<PAGE> 1
CYPRUS AMAX MINERALS COMPANY
9100 EAST MINERAL CIRCLE
ENGLEWOOD, CO 80112
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT
OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about October 13, 1999.
You are receiving this Information Statement in connection with the possible
appointment of persons designated by Phelps Dodge Corporation ("Parent" or
"Phelps Dodge") to a majority of the seats on the Board of Directors (the "Board
of Directors" or the "Board") of Cyprus Amax Minerals Company (the "Company").
On September 30, 1999, the Company entered into an agreement and plan of merger
(the "Merger Agreement") with Parent and CAV Corporation, a wholly owned
subsidiary of Parent (the "Purchaser"), pursuant to which, among other things,
Parent and the Purchaser continue to have outstanding an exchange offer by the
Purchaser to purchase all outstanding shares of common stock, no par value (the
"Company Common Stock"), of the Company, at a purchase price, at the election of
holders of Company Common Stock, of $20.54, net to the seller in cash, or .3500
shares of the common stock, par value $6.25 per share, of Parent (the "Parent
Common Stock") for each share of Company Common Stock, following which election
the electing holders of Company Common Stock will receive cash or shares of
Parent Common Stock or a combination of cash and shares of Parent Common Stock,
as more fully set forth in the Merger Agreement, upon the terms and subject to
the conditions set forth in the Offer to Purchase dated October 1, 1999, and in
the related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Offer"), copies of which have
been previously mailed to shareholders of the Company and are filed as Exhibits
(a)(15) and (a)(16), respectively, to the Schedule 14D-1 (as amended from time
to time, the "Schedule 14D-1") filed by Parent and the Purchaser with the
Securities and Exchange Commission (the "Commission"). The Merger Agreement
further provides that following the consummation of the Offer, the Company will
be merged (the "Merger") with and into the Purchaser with the Purchaser
continuing as the surviving corporation. As of the effective time of the Merger,
each issued and outstanding share of Company Common Stock (other than shares of
Company Common Stock owned by the Company, Parent, the Purchaser or their
respective subsidiaries, which shares of Company Common Stock will be canceled),
will, by virtue of the Merger and without any action by the holder thereof, be
converted into the right to receive cash or shares of Parent Common Stock, as
more fully set forth in the Merger Agreement.
The Merger Agreement is more fully described in the
Solicitation/Recommendation Statement on Schedule 14D-9 related to the Offer (as
amended from time to time, the "Schedule 14D-9"), which was filed by the Company
with the Commission on October 1, 1999 and which was mailed to shareholders of
the Company with materials related to the Offer.
This Information Statement is being mailed to you in accordance with
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Rule 14f-1 promulgated thereunder. The information set forth herein
amends and supplements certain information set forth in the Schedule 14D-9.
Information set forth herein related to Parent, the Purchaser or the Parent
Designees (as defined herein) has been provided by Parent. You are urged to read
this Information Statement carefully. You are not, however, required to take any
action.
The Offer is currently scheduled to expire at 12:00 midnight, New York City
time, on Friday, October 15, 1999, unless Parent extends it.
GENERAL
The Company Common Stock and the $4.00 Series A Convertible Preferred Stock
(the "Preferred Stock") are the only classes of equity securities of the Company
outstanding. Only shares of Company Common Stock are generally entitled to vote,
including in the election of the Company's directors, and each
<PAGE> 2
share of Company Common Stock is entitled to one vote. As of the close of
business on October 11, 1999, there were outstanding 90,956,831 shares of
Company Common Stock.
The Board of Directors currently consists of ten directors with no
vacancies and is classified into three classes, two of which classes have three
directors each and one of which classes has four directors, with each director
serving a three-year term and until his or her successor is duly elected and
qualified.
RIGHTS TO DESIGNATE DIRECTORS AND PARENT DESIGNEES
The Merger Agreement provides that, promptly after the Purchaser purchases
shares of Company Common Stock pursuant to the Offer, the Purchaser will be
entitled to designate up to such number of directors of the Company, rounded up
to the next highest whole number, as will make the percentage of the Company's
directors so designated by the Purchaser (the "Parent Designees") equal to the
aggregate voting power of the Company Common Stock held by Parent or any of its
affiliates.
Following the election or appointment of the Parent Designees as described
above, and prior to the Effective Time, any amendment or supplement of the
Merger Agreement will require the concurrence of a majority of the Continuing
Directors (as defined below) of the Company. The term "Continuing Director"
refers to a director who either was a member of the Board prior to the time that
Parent exercised its rights to appoint Parent Designees or who subsequently
became a director of the Company and whose election, or nomination for election
by the shareholders of the Company, was approved by a vote of at least
three-quarters of the Continuing Directors then on the Board. To the fullest
extent permitted by applicable law, the Company is obligated to take all actions
requested by Parent which are reasonably necessary to effect the election of any
Parent Designee. In connection with the foregoing, the Company will promptly, at
the option of Parent, to the fullest extent permitted by law, either increase
the size of the Board of Directors and/or obtain the resignation of such number
of its current directors as is necessary to enable the Parent Designees to be
elected or appointed to the Board of Directors as provided above.
The Parent Designees will be selected by Parent from among the individuals
listed below. Each of the following individuals has consented to serve as a
director of the Company if appointed or elected. None of the Parent Designees
currently is a director of, or holds any positions with, the Company. To the
best of Parent's knowledge, except as set forth below none of the Parent
Designees or any of their affiliates beneficially owns any equity securities or
rights to acquire any such securities of the Company, nor has any such person
been involved in any transaction with the Company or any of its directors,
executive officers or affiliates that is required to be disclosed pursuant to
the rules and regulations of the Commission other than with respect to
transactions between Parent and the Company that have been described in the
Schedule 14D-1 or the Schedule 14D-9.
The name, age, present principal occupation or employment and five-year
employment history of each of the following individuals are set forth below.
Unless otherwise indicated, each such individual has held his or her present
position as set forth below for the past five years and each occupation refers
to employment with Parent, unless otherwise noted.
