SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
PHELPS DODGE CORPORATION
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(Name of Registrant as Specified in Its Charter)
PHELPS DODGE CORPORATION
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) or Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
(PHELPS DODGE CORPORATION LETTERHEAD)
2600 North Central Avenue, Phoenix, Arizona 85004-3014
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Douglas C. Yearley
Chairman of the Board, President
and Chief Executive Officer
April 1, 1996
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Phelps Dodge Corporation to be held at 11:00 a.m. on Wednesday, May 1, 1996, at
the Arizona Biltmore Hotel, 24th Street and Missouri Avenue, Phoenix, Arizona.
We hope that you will be able to attend the meeting, at which the business and
operations of the Corporation will be reviewed.
The formal notice of annual meeting and proxy statement are attached to this
letter. This material contains information concerning the business to be
conducted at the meeting and the nominees for election as directors.
Even if you are unable to attend the meeting in person, it is important that
your shares be represented. Therefore, please complete, date, sign and return
the enclosed proxy at your earliest convenience. Approximately 83% of the
outstanding shares were represented at last year's meeting, and we would like
even greater shareholder participation this year. If you choose to attend the
annual meeting, you may, of course, revoke your proxy and cast your votes
personally at the meeting.
Sincerely,
/s/ DC YEARLEY
<PAGE>
(PHELPS DODGE CORPORATION LETTERHEAD)
2600 North Central Avenue, Phoenix, Arizona 85004-3014
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Notice of Annual Meeting of Shareholders May 1, 1996
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To the Shareholders of Phelps Dodge Corporation:
The annual meeting of shareholders of Phelps Dodge Corporation (the
"Corporation") will be held at the Arizona Biltmore Hotel, 24th Street and
Missouri Avenue, Phoenix, Arizona, on Wednesday, May 1, 1996, at 11:00 a.m., for
the following purposes:
1. To elect four directors;
2. To consider and act upon a proposal to ratify the appointment of Price
Waterhouse LLP as independent accountants for the Corporation for the year 1996;
and
3. To transact such other business as may properly be brought before the
meeting or any adjournments thereof.
Only holders of record of the Corporation's Common Shares at the close of
business on March 15, 1996, will be entitled to vote at the meeting.
Shareholders who do not expect to attend the meeting in person are asked to
date, sign and complete the enclosed proxy and return it without delay in the
enclosed envelope, which requires no postage stamp if mailed in the United
States.
By order of the Board of Directors,
Robert C. Swan
Vice President and Secretary
Phoenix, Arizona
April 1, 1996
<PAGE>
PHELPS DODGE CORPORATION
2600 NORTH CENTRAL AVENUE, PHOENIX, ARIZONA 85004-3014
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors of
Phelps Dodge Corporation (the "Corporation") for use at the annual meeting of
shareholders to be held on May 1, 1996, and any adjournments thereof. The
shareholder giving the proxy may revoke it at any time before it is exercised at
the meeting by delivering to the Secretary of the Corporation a written
instrument of revocation or a duly executed proxy bearing a later date.
The only securities of the Corporation entitled to vote at the 1996 annual
meeting are its Common Shares, of which 66,708,814 shares were outstanding on
March 15, 1996, each entitled to one vote. Only shareholders of record at the
close of business on March 15, 1996, will be entitled to vote at the annual
meeting. The proxy of any shareholder participating in the Automatic Dividend
Investment Service for Phelps Dodge Common Shares, administered by Chemical
Bank, will also serve as instructions for the voting of all shares held for the
shareholder's account under that service. This proxy statement and the
accompanying form of proxy are being first sent to shareholders on or about
April 1, 1996.
1. ELECTION OF DIRECTORS
The Board of Directors of the Corporation currently consists of eleven
directors. Ten of the directors are divided into three classes, four in Class I,
three in Class II and three in Class III. One director currently is unclassified
and is a nominee for Class II. The terms of office of the three Class II
directors expire at the 1996 annual meeting of shareholders. Mr. Edward L.
Addison, a Class I director, has decided for personal reasons not to stand for
re-election on May 1, 1996. The directors have voted to decrease the size of the
Board from 11 members to 10 members effective upon the election of directors at
the annual meeting of shareholders to be held on May 1, 1996.
The four nominees for election as Class II directors are listed below. The
nominees will be elected to serve for a term of three years. The directors'
terms will continue until their successors are elected and qualify. Unless
otherwise instructed, the persons named in the accompanying proxy will vote FOR
the election of such nominees. If for any reason any nominee should not be
available for election or able to serve as a director, the accompanying proxy
may be voted for the election of a substitute nominee designated by the Board of
Directors.
A plurality of the votes cast at the annual meeting is required for the
election of directors. Abstentions and broker non-votes therefore have no effect
on the election of directors.
AGE, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
NOMINEE AND OTHER DIRECTORSHIPS HELD
--------------- -------------------------------------------------------
Paul W. Douglas Mr. Douglas, 69, was Chairman and Chief Executive
(Class II) Officer of The Pittston Company, Greenwich,
Connecticut, a diversified firm engaged in coal mining
and transportation services, from 1984 until his
retirement in 1991. He was President, Chief Executive
Officer and Chairman of the Executive Committee of
Freeport-McMoRan Inc., from 1981 to 1983 and of
Freeport Minerals Company from 1975 to 1981. Mr.
Douglas is a director of South American Gold and Copper
Company Limited, New York Life Insurance Company,
MacMillan Bloedel Limited and U.S. Trust Corporation
and a trustee of U.S. Trust Corporation's subsidiary,
United States Trust Company of New York. He has served
as a Phelps Dodge director since 1983.
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AGE, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
NOMINEE AND OTHER DIRECTORSHIPS HELD
----------------- -------------------------------------------------------
William A. Franke Mr. Franke, 59, has been President of Franke & Company,
(Class II) Inc., Phoenix, Arizona, an investment firm, since 1987.
He has been Chairman of the Board of America West
Airlines, Inc., an airline carrier, since 1992 and
Chief Executive Officer since December 1993. He was
Chairman of the Executive Committee of America West
Airlines, Inc., from 1992 to 1993 and, since 1994, is
the current Chairman of the Executive Committee. He is
a director of America West Airlines, Inc. and Central
Newspapers, Inc. Mr. Franke is a director and Chairman
of the Board of Airplanes Limited, a Jersey limited
liability company, and is also a controlling trustee
and Chairman of Airplanes U.S. Trust, a Delaware
business trust. Mr. Franke has served as a Phelps Dodge
director since 1980.
Southwood J. Morcott Mr. Morcott, 57, has been Chairman of the Board of Dana
(Class II) Corporation, Toledo, Ohio, a worldwide manufacturer and
distributor of parts for the vehicular, industrial and
mobile off-highway markets, since 1990. He was
appointed Chief Executive Officer of Dana Corporation
in 1989 and Chief Operating Officer in 1986. Mr.
Morcott served as President of Dana Corporation from
1986 to 1995. From 1987 to 1995 he served as Chairman
of Hayes-Dana Inc. Mr. Morcott is a director of Dana
Corporation, CSX Corporation and Johnson Controls, Inc.
He has served as a Phelps Dodge director since 1991.
J. Steven Whisler Mr. Whisler, 41, has been President of Phelps Dodge
(Class II) Mining Company, a division of the Corporation, since
1991 and a Senior Vice President of the Corporation
since 1988. He was a Vice President of the Corporation
from 1987 until 1988 and the General Counsel of the
Corporation from 1987 until 1991. He is a director of
Burlington Northern Santa Fe Corporation, Unocal
Corporation and Southern Peru Copper Corporation. Mr.
