___________________________________________________________________________
___________________________________________________________________________
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
Commission file number 0-10122
MAGMA COPPER COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 86-0219794
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7400 N. ORACLE RD., SUITE 200
TUCSON, ARIZONA 85704
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602)575-5600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange
---------------------------- ------------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
COMMON STOCK WARRANTS, NEW YORK STOCK EXCHANGE
$8.50 EXERCISE PRICE
5 5/8% CUMULATIVE CONVERTIBLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, SERIES D
6% CUMULATIVE CONVERTIBLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, SERIES E
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES x NO
____ ____
Indicate by check mark if disclosure of delinquent filings
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ x ]
Aggregate market value of the voting stock held by non-affiliates of
the registrant at March 1, 1994: $373,711,000. See Part III, Item
13-Certain Relationships and Related Transactions.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest practicable date.
Number of shares of Common Stock, $.01 Par Value, outstanding
at March 1, 1994: 45,736,617 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in this
report in the Part(s) indicated:
Proxy statement for 1994 Annual Meeting of Stockholders - Part III.
___________________________________________________________________________
___________________________________________________________________________
TABLE OF CONTENTS
PART I
Page
Item 1. Business. . . . . . . . . . . . .. . . . . . . .
Item 2. Properties . . . . . . . . . . . .. . . . . . . .
Item 3. Legal Proceedings . . . . . . . . .. . . . . . . .
Item 4. Submission of Matters to a Vote of Security Holders. . .
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters . . . . . . . .. . . . . . . .
Item 6. Selected Financial Data. . . . . . .. . . . . . . .
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . .. . . . . . . .
Item 8. Financial Statements and Supplementary Data. . . . . .
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure . .. . . . . . . .
PART III
Item 10. Directors and Executive Officers of the Registrant . . .
Item 11. Executive Compensation . . . . . . .. . . . . . . .
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . .. . . . . . . .
Item 13. Certain Relationships and Related Transactions. . . . .
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . .. . . . . . . .
Signatures . . . . . . . . . . . . . . . .. . . . . . . .
Part I
ITEM 1. BUSINESS
THE COMPANY
Magma Copper Company ("Magma" or the "Company") is a fully-integrated
producer of electrolytic copper and ranks among the largest U.S. copper
producers. Magma's principal products are high quality copper cathode and
high quality copper rod, the latter of which is the basic feedstock of the
copper wire and cable industry. Magma's copper operations also produce
gold and silver-bearing residues, molybdenum disulfide and sulfuric acid as
by-products. Excluding custom processing, in 1993 Magma produced 563
million pounds of saleable copper in concentrates and electrowon, 4.8
million pounds of molybdenum contained in molybdenum disulfide, and
residues containing 2,947,911 ounces of silver and 90,751 ounces of gold
including gold and silver in raw materials purchased from others. An
additional 12,635 ounces of gold was produced in 1993 at the Company's
Robinson Mining District.
The Company produces copper cathode both by traditional mining/
concentrating/smelting/refining methods and by leaching/solvent
extraction-electrowinning ("SX-EW") methods. The Company owns and operates
underground copper mines at its San Manuel and Superior Mining Divisions,
open-pit copper mines at its San Manuel and Pinto Valley Mining Divisions
and in situ leaching operations at its San Manuel and Pinto Valley Mining
Divisions, all in southeastern Arizona.
Through its wholly-owned subsidiary Magma Metals Company, Magma
operates the largest and most modern copper smelting and refining complex
in the United States. The smelter has a rated treatment capacity of 1.25
million tons of copper concentrate per year, which represents approximately
25% of U.S. smelting and refining capacity. In addition to smelting and
refining copper concentrate production from its own mines, the Company
smelts and refines a substantial amount of copper concentrates on a toll or
purchase basis. The profits from processing third party concentrates are
deducted from the Company's overall cost of producing copper from its own
mines.
The Company was originally incorporated in the State of Maine in 1910,
and was reincorporated in the State of Delaware in 1969. From 1968 until
March 1987, the Company was a wholly-owned subsidiary of Newmont Mining
Corporation ("Newmont"), a publicly traded natural resource company. In
March 1987, Newmont distributed 80% of Magma's outstanding common stock to
Newmont's shareholders, deposited 5% of such stock in a trust for issuance
from time to time to Magma employees and retained common and preferred
stock interests in the Company. The Company remained under the influence
of Newmont until November 1988, when Magma undertook a recapitalization
(the "Recapitalization") in which it purchased all of the equity interests
held by Newmont.
The Company's principal office is in Tucson, Arizona. Its mailing
address is 7400 North Oracle Road, Suite 200, Tucson, Arizona 85704 and its
telephone number is (602) 575-5600.
RECENT DEVELOPMENTS
Improved Operating Performance. Since the Recapitalization, Magma has
substantially improved its operating performance. Magma has increased
copper production from its own sources by approximately 40% from 402
million pounds in 1988 to 563 million pounds in 1993. Production from the
leaching, solvent extraction and electrowinning operations increased by 87%
from 86 million pounds in 1988 to 161 million pounds in 1993. Total
smelting and refining production has increased by approximately 48% from
414 million pounds of copper in 1988 to 615 million pounds in 1993. Net
cash operating costs of copper sold have decreased from $.78 per pound
($.93 per pound adjusted for inflation) in 1988 to $.66 per pound in 1992.
In 1993, despite the effects of extraordinary rains and flooding early in
the year, the Company was able to maintain the $.66 per pound cost level
that had been achieved in 1992. Further, as a result of intensified cost
reduction efforts, cash operating costs decreased to $.63 per pound in the
third quarter and $.61 per pound in the fourth quarter of 1993. Net cash
operating costs per pound represent (a) production costs of Magma source
copper sold (excluding depreciation, depletion and amortization) reduced by
credits for by-products and profits from custom processing divided by (b)
total pounds sold from Magma sources. The Company attributes the increase
in production and productivity and reduction in operating costs primarily
to improved labor relations and the use of innovative operating technology.
Debt Refinancing. Prompted by favorable interest rate conditions and
an upgrade to its long-term debt ratings, the Company refinanced a
substantial portion of its long-term debt in 1991 and 1992. The
refinancing of Magma's debt structure provided the Company with less
restrictive covenants on its long-term debt and reduced its weighted
average interest rate on outstanding debt from 14.1% to 10.7%. In total,
the refinancings resulted in a $9.7 million decrease in net interest
expense (1992 vs. 1991), partially offset by a $3 million extraordinary
loss related to premiums paid on early debt repayment.
In May 1993, the Company entered into a five-year $200 million
revolving credit agreement (the "Revolver"). The Revolver is provided by a
consortium of ten banks and is available for general corporate purposes.
Currently, borrowings would bear interest at the rate of London InterBank
Offered Rate (LIBOR) plus 1%. There was no amount outstanding under the
Revolver at December 31, 1993.
Changes in Capital Structure. In the fourth quarter of 1992, the
Company undertook measures to simplify and improve its common equity base.
On October 30, 1992, Magma stockholders approved an amendment to the
Company's Certificate of Incorporation to reclassify and convert all shares
of its Class A and Class B Common Stock into a new single class of common
stock. In December 1992, Magma made an offer to its preferred stockholders
to exchange their Series B Cumulative Convertible Exchangeable Preferred
Stock ("Series B Preferred Stock") for Common Stock. All shares of Series
B Preferred Stock were exchanged by December 31, 1992.
During 1993, the Company issued two new series of preferred stock to
enhance its capital base and liquidity. In July 1993, the Company issued
$100 million, or 2.0 million shares, of 5 5/8 percent Cumulative
Convertible Preferred Stock, Series D, with a liquidation preference of
$50.00 per share and a conversion rate of 3.448 (equivalent to a conversion
price of $14.50 per share). Additionally, in November 1993, the Company
issued $100 million, or 2.0 million shares, of 6 percent Cumulative
Convertible Preferred Stock, Series E, with a liquidation preference of
$50.00 per share and a conversion rate of 3.5945 (equivalent to a
conversion price of $13.91 per share). Dividends are paid quarterly on
each series of preferred stock. The Company intends to use the net
proceeds from the sale of these securities for general corporate purposes,
which may include the development of projects.
Improved Financial Position and Increased Liquidity. The debt
refinancing and preferred stock issuances have improved the Company's
financial position and increased its liquidity. The Company's debt, net of
cash and marketable securities, has decreased by $325 million from $390
million at December 31, 1988 to $65 million at December 31, 1993. Magma's
debt to capitalization ratios have decreased from 57% in 1988 to 37% in
1993. The Company's operating cash flow (earnings before net interest,
taxes, depreciation, depletion and amortization or "EBITDA") improved from
$91 million in 1988 to $125 million in 1993, despite the fact that Magma's
average realized price per pound of copper sold, declined from $1.07 in
1988 to $.94 in 1993. Magma's average price realized was higher than the
average London Metals Exchange (LME) price for 1993 of $.86 per pound
because of a copper price protection program which included the purchase of
put options that protected cash flow and earnings at prices below $.95 per
pound. Although Magma is optimistic about copper prices, Magma has
extended this program to provide a copper price floor of $.75 per pound for
1994 production and $.74 per pound for the first three quarters of 1995.
This program, together with a cost reduction program, were implemented to
help assure cashflow to fund Magma's strategic growth opportunities.
Strategic Growth Opportunities. The Company is currently pursuing or
evaluating several mine development opportunities and the upgrade and
expansion of its smelter. In March 1993, the Company approved the
development of its Lower Kalamazoo orebody. Based upon the current mine
plan, this orebody is scheduled to produce 2.13 billion pounds of copper
during the period from 1996 to 2009. The Company has completed a
feasibility analysis for mining at its Robinson property near Ely, Nevada,
and is pursuing various approvals and permits necessary to develop and
operate a copper/gold mine at this property. The Company has also
commissioned a pre-feasibility study of its Florence property to assess its
development potential.
In February 1993, the Company approved a capital project to expand the
San Manuel smelting and refining facility and further improve its
environmental performance.
COPPER PRICE INFORMATION
Copper is an internationally traded commodity. The copper
prices established on the two major metals exchanges - The Commodity
Exchange, Inc. ("Comex") in New York and the London Metal Exchange ("LME")
- - broadly reflect the worldwide balance of copper supply and demand. The
profitability of the Company's operations is largely dependent upon the
worldwide market price for copper. A $0.01 per pound change in the average
price realized for the Company's 1993 output would have affected pre-tax
income by an estimated $5.6 million. Copper prices have historically been
subject to wide fluctuations and are affected by numerous factors beyond
the control of the Company, including international economic and political
conditions, levels of supply and demand, the availability and cost of
copper substitutes, inventory levels maintained by copper producers and
others and, to a lesser degree, inventory carrying costs (primarily
interest charges) and international exchange rates.
The following table of pertinent copper industry data contains Comex
high, low and average copper prices per pound and illustrates the historic
volatility of copper prices. Price data are given for the Comex
standard-grade copper contract for the years 1984-1989. Thereafter, prices
are given for contracts for delivery of high-grade copper cathode, which
replaced the standard-grade contract effective January 1, 1990.
<TABLE>
COMEX COPPER PRICES
($ per Pound)
<CAPTION>
High(1) Low(1) Average(1)(2)
------- ------ -------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1984 . . . . . . . . . . . . . . $ .71 $ .55 $ .61
1985 . . . . . . . . . . . . . . .66 .56 .61
1986 . . . . . . . . . . . . . . .69 .57 .62
1987 . . . . . . . . . . . . . . 1.46 .60 .78
1988 . . . . . . . . . . . . . . 1.63 .88 1.15
1989 . . . . . . . . . . . . . . 1.59 1.00 1.25
1990 . . . . . . . . . . . . . . 1.38 .96 1.19
1991 . . . . . . . . . . . . . . 1.20 .96 1.05
1992 . . . . . . . . . . . . . . 1.16 .94 1.03
High(1) Low(1) Average(2)
------- ------ ----------
1993:
First Quarter. . . . . . . . . . $1.07 $ .94 $ .98
Second Quarter . . . . . . . . . .96 .77 .83
Third Quarter. . . . . . . . . . .89 .74 .84
Fourth Quarter . . . . . . . . . .83 .72 .76
Year . . . . . . . . . . . . . 1.07 .72 .85
________
(1) Source: American Metals Market (1984-86), Metals Week (1987-1993)
(2) Source: MET Research
</TABLE>
The Company's average realized price per pound of copper was $.94 in
1993, $1.00 in 1992 and $1.01 in 1991.
From time to time the Company enters into options and futures contracts
or fixed price forward sales agreements as part of its copper price
protection program. During the second, third and fourth quarters of 1993,
the Company benefited from put option contracts that provided price
protection at LME prices below $0.95 per pound. During these quarters,
option contracts totalling 384 million pounds were exercised, resulting in
a realized price above the market prices reflected in the table above. In
addition, the Company's 1993 realized price was impacted by fixed price
forward sales of 42 million pounds at an average price of $0.91 per pound.
During 1992 and 1991 the Company had fixed price sales of 179 million
pounds at $0.93 per pound and 183 million pounds at $0.98 per pound,
respectively.
The Company's realized price per pound includes a premium of several
cents over the market price for copper cathode to reflect net delivery and
financing costs. The Company's price for copper rod commands a premium
over its price for copper cathode to reflect the value added by additional
processing.
COMPETITION
The Company does not believe that it or any other copper producer can
individually exercise a material influence on the markets in which the
Company operates. The price of copper depends almost entirely upon
industrial consumption and other market conditions beyond the Company's
control. Many foreign and domestic copper producers benefit from
higher-grade orebodies than those owned by the Company. Further, most
foreign producers benefit from lower labor rates and less stringent
environmental regulation than those of United States producers. Because of
their need for foreign exchange and the political impact layoffs might
have, some foreign producers maintain maximum production without regard to
the condition of the world copper market or the profitability of their
mining operations.
The Company's custom smelting and refining operations compete with other
smelting and refining operations, primarily Japanese based companies, for
the treatment of copper concentrates. At present, the Japanese government
imposes a tariff on refined copper that protects smelting margins by
increasing the price of finished cathode to domestic consumers.
Additionally, the economic benefit accruing to Japanese operators from the
tariff allows them a protected base from which they can aggressively export
to nearby Asian countries.
The Company and other copper producers also compete with manufacturers
of other materials, including aluminum, stainless steel, plastics and fiber
optic cables. Should copper prices increase sharply, substitution of these
alternative materials for copper may occur.
PRODUCTS AND SALES
Products. Magma's principal products are high quality copper cathode
and high quality copper rod, the latter of which is the basic feedstock of
the copper wire and cable industry. Approximately 58% of the copper sold
by the Company in 1993 (447.1 million pounds) was sold as copper cathode,
36% (276.3 million pounds) was sold in the form of continuous cast rod, and
the remaining 6% (41.0 million pounds) was sold in other forms. Copper
revenue in 1993 decreased by 3% to $710.5 million, compared to $736.2
million for 1992, due to a $.06 decrease in Magma's average realized price
per pound, which was partially offset by higher sales volume.
In addition to smelting and refining copper concentrate production from
its own mines, the Company processes a substantial amount of copper
concentrates on a toll or purchase basis. The profits from processing
third party concentrates are deducted from the Company's overall cost of
producing copper from its own mines. The total quantities of copper
produced by the Company, copper smelted and refined on a custom basis and
copper sold by the Company from its own mines during each year in the
five-year period ended December 31, 1993 were as follows (in millions of
pounds):
<TABLE>
<CAPTION>
Custom Processing
Total ----------------------- Inventory Magma
Copper Toll Sales of Fluctuations Source
Year Produced(1) Customers Purchased(2) and Other(3) Copper Sales
---- ----------- ---------- ------------ ------------- -------------
<C> <C> <C> <C> <C> <C>
1993 779.3 (66.8) (151.6) (2.6) 558.3
1992 767.8 (65.5) (158.6) 23.1 566.8
1991 703.2 (75.3) (114.2) 10.2 523.9
1990 675.5 (119.8) (98.3) 32.4 489.8
1989 536.3 (146.4) (56.0) 71.7 405.6
(1) Total cathode production, including custom processing.
(2) Total copper purchased, including concentrate and other purchases,
from third parties and sold to customers.
(3) Amounts include purchases of copper cathode and sales of non-refined
copper. In addition, during 1993, the Company sold 33.8 million
pounds of anodes from third party sources and returned 25.4 million
pounds of anode to toll customers.
</TABLE>
Magma's copper operations also produce gold and silver-bearing residues
and molybdenum disulfide as by-products. Revenue from gold sales in 1993,
including gold contained in raw materials purchased from others, was $32.4
million on sales of 90,751 ounces. Revenue from silver sales in 1993,
including silver in raw materials purchased from others, was $12.7 million
on sales of 2,947,911 ounces. An additional $4.5 million of revenue
represented sales of 12,635 ounces of gold in dore produced in 1993 at the
Company's Robinson Mining District. Revenue from sales of molybdenum
disulfide in 1993 was $9.2 million on sales of 4.8 million pounds
molybdenum contained. The Company uses sulfuric acid produced in the
smelting process in its copper leaching operations and sells any excess
acid to third parties.
Sales. The Company's sales strategy includes (i) expanding sales to
North American consumers, while preserving a core of long-term customer
relationships in Asia, (ii) custom smelting and refining of third party
concentrate to supplement feedstock to its smelter from Magma's own mines,
and (iii) an optimal mix of copper rod and copper cathode sales.
The Company's export sales have declined in recent years primarily due
to increasing U.S. consumption and the recession in Japan. The Company is
maintaining its presence in the Asian markets by supplying cathode to major
fabricators on an annual basis. The Company's export sales as a percent of
total revenues were 25%, 29% and 50% for the years ended December 31, 1993,
1992 and 1991, respectively.
Customers. During 1993, the Company's copper was sold to approximately
sixty customers. Sales of copper to the Company's largest customer during
the year accounted for 19% of total revenues. Because copper is an
internationally traded commodity, the Company does not believe that the
loss of any one customer would have a material adverse effect on the
results of its operations.
OPERATIONS
Overview. Currently, all of the Company's copper mining, smelting and
refining operations are in southeastern Arizona. Its mining operations are
conducted through its San Manuel, Pinto Valley, and Superior Mining
Divisions. Magma Metals Company, a wholly-owned subsidiary, operates the
smelting and refining complex and rod plant and conducts the Company's
sales and marketing activities. The Company has two subsidiaries which
conduct railroad operations in support of its copper mining operations.
The Company also operates a gold mine at its Robinson Mining District near
Ely, Nevada and operated a small gold mine near Humboldt, Arizona. A
detailed description of the Company's mining properties is included in Item
2-Properties.
Mining Operations. The San Manuel Mining Division mines and mills
copper sulfide ore principally from its underground mine. The underground
mine ranks as one of the world's largest in terms of production.
Approximately 219 million pounds of copper were produced from the mine in
1993. The Company employs block caving, which involves the undercutting or
removal of a horizontal slice of ore (a "stope block") that is large enough
so that the unbroken ore above the stope block falls into the undercut.
The ore is then drawn from the undercut and transported to the surface,
where it is processed at the San Manuel concentrator. The concentrate is
processed further at the Company's smelting and refining complex.
The San Manuel Mining Division also produces oxide ore from an open-pit
mine. Copper is produced through heap leaching and SX-EW processing, which
are generally lower in cost than copper obtained from sulfide ore through
traditional methods. The leaching operations utilize sulfuric acid
produced as a by-product of the Company's smelting process. The Company
also maintains an in situ, or in-place, leaching program in or around
worked out portions of the San Manuel open-pit and underground mine.
During 1993, heap leaching and in situ production at San Manuel totaled
approximately 118 million pounds.
The Pinto Valley Mining Division conducts its operations through two
units: the Pinto Valley Unit and Miami Unit. The Pinto Valley Unit mines
copper sulfide ore from its open-pit mine for both the concentrating/
smelting/refining and the leaching/SX-EW production methods. The Miami
Unit conducts in situ leaching at a closed underground mine, as well as
leaching of concentrator tailings. In 1993, copper produced by the Pinto
Valley Mining Division accounted for approximately 179 million pounds of
the copper cathode refined by the Company, of which 40 million pounds of
copper cathode were processed by the Division's two SX-EW facilities, and
139 million pounds were processed at its concentrator and processed further
at the Company's smelting and refining complex.
The Superior Mining Division mines sulfide ore through traditional
stoping methods. Ore is delivered directly to the division's concentrator
for processing. The concentrate is smelted and refined at San Manuel.
During 1993, approximately 32 million pounds of copper were produced at the
Superior Mining Division.
The following table sets forth the percentage of saleable copper
contained in production derived from each of the Company's mining
operations in 1993:
<TABLE>
<CAPTION>
San Manuel Pinto Valley Superior
Mining Mining Mining
Division Division Division Total
----------- ------------- ---------- ------
<S> <C> <C> <C> <C>
Underground Mine
Concentrate 40% --% 6% 46%
Open-Pit Mine
Concentrate -- 25 -- 25
Open-Pit Mine
Dump Leaching (SX-EW) 19 5 -- 24
In Situ Leaching
(SX-EW) 3 2 -- 5
---- ---- ---- ----
Total 62% 32% 6% 100%
==== ==== ==== ====
</TABLE>
During 1993, the Company conducted gold mining operations at its
Robinson Mining District and at the McCabe mine near Humboldt, Arizona.
The Company's gold mining operations at its Robinson Mining District
produced 12,635 ounces of gold. The McCabe mine produced 1,900 ounces of
gold. The Company closed the McCabe mine in 1993.
The Company has two Arizona subsidiaries which conduct railroad
operations. The San Manuel Arizona Railroad Company operates a 29-mile
common carrier route from San Manuel which is ultimately linked to the
Santa Fe Southern Pacific Corporation railroad system. The Magma Arizona
Railroad Company operates a 28-mile common carrier route from the area of
Superior, Arizona to the same system.
Smelting. Copper concentrate is processed through the smelter and cast
into copper anodes. Sulfur dioxide offgases collected from the smelter and
converter are converted into sulfuric acid at the acid plant and either
used in the Company's leaching operations or sold to third parties. The
major smelter components include: (i) an oxygen-enriched flash furnace,
(ii) an oxygen plant, and (iii) an acid plant. The smelter has the
capacity to process 3,300 tons per day of new sulfide copper concentrate.
In 1993, the smelter processed approximately 1,076,000 tons of new sulfide
concentrate.
Refining. The refinery electrolytically refines the copper anode
produced in the smelter into copper cathode with a minimum 99.95% pure
copper content. In 1993, 621 million pounds of copper anode were refined.
Precious metals in residues, primarily gold and silver, are recovered at
the end of the refining process and are sold to third parties.
Casting. The continuous cast copper rod mill, near the refinery, melts
copper cathodes and casts a bar which, in turn, is drawn into copper rod.
The rod mill has a nominal rated capacity, based upon a 5-day work week, of
approximately 300 million pounds of copper rod per year. In 1993,
approximately 290 million pounds of copper rod were produced at the rod
mill.
Custom Smelting & Refining. The Company smelted and refined, on a
custom basis (including tolled and purchased concentrates), approximately
369,000 tons of concentrates for, or purchased from, third parties during
1993. Magma is diversifying its sources of feedstock to include a number
of U.S. and foreign producers, in addition to Magma's own mines.
Process Materials and Resources. The principal process materials used
in the Company's operations are natural gas, limestone, lime, silica flux,
flotation reagents, water and sulfuric acid. The San Manuel Mining
Division obtains limestone, lime, silica fluxes and water required for
operations from Magma's own properties and properties leased from others.
The Pinto Valley Mining Division obtains its lime and limestone
requirements from third parties and has its own water supply and
arrangements with third parties for the use of other water.
The acid plant contained within the Company's smelting and refining
complex converts sulfur dioxide gases to sulfuric acid, which is used in
leaching and refining at both the San Manuel Mining Division and Pinto
Valley Mining Division. The flash furnace included in the retrofitted
smelter uses the sulfur in the copper concentrate as its primary fuel
together with oxygen produced on site. Natural gas and oil are used as
auxiliary fuels.
Adequate supplies of natural gas, oil and the processing materials
obtained from the Company's operations and from third parties have been,
and are expected to continue to be available on a competitive basis. The
San Manuel operation generates a portion of its power requirements and
obtains the remainder pursuant to a contract with Arizona Public Service
Company. The Pinto Valley and Superior Mining Divisions obtain their power
pursuant to a contract with the Salt River Project and Agricultural
District.
EMPLOYEES
On December 31, 1993, the Company had 4,286 employees, of whom 2,951
were hourly-rated employees and 1,335 were salaried employees. The
Company's hourly-rated employees are represented by eight labor unions.
The United Steelworkers of America ("USWA") represents the greatest number
of hourly employees at the San Manuel Mining Division and Magma Metals
Company. At the Pinto Valley Mining Division, seven individual unions are
jointly certified. Of these, the USWA has the largest membership.
In October 1991, the Company and its labor unions executed a 15-year
collective bargaining agreement, more than eight months prior to the
expiration of the then existing contract. The agreement prohibits strikes
and lockouts for at least seven years. Hourly-rated employees have
received and will receive annual wage increases of $.25 to $.35 per hour in
each of the five years following 1991, some of which are dependent upon
Magma's quarterly earnings performance during such periods. In addition to
the hourly base wage rate, all employees, excluding executives and
corporate office employees, participate in divisional gainshare plans that
were initiated July 1, 1991. As a result of employee generated cost
reductions, improved productivity and better safety, quarterly financial
awards as a share of these savings/gains are paid to participants.
After the initial five-year period, the agreement will continue in
effect for an additional 10 years on the same terms and conditions unless
either party proposes a modification of the economic terms. If the parties
are unable to agree on the proposed modifications, they will be submitted
to an arbitration panel which will establish economic terms for a one-year
period. If during any five-year period after the initial term there are two
such arbitration proceedings, the agreement will terminate upon the
anniversary date of the second arbitration award.
The Company encourages the cooperation of management, its employees and
their unions, along with employee work re-design, employee involvement and
other programs in an effort to reduce costs, improve productivity and
enhance employment security. The Company believes that its success in
these areas has been a major contributing factor in improving Magma's
operational performance.
LICENSES
The Company has a perpetual license from Southwire Company to use the
Southwire continuous copper rod casting system, including patented
processes and machines and related know-how, at the Company's rod plant in
San Manuel, Arizona.
The Company has a perpetual license from Phelps Dodge Corporation to
use a patented cathode press which increases the strength of the copper
cathode produced at the Company's San Manuel refinery.
The Company has a perpetual license from MIM Technologies Marketing
Limited to use a patented process for the production of stainless steel
plates used in the processing of copper cathode in the Company's SX-EW
facility at San Manuel. The Company believes that the use of stainless
steel plates is more efficient than the use of copper plates as is standard
in other SX-EW plants.
The Company has a perpetual license from Outokumpu Oy to use the
Outokumpu process, including the Outokumpu flash furnace and related
know-how, at the Company's retrofitted smelter at San Manuel. This process
allows the Company to recover almost 100% of smelter and converter offgases
generated in the smelting and converting process and yields sulfuric acid
for the Company's leaching activities.
ENVIRONMENTAL REGULATIONS
The mining and mineral processing industries are subject to extensive
regulation relating to the protection of the environment, including
regulations relating to air and water quality, mine reclamation,
remediation, solid and hazardous waste handling and disposal and the
promotion of occupational safety. The Company believes that it is
currently in material compliance with these laws and regulations.
Smelter Emissions and Air Pollution. The Federal Clean Air Act (the
"Act"), and implementing regulations thereunder, restrict smelter emissions
into the atmosphere. The Company retrofitted its smelter in 1988 to
achieve compliance with all existing SO2 and particulate matter standards.
The Company believes there were no exceedances of any state or federal SO2
emission limits, nor were there violations of national ambient air quality
standards in 1993. Amendments to the Act, which were signed into law in
1990 (the "1990 Amendments"), and Arizona state air legislation passed in
1992 along with regulations currently being promulgated (the "Arizona Clean
Air Act") may restrict smelter emissions in the future. In this regard,
the Company cannot predict at this time the level of new emissions controls
and related costs which may be required for it to comply with standards
governing emissions of sulfur dioxide, particulates and air toxics that are
expected to be adopted under the 1990 Amendments, or the Arizona Clean Air
Act.
Federal and state regulations may require the stabilizing of mineral
tailings to reduce blowing dust and provide surface restoration. In
anticipation of the possible effects of regulations related to mineral
tailings impoundments at several of its mining divisions, the Company has
covered selected tailings impoundments with fertile topsoil on which
vegetation has been planted. Other tailings are being reprocessed (see
Pinto Valley Mining Division, Miami No. 2 Tailings Project in Item 2-
Properties). The Company is also developing a version of innovative
reclamation technology known as Holistic Resource Management to revegetate
tailings impoundments and waste dumps, which consists of cattle grazing on
such facilities, to generate suitable soil media and vegetation.
Air Pollution Control Costs. The Company makes expenditures for
environmentally related capital improvements on an ongoing basis. In 1988,
the Company spent $160.7 million, including financing costs, on an
environmentally related smelter retrofit. The Company borrowed $35.7
million from the Industrial Development Authority of the County of Pinal to
finance the construction of those portions of the smelter retrofit that
qualified as pollution control facilities under the relevant statutes. In
addition, through December 31, 1993, the Company incurred $64 million of
capital improvements relating to the construction of the smelter's third
acid train facility and dust leach plant. An additional $21 million is
estimated as the additional cost to complete these projects in 1994. These
improvements have expanded the capacity of the smelter to 720 million
pounds of copper annually, and will improve the environmental performance
of the smelter.
Required Permits. Various federal, state and local laws and
regulations require the Company to maintain certain environmental permits
for its mining, concentrating and smelting operations. The Company
believes it has obtained all necessary environmental permits and licenses
for its business, with the exception of certain air permits.
The Company has filed applications in a timely fashion for renewal of,
or modifications to, each of the air quality operating permits previously
granted by the Arizona Department of Environmental Quality (the "ADEQ").
Under the Arizona Administrative Procedures Act, the ADEQ must allow the
Company to continue its operations under the expired permits until final
action on the application for the permits is taken.
Under regulations recently adopted by the Arizona Department of
Environmental Quality, the Company is required to file an application for a
five-year operating permit for its San Manuel smelter and related mineral
processing facilities (including the recently permitted improvements) by
November 1, 1994. The permit is intended to meet the requirements for a
major air pollution source operating permit prescribed by Title V of the
1990 Amendments to the Act. Minor source (non-Title V) permit applications
for the mine/mill/leaching complex at the San Manuel Mining Division, the
Miami Unit at the Pinto Valley Mining Division, and Superior Mining
Division facilities will be filed when requested by ADEQ. Since ADEQ has
yet to issue permits under its new regulations, the Company cannot predict
whether it will incur additional costs, other than the costs for emissions
testing and similar application-related activities, to comply with
requirements to be imposed under the permits. However, while the permits
are expected to regulate some activities not currently regulated, the
previous emission limits and other operating standards which the facilities
are subject to are unchanged and as a result issuance of the permit is not
expected to result in any material increase in compliance costs.
One of the Company's mine development projects is the Robinson Mining
District near Ely, Nevada. Development of Robinson requires, among other
factors, appropriate environmental and operating permits. In early 1993,
the Bureau of Land Management determined that an Environmental Impact
Statement ("EIS") must be prepared to analyze the Company's proposed re-
development of the property. The Company believes the EIS process will be
completed during 1994 and project start-up will begin in the first quarter
of 1996, although there can be no assurance in this regard. See Item 2,
Properties, Robinson Mining District.
Solid and Hazardous Waste. The mining and mineral processing industry
has, since 1980, been subject to the requirements of the Resource
Conservation and Recovery Act ("RCRA") which provides "cradle to grave"
regulation of certain solid wastes generated during processing. These
regulations prescribe methods for treatment, storage, transportation and
disposal of such solid wastes. The term "solid waste" includes hazardous
wastes and liquid and gaseous forms of materials, and in the minerals
industry, applies to broad categories of wastes such as chemical reagents,
sludges and spent materials. The Company properly disposes of all
hazardous waste used or generated at its operations and conducts
environmental audits of all third-party facilities utilized for such
disposal.
The Company has been previously involved in a Federal Superfund Site
allegedly involving the improper disposal of hazardous wastes. In May of
1989, the Environmental Protection Agency ("EPA") proposed that the Tex-Tin
site near Texas City, Texas be included on the National Priorities List
("NPL"), and in 1990, the site was formally added to the list, and the
Company was designated as a Potentially Responsible Party ("PRP"), since
the Company had sold smelting materials to operators of the site. However,
in May of 1993, the United States Court of Appeals for the District of
Columbia ordered the EPA to remove the Tex-Tin site from the NPL. The
legal effect of this removal is that the EPA is no longer permitted to
prosecute clean-up actions at the Tex-Tin site and the Company is no longer
a PRP. The basis for the District Court's order was that the health risks
were less than originally suspected. The Company believes, on a going-
forward basis, it is unlikely to be the subject of private litigation or
suffer any material liability. To date the Company has not been named as a
party in any litigation concerning this site, nor has it expended any
monies in voluntary study or other activities related thereto.
Groundwater Contamination. In late 1988, the ADEQ announced a project
to address acidic water drainage in the Globe-Miami, Arizona area, which
includes the Company's Pinto Valley Mining Division. The ADEQ subsequently
issued a record of decision in which it identified the affected area as the
Pinal Creek Water Quality Assurance Revolving Fund ("WQARF") site, and
determined that the Pinto Creek portion of the area, where the bulk of the
Pinto Valley Mining Division's operations are, will not be the subject of
site investigation or remediation efforts. The project relates to a plume
of subsurface contamination that has been under state and federal study
since 1980. In 1986, the EPA issued to another area copper producer a
finding of violation and order regarding surfacing of acidic water related
to this subsurface plume. Magma, along with other area copper producers,
has been engaging in voluntary pumping and treatment operations, which may
be intensified, with a view to reducing the contaminated plume. In
addition, the Company is voluntarily participating in remedial
investigation/feasibility study determinations with other interested
parties in this identified area. The cost of such activities is shared by
Magma and the other producers. Although the cost is not material on a
yearly basis, the Company cannot estimate the duration over which such
activities may have to take place.
The Company and two other companies sharing voluntary responsibility
for groundwater cleanup and the remedial investigation/feasibility study,
have sued, in an action in the Federal District Court of Arizona, other
former owners/operators of mining and mineral processing facilities in the
Globe-Miami areas to obtain reimbursement for all or a part of the amount
already expended in remedial actions and for any future costs incurred at
the site. Several of these defendants claim that the Company must
indemnify them from any liabilities at the site. The Company does not
believe that these claims have validity, and that even if the proponents of
such claims prevail, the Company will not incur any material liability or
costs in relation to this matter, although there can be no assurance in
this regard.
Surface Water. The Superior and Pinto Valley Mining Divisions have
been issued permits by the EPA under the federal Clean Water Act ("CWA").
In late 1992, the EPA and the ADEQ indicated that they would seek civil
penalties for violations of various CWA permit conditions and state surface
water quality standards at Superior and Pinto Valley that occurred from
1989 through 1992. As a result of severe rainfalls in late 1992 and early
1993, the Superior and Pinto Valley divisions suffered from flooding, water
containment structural failures and technical exceedances of permit
standards. In the wake of these circumstances, the Company has tentatively
agreed to enter into a Consent Decree to settle all claims relating to
these matters. The Consent Decree is expected to be executed during the
first quarter of 1994. Under the proposed settlement, the Company would
pay fines totaling $625,000, and contribute monies towards or perform
several supplemental environmental projects costing approximately $200,000.
In addition, the Company would agree to perform remedial investigation
studies and corrective activities, and to upgrade its tailings containment,
and storm water containment facilities at these divisions. The Company
expended $6 million to correct and upgrade affected facilities in 1993.
The Company expects to spend an additional $8 million to upgrade and expand
these facilities in 1994. These costs are being capitalized and will be
amortized over the remaining mine life.
Compliance with, or changes in the aforementioned federal and state
environmental laws and regulations or enactment, or promulgation of new
laws and regulations, could require the Company to modify or curtail its
operations or to incur substantial additional capital expenditures.
ITEM 2. PROPERTIES
Overview. The Company owns or has interests in approximately 32,500
acres of land in southeastern Arizona, where it currently conducts all of
its copper operations. It also owns 12,500 acres of land at its Robinson
Mining District near Ely, Nevada, where it conducts a gold leaching
operation and is developing a major copper project. The Company's mineral
interests are held in fee or are derived from patented and unpatented
mining claims and mineral leases. The Company also owns water rights,
rights-of-way and interest in other leases.
The Company's ore reserves are determined by its engineering staff
utilizing standard techniques and standard modeling software, typically
with the assistance of independent mining consultants.
The Company's ore reserves may not conform to geological,
geomechanical, metallurgical or other expectations with the result that the
volume and grade of reserves recovered and rates of production may be more
or less than anticipated. Further, market price fluctuations in copper,
changes in operating and capital costs, further orebody definition,
drilling and testing, and other factors affect ore reserves. In addition,
the Company is subject to the normal risks encountered in the mining
industry, such as unusual or unexpected geological formations, cave-ins,
flooding, fires and environmental issues.
The Company's mining operations are conducted by several divisions
described below and in Item 1- Business.
SAN MANUEL MINING DIVISION
The San Manuel Mining Division, near San Manuel, Arizona, 45 miles
northeast of Tucson, Arizona, is accessed by State Hwy. 79 to State Hwy. 77
to Redington Road which terminates at the minesite to the north and reaches
the concentrator and plantsite to the south. Sulfide ore is mined from the
San Manuel orebody through underground block caving while oxide ore is
mined through open-pit mining/heap leaching and in situ leaching. Cathode
copper is produced from leach solutions at the SX-EW plant using a solvent
extraction-electrowinning process. The Division utilizes a concentrator to
produce concentrate from sulfide ore which is further processed at the
Company's smelting and refining complex.
Investment in the Division's property, including plant and equipment
totaled $187 million as of December 31, 1993. Electricity is provided by
the Arizona Public Service Company.
The San Manuel Mining Division ore reserves are contained on land held
by the Company under patented mining claims and mineral leases from the
State of Arizona. Approximately 2% of the sulfide ore deposit lies on land
leased from the State and subject to production royalties. Mineral leases
will expire in the years 2003 through 2007, but the Company has a
preferential right to renew these leases for a term of twenty (20) years.
Currently there is no active production from state-leased land. Mining on
leased land is scheduled to resume in 1997. The Company owns or controls
through lease agreements, easements, and rights-of-way, surface use of
surrounding land in support of the mining operations.
Extraction of sulfide ore from the San Manuel underground mine began in
1956, and the mine now ranks as one of the world's largest underground
copper mines in terms of production. The San Manuel mine and concentrator,
and the Company, were wholly-owned by Newmont Mining Corporation from 1968
until March 1987.
The San Manuel and Kalamazoo orebodies are two faulted segments of what
was once a single, cylindrical-shaped shell of disseminated copper
mineralization about 7,700 feet long and 2,500 to 5,000 feet in diameter.
The shell itself varies in thickness from 100 to 1,000 feet and wraps
around a central unmineralized core.
Ore reserves in the San Manuel orebody consist of both copper sulfide
and oxide ores with oxide ores confined to the upper reaches of the
orebody. The sulfide ore consists essentially of disseminated chalcopyrite
in quartz monzonite and monzonite porphyry. Some chalcocite enrichment is
present in minor amounts. Much of the upper part of the orebody has been
oxidized in varying degrees, mainly to chrysocolla. Ore reserves are
estimated using standard techniques and standard modeling software by
division geology and engineering staff. The Lower Kalamazoo deposit is
discussed in Item 7 under Development Opportunities.
PINTO VALLEY MINING DIVISION
The Pinto Valley Mining Division had its beginning in the early 1900's.
The division started as Miami Copper Company in 1909. In 1960, the
Tennessee Corporation took over Miami Copper Company and, in 1963, Cities
Service Company acquired the Tennessee Corporation. In late 1982,
Occidental acquired Cities Service Company. By early 1983, Occidental
concluded a sale of the Miami operations to Newmont Mining Corporation
which contributed those assets to its new, wholly-owned subsidiary, Pinto
Valley Copper Corporation. In late 1986, Newmont merged Pinto Valley
Copper Corporation into Magma Copper Company and Pinto Valley Copper
Corporation became the Pinto Valley Mining Division of Magma Copper
Company.
Investment in the Division's property, including plant and equipment,
totaled $77 million as of December 31, 1993. Electricity is provided by
Salt River Project.
Mining is conducted through two units: the Pinto Valley Unit and the
Miami Unit. The Pinto Valley Unit mines copper sulfide ore from its
open-pit mine for both concentrating/smelting/refining and leaching/SX-EW
production methods, while the Miami Unit conducts in situ leaching of the
area of rubble above the closed underground mine and leaching of
concentrator tailings.
Pinto Valley Unit
The Pinto Valley mine is about six miles west of the town of Miami in
Gila County, Arizona. Substantially all the operations take place on land
owned by Magma. The land consists of patented mining claims, unpatented
mining claims and fee lands.
The Pinto Valley deposit is an orebody containing chalcopyrite, pyrite
and minor molybdenite as the only significant primary sulfide minerals.
