SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PHELPS DODGE CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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 transaction applies:
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2) Aggregate number of securities to which transaction 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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<PAGE>
phelps
dodge
Corporation 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, 1997
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of
Phelps Dodge Corporation to be held at 11:30 a.m. on Wednesday, May 7, 1997, 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. At last year's meeting, 83% of
the outstanding shares were represented 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/ D C Yearley
<PAGE>
phelps
dodge
Corporation 2600 North Central Avenue, Phoenix, Arizona 85004-3014
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Notice of Annual Meeting of Shareholders May 7, 1997
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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 7, 1997, at 11:30 a.m., for
the following purposes:
1. To elect three directors;
2. To consider and act upon a proposal to amend the Phelps Dodge 1993 Stock
Option and Restricted Stock Plan;
3. To consider and act upon a proposal to authorize an amendment to the
Corporation's Restated Certificate of Incorporation to increase the number of
authorized Common Shares;
4. To consider and act upon a proposal to authorize an amendment to the
Corporation's Restated Certificate of Incorporation to reduce the maximum number
of directors;
5. To consider and act upon a proposal to ratify the appointment of Price
Waterhouse LLP as independent accountants for the Corporation for the year 1997;
and
6. 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 20, 1997, 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, 1997
<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 7, 1997, 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 1997 annual
meeting are its Common Shares, of which shares were outstanding on
March 20, 1997, each entitled to one vote. Only shareholders of record at the
close of business on March 20, 1997, 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 The Chase
Manhattan 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, 1997.
1. ELECTION OF DIRECTORS
The Board of Directors of the Corporation currently consists of ten
directors. The directors are divided into three classes, three in Class I, four
in Class II and three in Class III. The terms of office of the three Class III
directors expire at the 1997 annual meeting of shareholders.
The three nominees for election as Class III 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
- ------------------- ------------------------------------------------------------
Robert N. Burt Mr. Burt, 59, 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 and Warner-Lambert
Company. Mr. Burt has served as a Phelps Dodge director
since 1993.
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AGE, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
NOMINEE AND OTHER DIRECTORSHIPS HELD
- ------------------- ------------------------------------------------------------
Robert D. Krebs Mr. Krebs, 54, 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 Pacific Gold Corporation, Santa
Fe Pacific Pipelines, Inc., and Northern Trust
Corporation. Mr. Krebs has served as a Phelps Dodge
director since 1987.
Douglas C. Yearley Mr. Yearley, 61, has been Chairman of the Board and Chief
(Class III) 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.
The seven directors whose terms will continue after the annual meeting and
will expire at the 1998 annual meeting of shareholders (Class I) or the 1999
annual meeting of shareholders (Class II) are listed below.
AGE, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
DIRECTOR AND OTHER DIRECTORSHIPS HELD
- ------------------- ------------------------------------------------------------
Paul Hazen Mr. Hazen, 55, has been Chairman and Chief Executive Officer
(Class I) 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, 50, has been Executive Vice President and
(Class I) Chief Financial Officer of Atlantic Richfield Company, Los
Angeles, California, a diversified energy company, since
July 1996. From 1993 until 1996 she was Senior Vice
President of Atlantic Richfield Company, and President of
ARCO Transportation Company, a former subsidiary of
Atlantic Richfield Company, engaged in the operation of
petroleum transportation and storage facilities. From 1990
to 1993 she was Vice President and Controller of Atlantic
Richfield Company. Mrs. Knowles is a director of Atlantic
Richfield Company, ARCO Chemical Company and Vastar
Resources, Inc. She has served as a Phelps Dodge director
since 1994.
Gordon R. Parker Mr. Parker, 61, was Chairman of Newmont Mining Corporation
(Class I) and Newmont Gold Company, Denver, Colorado, a unified
worldwide gold mining company, from 1986 until his
retirement in 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 has served as a Phelps Dodge
director since 1995.
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AGE, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
DIRECTOR AND OTHER DIRECTORSHIPS HELD
- ------------------- ------------------------------------------------------------
Paul W. Douglas Mr. Douglas, 70, was Chairman and Chief Executive Officer of
(Class II) 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 New York Life Insurance
Company, South American Gold and Copper Company Limited,
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.
William A. Franke Mr. Franke, 60, has been Chairman and Chief Executive
(Class II) Officer of America West Holdings Corporation since
February 1997 and Chairman of the Board of its principal
subsidiary, America West Airlines, Inc., an airline
carrier, since 1992. He was the subsidiary's Chief
Executive Officer from December 1993 until February 1997,
and its President from May 1996 until February 1997. He
has been President of Franke & Company, Inc., Phoenix,
Arizona, an investment firm, since 1987. He is a director
of America West Holdings Corporation, America West
Airlines, Inc., Central Newspapers, Inc., Beringer Wine
Estates and Mtel Latin America, Inc. He is also a director
and Chairman of the Board of Airplanes Limited, and a
controlling trustee and Chairman of Airplanes U.S. Trust,
entities involved in aircraft financing and leasing, and a
director of the Air Transport Association of America. Mr.
Franke has served as a Phelps Dodge director since 1980.
Southwood J. Morcott Mr. Morcott, 59, 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. From 1987 to 1995,
he served as Chairman of Hayes-Dana Inc. He was appointed
Chief Executive Officer of Dana Corporation in 1989 and
Chief Operating Officer in 1986. He was President of Dana
Corporation from 1986 to 1995. 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, 42, has been President of Phelps Dodge Mining
(Class II) 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 has served as a Phelps
Dodge director since 1995.
