<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[Mark One]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File Number 1-10040
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CYPRUS AMAX MINERALS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-2684040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9100 East Mineral Circle
Englewood, Colorado 80112
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 303-643-5000
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, without par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
9 7/8% Notes due June 13, 2001 New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates, based on a
closing price of $16 7/8 as of March 24, 1998, was approximately $1,563,500,000.
Number of shares of common stock outstanding as of March 24, 1998, was
93,606,833.
DOCUMENTS INCORPORATED BY REFERENCE
1997 Annual Report to Shareholders (Parts I, II, and IV).
Proxy Statement for the 1998 Annual Meeting to be filed within 120 days after
the fiscal year (Part III).
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<PAGE>
CYPRUS AMAX MINERALS COMPANY
PART I
To the extent the Company makes forward-looking statements, actual results
may vary materially therefrom. All of the information set forth in this Form
10-K, including without limitation the Risk Factors described herein, and all of
the information incorporated by reference, should be considered and evaluated.
Items 1 and 2. Business and Properties
Cyprus Amax Minerals Company (Cyprus Amax or the Company) is a diversified
mining company engaged, directly or through its subsidiaries and affiliates, in
the exploration for and extraction, processing, and marketing of mineral
resources. Cyprus Amax operates in three principal industry segments:
Copper/Molybdenum; Coal; and Other (which includes Lithium, Amax Gold,
Businesses Sold/Non-Operating, and Exploration). Cyprus Amax is a leading
copper and coal producer, and the world's largest producer of molybdenum and
lithium, with a significant position in gold via its 58.8 percent interest in
Amax Gold Inc. (Amax Gold or AGI). Cyprus Amax was incorporated in Delaware in
1969 and operates primarily in the United States. As of December 31, 1997,
Cyprus Amax employed approximately 10,500 employees. Its principal office is
located at 9100 East Mineral Circle, Englewood, Colorado 80112.
In December 1997, Cyprus Amax announced its intention to sell its lithium
subsidiary and as of late March 1998 due diligence is progressing with several
potential purchasers. In early February, 1998, Amax Gold announced that it has
entered into a merger agreement with Kinross Gold Corporation and a wholly-owned
subsidiary of Kinross Gold Corporation whereby, subject to the terms and
conditions thereof, each share of Amax Gold Common Stock will be converted into
0.8004 of a share of Kinross Common Stock. The merger is expected to close
before the end of June 1998, and Cyprus Amax will own approximately 31 percent
of the then outstanding common stock of the new Kinross. In late February 1998,
Cyprus Amax signed a letter of intent to sell selected Appalachian and
Midwestern coal properties to AEI Holding Company, Inc. This sale is expected
to be completed during the second quarter of 1998. There can be no assurance
that any of these transactions will be completed.
A description of Cyprus Amax's major properties and operations is set forth
below. Except as otherwise stated, data are expressed in short tons of 2,000
pounds and troy ounces of 31.103 grams. Except as otherwise stated, the term
"reserves" when used herein refers to proved and probable reserves for copper,
molybdenum, coal, and gold, and proved reserves for lithium. Reserve estimates
were prepared by Cyprus Amax's engineers. Information regarding Cyprus Amax's
mineral reserves and selected operating statistics are incorporated by reference
from page 51 of the 1997 Annual Report to Shareholders (1997 Annual Report). In
addition, data related to Cyprus Amax's industry segments and foreign and
domestic operations and export sales are incorporated by reference from
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" (Management's Discussion), pages 20 through 28 in the 1997 Annual
Report, and from Note 18 to the Consolidated Financial Statements on page 49 in
the 1997 Annual Report. Except as otherwise stated, Cyprus Amax has physical
access to its properties and conventional sources of power adequate to carry on
its business as currently conducted.
The terms Cyprus Amax or the Company when used herein may refer collectively
to the parent Cyprus Amax Minerals Company and its subsidiaries and affiliates,
or to one or more of them, depending upon the context.
2
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COPPER/MOLYBDENUM SEGMENT
Cyprus Amax explores for, mines, processes, and markets copper and
molybdenum primarily in North, Central and South America. Production information
at Cyprus Amax's principal mine operations in the Copper/Molybdenum segment is
summarized in the following tables for the years 1997 and 1996. The 1997 year-
end ore reserve information is as follows:
<TABLE>
<CAPTION>
Ore Reserves December 31, 1997
- ------------ ---------------------------------------------------------------------------------
Proven and
Probable
Ore Reserves/(1)/ Average Grade Saleable Product
----------------- -------------------------- -----------------------------
(Millions Copper Molybdenum Copper Molybdenum
of Tons) ------ ---------- ------ ----------
Operation (%) (%) (Millions of Lbs.)
---------
<S> <C> <C> <C> <C> <C>
Bagdad 977 .38 .021 6,041 282
Sierrita/Twin Buttes 837 .27 .029 3,697 344
Miami 207 .41 - 1,048 -
El Abra/(2)/ 519 .48 - 3,841 -
Cerro Verde/(3)/ 715 .64 .021 7,153 116
Henderson 198 - .213 - 740
Climax 145 - .232 - 593
----- ------ -----
3,598 21,780 2,075
===== ====== =====
</TABLE>
- ------------
/(1)/ Mine extraction losses and dilution have been taken into account in the
calculation of mineable ore reserves shown.
/(2)/ Represents Cyprus Amax's 51 percent interest in El Abra's ore reserves.
/(3)/ Represents 100 percent of Cerro Verde's ore reserves.
<TABLE>
<CAPTION>
Mine Statistics 1997 1996
- --------------- -------------------------------------- -----------------------------------
Material Ore Stripping Material Ore Stripping
Mined/(1)/ Mined Ratio/(2)/ Mined/(1)/ Mined Ratio/(2)/
---------- ----- ---------- ---------- ----- ----------
(Millions of Tons) (Millions of Tons)
Operation
---------
<S> <C> <C> <C> <C> <C> <C>
Bagdad 77 31 1.47 71 30 1.26
Sierrita/Twin Buttes 97 41 .99 99 40 1.22
Miami 102 32 2.23 104 30 2.50
Tohono 4 3 .28 19 10 .95
Cerro Verde 39 10 3.04 26 8 2.51
El Abra 31 31 - 3 3 -
Henderson 8 8 - 7 7 -
--- --- --- ---
Total 358 156 329 128
=== === === ===
</TABLE>
- ------------
/(1)/ Includes ore and waste mined on a wet short ton basis.
/(2)/ Represents the ratio of waste to ore mined.
3
<PAGE>
<TABLE>
<CAPTION>
Ore Processed Statistics
- ------------------------
1997 1996
-------------------------------------- ------------------------------------------
Ore Grade Ore Grade
------------------ ----------------------
Ore Processed Copper Molybdenum Ore Processed Copper Molybdenum
------------------ ------ ---------- ------------------ ---------- ----------
(Millions of Tons) (Percent) (Millions of Tons) (Percent)
Operation
---------
<S> <C> <C> <C> <C> <C> <C>
Bagdad - Mill 31 .43 .018 31 .39 .016
- Leach 1 .27 - 4 .23 -
Sierrita/Twin Buttes - Mill 41 .29 .032 40 .29 .033
- Leach 16 .22 - 12 .17 -
Miami - Leach 32 .46 - 30 .52 -
Tohono - Leach 3 .56 - 10 .54 -
Cerro Verde - Leach 10 .81 - 8 .93 -
El Abra 31 .93 - 3 .95 -
Henderson - Mill 8 - .262 7 - .302
--- ---
Total 173 145
=== ===
</TABLE>
<TABLE>
<CAPTION>
Production 1997 1996
- ---------- ----------------------------- -------------------------------
Copper Molybdenum Copper Molybdenum
------ ---------- ------ ----------
(Millions of Pounds) (Millions of Pounds)
Operation
---------
<S> <C> <C> <C> <C>
Bagdad 246 6 222 6
Sierrita/Twin Buttes 246 20 231 19
Miami 156 - 144 -
Tohono 27 - 39 -
Cerro Verde 122 - 105 -
El Abra/(1)/ 218 - 21 -
Henderson - 37 - 31
Mineral Park 3 - 6 -
----- --- --- ---
Total 1,018 63 768 56
===== === === ===
</TABLE>
- ------------
/(1)/ Represents Cyprus Amax's 51 percent share of production.
Cyprus Climax Metals Copper/Molybdenum Operations
In 1997 Cyprus Amax produced 1,018 million pounds of copper, a new record, and
63 million pounds of molybdenum from its copper and molybdenum operations.
During the fourth quarter of 1997, the Company achieved its full production
capability at the El Abra mine in Chile and established new annual production
records at the Cerro Verde leach operation in Peru and at the Bagdad and Miami
copper operations in Arizona.
Bagdad
At the Bagdad mine in northwestern Arizona, Cyprus Amax mines primarily
copper sulfide ore and produces copper concentrates with significant molybdenum
and minor silver by-products. The operation consists of an open pit mine, an
approximately 85,000 ton per day sulfide ore concentrator producing copper and
molybdenum concentrates, and an oxide leaching system with a solvent extraction-
electrowinning (SX-EW) plant producing copper cathode. In 1997 Bagdad produced
26 million pounds, or 11 percent of its total copper production, as electrowon
copper cathode, and sulfide copper production was 12 percent greater than in
1996. In 1997 the Bagdad concentrator milled approximately 31 million tons of
ore, the same as 1996, while higher feed grade and improved recoveries resulted
in a new production record. Cyprus Amax owns the mine property under patented
mining claims and owns the tailings areas under Arizona state patents.
4
<PAGE>
Sierrita
Cyprus Amax operates its Sierrita properties in south central Arizona as one
consolidated operation. Cyprus Amax owns the Sierrita copper and molybdenum
mine, which consists of an open pit mine, a 115,000 ton per day sulfide ore
concentrator, a molybdenum recovery plant, and two molybdenum roasters.
Sierrita's facilities are located on patented and unpatented mining claims and
fee land owned by Cyprus Amax. Copper ore mined at Sierrita is processed
into copper and molybdenum concentrates. Sierrita also uses an oxide
and low grade sulfide ore dump leaching system with an SX-EW plant to produce
copper cathode. Sierrita electrowon copper cathode production in 1997 totaled
39 million pounds, or 16 percent of its total copper production. In 1997
approximately 41 percent of Cyprus Amax's molybdenum concentrate production was
processed through Sierrita's on-site roasters. The resulting molybdenum oxide
and related products are either packaged for shipment to customers worldwide or
transported to other Cyprus Amax facilities for further processing.
Miami
The Miami operations consist of an open pit mine producing acid soluble
copper ore for heap leaching operations, an SX-EW plant producing copper
cathode, a smelter, an electrolytic refinery, and a rod plant. The facilities
are located near Miami, Arizona, on a combination of fee property owned by
Cyprus Amax, patented and unpatented mining and mill site claims, and private
and state leases. Miami's 1997 production of 156 million pounds of copper
cathode from the leaching and SX-EW operations was 8 percent greater than 1996
production and was an annual record. The smelter processed 604,000 tons of
copper concentrate in 1997, 5 percent less than in 1996. The electrorefinery
produced 334 million pounds of copper cathode, 3 percent less than in 1996 due
to lower anode production from the smelter. The Miami rod plant operated above
rated capacity during 1997, producing 294 million pounds of copper rod, or 7
percent higher than 1996, and setting a new production record.
Cerro Verde
In March 1994, Cyprus Amax acquired approximately 91.5 percent of the common
stock of Sociedad Minera Cerro Verde S.A. (Cerro Verde) at a cost of
approximately $31 million. The Peruvian government previously owned and
operated the mine. In 1996 Compania de Minas Buenaventura S.A., a long-
established Peruvian mining concern, exercised its option to acquire 10 percent
of Cyprus Amax's interest in Cerro Verde, which decreased Cyprus Amax's interest
to approximately 82 percent. Cerro Verde owns the underlying mining
concessions, which contain nearly 715 million tons of reserves as well as over
15,000 acres of mining concessions. The operation, located approximately 30
kilometers southwest of Arequipa, Peru, consists of two open pits, the Cerro
Verde and the Santa Rosa, a heap leach operation, and an SX-EW plant. The
project to expand and upgrade facilities was substantially completed in 1996.
The mine currently has design capacity to produce approximately 115 million
pounds of electrowon copper cathode. A new copper oxide deposit called Cerro
Negro was discovered in 1995 about 5 kilometers west of the Cerro Verde open
pit, but on the concession. Definition drilling and engineering studies were
completed during 1997, and development of the deposit at a cost of approximately
$100 million was approved near year end. Development has been temporarily
suspended pending improvement in copper prices. In 1997 Cerro Verde produced
approximately 122 million pounds of copper cathode, 6 percent over current
design capacity. In 1997 approximately 10 million tons of ore were processed
through primary, secondary, and tertiary crushers and placed on leach pads after
agglomeration. Studies for development of the sulfide mill at Cerro Verde are
continuing. Studies to date indicate development of a mill operation is viable
following the current leach project. Cyprus Climax is exploring options to
justify accelerated development of the sulfide deposit.
5
<PAGE>
El Abra
In June 1994, Cyprus Amax acquired 51 percent of El Abra from Corporacion
Nacional del Cobre de Chile (Codelco) at a cost of $330 million. The remaining
49 percent was retained by Codelco, a state-owned enterprise. El Abra holds
mining concessions over more than 33,000 acres of land in the copper-rich Second
Region of northern Chile. Cyprus Amax's share of identified leach reserves is
about 519 million tons. The feasibility study for the El Abra oxide project was
completed, and construction started in February 1995. Construction of the
project proceeded ahead of schedule, and commercial operations began in December
1996 with Cyprus Amax's share of production being 21 million pounds. By the end
of the third quarter of 1997, Cyprus Amax's share of annualized production was
about 250 million pounds of cathode copper. Based on drilling to date, the
project is expected to have a remaining life of 18 years. Drilling since
commencement of operations has added almost 20 percent more reserves to this
operation, which will increase annual production and/or extend mine life. El
Abra also contains sulfide ore, with currently identified geologic resources of
about 500 million tons, creating further opportunity for expansion. In
addition, there is good exploration potential for additional deposits on the
mining concessions. In October 1997, El Abra met all the requirements of its
loan completion agreement under the $1 billion project refinancing, releasing
Cyprus Amax from all but $200 million of its loan guarantees.
Henderson
Cyprus Amax owns the underground Henderson mine near Empire, Colorado. The
operation consists of an underground block caving mine where molybdenite ore is
mined and transported to a conventional sulfide mill. The concentrator is
capable of operating at a rate of 32,000 tons of ore per day, producing
molybdenum disulfide concentrates containing up to 58 percent molybdenum. Both
the mine and mill are located on fee land owned by Cyprus Amax. Most of the
concentrates are shipped to the Company's Fort Madison roasting and chemicals
processing facility in Iowa where a number of different products are made for
final sale to customers. A portion of Henderson's production is sold to
customers as molybdenum disulfide. In 1997 Henderson produced 37 million pounds
of molybdenum from 8 million tons of ore. Henderson is currently constructing
the Henderson 2000 project, which will replace the existing 20-year-old
underground and surface rail transportation system with a modern conveyor. The
project will also develop a new lower level of the mine utilizing a more
efficient high lift cave mining method.
Climax
Cyprus Amax owns the Climax mine near Leadville, Colorado. Historically,
the operation consisted of both an underground and open pit mine and an 18,000
ton per day concentrator. The property, owned in fee by Cyprus Amax, occupies
more than 14,000 acres. In response to strong customer demand in early 1995,
the Climax mine produced over 2 million pounds of molybdenum from April through
August of 1995. The mine was placed on standby status in August 1995.
Other Operations
Cyprus Amax's other copper operations include the Tohono operation in south
central Arizona, which consists of a test open pit, heap leach pads, and a SX-EW
plant producing copper cathode. The facility is located on reservation lands
leased from the Tohono O'Odham Nation. In December 1996, Cyprus Amax decided to
temporarily suspend operations at Tohono while it investigates various
alternatives for large scale copper production through open pit mining and heap
leaching technology. Mining of ore ceased in July 1997, but production of
copper will continue from existing leach tailings, exposed ore, and existing
leach pads. In 1997 Tohono produced about 27 million pounds of copper. In
September 1997, Cyprus Amax sold the Mineral Park mine to Equatorial Mining,
N.L., an Australian firm. Production from the mine for the time period owned
was 3 million pounds in 1997. Cyprus Amax also owns a molybdenum resource near
Tonopah, Nevada. The resource is located on fee land owned by Cyprus Amax and
on unpatented federal mining claims and mill sites. Cyprus Amax also sold the
copper ore body at Tonopah to Equatorial Mining, N.L. in September 1997. Cyprus
Amax
6
<PAGE>
owns and operates a rod plant located in Chicago, Illinois. This facility is
located on fee land owned by Cyprus Amax and in 1997 produced 373 million pounds
of high quality continuous cast copper rod.
Cyprus Amax leases office space in Tempe, Arizona, for copper and molybdenum
administration and sales and leases space for small sales offices in Pittsburgh,
Pennsylvania; Dusseldorf, Germany; London, England; and Tokyo, Japan.
Conversion Facilities
Cyprus Amax processes molybdenum concentrates at its conversion plants in
the United States and Europe into such products as technical grade molybdic
oxide, ferro molybdenum, pure molybdic oxide, ammonium molybdates, and
molysulfide powder. The Company operates molybdenum roasters at the Sierrita,
Arizona; Fort Madison, Iowa; and Rotterdam, The Netherlands plants. The
molybdenum roasting facilities at Sierrita and Fort Madison currently are
operating at levels sufficient to support customer requirements. The Rotterdam
conversion plant is located in Rotterdam, The Netherlands. The facility
consists of one molybdenum roaster, a sulfuric acid plant, a metallurgical
packaging facility, and a chemical conversion plant for the production of high
purity molybdenum chemicals. The plant is operated as a tolling facility.
The Fort Madison Conversion Plant is located in Fort Madison, Iowa. The
facilities consist of two molybdenum roasters, a sulfuric acid plant, a
metallurgical (technical oxide) packaging facility, and a chemical conversion
plant, which includes a wet chemicals plant and sublimation equipment. In the
chemical plant, technical grade oxide is further refined into various high
purity molybdenum chemicals for a wide range of uses by chemical and catalyst
manufacturers. Fort Madison produces ammonium dimolybdate, pure molybdic oxide,
ammonium heptamolybdate, ammonium octamolybdate, sodium molybdate, sublimed pure
oxide, and molybdenum disulfide. The Company produces ferro molybdenum and
molybdenum disulfide at its conversion plant located in Stowmarket, United
Kingdom, for both European and worldwide customers. The plant is operated as
both an internal and external customer tolling facility.
Equity Interests
Metals Recovery. Cyprus Amax has a 50% partnership interest with an
---------------
affiliate of Shell Oil Company in a spent catalyst recycling operation located
in Braithwaite, Louisiana. Recoverable products include vanadium, molybdenum,
alumina trihydrate, and nickel-cobalt.
Copper Processing
In 1997, Cyprus Amax processed 604,000 tons of Cyprus Amax domestic copper
concentrates at its own facilities, or 84 percent of its 1997 copper concentrate
production. The balance of Cyprus Amax's 1997 copper concentrate production was
treated under arrangements with third parties or sold as copper concentrates.
Copper/Molybdenum Marketing Arrangements
Cyprus Amax has the capacity to produce about 700 million pounds per year of
continuous cast copper rod at its Miami, Arizona, and Chicago, Illinois, mills.
This capability gives Cyprus Amax a value-added copper product and access to a
broader customer base. Approximately 30 percent of Cyprus Amax's total copper
sales were for non-United States markets. Substantially all of Cyprus Amax's
copper metal production is committed under sales agreements with metals
fabricators at prices that fluctuate with commodity exchange quotations. Cyprus
Amax has entered into copper price protection contracts for 1998 to ensure a
minimum average realization on an LME basis at December 31, 1997, of 90 cents
per pound on 336 million pounds of copper for 1998. In the fourth quarter of
1997, Cyprus Amax sold 34 million pounds of 1998 copper price protection
contracts generating $5 million of proceeds, which will increase copper
realizations and income during the periods in 1998 to which the original
contracts were applicable. As of March 24, 1998, Cyprus Amax sold an additional
7
<PAGE>
12 million pounds of 1998 price protection contracts generating $2 million of
proceeds. Additionally, a price protection program for El Abra ensures a minimum
average net realization of 85 cents per pound (LME basis) in 1998 on
approximately 96 million pounds (Cyprus Amax's 51 percent share).
Of Cyprus Amax's 1 billion pounds of produced copper sales in 1997, 124
million pounds were sold as concentrate, 378 million pounds as cathode, and 528
million pounds as rod. Comparable figures for 1996 were 744 million pounds of
produced copper sold, of which 74 million pounds were sold as concentrate, 200
million pounds as cathode, and 470 million pounds as rod.
Molybdenum oxide is used primarily in the steel industry for corrosion
resistance, strengthening, and heat resistance. Molybdenum chemicals are used
in a number of diverse applications including: as catalysts for petroleum
refining; as a feedstock for pure molybdenum metal used in electronics; and in
lubricants. As is customary, a substantial portion of Cyprus Amax's expected
1998 molybdenum production is committed for sale throughout the world pursuant
to annual and spot sale agreements.
8
<PAGE>
COAL SEGMENT
Through its subsidiaries, Cyprus Amax mines, cleans, markets, and sells coal
to electric utilities and industrial users. The following table shows capacity,
quality characteristics, and reserves for Cyprus Amax's domestic coal operations
for 1997. Eighty-six percent of year-end 1997 developed domestic coal reserves
mined with existing facilities meet the 2.5 pounds sulfur dioxide standard in
1997. Seventy-nine percent of these reserves satisfy the 1.2 pounds standard
effective in 2000.
<TABLE>
<CAPTION>
Year-End 1997 Reserves
(Millions of Tons)
----------------------------------
Annual Mineable Total
Coal Capacity Average Average Average with Require Proved
Operating (Millions Btu Contained Recovery Existing New and Probable
Unit Type of Tons) per Pound Sulfur % % Facilities Facilities Reserves
- --------------- ----------- -------- ------------- --------- --------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania underground 10-11 13,000-13,200 1.2-3.0 70-90 166 326 492
West Virginia surface and 8 11,700-14,000 0.6-1.8 60-100 28 - 28
underground
Kentucky surface and 6-7 11,300-13,000 0.8-1.7 65-100 67 - 67
underground
Midwest surface and 6-7 11,000-11,500 0.6-4.0 65-100 65 371 436
underground
Wyoming surface 42 8,270-8,515 0.3-0.4 100 981 - 981
Colorado underground 11 10,600-11,250 0.4-0.6 100 101 - 101
Utah underground 4 11,400-12,000 0.5-0.6 90-100 87 - 87
------ ------ ------
1,495 697 2,192
====== ====== ======
</TABLE>
Cyprus Amax's 50 percent interest in the Springvale mine in Australia
represents annual capacity of 2 million tons with a reserve base of 40 million
tons. Cyprus Amax's equity share of Oakbridge Limited reserves at December 31,
1997, were 133 million tons.
In 1997 Cyprus Amax produced and sold 83 million tons of coal. In addition,
Cyprus Amax's share (41 percent) of Oakbridge Limited represented 5 million tons
of production and 6 million tons of shipments. Production from Cyprus Amax's
coal operations is shown in the table below:
<TABLE>
<CAPTION>
Production
Coal ------------
Operating Unit 1997 1996
-------------- ---- ----
(Millions of Tons)
<S> <C> <C>
Pennsylvania 11 9
West Virginia 7 8
Kentucky 7 5
Midwest 4 6
Wyoming 41 36
Colorado 10 8
Utah 2 3
-- --
Total Domestic 82 75
-- --
Springvale 1 1
Oakbridge (Equity share) 5 6
-- --
Total Australian 6 7
-- --
Total 88 82
== ==
</TABLE>
Additionally, the average sales prices for 1997 and 1996 are shown in the table
below:
<TABLE>
<CAPTION>
Average Sales Price
---------------------------
Contract Spot
------------- -------------
1997 1996 1997 1996
------ ------ ------ ------
($/Ton) ($/Ton)
<S> <C> <C> <C> <C>
Total Domestic 13.71 15.66 17.59 14.95
Total Australian 24.28 29.23 20.36 24.85
</TABLE>
9
<PAGE>
Coal Operations
On February 24, 1998, Cyprus Amax signed a letter of intent to sell
selected Appalachian and Midwestern coal properties to AEI Holding Company, Inc.
It is expected to be completed during the second quarter of 1998 although no
assurance can be given with respect thereto. This potential sale includes the
West Virginia, Kentucky, and the majority of the Midwest operations.
Pennsylvania
The Emerald and Cumberland mines are contiguous underground operations
located in the southwestern part of Pennsylvania. Both mines are in the
Pittsburgh coal seam and are mined utilizing the longwall mining method and the
reserves are owned by Cyprus Amax affiliates. Coal is processed through
preparation plants and is transported by rail and river barge to utilities in
the Northeast and Midwest. The hourly workforce at both mines is represented by
the United Mine Workers of America (UMWA) and the current contract expires in
August 1998. Several pieces of major mining equipment, including the Cumberland
longwall, are leased. The remainder of the mining equipment is owned. Cyprus
Amax also controls significant undeveloped contiguous reserves in the
Pittsburgh, Freeport and Sewickley seams.
West Virginia
The Kanawha River operations, located approximately 25 miles east of
Charleston, West Virginia, consist of the Stockton and Cannelton 150 underground
mines and the Dunn and Armstrong Creek surface mines. The underground mines
utilize continuous miners; the surface mines employ trucks, electric shovels,
hydraulic excavators, endloaders, and a dragline at one of the properties. Both
raw and processed coal of various qualities are marketed to electric utilities
and industrial customers; transportation is primarily by barge. The Maple
Meadow underground mine in Raleigh County, West Virginia, was closed in November
1997 due to depletion of economic reserves. The Maple Meadow preparation plant
is processing coal for an independent producer. The West Virginia operations
also include a small preparation plant in McDowell County. The hourly workforce
at all operations is represented by the UMWA and the current contract expires in
August 1998. Mining is conducted on owned property and under private leases.
Mining equipment is both owned and leased.
Kentucky
Mountain Coals operates the Star Fire surface mine located in eastern
Kentucky. Star Fire is a mountaintop removal and contour stripping operation
using an Addcar highwall miner, dragline, shovel, and trucks to extract five
seams of coal. Mining operations are conducted on fee coal properties and
private coal leases with both owned and leased equipment. A preparation plant
is used to wash a portion of the production. The hourly workforce is
represented by the UMWA. Cyprus Cumberland owns two underground mines and
preparation plants (Pine Mountain and Straight Creek) and a surface mine
(Straight Creek). All three mines are operated by independent contract miners.
Transportation from the Kentucky operations is by rail.
Midwest
Midwest operations consists of two surface mines in Indiana and an
underground mine in southern Illinois. The Chinook mine (located in Clay and
Vigo counties of west central Indiana) uncovers two seams of coal with a large
dragline, and ships washed coal by rail to nearby utility and industrial
customers. Almost all of its production is dedicated under a long-term
contract. The Sycamore surface mine is a shovel-truck operation in Knox County,
Indiana from which coal is trucked to utility and industrial accounts. The
Wabash underground mine is located in Wabash County, Illinois. Continuous
miners access the Illinois #5 seam, and processed coal is shipped by rail to
utility customers. In February 1997, Cyprus Amax assigned the Wabash coal
supply contract to another coal company for an undisclosed amount of cash plus
future payments. The mine was downsized in April 1997 and continues in
operation at a reduced production level. Following a June 1996 agreement to
restructure its long-term coal supply agreement for a cash payment, the Delta
surface mine in southern Illinois
10
<PAGE>
was closed and is presently undergoing reclamation. The Ayrshire mine (located
in Warrick County, Indiana) is largely complete in reclaiming areas that were
formerly surface mined. Hourly employees at the Indiana and Illinois mines are
represented by the UMWA. Contract covering all hourly employees in Indiana and
Illinois, except Sycamore, expires in August 1998. The Skyline mine is located
in Sequatchie County, Tennessee. The coal is uncovered by a mid-sized dragline
and is transported raw to utility and industrial customers, primarily by truck.
Throughout the Midwest, surface and mineral rights are controlled through fee
ownership and private leases. Mining equipment is predominantly owned, although
a portion is leased.
Colorado
Cyprus Amax affiliates operate two underground mines in the Colorado
operating unit: Twentymile and Shoshone. A third mine, Empire, has been idle
since December 1995. Mining is conducted on a combination of private, state,
and federal coal leases. All operations use the longwall mining method. The
coal is shipped on a predominantly raw basis to utility and industrial plants in
the West, Midwest, and Southeast. The Twentymile and Empire mines are located
in northwestern Colorado. The Shoshone mine is located in southern Wyoming.
Shoshone is projected to deplete its reserves in the second half of 1999. The
Empire longwall equipment plus a portion of the longwall supports at Shoshone
and several items of mobile mining equipment at Twentymile are leased. The
remaining equipment is owned.
Wyoming
In the Powder River Basin, Amax Coal West operates two of the nation's larger
surface mines -- the Belle Ayr and Eagle Butte mines, which are located near
Gillette, Wyoming. The open pit method of mining is used at both mines with
shovels and large haul trucks used to remove both overburden and coal. Coal is
crushed prior to shipment. Unit trains move coal to utilities in most regions
of the country with the majority sold under contracts with an initial term of at
least one year. Most mining equipment is owned. Surface rights are held
through fee ownership while reserves are primarily controlled through federal
and state leases.
Utah
The Utah operating unit, which is incorporated as Cyprus Plateau Mining
Corporation, consists of the Willow Creek and Star Point underground mines both
located near Price, Utah. Star Point completed longwall mining in the third
quarter of 1997 and continues to operate at a reduced production level using
continuous miners. Star Point is likely to deplete its reserves by the end of
1998. Star Point owns its production equipment, including a preparation plant,
but leases coal reserves, mainly from the federal government.
Plateau Mining's construction of the Willow Creek mine commenced during the
fourth quarter of 1995. Facilities construction, including refurbishment of the
preparation plan, was completed in 1997. Longwall start-up is expected in the
second quarter of 1998, and total capital expenditures was higher than expected
due to geologic conditions that have increased the cost of underground
development and reduced the saleable pre-production coal available as a credit
to development costs. The planned life of the Willow Creek mine is at least 20
years. Willow Creek owns its production equipment and leases and subleases its
coal reserves, mainly from the federal government.
Production from both mines, consisting of raw, washed, and blended products,
is transported by rail to utility customers, primarily in the West, and to West
Coast ports for export to Pacific Rim utility markets, primarily in Japan.
Springvale
Cyprus Amax, through its Cyprus Australia Coal subsidiary, owns 50 percent of
the Springvale underground mine located near Lithgow, New South Wales,
Australia. The operation uses the longwall mining method. Springvale's output
is sold raw to the nearby Mount Piper generating plant of Pacific Power under a
11
<PAGE>
long-term coal supply contract and spot orders. The Springvale workforce is
represented by the Construction, Forestry, Mining Employees Union (CFMEU).
Oakbridge
Cyprus Amax's wholly-owned subsidiary, Cyprus Australia Coal of Sydney,
Australia, owns a 48 percent interest and is the operator of Oakbridge Limited
of Australia. Cyprus Amax's ownership interest increased from 41 percent to 48
percent in January 1998 through the purchase of the shareholdings of one of
Oakbridge's other four owners. Oakbridge is a major independent coal producer
in New South Wales with annual production of approximately 13 million tons. The
number of operating mines is in the process of being rationalized from six to
four due to weak coal export selling prices and problematic mining conditions at
two of the mines. Over 50 percent of Oakbridge's production is from the two
mines and coal preparation plant comprising the Bulga complex, which is located
in the Hunter Valley. The Oakbridge mine's workforce is represented by CFMEU.
Proved and probable reserves total 322 million tons, of which Cyprus Amax's
equity share is 133 million tons at December 31, 1997.
Almost all of Oakbridge's production is exported to the Pacific Rim. Sales
generally are made through agents under long-term "evergreen" contracts, which
provide for annual price negotiations. The sales mix is approximately 75
percent steam coal and 25 percent metallurgical product.
North Goonyella
In December 1997, Cyprus Australia Coal was awarded a four year contract to
manage the operation of the North Goonyella mine located in Queensland,
Australia. North Goonyella is owned by affiliates of Sumitomo Corporation and
produces a hard coking coal by longwall underground mining methods. During the
term of the contract, Cyprus Australia Coal has the option to purchase an equity
interest in the mine.
Coal Marketing Arrangements
Almost all of Cyprus Amax's coal sales are steam coal to electric utilities.
Approximately 90 percent of Cyprus Amax's 1997 coal sales were made under
contracts with an initial duration of one year or longer (term contracts). This
proportion is expected to approximate 94 percent in 1998. These contracts are
priced using a combination of cost pass-through, base price plus cost index
escalation and/or market adjustments. While such contracts generally are more
advantageous than sales on the spot market, they can be subject to periodic
renegotiation of price and quantity. Most contracts also are subject to partial
or complete suspension by the customer or producer during certain force majeure
events, such as damage to the customer's plant or work stoppages. In the event
of successful enforceability challenges, price/quantity renegotiations, or the
occurrence of force majeure events, and upon the expiration of term contracts in
accordance with their terms, Cyprus Amax would be required to seek alternative
purchasers for the coal through spot market sales or replacement contracts.
Currently, the applicable spot price for much of the coal currently subject to
such contracts is below the contract price.
At December 31, 1997, Cyprus Amax had term contracts covering an aggregate of
approximately 486 million tons, including 80 million tons to be delivered in
1998. About 11 percent of contracted coal is under agreements that expire
before 2001; the remainder is committed under contracts that expire between 2001
and 2020. To maintain current average margins as contracts expire, Cyprus Amax
will need to sign new contracts, extend existing contracts, shift volume to
operations with advantageous production costs, and reduce mining costs at mines
supplying above market price contracts. In 1997 revenues from five coal supply
contracts accounted for approximately 25 percent of total coal revenues, with
the largest individual contract contributing 7 percent of coal revenues.
Eastern Markets. Shipment levels at Cyprus Amax's Pennsylvania, West
----------------
Virginia, and Kentucky units increased during 1997 due to continued strong
demand for these coals. Eastern and Midwestern utilities continue
12
<PAGE>
to increase purchases of coals from this region that meet the sulfur dioxide
requirements of Phase I of the Clean Air Act Amendments of 1990 (see "Coal-Clean
Air Act Amendments of 1990") and provide competitive delivered fuel costs. Due
to their coal quality characteristics, location and cost competitiveness, Cyprus
Amax's Eastern operations are well positioned to increase their sales to
domestic utilities and export customers.
Midwest Markets. Shipments in 1997 from Cyprus Amax's Midwest unit declined
----------------
from 1996 levels due primarily to the closure of the Delta mine and reduced
production at the Wabash mine.
Overall coal demand from the Midwest is expected to decline over the next
several years due to continuing uncertainties over the long-term suitability of
the high-sulfur coals produced in Illinois and Indiana. These uncertainties
result from provisions of the Clean Air Act Amendments of 1990, state regulatory
requirements and other proposed legislation that would require utilities to
lower emissions levels (see "Coal--Clean Air Act Amendments of 1990"). However,
coal is, and is expected to continue to be, the major energy source for
generating electrical power in the Midwest.
Western Markets. Shipments for 1997 from Cyprus Amax's Colorado and Wyoming
----------------
units increased from 1996, despite rail service problems arising from the Union
Pacific/Southern Pacific merger, because of increased interest by utilities in
these compliance quality, economically attractive coals. Shipments from Utah
declined because of the transition in operations from the Star Point to Willow
Creek mines. Steady future demand growth for Western low sulfur coals is
predicted, with a likely acceleration just prior to the year 2000, when the
Phase II sulfur dioxide requirements become effective. Western railroads have
invested heavily in equipment and expanded trackage; shipping capacity has
largely caught up with demand. Although the Powder River Basin has been
historically affected by overcapacity, Cyprus Amax's six major long-term coal
supply agreements provide a production base for the Wyoming unit. These
contracts expire between 1998 and 2020 with over 50 percent of the annual
tonnage committed until 2013.
Clean Air Act Amendments of 1990. Title IV of the Clean Air Act Amendments
---------------------------------
of 1990 is intended to reduce acid precipitation by mandating reductions in
sulfur and nitrous oxides from electric generating stations. The law adopted a
goal of achieving, by the year 2000, nationwide reductions of 10 million tons of
sulfur dioxide and 2 million tons of nitrous oxides from 1980 levels. Phase I
affected 110 power plants in the Midwest, the Southeast, and the East, starting
January 1, 1995. Phase II, beginning January 1, 2000, will affect almost all
power plants in the United States. While the base emissions standard under
Phase I is 2.5 pounds of sulfur dioxide for every million Btus of fuel burned
and is reduced to 1.2 pounds per million Btus under Phase II, the actual sulfur
content of coal required by utilities may vary widely due to various options
available to utilities to comply with the Clean Air Act Amendments. These
include installing emissions controls (scrubbers) on existing facilities,
switching to alternative fuels, closing facilities, and/or buying and selling
emissions allowances.
The compliance strategies that utilities will follow cannot be predicted with
certainty due to the multiple options available, the extended compliance time
frames, and the unique characteristics of each utility system. Cyprus Amax
believes, however, that its overall business and financial condition will not be
affected materially by the Clean Air Act Amendments because of its diverse
portfolio of mines and products, shipments to plants with scrubbers in place,
and strategic steps taken over the last several years in anticipation of the
enactment of acid precipitation legislation. The Amendments are expected to
increase the demand for and value of Cyprus Amax's low-sulfur reserves in the
Powder River Basin, Colorado, Utah, and central Appalachia, since many utilities
are expected to comply with the new emissions standards by switching to lower
sulfur coal. With the 1996 restructuring of the contract supplied from the
Delta mine and the assignment of the Wabash contract in early 1997, Cyprus Amax
has significantly reduced its dependence on sales of high sulfur Illinois Basin
coals. More than 50 percent of Cyprus Amax's remaining Midwest shipments are to
a scrubber-equipped generating plant. Additionally, shipments from the Skyline
mine meet the Phase II sulfur dioxide standard.
13
<PAGE>
OTHER MINERALS SEGMENT
Lithium Operations
Cyprus Amax is a major producer of lithium with production facilities in
Nevada, North Carolina, Tennessee, and Chile. Lithium and lithium compounds are
used in various applications such as the smelting of aluminum and the
manufacture of ceramics, glass, greases, high performance batteries, synthetic
rubber, plastics, and pharmaceuticals.
Cyprus Amax owns 100 percent of a Chilean limited partnership that holds a
brine deposit and owns a lithium carbonate processing facility in northern
Chile. Lithium brine is recovered from the brine deposit and concentrated in
solar evaporation ponds in the Salar de Atacama. The concentrated brine is then
converted into lithium carbonate at the La Negra processing facility outside of
Antofagasta. During 1997 Cyprus Amax constructed a lithium chloride plant,
which is expected to begin production in the first half of 1998. Reserves
available to Cyprus Amax are determined by a contract with the Chilean
government. As of December 31, 1997, Cyprus Amax reserves amounted to 196,000
tons of elemental lithium which is equivalent to approximately 2.1 billion
pounds of lithium carbonate. Production during 1997 was 27.5 million pounds of
lithium carbonate, which was approximately 1.6 million pounds above name-plate
capacity. In addition, Cyprus Amax produces potash from by-product salts
generated at its brine operation in northern Chile. Production and sales
totalled 79,000 tons in 1997. 95 percent of potash sales are made to a major
Chilean chemical company under long-term contacts that expire in years 1998
through 2004.
At the Silver Peak facility in Nevada, Cyprus Amax also produces lithium
carbonate from salt brines. The solar pond system and related plant for
chemical conversion of the concentrated brine into lithium carbonate are
situated on approximately 17,000 acres of patented and unpatented placer mining
claims. Reserves at December 31, 1997, totalled 37,500 tons of elemental
lithium which is equivalent to approximately 194 million pounds of lithium
carbonate. During 1997, Silver Peak operated at its long-term solar pond
production capacity, producing 12.6 million pounds of lithium carbonate.
During 1996, Cyprus Amax completed construction of a new lithium hydroxide
production facility at its Silver Peak operation which started up during the
second quarter of 1996. During 1997, Silver Peak produced 7.5 million pounds of
lithium hydroxide. Cyprus Amax operated the Sunbright, Virginia, hydroxide
plant until August 1996 at which time the facility was closed.
Cyprus Amax operates a butyllithium production facility in New Johnsonville,
Tennessee, located on 98 acres of fee land owned by Cyprus Amax. In addition to
butyllithium, this plant produces other organo-metallic lithium specialty
chemicals.
Cyprus Amax also owns manufacturing facilities for various lithium chemicals
and lithium metal casting located on 926 acres of fee and leased land in Kings
Mountain, North Carolina. An open pit mine and lithium carbonate processing
facility at Kings Mountain were shut down in 1991, and during 1994 and 1995, the
lithium carbonate processing facility was dismantled. Future production from
the 146,000 tons of elemental lithium reserves at Kings Mountain will depend on
new or improved markets, the depletion of other reserves, and construction of
new processing facilities. Lithium administration and sales, research and
development, and certain lithium metal, alloy and pharmaceutical production
activities are also conducted at the Kings Mountain production facilities.
Lithium Marketing Arrangements
Cyprus Amax sells lithium carbonate, lithium hydroxide, butyllithium, lithium
chloride, lithium bromide, and a variety of other lithium chemical, metal, and
metal alloy products to such diverse markets as aluminum smelting, ceramics,
lubricants, specialty glass, synthetic rubber, plastics, batteries, alloys, and
pharmaceuticals.
14
<PAGE>
The various lithium products are sold under a combination of long- and short-
term contracts. Sales to one customer accounted for 16 percent of lithium
revenue in 1997.
Gold Operations
Amax Gold and its subsidiaries are engaged in the mining and processing of
gold and silver ore and in the exploration for, and acquisition and development
of, gold-bearing properties, principally in the Americas, Russia, Australia and
Africa. Amax Gold was incorporated in Delaware in 1987 and reincorporated in
1995. During 1995 Cyprus Amax increased its ownership in Amax Gold from 42
percent to 51 percent by exercising its option to convert an $80 million loan
into Amax Gold Common Stock. During 1996, Cyprus Amax increased its ownership
interest to 53 percent by exercising its option to convert to stock, outstanding
interest and a guarantee fee related to financing arrangements. During 1997
Cyprus Amax increased its ownership interest to 58.8 percent by selling its 50
percent ownership interest in the Kubaka gold mine in Russia to Amax Gold for
common stock. On February 9, 1998, Amax Gold announced that it has entered into
a merger agreement with Kinross Gold Corporation and a wholly-owned subsidiary
of Kinross Gold Corporation whereby, subject to the terms and conditions
thereof, each share of Amax Gold Common Stock will be converted into 0.8004 of a
share of Kinross Common Stock. At the merger, Cyprus Amax will exchange $135
million of cash and indebtedness of Amax Gold at the effective time of the
merger for approximately 35 million shares of Kinross Common Stock. The merger
is expected to close before the end of June 1998, and Cyprus Amax will own
approximately 31 percent of the then outstanding common stock of the new
Kinross. This merger will result in the deconsolidation of Amax Gold.
In May 1997, Amax Gold completed a $71 million tax-exempt industrial revenue
bond financing for the solid waste disposal facility at the Fort Knox mine.
During December 1997, Amax Gold completed a $40 million credit facility, which
was used to refinance the existing Refugio gold loan and for working capital and
debt service requirements. Cyprus Amax has guaranteed the Refugio loan and a
letter of credit backing the industrial revenue bond. Amax Gold pays an
interest differential to Cyprus Amax as a guaranty fee on each loan.
In May 1997, Cyprus Amax sold its 50 percent interest in the Russian Kubaka
gold mine project to Amax Gold. Amax Gold received shareholder approval for the
acquisition in December 1996. Cyprus Amax received 11,789,474 shares of Amax
Gold Common Stock in May 1997 at closing and 3,585,526 shares in June 1997 upon
commencement of commercial production. As a result of these transactions,
Cyprus Amax increased its ownership to 58.8 percent.
In 1996 Amax Gold renegotiated its $250 million Fort Knox loan agreement. As
support to the restructured facility, Cyprus Amax has guaranteed the loan until
economic completion of the Fort Knox mine. The lenders waived certain
restrictive covenants and reduced the interest rate. In return for the
increased financial support, Cyprus Amax receives certain fees, the interest
differential, and security interest in certain Amax Gold assets. Additionally
during 1996, Cyprus Amax provided Amax Gold with a demand loan facility to fund
additional costs at the Fort Knox project and for general corporate purposes,
with such funding to be provided at the discretion of Cyprus Amax. During 1997
Amax Gold borrowed a total of $49.5 million and repaid $106.2 million on the
demand loan facility. At December 31, 1997, Cyprus Amax had loaned Amax Gold
$73 million, net of repayments, and the remaining amount available on the demand
loan facility was $70 million.
In April 1994, Cyprus Amax and Amax Gold entered into an agreement whereby
the Company provided Amax Gold with a $100 million double-convertible line of
credit (DOCLOC I). The outstanding indebtedness under the line of credit may be
repaid by Amax Gold with the issuance of Amax Gold Convertible Preferred Stock.
Both companies have conversion rights to convert the line of credit into Amax
Gold Common Stock at a maximum price of $8.265 per share and a minimum price of
$5.854 per share. As of December 31, 1997, no borrowings were outstanding under
this line of credit. Certain amounts have been made available to Amax Gold as
support for the Fort Knox and Refugio loans. See Note 7 to the Consolidated
Financial Statements on pages 37 and 38 of the 1997 Annual Report. Amax Gold
has agreed not to borrow under DOCLOC I as part of the consideration for the
Fort Knox loan guaranty.
15
<PAGE>
In 1994 Cyprus Amax established a joint exploration agreement with Amax Gold
to explore for gold. The agreement provides Cyprus Amax a 75 percent interest
and Amax Gold a 25 percent interest in the gold prospects resulting from future
exploration. Amax Gold has a right of first refusal from Cyprus Amax to
purchase and develop gold deposits, and Cyprus Amax has a similar right with
respect to base metals. Each party funds work in proportion to its interest,
and Cyprus Amax provides staffing and management. Properties held by the
parties prior to January 1, 1994, are excluded from the joint agreement.
Amax Gold's operating properties consist of a 100 percent interest in the
Fort Knox mine near Fairbanks, Alaska; a 50 percent interest in the Kubaka mine
in the Magadan Oblast situated in Far East Russia; a 50 percent interest in the
Refugio mine in Chile; a 90 percent interest in the Guanaco mine in Chile; and a
100 percent interest in the Hayden Hill mine in Lassen County, California.
Mining at Guanaco and Hayden Hill was completed during 1997, although residual
leaching will continue during 1998 at both mines. The Company also owns a 50
percent interest in the Sleeper mine in Humboldt County, Nevada, and a 100
percent interest in the Wind Mountain mine in Washoe County, Nevada, which are
in reclamation. In addition, Amax Gold owns a 62.5 percent joint venture
interest in the Haile Project in Lancaster County, South Carolina.
All of Amax Gold's operating properties are open pit mines. Except for
mining equipment owned by contract miners at Refugio and mobile mining equipment
leased at Fort Knox, Amax Gold owns its mining and processing equipment, which
is maintained in good operating condition. Ore is processed by milling or heap
leaching. Milling is the traditional process for recovering gold from ore.
After ore is crushed, the gold and silver are concentrated and then smelted into
dore, which is shipped to refiners for further processing. The milling process
is typically used for higher recovery from oxide and sulfide ores.
Heap leaching is a lower-cost processing method principally applied to
oxidized ores. The heap-leach recovery rate is generally lower than for
milling. In the heap leaching process, crushed and/or run-of-mine ore is loaded
onto leach pads. The ore is irrigated with a weak cyanide solution that
penetrates the ore, dissolving the gold and silver. The pregnant solution is
collected and pumped through activated carbon or a Merrill Crowe zinc
precipitation plant to remove the metals from the solution. After the gold and
silver is stripped from the carbon or processed from the zinc precipitate, it is
smelted into dore, which is shipped to refiners for further processing.
Mine statistics and production information at Amax Gold's principal mine
operations is summarized in the following tables for the years 1997 and 1996.
The 1997 year-end ore reserve information is as follows:
<TABLE>
<CAPTION>
Ore Reserves December 31, 1997
- ------------ ----------------------------------------------------------------------
Proved and Probable Gold Content
Ore Reserves (AGI's Share) (Thousands of Ounces)
--------------------------- --------------------
(Thousands AGI's Cyprus Amax's
Operation of Tons) Average Grade Share Share
--------- ---------- ------------- ----- ---------
<S> <C> <C> <C> <C>
Fort Knox 170,273 0.024 4,099 2,410
Kubaka /(1)/ 2,102 0.522 1,098 646
Refugio/(2)/ 50,397 0.029 1,460 858
Haile /(3)/ 5,460 0.089 488 287
------- ------- -----
228,232 7,145 4,201
======= ======= =====
</TABLE>
/(1)/Represents Amax Gold's 50 percent interest in Kubaka's ore reserves.
