Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
MAGMA COPPER COMPANY
----------------------------------------
(Name of Registrant as Specified in Its Charter)
FRANCIS R. MCALLISTER, JR.
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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M A G M A C O P P E R C O M P A N Y
NOTICE OF AND PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 18, 1995
MAGMA COPPER COMPANY
7400 NORTH ORACLE ROAD, SUITE 200
TUCSON, ARIZONA 85704
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 1995
To the Stockholders of Magma Copper Company:
NOTICE IS HEREBY GIVEN that the 1995 Annual Meeting of Stockholders of Magma
Copper Company, a Delaware corporation (the "Company"), will be held in The
Westin La Paloma, Finger Rock Room, 3800 East Sunrise, Tucson, Arizona 85716 on
Thursday, May 18, 1995, at 10:00 a.m., Mountain Standard Time, for
the following purposes:
1. To elect four Class II directors for three year terms expiring at the
annual meeting of stockholders to be held in 1998 or until their
successors have been duly elected and qualified;
2. To ratify the selection of Arthur Andersen LLP as independent public
accountants for the Company for its 1995 fiscal year; and
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The Board of Directors has fixed the close of business on March 24, 1995, as
the record date for the determination of stockholders entitled to notice of and
to vote at the meeting or any adjournments thereof. The stock transfer books
will be open for inspection throughout the meeting. Management of the Company is
not aware of any proposal to be acted upon at the meeting except those mentioned
above. If any other matters properly come before the meeting or any adjournments
thereof, unless otherwise directed by the designating stockholder, the proxies
named in the enclosed proxy will vote thereon in accordance with the
recommendations of management of the Company.
Stockholders who do not expect to attend the meeting in person are urged to
fill in, date, sign, and mail the enclosed proxy in the enclosed postage paid
return envelope.
By Order of the Board of Directors
Andrew A. Brodkey
Secretary
Tucson, Arizona
April 7, 1995
IF YOU CANNOT BE PRESENT IN PERSON, PLEASE DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT AT
YOUR EARLIEST CONVENIENCE
MAGMA COPPER COMPANY
7400 NORTH ORACLE ROAD, SUITE 200
TUCSON, ARIZONA 85704
April 7, 1995
Dear Stockholder:
You are invited to attend the 1995 Annual Meeting of Stockholders of Magma
Copper Company to be held at 10:00 a.m., Mountain Standard Time, on Thursday,
May 18, 1995, in The Westin La Paloma, Finger Rock Room, 3800 East Sunrise,
Tucson, Arizona 85716.
At this year's meeting you are being asked to elect four Class II directors
and to ratify the appointment of the Company's auditors. The accompanying Notice
of Meeting and Proxy Statement describe these items. We urge you to read this
information carefully.
For the reasons set forth in the Proxy Statement, your Board of Directors
unanimously believes the proposals referred to above are in the best interest of
Magma Copper Company and its stockholders, and accordingly strongly recommends a
vote FOR items 1 and 2 on the proxy card enclosed.
In addition to the formal business to be transacted, management will present
a report on operations of the past year and respond to comments and questions of
general interest to stockholders.
I hope many Magma Copper Company stockholders will find it convenient to be
present at the meeting and I look forward to greeting those personally able to
attend. It is important that your shares are represented and voted whether or
not you plan to be present. Therefore, regardless of the number of shares you
may own, please sign, date, and promptly mail the enclosed proxy in the prepaid
envelope provided.
Thank you.
Sincerely,
J. Burgess Winter
President and
Chief Executive Officer
MAGMA COPPER COMPANY
7400 NORTH ORACLE ROAD, SUITE 200
TUCSON, ARIZONA 85704
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 18, 1995
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement has been prepared in connection with the Board of
Directors' solicitation of the enclosed proxy for the 1995 Annual Meeting of
Stockholders to be held on Thursday, May 18, 1995, at 10:00 a.m., Mountain
Standard Time, at The Westin La Paloma, Finger Rock Room, 3800 East Sunrise,
Tucson, Arizona 85716. The Proxy Statement has been furnished to the record
holders of shares of the $.01 per share par value common stock ("Common Stock")
of Magma Copper Company, a Delaware corporation (the "Company"), as of March 24,
1995 (the "Record Date"), by order of the Board of Directors. The accompanying
Notice of Annual Meeting of Stockholders, this Proxy Statement, and the enclosed
proxy are being mailed on or about April 7, 1995, to stockholders entitled to
notice of and to vote at the Annual Meeting.
The Annual Meeting has been called for the purposes set forth in the Notice
of Annual Meeting of Stockholders accompanying this Proxy Statement. All
properly executed proxies received prior to the Annual Meeting will be voted at
the meeting. If a stockholder directs how the proxy is to be voted with respect
to the business coming before the Annual Meeting, the proxy will be voted in
accordance with the stockholder's directions. If a stockholder does not direct
how the proxy is to be voted, the proxy will be voted IN FAVOR OF (i) the
election of all the director nominees as a group, and (ii) the ratification of
Arthur Andersen LLP as independent public accountants for the Company's 1995
fiscal year. If any other matter properly comes before the Annual Meeting or any
adjournments thereof, unless otherwise directed by the designating stockholder,
proxies will be voted thereon in accordance with the recommendation of
management of the Company.
Stockholders giving the proxy may revoke the same by filing written notice
of termination of the appointment with Andrew A. Brodkey, Vice President and
Secretary of the Company, 7400 North Oracle Road, Suite 200, Tucson, Arizona
85704, by attending the Annual Meeting and voting in person, or by filing a new
written appointment of a proxy with Mr. Brodkey. The revocation of the proxy
will not affect any vote taken prior to such revocation.
The cost of solicitation of proxies, including the cost of preparation and
mailing of the Notice of Annual Meeting, this Proxy Statement, and the enclosed
proxy, will be borne by the Company. It is anticipated that brokerage houses,
fiduciaries, nominees, and others will be reimbursed for their out-of-pocket
expenses in forwarding proxy materials to beneficial owners of stock held in
their names. Directors, officers, or employees of the Company may solicit
proxies by telephone or in person without additional compensation. The Company
has engaged D.F. King & Co., Inc., 77 Water Street, New York, N.Y. 10005, to
solicit proxies, and anticipates paying compensation to that solicitor for such
services in an amount of approximately $5,000.00, plus expenses.
VOTING SECURITIES
As of March 1, 1995, there were 46,105,143 outstanding shares of Common
Stock. The holders of the Common Stock are entitled to notice of and to vote at
the Annual Meeting, or any adjournments thereof.
Each share of Common Stock is entitled to one vote. The holders of shares of
Common Stock do not have cumulative voting rights. The Common Stock can be voted
at the Annual Meeting only if the holder is present or represented by proxy at
the Annual Meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed for the meeting, and will determine whether
or not a quorum is present. The inspectors of election will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but as unvoted for purposes of determining the approval of
any matter submitted to the shareholders for a vote. If a broker indicates on
the proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.
BOARD OF DIRECTORS
The Board of Directors currently consists of eleven members of whom
approximately one third are elected each year to serve for terms of three years.
The following is certain biographical information, as of February 15, 1995, with
respect to the members of and nominees to the Board of Directors.
DIRECTOR NOMINEES
CLASS II DIRECTORS -- TERMS EXPIRING IN 1995
J. BURGESS WINTER, age 61, has been President, Chief Executive Officer, and
a director of the Company since August 1988. From 1983 to 1988, Mr. Winter
served as Senior Vice President of Operations of BP Minerals America (previously
Kennecott Minerals Company), a mining company, and from 1976 to 1983 he was
General Manager and Vice President of Inspiration Consolidated Copper Company's
Arizona operations. Mr. Winter has also served as a director of Tucson Electric
Power Company since 1992.
JUDD R. COOL, age 59, has been a director of the Company since February
1989, and Vice President, Human Resources, of Inland Steel Industries, a steel
producer, since September 1987. From 1983 to 1987, he served as Senior Vice
President, Human Resources and External Affairs, at BP Minerals America
(previously Kennecott Minerals Company). From 1979 to 1983, he was Vice
President, Human Resources, at BP Minerals America.
SIMON D. STRAUSS, age 83, has been a director of the Company since February
1989, has been self-employed as an author and a consultant to the mining
industry since 1980, and is a director of Combined Metals Reduction Company, a
gold mining concern. Mr. Strauss also serves on the Board of Governors of the
National Mining Hall of Fame and Museum, and is an active member of the Council
on Foreign Relations of New York, New York. Mr. Strauss retired in 1979 from
ASARCO Incorporated, a primary copper producer, as its Vice Chairman, and
retired from the ASARCO board in 1981.
JOHN R. KENNEDY, age 64, has been a director of the Company since June 1989
and has been the President and Chief Executive Officer of Federal Paper Board
Company, Inc., a paper products company, since 1975. Mr. Kennedy serves as a
director of American Maize Products De Vlieg-Bullard, Inc., First Fidelity
Bancorporation, and the American Forest and Paper Association.
CONTINUING DIRECTORS
CLASS III DIRECTORS -- TERMS TO EXPIRE IN 1996
CHRISTOPHER W. BRODY, age 50, has been a director of the Company since
December 1988, and has been Managing Director of E. M. Warburg, Pincus & Co.,
Inc., which provides specialized financial advisory and investment counselling
services, and certain of its affiliates for more than five years. Mr. Brody is a
director of Allstar Inns, Inc., which owns a chain of motels, and Intuit, Inc.,
a leading publisher of personal finance, small business accounting, and tax
preparation software for personal computers.
JOHN W. GOTH, age 67, has been a director of the Company since March 1987,
and has been an independent consultant since 1985. From 1982 to 1985, he was
Senior Executive Vice President of AMAX, Inc., a natural resource and natural
gas producer, and was responsible for supervising the metals business of AMAX,
Inc. Mr. Goth is a director of U.S. Gold Corporation and of Royal Gold, Inc.,
each a gold mining company. Mr. Goth also serves as Director of Development of
Mineral Information Institute, Inc., as Executive Director of Denver Gold Group,
and as director of both the Colorado Mining Association and the Colorado Mining
Education Foundation.
HENRY B. SARGENT, age 60, has been a director of the Company since March
1987, and has been Executive Vice President and Chief Financial Officer of
Pinnacle West Capital Corporation, the parent holding company of Arizona Public
Service Company, an electric utility company, since 1985. From 1976 to 1986, he
was Executive Vice President and Chief Financial Officer of Arizona Public
Service Company. Mr. Sargent currently serves as a director of both Pinnacle
West Capital Corporation and Arizona Public Service Company.
CLASS I DIRECTORS -- TERMS EXPIRING IN 1997
DONALD J. DONAHUE, age 70, has been Chairman of the Board of Directors of
the Company since January 1987, and was interim Chief Executive Officer of the
Company from April 1988 to August 1988. Mr. Donahue was Chairman of the Board
and Chief Executive Officer of KMI Continental, Inc. ("KMI"), a natural resource
conglomerate, from 1984 to 1985, and Vice Chairman and Chief Operating Officer
of KMI's predecessor company from 1975 to 1984. Mr. Donahue is a member of the
Board of Directors of Northeast Utilities, GEV Corporation, successor to
Finevest Foods, Inc., a producer and marketer of frozen foods, Signet Star
Holding Co., a casualty reinsurer, and several Counsellors Funds, whose
investment manager is an affiliate of E. M. Warburg, Pincus & Co., Inc. From
September 1990 until August 1993, Mr. Donahue served as Chairman of NAC Holding
Corporation, a holding company for the North American Company For Life And
Health Insurance (NACOLAH), headquartered in Chicago, Illinois.
