<PAGE>
================================================================================
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, 1998
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
---------------------
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 $11 1/16 as of March 18, 1999, was approximately $986,402,000.
-----------
Number of shares of common stock outstanding as of March 18, 1999, was
90,453,579.
- ----------
DOCUMENTS INCORPORATED BY REFERENCE
1998 Annual Report to Shareholders (Parts I, II, and IV). Proxy
Statement for the 1999 Annual Meeting to be filed within 120 days after the
fiscal year (Part III).
<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. For 1998 Cyprus Amax's operating segments were Copper/Molybdenum,
Coal, Lithium, Exploration, and All Other (which included Gold and Businesses
Sold/Non-Operating). Cyprus Amax is a leading copper and coal producer, the
world's largest producer of molybdenum, and was the world's largest producer of
lithium and had 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, 1998,
Cyprus Amax employed approximately 7,200 employees. Its principal office is
located at 9100 East Mineral Circle, Englewood, Colorado 80112.
On June 1, 1998, Amax Gold completed its merger with Kinross Gold Corporation
(Kinross). Cyprus Amax's 58.8 percent of Amax Gold Common Stock was converted
into Kinross shares at a rate of approximately 0.8 of a share of Kinross Common
Stock for each share of Amax Gold. Additionally, Cyprus Amax purchased about
$135 million of Kinross Gold Common Stock for cash and the repayment of Amax
Gold debt. At the time of the merger, Cyprus Amax owned approximately 31
percent of Kinross. Beginning June 1, 1998, Cyprus Amax reported its investment
in Kinross on an equity basis. On June 29, 1998, Cyprus Amax sold 11 of its
Appalachian and Midwest coal properties to Coal Ventures, Inc. (AEI) of Ashland,
Kentucky. On October 13, 1998, Cyprus Amax sold its Lithium segment to an
affiliate of Chemetall GmbH, a specialty chemicals unit of Metallgesellshaft AG.
On October 22, 1998, Cyprus Amax's Board of Directors approved the engagement
of Salomon Smith Barney to undertake a possible sale of Cyprus Amax Coal Company
(Coal Company). Cyprus Amax will seek to maximize the value of the Coal Company
through a sale or the establishment of a Master Limited Partnership Trust,
although there can be no assurances that a transaction will be consummated. The
sale process is proceeding, and firm bids are expected around the end of the
first quarter of 1999. Proceeds from this transaction are expected to be used
to reduce debt, fund the share buyback program, continue to significantly
strengthen Cyprus Amax's financial position, and support growth opportunities in
its core mining business.
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 55 of the 1998 Annual Report to Shareholders (1998 Annual Report). In
addition, data related to Cyprus Amax's operating 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 30 in the 1998 Annual
Report, and from Note 18 to the Consolidated Financial Statements on pages 51
through 53 in the 1998 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 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 1998 and 1997. The 1998 year-
end ore reserve information is as follows:
<TABLE>
<CAPTION>
Ore Reserves December 31, 1998
- ------------ ----------------------------------------------------------------------------------
Proven and
Probable
Ore Reserves(1) Average Grade Saleable Product
---------------- --------------------------- --------------------------
(Millions Copper Molybdenum Copper Molybdenum
-------- ------------- ----------- -----------
Operation of Tons) (%) (%) (Millions of Lbs.)
- --------------
<S> <C> <C> <C> <C> <C>
Bagdad 771 .37 .022 4,820 223
Sierrita/Twin Buttes 1,104 .27 .030 4,885 491
Miami 191 .41 - 926 -
El Abra(2) 493 .47 - 3,538 -
Cerro Verde(3) 703 .64 .021 7,018 116
Henderson 191 - .212 - 712
Climax 145 - .233 - 593
----- ------ -----
3,598 21,187 2,135
===== ====== =====
</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 1998 1997
- --------------- -------------------------------------------- ---------------------------------------------
Material Ore Stripping Material Ore Stripping
Mined(1) Mined Ratio(2) Mined(1) Mined Ratio(2)
--------- ------ ---------- ----------- --------- ------------
(Millions of Tons) (Millions of Tons)
<S> <C> <C> <C> <C> <C> <C>
Operation
- ----------------------
Bagdad 62 30 1.08 77 31 1.47
Sierrita/Twin Buttes 90 58 .81 97 57 .99
Miami 92 29 2.23 102 32 2.23
Tohono - - - 4 3 .28
Cerro Verde 37 10 2.59 39 10 3.04
El Abra 43 38 .01 31 31 -
Henderson 7 7 - 8 8 -
--- --- --- ---
Total 331 172 358 172
=== === === ===
</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
- -----------------------------
1998 1997
------------------------------------------- --------------------------------------------------
Ore Grade Ore Grade
---------------------- -------------------------
Ore Processed Copper Molybdenum Ore Processed Copper Molybddenum
--------------- ------ ----------- ------------- ------ ------------
(Millions of Tons) (Percent) (Millions of Tons) (Percent)
<S> <C> <C> <C> <C> <C> <C>
Operation
- -----------
Bagdad - Mill 30 .38 .024 31 .43 .018
- Leach - - - 1 .27 -
Sierrita/Twin Buttes - Mill 41 .26 .036 41 .29 .032
- Leach 19 .28 - 16 .22 -
Miami - Leach 29 .36 - 32 .46 -
Tohono - Leach - - - 3 .56 -
Cerro Verde - Leach 10 .81 - 10 .81 -
El Abra 38 .77 - 31 .93 -
Henderson - Mill 7 - .240 8 - .262
--- ---
Total 174 173
=== ===
</TABLE>
<TABLE>
<CAPTION>
Production 1998 1997
---------- ----------------------------- -----------------------------
Copper Molybdenum Copper Molybdenum
------ ----------- ------ -----------
(Millions of Pounds) (Millions of Pounds)
Operation
---------
<S> <C> <C> <C> <C>
Bagdad 215 9 246 6
Sierrita/Twin Buttes 226 22 246 20
Miami 164 - 156 -
Tohono 8 - 27 -
Cerro Verde 130 - 122 -
El Abra(1) 224 - 218 -
Henderson - 30 - 37
Mineral Park - - 3 -
--- ---- ----- -----
Total 967 61 1,018 63
=== ==== ===== =====
</TABLE>
- --------
(1) Represents Cyprus Amax's 51 percent share of production.
Cyprus Climax Metals Copper/Molybdenum Operations
In 1998 Cyprus Amax produced 967 million pounds of copper and 61 million
pounds of molybdenum from its copper and molybdenum operations. During 1998
the Company established new annual copper production records at the El Abra
mine in Chile, the Cerro Verde leach operation in Peru, and at the Miami
copper operation 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 approximate 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
1998 Bagdad produced 22 million pounds, or 10 percent of its total copper
production, as electrowon copper cathode, and sulfide copper production was
193 million pounds. During 1998 in response to reduced copper and molybdenum
market prices, the mill was operated at a lower throughput rate. The mill
achieved a high recovery helping to overcome lower grade ore. Cyprus Amax owns
the mine property under patented mining claims and owns the tailings areas
under Arizona state patents.
4
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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, an approximate 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's electrowon copper cathode production in 1998 totaled
48 million pounds, or 21 percent of its total copper production and sulfide
copper production was 178 million pounds. In 1998 approximately 51 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 1998 production of 164 million pounds of copper
cathode from the leaching and SX-EW operations was 5 percent greater than 1997
production, setting an annual record for the second consecutive year. The
smelter processed 605,000 tons of copper concentrate in 1998, up slightly from
1997. The electrorefinery produced 380 million pounds of copper cathode, 14
percent greater than in 1997, which was an annual record. The Miami rod plant
operated above rated capacity during 1998, producing 306 million pounds of
copper rod, or 4 percent higher than 1997, and setting a production record for
the last two years.
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 about 703 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. In 1996 facilities were
expanded and upgraded, and the mine currently has design capacity to produce
approximately 115 million pounds of electrowon copper cathode. In 1998 Cerro
Verde produced approximately 130 million pounds of copper cathode, 13 percent
over current design capacity. In 1998 approximately 10 million tons of ore were
processed through primary, secondary, and tertiary crushers and placed on leach
pads after agglomeration. Studies to date for development of the sulfide mill at
Cerro Verde 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.
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 493 million tons at December 31, 1998. Construction started in February
1995, and commercial operations began in December 1996. Drilling
5
<PAGE>
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 800 million tons, creating further opportunity for expansion. In
addition, there is exploration potential for additional deposits on the mining
concessions. In 1998 Cyprus Amax's share of El Abra's production was 224 million
pounds of copper. In October 1997, El Abra replaced its original financing by
putting in place a $1 billion project refinancing. In December 1997, El Abra met
all the requirements of its loan completion agreement under the $1 billion
project refinancing, releasing Cyprus Amax from the completion guarantee
obligation. The refinancing included $200 million of a Cyprus Amax guarantee
that will be reduced proportionally over the term of the loan, and at December
31, 1998, $179 million was guaranteed.
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 1998 Henderson produced 30 million pounds
of molybdenum from 7 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. It is anticipated that the project will
be on-stream in October 1999 following a several months installation shutdown.
Climax
Cyprus Amax owns the Climax molybdenum 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 underground mine has been inactive
while the open pit mine and concentrator are on standby. The property, owned in
fee by Cyprus Amax, occupies more than 14,000 acres.
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. Mining of ore ceased in July 1997, but
production of copper continued from existing leach pads until February 1999 when
the facility was placed on a care and maintenance status. Various alternatives
for large scale copper production through open pit mining and heap leach
technology will be reevaluated when copper prices recover. In 1998 Tohono
produced about 8 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 period owned in 1997 was 3 million pounds.
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 owns and operates a rod
plant located in Chicago, Illinois. This facility is located on fee land owned
by Cyprus Amax and in 1998 produced 380 million pounds of high quality
continuous cast copper rod, setting a new annual production record.
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.
6
<PAGE>
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. A conversion plant is located in
Rotterdam, The Netherlands. The facility consists of one molybdenum roaster and
a small chemical conversion plant. The plant is operated primarily 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 percent 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. In 1998 Cyprus Amax reached an agreement
with the Shell Oil affiliate to shut down the operation in late 1999 and
dissolve the partnership.
Copper Processing
In 1998 Cyprus Amax processed 605,000 tons of Cyprus Amax domestic copper
concentrates at its own facilities, or 93 percent of its 1998 copper concentrate
production. The balance of Cyprus Amax's 1998 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. From
time-to-time Cyprus Amax enters into copper price protection programs. As of
February 28, 1999, Cyprus Amax had no copper price protection programs in place
for 1999 or future years.
Of Cyprus Amax's 966 million pounds of produced copper sales in 1998, 66
million pounds were sold as concentrate, 384 million pounds as cathode, and 516
million pounds as rod. Comparable figures for 1997 were 1,030 million pounds of
produced copper sold, of which 124 million pounds were sold as concentrate, 378
million pounds as cathode, and 528 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. A
7
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substantial portion of Cyprus Amax's expected 1999 molybdenum
production is committed for sale throughout the world pursuant to annual
agreements.
8
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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 1998. Seventy-two percent of year-end 1998 developed domestic coal reserves
mined with existing facilities satisfy the 1.2 pound Clean Air Act Amendments
standard effective in 2000.
<TABLE>
<CAPTION>
Annual
Coal Capacity Average Average Average
Operating (Millions Btu Contained Recovery
Unit Type of Tons) per Pound Sulfer % %
- -------------- ----------- --------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Pennsylvania underground 12 13,000-13,200 1.2-3.0 70-90
Midwest underground 1-2 11,000-11,200 1.45-1.60 80-90
Wyoming surface 42 8,270-8,515 0.3-0.4 100
Colorado underground 11 10,600-11,250 0.4-0.6 100
Utah underground 5 11,400-12,400 0.4-0.6 90-100
Year-End 1998 Reserves
(Millions of Tons)
- ---------------------------------------------------
Mineable Total
with Require Proved
Existing New and Probable
Facilities Facilities Reserves
- ------------ ------------- ---------------
<C> <C> <C>
423 357 780
35 - 35
945 - 945
151 - 151
105 - 105
----- ----- -----
1,659 357 2,016
===== ===== =====
</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 41 million
tons. Cyprus Amax's equity share of Oakbridge Limited reserves at December 31,
1998, were 140 million tons.
In 1998 Cyprus Amax produced 72 million tons and sold 73 million tons of
coal. In addition, Cyprus Amax's share (48 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>
Coal Production
---------------------------
Operating Unit 1998 1997
-------------- ------- -------
(Million of Tons)
<S> <C> <C>
Pennsylvania 12 11
West Virginia 2 7
Kentucky 2 7
Midwest 2 4
Wyoming 41 41
Colorado 10 10
Utah 2 2
---- ----
Total Domestic 71 82
---- ----
Springvale 1 1
Oakbridge (Equity share) 5 5
---- ----
Total Australian 6 6
---- ----
Total 77 88
==== ====
</TABLE>
Additionally, the average sales prices for 1998 and 1997 are shown in the table
below:
<TABLE>
<CAPTION>
Average Sales Price
-------------------------------------------------------------------
Contract Spot
---------------------------- ----------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(US$/Ton) (US$/Ton)
Total Domestic 11.54 13.71 18.75 17.59
Total Australian 19.80 24.28 16.26 20.36
</TABLE>
9
<PAGE>
Coal Operations
On June 29, 1998, Cyprus Amax sold 11 of its Appalachian and Midwest coal
properties to Coal Ventures, Inc. (AEI) of Ashland, Kentucky. This sale included
the West Virginia, Kentucky, Tennessee, 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. 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
April 2003. 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, consisted of the Stockton and Cannelton 150
underground mines and the Dunn and Armstrong Creek surface mines. The
underground mines utilized continuous miners; the surface mines employed trucks,
electric shovels, hydraulic excavators, endloaders, and a dragline at one of the
properties. Both raw and processed coal of various qualities were marketed to
electric utilities and industrial customers; transportation was 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 was sold in July 1998. The West Virginia operations also
included a small preparation plant in McDowell County. The hourly workforce at
all operations was represented by the UMWA. Mining was conducted on owned
property and under private leases. Mining equipment was both owned and leased.
The Kanawha River operations and the McDowell County preparation plant were sold
to AEI in June 1998.
Kentucky
Cyprus Mountain Coals operated the Star Fire surface mine located in eastern
Kentucky. Star Fire was a mountaintop removal and contour stripping operation
using an Addcar highwall miner, dragline, shovel, and trucks to extract five
seams of coal. Mining operations were conducted on fee coal properties and
private coal leases with both owned and leased equipment. A preparation plant
was used to wash a portion of the production. The hourly workforce was
represented by the UMWA. Cyprus Cumberland Coal owned two underground mines and
preparation plants (Pine Mountain and Straight Creek) and a surface mine
(Straight Creek). All three mines were operated by independent contract miners.
Transportation from the Kentucky operations was by rail. These mines were sold
to AEI in June 1998.
Midwest
Midwest operation consists of an underground mine in southern Illinois. 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 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, and the current
contract expires in April 2003. Throughout the
10
<PAGE>
Midwest, surface and mineral rights are controlled through fee ownership and
private leases. Mining equipment is predominantly owned, although a portion is
leased.
Prior to the sale to AEI in June 1998, Cyprus Amax owned the Chinook,
Sycamore, and Skyline surface mines. Chinook was a dragline operation in west
central Indiana that supplied washed coal by rail, primarily to a nearby
utility, under a long-term contract. Sycamore was a shovel-truck operation in
Knox County, Indiana from which coal was trucked to utility and industrial
accounts. Skyline was a dragline operation in Sequatchie County, Tennessee from
which coal was supplied to utility and industrial customers, primarily by truck.
Hourly employees at Chinook and Sycamore were represented by the UMWA.
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 mid-2000. 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 as needed using continuous miners.
Star Point owns its production equipment, including a preparation plant, but
leases coal reserves, mainly from the federal government.
Longwall start-up at the newly constructed Willow Creek mine commenced in
mid-July 1998, with commercial production achieved on October 1, 1998. On
November 25, 1998, an underground mine fire occurred at Willow Creek. There
were no injuries, and all employees were safely evacuated and the mine was
sealed in a remarkably short period of time. There was minimal damage to the
mine and longwall, and continuous miner production is projected to restart in
late March 1999. The majority of the Willow Creek workforce has been
temporarily assigned to the nearby Star Point mine where production has been
expanded to partially mitigate the absence of production from Willow Creek. The
losses that have and are being incurred are expected to be partially offset by
insurance recoveries expected to be realized in 1999 and 2000.
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.
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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
long-term coal supply contract and spot orders. The Springvale workforce is
represented by the Construction, Forestry, Mining Employees Union (CFMEU) under
a labor agreement that expires in December 1999.
Oakbridge
Cyprus Amax's wholly-owned subsidiary, Cyprus Australia Coal of Sydney,
Australia, owns a 48 percent interest in, 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 9 to 10 million tons.
The number of operating mines has been reduced from six to three due to selling
two mines and idling a third mine resulting from weak coal export selling
prices, uncompetitive operating costs, and problematic mining conditions. Over
75 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
third remaining mine is Baal Bone located in the western coal fields.
Oakbridge's workforce is represented by CFMEU under labor agreements unique to
each mine that expire between October 1999 and January 2000. Proved and probable
reserves total 291 million tons, of which Cyprus Amax's equity share is 140
million tons at December 31, 1998.
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. Cyprus Australia Coal has entered into an agreement with
the mine's owners to waive its equity purchase option, and cease its management
role effective March 17, 1999.
Coal Marketing Arrangements
Approximately 92 percent of Cyprus Amax's coal production is steam coal sold
to domestic electric utilities. Over 90 percent of Cyprus Amax's 1998 coal sales
were made under contracts with an initial duration of one year or longer (term
contracts). These contracts are priced using a combination of 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 a
portion of the coal currently subject to such contracts is below the contract
price.
At December 31, 1998, Cyprus Amax had term contracts covering an aggregate of
approximately 405 million tons, including approximately 59 million tons to be
delivered in 1999. About 9 percent of contracted coal is under agreements that
expire before 2002; the remainder is committed under contracts that expire
between
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2002 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 1998 revenues from five
coal supply contracts accounted for approximately 22 percent of total coal
revenues, with the largest individual contract contributing 7 percent of coal
revenues.
Eastern Markets. Shipments from Cyprus Amax's Pennsylvania mines increased
----------------
by seven percent in 1998 as highly competitive, high Btu coals from northern
Appalachia supplied a larger share of electric generation in the Midwest and
Northeast. Due to their quality characteristics, location, and cost
competitiveness, Cyprus Amax's Pennsylvania operations are well positioned to
increase sales to domestic utilities and export customers. Demand is expected to
increase with electric power generation, but may be affected by the sulfur
dioxide and nitrogen oxide emission requirements of the Clean Air Act
Amendments of 1990 (see "Coal - Clean Air Act Amendments of 1990").
Midwest Markets. In recent years, Cyprus Amax has significantly reduced its
----------------
dependence on sales of high sulfur Illinois Basin coals. Shipments from the
Wabash mine, Cyprus Amax's only operating Midwest mine, decreased to less than
1.4 million tons in 1998. Overall demand for Illinois Basin coal is expected to
continue to decline as a result of the Clean Air Act Amendments and depletion of
low cost reserves. Electric generation in the Midwest is being fueled to a
greater extent by lower cost, high Btu eastern coals and low sulfur western
coals.
Western Markets. Shipments from Cyprus Amax's Wyoming, Colorado, and Utah
----------------
mines increased by three percent in 1998 in response to continued strong
domestic and export demand for these low sulfur coals. The Powder River Basin
(PRB), accounting for over half of Cyprus Amax's production, is the nation's
largest and fastest growing coal producing region. Demand for PRB and other
western coals is expected to accelerate in 1999 and 2000 as electric generators
comply with Phase II of the Clean Air Act Amendments. Additionally, utilities
are relying on high Btu Colorado and Utah coals during peak demand periods to
increase electric output from existing generating capacity. Western railroads
have invested heavily in equipment and track expansions. Railroad performance
and cycle times improved in 1998.
Although the Powder River Basin has been historically affected by
overcapacity, three of Cyprus Amax's term supply agreements account for nearly
50 percent of 1998 production and represent a solid production base for the
Wyoming unit. These contracts expire between 2006 and 2020.
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 Phase
II of the Clean Air Act Amendments. The Amendments are expected to increase the
demand for and value of Cyprus Amax's low-sulfur reserves in the Powder River
Basin, Colorado, and Utah, since many utilities are expected to comply with the
tighter emissions standards by switching to lower sulfur coal. Approximately 40
percent of
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Cyprus Amax's higher sulfur coals, produced in Pennsylvania and
Illinois, will be shipped in 1999 and 2000 to plants currently equipped with
scrubbers. Additional scrubber installations have been announced by electric
generators and are anticipated in the Midwest and Northeast to comply with Phase
II.
The Federal Environmental Protection Agency announced in 1998 a proposal to
require electric generators in 22 eastern states to reduce nitrogen oxide
emissions by 85 percent during the annual five month ozone season, starting May
2003. The impact of this proposal on the coal industry and Cyprus Amax cannot
be predicted with certainty as utilities may comply through investments in
control technologies, switching to alternative fuels, reducing output from some
facilities, or purchasing emission allowances. To date, eight states have
challenged the EPA proposal by filing suit in federal court in the District of
Columbia.
LITHIUM SEGMENT
Lithium Operations
Cyprus Amax was a major producer of lithium with production facilities in
Nevada, North Carolina, Tennessee, and Chile. Lithium and lithium compounds
were 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. On October 13, 1998, Cyprus Amax sold
its Lithium segment to an affiliate of Chemetall GmbH, a specialty chemicals
unit of Metallgesellshaft AG.
Cyprus Amax owned 100 percent of a Chilean limited partnership that held a
brine deposit and owned a lithium carbonate processing facility in northern
Chile. Lithium brine was recovered from the brine deposit and concentrated in
solar evaporation ponds in the Salar de Atacama. The concentrated brine was
then converted into lithium carbonate at the La Negra processing facility
outside of Antofagasta. During 1997 Cyprus Amax constructed a lithium chloride
plant, which began production in the first half of 1998. Production during the
period owned in 1998 was 21.4 million pounds of lithium carbonate.
At the Silver Peak facility in Nevada, Cyprus Amax also produced lithium
carbonate from salt brines. The solar pond system and related plant for
chemical conversion of the concentrated brine into lithium carbonate were
situated on approximately 17,000 acres of patented and unpatented placer mining
claims. During the period owned in 1998, Silver Peak operated at its long-term
solar pond production capacity, which produced 10.5 million pounds of lithium
carbonate. Additionally, Silver Peak produced 4.6 million pounds of lithium
hydroxide during the period owned in 1998.
Cyprus Amax operated 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 produced other organo-metallic lithium specialty
chemicals.
Cyprus Amax also owned manufacturing facilities for various lithium chemicals
and lithium metal casting located on 926 acres of fee and leased land in Kings
Mountain, North Carolina. Lithium administration and sales, research and
development, and certain lithium metal, alloy, and pharmaceutical production
activities were also conducted at the Kings Mountain production facilities.
Lithium Marketing Arrangements
Cyprus Amax sold 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. The various lithium products were sold under a combination of
long- and short-term contracts.
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EXPLORATION SEGMENT
In 1998 Cyprus Amax shifted 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, Peru, Chile, Australia, Papua New Guinea, and Zambia 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 "All
Other Segment, Gold Operations" for discussion of Cyprus Amax's exploration
joint venture agreement with Kinross, formerly with Amax Gold.)
In regards to the Kansanshi copper project, incorporated by reference from
page 22 from "Management's Discussion", a 30 day extension was granted from
March 14, 1999 to mid-April 1999 for the decision deadline to continue on into
Phase II. Cyprus Amax will continue to work towards renegotiating the $10
million Phase II payment during this time.
ALL OTHER SEGMENT
Gold Operations
Amax Gold and its subsidiaries were 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. On June 1, 1998, Amax Gold completed its merger with Kinross. Cyprus
Amax's 58.8 percent share of Amax Gold Common Stock was converted into Kinross
shares at a rate of 0.8 of a share of Kinross Common Stock for each share of
Amax Gold. Cyprus Amax also purchased $135 million of Kinross Common Stock for
cash and the repayment of Amax Gold debt. At the time of the merger, Cyprus
Amax owned approximately 31 percent of Kinross and received warrants to buy
approximately an additional 10 million shares of Kinross. This merger resulted
in the deconsolidation of Amax Gold, and beginning June 1, 1998, Cyprus Amax's
investment in Kinross was reported on an equity basis.
Amax Gold's operating properties consisted 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 continued during 1998 at both mines. The Company also owned 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 owned a 62.5 percent joint venture
interest in the Haile Project in Lancaster County, South Carolina.
All of the former Amax Gold's operating properties were open pit mines.
Except for mining equipment owned by contract miners at Refugio and mobile
mining equipment leased at Fort Knox, Amax Gold owned its mining and processing
equipment, which was maintained in good operating condition. Ore was 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.
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For the five months ended May 31, 1998, and the year ended December 31, 1997,
Amax Gold produced 336,000 ounces and 730,000 ounces, respectively, of gold and
sold 346,000 ounces and 721,000 ounces, respectively.
At December 31, 1998, Cyprus Amax had a 30 percent equity investment in
Kinross. Kinross is a Canadian gold company, which in addition to the mines
acquired in the Amax Gold merger also operates five gold mines. Four of the
mines are located in Canada and the United States and one is located in
Zimbabwe. The North American operations are the Hoyle Pond mine in Timmins,
Ontario; the Macassa mine in Kirkland Lake, Ontario; the DeLamar mine in Idaho;
and the Candelaria mine in Nevada (which is primarily a silver producer). The
Zimbabwean operations are at the Blanket mine. For the full year 1998, Kinross
produced 824,000 ounces of gold, and Cyprus Amax's equity share of Kinross'
reserves at December 31, 1998, was 2.3 million ounces of contained gold.
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. Prior to the merger,
Amax Gold sold all of its refined gold to banks and other bullion dealers, using
a variety of hedging programs, and the majority of its pre-merger 1998 sales was
to Europe.
In June 1998, Cyprus Amax established joint exploration agreements with
Kinross to explore for base and precious metals. The agreements provide Cyprus
Amax a 75 percent interest and Kinross a 25 percent interest in the base and
precious metals prospects resulting from future exploration. This agreement
covers Pastoria, Mexico, Cordillera Negra, Peru, and Eyre Peninsula, Australia.
Each party funds work in proportion to its interest, and Cyprus Amax provides
staffing and management. This agreement replaced a comparable joint exploration
agreement established in 1994 with Amax Gold that was dissolved as a result of
the merger with Kinross.
EQUITY AND OTHER
Oakbridge Limited
During 1998 Cyprus Amax's ownership interest in Oakbridge Limited was 48
percent. In January 1998, Cyprus Amax increased its ownership from 41 percent
to 48 percent through the purchase of Ban-Pu's 7 percent shareholding. Cyprus
Amax's investment in Oakbridge Limited is accounted for using the equity method.
See further discussion in "Coal Segment, Oakbridge".
In 1998 Cyprus Amax acquired approximately 31 percent in Kinross through the
Amax Gold merger with Kinross. Cyprus Amax's investment in Kinross is accounted
for using the equity method. At December 31, 1998, Cyprus Amax owned
approximately 30 percent of Kinross. See further discussion in "All Other
Segment, Gold Operations".
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, cash flows, 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 and Year 2000 problems.
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Metals Price Volatility
A significant portion of the Company's 1998 revenues were 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, which was merged with
Kinross on June 1, 1998. 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 that 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.
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Reliance on Coal Contracts
A substantial portion of the Company's coal is sold pursuant to long-term
coal supply contracts that are significant to the stability and profitability of
the Company's operations. During 1998 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 that 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 that, 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 that
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 competed 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 75 cents per
pound in 1998, down 29 cents per pound from 1997. Western World refined copper
consumption rose for the thirteenth consecutive year in 1998, with estimated
growth of two percent. Copper production increased at a slightly higher rate.
Copper inventories rose and prices fell sharply as the supply exceeded demand.
The supply of copper is determined largely by development and production
decisions of those entities controlling mines and reserves and availability of
secondary materials. 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. World molybdenum consumption
remained at record levels in the first half of 1998 continuing the growth trend
begun in 1994. In the second half of 1998, molybdenum consumption was
negatively impacted as a result of the Asian crisis. Overall 1998 molybdenum
worldwide consumption declined an estimated four percent primarily in
metallurgical applications. The molybdenum market remained over supplied during
the second half of 1998, and production curtailments were announced in China and
at three primary mines in North America during the fourth quarter. Western
World metallurgical spot molybdenum oxide prices in 1998 averaged about $3.40
per pound against a 1997 average of about $4.30 per pound. Cyprus Climax
molybdenum realizations averaged $4.95 per pound in 1998 and $5.50 per pound in
1997, with realizations positively impacted by higher-valued molybdenum chemical
products. Cyprus Climax staged about a 3 million pound build up of molybdenum
inventories in 1998 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.
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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 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 was based on price and quality.
Prior to the sale of the Lithium business, Cyprus Amax had 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.).
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 or 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 that 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 or 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 1998 Annual Report
and Note 14 to the Consolidated Financial Statements on pages 47 and 48 of the
1998 Annual Report, which information is incorporated herein by reference and
Item 3: Legal Proceedings in this Form 10-K.
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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 at December 31, 1998, are
located in foreign countries, including Chile, Peru, 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.
Item 3. Legal Proceedings
Cyprus Tohono Corporation 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.
As the Pinal Creek Group, Cyprus Miami Mining Corporation and other companies
continued remediation and assessment of ground water quality throughout 1998 in
the shallow alluvial aquifers along Pinal Creek near
20
<PAGE>
Miami, Arizona. The removal, remediation, and assessment work is being conducted
in accordance with the requirements of the Arizona Department of Environmental
Quality's Water Quality Assurance Revolving Fund program. In addition, the
remedial and removal action is consistent with the National Contingency Plan
prepared by the Environmental Protection Agency ("EPA") as required by the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA").
The ongoing removal, remediation, and assessment program, initiated in 1989, has
resulted in continued improvement of the sub-surface water quality in the area.
In November 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 the
entry of a Consent Decree resolving all matters related to an enforcement action
contemplated by the State of Arizona with respect to the ground water matter. On
August 13, 1998, the court approved the Decree that commits Cyprus Miami and the
other Pinal Creek Group members to complete the remediation work outlined in the
remedial action plan that was submitted to the State in May 1997. Following
approval of the Consent Decree, Cyprus Miami undertook a comprehensive
reassessment of expected costs for completing the Pinal Creek removal and
remediation project. This reassessment resulted in Cyprus Miami recording an
additional $80 million accrual in the fourth quarter of 1998, bringing the Pinal
Creek remediation reserve to approximately $111 million at December 31, 1998.
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 EPA and several
state environmental agencies that they may be liable under CERCLA or similar
state laws and regulations for costs of responding to environmental conditions
at a number of sites that 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 $160 million at December 31, 1998, 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 $140 million to $470 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, 1998,
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, 1998, Cyprus Amax's accruals for deferred closure, shutdown
of closed operations, and reclamation totaled approximately $237 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 Copper/Molybdenum reclamation reserve
component is $127 million and includes costs for site stabilization, clean-up,
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. The Coal reclamation reserve component of $110 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. Total reclamation costs for Cyprus Amax at
the end of current mine lives is estimated at about $443 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
21
<PAGE>
unaware of any additional environmental matters or contingencies 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, 1998.
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 19, 1999:
<TABLE>
<CAPTION>
Name Age Office
- ------------------------- --- ----------------------------------------------------
<S> <C> <C>
Milton H. Ward 66 Chairman, President and Chief Executive Officer
Jeffrey G. Clevenger 49 Executive Vice President
Garold R. Spindler 51 Executive Vice President
Gerald J. Malys 54 Senior Vice President and Chief Financial Officer
David H. Watkins 54 Senior Vice President, Exploration
Philip C. Wolf 51 Senior Vice President, General Counsel and Secretary
Robin J. Hickson 55 Vice President, Engineering and Development
Farokh S. Hakimi 50 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, 1988, and Chief Financial Officer effective August 1,
1989. Mr. Spindler was elected to his current office on January 1, 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 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 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 1992. 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 has served in his current position for more than five
years. 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, 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.
22
<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 56 in the 1998 Annual Report.
The information required by Items 6 through 8 is incorporated by reference from
the pages of the Company's 1998 Annual Report set forth below.
Applicable Pages
Form 10-K Item Number in the 1998 Annual Report
---------------------- -------------------------
Item 6. Selected Financial Data........................... 18-19
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition................ 20-30
Item 8. Financial Statements and Supplementary Data....... 31-55
a. Quarterly Results............................. 54
b. Mineral Reserves and Selected Operating
Statistics.................................... 55
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
23
<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 1999 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 1999 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 1999 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 1999 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 1999 Annual Meeting to be filed within 120
days after the fiscal year incorporate such material into this Report by
reference.
24
<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 1998 Annual Report and
incorporated by reference:
<TABLE>
<CAPTION>
Pages in 1998
Annual Report
-------------
<S> <C>
Report of Independent Accountants..................................... 31
Consolidated Statement of Operations for each of the three years in
the period ended December 31, 1998................................... 32
Consolidated Balance Sheet at December 31, 1998 and 1997.............. 33
Consolidated Statement of Cash Flows for each of the three years
in the period ended December 31, 1998................................ 34
Consolidated Statement of Shareholders' Equity for each of the three
years in the period ended December 31, 1998.......................... 35
Notes to Consolidated Financial Statements............................ 36-53
</TABLE>
2. Financial Statement Schedule:
<TABLE>
<CAPTION>
Pages in This
Form 10-K
-------------
<S> <C>
Report of Independent Accountants on Financial Statement
Schedule............................................................. 32
For the three years in the period ended December 31, 1998:
Schedule II - Valuation and Qualifying Accounts and
Reserves............................................................. 33
</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 1998 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.
25
<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, incorporated by reference
from Exhibit 3(a) to the Annual Report on Form 10-K for the period
ended December 31, 1997.
(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) Rights Agreement between Cyprus Amax Minerals Company and the Bank
of New York, dated as of February 28, 1999, which includes the form
of Right Certificate as Exhibit A and the Summary of Rights to
Purchase Shares as Exhibit B, incorporated by reference to Form 8-A
filed February 24, 1999.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
26
<PAGE>
Exhibit
Number Document
------ --------
(f) 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) Stock Purchase and Sale Agreement, dated May 28, 1998, between
Cyprus Amax Coal Company and AEI Holding Company, Inc.
(b) Management Incentive Program of Cyprus Amax Minerals Company, as
amended through the date of signing of this Annual Report on Form
10-K, incorporated by reference to Exhibit 10(b) to the Annual
Report on Form 10-K for the period ended December 31, 1997, and
Exhibit 10(b) to the Annual Report on Form 10-K for the period
ended December 31, 1998.
(c) Stock Plan for Non-Employee Directors of Cyprus Amax Minerals
Company, as amended and restated through the date of signing of
this 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, 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, and Exhibit 10(c) to the Annual
Report on Form 10-K for the period ended December 31, 1998.
(d) Contracts regarding employment between Cyprus Minerals Company (now
Cyprus Amax 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, Exhibit 10(c)
to the Annual Report on Form 10-K for the period ended December 31,
1995, and Exhibit 10(d) to the Annual Report on Form 10-K for the
period ended December 31, 1998.
(e) 1993 Key Executive Long-term Incentive Plan between Cyprus Amax
Minerals Company and certain executive officers, as amended through
the date of signing of this Annual Report on Form 10-K,
incorporated by reference from Exhibit 10(d) to the Annual Report
on Form 10-K for the period ended December 31, 1995, and Exhibit
10(e) to the Annual Report on From 10-K for the period ended
December 31, 1998.
(f) Deferred Compensation Plan for Non-Employee Directors of Cyprus
Amax Minerals Company, as amended through the date of signing of
27
<PAGE>
Exhibit
Number Document
------ --------
this 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, 1994, and Exhibit 10(f) to the Annual Report on
Form 10-K for the period ended December 31, 1998.
(g) Excess Defined Contribution Plan, as amended and 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, and Exhibit
10(g) to the Annual Report on Form 10-K for the period ended
December 31, 1998.
(h) Deferred Compensation Plan for Selected Employees of Cyprus Amax
Minerals Company, as amended through the date of signing of this
Annual Report on Form 10-K, incorporated by reference from Exhibit
10(i) to the Annual Report on Form 10-K for the period ended
December 31, 1994 and Exhibit 10(h) to the Annual Report on
Form 10-K for the period ended December 31, 1998.
(i) Stock Purchase and Sale Agreement, dated April 25, 1998, by and
among Cyprus Amax Minerals Company, Cyprus Foote Mineral Company,
Cyprus Specialty Metals Company, and Foote Acquisition Corporation,
incorporated by reference to Form 8-K filed October 28, 1998.
(j) Supplemental Agreement, dated October 13, 1998, to Stock Purchase
and Sale Agreement, dated April 25, 1998, by and among Cyprus Amax
Minerals Company, Cyprus Foote Mineral Company, Cyprus Specialty
Metals Company, and Foote Acquisition Corporation, incorporated by
reference to Form 8-K filed October 28, 1998.
(k) Tax Sharing and Indemnification Agreement, dated October 13, 1998,
by and between Cyprus Amax Minerals Company, Cyprus Specialty
Metals Company, Cyprus Foote Mineral Company, and Foote Acquisition
Corporation, incorporated by reference to Form 8-K filed October
28, 1998.
(l) Cyprus Amax Minerals Company Supplemental Executive Retirement
Plan, incorporated by reference to Exhibit 10(a) to the Annual
Report on Form 10-K for the period ended December 31, 1997.
(m) 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.
(n) 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.
28
<PAGE>
Exhibit
Number Document
------ --------
(o) 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.
(p) 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.
(q) 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.
(r) 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.
(s) 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; 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.
(t) 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.
(u) 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.
11 Statement re computation of per share earnings.
13 1998 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
29
<PAGE>
Exhibit
Number Document
------ --------
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
99 Financial Statements comprising the Annual Report of the Cyprus Amax
Minerals Company Savings Plan and Trust and Thrift Plan for Bargaining
Unit Employees.*
- ------------
* 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:
A Form 8-K was filed during the quarter ended December 31, 1998 in
regards to the sale of Cyprus Amax's Foote lithium subsidiary to an
affiliate of Chemetall GmbH.
30
<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 19th day of
March 1999.
Cyprus Amax Minerals Company
(Registrant)
By /s/ Gerald J. Malys
-------------------------------
Gerald J. Malys
Senior Vice President and Chief
Financial Officer
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 19, 1999.
Signatures Titles
---------- ------
/s/ Milton H. Ward Chairman of the Board, Director, President,
-------------------
Milton H. Ward and Chief Executive Officer
/s/ Gerald J. Malys Senior Vice President and Chief Financial
--------------------
Gerald J. Malys Officer (Principal Financial Officer)
/s/ John Taraba Vice President and Controller (Principal
----------------
John Taraba Accounting Officer)
/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
31
<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, 1999, appearing on page 31 of the 1998 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/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
February 11, 1999
32
<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
-------------------------
Balance Charged Charged Balance
at to to at
Beginning Costs and Other End of
Material and Supplies Inventory of Year Expenses Accounts Deductions Year
- ---------------------------------------------- ----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1998
Deducted from asset accounts:
Reserve for material and supplies
inventory................................... $ 18 $ 2 $ 1 $ (6) $ 15
========= ========= ========= ========= =========
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
========= ========= ========= ========= =========
Doubtful Accounts and Notes Receivable
- --------------------------------------
1998
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current.................... $ 7 $ - $ - $ (1) $ 6
Reserve for doubtful accounts and
notes receivable-noncurrent................. 5 - - - 5
--------- --------- --------- --------- ---------
Total...................................... $ 12 $ - $ - $ (1) $ 11
========= ========= ========= ========= =========
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
========= ========= ========= ========= =========
</TABLE>
33
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Document
- --------- --------
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) Stock Purchase and Sale Agreement, dated May 28, 1998, between
Cyprus Amax Coal Company and AEI Holding Company, Inc.
(b) Management Incentive Program of Cyprus Amax Minerals Company, as
amended through the date of signing of this Annual Report on Form
10-K, incorporated by reference to Exhibit 10(b) to the Annual
Report on Form 10-K for the period ended December 31, 1997, and
Exhibit 10(b) to the Annual Report on Form 10-K for the period
ended December 31, 1998.
(c) Stock Plan for Non-Employee Directors of Cyprus Amax Minerals
Company, as amended and restated through the date of signing of
this 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, 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, and Exhibit 10(c) to the Annual
Report on Form 10-K for the period ended December 31, 1998.
(d) Contracts regarding employment between Cyprus Minerals Company (now
Cyprus Amax 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, Exhibit 10(c)
to the Annual Report on Form 10-K for the period ended December 31,
1995, and Exhibit 10(d) to the Annual Report on Form 10-K for the
period ended December 31, 1998.
(e) 1993 Key Executive Long-term Incentive Plan between Cyprus Amax
Minerals Company and certain executive officers, as amended through
the date of signing of this Annual Report on Form 10-K,
incorporated by reference from Exhibit 10(d) to the Annual Report
on Form 10-K for the period ended December 31, 1995, and Exhibit
10(e) to the Annual Report on From 10-K for the period ended
December 31, 1998.
(f) Deferred Compensation Plan for Non-Employee Directors of Cyprus
Amax Minerals Company, as amended through the date of signing of
this 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, 1994, and Exhibit 10(f) to the Annual Report on
Form 10-K for the period ended December 31, 1998.
(g) Excess Defined Contribution Plan, as amended and 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, and Exhibit
10(g) to the Annual Report on Form 10-K for the period ended
December 31, 1998.
34
<PAGE>
(h) Deferred Compensation Plan for Selected Employees of Cyprus Amax
Minerals Company, as amended through the date of signing of this
Annual Report on Form 10-K, incorporated by reference from
Exhibit(i) to the Annual Report on Form 10-K for the period ended
December 31, 1994 and Exhibit 10(h) to the Annual Report on
Form 10-K for the period ended December 31, 1998.
11 Statement re computation of per share earnings.
13 Annual Report to Shareholders
21 Subsidiaries of the Registrant.
23 Consent of PricewaterhouseCoopers 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:
A Form 8-K was filed during the quarter ended December 31, 1998 in
regards to the sale of Cyprus Amax's Foote lithium subsidiary to an
affiliate of Chemetall GmbH.
35
<PAGE>
EXHIBIT 10(a)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
STOCK PURCHASE AND SALE AGREEMENT, DATED
MAY 28, 1998, BETWEEN CYPRUS AMAX COAL
COMPANY AND AEI HOLDING COMPANY, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I DEFINITIONS.................................................................................. 1
SECTION 1.1. Definitions................................................................ 1
ARTICLE II PURCHASE AND SALE; CLOSING................................................................... 14
SECTION 2.1. Certain Assets and Liabilities............................................. 14
SECTION 2.2. Closing.................................................................... 15
SECTION 2.3. Purchase Price; Closing Deliveries......................................... 15
2.3.1 Purchase Price...................................................... 15
2.3.2 Shares.............................................................. 16
2.3.3 Other Deliveries.................................................... 17
SECTION 2.4. Allocation of the Purchase Price........................................... 18
2.4.1 Asset Acquisition Statement......................................... 18
2.4.2 Tax Returns......................................................... 18
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER.................................................... 19
SECTION 3.1. Corporate Status and Authority............................................. 19
SECTION 3.2. No Conflicts, etc.......................................................... 20
3.2.1 Charter Documents................................................... 20
3.2.2 Governmental Consents............................................... 20
SECTION 3.3. Corporate and Company Status and Authority of the Subsidiaries............. 20
SECTION 3.4. Ownership of the Subsidiaries.............................................. 21
SECTION 3.5. Title...................................................................... 22
SECTION 3.6. Financial Statements....................................................... 22
SECTION 3.7. Absence of Undisclosed Liabilities......................................... 22
SECTION 3.8. Assets..................................................................... 22
3.8.1 Real Property....................................................... 22
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
3.8.2 Personal Property.................................................. 23
3.8.3 Intellectual Property.............................................. 23
SECTION 3.9. Material Contracts......................................................... 24
3.9.1 Schedule........................................................... 24
3.9.2 Effectiveness...................................................... 25
SECTION 3.10. Affiliate Arrangements..................................................... 25
SECTION 3.11. Employee Benefits.......................................................... 25
3.11.1 Employee Benefit Plans............................................. 25
3.11.2 Labor Matters...................................................... 27
3.11.3 Employees.......................................................... 28
SECTION 3.12. Governmental Authorizations; Compliance with Law........................... 28
3.12.1 Permits............................................................ 28
3.12.2 Compliance......................................................... 29
SECTION 3.13. Litigation................................................................. 29
SECTION 3.14. Taxes...................................................................... 29
SECTION 3.15. Absence of Changes......................................................... 31
SECTION 3.16. Environmental Compliance................................................... 32
SECTION 3.17. Brokers.................................................................... 32
SECTION 3.18. Insurance.................................................................. 33
SECTION 3.19. Bank Accounts.............................................................. 33
SECTION 3.20. Audits..................................................................... 33
SECTION 3.21. Bonds...................................................................... 33
SECTION 3.22. Permit Blocking............................................................ 33
SECTION 3.23. Powers of Attorney......................................................... 33
SECTION 3.24. Certain Customer Matters................................................... 33
SECTION 3.25. Documents.................................................................. 34
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER.................................................. 34
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 4.1. Corporate Status and Authority............................................. 34
SECTION 4.2. No Conflicts............................................................... 34
4.2.1 Charter Documents................................................... 34
4.2.2 Governmental Consents............................................... 34
SECTION 4.3. Litigation................................................................. 35
SECTION 4.4. Purchase for Investment.................................................... 35
SECTION 4.5. Financial Ability to Perform............................................... 35
SECTION 4.6. Brokers.................................................................... 35
SECTION 4.7. Disclosure................................................................. 35
SECTION 4.8. Permit Blocking............................................................ 35
ARTICLE V COVENANTS..................................................................................... 36
SECTION 5.1. Consents, Further Assurances............................................... 36
5.1.1 Consents............................................................ 36
5.1.2 Further Assurances.................................................. 36
SECTION 5.2. Conduct of Operations; Access and Information.............................. 37
5.2.1 Conduct of Operations............................................... 37
5.2.2 Access and Information.............................................. 38
5.2.3 Notification by Purchaser of Certain Matters........................ 39
SECTION 5.3. Publicity.................................................................. 39
SECTION 5.4. Exclusivity................................................................ 39
SECTION 5.5. Notification by Seller of Certain Matters.................................. 39
SECTION 5.6. Company Records............................................................ 39
5.6.1 Retention........................................................... 39
5.6.2 Cooperation With Respect to Examinations and Controversies.......... 40
5.6.3 Remedy for Failure to Comply........................................ 40
SECTION 5.7. Disclosure Schedules; Updates.............................................. 40
5.7.1 Delivery............................................................ 40
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
5.7.2 Special Right to Update Schedules Within Five Business
Days of Execution of this Agreement................................. 41
5.7.3 Interpretation...................................................... 41
SECTION 5.8. Officers and Directors..................................................... 41
5.8.1 Obligations of Seller............................................... 42
5.8.2 Obligations of Purchaser............................................ 42
SECTION 5.9. Section 338(h)(10) Election................................................ 42
SECTION 5.10. Royalty, etc............................................................... 42
5.10.1 Production Royalty on Fee and Leased Land as of the Closing Date.... 42
5.10.2 Royalty Buy-Out..................................................... 46
5.10.3 Minimum Royalty Payment on Undeveloped Reserves; Certain Matters
Relating to the Production Royalty.................................. 47
5.10.4 Audit and Inspection of Reserves.................................... 48
5.10.5 Termination of Royalty and Minimum Royalty Payments................. 49
5.10.6 Royalty and Undeveloped Reserves Royalty Payable During
Pendency of a Dispute............................................... 49
SECTION 5.11. Taxes...................................................................... 49
5.11.1 Pre-Closing Period.................................................. 49
5.11.2 Post Closing Period................................................. 50
5.11.3 Straddle Periods.................................................... 50
5.11.4 Access.............................................................. 51
5.11.5 Refunds and Credits................................................. 51
5.11.6 Seller Group Liabilities............................................ 51
5.11.7 Retention of Tax Returns............................................ 51
5.11.8 Tax Contests........................................................ 52
SECTION 5.12. Compensation and Benefits of Employees..................................... 52
5.12.1 Continuation of Employment.......................................... 52
5.12.2 Employee Benefit Matters............................................ 52
SECTION 5.13. HSR Act Notification....................................................... 59
SECTION 5.14. Fees and Expenses.......................................................... 60
SECTION 5.15. Guarantees................................................................. 60
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
5.15.1 Replacement of Corporate Guarantees; Indemnification after Closing.. 60
5.15.2 Reimbursement During Interim Period................................. 61
5.15.3 Third Party Beneficiaries........................................... 61
SECTION 5.16. Name Changes............................................................... 61
SECTION 5.17. Surety Bonds............................................................... 62
5.17.1 Replacement of Surety Bonds; Indemnification after Closing;
Collateral; Fee; Refund of Premiums................................. 62
5.17.2 Reimbursement During Interim Period................................. 63
5.17.3 Refund of Premiums.................................................. 63
5.17.4 Cooperation for Replacement of Bonds................................ 64
5.17.5 Third Party Beneficiaries........................................... 64
SECTION 5.18. Special Provisions Relating to Financial Matters........................... 64
5.18.1 Close of Books and Records as of Balance Sheet Date................. 64
5.18.2 Financial Reports................................................... 65
5.18.3 Cash Advances....................................................... 65
5.18.4 Certain Services Following the Balance Sheet Date................... 66
5.18.5 Cash at Closing..................................................... 66
5.18.6 Post Closing Statement.............................................. 66
5.18.7 Cash Advance Adjustment, etc........................................ 66
5.18.8 Assistance in Preparation of Exchange Act Filings................... 68
5.18.9 Intercompany Balances as at the Closing............................. 68
SECTION 5.19. Insurance.................................................................. 68
SECTION 5.20. Liabilities of the Subsidiaries Generally.................................. 69
SECTION 5.21. Audit of Financial Statements.............................................. 69
SECTION 5.22. Equipment Surety Bond...................................................... 69
SECTION 5.23. Undertaking Not to Interfere With Mine Plans............................... 69
SECTION 5.24. Permits.................................................................... 70
SECTION 5.25. Administration of Accounts................................................. 70
</TABLE>
v
<PAGE>
<TABLE>
<S> <C> <C>
5.25.1 In Trust for Purchaser.............................................. 70
5.25.2 In Trust for Seller................................................. 70
ARTICLE VI CONDITIONS PRECEDENT OF PURCHASER............................................................ 70
SECTION 6.1. Conditions Precedent....................................................... 70
6.1.1 Representations, Warranties and Obligations of Seller............... 70
6.1.2 Officer's Certificate............................................... 71
6.1.3 Ancillary Agreements................................................ 71
6.1.4 Material Adverse Change............................................. 71
6.1.5 Consents............................................................ 71
6.1.6 No Injunction....................................................... 71
6.1.7 HSR Act............................................................. 71
6.1.8 Disclosure Schedules................................................ 71
6.1.9 Forms 8023.......................................................... 72
6.1.10 Restructuring....................................................... 72
6.1.11 Board Approval...................................................... 72
6.1.12 Financial Statements................................................ 72
SECTION 6.2. Waiver..................................................................... 72
ARTICLE VII CONDITIONS PRECEDENT OF SELLER.............................................................. 72
SECTION 7.1. Conditions Precedent....................................................... 72
7.1.1 Representations, Warranties and Obligations of Purchaser............ 72
7.1.2 Officer's Certificate............................................... 72
7.1.3 Ancillary Agreements................................................ 72
7.1.4 Consents............................................................ 73
7.1.5 No Injunction....................................................... 73
7.1.6 HSR Act............................................................. 73
7.1.7 Restructuring....................................................... 73
7.1.8 Board Approval...................................................... 73
7.1.9 Replacement Credit Support Instruments for Scheduled Bonds.......... 73
7.1.10 Forms 8023.......................................................... 73
7.1.11 Certain Bonds....................................................... 73
SECTION 7.2. Waiver..................................................................... 73
ARTICLE VIII INDEMNIFICATION............................................................................ 73
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 8.1. Indemnity by Seller........................................................ 73
8.1.1 Excluded Liabilities................................................ 74
8.1.2 Third Party Claims.................................................. 74
8.1.3 Breach of Representation, Warranty, Etc............................. 74
SECTION 8.2. Indemnity by Purchaser..................................................... 74
8.2.1 Certain Liabilities................................................. 74
8.2.2 Third Party Claims.................................................. 74
8.2.3 Breach of Representation, Warranty, Etc............................. 75
8.2.4 Post-Closing........................................................ 75
SECTION 8.3. Notification of Claims..................................................... 75
8.3.1 Timely Delivery of Claim Notice..................................... 75
8.3.2 Late Delivery of Claim Notice....................................... 75
8.3.3 Paid or Settled Claims.............................................. 75
SECTION 8.4. Defense of Claims.......................................................... 75
SECTION 8.5. Access and Cooperation..................................................... 76
SECTION 8.6. Assessment of Claims....................................................... 76
SECTION 8.7. Limits on Indemnification.................................................. 76
8.7.1 Limitations on Indemnification for Breach of
Representations and Warranties...................................... 77
8.7.2 No Limitations on Certain Indemnification Claims.................... 77
SECTION 8.8. Survival of Representations and Warranties................................. 77
SECTION 8.9. After-Tax Nature of Indemnity Payments..................................... 78
SECTION 8.10. Third Party Beneficiaries.................................................. 78
ARTICLE IX TERMINATION.................................................................................. 78
SECTION 9.1. Termination Events......................................................... 78
9.1.1 Breach.............................................................. 78
9.1.2 Mutual Consent...................................................... 78
9.1.3 Closing............................................................. 78
SECTION 9.2. Effect of Termination...................................................... 78
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 9.3. Fees and Expenses; Damages................................................. 79
ARTICLE X MISCELLANEOUS................................................................................. 79
SECTION 10.1. Remedies; Exclusivity of Representations and Warranties;
Relationship Between the Parties........................................... 79
10.1.1 Remedies............................................................ 79
10.1.2 Exclusivity of Representations and Warranties;
Relationship Between the Parties.................................... 79
SECTION 10.2. Amendment.................................................................. 80
SECTION 10.3. Entire Agreement........................................................... 80
SECTION 10.4. Notices.................................................................... 80
SECTION 10.5. Severability............................................................... 82
SECTION 10.6. Waiver; Survival........................................................... 82
SECTION 10.7. Binding Effect; Assignment................................................. 82
SECTION 10.8. No Third Party Beneficiaries............................................... 83
SECTION 10.9. Counterparts............................................................... 83
SECTION 10.10. Governing Law.............................................................. 83
SECTION 10.11. Consent to Jurisdiction; Waiver of Jury Trial.............................. 83
10.11.1 Consent to Jurisdiction............................................ 83
10.11.2 Waiver of Punitive Damages and Jury Trial.......................... 84
SECTION 10.12. Mutual Right of Setoff..................................................... 84
SECTION 10.13. Interpretation and Construction of this Agreement.......................... 84
</TABLE>
viii
<PAGE>
DISCLOSURE SCHEDULES
--------------------
I Subsidiaries
II Knowledge of Purchaser
III Knowledge of Seller
IV Seller's Accounting Principles
2.1(a) Excluded Assets
2.1(b) Excluded Liabilities
3.2 No Conflicts
3.3 Equity Interests and Qualifications
3.4 Agreements regarding voting or transfer of stock of
Subsidiaries
3.6 March Balance Sheet
3.7 Undisclosed Liabilities
3.8.1 Real Property
3.8.2 Personal Property
3.9.1 Material Contracts
3.10 Affiliate Arrangements
3.11.1 Employee Benefit Plans
3.11.1(f) Proceedings with respect to Plans
3.11.1(k) Multi-employer Plans
3.11.1(l) Retirees Assigned to Combined Fund
3.11.1(m) Retirees for whom premiums are paid under
Section 9712(d)(1)(A) of the Coal Act
3.11.1(n) Retirees for whom premiums are paid under
Section 9712(d)(1)(B) of the Coal Act
3.11.2 Labor Matters
3.11.3 Employees
3.12.1 Permits
3.12.2 Compliance with Laws and Permits
3.13 Litigation
3.14 Taxes
3.15 Absence of Changes
3.16 Environmental Compliance
3.18 Insurance
3.19 Bank Accounts
3.20 Audits
3.21 Bonds
3.23 Powers of Attorney
4.2 No Conflicts
5.12.2(k)(ii)(A) Workers' Compensation Claims
5.12.2(k)(ii)(B) Black Lung Claims
5.15.1 Corporate Guarantees and Indemnities
5.17.1 Letters of Credit, Surety Bonds
6.1.5 Consents
x
<PAGE>
8.2.1 Certain Liabilities
EXHIBITS
- --------
Exhibit A Form of Transition Services Agreement
Exhibit B Form of Equipment Sublease
Exhibit C-1 Form of Equipment Sale Agreement
Exhibit C-2 Form of Equipment Sale Agreement
Exhibit C-3 Form of Equipment Sale Agreement
Exhibit D Form of Farm Management Agreement
Exhibit E Purchaser Surety Bond
Exhibit F Equipment Surety Bond
xi
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
STOCK PURCHASE AND SALE AGREEMENT, dated as of May 28, 1998 (the
"Agreement"), between CYPRUS AMAX COAL COMPANY, a Delaware corporation
("Seller"), and AEI HOLDING COMPANY, INC., a Delaware corporation ("Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller is, directly and indirectly through various subsidiaries,
engaged in the production, processing, exploration, storing, shipment,
transshipment, ownership, leasing, loading, unloading, marketing and sale of
coal and activities directly or indirectly relating thereto (the "Coal
Business");
WHEREAS, Seller desires to sell some, but not all, of its subsidiaries that
engage in the Coal Business, consisting of those specific direct and indirect
subsidiaries set forth on Schedule I hereto (each such subsidiary listed on
Schedule I hereto, a "Subsidiary" and, collectively, the "Subsidiaries"); and
WHEREAS, upon the terms and subject to the conditions contained herein,
Purchaser desires to purchase the Subsidiaries;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and covenants hereinafter set forth, Purchaser and Seller hereby
agree as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1. Definitions. Unless the context otherwise requires, the
-----------
following terms shall have the following meanings for all purposes of this
Agreement and shall be equally applicable to both the singular and the plural
forms of the terms herein defined. Certain terms defined in the text of this
Agreement similarly shall have the meanings therein given for all purposes of
this Agreement:
"Affiliate" means, with respect to any specified Person, any other
---------
Person which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such specified Person, where "control" as
used with respect to any Person shall mean the power to direct the business
and affairs of such Person, as evidenced by equity ownership of twenty-five
percent or greater, or by agreement or otherwise.
"Affiliate Plan" shall have the meaning specified in Subsection 3.11.1
--------------
hereof.
"Agreement", "this Agreement", "herein", "hereunder", "hereof",
--------- -------------- ------ --------- ------
"hereby" or other like words mean this Stock Purchase and Sale Agreement as
-------
originally executed or as modified or amended pursuant to the applicable
provisions hereof.
"Allocation Arbiter" shall have the meaning specified in Subsection
------------------
2.4.2 hereof.
<PAGE>
"Amax Coal Company" shall mean Amax Coal Company, a Delaware
-----------------
corporation.
"Amax Coal Company Shares" shall have the meaning specified in
------------------------
Subsection 2.3.2 hereof.
"Amax Coal Sales Company" shall mean Amax Coal Sales Company, a
-----------------------
Delaware corporation.
"Amax Coal Sales Company Shares" shall have the meaning specified in
------------------------------
Subsection 2.3.2 hereof.
"Ancillary Agreements" shall mean, collectively, the Transition
--------------------
Services Agreement, the Equipment Sublease, the Equipment Sale Agreements
and the Farm Management Agreements.
"Asset Acquisition Statement" shall have the meaning specified in
---------------------------
Subsection 2.4.1 hereof.
"Average Contingent Amount" shall have the meaning specified in
-------------------------
Subsection 5.17.1 hereof.
"Ayrshire Land" shall mean Ayrshire Land Company, a Delaware
-------------
corporation.
"Ayrshire Land Shares" shall have the meaning specified in Subsection
--------------------
2.3.2 hereof.
"Ayrshire Mine" shall mean the Ayrshire surface coal mine and related
-------------
facilities and operations of Amax Coal Company located in the State of
Indiana.
"Balance Sheet Date" shall mean March 31, 1998.
------------------
"Base Royalty" shall have the meaning specified in Subsection
------------
5.10.1(d) hereof.
"Beech Coal" shall mean Beech Coal Company, a Delaware corporation.
----------
"Beech Coal Shares" shall have the meaning specified in Section 2.3.2
-----------------
hereof.
"Bentley Coal" shall mean Bentley Coal Company, a general partnership
------------
organized under the laws of the State of New York.
"Black Lung Liabilities" and "Black Lung Benefits Obligations" mean
---------------------- -------------------------------
any Liability or benefit obligations related to black lung claims and
benefits under the Black Lung Benefits Act of 1972, 30 U.S.C. (S)(S) 901
et. seq., the Federal Mine Safety and Health Act of 1977, 30 U.S.C. (S)(S)
801 et. seq., the Black Lung Benefits Reform Act of 1977, Pub. L. No. 95-
239, 92 Stat. 95 (1978), the Black Lung Benefits Amendments of 1981,
2
<PAGE>
Pub L. No. 97-119, Title II, 95 Stat. 1643, in each case as amended, if
applicable, and occupational pneumoconiosis, silicosis or other lung
disease liabilities and benefits arising under state law or regulation or
any other Federal law or regulation now or hereafter in existence.
"Black Lung Trust" shall have the meaning specified in Subsection
----------------
5.12.2 hereof.
"Business" shall mean the Coal Business as conducted by the
--------
Subsidiaries (excluding, for all purposes of this Agreement, the Excluded
Assets and Excluded Liabilities).
"Cannelton" shall mean Cannelton, Inc., a Delaware corporation.
---------
"Cannelton Industries" shall mean Cannelton Industries, Inc., a West
--------------------
Virginia corporation.
"Cannelton Land" shall mean Cannelton Land Company, a Delaware
--------------
corporation.
"Cannelton Sales" shall mean Cannelton Sales Company, a Delaware
---------------
corporation.
"Cannelton Shares" shall have the meaning specified in Subsection
----------------
2.3.2 hereof.
"Cash Advance Period" shall have the meaning specified in Subsection
-------------------
5.18.1 hereof.
"Cash Advances" shall have the meaning specified in Subsection 5.18.3
-------------
hereof.
"Castle Gate Mine" shall mean the former Castle Gate underground coal
----------------
mine and related facilities and operations of Amax Coal Company located in
the State of Utah.