/(2)/Represents Amax Golds's 50 percent interest in Refugio's ore reserves.
/(3)/Represents Amax Gold's 62.5 percent interest in Haile's ore reserves.
16
<PAGE>
<TABLE>
<CAPTION>
Mine Statistics 1997 1996
- --------------- ------------------------------------- ----------------------------------
Tons Ore Ore Tons Ore Ore
Mined Processed Grade Mined Processed Grade
----- --------- ---------- ----- --------- -----
(Millions of Tons) (Ounces/Ton) (Millions of Tons) (Ounces/Ton)
<S> <C> <C> <C> <C> <C> <C>
Operation
---------
Fort Knox 28 11 0.034 - - -
Kubaka 3 - 0.725 - - -
Refugio 9 4 0.030 3 2 0.031
Guanaco-Leach 5 3 0.059 13 2 0.070
Hayden Hill-Leach 9 6 0.031 8 6 0.028
Sleeper-Mill ( - - ) 1 0.069
-Leach ( - - ) 1 - 0.020
---- ----- ---- -------
54 24 25 11
==== ===== ==== =======
</TABLE>
<TABLE>
<CAPTION>
Production 1997 1996
- ---------- --------------------- ----------------------
Gold Silver Gold Silver
---- ------ ---- ------
(Thousands of Ounces) (Thousands of Ounces)
<S> <C> <C> <C> <C>
Fort Knox 320 16 - -
Kubaka 130 127 - -
Refugio 74 10 31 3
Guanaco 94 307 96 360
Hayden Hill 112 325 103 321
Sleeper - - 38 36
--- ----- ---- ---
730 785 268 720
=== ===== ==== ===
</TABLE>
Fort Knox Mine
Amax Gold owns a 100 percent interest in the Fort Knox mine, located in the
Fairbanks Mining District, 15 miles northeast of Fairbanks, Alaska.
Fort Knox achieved commercial production on March 1, 1997. Construction of
the mine was completed at a capital cost of approximately $373 million, which
includes about $28 million in capitalized interest. The operation includes an
open pit mine, a conventional 36,000 tons per day (13.1 million tons per year)
mill and process plant, a tailings storage facility, and a fresh water reservoir
to supply process water. The process facilities are designed as a zero
discharge system. Power is supplied by the public utility serving the area over
a distribution line paid for by the Company. Access is provided by paved
highway for 21 miles from Fairbanks and then for 5 miles by unpaved road. The
mine and plant are designed to operate year round and to produce approximately
300,000 to 400,000 ounces of gold per year depending on the ore grade processed,
with the higher grades expected during the early years.
The Fort Knox mine covers approximately 47,000 acres and consists of two
state mining leases, approximately 1,400 state mining claims, seven patented
federal mining claims, and the mineral rights to 38 patented federal mining
claims. The current reserve is located on approximately 1,150 acres of land
held under a state mining lease that expires in 2014 and may be renewed for a
period not to exceed 55 years. This lease is subject to a 3 percent royalty
payable to the State of Alaska based on net income. Claims surrounding the
current reserve are subject to net smelter return royalties ranging from 3
percent to 6 percent on the state mining claims, and both a 1 percent net
smelter return royalty, and a 10 percent overriding net profits interest on
certain of the patented federal mining claims.
17
<PAGE>
Kubaka Mine
Amax Gold indirectly owns a 50 percent interest in Omolon Gold Mining Company
(Omolon), which owns and operates the Kubaka mine. Kubaka is located in the
Russian Far East, approximately 200 miles south of the Arctic Circle and 600
miles northeast of the major port city of Magadan. Amax Gold completed the
acquisition of Kubaka from Cyprus Amax during May 1997. See Note 3 to the
Consolidated Financial Statements on page 35 of the 1997 Annual Report for
further discussion of the acquisition.
Commercial production was achieved at Kubaka on June 1, 1997. Construction
of the mine was completed at a total capital cost of approximately $242 million.
This amount includes certain financing costs, working capital, and about $14
million in capitalized interest. The operation consists of an open pit mine, a
conventional 1,900 tons per day (approximately 700,000 tons per year) mill and
process plant, a tailings storage facility, and a reclaim water retention
facility to supply process water. Power is supplied by on-site diesel
generators. Facilities include a permanent camp with access from Magadan
provided by helicopter as well as by a winter road, which is generally open from
January through April. The Kubaka mine's remote location in the sub-Arctic
region requires the Company to plan for operations in extreme cold and to
provide all services and facilities on site. The mine and plant are designed to
produce approximately 400,000 to 450,000 ounces of gold per year, of which Amax
Gold's share is 50 percent.
Omolon holds the license from the Russian government to operate the Kubaka
mine and to explore and develop the Evenskoye property, also in the Magadan
region (the Kubaka License). The Kubaka License is for a period of 18 years,
subject to extension of up to an additional two years, and limits the ownership
of a foreign party (i.e. Amax Gold) in Omolon to a maximum of 50 percent. The
Kubaka License establishes certain production requirements for Kubaka, requires
the payment of a 4 percent royalty on the total value of gold extracted and
requires Omolon to complete exploration activities, a feasibility study, and its
assessment of the reserves at Evenskoye prior to December 31, 1998, or a later
date, if extended.
Refugio Mine
Amax Gold owns a 50 percent interest in the Refugio mine, located in the
Maricunga Mining District in central Chile, approximately 75 miles east of
Copiapo. The property, situated between 13,800 feet and 14,800 feet above sea
level, is held by Compania Minera Maricunga (CMM), a Chilean contractual mining
company indirectly owned 50 percent by Amax Gold and 50 percent by Bema Gold
Corporation (Bema), a publicly traded company based in Vancouver, British
Columbia.
The Refugio mine consists of an open pit mine and a three-stage crushing and
heap leach operation capable of processing 33,000 tons of ore per day, or 11.5
million tons per year. The mine and plant are expected to produce an estimated
200,000 to 250,000 ounces of gold per year, of which Amax Gold's share would be
50 percent. Production commenced in April 1996; however, start-up was delayed
due to mechanical problems with the secondary and tertiary crushers and the
collapse of fill underlying the fine ore storage bin, and commercial production
commenced on October 1, 1996. During the second and third quarters of 1997,
abnormally severe winter weather resulted in the suspension of mining and
crushing operations for nearly three months, which caused lower production and
higher cash costs. Full production levels are expected to be achieved during
the first quarter of 1998. CMM retained an experienced mining contractor with
its own equipment to drill, blast, load, and transport all ore and waste.
Facilities include a permanent camp with access to the site from Copiapo
provided by road. Power is supplied by on-site diesel-powered generators.
Water extraction rights expected to be sufficient to supply the mine are owned
by CMM.
The Refugio property position comprises approximately 14,500 acres,
consisting of mineral rights, surface rights, and water rights expected to be
sufficient for the mine. The principal ore deposit is held by mining claims
which are owned by CMM. Essentially all of the mineral rights surrounding the
claims are held by a joint venture formed by Bema and the former owner of the
Refugio claims. CMM has agreements in place with this joint venture that will
allow CMM to mine any extensions of its major ore deposits extending onto
surrounding mineral
18
<PAGE>
rights and to use the surrounding areas for project needs. CMM owns or
controls surface rights covering the known mineralization and the currently
anticipated mining operation under leases from the Chilean Army, which expire
in 2001 and 2005 and may be extended for an additional 10 years.
Amax Gold, through its 50 percent ownership of CMM, is responsible for
payment of a net smelter return royalty to the former owners of the Refugio
property that is expected to average 2.5 percent of Amax Gold's share of
production from the currently defined ore reserves. An additional sliding scale
net smelter return royalty related to net profits and ranging from 2.5 to 5
percent is payable on Amax Gold's share of any production in excess of current
reserves.
Guanaco Mine
Amax Gold owns a 90 percent interest in and operates the Guanaco mine,
located in the Guanaco Mining District in northern Chile, approximately 145
miles southeast of Antofagasta, Chile. The operation consists of an open pit
mine, heap leach facilities capable of processing approximately 2.4 million tons
of ore per year, and permanent camp facilities. The facility includes three
stages of crushing, permanent pad heap leaching, and precipitation of gold.
Access to the mine from Antofagasta is provided by the Pan American Highway
(approximately 120 miles south) and a gravel surface road (approximately 25
miles east). Power is supplied by an on-site power plant. The water supply for
mine operations comes primarily from nearby wells and from nearby surface
springs, which also provide potable water.
The Guanaco mine began production in April 1993. Production was hampered in
1994 by initial crusher throughput problems, as well as by process water
shortages, which were resolved in the fourth quarter of 1994. During 1995
despite continued problems with crusher throughput, production at Guanaco
increased primarily due to higher grades and recoveries. The crusher problems
were resolved in 1996, which resulted in significantly improved production.
Mining was completed in July 1997, and residual leaching is expected to continue
into 1998. Based on a detailed study of the continuity of ore, costs, and
production rates, a $36 million pre-tax write-down was recorded during the
fourth quarter of 1996.
The Guanaco property position consists of approximately 25,000 acres
consisting of mineral claims leased from Empresa Nacional de Mineria (ENAMI), an
entity of the Chilean government, and certain other mineral rights. Nearly all
of the reserves are located on land covered by the ENAMI lease, which expires in
2006 and may be extended by Amax Gold for additional five-year terms thereafter.
The lease is subject to royalties varying with the level of production, with the
royalty on gold ranging from a 7 percent gross royalty to a 3 percent gross
royalty plus a 2 percent net profits royalty; there is a gross royalty of 2
percent for all other metals. The property remains subject to a 1.1 percent net
smelter return royalty to the minority owners for metals other than gold. Amax
Gold is in discussion with ENAMI regarding continuation of the lease following
cessation of production.
Hayden Hill Mine
Amax Gold owns 100 percent of the Hayden Hill Mine in Lassen County,
California, approximately 120 miles northwest of Reno, Nevada. The Hayden Hill
operation is an open pit mine with two pits and heap leach pads.
Amax Gold controls approximately 6,300 acres through ownership of federal
patented and unpatented mining claims and fee lands, and a long-term lease of
federal unpatented mining claims, which has an indefinite term. Access to the
mine is provided by a county road that connects to a state highway. Power for
operations is purchased from the local rural electric association. Water for
mining and processing operations is provided by two wells located in close
proximity to the mine. Potable water is supplied by truck. Mining was
completed in late 1997, and residual leaching is expected to continue during
1998.
Approximately 75 percent of the production is subject to a gross receipts net
smelter return royalty of approximately 2 percent.
19
<PAGE>
Sleeper Mine
The Sleeper mine is located in Humboldt County, Nevada, approximately 28
miles north of Winnemucca. Operations at Sleeper were completed at the end of
the third quarter of 1996, and there was no reported production in 1997.
Reclamation activities have commenced and are expected to be substantially
completed by 2000. The operation included an open pit mine, mill, heap leach
pads, and tailings disposal facilities. Current facilities occupy approximately
2,000 acres of unpatented mining claims. Access to the mine is provided by a
gravel road that connects to a paved public highway. Power is purchased from the
local rural electric association. Water is provided by a well system that is
currently being used to fill the pits, and potable water is supplied by truck.
Amax Gold has entered into an agreement with a third party for further
exploration of the Sleeper property. In 1997 the third party earned a 50 percent
interest in the property.
Haile Project
Amax Gold owns a 62.5 percent joint venture interest in the Haile Project in
Lancaster County, South Carolina. The remaining 37.5 percent interest is owned
by Kershaw Gold Company, Inc., a wholly-owned subsidiary of Piedmont Mining
Company, Inc. (Piedmont). Amax Gold is involved in a dispute with Piedmont
regarding certain agreements. Amax Gold has not made a decision to develop the
Haile property and is considering various options with respect to its interest
in Haile. Currently Amax Gold has capitalized approximately $14.5 million of
costs related to the Haile property.
The Haile Project covers approximately 3,600 acres and consists entirely of
fee property that is either owned by the venture participants, leased from third
parties under leases that can be extended to 2001, or controlled by purchase
agreements. The leased property is subject to a 4 percent net smelter return
royalty.
Gold Marketing Arrangements
Gold has two principal uses: product fabrication and bullion investment.
Fabricated gold has a wide variety of end uses, including jewelry manufacture
(the largest fabrication component), electronics, dentistry, industrial and
decorative uses, medals, medallions, and official coins. Amax Gold sells all of
its refined gold to banks and other bullion dealers, using a variety of hedging
programs, and the majority of its 1997 sales were to Europe.
Amax Gold employs a number of hedging techniques with the objective of
mitigating the impact of downturns in the gold market and providing adequate
cash flow for operations while maintaining significant upside potential in a
market upswing. During 1997, 1996, and 1995, Amax Gold's hedging efforts
resulted in average realized prices of $360 an ounce, $412 an ounce, and $406 an
ounce, respectively, compared with the average COMEX price of approximately $331
an ounce for 1997, $388 an ounce for 1996, and $384 an ounce for 1995.
Exploration
In 1997, Cyprus Amax conducted an international exploration program for
copper and gold. In 1998, Cyprus Amax will shift its exploration focus to
copper. It seeks a range of opportunities from early stage generative
exploration through advanced opportunities and acquisitions. The company has
active projects in the United States, Mexico, Panama, Honduras, Peru, Chile,
Australia, Indonesia, Russia, Zambia, Philippines, and Papua New Guinea and
continues to seek opportunities in other parts of the world as well. Exploration
also is conducted around its developing and producing mines to find and
delineate ore that could extend the lives of those operations. (See "Other
Minerals Segment, Amax Gold" for discussion of Cyprus Amax's exploration joint
venture agreement with Amax Gold.)
20
<PAGE>
EQUITY AND OTHER
Oakbridge Limited
During 1997 Cyprus Amax's ownership interest in Oakbridge Limited was 41
percent. In early 1998, it increased to 48 percent through the purchase of Ban-
Pu's 7 percent shareholding. Cyprus Amax's investment in Oakbridge is accounted
for using the equity method. See further discussion in "Coal Segment,
Oakbridge".
21
<PAGE>
RISK FACTORS
The Company's business operations are subject to a number of risks and
hazards inherent in the mining industry, including but not limited to those
summarized below, which materially and adversely may affect the Company's
business, financial conditions, results of operations and cash flows and the
anticipated development of existing properties and reserves and of future
projects, production quantities and rates, overall costs and expenditures and
expected production commencement dates. The Company is also subject to a number
of risks not specific to the mining industry, including but not limited to
general economic and financial market conditions.
Metals Price Volatility
A significant portion of the Company's revenues are derived from the sale of
metals such as copper and molybdenum and, to a lesser extent, gold through the
Company's majority owned subsidiary Amax Gold. Thus, the Company's business,
financial condition, results of operations and cash flows are very sensitive to
changes in the prices of these commodities. Metals prices fluctuate widely and
are affected by numerous factors beyond the Company's control or ability to
predict, including but not limited to domestic and international economic and
political conditions, industry inventory levels and capacity, global and
regional demand and production, the availability and costs of substitute
materials, speculative activities and inflationary expectations. While the
Company historically has used limited financial risk management techniques to
reduce a portion of the Company's exposure to the volatility of market prices,
there can be no assurance that it will continue to do so or that it will be able
to do so effectively in the future. In addition, depending upon the specific
techniques employed, market conditions and other factors, such activities could
reduce the earnings or cash flow which the Company otherwise would realize or
result in losses.
Operating and Project Development Risks
The Company's business operations are subject to risks and hazards inherent
in the mining industry, including but not limited to unanticipated grade and
other geological problems, water conditions, surface or underground conditions,
metallurgical and other processing problems and mechanical equipment performance
problems, the unavailability of materials and equipment, accidents, labor force
and force majeure factors, unanticipated transportation costs and delays and
weather conditions, prices and production levels of by-products, and potential
political instabilities of foreign governments, any of which materially and
adversely can affect, among other things, the development of properties,
production quantities and rates, costs and expenditures and production
commencement dates.
In the case of development projects, there generally is no operating history
upon which to base estimates of future operating costs and capital requirements.
The economic feasibility of any individual project is based upon, among other
things: the interpretation of geological data obtained from drill holes and
other sampling techniques; feasibility studies, which derive estimates of cash
operating costs based upon anticipated tonnage and grade of ore to be mined and
processed; the configuration of the ore body; expected recovery rates of metals
from the ore; comparable facility and equipment costs; anticipated climatic
conditions; estimates of labor productivity and other factors. Such development
projects also are subject to the successful completion of final feasibility
studies, issuance of necessary permits and receipt of adequate financing.
Accordingly, uncertainties related to operations are magnified in the case of
development projects.
As a result of the forgoing risks, among other things, expenditures on any
and all projects, actual production quantities and rates, and cash operating
costs materially and adversely may be affected and may differ materially from
anticipated expenditures, production quantities and rates, and costs, just as
estimated production dates may be delayed materially, in each case, especially
to the extent development projects are involved. Any such events materially and
adversely can affect the Company's business, financial condition, results of
operations and cash flows.
22
<PAGE>
Reliance on Coal Contracts
A substantial portion of the Company's coal is sold pursuant to long-term
coal supply contracts which are significant to the stability and profitability
of the Company's operations. During 1997, a majority of the company's revenues
from coal sales resulted from sales under contracts with an initial term of more
than one year. Some of the Company's contracts currently have prices which
exceed the price at which such coal could be sold in the spot market. The loss
of certain of its long-term contracts could have a material adverse effect on
the Company's business, financial condition, results of operations and cash
flow. Most of the Company's coal contracts with an initial term of more than one
year are subject to price adjustment provisions which, subject to certain
limits, permit an increase or decrease periodically in the contract price. Some
of the Company's coal supply contracts also contain price re-opener provisions
which provide for the periodic upward or downward adjustment of contract prices;
such provisions can lead to disputes with customers and potential modifications
or early termination of the contract.
Competitive Conditions
All of Cyprus Amax's products are sold in highly competitive markets.
Marketing of Cyprus Amax's products is influenced by price, materials
substitution, product quality, transportation costs, general economic
conditions, imports, and competition in all markets. Cyprus Amax competes with
numerous other copper, molybdenum, coal, lithium, and gold producers.
Copper, molybdenum, and gold sales generally are characterized by cyclical
and volatile prices, little product differentiation, and strong competition.
Prices are influenced by production costs of domestic and foreign competitors,
worldwide economic conditions, world supply/demand balances, inventory levels,
the United States dollar exchange rate, and other factors. Copper and molybdenum
prices also are affected by the demand for end-use products in, for example, the
construction, transportation and durable goods markets.
While the long-term demand for copper has been growing, it can be affected
adversely by substitution of materials such as aluminum, plastics, and optical
fibers. Copper is an internationally traded commodity, and its price is
determined on two major metals exchanges: the Commodities Exchange, Inc., in New
York City (COMEX) and the London Metal Exchange (LME). These prices broadly
reflect the worldwide balance of copper supply and demand, but also are
influenced by speculative activities. COMEX copper prices averaged $1.04 per
pound in 1997, down 2 cents per pound from 1996. Western world copper
consumption rose for the twelfth consecutive year in 1997, with estimated 1997
growth of three percent. Copper production increased by an estimated five
percent. During the second half of 1997, copper inventories rose and prices fell
sharply as the market moved from a shortage to a surplus. The supply of copper
is determined largely by development and production decisions of those entities
controlling mines and reserves. Some major foreign producers have cost
advantages resulting from higher ore grades, lower labor rates, and less
stringent environmental requirements.
Molybdenum demand depends heavily on worldwide steel industry consumption
and, to a lesser extent, on chemical applications. Molybdenum demand in the
Western World was near record levels in 1997, supported by overall world
economic strength. Continued strong demand growth in 1997 was met by supply
increases. World spot molybdenum oxide prices in 1997 averaged about $4.30 per
pound against a 1996 average of about $3.80 per pound. Cyprus Climax molybdenum
realizations averaged $5.50 per pound in 1997 and $5.25 per pound in 1996, with
realizations positively impacted by higher valued molybdenum chemical products.
Cyprus Climax staged a 3 million pound build up of molybdenum inventories in
1997 to satisfy customer requirements during the transition from rail to
conveyor haulage associated with the Henderson 2000 project. A substantial
portion of world molybdenum production is a by-product of copper mining, which
is relatively insensitive to molybdenum price levels. Exports to the Western
World, especially from China, can also influence competitive conditions. In
addition, Molycorp reopened its New Mexico mine in 1997.
Among factors that affect competition in Cyprus Amax's coal markets are coal
quality, the cost levels of other coal producers, the cost and availability of
transportation, government regulations including the Clean Air Act Amendments of
1990, the time and expenditures required to develop new coal mines, taxes, the
weather, and
23
<PAGE>
the cost of alternative fuels. Sales of coal to utilities are affected by the
demand for electricity. Coal prices are sensitive to caloric value (Btu) and
sulfur content and to a particular user's quality requirements. Coal prices
generally are less volatile than metals prices, since coal typically is sold
under term contracts at fixed prices subject to escalation, de-escalation, and
renegotiation. In line with increases in coal production, an increasing amount
of Cyprus Amax's coal is now being sold under shorter term contracts or in spot
markets.
Competition in the sale of lithium products is based on price and quality.
During 1997, Cyprus Amax produced approximately 40 percent of the world's supply
of lithium carbonate. Cyprus Amax has a number of competitors from western
countries in the lithium marketplace, as well as competition from lithium
products from China and the Commonwealth of Independent States (C.I.S.). In
addition, carbonate lithium competition has entered the market and as a result,
an overcapacity situation has developed in lithium carbonate which has resulted
in the erosion of lithium carbonate prices.
Environmental Matters
The mining and mineral processing industries are subject to extensive
regulations for the protection of the environment in the United States and
foreign countries, including but not limited to regulations relating to air and
water quality, mine reclamation, remediation, solid and hazardous waste handling
and disposal and the promotion of occupational safety. These laws often require
parties to fund remedial action or to pay damages regardless of fault.
Environmental laws also often impose liability with respect to divested or
terminated operations even if the operations were divested of terminated many
years ago. As a result, the Company generally is required to engage in
substantial remedial and investigatory activities, including but not limited to
assessment and clean up work. Although the Company believes that it has adequate
reserves with respect to environmental matters, there can be no assurance that
the amount of capital expenditures and other costs and expenses which will be
required to complete remedial actions and otherwise to comply with applicable
environmental laws will not exceed the amounts reflected in the Company's
reserves or will not have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows. From time to time the
Company is cited for noncompliance with applicable environmental laws and
regulations. However, the Company expects to be able to comply in all material
respects with existing laws and regulations.
The mining operations of the Company also are subject to inspection and
regulation by the United States and foreign governments under a variety of laws
and regulations. Current and future regulations or regulatory interpretations do
or may require significant expenditures for compliance which may increase the
Company's mine development and operating costs and may require the Company to
modify or curtail its operations. The Company cannot predict the likely impact
of future of pending legislation on its business, financial condition, results
of operations or cash flows.
Reference is made to additional information concerning environmental matters
in "Management's Discussion, Environmental" on page 26 of the 1997 Annual Report
and Note 14 to the Consolidated Financial Statements on pages 45 and 46 of the
1997 Annual Report, which information is incorporated herein by reference and
Item 3: Legal Proceedings in this Form 10-K.
24
<PAGE>
Reserve Levels
There are a number of uncertainties inherent in estimating quantities of
reserves, including many factors beyond the control of the Company. The reserve
data set forth herein or incorporated by reference are in large part estimates
only. No assurance can be given that the volume and grade of reserves recovered
and rates of production will not be less than anticipated. Declines in the
market price of a particular metal or in coal also may render reserves
containing relatively lower grades of mineralization, or reduced quality of
coal, uneconomic to exploit. If the price realized by the Company for a
particular commodity were to decline substantially below the price at which ore
reserves were calculated for a sustained period of time, the Company potentially
could experience reductions in reserves and asset write-downs. Under certain
such circumstances, the Company may discontinue the development of a project or
mining at one or more of its properties. Further, changes in operating and
capital costs and other factors, including but not limited to short-term
operating factors such as the need for sequential development of ore bodies and
the processing of new or different ore grades, may materially and adversely
affect reserves.
Competition for Properties; Exploration Risks
Since mines have limited lives based on proven ore reserves, the Company
continually seeks to replace and expand its reserves. Mineral exploration, at
both newly acquired properties and existing mining operations, is highly
speculative in nature, involves many risks and frequently is nonproductive. Once
mineral deposits are discovered, it may take a number of years from initial
preparatory work until production is possible, during which time the economic
feasibility of production may change. Substantial expenditures are required to
establish ore reserves through drilling to determine metallurgical processes
required for extraction from ore and, in the case of new properties, to
construct mining and processing facilities.
The Company encounters strong competition from other mining companies in
connection with the acquisition of properties producing or capable of producing
metals and coal. As a result of this competition, some of which is with
companies with greater financial resources than the Company, the Company may be
unable to acquire attractive mining properties on terms it considers acceptable.
In addition, there are a number of uncertainties inherent in any program
relating to the location of economic ore reserves, the development of
appropriate metallurgical processes, the receipt of necessary governmental
permits and the construction of mining and processing facilities. Accordingly,
there can be no assurance that the Company's acquisition and exploration
programs will yield new reserves to replace and expand current reserves.
Foreign Operations
Certain of the Company's reserves and facilities are located in foreign
countries, including Chile, Peru, Russia, Australia, Canada, the Netherlands and
the United Kingdom. Such foreign reserves and facilities may be materially and
adversely affected by exchange controls, currency fluctuations, ownership
limitations, expropriation, taxation and laws or policies of particular
countries, as well as the laws or policies of the United States affecting
foreign trade, investment and taxation. The Company also may be affected
materially and adversely by the policies and practices of multinational
political or financial institutions.
25
<PAGE>
Item 3. Legal Proceedings
Cyprus Tohono Mining Company was informed in late 1995 by the office of the
Assistant U.S. Attorney in Tucson, Arizona, that an action was being considered
under federal environmental laws against Cyprus Tohono Corporation and certain
of its employees. The facts giving rise to this matter involve a break in a
process line at Tohono occurring in 1992. It is not possible to state with
reasonable certainty at this time what action will be taken by the government.
Cyprus Miami and other companies, in conjunction with the Arizona Department
of Environmental Quality's Water Quality Assurance Revolving Fund program,
continued remediation and assessment of ground water quality at Pinal Creek near
Miami, Arizona, throughout 1997. Despite the fact that the ongoing program,
initiated in 1989, has resulted in continued improvement of sub-surface water
quality in the area, Cyprus Miami was informed that the State of Arizona was
contemplating enforcement action against Cyprus Miami and/or other companies in
connection with the Pinal Creek water quality issues under federal and state
environmental laws. On November 10, 1997, Cyprus Miami, as a member of the Pinal
Creek group, joined with the State of Arizona in seeking approval of the
District Court for entry of a Consent Decree to resolve all matters related to
the contemplated enforcement action. The Decree commits Cyprus Amax and other
Pinal Creek group members to complete the work outlined in the remedial action
plan submitted to the State in May 1997. The Final Remediation Action Plan will
be finalized through provisions of the Decree. Approximately $42 million
remained in the Pinal Creek remediation reserve at December 31, 1997. Cyprus
Miami has commenced contribution litigation against other parties involved in
this matter and has asserted claims against certain of its past insurance
carriers. While significant recoveries are expected, Cyprus Miami cannot
reasonably estimate the amount and, therefore, has not taken potential
recoveries into consideration in the recorded reserve.
Cyprus Amax or its subsidiaries have been advised by the Environmental
Protection Agency ("EPA") and several state environmental agencies that they may
be liable under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") or similar state laws and regulations for costs of
responding to environmental conditions at a number of sites which have been or
are being investigated by the EPA or states to establish whether releases of
hazardous substances have occurred and, if so, to develop and implement remedial
actions. Cyprus Amax has been named as a potentially responsible party ("PRP")
or has received EPA requests for information for several sites. For all sites,
Cyprus Amax had an aggregate reserve of approximately $95 million at December
31, 1997, for its share of the estimated liability. Liability estimates are
based on an evaluation of, among other factors, currently available facts,
existing technology, presently enacted laws and regulations, Cyprus Amax's
experience in remediation, other companies' remediation experience, Cyprus
Amax's status as a PRP, and the ability of other PRP's to pay their allocated
portions. The cost range of reasonably possible outcomes for all sites is
estimated to be from $65 million to $280 million, and work on these sites is
expected to be substantially completed in the next several years, subject to the
inherent delays involved in the process. Remediation costs that could not be
reasonably estimated at December 31, 1997, are not expected to have a material
impact on the financial condition and ongoing operations of the Company. Cyprus
Amax believes certain insurance policies partially cover these claims; however,
some of the insurance carriers have denied responsibility, and Cyprus Amax is
litigating coverage. Further, Cyprus Amax believes that it has other potential
claims for recovery from third parties, including the U.S. Government and other
PRPs, as well as liability offsets through lower cost remedial solutions.
However, neither insurance recoveries nor other claims or offsets have been
recognized in the financial statements unless such offsets are considered
probable of realization.
At December 31, 1997, Cyprus Amax's accruals for deferred closure, shutdown
of closed operations, and reclamation totaled approximately $316 million.
Reclamation is an ongoing activity and a cost associated with Cyprus Amax's
mining operations. Accruals for closure and final reclamation liabilities are
established on a life of mine basis. The Cyprus Amax Coal reclamation reserve
component of $190 million is largely a result of reclamation obligations
incurred for replacing soils and revegetation of mined areas as required by
provisions and permits pursuant to the Surface Mining Control and Reclamation
Act. The Copper/Molybdenum and Other reclamation reserve components are $104
million and $22 million, respectively, and include costs for site stabilization,
cleanup, long-term monitoring, and water treatment costs as expected to be
required largely by state
26
<PAGE>
laws and regulations as well as by sound environmental practice. Total
reclamation costs for Cyprus Amax at the end of current mine lives is estimated
at about $630 million.
Cyprus Amax believes that it has adequate reserves such that none of these
matters or contingencies is expected to have a material adverse effect on it
business or financial condition, results, and cash flows, and is unaware of any
additional environmental matters that, based on information currently known to
Cyprus Amax, would have a material effect upon the Company's financial condition
or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1997.
Item 4A. Executive Officers of the Registrant
Set forth below are the names, ages and titles of the executive officers of
Cyprus Amax as of March 24, 1998:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
Milton H. Ward 65 Chairman, President and Chief Executive
Officer
Jeffrey G. Clevenger 48 Executive Vice President
Garold R. Spindler 50 Executive Vice President
Gerald J. Malys 53 Senior Vice President and Chief Financial
Officer
David H. Watkins 53 Senior Vice President, Exploration
Philip C. Wolf 50 Senior Vice President, General Counsel and
Secretary
Robin J. Hickson 54 Vice President, Engineering and Development
Farokh S. Hakimi 49 Vice President and Treasurer
John Taraba 49 Vice President and Controller
</TABLE>
Mr. Ward was elected Chairman of the Board, President and Chief Executive
Officer on May 14, 1992, and served as Co-Chairman for the period November 15,
1993, through November 15, 1995. Mr. Clevenger was elected to his current
position on January 15, 1998, and Mr. Malys was elected Senior Vice President
effective October 31, 1988, and Chief Financial Officer effective August 1,
1989. Mr. Spindler was elected to his current office on January 15, 1998, and
Mr. Watkins assumed his current office on February 1, 1994. Mr. Wolf was elected
to his current office on November 13, 1993, and Mr. Hickson was appointed to his
current office on November 20, 1994. Mr. Hakimi assumed his current office on
December 11, 1997, and Mr. Taraba was elected to his current office on October
31, 1988.
Messrs. Malys, Wolf, Hakimi, and Taraba have been engaged full-time in the
business of Cyprus Amax and its subsidiaries for more than the past five years.
Prior to joining Cyprus Amax in May 1992, Mr. Ward had been President and Chief
Operating Officer of Freeport-McMoRan Inc. and Chairman and Chief Executive
Officer of Freeport-McMoRan Copper & Gold Inc. since 1984. Mr. Clevenger held
various management positions at Phelps Dodge Corporation since 1979 until he
joined Cyprus Amax in 1993. From 1993 until 1998, Mr. Clevenger held the
position of Senior Vice President, Copper. Prior to joining Cyprus Amax Coal,
Mr. Spindler had been associated with Pittston Coal Company, serving as
President and Chief Executive Officer since 1990 until he joined Cyprus Amax
Coal and held the position of Senior Vice President, Coal from 1995 until 1998,
when he assumed his current position. Prior to joining Cyprus Amax in 1994, Mr.
Watkins served as Vice President and Director at Metall Mining Corporation from
1991 until 1993. Mr. Wolf had operating responsibility for Cyprus Amax's
industrial minerals, lithium, gold and iron ore operations during the period
from 1987 until 1993, when he assumed his current position. Mr. Hickson joined
Cyprus Amax in 1993 as Senior Vice President of Cyprus Climax Metals Company.
Before joining Cyprus Amax, Mr. Hickson was President of Freeport-McMoRan's
Research and Engineering Company. Mr. Hakimi held various positions in Cyprus
Amax's Treasury group and Cyprus Amax Coal's Marketing and Planning and
Economics group until 1997,
27
<PAGE>
when he assumed his current position. Mr. Taraba held various positions in
Cyprus Amax's financial departments from 1982 until 1988, when he assumed his
current position.
Each executive officer holds office subject to removal at any time by the
Board of Directors of Cyprus Amax.
28
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
Information required by this item is incorporated by reference from "Stock
Market Information" on page 52 in the 1997 Annual Report.
The information required by Items 6 through 8 is incorporated by reference from
the pages of the Company's 1997 Annual Report set forth below.
<TABLE>
<CAPTION>
Applicable Pages
Form 10-K Item Number in the 1997 Annual Report
--------------------- -------------------------
<S> <C> <C>
Item 6. Selected Financial Data ............................................ 18-19
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition ................................. 20-28
Item 8. Financial Statements and Supplementary Data ........................ 29-51
a. Quarterly Results ............................................... 50
b. Mineral Reserves and Selected Operating Statistics .............. 51
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
</TABLE>
29
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information about the Directors of the Company required by this item is
located in Cyprus Amax's Proxy Statement for the 1998 Annual Meeting to be filed
within 120 days after the end of the fiscal year. Information about the
Executive Officers of the Company required by this item appears in Part I of
this Annual Report on Form 10-K.*
Item 11. Executive Compensation
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1998 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1998 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1998 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
- ------------
* References in this Annual Report on Form 10-K to material contained in Cyprus
Amax's Proxy Statement for the 1998 Annual Meeting to be filed within 120
days after the fiscal year incorporate such material into this Report by
reference.
30
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following financial statements are filed as part of this Report:
1. Financial Statements included in the 1997 Annual Report and
incorporated by reference:
<TABLE>
<CAPTION>
Pages in 1997
Annual Report
-------------
<S> <C>
Report of Independent Accountants............... 17
Consolidated Statement of Operations for each of
the three years in the period ended
December 31, 1997............................... 29
Consolidated Balance Sheet at December 31, 1997
and 1996....................................... 30
Consolidated Statement of Cash Flows for each
of the three years in the period ended
December 31, 1997.............................. 31
Consolidated Statement of Shareholders' Equity
for each of the three years in the period ended
December 31, 1997.............................. 32
Notes to Consolidated Financial Statements..... 33-49
2. Financial Statement Schedule:
Pages in This
Form 10-K
-------------
Report of Independent Accountants on Financial
Statement Schedule.......................... 38
For the three years in the period ended
December 31, 1997:
Schedule II - Valuation and Qualifying
Accounts and Reserves....................... 39
</TABLE>
Schedules not included in this Form 10-K have been omitted because they are
not applicable or the required information is shown in the financial statements
in the 1997 Annual Report or notes thereto. Separate financial statements of 50
percent or less owned companies accounted for by the equity method have been
omitted because the registrant's proportionate share of the income from
continuing operations before income taxes is less than 20 percent of the
respective consolidated amount, and the investment in and advances to each
company is less than 20 percent of consolidated total assets.
31
<PAGE>
3. The following exhibits are filed with this Annual Report on Form 10-K.
The exhibit numbers correspond to the numbers assigned in Item 601 of
Regulation S-K.
Exhibit
Number Document
------ --------
2 Agreement and Plan of Reorganization and Merger between Cyprus
Minerals Company and AMAX Inc., incorporated by reference from
Exhibit 1 to the Report on Form 8-K dated May 27, 1993.
3 (a) Restated Certificate of Incorporation.
(b) By-Laws, as amended through the date of signing of this Annual
Report on Form 10-K, incorporated by reference from Exhibit
3(b) to the Annual Report on Form 10-K for the period ended
December 31, 1991, and from Exhibit 3.2 to the Report on
Form 8-K dated November 30, 1993.
4 (a) Form of Indenture between Cyprus Minerals Company and United
States Trust Company, as Trustee (including form of the Notes),
relating to the 10 1/8% Notes due 2002, incorporated by
reference from Exhibit 4(a) to the Registration Statement on
Form S-3, File No. 33-33869.
(b) Form of Indenture between Cyprus Minerals Company and
Ameritrust Texas National Association, as Trustee (including
form of the Debentures), relating to the 8 3/8% Debentures due
2023 and 6 5/8% Notes due 2005, incorporated by reference from
Exhibit 4.1 to the Report on Form 8-K dated January 28, 1993,
and Exhibit 4.2 to the Report on Form 8-K dated October 21,
1993.
(c) Form of Indenture between Cyprus Amax Minerals Company and the
First Bank of Chicago, as Trustee (including form of the
Notes), relating to the 7 3/8% Notes due 2007 incorporated by
reference from the Registration Statement on Form S-3,
File 33-54097.
(d) Rights Agreement between The Chase Manhattan Bank, N.A. and
Cyprus Minerals Company, dated February 23, 1989, as amended
through the date of signing of this Annual Report on Form 10-K,
incorporated by reference from Exhibit 2 to the Report on Form
8-K dated January 29, 1990; Exhibit 4 to the Report on Form 8-K
dated January 29, 1990; Exhibit 1 to the Report on Form 8-K
dated June 29, 1993; Exhibit 8 to the Report on Form 8-K dated
December 14, 1995; Exhibit 9 to the Report on Form 8-A/A dated
March 6, 1997; and Exhibit 10 to the Report on Form 8-K dated
April 8, 1997.
32
<PAGE>
Exhibit
Number Document
------ --------
(e) Certificate of Adjustment dated as of January 22, 1990,
incorporated by reference from Exhibit 3 to the Report on Form
8-K dated January 29, 1990.
(f) Certificate of Designations of Series A Junior Participating
Preferred Stock, incorporated by reference from Exhibit 3(a) to
the Annual Report on Form 10-K for the period ended December
31, 1988, and from Exhibit 7 to the Report on Form 8-A/A dated
June 29, 1993.
(g) Certain instruments with respect to long-term debt of the
Registrant have not been filed as Exhibits to this Report since
the total amount of securities authorized under any such
instrument does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis. The
Registrant agrees to furnish a copy of each such instrument to
the Securities and Exchange Commission upon request.
10 Material Contracts (except for director and executive contracts and
compensatory plans and arrangements, includes only those contracts
filed with this Annual Report on Form 10-K and does not include other
contracts which previously have been filed by the registrant and
which either remain to be performed in whole or in part at or after
the filing of this Annual Report on Form 10-K, or were entered into
not more than two years before the date of this Annual Report on Form
10-K).
(a) Cyprus Amax Minerals Company Supplemental Executive Retirement
Plan.
(b) Management Incentive Program of Cyprus Amax Minerals Company.
(c) Merger Agreement, dated February 9, 1998, by and among Kinross
Gold Corporation, Kinross Merger Corporation, and Amax Gold,
Inc., incorporated by reference to Exhibit 10.25 to Amax Gold
Inc.'s Annual Report on Form 10-K for the year ended December
31, 1997.
(d) Stockholder Agreement, dated as of February 9, 1998, by and
among Kinross Gold Corporation, Kinross Merger Corporation,
Cyprus Amax Minerals Company, Amax Energy Inc., Cyprus Gold
Company, and Amax Gold Inc., incorporated by reference to
Amendment No. 17 to Statement on Schedule 13D with respect to
the common stock of Amax Gold Inc.
(e) Investor Agreement, dated as of February 9, 1998, by and
between Kinross Gold Corporation and Cyprus Amax Minerals
Company, incorporated by reference to Amendment No. 17 to
Statement on Schedule 13D with respect to the common stock of
Amax Gold Inc.
33
<PAGE>
Exhibit
Number Document
------ --------
(f) Amended and Restated Stock Plan for Non-Employee Directors of
Cyprus Amax Minerals Company, as amended through the date of
signing of the Annual Report on Form 10-K, incorporated by
reference to Exhibit 28 to the Report on Form 10-Q for the quarter
ended September 30, 1992, and including the additional amendments
incorporated by reference from Exhibit 10(a) to the Annual Report
on Form 10-K for the period ended December 31, 1996.
(g) Annual Incentive Plan for Executive Officers and Designated
Management, incorporated by reference from Exhibit 10(b) to the
Annual Report on Form 10-K for the period ended December 31, 1996.
(h) Amended and Restated Employment Agreement between Cyprus Amax
Minerals Company and Milton H. Ward, incorporated by reference from
Exhibit 10(a) to the Annual Report on Form 10-K for the period
ended December 31, 1995.
(i) Cyprus Amax Minerals Company Executive Officer Separation Policy,
as amended through the date of signing of the Annual Report on Form
10-K; incorporated by reference from Exhibit 10(m) to the Annual
Report on Form 10-K for the period ended December 31, 1993, and
Exhibit 10(b) to the Annual Report on Form 10-K for the period
ended December 31, 1995.
(j) Contracts regarding employment between Cyprus Minerals Company and
certain executive officers, incorporated by reference from Exhibit
10(i) to the Annual Report on Form 10-K for the period ended
December 31, 1993, and Exhibit 10(c) to the Annual Report on Form
10-K for the period ended December 31, 1995.
(k) 1993 Key Executive Long-term Incentive Plan between Cyprus Minerals
Company and certain executive officers, incorporated by reference
from Exhibit 10(d) to the Annual Report on Form 10-K for the period
ended December 31, 1995.
(l) Deferred Compensation Plan for Selected Employees of Cyprus Amax
Minerals Company, incorporated by reference from Exhibit 10(i) to
the Annual Report on Form 10-K for the period ended December 31,
1994.
34
<PAGE>
Exhibit
Number Document
------ --------
(m) Deferred Compensation Plan for Non-Employee Directors of Cyprus
Amax Minerals Company, incorporated by reference from Exhibit 10(c)
to the Annual Report on Form 10-K for the period ended December
31, 1994.
(n) Full Retirement Benefit Plan for Certain Salaried Employees, as
amended through the date of signing of the Annual Report on
Form 10-K, incorporated by reference from Exhibit 10(c) to the
Annual Report on Form 10-K for the period ended December 31, 1988;
Exhibit 10(c) to the Annual Report on Form 10-K for the period
ended December 31, 1989; Exhibit 10(b) to the Annual Report on Form
10-K for the period ended December 31, 1990; and Exhibit 10(b) to
the Annual report on Form 10-K for the period ended December 31,
1992; and Exhibit 10(d) to the Annual Report on Form 10-K for the
period ended December 31, 1994.
(o) Excess Defined Contribution Plan, as restated through the date of
signing of this Annual Report on Form 10-K, incorporated by
reference from Exhibit 10(f) to the Annual Report on Form 10-K for
the period ended December 31, 1994.
(p) Amended and Restated 1988 Stock Option Plan of Cyprus Amax Minerals
Company, incorporated by reference to Exhibit 99 to the
Registration Statement on Form S-8 dated November 12, 1993.
(q) Change of Control Employment Agreements between Cyprus Amax
Minerals Company and certain executive officers, incorporated by
reference from Exhibit 10(j) to the Annual Report on Form 10-K for
the period ended December 31, 1993.
(r) Cyprus Minerals Company Nonqualified Retirement Plan for Non-
Employee Directors, incorporated by reference from Exhibit 10(c) to
the Annual Report on Form 10-K for the period ended December 31,
1990.
11 Statement re computation of per share earnings.
13 1997 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse LLP.
35
<PAGE>
Exhibit
Number Document
------ --------
27 Financial Data Schedule.
99 Financial Statements comprising the Annual Report of the Cyprus Amax
Minerals Company Savings Plan and Trust.*
- ------------
* To be filed by amendment within 180 days of the plan's fiscal year end, in
accordance with Rule 15d-21.
(b) The following 8-Ks were filed during the last quarter of the period
covered by this Report on Form 10-K:
No report on From 8-K was filed during the last quarter of the period
covered by this Report on Form 10-K.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 25 day of March
1998.
CYPRUS AMAX MINERALS COMPANY
(REGISTRANT)
By /s/ Gerald J.Malys
------------------------
Gerald J. Malys
Senior Vice President and Chief Financial
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 25, 1998.
Signatures Titles
---------- ------
/s/ Milton H. Ward Chairman of the Board, Director,
------------------- President, and Chief Executive Officer
Milton H. Ward
/s/ Gerald J. Malys Senior Vice President and Chief Financial
-------------------- Officer (Principal Financial Officer)
Gerald J. Malys
/s/ John Taraba Vice President and Controller (Principal
---------------- Accounting Officer)
John Taraba
/s/ Linda G. Alvarado Director
----------------------
Linda G. Alvarado
/s/ George S. Ansell Director
---------------------
George S. Ansell
/s/ Allen Born Director
---------------
Allen Born
/s/ William C. Bousquette Director
--------------------------
William C. Bousquette
/s/ Thomas V. Falkie Director
---------------------
Thomas V. Falkie
/s/ Ann Maynard Gray Director
---------------------
Ann Maynard Gray
/s/ Rockwell A. Schnabel Director
-------------------------
Rockwell A. Schnabel
/s/ Theodore M. Solso Director
----------------------
Theodore M. Solso
/s/ John Hoyt Stookey Director
----------------------
John Hoyt Stookey
/s/ James A. Todd, Jr. Director
-----------------------
James A. Todd, Jr.
/s/ Billie B. Turner Director
---------------------
Billie B. Turner
37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
Cyprus Amax Minerals Company:
Our audits of the consolidated financial statements referred to in our report
dated February 11, 1998, appearing on page 17 of the 1997 Annual Report to
Shareholders of Cyprus Amax Minerals Company (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Denver, Colorado
February 11, 1998
38
<PAGE>
SCHEDULE II
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Year Ended December 31
(Millions of Dollars)
<TABLE>
<CAPTION>
Additions
---------------------
Charged Charged
Balance at to to Balance at
Beginning Costs and Other End of
Material and Supplies Inventory of Year Expenses Accounts Deductions Year
- ---------------------------------------- ---------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1997
Deducted from asset accounts:
Reserve for material and supplies
inventory......................... $ 18 $ 1 $ (1) $ - $ 18
========== ========= ========= =========== ==========
1996
Deducted from asset accounts:
Reserve for material and supplies
inventory......................... $ 24 $ 2 $ 3 $ (11) $ 18
========== ========= ========= =========== ==========
1995
Deducted from asset accounts:
Reserve for material and supplies
inventory......................... $ 23 $ 7 $ 2 $ (8) $ 24
========== ========= ========= =========== ==========
Doubtful Accounts and Notes Receivable
- ---------------------------------------
1997
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current.......... $ 6 $ 1 $ - $ - $ 7
Reserve for doubtful accounts and
notes receivable-noncurrent....... $ 5 $ - $ - $ - $ 5
---------- --------- --------- ----------- ----------
Total........................... $ 11 $ 1 $ - $ - $ 12
========== ========= ========= =========== ==========
1996
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current.......... $ 8 $ - $ - $ (2) $ 6
Reserve for doubtful accounts and
notes receivable-noncurrent....... $ 5 $ - $ - $ - $ 5
---------- --------- --------- ----------- ----------
Total........................... $ 13 $ - $ - $ (2) $ 11
========== ========= ========= =========== ==========
1995
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current.......... $ 5 $ 2 $ 3 $ (2) $ 8
Reserve for doubtful accounts and
notes receivable-noncurrent....... $ 5 $ - $ - $ - $ 5
---------- --------- --------- ----------- ----------
Total........................... $ 10 $ 2 $ 3 $ (2) $ 13
========== ========= ========= =========== ==========
</TABLE>
39
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Document
- ------- --------
3 (a) Restated Certificate of Incorporation.
10 Material Contracts (except for director and executive contracts and
compensatory plans and arrangements, includes only those contracts
filed with this Annual Report on Form 10-K and does not include other
contracts which previously have been filed by the registrant and which
either remain to be performed in whole or in part at or after the
filing of this Annual Report on Form 10-K, or were entered into not
more than two years before the date of this Annual Report on Form 10-
K).
(a) Cyprus Amax Minerals Company Supplemental Executive Retirement
Plan.
(b) Management Incentive Program of Cyprus Amax Minerals Company.