The Board of Directors met eight times during 1996. 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 95%.
The Audit Committee of the Board of Directors, comprising Messrs. 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
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<PAGE>
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 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 and 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. Burt, (Chairman), 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. Committee Chairmen receive an additional $3,000 for a total
retainer of $28,000. 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 or her 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 eight. Through 1996,
on the first business day following each annual meeting of shareholders, each
eligible director was 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
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<PAGE>
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 or her service, unless such 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 or her service will be
cancelled on that date unless such service terminates (i) at or after the
director reaches age 65, having served at least ten years, (ii) on account of
the director's 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 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. On November 6, 1996, the Board of Directors
indefinitely suspended the Plan. The suspension of the Plan will not affect
options outstanding at that time.
On November 6, 1996, the Board of Directors adopted the 1997 Directors Stock
Unit Plan. The Stock Unit Plan awards an annual grant to each nonemployee
director (on January 1) of stock units having a value equivalent to 300 of the
Corporation's Common Shares in lieu of the 1,148 stock options previously
granted to each director on an annual basis. Dividend equivalents are credited
as additional stock units. Upon termination of service as a director, the
director is entitled to payment for his or her accumulated stock units in an
equivalent number of the Corporation's Common Shares. Upon death of a director
or a change in control of the Corporation, the director is entitled to receive a
cash payment in respect of his or her accumulated stock units based on the fair
market value of the Corporation's Common Shares on the date of death or change
in control. "Change in control" means (i) the approval by the Corporation's
shareholders of a merger or similar transaction in which the Corporation will
not survive as a publicly held corporation or (ii) the Corporation's Common
Shares are first purchased pursuant to a third party tender offer. The Stock
Unit Plan terminates on the last day of the year 2006.
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 1996: Messrs. Burt,
Douglas, Hazen 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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<PAGE>
BENEFICIAL OWNERSHIP OF SECURITIES
The following table discloses the number of the Corporation's Common Shares
deemed beneficially owned as of February 1, 1997, 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)
- ---- ----------- ---- -----------
Robert N. Burt (d) ...... 3,531 Southwood J. Morcott (d)(f) 7,046
Paul W. Douglas (d) ..... 9,187 Gordon R. Parker (d) ...... 1,682
William A. Franke (d) .... 9,187 Thomas M. St. Clair ....... 85,968
Paul Hazen (d)(e) ....... 11,666 J. Steven Whisler ......... 193,021
Manuel J. Iraola ........ 100,027 Douglas C. Yearley ........ 413,399
Marie L. Knowles (d) ..... 1,682 Directors and current
Robert D. Krebs (d) ..... 9,031 executive officers
as a group (13) ......... 857,040
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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, 1997; 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, 1997.
(b) Shares shown as beneficially owned: (i) include restricted shares acquired
under the 1993 Stock Option and Restricted Stock Plan as follows: Mr.
Iraola, 30,000 shares; Mr. St. Clair, 0 shares; Mr. Whisler, 25,000 shares;
and Mr. Yearley, 0 shares; all current executive officers as a group,
55,000 shares; and (ii) include shares which may be acquired within 60 days
by exercise of stock options as follows: Mrs. Knowles and Mr. Parker, 382
shares; Mr. Burt, 1,147 shares; Mr. Krebs, 5,739 shares; Mr. Morcott, 3,443
shares; Mr. Iraola, 58,166 shares; Mr. St. Clair, 65,379 shares; Mr.
Whisler, 123,102 shares; and Mr. Yearley, 300,183 shares; each nonemployee
director (except Mrs. Knowles, Messrs. Burt, Krebs, Morcott and Parker),
6,887 shares; all directors and current executive officers as a group,
587,521 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: Mrs. Knowles and Mr. Parker, 1,914
shares; Mr. Iraola, 63,334 shares; Mr. St. Clair, 62,690 shares; Mr.
Whisler, 100,042 shares; and Mr. Yearley, 220,605 shares; each outside
director (except Mrs. Knowles and Mr. Parker), 2,297 shares; all directors
and current executive officers as a group, 481,070 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;
44,919 shares as to which Mr. Whisler has shared voting and investment
power; and, 113,216 shares as to which Mr. Yearley has shared voting and
investment power.
(d) Includes 300 stock units awarded January 1, 1997 under the Phelps Dodge
Corporation 1997 Directors Stock Unit Plan.
(e) Includes 1,524 stock units acquired in the Phelps Dodge stock account under
the Deferred Compensation Plan for the Directors of Phelps Dodge
Corporation.
(f) Includes 1,550 stock units acquired in the Phelps Dodge stock account under
the Deferred Compensation Plan for the Directors of Phelps Dodge
Corporation.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and executive officers, and persons who own more than
ten percent of a registered class of the Corporation's equity
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securities to file reports of ownership of and transactions in the Corporation's
securities with the Securities and Exchange Commission ("SEC") and the New York
Stock Exchange ("NYSE"). Such directors, executive officers and ten-percent
stockholders are also required to furnish the Corporaton with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such forms received by it, and on
written representations from certain reporting persons, the Corporation believes
that during fiscal 1996 all Section 16(a) filing requirements applicable to its
directors, officers and ten percent stockholders were satisfied.
To the knowledge of the Corporation, the following entities beneficially
owned in excess of five percent of the Corportion's Common Shares as of December
31, 1996:
NUMBER PERCENT OF
NAME AND ADDRESS OF SHARES OUTSTANDING
---------------- --------- -----------
Wellington Management Company, LLP (a) 4,977,258 7.68%
75 State Street
Boston, MA 02109
- --------------------
(a) A report on Schedule 13G dated January 24, 1997, disclosed that Wellington
Management Company, LLP, as a parent holding company, had shared voting
power over 2,257,318 shares and shared dispositive power over 4,977,258
shares.