"CERCLA and Superfund Liabilities" shall mean any and all Liabilities
--------------------------------
arising under or related to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. (S)(S) 9601 et. seq., and
the Superfund Amendments and Reauthorization Act of 1986, Pub. L. 99-499,
100 Stat. 1613, and any successor Federal Law or any similar state or local
Law.
"Claim Notice" shall have the meaning specified in Section 8.3.1
------------
hereof.
"Closing" shall have the meaning specified in Section 2.2 hereof.
-------
"Closing Date" shall have the meaning specified in Section 2.2 hereof.
------------
"Closing Deposit" shall have the meaning specified in Subsection
---------------
5.18.5 hereof.
3
<PAGE>
"Closing Statement" shall have the meaning specified in Subsection
-----------------
5.18.6 hereof.
"Coal Act" shall mean the Coal Industry Retiree Health Benefit Act of
--------
1992, 26 U.S.C. (S)(S) 9701 et. seq.
"Coal Business" shall have the meaning specified in the first whereas
-------------
clause hereof.
"Coal Components" shall have the meaning specified in Subsection
---------------
5.10.1(a) hereof.
"Coal Reserves" shall have the meaning specified in Subsection
-------------
5.10.1(a) hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Confidentiality Agreement" shall mean that agreement between Seller
-------------------------
and Purchaser, dated November 21, 1997, and any supplements thereto or
amendments thereof, pertaining to the confidential treatment of information
provided by Seller to Purchaser and its representatives regarding the Coal
Business.
"Consents" shall have the meaning specified in Subsection 6.1.5
--------
hereof.
"Controlled Subs" shall have the meaning specified in Subsection
---------------
5.10.2 hereof.
"Controlling Party" shall have the meaning set forth in Section 5.11.8
-----------------
hereof.
"CPI-U" shall have the meaning specified in Subsection 5.10.1(d)
-----
hereof.
"Cyprus Amax's Pension Plans" shall have the meaning specified in
---------------------------
Subsection 5.12.2 hereof.
"Cyprus Cumberland" shall mean Cyprus Cumberland Coal Corporation, a
-----------------
Kentucky corporation.
"Cyprus Cumberland Shares" shall have the meaning specified in
------------------------
Subsection 2.3.2 hereof.
"Cyprus Kanawha" shall mean Cyprus Kanawha Corporation, a Delaware
--------------
corporation.
"Cyprus Kanawha Shares" shall have the meaning specified in Subsection
---------------------
2.3.2 hereof.
"Cyprus Mountain" shall mean Cyprus Mountain Coals Corporation, a
---------------
Delaware corporation.
4
<PAGE>
"Cyprus Mountain Shares" shall have the meaning specified in
----------------------
Subsection 2.3.2 hereof.
"Cyprus Southern Realty" shall mean Cyprus Southern Realty
----------------------
Corporation, a Kentucky corporation.
"Cyprus Southern Realty Shares" shall have the meaning specified in
-----------------------------
Subsection 2.3.2 hereof.
"Deficit Amount" shall have the meaning specified in Subsection 5.18.7
--------------
hereof.
"Delta Mine" shall mean the Delta surface coal mine and related
----------
facilities and operations of Amax Coal Company located in the State of
Illinois.
"Dunn Coal & Dock" shall mean Dunn Coal & Dock Corporation, a West
----------------
Virginia corporation.
"Employee" shall have the meaning specified in Subsection 3.11.3
--------
hereof.
"Environmental Laws" means any Laws (including without limitation the
------------------
Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. (S)(S) 9601 et. seq.; the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. 99-499, 100 Stat. 1613; the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. (S) 6901; the Clean Air
Act, 42 U.S.C. (S) 7401; the Clean Water Act, 33 U.S.C. (S) 1251 et. seq.;
SMCRA; the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et. seq.; and the
Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et. seq.), including
any plan, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved by any Governmental Authority, now or hereafter in
effect relating to the generation, production, installation, use, storage,
treatment, handling, distribution, transportation, release, threatened
release or disposal of Hazardous Materials, noise control, or the
protection of human health, natural resources or the environment.
"Equipment Sale Agreements" shall have the meaning specified in
-------------------------
Subsection 2.3.3 hereof.
"Equipment Sublease" shall have the meaning specified in Subsection
------------------
2.3.3 hereof.
"Equipment Surety Bond" shall have the meaning specified in Section
---------------------
5.22 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, and the rules, regulations and forms promulgated thereunder.
5
<PAGE>
"Excluded Assets" shall have the meaning specified in Section 2.1
---------------
hereof.
"Excluded Liabilities" shall have the meaning specified in Section 2.1
--------------------
hereof.
"Farm Management Agreements" shall have the meaning specified in
--------------------------
Subsection 2.3.3 hereof.
"Fee Coal" shall have the meaning specified in Subsection 5.10.1(a)
--------
hereof.
"Fee Land" shall have the meaning specified in Subsection 5.10.1(a)
--------
hereof.
"Final Closing Statement" shall have the meaning specified in
-----------------------
Subsection 5.18.7 hereof.
"Final Determination" shall mean the final resolution of liability for
-------------------
any Tax for a Taxable period: (i) pursuant to IRS Form 870 or 870-AD (or
any successor forms thereto), on the date of acceptance by or on behalf of
the taxing authority, or by a comparable form under the laws of other
jurisdictions; except that a Form 870 or 870-AD or comparable form that
reserves (whether by its terms or by operation of law) the right of the
taxpayer to file a claim for refund and/or the right of the taxing
authority to assert a further deficiency shall not constitute a Final
Determination; (ii) by a decision, judgment, decree, or other order by a
court of competent jurisdiction, which has become final and unappealable;
(iii) by a closing agreement or accepted offer in compromise under Section
7121 or 7122 of the Code (or any successor provisions thereto), or
comparable agreements under the laws of other jurisdictions; (iv) by any
allowance of a refund or credit in respect of an overpayment of tax, but
only after the expiration of all periods during which such refund may be
recovered (including the way of offset) by the taxing authority; or (v) by
any other final disposition, including by mutual agreement of the parties.
"Governmental Authority" means any federal, state, local or foreign
----------------------
court, tribunal, legislative, administrative or regulatory authority or
agency.
"Grassy Cove" shall mean Grassy Cove Coal Mining Company, a Delaware
-----------
corporation.
"Grassy Cove Shares" shall have the meaning specified in Section 2.3.2
------------------
hereof.
"Hazardous Materials" mean any wastes, substances, radiation or
-------------------
materials (whether solids, liquids or gases) (a) which are hazardous,
toxic, infectious, explosive, radioactive, carcinogenic or mutagenic; (b)
which are or become defined as a "pollutants", "contaminants", "hazardous
materials", "hazardous wastes", "hazardous substances", "toxic substances",
"radioactive materials", "solid wastes" or other similar designations in,
or otherwise subject to regulation under, any Environmental Laws; (c) the
presence of which on, above or under any real property cause or threaten to
cause
6
<PAGE>
a nuisance pursuant to applicable statutory or common law upon such real
property or to adjacent properties; (d) without limitation, which contain
polychlorinated biphenyls (PCBs), asbestos and asbestos-containing
materials, lead-based paints, urea-formaldehyde foam insulation, and
petroleum or petroleum products (including, without limitation, crude oil
or any fraction thereof); or (e) which pose a hazard to natural resources,
human health or safety, industrial hygiene or the environment.
"Headquarters" shall refer to the headquarters offices of Seller in
------------
respect of the Business located in Denver, Colorado.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
-------
of 1976 and the regulations and Premerger Notification and Report Form
promulgated thereunder.
"Indemnitee" shall mean any Person which may be entitled to seek
----------
indemnification pursuant to the provisions of Sections 8.1 or 8.2.
"Indemnitor" shall mean any Person which may be obligated to provide
----------
indemnification pursuant to Sections 8.1 or 8.2.
"Initial Amount" shall have the meaning specified in Subsection 2.3.1
--------------
hereof.
"Interest Rate" shall mean a per annum interest rate equal to 1% above
-------------
the prime rate published in the Wall Street Journal on the Closing Date.
-------------------
"Interim Period" shall mean the period commencing on the date hereof
--------------
and ending on the Closing Date.
"Kentucky Prince Mining" shall mean Kentucky Prince Mining Company, a
----------------------
general partnership organized under the laws of the State of New York.
"Knowledge of Purchaser", "Purchaser's Knowledge" or "Known to
---------------------- ---------------------- --------
Purchaser" or other like words means the actual knowledge of the
---------
individuals set forth on Schedule II hereto, without any duty of inquiry
other than the duty to review the representations and warranties of Seller
and Purchaser contained herein as qualified by the Schedules attached
hereto.
"Knowledge of Seller", "Seller's Knowledge" or "Known to Seller" or
------------------- ------------------ ---------------
other like words means the actual knowledge of the individuals set forth on
Schedule III hereto, without any duty of inquiry other than the duty to
review Seller's representations and warranties contained herein as
qualified by the Schedules attached hereto.
"Laws" means any law, statute, code, treaty, rule, directive, plan,
----
regulation, promulgation, decree, ruling, injunction or order of any
Governmental Authority, or any common law principle, doctrine or judgment.
7
<PAGE>
"Leased Coal" shall have the meaning specified in Subsection 5.10.1(a)
-----------
hereof.
"Leases" shall have the meaning specified in Subsection 5.10.1(a)
------
hereof.
"Liability" or "Liabilities" means any liability, obligation, loss or
--------- -----------
contingency, whether known or unknown, asserted or unasserted, absolute or
conditional, accrued or unaccrued, liquidated or unliquidated, and whether
due or to become due, regardless of when asserted or arising.
"Liens" shall mean all liens, claims, charges, restrictions, pledges,
-----
security interests, mortgage interests or encumbrances of any kind or
nature.
"Loss" or "Losses" means any and all losses, costs, Liabilities,
---- ------
damages, demands, penalties, fines, settlements, response, remedial,
reclamation or inspection costs, reasonable expenses (whether or not known
or asserted prior to the date hereof), including, without limitation,
interest on any amount payable to a third party as a result of the
foregoing, Liabilities on account of Taxes (including interest and
penalties thereon) and any legal, accounting, auditing, consulting, or
other expenses reasonably incurred in connection with investigating or
defending any claims, actions or Proceedings, whether or not resulting in
any Liability; provided, however, that Losses shall be net of any insurance
proceeds received by an Indemnitee from an insurance company on account of
such Losses (after taking into account any costs incurred in obtaining such
proceeds and any increase in insurance premiums as a result of a claim with
respect to such proceeds); and provided further, however, that the term
"Losses" shall not be deemed to include lost profits, opportunity costs,
any other consequential damages or punitive damages.
"Lost Mountain Plan" shall have the meaning specified in Subsection
------------------
5.12.2 hereof.
"March Balance Sheet" shall have the meaning specified in Section 3.6
-------------------
hereof.
"Material Adverse Effect" shall mean, with respect to any Person,
-----------------------
changes in the business, assets, financial condition or results of
operations of such Person resulting in a loss therefrom in excess of
$1,000,000; provided however that, to the extent Material Adverse Effect
shall relate to more than one Person, then Material Adverse Effect shall
mean, with respect to such group of Persons, changes in the business,
assets, financial condition or results of operations of such group of
Persons (taken as a whole) resulting in a loss therefrom, in the aggregate,
in excess of $1,000,000.
"Material Contracts" shall have the meaning specified in Subsection
------------------
3.9.1 hereof.
"Meadowlark" shall mean Meadowlark, Inc., an Indiana corporation.
----------
"Meadowlark Shares" shall have the meaning specified in Subsection
-----------------
2.3.2 hereof.
8
<PAGE>
"Minerals" shall mean Cyprus Amax Minerals Company, a Delaware
--------
corporation and ultimate parent of Seller.
"Minerals Plan" shall have the meaning specified in Subsection 3.11.1
-------------
hereof.
"Minimum Royalty Payment" shall have the meaning specified in
-----------------------
Subsection 5.10.2 hereof.
"MSHA" shall mean the Mine Safety and Health Act of 1977, as amended,
----
30 U.S.C. (S)(S) 801 et. seq., any rule or regulation promulgated
thereunder, and any similar state or local Law.
"Multi-employer Plan" shall have the meaning specified in Subsection
-------------------
3.11.1 hereof.
"Net Cash Advance Balance" shall have the meaning specified in
------------------------
Subsection 5.18.3 hereof.
"Notice Period," as applied to any Third-Party Claim for which an
-------------
Indemnitee seeks to be indemnified pursuant to this Agreement, shall mean
the period ending the earlier of the following:
(a) 45 days after the time at which the Indemnitee has either (i)
received notice of the facts giving rise to such Third-Party Claim or
(ii) commenced an active investigation of circumstances likely to give
rise to such Third-Party Claim and, in each case, where such
Indemnitee believes or should reasonably believe that such facts or
circumstances would give rise to such Third-Party Claim for which such
Indemnitee would be entitled to indemnification pursuant to this
Agreement; and
(b) 45 days after the time at which any Third-Party Claim against
the Indemnitee has become the subject of Proceedings before any court
or tribunal, or such shorter time as would allow the Indemnitor
sufficient time to contest, on the assumption that there is an
arguable defense to such Third-Party Claim, such Proceeding prior to
any judgment or decision thereon.
"Other Tax Returns" means any Tax Return in respect of Other Taxes.
-----------------
"Other Taxes" or "Other Tax" shall mean any Tax other than a Tax in
----------- ---------
respect of the income of any Subsidiary.
"Permits" shall have the meaning specified in Subsection 3.12.1
-------
hereof.
"Permitted Liens" shall mean (a) Liens for taxes and assessments or
---------------
governmental charges not yet due or which are being contested in good faith
and by appropriate proceedings as to which adequate reserves exist (to the
extent such reserves
9
<PAGE>
are required by Seller's Accounting Principles), (b) Liens in favor of
landlords, carriers, warehousemen, mechanics, workmen and materialmen and
construction or similar liens arising by operation of law or incurred in
the ordinary course of business for sums not yet due or that are being
contested in good faith as to which adequate reserves exist (to the extent
such reserves are required by Seller's Accounting Principles), (c) Liens in
respect of pledges or deposits under worker's compensation laws or similar
legislation, unemployment insurance or other types of social security or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return of money
bonds and similar obligations, (d) Liens reflected in the Financial
Statements, (e) Liens to be discharged at or prior to Closing, and (f)
rights reserved to or vested in any Governmental Authority to control or
regulate any real property or interests therein in any manner, and all Laws
of any Governmental Authority.
"Person" means any corporation, partnership (whether general, limited
------
or otherwise), limited liability company, trust, association,
unincorporated organization, governmental entity, agency or branch or
department thereof, or any other legal entity, or any natural person.
"Personal Property" shall have the meaning specified in Subsection
-----------------
3.8.2 hereof.
"Plans" shall have the meaning specified in Subsection 3.11.1 hereof.
-----
"Pre-Balance Sheet Period" shall have the meaning specified in
------------------------
Subsection 5.11.1 hereof.
"Pre-Closing Tax Period" shall have the meaning specified in
----------------------
Subsection 5.11.1 hereof.
"Proceeding" shall mean any action, suit, claim, investigation (which,
----------
for the avoidance of doubt, shall not include any audit) or proceeding,
whether involving a court of law, administrative body, governmental agency,
arbitrator, or alternative dispute resolution mechanism.
"Production Royalty" shall mean the "Production Royalty" payable
------------------
pursuant to and in accordance with the Royalty Deeds.
"Purchase Price" shall have the meaning specified in Section 2.3
--------------
hereof.
"Purchaser" shall have the meaning specified in the preamble hereof.
---------
"Purchaser Indemnitees" shall have the meaning specified in Section
---------------------
8.1 hereof.
"Purchaser Pension Plans" shall have the meaning specified in
-----------------------
Subsection 5.12.2 hereof.
10
<PAGE>
"Purchaser Surety Bond" shall have the meaning specified in Subsection
---------------------
5.17.1 hereof.
"Purchaser's Retiree Plans" shall have the meaning specified in
-------------------------
Subsection 5.12.2 hereof.
"Purchaser's Savings Plan" shall have the meaning specified in
------------------------
Subsection 5.12.2 hereof.
"Purchaser's Welfare Plans" shall have the meaning specified in
-------------------------
Subsection 5.12.2 hereof.
"Release" means any emission, spill, seepage, leak, escape, leaching,
-------
discharge, injection, pumping, pouring, emptying, dumping, disposal or
release of Hazardous Materials from any source (including, without
limitation, the real property and property adjacent to such parcel) into or
upon the environment, including the air, soil, improvements, surface water,
groundwater, the sewer, septic system, storm drain, publicly owned
treatment works, or waste treatment, storage or disposal systems at, on,
from, above or under such parcel of real property or any other property at
which Hazardous Materials originating on or from such parcel of real
property have been stored, treated or disposed.
"Restructuring" shall mean the collective reference to the
transactions, actions, distributions, transfers and assignments
contemplated by Section 2.1 hereof.
"Revised Statement" shall have the meaning specified in Subsection
-----------------
2.4.1 hereof.
"Roaring Creek" shall mean Roaring Creek Coal Company, a Delaware
-------------
corporation.
"Roaring Creek Plan" shall have the meaning specified in Subsection
------------------
5.12.2 hereof.
"Roaring Creek Shares" shall have the meaning specified in Section
--------------------
2.3.2 hereof.
"Royalty" shall have the meaning specified in Subsection 5.10.1(a)
-------
hereof.
"Royalty Buy-Out Amount" shall have the meaning specified in Section
----------------------
5.10 hereof.
"Royalty Deeds" shall mean, collectively, (i) each royalty deed or
------------- -
royalty agreement, dated June 1, 1998, between Ayrshire Land and Cyprus
Amax Royalty Company, (ii) each royalty deed or royalty agreement, dated
--
June 1, 1998, between Cyprus Cumberland and Cyprus Amax Royalty Company,
(iii) each royalty deed or royalty agreement, dated June 1, 1998, between
---
Cyprus Kanawha and Cyprus Amax
11
<PAGE>
Royalty Company, (iv) each royalty deed or royalty agreement, dated June 1,
--
1998, between Cyprus Southern and Cyprus Amax Royalty Company, (v) each
-
royalty deed or royalty agreement, dated June 1, 1998, between Meadowlark
and Cyprus Amax Royalty Company, (vi) each royalty deed or royalty
--
agreement, dated June 1, 1998, between Cannelton Land and Cyprus Amax
Royalty Company, (vii) each royalty deed or royalty agreement, dated June
---
1, 1998, between Cannelton Industries and Cyprus Amax Royalty Company.
"SMCRA" shall mean the Surface Mining Control and Reclamation Act, as
-----
amended, 30 U.S.C. (S)(S) 1201, et. seq., any rule or regulation
promulgated thereunder, and any similar state law or regulation.
"Salaried Plan" shall have the meaning specified in Subsection 5.12.2
-------------
hereof.
"Savings Plan" shall have the meaning specified in Subsection 5.12.2
------------
hereof.
"Scheduled Bonds" shall have the meaning specified in Subsection
---------------
5.17.1 hereof.
"Section 338(h)(10) Election" shall have the meaning specified in
---------------------------
Section 5.9 hereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules, regulations and forms promulgated thereunder.
"Seller" shall have the meaning specified in the preamble hereof.
------
"Seller Consolidated Group" means the consolidated group filing a
-------------------------
federal income tax return of which Seller and the Subsidiaries, among
others, are members.
"Seller Indemnitees" shall have the meaning specified in Section 8.2
------------------
hereof.
"Seller's Accounting Principles" shall mean generally accepted
------------------------------
accounting principles, consistently applied, except to the extent otherwise
provided in Schedule IV hereto.
"Seller's Welfare Plans" shall have the meaning specified in
----------------------
Subsection 5.12.2 hereof.
"Shares" shall have the meaning specified in Subsection 2.3.2 hereof.
------
"Skyline Coal" shall mean Skyline Coal Company, a partnership
------------
organized under the laws of the State of New York.
"Subsidiary" and "Subsidiaries" shall have the respective meanings
---------- ------------
specified in the second whereas clause hereof.
12
<PAGE>
"Substantial Loss" shall have the meaning specified in Section 8.7
----------------
hereof.
"Substantial Third Party Claim" shall have the meaning specified in
-----------------------------
Section 8.7 hereof.
"Taxes" or "Tax" (and, with correlative meanings, "Taxable" or
----- --- -------
Taxing") means, with respect to any Person, (a) any federal, state, local,
------
provincial or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, business, occupation, premium, windfall profits,
environmental, mineral, unmined coal, abandoned mined land fee, customs,
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property,
sales, use, ad valorem, transfer, registration, value added, advance
corporation, alternative or add-on minimum, estimated, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto,
whether or not disputed, with respect to which such Person could be held
liable; and (b) any liability for the payment of any amount of the type
described in the immediately preceding clause (a) as a result of (i) being
a transferee (within the meaning of section 6901 of the Code) of another
Person, or (ii) being a member of an affiliated or combined group.
"Tax Contest" shall mean, without limitation, any audit, examination,
-----------
claim, suit, action or other proceeding relating to Taxes in which an
adjustment to Taxes may be proposed, collected or assessed.
"Tax Returns" means all federal, state, local, provincial and foreign
-----------
returns, declarations, claims for refunds, forms, statements, reports,
schedules, and information returns or statements, and any amendments
thereof (including, without limitation, any related or supporting
information or Schedule attached thereto) required to be filed with any
Taxing authority in connection with any Tax or Taxes.
"Third Party Claims" means any and all Losses which arise out of or
------------------
result from (a) any claims or actions asserted against an Indemnitee by any
Person not a party hereto, (b) any rights of any Person not a party hereto
asserted against an Indemnitee, or (c) any Liabilities of, or amounts
payable by, an Indemnitee to any Person not a party hereto arising out of
subclauses (a) or (b), including without limitation, claims or actions
asserted against an Indemnitee by any Governmental Authority on account of
Taxes; provided, however, that the term "Person" as used for purposes of
this definition of Third Party Claims shall be deemed to exclude any
Affiliate, partner, director or officer of any party hereto, or any equity
investor in Purchaser.
"Transition Services Agreement" shall have the meaning specified in
-----------------------------
Subsection 2.3.3 hereof.
"Undeveloped Reserves" mean all Coal Reserves under or on real
--------------------
property owned, leased or otherwise held by any Subsidiary as of the
Closing Date and as to which
13
<PAGE>
no SMCRA permit is in effect or no SMCRA permit application has been filed
for the mining of such coal reserves as of such date.
"Undeveloped Reserves Royalty" shall mean the Production Royalty
----------------------------
payable pursuant to and in accordance with the separate Royalty Deeds and
the Royalty payable pursuant to Section 5.10.1 hereof, in each case with
respect to the production of Coal Reserves in the Undeveloped Reserves.
"Unrelated Business" shall mean all of the businesses and operations
------------------
of Minerals and its Affiliates, other than the Business.
"Wabash Mine" shall mean the Wabash surface coal mine and related
-----------
facilities and operations of Amax Coal Company located in the States of
Illinois and Indiana.
"WARN Act" means the Worker Adjustment and Retraining Notification Act
--------
of 1968, 29 U.S.C. (S)(S) 2101 et. seq., or any similar state or local Law.
"Workers' Compensation Liabilities" shall mean any Liabilities which
---------------------------------
are or may be imposed upon an employer (or its Affiliates) under any Laws
due to an employee claiming or having suffered or incurred any accident,
injury, disease, exposure, illness, disability or other adverse mental or
physical condition, including those Liabilities arising out of an
employee's and his beneficiaries' rights under (i) the Longshore and Harbor
-
Workers' Compensation Act (33 U.S.C. (S)(S) 901 et. seq.), (ii) the
--
Indiana Workers' Compensation and Occupational Diseases Act (Indiana Code,
Title 22, Article 3), (iii) the West Virginia Workers' Compensation Act
---
(West Virginia Code, Chapter 23), (iv) the Tennessee Workers' Compensation
--
Law (Tennessee Code, Title 50, Chapter 6), and (v) the Kentucky Workers'
-
Compensation Act (Kentucky Revised Statutes, Title 27, Chapter 342).
"Yankeetown" shall mean Yankeetown Dock Corporation, an Indiana
----------
corporation.
ARTICLE II
PURCHASE AND SALE; CLOSING
--------------------------
SECTION 2.1. Certain Assets and Liabilities. At or prior to the Closing
------------------------------
and consummation of the purchase and sale of the Shares contemplated hereby, and
subject to the terms and conditions of this Agreement, Seller or a wholly owned
subsidiary thereof (other than the Subsidiaries) shall retain and assume, as the
case may be, pursuant to agreements and instruments (including instruments of
conveyance) reasonably acceptable to Seller and Purchaser, the assets and rights
listed on Schedule 2.1(a) hereof (collectively, the "Excluded Assets") and the
liabilities and obligations listed on Schedule 2.1(b) hereof (collectively, the
"Excluded Liabilities"). All costs and expenses incurred in connection with the
transfer to Seller or such wholly owned subsidiary of the Excluded Assets and
Excluded Liabilities as
14
<PAGE>
contemplated by this Section 2.1 shall be for the account of and shall be paid
by Seller, and Seller shall pay and discharge, and indemnify Purchaser and hold
Purchaser harmless from and against, all such costs and expenses, including all
transfer or stamp duty taxes, if any, due and payable in connection with the
transfer of the Excluded Assets and Excluded Liabilities.
SECTION 2.2. Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") will take place at the offices of Seller, 9100 East
Mineral Circle, Englewood, Colorado 80112 at 10:00 a.m. local time on the last
business day of the month in which all of the conditions to closing set forth in
Articles VI and VII have been met, or such other business day mutually
acceptable to the parties hereto following the day on which all such conditions
shall have been met (the "Closing Date"). If the Closing has not occurred by
June 30, 1998, this Agreement shall terminate as provided in Article IX.
SECTION 2.3. Purchase Price; Closing Deliveries. At the Closing, the
----------------------------------
parties shall make the following deliveries:
2.3.1 Purchase Price. Against delivery of the Shares described in
--------------
Section 2.3.2, Purchaser shall deliver to Seller, by wire transfer in same day
funds to an account designated by Seller in writing at least two (2) business
days prior to the Closing Date, an amount equal to $98,000,000.00 (the "Initial
Amount"), adjusted as follows: (x) if the net working capital amount of the
-
Subsidiaries as at March 31, 1998, as set forth in Section 3.6 hereof and as
determined in accordance with the provisions of Section 3.6, is less than
$39,602,000, the amount of such deficit shall be subtracted from the Initial
Amount, and (y) if such net working capital amount is greater than $39,602,000,
-
the amount of such excess shall be added to the Initial Amount (such
$98,000,000.00, as so increased or reduced, the "Purchase Price").
Notwithstanding anything to the contrary contained in the March Balance Sheet,
the parties hereto agree that the net working capital amount of the Subsidiaries
as at March 31, 1998 as set forth in Section 3.6 hereof shall be conclusive and
binding on the parties hereto for all purposes of the calculation of the
Purchase Price pursuant this Subsection 2.3.1. In addition, if the Closing
shall not have occurred on or prior to May 29, 1998, at the Closing, (i)
-
Purchaser shall pay to Seller simple interest on the Purchase Price, at a rate
per annum equal to 6%, for the period from May 30, 1998 to (but not including)
the Closing Date, if any, unless the Closing shall not have occurred on or after
May 29, 1998 due to Seller's breach of its obligations hereunder, in which case
Purchaser shall have no liability for such interest to the extent the Closing
shall not have occurred on or after May 29, 1998 as a result of such breach, and
(ii) Seller shall pay to Purchaser simple interest on the Net Cash Advance
--
Balance as of the close of business on May 29, 1998 to the extent such balance,
as reflected in the financial statements of Seller provided to Purchaser
pursuant to Subsection 5.18.2 hereof, consists of an amount owing from Seller to
the Subsidiaries, at a rate per annum equal to 6%, for the period from May 30,
1998 to (but not including) the Closing Date, if any, unless the Closing shall
not have occurred on or after May 29, 1998 due to Purchaser's breach of its
obligations hereunder, in which case Seller shall have no liability for such
interest to the extent the Closing shall not have occurred on or after May 29,
1998 as a result of such breach. All interest paid under this Subsection 2.3.1
shall be computed on the basis of a 360 days year, actual days elapsed.
15
<PAGE>
2.3.2 Shares. Against delivery of the Purchase Price, Seller shall
------
sell, assign, transfer and deliver to Purchaser all of its right, title and
interest in and to all of the issued and outstanding shares of capital stock of
(i) Amax Coal Company (the "Amax Coal Company Shares"), (ii) Amax Coal Sales
- --
Company (the "Amax Coal Sales Company Shares"), (iii) Ayrshire Land (the
---
"Ayrshire Land Shares"), (iv) Beech Coal (the "Beech Coal Shares"), (v)
-- -
Cannelton (the "Cannelton Shares"), (vi) Cyprus Cumberland (the "Cyprus
--
Cumberland Shares"), (vii) Cyprus Kanawha (the "Cyprus Kanawha Shares"), (viii)
--- ----
Cyprus Mountain (the "Cyprus Mountain Shares"), (ix) Cyprus Southern Realty (the
--
"Cyprus Southern Realty Shares"), (x) Grassy Cove (the "Grassy Cove Shares"),
-
(xi) Roaring Creek (the "Roaring Creek Shares") and (xii) Meadowlark (the
-- ---
"Meadowlark Shares"; and all such shares of capital stock of each of the
aforementioned Subsidiaries, the "Shares"). In furtherance thereof, Seller
shall deliver and surrender to Purchaser at Closing the following:
(a) a stock certificate, duly endorsed in blank or with a stock
transfer power duly endorsed in blank or affixed thereto with respect to the
following:
(i) the Amax Coal Company Shares;
(ii) the Amax Coal Sales Company Shares;
(iii) the Ayrshire Land Shares;
(iv) the Beech Coal Shares;
(v) the Cannelton Shares;
(vi) the Cyprus Cumberland Shares;
(vii) the Cyprus Kanawha Shares;
(viii) the Cyprus Mountain Shares;
(ix) the Cyprus Southern Realty Shares;
(x) the Grassy Cove Shares;
(xi) the Roaring Creek Shares; and
(xii) the Meadowlark Shares;
(b) a certificate stating whether any stock transfer, stamp duty
or sales tax applicable to the sale or transfer of any of the Shares shall be
due, in which case Seller shall pay such taxes and Purchaser shall reimburse
Seller at Closing fifty percent (50%) of the amount thereof;
(c) to the extent in the possession of Seller or any of its
Affiliates (or any agent or representative of any thereof), the corporate minute
books, stock transfer book or stock ledger, and the corporate seal for each of
Amax Coal Company, Amax Coal Sales Company, Ayrshire Land, Beech Coal,
Cannelton, Cannelton Industries, Cannelton Land, Cannelton Sales, Cyprus
Cumberland, Cyprus Kanawha, Cyprus Mountain, Cyprus Southern Realty, Dunn Coal &
Dock, Grassy Cove, Meadowlark, Roaring Creek and Yankeetown (it being understood
that the books and records required to be delivered by Seller under this clause
(c) shall include all such extant books and records since January 1, 1994);
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(d) to the extent in the possession of Seller or any of its
Affiliates (or any agent or representative of any thereof), the company minute
books and partnership records for each of Bentley Coal, Kentucky Prince Mining
and Skyline Coal (it being understood that the books and records required to be
delivered by Seller under this clause (d) shall include all such extant books
and records since January 1, 1994);
(e) long form certificates of incorporation and good standing
certified by an official of the state of incorporation for each of Amax Coal
Company, Amax Coal Sales Company, Ayrshire Land, Beech Coal, Cannelton,
Cannelton Industries, Cannelton Land, Cannelton Sales, Cyprus Cumberland, Cyprus
Kanawha, Cyprus Mountain, Cyprus Southern Realty, Dunn Coal & Dock, Grassy Cove,
Meadowlark, Roaring Creek and Yankeetown, together with a certificate of the
Secretary or Assistant Secretary of such corporation as to its by-laws; and
(f) to the extent available from an official of any state, a
certificate of valid existence and franchise tax status by an official of the
state of organization of each of Bentley Coal, Kentucky Prince Mining and
Skyline Coal, together with a certificate of the Secretary or Assistant
Secretary of such partnership as to the due formation and good standing of such
partnership and its certificate of formation.
2.3.3 Other Deliveries. At the Closing:
----------------
(a) Seller shall deliver or cause to be delivered, as the case
may be, to Purchaser (a) an executed Transition Services Agreement,
substantially in the form of Exhibit A hereto (the "Transition Services
Agreement"), pursuant to which Seller shall provide to Purchaser after Closing
certain transition services upon the terms and conditions set forth therein,
(ii) an executed Sublease, substantially in the form of Exhibit B hereto (the
--
"Equipment Sublease"), pursuant to which Seller shall sublease to Purchaser or
certain of the Subsidiaries after Closing certain items of equipment for use in
the Business upon the terms and conditions set forth therein, (iii) executed
---
Equipment Purchase and Security Agreements, substantially in the form of
Exhibits C-1, C-2 and C-3 hereto, respectively (collectively, the "Equipment
Sale Agreements"), pursuant to which Seller shall agree to sell, and Purchaser
or certain Subsidiaries shall agree to purchase, certain items of equipment upon
the terms and conditions set forth therein, (iv) one or more executed Farm
--
Management Agreements, substantially in the form of Exhibit D hereto
(collectively, the "Farm Management Agreements"), pursuant to which Ayrshire
Land shall agree to administer certain real property held by Delta Mine Holding
Company, Wabash Mine Holding Company and Warrick Holding Company, (v) the
-
instruments, certificates and opinions required to be delivered by Seller
pursuant to Article VI hereof and (vi) such other documents, instruments and
--
certificates as Purchaser shall reasonably request for the purpose of giving
effect to the transactions contemplated hereby; and
(b) Purchaser shall deliver or cause to be delivered, as the case
may be, to Seller (a) an executed Transition Services Agreement, (ii) an
--
executed Equipment Sublease Agreement, (iii) executed Equipment Sale Agreements,
---
(iv) executed Farm Management
--
17
<PAGE>
Agreements, (v) the instruments, certificates and opinions required to be
-
delivered by Purchaser pursuant to Article VI hereof and (vi) such other
documents, instruments and certificates as Seller shall reasonably request for
the purpose of giving effect to the transactions contemplated hereby.
SECTION 2.4. Allocation of the Purchase Price.
--------------------------------
2.4.1 Asset Acquisition Statement. Within 60 days after the Closing
---------------------------
Date, Purchaser will provide to Seller copies of IRS Form 8023 and any required
exhibits thereto (the "Asset Acquisition Statement") with Purchaser's proposed
allocation of the Purchase Price among the assets and Liabilities of the
Subsidiaries. In connection therewith, Purchaser may obtain an independent
appraisal as to any of the assets and Liabilities of any Subsidiary at its
expense, which appraisal will be made available to Seller if requested. Within
60 days after the receipt of such Asset Acquisition Statement, Seller will
propose to Purchaser any changes to such Asset Acquisition Statement or will be
deemed to have indicated its concurrence therewith. Thereafter, Purchaser will
provide to Seller from time to time revised copies of the Asset Acquisition
Statement (each, a "Revised Statement") so as to report any matters on the Asset
Acquisition Statement that require updating. Within 30 days after the receipt
of any Revised Statement, Seller will propose to Purchaser in writing any
changes to such Revised Statement or will be deemed to have indicated its
concurrence therewith. Purchaser and Seller will endeavor in good faith to
resolve any differences with respect to the Asset Acquisition Statement or any
Revised Statement within 30 days after Purchaser's receipt of notice of
suggested changes from Seller.
2.4.2 Tax Returns. Subject to the provisions of the following sentence
-----------
of this Subsection 2.4.2, the Purchase Price will be allocated among the assets
and Liabilities of the Subsidiaries in accordance with the Asset Acquisition
Statement or, if applicable, the last Revised Statement provided by Purchaser to
Seller pursuant to Subsection 2.4.1, and subject to the requirements of any
applicable tax law or election, all Tax Returns and reports filed by Purchaser
and Seller will be prepared consistently with such allocation. If Seller
withholds its consent to such allocation and thereafter Purchaser and Seller are
unable to resolve any differences that, in the aggregate, are material in
relation to the Purchase Price, then any remaining disputed matters will be
finally and conclusively determined by an independent accounting firm of
national standing (the "Allocation Arbiter") selected by Purchaser and Seller,
which firm will not be the regular accounting firm of Purchaser or Seller.
Promptly but not later than 10 days after its acceptance of its appointment, the
Allocation Arbiter will determine (based solely on presentations by Seller and
Purchaser and not by independent review) only those matters in dispute and will
render a written report as to the disputed matters and the resulting allocation
of the Purchase Price, which report will be conclusive and binding upon the
parties. The fees and expenses of the Allocation Arbiter shall be shared
equally by Seller and Purchaser. Purchaser and Seller will, subject to the
requirements of any applicable tax law or election, file all Tax Returns and
reports consistent with the allocation provided in the Asset Acquisition
Statement or the last Revised Statement and, if applicable, the determination of
the Allocation Arbiter.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
As of the date hereof and as of the Closing Date (except to the extent any
of the following representations and warranties relate solely to an earlier
date, in which case such representations and warranties are made as of such
earlier date), Seller represents and warrants to Purchaser and each of the
Subsidiaries as follows:
SECTION 3.1. Corporate Status and Authority. Seller is a corporation duly
------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Seller has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and to execute and deliver this Agreement and the Ancillary
Agreements, to perform its obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby. On the Closing
Date, the execution, delivery and performance by Seller of this Agreement and
the Ancillary Agreements have been duly authorized by the Board of Directors of
Seller, which constitutes all necessary corporate action on the part of Seller
for such authorization. Subject to the immediately preceding sentence, this
Agreement has been duly executed and delivered by Seller and constitutes the
valid and binding obligation of Seller, enforceable against Seller in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application referring to or affecting the enforcement of creditors' rights, or
by general equitable principles. Upon the Closing, the Ancillary Agreements
shall be duly executed and delivered by Seller and shall constitute the valid
and binding obligations of Seller, enforceable against Seller in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application referring to or affecting the enforcement of creditors'
rights, or by general equitable principles.
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SECTION 3.2. No Conflicts, etc. Except as set forth in Schedule 3.2:
-----------------
3.2.1 Charter Documents. The execution, delivery and performance by
-----------------
Seller of this Agreement and the Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby will not result in (a) any
conflict with or violation of the certificate of incorporation or by-laws of
Seller, or of the certificate of incorporation and by-laws, or the partnership
agreement of any of the Subsidiaries, (b) any material breach or violation of or
default under, or result in the creation or imposition of any Liens under, any
statute, regulation, judgment, order or decree, or any mortgage, deed of trust,
indenture, security agreement, pledge or any other similar instrument to which
Seller or any of the Subsidiaries is a party or by which any of them or their
respective properties or assets are bound or (c) any material breach, violation
or termination of or default under any Material Contract or any material real
property leases listed on Schedule 3.8.1 except for (x) such material real
-
property leases listed on Schedule 6.1.5 hereof and (y) such other material real
-
property leases such breach, violation or termination of or default under shall
not result in a Material Adverse Effect upon the Subsidiaries; and
3.2.2 Governmental Consents. No consent, approval or authorization of
---------------------
or filing with any Governmental Authority is required on the part of Seller or
any of the Subsidiaries in connection with the execution and delivery of this
Agreement and the Ancillary Agreements or the consummation of the transactions
contemplated hereby or thereby, except (a) filings required with respect to the
HSR Act, (b) such filings, consents and approvals required in connection with
the transfer to and assumption by Seller or a wholly owned subsidiary thereof
(other than the Subsidiaries) of the Excluded Assets and Excluded Liabilities,
and (c) filings, consents, change-in-ownership notices or approvals which, if
not made or obtained prior to Closing are not, individually or in the aggregate,
reasonably expected to have a Material Adverse Effect on Seller or on the
Subsidiaries.
SECTION 3.3. Corporate and Company Status and Authority of the
-------------------------------------------------
Subsidiaries. Each of the corporate Subsidiaries (a) is a corporation duly
- ------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (b) has all requisite corporate power and
authority to conduct its business and to own or lease its properties, as
presently conducted, owned or leased, and (c) is duly qualified to do business
in each jurisdiction in which the nature of its business or the location of its
assets requires it to be so qualified, other than those jurisdictions in which
the failure to be so qualified is not, individually or in the aggregate,
reasonably expected to have a Material Adverse Effect on the Subsidiaries, taken
as a whole. Each of Bentley Coal, Kentucky Prince Mining and Skyline Coal (i)
is a partnership duly formed, validly existing and in good standing under the
laws of the jurisdiction of its formation, (ii) has all requisite partnership
power and authority to conduct its business and to own or lease its properties,
as presently conducted, owned or leased, and (iii) is duly qualified to do
business in each jurisdiction in which the nature of its business or the
location of its assets requires it to be so qualified, other than those
jurisdictions in which the failure to be so qualified is not, individually or in
the aggregate, reasonably expected to have a Material Adverse Effect on the
20
<PAGE>
Subsidiaries. Schedule 3.3 lists each jurisdiction in which each Subsidiary is
qualified to be in business. No Subsidiary has any equity interest or
investment in any corporation, partnership, limited liability company,
association, joint venture or other business organization other than as set
forth on Schedule 3.3.
SECTION 3.4. Ownership of the Subsidiaries. With respect to the shares of
-----------------------------
capital stock or partnership interests issued by the Subsidiaries, (a) Seller
owns beneficially and of record all of the Shares of the Subsidiaries listed as
being directly owned by it on Schedule 3.3 in the percentages specified therein,
free and clear of any Lien other than Liens for taxes and assessments and other
governmental charges not yet due or which are being contested in good faith and
by appropriate proceedings as to which adequate reserves or insurance exist, (b)
Amax Coal Company owns beneficially and of record 60% of the issued and
outstanding shares of capital stock of Yankeetown Dock, free and clear of any
Lien other than Liens for taxes and assessments and other governmental charges
not yet due or which are being contested in good faith and by appropriate
proceedings as to which adequate reserves or insurance exist, (c) Cannelton owns
beneficially and of record all of the issued and outstanding shares of capital
stock of each of Cannelton Industries, Cannelton Sales and Cannelton Land, and
Cannelton Industries owns beneficially and of record all of the issued and
outstanding shares of capital stock of Dunn Coal & Dock, in each case free and
clear of any Lien other than Liens for taxes and assessments and other
governmental charges not yet due or which are being contested in good faith and
by appropriate proceedings as to which adequate reserves or insurance exist, and
(d) each of Roaring Creek and Grassy Cove own beneficially and of record 50% of
the partnership interests in each of Bentley Coal, Kentucky Prince Mining and
Skyline Coal, free and clear of any Lien other than Liens for taxes and
assessments and other governmental charges not yet due or which are being
contested in good faith and by appropriate proceedings as to which adequate
reserves or insurance exist. All such shares of capital stock or partnership
interests listed as being owned by Seller or any Subsidiary on Schedule 3.3 have
been duly authorized, validly issued and are fully paid and nonassessable.
There are no outstanding options, warrants, conversion or other rights or
agreements of any kind (except as contemplated hereby) for the purchase from, or
the sale or issuance by, Seller or any of the Subsidiaries of any shares of
capital stock or partnership interests of any of the Subsidiaries to the extent
that such shares or partnership interests are listed as being owned by Seller or
any Subsidiary on Schedule 3.3 and no authorization therefor has been given. To
the Knowledge of Seller, no ownership of Seller in the Shares, none of Amax
Coal's ownership interests in Yankeetown, none of Cannelton's direct or indirect
ownership interests in each of Cannelton Industries, Cannelton Sales Cannelton
Land and Dunn Coal & Dock and none of Grassy Cove's and Roaring Creek's
ownership interests in each of Bentley Coal, Kentucky Prince Mining and Skyline
Coal has ever been challenged and no Person has ever threatened to challenge
such interest. Neither Seller nor any Subsidiary is a party to any obligation
(contingent or otherwise) to buy or sell shares of capital stock or partnership
interests of the Subsidiaries, except as contemplated by this Agreement. Except
as set forth on Schedule 3.4, Seller is not a party to any agreement with
respect to the voting or transfer of the capital stock or partnership interests
of the Subsidiaries owned, either directly or indirectly, by Seller. For the
period from January 1, 1994 to the date hereof (or, if the Closing shall occur,
the Closing Date), the minute books (containing the records of meetings of the
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<PAGE>
shareholders, board of directors and any committee of the board of directors),
stock certificate books and stock transfer books of each Subsidiary are true and
correct in all material respects.
SECTION 3.5. Title. At the Closing, Purchaser will receive good and valid
-----
title to the Shares, free and clear of any Lien, except for Liens for taxes and
assessments and other governmental charges not yet due or which are being
contested in good faith and by appropriate proceedings as to which adequate
reserves or insurance exist, Liens described in the Schedules attached hereto,
Liens that may arise from acts or omissions of Purchaser and except for
restrictions on transfer under the Securities Act.
SECTION 3.6. Financial Statements. Schedule 3.6 sets forth on a
--------------------
consolidated basis as at March 31, 1998 an unaudited statement of net working
capital and an unaudited balance sheet for the period then ended, together with
an unaudited income statement of the Subsidiaries for the three months ended
March 31, 1998 (the "March Balance Sheet"), all of which have been adjusted to
exclude therefrom all of the Excluded Assets and Excluded Liabilities and to
present intercompany balances between any Subsidiary and any of its Affiliates
as though they had been settled as of March 31, 1998. The March Balance Sheet
shows net working capital of the Subsidiaries determined on a consolidated basis
as at March 31, 1998 equal to $34,975,000, which amount has been computed by
subtracting current liabilities from current assets. The March Balance Sheet
has been prepared in accordance with Seller's Accounting Principles, except that
the March Balance Sheet shall include line items in respect of pro forma
noncurrent liabilities for Black Lung Benefits Obligations and post retirement
obligations other than pension obligations. The March Balance Sheet has been
prepared from the books and records of the Subsidiaries as at March 31, 1998 and
includes all material adjustments. Classification of balances between current
and noncurrent assets and liabilities reflected on the March Balance Sheet have
been conformed to the Subsidiaries' prior practice, with regard to asset and
liability inclusion and classification, in calculating the above net working
capital amount.
SECTION 3.7. Absence of Undisclosed Liabilities. Except as set forth on
----------------------------------
Schedule 3.7, the Subsidiaries do not have any material Liabilities other than
such Liabilities as are (i) reflected or reserved against in the March Balance
-
Sheet or the notes thereto, if any, (ii) set forth on the Schedules delivered
--
hereunder or (iii) incurred since the Balance Sheet Date (A) in the ordinary
--- -
course of business consistent with past practices or (B) as contemplated or
-
permitted by this Agreement, including Liabilities arising under the Royalty
Deeds.
SECTION 3.8. Assets.
------
3.8.1 Real Property. Schedule 3.8.1 sets forth a true and complete list
-------------
(identified by physical file and legacy identification numbers) of all material
real property and leasehold interests and other material interests in real
property owned, leased or otherwise held by any Subsidiary, and such Schedule
indicates whether such real property is owned or leased or otherwise held by
such Subsidiary. Except as set forth on Schedule 3.8.1, each lease and sublease
set forth on Schedule 3.8.1 is in full force and effect as against the
Subsidiary a party thereto and, to the Knowledge of Seller, as against each
other party thereto, and there is not under
22
<PAGE>
any such lease or sublease any existing breach or default by any Subsidiary, as
applicable, or, to the Knowledge of Seller, by any other party thereto, except
for such breaches and defaults which are not reasonably expected to have a
Material Adverse Effect upon the Subsidiaries. Except as set forth on Schedule
3.8.1 hereof, neither Seller nor any Subsidiary has received written notice of
any act or omission on the part of such Subsidiary that constitutes or, with the
passage of time or the giving of notice or both, would constitute a material
default under any of the leases or subleases listed on Schedule 3.8.1 hereof
except for such acts or omissions that have been cured or would not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect upon the Subsidiaries, and no Subsidiary has granted to any
Person a security interest in its leasehold interests in any lease or sublease
listed on Schedule 3.8.1 hereof. To Seller's Knowledge and except as set forth
on Schedule 3.8.1 hereof, no notice of any violation of any applicable zoning or
building law or ordinance or administrative regulation has been received by any
Subsidiary, and Seller does not Know, or have any reasonable grounds to Know, of
the threat of any such notice. Except as set forth on Schedule 3.8.1 hereof, no
condemnation proceeding has been instituted or, to the Knowledge of Seller, is
threatened with respect to any of the real property listed on Schedule 3.8.1
hereof. To the Knowledge of Seller, no Subsidiary has conducted mining on or
from any coal reserves to which it did not reasonably believe it had, as of the
time such mining was conducted, color of title.
3.8.2 Personal Property. All equipment, machinery, motor vehicles,
-----------------
furniture, fixtures, computer hardware and other tangible personal property
(other than coal) owned or leased by any Subsidiary that (x) in the case of any
-
such owned property, has a net book value as of the Balance Sheet Date of $5,000
or more or, if less, is material to the operations of the business of any
Subsidiary, or (y) in the case of any such leased property, requires aggregate
-
annual payments by any Subsidiary in excess of $10,000, are listed on Schedule
3.8.2 (the "Personal Property"). Except as set forth in Schedule 3.8.2, each
Subsidiary has good and valid title to the Personal Property owned by it and a
good and valid leasehold interest in all Personal Property leased by it, in each
case free and clear of any and all Liens except for Permitted Liens. True and
complete copies of each lease related to Personal Property requiring an
aggregate payment by any Subsidiary of $100,000 or more in any single year has
been, or prior to Closing will be made available and delivered, if requested, to
Purchaser. At the Closing, the Subsidiaries shall have title to or a leasehold
interest in coal mining equipment and machinery that, in the aggregate, is
reasonably adequate for the coal mining operations of the Subsidiaries as such
mining operations have been conducted during the six (6) month period preceding
the Closing.
3.8.3 Intellectual Property. Other than with respect to intellectual
---------------------
property embedded in the machinery and equipment owned or leased by the
Subsidiaries or intellectual property licensed to the Subsidiaries under
"shrink-wrap" license, there is no intellectual property (including patents and
patent applications) developed by any of the Subsidiaries or by Seller for use
by the Subsidiaries, or used by the Subsidiaries, that is material to the
operations of the Business.
23
<PAGE>
SECTION 3.9. Material Contracts.
------------------
3.9.1 Schedule. Schedule 3.9.1 lists all written agreements,
--------
contracts and commitments of the following types to which any Subsidiary is a
party and which have not expired or been fully performed in accordance with its
terms, other than deeds, leases, conveyances and other documents relating to
real property, which are provided for in Section 3.8, labor or employment-
related agreements, which are provided for in Section 3.11, Permits, which are
provided for in Subsection 3.12.1 and any such agreement, contract or commitment
relating to the Excluded Assets and Excluded Liabilities (collectively, the
"Material Contracts"):
(a) Any agreement to purchase, sell or transport coal;
(b) Any agreement to supply or provide contract mining services;
(c) Any joint venture agreement, limited liability company operating
agreement or general or limited partnership agreement;
(d) Any mortgage, loan or trust indenture, loan or credit agreement,
security agreement and other agreements and instrument relating to the borrowing
of money to the extent any Subsidiary will be liable thereunder after the
Closing;
(e) Any corporate guarantee provided directly by any Subsidiary of any
obligations of any of their respective Affiliates or any other Person;
(f) Any letter of credit, surety bond or other credit support instrument
issued by any insurance company, bank or other financial institution for the
account of any Subsidiary or as to which the assets of any Subsidiary
collateralize the reimbursement obligations in respect of such letter of credit,
surety bond or other credit support instrument;
(g) Any agreement for the (i) pending sale, lease or other disposition
-
of any real property listed on Schedule 3.8.1 and owned by any Subsidiary, (ii)
--
pending sublease of any real property listed on Schedule 3.8.1 and leased by any
Subsidiary or (iii) pending purchase or lease by any Subsidiary of any real
---
property;
(h) Any agreement for the (i) pending sale of any Personal Property
-
listed on Schedule 3.8.2, (ii) lease to any Person of any Personal Property
--
listed on Schedule 3.8.2 or (iii) pending purchase or lease by any Subsidiary of
---
any personal property of the type listed on Schedule 3.8.2, in each case;
(i) Any lease for Personal Property requiring an aggregate payment by
any Subsidiary of $100,000 or more in any single year;
(j) Any agreement limiting the freedom of any Subsidiary to compete in
any line of business or in any area or with any Person to do business with any
Person; and
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(k) Any other agreements, contracts and commitments having a term
of one (1) year or more which are not of a type referred to in paragraphs (a)
through (j) above which require payment or provide for the receipt by any of the
Subsidiaries after the date hereof of more than $100,000, other than standing
purchase orders or basic ordering arrangements for materials and supplies to be
used in the ordinary course of business.
3.9.2 Effectiveness. True and complete copies of all Material
-------------
Contracts have been previously made available to Purchaser. Except as set forth
on Schedule 3.9.1, each Material Contract is in full force and effect in
accordance with its terms as against the Subsidiary a party thereto and, to the
Knowledge of Seller, is valid and binding as to the other parties thereto,
except as may be limited by laws affecting bankruptcy, insolvency,
reorganization, moratorium or creditors rights generally, or by general
equitable principles. Except as set forth on Schedule 3.9.1, no Subsidiary is
in default in the payment or performance or observance of, and neither Seller
nor any Subsidiary has received written notice of any act or omission on the
part of such Subsidiary that constitutes or, with the passage of time or the
giving of notice or both, would constitute a material default under, any
Material Contract to which any of them is a party or by which any of them or
their respective properties or assets may be bound, and to Seller's Knowledge,
no other party is in default in the payment or performance or observance of any
Material Contract.
SECTION 3.10. Affiliate Arrangements. Except as set forth in Schedule 3.10,
----------------------
no Subsidiary will be a party to or will be bound by any contract, agreement or
other commitment, whether or not in the ordinary course of business, with Seller
or any Affiliate of Seller (other than the Subsidiaries) or any senior
executive, director or officer of Seller or any Subsidiary, other than such
contracts, agreements or other commitments (x) as are specifically provided
-
herein or are contemplated by this Agreement, including the Ancillary Agreements
and any agreement in respect of the Excluded Assets and Excluded Liabilities,
and (y) that will not be in effect following the Closing Date.
-
SECTION 3.11. Employee Benefits.
-----------------
3.11.1 Employee Benefit Plans. Schedule 3.11.1 lists all deferred
----------------------
compensation, pension, profit sharing and retirement plans, and all life or
other welfare or employee benefit insurance, incentive compensation, stock
option, severance or termination pay, hospitalization or other medical plan,
arrangement or agreement, bonus and other employee benefit, welfare or fringe
benefit plans with respect to which contributions, premiums or other payments
are made or required by Minerals or any of its Affiliates covering any current
or former employee of any Subsidiary (the "Plans"). Schedule 3.11.1 identifies
each such Plan as either a Plan maintained by any such Affiliates (each, an
"Affiliate Plan") or a Plan maintained by Minerals (each a "Minerals Plan").
(a) Except as otherwise provided on Schedule 3.11.1, true and
complete copies of the Plans have been provided to or otherwise have been made
available to Purchaser by designating their location. Seller has notified
Purchaser of any amendments, modifications,
25
<PAGE>
extensions, changes in benefits or benefit structures, or other alterations, to
the Plans which are currently in effect. Seller shall notify Purchaser of any
amendments, modifications, extensions, changes in benefits or benefit structures
or other alterations to any of the Plans which the Seller has undertaken to
become effective in the future but before the Closing, if such alteration has or
is reasonably expected to have a direct impact on the Employees;
(b) Minerals and the Subsidiaries, as the case may be, have executed,
managed and administered the Plans in compliance, in all material respects, with
all laws, rules and regulations applicable thereto, except where noncompliance
could not reasonably be expected to have a Material Adverse Effect upon the
Subsidiaries or Minerals;
(c) Each Plan which is intended to be "qualified" within the meaning of
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service and, to the Knowledge of Seller, no event has
occurred and no condition exists which could reasonably be expected to result in
the revocation of any such determination;
(d) All contributions which are due from Minerals and the Subsidiaries
under any Plan have been paid to each such Plan or accrued in accordance with
the past practice of the Subsidiaries or Minerals, as the case may be. All
premiums, claims for benefits or other payments that are due and which would
have been paid in the normal course before the Closing Date have been paid with
respect to each Plan that is an employee welfare benefit plan (as defined in
Section 3(1) of ERISA);
(e) None of the Subsidiaries, Minerals or any of Minerals' Affiliates
that is not a Subsidiary or, to the Knowledge of Seller, any other "disqualified
person" or "party in interest" as defined in Section 4975(e)(2) of the Code and
Section 3(14) of ERISA, respectively, have engaged in any transaction in
connection with any Plan that could reasonably be expected to result in the
imposition of a material penalty pursuant to Section 502(i) of ERISA, material
damages pursuant to Section 409 of ERISA, or a material tax pursuant to Section
4975(a) of the Code;
(f) Except as set forth on Schedule 3.11.1(f), no Proceeding with
respect to any Plan (other than routine claims for benefits) is pending or, to
Seller's Knowledge, threatened which could reasonably be expected to have a
Material Adverse Effect upon the Subsidiaries;
(g) Each Plan that is a "group health plan" (as defined in Section
607(1) of ERISA and Section 5000(b)(1) of the Code) is in compliance with the
requirements of Parts 6 and 7 of Subtitle B of Title 1 of ERISA and of Section
4980B of the Code, except where noncompliance could not reasonably be expected
to have a Material Adverse Effect upon the Subsidiaries;
(h) Neither Seller nor any Subsidiary nor, to Seller's Knowledge, any
other fiduciary (as that term is defined in Section 3(21) of ERISA)) of any Plan
subject to ERISA has any material liability for any breach of fiduciary duties
under ERISA;
26
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(i) No Plan subject to Title IV of ERISA nor any of the related
trusts have been terminated or is or has been the subject of termination
proceedings pursuant to Title IV of ERISA. No Plan that is subject to Part 3 of
Subtitle B of Title 1 of ERISA has an accumulated funding deficiency (as that
term is defined in Section 302 of ERISA and Section 412 of the Code), whether or
not waived. To the Knowledge of Seller, no event which constitutes a reportable
event (as that term is defined in Section 4043(c) of ERISA) for which the notice
requirement has not been waived by the Pension Benefit Guaranty Corporation has
occurred with respect to any Plan;
(j) The present value of all accrued benefits, as calculated for
purposes of determining the minimum required contribution under Section 302 of
ERISA, whether or not forfeitable, under each Plan that is an employee pension
benefit plan subject to Title IV of ERISA does not exceed the value of the
assets of such Plan allocable to such accrued benefits;
(k) Each Plan that is a Multi-employer plan (as defined in
Section 4001(a)(3) of the Code) to which any Subsidiary is obligated to
contribute (each, a "Multi-employer Plan") is listed on Schedule 3.11.1(k).
Except as set forth on Schedule 3.11.1(k), all contributions required to have
been made by such Subsidiaries to any Multi-employer Plan have been made on a
timely basis. None of the Subsidiaries has been advised by any Multi-employer
Plan that it has any withdrawal liability or potential liability under Sections
4201 or 4204 of ERISA with respect to any Multi-employer Plan, and, to Seller's
Knowledge, none of the Subsidiaries has any such withdrawal liability as of the
Closing Date;
(l) Schedule 3.11.1(l) contains (i) a list of all retirees and
-
dependents Known to Seller that have been assigned to or assumed by any
Subsidiary as of the Closing Date pursuant to Section 9706 of the Coal Act and
for whom yearly premiums are being paid to the UMWA Combined Benefit Fund (the
"Combined Fund") pursuant to Section 9704 of the Coal Act and (ii) a list of
--
each pending challenge as of the Closing Date by any Subsidiary to Combined Fund
beneficiaries assigned to the such Subsidiary to the extent such challenge has
not been finally resolved;
(m) Schedule 3.11.1(m) contains a list of all retirees and
dependents Known to Seller for whom any Subsidiary as of the Closing Date is
paying pre-funding premiums to the UMWA 1992 Benefit Plan (the "1992 Plan")
pursuant to Section 9712(d)(1)(A) of the Coal Act; and
(n) Schedule 3.11.1(n) contains a list of all retirees and
dependents Known to Seller for whom any Subsidiary as of the Closing Date is
paying premiums to the 1992 Plan pursuant to Section 9712(d)(1)(B) of the Coal
Act.
3.11.2 Labor Matters. Except as set forth on Schedule 3.11.2, (a) no
-------------
employee of any of the Subsidiaries is currently represented by a labor union or
other collective labor organization or association, (b) there are no collective
bargaining agreements or memoranda of understanding by which any of the
Subsidiaries are bound or applicable to any employees of any of the
Subsidiaries, (c) no material strikes, slowdowns, lockouts or work stoppages or
material
27
<PAGE>
labor disputes involving employees of any of the Subsidiaries are pending, nor
have any occurred since June 1, 1996, (d) to the Knowledge of Seller, there is
no union or independent organizational activity among any employees underway at
any of the Subsidiaries, (e) the Subsidiaries are not parties to any grievance
proceeding by any Employees under a collective bargaining agreement, which
grievance has been appealed to arbitration, (f) no Subsidiary has been charged
or, to Seller's Knowledge, threatened with a charge of any unfair labor practice
since January 1, 1994 that has not been resolved, (g) no Subsidiary has
committed any act in violation of the WARN Act resulting in Liability resulting
therefrom except such violations which have been resolved and for which no
Liability currently exists, (h) no Subsidiary is a party to any written
employment contract with any Employee (other than any collective bargaining
agreement), and (i) Seller, with respect to the Business, and the Subsidiaries
have complied in all material respects with all Laws relating to the employment
of labor, including any provision thereof relating to wages, hours, collective
bargaining, and the payment of social security and similar taxes, unemployment
and workers' compensation laws, and any labor relations laws, except for
violations or failures to so comply which are not, individually or in the
aggregate, reasonably expected to have a Material Adverse Effect upon the
Subsidiaries.
3.11.3 Employees. Schedule 3.11.3 provides a list as of the date hereof
---------
of each person who is an employee of any Subsidiary (including those active
employees and employees on maternity, military, disability or other leave), and
Seller shall update such list prior to Closing as close as practical to the
Closing Date. Promptly following the Closing, Purchaser shall update the list
to the Closing Date and provide a copy thereof to Seller, which updated list
shall be deemed the final and complete list of all such employees (collectively,
the "Employees"). Schedule 3.11.3 correctly reflects the salary or hourly wage,
date of employment, position of each Employee and, with respect to hourly
Employees, those such hourly Employees that are not subject to a collective
bargaining agreement, all as of the date of such Schedule. Except as set forth
on Schedule 3.13, there are no discrimination or harassment charges (relating to
sex, age, religion, national origin, ethnicity, disability or veteran status)
pending or, to the Knowledge of Seller, threatened before any federal or state
agency or authority against Seller or any of the Subsidiaries with respect to
the Employees, and to the Knowledge of Seller there is no basis therefor. To
the Knowledge of Seller, all of the information with respect to the Plans that
has been provided by Seller or its Affiliates to Purchaser, or by Seller or its
Affiliates to third parties providing goods or services to related to the Plans,
is true and accurate. To the Knowledge of Seller, all of the employee census
data provided by Seller or its Affiliates to Purchaser with respect to FASB 106
and 112 is true and accurate.