11 Statement re computation of per share earnings.
13 Annual Report to Shareholders
21 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule.
- ------------
(b) The following 8-Ks were filed during the last quarter of the period
covered by this Report on Form 10-K:
No report on Form 8-K was filed during the last quarter of the period
covered by this Report on Form 10-K.
40
<PAGE>
Exhibit 3(a)
RESTATED
CERTIFICATE OF INCORPORATION
OF
CYPRUS AMAX MINERALS COMPANY
Cyprus Amax Minerals Company, a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Cyprus Amax Minerals Company and the
name under which the corporation was originally incorporated is Amoco Minerals
Company. The date of filing of its original Certificate of Incorporation with
the Secretary of State was September 2, 1969.
2. This Restated Certificate of Incorporation was duly adopted by
the Board of Directors on October 24, 1996 in accordance with the provisions of
Section 245 of the General Corporation Law of the State of Delaware.
3. This Restated Certificate of Incorporation will be effective upon its
filing with the Delaware Secretary of State.
4. This Restated Certificate of Incorporation only restates and integrates
and does not further amend or supplement the provisions of the Certificate of
Incorporation of this corporation as heretofore amended or supplemented and
there is no discrepancy between those provisions and the provisions of this
Restated Certificate of Incorporation. The text of the Restated Certificate of
Incorporation is hereby set forth below:
FIRST: The name of the Corporation (hereinafter called the "Corporation")
-----
is
CYPRUS AMAX MINERALS COMPANY
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of stock of all classes which the
------
Corporation has authority to issue is One Hundred Seventy Million (170,000,000)
shares of which One Hundred Fifty Million (150,000,000) shares shall be Common
Stock, with no par value per share, and Twenty Million (20,000,000) shares shall
be Preferred Stock, with a par value of One Dollar ($1.00) per share.
As of the date this Certificate of Incorporation was amended on May 24,
1985, each outstanding share of the authorized common stock of the Corporation
with a par value of $25.00 shall be convertible into one outstanding share of
the no par value common stock herein authorized.
1
<PAGE>
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the shares of each class of stock
are as follows:
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. Subject to the provisions hereof and
the limitations prescribed by law, the Board of Directors is expressly
authorized, prior to issuance, by adopting resolutions providing for the
issuance of, or providing for a change in the number of, shares of any
particular series and, if and to the extent from time to time required by law,
by filing a certificate pursuant to the General Corporation Law (or other law
hereafter in effect relating to the same or substantially similar subject
matter), to establish or change the number of shares to be included in each such
series and to fix the designation and relative powers, preferences and rights
and the qualifications and limitations or restrictions thereof relating to the
shares of each such series. The authority of the Board of Directors with
respect to each series shall include, but not be limited to, determination of
the following:
(a) the distinctive serial designation of such series and the number
of shares constituting such series (provided that the aggregate number of
shares constituting all series of Preferred Stock shall not exceed Twenty
Million (20,000,000);
(b) the annual dividend rate on shares of such series, whether
dividends shall be cumulative and, if so, from which date or dates;
(c) whether the shares of such series shall be redeemable and, if so,
the terms and conditions of such redemption, including the date or dates
upon and after which such shares shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(d) the obligation, if any, of the Corporation to retire shares of
such series pursuant to a sinking fund;
(e) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes and, if so,
the terms and conditions of such conversion or exchange, including the
price or prices or the rate of conversion or exchange and the terms of
adjustment, if any;
(f) whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of
such voting rights;
(g) the rights of the shares of such series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation;
and
(h) any other relative rights, powers, preferences, qualifications,
limitations or restrictions thereof relating to such series.
The shares of Preferred Stock of any one series shall be identical to each
other in all respects except as to the dates from and after which dividends
thereon shall cumulate, if cumulative.
2
<PAGE>
The number of authorized shares of Preferred Stock may be increased or
decreased by the affirmative vote of the holders of a majority of the stock of
the Corporation entitled to vote without the separate vote of holders of
Preferred Stock as a class.
The Certificate of Designation for the Series A Junior Participating
Preferred Stock is attached hereto as Exhibit A and the Certificate of
Designation for the Series A Convertible Preferred Stock is attached hereto as
Exhibit B.
COMMON STOCK
Subject to all of the rights of the Preferred Stock, and except as may be
expressly provided with respect to the Preferred Stock herein, by law or by the
Board of Directors pursuant to this Article FOURTH:
(a) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the Corporation legally
available for the payment of dividends;
(b) the holders of Common Stock shall have the exclusive right to
vote for the election of directors and on all other matters requiring
stockholder action, each share being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with
their respective rights and interests.
PREEMPTIVE RIGHTS
No holder of any stock of the Corporation shall be entitled as such, as a
matter of right, to subscribe for or purchase any part of any new or additional
issue of stock of any class whatsoever of the Corporation, or of securities
convertible into stock of any class whatsoever, whether now or hereafter
authorized, or whether issued for cash or other consideration or by way of
dividend.
FIFTH: All power of the Corporation shall be exercised by or under the
-----
direction of the Board of Directors except as otherwise provided herein or
required by law.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further creation, definition, limitation and regulation
of the power of the Corporation and of its directors and of its stockholders, it
is further provided:
1. Elections of Directors. Elections of directors need not be by
----------------------
written ballot unless the By-Laws of the Corporation shall so provide.
2. Number, Election and Terms of Directors. Except as otherwise
---------------------------------------
fixed pursuant to the provisions of Article FOURTH hereof relating to the
rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect
additional directors under specified circumstances, the number of directors
of the Corporation shall be fixed from
3
<PAGE>
time to time by or pursuant to the By-Laws. The directors, other than those
who may be elected by the holders of any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation, shall
be classified, with respect to the time for which they severally hold
office, into three classes, as nearly equal in number as possible, as shall
be provided in the manner specified in the By-Laws, one class to hold
office initially for a term expiring at the annual meeting of stockholders
to be held in 1986, another class to hold office initially for a term
expiring at the annual meeting of stockholders to be held in 1987, and
another class to hold office initially for a term expiring at the annual
meeting of stockholders to be held in 1988, with the members of each class
to hold office until their respective successors are elected and qualified.
At each annual meeting of the stockholders of the Corporation, the
successors to the class of directors whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting
of stockholders held in the third year following the year of their
election.
3. Stockholder Nomination of Director Candidates. Advance notice of
---------------------------------------------
nominations for the election of directors, other than nominations made by
the Board of Directors or a Committee thereof, shall be given in the manner
provided in the By-Laws.
4. Newly Created Directorships and Vacancies. Except as otherwise
-----------------------------------------
fixed pursuant to the provisions of Article FOURTH hereof relating to the
rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, newly created directorships
resulting from any increase in the number of directors and vacancies on the
Board of Directors resulting from death, resignation, disqualification,
removal or other cause shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors. Any newly created directorships shall be
apportioned among the classes of Directors so that the classes shall be as
nearly equal in number as possible. Any director elected in accordance
with the first sentence of this Section 4 shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of
any incumbent director.
5. Removal of Directors. Subject to the rights of any class or
--------------------
series of stock having preference over the Common Stock as to dividends or
upon liquidation to elect directors under specified circumstances, any
director may be removed from office with cause only by the affirmative vote
of the holders of 75% of the combined voting power of the then outstanding
shares of stock entitled to vote generally in the election of directors,
voting together as a single class.
6. Stockholder Action. Any action required or permitted to be taken
------------------
by the stockholders of the Corporation must be effected at a duly called
annual or special meeting of such holders and may not be effected by any
consent in writing by such holders. Except as otherwise required by law
and subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon
liquidation, special meetings of stockholders of the Corporation may be
called only by the Chairman of the Board, the President, the Board of
Directors (pursuant to a resolution approved by a majority of the entire
Board of Directors), or the holders of not less than 50% of the aggregate
number of votes entitled to be cast at such meeting.
7. By-Law Amendments. The Board of Directors shall have power to
-----------------
make, alter, amend and repeal the By-Laws (except so far as the By-Laws
adopted by the stockholders shall otherwise provide).
4
<PAGE>
Any By-Laws made by the directors under the powers conferred hereby and
consistent herewith may be altered, amended or repealed by the directors or
by the stockholders. Notwithstanding the foregoing and anything contained
in this certificate of incorporation to the contrary, Sections 1, 2, and 3
of Article II, and Sections 1, 2, and 3 of Article III of the By-Laws shall
not be altered, amended or repealed and no provision inconsistent therewith
shall be adopted without the affirmative vote of the holders of at least
75% of the voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
8. Amendment, Repeal, etc. Notwithstanding anything contained in
-----------------------
this certificate of incorporation to the contrary, the affirmative vote of
the holders of at least 75% of the voting power of all shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, amend, adopt any
provision inconsistent with, or repeal, this Article FIFTH or any provision
hereof.
SIXTH:
-----
Section 1. Vote Required for Certain Business Combinations.
-----------------------------------------------
A. Higher Vote for Certain Business Combinations. In addition
---------------------------------------------
to any affirmative vote required by law or this certificate of
incorporation, and except as otherwise expressly provided in Section 2
of this Article SIXTH:
(i) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested
Stockholder (as hereinafter defined) or (b) any other corporation
(whether or not itself an Interested Stockholder) which is, or as
a result of such merger or consolidation would be, an Affiliate
(as hereinafter defined) of an Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of
transactions in any twelve-month period) to or with any
Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the Corporation or any Subsidiary
having an aggregate Fair Market Value of Fifty Million Dollars
($50,000,000) or more; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of
any securities of the Corporation or any Subsidiary to any
Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market Value
of Fifty Million Dollars ($50,000,000) or more; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on
behalf of any Interested Stockholder or any Affiliate of any
Interested Stockholder in which anything other than cash will be
received by an Interested Stockholder or any Affiliate of any
Interested Stockholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or
any merger or consolidation of the Corporation
5
<PAGE>
with any of its Subsidiaries or any other transaction (whether or
not with or into or otherwise involving an Interested
Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of
any class of Equity Security (as hereinafter defined) of the
Corporation or any Subsidiary which is directly or indirectly
owned by any Interested Stockholder or any Affiliate of any
Interested Stockholder;
shall require the affirmative vote of the holders of at least 75%
of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of
directors (the "Voting Stock"), voting together as a single class.
Such affirmative vote shall be required notwithstanding the fact that
no vote may be required, or that a lesser percentage may be specified,
by law or in any agreement with any national securities exchange or
otherwise.
B. Definition of Business Combination. The term "Business
----------------------------------
Combination" used in this Article SIXTH shall mean any transaction
which is referred to in any one or more of clauses (i) through (v) of
Paragraph A of this Section 1.
Section 2. When Higher Vote is Not Required. The provisions of
--------------------------------
Section 1 of this Article SIXTH shall not be applicable to any particular
Business Combination, and such Business Combination shall require only such
affirmative vote as is required by law and any other provision of this
certificate of incorporation, if all of the conditions specified in either
of the following Paragraphs A and B are met:
A. Approval by Disinterested Directors. The Business
-----------------------------------
Combination shall have been approved by a majority of the
Disinterested Directors (as hereinafter defined).
B. Price and Procedure Requirements. All of the following
--------------------------------
conditions shall have been met:
(i) The aggregate amount of the cash and the Fair Market
Value (as hereinafter defined) as of the date of the consummation
of the Business Combination of consideration other than cash to
be received per share by holders of Common Stock in such Business
Combination shall be at least equal to the higher of the
following:
(a) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder
or any Affiliate of the Interested Stockholder for any
shares of Common Stock acquired (1) within the two-year
period immediately prior to the first public announcement of
the terms of the proposed Business Combination (the
"Announcement Date") or (2) in the transaction in which it
became an Interested Stockholder, whichever is higher; and
(b) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter
date is referred to in this Article SIXTH as the
"Determination Date"), whichever is higher.
6
<PAGE>
(ii) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per
share by holders of shares of any other class of outstanding
Voting Stock shall be at least equal to the highest of the
following (it being intended that the requirements of this
Paragraph B(ii) shall be required to be met with respect to every
class of outstanding Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of a particular
class of Voting Stock):
(a) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder
or any Affiliate of the Interested Stockholder for any
shares of such class of Voting Stock acquired (1) within the
two-year period immediately prior to the Announcement Date
or (2) in the transaction in which it became an Interested
Stockholder, whichever is higher;
(b) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting
Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation; and
(c) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
(iii) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common
Stock) shall be either entirely in cash or in the same form
(which may be partially in cash) as the Interested Stockholder or
any Affiliate of an Interested Stockholder has previously paid
for shares of such class of Voting Stock. If the Interested
Stockholder or any of its Affiliates has paid for shares of any
class of Voting Stock with varying forms of consideration, the
form of consideration for such class of Voting Stock shall be
either cash or the form used to acquire the largest number of
shares of such class of Voting Stock previously acquired. The
price determined in accordance with Paragraphs B(i) and B(ii) of
this Section 2 shall be subject to appropriate adjustment in the
event of any stock dividend, stock split, combination of shares
or similar event.
(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination:
(a) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to
declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any
outstanding stock having preference over the Common Stock as
to dividends or upon liquidation;
(b) there shall have been (1) no reduction in the
annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock),
except as approved by a majority of the Disinterested
Directors, and (2) an increase in such annual rate of
dividends
7
<PAGE>
as necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or
any similar transaction which has the effect of reducing the
number of outstanding shares of the Common Stock, unless the
failure so to increase such annual rate is approved by a
majority of the Disinterested Directors; and
(c) such interested Stockholder shall not have become
the beneficial owner of any additional shares of Voting
Stock, except as part of the transaction which results in
such Interested Stockholder becoming an Interested
Stockholder.
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the requirements
of the Securities Exchange Act of 1934 and the rules and
regulations thereunder (or any subsequent provisions replacing
such Act, rules or regulations) shall be mailed to public
stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant
to such Act or subsequent provisions).
Section 3. Certain Definitions. For the purpose of this Article
-------------------
SIXTH:
A. A "person" shall mean any individual, firm, corporation or
other entity.
B. "Interested Stockholder" shall mean any person (other than
the Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of
10% or more of the voting power of the outstanding Voting Stock;
or
(ii) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 10%
or more of the voting power of the then outstanding Voting Stock;
or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially
owned by any Interested Stockholder, if such assignment or
succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
8
<PAGE>
C. A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns directly or
indirectly; or
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly,
by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
D. For the purpose of determining whether a person is an
Interested Stockholder pursuant to Paragraph B of this Section 3, the
number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of Paragraph C of this
Section 3 but shall not include any other shares of Voting Stock which
may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
E. An "Affiliate" of a specified person is a person that
directly, or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, the person
specified.
F. The term "Associate," when used to indicate a relationship
with any person, means (1) a corporation or organization (other than
the Corporation or a Subsidiary) of which such person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities, (2) any trust or other estate
in which such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar capacity and (3)
any relative or spouse of such person, or any relative of such spouse,
who has the same home as such person or who is a director or officer
of the Corporation or any of its parents or Subsidiaries.
G. "Subsidiary" means any corporation of which a majority of any
class of Equity Security is owned, directly or indirectly, by the
Corporation, provided, however, that for the purposes of the
definition of Interested Stockholder set forth in Paragraph B of this
Section 3, the term "Subsidiary" shall mean only a corporation of
which a majority of each class of Equity Security is owned, directly
or indirectly, by the Corporation.
H. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder that has
proposed, or in respect of which there has been proposed, the Business
Combination which is under consideration by the Board of Directors and
was a member of the Board of Directors prior to the time that such
Interested Stockholder became an Interested Stockholder, and any
successor of a Disinterested Director
9
<PAGE>
who is unaffiliated with such Interested Stockholder and was
recommended to succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board of Directors.
I. "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately
preceding the date of determination of a share of such stock on the
Composite Tape for New York Stock Exchange--Listed Stocks, or, if such
stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of such stock during the 30-day
period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system
then in use, or if no such quotations are available, the fair market
value on the date in question of a share of such stock as determined
by the Board of Directors, with the approval of a majority of the
Disinterested Directors; and (ii) in the case of property other than
cash or stock, the fair market value of such property on the date in
question as determined by the Board of Directors with the approval of
a majority of the Disinterested Directors.
J. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in Paragraphs B(i) and (ii) of Section 2 of this
Article SIXTH shall include the shares of Common Stock and/or the
shares of any other class of outstanding Voting Stock retained by the
holders of such shares.
K. "Equity Security" shall mean any stock or similar security or
any security convertible, with or without consideration, into such a
security or carrying any warrant or right to subscribe to or purchase
such a security or any such warrant or right.
Section 4. Powers of the Board of Directors. The Board of Directors
--------------------------------
shall have the power and duty to interpret all of the terms and provisions
of this Article SIXTH and to determine for the purposes of this Article
SIXTH, on the basis of information known to them after reasonable inquiry,
(A) whether a person is an Interested Stockholder, (B) the number of shares
of Voting Stock beneficially owned by any person, (C) whether a person is
an Affiliate or Associate of another, and (D) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has, an aggregate Fair Market
Value of Fifty Million Dollars ($50,000,000) or more and (E) whether two or
more transactions constitute a series of related transactions. Any such
interpretation or determination made by the Board of Directors, with the
approval of a majority of the Disinterested Directors, shall be conclusive
to the extent permitted by law.
Section 5. No Effect on Fiduciary Obligations of Interested
------------------------------------------------
Stockholders. Nothing contained in this Article SIXTH shall be construed
------------
to relieve any Interested Stockholder from any fiduciary obligation imposed
by law.
Section 6. Amendment, Repeal, etc. Notwithstanding any other
----------------------
provisions of this certificate of incorporation or the By-Laws (and
notwithstanding the fact that a lesser percentage may be specified by law,
this certificate of incorporation or the By-Laws), the affirmative vote of
the holders of 75% or more of the outstanding Voting Stock, voting together
as a single class, shall be required to amend or repeal, or adopt any
provisions inconsistent with, this Article SIXTH or any provision hereof.
10
<PAGE>
SEVENTH:
-------
Section 1. Prevention of "Greenmail". Any direct or indirect
-------------------------
purchase or other acquisition by the Corporation of any Equity Security (as
hereinafter defined) of any class of the Corporation from any Interested
Securityholder (as hereinafter defined) who has beneficially owned such
securities for less than two years prior to the date of such purchase or
any agreement in respect thereof shall, except as hereinafter expressly
provided, require the affirmative vote of the holders of at least a
majority of the voting power of the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors (the "Voting Stock"), excluding Voting Stock beneficially owned
by such Interested Securityholder, voting together as a single class (it
being understood that for the purposes of this Article SEVENTH, each share
of the Voting Stock shall have the number of votes granted to it pursuant
to Article FOURTH of this certificate of incorporation). Such affirmative
vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or any
agreement with any national securities exchange, or otherwise, but no such
affirmative vote shall be required with respect to any purchase or other
acquisition of securities made as part of a tender or exchange offer by the
Corporation to purchase securities of the same class made on the same terms
to all holders of such securities and complying with the applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations thereunder (or any subsequent provisions replacing such Act,
rules or regulations).
Section 2. Certain Definitions. For the purposes of this Article
-------------------
SEVENTH:
A. A "person" shall mean any individual, firm, corporation, or
other entity.
B. "Interested Securityholder" shall mean any person (other than
the Corporation, any corporation of which a majority of any class of
Equity Security is owned, directly or indirectly, by the Corporation
or any purchase, savings, option, bonus, appreciation, profit sharing,
thrift, incentive, pension or similar plan solely for employees,
directors or officers of the Corporation and/or one or more
subsidiaries of the Corporation, including any trust or similar entity
existing solely for the purposes of any such plan) who or which:
(i) is the beneficial owner, directly or indirectly, of
10% or more of the class of securities to be acquired; or
(ii) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 10%
or more of the class of securities to be acquired; or
(iii) is an assignee or has otherwise succeeded to any
shares of the class of securities to be acquired which were at
any time within the two-year period immediately prior to the date
in question beneficially owned by an Interested Securityholder,
if such assignment or succession shall have occurred in the
course of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act of 1933.
C. A person shall be a "beneficial owner" of any security of any
class of the Corporation:
11
<PAGE>
(i) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns, directly
or indirectly; or
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement or understanding or upon the exercise
of conversion rights, exchange rights, warrants or options, or
otherwise, or (b) any right to vote pursuant to any agreement,
arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly,
by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any security of any class of the Corporation.
D. For the purposes of determining whether a person is an
Interested Securityholder pursuant to Paragraph B of this Section 2,
the relevant class of securities outstanding shall be deemed to
comprise all such securities deemed owned through application of
Paragraph C of this Section 2, but shall not include other securities
of such class which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
E. An "Affiliate" of a specified person is a person that
directly, or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, the person
specified.
F. The term "Associate," when used to indicate a relationship
with any person, means (1) a corporation or organization (other than
the Corporation or a Subsidiary) of which such person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities, (2) any trust or other estate
in which such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar capacity and (3)
any relative or spouse of such person, or any relative of such spouse,
who has the same home as such person or who is a director of the
Corporation or any of its parents or Subsidiaries.
G. "Equity Security" shall mean any stock or similar security or
any security convertible, with or without consideration, into such a
security or carrying any warrant or right to subscribe to or purchase
such a security or any such warrant or right.
EIGHTH: The Corporation reserves the right to amend, alter, change or
------
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute and this certificate of
incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
NINTH: No director shall be personally liable to the Corporation or any
-----
stockholder for monetary damages for breach of fiduciary duty as a director,
except for any matter in respect of which such director shall be liable under
Section 174 of Title 8 of the Delaware Code (relating to the Delaware General
Corporation Law) or any amendment thereto or successor provision thereto or
shall be liable by reason that he (i) has breached his
12
<PAGE>
duty of loyalty to the Corporation or its stockholders, (ii) has not acted in
good faith or, in failing to act, has not acted in good faith, (iii) has acted
in a manner involving intentional misconduct or a knowing violation of law or,
in failing to act, has acted in a manner involving intentional misconduct or a
knowing violation of law, or (iv) has derived an improper personal benefit.
Neither the amendment nor repeal of this Article NINTH, nor the adoption of any
provision of the Certificate of Incorporation inconsistent with this Article
NINTH shall eliminate or reduce the effect of this Article NINTH in respect of
any matter occurring, or any cause of action, suit or claim that, but for this
Article NINTH would accrue or arise, prior to such amendment, repeal or adoption
of an inconsistent provision.
TENTH: The names of the incorporators are as follows: R. G. Dickerson, J.
-----
A. Kent, Z. A. Pool, III. The address of each incorporator is 229 South State
Street, Dover, Delaware 19901.
IN WITNESS WHEREOF, said Cyprus Amax Minerals Company has caused this
Certificate to be signed by Gerald J. Malys, its Senior Vice President, and
attested by Philip C. Wolf, its Secretary, this 29th day of October, 1996.
CYPRUS AMAX MINERALS COMPANY
/s/ Gerald J. Malys
--------------------------------------------
Gerald J. Malys
Senior Vice President
ATTEST:
/s/ Philip C. Wolf
- ----------------------------------
Philip C. Wolf
Secretary
13
<PAGE>
EXHIBIT A
---------
Series A Junior Participating Preferred Stock
- ---------------------------------------------
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 1,500,000. Such number of shares may be increased or decreased
by resolution of the Board of Directors; provided, that no decrease shall reduce
---------
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock, in preference to the holders of Common Stock,
without par value (the "Common Stock"), of the Corporation, and of any
other junior stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1 per share on the Series A Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
1
<PAGE>
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
-------------
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
2
<PAGE>
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
-----------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
--------------------------------------
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or
3
<PAGE>
winding up. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (1) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
--------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
-------------
not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect to
----
the payment of dividends and the distribution of assets, junior to all series of
any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the
---------
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
<PAGE>
EXHIBIT B
Series A Convertible Preferred Stock
- ------------------------------------
The Corporation is authorized to issue a series of Preferred Stock
consisting of up to 4,666,667 shares, which number of shares may be increased or
decreased from time to time by the Board of Directors, and such series shall
have the following designations, preferences, privileges and voting powers, and
restrictions and qualifications thereof:
1. Designation. The distinctive serial designation of this series of
-----------
Preferred Stock is $4.00 Series A Convertible Preferred Stock (the "Series A
Convertible Preferred Stock").
2. Dividends. The holders of Series A Convertible Preferred Stock shall
---------
be entitled to receive, when, as and if declared by the Board of Directors, but
only out of funds legally available for the payment of dividends, cumulative
cash dividends at the annual rate of $4.00 per share, and no more, payable
quarter-yearly in arrears, on the first days of March, June, September and
December in each year, to stockholders of record on the respective dates, not
exceeding fifty days preceding such dividend payment dates, fixed for the
purpose by the Board of Directors in advance of payment of each particular
dividend. The amount of dividends payable per share of Series A Convertible
Preferred Stock for each quarterly dividend period shall be computed by dividing
the annual dividend amount by four. The amount of dividends payable for any
period shorter than a full quarterly dividend period shall be computed on the
basis of a 360-day year of twelve 30-day months. No interest shall be payable
in respect of any dividend payment on the Series A Convertible Preferred Stock
which may be in arrears. So long as any shares of the Series A Convertible Pre-
ferred Stock remain outstanding, but not thereafter, dividends on the Series A
Convertible Preferred Stock shall accrue and be cumulative from and after dates
determined, as follows:
(i) if issued prior to the record date for the first dividend on
shares of such series, then from September 1, 1993;
(ii) if issued during the period commencing immediately after a
record date for a dividend on such series and ending on the payment date
for such dividend, then from and after such dividend payment date; and
(iii) otherwise from and after the first day of March, June,
September or December next preceding the date of issue of such shares.
So long as any shares of the Series A Convertible Preferred Stock remain
outstanding, but not thereafter, no dividend whatever shall be paid, and no
distribution made, on any junior stock (which shall mean the Common Stock and
any other class or series of stock of the Corporation over which the Series A
Convertible Preferred Stock has preference or priority in the payment of
dividends or in the distribution of assets on any dissolution, liquidation or
winding up of the Corporation), other than a dividend payable in junior stock,
nor shall any shares of junior stock be acquired for consideration by the
Corporation or by any subsidiary, unless all dividends on the Series A
Convertible Preferred Stock accrued for all past dividend periods have been paid
or declared and set aside for payment, and the full dividends thereon for the
then current quarter-yearly dividend period have been paid or declared. Subject
to the foregoing, and not otherwise, such dividends (payable in cash, stock or
otherwise) as may be determined by the Board of
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Directors may be declared and paid on any junior stock from time to time out of
funds legally available therefor and the Series A Convertible Preferred Stock
shall not be entitled to participate in any such dividends, whether payable in
cash, stock or otherwise.
3. Liquidation Preference. In the event of any voluntary liquidation,
----------------------
dissolution or winding up of the Corporation, the holders of the Series A
Convertible Preferred Stock then outstanding shall be entitled to receive the
amount per share which such holders would have been entitled to receive had such
shares been redeemed on the date fixed for payment, or if redemption on such
date is not provided for, an amount equal to the maximum price at which such
shares are thereafter redeemable, plus in respect of each such share a sum
computed at the rate of $4.00 per annum from and after the date on which
dividends on such share became cumulative to and including the date fixed for
such payment, less the aggregate of dividends theretofore paid thereon, but
computed without interest. In the event of any involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the Series A
Convertible Preferred Stock then outstanding shall be entitled to receive out of
the assets of the Corporation, before any distribution or payment shall be made
to the holders of any junior stock, an amount equal to $50 per share, plus in
respect of each such share a sum computed at the rate of $4.00 per annum from
and after the date on which dividends on such share became cumulative to and
including the date fixed for such payment, less the aggregate of dividends
theretofore paid thereon, but computed without interest. For purposes of this
Section 3, a consolidation or merger of the Corporation with any other
corporation or a sale of all or substantially all of the assets of the
Corporation shall not be deemed to constitute a liquidation, dissolution or
winding up of the Corporation.
4. Redemption at Option of the Corporation. The Corporation may, at the
---------------------------------------
option of the Board of Directors, at any time on or after December 18, 1996, but
not prior thereto, redeem the whole or any part of the then outstanding Series A
Convertible Preferred Stock, subject to the limitations, if any, imposed by
applicable law, at a redemption price of $52.40 per share if redeemed prior to
December 18, 1997, and at the following prices per share if redeemed during the
twelve-month period ending December 17 of the year indicated:
Year Price
---- -----
1998.................. $52.00
1999.................. $51.60
2000.................. $51.20
2001.................. $50.80
2002.................. $50.40
and $50.00 per share if redeemed at any time thereafter; together in each case
with a sum, for each share so to be redeemed, computed at the rate of $4.00 per
annum from and after the date on which dividends on such share became cumulative
to and including such date fixed for redemption, less the aggregate of the
dividends theretofore and on such redemption date paid thereon, but computed
without interest (such amount being hereinafter referred to as the "Redemption
Price").
Notice of every such redemption of the Series A Convertible Preferred Stock
shall be given by publication at least once in a newspaper printed in the
English language and customarily published on each business day and of general
circulation in the Borough of Manhattan, The City of New York, such publication
to be at least thirty days prior to the date fixed for such redemption. Notice
of every such redemption shall also be mailed not more than sixty nor less than
thirty days prior to the date fixed for such redemption to the holders of record
of the shares so to be redeemed at their respective addresses as the same shall
appear on the
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<PAGE>
books of the Corporation; but no failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of the proceeding
for the redemption of any shares so to be redeemed.
In case of redemption of a part only of the Series A Convertible Preferred
Stock at the time outstanding, the redemption may be either pro rata or by lot.
The Board of Directors shall have full power and authority to prescribe the
manner in which the drawings by lot or the pro rata redemption shall be
conducted and, subject to the provisions herein contained, the terms and
conditions upon which the Series A Convertible Preferred Stock shall be redeemed
from time to time.
No fractional shares of Series A Convertible Preferred Stock shall be
issued upon redemption of less than all Series A Convertible Preferred Stock.
If more than one certificate evidencing shares of Series A Convertible Preferred
Stock shall be held at one time by the same holder, the number of full shares
issuable upon redemption of less than all of such shares of Series A Convertible
Preferred Stock shall be computed on the basis of the aggregate number of shares
of Series A Convertible Preferred Stock so held. Instead of any fractional
share of Series A Convertible Preferred Stock that would otherwise be issuable
to a holder upon redemption of less than all shares of Series A Convertible
Preferred Stock, the Corporation shall pay a cash adjustment in respect of such
fractional share in an amount equal to the same fraction of the fair value per
share of Series A Convertible Preferred Stock (as determined in good faith by
the Board of Directors, whose determination shall be conclusive and described in
a resolution of the Board of Directors) at the close of business on the date
fixed for redemption.
If such notice of redemption shall have been duly given by publication, and
if, on or before the redemption date specified therein, all funds necessary for
such redemption shall have been set aside by the Corporation, separate and apart
from its other funds, in trust for the pro rata benefit of the holders of the
shares so called for redemption, so as to be and continue to be available
therefor, then, notwithstanding that any certificate for shares so called for
redemption shall not have been surrendered for cancellation, all shares so
called for redemption shall no longer be deemed outstanding on and after such
redemption date, and all rights with respect to such shares shall forthwith on
such redemption date cease and terminate, except only the right of the holders
thereof to receive the amount payable on redemption thereof, without interest.
If such notice of redemption shall have been duly given by publication or
if the Corporation shall have given to the bank or trust company hereinafter
referred to irrevocable authorization promptly to give or complete such notice
by publication, and if on or before the redemption date specified therein the
funds necessary for such redemption shall have been deposited by the Corporation
with a bank or trust company in good standing, designated in such notice,
organized under the laws of the United States of America or of the State of New
York, doing business in the Borough of Manhattan, The City of New York, having a
capital, surplus and undivided profits aggregating at least $5,000,000 according
to its last published statement of condition, in trust for the pro rata benefit
of the holders of the shares so called for redemption, then, not withstanding
that any certificate for shares so called for redemption shall not have been
surrendered for cancellation from and after the time of such deposit, all shares
of the Series A Convertible Preferred Stock so called for redemption shall no
longer be deemed to be outstanding and all rights with respect to such shares
shall forthwith cease and terminate, except only the right of the holders
thereof to receive from such bank or trust company at any time after the time of
such deposit the funds so deposited, without interest, and the right to exercise
on or before the date fixed for redemption, privileges of exchange or
conversion, if any, not theretofore expiring. Any interest accrued on such
funds shall be paid to the Corporation from time to time.
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<PAGE>
Any funds so set aside or deposited by the Corporation which shall not be
required for such redemption because of the exercise of any right of conversion
or exchange subsequent to the date of such deposit shall be released or repaid
to the Corporation forthwith. Any funds so set aside or deposited, as the case
may be, and unclaimed at the end of six years from such redemption date shall be
released or repaid to the Corporation, after which the holders of the shares so
called for redemption shall look only to the Corporation for payment thereof.
So long as any shares of the Series A Convertible Preferred Stock remain
outstanding, but not thereafter, if at any time the Corporation shall fail to
pay dividends in full on the Series A Convertible Preferred Stock for any past
quarter-yearly dividend periods, thereafter and until all accrued dividends for
all past quarter-yearly dividend periods shall have been paid or declared and
funds set aside for their payment, the Corporation shall not redeem (for sinking
fund or otherwise) less than all of the Series A Convertible Preferred Stock at
the time outstanding, and neither the Corporation nor any subsidiary shall
purchase (for sinking fund or otherwise) less than all of the Series A
Convertible Preferred Stock unless such purchase shall be pursuant to tenders
called for on at least twenty days previous notice by mail to the holders of
record of the Series A Convertible Preferred Stock at their respective addresses
as the same shall appear on the books of the Corporation, and the shares so
purchased shall be those tendered at the lowest prices, pursuant to such call
for tenders.
5. Conversion Privilege.
--------------------
(a) Right of Conversion. Each share of Series A Convertible
-------------------
Preferred Stock shall be convertible at the option of the holder thereof,
at any time prior to the close of business on the tenth business day prior
to the date fixed for redemption of such share as herein provided, into
fully paid and nonassessable shares of Common Stock, at the rate of that
number of shares of Common Stock for each full share of Series A
Convertible Preferred Stock that is equal to $50 divided by the conversion
price applicable per share of Common Stock, or into such additional or
other securities, cash or property and at such other rates as required in
accordance with the provisions of this Section 5. For purposes of the terms
of the Series A Convertible Preferred Stock, the "conversion price"
applicable per share of Common Stock shall initially be equal to $24.302
and shall be adjusted from time to time in accordance with the provisions
of this Section 5.
(b) Conversion Procedures. Any holder of shares of Series A
---------------------
Convertible Preferred Stock desiring to convert such shares into Common
Stock shall surrender the certificate or certificates evidencing such
shares of Series A Convertible Preferred Stock at the office of the
transfer agent for the Series A Convertible Preferred Stock, which
certificate or certificates, if the corporation shall so require, shall be
duly endorsed to the Corporation or in blank, or accompanied by proper
instruments of transfer to the Corporation or in blank and shall be
accompanied by irrevocable written notice to the Corporation that the
holder elects so to convert such shares of Series A Convertible Preferred
Stock and specifying the name or names (with address or addresses) in which
a certificate or certificates evidencing shares of Common Stock are to be
issued.
Subject to Section 5(j) hereof, no payments or adjustments in respect
of dividends on shares of Series A Convertible Preferred Stock surrendered
for conversion or on account of any dividend on the Common Stock issued
upon conversion shall be made upon the conversion of any shares of Series A
Convertible Preferred Stock.
4
<PAGE>
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series A Convertible Preferred Stock
accompanied by the written notice and compliance with any other conditions
herein contained, deliver at such office of such transfer agent to the
person for whose account such shares of Series A Convertible Preferred
Stock were so surrendered, or to the nominee or nominees of such person,
certificates evidencing the number of full shares of Common Stock to which
such person shall be entitled as aforesaid, together with a cash adjustment
in respect of any fraction of a share of Common Stock as hereinafter
provided. Such conversion shall be deemed to have been made as of the date
of such surrender of the shares of Series A Convertible Preferred Stock to
be converted, and the person or persons entitled to receive the Common
Stock deliverable upon conversion of such Series A Convertible Preferred
Stock shall be treated for all purposes as the record holder or holders of
such Common Stock on such date.
(c) Adjustment of Conversion Price. The conversion price at which a
------------------------------
share of Series A Convertible Preferred Stock is convertible into Common
Stock shall be subject to adjustment from time to time as follows:
(i) In case the Corporation shall pay or make a dividend or
other distribution on its Common Stock exclusively in Common Stock or
shall pay or make a dividend or other distribution on any other
class or series of capital stock of the Corporation which includes
Common Stock, the conversion price in effect at the opening of
business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution
shall be reduced by multiplying such conversion price by a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of
shares and the total number of shares of Common Stock included in such
dividend or other distribution or exchange, such reduction to become
effective immediately after the opening of business on the day
following the date fixed for such determination. For the purposes of
this subparagraph (i) , the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the
Corporation and the number of shares of Common Stock included in such
dividend or other distribution or exchange shall not be deemed to
include any shares issued or distributed in respect of shares held in
the treasury of the Corporation.
(ii) In case the Corporation shall pay or make a dividend or
other distribution on its Common Stock consisting exclusively of, or
shall otherwise issue to all holders of its Common Stock, rights or
warrants entitling the holders thereof to subscribe for or purchase
shares of Common Stock at a price per share less than the current
market price per share (determined as provided in subparagraph (vii)
of this Section 5(c)) of the Common Stock on the date fixed for the
determination of stockholders entitled to receive such rights or
warrants, the conversion price in effect at the opening of business on
the day following the date fixed for such determination shall be
reduced by multiplying such conversion price by a fraction of which
the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at
such current market price and the denominator shall be the number of
shares of Common Stock outstanding at the close of business on the
date fixed for such determination plus the number of
5
<PAGE>
shares of Common Stock so offered for subscription or purchase, such
reduction to become effective immediately after the opening of
business on the day following the date fixed for such determination.
For the purposes of this subparagraph (ii) , the number of shares of
Common Stock at any time outstanding shall not include shares held in
the treasury of the Corporation. The Corporation shall not issue any
rights or warrants in respect of shares of Common Stock held in the
treasury of the Corporation. For purposes of this subparagraph (ii),
the issuance of rights or warrants to subscribe for or purchase stock
or securities convertible into shares of Common Stock shall be deemed
to be the issuance of rights or warrants to purchase the shares of
Common Stock into which such stock or securities are convertible at an
aggregate offering price equal to the aggregate offering price of such
stock or securities plus the minimum aggregate amount (if any) payable
upon conversion of such stock or securities into Common Stock. In case
any rights or warrants referred to in this subparagraph (ii) in
respect of which an adjustment shall have been made shall expire
unexercised within 45 days after the same shall have been distributed
or issued by the Corporation, the conversion price shall be readjusted
at the time of such expiration to the conversion price that would have
been in effect if no adjustment had been made on account of the
distribution or issuance of such expired rights or warrants.
(iii) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
conversion price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately reduced, and conversely, in case outstanding shares
of Common Stock shall each be combined into a smaller number of shares
of Common Stock, the conversion price in effect at the opening of
business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction
or increase, as the case may be, to become effective immediately after
the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(iv) Subject to the penultimate sentence of this subparagraph
(iv), in case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its
indebtedness, shares of any class or series of capital stock, cash or
assets (including securities, but excluding any rights or warrants
referred to in subparagraph (ii) of this Section 5(c), any dividend or
distribution paid exclusively in cash and any dividend or distribution
referred to in subparagraph (i) of this Section 5(c)), the conversion
price shall be reduced so that such price shall equal the price
determined by multiplying the conversion price in effect immediately
prior to the effectiveness of the conversion price reduction
contemplated by this subparagraph (iv) by a fraction of which, except
to the extent provided in the second succeeding sentence of this
subparagraph (iv), the numerator shall be the current market price per
share (determined as provided in subparagraph (vii) of this Section
5(c)) of the Common Stock on the date fixed for the payment of such
distribution (the "Reference Date") less the fair market value (as
determined, subject to the last sentence of this subparagraph (iv), in
good faith by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors),
on the Reference Date, of such number or amount of the evidences of
indebtedness, shares of capital stock, cash and assets that is so
distributed to a holder of one share of Common Stock and the
denominator shall be such current market price per share of the Common
Stock, such reduction to become effective immediately prior to the
opening of business on the day following the Reference
6
<PAGE>
Date. If the Board of Directors determines the fair market value of
any distribution for pur poses of this subparagraph (iv) by reference
to the actual or when issued trading market for any securities
comprising such distribution, it shall in doing so consider the prices
in such market over the same period used in computing the current
market price per share of Common Stock pursuant to subparagraph (vii)
of this Section 5(c). Notwithstanding the first sentence of this
subparagraph (iv), to the extent the fair market value of any shares
of capital stock distributed to all holders of Common Stock shall be
determined by the Board of Directors by reference to the trading
market of securities listed or admitted to trading or quoted (other
than on a subject to notice of issuance or when issued basis) on a
Stock Exchange as of (but not prior to) the Reference Date, the
conversion price shall be reduced so that such price shall equal the
price determined by multiplying the conversion price in effect
immediately prior to the effectiveness of the conversion price
reduction contemplated by this subparagraph (iv) by a fraction of
which the numerator shall be the current market price per share
(determined as provided in subparagraph (viii) of this subparagraph
5(c)) of the Common Stock on the Reference Date and the denominator
shall be such current market price per share of the Common Stock plus
the fair market value (as determined in good faith by the Board of
Directors in accordance with the last sentence of this subparagraph
(iv)), of such number of shares of capital stock that is so
distributed to a holder of one share of Common Stock, such reduction
to become effective retroactively immediately prior to the opening of
business on the day following the Reference Date. For purposes of this
subparagraph (iv), any dividend or distribution that includes (but is
not limited to) shares of Common Stock or rights or warrants to
subscribe for or purchase shares of Common Stock shall be deemed
instead to be (1) a dividend or distribution of the evidences of
indebtedness, cash, assets or shares of capital stock other than such
shares of Common Stock or such rights or warrants (so that any
conversion price reduction required by this subparagraph (iv) is made)
immediately followed by (2) a dividend or distribution of such shares
of Common Stock or such rights or warrants (so that there is made any
further conversion price reduction required by subparagraph (i) or
(ii) of this Section 5(c), except (A) the Reference Date of such
dividend or distribution as defined in this subparagraph (iv) shall be
substituted as "the date fixed for the determination of stockholders
entitled to receive such rights or warrants" and "the date fixed for
such determination" within the meaning of subparagraphs (i) and (ii)
of this Section 5(c) and (B) any shares of Common Stock included in
such dividend or distribution shall not be deemed "outstanding at the
close of business on the date fixed for such determination" within the
meaning of subparagraph (i) of this Section 5 (c)) . Notwithstanding
any other provision of this subparagraph (iv), if any shares of
capital stock distributed to all holders of Common Stock are listed or
admitted to trading on a Stock Exchange for the five consecutive
Trading Days (as defined in Section 5(h)) prior to and including the
Reference Date, or will be listed or admitted to trading on a Stock
Exchange as of (but not prior to) the Reference Date for the ten
consecutive Trading Days subsequent to and including the Reference
Date, then, the Board of Directors, in making its determination of the
fair market value of such number of shares of capital stock that is so
distributed to a holder of one share of Common Stock, shall make such
determination by reference to the current market price (as determined
pursuant to subparagraphs (vii) and (viii) of this Section 5(c)) of
such shares of capital stock.
(v) In case the Corporation shall pay or make a dividend or
other distribution on its Common Stock exclusively in cash (excluding,
in the case of any quarterly cash dividend on
7
<PAGE>
the Common Stock, the portion of such quarterly cash dividend that
does not exceed the per share amount of the next preceding quarterly
cash dividend on the Common Stock (as adjusted to appropriately
reflect any of the events referred to in subparagraph (iii) of this
Section 5(c)), or, all of such quarterly cash dividend if the amount
thereof per share of Common Stock multiplied by four does not exceed
12.5% of the current market price per share (determined as provided in
subparagraph (vii) of this Section 5(c)) of the Common Stock on the
Trading Day next preceding the date of declaration of such dividend),
the conversion price shall be reduced so that such price shall equal
the price determined by multiplying the conversion price in effect
immediately prior to the effectiveness of the conversion price
reduction contemplated by this subparagraph (v) by a fraction of which
the numerator shall be the current market price per share (determined
as provided in subparagraph (vii) of this Section 5(c)) of the Common
Stock on the date fixed for the making of such distribution less the
amount of cash so distributed and not excluded as provided above
applicable to one share of Common Stock and the denominator shall be
such current market price per share of the Common Stock, such
reduction to become effective immediately prior to the opening of
business on the day following the date fixed for the making of such
distribution.
(vi) In case a tender or exchange offer made by the Corporation
or any subsidiary of the Corporation for all or any portion of the
Corporation's Common Stock shall expire and result in the acquisition
by the Corporation of shares of Common Stock pursuant thereto and such
tender or exchange offer shall involve the payment by the Corporation
or such subsidiary of consideration per share of Common Stock having a
fair market value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors) at the last time (the
"Expiration Time") tenders or exchanges may be made pursuant to such
tender or exchange offer (as it shall have been amended) that exceeds
the current market price per share (determined as provided in
subparagraph (vii) of this Section 5(c)) of the Common Stock on the
Trading Day next succeeding the Expiration Time, the conversion price
shall be reduced so that such price shall equal the price determined
by multiplying the conversion price in effect immediately prior to the
effectiveness of the conversion price reduction contemplated by this
subparagraph (vi) by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding (including any tendered
or exchanged shares) at the Expiration Time multiplied by the current
market price per share (determined as provided in subparagraph (vii)
of this Section 5(c)) of the Common Stock on the Trading Day next
succeeding the Expiration Time and the denominator shall be the sum of
(x) the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders as a result of the Corporation's
or subsidiary's acceptance (up to any maximum specified in the terms
of the tender or exchange offer) of shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares so
accepted, up to any such maximum, being referred to as the "Purchased
Shares") and (y) the product of the number of shares of Common Stock
outstanding (less any Purchased Shares) at the Expiration Time and the
current market price per share (determined as provided in subparagraph
(vii) of this Section 5(c)) of the Common Stock on the Trading Day
next succeeding the Expiration Time, such reduction to become
effective immediately prior to the opening of business on the day
following the Expiration Time.
8
<PAGE>
(vii) For the purpose of any computation under subparagraphs
(ii) and (v) and, except as otherwise provided in subparagraph (viii)
of this Section 5(c), subparagraph (iv), the current market price per
share of Common Stock or per share of capital stock the fair market
value of which is to be determined as provided in the last sentence of
subparagraph (iv) of this Section 5(c) or pursuant to clause (ii) of
Section 5(g) ("Distributed Stock") on any date in question shall be
deemed to be the average of the daily Closing Prices (as defined in
Section 5(h)) for the five (or, with respect to clause (ii) of Section
5(g), ten) consecutive Trading Days prior to and including the date in
question; provided, however, that (1) if the "ex" date (as hereinafter
-------- -------
defined) for any event (other than the issuance or distribution
requiring such computation) that requires (or, in the case of
Distributed Stock, would require if such Distributed Stock were Common
Stock) an adjustment to the conversion price pursuant to subparagraph
(i), (ii), (iii), (iv), (v) or (vi) above or Section 5(g) ("Other
Event") occurs after the fifth (or, with respect to Section 5(g),
tenth) Trading Day prior to the day in question and prior to the "ex"
date for the issuance or distribution requiring such computation (the
"Current Event"), the Closing Price for each Trading Day prior to the
"ex" date for such Other Event shall be adjusted by multiplying such
Closing Price by the same fraction by which the conversion price is so
required (or, in the case of Distributed Stock, would be so required
if such Distributed Stock were Common Stock) to be adjusted as a
result of such Other Event, (2) if the "ex" date for any Other Event
occurs after the "ex" date for the Current Event and on or prior to
the date in question, the Closing Price for each Trading Day on and
after the "ex" date for such Other Event shall be adjusted by
multiplying such Closing Price by the reciprocal of the fraction by
which the conversion price is so required (or, in the case of
Distributed Stock, would be so required if such Distributed Stock were
Common Stock) to be adjusted as a result of such Other Event, (3) if
the "ex" date for any Other Event occurs on the "ex" date for the
Current Event, one of those events shall be deemed for purposes of
determining which of clauses (1) and (2) of this proviso to apply to
have an "ex" date occurring prior to the "ex" date for the other event
but in applying such clause the actual "ex" date of the other event
shall be utilized, and (4) if the "ex" date for the Current Event is
on or prior to the date in question, the Closing Price for each
Trading Day on or after such "ex" date shall be adjusted after taking
into account any adjustment required pursuant to clause (2) of this
proviso, by adding thereto the amount of any cash and the fair market
value on the date in question (as determined in good faith by the
Board of Directors in a manner consistent with any determination of
such value for purposes of paragraph (iv) or (v) of this Section 5(c),
whose determination shall be conclusive and described in a resolution
of the Board of Directors) of such number or amount of the rights,
warrants, evidences of indebtedness, shares of capital stock or assets
being distributed to a holder of one share of Common Stock. For the
purpose of any computation under subparagraph (vi) of this Section
5(c), the current market price per share of Common Stock or
Distributed Stock on any date in question shall be deemed to be the
average of the daily Closing Prices for such date in question and the
next two succeeding Trading Days; provided, however, that if the "ex"
-------- -------
date for any other Event occurs after the Expiration Time for the
tender or exchange offer requiring such computation and on or prior to
the second Trading Day following the date in question, the Closing
Price for each Trading Day on and after the "ex" date for such other
event shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the conversion price is so
required (or, in the case of Distributed Stock, would be so required
if such Distributed Stock were Common Stock) to be adjusted as a
result of such other event. For purposes of this subparagraph and
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<PAGE>
subparagraph (viii) of this Section 5(c), the term "ex" date, (1) when
used with respect to any issuance or distribution, means the first
date on which the Common Stock or Distributed Stock trades regular way
on the relevant exchange or in the relevant market from which the
Closing Price was obtained without the right to receive such issuance
or distribution, (2) when used with respect to any subdivision or
combination of shares of Common Stock or Distributed Stock, means the
first date on which the Common Stock or Distributed Stock trades
regular way on such exchange or in such market after the time at which
such subdivision or combination becomes effective, and (3) when used
with respect to any tender or exchange offer means the first date on
which the Common Stock or Distributed Stock trades regular way on such
exchange or in such market after the Expiration Time of such offer.