These minerals occur in vein sand microfractures, and less abundantly as
disseminated grains. As presently defined, the deposit is bounded by post
mineralization faults. On the south is the South Hill fault, on the east
is the Jewel Hill fault, and on the west is the Gold Gulch fault. Ore
reserves are estimated using standard techniques and standard modeling
software.
Mining and Concentrating of Copper Sulfide Ore. Sulfide ore from the
open-pit mine is processed at the Pinto Valley Unit's concentrator, which
produces copper concentrate containing approximately 28% copper and a
molybdenum disulfide by-product. The concentration process used is similar
to that used in the San Manuel Mining Division's concentrator. The copper
concentrate produced in the concentrator is trucked to San Manuel for
smelting and refining.
Dump Leaching of Copper Sulfide Ore. Low-grade copper-bearing waste
material which has been stripped from the open-pit mine and is classified
as leachable is transported to large sulfide ore dumps. The dumps are
sprayed with water and sulfuric acid which dissolve contained copper and
produce a pregnant leach solution. The pregnant leach solution is fed into
the SX-EW plant located near the dumps. The SX-EW plant has the capacity
to produce approximately 18 million pounds of copper cathode per year. The
copper cathode is cast into rod at the Company's rod casting facility in
San Manuel. Essentially all of the sulfuric acid used in the Pinto Valley
Unit's dump leaching operation is produced by the Company.
Miami Unit
The Miami Unit is immediately north of the town of Miami. All
operations take place on Magma-owned land. It produces copper by leaching
material remaining from historic underground mining of a large,
disseminated copper orebody in which original copper minerals have
naturally been dissolved and reprecipitated in readily soluble form by a
long history of weathering.
In Situ Leaching. The Miami Unit's underground mine ceased operation
in 1959 upon the depletion of all the copper ore that could be economically
mined using block caving methods. However, the area of rubble created by
the block caving has been used for in situ leaching of mixed oxide/sulfide
ore since 1963. The geographic area of the leaching operations was
expanded in 1986 and the sulfuric acid content of the leach solution was
increased. The copper bearing leach solution is processed in the SX-EW
plant near the underground mine. The plant has the capacity to produce 28
million pounds of copper cathode per year.
Miami No. 2 Tailings Project. Mill tailings associated with the old
Miami underground mine are reclaimed using hydraulic mining methods to
produce a slurry of tailings and water. Sulfuric acid is added to the
slurry to dissolve the copper contained therein and the resulting pregnant
leach solution is processed through the Miami Unit's SX-EW plant. The
remaining tailings are transported for disposal through an overland
pipeline to an abandoned pit. Production from the project is expected to
continue through 2001.
SUPERIOR MINING DIVISION
The Superior Mining Division is an underground operation near Superior,
Arizona, approximately 65 miles east of Phoenix. Access to the mine is
through the No. 9 Shaft located four miles east of Superior via U.S.
Highway 60 and the No. 9 Shaft Mine Road. Milling operations are conducted
at the concentrator, north of Superior. Ore is hoisted from mine working
levels to the 500 foot level and then carried by underground railroad to
the concentrator at Superior.
The Superior Mining Division owns patented mining claims, unpatented
mining claims, and fee lands in the Superior area. Mine production is
currently from orebodies on patented mining claims. Exploration activities
are being conducted on patented and unpatented mining claims and under
state prospecting permits held by the Division.
The Magma Mine at Superior was in continuous operation by Magma or its
former parent from 1912 to 1982, when it was closed due to low productivity
and depressed copper prices. The current operation was reopened in late
1990.
The mine currently produces copper sulfide ore from underground using
the undercut and fill mining method at a rate of 1,650 tons per day. The
No. 9 shaft facilities, originally commissioned in 1972, were dewatered and
rehabilitated when the mine was reactivated in 1990. Since reactivation a
ramp system has been installed and utilizes mechanized mining equipment.
The flotation concentrator was erected in 1928. Additions and
modifications were made during the expansions of 1940 and 1970. When
reactivated in 1990, all pumping and piping was downsized in accordance
with the new mine plan. The crusher, ball mills, filter plant, and certain
ancillary equipment have been rehabilitated since startup.
Investment in the underground development, surface facilities, and
concentrator complex totaled $33 million as of December 31, 1993.
Commercial electric power is supplied to the operation by Salt River
Project.
The Superior Division is currently conducting diamond drilling
exploration in areas in the vicinity of the No. 9 shaft. Exploration
activities are directed toward host formations similar to ore bearing areas
of the current and past operations.
Ore in the Magma Mine is composed of high grade sulfide minerals,
chalcopyrite and bornite, associated with the gangue minerals hematite,
quartz and calcite. Copper is the primary metal in the ore with silver and
gold occurring as by-products. Orebodies occur as massive replacement of
limestone by hematite, chalcopyrite and bornite and as vein type orebodies,
which have been significant producers in the district in the past. One
vein orebody is under development for production in 1994 and additional
vein targets are included in the exploration program.
Current ore reserves occur in orebodies in several favorable horizons
within the limestone sequence and in vein structures. Ore reserves are
estimated using standard techniques and standard modeling software.
ROBINSON MINING DISTRICT
The Robinson Mining District, formerly the Kennecott Nevada Mines
Division, was acquired by Magma from the Kennecott Corporation and Alta
Gold through a series of transactions in 1990 and 1991. Investment in this
project totaled $74 million at December 31, 1993. The Robinson Mining
District consists of 12,500 acres and is 8 miles west of Ely, Nevada along
State Highway 50. The patented mining claims and other real property
comprising this project are owned by the Robinson Mining Limited
Partnership, of which Magma's wholly-owned subsidiaries, Magma Nevada
Mining Company, is the general partner and Magma Limited Partner Company is
the limited partner.
In August of 1992, Magma discontinued gold mining operations other than
gold leaching operations at existing dumps. Electricity is presently
provided by Mt. Wheeler Power Company and a new 10 year contract has been
negotiated for future operations. In December 1993, Magma completed the
detailed engineering phase for the development of a copper/gold mine at
this property and is continuing to review construction scheduling, while
awaiting environmental permits. In this regard, in June 1993, the Bureau of
Land Management reversed an earlier decision approving an Environmental
Assessment prepared by Magma, and has required the preparation of an
Environmental Impact Statement (an "EIS") as a precursor to final
permitting of the Robinson project. The Company anticipates that the EIS
will be completed and that permitting could be achieved as early as
September 1994. If these events occur as targeted, of which there can be
no assurance, copper and gold production could be achieved by the first
quarter of 1996. Based on present estimates, development of the Robinson
property could require capital expenditures of approximately $300 million
for a traditional sulfide processing facility. The property is expected to
produce an average of 247,000 tons of concentrate per year containing 135
million pounds of copper, 97,300 ounces of gold and 390,000 ounces of
silver from sulfide copper ore over a sixteen year mine life. In addition
to the copper sulfide operations, it is projected that an average of 17,500
ounces of gold will be produced annually over the life of mine as dore.
Additional Robinson Mining District test work is discussed in Item 7 under
Development Opportunities.
Ore reserves are estimated using standard techniques and standard
modeling software by division geology and engineering staff. These
reserves are in a cretaceous porphyry copper system emplaced into paleozoic
limestone and sandstone formations. Post-mineralization faulting shaped
the porphyry deposit. The various ore bodies, Liberty, Veteran-Tripp,
Ruth, Kimbley, and Wedge, represent the fault slices of the porphyry
system.
FLORENCE PROJECT
The Florence project consists of 10,000 private and state-leased acres
west of State Highway 79, north of Florence, Arizona. The Company acquired
this project in July 1992. The state mineral lease expired at the end of
1993, and the Company has exercised its right to renew for an additional
twenty (20) year term. The deposit was subject to extensive exploratory
and metallurgical work by the previous owner in the mid-1970's. The
acquisition of this property is part of Magma's long-term strategy to
increase copper production through the application of its SX-EW leaching
technology. Magma has begun a pre-feasibility study to assess
possibilities for further development. Investment in the property was $9
million at December 31, 1993.
<TABLE>
ORE RESERVES
(Estimated as of JANUARY 1, 1994)
<CAPTION>
Average Recoverable
PROVEN/PROBABLE Tons Grade Gold Copper Recoverable
RESERVES IN COMMITTED (in %Total oz per (lbs in Gold
MINE PLANS(1) thousands) Copper Ton thousands) (oz)
- --------------------- ---------- ---------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
SAN MANUEL
MINING DIVISION
Sulfide Mill Ore:
San Manuel
under-
ground(2) 58,102 0.637 650,024
Kalamazoo
underground
(to 2890 ft.
level)(2) 32,851 0.629 362,909
Kalamazoo
underground
(to 3440
level)(2) 185,908 0.652 2,128,847
Underground dev.
& Misc. muck(2) 8,180 0.459 65,942
Open-pit
sulfide 567 0.996 8,086
Heap Leach Ore:
Open-pit oxide 12,309 0.591 88,912
Residual in heaps 72,129
In situ Leach Ore(4) 196,824 0.556 667,993
PINTO VALLEY
MINING DIVISION
Sulfide Mill Ore:
Open-pit(3) 184,086 0.389 1,252,338
Sulfide Dump
Leach Ore:
Leach Ore(3) 66,541 0.220 73,341
Remaining on
dumps 43,284
Miami #2
Tailings Ore 22,779 0.368 87,476
SUPERIOR
MINING DIVISION
Underground
Sulfide Ore(2) 1,035 5.340 102,400
PROVEN/PROBABLE RESERVES PREVIOUSLY REPORTED
AWAITING CAPITAL COMMITMENT AND PERMITTING(1)(5)
- ------------------------------------------------
ROBINSON
MINING DISTRICT
Sulfide Mill Ore:
Open-pit
mill ore 251,709 0.553 0.0102 2,174,788 1,557,407
Gold Leach Ore
in strip 57,713 0.0086 280,000
--------- ---------
TOTAL 7,778,469 1,837,407
__________________ ========= =========
NOTES
(1) All reserves were determined based upon a pricing assumption of
approximately $.80 per pound of copper and all recoverable pounds of
copper in sulfide mill ore calculated with 96.5% smelter recovery.
(2) Grade of copper stated is a minable diluted grade.
(3) Grade % net sulfide copper.
(4) Pounds of recoverable copper are based on estimated 50% recovery of
in-place, acid soluble copper.
(5) There are no assurances as to when permits will be received. See the
discussion above and in Item 1: Business, Environmental Regulations.
</TABLE>
MINERALIZED ROCK
Magma also owns various other properties containing mineralized rock
that it believes could be brought into production should market conditions
warrant. Capital commitments, a favorable copper price, and in some
instances planning or technical innovations would be required before
operations could commence at these properties. These deposits are
estimated to contain the following mineralizations as of January 1, 1994.
<TABLE>
<CAPTION>
Location Tons (in thousands) %Copper Gold Oz per Ton
- ---------- -------------------- --------- ---------------
<S> <C> <C> <C>
San Manuel Sulfide
San Manuel Pillar 121,000 0.63
San Manuel 2890 37,000 0.64
Kalamazoo Pillar 64,000 0.72
3rd lift Kalamazoo 93,000 0.77
Tiger 6,000 0.0350
Pinto Valley
Slice 7/8 (1) 165,000 0.36
Miami
In Situ 190,000 0.58
East 100,000 1.44
Superior
North Country A-beds 1,000 5.00
Robinson
Material between
$0.80/$1.00 cones 141,000 0.59 0.0082
Keystone dump 92,000 0.34
Cu oxide in strip 23,000 0.39 0.0083
Low Grade Cu sulfide
stockpile 71,000 0.25 0.0073
Florence
Oxide 457,000 0.34
Sulfide 330,000 0.39
(1) Grade % net sulfide copper
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings of a character normally
incidental to its business, including claims and pending actions against the
Company seeking damages in large amounts or clarifications of legal rights.
Although there can be no assurance in this regard, the Company does not
believe that adverse decisions in any pending or threatened proceedings, or
any amounts which it may be required to pay by reason thereof, would have a
material adverse effect on the financial condition or results of operations
of the Company.
The Company is involved in legal proceedings pending in the Superior
Court of Maricopa County, Arizona to adjudicate water rights of the Gila
River system and source (the "Adjudication"). The Company's right to use
groundwater at its facilities is potentially at issue in this case. These
proceedings commenced in the 1970's and to date, over 62,000 claims have
been filed. Among the claimants to the largest amounts of surface water are
the United States, on behalf of itself and various Indian tribes, the State
of Arizona, various municipal water providers, agricultural irrigation
districts, and the Company. The Gila River Indian Community has asserted
claims against the Company for damages attributable to groundwater
withdrawals at San Manuel, but these claims have been stayed pending the
outcome of the adjudication. The Company has filed a claim challenging the
Court's jurisdiction to adjudicate the Company's groundwater rights or
alternatively seeking to confirm its groundwater rights. Previous rulings
by the Maricopa County Superior Court that included some categories of
groundwater within the scope of this proceeding were the subject of an
interlocutory appeal to the Arizona Supreme Court. In its opinion dated
July 27, 1993, the Arizona Supreme Court partially reversed the Superior
Court's rulings. As a consequence, the Superior Court ordered that a
hearing be held to re-evaluate whether groundwater should be included in
this proceeding, and if so, what criteria should apply to this inclusion.
The hearing will be concluded after a field trip to the River, scheduled for
March 3, 1994. The judge's decision is expected within ninety days
thereafter.
As part of the conditions of the purchase of the Florence property from
Conoco Oil Company, the Company was required to intervene in litigation
instituted in October 1925 by the Gila River Indian Community, and captioned
United States v. Gila Valley Irrigation District, et al., filed in the
Tucson Division of the United States District Court for the District of
Arizona, (a/k/a "Globe Equity No. 59"). In that action, the Gila River
Indian Community seeks to alter the administration of water rights above the
Ashurst-Hayden Diversion Dam, near Florence, on the Gila River. Several
phases of this action involving water rights near Safford, Arizona have been
tried and are currently on appeal to the Unites States Court of Appeals for
the Ninth Circuit. Other issues, which may affect Magma's use of water on
the Florence property, have yet to be scheduled for trial.
The Company is currently involved in investigations by the Arizona State
Mine Inspector's office and the Federal Mine Safety and Health
Administration involving an accident occurring August 10, 1993, at the
Company's Superior Mining Division, in which four miners were fatally
injured ("the Accident"). The Accident occurred when several tons of ore
spilled into the manway compartment of the transfer raise in which the four
victims were working. The Company does not believe, at this time, that the
findings of these investigations will result in any material adverse effects
on the financial condition or results of operations of the Company, but does
believe that citations and monetary fines will probably be issued.
See Item 1: Business - Environmental Regulations for information relating
to certain other proceedings pertaining to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No issues were submitted for a vote of stockholders during the
fourth quarter of 1993.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock (trading symbol MCU) commenced trading on
the New York Stock Exchange ("NYSE") on February 10, 1992. Prior to that
time, the Company's Common Stock had traded on the American Stock Exchange
("AMEX"). The following table sets forth the high and low last sale prices
of the Common Stock, as reported by the NYSE and the AMEX.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
1993:
<S> <C> <C> <C> <C> <C> <C>
First Quarter . . . . . . . . $18 5/8 $13 1/4
Second Quarter. . . . . . . . 15 1/4 10 5/8
Third Quarter . . . . . . . . 12 1/4 8 7/8
Fourth Quarter. . . . . . . . 13 3/4 9
1992:
First Quarter . . . . . . . . $10 1/8 $ 5 1/4
Second Quarter. . . . . . . . 14 8 3/4
Third Quarter . . . . . . . . 15 1/8 12 1/8
Fourth Quarter. . . . . . . . 14 3/8 10 5/8
</TABLE>
On March 1, 1994, the closing sale price for the Company's Common
Stock, as reported by the NYSE, was $14 5/8 per share. On March 1, 1994,
there were approximately 5,209 stockholders of record of the Common Stock.
This figure does not reflect beneficial ownership of shares held in nominee
names.
At a Special Meeting of Stockholders on October 30, 1992, the
stockholders of the Company approved an amendment to the Restated
Certificate of Incorporation of the Company that reclassified and converted
each outstanding share of Class A Common Stock and Class B Common Stock into
one share of a single, new class of Common Stock. The new class of common
stock created by the amendment possesses one vote on all matters properly
coming before the stockholders, including elections of the Board of
Directors, is not subject to any transfer restrictions, and possesses no
veto power over the issuance of any other class of stock.
In December 1992, the Company offered to exchange 15.446825 shares of
its Common Stock for each share of its Series B Preferred Stock. On
December 29, 1992, each share of Series B Preferred Stock was exchanged,
resulting in an issuance of 14,133,047 shares of Common Stock. Prior to the
Exchange, each share of Series B Preferred Stock was convertible into
14.285714 shares of Common Stock.
The Company has not declared or paid cash dividends on its Common Stock
since the 1988 Recapitalization. The Company's dividend policy is reviewed
from time to time by its Board of Directors. Future dividend decisions will
take into account then current business results, cash requirements and the
financial condition of the Company. The indentures which govern the
Company's 12% and 11 1/2% Notes limit the amount the Company can pay as
dividends, or use to make distributions on or repurchase its capital stock.
Further, covenants in the Company's revolving credit facility require that
the Company and its subsidiaries maintain a minimum consolidated net worth
and establish a maximum ratio of debt to capitalization that may indirectly
limit the Company's ability to pay dividends.
Seven-year warrants (the "Common Stock Warrants") covering 4,112,765
shares of Common Stock were distributed by the Company on December 29, 1988
as dividends to Common Stockholders of record on December 12, 1988. Each
Common Stock Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $8.50 per share. The Common Stock
Warrants have traded on the NYSE since February 10, 1992. Prior to that
time, they were traded on the AMEX. During 1993 and 1992, the sales price
for the Common Stock Warrants ranged from $1 5/8 to $11 5/8. On March 1,
1994, the closing sale price of the Common Stock Warrants was $7 1/4.
Additionally, seven year warrants to purchase 1,000,000 shares of Common
Stock, exercisable at $8.50 per share, were issued with the Series B
Preferred Stock on November 30, 1988. These warrants are not listed or
traded on an exchange. All warrants are exercisable through November 30,
1995.
In July 1993, the Company issued $100 million, or 2.0 million shares, of
5 5/8 percent Cumulative Convertible Preferred Stock, Series D, with a
liquidation preference of $50.00 per share and a conversion rate of 3.448
(equivalent to a conversion price of $14.50 per share). Additionally, in
November 1993, the Company issued $100 million, or 2.0 million shares, of 6
percent Cumulative Convertible Preferred Stock, Series E, with a liquidation
preference of $50.00 per share and a conversion rate of 3.5945 (equivalent
to a conversion price of $13.91 per share). Dividends are paid quarterly on
both series of preferred stock issued in 1993.
ITEM 6. SELECTED FINANCIAL DATA
(Dollar amounts in millions, except per share amounts)
The following selected financial data for each of the five years in the
period ended December 31, 1993 are derived from the Consolidated Financial
Statements audited by Arthur Andersen & Co., independent public accountants.
The report of Arthur Andersen & Co. with respect to the financial position
of the Company and its subsidiaries as of December 31, 1993 and 1992, and
the results of the Company's operations and cash flows for each of the years
ended December 31, 1993, 1992 and 1991, appear elsewhere in this document.
The selected financial data should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations at Item 7 hereof and the Consolidated Financial Statements,
related notes thereto, and auditors' report included in Item 8 hereof. See
Index to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Sales (2) $ 792.4 $ 819.5 $ 724.8
Cost of products sold (639.4) (630.4) (585.7)
Depreciation, depletion and
amortization (65.4) (54.6) (43.6)
Selling, general and
administrative (2) (22.1) (19.4) (16.9)
Exploration, research and
development (9.3) (2.7) (.9)
Provision for asset write-downs -- -- --
Restructure expense (2.0) -- (203.2)(1)
------- ------- -------
Income (loss) from operations 54.2 112.4 (125.5)
Interest expense (3) (35.0) (45.3) (53.2)
Other 12.3 13.8 10.2
------- ------- -------
Income (loss) before income
taxes, accounting change,
extraordinary item and preferred
stock dividends 31.5 80.9 (168.5)
Income tax (provision) benefit (8.7) (22.6) 62.0
------- ------- -------
Income (loss) before extraordinary
item, accounting change and
preferred stock dividends 22.8 58.3 (106.5)
Premium on early repayment of debt,
net of tax (4) -- (3.0) --
Cumulative effect of accounting
change, net of tax (.9) -- (14.0)
------- ------- -------
Net income (loss) before
preferred stock dividends $ 21.9 $ 55.3 $ (120.5)
======= ======= ========
Net income (loss)per common share,
assuming full dilution (5) $ .40 $ 1.19 $ (4.22)
======= ======= ========
BALANCE SHEET DATA (AT END OF PERIOD)(1):
Cash and marketable securities $ 339.3 $ 242.2 $ 91.3
Net property, plant and mine
development 866.4 783.6 766.2
Total assets 1,350.8 1,156.5 1,015.9
Long-term debt 392.3 395.0 340.9
Stockholders' equity (1) 680.2 465.4 409.1
__________
(1) Reflects the implementation at December 31, 1991, of the Non-Cash
Accounting Adjustments. See Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
(2) Certain freight costs have been reclassified as a deduction from revenue
rather than a selling expense. All years have been restated to reflect
this change.
(3) Excludes capitalized interest of $7.8 million for 1993 and $1.3 million
for 1989.
(4) In May 1992, the Company redeemed all $100 million of its Subordinated
Reset Debentures and paid a premium on the early repayment of this debt.
(5) There were no cash dividends paid or declared on common stock during any
of these periods.
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1990 1989
---------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Sales (2) $ 754.2 $ 638.0
Cost of products sold (555.6) (465.3)
Depreciation, depletion and
amortization (33.4) (30.7)
Selling, general and
administrative (2) (14.2) (11.6)
Exploration, research and
development (.1) --
Provision for asset write-downs -- (3.5)
Restructure expense -- --
------- -------
Income (loss) from operations 150.9 126.9
Interest expense (3) (58.0) (59.8)
Other 15.8 3.1
------- -------
Income (loss) before income
taxes, accounting change,
extraordinary item and preferred
stock dividends 108.7 70.2
Income tax (provision) benefit (26.0) (14.7)
------- -------
Income (loss) before extraordinary
item, accounting change and
preferred stock dividends 82.7 55.5
Premium on early repayment of debt,
net of tax (4) -- --
Cumulative effect of accounting
change, net of tax -- --
------- -------
Net income (loss) before
preferred stock dividends $ 82.7 $ 55.5
======= =======
Net income (loss) per common share,
assuming full dilution(5) $ 1.98 $ 1.36
======= =======
BALANCE SHEET DATA (AT END OF PERIOD)(1):
Cash and marketable securities $ 113.6 $ 49.4
Net property, plant and mine
development 713.0 697.9
Total assets 1,004.2 954.1
Long-term debt 362.9 384.9
Stockholders' equity (1) 447.2 364.0
______
(1) Reflects the implementation at December 31, 1991, of the Non-Cash
Accounting Adjustments. See Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
(2) Certain freight costs have been reclassified as a deduction from
revenue rather than a selling expense. All years have been restated
to reflect this change.
(3) Excludes capitalized interest of $7.8 million for 1993 and $1.3 million
for 1989.
(4) In May 1992, the Company redeemed all $100 million of its Subordinated
Reset Debentures and paid a premium on the early repayment of this
debt.
(5) There were no cash dividends paid or declared on common stock during
any of these periods.
</TABLE>
SELECTED OPERATING DATA
The following table sets forth selected operating information of the
Company for the periods indicated. (In millions of pounds, except as noted)
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
COPPER PRODUCTION:
San Manuel
Underground 219.3 219.7 220.3
Oxide open-pit 100.2 86.3 67.0
In situ 17.3 23.8 24.7
Other 14.9 5.6 3.9
Total San Manuel ------- ------- -------
351.7 335.4 315.9
------- ------- -------
Pinto Valley
Sulfide open-pit 138.9 161.9 145.2
Pinto Valley leaching 18.4 18.2 15.2
Miami leaching 22.0 19.5 19.3
------- ------- -------
Total Pinto Valley 179.3 199.6 179.7
------- ------- -------
Superior
Underground 32.4 24.5 24.4
------- ------- -------
Total copper production (1) 563.4 559.5 520.0
======= ======= =======
Per pound cost of products sold:
Magma sources
Before credits $ .76 $ .77 $ .80
Credits (2) (.10) (.11) (.09)
------- ------ -------
Net $ .66 $ .66 $ .71
======= ====== =======
Concentrate smelted
(thousands of tons) (3) 1,076.0 1,060.1 1,007.5
Electrolytic copper produced (4) 779.3 767.8 703.2
Rod Produced (5) 289.7 225.3 208.9
Gold contained in residues
(thousands of ounces)(6) 83.6 73.4 48.3
Silver contained in residues
(thousands of ounces) (6) 2,670.3 2,726.6 2,856.4
Molybdenum disulfide production
(pounds molybdenum contained) 4.7 5.2 5.4
_____________
(1) Saleable copper contained in concentrates plus electrowon copper.
(2) Credits include rod premiums and profits on by-products and custom
processing (including tolled and purchased concentrates).
(3) Includes all new sulfide concentrate smelted by the Company for
its own account and concentrate smelted for others on a custom basis.
(4) Includes all electrolytic copper produced by the Company for its own
account and refined copper produced for others on a custom basis.
(5) Includes all rod produced by the Company from its own electrolytic
copper production and from copper purchased by the Company, as well as
rod produced for others on a toll basis.
(6) Includes production from the Company's concentrates and the Company's
share of production from custom concentrates. Excludes gold production
from the Company's Robinson property of 12,635 and 33,470 ounces for
1993 and 1992, respectively.
</TABLE>
SELECTED OPERATING DATA
The following table sets forth selected operating information of the
Company for the periods indicated. (In millions of pounds, except as noted)
<TABLE>
<CAPTION>
1990 1989
---------- ----------
<S> <C> <C>
COPPER PRODUCTION:
San Manuel
Underground 182.7 172.3
Oxide open-pit 57.5 61.1
In situ 25.0 8.7
Other 3.3 3.1
Total San Manuel ------- -------
268.5 245.2
------- -------
Pinto Valley
Sulfide open-pit 160.8 162.6
Pinto Valley leaching 14.0 10.2
Miami leaching 17.9 10.8
------- -------
Total Pinto Valley 192.7 183.6
------- -------
Superior
Underground 5.6 --
------- -------
Total copper production (1) 466.8 428.8
======= =======
Per pound cost of products sold:
Magma sources
Before credits $ .84 $ .85
Credits (2) (.11) (.13)
------- -------
Net $ .73 $ .72
======= =======
Concentrate smelted
(thousands of tons) (3) 996.2 939.9
Electrolytic copper produced (4) 675.5 536.3
Rod Produced (5) 282.3 495.8
Gold contained in residues
(thousands of ounces)(6) 33.8 35.2
Silver contained in residues
(thousands of ounces) (6) 1,895.6 1,444.6
Molybdenum disulfide production
(pounds molybdenum contained) 4.4 4.3
_____________
(1) Saleable copper contained in concentrates plus electrowon copper.
(2) Credits include rod premiums and profits on by-products and custom
processing (including tolled and purchased concentrates).
(3) Includes all new sulfide concentrate smelted by the Company for
its own account and concentrate smelted for others on a custom basis.
(4) Includes all electrolytic copper produced by the Company for its own
account and refined copper produced for others on a custom basis.
(5) Includes all rod produced by the Company from its own electrolytic
copper production and from copper purchased by the Company, as well as
rod produced for others on a toll basis.
(6) Includes production from the Company's concentrates and the Company's
share of production from custom concentrates. Excludes gold production
from the Company's Robinson property of 12,635 and 33,470 ounces for
1993 and 1992, respectively.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Over the past six years, Magma has substantially improved its
operating performance. Magma has increased copper production from its own
sources by approximately 40% from 402 million pounds in 1988 to 563 million
pounds in 1993. Production from the leaching, solvent extraction and
electrowinning operations increased by 87% from 86 million pounds in 1988
to 161 million pounds in 1993. Total smelting and refining production has
increased by approximately 48% from 414 million pounds of copper in 1988 to
615 million pounds in 1993. Net cash operating costs of copper sold have
decreased from $.78 per pound ($.93 per pound adjusted for inflation) in
1988 to $.66 per pound in 1992. In 1993, despite the effects of
extraordinary rains and flooding early in the year, the Company was able to
maintain the $.66 per pound cost level that had been achieved in 1992.
Further, as a result of intensified cost reduction efforts, cash operating
costs decreased to $.63 per pound in the third quarter and $.61 per pound
in the fourth quarter of 1993. Net cash operating costs per pound
represent (a) production costs of Magma source copper sold (excluding
depreciation, depletion and amortization) reduced by credits for
by-products and profits from custom processing divided by (b) total pounds
sold from Magma sources. The Company attributes the increase in production
and productivity and reduction in operating costs primarily to improved
labor relations and the use of innovative operating technology.
During 1993, the Company's operations were adversely affected by
extraordinary rainfall conditions, lower copper prices (which were
partially offset by hedging activities) and other factors. As a result,
total sales and net income were $792.4 million and $21.9 million,
respectively, for the year ended December 31, 1993, compared to $819.5
million and $55.3 million, respectively, for the year ended December 31,
1992. In addition, production of Magma source copper was down slightly
from 1992 to 1993. The Company estimates that the extraordinary rainfalls
reduced net income by approximately $15.5 million during the first six
months of 1993. Although the Company is still in the process of repairing,
upgrading and expanding certain of its facilities that were damaged by the
rainfalls, operations that were affected by the rainfalls returned to
normal in the second half of 1993. See "Environmental Matters" below.
The Company issued two series of preferred stock in 1993, which
yielded net proceeds of $193 million. The proceeds will be used for
general corporate purposes, which may include the development of projects.
In this regard, the Company is pursuing or reviewing a number of capital
projects in a continuing effort to lower unit production costs and increase
ore reserves. Improvements to its smelting and refining complex are well
underway, as is the development of its Lower Kalamazoo orebody and
permitting of the Robinson property near Ely, Nevada. These and other
projects are described more fully below in "Capital Resources and
Liquidity".
The Company continues to place great emphasis on the program to reduce
cash cost of production. In the last year, Magma has reduced its workforce
by approximately 4% through attrition, voluntary retirements and other
appropriate measures.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Total Sales and Earnings. Total 1993 sales were $792.4 million, a 3%
decrease from 1992 sales of $819.5 million. The decrease in sales was a
result of lower copper prices which were partly offset by increased volume.
Total sales for 1992 were 13% above 1991 sales of $724.8 million due to
increased volume.
Net income, before restructuring expenses, an accounting change and
the effects of first quarter rains and flooding, was $39.8 million, or $.76
per share, for 1993, compared to $58.3 million, or $1.25 per share, for
1992. Earnings for 1993 were lower due primarily to a decline in the
average copper price realized by Magma from $1.00 per pound in 1992 to $.94
per pound in 1993. The rains reduced after-tax earnings for the first six
months of 1993 by $15.5 million, or $.30 per share. After restructuring
expenses, an accounting change and the effects of first quarter rains and
flooding, Magma reported net income for 1993 of $21.9 million, or $.40 per
share. Magma's first quarter 1993 results were restated to recognize a
$0.9 million after-tax charge for the adoption of Statement of Financial
Accounting Standards No. 112, "Accounting for Postemployment Benefits"
(SFAS 112).
Comparing 1992 to 1991, increased sales volume and lower unit costs
contributed to the increase in earnings. 1991 net income, before giving
effect to the Non-Cash Accounting Adjustments described below was $34.4
million ($.80 per share). After giving effect to these adjustments, the
1991 loss was $120.5 million ($4.22 per share).
After deducting dividends on the 5 5/8% Series D Preferred Stock and
6% Series E Preferred Stock issued in July and November 1993, respectively,
1993 primary earnings available to stockholders were $19.4 million ($.40
per share), compared to $42.7 million ($1.28 per share) in 1992 and a loss
of $128.3 million ($4.22 per share) in 1991.
1991 Non-Cash Accounting Adjustments. In 1991, the Company recorded a
series of accounting adjustments (the "Non-Cash Accounting Adjustments")
which had no effect on its cash flow. The Non-Cash Accounting Adjustments
resulted from studies, completed during 1991, of various balance sheet
items that were undertaken in connection with a reorganization of the
Company into distinct profit centers. In addition, execution of a new
collective bargaining agreement and achievement of productivity increases
at the upper Kalamazoo orebody enabled the Company to further study the
feasibility of developing and mining the lower portion of this orebody.
Based upon these studies, and in conjunction with its internal
reorganization, the Company implemented, as of December 31, 1991, the
following Non-Cash Accounting Adjustments:
(1) Adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" and Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
(2) An after tax restructuring charge of approximately $141
million, which included a $92 million after tax write-down of
the Company's investment in its Kalamazoo orebody, as well as
other amounts related to detailed reviews of the Company's
balance sheet.
(3) Implementation of a "quasi-reorganization," in which certain
assets and liabilities were restated and the accumulated
deficit resulting from the adjustments described above was
reclassified to capital in excess of par value.
After giving effect to the Non-Cash Accounting Adjustments in 1991,
the Company's stockholders' equity at December 31, 1990 was restated to
$447.2 million, compared to $534.2 million, as was originally reported.
Copper Prices and Sales. Copper prices have historically been
subject to wide fluctuations and are dependent to a significant extent on
factors outside the control of the Company. The Company's average realized
price per pound of copper was $.94 in 1993, $1.00 in 1992 and $1.01 in
1991.
During the second, third and fourth quarters of 1993, the Company
benefited from put option contracts that provided price protection at LME
prices below $.95 cents per pound. During these quarters, option contracts
totalling 384 million pounds were exercised, resulting in a realized price
above the market price. In addition, the Company's 1993 realized price was
impacted by fixed price forward sales of 42 million pounds at an average of
$.91 per pound. During 1992 and 1991, the Company had fixed price sales of
179 million pounds at $.93 per pound and 183 million pounds at $.98 per
pound, respectively.
The Company's realized price per pound also includes a premium of
several cents over the market price for copper cathode to reflect net
delivery and financing costs. The Company's price for copper rod commands
a premium over its price for copper cathode to reflect the value added by
additional processing.
Copper revenue in 1993 decreased by 3% to $710.5 million, compared to
$736.2 million for 1992 and $652.3 million for 1991. During 1993, lower
revenue resulted from a $.06 decrease in Magma's average realized price
partially offset by higher sales volume. In 1992, higher sales volume was
primarily responsible for the sharp increase in revenue from 1991.
The Company sold 764.4 million pounds of copper in 1993, a 5% increase
from 725.4 million pounds sold in 1992, which was a 14% increase from the
638.1 million pounds sold in 1991. Sales of copper from Magma sources was
negatively impacted in 1993 as the result of Arizona's abnormally high
rainfall earlier in the year. The following table sets forth the volume of
copper sold in relation to its sources:
Pounds of Copper Sold By Source (in millions)
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Magma Sources 558.3 566.8 523.9
Purchased 206.1 158.6 114.2
----- ----- -----
Total 764.4 725.4 638.1
</TABLE>
The Company's wholly-owned subsidiary, Magma Metals Company sells the
Company's products, operates its smelting, refining and rod plant complex,
and purchases raw materials.
The Company's export sales have declined in recent years primarily due
to increasing U.S. consumption and the recession in Japan. The Company is
maintaining its presence in the Asian markets by supplying cathode to major
fabricators on an annual basis. The Company's export sales as a percent of
total revenues were 25%, 29% and 50% for the years ended December 31, 1993,
1992 and 1991, respectively.
Other Metal Sales and Treatment Tolls Earned. Sales of other metals
and metal by-products, sulfuric acid and treatment tolls earned in 1993
were $81.9 million, as compared to $83.3 million in 1992 and $72.5 million
in 1991. The decrease for 1993 was primarily attributable to lower gold
sales from the Company's Robinson Mining District and the closure of its
McCabe mining division, together with a weak market for acid sales. These
decreases were largely offset by higher purchased by-products that were
contained in custom concentrates processed by Magma and an increase in
volume of toll material processed. The increase for 1992 was primarily
attributable to higher gold sales from the Robinson Mining District and
from purchased by-products that were contained in custom concentrates
processed by Magma.
Cost of Sales. Cost of products sold during 1993 of $639.4 million
was up 1% from $630.4 million in 1992. Lower unit cost of Magma source
copper contributed to lower cost of products sold by $21 million in
addition to lower volume sold of $6 million. Higher sales volume of copper
purchased or tolled from third parties increased cost of sales by $28
million. Storm damage production costs resulting from Arizona's abnormally
high rainfall earlier in 1993 caused a $14 million increase (cost of sales
impact only). Additionally, cost of sales of other metals decreased by $6
million.
Cost of products sold during 1992 of $630.4 million was up 8% from
$585.7 million in 1991. This increase was due primarily to an increase in
sales volume of Magma source copper of 43 million pounds ($35 million) and
copper purchased from third parties of 44 million pounds ($49 million).
These volume increases were offset by a $.05 per pound decrease in unit
costs that reduced costs of sales by $26 million. Lower cost associated
with purchased copper reduced cost of sales by $13 million.
Other. Depreciation, depletion and amortization expense totaled $65.4
million in 1993 compared to $54.6 million in 1992. The increase was
largely due to the initiation of depreciation related to new capital
improvements. The $11.0 million increase in 1992 from 1991 was
attributable to higher depreciation expense related to increased sales
volume, the initiation of depreciation related to new capital improvements
and the Non-Cash Accounting Adjustments made in connection with the
Company's reorganization at the end of 1991.
The increase in selling, general and administrative expense for 1993
is largely due to higher insurance costs along with consulting and
professional services. The increase for 1992 was a result of higher legal
and consulting fees primarily relating to business development activities
and special projects.
Interest expense in 1993 was $35.0 million, as compared to $45.3
million in 1992 and $53.2 million in 1991. The decrease in 1993 reflected
the capitalization of interest in connection with the Company's major
capital projects. The decrease in 1992 reflected lower interest rates
resulting from a refinancing of the Company's long-term debt.
Interest income was $8.7 million in 1993 as compared to $9.5 million
in 1992 and $7.7 million in 1991. The decrease in 1993 was largely the
result of lower interest rates. The increase in 1992 from 1991 was the
result of increased cash balances which were partly offset by declining
interest rates. In 1993, other income decreased to $3.7 million from $4.3
million primarily due to lower townsite sales while in 1992 higher townsite
sales contributed to the increase in other income from 1991 of $2.4
million.
In May 1992, the Company redeemed all $100 million of its Subordinated
Reset Debentures which paid interest at a rate of 14.5%. The premium paid
on this early extinguishment of debt is treated as an extraordinary item
and is reflected as an after tax cost of $3.0 million for 1992.
In the fourth quarter of 1993, the Company recorded a $2.0 million
charge for restructuring expenses related to workforce reductions as a part
of its major cost reduction program.
Preferred stock dividends were $2.5 million in 1993 compared to $12.6
million in 1992. The decrease was the result of the conversion in 1992 of
the Company's Series B Preferred Stock. In July 1993 the Company issued
$100.0 million Series D Preferred Stock and in November 1993 it issued
$100.0 million of Series E Preferred Stock. These issues pay quarterly
dividends at the annual rate of 5 5/8% and 6%, respectively.
Effects of Inflation. Generally, the Company's operating costs, other
than labor and energy costs, are not materially affected by inflation.
Recent low levels of inflation have not had a material effect on the
Company's operating costs.
CAPITAL RESOURCES & LIQUIDITY
General. The Company's 1993 operating cash flow (earnings before
interest, taxes, depreciation and amortization or "EBITDA") was $125.3
million, as compared to $171.3 million in 1992. The decrease is
attributable to lower copper prices and storm damage costs from Arizona's
abnormally high rainfall which occurred early in 1993. Cash flow from
operations, along with new issuances of preferred stock yielding net
proceeds of $193 million and existing cash balances funded capital
expenditures.
During 1993, the Company spent $137 million for capital expenditures.
In addition, capital expenditures of $11 million were financed by capital
leases. These capital expenditures include $64 million for upgrading its
smelting and refining complex, $24 million on the development of its Lower
Kalamazoo orebody and $17 million on the engineering and development of its
Robinson Mining District. The Company anticipates spending $150 million on
capital expenditures in 1994. This includes $21 million to complete the
smelting and refining complex upgrade, $20 million on continued development
of the Lower Kalamazoo orebody and pending timely completion of permitting
and other factors, $39 million on the development of the Robinson Mining
District.
The Company's cash and marketable securities increased to $339 million
at December 31, 1993. Working capital, including cash and marketable
securities, was $360.4 million on December 31, 1993 compared to $226.8
million at December 31, 1992.
Although the Company's operations are highly dependent on copper
prices, the Company believes it will have sufficient liquidity to fund its
operating expense and debt service obligations for the foreseeable future.
In this regard, from time to time the Company enters into options and
futures contracts or fixed price forward sales agreements as a hedge
against lower copper prices. For the first and second quarters of 1994,
the Company has purchased put option contracts covering 287 million pounds
of production, providing a minimum realized price of $.72 per pound on a
London Metals Exchange ("LME") basis. For the third and fourth quarters,
the Company has entered into LME futures contracts covering 121 million
pounds of production at an average price of $.82 per pound and purchased
put option contracts covering 176 million pounds of production that provide
a minimum realized price of $.74 per pound on a LME basis. The Company has
also purchased put option contracts covering 374 million pounds of its
production during the first three quarters of 1995 providing a minimum
realized price of $.74 per pound on a LME basis.
