, laws, regulations and operating assumptions may be significant and
would be recognized prospectively as a change in accounting estimate, when
applicable. Environmental laws and regulations are continually evolving in all
areas in which we operate.
Changes made in 2000 to mining regulations in the Province of Ontario will
require us to provide letters of credit or other forms of financial security to
fund our future reclamation and restoration costs, which are not expected to be
incurred for many years, if we were to no longer meet certain minimum investment
grade credit ratings for our outstanding publicly traded debt securities.
Although our debt securities are currently rated investment grade, they were
rated below investment grade in recent times and there can be no assurance that
this situation will not reoccur. If we are not able to maintain the minimum
investment grade credit ratings, it is currently estimated that letters of
credit or other forms of financial security associated with the currently
estimated costs of the eventual future closure of our mines and other facilities
in Ontario would have to cover approximately $310 million in such closure costs.
Due to the recent closure of three mines in Ontario in 2002, we were required
under such mining regulations to provide surety bonds in the amount of $17
million as of December 31, 2002 to secure closure costs. In addition, we are
subject to certain Indonesian regulations which require us to provide security
for the reclamation of land areas that have been mined. In the case of our
Manitoba operations we expect that, based upon recently enacted regulations in
the Province of Manitoba, we will be required to provide some form of financial
security for our future reclamation and restoration costs in that Province.
However, it is not currently expected that these costs and related security
9
with respect to our Manitoba operations (beyond what has been included in the
$415 million estimate referred to above) and for our Indonesian operations will
be of a material amount. These potential costs might not be incurred until many
years in the future. If these requirements for letters of credit or other forms
of financial security had to be satisfied, they could have an adverse effect on
the amounts available for borrowing under our bank credit facilities.
In February 2002, the Ontario government issued a control order that
requires us to reduce sulphur dioxide emissions by 34 per cent at our Ontario
smelting operations by the end of 2006. We are implementing a $76 million
investment in fluid bed roaster off-gas scrubbing technology intended to reduce
sulfur dioxide emissions to the new levels mandated by this new control order by
the end of 2006. As part of the control order, we will also be required to (1)
reduce ground level concentrations of sulfur dioxide, (2) continue research into
the technology and economics of further reductions in sulphur dioxide emissions
and (3) report annually to the Ontario Ministry of the Environment and the
public on the progress of this research program. The control order calls for a
final report on achieving the additional reductions to be submitted by December
31, 2010. We do not currently expect that compliance with the annual sulphur
dioxide emission levels from our smelter operations or ground level
concentrations levels as set forth in the control order will have any
significant effect on our costs, operating procedures or annual production of
nickel and other primary metals from our Ontario operations. The Province of
Ontario recently issued a discussion paper covering proposals for further
reductions in sulfur dioxide emissions by non-ferrous smelting operations,
including our operations, and the federal government of Canada has recently
designated for further regulation certain sulfur dioxide and particulate
emissions from copper-smelting operations such as those we have in Ontario.
While we are not able to determine the effect, if any, of these recent
developments and significant future changes in regulatory emission limits and
other environmental laws and regulations that may be enacted in the future due
to the uncertainty surrounding the timing and ultimate form that such changes
may take, any such changes could have a material adverse effect on our business,
results of operations, financial condition and liquidity.
Canada signed and ratified the Kyoto Protocol to the United Nations
Framework Convention on Climate Change ("Kyoto Protocol") in December 2002. The
Kyoto Protocol calls for significant reductions in the emissions of greenhouse
gases, such as carbon dioxide, and nationwide ceilings on such emissions. In
November 2002, the federal government of Canada released an initiative to
address certain causes of climate changes. The specific requirement of this
initiative is also to limit the discharge of carbon dioxide and other greenhouse
gases. Neither of these initiatives has as yet established what the allocation
of restrictions among various sources of greenhouse gases would be. While the
precise impact on our Canadian operations and the operations of others who
provide energy or other products or services to us is uncertain at this time, we
anticipate that compliance with these initiatives could have a significant
adverse effect on our results of operations and costs.
In 2002, the Danish Environmental Protection Agency, as part of the
authority granted to it under certain environmental regulations of the European
Union Commission, published draft risk assessment reports, including certain
conclusions concerning potential human health hazards associated with nickel
metal and certain soluble nickel compounds, including nickel sulphate, nickel
chloride and nickel nitrate. This Agency determined, based on certain animal
studies, that soluble nickel is a reproductive toxin and has proposed certain
product labelling requirements as a result of this determination. It has also
assessed certain other environmental issues. In addition, based upon these draft
reports and taking into consideration certain studies, this Agency has proposed
that soluble nickel be classified under its hazard classification system as a
known human carcinogen. Before any such proposed classification could come into
effect, a number of regulatory and administrative steps would have to be
completed. If this proposed classification were to come into effect as currently
proposed, it could result in use restrictions and other requirements which could
have a material adverse impact on certain producers and end users of the forms
of nickel covered by such classification and on our business, results of
operations, financial condition and liquidity. The European Union Commission
also in 2002 proposed a directive on air pollution which includes target limit
values for nickel since nickel is considered by this Commission to be a possible
carcinogenic pollutant. Member states of the European Union will have until 2010
to achieve the target limit values, after which more stringent binding limit
values may be considered. The technical and socio-economic feasibility of
meeting such limits are currently being considered by the European Union
Commission and those industries that would be affected, including nickel
producers.
Further changes in environmental laws, the restrictions on our discharge of
greenhouse gases as a result of Canada's program to comply with the Kyoto
Protocol and similar developments that may be imposed, new information on
existing environmental conditions and other events, including legal proceedings
brought based upon such conditions or an inability to obtain necessary permits,
could require increased financial reserves or compliance or other expenditures
or otherwise have a material adverse effect on our business, results of
operation, financial condition and liquidity.
Other changes in environmental legislation could have a material adverse
effect on product demand, product quality and methods of production and
distribution. The complexity and breadth of these issues make it extremely
difficult to predict their future impact on us. We anticipate capital
expenditures and operating expenses will increase in the future as a result of
the implementation of new and increasingly stringent environmental regulations.
Compliance with environmental legislation can require significant expenditures
and failure to comply with environmental legislation may result in the
imposition of fines and
10
penalties, liability for clean up costs, damages and the loss of important
permits.
There can be no assurance that we will at all times be in compliance with
all environmental regulations or that steps to bring us into compliance would
not materially adversely affect our business, results of operation, financial
condition or liquidity. We may also be subject to claims from persons alleging
that they have suffered significant damages as a result of the environmental
impact of our operations, including operations that have ceased to exist for
many years.
COMPETITION
The nickel industry is highly competitive in all aspects of operations,
including the exploration for, and the development of, new sources of supply,
the acquisition of deposits, and the processing, distribution and marketing of
nickel products. The level of production and export of primary nickel and
secondary or nickel-containing scrap material from the Russian Federation as
well as other sources of such scrap, together with the continuing relatively
limited level of domestic consumption of nickel in the Russian Federation since
the break-up of the former Soviet Union, has had, and is expected to continue to
have, a significant impact on the nickel industry's supply-demand balance.
During 1999, three new nickel projects in Australia began commercial
production at costs of production which the sponsors of such projects had
estimated to be very favorable relative to other industry participants,
including us. While these projects still have not operated at close to their
aggregate indicated production capacity, which had been estimated by their
sponsors to be approximately 65,000 tonnes annually in total, increases in the
supply of nickel resulting from those projects, and from other new sources of
nickel, if developed, could create downward pressure on prices realized by us
for our primary nickel products.
While we expect that the demand for nickel will continue to grow over the
longer term, increases in supply in excess of increases in demand could cause
nickel prices to remain at current levels or to decrease further. Any such
situation could materially adversely affect our business, results of operations,
financial condition and liquidity. See "--Volatility of Price of Nickel and
Other Prices and their Effect on Our Financial Results" above. As we expect to
become a significant producer of cobalt once our development projects begin
commercial production, our results will also be affected by the currently
projected highly competitive market for cobalt.
GOVERNMENTAL REGULATIONS
In addition to environmental regulations referred to above, the mining and
metals industry in Canada operates under federal, provincial and municipal
legislation, regulation and intervention by governments in such matters as land
tenure, limitations on areas in which mining can be conducted, production rates,
income and other taxes and the export of ore and other products, as well as
other matters. Our operations in Indonesia, the United Kingdom, New Caledonia
and other countries outside Canada are also subject to various environmental and
other applicable laws and regulations and governmental interventions, some of
which are similar to those in Canada and all of which are subject to change. The
mining and metals industry is also subject to regulation and intervention by
governments in such matters as control over the development and abandonment of
mine sites (including restrictions on production) and possible expropriation or
cancellation of contract and mineral rights. Before proceeding with major
projects, including significant changes to existing operations, we must obtain
regulatory approvals. The regulatory approval process can involve stakeholder
consultation, environmental impact assessments and public hearings, among other
things. In addition, regulatory approvals may be subject to conditions,
including the obligation to post security deposits and other financial
commitments. Failure to obtain regulatory approvals, or failure to obtain them
on a timely basis, could result in delays and abandonment or restructuring of
projects and increased costs, all of which could negatively affect our future
earnings and cash flow. In addition, such regulations may be changed from time
to time in response to economic or political conditions, and the implementation
of new regulations or the modification of existing regulations affecting the
mining and metals industry could increase our costs and have a material adverse
impact on business, results of operations, financial condition and liquidity.
There can be no assurance that we will be in compliance with all applicable
statutes or regulations at all times or that steps to bring us into compliance
would not materially adversely impact our business, results of operations,
liquidity or financial condition. See "--Environmental Risks" above.
CAPITAL REQUIREMENTS AND OPERATING RISKS
Each of our two current principal primary metals business units, the
Canadian and U.K. operations and our 59 per cent owned Indonesian subsidiary, PT
Inco, has required, and is expected to continue to require, certain levels of
investment to sustain its current levels of production. For 2003, we currently
forecast capital expenditures totalling approximately $680 million, covering
sustaining capital projects for these units as well as planned expenditures for
our Goro and Voisey's Bay projects and other development projects. This total
amount assumes a level of capital expenditures for our Goro project of $260
11
million, which may be higher or lower depending upon the results of the review
referred to under "--Uncertainty of Production and Capital and Other Cost
Estimates" above and other developments, and $185 million for our Voisey's Bay
project, which may be higher or lower depending upon the results of the bankable
feasibility study referred to above and other developments. We anticipate very
substantial continuing capital expenditures in 2004 and subsequent years for
sustaining capital projects and for our development projects. The expected
capital costs of each of our two major development projects are under review and
may ultimately be much higher than what we currently anticipate. To meet such
capital expenditure requirements, we must generate sufficient positive internal
cash flow and/or utilize available financing sources.
In addition, our mining operations and processing and related infrastructure
facilities are subject to risks normally encountered in the mining and metals
industry. Such risks include, without limitation, environmental hazards,
industrial accidents, labor disputes, changes in laws, technical difficulties or
failures, late delivery of supplies or equipment, unusual or unexpected
geological formations or pressures, cave-ins, pit-wall failures, rock falls,
unanticipated ground, grade or water conditions, flooding, periodic or extended
interruptions due to the unavailability of materials and force majeure events.
Such risks could result in damage to, or destruction of, mineral properties or
producing facilities, personal injury, environmental damage, delays in mining or
processing, losses and possible legal liability. Any prolonged downtime or
shutdowns at our mining or processing operations could materially adversely
affect our business, results of operations, financial condition and liquidity.
For example, we recently experienced certain seismic conditions at two of
our mines at our Ontario operations which required us to curtail mining
activities while these conditions were evaluated. These conditions did not
result in any significant production disruptions but could reoccur in the future
and could adversely affect our production. In addition, our Indonesian
subsidiary recently experienced an unexpected maintenance requirement covering
one of its two hydroelectric generating facilities which will require a limited
shutdown of the facility to repair the facility's two turbines. We do not
currently expect that this shutdown will affect PT Inco's 2003 planned
production, although there can be no assurances in this regard.
The wholesale electricity markets in Ontario were deregulated for a portion
of 2002 and as a result we experienced fluctuations in some of our electricity
costs at our Ontario operations. Depending upon future changes in the regulatory
environment for these markets, we could experience future fluctuations in such
costs. We have from time to time experienced adverse production and production
cost trends at our operations in Canada and elsewhere and could experience
similar adverse trends in the future.
LABOR RELATIONS
Collective agreements with unionized hourly production and maintenance
workers at our Ontario operations remain in effect until May 31, 2003 and a
three-year collective agreement with our unionized office, clerical and
technical employees at our Ontario operations remains in effect until March 31,
2004. On September 15, 2002, a new three-year collective agreement with our
unionized workers at our Manitoba operations was successfully negotiated. Our PT
Inco subsidiary entered into a new two-year collective labor agreement with its
union in January 2003. While there were no significant problems in reaching
agreement on this new agreement with PT Inco's labor force, with the increased
potential for actions of non-government organizations and other activist groups,
as part of the current uncertain economic and political situation in Indonesia,
and the general increase in labor activism in that country, there can be no
assurance that such activism will not adversely affect PT Inco's ability to
successfully operate. Any disruption in PT Inco's operations as a result of
labor issues or other issues may adversely affect its operations and could
materially adversely impact our business, results of operations, financial
condition and liquidity. At Goro, we currently have two unions representing some
of our employees. In early September 2002, Goro experienced labor disruptions by
personnel associated with certain project construction subcontractors. As a
result of these disruptions, the decision was made to curtail certain activities
at the project's site to enable the project company, Goro Nickel, contractors,
subcontractors and other interested parties to develop procedures to avoid
future disruptions. A number of procedures have been put in place and we and
Goro Nickel have been seeking to complete the implementation of these
procedures. Through an employer's association, of which we are the controlling
member, we negotiated a collective agreement effective September 2002 covering
the construction phase of the Voisey's Bay project.
There can be no assurance that we will continue to have a positive
relationship with our employees at our operations in Canada and elsewhere or
that new collective agreements will be entered into without work interruptions.
We could also be adversely affected by labor disruptions involving third parties
who may provide us with goods or services at our operations in Canada and
elsewhere. For example, as discussed above, our Goro project has experienced
labor disruptions by employees of our construction contractors. Any lengthy work
interruptions at our Goro or Voisey's Bay projects could materially adversely
affect the timing of completion and the cost of either project, as well as our
business, results of operations, financial condition and liquidity.
12
UNCERTAINTY OF RESERVE ESTIMATES
Our reported ore reserves are estimated quantities of proven and probable
ore that under present and anticipated conditions can be legally and
economically mined and processed by the extraction of their mineral content. We
determine the amount of our ore reserves in accordance with the requirements of
the applicable securities regulatory authorities and established industry
practices, based upon a number of assumptions, including long-term prices for
nickel, copper and cobalt. In some cases, we assume long-term prices that are
above current and recent prices. Changes in these assumptions, including any
reduction in the assumed metals prices, could materially adversely affect the
calculation of the quantities of proven and probable ore reserves and any
significant reduction in such reserves could adversely affect our production
levels and, accordingly, our financial results. The volume and grade of reserves
actually recovered and rates of production from our present ore reserves may be
less than what is indicated by geological measurements of the reserves. Further,
market price fluctuations in nickel, other metals and exchange rates, and
changes in operating and capital costs may in the future render certain ore
reserves uneconomic to mine. See also "--Volatility of Price of Nickel and Other
Prices and their Effect on Our Financial Results" and "--Uncertainty of
Production and Capital and Other Cost Estimates".
No assurance can be given that the indicated amount of ore will be recovered
or that it will be recovered at the rates anticipated by us. Our reserve
estimates are based on limited sampling and, consequently, are uncertain because
the samples may not be representative of the entire orebody. As more knowledge
and understanding of the ore body is obtained, the reserve estimates may change
significantly, either positively or negatively.
RISKS RELATING TO BANK FACILITIES
To provide liquidity for our operations, we maintain committed bank credit
facilities currently aggregating $675 million, none of which was drawn as of the
date hereof. Covenants contained in these bank credit facilities require us to
maintain a consolidated indebtedness to tangible net worth ratio, as defined in
such credit facilities ("debt:equity ratio"), of not more than 50:50 and a
minimum tangible net worth (as defined in such credit facilities) of at least
$1.5 billion. At December 31, 2002, pursuant to these covenants and taking into
account the non-cash impairment charge taken by us in the second quarter of 2002
relating to the reduction in the net carrying value of our Voisey's Bay project
and certain other assets and the charge referred to above taken in the fourth
quarter of 2002 relating to our Goro project, the debt:equity ratio was
approximately 31:69 and our tangible net worth was $3.3 billion. There can be no
assurance that future material adverse developments would not result in a breach
of these covenants. If we are unable to maintain a debt:equity ratio of not more
than 50:50 and tangible net worth of at least $1.5 billion, our bank lenders
generally would have the right to declare a default and require all then
outstanding loans to be repaid and pursue the various remedies available to them
under the bank credit facilities, including declining to make any new loans
under such facilities. Any such action by the lenders could materially adversely
affect our ability to finance our operating and development projects, and our
results of operations, financial condition and liquidity.