(viii) Notwithstanding the provisions of subparagraph (vii) of
this Section 5(c), for the purpose of any computation under
subparagraph (iv) of this Section 5(c) when the Distributed Stock will
be listed or admitted to trading or quoted on a Stock Exchange as of
(but not prior to) the Reference Date, the current market price per
share of Common Stock or shares of capital stock the fair market value
of which is to be determined as provided in the last sentence of
subparagraph (iv) of this Section 5(c) on any date in question shall
be deemed to be the average of the daily Closing Prices (as defined in
Section 5(h)) for the ten consecutive Trading Days subsequent to and
including the date in question; provided, however, that (1) if the
-------- -------
"ex" date for any Other Event occurs prior to the tenth Trading Day
after the day in question and after the Reference Date, the Closing
Price for each Trading Day on and after the "ex" date for such Other
Event shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the conversion price is so
required (or, in the case of Distributed Stock, would be so required
if such Distributed Stock were Common Stock) to be adjusted as a
result of such Other Event.
(ix) The Corporation may make such reductions in the conversion
price, in addition to those required by subparagraphs (i) , (ii) ,
(iii) , (iv) , (v) and (vi) of this Section 5(c), as it considers to
be advisable to avoid or diminish any income tax to holders of Common
Stock or rights to purchase Common Stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes. The Corporation from
time to time may reduce the conversion price by any amount for any
period of time if the period is at least twenty days, the reduction is
irrevocable during the period and the Board of Directors of the
Corporation shall have made a determination that such reduction would
be in the best interest of the Corporation, which determination shall
be conclusive. Whenever the conversion price is reduced pursuant to
the preceding sentence, the Corporation shall mail to holders of
record of the Series A Convertible Preferred Stock a notice of the
reduction at least fifteen days prior to the date the reduced
conversion price takes effect, and such notice shall state the reduced
conversion price and the period it will be in effect.
(x) No adjustment in the conversion price shall be required
unless such adjustment (plus any adjustments not previously made by
reason of this Section 5(c)) would require an increase of at least 1%
in the number of shares of Common Stock into which each share of
Series A Convertible Preferred Stock is then convertible; provided,
however, that any adjustments which by reason of this section 5(c) are
not required to be made shall be carried
10
<PAGE>
forward and taken into account in any subsequent adjustment. All
calculations under this subparagraph (x) shall be made to the nearest
one-hundred thousandth of a share.
(xi) Whenever any adjustment is made to the conversion price,
the Corporation shall forthwith (i) file with each Transfer Agent of
such Series A Convertible Preferred Stock a statement describing in
reasonable detail the adjustment and the method of calculation used,
and (ii) cause a copy of such statement to be mailed to the holders of
record of the Series A Convertible Preferred Stock as of the effective
date of such adjustment.
(d) Reclassification, Consolidation, Merger or Sale of Assets.
---------------------------------------------------------
(i) In the event that the Corporation shall be a party to any
transaction (including without limitation any recapitalization or
reclassification of the Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination of the Common
Stock), any consolidation of the Corporation with, or merger of the
Corporation into, any other person, any merger of another person into
the Corporation (other than a merger which does not result in a
reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock of the Corporation) or any sale or transfer of
all or substantially all of the assets of the Corporation or any
compulsory share exchange) pursuant to which all Common Stock is
converted into the right to receive other securities, cash or other
property, to the extent permitted by law, provisions shall be made as
part of the terms of such transaction whereby the holder of each share
of Series A Convertible Preferred Stock then outstanding shall have
the right thereafter to convert such share only into (A) in the case
of any such transaction other than a Common Stock Fundamental Change
(as defined in Section 5(h)) and subject to funds being legally
available for such purpose under applicable law at the time of such
conversion, the kind and amount of securities, cash and other property
receivable upon such transaction by a holder of the number of shares
of Common Stock into which such share of Series A Convertible
Preferred Stock might have been converted immediately prior to such
transaction, after giving effect, in the case of any Non-Stock
Fundamental Change (as defined in Section 5(h)), to any adjustment in
the conversion price required by the provisions of Section 5(g), and
(B) in the case of a Common Stock Fundamental Change, common stock of
the kind received by holders of Common Stock as a result of such
Common Stock Fundamental Change at a conversion price determined
pursuant to the provisions of Section 5(g).
(ii) In the event the Corporation determines in good faith that
there is doubt whether the adjustment otherwise required by
subparagraph (i) of this Section 5(d) can be made in a manner
consistent with then applicable law, then the Corporation may elect
(which election shall be evidenced by a resolution of the Board of
Directors) that, in lieu of the Corporation's making such adjustment,
the holder of each share of Series A Convertible Preferred Stock then
outstanding shall have the right thereafter to convert such share
into, but only into, shares of the common stock (the "New Common
Stock") of the principal corporation surviving the transaction which
gives rise to the adjustment (as determined in good faith by the Board
of Directors, whose determination shall be conclusive and described in
a resolution of the Board of Directors) at a conversion price (based
upon a value of a share of Series A Convertible Preferred Stock of $50
for such purpose) determined by multiplying $50 by a fraction the
numerator of which is the fair market value (as so determined by the
11
<PAGE>
Board of Directors) per share of the New Common Stock (but without any
adjustment pursuant to Section 5(g)) and the denominator of which is
the fair market value on the date the transaction becomes effective
(as so determined by the Board of Directors) of the kind and amount of
securities, cash and other property receivable in such transaction by
a holder of the number of shares of Common Stock into which such share
of Series A Convertible Preferred Stock might have been converted
immediately prior to such transaction.
(iii) The Corporation or the person formed by such consolidation
or resulting from such merger or which acquires such assets or which
acquires the Corporation's shares, as the case may be, shall make
provisions in its certificate or articles of incorporation or other
constituent document to establish such rights as are created by this
subparagraph (d). Such certificate or articles of incorporation or
other constituent document shall provide, in respect of any shares of
capital stock into which the Series A Convertible Preferred Stock has
become convertible, for adjustments which, for events subsequent to
the effective date of such certificate or articles of incorporation or
other constituent document, shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. The
above provisions shall similarly apply to successive transactions of
the foregoing type.
(e) Special Conversion Option. Notwithstanding any other provision
-------------------------
in this Section 5, if the Corporation pays a dividend or makes another
distribution on its Common Stock consisting of capital stock of one or more
Public Companies in a Public Company Distribution, then, in lieu of making
any adjustment that would otherwise be applicable in respect of the
distribution of any one or more such Public Companies in accordance with
Section 5 (including without limitation Section 5(g) hereof) and to the
extent permitted by law, the Board of Directors may elect (which election
shall be evidenced by a resolution of the Board of Directors)
that,immediately following each distribution of capital stock of each
Public Company as to which an election is made, the Series A Convertible
Preferred Stock shall be convertible into (i) fully paid and nonassessable
shares of Common Stock at the rate of such number of shares of Common Stock
for each full share of Series A Convertible Preferred Stock that is equal
to $50 divided by the conversion price per share of Common Stock applicable
immediately prior to such adjustment, and (ii) fully paid and nonassessable
shares of capital stock of each such Public Company at the rate of such
number of shares of capital stock of such Public Company for each full
share of Series A Convertible Preferred Stock that is equal to $50 divided
by the conversion price applicable per share of capital stock of such
Public Company. The initial conversion price of the Series A Convertible
Preferred Stock applicable to shares of capital stock of each such Public
Company shall be equal to $50 divided by the Allocable Public Company
Shares and shall thereafter be subject to adjustment as provided in Section
5, provided that, with respect to adjustments relating to such capital
stock and except where the context otherwise requires, references in
Sections 5(c), (d), (e), (g), (h) (excluding Subsection 7 thereof), (i),
(j), (k) and (m) to the "Corporation," "Common Stock" and "Board of
Directors" shall be deemed to refer to such Public Company. As used herein,
the term "Allocable Public Company Shares" shall mean, with respect to a
Public Company, the product of (i) such number of shares of capital stock
of such Public Company as is distributed to a holder of one share of Common
Stock in the Public Company Distribution, and (ii) such number of shares of
Common Stock of the Corporation as would have been received by a holder of
one share of Series A Convertible Preferred Stock had the Series A
Convertible Preferred Stock been converted immediately prior to such
distribution into Common Stock that received such distribution. The term
"Public Company" shall mean any corporation (other than the Corporation)
the capital stock of which is distributed in the Public Company
Distribution and is listed, admitted to
12
<PAGE>
trading or quoted, including upon notice of issuance or on a when-issued
basis, on a Stock Exchange (as defined in Section 5(h)) prior to the sixth
business day after the date of such distribution. The term "Public Company
Distribution" shall mean any dividend or another distribution by the
Corporation on its Common Stock consisting of capital stock of one or more
Public Companies in which the Market Value of the capital stock of all of
the Public Companies so distributed on the date of such distribution is
greater than 10% of the aggregate of the Market Value of the Corporation
and the Market Value of all such Public Companies on the date of the Public
Company Distribution. The term "Market Value" shall mean, with respect to
the capital stock of any corporation, the product of (i) the fair market
value of such capital stock as shall be determined in good faith by the
Board of Directors (whose determination shall be conclusive and described
in a resolution of the Board of Directors) by reference to the daily
Closing Prices for the first ten consecutive Trading Days subsequent to and
including the date of such distribution and (ii) the number of shares of
capital stock of such corporation outstanding on the date of the Public
Company Distribution.
(f) Prior Notice of Certain Events. In case:
------------------------------
(i) the Corporation shall (1) declare any dividend (or any
other distribution) on Common Stock, other than (A) a dividend payable
in shares of Common Stock or (B) a dividend payable in cash out of its
retained earnings other than any special or nonrecurring or other
extraordinary dividend or (2) declare or authorize a redemption or
repurchase of in excess of 10% of the then outstanding shares of
Common Stock; or
(ii) the corporation shall authorize the granting to all
holders of Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or series or of any other
rights or warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par
value to par value), or of any consolidation or merger to which the
Corporation is a party and for which approval of any stockholders of
the Corporation shall be required, or of the sale or transfer of all
or substantially all of the assets of the Corporation whereby the
Common Stock is converted into other securities, cash or other
property; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed with the transfer agent for
the Series A Convertible Preferred Stock and shall cause to be mailed to
the holders of record of the Series A Convertible Preferred Stock, at their
last address as they shall appear upon the stock transfer books of the
Corporation, at least fifteen days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on
which a record (if any) is to be taken for the purpose of such dividend,
distribution, redemption, repurchase, rights or warrants or, if a record is
not taken, the date as of which the holders of record of Common Stock to be
entitled to such dividend, distribution, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution,
liquidation or winding up is expected to become effective, and the date as
of which it is expected that holders of record of
13
<PAGE>
Common Stock shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution,
liquidation or winding up (but no failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of the
corporate action required to be specified in such notice).
(g) Adjustments in Case of Fundamental Changes. Notwithstanding any
------------------------------------------
other provision in this Section 5 to the contrary, if any Fundamental
Change (as defined in Section 5(h)) occurs, then the conversion price in
effect will be adjusted immediately after such Fundamental Change as
described below. In addition, in the event of a Common Stock Fundamental
Change (as defined in Section 5(h)), each share of Series A Convertible
Preferred Stock shall be convertible, to the extent permitted by applicable
law, solely into common stock of the kind received by holders of Common
Stock as the result of such Common Stock Fundamental Change; provided,
that, in the event the Board of Directors determines in good faith (such
determination to be conclusive and described in a resolution of the Board
of Directors) that there is doubt whether the adjustment provided in this
sentence can be made in a manner consistent with then applicable law or
that despite the Corporation's reasonable efforts the issuer of common
stock will not agree to provide such shares of common stock as would be
needed for the purposes of satisfying the provisions of this sentence (or
resulting from any subsequent adjustments of the conversion right pursuant
to this Section 5), on reasonable terms (with reference to the Applicable
Price of such common stock, determined as if the first reference to "Common
Stock" in clause (ii) in the definition of Applicable Price were references
to such common stock), then, by election of the Corporation (which election
shall be evidenced by a resolution of the Board of Directors) the
Fundamental Change that would otherwise be a Common. Stock Fundamental
Change shall be a Non-Stock Fundamental Change.
For purposes of calculating any adjustment to be made pursuant to this
Section 5(g) in the event of a Fundamental Change, immediately after such
Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined in
Section 5(h)), the conversion price of the Series A Convertible
Preferred Stock shall thereupon become the lower of (A) the conversion
price in effect immediately prior to such Non-Stock Fundamental
Change, and (B) the result obtained by multiplying the greater of the
Applicable Price (as defined in Section 5(h)) or the then applicable
Reference Market Price (as defined in Section 5(h)) by a fraction of
which the numerator shall be $50 and the denominator shall be (x) the
then-current Redemption Price per share of Series A Convertible
Preferred Stock or (y) for any Non-Stock Fundamental Change that
occurs before the Series A Convertible Preferred Stock becomes
redeemable pursuant to Section 4, the applicable price per share set
forth in the following table if the date of such Non-Stock Fundamental
Change occurs during the twelve-month period ending December 17 of the
year indicated:
Year Price
1993................... $54.00
1994................... $53.60
1995................... $53.20
1996................... $52.80
14
<PAGE>
plus, in any case referred to in this clause (y), an amount equal to
all per share dividends on the Series A Convertible Preferred Stock
accrued and unpaid thereon, whether or not declared, to but excluding
the date of such Non-Stock Fundamental Change, provided that at such
time after such Non-Stock Fundamental Change as dividends shall have
been paid to the holders of the Series A Convertible Preferred Stock
in an amount equal to dividends accrued and unpaid thereon at the time
of the foregoing adjustment, the conversion price as adjusted pursuant
to the foregoing clause (x) or (y) shall be readjusted to increase it
to the conversion price which would have then existed if there would
have been no dividend accrued and unpaid on the date of such Non-Stock
Fundamental Change; and
(ii) in the case of a Common Stock Fundamental Change, the
conversion price of the Series A Convertible Preferred Stock in effect
immediately prior to such Common Stock Fundamental Change shall
thereupon be adjusted by multiplying such conversion price by a
fraction of which the numerator shall be the Purchaser Stock Price (as
defined in Section 5(h)) and the denominator shall be the Applicable
Price;
provided, however, that in the event of a Common Stock Fundamental Change
-------- -------
or a Non-Stock Fundamental Change (other than a Non-Stock Fundamental
Change as to which Section 5(d) is not applicable) in which (A) 100% by
value of the consideration received by a holder of Common Stock is common
stock of the successor, acquiror or other third party (and cash, if any, is
paid with respect to any fractional interests in such common stock
resulting from such Fundamental Change) and (B) all of the Common Stock
shall have been exchanged for, converted into or acquired for common stock
(and cash with respect to fractional interests) of the successor, acquiror
or other third party, the conversion price of the Series A Convertible
Preferred Stock in effect immediately prior to such Fundamental Change
shall thereupon be adjusted by multiplying such conversion price by a
fraction of which the numerator shall be one (1) and the denominator shall
be the number of shares of common stock of the successor, acquiror, or
other third party received by a holder of one share of Common Stock as a
result of such Fundamental Change.
(h) Definitions, The following definitions shall apply to terms used
-----------
in this Section 5:
(1) "Applicable Price" shall mean (i) in the event of a Non-Stock
Fundamental Change in which the holders of the Common Stock receive
only cash, the amount of cash received by the holder of one share of
Common Stock and (ii) in the event of any other Non-Stock Fundamental
Change or any Common Stock Fundamental Change, the average of the
daily Closing Prices of the Common Stock for the ten consecutive
Trading Days prior to and including the record date for the
determination of the holders of Common Stock entitled to receive cash,
securities, property or other assets in connection with such Non-Stock
Fundamental Change or Common Stock Fundamental Change, or, if there is
no such record date, the date upon which the holders of the Common
Stock shall have the right to receive such cash, securities, property
or other assets, in each case, as adjusted in good faith by the Board
of Directors of the Corporation (whose determination shall be
conclusive and described in a resolution of the Board of Directors)
appropriately to reflect any of the events referred to in subparagraph
(i), (ii), (iii), (iv), (v) and (vi) of Section 5(c) or in Section
5(g).
(2) "Closing Price" of any common stock on any day shall mean
the last reported sale price regular way on such day or, in case no
such sale takes place on such day, the
15
<PAGE>
average of the reported closing bid and asked prices regular way of
the common stock in each case on the New York Stock Exchange, or, if
the common stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange or quotation
system on which the common stock is listed or admitted to trading or
quoted, or, if not listed or admitted to trading or quoted on any
national securities exchange or quotation system, the average of the
closing bid and asked prices of the common stock in the over-the-
counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similarly generally accepted
reporting service, or, if not so available in such manner, as
furnished by any New York Stock Exchange member firm selected from
time to time by the Board of Directors of the Corporation for that
purpose.
(3) "Common Stock Fundamental Change" shall, except as provided
in the second sentence of this Section 5(h), mean any Fundamental
Change in which (i) more than 50% by value (as determined in good
faith by the Board of Directors of the Corporation (whose
determination shall be conclusive and described in a resolution of the
Board of Directors)) of the consideration received by holders of
Common Stock consists of common stock that for each of the ten
consecutive Trading Days referred to with respect to such Fundamental
Change in Section 5(h)(1) above has been admitted for listing or
admitted for listing subject to notice of issuance on a national
securities exchange or quoted on the National Association of
Securities Dealers, Inc. ("NASDAQ") National Market System and (ii)
either (A) the Corporation continues to exist after the occurrence of
such Fundamental Change and the outstanding shares of Series A
Convertible Preferred Stock continue to exist as outstanding shares of
Series A Convertible Preferred Stock, or (B) not later than the
occurrence of such Fundamental Change, the outstanding shares of
Series A Convertible Preferred Stock are converted into or exchanged
for shares of convertible preferred stock of a corporation succeeding
to the business of the Corporation, and such convertible preferred
stock has powers, preferences and relative, participating, optional or
other rights, and qualifications, limitations and restrictions,
substantially similar to those of the Series A Convertible Preferred
Stock.
(4) "Fundamental Change" shall mean the occurrence of any
transaction or event in connection with a plan to which the
Corporation is a party pursuant to which 90% or more of the
outstanding Common Stock shall be exchanged for, converted into,
acquired for or constitute solely the right to receive cash,
securities, property or other assets (whether by means of an exchange
offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise); provided, however,
-------- -------
in the case of a plan involving more than one such transaction or
event, for purposes of adjustment of the conversion price, such
Fundamental Change shall be deemed to have occurred when 90% of the
outstanding Common Stock of the Corporation shall be exchanged for,
converted into, or acquired for or constitute solely the rights to
receive cash, securities, property or other assets, but the adjustment
shall be based upon the highest weighted average of consideration per
share which a holder of Common Stock could have received in such
transactions or events as a result of which more than 50% of the
Common Stock of the Corporation shall have been exchanged for,
converted into, or acquired for or constitute solely the right to
receive cash, securities, property or other assets.
16
<PAGE>
(5) "Non-Stock Fundamental Change" shall mean any Fundamental
Change other than a Common Stock Fundamental Change.
(6) "Purchaser Stock Price" shall mean, with respect to any
Common Stock Fundamental Change, the average of the daily Closing
Prices of the common stock received in such Common Stock Fundamental
Change for the ten consecutive Trading Days prior to and including the
record date for the determination of the holders of common Stock
entitled to receive such common stock, or, if there is no such record
date, the date upon which the holders of the Common Stock shall have
the right to receive such common stock, in each case, as adjusted in
good faith by the Board of Directors of the Corporation (whose de
termination shall be conclusive and described in a resolution of the
Board of Directors) appropriately to reflect any of the events
referred to in subparagraphs (i), (ii), (iii), (iv), (v) and (vi) of
Section 5(c) or in Section 5(g) or to give appropriate weight to the
relative values in the event that more than one series or class of
common stock is received; provided, however, if no such Closing Prices
-------- -------
of the common stock for such Trading Days exist, then the Purchaser
Stock Price shall be set at a price to be determined in good faith by
the Board of Directors of the Corporation.
(7) "Reference Market Price" shall initially mean $12.859 and in
the event of any adjustment to the conversion price other than as a
result of a Fundamental Change, the Reference Market Price shall also
be adjusted so that the ratio of the Reference Market Price to the
conversion price after giving effect to any such adjustment shall
always be the same as the ratio of the foregoing amount to the initial
conversion price per share set forth in the first sentence of Section
5(a).
(8) "Stock Exchange," with respect to shares of capital stock,
shall mean the principal national securities exchange or quotation
system on which such evidences of indebtedness or shares of capital
stock is listed or admitted to trading or quoted.
(9) "Trading Day" shall mean a day on which securities are
traded or quoted on the national securities exchange or quotation
system or in the over-the-counter market used to determine the Closing
Price.
(i) Dividend or Interest Reinvestment Plans. Notwithstanding the
---------------------------------------
foregoing provisions, the issuance of any shares of Common Stock pursuant
to any plan providing for the reinvestment of dividends or interest payable
on securities of the Corporation and the investment of additional optional
amounts in shares of Common Stock under any such plan, and the issuance of
any shares of Common Stock or options or rights to purchase such shares
pursuant to any employee benefit plan or program of the Corporation or
pursuant to any option, warrant, right or exercisable, exchangeable or
convertible security outstanding as of the date the Series A Convertible
Preferred Stock was first authorized, shall not be deemed to constitute an
issuance of Common Stock or exercisable, exchangeable or convertible
securities by the Corporation to which any of the adjustment provisions
described above applies. There shall also be no adjustment of the
conversion price in case of the issuance of any stock (or securities
convertible into or exchangeable for stock) of the Corporation except as
specifically described in this Section 5. If any action would require
adjustment of the conversion price pursuant to more than one of the
provisions described above, only one adjustment
17
<PAGE>
shall be made and, except as expressly otherwise provided, such adjustment
shall be the amount of adjustment which has the highest absolute value to
holders of Series A Convertible Preferred Stock.
(j) Certain Additional Rights. In case the Corporation shall, by
-------------------------
dividend or otherwise, declare or make a distribution on its Common Stock
referred to in Section 5(c)(iv) or 5(c)(v) (including, without limitation,
dividends or distributions referred to in the last sentence of Section
5(c)(iv)), the holder of each share of Series A Convertible Preferred
Stock, upon the conversion thereof subsequent to the close of business on
the date fixed for the determination of stockholders entitled to receive
such distribution and prior to the effective date (whether or not
determined retroactively) of any conversion price adjustment in respect of
such distribution, shall also be entitled to receive for each share of
Common Stock into which such share of Series A Convertible Preferred Stock
is converted, such number or amount of shares of Common Stock, rights,
warrants, evidences of indebtedness, shares of capital stock, cash and
assets that is so distributed to a holder of one share of Common Stock;
provided, however, that, at the election of the Corporation (whose election
-------- -------
shall be evidenced by a resolution of the Board of Directors) with respect
to all holders so converting, the Corporation may, in lieu of distributing
to such holder any portion of such distribution not consisting of cash or
securities of the Corporation, pay such holder an amount in cash equal to
the fair market value thereof (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors). If any conversion of a share of
Series A Convertible Preferred Stock described in the immediately preceding
sentence occurs prior to the payment date for a distribution to holders of
Common Stock which the holder of the share of Series A Convertible
Preferred Stock so converted is entitled to receive in accordance with the
immediately preceding sentence, the Corporation may elect (such election to
be evidenced by a resolution of the Board of Directors) to distribute to
such holder a due bill for the shares of Common Stock, rights, warrants,
evidences of indebtedness, shares of capital stock, cash or assets to which
such holder is so entitled, provided that such due bill (i) meets any
applicable requirements of the principal national securities exchange or
other market on which the Common Stock is then traded and (ii) requires
payment or delivery of such shares of Common Stock, rights, warrants,
evidences of indebtedness, shares of capital stock, cash or assets no later
than the date of payment or delivery thereof to holders of shares of Common
Stock receiving such distribution.
(k) No Fractional Shares. No fractional shares or scrip representing
--------------------
fractional shares shall be issued upon the conversion of Series A
Convertible Preferred Stock. If any such conversion would otherwise
require the issuance of a fractional share, an amount equal to such
fraction multiplied by the Closing Price (as defined in Section 5(h)) of
the Common Stock on the day of conversion shall be paid to the holder in
cash by the Corporation.
(l) Reservation of Shares. The Corporation shall at all times
---------------------
reserve and keep available out of its authorized Common Stock the full
number of shares of Common Stock into which all shares of Series A
Convertible Preferred Stock from time to time outstanding are convertible.
If at any time the number of authorized and unissued shares of Common Stock
shall not be sufficient to effect the conversion of all outstanding shares
of Series A Convertible Preferred Stock at the conversion price then in
effect, the Corporation shall take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized and
unissued shares of Common Stock to such number as shall be sufficient for
such purpose.
18
<PAGE>
(m) Computation of Adjustments. The certificate of any independent
--------------------------
firm of public accountants of recognized standing selected by the Board of
Directors shall be evidence of the correctness of any computation made
under this Section 5.
(n) Cancellation of Shares Upon Conversion. All shares of Series A
--------------------------------------
Convertible Preferred Stock redeemed, purchased or otherwise acquired by
the Corporation or surrendered to it for conversion into Common Stock as
provided above shall be cancelled and thereupon restored to the status of
authorized but unissued shares of Preferred Stock undesignated as to
series.
6. Voting Rights.
-------------
(a) Except as otherwise expressly required by law, the Series A
Convertible Preferred Stock shall have no voting rights except as set forth
in Section 6(b) below.
(b) So long as any shares of the Series A Convertible Preferred Stock
remain outstanding, but not thereafter, in the event that four quarterly
dividends (whether or not consecutive) payable on the Series A Convertible
Preferred Stock or any class or series of stock which ranks on a parity
with the Series A Convertible Preferred Stock in the payment of dividends
(collectively, including the Series A Convertible Preferred Stock, the
"Parity Preferred Stock") shall be in default, in whole or in part, the
holders of the outstanding Parity Preferred Stock, in addition to any right
of holders of any series of Parity Preferred Stock to vote with the Common
Stock at the election of other directors or otherwise, shall be entitled at
the next annual meeting of stockholders, voting separately as a class
regardless of series, each share of Parity Preferred Stock having one vote,
to elect one director of the class of directors then being elected, and, in
the event such default continues to exist at succeeding annual meetings,
the holders of the outstanding Parity Preferred Stock shall be entitled in
like manner to elect one director of the class of directors being elected
at such meetings; the Parity Preferred Stock thus, in the event of such
default, being entitled as a class to elect a maximum of three directors,
each to hold office for a term of three years or until his successor is
elected and qualified; provided, however, that each person elected a
director by the holders of Parity Preferred Stock shall, as a condition to
his qualification as a director of the corporation, submit to the Board of
Directors his written resignation effective if and when all dividends in
default on the Parity Preferred Stock shall be paid in full. If, after any
such default in the payment of dividends on Parity Preferred Stock, all
such dividends in default shall be paid in full, the Parity Preferred Stock
shall then be divested of its right as a class to elect directors, subject
to the revesting of same in the event of any similar future default or
defaults. Upon the payment in full of all dividends then in default on the
Parity Preferred Stock, the directors of the Corporation, exclusive of
those elected by the Parity Preferred Stock, may by a majority vote accept
the aforesaid resignations of the directors so elected by the Parity
Preferred Stock, and thereupon elect in the place and stead of such
directors new directors to fulfill the unexpired terms of such resigning
directors.
If at any time, when the holders of Parity Preferred Stock as a class
are represented by only one director on the Board of Directors, and for any
reason other than acceptance of the aforesaid resignation of such director,
the office of such director becomes vacant, the remaining directors shall
not be entitled to elect a successor, but instead, such vacancy shall be
filled at the next annual meeting of stockholders by the holders of Parity
Preferred Stock, voting separately as a class. If, after the holders of
Parity Preferred Stock as a class are represented by more than one director
on the Board of Directors, any vacancy occurs among the directors elected
by the holders of Parity Preferred
19
<PAGE>
Stock, other than as a result of acceptance of the aforesaid resignations,
the remaining director or directors so elected by the Parity Preferred
Stock shall be entitled to nominate for election by the Board of Directors
a successor-director to hold office for the unexpired term of the director
whose position has become vacant. If the vacancy is not so filled prior to
the next succeeding annual meeting of stockholders, it may be filled at
such meeting by the holders of Parity Preferred Stock, voting separately as
a class.
7. Relation to Other Preferred Stock. The holders of the Series A
---------------------------------
Convertible Preferred Stock shall not be entitled to receive any amount upon the
dissolution, liquidation or winding up of the Corporation until the liquidation
preference of any other class of stock of the Corporation ranking senior to the
Series A Convertible Preferred Stock as to rights upon liquidation, dissolution
or winding up shall have been paid in full. If, upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation the assets
available for distribution are insufficient to pay in full the amounts payable
with respect to the Series A Convertible Preferred Stock and any other shares of
stock of the Corporation ranking as to any such distribution on a parity with
the Series A Convertible Preferred Stock, the holders of the Series A
Convertible Preferred Stock and of such other shares shall share ratably in any
distribution of assets of the Corporation in proportion to the full respective
preferential amounts to which they are entitled. After payment to the holders
of the Series A Convertible Preferred Stock of the full preferential amounts
provided for in Section 3, the holders of the Series A Convertible Preferred
Stock shall be entitled to no further participation in any distribution of
assets by the Corporation.
<PAGE>
Exhibit 10(a)
CYPRUS AMAX MINERALS COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
As Amended and Restated Effective January 29, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS..................................................... 1
1.1 "Accrued Benefit"............................................... 1
1.2 "Beneficiary"................................................... 1
1.3 "Board of Directors"............................................ 1
1.4 "Change in Control"............................................. 1
1.5 "Code".......................................................... 3
1.6 "Committee"..................................................... 3
1.7 "Company"....................................................... 3
1.8 "Compensation".................................................. 3
1.9 "Compensation Committee"........................................ 3
1.10 "Employee"...................................................... 3
1.11 "Normal Retirement Date"........................................ 3
1.12 "Participant"................................................... 3
1.13 "Plan".......................................................... 3
1.14 "Plan Year"..................................................... 3
1.15 "Retirement Plan"............................................... 4
1.16 "Supplemental Benefit".......................................... 4
1.17 "Trust"......................................................... 4
1.18 "Trust Agreement"............................................... 4
1.19 "Trustee"....................................................... 4
ARTICLE II ELIGIBILITY FOR PARTICIPATION................................... 4
ARTICLE III FUNDING......................................................... 4
ARTICLE IV VESTING......................................................... 4
ARTICLE V COMPUTATION OF SUPPLEMENTAL BENEFIT............................. 5
ARTICLE VI PAYMENT OF SUPPLEMENTAL BENEFIT................................. 5
6.1 Commencement of Supplemental Benefit Payments................... 5
6.2 Death Benefits.................................................. 5
6.3 Plan Interest Nonassignable..................................... 5
6.4 Distribution to Minors or Incapacitated Persons................. 5
6.5 Termination of Service.......................................... 6
6.6 Change in Control............................................... 6
6.7 Reduction of Supplemental Benefit in the Event of Payment From
Trust Upon Taxation of Interest in Trust........................ 6
ARTICLE VII ADMINISTRATION OF THE PLAN...................................... 6
7.1 Administration.................................................. 6
7.2 Claim Procedures................................................ 7
i
<PAGE>
ARTICLE VIII AMENDMENTS AND TERMINATION.................................. 8
ARTICLE IX MISCELLANEOUS............................................... 8
9.1 Effect on Employment........................................ 8
9.2 Liability................................................... 8
9.3 Applicable Law.............................................. 9
9.4 Effect of Agreement......................................... 9
ii
<PAGE>
ARTICLE I
DEFINITIONS
-----------
The following capitalized words when used in the Plan shall have the following
meanings set forth below. Words in the masculine gender include the feminine
gender, and vice versa. Wherever any words are used in the singular form, they
shall be construed as if they were also used in the plural form in all cases
where the plural form would so apply, and vice versa. Where the definitions
include rules regarding the definition, those rules shall apply. Wherever a
capitalized word is used herein but is not otherwise defined, it shall have the
same meaning as set forth in the Retirement Plan.
1.1 "Accrued Benefit" means a Participant's "Accrued Benefit" as that term is
---------------
defined in the Retirement Plan.
1.2 "Beneficiary" means any person to whom a Supplemental Benefit is payable
-------------
under the Plan on account of a Participant's death in accordance with the
provisions of Section 6.2.
1.3 "Board of Directors" means the Board of Directors of Cyprus Amax
------------------
Minerals Company.
1.4 "Change in Control" means the happening of any of the following events:
-----------------
(a) The acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
------------ ------
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common
--------------------------
Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities");
-------------------------------------
provided, however, that the following acquisitions shall not
-------- -------
constitute a Change in Control: (A) any acquisition directly from the
Company, (B) any acquisition by the Company, (C) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, or (D)
any acquisition by any corporation pursuant to a transaction described
in Sections 1.4(c) (i), (ii), and (iii); or
(b) Individuals who, as of January 1, 1990, constituted the Board of
Directors (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board of Directors; provided, however, that
-------- -------
any individual becoming a member of the Board of Directors subsequent
to January 1, 1990, whose election or nomination for election by the
Company's shareholders was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose
initial membership on the Board of Directors occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board
of Directors; or
1
<PAGE>
(c) Approval by the shareholders of the Company of a reorganization,
merger, or consolidation (a "Business Combination"), in each case,
--------------------
unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 80%
of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of
such transaction owns the Company through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust)
of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or at the time of the
action of the Board of Directors, in either case providing for such
Business Combination; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company,
other than to a corporation with respect to which following such sale
or other disposition, (A) more than 80% of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) less than 20% of, respectively,
the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by any
Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation), except to the extent that such Person
owned 20% or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities prior to the sale or
disposition, and (C) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent Board
at the time of the execution of the initial agreement, or at the time
of the action of the Board of Directors, in either case providing for
such sale or other disposition of
2
<PAGE>
assets of the Company or were elected, appointed or nominated by the
Board of Directors.
Upon the occurrence of an event described in Sections 1.4(a), (b), (c), or
(d), the Company shall be obligated, and without limitation Milton H. Ward,
or in the event of his death, disability, retirement, incapacity, or
inability to act, Philip C. Wolf, or in the event of his death, disability,
retirement, incapacity, or inability to act, the Committee as it was
comprised prior to the Change in Control, shall be duly authorized, to give
written notice to the Trustee of the occurrence of such event, to determine
within a reasonable time period the amount of payments due to Participants
under Section 6.6, to direct the Trustee regarding payment of such benefits
which payments shall be used to reduce the Company's liability under the
Plan, and to take any and all necessary administrative action with regard
to the Plan.
1.5 "Code" means the Internal Revenue Code of 1986, as amended from time to
----
time, and any rules or regulations promulgated thereunder.
1.6 "Committee" means the Cyprus Amax Minerals Company Benefits Committee,
---------
which is the management committee established by the Compensation and
Benefits Committee of the Board of Directors and to whom the Compensation
Committee has delegated the responsibility for administering and amending
the Plan. The Committee's authority shall be subject to any restrictions
imposed by the Compensation Committee. The Committee shall act in
accordance with its own internal procedures.
1.7 "Company" means Cyprus Amax Minerals Company and any affiliate that is
-------
a participating company in the Retirement Plan.
1.8 "Compensation" means a Participant's "Compensation" as that term is
------------
defined in the Retirement Plan.
1.9 "Compensation Committee" means the Compensation and Benefits Committee of
----------------------
the Board of Directors of Cyprus Amax Minerals Company, or such other
committee of the Board of Directors which has authority with respect to the
Plan.
1.10 "Employee" means an individual who is an "Employee" as that term is
--------
defined in the Retirement Plan.
1.11 "Normal Retirement Date" means the date which is the later to occur of a
----------------------
Participant's attainment of age 65 or the fifth anniversary of the
Participant's commencement of participation in the Retirement Plan.
1.12 "Participant" means an Employee who has become a Participant in the Plan in
-----------
accordance with Article II.
1.13 "Plan" means this Cyprus Amax Minerals Company Supplemental Executive
----
Retirement Plan, as amended from time to time.
1.14 "Plan Year" means the calendar year.
---------
3
<PAGE>
1.15 "Retirement Plan" means the Cyprus Amax Minerals Company Retirement Plan
---------------
for Salaried Employees, as amended from time to time.
1.16 "Supplemental Benefit" means the supplemental retirement benefit as
--------------------
determined under Article V.
1.17 "Trust" means the nonqualified grantor trust that may be established
-----
by the Company to assist it, to the extent necessary, to satisfy its
benefit payment obligations under the Plan.
1.18 "Trust Agreement" means the agreement entered into between the Company
---------------
and the Trustee establishing the Trust.
1.19 "Trustee" means the trustee or trustees of the Trust pursuant to the
-------
Trust Agreement.
ARTICLE II
ELIGIBILITY FOR PARTICIPATION
-----------------------------
Each Employee of the Company shall automatically become a Participant in the
Plan effective as of the first day of the first pay period in which the Employee
is a Participant in the Retirement Plan and his Accrued Benefit under the
Retirement Plan has been limited by application of the requirements of Section
415 and/or Section 401(a)(17) of the Code.
ARTICLE III
FUNDING
-------
Nothing contained in the Plan and no action taken pursuant to the provisions of
the Plan shall create or be construed to create a trust of any kind, or a
fiduciary relationship between the Company and a Participant, a Beneficiary, or
any other person. The title to and beneficial ownership of any assets, whether
cash or investments, which the Company may designate to pay the Supplemental
Benefits under the Plan, shall at all times remain with the Company and neither
a Participant nor a Beneficiary shall have any right or property interest
whatsoever in any such asset of the Company. The Company shall not be required
to fund its obligations under the Plan in any manner, whether by purchase of
insurance contracts, by contributions to a trust, by deposits in an escrow
account or otherwise. However, if the Company does establish such a trust,
purchase any such contract or deposit funds in any such account, then neither a
Participant nor a Beneficiary, shall have any right or interest in such
contracts, trusts, or accounts but may look solely to the Company's unsecured
promise to pay in accordance with the provisions of the Plan. The Plan is
intended to constitute a plan which is unfunded and is maintained by an employer
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees for purposes of Sections 201(2),
301(a)(3), 401(a)(1) and 4021(b)(6) of the Employee Retirement Income Security
Act of 1974, as amended from time to time.
ARTICLE IV
VESTING
-------
4
<PAGE>
A Participant at all times shall be fully vested in his Supplemental Benefit.
ARTICLE V
COMPUTATION OF SUPPLEMENTAL BENEFIT
-----------------------------------
A Participant's Supplemental Benefit under the Plan shall be equal to the
difference between (a) the Participant's vested Accrued Benefit payable under
the Retirement Plan and (b) the vested Accrued Benefit that would have been
payable under the Retirement Plan to the Participant (i) had the limitations of
Section 415 and Section 401(a)(17) of the Code, as applicable, not been applied,
and (ii) had any compensation, included in the year of deferral, which is
deferred under any deferred compensation plan sponsored by the Company been
included in the Participant's Compensation for purposes of the Retirement Plan.
ARTICLE VI
PAYMENT OF SUPPLEMENTAL BENEFIT
-------------------------------
6.1 Commencement of Supplemental Benefit Payments. Payment of a Participant's
---------------------------------------------
Supplemental Benefit under the Plan shall be made as of the date on which
the payment of the Participant's Accrued Benefit on account of early
retirement or normal retirement under the Retirement Plan commences.
Supplemental Benefits under the Plan shall be paid in the form of an
actuarially equivalent lump sum cash payment. For purposes of the Plan,
actuarial equivalence shall be computed on the basis of the actuarial
assumptions specified in the Retirement Plan for such purpose. Supplemental
Benefits under the Plan that are paid before a Participant's Normal
Retirement Date shall be reduced in accordance with the provisions of the
Retirement Plan governing payment of benefits before the "Normal Retirement
Age" thereunder.
6.2 Death Benefits. A death benefit shall be paid to the Beneficiary of a
--------------
Participant who dies prior to the payment of the Participant's Supplemental
Benefit under the Plan. The death benefit shall be equal to the
Supplemental Benefit accrued by the Participant as of the date of the
Participant's death. The death benefit shall be paid to the Beneficiary in
an actuarial equivalent lump sum payment and at the time any death benefit
is paid to the Beneficiary under the Retirement Plan. The Beneficiary
under the Retirement Plan shall be the Beneficiary under the Plan.
6.3 Plan Interest Nonassignable. Neither a Participant nor a Beneficiary
---------------------------
shall not have any right to commute, sell, assign, transfer, or otherwise
convey the right to receive any payments under the Plan. Payments will not
be subject to the claim of any creditor of a Participant or a Beneficiary,
nor can payments be taken in execution by attachment or garnishment or by
any other legal or equitable proceeding.
6.4 Distribution to Minors or Incapacitated Persons. If the Committee shall
-----------------------------------------------
find that any person to whom any payment is to be made under the Plan is
unable to care for such person's affairs because of illness or accident, or
is a minor, any payment due (unless a prior claim has been made by a duly
appointed guardian or other legal representative) may be paid to the
spouse, a child, a parent, or to any person deemed by the Committee
5
<PAGE>
to have incurred expenses for care of the person otherwise entitled to
payment, in such manner and proportions as the Committee shall determine.
Any such payment shall be a complete discharge of the liabilities of the
Company under the Plan.
6.5 Termination of Service. Nothing in the Plan shall be construed to give a
----------------------
Participant the right to be retained as an employee of the Company or to
impair the right of the Company to terminate a Participant's services at
any time with or without cause.
6.6 Change in Control. In the event of a Change in Control, each Participant
-----------------
shall be paid the actuarial equivalent (determined using the actuarial
assumptions specified in the Retirement Plan) of the Participant's
Supplemental Benefit amount computed under Article V of the Plan as though
the Participant terminated employment with the Company on the date the
Change in Control is deemed to have occurred. Such Supplemental Benefit
shall be paid in the form of a lump sum cash payment as soon as
administratively feasible after the Change in Control is deemed to have
occurred, and if the payment date is before the date the Participant
attains his Normal Retirement Date, such Supplemental Benefit shall be
reduced in accordance with the provisions of the Retirement Plan governing
the payment of benefits before the "Normal Retirement Age" thereunder.
6.7 Reduction of Supplemental Benefit in the Event of Payment From Trust Upon
-------------------------------------------------------------------------
Taxation of Interest in Trust. In the event any Participant or
-----------------------------
Beneficiary is determined to be subject to Federal income tax on any amount
held in the Trust and said amount determined to be taxable is distributed
to such Participant or Beneficiary from the Trust pursuant to Section 3.06
of the Trust Agreement, the Supplemental Benefits payable under the Plan to
such Participant or Beneficiary shall be reduced by the amount so
distributed from the Trust that is applied to reduce the Company's
liability to pay Supplemental Benefits under the Plan.
ARTICLE VII
ADMINISTRATION OF THE PLAN
--------------------------
7.1 Administration. The Plan shall be administered by the Committee, which
--------------
is specifically given the discretionary authority and such powers as are
necessary for the proper administration of the Plan, including, but not
limited to, the following:
(a) to maintain any records necessary in connection with the operation of
the Plan;
(b) to calculate the amount of benefits due to Participants and
Beneficiaries;
(c) to have the authority and discretion to interpret the Plan, to decide
questions and disputes, to supply omissions, and to resolve
inconsistencies and ambiguities arising under the Plan, which
interpretations and decisions shall be final and binding on all
Participants and Beneficiaries;
(d) to retain counsel, employ agents, and provide for such clerical,
accounting, actuarial, and consulting services as it deems necessary
or desirable to assist it in the administration of the Plan;
6
<PAGE>
(e) to retain the right, authority, and discretion to make benefit
payments and predetermination of benefit decisions upon appeal to the
extent it has the authority to make such appeal determinations under
Section 7.2;
(f) to establish rules and regulations for the administration of the Plan;
and
(g) to otherwise administer the Plan in accordance with its terms.
No determination of the Committee in one case shall create a bias or
retroactive adjustment in any other case. Expenses for the administration
of the Plan shall be paid by the Company and shall not affect any
Participant's or Beneficiary's right to or amount of benefits under the
Plan.
7.2 Claim Procedures.
----------------
(a) A Participant or the Beneficiary or the duly authorized representative
of either (a "claimant") may file a claim for a benefit under the Plan
to which the claimant believes that such Participant or Beneficiary is
entitled. Such a claim must be in writing and delivered to the
Committee by certified mail. Within 90 days after receipt of a claim,
the Committee shall send to the claimant by certified mail, postage
prepaid, notice of the granting or denying, in whole or in part, of
such claim, unless special circumstances require an extension of time
for processing the claim. In no event may such an extension exceed 90
days from the end of the initial 90-day period. If such extension is
necessary, the claimant will be given a written notice to this effect
prior to the expiration of the initial 90-day period. The Committee
shall have full discretion to deny or grant a claim in whole or in
part. If notice of the denial of a claim is not furnished in
accordance with this Section 7.2(a), the claim shall be deemed denied
and the claimant shall be permitted to exercise the claimant's right
to review pursuant to Section 7.2(c).
(b) If a claim for benefits made pursuant to Section 7.2(a) is denied, the
Committee shall provide to the claimant written notice setting forth
in a manner calculated to be understood by the claimant:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent Plan provisions upon which the
denial is based;
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material is necessary; and
(iv) an explanation of the claim review procedure.
(c) Within 60 days after receipt by the claimant of written notification
pursuant to Section 7.2(a) of the denial in whole or in part of a
timely made claim pursuant to Section 7.2(a), the claimant, upon
written application to the Committee in person or by certified mail,
postage prepaid, may request a review of such denial, may review
pertinent documents, and may submit issues and comments in writing.
Upon receipt of the request for review, the Committee shall review the
claim and
7
<PAGE>
denial and shall communicate its decision to the claimant. The
decision on review shall be written in a manner calculated to be
understood by the claimant and shall include specific reasons for the
decision and specific references to the pertinent Plan provisions upon
which the decision is based. The decision on review shall be made not
later than 60 days after the Committee's receipt of a request for
review under this Section 7.2(c), unless special circumstances require
an extension of time for processing, in which case a decision shall be
rendered not later than 120 days after the Committee's receipt of a
request for review under this Section 7.2(c). If such extension is
necessary, the claimant shall be given written notice of the extension
prior to the expiration of the initial 60-day period. If notice of the
decision on the review is not furnished in accordance with this
Section 7.2(c), the claim shall be deemed denied.
ARTICLE VIII
AMENDMENTS AND TERMINATION
--------------------------
The Company expects the Plan to be permanent, but as future conditions affecting
the Company cannot be foreseen, the Company hereby reserves the right to amend,
modify, suspend, or terminate the Plan by or pursuant to action of the Board of
Directors or the Compensation Committee, or, to the extent such authority has
been delegated to the Committee, to the Committee. Any such amendment,
modification, suspension, or termination of the Plan shall be effective not
earlier than the date on which the Company shall have given notice of such
action to affected Participants and Beneficiaries. An amendment, modification,
suspension, or termination of the Plan may affect future Participants, but shall
not reduce the Supplemental Benefit under the Plan of any Participant or
Beneficiary as determined immediately prior to the effective date of such
amendment, modification, suspension, or termination.
ARTICLE IX
MISCELLANEOUS
-------------
9.1 Effect on Employment. Nothing contained in the Plan shall be construed
--------------------
as a contract of employment between the Company and any of its employees.
