<PAGE>
MAGMA COPPER COMPANY
7400 NORTH ORACLE ROAD, SUITE 200
TUCSON, ARIZONA 85704
December 22, 1995
Dear Stockholder:
Enclosed is an Information Statement of Magma Copper Company (the "Company")
provided to you under Section 14(f), of the Securities Exchange Act of 1934,
as amended. Under Section 14(f), the Company is required to mail an
Information Statement to its stockholders at least ten days prior to a change
in a majority of the Board of Directors of the Company other than as a result
of meeting of the stockholders of the Company. Such a change in the Company's
Board of Directors is expected to occur pursuant to an Agreement and Plan of
Merger dated November 30, 1995 (the "Merger Agreement") entered into by the
Company and The Broken Hill Proprietary Company Limited, a Victoria, Australia
corporation ("BHP"), and several direct or indirect subsidiaries of BHP,
including BHP Sub Inc., a Delaware corporation ("Purchaser"). Pursuant to the
Merger Agreement, Purchaser has commenced a tender offer for all of the
outstanding common stock and preferred stock of the Company, and intends to
purchase any stock not so acquired in a merger to follow consummation of the
tender offer. If the tender offer is successfully consummated, Purchaser will
have the right to designate a majority of the Board of Directors of the
Company, on the terms more fully provided in the Merger Agreement.
YOU ARE URGED TO READ THIS INFORMATION STATEMENT CAREFULLY. YOU ARE NOT,
HOWEVER, REQUIRED TO TAKE ANY ACTION.
Sincerely,
/s/ J. Burgess Winter
J. Burgess Winter
President and Chief Executive
Officer
<PAGE>
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
INFORMATION STATEMENT
PURSUANT TO SECTION 14(F) OF
THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
----------------
MAGMA COPPER COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-15475 86-0219794
(STATE OR OTHER (COMMISSION FILE) (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
7400 NORTH ORACLE ROAD, SUITE 200
TUCSON, ARIZONA 85704
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(520) 575-5600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MAGMA COPPER COMPANY
7400 NORTH ORACLE ROAD, SUITE 200
TUCSON, ARIZONA 85704
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about December 22, 1995 to,
among others, the holders of shares of common stock, $.01 par value ("Common
Stock" or "Shares"), of Magma Copper Company, a Delaware corporation (the
"Company"), in conjunction with a previously furnished Solicitation/
Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") of the
Company. The Schedule 14D-9 relates to the offer (the "Offer") disclosed in a
Tender Offer Statement on Schedule 14D-1 filed with the Securities and
Exchange Commission on December 5, 1995 by The Broken Hill Proprietary Company
Limited, a Victoria, Australia corporation ("BHP"), BHP Holdings (USA) Inc., a
Delaware corporation and an indirect wholly owned subsidiary of BHP ("Sub"),
and BHP Sub Inc., a Delaware corporation and a wholly owned subsidiary of Sub
("Purchaser"), by Purchaser to purchase (i) all outstanding Common Stock at a
price of $28.00 per share, net to the seller in cash, (ii) all outstanding
shares of 5-5/8% Cumulative Convertible Preferred Stock Series D, $.01 per
share (the "Series D Preferred Stock"), at a price of $96.544 per share, net
to the seller in cash, and (iii) all outstanding shares of 6% Cumulative
Convertible Preferred Stock, Series E, par value $.01 per share (the "Series E
Preferred Stock" and, together with the Series D Preferred Stock, the
"Preferred Shares") at a price of $100.646 per share, net to the seller in
cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated December 5, 1995 (the "Offer to Purchase"), and the related
Letter of Transmittal (which, together with the Offer to Purchase, constitute
the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of November 30, 1995 (the "Merger Agreement"), among BHP, Sub, Purchaser and
the Company under which Purchaser would merge with and into the Company
following consummation of the Offer (the "Merger"), with the Company becoming
an indirect wholly owned subsidiary of BHP. Pursuant to the Merger, each
Preferred Share not acquired by Purchaser in the Offer will be exchanged for
the same consideration payable under the Offer. The Merger will occur as soon
as practicable following the consummation of the Offer.
You are receiving this Information Statement in connection with the possible
election of persons designated by Purchaser to a majority of the seats on the
Board of Directors of the Company (the "Board"). The Company has agreed under
the Merger Agreement, at the request of Purchaser, to take all action
necessary to cause Purchaser's designees (the "BHP Designees") to be elected
to the Board under the circumstances described therein. This Information
Statement is required by Section 14(f) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and Rule 14f-1 thereunder. See "Board of
Directors."
You are urged to read this Information Statement carefully. You are not,
however, requested to take any action pertaining to the election of directors
described herein.
In accordance with the Merger Agreement, Purchaser commenced the Offer on
December 5, 1995. The Offer is scheduled to expire at midnight on Thursday,
January 4, 1996, New York City time. Purchaser has informed the Company that
promptly after the expiration of the Offer, if all conditions of the Offer
have been satisfied or waived, it intends to purchase all Shares and Preferred
Shares validly tendered pursuant to the Offer and not withdrawn.