Development Opportunities. The Company is currently pursuing or
evaluating several major mine development opportunities, and has made
significant capital improvements to its smelting and refining complex.
Robinson Mining District. In 1991, Magma completed a series of
transactions in which it acquired a 100% interest in the Robinson Mining
District ("Robinson") near Ely, Nevada, for an aggregate acquisition cost
of approximately $58 million. Based upon drill and assay results, the
Company believes that Robinson has 252 million tons of proven/probable
sulfide ore reserves with an average grade of .553% copper and with .0102
ounces of gold per ton and 57 million tons of gold oxide reserves with an
average grade of .0086 ounces of gold per ton. Robinson could produce
approximately 135 million pounds of copper annually for 16 years through
traditional mining/concentrating/smelting/refining methods and could
produce 97,300 ounces of gold and 390,000 ounces of silver annually from
sulfide copper ore and 17,500 ounces of gold annually from leaching
operations during this time period. A metallurgical test program is
currently under way to evaluate the feasibility of processing Keystone dump
material which contains in excess of 92 million tons at a grade of .34%
copper.
Development of Robinson requires, among other factors, capital
commitment of approximately $300 million and appropriate environmental and
operating permits. In early 1993, the Bureau of Land Management determined
that an Environmental Impact Statement ("EIS") must be prepared to analyze
the Company's proposed re-development of the property. The Company
believes the EIS process will be completed during 1994 and project start-up
will begin in the first quarter of 1996, although there can be no assurance
in this regard.
Kalamazoo. The Company's Kalamazoo orebody, which is near its San
Manuel underground mine, is comprised of two levels, an upper level which
contains approximately 33 million tons of proven/probable ore reserves and
a lower level which contains approximately 186 million tons of
proven/probable ore reserves. Development of the Lower Kalamazoo orebody
was approved and capital of approximately $140 million was committed to the
project in 1993. Based on the current mine plan, this project is scheduled
to produce 2.13 billion pounds of copper during the period from 1996 to
2009.
Florence. In July 1992, Magma completed the acquisition of a large
copper deposit near Florence, Arizona. Magma's project team has begun a
pre-feasibility study. The deposit, completely on private and state-leased
lands, was the subject of extensive exploratory and metallurgical work by
the previous owner. The acquisition of this property is part of Magma's
long-term strategy to increase copper production through the application of
its advanced SX-EW leaching technology. Because evaluation of the Florence
property is still in the early stages, the Company has not yet made any
determination of the cost to develop the property.
Smelting and Refining Complex. The Company is in the process of
further upgrading its smelting and refining complex. The capital cost of
the project is estimated at $85 million. The project includes the addition
of a new large acid plant which will increase offgas handling capacity.
The project will further improve environmental performance.
During 1993, the smelter produced 681 million pounds of copper in
anode form, significantly in excess of its design capacity of 600 million
pounds. When the expansion is completed the Company anticipates that it
will have the ability to produce at levels in excess of the 720 million
pounds originally anticipated when the expansion was undertaken. This
increase in capacity should enable the Company to maintain its custom
smelting business even with the expected increase in smelting of Magma
source copper when the Robinson Mining District begins production.
To the extent undertaken, the Company intends to finance these
projects with internal cash flow, current cash balances and new borrowings
if required. The Company does not currently anticipate difficulty in
attracting any additional borrowing which may be required. The decision to
undertake or complete these projects is subject to a variety of factors,
which may include (depending on the project) the completion of favorable
feasibility studies and permitting. There can be no assurance that the
Company will undertake all of these opportunities or that, if undertaken,
they will prove successful. If the Company is unable to replace its
reserves from the mine development projects being evaluated, or with other
reserves identified or acquired in the future, the Company's dependency
upon third party sources to supply copper concentrate to its smelting and
refining operations would increase.
Environmental Matters. The Company maintains and funds an ongoing
environmental compliance program. The program includes mine reclamation
and remediation, as well as technological improvements and upgrades to its
operating facilities.
The Company is currently in the process of completing improvements to
its smelting and refining complex. The upgrades will improve the
environmental performance of the smelter in anticipation of changing
regulatory standards.
During the first half of 1993 the Company's Pinto Valley and Superior
Mining Divisions were adversely affected by significant rainfalls which
caused flooding, water containment structural failures and operating
difficulties, as well as technical violations of various permitting
conditions and state surface water quality standards. The Company has
tentatively agreed to enter into a consent decree with appropriate
regulatory authorities to settle all claims relating to this matter. The
consent decree is expected to be executed by the Company and its
governmental counterparts during the first quarter of 1994. Under the
proposed settlement, the Company would pay fines totaling $625,000 and
would contribute monies towards or perform supplementary environmental
projects of approximately $200,000. In addition, the Company would agree
to perform remedial investigation studies and corrective activities and to
upgrade its tailings containment and water containment facilities at these
divisions. The Company expended $6 million to correct and upgrade affected
facilities in 1993. The Company expects to spend an additional $8 million
to upgrade and expand these facilities in 1994. These costs are being
capitalized and will be amortized over the remaining mine life.
The Company is participating in a remediation and assessment of ground
water quality at Pinal Creek near Miami, Arizona as part of the Arizona
Department of Environmental Quality's Process Water Quality Assurance
Revolving Fund Program. The Company and other companies sharing voluntary
responsibility for ground water clean up and a remedial investigation have
sued certain other mining companies with existing or prior operations in
the area to obtain reimbursement for all or part of the costs that have
been and will be incurred at the site. Some of these defendants have
counterclaimed against the Company asserting indemnification for the costs
and any liabilities relating to this project. To date, the Company's costs
of remediation have not been material and, although there can be no
assurance in this regard, the Company does not believe it will incur any
material liability or costs in relation to this matter.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MAGMA COPPER COMPANY AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants . . . . . . . . . . . . . . 43
Consolidated Financial Statements:
Consolidated Balance Sheets-December 31, 1993 and 1992 . . . . . 44
Consolidated Statements of Operations-for each
of the years ended December 31, 1993, 1992 and 1991. . . . . . . 46
Consolidated Statements of Changes in Stockholders'
Equity-for each of the years ended December 31, 1993,
1992 and 1991. . . . . . . . . . . . . . . . . . . . . . . . . . 47
Consolidated Statements of Cash Flows-for each of
the years ended December 31, 1993, 1992 and 1991 . . . . . . . . 50
Notes to Consolidated Financial Statements. . . . . . . . . . . 52
Consolidated Financial Statement Schedules at
and for the years ended December 31, 1993, 1992
and 1991:
Report of Independent Public Accountants. . . . . . . . . . 72
Schedule I-Marketable Securities-Other
Investments. . . . . . . . . . . . . . . . . . . . . . . 73
Schedule IV-Indebtedness of and to Related
Parties-Not Current. . . . . . . . . . . . . . . . . . . 74
Schedule V-Property, Plant and Mine Development . . . . . . 75
Schedule VI-Accumulated Depreciation, Depletion
and Amortization of Property, Plant and Mine
Development. . . . . . . . . . . . . . . . . . . . . . . 76
Schedule VIII-Valuation and Qualifying Accounts . . . . . . 78
Schedule IX-Short-term Borrowings . . . . . . . . . . . . . 79
Schedule X-Supplementary Income Statement
Information. . . . . . . . . . . . . . . . . . . . . . . 81
All other schedules are omitted as the information required is
immaterial or inapplicable or because the required information is included
in the consolidated financial statements or notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Magma Copper Company:
We have audited the accompanying consolidated balance sheets of Magma
Copper Company (a Delaware corporation) and subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years ended December
31, 1993 and 1992 (post quasi-reorganization - Note B), and for the year
ended December 31, 1991 (pre quasi-reorganization - Note B). These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Magma Copper
Company and subsidiaries as of December 31, 1993 and 1992, and the results
of their operations and their cash flows for the years ended December 31,
1993 and 1992 (post quasi-reorganization), and the results of their
operations and cash flows for the year ended December 31, 1991 (pre quasi-
reorganization), in conformity with generally accepted accounting
principles.
As explained in Note B and Note M to the financial statements,
effective January 1, 1991, and January 1, 1993, the Company changed its
method of accounting for postretirement benefits other than pensions and
for postemployment benefits, respectively.
ARTHUR ANDERSEN & CO.
Tucson, Arizona,
January 27, 1994.
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED BALANCE SHEETS
As of December 31, 1993 and 1992
(In thousands, except share information)
A S S E T S
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 230,414 $ 121,057
Marketable securities 108,890 121,106
Accounts receivable 51,090 31,660
Inventories:
Metals 53,676 65,980
Materials and supplies 25,045 23,353
Prepaid expenses 10,883 7,048
--------- ---------
Total current assets 479,998 370,204
--------- ---------
PROPERTY, PLANT AND MINE DEVELOPMENT:
Equipment and buildings 861,846 733,823
Less - accumulated depreciation (106,886) (51,478)
-------- ---------
754,960 682,345
Mining claims and land, net of
accumulated depletion 53,336 53,613
Deferred mine development costs,
net of accumulated amortization 58,065 47,663
--------- ---------
Net property, plant and mine
development 866,361 783,621
--------- ---------
OTHER ASSETS 4,428 2,712
--------- ---------
TOTAL ASSETS $1,350,787 $1,156,537
========= =========
The accompanying notes are an integral part of
these consolidated balance sheets.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED BALANCE SHEETS
As of December 31, 1993 and 1992
(In thousands, except share information)
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 17,952 $ 14,056
Accrued expenses:
Copper-bearing materials 14,755 37,364
Payroll and employee benefits 24,377 23,614
Interest 9,367 8,145
Property taxes 7,559 6,759
Income taxes payable -- 14,280
Other 33,150 36,317
Current portion of long-term debt 12,395 2,856
--------- ---------
Total current liabilities 119,555 143,391
--------- ---------
ACCRUED PENSION, RETIREMENT AND
OTHER LIABILITIES 62,208 54,515
LONG-TERM DEBT, net of current portion 392,260 394,998
DEFERRED INCOME TAXES 96,592 98,259
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series D cumulative convertible preferred
stock - $.01 par value: 2,000,000 shares
authorized, issued and outstanding at
December 31, 1993 (aggregate liquidation
preference of $100,000,000) none issued
or outstanding at December 31, 1992 20 --
Series E cumulative convertible preferred
stock - $.01 par value: 2,000,000 shares
authorized,issued and outstanding at
December 31, 1993 (aggregate liquidation
preference of $100,000,000) none issued
or outstanding at December 31, 1992 20 --
Common Stock - $.01 par value: 100,000,000
shares authorized, 45,717,000 issued and
outstanding at December 31, 1993,
45,591,000 shares issued and outstanding
at December 31, 1992 457 455
Capital in excess of par value 620,282 425,369
Retained earnings, deficit of $15,469
eliminated in quasi-reorganization at
December 31, 1991 62,059 42,671
Unearned stock grant compensation (2,666) (3,121)
--------- ---------
Total stockholders' equity 680,172 465,374
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,350,787 $1,156,537
========= =========
The accompanying notes are an integral part of
these consolidated balance sheets.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For each of the years ended December 31, 1993, 1992 and 1991
(In thousands, except per share amounts)
<CAPTION>
1993 1992 1991
-------- --------- ---------
<S> <C> <C> <C>
Sales $792,399 $ 819,471 $ 724,809
Cost of sales:
Cost of products (639,391) (630,418) (585,739)
Depreciation, depletion and
amortization (65,350) (54,639) (43,551)
Selling, general and administrative
expense (22,080) (19,434) (16,942)
Exploration, research and development (9,352) (2,611) (905)
Restructure expense (2,030) -- (203,169)
------- -------- --------
Income (loss) from operations 54,196 112,369 (125,497)
Other income (expense):
Interest expense (35,026) (45,275) (53,166)
Interest income 8,654 9,517 7,716
Other 3,687 4,289 2,419
------- -------- --------
Income (loss) before income
taxes, extraordinary item
and cumulative effect of
accounting change 31,511 80,900 (168,528)
Income tax (provision) benefit (8,710) (22,599) 62,000
------- -------- --------
Income (loss) before extraordinary
item and cumulative effect of
accounting change 22,801 58,301 (106,528)
Extraordinary item:
Premium on early repayment of debt,
net of tax benefit of $1,980 -- (3,020) --
Cumulative effect of accounting change,
net of tax benefit of $605 in 1993
and $9,000 in 1991 (888) -- (14,000)
------- -------- --------
Net income (loss) $ 21,913 $ 55,281 $(120,528)
======= ======== ========
Preferred stock dividends (2,523) (12,610) (7,791)
------- -------- --------
Net income (loss) available for
common stock $ 19,390 $ 42,671 $(128,319)
======= ======== ========
Primary earnings (loss) per share:
Income (loss) before extraordinary
item and accounting change $ .47 $ 1.74 $ (3.51)
Premium on early repayment of debt,
net of tax -- (.09) --
Cumulative effect of accounting
change, net of tax (.02) -- (.46)
Preferred stock dividends (.05) (.37) (.25)
------- -------- --------
Net income (loss) per share
of common stock $ .40 $ 1.28 $ (4.22)
======= ======== ========
Earnings (loss) per share assuming
full dilution:
Net income (loss) per share of
common stock $ .40(1) $ 1.19 $ (4.22)(1)
======= ======== ========
(1) The Company's convertible preferred stock is not included in the
fully diluted calculation as its effects are antidilutive.
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For each of the years ended December 31, 1993, 1992 and 1991
(In thousands)
<CAPTION>
Series B Series D Series E
Preferred Preferred Preferred
Stock Stock Stock
--------- --------- --------
<S> <C> <C> <C>
Balance as of December 31, 1990 $ 9 $ -- $ --
Stock grants and options
issued -- -- --
Stock options exercised -- -- --
Stock grants earned -- -- --
Stock grants canceled -- -- --
Preferred stock dividend
(930,000 shares) -- -- --
Conversion of B Common to
A Common (4,176,600 shares) -- -- --
Net loss -- -- --
Quasi-reorganization -- -- --
--- --- ---
Balance as of December 31, 1991 9 -- --
Stock grants and options
issued -- -- --
Stock options exercised -- -- --
Stock warrants exercised -- -- --
Stock grants earned -- -- --
Stock grants canceled -- -- --
Preferred stock dividend
(930,000 shares) -- -- --
Preferred stock conversion
(14,133,047 shares) (9) -- --
Common stock conversion -- -- --
Net income -- -- --
--- --- ---
Balance as of December 31, 1992 -- -- --
Stock grants issued -- -- --
Stock options exercised -- -- --
Stock warrants exercised -- -- --
Stock grants earned -- -- --
Stock grants canceled -- -- --
Preferred stock issued -
Series D (2,000,000
shares) -- 20 --
Preferred stock issued -
Series E (2,000,000
shares) -- -- 20
Cash dividends:
Series D Preferred
($1.15 per share) -- -- --
Series E Preferred
($.12 per share) -- -- --
Net income -- -- --
--- --- ---
Balance as of December 31, 1993 $ -- $ 20 $ 20
=== === ===
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For each of the years ended December 31, 1993, 1992 and 1991
(In thousands)
<CAPTION>
Class A Class B
Common Common Common
Stock Stock Stock
------ ------- -------
<S> <C> <C> <C>
Balance as of December 31, 1990 $ -- $ -- $291
Stock grants and options
issued -- -- --
Stock options exercised -- -- --
Stock grants earned -- -- --
Stock grants canceled -- -- --
Preferred stock dividend
(930,000 shares) -- -- 10
Conversion of B Common to
A Common (4,176,600 shares) -- 42 (42)
Net loss -- -- --
Quasi-reorganization -- -- --
--- --- ---
Balance as of December 31, 1991 -- 42 259
Stock grants and options
issued -- -- --
Stock options exercised -- -- --
Stock warrants exercised -- -- --
Stock grants earned -- -- --
Stock grants canceled -- -- --
Preferred stock dividend
(930,000 shares) 13 -- --
Preferred stock conversion
(14,133,047 shares) 141 -- --
Common stock conversion 301 (42) (259)
Net income -- -- --
--- --- ---
Balance as of December 31, 1992 455 -- --
Stock grants issued -- -- --
Stock options exercised 2 -- --
Stock warrants exercised -- -- --
Stock grants earned -- -- --
Stock grants canceled -- -- --
Preferred stock issued -
Series D (2,000,000
shares) -- -- --
Preferred stock issued -
Series E (2,000,000
shares) -- -- --
Cash dividends:
Series D Preferred
($1.15 per share) -- -- --
Series E Preferred
($.12 per share) -- -- --
Net income -- -- --
--- --- ---
Balance as of December 31, 1993 $457 $ -- $ --
=== === ===
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For each of the years ended December 31, 1993, 1992 and 1991
(In thousands)
<CAPTION>
Unearned
Dividend
Capital Stock Payable
in Grant In
Excess of Retained Compensa- Common
Par Value Earnings tion Stock
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Balance as of December 31, 1990 $418,634 $ 30,023 $(2,790) $1,075
Stock grants and options
issued 1,510 -- (1,510) --
Stock options exercised 15 -- -- --
Stock grants earned -- -- 1,672 --
Stock grants canceled (124) -- 124 --
Preferred stock dividend
(930,000 shares) 5,339 (7,791) -- 291
Conversion of B Common to
A Common (4,176,600 shares) -- -- -- --
Net loss -- (120,528) -- --
Quasi-reorganization (15,469) 98,296 -- --
------- ------- ------ -----
Balance as of December 31, 1991 409,905 -- (2,504) 1,366
Stock grants and options
issued 1,993 -- (1,993) --
Stock options exercised 596 -- -- --
Stock warrants exercised 110 -- -- --
Stock grants earned -- -- 1,238 --
Stock grants canceled (138) -- 138 --
Preferred stock dividend
(930,000 shares) 13,035 (12,610) -- (1,366)
Preferred stock conversion
(14,133,047 shares) (132) -- -- --
Common stock conversion -- -- -- --
Net income -- 55,281 -- --
------- ------- ------ -----
Balance as of December 31, 1992 425,369 42,671 (3,121) --
Stock grants issued 996 -- (996) --
Stock options exercised 515 -- -- --
Stock warrants exercised 187 -- -- --
Stock grants earned -- -- 1,362 --
Stock grants canceled (89) -- 89 --
Preferred stock issued -
Series D (2,000,000
shares) 96,516 -- -- --
Preferred stock issued -
Series E (2,000,000
shares) 96,788 -- -- --
Cash dividends:
Series D Preferred
($1.15 per share) -- (2,300) -- --
Series E Preferred
($.12 per share) -- (225) -- --
Net income -- 21,913 -- --
------- ------- ------ -----
Balance as of December 31, 1993 $620,282 $ 62,059 $(2,666) $ --
======= ======= ====== =====
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the years ended December 31, 1993, 1992 and 1991
(In thousands)
<CAPTION>
1993 1992 1991
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 21,913 $ 55,281 $(120,528)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion and
amortization 65,350 54,639 43,551
(Gain) loss on sale of assets (1,563) (1,385) 179
Restructure expense 2,030 -- 203,169
Other reserve costs -- -- 8,000
Cumulative effect of accounting
change, net of taxes 888 -- 14,000
Other 1,725 1,239 1,673
Change in certain assets and
liabilities:
(Increase) decrease in:
Accounts receivable (19,431) 26,211 (7,484)
Inventories 10,176 2,903 (6,671)
Prepaid expenses (3,835) 881 (5,628)
Increase (decrease) in:
Accounts payable and accrued
expenses (22,620) 26,512 15,477
Income taxes payable (14,281) 14,280 --
Accrued pension, retirement
and other liabilities 7,694 (5,113) (3,019)
Deferred income taxes (1,062) 5,793 (65,795)
------- ------- --------
Total adjustments 25,071 125,960 197,452
------- ------- --------
Net cash provided by operating activities 46,984 181,241 76,924
------- ------- --------
Cash flows from investing activities:
(Purchase) sale of marketable
securities 12,216 (87,106) (34,000)
Capital expenditures (136,721) (57,479) (77,172)
Proceeds from sale of assets 1,898 3,047 1,289
Other (1,194) 952 3,481
------- ------- --------
Net cash used by investing activities (123,801) (140,586) (106,402)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt -- 139,000 200,000
Repayment of long-term debt (1,000) (114,082) (226,800)
Long-term lease financing (3,464) -- --
Debt issuance costs (885) (2,570) --
Issuance of common stock under
stock plans 515 706 --
Issuance of common stock from
warrants exercised 187 -- --
Issuance of preferred stock 193,344 -- --
Preferred stock dividend (2,523) -- --
------- ------- --------
Net cash provided (used) by financing
activities 186,174 23,054 (26,800)
------- ------- --------
Net increase (decrease) in cash 109,357 63,709 (56,278)
Cash and cash equivalents at the
beginning of the year 121,057 57,348 113,626
------- ------- --------
Cash and cash equivalents at the
end of the year $230,414 $121,057 $ 57,348
======= ======= ========
Marketable securities 108,890 121,106 34,000
------- ------- --------
Total cash and marketable securities $339,304 $242,163 $ 91,348
======= ======= ========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 41,216 $ 38,188 $ 50,039
Income taxes, net 24,308 (798) 5,139
Supplemental schedule of non-cash
investing and financing transactions:
Issuance of non-interest-bearing notes
as preferred stock dividend -- 928 2,153
Purchase of property financed by note
payable and capitalized leases 11,265 17,003 --
Conversion of 930,000 preferred shares
to 14,133,047 common shares -- 141 --
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
MAGMA COPPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS
Magma Copper Company and its subsidiaries ("Magma" or the "Company")
are in the business of mining and concentrating nonferrous copper ore,
smelting and refining its production, as well as that of third parties, and
producing copper cathode and continuous-cast copper rod at its facilities
in San Manuel, Miami (Pinto Valley Mining Division) and Superior, Arizona.
The Company's primary product is electrolytic copper, most of which is sold
as either cathode or continuous-cast copper rod. By-products derived from
the treatment processes are sold to third parties.
The Company produces copper by both the traditional method
(mining/concentrating/smelting/refining) and by the leaching/solvent
extraction-electrowinning ("SX-EW") method. The Company owns and operates
underground sulfide and open-pit oxide and sulfide mines at San Manuel,
Miami (Pinto Valley Mining Division) and Superior, Arizona and Ely, Nevada.
In addition to processing the Company's mined material, the San Manuel
smelter, refinery and rod casting facilities process third party material
on a custom basis, including tolled and purchased concentrates.
NOTE B - RESTRUCTURING AND QUASI-REORGANIZATION
1991 Non-Cash Accounting Adjustments. The Non-Cash Accounting
Adjustments resulted from studies, completed during 1991, of various
balance sheet items that were undertaken in connection with a
reorganization of the Company into distinct profit centers. In addition,
execution of the new collective bargaining agreement and achievement of
productivity increases at the upper Kalamazoo orebody enabled the Company
to further study the feasibility of developing and mining the lower portion
of this orebody. Based upon these studies, and in conjunction with its
internal reorganization, the Company implemented, as of December 31, 1991,
the following Non-Cash Accounting Adjustments:
(1) Adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" and Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
(2) An after tax restructuring charge of approximately $141 million,
which included a $92 million after tax write-down of the
Company's investment in its Kalamazoo orebody, as well as other
amounts related to detailed reviews of the Company's balance
sheet.
(3) Implementation of a "quasi-reorganization", in which certain
assets and liabilities were restated and the accumulated deficit
resulting from the adjustments described above was reclassified
to capital in excess of par value.
After giving effect to the Non-Cash Accounting Adjustments in 1991,
the Company's stockholders' equity at December 31, 1990 was restated to
$447.2 million, compared to $534.2 million, as was originally reported.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries: Magma Gold Ltd., Magma Nevada
Mining Company, Magma Arizona Railroad Company, San Manuel Arizona Railroad
Company, Magma Metals Company and Magma Limited Partner Co. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
2. Property, Plant and Mine Development
Property, plant and mine development is stated at original historical
cost less accumulated depreciation, depletion and amortization, except for
certain assets which were restated in connection with the quasi-
reorganization. Expenditures for property, plant and equipment are
capitalized. Maintenance and repairs are expensed as incurred. Mine
development expenditures incurred substantially in advance of production or
to develop new mines are capitalized. Expenditures for mineral exploration
or evaluations directed towards the discovery of mineral resources are
expensed as incurred, as are expenditures for mine development costs which
maintain current production levels. The amount expensed for exploration,
research and development was $9.4 million, $2.6 million and $.9 million in
1993, 1992 and 1991, respectively.
Investments in property, plant and equipment are depleted or
depreciated over the estimated productive lives of the assets, using the
straight-line method, and deferred mine development costs are charged to
operations on the units-of-production method based on the estimated pounds
of copper ore to be recovered.
Included in "equipment and buildings" in the accompanying consolidated
balance sheets is $109,646,000 and $36,893,000 of construction-in-progress
at December 31, 1993 and 1992, respectively. Included in "deferred mine
development costs" is $21,353,000 and $10,775,000 of mine development-in-
progress at December 31, 1993 and 1992, respectively. The accumulated
amortization of deferred mine development costs was $9,263,000 and
$2,863,000 at December 31, 1993 and 1992, respectively. The accumulated
depletion of mining claims and land was $1,137,000 and $860,000 at December
31, 1993 and 1992, respectively.
3. Inventories
Inventories of metals and materials and supplies are stated at the
lower of moving-average cost or estimated market value.
Inventories included in current assets were (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1993 1992
-------- --------
<S> <C> <C>
Metals in process $ 37,454 $ 50,132
Finished goods 16,222 15,848
------- -------
Subtotal-metals 53,676 65,980
Materials and supplies 25,045 23,353
------- -------
Total $ 78,721 $ 89,333
======= =======
</TABLE>
4. Income Taxes
SFAS 109, Accounting for Income Taxes, requires the adoption of the
"liability" method for providing deferred taxes. The Company elected to
adopt SFAS 109 by reflecting its provisions in the 1991 financial
statements and retroactively restating the prior year financial statements
from January 1, 1987 through December 31, 1990.
Deferred income taxes result from temporary differences in the
recognition of accounting transactions for tax and financial reporting
purposes. The principal temporary differences relate to depreciation and
amortization of mine development costs and certain financial reserves not
deductible for tax purposes until paid.
5. Method of Recording Sales and Treatment Toll Revenue
Revenue from sales of copper and acid is recorded when ownership of
the products is legally transferred to the customer. Certain copper sales
are provisionally priced and later adjusted in the month the sales prices
are contractually finalized. Revenue from by-products is recognized on a
production basis. Treatment toll revenue earned for the smelting of
concentrates is recorded in the month that the copper concentrates are
smelted. Treatment toll revenue earned for refining copper and rod
conversion is recorded in the period that the copper becomes returnable to
the customer.
6. Capitalized Interest
The Company capitalizes interest allocable to the construction of
major new facilities and deferred mine development until operations
commence. The Company capitalized $7,786,000 of interest in 1993. No
interest was capitalized in 1992 or 1991.
7. Earnings Per Share
Primary earnings per share is computed by dividing net income, less
dividends on preferred stock, by the weighted average number of common
shares outstanding and common shares payable as preferred stock dividends.
Under the treasury stock method, common stock warrants outstanding at
December 31, 1991 were antidilutive and therefore were not included in the
computation of earnings per share. The weighted average number of primary
common stock and common stock equivalents outstanding during 1993, 1992 and
1991 were 48,174,000, 33,444,000 and 30,382,000, respectively.
Earnings per share assuming full dilution is computed by dividing net
income by the weighted average number of common shares outstanding,
including the potential dilutive effect of the Series D and Series E
Preferred Stock. For purposes of the computation, all the preferred stock
is included based on the weighted average converted shares outstanding. The
weighted average number of common stock and common stock equivalents
outstanding for 1992, assuming full dilution, was 46,605,000. For 1993 and
1991 the preferred stock was antidilutive.
8. Stock Option and Stock Award Plans
The 1987 Stock Option and Stock Award Plan ("the 1987 Plan") was
established by contributing 5% of Magma's then outstanding stock (1,903,630
shares of Class B Common Stock) to a trust. The trust holds the shares
until used for direct grants or grants of stock options to key members of
Magma's management as directed by a committee ("the Committee") of
directors appointed by the Board of Directors. During 1989, the Committee
authorized the purchase by the trust of 54,300 shares of Class B Common
Stock from the open market for $390,000.
The Company's shareholders approved the adoption of the Magma Copper
Company 1989 Stock Option and Stock Award Plan ("the 1989 Plan") on June 1,
1989. The 1989 Plan is administered by the Committee. Under the 1989
Plan, the Committee has authority to determine the key employees to whom,
and the time or times at which, incentive awards in the form of stock
options, stock appreciation rights, restricted stock awards and performance
units may be granted.
Subject to certain exceptions set forth in the 1989 Plan, the
aggregate numbers of shares of the Company's Common Stock that may be the
subject of awards under the Plan is 2,000,000.
The Company's shareholders approved adoption of the Magma Copper
Company 1993 Stock Option and Stock Award Plan ("the 1993 Plan") on May 13,
1993. The 1993 Plan is administered by the Committee. Under the 1993
Plan, the Committee has authority to determine the key employees to whom,
and the time or time at which, incentive awards in the form of stock
options, stock appreciation rights, restricted stock awards, phantom stock
rights, performance units and performance shares may be granted.
Subject to certain exceptions set forth in the 1993 Plan, the
aggregate number of shares of the Company's common stock that may be the
subject of awards under the Plan is 2,250,000.
Options under the 1987 Plan primarily become exercisable over a three-
year vesting period, subject to certain restrictions, at the rate of one-
third per year. The options under the 1989 Plan become exercisable over a
three or four-year vesting period. Options granted under the 1993 Plan
become exercisable over a three year vesting period.
The following table summarizes the activity related to stock options
under the plans:
<TABLE>
<CAPTION>
1987 Plan
-------------------------------------
1993 1992 1991
------ ------- -------
<S> <C> <C> <C>
Beginning of the year
Outstanding 60,588 63,088 166,596
Exercisable 60,588 63,088 166,596
During the year
Issued -- -- --
Exchanged -- -- 103,508
Canceled -- -- --
Became exercisable -- -- --
Exercised 14,000 2,500 --
End of the year
Outstanding 46,588 60,588 63,088
Exercisable 46,588 60,588 63,088
Option prices $5.00-$10.1875
(For 1991-1993)
</TABLE>
<TABLE>
<CAPTION>
1989 Plan
---------------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Beginning of the year
Outstanding 1,642,838 1,145,638 531,238
Exercisable 459,638 402,638 15,846
During the year
Issued 115,000 655,200 658,000
Exchanged -- -- --
Canceled 85,000 39,000 40,700
Became exercisable 375,938 176,000 389,692
Exercised 95,030 119,000 2,900
End of the year
Outstanding 1,577,808 1,642,838 1,145,638
Exercisable 740,546 459,638 402,638
Option prices $7.59-$9.38 $5.00-$13.25 $5.00
</TABLE>
<TABLE>
<CAPTION>
1993 Plan
---------
1993
---------
<S> <C>
Beginning of the year
Outstanding --
Exercisable --
During the year
Issued 204,900
Exchanged --
Canceled 1,900
Became exercisable --
Exercised --
End of the year
Outstanding 203,000
Exercisable --
Option prices $10.13
</TABLE>
Stock grants represent compensation to management for future periods and
are treated as a capital contribution to Magma as they vest.
Grants under the 1987 Plan vest over various terms. Most grants awarded
in 1991 vest at the yearly rate of 20%, 20%, 30% and 30% over a four-year
period. Most grants awarded in 1992 and 1993 vest over a three or four-
year period.
Compensation expense under the 1987 Plan in the form of stock grants
earned for 1993, 1992 and 1991 was approximately $500,000, $500,000 and
$1,400,000, respectively.
Grants under the 1989 Plan primarily vest over a four-year period at 20%
in each of the first two years and at 30% in the last two years or 25% per
year over a four-year period. Compensation expense related to the 1989
Plan was approximately $100,000, $100,000 and $200,000 in 1993, 1992 and
1991, respectively.
The following table summarizes the activity under the stock grant plans:
<TABLE>
<CAPTION>
1987 Plan 1989 Plan
------------------------- ------------------------
1993 1992 1991 1993 1992 1991
------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Unearned at beginning
of year 156,250 267,900 606,152 39,480 69,440 74,800
Issued 7,000 28,000 7,000 -- -- 10,000
Exchanged -- -- 51,754 -- -- --
Canceled 500 800 16,149 -- 11,200 --
Vested 79,400 138,850 380,857 19,240 18,760 15,360
Unearned at end
of year 83,350 156,250 267,900 20,240 39,480 69,440
</TABLE>
Under the Company's 1989 Stock Option Plan for Non-Employee Directors,
options awarded for 1993, 1992 and 1991 were 6,359, 6,164 and 13,521,
respectively. Under this plan, the directors forego cash compensation in
exchange for discounted options. The average exercise price was $5.97,
$6.17 and $3.00 per share for 1993, 1992 and 1991, respectively.
At a meeting held on May 14, 1992, the Company's shareholders approved
the adoption of the 1992 Restricted Stock Plan for Non-Employee Directors;
8,000 grants of stock were awarded in 1992 and 8,000 grants of stock were
awarded in 1993.
9. Stock Warrants
The Company has warrants outstanding covering the purchase of 5,077,756
shares exercisable at $8.50 per share. The warrants are exercisable
through November 30, 1995.
10. Cash, Cash Equivalents and Marketable Securities
For purposes of the consolidated balance sheets and the consolidated
statements of cash flows, the Company considers all highly liquid
investments, purchased with a maturity of three months or less, to be cash
equivalents. Marketable securities are highly liquid investments,
primarily in United States treasury notes, purchased with maturities
greater than three months. These securities are carried at the lower of
cost or market.
11. Restatements and Reclassifications
Certain amounts for 1992 have been reclassified to conform with 1993
reporting classifications.
NOTE D - MAJOR CUSTOMERS, EXPORT SALES AND SALES COMMITMENTS
During 1993, the Company's copper was sold to approximately sixty (60)
customers. Sales of copper to the Company's largest customer during the
year accounted for 19% of total revenue. Because copper is an
internationally traded commodity, the Company does not believe that the
loss of any one customer would have a material adverse effect on the
results of its operations.
The Company's export sales have declined in recent years primarily due
to increasing U.S. consumption and the recession in Japan. The Company is
maintaining its presence in the Asian markets by supplying cathode to major
fabricators on an annual basis. Export sales as a percent of total
revenues were 25%, 29% and 50% for the years ended December 31, 1993, 1992
and 1991, respectively.
From time to time the Company enters into options and futures contracts
or fixed price forward sales agreements as a hedge against lower copper
prices. For the first and second quarters of 1994, the Company has
purchased put option contracts covering 287 million pounds of production,
providing a minimum realized price of $.72 per pound on a London Metals
Exchange ("LME") basis. For the third and fourth quarters, the Company has
entered into LME futures contracts covering 121 million pounds of
production at an average price of $.82 per pound and purchased put option
contracts covering 176 million pounds of production that provide a minimum
realized price of $.74 per pound on a LME basis. For 1995, the Company
purchased put option contracts covering 374 million pounds of its first,
second and third quarter production, providing a minimum realized price of
$.74 per pound on a LME basis.
NOTE E - INCOME TAXES
During the fourth quarter of 1991, Magma adopted SFAS 109 and
retroactively restated its financial statements from January 1, 1987. SFAS
109 requires an asset and liability approach for financial accounting and
reporting for income tax purposes. This statement recognizes (a) the
amount of taxes payable or refundable for the current year and (b) deferred
tax liabilities and assets for the future tax consequences of events that
have been recognized in the financial statements or tax returns.
In August 1993 the Revenue Reconciliation Act of 1993 (the "Act") was
enacted by Congress. Under the Act, and effective as of January 1, 1993,
the top marginal corporate tax rate was increased from 34% to 35%. Under
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS 109) the cumulative impact of a change in tax rate is
recognized as an element of tax expense for the period of enactment.
During the three month period ended September 30, 1993, the Company
recorded a one time charge to tax expense of $2.8 million to reflect the
impact of the change in statutory rate.
In calculating income taxes, the Company has benefitted from deductions
for percentage depletion. In general, the Company's cumulative percentage
depletion deductions exceed cost basis of depletable properties, resulting
in current percentage depletion being treated as a permanent difference.
The effect of this permanent difference causes the effective tax rate to be
generally lower than the statutory tax rate. Of the total $6.3 million
benefit for percentage depletion, approximately $3.1 million relates to a
change in estimate formalized in July of 1993.
The components of the income tax (provision) benefit consist of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Current tax (provision) $ (9,789) $(13,004) $ (7,000)
Deferred tax (provision) benefit 1,079 (9,595) 69,000
------- ------- -------
$ (8,710) $(22,599) $ 62,000
======= ======= =======
</TABLE>
The (provision) benefit for income taxes differs from the amounts
computed by applying the federal statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1993 1992 1991
-------------- --------------- ------------
Tax Tax Tax
Tax Rate Tax Rate Tax Rate
-------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Income tax (provision)
benefit at federal
statutory rate $(11,028) (35)% $(27,507) (34)% $57,299 34%
Percentage depletion 6,349 20 8,111 10 8,160 5
Change in federal tax
rate (2,800) (9) -- -- -- --
State tax, net (1,231) (4) (3,203) (4) 3,458 2
SFAS 109 valuation
allowance -- -- -- -- (6,917) (4)
------- --- ------- --- ------ ---
$ (8,710) (28)% $(22,599) (28)% $62,000 37%
======= === ======= === ====== ===
</TABLE>
The components of the net deferred tax liability are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1993 1992
-------- --------
<S> <C> <C>
Deferred tax liability relating to
property, plant and mine development $201,462 $208,715
------- -------
Deferred tax assets:
Financial reserves not yet deductible 42,759 41,712
Tax effect of net operating losses 17,501 31,974
Alternative minimum tax credits 51,527 43,687
Valuation allowance (6,917) (6,917)
------- -------
Deferred tax assets, net 104,870 110,456
------- -------
Net deferred tax liability $ 96,592 $ 98,259
======= =======
</TABLE>
At December 31, 1993, Magma has for federal income tax purposes
approximately $50 million of regular tax net operating loss carryforwards
which expire, if unused, in the years 2003 through 2006. Under the federal
alternative minimum tax system, Magma has no net operating loss
carryforwards. As a result of shorter carryforward periods and other
statutory differences, Magma has no net operating loss carryforwards for
state income tax purposes.
Magma also has alternative minimum tax credits aggregating
approximately $52 million which carryforward indefinitely for federal
income tax purposes. These credits can be used in the future to the extent
that Magma's regular tax liability exceeds its liability calculated under
the alternative minimum tax system.
NOTE F - PENSION AND RETIREMENT PLANS
The Company and its subsidiaries have defined benefit pension and
retirement plans covering substantially all employees (the "Plans"). Plans
covering salaried employees provide pension benefits based on the
employee's compensation during the ten years before retirement. Plans
covering hourly employees provide pension benefits based on stated amounts,
for each year of service, and provide for supplemental benefits for
employees who retire with 30 years of service before age 65.
The Company's funding policy is to contribute annually the minimum
amount that can be deducted for federal income tax purposes. Total pension
and retirement plan costs were $2,257,000, $1,422,000 and $1,240,000 in
1993, 1992 and 1991, respectively.
The net periodic pension cost for 1993, 1992 and 1991 included the
following components (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- ------
<S> <C> <C> <C>
Service cost $ 4,932 $ 4,349 $3,562
Interest cost 10,249 9,369 8,211
Less:
Return on assets (12,261) (11,250) (9,835)
Net amortization and deferral (663) (1,046) (698)
------ ------ -----
Annual pension cost $ 2,257 $ 1,422 $1,240
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Salaried Plan Hourly Plan
---------------- -----------------
1993 1992 1993 1992
------ ------ ------ ------
<S> <C> <C> <C> <C>
Discount rates 7.5% 8.5% 7.5% 8.5%
Rates of increase in
compensation levels 4.25% 5.0% N/A N/A
Expected long-term rate
of return on assets 9.5% 9.5% 9.5% 9.5%
Remaining amortization
period for unrecognized
net asset at
January 1, 1987 7 years 8 years 10 years 11 years
</TABLE>
On December 31, 1993 and 1992, the Plans' assets were invested in
fixed income instruments and equity securities.
The following tables set forth the Plans' funded status and amounts
recognized in the Company's consolidated balance sheets at December 31,
1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
Salaried Plan Hourly Plan
------------------ ---------------------
1993 1992 1993 1992
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested benefit
obligation $(21,423) $(16,792) $ (97,190) $(82,243)
======= ======= ======== =======
Accumulated benefit
obligation $(25,125) $(19,565) $(106,802) $(90,391)
======= ======= ======== =======
Projected benefit
obligation for
services rendered
to date $(38,165) $(30,693) $(106,802) $(90,391)
Plan assets at
estimated fair value 26,348 20,381 124,453 117,702
------- ------- -------- -------
Projected benefit obligation
(in excess of) or less than
plan assets (11,817) (10,312) 17,651 27,311
Unrecognized net (gain)
or loss 4,459 1,521 (10,558) (20,758)
Unrecognized net asset from
January 1, 1987 (1,453) (1,660) (10,072) (11,079)
Unrecognized prior service
cost 1,915 2,520 8,056 8,714
------- ------- -------- -------
Prepaid (accrued) pension
cost $ (6,896) $ (7,931) $ 5,077 $ 4,188
======= ======= ======== =======
</TABLE>
During 1990, an amendment changed the benefit formula and the
definition of compensation used to compute the salaried employees' benefit.