Participation in the Plan shall not alter or otherwise affect the
responsibilities of any employee of the Company to fully perform his duties
in a satisfactory and workmanlike manner, nor shall it affect the Company's
right to discipline, discharge, or take any other action with respect to
any employee.
9.2 Liability.
---------
(a) The Board of Directors, the Compensation Committee, the Committee, and
the Company shall not be liable for any action or determination made
in good faith thereby with respect to the Plan or the rights of any
person under the Plan.
8
<PAGE>
(b) If the Committee is in doubt as to the right of any person to receive
any amount, the Company may retain such amount, which shall continue
to accrue interest, on the basis of the interest rate specified in the
Retirement Plan, until the rights thereto are determined, or the
Company may pay such amount into any court of appropriate
jurisdiction, and such payment shall be a complete discharge of the
liability of the Plan, the Board of Directors, the Company, the
Compensation Committee and the Committee therefor. Any payment made
pursuant to this Section 9.2(b) shall be made as soon as practicable
under the circumstances.
9.3 Applicable Law. The Plan shall be construed in accordance with and
--------------
governed by the laws of the State of Colorado to the extent not superseded
by federal law.
9.4 Effect of Agreement. The Plan shall be binding upon and shall inure to
-------------------
the benefit of the Company, its successors and assigns, and each
Participant and Beneficiary and their heirs, personal representatives, and
legal representatives.
IN WITNESS WHEREOF, Cyprus Amax Minerals Company has caused this amendment
and restatement of the Plan to be effective as of the 29th day of January, 1998.
CYPRUS AMAX MINERALS COMPANY
By: /s/ B.B. Turner
-------------------------------
B.B. Turner
Chairman, Compensation and Benefits
Committee
9
<PAGE>
Exhibit 10(b)
MANAGEMENT INCENTIVE PROGRAM
OF
CYPRUS AMAX MINERALS COMPANY
<PAGE>
MANAGEMENT INCENTIVE PROGRAM OF
CYPRUS AMAX MINERALS COMPANY
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
- ---------
<C> <S> <C>
1. PURPOSE........................................... 1
2. DEFINITIONS....................................... 1
2.1 "Beneficiary"................................ 1
2.2 "Board"...................................... 1
2.3 "Change of Control".......................... 1
2.4 "Change of Control Price".................... 3
2.5 "Code"....................................... 3
2.6 "Committee".................................. 3
2.7 "Common Stock"............................... 3
2.8 "Covered Employee"........................... 3
2.9 "Employee"................................... 3
2.10 "Exchange Act"............................... 4
2.11 "Fair Market Value Per Share"................ 4
2.12 "Individual Maximum Limit"................... 4
2.13 "Participating Subsidiary"................... 4
2.14 "Program".................................... 4
2.15 "Restricted Share"........................... 4
2.16 "Restriction Period"......................... 4
2.17 "Retirement"................................. 4
2.18 "Securities Act"............................. 4
2.19 "Section 16"................................. 5
2.20 "Stock Appreciation Right"................... 5
2.21 "Total Disability"........................... 5
3. EFFECTIVE DATE.................................... 5
3.1 Effective Date............................... 5
3.2 Grants and Awards Made Before Approval Date.. 5
3.3 Discontinuance............................... 5
4. ELIGIBILITY....................................... 5
5. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS....... 6
5.1 Shares Subject to Option..................... 6
5.2 Grants of Options............................ 7
5.3 Types of Options............................. 7
5.4 Option Price................................. 7
5.5 Period of Option............................. 7
5.6 Restrictions on Transfer..................... 7
5.7 Required Period of Employment................ 8
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
5.8 Exercise of Option....................................... 9
5.9 Termination of Employment................................ 9
5.10 Payment for Shares....................................... 10
5.11 Option Agreement......................................... 10
5.12 Stock Appreciation Rights................................ 10
5.13 Surrender of Option Following Death...................... 12
5.14 Limited Stock Appreciation Rights........................ 12
6. RESTRICTED STOCK AWARDS........................................ 12
6.1 Shares Subject to Awards................................. 12
6.2 Awards of Restricted Shares.............................. 12
6.3 Certificates for Shares.................................. 14
6.4 Restriction Period....................................... 15
6.5 Lapse of Restrictions.................................... 15
7. ADJUSTMENTS FOR COMPANY CHANGES................................. 16
7.1 Rights and Powers Reserved............................... 16
7.2 Changes in Capitalization................................ 16
8. RELATIONSHIP OF PROGRAM TO BENEFIT PLANS...................... 17
9. EFFECT OF PROGRAM ON RIGHT TO CONTINUED EMPLOYMENT AND
INTEREST IN PARTICULAR PROPERTY............................... 17
10. ADMINISTRATION................................................. 17
10.1 Committee Authority...................................... 17
10.2 Finality of Determinations............................... 18
11. AMENDMENT AND DISCONTINUANCE................................... 18
11.1 Incentive Stock Options.................................. 18
11.2 Other Amendments......................................... 19
11.3 Discontinuance........................................... 19
12. GENERAL PROVISIONS............................................. 19
12.1 Certificates............................................. 19
12.2 Severability............................................. 19
12.3 Compliance with Foreign Law.............................. 20
12.4 Liability................................................ 20
12.5 Withholding of Taxes..................................... 20
12.6 Unfunded Status of Program............................... 20
12.7 Governing law............................................ 21
12.8 Construction............................................. 21
12.9 Costs.................................................... 21
12.10 Successors............................................... 21
12.11 Headings................................................. 21
</TABLE>
ii
<PAGE>
MANAGEMENT INCENTIVE PROGRAM OF
CYPRUS AMAX MINERALS COMPANY
1. PURPOSE
The purpose of this Program is to further the interests of Cyprus Amax
Minerals Company (the "Company"), its Participating Subsidiaries, and its
shareholders by providing incentives in the form of stock option grants, stock
appreciation rights, and restricted stock awards to Employees who contribute
materially to the success and profitability of the Company and such
subsidiaries. Such grants and awards will recognize and reward those Employees
and create for them an interest in the Company parallel to that of the
shareholders, thus enhancing the proprietary and personal interest of such
persons in the Company's continued success and progress. This Program will
also enable the Company and its Participating Subsidiaries to attract and
retain key personnel.
2. DEFINITIONS
For purposes of this Program the following terms shall have the following
meanings:
2.1 "Beneficiary" means a person or persons designated by an Employee to
receive, subject to the terms of the Program, in the event of the
Employee's death, any unexercised option, Stock Appreciation Right, or
Restricted Shares held by the Employee. An Employee may, subject to such
limitations as may be prescribed by the Committee, designate one or more
persons primarily or contingently as beneficiaries in writing upon forms
supplied by and delivered to the Company, and may revoke such designations
in writing. If an Employee fails effectively to designate a beneficiary,
then either the Employee's estate or the person to whom the option, Stock
Appreciation Right, or Restricted Shares is transferred by will or by the
laws of descent and distribution shall be deemed to be the Employee's
beneficiary.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Change of Control" means the happening of any of the following
events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (i) the
then outstanding shares of Common Stock (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following acquisitions shall
not constitute a Change of Control: (i) any acquisition directly from
the Company, (ii) any acquisition by the Company, (iii) any acquisition
by any employee benefit plan (or related trust) sponsored or maintained
by the Company or any
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corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction described in Clauses (i), (ii)
and (iii) of Paragraph (c) of this Section 2.3; or
(b) Individuals who, as of January 1, 1990, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
a director subsequent to January 1, 1990, whose election, or nomination
for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation (a "Business Combination"), in each case,
unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 80% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately
prior to such Business Combination, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust)
of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of
the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company,
other than to a corporation, with respect to which following such sale
or other disposition, (A) more than 80% of, respectively, the then
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<PAGE>
outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition, in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) less than 20% of, respectively, the
then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by any Person
(excluding any employee benefit plan (or related trust) of the Company
or such corporation), except to the extent that such Person owned 20%
or more of the Outstanding Company Common Stock or Outstanding Company
Voting Securities prior to the sale or disposition and (C) at least a
majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
sale or other disposition of assets of the Company or were elected,
appointed or nominated by the Board.
2.4 "Change of Control Price" means the highest price per share paid in
any transaction reported on the New York Stock Exchange Composite Index or
paid or offered in any bona fide transaction related to a potential or
actual change in control of the Company at any time during the preceding
60-day period as determined by the Committee, except that, in the case of
incentive stock options and Stock Appreciation Rights relating to incentive
stock options, such price shall be based only on transactions reported for
the date on which the Committee decides to cash out such options.
2.5 "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any rules and regulations issued thereunder.
2.6 "Committee" means the Compensation and Benefits Committee of the
Board, consisting of two or more Directors, each of whom shall be (a) a
"non-employee director" within the meaning of Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act and (b) an
"outside director" within the meaning of Section 162(m) of the Code.
2.7 "Common Stock" means the common stock of the Company.
2.8 "Covered Employee" means an Employee who is a "covered employee" as
such term is defined under Section 162(m)(3) of the Code.
2.9 "Employee" means an individual who is a key employee of the Company
or a Participating Subsidiary, including officers and members of the Board
who are full-time
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<PAGE>
employees, who satisfy criteria established from time to time by the
Committee in its sole discretion.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any rules or regulations issued thereunder.
2.11 "Fair Market Value Per Share" means, in reference to the Common
Stock, with respect to the date of determination the average of the
reported highest and lowest sale prices per share on the New York Stock
Exchange (or if the Common Stock is not then listed on the New York Stock
Exchange, on the principal national securities exchange on which the Common
Stock is then listed) with respect to the date of determination or in the
absence of reported sales on such date, the average of such reported
highest and lowest sale prices per share on the next preceding date on
which reported sales occurred. If the Common Stock is not listed upon any
established exchange, the fair market value per share will be the average
of the highest and lowest sale prices in the over-the-counter markets
(reported from the NASDAQ System) or, if the Common Stock is not traded on
that day, on the next preceding date on which reported sales occurred,
provided, that if the Committee, in its sole discretion, determines that
such price is not representative of the true fair market value due to the
level of trading volume or otherwise, the Committee, in its sole
discretion, may determine the "fair market value per share" in a reasonable
manner consistent with the Code and taking into account information about
sale, bid and asked prices for the Common Stock in the markets where such
stock is then traded or eligible for trading. If the Common Stock is not
traded publicly on the date of determination, its "fair market value per
share" shall be determined by the Board in such manner as the Board, in its
sole discretion, may deem appropriate.
2.12 "Individual Maximum Limit" shall have the meaning set forth in
Section 4(e).
2.13 "Participating Subsidiary" means a subsidiary of the Company more
than 50% of the outstanding voting shares of each class and series of which
are beneficially owned, directly or indirectly, by the Company.
2.14 "Program" means the Management Incentive Program of Cyprus Amax
Minerals Company as set forth herein, and as it may be subsequently amended
from time to time.
2.15 "Restricted Share" shall have the meaning set forth in Section 6.
2.16 "Restriction Period" means, for any Restricted Share, the entire
period when any restrictions apply to such Restricted Share pursuant to
Section 6.2(a)(i), (ii), or (iii).
2.17 "Retirement" means termination of an Employee's employment by
retirement under the normal, mandatory, disability, age plus service, or
consent provisions of the defined benefit pension plan sponsored by the
Company or by a Participating Subsidiary in which the Employee
participates.
2.18 "Securities Act" means the Securities Act of 1933, as amended from
time to time, and any rules or regulations issued thereunder.
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<PAGE>
2.19 "Section 16" means Section 16 of the Exchange Act, as amended from
time to time and any rules or regulations issued thereunder, including but
not limited to Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Exchange Act.
2.20 "Stock Appreciation Right" shall have the meaning set forth in
Section 5.12.
2.21 "Total Disability" means a disability with respect to which an
Employee is eligible for and is receiving disability benefits under a long-
term disability program sponsored by the Company or a Participating
Subsidiary.
3. EFFECTIVE DATE
3.1 Effective Date.
The Program was originally adopted by the sole shareholder of the
Company on May 28, 1985, and became effective as of July 1, 1985. The
Program was most recently amended and restated in its entirety and
approved by shareholders effective as of May 7, 1992. The Program, as
amended and restated herein, will be presented to the shareholders of
the Company on May 7, 1997 (the "Approval Date" ) for approval and if
approved, it will apply to all grants and awards made on or after the
Approval Date.
3.2 Grants and Awards Made Before Approval Date.
Subject to Sections 10.1(c) and (d), all grants and awards made prior
to the Approval Date shall continue to be governed by the terms of the
Program, and amendments thereto, which were in effect prior to the
Approval Date.
3.3 Discontinuance.
This Program shall remain in effect until discontinued by the Board
as provided in Section 11.3.
4. ELIGIBILITY
(a) Participation in this Program is limited to Employees.
(b) Subject to Subsection (d), the Committee from time to time shall
establish the total number of grants and awards to be made to all
Employees.
(c) The Committee shall determine the specific grants and awards made to
any Employee who is a person subject to Section 16 or who is a Covered
Employee. The Committee may delegate to one or more officers of the Company
the authority to determine, under criteria established by the Committee,
the other Employees to whom grants and awards may be made and the number of
options that may be granted or the number of Restricted Shares that may be
awarded to each such Employee, or the Committee itself may make all such
determinations. No Employee shall have any right to participate in any
portion of the Program unless and until so selected. Any Employee selected
to participate during any
A-5
<PAGE>
one period shall not by virtue of such participation participate for any
other period unless and until selected to participate for such other
period.
(d) The total of the number of shares for which options may be granted
during each fiscal year and the number of Restricted Shares which may be
awarded during the same fiscal year (together, the "maximum annual grants
and awards" ) shall be the sum of:
(i) 1.2% of the number of outstanding shares of Common Stock
(excluding treasury shares) as of the end of the immediately preceding
fiscal year, plus
(ii) the cumulative number of carry forward shares (as defined below)
from all prior-fiscal years (including the immediately preceding fiscal
year) which shall not yet have been used to make grants and awards in
any intervening period.
The number of "carry forward shares" from all fiscal years ending on
or before December 31, 1996, collectively, shall be 324,598. The number
of "carry forward shares" from each fiscal year (the "Accumulation
Year" ) ending on or after December 31, 1997, shall be the amount, if
any, by which (i) 1.2% of the number of outstanding shares of Common
Stock (excluding treasury shares) as of the end of the fiscal year
immediately preceding the Accumulation Year exceeds (ii) the total of
the number of shares for which options were granted during the
Accumulation Year and the number of Restricted Shares awarded during
the Accumulation Year. Any determination of the maximum annual grants
and awards for any fiscal year, including any determination of the
number of carry forward shares from any prior fiscal year, shall take
into account and be appropriately adjusted for any intervening changes
in capitalization as provided in Section 7.2.
(e) Notwithstanding any provision of this Program to the contrary, no
Covered Employee shall be granted options (with or without Stock
Appreciation Rights) and awarded Restricted Shares in any fiscal year of
more than 10% of the maximum annual grants and awards as calculated in
accordance with Section 4(d) (the "Individual Maximum Limit" ); provided
however, that the Covered Employee who is the chief executive officer of
the Company or who is acting in such capacity may be granted options (with
or without Stock Appreciation Rights) and awarded Restricted Shares in
excess of the Individual Maximum Limit, but in no event in excess of 50% of
the maximum annual grants and awards as calculated in accordance with
Section 4(d).
5. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
5.1 Shares Subject to Option.
(a) The aggregate number of shares which may be issued under
incentive stock options (as defined in Section 5.3(a)) shall not exceed
5,000,000.
(b) The shares of Common Stock to be offered under this Program will
be reacquired, purchased or unissued shares, as the Board may
determine. Options shall be granted only in respect of shares of the
Common Stock.
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<PAGE>
5.2 Grants of Options.
(a) Options shall be granted by the Company in accordance with the
decisions of the Committee and the officers to whom the Committee may
delegate authority pursuant to Section 4(c).
(b) No incentive stock option shall be granted after June 30, 2006.
5.3 Types of Options.
(a) New options granted to Employees may be either of a type that
meets the requirements of Section 422(b) of the Code ("incentive stock
options" ), or of a type that does not meet such requirements ("non-
statutory options" ) if otherwise consistent with the provisions of
this Program.
(b) To the extent incentive stock options are granted and the
aggregate Fair Market Value Per Share (determined as of the date the
option is granted) of the Common Stock with respect to which incentive
stock options are exercisable for the first time by such individual
during any calendar year under this Program and any other stock option
plan of the Company or any parent or subsidiary exceeds $100,000, the
portion of the option that exceeds $100,000 shall be treated as a non-
statutory option. Should any of this Section 5.3(b) not be necessary in
order for the options to qualify as incentive stock options, or should
any additional provisions be required, the Committee may amend the
Program accordingly, without the necessity of obtaining the approval of
the shareholders of the Company.
5.4 Option Price.
The price per share at which options may be exercised shall be determined
by the Committee, in its sole discretion, but shall not be less than 100%
of the Fair Market Value Per Share on the date the option is granted.
5.5 Period of Option.
The expiration date of each option shall be that determined by the
Committee, in its sole discretion, but in no event shall the expiration
date be later than ten (10) years from the date an option is granted.
5.6 Restrictions on Transfer.
(a) Except as provided in Subsection (b) below, options and any
rights or privileges pertaining thereto shall not be transferable other
than by will or the laws of descent and distribution or, in the case of
options granted after August 31, 1992, if the terms of a grant so
permit, pursuant to a qualified domestic relations order (as defined
for purposes of Rule 16b-3 of the Exchange Act) and shall be
exercisable during the Employee's lifetime only by such Employee or the
Employee's guardian or legal representative.
(b) Notwithstanding Subsection 5.6(a), an Employee may elect to
irrevocably transfer some or all of the non-statutory options (and
related Stock Appreciation Rights,
A-7
<PAGE>
if any), which have been or will be granted to him, to one or more of
his spouse, children and grandchildren, or to one or more trusts
established solely for the benefit of the Employee's spouse, children
and grandchildren; provided, however, that:
(i) the option agreement expressly provides for such transfer
and, with respect to options currently outstanding, the Committee,
in its sole discretion, agrees to amend or has amended the
Employee's option agreement to provide for such transfer;
(ii) the Employee shall receive no consideration for such
transfer;
(iii) the option, once transferred, may not again be transferred
except by will or by the laws of descent and distribution; and
(iv) such option, once transferred, remains subject to the same
terms and conditions of the option as in effect before the transfer
and the transferee has complied with Subsection (c).
The Committee shall establish such rules and procedures as it, in
its sole discretion, deems necessary or desirable to effect such
transfers.
Neither the Company, a Participating Subsidiary, the Board, or
the Committee has any obligation to provide notice to any
transferee of any option expiration date.
(c) No transferred option shall be exercisable unless and until the
Company receives written notice, which must be in a form and manner
satisfactory to the Committee, in its sole discretion, from a
transferee to the effect that a transfer has occurred, identifying the
options transferred, identifying the transferee and relation to the
Employee, and any other information the Committee, in its sole
discretion, determines necessary or desirable, the transferee
acknowledges that the option is subject to the Program and the option
agreement between the Company and the Employee, and that the transferee
will comply with all applicable provisions of the Program and such
option agreement.
(d) Any Employee to whom an option is granted may designate a
Beneficiary who shall have the right to exercise the option after the
Employee's death.
5.7 Required Period of Employment.
(a) In respect of options granted before July 30, 1987, a portion not
in excess of 50% of the shares represented by the option shall be
exercisable by the Employee to whom the option has been granted after
such Employee shall have completed a period of not less than one year
of continuous employment with the Company or a Participating Subsidiary
immediately following the date on which the option is granted.
(b) Options granted on or after July 30, 1987, but before May 7,
1992, shall be exercisable by the Employee to whom the option has been
granted after such Employee shall have completed a period of not less
than two years of continuous employment with
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<PAGE>
the Company or a Participating Subsidiary immediately following the
date on which the option is granted.
(c) Options granted on or after May 7, 1992, shall be exercisable by
the Employee to whom the option has been granted after such Employee
shall have completed such period of continuous employment, if any, with
the Company or a Participating Subsidiary immediately following the
date on which the option is granted as shall be specified in the option
agreement.
(d) Notwithstanding the foregoing, upon a Change of Control, all
options granted hereunder shall become exercisable to the full extent
of the original grant.
5.8 Exercise of Option.
After completion of the required period of employment, if any, an
option may be exercised according to its terms during the balance of
the option period, except as otherwise provided in Section 5.9. The
option may be exercised only by the Employee to whom it is granted,
except as otherwise provided in Sections 5.6 and 5.9.
5.9 Termination of Employment.
(a) Termination. If an Employee to whom an option is granted ceases
to be employed either by the Company or by a Participating Subsidiary
for a reason other than Retirement or Total Disability before the
option has been exercised in full, then the option (or the unexercised
portion thereof) shall expire at the time specified in the option
agreement (which shall be, in any event, no later than the expiration
date of the option).
(b) Retirement. If upon Retirement, the Employee has completed the
required period of employment as provided in Section 5.7, the option
shall be exercisable by the Employee, but only within the period
specified in the option agreement (which period shall end not later
than three (3) years after the date of Retirement and, in any event not
later than the expiration date of the option). If an Employee to whom
this Section 5.9(b) is applicable dies before the expiration of the
period specified in the option agreement during which the option may be
exercised in part or in full, then the option (or the unexercised
portion thereof) shall be exercisable by the Beneficiary of the
Employee during the remainder of such three year period following
Retirement plus three months but, in any event, not later than the
expiration date of the option.
(c) Change of Control. Notwithstanding the foregoing, except with
respect to incentive stock options granted prior to January 22, 1990,
unless the option provides for a greater period of exercise when
granted, if an Employee ceases to be employed by the Company or a
Participating Subsidiary at or after a Change of Control, other than by
reason of death or Retirement, any option held by such Employee shall
be exercisable for ninety (90) days but in no event later than the
expiration date of the option.
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(d) Total Disability. If an Employee to whom an option is granted
ceases to be employed by the Company or by a Participating Subsidiary
on account of Total Disability before the option has been exercised in
full, then the option (or the unexercised portion thereof) shall expire
at the time specified in the option agreement (which shall be, in any
event, no later than the expiration date of the option).
(e) Death. If an Employee to whom an option is granted ceases to be
employed by the Company or by a Participating Subsidiary on account of
such Employee's death and such death occurs before the option has been
exercised in full, then the option (or the unexercised portion thereof)
shall expire at the time specified in the option agreement (which shall
be, in any event, no later than the expiration date of the option).
(f) Transferred Employees. Effective August 25, 1994, Amax Gold Inc.
shall be treated as a Participating Subsidiary for purposes of applying
the provisions of this Section 5.9. With respect to options granted
prior to August 25, 1994, an Employee who transfers from the Company to
Amax Gold Inc. will have the ability to elect either:
(i) to retain all vested and unvested options under the terms of
the Program as in effect on such date of transfer, without treating
Amax Gold Inc. as a Participating Subsidiary, in which case any
incentive stock options granted shall expire on the ninetieth
(90th) day following such Employee's transfer to Amax Gold Inc., or
(ii) to have non-statutory options substituted for the original
incentive stock options to remain outstanding for the original
terms of the grant provided the Employee remains employed by Amax
Gold Inc.
5.10 Payment for Shares.
Shares purchased upon exercise of an option shall be paid for in full
at the time the option is exercised. The payment may be in cash or,
subject to such rules as the Committee may establish from time to time,
in shares of Common Stock, or other property, or any combination
thereof. The shares of Common Stock received will be valued at Fair
Market Value Per Share on the date of exercise.
5.11 Option Agreement.
Each grant of options shall be evidenced by a written agreement which
contains such terms and conditions consistent with the Program as the
Committee, in its sole discretion, may determine. In addition, the
option agreement may contain such other terms, provisions and
conditions as may be determined by the Committee, in its sole
discretion, so long as those terms, provisions and conditions are not
inconsistent with the provisions of this Program.
5.12 Stock Appreciation Rights.
(a) Stock Appreciation Rights may be granted in connection with all
or part of any option granted under this Program, either at the time of
the grant of such option or at
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any time thereafter during the term of the option, and shall entitle
the holder of the related option to the extent unexercised, upon
exercise of the Stock Appreciation Rights and surrender of the related
option (or applicable portion thereof), to receive a number of the
shares of the Common Stock or cash, as determined pursuant to Section
5.12(b). Such option shall, to the extent so surrendered, thereupon
cease to be exercisable.
(b) Stock Appreciation Rights shall be subject to such terms and
conditions not inconsistent with the Program as shall from time to time
be determined by the Committee, in its sole discretion, and to the
following terms and conditions:
(i) Stock Appreciation Rights shall be exercisable at such time
or times and to the extent, but only to the extent, that the option
to which they relate shall be exercisable.
(ii) Stock Appreciation Rights shall in no event be exercisable
unless and until the holder of the Stock Appreciation Rights shall
have completed a period of continuous service with the Company or a
Participating Subsidiary, or both, immediately following the date
upon which the Stock Appreciation Rights shall have been granted,
which period shall be determined by the Committee in its sole
discretion.
(iii) Upon an exercise of Stock Appreciation Rights, the holder
thereof shall be entitled to receive a number of the shares of
Common Stock equal in aggregate value to the amount by which the
Fair Market Value Per Share of such stock on the date of such
exercise shall exceed the option price per share of the related
option, multiplied by the number of shares in respect of which the
Stock Appreciation Rights have been exercised. All or any part of
the obligation arising out of an exercise of Stock Appreciation
Rights may, in the sole discretion of the Committee, be settled by
the payment of cash equal to the aggregate value of the shares (or
a fraction of a share) that would otherwise be delivered under the
preceding sentence of this Section 5.12(b)(iii).
(iv) Stock Appreciation Rights shall not be transferable other
than with the option to which they relate whenever such option may
be transferred in accordance with Section 5.6. Stock Appreciation
Rights shall be exercisable during the Employee's lifetime only by
the Employee or the Employee's guardian or legal representative.
Any Beneficiary who is entitled to exercise an option shall be
entitled to exercise any related Stock Appreciation Rights.
(c) To the extent that Stock Appreciation Rights which relate to an
incentive stock option shall be exercised, that incentive stock option
shall be deemed to have been exercised for the purpose of the maximum
limitation set forth in Section 5.1(a).
(d) Notwithstanding the foregoing, any Stock Appreciation Rights
outstanding as of the date of a Change of Control and not then
exercisable and vested shall become fully exercisable and vested to the
full extent of the original grant.
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5.13 Surrender of Option Following Death.
Following the death of an Employee, the Company may, in its sole
discretion, upon the request of such Employee's Beneficiary who holds
an exercisable option and in consideration for the surrender of such
option, pay the amount by which the Fair Market Value Per Share of the
Common Stock on the date of such request shall exceed the option price
per share multiplied by the number of shares as to which the request is
made.
5.14 Limited Stock Appreciation Rights.
Notwithstanding any other provision of this Program, upon a Change of
Control other than a Change in Control specified in Clause (a) of the
definition of Change of Control, arising as a result of beneficial
ownership (as defined therein) by the Employee of Outstanding Company
Common Stock or Outstanding Company Voting Securities (as such terms
are defined in the definition of Change of Control), in the case of
stock options other than incentive stock options granted prior to
January 22, 1990, during the 60-day period from and after a Change of
Control (the "Exercise Period" ), unless the Committee shall determine
otherwise at the time of grant, an Employee shall have the right, in
lieu of the payment of the exercise price of the shares of Common Stock
being purchased under the stock option and by giving notice to the
Company, to elect (within the Exercise Period) to surrender all or part
of the stock option to the Company and to receive in cash, within 30
days of such notice, an amount equal to the amount by which the Change
of Control Price per share of Common Stock on the date of such election
shall exceed the exercise price per share of Common Stock under the
stock option multiplied by the number of shares of Common Stock granted
under the stock option as to which the right granted under this Section
5.14 shall have been exercised.
6. RESTRICTED STOCK AWARDS
6.1 Shares Subject to Awards.
Awards of Restricted Shares shall be limited in number each fiscal
year as provided in Section 4(d). The shares which may be issued under
the Program may be reacquired, purchased or unissued shares, as the
Board may determine. Restricted Shares shall be awarded only in shares
of Common Stock.
6.2 Awards of Restricted Shares.
(a) Each award of Restricted Shares shall be evidenced by a written
agreement which shall contain such terms and conditions consistent with
the Program as shall from time to time be determined by the Committee,
in its sole discretion, and to the following terms and conditions:
(i) none of the Restricted Shares may be sold, assigned,
transferred, pledged or otherwise encumbered, except as otherwise
specifically provided, during the Restriction Period;
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(ii) all of the Restricted Shares shall be forfeited and shall be
returned to the Company and all rights of the Employee to such
Restricted Shares shall terminate without any payment of
consideration by the Company if the Employee fails to remain in the
continuous employment of the Company or a Participating Subsidiary
for such period as the Committee shall designate in accordance with
Section 6.4, unless the employment is terminated by reason of
death, Total Disability, or Retirement; and
(iii) if so provided in the terms of the award agreement, the
Restricted Shares, in whole or in part, shall be forfeited and
shall be returned to the Company and all rights of the Employee to
such Restricted Shares shall terminate without any payment of
consideration by the Company if performance goals or other factors
specified in the terms of the award agreement are not attained.
(b) With respect to any Covered Employee, the Committee, in its sole
discretion, may determine that such Restricted Shares will vest only
upon the achievement of specific performance goals that are established
by the Committee. If the award agreement requires performance goals,
the performance goals must:
(i) be in writing;
(ii) be established not later than 90 days after the commencement
of the period of service to which the performance goal relates,
provided that the outcome is substantially uncertain at the time
the goal is established. Regardless of when the goal is
established, it will not be considered to be substantially
uncertain or "preestablished" if it is established after 25 percent
of the period of service has elapsed;
(iii) include, in terms of an objective formula or standard, the
method for computing the amount of compensation payable to the
Covered Employee if the goal is reached.
Further, the Committee must certify in writing that the
performance goals established by the Committee and any other
material terms have been satisfied, before stock certificates are
distributed without restrictions under this Program.
(c) Upon and following the date a certificate for the Restricted
Shares is issued to an Employee (except following a forfeiture of the
Restricted Shares as set forth above in this Section 6.2), the Employee
shall have all of the rights of a shareholder including but not limited
to the right to receive all dividends paid on such shares (reduced by
any amounts the Company may be required to withhold for taxes) and the
right to vote such shares. Any securities or other property (excluding
cash in payment of normal dividends) that may be distributed with
respect to the Restricted Shares shall be received and held by the
Employee subject to the same restrictions as the Restricted Shares.
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6.3 Certificates for Shares.
(a) As soon as practicable after the receipt by the Company of an
award agreement executed by the Employee as provided in Section 6.2 and
of a stock power endorsed by the Employee in blank with respect to the
Restricted Shares covered by the award agreement, unless a later date
for issuance of stock certificates is provided in the award agreement,
the Company, in its sole discretion, upon the Employee's written
request, may cause to be issued a stock certificate, registered in the
name of the Employee, evidencing the Restricted Shares awarded by the
agreement. Each such certificate shall bear a legend substantially in
the following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the restrictions,
terms and conditions (including forfeiture and restrictions
against transfer) contained in the Management Incentive
Program of Cyprus Amax Minerals Company and an Agreement
entered into between the registered owner of such shares and
Cyprus Amax Minerals Company or one of its Participating
Subsidiaries. A copy of the Program and Agreement is on file
in the office of the Secretary of Cyprus Amax Minerals
Company, 9100 East Mineral Circle, Englewood, Colorado."
Such legend shall not be removed from any stock certificate
evidencing such Restricted Shares until the lapse or release of the
restrictions imposed pursuant to Section 6.2(a) on such Restricted
Shares.
(b) As an alternative to delivering any stock certificate to the
Employee pursuant to Section 6.3(a) above, the Company in its sole
discretion may cause each certificate in respect of Restricted Shares
awarded hereunder, together with a stock power relating to such
Restricted Shares, to be deposited by the Company with a custodian
(which may be the Company) to be designated by the Company. In such
event, the Company shall cause such custodian to issue to the Employee
a receipt evidencing any stock certificate held by it registered in the
name of such Employee. Notwithstanding the provisions of Subsection (a)
or this Subsection, the Company may adopt such other procedure that it,
in its sole discretion, deems appropriate to evidence the right of the
Employee to Restricted Shares.
(c) The Employee shall not be deemed for any purpose to be, or have
any rights as, a shareholder of the Company with respect to any
Restricted Shares awarded except if, as and when a stock certificate is
issued therefor and then only from the date such certificate is issued.
No adjustment shall be made for dividends or distributions or other
rights for which the record date is prior to the date such stock
certificate is issued.
(d) As soon as practicable after the lapse or release of the
restrictions imposed pursuant to Section 6.2(a) on any such Restricted
Shares, the Company shall cause to be issued in the Employee's name a
stock certificate evidencing the Restricted Shares
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with respect to which the restrictions have lapsed or been released,
free of the legend provided in Section 6.3(a), and shall cause such
stock certificate to be delivered to the Employee, upon surrender to
the Company of the previously issued certificate(s) representing the
same Restricted Shares.
6.4 Restriction Period.
The restrictions set forth in Section 6.2(a)(i) shall lapse only when
the restrictions set forth in Section 6.2(a)(ii) shall lapse and the
restrictions, if any, established pursuant to Section 6.2(a)(iii) shall
lapse. Subject to Section 6.5, the restrictions set forth in Section
6.2(a)(ii) shall lapse:
(i) after one year from the date of award with respect to not in
excess of 25% of the Restricted Shares comprising an award to an
employee,
(ii) after two years with respect to not in excess of 50% of such
Restricted Shares,
(iii) after three years with respect to not in excess of 75% of
such Restricted Shares, and
(iv) as to all Restricted Shares comprising an award to an
Employee no sooner than four years, as the Committee shall
determine in the case of each award.
The restrictions, if any, established pursuant to Section 6.2(a)(iii)
shall lapse at the time specified in the terms of the award agreement.
6.5 Lapse of Restrictions.
(a) In the event that the employment of an Employee is terminated
prior to the lapse of restrictions on Restricted Shares by reason of
death, Total Disability, or Retirement, the restrictions on all
Restricted Shares awarded to such Employee shall lapse on the date of
such termination, except as may otherwise be provided in the terms of
the award agreement.
(b) The Committee shall have the authority to accelerate the time at
which the restrictions will lapse or to remove any of such restrictions
whenever it may decide, in its sole discretion, that, by reason of
changes in applicable law or other material changes in circumstances
arising after the date of the award, such action is in the best
interests of the Company and equitable to the Employee. The Committee,
in its sole discretion and subject to such terms and conditions as the
Committee may determine, may include in any award of Restricted Shares,
and may amend any outstanding award to cause it to include, a right of
the Employee upon termination of employment, other than by reason of
death, Total Disability, or Retirement to receive cash equal to the
Fair Market Value Per Share of such Restricted Shares on the date of
such termination.
(c) Notwithstanding any other provision of the Program to the
contrary, in the event of a Change of Control, the restrictions
applicable to any Restricted Shares shall lapse and
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such Restricted shares shall become free of all restrictions and fully
vested to the full extent of the original grant.
7. ADJUSTMENTS FOR COMPANY CHANGES
7.1 Rights and Powers Reserved.
The existence of any outstanding option shall not affect in any way
the right or power of the Company or its shareholders to make or
authorize any or all adjustments, recapitalization, reorganizations or
other changes in the Company's capital structure or its business, any
merger or consolidation of the Company, any issue or sale of bonds,
debentures, preferred or prior preference stock ahead of or affecting
the common stock of the Company, any sale or transfer of all or any
part of the assets or business of the Company, the liquidation or
dissolution of the Company or any other corporate act or proceeding,
whether of a similar character or otherwise. Except as expressly
provided in this Program, the issue or sale by the Company of shares of
stock of any class, or securities convertible into shares of stock of
any class, for cash, property, labor or services, either upon direct
sale or the exercise of rights or warrants to subscribe therefor or
upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number
or price of shares of Common Stock then subject to any outstanding
option.
7.2 Changes in Capitalization.
In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, shares of Common
Stock, other securities, or other property), recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase, or exchange of shares of
Common Stock or other securities of the Company, issuance of warrants
or other rights to purchase shares of Common Stock or other securities
of the Company, or other similar corporate transaction or event affects
the shares of common stock such that an adjustment is determined by the
Committee to be appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available
under this Program, then the Committee shall, in such manner as it may
deem equitable, adjust any or all of (i) the number and type of shares
of common stock (or other securities or property) which thereafter may
be made the subject of awards, (ii) the number and type of shares of
common stock (or other securities or property) subject to outstanding
grants and awards, and (iii) the grant, purchase, or exercise price
with respect to any grant or award, or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding grant or
award, and (iv) the aggregate number of shares which may be issued as
incentive stock options pursuant to Section 5.1(a); provided, however,
in each case, that with respect to grants of incentive stock options
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no such adjustment shall be authorized to the extent that such
authority would cause this Program to violate Section 422(b)(1) of the
Code or any successor provision thereto; and provided further, however,
that the number of shares subject to any grant or award denominated in
shares shall always be a whole number.
8. RELATIONSHIP OF PROGRAM TO BENEFIT PLANS
Unless otherwise determined by the Committee, no income of an Employee
attributable to this Program shall be included in the Employee's earnings for
purposes of any benefit plan in which the Employee may be eligible to
participate or any termination or severance pay of the Company or any
subsidiary or parent corporation of the Company nor affect any benefits under
any other benefit plan now or hereafter in effect under which the availability
or amount of benefits is related to the level of compensation.
9. EFFECT OF PROGRAM ON RIGHT TO CONTINUED EMPLOYMENT AND INTEREST IN
PARTICULAR PROPERTY
Neither the existence of this Program nor any grant of an option or award of
Restricted Shares pursuant to it shall create any right to continued
employment of any Employee or any other employee by the Company or any
subsidiary, nor shall there be a limitation in any way on the right of the
Company or any subsidiary of the Company by which an Employee is employed to
terminate such Employee's employment at any time. No person shall have, under
any circumstances, any interest whatsoever, vested or contingent, in any
particular property or asset of the Company or of any Participating Subsidiary
or in any particular share or shares of the Company that may be held either by
the Company or by any Participating Subsidiary (other than Restricted Shares
held by a custodian) by virtue of any grant of an option or award of
Restricted Shares.
This Program shall not be deemed a substitute for, and shall not preclude
the establishment or continuation of any other plan, practice, or arrangement
that may now or hereafter be provided for the payment of compensation, special
awards or employee benefits to employees generally, or to any class or group
of employees, such as and without limitation, any savings, thrift, profit-
sharing, pension, retirement, excess benefit, group insurance, health care or
other welfare plans. Any such arrangements may be authorized by the Board and
any payment thereunder made independently of this Program.
10. ADMINISTRATION
10.1 Committee Authority.
(a) The Committee shall have full authority to act under this Program
insofar as it relates to grants and awards of options, Stock
Appreciation Rights and Restricted Shares. The terms of grants and
awards need not be uniform.
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(b) The Committee is authorized to interpret and administer this
Program, and to establish general criteria and precedents for the terms
and conditions upon which awards shall be made and options granted. The
Committee shall have the authority to adopt, alter and repeal
administrative rules, guidelines and practices governing this Program
as it, from time to time, deems advisable; to interpret the terms and
provisions of this Program and any grant or award issued under this
Program (and any related agreement); and to otherwise supervise the
administration of this Program. The Committee may correct any defect,
supply any omission, conform the Program to any change in law or
regulation, or reconcile any inconsistency or ambiguity in this Program
or in any grant or award issued in the manner and to the extent it
shall deem necessary to carry this Program into effect.
(c) Notwithstanding any provision in this Program to the contrary,
the Committee may, in its sole discretion, extend the post-termination
exercise period, accelerate vesting, and waive any required period of
employment for any option, award or right granted or to be granted to
any Employee, and may amend the Program and/or the option agreement or
award agreement consistent herewith.
(d) The Committee, in its sole discretion, may at any time amend the
terms of any outstanding grant or award made prior to the Approval
Date, or the terms of any outstanding grant or award which may be made
thereafter, in any manner such that the terms of such grant or award as
so amended are not inconsistent with the provisions of this Program,
provided that no such amendment which may adversely affect the Employee
holding such grant or award shall become effective without the written
consent of such Employee.
(e) The Committee may delegate any or all of its administrative
responsibilities under the Program to one or more officers or employees
of the Company; provided however, that the Committee may not delegate
its responsibilities with respect to Covered Employees or to Employees
who are subject to Section 16. To the extent of any such delegation,
the delegate shall have the duties, powers, authority and discretion of
the Committee.
10.2 Finality of Determinations.
Any decision, interpretation, or other action made or taken in good
faith by the Board or the Committee within their respective areas of
authority under the provisions of this Program shall be final, binding
and conclusive on the Company, Participating Subsidiaries and all
Employees, and their respective heirs, executors, administrators,
successors and assigns.
11. AMENDMENT AND DISCONTINUANCE
11.1 Incentive Stock Options.
Subject to the limitations contained in Section 11.2, the Committee
may, without further action by the shareholders and without further
consideration to the Company,
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amend this Program so that options theretofore or thereafter granted
under this Program shall meet the requirements of any provision of the
Code applicable to incentive stock options, including without
limitation, requirements arising as a result of amendments to the Code
that become effective after adoption of this Program.
11.2 Other Amendments.
The Board may, from time to time, amend this Program, or any
provisions thereof, except that, without shareholder approval, the
Board may not amend the following:
(a) The maximum limitations with respect to the number of grants and
awards which may be made as incentive stock options and as Restricted
Shares shall not be amended. The aggregate number of shares which may
be issued under incentive stock options shall not be amended. The total
number of options granted plus Restricted Shares awarded to any Covered
Employee shall not be amended.
(b) The minimum price per share at which options granted as incentive
stock options may be exercised shall not be reduced below 100% of the
Fair Market Value Per Share of such shares on the date the option is
granted.
(c) The authority of the Committee may not be reduced.
(d) No option granted or Restricted Shares awarded to any Employee
before any amendment shall be adversely affected by such amendment
without such Employee's consent.
(e) This Section 11.2 may not be amended.
11.3 Discontinuance.
The Board may suspend or discontinue the Program, in whole or in
part, at any time, but any such suspension or discontinuance shall not
affect options granted or Restricted Shares awarded prior thereto.
12. GENERAL PROVISIONS
12.1 Certificates.
No certificate for shares of Common Stock distributable pursuant to
the Program shall be issued and delivered unless the issuance of such
certificates complies with all applicable legal requirements including,
without limitation, compliance with the provisions of the Securities
Act, the Exchange Act, and the requirements of the exchanges on which
the Common Stock may, at the time, be listed.
12.2 Severability.
If any provision of this Program or any grant or award is or becomes
invalid, illegal, or unenforceable in any jurisdiction, or as to any
person, or would disqualify this Program or any grant or award under
any law or regulation deemed applicable by the
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Committee (including regulations under Section 16), such provision
shall be construed or deemed amended to conform to applicable laws and
regulations, or if it cannot be so construed or deemed amended without,
in the determination of the Committee, materially altering the intent
of this Program or the grant or award, such provision shall be stricken
as to such jurisdiction or person and the remainder of this Program or
the grant or award shall remain in full force and effect.
12.3 Compliance with Foreign Law.
The Committee shall have the authority to adopt such modifications,
procedures, and subplans as may be necessary or desirable to comply
with provisions of foreign countries in which the Company may operate
to assure the viability of the benefits of awards and grants made to
Employees employed in such countries and to meet the intent of this
Program.
12.4 Liability.
No member of the Board or the Committee nor any employee of the
Company or any subsidiary or parent corporation of the Company shall be
liable for any act or action hereunder, whether of omission or
commission, by any other member or employee or by any agent to whom
duties in connection with the administration of this Program have been
delegated or, except in circumstances involving bad faith, gross
negligence or fraud, for anything done or omitted to be done by
himself.
12.5 Withholding of Taxes.
The Company, in its sole discretion, shall have the right either (a)
to reduce the number of shares of Common Stock otherwise deliverable
pursuant to this Program by an amount which would have a Fair Market
Value Per Share equal to the "Taxable Amount" or (b) to delay the
transfer of all shares of common stock otherwise deliverable pursuant
to the Program until the Employee has transferred to the Company a cash
payment equivalent to the "Taxable Amount." For purposes of this
Section, "Taxable Amount" means the amount of all Federal, state or
local taxes to be withheld, based upon the tax rates then in effect or
the tax rates that the Company reasonably believes will be in effect
for the applicable tax year or to deduct the amount of such taxes from
any cash payment to be made to an Employee, pursuant to this Program or
otherwise. In connection with such withholding, the Committee may make
such arrangements as are consistent with the Program as it may deem
appropriate.
12.6 Unfunded Status of Program.
This Program is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any payment not
yet made to an Employee by the Company, nothing contained herein shall
give any such Employee any rights that are greater than those of a
general creditor of the Company.
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12.7 Governing Law.
This Program and actions taken in connection herewith shall be
governed and construed, to the extent not superseded by applicable
federal law, in accordance with the laws of the State of Colorado.
12.8 Construction.
Wherever any words are used in this Program in the masculine gender
they shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though
they were also used in the plural form in all cases where they would so
apply.
12.9 Costs.
The Company shall bear all expenses incurred in administering this
Program, including expenses of issuing Common Stock pursuant to any
grants or awards hereunder.
12.10 Successors.
This Program shall be binding upon and inure to the benefit of any
successor or successors of the Company.
12.11 Headings.
Article and section headings contained in this Program are included
for convenience only and are not to be used in construing or
interpreting this Program.
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Effective March 9,1998, Section 5.9 of the Management Incentive Program of
Cyprus Amax Minerals Company is amended and restated in its entirety to read as
follows:
"5.9 Termination of Employment.
(a) Termination. If an Employee to whom an option is granted ceases to
be employed either by the Company or by a Participating Subsidiary for
a reason other than Retirement, death or Total Disability before the
option has been exercised in full, then the option (or the unexercised
portion thereof) shall expire at the time specified in the stock
option agreement (which shall be, in any event, no later than the
expiration date of the option).
(b) Retirement. If upon Retirement, the Employee has completed the
required period of employment as provided in Section 5.7, the option
shall be exercisable by the Employee for the period specified in the
stock option agreement (but in no event later than the expiration date
of the option).
(c) Change of Control. Notwithstanding the foregoing, except with
respect to incentive stock options granted prior to January 22, 1990,
if an Employee ceases to be employed by the Company or a Participating
Subsidiary at or after a Change of Control, other than by reason of
death, Retirement or Total Disability, any option held by such
Employee shall be exercisable for the period specified in the option
agreement (but in no event later than the expiration date of the
option).
(d) Total Disability. If an Employee to whom an option is granted
ceases to be employed by the Company or by a Participating Subsidiary
on account of Total Disability before the option has been exercised in
full, then the option (or the unexercised portion thereof) shall be
exercisable for the period specified in the option agreement (but in
no event later than the expiration date of the option).
(e) Death. If an Employee to whom an option is granted ceases to be
employed by the Company or by a Participating Subsidiary on account of
such Employee's death and such death occurs before the option has been
exercised in full, then the option (or the unexercised portion
thereof) shall be exercisable for the period specified in the option
agreement (but in no event later than the expiration date of the
option).
(f) Transferred Employees. Effective August 25, 1994, Amax Gold Inc.
shall be treated as a Participating Subsidiary for purposes of
applying the provisions of this Section 5.9. With respect to options
granted prior to August 25, 1994, an Employee who transfers from the
Company to Amax Gold Inc. will have the ability to elect either
<PAGE>
(i) to retain all vested and unvested options under the terms of
the Program as in effect on such date of transfer, without treating
Amax Gold Inc. as a Participating Subsidiary, in which case any
incentive stock options granted shall expire on the ninetieth (90th)
day following such Employee's transfer to Amax Gold Inc., or
(ii) to have non-statutory options substituted for the original
incentive stock options to remain outstanding for the original terms
of the grant provided the Employee remains employed by Amax Gold Inc."
<PAGE>
EXHIBIT 11
CYPRUS AMAX MINERALS COMPANY
Computation of Per Share Earnings
(In millions except per share data)
1997 1996 1995
------ ----- -----
Net Income............................................. $ 69 $ 77 $ 124
Preferred Stock Dividends.............................. (19) (19) (19)
----- ----- -----
Income Applicable to Common Shares..................... $ 50 $ 58 $ 105
===== ===== =====
Primary:
Average Common Shares Outstanding.................... 93.5 93.2 92.9
Diluted:
Average Common Shares Outstanding.................... 93.5 93.2 92.9
Common Stock Equivalents--Options.................... - .1 .2
Conversion of Series A Preferred Stock............... 9.6 9.6 9.6
----- ----- -----
Diluted Average Common Shares Outstanding......... 103.1 102.9 102.7
===== ===== =====
Earnings Per Share:
Using Average Common Shares Outstanding.............. $0.54 $ 0.62 $ 1.13
Using Diluted Average Common Shares Outstanding/(1)/. $0.67 $ 0.75 $ 1.21
/(1) /Diluted earnings per share were anti-dilutive in 1997, 1996, and 1995.