EXCHANGE RATE FLUCTUATIONS
Our results of operations are affected by various exchange rates, in
particular between the Canadian dollar and the U.S. dollar and, to a lesser
extent, other exchange rates. These exchange rates have varied substantially
over time, including over the last five years. For example, the Canadian dollar
has strengthened significantly compared to the U.S. dollar to date in 2003,
rising from $0.6350 per Cdn.$1.00 on January 2, 2003 to $0.6896 per Cdn.$1.00 on
April 28, 2003. A substantial portion of our revenue is received in U.S. dollars
since the price of nickel and other metals produced by us are generally
referenced in U.S. dollars, while a significant portion of our costs and
expenses are incurred in Canadian dollars. Our consolidated financial statements
are expressed in U.S. dollars. Fluctuations in exchange rates between the U.S.
dollar and the Canadian dollar and between the U.S. dollar and other currencies
may give rise to foreign currency exposure, either favorable or unfavorable,
which have materially impacted and may in the future materially impact our
financial results. We from time to time hedge a portion of our Canadian dollar
and other currency requirements to limit any adverse effect of exchange rate
fluctuations with respect to our Canadian dollar and other costs, but such
hedges have not eliminated the potential material adverse effect that such
fluctuations could have on our results of operations or financial condition.
INTEREST RATE AND COUNTERPARTY RISK
Our exposure to changes in interest rates results from investing and
borrowing activities undertaken to manage our liquidity and capital
requirements. We generally have used fixed-rate debt to finance long-term
investments, while variable-rate debt has been used to meet working capital
requirements and related requirements on a more near-term basis. At the end of
2002, we entered into an interest rate swap agreement to manage the interest
rate risk associated with a portion of our fixed-rate debt. The interest rate
swap changes our exposure to interest risk by effectively converting a portion
of our fixed-rate debt to a floating rate. We may elect in the future to enter
into interest rate swaps to effectively convert floating-rate debt to fixed-rate
debt and enter into additional fixed-rate to floating-rate swaps. At December
31, 2002, approximately $448 million, or 27 per
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cent, of our total debt of $1,643 million was effectively subject to variable
interest rates. Based upon our level of debt that is effectively floating rate,
as of December 31, 2002 the impact of a 10 per cent change in interest rates, or
14 basis points (based on certain benchmark interest rates as at December 31,
2002), over the course of a full year would change our interest expense by less
than $1 million over a full year. As noted above, we may be required to raise
additional debt in the future and, accordingly, we could be materially adversely
affected by changes in interest rates in the future despite any interest rate
swaps we then might have in effect. Since year-end 2002, we have entered into an
interest rate swap covering 100 per cent of our $400 million aggregate principal
amount of 7 3/4% Notes due 2012 that effectively converts all of those
securities to floating rate debt and increases the sensitivity of our interest
expense to changes in interest rates proportionately. There can be no assurance
that we will not be materially adversely affected by interest rate changes in
the future, notwithstanding our use of interest rate swaps.
In addition, our interest rate swaps, metals hedging and foreign currency
risk management activities expose us to the risk of default by the
counterparties to such arrangements. Any such default could have a material
adverse effect on our business and financial condition.
RISKS RELATING TO THE SUBORDINATED DEBENTURES
POSSIBLE VOLATILITY OF OUR COMMON SHARES
The Subordinated Debentures are convertible into common shares; accordingly,
fluctuations in the market price of our common share may affect the market price
of the Subordinated Debentures. We cannot predict whether the market price of
our common shares will rise or fall. Factors that will affect the trading price
of our common shares include the following: our operating results and future
prospects; nickel prices and expectations concerning future nickel prices;
material public announcements by us or our competitors; the extent to which we
pay dividends or make other distributions to holders of our common shares;
whether we or another person issues securities like the Subordinated Debentures
or issues or sells a large number of our common shares; trading on the New York
Stock Exchange and the Toronto Stock Exchange where our common shares are
traded; conditions in the capital markets generally; and political, financial
and economic conditions. In addition, the common shares have from time to time
in recent years experienced significant price and volume fluctuations that often
have been unrelated and disproportionate to our operating performance. See
"Price Range of Common Shares" and "Dividend Policy".
TERMS OF THE SUBORDINATED DEBENTURES
The Subordinated Debentures are subordinated in right of payment to all of
our existing and future senior indebtedness. The Subordinated Debentures are
unsecured obligations and are subordinated in right of payment to all of our
existing and future senior indebtedness. This means that we cannot make any
payments on the Subordinated Debentures if we default on a payment of any of our
senior indebtedness or if any of our senior indebtedness becomes immediately due
because of a default and has not yet been paid in full. In the event of our
bankruptcy, liquidation or reorganization or upon acceleration of the
Subordinated Debentures due to an event of default, our assets will be available
to pay obligations on the Subordinated Debentures only after all of our senior
indebtedness has been paid, and there may not be sufficient assets remaining to
pay amounts due on any or all of the Subordinated Debentures then outstanding.
If we incur additional indebtedness it could adversely affect our ability to
pay our obligations on the Subordinated Debentures. The indenture does not limit
our ability to incur additional indebtedness, including indebtedness that ranks
senior in priority of payment to, or pari passu with, the Subordinated
Debentures.
We have the right to defer interest payments. We have the right to defer
interest payments on the Subordinated Debentures for up to 10 consecutive
interest periods, but not beyond March 14, 2052. If we defer our payment of
interest on the Subordinated Debentures, you will be required to recognize
interest income for United States federal income tax purposes in respect of
interest payments on the Subordinated Debentures held by you before you receive
any cash distributions relating to this interest.
In addition, you will not receive this cash if you sell the Subordinated
Debentures before the end of any deferral period or before the record date
relating to interest payments which are to be paid. As a result, the
Subordinated Debentures may trade at a price that does not fully reflect the
value of accrued but unpaid interest on the Subordinated Debentures. The
existence of our right to defer payments of interest on the Subordinated
Debentures may mean that the market price for the Subordinated Debentures may be
more volatile than other securities that do not have these rights.
Your conversion right is conditional. The Subordinated Debentures have
several features, including conditions to conversion, which, if not satisfied,
could prevent you from converting your Subordinated Debentures and result in you
14
receiving less than the value of our common shares into which the Subordinated
Debentures are otherwise convertible. These features could adversely affect the
value and the trading prices of the Subordinated Debentures. See "Description of
Subordinated Debentures--Conversion Rights".
The Subordinated Debentures are subject to early redemption. If the trading
price of our common shares exceeds certain thresholds, the Subordinated
Debentures may be redeemed at our option at any time on or after March 19, 2008,
in cash or common shares, or a combination of cash and common shares, at the
redemption price set forth in this prospectus. You should assume that this
redemption option will be exercised if the trading price of our common shares
exceeds such thresholds and (1) we are able to refinance at a lower interest
rate or (2) it is otherwise in our interest to redeem the Subordinated
Debentures.
A change in control may not result upon the occurrence of certain important
corporate events. Certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would not
constitute a "change in control" under the indenture and therefore do not
require us to purchase the Subordinated Debentures. See "Description of
Subordinated Debentures--Change in Control Requires Offer to Purchase the
Subordinated Debentures".
TRADING MARKET FOR THE SUBORDINATED DEBENTURES
The Subordinated Debentures comprise a new issue of securities for which
there may be no trading market. The Subordinated Debentures are not listed on
any securities exchange or included in any automated quotation system. The
Subordinated Debentures may trade at a discount from their initial offering
price, depending on prevailing interest rates, the market for similar
securities, the price of our common shares, our performance and other factors.
We do not know whether an active trading market will develop for the
Subordinated Debentures. To the extent that an active trading market does not
develop, the price at which you may be able to sell the Subordinated Debentures,
if at all, may be less than the price you pay for them in this offering.
INABILITY TO FUND PURCHASE OF SUBORDINATED DEBENTURES
Upon the occurrence of specified change in control events, we will be
required to offer to purchase all outstanding Subordinated Debentures for cash,
common shares, or a combination of cash and common shares. However, it is
possible that if we elect to pay the purchase price in cash upon such a change
in control, we may not have sufficient funds at that time to make the required
purchase of Subordinated Debentures or that restrictions in our credit
facilities or other indebtedness may not allow those purchases of the
Subordinated Debentures for cash.
USE OF PROCEEDS
Neither the sale of any Subordinated Debentures by any holders thereof nor
the issue of any underlying common shares will result in any proceeds to Inco.
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PRICE RANGE OF COMMON SHARES
Our common shares are listed on the New York Stock Exchange ("NYSE") and the
Toronto Stock Exchange ("TSX"). The high and low closing sale prices of our
common shares on the NYSE and the TSX for the periods indicated are set forth in
the following table:
NYSE TSX
---------------------- -------------------------
HIGH LOW HIGH LOW
------------- ------- ------------- -------
YEAR ENDED DECEMBER 31, 2001
First quarter....................... $ 18.83 $ 14.60 Cdn.$29.09 Cdn.$22.10
Second quarter...................... 20.51 14.25 30.70 22.54
Third quarter....................... 17.70 11.35 27.10 17.90
Fourth quarter...................... 16.94 12.20 27.05 19.50
YEAR ENDING DECEMBER 31, 2002
First quarter....................... $ 19.82 $ 16.52 Cdn.$31.40 Cdn.$26.35
Second quarter...................... 23.66 18.98 36.25 30.16
Third quarter....................... 22.45 15.30 33.91 24.30
Fourth quarter...................... 21.99 15.51 34.25 24.80
YEAR ENDING DECEMBER 31, 2003
First quarter ...................... $ 23.12 $ 18.00 Cdn.$35.40 Cdn.$26.35
Second quarter (through April 28, 2003) 19.70 18.30 28.49 26.75
On April 28, 2003, the last reported sale price of our common shares on the
NYSE was $18.50 and on the TSX was Cdn.$26.79.
DIVIDEND POLICY
Our dividend policy, under normal circumstances and after taking into
account our short-term and long-term needs and objectives, is to declare and pay
dividends on the common shares averaging approximately one-third of reported net
earnings over a period of years. A sustainable level of regular quarterly
dividends would be paid, adjusted, when appropriate, by extra dividends. The
quarter-to-quarter decision as to the amount of the quarterly dividend per
common share is determined with reference to current business results and cash
needs. In February 1999, our board of directors eliminated the payment of
quarterly dividends on our common shares. This action was taken as part of our
other actions to maintain our financial flexibility in the commodity price
environment prevailing at that time. Our board of directors has reviewed, and
will continue to review, on a periodic basis, a possible decision to restore
and, accordingly, declare and pay dividends on our common shares in the future.
EARNINGS COVERAGE
For 2002, we recorded total non-cash charges of $1,626 million, net of
deferred income and mining taxes of $789 million, under Canadian GAAP. As a
result of these non-cash charges, we had a net loss, before deduction of
interest and income and mining taxes, of $2,070 million for the twelve months
ended December 31, 2002 and, after giving effect to our initial offering of
Subordinated Debentures and our concurrent offering of convertible debentures
due 2023 (the "Convertible Debentures"), as if made as of January 1, 2002, we
would have had a deficiency of $2,181 million in the amount required to cover
our interest requirement of $111 million. Excluding these non-cash charges,
after giving effect to our initial offering of Subordinated Debentures and our
concurrent offering of the Convertible Debentures as if made as of January 1,
2002, consolidated net earnings, before deduction of interest and income and
mining taxes of $345 million for the twelve months ended December 31, 2002,
would have been 3.1 times our interest requirement for 2002 of $111 million. If
our initial offering of Subordinated Debentures and our concurrent offering of
Convertible Debentures had been made as of April 1, 2002, excluding non-cash
charges of $1,613 million, net of deferred income and mining taxes of $785
million, consolidated net earnings, before deduction of interest and income and
mining taxes of $302 million for the twelve months ended March 31, 2003 would
have been 2.7 times our interest requirement of $112 million. As our zero coupon
convertible notes ("LYON Notes"), the Subordinated Debentures and the
Convertible Debentures are treated as equity for Canadian GAAP purposes, our
interest requirement does not include the carrying charges associated with these
securities. Had we accounted for the LYON Notes, the Subordinated Debentures and
the Convertible Debentures as debt, as is required by U.S. GAAP, the carrying
charges of the LYON Notes, the Subordinated Debentures and the Convertible
Debentures would have been reflected in interest expense and we would have had a
deficiency of $2,193 million and $2,220 million in the amount required to cover
our interest requirement for the twelve months ended December 31, 2002 and March
31, 2003, respectively.
The information included in this section is based upon our audited financial
statements prepared in accordance with
16
Canadian GAAP, which differ in certain material respects from U.S. GAAP. As a
result of the above-referenced non-cash charges, which totaled $2,247 million,
net of deferred income and mining taxes of $947 million, for U.S. GAAP purposes,
we had a net loss, before deduction of the cumulative effect of a change in
accounting principles of $18 million interest and income and mining tax
expenses, of $2,867 million for the twelve months ended December 31, 2002 and,
after giving effect to our initial offering of Subordinated Debentures and our
concurrent offering of Convertible Debentures, as if made as of January 1, 2002,
we would have had a deficiency of $2,990 million in the amount required to cover
our interest requirement of $123 million for the twelve months ended December
31, 2002. Excluding these non-cash charges, after giving effect to our initial
offering of Subordinated Debentures and our concurrent offering of Convertible
Debentures as if made as of January 1, 2002, consolidated net earnings, before
deduction of interest and income and mining taxes of $327 million for the twelve
months ended December 31, 2002, would have been 2.7 times our interest
requirement of $123 million. If our offering of Subordinated Debentures and our
concurrent offering of Convertible Debentures had been made as of April 1, 2002,
excluding the cumulative effect of a change in accounting principles of $18
million, non-cash charges of $2,234 million, net of deferred income and mining
taxes of $943 million, consolidated net earnings, before deduction of interest
and income and mining taxes of $287 million for the twelve months ended March
31, 2003, would have been 2.3 times our interest requirement of $124 million.
For further information regarding the differences between Canadian GAAP and U.S.
GAAP, see Note 22 to our consolidated financial statements included as an
Exhibit to our 2002 10-K.
RATINGS
On February 26, 2003, Standard & Poor's Corporation ("S&P") assigned a "BB+"
rating to the Subordinated Debentures and on March 6, 2003, Moody's Investors
Service, Inc. ("Moody's") assigned a "Ba1" rating to the Subordinated
Debentures.
Credit ratings are intended to provide investors with an independent measure
of credit quality of any issue of securities. The credit ratings accorded to the
Subordinated Debentures by the rating agencies are not recommendations to
purchase, hold or sell the Subordinated Debentures inasmuch as such ratings do
not comment as to market price or suitability for a particular investor. Each
rating should be evaluated independently of any other rating. These is no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be revised or withdrawn entirely by a rating agency in
the future if in its judgment circumstances so warrant.
S&P's credit ratings are on a long-term debt rating scale that ranges from
AAA to D, which represents the range from highest to lowest quality of such
securities rated. According to the S&P rating system, debt securities rated BB
exhibit adequate protection parameters. However, insofar as a BB rating is
concerned, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitments
on the securities. The ratings from AA to CCC may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within the major
categories.
Moody's credit ratings are on a long-term debt rating scale that ranges from
Aaa for C, which represents the range from highest to lowest quality for such
securities rated. According to the Moody's rating system, debt securities rated
Ba are considered as medium grade obligations, that is, they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such securities
lack outstanding investment characteristics and in fact have speculative
investment characteristics as well. Moody's applies numerical modifiers 1, 2 and
3 in each generic rating classification from Aa through Caa in its corporate
bond rating system. The modifier 1 indicates that the issue ranks in the higher
end of its generic rating category, the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF SUBORDINATED DEBENTURES
The Subordinated Debentures were issued under a subordinated indenture dated
as of March 7, 2003, as supplemented by a first supplemental indenture dated as
of March 7, 2003, between us and The Bank of New York, as trustee. References in
this description to the indenture are to the indenture as so supplemented. The
following description summarizes the material provisions of the Subordinated
Debentures and the indenture. The following summary does not purport to be
complete and is subject to, and qualified by reference to, the definitions and
other provisions of the indenture. As used in this description, the words "we",
"us", "our" and "Inco" do not include any of our current or future subsidiaries.
GENERAL
The Subordinated Debentures are unsecured obligations and are subordinated
in right of payment to all of our existing and future senior indebtedness. The
indenture does not limit our ability to incur additional indebtedness, including
indebtedness that ranks senior to or pari passu with the Subordinated
Debentures. As of December 31, 2002, after giving effect to our initial offering
of the Subordinated Debentures, our concurrent offering of the Convertible
Debentures and the use of proceeds
17
therefrom, we would have had approximately $2 billion of senior indebtedness
outstanding to which the Subordinated Debentures would be subordinated.
The Subordinated Debentures are limited to $227,100,000 aggregate principal
amount. The Subordinated Debentures mature on March 14, 2052. We may, at our
option, elect to pay the principal amount of the Subordinated Debentures in cash
or our common shares or any combination of cash and common shares. If we elect
to pay all or any part of this amount in common shares, the number of common
shares we will deliver will be equal to the portion of the amount to be paid in
common shares divided by the average market price of one common share, which we
define under "--Delivery of Shares; Fractional Shares". The Subordinated
Debentures are payable at the office of the paying agent (currently, the
trustee), or an office or agency we maintain for this purpose, in the Borough of
Manhattan, The City of New York. We discuss the tax treatment of payments to
holders in respect of the Subordinated Debentures under "Certain Income Tax
Considerations".