These changes resulted in an increase in the projected obligation of
$3,100,000 which is accounted for as prior service cost and amortized over
13.9 years.
The Company provides executives with excess benefit and supplemental
benefit pension plans. Plan costs for 1993 including interest and
amortization of the transition obligation was $710,000. The projected
benefit obligation of these plans at December 31, 1993 was $3,192,000.
Funding is on a current basis and there are no plan assets.
The Company also sponsors postretirement medical and life insurance
benefit plans. Effective January 1, 1991, the Company adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions".
The Company elected to adopt this statement early and to record the entire
cumulative adjustment in the year of adoption. The accompanying statement
of operations for 1991 reflects a pre-tax charge of $23,000,000 less a
$9,000,000 tax benefit as a cumulative effect in a change in accounting
principle in accordance with SFAS 106.
The postretirement medical and life insurance plans cover salaried and
hourly employees with at least ten years of service prior to retirement.
The medical plan provides benefits for hospital coverage and surgical fees
up to a lifetime limit of $80,000. The life insurance plan provides
benefits to hourly employees of $4,000 and to salaried employees based on
their preretirement compensation.
The Company funds the postretirement benefit costs on a current basis
and there are no plan assets.
The net periodic postretirement benefit costs for 1993, 1992 and 1991
included the following components (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ -------
<S> <C> <C> <C> <C>
Service costs $1,005 $ 763 $ 703
Interest costs 2,378 2,027 1,966
Transition obligation -- -- 23,137
----- ----- ------
$3,383 $2,790 $25,806
===== ===== ======
</TABLE>
The following table sets forth postretirement amounts recognized in
the Company's consolidated balance sheets at December 31, 1993 and 1992 (in
thousands):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $13,279 $10,503
Fully eligible actives 5,076 4,311
Other actives 12,182 10,994
Unrecognized transition
obligation (1,778) --
------ ------
Accrued postretirement cost $28,759 $25,808
====== ======
</TABLE>
The 1993 plan accounting assumes a health care cost trend rate for
pre-age 65 benefits of 13% and post-age 65 benefits of 10%. These rates
were assumed to decrease one percentage point each year to 5.5% and remain
at that level thereafter. The assumed discount rate and rate of increase
in compensation levels was 7.5% and 4.25%, respectively. The effect of a
one percentage point increase in the assumed health care cost trend rates
for each future year would increase the accumulated postretirement benefit
obligation as of December 31, 1993 by $3,873,000. The effect of this
change on the aggregate of the service and interest cost components of the
net periodic postretirement benefit costs would have been an increase of
$238,000 for 1993.
NOTE G - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1993 1992
-------- --------
<S> <C> <C>
12% Senior Subordinated Notes (1) $200,000 $200,000
11 1/2% Senior Subordinated Notes (2) 125,000 125,000
Industrial Development Authority Bonds (3) 49,700 49,700
Promissory Note (4) 7,000 8,000
Non-interest-bearing Junior Subordinated Notes (5) 6,151 6,151
Capitalized Lease Obligations (6) 16,804 9,003
------- -------
Total debt 404,655 397,854
Less current portion (12,395) (2,856)
------- -------
Long-term portion $392,260 $394,998
======= =======
</TABLE>
At December 31, 1993, aggregate debt maturities are as follows for the
years ending December 31 (in thousands):
<TABLE>
<S> <C>
1994 $ 12,395
1995 5,231
1996 5,216
1997 3,499
1998 1,389
Thereafter (cumulative) 376,925
-------
Total $404,655
=======
</TABLE>
1. 12% Senior Subordinated Notes
In December 1991, the Company sold $200,000,000 of 12% Senior
Subordinated Notes ("12% Notes") due December 15, 2001. Interest on the
12% Notes is payable on June 15 and December 15 of each year.
The 12% Notes are redeemable at the option of the Company, at any time
or from time to time, on and after December 15, 1996 in whole or in part.
Redemption of the 12% Notes is at 106% of the principal amount thereof for
the twelve month period beginning on December 15, 1996, at 103% of the
principal amount thereof for the twelve month period beginning on December
15, 1997, and thereafter at 100% of the principal amount thereof. The
indenture pursuant to which the 12% Notes were issued contains, among other
restrictions, limitations on the incurrence of additional debt, payment of
cash dividends, distributions on and repurchases of the Company's capital
stock and loans or contributions to the capital of or investment in
Designated Subsidiaries, as defined by the Indenture.
2. 11 1/2% Senior Subordinated Notes
In January 1992, the Company issued $125,000,000 of 11 1/2% Senior
Subordinated Notes ("11 1/2% Notes") due January 15, 2002. Interest on the
11 1/2% Notes is payable January 15 and July 15 of each year.
The 11 1/2% Notes are redeemable at the option of the Company, at any
time or from time to time, on and after January 15, 1995 in whole or in
part. Redemption of the 11 1/2% Notes is at 108% of the principal amount
thereof for the twelve month period beginning on January 15, 1995, at 106%
of the principal amount thereof for the twelve month period beginning
January 15, 1996, at 104% of the principal amount thereof for the twelve
month period beginning January 15, 1997, at 102% of the principal amount
thereof for the twelve month period beginning January 15, 1998, and
thereafter at 100% of the principal amount thereof. The indenture pursuant
to which the 11 1/2% Notes were issued contains restrictions which are
similar in nature to the 12% Senior Subordinated Notes.
3. Industrial Development Authority Bonds
At December 31, 1993, Industrial Development Authority ("IDA") bonds
outstanding totaled $49,700,000. These bonds have been issued through the
Pinal County IDA, the locale of the Company's smelting and refining
facility. The interest rates on these bonds is based on the minimum rate
determined by the remarketing agent necessary to sell the bonds. The
effective interest rate on the bonds was approximately 2.3% for 1993 and 4%
for 1992 and 1991.
Principal at December 31, 1993 is repayable as follows (in thousands):
<TABLE>
<S> <C>
December 31, 2009 $35,700
December 1, 2011 14,000
------
$49,700
======
</TABLE>
In December 1992, the Company refinanced maturing bonds totaling
$14,081,639 with a new $14,000,000 IDA bond issuance due December 1, 2011.
The proceeds of the original bond issues were used to provide funds to
finance certain pollution control facilities and retrofit the Company's
smelter.
4. Promissory Note
In July 1992, the Company purchased a major Arizona copper deposit.
In conjunction with this purchase, the Company signed an $8,000,000, 9.75%
Promissory Note ("Promissory Note") due in eight annual installments of
$1,000,000 commencing January 1993. The Promissory Note may be prepaid at
any time without penalty. The Promissory Note contains no significant
covenants; however, it is secured by a deed of trust on the property
purchased.
5. Non-Interest Bearing Junior Subordinated Notes
From March 1989 through March 1992, the Company issued non-interest-
bearing junior subordinated notes (the "Zero-Interest-Notes") in lieu of
quarterly cash dividends to holders of the Series B Preferred Stock (see
Note H-Preferred Stock). The Zero-Interest-Notes are due and payable on
May 4, 1994.
6. Capitalized Lease Obligations
The Company has capitalized lease obligations for heavy mining
equipment and a computer system. These leases have maturities from 1994
through 2008 and implicit rates ranging from 7.0% to 9.2%.
7. Revolving Credit Facility
In May 1993, the Company entered into a five-year $200 million
revolving credit agreement (the "Revolver"). The Revolver is provided by a
consortium of ten banks and is available for general corporate purposes.
Amounts outstanding under the Revolver may bear interest at the London
InterBank Offered Rate (LIBOR), the Certificate of Deposit or the prime
rate, as defined, plus a margin which may vary depending on the credit
rating of the Company. Currently, borrowings would bear interest at the
rate of LIBOR plus 1%. An annual agency fee of $30,000 plus a commitment
fee (which also varies depending on the credit rating of the Company) of
3/8% per annum on the unused portion of the Revolver is payable by the
Company.
Under the terms of the Revolver, the Company must: (i) maintain a
consolidated net worth of not less than the sum of $350 million plus 50% of
consolidated net income for each fiscal year beginning with fiscal 1993;
(ii) not permit the ratio of its consolidated debt to total capitalization
(debt and equity) to exceed 60% and (iii) maintain a consolidated coverage
ratio of at least 2.0 to 1.
NOTE H - PREFERRED STOCK
The Company has 50,000,000 shares of authorized Preferred Stock. At
December 31, 1993, 5,112,765 shares (none issued or outstanding) had been
designated as Series C Convertible Preferred Stock ("Series C Preferred
Stock"); 2,005,000 shares (2,000,000 issued and outstanding) had been
designated as Series D Cumulative Convertible Preferred Stock ("Series D
Preferred Stock"); 2,000,000 shares (issued and outstanding) had been
designated as Series E Cumulative Convertible Preferred Stock, and
40,882,235 shares (none issued or outstanding) were undesignated. In 1988,
930,000 shares of the Series B Preferred Stock were issued in conjunction
with a recapitalization of the Company. The Series C Preferred Stock was
created for issuance upon conversion of the Series B Preferred Stock or
exercise of outstanding warrants, if, for any reason, the Company were
unable to issue Common Stock to satisfy applicable conversion or exercise
requirements. No Series C Preferred Stock is outstanding and the Company
is not presently aware of any reason that would require it to issue such
stock or preclude it from issuing Common Stock.
In December 1992, the Company offered to exchange 15.446825 shares of
its Common Stock for each share of its Series B Preferred Stock
outstanding. On December 29, 1992, each share of Series B Preferred Stock
was exchanged, resulting in an issuance of 14,133,047 shares of Common
Stock.
Each share of Series B Preferred Stock was entitled to cumulative
dividends in each of the first five years after issuance, paid quarterly,
at the rate of one share of Class B Common Stock per annum and, if the
market price of a share of Class B Common Stock at the time was less than
$10 plus an additional amount (payable, at the Company s option, in cash or
non-interest-bearing junior subordinated notes due five years from the
issuance date of the first of such notes issued), not to exceed $.625 per
quarter, equal to one quarter of the excess of $10 over the market value of
a share of Class B Common Stock. After November 1993, each share of Series
B Preferred Stock would have been entitled to receive dividends of $10 per
annum in cash.
In July 1993, the Company issued $100 million, or 2.0 million shares
of 5 5/8 % Cumulative Convertible Preferred Stock, Series D ("Series D
Preferred Stock") and in December 1993, the Company issued $100 million, or
2.0 million shares of 6% Cumulative Convertible Preferred Stock, Series E
("Series E Preferred Stock"). Both the Series D Preferred Stock and Series
E Preferred Stock have a liquidation preference of $50.00 per share and
dividends are payable quarterly at the annual rate of 5 5/8% and 6%,
respectively.
Each share of the Series D Preferred Stock and Series E Preferred
Stock is convertible at any time at the option of the holder into shares of
Common Stock of Magma Copper Company at a conversion rate of 3.448 and
3.5945 shares, (equivalent to a conversion price of $14.50 and $13.91 per
share of Common Stock) respectively, subject to adjustment under certain
conditions.
The Series D Preferred Stock and Series E Preferred Stock are not
redeemable prior to July 20, 1996 and December 1, 1996, respectively. On
and after the above dates, the Series D Preferred Stock and Series E
Preferred Stock are redeemable at the option of the Company, in whole or in
part, initially for $51.969 and $52.10 per share, respectively, and
thereafter at prices declining ratably annually to $50 per share in 2003,
plus, in each case, an amount equal to accrued and unpaid dividends to the
redemption date.
During 1993, the Company paid cash dividends on its Series D Preferred
Stock and Series E Preferred Stock totaling $2,296,850 and $225,067,
respectively.
NOTE I - COMMON STOCK
At a Special Meeting of Stockholders on October 30, 1992, Magma's
stockholders voted to amend the Company's Certificate of Incorporation to
reclassify and convert all shares of Class A Common Stock and Class B
Common Stock into a new, single class of Common Stock.
Each share of Common Stock created by the amendment possesses one vote
on all matters properly coming before stockholders, including elections of
the Board of Directors, and is not subject to any transfer restrictions,
and possesses no veto power over the issuance of any other class of stock.
NOTE J - COMMITMENTS AND CONTINGENCIES
1. Legal Matters
The Company is involved in legal proceedings of a character normally
incidental to its business, including substantial claims and pending
actions against the Company seeking recovery of alleged damages or
clarifications of legal rights. The Company does not believe that adverse
decisions in any pending or threatened proceedings, or any amounts which it
may be required to pay by reason thereof, would have a material adverse
effect on the financial condition or results of operations of the Company.
The Company is involved in legal proceedings (the "Adjudication")
regarding the allocation of water rights of the Gila River system and
source pending in the Superior Court of Maricopa County, Arizona. The
Company's right to use surface and groundwater at its San Manuel, Pinto
Valley and Superior operations, as well as the rights of all other
claimants to use water from the Gila River system and source, is to be
decided in this matter. Claims for damages for the Company's withdrawal of
ground water have been asserted by Indian tribes, but have been stayed
pending outcome of the Adjudication. A final resolution of this litigation
may not be made for several years. Management believes that, despite this
litigation, it will be able to obtain water necessary for its mining
operations.
2. Labor Contracts
On October 21, 1991 the Company and its labor unions executed a 15
year collective bargaining agreement. The agreement prohibits strikes and
lockouts for at least seven years. Hourly-rated employees have received
and will receive annual wage increases of $.25 to $.35 per hour in each of
the next five years following 1991, some of which are dependent upon
Magma's quarterly earnings performance during such periods. After the
initial five-year period, the agreement will continue in effect for an
additional 10 years on the same terms and conditions, unless either party
proposes a modification of the economic terms. If the parties are unable
to agree on the proposed modifications, they will be submitted to an
arbitration panel which will establish major economic terms for a one-year
period in accordance with certain specified criteria. If during any five-
year period after the initial term there are two such arbitration
proceedings, the agreement will terminate upon the anniversary date of the
second arbitration award. Under the agreement, teams of management, union
represented employees and their representatives are committed to work
together to, among other things, increase productivity and reduce costs.
NOTE K - LEASE COMMITMENTS
The Company leases railcars, haul trucks, other heavy mining equipment
and a computer system. Rent expense for the years ended December 31, 1993,
1992 and 1991 was $4,464,000, $4,833,000 and $3,300,000, respectively.
The following is a schedule of the future minimum lease payments for
the years ending December 31, (in thousands):
<TABLE>
<S> <C>
1994 $ 3,962
1995 3,739
1996 3,890
1997 2,444
1998 1,182
Thereafter (cumulative) 4,696
------
$19,913
======
</TABLE>
NOTE L - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash. The carrying amount approximates fair value because of the
short maturity of those instruments.
Marketable Securities. The fair values of marketable securities are
estimated based on quoted market prices for those or similar investments.
Long-Term Debt. The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same
remaining maturities.
Price Protection Contracts. As discussed further in Note D, at
December 31, 1993 the Company has purchased put options for the first half
of 1994 and entered into LME futures contracts for the second half of 1994.
The carrying amount of these contracts reflects the cost of the option
premium which will be amortized ratably as the options expire. The fair
value of these contracts is estimated based on quotes from brokers and
market prices at December 31, 1993. During January 1994, the Company
purchased additional put options with a carrying amount which approximates
fair value, but which are not included in the table below
Gold and Silver Swap Contracts. The Company has sold forward and
repurchased a portion of its gold and silver production. Through the
execution of swap contracts, the Company will effectively receive the
difference between the fixed sales prices and fixed purchase prices added
to the market average at the time of the physical gold and silver sales.
The fair value of these contracts is based on the difference between the
fixed sales and fixed purchase prices as of the valuation date.
The estimated fair values of the Company's financial instruments as of
December 31, 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------- --------
<S> <C> <C>
Cash $230,414 $230,414
Marketable securities 108,890 109,872
Long-term debt (includes current
portion) (404,655) (439,343)
Copper price protection contracts 7,300 (497)
Gold and silver swap contracts -- 492
</TABLE>
The fair value estimates are made at discrete points in time based on
relevant market information and information about the financial
instruments. These estimates may be subjective in nature and involve
uncertainties and significant judgment and therefore cannot be determined
with precision.
NOTE M - ADOPTION OF FASB 112 - EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS
At December 31, 1993, the Company adopted SFAS 112 - "Employers'
Accounting for Postemployment Benefits". The Company elected to adopt this
statement early and to record the entire cumulative adjustment in the year
of adoption. Under SFAS 112, $.9 million (after tax) was charged to first
quarter 1993 earnings.
NOTE N - STORM DAMAGE
The Company estimates that pre-tax earnings for 1993 were reduced by
$21 million ($15.5 million after tax) as a result of storm damage. The
largest cost was a writedown of inventory to net realizable value of $10
million caused by higher than normal production costs. Additionally, there
was a $4 million loss of production and $4 million of one-time rain related
repair costs. The Company's operating margin was reduced by $3 million as
the Company was unable to mine from the higher-grade area of its open-pit
mine at its Pinto Valley Mining Division. The Company is seeking to
recover a portion of the amounts expended as a result of the storm damage
from its property and casualty insurers.
NOTE O - SELECTED QUARTERLY FINANCIAL DATA (Information for all periods
shown below is unaudited).
Amounts for the three months ended March 31, 1993 have been
restated to reflect the adoption of SFAS 112 (see Note M). (In thousands,
except per share data)
<TABLE>
<CAPTION>
1993
--------------------------------------
Three Months Ended
--------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
<S> <C> <C> <C> <C>
Sales $194,605 $190,150 $211,877 $195,767
Income from operations 6,359 12,372 18,332 17,133
Income before cumulative effect
of accounting change and
preferred stock dividends 276 4,712 8,759 9,054
Net income (loss) (612) 4,712 8,759 9,054
Net income (loss) available for
common stock (612) 4,712 7,868 7,422
Income per common share before
cumulative effect of
accounting change and
preferred stock dividends .01 .10 .18 .19
Earnings (loss) per share of
common stock, primary (.01) .10 .17 .16
Earnings (loss) per share of
common stock, fully diluted (.01) .10 .16 .16
</TABLE>
<TABLE>
<CAPTION>
1992
--------------------------------------
Three Months Ended
--------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . $199,920 $203,852 $218,286 $197,413
Income from operations. . . . . . 22,863 27,345 41,340 20,821
Income before extraordinary
items and preferred stock
dividend. . . . . . . . . . . . 9,748 15,049 23,308 10,196
Net income. . . . . . . . . . . . 9,748 12,029 23,308 10,196
Net income available for
common stock . . . . . . . . . 7,229 8,604 19,819 7,019
Earnings per share of common
stock, primary. . . . . . . . . .24 .26 .58 .21
Earnings per share of common
stock, fully diluted. . . . . . .22 .26 .50 .21
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Magma Copper Company:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Magma Copper Company
and subsidiaries included in this Form 10-K, and have issued our report
thereon dated January 27, 1994. Our audits were made for the purpose of
forming an opinion on the basic consolidated financial statements taken as
a whole. The schedules listed in the index to consolidated financial
statements of this Form 10-K are the responsibility of the Company's
management and are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic consolidated
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Tucson, Arizona,
January 27, 1994.
<TABLE>
SCHEDULE I
MAGMA COPPER COMPANY
Marketable Securities - Other Investments
December 31, 1993 and 1992
<CAPTION>
Name of
Investor Amount on
and Title Market Balance
of Issue Principal Cost Value Sheet
---------- ------------ ------------ ------------ ------------
<C> <S> <C> <C> <C> <C>
12/31/93 Municipal
Bonds $ 61,620,918 $ 64,148,403 $ 64,186,169 $ 63,480,576
United
States
Treasury
Notes 45,000,000 44,290,872 44,561,700 44,290,872
Corporate
Bonds 1,119,936 1,118,176 1,124,055 1,118,639
----------- ----------- ----------- -----------
Total $107,740,854 $109,557,451 $109,871,924 $108,890,087
=========== =========== =========== ===========
12/31/92 Municipal
Bonds $ 22,395,000 $ 24,071,175 $ 24,075,293 $ 24,071,175
United
States
Treasury
Notes 62,250,000 64,257,553 64,710,644 64,257,553
Commercial
Paper 32,882,457 32,777,741 32,791,087 32,777,741
----------- ----------- ----------- -----------
Total $117,527,457 $121,106,469 $121,577,024 $121,106,469
=========== =========== =========== ===========
</TABLE>
<TABLE>
MAGMA COPPER COMPANY SCHEDULE IV
Indebtedness of and to Related Parties-Not Current
For the years ended December 31, 1993, 1992 and 1991
(in thousands)
<CAPTION>
Balance
Balance at
at End
Name of Beginning Addi- Deduc- of
Party (1) of Year tions tions Year
-------------- --------- ------ ----- ------
For the year ended:
<S> <S> <C> <C> <C> <C>
December 31, 1993 Warburg, Pincus $5,490 $ 197 $(5,687) $ --
December 31, 1992 Warburg, Pincus 4,662 828 -- 5,490
December 31, 1991 Warburg, Pincus 2,740 1,922 -- 4,662
______________
(1) Warburg, Pincus Capital Company, L.P. held non-interest-bearing
notes in the amount of $6,545,000, $6,545,000 and $6,409,000 for
1993, 1992 and 1991, respectively. These Notes were recorded on the
Company's books at a present value of $6,321,000, $5,490,000 and
$4,662,000 for the years ended 1993, 1992 and 1991, respectively.
These notes are due in May, 1994 and accordingly are reflected in
the current portion of long-term debt for the year ended December
31, 1993.
</TABLE>
<TABLE>
SCHEDULE V
MAGMA COPPER COMPANY
Property, Plant and Mine Development
For the years ended December 31, 1993, 1992 and 1991
(in thousands)
<CAPTION>
Restruc-
turing
Addi- and Quasi-
Balance tions Sales Reorgani- Balance
at at Cost and zation at
Beginning and Retire- Adjust- End of
of Year Expenses ments ments Year
--------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1993:
Mining claims
and land $ 54,473 $ -- $ -- $ -- $ 54,473
Equipment and
buildings 733,823 131,185 (3,162) -- 861,846
Mine development
costs 50,526 16,802 -- -- 67,328
--------- ------- ------- -------- -------
$ 838,822 $147,987 $ (3,162) $ -- $983,647
========= ======= ======= ======== =======
Year ended
December 31, 1992:
Mining claims
and land $ 41,569 $ 12,904 $ -- $ -- $ 54,473
Equipment and
buildings 698,730 36,937 (1,844) -- 733,823
Mine development
costs 25,885 24,641 -- -- 50,526
--------- ------- ------- -------- -------
$ 766,184 $ 74,482 $ (1,844) $ -- $838,822
========= ======= ======= ======== =======
Year ended
December 31, 1991:
Mining claims
and land $ 45,118 $ 27,421 $ -- $ (30,970) $ 41,569
Equipment and
buildings 736,055 41,109 (4,544) (73,890) 698,730
Mine development
costs 322,934 8,642 -- (305,691) 25,885
--------- ------- ------- -------- -------
$1,104,107 $ 77,172 $ (4,544) $(410,551) $766,184
========= ======= ======= ======== =======
</TABLE>
<TABLE>
SCHEDULE VI
MAGMA COPPER COMPANY
Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Mine Development
For the years ended December 31, 1993, 1992 and 1991
(in thousands)
<CAPTION>
Additions
Balance at Charged to
Beginning Cost and Sales and
of Year Expenses Retirements
---------- ---------- -----------
<S> <C> <C> <C>
Year ended December 31, 1993:
Mining claims and land $ 860 $ 277 $ --
Equipment and buildings 51,478 58,237 (2,829)
Mine development costs 2,863 6,400 --
------- ------ -----
$ 55,201 $64,914(1) $(2,829)
======= ====== =====
Year ended December 31, 1992:
Mining claims and land $ -- $ 860 $ --
Equipment and buildings -- 51,663 (185)
Mine development costs -- 2,863 --
------- ------ ------
$ -- $55,386(1) $ (185)
======= ======= ======
Year ended December 31, 1991:
Mining claims and land $ 3,349 $ 853 $ --
Equipment and buildings 248,902 35,109 (3,069)
Mine development costs 138,831 8,379 --
------- ------ ------
$391,082 $44,341(1) $(3,069)
======= ====== ======
_________
(1) Approximately $4,570,000, $5,007,000 and $4,260,000 of
production-related depreciation, depletion and amortization
charges were not charged to expense, but were properly
capitalized in inventory at December 31, 1993, 1992 and 1991,
respectively.
</TABLE>
<TABLE>
SCHEDULE VI (cont'd)
MAGMA COPPER COMPANY
Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Mine Development
For the years ended December 31, 1993, 1992 and 1991
(in thousands)
<CAPTION>
Restructuring
and Quasi- Balance at
Reorganization End of
Adjustments Year
-------------- ----------
<S> <C> <C>
Year ended December 31, 1993:
Mining claims and land $ -- $ 1,137
Equipment and buildings -- 106,886
Mine development costs -- 9,263
-------- -------
$ -- $117,286
======== =======
Year ended December 31, 1992:
Mining claims and land $ -- $ 860
Equipment and buildings -- 51,478
Mine development costs -- 2,863
-------- -------
$ -- $ 55,201
======== =======
Year ended December 31, 1991:
Mining claims and land $ (4,202) $ --
Equipment and buildings (280,942) --
Mine development costs (147,210) --
-------- -------
$(432,354) $ --
======== =======
</TABLE>
<TABLE>
SCHEDULE VIII
MAGMA COPPER COMPANY
Valuation and Qualifying Accounts
For the years ended December 31, 1993, 1992 and 1991
(in thousands)
<CAPTION>
Balance Charged Charged Balance
at to Cost to at
Beginning and Other Deduc- End of
of Period Expenses Accounts tions Period
--------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
Year Ended Dec. 31, 1993:
Reserves and allowances
deducted from
asset accounts:
SFAS 109 valuation
allowance $6,917 $ -- $ -- $ -- $6,917
Year Ended Dec. 31, 1992:
Reserves and allowances
deducted from
asset accounts:
SFAS 109 valuation
allowance $6,917 $ -- $ -- $ -- $6,917
Year Ended Dec. 31, 1991:
Reserves and allowances
deducted from
asset accounts:
SFAS 109 valuation
allowance $ -- $6,917 $ -- $ -- $6,917
</TABLE>
<TABLE>
SCHEDULE IX
MAGMA COPPER COMPANY
Short-term Borrowings
For the years ended December 31, 1993, 1992 and 1991
(in thousands)
<CAPTION>
Maximum
Amount
Balance at Weighted Outstanding
Category of Aggregate End of Average During the
Short-term Borrowings Year Interest Rate Year
- ----------------------------- --------- ------------- -----------
<S> <C> <C> <C>
Year Ended December 31, 1993:
Total short-term borrowings $ -- --% $ --
Current installments of
long-term debt 12,395 11.54% 12,395
------ ----- ------
Total short-term borrowings and
current installments of
long-term debt $12,395 11.54% $12,395
====== ===== ======
Year Ended December 31, 1992:
Total short-term borrowings $ 1,856 8.7% $ 1,856
Current installments of
long-term debt 1,000 9.75% 15,082
------ ----- ------
Total short-term borrowings and
current installments of
long-term debt $ 2,856 9.1% $16,938
====== ==== ======
Year Ended December 31, 1991:
Total short-term borrowings $ -- --% $ --
Current installments of
long-term debt 14,082 4.7% 14,082
------ ---- ------
Total short-term borrowings and
current installments of
long-term debt $14,082 4.7% $14,082
====== ==== ======
_____________
(1) Average amount outstanding during the period is the sum of the
amounts outstanding at each period (month end) divided by the
total number of periods during the year.
(2) Weighted average interest rate during the period is the total
interest expense applicable to the amounts outstanding at each
period (month end) divided by the average balance owing for
those periods.
(3) Installment of long-term debt did not become classified as
current until December 31, 1991.
</TABLE>
<TABLE>
SCHEDULE IX (cont'd)
MAGMA COPPER COMPANY
Short-term Borrowings
For the years ended December 31, 1993, 1992 and 1991
(in thousands)
<CAPTION>
Average Weighted
Amount Average
Outstanding Interest Rate
Category of Aggregate During the During the
Short-term Borrowings Period (1) Year (2)
- ----------------------------- ---------- -------------
<S> <C> <C>
Year Ended December 31, 1993:
Total short-term borrowings $ -- --%
Current installments of
long-term debt 8,469 10.8%
------ ----
Total short-term borrowings and
current installments of
long-term debt $ 8,469 10.8%
====== ====
Year Ended December 31, 1992:
Total short-term borrowings $ 155 8.7%
Current installments of
long-term debt 14,498 4.3%
------ ----
Total short-term borrowings and
current installments of
long-term debt $14,653 4.3%
====== ====
Year Ended December 31, 1991:
Total short-term borrowings $ -- --%
Current installments of
long-term debt 1,173 --%(3)
------ ----
Total short-term borrowings and
current installments of
long-term debt $ 1,173 --%(3)
====== ====
_____________
(1) Average amount outstanding during the period is the sum of the
amounts outstanding at each period (month end) divided by the
total number of periods during the year.
(2) Weighted average interest rate during the period is the total
interest expense applicable to the amounts outstanding at each
period (month end) divided by the average balance owing for
those periods.
(3) Installment of long-term debt did not become classified as
current until December 31, 1991.
</TABLE>
<TABLE>
SCHEDULE X
MAGMA COPPER COMPANY
Supplementary Income Statement Information
For the years ended December 31, 1993, 1992 and 1991
(In thousands)
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Maintenance and repairs $121,838 $113,558 $135,203
======= ======= =======
Depreciation and depletion $ 58,962 $ 51,776 $ 35,172
Amortization of assets:
Deferred mine development 6,388 2,863 8,379
Debt issuance costs 363 252 3,490
------- ------- -------
$ 65,713 $ 54,891 $ 47,041
======= ======= =======
Taxes, other than payroll
and income taxes:
Property $ 13,579 $ 11,922 $ 11,896
Sales and use 6,439 6,626 5,663
Other 5,566 7,348 7,885
------- ------- -------
$ 25,584 $ 25,896 $ 25,444
======= ======= =======
Royalties paid $ 597 $ 513 $ 983
======= ======= =======
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Additional information required by Part III (Items 10, 11, 12 and 13)
is incorporated by reference from the registrant's definitive proxy
statement which will be filed with the Securities and Exchange Commission
not later than 120 days after the end of the fiscal year covered by this
Form 10-K, provided, however, that the "Compensation Committee Report on
Executive Compensation" and the "Stock Performance Graph" contained in the
Proxy Statement are not incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) 1. Consolidated Financial Statements: Index on page 42 of this
Report.
2. Consolidated Financial Statement Schedules: Index on page 42
of this Report.
3. Exhibits. The exhibits as indexed on pages 83 through 91 of
this Report are included as a part of this Form 10-K.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed by the registrant
during the three months ended December 31, 1993:
The Company filed a report on Form 8-K, dated November 17,
1993, to announce a proposed public offering of up to $100
million principal amount of Cumulative Convertible Preferred
Stock, Series E, par value $.01 per share. The Company also
announced that it had established a hedging program covering a
portion of its 1994 production.
The Company filed a report on Form 8-K, dated November 24,
1993, to announce the conclusion of the sale of $100 million of
Series E Preferred Stock.
Exhibit
Number Description
3.1 Restated Certificate of Incorporation (Incorporated by reference;
of Magma Copper Company, dated previously filed as Exhibit
February 21, 1991 3.4 to the Registrant's
annual report on Form 10-K
for the fiscal year ended
December 31, 1990.)
3.2 Certificate of Correction to Restated (Incorporated by reference;
Certificate of Incorporation of previously filed as Exhibit
Magma Copper Company dated 3.2 to the Registrant's
February 27, 1992 annual report on Form 10-K
for the fiscal year ended
December 31, 1991.)
3.3 Certificate of Amendment to (Incorporated by reference;
Restated Certification of previously filed as Exhibit
Incorporation of Magma Copper 3.3 to the Registrant's
Company dated October 30, 1992 1992 Form 10-K.)
3.4 By-laws of Magma Copper Company (Incorporated by reference;
as amended to and including previously filed as Exhibit
July 22, 1992 3.4 to the Registrant's
1992 Form 10-K.)
4.0 Specimen Common Stock Certificate (Incorporated by reference;
previously filed as Exhibit
4.0 to the Registrant's
1992 Form 10-K.)
4.1 Specimen Warrant Certificate (Incorporated by reference;
previously filed as Exhibit
4.1 to the Registrant's
1988 Warrants Registration
Statement.)
4.2 Form of Warrant Agreement, dated (Incorporated by reference;
as of December 15, 1988, between previously filed as Exhibit
the Company and Manufacturers 4.2 to the Registrant's
Hanover Trust Company, as warrant 1988 Warrants Registration
agent Statement.)
4.3 Form of Note Indenture for 12% (Incorporated by reference;
Senior Subordinated Notes due previously filed as Exhibit
2001, dated December 15, 1991 4 to the Registrant's
Current Report on Form 8-K
dated January 9, 1992.)
Exhibit
Number Description
4.4 Specimen of 12% Note (Incorporated by reference;
previously filed as Article
Two of Exhibit 4 to the
Registrant's Current Report
on Form 8-K dated January
9, 1992.)
4.5 Form of 11.5% Note Indenture for (Incorporated by reference;
11.5% Senior Subordinated Notes previously filed as Exhibit
due 2002, dated January 15, 1992 28B to the Registrant's
Current Report on Form 8-K
dated January 17, 1992.)
4.6 Specimen of 11.5% Note (Incorporated by reference;
previously filed as Article
Two of Exhibit 28B to the
Registrant's Current Report
on Form 8-K dated January
17, 1992.)
4.7 Certificate of Designation of (Incorporated by reference;
Series B Preferred Stock previously filed as Exhibit
3.6 to the Registrant's
Registration Statement on
Form S-1, File No. 33-24960
(the "Copper Notes
Registration Statement").)
4.8 Amendment to Certificate of (Incorporated by reference;
Designation of Series B previously filed as Exhibit
Preferred Stock 3.6 to the Registrant's
Statement on Form S-1, File
No. 33-26294 (the "1988
Warrants Registration
Statement").)
4.9 Certificate of Decrease in (Incorporated by reference;
the Number of Authorized Shares previously filed as Exhibit
of Series B Preferred Stock 3.7 to the Registrant's
1992 Form 10-K.)
4.10 Certificate of Designations of (Incorporated by reference;
Series D Preferred Stock previously filed as Exhibit
4.0 to the Registrant's
Current Report on Form 8-K
dated July 12, 1993.)
Exhibit
Number Description
4.11 Specimen Series D Preferred (Incorporated by reference;
Stock Certificate previously filed as Exhibit
4.0 to the Registrant's
Form 8-A dated July 8,
1993.)
4.12 Certificate of Designations of (Incorporated by reference;
Series E Preferred Stock previously filed as Exhibit
4.1 to the Registrant's
Form 8-A dated November 17,
1993.)
4.13 Specimen Series E Preferred Stock (Incorporated by reference;
Certificate previously filed as Exhibit
4.0 to the Registrant's
Form 8-A dated November 17,
1993.)
10.0 Performance Rights Agreement, (Incorporated by reference;
dated August 10, 1988, Between previously filed as Exhibit
Donald J. Donahue and Magma 10.34 to the Registrant's
Copper Company Copper Notes Registration
Statement.)
10.1 Tax-Matters Agreement, dated (Incorporated by reference;
as of March 6, 1987 between previously filed as 10I to
Newmont Mining Corporation and the Registrant's
Magma Copper Company Form 10.)
10.2 Tax Sharing Agreement between (Incorporated by reference;
Newmont Mining Corporation and previously filed as Exhibit
Magma Copper Company 10.15 to the Registrant's
1987 Form 10-K.)
10.3 Memorandum Agreement, dated (Incorporated by reference,
July 1, 1989, between Magma previously filed as Exhibit
Copper Company and the unions 40.0 to the Registrant's
comprising the Magma Unity Council 1989 Form 10-K.)
10.4 Memorandum Agreement, dated (Incorporated by reference,
November 1, 1991, between Magma previously filed as Exhibit
Copper Company and the union 10.41 to the Registrant's
comprising the Magma Unity 1991 Form 10-K.)
Counsel
10.5 Reimbursement Agreement, dated (Incorporated by reference;
as of December 1, 1984 between previously filed as Exhibit
Magma Copper Company and National 10O to the Registrant's
Westminister Bank PLC, New York Form 10.)
Branch (Series 1984A Bonds)
Exhibit
Number Description
10.6 Loan Agreement, dated as of (Incorporated by reference;
December 1, 1984, between The previously filed as Exhibit
Industrial Development Authority 10K to the Registrant's
of the County of Pinal and Magma Form 10.)
Copper Company Series 1984A Bonds)
10.7 Reimbursement Agreement, dated (Incorporated by reference;
as of December 1, 1984, between previously filed as Exhibit
Magma Copper Company and National 10L to the Registrant's
Westminster Bank PLC, New York Form 10.)
Branch (Series 1984 Bonds)
10.8 Loan Agreement, dated as of (Incorporated by reference;
December 1, 1984, between The previously filed as Exhibit
Industrial Development Authority 10M to the Registrant's
of the County of Pinal and Magma Form 10.)
Copper Company (Series 1984 Bonds)
10.9 Letter Agreement amending the (Incorporated by reference;
Reimbursement Agreement and previously filed as Exhibit
Guaranty, among the Company, 10.12 to the Registrant's
Newmont and National Westminster 1988 Warrants Registration
Bank PLC, dated November 30, 1988 Statement.)
10.10 Loan Agreement dated as of (Incorporated by reference;
December 1, 1992, between the previously filed as Exhibit
Industrial Development Authority 10.11 to the Registrant's
of the County of Pinal and Magma 1992 Form 10-K.)
Copper Company (Series 1992 Bonds)
10.11 Reimbursement Agreement, dated (Incorporated by reference;
as of December 1, 1992, between previously filed as Exhibit
Magma Copper Company and Banque 10.12 to the Registrant's
Nationale de Paris 1992 Form 10-K.)
10.12 Trust Agreement, dated as of (Incorporated by reference;
March 10, 1987, among Newmont previously filed as Exhibit
Mining Corporation, First 10.23 to the Registrant's
Interstate Bank of Arizona and 1987 Form 10-K.)
Magma Copper Company
10.13 Amendment to Trust Agreement, (Incorporated by reference;
dated December 27, 1988, between previously filed as Exhibit
Newmont Mining Corporation, 27.0 to the Registrant's
Magma Copper Company and First 1988 Form 10-K.)
Interstate Bank of Arizona, N.A.
10.14 User License, dated as of (Incorporated by reference;
August 28, 1984, between previously filed as Exhibit
Southwire Company and Magma 10.26 to the Registrant's
Copper Company 1987 Form 10-K.)
Exhibit
Number Description
10.15 License Agreement, dated as of (Incorporated by reference;
October 28, 1986, between previously filed as Exhibit
Outokumpu Oy and Magma Copper 10.27 to the Registrant's
Company 1987 Form 10-K.)
10.16 License Agreement, dated as of (Incorporated by reference;
February 1, 1986, between Phelps previously filed as Exhibit
Dodge Refining Corporation and 10.28 to the Registrant's
Magma Copper Company 1987 Form 10-K.)
10.17 License Agreement, dated as of (Incorporated by reference;
April 10, 1985, between MIM previously filed as Exhibit
Technology Marketing Limited 10.30 to the Registrant's
and Magma Copper Company 1987 Form 10-K.)
10.18 Purchase Agreement, dated (Incorporated by reference;
November 20, 1988, between previously filed as Exhibit
Magma Copper Company and 10.50 to the Registrant's
Warburg, Pincus Capital Company, Copper Notes Registration
L.P. Statement.)
10.19 Amendment to Purchase Agreement, (Incorporated by reference;
dated November 30, 1988, between previously filed as Exhibit
Magma Copper Company and Warburg, 10.27 to the Registrant's
Pincus Capital Company, L.P. 1988 Warrants Registration
Statement.)
10.20 Registration Rights Agreement, (Incorporated by reference;
dated November 30, 1988, between previously filed as Exhibit
Magma Copper Company and Warburg, 10.29 to the Registrant's
Pincus Capital Company, L.P. 1988 Warrants Registration
Statement.)
10.21 Revolving Credit Facility (Incorporated by reference;
Agreement dated May 5, 1993 previously filed as Exhibit
among Magma Copper Company 10.1 to the Registrant's
and Chemical Bank, National Registration Statement on
Westminster Bank PLC, and Form S-3 File No.
other lenders 33-64030.)
10.22 1987 Stock Option and Stock (Incorporated by reference;
Award Plan previously filed as Exhibit
10B to the Registrant's
Form 10.)
