<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-86061
[LETTERHEAD OF CYPRUS AMAX MINERALS COMPANY]
November 2, 1999
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Cyprus Amax Minerals Company, to be held on December 2, 1999, at 10:00 a.m.,
local time, at The Heard Museum, 2301 North Central Avenue (in the Encanto
Room), Phoenix, Arizona. At the special meeting, Cyprus Amax shareholders will
be asked to approve and adopt the Agreement and Plan of Merger, dated as of
September 30, 1999, among the Company, Phelps Dodge Corporation ("Phelps Dodge")
and Phelps Dodge's wholly owned subsidiary CAV Corporation, a Delaware
corporation ("Purchaser"), providing, among other things, for the merger of
Cyprus Amax into Purchaser. As a result of the merger, Cyprus Amax will become a
direct wholly owned subsidiary of Phelps Dodge and each of your Cyprus Amax
common shares will automatically be converted into the right to receive 0.3500
shares of Phelps Dodge common stock.
Phelps Dodge has successfully completed its exchange offer for Cyprus Amax
shares and now controls approximately 88.2% of the outstanding voting stock of
Cyprus Amax, giving Phelps Dodge sufficient voting power to effect the approval
and adoption of the merger agreement without the affirmative vote of any other
Cyprus Amax shareholder.
The attached document contains additional information about the Phelps
Dodge/Cyprus Amax merger. We urge you to read this document carefully. You are
not, however, required to take any action. WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
After the Phelps Dodge/Cyprus Amax merger is completed, you will receive
instructions regarding the surrender of your Cyprus Amax share certificates in
exchange for Phelps Dodge common shares. Please do not send any shares at this
time.
Sincerely,
/s/ Douglas C. Yearley
Douglas C. Yearley
Chairman, President and
Chief Executive Officer
<PAGE> 2
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF CYPRUS AMAX MINERALS COMPANY:
A special meeting of shareholders of Cyprus Amax Minerals Company ("Cyprus
Amax" or the "Company") will be held at The Heard Museum, 2301 North Central
Avenue (in the Encanto Room), Phoenix, Arizona, on Thursday, December 2, 1999,
at 10:00 a.m., local time, for the following purposes:
1. To approve and adopt the Agreement and Plan of Merger, dated as of
September 30, 1999, among the Company, Phelps Dodge Corporation
("Phelps Dodge") and Phelps Dodge's wholly owned subsidiary CAV
Corporation, a Delaware corporation ("Purchaser"), pursuant to
which the Company will be merged into Purchaser and each issued and
outstanding Cyprus Amax common share (other than any shares owned
by the Company or any of its subsidiaries, or by Phelps Dodge,
Purchaser or any other Phelps Dodge subsidiary) will be converted
into the right to receive 0.3500 shares of Phelps Dodge common
stock; and
2. To transact such other business as may properly come before the
Special Meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
The merger is the second step of a two-step transaction pursuant to which
Phelps Dodge, as the owner of all of the capital stock of Purchaser, will
acquire all of the equity interest in Cyprus Amax. The first step was an
exchange offer by Phelps Dodge pursuant to which Phelps Dodge offered to
exchange $7.61176875 net in cash plus 0.2203 Phelps Dodge common shares for each
Cyprus Amax common share, on a fully prorated basis. In the exchange offer,
Cyprus Amax shareholders had the right to elect to receive either $20.54 in cash
or 0.3500 Phelps Dodge common shares for each Cyprus Amax common share, subject
to proration if the cash portion or the stock portion was oversubscribed.
Purchaser accepted for payment approximately 81,499,599 Cyprus Amax common
shares upon the expiration of the offer on October 15, 1999, representing
approximately 89.6% of the issued and outstanding Cyprus Amax common shares. Of
the Cyprus Amax common shares accepted for payment, approximately 51,334,022
shares were subject to cash elections, approximately 29,814,800 shares were
subject to stock elections and approximately 350,777 shares were subject to no
election. Approximately 51,334,022 of the shares accepted for payment were
exchanged for approximately $13.48878207 net in cash plus approximately 0.1202
Phelps Dodge common shares per share and approximately 30,165,577 of the shares
were exchanged for 0.3500 Phelps Dodge common shares per share.
As a result of the completion of the exchange offer, Purchaser has the
right to vote at the Special Meeting a sufficient number of Cyprus Amax common
shares to approve and adopt the merger agreement without the affirmative vote of
any other stockholder, thereby assuring such approval and adoption. Pursuant to
the merger agreement, Phelps Dodge is obligated to cause Purchaser to vote the
Cyprus Amax common shares owned by it in favor of the approval and adoption of
the merger agreement. The Company currently anticipates that the Phelps
Dodge/Cyprus Amax merger will be effected on December 2, 1999, or as promptly as
possible thereafter.
On September 30, 1999, your Board of Directors approved the exchange offer
by Phelps Dodge and the Phelps Dodge/Cyprus Amax merger by the unanimous vote of
the directors present, determined that the offer and the Phelps Dodge/Cyprus
Amax merger were fair to, and in the best interests of, Cyprus Amax shareholders
and recommended that all holders of Cyprus Amax common shares tender their
shares pursuant to the offer.
By order of the Board of Directors,
Philip C. Wolf
Senior Vice President,
General Counsel and Secretary
Englewood, Colorado
November 2, 1999
<PAGE> 3
INFORMATION STATEMENT
OF
CYPRUS AMAX MINERALS COMPANY
FOR THE
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
DECEMBER 2, 1999
This Information Statement is being furnished to holders of shares of
common stock, no par value, of Cyprus Amax Minerals Company ("Cyprus Amax" or
the "Company") in connection with a special meeting of Cyprus Amax shareholders
to be held at The Heard Museum, 2301 North Central Avenue (in the Encanto Room),
Phoenix, Arizona on December 2, 1999, at 10:00 a.m., local time, and any
adjournment or postponement thereof (the "Special Meeting"). At the Special
Meeting, shareholders will be asked to consider and vote on a proposal to
approve and adopt the Agreement and Plan of Merger, dated as of September 30,
1999, among the Company, Phelps Dodge Corporation ("Phelps Dodge") and Phelps
Dodge's wholly owned subsidiary CAV Corporation, a Delaware corporation
("Purchaser"), providing for, among other things, the merger of the Company into
Purchaser. As a result of the merger, Cyprus Amax will become a wholly owned
subsidiary of Phelps Dodge and each issued and outstanding Cyprus Amax common
share (other than any shares owned by the Company or any of its subsidiaries, or
by Phelps Dodge, Purchaser or any other Phelps Dodge subsidiary) will be
converted into the right to receive 0.3500 shares of Phelps Dodge common stock.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
The Phelps Dodge/Cyprus Amax merger is the second step of a two-step
transaction pursuant to which Phelps Dodge, as the owner of all of the capital
stock of Purchaser, will acquire all of the equity interest in Cyprus Amax. The
first step was an exchange offer by Phelps Dodge pursuant to which Phelps Dodge
offered to exchange $7.61176875 net in cash plus 0.2203 Phelps Dodge common
shares for each Cyprus Amax common share, on a fully prorated basis. In the
exchange offer, Cyprus Amax shareholders had the right to elect to receive
either $20.54 in cash or 0.3500 Phelps Dodge common shares for each Cyprus Amax
common share, subject to proration if the cash portion or the stock portion was
oversubscribed. Purchaser accepted for payment approximately 81,499,599 Cyprus
Amax common shares upon the expiration of the offer on October 15, 1999,
representing approximately 89.6% of the issued and outstanding Cyprus Amax
common shares. Of the Cyprus Amax common shares accepted for payment,
approximately 51,334,022 shares were subject to cash elections, approximately
29,814,800 shares were subject to stock elections and approximately 350,777
shares were subject to no election. Approximately 51,334,022 of the shares
accepted for payment were exchanged for approximately $13.48878207 net in cash
plus approximately 0.1202 Phelps Dodge common shares per share and approximately
30,165,577 of the shares were exchanged for 0.3500 Phelps Dodge common shares
per share.
As a result of the completion of the exchange offer, Purchaser has the
right to vote at the Special Meeting a sufficient number of Cyprus Amax common
shares to approve and adopt the merger agreement without the affirmative vote of
any other stockholder, thereby assuring such approval and adoption. Pursuant to
the merger agreement, Phelps Dodge is obligated to cause Purchaser to vote the
Cyprus Amax common shares owned by it in favor of the approval and adoption of
the merger agreement. The Company currently anticipates that the Phelps
Dodge/Cyprus Amax merger will be effected on December 2, 1999, or as promptly as
possible thereafter.
On September 30, 1999, your Board of Directors approved the exchange offer
by Phelps Dodge and the Phelps Dodge/Cyprus Amax merger by the unanimous vote of
the directors present, determined that the offer and the Phelps Dodge/Cyprus
Amax merger were fair to, and in the best interests of, Cyprus Amax shareholders
and recommended that all holders of Cyprus Amax common shares tender their
shares pursuant to the offer.
This Information Statement is first being sent to shareholders on or about
November 2, 1999. The record date for the Special Meeting is the close of
business on November 1, 1999. The principal executive offices of the Company are
located at 9100 East Mineral Circle, Englewood, Colorado 80112.
i
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY..................................................... 1
THE SPECIAL MEETING......................................... 4
EXCHANGE OF SHARES.......................................... 5
BACKGROUND OF THE TRANSACTION............................... 6
CONSIDERATIONS OF THE CYPRUS AMAX BOARD OF DIRECTORS........ 10
THE PHELPS DODGE/CYPRUS AMAX MERGER......................... 17
THE COMPANIES............................................... 25
THE PHELPS DODGE/CYPRUS AMAX MERGER AGREEMENT............... 26
INTERESTS OF CERTAIN PERSONS IN THE MERGER.................. 34
INDEMNITY AND INSURANCE..................................... 37
RELATIONSHIPS WITH PHELPS DODGE............................. 37
MARKET PRICES AND DIVIDENDS................................. 38
PHELPS DODGE CORPORATION SELECTED HISTORICAL FINANCIAL
DATA...................................................... 39
CYPRUS AMAX MINERALS COMPANY SELECTED HISTORICAL FINANCIAL
DATA...................................................... 40
COMPARATIVE PER SHARE DATA.................................. 42
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... 43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 53
COMPARISON OF RIGHTS OF HOLDERS OF PHELPS DODGE SHARES AND
CYPRUS AMAX SHARES........................................ 55
FORWARD-LOOKING INFORMATION................................. 64
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 65
SCHEDULE A -- DIRECTORS AND EXECUTIVE OFFICERS OF CYPRUS
AMAX MINERALS COMPANY......................... SCH-1
ANNEX A -- AGREEMENT AND PLAN OF MERGER AMONG PHELPS DODGE
CORPORATION, CAV CORPORATION AND CYPRUS AMAX
MINERALS COMPANY, DATED AS OF SEPTEMBER 30,
1999............................................. A-1
ANNEX B -- OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, DATED SEPTEMBER 30, 1999........... B-1
</TABLE>
ii
<PAGE> 5
SUMMARY
This summary highlights selected information from this Information
Statement, and may not contain all of the information that is important to you.
To better understand the Phelps Dodge/Cyprus Amax merger, you should read this
entire document carefully, as well as those additional documents to which we
refer you. See "Incorporation of Certain Documents by Reference" on page 65.
THE SPECIAL MEETING
The Special Meeting will be held on December 2, 1999, at 10:00 a.m., local
time, at The Heard Museum, 2301 North Central Avenue (in the Encanto Room),
Phoenix, Arizona. At the Special Meeting, shareholders of Cyprus Amax Minerals
Company ("Cyprus Amax" or the "Company") will be asked to consider and vote on a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
September 30, 1999, among the Company, Phelps Dodge Corporation ("Phelps Dodge")
and Phelps Dodge's wholly owned subsidiary, CAV Corporation ("Purchaser"),
providing for, among other things, the merger of the Company into Purchaser.
Only holders of record of Cyprus Amax common stock at the close of business
on November 1, 1999 (the "Record Date") are entitled to notice of and to vote at
the Special Meeting. As of that date, there were 92,443,838 shares of Cyprus
Amax common stock issued and outstanding. Holders of record of Cyprus Amax
common stock on the Record Date are entitled to one vote per share on any matter
that may properly come before the Special Meeting.
The approval of the Phelps Dodge/Cyprus Amax merger agreement requires the
affirmative vote of at least a majority of the shares of Cyprus Amax common
stock that are outstanding and entitled to vote at the Cyprus Amax special
meeting.
As a result of Phelps Dodge's completed exchange offer to Cyprus Amax
stockholders, Purchaser was the holder of record of approximately 81,499,599
Cyprus Amax common shares on the Record Date, representing approximately 88.2%
of all of the Cyprus Amax common shares outstanding on the Record Date. Pursuant
to the terms of the Phelps Dodge/Cyprus Amax merger agreement, Phelps Dodge is
obligated to cause Purchaser to vote the Cyprus Amax common shares owned by it
in favor of the approval and adoption of the merger agreement. Under Delaware
law and the Company's certificate of incorporation, the affirmative vote of the
Cyprus Amax common shares held by Purchaser is sufficient to approve and adopt
the merger agreement without the affirmative vote of any other stockholder,
thereby assuring such approval and adoption.