The Subordinated Debentures bear interest at the rate of 3 1/2% per year on
the principal amount from the issue date, or from the most recent date to which
interest has been paid or duly provided, until the Subordinated Debentures are
converted in accordance with the indenture or paid in full, or until funds or
common shares, or any combination of funds and common shares are made available
for their payment in full in accordance with the indenture. Interest is computed
on the basis of a 360-day year comprised of twelve 30-day months. Interest is
payable at the stated maturity (or earlier date of redemption, purchase or, in
certain circumstances, conversion) and semi-annually in arrears on March 14 and
September 14 of each year, beginning on September 14, 2003 to holders of record
at the close of business on the March 1 or September 1 (whether or not a
business day) immediately preceding such interest payment date, subject to our
right to defer interest payments discussed below under "--Deferral of Interest
Payments". Each payment of interest on the Subordinated Debentures includes
interest accrued through the day before the applicable interest payment date or
the stated maturity (or earlier purchase, redemption or, in certain
circumstances, conversion), as the case may be. Any payment required to be made
on any date that is not a business day will be made on the next succeeding
business day as if made on the date that payment was due and no interest will
accrue on that payment for the period from and after the date that payment was
due to the date of payment on the next succeeding business day. In the event of
the maturity, conversion, purchase or redemption of a Subordinated Debenture as
described below, interest will cease to accrue on such Subordinated Debenture
under the terms of and subject to the conditions in the indenture. We may not
reissue a Subordinated Debenture that has matured or been converted, purchased,
redeemed or otherwise cancelled, except for registration of transfer, exchange
or replacement of such Subordinated Debenture.
Subordinated Debentures may be presented for conversion at the office of the
conversion agent, and for exchange or registration of transfer at the office of
the registrar. The trustee is currently the conversion agent and the registrar.
The indenture does not limit our right to incur additional indebtedness or
pay dividends, except during an interest deferral period, or contain any other
financial covenants. These provisions of the indenture would not necessarily
afford holders of the Subordinated Debentures protection from a decline in the
value of their investment in the event of a highly leveraged or other
transaction involving us that may adversely affect such holders.
DEFERRALS OF INTEREST PAYMENTS
We have the right under the indenture to defer interest payments on the
Subordinated Debentures for an extension period not exceeding 10 consecutive
interest periods. A deferral of interest payments cannot extend, however, beyond
the stated maturity of the Subordinated Debentures. During an extension period,
the amount of interest payments due on the Subordinated Debentures would
continue to accumulate and such deferred interest payments will themselves
accrue interest (additional interest). In the event that we exercise our right
to extend an interest payment period, then:
(1) we will not declare or pay any dividend on, make any distributions
relating to, or redeem, purchase, acquire or make a liquidation payment
relating to, any of our capital stock or make any guarantee payment relating
thereto other than:
o purchases, redemptions or other acquisitions of shares of our
capital stock in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of
employees, officers, directors or consultants;
o as a result of an exchange or conversion of any class or series of
our capital stock for any other class or series of our capital
stock; or
o the purchase of fractional interests in shares of our capital stock
pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged; and
18
(2) we may not make any payment of interest on or principal of, or
premium, if any, on, or repay, purchase or redeem, any debt securities
issued by us which rank equally with or junior to the Subordinated
Debentures.
The foregoing, however, will not apply to any stock dividends paid by us
where the stock dividend is the same stock as that on which the dividend is
being paid. Prior to the termination of any extension period, we may further
extend the extension period, so long as that extension period, together with all
such previous and further extensions of the period, does not exceed 10
consecutive interest periods. An extension period cannot extend beyond the
stated maturity of the Subordinated Debentures.
Upon the termination of any extension period and the payment of all amounts
then due, we may commence a new extension period which must comply with the
above requirements. We will give holders and the trustee notice of our intention
to defer interest at least five business days prior to the record date for the
next succeeding interest payment date. The trustee will give the holders of the
Subordinated Debentures notice of any extension period upon its receipt of
notice from us. If payments of interest are deferred, the deferred interest
payments and accrued interest on such deferred interest payments will be paid to
holders of record of the Subordinated Debentures as they appear on our books and
records on the record date next following the termination of such extension
period.
BOOK-ENTRY SYSTEM
The Subordinated Debentures were issued in the form of two global securities
held in book-entry form. The Depository Trust Company ("DTC") or its nominee is
the sole registered holder of the Subordinated Debentures for all purposes under
the indenture. Owners of beneficial interests in the Subordinated Debentures
represented by the global securities hold such interests pursuant to DTC's
procedures and practices. As a result, beneficial interests in any such
securities are shown on, and transfers thereof may only be effected through,
records maintained by DTC and its direct and indirect participants and any such
interests may not be exchanged for certificated securities, except in limited
circumstances. Owners of beneficial interests must exercise any rights in
respect of their interests in accordance with DTC's procedures and practices.
Beneficial owners are not holders and are not entitled to any rights under the
global securities or the indenture provided to the holders of the Subordinated
Debentures. Inco and the trustee, and any of their respective agents, may treat
DTC as the sole holder and registered owner of the global securities. See "Legal
Ownership" below.
DTC has advised us that it is a limited-purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"). DTC holds
securities that its participants deposit with it and facilitates the settlement
among participants of securities transactions in deposited securities through
electronic computerized book-entry changes in participants' accounts, thereby
eliminating the need for physical movement of securities certificates.
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its participants and by the New York Stock Exchange, Inc., The American Stock
Exchange LLC and the National Association of Securities Dealers, Inc. Access to
DTC's book-entry system is also available to securities brokers and dealers,
banks and trust companies, and others that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. The rules
applicable to DTC and its participants are on file with the Securities and
Exchange Commission (the "SEC").
RANKING OF SUBORDINATED DEBENTURES
The indenture provides that the Subordinated Debentures are unsecured
obligations and are subordinated in right of payment to all of our existing and
future senior indebtedness. As of December 31, 2002, after giving effect to our
initial offering of the Subordinated Debentures, our concurrent offering of the
Convertible Debentures and the use of proceeds therefrom, we would have had
approximately $2 billion of senior indebtedness outstanding to which the
Subordinated Debentures would be subordinated.
If we default in the payment of any principal or interest on, or any other
amount payable in respect of, any Senior Indebtedness, as defined below, when it
becomes due and payable, whether at stated maturity or at a date fixed for
redemption or by declaration of acceleration or otherwise, then, unless and
until:
o the default has been cured or waived or has ceased to exist; or
o all amounts due and payable in respect of such Senior Indebtedness, as
defined below, has been paid;
no direct or indirect payment, whether in cash, property, securities, by set-off
or otherwise, may be made
19
or agreed to be made on the Subordinated Debentures, or in respect of any
redemption, purchase or other acquisition of any of the Subordinated Debentures.
If we file for bankruptcy in Canada or certain other events of bankruptcy,
insolvency or reorganization occur, then all Senior Indebtedness, including any
interest on that Senior Indebtedness accruing after the commencement of any
proceedings, will first be paid in full before any payment or distribution,
whether in cash, securities or other property, will be made on account of the
Subordinated Debentures. If that occurs, any payment or distribution on account
of the Subordinated Debentures that would be payable or deliverable but for the
subordination provisions will be paid or delivered directly to the holders of
Senior Indebtedness. It will be paid or delivered in accordance with the
priorities then existing among these holders until all Senior Indebtedness and
any interest on that debt accruing after the commencement of any proceedings has
been paid in full.
The term "Senior Indebtedness" means, with respect to us:
(1) the principal, premium, if any, interest, fees, expenses, indemnity
payments or other obligation in respect of (a) indebtedness for money
borrowed and (b) indebtedness evidenced by securities, notes, debentures,
bonds or other similar instruments issued by us;
(2) all of our capital lease obligations;
(3) all obligations issued or assumed by us as the deferred purchase
price of property, all of our conditional sale obligations and all of our
obligations under any conditional sale or title retention agreement, but
excluding trade accounts payable arising in the ordinary course of
business;
(4) all of our obligations, contingent or otherwise, in respect of any
letters of credit, banker's acceptance, security purchase facilities or
similar credit transactions;
(5) all obligations in respect of interest rate swap, cap, forward or
other agreements, interest rate futures or option contracts, currency swap,
cap forward or other agreements, currency futures or option contracts,
commodity swap, cap, forward or other agreements in respect of any metal or
other product produced or marketed by us and any commodity used or consumed
by us and any other commodity futures or option contracts and other similar
agreements;
(6) all obligations of the type referred to in clauses (1) through (5)
above of other persons for the payment of which we are responsible or
liable as obligor, guarantor or otherwise; and
(7) all obligations of the type referred to in clauses (1) through (6)
above of other persons secured by any lien on any property or asset of
ours, whether or not such obligation is assumed by such obligor.
Notwithstanding the foregoing, Senior Indebtedness does not include:
(a) any indebtedness that is by its terms subordinated to or ranked
equally with the Subordinated Debentures; and
(b)any indebtedness between or among us or our affiliates.
Senior Indebtedness shall continue to be Senior Indebtedness and be entitled
to the benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
There are no terms in the Subordinated Debentures that limit our ability to
incur additional indebtedness, including indebtedness that ranks senior or pari
passu to the Subordinated Debentures.
CONVERSION RIGHTS
A holder may convert its outstanding Subordinated Debentures, in multiples
of $1,000 principal amount, into our common shares prior to 5:00 p.m. New York
City time at stated maturity only under the circumstances described below. If a
holder has submitted a change in control purchase notice requiring us to
purchase any Subordinated Debentures, the holder may convert these Subordinated
Debentures as described in this section only if the holder has withdrawn its
change in control purchase notice in accordance with the requirements of the
indenture.
A holder may convert a Subordinated Debenture into common shares only under
the following circumstances:
o in a calendar quarter (and only during such calendar quarter) beginning
with the quarter ending September 30, 2003, if,
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as of the last day of the immediately preceding calendar quarter, the
closing sale price of our common shares for at least 20 trading days in
the period of 30 consecutive trading days ending on the last trading day
of such preceding quarter is more than 120% of the conversion price per
common share on the last trading day of such preceding quarter; or
o during the five business-day period following any ten consecutive
trading-day period in which the trading price of the Subordinated
Debentures for each day of such period was less than 95% of the product
of the closing sale price of our common shares multiplied by the
conversion rate in effect for that period; or
o if the Subordinated Debentures have been called for redemption; or
o upon the occurrence of the corporate events described below under
"--Conversion upon Specified Corporate Events".
CONVERSION UPON SATISFACTION OF MARKET PRICE CONDITION
A holder may surrender any of its Subordinated Debentures for conversion
into our common shares in a calendar quarter (and only during such calendar
quarter) beginning with the quarter ending September 30, 2003, if, as of the
last day of the immediately preceding calendar quarter, the closing sale price
of our common shares for at least 20 trading days in the period of 30
consecutive trading days ending on the last trading day of such preceding
quarter is more than 120% of the conversion price per common share on the last
trading day of such preceding quarter.
The "closing sale price" of the common shares on any date means the closing
sale price per common share (or if no closing sale price is reported, the
average of the bid and ask prices or, if more than one in either case, the
average of the average bid and the average ask prices) on such date as reported
in composite transactions for the principal U.S. securities exchange on which
the common shares are traded (currently being the New York Stock Exchange) or,
if the common shares are not listed on a U.S. national or regional securities
exchange, as reported by the Nasdaq System or, if no such price is reported, as
reported by the principal non-United States market on which the common shares
are traded (currently being the Toronto Stock Exchange), such price to be
converted into U.S. dollars based on the Bank of Canada noon exchange rate as
reported for conversion into U.S. dollars on such date. In the absence of such
quotation, we will determine the closing sale price on the basis of such
quotations as we consider appropriate.
CONVERSION UPON SATISFACTION OF TRADING PRICE CONDITION
A holder may surrender any of its Subordinated Debentures for conversion
into our common shares prior to stated maturity during the five business-day
period following any ten consecutive trading-day period in which the trading
price of the Subordinated Debentures for each day of that period was less or was
deemed to be less than 95% of the product of the closing sale price of our
common shares multiplied by the applicable conversion rate.
The "trading price" of the Subordinated Debentures on any date of
determination means the average of the secondary market bid quotations per
Subordinated Debenture obtained by the conversion agent for $5,000,000 principal
amount of the Subordinated Debentures at approximately 3:30 p.m., New York City
time, on such determination date from two independent nationally recognized
securities dealers we select; provided that if the conversion agent cannot
reasonably obtain at least two such bids, but can reasonably obtain one such
bid, this one bid shall be used. If for any date the conversion agent cannot
reasonably obtain at least one bid for $5,000,000 principal amount of the
Subordinated Debentures from a nationally recognized securities dealer or in our
reasonable judgment, the bid quotations are not indicative of the secondary
market value of the Subordinated Debentures, then the trading price of the
Subordinated Debentures for that date will be deemed to be less than 95% of the
product of the closing sale price of our common shares multiplied by the
applicable conversion rate.
The conversion agent shall be obligated to determine the trading price of
the Subordinated Debentures only upon our request. We must make such a request
only if a holder provides us with reasonable evidence that the trading price of
the Subordinated Debentures would be less than 95% of the product of the closing
sale price of our common shares and the applicable conversion rate for the
applicable period. If a holder provides such evidence, we will instruct the
conversion agent to determine the trading price of the Subordinated Debentures
for the applicable period.
CONVERSION UPON NOTICE OF REDEMPTION
If we call the Subordinated Debentures for redemption, a holder may convert
the Subordinated Debentures from the date of the notice of redemption until the
close of business on the business day immediately preceding the redemption date,
after which time the right to convert will expire unless we fail to pay the
redemption price.
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CONVERSION UPON SPECIFIED CORPORATE EVENTS
If we elect to:
o distribute to all holders of our common shares certain rights entitling
them to purchase, for a period expiring within 45 days, our common
shares at less than the then current market price (measured by averaging
the closing sale prices of our common shares for the 10 trading days
preceding the date of the first public announcement of such
distribution); or
o distribute to all holders of our common shares, assets, debt securities
or certain rights to purchase our securities, which distribution has a
per share value exceeding 15% of the closing sale price of our common
shares on the day preceding the date of the first public announcement of
such distribution;
we must notify the holders at least 10 days prior to the ex-dividend date for
the distribution. Once we have given this notice, the holders may surrender
Subordinated Debentures for conversion at any time until the earlier of the
close of business on the business day prior to the ex-dividend date or any
announcement by us that the distribution will not take place. No distribution
will entitle the holder of a Subordinated Debenture to convert if the holder
would otherwise participate in the distribution without conversion.
In addition, if
o we are a party to a consolidation, amalgamation, merger, statutory
arrangement (involving a business combination) or sale of all or
substantially all of our consolidated assets;
o we are not the resulting or surviving entity;
o the transaction is not with one of our affiliates; and
o after the transaction, either
o more than 50% of the surviving or resulting entity's total voting power
is not held by our pre-transaction shareholders, or
o more than 50% of the surviving or resulting entity's directors were not
directors of ours or approved by our pre-transaction board of directors,
then holders may surrender Subordinated Debentures for conversion at any time
from and after the date that is 15 days prior to the anticipated effective date
of the transaction until and including the date that is 15 days after the actual
date of such transaction. If the transaction also constitutes a "change in
control," as defined below, the holder instead can require us to purchase all or
a portion of its Subordinated Debentures as described under "--Change in Control
Requires Offer to Purchase Subordinated Debentures".
CONVERSION RATE AND CONVERSION PROCEDURES
The conversion rate is 38.4423 common shares per $1,000 principal amount of
Subordinated Debentures, subject to adjustment upon the occurrence of the events
described below. This is equivalent to a conversion price of approximately
$26.01 per common share. On conversion, we will pay cash for any fractional
shares in an amount equal to their average market price, determined as described
under "--Delivery of Shares; Fractional Shares". We will have the option to
deliver cash in lieu of some or all of the common shares to be delivered upon
conversion of the Subordinated Debentures. We will give notice of our election
to deliver part or all of the conversion consideration in cash to the holder
converting the Subordinated Debentures within two business days of our receipt
of the holder's notice of conversion unless we have already informed holders of
our election in connection with our optional redemption of the Subordinated
Debentures as described under "--Redemption of Subordinated Debentures at the
Option of Inco". The amount of cash to be delivered per Subordinated Debenture
will be equal to the number of common shares in respect of which the cash
payment is being made multiplied by the average of the closing sale prices of
our common shares on the five consecutive trading days commencing one day after
(a) the date of our notice of election to deliver part or all of the conversion
consideration in cash if we have not given notice of redemption, or (b) the
conversion date, in the case of a conversion following our notice of redemption
specifying our intention to deliver cash upon conversion.
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If we elect to deliver cash in lieu of some or all of the common shares
issuable upon conversion, we will make the payment, including the delivery of
any common shares, through the conversion agent, to holders surrendering
Subordinated Debentures no later than the tenth business day following the
conversion date. Otherwise, we will deliver the shares, together with any cash
payment for fractional shares, through the conversion agent no later than the
fifth business day following the conversion date. We may not deliver cash in
lieu of any common shares issuable upon a conversion (other than cash in lieu of
fractional shares) if an Event of Default with respect to the Subordinated
Debentures has occurred and is continuing, other than a default in payment of
the conversion consideration. We discuss the tax treatment upon conversion under
"Certain Income Tax Considerations--Certain United States Federal Income Tax
Considerations--Disposition or Conversion of the Subordinated Debentures" and
"Certain Income Tax Considerations--Certain Canadian Federal Income Tax
Considerations--Ownership of Subordinated Debentures".