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION AND EMPLOYMENT HISTORY AGE DIRECTOR SINCE
- ------------------------------------------------- --- --------------
<S> <C> <C>
Manuel J. Iraola............................................ 51 1997
President of Phelps Dodge Industries, a division of Parent,
since 1995, and a Senior Vice President of Parent since
1995. From 1992 until 1995, President of Phelps Dodge
International Corporation
J. Steven Whisler........................................... 44 1995
President and Chief Operating Officer since December 1997,
and President of Phelps Dodge Mining Company, a division
of Parent, from 1991 to October 1998. Senior Vice
President of Parent from 1988 to December 1997 and Vice
President of Parent from 1987 until 1988. General Counsel
of Parent from 1987 until 1991. Director of Burlington
Northern Santa Fe Corporation and Southern Peru Copper
Corporation
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION AND EMPLOYMENT HISTORY AGE DIRECTOR SINCE
- ------------------------------------------------- --- --------------
<S> <C> <C>
Douglas C. Yearley.......................................... 63 1986
Parent's Chairman of the Board and Chief Executive Officer
since 1989. President of Parent from 1991 until December
1997. President of Phelps Dodge Industries, a division of
Parent, from 1988 until 1990, Executive Vice President of
Parent from 1987 until 1989 and Senior Vice President of
Parent from 1982 through 1986. Director of J.P. Morgan &
Co., Incorporated and its principal banking subsidiary,
Morgan Guaranty Trust Company of New York, Lockheed Martin
Corporation, USX Corporation and Southern Peru Copper
Corporation
</TABLE>
3
<PAGE> 4
CORPORATE GOVERNANCE AND BOARD OF DIRECTORS
Pursuant to the General Corporation Law of Delaware, as implemented by the
Company's Certificate of Incorporation and by-laws, the Company's business,
property and affairs are managed under the direction of the Board of Directors.
Members of the Board are kept informed of the Company's business through
discussions with the Chairman and other officers, by reviewing materials
provided to them, and by participating in Board and committee meetings.
BOARD AND COMMITTEE MEMBERSHIP AND MEETINGS
During 1998, the Board of Directors held ten meetings and had five ongoing
committees: an Executive Committee which held two meetings, an Audit Committee
which held three meetings, a Compensation and Benefits Committee which held
seven meetings, an Employee Funds Investment Committee which held two meetings,
and a Nominating and Governance Committee which held three meetings.
<TABLE>
<CAPTION>
COMPENSATION EMPLOYEE FUNDS NOMINATING AND
NAME BOARD EXECUTIVE AUDIT AND BENEFITS INVESTMENT GOVERNANCE
- ---- ----- --------- ----- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Milton H. Ward......... X* X* X
Linda G. Alvarado...... X X X
George S. Ansell....... X X X X*
Allen Born............. X X X
William C.
Bousquette........... X X X* X
Thomas V. Falkie....... X X X X
Ann Maynard Gray....... X X X
Rockwell A. Schnabel... X X X
Theodore M. Solso...... X X X
John H. Stookey........ X X X
James A. Todd, Jr. .... X X X*
Billie B. Turner....... X X* X
1998 Meetings.......... 10 2 3 7 2 3
</TABLE>
- ---------------
* Chair
EXECUTIVE COMMITTEE
The Executive Committee has and may exercise all of the powers of the Board
when the Board is not in session but may not take any action that legally may be
taken only by the Board. The committee also functions as a Growth and Strategic
Planning Subcommittee to review the strategic direction of the Company.
AUDIT COMMITTEE
The Audit Committee reviews audit examinations and annual financial reports
and statements, as well as internal controls and results of internal auditing
activities. It reviews in advance the engagement or discharge of independent
accountants, the scope of their work, and the fees for all services provided.
None of its members are officers or employees of the Company.
COMPENSATION AND BENEFITS COMMITTEE
The Compensation and Benefits Committee oversees benefit plans and annual
performance and merit increase budgets. The committee also administers the
Management Incentive Program, which includes stock option and restricted stock
provisions, and the Key Executive Long-Term Incentive Plan. It approves bonus
pools and officer bonuses granted under the Annual Incentive Plan. None of its
members are officers or employees of the Company.
4
<PAGE> 5
EMPLOYEE FUNDS INVESTMENT COMMITTEE
The Employee Funds Investment Committee reviews the investment and
performance of benefit plan trust funds and the selection and performance of
benefit plan trust fund managers. It also oversees the funding arrangements and
investment performances of salaried and hourly pension plans. None of its
members are officers or employees of the Company.
NOMINATING AND GOVERNANCE COMMITTEE
The Nominating and Governance Committee reviews and makes recommendations
concerning the qualifications of individuals for election to the Board and
recommends appointments to all Board committees. The committee also reviews the
performance of Board members annually and determines whether to recommend for
re-nomination those whose terms are expiring. In addition, the committee reviews
and approves the acceptance of directorships and trusteeships offered to senior
officers of the Company or its subsidiaries by other public corporations, banks,
or educational institutions. The committee does not consider individuals
nominated by shareholders for election to the Board.
COMPENSATION OF DIRECTORS
ANNUAL RETAINER FEES
Each January, non-employee directors receive an annual retainer of 2,000
shares of Company Common Stock.
MEETING FEES
Non-employee directors also receive a fee of $1,000 for attending each
Board meeting, each committee meeting, and each other meeting they are requested
by the Company to attend. In addition, for each committee meeting at which such
person chairs, the chair of the Nominating and Governance Committee receives an
additional $250, the chair of the Employee Funds Investment Committee receives
an additional $500, and the chairs of the Audit Committee and the Compensation
and Benefits Committee each receive an additional $5,000 per year or $500 per
meeting, whichever is greater. All directors are reimbursed for expenses
incurred in attending Board and committee meetings.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
The deferred compensation plan permits non-employee directors to defer all
or a portion of their annual retainers and meeting fees, whether paid in cash or
shares of Company Common Stock. Participants elect to have their deferred
compensation credited with hypothetical dividends based on a right to receive
shares of Company Common Stock at the closing market price on the New York Stock
Exchange on the date such participant would have received such compensation had
a deferral election not then been in effect ("phantom stock"), or with
hypothetical earnings based on a right to receive the cash value of an
investment of a participant's deferred compensation into a specific investment
fund. Compensation paid in shares of Company Common Stock is credited solely
with hypothetical dividends based on phantom stock. Distributions will be made
to participants, upon termination of their directorship or thereafter.
The deferred compensation plan also contains the present value of the
benefits previously accrued under the Retirement Plan for Non-Employee Directors
before its merger with the deferred compensation plan on June 30, 1998.
STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
On the first business day of each January, each non-employee director is
granted an option to purchase 2,000 shares of Company Common Stock at not less
than 100% of the fair market value on the date of the grant. Each stock option
granted expires no later than ten years after the date of grant. Before the
stock option
5
<PAGE> 6
becomes vested and exercisable, a director may be required to complete a period
of service as a member of the Board following the date of the grant.
Each non-employee director also is awarded an annual retainer of 2,000
shares of Company Common Stock (see page 5). In addition, an individual who is
elected or appointed to be a director for the first time on or after April 1,
1998, will receive a one-time award of 12,500 shares of restricted stock. The
restrictions will lapse in 20% increments over a five-year period from the award
date. The restrictions also lapse if the director terminates from the Board
because of death, disability, or retirement, or if there is a change of control,
as defined in the stock plan. The director will be entitled to receive dividends
attributed to the shares of restricted stock and to vote such shares.