SECTION 3.12. Governmental Authorizations; Compliance with Law.
------------------------------------------------
3.12.1 Permits. Set forth on Schedule 3.12.1 is a list of all material
-------
licenses, permits, waivers and other governmental authorizations currently in
existence for the conduct of the assets (other than the Excluded Assets) and
operations of the Subsidiaries, including, without limitation, all coal mining
and reclamation operations as presently conducted (the "Permits"), together with
any application for any Permit. Complete and correct copies of each Permit and
Permit application have been, or prior to Closing will be, made available to
Purchaser. The
28
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Permits constitute all of the material permits necessary for the conduct of the
coal mining operations of the Business as such Business is conducted as of the
Closing Date. All Permits material to such coal mining operations are currently
in full force and effect, and no Permit application filed by any Subsidiary
contains an intentional or willful misstatement or omission of a material fact.
3.12.2 Compliance. Except as set forth on Schedule 3.12.2, Seller, in
----------
respect of the Business, and the Subsidiaries are in compliance with all
material Laws and Permits applicable to Seller with respect to the Business or
the Subsidiaries except for violations or failures to so comply which are not,
individually or in the aggregate, reasonably expected to result in a Material
Adverse Effect on the Subsidiaries. Except as set forth on Schedule 3.12.2,
there is not pending or, to the Knowledge of Seller, threatened any application,
petition, complaint, challenge, objection or other pleading or notice of
violation from any Governmental Authority which challenges or questions the
validity of any rights of the holder under any issued Permit (including any
Permit issued pursuant to SMCRA) or any Permit application. Except as set forth
on Schedule 3.12.2, no Proceeding by any Governmental Authority has been
instituted or, to the Knowledge Seller, threatened or is contemplated seeking
the suspension, termination, modification, revocation, alteration or amendment
of any Permit or to declare any Permit invalid in any material respect. Except
as set forth on Schedule 3.12.2, neither Seller nor any Subsidiary has received
any written notice of noncompliance with respect to any Permit since January 1,
1995.
SECTION 3.13. Litigation. Except as set forth in Schedule 3.13, there is no
----------
Proceeding pending or, to the Knowledge of Seller, threatened against or
affecting Seller, with respect to the Business, or any Subsidiary or any real
property listed on Schedule 3.8.1 (i) other than such Proceedings which
individually or in the aggregate would, if adversely determined, require the
payment of damages by any Subsidiary in excess of $250,000 or, in the case of an
injunction and if not obeyed, would result in a civil fine or penalty in excess
of $250,000, or (ii) which challenges the lawfulness or validity of the
transactions contemplated by this Agreement. Schedule 3.13 sets forth a list of
each outstanding judgment, order or decree, and each injunction, of any
Governmental Authority against or affecting any Subsidiary or any of their
respective properties requiring the payment of damages in excess of $250,000 or,
in the case of an injunction and if not obeyed, would result in a civil fine or
penalty in excess of $250,000. Except as set forth on Schedule 3.13, no
Subsidiary is in material default under any such judgment, order, decree or
injunction.
SECTION 3.14. Taxes. Except as set forth in Schedule 3.14:
-----
(a) (i) Each of the Subsidiaries have (or by the Closing Date will
have) timely and duly filed with the appropriate governmental authorities all
Tax Returns required to be filed on or prior to the Closing Date or have (or by
the Closing Date will have) validly extended the time for filing such Tax
Returns to a date after the Closing Date (and all such Tax Returns were correct
and complete in all material respects), (ii) all Taxes required to be shown as
due on such Tax Returns and all Taxes required to be withheld on or prior to the
Closing Date
29
<PAGE>
have (or by the Closing Date will have) been timely and duly paid or withheld,
(iii) no claim or proposal for assessment, adjustment or collection of Taxes
with respect to which Seller or any of its Affiliates has received a written
notice or as to which Seller has Knowledge is being asserted against any of the
Subsidiaries, (iv) each of the Subsidiaries have established (and until the
Closing will continue to establish and maintain) on their books and records
accruals in compliance with Seller's Accounting Principles for the payment of
all Taxes for which they will be required to file Tax Returns and which are not
yet due and payable as of the Closing Date, and (v) Seller has (or by the
Closing Date will have) paid or withheld all Taxes due and payable or required
to be withheld prior to or on the Closing Date, for which any of the
Subsidiaries (or their successors) may be held liable as a member of the Seller
Consolidated Group pursuant to section 1.1502-6(a) of the Treasury Regulations
or as a member of any combined, consolidated or unitary group of which Seller or
any of the Subsidiaries is or was a member pursuant to any similar provision of
any state, local or foreign law with respect to Taxes;
(b) All tax allocation or tax sharing agreements between any of the
Subsidiaries, on the one hand, and Seller or any other Person, on the other
hand, shall have been cancelled on or prior to the Closing Date;
(c) No written agreement or other document extending or waiving, or
having the effect of extending or waiving, the period of assessment or
collection of any Taxes against any of the Subsidiaries, and no power of
attorney with respect to any Taxes, has been executed or filed with any
Governmental Authority;
(d) Except with respect to any Proceeding in respect of the Excluded
Assets and Excluded Liabilities: (i) no Proceedings with respect to which Seller
or any of its Affiliates has received a written notice or as to which Seller has
Knowledge are presently pending or have been proposed against any of the
Subsidiaries with respect to any Taxes other than such Proceedings which are
not, individually or in the aggregate, reasonably expected to result in a
Material Adverse Effect upon the Subsidiaries; and (ii) no written notice
relating to any such Proceeding has been received by Seller or any of the
Subsidiaries;
(e) Except for the Seller Consolidated Group, none of the Subsidiaries
is currently a member of any affiliated, consolidated, combined or unitary group
with respect to Taxes;
(f) Since January 1, 1997, Seller has not received any written notice
from any Governmental Authority where Seller or any of the Subsidiaries
currently files Tax Returns to the effect that Seller, with respect to the
Business, or any Subsidiary may be subject to taxation by such Governmental
Authority; and
(g) None of the Subsidiaries has made, or is or may become obligated
(under any contract entered into on or before the Closing Date) to make, any
payments that will be non-deductible under Section 280G of the Code (or any
corresponding provision of state or local income tax law).
30
<PAGE>
SECTION 3.15. Absence of Changes. Except as set forth on Schedule 3.15 and
------------------
except as otherwise contemplated or permitted by this Agreement, including
without limitation Section 2.1 hereof, since the Balance Sheet Date, Seller,
with respect to the Business, and each Subsidiary has conducted its operations
and maintained its assets and performed, paid and discharged its Liabilities
only in the ordinary course, consistent with past practices, and no events or
conditions have occurred or been discovered that are, individually or in the
aggregate, reasonably expected to have a Material Adverse Effect on the
Subsidiaries. In addition, except as set forth on Schedule 3.15 or with respect
to the Excluded Assets and Excluded Liabilities or as otherwise permitted or
contemplated by the provisions of this Agreement, none of Seller, with respect
to the Business, or any of the Subsidiaries has, since the Balance Sheet Date:
(a) Incurred any material Liabilities or obligations, except Liabilities
and obligations incurred in the ordinary course of business consistent with past
practice;
(b) Discharged or satisfied any Lien, or paid any obligation or
liability (absolute or contingent), other than liabilities due and payable in
the ordinary course of business;
(c) Paid or agreed to pay, conditionally or otherwise, any bonus, extra
compensation, pension or severance pay to any present of former shareholders,
directors, officers, agents or employees of the Subsidiaries, except for such
payments or agreements to make payments made or entered into in the ordinary
course of business consistent with past practices;
(d) Changed any accounting practice followed or employed in preparing
the March Balance Sheet;
(e) Mortgaged, pledged or subjected to any Lien any of its properties or
assets, except for Permitted Liens or any Lien not in excess of $100,000 and
which, together with all such other Liens, are not in excess of $500,000;
(f) Increased the compensation of any officer or employee, other than
(i) in the ordinary course of business and consistent with past practice (but in
no event in excess of 15% of such person's base compensation) or (ii) to comply
with applicable law;
(g) Disposed of, sold, leased, transferred or assigned, or agreed to
dispose of, sell, lease, transfer or assign, any properties or assets (other
than in the ordinary course of business consistent with past practice) having a
net book value as of the date of such disposition in excess of $100,000;
(h) Declared, set aside or paid any dividend, distribution, or payment
on, or issued, sold, purchased or redeemed any shares of any class of its
capital stock or partnership interest or made any commitment therefor;
(i) Cancelled, waived or forgiven any material debts, rights or claims
therefor other than intercompany debts as contemplated by Subsection 5.18.9
hereof; or
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(j) Entered into any transaction for the purchase or sale of goods or
services in excess of $100,000 other than in the ordinary course of business.
SECTION 3.16. Environmental Compliance. Except as described on Schedule
------------------------
3.16:
(a) Each Subsidiary (and its business, operations, assets, equipment and
real property) is in compliance with all applicable Environmental Laws, except
for violations or failures to comply which are not, individually or in the
aggregate, reasonably expected to result in a Material Adverse Effect upon the
Subsidiaries. None of Seller, with respect to the Business, or any Subsidiary
has received any written notice of violation, hearing, correction order,
cessation order, notice of fine or penalty, notice of proposed assessment or
other written notice from any Governmental Authority that Seller, with respect
to the Business, or any Subsidiary is not in compliance with any Environmental
Laws or Permits which relate to any matters or conditions that are not, or have
not been, resolved as of the date hereof except for such matters or conditions
which, if not resolved as of the date hereof, are not, individually or in the
aggregate, reasonably expected to result in a Material Adverse Effect upon the
Subsidiaries;
(b) There have been no Releases of Hazardous Materials by any of the
Subsidiaries or their Affiliates on, in, under, over or in any way affecting the
real property owned or leased by any Subsidiary as of the date hereof, except
(i) in accordance with a valid permit or (ii) for such Releases that are not,
individually or in the aggregate, reasonably expected to result in a Material
Adverse Effect upon the Subsidiaries;
(c) None of the real property owned or leased by any Subsidiary is used
to produce, manufacture, process, generate, store, use, handle, recycle, treat,
dispose of, manage, ship or transport Hazardous Materials, other than as
customary in the normal course of coal mining operations of the type conducted
or previously conducted on such real property;
(d) To the Knowledge of Seller, none of the real property owned by any
Subsidiary and listed on Schedule 3.8.1 contains any underground storage tanks;
(e) No Subsidiary has received notice from any Governmental Authority
that such Subsidiary is a "potentially responsible party" under Section 107 of
CERCLA for any matter that has not been resolved as of the Closing Date; and
(f) All Hazardous Materials disposed of, treated or stored by Seller or
any of its Affiliates on any real property listed on Schedule 3.8.1 have been
disposed of, treated or stored, as the case may be, in compliance in all
material respects with all applicable laws, codes and ordinances and all rules
and regulations promulgated thereunder.
SECTION 3.17. Brokers. All negotiations relating to this Agreement and the
-------
transactions contemplated hereby have been carried out without the intervention
of any person acting on behalf of Seller in such manner as to give rise to any
valid claim against Purchaser, Seller or any Subsidiary for any brokerage or
finder's commission, fee or similar compensation.
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SECTION 3.18. Insurance. Schedule 3.18 hereto contains a true and complete
---------
list of all policies of fire, property and casualty, liability, workers'
compensation, business interruption and other forms of insurance policies (other
than surety or performance bond policies) in effect on the date hereof and
maintained by any Subsidiary or Seller or its Affiliates (other than the
Subsidiaries) with respect to the Business. All of such policies are in full
force and effect on the date hereof, and all premiums, assessments and other
charges required thereunder have been paid when due.
SECTION 3.19. Bank Accounts. Schedule 3.19 contains a correct and complete
-------------
list of the names of each bank or other financial institution in which any
Subsidiary has an account (including lockbox accounts) or safe deposit box, and
the names of all persons authorized to draw thereon or to have access thereto.
SECTION 3.20. Audits. Except as set forth on Schedule 3.20, (i) no
------
Subsidiary is currently the subject of any audit with respect to any Tax Return
filed by such Subsidiary or by any member of the Seller Consolidated Group to
the extent such Tax Return and the audit thereto relates to the Business which,
if adversely determined, could reasonably be expected to result in a Material
Adverse Effect upon the Subsidiaries, and (ii) no Subsidiary is a party to any
other audit with respect to the Material Contracts or the leases or subleases
listed on Schedule 3.8.1 which, if adversely determined, could reasonably be
expected to result in a Material Adverse Effect upon the Subsidiaries.
SECTION 3.21. Bonds. Minerals and its Affiliates (including, prior to the
-----
Closing, the Subsidiaries) have posted all reclamation and performance bonds
required to be posted in connection with the operations of the Business except
for such bonds the failure to post are not, individually or in the aggregate,
reasonably expected to result in a Material Adverse Effect upon the
Subsidiaries. All such reclamation and performance are listed on Schedule 3.21.
SECTION 3.22. Permit Blocking. Neither Seller nor any Subsidiary has been
---------------
notified (nor to the Knowledge of Seller is there any pending or threatened
notification) by the Federal Office of Surface Mining or the agency of any
state administering SMCRA that it is (i) ineligible to receive additional
surface mining permits or (ii) under investigation to determine whether its
eligibility to receive a SMCRA permit should be revoked (i.e. "permit blocked"),
and to the Knowledge of Seller there is no basis therefor.
SECTION 3.23. Powers of Attorney. Except as set forth on Schedule 3.23,
------------------
there is no executed power of attorney to which any Subsidiary is a party that
will remain in effect following the Closing Date.
SECTION 3.24. Certain Customer Matters. No customer to a coal supply
------------------------
contract listed on Schedule 3.9.1 pursuant to Subsection 3.9.1(a) hereof has
issued to Seller or any Subsidiary written notice of its intention to terminate
any such coal supply contract pursuant to an express termination right specified
in such coal supply contract.
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<PAGE>
SECTION 3.25. Documents. True, complete and correct copies of all leases
---------
and subleases listed on Schedule 3.8.1 and of all Material Contracts have been
furnished to Purchaser or its representatives or made available to Purchaser or
its representatives for inspection at the offices of Seller or its Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser represents and warrants to Seller as of the date hereof and as of
the Closing Date as follows:
SECTION 4.1. Corporate Status and Authority. Purchaser is a corporation
------------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware. Purchaser has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted, and to execute and deliver this Agreement and the Ancillary
Agreements, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by Purchaser of this Agreement and the Ancillary
Agreements have been duly authorized by the Board of Directors of Purchaser,
which constitutes all necessary corporate action on the part of Purchaser for
such authorization. This Agreement has been duly executed and delivered by
Purchaser and constitutes the valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application referring to or
affecting the enforcement of creditors' rights, or by general equitable
principles. Upon the Closing, the Ancillary Agreements shall be duly executed
and delivered by Purchaser and shall constitute the valid and binding
obligations of Purchaser, enforceable against Purchaser in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application referring to or affecting the enforcement of creditors' rights, or
by general equitable principles.
SECTION 4.2. No Conflicts. Except as set forth in Schedule 4.2:
------------
4.2.1 Charter Documents. The execution, delivery and performance by
-----------------
Purchaser of this Agreement and the Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby will not result in (a) any
conflict with the Certificate of Incorporation or by-laws of Purchaser, or (b)
any breach or violation of or default under, or result in the creation or
imposition of any Lien under, any statute, regulation, judgment, order or
decree, or any mortgage, deed of trust, indenture, security agreement, pledge or
any other similar instrument to which Purchaser is a party or by which Purchaser
or any of its properties or assets are bound; and
4.2.2 Governmental Consents. No consent, approval or authorization of
---------------------
or filing with any Governmental Authority is required on the part of Purchaser
in connection with
34
<PAGE>
the execution and delivery of this Agreement and the Ancillary Agreements or
the consummation of the transactions contemplated hereby and thereby, except
filings required with respect to the HSR Act and such other filings, consents
or approvals which, if not made or obtained prior to Closing, are not,
individually or in the aggregate, reasonably likely to have a material adverse
effect on the ability of Purchaser to perform its obligations hereunder or
thereunder or to consummate the transactions contemplated hereby or thereby.
SECTION 4.3. Litigation. There is no claim, legal action, suit,
----------
arbitration, governmental investigations or other proceedings, nor any order,
decree or judgment, in progress, pending or in effect, or, to the Knowledge of
Purchaser, threatened, which is related to the transactions contemplated by this
Agreement or any action taken or to be taken by Purchaser pursuant to or in
connection with this Agreement.
SECTION 4.4. Purchase for Investment. Purchaser is acquiring the Shares
-----------------------
for its own account for purposes of investment and not with a view toward any
resale or distribution thereof except as otherwise permitted by the Securities
Act and any other applicable law. Purchaser understands and acknowledges that
the offer and sale of the Shares as contemplated hereby have not been registered
under the Securities Act, any state "Blue Sky" law, or any applicable foreign
law or regulation, and that any subsequent transfer or offer to transfer by
Purchaser or any representative thereof of the Shares are subject to
registration requirements or other restrictions arising under such laws and
regulations in the absence of an available exemption therefrom. The stock
certificates representing the Shares to be delivered at Closing as contemplated
by Section 2.3.2 hereof shall carry a restrictive legend to such effect.
SECTION 4.5. Financial Ability to Perform. Purchaser has available to it
----------------------------
funds sufficient to enable Purchaser to deliver the Purchase Price to Seller as
contemplated by this Agreement at the Closing and perform its obligations
hereunder, including causing the issuance of the Purchaser Surety Bond
contemplated by Section 5.17.1(b) hereof and the Equipment Surety Bond
contemplated by Section 5.22 hereof.
SECTION 4.6. Brokers. All negotiations relating to this Agreement and the
-------
transactions contemplated hereby have been carried out without the intervention
of any person acting on behalf of Purchaser in such manner as to give rise to
any valid claim against Seller or any Affiliate of Seller for any brokerage or
finder's commission, fee or similar compensation, except for such brokers whose
names have been disclosed in writing to Seller prior to the execution hereof and
whose fees in respect hereof shall be paid by Purchaser.
SECTION 4.7. Disclosure. None of Purchaser or its authorized
----------
representatives (including but not limited to Purchaser's non-employee
consultants) has any knowledge of any fact, event or circumstance that
constitutes (or would constitute) or indicates (or would indicate) a breach of
any representation, warranty or covenant made by Seller in this Agreement.
SECTION 4.8. Permit Blocking. Neither Purchaser nor any Affiliate thereof
---------------
has been notified (nor to the Knowledge of Purchaser is there any pending or
threatened notification) by the Federal Office of Surface Mining or the agency
of any state administering SMCRA that it is
35
<PAGE>
(i) ineligible to receive surface mining permits or (ii) under investigation to
determine whether its eligibility to receive a SMCRA permit should be revoked
(i.e. "permit blocked"), and to the Knowledge of Purchaser there is no basis
therefor.
ARTICLE V
COVENANTS
---------
SECTION 5.1. Consents, Further Assurances.
----------------------------
5.1.1 Consents. The parties shall promptly apply for and diligently
--------
prosecute all applications for, and shall use all reasonable efforts promptly to
obtain, such consents, authorizations and approvals from such Governmental
Authorities and third parties as shall be necessary or appropriate to permit the
consummation of the transactions contemplated by this Agreement, and shall use
all reasonable efforts to bring about the satisfaction as soon as practicable of
all the conditions contained in Article VI and VII to effect the consummation of
the transactions contemplated by this Agreement. Notwithstanding anything to
the contrary contained herein, the parties hereto agree that as a condition to
obtaining the consent of any third party to any coal supply contract, real
property lease, personal property lease or any other agreement to permit the
consummation of the transactions contemplated hereby, no party hereto shall have
any obligation to (i) file any lawsuit or take other legal action as against
such third party with respect to any thereof or (ii) make any amendment thereof
or waive any rights thereunder if as a result of such amendment or waiver such
coal supply contract, real property lease, personal property lease or any other
agreement would contain terms and conditions that are less favorable in any
material respect than the terms and conditions of such coal supply contract,
real property lease or personal property lease as in existence on the Closing
Date.
5.1.2 Further Assurances. From time to time, each of the parties
------------------
hereto will, at their own cost and expense, execute and deliver such further
instruments and will take such other actions as Purchaser or Seller may
reasonably request in order to effectuate the purposes of this Agreement, to
carry out the terms hereof, to fully and completely convey the Business to
Purchaser and to enable Seller or its Affiliates to retain and assume, as the
case may be, the Excluded Assets and Excluded Liabilities. Without limiting the
generality of the foregoing, at any time and from time to time after the Closing
Date (a) at the request of Purchaser, Seller will execute and deliver or cause
to be executed and delivered such other instruments and take or cause to be
taken such actions as Purchaser may reasonably deem necessary in order to
consummate the transactions contemplated by this Agreement, to evidence and
effect the sale, delivery and transfer of the Shares to Purchaser, to effectuate
the purposes and intent of this Agreement and to put Purchaser in actual
possession and operating control of the business and assets of the Subsidiaries
(other than the Excluded Assets and Excluded Liabilities) and to permit
Purchaser to exercise all rights with respect thereto (including, without
limitation, rights under contracts and other arrangements as to which any
required consent of any third party shall not have previously been obtained) and
(b) at the request of Seller, Purchaser will execute and deliver such other
instruments and agreements, and take such action, as Seller may reasonably
36
<PAGE>
deem necessary in order to consummate the transactions contemplated hereby
(including enabling Seller or its Affiliates to retain and assume, as the
case may be, the Excluded Assets and Excluded Liabilities) and to effectuate the
purposes and intent of this Agreement.
SECTION 5.2. Conduct of Operations; Access and Information.
---------------------------------------------
5.2.1 Conduct of Operations. From the date hereof until the Closing,
---------------------
except as otherwise permitted or contemplated by this Agreement (including
without limitation any action described below to the extent necessary or
appropriate to consummate the transactions contemplated by Section 2.1 hereof)
or as otherwise consented to by Purchaser in writing, such consent not to be
unreasonably withheld or delayed, Seller shall cause the Subsidiaries:
(a) To carry on the business and operations of the Subsidiaries in the
ordinary course consistent with past practices and use commercially reasonable
efforts to preserve intact their present organization, to keep available the
services of the present officers and employees and to preserve intact their
relationships with customers, suppliers and others having material business
dealings with each of them;
(b) To maintain their books of account and records in their usual,
regular and ordinary manner, consistent with their past practice;
(c) To promptly make available to Purchaser copies of all filings made
by Seller with any federal, state or foreign Governmental Authority in
connection with this Agreement and the transactions contemplated hereby;
(d) Not to settle or compromise any Proceeding or threatened Proceeding
involving any of them, their assets or any real property owned or leased by any
of them if the amount at issue exceeds $50,000.00, except for any Proceeding
included among the Excluded Assets or Excluded Liabilities;
(e) Not to enter into any contract or agreement which involves total
consideration to be paid or received by any Subsidiary in excess of $50,000
other than in the ordinary course of business consistent with past practice;
(f) Not to modify, amend or terminate any Material Contract in any
material respect, waive, release, relinquish or assign any material right under
any Material Contract or other material right or claim, or cancel or forgive any
indebtedness owed to any of them, other than, in each case, in the ordinary
course of business consistent with past practice;
(g) Not to declare or pay dividends or make other shareholder
distributions;
(h) Not to amend the articles of incorporation or by-laws or other
charter documents (including any partnership agreement) of any Subsidiary;
37
<PAGE>
(i) Not to increase the compensation payable or to become payable to any
officer, director or employee of any Subsidiary, other than in the ordinary
course of business consistent with past practice or as required by law (and in
no event in excess of 15% of such individual's compensation);
(j) Not to incur or refinance any indebtedness for borrowed money in
excess of $50,000;
(k) Not to make any loans to any Person other than in the ordinary
course of business (including loans and advances to employees for business
travel);
(l) Not to sell or otherwise dispose of any assets or Liabilities of the
Subsidiaries, except in the ordinary course of business consistent with past
practice;
(m) Not to enter into any collective bargaining agreement or, except in
the ordinary course of business consistent with past practice, any other
agreement with any labor union;
(n) Not to enter into any agreement to undertake any of the actions
listed in clauses (a) through (n) above;
(o) To conduct the mining operations of the Subsidiaries in accordance
with the current mine plans except for such deviations therefrom as are
necessary or appropriate to compensate for mining, weather, marketing factors or
other conditions or for such other deviations as are customary based on past
practice;
(p) To pay creditors and employees on a timely basis; and
(q) To preserve the possession and control of the assets and properties
of the Subsidiaries.
5.2.2 Access and Information. Seller shall cause the Subsidiaries to
----------------------
give to Purchaser and its representatives reasonable access, during normal
business hours, to all real property owned or leased by the Subsidiaries, to the
offices of the Subsidiaries, the Headquarters, and all of the books and records
and other information related thereto and furnish such information and documents
in its or their possession as Purchaser may reasonably request. All such
information and documents obtained by Purchaser shall be subject to the terms of
the Confidentiality Agreement. Seller shall have no obligation to disclose, and
Purchaser shall not disclose, to any representative of Purchaser any
confidential information relating to Seller, the Coal Business or any Subsidiary
unless such representative shall have agreed in writing to be bound by the terms
the Confidentiality Agreement and such writing shall have been delivered to
Seller. At the request of Seller, Purchaser shall provide to Seller copies of
all environmental reports (including any Phase I or Phase II study) conducted by
or at the request of Purchaser with respect to any Subsidiary or any assets and
liabilities thereof; provided that, at the reasonable request of Purchaser,
Seller shall, as a condition to receiving any such environmental report,
38
<PAGE>
execute a joint defense agreement reasonably acceptable to Seller and Purchaser
with respect to the information contained in such study and the defense of any
action relating thereto.
5.2.3 Notification by Purchaser of Certain Matters. Purchaser agrees
--------------------------------------------
to notify Seller in writing promptly upon Purchaser's or its authorized
representatives' (including, but not limited to, Purchaser's non-employee
consultants) discovery of any information by Purchaser or such authorized
representative prior to the Closing Date relating to the operations (including
the financial condition, assets and properties) of the Business or any
Subsidiary which constitutes (or would constitute) or indicates (or would
indicate) a breach of any representation, warranty or covenant of Seller
contained herein.
SECTION 5.3. Publicity. All press releases, filings and other public
---------
announcements concerning the transactions contemplated hereby will be subject to
review and approval by each of Seller or Purchaser, such approval not to be
unreasonably withheld. Such approval shall not be required if the Person
issuing such release, filing or public announcement reasonably believes, based
on advice of counsel, that it is required by law to do so, but in any such case,
all reasonable efforts shall be made to consult with the other party in advance
of such release, filing or announcement.
SECTION 5.4. Exclusivity. During the Interim Period, unless this Agreement
-----------
shall have been terminated pursuant to Section 9.1 in accordance with its terms,
Seller shall not and shall cause the Subsidiaries and the officers, directors
and employees of Seller and the Subsidiaries not to (i) directly or indirectly
solicit, initiate, authorize the solicitation of or enter into any discussions
with any Person other than Purchaser involving the possible acquisition of all
or part of the Business or any Subsidiary (other than the Excluded Assets and
Excluded Liabilities) and (ii) enter into any transaction with any Person, other
than Purchaser, involving the possible acquisition of all or part of the
Business or any Subsidiary (other than the Excluded Assets and Excluded
Liabilities). Seller shall notify Purchaser of any unsolicited offer or
proposal to enter into discussions or to buy all or part of the Business or any
Subsidiary (other than the Excluded Assets and Excluded Liabilities), and shall
provide Purchaser with a copy thereof.
SECTION 5.5. Notification by Seller of Certain Matters. Throughout the
-----------------------------------------
period beginning on the date hereof and ending on earlier of the Closing Date
and the date on which this Agreement shall have terminated pursuant to Section
9.1 hereof, Seller shall notify Purchaser in writing promptly upon the
occurrence of any event or development that comes to Seller's Knowledge which
has had or could reasonably expected to have a Material Adverse Effect upon any
Subsidiary.
SECTION 5.6. Company Records
---------------
5.6.1 Retention. With respect to the books and records of the
---------
Subsidiaries relating to matters prior to the Closing Date, Purchaser shall
retain or cause the Subsidiaries to retain copies of all Tax Returns, related
schedules and work papers, and all material records and other documents relating
thereto existing on the date hereof or created through or with respect to
39
<PAGE>
taxable periods ending on or before or including the Closing Date, until six
months after the expiration of the statute of limitations (including extensions)
of the taxable years to which such Tax Returns and other documents relate;
provided, however, that Purchaser shall cause any Person to whom it shall have
sold or otherwise transferred any Subsidiary (or a significant portion of the
assets of such Subsidiary) to agree to be bound by the provisions of this
Subsection 5.6.1 by written acknowledgment delivered to Seller prior to such
sale or transfer.
5.6.2 Cooperation With Respect to Examinations and Controversies.
----------------------------------------------------------
Purchaser and Seller shall use all reasonable efforts to cooperate with each
other and their respective representatives, in a prompt and timely manner, in
conjunction with any inquiry, audit, examination, investigation, dispute or
litigation involving any Tax Return relating to the Subsidiaries filed or
required to be filed by or for any Subsidiary for any taxable period beginning
before the Closing Date, and relating to any federal, state or local Taxes.
Such cooperation shall include, but not be limited to, making available to
Seller or Purchaser, as the case may be, during normal business hours, and
within ten (10) days of any reasonable request therefor, all books, records and
information, and the assistance of all officers and employees, reasonably
required in connection with any Tax inquiry, audit, examination, investigation,
dispute, litigation or any other matter.
5.6.3 Remedy for Failure to Comply. If Seller or Purchaser reasonably
----------------------------
determines that the other party is not fulfilling its obligations in a
reasonable manner under Subsection 5.6.2, then the party making such
determination shall have the right to select and appoint, at the reasonable
expense of defaulting party, an independent entity such as a nationally-
recognized public accounting firm to assist such defaulting party in meeting its
obligations under Subsection 5.6.2; provided, however, that if such independent
entity concludes that such defaulting party shall have fulfilled its obligations
under Subsection 5.6.2, then such reasonable expenses shall be for the account
of and shall be paid by the party making the determination of non-compliance.
Such entity shall have complete access to all books and records and information,
and the complete cooperation of all officers and employees of Seller, Purchaser
and the Subsidiaries, as the case may be, as reasonably requested by the party
making the determination of non-compliance. Notwithstanding the foregoing,
neither Seller nor Purchaser shall have the right to appoint such public
accounting firm until it has given written notice to the other party of its
noncompliance with the provisions of Subsection 5.6.2 and such other party shall
have failed to cure such noncompliance within 15 days.
SECTION 5.7. Disclosure Schedules; Updates.
-----------------------------
5.7.1 Delivery. Concurrently with the execution hereof, Seller is
--------
delivering to Purchaser the disclosure Schedules required to be delivered by
Seller hereunder. By its execution hereof, Purchaser acknowledges that the
Schedules delivered by Seller concurrently with the execution hereof are in form
and substance acceptable to Purchaser. No later than five business days prior
to the scheduled Closing Date, Seller shall amend or supplement the Schedules
with respect to any matter which is necessary or desirable to complete, update
or correct any information contained therein in order to make the statements,
representations and
40
<PAGE>
warranties contained in this Agreement true and correct on the Closing Date or
on a date as close to the Closing Date as is practical.
5.7.2 Special Right to Update Schedules Within Five Business Days of
--------------------------------------------------------------
Execution of this Agreement. The parties hereto acknowledge that the disclosure
- ---------------------------
Schedules delivered hereunder on the date of execution hereof may not be
complete as they have not been fully reviewed by all persons listed on Schedule
III hereof. Not later than five (5) business days following the execution
hereof, Seller shall, to the extent necessary in its sole judgment in order to
make the statements, representations and warranties contained herein true,
correct and complete as of the date of execution hereof, deliver to Purchaser
amendments, supplements or corrections (any such amendment, supplement or
correction, an "Update") to all disclosure Schedules delivered to Purchaser
concurrently with the execution hereof, in which case such updated disclosure
Schedules, together with all disclosure Schedules delivered by Seller
concurrently with the execution hereof, that do not require updating pursuant to
this Subsection 5.7.2, shall constitute the disclosure Schedules delivered by
Seller concurrently with the execution hereof for all purposes of this
Agreement, including determining the accuracy of Seller's representations and
warranties as of the date hereof. Purchaser shall have one (1) business day
following the end of such five (5) business day period to accept or reject any
Update, it being understood and agreed that Purchaser shall have no right to
reject any information contained in any updated disclosure Schedule to the
extent such information was set forth on the disclosure Schedules delivered
concurrently with the execution hereof. Notwithstanding anything to the
contrary contained in this Subsection 5.7.2, Purchaser shall have no right to
reject any Update described in any updated disclosure Schedule to the extent
that such Update, together with all such other Updates, shall not have a
Material Adverse Effect upon the Subsidiaries (as determined by the parties in
good faith within one (1) business day following the end of such 5 business day
period). If such Updates shall result in a Material Adverse Effect upon the
Subsidiaries, or if the parties hereto fail to agree within one (1) business day
following the end of such 5 business day period as to whether such Updates
result in a Material Adverse Effect upon the Subsidiaries, then either party may
terminate this Agreement by giving the other written notice thereof within one
(1) business day after such determination or failure to reach such agreement.
5.7.3 Interpretation. Matters reflected on the Schedules delivered
--------------
hereunder are not necessarily limited to matters required by this Agreement to
be reflected in such Schedules. Any such additional matters are set forth for
informational purposes and do not necessarily include other matters of a similar
nature. A disclosure contained in any of the Schedules delivered hereunder,
which identifies information that clearly and on its face is relevant or
applicable to one or more Schedules to this Agreement, constitutes disclosure
for such other Schedules to the extent this Agreement requires such disclosure.
The exhibits and attachments to the Schedules form an integral part of the
Schedules and are incorporated by reference for all purposes as if set forth
fully therein.
SECTION 5.8. Officers and Directors.
-----------------------
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5.8.1 Obligations of Seller. Contemporaneously with the Closing,
---------------------
Seller shall take such actions as shall be necessary or appropriate to cause (x)
-
any individual who is an employee of Seller and an officer or director of any
Subsidiary to be removed from the employ or Board of Directors (or similar
governing body) of such Subsidiary and (y) each Subsidiary that has issued a
-
power of attorney (or similar instrument) to any employee of such Subsidiary or
of Seller or its Affiliates to terminate such power of attorney (or similar
instrument) as of the Closing Date. As soon as practicable following the
Closing, Seller shall take such actions and file such documents as Seller shall
deem necessary or appropriate for the purpose of giving notice to all
Governmental Authorities of the termination date of such officer's or director's
relationship with the Subsidiaries.
5.8.2 Obligations of Purchaser. Contemporaneously with the Closing,
------------------------
Purchaser shall take such actions as shall be necessary or appropriate to cause
each officer of director so removed by Seller to be replaced by an officer or
director elected by Purchaser. As soon as practicable following the Closing
(but in any event not later than 5 business days following the Closing),
Purchaser shall take such actions and file such documents as shall be necessary
or appropriate for the purpose of giving notice to all Governmental Authorities
of the names of each officer, director and shareholder of the Subsidiaries
(including each officer and director elected by Purchaser as provided herein)
and such other information with respect to the transactions contemplated by this
Agreement as shall be necessary or appropriate, including without limitation all
information required by any Governmental Authority with respect to such
Governmental Authorities "ownership and control" reporting requirements of the
"applicant violator system".
SECTION 5.9. Section 338(h)(10) Election. From and after the Closing,
---------------------------
Seller and Purchaser shall join together in making an election under Section
338(h)(10) of the Code (and any corresponding elections under state, local, or
foreign tax law) (collectively, a "Section 338(h)(10) Election") with respect to
the direct and indirect purchase and sale of the Subsidiaries (other than
Yankeetown, Bentley Coal, Kentucky Prince Mining Company and Skyline Coal)
hereunder. Purchaser shall indemnify and defend Seller for, and hold Seller
harmless from and against, and pay and reimburse Seller for, Purchaser's failure
to join with Seller in making the Section 338(h)(10) Election and take such
actions in connection therewith as shall be necessary to give effect thereto.
SECTION 5.10. Royalty, etc.
------------
5.10.1 Production Royalty on Fee and Leased Land as of the Closing Date.
----------------------------------------------------------------
Subject to the provisions of this Section 5.10, Purchaser shall pay to Seller a
royalty as follows:
(a) Royalty. Commencing June 1, 2002 and thereafter, Purchaser
-------
shall pay to Seller a royalty (the "Royalty") on the production and sale of any
and all coal underlying (x) all real property owned by any Subsidiary as of the
-
Closing Date, whether such real property is owned in fee simple or otherwise
(all such land, the "Fee Land", and all coal underlying the Fee Land, the "Fee
Coal"), and (y) all real property held under lease or sublease by any Subsidiary
-
42
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as of the Closing Date, together with any and all renewals, extensions,
replacements or modifications (prior to the expiration or termination of such
lease or sublease) of such leases after the Closing Date by any Subsidiary (or
assignee or successor thereof) for any reason whatsoever (all such leases, the
"Leases", and all coal underlying such leases, the "Leased Coal"; the Fee Coal
and the Leased Coal, together with the Coal Components, are collectively
referred to herein as the "Coal Reserves").
(i) With respect to the Leases, the Royalty payable
hereunder is not intended to and shall not apply to any subsequent
leasehold estate acquired by a Subsidiary (or assignee or successor
thereof) in any Leased Coal covered by a Lease, after the expiration or
termination of the current leasehold estate created by said Lease.
Notwithstanding the preceding sentence, the Purchaser and the Subsidiaries
will not take any action nor permit any omission with the intent of
allowing the early expiration or termination of the current leasehold
estate in any Leased Coal on all or a portion of a Lease, and thereafter
acquiring a subsequent leasehold estate in some or all of said Leased Coal,
in an effort to eliminate or avoid the obligations to pay Seller the
Royalty.
(ii) In addition to the Royalty payable with respect to
the Fee Coal and Leased Coal, the Royalty payable hereunder is intended to
and shall apply to any gases mixed with the Fee Coal and Leased Coal,
together with all gas, solid or liquid components derived from the Fee Coal
and Leased Coal (all such gases and components are referred to herein
collectively as the "Coal Components").
(b) Covenant Running with the Land. To the maximum extent
------------------------------
permitted by applicable law, the Royalty created by this Subsection 5.10.1 shall
be a covenant running with the Coal Reserves and Fee Land and the Leases
notwithstanding that this Agreement shall not be recorded in the real estate
records offices of any jurisdiction, it being agreed that this Subsection 5.10.1
and the Royalty payable hereunder shall be binding upon the assignees,
transferees, sublessees, trustees, receivers, creditors and all other successors
of Purchaser and its Affiliates, including the Subsidiaries, that may hold now
or in the future any interest in the Coal Reserves.
(c) Effective Date; Term. The Royalty payable hereunder shall
--------------------
be effective on the Closing Date, but shall only be due and owing for the
production of Coal Reserves from and after June 1, 2002. To the maximum extent
permitted by applicable law, the existence of and the obligation to pay the
Royalty hereunder shall be perpetual and shall apply to any all production from
the Coal Reserves from and after June 1, 2002. If the duration of the Royalty
as to all or any portion of the Coal Reserves is void in any jurisdiction for
any reason, based on any legal or equitable theory, including the rule against
perpetuities, then, in that jurisdiction only, the duration of the Royalty shall
be adjusted to the longer of (i) 40 years from the Closing Date and (ii) the
--
maximum duration permissible by applicable laws. In the event of any such
challenge to the duration, it is the intent of Seller and Purchaser that the
duration of the Royalty for the pertinent Coal Reserves subject to the challenge
shall be adjusted, rather than voiding, invalidating or rendering unenforceable
the Royalty, if possible, in order to achieve to the fullest extent possible the
intent of Seller and Purchaser.
43
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(d) Royalty Amount and Adjustment.
-----------------------------
(i) The amount of the Royalty due and owing as of
the Closing Date shall be $0.50 per ton of all Fee Coal and Leased Coal
sold from coal production in the State of Indiana, Illinois, Ohio or
California, and shall be $0.35 per ton of all Fee Coal and Leased Coal sold
from coal production in the State of West Virginia, Kentucky or Tennessee
(such per ton amounts, the "Base Royalty"). Tonnage shall be determined by
use of certified scales, or if certified scales are not utilized or
otherwise available, then by procedures standard in the coal industry and
mutually agreed to by Seller and Purchaser. If Coal Components are produced
and sold, then the Royalty due and owing on all such Coal Components shall
be two percent (2.0%) of the gross proceeds received from the sale thereof.
Gross proceeds shall include any cash consideration, as well as the value
of any non-cash consideration received, without allowance for any
deductions of any kind or character. The two percent (2%) Royalty on Coal
Components shall not be adjusted and shall remain fixed.
(ii) Beginning on June 1, 1999, and on each June 1
thereafter, for so long as any Royalty may be due under this Subsection
5.10.1 on any Fee Coal or Leased Coal, the Royalty shall be adjusted up or
down, but never below the initial Base Royalty set forth in clause (i)
above. This annual adjustment shall be made starting June 1, 1999,
notwithstanding the fact that the Royalty is not payable except on the
production from and sale of Coal Reserves from and after June 1, 2002.
Calculation of the adjustment shall be made during May 1999, and during
each May thereafter, to be effective for all production of Fee Coal and
Leased Coal from and after the immediately following June 1. The Royalty
shall be adjusted by multiplying the Base Royalty by a fraction. The
denominator of the fraction shall always be the Consumer Price Index for
All Urban Consumers (reference base 1982-84=100), unadjusted index, all
items, as first published by the United States Department of Labor, Bureau
of Labor Statistics ("CPI-U") for the month of March 1998. The numerator of
the fraction shall be the CPI-U for March of the year in which the
adjustment is being made.
(iii) In the event of any dispute regarding the
calculation of the adjustment to the Royalty as provided in subclause (ii)
above, Purchaser shall continue to pay the Royalty at the previous rate,
and after the dispute is finally resolved refunds to Purchaser, or
additional Royalty to Seller, as the case may be, shall be paid promptly,
together with interest on the amount due at the Interest Rate, compounded
monthly. In the event the reference base of the CPI-U is rebased, the CPI-U
shall continue to be used by the parties as rebased. If during any May when
the Royalty is being adjusted the CPI-U for the preceding March is no
longer published or issued by a governmental authority, then Seller and
Purchaser shall use such other index as is then generally recognized and
utilized for similar determinations of purchasing power. If there is a
failure to agree on the replacement index, then the parties hereto
authorize a court sitting in equity to select the replacement index, and
the provisions in this subclause (iii) regarding payment of the Royalty
pending resolution of a dispute shall apply.
44
<PAGE>
(e) Royalty Payment on Coal Reserves.
--------------------------------
(i) The Royalty payable on the Fee Coal and Leased
Coal hereunder shall be due on the last business day each calendar month,
commencing with July 31, 2002 for each ton of Fee Coal and Leased Coal
produced and sold from the Fee Land and the Leases in the immediately
preceding calendar month, regardless of when payment by the purchaser of
such coal is actually received by Purchaser, any Subsidiary or any other
Person.
(ii) The Royalty payable on the Coal Components
hereunder shall be due on the last business day each calendar month,
commencing July 31, 2002, for all Coal Components produced and sold in the
preceding calendar month, regardless of when payment by the purchaser of
such Coal Components is actually received by Purchaser, any Subsidiary or
any other Person. If Coal Components are sold to an Affiliate or a related
Person of Purchaser, or sold in any other transaction that results in the
gross proceeds therefore being less than fair market value, then the gross
proceeds therefore shall be deemed to be the fair market value of the Coal
Components. For the purposes of this Subsection, "fair market value" shall
be the same as the price received for similar Coal Components in comparable
sales that are bona fide, arms-length transactions between a willing buyer
and a willing seller, neither of which are under duress to buy or sell.
Comparable sales by Purchaser or its Affiliates in bona fide, arms-length
transactions may be considered, but are not controlling, in determining
fair market value.
(f) Agreement Not to Challenge; Modification. Purchaser will
----------------------------------------
not, and will cause its Affiliates not to, either directly or indirectly
challenge or cause any challenge to the validity, scope or enforceability of all
or any portion of this Section 5.10, to the Royalty created by this Section 5.10
or to the Production Royalty created under the Royalty Deeds, or the other
rights and benefits of Seller and its Affiliates created under this Section
5.10.
(g) Royalty Set Off. It is the intention of the parties hereto
---------------
that the Royalty payable hereunder for each ton of Fee Coal or Leased Coal or
each pertinent quantity of Coal Components shall not be duplicative of the
Production Royalty payable under the Royalty Deeds. In furtherance thereof,
there shall be a credit against the Royalty due and payable by Purchaser under
this Subsection 5.10.1 in the amount of any Production Royalty that shall be
payable (and actually received) under the Royalty Deeds for the same ton of Fee
Coal or Leased Coal or the same pertinent quantity of Coal Components without
giving effect to any Person or court declaring or rendering such Royalty Deeds
invalid or unenforceable.
(h) Royalty Payable Whether any Subsidiary or its Transferee
--------------------------------------------------------
Produces Coal or Coal Components. Subject to the provisions of Subsection
- --------------------------------
5.10.5, Purchaser's obligation to pay the Royalty shall be unconditional and
absolute and shall be payable regardless of whether Coal Reserves shall be
produced by (i) any Subsidiary, (ii) Purchaser or any of its Affiliates, (iii)
-- ---
any Person to whom any Subsidiary shall have sold, conveyed, leased or
45
<PAGE>
otherwise transferred any of the Coal Reserves or (iv) any contract miner of the
--
Coal Reserves, whether such contract miner shall be producing Coal Reserves from
the Leases or Fee Land owned, leased or otherwise held by any Subsidiary or by
any transferee or sublessee of such Subsidiary. In furtherance thereof and for
the avoidance of doubt, Purchaser hereby acknowledges and agrees that no sale,
lease, conveyance, transfer or other disposition of any Lease or Fee Land by any
Subsidiary shall have the effect of releasing Purchaser from its obligations to
pay the Royalty, and that such obligation shall only be discharged in accordance
with the provisions of this Section 5.10; provided however that the parties
hereto agree that no Royalty shall be payable on the production and sale of any
Coal Reserves covered by any Lease if such Lease expires or terminates by its
terms and a leasehold interest is subsequently acquired, as contemplated by
Subsection 5.10.1(a)(i) hereof.
(i) Royalty Not Affected by Invalidity of Royalty Deeds. Neither
---------------------------------------------------
the declaration or claim by any Person or the decision of any court that one or
more Royalty Deeds is invalid or unenforceable, in whole or in part, nor the
pendency of any Proceeding with respect to any such claim, shall render
unenforceable the Royalty payable by Purchaser hereunder, and Purchaser agrees
that it shall continue to be bound by and comply with the provisions of this
Section 5.10 in the event of any such declaration or decision.
5.10.2 Royalty Buy-Out. If, at any time following the Closing Date, (i)
--------------- -
any equity securities of the Purchaser shall have been sold or issued in any
public or private transaction (other than not more than 50% of Purchaser's
equity securities issued to Purchaser's employees pursuant to any stock option
plan or executive compensation plan), (ii) Purchaser shall have sold any shares
--
of equity securities of any directly or indirectly owned Person in which
Purchaser shall own 20% or more of the equity interests (each, a "Controlled
Sub"), (iii) any equity securities of any Controlled Sub shall have been sold or
---
issued in any public or private transaction (other than not more than 50% of
such Controlled Sub's equity securities issued to such Controlled Sub's,
employees pursuant to any stock option plan or executive compensation plan),
(iv) any Controlled Sub shall have sold or otherwise transferred any shares of
--
equity securities of any of its Controlled Subs, (v) Purchaser shall have sold
-
or otherwise transferred all or substantially all of its assets, or shall have
sold or otherwise transferred a significant portion of its assets not in the
ordinary course of business, or (vi) any Controlled Sub shall have sold or
--
otherwise transferred all or substantially all of its assets, or shall have
sold or otherwise transferred a significant portion of its assets not in the
ordinary course of business, and the effect of any one or more of the
transactions described in clauses (i) through (viii), as determined on a
cumulative basis and whether in a series of related or unrelated transactions,
is that Purchaser and its Controlled Subs, taken as a whole, shall have received
aggregate proceeds therefrom (whether in the form of cash or securities
(including those not registered under the Securities Act), including without
limitation any deferred purchase price or earn-out payments) in excess of
$75,000,000, then Purchaser shall give written notice thereto to Seller and
shall promptly pay to Seller, by wire transfer of immediately available funds to
an account designated by Seller in writing, the amount by which (x) $25,000,000
-
exceeds (y) fifty-five percent (55%) of the aggregate of all payments received
-
by Seller and its Affiliates pursuant to the Royalty Deeds, the Royalty payable
pursuant to Subsection 5.10.1 hereof and the Undeveloped Reserves Royalty
46
<PAGE>
payable pursuant to Subsection 5.10.3 hereof (the "Royalty Buy-Out Amount"). As
soon as practicable following receipt of the Royalty Buy-Out Amount, Seller
shall cause the Royalty Deeds to be terminated and shall take such actions as
shall be necessary, including the filing of any and all documents with any
Governmental Authority, to cause the Subsidiaries to be fully released and
discharged from all of their obligations and liabilities under the Royalty
Deeds. It is the intention of the parties hereto that any transaction not
specifically described in clauses (i) through (vi) but which is structured to
enable Purchaser to avoid its royalty buy-out obligation contemplated hereby
shall nonetheless be deemed to be a transaction of the type described in clauses
(i) through (vi) and the proceeds thereof shall be taken into account for the
purpose of determining whether the $75,000,000 threshold described above has
been satisfied. Purchaser shall give Seller notice of the transaction of the
type contemplated by clauses (i) through (vi) hereof which results in the
aggregate proceeds of all such transactions exceeding $25,000,000, $50,000,000
and $75,000,000 promptly after consummation thereof by Purchaser or such
Affiliate, describing in reasonable detail the type of and parties to such
transaction, the closing date thereof and the proceeds received in connection
therewith. Seller shall have the right, upon not less than 3 days' prior written
notice to Purchaser, to inspect the books and records of Purchaser and such
Affiliates during normal business hours for the purpose of determining
Purchaser's compliance with the provisions of this Section 5.10.2 and to make
copies of such books and records, including any agreement, instrument or
certificate relating to any such transaction, as Seller shall reasonably
request.
5.10.3 Minimum Royalty Payment on Undeveloped Reserves; Certain Matters
----------------------------------------------------------------
Relating to the Production Royalty. After the Closing, Purchaser shall pay a
- ----------------------------------
minimum royalty to Seller in respect of the Undeveloped Reserves in accordance
with the following provisions:
(a) Minimum Undeveloped Reserves Royalty. Purchaser acknowledges
------------------------------------
that the Subsidiaries are obligated to pay the Production Royalty to Seller (or
one of its Affiliates) under the Royalty Deeds. In the event that Seller shall
not have received payments pursuant to Section 5.10.1 or the Royalty Deeds
attributable to the Undeveloped Reserves Royalty at least equal to the amounts
set forth below for each of the periods set forth below:
Undeveloped
Reserves Royalty Period
---------------- ------
Between the Closing Date and
$1,000,000 December 31, 2003
Between the Closing Date and
$2,000,000 December 31, 2004
Between the Closing Date and
$3,000,000 December 31, 2005
Between the Closing Date and
$4,000,000 December 31, 2006
47
<PAGE>
then, Purchaser shall pay to Seller a minimum royalty payment (each, a "Minimum
Royalty Payment" and, collectively, the "Minimum Royalty Payments") equal to (i)
-
in the case of the period ending December 31, 2003, the amount by which
$1,000,000 exceeds the Undeveloped Reserves Royalty received by Seller (or its
Affiliate) under the Royalty Deeds for the period commencing from the Closing
Date and ending December 31, 2003, (ii) in the case of the year ending December
--
31, 2004, the amount by which $2,000,000 exceeds the sum of (x) the Undeveloped
-
Reserves Royalty received by Seller (or its Affiliate) for the period commencing
from the Closing Date and ending December 31, 2004 and (y) the amount received
-
by Seller under subclause (i) of this sentence, (iii) in the case of the year
---
ending December 31, 2005, the amount by which $3,000,000 exceeds the sum of (x)
-
the Undeveloped Reserves Royalty received by Seller (or its Affiliate) for the
period commencing from the Closing Date and ending December 31, 2005 and (y) the
-
amount actually paid Seller under subclauses (i) and (ii) of this sentence, and
(iv) in the case of the year ending December 31, 2006, the amount by which
--
$4,000,000 exceeds the sum of (x) the Undeveloped Reserves Royalty received by
-
Seller (or its Affiliate) for the period commencing from the Closing Date and
ending December 31, 2006 and (y) the amount actually paid Seller under
-
subclauses (i), (ii) and (iii) of this sentence. Notwithstanding anything to
the contrary contained in this Subsection 5.10.3, all payments required to be
made to Seller pursuant to this subclause (a) shall be recoupable against future
Undeveloped Reserves Royalty payments. All payments required to be made by
Purchaser to Seller under this subclause (a) shall be paid not later than 30
days following the end of the year for which such payment shall accrue by wire
transfer of immediately available funds to an account designated by Seller in
writing to Purchaser.
(b) Minimum Royalty Payments Payable Whether any Subsidiary or
----------------------------------------------------------
its Transferee Produces Coal. Subject to the provisions of Subsection 5.10.5,
- -----------------------------
Purchaser's obligation to pay the Minimum Royalty Payments shall be
unconditional and absolute and shall be payable regardless of whether coal from
the Undeveloped Reserves shall be produced by (i) any Subsidiary, (ii) Purchaser
- --
or any of its Affiliates, (iii) any Person to whom any Subsidiary shall have
---
sold, conveyed, leased or otherwise transferred any of the Undeveloped Reserves
or (iv) any contract miner of the Undeveloped Reserves, whether such contract
--
miner shall be producing coal from the Undeveloped Reserves owned, leased or
otherwise held by any Subsidiary or by any transferee or sublessee of such
Subsidiary. In furtherance thereof and for the avoidance of doubt, Purchaser
hereby acknowledges and agrees that no sale, lease, conveyance, transfer or
other disposition of any Undeveloped Reserves by any Subsidiary shall have the
effect of releasing Purchaser from its obligations to pay the Minimum Royalty
Payments, and that such obligation shall only be discharged in accordance with
the provisions of this Subsection 5.10.3.
5.10.4 Audit and Inspection of Reserves. Seller and its agents shall
--------------------------------
have the right, upon not less than 3 business days' prior written notice to
Purchaser and at Seller's cost and sole expense, to (i) inspect, audit and copy
-
the books and records of Purchaser and its Affiliates during normal business
hours for the purpose of reviewing tonnage produced from the Coal Reserves
(including the Undeveloped Reserves) and such other matters relating thereto
48
<PAGE>
(including any permits or pending permit applications and financial, land,
engineering, production, sales and other books and records) or to Purchaser's
compliance with the provisions of this Section 5.10 as Seller shall reasonably
request and (ii) have access to the mines, the Coal Reserves (including the
--
Undeveloped Reserves), the Fee Land and land under Lease during normal business
hours to review coal mining activities and operations thereon or thereunder
(including all activities directly and indirectly related to the production,
processing, handling, weighing, sampling, loading or transporting of Coal
Reserves and Coal Components). Purchaser shall give Seller 15 days' advance
written notice of any pending sale, lease, conveyance, transfer or other
disposition of any Coal Reserves (including any Undeveloped Reserves) and shall
use its reasonable best to efforts to cause the transferee or lessee thereof to
agree, pursuant to an agreement in writing delivered to Seller prior to or
contemporaneously with any such sale, lease, conveyance, transfer or other
disposition, to be bound by the provisions of this Subsection 5.10.3. The
rights granted to Seller under this Subsection 5.10.4 shall be in addition to
any rights granted to Seller (or its Affiliate) under the Royalty Deeds.
5.10.5 Termination of Royalty and Minimum Royalty Payments. Purchaser's
---------------------------------------------------
obligations to pay the Royalty and the Minimum Royalty Payments under
Subsections 5.10.1 and 5.10.3 hereof, respectively, shall terminate concurrently
upon the earlier of (i) Purchaser's payment of the Royalty Buy-Out Amount
-
pursuant to Subsection 5.10.2 hereof and (ii) the receipt by Seller of Royalty
--
payments and Minimum Royalty Payments which, in the aggregate, total
$45,454,545.00; provided, however, that all Royalty payments and Minimum Royalty
Payments accruing in accordance with the provisions of Subsections 5.10.1 and
5.10.3 hereof, respectively, prior to the date of payment of the Royalty Buy-Out
Amount shall remain due and owing by Purchaser hereunder.
5.10.6 Royalty and Undeveloped Reserves Royalty Payable During Pendency
----------------------------------------------------------------
of a Dispute. During the pendency of any dispute brought by any Person
- ------------
regarding the validity, scope or enforceability of all or any portion of this
Section 5.10, Purchaser shall continue to pay the Royalty and the Minimum
Royalty Payments to Seller as provided in this Section 5.10 except to the extent
otherwise directed by a court of competent jurisdiction.
SECTION 5.11. Taxes.
-----
5.11.1 Pre-Closing Period.
------------------
(a) Income Taxes. Seller will prepare and file or cause to be
------------
prepared and filed all Tax Returns relating to income Tax for each Subsidiary
required to be filed for any Taxable period that ends on or before the Closing
Date (a "Pre-Closing Tax Period"). Seller will prepare and, if required to do so
by applicable law, deliver to Purchaser for signing and filing any Tax Returns
relating to income Tax of each Subsidiary with respect to any Pre-Closing Tax
Period (including any short or stub period) that have not been filed prior to
the Closing Date. Seller will make all payments shown thereon as owing with
respect to any such Tax Returns; provided, however, that all income Taxes of the
Subsidiaries accruing during the Cash Advance
49
<PAGE>
Period on the pre-tax earnings of the Subsidiaries shall be charged, at the rate
of 25% of such pre-tax earnings, as a Cash Advance.
(b) Other Taxes. Seller will prepare and file or cause to be
-----------
prepared and filed all Other Tax Returns for each Subsidiary required to be
filed during any Pre-Closing Tax Period. Seller will make all payments shown
thereon as owing with respect to any such Other Tax Returns; provided, however,
that:
(i) to the extent of the aggregate accrual on the
-
March Balance Sheet for Other Taxes, all Other Taxes of a Subsidiary
accrued with respect to any Taxable period ending on or before the Balance
Sheet Date (a "Pre-Balance Sheet Date Period") and which are paid by the
Seller shall be charged as a Cash Advance; and
(ii) all Other Taxes of a Subsidiary accrued with
--
respect to a Taxable period other than a Pre-Balance Sheet Date Period and
which are paid by the Seller shall be charged as a Cash Advance;
5.11.2 Post Closing Period.
-------------------
(a) Any Tax Accruing After Closing. Purchaser will prepare and
------------------------------
file or cause to be prepared and filed all Tax Returns for each Subsidiary that
are required to be filed for all Tax periods which begin on or after the Closing
Date. Purchaser will pay or cause to be paid all Taxes required to be paid with
respect to such Tax Return.
(b) Other Taxes Accruing During Pre-Closing Tax Period. Purchaser
--------------------------------------------------
shall prepare and file or cause to be prepared and filed all Other Tax Returns
for each Subsidiary that are required to be filed after the Closing Date with
respect to any Pre-Closing Tax Period. Purchaser will pay or cause to be paid
all Other Taxes required to be paid with respect to such Other Tax Returns;
provided, however, that if Purchaser pays Other Taxes pursuant to this
Subsection 5.11.2(b) with respect to a Pre-Balance Sheet Date Period, then to
the extent the sum of all such Other Taxes so paid by Purchaser exceeds the
aggregate accrual on the March Balance Sheet for Other Taxes, Seller shall
promptly reimburse Purchaser for the amount of such excess.
5.11.3 Straddle Periods. With respect to any Taxable period that would
----------------
otherwise include but not end on the Closing Date, to the extent permissible
pursuant to applicable law, Seller will, and Purchaser will cause each
Subsidiary to, (a) take all steps as are or may be reasonably necessary,
including, without limitation, the filing of elections or returns with
applicable Taxing authorities, to cause such period to end on the Closing Date;
or (b) if clause (a) is inapplicable, to the extent permitted by applicable law,
report the operations of each Subsidiary only for the portion of such period
ending on or immediately before the Closing Date in a combined, consolidated, or
unitary Tax Return filed by Seller, notwithstanding that such Taxable period
does not end on the Closing Date. If clause (b) applies to a Taxable period of
a Subsidiary, the portion of such Taxable period included in such return filed
by Seller will be treated as a Pre-Closing Tax Period described in Subsection
5.11.1; provided, however, that Purchaser shall be responsible for filing all
Tax Returns with respect to all such straddle periods.
50
<PAGE>
If neither clause (a) nor (b) is applicable, then Purchaser and the Subsidiaries
shall prepare and file the appropriate Tax Returns, Purchaser shall pay any
Taxes with respect thereto, and Seller shall reimburse Purchaser for the portion
of any income Taxes shown as due and payable thereon that relate to the portion
of such straddle period that ends on the Closing Date.
5.11.4 Access. In order to assist Seller in the preparation of all Tax
------
Returns that Seller is required to prepare pursuant to this Section 5.11,
Purchaser will prepare and deliver, or cause each Subsidiary to prepare and
deliver, Seller's standard Federal and state tax return data gathering packages
relating to the Subsidiaries not later than 60 days following receipt of such
packages from Seller (or sooner, to the extent practicable). In addition to
providing such packages, Purchaser will promptly provide or cause to be provided
to Seller such other information as Seller may reasonably request (including
access to books, records and personnel) in order for the operations of the
Subsidiaries to be properly reported in such Tax Returns, for the preparation
for any Tax audit or for the prosecution or defense of any claim, suit or
proceeding relating to Taxes.
5.11.5 Refunds and Credits. Purchaser will pay or cause to be paid to
-------------------
Seller all refunds, offsets or credits (a) of Other Taxes for which there shall
not have existed any accrual on the March Balance Sheet (including any interest
thereon) received by Purchaser or any Subsidiary after the Closing Date and
attributable to Taxes paid by Seller or any Subsidiary that accrued with respect
to any Pre-Balance Sheet Date Period and (b) of income Taxes attributable to
income Taxes paid by Seller or any Subsidiary with respect to any Pre-Closing
Tax Period. Seller will pay or cause to be paid to Purchaser all refunds,
offsets or credits of Other Taxes (including any interest thereon) received by
Seller or any Affiliate after the Balance Sheet Date and attributable to Other
Taxes paid by Seller or any Subsidiary on behalf of any Subsidiary that accrued
with respect to a period after the Balance Sheet Date. Such payment will be
made to Seller or Purchaser, as the case may be, within 30 days after receipt of
any such refund from or allowance of such credit by the relevant Taxing
authority.
