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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9*
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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ASARCO INCORPORATED
(Name of Subject Company)
ASARCO INCORPORATED
(Name of Person(s) Filing Statement)
COMMON STOCK, NO PAR VALUE PER SHARE
(Title of Class of Securities)
043413103
(CUSIP NUMBER OF CLASS OF SECURITIES)
FRANCIS R. MCALLISTER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ASARCO INCORPORATED
180 MAIDEN LANE
NEW YORK, NEW YORK 10038
(212) 510-2000
(Name, address and telephone number of person
authorized to receive notice and communications on
behalf of the person(s) filing statement).
With Copies to:
J. MICHAEL SCHELL
MARGARET L. WOLFF
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
*Relates to offer by Grupo Mexico S.A. de C.V.
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is ASARCO Incorporated, a New Jersey
corporation ("ASARCO"). The address of the principal executive offices of
ASARCO is 180 Maiden Lane, New York, New York 10038. The title of the class
of equity securities to which this Statement relates is the common stock,
no par value per share, of ASARCO (the "ASARCO Common Stock"), including
the associated preferred share purchase rights (the "Rights") issued
pursuant to the Rights Agreement, dated as of January 28, 1998, between
ASARCO and The Bank of New York, as amended (the "ASARCO Rights Plan").
Except where the context otherwise requires, all references herein to the
ASARCO Common Stock shall include the Rights.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer for all of the outstanding
shares of ASARCO Common Stock which is described in a Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") of Grupo Mexico, S.A. de
C.V., a Mexican corporation ("Grupo Mexico"), and its wholly owned
subsidiary, ASMEX Corporation, a Delaware corporation ("ASMEX"), filed with
the Securities and Exchange Commission (the "Commission") on September 27,
1999. According to the Schedule 14D-1, Grupo Mexico is offering to
purchase, upon the terms and subject to the conditions set forth in the
Offer to Purchase and the related Letter of Transmittal (together, the
"Grupo Mexico $26.00 Per Share Offer"), all of the outstanding shares of
ASARCO Common Stock at a price of $26.00 per share of ASARCO Common Stock,
net to the seller in cash, without interest thereon.
According to the Schedule 14D-1, Grupo Mexico intends to seek to
negotiate with ASARCO with respect to the acquisition of ASARCO by Grupo
Mexico in order to enter into a definitive merger agreement providing for
such acquisition. Grupo Mexico intends, as soon as practicable after
consummation of the Grupo Mexico $26.00 Per Share Offer, to seek to merge
ASMEX with ASARCO, with ASARCO being the surviving corporation.
According to the Schedule 14D-1, the principal executive offices of
Grupo Mexico are located at Baja California 200, Colonia Roma Sur, 06760
Mexico City, Mexico.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of ASARCO, which is the person
filing this Statement, are set forth in Item 1 above.
(b) Except as described (i) in this Statement, (ii) on pages 10
through 20 of ASARCO's Proxy Statement, dated March 15, 1999 (the "1999
ASARCO Proxy Statement"), sent by ASARCO to its stockholders in connection
with its Annual Meeting of Stockholders held on April 28, 1999, which are
filed as Exhibit 1 to this Statement and incorporated herein by reference
and (iii) under the headings "Interests of Certain Persons in the
Merger--ASARCO Employment Agreements," "--ASARCO Stock Based Plans," and
"--Other ASARCO Plans" on pages 62 through 64 of the joint proxy statement
and prospectus of ASARCO, Cyprus Amax Minerals Company ("Cyprus Amax") and
Asarco Cyprus Incorporated ("Asarco Cyprus"), dated August 20, 1999 (the
"Joint Proxy Statement and Prospectus"), sent by ASARCO to its stockholders
in connection with a special meeting of its stockholders that was to have
been held on September 30, 1999 (the "Special Stockholders Meeting"), which
are filed as Exhibit 2 to this Statement and incorporated herein by
reference, there are no material contracts, agreements, arrangements or
understandings, or any actual or potential conflicts of interest between
ASARCO or its affiliates and (1) its executive officers, directors or
affiliates or (2) Grupo Mexico, its executive officers, directors or
affiliates.
In addition, ASARCO has taken the following actions pursuant to
authority exercised by the Board of Directors and the Organization and
Compensation Committee of the Board of Directors (the "Committee"):
1. Incentive compensation awards for the year 1999 have been
established and approved for eligible recipients based upon improvements in
the returns to ASARCO's stockholders resulting from the proposed merger of
ASARCO and Cyprus Amax, anticipated increases in copper production and
reduction in the cost of ASARCO's copper production. The awards are payable
upon the closing of any transaction that would constitute a "change in
control" of ASARCO. The aggregate amount payable pursuant to such awards is
$10.4 million.
2. ASARCO amended two Employee Non-Qualified Deferred Compensation
Plans of ASARCO to provide for compensation to each participant for the
amount of lost tax deferral benefits resulting from the acceleration of
benefits resulting from any "change of control" of ASARCO. The aggregate
incremental cost of this amendment is approximately $2.1 million.
3. Under ASARCO's 1996 and 1990 Stock Incentive Plans the term
"Exercise Event" is defined to include a merger, tender offer or a change
in a majority of the ASARCO Board of Directors resulting from a proxy
contest. The Committee exercised its administrative authority under the
Plans to designate the consummation of a transaction with Phelps Dodge
Corporation ("Phelps Dodge") or Grupo Mexico an "Exercise Event" under the
Plans. At the current exchange offer price announced by Phelps Dodge on
September 22, 1999, the exercise of all limited rights presently
outstanding under the Plans that contain an "in-the-money" exercise price
would cost an estimated $5.9 million. At the current Grupo Mexico offer
price of $26.00 per share, the exercise of all limited rights presently
outstanding under the Plans that contain an "in-the-money" exercise price
would cost an estimated $6.1 million. The Committee also has the discretion
under the Plans to adjust the terms of outstanding options in a manner it
deems appropriate and equitable if it determines that a proposed
transaction may materially and adversely affect the market value of the
ASARCO Common Stock following the transaction. The Plans permit options to
be adjusted by substituting the publicly traded stock of a successor
corporation for the ASARCO Common Stock upon the exercise of an option
following consummation of the transaction without adjustment to the
exercise price of the option. Pursuant to this authority, the Committee
determined to substitute shares of common stock of Phelps Dodge or the
equity securities of Grupo Mexico, as the case may be, for the shares of
ASARCO Common Stock subject to the options and to adjust the options
accordingly, subject to either company becoming a successor corporation
as contemplated in the Plans. The Committee also determined to adjust the
terms of the options granted prior to January 1999 under the 1996 Stock
Incentive Plan to permit the exercise of such options following termination
of employment by ASARCO for up to the full term of the option and to adjust
the terms of the outstanding options granted under the 1990 Stock Incentive
Plan to permit the exercise of those options until the earlier of the
expiration date of the option and three years following termination of
employment with the consent of ASARCO and the optionees. The Committee
determined that all terminations of employment by reason of early
retirement are to be deemed to be with the consent of ASARCO, and it
further determined that optionees currently employed by a subsidiary of
ASARCO will be considered terminated with consent if their employer ceases
to be a subsidiary of ASARCO.
The consummation of the Grupo Mexico $26.00 Per Share Offer on the
terms described in the Schedule 14D-1 would constitute a change in control
for purposes of the contracts, agreements and arrangements described above
and in the 1999 ASARCO Proxy Statement and the Joint Proxy Statement and
Prospectus which description is incorporated herein by reference.
On August 4, 1994, ASARCO entered into an option agreement granting
Grupo Mexico an option to purchase 56,321,704 common shares, Series B Class
I, of Grupo Mexico at an exercise price of US$1.40 per share. The option
expires on August 11, 2001. A copy of the Series B Stock Option Agreement
is filed as Exhibit 3 to this Statement and is incorporated herein by
reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the ASARCO Board of Directors
AS MORE FULLY DESCRIBED BELOW, THE ASARCO BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT ALL HOLDERS OF ASARCO COMMON STOCK REJECT THE
GRUPO MEXICO $26.00 PER SHARE OFFER AND CURRENTLY NOT TENDER THEIR SHARES
IN THE GRUPO MEXICO $26.00 PER SHARE OFFER.
(b) Background; Reasons for the ASARCO Board's Recommendation
Background
During the evening of September 23, 1999, Mr. German Larrea
Mota-Velasco, the Chairman of the Board and Chief Executive Officer of
Grupo Mexico, telephoned Mr. Francis R. McAllister, the Chairman of the
Board and Chief Executive Officer of ASARCO, to inquire, among other
things, about the timing of any ASARCO Board meeting and whether or when
the ASARCO Board would take action in response to the Phelps Dodge revised
exchange offer relating to the ASARCO Common Stock. Mr. McAllister stated
that no meeting had been scheduled at that time.
On the morning of September 24, 1999, Mr. McAllister and Mr. Milton
H. Ward, Chairman, Chief Executive Officer and President of Cyprus Amax,
met with Mr. Douglas Yearley, Chairman and Chief Executive Officer of
Phelps Dodge, to discuss the increased terms of the Phelps Dodge exchange
offers for the two companies.
Following the meeting with Phelps Dodge, Mr. McAllister and Mr. Ward
agreed to contact other companies in the industry, including Grupo Mexico,
to determine if any of them would have an interest in considering a
transaction with both companies. It was agreed that the companies or their
advisors would make the contacts.
In the afternoon of September 24, 1999 Mr. Larrea's office contacted
Mr. McAllister's office indicating that Mr. Larrea had important papers for
the ASARCO Board meeting. Mr. McAllister directed his office to respond
that no meeting of the Board was scheduled and that if Mr. Larrea had
important papers for the Board they should be sent promptly and they would
be forwarded to the ASARCO Board members.
Later in the afternoon on September 24, 1999, Mr. Larrea and Mr.