THOMAS W. ROLLINS, age 63, has been a director of the Company since March
1987. Mr. Rollins is Chief Executive Officer of Rollins Resources, a natural gas
and oil consulting firm. From March 1991 until its merger in October 1992, Mr.
Rollins was President and Chief Executive Officer of Park Avenue Exploration
Corp., a subsidiary of USF&G Corporation. Mr. Rollins served as President and
Chief Executive Officer of Felmont Oil Company, a subsidiary of Homestake Mining
Company, from April 1989 until its sale in December 1989, and as a director and
Senior Vice President of Pogo Producing Co., an oil and natural gas company,
from 1985 to 1989. From 1981 to 1985, he was President and Chief Executive
Officer of Continental Resources Company, a natural gas and oil company, and
Executive Vice President of Continental Group, Inc., a diversified holding
company. Mr. Rollins also serves as a director of the Teaching Company and The
Nature Conservancy of Texas.
H. WILSON SUNDT, age 62, has been a director of the Company since March
1987, and has served as Chairman of the Board and Chief Executive Officer of
Sundt Corp., a construction company, since July 1983. Mr. Sundt is also a
director of Tucson Electric Power Company.
JOHN L. VOGELSTEIN, age 60, has been a director of the Company since
December 1988. Since 1982 he has been Vice Chairman of the Board of Directors,
and, since 1994, President, of E. M. Warburg, Pincus & Co., Inc., which provides
specialized financial advisory and counselling services, and certain of its
affiliates. Prior thereto, he was an officer and a director of E. M. Warburg,
Pincus & Co., Inc. and certain of its affiliates for more than five years. Mr.
Vogelstein is currently a director of Value Health, Inc., a provider of
specialty managed-care programs, Mattel, Inc., a toy manufacturer, ADVO Inc., a
direct mail marketing concern, AEGIS GROUP plc., a European media buying
company, LCI International, a provider of long-distance telecommunication
services, and several privately held companies.
COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal year 1994, the Board of Directors met seven times. Each
Director attended at least 75% or more of the total number of meetings held
during fiscal year 1994, including meetings of those committees of which each is
a member.
The Audit Committee of the Board of Directors met seven times during fiscal
year 1994. Its functions include, but are not necessarily limited to (i) review
of the professional services of the Company's independent auditors, (ii) review
of the audit plan and results of the Company's annual audit, and (iii)
consideration of the qualifications of the Company's auditors and recommendation
to the Board of Directors as to their selection. The Audit Committee consists of
four voting members, Messrs. Goth, Kennedy, Rollins, and Sargent, and one
non-voting, ex-officio member, Mr. Brody.
The Compensation Committee of the Board of Directors met five times during
fiscal year 1994. Its functions are to recommend to the full Board of Directors
the compensation of all officers of the Company and of the members of the Board
of Directors. The Compensation Committee members, other than Mr. Donahue,
administer all stock-related employee incentive compensation plans. The
Compensation Committee also reviews the performance and funding of the Company's
various pension plans. The Compensation Committee consists of Messrs. Cool,
Donahue, Goth, Rollins, Strauss, Sundt, and Vogelstein.
The Executive Committee of the Board of Directors met two times during
fiscal year 1994. Its authority extends to all matters proper for action by the
Board of Directors other than matters related to the composition of the Board,
changes in the Bylaws, and certain other corporate matters. The Executive
Committee consists of Messrs. Cool, Donahue, Sargent, Strauss, Vogelstein, and
Winter.
The Nominating Committee of the Board of Directors met once during fiscal
year 1994. The Nominating Committee is responsible for the size and composition
of the Board of Directors as well as recommending nominees to serve on the Board
of Directors. The Nominating Committee considers proposals for nominations from
stockholders that are timely made in writing to the Secretary and contain
sufficient background information concerning the nominee to enable proper
evaluation of his or her qualifications as more fully provided in the Company's
Restated Certificate of Incorporation and Bylaws. The Nominating Committee
consists of Messrs. Brody, Donahue, Kennedy, Sundt, and Winter.
The Price Risk Committee of the Board of Directors met one time during
fiscal year 1994. The Price Risk Committee is responsible for reviewing,
approving, and authorizing the execution of management strategy relative to the
price protection programs for commodities produced by the Company. The Price
Risk Committee consists of Messrs. Donahue, Winter, Vogelstein, Brody (alternate
for Vogelstein), and Strauss (ex-officio non-voting member).
The Finance Committee of the Board of Directors met three times in 1994. The
Finance Committee is responsible for overseeing the financing activities of the
Company. The Finance Committee consists of Messrs. Winter, Donahue, Brody, and
Vogelstein (alternate for Brody).
MANAGEMENT
The following table sets forth information as of February 15, 1995, as to
the executive officers of the Company.
Name Age Office
---- --- ------
Donald J. Donahue 70 Chairman of the Board
J. Burgess Winter 61 President, Chief Executive Officer, and Director
Andrew A. Brodkey 38 Vice President, Secretary, and General Counsel
K. Lee Browne 44 Vice President
Marshall H. Campbell 55 Vice President, Human Resources
John F. Champagne 42 Vice President
Francisco E. Durazo 43 Vice President and General Manager
Bradford A. Mills 40 Vice President, Planning and Business Development
Douglas J. Purdom 35 Vice President and Chief Financial Officer
Harry C. Smith 46 Vice President
All executive officers are elected by and serve at the discretion of the
Board. Mr. Winter is employed pursuant to an employment agreement described on
pages 14 and 15.
For biographical information regarding Messrs. Donahue and Winter, see their
biographies under "Continuing Directors" above.
Andrew A. Brodkey was elected Vice President in November 1992 and has been
Secretary and General Counsel to the Company since August 1989. From 1987 until
August 1989, Mr. Brodkey served as the Company's Senior Counsel and Assistant
Secretary. From 1982 to 1987, Mr. Brodkey was associated with the Denver,
Colorado law firm of Gorsuch, Kirgis, Campbell, Walker and Grover.
K. Lee Browne was elected Vice President in November 1992 and has been
President and General Manager of Magma Tintaya, S. A., the Company's operating
subsidiary in Peru, since January 1995. He was General Manager of the Pinto
Valley Mining Division from November 1991 to November 1994. From 1973 until
1991, Mr. Browne held various positions in operations at several Company
locations, including General Mill Foreman, Mill Superintendent, Assistant
Refinery Superintendent, Vice President and General Manager of MCR Products, and
Manager of Rod Plant and Refinery, as well as positions in the Marketing and
Sales Division of the Company.
Marshall H. Campbell has been Vice President, Human Resources, of the
Company since August 1989. Mr. Campbell was Manager of Employee Relations for
the Company from 1985 to 1989. From 1973 to 1985, Mr. Campbell was Director of
Industrial Relations for Pennzoil's Duval Corporation, a copper mining company,
in Tucson, Arizona. From 1965 to 1972, he performed a variety of human resource
assignments with Shell Oil Company.
John F. Champagne has been Vice President of the Company since November 1988
and President of Magma Metals Company, a wholly owned subsidiary of the Company,
since December 1991. Additionally, Mr. Champagne serves on the Trade Promotion
Coordination Committee for the United States Secretary of Commerce. From August
1986 to November 1988, he served as President of Cargill Metals, the metals
trading division of Cargill, Inc., a diversified commodities firm in
Minneapolis. From July 1974 to August 1986, Mr. Champagne held various
management and trading positions with Cargill, Inc., and its subsidiaries.
Francisco E. Durazo was elected Vice President of the Company in November
1992 and has been General Manager of the San Manuel Mining Division since July
1991. Since 1975, he has held various operations management positions at the
Company's San Manuel Mining Division, including General Mine Foreman, Mine
Superintendent, and Manager of Sulfide Mining Operations.
Bradford A. Mills has served as the Company's Vice President, Planning and
Business Development, since August 1989. From 1987 to July 1989, Mr. Mills was
the Director of Corporate Development for Echo Bay Management Company, a mining
company headquartered in Denver, Colorado. From 1985 to 1987, Mr. Mills was the
United States Exploration Manager for Echo Bay Exploration, Inc., and from 1983
to 1985, Mr. Mills served as the Chief Mine Geologist with the Copper Range
Company.
Douglas J. Purdom has been Vice President and Chief Financial Officer of the
Company since January 1992. From 1989 through 1991, he served as the Company's
Corporate Controller. Prior to joining the Company, Mr. Purdom was with the
accounting and consulting firm of Arthur Andersen & Co.
Harry C. Smith has been a Vice President of the Company since December 1991
and President of Magma Nevada Mining Company, a wholly owned subsidiary of the
Company, since November 1991. Since 1973, Mr. Smith has been employed by the
Company in various capacities at its San Manuel Mining Division, including
positions as General Mine Foreman, Mine Superintendent, Manager of Sulfide
Mining, Operational Manager of Sulfide and Oxide Mining, and General Manager.
<TABLE>
EXECUTIVE COMPENSATION
The table below summarizes annual and long term compensation for services to
the Company during years ended December 31, 1994, 1993, and 1992 to those
persons who were at December 31, 1994 (i) the Chief Executive Officer and (ii)
the other four most highly-compensated executive officers of the Company. These
persons are referred to in this Proxy Statement as the "Named Executive
Officers."
SUMMARY COMPENSATION TABLE
<CAPTION>
-------------------------- ----------------------------------------
ANNUAL COMPENSATION(1) LONG TERM COMPENSATION
-------------------------- ----------------------------------------
NAME RESTRICTED SECURITIES
AND STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL AWARDS(2) OPTIONS(3) PAYOUTS(4) COMPENSATION(5)
POSITION YEAR SALARY($) BONUS($) $ (#) ($) ($)
- - ------------------------------- -------- ------------ ------------ ------------ ------------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WINTER, JB 1994 $462,516 $550,000 $631,842 162,400 $222,917 $17,907
President and Chief 1993 412,500 350,000 -- 24,200 185,973 19,078
Executive Officer 1992 375,000 495,000 -- 52,700 165,280 20,250
CHAMPAGNE, JF 1994 237,000 184,680 287,209 78,380 -- 10,620
Vice President 1993 216,000 127,000 -- 10,900 -- 9,990
1992 200,004 170,392 -- 23,000 -- 10,031
MILLS, BA 1994 190,008 200,000 191,473 48,590 -- 10,200
Vice President 1993 170,004 88,000 -- 8,000 -- 6,750
1992 150,000 113,400 -- 9,500 -- 4,500
SMITH, HC 1994 193,956 150,000 191,473 48,590 -- 10,313
Vice President 1993 175,008 83,000 -- 8,000 -- 8,665
1992 155,004 110,484 -- 9,500 -- 4,299
PURDOM, DJ 1994 190,216 150,000 191,473 48,590 -- 10,200
Vice President and 1993 170,004 88,000 -- 8,000 -- 9,472
Chief Financial Officer 1992 130,008 100,104 -- 10,500 -- 7,800
- - -------
(1) Salary and Bonus include cash compensation earned and received by the Named
Executive Officers in the year indicated and amounts deferred under the
Employee Savings Plan of Magma Copper Company and Participating Subsidiary
Companies (the "Employee Savings Plan") and/or the Special Executive
Deferred Compensation Plan (the "Deferred Compensation Plan").