Except as noted below, on conversion of a Subordinated Debenture the holder
will not receive any cash payment representing accrued and unpaid interest.
Accordingly, Subordinated Debentures surrendered for conversion by a holder
during the period from the close of business on any regular record date to the
opening of business of the next interest payment date, except for Subordinated
Debentures to be redeemed on a date within this period or on the next interest
payment date, must be accompanied by payment of an amount equal to the interest
that the registered holder is to receive on the Subordinated Debenture. Our
delivery to the holder of the fixed number of common shares into which the
Subordinated Debenture is convertible together with any cash payment for
fractional shares, or cash in lieu of such common shares, will fully satisfy our
obligation to pay the principal amount of the Subordinated Debenture plus any
accrued and unpaid interest attributable to the period from the issue date
through the conversion date. As a result, accrued and unpaid interest is deemed
paid in full rather than cancelled, extinguished or forfeited.
To exercise its conversion right, a holder must:
o complete and manually sign an original or facsimile copy of a conversion
notice and deliver such conversion notice to the conversion agent;
o surrender the Subordinated Debenture to the conversion agent;
o if required by the conversion agent, furnish appropriate endorsements
and transfer documents; and
o if required, pay all transfer or similar taxes.
Pursuant to the indenture, the date on which all of the foregoing
requirements have been satisfied is the conversion date.
Beneficial holders of Subordinated Debentures who wish to convert a
Subordinated Debenture into common shares must do so in accordance with the
procedures established by DTC.
The conversion rate will be adjusted for:
o dividends or distributions on common shares payable in common shares or
other shares;
o subdivisions or combinations of common shares;
o distributions to all holders of common shares of certain rights to
purchase common shares for a period expiring within 45 days at less than
the current market price per common share, as defined below, subject to
certain conditions;
o distributions to all holders of common shares of evidences of
indebtedness, equity securities (other than common shares) or other
assets (other than cash dividends or cash distributions described
below);
o distributions consisting of cash to all holders of our common shares in
an aggregate amount that, when combined with (a) other all cash
distributions made within the preceding 12 months and (b) the cash and
the fair market value, as of the date of expiration of the tender or
exchange offer referred to below, of the consideration paid in respect
of any tender or exchange offer by us or a subsidiary of ours for our
common shares concluded within the preceding 12 months, exceeds 5% of
the product of the current market price of our common shares multiplied
by the number of common shares then outstanding on the date fixed for
the determination of shareholders entitled to receive the distribution;
o the successful completion of a tender or exchange offer made by us or
any subsidiary of ours for our common shares
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that involves an aggregate consideration that, when combined with any
cash and the fair market value of other consideration payable in respect
of any other tender or exchange offer by us or a subsidiary of ours for
our common shares concluded within the preceding 12 months, exceeds 5%
of the product of the current market price of our common shares
multiplied by the number of common shares then outstanding on the date
of expiration of the tender or exchange offer; and
o any reclassification of our common shares or any reorganization or sale
of Inco in which holders of our common shares are entitled to receive
common equity, other securities or other property or assets in exchange
for such common shares.
For the purpose of (1) cash distributions and (2) distributions in
connection with a tender or exchange offer as described above, any adjustment
required for a cash distribution or distribution in connection with a tender or
exchange offer would be based upon the amount by which such distribution exceeds
the amount permitted to be excluded. Any adjustment based on any other
distribution would be based upon the full amount of the distribution.
The "current market price" per common share on any date shall be deemed to
be the average of the daily closing sale price for the five consecutive trading
days ending on the earlier of the day in question and the day before the related
ex-date with respect to any distribution, issuance or other event requiring such
computation.
The conversion rate will not be adjusted for accrued and unpaid interest.
Furthermore, no adjustment need be made unless such adjustment would require an
increase or decrease of at least 1%. The indenture permits us to increase the
conversion rate from time to time.
Our Shareholder Rights Plan Agreement provides that each common share of
Inco, including any we issue at the stated maturity or upon conversion
redemption or purchase of the Subordinated Debentures, issued at any time prior
to the distribution of separate certificates representing our rights, will be
entitled to receive such rights. However, there shall not be any adjustment to
the conversion privilege or conversion rate as a result of:
o the issuance of the rights to purchase common shares pursuant to our
Shareholder Rights Plan Agreement or any successor agreement;
o the distribution of any entitlement to receive the common share purchase
rights;
o the exercise or redemption of such rights in accordance with our
Shareholder Rights Plan Agreement; or
o the termination or invalidation of the common share purchase rights or
similar rights.
We describe the Shareholder Rights Plan Agreement in more detail under
"Description of Share Capital-- Shareholder Rights Plan".
If we are party to a consolidation, amalgamation, merger or binding share
exchange or a transfer of all or substantially all of our assets, the right to
convert a Subordinated Debenture into our common shares may be changed into a
right to convert it into the kind and amount of securities, cash or other assets
of Inco or another person which the holder would have received if the holder had
converted its Subordinated Debentures immediately prior to such event or
transaction. However, if such event or transaction occurs before March 7, 2008
the consideration into which the Subordinated Debentures will be convertible
will be limited to Inco common shares or other prescribed securities (within the
meaning of the Income Tax Act (Canada) (the "Canadian Tax Act")), which includes
shares not redeemable by the holder within five years after their issue. As a
result, in these circumstances, the consideration issuable on exercise of the
conversion right could differ from the consideration received by the holders of
common shares pursuant to the event or transaction, but the conversion rate
would be adjusted so that the consideration into which the Subordinated
Debentures are convertible is equivalent in value at the date of the event or
transaction to the value of the consideration received by the holders of common
shares pursuant to the event or transaction.
Holders of the Subordinated Debentures may, in certain circumstances, be
deemed to have received a distribution subject to U.S. federal income tax as a
dividend in the amount of:
o a taxable distribution to holders of common shares which results in an
adjustment of the conversion rate; or
o an increase in the conversion rate at our discretion.
See "Certain Income Tax Considerations--Certain United States Federal Income Tax
Considerations--Constructive
24
Dividend".
REDEMPTION OF SUBORDINATED DEBENTURES AT THE OPTION OF INCO
No sinking fund is provided for the Subordinated Debentures. Except as
described below under "--Redemption for Tax Reasons", we may not redeem the
Subordinated Debentures prior to March 19, 2008. In addition, we may extend the
time during which we may not redeem the Subordinated Debentures upon providing
notice by mail to the holders of the Subordinated Debentures. On or after March
19, 2008, we may redeem at our option all or a portion of the Subordinated
Debentures in cash, common shares or a combination thereof, for a redemption
price equal to 100% of the principal amount of the Subordinated Debentures to be
redeemed, if the closing sale price of our common shares for at least 20 trading
days in any period of 30 consecutive trading days ending on the fifth day
preceding the date of such notice is more than 125% of the conversion price. If
redeemed, we will also pay accrued and unpaid cash interest to the date of
redemption. We will give not less than 20 business days' nor more than 60
business days' notice of redemption by mail to holders of Subordinated
Debentures. The notice of redemption will inform the holders of our election to
deliver common shares or to pay cash in lieu of delivery of common shares with
respect to any Subordinated Debentures converted after such notice and prior to
the redemption date. If we elect to pay the redemption price, in whole or in
part, in common shares, the number of common shares to be delivered by us will
be equal to the portion of the redemption price to be paid in common shares
divided by the average market price of one common share. See "--Delivery of
Shares; Fractional Shares".
If we redeem less than all of the outstanding Subordinated Debentures, the
trustee shall select the Subordinated Debentures to be redeemed in principal
amounts of $1,000 or integral multiples of $1,000. In this case, the trustee may
select the Subordinated Debentures by lot, pro rata or by any other method the
trustee considers fair and appropriate. If a portion of a holder's Subordinated
Debentures is selected for partial redemption and the holder converts a portion
of such Subordinated Debentures, the converted portion shall be deemed to be
from the portion selected for redemption.
REDEMPTION FOR TAX REASONS
We may also redeem all but not less than all of the Subordinated Debentures
for cash or common shares or a combination thereof if we have or would become
obligated (including on the future enactment of a proposed change) to pay to the
holder of any Subordinated Debenture "additional amounts" (which are more than a
de minimis amount) as a result of any change from March 4, 2003 (including any
announced prospective change) in the laws or any regulations of Canada or any
Canadian political subdivision or taxing authority, or any change from March 4,
2003 in an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency, taxing authority or regulatory
authority (including the enactment of any legislation and the publication of any
judicial decision or regulatory or administrative determination) and if we
cannot avoid these obligations by taking reasonable measures available to us. We
define the term "additional amounts" under "--Canadian Withholding Taxes". This
redemption would be at the principal amount plus accrued and unpaid interest but
without reduction for applicable Canadian withholding taxes (except in respect
of certain excluded holders). We will give holders not less than 20 business
days' nor more than 60 business days' notice of this redemption, except that (i)
we will not give notice of redemption earlier than 60 business days prior to the
earliest date on or from which we would be obligated to pay any such additional
amounts, and (ii) at the time we give the notice, the circumstances creating our
obligation to pay such additional amounts remain in effect. If we elect to pay
the redemption price, in whole or in part, in common shares, the number of
common shares we deliver will be equal to the portion of the redemption price to
be paid in common shares divided by the average market price of one common
share. See "--Delivery of Shares; Fractional Shares".
CHANGE IN CONTROL REQUIRES OFFER TO PURCHASE SUBORDINATED DEBENTURES
Upon the occurrence of a change in control (as defined below), we will be
required to offer to purchase all the Subordinated Debentures as of the date
that is 35 business days after notice of the occurrence of such change in
control (a "change in control purchase date") at a price equal to the principal
amount plus accrued and unpaid interest to the change in control purchase date.
We may, at our option, elect to pay the change in control purchase price in cash
or common shares or any combination thereof. See "--Delivery of Shares;
Fractional Shares", "Certain Income Tax Considerations--Certain United States
Federal Income Tax Considerations--Disposition or Conversion of the Subordinated
Debentures" and "Certain Income Tax Considerations-- Certain Canadian Federal
Income Tax Considerations--Ownership of Subordinated Debentures".
Within 15 business days after the occurrence of a change in control, we are
obligated to mail to the trustee and to all holders of Subordinated Debentures
at their addresses shown in the register of the registrar, and to beneficial
owners as required by applicable law, a notice regarding the change in control,
which notice shall state, among other things:
o the events causing a change in control;
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o the date of such change in control;
o the last date on which the change in control purchase notice must be
given;
o the change in control purchase price;
o the change in control purchase date;
o whether we will pay the change in control purchase price in cash or
common shares or any combination thereof, specifying the percentages of
each;
o if we elect to pay in common shares, the method of calculating the
average market price of common shares;
o the name and address of the paying agent;
o the conversion rate and any adjustments to the conversion rate;
o that Subordinated Debentures with respect to which a change in control
purchase notice is given by the holder may be converted only if the
change in control purchase notice has been withdrawn in accordance with
the terms of the indenture; and
o the procedures that holders must follow to exercise these rights.
To accept the change in control purchase offer, the holder must deliver a
written change in control purchase notice (a "change in control purchase
notice") to the paying agent prior to the close of business on the change in
control purchase date. The required change in control purchase notice shall
state:
o the certificate numbers of the Subordinated Debentures to be delivered
by the holder;
o the portion of the aggregate principal amount of the Subordinated
Debentures to be purchased, which portion must be $1,000 or an integral
multiple of $1,000;
o that we are to purchase such Subordinated Debentures pursuant to the
change in control offer; and
o in the event that we elect, pursuant to the notice that we are required
to give, to pay the change in control purchase price in common shares,
in whole or in part, but the change in control purchase price is
ultimately to be paid to the holder entirely in cash because any of the
conditions to payment of such price or portion of such price in common
shares is not satisfied prior to the close of business on the change in
control purchase date, as described below, whether the holder elects:
(1) to withdraw the change in control purchase notice as to some or
all of the Subordinated Debentures to which it relates, or
(2) to receive cash in respect of the entire change in control
purchase price for all Subordinated Debentures or portions of
Subordinated Debentures subject to such change in control purchase
notice.
If the holder fails to indicate its choice with respect to the election
described in the final bullet point above, the holder shall be deemed to have
elected to receive cash in respect of the entire purchase price for all
Subordinated Debentures subject to the change in control purchase notice in
these circumstances.
A holder may withdraw any change in control purchase notice by delivering a
written notice of withdrawal to the paying agent prior to the close of business
on the change in control purchase date. The notice of withdrawal shall state:
o the principal amount of the Subordinated Debentures being withdrawn;
o the certificate numbers of the Subordinated Debentures being withdrawn;
and
o the principal amount, if any, of the Subordinated Debentures that remain
subject to a change in control purchase notice.
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Payment of the change in control purchase price for a Subordinated Debenture
for which a change in control purchase notice has been delivered and not validly
withdrawn is conditioned upon delivery of the Subordinated Debenture, together
with necessary endorsements, to the paying agent at any time after the delivery
of such change in control purchase notice. Payment of the change in control
purchase price for such Subordinated Debenture will be made promptly following
the later of the change in control purchase date or the time of delivery of such
Subordinated Debenture.
If the paying agent holds money or securities sufficient to pay the change
in control purchase price of the Subordinated Debenture on the business day
following the change in control purchase date in accordance with the terms of
the indenture, then immediately after the change in control purchase date, such
Subordinated Debenture will cease to be outstanding and interest on such
Subordinated Debenture will cease to accrue, and be deemed to be paid, whether
or not the Subordinated Debenture is delivered to the paying agent. Thereafter,
all other rights of the holder shall terminate, other than the right to receive
the change in control purchase price upon delivery of the Subordinated
Debenture.
A "change in control" of Inco will be deemed to have occurred at such time
as:
o any person, including its affiliates and associates, other than Inco,
its subsidiaries or their employee benefit plans, files or is required
to file a Schedule 13D or Schedule TO (or any successor schedule, form
or report under the Exchange Act), or a comparable report with any
securities commission or securities regulatory authority in Canada,
disclosing that such person has become the beneficial owner of 50% or
more of the total number of votes attached to our share capital entitled
to general voting rights (currently our common shares and our Series E
Preferred Shares) (collectively, "Voting Securities") or other
securities into which the Voting Securities are reclassified or changed,
with certain exceptions; or
o there shall be consummated any consolidation, merger, amalgamation,
statutory arrangement (involving a business combination) or similar
transaction of Inco in which Inco is not the continuing or surviving
corporation or pursuant to which the common shares would be converted
into cash, securities or other property, in each case, other than a
consolidation, merger, statutory arrangement (involving a business
combination) or similar transaction of Inco in which the holders of the
Voting Securities immediately prior to such transaction have, directly
or indirectly, at least a majority of the voting shares of the
continuing or surviving corporation immediately after such transaction.
The indenture does not permit our board of directors to waive our obligation
to offer to purchase all of the Subordinated Debentures upon a change in
control.
In connection with any purchase offer in the event of a change in control,
we will:
o comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act and any Canadian laws which
may then be applicable; and
o file a Schedule TO or any other schedule under the Exchange Act rules
which may then be applicable.
To the extent any time period set forth in the indenture is inconsistent
with the requirements of the Exchange Act or Canadian law or any rules
thereunder, we will comply with the provisions of such laws or rules.
The change in control purchase feature of the Subordinated Debentures may in
certain circumstances make more difficult or discourage a takeover of Inco. The
change in control purchase feature, however, is not the result of our knowledge
of any specific effort:
o to accumulate Voting Securities;
o to obtain control of Inco by means of a merger, amalgamation, tender
offer, solicitation or otherwise; or
o part of a plan by management to adopt a series of anti-takeover
provisions.
Instead, the change in control purchase feature is a standard term contained
in other offerings that have been marketed by the initial purchasers of the
Subordinated Debentures. The terms of the change in control purchase feature
resulted from negotiations between the initial purchasers and us.
We could, in the future, enter into certain transactions, including certain
recapitalizations, that would not constitute a change in control with respect to
the purchase feature of the Subordinated Debentures but that would increase the
amount of
27
our outstanding indebtedness.
Our ability to purchase Subordinated Debentures upon the occurrence of a
change in control may be limited by the terms of our then existing credit
agreements.
No Subordinated Debentures may be purchased for cash or a combination of
cash and common shares by Inco pursuant to a change in control purchase if there
has occurred and is continuing an Event of Default with respect to the
Subordinated Debentures, other than a default in the payment of the change in
control purchase price with respect to the Subordinated Debentures.
DELIVERY OF SHARES; FRACTIONAL SHARES
DELIVERY OF SHARES
We may, at our option, elect to pay the principal amount of the Subordinated
Debentures in cash or common shares or any combination of cash and common
shares. We may also, at our option, elect to pay the redemption price or change
in control purchase price in cash or common shares or any combination thereof,
or deliver cash in lieu of some or all of the common shares issuable upon
conversion. Our right to issue common shares in these circumstances is subject
to our satisfying various conditions, including:
o listing of the common shares on the principal United States or Canadian
securities exchange on which our common shares are then listed or, if
not so listed, on Nasdaq;
o the registration of the common shares under the Securities Act and the
Exchange Act, if required; and
o any necessary qualification or registration under applicable state
securities laws or the availability of an exemption from such
qualification and registration.