10.23 Amendments to 1987 Stock (Incorporated by reference;
Option and Stock Award Plan previously filed as Exhibit
28.1 to the Registrant's
Quarterly Report on Form
10-Q dated June 30, 1992.)
Exhibit
Number Description
10.24 1989 Stock Option and Stock (Incorporated by reference;
Award Plan previously filed as Exhibit
35.0 to the Registrant's
annual report on Form 10-K
for the fiscal year ended
December 31, 1989 (the
"1989 Form 10-K.")
10.25 Amendments to 1989 Stock (Incorporated by reference;
Option and Stock Award previously filed as Exhibit
Plan 28.2 to the Registrant's
Quarterly Report on Form
10-Q dated June 30, 1992.)
10.26 1989 Stock Option Plan for (Incorporated by reference;
Non-employee Directors previously filed as Exhibit
10.27 to the Registrant's
1991 Form 10-K.)
10.27 Amendment to 1989 Stock Option (Incorporated by reference;
Plan for Non-Employee Directors previously filed as Exhibit
28 to the Registrant's
Quarterly Report on Form
10-Q dated September 30,
1991.)
10.28 Excess Benefit Plan (Incorporated by reference;
previously filed as Exhibit
10.28 to the Registrant's
1991 Form 10-K.)
10.29 Executive Supplemental Benefit (Incorporated by reference;
Plan previously filed as Exhibit
10.29 to the Registrant's
1991 Form 10-K.)
10.30 Special Executive Supplemental (Incorporated by reference;
Benefit Plan previously filed as Exhibit
10.30 to the Registrant's
1991 Form 10-K.)
10.31 Special Executive Deferred (Incorporated by reference;
Compensation Plan previously filed as Exhibit
10.31 to the Registrant's
1991 Form 10-K.)
10.32 First Amendment to Special (Incorporated by reference;
Executive Deferred Compensation previously filed as Exhibit
Plan 10.33 to the Registrant's
1992 Form 10-K.)
10.33 Second Amendment to Special (Incorporated by reference;
Executive Deferred Compensation previously filed as Exhibit
Plan 10.34 to the Registrant's
1992 Form 10-K.)
10.34 1992 Restricted Stock Plan for (Incorporated by reference;
Non-Employee Directors previously filed as Exhibit
28.3 to the Registrant's
Quarterly Report on Form
10-Q dated June 30, 1992.)
Exhibit
Number Description
10.35 Amendment to 1987 Stock Plan (Incorporated by reference;
for Non-Employee Directors previously filed as Exhibit
10.36 to the Registrant's
1992 Form 10-K.)
10.36 1993 Revised Incentive Compensation Filed herewith.
Plan Guidelines
10.37 Chief Executive Officer (Incorporated by reference;
Supplemental Retirement Plan previously filed as Exhibit
10.38 to the Registrant's
1992 Form 10-K.)
10.38 Employment Agreement - (Generic Filed herewith.
Copy)
10.39 Third Amendment to Employment Filed herewith.
Agreement between J. B. Winter
and Magma Copper Company
10.40 Retention and Severance Benefit Filed herewith.
Agreement between Magma Copper
Company and J. B. Winter
10.41 Revised 1993 Long-Term Incentive Filed herewith.
Plan guidelines
10.42 1993 Stock Option and Stock (Incorporated by reference;
Award Plan previously filed as Exhibit
4 to the Registrant's
Form S-8 Registration
Statement, File No.
33-64766.)
10.43 First amendment to the Magma Filed herewith.
Copper Company Executive
Supplemental Benefit Plan
10.44 Second amendment to the Magma Filed herewith.
Copper Company Executive
Supplemental Benefit Plan
10.45 First Amendment to the Magma Filed herewith.
Copper Company Special
Executive Supplemental Benefit
Plan
10.46 Second Amendment to the Magma Filed herewith.
Copper Company Special
Executive Supplemental
Benefit Plan
11.0 Statement re: computation of Filed herewith.
per share earnings
21.0 Subsidiaries of Magma Copper Filed herewith.
Company
23.0 Consent of independent public Filed herewith.
accountant
99.0 Statement re: indemnification (Incorporated by reference;
of directors, officers and previously filed as Exhibit
controlling persons 28.0 to the Registrant's
1990 Form 10-K.)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
MAGMA COPPER COMPANY
By:/s/ Donald J. Donahue
(Donald J. Donahue)
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on behalf of
the registrant in the capacities and on the dates indicated.
Signature Title Date
Chairman of the Board
/s/ Donald J. Donahue and Director March 10, 1994
(Donald J. Donahue)
President, Chief Executive
Officer, Director
/s/ J. Burgess Winter (Principal Executive Officer) March 10, 1994
(J. Burgess Winter)
Vice President and
/s/ Douglas J. Purdom Chief Financial Officer March 10, 1994
(Douglas J. Purdom) (Principal Financial and
Accounting Officer)
/s/ Christopher W. Brody Director March 10, 1994
(Christopher W. Brody)
/s/ Judd R. Cool Director March 10, 1994
(Judd R. Cool)
/s/ John W. Goth Director March 10, 1994
(John W. Goth)
/s/ John R. Kennedy Director March 10, 1994
(John R. Kennedy)
/s/ Thomas W. Rollins Director March 10, 1994
(Thomas W. Rollins)
/s/ Henry B. Sargent Director March 10, 1994
(Henry B. Sargent)
/s/ Simon D. Strauss Director March 10, 1994
(Simon D. Strauss)
/s/ H. Wilson Sundt Director March 10, 1994
(H. Wilson Sundt)
/s/ John L. Vogelstein Director March 10, 1994
(John L. Vogelstein)
1993 REVISED ICP GUIDELINES
TARGETS AWARD AMOUNTS
Salary Grade Gainsharing Participant Target as a %
of Base Salary
27 - 28 N 60%
23 - 26 N 45%
20 - 22 N 35 - 40%
16 - 19 N 25 - 30%
16 - 19 Y 20 - 25%
13 - 15 N 15 - 20%
13 - 15 Y 10 - 17.5%
AWARD OPPORTUNITY
0 - 200% OF TARGET AWARD
RESERVE POOL
Amounts earned in excess of 200% shall be placed in a pool to
be allocated at the Committee's discretion.
PERFORMANCE PERIOD
The Company's financial year January 1 through December 31.
PERFORMANCE EVALUATION COMPONENTS
Corporate Business Unit Individual
Corporate Level Participants 50% 0% 50%
Division Level Participants 20% 40% 40%
PERFORMANCE MEASURES
Corporate: SEE ATTACHED TABLES "A" & "B"
Business Unit: SEE ATTACHED TABLE "C"
Individual: Measures defined in current
performance management system, being
both quantitative and subjective.
Standards set by Chief Executive
Officer; performance evaluations
subject to his review.
OUTSTANDING ACHIEVEMENT AWARDS
Set aside 10% of the total bonus funding to reward a small
number of outstanding performers at the discretion of the
Chief Executive Officer.
<PAGE>
PAYMENT OF AWARDS
Awards will be paid within (60) days following the end of the
plan year.
ADJUSTMENTS
The Committee may adjust
The target pool to reflect the addition of
participants to the plan
Performance results to reflect the impact of
unbudgeted acquisitions/divestitures and unusual or
extraordinary items.
TABLES A AND B
Performance Evaluation Components
Performance
Measures
Corporate Business Unit Individual
Corporate Level Part. 50% 0% 50%
Division Level Part. 30% 30% 40%
- -------------------------------------------------------------------
Performance Measures - Business Unit
PERCENT OF AT-TARGET BONUS POOL ACHIEVED
MEASURE WEIGHT ACCEPTABLY TARGET EXCEPTIONALLY
BELOW TARGET PERFORMANCE ABOVE TARGET
P & L COST 40.0% 20.0% 40.0% 80.0%
Productivity 40.0% 20.0% 40.0% 80.0%
Operating Cash
Flow 20.0% 10.0% 20.0% 40.0%
TOTAL: 50.0% 100.0% 200.0%
- ------------------------------------------------------------------
Magma Metals Company
PERCENT OF AT-TARGET BONUS POOL ACHIEVED
MEASURE WEIGHT ACCEPTABLY TARGET EXCEPTIONALLY
BELOW TARGET PERFORMANCE ABOVE TARGET
P & L COST 30.0% 15.0% 30.0% 60.0%
Operating Cash
Flow 70.0% 35.0% 70.0% 140.0%
TOTAL: 50.0% 100.0% 200.0%
TABLE C
AFTER-TAX CASH FLOW
1.20 71.5 107.3 143.0 178.8 214.5
1.10 55.9 83.8 111.7 139.6 167.6
Copper Price 1.00 (Forecast) (1) 40.8 61.2 81.6 102.0 122.4
0.96 (Budget) 34.1 51.1 68.1 85.1 102.2
0.90 24.6 36.8 49.1 61.4 73.7
0.80 08.9 13.4 17.8 22.3 26.7
50% 75% 100% 125% 150%
|------------| |-----| |----------|
BELOW TARGET TARGET ABOVE TARGET
PERFORMANCE PERF. PERFORMANCE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this
1~ day of 2~, 3~, (with such date being subsequently referred to as
"the date hereof" in this Employment Agreement) by and between
MAGMA COPPER COMPANY, a Delaware Corporation (the "Company") and 4~
(the "Executive"). This Employment Agreement is an amendment and
restatement of that prior Employment Agreement between the Company
and the Executive, dated the 5~ day of 6~, 7~, (the "Prior
Employment Agreement") and supersedes and nullifies in all respects
the terms of and the benefits under the Prior Employment Agreement.
ARTICLE ONE
RETENTION OF KEY EXECUTIVES
1.1. Retention Objectives of the Company. MAGMA COPPER
COMPANY, described in Section 2.1 as the "Company," considers it
essential to the continuing operation of the Company and the best
interest of its shareholders to assure the continuous dedication of
key management personnel. It is recognized in the context of
public ownership that a Change in Control, defined in Section 2.1,
of the Company may be sought and that such circumstances could
prove distracting to key executives and detrimental to the ongoing
management and administration of the Company. Such distraction is
not in the best interests of the shareholders of the Company.
Accordingly, the Board has determined to discourage the inevitable
distraction of the Executive in the face of potentially disturbing
circumstances inherent in any situation involving a Change in
Control of the Company. This Employment Agreement is intended to
secure and encourage the ongoing retention of the Executive by
providing specific retention benefits upon a Change in Control, and
separation benefits in the event that the Executive's employment is
altered as hereinafter described, coincident with or subsequent to
a Change in Control, and which are competitive with those of other
corporations. This Employment Agreement is to be interpreted in a
manner consistent with this objective. In order to induce the
Executive to remain in the employ of the Company, and in
consideration of the Executive's agreement set forth in Sections
3.3 and 4.1, the Company agrees to pay the benefits set forth in
this Employment Agreement, under the circumstances described
herein.
1.2. Relationship to Any Other Employment Agreement. 8~
In general, it is the intent of the Company and the Executive that
the terms of this Employment Agreement shall supersede and
substitute for the provisions of any employment understanding
between the Company and the Executive relating to any items of
compensation during the contract term in the event of a Change in
Control of the Company. However, the benefits provided under this
Employment Agreement shall not be construed to supersede or
<PAGE>
substitute for any post-contract term benefits, if any, provided
for in any such employment representations and arrangements.
ARTICLE TWO
DEFINITIONS AND CONSTRUCTION
2.1. Definitions.
(a) "Act" shall mean the Securities Exchange Act of
1934, as amended.
(b) "Average Base Compensation" shall mean the
Executive's annual base salary compensation, including any
portion that may be deferred by action of the Executive,
including any bonus or incentive bonus under the Company's
Annual Incentive Compensation Plan, at the rate in effect
immediately prior to the Termination Event or the Executive's
Termination Date, whichever rate is higher.
(c) "Base Compensation" shall mean the Executive's
annual base salary compensation (including any portion that
may be deferred by action of the Executive, but excluding any
bonus or incentive bonus under any bonus or incentive program
of the Company) at the rate in effect immediately prior to the
Termination Event or the Executive's Termination Date,
whichever rate is higher.
(d) "Beneficial Owner" shall have the same meaning
as that term is given in Rule 13d-3 under the Act.
(e) "Board" shall mean the Board of Directors of
the Company.
(f) "Change In Control" shall mean a change in
ownership or managerial control of the stock, assets or
business of the Company resulting from one (1) or more of the
following circumstances:
(i) On or after the date hereof, the
shareholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than a merger or consolidation which would result
in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into
voting securities of the surviving entity) more than
sixty-five percent (65%) of the combined voting power of
the voting securities of the Company or such surviving
entity outstanding immediately after such merger or
consolidation; provided however, that a merger or
<PAGE>
consolidation effected to implement a recapitalization of
the Company (or a similar transaction,) in which no
Person other than Warburg, Pincus Capital Company, L.P.,
acquires thirty-five percent (35%) or more of the
Company's then outstanding voting securities shall not
constitute a Change in Control;
(ii) On or after the date hereof, a change in
ownership of the Company through a transaction or series
of transactions, such that any Person is or becomes the
Beneficial Owner, directly or indirectly, of securities
of the Company representing thirty-five (35%) or more of
securities of the combined voting power of the Company's
then outstanding securities; provided that, for such
purposes, any acquisition by the Company shall be
disregarded; and provided further that, in the event of
such a change in ownership, if Warburg, Pincus Capital
Company, L.P., as of the date of such change of ownership
and at all times thereafter, remains the Beneficial Owner
of a percentage interest in the Company equal to at least
ten percent (10%) more than any other Beneficial Owner of
the combined voting power of the Company's then
outstanding securities, no Change in Control shall be
deemed to have occurred unless (A) the majority of the
Board serving immediately prior to such Change in Control
shall deem a Change in Control to have occurred, or (B)
Warburg Pincus Capital Company, L.P., shall thereafter
cease to be the Beneficial Owner of a percentage
ownership interest in the Company equal to at least ten
percent (10%) or more than any other Beneficial Owner of
the combined voting power of the Company's then
outstanding securities (and in such event, the Change in
Control shall be deemed to have occurred on the date
Warburg, Pincus Capital Company, L.P., ceases to be the
Beneficial Owner of such greater combined voting power);
(iii) A change in identity of a majority of
the members of the Board within any twenty-four (24)
month period; provided however, if such a change in the
identity of the members of the Board occurs following the
acquisition of fifty-one percent (51%) or more of the
Company's then outstanding voting securities by Warburg,
Pincus Capital Company, L.P., no Change in Control shall
be deemed to have occurred if such change of Board
membership was approved in writing (or by an approved
written resolution) by a majority of the Board and of the
Management Executive Committee serving immediately prior
to such change of Board membership. For purposes of this
Section 2.1(f)(iii), Management Executive Committee shall
mean a Committee appointed in writing by the then-acting
Chief Executive Officer of the Company, comprised of
<PAGE>
corporate officers and such additional key employees of
the Company as the Chief Executive Officer shall appoint
from time to time. The Chief Executive Officer may
remove any member of the Management Executive Committee
by notice in writing delivered to such member and the
other members of the Management Executive Committee;
(iv) The approval by the Board (or by the
shareholders if shareholder approval is required by
applicable law or under the terms of any relevant
agreement) of an agreement for the sale or disposition of
all or substantially all of the Company's assets or a
sale/leaseback of all or substantially all of the
Company's assets (with or without a purchase option);
(v) A transfer of all or substantially all of
the Company's assets pursuant to a partnership or joint
venture agreement where the Company's resulting interest
is or becomes fifty percent (50%) or less;
(vi) On or after the date hereof, the Board (or
the shareholders if shareholder approval is required by
applicable law or under the terms of any relevant
agreement) shall approve a plan of complete liquidation
of the Company; or
(vii) The execution or approval by the
Board of any agreement, the consummation of which would
result in one of the foregoing.
(g) "Company" shall mean Magma Copper Company, any
and all subsidiary companies of Magma Copper Company and any
successor, including but not limited to any Person acquiring
a controlling interest in the stock, assets or business of the
Company through merger, consolidation, acquisition,
reorganization, lease of assets (with or without a purchase
option) or other purchase or restructuring.
(h) "Code" shall mean the Internal Revenue Code of
1986, as in effect from time to time.
(i) "Disability" shall mean the Executive's
inability, due to physical or mental illness or condition, to
substantially perform the essential functions of his position
for a period of six (6) or more months.
(j) "Dismissal for Cause" shall mean dismissal
approved in good faith by three quarters (3/4ths) of the
members of the Board for:
(i) An act or acts of dishonesty on the part
of the Executive constituting a felony or serious
<PAGE>
misdemeanor and resulting or intended to result directly
or indirectly in gain or personal enrichment at the
expense of the Company;
(ii) Substantial competition with the Company
(such as securing a customer or customers of the Company
for a competitor or recruiting employees of the Company
for a competitor) in a manner directly affecting the
business of the Company;
(iii) The Executive's willful refusal or
failure to substantially perform the essential functions
of his job with the Company (other than failure due to
Disability); for such purpose the term "willful" shall
mean done intentionally, knowingly, and purposely,
without reasonable justification therefor;
(iv) Gross negligence in the performance of the
Executive's material and substantial duties of employment
with the Company;
(v) Conviction of a felony involving moral
turpitude;
(vi) A significant violation by the Executive
of those established policies and procedures of the
Company that were in effect on the date of the Change in
Control and were communicated to the Executive prior to
the Change in Control;
(vii) The continued failure of the
Executive to substantially perform the essential
functions of the Executive's job with the Company (other
than due to Disability) after a written demand for
substantial performance is delivered to the Executive by
the Chief Executive Officer of the Company, which
identifies the manner in which the Executive has not
substantially performed the essential functions of his
job; or
(viii) Conduct by the Executive which is in
violation of any provision of this Employment Agreement.
No dismissal shall be deemed to be a Dismissal for Cause
unless the Executive receives thirty (30) days' notice and is
permitted a reasonable opportunity to appear before the Board
with counsel of the Executive's choice prior to the effective
date of discharge.
(k) "Employee Benefit Plan" shall have the meaning
given the term under Section 3 of ERISA.
<PAGE>
(l) "Employment Period" shall mean the period
commencing on the date of a Change in Control of the Company,
and ending on the second (2nd) anniversary of such date.
(m) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as in effect from time to time.
(n) "Good Reason" shall mean the Executive's death,
Disability or Retirement prior to the occurrence of a
Termination Event, Dismissal for Cause or the Executive's
resignation for a reason other than the occurrence of a
Termination Event.
(o) "Option Stock Benefit Adjustment Period" shall,
except as modified by Section 5.3, mean the twelve (12) month
period ending with the anniversary of the last event
constituting the Change in Control.
(p) "Person" shall have the meaning given that term
when used in Sections 13(d) and 14(d) of the Act.
(q) "Restricted Stock Benefit Adjustment Period"
shall, except as modified by Section 5.3, mean the twelve (12)
month period after notice of a Termination Event is given
pursuant to Section 5.1.
(r) "Retirement" shall mean the separation from
employment of the Executive following the attainment of normal
retirement age under the Retirement Plan for Salaried
Employees of Magma Copper Company or pursuant to such other
arrangement providing for the Executive's retirement as shall
be mutually agreed upon in writing by the Company and the
Executive as constituting "Retirement" for purposes of this
Employment Agreement.
(s) "Securities Restriction" shall mean a
securities trading restriction imposed by law, the rules of
any securities exchange, any agreement to which the Company is
a party or the absence of a regular public market permitting
acquisitions and dispositions of Company stock in a public
transaction, which precludes the Executive from freely
disposing of Company stock and retaining the proceeds of such
disposition.
(t) "Stock Benefit Adjustment Period" shall mean
the Option Stock Benefit Adjustment Period or the Restricted
Stock Benefit Adjustment Period, whichever is appropriate in
the context in which the term is applied.
(u) "1987 Stock Plan" shall mean the Magma Copper
Company 1987 Stock Option and Stock Award Plan.
<PAGE>
(v) "1989 Stock Plan" shall mean the Magma Copper
Company 1989 Stock Option and Stock Award Plan.
(w) "1993 Stock Plan" shall mean the Magma Copper
Company 1993 Stock Option and Stock Award Plan.
(x) "Stock Plans" shall mean the 1987 Stock Plan ,
the 1989 Stock Plan and the 1993 Stock Plan.
(y) "Termination Event" shall mean, after a Change
in Control or, at the time of a Change in Control, the
occurrence of one (1) or more of the following, due to a cause
other than Good Reason:
(i) The assignment to the Executive by the
Company of duties inconsistent with the Executive's
position, duties, responsibilities and status with the
Company as in effect immediately prior to the Change in
Control, or a material change in the Executive's titles
or offices as in effect immediately prior to the Change
in Control or any removal of the Executive from or any
failure to reelect the Executive to any of such positions
except in connection with the termination of his
employment for Good Reason; for purposes of this
Employment Agreement, a mere change of title, position or
reporting relationship that does not result in a material
diminution in scope, status, duties and responsibilities
shall not constitute a Termination Event, nor shall an
isolated, insubstantial and inadvertent action not taken
in bad faith and which is promptly remedied after notice
constitute a Termination Event, nor shall a promotion to
a position of higher scope, status, duties and
responsibilities or a transfer to a position of equal
scope, status, duties and responsibilities constitute a
Termination Event, as long as such promotion or transfer
is consistent with the Executive's training and
professional qualifications or is otherwise agreed to by
the Executive;
(ii) A reduction in the Executive's Base
Compensation as in effect on the date hereof or as the
same may be increased from time to time during the term
of this Employment Agreement that is not implemented
correspondingly within the executive or officer class of
employees generally;
(iii) The Executive's relocation to any
place outside of the United States, except for required
travel by the Executive on the Company's business to an
extent substantially consistent with the Executive's
business travel obligations at the time of a Change in
Control; or
<PAGE>
(iv) Any material breach by the Company of any
provision of this Employment Agreement.
(z) "Termination Date" shall mean the thirtieth
(30th) day following the day on which any party to this
Employment Agreement gives written notice to the other party
that a Termination Event has occurred.
(aa) "Value Loss" shall, except as modified by
Section 5.3, mean the difference between the highest price
during the respective Stock Benefit Adjustment Period at which
the stock held, or that could have been held after option
exercise, or that could have been sold by the Executive in the
absence of the Securities Restriction and the highest price in
effect during the respective Stock Benefit Adjustment Period
during which the Executive actually could sell such stock due
to the absence of a Securities Restriction.
2.2. Construction. This Employment Agreement shall be
construed in accordance with the laws of the State of Arizona,
without reference to principles of conflict of laws. Titles to
articles, sections and paragraphs in this Employment Agreement are
intended solely for purposes of convenience and are to be
disregarded in construing this Employment Agreement.
ARTICLE THREE
TERMS AND CONDITIONS OF EMPLOYMENT
3.1. Term of Agreement. This Employment Agreement shall
be effective as of the date hereof. The term of this Employment
Agreement shall continue in effect from such date for a period of
three (3) years from such date, subject to the provisions of this
Article Three, unless sooner terminated by the parties in
accordance with the provisions hereof. The Company and the
Executive shall retain the right to terminate the employment of the
Executive at any time and for any reason prior to a Change in
Control, without liability under this Employment Agreement. The
Executive and the Company acknowledge that, except as may be
provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is
"at will" and, prior to a Change in Control, may be terminated by
either the Company or the Executive at any time. Moreover, prior
to a Change in Control, if the Executive's employment with the
Company terminates, then the Executive shall have no further rights
under this Employment Agreement. No termination or expiration of
this Employment Agreement shall affect any rights, obligations or
liabilities of the Executive or the Company that shall have accrued
on or prior to the date of termination or expiration.
<PAGE>
3.2. Automatic Extension. Commencing on the third
anniversary of the effective date hereof, and on each succeeding
anniversary of the date hereof, the term of this Employment
Agreement shall automatically be extended for one (1) additional
year unless, not later than six (6) months preceding such triennial
anniversary date, the Company shall have given written notice
pursuant to Section 9.1 that it will not extend the term of this
Employment Agreement. Notwithstanding the foregoing, if a Change
in Control occurs while the Executive is employed by the Company
during the original or any extended term of this Employment
Agreement, the Company will continue thereafter to employ the
Executive, and the Executive will remain in the employ of the
Company during the Employment Period in accordance with the terms
and provisions of this Employment Agreement notwithstanding any
notice issued by the Company precluding extension of this
Employment Agreement. The term of this Employment Agreement will
thereafter be automatically renewed pursuant to this Section 3.2,
subject to termination as provided herein. If a Change in Control
occurs during the original or any extended term of this Employment
Agreement, notwithstanding any notice issued by the Company
precluding extension of the term of this Employment Agreement, this
Employment Agreement shall nevertheless continue in effect for a
period ending twenty-four (24) months following the occurrence of
the Change in Control. The automatic extension of the term of this
Employment Agreement pursuant to this Section 3.2 shall not be a
modification of this Employment Agreement in any significant
respect within the meaning of section 280G of the Code and the
rules and regulations thereunder. Notwithstanding the occurrence
of a Change in Control, in the event of the Executive's Disability,
the Company shall have the right to terminate this Employment
Agreement by giving written notice of termination pursuant to
Section 9.1.Such termination shall be effective as of the thirtieth
(30th) day following the giving of such notice.
3.3. Duties During the Employment Period. During the
Employment Period, the Executive shall continue in the same
capacities and positions held by the Executive at the time of the
Change in Control or in such other capacities and positions as may
be mutually agreed to by the Company and the Executive in writing.
During such time, the Executive shall devote his best efforts,
attention and skill to the business and affairs of the Company, as
such business and affairs now exist and as they may hereafter be
conducted. The services which are to be performed by the Executive
hereunder are to be rendered in the United States of America, or in
such other place or places as shall be mutually agreed upon in
writing by the Executive and the Company from time to time.
3.4. Compensation During the Employment Period. During
the Employment Period, the Executive shall be compensated as
follows:
<PAGE>
(a) The Executive shall receive, at such intervals and
in accordance with such standard policies as may be in effect
on the date of the Change in Control, an annual salary not
less than the Executive's annual salary as in effect as of the
date of the Change in Control. During the Employment Period,
the Board or an appropriate committee thereof will consider
and appraise at least annually, the contributions of the
Executive to the Company's operating efficiency, growth,
production and profits, and, in accordance with past practice
in effect prior to the Change in Control, the Executive's Base
Compensation rate shall be adjusted upward, at least annually,
to be commensurate with increases given to other corporate
officers and key employees generally and as the scope and
success of the Company's operations or the Executive's duties
expand. The Executive's Base Compensation shall not be
reduced after any such increase.
(b) During the Employment Period, on the first (1st) and
second (2nd) anniversaries of the occurrence of the Change in
Control, the Executive shall receive an amount equal to
seventy-five percent (75%) of his Average Base Compensation in
effect as of the date of such Change in Control.
ARTICLE FOUR
SEPARATION AFTER A CHANGE IN CONTROL
4.1. Termination. In the event that, during any term of
this Employment Agreement, including the Employment Period, and
coincident with or following a Change in Control, the Executive is
discharged from the employment of the Company other than for Good
Reason or the Executive resigns following the occurrence of a
Termination Event, the Executive shall be entitled to the benefits
provided in Article Five of this Employment Agreement. In the
event that, during any term of this Employment Agreement, including
the Employment Period, coincident with or following a Change in
Control the separation or other Termination Event of the Executive
is on account of Good Reason, no compensation or benefits shall be
payable under Section 3.4 or Article Five. Notwithstanding
anything to the contrary, if a Change in Control occurs and the
Executive's employment with the Company is terminated without Good
Reason prior to the Change in Control and it is reasonably
demonstrated by the Executive that such termination of employment
(a) was at the request of a third party who has taken steps to
effect the Change in Control or (b) was in anticipation of or in
connection with the Change in Control, the Executive shall, for
purposes of this Employment Agreement, be deemed to have been
terminated by the Company as of the Change in Control without Good
Reason.
<PAGE>
4.2. Disability; Retirement. In the event the Executive
has been subject to Disability, upon expiration of the period
qualifying the absence as a Disability pursuant to Section 2.1(i),
and in the event that the Executive remains subject to Disability
at the time of separation, he shall be ineligible to receive
benefits under Section 3.4 and Article Five following a Change in
Control. The term "Retirement" shall not include an election to
retire after occurrence of a Termination Event; any such retirement
shall be treated hereunder as a resignation following a Termination
Event pursuant to Section 4.1.
ARTICLE FIVE
TERMINATION BENEFITS
5.1. Notice of Termination Event. Following the
occurrence of a Termination Event, either party to this Employment
Agreement may give notice of the Termination Event, in the manner
required by Section 9.1. Such notice shall indicate the specific
provision of this Employment Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances giving rise
to the notice. As of the Termination Date, if the party receiving
such notice has not contested the accuracy of the notice or has
given written acknowledgment of the Termination Event, pursuant to
Section 9.1, then the Executive shall be deemed to be discharged or
to have resigned following a Termination Event pursuant to Section
4.1. In the event that the party receiving such notice shall
contest the other party's assertion of a Termination Event prior to
the Termination Date, the Termination Date shall be the date on
which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding and final arbitration award
or by a final judgment, order or decree of a court of competent
jurisdiction entered upon such arbitration award (the time for
appeal therefrom having expired and no appeal having been
perfected). In the event of such dispute, benefits pursuant to
this Article Five shall be paid to the Executive during the period
of dispute unless the Company and the Executive otherwise agree,
and in such event the Executive agrees to refund to the Company any
amounts finally determined not to be payable by reason of
nonoccurrence or delayed occurrence of a Termination Event or
Termination Date, or may apply such amounts against amounts
otherwise due following the determined actual date of a Termination
Event or Termination Date, including, if applicable, during the
Employment Period.
5.2. Compensation Following Termination Event. In the
event that notice of a Termination Event is given pursuant to
Section 5.1, until the Executive's Termination Date (calculated as
though such notice was acknowledged as correct), the Executive
shall continue as a regular employee and shall receive all
<PAGE>
compensation and benefits from the Company to which he would be
entitled in the absence of the Termination Event or in the absence
of separation on account of Good Reason, at the amounts, rates and
levels, and in the manner payable, before the actions or event
constituting the Termination Event, including, if applicable,
during the Employment Period. In the event that the Executive's
Termination Date shall occur during the Employment Period, the
Executive shall continue to receive all compensation payable, as
described in Section 3.4 (a) and (b) during the Employment Period
as though employment had continued through the Employment Period,
unless the Executive's Termination Event or other separation from
employment is for Good Reason.
5.3. Post-Termination Stock Related Compensation.
Participants in one or more of the Stock Plans have received and
will receive grants of stock options , restricted stock and/or
other awards thereunder. The Executive may be a participant in one
or more of the Stock Plans. If (a) with respect to stock options,
at the time of a Change in Control or at any time during the Option
Stock Benefit Adjustment Period or (b) with respect to restricted
stock or other awards, at the time of a Termination Event or at any
time during the Restricted Stock Benefit Adjustment Period, the
Executive suffers a Value Loss, because he cannot freely exercise
options or other awards] and/or sell or exchange Company stock
acquired as a result of option and restricted stock grants or other
awards under one or more of the Stock Plans due to a Securities
Restriction being in effect at any time during the Option Stock
Benefit Adjustment Period or the Restricted Stock Benefit
Adjustment Period, respectively, the Executive shall be entitled to
compensation with respect to the options or stock subject to the
Value Loss pursuant to this Section 5.3. Any amount payable
pursuant to this Section 5.3 as compensation for a Value Loss with
respect to stock options shall be paid in a lump sum within sixty
(60) days after the end of the Option Stock Benefit Adjustment
Period, and with respect to restricted stock or other awards shall
be paid in a lump sum within sixty (60) days after the end of the
Restricted Stock Benefit Adjustment Period. Value Loss
compensation for restricted stock or other awards shall not be
payable for options and option stock, and Value Loss compensation
for option and option stock shall not be payable for restricted
stock or other awards, each Value Loss being separately determined
and compensated. Amounts payable under this Section 5.3 shall be
calculated by the private law firm serving as employee benefits and
executive compensation counsel to the Board immediately prior to
the Change in Control, and the determination of such amount made by
such counsel in good faith shall be binding upon and conclusive
upon both the Company and the Executive. In the event that the
stock which is the subject of this Section 5.3 remains subject to
a Securities Restriction throughout the entire respective Stock
Benefit Adjustment Period, the Value Loss payable shall be
calculated between the high price during the respective Stock
Benefit Adjustment Periods and zero with respect to restricted
<PAGE>
stock or other awards, and, with respect to stock options, shall be
the option exercise price as set forth in the Executive's option
grants. In such event, where the stock remains subject to a
Securities Restriction throughout the entire respective Stock
Benefit Adjustment Period, in order to receive the benefit provided
under this Section 5.3, the Executive shall surrender his options
and/or restricted stock and/or other awards and/or stock obtained
through the exercise of such options in exchange for such payment.
If such options and/or restricted stock and/or other awards and/or
stock are not surrendered, no payment shall be made pursuant to
this Section 5.3 with respect to such options, restricted stock
and/or other awards and/or stock. In the event of the permanent
loss of a public market for the Common Stock of the Company
coincident with or immediately following a Change in Control (that
can be determined at such date to have occurred as of such date or
immediately thereafter by reason of deregistration or cessation of
trading on a recognized exchange), the Option Stock Benefit
Adjustment Period shall be deemed to have expired as of the date of
the Change in Control, with respect to options and stock acquired
through exercise of options, and compensation under this Section
5.3 shall be determined as of such date and payable within sixty
(60) days thereafter. In the event of such permanent loss of a
public market, with respect to restricted stock or other awards ,
the Restricted Stock Benefit Adjustment Period shall be deemed to
expire as of the Termination Event following or coincident with the
Change in Control, and any compensation shall be payable within
sixty (60) days after the date on which notice of the Termination
Event is given. In the event that any amounts (other than grants
of restricted stock or awards of stock options or stock issued on
the exercise thereof) are distributed or distributable to the
Executive under that certain Trust Agreement dated March 10, 1987,
by and among the Company, Newmont Mining Corporation and First
Interstate Bank of Arizona, such amounts shall be credited against
any amounts payable under this Section 5.3 and shall be subtracted
from gross amounts payable pursuant to this Section 5.3 prior to
the payment of the net amount payable.
5.4. Retirement Benefits. In the event that the
Executive shall become entitled to benefits pursuant to Section 4.1
and/or Section 5.1, the Executive shall receive from the Company a
monthly supplemental retirement benefit equal to the excess of (a)
over (b), where (a) is the retirement benefit the Executive would
be entitled to under the Retirement Plan for Salaried Employees of
Magma Copper Company (and under any related "excess benefit plan",
as defined in ERISA and under the retirement supplement contained
in the Magma Copper Company Special Executive Supplemental Benefit
Plan had the Executive remained in full-time employment for twenty-
four (24) additional months following his Termination Date
(calculated as though notice pursuant to Section 5.1 has been
acknowledged as correct), and (b) is the retirement benefit
actually payable to the Executive under the Retirement Plan for
<PAGE>
Salaried Employees of Magma Copper Company and any related excess
benefit plan and under the retirement supplement contained in the
Magma Copper Company Special Executive Supplemental Benefit Plan.
Such monthly benefit shall commence as of the date such benefits
commence under the Retirement Plan for Salaried Employees of Magma
Copper Company, and shall be paid in the same form of monthly
annuity payment as elected by the Participant under such Retirement
Plan, and shall be subject to the same method of benefit
calculation as under such Retirement Plan. Such benefit shall be
payable as though the Executive was fully vested in a retirement
benefit in the event the Executive is not actually fully vested
under the Retirement Plan for Salaried Employees of Magma Copper
Company and shall commence at the earliest age that the Executive
could have elected to receive benefits had he separated with a
vested benefit under such retirement plan. If the Magma Copper
Company Special Executive Supplemental Benefit Plan is amended to
provide the benefit promised under this Section 5.4 for
administrative convenience, such benefit shall be provided under
such plan, rather than under this Employment Agreement, to preclude
duplication of benefits. Benefits under this Section 5.4 may be
provided through a funding medium or trust maintained in connection
with the Magma Copper Company Special Executive Supplemental
Benefit Plan, or directly by the Company.
5.5. Welfare Benefits. For a period of twenty-four (24)
months, commencing with the Executive's Termination Date
(calculated as though notice pursuant to Section 5.1 has been
acknowledged as correct), the Executive (and his dependents, as
applicable) shall be provided by the Company with the same life,
health and disability plan participation, benefits and coverages to
which he was entitled as an employee immediately before the Change
in Control. In the event that under applicable law or the terms of
the relevant Employee Benefit Plans such participation, benefits
and/or coverage cannot be provided to the Executive following his
Termination Date, such coverage and/or benefits shall be provided
directly by the Company pursuant to this Employment Agreement on a
comparable basis. In its sole discretion, the Company may obtain
such coverage and benefits for the Executive through private
insurance acquired at the Company's expense. Amounts paid or
payable to or on behalf of the Executive pursuant to any "employee
welfare benefit plan," as defined in ERISA, providing health and/or
disability benefits, that is sponsored by the Company or an
affiliate of the Company, shall be credited against amounts due
under this Section 5.5. To the maximum extent permitted by
applicable law, the benefits provided under this Section 5.5 shall
be in discharge of any obligations of the Company or any rights of
the Executive under the benefit continuation provisions under
Section 4980A of the Code and Part VI of Title I of the Employee
Retirement Income Security Act ("COBRA") or any other legislation
of similar import. The benefit received under this Section 5.5
<PAGE>
shall be reduced by any comparable benefit received under the Magma
Copper Company Severance Pay Plan.
5.6. Lump Sum Payment. In the event the Executive
becomes entitled to benefits under this Article Five, pursuant to
Section 4.1 and Section 5.1, the Company shall pay the Executive,
as a severance payment or as liquidated damages, or both, a lump
sum payment in cash within sixty (60) days following the
Executive's Termination Date (calculated as though notice pursuant
to Section 5.1 has been acknowledged as correct) equal to the
Executive's Average Base Compensation multiplied by two. The
amount received under this Section 5.6 shall be reduced by any
comparable benefit received under the Magma Copper Company
Severance Pay Plan.
ARTICLE SIX
INTERNAL REVENUE CODE LIMITATIONS
6.1. Code Limitations.
Notwithstanding anything to the contrary in this
Employment Agreement, if the Executive is entitled to benefits
hereunder following the occurrence of a Change in Control, in no
event shall the present value of benefits payable under this
Employment Agreement, taken together with the Executive's benefits
under the Stock Plans, that, in the opinion of counsel (as
identified in Section 6.3), are considered "parachute payments"
under section 4999 of the Code, be reduced by the excise tax
imposed by section 4999 of the Code. In the event that such
benefits so taken together would exceed the amount which is exempt
from the excise tax imposed by section 4999 of the Code, the
Company shall pay to the Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained by the
Executive, after the deduction of any excise tax under Section 4999
and any interest charges or penalties in respect of the imposition
of such excise tax (but not any federal, state or local income tax)
on the present value of such benefits, and any federal, state and
local income tax, excise tax and penalties and interest, if
applicable, upon the additional payment provided for by this
Section 6.1, shall be equal to the present value of such benefits.
For purposes of determining the additional amount to be paid to the
Executive pursuant to this Section 6.1, the Executive shall be
deemed to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which the
additional payment is to be made and state and local income taxes
at the highest marginal rates of taxation in the state and locality
of his residence on the date the additional payment is made, net of
the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes.
<PAGE>
6.2. Definitions Applicable to this Article Six. For
purposes of this Article Six, the term "base amount" shall have the
meaning ascribed to it under section 280G(b) (3) of the Code, the
term "parachute payment" shall have the meaning ascribed to it
under section 280G(b) (2) of the Code, "present value" shall be
determined in accordance with section 280G(d)(4) of the Code, and
"reasonable compensation" shall have the meaning ascribed to it
under section 280G(b)(4) of the Code.