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EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Corporation for
1996, 1995 and 1994 to each of the four named individuals who were executive
officers of the Corporation in 1996:
<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 1996 675,000 675,000 56,172 -0- 103,601 (a) -0- 109,465
Chairman Of The Board 1995 640,000 642,880 48,639 -0- 163,032 (a) -0- 101,270
President, Chief 1994 560,000 560,000 24,580 -0- 190,615 (a) 203,651 (e) 56,000
Executive
Officer And Director
J. Steven Whisler 1996 355,000 300,000 14,793 -0- 44,499 (a) -0- 38,489
Senior Vice President 1995 340,000 267,200 6,149 1,684,375 63,010 (a) -0- 36,684
And Director 1994 300,000 241,100 -0- -0- 55,594 (a) 109,563 (e) 30,000
Manuel J. Iraola(g) 1996 320,000 280,000 17,216 -0- 30,000 -0- 36,650
Senior Vice President 1995 275,000 227,600 17,208 1,684,375 50,000 -0- 31,094
Thomas M. St. Clair 1996 290,000 188,900 12,589 -0- 53,572 (a) -0- 50,915
Senior Vice 1995 280,000 186,200 3,631 -0- 40,630 (a) -0- 47,901
President And 1994 270,000 187,200 213 -0- 56,987 (a) 99,040 (e) 27,000
Chief Financial Officer
<FN>
(a) The option grants denoted by "(a)" include reload options, as well as
normal compensatory options.
(b) 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, 1996, the named executives held the following numbers of
shares of restricted stock which had the following aggregate values as of
such date; Mr. Whisler, 25,000 shares valued at $1,698,438; Mr. Iraola,
30,000 shares valued at $2,038,125. The reported values are based on the
market value of unrestricted shares of the Corporation's stock, as of
December 31, 1996, 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.
(f) Amounts shown include the following contributions and accruals by the
Corporation for 1996 to the Savings Plan and 1996 accruals under the
savings portion of the Comprehensive Nonqualified Plan, respectively, for
the benefit of the named executives: Mr. Yearley, $15,000 and $52,500; Mr.
Iraola, $15,000 and $17,000; Mr. Whisler, $15,000 and $20,500; Mr. St.
Clair, $15,000 and $14,000. Amounts shown also include a payment
representing the premiums on whole life insurance policies effective
December 29, 1996 for the benefit of the named executives: Mr. Yearley,
$41,965; Mr. Iraola, $4,650; Mr. Whisler, $2,989; Mr. St. Clair, $21,915.
(g) 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>
8
<PAGE>
STOCK OPTIONS
Each of the named executives was eligible to receive two types of option
grants during 1996: 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 1996 and the hypothetical value at the time of grant based on a variation
of the Black-Scholes model (see footnote (c) on page 10). 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.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996
NORMAL % OF TOTAL
AND RELOAD OPTIONS GRANTED GRANT DATE
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION PRESENT
NAME GRANTED(a) IN 1996(b) PRICE DATE VALUE(c)
- --------------------- ------------ --------------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Douglas C. Yearley . 70,000 12.9% $71.6250 12/4/06 $889,000
18,097 73.2500 12/1/03 135,400
15,504 73.2500 12/2/02 116,000
J. Steven Whisler .. 35,000 5.6% 71.6250 12/4/06 444,500
9,499 72.2500 12/4/01 70,100
Manuel J. Iraola ... 30,000 3.7% 71.6250 12/4/06 381,000
Thomas M. St. Clair 20,000 6.7% 71.6250 12/4/06 254,000
4,289 73.2500 12/2/02 32,100
900 73.2500 12/5/00 6,700
5,026 73.2500 12/1/03 37,600
6,334 73.2500 12/5/00 47,400
5,119 71.9375 12/1/03 37,600
4,664 71.9375 12/4/01 34,300
7,240 71.9375 12/7/04 53,200
<FN>
- ----------------
(a) During 1996, normal options were granted in the following amounts to the
named executive officers: Mr. Yearley, 70,000; Mr. Whisler, 35,000; Mr.
Iraola, 30,000; and Mr. St. Clair, 20,000. 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.
9
<PAGE>
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 number of 1996 normal options (686,400 shares) and
1996 reload options (114,967 shares) granted to all employees.
(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 .2402, dividend yield of 3.32%, and
interest rates of 5.70% 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.
10
<PAGE>
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.
The following table provides information concerning options exercised in 1996
by the named executives and the options held by them at the end of 1996:
AGGREGATED OPTION EXERCISES IN 1996 AND DECEMBER 31, 1996 OPTION VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED 12/31/96 12/31/96
ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE(a) REALIZED UNEXERCISABLE) UNEXERCISABLE)(b)
- -------------------- ----------- ------------ --------------- ------------------
Douglas C. Yearley . 54,100 $1,501,488 380,571/169,701 $3,125,586/372,924
J. Steven Whisler .. 20,450 791,159 157,916/ 76,001 2,039,042/159,236
Manuel J. Iraola ... 17,200 672,788 53,166/ 68,334 773,906/211,562
Thomas M. St. Clair 47,661 1,023,632 65,379/ 62,690 226,478/ 99,937
- -------------------
(a) All of the named executives (except Mr. Iraola) used shares already owned
by them to pay the exercise price of some or all of the options they
exercised in 1996. Mr. Yearley exercised all of the options he exercised in
1996 in this manner. He acquired 20,499 shares on exercise of these options
in excess of the shares used to pay the exercise price and received reload
options to purchase 33,601 shares. Options for 20,450 and 47,661 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 10,951 and 14,089,
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 31, 1996 ($67.9375).