<PAGE>
Exhibit 13
REPORT OF MANAGEMENT
The management of Cyprus Amax Minerals Company is responsible for the integrity
and objectivity of the financial statements and other financial information
contained in this Annual Report. The financial statements were prepared in
accordance with generally accepted accounting principles and include estimates
that are based on management's best judgment.
Cyprus Amax maintains an internal control system which includes formal policies
and procedures designed to provide reasonable assurance that assets are
safeguarded and transactions are properly recorded and executed in accordance
with management's authorization. Cyprus Amax's internal audit function audits
compliance with the internal control system and issues reports to Cyprus Amax's
management and the Audit Committee of the Board of Directors.
Cyprus Amax's financial statements have been audited by Price Waterhouse LLP,
whose appointment is ratified yearly by the shareholders at the annual
shareholders' meeting. Price Waterhouse LLP conducted their audit in accordance
with generally accepted auditing standards. These standards include an
evaluation of internal accounting controls in establishing the scope of audit
testing necessary to allow them to render an independent professional opinion on
the fairness of Cyprus Amax's financial statements.
The Audit Committee of the Board of Directors, composed solely of directors who
are not Cyprus Amax employees, meets periodically with representatives of
management and Price Waterhouse LLP to review their work and ensure that they
are properly discharging their responsibilities.
/s/ Milton H. Ward
Milton H. Ward
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ Gerald J. Malys
Gerald J. Malys
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/John Taraba
John Taraba
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Cyprus Amax Minerals Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity, and of cash
flows present fairly, in all material respects, the financial position of Cyprus
Amax Minerals Company and its subsidiaries at December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Denver, Colorado
February 11, 1998
<PAGE>
<TABLE>
<CAPTION>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In millions except as noted and per share data)
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
REVENUE $3,346 $2,843 $3,207 $2,788 $1,763 $1,641 $1,657 $1,866 $1,790 $1,327
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
COSTS AND EXPENSES
Cost of Sales 2,257 2,074 2,108 2,071 1,333 1,286 1,323 1,423 1,241 921
Selling and
Administrative Expenses 128 128 143 111 70 77 97 81 103 92
Depreciation, Depletion,
and Amortization 444 339 296 253 145 128 119 118 94 64
Write-Downs and Special
Charges 241 116 445 10 - 410 35 82 4 9
Merger and Reorganization
Expenses - - - 13 33 29 - - - -
Exploration Expense 43 34 33 23 25 19 21 14 15 12
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Costs and Expenses 3,113 2,691 3,025 2,481 1,606 1,949 1,595 1,718 1,457 1,098
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME (LOSS) FROM OPERATIONS 233 152 182 307 157 (308) 62 148 333 229
OTHER INCOME (EXPENSE)
Interest Income 36 28 24 17 7 3 5 8 13 6
Interest Expense (208) (189) (137) (107) (42) (19) (22) (19) (12) (15)
Capitalized Interest 10 83 43 16 1 3 5 - - -
Earnings (Loss) on Equity
Investments and Other (31) 3 8 (12) 7 (8) 4 (13) (7) (2)
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND MINORITY INTEREST 40 77 120 221 130 (329) 54 124 327 218
Income Tax Benefit
(Provision) 22 (11) (3) (55) (31) 83 (11) (13) (92) (49)
Minority Interest 7 11 7 - 1 - - - - 1
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 69 77 124 166 100 (246) 43 111 235 170
Income From Operations of
Discontinued Oil and
Gas Division, Net of
Applicable Taxes of $2 - - - 9 - - - - - -
------ ------- ------ ----- ------ ------ ----- ------ ----- -----
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES/(1)/ 69 77 124 175 100 (246) 43 111 235 170
Cumulative Effect of
Accounting Changes/(2)/ - - - - - (88) - - (70) -
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
NET INCOME (LOSS) 69 77 124 175 100 (334) 43 111 165 170
Preferred Stock Dividends (19) (19) (19) (18) (2) (11) (15) (15) (15) (6)
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
INCOME (LOSS) APPLICABLE TO
COMMON SHARES $ 50 $ 58 $ 105 $ 157 $ 98 $ (345) $ 28 $ 96 $ 150 $ 164
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
. The 1997 results included net after-tax coal charges of $79 million primarily
for the sale and assignment of two coal contracts, mine closure costs,
reclamation adjustments, impairment charges, the favorable settlement of a
royalty issue, and the gain on the sale of a 15 percent equity interest to
Mitsubishi Corporation. Additionally, Cyprus Amax recorded a $19 million
after-tax gain on the sale of Kubaka to Amax Gold, favorable tax adjustments
of $38 million, and an after-tax charge of $5 million for the costs of
redeeming the 9 7/8% Notes.
. The 1996 results included an after-tax charge of $61 million associated with
the Copper/Molybdenum segment primarily for environmental remediation and
costs to temporarily close the Tohono mine. Additionally, Amax Gold wrote
down its Guanaco mine in Chile and recorded an unrelated favorable tax
adjustment, which reduced Cyprus Amax's after-tax earnings by $13 million.
. In 1995 the Company consolidated Amax Gold based on an increased ownership
position. The 1995 results included an after-tax charge of $338 million to
recognize the write-downs of certain coal assets and provisions for
associated liabilities.
. On November 15, 1993, Amax was merged into Cyprus; therefore, the 1994
results included a full year of Amax operations for revenue of $888 million
whereas the 1993 results included Amax for the 47-day period following the
merger. The 1994 results also included after-tax gains of $13 million for
various special items. The merger contributed revenue of $140 million for
1993, and the impact on earnings was immaterial, excluding indirect merger
expenses. The 1993 results also included $104 million revenue and $75 million
after-tax gain from the sale of Cyprus Amax's LTV bankruptcy claims and $25
million after-tax for indirect merger expenses.
<PAGE>
<TABLE>
<CAPTION>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA (CONTINUED)
(In millions except as noted and per share data)
1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Basic Earnings (Loss) Per Common Share
Income (Loss) From Continuing
Operations/(1)/ $ 0.54 $ 0.62 $ 1.13 $ 1.59 $ 1.85 $(6.31) $ 0.72
Income From Operations of
Discontinued Oil
and Gas Division - - - 0.10 - - -
Cumulative Effect of
Accounting Changes/(2)/ - - - - - (2.15) -
------ ------ ------ ------ ------ ------ ------
NET INCOME (LOSS) $ 0.54 $ 0.62 $ 1.13 $ 1.69 $ 1.85 $(8.46) $ 0.72
====== ====== ====== ====== ====== ====== ======
Cash Dividends Per Common Share $ 0.80 $ 0.80 $ 0.80 $ 0.90 $ 0.80 $ 0.85 $ 0.80
CONSOLIDATED BALANCE SHEET DATA
Cash and Cash Equivalents $ 250 $ 193 $ 191 $ 139 $ 96 $ 116 $ 98
Working Capital $ 297 $ 304 $ 292 $ 423 $ 41 $ 336 $ 299
Total Assets $6,459 $6,786 $6,196 $5,407 $5,618 $1,709 $1,984
Long-Term Debt $2,089 $2,415 $1,734 $1,191 $1,278 $ 232 $ 239
Capital Lease
Obligations $ 113 $ 139 $ 143 $ 200 $ 69 $ - $ -
Shareholders' Equity $2,330 $2,360 $2,365 $2,329 $2,217 $ 923 $1,290
OTHER FINANCIAL DATA
Book Value Per Common
Share $22.99 $23.43 $23.62 $23.39 $22.49 $21.22 $30.23
Long-Term Debt/Total
Capitalization 48.6% 52.0% 44.2% 37.4% 37.8% 20.1% 15.6%
Current Ratio 1.4:1 1.4:1 1.4:1 1.7:1 1.0:1 2.2:1 2.0:1
Cash Provided by
Operating Activities $ 481 $ 440 $ 675 $ 110 $ 74 $ 143 $ 285
STOCK PRICE - COMMON
STOCK/(3)/
High $ 26 13/16 $ 29 1/8 $ 32 1/8 $ 33 1/8 $ 36 3/8 $ 32 $ 25 3/8
Low $ 14 7/16 $ 19 7/8 $ 24 1/4 $ 23 7/8 $ 21 1/4 $ 18 1/2 $ 17 1/2
<CAPTION>
1990 1989 1988
---- ---- ----
<S> <C> <C> <C>
PER SHARE DATA
Basic Earnings (Loss) Per Common Share
Income (Loss) From Continuing
Operations/(1)/ $ 2.38 $ 5.67 $ 4.21
Income From Operations of
Discontinued Oil
and Gas Division - - -
Cumulative Effect of
Accounting Changes/(2)/ - (1.80) -
------ ------ ------
NET INCOME (LOSS) $ 2.38 $ 3.87 $ 4.21
====== ====== ======
Cash Dividends Per Common Share $ 0.80 $ 0.73 $ 0.20
CONSOLIDATED BALANCE SHEET DATA
Cash and Cash Equivalents $ 39 $ 44 $ 163
Working Capital $ 336 $ 251 $ 343
Total Assets $1,919 $1,841 $1,651
Long-Term Debt $ 246 $ 108 $ 120
Capital Lease
Obligations $ - $ - $ -
Shareholders' Equity $1,284 $1,294 $1,204
OTHER FINANCIAL DATA
Book Value Per Common
Share $30.33 $28.69 $25.62
Long-Term Debt/Total
Capitalization 16.1% 7.7% 9.1%
Current Ratio 2.5:1 2.0:1 2.6:1
Cash Provided by
Operating Activities $ 199 $ 304 $ 271
STOCK PRICE - COMMON
STOCK/(3)/
High $ 28 1/2 $ 33 $ 24
Low $ 13 7/8 $ 21 3/8 $ 13 1/8
</TABLE>
/(1)/ Financial information reflects net after-tax charges of $79 million for
coal write-downs, favorable tax adjustments of $38 million, an after-tax
gain of $19 million on the sale of Kubaka to Amax Gold, and an after-tax
charge of $5 million for the costs of redeeming the 9 7/8% Notes in 1997;
an after-tax charge of $74 million for environmental remediation
liabilities, costs to temporarily close a copper mine, the write-down of
the net assets of the Guanaco gold mine, and an unrelated favorable tax
adjustment for Amax Gold in 1996; an after-tax charge of $338 million for
the write-down of certain coal assets and provision for associated
liabilities in 1995; an after-tax gain of $13 million for various special
items in 1994; an after-tax charge for 1993 indirect merger costs of $25
million; an after-tax gain of $75 million in 1993 for the sale of LTV
bankruptcy claims; and write-downs and other provisions of $338 million in
1992, $32 million in 1991, and $63 million in 1990.
/(2)/ In 1992 Cyprus adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." Cumulative effect
adjustments are presented net of tax. Also in 1992 the Company adopted
SFAS No. 109, "Accounting for Income Taxes." In 1990 Cyprus adopted SFAS
No. 96, "Accounting for Income Taxes," retroactive to January 1, 1989. In
adopting SFAS No. 96, Cyprus Amax recorded a cumulative $70 million charge
for periods prior to January 1, 1989.
/(3)/ Stock prices prior to June 1989 have been restated to reflect a stock
split.
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1997
Cyprus Amax earned $69 million in 1997, or 54 cents per share, compared with
1996 earnings of $77 million, or 62 cents per share, and 1995 earnings of $124
million, or $1.13 per share. The 1997 results included net after-tax coal
charges of $79 million, favorable tax adjustments of $38 million, an after-tax
gain of $19 million on the sale of Kubaka to Amax Gold, and an after-tax charge
of $5 million for the costs of redeeming the 9 7/8% Notes. The 1996 results
included an after-tax charge of $61 million primarily for environmental
remediation at the Miami, Arizona, operation and costs to temporarily close the
Tohono mine in Arizona. In addition, Amax Gold wrote down its Guanaco mine and
recorded an unrelated favorable tax adjustment that together reduced Cyprus
Amax's after-tax earnings by $13 million in 1996. The 1995 results included an
after-tax charge of $338 million to recognize the write-downs of certain coal
assets and provisions for associated liabilities.
Excluding the write-downs and special items, the 1997 earnings were $96 million,
or 83 cents per share, compared with 1996 earnings of $151 million, or $1.42 per
share, and 1995 earnings of $462 million, or $4.77 per share.
<TABLE>
<CAPTION>
SELECTED RESULTS (In millions except per share data)
1997 1996 1995
--------- ------- -------
<S> <C> <C> <C>
Revenue $3,346 $2,843 $3,207
Net Income $ 69 $ 77 $ 124
Earnings per Share $0.54 $0.62 $ 1.13
NOTE: SUPPLEMENTAL DATA (In millions)
1997 1996 1995
------ ------ ------
Special Items, Net of Tax $ (27) $ (74) $ (338)
Net Income Excluding Special Items $ 96 $ 151 $ 462
</TABLE>
<PAGE>
The decrease in earnings in 1997, excluding write-downs and special items, was
primarily due to $84 million higher net interest expense resulting from less
interest being capitalized on development projects that were completed in the
first half of 1997, 16 cents per ton lower coal profit margins, and $9 million
lower lithium earnings primarily due to lower carbonate prices. Partially
offsetting were an increase of 286 million pounds of produced copper sold, 25
cents per pound higher average molybdenum realizations, and 3 cents per pound
lower copper cost of sales. Additionally, Amax Gold earnings improved by $6
million due to cash costs dropping by $57 per ounce to $198 per ounce and sales
increasing by 458,000 ounces to 721,000 ounces, partially offset by realized
prices decreasing by $52 per ounce to $360 per ounce. The decrease in earnings
in 1996 from 1995 results, excluding write-downs and special items, reflected 29
cents per pound lower copper realizations, $2.28 per pound lower molybdenum
realizations, and 56 cents per ton lower coal realizations.
The 1997 revenue of $3,346 million was 18 percent higher than 1996 revenue of
$2,843 million because of $137 million of gains recorded on the settlements of
certain coal contracts and higher produced copper, coal, and gold sales,
partially offset by lower coal and gold realizations. Revenue in 1996 was 11
percent lower than 1995 revenue of $3,207 million primarily because of lower
copper and molybdenum realizations.
SEGMENT RESULTS
Segment operating earnings is earnings before corporate overhead, interest,
equity and other, income taxes, and minority interest. This discussion should
be read in conjunction with the Consolidated Financial Statements on pages 29 to
32, the information on write-downs and special charges in Note 4 and industry
segments in Note 18 to the Consolidated Financial Statements, and the
supplemental information on mineral reserves and selected operating statistics.
<PAGE>
Following is a summary of the operating earnings by segment with special items
and write-downs included and excluded. Special items on a consolidated basis
are presented net of tax benefit or provision and are not necessarily infrequent
or unusual in the mining industry. Detail of each segment's results are
explained in the individual segment sections.
<TABLE>
<CAPTION>
SUMMARY RESULTS (In millions)
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Segment Operating Earnings (Loss)
Copper/Molybdenum $ 314 $ 151 $ 584
Coal (15) 90 (308)
Other 2 (32) (37)
------ ------ ------
Total Segment Operating Earnings $ 301 $ 209 $ 239
<CAPTION> ====== ====== ======
NOTE: SUPPLEMENTAL DATA (In millions)
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Segment Operating Earnings (Loss) Excluding Special Items:
Copper/Molybdenum $ 314 $ 231 $ 584
Coal 71 90 137
Other (17) 4 (37)
------ ------ ------
Total Segment Operating Earnings $ 368 $ 325 $ 684
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
COPPER/MOLYBDENUM
SELECTED COPPER/MOLYBDENUM DATA (In millions)
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Revenue $1,564 $1,331 $1,720
Segment Operating Earnings $ 314 $ 151 $ 584
Total Copper Production, Lbs. 1,018 768 687
Total Copper Sales, Lbs. 1,143 893 828
Produced Copper Sales, Lbs. 1,030 744 723
Total Molybdenum Production, Lbs. 63 56 75
Total Molybdenum Sales, Lbs. 61 63 68
Average Copper Realization, $/Lb. $ 1.04 $ 1.04 $ 1.33
Copper Cost of Sales, $/Lb. $ 0.78 $ 0.81 $ 0.71
Copper Net Cash Costs, $/Lb. $ 0.62 $ 0.71 $ 0.57
Copper Full Mine Costs, $/Lb. $ 0.75 $ 0.80 $ 0.66
Average Molybdenum Realization, $/Lb. $ 5.50 $ 5.25 $ 7.53
</TABLE>
<PAGE>
Copper/Molybdenum reported segment earnings of $314 million for 1997 compared
with $151 million in 1996. The 1996 results included an $80 million pre-tax
charge primarily for environmental remediation activities at its Miami, Arizona,
copper mine for long-term clean-up efforts at Pinal Creek. The charge also
included costs to temporarily suspend operations at the Tohono mine near Casa
Grande, Arizona, and certain other minor adjustments in the primary molybdenum
business. The Copper/Molybdenum segment earnings in 1997 were $83 million higher
than in 1996, excluding the special items. The increase was attributed to an
increase of 286 million pounds of produced copper sold, 25 cents per pound
higher average molybdenum realizations, and 3 cents per pound lower copper cost
of sales.
<TABLE>
<CAPTION>
NOTE: SUPPLEMENTAL DATA (In millions)
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Special Items $ -- $ (80) $ --
Segment Operating Earnings Excluding Special Items $ 314 $ 231 $ 584
</TABLE>
Copper realizations in 1997 averaged $1.04 per pound for the year, which were
comparable to 1996. Cyprus Amax has price protection programs in place that
will ensure a minimum net average realization on an LME basis at December 31,
1997, of 89 cents per pound on 45 percent of total production for 1998. In 1996
Cyprus Amax sold a portion of its 1997 copper price protection contracts, of
which 110 million pounds related to the third and fourth quarters of 1997,
resulting in $13 million recorded as income in 1997, net of the respective cost
amortization. In the fourth quarter of 1997, Cyprus Amax sold 34 million pounds
of 1998 copper price protection contracts generating $5 million of proceeds,
which will increase copper realizations and income during the periods to which
the original contracts were applicable. As of February 19, 1998, Cyprus Amax
sold an additional 12 million pounds of 1998 copper price protection contracts
generating $2 million of proceeds. Cyprus Amax periodically may elect to buy or
sell copper price protection contracts to mitigate the risk of metal price
declines on a portion of its future copper sales.
For 1997 net cash costs improved 9 cents per pound compared with 1996, primarily
because of lower production costs at Cerro Verde, increased low cost production
from El Abra, and lower costs at the Arizona operations.
<PAGE>
Cost of sales decreased 3 cents per pound from 1996 to 78 cents per pound for
1997 due to increased lower cost South American sales and lower domestic costs.
Copper production totaled 1,018 million pounds for the year, 250 million pounds
more than in 1996 due to a 197 million pound increase in production at El Abra,
a 16 million pound or 15 percent increase in Cerro Verde's production, and a 37
million pound or 6 percent increase from domestic operations. The production for
1997 is a new total production record for Cyprus Amax and also production
records for the Bagdad, Miami, and Cerro Verde mines. Copper rod production of
667 million pounds was also an annual record.
Demand for copper continued to grow for the twelfth consecutive year in 1997;
however, strong demand growth estimated at over three percent was exceeded by
increased supply. The year-end 1997 combined LME and Comex inventories of
461,000 short tons, although moderate, still rose almost 300,000 tons from the
very low year-end 1996 levels. Prices during 1997 dropped from a high of $1.22
per pound in June to a low of 77 cents per pound at year end.
Total Cyprus Amax copper sales in 1997 of 1,143 million pounds were 28 percent
higher than the 1996 sales of 893 million pounds. Produced copper sales of
1,030 million pounds for 1997 were 286 million pounds higher than 1996 produced
sales of 744 million pounds due primarily to the 250 million pound increase in
production.
The Cerro Verde mine in Peru, 82 percent owned by Cyprus Amax, produced 122
million pounds of copper, which is 16 percent above its original expanded annual
design capacity of 105 million annual pounds. During 1997 the Company completed
its exploration drilling and studies of the Cerro Negro copper oxide deposit,
which lies adjacent to the current Cerro Verde leach pad. The estimated
mineable reserve of oxide copper contains more than 70 million tonnes of ore at
a grade of 0.532 percent copper. When in full production, Cerro Negro is
expected to produce 44 million pounds of copper annually. Development of this
project has been deferred until copper prices improve.
The El Abra copper mine in Chile, 51 percent owned by Cyprus Amax, achieved
commercial production on December 1, 1996. During 1997 El Abra worked through
some typical start-up problems with its SX-EW plant and crushers. In December
1997, the El Abra mine announced it had successfully concluded its finance
completion tests. Sociedad Contractual Minera El Abra
<PAGE>
also refinanced its project loans, releasing Cyprus Amax from all but $200
million in loan guarantees. At December 31, 1997, El Abra increased its copper
reserves on a 100 percent basis, by approximately 170 million tons. Also during
1997 Cyprus Amax entered into a joint exploration program with Corporacion
Nacional del Cobre de Chile (Codelco) on Manto Rojo, an adjoining property to El
Abra.
The Tohono mine in Arizona suspended mining operations in July 1997. Copper
will continue to be recovered from leaching of previously mined ore.
Evaluations of the feasibility of mining the significant copper resource at
Tohono are promising, but a decision has not been made to develop the ore body.
Cyprus Amax's marketable copper reserves of approximately 21.8 billion pounds
increased slightly from 21.6 billion pounds in 1996 due to the additional El
Abra and Cerro Verde reserves, partially offset by 1997 production. Molybdenum
reserves of 2.1 billion pounds at December 31, 1997, were comparable to 1996.
In the first quarter of 1997, Cyprus Amax signed an agreement to ultimately
acquire an 80 percent interest in the Kansanshi copper project from Zambia
Consolidated Copper Mines (ZCCM). Cyprus Amax paid $3 million to ZCCM at
closing and incurred $7 million on an extensive exploration drilling program in
1997. Additional exploration totaling $10 million is planned in 1998. A second
phase, depending on the results of this exploration program, calls for a $10
million payment to ZCCM and $15 million for further drilling and a feasibility
study. Upon determination that a mining project is feasible, Cyprus Amax would
make a final payment of $15 million to ZCCM.
In January 1998, Cyprus Amax reached an agreement with the Highlands Pacific
Group to acquire up to 75 percent of its 86 percent interest in the Frieda River
copper and gold exploration project in Papua New Guinea. Cyprus Amax is
committed under the agreement to spend up to $7 million on resource drilling and
further engineering studies in 1998 and, if Cyprus Amax elects to proceed to the
next stage of exploration and development, up to a total of $32 million to
complete the feasibility study.
<PAGE>
Primary molybdenum earned $63 million in 1997 compared with $58 million in 1996,
excluding special items. Molybdenum sales decreased to 61 million pounds from
63 million pounds in 1996. Production increased to 63 million pounds from 56
million pounds. Realizations in 1997 averaged $5.50 per pound compared with
$5.25 per pound in 1996.
During 1997 approximately $18 million was spent on the Henderson 2000 project at
the Henderson primary molybdenum mine in Colorado, or approximately 10 percent
of estimated total construction costs. The project is to replace the 20-year-
old underground and surface rail haulage system with an underground and overland
conveyor system and to develop the lowest level of the mine. This project is
expected to be completed in 2000. During 1997 Cyprus Amax staged a 3 million
pound build up of molybdenum inventories in order to satisfy customer
requirements during the transition from rail to conveyor haulage associated with
the Henderson 2000 project implementation in 1999.
Molybdenum demand in the Western World in 1997 was near the record levels of
1995, primarily reflecting strong stainless steel applications. Chemical
products continue to show demand strength in most areas. Western World demand
in 1997 increased an estimated three percent over 1996, met by increases in
world molybdenum supply.
Changes in worldwide supply and demand and the related market perceptions can
have a major impact on copper and molybdenum prices. Therefore,
Copper/Molybdenum segment earnings can be expected to fluctuate. Each 10 cents
per pound change in the segment's average annual copper realization or
production cost would have resulted in a change in pre-tax income of
approximately $100 million at 1997 production and sales levels. Price
protection in place for 1998 would partially offset the exposure to significant
price decreases. In response to the current copper price environment, the
Copper/Molybdenum division is temporarily curtailing some higher cost domestic
copper production and reducing capital spending to a sustaining level. As a
result, Cyprus Amax expects 1998 copper production of about 950 million pounds
with net cash costs of approximately 60 cents per pound. For molybdenum each
$1.00 per pound change in average annual molybdenum margin would have resulted
in a change in pre-tax income of approximately $60 million at 1997 sales levels.
The impact on profits is delayed about three months on approximately 50 percent
of Cyprus Amax molybdenum production since the profit on by-product production
is recognized when copper inventories are sold.
<PAGE>
<TABLE>
<CAPTION>
COAL
SELECTED COAL DATA (In millions)
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Revenue $1,403 $1,284 $1,298
Segment Operating Earnings (Loss) $ (15) $ 90 $ (308)
Coal Production, Tons
- Consolidated Coal Mines 83.4 76.4 75.2
- Oakbridge (41% Share) 5.0 5.7 5.5
Coal Sales, Tons
- Eastern Mines 29.3 29.1 29.4
- Powder River Basin 40.7 35.6 35.7
- Western Mines 12.0 12.3 12.5
- Springvale 1.5 .9 -
------ ------ ------
Total Sales 83.5 77.9 77.6
- Oakbridge (41% Share) 5.7 6.2 6.1
Average Realization, $/Ton $14.53 $15.69 $16.25
Average Cost of Sales, $/Ton $13.90 $14.90 $14.73
Average Cash Costs, $/Ton $11.91 $13.03 $12.19
Average Unit Costs, $/Ton $14.00 $15.10 $14.34
</TABLE>
Coal reported a segment operating loss of $15 million for the year compared with
operating earnings of $90 million in 1996. The 1997 results included pre-tax
unfavorable adjustments of $86 million. These adjustments included the sale and
assignment of two coal contracts and provisions for mine closure costs and asset
write-downs, which resulted in a net pre-tax gain of $17 million in the first
quarter of 1997; a favorable settlement of a royalty issue for $5 million pre-
tax, a $19 million pre-tax charge for the closure of the Maple Meadow mine, and
a $14 million pre-tax gain on the sale of a 15 percent equity interest in Cyprus
Plateau Mining Corporation to Mitsubishi Corporation in the third quarter of
1997; and pre-tax charges of $36 million and $5 million for the anticipated
closure of the Armstrong Creek and Shoshone mines, respectively, reclamation
adjustments of $7 million at Star Point and Chinook, Statement of Financial
Accounting Standards No. 121 impairment charges at the West Virginia steam coal
properties and Chinook for $34 million and $14 million, respectively, due to
updated mine and business plans that reflect the current views on the domestic
markets for mid- to high-sulfur coal and updated reserve information, and
miscellaneous coal adjustments of $6 million in the
<PAGE>
fourth quarter of 1997. The 1995 results included a $445 million pre-tax charge
for write-downs of certain coal assets and provisions for associated liabilities
for the Wabash and Kentucky operations.
<TABLE>
<CAPTION>
NOTE: SUPPLEMENTAL DATA (In millions)
1997 1996 1995
------ ----- ------
<S> <C> <C> <C>
Special Items $ (86) $ -- $(445)
Segment Operating Earnings Excluding Special Items $ 71 $ 90 $ 137
</TABLE>
Excluding the special items, Coal segment earnings were $71 million in 1997, $19
million lower than in 1996. The decrease in earnings was attributable to lower
earnings in the Powder River Basin due to higher stripping ratios, the
termination of an above market priced contract in late 1996, and an increase in
tons sold on the spot market; higher costs at the Star Point mine reflecting the
winding down of production; lower earnings in Colorado due to more longwall
moves and the Union Pacific Railroad problems affecting shipments; partially
offset by substantially higher earnings in Pennsylvania due to higher production
and productivity and lower costs. During 1997 the Union Pacific Railroad had
problems in supplying adequate locomotive power and crews to ship committed
sales volumes which lowered Coal's annual shipments and negatively affected
Coal's pre-tax earnings by $7 million. The lower operating earnings in 1996 were
due to a year-end 1995 contract expiration and renegotiation at Kentucky
operations, which negatively affected 1996 earnings by $39 million; adverse
weather in the East and Midwest; and poor mining conditions and lower
realizations at the Wabash mine.
Coal production, including Cyprus Amax's 41 percent share of Oakbridge, Ltd., of
88 million tons and sales of 89 million tons in 1997 were 6 million tons and 5
million tons higher than the 1996 period, respectively. Thirteen of Cyprus
Amax's coal mines set annual production records in 1997.
The 1997 average realization was $14.53 per ton and the average cost of sales
was $13.90 per ton. This resulted in a profit margin of 63 cents per ton for
the year and a cash margin of $2.62 per ton. This compares with an average
realization of $15.69 and an average cost of sales of $14.90, yielding a profit
margin of 79 cents per ton and a cash margin of $2.66 per ton for 1996.
<PAGE>
In the first quarter of 1997, Cyprus Amax received $70 million as a result of a
1996 agreement in which Central Illinois Public Service Company discontinued
coal purchases from the Delta mine in Illinois.
Also in the first quarter of 1997, Amax Coal Company, a subsidiary of Cyprus
Amax, entered into an agreement which led to the assignment of a coal supply
agreement for its Wabash mine for an undisclosed amount of cash plus future
payments. This transaction did not have a significant impact on 1997 earnings.
The annual earnings impact of the future cash payments is expected to exceed the
mine's 1996 earnings. Under the coal supply agreement, Wabash was committed to
supply up to 3.6 million tons of coal annually to PSI Energy, Inc. through the
year 2010.
In the third quarter of 1997, Cyprus Amax sold a 15 percent equity interest in
Cyprus Plateau Mining Corporation to subsidiaries of Mitsubishi Corporation.
Cyprus Plateau operates the new Willow Creek and the existing Star Point mines
in Utah. A $14 million pre-tax gain was recorded on the sale. The Willow Creek
mine will replace the existing Star Point mine, which is phasing out its mine
life.
Longwall start-up at the Willow Creek mine is anticipated in the second quarter
of 1998. Approximately $146 million of the mine construction and development
capital was committed through 1997, which was higher than expected due to
geologic conditions that have increased the cost of underground development and
reduced the saleable pre-production coal available as a credit to development
costs. The planned life of the Willow Creek mine is at least 20 years. The mine
will produce low sulfur, low ash, and high BTU bituminous coal, which will be
marketed mainly to power utilities in the United States, Japan, and other
Pacific Rim countries.
Growth in demand for U.S. coal is expected to be strong for at least the next
five years. The domestic electric power sector, accounting for 85 percent of
U.S. demand, is expected to grow at a rate equal to or slightly greater than
real gross domestic product. The U.S. coal market is projected to grow by
approximately three percent in 1998. U.S. coal production is expected to expand
to nearly 1,120 million tons in 1998, according to the Energy Information
Administration. The major factors influencing growth are stronger electricity
use and little or no growth in nuclear, natural gas, and hydroelectric
generation.
<PAGE>
The accelerating deregulation of the electric power generation industry has
presented new opportunities for innovation. During 1997 Cyprus Amax Coal has
implemented alliances with several utilities and formed a business venture
called Millennium Fuel Services, LLC, which will offer a full range of products
and services to electric generators, including fuel supply, logistics services,
contract administration, inventory management, fuel blending, and conversion
optimization.
Approximately 95 percent of Cyprus Amax coal is marketed to electric utilities
with the vast majority of customers in the United States. During 1997 Cyprus
Amax committed to 39 contracts, ranging from one to 11 years, for cumulative
tons of approximately 57 million, with annual tonnage of 17 million in 1998.
More than 96 percent of 1998 domestic production is committed for sale, with
approximately 94 percent to be shipped under contracts with an initial term of
at least one year.
Cyprus Amax coal reserves totaled 2.4 billion tons (including Cyprus Amax's 41
percent share of Oakbridge) at December 31, 1997. Domestic reserves of 1.5
billion tons are developed and assigned to operating mines and comprises
approximately 79 percent compliance coal, 7 percent low sulfur coal, and the
remainder high sulfur coal. The compliance and low sulfur reserves satisfy the
less than 2.5 pound sulfur dioxide Phase I (low sulfur) standard of the Clean
Air Act, and the developed compliance reserves satisfy the less than 1.2 pound
sulfur dioxide Phase II (compliance) standard, which will become effective in
2000. With this large reserve base of compliance and low sulfur coal, in
addition to diverse geographical locations, Cyprus Amax believes that it has the
resources and market access to be a long-term, competitive coal company.
On February 24, 1998, Cyprus Amax signed a letter of intent to sell selected
Appalachian and Midwestern coal properties to AEI Holding Company, Inc. It is
expected to be completed during the second quarter of 1998.
During 1997 Oakbridge's production of 5 million tons (Cyprus Amax's 41 percent
share) was 1 million tons lower than 1996 production. This decrease was
attributable to several of the mines experiencing problematic mining conditions
and labor disruptions at the Baal Bone and Clarence mines. During the fourth
quarter of 1997, the Clarence mine was written down by $13 million due to its
planned closure. Excluding this write-down, Oakbridge, which is reported
<PAGE>
in Earnings (Loss) on Equity Investments and Other, incurred a loss of $20
million in 1997 compared with income of $7 million in 1996. The decrease in
earnings was attributable to the factors mentioned above and weak export coal
selling prices resulting in an 18 percent drop in average realizations.
In May 1997, Ban-Pu, a 6.7 percent shareholder in Oakbridge, advised Cyprus
Amax's Australian coal subsidiary that it intended to exercise an option entered
into in 1994 that required Cyprus Amax to purchase Ban-Pu's shareholding in
Oakbridge. The share purchase, which increased Cyprus Amax's ownership interest
in Oakbridge to 48 percent, was completed in January 1998 for an investment of
approximately $10 million.
<TABLE>
<CAPTION>
OTHER
SELECTED RESULTS (In millions)
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Lithium $ 21 $ 30 $ 28
Amax Gold 6 (36) (14)
Exploration (43) (20) (33)
Businesses Sold/Non-Operating 18 (6) (18)
----- ----- -----
Segment Operating Earnings (Loss) $ 2 $ (32) $ (37)
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
NOTE: SUPPLEMENTAL DATA (In millions)
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Special Items $ 19 $ (36) $ --
===== ===== =====
</TABLE>
Other Minerals, which includes Lithium, Amax Gold, Exploration, and Businesses
Sold/Non-Operating, reported combined operating earnings for the year of $2
million compared with a loss of $32 million in 1996. During the second quarter
of 1997, Cyprus Amax sold the Kubaka mine to Amax Gold and recorded a gain of
$19 million, reflecting the minority interest's share. In the fourth quarter of
1996, Amax Gold wrote down the net asset value of the Guanaco mine in Chile by
$36 million. Other Minerals had a combined loss for 1996 of $32 million
compared with a loss of $37 million in 1995.
<PAGE>
Lithium earned $21 million in 1997, a decrease of $9 million due primarily to
lower carbonate prices. In December 1997, Cyprus Amax announced its intention
to sell its lithium subsidiary in order to focus on its core businesses.
Proceeds from the sale will be used to strengthen Cyprus Amax's financial
position.
Amax Gold reported operating earnings in 1997 of $6 million compared with break-
even earnings in 1996, excluding the above-mentioned write-down. This increase
in earnings resulted from increasing sales by 458,000 ounces to 721,000 ounces,
reducing cash costs by $57 per ounce to $198 per ounce, partially offset by a
decline in realized prices of $52 per ounce to $360 per ounce. Amax Gold's
operating results, excluding the write-down, were break-even for 1996 compared
with a $14 million loss for 1995. The improvement resulted from a 10 percent
increase in sales volumes, slightly higher realizations, and 9 percent lower
unit costs. In the second quarter of 1997, Cyprus Amax increased its ownership
in Amax Gold from 52.5 percent to 58.8 percent when it sold its 50 percent
interest in the Kubaka gold mine in exchange for 15.4 million shares of Amax
Gold Common Stock.
For 1997 Amax Gold produced 730,000 ounces of gold compared with 1996 production
of 268,000 ounces and 1995 production of 238,000 ounces. Amax Gold's average
realized price was $360 per ounce in 1997, $412 per ounce in 1996, and $406 per
ounce in 1995. These realized prices compare with average spot gold prices of
$331 per ounce in 1997, $388 per ounce in 1996, and $384 per ounce in 1995. Amax
Gold's average realized price exceeded the average spot price in each year due
to the positive impact of hedging activities. Amax Gold's average cash operating
costs were reduced to $198 per ounce in 1997 from $255 per ounce in 1996 and
$313 per ounce in 1995. For 1998 Amax Gold expects gold production to be more
than 750,000 ounces with cash costs averaging slightly below $200 per ounce.
Construction of the Fort Knox mine near Fairbanks, Alaska, was essentially
completed in early 1997, and commercial production was achieved March 1, 1997.
The mine has outperformed original expectations due to higher mill throughput,
which resulted in higher than anticipated production and lower cash operating
costs of $170 per ounce for 1997. At December 31, 1997, Fort Knox increased its
reserves by about 450,000 contained ounces, which more than replaced 1997 Fort
Knox production and will lower its depreciation and depletion rate by about $20
per ounce. Commercial production was achieved at the Kubaka mine in Russia as
of June 1, 1997. This mine also has performed better than originally expected
with cash operating
<PAGE>
costs of $175 per ounce in 1997. Production at the Refugio mine in Chile has
been hampered by the severe weather in mid-1997, which caused the crushing
operations to be suspended for nearly three months. Production at Refugio is
expected to improve during the first quarter of 1998 as the weather-related
problems and other operational inefficiencies are addressed.
On February 9, 1998, Amax Gold announced that it has entered into a merger
agreement with Kinross Gold Corporation whereby each share of Amax Gold Common
Stock will be converted into 0.8 of a share of Kinross Common Stock. Cyprus
Amax will exchange $135 million of cash and indebtedness of Amax Gold at the
effective time of the merger for approximately 35 million shares of Kinross
Common Stock. The merger is expected to close before the end of June 1998, and
Cyprus Amax will own approximately 31 percent of the new Kinross. This merger
will result in the deconsolidation of Amax Gold.
Exploration expense of $43 million in 1997 was $23 million higher than in 1996
due to the expenditures on the Kansanshi copper project in Zambia, and the
absence of the gains recorded in 1996 for the sale of Cerro Quema, an
exploration project in Panama, and certain other small properties. Exploration
expense of $20 million in 1996 was $13 million lower than 1995 due to the above-
mentioned gains. Exploration expenditures in 1997 primarily funded projects in
Africa, Eurasia, Chile, Indonesia, Australia, Canada, the United States, Peru,
Central America, and Mexico. In 1998 our exploration program will be focused on
copper. We will continue to drill at El Abra and other current operations to add
reserves and evaluate sulfide ore potential. Our advanced exploration program
will focus on our Zambia project and our Papua New Guinea prospect. See the
Copper/Molybdenum segment for discussion of the Zambia copper and the Papua New
Guinea copper-gold exploration projects.
Businesses Sold/Non-Operating reported earnings of $18 million in 1997 compared
with a loss of $6 million in 1996. The 1997 results included a $19 million
gain on the sale of the Kubaka mine to Amax Gold, which reflected the minority
interest's share. The 1996 results were $12 million favorable relative to the
1995 results due to the absence of environmental expenses and other adjustments
related to the sale of oil and gas assets.
<PAGE>
CORPORATE AND OTHER
Corporate expenses of $68 million for 1997 were $11 million higher than in 1996
primarily due to the pre-tax cost of $7 million for the purchase of
approximately 70 percent of the Company's $300 million 9 7/8% Notes, higher
depreciation, and general inflation. Corporate expenses of $57 million in 1996
were comparable with 1995.
Net interest expense, after capitalized interest and interest income, increased
$84 million to $162 million in 1997. Interest expense increased $19 million to
$208 million due to increased borrowings for El Abra, Cerro Verde, and higher
Amax Gold debt. Capitalized interest decreased $73 million to $10 million due
to the completion of construction projects in the first half of 1997. Interest
income increased by $8 million to $36 million in 1997 due to higher cash
balances. For 1996 net interest expense of $78 million increased $8 million
from 1995 due to increased borrowings.
Equity losses of $31 million were $34 million unfavorable compared with 1996.
The majority of this decrease related to Oakbridge. See the Coal section for a
discussion on Oakbridge's results. Equity earnings of $3 million in 1996
declined $5 million from 1995 primarily due to lower metals prices that affected
a 50 percent owned metals recovery operation in Louisiana.
Income tax benefit in 1997, including special items, was $22 million. This
included favorable tax adjustments of $38 million resulting from the settlement
of certain prior years' tax issues. Income tax expense, including special items,
was $11 million for 1996, which included a favorable tax adjustment of $10
million recorded by Amax Gold. Income tax expense was $3 million for 1995, which
reflected utilization of investment tax credits.
While general inflation rates have remained steady at about two to three percent
over the past three years, inflation has continued to affect costs. Higher
costs for compensation and benefits, coupled with inflation of certain supplies
and service costs, continue to increase mine operating costs. Most of Cyprus
Amax's products are commodities whose price changes do not correlate exactly to
inflation. The Company is continuing specific programs, employing capital, and
leveraging purchases to more than offset these increases, as well as
implementing quality improvement programs to increase productivity and reduce
costs. During 1997 Cyprus
<PAGE>
Amax continued its company-wide quality and efficiency initiative, Quest 21,
that is improving our systems and processes and is expected to further reduce
costs.
ENVIRONMENTAL
During 1997 Cyprus Amax spent approximately $108 million for reclamation,
remediation, and environmental compliance compared with 1996 environmental
expenditures of about $154 million. About $12 million of the total 1997
spending was for capital expenditures, and $55 million of the total spending was
charged to reserves. Environmental expenditures in 1998 are expected to remain
at approximately the 1997 spending level.
At December 31, 1997, Cyprus Amax had short-term and long-term accruals of
approximately $411 million for expected mine closure, reclamation, and
environmental remediation liabilities compared with accruals of $424 million at
year-end 1996. Significant components of the year-end 1997 accrual include $316
million for future reclamation and for closure of discontinued or previously
sold operations and $95 million for environmental remediation at Superfund and
other similar sites.
The reserves for future reclamation and closure include $190 million for Coal,
$104 million for Copper/Molybdenum, and $22 million for Other. Significant
elements of the reclamation and closure reserves include $49 million for
combined Eagle Butte and Belle Ayr mines, $40 million for the Climax molybdenum
mine, $21 million for the Delta coal mine, and $19 million for Amax Metals
Recovery.
Cyprus Amax has been advised by the Environmental Protection Agency ("EPA") and
several state environmental agencies that it may be liable under the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
or similar state laws and regulations ("Superfund") for costs of correcting
environmental hazards at a number of sites that have been or are being
investigated by the EPA or states. The Company has estimated the cost of
reasonably possible outcomes for all sites to range between $65 million and $280
million, of which $95 million is considered probable and has been accrued at
December 31, 1997. Certain Superfund-type sites and mine reclamation liabilities
are discussed in Note 14 to the Consolidated Financial Statements.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, Cyprus Amax had a ratio of long-term debt to total
capitalization of 49 percent, a ratio of current assets to current liabilities
of 1.4 to 1.0, and a cash balance of $250 million.
During 1997 $558 million was generated from operating activities, before changes
in working capital; $319 million from financings relating to El Abra, Fort Knox,
Refugio, Cerro Verde, Kubaka, and Springvale; $145 million from repayment of the
El Abra subordinated debt; and $154 million from the proceeds of asset sales
reflecting the settlement of two coal contracts and the 15 percent interest in
Cyprus Plateau to Mitsubishi. Those sources of funds were sufficient to finance
cash requirements for capital expenditures of $391 million, net interest
payments of $136 million, dividend payments of $92 million, $232 million for the
purchase of 70 percent of the $300 million 9 7/8% Notes, $200 million repayments
on the $350 million term loan, $76 million repayment on Amax Gold's debt, and
$28 million of payments on capitalized leases.
In April 1997, Cyprus Amax closed on a long-term $110 million project financing
for its Cerro Verde copper mine. Proceeds from the financing were used to repay
existing short-term debt that was guaranteed by Cyprus Amax. The term of the
financing is eight years.
In May 1997, Amax Gold completed a $71 million tax-exempt industrial revenue
bond financing for the solid waste disposal facility at the Fort Knox mine.
Proceeds were used to repay amounts borrowed under the Cyprus Amax demand loan
facility. The revenue bond is a bullet loan due in 2009, backed by a letter of
credit guaranteed by Cyprus Amax.
In June 1997, Cyprus Amax announced a fixed-spread tender offer to purchase
all of the Company's $300 million 9 7/8% Notes due June 13, 2001. A total of
approximately 70 percent, or $209 million, of the Notes were tendered. Cyprus
Amax paid an aggregate of approximately $232 million (excluding accrued
interest) for the tendered Notes. This resulted in an after-tax charge of $5
million, which was recorded in the second quarter of 1997.
<PAGE>
In November 1997, Cyprus Amax and Codelco, the national copper company of Chile,
refinanced the $1 billion in project loans for the El Abra copper mine. In
addition, El Abra cash balances were used to reduce the total debt by $50
million and pay approximately $70 million of accrued interest. The refinancing
has a 9.5-year term, less restrictive covenants, and 1.3 percent lower average
interest rates for an initial annual interest cost savings of about $15 million
for El Abra. Cyprus Amax received $300 million in principal plus $70 million in
accrued interest as a result of the refinancing of subordinated debt that the
Company contributed to the copper project's original construction financing in
the summer of 1995. Cyprus Amax will continue a back-stop guarantee on $200
million of El Abra's $1 billion of senior debt.
In December 1997, Cyprus Amax elected to prepay $200 million on the five-year
$350 million term loan. This will reduce interest expense by approximately $13
million annually.
During December 1997, Amax Gold refinanced its $34 million portion of the
Refugio gold loan with approximately $28 million borrowed under a new $40
million credit facility. This is a bullet loan due in 2002, guaranteed by
Cyprus Amax. The decline in gold prices since the gold was borrowed in early
1995 resulted in a pre-tax gain of approximately $6 million, which will be
amortized, net of approximately $2 million in deferred financing costs, over the
four remaining years of the original loan life. Amax Gold also received
repayment of $10 million previously lent to the other 50 percent owner of
Refugio. These amounts were used for debt service and to fund working capital
requirements for the Kubaka mine.
During 1996 Cyprus Amax provided Amax Gold with a demand loan facility to fund
additional costs at the Fort Knox project and for general corporate purposes,
with such funding to be provided at the discretion of Cyprus Amax. At December
31, 1997, the outstanding loan balance from Amax Gold was $73 million and the
remaining amount available was $70 million. Additionally, Cyprus Amax has
guaranteed Amax Gold's Fort Knox, Kubaka, and Refugio loans and a letter of
credit backing its industrial revenue bond debt. Cyprus Amax receives certain
fees for providing this support and holds security interests in certain Amax
Gold assets.
In August 1997, Cyprus Amax amended and restated its $1 billion revolving
credit agreement to extend its term until 2002 and to lower the facility fee
and borrowing rates. At December 31, 1997, the Company had not drawn against
this facility.
<PAGE>
Non-cash working capital decreased to $47 million during 1997 from $111 million
in 1996. Short-term debt and the current portion of long-term debt increased by
$120 million, primarily due to a $29 million increase in Cerro Verde's short-
term borrowings, a $42 million increase in Amax Gold's current portion of long-
term debt due to scheduled repayments on Fort Knox and Kubaka in 1998, and a $54
million increase at El Abra due to 1998 scheduled debt repayments. Income taxes
payable decreased $46 million due to the favorable settlement of income tax
examinations and asset write-downs. Inventories increased $31 million primarily
due to increased coal production and the impact on shipments from the Union
Pacific Railroad problems, a build-up in molybdenum inventories due to the
Henderson 2000 project, and a materials and supplies inventory build-up
primarily at Kubaka and El Abra, partially offset by lower copper inventories
due to lower copper production costs and produced copper sales exceeding
production. Accounts and notes receivable decreased $15 million primarily due
to lower copper, gold, and coal realizations.
Cash capital expenditures in 1997, excluding capitalized interest, were $391
million, which is a significant drop from 1996's capital expenditures of $856
million due to the completion of our major development projects.
Copper/Molybdenum capital expenditures of $159 million included $18 million for
initial Henderson 2000 project expenditures at the Henderson molybdenum mine,
which will replace ore trains with conveyors, and the remainder primarily for
sustaining and replacement capital and capitalized stripping.
Coal cash capital expenditures of $138 million included $78 million for
development of the Willow Creek mine in Utah and the remainder for sustaining
and replacement capital. Other Minerals cash capital expenditures included Amax
Gold's expenditures of $31 million primarily for the Fort Knox and Kubaka
projects and $26 million for the development of the Kubaka mine prior to the
sale to Amax Gold, $22 million for the enhancement and upgrades of computer
systems, and $15 million for Lithium.
Capital spending in 1998 is planned to decrease to approximately $275 million.