5.11.6 Seller Group Liabilities. Seller will indemnify, defend and hold
------------------------
Purchaser and the Subsidiaries harmless from and against, and pay and reimburse
each of them for, any and all Liability for any Taxable period as a result of
Treasury Regulation Section 1.1502-6 (or any comparable provision of state or
local Law) for Taxes of any Person, other than the Subsidiaries, which is or has
been affiliated with the Seller to the extent such Taxes are attributable to
periods in which such entity was a member of the Seller Consolidated Group (or
affiliated with Seller under such comparable provision of foreign, state or
local law).
5.11.7 Retention of Tax Returns. Seller and each other member of the
------------------------
Seller Consolidated Group shall retain, and Purchaser shall cause the
Subsidiaries to retain, all Tax Returns, schedules and work papers, and all
material records or other documents relating thereto, until the expiration of
the statute of limitations (including any waivers or extensions thereof) with
respect to the Taxable periods to which such Tax Returns and other documents
relate or until the expiration of any additional period that either Purchaser or
Seller, as the case may be, may reasonably request in writing with respect to
specifically designated material records or
51
<PAGE>
documents. If Seller or any other member of the Seller Consolidated Group, or
Purchaser or any of the Subsidiaries, intends to destroy any material and
relevant records or documents, Seller or Purchaser, as the case may be, shall
provide the other party with advance notice and the opportunity to copy or take
possession of such records or documents. The parties hereto will notify each
other in writing of any waivers or extensions of the applicable statute of
limitations that may affect the period for which the foregoing records or
documents must be retained.
5.11.8 Tax Contests. In the event any adjustment is made or proposed by
------------
a Taxing authority with respect to any Tax subject to this Section 5.11, the
person ultimately responsible for paying any additional Tax (the "Controlling
Party"), shall have the right to contest, litigate, compromise and settle the
Tax Contest with respect thereto. The Controlling Party shall permit the other
party and the counsel of its choice to participate in any such contest,
litigation, compromise or settlement of any adjustment in such Tax Contest. All
costs, including legal and accounting expenses, of any Tax Contest are to be
borne by the party incurring such costs.
SECTION 5.12. Compensation and Benefits of Employees.
--------------------------------------
5.12.1 Continuation of Employment. Purchaser shall cause the
--------------------------
Subsidiaries to (i) continue employment for each Employee to the extent required
-
to do so under the notification provisions of the WARN Act, and (ii) abide by
--
the provisions of the collective bargaining agreements listed on Schedule
3.11.2, including, if applicable, any obligations with respect to successorship
in the ownership of any operations, and with respect to recall to work rights of
any individual, whether or not such individual is an active employee at the time
of Closing
5.12.2 Employee Benefit Matters.
------------------------
(a) Salaried Plan. Effective as of the Closing, the Employees
-------------
shall cease to participate in the Retirement Plan for Salaried Employees of
Cyprus Amax Minerals Company (the "Salaried Plan") and each Subsidiary shall
cease to be a participating employer thereunder. As of the Closing, the
Employees shall be fully vested in their accrued benefits under the Salaried
Plan, determined as of the Closing. Effective as of the Closing, the Employees
shall accrue no additional benefits under the Salaried Plan and shall accumulate
no further years of service thereunder after the Closing. Such accrued benefits
shall be distributed to the Employees in accordance with the terms of the
Salaried Plan and applicable laws and regulations;
(b) Lost Mountain Plan. Effective as of the Closing, the
------------------
Employees shall cease to participate in the Retirement Plan for Hourly Employees
of Cyprus Amax Coal Company - Lost Mountain (the "Lost Mountain Plan") and each
Subsidiary shall cease to be a participating employer thereunder. As of the
Closing, the Employees shall be fully vested in their accrued benefits under the
Lost Mountain Plan, determined as of the Closing. Effective as of the Closing,
the Employees shall accrue no additional benefits under the Lost Mountain Plan
and shall accumulate no further years of service thereunder after the Closing.
Such accrued benefits shall be distributed to the Employees in accordance with
the terms of the Lost Mountain Plan and applicable laws and regulations;
52
<PAGE>
(c) Roaring Creek Plan. Effective as of the Closing, the
------------------
Employees shall cease to participate in the Roaring Creek Coal Company Pension
Plan for Hourly Employees (the "Roaring Creek Plan"), and the Subsidiaries shall
cease to be a participating employer thereunder. As of the Closing, the
Employees shall be fully vested in their accrued benefits under the Roaring
Creek Plan, determined as of the Closing. Effective as of the Closing, the
Employees shall accrue no additional benefits under the Roaring Creek Plan and
shall accumulate no further years of service thereunder after the Closing. Such
accrued benefits shall be distributed to the Employees in accordance with the
terms of the Roaring Creek Plan and applicable laws and regulations;
(d) Savings Plan. Effective as of the Closing, the Employees
------------
shall cease to participate in the Cyprus Amax Minerals Company Savings Plan and
Trust (the "Savings Plan"), and each Subsidiary shall cease to be a
participating employer thereunder. As of the Closing, the Employees shall be
fully vested in their accounts under the Savings Plan. Effective as of the
Closing, no further Employee or employer contributions shall be credited to the
accounts of the Employees, except as may be required by the terms of the Savings
Plan. Account balances shall be distributed to the Employees in accordance with
the terms of the Savings Plan and applicable laws and regulations;
(e) Purchaser's Pension Plans. Effective as of Closing,
-------------------------
Purchaser shall cause the Subsidiaries to establish or become participating
employers in one or more defined benefit pension plans that qualify under
Section 401(a) of the Code. Such plans (the "Purchaser's Pension Plans") shall
cover immediately as of the Closing Date each Employee who was a participant in
either the Lost Mountain Plan, the Roaring Creek Plan or the Salaried Plan
(collectively, "Cyprus Amax's Pension Plans") as in effect immediately prior to
the Closing. The Purchaser's Pension Plans shall credit Employees for purposes
of eligibility and vesting with years of service for employment with Minerals,
the Subsidiaries or any of their Affiliates prior to the Closing as reflected in
the records of Cyprus Amax's Pension Plans;
(f) Purchaser's Savings Plan. Effective as of the Closing,
------------------------
Purchaser shall cause the Subsidiaries to establish or become participating
employers in a savings plan that qualifies under Sections 401(a) and 401(k) of
the Code ("Purchaser's Savings Plan"). Purchaser's Savings Plan shall credit
employees for purposes of eligibility and vesting with years of service for
employment with Minerals, the Subsidiaries or any of their Affiliates as
reflected in the records of the Minerals' Savings Plans and Trust listed on
Schedule 3.11.1;
(g) Purchaser's Welfare Plans. Effective as of the Closing,
-------------------------
Purchaser shall cause the Subsidiaries to establish or become participating
employers in one or more welfare benefit plans (including plans providing
medical, dental, vision care, group term life insurance and a cafeteria plan
under Section 125 of the Code with a health care spending account and a
dependent care spending account) to provide benefits to the Employees
("Purchaser's Welfare Plans"). Employees and their dependents shall commence
participation in Purchaser's Welfare Plans as of the Closing Date. Except as
noted in the sentence immediately following this sentence, all claims for
benefits of Employees which have not been paid in the normal course of
53
<PAGE>
business as of the Closing Date under the Plans that are employee welfare
benefit plans as defined in Section 3(1) of ERISA (the "Seller's Welfare Plans")
shall be assumed by Purchaser's Welfare Plans, and all claims for services or
benefits provided to Employees and their dependents or survivors on and after
the Closing Date shall be the sole responsibility of Purchaser, and Seller shall
have no liability for any such claims and Purchaser shall indemnify, defend and
hold harmless Seller and its Affiliates, and pay and reimburse each of them,
therefor. With respect to the claims for benefits under Seller's Welfare Plans
for legal services, financial counseling, long term disability, dependent life
insurance, and business travel accident insurance, Seller shall indemnify,
defend and hold harmless Purchaser, and pay and reimburse Purchaser, therefor;
(h) Purchaser's Retiree Plans.
-------------------------
(i) Any individual that retires before the Closing
-
Date, provided such individual is otherwise eligible in accordance with the
terms of the Plan, shall be entitled to the benefits afforded under the
then current retiree medical Plan maintained by Minerals or the
Subsidiaries. After the Closing, Purchaser shall not be obligated to
provide any retiree medical plan; provided, however, that retiree health
care benefits under plans maintained pursuant to a collective bargaining
agreement shall be administered, modified or terminated in accordance with
the terms of the collective bargaining agreement and the retiree health
care plan maintained pursuant thereto.
(ii) With respect to former employees of the
--
Subsidiaries not covered by a collective bargaining agreement on the
Closing Date, Purchaser shall indemnify and defend Minerals and its
Affiliates for, and hold each of them harmless from and against, and pay
and reimburse each of them for, all retiree medical benefit obligations and
Liabilities of each such former employee provided such former employee was
employed by such Subsidiary at its operations in the State of Kentucky or
Tennessee, including those former employees and their dependents who are
eligible to receive (or are receiving) retiree medical benefits as of the
Closing. Effective as of the Closing, Purchaser shall cause the
Subsidiaries with retirees and their dependents at current or former
operations in the State of Kentucky or Tennessee to establish or become
participating employers in one or more retiree medical plans that provide
benefits comparable to those medical benefits provided by Minerals to
retirees and their dependents on the day immediately preceding the Closing.
Seller shall indemnify and defend Purchaser and its Affiliates for, and
hold each of them harmless from and against, and pay and reimburse each of
them for, all retiree medical benefit obligations and Liabilities of each
Employee and former employee of each Subsidiary provided (A) such Employee
-
or former employee was employed by such Subsidiary at its operations in the
State of West Virginia, Illinois or Indiana, and (B) such Employee or
-
former employee separated from service with such Subsidiary prior to the
Closing Date. Notwithstanding anything to the contrary contained in this
Subsection 5.12.2(h)(ii), Seller shall have no obligation to indemnify and
pay and reimburse Purchaser or its Affiliates with respect to
54
<PAGE>
any retiree that works (as an employee or contractor) for Purchaser or its
Affiliates at any time after the Closing.
(iii) With respect to Employees and former employees of
---
the Subsidiaries covered by a past or present collective bargaining
agreement, for retiree medical benefit plans maintained under collective
bargaining agreements and under Section 9711 of the Coal Act, Seller shall
indemnify and defend Purchaser and its Affiliates for, and hold each of
them harmless from and against, and pay and reimburse each of them for, all
retiree medical benefit obligations and Liabilities of each former employee
of each Subsidiary who was represented by the United Mine Workers of
America at the time of his retirement provided that such former employee
ceased to be actively employed by Minerals, the Subsidiaries or their
Affiliates prior to the Closing Date. Notwithstanding anything to the
contrary contained in this Subsection 5.12.2(h)(iii), Seller shall have no
obligation to indemnify and pay and reimburse Purchaser or its Affiliates
with respect to any retiree that works (as an employee or contractor) for
Purchaser or its Affiliates at any time after the Closing;
(i) Severance Plans. Effective as of the Closing, Purchaser
---------------
shall cause the Subsidiaries to establish or become participating employers in
one or more severance pay plans comparable to that of Mineral's severance pay
plan as it applies to the Employees on the day immediately preceding the
Closing. Purchaser shall indemnify, defend and hold harmless Seller and its
Affiliates for, and pay and reimburse each of them for, any and all claims made
by any Employee for severance pay and other benefits on account of their
severance after the Closing. Purchaser has provided Seller with a list dated May
19, 1998 containing the names of twenty (20) salaried individuals that Purchaser
does not want to be employed by any Subsidiary on the Closing Date (the "Excess
Staff"). If prior to the Closing Date Seller is not able to place the Excess
Staff in other positions within Seller or its Affiliates, then prior to the
Closing Date the pertinent Subsidiary shall terminate the employment of all such
Excess Staff not so placed. Seller hereby assumes and shall indemnify and defend
Purchaser and its Affiliates (including the Subsidiaries) for, and hold each of
them harmless from, and pay and reimburse each of them for, the payment of any
and all severance benefits to which the Excess Staff are entitled under the
Plans;
(j) Multi-employer Plans. Except as otherwise expressly
--------------------
provided in this Agreement, effective as of the Closing, Purchaser shall cause
the Subsidiaries to comply with and discharge all obligations and Liabilities
under or arising out of the Multi-employer Plans, including any obligations and
Liabilities arising under the labor agreements listed on Schedule 3.11.2;
(k) Workers' Compensation and Black Lung.
------------------------------------
(i) Notwithstanding anything to the contrary under
-
applicable Law or by action of a Governmental Authority, effective as of
the Closing Date and subject to the provisions of this clause (k),
Purchaser hereby assumes and shall indemnify
55
<PAGE>
and defend Seller and its Affiliates for, and hold each of them harmless
from and against, and pay and reimburse each of them for, any and all past,
present or future Liabilities, Losses, premiums, audits, assessments or
other obligations relating to or arising out of Workers' Compensation
Liabilities, Black Lung Liabilities and Black Lung Benefit Obligations in
respect of the Business, including any past, present or future employee of
any Subsidiary.
(ii) Notwithstanding anything to the contrary under
--
applicable Law or by action of a Governmental Authority, and
notwithstanding anything to the contrary contained in subclause (i) of this
clause (k), effective as of the Closing Date and subject to the provisions
of subclause (iii) of this clause (k), Seller hereby assumes direct
liability for and shall indemnify and defend Purchaser and the Subsidiaries
for, and hold each of them harmless from and against, and pay and reimburse
each of them for, all Liabilities, Losses, premiums, audits, assessments or
other obligations relating to or arising out of:
(A) Workers' Compensation Liabilities in respect
-
of (1) any claim filed on or prior to the Closing Date by any employee
-
(including any former employee) of any Subsidiary that was employed by
such Subsidiary at its operations in the State of West Virginia
(unless such Subsidiary subscribed to the West Virginia Workers'
Compensation Fund), Illinois or Indiana or by Amax Coal Company at its
operations in western Kentucky, but only to the extent such claims
relate to the death of such employee or the permanent total disability
of such employee, all of which claims are specifically set forth on
Schedule 5.12.2(k)(ii)(A), and (2) any claim filed by any employee of
-
any Subsidiary (whether such claim is filed on, prior to or after the
Closing Date) to the extent such claim arises out of such employee's
employment at the Castle Gate Mine, Wabash Mine, Delta Mine or
Ayrshire Mine; and
(B) Black Lung Liabilities and Black Lung Benefit
-
Obligations in respect of (1) any claim filed on or prior to the
-
Closing Date by any employee (including any former employee) of any
Subsidiary that was employed by such Subsidiary at its operations in
the State of West Virginia (unless such Subsidiary subscribed to the
West Virginia Workers' Compensation Fund), Illinois or Indiana or by
Amax Coal Company at its operations in western Kentucky, but only to
the extent such claim (x) has been awarded by any Governmental
-
Authority as of the Closing Date and such award is final and non-
appealable or (y) has been awarded by any Governmental Authority as of
-
the Closing Date and is the subject of a pending Proceeding or has not
been awarded by any Governmental Authority as of the Closing Date but
is the subject of a Proceeding, all of which claims are specifically
set forth on Schedule 5.12.2.(k)(ii)(B), and (2) any claim filed by
-
any employee of any Subsidiary (whether such claim is filed on, prior
to or after the Closing Date) to the extent
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<PAGE>
such claim arises out of such employee's employment at the Castle Gate
Mine, Wabash Mine, Delta Mine or Ayrshire Mine.
(iii) The parties hereto agree that Seller shall have
---
no liability for any Black Lung Liabilities and Black Lung Benefit
Obligations under clause (k)(ii)(B)(1) of this Section 5.12.2 for or with
respect to (A) any new claim that is filed after the Closing Date by any
-
employee of any Subsidiary, regardless of whether such employee has
previously filed a claim for which Seller has agreed to indemnify Purchaser
pursuant to such clause (k)(ii)(B)(1), (B) any claim that is filed after
-
the Closing Date by an employee of such Subsidiary if such claim
constitutes the re-filing or resubmission of a claim that has been
previously denied, (C) any claim for the reopening, expansion or
-
modification with respect to any previously awarded claim, or (D) any claim
-
covered by such clause (k)(ii)(B)(1) if the employee as to which such claim
relates shall be employed by any Subsidiary for a period of twelve (12)
months or more following the Closing Date (in which case Seller shall have
no liability for such claim from and after such 12 month period).
(iv) Purchaser, for itself and its Affiliates
--
(including, as of the Closing Date, the Subsidiaries) hereby expressly
acknowledges and agrees that none of them are acquiring, as a result of the
transactions contemplated hereby, and none of the Subsidiaries are
retaining, any past, present or future rights to, interests in or ability
to assert or file claims against or seek reimbursement from the Cyprus Amax
Minerals Company Black Lung Benefits Trust (the "Black Lung Trust") or the
assets thereof, and Purchaser, on behalf of itself and each of them, hereby
irrevocably and unconditionally waives, releases and relinquishes any and
all such rights, interests and claims of every kind or character with
respect to the Black Lung Trust. Purchaser shall not, and shall cause each
of its Affiliates (including, as of the Closing Date, the Subsidiaries) and
its and their respective representatives, agents, receivers, trustees and
creditors not to, make any claim against or seek reimbursement from the
Black Lung Trust or its trustee under any circumstances whatsoever. For the
avoidance of doubt, the parties hereto agree that the Black Lung Trust is
to be an asset owned exclusively and in its entirety by Minerals for the
sole and exclusive benefit of Minerals and its Affiliates (other than the
Subsidiaries). For the purposes of this subclause (iv), all references to
the Black Lung Trust shall be deemed to include any past, present or future
trust agreement, investment agreement or other agreement or instrument
directly or indirectly relating thereto.
(v) In the event that after Closing Seller and
-
Purchaser shall in good faith disagree as to which party is responsible for
a claim with respect to any Workers' Compensation Liabilities or Black Lung
Liabilities and Black Lung Benefit Obligations, Purchaser agrees to assume
the defense of such claim during the pendency of such dispute provided
Seller is in good faith proceeding to resolve such dispute with Purchaser.
Upon a determination that Seller is responsible for such claim, then Seller
shall promptly reimburse Purchaser for all Losses incurred by Purchaser in
connection therewith in accordance with the indemnification provisions
contained in Article VIII
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<PAGE>
hereof, together with simple interest thereon at the Interest Rate computed
based on a 360 day year, actual days elapsed.
(vi) Without limiting the obligations of Purchaser
--
under Sections 5.15 and 5.17 hereof, as of the Closing Date Purchaser shall
have taken all such actions as shall be necessary to obtain and put in
place for the Subsidiaries and their respective operations all required
subscriptions to state funds, insurance, self-insurance, bonding,
guarantees and other coverage of any kind or character required to be
maintained by the Subsidiaries under any applicable Law related to Workers'
Compensation Liabilities or Black Lung Liabilities and Black Lung Benefit
Obligations (collectively, the "Required Coverages"). Except with respect
to Dunn Coal & Dock (which is a subscriber to the West Virginia Workers'
Compensation Fund and as to which Purchaser shall assume the account and
remain in such fund as a successor employer), Purchaser may select in its
sole discretion the method or type of Required Coverage so long as such
Required Coverage accomplishes the intention of the parties under this
Subsection 5.12.2(k). The actions required to be taken as of the Closing
Date by Purchaser under this clause (vi) shall be sufficient, as determined
in the reasonable judgment of Seller, to ensure Seller that no Governmental
Authority shall have the right to impose any Liability or Losses on Seller
or its Affiliates after the Closing for any item or matter assumed by
Purchaser under this Subsection 5.12.2(k).
(vii) Minerals and its Affiliates, together with the
---
Black Lung Trust and any trustee or investment advisor thereof, are
intended third party beneficiaries of this Subsection 5.12.2 and shall have
the right to enforce the benefits intended to be conferred upon each of
them under this Subsection 5.12.2 as though they were parties to this
Agreement.
(l) Purchaser shall indemnify and defend Seller and its
Affiliates for, and hold each of them harmless from and against, and pay and
reimburse each of them for, all Liabilities related to the Subsidiaries'
obligations under the Coal Act (or any subsequently enacted statutory or
regulatory liability or levy for health and death benefits for those individuals
deemed eligible beneficiaries for purposes of the Coal Act) that become due
after the Closing Date, except for those retiree health care obligations of the
Subsidiaries under Section 9711 of the Coal Act specifically retained by Seller
under subclause (h)(iii) of this Subsection 5.12.2. Notwithstanding anything to
the contrary contained in this Subsection 5.12.2(l), during the twelve (12)
month period commencing June 15, 1998 and ending June 14, 1999, and for the
three (3) succeeding twelve (12) month periods (June 15, 1999 - June 14, 2000;
June 15, 2000 - June 14, 2001; June 15, 2001 - June 14, 2002), should the
Subsidiaries pay in the aggregate during any such twelve (12) month period more
than $1,200,000.00 in total premiums pursuant to Sections 9712(d)(1)(A) and (B)
of the Coal Act, then Seller shall promptly reimburse to Purchaser the amount of
the excess over $1,200,000.00. After the twelve (12) month period ending June
15, 2002, this reimbursement obligation of Seller shall cease and no longer be
applicable. Should Purchaser wish to make a claim for reimbursement pursuant to
this
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<PAGE>
Subsection 5.12.2(l), then it shall provide Seller with written notice and
attach supporting documentation to substantiate said premium payments in excess
of $1,200,000.00.
(m) With respect to represented, hourly Employees, their rights
to disability payments, if any, shall be governed by the terms of any collective
bargaining agreements to which the Subsidiaries are now or hereafter a party.
With respect to salaried and non-represented hourly employees that are receiving
short term disability payments as of the Closing Date, Purchaser assumes direct
liability for, and shall indemnify and defend Seller and its Affiliates for, and
hold each of them harmless from and against, and pay and reimburse each of them
for, any and all payments due said Employees, or other Loss relating to and
arising under the terms of the Mineral's short term disability plan currently in
place. With respect to salaried and non-represented hourly employees that (i)
-
are receiving long term disability payments as of the Closing Date, or (ii) are
--
receiving short term disability payments as of the Closing Date, and thereafter
become eligible for long term disability in accordance with the applicable Plan,
Seller assumes direct liability for, and shall indemnify and defend Purchaser
and its Affiliates for, and hold each of them harmless from and against, and pay
and reimburse each of them for, any and all payments due said Employees, or
other Loss relating to or arising under the terms of the Minerals long term
disability plan currently in place.
(n) Except as otherwise provided in Section 5.12 of this
Agreement:
(i) Seller shall indemnify and defend Purchaser and
-
the Subsidiaries for, and hold each of them harmless from and against, and
pay and reimburse each of them for, any and all claims, Liabilities,
Losses, payments, premiums, audits, assessments or other obligations
relating to, or arising out of, the Plans; and
(ii) Purchaser shall indemnify and defend Seller and
--
its Affiliates for, and hold each of them harmless from and against, and
pay and reimburse each of them for, any and all claims, Liabilities,
Losses, payments, premiums, audits, assessments or other obligations
relating to, or arising out of, the pension benefit plans, whether or not
tax-qualified, welfare benefit plans, fringe benefit plans, or any
policies, procedures, plans, funds, programs or payroll practices,
including without limitation, those maintained by Purchaser or its
Affiliates, including the Subsidiaries, on and after the Closing Date.
SECTION 5.13. HSR Act Notification. Unless the notification and report
--------------------
referred to in this sentence shall have been filed prior to the execution
hereof, Seller and Purchaser shall, as promptly as practicable, but in no event
later than ten business days after the date of this Agreement, file with the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") the notification and report
form required for the transactions contemplated hereby pursuant to the HSR Act
and request early termination of the statutory waiting period thereunder.
Seller and Purchaser shall furnish to each other such necessary information and
reasonable assistance as may be requested in connection with the preparation of
any filing required to be made under the HSR Act. Seller and Purchaser shall
use
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<PAGE>
all reasonable efforts to respond as promptly as practicable to all inquiries
received from the FTC or the Antitrust Division for additional information or
documentation and to obtain as promptly as practicable any clearance required
under the HSR Act for the transactions contemplated hereby.
SECTION 5.14. Fees and Expenses. Except as otherwise specifically provided
-----------------
in this Agreement, Seller and Purchaser shall bear their own fees and expenses
incurred in connection with this Agreement and in connection with all
obligations required to be performed by each of them under this Agreement.
SECTION 5.15. Guarantees.
----------
5.15.1 Replacement of Corporate Guarantees; Indemnification after
----------------------------------------------------------
Closing.
- --------
(a) Replacement of Corporate Guarantees. Purchaser shall use
-----------------------------------
commercially reasonable efforts to replace and cause Seller and its Affiliates
(other than the Subsidiaries) to be discharged from, effective as of the Closing
Date, all corporate guarantees and indemnities issued by Seller or any of its
Affiliates (other than the Subsidiaries) on behalf of any Subsidiary including,
without limitation, all corporate guarantees and indemnities set forth on
Schedule 5.15.1 (including any supplement to Schedule 5.15.1 on account of any
corporate guarantee or indemnity issued by Seller or its Affiliates (other than
the Subsidiaries) and on behalf of any Subsidiary during the Interim Period).
With respect to all such corporate guarantees and indemnities listed on Schedule
5.15.1 which are not, as of the Closing Date, replaced with corporate guarantees
or indemnities of Purchaser, Purchaser shall continue to use its commercially
reasonable efforts to replace and cause Seller and its Affiliates (other than
the Subsidiaries) to be discharged from their respective Liabilities under such
guarantees and indemnities; provided, however, that Purchaser shall have no
obligation to replace any such guarantee or indemnity (x) to the extent that
-
acceptance of such replacement guarantee or indemnity by the beneficiary thereof
shall be conditioned upon the amendment of the underlying obligation to which
such guarantee or indemnity relates or waiver by any Subsidiary of any rights in
respect of such underlying obligation and (y) as a result of such amendment or
-
waiver such underlying obligation would contain terms and conditions that are
less favorable in any material respect than the terms and conditions of such
underlying obligation as in existence on the Closing Date.
(b) Indemnification After Closing. Purchaser shall
-----------------------------
indemnify and defend Seller and its Affiliates (other than the Subsidiaries) for
and hold Seller and such Affiliates harmless from and against, and pay and
reimburse Seller and such Affiliates for, any and all Liabilities of Seller or
such Affiliates, as the case may be, in respect of any corporate guarantee or
indemnity issued by Seller or such Affiliates on behalf of any Subsidiary
(including any such corporate guarantee or indemnity set forth on Schedule
5.15.1 (or any supplement thereof)) (i) arising out of a payment by Seller or
-
such Affiliate under such guarantee or indemnity after the Closing Date or (ii)
--
any Proceeding arising out of or relating to such guarantee or indemnity;
provided, however, that neither Seller nor its Affiliates shall be entitled to
indemnification under
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<PAGE>
this clause (b) to the extent the Liabilities in respect of such corporate
guarantee or indemnity shall arise out of or relate to the Excluded Assets or
Excluded Liabilities or to an Unrelated Business. Any payment required to be
made by Purchaser under this clause (b) shall be made within ten (10) business
days of Purchaser's receipt of written notice from Seller or such Affiliate
describing in reasonable detail the amount then due.
5.15.2 Reimbursement During Interim Period. In addition to Purchaser's
-----------------------------------
obligations under Subsection 5.15.1, effective as of the Closing Date, Purchaser
shall indemnify and defend Seller and its Affiliates (other than the
Subsidiaries) for and hold Seller and such Affiliates harmless from and against,
and pay and reimburse Seller and such Affiliates for, any and all Liabilities of
Seller or such Affiliates, as the case may be, arising out of (i) any payment
-
made by Seller and such Affiliates during the Interim Period under any corporate
guarantee or indemnity issued by Seller or such Affiliates on behalf of any
Subsidiary, including without limitation any such corporate guarantee or
indemnity set forth on Schedule 5.15.1 (including any supplement to Schedule
5.15.1 on account of any corporate guarantee or indemnity issued by Seller or
such Affiliates and on behalf of any Subsidiary during the Interim Period) and
(ii) any Proceeding relating to any such corporate guarantee or indemnity;
--
provided, however, that neither Seller nor its Affiliates shall be entitled to
indemnification under this clause (c) to the extent the Liabilities in respect
of such corporate guarantee or indemnity shall arise out of or relate to the
Excluded Assets or Excluded Liabilities or to an Unrelated Business. Seller
shall deliver written notice to Purchaser at least two (2) business days prior
to the Closing (except with respect to any payment made by Seller and such
Affiliates within two (2) business days of Closing, in which case Seller shall
deliver written notice thereof as soon as practicable prior to Closing)
describing in reasonable detail the amounts due Seller and such Affiliates under
this Subsection 5.15.2 as of the Closing Date, and Purchaser shall pay such
amount to Seller at Closing, to an account designated by Seller in writing prior
to the Closing, by wire transfer of immediately available funds.
5.15.3 Third Party Beneficiaries. All Affiliates of Seller that are
-------------------------
liable under any corporate guarantee or indemnity obligation referenced in this
Section 5.15 (other than the Subsidiaries) are intended third party
beneficiaries of this Section 5.15 and shall have the right to enforce the
benefits intended to be conferred upon each of them under this Section 5.15 as
though they were parties to this Agreement.
SECTION 5.16. Name Changes. No later than ten (10) business days following
------------
the Closing Date, Purchaser shall amend the certificate of incorporation or
other organization document of each Subsidiary to remove the word "Cyprus Amax,"
"Cyprus" or "Amax" or any similarity or reference thereto. The new corporate or
partnership name of the Subsidiaries adopted by Purchaser shall not contain any
word or words confusingly similar to "Cyprus Amax", "Cyprus" or "Amax." No
later than 90 days following the Closing Date, Purchaser shall remove the marks
and names "Cyprus Amax", "Cyprus" or "Amax" and the logo "C" with two lions
appearing therein and any other words, names or symbols proprietary to Seller,
from all tangible and intangible properties, real and personal, acquired by
Purchaser hereunder.
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SECTION 5.17. Surety Bonds.
------------
5.17.1 Replacement of Surety Bonds; Indemnification after Closing;
-----------------------------------------------------------
Collateral; Fee; Refund of Premiums.
- -----------------------------------
(a) Replacement of Surety Bonds. At the Closing, Purchaser shall post
---------------------------
a replacement letter of credit or surety bond in respect of each letter of
credit and surety bond issued for the account of Minerals or any of its
Affiliates (including the Subsidiaries) on behalf of any Subsidiary and listed
on Schedule 5.17.1 (including any supplement to Schedule 5.17.1 on account of
any letter of credit or surety bond issued for the account of Minerals or any of
its Affiliates (including the Subsidiaries) on behalf of any Subsidiary during
the Interim Period (collectively, the "Scheduled Bonds").
(b) Indemnification after Closing; Collateral. Purchaser shall
-----------------------------------------
indemnify and defend Minerals and its Affiliates for and hold Minerals and its
Affiliates harmless from and against, and pay and reimburse Minerals and its
Affiliates for, any and all Liabilities of Minerals and its Affiliates, as the
case may be, in respect of all letters of credit and surety bonds issued for the
account of Minerals and its Affiliates and on behalf of any Subsidiary (i)
-
arising out of a draw made by any beneficiary of such letter of credit or surety
bond after the Closing Date or (ii) any Proceeding arising out of or relating to
--
such letter of credit or surety bond; provided, however, that neither Minerals
nor its Affiliates shall be entitled to indemnification under this Subsection
5.17.1 to the extent the Liabilities in respect of such letter of credit or
surety bond shall arise out of or relate to the Excluded Assets or Excluded
Liabilities or to an Unrelated Business. Any payment required to be made by
Purchaser under this clause (b) shall be made within ten (10) business days of
Purchaser's receipt of written notice from Minerals or such Affiliate describing
in reasonable detail the amount then due. On the Closing Date, Purchaser shall
deliver to Seller a surety bond, substantially in the form of Exhibit E hereto
and from a surety or financial institution reasonably acceptable to Seller, as
collateral security for Purchaser's obligations under this clause (b) (the
"Purchaser Surety Bond"). The Purchaser Surety Bond shall be issued initially
in the face amount equal to $15,000,000 and shall permit Seller to make draws
thereunder from time to time. In the event that Purchaser shall have failed from
time to time to make any payment required to be made by Purchaser to Minerals or
its Affiliates, as the case may be, under this clause (b), Purchaser hereby
irrevocably authorizes Seller, on behalf of itself or Minerals or its
Affiliates, as the case may be, to draw down under the Purchaser Surety Bond in
the amount then due Minerals or its Affiliates, as the case may be, pursuant to
this clause (b). Not earlier than sixty (60) days following the Closing, and
thereafter upon the expiration of each calendar month, Purchaser shall have the
right, at its option, to replace the Purchaser Surety Bond delivered at Closing
provided that (1) the replacement surety bond shall be issued by a surety or
-
financial institution reasonably acceptable to Seller and shall contain terms
and conditions (except as to amount) identical in all material respects to the
Purchaser Surety Bond then in effect, and (2) the replacement surety bond shall
-
be issued in a face amount equal to not less than ten percent (10%) of the
aggregate amount of all then outstanding Scheduled Bonds (it being agreed that
in no event shall such replacement surety bond be issued in a face amount equal
to less than $2,000,000), in which case such replacement
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<PAGE>
surety bond shall be deemed to be the "Purchaser Surety Bond" for all purposes
of this Section 5.17. Upon the delivery to Seller of such replacement surety
bond, Seller shall return to Purchaser for cancellation the Purchaser Surety
Bond then being replaced. A Scheduled Bond shall be deemed to be outstanding
until such time as the beneficiary thereof has provided Seller with written
documentation sufficient to cause the surety or financial institution to fully
and completely release and discharge Minerals or its Affiliate (or any
Subsidiary, if applicable) from the Scheduled Bond, and the Scheduled Bond has
been returned to Seller.
(c) Fee. With respect to all Scheduled Bonds that are not replaced by
---
Purchaser within one hundred eighty (180) days following the Closing Date and
resulting in a full and complete release of Mineral's and its Affiliates
liabilities with respect thereto, Purchaser shall pay to Seller a monthly fee on
the average daily maximum contingent amount outstanding under such Scheduled
Bonds during the applicable month (the "Average Contingent Amount"). The fee
payable by Purchaser hereunder shall equal one-half of one percent (0.5%) of the
Average Contingent Amount. Any fee payable by Purchaser pursuant to this clause
(c) shall become due and payable on the first day following the month (or
portion thereof) in which such fee shall have accrued and shall be computed on a
per annum basis based on a 360 days year, actual days elapsed.
5.17.2 Reimbursement During Interim Period. In addition to Purchaser's
-----------------------------------
obligations under Subsection 5.17.1, effective as of the Closing Date, Purchaser
shall indemnify and defend Minerals and its Affiliates for and hold Minerals and
its Affiliates harmless from and against, and pay and reimburse Minerals and its
Affiliates for, any and all Liabilities of Minerals or its Affiliates
(including, prior to the Closing, the Subsidiaries) arising out of (i) any draw
-
made by any beneficiary during the Interim Period under any letter of credit or
surety bond issued for the account of Minerals or its Affiliates (including the
Subsidiaries) and on behalf of any Subsidiary (including without limitation any
letter of credit or surety bond listed on Schedule 5.17.1 (including any
supplement to Schedule 5.17.1 on account of any letter of credit or surety bond
issued for the account of Minerals or its Affiliates (including, prior to the
Closing, the Subsidiaries) and on behalf of any Subsidiary during the Interim
Period) and (ii) any Proceeding relating to or arising out of such letter of
--
credit or surety bond; provided, however, that neither Minerals nor its
Affiliates shall be entitled to indemnification under this Subsection 5.17.2 to
the extent the Liabilities in respect of such letter of credit or surety bond
shall arise out of or relate to the Excluded Assets or Excluded Liabilities or
to an Unrelated Business. Seller shall deliver written notice to Purchaser at
least ten (10) business days prior to the Closing (except with respect to any
draw that shall have occurred within ten (10) business days of Closing, in which
case Seller shall deliver written notice thereof as soon as practicable prior to
Closing) describing in reasonable detail the amounts due Minerals and its
Affiliates under this Subsection 5.17.2 as of the Closing Date, and Purchaser
shall pay such amount to Seller (on behalf of Minerals and its Affiliates) at
Closing, to an account designated by Seller in writing prior to the Closing, by
wire transfer of immediately available funds.
5.17.3 Refund of Premiums. All funds in respect of premiums that are
------------------
refunded by the issuer of any letter of credit or surety bond on account of the
replacement by Purchaser of
63
<PAGE>
such letter of credit or surety bond as provided by clause (a) of Subsection
5.17.1 shall be for the account of Seller and its Affiliates. Purchaser shall
pay over or cause any Subsidiary to pay over to Seller any such refunds received
by any Subsidiary after the Closing promptly upon receipt of such refunds by
such Subsidiary.
5.17.4 Cooperation for Replacement of Bonds.
------------------------------------
(a) Following the Closing, the parties hereto shall cooperate and cause
their respective Affiliates to cooperate for the purpose of giving effect to the
replacement of the letters of credit and surety bonds contemplated by this
Section 5.17 and the full and complete release of Minerals' and its Affiliates'
liabilities with respect thereto. In furtherance thereof, each party hereto
shall (i) prepare and submit such documents and applications and provide such
-
information (including financial information) to financial institutions and
insurance companies as shall be necessary or appropriate, and (ii) cooperate
--
with such reasonable requests of the beneficiaries of all letters of credit and
surety bonds required to be replaced hereunder.
(b) The parties hereto acknowledge that some of the Scheduled Bonds
requiring replacement by Purchaser under Subsection 5.17.1 secure both
liabilities of the Subsidiaries that are not retained by Seller and, in
addition, liabilities in respect of the Excluded Assets and Excluded Liabilities
or other Liabilities retained by Seller under this Agreement, including certain
Workers' Compensation Liabilities, Black Lung Liabilities and Black Lung Benefit
Obligations retained by Seller under Subsection 5.12.2(k) hereof. In such
event, the parties hereto further acknowledge that Minerals and its Affiliates
may not be released from their liability in respect of such Scheduled Bonds
until both Purchaser and Seller or their respective Affiliates deliver such
credit support instruments as are, in the aggregate, sufficient in the judgment
of the beneficiaries of such Scheduled Bonds to collateralize the obligations
secured thereby. Without limiting the generality of clause (a) of this
Subsection 5.17.4, Purchaser and Seller hereby agree to cooperate with each
other for the purpose of causing the replacement of such Scheduled Bonds
including, in the case of Seller, causing to be issued surety bonds or other
credit support instruments in respect of the Excluded Assets and Excluded
Liabilities or other Liabilities retained by Seller under this Agreement,
including certain Workers' Compensation Liabilities, Black Lung Liabilities and
Black Lung Benefit Obligations retained by Seller under Subsection 5.12.2(k)
hereof, in form and substance reasonably acceptable to the beneficiaries of such
Scheduled Bonds, in connection Purchaser's obligations to post replacement
surety bonds and letters of credit pursuant to Subsection 5.17.1(a) hereof.
5.17.5 Third Party Beneficiaries. Minerals and all other Affiliates of
-------------------------
Seller are intended third party beneficiaries of this Section 5.17 and shall
have the right to enforce the benefits intended to be conferred upon each of
them under this Section 5.17 as though they were parties to this Agreement.
SECTION 5.18. Special Provisions Relating to Financial Matters.
------------------------------------------------
5.18.1 Close of Books and Records as of Balance Sheet Date. The parties
---------------------------------------------------
hereto agree that the Business shall be operated and conducted for the account
of Purchaser from
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and after April 1, 1998. In furtherance thereof, Seller shall establish separate
books and records for each Subsidiary and cause such books and records to be
maintained, commencing April 1, 1998 and ending on the Closing Date (the "Cash
Advance Period"), in accordance with Seller's Accounting Principles. The parties
hereto agree that all cash and cash equivalents of the Subsidiaries (other than
Yankeetown) as at the Balance Sheet Date shall be for the account of and shall
be retained by Seller. Purchaser and Seller hereby agree that Seller shall have
no Liability to Purchaser in connection with the transactions contemplated
hereby arising out of or resulting from Seller's management of the operations
and business of the Subsidiaries during the Cash Advance Period except to the
extent of Seller's willful misconduct, and Purchaser hereby releases Seller from
any Liability for such management and agrees that it shall not institute any
Proceeding against Seller on account of such management of such operations and
business.
5.18.2 Financial Reports. Within 25 days following the end of each
-----------------
monthly accounting period beginning with the monthly accounting period ending
April 30, 1998 (it being agreed that, with respect to any such monthly
accounting period ending prior to the execution of this Agreement, Seller shall
deliver to Purchaser the statements required by this Subsection 5.18.2 for such
month or months contemporaneously with the execution hereof provided such
monthly accounting period shall have ended 25 days prior to the execution
hereof), Seller shall deliver to Purchaser an unaudited financial report of the
Subsidiaries on a consolidated basis (excluding the Excluded Assets and Excluded
Liabilities), which report shall be prepared in accordance with Seller's
Accounting Principles and which shall include (i) a balance sheet as of the last
-
day of such monthly accounting period, (ii) an income statement for such monthly
--
accounting period and (iii) a statement showing the Net Cash Advance Balance for
---
such monthly accounting period.
5.18.3 Cash Advances. During the Cash Advance Period, all working
-------------
capital requirements of the Business shall be advanced by Seller or Minerals to
the Subsidiaries, as applicable, in the form of a cash advance (each, a "Cash
Advance" and, collectively, the "Cash Advances"). Seller shall continue to
manage the working capital requirements of the Subsidiaries and the cash
balances maintained in Seller's, Minerals' and the Subsidiaries' bank accounts
in a manner consistent with Seller's past treasury practices and procedures. In
furtherance thereof, all receivables and other amounts received by the
Subsidiaries or by Seller or by Minerals on behalf of the Subsidiaries
(including cash deposited into any lockbox maintained by or on behalf of any
Subsidiary) shall be swept into Seller's main disbursement account and may be
used by Seller or Minerals to satisfy and discharge obligations of the
Subsidiaries, including the funding of any Cash Advance, as well as any
obligation of the Seller or applied in any other manner consistent with Seller's
past practices. The books and records of Seller or Minerals, as the case may
be, shall reflect the amount of all receivables received by Seller, Minerals or
the Subsidiaries during the Cash Advance Period and the amount of all Cash
Advances made by Seller or Minerals to or on behalf of the Subsidiaries during
the Cash Advance Period, and the net amount thereof (exclusive of any (i)
-
receivable to which Seller or its Affiliates (other than the Subsidiaries) shall
be entitled to retain in accordance with the provisions of this Agreement
(including all receivables in respect of the Excluded Assets and
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Excluded Liabilities) and (ii) Cash Advance in respect of any Liability
--
attributable to the Excluded Assets and Excluded Liabilities) shall constitute
the "Net Cash Advance Balance."
5.18.4 Certain Services Following the Balance Sheet Date. During the
-------------------------------------------------
Cash Advance Period, Seller and its Affiliates (other than the Subsidiaries)
shall continue to provide certain administrative and other support services to
and on behalf of the Subsidiaries consistent with past practices, including
services in respect of treasury management, accounting, maintenance and
administrative computer applications, insurance coverage and risk management,
organizational services and benefit plan administration, land administration,
capital and materials procurement, environmental and legal. All charges for
such services shall be allocated to the Subsidiaries as Cash Advances in a
manner consistent with Seller's past practices and recorded on the books and
records of Seller. Except as to the extent any such services are provided by
Seller to Purchaser after Closing pursuant to the Transition Services Agreement,
Seller and such Affiliates shall cease to provide such services to the
Subsidiaries following the Closing.
5.18.5 Cash at Closing. Contemporaneously with the Closing, Seller
---------------
shall deposit, by wire transfer of immediately available funds, an amount of
cash equal to $10,000,000.00 (such amount, the "Closing Deposit") into a bank
account designated in writing by Purchaser to Seller at least 2 business days
prior to the Closing. The Closing Deposit shall be recorded on the books and
records of Seller as a Cash Advance.
5.18.6 Post Closing Statement. Not later than 25 days following the
----------------------
Closing, Seller shall prepare and deliver to Purchaser an unaudited financial
report (the "Closing Statement") as of the Closing Date of the Subsidiaries on a
consolidated basis (excluding the Excluded Assets and Excluded Liabilities),
which report shall be prepared in accordance with Seller's Accounting Principles
and which shall include (i) a balance sheet, (ii) an income statement, and (iii)
- -- ---
a statement showing the Net Cash Advance Balance. The income statement referred
to in clause (ii) of this Subsection 5.18.6 shall be net of, and shall contain a
line item showing, the Federal and state income Taxes accruing on the pre-tax
earnings of the Subsidiaries during the Cash Advance Period, which Taxes shall
be equal to the product of 25% multiplied by the amount of such pre-tax
earnings. The aggregate amount of such income Tax accrual shall be charged to
the Subsidiaries as a Cash Advance and reflected on the books and records of
Seller. At the request of Seller, Purchaser shall cause the Subsidiaries at
their expense to assist in the preparation of the Closing Statement and, in
furtherance thereof, to perform such accounting closing functions and procedures
as shall be requested by Seller.
5.18.7 Cash Advance Adjustment, etc.
----------------------------
(a) Determination of Net Cash Advance Balance as at the Closing.
-----------------------------------------------------------
Purchaser shall have 30 days following receipt of the Closing Statement to
conduct a review of the Cash Advance statement contained therein. Seller's
determination of the Net Cash Advance Balance shall be conclusive and binding on
the parties hereto, absent manifest error (it being understood and agreed that
no Cash Advance in respect of the Excluded Assets or Excluded Liabilities or
relating to an Unrelated Business shall be included on the Closing Statement).
If
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Purchaser fails to raise an objection to the Net Cash Advance Balance during
such 30 days period, Purchaser shall be deemed to have accepted the Net Cash
Advance Balance as set forth in the Closing Statement. Any objections to the
Net Cash Advance Balance raised by Purchaser shall be resolved in good faith by
the parties hereto within 15 days of receipt of any timely objection. Purchaser
shall have no right to object to the methods, procedures and principles used by
Seller in determining or recording the Cash Advances. If Seller and Purchaser
cannot resolve Purchaser's objections within such 15 days period, Seller and
Purchaser shall, within 10 days following the expiration of such 15 days period,
select a mutually acceptable accounting firm to resolve such objections. If
Seller and Purchaser are unable to agree as to the selection of such accounting
firm before the expiration of such 10 days period, the parties hereto
irrevocably designate Deloitte & Touche as the accounting firm. The selected
accounting firm shall be retained jointly by Seller and Purchaser on the
condition, among other things, that it shall resolve Purchaser's objections and
provide a revised Closing Statement to Seller and Purchaser within 30 days after
its selection. The Closing Statement, as accepted by Purchaser without
objection or as revised by mutual agreement of the parties hereto or by the
accounting firm (in any such case, the "Final Closing Statement"), shall be
conclusive and binding on the parties hereto. Seller and Purchaser shall each
pay one-half of the fees and expenses of any accounting firm retained pursuant
to this Subsection 5.18.7. Purchaser shall make the books, records and
financial staff of the Subsidiaries available to Seller, its accountants and
other representatives at reasonable time and upon reasonable request, in
connection with the preparation of the Closing Statement. Each of Seller and
Purchaser shall make their books, records and financial staff, and the books and
records of the Subsidiaries, available to any accounting firm engaged by them
pursuant to this Subsection 5.18.7 for the purpose of resolving any of
Purchaser's objections to the Closing Statement.
(b) Adjustment. Promptly following the determination of the Net Cash
----------
Advance Balance, (i) if the Net Cash Advance Balance appearing on the Final
Closing Statement reflects an amount owing from Seller to the Subsidiaries, the
amount thereof shall be paid by Seller to Purchaser, and (ii) if the Net Cash
--
Advance Balance appearing on the Final Closing Statement reflects an amount
owing from the Subsidiaries to Seller, the amount thereof (the "Deficit Amount")
shall be paid by Purchaser to Seller; provided that, solely with respect to the
Deficit Amount payable by Purchaser to Seller, (x) the Deficit Amount shall be
-
paid by Purchaser in cash to the extent of the aggregate amount of all cash and
cash equivalents collected by the Subsidiaries from and after the Closing up to
the date of payment, and (y) to the extent the Subsidiaries shall not have
-
collected an amount of cash and cash equivalents equal to the Deficit Amount,
then, with respect to the balance thereof, Purchaser shall cause to be
transferred and assigned to Seller, pursuant to documentation reasonably
acceptable to Seller, account receivables from trade creditors of such
Subsidiaries reasonably acceptable to Seller in an amount at least equal to such
balance. Purchaser shall, and shall cause such Subsidiaries to, cooperate with
Seller and take such reasonable actions as shall be necessary or appropriate to
vest in Seller all right, title and interest in and to the account receivables
assigned to Seller pursuant to this Subsection 5.18.7 (and, in the event any
such account receivable may not be assigned and transferred to Seller but for
the consent of the debtor thereunder, which consent shall not have been
obtained, Purchaser shall cooperate with Seller and take such actions
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reasonable with respect to such account receivable in the name of such
Subsidiary but for the benefit of Seller so as to provide Seller with the
economic benefits under such account receivable). Seller shall promptly return
to Purchaser the proceeds of such account receivables following receipt thereof
to the extent such proceeds exceed the balance owing to Seller hereunder.
(c) Immediately Available Funds. Any payment required to be made by
---------------------------
Purchaser or Seller pursuant to Subsection 5.18.7(b) shall be made by wire
transfer of immediately available funds to an account designated in writing by
Purchaser or Seller, as the case may be, to the other party hereto.
5.18.8 Assistance in Preparation of Exchange Act Filings. In order to
-------------------------------------------------
assist Seller in the preparation of all documents and reports required to be
filed by Seller or its Affiliates (other than the Subsidiaries) under the
Securities Act or Exchange Act with respect to any quarter ending on or prior to
the Closing Date or any quarter that would include but not end on the Closing
Date, Purchaser shall cause the Subsidiaries to prepare, at Seller's reasonable
expense, Seller's "standard C - packages" and other related data gathering
packages and to deliver such packages to Seller within the time frames required
by Seller in accordance with past practices. Purchaser will promptly provide or
cause to be provided to Seller, at Seller's reasonable expense, such other
information as Seller may request (including access to books, records and
personnel) in order for the operations of the Subsidiaries to be properly
reported in such filings. Neither Purchaser nor any of the Subsidiaries shall
have any liability for the failure of any of the Subsidiaries to provide the
information or meet the time frames set forth in Subsection 5.18.8 provided
Purchaser or such Subsidiary is diligently proceeding to complete such packages.
5.18.9 Intercompany Balances as at the Closing. At or prior to the
---------------------------------------
Closing, Seller shall cause all intercompany balances as at the Closing Date and
existing between any Subsidiary and any of its Affiliates, including without
limitation intercompany balances in respect of any promissory note issued by any
Subsidiary to any of its Affiliates, to be settled such that the net amount
thereof shall be equal to $0.00.
SECTION 5.19. Insurance. The parties hereto agree that no insurance policy
---------
(other than performance and surety bonds, which are specifically governed by
Section 5.17 hereof) maintained by Seller and its Affiliates (other than the
Subsidiaries) with respect to the Business shall cover any of the Subsidiaries
or their respective assets, properties, operations and liabilities after the
Closing Date, and all benefits and coverage under each such insurance policy
shall terminate following the Closing Date. Following the Closing Date,
Purchaser shall be responsible for obtaining and maintaining any and all
insurance policies and coverages in respect of the Subsidiaries and their
respective assets, properties, operations and liabilities. The parties hereto
further agree that any and all refunds of premiums paid by Seller and its
Affiliates prior to the Closing Date under any insurance maintained by Seller
and its Affiliates on behalf of any Subsidiary shall be for the account of and
retained by Seller.
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SECTION 5.20. Liabilities of the Subsidiaries Generally. Purchaser hereby
-----------------------------------------
acknowledges and agrees that, except for the Distributed Liabilities, the
Assigned Liabilities, and such other Liabilities of the Subsidiaries that are
specifically assumed by Seller hereunder or as to which Seller has agreed to
indemnify Purchaser for, Seller shall have no obligation or liability for or
with respect to the Liabilities of the Subsidiaries and the Business, whether
accruing prior to, on or after the Closing, and Purchaser shall indemnify and
defend Seller for and hold Seller harmless from and against, and pay and
reimburse Seller for, all such Liabilities of the Subsidiaries and the Business
to the extent Seller or any of its Affiliates shall become liable therefor or
any party shall have alleged that Seller or any of its Affiliates is liable
therefor.
SECTION 5.21. Audit of Financial Statements. Prior to the Closing,
-----------------------------
Purchaser shall have engaged Price Waterhouse LLP to conduct an audit of certain
historical financial statements of the Subsidiaries, and such audit shall have
been completed prior to the Closing. Copies of such audits (and any draft
thereof) shall be delivered to Seller promptly following the completion of any
thereof. Seller shall make available to Purchaser and Price Waterhouse LLP such
books and records and cooperate with Purchaser as shall be reasonably requested
by Purchaser in connection with such audit. The costs and expenses of
conducting such audit shall be borne by Purchaser and Seller as mutually agreed
in writing; provided, however, that Seller shall have no liability for the costs
and expenses incurred by Price Waterhouse LLP in connection with conducting such
audit.
SECTION 5.22. Equipment Surety Bond. At the Closing, Purchaser shall
---------------------
deliver or cause to be delivered to Seller (or to such Affiliates of Seller that
are a party to the Equipment Sublease and the Equipment Purchase Agreements) a
surety bond, substantially in the form of Exhibit F hereto and from a surety or
financial institution reasonably acceptable to Seller, as collateral security
for Purchaser's or the Subsidiaries', as the case may be, obligations under the
Equipment Sublease and the Equipment Sale Agreements (the "Equipment Surety
Bond"). The Equipment Surety Bond shall be issued in the face amount equal to
$3,500,000 and shall permit Seller (or such Affiliates) to make draws thereunder
from time to time.
SECTION 5.23. Undertaking Not to Interfere With Mine Plans. Seller, for
--------------------------------------------
itself and its Affiliates, agrees that it will not, directly or indirectly, for
a period of 3 years after the Closing Date (i) acquire or enter into
-
negotiations for the acquisition of any interest in any land within a linear
distance of ten (10) miles from the boundary of any SMCRA Permit or application
for SMCRA Permit held or applied for by any Subsidiary as of the Closing Date
(the "Non-Interference Area"), and (ii) solicit Hoosier Rural Electric
--
Cooperative, Inc. ("Hoosier") to reopen that certain Coal Supply Agreement
between Amax Coal Sales Company and Hoosier dated March 28, 1991, as amended;
provided, however, that neither Seller nor its Affiliates shall be prohibited
from responding to any request for proposals issued or submitted by or at the
direction of Hoosier in connection with open bids for the supply of coal, and
such response shall not constitute a breach of the provisions of this Section
5.23. Notwithstanding anything to the contrary contained in this Section 5.23,
following the Closing Date, neither any purchaser of the equity interests or
assets of Seller or any of its Affiliates nor any Person with whom Seller or any
of its Affiliates shall merge or consolidate (regardless of whether Seller or
such Affiliate shall be
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the surviving entity) or enter into any joint venture, business combination or
similar arrangement (and no joint venture company or similar entity resulting
therefrom) shall be bound by the provisions of this Section 5.23.
SECTION 5.24. Permits. In the event that any of the Permits are not
-------
available for use by the Subsidiaries following the Closing of the transactions
contemplated hereby, Seller, Purchaser and the Subsidiaries shall cooperate in
any commercially reasonable arrangement designed to provide Purchaser or the
Subsidiaries, as the case may be, the benefits under such Permits until such
time as such Permit transfer or assignment has been completed, and Purchaser
hereby indemnifies and defends Seller and its Affiliates for, and shall pay and
reimburse each of them for, any and all Losses each of them may suffer or incur
in connection with such arrangement. Not later than 30 days following the
Closing Date, Purchaser shall file all change of control notices (except to the
extent previously filed pursuant to Subsection 5.8.2 hereof) and all other
appropriate or required documentation with all appropriate Governmental
Authorities in connection with the transfer or reissuance of any Permit or the
replacement of the surety bonds and letters of credit as contemplated by Section
5.17 hereof.
SECTION 5.25. Administration of Accounts.
--------------------------
5.25.1 In Trust for Purchaser. All payments and reimbursements by any
----------------------
third party after the Closing Date in the name of or Seller to which any
Purchaser or any Subsidiary is entitled in accordance with the provisions of
this Agreement and the transactions contemplated hereby shall be held by Seller
in trust for the benefit of Purchaser and, within five (5) business days of
receipt by Seller of any such payment or reimbursement, Seller shall pay over to
Purchaser the amount of such payment or reimbursement without right of set off.
5.25.2 In Trust for Seller. All payments and reimbursements by any
-------------------
third party after the Closing Date in the name of or to Purchaser or any
Subsidiary to which Seller is entitled in accordance with the provisions of this
Agreement and the transactions contemplated hereby shall be held by Purchaser in
trust for the benefit of Seller and, within five (5) business days of receipt by
Purchaser or such Subsidiary of any such payment or reimbursement, Purchaser
shall pay over to Seller the amount of such payment or reimbursement without
right of set off.
ARTICLE VI
CONDITIONS PRECEDENT OF PURCHASER
---------------------------------
SECTION 6.1. Conditions Precedent. The obligations of Purchaser to
--------------------
consummate the transactions contemplated by this Agreement at the Closing to be
held pursuant to Article II herein shall be subject to the fulfillment, to its
reasonable satisfaction, on or prior to the Closing Date, of all of the
following conditions precedent:
6.1.1 Representations, Warranties and Obligations of Seller. The
-----------------------------------------------------
representations and warranties contained in Article III shall be true and
correct as of the date
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hereof, and except to the extent such representations and warranties relate
solely to an earlier date, as of the Closing Date as though made on and as of
the Closing date; provided, however, that if any such representation and
warranty is not qualified by a standard of materiality, such representation and
warranty need only be true and correct in all material respects. Seller shall
have duly performed and complied in all material respects with all agreements
and covenants contained herein required to be performed or complied with by it
at or before the Closing.
6.1.2 Officer's Certificate. Seller shall have delivered to Purchaser
---------------------
a certificate, dated the Closing Date and signed by its President or a Vice
President, as to the fulfillment of the conditions set forth in Subsection
6.1.1.
6.1.3 Ancillary Agreements. Seller and the Subsidiaries shall have
--------------------
executed all Ancillary Agreements, stock powers or other instruments required to
be executed at or before Closing in connection with the transactions
contemplated hereby.
6.1.4 Material Adverse Change. Since the Balance Sheet Date, there
-----------------------
shall have been no change which has or has had a material adverse effect on the
financial condition, business, assets or results of operations of the
Subsidiaries, taken as a whole.
6.1.5 Consents. All material statutory requirements, authorizations,
--------
consents, orders or approvals from, filings with, or expirations of waiting
periods by any Governmental Authority required to be obtained to consummate the
transactions contemplated hereby and all consents of third parties listed on
Schedule 6.1.5 hereto (collectively, the "Consents") shall have been fulfilled,
filed, occurred or been obtained and delivered to the parties hereto, other than
such Consents which, if not obtained, are not reasonably expected to have a
Material Adverse Effect on the Subsidiaries.
6.1.6 No Injunction. There shall not be in effect any injunction or
-------------
other order or any statute, ruling or law issued by a court of competent
jurisdiction or Governmental Authority restraining, enjoining or prohibiting,
and no such action or Proceeding by any Governmental Authority or third Person
shall be pending before any court of competent jurisdiction or threatened in
writing to restrain, enjoin or prohibit the consummation of, or challenge the
validity or legality of, the transactions contemplated by this Agreement.
6.1.7 HSR Act. The waiting period under the HSR Act shall have expired
-------
or been terminated.
6.1.8 Disclosure Schedules. Purchaser shall have received and reviewed
--------------------
the updated Schedules referenced herein, and any updates or amendments thereto,
and the effect of any change to any Schedule delivered on the date hereof,
together with any matter disclosed in any Schedule not required to be delivered
on the date hereof but which is required to be delivered on or prior to the
Closing Date, shall not result in a Material Adverse Effect upon the
Subsidiaries.
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6.1.9 Forms 8023. Seller shall have delivered an executed copy of IRS
----------
Form 8023, appropriately completed to extent practicable as of the Closing Date,
with respect to each Subsidiary referenced in Subsection 2.3.2(a) hereof.
6.1.10 Restructuring. The Restructuring shall have been completed in
-------------
all material respects except for obtaining the consent of any Governmental
Authority to the transfer of the permits included in the Excluded Assets and
Excluded Liabilities.
6.1.11 Board Approval. The transactions contemplated by this Agreement
--------------
shall have been approved by all necessary corporate action on the part of
Purchaser.
6.1.12 Financial Statements. Purchaser shall be satisfied, in its sole
--------------------
and absolute discretion, with the audited financial statements of the
Subsidiaries prepared by Price Waterhouse LLP as contemplated by Section 5.21
hereof.
SECTION 6.2. Waiver. Purchaser may waive in writing fulfillment of any or
------
all of the conditions set forth in Section 6.1 of this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT OF SELLER
------------------------------
SECTION 7.1. Conditions Precedent. The obligations of Seller to consummate
--------------------
the transactions contemplated by this Agreement at the Closing to be held
pursuant to Article II herein shall be subject to the fulfillment, to its
reasonable satisfaction, on or prior to the Closing Date of all of the following
conditions precedent.
7.1.1 Representations, Warranties and Obligations of Purchaser. The
--------------------------------------------------------
representations and warranties contained in Article IV shall be true and correct
as of the date hereof and as of the Closing Date as through made on and as of
the Closing Date; provided, however, that if any such representation and
warranty is not qualified by a standard of materiality, such representation and
warranty need only be true and correct in all material respects. Purchaser
shall have duly performed and complied in all material respects with all
agreements contained herein required to be performed or complied with by it at
or prior to the Closing.
7.1.2 Officer's Certificate. Purchaser shall have delivered to Seller
---------------------
a certificate, dated the Closing Date and signed by a President or Vice
President, as to the fulfillment of the conditions set forth in Subsection
7.1.1.
7.1.3 Ancillary Agreements. Purchaser shall have executed all
--------------------
Ancillary Agreements, stock powers or other instruments required to be executed
at or before Closing in connection with the transactions contemplated hereby.
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7.1.4 Consents. All Consents shall have been fulfilled, filed,
--------
occurred or been obtained and delivered to the parties hereto, other than such
Consents which, if not obtained, are not reasonably expected to have a Material
Adverse Effect on the Seller.
7.1.5 No Injunction. There shall not be in effect any injunction or
-------------
other order or any statute, ruling or law issued by a court of competent
jurisdiction or Governmental Authority restraining, enjoining or prohibiting,
and no such action or Proceeding by any Governmental Authority or third Person
shall be pending before any court of competent jurisdiction or threatened in
writing to restrain, enjoin or prohibit the consummation of, or challenge the
validity or legality of, the transactions contemplated by this Agreement.