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>
$ 290,000 $ 44,410 $ 66,620 $ 88,820 $111,030 $133,230 $155,440 $177,640
$ 465,000 $ 72,410 $108,620 $144,820 $181,030 $217,230 $253,440 $289,640
$ 660,000 $103,610 $155,420 $207,220 $259,030 $310,830 $362,640 $414,440
$ 765,000 $120,410 $180,620 $240,820 $301,030 $361,230 $421,440 $481,640
$ 850,000 $134,010 $201,020 $268,020 $335,030 $402,030 $469,040 $536,040
$ 935,000 $147,610 $221,420 $295,220 $369,030 $442,830 $516,640 $590,440
$1,020,000 $161,210 $241,820 $322,420 $403,030 $483,630 $564,240 $644,840
$1,105,000 $174,810 $262,220 $349,620 $437,030 $524,430 $611,840 $699,240
$1,190,000 $188,410 $282,620 $376,820 $471,030 $565,230 $659,440 $753,640
$1,275,000 $202,010 $303,020 $404,020 $505,030 $606,030 $707,040 $808,040
$1,360,000 $215,610 $323,420 $431,220 $539,030 $646,830 $754,640 $862,440
$1,445,000 $229,210 $343,820 $458,420 $573,030 $687,630 $802,240 $916,840
$1,530,000 $242,810 $364,220 $485,620 $607,030 $728,430 $849,840 $971,240
<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 1996.
(b) Amounts of annual incentive compensation have been estimated based on the
five-year average annual incentive compensation awarded to participating
employees for 1992 through 1996. 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, 1996, 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.
</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
12
<PAGE>
(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 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.
13
<PAGE>
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 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 the compensation for
the top four executives, at least annually, to the compensation paid to
executives holding similar positions at sixteen publicly-held industrial
corporations of an average size, measured by revenues and market capital,
similar to that of the Corporation (referred to below as the "comparison
group"). For other executives, comparisons to similar positions are based on a
much larger group of companies of similar size to the Corporation measured by
revenues. The Committee believes that the competitive data used is generally
representative of the competitive level of compensation paid to executive
officers in companies the size of Phelps Dodge. Thus, the companies used for
comparison purposes in connection with the compensation paid to the
Corporation's executive officers are different from the companies included in
the Peer Group used in the performance graphs on pages 17 and 18 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 1996 for the executive officers were at the median or
slightly below for officers relatively new to their positions when compared to
employees holding similar positions in the comparison group of companies. The
Committee determined that based on the excellent performance of the Corporation
and the sustained performance of the individual executives named in the Summary
Compensation Table, salaries for these executives should be adjusted upward in
1997 to at least the median of the salaries of the same comparison group of
companies.
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 operating cash flow return on invested
capital, 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 1996, the Company's performance with
respect to return on equity was approximately midway between target and maximum
goals. The Company's 1996 performance with respect to net operating cash flow
return on invested capital exceeded the maximum goal. 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 1996 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
14
<PAGE>
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 based on the
performance, career potential, critical skills and prior grant history of the
executive officer. Stock options granted to executive officers in 1996 were at
or above the targeted levels. All of the Committee's option grants for 1996 were
approved by the Board.
Restricted Stock. The Committee also made grants of restricted stock to a
limited number of other key employees under the Corporation's Stock Option and
Restricted Stock Plan. The principal purpose of these grants was to retain the
services of key executive personnel through a means that also provides a
meaningful economic incentive to increase the value of the Corporation's Common
Shares. The size of each award was determined based on the Committee's
subjective determination of the recipient's expected contribution to the
Corporation over the stated vesting period, the significance of the recipient's
position with the Corporation and the importance of maintaining continuity of
management in the recipient's function.
Stock Ownership Guidelines. To underscore the connection between the
interests of management and stockholders, the Corporation, several years ago,
established informal stock ownership guidelines for its executive officers. In
1996, the Corporation formalized this program and established stock ownership
targets for officers of the Corporation who hold the position of Vice President
and above and certain senior executives within the Phelps Dodge Mining Company
and Phelps Dodge Industries divisions. The targets are expressed in terms of the
value of the Corporation's Common Shares held by the executive as a multiple of
base salary. The targets range from one and one-half times salary up to five
times salary for the CEO. Many Vice Presidents and other executives already hold
a substantial amount of Common Shares, but those who do not hold sufficient
shares have four years to reach their personal ownership targets.
IRS Limit on Deductibility of Compensation. Section 162(m) of the Internal
Revenue Code 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 is seeking
shareholder approval of an amendment to its 1993 Stock Option and Restricted
Stock Plan, described on page 19 of this proxy statement, to continue to exclude
the compensation from stock options from the $1 million deductibility limit.
Other elements of the compensation payable to executive officers, such as salary
and annual incentive compensation, are not excludable from such limit. Mr.
Yearley deferred $240,000 of his salary in 1996, however, as a result of the
Corporation's performance in 1996 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 $150,000.