Whisler was elected a Phelps Dodge director on November
1, 1995.
The six directors whose terms will continue after the annual meeting and will
expire at the 1997 annual meeting of shareholders (Class III) or the 1998 annual
meeting of shareholders (Class I) are listed below.
AGE, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
DIRECTOR AND OTHER DIRECTORSHIPS HELD
-------------- --------------------------------------------------------
Robert N. Burt Mr. Burt, 58, has been Chairman of the Board and Chief
(Class III) Executive Officer of FMC Corporation, Chicago,
Illinois, a producer of chemicals and machinery for
industry, agriculture and government, since 1991. From
1990 to 1993 he was President of FMC Corporation and
Executive Vice President from 1988 to 1990. From 1989
to 1991 he was Chairman and Chief Executive Officer of
FMC Gold Company. He is a Director of FMC Corporation,
FMC Gold Company, and Warner-Lambert Company. Mr. Burt
has served as a Phelps Dodge director since 1993.
Robert D. Krebs Mr. Krebs, 53, has been President and Chief Executive
(Class III) Officer of Burlington Northern Santa Fe Corporation,
Fort Worth, Texas, a holding company engaged in
transportation, since 1995. From 1988 to 1995 he was
Chairman, President and Chief Executive Officer of
Santa Fe Pacific Corporation. He is a director of
Burlington Northern Santa Fe Corporation, Santa Fe
Energy Resources, Inc., Santa Fe Pacific Gold
Corporation, Santa Fe Pacific Pipelines, Inc., The
Atchison, Topeka and Santa Fe Railway Company and
Northern Trust Corporation. Mr. Krebs has served as a
Phelps Dodge director since 1987.
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AGE, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
DIRECTOR AND OTHER DIRECTORSHIPS HELD
------------------ -------------------------------------------------------
Douglas C. Yearley Mr. Yearley, 60, has been Chairman of the Board and
(Class III) Chief Executive Officer of the Corporation since 1989
and President of the Corporation since 1991. He was
President of Phelps Dodge Industries, a division of the
Corporation, from 1988 until 1990, Executive Vice
President of the Corporation from 1987 until 1989 and
Senior Vice President of the Corporation from 1982
through 1986. He is a director of J.P. Morgan & Co.,
Incorporated and its principal banking subsidiary,
Morgan Guaranty Trust Company of New York, Lockheed
Martin Corporation, USX Corporation, and Southern Peru
Copper Corporation. Mr. Yearley has served as a Phelps
Dodge director since 1986.
Paul Hazen Mr. Hazen, 54, has been Chairman and Chief Executive
(Class I) Officer of Wells Fargo & Company, San Francisco,
California, a bank holding company, and of Wells Fargo
Bank, N.A., a national banking association, since
January 1, 1995. He was President of Wells Fargo &
Company and of Wells Fargo, Bank N.A. from 1984 to
1994. He is a director of Wells Fargo & Company, Wells
Fargo Bank, N.A., AirTouch Communications, Inc. and
Safeway, Inc. Mr. Hazen has served as a Phelps Dodge
director since 1988.
Marie L. Knowles Mrs. Knowles, 49, has been Senior Vice President of
(Class I) Atlantic Richfield Company, Los Angeles, California, a
diversified petroleum products company, and President
of ARCO Transportation Company, a company engaged in
the operation of petroleum transportation and storage
facilities, since 1993. From 1990 to 1993 she was Vice
President and Controller of Atlantic Richfield Company.
Mrs. Knowles is a director of ARCO Chemical Company.
She has served as a Phelps Dodge director since 1994.
Gordon R. Parker Mr. Parker, 60, was Chairman of Newmont Mining
(Class I) Corporation and Newmont Gold Company, Denver, Colorado,
a unified worldwide gold mining company, from 1986
until his retirement at year-end 1994. He was Chief
Executive Officer of both companies from 1986 until
1993. Mr. Parker is a director of Caterpillar, Inc.,
Gold Fields of South Africa and The Williams Companies,
Inc. He was elected a director of Phelps Dodge on
February 1, 1995.
The Board of Directors met eight times during 1995. Various committees of the
Board also met during the year, including the Audit Committee, four meetings;
the Compensation and Management Development Committee, four meetings; the
Committee on Directors (nominating committee), two meetings; and the
Environmental, Health and Safety Committee, three meetings. Average attendance
at all Board and committee meetings was 94%.
The Audit Committee of the Board of Directors, comprising Messrs. Addison,
Douglas, Franke, Hazen (Chairman), (Mrs.) Knowles and Krebs, among other
functions: (i) reviews and recommends the engagement of the Corporation's
independent accountants, including the approval of their fee and the scope and
timing of their audit of the Corporation's financial statements; (ii) reviews,
with the Corporation's Director of Corporate Audit, the scope and results of the
Corporation's internal audit activity; (iii) reviews, with the independent
accountants, the Director of Corporate Audit and the Corporation's management,
policies and procedures with respect to internal auditing and financial and
accounting controls; (iv) reviews, with the independent accountants, the
accountants' report on the Corporation's financial statements, their perception
of the Corporation's financial and accounting personnel, and their
recommendations, if any, for improvements in the Corporation's internal controls
and the implementation of such recommendations; and (v) reviews the adequacy and
appropriateness of the Corporation's code of business ethics and policies.
The Compensation and Management Development Committee of the Board of
Directors, comprising Messrs. Burt, Douglas, Hazen and Morcott (Chairman),
recommends to the Board the compensation of the
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Corporation's senior officers, reviews recommendations by management as to the
compensation of other officers and key personnel and reviews management's
program for the development of individuals to assume positions of responsibility
in the Corporation. In addition, the Committee reviews and recommends to the
Board incentive compensation awards, grants options, which may be in tandem with
stock appreciation rights, and restricted stock under the Corporation's 1993
Stock Option and Restricted Stock Plan (the "1993 Plan").
The Committee on Directors of the Board of Directors, comprising Messrs.
Franke, Krebs (Chairman), Morcott and Parker, studies, and makes recommendations
concerning, the composition of the Board of Directors and the committees thereof
and reviews the compensation of Board and committee members. The Committee also
reviews the qualifications of potential candidates for director of the
Corporation and recommends to the Board of Directors nominees for election as
directors. The Committee will consider as nominees for director persons
recommended by shareholders. Such recommendations should be sent to the
Secretary of the Corporation and should include the address of the person and a
brief description of his or her qualifications.
The Environmental, Health and Safety Committee of the Board of Directors,
comprising Messrs. Addison (Chairman), Burt, Douglas, (Mrs.) Knowles and
Morcott, reviews, among other things, the Corporation's policies with respect to
environmental, health and safety matters and the adequacy of management's
programs for implementing those policies and reports on such reviews and makes
recommendations with respect to those policies to the Board of Directors.
Directors who are not employees of the Corporation currently receive an
annual retainer of $25,000 and a fee of $1,000 for each Board or committee
meeting attended or, on a per diem basis, for rendering other special services
to the Corporation. As employee directors, Messrs. Yearley and Whisler do not
receive the annual retainer or any meeting fees. Under an unfunded plan, a
director may elect to defer receipt of his retainer or meeting fees or both to
future years and to receive interest thereon at prevailing market rates or to
have such amounts deemed invested in the Corporation's Common Shares.
Directors who have served for at least five years and who have not been
employees of the Corporation or any of its subsidiaries are entitled to receive
an annual retirement benefit beginning at age 65 (or at their later retirement
from the Board) equal to 50% of the annual retainer paid from time to time to
active directors and prorated for each year served in excess of five years up to
100% for retired directors who have served for at least ten years. The plan
providing for these payments is unfunded, and payments under it are made
directly by the Corporation.