7.1.6 HSR Act. The waiting period under the HSR Act shall have expired
-------
or been terminated.
7.1.7 Restructuring. The Restructuring shall have been completed in
-------------
all material respects except for obtaining the consent of any Governmental
Authority to the transfer of the permits included in the Excluded Assets and
Excluded Liabilities.
7.1.8 Board Approval. The transactions contemplated by this Agreement
--------------
shall have been approved by all necessary corporate action on the part of
Seller.
7.1.9 Replacement Credit Support Instruments for Scheduled Bonds.
----------------------------------------------------------
Purchaser shall have delivered to Seller a letter of credit or surety bond, duly
executed by the financial institution that is the issuer thereof, in respect of,
and as replacement for, each Scheduled Bond, together with such filings,
transmittal letters, applications and other documents as shall be necessary or
as shall be reasonably requested by Seller in order to effect Mineral's and its
Affiliates' (including the Subsidiaries) release of their obligations with
respect to the Scheduled Bonds.
7.1.10 Forms 8023. Purchaser shall have delivered an executed copy of
----------
IRS Form 8023, appropriately completed to extent practicable as of the Closing
Date, with respect to each Subsidiary referenced in Subsection 2.3.2(a) hereof.
7.1.11 Certain Bonds. Purchaser shall have delivered the Purchaser
-------------
Surety Bond and the Equipment Surety Bond.
SECTION 7.2. Waiver. Seller may waive in writing fulfillment of any or all
------
of the conditions set forth in Section 7.1 of this Agreement.
ARTICLE VIII
INDEMNIFICATION
---------------
SECTION 8.1. Indemnity by Seller. From and after the Closing, Seller
-------------------
agrees to indemnify, defend and hold harmless each of Purchaser, the
Subsidiaries and each of their Affiliates, and their respective directors,
officers, employees, agents and representatives (each of
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whom may be an Indemnitee pursuant to this Section 8.1) (collectively, the
"Purchaser Indemnitees") from and against, and pay and reimburse each such
Purchaser Indemnitee for, whether or not any of the following Losses arise out
of any Third Party Claim, the following:
8.1.1 Excluded Liabilities. Any and all Losses in respect of the
--------------------
Excluded Assets or Liabilities.
8.1.2 Third Party Claims. Any and all Third Party Claims which may be
------------------
asserted against any such Purchaser Indemnitee or which any such Purchaser
Indemnitee shall incur or suffer to the extent that such Third-Party Claims
arise out of, result from or relate to:
(a) any Excluded Assets or Excluded Liabilities; or
(b) (i) any untrue representation or breach of warranty of Seller
in this Agreement, or (ii) a default or breach of any covenant or agreement made
by Seller under this Agreement.
8.1.3 Breach of Representation, Warranty, Etc. Any and all Losses
---------------------------------------
which may be asserted against such Purchaser Indemnitee or which such Purchaser
Indemnitee may incur or suffer and which arise out of, result from or relate to:
(a) any untrue representation or breach of warranty of Seller in
this Agreement; or
(b) any default or breach of any covenant or agreement on the
part of Seller under this Agreement.
SECTION 8.2. Indemnity by Purchaser. From and after the Closing, Purchaser
----------------------
shall indemnify, defend and hold harmless Seller and its Affiliates and their
respective directors, officers, employees, agents and representatives (each of
whom may be an Indemnitee pursuant to this Section 8.2) (collectively, the
"Seller Indemnitees") from and against, and pay and reimburse each such Seller
Indemnitee for, whether or not any of the following Losses arise out of any
Third Party Claim, the following:
8.2.1 Certain Liabilities. Any and all Losses in respect of the
-------------------
matters specified on Schedule 8.2.1 hereof.
8.2.2 Third Party Claims. Any and all Third Party Claims which may be
------------------
asserted against any such Seller Indemnitee, or which any such Seller Indemnitee
shall incur or suffer to the extent that such Third Party Claims arise out of,
result from or relate to:
(a) any of the matters specified on Schedule 8.2.1 hereof; or
(b) (i) any untrue representation or breach of warranty of
Purchaser in this Agreement, or (ii) a default or breach of any covenant or
agreement made by Purchaser in this Agreement.
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8.2.3 Breach of Representation, Warranty, Etc. Any and all Losses
---------------------------------------
which may be asserted against any such Seller Indemnitee or which any such
Seller Indemnitee shall incur or suffer and which arise out of, result from or
relate to:
(a) any untrue representation or breach of warranty of Purchaser
in this Agreement; or
(b) any default or breach of any covenant or agreement on the
part of Purchaser under this Agreement.
8.2.4 Post-Closing. Except as otherwise expressly assumed or retained
------------
by Seller hereunder, any and all Liabilities, Losses or Third Party Claims
relating to or arising out of the past, present or future operations of the
Business.
SECTION 8.3. Notification of Claims. In no case shall any Indemnitor under
----------------------
this Agreement be liable with respect to any Third Party Claim against any
Indemnitee unless the Indemnitee shall have delivered to the Indemnitor a Claim
Notice and the following conditions are satisfied:
8.3.1 Timely Delivery of Claim Notice. Except as provided in
-------------------------------
Subsections 8.3.2 or 8.3.3, no right to indemnification under this Article VIII
shall be available to an Indemnitee with respect to a Third Party Claim unless
the Indemnitee shall have delivered to the Indemnitor within the Notice Period a
notice describing in reasonable detail the facts giving rise to such Third Party
Claim (a "Claim Notice") and stating that the Indemnitee intends to seek
indemnification for such Third Party Claim from the Indemnitor pursuant to this
Article VIII.
8.3.2 Late Delivery of Claim Notice. If, in the case of a Third Party
-----------------------------
Claim, a Claim Notice is not given by the Indemnitee within the Notice Period,
the Indemnitee shall nevertheless be entitled to be indemnified under this
Article VIII except to the extent that the Indemnitor can establish that it has
been prejudiced by such time elapsed.
8.3.3 Paid or Settled Claims. If a Claim Notice is not given by the
----------------------
Indemnitee prior to the payment or settlement of a Third Party Claim, the
Indemnitee shall be entitled to be indemnified under this Article VIII only to
the extent that the Indemnitee can establish that the Indemnitor has not been
prejudiced by such payment or settlement.
SECTION 8.4. Defense of Claims. Upon receipt of a Claim Notice from an
-----------------
Indemnitee with respect to any Third Party Claim, the Indemnitor shall have the
right to assume and control the defense thereof (and any related settlement
negotiations) with counsel reasonably satisfactory to such Indemnitee and the
Indemnitee shall cooperate in all reasonable respects in such defense. The
Indemnitee shall have the right to employ separate counsel at such Indemnitee's
expense in any action or claim and to participate in the defense thereof;
provided, however, that the reasonable fees and expenses of counsel employed by
the Indemnitee shall be at the expense of the Indemnitor if such counsel is
retained pursuant to the following sentence or
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<PAGE>
if the employment of such counsel has been specifically authorized in writing by
the Indemnitor. If the Indemnitor does not notify the Indemnitee within 30 days
after receipt of the Claim Notice of its intention to assume the defense of such
Third Party Claim, the Indemnitee shall have the right to defend the claim with
counsel of its choosing reasonably satisfactory to the Indemnitor, subject to
the right of the Indemnitor to assume the defense of any claim at any time prior
to settlement or final determination thereof. Notwithstanding anything to the
contrary contained in this Section 8.4, (i) the Indemnitee shall have the right
to employ separate counsel at its own expense if there shall be available one or
more defenses or one or more counterclaims available to the Indemnitee which
conflicts with one or more defenses or one or more counterclaims available to
the Indemnitor, and (ii) the Indemnitor shall not be entitled to control (but
shall be entitled participate at its own expense in the defense of), and the
Indemnitee shall be entitled to have sole control over, the defense or
settlement of any Third Party Claim to the extent such Third Party Claim seeks
an order, injunction, non-monetary or other equitable relief against the
Indemnitee which, if successful, could result in a material adverse effect upon
the business, financial condition, results of operations or assets of the
Indemnitee. The Indemnitee shall send a written notice to the Indemnitor of any
proposed settlement of any claim, which settlement the Indemnitor may reject, in
its reasonable judgment, within thirty (30) days of receipt of such notice.
Failure to reject such notice within such thirty (30) days period shall be
deemed an acceptance of such notice. Purchaser hereby agrees, on behalf of
itself and, following the Closing, the Subsidiaries, that Seller shall have the
right to assume the defense of all items of litigation included within the
Excluded Assets and Excluded Liabilities, and that counsels that have been
retained to defend such items of litigation as of the Closing Date (all of whom
have been disclosed to Purchaser) are reasonably acceptable to Purchaser.
SECTION 8.5. Access and Cooperation. After the Closing Date, Purchaser and
----------------------
Seller shall (a) each cooperate fully with the others as to all Third Party
Claims, shall make available to the others, as reasonably requested, all
information, records and documents relating to all Third-Party Claims and shall
preserve all such information, records and documents until the termination of
any Third-Party Claim, and (b) make available to the others, as reasonably
requested, personnel (including technical and scientific), agents and other
representatives who are responsible for preparing or maintaining information,
records or other documents, or who may have particular knowledge with respect to
any Third-Party Claim.
SECTION 8.6. Assessment of Claims. In the event that any of the Losses for
--------------------
which an Indemnitor is or is allegedly responsible pursuant to Sections 8.1 or
8.2 are recoverable or potentially recoverable against any third party at the
time when payment is due hereunder, following payment by the Indemnitor to the
Indemnitee for such Losses the Indemnitee shall assign any and all rights that
it may have to recover such Losses to the Indemnitor, or, if such rights are not
assignable under applicable law or otherwise, the Indemnitee shall attempt in
good faith to collect any and all Losses on account thereof from such third
party for the benefit of, and at the expense and direction of, the Indemnitor.
SECTION 8.7. Limits on Indemnification.
-------------------------
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8.7.1 Limitations on Indemnification for Breach of Representations
------------------------------------------------------------
and Warranties. Purchaser Indemnitees shall not be entitled to seek payment
- --------------
under Subsections 8.1.2(b)(i) and 8.1.3(a), and Seller Indemnitees shall not be
entitled to seek payment under Subsections 8.2.2(b)(i) and 8.2.3(a), in respect
of any specific indemnified Loss or Third-Party Claim arising from a breach of a
representation or warranty until such Loss or Third-Party Claim is equal to or
exceeds $100,000 (in either case, a "Substantial Loss" or a "Substantial Third-
Party Claim"), and not then until the aggregate total of such Substantial Losses
and Substantial Third-Party Claims under such Subsections 8.1.2(b)(i) and
8.1.3(a), or Subsections 8.2.2(b)(i) and 8.2.3(a), as applicable, exceed
$3,000,000, and then the Indemnitee(s) may seek payment and indemnity from the
Indemnitor only for such excess; provided, however, that neither the Purchaser
Indemnitees, with respect to Subsections 8.1.2(b)(i) and 8.1.3(a), nor the
Seller Indemnitees, with respect to Subsection 8.2.1(b)(i) and 8.2.3(a), shall
be entitled to seek payment thereunder to extent the aggregate total of such
Substantial Losses and Substantial Third-Party Claims exceeds $50,000,000.
8.7.2 No Limitations on Certain Indemnification Claims. Purchaser
------------------------------------------------
Indemnitees may seek payment and full and complete indemnity from Seller in
respect of any and all Losses or Third-Party Claims under Subsections 8.1.1,
8.1.2(a), 8.1.2(b)(ii) and 8.1.3(b), and the Seller Indemnitees may seek payment
and full and complete indemnity from Purchaser in respect of any and all Losses
or Third-Party Claims under Subsections 8.2.1, 8.2.2(a), 8.2.2(b)(ii), 8.2.3(b)
and 8.2.4, and such indemnity shall not be subject to any dollar limitations or
cap.
SECTION 8.8. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties of the parties contained in this Agreement shall
survive the Closing hereunder and continue in full force and effect thereafter,
regardless of any investigation made or to be made by or on behalf of any party
hereto, for a period of two (2) years following the Closing Date, except for the
representations and warranties (a) of Seller provided for (i) in Section 3.14,
which shall survive the Closing hereunder and continue in full force and effect
thereafter, regardless of any investigation made or to be made by or on behalf
of any party hereto, for a period ending sixty (60) days after the expiration of
the relevant statutes of limitations including any extension or waiver thereof
regarding the filing of Tax Returns and the payment of Taxes, and (ii) in
Sections 3.1, 3.2.1, 3.3, 3.4, 3.5 and 3.17, which shall survive the Closing
hereunder and continue in full force and effect thereafter, regardless of any
investigation made or to be made by or on behalf of any party hereto, without
end or termination, and (b) of Purchaser provided for in Sections 4.1, 4.2.1,
4.4 and 4.6, which shall survive the Closing hereunder and continue in full
force and effect thereafter, regardless of any investigation made or to be made
by or on behalf of any party hereto, without end or termination. Except as set
forth in this Section 8.8, after the end of such period, an Indemnitor's
obligation to an Indemnitee under this Article VIII with respect to such
representations and warranties shall expire except with respect to a matter set
forth in a Claim Notice theretofore delivered by an Indemnitee. It is further
agreed that each Purchaser Indemnitee's rights to indemnification set forth in
Subsections 8.1.1, 8.1.2(a), 8.1.2(b)(ii) and 8.1.3(b), and each Seller
Indemnitee's rights to indemnification set forth in Subsections 8.2.1, 8.2.2(a),
8.2.2(b)(ii), 8.2.3(b) and 8.2.4, shall remain in full force and effect
indefinitely.
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SECTION 8.9. After-Tax Nature of Indemnity Payments. Any payment or
--------------------------------------
indemnity required to be made pursuant to Sections 8.1 or 8.2 hereof shall
include any amount necessary to hold the Indemnitee harmless on an after-tax
basis from all Taxes required to be paid with respect to the receipt of such
payment or indemnity (after taking into account any reduction in Taxes realized
by the Indemnitee as a result of the Loss giving rise to the payment or
indemnity). In determining the amount necessary to be added to any payment or
indemnity in order to accomplish the foregoing, the parties hereto agree (a) to
treat all Taxes required to be paid by, and all reductions in Tax realized by
any Indemnitee, as if such Indemnitee were subject to tax at the highest
marginal tax rates (for both federal and state, as determined on a combined
basis) applicable to such Indemnitee and (b) to treat any indemnification
payments made to Purchaser or any Subsidiary pursuant to this Agreement as an
adjustment to the Purchase Price, subject to any Final Determination with
respect to such payments, unless, subject to any Final Determination with
respect to such payments, either party or Purchaser receives a written opinion,
reasonably satisfactory in form and substance to the other party, of a law firm
with appropriate experience and expertise to the effect that it is not or is not
likely to be permissible to treat such payments in that manner on a federal,
state or local income tax return.
SECTION 8.10. Third Party Beneficiaries. All Persons included with the
-------------------------
terms "Purchaser Indemnitees" and "Seller Indemnitees" are intended third party
beneficiaries of this Article VIII and shall have the right to enforce the
benefits intended to be conferred upon each them under this Article VIII as
though they were parties to this Agreement.
ARTICLE IX
TERMINATION
-----------
SECTION 9.1. Termination Events. Subject to the provisions of Section 9.2,
------------------
this Agreement may, by written notice given at or prior to the Closing in the
manner hereinafter provided, be terminated and abandoned only as follows:
9.1.1 Breach. By either Purchaser or Seller, upon written notice, if a
------
material default or breach shall be made by the other, with respect to the due
and timely performance of any of the other party's respective covenants and
agreements contained herein, or with respect to the due compliance with any of
its respective representations and warranties contained in Article III or IV, as
applicable, and such default cannot be cured prior to Closing and has not been
waived;
9.1.2 Mutual Consent. By written mutual consent of Purchaser and
--------------
Seller; or
9.1.3 Closing. Without further action of the Parties, if the Closing
-------
shall not have occurred by close of business on June 30, 1998.
SECTION 9.2. Effect of Termination. In the event this Agreement is
---------------------
terminated pursuant to Section 9.1 herein, all further rights and obligations of
the Parties hereunder shall terminate (other than the obligations to keep
confidential information as provided in Subsection
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<PAGE>
5.2.2), and none of Purchaser or Seller nor any of their Affiliates, nor any of
the respective directors, officers or employees shall have any liability to any
of the others; it being specifically agreed that if this Agreement is so
terminated by any party because one or more of the conditions or their
respective obligations hereunder as set forth in Articles VI and VII herein is
not satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the rights of the terminating party to pursue
all legal remedies for breach of contract and damages shall survive such
termination and the breaching party shall be fully liable for any and all
damages, costs and expenses sustained or incurred by the terminating party as a
result of such breach.
SECTION 9.3. Fees and Expenses; Damages. Except as otherwise provided in
--------------------------
Section 9.2 herein, in the event this Agreement is terminated for any reason and
the Closing is not consummated each party shall be responsible for its own
costs, fees and expenses, including fees and expenses of its accountants,
investment advisers and counsel.
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1. Remedies; Exclusivity of Representations and Warranties;
--------------------------------------------------------
Relationship Between the Parties.
- --------------------------------
10.1.1 Remedies. The remedies expressly set forth in this Agreement
--------
following the Closing with respect to any breach of any representation or
warranty herein contained are the sole and exclusive remedies for any such
breach, and such remedies are intended to be non-cumulative with respect to, and
shall preclude the assertion by any party of, any other remedies which would
otherwise have been available in common law or by statute, except for any right
that may exist to seek redress for common law fraud.
10.1.2 Exclusivity of Representations and Warranties; Relationship
-----------------------------------------------------------
Between the Parties. It is the explicit intent and understanding of the parties
- -------------------
hereto that none of the parties nor any of their respective affiliates,
representatives, advisors or agents is making any representation or warranty
whatsoever, oral or written, express or implied, other than those set forth in
this Agreement and the Ancillary Agreements and none of the parties is relying
on any statement, representation or warranty, oral or written, express or
implied, made by any other party or such other party's affiliates,
representatives, advisors or agents, except for the representations and
warranties expressly set forth in such Agreements. EXCEPT AS OTHERWISE
SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES EXPRESSLY DISCLAIM ANY
IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY OR
SUITABILITY AS TO ANY OF THE ASSETS OR LIABILITIES OF THE BUSINESS OR ANY
SUBSIDIARY AND, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, IT
IS UNDERSTOOD THAT PURCHASER TAKES THE ASSETS OF THE BUSINESS AND THE
SUBSIDIARIES "AS IS" AND "WHERE IS." Without limiting the generality of, and in
furtherance of, the
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<PAGE>
immediately preceding sentences, Purchaser acknowledge that Seller makes no
representations or warranties to Purchaser regarding any forecasts, projections,
estimates, business plans or budgets heretofore delivered to or made available
to Purchaser or its affiliates, representatives, advisors or agents in respect
of future revenues, expenses or expenditures, future results of operations (or
any component thereof), future cash flows or future financial condition (or any
component thereof) of any Subsidiary. The parties hereto agree that this is an
arm's length transaction in which the parties' undertakings and obligations are
limited to the performance of their obligations under this Agreement. Purchaser
acknowledges that it is a sophisticated investor, that it has undertaken, and
that Seller has given Purchaser such opportunities as it has requested to
undertake, a full investigation of the Business (including the Subsidiaries'
assets, contracts, permits, licenses, coal reserve data and information,
premises, properties, facilities, books and records), and that it has only a
contractual relationship with Seller, based solely on the terms of this
Agreement, and that there is no special relationship of trust or reliance
between Purchaser and Seller.
SECTION 10.2. Amendment. This Agreement shall not be amended or modified
---------
except by an agreement in writing duly executed by each of Purchaser and Seller.
SECTION 10.3. Entire Agreement. This Agreement, including the Exhibits
----------------
and Schedules hereto, contain all of the terms, conditions and representations
and warranties agreed upon by the parties relating to the subject matter of
this Agreement and supersede all prior and contemporaneous agreements,
negotiations, correspondence, undertakings and communications of the parties,
oral or written, respecting such subject matter.
SECTION 10.4. Notices. All notices, requests, demands and other
-------
communications made in connection with this Agreement shall be in writing and
shall be deemed to have been duly given (i) on the date of delivery, if
personally delivered to the person identified below, (ii) three (3) days after
mailing if mailed by certified or registered mail, postage prepaid, return
receipt requested, (iii) one business day after delivery to any overnight
express courier service, and (iv) on the business day of receipt if sent by
facsimile or other customary means of telecommunication, provided receipt
thereof is orally confirmed and a copy thereof is sent in the manner provided
by clause (i) hereof, addressed as follows:
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If to Purchaser:
AEI Holding Company, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Donald P. Brown
Telephone: (606) 928-3433
Facsimile: (606) 928-0450
with a copy to:
Brown, Todd & Heyburn
2700 Lexington Financial Center
Lexington, Kentucky 40507
Attention: Paul E. Sullivan, Esq.
Telephone: (606) 231-0000
Facsimile: (606) 231-0011
81
<PAGE>
If to Seller:
Cyprus Amax Coal Company
9100 East Mineral Circle
Englewood, Colorado 80155
Attention: President
Telephone: (303) 643-5846
Facsimile: (303) 643-5757
with a copy to:
Cyprus Amax Coal Company
9100 East Mineral Circle
Englewood, Colorado 80155
Attention: Greg A. Walker, Esq.
Telephone: (303) 643-5215
Facsimile: (303) 643-5181
and to:
Steven C. Schnitzer, Esq.
Crowell & Moring LLP
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2595
Telephone: (202) 624-2500
Facsimile: (202) 628-5116
Such addresses may be changed, from time to time, by means of a notice given in
the manner provided in this Section. Copies delivered to outside counsel shall
not constitute notice.
SECTION 10.5. Severability. If any provision of this Agreement is held to
------------
be unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to the
extent possible. In any event, all other provisions of this Agreement shall be
deemed valid and enforceable to the fullest extent possible.
SECTION 10.6. Waiver; Survival. Waiver of any term or condition of this
----------------
Agreement by either of the respective parties shall only be effective if in
writing and shall not be construed as a waiver of any subsequent breach or
failure of the same term or condition, or a waiver of any other term or
condition, of this Agreement. Except as otherwise specifically provided herein,
the rights and obligations of Purchaser and Seller contained herein shall
survive the Closing.
SECTION 10.7. Binding Effect; Assignment. No party to this Agreement may
--------------------------
assign or delegate, by operation of law or otherwise, all or any portion of its
rights, obligations or Liabilities under this Agreement without the prior
written consent of the other party to this
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<PAGE>
Agreement, which it may withhold in its absolute discretion; provided however
that AEI Holding Company, Inc. may, without the consent of Seller, assign all of
its rights and delegate all of its obligations hereunder to Coal Ventures, Inc.,
a Delaware corporation and the owner of all of the issued and outstanding shares
of capital stock of AEI Holding Company, Inc. pursuant to an assignment and
assumption reasonably acceptable to Seller, whereupon Coal Ventures, Inc. shall
be deemed to the "Purchaser" hereunder for all purposes of this Agreement. This
Agreement is binding upon each party hereto, and upon each party's respective
successors and permitted assigns.
SECTION 10.8. No Third Party Beneficiaries. Except as otherwise provided in
----------------------------
Sections 5.12, 5.15 and 5.17 and Article VIII hereof, there are no third party
beneficiaries to this Agreement and nothing herein shall confer any rights upon
any person or entity who or which is not a party to this Agreement.
SECTION 10.9. Counterparts. This Agreement may be signed in any number of
------------
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument, and all such counterparts together shall be deemed to
constitute an original and the same instrument.
SECTION 10.10. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the state of Delaware without giving
effect to the doctrine of conflict of laws.
SECTION 10.11. Consent to Jurisdiction; Waiver of Jury Trial.
---------------------------------------------
10.11.1 Consent to Jurisdiction.
-----------------------
(a) Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any Delaware State court or Federal court sitting in the State
of Delaware and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby or for recognition or enforcement of any judgment relating
thereto, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such Delaware State court or, to the extent permitted by law,
in such Federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment of in any other manner provided by
law.
(b) Each of the parties hereto hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby in any Delaware State or Federal court.
Each of the parties hereto hereby irrevocably and unconditionally waives, to the
fullest extent permitted by law, the defense of any inconvenient forum to the
maintenance of such action or proceeding in any such court.
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(c) Each of the parties hereto irrevocably consents to service
of process in the manner provided for notices in Section 10.4 hereof.
Notwithstanding the foregoing, each of the parties hereto shall have the right
to serve process in any other manner permitted by law.
10.11.2 Waiver of Punitive Damages and Jury Trial.
-----------------------------------------
(a) THE PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY
RIGHT TO RECOVER PUNITIVE, EXEMPLARY, CONSEQUENTIAL OR SIMILAR DAMAGES IN ANY
LAWSUIT, LITIGATION, ARBITRATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM
ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
(b) EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(c) EACH PARTY HERETO CERTIFIES AND ACKNOWLEDGES THAT (I) NO
-
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE WAIVERS SET FORTH IN CLAUSE (A) OF THIS SECTION 10.11.2, (II) IT
--
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (III) IT MAKES
---
SUCH WAIVERS VOLUNTARILY, AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS
--
AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS IN SUCH
SECTION.
SECTION 10.12. Mutual Right of Setoff. In the event any party hereto (the
----------------------
"Defaulting Party") has admitted in writing an amount owing to the other party
hereto (the "Other Party") in connection with the transactions contemplated
hereby and has failed to pay such amount in accordance with this Agreement or
has filed against it a final, non-appealable judgment awarding money damages to
the Other Party in connection any Proceeding arising out of the transactions
contemplated hereby and has failed to pay such judgment in accordance with its
terms, then the Other Party may, upon 5 days written notice to the Defaulting
Party, set off and appropriate and apply any and all amounts then owing by the
Other Party to the Defaulting Party under this Agreement against and on account
of such amount or damages owing by the Defaulting Party. The rights granted to
the Other Party under this Section 10.12 shall be in addition to any other
rights available to the Other Party under this Agreement.
SECTION 10.13. Interpretation and Construction of this Agreement. The
-------------------------------------------------
definitions in this Agreement shall apply equally to both the singular and
plural forms of the terms defined.
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Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine or neuter form. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
The headings contained in this Agreement are inserted for convenience only and
shall not constitute a part hereof. All references herein to Articles, Sections,
(other than references to Sections of the Code or other statute) and Subsections
shall be deemed to be references to Articles, Sections and Subsections of this
Agreement unless the context shall otherwise require. Unless the context shall
otherwise require or provide, any reference to any agreement or other instrument
or statute or regulation is to such agreement, instrument, statute or regulation
as amended and supplemented from time to time (and, in the case of a statute or
regulation, to any successor provision); provided, however, that no covenant
herein shall be deemed to have been breached because of a change in law or
regulation issued subsequent to the completion of the action or conduct which is
the subject of the covenant. This Agreement shall be construed in accordance
with its fair meaning and shall not be construed strictly against either party.
References in this Agreement to any Article shall include all Sections,
Subsections, Paragraphs in such Article; references in this Agreement to any
Section shall include all Subsections and Paragraphs in such Section; and
references in this Agreement to any Subsection shall include all Paragraphs in
such Subsection.
85
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed with legal and binding effect by their respective authorized
officers, in their individual capacity, as of the day and year first above
written.
CYPRUS AMAX COAL COMPANY
By: /s/ Richard D. Mills
----------------------
Name: Richard D. Mills
Title: Senior VP, Development
AEI HOLDING COMPANY, INC.
By: /s/ Donald P. Brown
----------------------
Name: Donald P. Brown
Title: President
86
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EXHIBIT 10B
CYPRUS AMAX MINERALS COMPANY
Action(s) Authorized by
-----------------------
the
---
Board of Directors
------------------
WHEREAS, Cyprus Amax Minerals Company (the "Company") sponsors the Management
Incentive Program of Cyprus Amax Minerals Company (the "Program") and the 1994
Management Incentive Program of Cyprus Amax Minerals Company and Its
Participating Subsidiaries (the "1994 Program") (together, the "Programs"); and
WHEREAS, the Compensation and Benefits Committee of the Board of Directors (the
"Compensation Committee") has recommended that the Board amend the Programs to
allow for the extension of post-termination exercise periods for options granted
under the Programs following an optionee's termination of employment by reason
of his or her death, disability, or retirement, or at or after a "change of
control" (as defined in the Programs); and
WHEREAS, the Board wishes to amend the Programs as recommended by the
Compensation Committee; and
WHEREAS, Section 11.2 of the Program and Section 11.1 of the 1994 Program
authorize the Board to amend the Programs, subject to certain restrictions that
are not relevant to the actions contemplated herein;
NOW, THEREFORE, BE IT RESOLVED, that, effective March 9, 1998, Section 5.9 of
the Management Incentive Program of Cyprus Amax Minerals Company be, and it
hereby 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
<PAGE>
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:
(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
2
<PAGE>
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."
; and further
RESOLVED, that effective March 9, 1998, Section 4.9 of the 1994 Management
Incentive Program of Cyprus Amax Minerals Company and Its Participating
Subsidiaries be, and it hereby is, amended and restated in its entirety to read
as follows:
"4.9 Termination of Employment.
(a) If an Employee to whom an option is granted ceases to
be employed either by the Company or by a Participating
Subsidiary after completing the period of continuous employment
specified in the terms of the grant but before the option has
been exercised in full, the option (or the unexercised portion
thereof) shall be exercisable for the period specified in the
terms of the grant (but in no event later than the expiration
date of the option).
(b) If an Employee to whom an option is granted dies during
employment with the Company or a Participating Subsidiary after
completing the period of continuous employment specified in the
terms of the grant but before the option has been exercised in
full, the option (or the unexercised portion thereof) shall be
exercisable for the period specified in the terms of the grant
(but in no event later than the expiration date of the option).
(c) If an Employee to whom an option is granted terminates
employment as a result of Retirement after completing the period
of continuous employment specified in the terms of the grant but
before the option has been exercised in full, the option (or the
unexercised potion thereof) shall be exercisable for the period
specified in the terms of the grant (but in no
3
<PAGE>
event later than the expiration date of the option).
(d) If an employee to whom an option is granted terminates
employment as a result of Disability during employment with the
Company or a Participating Subsidiary after completing the period
of continuous employment specified in the terms of the grant but
before the option has been exercised in full, the option (or the
unexercised portion thereof) shall be exercisable for the period
specified in the terms of the grant (but in no event later than
the expiration date of the option).
(e) Notwithstanding the foregoing, if an Employee's
employment with the Company or a Participating Subsidiary
terminates at or after a Change of Control (as defined in Section
12.6), other than by reason of death, Disability or Retirement,
any stock option held by such Employee shall be exercisable for
the period specified in the terms of the grant (but in no event
later than the expiration date of the option).
(f) The Committee in its discretion may modify any of the
provisions regarding the time periods set forth in Sections
4.9(a) through (e), above."
; and further
RESOLVED, that the Chief Executive Officer or any other officer of the Company
and any other individual whom any of the officers referenced above shall
designate, be, and each of them hereby is, authorized to take any and all such
actions as are necessary or appropriate to give effect to the foregoing
resolutions, and all actions of any of such officers or designees heretofore
taken in connection with the transactions contemplated by the foregoing
resolutions are hereby ratified, confirmed and approved in all respects.
4
<PAGE>
CYPRUS AMAX MINERALS COMPANY
Action(s) Authorized by
-----------------------
the
---
Board of Directors
------------------
Summary of Resolutions
. Amends the Management Incentive Program to re-use shares that had been
previously subject to options granted under the Program, which options had
expired, been forfeited, or cancelled.
. Amends the Program to provide the Committee, or its designee, with the
discretion to determine the manner in which restrictions on restricted
stock awards shall lapse.
Resolutions
WHEREAS, Cyprus Amax Minerals Company (the "Company") sponsors the Management
Incentive Program of Cyprus Amax Minerals Company (the "Program"); and
WHEREAS, pursuant to Section 11.2 of the Program, the Board is authorized and
empowered to amend the Program, subject to certain limitations not herein
relevant; and
WHEREAS, the Board wishes to amend Sections 4(d) and 4(e) of the Program to
provide that shares which had been previously subject to stock options granted
under the Program, which stock options had expired, been forfeited, or
cancelled, will be re-used under the Program (the "Add-Back Shares"); provided,
however, that such Add-Back Shares shall not be used for any stock options
granted to "covered employees" as such term is defined under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Board wishes to amend Section 6.4 of the Program to provide the
Committee with the discretion to determine the rate at which restrictions on
restricted stock awards shall lapse;
NOW, THEREFORE, BE IT RESOLVED, that effective August 20, 1998, Sections 4(d)
and 4(e) of the Program be, and they hereby are, amended in their entirety to
read as follows:
(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
<PAGE>
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 (y)
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 (z) 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, plus
(iii) any shares of Common Stock granted under the Program that
are forfeited because of the failure to meet a contingency
or condition. To the extent any shares of Common Stock
covered by a grant or award are not delivered to an Employee
or beneficiary because the grant or award is forfeited or
canceled or settled in cash, such shares shall not be deemed
to have been granted for purposes of determining the number
of shares of Common Stock available for grant under the
Program.
2
<PAGE>
(e) 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 solely in accordance with Sections 4(d)(i)
plus 4(d)(ii) (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 solely in accordance with
Sections 4(d)(i) plus 4(d)(ii).
; and further
RESOLVED, that effective August 20, 1998, Section 6.4 of the Program be, and it
hereby is, amended in its entirety to read as follows:
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 as determined by the Committee or the
Board, as the case may be, in their sole discretion and as specified
in the terms of the award agreement.
; and further
RESOLVED, that proper officers of this Corporation, and any other individual
whom any of the officers shall designate, be, and each of them hereby is,
authorized to take any and all such actions as are necessary or appropriate to
give effect to the foregoing resolutions, and all actions of any of such
officers or designees heretofore taken in connection with the transactions
contemplated by the foregoing resolutions are hereby ratified, confirmed and
approved in all respects.
3
<PAGE>
EXHIBIT 10(c)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
OF CYPRUS AMAX MINERALS COMPANY
<PAGE>
STOCK PLAN
FOR
NON-EMPLOYEE DIRECTORS OF
CYPRUS AMAX MINERALS COMPANY
TABLE OF CONTENTS
-----------------
PAGE
----
Section 1. Purpose.............................................................1
Section 2. Definitions.........................................................1
Section 3. Shares Subject to Plan..............................................3
Section 4. Eligibility.........................................................4
Section 5. Awards of Shares....................................................4
Section 6. Grants of Options...................................................4
(a) Number of Options..................................................4
(b) Terms and Conditions...............................................4
(1) Option Price..............................................4
(2) Expiration Date of the Option.............................4
(3) Restrictions on Transfer..................................4
(4) Vesting...................................................5
(5) Exercise of Option........................................6
(6) Payment for Shares and Method of Exercise.................6
(7) Retirement................................................6
(8) Total Disability..........................................6
(9) Death.....................................................6
(10) Other Termination.........................................6
(11) Change of Control.........................................7
(12) Other Terms...............................................7
(c) Rights as Shareholder..............................................7
Section 7. Awards of Restricted Shares.........................................7
(a) Eligibility........................................................7
(b) Awards of Restricted Shares........................................7
(c) Certificates for Shares............................................7
(d) Restriction Period.................................................8
(e) Lapse of Restrictions..............................................9
Section 8. Regulatory Compliance and Listing...................................9
Section 9. Adjustment for Company Changes......................................9
(a) Rights and Powers Reserved.........................................9
(b) Changes in Capitalization..........................................9
i
<PAGE>
Section 10. Administration....................................................10
(a) Appointment of Administrator......................................10
(b) Rights and Duties of Administrator................................10
(c) Authority of Board of Committee...................................10
Section 11. Amendment and Termination.........................................10
(a) Amendment of Plan.................................................10
(b) ..................................................................11
(c) Amendment of Stock Option Agreement...............................11
(d) Amendment of Restricted Stock Agreement...........................11
(e) Termination of Plan...............................................11
Section 12. Miscellaneous.....................................................11
(a) No Right to Continue as Director..................................11
(b) Other Plans.......................................................11
(c) Payment of Taxes..................................................11
(d) Unfunded Status of Plan...........................................11
(e) Governing Law.....................................................12
(f) Liability.........................................................12
(g) Costs.............................................................12
(h) Severability......................................................12
(i) Successors........................................................12
(j) Headings and Construction.........................................12
Section 13. Effective Date of the Plan........................................12
ii
<PAGE>
EXHIBIT 10(C)
STOCK PLAN
FOR
NON-EMPLOYEE DIRECTORS OF
CYPRUS AMAX MINERALS COMPANY
Amended and Restated Effective January 1, 1999
<PAGE>
STOCK PLAN
FOR
NON-EMPLOYEE DIRECTORS OF
CYPRUS AMAX MINERALS COMPANY
Section 1. Purpose. The purpose of the Plan is to provide certain
incentives and compensation to Eligible Directors and to encourage the highest
level of director performance by providing such directors with a proprietary
interest in the Company's success and progress.
Section 2. Definitions. For purposes of the Plan, the following terms
shall have the following meanings:
(a) "Administrator" means the Committee, which shall be responsible for the
administration of the Plan or its delegate, which shall be one or more
individuals appointed in accordance with Section 10(a).
(b) "Beneficiary" means a person or persons designated by a Participant to
receive, subject to the terms of the Plan, in the event of the Participant's
death, any unexercised Option which are vested in accordance with Section
6(b)(4) or Restricted Shares held by the Participant. A Participant may,
subject to such limitations as shall be prescribed by the Administrator,
designate one or more persons as primary or contingent Beneficiary and may
revoke such designations. Such designation or revocation of any such
designation shall be made in the form and manner prescribed from time to time by
the Administrator in its sole discretion. A Beneficiary designation or
revocation thereof shall not be effective until it is filed with the Company.
If a Participant fails effectively to designate a Beneficiary, then the
Participant's estate shall be deemed to be such Participant's Beneficiary.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means the occurrence of any of the following
events:
(1) 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 (A) the then outstanding shares of Common
Stock (the "Outstanding Company Common Stock") or (B) 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: (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 Section 2(d)(3)(A), 2(d)(3)(B), or
2(d)(3)(C); or
(2) Individuals who, as of January 1, 1996, constituted 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 member of the Board
subsequent to January 1, 1996, 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
A-1
<PAGE>
(3) Approval by the shareholders of the Company of a reorganization,
merger or consolidation (a "Business Combination"), in each case, unless,
following such Business Combination, (A) 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, (B) 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 (C) 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
(4) Approval by the shareholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) 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, (i)
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, (ii) 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 (iii) 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.
(e) "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 of
Control of the Company at any time during the 60-day period immediately
preceding the date of the actual Change of Control.
(f) "Code" means the Internal Revenue Code of 1986, as amended, and any
rules and regulations issued thereunder.
(g) "Committee" means the Compensation and Benefits Committee of the Board.
(h) "Common Stock" means the Common Stock, no par value per share, of the
Company.
A-2
<PAGE>
(i) "Company" means Cyprus Amax Minerals Company.
(j) "Director" means an individual who has been appointed to or elected by
shareholders to be a member of the Board and who is serving on the Board.
(k) "Effective Date" means the date set forth in Section 13.
(l) "Eligible Director" means any Director who, on the date of the award of
Shares, the award of Restricted Shares, or the grant of an Option, is not an
officer or an employee of the Company or any of the Company's subsidiaries or
affiliates and is a director of the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any rules and regulations issued thereunder.
(n) "Fair Market Value" means, for purposes of the Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, 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
such other exchange or exchanges where 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 Shares sales occurred. If the
Common Stock is not listed on any established exchange, such Fair Market Value
per Share shall be the average of the prices on the over-the-counter markets
(reported on the NASDAQ System) or, if the Common Stock is not traded on the
date of determination, on the next preceding date on which reported sales
occurred; provided, however, that if the Administrator determines that such
price is not representative of the true Fair Market Value per Share on account
of the level of trading volume or otherwise, the Administrator shall 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 it 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 Administrator in such manner
as the Administrator shall deem appropriate.
(o) "Option" means any option to purchase shares of Common Stock that has
been granted pursuant to Section 6.
(p) "Participant" means an Eligible Director to whom Shares have been
awarded, an Option has been granted, or Restricted Shares have been awarded
under the Plan.
(q) "Plan" means the Stock Plan for Non-Employee Directors of Cyprus Amax
Minerals Company, as set forth herein, and as amended from time to time.
(r) "Restricted Share" means a Share which is subject to the transfer
restrictions as set forth in Section 7.
(s) "Restriction Period" means, for any Restricted Share, the entire period
when any transfer restrictions apply to such Restricted Share pursuant to
Section 7(d).
(t) "Retirement" means the later of (1) the date a Participant attains age
65 or (2) the date the Participant terminates from the Board.
(u) "Shares" means one or more shares of Common Stock.
Section 3. Shares Subject to Plan.
(a) The aggregate total number of Shares, Restricted Shares and/or Options
("Maximum Annual Grants and Awards") that may be awarded during each fiscal year
of the Company ("Fiscal Year") shall be the sum of (1) 1/8th of 1% of the number
of outstanding Shares (excluding treasury shares) as of the end of the
immediately preceding Fiscal Year, plus (2) the cumulative number of
Carryforward Shares (as defined below) from all prior Fiscal Years (including
the immediately preceding Fiscal Year) which shall not yet have been subject to
grants of Options, awards of Shares and/or awards of Restricted Shares in any
intervening period. The number of Carryforward Shares from all Fiscal Years
A-3
<PAGE>
ending on or before December 31, 1997, collectively was 66,878. The number of
Carryforward Shares from each Fiscal Year (the "Accumulation Year") ending after
December 31, 1997, shall be the amount, if any, by which (1) 1/8th of 1% of the
number of outstanding Shares (excluding treasury shares) as of the end of the
Fiscal Year immediately preceding the Accumulation Year exceeds (2) the sum of
(A) the number of Shares for which Options were granted during the Accumulation
Year, (B) the number of Shares granted during the Accumulation Year, and (C) the
number of Restricted Shares granted during the Accumulation Year. Any
determination of the Maximum Annual Grants and Awards for any Fiscal Year,
including any determination of the number of Carryforward Shares from any prior
Fiscal Year, shall take into account and be appropriately adjusted for any
intervening changes in capitalization of the Company as provided in Section
9(b).
(b) The Shares granted under the Plan may be either authorized but unissued
Shares, treasury Shares, or Shares purchased on the open market as determined
from time to time by the Board.
Section 4. Eligibility. Only Eligible Directors are eligible to be
awarded Shares, awarded Restricted Shares, and granted Options under the Plan.
Section 5. Awards of Shares.
(a) On the first business day of each January beginning on January 4, 1999,
and continuing until such time as the Plan is no longer in effect, each Eligible
Director shall be awarded 2,000 Shares.
(b) Each award of Shares shall be evidenced by a written agreement duly
executed and delivered by or on behalf of the Company and the Participant if
such an agreement is required by the Company to assure compliance with all
applicable laws and regulations (the "Award Agreement").
Section 6. Grants of Options. All Options granted under the Plan shall
be non-qualified stock options, that is, options that do not qualify as
incentive stock options under section 422 of the Code.
(a) Number of Options. On the first business day of each January,
beginning on January 4, 1999, and continuing until such time as the Plan is no
longer in effect, each Eligible Director shall be granted an Option of 2,000
Shares; provided, however, that an individual who ceases to be a member of the
Board on or prior to such grant date shall not be entitled to receive a grant of
Options for that or any subsequent Fiscal Year unless he again becomes an
Eligible Director.
(b) Terms and Conditions. Options granted under the Plan shall be
subject to the terms and conditions described below and shall be subject to such
additional terms and conditions not inconsistent with the terms of the Plan, as
the Board or Administrator shall deem desirable and shall include in the written
agreement referred to in the next following sentence. Each Option shall be
evidenced by and subject to the terms of a written agreement duly executed and
delivered by or on behalf of the Company and the Participant, which agreement
shall specify the terms and conditions applicable to the Option (the "Stock
Option Agreement").
(1) Option Price. The price per Share at which Options may be exercised
shall be 100% of the Fair Market Value per Share on the date the Option is
granted.
(2) Expiration Date of the Option. The expiration date of each Option
shall be ten years after the date the Option is granted.
(3) Restrictions on Transfer.
(A) Except as provided in Section 6(b)(3)(B), Options shall not be
transferable other than by will or the laws of descent and distribution or, if
the terms of the Stock Option Agreement 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 Participant's lifetime only by the
Participant or the Participant's guardian or legal representative.
A-4
<PAGE>
(B) Notwithstanding Section 6(b)(3)(A), a Participant may elect to
irrevocably transfer some or all of the Options, 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 Participant's
spouse, children, and grandchildren; provided, however, that:
(i) the Stock Option Agreement expressly provides for such
transfer and, with respect to any Option currently outstanding, the
Administrator, in its sole discretion, agrees to amend or has amended the
Participant's Stock Option Agreement to provide for such transfer;
(ii) the Participant 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 complies with Section 6(b)(3)(C).
The Administrator shall establish such rules and procedures as it, in its sole
discretion, shall deem necessary or desirable to effect such transfers.
None of the Company, a participating subsidiary, the Board, the Committee or the
Administrator shall have any obligation to provide notice to any transferee of
the expiration date of any Option.
(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 Administrator, in its sole discretion, from a transferee to the effect
that a transfer has occurred, identifying the Options transferred, identifying
the transferee and the transferee's relation to the Participant and any other
information the Administrator, in its sole discretion, shall determine to be
necessary or desirable, the transferee acknowledges that the Option is subject
to the Plan and the Stock Option Agreement between the Company and the
Participant, and that the transferee will comply with all applicable provisions
of the Plan and such Stock Option Agreement.
(D) Any Eligible Director to whom an Option is granted hereunder may
designate a Beneficiary who shall have the right to exercise the Option after
the Eligible Director's death, subject to applicable provisions of the Plan and
each applicable Stock Option Agreement.
(4) Vesting.
(A) (i) The first 50% of an Option granted on or after January 4,
1999, shall be exercisable by the Participant to whom the Option has been
granted upon the first anniversary of the date the Option was granted; provided,
however, that the Participant is a Director on such anniversary date; and
(ii) The entire 100% of an Option granted on or after January
4, 1999, shall be exercisable by the Participant to whom the Option has been
granted upon the second anniversary of the date the Option was granted;
provided, however, that the Participant is a Director on such anniversary date.
(B) Notwithstanding any other provision of this Section 6(b)(4),
(i) 100% of the Shares represented by any Option granted to a
Participant who dies while actively serving as a Director shall immediately vest
and shall be exercisable by the Participant's Beneficiary as of the date of the
Participant's death to the full extent of the grant, and
(ii) the Board or Committee shall have the sole discretion to
accelerate the vesting of any Option granted to a Participant who retires or
becomes disabled.
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(5) Exercise of Option. An Option shall be exercisable solely to the
extent it has become vested in accordance with Section 6(b)(4) and for such
period as set forth in this Section 6. An Option may be exercised only by the
Participant to whom it was granted, except as otherwise provided in Section
6(b)(3).
(6) Payment for Shares and Method of Exercise. A Participant or
Beneficiary may exercise a vested Option in whole or in part at any time during
the Option term by delivering to the Company written notice of exercise
specifying the number of Shares to be purchased and the Option exercise price
therefor. The notice of exercise shall be accompanied by payment in full of the
Option exercise price. Payment of the Option exercise price may be made (A) in
cash or its equivalent, (B) to the extent determined by the Board or the
Administrator on or after the date of grant, in Shares duly owned by the
Participant or Beneficiary (and for which the Participant or Beneficiary has
good title free and clear of any liens and encumbrances), or (C) by broker-
assisted cashless exercises. Upon payment in full of the Option exercise price
and satisfaction of the other conditions provided herein, a stock certificate
representing the number of Shares to which the Participant or Beneficiary is
entitled shall be issued and delivered to the Participant or Beneficiary.
(7) Retirement. If the Participant retires, any portion of the Option
that is vested and exercisable on the date of the Participant's Retirement shall
be exercisable by the Participant within the five-year period commencing on the
Participant's date of Retirement, but in any event not later than the expiration
date of the Option.
(8) Total Disability. If a Total Disability prevents a Participant from
performing the duties of a Director, any portion of the Option that is vested
and exercisable on the date of the Participant's Total Disability shall be
exercisable by the Participant within the five-year period commencing on the
first date the Participant is first determined by the Board to be Totally
Disabled, but in any event not later than the expiration date of the Option.
(9) Death.
(A) Except as provided in Sections 6(b)(9)(B) and (C), if a
Participant ceases to be a Director by reason of death, any portion of the
Option that is vested and exercisable on the date of the Participant's death,
shall thereafter be exercisable by the Participant's Beneficiary within the
five-year period commencing on the date of the Participant's death, but in
any event not later than the expiration date of the Option.
(B) If a Participant dies after Retirement but before the expiration
of the five-year exercise period that commenced on the date the Participant
retired, then any portion of the Option that was vested and exercisable on the
Participant's date of Retirement thereafter shall be exercisable by the
Beneficiary during the remainder of the five-year exercise period that commenced
on the Participant's date of Retirement, but in any event not later than the
expiration date of the Option.
(C) If a Participant dies after becoming Totally Disabled but before
the expiration of the five-year exercise period commencing on the first date of
the Participant is first determined to be Totally Disabled, then any portion of
the Option that was vested and exercisable on the date the Participant was
determined to have a Total Disability thereafter shall be exercisable by the
Beneficiary during the remainder of the five-year exercise period that commenced
on the first date of the Participant's Total Disability, but in any event not
later than the expiration date of the Option.
(10) Other Termination. Unless otherwise determined by the Board or the
Administrator on or after the date of grant, if a Participant ceases to be a
Director for any reason other than death, Retirement, or Total Disability, any
portion of the Option that is vested and exercisable on the date of the
Participant's termination shall be exercisable until the earlier of thirty days
after the date the Participant ceases to be a Director, but in any event not
later than the expiration date of the Option.
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(11) Change of Control. Notwithstanding the foregoing, upon a
Change of Control, all Options granted hereunder shall immediately vest and
shall be exercisable to the full extent of the original grant. If a Participant
ceases to be a Director at or after a Change of Control, other than by reason of
death, Total Disability or Retirement, the Option shall be exercisable for five
years following the date the Participant ceases to be a Director, but in any
event not later than the expiration date of the Option.
(12) Other Terms. The Stock Option Agreement may contain such other
terms, provisions, and conditions as may be determined by the Board or
Administrator so long as those terms, provisions, and conditions are not
inconsistent with the provisions of the Plan. The terms of any Stock Option
Agreement need not be uniform with the terms of any other Stock Option
Agreement.
(c) Rights as Shareholder. A Participant or Beneficiary shall not be
deemed to be the holder of Common Stock, or have any of the rights of a holder
of Common Stock, with respect to Shares subject to an Option, until the Option
is exercised and a stock certificate representing such Shares is issued to the
Participant or Beneficiary.
Section 7. Awards of Restricted Shares.
(a) Eligibility. Each individual who is appointed or elected to be a
Director on or after April 1, 1998, and who thereafter becomes an Eligible
Director, shall receive a one time award of 12,500 Restricted Shares as of the
date he first becomes a Director.
(b) Awards of Restricted Shares. Each award of Restricted Shares shall
be evidenced by an award agreement, which shall contain such terms and
conditions consistent with the Plan as shall from time to time be determined by
the Board or the Administrator, in its sole discretion, and to the following
terms and conditions ("Restricted Stock Agreement"):
(1) none of the Restricted Shares may be sold, assigned, transferred,
pledged or otherwise encumbered, except as otherwise specifically provided,
during the Restriction Period;
(2) all of the Restricted Shares shall be forfeited and shall be
returned to the Company and all rights of the Eligible Director to such
Restricted Shares shall terminate without any payment of consideration by the
Company if the Eligible Director fails to be a Director on the anniversary date
of the award of the Restricted Shares in accordance with Section 7(d), unless
the Eligible Director's service is terminated by reason of his death, Total
Disability, or Retirement; and
(3) upon and following the date a certificate for the Restricted
Shares is issued to an Eligible Director (except following a forfeiture of the
Restricted Shares as set forth in Section 7(b)(2), the Eligible Director shall
have all of the rights of a shareholder including but not limited to the right
to receive all dividends paid on such Restricted Shares (reduced by the amount,
if any, the Company is be required to withhold for taxes) and the right to vote
such Restricted 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 Eligible Director subject to
the same restrictions as the Restricted Shares.
(c) Certificates for Shares.
(1) As soon as practicable after the receipt by the Company of a
Restricted Stock Agreement executed by the Eligible Director as provided in
Section 7(b) and of a stock power endorsed by the Eligible Director in blank
with respect to the Restricted Shares covered by the Restricted Stock Agreement,
unless a later date for issuance of stock certificates is provided in the
Restricted Stock Agreement, the Company, in its sole discretion, upon the
Eligible Director's written request, may cause to be issued a stock certificate,
registered in the name of the Eligible Director, evidencing the Restricted
Shares awarded under the Restricted Stock Agreement. Each such certificate shall
bear a legend substantially in the following form:
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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 Stock Plan for Non-Employee Director of Cyprus Amax
Minerals Company and Restricted Stock Agreement entered into between
the registered owner of such shares and Cyprus Amax Minerals Company.
A copy of the Plan and the Restricted Stock 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 7(d) on such Restricted Shares.
(2) As an alternative to delivering any stock certificate to the Eligible
Director pursuant to Section 7(c)(1) 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 Eligible Director a receipt evidencing any stock certificate held by the
custodian registered in the name of such Eligible Director. Notwithstanding the
provisions of Section 7(c)(1) or this Section 7(c)(2), the Company may adopt
such other procedures that it, in its sole discretion, deems appropriate to
evidence the right of the Eligible Director to Restricted Shares.
(3) The Eligible Director 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.
(4) As soon as practicable after the lapse or release of the restrictions
imposed pursuant to Section 7(d) on any Restricted Shares, the Company shall
cause to be issued in the Eligible Director's name a stock certificate
evidencing the Restricted Shares with respect to which restrictions have lapsed
or been released, free of the legend provided in Section 7(c)(1), and shall
cause such stock certificate to be delivered to the Eligible Director, upon
surrender to the Company of the previously issued certificate(s) representing
the same Restricted Shares.
(d) Restriction Period. The restrictions set forth in Section 7(b)(1)
shall lapse only when the forfeiture provisions set forth in Section 7(b)(2)
shall lapse. Subject to Section 7(e), the forfeiture provisions set forth in
Section 7(b)(2) shall lapse:
(1) with respect to the first 20% of the Restricted Shares
compromising an award of Restricted Shares to an Eligible Director, on the first
anniversary of the date of the award,
(2) with respect the first 40% of such Restricted Shares, after the
second anniversary of the date of the award,
(3) with respect to the first 60% of such Restricted Shares, after the
third anniversary of the date of the award,
(4) with respect to the first 80% of such Restricted Shares, after the
fourth anniversary of the date of the award, and
(5) with respect to 100% of such Restricted Shares, after the fifth
anniversary of the date of the award.
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(e) Lapse of Restrictions.
(1) In the event that the Participant ceases to be an Eligible
Director prior to the lapse of restrictions on Restricted Shares by reason of
his death, Total Disability, or Retirement, the restrictions on all Restricted
Shares awarded to such Eligible Director shall lapse on the date the Participant
ceases to be an Eligible Director.
(2) The Board or the Administrator 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 Eligible Director. The Board or the Administrator,
in its sole discretion and subject to such terms and conditions as the Board or
the Administrator shall determine, may include in any Restricted Stock Agreement
evidencing the award of Restricted Shares, and may amend any outstanding
Restricted Stock Agreement to cause it to include, a right of the Participant
upon ceasing to be an Eligible Director, other than by reason of his death,
Total Disability, or Retirement, to receive cash equal to the Fair Market Value
per Share of such Restricted Shares on the date the Participant ceases to be an
Eligible Director.
(3) Notwithstanding any other provision of the Plan to the contrary,
in the event of a Change of Control, the restrictions applicable to any
Restricted Shares shall lapse and such Restricted Shares shall become free of
all restrictions and fully vested to the full extent of the original grant.
Section 8. Regulatory Compliance and Listing.
The issuance or delivery of any of the Shares may be postponed by the
Company for such period as may be required to comply with any applicable
requirements under Federal or state securities laws, any applicable listing
requirements of any national securities exchange, and requirements under any
other law or regulation applicable to the issuance or delivery of such Shares
that would constitute a violation of any provision of any law or of any
regulation of any governmental authority or any national securities exchange.
Section 9. Adjustment for Company Changes.
(a) 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, recapitalizations,
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, 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 the Plan, the issue or sale by the Company of
shares of stock of the Company of any class, or securities convertible into
shares of stock of the Company 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.
(b) Changes in Capitalization. In the event that the Board or the
Administrator 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 or other securities of the Company, issuance of warrants or the rights
to purchase Shares or other securities of the Company, or the similar corporate
transaction or event affects the Shares such that an adjustment is determined by
the Board to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Board or the Administrator
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shall, in such manner as it shall deem equitable, adjust any or all of (1) the
number and type of Shares (or other securities or property) which thereafter may
be made the subject of awards under the Plan, (2) the number and type of Shares
(or other securities or property) subject to outstanding grants and awards under
the Plan, and (3) the grant, purchase, or exercise price with respect to any
grant or award under the Plan, or, if deemed appropriate, make provision for a
cash payment to the holder of any outstanding grant or award; provided, however,
that the number of Shares subject to any grant or award under the Plan
denominated in shares shall always be a whole number.
Section 10. Administration.
(a) Appointment of Administrator. An Administrator, which may be one or
more individuals, shall be appointed from time to time by the Chief Executive
Officer of the Company or by his duly authorized delegate in order to administer
the Plan as provided herein.
(b) Rights and Duties of Administrator. The Administrator, on behalf of
the Participants and their Beneficiaries, shall enforce the Plan in accordance
with its terms, shall be charged with the general administration of the Plan,
and shall have all powers necessary to accomplish those purposes, including, but
not by way of limitation, the following:
(1) to interpret the provisions of the Plan and to determine the terms
and conditions of grants and/or awards at or after the date of grant and/or
award;
(2) to compute and certify the amount and kind of benefits payable to
Participants and their Beneficiaries;
(3) to maintain or to designate any person or entity to maintain all
the necessary records for the administration of the Plan;
(4) to make and publish such rules for the regulation of the Plan as
are consistent with the terms hereof;
(5) to provide for disclosure of such information and filing or
provision of such reports and statements to Participants or Beneficiaries under
the Plan as the Administrator deems appropriate; and
(6) to amend the Plan, any Award Agreement, any Stock Option
Agreement, or Restricted Stock Agreement to the extent such authority to amend
the Plan, any Award Agreement, any Stock Option Agreement, or Restricted Stock
Agreement has been delegated to it by the Board or the Committee.
All interpretations and decisions and other actions of the Administrator shall
be conclusive and final on all persons interested in the Plan, except to the
extent otherwise specifically indicated herein. The Administrator may appoint
one or more agents, and delegate thereto such powers and duties in connection
with the administration of the Plan as the Administrator may from time to time
prescribe. To the extent of any such delegation, the delegate shall have the
duties, powers, authority and discretion of the Administrator.
(c) Authority of Board or Committee. Notwithstanding any provision
contained in the Plan regarding the delegation of authority to the Administrator
or any other person with respect to the operation and administration of the
Plan, the Board or the Committee, acting in its sole discretion, may at any time
exercise its authority under the terms of the Plan to act on behalf of the
Company.
Section 11. Amendment and Termination.
(a) Amendment of Plan. The Board from time to time may amend the Plan.
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(b) Amendment of Award Agreement. The Board or the Committee from time to
time may amend the terms of any Award Agreement for any award of Shares that was
previously granted or is yet to be granted, in any manner, provided that such
amendment is not inconsistent with the terms of the Plan, and provided that no
such amendment shall impair the rights of any Participant (or Beneficiary if the
Participant is deceased), without such Participant's (or Beneficiary's) written
consent.
(c) Amendment of Stock Option Agreement. The Board or the Committee
from time to time may amend the terms of any Stock Option Agreement for any
Option that was previously granted or is yet to be granted, in any manner,
provided that such amendment is not inconsistent with the terms of the Plan, and
provided that no such amendment shall impair the rights of any Participant (or
Beneficiary if the Participant is deceased), without such Participant's (or
Beneficiary's) written consent.
(d) Amendment of Restricted Stock Agreement. The Board or the Committee
from time to time may amend the terms of any Restricted Stock Agreement
evidencing an award of Restricted Shares either previously awarded or yet to be
awarded, in any manner, so long as such amendment is not inconsistent with the
terms of the Plan, and provided that no such amendment shall impair the rights
of any Participant (or Beneficiary if the Participant is deceased), without such
Participant's (or Beneficiary's) written consent.
(e) Termination of Plan. The Board may terminate the Plan at any time,
provided that termination of the Plan shall not affect Options granted, Shares
awarded or Restricted Shares awarded prior to the date of termination.
Section 12. Miscellaneous.
(a) No Right to Continue as Director. Nothing in the Plan, the award of
any Shares, grant of any Option, or award of any Restricted Shares shall be
deemed to (1) confer upon any person the right to continue as a Director, or (2)
create any obligation on the part of the Board to nominate any Director for
reelection by the Company's shareholders, or (3) limit the rights of the
shareholders to remove any Director.
(b) Other Plans.
(1) Nothing contained in the Plan shall prevent the Board or Committee
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
(2) No income of a Participant attributable to the Plan shall be
included in the Participant's earnings for purposes of any benefit plan in which
the Participant may be eligible to participate, unless otherwise determined by
the Board or the Committee or the Administrator, or unless otherwise provided by
the terms of such other benefit plan.
(c) Payment of Taxes. The Company shall have the right to require,
prior to the issuance or delivery of any Shares, payment by a Participant of any
taxes required by law with respect to the issuance or delivery of such Shares.
With respect to tax withholding required upon the exercise of Options, upon the
lapse of restrictions on Restricted Shares, or upon any other taxable event
arising out of or as a result of any grant or award made hereunder, Participants
may elect to satisfy the withholding requirement, in whole or in part, by
tendering previously-owned Shares or by having the Company withhold Shares
having a Fair Market Value on the date the tax is to be determined equal to the
minimum statutory total tax which could be imposed on the transaction. All
elections shall be irrevocable, made in writing and signed by the Participant.
(d) Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payment not yet
made to a Participant by the Company, nothing contained herein shall give the
Participant any rights that are greater than those of a general creditor of the
Company.
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(e) Governing Law. To the extent not superseded by federal law, the
Plan and actions taken in connection herewith shall be governed and construed in
accordance with the laws of the State of Colorado.
(f) Liability. No Director or any employee of the Company or any of its
subsidiaries shall be liable for any act or action hereunder, whether of
omission or commission, by any other Director or employee or by any agent to
whom duties in connection with the administration of the Plan have been
delegated or, except in circumstances involving bad faith, gross negligence or
fraud, for anything done or omitted to be done by himself.