The information contained in this Information Statement concerning BHP, Sub,
Purchaser, and the BHP Designees has been furnished to the Company by BHP,
Sub, Purchaser, and the BHP Designees, and the Company assumes no
responsibility for the accuracy or completeness of such information.
VOTING SECURITIES
SECURITIES OUTSTANDING
As of December 15, 1995, there were 47,698,858 Shares of Common Stock issued
and outstanding and entitled to vote. The Company has no voting securities
outstanding, other than the Shares. Each stockholder of record of the Shares
is entitled to one vote per Share held on all matters submitted to a vote of
stockholders.
1
<PAGE>
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 (as defined below under "Executive Compensation"), (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 December 1, 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. With respect
to the security ownership of the BHP Designees, see below under "Board of
Directors."
<TABLE>
<CAPTION>
AMOUNT OF PERCENT
BENEFICIAL OF
BENEFICIAL OWNERS OWNERSHIP OWNERSHIP
- ----------------- ---------- ---------
<S> <C> <C>
J. Burgess Winter................................. 603,033(1) 1.26
Donald J. Donahue................................. 44,714(2) *
Christopher W. Brody.............................. -- (3) *
Judd R. Cool...................................... 5,000(4) *
John W. Goth...................................... 14,073(5) *
John R. Kennedy................................... 34,682(6) *
Pedro-Pablo Kuczynski............................. 1,000(7) *
Thomas W. Rollins................................. 12,162(8) *
Henry B. Sargent.................................. 16,984(9) *
Simon D. Strauss.................................. 7,200(10) *
H. Wilson Sundt................................... 15,688(11) *
John L. Vogelstein................................ -- (3)(12) *
John F. Champagne................................. 143,958(13) *
Bradford A. Mills................................. 106,451(14) *
Douglas J. Purdom................................. 83,581(15) *
Harry C. Smith.................................... 105,334(16) *
All Directors and Executive Officers as a group
(19 people)...................................... 1,421,700(17) 2.98
Warburg, Pincus................................... 16,899,616(3) 35.8
Capital Company, L. P.
466 Lexington Avenue
New York, NY 10017
John R. Simplot Self Declaration of Revocable
Trust............................................ 4,551,400(18) 9.8
999 Main Street
Boise, ID 83702
The Capital Group Companies, Inc. ................ 2,608,590(19) 6.9
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
- --------
* Less than one percent
(1) Mr. Winter is the President and Chief Executive Officer of the Company.
Includes 421,668 shares issuable upon the exercise of options that are
exercisable within 60 days. Does not include 240,170 shares issuable upon
the exercise of options that are not exercisable within 60 days but that
will be cashed out in the Merger.
(2) Mr. Donahue is a director of the Company and Chairman of the Board of
Directors of the Company. Includes 714 shares issuable upon the exercise
of options that are exercisable within 60 days. Includes 1,000 Shares to
be granted on January 2, 1996 pursuant to the 1992 Restricted Stock Plan
for Non-Employee Directors. Does not include 536 options granted in lieu
of annual retainer for director services during fiscal year 1995 that are
not exercisable within 60 days but that will be cashed out in the Merger.
2
<PAGE>
(3) Information with respect to Warburg, Pincus Capital Company, L.P.
("Warburg, Pincus") is provided in reliance upon information included in
an amendment to stockholder's Schedule 13D dated December 4, 1995.
Warburg, Pincus owns 16,899,616 shares of Common Stock. 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.
Warburg, Pincus has entered into a Standstill Agreement dated November
30, 1988 with the Company (the "Standstill Agreement"), and a Tender
Agreement, dated November 30, 1995 with BHP (the "Tender Agreement") each
as more fully described under "Compensation Committee Interlocks and
Insider Participation." Mr. Brody, a director of the Company, is a
Managing 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) Mr. Cool is a Director of the Company. Includes 1,000 Shares to be
granted pursuant to the 1992 Restricted Stock Plan for Non-Employee
Directors.
(5) Mr. Goth is a Director of the Company. Includes 5,073 shares issuable
upon the exercise of options that are exercisable within 60 days.
Includes 1,000 Shares to be granted January 2, 1996 pursuant to the 1992
Restricted Stock Plan for Non-Employee Directors.
(6) Mr. Kennedy is a Director of the Company. Includes 19,682 shares issuable
upon the exercise of options that are exercisable within 60 days.
Includes 1,000 Shares to be granted January 2, 1996 pursuant to the 1992
Restricted Stock Plan for Non-Employee Directors. Does not include 715
options granted in lieu of annual retainer for director services during
fiscal year 1995 that are not exercisable within 60 days but that will be
cashed out in the Merger.
(7) Mr. Kuczynski is a Director of the Company. Includes 1,000 Shares to be
granted January 2, 1996 pursuant to the 1992 Restricted Stock Plan for
Non-Employee Directors.