Copper/Molybdenum capital expenditures are estimated at $155 million with
approximately $49 million for the Henderson 2000 project, $6 million at Cerro
Verde for a crushing system expansion, $17 million at Miami on the acid plant
and initial stages of construction of a new leach pad, and the remainder is for
sustaining and replacement capital and capitalized stripping. Coal expects to
spend approximately $95 million in 1998, including $22 million for the
<PAGE>
continued development of the Willow Creek mine and $40 million at Emerald for
the infrastructure required to access the Northeast reserves. Amax Gold's
capital expenditures are estimated at $15 million for sustaining and replacement
capital.
During 1998 Cyprus Amax expects to be able to provide sufficient funds for
general corporate purposes, capital expenditures, and acquisitions through
internally generated funds, sales of selected assets, and existing or new
borrowings. Cyprus Amax paid regular dividends of $0.80 per common share and
$4.00 per preferred share during 1997.
For the year ended December 31, 1997, Cyprus Amax adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share (EPS). SFAS No. 128
replaced the presentation of primary EPS with a presentation of basic EPS.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Cyprus Amax's basic earnings per share is the same as primary
earnings per share as if presented under Accounting Principles Board Opinion No.
15 "Earnings Per Share."
YEAR 2000 CONVERSION
Cyprus Amax has created and staffed a Year 2000 Program Management Office to
oversee and coordinate Year 2000 conversion for the Company. Year 2000 data
processing has potential implication to Cyprus Amax's business applications and
automated mine operations, such as process controllers and other electronic
measuring devices. Cyprus Amax has initiated involvement from site, division,
and corporate personnel to investigate and address Year 2000 compliance, and
projects are underway to timely identify, evaluate, and implement Year 2000
compliance solutions. Cyprus Amax is also communicating with customers,
manufacturers, suppliers, financial institutions, and others with whom it does
business to coordinate Year 2000 compliance. The total cost of Year 2000
projects is estimated to range from $23 million to $29 million, which will be
expensed as incurred. All critical applications are expected to be compliant by
the end of 1999.
<PAGE>
CAUTIONARY "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this report
are forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from projected results. Such forward-
looking statements include statements regarding projections of mineral
production levels, cash operating costs, capital expenditure levels, certain
significant cost and expenses, price protection programs, percentage increases
and decreases in production from the Company's operations, schedules for
completion of feasibility studies and initial feasibility studies, potential
increases in reserves and production, the timing and scope of future drilling
and other exploration activities, expectations regarding receipt of permits and
commencement of mining or production, anticipated recovery rates, and potential
acquisitions or increases in property interests. Factors that could cause
actual results to differ materially include changes in relevant mineral prices,
mineral supply contract renegotiations, the presence or absence of price
protection programs, unanticipated ore grade, geological, hydrological,
metallurgical, processing, access, transportation activities, results of pending
and future feasibility studies, operating and development project risks, changes
in project parameters as plans continue to be refined, political, economic and
operational risks of foreign and domestic operations, joint venture
relationships, competitive conditions, availability of materials and equipment,
the timing and receipt of governmental permits, changes in laws or regulations
or their interpretation and application, force majeure events, the failure of
plant, equipment or processes to operate in accordance with specifications or
expectations, accidents, adverse weather, labor relations, delays in start-up
dates, environmental costs and risks, the outcome of acquisition or disposition
negotiations, and general domestic and international economic and political
conditions, as well as other factors described herein or in the Company's
filings with the U.S. Securities and Exchange Commission. Many of these factors
are beyond the Company's ability to predict or control. Readers are cautioned
not to put undue reliance on forward-looking statements.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
(In millions except per share data) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
REVENUE $3,346 $2,843 $3,207
------ ------ ------
COSTS AND EXPENSES
Cost of Sales 2,257 2,074 2,108
Selling and Administrative Expenses 128 128 143
Depreciation, Depletion, and Amortization 444 339 296
Write-Downs and Special Charges 241 116 445
Exploration Expense 43 34 33
------ ------ ------
TOTAL COSTS AND EXPENSES 3,113 2,691 3,025
------ ------ ------
INCOME FROM OPERATIONS 233 152 182
OTHER INCOME (EXPENSE)
Interest Income 36 28 24
Interest Expense (208) (189) (137)
Capitalized Interest 10 83 43
Earnings (Loss) on Equity Investments and Other (31) 3 8
------ ------ ------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 40 77 120
Income Tax Benefit (Provision) 22 (11) (3)
Minority Interest 7 11 7
------ ------ ------
NET INCOME 69 77 124
Preferred Stock Dividends (19) (19) (19)
------ ------ ------
INCOME APPLICABLE TO COMMON SHARES $ 50 $ 58 $ 105
====== ====== ======
EARNINGS PER COMMON SHARE
Basic and Diluted/(1)/ $ 0.54 $ 0.62 $ 1.13
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 93 93 93
Diluted 103 103 103
</TABLE>
/(1)/ Diluted earnings per share were anti-dilutive in 1997, 1996, and 1995.
The accompanying notes are an integral part of these statements.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At December 31 (In millions except share amounts) 1997 1996
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 250 $ 193
Accounts and Notes Receivable, Net 201 216
Inventories 526 495
Prepaid Expenses 147 145
Deferred Income Taxes 8 -
------- -------
Total Current Assets 1,132 1,049
------- -------
PROPERTIES - At Cost, Net 4,978 5,226
OTHER ASSETS 349 511
------- -------
TOTAL ASSETS $6,459 $6,786
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 55 $ 36
Current Portion of Long-Term Debt 180 79
Accounts Payable 139 142
Accrued Payroll and Benefits 100 94
Accrued Royalties and Interest 50 41
Accrued Closure, Reclamation, and Environmental 59 61
Other Accrued Liabilities 143 143
Taxes Payable Other Than Income Taxes 67 61
Income Taxes Payable 23 69
Dividends Payable 19 19
------- -------
Total Current Liabilities 835 745
------- -------
NONCURRENT LIABILITIES AND DEFERRED CREDITS
Long-Term Debt 2,089 2,415
Capital Lease Obligations 113 139
Deferred Employee and Retiree Benefits 407 412
Deferred Closure, Reclamation, and Environmental 352 363
Deferred Income Taxes 57 44
Other 117 151
------- -------
Total Noncurrent Liabilities and Deferred Credits 3,135 3,524
------- -------
COMMITMENTS AND CONTINGENCIES (NOTES 14 AND 16) - -
MINORITY INTEREST 159 157
------ ------
SHAREHOLDERS' EQUITY
Preferred Stock, $1 Par Value, 20,000,000 Shares Authorized:
$4.00 Series A Convertible Stock, $50 Stated Value,
4,664,302 Shares Issued in 1997 and 1996 5 5
Common Stock, Without Par Value, 150,000,000 Shares Authorized,
96,031,038 Shares Issued in 1997 and 96,031,139 in 1996 1 1
Paid-In Surplus 2,947 2,952
Accumulated Deficit (504) (481)
Other (8) 5
------ -------
2,441 2,482
Treasury Stock at Cost, 2,548,867 Shares in 1997 and
2,788,535 Shares in 1996 (58) (64)
Loan to Savings Plan (53) (58)
------ -------
Total Shareholders' Equity 2,330 2,360
------ -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,459 $6,786
====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (In millions) 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 69 $ 77 $ 124
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation, Depletion, and Amortization 444 339 296
Write-Downs and Special Charges 241 116 445
Deferred Income Taxes (8) 13 (67)
Gain on Sales of Assets (166) (41) (13)
Issuance of Stock for Employee Benefits 6 6 6
Other, Net 62 13 27
Changes in Assets and Liabilities Net of Effects from
Businesses Acquired/Sold:
(Increase) Decrease in Receivables (15) 146 24
(Increase) Decrease in Inventories (36) (61) 8
Increase in Prepaid Expenses (1) (25) (28)
Decrease in Current Liabilities (25) (17) (26)
Decrease (Increase) in Other Assets 14 (1) (15)
Decrease in Other Liabilities (104) (125) (106)
----- ----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES 481 440 675
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (391) (856) (929)
Payments for Businesses Purchased - (70) -
Capitalized Interest (10) (83) (43)
Advances from (to) and Investments in Affiliates 155 (12) (145)
Collections on Notes Receivable 7 - -
Proceeds from Sales of Assets 154 63 77
Cash Effect of Consolidating Amax Gold Inc. - - 37
----- ----- -----
NET CASH USED FOR INVESTING ACTIVITIES (85) (958) (1,003)
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale-Leaseback - 24 -
Net Proceeds from Issuance of Long-Term Debt 681 722 770
Payments on Long-Term Debt (911) (14) (118)
Net Borrowings on Short-Term Debt 91 526 125
Payments on Short-Term Debt (74) (596) (29)
Production Payments - (25) (258)
Payments on Capital Lease Obligations (28) (18) (13)
Proceeds from Issuance of Stock for Employee Benefits 1 1 3
Dividends Paid (92) (93) (92)
Dividends to Minority Interests (7) (7) (8)
----- ----- -----
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (339) 520 380
----- ----- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS 57 2 52
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 193 191 139
----- ----- -----
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 250 $ 193 $ 191
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------- -------------------- Loan to
Shares Net Shares Paid-In Accumulated Treasury Savings
(In millions) Outstanding Amount Outstanding Amount Surplus Deficit Other Stock Plan
----------- ------ ----------- ------ -------- ------------ ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1994 5 $5 92 $1 $2,961 $(496) $ 7 $(80) $(69)
Net Income 124
Dividends
Preferred Stock,
Series A (19)
Common Stock (74)
Common Stock Issued for
Employee Benefit Plans
and Exercise of Stock
Options 1 (5) 10 5
Unrealized Gain on Securities
Available for Sale (3)
Foreign Currency Translation
Adjustment (2)
---------- ------ ----------- ------ -------- ------------ ------ -------- ------
December 31, 1995 5 5 93 1 2,956 (465) 2 (70) (64)
Net Income 77
Dividends
Preferred Stock,
Series A (19)
Common Stock (74)
Common Stock Issued for
Employee Benefit Plans
and Exercise of Stock
Options (4) 6 6
Unrealized Loss on Securities
Available for Sale 1
Foreign Currency Translation
Adjustment 2
---------- ------ ----------- ------ -------- ------------ ------ --------- ------
DECEMBER 31, 1996 5 5 93 1 2,952 (481) 5 (64) (58)
Net Income 69
Dividends
Preferred Stock,
Series A (19)
Common Stock (73)
Common Stock Issued for
Employee Benefit Plans
and Exercise of Stock
Options (5) 6 5
Foreign Currency Translation
Adjustment (13)
---------- ------ ----------- ------ -------- ------------ ------ -------- ------
December 31, 1997 5 $5 93 $1 $2,947 $(504) $ (8) $(58) $(53)
========== ====== =========== ====== ======== ============ ====== ======== ======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS
Cyprus Amax Minerals Company (Cyprus Amax or the Company) is a diversified
mining company engaged, directly or through its subsidiaries and affiliates, in
the exploration for and extraction, processing, and marketing of mineral
resources. Cyprus Amax operates in three principal industry segments:
Copper/Molybdenum, Coal, and Other (which includes Lithium, Amax Gold, and
Exploration).
The Copper/Molybdenum segment explores for, mines, processes, and markets copper
and molybdenum primarily in the Americas, Europe, Africa, and Indonesia. The
Company operates three major copper mines in Arizona, one in Chile, one in Peru,
and one primary molybdenum mine in Colorado. Additionally, the Company operates
two copper rod plants, a copper smelter, and a refinery in the United States.
The Company also processes molybdenum concentrates at its conversion plants in
the United States and Europe into such products as technical grade molybdic
oxide, ferromolybdenum, pure molybdic oxide, and other molybdenum chemicals.
The El Abra copper mine in Chile, 51 percent owned by Cyprus Amax, achieved
commercial production on December 1, 1996. Cyprus Amax's share of the mine's
annual production capacity is approximately 250 million pounds. The South
American mines are expected to account for 40 percent of the total 1998
production of approximately 950 million pounds. Substantially all of Cyprus
Amax's copper metal production is committed under sales agreements with metal
fabricators at prices which fluctuate with commodity exchange quotations, and
approximately 12 percent of copper/molybdenum sales were for export markets.
The Company does not believe that the loss of any one customer would have a
material adverse effect on the results of Cyprus Amax, and since
copper/molybdenum are internationally traded, the sales should be readily
replaced. From time to time the Company uses various price protection programs
to ameliorate the adverse effect of low prices for its copper production.
The Coal segment mines, cleans, markets, and sells coal to electric utilities
and industrial users. The majority of the Company's coal is produced in the
United States and sold to domestic electric utilities under term contracts, with
an initial term of at least one year. Coal is typically sold under term
contracts at fixed prices subject to escalation, de-escalation, and
renegotiation. As Cyprus Amax increases its coal production, an increasing
amount will be sold in spot markets or under shorter term contracts. Loss of
any one customer would not have a material adverse effect on the results of
Cyprus Amax. The Coal segment has 20 domestic operating mines of which 11 are
governed by union contracts. Union representation accounts for approximately 51
percent of Coal's employees and 32 percent of domestic production. The contract
with the United Mine Workers of America, which covers all the union coal sites
except Kentucky and Sycamore, expires in August of 1998.
The Lithium division is a major producer of lithium with production facilities
in the United States and Chile. Lithium and lithium compounds are sold
worldwide to such diverse businesses as aluminum smelting, ceramics, lubricants,
specialty glass, synthetic rubber, plastics, batteries, alloys, and
pharmaceuticals. The various lithium products are sold under a combination of
long- and short-term contracts, with approximately 24 percent of United States
produced lithium sold in foreign markets. Loss of any one customer would not
have a material adverse effect on the results of Cyprus Amax. In December 1997,
Cyprus Amax announced its intention to sell its lithium subsidiary.
Cyprus Amax owns 58.8 percent of Amax Gold Inc. (Amax Gold or AGI) which is
engaged in the mining and processing of gold and silver ore and in the
exploration for, and acquisition and development of, gold-bearing properties,
principally in the Americas, Russia, Australia, and Africa. Construction of the
Fort Knox mine in Alaska was completed in early 1997, and the mine achieved
commercial production on March 1, 1997. In the second quarter of 1997, Cyprus
Amax completed the sale of its 50 percent ownership interest in the Kubaka gold
mine in Russia to Amax Gold for
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
common stock, increasing Cyprus Amax's ownership interest to 58.8 percent.
Commercial production was achieved at the Kubaka mine on June 1, 1997. Amax
Gold's 1998 production is expected to be approximately 750,000 ounces of which
53 percent is from domestic mines, 30 percent from Russia, and 17 percent from
South America. Amax Gold sells all of its refined gold to banks and other
bullion dealers, utilizing a variety of hedging programs, and the majority of
its 1997 sales were to Europe. The profitability of Amax Gold's operations is
significantly affected by the market price of gold, which historically has
fluctuated widely and is affected by numerous factors. On February 9, 1998, Amax
Gold announced that it has entered into a merger agreement with Kinross Gold
Corporation whereby each share of Amax Gold Common Stock will be converted into
0.8 of a share of Kinross Common Stock. Cyprus Amax will exchange $135 million
of cash and indebtedness of Amax Gold at the effective time of the merger for
approximately 35 million shares of Kinross Common Stock. The merger is expected
to close before the end of June 1998, and Cyprus Amax will own approximately 31
percent of the new Kinross. This merger will result in the deconsolidation of
Amax Gold.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The financial statements include the accounts of
Cyprus Amax Minerals Company and related entities which it controls.
Investments in companies over which the Company can exercise significant
influence, but not control, are accounted for using the equity method.
Investments in joint ventures are accounted for using proportionate
consolidation, consistent with accepted mining industry practice.
EARNINGS PER SHARE (EPS) - For the year ended December 31, 1997, Cyprus Amax
adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share." SFAS No. 128 replaced the presentation of primary EPS with a
presentation of basic EPS. Basic earnings per common share are determined by
dividing net income as reduced by preferred stock dividends by the weighted
average number of common shares outstanding during the year. Cyprus Amax's
basic earnings per share is the same as primary earnings per share as if
presented under Accounting Principles Board (APB) Opinion No. 15, "Earnings Per
Share." Diluted earnings per share are determined by dividing net income by the
weighted average number of common shares and common stock equivalents
outstanding plus shares which would be issued upon conversion of the preferred
stock. At December 31, 1997, 1996, and 1995, Cyprus Amax had Series A
Convertible Preferred Stock outstanding that could be converted into
approximately 10 million shares of Common Stock.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents. Overdrafts representing outstanding checks in excess of funds on
deposit are classified as accounts payable.
ACCOUNTS RECEIVABLE - Cyprus Amax entered into an agreement in November 1996 to
sell coal, copper, and molybdenum receivables on an ongoing basis. Cyprus
Amax's accounts and notes receivable at December 31, 1997 and 1996, were net of
$150 million of receivables sold.
INVENTORIES - Inventories are carried at the lower of current market value or
cost. Coal and Gold product inventories and materials and supplies inventories
are generally valued on the basis of average costs. Molybdenum inventories are
computed on the last-in, first-out (LIFO) method. The costs of all other
product inventories are determined on the first-in, first-out (FIFO) method.
PROPERTIES - Costs for mineral rights and certain tangible assets, and mine
development costs incurred to expand capacity of operating mines, develop new
ore bodies, or develop mine areas substantially
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
in advance of current production are capitalized and charged to operations
generally on the units-of-production method. Mobile mining equipment and most
other assets are depreciated on a straight-line basis over their estimated
useful lives. Interest costs for the construction or development of significant
long-term assets are capitalized and amortized over the related assets'
estimated useful lives or the life of the mine, whichever is shorter. Gains or
losses upon retirement or replacement of equipment and facilities are credited
or charged to income.
IMPAIRMENT OF LONG-LIVED ASSETS - Cyprus Amax follows SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". SFAS No. 121 prescribes that an impairment loss is recognized in the event
that facts and circumstances indicate that the carrying amount of an asset may
not be recoverable and an estimate of future undiscounted cash flows is less
than the carrying amount of the asset. Impairment is recorded based on an
estimate of future discounted cash flows.
EXPLORATION - Expenditures incurred in the search for mineral deposits and the
determination of the commercial viability of such deposits are charged against
income as incurred.
INCOME TAXES - The provision for income taxes includes federal, state, and
foreign income taxes currently payable and deferred based on currently enacted
tax laws. Deferred income taxes are provided for the tax consequences of
differences between the financial statement and tax basis of assets and
liabilities.
Deferred income taxes have not been provided on the Company's share of
undistributed earnings of certain foreign subsidiaries and unconsolidated
affiliates because the Company considers those earnings to be reinvested
indefinitely. It is not practical to estimate the amount of taxes that might be
payable on the eventual remittance of those earnings. On remittance, certain
countries impose withholding taxes that, subject to certain limitations, would
generate tax credits that could substantially reduce any U.S. tax.
TRANSLATION OF FOREIGN CURRENCIES - Amounts in foreign currencies are translated
into U.S. dollars using the translation procedures specified in SFAS No. 52.
When local functional currency is translated to U.S. dollars, the effects are
recorded as a separate component of shareholders' equity. For foreign
subsidiaries with U.S. dollar functional currency, the effects of remeasurement
are included in income. Exchange gains and losses arising from transactions
denominated in a foreign currency are translated at average exchange rates and
included in income.
HEDGING PROGRAMS AND DERIVATIVE CONTRACTS - The Company's use of derivative
financial instruments is principally limited to management of interest rate and
commodity price risks. The Company may use price protection programs to reduce
or eliminate the risk of metal price declines on a portion of its future copper
or gold sales. Premiums paid are amortized during the period in which the
options are exercisable. Gains and losses on such transactions are matched to
product sales and charged or credited to sales revenue when that product is
sold. Gains and losses on derivative contracts that do not qualify as hedges
are recognized currently.
The Company may enter into interest rate swap agreements or options to limit the
effect of increases in interest rates on floating debt or to take advantage of
lower rates on fixed debt. The differences to be paid or received on these
agreements are included in interest expense as incurred.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECLAMATION AND ENVIRONMENTAL COSTS - Minimum standards for mine reclamation
have been established by various governmental agencies which affect certain
operations of the Company. Certain reclamation is performed and expensed on an
ongoing basis as mining operations are performed. The remaining reclamation
costs are related to mine closure and are accrued and charged against income on
a units-of-production basis over the life of the mine. Cyprus Amax is subject
to various environmental regulations. Environmental liabilities are accrued on
an ongoing basis when such losses are probable and reasonably estimable and
reflect management's best estimates of future obligations. Costs of future
expenditures for environmental remediation obligations are not discounted to
their present value.
STOCK-BASED COMPENSATION - During 1996 the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." Cyprus Amax has elected to measure
compensation cost using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Note 13 to the Consolidated Financial Statements contains a summary of the
disclosures of pro forma net income and earnings per share as if the fair value
based method of accounting as defined in SFAS No. 123 had been applied.
USE OF ESTIMATES - The preparation of Cyprus Amax's consolidated financial
statements in conformity with generally accepted accounting principles requires
Cyprus Amax's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes. The more
significant areas requiring the use of management estimates relate to mineral
reserves; reclamation and environmental obligations; postemployment,
postretirement, and other employee benefit liabilities; valuation allowances for
deferred tax assets; fair value of financial instruments; future cash flows
associated with assets; and useful lives for depreciation, depletion, and
amortization. Actual results could differ from those estimated.
NOTE 3: BUSINESS ACQUISITIONS AND DISPOSITIONS
On September 30, 1997, Cyprus Amax sold a 15 percent interest in its wholly-
owned subsidiary, Cyprus Plateau Mining Corporation, to Mitsubishi Corporation
for cash proceeds of $29 million.
On September 30, 1997, Cyprus Amax sold its wholly-owned subsidiary, Cyprus
Mineral Park Corporation, and the copper ore body at the Cyprus Tonopah Mining
Corporation to Equatorial Mining N.L.
In the second quarter of 1997, Cyprus Amax sold its 50 percent interest in the
Kubaka gold mine in eastern Russia to Amax Gold. Under terms of the
transactions, Cyprus Amax received 15.4 million shares of Amax Gold Common
Stock.
On February 13, 1996, Cyprus Amax acquired a 50 percent interest in the
Springvale underground coal mine in New South Wales, Australia, at a cost of
approximately $70 million.
On October 31, 1995, Cyprus Amax sold substantially all of the assets of the
Climax Specialty Metals Division of Climax Performance Materials Corporation to
CSM Industries, Inc.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: WRITE-DOWN OF ASSETS AND SPECIAL CHARGES
Write-Downs and Special Charges reported on the Consolidated Statement of
Operations consist of the following:
In the first quarter of 1997, a $101 million pre-tax charge was recorded to
write down the asset basis and to provide for employee separation and mine
closure costs at the Wabash and Delta mines due to the sale and assignment of
two coal contracts. In addition, a $10 million pre-tax charge was recorded at
the Star Point mine in Utah primarily to write down equipment and to accrue for
potential closure costs, and $6 million of pre-tax charges were recorded for the
write-down of other coal assets.
In the third quarter of 1997, a $17 million pre-tax charge was recorded for the
closure of the Maple Meadow mine in West Virginia in the fourth quarter of 1997
and an adjustment to mine closure costs for the Ayrshire mine in Indiana.
In the fourth quarter of 1997, a $102 million pre-tax charge was recorded. This
included $36 million and $5 million pre-tax charges for the anticipated closure
of the Armstrong Creek and Shoshone mines, respectively, reclamation adjustments
of $7 million at the Star Point and Chinook mines, and miscellaneous coal asset
adjustments of $6 million. Additionally, SFAS No. 121 impairment pre-tax
charges of $34 million and $14 million were recorded at the West Virginia steam
coal properties and the Chinook mine, respectively, due to updated mine and
business plans that reflect the current views on the domestic markets for mid-
to high-sulfur coal and updated reserve information.
In the fourth quarter of 1996, an $80 million pre-tax charge was recorded
primarily for environmental remediation activities, principally at the Miami,
Arizona, copper mine, costs to temporarily close the Tohono mine near Casa
Grande, Arizona, and adjustments in the primary molybdenum business.
In addition, during the fourth quarter of 1996, a $36 million pre-tax charge was
recorded by Amax Gold to write down the net assets of the Guanaco gold mine in
Chile as a result of a detailed study of the continuity of ore, costs, and
production rates.
In the third quarter of 1995, a $445 million pre-tax charge was recorded to
write down certain coal assets and to provide for associated liabilities. In
1995 Amax Coal signed a new coal contract with PSI Energy, Inc. that settled
arbitration matters and called for a reduction in price with a move toward
market price by the year 2000. The new contract provided an eight-year
extension of the term. This resulted in a pre-tax write-down of the carrying
value of the Wabash mine's assets of $310 million. Additionally, the coal
market outlook for Mountain Coals operations in eastern Kentucky reflected weak
demand and lower prices and the expiration of long-term contracts in 1995 and
1998. This prompted adoption of a revised mine plan in 1995 to reduce costs.
Coal reserves were reduced and the Company wrote down its Kentucky operations by
$135 million pre-tax.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5: INVENTORIES
Inventories detailed by component and industry segment are summarized below:
<TABLE>
<CAPTION>
At December 31 (In millions) 1997 1996
----- -----
<S> <C> <C>
Component
Ores, Concentrates, and Other
In-Process Inventories $ 234 $ 237
Finished Goods 178 161
Materials and Supplies 114 97
----- -----
$ 526 $ 495
===== =====
Industry Segment
Copper/Molybdenum $ 310 $ 321
Coal 128 112
Other 88 62
----- -----
$ 526 $ 495
===== =====
</TABLE>
The excess of estimated replacement cost over the LIFO basis was $43 million at
December 31, 1997, and $36 million at December 31, 1996.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: PROPERTIES
<TABLE>
<CAPTION>
At December 31 (In millions) 1997 1996
-------- --------
<S> <C> <C>
Copper/Molybdenum $ 3,523 $ 3,432
Coal 3,241 3,134
Other 1,406 1,347
------- -------
8,170 7,913
Less: Accumulated Depreciation, Depletion,
Amortization, and Write-downs (3,192) (2,687)
------- -------
Net Properties $ 4,978 $ 5,226
======= =======
Net Properties consists of the following:
Property, Plant, and Equipment $ 2,688 $ 2,858
Reserves/Mineral Rights and Sales Contracts 2,290 2,368
------- -------
Net Properties $ 4,978 $ 5,226
======= =======
</TABLE>
NOTE 7: DEBT
<TABLE>
<CAPTION>
At December 31 (In millions) 1997 1996
------- -------
<S> <C> <C>
10 1/8% Notes, Due 2002 $ 150 $ 150
9 7/8% Notes, Due 2001 91 300
8 3/8% Debentures, Due 2023 150 150
7 3/8% Notes, Due 2007 250 250
6 5/8% Notes, Due 2005 250 250
Cyprus Amax Term Loan Facility, 6.1% for 1997,
Due 2001 150 350
Capital Lease Obligations,
Interest Rates Range from 7.3% to 8.4%,
Due from 1997 through 2005 145 173
El Abra Project Financing, 7.1% for 1997, Due from 1998
through 2007 510 383
Fort Knox Financing, 6.4% for 1997, Due from 1997
through 2001 222 250
Refugio Project Financing, 5.4% for 1997 - 38
Amax Gold Corporate Financing, 7.0% for 1997, Due 2002 40 -
Kubaka Project Financing, 10.6% for 1997, Due from 1997
through 2001 73 50
Cerro Verde Project Financing, 9.3% for 1997, Due 2005 106 80
Springvale Financing, 6.0% for 1997, Due from 1998
through 2006 97 88
Fort Knox Industrial Revenue Bond, 4.5% for 1997, Due 2009 71 -
Other 72 93
------- -------
2,377 2,605
Add: Unamortized Net Premium 5 28
------- -------
2,382 2,633
Less: Current Portion (180) (79)
------- -------
Long-Term Debt and Capital Lease Obligations $ 2,202 $ 2,554
======= =======
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Scheduled debt maturities (in millions), excluding capital lease obligations,
as of December 31, 1997, for the next five years are $148, $144, $150, $397, and
$295 for 1998, 1999, 2000, 2001, and 2002, respectively.
In March 1996, Amax Gold renegotiated the $250 million Fort Knox loan agreement
due to projected higher capital costs to complete the mine. Repayments began in
1997, and the final payment is in December 2001. As of December 31, 1997, $23
million in gold and $199 million in U.S. dollars remained outstanding. The loan
is collateralized by the assets and production of the Fort Knox and Hayden Hill
properties and the stock of the subsidiaries owning the Guanaco and Sleeper
properties. The loan agreement places restrictions on proceeds of future equity
offerings and borrowings, restricts dividends, and requires certain net worth
and cash flow ratios to be maintained. In addition, Amax Gold is required to
maintain gold reserve minimums and to hedge a portion of future production in
order to obtain specified cash flows. Cyprus Amax has guaranteed the loan until
economic completion of the Fort Knox mine.
In June 1996, the Company obtained $70 million Australian ($55 million U.S.
dollars) to finance the purchase of 50 percent of the Springvale coal mine in
Australia. The debt is payable from December 1998 through June 2006. In March
1996, the Company finalized a loan agreement for $61 million Australian of which
$56 million Australian ($42 million U.S. dollars) was outstanding as of December
31, 1997. The debt does not have a defined term for repayment, but will be
repaid with available cash. The weighted average interest rate on both loans
was 6.0 percent during 1997.
In December 1996, the Company finalized a $350 million Term Loan Agreement to be
used for general corporate purposes. The Company elected to prepay $200 million
of the term loan in December 1997. The weighted average interest rate on this
debt was 6.1 percent for 1997. The remaining debt is payable in December 2001.
In January 1997, an additional $30 million was obtained for Kubaka project
financing bringing the total project financing to $130 million. Interest on the
project financing averaged 8.9 percent in 1997 with final maturity in December
2001. During 1996 Omolon Gold Mining Company, the project company, borrowed $14
million under a subordinated line of credit, and in 1997 a $15 million working
capital line of credit was obtained. The subordinated debt and working capital
line of credit both have variable interest rates which averaged 12.0 percent in
1997. At December 31, 1997, $146 million remained outstanding, of which Amax
Gold's share was $73 million. Project financing accounts for $59 million of the
$73 million. The project loan has been guaranteed by Cyprus Amax until economic
completion is achieved, while the lines of credit are guaranteed until repaid.
In April 1997, the Company obtained $110 million in project financing for the
Cerro Verde copper mine in Peru, of which Cyprus Amax owns 82 percent. Proceeds
from the financing were used to repay existing debt. The term of the financing
covers 8 years, but may be extended to 10 years. The weighted average interest
rate on this debt during 1997 was 9.3 percent.
In May 1997, Amax Gold completed a $71 million tax-exempt industrial revenue
bond financing for the solid waste disposal facility at the Fort Knox mine. The
12-year variable rate bonds were backed by a letter of credit, which was
guaranteed by Cyprus Amax. A bullet payment is due in 2009. The weighted
average interest rate for this bond was 4.5 percent for 1997.
In June 1997, the Company offered to purchase its $300 million 9 7/8%
Notes due June 13, 2001. As a result of the offer, approximately 70 percent, or
$209 million, of the Notes were tendered at an
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
aggregated cost of $232 million, excluding accrued interest. The repurchase
resulted in an after-tax charge of $5 million for costs incurred in connection
with the redemption.
In November 1997, Cyprus Amax, along with its joint venture partner Corporacion
Nacional del Cobre de Chile (Codelco), announced the refinancing of the project
debt for construction and development of the El Abra copper mine project in
Chile. The senior debt consists of $850 million in project financings provided
by a syndicate of banks and $150 million of original financings provided by a
German financial institution. The Company guarantees $200 million of the $850
million tranche. Cyprus Amax's proportional share of the total $1 billion
borrowings is $510 million. The refinancing has a 9.5-year term, less
restrictive covenants, and lower interest rates with the first principal payment
scheduled for May 15, 1998. The weighted average interest rate on this debt at
December 31, 1997, was 6.8 percent. The loan agreement specifies certain
restrictions on additional borrowings by El Abra and on dividend and
subordinated debt payments. No such restricted payments may be made prior to
the first principal repayment of senior debt.
In December 1997, Amax Gold borrowed $40 million under a new credit facility
guaranteed by Cyprus Amax. Approximately $28 million in proceeds was used to
repay its share of the original Refugio project gold loan. The new credit
facility is a five-year term loan with a $40 million bullet payment due in
December 2002. The loan bears interest at LIBOR plus 1.0 percent, or 7.0
percent in 1997. The refinancing resulted in a $6 million pre-tax gain due to
the decline in gold prices since the original 1995 borrowings, which will be
recognized over the four years remaining on the original loan agreement.
At December 31, 1997, the Company had $55 million of short-term debt
outstanding, of which $52 million was attributable to Cerro Verde's $80 million
short-term line of credit, guaranteed by the Company. The average interest rate
for 1997 was 6.5 percent. At December 31, 1996, $31 million was outstanding on
Cerro Verde's line of credit, and $6 million was outstanding on short-term
credit lines from banks.
As of December 1997, the Company had a revolving credit agreement (the
"Revolving Credit Agreement") expiring in August 2002, that provides a $1
billion line of credit with interest rates to be determined, at the option of
the Company, by a competitive bid process or at a fixed margin over various
indices. The Company pays a facility fee on the full amount of the credit line,
irrespective of usage. The Revolving Credit Agreement contains certain
covenants with which the Company is currently in compliance. At December 31,
1997 and 1996, the Company had no loans outstanding under the Revolving Credit
Agreement.
NOTE 8: DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Cyprus Amax's use of derivative financial instruments is principally limited to
management of interest rate and commodity price risks.
INTEREST RATE PROTECTION AGREEMENTS - Occasionally, interest rate swap
agreements are used to re-characterize interest rates from fixed to floating
rates or vice-versa. In the fourth quarter of 1993, the Company entered into
interest rate swap agreements, which expired in November 1996, that effectively
converted $200 million of its fixed rate borrowings into floating rate
obligations.
Additionally, Amax Gold has entered into interest rate swap option agreements to
reduce the impact of changes in interest rates. At December 31, 1997, Amax Gold
had interest rate swaps and swap option sales contracts that, if exercised
between January 1998 and April 1998, would obligate Amax
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Gold to pay a fixed rate of 5.97 percent over an average term of 0.8 years on a
principal amount of $205 million. Amax Gold also purchased swap options with the
right to pay 6.9 percent over an average term of 1.5 years on a principal amount
of $138 million. Gains or losses realized on these contracts will be amortized
over the term of the loan. Amax Gold would break even if required to terminate
these interest rate swap agreements, given market interest rates at December 31,
1997. Due to the requirements placed on Amax Gold as a condition of its Fort
Knox borrowings, Amax Gold does not expect to close these contracts.
Interest rate forward contracts have been entered into on $300 million of El
Abra's senior debt, at a blended fixed rate of 5.83 percent amortized over two,
three, and four years.
PRICE PROTECTION PROGRAMS - The Company and Amax Gold may use price protection
programs to reduce or eliminate the risk of metal price declines on a portion of
their future copper or gold sales. These agreements include copper and gold put
options, copper synthetic put options, gold call and compound options, copper
and gold forward sales, and gold purchase sales. Put options purchased by
Cyprus Amax or Amax Gold establish a minimum sales price for the sales covered
by such put options and permit the Company or Amax Gold to participate in price
increases above the strike price. Amax Gold also sells put options which give
it the obligation to buy at predetermined prices. Synthetic put options are
established by entering into a forward sale and purchasing a call option for the
same quantity of the relevant metal and for the time period relating to such
forward sale. Amax Gold also purchases and sells call options which give it the
right to purchase or obligation to sell gold at a predetermined price.
Cyprus Amax has entered into copper price protection contracts for 1998 to
ensure a minimum average realization on an LME basis at December 31, 1997, of 90
cents per pound on 336 million pounds of copper. Cyprus Amax previously sold a
portion of its 1997 copper price protection contracts, of which 110 million
pounds related to the third and fourth quarters of 1997, resulting in $13
million recorded as income, net of the respective cost amortization. In the
fourth quarter of 1997, Cyprus Amax sold 34 million pounds of 1998 copper price
protection contracts generating $5 million of proceeds, which will increase
copper realizations and income during the periods in 1998 to which the original
contracts were applicable. As of February 19, 1998, Cyprus Amax sold an
additional 12 million pounds of 1998 copper price protection contracts
generating $2 million of proceeds. The price protection program for El Abra
ensures a minimum net average realization on an LME basis of 85 cents in 1998 on
96 million pounds. Cyprus Amax's share of El Abra is 51 percent. Cyprus Amax
periodically may elect to sell or buy copper price protection contracts to
mitigate the risk of metal price declines on a portion of its future copper
sales.
Amax Gold has entered into forward sales and purchase contracts, spot deferred
forward sales, put and call options, and compound options to manage the effect
of price changes on precious metals produced and sold. Amax Gold's price risk
management activities have historically utilized derivative instruments and
strategies that qualified for hedge accounting. Amax Gold increased its use of
derivative instruments during 1997, and the total program has put it in the
position whereby it is partially protected from further downward pressure in the
price of gold during 1998 and future years and at the same time will enable Amax
Gold to participate in any upward price movement. Some of the instruments
utilized in this program do not qualify for hedge accounting and, consequently,
must be marked to market. At December 31, 1997, the mark to market gain on this
program was $5 million, which has been reflected in the 1997 results.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1997, Amax Gold's outstanding hedge contracts were as
follows:
<TABLE>
<CAPTION>
AVERAGE
REALIZED PRICE
GOLD OUNCES PER OUNCE PERIOD
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FORWARD SALES 326,000 $399 Jan. 1998 - Dec. 2002
PURCHASED PUT OPTIONS 126,000 $419 Jan. 1998 - Dec. 2000
</TABLE>
As of December 31, 1997, Amax Gold's outstanding commodity derivative contracts
which are marked to market are as follows:
<TABLE>
<CAPTION>
AVERAGE
REALIZED PRICE
GOLD OUNCES PER OUNCE PERIOD
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FORWARD PURCHASES 514,000 $327 Jan. 1998 - Dec. 1998
PURCHASED PUT AND COMPOUND PUT OPTIONS 1,073,000 $341 Jan. 1998 - Dec. 2000
SOLD PUT OPTIONS 412,000 $337 Jan. 1998 - Jun. 1998
PURCHASED CALL AND COMPOUND CALL OPTIONS 303,000 $333 Jan. 1998 - Dec. 1998
SOLD CALL OPTIONS 199,000 $314 Jan. 1998 - Jun. 1998
</TABLE>
CREDIT RISK - Cyprus Amax and Amax Gold are exposed to credit losses in the
event of nonperformance by counterparties to financial instruments, but does not
expect any counterparties to fail to meet their obligations. The Company
generally does not obtain collateral or other security to support financial
instruments subject to credit risk but monitors the credit standing of
counterparties.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated fair values for financial instruments under SFAS No. 107 are
determined at discrete points in time based on relevant market information.
These estimates involve uncertainties and cannot be determined with precision.
The estimated fair values of the Company's financial instruments, as measured on
December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
At December 31 (In millions) 1997 1996
-------------------- --------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 250 $ 250 $ 193 $ 193
Long-Term Receivables $ 66 $ 57 $ 215 $ 211
Price Protection Contracts $ 25 $ 105 $ 42 $ 92
Long-Term Debt $(2,089) $(2,148) $(2,415) $(2,479)
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS: the carrying amounts approximate fair value because
of the short maturity of those instruments.
LONG-TERM RECEIVABLES: the fair value is estimated based on expected discounted
future cash flows.
PRICE PROTECTION CONTRACTS: are reported at cost and expensed as they expire.
The fair value of the options is estimated based on the spot price, while the
fair value of the forward sales is estimated based on the quoted market price
for the contracts at December 31, 1997 and 1996.
LONG-TERM DEBT: the fair value of long-term debt is estimated based on the
quoted market prices for the same or similar issues offered to the Company for
debt of similar maturities.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: INCOME TAXES
Income before Income Taxes and Minority Interest consists of the following:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Domestic $ 33 $ 61 $ 102
Foreign 7 16 18
----- ----- -----
$ 40 $ 77 $ 120
===== ===== =====
Income tax (benefit) provision is composed of:
(In millions) 1997 1996 1995
----- ----- -----
Current - Federal $ (24) $ (12) $ 56
- State 1 - 5
- Foreign 9 9 9
----- ----- -----
(14) (3) 70
----- ----- -----
Deferred - Federal (11) 20 (56)
- State (7) (5) (11)
- Foreign 10 (1) -
----- ----- -----
(8) 14 (67)
----- ----- -----
$ (22) $ 11 $ 3
===== ===== =====
</TABLE>
The deferred tax (assets)/liabilities comprises the tax effect of the following
at December 31:
<TABLE>
<CAPTION>
(In millions) 1997 1996
-------- --------
<S> <C> <C>
Reclamation Liabilities $ (71) $ (62)
Postretirement Benefits (250) (268)
Capitalized Lease Obligations (40) (60)
Accrued Liabilities (298) (294)
Net Operating Loss Carryforwards (174) (100)
Investment Tax Credit Carryforwards (7) (18)
State Tax Deduction (14) (20)
Minimum Tax Credit Carryforwards (261) (276)
Other - (2)
------- -------
Total Deferred Tax Assets (1,115) (1,100)
Valuation Allowance 221 181
------- -------
Net Deferred Tax Assets (894) (919)
------- -------
Properties 943 970
Prepaid Expenses - 5
------- -------
Total Deferred Tax Liabilities 943 975
------- -------
Total $ 49 $ 56
======= =======
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: INCOME TAXES (CONT'D)
Deferred Tax Assets of $9 million are included in Other Assets on the
Consolidated Balance Sheet at December 31, 1996. Deferred Tax Liabilities of
$21 million are included in Income Taxes Payable on the Consolidated Balance
Sheet at December 31, 1996.
The Company has approximately $7 million of investment tax credit carryforwards
expiring from 1998 to 2006 and $261 million of minimum tax credit carryforwards
which do not expire. There is a net operating loss carryforward for regular tax
of $333 million ($119 million related to Amax Gold) and an $83 million net
operating loss carryforward (all related to Amax Gold) for alternative minimum
tax purposes. The Company also had Chilean net operating loss carryforwards of
$290 million ($105 million related to Amax Gold) that do not expire. A
valuation allowance of $221 million has been recorded against all of these
benefits.
The increase in the valuation allowance of $40 million relates to increased
minimum tax credit carryforwards and regular tax net operating losses not
expected to be realized.
The following is a reconciliation between the amount determined by applying the
federal statutory rate of 35 percent to Net Income excluding Minority Interests
and the Income Tax (Benefit) Provision:
<TABLE>
<CAPTION>
(In millions)
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Income Taxes at Statutory Rate $ 14 $ 27 $ 42
Increases (Decreases) Resulting from:
Percentage Depletion (10) (12) (16)
State Income Taxes, Net of Federal Benefit (1) (10) (3)
Foreign Operations 2 10 4
Tax Carryforwards Used 6 (2) (25)
Adjustments to Prior Years (38) - -
Other, Net 5 (2) 1
----- ----- -----
Income Tax (Benefit) Provision $ (22) $ 11 $ 3
===== ===== =====
</TABLE>
The adustments to prior years of $38 million related primarily to the settlement
of prior years' income tax examinations.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: PREFERRED STOCK TRANSACTIONS
The $4.00 Series A Convertible Preferred Stock is convertible into Common Stock
at any time at a conversion price of $24.30 per share. The Series A Convertible
Preferred Stock has a stated value of $50.00 per share and carries a cumulative
dividend payable quarterly. The Series A Convertible Preferred Stock is
redeemable at the option of the Company, in whole or in part, at any time
beginning at $52.40 per share on and after December 18, 1996, and declining to
$50.00 per share on and after December 18, 2002.
In 1989 the Board of Directors of Cyprus Amax declared a dividend of one
preferred share purchase right for each outstanding share of Common Stock in
connection with the redemption of then-existing rights. If the rights become
exercisable following the occurrence of certain specified events, each right
will entitle the holder, within certain limitations, to purchase two-thirds of
one one-hundredth of a share of Series A Junior Participating Preferred Stock
for $93.33 subject to certain anti-dilution adjustments. If a person or group
acquires 20 percent of Common Stock, every other holder of a right will be
entitled to buy at the right's then-exercise price a number of shares of Common
Stock having a value of twice such exercise price. After the threshold is
crossed, the rights become non-redeemable, except that, prior to the time a
person or group acquires 50 percent or more of the Common Stock, the rights
other than those held by such person or group can be exchanged at a ratio of one
share of Common Stock for each right. In the event of certain extraordinary
transactions, including mergers, the rights entitle holders to buy at the
right's then-exercise price equity in the acquiring company having a value of
twice such exercise price. The rights do not have any voting rights nor are
they entitled to dividends. The rights are redeemable by Cyprus Amax at $.0067
each until a person or group acquires 20 percent of Common Stock or until the
rights expire on February 28, 1999. In addition, on May 24, 1993, the Board of
Directors increased the number of authorized shares of the Series A Junior
Participating Preferred Stock from 500,000 shares to 1,500,000 shares of which
none were issued or outstanding at December 31, 1997.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11: EMPLOYEE BENEFIT PLANS
PENSION PLANS - Cyprus Amax has a number of defined benefit pension plans
covering most of its employees. Benefits are based on either the employee's
compensation prior to retirement or stated amounts for each year of service with
the Company. Cyprus Amax makes annual contributions to these plans in
accordance with the requirements of the Employee Retirement Income Security Act
of 1974 ("ERISA"). Plan assets consist of cash and cash equivalents, equity and
fixed income securities, and real estate.
Net annual pension cost included the following components:
<TABLE>
<CAPTION>
Year ended December 31 (In millions) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service Cost $ 12 $ 11 $ 8
Interest Cost 22 20 20
Actual Gain on Plan Assets (42) (33) (37)
Deferred Gain 19 13 21
Other 2 3 2
----- ----- -----
$ 13 $ 14 $ 14
===== ===== =====
</TABLE>
The following table sets forth the funded status of the plans:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
ASSETS ACCUMULATED Assets Accumulated
EXCEED BENEFITS exceed benefits
ACCUMULATED EXCEED accumulated exceed
At December 31 (In millions) BENEFITS ASSETS benefits assets
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Actuarial Present Value of Benefit Obligations:
Vested Benefit Obligation $ 105 $ 160 $ 208 $ 17
===== ===== ===== ====
Accumulated Benefit Obligation $ 113 $ 185 $ 228 $ 17
===== ===== ===== ====
Projected Benefit Obligation $(117) $(203) $(248) $(17)
Plan Assets at Fair Value 131 166 258 2
----- ----- ----- ----
Plan Assets Greater Than (Less Than)
Projected Benefit Obligation 14 (37) 10 (15)
Unrecognized Net Loss 4 31 15 1
Unrecognized Prior Service Cost 2 6 9 (1)
Unrecognized Transition Credit (1) - (1) -
----- ---- ----- ----
Prepaid/(Accrued) Pension Cost $ 19 $ - $ 33 $(15)
===== ===== ===== ====
</TABLE>
Prepaid pension cost of $20 million and $19 million is included in Prepaid
Expenses on the Consolidated Balance Sheet at December 31, 1997 and 1996,
respectively. An accrued pension obligation of $1 million is included in
Accrued Payroll and Benefits at December 31, 1997 and 1996.
The significant actuarial assumptions at December 31 were as follows:
<TABLE>
<CAPTION>
(In percents) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Rate of Increase in Future Compensation Levels 5.00 5.75 5.25
Expected Long-Term Rate of Return on Assets 9.00 9.00 9.00
Discount Rate 7.25 7.75 7.25
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net periodic pension cost is determined using the assumptions as of the
beginning of the year, and the funded status is determined using the assumptions
as of the end of the year.
Substantially all domestic employees not covered under the plans administered by
Cyprus Amax are covered under multi-employer defined benefit plans administered
by the United Mine Workers of America. Contributions by Cyprus Amax to these
multi-employer plans, which are expensed when paid, are based primarily upon
hours worked and amounted to $3 million in 1997 and $4 million in 1996 and
1995.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - In addition to the Company's
defined benefit pension plans, the Company has plans that provide postretirement
medical benefits and life insurance benefits. The medical plans provide
benefits for most employees who reach normal, or in certain cases, early
retirement age while employed by the Company. The postretirement medical plans
are contributory, with annual adjustments to retiree contributions, and contain
certain other cost-sharing features such as deductibles and coinsurance.