McAllister spoke by telephone. Mr. Larrea again inquired as to the timing
of the ASARCO Board meeting and whether or when the ASARCO Board would take
action in response to the Phelps Dodge revised exchange offer relating to
the ASARCO Common Stock. Mr. Larrea told Mr. McAllister that he had
important papers for members of the Board. Mr. McAllister again indicated
that there was no Board meeting scheduled, but that it was possible in
light of events that one would be held over the weekend.
Thereafter, Mr. Larrea called Mr. McAllister to inform him that he
would be telecopying important documents to Mr. McAllister for the
attention of the ASARCO Board. Shortly thereafter, the following letter was
telecopied to Mr. McAllister's office:
"German Larrea
Chairman and CEO
September 24, 1999
"Mr. Francis McAllister
Chairman and Chief Executive Officer
ASARCO Incorporated
180 Maiden Lane
New York, New York 10038
"Dear Frank:
"We have followed with considerable interest the developments
that have transpired since the announcement of your proposed
transaction with Cyprus Amax Minerals Company, including most
recently Phelps Dodge Corporation's September 22, 1999 announcement
that it was improving its pending exchange offer to acquire ASARCO
Incorporated and your announcement yesterday that your board of
directors intends to meet to consider the Phelps Dodge Corporation
offer "this week."
"Given the time constraints of the current situation, we will
commence on Monday a tender offer, through a wholly owned subsidiary,
to ASARCO's shareholders for all outstanding shares of ASARCO at
$26.00 per share in cash. The offer will be conditioned upon, among
other things, Grupo Mexico, S.A. de C.V., its wholly owned subsidiary
and ASARCO entering into a merger agreement, the number of shares
being tendered constituting at least 80% of the outstanding ASARCO
shares on a fully diluted basis when taken together with our own
holdings.
"As you know, in the past we have expressed an interest in
exploring the possibility of a combination of our two companies'
operations. We believe that a business combination between Grupo
Mexico and ASARCO would create a low cost international mining entity
with greatly increased ore reserves and the ability to realize
significant cost saving synergies. Furthermore, in our capacity as
your largest single shareholder, we have obviously considered the
relative economic merits of the shareholder value inherent in your
existing transaction with the Cyprus Amax and the transaction
proposed by Phelps Dodge. We also considered alternatives that
address our desire to increase our cost efficiencies and production
capacity while simultaneously providing all of your other
shareholders an opportunity to maximize the value of their investment
now, rather than rely on projections of possible future benefits that
may or may not be ultimately realized under the transaction
contemplated by your existing agreement or the pro-rated part
cash/part stock transaction proposed by Phelps Dodge. Our offer
provides such an alternative.
"We would be prepared to proceed on the basis of a negotiated
merger agreement with you in which we would expect to receive only
the same representations and warranties as you have made under your
existing agreement with Cyprus Amax. Our execution of a merger
agreement would not be contingent upon a due diligence review.
Furthermore, we are confident that consummation of our proposed
transaction would not require any burdensome regulatory approvals.
"Our proposal presents an attractive opportunity for ASARCO and
its shareholders. The offer price of $26.00 per share would represent
a premium of approximately 41% over ASARCO's unaffected price per
share on August 20, 1999, immediately prior to the announcement of
Phelps Dodge's proposal. As a result of the all-cash nature of our
offer, your shareholders will immediately receive the entire premium
for their ASARCO shares regardless of the performance of the stock
market generally or of the market for copper following the close of
our transaction. Briefly put, we believe our proposal is in the best
interests of your shareholders. We also believe that our combined
operations would serve the interests of the employees, customers,
suppliers and local communities of each company.
"Our proposed transaction is not subject to a financing
condition. In that regard, we have obtained a signed commitment
letter from The Chase Manhattan Bank and Chase Securities Inc.
providing for the full amount of financing necessary to complete our
offer.
"As you are aware, the federal securities laws, as well as the
laws of the United States of Mexico, require that we promptly make
public disclosure of our intentions outlined in this letter.
"We and our advisors are prepared to meet with ASARCO and its
advisors to negotiate and finalize all necessary documentation to
reflect the transaction outlined above.
"Please advise me of the manner in which you and your board of
directors would like to proceed.
"Very truly yours,
/s/ GERMAN LARREA
German Larrea"
After Mr. McAllister received the letter he telephoned Mr. Larrea to
inform him that he would forward copies of the letter to the members of his
Board of Directors and his legal and financial advisors. Shortly thereafter
the contents of the letter were released by Grupo Mexico to the press.
On Friday, October 1, 1999, Grupo Mexico was provided with a form of
merger agreement acceptable to ASARCO, together with the related disclosure
schedules. In addition, on Friday evening, October 1, 1999, Mr. McAllister
and Mr. Larrea met and discussed the Grupo Mexico $26.00 Per Share Offer
and the intention of ASARCO to maximize stockholder value. Mr. Larrea
proposed that ASARCO enter into a merger agreement with Grupo Mexico at
$26.00 per share. Because of indications that superior offers from others
may be made, Mr. McAllister said he did not believe the Board would be
prepared to do that. Between September 27, 1999 and the date hereof,
representatives of ASARCO's legal and financial advisors have engaged in
discussions with representatives of Grupo Mexico's legal and financial
advisory team with respect to the Grupo Mexico $26.00 Per Share Offer, the
proposed form of merger agreement and the process being conducted by ASARCO
to maximize value for all stockholders.
The Board of Directors of ASARCO met on October 4, 1999 and
authorized management to initiate a process designed to elicit the best
possible transaction for its stockholders.
Reasons for the ASARCO Board's Recommendation
In reaching its recommendation described above, the ASARCO Board of
Directors considered a number of factors, including the following:
1. On September 27, 1999, the Board of Directors of ASARCO authorized
management to explore all available strategic alternatives that could
maximize stockholder value for ASARCO. Consistent with that objective
ASARCO and Cyprus Amax amended their merger agreement, among other
things, to enable each company to act independently to fulfill that
mandate and to allow either company to terminate the merger agreement
upon the payment of the applicable termination fee.
2. Also on Monday, September 27, 1999, Grupo Mexico commenced the
Grupo Mexico $26.00 Per Share Offer.
3. On September 30, 1999, following payment to ASARCO of a $45
million termination fee, Cyprus Amax notified ASARCO that it was
terminating the merger agreement between the two of them.
4. Phelps Dodge's amended exchange offer in which it is currently
offering to exchange $9.00 in cash plus 0.2880 of a share of Phelps
Dodge common stock for each share of ASARCO Common Stock, on a fully
prorated basis, remains outstanding.
5. Phelps Dodge delivered a letter to ASARCO on Monday, September 27,
1999, in which they stated "We remain determined to acquire ASARCO
and are prepared to meet with you to discuss a revised proposal
SUPERIOR to those you are now considering."
6. ASARCO promptly invited Phelps Dodge to meet to discuss its
superior proposal and is expecting a reply to that invitation.
7. The process to maximize stockholder value that is being undertaken
by ASARCO's management has not been completed.
The foregoing discussion of the factors considered by the ASARCO
Board of Directors is not intended to be exhaustive but includes all
material factors considered by the Board. The ASARCO Board of Directors did
not assign relative weights to the foregoing factors or determine that any
factor was of particular importance, and individual directors may have
given different weights to different factors. Rather, the Board viewed its
position and recommendation as being based on the totality of the
information presented to and considered by it.
THE ASARCO BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALL
STOCKHOLDERS OF ASARCO REJECT THE GRUPO MEXICO $26.00 PER SHARE OFFER AND
CURRENTLY NOT TENDER THEIR SHARES IN THE GRUPO MEXICO $26.00 PER SHARE
OFFER.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to the terms of the engagement of Credit Suisse First Boston
Corporation ("Credit Suisse First Boston"), ASARCO has agreed to pay Credit
Suisse First Boston an aggregate fee of $11 million for its financial
advisory services in connection with an "Alternative Business Combination"
transaction, which is defined to include, among other things, any merger,
consolidation, joint venture or other similar business combination
involving ASARCO and any third party (other than Cyprus Amax ). ASARCO also
has agreed to reimburse Credit Suisse First Boston for all of its
out-of-pocket expenses, including the fees and expenses of its legal
counsel and any other advisor retained by Credit Suisse First Boston, and
to indemnify Credit Suisse First Boston and related persons and entities
against liabilities, including liabilities under the federal securities
laws, arising out of Credit Suisse First Boston's engagement.
Credit Suisse First Boston has in the past provided financial
services to ASARCO and Grupo Mexico unrelated to the Grupo Mexico $26.00
Per Share Offer for which Credit Suisse First Boston has received
compensation. In the ordinary course of business, Credit Suisse First
Boston and its affiliates may actively trade the debt and equity securities
of ASARCO and Grupo Mexico for their own accounts and for the accounts of
customers and, accordingly, may at any time hold long or short positions in
such securities.
Morrow & Co. ("Morrow") has assisted ASARCO in connection with the
Cyprus Amax transaction and may assist ASARCO in connection with the Grupo
Mexico $26.00 Per Share Offer. Morrow will receive reasonable customary
compensation for its services and reimbursement of out-of-pocket expenses
in connection therewith. ASARCO has agreed to indemnify Morrow against
certain liabilities arising out of or in connection with its engagement.
Kekst & Co. ("Kekst") has acted as public relations advisor to ASARCO
in connection with the Cyprus Amax transaction and may do so in connection
with the Grupo Mexico $26.00 Per Share Offer. Kekst will receive reasonable
and customary compensation for its services and reimbursement of
out-of-pocket expenses arising out of or in connection with its engagement.
Except as set forth above, neither ASARCO nor any person acting on
its behalf has employed, retained or compensated any other person to make
any solicitations or recommendations to stockholders on its behalf
concerning the Grupo Mexico $26.00 Per Share Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best knowledge of ASARCO, no transactions in ASARCO Common
Stock have been effected during the past 60 days by ASARCO or any executive
officer, director, affiliate or subsidiary of ASARCO.