(8) Mr. Rollins is a Director of the Company. Includes 4,602 shares issuable
upon the exercise of options that are exercisable within 60 days.
Includes 1,000 Shares to be granted pursuant to the 1992 Restricted Stock
Plan for Non-Employee Directors. Does not include 179 options granted in
lieu of annual retainer for director services during fiscal year 1995
that are not exercisable within 60 days but that will be cashed out in
the Merger.
(9) Mr. Sargent is a Director of the Company. Includes 10,984 shares issuable
upon the exercise of options that are exercisable within 60 days.
Includes 1,000 Shares to be granted January 2, 1996 pursuant to the 1992
Restricted Stock Plan for Non-Employee Directors. Does not include 804
options granted in lieu of annual retainer for director services during
fiscal year 1995 that are not exercisable within 60 days but that will be
cashed out in the Merger.
(10) Mr. Strauss is a Director of the Company. Includes 200 shares owned by
the spouse of Mr. Strauss. Includes 1,000 Shares to be granted January 2,
1996 pursuant to the 1992 Restricted Stock Plan for Non-Employee
Directors.
(11) Mr. Sundt is a Director of the Company. Includes 10,488 shares issuable
upon the exercise of options that are exercisable within 60 days.
Includes 1,000 Shares to be granted January 2, 1996 pursuant to the 1992
Restricted Stock Plan for Non-Employee Directors. Does not include 402
options granted in lieu of annual retainer for director services during
fiscal year 1995 that are not exercisable within 60 days but that will be
cashed out in the Merger.
(12) Mr. Vogelstein, a director of the Company, is a Managing Director 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.
(13) Mr. Champagne was a Vice-President of the Company until his resignation,
effective October 16, 1995. Includes 98,567 shares issuable upon the
exercise of options that are exercisable within 60 days.
(14) Mr. Mills is an Executive Vice-President of the Company. Includes 91,381
shares issuable upon the exercise of options that are exercisable within
60 days. Does not include 84,709 shares issuable upon the exercise of
options that are not exercisable within 60 days but that will be cashed
out in the Merger.
(15) Mr. Purdom is a Vice-President and the Chief Financial Officer of the
Company. Includes 72,381 shares issuable upon the exercise of options
that are exercisable within 60 days. Does not include 69,709 shares
issuable upon the exercise of options that are not exercisable within 60
days but that will be cashed out in the Merger.
3
<PAGE>
(16) Mr. Smith is a Vice-President of the Company. Includes 76,381 shares
issuable upon the exercise of options that are exercisable within 60
days. Does not include 69,709 shares issuable upon the exercise of
options that are not exercisable within 60 days but that will be cashed
out in the Merger.
(17) Does not include the shares of Common Stock held by Warburg, Pincus which
may be attributable to Messrs. Brody and Vogelstein as described in
footnotes (3) and (12) set forth above.
(18) Information with respect to John R. Simplot Self Declaration of Revocable
Trust is provided in reliance upon information included in an amendment
to stockholder's Schedule 13D, dated November 22, 1995. Mr. Simplot
purchased these shares as trustee on behalf of the John R. Simplot Self-
Declaration of Revocable Trust dated December 21, 1989.
(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; and 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.
4
<PAGE>
BOARD OF DIRECTORS
The Board of Directors currently consists of twelve members of whom one
third are elected each year to serve for terms of three years.
The Merger Agreement provides that, promptly upon the purchase by Purchaser
of such number of Shares and Preferred Shares as represents at least a
majority of the outstanding Shares (on a fully diluted basis) and from time to
time thereafter, Purchaser shall be entitled to designate such number of
directors, rounded up to the next whole number, on the Board of Directors of
the Company as will give Purchaser representation on the Board of Directors of
the Company equal to the product of (a) the number of directors on the Board
of Directors of the Company (after giving effect to the appointment of such
directors) and (b) the percentage that such number of Shares so purchased
bears to the number of Shares outstanding, and the Company will, upon request
by Purchaser, promptly (i) increase the size of the Board of Directors of the
Company to the extent permitted by its Restated Certificate of Incorporation
and By-Laws (and amend the Restated Certificate of Incorporation and By-Laws,
if so required, to increase the size of the Board of Directors to allow for
such additional directors), or (ii) take all steps necessary and appropriate
to secure the resignations of such number of directors as is necessary to
enable BHP's Designees to be elected to the Board of Directors of the Company
(and will hold a Board meeting for such purpose), provided however, that the
Company is required to maintain no fewer than three (3) Continuing Directors
(as such term is defined in the Restated Certificate of Incorporation) of whom
at least two are Independent Directors (as such term is defined in the
Standstill Agreement).
