December 22, 2004
Phelps Dodge Corporation (PD)
As you know, Southern Peru Copper Corporation, hereinafter referred to as
SPCC, has been discussing the possibility of entering into a strategic
transaction (the "Transaction") involving Minera Mexico, S.A. de C.V. ("MM").
The Transaction involves MM becoming a subsidiary of SPCC in consideration for
the issuance of Common Stock by SPCC to Americas Mining Corporation ("AMC") for
its approximately 99% MM ownership. The Transaction would involve the
solicitation of votes of the shareholders of SPCC in order to approve the
issuance of Common Stock in connection with the acquisition by SPCC of MM. We
would like to obtain the expression of your current intent to vote to approve
this Transaction in accordance with the paragraphs below.
We are convinced that the Transaction would transform SPCC into one of the
world's premier mining companies, with superior scale and market position,
high-quality asset portfolio, geographic and country diversification, commodity
and semi-manufactured product diversification, great synergies, sizable combined
sales and EBITDA to compete internationally, and one class of shares to improve
liquidity and access to the capital markets.
Proposed Liquidity and Support Provisions
AMC is willing to use its reasonable best efforts to cause SPCC to provide
registration rights to Phelps Dodge Corporation, hereinafter referred to as PD,
in accordance with a Registration Rights Agreement that will include the terms
set forth in Annex A to this letter and will otherwise contain terms customary
for registration rights agreements. AMC will use its reasonable best efforts to
cause SPCC to, and PD will, in good faith as soon as possible after the
execution of this letter, negotiate, complete, execute and deliver such a
Registration Rights Agreement.
In connection with such Registration Rights Agreement and after the
conversion of shares of Class A Common Stock in SPCC held by PD into shares of
Common Stock, PD agrees not to sell its shares of SPCC during the period
beginning on the closing of the Transaction until the end of the Initial Six
Month Period (as defined in Annex A hereto) but in no event to exceed eight
months from the closing of the Transaction, if any, other than through a
secondary offering effected pursuant to the Registration Rights Agreement;
provided, however, that PD shall be permitted to dividend or otherwise transfer
all or any portion of its shares of SPCC to PD's parent corporation, and PD and
its parent corporation shall each be permitted to dividend or otherwise transfer
all or any portion of such shares to the parent corporation's trust shareholders
and/or beneficiaries of such trusts; and provided, further, that such parent
corporation, trust shareholders and/or beneficiaries, as the case may be, shall
first execute one or more counterparts to this letter agreeing to be bound by
its terms.
During the period described in the prior paragraph, PD agrees that the
maximum number of shares of SPCC that it will sell will be subject to the
volume limitations set forth in the Registration Rights Agreement.
AMC agrees not to sell and will use its best efforts to prevent its
affiliates shares of SPCC from selling during the during the period beginning on
the closing of the Transaction until the end of the Initial Six Month Period (as
defined in Annex A hereto) but in no event to exceed eight months from the
closing of the Transaction. AMC further agrees to use its reasonable best
efforts to cause SPCC to not conduct a primary offering of its shares during the
first six months following the closing of the Transaction, subject to the
Company's right to issue shares in connection with acquisitions, mergers,
business combinations, applicable benefit plans and other similar transactions.
Other than pursuant to an offering effected in accordance with the
Registration Rights Agreement, PD will not, following the closing of the
Transaction, knowingly sell PD's shares in SPCC to any strategic buyers or
competitors of the Company without AMC's prior approval, which approval shall
not be unreasonably withheld.
Taking into account that the Special Committee of disinterested Directors
of SPCC did recommend to the Board of Directors of SPCC the approval of the
Transaction and the Board consequently voted in favor of it, we kindly propose
that PD, together with AMC, express their current intent, and PD and AMC do
hereby express their current intent, to (i) submit their proxies to vote in
favor of the Transaction and for such actions as are required to consummate the
Transaction in accordance with the Special Committee's recommendation and (ii)
take all action reasonably necessary to effect simultaneously with the closing
of the Transaction the conversion of their Class A Common Stock into a single
class of Common Stock with the rights and privileges as set forth in SPCC's
Certificate of Incorporation as it currently exists, which would provide greater
liquidity for all investors.
This letter will be governed by the laws of the State of New York
applicable to contracts to be performed wholly within such state.
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We hope you agree that the Transaction is in the best interests of all
of the stockholders of SPCC and we encourage you to sign in the space
provided below to indicate your agreement to the terms of this letter.
Sincerely,
AMERICAS MINING CORPORATION
/s/ Armando Ortega
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By: Armando Ortega
Title: Secretary
Acknowledged and Agreed:
PD
/s/ S. David Colton
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By:
Title:
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Annex A
Registration Rights Agreement Term Sheet
Parties Phelps Dodge Corporation ("PD") and Southern
Peru Copper Corporation (the "Company").