EXCHANGE OF SHARES
Upon consummation of the Phelps Dodge/Cyprus Amax merger, Phelps Dodge will
deposit with ChaseMellon Shareholder Services, L.L.C., as exchange agent,
certificates representing the number of whole shares of Phelps Dodge common
stock issuable pursuant to the Phelps Dodge/Cyprus Amax merger agreement in
exchange for outstanding shares of Cyprus Amax common stock. Soon after the
completion of the merger, Phelps Dodge will send a letter to each person who was
a Cyprus Amax stockholder at the time the merger became effective. The letter
will contain instructions on how to surrender Cyprus Amax stock certificates to
the exchange agent and receive shares of Phelps Dodge common stock. Please do
not send any shares at this time.
Holders of Cyprus Amax common stock will not be entitled to receive any
dividends or other distributions payable by Phelps Dodge until they exchange
their Cyprus Amax stock certificates for certificates representing shares of
Phelps Dodge common stock. Once they deliver their Cyprus Amax stock
certificates to the exchange agent, those stockholders will receive, subject to
applicable laws, accumulated dividends and distributions, without interest.
No fractional shares of Phelps Dodge common stock will be issued upon the
surrender of certificates representing shares of Cyprus Amax common stock. No
dividend or other distribution of Phelps Dodge will relate to any such
fractional shares and no such fractional shares will entitle the owner thereof
to any voting or other rights of a stockholder of Phelps Dodge.
1
<PAGE> 6
Holders of Cyprus Amax common stock otherwise entitled to fractional shares
of Phelps Dodge common stock will receive a cash payment instead of such
fractional shares. Following the effective time of the merger, the exchange
agent will determine the excess of the number of whole shares of Phelps Dodge
common stock delivered to the exchange agent by Phelps Dodge for distribution to
Cyprus Amax stockholders over the aggregate number of whole shares of Phelps
Dodge common stock to be distributed to Cyprus Amax stockholders. The exchange
agent will then, on behalf of the former stockholders of Cyprus Amax, sell the
excess shares at then prevailing prices on the New York Stock Exchange, all in
the manner provided in the Phelps Dodge/Cyprus Amax merger agreement.
As soon as practicable after the determination of the amount of cash to be
paid to holders of Cyprus Amax common stock with respect to any fractional share
interests, the exchange agent will make available such amounts to such holders
of Cyprus Amax stock subject to and in accordance with the terms of the Phelps
Dodge/Cyprus Amax merger agreement.
THE PHELPS DODGE/CYPRUS AMAX MERGER
The purpose of the Phelps Dodge/Cyprus Amax merger is for Phelps Dodge to
acquire the entire common equity interest in Cyprus Amax. As a result of the
merger, Cyprus Amax will become a direct wholly owned subsidiary of Phelps Dodge
and each outstanding share of Cyprus Amax common stock (other than any shares
owned by Cyprus Amax or any of its subsidiaries, or by Phelps Dodge, Purchaser
or any other Phelps Dodge subsidiary) will be converted into the right to
receive 0.3500 shares of Phelps Dodge common stock.
The Phelps Dodge/Cyprus Amax merger is the second step of a two-step
transaction pursuant to which Phelps Dodge, as the owner of all of the capital
stock of Purchaser, will acquire all of the equity interest in Cyprus Amax. The
first step was an exchange offer by Phelps Dodge pursuant to which Phelps Dodge
offered to exchange $7.61176875 net in cash plus 0.2203 Phelps Dodge common
shares for each Cyprus Amax common share, on a fully prorated basis. In the
exchange offer, Cyprus Amax shareholders had the right to elect to receive
either $20.54 in cash or 0.3500 Phelps Dodge common shares for each Cyprus Amax
common share, subject to proration if the cash portion or the stock portion was
oversubscribed. Purchaser accepted for payment approximately 81,499,599 Cyprus
Amax common shares upon the expiration of the offer on October 15, 1999,
representing approximately 89.6% of the issued and outstanding Cyprus Amax
common shares. Of the Cyprus Amax common shares accepted for payment,
approximately 51,334,022 shares were subject to cash elections, approximately
29,814,800 shares were subject to stock elections and approximately 350,777
shares were subject to no election. Approximately 51,334,022 of the shares
accepted for payment were exchanged for approximately $13.48878207 net in cash
plus approximately 0.1202 Phelps Dodge common shares per share and approximately
30,165,577 of the shares were exchanged for 0.3500 Phelps Dodge common shares
per share.
Under the terms of the Phelps Dodge/Cyprus Amax merger agreement, if the
aggregate amount of cash elections in the exchange offer, based on the number of
Cyprus Amax common shares covered by cash elections, exceeds the maximum
aggregate cash consideration of $7.61176875 multiplied by the total number of
Cyprus Amax common shares outstanding immediately prior to closing of the offer,
at the effective time of the Phelps Dodge/Cyprus Amax merger, by virtue of the
merger and without any action on the part of Purchaser, Cyprus Amax or any of
their security holders, each outstanding Cyprus Amax common share (other than
shares owned directly by Phelps Dodge, the Company or any of their respective
subsidiaries) shall be converted into the right to receive 0.3500 shares of
Phelps Dodge common stock in cash, provided that no fractional Phelps Dodge
shares shall be issued. Because the aggregate amount of cash elections in the
offer exceeded the maximum aggregate cash consideration, you will receive 0.3500
Phelps Dodge common shares for each of your Cyprus Amax common shares, provided
that you will receive a cash payment instead of any fractional Phelps Dodge
shares to which you would otherwise be entitled.
The Phelps Dodge/Cyprus Amax merger will be consummated pursuant to Section
251 of the DGCL. Phelps Dodge has sufficient voting power to effect the Phelps
Dodge/Cyprus Amax merger under Section 251 of the DGCL without the vote of any
other stockholder of Cyprus Amax. Shareholders will not have rights of appraisal
or similar rights.
2
<PAGE> 7
THE COMPANIES
PHELPS DODGE CORPORATION
2600 North Central Avenue
Phoenix, AZ 85004-3014
(602) 234-8100
Phelps Dodge Corporation is among the world's largest producers of copper,
carbon black and magnet wire, and is the world's largest producer of
continuous-cast copper rod. Phelps Dodge comprises two divisions:
- Phelps Dodge Mining Company, which includes our worldwide copper
operations and worldwide mineral exploration and development programs;
and
- Phelps Dodge Industries, which includes our specialty chemicals segment
and our wire and cable segment.
As of June 30, 1999, Phelps Dodge and its subsidiaries had 13,193 employees.
CYPRUS AMAX MINERALS COMPANY
9100 East Mineral Circle
Englewood, CO 80112
(303) 643-5000
Cyprus Amax Minerals Company, a Delaware corporation, is a major mining
company engaged, directly or through its subsidiaries and affiliates, in the
exploration for and extraction, processing, and marketing of mineral resources.
Cyprus Amax is a leading copper producer and the world's largest producer of
molybdenum. In October 1999, Cyprus Amax entered into an agreement to sell its
approximately 30% interest in Kinross Gold Corporation. The sale closed on
October 27, 1999. Cyprus Amax sold certain eastern and midwestern coal
operations in June 1998 and sold its lithium business in October 1998. Cyprus
Amax sold its remaining U.S. coal operations in June 1999. Cyprus Amax still
holds its Australian coal properties. As of June 30, 1999, Cyprus Amax and its
subsidiaries employed approximately 4,600 employees.
3
<PAGE> 8
THE SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The Special Meeting will be held on December 2, 1999, at 10:00 a.m., local
time, at The Heard Museum, 2301 North Central Avenue (in the Encanto Room),
Phoenix, Arizona. At the Special Meeting, Cyprus Amax shareholders will be asked
to consider and vote on a proposal to approve and adopt the Agreement and Plan
of Merger, dated as of September 30, 1999, among the Company, Phelps Dodge and
Purchaser, providing for, among other things, the merger of the Company into
Purchaser. Representatives of the Company's accountants are not expected to be
present at the Special Meeting.
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of Cyprus Amax common stock at the close of business
on November 1, 1999 (the "Record Date") are entitled to notice of and to vote at
the Special Meeting. As of that date, there were 92,443,838 shares of Cyprus
Amax common stock issued and outstanding. Holders of record of Cyprus Amax
common stock on the Record Date are entitled to one vote per share on any matter
that may properly come before the Special Meeting.
VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT
The approval of the Phelps Dodge/Cyprus Amax merger agreement requires the
affirmative vote of at least a majority of the shares of Cyprus Amax common
stock that are outstanding and entitled to vote at the Cyprus Amax special
meeting.
In order to have a quorum, at least 33 1/3% in interest of all shares of
Cyprus Amax common stock entitled to vote on the proposal must be represented in
person or by proxy. Because Phelps Dodge is obligated to cause Purchaser to vote
the Cyprus Amax common shares owned by it in favor of the approval and adoption
of the merger agreements, the existence of a quorum is assured.
Abstentions will be counted as present for purposes of determining whether
a quorum is present and will have the effect of a vote against the Phelps
Dodge/Cyprus Amax merger agreement. Broker non-votes will not be counted as
present for quorum purposes and will have the effect of a vote against the
Phelps Dodge/Cyprus Amax merger agreement.
As of the Record Date, the executive officers and directors of Cyprus Amax
and their affiliates beneficially owned in the aggregate approximately 4.1
million shares of common stock, or approximately 4.5% of the Cyprus Amax common
stock then outstanding.
All of the executive officers and directors of Cyprus Amax have advised us
that they intend to vote their Cyprus Amax shares to approve the Phelps
Dodge/Cyprus Amax merger agreement.
As a result of the completion of Phelps Dodge's exchange offer to Cyprus
Amax stockholders, Purchaser was the holder of record of approximately
81,499,599 Cyprus Amax common shares on the Record Date, representing
approximately 88.2% of all of the Cyprus Amax common shares outstanding on the
Record Date. Pursuant to the terms of the Phelps Dodge/Cyprus Amax merger
agreement, Phelps Dodge is obligated to cause Purchaser to vote the Cyprus Amax
common shares owned by it in favor of the approval and adoption of the merger
agreement. Under Delaware law and the Company's certificate of incorporation,
the affirmative vote of the Cyprus Amax common shares held by Purchaser is
sufficient to approve and adopt the merger agreement without the affirmative
vote of any other stockholder, thereby assuring such approval and adoption.
DISSENTERS' RIGHTS
Under the Delaware General Corporation Law, shareholders will not have
rights of appraisal or similar rights.
4
<PAGE> 9
EXCHANGE OF SHARES
Upon consummation of the Phelps Dodge/Cyprus Amax merger, Phelps Dodge will
deposit with ChaseMellon Shareholder Services, L.L.C., as exchange agent,
certificates representing the number of whole shares of Phelps Dodge common
stock issuable pursuant to the Phelps Dodge/Cyprus Amax merger agreement in
exchange for outstanding shares of Cyprus Amax common stock. Soon after the
completion of the merger, Phelps Dodge will send a letter to each person who was
a Cyprus Amax stockholder at the time the merger became effective. The letter
will contain instructions on how to surrender Cyprus Amax stock certificates to
the exchange agent and receive shares of Phelps Dodge common stock.
Holders of Cyprus Amax common stock will not be entitled to receive any
dividends or other distributions payable by Phelps Dodge until they exchange
their Cyprus Amax stock certificates for certificates representing shares of
Phelps Dodge common stock. Once they deliver their Cyprus Amax stock
certificates to the exchange agent, those stockholders will receive, subject to
applicable laws, accumulated dividends and distributions, without interest.
No fractional shares of Phelps Dodge common stock will be issued upon the
surrender of certificates representing shares of Cyprus Amax common stock. No
dividend or other distribution of Phelps Dodge will relate to any such
fractional shares and no such fractional shares will entitle the owner thereof
to any voting or other rights of a stockholder of Phelps Dodge.
Holders of Cyprus Amax common stock otherwise entitled to fractional shares
of Phelps Dodge common stock will receive a cash payment instead of such
fractional shares. Following the effective time of the merger, the exchange
agent will determine the excess of the number of whole shares of Phelps Dodge
common stock delivered to the exchange agent by Phelps Dodge for distribution to
Cyprus Amax stockholders over the aggregate number of whole shares of Phelps
Dodge common stock to be distributed to Cyprus Amax stockholders. The exchange
agent will then, on behalf of the former stockholders of Cyprus Amax, sell the
excess shares at then prevailing prices on the New York Stock Exchange, all in
the manner provided in the Phelps Dodge/Cyprus Amax merger agreement.
As soon as practicable after the determination of the amount of cash to be
paid to holders of Cyprus Amax common stock with respect to any fractional share
interests, the exchange agent will make available such amounts to such holders
of Cyprus Amax common stock subject to and in accordance with the terms of the
Phelps Dodge/Cyprus Amax merger agreement.
5
<PAGE> 10
BACKGROUND OF THE TRANSACTION
On July 15, 1999, ASARCO Incorporated ("Asarco") and Cyprus Amax announced
that they had agreed to combine their companies into a new company to be called
"Asarco Cyprus Incorporated."