BHP, Sub and Purchaser have informed the Company that they will choose the
BHP Designees from the persons listed on Schedule I to this Information
Statement. Schedule I also sets forth the present principal occupation or
employment and five-year employment history and citizenship for each of the
persons who may be designated as a director. BHP, Sub, Purchaser, and the BHP
Designees have advised the Company that none of the BHP Designees beneficially
owns any securities (or rights to acquire securities) of the Company or has
been involved in any transactions with the Company or any of its directors,
executive officers or affiliates that are required to be disclosed pursuant to
the rules of the Securities and Exchange Commission, except as may be
disclosed in the Offer to Purchase. BHP, Sub and Purchaser have informed the
Company that each of the persons listed on Schedule I to this Information
Statement has consented to act as a director, if so designated.
It is expected that the BHP Designees may assume office at any time
following consummation of the Offer, and that, upon assuming office, the BHP
Designees will thereafter constitute at least a majority of the Board. This
step will be accomplished at a meeting or by written consent of the Board
providing that the size of the Board will be increased and/or sufficient
numbers of current directors will resign to enable the BHP Designees to be
elected to the Board of Directors. Of the current directors of the Company, it
is expected that Messrs. Donahue, Winter, Goth, Kennedy and Sundt will
continue as directors following the purchase of Shares pursuant to the Offer.
CONTINUING DIRECTORS
The following is certain biographical information, as of November 30, 1995,
with respect to the current members of the Board of Directors who may continue
to serve on the Board of Directors after the appointment of the BHP Designees
to constitute a majority of the Board.
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 director of Chase Brass Co., a producer of intermediate brass shapes,
Pioneer Cos., a chlor-akali producer, 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.
5
<PAGE>
J. BURGESS WINTER, age 62, 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.
JOHN W. GOTH, age 68, 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 the Denver Gold
Group, and as director of the Colorado Mining Association Education
Foundation.
JOHN R. KENNEDY, age 65, 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 De Vlieg-Bullard, Inc., a tooling-products company, First Fidelity
Bancorporation, and the American Forest and Paper Association.
H. WILSON SUNDT, age 63, 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.
COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal year 1994, the Board of Directors met seven times. Each then
incumbent 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, or was then, 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. During 1994,
the Audit Committee consisted of four voting members, Messrs. Goth, Kennedy,
Rollins, and Sargent, and one non-voting, ex-officio member, Mr. Brody. As of
May 1995, Mr. Rollins no longer serves on the Audit Committee.
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. During 1994, the Compensation Committee
consisted of Messrs. Cool, Donahue, Goth, Rollins, Strauss, Sundt, and
Vogelstein. As of May 1995, Messrs. Goth and Strauss no longer serve on the
Compensation Committee.
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 By-Laws, and certain other corporate matters. During
1994, the Executive Committee consisted of Messrs. Cool, Donahue, Sargent,
Strauss, Vogelstein, and Winter. As of May 1995, Mr. Sundt was appointed to
the Executive Committee, and Messrs. Cool and Sargent no longer serve on the
Executive Committee.
6
<PAGE>
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 By-Laws.
During 1994, the Nominating Committee consisted of Messrs. Brody, Donahue,
Kennedy, Sundt, and Winter. As of May 1995, Mr. Sundt no longer serves on the
Nominating Committee.
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. During
1994, the Price Risk Committee consisted of Messrs. Donahue, Winter,
Vogelstein, Brody (as alternate for Mr. Vogelstein), and Strauss (ex-officio
non-voting member). As of May 1995, Mr. Purdom was appointed an ex-officio
non-voting member of the Price Risk Committee.
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 consisted of Messrs. Winter, Donahue,
Brody, and Vogelstein (as alternate for Mr. Brody) during fiscal year 1994.
The Finance Committee consisted of the same members during 1995.
MANAGEMENT
The following table sets forth information as of December 15, 1995, as to
the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Donald J. Donahue......... 71 Chairman of the Board
J. Burgess Winter......... 62 President, Chief Executive Officer, and Director
Bradford A. Mills......... 41 Executive Vice President
Andrew A. Brodkey......... 39 Vice President, Secretary, and General Counsel
K. Lee Browne............. 45 Vice President
Marshall H. Campbell...... 56 Vice President, Human Resources
Francisco E. Durazo....... 43 Vice President and General Manager
Douglas J. Purdom......... 36 Vice President and Chief Financial Officer
Harry C. Smith............ 47 Vice President
</TABLE>
All executive officers are elected by and serve at the discretion of the
Board, subject to existing employment agreements. Mr. Winter is employed
pursuant to an employment agreement described below under "Employment
Contracts and Termination of Employment and Change in Control Arrangements--
Employment Agreement of the President and Chief Executive Officer."
For biographical information regarding Messrs. Donahue and Winter, see their
biographies under "Continuing Directors" above.
Bradford A. Mills has served as the Company's Executive Vice President since
October 1995. From August 1989, Mr. Mills served as Vice President, Planning
and Business Development of the Company. 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.
7
<PAGE>
Andrew A. Brodkey was elected Vice President in November 1992 and Secretary
and General Counsel to the Company in 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.