If these conditions are not satisfied with respect to a holder prior the
close of business on the applicable payment date, we will make the required
payment on the Subordinated Debentures of the holder entirely in cash. We may
not change the form of components or percentages of components of consideration
to be paid for the Subordinated Debentures once we have given the notice that we
are required to give to holders of Subordinated Debentures, except as described
in the preceding sentence.
If we elect to satisfy any payment at stated maturity, the redemption price,
or the change in control purchase price of the Subordinated Debentures in common
shares, the number of common shares to be delivered by us will be equal to the
amount of the payment to be made in common shares divided by the average market
price of one common share.
For any payment in respect of the Subordinated Debentures, including payment
of the principal amount of the Subordinated Debentures at stated maturity, the
"average market price" means the average of the closing sale prices of the
common shares for the five trading day period ending on the third business day
prior to the applicable redemption, conversion, purchase, maturity or record
date (if the third business day prior to the applicable redemption, purchase,
stated maturity or record date is a trading day, or if not, then on the last
trading day prior thereto), appropriately adjusted to take into account the
occurrence, during the period commencing on the first of such trading days
during such five trading day period and ending on such redemption, purchase,
stated maturity or record date, of certain events that would result in an
adjustment of the conversion rate with respect to the common shares.
If we elect to satisfy any payment of the principal amount, the redemption
price, or the change in control purchase price of the Subordinated Debentures in
common shares, we will give you notice at least 20 business days before the
payment date. Our notice will state:
o whether we will make the payment in cash or common shares or any
combination thereof;
o if both cash and common shares are payable, the percentage of each
applicable on a per Subordinated Debenture basis; and
o the method of calculating the average market price of the common shares.
When we determine the actual number of common shares in accordance with the
foregoing provisions, we will publish the information on our web site or through
such other public medium as we may use at that time.
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Because the average market price of the common shares is determined prior to
the applicable payment date, holders of Subordinated Debentures bear the market
risk with respect to the value of the common shares to be received from the date
such average market price is determined to such payment date. We may deliver
common shares as payment for the principal amount of the Subordinated
Debentures, the redemption price or the change in control purchase price of the
Subordinated Debentures only if the information necessary to calculate the
average market price is published daily in a newspaper of U.S. national
circulation or on our website or through such other public medium as we may use
at that time.
FRACTIONAL SHARES
We will not issue any fractional common shares. Instead, we will pay cash
based on the average market price on the applicable payment date or conversion
date for any fractional common shares we would otherwise deliver on account of
the Subordinated Debentures.
AMALGAMATION AND MERGER
We have covenanted in the indenture that we will not enter into any
consolidation, amalgamation or merger with or into any other corporation, or
statutory arrangement in which Inco participates, or any sale, conveyance or
lease of all or substantially all of our property unless (1) immediately after
such consolidation, amalgamation, merger, statutory arrangement, sale,
conveyance or lease the corporation (whether Inco or such other corporation)
formed by or surviving any such consolidation, amalgamation or merger, or to
which such sale, conveyance or lease shall have been made, shall not be in
default in the performance or observance of any of the terms, covenants and
conditions of the indenture to be kept or performed by Inco; (2) the due and
punctual payment of the principal of and interest on the Subordinated
Debentures, and the due and punctual performance and observance of all of the
covenants and conditions of the indenture to be performed or observed by Inco
and, for which each security by its terms provided for conversion, shall have
provided for the right to convert such security in accordance with its terms,
shall be expressly assumed, by a supplemental indenture satisfactory in form to
the trustee, executed and delivered to the trustee, by the corporation (if other
than Inco) formed by or surviving any such consolidation, amalgamation, merger
or statutory arrangement or into which Inco shall have been merged, or by the
corporation which shall have acquired or leased such property and (3) if the
corporation (whether Inco or another corporation) formed by or surviving any
such consolidation, amalgamation, merger or statutory arrangement, or to which
such sale, conveyance or lease will have been made, is organized under the laws
of a jurisdiction other than Canada or the United States or any province,
territory, state or district thereof (each, a "relevant taxing jurisdiction"),
we become or such successor corporation becomes obligated by a supplemental
indenture satisfactory in form to the trustee to make all payments on account of
the Subordinated Debentures without withholding of a deduction for, or on
account of, any present or future taxes or governmental charges ("specified
taxes") imposed or levied by a relevant taxing jurisdiction, unless we are
required by law or the interpretation or administration thereof to withhold or
deduct such specified taxes. In that event, we will pay as additional interest
such additional amounts ("other additional amounts") as may be necessary in
order that the net amounts received by each holder of Subordinated Debentures
after such withholding or deduction, including any withholding or deduction with
respect to such other additional amounts, shall equal the respective amounts of
principal and interest which would have been receivable in respect of the
Subordinated Debentures in the absence of such withholding or deduction, except
that no such other additional amounts shall be payable with respect to payments
made to a holder:
(a) if such holder is liable for such taxes by reason of such holder or
the beneficial owner of the Subordinated Debenture having a present or
former direct or indirect connection with the relevant taxing jurisdiction
other than the mere holding of the Subordinated Debenture or the receipt of
payment in respect thereof;
(b) for any taxes imposed as a result of the failure of such holder or
beneficial owner to comply with certification, identification, declaration
or similar reporting requirements, if such compliance is required by statute
or by regulation, administrative practice or an applicable treaty, as a
precondition to relief or exemption from such tax;
(c) for any estate, inheritance, gift, sales, transfer, personal
property or similar tax, duty or fine, assessment or other governmental
charge;
(d) for any tax which is payable otherwise than by withholding or
deduction from payment by us of principal of, or interest on, the
Subordinated Debenture;
(e) if the payment of other additional amounts would be for any
withholding or deduction imposed on a payment to an individual which is
required to be made pursuant to a European Union directive on the taxation
of savings implementing the conclusions of ECOFIN Council meeting of
November 26-27, 2000 or any law implementing or complying with or introduced
in order to conform to such directive; or
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(f) any combination of items (a) to (e);
nor will such other additional amounts be paid with respect to a payment on the
Subordinated Debenture to a holder who is a fiduciary or partnership or other
than the sole beneficial owner of such Subordinated Debenture to the extent that
a beneficiary or settlor with respect to such fiduciary, or a member of such
partnership or a beneficial owner thereof, would not have been entitled to
receive a payment of such other additional amounts had such beneficiary,
settlor, member or beneficial owner received directly its beneficial or
distributive share of such payment.
We shall have the right reasonably to require a holder as a condition of
payment of amounts on the Subordinated Debentures to present at such place as we
shall reasonably designate a certificate in such form as we may from time to
time prescribe to enable us to determine our duties and liabilities with respect
to (i) any specified taxes that we or any withholding agent may be required to
deduct or withhold from payments in respect of a Subordinated Debenture under
any present or future law of any relevant taxing jurisdiction or any regulation
of any taxing authority thereof and (ii) any reporting or other requirements
under such laws or regulations. To the extent not otherwise prohibited by
applicable laws and regulations, we shall be entitled to determine our duties
and liabilities with respect to such deduction, withholding, reporting or other
requirements on the basis of information contained in such certificate, or, if
no certificate shall be presented, on the basis of any presumption created by
any such law or regulation, and shall be entitled to act in accordance with such
determination.
DEFAULT AND RELATED MATTERS
EVENTS OF DEFAULT
You will have special rights if an Event of Default occurs and is not cured,
as described later in this subsection.
The term "Event of Default" means any of the following:
o we do not pay or deliver (in cash or common shares, as applicable) the
principal amount, the redemption price, conversion consideration or
change in control purchase price with respect to any Subordinated
Debenture when such becomes due and payable;
o if we fail to pay interest (including additional interest) when due and
such failure continues for 30 days (subject to our right to defer
payment of interest);
o we remain in breach of a restrictive covenant or any other term of the
indenture for 90 days after we receive a notice of default stating we
are in breach. The notice must be sent by either the trustee or the
holders of at least 25% of the principal amount of the Subordinated
Debentures;
o our obligation to repay any outstanding debt is accelerated by our
lenders, and this repayment obligation remains accelerated for 10 days
after we receive a notice of default as described in the second sentence
of the previous bullet; or
o we file for bankruptcy in Canada or certain other events in bankruptcy,
insolvency or reorganization occur.
REMEDIES IF AN EVENT OF DEFAULT OCCURS
If an Event of Default has occurred and has not been cured, the trustee or
the holders of at least 25% in principal amount of the Subordinated Debentures
may declare the principal amount plus accrued and unpaid interest on the
Subordinated Debentures to be due and immediately payable. This is called a
declaration of acceleration of stated maturity. If an Event of Default occurs
because of certain events in bankruptcy, insolvency or reorganization, the
principal amount plus accrued and unpaid interest on the Subordinated Debentures
will be automatically accelerated, without any action by the trustee or any
holder. A declaration of acceleration of stated maturity may be cancelled by the
holders of at least a majority in principal amount of the Subordinated
Debentures.
Except in cases of default, where the trustee has some special duties, the
trustee is not required to take any action under the indenture at the request of
any Subordinated Debentures holders unless the holders offer the trustee
reasonable protection from expenses and liability (called an "indemnity"). If
reasonable indemnity is provided, the holders of a majority in principal amount
of the outstanding Subordinated Debentures may direct the time, method and place
of conducting any lawsuit or other formal legal action seeking any remedy
available to the trustee. These majority holders may also direct the trustee in
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performing any other action under the indenture.
Before you bypass the trustee and bring your own lawsuit or other formal
legal action or take other steps to enforce your rights or protect your
interests relating to the Subordinated Debentures, the following must occur:
o you must give the trustee written notice that an Event of Default has
occurred and remains uncured;
o the holders of at least 25% in principal amount of all outstanding
Subordinated Debentures must make a written request that the trustee
take action because of the default, and must offer reasonable indemnity
to the trustee against the cost and other liabilities of taking that
action;
o the trustee must have not taken action for 60 days after receipt of the
above notice and offer of indemnity; and
o the trustee has not received inconsistent directions from holders of a
majority in principal amount during such 60-day period.
However, you are entitled at any time to bring a lawsuit for the payment of
money due on your Subordinated Debenture on or after its due date.
We will furnish to the trustee every year a written statement of certain of
our officers certifying that to their knowledge we are in compliance with the
indenture and the Subordinated Debentures, or else specifying any default.
CANADIAN WITHHOLDING TAXES
We will make payments on account of the Subordinated Debentures without
withholding or deducting on account of any present or future Canadian tax or
other government charge ("Canadian taxes"), unless we are required by law or the
interpretation or administration thereof, to withhold or deduct Canadian taxes.
If we are required to withhold or deduct any amount on account of Canadian
taxes, we will make such withholding or deduction and pay as additional interest
the additional amounts ("additional amounts") necessary so that the net amount
received by each holder of Subordinated Debentures after the withholding or
deduction (including with respect to additional amounts) will not be less than
the amount the holder would have received if the Canadian taxes had not been
withheld or deducted. We will make similar payment of additional amounts to
holders of Subordinated Debentures (other than excluded holders) that are exempt
from withholding but are required to pay tax directly on amounts otherwise
subject to withholding. However, no additional amounts will be payable with
respect to a payment made to holders (referred to as "excluded holders") subject
to Canadian tax on those payments because they carry on business in Canada, or
who fail to comply with any administrative requirements necessary as a
precondition to exemption from withholding Canadian taxes, or to certain other
excluded holders, as described in the indenture. We will remit the amount we
withhold or deduct to the relevant authority. Additional amounts will be paid in
cash, as applicable, at stated maturity, on any redemption date, on a conversion
date or on any purchase date.
MODIFICATION AND WAIVER
There are three types of changes we can make to the indenture and the
Subordinated Debentures.
Changes Requiring Your Approval. First, there are changes that cannot be
made to your Subordinated Debentures without your specific approval. The
following is a list of those types of changes:
o alter the manner or rate of accrual of interest on any Subordinated
Debenture;
o change the stated maturity of the principal on any Subordinated
Debenture;
o reduce any amount payable upon conversion (except as provided for in the
indenture), redemption or purchase of a Subordinated Debenture,
including any additional amounts;
o make any Subordinated Debenture payable in money or securities other
than that stated in the indenture;
o make any change that adversely affects our obligation to offer to
purchase, or to purchase, a Subordinated Debenture;
o adversely affect the right to convert any Subordinated Debenture (except
as permitted by the indenture);
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o change the place or currency of payment on a Subordinated Debenture;
o impair your right to sue for payment or conversion;
o modify the subordination provisions of the indenture in a manner adverse
to the holders of Subordinated Debentures;
o reduce the percentage of holders of Subordinated Debentures whose
consent is needed to modify or amend the indenture;
o reduce the percentage of holders of Subordinated Debentures whose
consent is needed to waive compliance with certain provisions of the
indenture or to waive certain defaults; or
o modify any other aspect of the provisions dealing with modification and
waiver of the indenture.
Changes Requiring a Super-Majority Vote. The second type of change to the
indenture and the Subordinated Debentures is the kind that requires a vote in
favor by holders of Subordinated Debentures owning 66 2/3% of the principal
amount of the Subordinated Debentures. Most changes fall into this category,
except for clarifying changes and certain other changes that would not adversely
affect holders of the Subordinated Debentures. The same vote would be required
for us to obtain a waiver of all or part of the covenants described in the
indenture, or a waiver of a past default. However, we cannot obtain a waiver of
a payment default or any other aspect of the indenture or the Subordinated
Debentures listed in the first category described previously under "Changes
Requiring Your Approval" unless we obtain your individual consent to the waiver.
Changes Not Requiring Approval. The third type of change does not require
any vote by holders of Subordinated Debentures. This type is limited to
clarifications and certain other changes that would not adversely affect holders
of the Subordinated Debentures.
Further Details Concerning Voting. When taking a vote, we will use the
principal amount of the Subordinated Debentures outstanding.
Your Subordinated Debentures are not considered "outstanding", and therefore
will not be eligible to vote, if we have deposited or set aside in trust for you
money or securities for their payment or redemption.
We will generally be entitled to set any day as a record date for the
purpose of determining the holders of outstanding Subordinated Debentures that
are entitled to vote or take other action under the indenture. If we set a
record date for a vote or other action to be taken by holders, that vote or
action may be taken only by persons who are holders of outstanding Subordinated
Debentures on the record date.
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"STREET NAME" AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW APPROVAL MAY BE GRANTED OR DENIED IF WE SEEK TO
CHANGE THE INDENTURE OR THE SUBORDINATED DEBENTURES OR REQUEST A WAIVER.
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GOVERNING LAW
The indenture and the Subordinated Debentures are governed by, and construed
in accordance with, the laws of the State of New York.
CONSENT TO SERVICE
In connection with the indenture, we have designated and appointed CT
Corporation System as our authorized agent upon which process may be served in
any suit or proceeding arising out of or relating to the indenture or the
Subordinated Debentures that may be instituted in any federal or New York state
court located in the Borough of Manhattan, in the City of New York, or brought
by the trustee (whether in its individual capacity or in its capacity as trustee
under the indenture), and we irrevocably submit to the non-exclusive
jurisdiction of such courts.
ENFORCEABILITY OF JUDGMENTS
Since substantially all of our assets, as well as the assets of most of our
directors and officers, are located outside the United States, any judgment
obtained in the United States against us or certain of our directors or
officers, including judgments with respect to the payment of principal on the
Subordinated Debentures, may not be collectible within the United States.
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We have been informed by Osler, Hoskin & Harcourt LLP, our Canadian counsel,
that the laws of the Province of Ontario and the federal laws of Canada
applicable therein permit an action to be brought in a court of competent
jurisdiction in the Province of Ontario on any final and conclusive judgment in
personam of any federal or state court located in the State of New York (a "New
York Court") against Inco, which judgment is subsisting and unsatisfied for a
sum certain with respect to the enforcement of the indenture and the
Subordinated Debentures that is not impeachable as void or voidable under the
internal laws of the State of New York if (1) the New York Court rendering such
judgment had jurisdiction over the judgment debtor, as recognized by the courts
of the Province of Ontario (and submission by Inco in the indenture to the
jurisdiction of the New York Court will be sufficient for that purpose); (2)
such judgment was not obtained by fraud or in a manner contrary to natural
justice and the enforcement thereof would not be inconsistent with public
policy, as such terms are understood under the laws of the Province of Ontario,
or contrary to any order made by the Attorney General of Canada under the
Foreign Extraterritorial Measures Act (Canada); (3) the enforcement of such
judgment would not be contrary to the laws of general application limiting the
enforcement of creditors' rights and does not constitute, directly or
indirectly, the enforcement of foreign revenue, expropriatory or penal laws in
the Province of Ontario; (4) no new admissible evidence relevant to the action
is discovered prior to the rendering of judgment by the court in the Province of
Ontario; (5) interest payable on the Subordinated Debentures is not
characterized by a court in the Province of Ontario as interest payable at a
criminal rate within the meaning of Section 347 of the Criminal Code (Canada);
and (6) the action to enforce such judgment is commenced within the appropriate
limitation period; except that any court in the Province of Ontario may only
give judgment in Canadian dollars. In the opinion of such counsel, there are no
reasons under present laws of the Province of Ontario for avoiding recognition
of such a judgment of a New York Court under the indenture or on the
Subordinated Debentures based upon public policy.