On August 10, 1999, Douglas C. Yearley, Phelps Dodge's Chairman and Chief
Executive Officer, telephoned Milton H. Ward, Cyprus Amax's Chairman, Chief
Executive Officer and President, and Francis R. McAllister, Asarco's Chairman
and Chief Executive Officer, to propose a meeting to discuss the possibility of
a three-way combination involving Phelps Dodge, Asarco and Cyprus Amax. Shortly
thereafter, Messrs. Ward and McAllister sent a letter to Mr. Yearley in which
they declined to discuss such a transaction, citing the terms of the
Asarco/Cyprus Amax merger agreement.
On August 11, 1999, during the late afternoon, Mr. Yearley and J. Steven
Whisler, Phelps Dodge's President and Chief Operating Officer, sent a letter to
Messrs. McAllister and Ward proposing a three-way business combination in which
all of the outstanding common stock of Asarco and Cyprus Amax would be exchanged
for Phelps Dodge common stock at exchange ratios of 0.3756 Phelps Dodge common
shares for each Asarco common share and 0.2874 Phelps Dodge common shares for
each Cyprus Amax common share.
On the morning of August 12, 1999, Messrs. McAllister and Ward telephoned
Mr. Yearley and once again declined to meet to discuss Phelps Dodge's proposal.
That afternoon, Phelps Dodge sent letters to the boards of directors of Asarco
and Cyprus Amax, reiterating Phelps Dodge's August 11 proposal.
On August 20, 1999, Asarco and Cyprus Amax filed a joint proxy
statement/prospectus in connection with their proposed merger. In addition,
Asarco and Cyprus Amax issued a press release announcing that they had set
August 25, 1999 as the record date for determining shareholders entitled to vote
at the shareholder meetings, scheduled for September 30, 1999, to consider
approval of their proposed merger. Asarco and Cyprus Amax also disclosed Phelps
Dodge's proposal for a three-way business combination and announced that they
were rejecting it. Asarco and Cyprus Amax also revised upward their estimates of
synergies resulting from their proposed two-party merger.
Also on August 20, 1999, Asarco and Cyprus Amax sent a letter to Phelps
Dodge stating that their respective boards had unanimously decided that it was
in the best interests of its shareholders to pursue the Asarco/Cyprus Amax
merger.
During the afternoon of August 20, 1999, Phelps Dodge issued a press
release and sent letters to the respective boards of Asarco and Cyprus Amax
proposing to acquire Asarco and Cyprus Amax in separate tax-free mergers in
which each Asarco common share would be converted into 0.4098 Phelps Dodge
common shares and each Cyprus Amax common share would be converted into 0.3135
Phelps Dodge common shares.
On August 25, 1999, Asarco and Cyprus Amax sent a letter to Phelps Dodge
proposing to negotiate a transaction with Phelps Dodge if Phelps Dodge would
increase the exchange ratios, provide assurances as to regulatory approvals,
agree to a contract with representations, warranties and covenants similar to
those combined in the Asarco/Cyprus Amax merger agreement, and confirm whether
Phelps Dodge's proposal was subject to due diligence. In addition, Asarco and
Cyprus Amax issued a press release announcing that they were planning a $5.00
per share special dividend upon completion of the Asarco/Cyprus Amax merger.
In response, Phelps Dodge issued a press release indicating that it would
review the proposal from Asarco and Cyprus Amax.
On August 27, 1999, Phelps Dodge filed with the SEC registration materials
for exchange offers to Asarco and Cyprus Amax shareholders and preliminary proxy
materials to solicit proxies from Asarco and Cyprus Amax shareholders to vote
against the proposed Asarco/Cyprus Amax merger. On August 27, 1999, Phelps Dodge
also announced that it had commenced litigation in New Jersey and Delaware
against Asarco and Cyprus Amax, respectively, and their directors for breach of
fiduciary duties including their refusals to consider and to allow the
shareholders of both companies to consider the Phelps Dodge proposal. Phelps
Dodge sought injunctive relief to remedy those breaches of duty. See "The Phelps
Dodge Cyprus/Amax Merger -- Litigation."
6
<PAGE> 11
On September 3, 1999, Phelps Dodge commenced its exchange offers for Asarco
and Cyprus Amax common shares, on the terms outlined in the August 20 proposal.
On September 7, 1999, Asarco and Cyprus Amax issued a press release urging
their shareholders to vote in favor of the proposed Asarco/Cyprus Amax merger.
On September 8, 1999, Asarco and Cyprus Amax issued a press release and
filed with the SEC their responses to the Phelps Dodge exchange offers on
Schedule 14D-9 stating that their respective boards of directors unanimously
rejected Phelps Dodge's exchange offers to their shareholders as inadequate and
not in the best interests of their shareholders.
On September 22, 1999, Phelps Dodge amended its exchange offers for Asarco
and Cyprus Amax common shares. Under the amended offers, Phelps Dodge offered
$9.00 in cash and 0.2880 Phelps Dodge shares per Asarco share on a fully
prorated basis and $6.89 in cash and 0.2203 Phelps Dodge shares per Cyprus Amax
share on a fully prorated basis. In the revised offers, shareholders of Asarco
and Cyprus Amax were afforded the right to elect to receive all cash or all
Phelps Dodge shares. The all-cash election for Asarco shareholders was $25.90
per Asarco share and the all-stock election was 0.4413 Phelps Dodge shares per
Asarco share, subject to proration to maintain the overall cash/stock
allocation. The all-cash election for Cyprus Amax shareholders was $19.81 per
Cyprus Amax share and the all-stock election was 0.3376 Phelps Dodge shares per
Cyprus Amax share, subject to proration to maintain the overall cash/stock
allocation.
On September 24, 1999, the Federal Trade Commission granted Phelps Dodge
early termination of the waiting periods under the Hart-Scott-Rodino Act for its
offers to acquire Asarco and Cyprus Amax.
Also on September 24, 1999, at the request of Asarco and Cyprus Amax,
Messrs. Yearley and Whisler, of Phelps Dodge, Mr. McAllister and Kevin R.
Morano, of Asarco, and Mr. Ward and Gerald J. Malys, of Cyprus Amax, met in New
York City. At the meeting, Asarco and Cyprus Amax indicated that they were
unwilling to negotiate a three way business combination unless Phelps Dodge
offered a price reflecting a premium of 55% above their unaffected share prices
prior to the August 20 public announcement of Phelps Dodge's initial proposal.
Phelps Dodge rejected this proposal and reiterated its willingness to proceed at
prices representing premiums of 40% to the unaffected share prices of Asarco and
Cyprus Amax.
Later on September 24, 1999, Messrs. Yearley and Whisler sent a proposed
form of merger agreement to Messrs. McAllister and Ward.
On the evening of September 24, 1999, Grupo Mexico, S.A. de C.V. ("Grupo
Mexico") announced that it planned to commence a tender offer to acquire all
outstanding Asarco shares at $26.00 per share.
On September 27, 1999, Asarco announced that it would explore strategic
alternatives to maximize shareholder value. Separately, Cyprus Amax announced
that it would explore alternatives to the Asarco/ Cyprus Amax merger.
On September 27, 1999, Grupo Mexico commenced a tender offer to acquire all
outstanding Asarco shares at $26.00 per share. Also on September 27, 1999, the
Chancery Court in Delaware, while denying Phelps Dodge's motion for injunctive
relief based on its breach of fiduciary duty claims, stated that it was troubled
by the termination fee and "no-talk" provisions of the Asarco/Cyprus Amax merger
agreement (see "The Phelps Dodge/Cyprus Amax Merger -- Litigation").
On September 28, 1999, Asarco and Cyprus Amax announced that they had
amended the Asarco/ Cyprus Amax merger agreement to allow them, for a period
ending on October 5, 1999, to negotiate with other parties and to unilaterally
terminate the Asarco/Cyprus Amax merger agreement for any reason, subject to
payment of a termination fee of $45 million, in the case of termination by
Cyprus Amax, and $40 million, in the case of termination by Asarco.
Also on September 28, 1999, representatives of Phelps Dodge and Cyprus Amax
began negotiating the Phelps Dodge/Cyprus Amax merger agreement.
On September 29, 1999, the board of directors of Phelps Dodge approved the
Phelps Dodge/Cyprus Amax merger agreement.
7
<PAGE> 12
On September 30, 1999, the board of directors of Cyprus Amax approved the
Phelps Dodge/Cyprus Amax merger agreement and Cyprus Amax terminated its merger
agreement with Asarco. At the board meeting, Merrill Lynch, Pierce, Fenner &
Smith Incorporated rendered its opinion that, as of the date of such opinion and
based on and subject to the factors and assumptions set forth in the opinion,
the consideration to be received by Cyprus Amax stockholders in Phelps Dodge's
amended exchange offer and in the Phelps Dodge/Cyprus Amax merger is fair from a
financial point of view to such holders.
The Phelps Dodge/Cyprus Amax merger agreement was signed on September 30,
1999. Phelps Dodge and Cyprus Amax issued the following press release:
PHELPS DODGE TO ACQUIRE CYPRUS AMAX
------------------------
PHOENIX, AZ and DENVER, CO, September 30, 1999 -- Phelps Dodge Corporation
(NYSE: PD) and Cyprus Amax Minerals Company (NYSE: CYM) today announced they
have signed a definitive merger agreement under which Phelps Dodge will acquire
Cyprus Amax for $7.61 in cash and 0.2203 Phelps Dodge shares per Cyprus Amax
share on a fully prorated basis.
Phelps Dodge is amending its exchange offer for Cyprus Amax, which will now
be scheduled to expire at midnight on October 15, 1999. Cyprus Amax shareholders
will have the right to elect to receive cash or Phelps Dodge shares for each
Cyprus Amax share. The all-cash election for Cyprus Amax shareholders is $20.54
per Cyprus Amax share and the all-stock election is 0.3500 Phelps Dodge shares
per Cyprus Amax share, subject to proration to maintain the overall cash/stock
allocation of approximately 63% stock and 37% cash. The stock portion of the
consideration received will be tax-free to Cyprus Amax shareholders.
Based on Phelps Dodge's closing share price yesterday, the agreement
currently values Cyprus Amax at $19.80 per share, or a total equity value of
approximately $1.8 billion, based on approximately 90.7 million Cyprus Amax
shares outstanding.
Phelps Dodge expects the transaction to be immediately and substantially
accretive to its cash flow per share and accretive to its earnings per share
beginning in 2001, based on the current portfolio of the combined companies and
analysts' estimates of copper prices of $0.80 to $0.85 per pound in 2001. Based
on its strong balance sheet, Phelps Dodge expects to finance the $690 million
cash portion of the offer through existing credit facilities and cash on hand.
Phelps Dodge has already received U.S. antitrust approval for the
acquisition. Completion of the exchange offer is subject to a majority of Cyprus
Amax's shares being tendered and not withdrawn, approval of Phelps Dodge
shareholders at a special meeting on October 13, 1999, and customary closing
conditions.
Prior to entering into the agreement with Phelps Dodge, Cyprus Amax
terminated its merger agreement with Asarco Incorporated (NYSE: AR) in
accordance with the procedures agreed to with Asarco earlier this week.
The combination of Phelps Dodge and Cyprus Amax will create a world-class,
lower-cost global copper producer and provide significant opportunities to
integrate operations in the southwestern United States, administrative
functions, and exploration and development activities. Consistent with
demonstrated Phelps Dodge standards, all properties will be operated to earn
more than the cost of capital over the copper cycle.
"We are extremely pleased that we were able to reach a negotiated agreement
with Cyprus Amax that is clearly in the best interest of both companies," said
Douglas C. Yearley, Chairman and Chief Executive Officer of Phelps Dodge. "We
will move quickly to close this compelling transaction and to begin realizing
the strategic and financial benefits of the combination."
8
<PAGE> 13
Yearley added, "Phelps Dodge remains interested in acquiring Asarco to
realize the additional benefits of a three-way combination -- if we can do so on
terms that make economic sense for our shareholders. Our 40% premium exchange
offer remains on the table, and we hope to have further discussions with
Asarco."
Milton H. Ward, Chairman, President and Chief Executive Officer of Cyprus
Amax, said, "This premium transaction provides significant current value to
Cyprus Amax shareholders as well as the opportunity to participate in what we
believe is the substantial upside potential of the combination. We are confident
that Cyprus Amax customers will be well served, and our shareholders and
employees will benefit from being part of a world-class global copper producer."
Phelps Dodge expects to achieve annual cash cost savings of at least $100
million from the combination, to be fully phased in by the end of 2001, through
reductions in SG&A expenses, operating improvements and efficiencies in
exploration.
J. Steven Whisler, President and Chief Operating Officer of Phelps Dodge,
said, "We have done a great deal of advance planning and, working closely with
representatives of Cyprus Amax, our integration teams will move swiftly to
realize the full benefits of this combination."
Morgan Stanley Dean Witter served as financial advisor to Phelps Dodge and
Merrill Lynch served as financial advisor to Cyprus Amax. Shearman & Sterling
and Debevoise & Plimpton served as legal advisors to Phelps Dodge and Wachtell,
Lipton, Rosen & Katz served as legal advisor to Cyprus Amax.
On October 1, 1999, representatives of Phelps Dodge and Asarco began
discussions relating to a possible Phelps Dodge/Asarco merger agreement.