(2) The Named Executives were issued restricted stock grants on November 16,
1994. Grants of 36,365 shares to Mr. Winter and 11,020 shares to each of
Messrs. Mills, Smith, and Purdom were made under the Magma Copper Company
1989 Stock Option and Stock Award Plan (the "1989 Plan"), and a grant of
16,530 shares was made to Mr. Champagne under the Magma Copper Company 1987
Stock Option and Stock Award Plan (the "1987 Plan"). The restricted stock
awards vest as follows: 20% of the original award on December 31, 1995, 20%
of the original award on December 31, 1996, and 60% of the original award on
December 31, 1997. The value of these awards is based on the closing price
of the Company's Common Stock on November 16, 1994 on the New York Stock
Exchange -- Composite Transactions. At December 31,1994, aggregate
restricted shareholding in shares (and dollars) were 36,365 ($600,023) for
Mr. Winter, 16,530 ($272,745) for Mr. Champagne, and 11,020 ($181,830) for
each of Messrs. Mills, Smith, and Purdom. Dividends are not currently paid
on restricted stock.
(3) Options were awarded pursuant to the Magma Copper Company 1993 Stock Option
and Stock Award Plan (the "1993 Plan") during 1993 and 1994, and from the
1989 Plan in 1992.
(4) Mr. Winter received a long-term incentive bonus pursuant to the CEO
Employment Agreement (as discussed on pages 14 and 15). No other Named
Executive Officer was eligible for or received a long-term incentive bonus.
(5) Amounts for 1994 include a Company matching contribution in the Employee
Savings Plan for Messrs. Winter, Champagne, Mills, Smith, and Purdom of
$4,500, $3,510, $4,500, $4,500, and $4,500 respectively. Amounts also
include a Company matching contribution in the Deferred Compensation Plan
for Messrs. Winter, Champagne, Mills, Smith, and Purdom of $13,407, $7,110,
$5,700, $5,813, and $5,700 respectively.
</TABLE>
<TABLE>
OPTION GRANTS
The table shown below contains information on grants of stock options during
1994 to the Named Executive Officers. No stock appreciation rights were granted
during 1994.
OPTION GRANTS IN FISCAL YEAR 1994
<CAPTION>
Individual Grants
----------------------------------------------------------------------
Potential Realizable Value at
Securities Stock Assumed Annual Rates of
Underlying % of Total Price on Stock Price Appreciation for
Options Options Granted Exercise Date of Option Term(3)
Granted(1) to Employees Price(2) Grant Expiration --------------------------------------
Name (#) in 1994 ($/sh) ($/sh) Date 0% 5% 10%
- - ------------------- ------------- ------------------ ----------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Winter, JB 45,000 4.88 $12.28 $16.375 05/19/04 $184,275 $ 647,692 $1,358,664
117,400 12.74 $13.03 $17.375 11/16/04 $510,103 $1,792,938 $3,761,059
------------- ------------------ ---------- ------------ ------------
162,400 17.61 $694,378 $2,440,630 $5,119,723
Champagne, JF 25,000 2.71 $12.28 $16.375 05/19/04 $102,375 $ 359,829 $ 754,813
53,380 5.79 $13.03 $17.375 11/16/04 $231,936 $ 815,222 $1,710,096
------------- ------------------ ---------- ------------ ------------
78,380 8.50 $334,311 $1,175,050 $2,464,910
Mills, BA 13,000 1.41 $12.28 $16.375 05/19/04 $ 53,235 $ 187,111 $ 392,503
35,590 3.86 $13.03 $17.375 11/16/04 $154,639 $ 543,532 $1,140,171
------------- ------------------ ---------- ------------ ------------
48,590 5.27 $207,874 $ 730,643 $1,532,674
Smith, HC 13,000 1.41 $12.28 $16.375 05/19/04 $ 53,235 $ 187,111 $ 392,503
35,590 3.86 $13.03 $17.375 11/16/04 $154,639 $ 543,532 $1,140,171
------------- ------------------ ---------- ------------ ------------
48,590 5.27 $207,874 $ 730,643 $1,532,674
Purdom, DJ 13,000 1.41 $12.28 $16.375 05/19/04 $ 53,235 $ 187,111 $ 392,503
35,590 3.86 $13.03 $17.375 11/16/04 $154,639 $ 543,532 $1,140,171
------------- ------------------ ---------- ------------ ------------
48,590 5.27 $207,874 $ 730,643 $1,532,674
- - -------
(1) Options granted at an exercise price of $12.28 were granted on May 19, 1994,
and options granted at an exercise price of $13.03 were granted on November
16, 1994. All options were granted under the 1993 Plan. The options granted
on May 19, 1994 become exercisable as follows: 33% on May 19, 1995, 33% on
May 19, 1996, and 34% on May 19, 1997. The options granted on November 16,
1994 become exercisable as follows: (i) 34% on November 16, 1995, (ii) 33%
on November 16, 1996, and (iii) 33% on November 16, 1997. To the extent not
already exercisable, the options may become immediately exercisable at the
discretion of the 1993 Plan Committee upon (i) the dissolution or
liquidation of the Company or a merger or consolidation in which the Company
is not the surviving entity, (ii) the sale of all or substantially all of
the assets of the Company, or (iii) the occurrence of a change in control of
the Company (as discussed under "Other Change in Control Arrangements" on
pages 16-18).
(2) The exercise price was set at 75% of closing price on the respective grant
dates (May 19,1994 and November 16, 1994).
(3) Reflects the value of the stock options on the date of grant assuming (i)
for the 0% column, no appreciation in the Company's stock price from the
date of grant over the term of the option, (ii) for the 5% column, a five
percent annual rate of appreciation in the Company's stock price compounded
annually over the term of the option, and (iii) for the 10% column, a ten
percent annual rate of appreciation in the Company's stock price compounded
annually over the term of the option, in each case without any discounting
to present value. The actual gains, if any, on stock option exercises are
dependent upon the future performance of the Company's common stock.
Accordingly, the amounts reflected in this table may not necessarily be
indicative of the actual results obtained.
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN 1994 AND
1994 YEAR-END OPTION VALUES
Shown below is information with respect to all exercised and unexercised
options to purchase the Company's Common Stock granted to the Named Executive
Officers through the end of fiscal year 1994. All options were granted under the
1989 Plan or the 1993 Plan. No stock appreciation rights have been granted under
the 1989 Plan or the 1993 Plan.
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL YEAR-
ACQUIRED YEAR-END END(2)
ON VALUE (#) ($)
EXERCISE REALIZED(1) ----------------------------- -----------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- - --------------------- ------------ --------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Winter, JB 0 316,075/220,763 $3,458,167/1,120,336
Champagne, JF 46,526 $510,965.30 25,090/110,664 $ 259,617/ 596,207
Mills, BA 0 54,085/ 72,005 $ 526,287/ 408,625
Smith, HC 5,000 $ 65,000.00 49,085/ 72,005 $ 583,787/ 408,625
Purdom, DJ 0 39,755/ 67,335 $ 416,439/ 353,663
- - -------
(1) Based upon the market value when exercised minus the exercise price.
(2) Based upon the closing price ($16.50) of the Company's Common Stock on
December 31, 1994, as reported on the New York Stock Exchange -- Composite
Transactions. Options are in-the-money if the fair market value of the
underlying securities exceeds the exercise price of the options.
</TABLE>
LONG-TERM INCENTIVE PLAN
Shown below is information with respect to long-term incentive awards for
the Named Executive Officers.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1994(1)
Estimated Future Payouts
Number of Under Non-Stock Price Based
Shares, Performance Plans(2)
Units or or Other Period -----------------------------
Other Rights Until Maturation Threshold Target Maximum
Name (#) or Payout ($) ($) ($)
- - --------------- ------------ ---------------- --------- -------- --------
Winter, JB (2) 88,720 3 years $69,624 $464,162 $928,323
Champagne, JF 40,630 3 years $31,650 $211,002 $422,004
Mills, BA 27,428 3 years $21,144 $140,960 $281,919
Smith, HC 27,822 3 years $21,562 $143,748 $287,496
Purdom, DJ 27,428 3 years $21,144 $140,960 $281,919
- - -------
(1) The Company had no long-term incentive plan in 1992 or prior years. The
Long-Term Incentive Plan (the "Long-Term Plan") was initiated in 1993 in
order to make a part of the compensation for certain key executives
dependent on the achievement of long-term performance targets designed to
increase shareholder value. The Long-Term Plan consists of three year
cycles. The first cycle began January 1, 1993 and ends on December 31, 1995.
The second cycle begins January 1, 1996 and ends on December 31, 1998.
Fourteen key executives currently participate in the Long-Term Plan.
Executives are awarded target performance shares based upon a percentage of
salary (ranging from 40%-70% annually) divided by the average share price of
the Company's Common Stock in the year preceding the first year of the
cycle. Performance share awards can range from zero to two times the target
award. The performance shares are earned annually and are adjusted annually
based upon the achievement of pre-set performance targets. These performance
targets include cash cost per pound, pounds produced, and cash flow return
on investment measures. Awards vest at the end of the three year cycle and
are paid in cash or shares of Common Stock (based upon the average share
price in the final cycle year). Targets and participants for the second
three-year cycle will be determined in 1995.
(2) Mr. Winter is also eligible to receive a non-stock price based long-term
bonus pursuant to the CEO Employment Agreement (as discussed on pages 14 and
15). Amounts awarded under the CEO Employment Agreement will offset any
bonus awarded under the Long-Term Plan. Mr. Winter's long-term bonus
pursuant to the CEO Employment Agreement is measured over a three-year
period with a new cycle commencing each year. The amount of the bonus is
determined by the Board of Directors based upon attainment of earnings per
share goals, improvement in the market price of the Company's Common Stock,
and such other performance-related factors as the Board of Directors shall
consider. Mr. Winter's bonus under the CEO Employment Agreement may not
exceed 50% of his average base salary over the three year performance
period. The maximum amount assumes no salary increase in 1995 and 1996 and
the attainment of all performance factors considered by the Board of
Directors. In 1994, the Board of Directors made its determination of Mr.
Winter's bonus in part based upon a subjective evaluation by the
Compensation Committee of Mr. Winter's contribution toward earnings per
share goals, and otherwise based upon the factors utilized under the
Long-Term Plan described on pages 21 and 22. Each budgeted target objective
under the Long-Term Plan was exceeded for 1994.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs. Sundt,
Donahue, Cool, Goth, Rollins, Strauss, and Vogelstein. Except for Mr. Donahue,
who is the Chairman of the Board of the Company, none of the members of the
Compensation Committee is or has been an officer or employee of the Company or
any of its subsidiaries. Pursuant to a Standstill Agreement dated November 30,
1988 between Warburg, Pincus Capital Company, L.P. ("Warburg, Pincus") and the
Company (the "Standstill Agreement"), Warburg, Pincus designated, and the Board
nominated, Messrs. Strauss, Vogelstein, and Brody for election to the Company's
Board of Directors, each of whom has been elected for the Board of Directors.
Messrs. Strauss and Vogelstein currently serve on the Company's Compensation
Committee.
As part of a recapitalization (the "1988 Recapitalization") of the Company,
on November 30, 1988, Warburg, Pincus initially acquired an equity investment in
the Company of 930,000 shares of Series B Cumulative Convertible Exchangeable
Preferred Stock ("Series B Preferred Stock") and warrants to purchase 1,000,000
shares of Class B Common Stock at an exercise price of $8.50 per share (the
"Warburg Warrants") for $93 million. Warburg, Pincus immediately resold 100,000
shares of the Series B Preferred Stock and 107,527 warrants to other
institutional investors. (The Company also issued 4,100,000 public warrants in
December 1986 (the "Public Warrants")). In December 1992, the Company offered to
exchange 15.446825 shares of its Common Stock for each share of the Series B
Preferred Stock outstanding. Warburg, Pincus' Series B Preferred Stock was
converted to 12,820,865 shares of Common Stock as a result of its acceptance of
that offer.