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.
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 Manual Mining Division, including
positions as General Mine Foreman, Mine Superintendent, Manager of Sulfide
Mining, Operational Manager of Sulfide and Oxide Mining, and General Manager.
8
<PAGE>
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 (the last completed fiscal year of the
Company) (i) the Chief Executive Officer and (ii) the other four most highly-
compensated executive officers of the Company as of the end of the last
completed fiscal year of the Company. These persons are referred to in this
Information Statement as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1) LONG TERM COMPENSATION
--------------- --------------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING LTIP ALL OTHER
NAME AND AWARDS(2) OPTIONS(3) PAYOUTS(4) COMPENSATION(5)
PRINCIPAL 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(6) 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 155,044 110,484 -- 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
</TABLE>
- --------
(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").
Effective November 1, 1995, the salaries of the following Named Executive
Officers were increased as follows: (Winter -- $600,000, Mills -- $350,000,
Smith -- $270,000, and Purdom -- $275,000).
(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. The 1987 Plan Committee and the 1989
Plan Committee has each accelerated the vesting of all restricted stock in
connection with the consummation of the transactions contemplated by the
Merger Agreement.
(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. On the effective date of the Merger, each
option to purchase Shares of the Company will be canceled by virtue of the
Merger. In consideration of such cancellation, each option holder will
receive a cash payment equal to the excess of $28.00 over the exercise
price per Share of such option.
(4) Mr. Winter received a long-term incentive bonus pursuant to the CEO
Employment Agreement (as discussed below under "Employment Contracts and
Termination of Employment and Change in Control
9
<PAGE>
Arrangements--Employment Agreement of the President and Chief Executive
Officer"). 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.
(6) Mr. Champagne resigned as an officer of the Company effective October 16,
1995. Options and restricted stock held by Mr. Champagne were vested and
made exercisable in connection with his separation from the Company.
OPTION GRANTS
The table shown below contains information on grants of stock options during
1994, the last completed fiscal year of the Company, to the Named Executive
Officers. No stock appreciation rights were granted during 1994. On the
effective date of the Merger, each option to purchase Shares of the Company
will be canceled by virtue of the Merger. In consideration of such
cancellation, each option holder will receive a cash payment equal to the
excess of $28.00 over the exercise price per Share of such option.
OPTION GRANTS IN FISCAL YEAR 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
SECURITIES STOCK ASSUMED ANNUAL RATES OF
UNDERLYING % OF TOTAL PRICE ON STOCK PRICE APPRECIATION FOR
OPTIONS OPTIONS GRANTED EXERCISE DATE OF OPTION TERM(3)
GRANTED(1) TO EMPLOYEES PRICE(2) GRANT EXPIRATION ------------------------------
NAME (#) IN 1994 ($/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
</TABLE>
- --------
(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" below).
(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
10
<PAGE>
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. Accordingly, the amounts reflected in
this table may not necessarily be indicative of the actual results
obtained.
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 (the last completed fiscal year
of the Company). 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.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS AT FISCAL THE-MONEY OPTIONS AT
ACQUIRED YEAR-END FISCAL YEAR-END(2)
ON VALUE (#) ($)
EXERCISE REALIZED(1) ------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Winter,
JB....... 0 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 0 54,085/ 72,085 $ 526,287/ 408,625
Smith,
HC....... 5,000 $ 65,000.00 49,085/ 72,005 $ 583,787/ 408,625
Purdom,
DJ....... 0 0 39,755/ 67,335 $ 416,439/ 353,663
</TABLE>
- --------
(1) Based upon the market value when exercised minus the exercise price.
(2) Based upon the closing price ($16.50) of the Company's Common Stock on
December 31, 1994, as reported on the New York Stock Exchange--Composite
Transactions. Options are in-the-money if the fair market value of the
underlying securities exceeds the exercise price of the options.
LONG-TERM INCENTIVE PLAN
Shown below is information with respect to long-term incentive awards for
the Named Executive Officers through the end of fiscal 1994 (the last
completed fiscal year of the Company).
LONG-TERM INCENTIVE PLANS--AWARDS IN 1994(1)
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER OF UNDER NON-STOCK PRICE
SHARES, PERFORMANCE BASED PLANS(2)
UNITS OR OR OTHER PERIOD ---------------------------
OTHER RIGHTS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT ($) ($) ($)
---- ------------ ---------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- --------
(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
11
<PAGE>
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 participated in the Long-Term
Plan at the end of the last completed fiscal year of the Company.
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 1996.