The Corporation provides life insurance for directors who are not and have
not been employees of the Corporation or any of its subsidiaries. The amounts of
such insurance are $50,000 for active directors and $25,000 for directors who
have retired in accordance with the Corporation's Policy on Retirement of
Directors.
Directors who are not, and have not for one year been, employees of the
Corporation or its subsidiaries or are not otherwise eligible to participate in
any plan of the Corporation or its subsidiaries entitling participants to
acquire stock, stock options or stock appreciation rights, are eligible for
option grants under the Phelps Dodge 1989 Directors Stock Option Plan (the
"Plan"). The number of such eligible directors currently is nine. Up to 171,232
Common Shares may be sold pursuant to options under the Plan. On the first
business day following each annual meeting of shareholders, and in no event
later than the following June 1, each eligible director will be granted an
option to purchase 1,148 Common Shares. The option price is the fair market
value of the Common Shares on the day the option is granted and is payable in
cash or in Common Shares having a market value equal to the option price or in a
combination of cash and Common Shares. Options become exercisable in three equal
annual installments beginning on the first anniversary of the date of grant.
Exercisable options expire no later than three years after a director terminates
his service, unless his service terminates as a result of removal by the
shareholders for cause, in which case the options will be cancelled on the date
of termination. Options that are not exercisable on the date a director
terminates his service will be cancelled on that date unless his service
terminates (i) at or after he reaches age 65, having served at least ten years,
(ii) on account of his death or disability or (iii) in compliance with any
applicable law or rule of the New York Stock Exchange. In the latter cases, all
of a director's outstanding options are immediately and fully exercisable at the
time of his termination of service. Each option outstanding at such time as the
Corporation's shareholders approve a merger or similar transaction in which the
Corporation will not survive as a publicly
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held corporation, or the Corporation's Common Shares are first purchased
pursuant to a third party tender offer, will be cancelled in exchange for a cash
payment equal to the excess of the fair market value of the Common Shares on
such date over the exercise price of such option multiplied by the number of
shares subject to such option. The Plan terminates on the third day following
the annual meeting of shareholders to be held in the year 1999. The termination
of the Plan will not affect options outstanding at that time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors served on the Compensation and Management Development
Committee of the Board of Directors during all or part of 1995: Messrs. Burt,
Dillon, Douglas, Hazen, Krebs and Morcott (Chairman). None of these directors is
or has been an officer or employee of the Corporation or any of its subsidiaries
or has had any other relationship with the Corporation or any of its
subsidiaries requiring disclosure herein under the applicable rules of the
Securities and Exchange Commission.
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BENEFICIAL OWNERSHIP OF SECURITIES
The following table discloses the number of the Corporation's Common Shares
deemed beneficially owned as of February 1, 1996, by each director and each
named executive officer of the Corporation and by all directors and current
executive officers of the Corporation as a group(a):
NUMBER OF NUMBER OF
SHARES SHARES
NAME (b)(c) NAME (b)(c)
- ---- ---------- --------------------- ---------
Edward L. Addison.. 6,739 Southwood J. Morcott... 3,996
Robert N. Burt..... 1,427 Gordon R. Parker....... 1,000
Paul W. Douglas.... 7,739 Patrick J. Ryan........ 105,440
William A. Franke.. 7,739 Thomas M. St. Clair.... 91,943
Paul Hazen......... 8,739 J. Steven Whisler(d)... 193,916
Manuel J. Iraola... 90,691 Douglas C. Yearley..... 420,637
Marie L. Knowles... 1,000 Directors and current
Robert D. Krebs.... 6,380 executive officers
as a group (13)(e).... 841,946
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(a) The percentage of Common Shares beneficially owned by any director and any
named executive officer was less than one percent of the Common Shares
outstanding on February 1, 1996; the percentage of Common Shares
beneficially owned by all directors and current executive officers as a
group was 1 percent of the Common Shares outstanding on February 1, 1996.
(b) Shares shown as beneficially owned: (i) include restricted shares acquired
under the 1993 Stock Option and Restricted Stock Plan as follows: Mr.
Iraola, 31,063 shares; Dr. Ryan, 0 shares; Mr. St. Clair, 1,609 shares; Mr.
Whisler, 26,780 shares; and Mr. Yearley, 3,308 shares; all current executive
officers as a group, 62,760 shares; and (ii) include shares which may be
acquired within 60 days by exercise of stock options as follows: Mrs.
Knowles and Mr. Parker, 0 shares; Mr. Burt, 382 shares; Mr. Krebs, 4,591
shares; Mr. Morcott, 2,295 shares; Mr. Iraola, 49,033 shares; Dr. Ryan,
94,847 shares; Mr. St. Clair, 70,824 shares; Mr. Whisler, 129,201 shares;
and Mr. Yearley, 304,404 shares; each nonemployee director (except Mrs.
Knowles, Messrs. Burt, Krebs, Morcott and Parker), 5,739 shares; all
directors and current executive officers as a group, 583,686 shares. In
addition to the shares in the table shown as beneficially owned, which
include shares which may be acquired within 60 days by exercise of stock
options, the individuals and group hold additional stock options as follows:
Mr. Burt, 1,914 shares; Mrs. Knowles and Mr. Parker, 1,148 shares; Mr.
Iraola, 59,667 shares; Dr. Ryan, 0 shares; Mr. St. Clair, 51,334 shares; Mr.
Whisler, 80,667 shares; and Mr. Yearley, 196,667 shares; each outside
director (except Mr. Burt, Mrs. Knowles and Mr. Parker), 2,297 shares; all
directors and current executive officers as a group, 406,327 shares.
(c) Each director and named executive officer has sole voting and investment
power over the shares shown as beneficially owned except: (i) the restricted
shares acquired under the 1993 Stock Option and Restricted Stock Plan as to
which each holder has sole voting but no investment power; (ii) shares which
may be acquired within 60 days by exercise of stock options as to which each
holder has no voting or investment power; and (iii) 2,600 shares as to which
Mr. Iraola has shared voting and investment power; and, 111,925 shares as to
which Mr. Yearley has shared voting and investment power.
(d) Mr. Whisler was elected a director of the Corporation on November 1, 1995.
(e) Excludes Dr. Ryan as a result of his retirement on June 30, 1995.
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EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Corporation for
1995, 1994 and 1993 to each of the five named individuals who were executive
officers of the Corporation in 1995:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION(b) LONG TERM COMPENSATION
- ------------------------------------------------------------ --------------------------------------------------
AWARDS PAYOUTS
-------------------------- -------------
LONG
OTHER TERM ALL
NAME ANNUAL RESTRICTED PERFORMANCE OTHER
AND BASE COMPEN- STOCK OPTIONS PLAN COMPEN-
PRINCIPAL SALARY BONUS SATION(c) AWARDS(d) GRANTED PAYOUTS SATION(f)
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ----------------------- ---- ------- -------- --------- ------------ ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DOUGLAS C. YEARLEY 1995 640,000 642,880 48,639 -0- 163,032(a) -0- 101,270
CHAIRMAN OF THE BOARD 1994 560,000 560,000 24,580 -0- 190,615(a) 203,651(e) 56,000
PRESIDENT, CHIEF 1993 560,000 300,000 34,026 -0- 135,622(a) 207,000(e) 88,756
EXECUTIVE
OFFICER AND DIRECTOR
J. STEVEN WHISLER 1995 340,000 267,200 6,149 1,684,375 63,010(a) -0- 36,684
SENIOR VICE PRESIDENT 1994 300,000 241,100 -0- -0- 55,594(a) 109,563(e) 30,000
AND DIRECTOR 1993 300,000 185,300 4,914 -0- 37,612(a) 93,150(e) 39,021
PATRICK J. RYAN(g) 1995 157,000 119,600 22,806 -0- -0- -0- 15,700
SENIOR VICE PRESIDENT 1994 293,000 235,300 -0- -0- 44,426(a) 107,458(e) 29,300
1993 293,000 186,800 -0- -0- 32,000 111,780(e) 34,970
MANUEL J. IRAOLA(h) 1995 275,000 227,600 17,208 1,684,375 50,000 -0- 31,094
SENIOR VICE PRESIDENT
THOMAS M. ST. CLAIR 1995 280,000 186,200 3,631 -0- 40,630(a) -0- 47,901
SENIOR VICE 1994 270,000 187,200 213 -0- 56,987(a) 99,040(e) 27,000
PRESIDENT AND 1993 270,000 101,000 1,196 -0- 47,304(a) 101,430(e) 37,802
CHIEF FINANCIAL OFFICER
<FN>
- ----------
(a) The option grants denoted by "(a)" include reload options, as well as normal
compensatory options.