CEO COMPENSATION
Douglas C. Yearley, the Chief Executive Officer of the Corporation, received
a base salary of $675,000 in 1996, an Annual Incentive Compensation Plan award
of $675,000 for 1996 performance compared to stated corporate and individual
performance goals, and a compensatory option grant in 1996 to purchase 70,000
Common Shares. Mr. Yearley also received in 1996, under a program available to
all optionees, 33,601 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 an employee is equivalent to the number of shares that the employee
transfers to the Corporation to exercise outstanding options.
The first 70% of Mr. Yearley's Annual Incentive Compensation Plan award was
equally determined on the basis of the Corporation's actual return on equity and
net operating cash flow return on invested capital as compared to goals set at
the beginning of the year. The Corporation's performance was midway between the
target and the maximum goals for return on equity and above the maximum for net
operating cash flow return on invested capital. The remaining 30% of Mr.
Yearley's award was based on the Committee's subjective judgment as to his
performance with regard to individual goals pertaining to the organization's
culture, shareholder value, the growth of Phelps Dodge Mining Company and Phelps
Dodge Industries. Based on its judgment as to Mr. Yearley's performance in these
respects, the Committee made an above-target award to him as to this part of his
incentive compensation. Mr. Yearley's compensatory stock option grant, which was
15
<PAGE>
at 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 1996, 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 1996 salary was equal to the 1996
median paid by comparable companies to their CEOs. With the payment at an above-
target annual incentive award and a stock option grant at the target level, the
total value of the compensation package provided to Mr. Yearley for 1996 was
above the median level while perfomance was in the top quartile of the
comparison group of companies. The Committee believes that adjustments to base
salaries in 1997 will position Mr. Yearley's total compensation at the
appropriate level for his sustained excellent performance in the future.
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>
5 YEAR PERFORMANCE GRAPH
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Phelps Dodge $100 $150 $156 $204 $212 $237
S&P 500 $100 $107 $118 $120 $165 $203
S&P Metals Mining $100 $108 $120 $140 $154 $157
The chart above reflects $100 invested at 12/31/91 in Phelps Dodge common stock,
the S&P 500, and in a peer group represented by the S&P Metals Mining index,
comprised of Phelps Dodge, ASARCO Incorporated, Cyprus Amax Minerals Co.,
Freeport-McMoRan Copper & Gold Inc., and Inco Ltd.
17
<PAGE>
10-YEAR PERFORMANCE GRAPH
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- --------- ---- ---- ---- ---- ---- ----
Phelps Dodge $100 $227 $262 $353 $356 $441 $661 $688 $899 $932 $1042
S&P 500 $100 $105 $123 $162 $157 $204 $220 $242 $245 $337 $415
S&P Metals Mining $100 $176 $232 $267 $253 $286 $307 $342 $399 $441 $450
The chart above reflects $100 invested at 12/31/86 in Phelps Dodge common stock,
the S&P 500, and a peer group represented by the S&P Metals Mining index. This
published index includes Phelps Dodge, ASARCO Incorporated, Cyprus Amax Minerals
Co., Freeport-McMoRan Copper & Gold Inc. and Inco Ltd. This 10-year graph
illustrates the relative stock performances over a period that more closely
represents the longer business cycle generally associated with the industry of
the Corporation and is especially meaningful because the business focus and
growth strategies of the Corporation have been and continue to be long term.
18
<PAGE>
2. APPROVAL OF AN AMENDMENT TO THE
1993 STOCK OPTION AND RESTRICTED STOCK PLAN
On February 5, 1997, the Board of Directors unanimously approved, subject to
approval by the Corporation's shareholders, an amendment to the Corporation's
1993 Stock Option and Restricted Stock Plan (the "1993 Plan") to limit the
maximum number of the Corporation's Common Shares that may be awarded as stock
options to any single participant in any twelve month period to 350,000 Common
Shares. This amendment will assure that any additional stock options granted
will continue to qualify as "other performance-based compensation" under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
Under Section 162(m) of the Code, no deduction is allowed in any taxable year
of the Corporation for compensation in excess of $1 million paid to each of its
chief executive officer and its four most highly paid other executive officers
who are serving in such capacities as of the last day of such taxable year. An
exception to this rule applies to certain performance based compensation as to
which the shareholders have approved the performance criteria and the maximum
amount payable to any given individual in a specified period. Stock options are
inherently performance based, since they provide value to employees only if the
stock price appreciates. While Section 162(m) generally became effective with
respect to compensation payable after 1993, a special rule stated that options
granted under the 1993 Plan prior to the 1997 annual meeting of shareholders
would be treated as performance based compensation without shareholder approval
of the otherwise required per person award limits.
To be approved, the proposed amendment requires the affirmative vote of the
holders of a majority of the Common Shares present in person or represented by
proxy at the annual meeting and entitled to vote thereon. Abstentions from
voting on this proposal (including broker non-votes) will have the effect of
votes against this proposal. If not otherwise specified, properly executed
proxies will be voted in favor of the proposal. If shareholders do not approve
the amendment to the 1993 Plan, no option grants will be made to the
Corporation's executive officers under the 1993 Plan following the 1997 annual
meeting of shareholders.
On March 20, 1997, the closing price of the Corporation's Common Shares on
the New York Stock Exchange was $ per share.
The following is a summary of the material terms of the 1993 Plan, as amended
by the proposed amendment.
GENERAL INFORMATION REGARDING THE 1993 PLAN
The 1993 Plan is administered by the Compensation and Management Development
Committee, which is authorized to grant stock options, stock appreciation rights
and restricted stock grants to officers and other key executive and management
employees of the Corporation and its subsidiaries. While the number of grantees
will vary from year to year, in 1996, 160 employees, including 19 officers,
received awards under the 1993 Plan.