Prior to October 1992, the Company's Common Stock was divided into two
classes: Class B Common Stock and Class A Common Stock. The Class B Common Stock
carried 4 votes per share and was subject to a transfer restriction under which
shares transferred to a holder of more than 10% of the Company's voting stock
were automatically converted to one-vote Class A Common Stock. The Class A
Common Stock carried a veto power over further issuances of Class B Common
Stock, including issuances necessary to satisfy existing legal obligations
relating to the Series B Preferred Stock and outstanding warrants and options,
and in certain circumstances the Class A Common Stock possessed special voting
rights in elections of directors.
On December 21, 1991, through several open market purchases, Warburg, Pincus
acquired 4,176,600 shares of the Company's Class B Common Stock for
approximately $21 million in cash. As Warburg, Pincus controlled over 10% of the
total voting power of the Company's capital stock at the time of these
acquisitions, these shares were immediately converted to shares of Class A
Common Stock.
In October 1992, the Company's stockholders amended the Company's
Certificate of Incorporation in order to eliminate the dual class Common Stock
and to streamline and simplify the Company's balance sheet. In connection with
this amendment, all outstanding shares of Class B Common Stock and Class A
Common Stock were converted into shares of a new, single class of Common Stock.
The new class of Common Stock 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 class of stock.
As of February 15, 1995, Warburg, Pincus owned 16,007,143 shares of Common
Stock, representing approximately 34.7% of the Company's Common Stock
outstanding, and 892,473 Warburg Warrants. Assuming full exercise of the Warburg
Warrants held by Warburg, Pincus and assuming no exercise of any other Company
warrants, Warburg, Pincus would own 36.0% of the Company's outstanding Common
Stock. Assuming full exercise of the Warburg Warrants held by Warburg, Pincus
and full exercise of all other Company warrants, Warburg, Pincus would own 33.7%
of the Company's outstanding Common Stock. Additionally, in connection with its
initial investment in the Company, and subject to limitations described below,
Warburg, Pincus and its affiliates were granted the right, until August 31,
1998, for as long as they own at least 1,500,000 shares of the Company's Common
Stock, to subscribe for their respective pro rata portion of any additional
shares of Common Stock (or securities convertible, exchangeable, or exercisable
into Common Stock) issued by the Company for cash. Warburg, Pincus and its
affiliates have waived these rights in respect of the outstanding Public
Warrants.
Under the Standstill Agreement, which expires in 1998, the Company granted
Warburg, Pincus the right to nominate up to three Magma directors, the exact
number to be determined from time to time, based upon Warburg, Pincus and
certain of its affiliates' percentage ownership of the Company's equity
securities. The number of directors nominated by Warburg, Pincus are to be
divided as evenly as possible among the Company's three director classes.
Warburg, Pincus has also agreed to vote its Company shares, and to cause certain
of its affiliates to vote their Company shares, in favor of the election of two
management directors and at least six independent directors. The Standstill
Agreement also provides that Warburg, Pincus and certain of its affiliates may
not acquire more than 45% of the voting power of the Company's fully-diluted
common equity (based on a calculation defined in the Standstill Agreement)
without the approval of a majority (but not less than two) of the Company's
independent directors, and that Warburg, Pincus and certain affiliates may not
transfer any of the Company's voting securities except (i) in connection with
certain extraordinary transactions including a sale of the Company endorsed by a
majority (but not less than two) of its independent directors and subject to
certain other restrictions, (ii) by means of a distribution to its partners in
compliance with or pursuant to an exemption from the registration requirements
of the Securities Act of 1933, as amended (the "Act"), (iii) in compliance with
Rule 144 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or (iv) through a public offering designed to achieve a widespread
distribution. As of February 15, 1995, Warburg, Pincus controlled 32.4% of the
Company's total voting power, as calculated under the Standstill Agreement.
Certain transferees of Warburg, Pincus have agreed with the Company not to
acquire additional Magma voting securities (other than in the ordinary course of
business as a broker-dealer and market-maker) and to abide by the voting and
transfer restrictions equivalent to those applicable to Warburg, Pincus. The
shares that may be held by these transferees from time to time reduce the
maximum permitted voting power of Warburg, Pincus so long as they are owned by
such transferees or any of their respective affiliates.
In 1990, the Company entered into an agreement with Warburg, Pincus
Counsellors, Inc., an affiliate of Warburg, Pincus, to manage approximately 10%
of the fixed assets in the Company's pension fund. For these services, Warburg,
Pincus Counsellors, Inc. received a fee of approximately $162,179 for fiscal
year 1994. The Board of Directors has determined that the fee for such services
is competitive with comparable managers.
In 1992, the Company entered into an Agreement with Warburg, Pincus
Counsellors, Inc., to manage an investment portfolio consisting of approximately
25% of the Company's cash and short-term investments. For these services
Warburg, Pincus Counsellors, Inc. received a fee of approximately $160,000 for
fiscal year 1994. The Board of Directors has determined that the fee for such
services is competitive with comparable managers.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the return of the Company's Common
Stock against the cumulative return of the S & P Metals Index and the S & P 500
for the period of five-fiscal years commencing January 1990 and ending December
1994. The comparison assumes $100 was invested on December 31, 1989 in the
Company's Common Stock and in each of the foregoing indices, and assumes
reinvestment of dividends. Each of the lines reflects the dollar value of the
respective indice during such five-year time period.
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL STOCK RETURN
1990 THROUGH 1994
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
Magma Copper Company 100.0 90.2 114.6 261.0 258.5 322.0
S & P 500 100.0 96.9 126.3 135.9 149.5 151.6
S & P Metals Index* 100.0 94.9 107.1 114.9 128.0 149.4
- - -------
(1) Includes: Asarco Inc., Cyprus Amax Minerals Co., Inco Ltd., and Phelps
Dodge Corp.
RETIREMENT PLANS
On November 16, 1994, the Company amended its Magma Copper Company Special
Executive Supplemental Benefit Plan (the "Supplemental Plan") to become the
basic retirement plan for selected executives, including the Named Executive
Officers. The following table shows the estimated annual retirement benefits
payable on a straight life annuity basis to participating employees, based on
average earnings and years of service at retirement.
SUPPLEMENTAL PLAN TABLE
Highest
Five Year
Average
Compensation
During the Last Years of Service at Retirement
10 Years of ---------------------------------------------------------
Employment 15 20 25 30 35
- - ------------------- ---------- ---------- ---------- ---------- ---------
$ 50,000 $ 11,181 $ 14,908 $ 18,635 $ 22,362 $ 26,089
75,000 17,744 23,658 29,573 35,487 41,402
100,000 30,000 40,000 50,000 60,000 70,000
125,000 37,500 50,000 62,500 75,000 87,500
150,000 45,000 60,000 75,000 90,000 105,000
175,000 52,000 70,000 87,500 105,000 122,500
200,000 60,000 80,000 100,000 120,000 140,000
225,000 67,500 90,000 112,500 135,000 157,500
250,000 75,000 100,000 125,000 150,000 175,000
275,000 82,500 110,000 137,500 165,000 192,500
300,000 90,000 120,000 150,000 180,000 210,000
400,000 120,000 160,000 200,000 240,000 280,000
450,000 135,000 180,000 225,000 270,000 315,000
500,000 150,000 200,000 250,000 300,000 350,000
600,000 180,000 240,000 300,000 360,000 420,000
700,000 210,000 280,000 350,000 420,000 490,000
800,000 240,000 320,000 400,000 480,000 560,000
900,000 270,000 360,000 450,000 540,000 630,000
1,000,000 300,000 400,000 500,000 600,000 700,000
- - -------
Compensation considered for purposes of determining retirement benefits
under the Supplemental Plan includes salary and bonus compensation disclosed as
annual compensation in the Summary Compensation Table on pg. 6, but not
restricted stock, stock options or SARs, long-term incentive plan payout
compensation, or amounts listed in such table as "All Other Compensation."
As of December 31, 1994, the estimated years of credited service pursuant to
the Supplemental Plan were 6 for J. B. Winter, 6 for J. F. Champagne, 20 for H.
C. Smith, 5 for B. A. Mills, and 5 for D.J. Purdom.
Amounts payable under the Supplemental Plan are reduced by amounts
receivable under the Company's regular retirement benefit plan, the Retirement
Plan for Salaried Employees of Magma Copper Company, under the Magma Copper
Company Excess Benefit Plan, under the Magma Copper Company Supplemental Benefit
Plan, and under the CEO Retirement Plan described on pages 14 and 15.
Each participant in the Supplemental Plan is entitled to receive on his or
her normal retirement date (age 65) an annual benefit in an amount equal to the
product of the participant's years of credited service multiplied by 2% of the
participant's Final Average Compensation. " Final Average Compensation" is
defined as the highest five years average salary during the last ten years of
employment. Participants become vested in the benefits under the Supplemental
Plan after attaining age 45 and after being credited with ten or more years of
service. The Supplemental Plan allows participants who retire between the ages
of 55 and 62, inclusive, to receive an actuarially reduced benefit. No reduction
in benefits under the Supplemental Plan is made for social security benefits.
COMPENSATION OF DIRECTORS
During fiscal year 1994, the directors, other than Mr. Donahue and Mr.
Winter, received an annual retainer of $16,000 if the director was not the
chairman of a committee or $18,000 if the director was the chairman of a
committee. Other than Mr. Winter, all directors receive an additional fee of
$650 for each regular and special Board meeting attended. Directors, other than
Mr. Donahue and Mr. Winter, who serve on committees of the Board also receive
$650 for each committee meeting attended. During 1994, Mr. Donahue received
$12,500 per month for his services as Chairman of the Board of Directors of the
Company. Effective January 1, 1995, Mr. Donahue began receiving $6,250 per month
for his services as Chairman of the Board of Directors of the Company, plus the
retainer and meeting fees described above. Pursuant to the CEO Employment
Agreement, Mr. Winter does not receive any additional compensation for his
services as a director of the Company. (See "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements" on pages 14 and
15). Directors are reimbursed for reasonable expenses incurred in attending
Board and committee meetings.
Directors of the Company who are not employees of the Company or any
subsidiary and who receive and retain (as opposed to transferring to their
respective employers) a regular annual retainer ("Eligible Directors") may elect
to receive stock options in lieu of or as partial payment of their annual
retainer by participating in the Magma Copper Company 1989 Stock Option Plan for
Non-Employee Directors (the "1989 Director Plan"). Elections to participate in
the 1989 Director Plan for any given plan year (commencing each January 1) must
be made by filing an irrevocable election with the Company at least five days
prior to the first day of the fourth quarter immediately preceding the plan year
to which the election relates. The election filed with the Company must indicate
the amount of the retainer (which may be all or any 25% increment of the
retainer) that the electing director desires to receive in options rather than
cash. Currently, seven of the Company's nonemployee directors are eligible to
participate in the 1989 Director Plan. Four directors elected to participate for
the 1994 plan year, and five have elected to participate for the 1995 plan year.
Options are granted quarterly to each eligible member who has elected to
participate for the respective plan year. The exercise price of a 1989 Director
Plan option is equal to 50% of the fair market value of the Common Stock at the
date of grant. The number of shares subject to the options granted to a
participant each quarter is equal to 25% of the amount of the annual retainer
elected by the participant to be applied towards options in lieu of compensation
for that plan year divided by the difference between the fair market value of
the Company's Common Stock determined at the date of grant and the exercise
price of the option.
Options granted under the 1989 Director Plan may be exercised at any time
during the period beginning on the date specified in the option agreement
pursuant to which the options are granted (which date will be at least six
months from the date of grant) and ending 20 years after the date of grant.