6.3. Interpretation. This Article Six shall be
interpreted so as to avoid the imposition of excise taxes on the
Executive under section 4999 of the Code, or to minimize such
taxes. In applying the provisions of this Article Six if, for any
reason, an exemption from the application of the rules of section
4999 of the Code shall be available under the terms of said section
or under any applicable regulations or rulings thereunder, such
exemption shall be fully applied. No payment under this Employment
Agreement or otherwise that is not, in the opinion of counsel (as
identified in this Section 6.3), a "parachute payment" under
section 4999 of the Code shall be taken into account in applying
the provisions of this Article Six. In application of the
provisions of this Article Six, calculations necessary to be made
pursuant to the provisions of this Article Six and interpretation
of the Code and applicable regulations for purposes of compliance
with this Article Six shall be made by the private law firm serving
as employee benefits and executive compensation counsel to the
Board immediately prior to the Change in Control, and the
determination of such counsel made in good faith shall be binding
and conclusive upon both the Company and the Executive. All fees
and expenses of such law firm pertaining thereto shall be borne by
the Company. Payments shall be made pursuant to this Employment
Agreement notwithstanding that the status of any payment as a
parachute payment has not been finally determined by the Internal
Revenue Service or any court of competent jurisdiction, or by
arbitration as provided in Article Eight. Any Gross-Up Payment, as
determined pursuant to Section 6.1, shall be paid by the Company to
the Executive within five (5) days of the receipt of the law firm's
determination. If the law firm determines that no excise tax is
payable by the Executive, it shall furnish the Executive with a
written opinion that failure to report the excise tax on the
Executive's applicable federal income tax return would not result
in the imposition of a negligence (or similar) penalty. Any
determination by the law firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial
determination by the law firm hereunder, it is possible that Gross-
Up Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 6.4 and the Executive
thereafter is required to make a payment of any excise tax, the law
firm shall determine the amount of the Underpayment that has
<PAGE>
occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
6.4. Internal Revenue Service Claims. The Executive
shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten (10) business
days after the Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(a) give the Company any information reasonably
requested by the Company relating to such claim;
(b) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company;
(c) cooperate with the Company in good faith in
order to effectively contest such claim; and
(d) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any excise
tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing provisions
of this Section 6.4, the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if
<PAGE>
the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis from any excise tax
or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
6.5. Internal Revenue Service Refunds. If, after the
receipt by the Executive of an amount advanced by the Company
pursuant to Section 6.4, the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 6.4),
promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicably
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 6.4, a determination is
made that the Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify the Executive
in writing of its intent to contest such denial of refund prior to
the expiration of thirty (30) days after such determination, then
such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
ARTICLE SEVEN
SUCCESSION AND ASSIGNMENT
7.1. Succession of Executive. This Employment Agreement
shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. In the
event of the Executive's death while any amount would still be
payable hereunder to the Executive had he lived, unless otherwise
provided herein, such amount shall be paid in accordance with the
terms of this Employment Agreement to the Executive's devisee,
legatee or other beneficiary or, if there is no such devisee,
legatee or beneficiary, to his estate.
<PAGE>
7.2. Successors to the Company. Except as otherwise
provided herein, this Employment Agreement shall be binding upon
and inure to the benefit of the Company and any successor of the
Company, including, without limitation, any corporation or
corporations acquiring directly or indirectly all or substantially
all of the stock, business or assets of the Company whether by
merger, consolidation, division, sale or otherwise (and such
successor shall thereafter be deemed "the Company" for the purposes
of this Employment Agreement). The Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and
substance satisfactory to the Executive, to expressly assume and
agree to perform this Employment Agreement in the same manner and
to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Employment Agreement
entitling the Executive to the benefits hereunder, as though the
Executive was subject to a Termination Event due to a cause other
than Good Reason.
7.3. Assignment. This Employment Agreement is personal
in nature, and neither the Executive nor the Company may assign or
transfer this Employment Agreement or rights hereunder except as
provided in this Article Seven. The obligation of the Company
hereunder shall constitute a general unsecured obligation of the
Company; provided that, to the maximum extent permitted under
applicable laws of bankruptcy or insolvency, the obligations of the
Company hereunder shall have the highest creditor priority
applicable to wages payable to employees. No right, benefit or
interest hereunder shall be subject to anticipation, alienation,
sale, assignment, encumbrance, charge, pledge, hypothecation or
set-off in respect of any claim, debt or obligation or to
execution, attachment, levy or similar process, or assignment by
operation of law, except as otherwise provided in this Article
Seven. Any attempt, voluntary or involuntary, to effect any action
specified in the immediately preceding sentence shall, to the full
extent permitted by law, be null, void and of no effect.
ARTICLE EIGHT
ADDITIONAL RIGHTS AND RESPONSIBILITIES
8.1. Mitigation. The Executive shall not be required to
mitigate damages or the amount of any payment provided for under
this Employment Agreement by seeking other employment or otherwise.
The provisions of this Employment Agreement, and any payment
provided for hereunder, shall not reduce any amounts otherwise
payable, or in any way diminish the Executive's existing rights, or
rights which would accrue solely as a result of the passage of
<PAGE>
time, under any Company Employee Benefit Plan, "payroll practice"
(as defined in ERISA), compensation arrangement, incentive plan,
stock option or other stock-related plan other than under the Magma
Copper Company Severance Pay Plan, as provided in Section 5.5 and
5.6.
8.2. Legal Costs. If any legal action or other
proceeding is brought by the Executive for the enforcement of this
Employment Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the
provisions of this Employment Agreement, except as provided in
Section 8.3, the Executive shall be entitled to recover reasonable
attorneys fees and other costs incurred in that action or
proceeding, in addition to any other relief to which he may be
entitled, in the event and to the extent that the Executive
prevails in such action or other proceeding. Notwithstanding
anything hereinabove to the contrary, as between the Executive and
the Company, the Company shall bear all legal costs and expenses of
defending the validity of this Employment Agreement against any
third party. The Company shall bear all legal costs and expenses
incurred in contesting or disputing the characterization of any
amounts paid pursuant to this Employment Agreement as being
nondeductible under section 280G of the Code or subject to
imposition of an excise tax under section 4999 of the Code.
8.3. Arbitration. After the occurrence of a Change in
Control, any controversy or claim arising out of or relating to
this Employment Agreement, or any breach thereof, shall, except as
provided in Article Six, be adjudicated only by arbitration in
accordance with the rules of the American Arbitration Association,
and judgment upon such award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitration
shall be held in the City of Phoenix, Arizona, or such other place
as may be agreed upon at the time by the parties to the
arbitration. The arbitrator(s) shall, in their award, allocate
between the parties the costs of arbitration, which shall include
reasonable attorneys' fees of the parties, as well as the
arbitrators' fees and expenses, in such proportions as the
arbitrator(s) deem just. Notwithstanding the foregoing and
pursuant to Section 8.2, the Executive shall be entitled to seek
specific performance in a court of competent jurisdiction of the
Executive's right to be paid his full compensation until the
Executive's Termination Date, during the pendency or dispute of any
controversy arising under or in connection with this Employment
Agreement.
<PAGE>
ARTICLE NINE
MISCELLANEOUS
9.1. Notices Generally. Any notice or other
communication required or permitted pursuant to the terms of this
Employment Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States
mail, first class, postage prepaid and registered with return
receipt requested, addressed to the intended recipient at his or
its address set forth below and, in the case of a notice or other
communication to the Company, directed to the attention of the
Board with a copy to the Secretary of the Company, or to such other
address as the intended recipient may have theretofore furnished to
the sender in writing in accordance herewith, except that any
notice of change of address is received, notices shall be sent to
the following addresses:
If to the Executive: If to the Company:
4~ Magma Copper Company
9~ 7400 N. Oracle Rd., Suite 200
10~ Tucson, Arizona 85704
9.2. Amendment; Waivers. This Employment Agreement may
be amended only by written amendment duly executed by both parties
or their legal representatives and authorized by action of the
Board. Except as otherwise specifically provided in this
Employment Agreement, no waiver by either party hereto of any
breach by the other party hereto of any condition or provision of
this Employment Agreement to be performed by such other party shall
be deemed a waiver of a subsequent breach of such condition or
provision or a waiver of a similar or dissimilar provision or
condition at the same or at any prior or subsequent time.
9.3. Severability. If any one (1) or more of the
provisions or parts of a provision contained in this Employment
Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity or unenforceability
shall not affect any other provision or part of a provision of this
Employment Agreement, but this Employment Agreement shall be
reformed and construed as if such invalid or illegal or
unenforceable provision or part of a provision had never been
contained herein and such provisions or part thereof shall be
reformed so that it would be valid, legal and enforceable to the
maximum extent permitted by law.
<PAGE>
9.4. Nature of Payments. Any payment made pursuant to
this Employment Agreement is not intended to be a penalty and shall
not preclude the enforcement of any other remedies available to the
party making the payment.
9.5. Withholding. Any payment provided for hereunder
shall be payable net of any applicable withholding required under
federal, state or local law.
IN WITNESS WHEREOF, the Company and the Executive have
executed this Employment Agreement as of the date and year first
above written.
MAGMA COPPER COMPANY
By: J. Burgess Winter
Its: President & Chief Executive Officer
ATTEST:
By: Andrew A. Brodkey
Its: Vice President, Secretary
& General Counsel
____________________________________
By: EXECUTIVE
THIRD AMENDMENT TO
EMPLOYMENT AGREEMENT
This THIRD AMENDMENT TO EMPLOYMENT AGREEMENT is entered
into as of this day of , 1993,
by and between J. BURGESS WINTER (the "Executive") and MAGMA COPPER
COMPANY, a Delaware corporation (the "Company").
Effective August 29, 1988, the Executive and the Company
entered into an Employment Agreement. The Employment Agreement was
amended by First and Second Amendments to Employment Agreement.
This Third Amendment to Employment Agreement is entered into by and
between the Executive and the Company to incorporate the earlier
amendments to the Employment Agreement into a restated agreement,
to delete obsolete provisions and to reflect the adoption of
additional benefit and compensation plans and arrangements
affecting the Executive. This Third Amendment to Employment
Agreement is not a new agreement of employment and is not intended
to materially change the conditions of the Executive's employment.
By execution of this Third Amendment to Employment Agreement,
the Company desires to reconfirm its right to the services of the
Executive, in the capacity described below, on the terms and
conditions set forth, and the Executive desires to continue such
employment on such terms and conditions.
NOW THEREFORE, in consideration of the mutual agreements
hereinafter set forth, the Executive and the Company hereby amend
and restate the Employment Agreement as follows:
ARTICLE ONE
EMPLOYMENT
1.1. Employment as President and Chief Executive Officer
of the Company. The Company has engaged and hired the Executive as
President and Chief Executive Officer of the Company, and the
Executive has accepted and agreed to such hiring, engagement and
employment. The Executive's duties shall be such executive,
managerial and board of director duties as are set forth hereunder,
as the Board shall from time to time prescribe, and as shall be
provided in the Bylaws of the Company. The Executive will devote
his full time, energy and skill to the performance of his duties
for the Company and for the benefit of the Company, reasonable
vacations, reasonable absences because of illness, and reasonable
absences for service as a director of other corporations excepted,
all as authorized by the Board. Furthermore, the Executive will
exercise due diligence and reasonable care in the performance of
his duties for the Company under this Employment Agreement.
<PAGE>
ARTICLE TWO
EMPLOYMENT PERIOD
2.1. Initial Term. The Executive shall be employed by
the Company for the duties as set forth in Article One, for the
five (5) year period commencing on August 28, 1988 and ending on
August 28, 1993, except as extended pursuant to Section 2.2 (the
"Initial Term"), unless the employment of the Executive terminates
earlier in accordance with the provisions of this Employment
Agreement.
2.2 Renewal. On each August 29th anniversary of this
Employment Agreement, the Initial Term shall automatically extend
for one (1) additional year (ending on the succeeding August 28),
unless terminated pursuant to Article Six or Article Seven or
unless the Company or the Executive gives notice in writing to the
other prior to the August 29 renewal date that the Initial Term
shall not be automatically extended. In the event that such notice
is given, the Initial Term shall end on the latter of (a) August
28, 1993, or (b) the date on which the most recent automatic
extension ends. In any event, the Initial Term shall end not later
than August 28, 1997. The parties may renew this Employment
Agreement for additional periods terms on mutually agreeable and
conditions. Neither the Company nor the Executive is under any
obligation to agree to such extensions and may refuse to extend or
renew this Employment Agreement for any or no reason. The terms of
employment, if any, of the Executive following the Initial Term are
not required to be set forth in a formal amendment to this
Employment Agreement and may be contained in an oral understanding.
To the degree this Employment Agreement is in effect in any Renewal
Term, the total period under which the Employee renders services
shall be referred to as the "Employment Period".
ARTICLE THREE
COMPENSATION
3.1 Base Salary. Effective August 29, 1988, and
thereafter, the Company shall pay the Executive and the Executive
agrees to accept from the Company during the Initial Term as full
compensation for his services and his promises to the Company
(specifically including the Covenant Not to Compete as set forth in
Article Eight) a full base salary compensation at the minimum rate
of not less than Two Hundred Sixty Thousand Dollars ($260,000.00)
per year, payable in equal semi-monthly installments or at such
other time or times as the Executive and the Company shall agree
and as otherwise provided by law. The Executive is entitled to
consideration for salary increases from time to time in accordance
<PAGE>
with the regular policy of the Board, and for fiscal year 1993, the
Executive's full base salary compensation shall be Four Hundred
Twelve Thousand Five Hundred Dollars ($412,500.00).
3.2 Short-Term Bonus. The Executive shall also be
eligible to receive an annual bonus. The amount of such bonus, if
any, shall be determined by the Board in its sole and absolute
discretion, based upon the degree of success of the Company during
each fiscal year in attaining its profit, productivity and cost of
production objectives set by the Board for such fiscal year,
commencing with the 1989 fiscal year. Prior to January 1, 1993,
amounts received by the Executive for a fiscal year pursuant to the
terms and provisions of the Company's Incentive Guidelines, if any,
shall be credited against any bonus payable pursuant to this
Section 3.2. Commencing January 1, 1993, and thereafter, the
annual bonus to which the Executive is entitled shall be the bonus
determined under the Magma Copper Company Annual Incentive Plan
approved by the Board for the fiscal year commencing January 1,
1993, and thereafter, as the same may hereafter be amended. In the
event of termination of such plan, the Executive's annual bonus
shall be determined under the other applicable provisions of this
Section 3.2 of this Employment Agreement. For purposes of this
Employment Agreement, "Incentive Guidelines" shall mean the Magma
Copper Company Annual Incentive Compensation Guidelines, as the
same may be amended from time to time. In the event that the
Executive's employment terminates pursuant to Article Six or
Article Seven of this Employment Agreement in any fiscal year
during the Initial Term or any Renewal Term, no annual bonus shall
be payable for the fiscal year during which such termination occurs
and in subsequent fiscal years.
3.3 Long-Term Bonus. The Executive shall also be
eligible to receive a long-term bonus, computed for each
measurement cycle, in an amount not to exceed fifty percent (50%)
of his average annual full base salary compensation described in
Section 3.1 that is in effect for the measurement cycle for which
the long-term bonus is payable. For purposes of this Section 3.3,
"measurement cycle" shall mean each successive three (3) year
period, beginning with the first day of the Company's fiscal year
beginning in 1989. A measurement cycle shall commence each year,
beginning with 1989. The Executive shall be paid the amount of his
long-term bonus, if any, for a measurement period at the end of
such measurement period or within a reasonable time thereafter.
For measurement cycles commencing prior to January 1, 1993, the
amount of such long-term bonus shall be determined by the Board, in
its sole and absolute discretion, based upon attainment of the
earnings per share goals of the Company, improvement in the market
price of the Company's common stock during each measurement cycle,
and upon such other performance-related factors as the Board shall
determine, in its sole and absolute discretion. In the event that
<PAGE>
the Executive's employment terminates pursuant to Article Six or
Article Seven of this Employment Agreement in any measurement cycle
during the Initial Term, or any Renewal Term, no long-term bonus
shall be payable for the current and subsequent measurement cycle.
For the measurement cycle commencing on January 1, 1993, and each
measurement cycle commencing thereafter, the long-term bonus to be
determined under this Section 3.3 shall be the bonus determined or
accrued for each such year under the Magma Copper Company Long-Term
Incentive Plan, as the same may hereafter be amended. In the event
of termination of such plan, the Executive's long-term bonus shall
be determined in the same manner as is provided for measurement
cycles commencing prior to January 1, 1993.
ARTICLE FOUR
FRINGE BENEFITS
4.1 Benefit Plans. The Executive shall be entitled to
participate in such Employee Benefit Plans as are sponsored by the
Company and generally available to salaried employee participation.
Such participation shall be in accordance with the terms and
provisions of the respective Employee Benefit Plans. The Executive
shall also be entitled to participate in the Special Executive
Deferred Compensation Plan, the Supplemental Benefit Plan and the
Chief Executive Officer Plan. In the event of termination of such
plans during the Initial Term, comparable benefits shall be
provided hereunder, offset by any benefits actually provided under
such plans. For purposes of this Employment Agreement "Employee
Benefit Plans" shall have the meaning given the term under Section
3 of the Employee Retirement Income Security Act of 1974 ("ERISA").
For purposes of this Employment Agreement "Special Executive
Deferred Compensation Plan" shall mean the Magma Copper Company
Special Executive Deferred Compensation Plan, as the same may be
amended from time to time, "Supplemental Benefit Plan" shall mean
the Magma Copper Company Special Executive Supplemental Benefit
Plan, as the same may be amended from time to time and "Chief
Executive Officer Plan" shall mean the Magma Copper Company Chief
Executive Officer Plan, as the same may be amended from time to
time.
4.2 Supplemental Pension. The Company shall pay to the
Executive a supplemental pension benefit equal to twice the amount
to which the Executive is entitled to receive under the benefit
formula set forth under the terms and provisions of the Retirement
Plan as it was constituted on August 29, 1988, without regard to
amendments to such benefit formula required by Section 401(1) of
the Internal Revenue Code (which, as of August 24, 1988, was one
and three-quarters percent (1.75%) of "Final Average Earnings,"
less one and one-quarter percent (1.25%) of "Primary Social
<PAGE>
Security Benefits" multiplied by "Years of Credited Service" as
such terms were in the Retirement Plan as of such date); provided
however that for purposes of computation of the benefit provided
under this Section 4.2, the benefit provided under the Retirement
Plan shall be computed subject to the following modifications:
(a) The benefit shall be computed without regard to
any legal limitation on compensation that may be considered as
pensionable earnings under the Internal Revenue Code of 1986
(the "Code") or ERISA and shall be computed without regard to
any legal limitation on benefits under the Code, including
Section 415 of the Code and the corresponding provisions of
the Retirement Plan;
(b) The benefit will be computed considering
amounts payable under Sections 3.1, 3.2 and 3.3 of this
Employment Agreement as pensionable earnings and shall be
based upon the highest three (3) consecutive years of such
payments, with the consecutive years of payments under each
respective section being computed separately, if a larger
benefit is thereby produced (and, for such purposes, the long-
term bonus payable for a measurement cycle may be divided by
three (3) and assigned in equal portions to the respective
years of the measurement cycle);
(c) Any periods of Disability for which a benefit
is payable under Section 4.4 of this Employment Agreement
shall be considered as periods of active employment for
purposes of computing such benefit (for purposes of this
Employment Agreement "Disability" shall mean the Executive's
inability, due to physical or mental illness or condition, to
substantially perform the essential functions of his position
for a period of six (6) or more months);
(d) The benefit so computed shall be payable in the
form of a monthly annuity for the Executive's life, commencing
not earlier than retirement from active employment on and
after attainment of the age of sixty-two (62) years;
(e) If the Executive is not offered continuing
employment by the Company in a comparable position on and
after the attainment of the age of sixty-two (62) years, then
the benefit so computed above shall not be less than Seventy-
Five Thousand Dollars ($75,000.00) per year commencing upon
retirement at or after attainment of the age of sixty-two (62)
years, or One Hundred Thousand Dollars ($100,000.00)
commencing upon retirement at or after attainment of the age
of sixty-five (65) years; the benefit so computed shall be
adjusted to equal such greater amounts at the age of actual
retirement; the minimum benefit computed above shall be
<PAGE>
interpolated based on complete months for retirement between
the ages of sixty-two (62) and sixty-five (65);
(f) Any amounts payable to the Executive under the
Retirement Plan, under the Excess Benefit Plan, the
Supplemental Benefit Plan and the Chief Executive Officer Plan
shall be subtracted from amounts payable pursuant to this
Section 4.2, so that there is no duplication of retirement
benefit; and
(g) The benefit payable, as computed under the
preceding Sections 4.2(a) through 4.2(f) of this Employment
Agreement, may be paid, at the sole election of the Executive,
in the form of a single cash lump sum, computed for present
value purposes using the interest rate factor published by the
Pension Benefit Guaranty Corporation for purposes of valuing
an immediate annuity in effect as of the date such computation
is made. An election to receive such lump sum payment must be
made by the Executive in writing not later than the last day
of the calendar year preceding the calendar year in which he
first becomes entitled to such benefit. In calculating the
amount of any such lump sum, the actuarial equivalent of any
amounts described in Section 4.2(f) shall be subtracted, to
preclude duplication of benefits. For purposes of such
computation, mortality factors shall be those used for
calculating actuarial equivalency under the Retirement Plan.
The benefit payable hereunder may be paid in the sole
discretion of the Company, from the Company's general assets,
under the terms of (and with funds held for payment under) the
Supplemental Benefit Plan or under a separate funding vehicle.
Notwithstanding anything to the contrary in this Section 4.2,
the benefit payable under this Section 4.2 shall not be
payable in the event of the Executive's Termination for Cause
pursuant to Section 8.1, or if the Executive resigns pursuant
to Article Seven (without a final determination that the
Company has breached this Employment Agreement), prior to the
date the Executive becomes vested in a benefit under the
Retirement Plan. Stated conversely, in the event the
Executive separates before vesting under the Retirement Plan,
he shall nevertheless be entitled to the benefit under this
Section 4.2 unless the separation constitutes a Termination
for Cause or was a resignation without a contemporaneous or
subsequent determination that the Company breached this
Employment Agreement.
The formula set forth under this Section 4.2 shall govern
throughout the term of this Employment Agreement. The Company
does, however, reserve the right to amend the Retirement Plan.
For purposes of this Employment Agreement, "Retirement Plan"
<PAGE>
shall mean the Retirement Plan for Salaried Employees of Magma
Copper Company, as the same may be amended from time to time
and the "Excess Benefit Plan" shall mean the Magma Copper
Company Excess Benefit Plan, as the same may be amended from
time to time.
4.3 Stock Options. Pursuant to the terms of the
Company's 1987 Stock Option and Stock Award Plan, 1989 Stock Option
and Stock Award Plan and the 1993 Stock Option and Stock Award Plan
(the "Stock Plans"), or separately directly from the Company, the
Executive shall receive an annual grant of stock options equal in
cumulative exercise price (determined by averaging market closing
prices over the ninety (90) day period prior to the date of grant)
equal to the Executive's Base Salary. Such options shall be
exercisable not less slowly than in equal fractional portions over
a three (3) year period, measured from the date of grant, provided
that such options shall be fully exercisable upon the death or
Disability of the Executive, or the retirement of the Executive
after attaining the age of sixty-five (65) years. Any options not
exercisable on separation from employment, except as otherwise
provided in this Employment Agreement, or as otherwise provided in
the instrument evidencing the grant, shall be forfeited by the
Executive.
4.4 Short-Term Disability. If the Executive becomes
entitled to benefits under the Short-Term Disability Plan, the
Company will pay, in addition to benefits under the Short-Term
Disability Plan, the Executive's full base salary compensation
under Section 3.1 until the earlier of (i) the Executive's recovery
or (ii) expiration of twenty-six (26) weeks from the Executive's
initial date of Disability. For purposes of this Employment
Agreement "Short-Term Disability Plan" shall mean the short-term
disability plan maintained by the Company for salaried employees,
as the same may be amended from time to time.
4.5 Long-Term Disability. If the Executive becomes
Disabled and entitled to benefits under the Company's Long-Term
Disability Plan, the Company will pay in addition to benefits under
the Long-Term Disability Plan, the Executive's full base salary
compensation under Section 3.1 until the Executive is no longer
Disabled or attains the age of sixty-five (65) years, whichever
first occurs. For purposes of this Employment Agreement "Long-Term
Disability Plan" shall mean the long-term disability plan
maintained by the Company for salaried employees, as the same may
be amended from time to time.
4.6 Pre-Retirement Death Benefit. In the event of the
death of the Executive while the Executive is actively employed,
the Company will provide a death benefit of One Million Dollars
<PAGE>
($1,000,000) payable to the Executive's designated beneficiary;
provided that any coverage amounts payable to the Executive's
designated beneficiary under the Company's Life Insurance Plan
shall be credited against the death benefit to be provided under
this Section 4.6, except accidental death benefits, which shall not
be so credited. The death benefit described in this Section 4.6
shall be payable through a life insurance policy, as opposed to a
non-insured death benefit, only if the Executive is able to
successfully pass a standard life insurance physical examination
for such coverage amounts resulting in coverage at standard rates
and such coverage remains in effect at the Executive's death. For
purposes of this Employment Agreement "Life Insurance Plan" shall
mean the Life Insurance and Accidental Death and Dismemberment
Insurance Plan maintained by the Company, as the same may be
amended from time to time.
4.7 Personal Financial, Legal and Tax Services. The
company shall pay the cost, not to exceed three percent (3%) of the
Executive's full base salary compensation under Section 3.1, of the
Executive's legal counsel, tax advisors, tax return preparers and
financial advisors. If such services are provided by or through
the Company, the fair market value of such services shall be
credited against the amount payable under this Section 4.7. The
Executive shall be responsible for any income taxes arising as a
result of such payment or provision of such services or payment of
such costs, without further reimbursement by the Company.
4.8 Vacation. The Executive shall be entitled to four
(4) weeks of paid vacation per calendar year (which payment shall
be included as part of the Executive's full base salary
compensation described in Section 3.1 of this Employment
Agreement), with such vacation to be scheduled and taken in
accordance with the Company's standard vacation policies.
4.9 Post-Retirement Life Insurance. In the event that
the Executive retires from active employment with the Company on or
after the attainment of the age of sixty-five (65) years, the
Executive shall be provided a policy or policies of insurance with
a face value of One Hundred Thousand Dollars ($100,000.00), upon
which seven (7) annual premiums have been paid; provided that the
Company shall, in any event, be entitled to the recovery of its
premiums from cash values prior to the assignment or transfer of
such policy or policies. In the event that the Executive shall
separate from employment before such date, no such policy delivery
shall be made hereunder.
<PAGE>
ARTICLE FIVE
BUSINESS EXPENSE
5.1 Business Expense. The Company will reimburse the
Executive for any and all necessary, customary and usual expenses
incurred on behalf of the Company in accordance with Company
policies. The Company will provide a country club membership (but
not necessarily ownership of the membership) at a country club of
the Executive's choice in Pima County, Arizona or any other county
in which the Company's headquarters shall be located, during the
Initial Term of this Employment Agreement. The Company will at its
expense conduct an annual physical examination of the Executive
through a physician of the Executive's choice, and the results of
such examination shall be available to both the Company and the
Executive. The Executive shall be responsible for any additional
incomes taxes, if any, resulting from expenses under this Section
5.1 constituting taxable income under Section 132 of the Code (or
any successor provision).
ARTICLE SIX
DEATH OR DISABILITY
6.1 Death or Disability. If the Executive becomes
Disabled while employed by the Company, and as a result thereof
becomes unable to continue the proper performance of his duties for
the Company, or if the Executive dies while employed by the
Company, the Executive's employment shall automatically cease and
terminate. The Company's obligations for compensation and benefits
pursuant to Article Three and Four shall end as of the date of the
Executive's death or, in the case of Disability, the Executive's
last day of active employment, except as provided in Article Five.
ARTICLE SEVEN
TERMINATION OTHER THAN BY DEATH OR DISABILITY
7.1 Termination by the Company.
(a) Termination for Cause. The Company may
terminate this Employment Agreement at any time before the
last day of the Initial Term (August 28, 1993), or the last
day of any Renewal Term if this Employment Agreement is
renewed pursuant to its terms as contained herein by the
mutual agreement of the parties, only for "cause" or pursuant
to Article Six. The term "cause" as used herein shall mean:
<PAGE>
(i) The willful and continuing refusal of the
Executive to implement or adhere to policies or
directives of the Board of Directors of the Company;
(ii) Conduct of a criminal nature which may
have an adverse impact on the Company's reputation and
standing in the community;
(iii) Conduct which is in violation of the
Executive's common law duty of loyalty to the Company;
(iv) Fraudulent conduct in connection with the
business affairs of the Company, regardless of whether
said conduct is designed to defraud the Company or
others; or
(v) Conduct which is willfully and
intentionally in violation of any provision of this
Employment Agreement.
The existence of cause shall be conclusively determined by the
Board or its duly appointed agent. If the Executive's
employment is terminated for any of the reasons specified in
subparagraphs (ii), (iii) or (iv) hereinabove, the Executive's
employment may be terminated immediately without any advance
written notice. If the Executive's employment is terminated
for any of the reasons stated in subparagraphs (i) or (v), the
Executive shall be entitled to receive ninety (90) days'
advance written notice of the termination, and such notice
shall not be effective unless the Executive is first given
seven (7) days to remedy noncompliance with subparagraph (i),
if notice is given on account of the reason stated in
subparagraph (i). In the event of termination for cause, the
Company's obligations for compensation and benefits pursuant
to Article Three and Article Four shall cease upon the last
day of employment, except as provided in Article Four. In the
event of termination for death or disability, Article Four
shall govern the Company's obligations for benefits.
7.2 Normal Termination. This Employment Agreement shall
automatically terminate on the expiration of the last Renewal Term
(August 28, 1997) without any notice from either party, unless the
parties mutually agree to extend this Employment Agreement for
additional periods of time. If the parties do agree to extend this
Employment Agreement, the Employment Agreement, as extended, shall
automatically terminate as of the last day of each Renewal Term
without any notice from either party, unless the parties mutually
agreement to extend the Employment Agreement for an additional
period of time. Unless this Employment Agreement is terminated
pursuant to Section 7.1 or Article 6, the Company's obligations to
<PAGE>
pay compensation and benefits pursuant to Article Three and Article
Four shall continue during the Initial Term or the Renewal Term,
whichever is applicable.
7.3 Termination by the Executive. The Executive shall
have the right to terminate this Employment Agreement at any time.
The Executive agrees to provide the Company with one hundred twenty
(120) days prior written notice of any such termination. The
Company's obligation to pay the Executive's compensation and
benefits pursuant to Article Three and Article Four shall cease as
of the Executive's last day of work, subject to the remaining
provisions of this Section 7.3. Notwithstanding anything to the
contrary in this Section 7.3, if the Executive gives written notice
that the Company has materially breached any of its commitments
under this Employment Agreement, unless the Company rectifies the
breach within the one hundred twenty (120) days of the notice or
disputes the occurrence of the alleged breach in writing within
such one hundred twenty (120) day period, the Company's obligation
to pay compensation and benefits pursuant to Article Three and Four
shall continue during the Initial Term or the Renewal Term,
whichever is applicable, even though the Executive may thereafter
resign. If the Executive resigns from the Company pursuant to such
charge of breach and there has been no determination that the
Company did not breach this Employment Agreement, the Executive
will be entitled to receipt of compensation and benefits pursuant
to Article Three and Article Four during the Initial Term or the
Renewal Term, whichever is applicable. Any determination of breach
pursuant to this Section 7.3 shall be made by an arbitrator in
accordance with Article Fourteen. Compensation and benefits shall
remain payable during the period described in this Section 7.3
unless the arbitrator determines that the Executive's position is
frivolous and without merit, in which event the Executive shall be
obligated to repay to the Company such compensation and benefits
paid to the Executive during such period. For purposes of this
Section 7.3 a substantial diminution of the business of the Company
by reason of sale or transfer of substantial and financially
significant operating divisions or facilities shall constitute a
breach of this Employment Agreement. The Company shall be deemed
conclusively to have committed the breach if it does not dispute
the occurrence of the alleged breach within the one hundred twenty
(120) day period noted above. In the event the Executive's
responsibilities as President and Chief Executive Officer of the
Company are substantially diminished without cause under Section
7.1, such substantial diminution shall constitute a breach of this
Employment Agreement for purposes of Section 7.3. Substantial
diminution shall, for such purposes, not include a sale, transfer
or closure of less than substantially all of the Company's assets.
7.4 Effect of Termination. Upon the proper termination
of this Employment Agreement by the Company for any reason other
<PAGE>
than death or Disability of the Executive, or upon the termination
of this Employment Agreement by the Executive, this Employment
Agreement shall thereupon be and become void and of no further
force or effect, except that the "Covenant Not to Compete" (as
defined in Section 8.1) and the "Proprietary Information"
provisions (as defined in Section 9.1) shall survive any said
termination and shall continue to bind the Executive for the period
of time stated therein and the arbitration provisions of Article
Fourteen shall continue to govern any disputes arising hereunder.
Any payments due pursuant to the terms of this Employment Agreement
for services rendered prior to the termination shall be made as
provided in this Employment Agreement.
ARTICLE EIGHT
COVENANT NOT TO COMPETE
8.1 Covenant Not to Compete. The Executive acknowledges
that he is the President and Chief Executive Officer of the Company
and in such capacity the Executive is the Company's representative
with the customers and potential customers of the Company. The
Executive also acknowledges that he will have access to
confidential information about the Company and its customers and
that he will have access to other "proprietary information" (as
defined in Section 9.1) acquired by the Company at the expense of
the Company for use in its business. The Executive has substantial
experience in the mining industry, and possesses special, unique
and extraordinary skills and knowledge in this field. The
Executive's management and operational services to the Company are
special, unique and extraordinary and the success or failure of the
Company is dependent upon the Executive's discharge or his duties
and obligations. Accordingly, by execution of this Employment
Agreement:
(a) Duration of Covenant. The Executive agrees
that during the Initial or any Renewal Term or during the
Employment Period and for a period of two (2) years following
the Executive's termination of employment for any reason
(whether such termination shall be voluntary or involuntary)
the Executive shall not violate the provisions of subparagraph
(b), below. The Executive agrees that the two (2) year period
referred to in the preceding sentence shall be extended by the
number of days included in any period of time during which the
Executive is or was engaged in activities constituting a
breach of subparagraph (b).
(b) Prohibited Competitive Activities. During the
time period specified in subparagraph (a), the Executive shall
not:
<PAGE>
(i) Directly or indirectly own, operate,
manage, consult with in a manner facilitating
competition, control, participate in the management or
control of, be employed by, maintain or continue any
interest whatsoever in any metals mining business in the
State of Arizona; or
(ii) Directly or indirectly solicit business
from any individual or entity in the State of Arizona
which obtained goods and services from the Company at any
time during the Executive's employment; and
(iii) Directly or indirectly solicit any
business from any individual or entity in the State of
Arizona solicited by the Executive on behalf of the
Company.
(c) Need for Covenant, Legal Remedies. The
Executive expresses, agrees and acknowledges that this
Covenant Not to Compete is necessary for the Company's
protection because of the nature and scope of the Company's
business and the Executive's position with and services for
the Company. Further, the Executive acknowledges that, in the
event of his breach of this Covenant Not to Compete, money
damages will not sufficiently compensate the Company for its
injury caused thereby, and the Executive accordingly agrees
that in addition to such money damages the Executive may be
restrained and enjoined from any continuing breach of this
Covenant Not to Compete without any bond or other security
being required by any court. The Executive acknowledges that
any breach of this Covenant Not to Compete would result in
irreparable damage to the Company.
(d) Acknowledgements by Executive. The Executive
expressly agrees and acknowledges as follows:
(i) This Covenant Not to Compete is reasonable
as to time and geographical area and does not place any
unreasonable burden upon him;
(ii) The general public will not be harmed as
a result of enforcement of this Covenant Not to Compete;
(iii) The Executive has requested or has
had the opportunity to request that his personal legal
counsel review this Covenant Not to Compete; and
(iv) The Executive understands and hereby
agrees to each and every term and condition of this
Covenant Not to Compete.
<PAGE>
ARTICLE NINE
PROPRIETARY INFORMATION
9.1 Proprietary Information.
(a) Return of Proprietary Information. Upon
termination of this Employment Agreement for any reason, the
Executive shall immediately turn over to the Company and
"proprietary information," as defined below. The Executive
shall have no right to retain any copies of any material
qualifying as "proprietary information" for any reason
whatsoever after termination of his employment hereunder
without the express written consent of the Company.
(b) Non-Disclosure. It is understood and agreed
that, in the course of his employment hereunder and through
his activities for and on behalf of the Company, the Executive
will receive, deal with and have access to the Company's
proprietary information and that the Executive holds the
Company's proprietary information in trust and confidence for
the Company. The Executive agrees that he shall not, during
the term of this Employment Agreement or thereafter, in any
fashion, form or manner, directly or indirectly, retain, make
copies of, divulge, disclose or communicate to any person, in
any manner whatsoever, except when necessary or required in
the normal course of the Executive's employment hereunder and
for the benefit of the Company or with the express written
consent of the Company, any of the Company's proprietary
information or any information of any kind, nature or
description whatsoever concerning any matters affecting or
relating to the Company's business.
(c) Proprietary Information Defined. For purposes
of this Employment Agreement, "proprietary information" shall
mean and include the following:
(i) The identity of clients or customers or
potential clients or customers of the Company;
(ii) Any written, typed or printed lists or
other materials identifying the clients or customers of
the Company;
(iii) Any financial or other information
supplied by clients or customers of the Company;
(iv) Any and all data or information involving
the techniques, programs, methods or contacts employed by
the Company in the conduct of its business;
<PAGE>
(v) Any lists, documents, manuals, records,
forms, or other materials used by the Company in the
conduct of its business;
(vi) Any descriptive materials describing the
methods and procedures employed by the Company in the
conduct of its business; and
(vii) Any other secret or confidential
information concerning the Company's business or affairs.
The terms "list", "document", or their equivalent, as used in
this Article Nine, are not limited to a physical writing or
compilation but also include any and all information
whatsoever regarding the subject matter of the "list" or
"document" whether or not such compilation has been reduced to
writing.
ARTICLE TEN
ASSIGNMENT
10.1 Assignment. This Employment Agreement is personal
in its nature and neither of the parties hereto shall, without the
consent of the other, assign or transfer this Employment Agreement
or any rights or obligations hereunder; provided that, in the event
of the merger, consolidation or transfer or sale of all or
substantially all of the assets or stock of the Company with or to
any other individual or entity, this Employment Agreement shall,
subject to the provisions hereof, be binding upon and inure to the
benefit of such successor and such successor shall, pursuant to a
written assumption, discharge and perform all the promises,
covenants, duties and obligations of the Company hereunder.
ARTICLE ELEVEN
GOVERNING LAW
11.1 Governing Law. This Employment Agreement shall be
governed in all respects, whether as to validity, construction,
capacity, performance, or otherwise, by the laws of the State of
Arizona, and no action involving this Employment Agreement may be
brought except in the Superior Court for the State of Arizona or
the Federal District Court for the District of Arizona, subject to
Section 14.1.
<PAGE>
ARTICLE TWELVE
ENTIRE AGREEMENT
12.1 Entire Agreement. This Employment Agreement
embodies the entire agreement of the parties respecting the matters
within its scope and may be modified only in writing. In the event
that this Third Amendment to Employment Agreement shall be subject
to Section 280G(b)(C) of the Internal Revenue Code, this Third
Amendment shall be void and the Employment Agreement as amended
prior to this Third Amendment shall remain in full force and
effect.
ARTICLE THIRTEEN
WAIVER
13.1 Waiver. Failure to insist upon strict compliance
with any of the terms, covenants or conditions hereof shall not be
deemed a waiver of such term, covenant or condition, nor shall any
waiver or relinquishment of, or failure to insist upon strict
compliance with, any right or power hereunder at any one or more
times be deemed a waiver or relinquishment of such right or power
at any other time or times.
ARTICLE FOURTEEN
ARBITRATION
14.1 Arbitration. All claims, disputes and other matters
in question between the parties arising out of the employment
relationship (other than claims arising pursuant to the Covenant
Not to Compete or Proprietary Information provisions of Article
Eight and Article Nine shall be decided by arbitration in
accordance with the rules of the American Arbitration Association,
unless the parties mutually agree otherwise. The award by the
arbitrator shall be final, and judgment may be entered upon it in
accordance with applicable law in any Arizona or federal court
having jurisdiction thereof. During any period when an arbitration
pursuant to this Section 14.1 is pending any compensation or
benefits payable to the Executive pursuant to Article Three and/or
Article Four shall continue to be paid, and the Company shall pay
the Executive's legal fees incurred in connection with such
arbitration; such amounts shall be refundable to the Company only
if the Executive was the charging party and the arbitrator
<PAGE>
determines that the Executive's position was frivolous and without
merit.
ARTICLE FIFTEEN
SEVERABILITY
15.1 Severability. In the event that a court of
competent jurisdiction determines that any portion of this
Employment Agreement is in violation of any statute or public
policy, then only the portions of this Employment Agreement which
violate such statute or public policy shall be stricken. All
portions of this Employment Agreement which do not violate any
statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Employment
Agreement shall modify the stricken terms as narrowly as possible
to give as must effect as possible to the intentions of the parties
under this Employment Agreement.
ARTICLE SIXTEEN
NOTICES
16.1 Notices. Any notice or other communication required
or permitted pursuant to the terms of this Employment Agreement
shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States mail, first class,
postage prepaid and registered with return receipt requested,
addressed to the intended recipient at his or its address set forth
below and, in the case of a notice or other communication to the
Company, directed to the attention of the Board with a copy to the
Secretary of the Company, or to such other address as the intended
recipient may have theretofore furnished to the sender in writing
in accordance herewith, except that until any such notice of change
of address is received, notices shall be sent to the following
addresses:
If to the Executive: If to the Company:
J. Burgess Winter Magma Copper Company
6605 Placita Alhaja 7400 N. Oracle Rd., Suite 200
Tucson, Arizona 85715 Tucson, Arizona 85704
Attn: Vice President, Human
Resources
<PAGE>
ARTICLE SEVENTEEN
BOARD SUBMISSION
17.1 Board Submission. The Executive's name shall be
submitted to the Board for election to the office of President
during each applicable term for so long as the Executive serves as
President of the Company, without breach of this Employment
Agreement.