STOCK OWNERSHIP POLICY
In 1998, the Board of Directors revised its stock ownership policy. Under
the revised policy, directors are required to own, and to continue to own while
a member of the Board, at least 6,000 shares of Company Common Stock by the
later of January 1, 2004, or the fifth anniversary of the date such director
became a member of the Board. Phantom stock credited to directors' accounts
under the Deferred Compensation Plan for Non-Employee Directors will be
considered for purposes of determining whether the ownership goals have been
attained.
RETIREMENT POLICY
The Board of Directors has a retirement policy establishing a retirement
age of 70 for non-employee directors and 65 for employee directors. Case-by-case
exceptions may be made for employee directors pursuant to the terms of the
Retirement Plan for Salaried Employees. Such an exception was made for Mr. Ward
in 1996 by approving an employment contract that expires after he attains age
65. The policy further provides that non-employee directors shall not be
nominated, appointed, or elected to serve for a term commencing after attaining
retirement age, unless the retirement of any such director would cause the total
number of non-employee directors to be eight or less. In that case, any such
director who reaches retirement age at the date of any annual meeting may
continue to serve beyond retirement age or may be nominated and elected to
another three-year term. Directors who reach retirement age while serving terms
as directors may continue to serve until the first annual meeting following
their attaining retirement age.
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
Effective June 30, 1998, the retirement plan was eliminated by merging it
with, and the present value of the liability of benefits accrued were
transferred to, the Deferred Compensation Plan for Non-Employee Directors.
COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, Billie B. Turner, George S. Ansell, Thomas V. Falkie, Ann
Maynard Gray, Theodore M. Solso, and James A. Todd, Jr. served on the
Compensation and Benefits Committee for all or part of the year. None of these
committee members is or was an officer or employee of the Company or any of its
subsidiaries or engaged in any reportable related party transaction with the
Company.
Parent Designees will not be compensated for services as directors of the
Company but will be entitled to reimbursement of their expenses.
DIRECTORS AND EXECUTIVE OFFICERS
The name, age, present principal occupation or employment and five-year
employment history of the current directors and executive officers of the
Company are set forth below.
6
<PAGE> 7
DIRECTORS
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION AND EMPLOYMENT HISTORY AGE DIRECTOR SINCE
- ------------------------------------------------- --- --------------
<S> <C> <C>
Linda G. Alvarado........................................... 48 December 14, 1989
President and Chief Executive Officer of Alvarado
Construction Inc. since 1981; Director of Engelhard
Corporation, Pitney Bowes, Inc., and U.S. West
George S. Ansell............................................ 65 December 3, 1987
President Emeritus of the Colorado School of Mines since
August 1998; President of the Colorado School of Mines
from 1984 to August 1998. Director of OEA, Inc.
William C. Bousquette....................................... 63 December 5, 1991
Independent businessman since 1996; Senior Vice President
and Chief Financial Officer of Texaco Inc. from 1995 to
1996; Executive Vice President and Chief Financial Officer
of Tandy Corporation from 1994 to 1995; Chief Executive
Officer of TE Electronics, a subsidiary of Tandy
Corporation, from 1993 to 1994. Director of O'Sullivan
Industries Holdings, Inc. and Intertan, Inc.
Thomas V. Falkie............................................ 65 July 1, 1988
Chairman of Berwind Natural Resources Corporation since
September 1998; President and Chief Executive Officer of
Berwind Natural Resources Corporation from 1977 to
September 1998. Director of the National Coal Association
and the National Mining Association, Chairman of the
American Coal Foundation, Chairman of the Board of
Governors of the National Mining Hall of Fame and Museum,
and a member of the Governing Council of the National
Academy of Engineering
Ann Maynard Gray............................................ 54 November 15, 1993
Former President of Diversified Publishing Group, ABC, Inc.;
President of Diversified Publishing Group, ABC, Inc., from
1991 to 1997. Director of Duke Energy Corporation
Rockwell A. Schnabel........................................ 62 February 11, 1993
Co-Chairman of Trident Inc. since 1993; formerly Acting
Secretary of Commerce and United States Ambassador to the
Republic of Finland. Director of CSG Systems Inc.,
International Game Technology, and Rezsolutions Inc.
Theodore M. Solso........................................... 52 November 15, 1993
President and Chief Operating Officer of Cummins Engine
Company, Inc. since 1995; Various positions with Cummins
Engine Company, Inc. since 1971. Director of Cummins
Engine Company, Inc., Cummins Engine Foundation, Irwin
Financial Corporation, and Otter Creek Golf Course. Member
of the Boards of Trustees of DePauw University and
Manufacturers Alliance
John H. Stookey............................................. 69 November 15, 1993
Chairman of Suburban Propane Partners since 1996; Chairman
of Quantum Chemical Company, a subsidiary of Hanson PLC,
from 1984 to 1995, and President from 1975 to 1993;
executive officer of Petrolane Incorporated, Petrolane
Finance Corporation, and QJV Corp., affiliates of Quantum
Chemical Company, from 1989 to 1993. Director of ACX
Technologies, Inc. and the United States Trust Company of
New York
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
NAME, PRINCIPAL OCCUPATION AND EMPLOYMENT HISTORY AGE DIRECTOR SINCE
- ------------------------------------------------- --- --------------
<S> <C> <C>
Billie B. Turner............................................ 68 October 22, 1992
Retired Chairman, President, and Chief Executive Officer of
IMC Fertilizer Group, Inc.; Chairman, President, and Chief
Executive Officer of IMC Fertilizer Group, Inc. from 1987
until 1994. Director of IMC Global, Inc. and International
Minerals and Chemical Corporation (Canada)
Milton H. Ward.............................................. 67 May 14, 1992
Chairman, President, and Chief Executive Officer of the
Company since 1992; Chairman of the Board and Chief
Executive Officer of Amax Gold Inc. from 1993 to June
1998; formerly Director, President, and Chief Operating
Officer of Freeport-McMoRan Inc. Director of the National
Mining Association and Kinross Gold Corporation
</TABLE>
EXECUTIVE OFFICERS
Set forth below are the names, ages, and titles of the executive officers
of the Company as of October 11, 1999.
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ---- --- ------
<S> <C> <C>
Milton H. Ward.................... 67 Chairman, President and Chief Executive Officer
Jeffrey G. Clevenger.............. 50 Executive Vice President
Gerald J. Malys................... 55 Senior Vice President and Chief Financial Officer
David H. Watkins.................. 55 Senior Vice President, Exploration
Philip C. Wolf.................... 52 Senior Vice President, General Counsel and Secretary
Robin J. Hickson.................. 55 Vice President, Engineering and Development
Farokh S. Hakimi.................. 51 Vice President and Treasurer
John Taraba....................... 50 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 1, 1998, and Mr. Malys was elected Senior Vice President
effective October 31, 1998, and Chief Financial Officer effective August 1,
1989. 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 January 1, 1998, and Mr. Taraba was elected to his current
office on October 31, 1988.