(2) Mr. Winter is also eligible to receive a non-stock price based long-term
bonus pursuant to the CEO Employment Agreement (as discussed below under
"Employment Contracts and Termination of Employment and Change in Control
Arrangements--Employment Agreement of the President and Chief Executive
Officer"). 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. 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 below under "Annual
Incentives--Incentive Compensation Plan." Each budgeted target objective
under the Long-Term Plan was exceeded for 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1994 the members of the Company's Compensation Committee
were Messrs. Sundt, Donahue, Cool, Goth, Rollins, Strauss, and Vogelstein. As
of May 1995, Messrs. Goth and Strauss no longer serve on the Compensation
Committee. 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 with 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 to the Board of
Directors. Further, Mr. Vogelstein currently serves on the Company's
Compensation Committee.
As part of a recapitalization (the "1988 Recapitalization") of the Company,
on November 30, 1988, Warburg, Pincus 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.
12
<PAGE>
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.
In November 1995, Warburg, Pincus exercised the Warburg Warrants it then
owned and purchased 830,000 shares of Common Stock. As of December 1, 1995,
Warburg, Pincus owned 16,899,616 shares of Common Stock, representing
approximately 35.8% of the Company's Common Stock outstanding. 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 waived these rights in respect of the
outstanding Public Warrants and Preferred Shares. The Public Warrants expired
on November 30, 1995.
Under the Standstill Agreement, which expires in 1998, the Company granted
Warburg, Pincus the right to nominate up to three 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 stock, and to cause certain of its affiliates
to vote their Company stock, 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 a condition to entering into the Merger Agreement, BHP required, and
Warburg, Pincus subject to the approval of the Company's Board of Directors
under the Standstill Agreement, agreed to enter into a Tender Agreement dated
November 30, 1995, (the "Tender Agreement"). Pursuant to the terms of the
Standstill Agreement, the Tender Agreement must be approved by a majority of
the Independent Directors (as defined in the Standstill Agreement). Such
approval was granted on November 30, 1995.
13
<PAGE>
Pursuant to the Tender Agreement, Warburg, Pincus has agreed that it will
validly tender pursuant to the Offer, and not withdraw, all of its Shares.
Warburg, Pincus has further agreed pursuant to the Tender Agreement that,
during the time the Tender Agreement is in effect, at any meeting of the
stockholders of the Company, Warburg, Pincus shall (a) vote the Shares in
favor of the Merger, (b) vote the Shares against any action or agreement that
would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement; and (c) vote the Shares against any action or
agreement (other than the Merger Agreement or the transactions contemplated
thereby) that would impede, interfere with, delay, postpone or attempt to
discourage the Merger or the Offer, including, but not limited to: (i) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company and its subsidiaries; (ii) a sale
or transfer of a material amount of assets of the Company and its
subsidiaries; or (iii) any change in the Company's management or in the Board
of Directors of the Company, except as otherwise agreed to in writing by BHP.
The Tender Agreement will terminate upon the first to occur of (a) the
effective time of the Merger, (b) the termination of the Merger Agreement in
accordance with its terms, (c) the Board of Directors of the Company having
withdrawn its approval or recommendation of the Offer or the Merger, (d) the
Board of Directors of the Company having modified its approval of the Offer or
the Merger in a manner adverse to BHP, and (e) written notice of termination
of the Tender Agreement by BHP to Warburg, Pincus.
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.
14
<PAGE>
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 in 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
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
----- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
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(1)........................ 100.0 94.9 107.1 114.9 128.0 149.4
</TABLE>
- --------
(1) Includes: Asarco Inc., Cyprus Amax Minerals Co., Inco Ltd., and Phelps
Dodge Corp.
15
<PAGE>
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
<TABLE>
<CAPTION>
HIGHEST
FIVE YEAR
AVERAGE
COMPENSATION
DURING THE LAST YEARS OF SERVICE AT RETIREMENT
10 YEARS OF --------------------------------------------
EMPLOYMENT 15 20 25 30 35
--------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 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
</TABLE>
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, but not restricted
stock, stock options or SARs, long-term incentive plan payout compensation, or
amounts listed in such table as "All Other Compensation." Participants who
retire under the Supplemental Plan also receive the levels of medical coverage
provided under the Company's regular salaried active employee medical plan.
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 below under
"Employment Contracts and Termination of Employment and Change in Control
Arrangements--Employment Agreement of the President and Chief Executive
Officer."
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
16
<PAGE>
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.
On November 30, 1995, the Company adopted the First Amendment to the Magma
Copper Company Special Executive Supplemental Benefit Plan, which is subject
to participant consent, to delete a feature providing for automatic pay-out of
benefits after a change in control.
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 committee 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"). 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. On the effective date of the Merger each
option to purchase Shares of the Company will be canceled by virtue of the
Merger. In consideration of such cancellation, each option holder will receive
a cash payment equal to the excess of $28.00 over the exercise price per Share
of such option.
17
<PAGE>
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 (the most recent
completed fiscal year of the Company). 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.
<TABLE>
<CAPTION>
AVERAGE FAIR
NUMBER OF EXERCISE MARKET
DIRECTOR SHARES(1) PRICE(2) 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......................................... 1,149 $7.891 $16.50
</TABLE>
- --------
(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.