DISCHARGE OF THE INDENTURE
We may satisfy and discharge our obligations under the indenture by
delivering to the trustee for cancellation all outstanding Subordinated
Debentures or by depositing with the trustee, the paying agent or the conversion
agent, if applicable, after the Subordinated Debentures have become due and
payable, whether at stated maturity, on any redemption date, a change in control
purchase date, or upon conversion or otherwise, cash or common shares, or any
combination thereof (as applicable under the terms of the indenture) sufficient
to pay all of the outstanding Subordinated Debentures and paying all other sums
payable under the indenture by us.
INFORMATION CONCERNING THE TRUSTEE
We have appointed The Bank of New York as the trustee under the indenture
and as paying agent, conversion agent, Subordinated Debentures registrar and
custodian for the Subordinated Debentures. The trustee or its affiliates may
provide banking and other services to us in the ordinary course of their
business. The Bank of New York currently acts as our trustee with respect our
existing indentures, including those related to our 5 3/4% Convertible
Debentures due 2004, our 7 3/4% Convertible Debentures due 2016, our 9 7/8%
Sinking Fund Debentures due 2019, our 9.60% Debentures due 2022, our Liquid
Yield Option Notes due 2021, our 7.20% Debentures due 2032, our 7 3/4% Notes due
2012 and our Convertible Debentures due 2023.
LEGAL OWNERSHIP
STREET NAME AND OTHER INDIRECT HOLDERS
Investors who hold Subordinated Debentures in accounts at banks or brokers
will generally not be recognized by us as legal holders of Subordinated
Debentures. This is called holding in "street name". Instead, we would recognize
only the bank or broker, or the financial institution the bank or broker uses to
hold Subordinated Debentures. These intermediary banks, brokers and other
financial institutions pass along principal, interest and other payments on
Subordinated Debentures, either because they agree to do so in their customer
agreements or because they are legally required to. If you hold Subordinated
Debentures in street name, you should check with your own institution to find
out:
o how it handles securities payments, conversions, redemptions, purchases
and notices;
o whether it imposes fees or charges;
o how it would handle voting if ever required;
o whether and how you can instruct it to send you Subordinated Debentures
registered in your own name so you can be a direct holder in the limited
circumstances described below; and
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o how it would pursue rights under the Subordinated Debentures if there
was a default or other event triggering the need for holders to act to
protect their interests.
DIRECT HOLDERS
Our obligations, as well as the obligations of the trustee and those of any
third parties employed by us or the trustee, run only to persons or entities who
are the direct holders of the Subordinated Debentures, i.e., those who are
registered as holders of the Subordinated Debentures. As noted above, we do not
have obligations to you if you hold in street name or through other indirect
means, either because you choose to hold the Subordinated Debentures in that
manner or because the Subordinated Debentures are issued in the form of global
securities as described below. For example, once we make payment to the
registered holder, we have no further responsibility for the payment even if
that registered holder is legally required to pass the payment along to you as a
street name customer but does not do so.
GLOBAL SECURITIES
A global security is a special type of indirectly held security, as
described above under "--Street Name and Other Indirect Holders".
Since the Subordinated Debentures were issued in the form of global
securities, the ultimate beneficial owners can only be indirect holders. DTC is
the depositary. The Subordinated Debentures included in the global securities
may not be transferred to the name of any other direct holder unless the special
circumstances described below occur.
Any person wishing to own a Subordinated Debenture included in a global
security must do so indirectly by virtue of an account with a broker, bank or
other financial institution that in turn has an account with the depositary.
SPECIAL INVESTOR CONSIDERATIONS FOR GLOBAL SECURITIES
As an indirect holder, an investor's rights relating to a global security is
governed by the account rules of the investor's financial institution and of the
depositary, as well as general laws relating to securities transfers. We do not
recognize this type of investor as a registered holder of Subordinated
Debentures and instead deal only with the depositary that holds the global
securities.
As an investor in Subordinated Debentures that are issued only in the form
of global securities, you should be aware that except in limited circumstances
described in the indenture:
o you cannot get Subordinated Debentures registered in your own name;
o you cannot receive physical certificates for your interest in the
Subordinated Debentures;
o you will be a street name holder and must look to your own bank or
broker for payments on the Subordinated Debentures and protection of
your legal rights relating to the Subordinated Debentures. See "--Street
Name and Other Indirect Holders";
o you may not be able to sell interests in the Subordinated Debentures to
some insurance companies and other institutions that are required by law
to own their securities in the form of physical certificates;
o the depositary's policies will govern conversions, payments, transfers,
exchange and other matters relating to your interest in the global
securities. We and the trustee have no responsibility for any aspect of
the depositary's actions or for its records of ownership interests in
the global securities. We and the trustee also do not supervise the
depositary in any way.
SPECIAL SITUATIONS WHEN GLOBAL SECURITIES WILL BE TERMINATED
In a few special situations described later, the global securities will
terminate and interests in the global securities will be exchanged for physical
certificates representing Subordinated Debentures. After that exchange, the
choice of whether to hold the Subordinated Debentures directly or in street name
will be up to you. You must consult your own bank or broker to find out how to
have your interests in the Subordinated Debentures transferred to your own name,
so that you will be a direct holder. The rights of street name investors and
direct holders in the Subordinated Debentures have been described in the
sections
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entitled, "--Street Name and Other Indirect Holders" and "--Direct Holders"
above.
The special situations for termination of global securities are:
o when the depositary notifies us that it is unwilling, unable or no
longer qualified to continue as depositary;
o when we notify the trustee that we wish to terminate the global
securities; or
o when an Event of Default on the Subordinated Debentures has occurred and
has not been cured.
Defaults are discussed above under "Description of Subordinated
Debentures--Default and Related Matters".
EXCEPT UNDER THE HEADING "LEGAL OWNERSHIP", IN THIS PROSPECTUS "YOU" MEANS
DIRECT HOLDERS AND NOT STREET NAME OR OTHER INDIRECT HOLDERS OF SUBORDINATED
DEBENTURES. INDIRECT HOLDERS SHOULD READ THE PREVIOUS SECTIONS ENTITLED
"--STREET NAME AND OTHER INDIRECT HOLDERS" AND "--SPECIAL INVESTOR
CONSIDERATIONS FOR GLOBAL SECURITIES".
DESCRIPTION OF SHARE CAPITAL
We are authorized to issue an unlimited number of common shares (without
nominal or par value) and 45,000,000 Preferred Shares, issuable in series, for a
maximum consideration of Cdn.$1,500,000,000 (or its equivalent in other
currencies) with such rights, privileges, restrictions and conditions of each
series as the board of directors may determine before the issue thereof. As of
April 28, 2003, there were issued and outstanding 183,982,421 common shares and
9,439,600 5.5% Convertible Redeemable Preferred Shares Series E (the "Series E
Preferred Shares").
COMMON SHARES
Our common shares (together with the Series E Preferred Shares) have general
voting rights; that is, each holder is entitled to receive notice of, to attend
and to vote at, on the basis of one vote for each share held, all meetings of
shareholders of Inco other than meetings at which the holders of another class
or series of shares are entitled to vote separately. Subject to the rights and
priorities of the holders of Preferred Shares and any other class or series of
shares in our capital stock authorized from time to time and ranking in priority
to the common shares, the holders of common shares are entitled to: (i) receive
such dividends as may be declared by our board of directors in its discretion
out of funds legally available therefor, and (ii) in the event of a distribution
of our assets among our shareholders on a liquidation, dissolution or
winding-up, whether voluntary or involuntary, or any other distribution of our
assets among our shareholders for the purpose of winding up our affairs,
receive, in respect of each share so held, a pro rata amount of such assets of
Inco equivalent to the proportion equal to the common shares then outstanding
divided by the number of common shares then outstanding.
The holders of common shares have no pre-emptive, redemption or conversion
rights. The common shares rank junior to all Preferred Shares both as to return
of capital and as to dividends.
PREFERRED SHARES AS A CLASS
ISSUABLE IN SERIES
Our Preferred Shares are issuable in series, each series consisting of such
number of shares and having such provisions attached thereto as may be
determined by our board of directors.
PRIORITY
The Preferred Shares of each series rank on a parity with the Preferred
Shares of every other series, and prior to the common shares, with respect to
the payment of cumulative dividends and the distribution of assets on a
liquidation, dissolution or winding up of Inco or for the purpose of winding up
our affairs ("liquidation").
CREATION AND ISSUE OF ADDITIONAL PREFERRED SHARES
Subject to applicable law, we may, without the consent of the holders of the
Preferred Shares as a class, (1) create additional Preferred Shares, (2) create
Preferred Shares of another class or classes ranking on a parity with the
Preferred Shares with respect to the payment of dividends and/or the
distribution of assets on liquidation or (3) increase any maximum number
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of authorized shares of any one or more of such other classes of shares. If (but
only so long as) any dividends are in arrears on any outstanding series of the
Preferred Shares, we may not, without the consent, by a simple majority of the
votes cast, of the holders of the Preferred Shares as a class, (i) issue any
additional series of the Preferred Shares, or (ii) issue Preferred Shares of
another class ranking on a parity with the Preferred Shares with respect to the
payment of dividends and/or the distribution of assets on liquidation.
CLASS VOTING RIGHTS
The holders of the Preferred Shares are not entitled to any voting rights as
a class except (1) as provided above, (2) as provided by law, or (3) with
respect to the right to vote on certain matters as described under
"--Modification" below. When the holders of Preferred Shares vote as a class, or
when two or more series of Preferred Shares vote together at a joint meeting,
each holder has one one-hundredth of a vote in respect of each Canadian dollar
(or its equivalent in a foreign currency at the date of issuance) of the issue
price of the Preferred Shares he or she holds.
Our board of directors may, at the time of creation of any series of
Preferred Shares, confer voting rights on such series in addition to the voting
rights of the holders of the Preferred Shares as a class. The voting rights
attached to the only currently outstanding series, our Series E Preferred Shares
are summarized below. It is our board of directors' current intention that, with
respect to the creation of any future series of Preferred Shares, to the extent
that such Preferred Shares would have general voting rights then such shares
would not have more than one vote in respect of each Preferred Share. The voting
rights attached to the Series E Preferred Shares as a series are summarized
below under "--Series E Preferred Shares--Series Voting Rights".
MODIFICATION
The class provisions attaching to the Preferred Shares may be amended at any
time with such approval of the holders of such shares as may then be required by
law, which currently is approval by at least two-thirds of the votes cast at a
meeting of such holders duly called for the purpose and at which a quorum is
present, or as are required by the rules of any stock exchange upon which the
shares of any series of Preferred Shares are then listed. In addition, the
approval by at least two-thirds of the votes cast at a meeting of the holders of
all our shares carrying general voting rights is currently required by law for
the amendment of such class provisions.
SERIES E PREFERRED SHARES
In August 1996, we issued 9.4 million Series E Preferred Shares of the 10
million authorized Series E Preferred Shares at an issue price of $50 per share
for an aggregate issue price of $471 million in connection with the acquisition
of Diamond Fields. By notice of redemption dated March 28, 2003, we announced
our intention to redeem the Series E Preferred Shares effective May 1, 2003. In
addition to the foregoing class provisions, the Series E Preferred Shares have
the following provisions.
DIVIDENDS
The holders of the Series E Preferred Shares are entitled to receive, as and
when declared by our board of directors, fixed cumulative cash dividends
accruing from their issue date at the rate of 5.5 per cent per annum. Such
dividends are payable in dollars (or, at the election of the holder, Canadian
dollars) quarterly in arrears on the first business day of March, June,
September, and December in each year.
OPTIONAL AND MANDATORY REDEMPTION
The Series E Preferred Shares, in whole or in part, are currently redeemable
at our option upon 30 days' notice specifying the redemption date at the
applicable optional redemption price of $51.10 per share, which price declines
by $0.275 per year until such redemption price reaches $50.00 in 2006.
The optional redemption price is payable in dollars or, at the option of the
holder, Canadian dollars, provided that we have the right to satisfy the
optional redemption price payable to each holder by requiring such holder to
exchange the Series E Preferred Shares so redeemed for that number of common
shares obtained by dividing the aggregate optional redemption price of the
shares of such holder to be so redeemed by 95 per cent of a 20-day weighted
average trading price on the New York Stock Exchange ending five days before the
optional redemption date. However, we will not have the right to issue common
shares in satisfaction of the optional redemption price payable to any
particular holder if: (i) at the time of such redemption we have ceased to
qualify as a "foreign private issuer" as defined in Rule 3b-4 under the Exchange
Act; and (ii) as a result of such issuance of common shares, that particular
holder would thereby be deemed to be a greater-than-10 per cent beneficial owner
of common shares for purposes of Section 13(d) of the Exchange Act.
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We are required to redeem all of the then outstanding Series E Preferred
Shares on August 21, 2006 upon 30 days' notice at a redemption price of $50 per
share, together with all accrued and unpaid dividends thereon. This mandatory
redemption price is payable in dollars or, at the option of the holder, in
Canadian dollars, provided that we have the right to satisfy the redemption
price payable to each holder by requiring such holder to exchange the Series E
Preferred Shares so redeemed for that number of common shares obtained by
dividing the aggregate redemption price of the shares of such holder to be so
redeemed by 95 per cent of a 20-day weighted average trading price on the New
York Stock Exchange ending five days before the mandatory redemption date.
However, we do not have the right to issue common shares in satisfaction of the
mandatory redemption price payable to any particular holder in the same
circumstances as those in which we would not have the right to issue common
shares in satisfaction of the optional redemption price.
CONVERSION
The Series E Preferred Shares are convertible at the holder's option into
common shares at any time, at a conversion rate of 1.19474 common shares for
each Series E Preferred Share (representing an effective conversion price of
$41.85 per Series E Preferred Share), subject to certain adjustments, including
stock splits, distributions of common shares other than as "dividends paid in
the ordinary course" (as defined in the terms and conditions of the Series E
Preferred Shares) and certain right offerings.
SERIES VOTING RIGHTS
The Series E Preferred Shares (together with our common shares) carry
general voting rights. The holders of Series E Preferred Shares are entitled to
receive notice of, to attend (in person or by proxy) and be heard and to vote on
the basis of one vote in respect of each such share held, at all meetings of our
shareholders other than meetings at which holders of another class or series of
shares are entitled to vote separately. The holders of Series E Preferred Shares
shall also be entitled, voting exclusively and separately as a series, to one
vote in respect of each Series E Preferred Share held in respect of certain
amendments to our articles or any action which under any legislation, regulation
or rule applicable to us requires the approval or authorization of a class vote.
In the event that, and as long as, we fail to make six quarterly dividend
payments, the holders of Series E Preferred Shares shall have the right as a
series to elect two directors to our board of directors while such dividends
remain in arrears.
RESTRICTIONS ON DIVIDENDS AND EXCHANGE OR OTHER RETIREMENT OF SHARES AND
ISSUANCE OF SENIOR SHARES
So long as any of the Series E Preferred Shares are outstanding, we are not
entitled to:
(1) declare or pay any dividend on the common shares or any of our other
shares ranking junior to the Series E Preferred Shares in respect of the
payment of dividends and the distribution of assets on liquidation (other
than stock dividends in common shares or any such other junior shares);
(2) redeem, purchase or otherwise retire for value any common shares or
any of our other shares ranking junior to the Series E Preferred Shares in
respect of the payment of dividends and the distribution of assets on
liquidation; or
(3) redeem, purchase or otherwise retire for value (i) less than all the
Series E Preferred Shares, (ii) any other Series E Preferred Shares, or
(iii) any of our other shares ranking prior to or on a parity with the
Series E Preferred Shares in respect of the distribution of assets on
liquidation;
unless all dividends then payable on the Series E Preferred Shares and on all
other shares ranking prior to or on a parity therewith in respect of the payment
of dividends shall have been paid or set apart for payment.
TAX ELECTION
The Series E Preferred Shares are "taxable preferred shares" as defined in
the Canadian Tax Act. The terms of the Series E Preferred Shares require us to
make the necessary elections under Part VI.1 of the Canadian Tax Act so that
holders will not be subject to tax under Part IV.1 of the Canadian Tax Act on
dividends received (or deemed to be received) on the Series E Preferred Shares.
COMMON SHARE PURCHASE WARRANTS
We have approximately 11,000,000 common share purchase warrants issued and
outstanding as of April 28, 2003. Each whole warrant entitles the holder to
purchase one common share at an exercise price of Cdn.$30.00 (or at the option
of the holder, the equivalent in U.S. dollars based upon exchange rates
prevailing at the time of exercise), subject to certain
37
adjustments, until 5:00 p.m. (Toronto time) on August 21, 2006. Any warrants not
exercised prior to such time will expire.