Messrs. Ward, Clevenger, Malys, Wolf, Hakimi, and Taraba have been engaged
full-time in the business of the Company and its subsidiaries for more than the
past five years. Prior to joining the Company 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 the Company in 1992. From 1993 until 1998, Mr. Clevenger
held the position of Senior Vice President, Copper. Prior to joining the Company
in 1994, Mr. Watkins served as Vice President and Director at Metall Mining
Corporation from 1991 until 1993. Mr. Wolf has served in his current position
for more than five years. Mr. Hickson joined the Company in 1993 as Senior Vice
President of Cyprus Climax Metals Company. Before joining the Company, Mr.
Hickson was President of Freeport-McMoRan's Research and Engineering Company.
Mr. Hakimi held various positions in the Company's Treasury group and Cyprus
Amax Coal's Marketing and Planning and Economics group until 1997, 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.
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<PAGE> 9
Each executive officer holds office subject to removal at any time by the
Board of Directors of the Company.
BENEFICIAL OWNERSHIP OF DIRECTORS AND MANAGEMENT OF THE COMPANY
The following table sets forth the beneficial ownership of Company Common
Stock as of June 30, 1999, except as otherwise noted, by (a) each current
director, (b) the five most highly compensated executive officers of the
Company, and (c) all directors and executive officers as a group. Unless
otherwise specified, the directors and executive officers have sole voting and
investment power with respect to these securities. The Company currently has
Series A convertible preferred stock issued and outstanding, none of which is
beneficially owned by directors or executive officers.
<TABLE>
<CAPTION>
SHARES OF COMPANY COMMON STOCK
------------------------------------------------------------
ADDITIONAL SHARES
DEEMED
BENEFICIALLY BENEFICIALLY PERCENT OF
NAME OWNED(a) OWNED(b) TOTAL CLASS
- ---- ------------ ----------------- --------- ----------
<S> <C> <C> <C> <C>
Milton H. Ward........................... 2,030,636 0 2,030,636 2.2%
Linda G. Alvarado........................ 9,815 4,843 14,658 (a)
George S. Ansell......................... 8,875(c) 7,080 15,955 (a)
Allen Born(d)............................ 55,205 0 55,205 (a)
William C. Bousquette.................... 8,500 28,325 36,825 (a)
Thomas V. Falkie......................... 12,000 7,727 19,727 (a)
Ann Maynard Gray......................... 7,650 4,492 12,142 (a)
Rockwell A. Schnabel..................... 30,000 25,831 55,831 (a)
Theodore M. Solso........................ 8,000 22,427 30,427 (a)
John H. Stookey.......................... 8,000 3,800 11,800 (a)
James A. Todd, Jr.(d).................... 44,398 0 44,398 (a)
Billie B. Turner......................... 9,500 12,222 21,722 (a)
Gerald J. Malys.......................... 381,224(c) 0 381,224 (a)
Jeffery G. Clevenger..................... 317,880(c) 0 317,880 (a)
Garold R. Spindler(e).................... 411,295 0 411,295 (a)
Philip C. Wolf........................... 241,204 0 241,204 (a)
All directors and executive officers as a
group (20 persons)..................... 4,095,088(c) 116,747 4,211,835 4.7%
</TABLE>
- ---------------
(a) All directors and executive officers as a group (20 persons) beneficially
own 4.7% of the outstanding Company Common Stock, including 2.2%
beneficially owned by Mr. Ward. No other individual director or executive
officer beneficially owns 1% or more of the outstanding Company Common
Stock.
(b) Units denominated as Company Common Stock equivalents held in the Deferred
Compensation Plan for Non-Employee Directors. All of the nine current
non-employee directors elected to participate in the plan during 1999. Units
held in the plan by Messrs. Born and Todd were converted to shares of common
stock upon their retirement from the Board (see Note (d)). The units are
rounded to the nearest whole share.
(c) Dr. Ansell shares voting power with respect to 375 shares; Mr. Clevenger
shares voting power with respect to 15,986 shares; and Mr. Malys shares
voting power with respect to 10,000 shares. The total for all directors and
executive officers as a group includes 600 shares for which an executive
officer disclaims beneficial ownership.
(d) Messrs. Born and Todd retired from their positions as directors on May 6,
1999 and the share ownership described above is as of May 6, 1999.
(e) Mr. Spindler left Cyprus Amax on June 30, 1999, in conjunction with the sale
of the Company's U.S. coal assets.
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<PAGE> 10
The shares shown in the above table include:
- Shares which certain persons have the right to acquire within 60 days
through the exercise of stock options issued under the Cyprus Amax Stock
Plan for Non-Employee Directors. These shares include 5,000 shares for
each of Mses. Alvarado and Gray, Drs. Ansell and Falkie, and Messrs.
Bousquette, Schnabel, Solso, Stookey and Turner and 8,000 shares for
Messrs. Born and Todd.
- Shares which certain persons have the rights to acquire within 60 days
through the exercise of stock options issued under the Cyprus Amax
Management Incentive Program. These shares include 1,497,921 for Mr.
Ward; 242,726 for Mr. Malys; 178,200 for Mr. Clevenger; 323,900 for Mr.
Spindler; and 164,706 for Mr. Wolf. The stock options exercisable under
this program and the Cyprus Amax Stock Plan for Non-Employee Directors
total 2,768,549 for all directors and executive officers as a group.
- Shares of restricted stock acquired through the Cyprus Amax Management
Incentive Program and the Cyprus Amax Key Executive Long-Term Incentive
Plan. These shares include 350,000 for Mr. Ward; 120,475 for Mr. Malys;
109,710 for Mr. Clevenger; 73,985 for Mr. Wolf; and 820,230 for all
directors and executive officers as a group. The holders of restricted
shares have the power to vote these shares and receive dividends but do
not have investment power until the shares vest.
- Shares acquired through the employee savings plan for which the trustee
has shared voting and investment power. These shares include 2,995 for
Mr. Ward; 6,189 for Mr. Malys; 4,513 for Mr. Clevenger; 995 for Mr.
Spindler; 2,513 for Mr. Wolf; and 27,498 for all executive officers as a
group. The shares reported are rounded to the nearest whole share.
BENEFICIAL OWNERSHIP OF CERTAIN SHAREHOLDERS
The following table sets forth information about the only shareholder the
Company knows is the beneficial owner of more than 5% of the Company Common
Stock. The information is based on information from public filings as of October
11, 1999. The percentage shown is based on shares outstanding on October 11,
1999.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
SHARES BENEFICIALLY CLASS A
NAME AND ADDRESS OWNED(1) COMMON STOCK
- ---------------- ------------------- -------------
<S> <C> <C>
Trimark Investment Management Inc., as Manager and Trustee
of certain mutual funds................................... 9,355,200(1) 10.3%
One First Canadian Place, Suite 5600
P.O. Box 487
Toronto, Ontario M5X 1E5, Canada
</TABLE>
- ---------------
(1) Trimark Financial Corporation, owner of 100% of the voting equity securities
of Trimark Investment Management Inc., may be deemed to be a beneficial
owner of the shares. Information is provided in reliance upon information
included in Schedule 13G, dated February 1, 1999, filed by Trimark
Investment Management, Inc.