Generally, if a participant ceases to be a director on account of retirement or
for any other reason except death or total and permanent disability, such
director's options will expire on the earlier of (i) the fifth anniversary of
the date that the director ceased to be a member of the Board or (ii) the
expiration date specified in the option agreement. If a director dies or becomes
permanently and totally disabled during such five year period, such director's
options will expire on the fifth anniversary of death or total and permanent
disability unless by their terms they expire earlier. If a director dies or
becomes permanently disabled while actively serving as a director, such
director's options will expire on (i) the fifth anniversary of the date of death
or total and permanent disability or (ii) the expiration date specified in the
option agreement.
<TABLE>
The following table sets forth the Common Stock options received by Company
directors in lieu of the elected portion of their respective annual retainers
pursuant to the 1989 Director Plan for fiscal year 1994. As of December 31,
1994, no options had been exercised. The individuals listed below are the only
directors who have participated in the 1989 Director Plan for fiscal year 1994.
<CAPTION>
Number of Average
Director Shares(1) Exercise Price(2) Fair Market Value(3)
--------- ------------- --------------------- ------------------------
<S> <C> <C> <C>
J. R. Kennedy 2,040 $7.891 $16.50
T. W. Rollins 510 $7.891 $16.50
H. B. Sargent 1,149 $7.891 $16.50
H. W. Sundt 1,460 $7.891 $16.50
- - -------
(1) For Messrs. Kennedy, Rollins, Sargent, and Sundt, the number of options
received represent 100%, 25%, 50%, and 50% of their respective annual
retainers.
(2) The average exercise price is based upon shares granted on March 31, June
30, September 30, and December 31, 1994 with an exercise price of $7.063,
$7.563, $8.688, and $8.250 respectively. On March 31, 1994, Messrs. Kennedy,
Rollins, Sargent, and Sundt received 566, 142, 319, and 319 options,
respectively. On June 30, 1994, Messrs. Kennedy, Rollins, Sargent, and Sundt
received 529, 132, 298, and 298 options, respectively. On September 30,
1994, Messrs. Kennedy, Rollins, Sargent, and Sundt received 460, 115, 259,
and 259 options, respectively. On December 31, 1994, Messrs. Kennedy,
Rollins, Sargent, and Sundt received 485, 121, 273, and 273 options,
respectively.
(3) The Fair Market Value equals the closing price of one share of the Company's
common stock at December 31, 1994, as reported on the New York Stock
Exchange -- Composite Transactions.
</TABLE>
Under the Magma Copper Company 1992 Restricted Stock Plan for Non-Employee
Directors (the "1992 Directors Plan"), each Eligible Director serving as a
director on January 1 of any year receives an automatic grant of 1000 shares of
Common Stock at the beginning of each calendar year (except for 1992, for which
year grants were issued on May 14, 1992, the date the Plan was approved by the
Company's Shareholders). Such stock is nontransferable for a period of six
months, and may be subject to other restrictions.
As of March 1, 1995, each of Messrs. Cool, Donahue, Goth, Kennedy, Rollins,
Sargent, Strauss, and Sundt have participated in the 1992 Directors Plan, and,
pursuant to such plan, each of such persons has received aggregate grants of
4,000 shares of the Company's Common Stock. With respect to the shares granted
to each of such directors, 1,000 were granted when the Company's closing stock
price on the New York Stock Exchange was $11.25; 1,000 when such price was
$14.25; 1,000 when such price was $13.00; and 1,000 when such price was $16.50.
EMPLOYMENT CONTRACTS AND
TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
EMPLOYMENT AGREEMENT OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
In 1988, the Company executed a five year Employment Agreement (which has
been amended to provide one-year extensions annually to 1997) (the "CEO
Employment Agreement") with J. Burgess Winter, its President and Chief Executive
Officer, providing for a one-time cash bonus of $100,000 and a grant of 18,900
shares of stock, plus a base salary of $260,000 per year. Pursuant to the CEO
Employment Agreement, Mr. Winter is eligible to receive bonus payments based
upon the Company's attainment of certain earnings goals. In 1994, Mr. Winter's
base salary was increased to $550,000 per year and he received a bonus of
$550,000 under the Company's Incentive Compensation Plan, which offsets any
short-term bonus he would have received under the CEO Employment Agreement for
services rendered during 1993. During 1994, Mr. Winter also received a long-term
bonus of $222,917, and the restricted stock and option grants discussed on pages
6 and 7, respectively. Under the Magma Copper Company Chief Executive Officer
Supplemental Retirement Plan (the "CEO Retirement Plan"), Mr. Winter will
receive from the CEO Retirement Plan, and from all other retirement benefit
plans established by the Company, a total benefit equal to 60% of his average
compensation during the highest compensated three calendar years occurring in
the last five calendar years of his employment. If Mr. Winter leaves the Company
before the occurrence of the earlier of a change in control or his attainment of
age 62, no benefit is payable. The CEO Employment Agreement further provides for
disability, life insurance, and other fringe benefits, as well as pension
benefits that are offset by the CEO Retirement Plan. The CEO Employment
Agreement automatically terminates upon the death or long-term disability of Mr.
Winter, and may be terminated by the Company for cause or by Mr. Winter at any
time upon 120 days' written notice. The CEO Employment Agreement also contains a
non-compete covenant which restricts Mr. Winter from engaging in certain
competitive activities for two years following the termination of his employment
with the Company.
On November 11, 1993, the Board of Directors authorized the execution of a
separate Retention and Severance Agreement with Mr. Winter (the "Retention and
Severance Agreement") to provide certain benefits in the event of a change in
control of the Company. This agreement became effective on December 22, 1993. A
"change in control" under this Agreement includes: (i) a merger or consolidation
with any person other than Warburg, Pincus in which the Company's shareholders
prior to the change in control do not retain 65% or more of the voting power of
the merged or consolidated company, (ii) the acquisition of 35% or more of the
voting power of the Company's Common Stock, by a party other than Warburg,
Pincus, which results in Warburg, Pincus' percentage ownership to be less than
10% greater than any other owner of the Company's Common Stock, (iii) a change
in identity of the majority of the members of the Board within any 24 month
period, (iv) a sale of all or substantially all of the assets of the Company,
(v) a transfer of all or substantially all of the Company's assets to a
partnership or joint venture in which the Company's interest is less than 50%,
and (vi) a complete liquidation of the Company.
The benefits that are provided under the Retention and Severance Agreement
in the event of a change in control include: (i) lost value compensation in the
event that Mr. Winter is unable to freely exercise stock options or sell or
exchange Common Stock acquired pursuant to restricted stock grants under the
1987 Plan, the 1989 Plan, or the 1993 Plan, or (ii) in the event that certain
defined termination events occur following a change in control: (a) an
extension, for a period of two years, of life, health, and disability benefits,
(b) a pension supplement equal to the amount Mr. Winter would have received had
his pension benefits under the Company's regular retirement plan been increased
on the basis of two additional years of service, (c) a lump-sum payment equal to
three times the sum of Mr. Winter's base salary and his target annual incentive
compensation bonus, and (d) payment by the Company of any excise taxes imposed
pursuant to Section 4999 of the Internal Revenue Code. Certain of these benefits
are not payable under the Retention and Severance Agreement to the extent that
they are provided for under other Company benefit plans.
Additionally, the Retention and Severance Agreement provides Mr. Winter with
retention benefits encouraging him to stay with the Company should a change in
control occur. These retention benefits include: (i) the extension of the term
of the CEO Employment Agreement by two years during which Mr. Winter would
continue to receive compensation at a rate comparable to his rate of
compensation on the date of the change in control, (ii) payment of bonuses on
the first and second anniversaries of the date of the change in control equal to
75% of the sum of his annual base salary and target annual incentive
compensation bonus, and (iii) payment by the Company of any excise taxes imposed
pursuant to Section 4999 of the Internal Revenue Code. As of March 1, 1995, no
change in control event has occurred under the Retention and Severance
Agreement. The Rentention and Severance Agreement has an initial three year
term, and is automatically renewed for one year extensions unless proper notice
is given by the Company that the agreement will not be extended.
OTHER EMPLOYMENT AGREEMENTS
On November 11, 1993, the Board of Directors authorized the execution of
employment agreements (the "Employment Agreements") with certain executives of
the Company to replace employment agreements expiring on December 21, 1993.
These Employment Agreements became effective December 22, 1993. All of the Named
Executive Officers, except Mr. Winter, have entered into such agreements with
the Company. Mr. Winter's comparable agreement, the Retention and Severance
Agreement, is discussed above. The Employment Agreements provide for certain
benefits to these executives upon the occurrence of a "change in control" of the
Company. A "change in control" under the Employment Agreements is defined to
include: (i) a merger or consolidation with any other corporation, other than
Warburg, Pincus, in which the Company's shareholders prior to the change in
control do not retain 65% or more of the voting power of the merged or
consolidated company, (ii) the acquisition of 35% or more of the voting power of
the Company's Common Stock by a party other than the Warburg, Pincus which
results in Warburg, Pincus' percentage ownership to be less than 10% greater
than any other owner of the Company's Common Stock, (iii) a change in identity
of the majority of the members of the Board within any 24 month period, (iv) a
sale of all or substantially all of the assets of the Company, (v) a transfer of
all or substantially all of the Company's assets to a partnership or joint
venture in which the Company's interest is less than 50%, and (vi) a complete
liquidation of the Company.
The benefits that are provided in the event of a change in control include:
(i) lost value compensation in the event that an executive is unable to freely
exercise stock options or is unable to freely sell or exchange Common Stock
acquired pursuant to restricted stock grants under the 1987 Plan, the 1989 Plan,
or the 1993 Plan, or (ii) in the event that certain defined termination events
occur following the change in control: (a) an extension, for a period of two
years, of life, health, and disability benefits, (b) a pension supplement equal
to the amount that the executive would have received had the executive's pension
benefits under the Company's regular retirement plan been increased on the basis
of two additional years of service, (c) a lump sum payment equal to two times
the sum of the executive's base salary and the executive's target annual
incentive compensation bonus, and (d) payment by the Company of any excise taxes
imposed pursuant to Section 4999 of the Internal Revenue Code. Certain of these
benefits are not payable under the Employment Agreements to the extent that they
are provided under other Company benefit plans.
Further, the Employment Agreements provide executives with retention
benefits should a change in control of the Company occur. The retention benefits
are designed to encourage the executives to remain with the Company following
such a change in control, and include: (i) the extension of the term of the
Employment Agreements by two years during which each executive would continue to
receive compensation at a rate comparable to his or her respective rate of
compensation on the date of the change in control, (ii) payment of bonuses on
the first and second anniversaries of the date of the change in control equal to
75% of the sum of the annual base salary and target annual incentive
compensation bonus of the executive, and (iii) payment by the Company of any
excise taxes imposed pursuant to Section 4999 of the Internal Revenue Code. As
of March 1, 1995, no change in control event has occurred. These Employment
Agreements have an initial three-year term, and provide for automatic one-year
extensions, unless proper notice is given by the Company that the Employment
Agreements will not be extended.
OTHER CHANGE IN CONTROL ARRANGEMENTS
The Named Executive Officers have received awards of stock options under the
1989 Plan and the 1993 Plan and restricted stock under the 1987 Plan and the
1989 Plan.
Under the 1989 Plan, upon the dissolution or liquidation of the Company or a
merger or consolidation in which the Company is not the surviving or resulting
corporation, or upon the sale of all or substantially all of the assets of the
Company, the Compensation Committee (the "Committee") may determine that: (i)
all outstanding options and stock appreciation rights shall be fully vested and
exercisable, (ii) some or all restrictions on restricted stock shall lapse
immediately, unless provision is made for the continuance of the 1989 Plan and
the assumption of the liability for outstanding restricted stock awards, or
(iii) there shall be the substitution of new incentive awards by the successor
corporation or an affiliate thereof, with appropriate adjustments as to the
number and kind of stock and prices.