IN WITNESS WHEREOF, the Company has caused this Third
Amendment to Employment Agreement to be executed by its duly
authorized officer, and the Executive has hereunto signed this
Employment Agreement as of the date and year first above written.
MAGMA COPPER COMPANY
By: Donald J. Donahue
Its: Chairman of the Board
ATTEST:
By: Andrew A. Brodkey
Its: Secretary & General Counsel
EXECUTIVE
By: J. Burgess Winter
RETENTION AND SEVERANCE BENEFIT AGREEMENT
THIS RETENTION AND SEVERANCE BENEFIT AGREEMENT (the
"Agreement") is made and entered into this 21st day of December,
1993, (with such date being subsequently referred to as "the date
hereof" in this Agreement) by and between MAGMA COPPER COMPANY, a
Delaware Corporation (the "Company") and J. BURGESS WINTER (the
"Executive").
ARTICLE ONE
RETENTION OF KEY EXECUTIVE
1.1. Retention Objectives of the Company. MAGMA COPPER
COMPANY, described in Section 2.1 as the "Company," considers it
essential to the continuing operation of the Company and the best
interest of its shareholders to assure the continuous dedication of
key management personnel. It is recognized in the context of
public ownership that a Change in Control, defined in Section 2.1,
of the Company may be sought and that such circumstances could
prove distracting to key executives and detrimental to the ongoing
management and administration of the Company. Such distraction is
not in the best interests of the shareholders of the Company.
Accordingly, the Board has determined to discourage the inevitable
distraction of the Executive in the face of potentially disturbing
circumstances inherent in any situation involving a Change in
Control of the Company. This Agreement is intended to secure and
encourage the ongoing retention of the Executive by providing
specific retention benefits upon a Change in Control, and
separation benefits in the event that the Executive's employment is
altered as hereinafter described, coincident with or subsequent to
a Change in Control, and which are competitive with those of other
corporations. This Agreement is to be interpreted in a manner
consistent with this objective. In order to induce the Executive
to remain in the employ of the Company, particularly in the context
of a Change in Control and in consideration of the Executive's
agreement set forth in Sections 3.3 and 4.1, the Company agrees to
pay the benefits set forth in this Agreement, under the
circumstances described herein.
1.2. Relationship to Employment Agreement. The Executive
has an Employment Agreement, entered into in 1988 and subsequently
amended from time to time, with the Company. This Agreement is in
addition to and supplemental to such Employment Agreement and is
not an amendment in any respect of such Employment Agreement.
Nothing in this Agreement shall be construed to supersede or
substitute for the terms or provisions of the Employment Agreement,
or to diminish or interfere with any rights or benefits under such
Employment Agreement, whether before or after any Change in
Control.
<PAGE>
ARTICLE TWO
DEFINITIONS AND CONSTRUCTION
2.1. Definitions.
(a) "Act" shall mean the Securities Exchange Act of
1934, as amended.
(b) "Average Base Compensation" shall mean the
Executive's annual base salary compensation, including any
portion that may be deferred by action of the Executive,
including any bonus or incentive bonus under the Company's
Annual Incentive Compensation Plan, at the rate in effect
immediately prior to the Termination Event or the Executive's
Termination Date, whichever rate is higher.
(c) "Base Compensation" shall mean the Executive's
annual base salary compensation (including any portion that
may be deferred by action of the Executive, but excluding any
bonus or incentive bonus under any bonus or incentive program
of the Company or under the Executive's Employment Agreement)
at the rate in effect immediately prior to the Termination
Event or the Executive's Termination Date, whichever rate is
higher.
(d) "Beneficial Owner" shall have the same meaning
as that term is given in Rule 13d-3 under the Act.
(e) "Board" shall mean the Board of Directors of
the Company.
(f) "Change In Control" shall mean a change in
ownership or managerial control of the stock, assets or
business of the Company resulting from one (1) or more of the
following circumstances:
(i) On or after the date hereof, the
shareholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than a merger or consolidation which would result
in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into
voting securities of the surviving entity) more than
sixty-five percent (65%) of the combined voting power of
the voting securities of the Company or such surviving
entity outstanding immediately after such merger of
consolidation; provided however, that a merger or
consolidation effected to implement a recapitalization of
<PAGE>
the Company (or a similar transaction) in which no Person
other than Warburg, Pincus Capital Company, L.P.,
acquires thirty-five percent (35%) or more of the
Company's then outstanding voting securities shall not
constitute a Change in Control;
(ii) On or after the date hereof, a change in
ownership of the Company through a transaction or series
of transactions, such that any Person is or becomes the
Beneficial Owner, directly or indirectly, of securities
of the Company representing thirty-five (35%) or more of
securities of the combined voting power of the Company's
then outstanding securities; provided that, for such
purposes, any acquisition by the Company shall be
disregarded; and provided further that, in the event of
such a change in ownership, if Warburg, Pincus Capital
Company, L.P., as of the date of such change of ownership
and at all times thereafter, remains the Beneficial Owner
of a percentage interest in the Company equal to at least
ten percent (10%) more than any other Beneficial Owner of
the combined voting power of the Company's then
outstanding securities, no Change in Control shall be
deemed to have occurred unless (A) the majority of the
Board serving immediately prior to such Change in Control
shall deem a Change in Control to have occurred, or (B)
Warburg Pincus Capital Company, L.P., shall thereafter
cease to be the Beneficial Owner of a percentage
ownership interest in the Company equal to at least ten
percent (10%) or more than any other Beneficial Owner of
the combined voting power of the Company's then
outstanding securities (and in such event, the Change in
Control shall be deemed to have occurred on the date
Warburg, Pincus Capital Company, L.P., ceases to be the
Beneficial Owner of such greater combined voting power);
(iii) A change in identity of a majority of
the members of the Board within any twenty-four (24)
month period; provided however, if such a change in the
identity of the members of the Board occurs following the
acquisition of fifty-one percent (51%) or more of the
Company's then outstanding voting securities by Warburg,
Pincus Capital Company, L.P., no Change in Control shall
be deemed to have occurred if such change of Board
membership was approved in writing (or by an approved
written resolution) by a majority of the Board and of the
Management Executive Committee serving immediately prior
to such change of Board membership. For purposes of this
Section 2.1(f)(iii), Management Executive Committee shall
mean a Committee appointed in writing by the then-acting
Chief Executive Officer of the Company, comprised of
corporate officers and such additional key employees of
<PAGE>
the Company as the Chief Executive Officer shall appoint
from time to time. The Chief Executive Officer may
remove any member of the Management Executive Committee
by notice in writing delivered to such member and the
other members of the Management Executive Committee;
(iv) The approval by the Board (or by the
shareholders if shareholder approval is required by
applicable law or under the terms of any relevant
agreement) of an agreement for the sale or disposition of
all or substantially all of the Company's assets or a
sale/leaseback of all or substantially all of the
Company's assets (with or without a purchase option);
(v) A transfer of all or substantially all of
the Company's assets pursuant to a partnership or joint
venture agreement where the Company's resulting interest
is or becomes fifty percent (50%) or less; or
(vi) On or after the date hereof, the Board (or
the shareholders if shareholder approval is required by
applicable law or under the terms of any relevant
agreement) shall approve a plan of complete liquidation
of the Company; or
(vii) The execution or approval by the
Board of any agreement, the consummation of which would
result in one of the foregoing.
(g) "Company" shall mean Magma Copper Company, any
and all subsidiary companies of Magma Copper Company and any
successor, including but not limited to any Person acquiring
a controlling interest in the stock, assets or business of the
Company through merger, consolidation, acquisition,
reorganization, lease of assets (with or without a purchase
option) or other purchase or restructuring.
(h) "Code" shall mean the Internal Revenue Code of
1986, as in effect from time to time.
(i) "Disability" shall mean the Executive's
inability, due to physical or mental illness or condition, to
substantially perform the essential functions of his position
for a period of six (6) or more months.
(j) "Dismissal for Cause" shall mean dismissal
approved in good faith by three quarters (3/4ths) of the
members of the Board for:
(i) An act or acts of dishonesty on the part
of the Executive constituting a felony or serious
<PAGE>
misdemeanor and resulting or intended to result directly
or indirectly in gain or personal enrichment at the
expense of the Company;
(ii) Substantial competition with the Company
(such as securing a customer or customers of the Company
for a competitor or recruiting employees of the Company
for a competitor) in a manner directly affecting the
business of the Company;
(iii) The Executive's willful refusal or
failure to substantially perform the essential functions
of his job with the Company (other than failure due to
Disability); for such purpose the term "willful" shall
mean done intentionally, knowingly, and purposely,
without reasonable justification therefor;
(iv) Gross negligence in the performance of the
Executive's material and substantial duties of employment
with the Company;
(v) Conviction of a felony involving moral
turpitude;
(vi) A significant violation by the Executive
of those established policies and procedures of the
Company that were in effect on the date of the Change in
Control and were communicated to the Executive prior to
the Change in Control;
(vii) The continued failure of the
Executive to substantially perform the essential
functions of the Executive's job with the Company (other
than due to Disability) after a written demand for
substantial performance is delivered to the Executive by
the Chairman of the Board, which identifies the manner in
which the Executive has not substantially performed the
essential functions of his job; or
(viii) Conduct by the Executive which is in
violation of any provision of this Agreement.
No dismissal shall be deemed to be a Dismissal for Cause
unless the Executive receives thirty (30) days' notice and is
permitted a reasonable opportunity to appear before the Board
with counsel of the Executive's choice prior to the effective
date of discharge.
(k) "Employee Benefit Plan" shall have the meaning
given the term under Section 3 of ERISA.
<PAGE>
(l) "Employment Period" shall mean the period
commencing on the date of a Change in Control of the Company,
and ending on the third (3rd) anniversary of such date.
(m) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as in effect from time to time.
(n) "Good Reason" shall mean the Executive's death,
Disability, Retirement prior to the occurrence of a
Termination Event, Dismissal for Cause or the Executive's
resignation for a reason other than the occurrence of a
Termination Event.
(o) "Option Stock Benefit Adjustment Period" shall,
except as modified by Section 5.3, mean the twelve (12) month
period ending with the anniversary of the last event
constituting the Change in Control.
(p) "Person" shall have the meaning given that term
when used in Sections 13(d) and 14(d) of the Act.
(q) "Restricted Stock Benefit Adjustment Period"
shall, except as modified by Section 5.3, mean the twelve (12)
month period after notice of a Termination Event is given
pursuant to Section 5.1.
(r) "Retirement" shall mean the separation from
employment of the Executive following the attainment of normal
retirement age under the Retirement Plan for Salaried
Employees of Magma Copper Company, the Magma Copper Company
Chief Executive Officer Supplemental Retirement Plan or
pursuant to such other arrangement providing for the
Executive's retirement as shall be mutually agreed upon in
writing by the Company and the Executive as constituting
"Retirement" for purposes of this Agreement.
(s) "Securities Restriction" shall mean a
securities trading restriction imposed by law, the rules of
any securities exchange, any agreement to which the Company is
a party or the absence of a regular public market permitting
acquisitions and dispositions of Company stock in a public
transaction, which precludes the Executive from freely
disposing of Company stock and retaining the proceeds of such
disposition.
(t) "Stock Benefit Adjustment Period" shall mean
the Option Stock Benefit Adjustment Period or the Restricted
Stock Benefit Adjustment Period, whichever is appropriate in
the context in which the term is applied.
<PAGE>
(u) "1987 Stock Plan" shall mean the Magma Copper
Company 1987 Stock Option and Stock Award Plan.
(v) "1989 Stock Plan" shall mean the Magma Copper
Company 1989 Stock Option and Stock Award Plan.
(w) "1993 Stock Plan" shall mean the Magma Copper
Company 1993 Stock Option and Stock Award Plan.
(x) "Stock Plans" shall mean the 1987 Stock Plan ,
the 1989 Stock Plan and the 1993 Stock Plan.
(y) "Termination Event" shall mean, after a Change
in Control or, at the time of a Change in Control, the
occurrence of one (1) or more of the following, due to a cause
other than Good Reason:
(i) The assignment to the Executive by the
Company of duties inconsistent with the Executive's
position, duties, responsibilities and status with the
Company as in effect immediately prior to the Change in
Control, or a material change in the Executive's titles
or offices as in effect immediately prior to the Change
in Control or any removal of the Executive from or any
failure to reelect the Executive to any of such positions
except in connection with the termination of his
employment for Good Reason; for purposes of this
Agreement, a mere change of title, position or reporting
relationship that does not result in a material
diminution in scope, status, duties and responsibilities
shall not constitute a Termination Event, nor shall an
isolated, insubstantial and inadvertent action not taken
in bad faith and which is promptly remedied after notice
constitute a Termination Event, nor shall a promotion to
a position of higher scope, status, duties and
responsibilities or a transfer to a position of equal
scope, status, duties and responsibilities constitute a
Termination Event, as long as such promotion or transfer
is consistent with the Executive's training and
professional qualifications or is otherwise agreed to by
the Executive;
(ii) A reduction in the Executive's Base
Compensation as in effect on the date hereof or as the
same may be increased from time to time during the term
of this Agreement that is not implemented correspondingly
within the executive or officer class of employees
generally;
(iii) The Executive's relocation to any
place outside of the United States, except for required
<PAGE>
travel by the Executive on the Company's business to an
extent substantially consistent with the Executive's
business travel obligations at the time of a Change in
Control; or
(iv) Any material breach by the Company of any
provision of this Agreement.
(z) "Termination Date" shall mean the thirtieth
(30th) day following the day on which any party to this
Agreement gives written notice to the other party that a
Termination Event has occurred.
(aa) "Value Loss" shall, except as modified by
Section 5.3, mean the difference between the highest price
during the respective Stock Benefit Adjustment Period at which
the stock held, or that could have been held after option
exercise, or that could have been sold by the Executive in the
absence of the Securities Restriction and the highest price in
effect during the respective Stock Benefit Adjustment Period
during which the Executive actually could sell such stock due
to the absence of a Securities Restriction.
2.2. Construction. This Agreement shall be construed in
accordance with the laws of the State of Arizona, without reference
to principles of conflict of laws. Titles to articles, sections and
paragraphs in this Agreement are intended solely for purposes of
convenience and are to be disregarded in construing this Agreement.
This Agreement shall be construed to operate in addition to, in
supplemental status with, and consistently with, the terms and
provisions of the Executive's Employment Agreement. It is not an
amendment of such Employment Agreement.
ARTICLE THREE
TERMS OF AGREEMENT
3.1. Term of Agreement. This Agreement shall be
effective as of the date hereof. The term of this Agreement shall
continue in effect from such date for a period of three (3) years
from such date, subject to the provisions of this Article Three,
unless sooner terminated by the parties in accordance with the
provisions hereof. No termination or expiration of this Agreement
shall affect any rights, obligations or liabilities of the
Executive or the Company that shall have accrued on or prior to the
date of termination or expiration.
<PAGE>
3.2. Automatic Extension. Commencing on the third
anniversary of the effective date hereof, and on each succeeding
anniversary of the date hereof, the term of this Agreement shall
automatically be extended for one (1) additional year unless, not
later than six (6) months preceding such triennial anniversary
date, the Company shall have given written notice pursuant to
Section 9.1 that it will not extend the term of this Agreement.
Notwithstanding the foregoing, if a Change in Control occurs while
the Executive is employed by the Company during the original or any
extended term of this Agreement, notwithstanding any notice issued
by the Company precluding extension of the term of this Agreement,
this Agreement shall nevertheless continue in effect for a period
ending twenty-four (24) months following the occurrence of the
Change in Control. The automatic extension of the term of this
Agreement pursuant to this Section 3.2 shall not be a modification
of this Agreement in any significant respect within the meaning of
section 280G of the Code and the rules and regulations thereunder.
Notwithstanding the occurrence of a Change in Control, in the event
of the Executive's Disability, the Company shall have the right to
terminate this Agreement by giving written notice of termination
pursuant to Section 9.1. Such termination shall be effective as of
the thirtieth (30th) day following the giving of such notice.
3.3. Duties During the Employment Period. During the
Employment Period, the Executive shall continue to serve under the
terms and provisions of his Employment Agreement, and, in the event
of expiration of the Employment Agreement during the Employment
Period, shall continue in the same capacities and positions held by
the Executive at the time of the Change in Control or in such other
capacities and positions as may be mutually agreed to by the
Company and the Executive in writing. During such time in the
Employment Period that the Executive's Employment Agreement shall
have expired (if any), pursuant to this Agreement, the Executive
shall devote his best efforts, attention and skill to the business
and affairs of the Company, as such business and affairs now exist
and as they may hereafter be conducted. The services which are to
be performed by the Executive hereunder during the Employment
Period and following the expiration of the Executive's Employment
Agreement are to be rendered in the United States of America, or in
such other place or places as shall be mutually agreed upon in
writing by the Executive and the Company from time to time.
3.4. Compensation During the Employment Period. During
the Employment Period, the Executive shall be compensated in
accordance with the terms and provisions of his Employment
Agreement, and in addition thereto, as follows:
<PAGE>
(a) The Executive shall receive, at such intervals and
in accordance with such standard policies as may be in effect
on the date of the Change in Control, an annual salary in
accordance with his Employment Agreement but in any event not
less than the Executive's annual salary as in effect as of the
date of the Change in Control. During the Employment Period,
the Board or an appropriate committee thereof will consider
and appraise at least annually, the contributions of the
Executive to the Company's operating efficiency, growth,
production and profits, and, in accordance with his Employment
Agreement and with past practice in effect prior to the Change
in Control, the Executive's Base Compensation rate shall be
adjusted upward, at least annually, to be commensurate with
increases given to other corporate officers and key employees
generally and as the scope and success of the Company's
operations or the Executive's duties expand. The Executive's
Annual Base Compensation shall not be reduced after any such
increase.
(b) During the Employment Period, on the first (1st) and
second (2nd) anniversaries of the occurrence of the Change in
Control, the Executive shall receive an amount equal to
seventy-five (75%) of his Average Base Compensation in effect
as of the date of such Change in Control.
ARTICLE FOUR
SEPARATION AFTER A CHANGE IN CONTROL
4.1. Termination. In the event that, during any term of
this Agreement, including the Employment Period, and coincident
with or following a Change in Control, the Executive is discharged
from the employment of the Company other than for Good Reason or
the Executive resigns following the occurrence of a Termination
Event, the Executive shall be entitled to the benefits provided in
Article Five of this Agreement. In the event that, during any term
of this Agreement, including the Employment Period, coincident with
or following a Change in Control the separation or other
Termination Event of the Executive is on account of Good Reason, no
compensation or benefits shall be payable under Section 3.4 or
Article Five. Notwithstanding anything to the contrary, if a
Change in Control occurs and the Executive's employment with the
Company is terminated without Good Reason prior to the Change in
Control, if it is reasonably demonstrated by the Executive that
such termination of employment (a) was at the request of a third
party who has taken steps to effect the Change in Control or (b)
was in anticipation of or in connection with the Change in Control,
the Executive shall, for purposes of this Agreement, be deemed to
have been terminated by the Company as of the Change in Control
without Good Reason.
<PAGE>
4.2. Disability; Retirement. In the event the Executive
has been subject to Disability, upon expiration of the period
qualifying the absence as a Disability pursuant to Section 2.1(i),
and in the event that the Executive remains subject to Disability
at the time of separation, he shall be ineligible to receive
benefits under Section 3.4 and Article Five following a Change in
Control. The term "Retirement" shall not include an election to
retire after occurrence of a Termination Event; any such retirement
shall be treated hereunder as a resignation following a Termination
Event pursuant to Section 4.1.
ARTICLE FIVE
TERMINATION BENEFITS
5.1. Notice of Termination Event. Following the
occurrence of a Termination Event, either party to this Agreement
may give notice of the Termination Event, in the manner required by
Section 9.1. Such notice shall indicate the specific provision of
this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances giving rise to the notice. As of the
Termination Date, if the party receiving such notice has not
contested the accuracy of the notice or has given written
acknowledgment of the Termination Event, pursuant to Section 9.1,
then the Executive shall be deemed to be discharged or to have
resigned following a Termination Event pursuant to Section 4.1. In
the event that the party receiving such notice shall contest the
other party's assertion of a Termination Event prior to the
Termination Date, the Termination Date shall be the date on which
the dispute is finally determined, either by mutual written
agreement of the parties, by a binding and final arbitration award
or by a final judgment, order or decree of a court of competent
jurisdiction entered upon such arbitration award (the time for
appeal therefrom having expired and no appeal having been
perfected). In the event of such dispute, benefits pursuant to
this Article Five shall be paid to the Executive during the period
of dispute unless the Company and the Executive otherwise agree,
and in such event the Executive agrees to refund to the Company any
amounts finally determined not to be payable by reason of
nonoccurrence or delayed occurrence of a Termination Event or
Termination Date, or may apply such amounts against amounts
otherwise due following the determined actual date of a Termination
Event or Termination Date, including, if applicable, during the
Employment Period.
5.2. Compensation Following Termination Event. In the
event that notice of a Termination Event is given pursuant to
Section 5.1, until the Executive's Termination Date (calculated as
though such notice was acknowledged as correct), the Executive
<PAGE>
shall receive all compensation and benefits from the Company to
which he would be entitled in the absence of the Termination Event
or in the absence of separation on account of Good Reason, at the
amounts, rates and levels, and in the manner payable, before the
actions or event constituting the Termination Event, including, if
applicable, during the Employment Period. In the event that the
Executive's Termination Date shall occur during the Employment
Period, the Executive shall continue to receive all compensation
payable, as described in Section 3.4 (a) and (b) during the
Employment Period as though employment had continued through the
Employment Period, unless the Executive's Termination Event or
other separation from employment is for Good Reason. Amounts paid
under this Section 5.2 during the Employment Period shall be
reduced by the amount of compensation and benefits paid to the
Executive under the terms and provisions of the Executive's
Employment Agreement.
5.3. Post-Termination Stock Related Compensation. The
Executive has and may receive grants of stock options, restricted
stock and/or other awards thereunder. The Executive is a
participant in one or more of the Stock Plans. If (a) with respect
to stock options, at the time of a Change in Control or at any time
during the Option Stock Benefit Adjustment Period or (b) with
respect to restricted stock or other awards, at the time of a
Termination Event or at any time during the Restricted Stock
Benefit Adjustment Period, the Executive suffers a Value Loss,
because he cannot freely exercise options or other awards] and/or
sell or exchange Company stock acquired as a result of option and
restricted stock grants or other awards under one or more of the
Stock Plans due to a Securities Restriction being in effect at any
time during the Option Stock Benefit Adjustment Period or the
Restricted Stock Benefit Adjustment Period, respectively, the
Executive shall be entitled to compensation with respect to the
options or stock subject to the Value Loss pursuant to this Section
5.3. Any amount payable pursuant to this Section 5.3 as
compensation for a Value Loss with respect to stock options shall
be paid in a lump sum within sixty (60) days after the end of the
Option Stock Benefit Adjustment Period, and with respect to
restricted stock or other awards shall be paid in a lump sum within
sixty (60) days after the end of the Restricted Stock Benefit
Adjustment Period. Value Loss compensation for restricted stock or
other awards shall not be payable for options and option stock, and
Value Loss compensation for option and option stock shall not be
payable for restricted stock or other awards, each Value Loss being
separately determined and compensated. Amounts payable under this
Section 5.3 shall be calculated by the private law firm serving as
employee benefits and executive compensation counsel to the Board
immediately prior to the Change in Control, and the determination
of such amount made by such counsel in good faith shall be binding
<PAGE>
upon and conclusive upon both the Company and the Executive. In
the event that the stock which is the subject of this Section 5.3
remains subject to a Securities Restriction throughout the entire
respective Stock Benefit Adjustment Period, the Value Loss payable
shall be calculated between the high price during the respective
Stock Benefit Adjustment Periods and zero with respect to
restricted stock or other awards, and, with respect to stock
options, shall be the option exercise price as set forth in the
Executive's option grants. In such event, where the stock remains
subject to a Securities Restriction throughout the entire
respective Stock Benefit Adjustment Period, in order to receive the
benefit provided under this Section 5.3, the Executive shall
surrender his options and/or restricted stock and/or other awards
and/or stock obtained through the exercise of such options in
exchange for such payment. If such options and/or restricted stock
and/or other awards and/or stock are not surrendered, no payment
shall be made pursuant to this Section 5.3 with respect to such
options, restricted stock and/or other awards and/or stock. In the
event of the permanent loss of a public market for the Common Stock
of the Company coincident with or immediately following a Change in
Control (that can be determined at such date to have occurred as of
such date or immediately thereafter by reason of deregistration or
cessation of trading on a recognized exchange), the Option Stock
Benefit Adjustment Period shall be deemed to have expired as of the
date of the Change in Control, with respect to options and stock
acquired through exercise of options, and compensation under this
Section 5.3 shall be determined as of such date and payable within
sixty (60) days thereafter. In the event of such permanent loss of
a public market, with respect to restricted stock or other awards,
the Restricted Stock Benefit Adjustment Period shall be deemed to
expire as of the Termination Event following or coincident with the
Change in Control, and any compensation shall be payable within
sixty (60) days after the date on which notice of the Termination
Event is given. In the event that any amounts (other than grants
of restricted stock or awards of stock options or stock issued on
the exercise thereof) are distributed or distributable to the
Executive under that certain Trust Agreement dated March 10, 1987,
by and among the Company, Newmont Mining Corporation and First
Interstate Bank of Arizona, such amounts shall be credited against
any amounts payable under this Section 5.3 and shall be subtracted
from gross amounts payable pursuant to this Section 5.3 prior to
the payment of the net amount payable.
5.4. Retirement Benefits. In the event that the
Executive shall become entitled to benefits pursuant to Section 4.1
and/or Section 5.1, the Executive shall receive from the Company a
monthly supplemental retirement benefit equal to the excess of (a)
over (b), where (a) is the retirement benefit the Executive would
be entitled to under the Retirement Plan for Salaried Employees of
<PAGE>
Magma Copper Company (and under any related "excess benefit plan",
as defined in ERISA and under the retirement supplement contained
in the Magma Copper Company Special Executive Supplemental Benefit
Plan had the Executive remained in full-time employment for twenty-
four (24) additional months following his Termination Date
(calculated as though notice pursuant to Section 5.1 has been
acknowledged as correct), and (b) is the retirement benefit
actually payable to the Executive under the Retirement Plan for
Salaried Employees of Magma Copper Company and any related excess
benefit plan and under the retirement supplement contained in the
Magma Copper Company Special Executive Supplemental Benefit Plan.
Such monthly benefit shall commence as of the date such benefits
commence under the Retirement Plan for Salaried Employees of Magma
Copper Company, and shall be paid in the same form of monthly
annuity payment as elected by the Participant under such Retirement
Plan, and shall be subject to the same method of benefit
calculation as under such Retirement Plan. Such benefit shall be
payable as though the Executive was fully vested in a retirement
benefit in the event the Executive is not actually fully vested
under the Retirement Plan for Salaried Employees of Magma Copper
Company and shall commence at the earliest age that the Executive
could have elected to receive benefits had he separated with a
vested benefit under such retirement plan. If the Magma Copper
Company Special Executive Supplemental Benefit Plan is amended to
provide the benefit promised under this Section 5.4 for
administrative convenience, such benefit shall be provided under
such plan, rather than under this Employment Agreement, to preclude
duplication of benefits. Benefits under this Section 5.4 may be
provided through a funding medium or trust maintained in connection
with the Magma Copper Company Special Executive Supplemental
Benefit Plan, or directly by the Company.
5.5. Welfare Benefits. For a period of twenty-four (24)
months, commencing with the Executive's Termination Date
(calculated as though notice pursuant to Section 5.1 has been
acknowledged as correct), the Executive (and his dependents, as
applicable) shall be provided by the Company with the same life,
health and disability plan participation, benefits and coverages to
which he was entitled as an employee immediately before the Change
in Control. In the event that under applicable law or the terms of
the relevant Employee Benefit Plans such participation, benefits
and/or coverage cannot be provided to the Executive following his
Termination Date, such coverage and/or benefits shall be provided
directly by the Company pursuant to this Agreement on a comparable
basis. In its sole discretion, the Company may obtain such
coverage and benefits for the Executive through private insurance
acquired at the Company's expense. Amounts paid or payable to or
on behalf of the Executive pursuant to any "employee welfare
benefit plan," as defined in ERISA, providing health and/or
<PAGE>
disability benefits, that is sponsored by the Company or an
affiliate of the Company, and any amounts payable under the
Executive's Employment Agreement, shall be credited against amounts
due under this Section 5.5. To the maximum extent permitted by
applicable law, the benefits provided under this Section 5.5 shall
be in discharge of any obligations of the Company or any rights of
the Executive under the benefit continuation provisions under
Section 4980A of the Internal Revenue Code and Part VI of Title I
of the Employee Retirement Income Security Act ("COBRA") or any
other legislation of similar import. The benefit received under
this Section 5.5 shall be reduced by any comparable benefit
received under the Magma Copper Company Severance Pay Plan.
5.6. Lump Sum Payment. In the event the Executive
becomes entitled to benefits under this Article Five, pursuant to
Section 4.1 and Section 5.1, the Company shall pay the Executive,
as a severance payment or as liquidated damages, or both, a lump
sum payment in cash within sixty (60) days following the
Executive's Termination Date (calculated as though notice pursuant
to Section 5.1 has been acknowledged as correct) equal to the
Executive's Average Base Compensation multiplied by three (3). The
amount received under this Section 5.6 shall be reduced by any
comparable benefit received under the Magma Copper Company
Severance Pay Plan. In addition, if amounts of compensation are
payable to the Executive pursuant to Sections 7.3 or 7.4 of the
Executive's Employment Agreement following the Executive's
separation from active employment, the present value of such
payments shall be credited against the amount payable pursuant to
this Section 5.6. Present value shall be determined pursuant to
Section 280G(d)(4) of the Code.
ARTICLE SIX
INTERNAL REVENUE CODE LIMITATIONS
6.1. Code Limitations.
Notwithstanding anything to the contrary in this
Agreement, if the Executive is entitled to benefits hereunder
following the occurrence of a Change in Control, in no event shall
the present value of benefits payable under this Agreement, taken
together with the Executive's benefits under the Stock Plans, that,
in the opinion of counsel (as identified in Section 6.3), are
considered "parachute payments" under section 4999 of the Code, be
reduced by the excise tax imposed by section 4999 of the Code. In
the event that such benefits so taken together would exceed the
amount which is exempt from the excise tax imposed by section 4999
of the Code, the Company shall pay to the Executive an additional
<PAGE>
amount (the "Gross-Up Payment") such that the net amount retained
by the Executive, after the deduction of any excise tax under
Section 4999 and any interest charges or penalties in respect of
the imposition of such excise tax (but not any federal, state or
local income tax) on the present value of such benefits, and any
federal, state and local income tax, excise tax and penalties and
interest, if applicable, upon the additional payment provided for
by this Section 6.1, shall be equal to the present value of such
benefits. For purposes of determining the additional amount to be
paid to the Executive pursuant to this Section 6.1, the Executive
shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the
additional payment is to be made and state and local income taxes
at the highest marginal rates of taxation in the state and locality
of his residence on the date the additional payment is made, net of
the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes.
6.2. Definitions Applicable to this Article Six. For
purposes of this Article Six, the term "base amount" shall have the
meaning ascribed to it under section 280G(b) (3) of the Code, the
term "parachute payment" shall have the meaning ascribed to it
under section 280G(b) (2) of the Code, "present value" shall be
determined in accordance with section 280G(d)(4) of the Code, and
"reasonable compensation" shall have the meaning ascribed to it
under section 280G(b)(4) of the Code.
6.3. Interpretation. This Article Six shall be
interpreted so as to avoid the imposition of excise taxes on the
Executive under section 4999 of the Code, or to minimize such
taxes. In applying the provisions of this Article Six if, for any
reason, an exemption from the application of the rules of section
4999 of the Code shall be available under the terms of said section
or under any applicable regulations or rulings thereunder, such
exemption shall be fully applied. No payment under this Agreement
or otherwise that is not, in the opinion of counsel (as identified
in this Section 6.3), a "parachute payment" under section 4999 of
the Code shall be taken into account in applying the provisions of
this Article Six. In application of the provisions of this Article
Six, calculations necessary to be made pursuant to the provisions
of this Article Six and interpretation of the Code and applicable
regulations for purposes of compliance with this Article Six shall
be made by the private law firm serving as employee benefits and
executive compensation counsel to the Board immediately prior to
the Change in Control, and the determination of such counsel made
in good faith shall be binding and conclusive upon both the Company
and the Executive. All fees and expenses of such law firm
pertaining thereto shall be borne by the Company. Payments shall
be made pursuant to this Agreement notwithstanding that the status
<PAGE>
of any payment as a parachute payment has not been finally
determined by the Internal Revenue Service or any court of
competent jurisdiction, or by arbitration as provided in Article
Eight. Any Gross-Up Payment, as determined pursuant to Section 6.1,
shall be paid by the Company to the Executive within five (5) days
of the receipt of the law firm's determination. If the law firm
determines that no excise tax is payable by the Executive, it shall
furnish the Executive with a written opinion that failure to report
the excise tax on the Executive's applicable federal income tax
return would not result in the imposition of a negligence (or
similar) penalty. Any determination by the law firm shall be
binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the law firm hereunder, it is
possible that Gross-Up Payments which will not have been made by
the Company should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that
the Company exhausts its remedies pursuant to Section 6.4 and the
Executive thereafter is required to make a payment of any excise
tax, the law firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid
by the Company to or for the benefit of the Executive.
6.4. Internal Revenue Service Claims. The Executive
shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten (10) business
days after the Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(a) give the Company any information reasonably
requested by the Company relating to such claim;
(b) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Company;
(c) cooperate with the Company in good faith in
order to effectively contest such claim; and
<PAGE>
(d) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any excise
tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing provisions
of this Section 6.4, the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if
the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis from any excise tax
or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
6.5. Internal Revenue Service Refunds. If, after the
receipt by the Executive of an amount advanced by the Company
pursuant to Section 6.4, the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 6.4),
promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicably
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 6.4, a determination is
made that the Executive shall not be entitled to any refund with
<PAGE>
respect to such claim and the Company does not notify the Executive
in writing of its intent to contest such denial of refund prior to
the expiration of thirty (30) days after such determination, then
such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
ARTICLE SEVEN
SUCCESSION AND ASSIGNMENT
7.1. Succession of Executive. This Agreement shall inure
to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. In the event of the
Executive's death while any amount would still be payable hereunder
to the Executive had he lived, unless otherwise provided herein,
such amount shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee or other beneficiary
or, if there is no such devisee, legatee or beneficiary, to his
estate.
7.2. Successors to the Company. Except as otherwise
provided herein, this Agreement shall be binding upon and inure to
the benefit of the Company and any successor of the Company,
including, without limitation, any corporation or corporations
acquiring directly or indirectly all or substantially all of the
stock, business or assets of the Company whether by merger,
consolidation, division, sale or otherwise (and such successor
shall thereafter be deemed "the Company" for the purposes of this
Agreement). The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the
Executive, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach
of this Agreement entitling the Executive to the benefits
hereunder, as though the Executive was subject to a Termination
Event due to a cause other than Good Reason.
7.3. Assignment. This Agreement is personal in nature,
and neither the Executive nor the Company may assign or transfer
this Agreement or rights hereunder except as provided in this
Article Seven. The obligation of the Company hereunder shall
<PAGE>
constitute a general unsecured obligation of the Company; provided
that, to the maximum extent permitted under applicable laws of
bankruptcy or insolvency, the obligations of the Company hereunder
shall have the highest creditor priority applicable to wages
payable to employees. No right, benefit or interest hereunder
shall be subject to anticipation, alienation, sale, assignment,
encumbrance, charge, pledge, hypothecation or set-off in respect of
any claim, debt or obligation or to execution, attachment, levy or
similar process, or assignment by operation of law, except as
otherwise provided in this Article Seven. Any attempt, voluntary
or involuntary, to effect any action specified in the immediately
preceding sentence shall, to the full extent permitted by law, be
null, void and of no effect.
ARTICLE EIGHT
ADDITIONAL RIGHTS AND RESPONSIBILITIES
8.1. Mitigation. The Executive shall not be required to
mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise. The
provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which
would accrue solely as a result of the passage of time, under the
Executive's Employment Agreement, or any Company Employee Benefit
Plan, "payroll practice" (as defined in ERISA), compensation
arrangement, incentive plan, stock option or other stock-related
plan other than under the Magma Copper Company Severance Pay Plan,
as provided in Section 5.5 and 5.6.
8.2. Legal Costs. If any legal action or other
proceeding is brought by the Executive for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this
Agreement, except as provided in Section 8.3, the Executive shall
be entitled to recover reasonable attorneys fees and other costs
incurred in that action or proceeding, in addition to any other
relief to which he may be entitled, in the event and to the extent
that the Executive prevails in such action or other proceeding.
Notwithstanding anything hereinabove to the contrary, as between
the Executive and the Company, the Company shall bear all legal
costs and expenses of defending the validity of this Agreement
against any third party. The Company shall bear all legal costs
and expenses incurred in contesting or disputing the
<PAGE>
characterization of any amounts paid pursuant to this Agreement as
being nondeductible under section 280G of the Code or subject to
imposition of an excise tax under section 4999 of the Code.
8.3. Arbitration. After the occurrence of a Change in
Control, any controversy or claim arising out of or relating to
this Agreement, or any breach thereof, shall, except as provided in
Article Six, be adjudicated only by arbitration in accordance with
the rules of the American Arbitration Association, and judgment
upon such award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. The arbitration shall be held
in the City of Phoenix, Arizona, or such other place as may be
agreed upon at the time by the parties to the arbitration. The
arbitrator(s) shall, in their award, allocate between the parties
the costs of arbitration, which shall include reasonable attorneys'
fees of the parties, as well as the arbitrators' fees and expenses,
in such proportions as the arbitrator(s) deem just.
Notwithstanding the foregoing and pursuant to Section 8.2, the
Executive shall be entitled to seek specific performance in a court
of competent jurisdiction of the Executive's right to be paid his
full compensation until the Executive's Termination Date, during
the pendency or dispute of any controversy arising under or in
connection with this Agreement.
ARTICLE NINE
MISCELLANEOUS
9.1. Notices Generally. Any notice or other
communication required or permitted pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States mail, first class,
postage prepaid and registered with return receipt requested,
addressed to the intended recipient at his or its address set forth
below and, in the case of a notice or other communication to the
Company, directed to the attention of the Board with a copy to the
Secretary of the Company, or to such other address as the intended
recipient may have theretofore furnished to the sender in writing
in accordance herewith, except that any notice of change of address
is received, notices shall be sent to the following addresses:
If to the Executive: If to the Company:
J. Burgess Winter Magma Copper Company
6605 Placita Alhaja Vice President, Human Resources
Tucson, Arizona 85715 7400 N. Oracle Rd., Suite 200
Tucson, Arizona 85704
<PAGE>
9.2. Amendment; Waivers. This Agreement may be amended
only by written amendment duly executed by both parties or their
legal representatives and authorized by action of the Board.
Except as otherwise specifically provided in this Agreement, no
waiver by either party hereto of any breach by the other party
hereto of any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of a
subsequent breach of such condition or provision or a waiver of a
similar or dissimilar provision or condition at the same or at any
prior or subsequent time.
9.3. Severability. If any one (1) or more of the
provisions or parts of a provision contained in this Agreement
shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity or unenforceability
shall not affect any other provision or part of a provision of this
Agreement, but this Agreement shall be reformed and construed as if
such invalid or illegal or unenforceable provision or part of a
provision had never been contained herein and such provisions or
part thereof shall be reformed so that it would be valid, legal and
enforceable to the maximum extent permitted by law.
9.4. Nature of Payments. Any payment made pursuant to
this Agreement is not intended to be a penalty and shall not
preclude the enforcement of any other remedies available to the
party making the payment.
9.5. Withholding. Any payment provided for hereunder
shall be payable net of any applicable withholding required under
federal, state or local law.
IN WITNESS WHEREOF, the Company and the Executive have
executed this Agreement as of the date and year first above
written.
MAGMA COPPER COMPANY
By: Donald J. Donahue
Its: Chairman of the Board
ATTEST:
By: Andrew A. Brodkey
Its: Secretary & General Counsel
EXECUTIVE
By: J. Burgess Winter
REVISED 1993 LONG-TERM INCENTIVE PLAN GUIDELINES
PLAN SPECIFICATIONS
Purpose of the Plan:
Focus top management on key internal performance measures
that drive exceptional shareholder value improvement
Balance short-term focus of annual incentive plan
Provide significant rewards for successful performance
Retain key management team
Concept:
Award is contingent upon performance as measured against
pre-determined objectives over a specified period of time
Performance shares are granted to participants at
beginning of performance period by dividing target award
values by the initial share value
Final award depends upon achievement of specified goals,
in addition to changes in the value of the stock
Eligibility:
The initial group would consist of the following
executives for Cycle 1:
A. A. Brodkey V. P., Secretary & General Counsel
K. L. Browne V. P. & General Manager,
Pinto Valley Mining Division
M. H. Campbell V. P., Human Resources
J. F. Champagne President, Magma Metals
B. E. Disbury V. P. Marketing & Sales,
Magma Metals Company
F. E. Durazo V. P. & General Manager,
San Manuel Mining Division
T. L. Jordan V. P. Technology,
Magma Metals Company
JD McCain V. P. Operations,
Magma Metals Company
D. R. McGregor G. M. , Superior Mining Division
B. A. Mills V. P., Planning & Business
Development
R. P. Mueller V. P., Internal Development
D. J. Purdom V. P. & Chief Financial Officer
H. C. Smith President,
Magma Nevada Mining Company
J. B. Winter President &
Chief Executive Officer
<PAGE>
This group will be reviewed by the Chief Executive
Officer, at the end of Cycle 1, and appropriate
adjustments will be made for Cycle 2, based upon
individual performance.