10
<PAGE> 11
EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY AND METHODOLOGY
The Company's executive compensation program was adopted by the
Compensation and Benefits Committee in 1996. The program's overall objectives
are to attract and retain the best executive talent, to focus executive behavior
on achieving the Company's annual and long-term business objectives, to link
executive and shareholder interest through equity-based plans, and to provide a
compensation package that rewards financial and individual performance.
The Company retains a compensation consultant to review annually and advise
the Compensation and Benefits Committee on the Company's executive compensation
program. The consultant's review provides an ongoing evaluation of the link
between the Company's performance and its executive compensation program as
compared with the performance and executive compensation programs of other
companies that compete with the Company for executive talent. These competitors
include some of the same companies represented in the Cumulative Shareholder
Return graph on page 17, as well as other companies similar in size to the
Company.
For 1998, the Company's compensation strategy for the key executive group,
other than the Chief Executive Officer, provided total compensation (including
salary, bonus, stock options, and performance-based restricted stock with
deferred cash incentive awards) that was targeted between the 50th percentile
and the 75th percentile of the compensation packages of comparable companies.
These targets were designed to provide meaningful rewards for superior
performance.
In assessing the performance of the Chief Executive Officer and determining
his 1998 compensation, as well as reviewing and approving the Chief Executive
Officer's recommendations for the 1998 performance of other senior management,
the Compensation and Benefits Committee considered:
1. the individual performance of the Chief Executive Officer and other
senior management;
2. the level of responsibility and contribution of those individuals to the
Company's performance;
3. the Company's performance based on both annual and long-term business
goals and strategies; and
4. the need to attract and retain key personnel by providing total
compensation opportunities that are competitive.
The Compensation and Benefits Committee determines the appropriate
compensation package for each senior executive in light of the foregoing
considerations, not based on a rigid formula or specific weightings.
COMPENSATION COMPONENTS
As discussed in greater detail below, the executive compensation program
consists of three components:
1. base salary;
2. annual bonus; and
3. long-term incentive compensation.
The total annual cash compensation paid to senior management, excluding the
Chief Executive Officer, is targeted in the upper quartile of the Company's
competitors and thus combines current above average bonus opportunities with
fully competitive base salaries.
BASE SALARY
The base salaries for senior management, excluding the Chief Executive
Officer, are generally targeted to range between the median and 75th percentile
of the Company's competitors.
11
<PAGE> 12
ANNUAL BONUSES
Under the Annual Incentive Plan, the bonus awards made to the Named
Executives and other senior management as a group are granted from an
annually-determined incentive pool. The incentive bonus pool equals 1.5% of
Income Before Income Taxes and Minority Interest (reflected in the Company's
Consolidated Statement of Operations in its Annual Report), as adjusted for
special items. The Compensation and Benefits Committee reviews the Company's
objectives and the executives' objectives, which are presented by the Chief
Executive Officer, at the beginning of the year. At the end of the year, the
Compensation and Benefits Committee grants awards to the executives based on
Company, business unit, and individual performance compared to established
objectives, as well as recommendations of the Chief Executive Officer. For the
Named Executives, the awards are limited to a fixed share of the pool and may be
reduced but not increased at the discretion of the Compensation and Benefits
Committee. For 1998 performance payout consideration, the Compensation and
Benefits Committee utilized a portion of the earned bonus pool funds from
previous years that had not been paid out.
LONG-TERM INCENTIVE COMPENSATION
The Company's long-term incentive program provides incentives to the
Company's executive officers and key employees through a combination of stock
options, restricted stock, and performance-based restricted stock. The program
has the following components:
1. Management Incentive Program: Grants of stock options and restricted
stock under the management incentive program are designed to link the
interests of key employees (217 in 1998) with those of the shareholders.
Stock options are granted with an exercise price equal to the fair market
value of the Company Common Stock on the date of grant and vest at such
time as determined by the Compensation and Benefits Committee when the
grant is made. Grants of stock options promote the creation of
shareholder value since no benefit is realized unless stock price
appreciation occurs.
No shares of restricted stock may be sold, assigned, transferred, pledged
or otherwise encumbered until the restrictions lapse. Restrictions lapse
for 25% of the shares on each anniversary of the date of award, subject
to continued employment with the Company. Restrictions automatically
lapse in whole upon retirement, death or total disability, or upon a
change of control of the Company (as such terms are defined in the
management incentive program).
2. Key Executive Long-Term Incentive Plan: the long-term incentive plan
provides for awards of restricted stock to enhance the long-term
performance of the Company by rewarding executives for the sustained
creation of incremental value for shareholders and to attract and retain
high quality management talent. As with the Management Incentive
Program, shares of restricted stock may not be sold, assigned,
transferred, pledged or otherwise encumbered until the restrictions
lapse. The restrictions lapse in whole on the tenth anniversary of the
award date, subject to continued employment with the Company, or sooner,
in whole or in part, upon the achievement of certain Company
performance-based criteria which are specified in the long-term
incentive plan. Restrictions automatically lapse in whole upon
retirement, death, disability or involuntary termination of service
without cause, or upon a change of control of the Company (as such terms
are defined in the long-term incentive plan).
In 1998, the Compensation and Benefits Committee awarded stock options and
restricted stock to individuals based on an assessment of competitive market
data and the pay strategy adopted in 1996, and based upon recommendations of the
Chief Executive Officer, as well as the Compensation and Benefits Committee's
assessment of individual and, if applicable, business unit performance.
STOCK OWNERSHIP REQUIREMENTS
Company policy, adopted in 1995, requires that the Company's Chief
Executive Officer own Company Common Stock with a value equal to five times his
annual base salary and that the Named Executives own
12
<PAGE> 13
Company Common Stock with a value equal to three times their respective base
salaries. The required stock ownership levels must be achieved within five
years.
COMPENSATION OF CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER
During 1998, under the direction of Milton H. Ward, the Company achieved
record low operating costs and continued to reduce debt. Efforts such as Quest
21, the continuous improvement process program implemented in 1997, and its Coal
Management Planning Process have been key factors in helping the Company achieve
cost savings and productivity improvements of approximately $150 million. Also,
the Company reduced debt and obligations by nearly $1 billion. Highlighted below
are several significant accomplishments achieved by the Company under Mr. Ward's
leadership during 1998.
Metals. Despite significant business challenges presented by the commodity
markets, record low copper cash costs of 56c per pound were achieved during the
year. Over the last 2 years, the Company has been able to achieve reductions in
its copper cash costs of over 20%. Numerous records for productivity and low
costs were achieved at most operations in 1998.