For fiscal year 1995, the above four directors and Mr. D. J. Donahue have
participated in the 1989 Director Plan. Messrs. Kennedy, Rollins, Sargent,
Sundt and Donahue will receive options for a total of 1,595, 417, 1,876, 938,
and 1,250 shares, respectively, for fiscal year 1995.
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 1,000 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. On November 30, 1995,
the 1992 Directors Plan Committee accelerated the vesting and removed the
transfer restrictions on such restricted stock in connection with the
consummation of the transactions contemplated by the Merger Agreement.
As of December 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. On January 2, 1996, each non-employee director will
receive a grant of 1,000 Shares pursuant to the 1992 Directors Plan.
18
<PAGE>
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, 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
above under "Executive Compensation." On November 21, 1995, the Compensation
Committee approved an increase in Mr. Winters' annual base salary to $600,000
and awarded a cash bonus of $684,000. The 1993 Plan Committee also awarded Mr.
Winter 125,000 options under the 1993 Plan. On November 30, 1995, the Board of
Directors ratified the increase in salary and the cash bonus to Mr. Winter.
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-competition 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" is defined in the Agreement as: (i) a shareholder
approval of 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 Warburg, Pincus; provided,
however, that a change of control shall not be deemed to occur for so long as
Warburg, Pincus continues to beneficially own at least 10% more of the
combined voting power of the Company than such other party, unless a majority
of the Board of Directors immediately prior to such acquisition shall have
deemed a change in control to have occurred, (iii) a change in identity of the
majority of the members of the Board of Directors, except in the case of such
a change which both follows the acquisition by Warburg, Pincus of 51% or more
of the voting securities of the Company and which is approved by a majority of
the Board of Directors and the management executive committee prior to such
acquisition, (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 50% or less,
(vi) a complete liquidation of the Company, and (vii) the execution or
approval by the Board of Directors of an agreement which would result in any
of the foregoing.
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
19
<PAGE>
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 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 extensions 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 (as defined in the Retention and
Severance Agreement) 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. The Retention 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. The execution of the Merger Agreement
constitutes a change in control under the Retention and Severance Agreement.
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 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" is defined as described under "Employment
Agreement of the President and Chief Executive Officer".
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 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 exercise taxes imposed pursuant to Section 4999 of the Internal
Revenue Code. 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. The execution
of the Merger Agreement constitutes a change in control under the Employment
Agreements.
20
<PAGE>
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. In September 1995, the Company amended several of its benefit
plans, including the 1993 Plan, the 1989 Plan, and the 1987 Plan, to conform
the definition of the term "change in control". As a result of the amendments,
"change in control" is defined as described under "Employment Agreement of the
President and Chief Executive Officer."
In the event of a change in control of the Company under the 1989 Plan and
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. The execution
of the Merger Agreement constitutes a change in control under these plans. The
Committees overseeing these plans have accelerated the vesting of all
restricted stock in connection with the transactions contemplated by the
Merger Agreement. In addition, on the effective date of the Merger, each
option to purchase Shares of the Company will be canceled by virtue of the
Merger. In consideration of such cancellation, each option holder will receive
a cash payment equal to the excess of $28.00 over the exercise price per Share
of such option.
Under the Company's Supplemental Plan and Deferred Compensation Plan, in the
event of a change in control, the accrued benefits of participants must be
fully funded in the trusts maintained in connection with these plans. In
September 1995, the Company amended the Supplemental Plan and Deferred
Compensation Plan, to conform the definition of the term "change in control"
to the definition set forth above under "Employment Agreement of the President
and Chief Executive Officer." The execution of the Merger Agreement
constitutes a change in control under these plans.
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" is defined as described above under
"Employment Agreement of the President and Chief Executive Officer." The
execution of the Merger Agreement constitutes a change in control under this
plan. In any event, because the current plan cycle will end on December 31,
1995, all benefits for such cycle will have accrued, even in the absence of
the change in control, as of such date.
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. In September 1995,
the Company amended several of its benefit plans, including the CEO Retirement
Plan, to conform the definition of the term "change in control." As a result
of the amendment, "change in control" is defined as described above under
"Employment Agreement of the President and Chief Executive Officer." The
execution of the Merger Agreement constitutes a change in control under the
CEO Retirement Plan.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") submitted the
following report on February 16, 1995 for fiscal year 1994. The report does
not reflect any changes in compensation policy since that date or that would
occur in connection with the Merger.
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
21
<PAGE>
* 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 tables 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 TABLE
PRODUCTION UP 6% IN 1994
(POUNDS OF COPPER CATHODE, MILLIONS)
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Magma Source Production...................... 335 350 470 515 544 561 596
Custom Smelting & Refining................... 165 186 206 188 224 218 223
</TABLE>
PRODUCTION COSTS TABLE
COSTS DECLINE 12% IN 1994
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- --------
(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 six years ended December 31, 1994,
productivity, as measured in pounds of copper produced per manshift, has
increased by 85% and net operating costs 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.