(b) During October 1993, in response to falling copper prices at that time, all
merit salary increases for the four named persons who were then executive
officers (see footnote (h)) were suspended until January 1, 1995. Amounts
shown under "Bonus" were paid under the Annual Incentive Compensation Plan.
Amounts shown under "Base Salary" and "Bonus" include any salary or bonus
deferred by the executive under the Phelps Dodge Employee Savings Plan (the
"Savings Plan") and the Comprehensive Executive Nonqualified Retirement and
Savings Plan of Phelps Dodge Corporation (the "Comprehensive Nonqualified
Plan").
(c) Tax payment reimbursements.
(d) The 1995 awards reflect a special grant of restricted shares to each of
Messrs. Iraola and Whisler. These grants require a five year post-grant
service to vest, but are subject to earlier vesting as a result of the
recipient's death, disability or retirement or a change in control of the
Corporation. Dividends on restricted stock are paid to the holder. On
December 31, 1995, the named executives held the following numbers of shares
of restricted stock which had the following aggregate values as of such
date; Mr. Yearley, 3,308 shares valued at $204,062; Mr. Whisler, 26,780
shares valued at $1,651,991; Mr. Iraola, 31,063 shares valued at $1,916,199;
Mr. St. Clair, 1,609 shares valued at $99,255. The aggregate number of
restricted shares includes shares received in payment of awards earned under
the Corporation's long-term incentive plans (see note (e) below). The
reported values are based on the market value of unrestricted shares of the
Corporation's stock, as of December 31, 1995, and as such do not reflect any
discount attributable to the restrictions on transferability and risk of
forfeiture inherent in the restricted stock.
(e) The 1992-1994 Long-Term Performance Plan award was paid 100% in the
Corporation's Common Shares restricted as to transferability for a period of
two years following the end of the performance review period.
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The 1991-1993 Long-Term Performance Plan award was paid one-half in cash and
one-half in the Corporation's Common Shares restricted as to transferability
for a period of two years following the end of the performance review
period.
(f) Amounts shown include the following contributions and accruals by the
Corporation for 1995 to the Savings Plan and 1995 accruals under the savings
portion of the Comprehensive Nonqualified Plan, respectively, for the
benefit of the named executives: Mr. Yearley, $15,000 and $49,000; Mr.
Iraola, $15,000 and $12,361; Mr. Whisler, $15,000 and $19,000; Dr. Ryan,
$15,000 and $700; Mr. St. Clair, $15,000 and $13,000. For 1993, the figures
include earnings on certain amounts accrued for the named executives. Such
earnings are not included for 1994 or 1995. Amounts shown also include a
payment representing the premiums on whole life insurance policies effective
December 29, 1995 for the benefit of the named executives: Mr. Yearley,
$37,270; Mr. Iraola, $3,733; Mr. Whisler, $2,684; Mr. St. Clair, $19,901.
(g) Effective June 30, 1995, Dr. Ryan retired from his position as a Senior Vice
President of the Corporation.
(h) Effective January 6, 1995, Mr. Iraola was elected a Senior Vice President of
the Corporation and President of Phelps Dodge Industries, a division of the
Corporation.
</FN>
</TABLE>
STOCK OPTIONS
Each of the named executives was eligible to receive two types of option
grants during 1995: normal option grants and reload option grants. The first
type of grant is a compensatory award normally made on an annual basis which is
intended to reward each named executive based on the Corporation's future
performance. Normal option grants customarily include the right to receive
reload options.
A reload option is granted to an employee who exercises an option with
already-owned shares. It replaces the opportunity for future appreciation that
the employee would otherwise lose by exercising the original option, while
encouraging the employee to increase his share ownership. Reload options provide
only limited incremental value to the employee as compared to the options they
replace. Reload option grants customarily include the right to receive
additional reload options.
The following table contains information with respect to the normal
compensatory option grants and reload option grants made to each named executive
during 1995 and the hypothetical value at the time of grant based on a variation
of the Black-Scholes model (see footnote (c) on page 9). The Corporation is not
aware of any option pricing model which can provide a true assessment of the
value of the options. Over their lives, the options could have a greater or a
lesser value than that shown in the table, and under some circumstances they
could have zero value.
8
<PAGE>
<TABLE>
OPTION GRANTS IN 1995
<CAPTION>
NORMAL % OF TOTAL
AND RELOAD OPTIONS GRANTED GRANT DATE
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION PRESENT
NAME GRANTED(a) IN 1995(b) PRICE DATE VALUE(c)
- ---- ---------- --------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Douglas C. Yearley..... 100,000 17.3% $67.3750 12/6/05 $1,117,800
24,835 64.4375 12/4/01 155,100
17,625 64.4375 12/2/02 110,100
20,572 64.4375 12/1/03 128,500
J. Steven Whisler...... 40,000 6.7% 67.3750 12/6/05 447,100
135 63.4375 2/7/00 800
12,532 63.4375 12/5/00 77,000
10,343 63.4375 12/4/01 63,600
Patrick J. Ryan........ 0
Manuel J. Iraola....... 35,000 5.3% 67.3750 12/6/05 391,200
15,000 53.1250 2/1/05 132,200
Thomas M. St. Clair.... 25,000 4.3% 67.3750 12/6/05 279,400
5,153 65.1250 12/4/01 32,500
4,824 65.1250 12/2/02 30,400
5,653 65.1250 12/1/03 35,700
<FN>
- ----------
(a) During 1995, normal options were granted in the following amounts to the
named executive officers: Mr. Yearley, 100,000; Mr. Whisler, 40,000; Mr.
Iraola, 50,000; and Mr. St. Clair, 25,000. The remaining grants disclosed in
the table are reload options.
Options expire no later than the tenth anniversary of the date of grant,
plus one day. If an employee retires on his normal retirement date, or early
under any pension or retirement plan maintained by Phelps Dodge Corporation
or any subsidiary, or dies, his exercisable options terminate no later than
the fifth anniversary of his retirement or death. If an optionee's
employment terminates for any reason other than retirement or death, his
exercisable options terminate no later than 30 days following the
termination of his employment.
Options generally become exercisable in three substantially equal annual
installments beginning on the first anniversary of the date of grant or
earlier (but not earlier than six months from the date of grant except in
the case of death) on (i) an employee's normal retirement date or death,
(ii) the date an employee ceases to be employed if his employment ceases
within two years following a change of control of the Corporation, and (iii)
the date the Corporation's Common Shares are purchased pursuant to a third
party tender offer or the Corporation's shareholders approve a merger or
similar transaction which the Corporation will not survive as a publicly
held corporation.