The maximum number of the Corporation's Common Shares that may be issued
under the 1993 Plan is 5,000,000 plus the number of Common Shares received by
the Corporation after February 3, 1993 in payment of the exercise price under
any Option, whether issued under the Plan or the Phelps Dodge Corporation 1979
Stock Option Plan or the Phelps Dodge Corporation 1987 Stock Option and
Restricted Stock Plan which were incorporated into the 1993 Plan. If Common
Shares under a grant are not issued, those Common Shares will again be available
for inclusion in future grants. Additionally, there is available for issuance
under the 1993 Plan any Common Shares subject to options under certain prior
plans which are canceled, terminated or otherwise settled without the issuance
of the Corporation's Common Shares or a direct payment in cash. Payment of cash
in lieu of Common Shares is considered an issuance of Common Shares under the
1993 Plan. Common Shares issued pursuant to the Plan may either be treasury
shares or newly issued shares. If there is a stock split, stock dividend,
recapitalization, or other relevant change affecting the Corporation's Common
Shares, appropriate adjustments would be made in the number of Common Shares
that could be issued in the future and in the number of Common Shares and price
under all outstanding grants made before the event.
19
<PAGE>
GRANTS UNDER THE 1993 PLAN
Stock Options. The Committee may grant nonqualified options and options
qualifying as incentive stock options under the Code. The option price of any
option must be at least equal to the fair market value of a Common Share on the
date of grant. The term of each option is fixed by the Committee but may not
exceed ten years from the date of grant. The Committee determines the time or
times at which each option may be exercised. Options may be made exercisable in
installments, and the exercisability of options may be accelerated by the
Committee. Subject to the per person limit described above, the Committee has
the discretion to determine the number of Common Shares to be awarded to each
participant.
Stock Appreciation Rights. The Committee may grant SARs that entitle the
grantee to receive an amount equal to the excess of the then fair market value
of the Common Shares with respect to which the SAR is being exercised over the
price fixed by the Committee at the time the SAR was granted. Payment is made in
cash, in Common Shares, or a combination of the two as the Committee determines.
If an SAR is exercised, the right under any related option would terminate. If
any related stock option is exercised, any SAR related to the Common Shares
purchased would terminate. The Committee will determine the time or times at
which an SAR may be exercised.
Restricted Stock Grants. The Committee may also issue Common Shares under a
restricted stock grant, subject to the satisfaction of any applicable conditions
thereon, such as continued employment for a specified period or the attainment
of stated performance objectives. The grant would set forth a restriction period
(including a period related to the attainment of goals) during which the shares
of restricted stock granted would remain subject to forfeiture. The grantee of
an award of restricted stock generally may not dispose of the shares prior to
the expiration of the restriction period. During this period, a grantee of
restricted stock would generally have all the rights of a stockholder, including
the right to vote the Common Shares and receive dividends.
Termination of Employment. In the event of termination of employment by
reason of retirement, long term disability or death, any restrictions on shares
of restricted stock shall lapse. Additionally, any option or SAR may thereafter
be exercised in full for a period of up to 5 years in the case of retirement and
for a period of up to one year in the case of disability or death, subject in
each case to the stated term of the option. In the event of termination of
employment for any reason other than retirement, disability or death, any
options and SARs which are not then exercisable will be canceled and any
exercisable options will remain exercisable for up to 30 days following such
termination. In the event of termination of employment for any reason other than
retirement, disability or death, any shares of restricted stock then outstanding
as to which the period of restriction has not lapsed will be forfeited (unless
otherwise determined by the Committee).
Change of Control Provisions. The 1993 Plan provides that the Committee may
provide participants with certain additional rights and benefits in the event of
a "Change in Control" (as defined in the 1993 Plan), including, without
limitation, allowing all SARs to become immediately exercisable for a period of
thirty days and waiving the restrictions limitations applicable to outstanding
restricted stock awards.
FEDERAL INCOME TAX CONSEQUENCES
Stock Options. The grant of an incentive stock option or a nonqualified stock
option would not result in income for the grantee or in a deduction for the
Corporation.
The exercise of a nonqualified stock option generally would result in
ordinary income for the grantee and a deduction for the Corporation measured by
the difference between the fair market value of the Common Shares received at
the time of exercise and the option price.
The exercise of an incentive stock option would not result in ordinary income
for the grantee if the grantee (i) does not dispose of the Common Shares within
two years after the date of grant or one year after the transfer of Common
Shares upon exercise and (ii) is an employee of the Corporation or a subsidiary
of the Corporation from the date of grant until three months before the exercise
date. If these requirements are met, the grantee's basis in the Common Shares
upon later disposition would be the option price. Any gain would be taxed to the
grantee as long term capital gain, and the Corporation would not be entitled to
a deduction.
20
<PAGE>
The excess of the market value on the exercise date over the option price is
considered as income for purposes of the alternative minimum tax; therefore, a
grantee is potentially subject to the minimum tax on the excess of the market
value of the Common Shares purchased over option price as a result of exercise.
If the grantee disposes of the incentive stock option Common Shares prior to
the expiration of either of the holding periods described above, the grantee
would recognize ordinary income, and the Corporation would be entitled to a
deduction, equal to the lesser of the fair market value of the Common Shares on
the exercise date minus the option price or the amount realized on disposition
minus the option price. Any gain in excess of this amount would be treated as
long term or short term capital gain, depending on whether the Common Shares are
held for the requisite holding period. Under current federal income tax law, net
capital gains (the excess of net long term capital gains over any net short term
capital losses) are taxed at the same rate as ordinary income.