Shelf Registration As promptly as practicable after the closing
Statement of the Transaction, the Company will file
with the SEC a shelf registration statement
(the "Shelf Registration Statement")
covering all Company common stock owned by
PD (the "Registrable Securities"). The
Company will use reasonable best efforts to
cause the Shelf Registration Statement to be
declared effective as promptly as
practicable and to remain effective for a
period of at least one year.
The plan of distribution in the Shelf
Registration Statement will contemplate only
underwritten offerings sponsored by the
Company during the Initial Six Month Period,
as defined below.
Demand Registrations PD will have the right to demand an
unlimited number of registrations of its
Registrable Securities during the first six
months following the effectiveness of the
Shelf Registration (the "Initial Six Month
Period"), provided that the Registrable
Securities sold will be determined by the
underwriters upon consultation with the
Company and PD to be the maximum number of
shares that the underwriters determine could
be sold without causing a significant
disruption in the market for shares of
Common Stock of SPCC and, in any event, at
least 10,000,000 shares.
PD will also have the right to sell
Registrable Securities during the first six
months following the Initial Six Month
Period subject to a maximum number of up to
1 million shares per month during such
period.
Selection of Bookrunning For each underwritten offering in which PD
Managing Underwriter participates, the Company will have the
right to select the underwriter subject to
PD's reasonable approval.
Certain Time Limitations Under certain circumstances, the Company may
postpone, once in any 360-day period, an
underwritten offering for up to 30 days,
subject to an appropriate board
determination (e.g., a
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pending material transaction).
Selling Efforts At PD's request, the Company will during the
Initial Six Month Period enter into
underwriting agreements (containing
customary terms and conditions that will
inure to the benefit of PD) and participate
in customary selling efforts, such as road
shows.
SPCC will use its reasonable best efforts to
provide full management support for any
offering pursuant to a demand registration,
including the following: SPCC will use its
reasonable best efforts to arrange, organize
and participate in customary "road show"
presentations to institutional investors,
analysts, money managers and others. Such
presentations will take place in such
locations, include such members of
management and last for such duration as
SPCC and the underwriters deem appropriate.
Such presentations will be carried out in a
manner comparable to similar presentations
for issuances of the size and complexity
involved.
Underwriting Agreement With respect to any demand registration that
will be an underwritten offering, SPCC will
enter into a customary underwriting
agreement with the underwriters that is
reasonably satisfactory to PD and contains
such terms as are customarily included in
underwriting agreements, including customary
indemnities no less favorable to the
recipient than those contained in
underwriting agreements with respect to
offerings of similar size and complexity. PD
will enter into such an underwriting
agreement at the request of SPCC. All
representations, warranties and other
agreements on the part of SPCC to and for
the benefit of the underwriters will also be
made to and for the benefit of PD. PD will
not be required to make any representations,
warranties or agreements other than those
regarding PD, its Registrable Securities,
its intended method of distribution and that
which may be required by law.
Lockups The Company and, to the extent so requested
by the managing underwriter for an
underwritten offering under the Agreement,
the executive officers and directors of the
Company will be subject to appropriate
lockup obligations with respect to any
underwritten offering, for up to 10 days
prior to and 60 (or, if so requested by the
managing underwriter in connection with any
particular underwritten offering, up to 90)
days after such offering has been effected
or terminated.
PD will be subject to appropriate holdback
obligations with respect to any Company
registration of Company stock, for up
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to 10 days prior to and 60 (or, if so
requested by the managing underwriter in
connection with any particulars underwritten
offering, up to 90) days after such offering
has been effected or terminated.
Indemnification/ The Company and PD will provide customary
Contribution indemnification/contribution protection to
the underwriters for misstatements or
omissions in connection with information
supplied for inclusion in the Shelf
Registration, including without limitation
any prospectus supplement.
Expenses PD will bear those expenses directly
attributable to the registration of its
Registrable Securities, including
registration and filing fees, fees and
expenses of compliance with "Blue Sky" laws,
out-of-pocket expenses and legal and
accounting expenses; provided, that such
expenses are reasonable and customary. In
addition, PD will be responsible for its own
underwriting discounts and commissions and
transfer taxes attributable to its sales.
Notwithstanding the foregoing, SPCC will be
responsible for, and PD will not bear, any
internal expenses of SPCC, including
overhead and salaries and expenses of its
officers and employees.
Assignability The registration rights granted to PD will
be assignable to the indirect trust
shareholders of PD and/or beneficiaries of
such trusts and to transferees of greater
than 50% of the original number of PD's
Registrable Shares.
Third Party Registration Rights If SPCC grants registration rights to other
Third Party, such rights will be on the same
terms and conditions as the rights granted
to PD under the Registration Rights
Agreement.
In all events, SPCC will not provide
registration rights to any holder or
prospective holder of SPCC shares that are
more favorable, in terms of timing or
otherwise, than the rights conferred upon PD
under the Registration Rights Agreement
unless PD is also provided with the
opportunity to receive such more favorable
rights.
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