On October 4, 1999, representatives of Asarco informed Phelps Dodge that
Asarco wished to receive Phelps Dodge's best offer for Asarco no later than 6:00
p.m., Eastern Daylight Time, on October 5, 1999.
On the morning of October 5, 1999, Asarco announced that its board of
directors recommended that Asarco stockholders reject both the then-current
Phelps Dodge exchange offer and the cash tender offer by Grupo Mexico. Asarco
said its board had authorized management to initiate a process designed to
elicit the best possible transaction for shareholders. In the meantime,
representatives of Phelps Dodge and Asarco continued discussions relating to a
business combination between Phelps Dodge and Asarco.
Later on October 5, 1999, Phelps Dodge extended its exchange offer for
Asarco common shares until October 13, 1999 and submitted to Asarco an amended
proposal for a business combination between Phelps Dodge and Asarco, providing
for an increase of Phelps Dodge's offer to $14.75 in cash plus 0.2513 Phelps
Dodge common shares per Asarco share on a fully prorated basis.
In the evening of October 5, 1999, the board of directors of Asarco
approved a business combination between Phelps Dodge and Asarco pursuant to
Phelps Dodge's amended proposal. The Phelps Dodge/Asarco merger agreement was
signed late that evening.
On October 7, 1999, Grupo Mexico announced that it was increasing the price
in its tender offer for Asarco shares to $29.50 per Asarco common share.
On October 8, 1999, Phelps Dodge announced that it would not increase its
offer for Asarco common shares.
On October 13, 1999, Phelps Dodge's shareholders approved the issuance of
Phelps Dodge shares in connection with Phelps Dodge's exchange offers to acquire
Cyprus Amax and Asarco.
On October 14, 1999, Grupo Mexico, in a letter to the Asarco board of
directors, indicated its willingness to increase its offer price to $29.75 per
share, subject to certain conditions, including that Asarco agree to a $40
million termination fee in the proposed Grupo Mexico/Asarco merger agreement.
9
<PAGE> 14
On October 15, 1999, Asarco notified Phelps Dodge of its intention to
accept Grupo Mexico's $29.75 cash offer and to terminate the Phelps Dodge/Asarco
merger agreement at or after 9:00 a.m. on October 23, 1999.
On October 18, 1999, the first business day after the expiration of Phelps
Dodge's exchange offer for Cyprus Amax common shares, Phelps Dodge announced
that it had received and accepted for payment all Cyprus Amax common shares
validly tendered, giving Phelps Dodge sufficient voting power to consummate the
Phelps Dodge/Cyprus Amax merger without the affirmative vote of any other Cyprus
Amax shareholder.
On October 21, 1999, Cyprus Amax announced that Mr. Ward had resigned and
been succeeded by Mr. Yearley as Chairman, President and Chief Executive Officer
of Cyprus Amax.
On October 22, 1999, Phelps Dodge issued the following press release:
PHELPS DODGE ANNOUNCES COMPLETION
OF CYPRUS AMAX EXCHANGE OFFER
PHOENIX, AZ, October 22, 1999 -- Phelps Dodge Corporation (NYSE:PD)
announced today the completion of its offer to exchange $7.61 in cash and 0.2203
Phelps Dodge shares for each share of Cyprus Amax Minerals Company (NYSE:CYM) on
a fully prorated basis. The exchange offer expired at 12:00 midnight, New York
City time, October 13, 1999.
Phelps Dodge said that it has been informed by ChaseMellon Shareholder
Services, the exchange agent for the offer, that based on a final count.
81,499,599 shares of Cyprus Amax stock were tendered, representing 89.59% of the
outstanding shares of Cyprus Amax. Of the 81, 499,599 shares tendered,
51,334,022 elected cash, 29,814,800 elected stock and 350,777 made no election.
All shares of Cyprus Amax tendered were accepted for exchange by Phelps Dodge
according to the terms of the exchange offer.
Since the cash election was oversubscribed, all Cyprus Amax shareholders
requesting stock, as well as all non-electing shareholders, will receive 0.3500
Phelps Dodge shares per Cyprus Amax share. Those shareholders requesting cash
will be prorated to receive approximately $13.48878207 in cash and approximately
0.1202 shares of Phelps Dodge common stock per Cyprus Amax share Phelps Dodge
expects to commence distribution of the cash and stock consideration today,
October 22, 1999, to Cyprus Amax shareholders who tendered into the exchange
offer.
On October 25, 1999, Asarco announced that it had terminated its merger
agreement with Phelps Dodge, paid Phelps Dodge a $30 million termination fee,
and entered into a merger agreement with Grupo Mexico. Phelps Dodge's exchange
offer for Asarco shares expired at midnight, New York City time, on October 25,
1999, and Phelps Dodge did not acquire any shares in the offer.
CONSIDERATIONS OF THE CYPRUS AMAX BOARD OF DIRECTORS
On September 30, 1999, the Cyprus Amax board of directors held a special
meeting to consider the proposed two-way business combination with Phelps Dodge.
At the meeting, (1) Mr. Ward and other officers of Cyprus Amax reviewed the
status of the transaction and discussed with the directors the reasons for the
transaction, (2) representatives of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") made a financial presentation concerning the
transaction and (3) Cyprus Amax's legal advisors outlined the terms of the
proposed transaction. Merrill Lynch rendered its opinion that, as of the date of
such opinion and based upon and subject to the matters set forth in the opinion,
the consideration to be received by Cyprus Amax stockholders in Phelps Dodge's
amended exchange offer and in the Phelps Dodge/Cyprus Amax merger is fair from a
financial point of view to such holders. At the special meeting, the Cyprus Amax
board of directors approved and adopted the Phelps Dodge/Cyprus Amax merger
agreement and the related transactions by the unanimous vote of the directors
present and recommended that shareholders tender their shares of Cyprus Amax
common stock pursuant to the amended exchange offer.
10
<PAGE> 15
In reaching its conclusion described above, the Cyprus Amax board of
directors considered the following factors, among others:
1. At a meeting held on September 8, 1999, the Cyprus Amax board had
unanimously determined that the Phelps Dodge offer was inadequate and
not in the best interests of Cyprus Amax and its stockholders. The basis
for the board's rejection of the Phelps Dodge offer was set forth in the
Schedule 14D-9 filed with the SEC on September 9, 1999. The price of
$7.61 in cash and 0.2203 shares of Phelps Dodge common stock per share
of Cyprus Amax common stock provided by Phelps Dodge's amended offer and
the Phelps Dodge/Cyprus Amax merger agreement represents a substantial
increase over the price of 0.3135 shares of Phelps Dodge common stock
per share of Cyprus Amax common stock provided by the Phelps Dodge offer
that the board rejected on September 8, 1999.
2. The board reviewed the possible alternatives to the Phelps Dodge/Cyprus
Amax merger, including the potential merger with Asarco, the value to
stockholders of such alternatives and the timing and likelihood of
achieving additional value from these alternatives, and the possibility
that equally suitable partners for merger and consolidation would be
available. In this connection, the board considered the fact that, since
the execution of Amendment No. 1 to the Asarco/Cyprus Amax merger
agreement, representatives of Cyprus Amax had contacted certain third
parties who, it was believed, might have a potential interest in a
transaction with Cyprus Amax, and the board considered the responses to
such inquiries. The board of directors concluded that the Phelps
Dodge/Cyprus Amax merger was superior to any alternatives and that, if a
superior alternative did become available, Cyprus Amax would be able to
pursue such an alternative under the terms of the Phelps Dodge/Cyprus
Amax merger agreement. The board of directors considered the course of
discussions and negotiations with Asarco up to the date of the September
30 meeting of the board, along with other facts and circumstances such
as the offer made on September 27, 1999 by Grupo Mexico for Asarco.
3. The board considered the then-pending offer by Phelps Dodge for Asarco
and the effect that such a combination would have on a combined Phelps
Dodge/Cyprus Amax.
4. The board considered the fact that Phelps Dodge's amended offer and
Phelps Dodge/Cyprus Amax merger provided stockholders of Cyprus Amax the
opportunity to receive a premium for their shares, and, in addition, the
stockholders of Cyprus Amax could elect to continue to hold shares
representing an equity interest in the combined company, and that there
exists no controlling stockholder of Phelps Dodge now or immediately
after the Phelps Dodge/Cyprus Amax merger. In this connection, the board
of directors considered that Cyprus Amax stockholders would own
approximately 25.6% of the shares of the combined Phelps Dodge/Cyprus
Amax.
5. The board reviewed the opinion of Merrill Lynch, Cyprus Amax's financial
advisor, that, as of the date of such opinion, and based upon and
subject to the factors and assumptions set forth in the opinion, the
consideration to be received by Cyprus Amax stockholders in Phelps
Dodge's amended offer and the Phelps Dodge/Cyprus Amax merger is fair
from a financial point of view to such holders.
6. The board considered that Phelps Dodge had already received United
States antitrust approval for the acquisition.
7. The board considered that the transaction with Phelps Dodge was expected
to be immediately and substantially accretive to cash flow and earnings
per share for Cyprus Amax shareholders who receive Phelps Dodge shares
in exchange for their Cyprus Amax common stock, and that the
consideration to be received by Cyprus Amax stockholders indicated that
the synergies being contributed to the combined company by Cyprus Amax
were being recognized in the exchange ratio and cash portion of Phelps
Dodge's amended offer and the merger consideration.
8. The board considered the business combination with Phelps Dodge as an
opportunity to improve stockholder value as a result of becoming a
world-class, lower-cost global copper producer with significant
opportunities to integrate operations in the southwestern United States,
administrative functions, and exploration and development activities.
11
<PAGE> 16
Cyprus Amax's board of directors also considered certain countervailing
factors in its deliberations concerning the Phelps Dodge/Cyprus Amax merger,
including:
1. The board considered that Cyprus Amax was required to pay a termination
fee of $45 million to Asarco under Amendment No. 1 to the Asarco/Cyprus
Amax merger agreement (the "Asarco Termination Fee") in order to be
free to enter into the Phelps Dodge/Cyprus Amax merger agreement.
2. The board reviewed the terms and conditions of the Phelps Dodge/Cyprus
Amax merger agreement, including the following:
- The board considered the provision under the Phelps Dodge/Cyprus Amax
merger agreement that provided that Phelps Dodge would reimburse
Cyprus Amax for the Asarco Termination Fee if the Phelps Dodge/Cyprus
Amax merger agreement is terminated under circumstances specified in
the Phelps Dodge/Cyprus Amax merger agreement, but that the Asarco
Termination Fee would not be reimbursed to Cyprus Amax under all
circumstances of termination of the Phelps Dodge/Cyprus Amax merger
agreement.
- The board considered the requirement under the Phelps Dodge/Cyprus
Amax merger agreement that Cyprus Amax pay to Phelps Dodge a
termination fee of $45 million if the Phelps Dodge/ Cyprus Amax merger
agreement is terminated under circumstances specified in the Phelps
Dodge/Cyprus Amax merger agreement.
While the board thought that these provisions could result in
significant fees to be borne by Cyprus Amax, it accepted these
provisions as a means to obtain other terms favorable to Cyprus Amax, in
particular the right to negotiate or exchange information with potential
bidders and the right to terminate the Phelps Dodge/Cyprus Amax merger
agreement, in each case, in the event of an alternative transaction that
the board determined was superior to the transaction with Phelps Dodge.
Following the approval of the Cyprus Amax board of directors, on September
30, 1999, Cyprus Amax terminated the Asarco/Cyprus Amax merger agreement and
immediately thereafter Cyprus Amax and Phelps Dodge executed the Phelps
Dodge/Cyprus Amax merger agreement and issued a joint press release.
OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Cyprus Amax retained Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") to act as its financial advisor in connection with a possible
business combination. On September 30, 1999, Merrill Lynch rendered its opinion
to the Board of Directors of Cyprus Amax that, as of such date, and based upon
and subject to the factors and assumptions set forth in the opinion, the
Consideration was fair from a financial point of view to the stockholders of
Cyprus Amax.
In its opinion, Merrill Lynch defined Consideration to mean the
consideration to be received by the stockholders pursuant to the merger together
with the consideration to be received by the stockholders pursuant to Phelps
Dodge's exchange offer. When we refer to Consideration in this section, we are
referring to Consideration as it is defined in the Merrill Lynch opinion.
WE HAVE ATTACHED AS ANNEX B TO THIS DOCUMENT A COPY OF THE MERRILL LYNCH
OPINION DATED SEPTEMBER 30, 1999, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY MERRILL
LYNCH. EACH STOCKHOLDER IS URGED TO READ THE MERRILL LYNCH OPINION IN ITS
ENTIRETY. THE MERRILL LYNCH OPINION WAS INTENDED FOR THE USE AND BENEFIT OF THE
BOARD OF DIRECTORS OF CYPRUS AMAX AND WAS DIRECTED ONLY TO THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW TO THE STOCKHOLDERS OF CYPRUS AMAX. THE MERRILL LYNCH
OPINION DID NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY CYPRUS AMAX TO
ENGAGE IN THE TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER OF CYPRUS AMAX AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE
PROPOSED TRANSACTION OR ANY MATTER RELATED THERETO. THE SUMMARY OF THE MERRILL
LYNCH OPINION SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION ATTACHED AS ANNEX B.