(g) Costs. The Company shall bear all expenses incurred in
administering the Plan, including expenses related to the issuance of Common
Stock upon an award of Shares, the exercise of Options, or the award of
Restricted Shares.
(h) Severability. If any provision of the Plan or any Award Agreement,
Stock Option Agreement, or Restricted Stock Agreement is or becomes invalid,
illegal, or unenforceable in any applicable jurisdiction, or as to any person,
or would disqualify the Plan or any grant or award under any law or regulation
deemed applicable by the Board, 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 Board,
materially altering the intent of the Plan or the grant or award, such provision
shall be stricken as to such jurisdiction or person and the remainder of the
Plan or the grant or award shall remain in full force and effect.
(i) Successors. The Plan shall be binding upon and inure to the benefit
of any successor or successors of the Company.
(j) Headings and Construction. Section headings contained in the Plan
are included for convenience only and are not to be used in construing or
interpreting the Plan. Except where otherwise indicated by context, the
masculine shall include the feminine and the singular shall include the plural,
and vice-versa.
Section 13. Effective Date of the Plan.
The Plan was originally adopted effective as of July 1, 1992. The Plan as
amended and restated herein shall be effective as of January 1, 1999 (except as
otherwise provided herein), subject to the approval of the Company's
shareholders. If such shareholder approval is not obtained, the Plan as amended
and restated herein shall be null and void but the Plan, as in effect
immediately prior to such amendment and restatement, shall continue in full
force and effect.
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EXHIBIT 10(d)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
CONTRACTS REGARDING EMPLOYMENT BETWEEN
CYPRUS AMAX MINERALS COMPANY AND CERTAIN
EXECUTIVE OFFICERS
<PAGE>
EXHIBIT 10(d)
AGREEMENT
This Agreement (the "Agreement") is entered into as of this 26th day of
October, 1998, by and between Cyprus Amax Minerals Company, a Delaware
corporation (the "Company"), and Garold R. Spindler (the "Employee").
WHEREAS, the Employee is a principal officer of the Company and an integral
part of its management; and
WHEREAS, the Company wishes to encourage Employee's continued employment
with the Company by providing incentive compensation in the event his employment
with the Company is terminated under certain circumstances as hereinafter set
forth;
NOW, THEREFORE, in consideration of the undertakings and the payments
herein set forth, the Company and the Employee mutually agree as follows:
1. Definitions. For purposes of this Agreement, the following words shall
-----------
have the following meanings:
"Annual Bonus" means the target bonus payable to the Employee for the
------------
year in question under the Annual Incentive Plan for executive officers and
designated senior management, or any successor plan of similar purpose.
"Base Salary" means as of any date of determination, the annual rate of
-----------
compensation being paid to the Employee for services performed by the Employee
for the Company, excluding amounts payable to the Employee for the account of
the Employee under Company benefit plans or programs (including, without
limitation, retirement, savings, vacation, life insurance, medical, dental and
disability plans or programs) or under Company special compensation plans or
programs (including, without limitation, bonus and stock option or stock grant
plans or programs).
"Cause" means:
-----
(a) The willful and continued failure of the Employee to perform
substantially the Employee's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Employee by the Board of Directors of the Company or the Chief Executive Officer
of the Company which specifically identifies the manner in which the Board or
Chief Executive Officer believes that the Employee has not substantially
performed the Employee's duties; or
(b) The willful engaging by the Employee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
"Change of Control" means 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
<PAGE>
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent
(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 for purposes of this Subsection (a), the
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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 corporation controlled by the Company, or
(iv) any acquisition by any corporation pursuant to a transaction which complies
with clauses (i) and (ii) of Subsection (c) below; or
(b) Individuals who, as of the date hereof, 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
-------- -------
the date hereof 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) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, either (i)(A) 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
fifty percent (50%) 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
or all or substantially all of the Company's assets either directly or 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 or (B) 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, and (ii) no Person
(excluding such corporation resulting from such Business Combination, any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, twenty percent (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
with respect to the Company prior to the Business Combination; or
2
<PAGE>
(d) A complete liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Disability" means an incapacitating condition which in the Company's
----------
reasonable judgment will materially and adversely interfere with the Employee's
performance of assigned duties for a period in excess of six (6) months.
"Full Benefit Plan" means the Full Retirement Benefit Plan for Certain
-----------------
Salaried Employees of Cyprus Amax Minerals Company, as amended from time to
time.
"Good Reason" means any of the following:
-----------
(a) A material diminution in the Employee's position, authority, duties
or responsibilities;
(b) The Company requires the Employee to relocate more than fifty (50)
miles; or
(c) A reduction in Base Salary of more than ten percent (10%) or a
material reduction in employee benefits unless such a reduction is generally
applicable to all other officers of the Company.
"Retirement" means the termination of an Employee's employment in a
----------
manner entitling the Employee to an immediate early or normal retirement benefit
under the Retirement Plan.
"Retirement Plan" means the Retirement Plan for Salaried Employees of
---------------
Cyprus Amax Minerals Company, as amended from time to time.
"SERP" means the Cyprus Amax Minerals Company Supplemental Executive
----
Retirement Plan, as amended from time to time.
2. Benefits upon Termination. In the event the Employee's employment with
-------------------------
the Company is terminated by the Company due to death or Disability; or by the
Company without Cause or in the event that the Employee terminated employment
for Good Reason:
(a) Retirement Benefits.
-------------------
(i) The Company shall pay the Employee, immediately upon
termination of the Employee's employment, a lump sum amount which shall be
computed on the basis of the definition of actuarial equivalent specified in the
Retirement Plan, equal to:
(A) the additional retirement benefit that would have been
received by the Employee under the Retirement Plan, and
3
<PAGE>
(B) the full benefit that would have been received by the
Employee under the Full Benefit Plan and the SERP, or such similar benefits
under successor plans, if applicable, in each case calculated for all purposes
as if the Employee had remained in the employment of the Company for an
additional eighteen (18) months following the date of termination plus a period
extending until said Employee would first have been eligible to retire and
receive an immediately payable benefit under the Retirement Plan as if the
Employee retired as of that date and elected to receive payment immediately upon
termination (provided that if the Employee is already eligible to retire under
the Retirement Plan and receive an immediately payable benefit, no additional
age or years of service beyond the eighteen (18) month period will be included
for purposes of calculating this payment). Such calculation of benefit shall be
based on the higher of the average of the final five (5) complete calendar years
of the Employee's compensation preceding termination or the Employee's
compensation for the calendar year preceding the year of termination, as the
term "compensation" is defined in the applicable plans, but regardless of when
such amounts are actually paid to the Employee. For purposes of computing the
additional benefit under the Full Benefit Plan, the additional Full Benefit Plan
credited service computation will include the additional period of Benefit
Service deemed to have been credited under the Retirement Plan for purposes of
computing the additional benefits under the Retirement Plan.
(ii) The following procedure shall be used to calculate the lump
sum payment under this Section 2(a):
(A) (1) If the Employee terminates from employment with the
Company at a time he is eligible for a future benefit from the Retirement Plan
because he has not yet attained the earliest retirement age under the Retirement
Plan, the Company shall make an "interim" payment to the Employee. This interim
payment shall be based on an estimate of the projected benefits the Employee
will receive from the Retirement Plan and the related estimated additional
benefits under the Agreement based on the facts and circumstances at the time
the estimates are made.
(2) When the Employee attains the earliest retirement age
(or would have attained such age but for death) which had been used to calculate
the interim payment, the Company shall recalculate all portions of the benefits
under Section 2(a) of the Agreement, but such recalculation shall use the
benefit actually paid, if any, from the Retirement Plan. In making such
recalculation, the actual amount of the interim payment, which had been
previously paid to Employee shall be used, however, such payment shall not be
actuarially adjusted for the period of time between the interim payment and the
recalculation. If such recalculation results in an amount under the Agreement
that is larger than the interim payment previously paid to the Employee, the
Company shall make an additional payment under the Agreement to make up the
difference between the interim payment and the recalculated amount.
(B) If the Employee terminates from employment with the
Company at a time he is eligible for an immediate benefit from the Retirement
Plan, the Company shall make to the Employee a single lump sum cash payment of
the benefit due to the Employee under Section 2(a) of this Agreement, which
payment shall be in full satisfaction of the Company's obligations under Section
2(a) of this Agreement.
4
<PAGE>
(iii) In the event that benefits are paid to the Employee under
Section 2(a)(i)(B) of this Agreement, this Agreement shall, effective as of the
date payment is made to the Employee under this Agreement, operate as an
amendment of each of the Full Benefit Plan and the SERP, which amendment
provides that payment of such benefits under this Agreement, to the extent such
payments are equal to or in excess of the benefits accrued and payable under the
respective plan as of the date of the Employee's termination of employment
triggering such payment of benefits under this Agreement, constitute payment and
satisfaction in full of any obligation the Company may have to pay benefits
under the respective plan.
(iv) (A) Subject to the rules of this Section 2(a)(iv), the
Employee may designate the beneficiary or beneficiaries who shall receive, on or
after the Employee's death, the benefits payable under Section 2(a) of the
Agreement. Such designation shall be made by executing and filing with the
Company a written instrument in such form as may be prescribed by the Company
for that purpose. The Employee may revoke or change, at any time and from time
to time, any beneficiary designation previously made. Such revocations and/or
changes shall be made by executing and filing with the Company a written
instrument in such form as may be prescribed by the Company for that purpose.
(B) No designation, revocation, or change of beneficiary made
by the Employee shall be valid and effective unless and until it is received by
the Company.
(C) Notwithstanding the provisions of Section 2(a)(iv)(A),
unless the Employee establishes to the satisfaction of the Company that he has
no spouse, he may not designate a beneficiary other than his spouse unless his
spouse executes a written instrument whereby such spouse consents not to receive
such benefit. If the Employee later marries or remarries before the benefit
becomes payable under Section 2(a) of the Agreement, such spouse automatically
shall become the beneficiary hereunder, unless the Employee, subsequent to such
marriage or remarriage, designates a non-spouse beneficiary with such new
spouse's consent.
(D) If the Employee has no beneficiary, if the Employee's
beneficiary(ies) predecease the Employee, or if the beneficiary(ies) cannot be
located by the Company, the interest of the deceased Employee shall be paid to
the Employee's estate.
(b) Outplacement Services. The Employee shall be entitled to
---------------------
outplacement services provided by a firm of Employee's choice at a cost to the
Company of up to fifteen percent (15%) of the Employee's then current Base
Salary plus Annual Bonus.
(c) Welfare Benefits. Commencing upon the Employee's termination of
----------------
employment with the Company, the Employee shall be entitled to receive any and
all welfare benefits applicable to Company retirees, as though the Employee had
been eligible to retire and had retired as of the termination date at the age
and with the years of service used to calculate the additional retirement
benefit, pursuant to Section 2(a) above.
5
<PAGE>
(d) Non-duplication of Benefits. This Section 2 shall not in any way
---------------------------
duplicate any benefit, or alter the manner in which or the time at which
benefits are paid, pursuant to any qualified plans maintained by the Company.
3. Certain Additional Payments. While the Employee and the Company intend
---------------------------
that no payments made under this Agreement will be subject to Section 280G and
Section 4999 of the Code, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Employee (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 3) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Employee with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Employee shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Employee of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. All determinations under
this Section 3 shall be made by PricewaterhouseCoopers, LLP.
4. Successors. This Agreement, and the rights and obligations created
----------
hereby, shall be binding upon and shall inure to the benefit of Cyprus Amax
Minerals Company and all of its successors and assigns (whether by merger or
otherwise).
5. Attorney's Fees and Interest. The Company shall reimburse the Employee
----------------------------
for any and all reasonable attorney's fees and expenses reasonably incurred by
the Employee in asserting the Employee's rights under this Agreement (other than
any such fees incurred with respect to a claim brought in bad faith), and shall
pay to the Employee any and all prejudgment interest awarded for delayed
payments by the Company under the Agreement.
6. Miscellaneous.
-------------
(a) Amendment of Agreement. This Agreement may be rescinded, revoked,
----------------------
or amended only by a written instrument signed by both parties. The failure of
either party to insist upon strict compliance with any of the terms, conditions,
and covenants hereof shall not be deemed a waiver of that or any similar right
or power at any subsequent time.
(b) Withholding. The Company may withhold from any amounts payable
-----------
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(c) Amendment of Plans. Nothing in this Agreement shall be interpreted
------------------
to limit the right of the Company to amend or terminate any existing or future
benefit plan or program.
6
<PAGE>
(d) Notice. Any written notice required or permitted to be given
------
hereunder is sufficient if sent by registered mail or delivered by hand, to the
Company at its main place of business, or to the Employee at the home address of
the Employee as reflected in Company records.
(e) Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(f) Governing Law. This Agreement is to be governed and construed in
-------------
accordance with the laws of the state of Colorado, excluding any conflict of
laws or provisions thereof which would cause the laws of any other state to be
applicable hereto.
(g) Successor Plans. Any reference to any plan or arrangement of the
---------------
Company or its subsidiaries shall include any successor plan or arrangement.
IN WITNESS WHEREOF, the Employee has signed this Agreement, and the Company
has caused its duly authorized representative to sign this Agreement, in each
case as of the date first written above.
CYPRUS AMAX MINERALS COMPANY
By: /s/Milton H. Ward
-----------------
EMPLOYEE
/s/Garold R. Spindler
---------------------
Garold R. Spindler
7
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Cyprus Amax Minerals Company, a Delaware
corporation (the "Company"), and Farokh S. Hakimi (the "Executive"), dated as of
the 12th day of February, 1999.
The Compensation and Benefits Committee (the "Committee") of the Board
of Directors of the Company (the "Board") has determined that it is in the best
interests of the Company and its shareholders to assure that the Company will
have the continued dedication of the Executive, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below) of the Company.
The Committee believes it is imperative to diminish the inevitable distraction
of the Executive by virtue of the personal uncertainties and risks created by a
pending or threatened Change of Control and to encourage the Executive's full
attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the Executive with
compensation and benefits arrangements upon a Change of Control which ensure
that the compensation and benefits expectations of the Executive will be
satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Committee has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Executive's
employment with the Company is terminated prior to the date on which the Change
of Control occurs, and if it is reasonably demonstrated by the Executive that
such termination of employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or in anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the second anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
<PAGE>
2. Change of Control. For the purpose of this Agreement, a "Change
-----------------
of Control" shall mean:
(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 35% 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 for purposes of this Section 2(a), the following
acquisitions shall not constitute a Change of Control: (A) any acquisition
directly from the Company, (B) any acquisition by the Company directly or
indirectly through one or more of the Company's subsidiaries or its affiliates,
(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 which complies with
clauses (i) and (ii) of Section 2(c); or
(b) IndividuaIs who, as of the date hereof, 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 the date hereof 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) Consummation of a reorganization, merger or consolidation
involving the Company or any subsidiary of the Company or sale or other
disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, either (i) (A) 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
50% 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 or all or
substantially all of the Company's assets either directly or 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, or (B) 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 and (ii) no Person (excluding any
corporation resulting from such Business Combination or
-2-
<PAGE>
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 35% 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; or
(d) A complete liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
-----------------
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period"), unless terminated earlier pursuant to this
Agreement.
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the
Effective Date.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the
-----------
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period
-3-
<PAGE>
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed no more than 12
months after the last salary increase awarded to the Executive prior to the
Effective Date and thereafter at least annually. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after any such
increase and the term Annual Base Salary as utilized in this Agreement shall
refer to Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling or
under common control with the Company.
(ii) Annual Target Bonus. In addition to Annual Base
-------------------
Salary, the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual target bonus (the "Annual Target Bonus") at least
equal to the Executive's highest target bonus guideline established as a
percentage of the Executive's Annual Base Salary under the Company's Annual
Incentive Plan, or any predecessor or successor plan, for the last fiscal year
prior to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year). Each such Annual
Target Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Target Bonus is
applicable, unless the Executive shall elect to defer the receipt of such Annual
Target Bonus.
(iii) Incentive, Savings and Retirement Plans. During
---------------------------------------
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment
---------------------
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated companies,
but in no event shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
-4-
<PAGE>
(v) Expenses. During the Employment Period, the
--------
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Vacation. During the Employment Period, the
--------
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the 120-
day period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
5. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall
-------------------
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 13(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
-----
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliated companies (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by
-5-
<PAGE>
the Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer believes
that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
-----------
terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a material, adverse diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any
of the provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company requires the Executive to travel on
Company business to a substantially greater extent than required immediately
prior to the Effective Date, except if such increase is due to a relocation of
the corporate headquarters and/or the relocation of the Executive's work
location within the contiguous 48 States of the United States;
-6-
<PAGE>
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and satisfy
Section 12(c) of this Agreement.
Notwithstanding anything herein to the contrary, a relocation of the corporate
headquarters and/or the relocation of the Executive's work location within the
contiguous 48 States of the United States shall not constitute "Good Reason."
(d) Notice of Termination. Any termination by the Company for
---------------------
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(b) of
this Agreement. For purposes of this Agreement, "Notice of Termination" shall
mean a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date shall be not
more than 30 days after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall
-------------------
mean (i) if the Executive's employment is terminated by the Company for Cause,
or by the Executive for Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability.
-------------------------------------------------------
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
(A) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent not theretofore paid, (2)
the Annual Target Bonus, if accrued as of the Date of Termination, and (3) any
compensation
-7-
<PAGE>
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and (3)
shall be hereinafter referred to as the "Accrued Obligations"); and
(B) the amount equal to the product of (1) two and
(2) the Executive's Annual Base Salary and the Annual Target Bonus to which the
Executive may have been eligible; and
(ii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason
-----
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and its affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
----------
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
-8-
<PAGE>
(d) Cause; Other than for Good Reason. If the Executive's
---------------------------------
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement
-------------------------
shall prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, subject to
Section 13(f), shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or any
of its affiliated companies. Subject to the provisions of Section 8, amounts
which are vested benefits or which the Executive is otherwise entitled to
receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Non-Duplication of Benefits. Notwithstanding anything
---------------------------
in this Agreement to the contrary, nothing contained in Section 4(b) or Section
6 shall in any way require the payment of any amounts or the provision of any
benefits which would result in the duplication of any such payment or the
provision of any such benefits pursuant to any practice, policy or benefit plan
sponsored or maintained by the Company and its affiliated companies, or which
would alter the manner in which or the time at which benefits are paid pursuant
to any tax-qualified retirement plans maintained by the Company and its
affiliated companies.
9. Full Settlement. The Company's obligation to make the
---------------
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof but not in the case of fees
incurred with respect to a claim brought in bad faith) by the Company, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest
-9-
<PAGE>
on any delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
10. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 10) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by the Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments. Notwithstanding the foregoing provisions of this Section 10(a), if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Executive, after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at least $50,000 (taking
into account both income taxes and any Excise Tax), as compared to the net
after-tax proceeds to the Executive resulting from an elimination of the Gross-
Up Payment and a reduction of the Payments, in the aggregate, to an amount (the
"Reduced Amount") such that the receipt of Payments would not give rise to any
Excise Tax, then no Gross-Up Payment-shall be made to the Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 10(c), all
determinations required to be made under this Section 10, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by PricewaterhouseCoopers, L.L.P., or such other certified public accounting
firm as may be designated by the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the Executive that there
has been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive shall
appoint another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 10, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be
-10-
<PAGE>
made hereunder. In the event that the Company exhausts its remedies pursuant to
Section 10(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than 10 business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 10(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any
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<PAGE>
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 10(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 10(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 10(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
11. Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data affiliated relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. In no event shall an asserted
violation of the provisions of this Section 11 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement.
12. Successors.
----------
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement,
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<PAGE>
"Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
13. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
-------------------
Farokh S. Hakimi
215 South Krameria
Denver, Colorado 80224
If to the Company:
-----------------
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, Colorado 80112
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist
upon strict compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder, including
without limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i) - (v) of this Agreement, shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
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<PAGE>
(f) The Executive and the Company acknowledge that, except
as may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from the Board, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
/s/ Farokh S. Hakimi
--------------------
[Executive]
CYPRUS AMAX MINERALS COMPANY
By: /s/ Milton H. Ward
--------------------
-14-
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Cyprus Amax Minerals Company, a Delaware
corporation (the "Company"), and Robin J. Hickson (the "Executive"), dated as of
the 1st day of February, 1999.
The Compensation and Benefits Committee (the "Committee") of the Board
of Directors of the Company (the "Board") has determined that it is in the best
interests of the Company and its shareholders to assure that the Company will
have the continued dedication of the Executive, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below) of the Company.
The Committee believes it is imperative to diminish the inevitable distraction
of the Executive by virtue of the personal uncertainties and risks created by a
pending or threatened Change of Control and to encourage the Executive's full
attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the Executive with
compensation and benefits arrangements upon a Change of Control which ensure
that the compensation and benefits expectations of the Executive will be
satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Committee has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Executive's
employment with the Company is terminated prior to the date on which the Change
of Control occurs, and if it is reasonably demonstrated by the Executive that
such termination of employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or in anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the second anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change
-----------------
of Control" shall mean:
<PAGE>
(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 35% 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 for purposes of this Section 2(a), the following
acquisitions shall not constitute a Change of Control: (A) any acquisition
directly from the Company, (B) any acquisition by the Company directly or
indirectly through one or more of the Company's subsidiaries or its affiliates,
(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 which complies with
clauses (i) and (ii) of Section 2(c); or
(b) Individuals who, as of the date hereof, 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 the date hereof 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) Consummation of a reorganization, merger or
consolidation involving the Company or any subsidiary of the Company or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, either (i) (A) 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
50% 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 or all or
substantially all of the Company's assets either directly or 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, or (B) 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 and (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 35% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting
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<PAGE>
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; or
(d) A complete liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
-----------------
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period"), unless terminated earlier pursuant to this
Agreement.
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 120-day period immediately preceding the Effective Date.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and
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<PAGE>
thereafter at least annually. Any increase in Annual Base Salary shall not serve
to limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Target Bonus. In addition to Annual Base
-------------------
Salary, the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual target bonus (the "Annual Target Bonus") at least
equal to the Executive's highest target bonus guideline established as a
percentage of the Executive's Annual Base Salary under the Company's Annual
Incentive Plan, or any predecessor or successor plan, for the last fiscal year
prior to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year). Each such Annual
Target Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Target Bonus is
applicable, unless the Executive shall elect to defer the receipt of such Annual
Target Bonus.
(iii) Incentive, Savings and Retirement Plans. During
---------------------------------------
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment
---------------------
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated companies,
but in no event shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(v) Expenses. During the Employment Period, the
--------
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses
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<PAGE>
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Vacation. During the Employment Period, the
--------
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the 120-
day period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
5. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall
-------------------
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 13(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
-----
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive
to perform substantially the Executive's duties with the Company or one of its
affiliated companies (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
-5-
<PAGE>
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
-----------
terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a material, adverse diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company requires the Executive to travel on
Company business to a substantially greater extent than required immediately
prior to the Effective Date, except if such increase is due to a relocation of
the corporate headquarters and/or the relocation of the Executive's work
location within the contiguous 48 States of the United States;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
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<PAGE>
(v) any failure by the Company to comply with and
satisfy Section 12(c) of this Agreement.
Notwithstanding anything herein to the contrary, a relocation of the corporate
headquarters and/or the relocation of the Executive's work location within the
contiguous 48 States of the United States shall not constitute "Good Reason."
(d) Notice of Termination. Any termination by the Company
---------------------
for Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section 13(b)
of this Agreement. For purposes of this Agreement, "Notice of Termination" shall
mean a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date shall be not
more than 30 days after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean
-------------------
(i) if the Executive's employment is terminated by the Company for Cause, or by
the Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability.
------------------------------------------------------
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
(A) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not theretofore paid,
(2) the Annual Target Bonus, if accrued as of the Date of Termination, and (3)
any compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid (the
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<PAGE>
sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
(B) the amount equal to the product of (1)
two and (2) the Executive's Annual Base Salary and the Annual Target Bonus to
which the Executive may have been eligible; and
(ii) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
-----
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and its
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated
----------
by reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
-8-
<PAGE>
(d) Cause; Other than for Good Reason. If the Executive's
---------------------------------
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
13(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Subject to the provisions of Section 8, amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contract or agreement with
the Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
8. Non-Duplication of Benefits. Notwithstanding anything in this
---------------------------
Agreement to the contrary, nothing contained in Section 4(b) or Section 6 shall
in any way require the payment of any amounts or the provision of any benefits
which would result in the duplication of any such payment or the provision of
any such benefits pursuant to any practice, policy or benefit plan sponsored or
maintained by the Company and its affiliated companies, or which would alter the
manner in which or the time at which benefits are paid pursuant to any tax-
qualified retirement plans maintained by the Company and its affiliated
companies.
9. Full Settlement. The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof but not in the case of fees
incurred with respect to a claim brought in bad faith) by the Company, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended (the "Code").
-9-
<PAGE>
10. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 10) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by the Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments. Notwithstanding the foregoing provisions of this Section 10(a), if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Executive, after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at least $50,000 (taking
into account both income taxes and any Excise Tax), as compared to the net
after-tax proceeds to the Executive resulting from an elimination of the Gross-
Up Payment and a reduction of the Payments, in the aggregate, to an amount (the
"Reduced Amount") such that the receipt of Payments would not give rise to any
Excise Tax, then no Gross-Up Payment-shall be made to the Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 10(c), all
determinations required to be made under this Section 10, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by PricewaterhouseCoopers, L.L.P., or such other certified public accounting
firm as may be designated by the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the Executive that there
has been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive shall
appoint another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 10, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 10(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the
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<PAGE>
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than 10 business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 10(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited
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<PAGE>
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 10(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 10(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 10(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
11. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data affiliated relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 11 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
12. Successors.
----------
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its
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<PAGE>
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
13. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
-------------------
Robin J. Hickson
12246 S. Honah Lee Ct.
Phoenix, AZ 85044
If to the Company:
-----------------
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, Colorado 80112
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i) - (v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
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<PAGE>
(f) The Executive and the Company acknowledge that, except
as may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from the Board, the Company has caused
these presents to be executed in its name on its behalf, all as of the day and
year first above written.
/s/ Robin J. Hickson
-----------------------------
[Executive]
CYPRUS AMAX MINERALS COMPANY
By: /s/ Milton H. Ward
-------------------------
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<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Cyprus Amax Minerals Company, a Delaware
corporation (the "Company"), and John Taraba (the "Executive"), dated as of the
27th day of January, 1999.
The Compensation and Benefits Committee (the "Committee") of the Board
of Directors of the Company (the "Board") has determined that it is in the best
interests of the Company and its shareholders to assure that the Company will
have the continued dedication of the Executive, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below) of the Company.
The Committee believes it is imperative to diminish the inevitable distraction
of the Executive by virtue of the personal uncertainties and risks created by a
pending or threatened Change of Control and to encourage the Executive's full
attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the Executive with
compensation and benefits arrangements upon a Change of Control which ensure
that the compensation and benefits expectations of the Executive will be
satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Committee has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which a Change of
Control (as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Executive's
employment with the Company is terminated prior to the date on which the Change
of Control occurs, and if it is reasonably demonstrated by the Executive that
such termination of employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or in anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the second anniversary of the date
hereof; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change
-----------------
of Control" shall mean:
<PAGE>
(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 35% 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 for purposes of this Section 2(a), the following
acquisitions shall not constitute a Change of Control: (A) any acquisition
directly from the Company, (B) any acquisition by the Company directly or
indirectly through one or more of the Company's subsidiaries or its affiliates,
(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 which complies with
clauses (i) and (ii) of Section 2(c); or
(b) IndividuaIs who, as of the date hereof, 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 the date hereof 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) Consummation of a reorganization, merger or consolidation
involving the Company or any subsidiary of the Company or sale or other
disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, either (i) (A) 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
50% 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 or all or
substantially all of the Company's assets either directly or 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, or (B) 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 and (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting
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from such Business Combination) beneficially owns, directly or indirectly, 35%
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; or
(d) A complete liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
-----------------
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period"), unless terminated earlier pursuant to this
Agreement.
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 120-day period immediately preceding the Effective Date.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the
-----------
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and
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thereafter at least annually. Any increase in Annual Base Salary shall not serve
to limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Target Bonus. In addition to Annual Base Salary,
-------------------
the Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual target bonus (the "Annual Target Bonus") at least
equal to the Executive's highest target bonus guideline established as a
percentage of the Executive's Annual Base Salary under the Company's Annual
Incentive Plan, or any predecessor or successor plan, for the last fiscal year
prior to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year). Each such Annual
Target Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Target Bonus is
applicable, unless the Executive shall elect to defer the receipt of such Annual
Target Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
---------------------------------------
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(v) Expenses. During the Employment Period, the Executive
--------
shall be entitled to receive prompt reimbursement for all reasonable expenses
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incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
5. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall
-------------------
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 13(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliated companies (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
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<PAGE>
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by
-----------
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a material, adverse diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company requires the Executive to travel on Company
business to a substantially greater extent than required immediately prior to
the Effective Date, except if such increase is due to a relocation of the
corporate headquarters and/or the relocation of the Executive's work location
within the contiguous 48 States of the United States;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
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<PAGE>
(v) any failure by the Company to comply with and satisfy
Section 12(c) of this Agreement.
Notwithstanding anything herein to the contrary, a relocation of the corporate
headquarters and/or the relocation of the Executive's work location within the
contiguous 48 States of the United States shall not constitute "Good Reason."
(d) Notice of Termination. Any termination by the Company for
---------------------
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(b) of
this Agreement. For purposes of this Agreement, "Notice of Termination" shall
mean a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date shall be not
more than 30 days after the giving of such notice). The failure by the Executive
or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" shall mean (i) if
-------------------
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability. If,
------------------------------------------------------
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2) the
Annual Target Bonus, if accrued as of the Date of Termination, and (3) any
compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid (the
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<PAGE>
sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
(B) the amount equal to the product of (1) two and (2) the
Executive's Annual Base Salary and the Annual Target Bonus to which the
Executive may have been eligible; and
(ii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required to
be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies, including, without limitation, the benefits provided
by the Agreement between the Executive and the Company dated November 1, 1993
(the "Existing Agreement") (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and its affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
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<PAGE>
(d) Cause; Other than for Good Reason. If the Executive's
---------------------------------
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
13(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Subject to the provisions of Section 8, amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contract or agreement with
the Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
8. Non-Duplication of Benefits. Notwithstanding anything in this
---------------------------
Agreement to the contrary, nothing contained in Section 4(b) or Section 6 shall
in any way require the payment of any amounts or the provision of any benefits
which would result in the duplication of any such payment or the provision of
any such benefits pursuant to any practice, policy or benefit plan sponsored or
maintained by the Company and its affiliated companies, or which would alter the
manner in which or the time at which benefits are paid pursuant to any tax-
qualified retirement plans maintained by the Company and its affiliated
companies.
9. Full Settlement. The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof but not in the case of fees
incurred with respect to a claim brought in bad faith) by the Company, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended (the "Code").
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<PAGE>
10. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 10) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 10(a), if it shall be determined that the Executive
is entitled to a Gross-Up Payment, but that the Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net after-tax
benefit of at least $50,000 (taking into account both income taxes and any
Excise Tax), as compared to the net after-tax proceeds to the Executive
resulting from an elimination of the Gross-Up Payment and a reduction of the
Payments, in the aggregate, to an amount (the "Reduced Amount") such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment-shall be made to the Executive and the Payments, in the aggregate, shall
be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 10(c), all determinations
required to be made under this Section 10, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
PricewaterhouseCoopers, L.L.P., or such other certified public accounting firm
as may be designated by the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the Executive that there
has been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive shall
appoint another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 10, shall be paid by the Company to the Executive within five days
of the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 10(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the
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<PAGE>
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than 10 business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 10(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited
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solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 10(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 10(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 10(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
11. Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data affiliated relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. In no event shall an asserted
violation of the provisions of this Section 11 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement.
12. Successors.
----------
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its
-12-
<PAGE>
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
13. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
-------------------
John Taraba
108 Falcon Hills Drive
Highlands Ranch, CO 80126
If to the Company:
-----------------
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, Colorado 80112
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i) - (v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
-13-
<PAGE>
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. Except as
provided herein with respect to benefits under the Existing Agreement, from and
after the Effective Date this Agreement shall supersede any other agreement
between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from the Board, the Company has caused
these presents to be executed in its name on its behalf, all as of the day and
year first above written.
/s/ John Taraba
-----------------------
[Executive]
CYPRUS AMAX MINERALS COMPANY
By: /s/ Milton H. Ward
--------------------
-14-
<PAGE>
EXHIBIT 10(e)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
AMENDMENTS TO KEY EXECUTIVE LONG-TERM
INCENTIVE PLAN
<PAGE>
EXHIBIT 10(e)
CYPRUS AMAX MINERALS COMPANY
Action(s) Authorized
--------------------
by the
------
Board of Directors
------------------
Effective August 20, 1998
Summary of Resolutions
- - Amends the KELTIP to provide for the full and immediate lapse of restrictions
on shares previously awarded thereunder to occur automatically upon a
participant's death, disability (as defined under the KELTIP), retirement
(as defined under the KELTIP), or termination of employment with the
Corporation without "cause" (as defined under the KELTIP).
- - Generally authorizes the officers of the Corporation to take any and all
necessary and appropriate action to effect the amendment.
Resolutions
WHEREAS, Cyprus Amax Minerals Company (the "Corporation") sponsors the Cyprus
Amax Minerals Company 1993 Key Executive Long-Term Incentive Plan (the
"KELTIP"); and
WHEREAS, under the current provisions of the KELTIP, a participant who
terminates employment with the Corporation on account of his or her death,
disability (as defined under the KELTIP), retirement (as defined under the
KELTIP), or terminates employment with the Corporation without "cause" (as
defined under the KELTIP) (together, "Involuntary Termination"), is permitted to
continue to retain the shares of restricted stock previously awarded to him or
her under the KELTIP and the restrictions thereon will continue to lapse as if
the participant had remained in the Corporation's employ; and
WHEREAS, under federal income tax law, the Involuntary Termination of the
participant creates an immediate tax liability thereof on all such shares of
restricted stock previously awarded to such participant under the KELTIP; and
WHEREAS, the KELTIP, as currently drafted, imposes a financial hardship upon
participants who Involuntary Terminate to pay tax on property that they are
restricted from selling and an administrative burden on the Compensation and
Benefits Committee (the "Committee") of the Board of Directors of the
Corporation to affirmatively act each time a participant has an Involuntary
Termination to cause the removal of the restrictions on the shares of restricted
stock previously awarded to such participant under the KELTIP; and
WHEREAS, pursuant to Section 11.1 of the KELTIP, the Board has authority to
amend the KELTIP, subject to limitations not herein relevant; and
WHEREAS, the Committee has recommended, and the Board has determined, that the
KELTIP should be amended in order to facilitate the satisfaction by a
participant who
<PAGE>
experiences an Involuntary Termination of his or her federal income tax
liability in connection with restricted stock awarded thereto under the KELTIP,
the withholding requirements imposed on the Corporation, and to ease the
Committee's administrative burden in relation thereto;
NOW, THEREFORE, BE IT RESOLVED, that Section 7(b) of the KELTIP be, and it
hereby is, amended effective as of the date hereof to read as follows:
"(b) All of the Restricted Shares shall be forfeited and shall be
returned to the Company and all rights of the Participant to such
Restricted Shares shall terminate without any payment of
consideration by the Company upon (1) any voluntary Termination
of Service except for reason of Retirement and (2) any
involuntary Termination of Service for reason of Cause.
In the event of a Participant's Retirement, death, Disability, or
involuntary Termination of Service without Cause, all of the
Restrictions imposed on such Restricted Shares in accordance with
this Plan and the award agreement shall automatically lapse as of
the date of the Participant's Retirement, death, Disability or
involuntary Termination of Service without Cause.
A Termination of Service which occurs in connection with the sale
or disposition of a subsidiary or other business unit of the
Company shall be deemed to be an involuntary Termination of
Service without Cause."
RESOLVED, that the officers of this Corporation, and any other individual whom
any of the officers referenced above shall designate, be, and each of them
hereby is, authorized to take any and all such actions as are necessary or
appropriate to give effect to the foregoing resolutions, and all actions of any
of such officers or designees heretofore taken in connection with the
transactions contemplated by the foregoing resolutions are hereby ratified,
confirmed and approved in all respects.
2
<PAGE>
EXHIBIT 10(e)
CYPRUS AMAX MINERALS COMPANY
Action(s) Authorized by the
---------------------------
Board of Directors
------------------
Adopted December 10, 1998
Summary of Resolutions
- - Amends the definition of "Company" in the Cyprus Minerals Company 1993 Key
Executive Long-Term Incentive Plan.
Resolutions
WHEREAS, Cyprus Amax Minerals Company (the "Corporation") sponsors the Cyprus
Minerals Company 1993 Key Executive Long-Term Incentive Plan (the "KELTIP"); and
WHEREAS, pursuant to Section 11.1 of the KELTIP, the Board of Directors of the
Corporation (the "Board") has authority to amend the KELTIP, subject to
limitations not herein relevant; and
WHEREAS, the Compensation and Benefits Committee of the Board (the "Compensation
Committee") has recommended that Section 2.8 of the KELTIP be amended; and
WHEREAS, the Board wishes to amend the KELTIP as recommended by the Compensation
Committee;
NOW, THEREFORE, BE IT RESOLVED, that, effective January 1, 1993, Section 2.8 of
the KELTIP be, and it hereby is, amended to read as follows:
"2.8 'Company' means Cyprus Amax Minerals Company and any 'subsidiary
-------
corporation' of Cyprus Amax Minerals Company, whether now or hereafter
existing, as defined in Section 424(f) of the Code; provided, however,
that for purposes of Section 2.4, 'Company' means Cyprus Amax Minerals
Company and its successor."
; and further
RESOLVED, that the Chief Executive Officer or any other oficer of this
Corporation, and any other individual whom any of the officers referenced above
shall designate, be, and each of them hereby is, authorized to take any and all
such actions as are necessary or appropriate to give effect to the foregoing
resolutions, and all actions of any of such officers or designees heretofore
taken in connection with the transactions contemplated by the foregoing
resolutions are hereby ratified, confirmed and approved in all respects.
<PAGE>
EXHIBIT 10(f)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE
DIRECTORS OF CYPRUS AMAX MINERALS COMPANY
<PAGE>
EXHIBIT 10(f)
DEFERRED COMPENSATION PLAN
FOR
NON-EMPLOYEE DIRECTORS OF
CYPRUS AMAX MINERALS COMPANY
Amended and Restated Effective January 1, 1999
<PAGE>
Deferred Compensation Plan
For
Non-Employee Directors of
Cyprus Amax Minerals Company
Table of Contents
-----------------
<TABLE>
<CAPTION>
<S> <C>
Section 1. Purpose 1
Section 2. Definitions.......................................... 1
(a) "Account"............................................ 1
(b) "Administrator"...................................... 1
(c) "Beneficiary"........................................ 1
(d) "Board".............................................. 1
(e) "Board Member"....................................... 1
(f) "Change of Control".................................. 1
(g) "Change of Control Stock Value"...................... 2
(h) "Company"............................................ 3
(i) "Compensation"....................................... 3
(j) "Exchange Act"....................................... 3
(k) "Investments"........................................ 3
(l) "Participant"........................................ 3
(m) "Plan"............................................... 3
(n) "Plan Year".......................................... 3
(o) "Phantom Stock"...................................... 3
(p) "Stock".............................................. 3
Section 3. Participation........................................ 4
(a) Participation is Voluntary........................... 4
(b) Filing of Application................................ 4
(c) Revoking or Modifying an Application................. 4
(d) Designation of Beneficiary........................... 4
Section 4. Accrual of Benefits.................................. 4
(a) Deferred Compensation................................ 4
(b) Earnings............................................. 4
(c) Vesting.............................................. 5
Section 5. Distribution of Benefits............................. 6
(a) Time of Distribution................................. 6
(b) Payment Upon Death................................... 6
(c) Methods of Payment................................... 6
Section 6. Administration....................................... 6
(a) Appointment of Administrator......................... 6
(b) Rights and Duties of Administrator................... 6
(c) Quarterly Reports.................................... 7
(d) Information.......................................... 7
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(e) Compensation, Indemnity and Liability............... 7
Section 7. Amendment and Discontinuance........................ 7
(a) Amendments.......................................... 7
(b) Discontinuance of Plan.............................. 7
Section 8. General Provisions.................................. 8
(a) No Interest in Assets............................... 8
(b) Restriction Against Assignment...................... 8
(c) Receipt or Release.................................. 8
(d) Payment on Behalf of Minor.......................... 8
(e) Forfeiture.......................................... 8
(f) Withholding......................................... 9
(g) Governing Law....................................... 9
(h) Captions............................................ 9
(i) Successors and Assigns.............................. 9
(j) Effective Date...................................... 9
</TABLE>
ii
<PAGE>
Deferred Compensation Plan
For
Non-Employee Directors of
Cyprus Amax Minerals Company
Section 1. Purpose. The purpose of the Plan is to assist the Company in
recruiting qualified individuals to serve as non-employee members of the Board
and to provide an incentive to such persons to continue to serve the Company in
that capacity.
Section 2. Definitions. Whenever the following terms are used herein, with the
first letter capitalized, they shall have the meanings specified below:
(a) "Account" means the account maintained by the Administrator
for each Participant which is to be credited, as hereinafter set forth, with
Phantom Stock or other Investments equal in value to the amount of the
Participant's Compensation which is deferred pursuant to this Plan, together
with the earnings thereon as provided for herein.
(b) "Administrator" means one or more individuals appointed in
accordance with Section 6(a) to administer the Plan.
(c) "Beneficiary" or "Beneficiaries" means the person or persons
(including without limitation, any trustee) last designated by a Participant to
receive the benefits specified hereunder, in the event of the Participant's
death, or if there is no designated Beneficiary or surviving Beneficiary, the
Participant's estate.
(d) "Board" means the Board of Directors of the Company.
(e) "Board Member" means a member of the Board who is not an
employee of the Company or any of its subsidiaries or affiliates.
(f) "Change of Control" means the occurrence of any of the
following events:
(i) 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 35% or more of either (A) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (B) 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 for purposes of this Section 2(f)(i), the
following acquisitions shall not constitute a Change of 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 which complies with
Sections 2(f)(iii)(A) and (B).
1
<PAGE>
(ii) Individuals who, as of the date hereof, 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 the date hereof 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
(iii) Consummation of a reorganization, merger or
consolidation involving the Company or any subsidiary of the Company or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, either (A)(1) 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
50% 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 or all or
substantially all of the Company's assets either directly or 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 or (2) 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 and (B) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 35% 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; or
(iv) A complete liquidation or dissolution of the Company.
(g) "Change of Control Stock Value" means the value of a
share of Stock determined as follows:
(i) if the Change of Control results from an event
described in Clause (iii) of the Change of Control definition, the highest per
share price paid for shares of Stock in the transaction resulting in the Change
of Control;
(ii) if the Change of Control results from an event
described in Clauses (i) or (ii) of the Change of Control definition and no
event described in Clauses (iii) or (iv) of the Change of Control definition has
occurred in connection with such Change of
2
<PAGE>
Control, the highest sale price of a share of Stock on any trading day during
the sixty consecutive trading days immediately preceding the date of such Change
of Control as reported on the New York Stock Exchange Composite Tape and
published in the Wall Street Journal; or
(iii) If the Change of Control results from an event
described in Clause (iv) of the Change of Control definition, the price per
share received by holders of Stock in the transaction described in such Clause
(iv).
(h) "Company" means Cyprus Amax Minerals Company, a Delaware
corporation, or any successor corporation.
(i) "Compensation" means for any Plan Year, all retainer,
meeting, committee and chair fees payable in cash or in shares of Stock to a
Board Member for service on the Board, or any other amounts payable for any
services rendered to the Company as an independent contractor while serving as a
Board Member, before any reduction pursuant to the Plan.
(j) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time. References to any provision of the Exchange Act
shall be deemed to include successor provisions thereto and regulations
thereunder.
(k) "Investments" means an Investment option, other than
Phantom Stock, that is made available as the mechanism by which to credit
hypothetical earnings on cash compensation deferred under the Plan, specifically
T. Rowe Price Funds. A Participant may modify his or her Investment elections
quarterly, and such modification shall be effective as soon as administratively
practicable after the Administrator receives the Participant's election to
change Investments. The Company, in its sole discretion, has the right to
utilize some other mechanism for measuring hypothetical earnings on cash
compensation deferred under the Plan.
(l) "Participant" means any Board Member who elects to defer
Compensation under the Plan in any Plan Year and who is entitled to a benefit
hereunder.
(m) "Plan" means the Deferred Compensation Plan for Non-
Employee Directors of Cyprus Amax Minerals Company, as set forth herein, and as
amended from time to time.
(n) "Plan Year" means the 12-consecutive month period
beginning January 1 and ending December 31 of each year; except that the initial
Plan Year shall be the period beginning May 5, 1994, and ending December 31,
1994.
(o) "Phantom Stock" means one or more hypothetical shares of
Stock. For purposes of the Plan, one share of Phantom Stock shall equal one
share of Stock.
(p) "Stock" means the Common Stock of Cyprus Amax Minerals
Company, without par value.
3
<PAGE>
Section 3. Participation
(a) Participation is Voluntary. Participation in the Plan is
voluntary. The Administrator shall notify each Board Member of his or her
prospective eligibility to participate in the Plan at least thirty days prior to
each November 30.
(b) Filing of Application. To participate in the Plan for any Plan
Year a Board Member must file a written application with the Administrator. The
application for participation shall signify the Board Member's acceptance of the
benefits and terms of his or her Compensation that he or she elects to defer
under the Plan, whether such deferrals shall be credited to his or her Account
as Phantom Stock or other Investments and the timing and form of the
distribution of the Board Member's Plan benefits under the Plan. A Board Member
electing to participate in the Plan for any Plan Year must file the application
with the Administrator no later than November 30 immediately preceding such Plan
Year.
Notwithstanding any other provision of this Section, during the Plan Year in
which a person first becomes a Board Member, the new Board Member may elect
within thirty days after the date he or she becomes a Board Member to defer any
or all Compensation to be earned for the remainder of that Plan Year for
services to be performed subsequent to his or her deferral election, and, if
such election is made, such deferred amount shall be credited to his or her
Account as other Investments or as Phantom Stock.
(c) Revoking or Modifying an Application. A Board Member may revoke
or change his or her election to defer Compensation solely for future Plan Years
by filing with the Administrator a form approved by the Administrator for such
purpose no later than November 30 prior to the Plan Year for which the
revocation or change shall be effective.
(d) Designation of Beneficiary. Utilizing forms provided by the
Administrator for such purpose, each Participant shall designate the Beneficiary
or Beneficiaries to receive the amounts distributable from the Plan, if any, in
the event of such Participant's death. A Participant may from time to time
change the designated Beneficiary or Beneficiaries, without the consent of such
Beneficiary or Beneficiaries, by filing a new designation with the Administrator
utilizing forms available from the Administrator for such purpose. With respect
to each Participant, the Company and the Administrator shall follow the
Beneficiary designation last filed with the Administrator in accordance with the
terms of the Plan.
Section 4. Accrual of Benefits.
(a) Deferred Compensation. Each Board Member who elects to
participate in the Plan for any Plan Year must irrevocably elect to defer the
receipt of all or a specified percentage of his or her Compensation for that
Plan Year in accordance with the terms of Section 3(b). Said amount shall be
credited to such Board Member's Account in accordance with Section 4(b) and
shall be paid in accordance with Section 5.
(b) Earnings. The amount of Compensation that a Participant elects
to defer under the Plan shall increase or decrease in value during the period of
deferral based on the market value of Phantom Stock or on the value of
Investments, including earnings
4
<PAGE>
and losses thereon. On the date the Plan is credited with the deferred
Compensation of a Participant, the Participant's Account shall be credited with
cash or a number of shares of Phantom Stock (including fractional shares) having
a value equal to the amount of the Participant's Compensation deferred on that
date. The date the Plan is credited with the deferred cash Compensation shall be
the date of the Board meeting for regularly scheduled meetings and shall be the
date of the meetings(s) for other than regular Board meetings. The date the Plan
is credited with the deferred Stock Compensation shall be the first business day
of January of the year for which the deferral election was made. The value of
Phantom Stock shall be determined using the closing market price of the Stock on
the Composite Tape of the New York Stock Exchange for the date of valuation. If
the Composite Tape is not operating on such date, or if Stock is not traded on
such Exchange on such date, the value shall be computed using the closing price
on the next business day on which such Stock is traded thereon.
Whenever dividends are paid with respect to shares of Stock, each
Participant's Account shall be credited with additional shares of Phantom Stock
(including fractional shares) equal in value to the amount of the dividend paid
on a single share of Stock multiplied by the number of shares of Phantom Stock
(including fractional shares) credited to the Participant's Account as of the
record date for dividend purposes. For purposes of crediting dividends, the
value of Phantom Stock shall be determined as of the day dividends are actually
paid on the Stock and in the same manner as is used for crediting deferred
Compensation to Accounts.
To the extent that a Participant's Account is credited with other
Investments, the Account shall be adjusted from time to time to effect changes
in value, including earnings.
The number of shares of Phantom Stock credited to a Participant's Account
shall be appropriately adjusted and modified upon the occurrence of any Stock
split, reverse Stock split, Stock dividend or Stock consolidation.
Notwithstanding any provision of the Plan to the contrary, upon the occurrence
of a Change of Control, all shares of Phantom Stock credited to a Participant's
Account shall be converted into cash in an amount equal to the product of (i)
the Change of Control Stock Value, multiplied by (ii) the number of shares of
Phantom Stock that have been credited to the Participant's Account as of the
date of the Change of Control. The amount of cash resulting from the foregoing
conversion of shares of Phantom Stock in a Participant's Account shall be paid
out in a lump sum as soon as administratively practicable after the date of the
Change of Control. In the event of a Change of Control, the value of any other
Investments in a Participant's Account shall be converted to cash, and at the
election of the Participant made on a form approved by the Administrator, shall
be credited to such Participant's Account or paid out in a lump sum, no later
than fifteen days after the date of the Change of Control, and income shall be
credited to the Participant's Account from the date of the Change of Control to
the date of distribution at the prime rate of the Bank of New York, as in effect
from time to time during such period. If cash is credited to a Participant's
Account under this paragraph, income shall be credited thereto from the date of
the Change of Control to the date of distribution at the prime rate of the Bank
of New York as in effect from time to time during such period.
(c) Vesting. The interest of each Participant in any benefit
accrued hereunder shall be fully vested and nonforfeitable at all times.
5
<PAGE>
Section 5. Distribution of Benefits.
(a) Time of Distribution. A Participant may elect to have the
balance of his or her Account distributed to him or her on or commencing (i) as
soon as administratively practicable after the Participant ceases to be a Board
Member, or (ii) on the January 1 occurring a stated number of years after the
Participant ceases to be a Board Member, in either case, in a lump sum or in up
to ten annual installments, in each case as elected by the Participant pursuant
to Section 3(b). In the case of installment payments, the unpaid portion of the
Participant's Account shall continue to be credited with hypothetical earnings.
Such an election shall be made on the application filed with the Administrator
pursuant to Section 3(b) and shall be irrevocable once made. However, a
Participant may elect a different distribution date(s) for Compensation deferred
in subsequent years by filing a change of deferral election as provided in
Section 3(b).
(b) Payment Upon Death. Notwithstanding any election under Section
5(a), if a Participant dies prior to distribution of the full amount of the
credit to his or her Account, the balance to the credit of the Participant's
Account as of the date of the Participant's death shall be paid in a lump sum,
in Stock or cash, as applicable, as soon as reasonably possible thereafter, to
the Participant's Beneficiary or Beneficiaries.
(c) Methods of Payment. Lump sum payments under the Plan shall
consist of shares of Stock equal to the number of whole shares of Phantom Stock
credited to the Participant's Account on the date as of which the distribution
occurs and a cash payment for any fraction of a share. Installment distributions
under the Plan with respect to Phantom Stock shall consist of shares of Stock
equal to the number of whole shares of Stock obtained by multiplying (i) a
fraction, the numerator of which shall be 1 and the denominator of which shall
be the number of years remaining in the deferral period, by (ii) the number of
shares of Phantom Stock credited to the Participant's Account on the date as of
which the distribution occurs, and a cash payment for any fraction of a share.
The portion of the Account of any Participant credited with other Investments
shall be paid in cash, either in a lump sum or installment distributions, which
shall be calculated in the same manner as above. Each Participant, or
Beneficiary, shall be required to agree in writing that prior to distribution of
any benefit under the Plan he or she will make such representations and execute
such documents as are deemed by the Administrator necessary to comply with
applicable securities laws.
Section 6. Administration.
(a) Appointment of Administrator. An Administrator, which may be
one or more individuals, shall be appointed from time to time by the Chief
Executive Officer of the Company or by his delegate in order to administer the
Plan as provided herein.
(b) Rights and Duties of Administrator. The Administrator, on
behalf of the Participants and their Beneficiaries, shall enforce the Plan in
accordance with its terms, shall be charged with the general administration of
the Plan, and shall have all powers necessary to accomplish those purposes,
including, but not by way of limitation, the following:
6
<PAGE>
(i) to compute and certify the amount and kind of benefits payable
to Participants and their Beneficiaries;
(ii) to maintain or to designate any person or entity to maintain
all the necessary records for the administration of the Plan;
(iii) to make and publish such rules for the regulation of the
Plan as are not inconsistent with the terms hereof; and
(iv) to provide for disclosure of such information and filing or
provision of such reports and statements to participants or Beneficiaries under
this Plan as the Administrator deems appropriate.
All actions of the Administrator shall be conclusive on all persons
interested in the Plan except to the extent otherwise specifically indicated
herein. The Administrator may appoint a plan administrator and agents, and
delegate thereto such powers and duties in connection with the administration of
the Plan as the Administrator may from time to time prescribe.
(c) Quarterly Reports. The Administrator shall furnish each
Participant with a quarterly report indicating the number of shares of Phantom
Stock and/or the value of the other Investments credited to his or her Account
as of the end of the preceding calendar quarter.
(d) Information. To enable the Administrator to perform his or her
functions, the Company shall supply full and timely information to the
Administrator on all matters relating to the Compensation of all Participants,
their status as Board Members, their contributions, and such other pertinent
facts as the Administrator may require.
(e) Compensation, Indemnity and Liability. The Administrator shall
serve without bond, except as otherwise required by law, and without
compensation for his or her services hereunder. All expenses of the
Administrator shall be paid by the Company and the Company shall furnish the
Administrator with such clerical and other assistance as is necessary in the
performance of his or her duties.
The Administrator shall not be liable for any act or omission on his or her
part. The Company shall indemnify and hold harmless the Administrator against
any and all expenses and liabilities arising out of his or her administration of
the Plan.
Section 7. Amendment and Discontinuance.
(a) Amendments. The Board shall have the right to amend the Plan
from time to time, and to amend or cancel any amendments; provided, however,
-------- -------
that no amendment shall reduce any amount already credited to a Participant's
Account as of the effective date of such amendment without the Participant's
prior written consent.
(b) Discontinuance of Plan. It is the expectation of the Company
that the Plan will be continued indefinitely, but continuance of the Plan is not
assumed as a contractual obligation of the Company, and the right is reserved by
the Company at any
7
<PAGE>
time to reduce, suspend, or discontinue the Plan; provided, however, the Company
-------- -------
shall in no event have the power to reduce the amount already credited to a
Participant's Account as of the effective date of any such reduction, suspension
or discontinuance nor to discontinue the crediting of earnings on such amounts
subsequent to said date. In the event of a reduction, suspension or
discontinuance of the Plan, the payment of benefits accrued hereunder shall
continue to be made in accordance with the provisions of the Plan.
Section 8. General Provisions.
(a) No Interest in Assets. No Participant or any other person shall
have any interest in any shares of Stock or other Investments credited to his or
her Account or in any specific asset of the Company by reason of any amount
credited to him or her hereunder, nor any rights to receive any distribution
under the Plan except as and to the extent expressly provided in the Plan. There
shall be no funding of any benefits which may become payable hereunder. No trust
shall be created in connection with or by the execution or adoption of this
Plan. Any benefits which become payable hereunder shall be paid from the general
assets of the Company. Nothing in the Plan shall be deemed to give any Board
Member any right to participate in the Plan, except in accordance with the
provisions of the Plan.
(b) Restriction Against Assignment. The Company shall pay all
amounts payable hereunder only to the person or persons designated by the Plan
and not to any other person or corporation. No part of a Participant's Account
shall be liable for the debts, contracts or engagements of any Participant, his
or her Beneficiaries, or successors in interest, nor shall it be subject to
execution by levy, attachment or garnishment or by any other legal or equitable
proceeding, nor shall any such person have any right to alienate, anticipate,
commute, pledge, encumber, or assign any benefits or payments hereunder in any
manner whatsoever.
(c) Receipt or Release. Any payment to any Participant or his or her
Beneficiaries in accordance with the provisions of the Plan shall, to the extent
thereof, be in full satisfaction of all claims against the Administrator and the
Company with respect to such payment and the Administrator may require such
Participant or Beneficiaries, as a condition precedent to such payment, to
execute a receipt and release to such effect.
(d) Payment on Behalf of Minor. In the event any amount becomes
payable under the Plan to a minor or a person who, in the sole judgment of the
Administrator, is considered by reason of physical or mental condition to be
unable to give a valid receipt therefor, the Administrator may direct that such
payment be made to any person found by the Administrator, in his or her sole
judgment, to have assumed the care of such minor or other person. Any payment
made pursuant to such determination shall constitute a full release and
discharge of the Administrator and the Company.
(e) Forfeiture. Any payment or distribution to a Participant under
the Plan which is not claimed by the Participant, any Beneficiary or any other
person entitled thereto within three years after becoming payable shall be
forfeited and canceled and shall remain with the Company and no other person
shall have any right thereto or interest therein. The Company shall not have any
duty to give notice that amounts are payable under the Plan to any person other
than the Participant and the designated Beneficiary.
8
<PAGE>
(f) Withholding. The Company may deduct from the amount of all
distributions or deferrals under the Plan any taxes required to be withheld
pursuant to applicable law.
(g) Governing Law. This Plan shall be construed, administered and
enforced according to the laws of the State of Colorado.
(h) Captions. Captions in this Plan are not part of the provisions
hereof and shall have no force or effect.
(i) Successors and Assigns. This Plan shall inure to the benefit of,
and be binding upon, the parties hereto and their successors and assigns.
(j) Effective Date. The Plan, as amended and restated herein, shall be
effective as of January 1, 1999. The Plan was originally effective as of May 5,
1994.
9
<PAGE>
EXHIBIT 10(g)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
EXCESS DEFINED CONTRIBUTION PLAN
<PAGE>
EXHIBIT 10(g)
CYPRUS AMAX MINERALS COMPANY
EXCESS DEFINED CONTRIBUTION PLAN
Amended and Restated Effective January 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Purpose................................................... 1
2. Definitions............................................... 1
(a) Account.............................................. 1
(b) Board................................................ 1
(c) Change of Control.................................... 1
(d) Code................................................. 2
(e) Committee............................................ 2
(f) Company.............................................. 2
(g) Company Matching Contributions....................... 2
(h) Compensation......................................... 3
(i) Deferred Plan........................................ 3
(j) Eligible Employee.................................... 3
(k) Excess Tax-Deferred Savings.......................... 3
(l) Excess Company Matching Contributions................ 3
(m) Investment Funds..................................... 3
(n) Participant.......................................... 3
(o) Participating Subsidiary............................. 3
(p) Plan................................................. 3
(q) Retirement........................................... 3
(r) Savings Plan......................................... 3
(s) Separation From Service.............................. 3
(t) Tax-Deferred Savings................................. 3
(u) Total Disability..................................... 4
(v) Valuation Date....................................... 4
3. Excess Tax-Deferred Savings............................... 4
4. Excess Company Matching Contributions..................... 4
5. Vesting................................................... 4
6. Payment of Benefits....................................... 4
7. Change of Control......................................... 5
8. Designation of Beneficiary................................ 5
9. Investment Funds.......................................... 5
10. Hardship; Discretionary Revision of Payments.............. 6
11. Amendment and Termination................................. 6
12. Nonalienation of Benefits................................. 6
13. Administration............................................ 6
14. Appeals Procedure......................................... 7
15. No Contract of Employment................................. 7
16. Withholding Taxes......................................... 7
17. Notices................................................... 7
18. Severability of Provisions................................ 7
19. Headings and Captions..................................... 7
20. Applicable Law............................................ 7
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY
EXCESS DEFINED CONTRIBUTION PLAN
1. Purpose. The Plan, which was established effective January 1,
-------
1994, is hereby amended and restated in its entirety, as set forth herein,
effective January 1, 1999, for the purpose of providing Participants with
benefits which would otherwise be provided under the Savings Plan but for
reductions or restrictions of such benefits required by federal law.
Specifically, this Plan is intended to provide Participants with
supplemental retirement benefits to compensate them for the loss of benefits
that would otherwise have been accrued under the Savings Plan were it not for
restrictions on Participants' elective deferrals and the resulting restrictions
on Company matching contributions under Sections 401(a)(17), 401(k)(3),
401(m)(2), and 401(m)(9) of the Code. The Plan is to be unfunded and is
maintained for the purpose of providing deferred compensation for a select group
of management or highly compensated employees for purposes of the Employee
Retirement Income Security Act of 1974, as amended, and the regulations
promulgated thereunder.
2. Definitions.
-----------
(a) "Account" shall mean a bookkeeping account established under
the Plan to record the Excess Tax-Deferred Savings, Excess Company Matching
Contributions, and earnings thereon, credited with respect to each Participant.
(b) "Board" shall mean the Board of Directors of the Company.
-----
(c) "Change of Control" shall mean the occurrence of any of the
following events:
(1) 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 thirty-
five percent (35%) or more of either (A) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (B) 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 for purposes of this
Section 2(c)(1), the following acquisitions shall not constitute a Change of
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
which complies with Sections (3)(A) and (B).
(2) Individuals who, as of January 1, 1994, 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, 1994, whose election, or nomination for
election by the Company's
<PAGE>
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
(3) Consummation of a reorganization, merger or consolidation
involving the Company or any subsidiary of the Company or sale or other
disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, either (A)(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
fifty percent (50%) 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
or all or substantially all of the Company's assets either directly or 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 or (ii) 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 and (B) no Person
(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, thirty-five percent (35%) 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; or
(4) A complete liquidation or dissolution of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended, and the regulations promulgated thereunder.
(e) "Committee" shall mean the individuals designated by the
---------
Company to administer the Savings Plan.
(f) "Company" shall mean Cyprus Amax Minerals Company.
-------
(g) "Company Matching Contributions" shall mean the "Company
------------------------------
Matching Contributions" (as such term is defined in the Savings Plan) allocated
to a Participant under the Savings Plan.