Target Award Amounts:
An example of target award sizes follows, expressed as a
percentage of base salary. Final targets will be
adjusted for the desired long-term incentive grant mix
and total compensation objectives.
Determination of Performance Shares:
The actual number of target shares granted to each
participant, in Cycle 1, is determined by dividing the
target award dollar amount (base salary (x) target award
%) by the average stock price in 1992 ($11.12). The
actual number of target shares granted to each
participant in Cycle 2 is determined by dividing the
target award dollar amount by the stock price value on
January 1, 1993 or the average stock price in 1995,
whichever is lower.
Example:
(1) Share = $11.12
Participant's base salary at the beginning of Cycle 1 is
$150,000
Target award percentage (over a three-year cycle) is
150% Cycle 1
180% Cycle 2
The number of shares this participant will have credited
to the Company's books would be calculated as follows:
Base Target Award Share Performance
Salary as % of Base Value Shares
_________________________________________________________________
CYCLE 1 ($150,000 x 150% / $11.12) = 20,234
CYCLE 2 ($150,000 x 180% / $13.375) = 20,187
<PAGE>
Award Opportunity:
The actual numbers of shares may range from 0% to 200% of
the target award, as determined by performance. The
value of those shares increases as the stock price
increases.
Performance Cycles:
Performance will be measured over two (2) three (3) year
cycles, beginning January 1, 1993 and ending December 31,
1998.
Grant Frequency and Mix:
All performance shares will be granted at the beginning
of each year in the performance cycle. In addition, as
part of a separate plan, participants may receive annual
grants of stock options in an amount equal to or greater
than the value of the annualized target award of
performance shares.
Vesting:
All of the participants' shares will cliff vest at the
end of each Performance Cycle. A participant whose
employment with Magma Copper Company ceases due to normal
retirement, total permanent disability, or death will
have immediate vesting of shares, prorated based on the
time of employment as a percentage of the Performance
Period.
In the event of a 50% Change in Control, as defined
below, the Executive would vest in at least 100% of the
target award for the cycle (prorated for years of
participation in the plan), based on achievement of the
target measures, at the time of the 50% Change in
Control.
For purposes of this plan, partial years of service shall
be credited as whole years of service.
A "50% Change in Control" shall mean a change in
ownership or managerial control of the stock, assets or
business of the Company resulting from one (1) or more of
the following circumstances:
<PAGE>
(i) After the commencement date of this
Plan, a change in ownership of the Company
through a transaction or series of
transactions, such that any Person is or
becomes the Beneficial Owner, directly or
indirectly, of securities of the Company
representing fifty percent (50%) or more of
the combined voting power of the Company's
then outstanding securities;
(ii) A change in identity of a majority
of the members of the Board within any twelve
(12) month period;
(iii) The approval by the Board (or
by the shareholders if shareholder approval is
required by applicable law or under the terms
of any relevant agreement) of any agreement
for the sale or disposition of all or
substantially all of the Company's assets for
a sale/leaseback of all or substantially all
of the Company's assets (with or without a
purchase option);
(iv) A transfer of all or substantially
all of the Company's assets pursuant to a
partnership or joint venture agreement where
the Company's resulting interest is or becomes
fifty percent (50%) or less; or
(v) The execution or approval by the
Board of any agreement, the consummation of
which would result in one of the foregoing.
In the event of a change of ownership of the Company
through a transaction or series of transactions such that
Warburg, Pincus Capital Company, L.P., becomes the
Beneficial Owner, directly or indirectly, of securities
of the Company representing fifty percent (50%) or more
of the combined voting power of the Company's then
outstanding securities, no 50% Change in Control shall be
deemed to have occurred unless, coincident with or
subsequent to such event, a majority of the members of
the Board serving immediately prior to such event shall
pass a resolution acknowledging that a 50% Change in
Control has occurred.
<PAGE>
Payout:
Payment will be made in stock and/or cash within (60)
days following the end of the Performance Period. Other
long-term incentive payouts, made according to any
existing employment contracts, will offset awards made
under this plan.
For purposes of determining cash awards, Performance
Shares will be valued at the average stock price during
the 3rd cycle year.
Performance Measures:
The Company will focus participants on its object of
shareholder-value creation by using economic performance
measures, as opposed to accounting performance measures.
Specifically, the measures will include:
Cash cost per pound
Pounds produced
Cash Flow Return on Investment (CFROI)
Goal Setting - Performance Measurement:
The strategic plan will serve as the overall guideline
used to set goals for each year of this plan. The goals
of any year may be adjusted by the Compensation Committee
at its discretion. The number of shares will be adjusted
each year based on the performance achieved in that year.
The share determination will occur as follows:
CYCLE 1
Year Portion of Share Amounts
1993 1/3
1994 1/3
1995 1/3
CYCLE 2
Year Portion of Share Amounts
1996 1/3
1997 1/3
1998 1/3
The number of shares resulting each year will be based on
an evaluation of the performance measures, where the
measures will be weighted as follows:
<PAGE>
Share Adjustment Factor
Acceptably Target Except.
Measure Weight Below Target Performance Above
Target
_________________________________________________________________
Cash cost/lb 40% 20% 40% 80%
Pounds produced
Magma Source: 20% 10% 20% 40%
Total: 10% 5% 10% 20%
CFROI 30% 15% 30% 60%
Total: 50% 100% 200%
In the schedule illustrated above, each measure will have
its own sensitivity around target performance,
determining what is "acceptably below" and "exceptionally
above" target performance. Share amounts will be
determined by interpolation for performance achieved
between designated levels of performance. No shares will
be earned for performance below the "acceptably below
target" level. However, for the year 1993, target
performance will be adjusted for the impact of the rains,
if Cash cost/lb. and Pounds produced "exceptionally
above" targets are met in 1994 and 1995.
Award Calculation:
At the end of the each cycle, the number of shares earned
each year will be summed and a total payout determined as
follows:
CYCLE 1:
Base Target Award Share Performance
Salary as % of Base Value Shares
_________________________________________________________________
($150,000 x 150% / $11.12) = 20,234
Share price in year (3) = $P3 (an averaged price)
Performance factor earned in years (x) = FX % (ranges from
50% to 200%)
<PAGE>
Value of award in 1995 = (Year1, shares
(+) Year2,
shares (+)
Year3, shares
(x) $P3)
Year1, shares = (1/3 (x) 20,234) (x) F1
Year2, shares = (1/3 (x) 20,234) (x) F2
Year3, shares = (1/3 (x) 20,234) (x) F3
Example:
Below, the values of minimum, target and maximum awards
are shown for various stock prices for year (3).
Minimum Performance
Performance factor, FX is 50% each year. Therefore,
total shares =
(1/3 (x) 20,234) (x) 50% (Year1)
+ (1/3 (x) 20,234) (x) 50% (Year2)
+ (1/3 (x) 20,234) (x) 50% (Year3)
= 10,117 Shares
Target Performance
Performance factor, FX is 100% each year. Therefore,
total shares =
(1/3 (x) 20,234) (x) 100% (Year1)
+ (1/3 (x) 20,234) (x) 100% (Year2)
+ (1/3 (x) 20,234) (x) 100% (Year3)
= 20,234 Shares
Maximum Performance
Performance factor, FX is 200% each year. Therefore,
total shares =
(1/3 (x) 20,234) (x) 200% (Year1)
+ (1/3 (x) 20,234) (x) 200% (Year2)
+ (1/3 (x) 20,234) (x) 200% (Year3)
= 40,468 Shares
<PAGE>
Final Award Value Matrix:
Year 3 Total Shares
Averaged Price 10,117 20,234 40,468
$ 6 $ 60,702 $121,404 $ 242,808
$12 $121,404 $242,808 $ 485,616
$36 $364,212 $728,424 $1,456,848
Tax Treatment:
Participants incur no tax liability upon the initial
grant of shares. However, they do realize ordinary
income on amounts received or on the value of any
property received at the end of the performance period.
If final payments are made in stock, subsequent
appreciation on that stock is treated as capital gain.
The Company receives a tax deduction in the amount of,
and at the same time as, the employee's receipt of
taxable income from the plan.
Accounting Treatment:
The compensation expense related to the plan must be
recognized periodically over the vesting period. The
expense should reflect changes in the market value of the
stock.
FIRST AMENDMENT
TO THE
MAGMA COPPER COMPANY
EXECUTIVE SUPPLEMENTAL BENEFIT PLAN
Effective January 1, 1987, MAGMA COPPER COMPANY (the
"Company") adopted the MAGMA COPPER COMPANY EXECUTIVE SUPPLEMENTAL
BENEFIT PLAN (the "Plan") for the purpose of providing additional
benefits to a select group of management or highly compensated
employees of the Company. By this instrument, the Company desires
to amend the Plan.
1. This Amendment shall amend only the Sections of the
Plan set forth herein, and those Sections not amended hereby
shall remain in full force and effect.
2. Section 4.1 of the Plan is hereby amended in its
entirety to read as follows:
4.1. Early Retirement Supplement. In the event that
a Participant shall retire before the first day of the month
on or next following the Participant;s sixty-fifth (65th)
birthday (the Participant's "Normal Retirement Date" under the
Retirement Plan), but on or after reaching age fifty-five (55)
and after having completed ten (10) or more years of Credited
Service under the Retirement Plan, the Participant shall be
entitled to a benefit under this Section 4.1. A participant;s
entitlement to a benefit under this Section 4.1 will be
evidenced by an agreement between the Company and the
Participant, which agreement shall be executed by the parties
prior to the date of the Participant's early retirement. The
benefit under this Section 4.1 shall be a monthly benefit
equal to the monthly benefit the Participant would have
received under the Retirement Plan had the Participant's
benefit been subject to:
(a) A four percent (4%) per year reduction for each
year of retirement before attainment of the age of sixty-five
(65) years and after attainment of the age of fifty-five (55)
years, rather than the six percent (6%) reduction for each
year for such period, as provided under the Retirement Plan;
and
(b) If the Participant retires after attaining the
age of sixty (60) years, but before being credited with thirty
(30) or more years of service under the Retirement Plan, or
retires after having been credited with thirty (30) or more
years of service under the Retirement Plan but prior to
attaining the age of sixty (60), a reduction equal to the
lesser of (i) one-third of one percent (.3333%) for each month
<PAGE>
of service less than three hundred sixty (360), or (ii) one-
third of one percent (.3333%) for each month by which the date
of early commencement of benefits precedes the date on which
the Participant would have attained age sixty (60);
less the Participant's actual early retirement benefit under
the Retirement Plan. The amount payable under this Section
4.1 shall be computed in the same manner as the Participant's
early retirement benefit under the Retirement Plan (except for
the percentage changes noted herein), in order to coordinate
determination of estimated Social Security benefits, Credited
Service, and Average Monthly Earnings under the Retirement
Plan and this Plan. The benefit under this Section 4.1 shall
be payable only during the life of the Participant. If the
Participant's benefit under the Retirement Plan is payable in
a life and surviving spouse benefit option manner, the benefit
under this Section 4.1 shall be computed on the basis on which
the Participant's Retirement Plan life annuity benefit would
have been computed (had such a benefit been elected). No
amount shall be payable under this Section 4.1 to a
Participant who receives a benefit under the Retirement Plan
on account of normal or late retirement. No amount shall be
payable under this Section 4.1 to a Participant who separates
from employment prior to becoming entitled to early retirement
benefits under the Retirement Plan.
3. Section 6.1 of the Plan is hereby amended in its
entirety to read as follows:
6.1. Post-Retirement Supplement. In the event that
a Participant shall die following his early, normal or late
retirement under the Retirement Plan, an amount shall be
payable to the Participant;s surviving spouse under this
Section 6.1. The spouse's entitlement to a benefit under this
Section 6.1 will be evidenced by an agreement between the
Company and the Participant, which agreement shall be executed
by the parties prior to the date of the Participant's
retirement. The amount payable under this Section 6.1 shall
be equal to sixty-six and two-thirds percent (66-2/3%) of the
benefit payable to the retired Participant under the
Retirement Plan computed as though the Participant's benefit
under the Retirement Plan is payable in a straight-life only
mode of payment. Such surviving spouse benefit shall be
determined without regard to any benefit received by the
retired Participant under Section 4.1 of this Plan, and
without regard to any other amount being paid to such
surviving spouse under this Plan or any other benefit plan of
the Company, including, without limitation, the Survivor
Benefit Plan. If the retired Participant was not legally
married at the time of his death and the retired Participant
and his spouse have not been continuously married for three
hundred sixty-five (365) days prior to the date of the
<PAGE>
Participant's death or was not eligible for or receiving
retirement benefits under the Retirement Plan at the time of
his death, no benefit shall be payable under this Section 6.1.
4. Section 9.1 of the Plan is hereby amended in its
entirety to read as follows:
9.1. Spousal Claims. Any claim against benefits
hereunder for child support, spousal maintenance or alimony
shall be treated hereunder is accordance with applicable law.
5. Section 9.4 of the Plan is hereby amended in its
entirety read as follows:
9.4 Acquisition of the Company. In the event that
a Participant is discharged within one (1) year following
acquisition of fifty percent (50%) or more of the issued and
outstanding shares of stock of the Company by a single
corporation or a group of affiliated companies,
notwithstanding anything in Sections 4.2, 6.2 and 7.2, the
Company will distribute to such Participant in a lump sum or
through the acquisition of an annuity contract an amount
actuarially equivalent to the value of any benefit under this
Plan, other than any amount payable under Articles Five and
Eight, to which the Participant would be entitled had he
voluntarily separated from employment as of the date of his
discharge. For purposes of determining the Company who is
mutually acceptable to the Participant and the Company and
shall use the actuarial assumptions used in computing the
expense of benefits under this Plan for accounting purposes,
and shall use such other necessary actuarial assumptions as
such actuary shall determine to be reasonable and in common
actuarial use. The determination of such actuary shall be
binding and conclusive on both the Company and the
Participant.
In no event shall any distribution under this
Section 9.4 commence, or, in the case of a lump sum
distribution, occur, later than thirty (30) days following the
date of the Participant's discharge.
6. Section 10.2 of the Plan is hereby amended in its
entirety to read as follows:
10.2 Creditor Status. A Participant and his
beneficiary or beneficiaries shall be general creditors of the
Company with respect to the payment of any benefit under this
Plan.
7. The first paragraph of Section 11.1 of the Plan is
hereby amended to read as follows:
<PAGE>
11.1 Plan Administrator. As of April 8, 1988, the
Plan Administrator is Robert G. Lemons. In the event such
Plan Administrator shall resign (or any members of a committee
comprising the Plan Administrator shall resign) or if the
Board shall seek to remove the Plan Administrator ( or any
members of such committee), the Compensation Committee of the
Board may appoint such successor or successors as shall be
approved in writing by three-fourths (3/4) of the Participants
in the Plan (as of such date). Members of the Board and/or
Participants in the Plan may serve as the Plan Administrator
(or as members of the committee serving as the Plan
Administrator). In the event that the Plan Administrator
shall be a single individual who is a Participant hereunder,
any decisions of such Plan Administrator concerning his own
benefits shall be subject to review by the Compensation
Committee of the Board.
8. The following paragraph is added to Section 11.2 of
the Plan, at the present and end thereof, to read as follows:
In no event shall the claims procedures set forth in
this Section 11.2 be applied to modify either the manner of
payment or the time of commencement of payment under the terms
of this Plan.
9. The following sentence is added to Section 11.5 of
the Plan, at the present end thereof, to read as follows:
In no event shall any procedure authorized by or
described in this Section 11.5 be utilized to defer or
accelerate the payment of benefits to which a Participant or
his beneficiary is entitled under the terms of this Plan.
10. Section 13.2 of the Plan is hereby amended in its
entirety to read as follows:
13.2 Termination. The Board may terminate or
suspend this Plan in whole or in part at any time, but no such
termination or suspension shall deprive a Participant, or
person claiming benefits under this Plan through a
Participant, of any benefit accrued under this Plan up to the
date of suspension or termination. In the event the Plan is
terminated, the Plan Administrator shall, in his discretion,
(1) distribute to the Participant, in a lump sum, the
actuarial equivalent of the value of all benefits to which the
Participant or his beneficiary would have been entitled has
the Participant separated from employment on the Plan
termination date, or (b) direct the Company to provide for the
payment, without modification as to the timing or manner of
payment, of all benefits to which the Participant or his
beneficiary would have been entitled hereunder had the
Participant separated from employment on the Plan termination
<PAGE>
date. In no event shall any lump sum distribution be made in
accordance with this Section 13.2, or in no event shall
benefit payments otherwise commence under this Section 13.2,
later than thirty (30) days following the Plan termination
date.
11. This Amendment shall be effective January 1, 1989.
Except as amended hereby, the Company ratifies the Plan.
DATED: December 27, 1989
MAGMA COPPER COMPANY
BY: _________________________________________
J. Burgess Winter
ITS: President & Chief Executive Officer
SECOND AMENDMENT
TO THE
MAGMA COPPER COMPANY
EXECUTIVE SUPPLEMENTAL BENEFIT PLAN
Effective January 1, 1987, MAGMA COPPER COMPANY (the
"Company") adopted the MAGMA COPPER COMPANY EXECUTIVE SUPPLEMENTAL
BENEFIT PLAN (the "Plan") for the purpose of providing additional
benefits to a select group of management or highly compensated
employees of the Company. The Plan was thereafter amended on
December 27, 1989. By this instrument, the Company desires to
further amend the Plan.
1. This Amendment shall amend only the Sections of the
Plan set forth herein, and those Sections not amended hereby
shall remain in full force and effect.
2. Section 2.1 is hereby amended by the insertion of an
additional definition at the end thereof, to read as follows:
"(n) "Change in Control" shall mean a change in
ownership or managerial control of the stock, assets or
business of the Company resulting from one (1) or more of the
following circumstances:
(i) On or after November 11, 1993, the
shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving
entity) more than sixty-five percent (65%) of the combined
voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; provided however, that a merger or
consolidation effected to implement a recapitalization of the
Company (or a similar transaction), in which no Person other
than Warburg, Pincus Capital Company, L.P., acquires thirty-
five percent (35%) or more of the Company's then outstanding
voting securities shall not constitute a Change in Control;
(ii) On or after November 11, 1993, a change in
ownership of the Company through a transaction or series of
transactions, such that any Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the
Company representing thirty-five percent (35%) or more of the
combined voting power of the Company's then outstanding
securities; provided that, for such purposes, any acquisition
by the Company shall be disregarded; and provided further
that, in the event of such a change in ownership, if Warburg,
Pincus Capital Company, L.P., as of the date of such change of
<PAGE>
ownership and at all times thereafter, remains the Beneficial
Owner of a percentage interest in the Company equal to at
least ten percent (10%) more than any other Beneficial Owner
of the combined voting power of the Company's then outstanding
securities, no Change in Control shall be deemed to have
occurred unless (A) the majority of the Board serving
immediately prior to such Change in Control shall deem a
Change in Control to have occurred, or (B) Warburg, Pincus
Capital Company, L.P., shall thereafter cease to be the
Beneficial Owner of a percentage ownership interest in the
Company equal to at least ten percent (10%) more than any
other Beneficial Owner of the combined voting power of the
Company's then outstanding securities (and in such event, the
Change in Control shall be deemed to have occurred on the date
Warburg, Pincus Capital Company, L.P., ceases to be the
Beneficial Owner of such greater combined voting power);
(iii) A change in identity of a majority of the
members of the Board within any twenty-four (24) month period;
provided however, if such a change in the identity of the
members of the Board occurs following the acquisition of
fifty-one percent (51%) or more of the Company's then
outstanding voting securities by Warburg, Pincus Capital
Company, L.P., no Change in Control shall be deemed to have
occurred if such change of Board membership was approved in
writing (or by an approved written resolution) by a majority
of the Board and of the Management Executive Committee serving
immediately prior to such change of Board membership;
(iv) The approval by the Board (or by the
shareholders if shareholder approval is required by applicable
law or under the terms of any relevant agreement) of an
agreement for the sale or disposition of all or substantially
all of the Company's assets or a sale/leaseback of all or
substantially all of the Company's assets (with or without a
purchase option);
(v) A transfer of all or substantially all of
the Company's assets pursuant to a partnership or joint
venture agreement where the Company's resulting interest is or
becomes fifty percent (50%) or less;
(vi) On or after the date hereof, the Board (or
the shareholders if shareholder approval is required by
applicable law or under the terms of any relevant agreement)
shall approve a plan of complete liquidation of the Company;
or
(vii) The execution or approval by the Board of
any agreement, the consummation of which would result in one
of the foregoing.
<PAGE>
For purposes of this Section 2.1, the term "Beneficial
Owner" shall have the same meaning as the term is given in
Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, and the term "Person" shall have the meaning given
the term when used in sections 13(d) and 14(d) of such act.
The term "Management Executive Committee" shall mean a
committee appointed in writing by the then-acting Chief
Executive Officer of the Company, comprised of such corporate
officers and additional key employees of the Company as the
Chief Executive Officer of the Company shall appoint from time
to time. The Chief Executive Officer may remove any member of
the Management Executive Committee by notice in writing
delivered to such member and to the other members of the
Management Executive Committee.
3. Section 10.1 is hereby amended by the addition of
the following sentence at the end thereof:
"In the event of a "Change in Control", as defined
in Section 2.1, the Company will transfer to the Trustee of
the Magma Copper Company Trust Fund for Executive Benefits an
amount equal to the present value of the liability for
benefits accrued to the date of the Change in Control pursuant
to Sections 4.1, 6.1 and 7.1 (on the assumption that the
benefit payable under Section 7.1 is the maximum benefit
described in Section 7.2). The present value of such benefits
as of such date shall be determined by the firm of actuarial
consultants engaged by the Company at least six (6) months
prior to the date of the Change in Control for purposes of
determining liabilities under this Plan, using such
assumptions as were used in computing such liabilities for
financial reporting purposes by such actuarial consultants.
Such transfer shall be made not later than thirty (30) days
after the date of such Change in Control.
4. Except as amended by this Second Amendment, which is
effective as of November 11, 1993, the Company ratifies the
terms of the Plan, as previously amended.
DATED: November 17, 1993
MAGMA COPPER COMPANY
BY: M. H. Campbell
Its: Vice President, Human Resources
FIRST AMENDMENT
TO THE
MAGMA COPPER COMPANY
SPECIAL EXECUTIVE SUPPLEMENTAL BENEFIT PLAN
On January 14, 1991, Magma Copper Company (the "Company")
adopted the MAGMA COPPER COMPANY SPECIAL EXECUTIVE SUPPLEMENTAL
BENEFIT PLAN (the "Plan") to provide certain additional benefits to
a select group of management or highly compensation employees of
the Company. By this instrument, the Company intends to amend the
Plan to provide benefits in excess of the limitations imposed by
section 401(a) (17) of the Internal Revenue Code of 1986, as
amended.
1. The First Amendment shall amend only those
provisions specifically mentioned herein, and those provisions
not so mentioned shall remain in full force and effect.
2. Section 4.1 of the Plan is hereby amended in its
entirety to read as follows:
4.1 Retirement Supplement. In the event that (i)
the benefit formula under the Retirement Plan is amended to
comply with the new Social Security integration (permitted
disparity) requirements under section 401(1) of the Code as
enacted under the Tax Reform Act of 1986 and/or (ii) a
Participant's benefit under the Retirement Plan is limited due
to the "considered compensation" limitations under section
414(s) of the Code and/or the $200,000 (as adjusted)
compensation limitation under section 401(a) (17) of the Code
(either or both limitations described in this (iii) to be
hereinafter referred to as the "Applicable Compensation
Limitations"), the Participant shall be entitled to a benefit
under this Section 4.1 upon his early, normal or deferred
retirement under the Retirement Plan. The benefit under this
Section 4.1 shall equal the difference between (a) the benefit
the Participant would have been entitled to under the
Retirement Plan under the benefit formula in effect prior to
the amendment of the Plan to comply with the new Social
Security integration requirements had such prior provision
remained in effect, and without regard to the Applicable
Compensation Limitations and (b) the benefit the Participant
is actually entitled to under the revised Retirement Plan
benefit formula incorporating the Social Security integration
requirements and the Applicable Compensation Limitations.
In the event that the Participant is also entitled
to receive the Early Retirement Supplement provided under
Section 4.1 of the Executive Supplemental Benefit Plan, such
Early Retirement Supplement shall be increased pursuant to
this Section 4.1 to compensate the Participant for any
reduction in such Early Retirement Supplement due to the new
<PAGE>
Social Security integration requirements and the Applicable
Compensation Limitations under the Retirement Plan. Likewise,
in the event that the Participant dies prior to retiring under
the Retirement Plan and his surviving spouse is entitled to
receive the Pre-Retirement Supplement under Section 5.1 to
compensate the Participant's spouse for any reduction in such
Pre-Retirement Supplement due to the new Social Security
integration requirements and the Applicable Compensation
Limitations under the Retirement Plan. Lastly, in the event
that the Participant dies after his early, normal or late
retirement under the Retirement Plan and his surviving spouse
is entitled to the Post-Retirement Supplement under Section
6.1 of the Executive Supplemental Benefit Plan, such Post-
Retirement Supplement shall be increased pursuant to the
provisions of this Section 4.1 to compensate the Participant's
spouse for any reduction in such Post-Retirement Supplement
due to the new Social Security integration requirements under
the Tax Reform Act of 1986 and the Applicable Compensation
Limitations under the Retirement Plan.
3. Except as amended hereby, the Company hereby
ratifies the terms of the Plan as adopted January 14, 1991.
4. This First Amendment shall be effective January 1,
1993.
MAGMA COPPER COMPANY
BY: M. H. Campbell
Its: Vice President, Human Resources
SECOND AMENDMENT
TO THE
MAGMA COPPER COMPANY
SPECIAL EXECUTIVE SUPPLEMENTAL BENEFIT PLAN
On January 14, 1991, Magma Copper Company (the "Company")
adopted the MAGMA COPPER COMPANY SPECIAL EXECUTIVE SUPPLEMENTAL
BENEFIT PLAN (the "Plan") for the purpose of providing additional
benefits to a select group of management or highly compensation
employees of the Company. The Plan was thereafter amended
effective January 1, 1993. By this instrument, the Company desires
to further amend the Plan.
1. This Second Amendment shall amend only the Sections
of the Plan set forth herein, and those Sections not amended
hereby shall remain in full force and effect.
2. Section 2.1 is hereby amended by the insertion of an
additional definition at the end thereof, to read as follows:
"(o) "Change in Control" shall mean a change in
ownership or managerial control of the stock, assets or
business of the Company resulting from one (1) or more of the
following circumstances:
(i) On or after the date hereof, the
shareholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than a merger or consolidation which would result
in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into
voting securities of the surviving entity) more than
sixty-five percent (65%) of the combined voting power of
the voting securities of the Company or such surviving
entity outstanding immediately after such merger or
consolidation; provided however, that a merger or
consolidation effected to implement a recapitalization of
the Company (or a similar transaction,) in which no
Person other than Warburg, Pincus Capital Company, L.P.,
acquires thirty-five percent (35%) or more of the
Company's then outstanding voting securities shall not
constitute a Change in Control;
(ii) On or after the date hereof, a change in
ownership of the Company through a transaction or series
of transactions, such that any Person is or becomes the
Beneficial Owner, directly or indirectly, of securities
of the Company representing thirty-five (35%) or more of
securities of the combined voting power of the Company's
then outstanding securities; provided that, for such
purposes, any acquisition by the Company shall be
<PAGE>
disregarded; and provided further that, in the event of
such a change in ownership, if Warburg, Pincus Capital
Company, L.P., as of the date of such change of ownership
and at all times thereafter, remains the Beneficial Owner
of a percentage interest in the Company equal to at least
ten percent (10%) more than any other Beneficial Owner of
the combined voting power of the Company's then
outstanding securities, no Change in Control shall be
deemed to have occurred unless (A) the majority of the
Board serving immediately prior to such Change in Control
shall deem a Change in Control to have occurred, or (B)
Warburg Pincus Capital Company, L.P., shall thereafter
cease to be the Beneficial Owner of a percentage
ownership interest in the Company equal to at least ten
percent (10%) or more than any other Beneficial Owner of
the combined voting power of the Company's then
outstanding securities (and in such event, the Change in
Control shall be deemed to have occurred on the date
Warburg, Pincus Capital Company, L.P., ceases to be the
Beneficial Owner of such greater combined voting power);
(iii) A change in identity of a majority of
the members of the Board within any twenty-four (24)
month period; provided however, if such a change in the
identity of the members of the Board occurs following the
acquisition of fifty-one percent (51%) or more of the
Company's then outstanding voting securities by Warburg,
Pincus Capital Company, L.P., no Change in Control shall
be deemed to have occurred if such change of Board
membership was approved in writing (or by an approved
written resolution) by a majority of the Board and of the
Management Executive Committee serving immediately prior
to such change of Board membership. For purposes of this
Section 2.1(f)(iii), Management Executive Committee shall
mean a Committee appointed in writing by the then-acting
Chief Executive Officer of the Company, comprised of
corporate officers and such additional key employees of
the Company as the Chief Executive Officer shall appoint
from time to time. The Chief Executive Officer may
remove any member of the Management Executive Committee
by notice in writing delivered to such member and the
other members of the Management Executive Committee;
(iv) The approval by the Board (or by the
shareholders if shareholder approval is required by
applicable law or under the terms of any relevant
agreement) of an agreement for the sale or disposition of
all or substantially all of the Company's assets or a
sale/leaseback of all or substantially all of the
Company's assets (with or without a purchase option);
(v) A transfer of all or substantially all of
<PAGE>
the Company's assets pursuant to a partnership or joint
venture agreement where the Company's resulting interest
is or becomes fifty percent (50%) or less;
(vi) On or after the date hereof, the Board (or
the shareholders if shareholder approval is required by
applicable law or under the terms of any relevant
agreement) shall approve a plan of complete liquidation
of the Company; or
(vii) The execution or approval by the
Board of any agreement, the consummation of which would
result in one of the foregoing.
For purposes of this section 2.1(o), the term
"Beneficial Owner" shall have the same meaning as the term is
given in Rule 13d-3 under the Securities Exchange Act of 1934,
as amended, and the term "Person" shall have the meaning given
the term when used in sections 13(d) and 14(d) of such act.
The term "Management Executive Committee" shall mean a
committee appointed in writing by the then - acting Chief
Executive Officer of the Company, comprised of such corporate
officers and additional key employees of the Company as the
Chief Executive Officer of the Company shall appoint from time
to time. The Chief Executive Officer may remove any member of
the Management Executive Committee by notice in writing
delivered to such member and to the other members of
Management Executive Committee."
3. Section 7.4 is hereby amended in the entirety, to
read as follows:
"7.4 Acquisition of the Company. In the event that
a Participant is "terminated" within two (2) years following
a Change in Control as described in Section 2.1,
notwithstanding anything in Sections 4.2, 5.2 and 6.1, the
Company will distribute to such Participant in a lump sum, or
through the acquisition of an annuity contract, an amount
actuarially equivalent to the value of the benefits promised
under this Plan to which the Participant would be entitled
upon his normal retirement under the Retirement Plan. For
purposes od determining actuarial equivalency, an actuary
shall be selected by the Company who is mutually acceptable to
the Participant and the Company. The actuary shall use the
actuarial assumptions used in computing the expense of
benefits under this Plan for accounting purposes, and shall
use such other necessary actuarial assumptions as such actuary
shall determine to be reasonable and in common actuarial use.
The determination of such actuary shall be binding and
conclusive on both the Company and the Participant.
<PAGE>
The following examples illustrate the operation of this
Section 7.4:
(i) For purposes of the Retirement Supplement
provided under ARTICLE IV, the "terminated" Participant shall
be treated as if he qualifies for normal retirement benefits
under the Retirement Plan, regardless of whether he actually
qualifies for such benefits. The Participant's retirement
benefits shall be calculated under the Retirement Plan based
on the Participant's credited service as of the date of his
termination.
(ii) For purposes of the Deferred Compensation
Supplement provided under ARTICLE V, the "terminated"
Participant shall also be treated as if he qualifies for
normal retirement benefits under the Retirement Plan,
regardless of his actual entitlement to such benefits. The
Participant's Deferred Compensation Supplement shall equal the
difference between (a) the amount of his retirement benefit
under the Retirement Plan if he had not elected to make
compensation deferrals (based on his credited service as of
the date of his termination) and (b) his actual retirement
benefit under the Retirement Plan (based on his credited
service as of the date of his termination).
(iii) For purposes of the Supplemental Medical
Benefits provided under ARTICLE VI, the "terminated"
Participant shall be treated as if he has attained age fifty-
five (55) and has been credited with five (5) years of service
for benefit computation purposes under the Retirement Plan,
and, thus, eligible for Supplemental Medical Benefits.
A Participant will be "terminated" for purposes of this
Section 7.4 on the occurrence of one (1) or more of the
following, due to a cause other than "good reason":
(i) Dismissal from employment, other than on
account of Good Reason; or
(ii) The assignment to the Participant by the
Company of duties inconsistent with the Participant's
position, duties, responsibility and status with the Company
as in effect immediately prior to the Change in Control, or a
material change in the Participant's titles or offices as in
effect immediately prior to the Change in Control or any
removal of the Participant from or any failure to reelect the
Participant to any of such positions except in connection with
the termination of his employment for Good Reason; for
purposes of this Plan, a mere change of title, position or
reporting relationship that does not result in a material
diminution in scope, status, duties and responsibilities shall
not constitute "termination", nor shall an isolated
<PAGE>
insubstantial and inadvertent action not taken in bad faith
and which is promptly remedied after notice, nor shall a
promotion to a position of higher scope, status, duties and
responsibilities or a transfer to a position of equal scope,
status, duties and responsibilities constitute, "termination",
as long as such promotion or transfer is consistent with the
Participant's training and professional qualifications or is
otherwise agreed to by the Participant;
(iii) A reduction in the Participant's base
salary as in effect on the date hereof or as the same may be
increased from time to time during the course of his
employment with the Company, that is not implemented
correspondingly within the executive or officer class of
employees generally;
(iv) The Participant's relocation to any place
outside of the United States, except for required travel by
the Participant on the Company's business to an extent
substantially consistent with the Participant's business
travel obligations at the time of the Change in Control;
(v) Any material breach by the Company of any
provision of the Participant's Employment Agreement (if any)
with the Company.
For purposes of this ARTICLE VII, the term "good reason"
shall mean the Participant's death, disability, retirement or
"dismissal for cause". "Dismissal for cause" shall mean
dismissal approved in good faith by three quarters (3/4ths) of
the members of the Board for:
(i) An act or acts of dishonesty on the part of the
Participant constituting a felony or serious misdemeanor and
resulting or intended to result directly or indirectly in gain
or personal enrichment at the expense of the Company;
(ii) Substantial competition with the Company (such
as securing a customer or customers of the Company for a
competitor or recruiting employees of the Company for a
competitor) in a manner directly affecting the business of the
Company;
(iii)The Participant's willful and continuing
refusal or failure to substantially perform the essential
functions of his employment with the Company (other than
failure due to Disability); for such purpose the term
"willful" shall mean done intentionally, knowingly, and
purposely, without reasonable justification therefor;
<PAGE>
(iv) Gross negligence in the performance of the
Participant's material and substantial duties of employment
with the Company;
(v) Conviction of a felony involving moral
turpitude;
(vi) A significant violation by the Participant of
those established policies and procedures of the Company that
were in effect on the date of the Change in Control and were
communicated to the Participant prior to the Change in
Control;
(vii)The continued failure of the Participant to
substantially perform the essential functions of the
Participant's job with the Company (other than due to
Disability) after a written demand for substantial performance
is delivered to the Participant by the Chief Executive Officer
of the Company, which identifies the manner in which the
Participant has not substantially performed the essential
functions of his job."
4. Section 8.1 is hereby amended by the addition of the
following sentence at the end thereof:
"In the event of a "Change in Control", as defined
in Section 2.1, the Company will transfer to the Trustee of
the Magma Copper Company trust Fund for Executive Benefits an
amount equal to the present value of the liability for
benefits accrued to the date of the Change in Control pursuant
to Articles IV and V of the Plan. The present value of such
benefits as of such date shall be determined by the firm of
actuarial consultants engaged by the Company at least six (6)
months prior to the date of the Change in Control for purposes
of determining liabilities under this Plan, using such
assumptions as were used in computing such liabilities for
financial reporting purposes by such actuarial consultants.
Such transfer shall be made not later than thirty (30) days
after the date of such Change in Control."
5. Except as amended by this Second Amendment, which is
effective as of November 11, 1993, the Company ratifies the
terms of the Plan, as previously amended.
Dated: November 17, 1993
MAGMA COPPER COMPANY
BY: M. H. Campbell
Its: Vice President, Human Resources
MAGMA COPPER COMPANY
Computation of Per Share Earnings
PRIMARY
- -------
1993 1992 1993
------------- ------------- --------------
Net income (loss) available for
common stock $19,390,000 $ 42,671,000 $(128,319,000)
Weighted average number of primary
shares outstanding:
(i) Shares of Common Stock
outstanding at
January 1 45,591,000 30,150,000 29,129,000
(ii) Dividends on Series B
Preferred Stock, payable
in Common Stock -- 1,163,000 1,163,000
(iii) Conversion of Series B
Preferred Stock, to Common
Stock (14,133,000 shares),
weighted average -- 77,000 --
(iv) Stock Warrents exercised 17,000 18,000 --
(v) Stock options exercised 111,000 127,000 90,000
(vi) Common Stock equivalent
arising from assumed
conversion of outstanding
warrants and options 2,455,000 1,909,000 --
WEIGHTED AVERAGE NUMBER
OF PRIMARY SHARES
OUTSTANDING 48,174,000 33,444,000 30,382,000
========== =========== ============
NET INCOME (LOSS)
PER SHARE $ .40 $ 1.28 $ (4.22)(1)
========== =========== ============
FULLY DILUTED:
- -------------
Net income (loss) $21,913,000 $ 55,281,000 $(120,528,000)
Primary weighted average
shares outstanding 48,174,000 33,444,000 30,382,000
(i) Conversion of Series B
Preferred Stock
(930,000 shares at 14.2857
conversion rate) -- 13,286,000 13,286,000
(ii) Weighted average of
conversion premium -- 5,000 13,286,000
(iii) Dividends on Series B
Preferred Stock
payable in the form of
Common Stock -- (930,000) --
(iv) Weighted are of primary
shares converted -- (77,000) --
(v) Conversion of Series D
Preferred Stock (weighted
average 2 million shares
at 3.448 conversion
rate) 3,136,000 -- --
(vi) Conversion of Series E
Preferred Stock (weighted
average 2 million shares
at 3.5945 conversion) 611,000 -- --
(vii) Incremental shares from
assumed conversion of
outstanding warrant and
options 268,000 877,000 --
========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING,
ASSUMING FULL
DILUTION 52,189,000 46,605,000 42,738,000
========== =========== ============
NET INCOME (LOSS)
per share $ .40(1) $ 1.19 $ (4.22)(1)
========== =========== ============
(1) The Company's convertible preferred stock is not included in the fully
diluted calculations as its effects are antidilutive.
SUBSIDIARIES OF MAGMA COPPER COMPANY
State of Business
Name Incorporation Name
- ------------------------------ ------------- -------------
Magma Arizona Railroad Company Arizona MARRCO
San Manuel Arizona Railroad Company Arizona SMARRCO
Magma Gold Ltd. Delaware Magma Gold
Magma Nevada Mining Company Delaware Magma Nevada
Magma Limited Partner Co. Delaware Magma Limited
Magma Metals Company Delaware Magma Metals
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated January 27, 1994,
included in the Company's Form 10-K for the year ended December
31, 1993, into the Company's previously filed Registration
Statement Nos. 33-19666 (Price Related Bonus Plan for Salaried
Employees), 33-21344 (1987 Stock Option and Stock Award Plan),
33-35566 (1989 Stock Option and Stock Award Plan), 33-35569 (1989
Stock Option Plan for Non-Employee Directors), 33-66500 (Employee
Savings Plan), 33-66498 (Savings Plan for Hourly-Rated
Employees), 33-47910 (1992 Restricted Stock Plan for Non-Employee
Directors) and 33-64766 (1993 Stock Option and Stock Award Plan)
on Forms S-8, and Registration Statement Nos. 33-26294 (Warrants
to purchase 4,250,000 shares of Class B Common Stock) and 33-
45023 (Debt Securities) on Forms S-3. It should be noted that we
have not audited any financial statements of the Company
subsequent to December 31, 1993, or performed any audit
procedures subsequent to the date of our report.
Arthur Andersen & Co.
Tucson, Arizona
March 9, 1994.