SHAREHOLDER RIGHTS PLAN
On September 14, 1998, our board of directors adopted a shareholder rights
plan that took effect on October 3, 1998, replacing a prior plan. The plan was
amended in certain respects by the board of directors in February 1999, and was
ratified and approved by shareholders at the 1999 Annual and Special Meeting of
Shareholders. It was further amended in certain limited respects and restated by
the board of directors in February 2002 and reconfirmed, as so amended and
restated, by the shareholders at the 2002 Annual and Special Meeting. This
current plan, set forth in an amended and restated rights plan agreement (the
"Shareholder Rights Plan Agreement") entered into between us and CIBC Mellon
Trust Company, as rights agent, is designed to (i) encourage the fair and equal
treatment of shareholders in connection with any take-over offer by providing
them with more time than the minimum statutory period during which a take-over
bid must remain open in order to fully consider their options, and (ii) provide
the board of directors with additional time, if appropriate, to pursue other
alternatives to maximize shareholder value. The new plan is in effect until
October 2008 subject to reconfirmation by holders of our Voting Securities (as
defined below) at our annual meeting in the year 2005.
The rights issued under the new plan attach to and trade with our common
shares, and no separate certificates will be issued unless an event triggering
these rights occurs. Certificates evidencing common shares will be legended to
reflect that they evidence the rights until the Separation Time (as defined
below). Holders of our 7 3/4% Convertible Debentures, 5 3/4% Convertible
Debentures, Series E Preferred Shares, LYONs, Convertible Debentures and
Subordinated Debentures will generally be entitled to receive, upon conversion
of the relevant security, rights in an amount equal to the number of common
shares issued upon conversion of such securities.
The rights will separate from the common shares ("Separation Time") and be
transferable, trade separately from the common shares and become exercisable
only when a person, including any party related to or acting jointly or in
concert with such person, acquires, or announces its intention to acquire
beneficial ownership of 20 per cent or more of (1) our then outstanding Voting
Securities (defined to include our common shares and Series E Preferred Shares)
or (2) its then outstanding common shares alone, in either case without
complying with the "permitted bid" provisions of the plan (as summarized below),
or without the approval of the board of directors. Should such an acquisition
occur, each right would entitle its holder, other than the acquiring person or
persons related to or acting jointly or in concert with such person, to purchase
additional common shares of Inco at a 50 per cent discount to the then current
market price. The acquisition by any person (an "Acquiring Person") of 20 per
cent or more of our common shares or Voting Securities, other than by way of a
permitted bid, is referred to as a "Flip-in-Event". Any rights held by an
Acquiring Person will become void upon the occurrence of a Flip-in Event.
A "permitted bid" is a bid made to all holders of our outstanding Voting
Securities that is open for at least 60 days. If, at the end of such 60 day
period, more than 50 per cent of our then outstanding common shares, other than
those securities owned by the party making the bid and certain related persons,
have been tendered, such party may take up and pay for the common shares but
must extend the bid for a further 10 business days to allow other shareholders
to tender. This feature is designed to provide shareholders who had not tendered
to the bid with enough time to tender to the bid once it is clear that a
majority of common shares have been tendered to that bid.
We will be entitled (1) to waive the application of the plan to enable a
particular take-over bid to proceed, in which case the plan will be deemed to
have been waived with respect to any other take-over bid made prior to the
expiry of any bid subject to such waiver and (2) with the prior approval of the
holders of Voting Securities or rights, to redeem the rights for normal
consideration at any time prior to a Flip-in Event.
CERTAIN INCOME TAX CONSIDERATIONS
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF
SUBORDINATED DEBENTURES OR INCO COMMON SHARES AND NO REPRESENTATION IS MADE WITH
RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO ANY PARTICULAR HOLDER.
ACCORDINGLY, PROSPECTIVE PURCHASERS OF SUBORDINATED DEBENTURES SHOULD CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL INCOME TAX
CONSIDERATIONS RELEVANT TO THEM, HAVING REGARD TO THEIR PARTICULAR
CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY U.S. STATE, LOCAL OR NON-U.S. TAX
LAWS.
This section describes the material U.S. federal income tax consequences to
you if you are a U.S. holder of Subordinated Debentures and common shares into
which the Subordinated Debentures may be converted. It applies to you only if
you acquire your Subordinated Debentures in this offering and you hold your
Subordinated Debentures and common shares into
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which those Subordinated Debentures may be converted as capital assets for U.S.
federal income tax purposes. This section does not apply to you if you are a
member of a special class of holders subject to special rules, including:
o a dealer in securities,
o a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings,
o a financial institution,
o a tax-exempt organization,
o a life insurance company,
o a person liable for alternative minimum tax,
o a person that actually or constructively owns 10 per cent or more of our
voting stock,
o a person that holds Subordinated Debentures or common shares as part of
a straddle or a hedging or conversion transaction, or
o a person whose functional currency is not the dollar.
This section is based on the Internal Revenue Code of 1986, as amended (the
"Code"), its legislative history, existing and proposed U.S. Treasury
regulations, published rulings and court decisions, all as currently in effect.
These laws are subject to change, possibly on a retroactive basis.
You are a U.S. holder if you are a beneficial owner of common shares and you
are:
o a citizen or resident of the United States,
o a domestic corporation,
o an estate whose income is subject to U.S. federal income tax regardless
of its source, or
o a trust if a U.S. court can exercise primary supervision over the
trust's administration and one or more U.S. persons are authorized to
control all substantial decisions of the trust.
CHARACTER OF THE SUBORDINATED DEBENTURES
The following discussion assumes that the Subordinated Debentures should be
classified as indebtedness of Inco for U.S. federal income tax purposes. If the
Internal Revenue Service (the "IRS") were to successfully assert that the
Subordinated Debentures should be treated as equity, the U.S. federal income tax
consequences to you would be similar to that of a holder of common shares after
conversion as described under the heading "Common Shares" below.
INTEREST AND ORIGINAL ISSUE DISCOUNT
Except as set forth below, stated interest on a Subordinated Debenture will
generally be taxable to you as ordinary income at the time it is paid or accrued
in accordance with your method of accounting for U.S federal income tax
purposes.
We have the option to defer interest payments on the Subordinated Debentures
for a period not exceeding 20 consecutive interest periods. Under applicable
U.S. Treasury regulations, a "remote" contingency that stated interest will not
be timely paid will be ignored in determining whether a debt instrument is
issued with original issue discount. We believe that the likelihood of
exercising our option is remote within the meaning of the U.S. Treasury
regulations. Based on the forgoing we believe that, while the matter is not free
from doubt, the Subordinated Debentures should not be considered to be issued
with original issue discount.
If our option to defer any payment of interest was determined not to be
"remote" within the meaning of the U.S. Treasury regulations or if we exercised
our option to defer payments, the Subordinated Debentures would treated as
issued with original issue discount at the time of issuance or at the time of
such exercise, as the case may be. As a result, all stated interest on the
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Subordinated Debentures would be treated a original issue discount as long as
the Subordinated Debenture remained outstanding. In such an event, all of your
taxable interest income relating to the Subordinated Debentures would have to be
included in income on an economic accrual basis before the receipt of cash
attributable to the interest regardless of your method of tax accounting, and
actual distributions of stated interest would not be reported as taxable income.
Consequently, you would be required to include in gross income original issue
discount even though we would not make any actual cash payments during an
extension period. No rulings or other interpretations have been issued by the
IRS which have addressed the meaning of the term "remote" as used in the U.S.
Treasury regulations and it is possible that the IRS could take the position
that the likelihood of deferral was not remote.
Stated interest and original issue discount (if any) accrued with respect to
your Subordinated Debentures will constitute income from sources outside the
United States, but, with certain exceptions, will be "passive" or "financial
services" income, which is treated separately form other types of income for
purposes of computing the U.S. foreign tax credit allowable to you as a U.S.
holder.
DISPOSITION OR CONVERSION OF THE SUBORDINATED DEBENTURES
Except as described below, upon the sale or other disposition of a
Subordinated Debenture, a U.S. holder will recognize gain or loss for U.S.
federal income tax purposes in an amount equal to the difference between the
dollar value of the amount realized (except to the extent that such amount is
attributable to accrued interest income not previously included in income, which
will be taxable as ordinary income) and the U.S. holder's adjusted tax basis
(determined in dollars) in such Subordinated Debenture. Such gain or loss will
generally be capital gain or loss and will be long-term capital gain or loss if
your holding period for the Subordinated Debenture exceeds one year. Such gain
or loss will be income or loss from sources within the United States for U.S.
foreign tax credit limitation purposes. Long-term capital gain of a noncorporate
U.S. holder is generally subject to a maximum tax rate of 20 per cent.
If a Subordinated Debenture held by you is converted to common shares or
cash or a combination of common shares and cash pursuant to your conversion
right or our optional redemption right or right to convert a Subordinated
Debenture upon a change in control, you will not recognize any gain or loss to
the extent that you receive common shares in exchange for the Subordinated
Debenture, but you will recognize any realized gain to the extent that you
receive cash. Your realized gain will be measured by the difference between the
value of the consideration you receive for the Subordinated Debenture and your
tax basis in the Subordinated Debenture. Any gain recognized will generally be
capital gain, and will be long-term capital gain if the tendered Subordinated
Debenture has been held for more than one year. Your tax basis in any common
shares received in exchange for a Subordinated Debenture (including any
fractional shares for which cash is received) will be the same as your tax basis
in the Subordinated Debenture tendered to us in exchange, decreased by the
amount of any cash received in exchange for the Subordinated Debenture and
increased by the amount of any gain you recognize on the exchange. Your holding
period for common shares received in the exchange will include the holding
period for the Subordinated Debenture tendered to us in the exchange. However,
to the extent that the holding period for common shares is attributable to
accrued original issue discount it will commence on the day following the
conversion.
Cash received in lieu of a fractional common share upon conversion or
redemption of a Subordinated Debenture or upon a tender of a Subordinated
Debenture to us on a purchase date should be treated as a payment in exchange
for the fractional share. Accordingly, if the common share is a capital asset in
your hands, the receipt of cash in lieu of a fractional common share should
generally result in capital gain or loss, if any, measured by the difference
between the cash received for the fractional share and your tax basis in the
fractional share.
CONSTRUCTIVE DIVIDEND
If at any time we make a distribution of property to our shareholders that
would be taxable to the shareholders as a dividend for U.S. federal income tax
purposes and, in accordance with the anti-dilution provisions of the
Subordinated Debentures, the conversion rate of the Subordinated Debentures is
increased, such increase may be deemed to be the payment of a constructive
dividend to holders of the Subordinated Debentures that is taxable to the extent
paid out of our current or accumulated earnings and profits (as determined for
U.S. federal income tax purposes).
DIVIDENDS ON COMMON SHARES
You will include in gross income the gross amount of any dividend paid
(before reduction for Canadian withholding taxes) by us out of our current or
accumulated earnings and profits (as determined for U.S. federal income tax
purposes) as ordinary income when you actually or constructively receive the
dividend. The dividend will not be eligible for the dividends-received deduction
generally allowed to U.S. corporations in respect of dividends received from
other U.S. corporations. The amount of a dividend paid in foreign currency that
you must include in your income as a U.S. holder will be the U.S. dollar value
of the
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foreign currency payments made, determined at the spot conversion rate for that
foreign currency on the date of the dividend distribution, and will be
includible in your income, regardless of whether the payment is in fact
converted into U.S. dollars. Generally, any gain or loss resulting from currency
exchange fluctuations during the period from the date you include the dividend
payment in income to the date you convert the payment into U.S. dollars will be
treated as ordinary income or loss. The gain or loss generally will be income or
loss from sources within the United States for U.S. foreign tax credit
limitation purposes. Distributions in excess of current and accumulated earnings
and profits, as determined for U.S. federal income tax purposes, will be treated
as a return of capital to the extent of your tax basis in the common shares and
thereafter as capital gain.
Subject to certain limitations and the provisions of the next paragraph, the
Canadian tax withheld and paid over to Canada will be creditable against your
U.S. federal income tax liability. For U.S. foreign tax credit limitation
purposes, the dividend will be income from sources without the United States,
but generally will be treated separately, together with other items of "passive
income" (or, in the case of certain holders, "financial services income").
It is possible that, on the date a dividend is paid, the Company will be at
least 50 per cent owned by U.S. persons. Under Section 904(g) of the Code,
dividends paid by a foreign corporation that is at least 50 per cent owned by
U.S. persons may be treated as U.S. source income (rather than foreign source
income) for U.S. foreign tax credit purposes to the extent the foreign
corporation has more than an insignificant amount of U.S. source income. The
effect of this rule may be to treat a portion of the dividends paid by the
Company as U.S. source income.
The rules relating to the determination of the U.S. foreign tax credit are
complex and you should consult with your own tax advisors to determine whether
and to what extent a credit would be available.
DISPOSITION OF COMMON SHARES
Upon the sale, exchange or other disposition of common shares, you will
recognize capital gain or loss for U.S. federal income tax purposes in an amount
equal to the difference between the U.S. dollar value of the amount realized and
the U.S. holder's tax basis (determined in U.S. dollars) in such common shares.
Generally, such gain or loss will be capital gain or loss and will be long-term
capital gain or loss if the U.S. holder's holding period for such common shares
exceeds one year and any such gain or loss will be income or loss from sources
within the United States for U.S. foreign tax credit limitation purposes.
Long-term capital gain of a noncorporate U.S. holder is generally subject to a
maximum tax rate of 20 per cent.
PASSIVE FOREIGN INVESTMENT COMPANY
We believe that we currently are not, and should not become, a passive
foreign investment company (a "PFIC") for U.S. federal income tax purposes, but
this conclusion is a factual determination that is made annually and thus may be
subject to change. If we were to be treated as a PFIC, unless you elect to be
taxed annually on a mark-to-market basis with respect to the common shares, gain
realized on the sale or other disposition of your Subordinated Debentures or
common shares would in general not be treated as capital gain. Instead, if you
are a U.S. holder, you would be treated as if you had realized such gain and
certain "excess distributions" ratably over your holding period for the
Subordinated Debentures or common shares and would be taxed at the highest tax
rate in effect for each such year to which the gain was allocated, together with
an interest charge in respect of the tax attributable to each such year.
BACKUP WITHHOLDING AND INFORMATION REPORTING
If you are a noncorporate U.S. holder, information reporting requirements,
on IRS Form 1099, generally will apply to:
o payments of principal and interest on your Subordinated Debentures
within the United States, including payments made by wire transfer from
outside the United States to an account you maintain in the United
States,
o dividend payments or other taxable distributions made to you on your
common shares within the United States, and
o the payment of the proceeds from the sale of your Subordinated
Debentures or common shares effected at a U.S. office of a broker.
Additionally, backup withholding will apply to such payments if you are a
noncorporate U.S. holder that:
o fails to provide an accurate taxpayer identification number,
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o is notified by the IRS that you have failed to report all interest and
dividends required to be shown on your federal income tax returns, or
o in certain circumstances, fails to comply with applicable certification
requirements.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal Canadian federal income tax
considerations generally applicable to a holder (a "Non-Canadian holder") in
respect of the acquisition, holding, conversion and disposition of Subordinated
Debentures purchased pursuant to this prospectus who, for the purposes of the
Canadian Tax Act and any applicable income tax convention, and at all relevant
times, is not, and is not deemed to be, resident in Canada, deals at arm's
length with Inco, is not affiliated with Inco, holds Subordinated Debentures and
will hold Inco common shares acquired in respect of the Subordinated Debentures
as capital property and does not use or hold and is not deemed to use or hold
the Subordinated Debentures or the Inco common shares in or in the course of
carrying on business in Canada. Special rules, which are not discussed in this
summary, may apply to a Non-Canadian holder that is an insurer that carries on
an insurance business in Canada and elsewhere.
This summary is based on the current provisions of the Canadian Tax Act and
the Regulations, all specific proposals to amend the Canadian Tax Act and the
Regulations announced by or on behalf of the Minister of Finance (Canada) prior
to the date hereof, and our understanding of the published administrative
practices of the Canada Customs and Revenue Agency. This summary is not
exhaustive of all Canadian federal income tax considerations and, except as
mentioned above, does not take into account or anticipate any changes in law,
whether by judicial, governmental or legislative decision or action or changes
in administrative practices of the Canada Customs and Revenue Agency, nor does
it take into account provincial, territorial or foreign income tax
considerations which may vary from the Canadian federal income tax
considerations described herein.
All amounts relating to the ownership of the Subordinated Debentures and
Inco common shares must be converted into Canadian dollars for the purpose of
the Canadian Tax Act and the Regulations.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER OF
SUBORDINATED DEBENTURES OR INCO COMMON SHARES AND NO REPRESENTATION IS MADE WITH
RESPECT TO THE CANADIAN TAX CONSEQUENCES TO ANY PARTICULAR HOLDER. ACCORDINGLY,
PROSPECTIVE PURCHASERS OF SUBORDINATED DEBENTURES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE CANADIAN TAX CONSIDERATIONS RELEVANT TO THEM,
HAVING REGARD TO THEIR PARTICULAR CIRCUMSTANCES.
OWNERSHIP OF SUBORDINATED DEBENTURES
Under the Canadian Tax Act, the payment to a Non-Canadian holder by Inco of
interest under a Subordinated Debenture will be exempt from Canadian withholding
tax.