2
<PAGE>
(h) "Compensation" shall have the same meaning as such term has
------------
under the Savings Plan, including, however, amounts in excess of the amount
limited pursuant to Section 401(a)(17) of the Code, and including any base
salary amounts deferred under the Deferred Plan.
(i) "Deferred Plan" shall mean the Cyprus Amax Minerals Company
-------------
Deferred Compensation Plan, as amended from time to time.
(j) "Eligible Employee" shall mean any employee of the Company or
-----------------
a Participating Subsidiary who (1) is eligible to participate in the Savings
Plan, (2) has base compensation, determined as of the last day of the last
quarter of the calendar year immediately preceding the year of participation in
the Plan, in an amount which equals or exceeds $100,000 before taking into
account Eligible Employee's Tax-Deferred Savings under the Savings Plan and his
salary deferrals under the Deferred Plan, and (3) is employed in exempt salary
grade 17 and above.
(k) "Excess Tax-Deferred Savings" shall mean the amounts
---------------------------
deferred by a Participant under Section 3 hereof.
(l) "Excess Company Matching Contributions " shall mean the
-------------------------------------
amounts contributed by the Company under Section 4 hereof.
(m) "Investment Funds" shall mean the investment funds
established from time to time under the Plan in which Excess Tax-Deferred
Savings and Excess Company Matching Contributions are to be invested, as
described in Section 9 hereof.
(n) "Participant" shall mean any Eligible Employee who has
-----------
elected to make Excess Tax-Deferred Savings or who has an Account.
(o) "Participating Subsidiary" shall mean any subsidiary or
------------------------
affiliate of the Company that has been approved for participation in this Plan
by the Committee.
(p) "Plan" shall mean the Cyprus Amax Minerals Company Excess
----
Defined Contribution Plan as described herein and as it may be amended from time
to time.
(q) "Retirement" shall mean the date the Eligible Employee
----------
terminates employment with the Company coincident with or following his
attainment of age 65.
(r) "Savings Plan" shall mean the Cyprus Amax Minerals Company
------------
Savings Plan and Trust, as it may be amended from time to time.
(s) "Separation From Service" shall have the same meaning as such
term has under the Savings Plan.
(t) "Tax-Deferred Savings" shall mean the Participant's "Tax-
Deferred Savings" (as such term is defined in the Savings Plan) made under the
Savings Plan.
3
<PAGE>
(u) "Total Disability" shall have the same meaning as such term has
under the Savings Plan.
(v) "Valuation Date" shall mean the last day of each calendar
month, or such other dates as the Committee determines to be necessary or
appropriate as of which to value the Accounts of Participants.
3. Excess Tax-Deferred Savings.
---------------------------
(a) Each Participant may elect to make Excess Tax-Deferred Savings
for any calendar year by filing an election, utilizing the form provided by the
Committee for such purpose, on or before the date established by the Committee
which falls in the last quarter of the immediately preceding calendar year. Such
an election shall be irrevocable during the calendar year for which it is made.
A Participant may continue, modify, revoke, or resume his election to make
Excess Tax-Deferred Savings with respect to a subsequent calendar year by filing
his written notice with the Committee, on a form supplied by the Committee for
such purpose, on or before the date established by the Committee which falls in
the last calendar quarter immediately preceding the calendar year in which the
continuation, modification, revocation, or resumption is to be effective.
(b) The amount of a Participant's Excess Tax-Deferred Savings for
any calendar year shall be equal to an amount elected by the Participant which
is not less than one percent (1%) and not greater than sixteen percent (16%) of
his Compensation, reduced by the amount of his Tax-Deferred Savings for the
calendar year.
(c) As soon as practicable and in a manner consistent with the
administration of the Savings Plan, the Company shall, on a monthly basis,
reduce each Participant's Compensation and credit to such Participant's Account
an amount equal to the percentage elected by such Participant under Section
3(b).
4. Excess Company Matching Contributions.
-------------------------------------
(a) The Company shall make an Excess Company Matching Contribution
on behalf of each Participant in an amount equal to fifty percent (50%) of such
Participant's Excess Tax-Deferred Savings for a calendar quarter not in excess
of six percent (6%) of Compensation, reduced by the amount of Company Matching
Contribution allocated to such Participant under the Savings Plan for the same
calendar quarter.
(b) As soon as practicable and in a manner consistent with the
Savings Plan, the Company shall, on a quarterly basis, credit to each
Participant's Account that portion of the Excess Company Matching Contribution
that is determined under Section 4(a) and attributable to Compensation paid with
respect to such calendar quarter.
5. Vesting. A Participant's interest in his Account shall at all
-------
time be nonforfeitable and fully vested.
6. Payment of Benefits. Pursuant to the Participant's election,
-------------------
made as a part of the election to defer monies under this Plan, the amount to
the credit of the Participant's Account shall be paid to the Participant in a
single lump sum cash payment or in substantially equal annual installments over
a period of years, not to exceed ten (10), on the first day of the month next
following the date which is thirty (30) days after the Participant's Retirement
or other Separation from Service, including Separation from Service on account
of the Participant's Total Disability. If a Participant has elected to be paid
his Account in installments and he dies after such payments have commenced, then
any remaining installments shall be paid annually to the Participant's
designated beneficiary (determined pursuant to Section 8). In the event of a
Participant's death before his Account has been paid to him, the
4
<PAGE>
Participant's Account shall be paid to his designated beneficiary (determined
pursuant to Section 8) in a single lump sum cash sum or in substantially equal
annual installments over a period of years, not to exceed ten (10), as elected
by the Participant, on the first day of the month next following the date which
is thirty (30) days after the Participant's death.
7. Change of Control. As soon as administratively practicable and
-----------------
in no event later than thirty (30) days following a Change of Control, all of
the amounts to the credit of Participants' Accounts hereunder shall be
distributed to the Participants.
8. Designation of Beneficiary.
--------------------------
(a) Subject to applicable law, each Participant shall have the
right to file with the Committee a written designation, utilizing the form
provided by the Committee for such purpose, of one or more persons as the
Participant's beneficiary who shall be entitled to receive the amount payable
under the Plan, if any, upon the Participant's death. A Participant may, from
time to time, revoke or change such beneficiary designation without the consent
of any prior beneficiary by filing a new designation with the Committee. The
last such designation received by the Committee shall be controlling; provided,
however, that no designation, or change or revocation thereof, shall be
effective unless received by the Committee prior to the Participant's death.
(b) If no such beneficiary designation is in effect at the time of
a Participant's death, or if no designated beneficiary survives the Participant,
or if such designation conflicts with applicable law, the amount, if any,
payable under the Plan upon the Participant's death shall be paid to the
Participant's estate. If the Committee is in doubt as to the right of any person
to receive any amount, the Committee may retain such amount, which shall
continue to accrue interest, until the rights thereto are determined, or the
Committee 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
Company and the Committee therefor. Any payment made pursuant to this Section
8(b) of the Plan shall be made by the Committee as soon as practicable under the
circumstances.
9. Investment Funds.
----------------
(a) Each Participant may elect, in the form and manner provided by
the Committee, to invest the amounts credited to his Account in any one or a
combination of Investment Funds. Such an election may be modified on such basis
as permitted by the Committee, which shall be at least quarterly. Separate
Accounts shall be maintained for each Participant.
5
<PAGE>
(b) The Investment Funds shall remain an asset of the Company and
shall be subject to the claims of its general creditors. Each Participant shall
have no greater right or status than as an unsecured creditor of the Company
with respect to any amounts owed to such Participant from the Investment Funds.
10. Hardship; Discretionary Revision of Payments. If the Committee
--------------------------------------------
determines that payment of the Participant's Account in accordance with the
schedule of payments designated by the Participant would, for whatever reason,
result in a gross hardship on the Participant or the estate or beneficiary or
beneficiaries of the Participant, the Committee, upon a showing of gross
hardship by the Participant or the Participant's beneficiary or beneficiaries or
legal representative, in its absolute discretion, may revise such schedule of
payments to the extent necessary to alleviate the hardship.
11. Amendment and Termination. The Company, by or pursuant to
-------------------------
written action by the Board, hereby reserves the right to amend this Plan at any
time and from time to time in any fashion, and to terminate the Plan at any
time; provided, however, that no amendment or termination of the Plan shall
adversely affect the right of any Participant with respect to the amounts
previously credited to such Participant's Account.
12. Nonalienation of Benefits. All payments to persons entitled to
-------------------------
benefits hereunder shall be made to such persons and shall not be alienable,
transferable or otherwise assignable in anticipation of payment thereof, in
whole or in part, by the voluntary or involuntary acts of any such persons, or
by operation of law, and shall not be liable or taken for any obligation of such
person, except pursuant to the laws of descent and distribution.
13. Administration.
--------------
(a) This Plan shall be administered by the Committee, which shall
be responsible for the interpretation of the Plan and the establishment of rules
and regulations governing the Plan's administration. Any decision or action made
or taken by the Committee, arising out of or in connection with the
construction, administration or interpretation of the Plan or of its rules and
regulations, shall be conclusive and binding upon all Eligible Employees,
Participants, former Participants and their beneficiaries unless otherwise
determined by the Board. All expenses of administering the Plan shall be paid by
the Company and shall not affect Participants' rights to or amounts of benefits.
(b) Neither the Committee nor any member thereof nor the Company
shall be liable for any action or determination made in good faith with respect
to the Plan or the rights of any person under the Plan.
(c) The Committee or persons designated by it shall keep such
records as may be necessary for the administration of the Plan and shall furnish
Participants with such periodic statements as it may determine to be necessary
or desirable to reflect their interests in the Plan.
6
<PAGE>
(d) The Committee shall have the power to make such adjustments
to the terms of the Plan, and to make such interpretations of the terms of the
Plan, as are necessary to effectuate the purposes of the Plan.
14. Appeals Procedure. The Committee shall provide any Participant
-----------------
whose claim for benefits under the Plan has been denied with adequate notice of
and shall afford such Participant an opportunity for full and fair review of
such denial.
15. No Contract of Employment. Nothing contained herein shall be
-------------------------
construed as conferring upon any person the right to be employed or to continue
in the employ of the Company.
16. Withholding Taxes. The Company shall have the right to
-----------------
withhold taxes from any Excess Company Matching Contributions, Excess Tax-
Deferred Savings, and any payments made pursuant to the Plan, or make such other
provisions as it deems necessary or appropriate to satisfy its obligations to
withhold federal, state, local or foreign income or other taxes arising under
this Plan.
17. Notices. Each Participant shall be responsible for furnishing
-------
the Committee with his current and proper address for the mailing of notices and
delivery of agreements and payments. Any notice required or permitted to be
given shall be deemed to have been given if directed to the person to whom
addressed at such address and mailed by regular United States mail, first-class
and prepaid. If any item mailed to such address is returned as undeliverable to
the addressee, mailing will be suspended until the Participant or beneficiary
furnishes the proper address.
18. Severability of Provisions. If any provision of this Plan
--------------------------
shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof, and this Plan
shall be construed and enforced as if such provision had not been included.
19. Headings and Captions. The headings and captions herein are
---------------------
provided for reference and convenience only, shall not be considered part of the
Plan, and shall not be employed in the construction of the Plan.
20. Applicable Law. The Plan shall be construed under the laws of
--------------
the State of Colorado, to the extent not preempted by the Employee Retirement
Income Security Act of 1974, as amended, or other federal law.
7
<PAGE>
IN WITNESS WHEREOF, the foregoing Plan as amended and restated is
adopted this 30th day of November, 1998.
---- --------
CYPRUS AMAX MINERALS COMPANY
BENEFITS COMMITTEE
By: /s/ Philip C. Wolf
Philip C. Wolf, Chairman
By: /s/ Chris L. Crowl
Chris L. Crowl, Member
By: /s/ Farokh S. Hakimi
Farokh S. Hakimi, Member
8
<PAGE>
EXHIBIT 10(h)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
AMENDMENT TO DEFERRED COMPENSATION PLAN
FOR SELECTED EMPLOYEES
<PAGE>
EXHIBIT 10 (h)
CYPRUS AMAX MINERALS COMPANY
Action(s) Authorized by the
---------------------------
Compensation and Benefits Committee
-----------------------------------
of the
------
Board of Directors
------------------
Adopted December 10, 1998
Summary of Resolutions
Amends the definition of "Company" in the Cyprus Amax Minerals Company Deferred
Compensation Plan.
Resolutions
WHEREAS, the Corporation sponsors the Cyprus Amax Minerals Company Deferred
Compensation Plan (the "Deferred Plan"); and
WHEREAS, pursuant to Section 7.5 of the Deferred Plan, the Compensation and
Benefits Committee of the Board of Directors (the "Committee") has authority to
amend the Deferred Plan, subject to limitations not herein relevant;
NOW, THEREFORE, BE IT RESOLVED, that, effective as of May 5, 1994, the Committee
hereby amends Section 2.3 of the Deferred Plan to read as follows:
"2.3 `Company' shall mean Cyprus Amax Company and any
-------
subsidiary or affiliate approved for participation in this Plan
by the Committee; provided, however, that for purposes of
Section 2.1, `Company' means Cyprus Amax Minerals Company and
its successor."
; and further
RESOLVED, that the Committee hereby recommends to the Board that the Board
authorize the Chief Executive Officer or any other officer of this Corporation,
and any other individual whom any of the officers referenced above shall
designate, to take any and all such actions as are necessary or appropriate to
give effect to the foregoing resolutions, and ratify, confirm and approve all
actions of any of such officers or designees heretofore taken in connection with
the transactions contemplated by the foregoing resolutions in all respects.
1
<PAGE>
EXHIBIT 11
CYPRUS AMAX MINERALS COMPANY
Computation of Per Share Earnings (Loss)
(In millions except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Net Income (Loss).................................................. $ (75) $ 69 $ 77
Preferred Stock Dividends.......................................... (19) (19) (19)
------- ------ ------
Income (Loss) Applicable to Common Shares.......................... $ (94) $ 50 $ 58
======= ====== ======
Primary:
Average Common Shares Outstanding................................ 92.4 93.5 93.2
Diluted:
Average Common Shares Outstanding................................ 92.4 93.5 93.2
Common Stock Equivalents-Options................................. - - .1
Conversion of Series A Preferred Stock........................... 9.6 9.6 9.6
------- ------ ------
Diluted Average Common Shares Outstanding........................ 102.0 103.1 102.9
======= ====== ======
Earnings (Loss) Per Share:
Using Average Common Shares Outstanding.......................... $ (1.02) $ 0.54 $ 0.62
Using Diluted Average Common Shares Outstanding(1)............... $ (0.74) $ 0.67 $ 0.75
(1) Diluted earnings (loss) per share were anti-dilutive in 1998,
1997, and 1996.
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In millions except as noted and per share data)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
Revenue $ 2,566 $ 3,346 $ 2,843
Income (Loss) from Operations $ 136 $ 233 $ 152
Income (Loss) from Continuing Operations $ (75) $ 69 $ 77
Income (Loss) Before Cumulative Effect of
Accounting Changes /(1)/(3)/ $ (75) $ 69 $ 77
Net Income (Loss) /(2)/ $ (75) $ 69 $ 77
EARNINGS (LOSS) PER COMMON SHARE
Income (Loss) from Continuing Operations /(1)/ $ (1.02) $ 0.54 $ 0.62
Net Income (Loss) /(2)/(3)/ $ (1.02) $ 0.54 $ 0.62
CASH DIVIDENDS PER COMMON SHARE $ 0.80 $ 0.80 $ 0.80
CONSOLIDATED BALANCE SHEET DATA
Cash and Cash Equivalents $ 353 $ 250 $ 193
Working Capital $ 250 $ 297 $ 304
Total Assets $ 5,341 $ 6,459 $ 6,786
Long-Term Debt and Capital Lease Obligations $ 1,718 $ 2,202 $ 2,554
Shareholders' Equity $ 2,157 $ 2,330 $ 2,360
OTHER FINANCIAL DATA
Book Value Per Common Share $ 21.32 $ 22.99 $ 23.43
Long-Term Debt/Total Capitalization 44.3% 48.6% 52.0%
Cash Provided by Operating Activities $ 237 $ 481 $ 440
STOCK PRICE - COMMON STOCK
High 17 7/8 26 13/16 29 1/8
Low 9 14 7/16 19 7/8
</TABLE>
/(1)/ Financial information reflects net after-tax copper charges of $94
million for environmental remediation liabilities and write-downs,
net after-tax gain of $111 million from the sale of the Lithium
business, certain Appalachian and Midwest coal properties, an
Oakbridge coal mine in Australia, and real estate, a net after-tax
charge of $17 million for legal settlements, a net after-tax charge
of $37 million for Cyprus Amax's share of the Kinross asset
impairment and the sale by Kinross of the pre-merger Amax Gold
hedging portfolio, and an after-tax charge of $4 million for various
special items in 1998; 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 of $25 million for merger costs and an after-tax gain of $75
million for the sale of LTV bankruptcy claims in 1993; and write-
downs and other provisions of $338 million in 1992, $32 million in
1991, and $63 million in 1990.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA (CONTINUED)
(In millions except as noted and per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989
- -------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,207 $ 2,788 $ 1,763 $ 1,641 $ 1,657 $ 1,866 $ 1,790
$ 182 $ 307 $ 157 $ (308) $ 62 $ 148 $ 333
$ 124 $ 166 $ 100 $ (246) $ 43 $ 111 $ 235
$ 124 $ 175 $ 100 $ (246) $ 43 $ 111 $ 235
$ 124 $ 175 $ 100 $ (334) $ 43 $ 111 $ 165
$ 1.13 $ 1.59 $ 1.85 $ (6.31) $ 0.72 $ 2.38 $ 5.67
$ 1.13 $ 1.69 $ 1.85 $ (8.46) $ 0.72 $ 2.38 $ 3.87
$ 0.80 $ 0.90 $ 0.80 $ 0.85 $ 0.80 $ 0.80 $ 0.73
$ 191 $ 139 $ 96 $ 116 $ 98 $ 39 $ 44
$ 292 $ 423 $ 41 $ 336 $ 299 $ 336 $ 251
$ 6,196 $ 5,407 $ 5,618 $ 1,709 $ 1,984 $ 1,919 $ 1,841
$ 1,877 $ 1,391 $ 1,347 $ 232 $ 239 $ 246 $ 108
$ 2,365 $ 2,329 $ 2,217 $ 923 $ 1,290 $ 1,284 $ 1,294
$ 23.62 $ 23.39 $ 22.49 $ 21.22 $ 30.23 $ 30.33 $ 28.69
44.2% 37.4% 37.8% 20.1% 15.6% 16.1% 7.7%
$ 675 $ 110 $ 74 $ 143 $ 285 $ 199 $ 304
32 1/8 33 1/8 36 3/8 32 25 3/8 28 1/2 33
24 1/4 23 7/8 21 1/4 18 1/2 17 1/2 13 7/8 21 3/8
</TABLE>
/(2)/ In 1992 Cyprus Amax 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 Amax 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)/ Discontinued Operations in 1994 included income from the Oil and
Gas business for the first quarter of 1994 of $7 million after-
tax and a $2 million after-tax gain on the sale of Cyprus Amax-
owned oil and gas assets.
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1998
Cyprus Amax reported a 1998 loss of $75 million, or $1.02 per share, compared
with 1997 earnings of $69 million, or 54 cents per share, and 1996 earnings of
$77 million, or 62 cents per share. The 1998 results included net after-tax
copper charges of $97 million; net after-tax coal charges of $7 million; a net
after-tax gain of $110 million from the sale of the Lithium business; net after-
tax charges of $19 million for oil and gas legal settlements and various special
items; and net after-tax equity investment charges of $28 million. The 1997
results included after-tax coal charges of $66 million, an after-tax Oakbridge
equity investment charge of $13 million for the write-down of a coal mine,
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 after-tax copper
charges of $61 million and a net after-tax charge of $13 million for Amax Gold.
Excluding the special items and write-downs, the 1998 loss was $34 million, or
58 cents per share, compared with 1997 earnings of $96 million, or 83 cents per
share, and 1996 earnings of $151 million, or $1.42 per share.
SELECTED RESULTS (In millions except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- -------------
<S> <C> <C> <C>
Revenue $2,566 $3,346 $2,843
Net Income (Loss) $ (75) $ 69 $ 77
Earnings (Loss) per Share $(1.02) $ 0.54 $ 0.62
NOTE: SUPPLEMENTAL DATA (In Millions)
1998 1997 1996
--------------- --------------- -------------
Special Items, Net of Tax $ (41) $ (27) $ (74)
Net Income (Loss) Excluding Special Items $ (34) $ 96 $ 151
</TABLE>
<PAGE>
The decrease in earnings in 1998, excluding special items and write-downs, was
primarily due to 21 cents per pound lower copper realizations, 64 million pounds
lower produced copper sold, 55 cents per pound lower molybdenum realizations, 3
million pounds lower produced molybdenum sold, and $10 million lower lithium
earnings primarily due to lower realizations and the sale of the business in
October. Partially offsetting were 6 cents per pound lower copper cost of
sales, $22 million higher coal earnings due primarily to 43 cents per ton higher
profit margins, $21 million lower corporate expenses, and $30 million lower
income tax expense. The decrease in earnings in 1997 from 1996 results,
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 due primarily to the start up of the El
Abra mine, 25 cents per pound higher average molybdenum realizations, and 3
cents per pound lower copper cost of sales.
The 1998 revenue of $2,566 million was 23 percent lower than 1997 revenue of
$3,346 million primarily due to lower metal prices, lower produced copper sales,
the impact of the coal properties sold in the second quarter, the
deconsolidation of Amax Gold in the second quarter as a result of its merger
with Kinross Gold, the sale of the Lithium business in the fourth quarter, and
the absence of the $137 million of gains in 1997 recorded on the settlements of
certain coal contracts. Revenue in 1997 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.
DISPOSITIONS
On October 13, 1998, Cyprus Amax sold its Lithium business to an affiliate of
Chemetall GmbH, a specialty chemicals unit of Metallgesellschaft AG. Cyprus Amax
received $305 million in cash and recorded a pre-tax gain of $154 million and an
after-tax gain of $110 million in the fourth quarter.
On June 29, 1998, Cyprus Amax completed the sale of 11 of its Appalachian and
Midwest coal properties to Coal Ventures, Inc. (AEI) of Ashland, Kentucky.
Cyprus Amax received $93 million in cash and recorded a pre-tax loss of $16
million and an after-tax loss of $12 million on the sale.
On June 1, 1998, Amax Gold completed its merger with Kinross Gold Corporation
(Kinross Gold or Kinross). Cyprus Amax's 58.8 percent share of Amax Gold Common
Stock was converted into
<PAGE>
Kinross shares at the rate of approximately 0.8 of a share of Kinross Common
Stock for each share of Amax Gold. Cyprus Amax also purchased about $135 million
of Kinross Common Stock for cash and the repayments of Amax Gold debt. At the
time of the merger, Cyprus Amax owned approximately 31 percent of Kinross and
received warrants to buy an additional 10 million shares of Kinross. Beginning
June 1, 1998, Cyprus Amax reported its investment in Kinross on an equity basis.
POTENTIAL DISPOSITIONS
On October 22, 1998, Cyprus Amax's Board of Directors approved the engagement of
Salomon Smith Barney to undertake a possible sale of Cyprus Amax Coal Company
(Coal Company). Cyprus Amax will seek to maximize the value of the Coal Company
through a sale or the establishment of a Master Limited Partnership Trust,
although there can be no assurances that a transaction will be consummated. The
sale process is proceeding, and firm bids are expected around the end of the
first quarter. Proceeds from this transaction are expected to be used to reduce
debt, fund the share buyback program, continue to significantly strengthen
Cyprus Amax's financial position, and support growth opportunities in its core
mining business.
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 32 to
35, the information on write-downs and special charges in Note 4 and operating
segments in Note 18 to the Consolidated Financial Statements, and the
supplemental information on mineral reserves and selected operating statistics.
<PAGE>
The following is a summary of the operating earnings by segment with special
items and write-downs included and excluded. Special items are not necessarily
infrequent or unusual in the mining industry. Details of each segment's results
are explained in the individual segment sections.
SUMMARY RESULTS (In millions)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- --------------
Segment Operating Earnings (Loss)
<S> <C> <C> <C>
Copper/Molybdenum $ (8) $ 314 $ 151
Coal 84 (15) 90
Lithium 165 21 30
Exploration (45) (43) (20)
All Other (20) 24 (42)
------------- ------------- --------------
Total Segment Operating Earnings $ 176 $ 301 $ 209
============= ============= ==============
NOTE: SUPPLEMENTAL DATA (In millions)
1998 1997 1996
------------- ------------- --------------
Segment Operating Earnings (Loss) Excluding
Special Items:
Copper/Molybdenum $ 121 $ 314 $ 231
Coal 93 71 90
Lithium 11 21 30
Exploration (45) (43) (20)
All Other 3 5 (6)
------------- ------------- --------------
Total Segment Operating Earnings Excluding Special Items $ 183 $ 368 $ 325
============= ============= ==============
COPPER/MOLYBDENUM
SELECTED COPPER/MOLYBDENUM DATA (In millions)
1998 1997 1996
------------- ------------- --------------
Revenue $1,284 $1,564 $1,331
Segment Operating Earnings (Loss) $ (8) $ 314 $ 151
Total Copper Production, Lbs. 967 1,018 768
Total Copper Sales, Lbs. 1,134 1,143 893
Produced Copper Sales, Lbs. 966 1,030 744
Total Molybdenum Production, Lbs. 61 63 56
Total Molybdenum Sales, Lbs. 58 61 63
Average Copper Realization, $/Lb. $ 0.83 $ 1.04 $ 1.04
Copper Cost of Sales, $/Lb. $ 0.72 $ 0.78 $ 0.81
Copper Net Cash Costs, $/Lb. $ 0.56 $ 0.62 $ 0.71
Copper Full Mine Costs, $/Lb. $ 0.70 $ 0.75 $ 0.80
Average Molybdenum Realization, $/Lb. $ 4.95 $ 5.50 $ 5.25
</TABLE>
<PAGE>
Copper/Molybdenum reported a segment loss of $8 million for 1998 compared with
earnings of $314 million in 1997. The 1998 results included special items and
write-downs of $129 million pre-tax composed of: an $80 million pre-tax charge
for future environmental remediation activities at Pinal Creek near the
Company's Miami, Arizona, copper mine, a copper inventory reserve at Tohono and
write-down to market at the Arizona copper operations of $29 million, a rail
haulage system obsolescence write-down for $9 million due to construction of a
replacement conveyor system designed to lower costs at the Henderson molybdenum
operation in Colorado, and legal settlements and miscellaneous write-downs of
$11 million. The Copper/Molybdenum segment reported 1998 earnings were $193
million lower than in 1997, excluding special items. The decrease was
attributed to 21 cents per pound lower average copper realizations, 64 million
pounds lower produced copper sold, 55 cents per pound lower average molybdenum
realizations, and 3 million pounds lower produced molybdenum sold, partially
offset by 6 cents per pound lower copper cost of sales.
NOTE: SUPPLEMENTAL DATA (In millions)
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- --------------
<S> <C> <C> <C>
Special Items $(129) $ - $ (80)
Segment Operating Earnings Excluding Special Items $ 121 $ 314 $ 231
</TABLE>
Copper realizations in 1998 averaged 83 cents per pound for the year compared
with $1.04 per pound in 1997. The benefit from the 1998 price protection
program, net of premium amortization, was $56 million, or 6 cents per pound.
There are no copper price protection programs currently in place.
Copper net cash costs of 56 cents per pound for 1998 were 6 cents per pound
lower than 1997 and a record low for production costs, excluding molybdenum by-
product credits. The improvement resulted from lower cost production at all
mines. From 1996 to 1998, copper net cash costs have improved 15 cents per
pound, or 21 percent.
Cost of sales decreased 6 cents per pound from 1997 to 72 cents per pound for
1998 due to increased lower cost South American sales and lower costs. Copper
production totaled 967 million pounds for the year, 51 million pounds less than
in 1997, which was in accordance with the plan to reduce higher cost domestic
sulfide ore production.
World demand for copper improved by an estimated two percent in 1998, its
thirteenth consecutive year of growth despite the Asian economic crisis. Part
of the growth can be attributed to continued
<PAGE>
strength in Europe and North America as well as scrap demand being replaced by
primary metal due to low prices. Demand growth was more than offset by increased
supply from greenfield projects and expansions, the impact of which was somewhat
offset by mine shutdowns and curtailments. Year-end 1998 combined LME and Comex
inventories were 744,000 tons, an increase of 283,000 tons from the end of 1997.
1998 Comex copper prices peaked at 85 cents per pound in April 1998 and then
declined for the rest of the year, hitting a low of 65 cents per pound in
December, and averaged 75 cents per pound for the year.
Total Cyprus Amax copper sales in 1998 of 1,134 million pounds were slightly
lower than the 1,143 million pounds of copper sales in 1997. Produced copper
sales of 966 million pounds for 1998 were 64 million pounds lower than 1997
produced sales of 1,030 million pounds due to the decrease in domestic sulfide
ore production. Cyprus Amax had record rod sales of 683 million pounds in 1998.
In the first quarter of 1997, Cyprus Amax signed an agreement to potentially
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 has incurred $20 million through the end of 1998 on an extensive
exploration drilling program. Evaluation of the project is ongoing, and the
decision to continue on into the second phase is due by March 14, 1999. Phase II
calls for a $10 million payment to ZCCM. 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. During 1998 Cyprus
Amax spent $9 million on resource drilling and further engineering studies. In
1999 force majeure was declared due to the low copper prices, therefore, the
completion of Phase I has been delayed until the force majeure is removed.
Primary molybdenum earned $21 million in 1998 compared with $63 million in 1997.
The 1998 results included a $10 million pre-tax write-down primarily for the
rail haulage system at Henderson, which is being replaced with a conveyor system
designed to lower costs. The remaining $32 million decrease in earnings,
excluding special items and write-downs, is primarily due to 55 cents per pound
lower average molybdenum realizations. Realizations in 1998 averaged $4.95 per
pound compared with $5.50 per pound in 1997. Molybdenum sales decreased to 58
million pounds from 61 million pounds in 1997. Production decreased to 61
million pounds from 63 million pounds.
<PAGE>
During 1998 approximately $49 million was spent on the Henderson 2000 project at
the Henderson primary molybdenum mine in Colorado and $67 million has been spent
project-to-date, which represents approximately 40 percent of the estimated
total construction costs. The project is designed to replace the 20-year-old
underground and surface rail haulage system with a lower cost underground and
overland conveyor system and develop the lowest level of the mine. The Henderson
mine is expected to shutdown for three months in the third quarter of 1999 in
order to complete the change over to the conveyor system. Inventories will build
during 1999 so there is sufficient inventory for sales to customers during this
shutdown period. This project is expected to be completed in late 1999.
World molybdenum consumption continued at record levels in the first half of
1998, but in the second half of the year consumption was adversely impacted by
the Asian crisis, resulting in an overall 1998 consumption decline estimated at
four percent. Chemical products demand remained flat as opposed to the demand
growth seen earlier in the 1990s. Due to lower consumption in the second half
of 1998, the molybdenum market was over-supplied and several primary mines
announced curtailed production in the fourth quarter of 1998. Dealer oxide
prices improved somewhat by year-end reflecting the prospects of a better
supply/demand balance.
Cyprus Amax's marketable copper reserves of approximately 21.2 billion pounds
decreased from 21.8 billion pounds in 1997 primarily due to 1998 production.
Molybdenum reserves of 2.1 billion pounds at December 31, 1998, were comparable
to 1997.
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 cent
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 1998 production and sales levels. Cyprus Amax
expects 1999 copper production of about 1 billion pounds and plans to further
reduce operating costs from 1998. 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 1998 sales levels. The price impact on
profits is delayed about three months on approximately 50 percent of Cyprus Amax
molybdenum production since by-product credits are recognized when copper
inventories are sold. In response to the current metals price environment, the
Copper/Molybdenum division is limiting capital spending, continuing to reduce
costs, and managing operating levels as necessary.
<PAGE>
COAL
SELECTED COAL DATA (In millions)
<TABLE>
<CAPTION>
1998 1997 1996
------------- -------------- -----------
<S> <C> <C> <C>
Revenue $ 934 $1,403 $1,284
Segment Operating Earnings (Loss) $ 84 $ (15) $ 90
Coal Production, Tons
- Consolidated Coal Mines 71.4 83.4 76.4
- Oakbridge (48% Equity Share) 5.2 5.0 5.7
Coal Sales, Tons
- Eastern Mines 18.2 29.3 29.1
- Powder River Basin 41.1 40.7 35.6
- Western Mines 13.0 12.0 12.3
- Springvale 1.2 1.5 .9
------ ------ ------
Total Sales 73.5 83.5 77.9
- Oakbridge (48% Share) 5.8 5.7 6.2
Average Realization, $/Ton $12.43 $14.53 $15.69
Domestic Average Contract Price, $/Ton $11.54 $13.71 $15.66
Domestic Average Spot Price, $/Ton $18.75 $17.59 $14.95
Australian Contract Price, US$/Ton $19.80 $24.28 $29.23
Australian Spot Price, US$/Ton $16.26 $20.36 $24.85
Average Cost of Sales, $/Ton $11.37 $13.90 $14.90
Average Cash Costs, $/Ton $ 9.62 $11.91 $13.03
Average Unit Costs, $/Ton $11.43 $14.00 $15.10
</TABLE>
The 1998 statistics for average realization, cost of sales, cash costs, and unit
costs decreased 14 to 19 percent per ton due to the properties sold to AEI in
the second quarter. Following are the above statistics restated for all periods
presented to exclude the sold properties.
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -----------
<S> <C> <C> <C>
Average Realization, $/Ton $11.75 $11.90 $13.67
Average Cost of Sales, $/Ton $10.71 $11.30 $12.92
Average Cash Costs, $/Ton $ 8.91 $ 9.18 $11.01
Average Unit Costs, $/Ton $10.78 $11.42 $13.16
</TABLE>
Coal reported segment operating earnings of $84 million for the year compared
with an operating loss of $15 million in 1997. The 1998 results included
special items of $9 million pre-tax composed of a $16 million loss on the sale
of the Appalachian and Midwest coal properties, partially offset by a $7 million
gain on favorable legal settlements. The 1997 results included pre-tax
unfavorable adjustments of $86 million. These adjustments included a $29 million
pre-tax gain on the sale and assignment of two coal contracts, a $129 million
pre-tax charge for closure and reclamation accruals
<PAGE>
and impairment charges primarily at Midwest and Eastern mines, and a $14 million
pre-tax gain on the sale of a 15 percent equity interest in Cyprus Plateau
Mining Corporation to Mitsubishi Corporation.
NOTE: SUPPLEMENTAL DATA (In millions)
<TABLE>
<CAPTION>
1998 1997 1996
---------------- --------------- --------------
<S> <C> <C> <C>
Special Items $ (9) $ (86) $ -
Segment Operating Earnings Excluding Special Items $ 93 $ 71 $ 90
</TABLE>
Excluding the special items, Coal segment earnings were $93 million in 1998, $22
million higher than in 1997. The increase in earnings is attributable to the
outstanding performance of the retained coal mines. The Emerald, Twentymile,
and Eagle Butte mines set annual production records; the Emerald, Twentymile,
Wabash, Shoshone, Cumberland, and Eagle Butte mines set new productivity
records; and the Emerald, Twentymile, Wabash, and Shoshone mines set annual
records for low cash and unit costs.
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 less premium priced shipments and
lower earnings in Colorado due to more longwall moves and railroad problems
affecting shipments, partially offset by substantially higher earnings in
Pennsylvania due to higher production and lower costs.
Coal production, including Cyprus Amax's 48 percent share of Oakbridge, Ltd., of
77 million tons and sales of 79 million tons in 1998 were 11 million tons and 10
million tons lower than the 1997 period, respectively, due to the absence of
sales and production from the properties sold in June 1998. Excluding the impact
of the sold properties from each year, coal sales increased 2 million tons over
1997 and production was comparable to 1997.
The 1998 average realization was $12.43 per ton, and the average cost of sales
was $11.37 per ton. This resulted in a profit margin of $1.06 per ton for the
year and a cash margin of $2.81 per ton. This compares with an average
realization of $14.53 and an average cost of sales of $13.90, yielding a profit
margin of 63 cents per ton and a cash margin of $2.62 per ton for 1997.
Longwall start-up at the Willow Creek mine in Utah commenced in mid-July 1998,
with commercial production being achieved on October 1, 1998. On November 25,
1998, an underground mine fire
<PAGE>
occurred at Willow Creek. There were no injuries, and all employees were safely
evacuated and the mine was sealed in a remarkably short period of time. There
was minimal damage to the mine and longwall, and continuous miner production is
projected to restart in late March. The majority of the Willow Creek workforce
has been temporarily reassigned to the nearby Star Point mine where production
has been expanded to partially mitigate the absence of production from Willow
Creek. The losses that have and are being incurred are expected to be partially
offset by insurance recoveries expected to be realized in 1999 and 2000.
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 83 percent of
U.S. coal production, 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 two percent in 1999. U.S. coal production is expected to expand
to 1,116 million tons in 1999, according to the Energy Information
Administration. The major factors influencing growth are stronger demand for
electricity, increased reliance on low-cost coal-fired power plants, and little
or no growth in nuclear and hydroelectric generation.
The accelerating deregulation of the electric power generation industry has
presented new opportunities for innovation. For the past three years, Cyprus
Amax Coal has been developing and implementing value-added marketing strategies.
Since forming Alliance Power Marketing in 1996, Cyprus Amax Coal has implemented
eight wholesale power-market-based coal supply agreements. Terms under these
power alliances extend from one to five years, with volumes ranging from 400,000
tons to 1.1 million tons per year. Additional examples of value-added products
and services include shared process cost savings through quality optimization,
transportation and inventory management, and the emerging opportunities to
supply power plants being acquired by non-regulated power generators.
Approximately 92 percent of Cyprus Amax's coal production is sold to domestic
electric utility customers. More than 90 percent of projected 1999 production
was committed for sale by the start of the year. Of the committed production for
1999, 33 percent will be sold on contracts with terms of five years or more.
Overall, Cyprus Amax will sell about 71 million tons in 1999 to 60 customers in
23 states as well as to customers in Australia, the Pacific Rim countries, and
Mexico.
Cyprus Amax coal reserves totaled 2.2 billion tons (including Cyprus Amax's 48
percent share of Oakbridge) at December 31, 1998. Domestic reserves of 1.7
billion tons are developed and assigned to operating mines and include
approximately 72 percent compliance coal. The developed compliance reserves
satisfy the less than 1.2 pound sulfur dioxide Phase II (compliance) standard,
<PAGE>
which will become effective in 2000. With this large reserve base of compliance
coal, in addition to diverse geographical locations that serve growth markets,
Cyprus Amax Coal Company believes that it has the resources and market access to
be a highly competitive coal company for the long-term.
During 1998 Oakbridge's production and sales of 5 million tons and 6 million
tons (Cyprus Amax's 48 percent share), respectively, were comparable to 1997.
Oakbridge, which is reported in Earnings (Loss) on Equity Investments and Other,
incurred a loss of $3 million in 1998 compared to a loss of $33 million in 1997.
The 1998 results included a gain of $10 million on the sale of the Clarence mine
in Australia, and the 1997 results included a $13 million write-down of Clarence
due to its closure. Excluding the special items, Oakbridge incurred a loss of
$13 million in 1998 compared with a loss of $20 million in 1997. The
improvement in earnings is primarily due to improved costs in 1998, in spite of
weak export coal selling prices. Additionally, in January 1998, Cyprus Amax's
ownership interest in Oakbridge increased to 48 percent from 41 percent, for an
investment of approximately $10 million.
During 1997 Oakbridge's production of 5 million tons (Cyprus Amax's 41 percent
share) was 1 million tons lower than 1996 production primarily due to several
mines experiencing problematic mining conditions and labor disruptions.
Excluding the 1997 write-down mentioned above, Oakbridge 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.
<PAGE>
LITHIUM
SELECTED LITHIUM DATA (In millions)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue $ 218 $ 96 $ 99
Segment Operating Earnings $ 165 $ 21 $ 30
Production Volumes, Lbs.
Carbonate Equivalents 31.9 40.2 44.8
Sales Volumes, Lbs.
Carbonate Equivalents 30.0 44.2 44.9
</TABLE>
NOTE: SUPPLEMENTAL DATA (In millions)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Special Items $ 154 $ - $ -
Segment Operating Earnings Excluding Special Items $ 11 $ 21 $ 30
</TABLE>
Lithium reported segment operating earnings of $165 million for 1998 compared
with $21 million in 1997. The 1998 results included a pre-tax gain of $154
million from the sale of the Lithium business in the fourth quarter of 1998.
The Lithium segment operating earnings in 1998 were $10 million lower than in
1997, excluding the gain, primarily due to lower lithium carbonate sales
volumes, lower lithium carbonate prices, and the absence of 1998 fourth quarter
results because of the sale.
EXPLORATION
SELECTED EXPLORATION RESULTS (In millions)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Segment Operating Loss $ (45) $ (43) $ (20)
</TABLE>
Exploration expense of $45 million in 1998 was $2 million higher than in 1997.
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
expenditures in 1998 primarily funded projects in Africa, Papua New Guinea,
Chile, Peru, Eurasia, Indonesia, Australia, and Central America. In 1999
exploration expenses are expected to decrease significantly, to below $15
million, in response to low copper prices.
<PAGE>
All Other
SELECTED RESULTS (In millions)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Gold $ 10 $ 6 $ (36)
Businesses Sold/Non-Operating (30) 18 (6)
---------- ---------- -----------
Segment Operating Earnings (Loss) $ (20) $ 24 $ (42)
========== ========== ==========
</TABLE>
NOTE: SUPPLEMENTAL DATA (In millions)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Special Items $ (23) $ 19 $ (36)
========== ========== ==========
</TABLE>
All Other, which includes Gold and Businesses Sold/Non-Operating, reported a
combined operating loss for 1998 of $20 million compared with earnings of $24
million in 1997 and a loss of $42 million in 1996. The 1998 results included a
$23 million pre-tax charge on the settlement of oil and gas legal actions
associated with oil and gas properties acquired in the Amax merger and
subsequently sold in 1994 and a $5 million pre-tax charge for miscellaneous
write-downs, partially offset by a $5 million pre-tax gain on the sale of real
estate. During 1997 Cyprus Amax sold the Kubaka mine to Amax Gold and recorded
a gain of $19 million, reflecting the minority interest's share. In 1996 Amax
Gold wrote down the net asset value of the Guanaco mine in Chile by $36 million.
Excluding the special items, All Other reported earnings of $3 million in 1998
and $5 million in 1997 and a loss of $6 million in 1996.
Gold reported operating earnings in 1998 of $10 million, which included a $7
million gain on the monetization of a portion of Amax Gold's foreign tax net
operating losses, compared with earnings of $6 million in 1997. The decrease in
earnings, excluding the gain, is attributable to the merger of Amax Gold with
Kinross Gold Corporation on June 1, 1998, as Cyprus Amax's results for 1998 only
include Amax Gold for five months. Subsequently, Cyprus Amax's investment in
Kinross is accounted for on an equity basis. In 1997 Gold earnings were $6
million compared with break-even earnings in 1996, excluding the Guanaco mine
write-down. This increase in earnings resulted from higher sales and reduced
cash costs, partially offset by lower realized prices.
Additionally, Cyprus Amax's equity share in Kinross Gold's losses was $48
million in 1998, which included an asset impairment recorded by Kinross of $50
million and a pre-tax gain of $13 million for the recognition of the sale by
Kinross of the pre-merger Amax Gold hedging portfolio.
<PAGE>
Businesses Sold/Non-Operating reported a loss of $30 million in 1998 compared
with earnings of $18 million in 1997. The 1998 and 1997 results included the
above-mentioned special items of $23 million pre-tax and the $19 million gain,
respectively.
CORPORATE AND OTHER
Corporate expenses of $40 million for 1998 were $28 million lower than in 1997
primarily due to cost reductions, particularly through reduced staffing and
outside services, and the absence of the 1997 pre-tax charge of $7 million for
the purchase of approximately 70 percent of the Company's $300 million 9 7/8%
Notes. Corporate expenses of $61 million in 1997, excluding the $7 million
charge mentioned above, were comparable with 1996.
Net interest expense, after capitalized interest and interest income, decreased
$16 million to $146 million in 1998. Interest expense decreased $40 million
primarily due to the significant reduction in debt. Interest income decreased
$19 million primarily due to the absence of the income earned on Codelco's 49
percent share of El Abra's subordinated debt that was paid back to Cyprus Amax
in late 1997. In 1997 net interest expense increased $84 million to $162
million primarily due to lower capitalized interest of $73 million due to the
completion of several major construction projects.
The 1998 equity losses of $53 million were $22 million higher than in 1997.
Cyprus Amax's equity share in Kinross Gold's losses was $48 million in 1998,
which is discussed in the All Other segment section. Additionally, Oakbridge
incurred losses of $3 million and $33 million in 1998 and 1997, respectively,
and earnings of $7 million in 1996. See the Coal section for a discussion on
Oakbridge's results.
In 1998 income taxes reflected an expense of $13 million even though Cyprus Amax
reported a loss because tax benefits are not recognized on foreign equity losses
and exploration expenses due to the uncertainty of realization. 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.
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
<PAGE>
with inflation of certain supplies and service costs, continue to increase mine
operating costs; however, Cyprus Amax's company-wide quality and efficiency
initiative, Quest 21, has implemented quality improvement programs that have
increased productivity and reduced costs. Most of Cyprus Amax's products are
commodities whose price changes do not directly correlate to inflation.
ENVIRONMENTAL
During 1998 Cyprus Amax spent approximately $83 million for reclamation,
remediation, and environmental compliance compared with 1997 environmental
expenditures of about $108 million. About $6 million of the total 1998 spending
was for capital expenditures, and $41 million of the total spending was charged
to reserves. Environmental expenditures in 1999 are expected to increase to
approximately $120 million as a result of increased spending at the Pinal Creek
site more fully discussed in Note 14 to the Consolidated Financial Statements.
At December 31, 1998, Cyprus Amax had short-term and long-term accruals of
approximately $397 million for expected mine closure, reclamation, and
environmental remediation liabilities compared with accruals of $411 million at
year-end 1997. Significant components of the year-end 1998 accrual include $237
million for future reclamation and for closure of discontinued or previously
sold operations and $160 million for environmental remediation at Superfund and
other similar sites.
The reserves for future reclamation and closure include $127 million for
Copper/Molybdenum and $110 million for Coal. Significant elements of the
reclamation and closure reserves include $52 million for combined Eagle Butte
and Belle Ayr mines, $38 million for the Climax molybdenum mine, $30 million for
the Tohono mine, and $13 million for the Delta coal mine.
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 range of
reasonably possible outcomes for all sites to range between $140 million and
$470 million, of which $160 million is considered probable and has been accrued
at December 31, 1998. 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, 1998, Cyprus Amax had a ratio of long-term debt to total
capitalization of 44 percent, a ratio of current assets to current liabilities
of 1.4 to 1.0, and a cash balance of $353 million.
During 1998 $243 million was generated from operating activities, before changes
in working capital, and $415 million from the proceeds of asset sales reflecting
the sale of Lithium and the Appalachian and Midwest coal properties. Those
sources of funds were sufficient to finance cash requirements for capital
expenditures of $228 million, net interest payments of $148 million, dividend
payments of $93 million, net repayments on debt and other obligations of $122
million, and $69 million of advances to and investments in affiliates primarily
reflecting the additional investment in Kinross Gold Corporation.
In 1997 Cyprus Amax began deleveraging its balance sheet, in particular
corporate debt. In June 1997, Cyprus Amax purchased 70 percent of the Company's
$300 million 9 7/8% Notes due June 13, 2001, for $232 million, excluding accrued
interest. In November 1997, the $1 billion in project loans for the El Abra
copper mine was refinanced. This included the $300 million of subordinated debt
that Cyprus Amax had contributed to the copper development project and $70
million in accrued interest. Additionally, in December 1997, Cyprus Amax
elected to prepay $200 million on the five-year $350 million term loan.
During 1997 Amax Gold completed a $71 million tax-exempt industrial revenue
financing for the tailings facility at the Fort Knox mine and refinanced its $34
million portion of the Refugio gold loan. With the Amax Gold merger with
Kinross Gold Corporation and the subsequent deconsolidation of Amax Gold, Cyprus
Amax eliminated $412 million of debt from its balance sheet in 1998.
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 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, 1998, no borrowings were
outstanding on this facility.
<PAGE>
Non-cash working capital decreased by $150 million during 1998 from $47 million
in 1997 primarily due to the effects of the deconsolidation of Amax Gold and the
sale of Lithium and the Appalachian and Midwest coal properties. In addition,
accounts and notes receivable decreased due to lower copper, molybdenum, and
coal realizations and inventories decreased due to lower production costs.
Cash capital expenditures in 1998, excluding capitalized interest, were $228
million, which was a significant drop from 1997's capital expenditures of $391
million due to the completion of Amax Gold's major development projects in 1997
and lower expenditures in 1998 for the development of the Willow Creek coal
mine. Copper/Molybdenum capital expenditures of $121 million included $49
million for the Henderson 2000 molybdenum project and the remainder primarily
for sustaining and replacement capital and capitalized stripping. Coal cash
capital expenditures of $92 million included $46 million for development of the
Willow Creek mine in Utah and the remainder for sustaining and replacement
capital. Lithium's capital expenditures were $5 million prior to its sale, and
Amax Gold's capital expenditures were $6 million prior to its merger.
Capital spending in 1999 is expected to be approximately $270 million.
Copper/Molybdenum capital expenditures are estimated at slightly over $200
million with approximately $90 million for the Henderson 2000 project, $10
million at El Abra for construction of a fine ore stockpile, $9 million at Miami
on the smelter acid plant drying tower and vent fume scrubber, and the remainder
for sustaining and replacement capital and capitalized stripping. Coal expects
to spend approximately $50 million in 1999, including $14 million at Emerald for
final payments on the longwall and $13 million at Cumberland for shearer
replacement, continuous miner, and ventilation shafts.
During 1999 Cyprus Amax expects to be able to generate sufficient funds for
general corporate purposes, working capital needs and capital expenditures from
operations, 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 1998. At December 31, 1998, 90.2 million shares of the Company's
Common Stock were outstanding. On February 11, 1999, the Board of Directors
announced a reduction in dividends to $0.05 per common share per quarter
effective in the second quarter of 1999. The Board's decision was a direct
reflection of the continued weakness in copper prices.
Effective July 1, 1998, Cyprus Amax modified the employee savings plan, which
returned approximately 2 million shares held in trust to the Company's treasury.
This transaction had no impact on earnings.
<PAGE>
On August 28, 1998, the Cyprus Amax Board of Directors approved a program to buy
up to 10 million of its common shares on the open market. As of February 22,
1999, 1,510,300 shares have been purchased at an average cost of $10.74 per
share or $16 million.
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued in June 1998. SFAS
No. 133 requires companies to report the fair-market value of derivatives on the
balance sheet and record in income and other comprehensive income, as
appropriate, any changes in the fair value of the derivative. This statement is
effective for all fiscal quarters of the fiscal years beginning after June 15,
1999. The Company does not expect the statement to have a material impact on
its financial position or results of operations.
MARKET RISKS
In the ordinary course of business, Cyprus Amax is exposed to market risks
relating to fluctuations in commodity price, foreign currency, and interest rate
risks. The objective of financial risk management at Cyprus Amax is to minimize
the negative impact of commodity price, foreign exchange rate, and interest rate
fluctuations on the Company's earnings and cash flows. The Company from time-
to-time uses simple, non-leveraged derivative instruments that are placed with
major institutions whose creditworthiness is continually monitored. Risk
management strategies are reviewed and approved by senior management before
being implemented. Policy controls limit the maximum that can be taken in any
given instrument. Cyprus Amax does not currently hold or issue derivative
instruments for trading purposes.
Commodity Price Risk
The Company from time-to-time uses price protection programs to reduce or
eliminate the risk of metal price declines on a portion of its future copper
sales. Premiums paid are amortized during the period in which the options are
exercisable. Gains on such transactions are matched to product sales and
credited to sales revenue when that product is sold. At December 31, 1998,
there were no copper price protection programs in place for 1999 or future
years. At December 31, 1997, Cyprus Amax had price protection programs in place
that would insure a minimum net average realization on an LME basis of 89 cents
per pound on 45 percent of total production for 1998. This resulted in a
benefit from the 1998 price protection program, net of premium amortization, of
$56 million, or 6 cents per pound.
<PAGE>
Additionally, in order to eliminate the market risk arising from the volatility
of copper prices, Cyprus Amax sells most of its domestic rod and cathode
production at the Comex average price in the month of shipment and most of its
South American cathode production at the LME average price in the month
following the month of shipment.
Some domestic customers require a fixed price on future deliveries, and these
sales volumes are hedged by the Company by buying Comex futures contracts for
the shipment month. The Comex futures contracts are sold during the month of
shipment to recreate the monthly Comex average price for Cyprus Amax. In
addition, some international customers require a fixed price or an average price
other than the month after month of shipment average price. These sales volumes
are hedged by buying over-the-counter LME futures contracts for the required
period. The over-the-counter LME futures contracts are sold during the month
after the month of shipment to recreate the average LME price for the Company.
At December 31, 1998, the Company had approximately 73 million pounds of copper
hedged with futures contracts with deferred unrealized losses of $3 million on
these futures contracts, as the offsetting customer transaction will not occur
until 1999. Assuming a hypothetical adverse change in copper prices of 10
percent, Cyprus Amax would incur a loss of $8 million, including the $3 million
at December 31, 1998. However, any gains or losses on the futures contracts
will be offset by a corresponding gain/loss on the related customer sales
contract.
Additionally, the Company has a program to maximize competitiveness of South
American copper cathode sold in North America and protect the price difference
between copper cathode purchased from the mines on an LME basis and then sold on
a Comex basis. Cyprus Amax sells over-the-counter Comex futures and buys over-
the-counter LME futures simultaneously to fix a premium differential. The
positions are unwound at the average LME and Comex price during the month of
delivery of the product to North American customers mitigating potential
volatility in the price basis. As of December 31, 1998, the Company had
approximately 41 million pounds of arbitrage hedged for a negligible value.
Foreign Exchange Rate Risk
From time-to-time, the Company may enter into foreign exchange forward contracts
and/or options to manage the currency exposure in foreign countries, primarily
Chile, Australia, and Europe where Cyprus Amax has ongoing operations and
certain other business transactions, such as the
<PAGE>
procurement of equipment from foreign sources. At December 31, 1998, Cyprus Amax
had approximately $2 million of foreign currency protection in place for its
consolidated subsidiaries.
Interest Rate Risk
The Company periodically enters into interest rate swap agreements to manage its
exposure to interest rate changes. The swaps involve the exchange of fixed and
variable interest rate payments without exchanging the notional principal
amount. At December 31, 1998, El Abra had four interest rate swap agreements
converting approximately $205 million (Cyprus Amax's share) of U.S. dollar debt
from variable to an average fixed rate of 5.9 percent with maturities from May
1999 to 2003. Cerro Verde had two interest rate swap agreements outstanding at
December 31, 1998, for $66 million of U.S. dollar debt converting to a fixed
rate of 5.9 percent and maturing in 2002 and 2005. Springvale had three interest
rate swap agreements in place at December 31, 1998, that convert $53 million of
Australian dollars into fixed debt at 7.2 percent and matures in 2002. See
Notes 2 and 8 for a discussion of the accounting policies on Hedging Programs
and Derivative Contracts and Derivative Financial Instruments and Fair Value of
Financial Instruments.
YEAR 2000 CONVERSION
State of Readiness
Cyprus Amax has created and staffed a Year 2000 (Y2K) Program Management Office
to oversee and coordinate Year 2000 conversion for the Company. This is a
company-wide project to address the issues that are likely to arise if computer
programs and embedded computer chips are unable to properly recognize,
communicate, or react to dates in and after the Year 2000. The Year 2000
project is a priority within Cyprus Amax, and each major business unit --
Copper/Molybdenum, Coal, and Corporate -- has dedicated full-time individuals
along with a much larger group of mine site individuals who have been assigned
specific Year 2000 responsibilities. In certain cases, Cyprus Amax has engaged
third parties to assist in the Y2K efforts. Year 2000 date processing has
potential implications to Cyprus Amax's business applications and automated mine
operations, such as process controllers and other electronic measuring devices.
The project is focused in three main areas:
1. Information Technology (IT) hardware and software;
<PAGE>
2. Non-IT systems embedded in equipment that controls, supports, or monitors
Cyprus Amax's assets such as mining, milling, safety, environmental,
transportation, and communication; and
3. Business relationships with third parties such as suppliers, customers,
and governmental entities.
Project work dealing with IT and Non-IT systems is organized into five major
phases:
1. Awareness Identification and training of those responsible for
timely resolution of the Y2K problem.
2. Inventory All systems that might cause Y2K failure are identified
(including those linked to third parties).
3. Assessment Inventoried systems are classified by several levels of
criticality, and the state of Year 2000 compliance is
determined. Judgments are made as to which systems would
likely be materially important. Strategies and
remediation plans are produced.
4. Remediation Non-compliant systems are retired, remediated/upgraded,
and Testing or replaced, as appropriate, and then tested. Based on
findings, contingency plans are created and tested, if
critical.
5. Implementation Implementing the strategies and executing the plans.
Cyprus Amax has completed the awareness phase and has largely completed the
inventory and assessment phases of the process with respect to IT and Non-IT
systems. The remediation and implementation phases involve remediating and
testing non-compliant code, replacement and testing of computing infrastructure
and telecommunications devices, and upgrading and testing of end user
applications. These phases are in process, and Cyprus Amax expects to be
essentially completed by the third quarter of 1999.
Project work dealing with external agents such as vendors and customers is
organized into four major phases:
1. Awareness The identification of Cyprus Amax's relationships with
external agents and the establishment of criticality for
each. Communication with each entity to elicit
information about their plans and actions to achieve
timely Year 2000 readiness.
<PAGE>
2. Evaluation Information from the contact is evaluated and action plans
are formulated as appropriate.
3. Follow-up Continued contact with the external agents to assure they
will achieve timely Year 2000 compliance and to assure our
reliance on current information.
4. Mitigation/ Depending on the findings, Cyprus Amax defines alternatives
Contingency and creates contingency plans.
Cyprus Amax has largely completed the awareness and evaluation steps for
external entities with most work being focused on providing most-current
compliance information to Y2K teams. The follow-up and remediation phases have
been undertaken and will be continuous and ongoing through the end of 1999;
however, the majority of the work will be completed by the end of the second
quarter of 1999.
COSTS
Cyprus Amax estimates that the cost of efforts to prepare for Year 2000 from
calendar year 1997 through 1999 is from $23 million to $29 million, of which $12
million has been spent through December 31, 1998. All project costs are being
funded with cash flows from operations. As a result of the project, certain IT
projects to improve business functionality have been reprioritized and
accelerated. The deferral of any IT work due to the Year 2000 efforts will not
have a material adverse effect on Cyprus Amax's results of operations or
financial condition.
Risks and Contingency Plans
Risks to Cyprus Amax resulting from failure of its systems or from failure of
third parties are essentially the same as for other firms in the mining
industry. The following are representative of the types of risks that could
result in the event of one or more major failures of Cyprus Amax's information
systems, mining sites, or facilities to be Year 2000 ready, or similar major
failures by one or more major third party suppliers or customers of Cyprus Amax.
1. Information systems - could include disruptions of business and
transaction processing such as customer billing, payroll, accounts
payable, purchasing, and other information processes until the systems can
be remedied or replaced;
2. Mining facilities - could include disruptions of mining processes and
facilities with delays in delivery of products until non-compliant
components can be remedied;
<PAGE>
3. Major suppliers - could include disruptions in the provision of supplies
and components that could cause subsequent interruptions of mining
activities and delays in delivery; and
4. Major customers - could include disruptions in sales, revenue, and cash
inflow as a major customer may not be Year 2000 compliant or one of their
suppliers may experience failures that could impact the amount of copper,
molybdenum, or coal they require.
To minimize the risks associated with the Year 2000 issue, Cyprus Amax has begun
work (1) to identify scenarios involving possible failures for Year 2000
focusing on critical systems and critical third party vendors and customers and
(2) to develop contingency plans for mitigating the impact of these scenarios.
This involves determining the most reasonably likely worst case Year 2000
scenarios. This work is in process; however, Cyprus Amax believes that its
largest potential risks involve third parties since Cyprus Amax cannot control
their Y2K efforts. Although there are many areas of potential risk, at present
Cyprus Amax believes that the highest potential risks are problems with the
provision of power to its operations, transportation-related problems, and the
potential failure or undue degradation of customer demand or markets for its
products, any of which could have an adverse impact on the Company's operations
and financial results. The Company expects to have a contingency plan in place
by the third quarter of 1999.
Cyprus Amax believes it is taking the necessary steps to resolve Year 2000
issues; however, there can be no assurance that any one or more such failures
would not have a material adverse effect on Cyprus Amax. Actual outcomes and
results could be affected by future factors including, but not limited to,
availability of skilled personnel, ability to identify and remediate software
problems, critical suppliers and subcontractors meeting commitments, and timely
actions by customers and suppliers.
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 Year 2000 compliance issues,
projections of mineral production levels, cash operating costs, capital
expenditure levels, certain significant costs 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
<PAGE>
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, availability of skilled
personnel, ability to identify and remediate Year 2000 problems, impact of Year
2000 compliance problems of third parties, 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. The Company disclaims
any obligation or intention to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
<PAGE>
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 PricewaterhouseCoopers
LLP, whose appointment is ratified yearly by the shareholders at the annual
shareholders' meeting. PricewaterhouseCoopers LLP conducted its 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 PricewaterhouseCoopers 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, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, 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/ PricewaterhouseCoopers LLP
Denver, Colorado
February 11, 1999
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
(In millions except per share data) 1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
REVENUE $ 2,566 $ 3,346 $ 2,843
-------- -------- --------
COSTS AND EXPENSES
Cost of Sales 1,787 2,257 2,074
Selling and Administrative Expenses 119 128 128
Depreciation, Depletion, and Amortization 361 444 339
Write-Downs and Special Charges 118 241 116
Exploration Expense 45 43 34
-------- -------- --------
TOTAL COSTS AND EXPENSES 2,430 3,113 2,691
-------- -------- --------
INCOME FROM OPERATIONS 136 233 152
OTHER INCOME (EXPENSE)
Interest Income 17 36 28
Interest Expense (168) (208) (189)
Capitalized Interest 5 10 83
Earnings (Loss) on Equity Investments and Other (53) (31) 3
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST (63) 40 77
Income Tax (Provision) Benefit (13) 22 (11)
Minority Interest 1 7 11
-------- -------- --------
NET INCOME (LOSS) (75) 69 77
Preferred Stock Dividends (19) (19) (19)
-------- -------- --------
INCOME (LOSS) APPLICABLE TO COMMON SHARES $ (94) $ 50 $ 58
======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE
Basic and Diluted/(1)/ $ (1.02) $ 0.54 $ 0.62
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 92 93 93
Diluted 102 103 103
</TABLE>
/(1)/ Diluted earnings (loss) per share were anti-dilutive in 1998, 1997, and
1996.