(b) To the best knowledge of ASARCO, its executive officers,
directors, affiliates and subsidiaries do not presently intend to tender
any shares of ASARCO Common Stock which are held of record or are
beneficially owned by such persons pursuant to the Grupo Mexico $26.00 Per
Share Offer or to otherwise sell any such shares.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) and (b) Item 4 above contains a description of the various
contacts between ASARCO and Grupo Mexico held between September 23, 1999,
the date of Mr. Larrea's initial communication with ASARCO, and October 4,
1999, the date on which the Grupo Mexico $26.00 Per Share Offer was
reviewed and considered by the Board of Directors of ASARCO with the
assistance of ASARCO's management and its legal and financial advisors. As
more fully described in Item 4, at its October 4, 1999 meeting, the Board
of Directors of ASARCO unanimously determined to recommend that all holders
of ASARCO Common Stock reject the Grupo Mexico $26.00 Per Share Offer and
currently not tender their shares in the Grupo Mexico $26.00 Per Share
Offer. The factors considered by the ASARCO Board of Directors in making
its determination with respect to the Grupo Mexico $26.00 Per Share Offer
are described in Item 4 above.
At its September 30, 1999 meeting, the ASARCO Board of Directors
determined to postpone the occurrence of a Distribution Date (as defined in
the ASARCO Rights Plan) as a result of the public announcement of the Grupo
Mexico $26.00 Per Share Offer until such later date as determined by the
ASARCO Board of Directors.
The Board of Directors of ASARCO has authorized management to explore
all available strategic alternatives that could achieve maximization of
stockholder value for ASARCO. Discussions and negotiations are underway in
pursuit of this strategic objective. The alternatives being explored could
lead to and involve further negotiations that may result in: (i) an
extraordinary transaction, such as a merger or reorganization, involving
ASARCO or any of subsidiary of ASARCO and another company; (ii) a purchase,
sale or transfer of a material amount of assets by ASARCO or one or more
subsidiaries of ASARCO; (iii) a tender or exchange offer for or other
acquisition of securities of ASARCO; or (iv) a material change in the
present capitalization or dividend policy of ASARCO. At its October 4, 1999
meeting, the ASARCO Board of Directors authorized management to initiate a
process designed to elicit the best possible transaction for its
stockholders.
The Board of Directors of ASARCO has determined that disclosure of
the possible terms of any transactions or proposals of the type referred to
above in this Item 7 prior to an agreement in principle with respect
thereto would jeopardize the initiation or continuation of negotiations
with respect to such transactions and has, accordingly, adopted a
resolution directing management not to disclose such possible terms, or the
parties thereto, until such an agreement has been reached.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The ASARCO Rights Plan. The ASARCO Rights Plan provides for the
issuance of one Right for each outstanding share of ASARCO Common Stock.
Each Right entitles the holder to purchase one one-hundredth of a share of
Junior Participating Preferred Stock, without par value, at a price of
$90.00 per one one-hundredth of a share.
Initially, the Rights will be evidenced by certificates representing
shares of ASARCO Common Stock and will be transferable only in connection
with the transfer of the underlying common stock. No separate certificates
representing the Rights will be distributed. The Rights will separate from
the shares of ASARCO Common Stock and be represented by separate
certificates on the earlier of (i) the close of business on the tenth
business day after a person acquires 15% of the outstanding shares of
ASARCO Common Stock or (ii) the close of business on the tenth business day
(unless the Board of Directors of ASARCO sets a later date) after a person
commences a tender or exchange offer which would result in such person
being the beneficial owner of 15% of the outstanding shares of ASARCO
Common Stock (the earlier of (i) and (ii), the "Distribution Date").
After the Rights separate from the shares of ASARCO Common Stock,
certificates representing the Rights (the "Rights Certificates") will be
mailed to record holders of ASARCO Common Stock. Once distributed, the
Rights will be represented solely by the Rights Certificates.
All shares of ASARCO Common Stock issued prior to the date the Rights
separate from the ASARCO Common Stock will be issued with the Rights
attached. The Rights will not be exercisable until the date the Rights
separate from the ASARCO Common Stock. The Rights will expire on January
31, 2008 unless earlier redeemed by ASARCO.
If an acquiror becomes the beneficial owner of 15% or more of the
outstanding shares of ASARCO Common Stock (except pursuant to a tender or
exchange offer for all outstanding shares of ASARCO Common Stock at a price
and on terms determined by 2/3 of the continuing directors to be in the
best interests of ASARCO and it stockholders), then each Right will become
exercisable and will entitle the holder to purchase a number of shares of
ASARCO Common Stock having a then current market value of twice the
exercise price of each Right.
If an acquiror becomes the beneficial owner of 15% or more of the
outstanding shares of ASARCO Common Stock and either (i) ASARCO merges into
another entity and is not the surviving corporation, (ii) another entity
merges into ASARCO and all or part of the outstanding shares of ASARCO
Common Stock are changed into or exchanged for securities of another entity
or cash or any other property or (iii) ASARCO sells more than 50% of its
assets or earning power to another entity, each Right will entitle the
holder to purchase a number of shares of common stock of such other entity
having a then current market value of twice the exercise price of each
Right.
Under the ASARCO Rights Plan, any Rights that are or were owned by an
acquiror of more than 15% of the outstanding shares of ASARCO Common Stock
will be null and void.
The Board of Directors of ASARCO may, at its option, redeem all of
the outstanding Rights under the ASARCO Rights Plan prior to the earlier of
(1) the tenth business day following the date at which an acquiror obtains
15% or more of the outstanding shares of ASARCO Common Stock or (2) the
final expiration date of the ASARCO Rights Plan. The redemption price under
the ASARCO Rights Plan will be $0.01 per Right, subject to adjustment. The
right to exercise the Rights will terminate upon the action of the Board of
Directors of ASARCO ordering the redemption of the Rights and the only
right of the holders of the Rights will be to receive the redemption price.
Holders of Rights have no rights as stockholders of ASARCO, including
the right to vote or receive dividends, simply by virtue of holding the
Rights.
The ASARCO Rights Plan provides that ASARCO may amend the provisions
of the ASARCO Rights Plan, except for those governing the redemption price
of the Rights, without the approval of the holders of the Rights, prior to
(1) the tenth business day after an acquiror acquires 15% or more of the
outstanding shares of ASARCO Common Stock or (2) the tenth business day
after someone commences a tender or exchange offer which would result in
such person being the beneficial owner of 15% or more of the outstanding
shares of ASARCO Common Stock. However, after the date that an acquiror
acquires 15% or more of the outstanding shares of ASARCO Common Stock or
the date that someone commences a tender offer which would result in such
person being the beneficial owner of 15% or more of the outstanding shares
of ASARCO Common Stock, ASARCO may not amend the ASARCO Rights Plan in any
way which would adversely affect the interests of the holders of Rights
Certificates.
On September 30, the ASARCO Board of Directors determined to postpone
the occurrence of a Distribution Date as a result of the public
announcement of the Grupo Mexico $26.00 Per Share Offer until such later
date as determined by the ASARCO Board of Directors.
Antitakeover Provisions. Sections 14A:10A-4 and -5 of the New Jersey
Business Corporation Act restricts the ability of certain persons to
acquire control of a New Jersey corporation. In general, a New Jersey
corporation with its principal executive offices or significant operations
in New Jersey may not engage in a business combination with an interested
stockholder for a period of five years following the interested
stockholder's becoming such. Such a business combination would be permitted
where it is approved by the board of directors prior to the stock
acquisition. Covered business combinations include certain mergers,
dispositions of assets or shares and recapitalizations. An interested
stockholder is generally a stockholder owning at least 10% of the voting
power of a corporation's outstanding shares.
In addition, New Jersey corporations may not engage at any time with
any interested stockholder in a business combination other than (i) a
business combination approved by the board of directors of such corporation
prior to the stock acquisition, (ii) a business combination approved by the
affirmative vote of the holders of 662/3% of the voting stock not
beneficially owned by such interested stockholder at a meeting for such
purpose, or (iii) a business combination in which the interested
stockholder pays a formula price designed to ensure that all other
stockholders receive at least the highest price per share paid by such
interested stockholder.
A New Jersey corporation may not opt out of the foregoing provisions
and the ASARCO Board of Directors has taken the necessary action to make
the foregoing provisions of New Jersey law inapplicable to the Business
Combination and the related transactions.
The ASARCO certificate of incorporation provides that certain
transactions, including a merger, significant asset sales and certain
issuances or transfers of securities, with the beneficial owner of more
than 10% of any class of capital stock of ASARCO generally require the
affirmative vote of the holders of 80% of the outstanding shares of all
classes of stock, voting together as a single class. The ASARCO certificate
of incorporation also provides that certain affiliated transactions with an
interested stockholder or any affiliate of an interested stockholder of
ASARCO require, in addition to any vote required by law or in the ASARCO
certificate of incorporation or by-laws, approval by a majority of the
continuing directors.
"Affiliated transaction" is defined in ASARCO's certificate of
incorporation and generally includes significant transactions involving
aggregate fair market value or commitments of more than $10 million or more
than 1% of ASARCO's consolidated assets and certain other material
arrangements. "Interested Stockholder" is also defined in the ASARCO
certificate of incorporation and generally means a beneficial owner of
voting stock representing 10% or more of the votes entitled to be cast by
the holders of all then outstanding shares of voting stock of ASARCO.
"Continuing director" is also defined in the ASARCO certificate of
incorporation and generally means a director who is not affiliated with the
interested stockholder and who was a director before the stockholder became
an interested stockholder.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT NO.
- -----------
Exhibit 1. Pages 10 through 20 of the Proxy Statement, dated March 15,
1999, relating to ASARCO's 1999 Annual Meeting of Stockholders.
Exhibit 2. Pages 62 through 64 of the Joint Proxy Statement and
Prospectus of ASARCO and Cyprus Amax, dated August 20, 1999,
relating to ASARCO's Special Meeting of Stockholders to
have been held on September 30, 1999.
Exhibit 3. Series B Stock Option Agreement, dated as of August 4, 1994.