12
<PAGE> 17
The Consideration was determined through an analysis by the managements of
both Cyprus Amax and Phelps Dodge of current and projected financial and
operating data, in addition to negotiations between Cyprus Amax and Phelps
Dodge, and after substantial analysis and consideration was authorized by the
Cyprus Amax Board of Directors.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Merrill Lynch opinion or the presentation made by
Merrill Lynch to the Cyprus Amax Board of Directors. The preparation of a
fairness opinion is a complex and analytical process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or summary description. In arriving at its opinion, Merrill Lynch did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor forming part of each such analysis. While each factor set
forth below is separate and none of the factors failed to support Merrill
Lynch's opinion, Merrill Lynch believes that its analysis must be considered as
a whole and that selecting portions of its analyses, without considering all of
its analyses, would create an incomplete view of the process underlying the
Merrill Lynch opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Merrill Lynch, Cyprus Amax or Phelps Dodge. Any estimates contained in the
analyses performed by Merrill Lynch are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, estimates of the value of businesses
or securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities might actually be sold. Accordingly, such analyses
and estimates are inherently subject to substantial uncertainty. In addition,
Merrill Lynch's opinion was among several factors taken into consideration by
the Board of Directors of Cyprus Amax in making its determination to approve the
Transaction. Consequently, the Merrill Lynch analyses described below should not
be viewed as determinative of the decision of the Cyprus Amax Board of Directors
or Cyprus Amax's management with respect to the fairness of the Consideration.
In arriving at its opinion, Merrill Lynch, among other things:
- reviewed certain publicly available business and financial information
relating to Cyprus Amax and Phelps Dodge that Merrill Lynch deemed to be
relevant;
- reviewed publicly available analysts' forecasts with respect to Phelps
Dodge;
- reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
Cyprus Amax, as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the Transaction
("Expected Synergies") furnished to Merrill Lynch by Cyprus Amax;
- conducted discussions with members of senior management and
representatives of Cyprus Amax concerning the matters described in
clauses 1, 2 and 3 above, as well as their business and prospects before
and after giving effect to the Transaction and the Expected Synergies;
- reviewed the market prices and valuation multiples for Cyprus Amax common
stock and Phelps Dodge common stock and compared them with those of
certain publicly traded companies that Merrill Lynch deemed to be
relevant;
- reviewed the results of operations of Cyprus Amax and Phelps Dodge and
compared them with those of certain publicly traded companies that
Merrill Lynch deemed to be relevant;
- reviewed the terms of Phelps Dodge's exchange offer for ASARCO
Incorporated set forth in Amendment No. 1 to the Schedule 14D-1 filed
September 22, 1999;
- participated in certain discussions and negotiations among
representatives of Cyprus Amax and Phelps Dodge and their financial and
legal advisors;
13
<PAGE> 18
- reviewed the potential pro forma impact of the Transaction;
- reviewed a draft dated September 29, 1999 of the merger agreement; and
- reviewed such other financial studies and analyses and took into account
such other matters as Merrill Lynch deemed necessary, including Merrill
Lynch's assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available. Merrill Lynch did not assume any responsibility for independently
verifying such information, did not undertake an independent evaluation or
appraisal of any of the assets or liabilities of Cyprus Amax or Phelps Dodge and
was not furnished with any such evaluation or appraisal. In addition, Merrill
Lynch did not conduct any physical inspection of the properties or facilities of
Cyprus Amax or Phelps Dodge. With respect to the financial forecast information
and the Expected Synergies furnished to or discussed with Merrill Lynch by
Cyprus Amax, Merrill Lynch assumed that they were reasonably prepared and
reflected the best currently available estimates and judgment of Cyprus Amax's
management as to the expected future financial performance of Cyprus Amax and
the Expected Synergies. In preparing its opinion, Merrill Lynch was not provided
with financial forecasts with respect to Phelps Dodge other than certain
publicly available analysts' earnings forecasts which Merrill Lynch discussed
with Cyprus Amax and on which Merrill Lynch relied. With respect to the
financial forecast information contained in such publicly available analysts'
forecasts, Merrill Lynch assumed that they reflected the best currently
available estimates as to the future financial performance of Phelps Dodge.
Merrill Lynch further assumed that the Transaction will qualify as a tax-free
reorganization for U.S. federal income tax purposes. Merrill Lynch also assumed
that the final form of the merger agreement would be substantially similar to
the last draft reviewed by Merrill Lynch.
The Merrill Lynch opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of the Merrill Lynch
opinion. Merrill Lynch assumed that in the course of obtaining the necessary
regulatory or other consents or approvals (contractual or otherwise) for the
Transaction, no restrictions, including any divestiture requirements or
amendments or modifications, would be imposed that would have a material adverse
effect on the contemplated benefits of the Transaction.
Financial Analyses
The following is a summary of the material portions of the financial and
comparative analyses performed by Merrill Lynch that were presented to Cyprus
Amax's Board of Directors in connection with the opinion delivered to Cyprus
Amax's Board of Directors on September 30, 1999.
Cyprus Amax Valuation
Merrill Lynch calculated estimated per share equity valuation ranges for
Cyprus Amax by utilizing a historical trading performance analysis, a comparable
public company analysis and a discounted cash flow analysis.
Historical Trading Performance. Merrill Lynch reviewed publicly available
information and found that the closing prices of Cyprus Amax common stock over a
52-week period as of August 19, 1999, ranged from $9.06 to $15.75.
Comparable Public Companies Analysis. Merrill Lynch reviewed publicly
available information to calculate specified financial and operating
information, market value as a multiple of 2000 estimated cash flow (which was
defined as net income plus depletion, depreciation and amortization), market
capitalization as a multiple of 2000 estimated earnings before interest, taxes,
depreciation and amortization ("EBITDA") and market capitalization, adjusted for
non-copper equivalent businesses, as a multiple of 1998 Production and 1998
Reserves. All projections were supplied by Cyprus Amax management. Merrill Lynch
then compared the financial and operating information and multiples of Cyprus
Amax with the corresponding financial and
14
<PAGE> 19
operating information and multiples for a group of publicly traded companies
that Merrill Lynch deemed comparable to Cyprus Amax. Merrill Lynch reviewed the
following selected copper companies in this analysis:
<TABLE>
<CAPTION>
NORTH AMERICAN COPPER PRODUCERS NON-NORTH AMERICAN COPPER PRODUCERS
- ------------------------------- -----------------------------------
<S> <C>
Noranda Incorporated Rio Tinto PLC
Freeport-McMoRan Copper & Gold, Inc. M.I.M. Holdings Limited
Grupo Mexico, S.A. de C.V. Antofagasta Holdings PLC
ASARCO Incorporated Southern Peru Copper Corporation
Rio Algom Limited
</TABLE>
Merrill Lynch also reviewed the following selected Australian coal companies in
this analysis:
AUSTRALIAN COAL COMPANIES
-------------------------
Centennial Coal Company Limited
CIM Resources Limited
Coal & Allied Industries
Limited
Portman Mining Limited
QCT Resources Limited
Using this analysis, Merrill Lynch calculated the following ranges of per
share equity values of Cyprus Amax:
<TABLE>
<CAPTION>
MEASURE RANGE OF IMPLIED PER SHARE EQUITY VALUES
- ------- ----------------------------------------
<S> <C>
1998 Reserves $ 7.75 - $15.75
1998 Production $10.00 - $12.00
2000 Estimated EBITDA $12.25 - $15.25
2000 Estimated Cash Flow Per Share $13.50 - $15.25
</TABLE>
None of the selected comparable companies listed above is identical to
Cyprus Amax. Accordingly, an analysis of the results of the foregoing analysis
is not purely mathematical. Rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
Trading Segment Analysis. Merrill Lynch performed a discounted cash flow
analysis for Cyprus Amax's copper mines for the life of such mines using Cyprus
Amax management's projections. The discounted cash flow analysis assumed real
discount rates ranging from 8.0% to 9.0% for Cyprus Amax's U.S. copper mines and
9.0% to 10.0% for Cyprus Amax's South American copper mines. Merrill Lynch also
calculated values for Cyprus Amax's coal assets by using a multiple of
production and EBITDA and for Cyprus Amax's overhead costs by capitalizing
Cyprus Amax management's estimates of overhead costs by using a 6.0x to 8.0x
multiple. Merrill Lynch valued Cyprus Amax's interest in Kinross Gold based on
share ownership and the closing stock price and U.S./Canadian exchange rate as
of September 28, 1999. Using this analysis, Merrill Lynch calculated a range of
per share equity values for Cyprus Amax of $17.25 to $19.00.
Phelps Dodge Valuation
Merrill Lynch calculated estimated per share equity valuation ranges for
Phelps Dodge by utilizing a historical trading performance analysis, a
comparable public company analysis and a discounted cash flow analysis.
Historical Trading Performance. Merrill Lynch reviewed publicly available
information and found that the closing prices of Phelps Dodge common stock over
a 52-week period, as of August 19, 1999, ranged from $42.50 to $69.94.
15
<PAGE> 20
Comparable Public Companies Analysis. Merrill Lynch reviewed publicly
available information to calculate specified financial and operating
information, market value as a multiple of 2000 estimated cash flow, market
capitalization as a multiple of 2000 estimated EBITDA and market capitalization,
adjusted for non-copper equivalent businesses, as a multiple of 1998 Production
and 1998 Reserves. All projections were based on public information. Merrill
Lynch then compared the financial and operating information and multiples of
Phelps Dodge with the corresponding financial and operating information and
multiples for a group of publicly traded companies that Merrill Lynch deemed
comparable to Phelps Dodge. Merrill Lynch reviewed the following selected copper
companies in this analysis:
<TABLE>
<CAPTION>
NORTH AMERICAN COPPER PRODUCERS NON-NORTH AMERICAN COPPER PRODUCERS
- ------------------------------- -----------------------------------
<S> <C>
Noranda Incorporated Rio Tinto PLC
Freeport-McMoRan Copper & Gold, Inc. M.I.M. Holdings Limited
Grupo Mexico, S.A. de C.V. Antofagasta Holdings PLC
ASARCO Incorporated Southern Peru Copper Corporation
Rio Algom Limited
</TABLE>
Using this analysis, Merrill Lynch calculated the following ranges of per
share equity values of Phelps Dodge:
<TABLE>
<CAPTION>
MEASURE RANGE OF IMPLIED PER SHARE EQUITY VALUES
- ------- ----------------------------------------
<S> <C>
1998 Reserves $50.00 - $65.50
1998 Production $64.50 - $69.25
2000 Estimated EBITDA $50.00 - $59.50
2000 Estimated Cash Flow Per Share $51.00 - $58.25
</TABLE>
None of the selected comparable companies listed above is identical to
Phelps Dodge. Accordingly, an analysis of the results of the foregoing analysis
is not purely mathematical. Rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
Trading Segment Analysis. Using projections taken from publicly available
information, Merrill Lynch performed a discounted cash flow analysis for Phelps
Dodge's copper mines for the life of such mines, assuming real discount rates
ranging from 8.0% to 9.0%. Merrill Lynch calculated values for specialty
chemicals and wire and cable using forward EBITDA multiples of 8.0x to 10.0x and
7.0x to 8.0x, respectively. Merrill Lynch valued Phelps Dodge's 13.9% interest
in Southern Peru Copper Corporation based on share ownership and the closing
stock prices as of August 28, 1998. Merrill Lynch calculated values for cash as
of June 30, 1999, for other investments based on book value as of December 31,
1998 and for other properties based on 37.8 billion pounds of copper-equivalent
resources. Using this analysis, Merrill Lynch calculated a range of per share
equity values for Phelps Dodge of $53.00 to $69.75.
Exchange Ratio Analysis
Historical Trading Performance. Merrill Lynch calculated the historical
ratio of the stock prices of Cyprus Amax to the stock prices of Phelps Dodge.
The historical ratio over the last three years and the last three months ranged
from 0.180 to 0.365 and 0.206 to 0.258, respectively.
Comparable Public Company Valuation. Based on the comparable company
analyses described above, Merrill Lynch calculated a range of implied exchange
ratios by comparing the lowest estimated valuation of Cyprus Amax common stock
to the highest estimated valuation of Phelps Dodge common stock and the
16
<PAGE> 21
highest estimated valuation of Cyprus Amax common stock to the lowest estimated
valuation of Phelps Dodge common stock. Using this analysis, Merrill Lynch
calculated the following ranges of implied exchange ratios:
<TABLE>
<CAPTION>
MEASURE RANGE OF IMPLIED EXCHANGE RATIOS
------- --------------------------------
<S> <C>
1998 Reserves 0.122 - 0.315
1998 Production 0.144 - 0.186
2000 Estimated EBITDA 0.206 - 0.305
2000 Estimated Cash Flow Per Share 0.232 - 0.299
</TABLE>
Relative Contribution Analysis. Merrill Lynch compared the relative
contribution of Phelps Dodge and Cyprus Amax to the combined company's estimated
earnings per share, cash flow per share, EBITDA and earnings before interest and
taxes ("EBIT") for the years 2000 and 2001. Using this analysis, Merrill Lynch
calculated a range of implied exchange ratios from 0.118 to 0.314.