The 1989 Plan provides that in the event of a "change in control" of the
Company, the Committee may accelerate the exercise date and/or the vesting
schedules of any or all outstanding stock options, cancel restrictions on
restricted stock, and pay cash in exchange for the cancellation of outstanding
stock options. A "change in control" is deemed to have occurred under the 1989
Plan if: (i) any person becomes the beneficial owner of 25 percent or more of
the combined voting power of the Company's securities, (ii) any person makes a
filing under Section 13(d) of the Exchange Act with respect to the Company,
(iii) a change occurs which is required to be reported in response to Item 6 (e)
of Schedule 14A under the Exchange Act, (iv) over any 12 month period, the
members of the Board of Directors of the Company at the beginning of such period
cease to constitute at least a majority of the Board of Directors, (v) the
Company's stockholders approve a merger or consolidation of the Company with
another corporation where the Company is not the surviving corporation, or (vi)
the stockholders of the Company approve a complete liquidation of the Company or
a sale or disposition of all or substantially all of the Company's assets.
Restricted stock and stock option agreements issued to Mr. Winter and the
Named Executive Officers who received stock and option grants under the 1989
Plan prior to November 7, 1991, provide that a change in control occurs if any
person becomes the beneficial owner of 35% or more of the voting power of the
Company's outstanding securities or an event described in clause (iii) or (iv)
of the preceding paragraph occurs. As a result of accumulations of Common Stock
by Warburg, Pincus, a change in control occurred in 1991 under these agreements.
As a result of the change in control, all stock options issued to such
executives prior to November 7, 1991, have become fully vested. Stock option
agreements entered into after November 7, 1991, provide for an automatic
acceleration of exercisability upon the occurrence of a 50% change in control. A
50% change in control under such agreements includes the acquisition of 50% or
more of the voting power of the Company's securities or a sale of all or
substantially all of the Company's assets in a transaction in which the Company
does not maintain at least a majority interest in the acquiring entity. Upon the
occurrence of a 50% change in control, stock options issued to such executives
after November 7, 1991, will vest, to the extent not already vested, 25% as of
the date of the change in control, 50% as of the first anniversary of the change
in control, and 25% as of the second anniversary of the change in control (if
the executive is then employed by the Company). If the executive is discharged
(other than for cause) or otherwise resigns upon the occurrence of certain
termination events at any time after a 50% change in control, the stock options
then held by the executive will expire six months after the date of termination.
Restricted stock awards granted under the 1987 Plan prior to November 7,
1991, contain change in control provisions similar to those contained in the
restricted stock agreements issued under the 1989 Plan prior to November 7,
1991. Therefore, all such restricted stock will become fully vested in the event
of a "termination event", such as involuntary termination or voluntary
termination after significant demotion or pay reduction. Restricted stock awards
granted to executives under the 1987 Plan after November 7, 1991, provide that
upon the occurrence of a 50% change in control together with the occurrence of a
"termination event", all such restricted stock grants will vest immediately as
of the date of such executive's termination. As of March 1, 1995, no stock
options granted under the 1987 Plan were held by the Named Executive Officers.
In the event of a change in control of the Company under the 1993 Plan, the
Committee may accelerate the exercise dates of any or all outstanding stock
options and the vesting dates of any restricted stock, and may grant stock
appreciation rights to holders of stock options. A "change in control" shall be
deemed to have occurred under the 1993 Plan if: (i) a change occurs which is
required to be reported in response to Item 6(e) of Schedule 14A under the
Exchange Act, (ii) any person, other than Warburg, Pincus, becomes the owner of
35% or more of the combined voting power of the Company's securities, (iii)
there is a change in the identity of the majority of the members of the Board
over a 12-month period, (iv) there is a sale of all or substantially all of the
Company's assets, (v) there is a transfer of all or substantially all of the
Company's assets to a partnership or joint venture where the Company's interest
is 50% or less, or (vi) there is a resolution passed by the Board declaring a
change in control due to the acquisition of outstanding securities by Warburg,
Pincus, resulting in such partnership's ownership of 50% or more of the voting
power of the Company's stock.
Under the Supplemental Plan, if a participant is terminated other than for
good reason, as defined in the Supplemental Plan, within one year following a
50% change in control, then, notwithstanding any other provisions of the
Supplemental Plan, the Company must distribute to such participant in a lump sum
(or through acquisition of an annuity contract) an amount actuarially equivalent
to the value of the benefits that the participant would have been entitled to
under the Supplemental Plan upon achievement of his or her normal retirement
age.
Deferred amounts under the Company's Deferred Compensation Plan are payable
upon a participant's termination following a change in control of the Company. A
"change in control", as defined under the Deferred Compensation Plan, includes
the acquisition by a person or group of beneficial ownership of 35% or more of
the voting power of the Company's outstanding securities. As a result of the
1991 acquisitions of the Company's Common Stock by Warburg, Pincus, the change
in control provision of the Deferred Compensation Plan was triggered.
Accordingly, employees participating in such plan will be entitled to receive
deferred compensation upon termination of their employment with the Company.
Further, the Deferred Compensation Plan may not be amended without participant
consent except for certain specified reasons, including amendments necessary to
ensure that the Deferred Compensation Plan is in compliance with applicable law.
The Company's Long-Term Plan provides for vesting in at least 100% of the
cycle's target award prorated for years of participation as of the date of a
change in control. A "change in control" shall be deemed to have occurred under
the Long-Term Plan: (i) if any person, other than Warburg, Pincus, acquires 50%
or more of the combined voting power of the Company, (ii) upon a change in the
identity of a majority of the members of the Board within any 12-month period,
(iii) upon the sale of all or substantially all of the Company's assets, (iv)
upon the transfer of all or substantially all of the Company's assets to a
partnership or joint venture in which the Company's interest is 50% or less, or
(v) if Warburg, Pincus acquires 50% or more of the combined voting power of the
Company and a majority of the members of the Board serving immediately prior to
such event pass a resolution acknowledging that a change in control has
occurred.
Under the CEO Retirement Plan, in the event of a change in control followed
by involuntary termination not due to cause or by voluntary separation following
a substantial pay reduction or demotion, the participant is entitled to a normal
retirement benefit, regardless of attained age. A "change in control" for such
purpose includes an acquisition of 50% or more of the Company's voting
securities, and similar events.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee"), comprised primarily
of independent members of the Company's Board of Directors, closely oversees
executive compensation programs at the Company. The Committee believes that
these programs should coordinate executive actions with well- defined strategic
goals. Accordingly, the Company's compensation programs are designed to:
* Create an on-going focus by management on key internal performance
measures that drive shareholder value
* Make a significant portion of pay dependent upon the attainment of
specified goals in order to better link compensation with performance
* Attract, develop, and retain high-quality executives with competitive
compensation opportunities
* Provide a strong financial incentive for meeting and exceeding performance
goals
* Create a balance between short-term performance measures and long-term
strategic direction and decisions through long-term incentives linked to
share value
The discussion that follows describes the performance results that
influenced the Committee's compensation decisions and the various components of
the compensation programs.
PERFORMANCE RESULTS
In its evaluation of the performance and its decisions regarding the
incentive compensation of J. Burgess Winter, the Chief Executive Officer of the
Company, and the Company's other executives, the Committee has taken into
account management's success in improving financial and operating performance as
shown in the graphs below, the Company's success in the environmental permitting
for, and the commencement of construction at, the new Robinson mining operation
near Ely, Nevada, and the successful acquisition from the Peruvian government of
the Tintaya mine, located in Southern Peru.
PRODUCTION GRAPH
PRODUCTION UP 6% IN 1994
(pounds of copper cathode, millions)
1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ----
Magma Source Production 335 350 470 515 544 561 596
Custom Smelting & Refining 165 186 206 188 224 218 223
PRODUCTION COSTS GRAPH
COSTS DECLINE 12% IN 1994
1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ----
Net cash cost per pound(1) .78 .72 .73 .71 .66 .66 .58
Productivity(2) 353 390 472 506 567 592 653
Cost Excluding Rains(1) .66 .63 .58
(1) Net cash operating cost per pound
(2) Pounds per manshift
Two key measures of the Company's operating performance are productivity and
operating cost. The Company has shown dramatic improvement in each of these
areas in recent years. During the last six years, productivity, as measured in
pounds of copper produced per manshift, has increased by 85% and net operating
costs have decreased from 78 cents (96 cents adjusted for inflation) to 58 cents
per pound. During 1994, the Company set a goal of net cash operating costs of
less than 60 cents per pound. This goal was realized when average operating
costs were reduced from 66 cents per pound in 1993 to 58 cents per pound in
1994. During this same time, productivity increased by 6%. The Committee
believes that these continued improvements are due to the development of the
Company's high performance workforce, the cultural transformation of the
Company, technological improvements, and the judicious use of capital.
The Company's net income of $87.4 million in 1994 was the highest in its
history. The record income can, in large part, be attributed to the combination
of growth and cost reduction programs put in place by the Company's management
team, the favorable price of copper, and an increase in source copper of more
than 7%, or 38 million pounds, in 1994 over 1993 levels. Before the
reorganization of the Company's management team in 1988, the Company's common
stock was trading in the range of $5 to $6 per share, and its market
capitalization was approximately $220 million. The Company's stock typically
traded in the range of $15 to $17 per share during 1994 (with a peak price of
$18.875), and market capitalization (on a fully-diluted basis) now exceeds $1
billion. During 1994, the Company's market capitalization increased by
approximately $225 million.
The Committee also evaluates management's performance in the development of
new strategic growth opportunities. Current strategic growth projects include
the ongoing exploration, development, and construction of the Robinson property
in Nevada, the development of the Kalamazoo Mine near San Manuel, Arizona, and
the expansion of the Company's smelting and refining facilities. These projects
represent significant progress toward the Company's long-term goals of
increasing ore reserves and production while decreasing costs. Management's goal
of acquiring low-cost international orebodies to increase the Company's reserves
was partially fulfilled by the acquisition of the Tintaya mine from the Peruvian
government on November 29, 1994. The Tintaya operation is expected to produce at
least 125 million pounds of copper in 1995 at an estimated cost of approximately
60 cents per pound, which is expected to have an immediate positive impact on
the Company's financial results. The Tintaya mine contains excellent exploration
potential which the Company intends to pursue over the next several years.
Additionally, management expects significant operational improvements from the
Tintaya mine which should result in production increases and costs decreases.
Based on an evaluation of the above factors, it is the Committee's belief
that the Company's executives continue to demonstrate great success in achieving
improvements in short- and long-term financial performance, and in making
significant progress toward achieving the Company's growth objectives. The
Company's compensation policies, plans, and programs are designed to focus
management on these objectives and to reward management for accomplishing these
goals.
COMPONENTS OF COMPENSATION
The Company bases total compensation levels for its executives on pay
practices in its competitive labor market. The competitive labor market is
comprised of a group of companies that are either direct competitors, natural
resource companies, or industrial companies with similar sales volumes. Several
of the companies included in the S & P Metals Index are also included.
The key components of the Company's executive compensation program are base
salary, annual incentives, and long-term incentives. These components are
discussed individually below.
BASE SALARIES
The Company deliberately sets base salaries slightly below the comparative
labor market levels but provides competitive total compensation awards when
superior performance goals are met. Using this philosophy, the Company
effectively links pay to both short- and long-term performance.