Options include limited rights exercisable only in the event the
Corporation's Common Shares are purchased pursuant to a third party tender
offer or the Corporation's shareholders approve a merger or similar
transaction which the Corporation will not survive as a publicly held
corporation. Under these limited rights, an optionee may elect, in lieu of
purchasing shares, to relinquish the option with respect to all or any of
such shares and to receive a payment equal to (i) the price paid for a
Common Share in such merger or similar transaction multiplied by the number
of Common Shares the optionee could have purchased less (ii) the total
purchase price for that number of Common Shares under the terms of the
option.
Options customarily include the right to receive reload options in the event
the optionee exercises an option with already-owned shares. Reload options
contain the same expiration dates and other terms as the options they
replace except that they have an exercise price per share equal to the fair
market value of a Common Share on the date the reload option is granted and
become exercisable in full six months after they are granted. Reload options
customarily include the right to receive additional reload options.
(b) Illustrates the total number of normal and reload options granted as a
percent of the aggregate num- ber of 1995 normal options (810,000 shares)
and 1995 reload options (131,506 shares) granted to all employees.
9
<PAGE>
(c) The hypothetical present value of the options at the date of grant was
determined using a variation of the Black-Scholes option pricing model. The
Black-Scholes model is a complicated mathematical formula which is widely
used to value options traded on the stock exchanges. However, executive
stock options differ from exchange-traded options in several key respects.
Executive options are long-term, nontransferable and subject to vesting
restrictions, whereas exchange-traded options are short-term and can be
exercised or sold immediately in a liquid market. The model used here is
adapted to estimate the present value of an executive option and considers a
number of factors, including the grant price of the option, the volatility
of the Corporation's Common Shares, the dividend rate, the term of the
option, the time it is expected to be outstanding and interest rates. The
Black-Scholes values were derived using as assumptions the following
financial factors which existed at essentially the time that the options
were granted: volatility of .2279, dividend yield of 3.30%, and interest
rates of 5.48% for normal options and 5.47% for reload options. In view of
the Corporation's historic exercise experience and the inherent motivation
to exercise options early in their terms because of the reload option
feature, normal options were assumed to be outstanding for three years at
time of exercise and reload options for one year. No downward adjustments
were made to the resulting grant-date option values to account for potential
forfeiture or nontransferability of the options in question. Because the
model is adapted to value executive options and is assumption-based, it only
values the options in theory.
</FN>
</TABLE>
Reload option grants are part of the Corporation's overall program to
increase the number of Common Shares owned by its executive officers and other
key employees. Traditional option programs generally do not encourage optionees
to exercise options prior to the end of their term or to hold the shares
received upon such exercise. The Compensation and Management Development
Committee adopted the reload option program, with shareholder approval, to
encourage option exercises and stock retention by permitting an optionee to
exercise an option with already-owned Common Shares and to be restored to the
same economic opportunity available immediately prior to such exercise.
Under the reload program, an employee who exercises an option (the"Original
Option") with already- owned shares prior to the end of the option term will
receive an additional option (the "Reload Option") covering a number of shares
equal to the number used to exercise the Original Option. The Reload Option will
be exercisable, beginning six months after grant and continuing for the
remaining term of the Original Option, at a price equal to the fair market value
of the shares on the date the Original Option is exercised. As a result of the
exercise of the Original Option with already-owned shares, the net number of
Common Shares held by the employee will increase by the number of shares that
has an aggregate market value equal to the "spread" on the option (the "spread"
equals the aggregate market price of the option shares on the day of exercise
less the aggregate exercise price). Thus, the number of shares covered by the
Reload Option plus the number of additional shares received on the exercise of
the Original Option will equal the number of shares covered by the Original
Option. The program thereby serves to replace the opportunity for future
appreciation that an optionee would otherwise lose by exercising an option using
already-owned shares. In addition, by inducing option exercises and stock
retention, the reload feature offers optionees the opportunity to receive
dividends on a greater number of shares than would be the case without such a
feature.
An employee will also benefit from the use of the reload feature if the
market price of the underlying shares declines between the date he exercises the
Original Option and the expiration date of that option. By encouraging an
employee to exercise options with shares, the reload feature enables an employee
to protect against a decline in the market price of the Common Shares without
losing the potential benefit of a price increase.
10
<PAGE>
The following table provides information concerning options exercised in 1995
by the named executives and the options held by them at the end of 1995:
AGGREGATED OPTION EXERCISES IN 1995 AND DECEMBER 31, 1995 OPTION VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED 12/31/95 12/31/95
ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE(a) REALIZED UNEXERCISABLE) UNEXERCISABLE)(b)
- -------------------- ----------- ------------ --------------- ------------------
Douglas C. Yearley... 95,162 $2,070,298 241,372/259,699 $1,611,779/779,168
J. Steven Whisler.... 49,875 1,704,186 106,191/103,677 1,547,493/319,293
Patrick J. Ryan...... 13,334 425,021 94,847/0 973,131/0
Manuel J. Iraola..... 0 0 44,033/64,667 848,009/248,235
Thomas M. St. Clair.. 25,000 610,103 55,194/66,964 357,235/214,470
- ----------
(a) All of the named executives (except Mr. Iraola and Dr. Ryan) used shares
already owned by them to pay the exercise price of some or all of the
options they exercised in 1995. Mr. Yearley exercised all of the options he
exercised in 1995 in this manner. He acquired 32,130 shares on exercise of
these options in excess of the shares used to pay the exercise price and
received reload options to purchase 63,032 shares. Options for 49,875 and
25,000 were exercised by Mr. Whisler and Mr. St. Clair, respectively, in
this manner. The numbers of Common Shares acquired on exercise of these
options in excess of the shares used to pay the exercise price were 26,865
and 9,370, respectively.
(b) Value is based on the mean of the high and low prices of the Common Shares
on the Consolidated Trading Tape on December 29, 1995 ($61.6875).
PENSION AND OTHER RETIREMENT BENEFITS
The following pension table shows the estimated aggregate annual benefits
payable in the form of a straight life annuity commencing at age 65 (i) under
the Phelps Dodge Retirement Plan for Salaried Employees (the "Retirement Plan")
as supplemented by the supplementary retirement provisions of the Comprehensive
Nonqualified Plan that make up amounts limited by the Internal Revenue Code (the
"Code") and (ii) under the supplementary retirement provisions of the
Comprehensive Nonqualified Plan based on incentive compensation under the Annual
Incentive Compensation Plan:
11
<PAGE>
<TABLE>
PENSION PLAN TABLE
<CAPTION>
FINAL AVERAGE
SALARY AND
INCENTIVE
COMPENSATION ESTIMATED ANNUAL BENEFITS FOR YEARS OF BENEFIT SERVICE INDICATED(c)
----------------------------------------------------------------------------
(a)(b) 10 15 20 25 30 35 40
- --------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 316,800 $ 48,820 $ 73,220 $ 97,640 $122,040 $146,440 $170,860 $195,260
$ 526,000 $ 82,290 $123,430 $164,580 $205,720 $246,860 $288,010 $329,150
$ 722,000 $113,650 $170,470 $227,300 $284,120 $340,940 $397,770 $454,590
$ 819,000 $129,170 $193,750 $258,340 $322,920 $387,500 $452,090 $516,670
$ 910,000 $143,730 $215,590 $287,460 $359,320 $431,180 $503,050 $574,910
$1,001,000 $158,290 $237,430 $316,580 $395,720 $474,860 $554,010 $633,150
$1,092,000 $172,850 $259,270 $345,700 $432,120 $518,540 $604,970 $691,390
$1,163,000 $184,210 $276,310 $368,420 $460,520 $552,620 $644,730 $736,830
$1,234,000 $195,570 $293,350 $391,140 $488,920 $586,700 $684,490 $782,270
$1,376,000 $218,290 $327,430 $436,580 $545,720 $654,860 $764,010 $873,150
<FN>
- ----------
(a) The Retirement Plan provides a member upon retirement at age 65 with a
pension for life in a defined amount based upon final average salary and
length of benefit service. Under the Retirement Plan, final average salary
("Final Average Salary") is the highest average annual base salary for any
consecutive 36-month period plus the average annual incentive compensation
for any consecutive 60-month period during a member's last 120 months of
employment. Benefit service includes all periods of employment with the
Corporation or its participating subsidiaries. Benefits under the Retirement
Plan are subject to certain limitations under the Code, and to the extent
the result of such limitations would be a benefit less than would otherwise
be paid under such Plan, the difference is provided under the supplementary
retirement provisions of the Comprehensive Nonqualified Plan. The formula
for determining benefits payable under the Retirement Plan takes into
account estimated social security benefits payable. The amounts set forth in
the table assume maximum social security benefits payable in 1995.