Trading Segment Analysis. Based upon the trading segment analyses
described above, Merrill Lynch calculated a range of implied exchange ratios by
comparing the lowest estimated valuation of Cyprus Amax common stock to the
highest estimated valuation of Phelps Dodge common stock and the highest
estimated valuation of Cyprus Amax common stock to the lowest estimated
valuation of Phelps Dodge common stock. Using this analysis, the range of
implied exchange ratios calculated by Merrill Lynch was 0.247 to 0.358.
Merrill Lynch Financial Advisor Fee
Pursuant to the terms of a letter agreement between Cyprus Amax and Merrill
Lynch dated August 20, 1999, Cyprus Amax agreed to pay Merrill Lynch an
aggregate of $10.5 million for its financial advisory services. These fees are
now payable as a result of the consummation of the exchange offer. Cyprus Amax
has also agreed to reimburse Merrill Lynch for its reasonable out-of-pocket
expenses, including the reasonable fees and disbursements of legal counsel, and
to indemnify Merrill Lynch and certain related parties from and against certain
liabilities, including liabilities under the federal securities laws, arising
out of its engagement.
Cyprus Amax retained Merrill Lynch to act as its financial advisor based
upon Merrill Lynch's experience and expertise. Merrill Lynch is an
internationally recognized investment banking and advisory firm. Merrill Lynch,
as part of its investment banking business, is continuously engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
Merrill Lynch has, in the past, provided financial advisory and financing
services to Cyprus Amax and/or its affiliates and may continue to do so and has
received, and may receive, fees for the rendering of such services. In addition,
in the ordinary course of Merrill Lynch's business, Merrill Lynch may actively
trade Cyprus Amax common stock and other securities of Cyprus Amax, as well as
Phelps Dodge common stock and other securities of Phelps Dodge, for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities.
THE PHELPS DODGE/CYPRUS AMAX MERGER
The purpose of the Phelps Dodge/Cyprus Amax merger is for Phelps Dodge to
acquire the entire common equity interest in Cyprus Amax. As a result of the
Phelps Dodge/Cyprus Amax merger, Cyprus Amax will become a direct wholly owned
subsidiary of Phelps Dodge and each outstanding share of Cyprus Amax common
stock (other than any shares owned by Cyprus Amax or any of its subsidiaries, or
by Phelps Dodge, Purchaser or any other Phelps Dodge subsidiary) will be
converted into the right to receive 0.3500 shares of Phelps Dodge common stock.
The Phelps Dodge/Cyprus Amax merger is the second step of a two-step
transaction pursuant to which Phelps Dodge, as the owner of all of the capital
stock of Purchaser, will acquire all of the equity interest in Cyprus Amax. The
first step was an exchange offer by Phelps Dodge pursuant to which Phelps Dodge
was offering to exchange $7.61176875 net in cash plus 0.2203 Phelps Dodge common
shares for each Cyprus
17
<PAGE> 22
Amax common share, on a fully prorated basis. In the exchange offer, Cyprus Amax
shareholders had the right to elect to receive either $20.54 in cash or 0.3500
Phelps Dodge common shares for each Cyprus Amax common share, subject to
proration if the cash portion or the stock portion was oversubscribed. Purchaser
accepted for payment approximately 81,499,599 Cyprus Amax common shares upon the
expiration of the offer on October 15, 1999, representing approximately 89.6% of
the issued and outstanding Cyprus Amax common shares. Of the Cyprus Amax common
shares accepted for payment, approximately 51,334,022 shares were subject to
cash elections, approximately 29,814,800 shares were subject to stock elections
and approximately 350,777 shares were subject to no election. Approximately
51,334,022 of the shares accepted for payment were exchanged for approximately
$13.48878207 net in cash plus approximately 0.1202 Phelps Dodge common shares
per share and approximately 30,165,577 of the shares were exchanged for 0.3500
Phelps Dodge common shares per share.
Under the terms of the Phelps Dodge/Cyprus Amax merger agreement, if the
aggregate amount of cash elections in the exchange offer, based on the number of
Cyprus Amax common shares covered by cash elections, exceeds the maximum
aggregate cash consideration of $7.61176875 multiplied by the total number of
Cyprus Amax common shares outstanding immediately prior to closing of the offer,
at the effective time of the Phelps Dodge/Cyprus Amax merger, by virtue of the
merger and without any action on the part of Purchaser, Cyprus Amax or any of
their security holders, each outstanding Cyprus Amax common share (other than
shares owned directly by Phelps Dodge, the Company or any of their respective
subsidiaries) shall be converted into the right to receive 0.3500 shares of
Phelps Dodge common stock in cash, provided that no fractional Phelps Dodge
shares shall be issued. Because the aggregate amount of cash elections in the
offer exceeded the maximum aggregate cash consideration, you will receive 0.3500
Phelps Dodge common shares for each of your Cyprus Amax common shares, provided
that you will receive a cash payment instead of any fractional Phelps Dodge
shares to which you would otherwise be entitled.
THE MERGER
The Phelps Dodge/Cyprus Amax merger will be consummated pursuant to Section
251 of the DGCL. Phelps Dodge has sufficient voting power to effect the Phelps
Dodge/Cyprus Amax merger under Section 251 of the DGCL without the vote of any
other stockholder of Cyprus Amax. Holders of Cyprus Amax common shares will not
have rights of appraisal or similar rights.
Rule 13e-3 of the General Rules and Regulations under the Exchange Act,
which we do not believe would apply to the Phelps Dodge/Cyprus Amax merger if
the Phelps Dodge/Cyprus Amax merger occurred within one year of consummation of
our offer, would require, among other things, that some financial information
concerning Cyprus Amax, and some information relating to the fairness of the
proposed transaction and the consideration offered to stockholders of Cyprus
Amax therein, be filed with the SEC and disclosed to you prior to consummation
of the Phelps Dodge/Cyprus Amax merger.
In addition, Phelps Dodge reserves the right to acquire additional Cyprus
Amax shares through open market purchases, privately negotiated transactions, a
tender offer or exchange offer, or otherwise, upon such terms and at such prices
as Phelps Dodge decides, which may be more or less favorable than those of the
offer. Phelps Dodge and its affiliates also reserve the right to dispose of any
or all Cyprus Amax shares acquired by Phelps Dodge pursuant to the offer or
otherwise, upon such terms and at such prices as Phelps Dodge shall determine.
We have given notice that all shares of Series A Convertible Preferred
Stock of Cyprus Amax, which are redeemable at Cyprus Amax's option, will be
redeemed on November 19, 1999.
Pursuant to the terms of the Phelps Dodge/Cyprus Amax merger agreement, on
October 17, 1999, eight incumbent directors (Linda G. Alvarado, George S.
Ansell, Thomas V. Falkie, Ann Maynard Gray, Rockwell A. Schnabel, Theodore M.
Solso, John H. Stookey and Billie B. Turner) resigned from the Cyprus Amax Board
of Directors and were replaced by two designees of Phelps Dodge, Douglas C.
Yearley and J. Steven Whisler. Two of the current Cyprus Amax Board members,
William C. Bousquette and Milton H. Ward, will remain on the Cyprus Amax board
until completion of the merger between Purchaser and Cyprus Amax. On October 21,
1999, Mr. Ward resigned and was succeeded by Mr. Yearley as Chairman of the
18
<PAGE> 23
Board, President and Chief Executive Officer of Cyprus Amax. As of October 23,
1999, Manuel J. Iraola has been serving as Phelps Dodge's third designee to the
Cyprus Amax board.
SOURCE AND AMOUNT OF FUNDS
Phelps Dodge estimates that the total amount of funds required pursuant to
the Cyprus Amax exchange offer and the Phelps Dodge/Cyprus Amax merger to pay
the cash consideration in connection with the exchange of all Cyprus Amax shares
outstanding will be approximately $691 million. Phelps Dodge expects to obtain
these funds from cash on hand; from borrowing under its amended and restated
revolving credit facility with The Chase Manhattan Bank, Bank of Nova Scotia,
Bank of Tokyo-Mitsubishi Trust Co., Citibank, N.A., Morgan Guaranty Trust Co.,
Bank of America, Barclays Bank, Canadian Imperial Bank of Commerce, Deutsche
Bank, First Union National Bank, Wells Fargo, Industrial Bank of Japan and Royal
Bank of Canada & Mercantile Bank; and from borrowing under the additional credit
facility described below.
The existing revolving credit facility allows Phelps Dodge to borrow up to
$1 billion from time to time until the facility's scheduled maturity on June 25,
2002. The agreement allows for two, one-year renewals beyond the scheduled
maturity date if Phelps Dodge requests and receives approval from those lenders
representing at least two-thirds of the commitments provided by the facility. In
the event of such approval, total commitments under the facility would depend
upon the willingness of other lenders to assume the commitments of those lenders
electing not to participate in the renewal. Interest is payable at a fluctuating
rate based on the agent bank's prime rate, or a fixed rate, based on the LIBOR,
or at fixed rates offered independently by the several lenders, for maturities
of between seven and 360 days. This agreement provides for a facility fee of six
and one-half basis points (0.065 percent) on total commitments. The agreement
requires Phelps Dodge to maintain a minimum consolidated tangible net worth of
$1.1 billion and limits indebtedness to 50 percent of total consolidated
capitalization.
Phelps Dodge has entered into a Credit Agreement, dated as of October 18,
1999, with Citibank, N.A., as Administrative Agent and as a lender, First Union
National Bank and Morgan Guaranty Trust Company of New York, as Syndication
Agents and as lenders, Salomon Smith Barney Inc., as Arranger and Book Manager,
and other lenders that may become parties thereto. Under this Credit Agreement,
the lenders have agreed to provide Phelps Dodge with a $650 million revolving
credit facility that Phelps Dodge may use to pay cash consideration in
connection with the Cyprus Amax exchange offer and for general corporate
purposes.
The lenders' obligations to make loans under this credit facility are
subject to customary conditions, including (i) completion of the Cyprus Amax
exchange offer; (ii) absence of any material adverse change to Phelps Dodge
since December 31, 1998; and (iii) accuracy and completeness of representations
and warranties made by Phelps Dodge and information furnished by Phelps Dodge.
Loans under the credit facility will be unsecured, and will bear interest,
at Phelps Dodge's option, at either (a) Citibank's base rate, or (b) LIBOR plus
a variable margin of between 0.40% and 2.00% (plus an additional premium of
0.25% if amounts are drawn after December 20, 1999), depending on Phelps Dodge's
credit rating and the amount Phelps Dodge has outstanding under the facility.
The facility will terminate on the earlier of January 31, 2000 or the date on
which the Phelps Dodge/Cyprus Amax merger is completed.
Although Phelps Dodge has not made definitive plans for the repayment of
borrowings under its existing revolving credit facility or its Citibank
revolving credit facility, Phelps Dodge expects to repay the borrowings using
internally generated funds, including, once the Phelps Dodge/Cyprus Amax merger
is completed, those of Cyprus Amax. Phelps Dodge may also use funds obtained
from other sources, including future issuances of debt securities and/or bank
refinancings. Phelps Dodge's decision as to how to repay the borrowings will be
based on its review of circumstances existing at that time, including prevailing
interest rates, financial and other economic conditions and other factors that
Phelps Dodge considers appropriate.
LITIGATION
On August 23, 1999, Phelps Dodge, through its directly owned subsidiary CAV
Corporation, sent a written demand to Cyprus Amax for records of its
shareholders, pursuant to Section 220 of the Delaware
19
<PAGE> 24
General Corporation Law. On August 24, 1999, Phelps Dodge and its directly owned
subsidiary AAV Corporation commenced an action by order to show cause in the
Superior Court of the State of New Jersey, Chancery Division, Mercer County,
pursuant to N.J.S.A. 14A:5-28 to seek shareholder records from Asarco. This
action is captioned Phelps Dodge Corp. and AAV Corp. v. ASARCO Inc., Docket No.
MER-C-81-99. In connection with this action, Phelps Dodge made an application
for summary injunctive relief. Asarco opposed the application and argument was
heard before Judge Judith Yaskin on August 26, 1999. At the hearing, the court
ruled that shareholder lists and related documents must be made available to
Phelps Dodge and AAV within forty-eight hours after the filing of their
preliminary proxy materials with the SEC. Some of these materials were delivered
to Phelps Dodge on August 29, 1999, and others were delivered afterwards.
In addition, Phelps Dodge commenced actions in the Superior Court of the
State of New Jersey and in the Court of Chancery of the State of Delaware
against Asarco and Cyprus Amax and their respective Boards of Directors for
their breach of fiduciary duties including their refusals to consider and to
allow the shareholders of both companies to consider the Phelps Dodge proposal.
In particular, Phelps Dodge alleged that Cyprus Amax and Asarco entered into an
illegal merger agreement that purported to prohibit the companies from taking
any action or entering into any discussions relating to a takeover proposal.
Phelps Dodge alleged that, in light of these provisions of the Asarco/Cyprus
Amax Merger Agreement, Asarco and Cyprus Amax were incapable of evaluating
meaningfully the Phelps Dodge proposal and could not make informed
recommendations to their shareholders. Phelps Dodge also challenged the
termination or "break up" fee payable to Asarco in certain circumstances as
grossly excessive; that fee amounted to more than 6% of Asarco's equity value as
of July 15, 1999, the date of the Asarco/Cyprus Amax merger agreement.