Coal. The Company's coal division achieved its primary objective by
generating $195 million of cash flow during 1998. Improvements were made in
efficiencies, cost control, supplier alliances, and inventory management. These
efforts allowed the Company to increase productivity by approximately 14% during
1998 and lower costs at most of its operations.
Other. Corporate expenses were reduced $21 million, or 35%; and gross
interest expenses were reduced $40 million, or 19%.
Transactions. The Company engaged in three significant strategic
transactions during 1998 thereby allowing it to reduce debt, continue to
strengthen its financial position, and support growth opportunities in the
Company's core businesses.
1. In June, Amax Gold Inc. combined with Kinross Gold Corporation. The
Company held 59% of the stock of Amax Gold Inc. Following the
combination, the Company held 31% of Kinross Gold Corporation stock and
reduced its interest expense by approximately $28 million per year and
eliminated approximately $500 million in long-term obligations.
2. In late June, the Company successfully completed the sale of 11
Appalachian and Midwestern coal properties, for approximately $300
million in value.
3. In October, the Company successfully sold its lithium operations for
$305 million.
A substantial portion of Mr. Ward's compensation is determined pursuant to
the terms of his 1996 employment contract with the Company. The contract
primarily serves to reward Mr. Ward for his accomplishments and encourage him to
implement strategies that enable the ongoing success of the Company. It has been
designed to connect Mr. Ward's future financial rewards with the creation of
shareholder value. For a description of this contract and Mr. Ward's other
employment contracts, see page 16.
The Compensation and Benefits Committee has reviewed the Company's
performance for 1998 and Mr. Ward's leadership role in attaining the
achievements highlighted above, as well as the other criteria described in the
compensation philosophy and methodology section on page 11, and has determined
that the compensation awarded to Mr. Ward in 1998 was appropriate.
EMPLOYEE REMUNERATION IN EXCESS OF $1 MILLION
Under Section 162(m) of the Internal Revenue Code, federal income tax
deductions taken by publicly-traded companies may be limited to the extent total
compensation (including base salary, annual bonus, restricted stock awards,
stock option exercises, and non-qualified benefits) for certain executive
officers exceeds $1 million in any year. The deduction limit does not apply to
payments which qualify as "performance based." To qualify as "performance
based," compensation payments must be made from a plan that is administered by a
committee of outside directors and must be based on achieving objective
performance goals.
13
<PAGE> 14
In addition, the material terms of the plan must be disclosed to and approved by
shareholders, and the committee must certify that the performance goals were
achieved before payments can be awarded. In order to qualify future payments
under the Annual Incentive Plan as "performance based," the Company obtained
shareholder approval of the Annual Incentive Plan in May 1996.
The Compensation and Benefits Committee generally intends to administer the
Company's compensation programs so that the total compensation paid to any
employee will not exceed $1 million in any year, except for compensation
payments in excess of $1 million which qualify as "performance-based
compensation" or which are exempt for other reasons. In 1998, the Company paid
Mr. Ward total compensation in excess of $1 million in recognition of the
Company's outstanding performance under his leadership. If the objectives of its
executive compensation program so require, the Company may pay compensation in
excess of $1 million to its other executives. Any compensation in excess of $1
million would not be deductible.
Compensation and Benefits Committee
Billie B. Turner, Chairman
George S. Ansell
Thomas V. Falkie
Ann Maynard Gray
Theodore M. Solso
COMPENSATION TABLES
The following tables set forth information for the years indicated
concerning the compensation of the Chairman, President, and Chief Executive
Officer and each of the Named Executives.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ------------------------
----------------------------------------- RESTRICTED SECURITIES ALL OTHER
NAME AND OTHER ANNUAL STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARD($)(1) OPTIONS(#) ($)(2)
- ------------------ ---- --------- --------- --------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Milton H. Ward............. 1998 1,133,524(3) 975,000 10,001(4) 1,456,275 425,000 3,305
Chairman, President, and 1997 840,410(3) 1,300,000 21,232(4) 1,168,750 100,000 3,828
Chief Executive Officer 1996 708,000(3) 1,200,000 2,312(4) 1,321,875 1,150,000 3,879
Gerald J. Malys............ 1998 395,000 162,938 2,873(4) 482,543 126,250 3,316
Senior Vice President and 1997 370,000 230,000 1,355(4) 331,925 42,600 3,796
Chief Financial Officer 1996 340,000 200,000 29,957(4) 375,413 42,700 3,851
Jeffrey G. Clevenger....... 1998 390,000 160,875 -- 436,886 127,500 3,316
Executive Vice President 1997 330,000 215,000 16,006(4) 268,813 34,600 3,791
1996 310,000 185,000 257(4) 317,250 40,000 3,848
Garold R. Spindler......... 1998 390,000 160,875 -- 405,761 122,500 3,368
Executive Vice President 1997 312,000 170,000 719(4) 259,463 33,500 3,952
1996 300,000 120,000 1,055(4) 222,075 27,900 3,842
Philip C. Wolf............. 1998 300,000 123,750 -- 294,710 81,750 3,487
Senior Vice President, 1997 275,000 165,000 0 198,688 25,400 3,809
General Counsel, and 1996 260,000 150,000 1,854(4) 245,869 25,100 3,871
Secretary
</TABLE>
- ---------------
(1) Restricted stock awards were made to Mr. Ward in January 1998 and October
1998 and to the Named Executives in January 1998 and August 1998. Amounts
shown in the table reflect the fair market value of the stock on the date of
the award. The actual value an executive may realize will depend upon the
amount of the stock on which restrictions lapse and the value realized,
which may be greater or less than
14
<PAGE> 15
this amount. The aggregate restricted holdings of the Chief Executive Officer
and the Named Executives was 589,820 shares with a fair market value of
$5,898,200 based on the closing price of Company Common Stock of $10.00 per
share on December 31, 1998. Such holdings include $3,000,000 (300,000
shares) for Mr. Ward; $934,750 (93,475 shares) for Mr. Malys; $827,100
(82,710 shares) for Mr. Clevenger; $556,500 (55,650 shares) for Mr.
Spindler; and $579,850 (57,985 shares) for Mr. Wolf. The awards made in
1996, 1997, and January 1998 were made under the Key Executive Long-Term
Incentive Plan (see page 12). The awards made in August and October 1998
were made under the Management Incentive Program (see page 12). Regular
dividends are paid on all restricted stock awards.
(2) The amounts shown are the employer contributions to the employee savings
plan. For 1998, the maximum recognizable compensation for purposes of
calculating employer contributions was $160,000 per employee based on
Internal Revenue Service regulations.
(3) Does not include $166,476 reimbursed to the Company by Amax Gold Inc. for
Mr. Ward's salary and benefits for services he provided to Amax Gold Inc.
during 1998, $309,590 reimbursed during 1997, or $292,000 reimbursed during
1996.