SARs. The grant of an SAR would not result in income for the grantee or in a
deduction for the Corporation. Upon the exercise of an SAR, the grantee would
recognize ordinary income and the Corporation would be entitled to a deduction
measured by the fair market value of the Common Shares plus any cash received.
Restricted Stock Grant. The grant of restricted stock will not result in
income for the grantee or in a deduction for the Corporation for federal income
tax purposes, unless the recipient timely elects to have income recognized at
the time of the grant. Absent such election, dividends paid while the stock
remains subject to such restrictions would be taxable to the recipient and
deductible by the Corporation as compensation for federal income tax purposes.
At the time the restrictions lapse, the grantee would recognize ordinary income,
and the Corporation would be entitled to a deduction, measured by the fair
market value of the Common Shares at the time of lapse.
OTHER INFORMATION
The Board may terminate or suspend the 1993 Plan at any time but such
termination or suspension shall not affect any stock options, SARs or restricted
stock awards then outstanding under the 1993 Plan. Unless terminated by action
of the Board, the 1993 Plan will continue in effect until February 3, 2003, but
awards granted prior to such date shall continue in effect until they expire in
accordance with their terms. The Board may also amend the 1993 Plan as it deems
advisable, but subject to any shareholder approval required of any such
amendment under applicable law. The Committee may amend the term of any award or
option theretofore granted, retroactively or prospectively, but no such
amendment shall adversely affect any such award or option without the holder's
consent.
The Board of Directors unanimously recommends that shareholders vote FOR
approval of the amendment to the 1993 plan.
3. AUTHORIZATION OF INCREASED NUMBER OF COMMON SHARES
The Board of Directors has authorized and recommends that shareholders also
authorize an amendment to Article THIRD of the Restated Certificate of
Incorporation to increase to 200 million the authorized number of Common Shares.
The text of the proposed amendment is set forth in Exhibit A to this Proxy
Statement. Article THIRD of the Restated Certificate of Incorporation currently
authorizes the issuance of 100 million Common Shares, par value $6.25 per share.
As of March 20, 1997, million Common Shares were issued and
outstanding, and Common Shares were held in the treasury of the
Corporation. An additional Common Shares were reserved for issuance
upon exercise of outstanding employee stock options. A total of
Common Shares remain available for issuance.
Because of the limited number of Common Shares available for issuance, the
Board of Directors recommends that the shareholders approve the amendment to the
Restated Certificate of Incorporation to increase the number of authorized
shares of Capital Stock. Such an increase will enable the Corporation to enjoy
greater flexibility in raising capital, acquiring assets or companies, effecting
stock splits or stock dividends, instituting employee benefit plans, and
pursuing other corporate purposes.
21
<PAGE>
In particular, the Board of Directors has taken into consideration that if
the trading price of the Common Shares continued to rise and the Board of
Directors determined that a stock split was advisable, the Company currently
does not have sufficient authorized but unissued shares to effect such a split.
An increase in the amount of authorized Capital Stock would also allow shares to
be issued without the expense and delay of a special shareholders' meeting.
The additional shares would be available for issuance without further
shareholder action unless required by the Restated Certificate of Incorporation,
applicable law or the rules of any stock exchange upon which the Corporation's
securities may be listed. The New York Stock Exchange, on which the Common
Shares are presently listed, currently requires shareholder approval as a
prerequisite to listing shares in several instances, including certain
acquisition transactions.
The availability of the additional shares could discourage or frustrate an
attempt to effect a change in control of the Corporation. The additional shares
could be used to dilute the stock ownership of a person seeking to obtain
control of the Corporation. At present, the Corporation has no agreements, plans
or commitments with respect to the sale or issuance of the additional Common
Shares which would be authorized by the proposed amendment. The Board of
Directors is not aware of any person seeking to obtain control of the
Corporation.
Authorization of the proposed amendment will require the affirmative vote of
the holders of a majority of the Common Shares outstanding on the record date
for the annual meeting.
The Board of Directors recommends a vote FOR authorization of an amendment to
increase the number of authorized common shares.
4. AUTHORIZATION TO REDUCE MAXIMUM SIZE OF BOARD
The Board of Directors has authorized and recommends that shareholders also
authorize an amendment to Article SIXTH of the Restated Certificate of
Incorporation to reduce the maximum number of directors from fifteen to twelve.
The text of the proposed amendment is set forth in Exhibit B to this Proxy
Statement. Article SIXTH presently provides that the number of directors shall
be not less than nine nor more than fifteen, excluding any directors who may be
elected by holders of any series of Preferred Stock of the Corporation voting as
a separate class or series. The by-laws of the Corporation further provide that
the exact number of directors shall be fixed from time to time by a majority
vote of the entire Board.
The proposed amendment is being submitted to the shareholders in recognition
of the Board of Directors' judgment that a smaller Board can be more decisive
and effective than a larger Board. The Board believes that this is consistent
with the trend in publicly held corporations, which has been toward somewhat
smaller rather than larger Boards. As stated in the American Bar Association's
Corporate Director's Guidebook, "This may reflect the emerging consensus that,
except perhaps in the very largest and most complex corporations, smaller boards
(those with twelve or fewer members) function more effectively than larger
boards."
Although the Board currently has ten members, the Restated Certificate of
Incorporation presently allows for as many as fifteen. The Board has concluded
that lowering the maximum number of directors to twelve would allow for a modest
increase in the future, if desired, while keeping the size of the Board small
enough to permit it to best meet its responsibilities.