Net periodic postretirement benefit cost consists of the following components:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service Cost $ 6 $ 5 $ 5
Interest Cost 23 26 26
Net Amortization (4) (1) (3)
----- ----- -----
Net Periodic Postretirement Benefit Cost $ 25 $ 30 $ 28
===== ===== =====
</TABLE>
The following table sets forth the plans' combined status:
<TABLE>
<CAPTION>
At December 31 (In millions) 1997 1996
------ ------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $ 225 $ 275
Fully Eligible Active Plan Participants 23 26
Other Active Plan Participants 52 44
----- -----
Total Accumulated Postretirement Benefit Obligation 300 345
Plan Assets at Fair Value - -
----- -----
Accumulated Postretirement Benefit Obligation
in Excess of Plan Assets $ 300 $ 345
===== =====
Accumulated Postretirement Benefit Obligation $(300) $(345)
Unrecognized Prior Service Cost (6) (6)
Unrecognized Net Gain (74) (32)
----- -----
Accrued Postretirement Benefit Cost $(380) $(383)
===== =====
</TABLE>
The accumulated postretirement benefit obligation at December 31, 1997 and 1996,
consisted of a current liability of $23 million and $22 million included in
Accrued Payroll and Benefits, respectively, and a long-term liability of $357
million and $361 million, respectively, included in Deferred Employee and
Retiree Benefits.
The weighted average annual rate of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) for medical benefits is 7 percent
for 1998 and is assumed to decrease gradually (one-half percent per year) to
4.25 percent by the year 2003 and remain at that level thereafter.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Increasing the assumed health care cost trend rate by one percentage point in
each year would increase the accumulated postretirement benefit obligation for
the medical plans as of December 31, 1997, by $16 million and the aggregate of
the service cost and interest cost components of net periodic postretirement
benefit cost for 1997 by $2 million.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation as of December 31, 1997, 1996, and 1995, was
7.25 percent, 7.75 percent, and 7.25 percent, respectively. The change in the
discount rate and the change in the assumed health care cost trend rate from 8.5
percent to 7.0 percent for 1998 resulted in a $4 million unrecognized net gain
as of December 31, 1997.
In addition, health care and life insurance benefits of certain retirees are
covered by multi-employer benefit trusts established by the United Mine Workers
of America and the Bituminous Coal Operators Association, Inc. Current and
projected operating deficits of these trusts led to the passage of the Coal
Industry Retiree Health Benefit Act of 1992 (the "Act"). The Act established a
new multi-employer benefit trust called the United Mine Workers of America
Combined Benefit Fund (the "Fund") that will provide health and life insurance
benefits to all beneficiaries of the earlier trusts who were receiving benefits
as of July 20, 1992. The Act provides for the assignment of beneficiaries to
former employers and the allocation of any unassigned beneficiaries to
enterprises using a formula included in the legislation. The Company has chosen
to account for its obligation under the Act on a cash basis in accordance with
established accounting guidance. The 1997, 1996, and 1995 contributions to the
Fund were each $1 million.
The Company also has a number of postemployment plans covering severance,
disability income, and continuation of health and life insurance for disabled
employees. At December 31, 1997 and 1996, the accumulated postemployment
benefit liability consisted of a current amount of $6 million and $4 million,
respectively, included in Accrued Payroll and Benefits and $23 million and $34
million, respectively, included in Deferred Employee and Retiree Benefits.
NOTE 12: COMMON STOCK PLANS
SAVINGS PLANS - Cyprus Amax sponsors a savings plan (the "Savings Plan")
covering substantially all of its non-represented employees which includes an
employee stock ownership feature (Leveraged ESOP). In February 1990, the
Savings Plan acquired 4,245,810 shares of Cyprus Amax's unissued Common Stock at
an acquisition price of $22.375 per share. The Savings Plan financed the
purchase of shares with a $95 million interest-bearing promissory note payable
to Cyprus Amax. The loan to the Savings Plan bears interest at 9 3/4 percent
per annum and matures on February 1, 2010, and is serviced by Cyprus Amax's
contribution to the Savings Plan and dividends paid on the Cyprus Amax Common
Shares purchased with the proceeds of the loan. Cyprus Amax intends to
contribute the greater of 75 percent of employee matchable contributions or the
minimum per the promissory note. The expense related to the Savings Plan is
based upon the shares allocated method. Shares are released for allocation to
participants, based on a predetermined formula, as loan payments are made. The
amount contributed for 1997 and 1996 was $9 million and 1995 was $8 million.
The amount of interest incurred by the Savings Plan for the Leveraged ESOP was
$8 million in 1997, 1996, and 1995. The interest expense offset of the
Leveraged ESOP due to dividends on allocated and unallocated shares was $3
million in 1997, 1996, and 1995. The aggregate compensation expense related to
the Savings Plan amounted to $6 million in 1997, 1996, and 1995. Leveraged ESOP
shares are treated as shares outstanding for purposes of calculating earnings
per share.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the number of shares held in the Leveraged ESOP
at year end:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Allocated Shares 1,192,315 1,042,763 898,172
Committed to be Released Shares 3,925 6,744 9,683
Suspense Shares 2,340,291 2,589,446 2,836,500
</TABLE>
Amax Gold sponsors a thrift plan covering substantially all of its full-time
non-represented employees. Amax Gold contributes Amax Gold Common Stock to the
plan at 75 percent of the first 6 percent of base pay contributed by each
participant. Amax Gold contributions were $1 million in 1997, 1996, and 1995.
NOTE 13: STOCK-BASED COMPENSATION PLANS
At December 31, 1997, the Company has three stock-based compensation plans,
which are described below. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plan. The compensation cost that
has been charged against income for its performance-based plan was $2.0 million,
$1.2 million, and $1.5 million for 1997, 1996, and 1995, respectively. Had
compensation cost for the Company's three stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
(In millions except per share data) 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net Income
As Reported $ 69 $ 77 $ 124
Pro Forma $ 63 $ 71 $ 123
Basic and Diluted Earnings Per Share/(1)/
As Reported $0.54 $0.62 $1.13
Pro Forma $0.48 $0.56 $1.12
</TABLE>
/(1)/Diluted earnings per share were anti-dilutive in 1997, 1996, and 1995.
Under the Management Incentive Program (the "Program"), key employees of Cyprus
Amax may be granted options to purchase Common Stock at fair market value as of
the grant date. These options are in the form of either incentive stock options
or non-qualified options and may be granted with stock appreciation rights
("SARs"). SARs permit holders to surrender exercisable options in exchange for
a payment, in either shares or cash, determined by the amount by which the
market price of the shares on the dates the rights are exercised exceeds the
grant price.
Options granted under the Program are exercisable after completion of the
specified period of continuous employment stated in the terms of the grant and
expire at the end of ten years after the date of grant. Additionally, under the
Program certain employees may be granted restricted shares of Common Stock.
Restricted stock is subject to forfeiture if the recipient terminates
employment.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Under the Program, the Company may grant in any year up to 1.2 percent of the
number of shares of Common Stock outstanding (plus the cumulative number of
carried-forward shares) as stock options or restricted stock awards, up to a
limit of five million shares issued as statutory options.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997, 1996, and 1995, respectively: dividend
payment of $0.80 per share per year; expected volatility of 30 percent for 1997
and 1996 and 31 percent for 1995; risk-free interest rates of 6.20, 5.34, and
7.31 percent; and expected lives of 3.46 for 1997 and 3.37 years for 1996 and
1995.
A summary of the status of the Company's fixed stock option plan as of December
31, and changes during the years ended 1997, 1996, and 1995, is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------- ------------------------- -----------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
SHARES EXERCISE Shares Exercise Shares Exercise
Fixed Options (000) PRICE (000) Price (000) Price
- ------------- ------------------------------- -------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of Year 4,233 $ 27 2,919 $ 28 3,051 $ 27
Granted 716 23 1,762 26 297 27
Exercised (75) 21 (108) 22 (231) 21
Forfeited (96) 26 (340) 29 (198) 30
-------- -------- -------- -------- -------- --------
Outstanding at
End of Year 4,778 $ 27 4,233 $ 27 2,919 $ 28
======== ======== ========
Options Exercisable
at Year End 2,716 2,141 2,213
Weighted Average
Fair Value of
Options Granted
During the Year $ 5.26 $ 6.48 $ 6.90
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ---------------------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
- --------------- ----------- ---------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$16.61-$23.38 978,661 7.13 YEARS $ 22.87 292,986 $21.79
$23.50-$26.00 1,095,501 5.01 25.37 1,059,501 25.41
$26.13-$26.13 1,000 7.45 26.13 1,000 26.13
$26.44-$26.44 1,670,250 8.01 26.44 344,661 26.44
$27.56-$35.75 1,032,471 5.58 31.84 1,017,471 31.90
---------- ----------
$16.61-$35.75 4,777,883 6.61 26.63 2,715,619 27.58
========== ==========
</TABLE>
Under the 1993 Key Executive Long-Term Incentive Plan, the Company may grant in
any year up to one-half percent of the number of shares of Common Stock
outstanding (plus the cumulative number of carried-forward shares) as restricted
stock awards. Key executives may receive restricted stock awards and cash
incentive payments based on the rate of return received by investors in the
Company's stock, compared to that of its peers. As of December 31, 1997,
716,609 cumulative
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
shares were awarded and 1,371,400 shares were authorized and unissued. On
January 2, 1998, an additional 176,900 shares were awarded.
Cyprus Amax maintains a stock plan for non-employee directors which grants each
eligible director 500 shares of Common Stock each year. In 1996 this plan was
amended and restated and then approved by shareholders and is now known as the
Amended and Restated Stock Plan for Non-Employee Directors (the "Plan"). This
amended Plan revised the maximum number of shares that may be awarded and stock
options that may be granted under the Plan. The aggregate number of shares that
may be awarded and options that may be granted will equal the sum of one-
sixteenth of one percent of the number of shares of common stock outstanding as
of the end of the immediately preceding fiscal year plus the cumulative number
of carryforward shares from all prior fiscal years not previously used to make
grants and awards. Prior to being amended, the Plan provided that a maximum of
35,000 shares of Common Stock could be issued under the Plan. As of December
31, 1997, 34,500 cumulative shares have been granted and 50,000 stock options
awarded.
NOTE 14: CONTINGENCIES
Cyprus Amax had outstanding letters of credit totaling $66 million at December
31, 1997, primarily for reclamation, dragline leases, and insurance programs for
workers compensation, general liability, and automobiles. Cyprus Amax has
guaranteed the portion of project financing attributed to certain joint venture
partners totaling $184 million at December 31, 1997.
Cyprus Tohono Mining Company was informed in late 1995 by the office of the
Assistant U.S. Attorney in Tucson, Arizona, that an action was being considered
under federal environmental laws against Cyprus Tohono Corporation and certain
of its employees. The facts giving rise to this matter involve a break in a
process line at Tohono occurring in 1992. It is not possible to state with
reasonable certainty at this time what action will be taken by the government.
Cyprus Miami and other companies, in conjunction with the Arizona Department of
Environmental Quality's Water Quality Assurance Revolving Fund program,
continued remediation and assessment of ground water quality at Pinal Creek near
Miami, Arizona, throughout 1997. Despite the fact that the ongoing program,
initiated in 1989, has resulted in continued improvement of subsurface water
quality in the area, Cyprus Miami was informed that the State of Arizona was
contemplating enforcement action against Cyprus Miami and/or other companies in
connection with the Pinal Creek water quality issues under federal and state
environmental laws. On November 10, 1997, Cyprus Miami as a member of the Pinal
Creek group joined with the State of Arizona in seeking approval of the District
Court for entry of a Consent Decree to resolve all matters related to the
contemplated enforcement action. The Decree commits Cyprus Amax and other Pinal
Creek group members to complete the work outlined in the remedial action plan
submitted to the State in May 1997. The Final Remediation Action Plan will be
finalized through provisions of the Decree. Approximately $42 million remained
in the Pinal Creek remediation reserve at December 31, 1997. Cyprus Miami has
commenced contribution litigation against other parties involved in this matter
and has asserted claims against certain of its past insurance carriers. While
significant recoveries are expected, Cyprus Miami cannot reasonably estimate the
amount and, therefore, has not taken potential recoveries into consideration in
the recorded reserve.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cyprus Amax or its subsidiaries have been advised by the EPA and several state
environmental agencies that they may be liable under the CERCLA or similar state
laws and regulations for costs of responding to environmental conditions at a
number of sites which have been or are being investigated by the EPA or states
to establish whether releases of hazardous substances have occurred and, if so,
to develop and implement remedial actions. Cyprus Amax has been named as a
potentially responsible party ("PRP") or has received EPA requests for
information for several sites. For all sites, Cyprus Amax had an aggregate
reserve of approximately $95 million at December 31, 1997, for its share of the
estimated liability. Liability estimates are based on an evaluation of, among
other factors, currently available facts, existing technology, presently enacted
laws and regulations, Cyprus Amax's experience in remediation, other companies'
remediation experience, Cyprus Amax's status as a PRP, and the ability of other
PRPs to pay their allocated portions. The cost range of reasonably possible
outcomes for all sites is estimated to be from $65 million to $280 million, and
work on these sites is expected to be substantially completed in the next
several years, subject to the inherent delays involved in the process.
Remediation costs that could not be reasonably estimated at December 31, 1997,
are not expected to have a material impact on the financial condition and
ongoing operations of the Company. Cyprus Amax believes certain insurance
policies partially cover these claims; however, some of the insurance carriers
have denied responsibility, and Cyprus Amax is litigating coverage. Further,
Cyprus Amax believes that it has other potential claims for recovery from third
parties, including the U.S. Government and other PRPs, as well as liability
offsets through lower cost remedial solutions. However, neither insurance
recoveries nor other claims or offsets have been recognized in the financial
statements unless such offsets are considered probable of realization.
At December 31, 1997, Cyprus Amax's accruals for deferred closure, shutdown of
closed operations, and reclamation totaled approximately $316 million.
Reclamation is an ongoing activity and a cost associated with Cyprus Amax's
mining operations. Accruals for closure and final reclamation liabilities are
established on a life of mine basis. The Cyprus Amax Coal reclamation reserve
component of $190 million is largely a result of reclamation obligations
incurred for replacing soils and revegetation of mined areas as required by
provisions and permits pursuant to the Surface Mining Control and Reclamation
Act. The Copper/Molybdenum and Other reclamation reserve components are $104
million and $22 million, respectively, and include costs for site stabilization,
cleanup, long-term monitoring, and water treatment costs as expected to be
required largely by state laws and regulations as well as by sound environmental
practice. Total reclamation costs for Cyprus Amax at the end of current mine
lives is estimated at about $630 million.
Cyprus Amax believes that it has adequate reserves such that none of these
matters or contingencies is expected to have a material adverse effect on its
business or financial condition, results, and cash flows, and is unaware of any
additional environmental matters which, based on information currently known to
Cyprus Amax, would have a material effect upon the Company's financial condition
or results of operations.
NOTE 15: RELATED PARTY TRANSACTIONS
In May 1997, Amax Gold completed a $71 million tax-exempt industrial revenue
bond financing for the solid waste disposal facility at the Fort Knox mine.
During December 1997, Amax Gold completed a $40 million credit facility which
was used to refinance the existing Refugio gold loan and for working capital and
debt service requirements. Cyprus Amax has guaranteed the Refugio loan and a
letter of credit backing the industrial revenue bond. Amax Gold pays an
interest differential to Cyprus Amax as a guaranty fee on each loan.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In May 1997, Cyprus Amax sold its 50 percent interest in the Russian Kubaka gold
mine project to Amax Gold. Amax Gold received shareholder approval for the
acquisition in December 1996. Cyprus Amax received 11,789,474 shares of Amax
Gold Common Stock in May 1997 at closing and 3,585,526 shares in June 1997 upon
commencement of commercial production. As a result of these transactions,
Cyprus Amax increased its ownership to 58.8 percent.
During 1996 Cyprus Amax provided Amax Gold with a $250 million demand loan
facility to fund additional costs at the Fort Knox project and for general
corporate purposes, with such funding to be provided at the discretion of Cyprus
Amax. During 1997 Amax Gold borrowed a total of $49.5 million and repaid $106.2
million on the demand loan facility. As of December 31, 1997, Cyprus Amax has
loaned Amax Gold $73.3 million, net of repayments. At December 31, 1997, an
additional $70 million was available on the demand loan.
In 1996 Amax Gold renegotiated its $250 million Fort Knox loan agreement. As
support to the restructured facility, Cyprus Amax has guaranteed the loan until
economic compeltion of the Fort Knox mine. The lenders waived certain
restrictive covenants and reduced the interest rate. In return for the
increased financial support, Cyprus Amax receives certain fees, the interest
differential, and security interest in certain Amax Gold assets. In November
1996, Cyprus Amax received 2,771,098 shares from Amax Gold as repayment of the
guaranty and financing fee and interest and interest differential payments.
In February 1995, Cyprus Amax agreed to provide Amax Gold with an additional $80
million in double-convertible revolving credit (DOCLOC II). During 1995 Cyprus
Amax converted $80 million of the outstanding borrowings to 14,919,806 shares of
Amax Gold Common Stock at a conversion price of $5.362 per share.
In April 1994, Cyprus Amax and Amax Gold entered into an agreement whereby the
Company has provided Amax Gold with a $100 million double-convertible line of
credit (DOCLOC I). The outstanding indebtedness under the line of credit may be
repaid by Amax Gold with the issuance of Amax Gold Convertible Preferred Stock.
Both companies have conversion rights to convert the line of credit into Amax
Gold Common Stock at a maximum price of $8.265 per share and a minimum price of
$5.854 per share. As of December 31, 1997 and 1996, no borrowings were
outstanding under this line of credit. Certain amounts have been made available
to Amax Gold as support for the Fort Knox and Refugio loans (Note 7). Amax Gold
has agreed not to borrow under DOCLOC I as part of the consideration for the
Fort Knox loan guaranty.
In 1994 Cyprus Amax established a joint exploration agreement with Amax Gold to
explore for gold. The agreement provides Cyprus Amax a 75 percent interest and
Amax Gold a 25 percent interest in the gold prospects resulting from future
exploration. Amax Gold has a right of first refusal from Cyprus Amax to
purchase and develop gold deposits, and Cyprus Amax has a similar right with
respect to base metals. Each party funds work in proportion to its interest,
and Cyprus Amax provides staffing and management.
In May 1997, Ban-Pu, a 6.7 percent shareholder in Oakbridge, advised Cyprus
Amax's Australian coal subsidiary that they intended to exercise an option
entered into in 1994 that required Cyprus Amax to purchase Ban-Pu's shareholding
in Oakbridge. The share purchase, which increased Cyprus Amax's ownership
interest in Oakbridge to 48 percent, was completed in January 1998 for an
investment of approximately $10 million.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997, the subordinated loans outstanding to Oakbridge, Ltd. from
Cyprus Amax totaled $38 million, of which $21 million is convertible to
Oakbridge Common Stock on certain terms and conditions.
In June 1994, Cyprus Amax acquired a 51 percent interest in Sociedad Contractual
Minera El Abra, which owns the mineral rights to the El Abra copper deposit in
Chile, for $330 million. Development of the mine required an investment of
approximately $1 billion. Funding of the investment to develop the oxide
reserves included approximately $300 million of subordinated shareholder loans
from Cyprus Amax and $750 million in project financing. In November 1997, the
$1 billion in project loans was refinanced with senior debt, and Cyprus Amax was
repaid the $300 million of subordinated notes. Cyprus Amax has a back-stop
guarantee on $200 million of El Abra's $1 billion of senior debt.
NOTE 16: LEASES AND MINERAL ROYALTY OBLIGATIONS
Cyprus Amax leases mineral interests and various other types of properties,
including draglines, shovels, longwalls, offices, computing services, and
miscellaneous equipment. Certain of the Company's mineral leases require
minimum annual royalty payments, whereas others provide only for royalties based
on production.
Accrued minimum mineral royalties that are not expected to be recovered from
future coal production consist of the following at December 31:
<TABLE>
<CAPTION>
(In millions) 1997 1996
------ ------
<S> <C> <C>
Minimum Future Royalties $ 68 $ 85
Less Imputed Interest (15) (20)
----- -----
Present Value of Payments 53 65
Less Current Portion Included in Accrued
Royalties and Interest (9) (9)
----- -----
Long-Term Portion Included in Other
Noncurrent Liabilities and Deferred Credits $ 44 $ 56
===== =====
</TABLE>
The Company's property, plant, and equipment held under capital leases consist
of the following:
<TABLE>
<CAPTION>
(In millions) 1997 1996
------ ------
<S> <C> <C>
Mining Equipment $ 211 $ 211
Less Accumulated Depreciation (116) (89)
----- -----
$ 95 $ 122
===== =====
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Summarized below as of December 31, 1997, are future minimum rentals and
royalties under noncancelable leases:
<TABLE>
<CAPTION>
OPERATING MINERAL CAPITAL
(In millions) LEASES ROYALTIES LEASES
--------- --------- --------
<S> <C> <C> <C>
1998 $ 28 $ 22 $ 44
1999 19 22 65
2000 17 19 28
2001 13 16 11
2002 10 10 10
After 2002 18 45 16
---- ---- ----
Total Payments $105 $134 $174
==== ====
Less Imputed Interest (29)
----
Present Value of Lease Payments 145
Less Current Portion (32)
----
Capital Lease Obligations $113
====
</TABLE>
Rentals and mineral royalties charged to expense were as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Rental Expense $ 43 $ 51 $ 48
Mineral Royalties $ 64 $ 68 $ 72
</TABLE>
NOTE 17: CASH FLOW INFORMATION
The Consolidated Statement of Cash Flows provides information about changes in
cash and cash equivalents that have a maturity of three months or less when
acquired. Net Cash Provided by Operating Activities reflects cash payments for
interest and income taxes as shown below:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
----- ------ -----
<S> <C> <C> <C>
Interest Paid (Net of Interest Capitalized
and Interest Rate Swap Payments/Receipts) $ 189 $ 110 $ 81
Income Taxes Paid, Net $ 7 $ 6 $ 60
<CAPTION>
Supplemental Disclosures of Non-Cash Transactions:
(In millions) 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Fair Value of Assets Acquired, Other Than Cash
and Cash Equivalents $ - $ 75 $ -
Liabilities Assumed - (5) -
----- ----- -----
Cash Payments $ - $ 70 $ -
===== ===== =====
Sale of Businesses in Exchange for Common Stock $ - $ 1 $ -
Receipt of AGI Common Stock as Repayment of
Guaranty, Notes Receivable, and Interest (Note 15) $ - $ 15 $ 81
Capital Lease Obligation - Sale-Leaseback $ - $ 24 $ -
Note Receivable for Coal Contract $ 24 $ - $ -
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18: INFORMATION BY INDUSTRY SEGMENT
Cyprus Amax operates in three principal industry segments - Copper/Molybdenum,
Coal, and Other - which supply mineral products primarily to the construction,
automobile, steel, and utility industries, and gold to banks and other bullion
dealers. The financial information for these segments is presented below:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
----------- -------------- ------------
<S> <C> <C> <C>
SEGMENT REVENUE
Copper/Molybdenum $ 1,564 $ 1,331 $ 1,720
Coal 1,403 1,284 1,298
Other 379 228 189
-------- ------- --------
$ 3,346 $ 2,843 $ 3,207
======== ======= ========
SEGMENT OPERATING INCOME (LOSS)
Copper/Molybdenum $ 314 $ 151 /(3)/ $ 584
Coal (15)/(1)/ 90 (308)/(5)/
Other 2 /(2)/ (32)/(4)/ (37)
-------- ------- --------
301 209 239
Corporate (68) (57) (57)
Interest, Net (162) (78) (70)
Earnings (Loss) on Equity Investments and Other (31) 3 8
-------- ------- --------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 40 77 120
Income Tax Benefit (Provision) 22 (11) (3)
Minority Interest 7 11 7
-------- ------- --------
NET INCOME $ 69 $ 77 $ 124
======== ======= ========
/(1)/Includes an $86 million pre-tax charge to recognize the write-down for
$236 million of certain coal assets and provisions for associated
liabilities (Note 4), a pre-tax gain of $14 million on the sale of a 15
percent interest in Cyprus Plateau (Note 3), a $5 million pre-tax favorable
settlement of a royalty issue, and net pre-tax favorable adjustments of $131
million primarily for the sale and assignment of two coal contracts.
/(2)/Includes a $19 million pre-tax gain on the sale of Kubaka to Amax Gold
(Note 3).
/(3)/Includes an $80 million pre-tax charge for environmental remediation
liabilities and costs to temporarily close the Tohono mine (Note 4).
/(4)/Includes a $36 million pre-tax charge to write down the net assets of the
Guanaco gold mine (Note 4).
/(5)/Includes a $445 million pre-tax charge to recognize the write-down of
certain coal assets and provisions for associated liabilities (Note 4).
<CAPTION>
(In millions) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Copper/Molybdenum $3,047 $3,258 $3,060
Coal 1,851 1,933 1,947
Other 1,181 1,190 939
Corporate 380 405 250
---------- ------ --------
$6,459 $6,786 $6,196
========== ====== ========
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18: INFORMATION BY INDUSTRY SEGMENT (CONTINUED)
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
----- ----- ------
<S> <C> <C> <C>
CAPITAL EXPENDITURES
Copper/Molybdenum $ 143 $ 449 $ 599
Coal 147 186 163
Other 62 283 265
Corporate 23 23 5
----- ----- ------
$ 375 $ 941 $1,032
===== ===== ======
DEPRECIATION, DEPLETION, AND AMORTIZATION
Copper/Molybdenum $ 189 $ 135 $ 118
Coal 153 163 146
Other 98 38 29
Corporate 4 3 3
----- ----- ------
$ 444 $ 339 $ 296
===== ===== ======
EXPORT SALES
Copper/Molybdenum $ 195 $ 162 $ 253
Coal 66 76 51
Other 121 75 56
----- ----- ------
$ 382 $ 313 $ 360
===== ===== ======
</TABLE>
Financial information by geographic location for the past three years is
presented below:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
REVENUE
Domestic $2,858 $2,636 $3,032
Foreign 488/(1)/ 207 175
------ ------ ------
$3,346 $2,843 $3,207
====== ====== ======
OPERATING INCOME
Domestic $ 190 $ 203 $ 221
Foreign 111/(1)/ 6 18
------ ------ ------
$ 301 $ 209 $ 239
====== ====== ======
IDENTIFIABLE ASSETS
Domestic $4,664 $4,825 $4,900
Foreign 1,795/(1)/ 1,961 1,296
------ ------ ------
$6,459 $6,786 $6,196
====== ====== ======
</TABLE>
/(1)/ South America accounts for approximately 81 percent, 95 percent, and 82
percent, respectively, of Foreign Revenue, Foreign Operating Income, and
Foreign Identifiable Assets.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
QUARTERLY RESULTS (UNAUDITED) 1997
- -----------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
(IN MILLIONS EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $ 888 $ 842 $ 860 $ 757
SEGMENT OPERATING INCOME (LOSS) $ 109 $ 146 $ 103 $ (58)
NET INCOME (LOSS) $ 57 $ 66 $ 44 $ (97)
INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 52 $ 61 $ 39 $ (102)
- -----------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER COMMON SHARE $0.56 $0.65 $0.42 $(1.09)
- -----------------------------------------------------------------------------------------------------
<CAPTION>
1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 684 $ 740 $ 665 $ 754
Segment Operating Income (Loss) $ 112 $ 96 $ 51 $ (49)
Net Income (Loss) $ 62 $ 53 $ 14 $ (52)
Income (Loss) Applicable to Common Shares $ 57 $ 48 $ 9 $ (57)
- -----------------------------------------------------------------------------------------------------
Earnings (Loss) Per Common Share $0.62 $0.52 $0.10 $(0.61)
=====================================================================================================
</TABLE>
First quarter 1997 results included a net after-tax gain of $29 million for a
favorable tax adjustment resulting from settlement of certain prior years' tax
issues and the impact of coal settlements, net of certain provisions for mine
closing costs.
Second quarter 1997 results included an after-tax gain of $19 million for the
sale of Kubaka to Amax Gold and an after-tax charge of $5 million for the costs
of redeeming the 9 7/8% Notes.
Third quarter 1997 results included a net after-tax gain of $8 million from the
sale of a 15 percent interest of Cyprus Plateau, a favorable tax adjustment, a
favorable settlement of a royalty issue, and the write-down of the Maple Meadow
mine.
Fourth quarter 1997 results included favorable tax adjustments of $14 million, a
$13 million write-down in Cyprus Amax's equity investment of Oakbridge, and net
after-tax charges of $79 million associated with the Coal segment for mine
closures, reclamation adjustments, and write-downs due to impairment of assets
as stated in SFAS No. 121.
Fourth quarter 1996 results included an after-tax charge of $74 million for
environmental remediation liabilities, costs to temporarily close a copper mine,
the write-down of the net assets of the Guanaco gold mine, and an unrelated
favorable tax adjustment for Amax Gold.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
MINERAL RESERVES AND SELECTED OPERATING STATISTICS (UNAUDITED)
The following table presents reserve information of Cyprus Amax as of December
31, 1993 through 1997, and selected operating statistics for the years then
ended. Proved reserves represent those reserves that, under presently
anticipated conditions, will be commercially recoverable from known mineral
deposits with a high degree of certainty. Proved and probable reserves include
reserves that are less well defined than proved reserves, but that have been
indicated to exist on the basis of geological and engineering data. Reserve
estimates were prepared by Cyprus Amax's engineers. Reserves of entities
proportionately consolidated are shown at Cyprus Amax's ownership percentage.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
COPPER/MOLYBDENUM
Proved and Probable Ore Reserves
Copper - United States (million tons) 2,020 2,200/(5)/ 2,317/(5)/ 2,423/(5)/ 2,499/(5)/
Average Grade (percent) .34 .33/(5)/ .34/(5)/ .35/(5)/ .35/(5)/
Copper - South America (million tons) 1,235/(1)/ 1,096 1,097 1,101/(9)/ -
Average Grade (percent) .57 .60 .61 .61 -
Molybdenum (million tons) 343 351/(6)/ 313 322 316
Average Grade (percent) .223 .223 .232 .232 .228
Saleable Product (billion pounds)
Copper 21.8 21.6 22.6 23.8 13.7
Molybdenum 2.1 2.1 2.1 2.1 2.0
Production (million pounds)
Copper 1,018 768 687 648 632
Molybdenum 63 56 75 57 28
Average Realized Price (per pound)
Copper $ 1.04 $ 1.04 $ 1.33 $ 1.09 $ 0.94
Molybdenum $ 5.50 $ 5.25 $ 7.53 $ 3.77 $ 2.82
------ ------ ------ ------ ------
COAL
Proved and Probable Reserves
(million tons) 2,232/(2)/ 2,390/(7)/ 2,396/(8)/ 2,538 2,681
Production (million tons) 83 76 75 75/(10)/ 27
Average Realized Price (per ton) $14.53 $15.69 $16.25 $16.12 $20.80
------ ------ ------ ------ ------
LITHIUM
Proved Ore Reserves
Lithium (thousand tons) 379 384 389 393 397
Production
Lithium Carbonate Equivalents (million pounds) 40 45 38 32 32
------ ------ ------ ------ ------
GOLD
Amax Gold (100% in 1997, 1996, and 1995;
and Cyprus Amax share in 1994 and 1993)
Proved and Probable Reserves
(million contained ounces) 7.1/(3)/ 6.4 7.0 3.0 3.0
Production (thousand ounces) 730 268 238 - -
Average Realized Price (per ounce) $ 360 $ 412 $ 406 $ - $ -
Kubaka (Cyprus Amax Share)
Proved and Probable Reserves
(million contained ounces) -/(3)/ 1.3 1.2 1.0 1.0
------ ------ ------ ------ ------
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----- ----- ----- ------------ -----
<S> <C> <C> <C> <C> <C>
EQUITY COMPANIES/(4)/
Proved and Probable Reserves
Coal (million tons)
Oakbridge (100%) 322.3 341.4 372.3 423.8/(11)/ 358.7
Cyprus Amax Share (41.3%) 133.1 141.0 158.7 170.8 143.5
----- ----- ----- ------------ -----
</TABLE>
/(1)/ South America copper reserves increased due to additional reserves at El
Abra.
/(2)/ Coal reserves decreased due to 83 million tons of production, the
elimination of 49 million tons in West Virginia due to revised mine plans
and reevaluation of economics of future mining, and the expiration of
leases in the Midwest for a 34 million reduction in undeveloped reserves.
/(3)/ The Kubaka mine was sold to Amax Gold in the second quarter of 1997.
Prior to 1997, the Kubaka reserves were shown separately, but in 1997
they are included in Amax Gold's reserves, which accounts for their
increase.
/(4)/ Reserves for Equity Companies are shown at 100 percent for the operation
or company. Cyprus Amax has a beneficial ownership equivalent to its
percentage ownership in the venture which is shown on a separate line.
/(5)/ Reserves were restated to include the Sierrita mill reserves as copper
reserves, while in previous years they were reflected on a separate line
for copper and molybdenum reserves.
/(6)/ Molybdenum reserves increased due to lower expected costs resulting from
the Henderson 2000 project.
/(7)/ Coal reserves decreased due to 76 million tons of production, the write-
off of the undeveloped Midwest reserves of approximately 210 million
tons, and the addition of approximately 257 million tons in Pennsylvania.
/(8)/ Coal reserves decreased primarily due to new mine plans at the Kentucky
operations, the sale of Minnehaha, and 1995 production, partially offset
by an increase in Wyoming due to a lease acquired from the Bureau of Land
Management.
/(9)/ Represents Cerro Verde and El Abra reserves purchased in 1994.
/(10)/ Coal production increased in 1994 due to a full year of production from
former Amax mines.
/(11)/ Oakbridge reserves increased due to acquiring additional leases at
Ellalong/Pelton.
<PAGE>
STOCK MARKET INFORMATION
Cyprus Amax Common Stock is traded on the New York Stock Exchange (NYSE) under
the symbol "CYM." The ranges of actual trade prices by quarters for the Common
Stock, as reported by the NYSE, are set forth below.
<TABLE>
<CAPTION>
ACTUAL TRADE PRICES
Common Stock
---------------------------------------------------
1997 1996
===================================================
Period HIGH LOW High Low
---------------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter $ 24 7/8 $ 21 1/4 $ 29 1/4 $ 24 1/2
2nd Quarter $ 26 3/8 $ 21 5/8 $ 29 $ 22 5/8
3rd Quarter $ 26 13/16 $ 22 3/8 $ 24 1/8 $ 19 7/8
4th Quarter $ 25 15/16 $ 14 7/16 $ 25 1/4 $ 21 3/8
</TABLE>
In addition to its Common Stock, Cyprus Amax has 4,664,302 shares of $4.00
Series A Convertible Preferred Stock outstanding as of February 24, 1998. These
shares are held by three registered shareholders. Each share of Series A
Convertible Preferred Stock carries the right to receive a dividend of $4.00 per
year. Dividends are paid out of funds legally available when and if declared by
the Board of Directors. Due to the limited number of shareholders, there is no
market for these shares.
During 1997 and 1996, Cyprus Amax declared cash dividends amounting to $0.80 and
$4.00 per share on its Common Stock and Series A Convertible Preferred Stock,
respectively. On February 12, 1998, the Board of Directors of Cyprus Amax
declared dividends of $0.20 per share of the Common Stock for shareholders of
record on April 9, 1998, and a regular quarterly dividend of $1.00 per share of
Series A Convertible Preferred Stock for shareholders of record on February 24,
1998. The Board of Directors will continue to evaluate the Company's
performance and the appropriateness of dividends. It is currently anticipated
that dividends will continue to be paid during 1998.
The closing trade price per share of the Common Stock on February 23, 1998, as
reported by the NYSE was $15 3/4. As of February 23, 1998, the number of
registered shareholders of Cyprus Amax Common Stock was approximately 39,812.
<PAGE>
EXHIBIT 21
CYPRUS AMAX MINERALS COMPANY
----------------------------------------
SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1997
Organized
Under
Company Laws of
- --------------------------------------------- -------
Cyprus Metals Company Delaware
Cyprus Climax Metals Company Delaware
Byner Cattle Company Nevada
Copper Market, Inc. Arizona
Climax Molybdenum Company Delaware
Climax Molybdenum Marketing Corporation Delaware
Climax Molybdenum B.V. The Netherlands
Climax Molybdenum GmbH Germany
Climax Molybdenum S.R.L. Italy
Cyprus Amax del Peru Corporation Delaware
Cyprus Amax Finance Chile Corporation Delaware
Cyprus Bagdad Copper Corporation Delaware
Cyprus Christmas Mine Corporation Delaware
Cyprus Copper Marketing Corporation Delaware
Cyprus El Abra Corporation Delaware
Sociedad Contractual Minera El Abra - (51%) (a) Chile
Cyprus Lac Minera Limitada - (50%) (b) Chile
Cyprus Miami Mining Corporation Delaware
Cyprus Pima Mining Company - (75.01%) (c) California
Cyprus Pinos Altos Corporation Delaware
Cyprus Rod Chicago Corporation Delaware
Cyprus Sierrita Corporation Delaware
Las Quintas Serenas Water Co. - (59%) (d) Arizona
Cyprus Tohono Corporation Delaware
Cyprus Tonopah Mining Corporation Delaware
Sociedad Minera Cerro Verde S.A. - (82.5%) (e) Peru
Cyprus Gold Company Delaware
Cyprus Copperstone Gold Corporation Delaware
Cyprus Gold Australia Corporation Delaware
<PAGE>
Organized
Under
Company Laws of
- --------------------------------------------- -------
Cyprus Exploration and Development Corporation Delaware
Cyprus Amax China Corporation Delaware
Cyprus Amax Ghana Corporation Delaware
Cyprus Amax Indonesia Corporation Delaware
PT Cyprus Amax Indonesia (f) Indonesia
Cyprus Amax Indonesia Holdings Limited Bermuda
PT Cyprus Amax Iriana - (85.01%)(g) Indonesia
Cyprus Amax Phillippines Corporation Delaware
Cyprus Amax Zambia Corporation Delaware
Cyprus Amax Zimbabwe Corporation Delaware
Cyprus Canada, Inc. Canada
Cyprus Gold Exploration Corporation Delaware
Cyprus Metals Exploration Corporation Delaware
Cyprus Minera de Panama, S.A. Panama
Minera Cyprus Antacori Corporation Delaware
Rio Blanco Exploration, LLC - (50%) (h) Colorado
Compania Mexicana de Exploracion Cyprus, S.A. de C.V. Mexico
Cyprus Mexico Corporation Delaware
Cyprus Minera de Chile, Inc. Delaware
Cyprus Urals Corporation Delaware
Cyprus Zinc Corporation Delaware
Minera Cuicuilco S.A. de C.V. Mexico
Servicios Cyprus S.A. de C.V. Mexico
Cyprus Specialty Metals Company Delaware
Cyprus Foote Mineral Company Pennsylvania
Minera Cyprus Chile Limitada (i) Chile
Minera Cyprus Amax Chile Limitada - (50%) (j) Chile
Sociedad Chilena de Litio Limitada (k) Chile
Cyprus Mines Corporation Delaware
Cyprus Amax Minerals Japan Corporation Delaware
Amax Metals Recovery, Inc. Delaware
Amax Nickel Overseas Ventures, Inc. Delaware
Amax Specialty Metals (Canada) Limited Canada
Ametalco (Toronto) Limited Canada
Ametalco (Vancouver) Limited Canada
American Metal Climax, Inc. Delaware
Ametalco Inc. New York
Ametalco Limited England
Ametalco U.K. England
Climax Molybdenum U.K. Limited England
Climax Canada Ltd. Delaware
<PAGE>
Organized
Under
Company Laws of
- --------------------------------------------- -------
Gold Hill Mining and Milling Company Colorado
Mt. Emmons Mining Company Delaware
Silver Springs Ranch, Inc. Colorado
Amax Energy Inc. Delaware
Amax Zinc (Newfoundland) Limited Delaware
Cyprus Amax Coal Company Delaware
Alliance Power Marketing, Inc. Delaware
Cyprus Amax Coal Sales Corporation Delaware
Cyprus Amax Millennium Corporation Delaware
Cyprus Australia Coal Company Delaware
McIlwraith McEacharn Pty Limited Australia
McIlwraith Mining Pty Limited Australia
Oakbridge Pty Limited - (41.3%) (l) Australia
Cyprus Springvale Pty Limited Australia
Cyprus (Queensland) Pty Limited Australia
Cyprus Coal Development Corporation Delaware
Cyprus Coal Equipment Company Delaware
Cyprus Consolidated Resources Corporation Delaware
Cyprus Cumberland Coal Corporation Kentucky
Cyprus Cumberland Resources Corporation Delaware
Cyprus Emerald Resources Corporation Delaware
Cyprus Empire Corporation Delaware
Cyprus Freeport Resources Corporation Delaware
Cyprus Kanawha Corporation Delaware
Cyprus Meullaboho Coal Mining Limited Bermuda
Cyprus Mountain Coals Corporation Delaware
Cyprus River Processing Corporation Delaware
Cyprus Shoshone Coal Corporation Delaware
Cyprus Southern Realty Corporation Kentucky
Cyprus Plateau Mining Corporation - (85%) (m) Delaware
Colorado Yampa Coal Company Delaware
Twentymile Coal Company Delaware
Pennsylvania Services Corporation Delaware
Amax Coal Company Delaware
Yankeetown Dock Corporation- (60%) (n) Indiana
Amax Coal Sales Company Delaware
Amax Coal West, Inc. Delaware
Amax Land Company Delaware
Ayrshire Land Company Delaware
Beech Coal Company Delaware
<PAGE>
Organized
Under
Company Laws of
- --------------------------------------------- -------
Cannelton Inc. Delaware
Cannelton Industries, Inc. West Virginia
Dunn Coal & Dock Company West Virginia
Maple Meadow Mining Company Delaware
Cannelton Land Company Delaware
Cannelton Sales Company Delaware
Meadowlark Inc. Indiana
Grassy Cove Coal Mining Company Delaware
Roaring Creek Coal Company Delaware
Bentley Coal Company Partnership
Skyline Coal Company Partnership
Kentucky Prince Coal Company Partnership
Amax Gold Inc.- (58.8%) (o) Delaware
AGI Chile Credit Corp., Inc. Delaware
AGI Chile Finance Corporation Delaware
Amax Gold (B.C.) Ltd. Delaware
Fairbanks Gold Ltd. B.C.
Electrum Resources Corp Alaska
Melba Creek Mining, Inc. Alaska
Amax Gold Exploration Canada, Ltd. Canada
Amax Gold Exploration, Inc. Delaware
Amax Gold de Chile Limitada (50%) (p) Chile
Amax Gold Refugio, Inc. Delaware
Compania Minera Maricunga (50%) (q) Chile
Amax Long Valley Gold Corporation Delaware
Amax Precious Metals, Inc. Delaware
Cyprus Magadan Gold Corporation Delaware
Omolon Gold Mining Company (50%) (r) Russian Federation
Fairbanks Gold Mining, Inc Delaware
Morrison Knudsen Fort Knox Project Limited,
LLC (1%) (s) Ohio
Guanaco Mining Company, Inc. Delaware
Compania Minera Amax Guanaco (90%) (t) Chile
Amax Gold de Chile Limitada (50%) Chile
Haile Mining Company Delaware
Lancaster Mining Company, Inc. Delaware
Lassen Gold Mining, Inc. Delaware
Luning Gold Inc. Nevada
Nevada Gold Mining, Inc, Delaware
Waihi Financing Limited (u) New Zealand
Martha Holdings Limited New Zealand
Waihi Resources Limited New Zealand
Waihi Mines Limited New Zealand
Martha Mining, Ltd. (33.51%) (v) New Zealand
Wind Mountain Mining, Inc. Delaware
<PAGE>
Organized
Under
Company Laws of
- --------------------------------------------- -------
Amax Canada Development Limited Canada
Amax de Chile, Inc. Delaware
Cyprus Lac Minera Limitada - (50%) (w) Chile
Amax Exploration, Inc. Delaware
Amax Exploration (Ireland), Inc. Delaware
Amax Investment (France), Inc. Delaware
Amax Research and Development, Inc. Delaware
Amax Arizona, Inc. Nevada
Amax Copper, Inc. Delaware
Amax Realty Development, Inc. Delaware
Amax Specialty Coppers Corporation Delaware
Amax Specialty Metals (Driver), Inc. Delaware
Blackwell Zinc Company, Inc. New York
CAM Receivables Corporation Delaware
Cyprus Amax Finance Corporation Delaware
Missouri Lead Smelting Company Delaware
(a) 49% owned by Corporacion Nacional del Cobre de Chile
(b) 50% owned by Amax de Chile, Inc.
(c) 24.99% held by BHP Minerals International, Inc.
(d) 34% owned by John and Mary Gay; 7% owned by various individuals
(e) 8.3% owned by employees; 9.2% owned by Cia de Minas Buenaventura S.A.
(f) 95% owned by Cyprus Amax Indonesia Corporation; 5% owned by Cyprus Gold
Australia Corporation
(g) 5% owned by Pura Grahasentosa; 9.99% owned by Iriana Bonggo Pte Ltd.
(h) 50% owned by Newcrest International Pty Limited
(i) 90.33% owned by Cyprus Foote Mineral Company; 9.67% owned by Cyprus
Exploration and Development Corporation
(j) 50% owned by Cyprus Specialty Metals Company; 50% owned by Cyprus Foote
Mineral Company
(k) 55% owned by Cyprus Foote Mineral Company; 45% owned by Minera Cyprus Amax
Chile Limitada
(l) 25.6% owned by Tomen Corporation; 23.6% owned by Nippon Oil (Australia) Pty
Limited; 6.7% owned by Ban-Pu Australia Pty Limited; 2.9% owned by Kawasho
Corporation.
(m) 12% owned by Mitsubishi Development Pty Ltd.; 3% owned by Mitsubishi
International Corporation
(n) 40% owned by Peabody Coal Company
(o) 41.2% publicly traded; 58.8% owned by Cyprus Amax Minerals Company and
affiliates
(p) 50% owned by Amax Gold Exploration Inc.; 50% owned by Guanaco Mining
Company, Inc.
(q) 50% owned by Bema Gold (Bermuda) Ltd.
(r) 50% owned by Russian partners (the Association, Geometal, Dukat, MGSC, and
Rossiisky Kredit)
(s) 99% owned by Morrison Knudsen Corporation
(t) 10% owned by CORFO
(u) All outstanding preference shares owned by ACM (New Zealand) Limited
(v) 32.98% owned by AUAG Resources Limited; 33.51% owned by Welcome Gold Mines
Limited
(w) 50% owned by Cyprus El Abra Corporation
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated
February 11, 1998, (appearing on page 17 of the 1997 Annual Report to
Shareholders of Cyprus Amax Minerals Company, which is incorporated in this
Annual Report on Form 10-K in the following:
(a) Registration Statements on Form S-8 (No. 33-1600, No. 33-22939 and No. 33-
53792) with respect to Cyprus Amax Minerals Company Savings Plan and Trust.
(b) Registration Statements on Form S-8 (No. 33-1603, No. 33-21501 and No. 33-
53794) with respect to the Management Incentive Program of Cyprus Amax Minerals
Company and its participating subsidiaries.
(c) Registration Statement on Form S-8 (No. 33-52812) with respect to the
Stock Plan for Non-Employee Directors of Cyprus Amax Minerals Company.
(d) Registration Statement on Form S-8 (No. 33-51011) with respect to the 1988
Amended and Restated Stock Option Plan of Cyprus Amax Minerals Company.
(e) Registration Statement on Form S-8 (No. 33-61141) with respect to the
Cyprus Amax Minerals Company Thrift Plan for Bargaining Unit Employees.
(f) Prospectus constituting part of the Registration Statement on Form S-3
(No. 33-36413) with respect to the Cyprus Amax Minerals Company Savings Plan and
Trust.
(g) Prospectus constituting part of the Registration Statement on Form S-3
(No. 33-54097), as amended, with respect to Cyprus Amax Minerals Company and
Cyprus Amax Finance Corporation.
(h) Prospectus constituting part of the Registration Statement on Form S-3
(No. 33-54097) with respect to Cyprus Amax Minerals Company $250 million 7 3/8
percent Notes due May 15, 2007.
(i) Prospectus constituting part of the Registration Statement on Form S-3
(No. 33-62145) with respect to Cyprus Amax Minerals Company and Cyprus Amax
Finance Corporation $600 million Shelf Registration.
We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on Page 38 of this Form 10-K.
/s/ price waterhouse llp
PRICE WATERHOUSE LLP
Denver, Colorado
March 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 250
<SECURITIES> 0
<RECEIVABLES> 48
<ALLOWANCES> 6
<INVENTORY> 526
<CURRENT-ASSETS> 1,132
<PP&E> 8,170
<DEPRECIATION> 3,192
<TOTAL-ASSETS> 6,459
<CURRENT-LIABILITIES> 835
<BONDS> 2,202
1
0
<COMMON> 5
<OTHER-SE> 2,324
<TOTAL-LIABILITY-AND-EQUITY> 6,459
<SALES> 3,122
<TOTAL-REVENUES> 3,346
<CGS> 2,942
<TOTAL-COSTS> 3,070
<OTHER-EXPENSES> 43
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162<F1>
<INCOME-PRETAX> 47
<INCOME-TAX> (22)
<INCOME-CONTINUING> 69
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
<FN>
<F1>Net of interest income, $36 million, and capitalized interest, $10 million.
</FN>
</TABLE>