Exhibit 4. Letter to Stockholders of ASARCO, dated September 9, 1999.*
- -------------------
* Included with Schedule 14D-9 mailed to stockholders.
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief,
the undersigned certifies that the information set forth in this statement
is true, complete and correct.
ASARCO INCORPORATED
By /s/ Francis R. McAllister
______________________________________
Name: Francis R. McAllister
Title:Chairman and
Chief Executive Officer
Dated: October 4, 1999
EXHIBIT 1
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee of the Board of Directors has
furnished the following report on executive compensation.
The compensation of Asarco's executive officers other than those who are
also directors is reviewed and established annually by the Organization and
Compensation Committee of the Board of Directors. For officers who were
also directors in 1998 (Messrs. Osborne, McAllister and Morano) the
Committee made compensation recommendations to the Board absent those
officers, which established their compensation. The Board did not modify or
reject in any material way the Committee's recommendations for 1998
compensation. The Committee met a total of seven times during 1998. Long-
term incentive compensation awards for 1998 to officers and other salaried
employees were approved by the Committee (and recommended to the Board with
respect to Messrs. Osborne and McAllister) at the Committee's January 1998
meeting.
The Company retains an independent compensation consulting organization to
advise and assist the Company and the Committee in connection with
compensation matters. During 1998 the consulting organization made
recommendations to the Committee on base salary, cash incentive
compensation and long-term incentive compensation matters for the Chief
Executive Officer and each other Asarco executive position. Such
recommendations included target levels for base salary and cash incentive
compensation, long-term income targets, weighting of stock option and
restricted stock values, and appropriate stock option and restricted stock
valuation methods. The Committee carefully considered the recommendations
and acted within the scope of the recommendations in these areas.
Asarco's executive officer compensation is composed of base salary and
incentive compensation.
The Company's policy for base salary for executive officers is to establish
par compensation levels for each position based on competitive data and the
responsibilities and value of each executive position to the Company. The
Committee considers compensation information from other companies in the
mining and metals industry. It also considers compensation information from
smaller, larger and comparably sized companies in other industries. The
Committee then considers individual and corporate performance in
establishing salary levels within a competitive range.
The Committee believes that the S&P Metals Miscellaneous Group, which
includes only four metals companies in addition to the Company, and the S&P
500 Index, both used for comparing shareholder returns, do not necessarily
represent the Company's most direct competitors for executive talent. In
making decisions that affect executive compensation the Committee reviews
three different comparator groups proposed by its independent consultants:
one group includes 13 process-oriented companies; another group is
comprised of 50 companies engaged in heavy industry; and a third group
consists of approximately 175 companies having annual revenues of $1
billion to $6 billion (the "Comparator Groups"). These groups represent
companies whose operational and performance characteristics are capable of
comparison with those of the Company, allowing for meaningful comparisons
of executive compensation. The Comparator Groups include three of the five
companies in the S&P Metals Miscellaneous Group and approximately 110
companies in the S&P 500 Index.
Base salaries for the Company's executive officers in 1998 were slightly
above the median of the Comparator Groups studied by the Committee and
represented a slightly greater percentage of total
10
<PAGE>
compensation, relative to the median for the Comparator Groups. Because
the cyclical nature of the Company's business can result in significant
changes in incentive compensation from year to year the Committee believes
that compensation levels are more stable and, accordingly, more
competitive when base salaries comprise a larger portion of total cash
compensation. In general, the Committee structures total compensation for
each salaried position to be approximately at the median of total
compensation for comparable positions among the Comparator Groups.
Although the Company's base salaries are set at levels intended to be
competitive with the Company's industry peers, the Committee also takes
into consideration the Company's performance relative to companies in the
Comparator Groups as part of its compensation review. In this regard, the
Company's success in meeting transactional, operational and financial
objectives are all taken into consideration. Because the relative
importance of each objective may change over time, the Committee does not
set fixed Company performance targets for purposes of setting base
salaries. The Company's success or failure in achieving certain objectives
or financial results, however, will generally affect executive salaries.
Thus, in a downward part of the business cycle, salary increases may be
delayed or salaries even reduced; in strong financial years, the Company
may award larger increases.
In 1998, base salaries for Mr. McAllister and Mr. Morano were increased
effective February 1, 1998, by 16.7% and 9.4%, respectively, associated
with the promotion of Mr. McAllister to President and Mr. Morano to
Executive Vice President. The salary of one other officer was increased by
6.8% effective April 1, 1998, in connection with a promotion. Base
salaries for other executive officers have not been increased since May
1997.
Incentive compensation consists of cash incentive compensation awarded
annually if justified, and long-term incentive compensation. Long-term
incentive compensation combines restricted stock and stock options and is
designed to link the interests of executive officers with those of
stockholders by providing each executive an incentive to manage the
business as an owner with an equity stake.
Annual cash incentive payments are determined under the Asarco Incentive
Compensation Plan and the Asarco Incentive Compensation Plan for Senior
Officers ("Senior Officers' Plan"), which are administered by the
Organization and Compensation Committee. Approximately 75% of all active
salaried employees of the Company are eligible for annual cash incentive
compensation payments under the Incentive Compensation Plan. The sole
purpose of the Senior Officers' Plan, which covers only the five most
highly compensated officers with respect to a year in which compensation is
awarded, is to assure current federal income tax deductibility of incentive
compensation earned by those five officers whose compensation might
otherwise not be deductible under the Internal Revenue Code. Incentive
awards to the five covered officers are determined pursuant to the Senior
Officers' Plan and the Incentive Compensation Plan, and to the extent they
exceed award levels under the Senior Officers' Plan, such awards may not be
deductible. The Asarco Compensation Deferral Plan permits officers and
eligible employees to defer all or a portion of awards made under the
Incentive Compensation Plan (and, if applicable, the Senior Officers'
Plan), and to defer that portion of salary that could have been deferred
under the Savings Plan but for limitations imposed by the Internal Revenue
Code.
Under the Incentive Compensation Plan, a target level of annual incentive
compensation is established for each eligible employee based on the level
of responsibility attached to such employee's position with the Company.
For executive officers these targets are set slightly below
11
<PAGE>
competitive median levels to compensate for salary targets which are set
slightly above competitive median levels. The officers' levels of
responsibility are determined by the Committee after review of
substantially equivalent positions among the Comparator Groups. Awards to
employees are increased or decreased from a predetermined target level,
based upon performance measured at three levels: individual, operating
unit or staff group and Company-wide. Incentive compensation for the
Company's executive officers, and particularly for the Chief Executive
Officer, is determined by individual and Company performance levels.
Company performance in 1998 was evaluated against objectives previously
established by the Board of Directors.
In November 1998 and January 1999 the Committee concluded that, although
the Company had made favorable progress in 1998 towards goals in areas
including reduction of copper operating costs and sale of non-core assets,
no incentive compensation should be awarded under the Incentive
Compensation Plan or the Senior Officers' Plan with respect to 1998 in view
of the Company's net loss for the year.
In meetings in April, June and September 1998, followed in each case by
discussion with the Board, the Committee developed a new formula-based
incentive compensation plan for the Company, which was approved by the
Board in October 1998 effective for the year beginning January 1, 1999.
The revised Asarco Incentive Compensation Plan has been designed, among
other things, to reward management for achieving and exceeding annual
Return on Equity ("ROE") targets approved by the Board. The ROE targets
will be reviewed by the Board each year and may be revised by the Board in
response to changes in the Company's strategy. If minimum or better ROE
targets are achieved, incentive compensation will be paid, subject to
adjustments for overall corporate and for unit or performance management
group performance, and also for individual performance.
In January 1998 the Committee approved awards of stock options and
restricted stock to the Company's officers other than Messrs. Osborne and
McAllister, and recommended to the Board awards to those officers. These
awards were made within long-term incentive income targets based upon
analyses by the Company's compensation consultant. The consultant
supplements data from the Comparator Groups with broad based survey data to
develop target levels of "long-term gain opportunity" for various levels of
total compensation, with greater percentages of long-term gain opportunity
attaching to higher responsibility levels. The Company's consultant surveys
a broader group of companies than those in the Comparator Groups so as to
provide a more complete analysis of competitive long- term incentive
compensation award levels.
The Company normally makes long-term incentive awards on an annual basis
and has not established specific stock ownership objectives for its
officers. In 1998, long-term incentive compensation awards to the
Company's executive officers were at the median of awards made by the
companies included in the Comparator Groups and the consultant's surveys.
In making 1998 long-term incentive awards the Committee also considered
each officer's performance. The Committee also considered outstanding
options and shares of restricted stock previously awarded to the executive
officers. In the case of the Chief Executive Officer the Committee also
considered his performance and responsibility in establishing the Company's
strategic goals and directing all elements of its performance.
In July 1998 the Committee approved an award of 118,075 stock options
exercisable at the then current market price of $21.75 per share to a broad
group of 1,217 of the Company's middle
12
<PAGE>
management and other employees. The options were granted during a period
when the Company was deferring any general salary increases in view of low
copper prices.
In meetings in October and November 1998 the Committee determined that it
would be in the best interests of the Company for Mr. Osborne to be
entitled to an office and certain executive-level services following his
retirement. The Committee recommended to the Board, and the Board
approved, a one-year consulting agreement under which Mr. Osborne will
provide consulting services to the Company for a daily consulting fee of
$4,500 with an annual minimum of 23 consulting days of service. The
Company agreed to nominate Mr. Osborne for re-election in April 1999 as a
Company director for a term ending April 2001.