Furthermore, the Asarco/Cyprus Amax merger agreement included corporate
governance provisions that Phelps Dodge alleged disenfranchised shareholders by
guaranteeing until 2002 the management positions of the chief executive officers
of Asarco and Cyprus Amax unless the positions were changed with the approval of
75% of the full board. The complaints also alleged that, in addition to their
refusals to negotiate with Phelps Dodge, Asarco and Cyprus Amax set their
shareholder meetings and record dates to favor their own merger and rewarded
management with compensation and benefit packages. Phelps Dodge alleged that
these and other efforts undertaken by the companies amounted to an attempt to
favor and entrench management at the expense of shareholders.
Phelps Dodge sought injunctive relief to remedy these breaches of duty,
including court orders declaring that the boards of Asarco and Cyprus Amax
failed to make good faith efforts to obtain information about and adequately
consider the Phelps Dodge proposal and compelling the boards of those two
companies to consider the proposal and remove impediments preventing
consideration of the proposal.
On September 7, 1999, the Superior Court of the State of New Jersey stayed
the New Jersey action, and Phelps Dodge thereafter filed an amended complaint in
the Delaware Chancery Court, naming Asarco and its directors as defendants and
seeking the same relief as that sought in the New Jersey action. The Delaware
Chancery Court ordered expedited discovery, and scheduled a hearing on Phelps
Dodge's motion for a preliminary injunction, in Wilmington, Delaware, on
September 27, 1999. At the hearing on September 27, 1999, the Chancery Court
denied Phelps Dodge's motion for a preliminary injunction, finding that Phelps
Dodge had not demonstrated that irreparable injury would ensue in the absence of
injunctive relief.
On September 20, 1999, Asarco filed suit against Phelps Dodge in the U.S.
District Court for the Southern District of New York, alleging that Phelps
Dodge's proposed acquisition of Asarco and Cyprus Amax would violate the U.S.
antitrust laws, tortiously interfered with the proposed merger between Asarco
and Cyprus Amax and constituted unfair competition. On October 4, 1999 Asarco
filed an amended complaint that, among other things, dropped the tortious
interference and unfair competition claims. Phelps Dodge believes this lawsuit
is without merit.
Under the Phelps Dodge/Cyprus Amax merger agreement, each of the parties
has agreed to cease, terminate and dismiss with prejudice, any and all actions,
proceedings or lawsuits initiated, commenced or filed by such party against the
other party in connection with (a) the combination and (b) Phelps Dodge's
exchange offers, prior to or at the effective time of the merger.
20
<PAGE> 25
On October 6, 1999, Asarco and Phelps Dodge agreed to use "best efforts" to
suspend the proceedings in light of the proposed transaction between the
parties. On October 15, 1999, Phelps Dodge served an answer to Asarco's first
amended complaint.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes the anticipated material U.S. federal income tax
consequences of the acquisition of Phelps Dodge common stock and/or cash by you,
pursuant to Phelps Dodge's offer and the Phelps Dodge/Cyprus Amax merger
contemplated by this prospectus. This discussion applies only to a "U.S.
Holder," which is a term that is explained below. This summary does not address
any tax consequences of Phelps Dodge's offer or the Phelps Dodge/Cyprus Amax
merger to U.S. Holders who exercise dissenters' rights, if any. It applies only
to shares of Cyprus Amax common stock held as capital assets and does not
address aspects of U.S. federal income tax that may apply to holders that are
subject to special tax rules, including:
- insurance companies,
- tax-exempt organizations,
- financial institutions,
- dealers in securities,
- traders in securities who elect to apply a mark-to-market method of
accounting,
- foreign persons,
- persons who acquired shares of Cyprus Amax common stock pursuant to an
exercise of employee stock options or rights or otherwise as
compensation, and
- persons who hold shares of Cyprus Amax common stock as part of a
straddle, conversion transaction, or constructive sale.
Also, this summary does not address state, local or foreign tax consequences of
Phelps Dodge's offer or the Phelps Dodge/Cyprus Amax merger. This summary is
based on current law, and future legislative, judicial or administrative changes
or interpretations, which may be retroactive, could affect the accuracy of this
discussion.
For purposes of this discussion, a "U.S. Holder" means a holder of Cyprus
Amax shares that is
- a citizen or resident of the United States,
- a corporation organized in or under the laws of the United States or any
political subdivision thereof or therein,
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or
- a trust if a U.S. court can exercise primary supervision over the
administration of such trust and one or more U.S. persons has the
authority to control all of the substantial decisions of such trust.
Reorganization Treatment
In the opinion of Shearman & Sterling, special counsel to Phelps Dodge,
while not entirely free from doubt, the exchange of Cyprus Amax common stock for
Phelps Dodge common stock and/or cash pursuant to Phelps Dodge's offer and the
Phelps Dodge/Cyprus Amax merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code (the "Code"). This
opinion is based on certain factual assumptions and representations including
that (i) none of Cyprus Amax, Phelps Dodge or any related party will acquire or
redeem, in connection with the transaction, shares of Phelps Dodge issued to
Cyprus Amax shareholders pursuant to Phelps Dodge's offer or the Phelps
Dodge/Cyprus Amax merger or shares of Cyprus Amax, to the extent inconsistent
with the continuity of shareholder interest requirements for corporate
reorganizations; (ii) the value of Phelps Dodge common stock issued pursuant to
Phelps Dodge's offer and the
21
<PAGE> 26
Phelps Dodge/Cyprus Amax merger will constitute more than 40% of the overall
consideration furnished to Cyprus Amax shareholders in the transaction
(including to Cyprus Amax shareholders who exercise dissenters' rights and to
holders of Cyprus Amax Series A convertible preferred stock); (iii) Cyprus Amax
will be merged into CAV Corporation; (iv) Cyprus Amax and its successor will
continue its historic business or will use a significant portion of its historic
business assets in a business, and will continue to hold substantially all of
its pre-merger assets; and (v) Phelps Dodge's offer and the Phelps Dodge/Cyprus
Amax merger will generally be consummated as provided by the prospectus dated
October 1, 1999. The tax opinions referred to in this summary will not be
binding on the Internal Revenue Service (the "IRS") or the courts, and the
parties do not intend to request a ruling from the IRS with respect to the
merger. Accordingly, Phelps Dodge cannot be certain that the IRS will not
challenge the conclusions reflected in those opinions or that a court will not
sustain such challenge.
Assuming that the exchange of Cyprus Amax common stock for Phelps Dodge
common stock pursuant to Phelps Dodge's offer and the Phelps Dodge/Cyprus Amax
merger will be treated for U.S. federal income tax purposes as an exchange
pursuant to a plan of reorganization within the meaning of Section 368(a) of the
Code, as described above, Shearman & Sterling is further of the opinion that the
following summarizes the material U.S. federal income tax consequences will
result to a U.S. Holder of the exchange of Cyprus Amax shares for Phelps Dodge
common stock and/or cash pursuant to Phelps Dodge's offer and the Phelps Dodge/
Cyprus Amax merger.
Receipt only of cash
In general, a U.S. Holder who receives only cash in exchange for Cyprus
Amax shares pursuant to Phelps Dodge's offer and the Phelps Dodge/Cyprus Amax
merger will recognize capital gain or loss equal to the difference between the
amount of cash received and such U.S. Holder's adjusted tax basis in the Cyprus
Amax shares surrendered (unless the U.S. Holder actually or constructively owns
Phelps Dodge common stock and the receipt of cash has the effect of the
distribution of a dividend for U.S. federal income tax purposes as discussed
below under "-- Receipt of Phelps Dodge common stock and cash"). Such gain or
loss will be long-term capital gain or loss if, as of the effective date of the
Phelps Dodge/Cyprus Amax merger, the holding period for such Cyprus Amax shares
is more than one year.
Receipt only of Phelps Dodge common stock
A U.S. Holder who receives only Phelps Dodge common stock in exchange for
Cyprus Amax shares pursuant to Phelps Dodge's offer and the Phelps Dodge/Cyprus
Amax merger will not recognize any gain or loss upon such exchange (except to
the extent cash is received in lieu of a fractional share of Phelps Dodge common
stock, which will be taxed as discussed below). The aggregate adjusted tax basis
of Phelps Dodge common stock received in such exchange, including any fractional
interest in Phelps Dodge common stock for which cash is received, will be equal
to the aggregate adjusted tax basis of the Cyprus Amax shares surrendered
therefor. The holding period of Phelps Dodge common stock will include the
holding period of such Cyprus Amax shares.
Receipt of Phelps Dodge common stock and cash
A U.S. Holder who receives a combination of cash and Phelps Dodge common
stock in exchange for Cyprus Amax shares pursuant to Phelps Dodge's offer and
the Phelps Dodge/Cyprus Amax merger will recognize gain, if any, with respect to
the shares so exchanged but only to the extent of the lesser of (a) the amount
of gain realized with respect to the Cyprus Amax shares and (b) the amount of
cash received (other than cash received in lieu of a fractional share of Phelps
Dodge common stock, which will be taxed as discussed below). The amount of gain
realized with respect to the Cyprus Amax shares exchanged will equal the excess,
if any, of the sum of the cash (including cash received in lieu of a fractional
share) and the fair market value of Phelps Dodge common stock received over the
U.S. Holder's adjusted tax basis in such Cyprus Amax shares. No loss will be
recognized by a U.S. Holder who receives a combination of cash and Phelps Dodge
common stock pursuant to Phelps Dodge's offer and the Phelps Dodge/Cyprus Amax
merger (except in connection with cash received in lieu of a fractional share,
as discussed below). Each Cyprus Amax
22
<PAGE> 27
share, or block of shares acquired at the same price, will be treated as
exchanged for a pro rata portion of cash and Phelps Dodge common stock.
Any gain recognized will be treated as capital gain unless, as discussed
below, the receipt of the cash has the effect of the distribution of a dividend
for U.S. federal income tax purposes, in which case such gain will be treated as
ordinary dividend income to the extent of the U.S. Holder's ratable share of
Cyprus Amax's accumulated earnings and profits. Any capital gain will be
long-term capital gain if, as of the date of the exchange, the holding period
for the Cyprus Amax shares exchanged is more than one year.
The adjusted tax basis of Phelps Dodge common stock received by a U.S.
Holder in exchange for Cyprus Amax shares pursuant to Phelps Dodge's offer and
the Phelps Dodge/Cyprus Amax merger, including any fractional interest in a
share of Phelps Dodge common stock for which cash is received, generally will be
equal to the tax basis of the shares surrendered therefor, decreased by the
amount of cash received and increased by the amount of gain or dividend income
recognized, if any. The holding period of Phelps Dodge common stock received
with include the holding period of the Cyprus Amax shares, exchanged therefor.
The exchange will not have the effect of a dividend with respect to a U.S.
Holder if either the exchange is substantially disproportionate with respect to
the U.S. Holder or the exchange results in a meaningful reduction in the U.S.
Holder's interest in Phelps Dodge stock. The exchange would be substantially
disproportionate with respect to the U.S. Holder if the U.S. Holder's percentage
interest in Phelps Dodge stock (including stock constructively owned by such
U.S. Holder) immediately after the Phelps Dodge/ Cyprus Amax merger is less than
80 percent of what the percentage interest would have been if, hypothetically,
the U.S. Holder had elected to receive solely Phelps Dodge common stock in
exchange for all Cyprus Amax shares owned or constructively owned by the U.S.
Holder before the Phelps Dodge/Cyprus Amax merger and no consideration other
than shares of Phelps Dodge common stock were received. Whether an exchange
would result in a meaningful reduction depends on the particular U.S. Holder's
facts and circumstances. However, the exchange should generally result in a
meaningful reduction if the U.S. Holder's percentage interest in Phelps Dodge
stock, immediately after the Phelps Dodge/Cyprus Amax merger (including shares
owned and constructively owned), is minimal, the U.S. Holder exercises no
control over corporate affairs of Cyprus Amax or Phelps Dodge, and the U.S.
Holder's percentage interest in Phelps Dodge common stock is actually reduced
from what the interest would have been if, hypothetically, the U.S. Holder had
elected to receive solely Phelps Dodge common stock in exchange for all Cyprus
Amax shares owned or constructively owned by the U.S. Holder before the Phelps
Dodge/Cyprus Amax merger. In determining a U.S. Holder's interest in Phelps
Dodge stock, the U.S. Holder would be deemed to own any shares of Phelps Dodge
common stock owned, or constructively owned, by certain persons related to such
U.S. Holder or that are subject to an option held by the U.S. Holder or a
related person.
U.S. Holders should consult their own tax advisors as to the possibility
that all or a portion of any cash received in exchange for their Cyprus Amax
common stock will be treated as a dividend and with respect to the consequences
thereof, including the eligibility of U.S. Holders that are corporations for a
dividends received deduction and treatment of the dividend as an "extraordinary
dividend" under section 1059 of the Code.
Cash received in lieu of a fractional Phelps Dodge common share
A U.S. Holder who receives cash in lieu of a fractional share of Phelps
Dodge common stock and who does not otherwise hold shares of Phelps Dodge common
stock generally will recognize gain or loss equal to the difference between the
amount of cash received and the U.S. Holder's tax basis in such fractional
share. Such gain or loss will be long-term capital gain or loss if, as of the
date of the exchange, the holding period for such shares is more than one year.