22
<PAGE>
The Committee also evaluates management's performance in the development of
new strategic growth opportunities. During 1994 strategic growth projects
included 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
23
<PAGE>
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
comprises 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 complement 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 contribution 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.
24
<PAGE>
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 with a vesting schedule described
therein. 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.
25
<PAGE>
In 1994, Mr. Winter's base salary was increased to $550,000, and he received
an incentive compensation bonus of $550,000. 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 above, the achievement of certain
strategic goals, 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.
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. As of the date of
the report 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 persons who were
members of the Compensation Committee of the Company's Board of Directors in
fiscal year 1994:
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.
26
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Warburg, Pincus
The Company has entered into certain relationships and agreements with
Warburg, Pincus which, as of December 1, 1995, owned approximately 35.8% of
the Company's outstanding Common Stock. For a description of these
relationships and agreements, see "Executive Compensation--Compensation
Committee Interlocks and Insider Participation" above.
Other Transactions and Relationships
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and persons who own more than 10% of the
Common Stock of the Company to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and to furnish the
Company with copies of these reports. Based on the Company's review of the
copies of these reports received by it, the Company believes that all filings
required to be made by the reporting persons for 1994 were made on a timely
basis.
27
<PAGE>
SCHEDULE I
TO INFORMATION STATEMENT
INFORMATION CONCERNING THE PURCHASER DESIGNEES
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY AND CITIZENSHIP
---- ----------------------------------------------
<S> <C>
Glen F. Andrews.................. Mr. Andrews, a Canadian citizen, has been Chairman of
the Board of Ok Tedi Minning Ltd., a BHP subsidiary,
since 1993 and he served as Managing Director of the
same entity from January 1992 to July 1994. He has been
Senior Vice President and Group General Manager of BHP
Copper from 1992. He was Group Consultant of BHP-Utah
Minerals from 1990 to 1992. Mr. Andrews also serves as
a director of various other BHP subsidiaries and
affiliates.
Robert N. Hickman................ Mr. Hickman, a U.S. citizen, has been Senior Vice
President and Group General Manager--New Business
Development for BHP Minerals since January 1992. From
July 1988 to December 1991 he was President of Minera
Escondida Limitada, a copper mining company in Chile
and a subsidiary of BHP. Mr. Hickman has also served as
a director and officer of various other BHP
subsidiaries and affiliates in the last five years.
Ross N. James.................... Mr. James, an Australian citizen, has been Senior Vice
President and Group General Manager--Human Resources
for BHP Minerals since April 1994. He served as
Manager--Human Resources for BHP Minerals from January
1992 to April 1994. He was Manager-- Human Resources
for the Slab & Plate Production Division of BHP Steel
from November 1989 to January 1992.
T. Rognald Dankmeyer............. Mr. Dankmeyer, a U.S. citizen, is a director and Vice
President of Purchaser. He is also a Vice President of
Sub. He has been Senior Vice President and General
Counsel of BHP Minerals for more than five years.
Donald E. Egan................... Mr. Egan, a U.S. Citizen, is a director and President
of Purchaser. He has been Manager of Planning and
Development of BHP Copper since January 1995. From 1993
to 1995 he served as Manager of Strategic Planning at
BHP Minerals. From 1992 to 1993 Mr. Egan served as Vice
President, Finance of Minera Escondida Limitada
("Escondida"), a Chilean mining company and subsidiary
of BHP. From 1990 to 1992, Mr. Egan was Vice President,
Marketing of Escondida.
Stefano Giorgini................. Mr. Giorgini, an Australian citizen, is a director and
Vice President of Purchaser. He has been Manager of
Finance, New Business Development of BHP Minerals since
February 1995. From 1991 to 1995 he served as Manager
of Finance of Long Products, a division of BHP Steel.
From 1989 to 1991, he was a Senior Financial Analyst of
BHP Steel. Since 1991, Mr. Giorgini has served as the
director of several BHP subsidiaries.
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY AND CITIZENSHIP
---- ----------------------------------------------
<S> <C>
A. E. Michael Anglin.... Mr. Anglin, a U.S. citizen, has been Manager,
International Business Development, of BHP Minerals
since 1994. From 1992 to 1994 he was Manager, Business
Development, of BHP Minerals. From 1990 to 1992 he was
Chief Engineer, Minera Escondida Limitada, a Chilean
mining company and subsidiary of BHP.
David J. Wood........... Mr. Wood, an Australian citizen, has been Manager,
Finance, for BHP Copper since 1992. From 1989 to 1991
he was Manager, Finance and Planning, for BHP Minerals.
Mr. Wood also serves as a director of various BHP
subsidiaries and affiliates.
Daniel H. Payne......... Mr. Payne, a U.S. citizen, is a director of Sub and
several other BHP subsidiaries. He has been the Vice
President, Taxation of BHP Minerals for the last five
years.
</TABLE>
S-2