Base salaries typically account for approximately 40% of the compensation
package for executives, while 60% is dependent upon the achievement of specified
Company goals. Salary increases depend upon the following factors:
responsibility level, individual performance, experience level, internal equity,
and external or competitive pay practices. The Committee reviews survey data on
the competitive labor market prior to recommending base salary increases.
The base salaries of the Named Executive Officers in 1994 were based upon
the preceding factors and, in some cases, on market-based adjustments. Market-
based adjustments were made in 1994 to bring base salaries to a more competitive
level, yet consistent with the Company's philosophy of slightly
lower-than-market base salaries.
ANNUAL INCENTIVES
INCENTIVE COMPENSATION PLAN
The Company's Incentive Compensation Plan (the "ICP") provides key employees
with a significant financial incentive (targeted on average at approximately 20%
of their total compensation) for meeting annual performance targets at the
corporate, business unit, and individual levels. These performance targets
relate to operating efficiencies, productivity, and cash flow, as well as other
individual performance measures. Corporate measurements include reduction in
cost per pound of copper produced, increases in productivity, pounds of copper
produced, and after-tax cash flows, and account for 50% of the target bonus of
corporate participants and 30% of the target bonus of divisional participants.
The business unit targets are comprised of similar measurements related to
business unit and account for 30% of the target bonuses for divisional
participants. Individual performance measures consist of specific projects,
strategic business plan targets, and performance objectives separately developed
for each key employee. While the objectives vary for each individual, in every
case they are intended to measure the individual's own contributions toward the
attainment of the key business objectives that impact the corporate measurements
described above. Individual performance measures account for 50% of the target
bonus for corporate participants and 40% of the target bonus for divisional
participants. Copper price is excluded from the cash flow performance measure in
order to focus management on performance factors that they are able to impact
and in order to preclude a "windfall" as a result of positive changes in copper
price level.
In 1994, most of the targets established for the Company's executive
officers were exceeded. Budgeted levels of corporate performance measurement
targets were slightly exceeded with respect to cost per pound of copper
produced, productivity, and pounds of copper produced. The after-tax cash flow
budgeted target for 1994 was substantially exceeded. The after-tax cash flow
target compromises 50% of the corporate performance measurement, with the other
listed factors, equally weighted, comprising the other 50% of the corporate
measurement. Levels of achievement at the acceptable (but below target), target,
and above target levels are calculated for each corporate performance measure.
The chosen corporate measurement factors have been determined by the Committee
to reflect the most critical elements in the overall financial success of the
Company, other than copper price. After-tax cash flows, as a measurement target,
act to balance the commitment of resources to achieve cost, productivity, and
production targets. Copper price is not considered because the Company has no
control over world-wide copper prices.
The ICP is designed to compliment the performance goals of the Company's
gainsharing program, in which all employees at the operating divisions
participate. Together, these plans enable the Company to share employee-driven
productivity gains and to strive for continuous improvement.
The Committee reviews performance targets under the ICP to ensure that they
relate to shareholder value improvement over the long-term. The Committee also
approves payouts made under the ICP to the Named Executive Officers and the
total spending level for all participants.
LONG-TERM INCENTIVES
Long-term incentives are provided pursuant to the Company's Long-Term
Incentive Plan (the "Long-Term Plan") in the form of performance shares and
under the Company's stock option and stock award plans in the form of stock
options. In order to focus executives on the long-term shareholder improvement
measures, approximately 40% of executive compensation is targeted through
long-term incentives.
LONG-TERM INCENTIVE PLAN
The Long-Term Plan was initiated in 1993 to create a balance between the
focus on short-term productivity measures inherent in the ICP and long-term
performance targets and strategic goals. The purpose of the Long-Term Plan is
to:
* Focus top management on key internal performance measures that drive
improvement in shareholder value
* Balance the short-term focus of the Incentive Compensation Plan
* Provide significant rewards for successful performance
* Retain the key management team
* Create a strong link to increased shareholder value
Performance is measured over three year cycles. The first cycle began
January 1, 1993 and ends December 31, 1995. A second cycle will begin on January
1, 1996 and end on December 31, 1998.
Performance shares are granted to participants at the beginning of the
performance period. Each participant has a target award expressed as a
percentage of base salary (from 40% of annual base salary to 70% depending upon
the impact level of the position). The target number of performance shares
awarded to each participant is determined by dividing the target award dollar
amount (base salary (x) target award percentage) by the average stock price in
the year preceding commencement of the cycle. The average stock price for 1994
was $16.19. Shares are earned annually based upon achievement of pre-set
performance targets. However, shares do not vest until the end of the
performance cycle, thus serving as a retention device. Also, there is a strong
tie to shareholder value as a result of the awarding of performance shares, as
cash value is based upon average share values for the last year of the cycle.
The performance measurements focus the executive on targets which create
long-term shareholder value. Unlike the ICP, the Long-Term Plan does not utilize
individual performance measures. The Company's strategic plan, which is approved
by the Board of Directors, serves as the guideline to create specific goals. The
measures used include cash cost per pound of copper produced, pounds of
production, and cash flow return on investment. The performance measurements are
weighted as follows: (i) cash cost per pound -- 40%, (ii) pounds of production
- - -- 30%, and (iii) cash flow return on investment -- 30%. Actual performance
share awards range from zero to two times the target award based upon
achievement of pre-set targets for each performance measurement. Each of the
budgeted target objectives corresponding to these performance measurements was
exceeded for 1994.
STOCK OPTIONS
Stock options granted by the Company are intended to directly link executive
and shareholder interests. Because stock options granted by the Company
typically vest over a period of three years from the date of the grant, they
also serve as a retention device. The Company's key executives have been awarded
stock options annually, based on the following factors: responsibility level,
current compensation, competitive practice, and the Company's goal of motivating
and recognizing superior performance and potential through above-market
compensation opportunities. Options held by individuals are not considered when
making additional awards.
In general, the most significant factor, in terms of the numbers of the
options granted, is the executive's responsibility level, as it is the judgment
of the Committee that the other listed factors are directly related to each
executive's responsibility level. In some cases, options may also be granted in
order to induce the employment of potential new executives or high level
managers. Options may be periodically awarded to recognize superior performance.
Stock options are typically awarded at a discount to the market value on the
grant date. The Company calculates competitive option-award sizes as if they
were issued at fair market value and then reduces the number of options actually
awarded to reflect the value of the discount. The size of the award to any
employee may also be adjusted to reflect the relative performance and potential
contribution to the Company within the group nominated to receive an option
award.
RESTRICTED STOCK
In 1994, the Named Executive Officers were issued restricted stock grants as
described in the Summary Compensation Table set forth on page 6. These
restricted stock grants were made with a vesting schedule as described on page
6. The Committee recommended the stock grants to assure that the total
compensation of the Named Executive Officers remained competitive, and as a
retention device. The amount of the grants was coordinated with the stock
options described above. The criteria for grant awards were the same as
described above under "Long-Term Incentive -- Stock Options."
CEO COMPENSATION
Since Mr. Winter joined the Company in August 1988, the Company has
progressed from being a high-cost producer to being recognized as a leader in
terms of strategic, operating, financial, and human resources practices, and
performance and, increasingly, a lower cost producer. The leadership of Mr.
Winter, as well as his executive team, continues to be a driving force in the
Company's accomplishments. While Mr. Winter receives a competitive base salary,
66% of his compensation is at risk in the form of short- and long-term
incentives. These incentives are intended to link compensation with shareholder
interests.
In 1994, Mr. Winter's base salary was increased to $550,000, and he received
an incentive compensation bonus of $550,000. In early 1995, Mr. Winter was also
awarded a long-term bonus of $222,417. In making these salary and bonus
recommendations, the Compensation Committee considered the Company's outstanding
performance in 1994 in terms of profitability, the dramatic improvement in the
productivity and certain operating factors set forth on page 19, the achievement
of certain strategic goals as set forth on page 19, and the outstanding
leadership that Mr. Winter has provided in assembling a world-class management
team. Mr. Winter's salary and bonus are determined based upon a recommendation
from the Compensation Committee and approval by the Board of Directors.
Mr. Winter also participates in the ICP and the Long-Term Plan with other
executives. Pursuant to these plans Mr. Winter was awarded 162,400 stock options
at a 25% discount to market during 1994, and a restricted stock grant of 36,365
shares of the Company's Common Stock on November 16, 1994. In determining these
grants, the Compensation Committee considered the same factors and assigned the
same weights as described under the captions "Long- Term Incentives -- Long-Term
Incentive Plan" and "Long-Term Incentives -- Stock Options" set forth above. Mr.
Winter is also covered under the CEO Retirement Plan, which is designed to
encourage him to remain active with the Company until at least age 65, as
discussed on pages 14 and 15.
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code limits the corporate income tax
deduction for compensation paid to the Named Executive Officers to $1 million
each, unless certain requirements are met. The Compensation Committee has
reviewed the impact of this new tax code provision on the current compensation
package for executives. Under the proposed regulations, transition rules
relating to the Company's stock-based compensation plans preclude compensation
under such plans from being subject to the deduction limit. At the present time,
there is no definitive guidance in the form of final regulations. Accordingly,
the Compensation Committee will continue to review the impact of this tax code
section and anticipates making appropriate recommendations to the Board in the
future.
The foregoing report has been furnished by the following members of the
Compensation Committee of the Company's Board of Directors:
H.W. Sundt, Chairman T.W. Rollins
J.R. Cool S.D. Strauss
D.J. Donahue J.L. Vogelstein
J.W. Goth
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY
The Restated Certificate of Incorporation of the Company limits the personal
liability of directors to the Company or its stockholders for monetary damages
for breach of the duty of care. The Company's Bylaws provide for the
indemnification of certain individuals, including the Company's directors and
officers, by the Company in the event of personal liability or expenses incurred
by them as a result of certain litigation against them. The provisions of the
Restated Certificate of Incorporation limiting the personal liability of the
Company's directors are consistent with Section 102(b)(7) of the Delaware
General Corporation Law which is designed, amongst other things, to encourage
qualified individuals to serve as directors of Delaware corporations by
permitting Delaware corporations to include in their certificates of
incorporation a provision limiting or eliminating directors' liability for
monetary damages for breach of the duty of care.
<TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the ownership of Common Stock beneficially
held by (a) each of the directors of the Company, (b) the Named Executive
Officers, (c) all directors and executive officers of the Company as a group,
and (d) each holder of 5% or more of the Company's Common Stock. Unless
otherwise noted, ownership is reflected as of February 15, 1995. Except as
otherwise indicated, to the Company's knowledge, each beneficial owner listed
has sole investment and voting power with respect to the shares of stock
indicated except to the extent that authority is shared by spouses under
applicable law.
<CAPTION>
AMOUNT OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER'S NAME OR BENEFICIAL NUMBER IN GROUP OWNERSHIP OWNERSHIP
--------------------------------------------------------- ---------------------- -------------
<S> <C> <C>
J. Burgess Winter 523,690(1) *
Donald J. Donahue 43,100(2) *
Christopher W. Brody (3) *
Judd R. Cool 4,000(4) *
John W. Goth 12,223(5) *
Thomas W. Rollins 10,953(6) *
Henry B. Sargent 14,789(7) *
Simon D. Strauss 6,200(8) *
H. Wilson Sundt 13,639(9) *
John L. Vogelstein (10) *
John R. Kennedy 32,245(11) *
John F. Champagne 53,714(12) *
Douglas J. Purdom 50,775(13) *
Bradford A Mills 69,763(14) *
Harry C. Smith 82,435(15) *
All Directors and Executive Officers as a Group (19
people) 1,126,296(16) 2.4
Warburg, Pincus 16,899,616(17) 36.0
Capital Company, L. P.