(b) Amounts of annual incentive compensation have been estimated based on the
five-year average annual incentive compensation awarded to participating
employees for 1991 through 1995. The actual amount of incentive compensation
for an individual at any level of Final Average Salary could vary.
(c) The expected credited years of benefit service at normal retirement for the
Corporation's four current executive officers as of December 31, 1995, are
as follows: Mr. Yearley, 41 years; Mr. Whisler, 43 years; Mr. Iraola, 30
years and Mr. St. Clair, 11 years. The years of service are based on normal
retirement for all executive officers under the Retirement Plan and the
applicable provisions of the Comprehensive Nonqualified Plan. Dr. Ryan had
25 years of service at his retirement on June 30, 1995.
</FN>
</TABLE>
SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
The Corporation has severance agreements with each of its four executive
officers under which the executive would receive a lump sum payment equal to his
annual base salary in the event the Corporation terminates his employment, other
than for cause or mandatory retirement, or the executive voluntarily terminates
his employment because of material reductions in his salary or his position,
duties and responsibilities. The terminated executive would also receive (i)
outplacement services at a cost up to 15% of his base salary and (ii) the cost
of continued coverage for a limited period under the Corporation's group health,
life insurance and disability plans.
The Corporation also has agreements with such executives under which each
executive would receive, in the event he ceases to be employed by the
Corporation (for a reason other than death, disability, willful misconduct,
normal retirement or under certain circumstances a voluntary termination of
employment by the executive) within two years following a change of control of
the Corporation, a lump sum equal to two times (i) the executive's highest base
salary during that year and the prior two years and (ii) the executive's target
bonus under the Annual Incentive Compensation Plan for the year in which the
change of control occurs. The
12
<PAGE>
amount of such payment is subject to reduction if the date an executive ceases
to be employed by the Corporation is within 24 months of his normal retirement
date or if such amount, plus any other payments that are contingent on such
change of control, constitutes an "excess parachute payment" as defined in the
Code and the reduction results in a greater net after-tax benefit to the
executive. Except under certain circumstances, these change of control
agreements expire on November 3, 1997.
Although normal compensatory options granted by the Corporation generally
become exercisable in three substantially equally annual installments beginning
on the first anniversary of the date of grant, they also become exercisable in
certain change of control situations. Specifically, such options are exercisable
(but not earlier than six months from the date of grant) on the date the
Corporation's Common Shares are purchased pursuant to a third party tender offer
or the Corporation's shareholders approve a merger or similar transaction which
the Corporation will not survive as a publicly held corporation or, in the case
of the four executive officers and certain other employees, the date the
employee ceases to be employed if he ceases to be employed within two years
following a change of control of the Corporation. In addition, such options
include limited rights exercisable only in the event the Corporation's Common
Shares are purchased pursuant to a third party tender offer or the Corporation's
shareholders approve a merger or similar transaction which the Corporation will
not survive as a publicly held corporation. Under these limited rights, an
optionee may elect, in lieu of purchasing shares, to relinquish the option with
respect to all or any of such shares and to receive a payment equal to (i) the
price paid for a Common Share in such merger or similar transaction multiplied
by the number of Common Shares the optionee could have purchased less (ii) the
total purchase price for that number of Common Shares under the terms of the
option.
The Retirement Plan and the Comprehensive Nonqualified Plan provide for the
payment of unreduced benefits to employees who meet liberalized age and length
of service requirements and whose employment is terminated by the Corporation or
any of its subsidiaries within two years following a change of control of the
Corporation.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Corporation's goal is to be the leader in each of the domestic and
international mining and manufacturing activities in which it competes. It also
seeks to achieve and sustain progressive increases in value for its
shareholders, while balancing appropriately the short- and long-term
opportunities for the Corporation.
To meet these objectives, the Corporation employs high caliber, dedicated
senior managers who are well trained and results oriented. The Board of
Directors established the Compensation and Management Development Committee to
provide oversight of the Corporation's compensation and management development
programs and to ensure that these programs maximize the Corporation's ability to
attract, retain and motivate employees to meet these stated objectives.
The Committee believes it can motivate senior managers participating in these
programs by:
o Emphasizing the relationship between pay and performance by rewarding
managers who bring about solid achievement with regard to key business
strategies and specific operational objectives and by increasing the
relative amount of compensation at risk as management responsibilities
increase.
o Assuring that the elements of variable compensation are linked as directly
as practicable to measurable financial, operational and other forms of
performance.
o Encouraging stock ownership by executives.
o Tying pay for performance as closely as possible to success in maximizing
the value of the Corporation's stock over the long term.
The Committee is composed of directors (currently four) who are not employees
of the Corporation. It has periodically retained respected independent
compensation consultants to advise and assist it in connection with various
compensation matters.
EXECUTIVE OFFICER COMPENSATION
The executive officers are compensated by salaries, annual incentive awards
and long-term incentive compensation. Each element focuses on performance in a
different but complementary way. Salaries focus on
13
<PAGE>
individual performance as well as competence. Annual incentives relate to
individual, corporate and, if appropriate, unit performance. Long-term incentive
awards, which are paid in the form of stock options, and, from time to time, in
restricted stock, create a long-term identity of interest with the shareholders
based on the Corporation's performance and related growth of shareholder value.
The Committee believes that the Corporation competes for its executive talent
primarily with similarly sized industrial companies located in the United
States. Accordingly, where possible, the Committee compares executive officer
compensation to the compensation paid to executives holding similar positions at
other publicly-held industrial corporations of a size, measured by revenues,
similar to that of the Corporation (referred to below as the "comparison
group"). Information concerning a significant number of such companies is
provided by independent consultants and, based on the consultants' advice, is
believed by the Committee to be generally representative of the compensation
paid by all such companies in the United States. Thus, the companies used for
comparison purposes in connection with the compensation paid to the
Corporation's executive officers are different from, and substantially more
numerous than, the companies included in the Peer Group used in the performance
graph on page 17 to compare shareholder returns.
Salaries. Individual salaries for executive officers are generally
established by the Board of Directors, on the recommendation of the Committee,
to reflect the officers' performance and competence. Salary adjustments are
targeted to move salaries to median levels over time for sustained and expected
performance and competence. Based on available information, the Committee
believes salaries in 1995 for the executive officers were, for those executives
relatively new to their position, slightly below the averages of the companies
in the comparison group for employees holding similar positions.