Section 162(m) of the Internal Revenue Code eliminates the Company's
Federal income tax deductions for certain compensation in excess of $1
million paid in a taxable year to each of the Company's five highest paid
officers as reported in the proxy statement, unless compensation programs
meet certain requirements, principally concerning the adoption of fixed
targets. Accordingly, changes in Asarco executive compensation programs
for annual incentive compensation and for stock option grants as a result
of the provision were approved by Asarco shareholders in 1996. While the
Company considers that restricted stock provides a form of long-term
compensation the value of which is directly related to Company stock
performance, the Committee believes that it is not practical to change the
Company's restricted stock plan provisions to meet the requirements of
Section 162(m). The Committee intends, to the extent practicable, to
preserve deductibility under the Internal Revenue Code of compensation paid
to the Company's executive officers. Although compensation paid is
generally deductible, certain compensation paid to some executives may not
be deductible.
Willard C. Butcher, Chairman
James W. Kinnear
Martha T. Muse
John D. Ong
James Wood
13
<PAGE>
EXECUTIVE COMPENSATION
Set forth below is certain information concerning the annual and long-term
compensation for services in all capacities to the Company for fiscal years
1998, 1997 and 1996 of the Company's Chief Executive Officer and the other
four most highly compensated executive officers of the Company:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
SECURITIES
OTHER RESTRICTED UNDERLYING
NAME AND ANNUAL STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) (SHARES) COMPENSATION(3)
------------------ ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard de J. Osborne 1998 $885,000 $24,969 $528,710 73,950 $26,550
Chairman of the 1997 865,000 $957,000 25,588 577,500 67,500 25,950
Board and Chief 1996 811,672 485,000 28,850 539,750 50,000 24,350
Executive Officer
Francis R. McAllister 1998 518,750 --- 21,969 140,270 27,500 15,563
President and Chief 1997 441,668 335,300 22,588 159,500 25,500 13,250
Operating Officer 1996 419,008 172,600 25,850 142,875 19,000 12,570
Kevin R. Morano 1998 382,258 --- 24,969 116,532 22,500 11,468
Executive Vice 1997 345,340 259,700 25,588 140,250 21,800 10,360
President 1996 324,672 141,800 28,150 114,300 15,200 9,740
Robert J. Muth 1998 300,000 --- 21,969 75,530 15,200 9,000
Vice President 1997 296,668 76,500 22,588 88,000 15,200 8,900
1996 286,672 74,300 24,825 76,200 10,400 8,600
Augustus B. Kinsolving 1998 299,004 --- 20,969 64,740 12,600 1,600
Vice President and 1997 295,004 132,500 22,588 77,000 12,600 1,600
General Counsel 1996 283,672 75,200 25,850 62,250 9,000 1,500
</TABLE>
(1) Represents annual retainer, stock award and fees received for
services as a director of Southern Peru Copper Corporation.
(2) Dollar values of restricted stock awards are shown as of the date of
grant. The number and dollar value of shares of restricted stock
holdings owned at December 31, 1998, and still subject to restrictions
are as follows: Mr. Osborne, 61,500 shares/$930,188; Mr. McAllister,
16,520 shares/$249,865; Mr. Morano,13,840 shares/$209,330; Mr. Muth,
8,800 shares/$133,100 and Mr. Kinsolving, 7,600 shares/$114,950.
Restrictions on such shares lapse in equal installments over five years
beginning with the grant dates which occurred during the period from
January 1994 through January 1998, except upon a change of control, in
which case all shares vest immediately. Cash dividends paid on shares of
restricted stock are not subject to restrictions.
(3) Amounts shown reflect matching contributions made by the Company for
the named individuals under the Company's Savings Plan and Compensation
Deferral Plan (formerly the Supplemental Savings Plan). The Savings Plan
is a qualified defined contribution profit sharing plan available
generally to all United States salaried employees with one month of
service with the Company. Savings Plan contributions are immediately
vested and may be withdrawn subject to certain restrictions, penalties
and suspension periods. The Compensation Deferral Plan is a non-
qualified deferred compensation plan that allows eligible employees to
defer that portion of their salary that could have been deferred under
the Savings Plan but for limitations imposed by the Internal Revenue
Code, and to defer all or part of their eligible incentive compensation,
as provided in the Plan. Salary deferrals are eligible for a Company
matching contribution under the Plan. Matching contributions under both
plans may not exceed 3% of the employee's salary. Compensation deferred
and amounts contributed by the Company may be withdrawn subject to
certain restrictions and penalties. Deferrals of incentive compensation
are not eligible for a Company matching contribution.
14
<PAGE>
OPTION GRANTS
Set forth below is further information on grants of stock options under the
Company's 1996 Stock Incentive Plan for the period January 1, 1998 to
December 31, 1998. No stock appreciation rights ("SARs") were granted in
1998 or outstanding as of December 31, 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
GRANT
INDIVIDUAL GRANTS VALUE
----------------- -----
NUMBER OF OF TOTAL
SHARES OPTIONS
UNDERLYING% GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN OR BASE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR PRICE $/SH DATE VALUE(2)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard de J. Osborne 73,950 15.1% $21.58 1/27/08 $359,323
Francis R. McAllister 27,500 5.6% $21.58 1/27/08 133,623
Kevin R. Morano 22,500 4.6% $21.58 1/27/08 109,328
Robert J. Muth 15,200 3.1% $21.58 1/27/08 73,857
Augustus B. Kinsolving 12,600 2.6% $21.58 1/27/08 61,223
</TABLE>
(1) The options were awarded under the Company's stockholder-approved
1996 Stock Incentive Plan. The option price per share equals the fair
market value of the Company's Common Stock on the date of grant. The
options provide for limited rights exercisable upon the occurrence of
specified events that may materially affect the value of the Company's
Common Stock and are designated as such by the Committee that
administers the Plan, including a tender or exchange offer for shares of
the Company's Common Stock, the replacement of a majority of the Board
as a result of a proxy contest, a merger or reorganization of the
Company, or a liquidation or dissolution of the Company. If an exercise
event occurs, the holder is entitled to receive the cash value of the
options at the highest market value that the shares traded over a period
of sixty days preceding the event or, in the event of the consummation
of a tender offer, the tender offer price, in each case, less the
exercise price.
(2) Based on the Black-Scholes option pricing model, a widely recognized
method of valuing options. The following assumptions were used in
determining the value of the options using the model: expected
volatility of 29.4% based on actual monthly volatility for the preceding
five years, risk-free rate of return of 5.6% based on the yield of the
five year U.S. treasury note as of the grant date, annual dividend rate
of $0.94 per share based on average dividends paid per share over the
preceding ten years, and exercise of the option five years after the
grant date. The actual value, if any, an executive may realize will
depend on the excess of the stock price over the exercise price on the
date the option is exercised, so that there is no assurance the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model. The model is used for valuing market traded options
and is not directly applicable to valuing stock options granted under
the Company's Stock Incentive Plan which cannot be sold.
15
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Set forth below is information concerning stock option exercises by named
executive officers during 1998, including the aggregate value of gains on
the date of exercise, the number of shares covered by exercisable options
and the value of "in-the-money" options as of December 31, 1998. All
outstanding options were exercisable at December 31, 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1998 AND
DECEMBER 31, 1998 OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
SHARES OPTIONS AT YEAR END IN-THE MONEY
ACQUIRED ON VALUE EXERCISABLE/ OPTIONS AT
NAME EXERCISE REALIZED UNEXERCISABLE(1) YEAR END(2)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard de J. Osborne __ __ 399,450 __
Francis R. McAllister 9,000 $13,290 151,840 __
Kevin R. Morano __ -- 93,200 __
Robert J. Muth -- -- 52,614 --
Augustus B. Kinsolving 2,044 $6,457(3) 73,300 __
</TABLE>
(1) The above officers held no unexercisable options at December 31,
1998.
(2) Based on the New York Stock Exchange--Composite Transactions price
for the Company's Common Stock of $15.125 on December 31, 1998.
(3) All after-tax net value realized was received in shares of Common
Stock.
16
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total return on the Company's Common Stock against the
cumulative total return on the S&P Composite 500 Stock Index and the S&P
Metals Miscellaneous Group Index for the five year period 1993 to 1998.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
ASARCO INCORPORATED, S&P 500 INDEX & S&P METALS MISC. GROUP INDEX
COMP OF FIVE YEAR
"Asarco" "S&P 500" "S&P Metal"
1993 100 100 100
1994 126.44 101.32 116.76
1995 145.19 139.40 129.16
1996 116.06 171.41 131.78
1997 107.58 228.59 88.58
1998 74.77 293.92 63.72
*TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS **ASSUMES $100 INVESTED ON
12/31/93 IN ASARCO COMMON STOCK, S&P 500 INDEX & S&P METALS GROUP INDEX
The preceding chart analyzes the total return on Asarco's Common Stock
compared to the S&P 500 and the S&P Metals Miscellaneous Group over the
five year period commencing December 31, 1993. In the first year of this
period, through December 31, 1994, Asarco's stock had a positive return of
26.4%, the S&P 500 returned 1.3% and the S&P Metal Miscellaneous Group
returned 16.8%. In 1995, the return for Asarco's stock was a positive 14.8%
compared to positive returns of 37.6% for the S&P 500 and 10.6% for the S&P
Metals Miscellaneous Group. In 1996, Asarco's stock provided a negative
return of 20.1% compared to positive returns of 23.0% for the S&P 500 and
2.0% for the S&P Metals Miscellaneous Group. In 1997, Asarco's return was a
negative 7.3%, the S&P 500 returned a positive 33.4% and the S&P Metals
Miscellaneous Group returned a negative 32.8%. In 1998, Asarco's stock
provided a negative return of 30.5% compared to a positive return of 28.6%
for the S&P 500 and a negative return of 28.1% for the S&P Metals
Miscellaneous Group.
17
<PAGE>
RETIREMENT PLANS
The following table shows the estimated amount of annual retirement income
(calculated as a single life annuity benefit) payable to employees for
life, commencing at normal retirement at age 65 in 1999, under the
Company's qualified Retirement Benefit Plan for Salaried Employees
("Plan"), covering substantially all salaried employees, a prior plan of
the Company and a supplemental retirement benefit plan (the "Supplemental
Plan"). The Supplemental Plan is a non-qualified supplemental retirement
benefit plan under which any benefits not payable from Plan assets by
reason of the limitations imposed by the Internal Revenue Code of 1986, as
amended (the "Code") and the loss due to the deferrals of salaries made
under the Company's Deferred Income Benefit System and the Compensation
Deferral Plan are paid from the Company's general corporate funds. The
table assumes Social Security benefit levels as in effect on January 1,
1999.