In general, a Non-Canadian holder will not be subject to Canadian income tax
on capital gains arising on the disposition of Subordinated Debentures unless
the Subordinated Debenture constitutes "taxable Canadian property" to the
Non-Canadian holder. A Subordinated Debenture will constitute taxable Canadian
property to a Non-Canadian holder if, at any time during the five-year period
immediately preceding the disposition, the Non-Canadian holder, persons with
whom such holder did not deal at arm's length, or the Non-Canadian holder and
persons with whom such holder did not deal at arm's length owned 25 per cent or
more of the shares of any class or series of the capital stock of Inco.
OWNERSHIP OF INCO COMMON SHARES
Under the Canadian Tax Act, dividends on Inco common shares paid or
credited, or deemed to be paid or credited, to a Non-Canadian holder will be
subject to Canadian withholding tax at the rate of 25 per cent of the gross
amount of such dividends. The rate of this withholding tax may be reduced under
the terms of an applicable income tax convention. Under the Canada--United
States Income Tax Convention (1980), this withholding tax rate is reduced to 15
per cent or, in the case of a Non-Canadian holder that is a corporation which
beneficially owns at least 10 per cent of the voting shares of Inco, 5 per cent.
In general, a Non-Canadian holder will not be subject to Canadian income tax
on capital gains arising on the disposition of Inco common shares unless those
Inco common shares constitute "taxable Canadian property" to the Non-Canadian
holder. An Inco common share will constitute taxable Canadian property to a
Non-Canadian holder if, at any time in the five-year period immediately
preceding the disposition, the Non-Canadian holder, persons with whom such
holder did not deal at arm's length or the Non-Canadian holder and persons with
whom such holder did not deal at arm's length owned 25 per cent or more of the
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shares of any class or series of the capital stock of Inco.
PLAN OF DISTRIBUTION
The Subordinated Debentures were issued on March 7, 2003 and March 18, 2003
and offered and sold in the United States to qualified institutional buyers in
reliance on Rule 144A under the Securities Act. This prospectus has not been
filed in respect of, and will not qualify, any distribution of Subordinated
Debentures or underlying shares in Ontario or any other province or territory of
Canada.
The holders of the Subordinated Debentures and the underlying shares
(together the "Registrable Securities") are entitled to the benefits of a
registration rights agreement, entered into as of March 7, 2003, between us and
Morgan Stanley & Co. Incorporated and Salomon Smith Barney Inc. (the
"Registration Rights Agreement"), pursuant to which we have filed this short
form prospectus with the Ontario Securities Commission under the Canadian shelf
prospectus system and a registration statement including this prospectus with
the Securities and Exchange Commission under the Securities Act (the "Shelf
Registration Statement") covering resales of the Registrable Securities.
A list of the holders of Registrable Securities who have delivered a
completed selling securityholder's questionnaire to us (each, an "Electing
Holder") is set out in Schedule A to this prospectus, which is incorporated into
and forms part of this prospectus and which may be updated by way of supplement
to this prospectus. All shelf information omitted from this base shelf
prospectus will be contained in a shelf supplement that will be delivered to
purchasers together with this base shelf prospectus. Each shelf prospectus
supplement will be incorporated by reference into this base shelf prospectus as
of the date of the shelf prospectus supplement and only for the purposes of the
distribution to which the shelf prospectus supplement pertains. Each shelf
prospectus supplement to this base shelf prospectus will contain a current list
of the Electing Holders.
Each Electing Holder is the beneficial, but not the registered, holder of
the aggregate principal amount of Subordinated Debentures shown in Schedule A,
any or all of which may be sold by the Electing Holder at any time, or from time
to time, pursuant to this prospectus, and the aggregate principal amount of
Subordinated Debentures held by such Electing Holder shall thereafter be reduced
to the extent of such sales. All of the Subordinated Debentures held by the
Electing Holders were either acquired by them upon the issuance of the
Subordinated Debentures on March 7, 2003 or March 18, 2003, or in subsequent
transactions thereafter.
We are registering the Subordinated Debentures and the underlying shares
covered by this prospectus under the Securities Act to permit any of the
Electing Holders to conduct public secondary trading of these securities from
time to time after the date of this prospectus in accordance with the federal
securities laws of the United States. We have agreed in the Registration Rights
Agreement to bear all fees and expenses, other than underwriting discounts and
selling commissions, in connection with the registration and sale of the
Registrable Securities covered by this prospectus. Additionally, we have agreed
to indemnify the holders of Registrable Securities against certain liabilities,
including liabilities under the Securities Act, and each Electing Holder has
agreed to indemnify us, other holders and any persons who control us, as defined
in the federal securities laws of the United States, against any liability with
respect to any information furnished by such holder in writing to us (including
the selling securityholder's questionnaire) expressly for use in the Shelf
Registration Statement.
We will not receive any of the proceeds from the sale of the Registrable
Securities by the Electing Holders. We have been advised by the Electing Holders
that the Electing Holders may sell all or any portion of the Registrable
Securities beneficially owned by them and offered hereby from time to time:
o directly; or
o through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, commissions or concessions from
the Electing Holders or from the purchasers of the Registrable
Securities from whom they may act as agent.
The Registrable Securities may be sold from time to time in one or more
transactions at:
o fixed prices, which may be changed;
o varying prices determined at the time of sale; or
o negotiated prices.
43
The prices will be determined by the Electing Holders or by agreement
between the Electing Holders and underwriters or dealers who may receive fees or
commissions in connection with the sale. The aggregate proceeds to the Electing
Holders from the sale of the Registrable Securities offered by them hereby will
be the purchase price of the Registrable Securities less discount and
commissions, if any.
The sales described in the preceding paragraph may be effected in
transactions:
o on any U.S. national securities exchange or quotation service on which
the Registrable Securities may be listed or quoted at the time of the
sale, including the NYSE in the case of the underlying shares;
o in the over-the-counter market;
o in transactions otherwise than on such exchanges or services or in the
over-the-counter market; or
o through the writing of options.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as agent on both sides of the trade.
Once any Registrable Security is sold by any Electing Holder pursuant to
the Shelf Registration Statement, such Registrable Security is not thereafter
covered by the Shelf Registration Statement even if subsequently reacquired by
an Electing Holder.
Our outstanding common shares are listed on the NYSE and the TSX, each of
which has approved the listing of the underlying shares. We do not intend to
list the Subordinated Debentures for trading on any national securities
exchange. Accordingly, no assurance can be given as to the development of any
trading market for the Subordinated Debentures. See Risk Factors - Trading
Market for the Subordinated Debentures".
In order to comply with the securities laws of certain states, if
applicable, the Subordinated Debentures and underlying shares may be sold in
such jurisdictions only through registered or licensed brokers or dealers.
The selling securityholders and any underwriters, dealers or agents that
participate in the distribution of the Subordinated Debentures and underlying
shares offered under this prospectus may be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act, and any discounts, commissions
or concessions received by them pursuant to the sale of such securities by them
might be deemed to be underwriting discounts and commissions under the
Securities Act.
We will be permitted pursuant to the Registration Rights Agreement to
suspend the use of this prospectus that is part of the Shelf Registration
Statement under certain circumstances relating to pending corporate
developments, public filings with the SEC and similar events for a period not to
exceed 45 days in any three-month period and 120 days in any 12-month period.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. There is no
assurance that any selling securityholder will sell any or all of the
Subordinated Debentures or underlying shares described in this prospectus, and
any selling securityholder may transfer, devise or gift such securities by other
means not described in this prospectus.
VALIDITY OF THE SUBORDINATED DEBENTURES
The validity of the Subordinated Debentures under New York law was passed
upon for us by Sullivan & Cromwell LLP, New York, New York. Certain other legal
matters were passed on for us by Stuart F. Feiner, Inco's Executive Vice
President, General Counsel and Secretary, Mark J. Travers, Inco's Assistant
General Counsel, and Osler, Hoskin & Harcourt LLP, Toronto, Ontario. As of the
date hereof, certain lawyers with Osler, Hoskin & Harcourt LLP, own, directly or
indirectly, in the aggregate, less than one per cent of our outstanding common
shares.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K for the year ended December 31,2002
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting. The statements as to our
44
reserves which appear in our 2002 10-K have been incorporated by reference
herein upon the authority, as experts, of Robert A. Horn, Vice-President,
Exploration, and Robert C. Osborne, Consulting Geologist, Laterites, to the
extent described in our 2002 10-K.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, and in accordance therewith file reports and other information with
the SEC. Our recent SEC filings are available over the Internet at the SEC's web
site at http://www.sec.gov. You may also read and copy any document we file with
the SEC at the public reference facilities maintained by the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Please call
1-800-SEC-0330 for further information on the operations of the public reference
facilities and copying charges. Copies of reports and other information
concerning Inco may be inspected at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York 10005.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, filed with the SEC and with the applicable
securities commissions or similar authorities in all of the provinces of Canada,
are incorporated by reference herein and form an integral part of this
prospectus:
o our Annual Report on Form 10-K for the fiscal year ended December 31,
2002;
o our Proxy Circular and Statement dated February 10, 2003 other than the
sections entitled "Report of the Management Resources and Compensation
Committee on Executive Compensation" and "Comparative Shareholder
Return";
o our Current Report on Form 8-K dated February 26, 2003;
o our material change report dated March 4, 2003 relating to the issuance
of the Subordinated Debentures and the Convertible Debentures;
o our Current Report on Form 8-K dated March 11, 2003; and
o our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2003, as filed with the SEC on April 28, 2003.
Although not incorporated by reference, a technical report pertaining to our
Goro nickel-cobalt project, dated effective as of December 31, 2002, has been
filed with the Canadian securities regulatory authorities.
All documents we file with the SEC or with the applicable securities
commissions or similar authorities in all of the provinces of Canada, after the
date of this prospectus and prior to the termination of the distribution of
Subordinated Debentures under this prospectus shall be deemed to be incorporated
by reference into this prospectus.
ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED OR DEEMED TO BE
INCORPORATED BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR SUPERSEDED
FOR THE PURPOSES OF THIS PROSPECTUS TO THE EXTENT THAT A STATEMENT CONTAINED
HEREIN, OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT WHICH ALSO IS OR IS DEEMED
TO BE INCORPORATED BY REFERENCE HEREIN, MODIFIES OR SUPERSEDES THAT STATEMENT.
THE MODIFYING OR SUPERSEDING STATEMENT NEED NOT STATE THAT IT HAS MODIFIED OR
SUPERSEDED A PRIOR STATEMENT OR INCLUDE ANY OTHER INFORMATION SET FORTH IN THE
DOCUMENT THAT IT MODIFIES OR SUPERSEDES. THE MAKING OF A MODIFYING OR
SUPERSEDING STATEMENT SHALL NOT BE DEEMED AN ADMISSION FOR ANY PURPOSES THAT THE
MODIFIED OR SUPERSEDED STATEMENT, WHEN MADE, CONSTITUTED A MISREPRESENTATION, AN
UNTRUE STATEMENT OF A MATERIAL FACT OR AN OMISSION TO STATE A MATERIAL FACT THAT
IS REQUIRED TO BE STATED OR THAT IS NECESSARY TO MAKE A STATEMENT NOT MISLEADING
IN LIGHT OF THE CIRCUMSTANCES IN WHICH IT WAS MADE. ANY STATEMENT SO MODIFIED OR
SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO MODIFIED OR SUPERSEDED, TO
CONSTITUTE A PART OF THIS PROSPECTUS.
Copies of the documents incorporated in this prospectus by reference may be
obtained on request without charge from the Office of the Secretary, Inco
Limited, 145 King Street West, Suite 1500, Toronto, Ontario, M5H 4B7, telephone
(416) 361-7511.
45
LIST OF DOCUMENTS FILED WITH THE SEC
The following documents have been filed with the SEC as part of the
Registration Statement of which this short form prospectus forms a part: the
documents referred to under the heading "Documents Incorporated by Reference";
consents of the independent public accountant, Robert Horn, Robert Osborne and
Osler, Hoskin & Harcourt LLP; powers of attorney; the indenture; the first
supplemental indenture; and the Statement of Eligibility of the Trustee on Form
T-1.
46
SCHEDULE A
LIST OF ELECTING HOLDERS
NAME OF SELLING SECURITYHOLDER PRINCIPAL AMOUNT
------------------------------ ----------------
Alpine Associates $10,220,000
Alpine Partners, L.P. $ 1,380,000
Akela Capital Master Fund, Ltd. $10,000,000
B.G.I. Global Investors $ 453,000
Bear, Stearns & Co. Inc. $ 2,000,000
BTES - Convertible ARB $ 200,000
BTOP Growth vs Value $ 800,000
Citigroup Global Markets Inc. $11,950,000
Credit Suisse First Boston LLC $ 1,250,000
Forest Fulcrum Fund L.L.P $ 1,770,000
Forest Global Convertible Fund Series A-5 $ 6,168,000
Forest Multi-Strategy Master Fund SPC $ 977,000
JP Morgan Securities Inc. $ 3,000,000
KBC Convertible Arbitrage Fund $18,920,000
KBC Convertible Mac 28 Ltd. $ 1,720,000
LLT Limited $ 455,000
Lyxor Master Fund $ 6,308,000
Melody IAM Ltd. $ 860,000
OIP Limited $ 1,683,000
RBC Alternative Assets LP $ 397,000
Relay 11 Holdings $ 247,000
SG Cowan Securities - Convertible Arbitrage $ 7,500,000
Silvercreek II Limited $ 1,020,000
Silvercreek Limited Partnership $ 2,397,000
Sphinx Convertible Arbitrage $ 125,000
Sunrise Partners Limited Partnership $ 500,000
TD Securities (USA) Inc. $ 3,000,000
White River Securities L.L.C $ 2,000,000
Zurich Master Hedge Fund $ 610,000
$227,100,000
INCO LIMITED
3 1/2% SUBORDINATED CONVERTIBLE DEBENTURES DUE 2052
==============================
BASE SHELF PROSPECTUS
==============================
April 29, 2003
----------------------------------------
PART II
INFORMATION NOT REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Prospectus, incorporated by reference to Part I of this Registration
Statement
4.1 Annual Report on Form 10-K for the fiscal year ended December 31,
2002, which Report is incorporated herein by reference (File No.
1-1143)
4.2 Proxy Circular and Statement of the Company dated February 10, 2003
other than the sections entitled "Report of the Management Resources
and Compensation Committee on Executive Compensation" and
"Comparative Shareholder Return" (incorporated by reference to
Exhibit 99 to the Annual Report on Form 10-K for the fiscal year
ended December 31, 2002 (File No. 1-1143))
4.3 Quarterly Report on Form 10-Q for the quarter ended March 31, 2003,
which Report is incorporated herein by reference (File No. 1-1143)
4.4 Current Report on Form 8-K of the Company, dated February 26, 2003,
which Report is incorporated herein by reference (File No. 1-1143)
4.5 Current Report on Form 8-K of the Company, dated March 11, 2003,
which Report is incorporated herein by reference (File No. 1-1143)
4.6 Material Change Report of the Company, dated March 4, 2003, filed
with the Ontario Securities Commission*
5.1 Consent of PricewaterhouseCoopers LLP
5.2 Consent of Osler, Hoskin & Harcourt LLP
5.3 Consent of Mr. Robert C. Osborne*
5.4 Consent of Mr. Robert A. Horn*
6.1 Powers of Attorney*
7.1 Indenture, dated March 7, 2003, between the Company and The Bank of
New York*
7.2 First Supplemental Indenture, dated March 7, 2003, between the
Company and The Bank of New York*
8.1 Statement of Eligibility of The Bank of New York on Form T-1*
------
* Previously filed.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-10 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Toronto, Province of Ontario, Canada, on the
29th day of April, 2003.
INCO LIMITED
By /S/ STUART F. FEINER
--------------------------------------------
(Stuart F. Feiner, Executive Vice-President,
General Counsel and Secretary)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities indicated, on the 29th day of April, 2003.
/S/ SCOTT M. HAND Chairman and Chief Executive Officer and Director
-------------------------- (Principal Executive Officer)
(Scott M. Hand)
/S/ FAROKH S. HAKIMI Executive Vice-President and Chief Financial Officer
-------------------------- (Principal Financial Officer)
(Farokh S. Hakimi)
/S/ RONALD A. LEHTOVAARA Vice-President and Comptroller
-------------------------- (Principal Accounting Officer)
(Ronald A. Lehtovaara)
* Director
--------------------------
(Glenn A. Barton)
* Director
--------------------------
(Angus A. Bruneau)
Director
--------------------------
(Ronald C. Cambre)
* Director
--------------------------
(Judith A. Erola)
* Director
--------------------------
(Chaviva M. Hosek)
* Director
--------------------------
(Peter C. Jones)
Director
--------------------------
(John T. Mayberry)
* Director
--------------------------
(David P. O'Brien)
Director
--------------------------
(Roger Phillips)
* Director
--------------------------
(James M. Stanford)
* Director
--------------------------
(Richard M. Thomson)
/S/ EDWARD A. STEEN Authorized Representative in the United States
--------------------------
Edward A. Steen
Inco United States, Inc.
* Pursuant to powers of attorney executed by the persons named above whose
names are preceded by an asterisk, Stuart F. Feiner, as attorney-in-fact,
does hereby sign this Amendment No. 1 to Registration Statement on behalf
of each such person, in each case in the capacity indicated, on the date
indicated.
By /S/ STUART F. FEINER
----------------------------------------------
(Stuart F. Feiner, Attorney-in-Fact)