Annual Incentive Compensation. The Annual Incentive Compensation Plan
provides the executive officers and certain other officers and managers with
compensation based on success in achieving annual individual, corporate and,
where appropriate, unit goals. For each executive officer, a target award is
determined approximating the median of the annual incentive compensation paid by
the comparison group to individuals holding comparable positions. Lower
threshold awards and higher maximum awards are also established. Corporate goals
are set using return on equity and net cash flow return on investment, both of
which are fundamental indicators of the Corporation's performance. The goals are
equally weighted and determine 70% of the CEO's total annual incentive
compensation, and 60% and 15% of the CFO's and operation executives' awards,
respectively. In 1995, Phelps Dodge set records for virtually all operating
measures including copper production, net income and earnings per share,
operating cash flow, and earnings from operations for our mining and industries
divisions. Accordingly, return on equity and net cash flow return on investment
were both well above the maximum goals. Based on these results and the
Committee's evaluation of performance to individual and, where appropriate, unit
goals, the Committee recommended, and the Board approved, Annual Incentive
Compensation awards for 1995 above the targeted amounts for the listed
executives.
Stock Options. The Committee uses stock options as the principal method of
providing long-term incentive compensation primarily because employees benefit
from options, if at all, only to the extent of increases in the value of the
Corporation's Common Shares. To further the identity of interest with the
shareholders, the executive officers are expected to acquire and own significant
numbers of the Corporation's shares.
The Committee and the Board of Directors have determined that to focus the
executives' attention to an appropriate extent on the long-term growth of
shareholder value, the targeted compensation levels with respect to the present
value of stock options should be approximately midway between the fiftieth and
seventy-fifth percentiles of the long-term incentive awards made to executives
holding similar positions in companies in the comparison group. Adjustments are
made from these levels at the discretion of the Committee based on the
performance, career potential, critical skills and prior grant history of the
executive officer. Stock options granted to executive officers in 1995 were at
or above the targeted levels. All of the Committee's option grants for 1995 were
approved by the Board.
Restricted Stock. The Committee also has made grants of restricted stock to
executive officers and a limited number of other key employees under the
Corporation's Stock Option and Restricted Stock Plan. In December of 1995, the
Committee made special grants of 25,000 shares of restricted stock to each of
Messrs.
14
<PAGE>
Iraola and Whisler, two of the executive officers. In both cases the shares of
stock are restricted from sale for a period of five years and are forfeited if
the individual resigns during the restricted period.
IRS Limit on Deductibility of Compensation. The Committee has decided that,
for the present time, it will not amend any of the Corporation's existing
compensation plans in light of Section 162(m) of the Internal Revenue Code.
Section 162(m) generally places a $1 million per person limit on the deduction a
publicly-held corporation may take for compensation paid to its chief executive
officer and its four other highest compensated "covered employees," excluding
for this purpose deferred compensation and, in general, compensation
constituting "performance-based" compensation. The Corporation understands that
stock options will not be included in the compensation subject to the $1 million
deductibility limit. Mr. Yearley deferred $240,000 of his salary in 1995. As a
result of the Corporation's record performance in 1995 and the related
above-target incentive compensation award to Mr. Yearley, his compensation
subject to Section 162(m) exceeded one million dollars resulting in a loss of
income tax deductions having a value of approximately $48,000.
CEO COMPENSATION
Douglas C. Yearley, the Chief Executive Officer of the Corporation, received
a base salary of $640,000 in 1995, an Annual Incentive Compensation Plan award
of $642,880 for 1995 performance to stated goals, and a compensatory option
grant in 1995 to purchase 100,000 Common Shares. As discussed above under "Stock
Options," Mr.Yearley also received in 1995, under a program available to all
optionees, 63,032 reload options in connection with his use of already-owned
shares to pay the exercise price of other options. The number of reload options
granted to employees is equivalent to the number of shares that they transfer to
the Corporation to exercise their existing options.
The first 70% of Mr. Yearley's Annual Incentive Compensation Plan award was
determined on the basis of the actual return on average equity and net operating
cash flow return on average capital as compared to goals set at the beginning of
the year. The Corporation's performance was well above the maximum goals for
return on average equity and for net operating cash flow return on average
capital. The remaining 30% of Mr. Yearley's award was based on the Committee's
judgment as to his performance with regard to individual goals pertaining to the
growth and strategic positioning of Phelps Dodge Mining Company, the growth of
Phelps Dodge Industries' core businesses, and the development of the Company's
human assets. Based on its judgment as to Mr. Yearley's performance in these
respects, the Committee recommended, and the Board approved, an above-target
award to him as to this part of his incentive compensation. Mr. Yearley's
compensatory stock option grant, which was above the targeted level, was based
on the policy discussed above under "Stock Options," including the Committee's
evaluation of Mr. Yearley's overall performance during 1995, his potential and
critical skills, and the number of stock options and the number of shares of
restricted stock that had been previously granted to him.
The Committee believes that Mr. Yearley's 1995 salary was below the 1995
median paid by comparable companies to their CEOs, but an above-target annual
incentive award and an above-target stock option grant bring the total value of
the compensation package to an above average level, and well in line with the
Company's outstanding performance during 1995.
15
<PAGE>
CONCLUSION
The Committee will continue to evaluate the Corporation's compensation
programs to best enable the Corporation to employ and motivate high caliber,
dedicated people. Such employees, properly motivated, are believed to be key to
achievement of the Corporation's goal to be the international leader in the
mining and manufacturing activities in which it competes and the related
enhancement of shareholder value over the long term.
THE COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE
Southwood J. Morcott, Chairman
Robert N. Burt
Paul W. Douglas
Paul Hazen
16
<PAGE>
COMPARATIVE FIVE-YEAR TOTAL RETURNS
INCLUDING REINVESTMENT OF DIVIDENDS
12/90 12/91 12/92 12/93 12/94 12/95
----- ----- ----- ----- ----- -----
Phelps Dodge $100 $124 $186 $193 $252 $262
S&P 500 $100 $130 $140 $155 $157 $215
S&P Metals Misc $100 $113 $121 $135 $157 $174
Dow Jones Nonferrous $100 $113 $163 $159 $205 $425
Metals-Other
COMPARATIVE TEN-YEAR TOTAL RETURNS
INCLUDING REINVESTMENT OF DIVIDENDS
<TABLE>
<CAPTION>
12/85 12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Phelps Dodge $100 $ 90 $205 $237 $318 $321 $397 $597 $621 $811 $841
S&P 500 $100 $119 $125 $146 $192 $186 $242 $261 $287 $291 $400
S&P Metals Misc $100 $ 93 $163 $215 $247 $235 $265 $284 $317 $370 $409
</TABLE>
17
<PAGE>
2. RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
On the recommendation of the Audit Committee, the Board of Directors has
appointed Price Waterhouse LLP as independent accountants for the Corporation
for the year 1996, subject to ratification by the shareholders at the annual
meeting. Price Waterhouse LLP or a predecessor firm has been the independent
accountants for the Corporation since 1915. A representative of Price Waterhouse
LLP will be present at the annual meeting of shareholders with the opportunity
to make a statement if he so desires and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be presented at
the annual meeting. If any other matter proper for action at the meeting should
be presented, the holders of the accompanying proxy will vote the shares
represented by the proxy on such matter in accordance with their best judgment.
If any matter not proper for action at the meeting should be presented, the
holders of the proxy will vote against consideration thereof or action thereon.
All shares represented by the accompanying proxy, if the proxy is duly
executed and received by the Corporation at or prior to the meeting, will be
voted at the meeting in accordance with any instructions specified on such proxy
and, where no instruction is specified, as indicated on such proxy.
It is the policy of the Corporation that, except under limited circumstances,
each shareholder proxy card, ballot and voting tabulation that identifies any
shareholder will be kept confidential and that the receipt and tabulation of
such votes will be conducted by independent third parties, including the
Corporation's transfer agent and its proxy solicitation firm, and not by
employees of the Corporation.