PENSION PLAN TABLE
APPROXIMATE ANNUAL RETIREMENT BENEFITS
FINAL
AVERAGE 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
- ------------ ---------- ---------- ---------- ---------- ----------
$ 300,000 64,525 86,033 107,541 129,049 150,557
400,000 87,025 116,033 145,041 174,049 203,057
500,000 109,525 146,033 182,541 219,049 255,557
600,000 132,025 176,033 220,041 264,049 308,057
700,000 154,525 206,033 257,541 309,049 360,557
800,000 177,025 236,033 295,041 354,049 413,057
900,000 199,525 266,033 332,541 399,049 465,557
1,000,000 222,025 296,033 370,041 444,049 518,057
1,100,000 244,525 326,033 407,541 489,049 570,557
1,200,000 267,025 356,033 445,041 534,049 623,057
1,300,000 289,525 386,033 482,541 579,049 675,557
1,400,000 312,025 416,033 520,041 624,049 728,057
1,500,000 334,525 446,033 557,541 669,049 780,557
1,600,000 357,025 476,033 595,041 714,049 833,057
1,700,000 379,525 506,033 632,541 759,049 885,557
1,800,000 402,025 536,033 670,041 804,049 938,057
1,900,000 424,525 566,033 707,541 849,049 990,557
2,000,000 447,025 596,033 745,041 894,049 1,043,057
Benefits are calculated using a final average earnings formula (i.e.,
average of the highest consecutive 60 months of the last 120 months of
compensation received "Final Average Compensation"), minus a Social
Security offset.
As of January 31, 1999, the following officers had completed the number of
years of service indicated opposite their names: Richard de J. Osborne, 24
years; Francis R. McAllister, 32 years; Kevin R. Morano, 20 years; Robert
J. Muth, 30 years and Augustus B. Kinsolving, 24 years. Under the Plan and
Supplemental Plan, the amounts of covered compensation of such persons for
calendar year 1998 were Richard de J. Osborne, $1,842,000, Francis R.
McAllister, $854,050, Kevin R.
18
<PAGE>
Morano, $641,958, Robert J. Muth, $376,500 and Augustus B. Kinsolving,
$431,504 and consisted of basic salary and cash incentive compensation
payments in the year received as shown in the Summary Compensation Table
and in prior proxy statements. Cash incentive compensation payments are
generally received in the year following that in which they are earned.
Messrs. Osborne, Muth and Kinsolving are eligible to receive additional
benefits, not included in the amounts shown in the table, under the
Company's supplemental plan for designated officers hired in mid-career
(the "Mid-Career Plan"). The Mid-Career Plan provides supplemental
retirement benefits out of the general funds of the Company for officers
holding the rank of Vice President or higher who are determined by the
Organization and Compensation Committee to have had prior business or
professional experience valuable to the Company and relevant to the
positions for which they were employed by the Company, and who at
retirement or termination of employment with the consent of the Company
will have been with the Company as a Vice President or higher for 10 years
or more. The Mid-Career Plan provides for annual benefits equal to 55% of
the Final Average Compensation, which amount is reduced by any benefits
payable by the Company or any other employer under any other pension plan
not attributable to the employee's contributions, and by all Social
Security benefits payable at the time of retirement or early termination.
All benefits under the Mid-Career Plan are forfeited by a participant who
prior to attaining age 65 terminates employment with the Company without
its consent, except in the case of a change in control. Participants in the
Supplemental Plan and the Mid-Career Plan receive their benefits in a lump-
sum payment at retirement (which payment may be deferred) unless they
elect, in accordance with the terms of the plan, to receive an annuity
benefit.
EMPLOYMENT AGREEMENTS
The Company has employment agreements which provide for severance payments
in certain events to Messrs. Osborne, McAllister, Morano, Muth and
Kinsolving and six other key executive officers. The employment agreements
are for a term of one year, renewable automatically on a year-to-year basis
unless terminated by the Company at least nine months prior to the
anniversary date, except that they continue in effect for not less than
three years following occurrence of a change in control of the Company. If,
as a result of a change in control, the executive's employment is
terminated, his responsibilities are materially reduced, or his salary,
bonus or benefits are adversely affected, the executive is entitled to
receive from the Company as severance pay one lump-sum payment equal to the
total of three times such executive's annual base salary, average incentive
compensation payments received for the higher of the three or five years
immediately preceding the date of termination or the change in control, and
the annual cost to the Company of certain benefits such executive is
entitled to receive immediately preceding the date of termination. The
executive would also be entitled to continuation of health and other
insurance benefits for a period of three years following termination. Upon
termination by the Company after a change in control, under the agreements
each executive is also entitled to payment from the Company of the value of
such executive's stock options. The amount of the severance payment from
the Company will also include an amount necessary to reimburse each
executive for any excise taxes imposed by the Code in respect of such
payments. In addition, the Supplemental Plan and the Mid-Career Plan
provide for lump-sum payment of accrued benefits upon a change in control.
The employment agreements also provide that following the occurrence of a
potential change in control of the Company each executive officer will
remain in the employ of the Company for 180 days. Under the agreements,
change in
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control as to an executive shall not be deemed to have occurred
if the event first giving rise to the change in control involves a
publicly-announced transaction or publicly-announced proposed transaction
which at the time of the announcement has not been previously approved by
the Company's Board of Directors and the executive is part of a purchasing
group proposing the transaction. Also, there is deemed to be no change in
control as to an executive if the executive is part of a purchasing group
which consummates a change in control transaction. No change in control
shall occur under the agreements in a merger or consolidation approved by
the stockholders in which the voting securities of the Company continue to
represent 50% or more of the voting power of the Company or surviving
entity, or in a merger or consolidation in which no person or entity
acquires more than 50% of the voting securities of the Company.
In November 1998 the Company entered into a one-year consulting agreement
with Mr. Richard de J. Osborne to take effect upon his retirement as Chief
Executive Officer in April 1999. See "Committee Report on Executive
Compensation" above in this proxy statement.
20
EXHIBIT 2
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The executive officers of ASARCO and Cyprus Amax and the members of
the ASARCO and Cyprus Amax boards of directors have interests in the
business combination that are different from, or in addition to, the
interests of stockholders generally. Several executive officers of ASARCO
and Cyprus Amax, including some officers who are also directors, have
employment or severance agreements and are or may become entitled to
specific benefits under employee benefit plans as a result of the business
combination. Each of the employee-directors of ASARCO and Cyprus Amax may
be entitled to receive compensation if the business combination is
completed. The ASARCO and Cyprus Amax boards of directors were aware of
and discussed these potentially conflicting interests when they approved
the business combination.
ASARCO EMPLOYMENT AGREEMENTS
ASARCO has entered into change of control employment agreements with
nine of its executive officers, including Messrs. McAllister, Morano,
Dowd, Kinsolving and Paul, which provide for severance payments following
termination of their employment with ASARCO. The employment agreements are
for a term of one year, renewable automatically on a year-to-year basis
unless terminated by ASARCO at least nine months prior to the anniversary
date. The employment agreements continue in effect for not less than three
years following occurrence of a change of control of ASARCO. The ASARCO
merger will constitute a change of control for purposes of the ASARCO
employment agreements.
If, as a result of a change in control, the executive's employment is
involuntarily terminated within three years of the change of control, the
executive is entitled to receive from ASARCO as severance pay a lump-sum
payment equal to the total of three times such executive's:
o annual base salary,
o average incentive compensation payments received for the
highest of either the three-year or five-year period
immediately preceding the date of termination or the change of
control, and
o the annual cost to ASARCO of certain benefits such executive is
entitled to receive immediately preceding the date of
termination.
Involuntary termination following a change of control includes
instances where:
o the executive's responsibilities or status are materially
diminished without his consent,
o the executive's annual base salary is reduced or not increased
by a minimum percentage following a change of control, or the
executive is not paid an annual bonus in accordance with bonus
policies in effect prior to the change of control,
o ASARCO (or a successor) fails to continue any incentive, bonus,
compensation, pension or other employee benefit plan prior to
or following the change of control,
o ASARCO's principal executive offices are relocated outside the
Borough of Manhattan,
o the executive's vacation days are reduced,
o ASARCO (or a successor) fails to pay the executive's
compensation or deferred compensation, or
o the successor corporation does not assume and agree to perform
the employment agreement.
The executive would also be entitled to continuation of health and
other insurance benefits for a period of three years following
termination. Upon such a termination after a change of control, each
executive is also entitled to payment from ASARCO of the value of the
executive's stock options. The amount of the severance payment from ASARCO
will also include any amount necessary to make whole the executive with
respect to any excise taxes imposed by section 4999 of the Internal
Revenue Code in respect of the payments described above.
The amounts Messrs. McAllister, Morano, Dowd, Kinsolving and Paul
would receive (exclusive of amounts payable under ASARCO's non-qualified
supplemental retirement benefit plans which are separately
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described below) if their employment were involuntarily terminated immediately
following approval of the ASARCO merger proposal by ASARCO stockholders
including the estimated payment for excise taxes imposed by section 4999
of the Internal Revenue Code are $4.99 million; $2.54 million; $1.32
million; $2.08 million; and $1.28 million, respectively. The aggregate
amount the four other executive officers with change of control employment
agreements would receive if their employment were involuntarily terminated
immediately following approval of the ASARCO merger proposal by ASARCO
stockholders is $4.95 million. As provided for in the merger agreement,
Mr. McAllister will serve as President and Co-Chief Executive Officer of
Asarco Cyprus and Mr. Morano will serve as Executive Vice President and
Chief Financial Officer of Asarco Cyprus following the mergers.