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) 1998 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 353 $ 250
Accounts Receivable, Net 48 139
Notes Receivable, Net 69 62
Inventories 386 526
Prepaid Expenses 52 147
Deferred Income Taxes 13 8
------ ------
Total Current Assets 921 1,132
------ ------
PROPERTIES - At Cost, Net 3,842 4,978
EQUITY INVESTMENTS 345 102
OTHER ASSETS 233 247
------ ------
TOTAL ASSETS $5,341 $6,459
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 35 $ 55
Current Portion of Long-Term Debt 126 180
Accounts Payable 81 139
Accrued Payroll and Benefits 75 100
Accrued Royalties and Interest 38 50
Accrued Closure, Reclamation, and Environmental 97 59
Other Accrued Liabilities 126 143
Taxes Payable Other Than Income Taxes 49 67
Income Taxes Payable 25 23
Dividends Payable 19 19
------ ------
Total Current Liabilities 671 835
------ ------
NONCURRENT LIABILITIES AND DEFERRED CREDITS
Long-Term Debt 1,677 2,089
Capital Lease Obligations 41 113
Deferred Employee and Retiree Benefits 345 407
Deferred Closure, Reclamation, and Environmental 300 352
Deferred Income Taxes 57 57
Other 59 117
------ ------
Total Noncurrent Liabilities and Deferred Credits 2,479 3,135
------ ------
COMMITMENTS AND CONTINGENCIES (NOTES 14 AND 16) - -
MINORITY INTEREST 34 159
------ ------
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 1998 and 1997 5 5
Common Stock, Without Par Value, 150,000,000 Shares Authorized,
96,031,015 Shares Issued in 1998 and 96,031,038 in 1997 1 1
Paid-In Surplus 2,917 2,947
Accumulated Deficit (672) (504)
Accumulated Other Comprehensive Income (3) (8)
------ ------
2,248 2,441
Treasury Stock at Cost, 5,816,090 Shares in 1998 and
2,548,867 Shares in 1997 (91) (58)
Loan to Savings Plan - (53)
------ ------
Total Shareholders' Equity 2,157 2,330
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,341 $6,459
====== ======
</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) 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (75) $ 69 $ 77
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by Operating Activities:
Depreciation, Depletion, and Amortization 361 444 339
Write-Downs and Special Charges 118 241 116
Deferred Income Taxes (6) (8) 13
Gain on Sales of Assets (137) (166) (41)
Issuance of Stock for Employee Benefits 1 6 6
Other, Net 76 62 13
Changes in Assets and Liabilities Net of Effects from
Businesses Acquired/Sold:
Decrease (Increase) in Receivables 18 (15) 146
Increase in Inventories (3) (36) (61)
Decrease (Increase) in Prepaid Expenses 59 (1) (25)
Decrease in Current Liabilities (80) (25) (17)
(Increase) Decrease in Other Assets (7) 14 (1)
Decrease in Other Liabilities (88) (104) (125)
----- ----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES 237 481 440
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (228) (391) (856)
Payments for Businesses Purchased - - (70)
Capitalized Interest (5) (10) (83)
Advances from (to) and Investments in Affiliates (69) 155 (12)
Collections on Notes Receivable 6 7 -
Proceeds from Sales of Assets 415 154 63
Cash Effect of Deconsolidating Amax Gold Inc. (18) - -
----- ----- -----
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 101 (85) (958)
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale-Leaseback - - 24
Net Proceeds from Issuance of Long-Term Debt 5 681 722
Payments on Long-Term Debt (87) (911) (14)
Net Borrowings on Short-Term Debt 21 91 526
Payments on Short-Term Debt (31) (74) (596)
Production Payments - - (25)
Payments on Capital Lease Obligations (30) (28) (18)
Proceeds from Issuance of Stock for Employee Benefits - 1 1
Dividends Paid (93) (92) (93)
Dividends to Minority Interests (4) (7) (7)
Stock Repurchase Program (16) - -
----- ----- -----
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (235) (339) 520
----- ----- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS 103 57 2
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 250 193 191
----- ----- -----
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 353 $ 250 $ 193
===== ===== =====
</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
----------------------------- -----------------------
Shares Net Shares Paid-In
(In millions) Outstanding Amount Outstanding Amount Surplus
-------------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1995 5 $ 5 93 $ 1 $ 2,956
Comprehensive Income:
Net Income
Unrealized Gain on Securities, Net of
Reclassification Adjustment
Foreign Currency Translation Adjustment
Comprehensive Income
Dividends
Preferred Stock, Series A
Common Stock
Common Stock Issued for
Employee Benefit Plans and
Exercise of Stock Options (4)
-------------- ----------- ----------- -------- ----------
December 31, 1996 5 5 93 1 2,952
Comprehensive Income:
Net Income
Foreign Currency Translation Adjustment
(Net of Tax Benefit of $4 million)
Comprehensive Income
Dividends
Preferred Stock, Series A
Common Stock
Common Stock Issued for
Employee Benefit Plans and
Exercise of Stock Options (5)
-------------- ----------- ----------- -------- ----------
December 31, 1997 5 5 93 1 2,947
Comprehensive Income (Loss):
Net Income (Loss)
Foreign Currency Translation Adjustment
(Net of Tax of $6 million)
Minimum Pension Liability Adjustment
Comprehensive Income (Loss)
Dividends
Preferred Stock, Series A
Common Stock
Common Stock Issued for
Employee Benefit Plans and
Exercise of Stock Options (6)
Repayment of Savings Plan Loan (24)
Purchase of Common Stock (3)
-------------- ----------- ----------- -------- ----------
December 31, 1998 5 $ 5 90 $ 1 $ 2,917
============== =========== =========== ======== ==========
<CAPTION>
Accumulated
Other Loan to Total
Accumulated Comprehensive Treasury Savings Shareholders'
(In millions) Deficit Income Stock Plan Equity
----------- -------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1995 $ (465) $ 2 $ (70) $ (64) $ 2,365
----------
Comprehensive Income:
Net Income 77 77
Unrealized Gain on Securities, Net of
Reclassification Adjustment 1 1
Foreign Currency Translation Adjustment 2 2
----------
Comprehensive Income 80
----------
Dividends
Preferred Stock, Series A (19) (19)
Common Stock (74) (74)
Common Stock Issued for
Employee Benefit Plans and
Exercise of Stock Options 6 6 8
---------- ---------- ----------- ---------- ----------
December 31, 1996 (481) 5 (64) (58) 2,360
---------- ---------- ----------- ---------- ----------
Comprehensive Income:
Net Income 69 69
Foreign Currency Translation Adjustment (13) (13)
(Net of Tax Benefit of $4 million)
----------
Comprehensive Income 56
----------
Dividends
Preferred Stock, Series A (19) (19)
Common Stock (73) (73)
Common Stock Issued for
Employee Benefit Plans and
Exercise of Stock Options 6 5 6
---------- ---------- ----------- ---------- ----------
December 31, 1997 (504) (8) (58) (53) 2,330
----------
Comprehensive Income (Loss):
Net Income (Loss) (75) (75)
Foreign Currency Translation Adjustment 17 17
(Net of Tax of $6 million)
Minimum Pension Liability Adjustment (12) (12)
----------
Comprehensive Income (Loss) (70)
----------
Dividends
Preferred Stock, Series A (19) (19)
Common Stock (74) (74)
Common Stock Issued for
Employee Benefit Plans and
Exercise of Stock Options 8 4 6
Repayment of Savings Plan Loan (25) 49 -
Purchase of Common Stock (16) (16)
---------- ---------- ----------- ---------- ----------
December 31, 1998 $ (672) $ (3) $ (91) $ - $ 2,157
========== ========== =========== ========== ==========
</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.
The Copper/Molybdenum segment mines, processes, and markets copper and
molybdenum primarily in the Americas and Europe. 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 South
American mines are expected to account for 40 percent of the planned 1999
production of approximately 1 billion pounds. Substantially all of Cyprus Amax's
copper metal production is committed under sales agreements with metal
fabricators at prices that fluctuate with commodity exchange quotations, and
approximately 20 percent of copper/molybdenum sales in 1998 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 is 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. Loss of any one customer would not have a material adverse effect
on the results of Cyprus Amax. On June 29, 1998, Cyprus Amax sold 11 of its
Appalachian and Midwest coal properties to Coal Ventures, Inc. (AEI) of Ashland,
Kentucky. After the sale, the Coal segment has 9 domestic operating mines of
which 3 are governed by union contracts. Union representation accounts for
approximately 41 percent of Coal's employees and 20 percent of domestic
production. The contract with the United Mine Workers of America expires in
April of 2003.
The Lithium segment, which was a major producer of lithium with production
facilities in the United States and Chile, was sold on October 13, 1998, to an
affiliate of Chemetall GmbH, a specialty chemicals unit of Metallgesellschaft
AG.
On June 1, 1998, Amax Gold Inc. (Amax Gold or AGI) completed its merger with
Kinross Gold Corporation (Kinross). Cyprus Amax owned 58.8 percent of Amax Gold,
which was converted into Kinross shares, and additionally Cyprus Amax purchased
about $135 million of Kinross Gold Common Stock for cash and the repayment of
Amax Gold debt. At December 31, 1998, Cyprus Amax owned approximately 30 percent
of Kinross. Amax Gold was 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.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The financial statements include the accounts of
Cyprus Amax Minerals Company and related entities that 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) - Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share" was adopted in the fourth quarter of 1997. 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
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
as reduced by preferred stock dividends by the weighted average number of common
shares outstanding during the year. 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 that would be issued upon conversion
of the preferred stock. At December 31, 1998, 1997, and 1996, 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, 1998, 1997, and 1996, were net of
$100 million, $150 million, and $150 million, respectively, of receivables sold.
INVENTORIES - Inventories are carried at the lower of current market value or
cost. Coal 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 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.
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
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
RECLAMATION AND ENVIRONMENTAL COSTS - Minimum standards for mine reclamation
have been established by various governmental agencies that 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.
NEW ACCOUNTING STANDARDS ADOPTED - For the year ended December 31, 1998, the
Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
requires the reporting and display of total comprehensive income and its
components in a full set of general-purpose financial statements. The Company
has presented the required information in the Consolidated Statement of
Shareholders' Equity. SFAS No. 130 has no effect on the Company's results of
operations, financial position, capital resources, or liquidity.
For the year ended December 31, 1998, Cyprus Amax adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 is based on the "management" approach for reporting segments. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosure about the
Company's products, the geographic areas in which it earns revenue and holds
long-lived assets, and its major customers. See Note 18 of the Consolidated
Financial Statements.
For the year ended December 31, 1998, Cyprus Amax adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," which
requires additional disclosures. The Company's measurement or recognition of
pension and other postretirement benefit obligations will not change under SFAS
No. 132, only the disclosures regarding such plans. See Note 11 of the
Consolidated Financial Statements.
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
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
with assets; and useful lives for depreciation, depletion, and amortization.
Actual results could differ from those estimated.
NOTE 3: BUSINESS ACQUISITIONS AND DISPOSITIONS
On October 13, 1998, Cyprus Amax completed the sale of its Cyprus Foote Mineral
Company lithium subsidiary to an affiliate of Chemetall GmbH, a specialty
chemicals unit of Metallgesellschaft AG. Cyprus Amax received $305 million in
cash at the closing and reported an after-tax gain of approximately $110 million
in the fourth quarter.
On June 29, 1998, Cyprus Amax completed the sale of 11 of its Appalachian and
Midwest coal properties to Coal Ventures, Inc. of Ashland, Kentucky. Cyprus Amax
received $93 million in cash and recorded a second quarter after-tax loss of $12
million on the sale.
On June 1, 1998, Amax Gold completed its merger with Toronto-based Kinross Gold
Corporation. Cyprus Amax's 58.8 percent share of Amax Gold Common Stock was
converted into Kinross shares at the rate of 0.8 of a share of Kinross Common
Stock for each share of Amax Gold. Cyprus Amax also purchased about $135 million
of Kinross Common Stock for cash and the repayment of Amax Gold debt. At the
time of the merger, Cyprus Amax owned approximately 31 percent of Kinross and
received warrants to buy an additional 10 million shares of Kinross. Beginning
June 1, 1998, Cyprus Amax reported its investment in Kinross on an equity basis.
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.
NOTE 4: WRITE-DOWNS AND SPECIAL CHARGES
Write-Downs and Special Charges reported on the Consolidated Statement of
Operations consist of the following:
In the second quarter of 1998, a $4 million pre-tax charge was recorded to write
down certain information system assets.
In the fourth quarter of 1998, a $114 million pre-tax charge was recorded. This
included a $21 million pre-tax charge to write down the copper inventory to
market at the Tohono mine, near Casa Grande, Arizona, and a $9 million pre-tax
charge for the obsolescence write-down of a rail haulage system due to the
construction of a replacement conveyor system at the Henderson molybdenum
operation in Colorado. Additionally, an $80 million pre-tax charge was recorded
for future environmental remediation costs for the Pinal Creek project near the
Company's Miami, Arizona, copper mine and a $4 million pre-tax charge for the
write-down of development costs associated with a leach pad at the Miami mine,
which is not necessary under the revised mine plan.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 reflected 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.
NOTE 5: INVENTORIES
Inventories detailed by component and operating segment are summarized below:
<TABLE>
<CAPTION>
At December 31 (In millions) 1998 1997
----------- ------------
<S> <C> <C>
Component
Ores, Concentrates, and Other
In-Process Inventories $ 197 $ 234
Finished Goods 120 178
Materials and Supplies 69 114
----------- ------------
$ 386 $ 526
=========== ============
Operating Segment
Copper/Molybdenum $ 308 $ 310
Coal 78 128
Lithium - 31
All Other - 57
----------- ------------
$ 386 $ 526
=========== ============
</TABLE>
The excess of estimated replacement cost over the LIFO basis was $4 million at
December 31, 1998, and $43 million at December 31, 1997.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 6: PROPERTIES
<TABLE>
<CAPTION>
At December 31 (In millions) 1998 1997
------------- -------------
<S> <C> <C>
Copper/Molybdenum $ 3,648 $ 3,523
Coal 2,788 3,241
Lithium - 165
Exploration 4 6
All Other 38 1,163
Corporate 72 72
------------- -------------
6,550 8,170
Less: Accumulated Depreciation, Depletion,
Amortization, and Write-downs (2,708) (3,192)
------------- -------------
Net Properties $ $ 3,842 $ 4,978
============= =============
Net Properties consist of the following:
Property, Plant, and Equipment $ 2,152 $ 2,688
Reserves/Mineral Rights and Sales Contracts 1,690 2,290
------------- -------------
Net Properties $ 3,842 $ 4,978
============= =============
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7: DEBT
<TABLE>
<CAPTION>
At December 31 (In millions) 1998 1997
-------------- --------------
<S> <C> <C>
10 1/8% Notes, Due 2002 $ 150 $ 150
9 7/8% Notes, Due 2001 91 91
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 1998,
Due 2001 150 150
Capital Lease Obligations,
Interest Rates Range from 7.4% to 8.5%,
Due from 1999 through 2005 95 145
El Abra Project Financing, 6.7% for 1998, Due from 1999
through 2007 456 510
Cerro Verde Project Financing, 8.8% for 1998, Due from 1999
through 2005 98 106
Springvale Project Financing, 5.9% for 1998, Due from 1999
through 2006 41 55
Springvale Bank Loans, 6.3% for 1998 36 42
Fort Knox Financing, 7.0% for 1998 - 222
Kubaka Project Financing, 9.2% for 1998 - 73
Fort Knox Industrial Revenue Bond, 4.5% for 1998 - 71
Amax Gold Corporate Financing, 6.8% for 1998 - 40
Other 75 72
-------------- --------------
1,842 2,377
Add: Unamortized Net Premium 2 5
-------------- --------------
1,844 2,382
Less: Current Portion (126) (180)
-------------- --------------
Long-Term Debt and Capital Lease Obligations $ 1,718 $ 2,202
============== ==============
</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, 1998, for the next five years are $72, $75, $317, $224, and
$103 for 1999, 2000, 2001, 2002, and 2003, respectively.
In June 1998, debt totaling $412 million was removed from the balance sheet as
part of the merger of Amax Gold with Kinross Gold Corporation. The merger
transaction is more fully described in Note 3. Amax Gold's debt obligations at
June 1, 1998, included the Fort Knox financing of $208 million, Kubaka financing
of $74 million, Fort Knox industrial revenue bonds of $71 million, Amax Gold
corporate financing of $40 million, and capital lease obligations of $19
million. Cyprus Amax continues to guarantee the full loan amount of the Kubaka
project financing until certain completion tests are met. At December 31, 1998,
approximately $92.5 million was outstanding. Kinross pays a 1.75 percent
interest differential to Cyprus Amax as a guarantee fee on the industrial
revenue bonds.
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 consisted 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 currently has guarantees outstanding
of $179 million of the original $850 million tranche. Cyprus Amax's
proportional share of the total $1 billion borrowings was $510 million, of which
$456 million remains outstanding at year-end 1998. The debt has a 9.5-year term
and requires semi-annual principal payments, which began on May 15, 1998. The
weighted average interest rate on this debt at December 31, 1998, was 6.7
percent. The loan agreement specifies certain restrictions on additional
borrowings by El Abra and on dividend and subordinated debt payments.
In June 1997, the Company purchased approximately 70 percent, or $209 million of
its $300 million 9 7/8% Notes due June 13, 2001, for $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 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 financing is composed
of two tranches, an $80 million facility that requires semi-annual installments
of varying amounts through April 1, 2005, and a $30 million revolving bullet
loan currently due in the year 2003. The bullet facility may be extended for
one year on each anniversary. The weighted average interest rate on this debt
during 1998 was 8.8 percent. Both financings are secured by proceeds from sales
collections and a pledge of $45 million in assets on the bullet loan.
At December 31, 1998, the Company had $35 million of short-term debt outstanding
on Cerro Verde's $80 million short-term line of credit, which is guaranteed by
the Company. The average interest rate for 1998 was 5.8 percent.
As of December 1998, 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,
1998 and 1997, 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 currently 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. Interest rate forward contracts have
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
been entered into on (1) $403 million of El Abra's senior debt (on a 100 percent
basis) at a blended fixed rate of 5.85 percent amortized over one to five years,
(2) $66 million of Cerro Verde's financing at a blended fixed rate of 5.87
percent amortized over four and seven years, and (3) $16 million of Springvale's
financing at a blended fixed rate of 7.08 percent amortized over four years.
PRICE PROTECTION PROGRAMS - The Company uses price protection programs to reduce
or eliminate the risk of metal price declines on a portion of their future
copper sales. These programs include copper options, copper synthetic put
options, and copper forward sales. Put options purchased by Cyprus Amax
establish a minimum sales price for the sales covered by such put options and
permit the Company to participate in price increases above the strike price.
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. Prior to its merger with Kinross,
Amax Gold also used a variety of programs--gold put options, gold call and
compound options, gold forward and purchase sales--to reduce the risk of gold
price declines. At December 31, 1998, there were no copper price protection
programs in place for 1999 or future years.
CREDIT RISK - Cyprus Amax is 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.
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, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
At December 31 (In millions) 1998 1997
---------------------------------- ----------------------------------
CARRYING FAIR Carrying Fair
AMOUNT Value Amount Value
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 353 $ 353 $ 250 $ 250
Long-Term Receivables $ 94 $ 86 $ 66 $ 57
Price Protection Contracts $ - $ - $ 25 $ 105
Long-Term Debt $ (1,677) $ (1,697) $ (2,089) $ (2,148)
Other Financial Instruments $ - $ (9) $ - $ (2)
</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, 1998 and 1997.
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.
OTHER FINANCIAL INSTRUMENTS: includes interest rate swap agreements, interest
rate swap options, letters of credit, and financial guarantees written. The
fair value of interest rate swap agreements is estimated by obtaining quotes
from financial institutions and represents the cost to buy out the swaps at
December 31,
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1998 and 1997. Letters of credit fair value is based on the estimated cost to
terminate them. The fair value of financial guarantees written is based on the
estimated cost to settle the obligations with counterparties at the reporting
date.
NOTE 9: INCOME TAXES
Income before Income Taxes and Minority Interest consists of the following:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Domestic $ 6 $ 33 $ 61
Foreign (69) 7 16
---------------- ---------------- ----------------
$ (63) $ 40 $ 77
================ ================ ================
</TABLE>
Income tax provision (benefit) is composed of:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
---------------- --------------- ---------------
<S> <C> <C> <C>
Current -Federal $ 5 $ (24) $ (12)
-State 8 1 -
-Foreign 7 9 9
---------------- --------------- ---------------
20 (14) (3)
---------------- --------------- ---------------
Deferred -Federal 20 (11) 20
-State (8) (7) (5)
-Foreign (19) 10 (1)
---------------- --------------- ---------------
(7) (8) 14
---------------- --------------- ---------------
$ 13 $ (22) $ 11
================ =============== ===============
</TABLE>
The deferred tax (assets)/liabilities comprise the tax effect of the following
at December 31:
<TABLE>
<CAPTION>
(In millions) 1998 1997
--------------- -----------------
<S> <C> <C>
Reclamation Liabilities $ (85) $ (71)
Postretirement Benefits (236) (250)
Capitalized Lease Obligations (27) (40)
Accrued Liabilities (278) (298)
Net Operating Loss Carryforwards (117) (174)
Investment Tax Credit Carryforwards (5) (7)
State Tax Deduction (11) (14)
Minimum Tax Credit Carryforwards (211) (261)
--------------- -----------------
Total Deferred Tax Assets (970) (1,115)
Valuation Allowance 122 221
--------------- -----------------
Net Deferred Tax Assets (848) (894)
--------------- -----------------
Properties 892 943
--------------- -----------------
Total Deferred Tax Liabilities 892 943
--------------- -----------------
Total $ 44 $ 49
=============== =================
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has approximately $5 million of investment tax credit carryforwards
expiring from 1999 to 2006 and $211 million of minimum tax credit carryforwards
that do not expire. There are U.S. net operating loss carryforwards for regular
tax of $176 million expiring from 1999 to 2012 and Chilean net operating loss
carryforwards of $288 million that do not expire. A valuation allowance of $122
million has been recorded against all of these benefits.
The valuation allowance decreased $99 million due to a reduction in prior year
minimum tax credit carryforwards and the deconsolidation of Amax Gold. The other
tax attributes listed above have also been adjusted to eliminate Amax Gold.
The following is a reconciliation between the amount determined by applying the
federal statutory rate of 35 percent to Net Income excluding Minority Interest
and the Income Tax Provision (Benefit):
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income Taxes at Statutory Rate $ (22) $ 14 $ 27
Increases (Decreases) Resulting from:
Percentage Depletion (21) (10) (12)
State Income Taxes, Net of Federal Benefit - (1) (10)
Foreign Operations, Including Previously Undistributed Earnings 29 2 10
Non-Deductible Equity Losses 21 - -
Tax Carryforwards Used 3 6 (2)
Adjustments to Prior Years (1) (38) -
Other, Net 4 5 (2)
--------- --------- ---------
Income Tax Provision (Benefit) $ 13 $ (22) $ 11
========= ========= =========
</TABLE>
The adjustments to prior years of $38 million in 1997 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.
On February 11, 1999, 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 expiration 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 one one-
hundredth of a share of Series A Junior Participating Preferred Stock for $50.00
subject to certain anti-dilution adjustments. If a person or group acquires 15
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 after a person or
group has acquired 15 percent or more of the Common Stock, 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 $.01 each until a person or group acquires 15
percent of Common Stock or until the rights expire on March 1, 2009. The rights
may be amended from time-to-time.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11: EMPLOYEE BENEFIT 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.
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.
<TABLE>
<CAPTION>
Postretirement Benefits
(In millions) Pension Benefits Other Than Pensions
---------------------- -------------------------
1998 1997 1998 1997
-------- ------- ------- --------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit Obligation at Beginning of Year $ 328 $ 290 $ 300 $ 345
Service Cost 13 12 4 6
Interest Cost 24 23 20 23
Plan Amendments 1 - - -
Actuarial (Gain) Loss 20 20 12 (47)
Business Divestitures (4) - (29) -
Benefits Paid (22) (17) (26) (27)
------- ------- ------- -------
Benefit Obligation at End of Year $ 360 $ 328 $ 281 $ 300
======= ======= ======= =======
CHANGE IN PLAN ASSETS
Fair Value of Plan Assets at Beginning of Year $ 299 $ 260 $ - $ -
Actual Return on Plan Assets 32 42 - -
Business Divestitures (3) - - -
Employer Contributions 2 14 26 27
Benefits Paid (22) (17) (26) (27)
------- ------- ------- -------
Fair Value of Plan Assets at End of Year $ 308 $ 299 $ - $ -
======= ======= ======= =======
Funded Status $ (52) $ (29) $ (281) $ (300)
Unrecognized Net Actuarial Loss (Gain) 50 38 (35) (74)
Unrecognized Prior Service Costs 7 7 (3) (6)
Unrecognized Transition Credit - (1) - -
------- ------- ------- -------
Prepaid (Accrued) Benefit Cost $ 5 $ 15 $ (319) $ (380)
======= ======= ======= =======
</TABLE>
Amounts recognized in the statement of financial position consist of:
<TABLE>
<CAPTION>
Postretirement Benefits
(In millions) Pension Benefits Other Than Pensions
---------------------- --------------------------
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Prepaid Benefit Cost $ 24 $ 33 $ - $ -
Accrued Benefit Cost (19) (18) (319) (380)
Accrued Benefit Liability (12) - - -
Accumulated Other Comprehensive Income 12 - - -
-------- -------- -------- --------
Net Amount Recognized $ 5 $ 15 $ (319) $ (380)
======== ======== ======== ========
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Postretirement Benefits
(In percents) Pension Benefits Other Than Pensions
----------------------------- -----------------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount Rate 6.75 7.25 7.75 6.75 7.25 7.75
Expected Long-Term Rate of Return on Plan Assets 9.00 9.00 9.00 9.00 9.00 9.00
Rate of Increase in Future Compensation Levels 4.50 5.00 5.75
</TABLE>
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 6.5 percent
for 1999 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. The change in
the discount rate from 7.25 percent to 6.75 percent and the change in the
assumed health care cost trend rate from 7 percent to 6.5 percent for 1999
resulted in a $6 million unrecognized net gain as of December 31, 1998.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
<S> <C> <C>
Effect on Total of Service and Interest Cost Components $ 2 $ (2)
Effect on Postretirement Benefit Obligations $ 19 $ (18)
</TABLE>
<TABLE>
<CAPTION>
Postretirement Benefits
(In millions) Pension Benefits Other Than Pensions
--------------------------------------------------------
1998 1997 1996 1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COSTS
Service Cost $ 13 $ 12 $ 12 $ 4 $ 6 $ 5
Interest Cost 24 23 20 20 23 26
Expected Return on Plan Assets (26) (23) (20) - - -
Amortization of Prior Service Cost 2 1 1 (2) (4) (1)
Curtailment/Settlement Credit (1) - - (56) - -
Other 1 2 2 - - -
----- ----- ----- ----- ----- -----
Net Periodic Benefit Cost $ 13 $ 15 $ 15 $ (34) $ 25 $ 30
===== ===== ===== ===== ===== =====
</TABLE>
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.
The curtailment/settlement credit in 1998, shown in the table above as a
component of net periodic benefit costs, is related primarily to the sale of the
coal properties to AEI. This amount was reflected in the calculation of the
loss on the sale, which was treated as a special item.
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plan with accumulated benefit obligations in
excess of plan assets were $270 million, $252 million, and $210 million,
respectively, as of December 31, 1998, and $213 million, $193 million, and $167
million, respectively, as of December 31,1997.
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 $2 million in 1998, $3 million in 1997, and $4
million in 1996.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 1998, 1997, and 1996 contributions to the
Fund were $.3 million, $.5 million, and $.4 million, respectively.
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, 1998 and 1997, the accumulated postemployment
benefit liability consisted of a current amount of $2 million and $6 million,
respectively, included in Accrued Payroll and Benefits and $14 million and $23
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 included an
employee stock ownership feature (Leveraged ESOP) prior to the third quarter of
1998. In August 1998, the Board of Directors approved the elimination of the
leveraged ESOP of the Company's existing savings plan and the adoption of a
replacement employer matching contribution. Beginning in the third quarter of
1998, Cyprus Amax contributed Cyprus Amax Common Stock to the plan at 50 percent
of the first 6 percent of base pay contributed by each participant. Prior to the
third quarter 1998, the Leveraged ESOP feature was used by the Savings Plan. 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 had an
interest rate of 93/4 percent per annum, matured on February 1, 2010, and was
serviced by Cyprus Amax's contribution to the Savings Plan and with dividends
paid on the Cyprus Amax Common Shares that were purchased with the proceeds of
the loan. The expense related to the Savings Plan was based upon the shares
allocated method. Shares were released for allocation to participants, based on
a predetermined formula, as loan payments were made. Leveraged ESOP shares were
treated as shares outstanding for purposes of calculating earnings per share.
The amount of interest incurred by the Savings Plan for the Leveraged ESOP was
$4 million in 1998 and $8 million in 1997 and 1996. The interest expense offset
of the Leveraged ESOP due to dividends on allocated and unallocated shares was
$2 million in 1998 and $3 million in 1997 and 1996. The amount contributed to
the Savings Plan for 1998 was $8 million and for 1997 and 1996 was $9 million.
The aggregate compensation expense related to the Savings Plan amounted to $5
million in 1998 and $6 million in 1997 and 1996. At December 31, 1997 and 1996,
the Leveraged ESOP held the following number of shares respectively; allocated
shares of 1,192,315 and 1,042,763, committed to be released shares of 3,925 and
6,744, and suspense shares of 2,340,291 and 2,589,446. When the Leveraged ESOP
was dissolved as of July 1, 1998, Cyprus Amax purchased the suspense shares
(2,150,815), and the Savings Plan used the proceeds to repay the loan to Cyprus
Amax.
Amax Gold was merged into Kinross Gold Corporation on June 1, 1998. Prior to
the merger, Amax Gold sponsored a thrift plan covering substantially all of its
full-time non-represented employees in which it contributed 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 and 1996.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13: STOCK-BASED COMPENSATION PLANS
At December 31, 1998, the Company had 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 $1.6 million,
$2.0 million, and $1.2 million for 1998, 1997, and 1996, 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) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net Income (Loss)
As Reported $ (75) $ 69 $ 77
Pro Forma $ (79) $ 63 $ 71
Basic and Diluted Earnings (Loss) Per Share/(1)/
As Reported $ (1.02) $ 0.54 $ 0.62
Pro Forma $ (1.06) $ 0.48 $ 0.56
</TABLE>
/(1)/ Diluted earnings (loss) per share were anti-dilutive in 1998, 1997, and
1996.
Under the Management Incentive Program (the "Program"), key employees of Cyprus
Amax may be granted options to purchase shares of Common Stock at the fair
market value as of the grant date. The options are in the form of either
incentive stock options or non-qualified stock 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 awarded shares of
restricted stock. Restrictions lapse at 25 percent per year over a four-year
period and are generally subject to forfeiture if the recipient voluntarily
terminates employment before the restrictions have lapsed.
In March 1998, the Board of Directors approved an amendment to the Program,
which provides that the stock options have a five-year exercise period for
employees who have been involuntarily terminated on account of certain corporate
transactions, retirement, disability, or death.
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 option grants 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 1998, 1997, and 1996, respectively: dividend
payment of $0.80 per share per year; expected volatility of 30 percent for 1998,
1997 and 1996; risk-free interest rates of 5.36, 6.20, and 5.34 percent; and
expected lives of 3.46 for 1998 and 1997 and 3.37 years for 1996.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the status of the Company's fixed stock option plan as of December
31, and changes during the years ended 1998, 1997, and 1996, is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
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 4,778 $ 27 4,233 $ 27 2,919 $ 28
Granted 1,959 14 716 23 1,762 26
Exercised - - (75) 21 (108) 22
Forfeited (390) 26 (96) 26 (340) 29
------ ------ ------
Outstanding at
End of Year 6,347 $ 23 4,778 $ 27 4,233 $ 27
====== ====== ======
Options Exercisable
at Year End 3,417 2,716 2,141
Weighted Average
Fair Value of
Options Granted
During the Year $2.31 $ 5.26 $ 6.48
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ---------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$11.47 - $13.56 1,111,350 9.67 years $11.95 600 $11.47
$15.56 - $22.13 912,659 8.23 16.26 158,309 19.56
$22.31 - $24.75 1,198,508 5.77 23.70 800,383 23.84
$25.44 - $26.13 602,566 4.47 25.92 602,566 25.92
$26.44 - $26.44 1,643,450 7.01 26.44 976,783 26.44
$27.56 - $31.13 512,418 5.00 28.99 512,418 28.99
$35.75 - $35.75 365,850 4.12 35.75 365,850 35.75
--------- ---------
$11.47 - $35.75 6,346,801 6.84 22.62 3,416,909 26.80
========= =========
</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, 1998, 893,509
cumulative shares were awarded and 1,661,910 shares were authorized and
unissued. On January 4, 1999, an additional 228,900 shares were awarded.
Cyprus Amax maintains the Stock Plan for Non-Employee Directors (the "Plan").
The Plan grants annually to each eligible director 500 shares of Common Stock
and an option to purchase 2,000 shares of Common Stock. Shareholders approved
the amendment and restatement of the Plan effective January 1, 1999, so that
each eligible director will be granted annually 2,000 shares of Common Stock and
an option to purchase up to 2,000 shares of Common Stock. In addition, a
director elected or appointed for the first time on or after April 1, 1998, will
receive a one-time award of 12,500 shares of restricted stock. This one-time
award is designed to attract individuals who are not presently members of the
Board but who are highly qualified candidates and to reward them upon their
successful nomination to the Board. The award will be made as of the effective
date of such director's initial election or appointment to the Board. The
restrictions will lapse in 20 percent increments over a five-year period
beginning on the date of election or appointment.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The amended Plan revised the maximum number of shares that may be awarded and
stock options that may be granted. The aggregate number of shares that may be
awarded and options that may be granted will equal the sum of one-eighth 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. As of December 31, 1998, 40,000 cumulative shares have been granted and
72,000 stock options awarded.
In June 1998, Cyprus Amax terminated the Retirement Plan for Non-Employee
Directors and merged the assets into the Deferred Compensation Plan for Non-
Employee Directors of Cyprus Amax Minerals Company.
NOTE 14: CONTINGENCIES
Cyprus Amax had outstanding letters of credit totaling $45 million at December
31, 1998, 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 $357 million at December 31, 1998.
Cyprus Tohono Corporation 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.
As the Pinal Creek Group, Cyprus Miami Mining Corporation and other companies
continued remediation and assessment of ground water quality throughout 1998 in
the shallow alluvial aquifers along Pinal Creek near Miami, Arizona. The
removal, remediation, and assessment work is being conducted in accordance with
the requirements of the Arizona Department of Environmental Quality's Water
Quality Assurance Revolving Fund program. In addition, the remedial and removal
action is consistent with the National Contingency Plan prepared by the EPA as
required by CERCLA. The ongoing removal, remediation, and assessment program,
initiated in 1989, has resulted in continued improvement of the sub-surface
water quality in the area. In November 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 the entry of a Consent Decree resolving all matters related
to an enforcement action contemplated by the State of Arizona with respect to
the ground water matter. On August 13, 1998, the court approved the Decree that
commits Cyprus Miami and the other Pinal Creek Group members to complete the
remediation work outlined in the remedial action plan that was submitted to the
State in May 1997. Following approval of the Consent Decree, Cyprus Miami
undertook a comprehensive reassessment of expected costs for completing the
Pinal Creek removal and remediation project. This reassessment resulted in
Cyprus Miami recording an additional $80 million accrual in the fourth quarter
of 1998, bringing the Pinal Creek remediation reserve to approximately $111
million at December 31, 1998. 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 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 that 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 $160 million at December 31, 1998, 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
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $140 million to $470 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, 1998,
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, 1998, Cyprus Amax's accruals for deferred closure, shutdown of
closed operations, and reclamation totaled approximately $237 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 Copper/Molybdenum reclamation reserve
component is $127 million and includes costs for site stabilization, clean-up,
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. The Cyprus Amax Coal reclamation reserve component of $110 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. Total reclamation costs for
Cyprus Amax at the end of current mine lives is estimated at about $443 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 or contingencies that, 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 that was
used to refinance the existing Refugio gold loan and for working capital and
debt service requirements. Cyprus Amax had guaranteed the Refugio loan and a
letter of credit backing the industrial revenue bond preceding the merger. Amax
Gold had paid an interest differential to Cyprus Amax as a guaranty fee on each
loan. As part of the Amax Gold merger with Kinross, Cyprus Amax agreed to
continue to guarantee the letter of credit backing the industrial revenue bond,
and Kinross agreed to pay an interest differential to Cyprus Amax as a guaranty
fee on the loan. In addition, Cyprus Amax no longer guaranteed the credit
facility.
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 preceding the merger with
Kinross.
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. Prior to the merger with Kinross, Amax Gold borrowed a total of $24
million on the demand loan facility in 1998. As of May 31, 1998, Cyprus Amax
had loaned Amax Gold $97 million, which was repaid as part of the merger
agreement.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 1996 Amax Gold renegotiated its $250 million Fort Knox loan agreement. As
support to the restructured facility, Cyprus Amax had 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 received 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 April 1994, Cyprus Amax and Amax Gold entered into an agreement whereby the
Company had provided Amax Gold with a $100 million double-convertible line of
credit (DOCLOC I). The outstanding indebtedness under the line of credit was to
be repaid by Amax Gold with the issuance of Amax Gold Convertible Preferred
Stock. Certain amounts had been made available to Amax Gold as support for the
Fort Knox and Refugio loans, but Amax Gold had agreed not to borrow under DOCLOC
I as part of the consideration for the Fort Knox loan guaranty. At the time of
the merger with Kinross, no borrowings were outstanding under this line of
credit. This agreement was terminated as part of the merger.
In June 1998, Cyprus Amax established joint exploration agreements with Kinross
Gold Corporation to explore for base and precious metals. The agreements
provide Cyprus Amax a 75 percent interest and Kinross a 25 percent interest in
prospects resulting from future exploration. The agreement covers Pastoria,
Mexico, Cordillera Negra, Peru, and Eyre Peninsula, Australia. Each party funds
work in proportion to its interest, and Cyprus Amax provides staffing and
management. This agreement replaced a comparable joint exploration agreement
established in 1994 with Amax Gold that was dissolved as a result of the merger
with Kinross.
Project financing for the Kubaka mine in Russia, held by Omolon Gold Mining
Company, of $130 million was provided by the European Bank for Reconstruction
and Development and the U.S. Overseas Private Investment Corporation. The loan
balance was approximately $92.5 million at year-end 1998. Cyprus Amax
guarantees the full loan amount until certain completion tests are met.
Kinross, in turn, indemnifies Cyprus Amax for any liabilities incurred under the
guarantee. 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. Cyprus Amax guaranteed the
two lines of credit until December 1998.
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.
At December 31, 1998, the subordinated loans outstanding to Oakbridge, Ltd. from
Cyprus Amax totaled $43 million, of which $22 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 $179 million of El Abra's original $1 billion of senior debt.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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) 1998 1997
-------- --------
<S> <C> <C>
Minimum Future Royalties $ 47 $ 68
Less Imputed Interest (7) (15)
-------- --------
Present Value of Payments 40 53
Less Current Portion Included in Accrued
Royalties and Interest and Other Accrued Liabilities (10) (9)
-------- --------
Long-Term Portion Included in Other
Noncurrent Liabilities and Deferred Credits $ 30 $ 44
======== ========
</TABLE>
The Company's property, plant, and equipment held under capital leases consist
of the following:
<TABLE>
<CAPTION>
(In millions) 1998 1997
-------- --------
<S> <C> <C>
Mining Equipment $ 175 $ 211
Less Accumulated Depreciation (129) (116)
-------- --------
$ 46 $ 95
======== ========
</TABLE>
Summarized below as of December 31, 1998, are future minimum rentals and
royalties under noncancelable leases:
<TABLE>
<CAPTION>
Operating Mineral Capital
(In millions) Leases Royalties Leases
--------- --------- -------
<S> <C> <C> <C>
1999 $ 10 $ 16 $ 61
2000 10 15 22
2001 8 12 7
2002 7 8 5
2003 6 8 5
After 2003 15 38 10
--------- --------- -------
Total Payments $ 56 $ 97 $ 110
========= =========
Less Imputed Interest (15)
-------
Present Value of Lease Payments 95
Less Current Portion (54)
-------
Capital Lease Obligations $ 41
=======
</TABLE>
Rentals and mineral royalties charged to expense were as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Rental Expense $ 29 $ 43 $ 51
Mineral Royalties $ 54 $ 64 $ 68
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Interest Paid (Net of Interest Capitalized
and Interest Rate Swap Payments/Receipts) $ 161 $ 189 $ 110
Income Taxes Paid, Net $ 15 $ 7 $ 6
</TABLE>
Supplemental Disclosures of Non-Cash Transactions:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fair Value of Assets Acquired, Other Than Cash
and Cash Equivalents $ - $ - $ 75
Liabilities Assumed - - (5)
-------- -------- --------
Cash Payments $ - $ - $ 70
======== ======== ========
Merger of AGI with Kinross in Exchange
for Common Stock (Note 3) $ 230 $ - $ -
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
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 OPERATING SEGMENT
In 1998 Cyprus Amax adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The segment information for 1997 and 1996
has been restated from the prior years' presentation in order to conform to the
1998 presentation. The Company's reportable segments are strategic business
units that offer different products and services. They are managed separately
because each business requires different technology and marketing strategies.
Cyprus Amax's reportable segments are Copper/Molybdenum, Coal, Lithium, and
Exploration. The Copper/Molybdenum segment mines, processes, and markets copper
and molybdenum primarily in North, Central, and South America. The Coal segment
mines, cleans, markets, and sells coal to electric utilities and industrial
users. The Lithium segment produced, manufactured, and marketed various forms of
lithium, lithium chemical, metal, and metal alloy products primarily in the
United States and Chile. The Exploration segment seeks a range of mineral
opportunities from early stage generative exploration through advanced
opportunities and acquisitions and conducts exploration programs around the
developing and producing mines to find and delineate ore that could extend the
lives of those operations.
The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies" (see Note 2), except the prepaids
and/or accruals for pension and postretirement benefits are maintained at the
corporate level and are not at the segment level. Cyprus Amax evaluates
performance based on profit or loss from operations before interest income and
expense, income taxes, and minority interest. There are no intersegment sales
between reportable segments.
Summarized financial information concerning the Company's reportable segments is
shown in the following tables. All Other includes the segments - Amax Gold and
Discontinued Operations - that were below the quantitative thresholds to be
reportable segments.
<TABLE>
<CAPTION>
(In millions)
1998 Copper/ Reconciling
Molybdenum Coal Lithium Exploration All Other Items* Consolidated
---------- ------ -------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from External Customers $ 1,284 $ 934 $ 218 $ - $ 129 $ 1 $ 2,566
Operating Income/(Loss) Before
Special Items $ 121 $ 93 $ 11 $ (45) $ 3 $ (40) $ 143
Special Items $ (129)/(1)/ $ (9)/(2)/ $ 154/(4)/ $ - $ (23)/(5)/ $ - $ (7)
-------- ------ ------- --------- -------- -------- --------
Operating Income/(loss) After
Special Items $ (8) $ 84 $ 165 $ (45) $ (20) $ (40) $ 136
Net Interest Expense $ (146)
Earnings/(loss) On Equity
Investments $ (2) $ (3)/(3/) $ - $ - $ (48)/(6)/ $ - $ (53)
--------
Income/(loss) Before Income
Taxes And Minority Interest $ (63)
Depreciation, Depletion, And
Amortization $ 193 $ 111 $ 7 $ - $ 42 $ 8 $ 361
Total Assets $ 2,930 $1,643 $ - $ 9 $ 299 $ 460 $ 5,341
Investment in Equity Method
Subsidiaries $ 7 $ 76 $ - $ - $ 262 $ - $ 345
Capital Expenditures
(Accrual Basis) $ 143 $ 87 $ 4 $ 1 $ 6 $ 2 $ 243
</TABLE>
(1) Includes an $80 million pre-tax charge for environmental remediation
liabilities for the Pinal Creek project near the Miami, Arizona, copper
mine (Note 4), a $29 million pre-tax charge for a copper inventory reserve
and write-down to market at the Arizona copper mines, a $9 million pre-tax
charge for the rail haulage system write-down at the Henderson molybdenum
mine (Note 4), and a $11 million pre-tax charge for legal settlements and
miscellaneous write-downs.
(2) Includes a pre-tax charge of $16 million on the sale of certain Appalachian
and Midwest coal properties (Note 3) and a pre-tax gain of $7 million from
legal settlements.
(3) Includes a pre-tax gain of $10 million on the sale of an Oakbridge Ltd.
coal mine in Australia.
(4) Includes a pre-tax gain on the sale of the Lithium business (Note 3).
(5) Includes a $23 million pre-tax charge for the settlement of oil and gas
legal actions, a $5 million pre-tax gain from the sale of real estate, and
a $5 million pre-tax charge for miscellaneous write-downs.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Includes a pre-tax gain of $13 million for the recognition of the sale by
Kinross Gold of the pre-merger Amax Gold hedging portfolio and a $50
million pre-tax charge related to Cyprus Amax's share of the Kinross Gold
write-down of certain gold properties.
* Represents unallocated Corporate revenue, charges, or assets.
<TABLE>
<CAPTION>
(In millions)
1997 Copper/ Reconciling
Molybdenum Coal Lithium Exploration All Other Items* Consolidated
----------- ------- ------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from External Customers $ 1,564 $ 1,403 $ 96 $ - $ 281 $ 2 $ 3,346
Operating Income/(Loss) Before
Special Items $ 314 $ 71 $ 21 $ (43) $ 5 $ (68) $ 300
Special Items $ - $ (86)/(1)/ $ - $ - $ 19/(3)/ $ - $ (67)
----------- ------- ------ ------- ---------- -------- -----------
Operating Income/(Loss) After
Special Items $ 314 $ (15) $ 21 $ (43) $ 24 $ (68) $ 233
Net Interest Expense $ (162)
Earnings/(Loss) on Equity
Investments $ 1 $ (33)/(2)/ $ - $ - $ 1 $ - $ (31)
-----------
Income/(Loss) Before Income
Taxes and Minority Interest $ 40
Depreciation, Depletion, and
Amortization $ 189 $ 153 $ 8 $ - $ 90 $ 4 $ 444
Total Assets $ 3,059 $ 1,923 $ 220 $ 10 $ 932 $ 315 $ 6,459
Investment in Equity Method
Subsidiaries $ 12 $ 72 $ - $ - $ 18 $ - $ 102
Capital Expenditures
(Accrual Basis) $ 143 $ 147 $ 15 $ - $ 47 $ 23 $ 375
</TABLE>
(1) Includes a $236 million pre-tax charge to write-down 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 $13 million write-down for the planned closure of Oakbridge's
Clarence coal mine.
(3) Includes a pre-tax gain on the sale of Kubaka to Amax Gold (Note 3).
<TABLE>
<CAPTION>
(In millions) Cooper/ Reconciling
1996 Molybdenum Coal Lithium Exploration All Other Items* Consolidated
---------- ------ --------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from External Customers $ 1,331 $ 1,284 $ 99 $ 15 $ 113 $ 1 $ 2,843
Operating Income/(Loss) Before
Special Items $ 231 $ 90 $ 30 $ (20) $ (6) $ (57) $ 268
Special Items $ (80)/(1)/ $ - $ - $ - $ (36)/(2)/ $ - $ (116)
--------- -------- ------ --------- ------- ------ ---------
Operating Income/(Loss) After
Special Items $ 151 $ 90 $ 30 $ (20) $ (42) $ (57) $ 152
Net Interest Expense $ (78)
Earnings/(Loss) on Equity
Investments $ (4) $ 7 $ - $ - $ - $ - $ 3
---------
Income/(Loss) Before Income
Taxes and Minority Interest $ 77
Depreciation, Depletion, and
Amortization $ 135 $ 163 $ 8 $ - $ 30 $ 3 $ 339
Total Assets $ 3,259 $ 2,029 $ 234 $ 9 $ 965 $ 290 $ 6,786
Investment in Equity Method
Subsidiaries $ 1 $ 96 $ - $ - $ 18 $ - $ 115
Capital Expenditures
(Accrual Basis) $ 449 $ 186 $ 7 $ - $ 276 $ 23 $ 941
</TABLE>
(1) Includes a pre-tax charge for environmental remediation liabilities and
costs temporarily close the Tohono mine (Note 4).
(2) Includes a pre-tax charge to write down the net assets of the Guanaco gold
mine (Note 4).
* Represents unallocated Corporate revenue, charges, or assets.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Financial Information by geographic location for the past three years is
presented below:
<TABLE>
<CAPTION>
(In millions) United Other
1998 States Chile Foreign Consolidated
---------- ---------- --------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 2,203 $ - $ 363 $ 2,566
Long-lived Assets $ 3,154 $ 838 $ 334 $ 4,326
1997
Revenue $ 2,969 $ - $ 377 $ 3,346
Long-Lived Assets $ 3,779 $ 1,024 $ 458 $ 5,261
1996
Revenue $ 2,455 $ - $ 388 $ 2,843
Long-Lived Assets $ 4,007 $ 1,026 $ 489 $ 5,522
</TABLE>
Revenue is attributed to countries based on the location to which the product
was shipped. Revenue from no single foreign country was material to consolidated
revenue of the Company.
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Quarterly Results (Unaudited) 1998
- -------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
(In millions except per share data) QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 732 $ 619 $ 585 $ 630
Segment Operating Income $ 66 $ 6 $ 57 $ 48
Net Income (Loss) $ 5 $ (36) $ 19 $ (63)
Income (Loss) Applicable to Common Shares $ - $ (41) $ 14 $ (68)
- -------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Common Share $ - $ (0.44) $ 0.16 $ (0.74)
- -------------------------------------------------------------------------------------------------------------------
1997
- -------------------------------------------------------------------------------------------------------------------
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)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Second quarter 1998 results included an after-tax charge of $12 million on the
sale of certain Appalachian and Midwest coal properties and an after-tax charge
of $26 million primarily for settlements of long-standing legal actions mostly
associated with the oil and gas properties acquired in the Amax merger and
subsequently sold in 1994.
Third quarter 1998 results included after-tax gains of $13 million from the sale
of hedge positions by Kinross, $10 million on the sale of an Oakbridge coal
mine, $3 million on the sale of real estate, and $5 million from coal legal
settlements.
Fourth quarter 1998 results included an after-tax gain of $110 million from the
sale of the Lithium business, an after-tax charge of $94 million primarily for
environmental remediation liabilities at the Pinal Creek project and
copper/molybdenum write-downs, and a $50 million after-tax charge for Cyprus
Amax's share of the Kinross Gold write-down of certain gold properties.
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 in 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 of Cyprus Amax's equity investment in 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
in accordance with SFAS No. 121.
<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, 1994 through 1998, 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>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
COPPER/MOLYBDENUM
Proved and Probable Ore Reserves
Copper - United States (million tons) 2,066 2,020 2,200 2,317 2,423
Average Grade (percent) .32 .34 .33 .34 .35
Copper - South America (million tons) 1,196 1,235/(5)/ 1,096 1,097 1,101
Average Grade (percent) .57 .57 .60 .61 .61
Molybdenum (million tons) 336 343 351/(7)/ 313 322
Average Grade (percent) .223 .223 .223 .232 .232
Saleable Product (billion pounds)
Copper 21.2 21.8 21.6 22.6 23.8
Molybdenum 2.1 2.1 2.1 2.1 2.1
Production (million pounds)
Copper 967 1,018 768 687 648
Molybdenum 61 63 56 75 57
Average Realized Price (per pound)
Copper $ 0.83 $ 1.04 $ 1.04 $ 1.33 $ 1.09
Molybdenum $ 4.95 $ 5.50 $ 5.25 $ 7.53 $ 3.77
--------- --------- --------- --------- ---------
COAL
Proved and Probable Reserves
(million tons) 2,057/(1)/ 2,232 2,390 2,396 2,538
Production (million tons) 71 83 76 75 75
Average Realized Price (per ton) $ 12.43 $ 14.53 $ 15.69 $ 16.25 $ 16.12
--------- --------- --------- --------- ---------
LITHIUM
Proved Ore Reserves
Lithium (thousand tons) -/(2)/ 379 384 389 393
Production
Lithium Carbonate Equivalents (million pounds) 32 40 45 38 32
--------- --------- --------- --------- ---------
GOLD
Amax Gold (100% in 1998, 1997, 1996, and 1995;
and Cyprus Amax share in 1994)
Proved and Probable Reserves
(million contained ounces) -/(3)/ 7.1/(6)/ 6.4 7.0 3.0
Production (thousand ounces) 336 730 268 238 -
Average Realized Price (per ounce) $ 326 $ 360 $ 412 $ 406 $ -
Kubaka (Cyprus Amax Share)
Proved and Probable Reserves
(million contained ounces) - -/(6)/ 1.3 1.2 1.0
--------- --------- --------- --------- ---------
</TABLE>
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Equity Companies/(4)/
Proved and Probable Reserves
Coal (million tons)
Oakbridge (100%) 291.2 322.3 341.4 372.3 423.8
Cyprus Amax Share (48%) 139.7 133.1 141.0 158.7 170.8
Gold (million contained ounces)
Kinross Gold (100%) 7.5/(3)/ - - - -
Cyprus Amax Share (30%) 2.3/(3)/ - - - -
</TABLE>
/(1)/ Coal reserves decreased due to 71 million tons of production, sale of
approximately 495 million tons of reserves for the properties sold to
AEI, and the addition of 300 million tons in Pennsylvania, 60 million
tons in Colorado, and 20 million tons in Utah.
/(2)/ The Lithium business was sold in October 1998.
/(3)/ Amax Gold merged with Kinross Gold Corporation in June 1998. Cyprus
Amax's share of Kinross reserves is reflected in Equity Companies.
/(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 that is shown on a separate line.
/(5)/ South America copper reserves increased due to additional reserves at El
Abra.
/(6)/ 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 that
increase.
/(7)/ Molybdenum reserves increased due to lower expected costs resulting from
the Henderson 2000 project.
<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.
ACTUAL TRADE PRICES
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------
1998 1997
---------------------------------------------
Period
High Low High Low
---------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter $17 7/8 $14 $24 7/8 $21 1/4
2nd Quarter $17 7/8 $13 $26 3/8 $21 5/8
3rd Quarter $13 13/16 $ 9 3/16 $26 13/16 $22 3/8
4th Quarter $14 3/8 $ 9 $25 $14 7/16
</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 22, 1999. 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.
During 1998 and 1997, 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 11, 1999, the Board of Directors of Cyprus Amax
declared dividends of $0.05 per share of the Common Stock for shareholders of
record on April 9, 1999, and a regular quarterly dividend of $1.00 per share of
Series A Convertible Preferred Stock for shareholders of record on February 22,
1999. On February 11, 1999, the Board of Directors announced a reduction in
dividends to $0.05 per common share per quarter effective in the second quarter
of 1999. The Board's decision was a direct reflection of the continued weakness
in copper prices.
The closing trade price per share of the Common Stock on February 22, 1999, as
reported by the NYSE was $10 15/16. As of February 22, 1999, the number of
registered shareholders of Cyprus Amax Common Stock was approximately 37,017.
<PAGE>
EXHIBIT 21
CYPRUS AMAX MINERALS COMPANY
SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
Organized
Under
Company Laws of
- ------------------------------------------------------------------ ---------
<S> <C>
Cyprus Metals Company Delaware
Cyprus Climax Metals Company Delaware
Byner Cattle Company Nevada
Amax Metals Recovery, Inc Delaware
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 Amax PNG Holdings, Inc. Delaware
Cyprus Bagdad Copper Corporation Delaware
Cyprus Copper Marketing Corporation Delaware
Cyprus El Abra Corporation Delaware
Sociedad Contractual Minera El Abra - (51%) (a) Chile
Cyprus Miami Mining Corporation Delaware
Cyprus Pima Mining Company - (75.01%) (b) California
Cyprus Pinos Altos Corporation Delaware
Cyprus Rod Chicago Corporation Delaware
Cyprus Sierrita Corporation Delaware
Las Quintas Serenas Water Co. - (59%) (c) Arizona
Cyprus Tohono Corporation Delaware
Cyprus Tonopah Mining Corporation Delaware
Mt. Emmons Mining Company Delaware
Silver Springs Ranch, Inc. Colorado
Sociedad Minera Cerro Verde S.A. - (82.5%) (d) Peru
Cyprus Gold Company Delaware
Cyprus Copperstone Gold Corporation Delaware
Cyprus Amax Australia Corporation Delaware
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Organized
Under
Laws of
Company ---------
- -----------------------------------------------------------
<S> <C>
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 - (95%) (e) Indonesia
Cyprus Amax Philippines 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
Iriana Senggeh (Bermuda) Ltd. Bermuda
PT Cyprus Amax Iriana - (85%) (f) Indonesia
Minera Cyprus Antacori Corporation Delaware
Rio Blanco Exploration, LLC - (50%) (g) Colorado
Compania Mexicana de Exploracion Cyprus, S.A. de C.V. Mexico
Cyprus Mexico Corporation Delaware
Cyprus Minera de Chile Inc. Delaware
Minera Cuicuilco S.A. de C.V. Mexico
Servicios Cyprus S.A. de C.V. Mexico
Cyprus Specialty Metals Company Delaware
Cyprus Zinc Corporation Delaware
Cyprus Amax Kansanshi Holdings Limited Ireland
Cyprus Amax Kansanshi PLC - (17.8%) (h) Zambia
Cyprus Amax Chile Holdings, Inc. Delaware
Minera Cyprus Chile Limitada - (90.33%) (j) Chile
Minera Cyprus Amax Chile Limitada - (67%) (i) Chile
Cyprus Mines Corporation Delaware
Cyprus Amax Minerals Japan Corporation Delaware
Amax Nickel Overseas Ventures, Inc. Delaware
American Metal Climax, Inc. Delaware
Ametalco Inc. New York
Ametalco Limited England
Climax Molybdenum U.K. Limited England
Climax Canada Ltd. Delaware
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Organized
Under
Company Laws of
- ---------------------------------------------------------------- ---------
<S> <C>
Amax Energy Inc. Delaware
Amax Zinc (Newfoundland) Limited Delaware
Cyprus Meullaboho Coal Mining Limited Bermuda
Cyprus Amax Coal Company Delaware
Alliance Power Marketing, Inc. Delaware
Cyprus Amax Coal Sales Corporation Delaware
Cyprus Amax Royalty Company Delaware
Cyprus Australia Coal Company Delaware
McIlwraith McEacharn Pty Limited Australia
McIlwraith Mining Pty Limited New South Wales
Oakbridge Pty Limited - (47.96%) (k) New South Wales
Cyprus Springvale Pty Limited New South Wales
Cyprus (Queensland) Pty Limited New South Wales
Cyprus Coal Development Corporation Delaware
Cyprus Coal Equipment Company Delaware
Cyprus Consolidated Resources Corporation Delaware
Cyprus Cumberland Resources Corporation Delaware
Cyprus Emerald Resources Corporation Delaware
Cyprus Empire Corporation Delaware
Cyprus Freeport Resources Corporation Delaware
Cyprus River Processing Corporation Delaware
Pennsylvania Land Holdings Corporation Delaware
Pennsylvania Services Corporation Delaware
Cyprus Shoshone Coal Corporation Delaware
Cyprus Plateau Mining Corporation - (85%) (l) Delaware
Colorado Yampa Coal Company Delaware
Twentymile Coal Company Delaware
Amax Coal West, Inc. Delaware
Amax Land Company Delaware
Maple Meadow Mining Company Delaware
Cyprus Amax Midwest Holding Company Delaware
Castle Gate Holding Company Delaware
Delta Mine Holding Company Delaware
Wabash Mine Holding Company Delaware
Warrick Holding Company Delaware
Kinross Gold Corporation - (30.42%) (m) Ontario
Amax de Chile, Inc. Delaware
Amax Exploration, Inc. Delaware
Amax Exploration (Ireland), Inc. Delaware
Amax Investment (France), Inc. Delaware
Amax Research & Development, Inc. Delaware
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Organized
Under
Company Laws of
- -------------------------------------------------------- ---------
<S> <C>
Amax Arizona, Inc. Nevada
Amax Copper, Inc. Delaware
Amax Realty Development, Inc. Bermuda
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
</TABLE>
(a) 49% owned by Corporacion Nacional del Cobre de Chile
(b) 24.99% owned by BHP Minerals International Inc.
(c) 34% owned by John and Mary Gay; 7% owned by various individuals
(d) 9.2% owned by Cia. De Minas Buenaventura S.A.; 8.3% owned by various
individuals
(e) 5% owned by Cyprus Amax Australia Corporation
(f) 10% owned by Iriana Bonggo Pte Ltd.; 5% owned by PT Pura Grahasentosa
(g) 50% owned by Newcrest International Pty. Ltd.
(h) 82.2% owned by Zambia Consolidated Copper Mines Limited
(i) 33% owned by Cyprus Specialty Metals Company
(j) 9.67% owned by Cyprus Exploration and Development Corporation
(k) 25.62% owned by Tomen Corporation; 23.57% owned by Nippon Oil (Australia)
Pty. Ltd.; 2.85% owned by Kawasho Corporation. One fully paid "A" Class
ordinary share owned by McIlwraith Mining Pty Limited.
(l) 12% owned by Mitsubishi Development Pty. Ltd.; 3% owned by Mitsubishi
International Corporation
(m) 15.48% owned by Cyprus Amax Minerals Company; 8.57% owned by Amax Energy
Inc.; 4.20% owned by Cyprus Gold Company; 2.17% owned by Minera Cyprus Amax
Chile Limitada
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated
February 11, 1999, appearing on page 31 of the 1998 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
% 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 32 of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
March 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 353
<SECURITIES> 0
<RECEIVABLES> (2)
<ALLOWANCES> 6
<INVENTORY> 386
<CURRENT-ASSETS> 921
<PP&E> 6,550
<DEPRECIATION> 2,708
<TOTAL-ASSETS> 5,341
<CURRENT-LIABILITIES> 671
<BONDS> 1,718
1
0
<COMMON> 5
<OTHER-SE> 2,151
<TOTAL-LIABILITY-AND-EQUITY> 5,341
<SALES> 2,369
<TOTAL-REVENUES> 2,566
<CGS> 2,266
<TOTAL-COSTS> 2,385
<OTHER-EXPENSES> 45
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146<F1>
<INCOME-PRETAX> (62)
<INCOME-TAX> 13
<INCOME-CONTINUING> (75)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
<FN>
<F1>Net of interest income, $17 million, and capitalized interest, $5 million
</FN>
</TABLE>