In approving the proposed amendment, the Board also considered that one
possible effect of its action would be to limit the number of directors that a
third party could elect at a single annual meeting. Under the Corporation's
by-laws, the Corporation's Board is classified, which means that approximately
one-third of the directors are elected at each annual meeting. In addition, if
the by-laws were amended to allow the shareholders to fix the size of the Board,
the shareholders at an annual meeting would be able to increase the size of the
Board and elect additional directors. If the proposed amendment were adopted,
the maximum size to which the Board may be increased would be twelve, rather
than fifteen.
Authorization of the proposed amendment will require the affirmative vote of
the holders of a majority of the Common Shares outstanding on the record date
for the annual meeting.
The Board of Directors recommends a vote FOR approval of the amendment to
reduce the maximum number of directors from fifteen to twelve.
22
<PAGE>
5. 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 1997, 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, 1996, 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 three-year term ending
June 1, 1999, at premiums of $1,230,636, $400,000, $347,500, $150,000 and
$200,000, 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, and (iii) the Corporation for allegations
related to securities claims.
PROPOSALS FOR 1997
The Corporation will review for inclusion in next year's proxy statement
shareholder proposals received by December 2, 1997. Proposals should be sent to
the Secretary of the Corporation, 2600 North Central Avenue, Phoenix, Arizona
85004-3014.
23
<PAGE>
ANNUAL REPORT FOR 1996
The annual report of the Corporation for the year 1996, including financial
statements, is being furnished concurrently with this proxy statement to persons
who were shareholders of record as of March 20, 1997, 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, 1997
24
<PAGE>
EXHIBIT A
ARTICLE THIRD
Assuming Proposal 3. is adopted, Article THIRD of the Restated Certificate of
Incorporation of Phelps Dodge Corporation, as in force and effect on the date
hereof, will be amended in its entirety as follows:
"THIRD: The total number of shares which the Corporation shall have authority
to issue shall be two hundred six million (206,000,000), consisting of six
million (6,000,000) Preferred Shares having a par value of one dollar ($1.00)
per share and two hundred million (200,000,000) Common Shares having a par value
of six dollars and twenty-five cents ($6.25) per share."
A-1
<PAGE>
EXHIBIT B
ARTICLE SIXTH
Assuming Proposal 4. is adopted, Article SIXTH of the Restated Certificate of
Incorporation of Phelps Dodge Corporation, as in force and effect on the date
hereof, will be amended in its entirety as follows:
"SIXTH: The number of the Corporation's Directors shall not be less than nine
nor more than twelve, provided that whenever the holders of any one or more
series of Preferred Shares of the Corporation become entitled to elect one or
more Directors to the Board of Directors in accordance with any applicable
provisions of this Certificate of Incorporation, such maximum number of
Directors shall be increased automatically by the number of Directors such
holders are so entitled to elect. Such increase shall remain in effect until the
right of such holders to elect such Director or Directors shall cease and until
the Director or Directors elected by such holders shall no longer hold office."
B-1
<PAGE>
Notice of
Annual Meeting
of Shareholders
and Proxy
Statement
May 7, 1997
<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
Paul W. Douglas, William A. Franke, Paul Hazen and J. Steven Whisler, 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 7, 1997, at
11:30 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 The Chase Manhatten 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, 2, 3, 4 and 5 as recommended by the Board of Directors.
Management Proposals:
The Board of Directors recommends you vote FOR Management Proposals 1, 2, 3, 4
and 5
Proposal 1: Election of Directors for the respective terms specified in the
Proxy Statement: Messrs. Burt, Krebs and Yearley.
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: Approval of an Amendment to the 1993 Stock Option and Restricted
Stock Plan
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 3: Authorization to increase the number of common shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 4: Authorization to reduce maximum size of Board of Directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 5: Ratification of Independent Public Accountants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Dated:
------------------------------------
Signature:
--------------------------------
Signature:
--------------------------------
Please sign exactly as name appears above. 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
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 7, 1997,
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 20, 1997, 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, 2, 3, 4,
and 5.
Proposal 1: Election of Directors for the respective terms specified in the
Proxy Statement: Messrs. Burt, Krebs and Yearley.
[ ] FOR all nominees [ ] WITHHELD for all nominees
WITHHELD for the following only
(write name(s) of nominees(s) below)
------------------------------------
Proposal 2: Approval of an Amendment to the 1993 Stock Option and Restricted
Stock Plan
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 3: Authorization to increase the number of common shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 4: Authorization to reduce maximum size of Board of Directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 5: Ratification of Independent Public Accountants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Dated:
------------------------------------
Signature:
--------------------------------
Signature:
--------------------------------
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
PAUL W. DOUGLAS, WILLIAM A. FRANKE, PAUL HAZEN and J. STEVEN WHISLER, 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 7,
1997 at 11:30 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 The Chase Manhattan 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, 2, 3, 4
and 5.
Proposal 1: Election of Directors for the respective terms specified in the
Proxy Statement: Messrs. Burt, Krebs and Yearley.
[ ] FOR all nominees [ ] WITHHELD for all nominees
WITHHELD for the following only
(write name(s) of nominees(s) below)
------------------------------------
Proposal 2: Approval of an Amendment to the 1993 Stock Option and Restricted
Stock Plan
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 3: Authorization to increase the number of common shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 4: Authorization to reduce maximum size of Board of Directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Proposal 5: Ratification of Independent Public Accountants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Dated:
------------------------------------
Signature:
--------------------------------
Signature:
--------------------------------
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.
- --------------------------------------------------------------------------------