(4) Gross up tax payment for certain benefits received by officers.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT
UNDERLYING OF TOTAL OPTIONS EXERCISE OR GRANT DATE
OPTIONS GRANTED TO BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) EMPLOYEES ($/SHARE) DATE VALUE($)(2)
- ---- ------------- ---------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Milton H. Ward....... 225,000 11.61 13.563 October 21, 2008 489,375
200,000 10.32 15.5625 January 2, 2008 580,560
Gerald J. Malys...... 71,250 3.68 11.469 August 20, 2008 125,557
55,000 2.84 15.5625 January 2, 2008 159,654
Jeffrey G.
Clevenger.......... 82,500 4.26 11.469 August 20, 2008 145,382
45,000 2.32 15.5625 January 2, 2008 130,626
Garold R. Spindler... 82,500 4.26 11.469 August 20, 2008 145,382
40,000 2.06 15.5625 January 2, 2008 116,112
Philip C. Wolf....... 48,750 2.52 11.469 August 20, 2008 85,907
33,000 1.70 15.5625 January 2, 2008 95,792
</TABLE>
- ---------------
(1) The exercise price for each grant is equal to 100% of the fair market value
of Company Common Stock on the grant date. The stock options expire ten
years after the grant date.
(2) The Black-Scholes option pricing model was used to estimate the grant date
present value of the stock options set forth in this table. The Company's
use of this model should not be construed as an endorsement of its accuracy
at valuing stock options. All stock option models, including the Black-
Scholes model, require a prediction about the future movement of the market
price of Company Common Stock. The following assumptions were made for
purposes of calculating the Grant Date Present Value: for the stock options
granted January 2, 1998, a stock option term of 10 years, volatility at 30%,
dividend yield (for January 2, 1998, at 5.14%, for August 20, 1998, at
6.98%, and for October 21, 1998, at 5.9%), and interest rate for January 2,
1998, at 5.629%, for August 20, 1998, at 5.368%, and for October 21, 1998,
at 4.349%. The real value of the stock options in this table depends upon
the actual performance of Company Common Stock during the applicable period.
15
<PAGE> 16
AGGREGATED OPTION EXERCISES IN 1998
AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE OPTIONS AT YEAR-END(#) OPTIONS AT YEAR-END($)
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---- ------------------ ----------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Martin H. Ward....... 0 0 1,147,921/1,141,667 0/0
Gerald J. Malys...... 0 0 180,176/ 147,550 0/0
Jeffrey G.
Clevenger.......... 0 0 110,900/ 144,800 0/0
Garold R. Spindler... 0 0 74,650/ 139,250 0/0
Philip C. Wolf....... 0 0 129,256/ 94,450 0/0
</TABLE>
- ---------------
(1) Amounts shown in this column represent the fair market value (average of the
high and low) of the underlying Company Common Stock at year end minus the
exercise price. The actual value, if any, realized upon exercise may vary
depending upon the amount by which the market price of Company Common Stock
exceeds the exercise price when the stock options are exercised.
EMPLOYMENT CONTRACTS
The Company entered into an employment contract with Milton H. Ward
effective January 1, 1996. The contract, which will expire on December 31, 2000,
establishes a base salary and provides for a target cash bonus with actual
payment determined by the Board. The bonus payment is subject to the limitation
of the Annual Incentive Plan. The contract also provides that Mr. Ward is
eligible to participate in employee benefit programs as well as supplemental
retirement benefits and stock plans. Mr. Ward agreed to fulfill his assigned
duties and to avoid activities adverse to the Company's interests both during
and after the contract term. The Company has the right to terminate the
employment contract upon 30 days' notice. If employment were terminated other
than due to breach of covenant (or retirement or resignation in certain
circumstances), Mr. Ward would be entitled to a lump sum payment equal to his
salary and bonus for the remainder of the contract period plus the actuarial
equivalent of supplemental retirement benefits and welfare benefits for
retirees. If permitted by applicable laws and plan provisions, Mr. Ward could be
entitled to receive the value of any previously awarded restricted shares and a
five-year period to exercise previously granted stock options.
In November 1993, the Company entered into agreements with Gerald J. Malys,
Jeffrey G. Clevenger, and Philip C. Wolf. Stock options were granted pursuant to
the agreements, along with restricted stock which was fully vested in 1998. In
October 1998, the Company entered into a similar agreement with Garold R.
Spindler. Pursuant to these agreements, in certain circumstances each Named
Executive would be entitled to a lump sum termination payment equal to the
accrued benefit under the retirement plans sponsored by the Company. Such
benefits would be calculated as if the executive had continued employment with
the Company until the date he would first have been eligible to receive an
immediately payable retirement benefit (but for no less than an 18-month
period). The executive also could be eligible for retirement welfare benefits.
The Company also has change of control employment agreements with Milton H.
Ward, Gerald J. Malys, Jeffrey G. Clevenger, Garold R. Spindler, and Philip C.
Wolf. These employment agreements become effective upon a Change of Control (as
defined therein). If the executive is terminated other than for Cause or if the
executive terminates employment under circumstances which constitute Good Reason
(as such terms are defined in the employment agreements) or for any reason
during the 30-day period following the first anniversary of the Change of
Control, the executive will become entitled to a specific severance payment
equal to three times his yearly salary and bonus. The executives also will
receive an additional payment to make them whole for any excise tax imposed by
Section 4999 of the Internal Revenue Code.
Gerald J. Malys, Jeffrey G. Clevenger, Garold R. Spindler and Philip C.
Wolf are covered under the Company's Executive Officer Separation Policy. If any
Named Executive's employment is terminated under circumstances described in the
policy, he is entitled to separation benefits equal to one year of his base
salary plus target annual bonus. He also would be eligible for a pro rata bonus
for the year of termination at the
16
<PAGE> 17
discretion of the Compensation and Benefits Committee, for outplacement
services, and for medical and life insurance benefits. The policy also provides
for non-duplication of benefits. Because of this, the Named Executives are not
expected to receive medical and life insurance benefits under this policy.
CUMULATIVE SHAREHOLDER RETURN
The graph below shows a five-year comparison of cumulative total
shareholder returns for Common Stock, the S&P 500 Index, and the Company's peer
index. The returns of the companies in the peer index are weighted based on
their stock market capitalization as of the beginning of the period. Cumulative
total shareholder return (on an assumed initial investment of $100 as of
December 31, 1993), as determined at the end of each year, reflects the change
in stock price, assuming the reinvestment of dividends.
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, PEER INDEX AND S&P 500 INDEX
Peer Index
- ----------
Asarco Incorporated
Arch Coal, Inc.
Cleveland-Cliffs Inc.
Cominco Ltd.
Echo Bay Mines Ltd.
Freeport-McMoRan Copper & Gold Inc.
Inco Limited
Noranda Inc.