ASARCO STOCK BASED PLANS
When ASARCO stockholders approve the ASARCO merger proposal, all
outstanding options awarded prior to the announcement of the proposed
ASARCO merger will become fully vested and exercisable. Any option that is
not exercised before the date the ASARCO merger becomes effective will be
converted into an immediately exercisable option to purchase the number of
shares of Asarco Cyprus common stock equal to the number of shares of
ASARCO common stock which could have been obtained upon the exercise of
the option immediately prior to the time the ASARCO merger becomes
effective.
The estimated number of ASARCO shares underlying unvested options
that will become exercisable by Messrs. McAllister, Morano and Dowd as a
result of the approval of the ASARCO merger proposal by ASARCO
stockholders is 22,000; 3,000; and 11,000, respectively. Messrs.
Kinsolving and Paul do not hold any unvested options. The estimated
aggregate number of ASARCO shares underlying unvested options that will
become exercisable by all other executive officers as a result of the
approval of the ASARCO merger proposal by ASARCO stockholders is 7,800.
In addition, upon stockholder approval of the ASARCO merger proposal,
all outstanding awards of restricted stock will become fully vested. The
number of ASARCO shares awarded as restricted stock to Messrs. McAllister,
Morano, Dowd, Kinsolving and Paul that will vest as a result of
stockholder approval of the ASARCO merger proposal is 31,820; 17,520;
6,440; 8,340; and 5,460, respectively, and 19,270 for all other executive
officers.
OTHER ASARCO PLANS
ASARCO SUPPLEMENTAL RETIREMENT BENEFIT PLAN
The supplemental retirement benefit plan is a non-qualified
supplemental retirement benefit plan under which any benefits not payable
under ASARCO's tax qualified pension plans because of limitations imposed
by the Internal Revenue Code, or due to the deferrals of salaries made
under ASARCO's deferred income benefit system and the compensation
deferral plan are paid from ASARCO's general corporate funds. The
supplemental retirement benefit plan provides that the participants,
including the executives named above, will receive a lump sum payment of
their accrued benefits under the plan, discounted for present value, when
a change of control occurs. The business combination will constitute a
change of control for the purposes of the supplemental retirement benefit
plan. Unless participants waive their rights to immediate payment under
the plan, they will receive their benefits in a lump sum payment
immediately following stockholder approval of the ASARCO merger.
ASARCO SUPPLEMENTAL PENSION PLAN FOR DESIGNATED OFFICERS HIRED
IN MID-CAREER
The supplemental pension plan for designated officers hired in mid-
career provides supplemental retirement benefits for officers holding the
rank of vice president or higher who are determined by the compensation
committee of ASARCO to have
o prior business or professional experience valuable to ASARCO
and relevant to the positions for which they were employed by
ASARCO, and
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o who at retirement or termination of employment with the consent
of ASARCO will have been an employee of ASARCO as a vice
president or higher for 10 years or more.
The supplemental pension plan for designated officers hired in mid-
career provides for annual benefits equal to 55% of the executive's final
average compensation which is the average of the sixty highest monthly
amounts of the executive's compensation in the 120 months preceding his
retirement or termination. This amount will be reduced by any benefits
payable by ASARCO or any other employer under any other pension plan not
attributable to the employee's contributions, and by all Social Security
benefits payable at the time of retirement or early termination.
The supplemental pension plan for designated officers hired in mid-
career provides that the executives will receive a lump sum payment of
their accrued benefits under the plan, discounted for present value and
early commencement of benefits, when a change of control occurs. The
business combination will constitute a change of control for purposes of
the supplemental pension plan. Unless participating executives waive their
right to immediate payment under the plan, they will receive their
benefits in a lump sum payment immediately following stockholder approval
of the ASARCO merger.
DEFERRED COMPENSATION PLANS
The Deferred Fee Plan for Directors permits non-employee directors,
and the Compensation Deferral Plan permits eligible employees of ASARCO,
to defer payment of portions of their compensation until retirement or
termination from ASARCO. ASARCO also maintains a Directors' Deferred
Payment Plan for non-employee directors which provides for deferred
benefits payable following termination of service. Each of the plans
provide that plan participants will receive a lump sum payment of the
value of their account upon a change of control of ASARCO. The approval of
the ASARCO merger proposal by stockholders of ASARCO will constitute such
a change of control. Unless participants waive their rights to immediate
payment under the plans, they will receive their account balances under
the plans in a lump sum payment immediately following stockholder approval
of the ASARCO merger.
64
Exhibit 3
TRANSLATION
-----------
SERIES "B" STOCK OPTION AGREEMENT
SERIES "B" STOCK OPTION AGREEMENT, dated as of August 4, 1994,
(this "Agreement)", between, Banco Nacional de Mexico, S.A., Institucion de
Credito, Group Financiero Banamex Accival (the "Grantor") organized under
the laws of the United Mexican States ("Mexico"), as trustee, under Trust
Agreement No. 12-816-1, dated August 4, 1994 (the "Trust Agreement"); and
InverMexico, S.A. de C.V., Casa de Bolsa, Grupo Financiero InverMexico, a
Financial Institution organized in accordance with Mexican laws
(hereinafter "InverMexico").
DECLARATIONS
I. The Grantor declares:
(a) That it is empowered to carry out this Agreement in
accordance with the regulations of Section XV of Article
46 of the Credit Institutions Law.
(b) That on August 4, 1994, in its capacity as trustee it
entered into with ASARCO Incorporated, ASARCO de Mexico
(Delaware) Inc., ASARCO (Delaware) Incorporated and
Mexican Mine Holdings, Inc., as Beneficiaries, the Trust
Agreement by which 62,104,386 ordinary shares, Series
"B," Class I representative of the capital stock of Grupo
Mexico, S.A. de C. V. (hereinafter "Grupo Mexico") which
they owned, were irrevocably and definitively
transferred, for the purpose of granting InverMexico the
option contained in this Agreement. A copy of such
Agreement is attached hereto as Annex "4," and it is an
integral part of this Agreement.
(c) That on January 21, 1994, Group Industrial Minera Mexico,
S.A. de C.V. and Mexico Desarrollo Industrial Minero,
S.A. de C.V. entered into a Reorganization Agreement,
(the "Reorganization Agreement") with ASARCO Incorporated
(hereinafter "ASARCO") and Mexican Mine Holdings, Inc.
(hereinafter "MMH"), pursuant to Clause SIXTH of which,
the Grantors agreed to grant to the Series A shareholders
of Grupo Industrial Minera Mexico, S.A. de C.V.
("GIMMSA"), or their designees (who, pursuant to the
Reorganization Agreement, accept the public reciprocal
offer indicated in paragraph "c"), an irrevocable option
to purchase, in whole or in part, the 62,104,386 Series
"B" shares of Grupo Mexico retained by the Grantors
pursuant to the Reorganization Agreement (such shares
being hereinafter referred to as the "Option Shares").
(d) That it has the absolute disposition of the Option Shares
to dispose of and deliver, without judicial intervention,
at the time in which InverMexico exercises totally or
partially the option contained in this Agreement, and
InverMexico pays the exercise price in accordance with
the terms of this Agreement.
(e) That its representatives, who appear in its name and on
its behalf are empowered as necessary to bind the Grantor
to the terms of this Agreement, without such power having
been revoked or limited in any manner.
II. InverMexico declares:
(a) That it was legally incorporated through public deed 7765
granted April 27, 1973, before Lic. Jose G. Arce y
Cervantes, Notary Public 102 of the Federal District,
subscribed in the Public Registry of Commerce of the same
locality, under number 23, page 32 of volume 877, Third
book, on June 23, 1973, and presently inscribed in
commercial file 4744 of the same Registry.
(b) That it is the beneficiary of the option contained in
this Agreement under the terms of the Trust Agreement
mentioned in Declaration I (b) of this Agreement.
(c) That its representatives, who appear in its name and on
its behalf are empowered as necessary to bind it to the
terms of this Agreement, without such power having been
revoked or limited in any manner.
IN WITNESS WHEREOF, and as a result of the obligations and agreements
herein established, the parties hereto agree as follows:
CLAUSES
1. GRANT OF OPTION.
The Trustee hereby grants to InverMexico an irrevocable option (the
"Option") to purchase, at any time or times, during the Option term, all or
part of the Option Shares, at the exercise price of U.S. $1.40 (One dollar
and Forty Cents) per share payable in United States dollars, and if that is
not possible, in accordance with Mexican laws or regulations, then the
payment of the Exercise Price shall be the rate of exchange quoted by Banco
Nacional de Mexico, S.A., Bancomer, S.A. and Banca Serfin, S.A. for the
sale of dollars to third parties on the day of the payment, in this last
instance, or in its absence, but only within the last two months of the
effectiveness of the Option including the expiration day at the rate of
exchange that is established by the Mexican federal government to satisfy
obligations in foreign currency and in immediately available funds, in the
domicile of Grantor in Mexico City, Federal District (the "Exercise
Price"), subject to the terms and conditions of this Agreement. For the
grant of the Option there shall be no premium, commission or consideration
except the Exercise Price.
2. OPTION TERM.
The Option may be exercised during business hours on any business day
commencing on August 11, 1994, and ending on August 11, 2001 (the "Option
Term"). The term "business day" means any day on which banking institutions
and stock exchanges in the Cities of Mexico, Federal District and New York,
New York are open for business.
3. MANNER OF EXERCISE.
(a) InverMexico may exercise the Option by delivering an original
signed Option Exercise Form, which shall be not earlier than five business
days, however, in the last month of the term the Option, two business days,
prior to the exercise of the Option, in which it states its acceptance of
the purchase and specifies the number of Option Shares exercised on such
occasion and the date on which the delivery of such shares shall be
complete and the respective price (hereinafter, the "Date of Delivery"). On
the Date of Delivery, InverMexico shall transfer payment in full of the
Exercise Price for the number of Trust Shares as to which the Option is
exercised, in United States dollars, and if that is not possible, in
accordance to Mexican laws or regulations, then the payment of the Exercise
Price shall be the rate of exchange quoted by Banco Nacional de Mexico,
S.A., Bancomer, S.A. and Banca Serfin, S.A. for the sale of dollars to
third parties on the day of the payment, in this last instance, or in its
absence, but only within the last two months of the term of the Option,
including the expiration day, at the rate of exchange that is established
by the Mexican federal government to satisfy obligations in foreign
currency and in immediately available funds. Against receipt of the
Exercise Price the Grantor shall deliver to InverMexico the certificates or
titles representing the number of Option Shares exercised in accordance
with paragraph (a) properly endorsed, or through its transfer in its
account at S.D. Indeval, S.A. de C.V.