The cost of soliciting proxies for the meeting will be borne by the
Corporation. The Corporation has retained Morrow & Co., Inc., 909 Third Avenue,
New York, N.Y. 10022-4799 to assist in soliciting proxies for a fee estimated at
$12,500 plus reasonable expenses. Morrow & Co., Inc. and some officers and other
employees of the Corporation may solicit proxies in person and by telephone or
otherwise. The Corporation may also reimburse brokers and others who are record
holders of the Corporation's shares for their reasonable expenses incurred in
obtaining voting instructions from beneficial owners of such shares.
On June 1, 1995, the Corporation purchased directors' and officers' liability
insurance policies from National Union Fire Insurance Company of Pittsburgh,
Pa., Aetna Casualty and Surety Company, Continental Casualty Company, Federal
Insurance Company and XL Insurance Company, each for a one-year term ending June
1, 1996, at premiums of $569,596, $174,095, $58,425, $66,300 and $50,000,
respectively. The policies insure (i) directors, officers, division presidents
and vice presidents of the Corporation and its subsidiaries, and employees who
are fiduciaries of employee benefit plans of the Corporation and its
subsidiaries, against certain liabilities they may incur in the performance of
their duties and (ii) the Corporation against any obligation to indemnify such
persons against such liabilities.
During May 1995, the Corporation made an interest free bridge loan in the
amount of $280,000 to Mr. Iraola in conjunction with his relocation to the
Corporation's headquarters in Phoenix. The loan was repaid in full during
December 1995.
PROPOSALS FOR 1996
The Corporation will review for inclusion in next year's proxy statement
shareholder proposals received by December 2, 1996. Proposals should be sent to
the Secretary of the Corporation, 2600 North Central Avenue, Phoenix, Arizona
85004-3014.
18
<PAGE>
ANNUAL REPORT FOR 1995
The annual report of the Corporation for the year 1995, including financial
statements, is being furnished concurrently with this proxy statement to persons
who were shareholders of record as of March 15, 1996, the record date for the
annual meeting. The annual report does not form part of the material for the
solicitation of proxies.
By order of the Board of Directors,
Robert C. Swan
Vice President and Secretary
Phoenix, Arizona
April 1, 1996
19
<PAGE>
PROXY CARD SIDE 1
PHELPS DODGE CORPORATION
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PHELPS DODGE CORPORATION
The undersigned shareholder of Phelps Dodge Corporation hereby appoints Edward
L. Addison, Paul W. Douglas, William A. Franke and Douglas C. Yearley, or any of
them, proxies of the undersigned, each with power of substitution, at the annual
meeting of shareholders of the Corporation to be held at the Arizona Biltmore
Hotel, 24th street and Missouri Avenue, Phoenix, Arizona, on May 1, 1996, at
11:00 a.m., and at any adjournments thereof, to vote all Common Shares of the
Corporation held or owned by the undersigned, including any which may be held
for the undersigned's account under the Automatic Dividend Investment Service
for Phelps Dodge Common Shares administered by Chemical Bank.
The proxies are instructed to vote as directed below, and in their discretion on
all other matters. Where no direction is specified, this proxy will be voted FOR
Management Proposals 1 and 2 as recommended by the Board of Directors.
Management Proposals:
The Board of Directors recommends you vote FOR Management Proposals 1 and 2.
Proposal 1: Election of Directors for the respective terms specified in the
Proxy Statement: Messrs. Douglas, Franke, Morcott and Whisler.
FOR all WITHHELD WITHHELD for the following only
nominees for all nominees (write name(s) of nominee(s) below)
[ ] [ ] ------------------------------------
PLEASE SIGN ON REVERSE SIDE
AND RETURN PROMPTLY
- --------------------------------------------------------------------------------
PROXY CARD SIDE 2
- --------------------------------------------------------------------------------
PROXY
Proposal 2: Ratification of independent public accountants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Dated:
------------------------------------
Signature:
--------------------------------
Signature:
--------------------------------
Please sign exactly as name appears above. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
- --------------------------------------------------------------------------------
<PAGE>
PROXY CARD SIDE 1
CONFIDENTIAL PROXY
PHELPS DODGE EMPLOYEE SAVINGS PLAN
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PHELPS DODGE CORPORATION
To M & I Marshall & Ilsley Trust Company of Arizona, Trustee:
I hereby acknowledge receipt of the Notice of Annual Meeting of
Shareholders of Phelps Dodge Corporation to be held on Wednesday, May 1, 1996,
and accompanying Proxy Statement. I hereby instruct you to vote in person or by
proxy, at such meeting and at any adjournments thereof all the Phelps Dodge
Corporation Common Shares credited to my account under the Phelps Dodge Employee
Savings Plan ("SP") as indicated below, and in your or your proxies' discretion
on all other matters.
You are instructed to vote the shares credited to my account as
directed on the reverse side.
UNLESS WE RECEIVE INSTRUCTIONS FROM YOU THE NUMBER OF SHARES CREDITED
TO YOUR ACCOUNT AS OF THE RECORD DATE, MARCH 15, 1996, WILL NOT BE VOTED AT THE
MEETING.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY
- --------------------------------------------------------------------------------
PROXY CARD SIDE 2
The Board of Directors recommends you vote FOR Management Proposals 1 and 2.
Proposal 1: Election of Directors for the term specified in the Proxy Statement:
Messrs. Douglas, Franke, Morcott and Whisler
[ ] FOR all nominees [ ] WITHHELD for all nominees
WITHHELD for the following only
(write name(s) of nominees(s) below)
------------------------------------
Proposal 2: Ratification of independent public accountants
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The proxies are instructed to vote as directed above, and in their discretion on
all other matters. Where no direction is specified, this proxy will be voted FOR
Management Proposals 1 and 2 as recommended by the Board of Directors.
Signature(s) Date
----------------------------------------------------- -----------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
<PAGE>
PROXY CARD SIDE 1
PROXY
PHELPS DODGE CORPORATION
Solicited on Behalf of the Board of Directors of Phelps Dodge Corporation
The undersigned shareholder of PHELPS DODGE CORPORATION hereby appoints
EDWARD L. ADDISON, PAUL W. DOUGLAS, WILLIAM A. FRANKE and DOUGLAS C. YEARLEY, or
any of them, proxies of the undersigned, each with power of substitution, at the
meeting of shareholders of the Corporation to be held at the Arizona Biltmore
Hotel, 24th Street and Missouri Avenue, Phoenix, Arizona, on Wednesday, May 1,
1996 at 11:00 a.m., and at any adjournments thereof, to vote all Common Shares
of the Corporation held or owned by the undersigned, including any which may be
held for the undersigned's account under the Automatic Dividend Investment
Service for Phelps Dodge Common Shares administered by Chemical Bank.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY
- --------------------------------------------------------------------------------
PROXY CARD SIDE 2
The Board of Directors recommends you vote FOR Management Proposals 1 and 2.
Proposal 1: Election of Directors for the term specified in the Proxy Statement:
Messrs. Douglas, Franke, Morcott and Whisler
[ ] FOR all nominees [ ] WITHHELD for all nominees
WITHHELD for the following only
(write name(s) of nominees(s) below)
------------------------------------
Proposal 2: Ratification of independent public accountants
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The proxies are instructed to vote as directed above, and in their discretion on
all other matters. Where no direction is specified, this proxy will be voted FOR
Management Proposals 1 and 2 as recommended by the Board of Directors.
Signature(s) Date
----------------------------------------------------- -----------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