Phelps Dodge Corporation
- -----------------------------------
<TABLE>
<CAPTION>
Measurement Period S&P
(Fiscal Year Covered) COMPANY PEER INDEX 500 INDEX
- -------------------------- ----------- ------------ -----------
<S> <C> <C> <C>
Measurement Point - 1993 100 100 100
Fiscal Year End 1994 112.1 110 101.3
Fiscal Year End 1995 111.9 123.1 139.3
Fiscal Year End 1996 96.3 126.6 171.5
Fiscal Year End 1997 91.6 116.5 228.6
Fiscal Year End 1998 51.3 83.1 261.5
- ------------------------------------------------------------------------
</TABLE>
RETIREMENT PLANS
The Retirement Plan for Salaried Employees covers executives and most other
salaried employees. The amount of annuity an employee will receive upon
retirement on a single-life basis is determined under the formula set forth
below. Upon retirement, a married employee receives a reduced annuity payment
that continues after death to cover the surviving spouse, unless the employee
and the spouse elect one of the alternate options of equivalent actuarial value.
If an employee retires on the normal retirement date (generally, the later
of age 65 or the fifth anniversary of the date participation commenced), the
annual benefit payable from the retirement plan will be the sum of: (1) 1.7% of
average annual earnings (base salary plus bonus) received by the employee for
service during each year after 1998, plus (2) 1.7% of the employee's average
annual earnings from 1994 through 1998 multiplied by the employee's number of
pre-1999 years of service recognized by the Company for retirement plan benefit
accrual purposes, less (3) 1.1% of the Social Security offset multiplied by the
total years of service as of December 31, 1998, and certain other offsets, not
to exceed 35 years recognized for Company plan purposes.
The estimated annual benefits payable upon retirement at normal retirement
age are $232,568 for Milton H. Ward; $223,913 for Gerald J. Malys; $200,615 for
Jeffrey G. Clevenger; $159,679 for Garold R. Spindler; and $218,262 for Philip
C. Wolf. These estimates are based on actual covered pay for 1994 through
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<PAGE> 18
1998 and 1998 base salary and bonus for years after 1998. The estimates do not
reflect the impact of future salary increases.
The five-year period 1994 through 1998 currently used in the benefit
formula described above may be rolled forward by the Board of Directors. The
table below provides information on retirement benefits (subject to reduction by
a percentage of Social Security benefits), assuming that the formula is applied
to average annual remuneration during the five years prior to retirement:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ASSUMED
5-YEAR AVERAGE YEARS OF BENEFIT SERVICE
ANNUAL --------------------------------------------------------------------------------------
EARNINGS 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- -------------- -------- -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 375,000............ $ 31,875 $ 63,750 $ 95,625 $127,500 $ 159,375 $ 191,250 $ 223,125
475,000............ 40,375 80,750 121,125 161,500 201,875 242,250 282,625
575,000............ 48,875 97,750 146,625 195,500 244,375 293,250 342,125
775,000............ 65,875 131,750 197,625 263,500 329,375 395,250 461,125
975,000............ 82,875 165,750 248,625 331,500 414,375 497,250 580,125
1,175,000........... 99,875 199,750 299,625 399,500 499,375 599,250 699,125
1,675,000........... 142,375 284,750 427,125 569,500 711,875 854,250 996,625
2,175,000........... 184,875 369,750 554,625 739,500 924,375 1,109,250 1,294,125
2,675,000........... 227,375 454,750 682,125 909,500 1,136,875 1,364,250 1,591,625
</TABLE>
The amounts above are payable upon retirement between ages 62 and 65. For
retirement prior to age 62, the annual annuity amounts are reduced as provided
in the retirement plan. At year-end 1998, the Chief Executive Officer and the
Named Executives had accumulated the years of benefit service stated (excluding
additional years under the plan described in the following paragraph): Milton H.
Ward, 6 years; Gerald J. Malys, 13 years; Jeffrey G. Clevenger, 6 years; Garold
R. Spindler, 4 years; and Philip C. Wolf, 18 years. The Internal Revenue Code
limits the benefits payable from any funded retirement plan that qualifies for
federal income tax exemption. The estimated annual benefits payable upon
retirement, including amounts set forth in the table above, which exceed such
limits are payable from an unfunded non-qualified retirement plan.
For certain executives designated by the Compensation and Benefits
Committee who continue to work until at least age 55, an additional retirement
benefit will be paid under another unfunded non-qualified retirement plan. This
benefit utilizes the benefit formula under the Retirement Plan for Salaried
Employees, but calculates benefit service as being equal to the lesser of (1)
the difference between 30 years and the years of benefit service projected to
age 62, or if older, the years of actual benefit service and (2) the years of
benefit service actually earned under the Retirement Plan for Salaried
Employees. Benefits under this non-qualified plan are determined without regard
to any Internal Revenue Code restrictions on benefits that can be paid from a
tax-qualified plan. Applying the benefit service calculation above to Milton H.
Ward as of the end of his employment contract at age 68, he would be credited
with an additional 8 years of service at retirement. At normal retirement (age
65), 3 of the Named Executives would be credited with the following additional
years: Gerald J. Malys, 5 years; Jeffrey G. Clevenger, 8 years; and Garold R.
Spindler, 13 years. Philip C. Wolf would be credited with no additional years at
normal retirement. This plan provides for immediate vesting and distribution of
accrued benefits in the event of a change of control, as defined in the plan.
RECENT EVENTS
At meetings of the Board held on September 24 and 27, 1999, the Board
approved the following: (i) the contribution of approximately $20.0 million into
a trust to fund the payment of benefits to 16 management employees of the
Company, including the named executive officers, under existing change of
control severance agreements; (ii) the contribution of approximately $20.5
million into trusts to fund the payment of benefits to employees of the Company,
including the named executive officers, and the non-employee directors under
certain existing retirement and deferred compensation plans; (iii) the payment
of bonuses to bonus-eligible
18
<PAGE> 19
employees of the Company, including the named executive officers, for the
nine-month period beginning on January 1, 1999 and ending on September 30, 1999,
rather than for the twelve-month period ending December 31, 1999, in accordance
with the terms of the bonus plans currently in effect, upon the first to occur
of (a) shareholder approval of the merger with ASARCO (as contemplated by the
Agreement and Plan of Merger, dated as of July 15, 1999, by and among Asarco
Cyprus Incorporated, ACO Acquisition Corp., CAM Acquisition Corp., ASARCO
Incorporated and the Company by both the Company and the ASARCO shareholders or
(b) the execution by the Company of a definitive agreement to effectuate a
transaction with a party other than ASARCO, which condition has been satisfied
as a result of the execution of the Merger Agreement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon copies of filings furnished to the Company and upon statements
furnished by known insiders that no filings were required pursuant to Section
16(a) of the Securities Exchange Act of 1934, the Company believes that during
1998, all filings of its officers, directors, and 10% beneficial owners timely
complied with Section 16(a) reporting requirements.
19