(b) The parties shall pay as it corresponds to each their share of
taxes derived from the transfer of the Option Shares or any other taxes or
charges applicable and payable relating to the exercise of such Option, in
total or in part, or by the delivery of the Option Shares resulting from
the exercise of the same.
(c) Redelivery of Remaining Shares. Any remaining Trust Shares as to
which the Option shall not have been exercised within the Option Term which
terminates on August 11, 2001, shall be free from any restriction
established in this Agreement in favor of the Grantor, in order for the
same, acting as the trustee, to proceed in accordance with the Trust
Agreement.
(d) Notation of Partial Exercise. Notation of any partial exercise of
the Option shall be made by the Grantor on Schedule I attached hereto.
4. ADJUSTMENT OF TRUST SHARES IN CERTAIN EVENTS.
(a) Stock Dividends or Stock Splits. In the event that as a result of
stock dividends or splits the Grantor as trustee and the holder of the
Option Shares, receives additional shares (hereinafter, the "New Shares")
of Grupo Mexico as a result of share dividends, splits, profit
capitalization or other entries capitalized of the net profits of Grupo
Mexico (not requiring any consideration), the following is agreed:
(i) All New Shares received by the Grantor, shall be subject to the
Option under the terms of this Agreement.
(ii) The Exercise Price for the Option Shares shall be the amount
resulting from subtracting from the sum received by ASARCO and MMH after
the exercise of any part of the Option, from U.S. $86,946,140.40 and
dividing the remainder by the number of Trust Shares then subject to the
Option.
(b) Cash Dividends.
In the event cash dividends are declared on the Option Shares, the
Exercise Price or the number of Option Shares shall not be modified.
(c) Merger and Scission.
In the event of merger or scission of Grupo Mexico, the securities
resulting shall correspond in all cases to the Option Shares and shall be
subject to the terms of the same without an adjustment to the Exercise
Price, as long as the shareholders were not required to contribute
additional capital.
5. ASSIGNMENTS.
This Agreement and the rights derived from the Option may be assigned
by InverMexico or by any other assignee of InverMexico at any time with
respect to the part of the Option not yet exercised, without requiring the
consent of the Grantor only to persons controlled, directly or indirectly,
by InverMexico, or trusts created by InverMexico or any other entity agreed
to by the majority of shareholders of Series "B" shares of Grupo Mexico,
however, such assignment shall, in all cases apply to the entire Option and
it shall not be subdivided. In its event, for the assignment of all rights
derived from the Option and this Agreement, except its assignment to the
cover trust that shall be created by InverMexico, in Banco Mexicano, S.A.
Trust Division No. F-321260, the consent of the common agent of the holders
of the option certificate issued by InverMexico on the shares of Grupo
Mexico (GMX 098E EC001).
Subject to the provisions contained in paragraph one of this Clause,
the Grantor is obligated to recognize as valid any assignment of this
Agreement and the rights derived from the Option as long as the assignment
is carried out under an assignment agreement under the terms of Annex "2"
of this Agreement and such assignment is notified to the Grantor in
accordance with the form of notice attached hereto as Annex "3". Any
assignment shall release InverMexico of all obligations to the Grantor
under the terms of the present Agreement, and it shall not have any
liability with respect to the obligations assumed by the assignee who shall
be considered a party to this Agreement as if it were a signatory of the
original in place of InverMexico and any reference to InverMexico under
this Agreement shall be considered as referring to the assignee.
The Grantor waives, for the benefit of the assignee of InverMexico or
any other assignee (as the case may be) who could exercise the Option in
total or part, to any right to compensation or any other defense that it
may have with respect to obligations derived from this Agreement against
InverMexico or any other prior assignee (as the case may be), with the
understanding that such waiver is not intended to include any right to
compensation or defense the Grantor holds by its relationship with the
persons who effectively exercise the Option totally or partially.
6. NOTICE.
All notices, summons, claims or communications in relation to this
Agreement, must be made in writing delivered, or transmitted by telefax or
telex to the respective domiciles of the parties as follows:
The Grantor: Paseo de la Reforma 404, 14th Floor
Col. Juarez
C.P. 06600 Mexico, D.F.
Att'n: Lic. Fernando Montes de Oca Peregrina
InverMexico: Reforma 211, 4th Floor
Col. Cuauhtemoc
C.P. 06500 Mexico, D.F.
Att'n: Lic. Hector Grisi Checa
or any other domicile of which either party shall notify the other in
writing, with the understanding that notices of change in domicile shall be
effective upon receipt by the other party. The party giving notice shall
obtain some evidence that the notice was received.
7. AMENDMENT.
This Agreement shall not be amended, altered or supplemented, except
by a written agreement signed by the parties hereto.
8. SEVERABILITY.
If any provision of this Agreement shall be invalid, illegal or
unenforceable by reason of any applicable law or public policy, all other
provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic and legal substance of the transactions
contemplated hereby are not affected in any manner materially adverse to
the person that would have benefitted from such invalid, illegal or
unenforceable term or provision.
9. APPLICABLE LAW.
This Agreement shall be governed and construed in accordance with the
applicable laws of the United Mexican States.
10. JURISDICTION.
Any controversy, claim or complaint arising out of or in connection
with this Agreement's interpretation, adherence, validity or enforceability
of the same, which the parties cannot resolve amicably, shall be resolved
definitively and compulsorily by arbitration in accordance with the terms
of Title Four of the Mexican Commerce Code.
In accordance with Articles 1416 and 1426 of the Mexican Commerce
Code, the arbitration shall be conducted before an arbitration panel of the
independent arbiters. Each of the parties to the conflict shall designate
one arbiter and the third shall be designated by the two arbiters
designated by the parties. In the event the third arbiter is not designated
within the thirty days following the date on which either party notifies
the other of its intention to submit the conflict in question to
arbitration, such third arbiter shall be designated by the Chamber of
Commerce of the Federal District. The place of arbitration shall be Mexico
City, Federal District. The arbitration shall be conducted in Spanish
according to the procedures established in Title Four of the Commerce Code.
Each of the parties acknowledges that any arbitrated finding can be
executed in any competent court, and waives any rights to appeal it may
have.
11. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which
when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
12. HEADINGS.
The headings or captions in each of the sections of this Agreement
are included as reference only and do not affect or modify the meaning or
interpretation of each of the sections.
IN WITNESS WHEREOF, the Grantor and InverMexico have caused this
Agreement to be executed on the day and year established in the first
paragraph hereof.
Annexed to this Agreement are: 1) Notations as to Partial Exercise,
2) Copy of the Assignment Agreement, and 3) Copy of the Notice of
Assignment.
BANCO NACIONAL DE MEXICO, S.A.
TRUST DIVISION
GRUPO FINANCIERO BANAMEX ACCIVAL
By __________________________________
Lic. Fernando Montes de Oca Peregina
Title: Trust Representative
INVERMEXICO, S.A. de C.V.,
CASA DE BOLSA
GRUPO FINANCIERO INVERMEXICO
By __________________________________
Enrique Castillo Sanchez Mejorada
Title: Attorney in Fact
EXHIBIT 4
ASARCO
October 4, 1999
Dear Fellow Stockholders:
Last week your Board of Directors authorized management to explore
all available strategic alternatives that could maximize stockholder value.
Consistent with that objective ASARCO and Cyprus Amax amended their merger
agreement to enable each company to act independently to fulfill that
mandate and to allow either company to terminate the merger agreement upon
the payment of the applicable termination fee. On September 30, 1999,
following payment to ASARCO of a $45 million termination fee, Cyprus Amax
notified us that they were terminating our merger agreement.
On Monday, September 27, 1999, Grupo Mexico, S.A. de C.V. commenced
an all cash tender offer for all outstanding shares of ASARCO at $26.00 per
share, subject to a number of conditions, including entering into a
definitive merger agreement with ASARCO. In addition, Phelps Dodge's
currently amended exchange offer remains outstanding -- Phelps Dodge is
offering to exchange $9.00 in cash plus 0.2880 of a share of Phelps Dodge
common stock for each of your shares, on a fully prorated basis. Phelps
Dodge's offer is also subject to a number of conditions. More importantly,
Phelps Dodge wrote us a letter on Monday, September 27, 1999, in which they
stated "We remain determined to acquire ASARCO and are prepared to meet
with you to discuss a revised proposal SUPERIOR to those you are now
considering." We promptly invited them to meet with us to discuss their
proposal and are expecting a reply to that invitation.
On October 4, 1999, your Board of Directors authorized management to
initiate a process designed to elicit the best possible transaction for
you.
In light of the Board's determination to maximize value for all
stockholders and the fact that the Board believes that the process of
obtaining the best proposal possible is not complete, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALL STOCKHOLDERS OF ASARCO REJECT
BOTH THE GRUPO MEXICO $26.00 PER SHARE OFFER AND THE PHELPS DODGE EXCHANGE
OFFER AND CURRENTLY NOT TENDER THEIR SHARES IN EITHER OFFER.
Additional information with respect to the Board's decision and its
actions is contained in the enclosed Schedules 14D-9, and we urge you to
consider this information carefully.
Your Board of Directors and I greatly appreciate your continued
commitment, support and encouragement.
Sincerely,
/s/ Francis R. McAllister
-------------------------------
Francis R. McAllister
Chairman of the Board and
Chief Executive Officer