66 Lexington Avenue
New York, NY 10017
Capital Growth Management 3,159,000(18) 6.9
Limited Partnership
One International Place
Boston, MA 02110
The Capital Group Companies, Inc. 2,608,590(19) 5.7
333 South Hope Street
Los Angeles, CA 90071
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* Less than one percent
(1) Includes 316,075 shares issuable upon the exercise of options that are
exercisable within 60 days and warrants to purchase 26,250 shares of Common
Stock. Mr. Winter is the President and Chief Executive Officer of the
Company.
(2) Includes warrants to purchase 5,100 shares of Common Stock. Mr. Donahue is
the Chairman of the Board of the Company.
(3) Warburg, Pincus owns 16,007,143 shares of Common Stock and warrants to
purchase 892,473 shares of Common Stock at an exercise price of $8.50 per
share. The sole general partner of Warburg, Pincus is Warburg, Pincus &
Co., a New York general partnership ("WP"). Lionel I. Pincus is the
managing partner of WP and may be deemed to control it. E. M. Warburg,
Pincus & Co., Inc. ("EMW"), through a wholly owned subsidiary, manages
Warburg, Pincus. WP owns all of the outstanding stock of EMW and, as the
sole general partner of Warburg, Pincus, has a 20% interest in the profits
of Warburg, Pincus. EMW owns 0.9% of the limited partnership interests in
Warburg, Pincus. Mr. Brody, a director of the Company, is a Manging
Director of EMW and a general partner of WP. As such, Mr. Brody may be
deemed to have an indirect pecuniary interest (within the meaning of Rule
16a-1 under the Securities Exchange Act of 1934) in an indeterminate
portion of the shares beneficially owned by Warburg, Pincus.
(4) All holdings are in Common Stock. Mr. Cool is a Director of the Company.
(5) Includes 5,073 shares issuable upon the exercise of options that are
exercisable within 60 days and warrants to purchase 150 shares of Common
Stock. Mr. Goth is a Director of the Company.
(6) Includes 4,243 shares issuable upon the exercise of options that are
exercisable within 60 days and warrants to purchase 150 shares of Common
Stock. Mr. Rollins is a Director of the Company.
(7) Includes 9,639 shares issuable upon the exercise of options that are
exercisable within 60 days and warrants to purchase 150 shares of Common
Stock. Mr. Sargent is a Director of the Company.
(8) Includes 200 shares owned by the spouse of Mr. Strauss. Mr. Strauss is a
Director of the Company.
(9) Includes 9,639 shares issuable upon the exercise of options that are
exercisable within 60 days. Mr. Sundt is a Director of the Company.
(10) Warburg, Pincus owns 16,007,143 shares of Common Stock and warrants to
purchase 892,473 shares of Common Stock at an exercise price of $8.50 per
share. The sole general partner of Warburg, Pincus is WP. Lionel I. Pincus
is the managing partner of WP and may be deemed to control it. EMW, through
a wholly owned subsidiary, manages Warburg, Pincus. WP owns all of the
outstanding stock of EMW and, as the sole general partner of Warburg,
Pincus, has a 20% interest in the profits of Warburg, Pincus. EMW owns 0.9%
of the limited partnership interests in Warburg, Pincus. Mr. Vogelstein, a
director of the Company, is Vice Chairman of the Board and President of EMW
and a general partner of WP. As such, Mr. Vogelstein may be deemed to have
an indirect pecuniary interest (within the meaning of Rule 16a-1 under the
Securities Exchange Act of 1934) in an indeterminate portion of the shares
beneficially owned by Warburg, Pincus.
(11) Includes 18,245 shares issuable upon the exercise of options that are
exercisable within 60 days. Mr. Kennedy is a Director of the Company.
(12) Includes 25,090 shares issuable upon the exercise of options that are
exercisable within 60 days and warrants to purchase 1,075 shares of Common
Stock. Mr. Champagne is a Vice-President of the Company.
(13) Includes 39,755 shares issuable upon the exercise of options that are
exercisable within 60 days. Mr. Purdom is a Vice-President and the Chief
Financial Officer of the Company.
(14) Includes 54,085 shares issuable upon the exercise of options that are
exercisable within 60 days and warrants to purchase 608 shares of Common
Stock. Mr Mills is a Vice-President of the Company.
(15) Includes 49,085 shares issuable upon the exercise of options that are
exercisable within 60 days and warrants to purchase 3,730 shares of Common
Stock. Mr. Smith is a Vice-President of the Company.
(16) Does not include the shares of Common Stock and the Company's warrants held
by Warburg, Pincus which may be attributable to Messrs. Brody and
Vogelstein as described in footnotes (3) and (10) set forth above.
(17) Assumes full exercise of the Company's warrants held by Warburg, Pincus on
February 15, 1995, and assumes no exercise of any other of the Company's
warrants.
(18) Information with respect to Capital Growth Management Limited Partnership
is provided in reliance upon information in a Schedule 13G filed by such
stockholder dated February 9, 1995.
(19) Information with respect to The Capital Group Companies, Inc. ("Capital")
is provided in reliance upon information included in a Schedule 13G filed
by such stockholder dated February 8, 1995. Capital has stated in a letter
to the Company dated February 10, 1995 that it is the parent company of six
investment management companies and that the shares reported in such
Schedule 13G are owned by accounts under the discretionary investment
management of such investment management companies. Capital states that as
of December 31, 1994, Capital Guardian Trust Company, a bank, and one of
such operating companies, exercised investment discretion over 1,430,130 of
said shares; Capital Research and Management Company, and Capital
International, Inc., registered investment advisers, and Capital
International Limited, and Capital International S.A., other operating
subsidiaries, had investment discretion with respect to 564,880; 10,340;
465,520; and 16,890 shares, respectively.
</TABLE>
CERTAIN RELATIONSHIPS
The Company has entered into certain relationships and agreements with
Warburg, Pincus which, as of February 15, 1995, owned approximately 36.0% of the
Company's outstanding stock (assuming full conversion of all warrants held by
Warburg, Pincus and no conversion of any other of the Company's convertible
securities). For a description of these relationships and agreements, see
"Compensation Committee Interlocks and Insider Participation" above.
SHAREHOLDER PROPOSALS
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Board of Directors currently consists of eleven members, of whom
approximately one-third are elected each year to serve for terms of three years.
It is intended that the enclosed form of proxy will be voted for the election of
Messrs. Winter, Cool, Strauss, and Kennedy, as Class II Directors, all of whom
are currently members of the Board of Directors and whose nominations were
recommended by the Nominating Committee of the Company's Board of Directors.
You will note that on your proxy card, as to the election of directors (Item
1), by checking the appropriate box you may: (i) vote for all of the Board's
nominees as a group, (ii) vote for all of the Board's nominees as a group except
such nominee whose name you so indicate, or (iii) withhold authority to vote as
to all of the Board's nominees as a group.
The Nominating Committee of the Board of Directors has no reason to believe
that any of such nominees will be unable or unwilling to serve as a director if
elected. If between the mailing of this Proxy Statement and the meeting date any
nominee becomes unavailable or unwilling to serve, the proxies solicited hereby
will be voted for the election of such person or persons as may be nominated by
the Board of Directors. The election of each director shall be determined by
plurality vote.
RATIFICATION OF APPOINTMENT OF AUDITORS
(PROPOSAL NO. 2)
The Board of Directors has appointed the firm of Arthur Andersen LLP,
independent public accountants, to be the Company's accountants for the year
1995 and recommends to stockholders that they vote for ratification of that
appointment.
Arthur Andersen LLP, formerly Arthur Anderson & Co., served in this capacity
for the year 1994. Its representatives will be present at the stockholders
meeting and will have an opportunity to make a statement if they desire to do
so. They will also be available to respond to appropriate questions.
The appointment of accountants is approved annually by the Board of
Directors and subsequently submitted to the stockholders for ratification. The
decision of the Board of Directors is based on the recommendation of the Audit
Committee, which reviews and approves in advance the audit scope, the types of
non-audit services, and the estimated fees for the coming year.
Before making its recommendations for appointment of Arthur Andersen LLP to
the entire Board, the Audit Committee carefully considered that firm's
qualifications as auditors for the Company. This included a review of its
performance in prior years, and its reputation for integrity and competence in
the fields of accounting and auditing. The Audit Committee has expressed its
satisfaction with Arthur Andersen LLP in all of these respects. Ratification of
the appointment of Arthur Andersen LLP requires approval of a majority of the
outstanding shares of stock that are present at the meeting in person or by
proxy and entitled to vote thereon.
STOCKHOLDER PROPOSALS FOR NEXT MEETING
To qualify for inclusion in the proxy statement and form of proxy relating
to the 1996 Annual Meeting of Stockholders, a proposal intended by a stockholder
for presentation at that meeting must be received by the Company at its
principal executive offices on or before December 1, 1995.
OTHER BUSINESS OF THE MEETING
Management is not aware of any matters to come before the Annual Meeting
other than those stated in this Proxy Statement. However, inasmuch as matters of
which the management is not now aware may come before the meeting or any
adjournment, the proxies confer discretionary authority with respect to the best
judgment of the proxy holders. Upon receipt of such proxies (in the form
enclosed and properly signed) in time for voting, the shares represented thereby
will be voted as indicated thereon and in this Proxy Statement
By Order of the Board of Directors
Tucson, Arizona
April 7, 1995
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1994, MAY BE OBTAINED WITHOUT CHARGE BY ANY STOCKHOLDER TO WHOM THIS PROXY
STATEMENT IS SENT UPON WRITTEN REQUEST TO THE CORPORATE TREASURER, MAGMA COPPER
COMPANY, 7400 NORTH ORACLE ROAD, SUITE 200, TUCSON, ARIZONA 85704.
<PAGE>
Magma Copper Company
7400 North Oracle Road, Suite 200
Tucson, Arizona 85704
This Proxy is Solicited On Behalf of the Board of Directors
The undersigned hereby appoints J. Burgess Winter, Douglas J. Purdom and Andrew
A. Brodkey, jointly and severally, as Proxies, with full power of substitution,
and hereby authorizes them to represent and to vote, as designated on the
reverse side, all the shares of Common Stock of Magma Copper Company held of
record by the undersigned on March 24, 1995, at the Annual Meeting of
Stockholders to be held on May 18, 1995, or any adjournment thereof.
(Continued, and to be signed on the reverse side.)
This proxy when properly executed, will be voted in accordance with the
directions indicated hereon. If no specific instructions are given, this Proxy
will be voted for approval of the listed proposals and, with respect to such
other business as may properly come before the meeting, in accordance with the
discretion of the Proxies.
/ I plan to attend /
the meeting
/ o /
1. ELECTION OF DIRECTORS
VOTE FOR VOTE WITHHELD
all nominees (except as marked to on all nominees listed
the contrary)
/ / / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING MATTERS:
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list below.)
J. R. Cool, J. R. Kennedy, S. D. Strauss, J. B. Winter
2. RATIFY THE SELECTION OF ARTHUR ANDERSEN LLP
AS COMPANY ACCOUNTANTS FOR 1995
FOR AGAINST ABSTAIN
/ / / / / /
Please sign exactly as name appears hereon.
When shares are held as joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee, or
guardian, please give full title as such.
If a corporation, please have signed by any
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
DATED , 1995
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Signature
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Printed name
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Title
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Signature (If held jointly)
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Printed Name
PLEASE PROMPTLY MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED
ENVELOPE.