U.S. Holders who separately hold shares of Phelps Dodge common stock should
consult their own tax advisors concerning the treatment of cash received for a
fractional share.
Cyprus Amax Rights
Because there is no specific binding authority dealing with securities such
as the Cyprus Amax Rights, Shearman & Sterling expresses no view with respect to
the U.S. federal income tax treatment of the Cyprus
23
<PAGE> 28
Amax Rights becoming separately transferable apart from the Cyprus Amax shares
(the date on which such event occurs being a "Cyprus Amax Distribution Date"),
the redemption of the Cyprus Amax Rights or the acquisition by us of the Cyprus
Amax Rights. Stockholders should consult their tax advisors as to the tax
consequences of transactions with respect to the Cyprus Amax Rights.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY AND DOES NOT PURPORT
TO BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS OF THE
TRANSACTION. CYPRUS AMAX STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES TAX
CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM.
ACCOUNTING TREATMENT
The merger of Cyprus Amax into a subsidiary of Phelps Dodge will be
accounted for under the purchase method of accounting under U.S. generally
accepted accounting principles, which means that Cyprus Amax's results of
operations will be included with Phelps Dodge's from the closing date and its
consolidated assets and liabilities will be recorded at their fair values at the
same date.
REGULATORY MATTERS
Under the HSR Act, and the rules that have been promulgated thereunder (the
"Rules"), some acquisitions may not be consummated unless information has been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the Federal Trade Commission (the "FTC") and some waiting period
requirements have been satisfied. The acquisition of Cyprus Amax shares pursuant
to Phelps Dodge's exchange offer was subject to the HSR Act. On September 10,
1999 Phelps Dodge filed with the Antitrust Division and the FTC
Hart-Scott-Rodino Notification and Report Forms with respect to its offers for
Asarco and Cyprus Amax. On September 24, 1999, the FTC granted Phelps Dodge
early termination of the waiting periods under the HSR Act for Phelps Dodge's
offers to acquire Asarco and Cyprus Amax. Federal and state antitrust
enforcement agencies frequently scrutinize under the antitrust laws transactions
such as Phelps Dodge's acquisition of Cyprus Amax shares pursuant to Phelps
Dodge's offer. Any such agency could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking to
enjoin the acquisition by Phelps Dodge of more Cyprus Amax shares or seeking
divestiture of Cyprus Amax shares acquired by Phelps Dodge or divestiture of
assets of Phelps Dodge and/or Cyprus Amax. Private parties may also bring legal
action under the antitrust laws under some circumstances. On September 20, 1999,
Asarco initiated such an action against Phelps Dodge, which is discussed above
under " -- Litigation." Phelps Dodge and Cyprus Amax conduct operations in a
number of jurisdictions where other regulatory filings or approvals may be
required or advisable in connection with the completion of the business
combination between Phelps Dodge and Cyprus Amax.
Some large Cyprus Amax stockholders (those that would receive more than $15
million in Phelps Dodge shares or, in certain cases, more than 10% of Phelps
Dodge's shares) may be required to make separate filings with the FTC and
Antitrust Division under the HSR Act and the Rules in conjunction with the
receipt of shares of Phelps Dodge common stock. If you must make such a filing,
you will then be required to observe applicable waiting periods under the HSR
Act and the Rules before receiving shares of Phelps Dodge common stock. If you
are obligated to make such a filing, Phelps Dodge will hold in escrow the shares
of Phelps Dodge common stock to be exchanged, pursuant to the Rules, pending
expiration or early termination of the waiting period.
24
<PAGE> 29
THE COMPANIES
PHELPS DODGE CORPORATION
Phelps Dodge Corporation is among the world's largest producers of copper,
carbon black and magnet wire, and is the world's largest producer of
continuous-cast copper rod. Phelps Dodge comprises two divisions: (i) Phelps
Dodge Mining Company and (ii) Phelps Dodge Industries.
- Phelps Dodge Mining Company is a business segment that includes our
worldwide copper operations from mining through rod production, marketing
and sales, other mining operations and investments, and worldwide mineral
exploration and development programs.
- Phelps Dodge Industries includes our specialty chemicals segment, our
wire and cable segment, and, until they were sold in 1998, our wheel and
rim operations.
In 1998, Phelps Dodge Mining Company produced 874,000 tons of copper for
Phelps Dodge's account from worldwide mining operations, and an additional
178,700 tons of copper for the accounts of Phelps Dodge's minority interest
partners. Gold, silver, molybdenum, copper chemicals and sulfuric acid are by-
products of Phelps Dodge's copper operations. Production of copper for our own
account from Phelps Dodge's U.S. operations constituted approximately 33 percent
of the copper mined in the United States in 1998. Much of Phelps Dodge's U.S.
cathode copper production, together with additional copper purchased from
others, is used to produce continuous-cast copper rod, the basic feed for the
electrical wire and cable industry.
Phelps Dodge's international mining interests include Candelaria, a major
copper mine in Chile, and other operations and investments in Chile and Peru.
These operations produce a variety of metals and minerals including copper,
gold, silver, and zinc. Phelps Dodge also explores for metals and minerals
throughout the world.
In addition to Phelps Dodge's mining interests, Phelps Dodge produces
engineered products principally for the global energy, telecommunications,
transportation and specialty chemicals sectors through Phelps Dodge Industries.
Specialty chemicals are produced at Columbian Chemicals Company which is among
the world's largest producers of carbon black. Carbon black is a reinforcing
agent in natural and synthetic rubber that increases the service life of tires,
hoses, belting and other products for the rubber industry. Phelps Dodge also
produces specialty carbon black for other industrial applications such as
pigments for printing, coatings, plastics and other non-rubber applications.
Phelps Dodge's wire and cable segment comprises Phelps Dodge Magnet Wire
Company and its subsidiaries and Phelps Dodge International Corporation and its
affiliates. This segment produces wire and cable products and specialty
conductors at U.S. and international operations. Phelps Dodge Magnet Wire
Company produces magnet wire and other copper products for sale principally to
original equipment manufacturers for use in electrical motors, generators,
transformers and other products. Phelps Dodge International Corporation
manufactures telecommunication and energy cables and specialty conductors.
Phelps Dodge employed 13,193 people on June 30, 1999.
Phelps Dodge has its principal executive offices at 2600 North Central
Avenue, Phoenix, Arizona 85004-3014 (telephone number (602) 234-8100).
CYPRUS AMAX MINERALS COMPANY
Cyprus Amax, a Delaware corporation organized in 1969, is a major mining
company engaged, directly or through its subsidiaries and affiliates, in the
exploration for and extraction, processing, and marketing of mineral resources.
Cyprus Amax is a leading copper producer and the world's largest producer of
molybdenum. In October 1999, Cyprus Amax entered into an agreement to sell its
approximately 30% interest in Kinross Gold Corporation. The sale closed on
October 27, 1999. Cyprus Amax sold certain eastern and midwestern coal
operations in June 1998 and sold its lithium business in October 1998. Cyprus
Amax sold its remaining U.S. coal operations in June 1999. Cyprus Amax still
holds its Australian coal properties. As of June 30, 1999, Cyprus Amax and its
subsidiaries employed approximately 4,600 employees.
Cyprus Amax has its principal executive offices at 9100 East Mineral
Circle, Englewood, Colorado 80112 (telephone number (303) 643-5000).
25
<PAGE> 30
THE PHELPS DODGE/CYPRUS AMAX MERGER AGREEMENT
We believe this summary describes the material terms of the merger
agreement. However, we recommend that you read carefully the complete agreement
for the precise legal terms of the merger agreement and other information that
may be important to you.
THE OFFER
Conditions. Phelps Dodge's obligation to complete the offer was subject to
the following conditions:
- a majority of the outstanding shares of Cyprus Amax having been tendered
and not withdrawn (the "Minimum Condition");
- the approval by Phelps Dodge's stockholders of the issuance of Phelps
Dodge common stock in the offer and the merger;
- such shares of Phelps Dodge common stock having been authorized for
listing on the NYSE, subject to official notice of issuance;
- the effectiveness of the registration statement for such common stock;
- no legal restraint such as an injunction having been in effect that would
have prevented consummation of the offer;
- no change in tax law that would have been inconsistent with the merger
qualifying as a reorganization under Section 368(a) of the Code;
- accuracy of representations and warranties of Cyprus Amax, unless failure
to be accurate would not reasonably have been expected to have a material
adverse effect on Cyprus Amax; and
- compliance by Cyprus Amax in all material respects with material
agreements and covenants in the merger agreement.
Phelps Dodge had agreed that, without the prior written consent of Cyprus
Amax, no change could be made to the Minimum Condition or which would have
decreased the price per share of Cyprus Amax common stock payable in the offer,
which would have changed the form of consideration payable in the offer, which
would have reduced the maximum number of shares of Cyprus Amax common stock to
be acquired in the offer, which would have imposed conditions to the offer in
addition to those set forth in the merger agreement, or which would have amended
any other term of the offer in any manner adverse to the holders of the Cyprus
Amax common stock. Without the prior written consent of Cyprus Amax, Phelps
Dodge could not waive the Minimum Condition if, as a result, Purchaser would
have acquired less than a majority of the Cyprus Amax common stock outstanding.
In accordance with these terms, when the offer expired on October 15, 1999,
Phelps Dodge, through Purchaser, purchased all of the Cyprus Amax common shares
validly tendered and not withdrawn.
Consideration and Election Procedure. The merger agreement provides for
the consideration that Phelps Dodge was required to pay in the offer, including
election and proration procedures.
Expiration or Termination of Amended Offer. Phelps Dodge agreed that,
without the prior written consent of Cyprus Amax, Phelps Dodge would not
terminate or withdraw the offer or extend the expiration date of the offer
unless at the expiration date of the offer the conditions to the offer would not
have been satisfied or earlier waived. If, at the expiration date of the offer,
the conditions to the offer had not been satisfied or earlier waived but there
had been a reasonable possibility that such conditions might be satisfied prior
to March 31, 2000, Phelps Dodge would have been required to extend the
expiration date of the offer for an additional period or periods of time, each
of which being no longer than five business days, until the date such conditions
would have been satisfied or earlier waived and Phelps Dodge would have become
obligated to accept for payment and pay for shares of Cyprus Amax common stock
tendered pursuant to the offer; provided, however, that if the condition to the
offer relating to a material breach by Cyprus Amax had not been satisfied at the
expiration date and Phelps Dodge had given notice of the breach that had caused
such
26
<PAGE> 31
condition not to be satisfied, Phelps Dodge would have had no further obligation
to extend the expiration date of the offer if such breach had not been cured
within 30 days of such notice.
FORM OF MERGER
If all the conditions to the merger are satisfied or waived in accordance
with the merger agreement, Purchaser, a wholly owned subsidiary of Phelps Dodge,
will merge with Cyprus Amax, with Purchaser surviving (the "Surviving
Corporation"). As a result of the merger, the identity and separate existence of
Cyprus Amax shall cease. The merger will become effective when the applicable
certificate of merger is filed with the Secretary of State of the State of
Delaware. It is currently anticipated that the merger will become effective
during the fourth quarter of 1999.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the time the merger becomes effective,
Conversion of Cyprus Amax Common Stock. Subject to no fractional shares
being issued, each issued and outstanding share of Cyprus Amax common stock
(other than shares to be canceled in accordance with the merger agreement) shall
be converted into the Cyprus Stock Consideration, the Cyprus Cash Consideration
or a combination thereof, determined pursuant to provisions of the merger
agreement (such consideration is referred to herein as the "Merger
Consideration"). If there is an excess of cash elections with respect to the
offer, each outstanding share of Cyprus Amax common stock will be converted in
the merger into the right to receive 0.3500 Phelps Dodge common shares (the
"Cyprus Amax Stock Consideration"). If there is an excess of stock elections
with respect to the offer, each outstanding share of Cyprus Amax common stock
will be converted in the merger into the right to receive $20.54 net in cash,
without interest (the "Cyprus Amax Cash Consideration"). If there is not an
excess of cash or stock elections, each outstanding share of Cyprus Amax common
stock will be converted in the merger into (i) an amount of cash equal to the
Cyprus Amax Merger Cash Amount (as hereinafter defined), without interest, and
(ii) a number of shares of Phelps Dodge common stock equal to the Cyprus Amax
Merger Stock Amount (as hereinafter defined). The Cyprus Amax Merger Cash Amount
and the Cyprus Amax Merger Stock Amount will be determined as follows:
1. The aggregate amount of Cyprus Amax Cash Consideration actually
paid in the Offer will be subtracted from the Total Cyprus Amax Available
Cash (as hereinafter defined) to determine the amount of cash available to
be paid in the merger (the "Aggregate Cyprus Amax Merger Cash
Consideration"). "Total Cyprus Amax Available Cash" equals (i) the number
of shares of Cyprus Amax common stock exchanged in the offer plus the
number of shares of Cyprus Amax common stock to be converted in the Cyprus
Amax Merger, multiplied by (ii) $7.61176875.
2. The Aggregate Cyprus Amax Merger Cash Consideration will be
divided by the number of shares of Cyprus Amax common stock to be converted
in the merger, to determine the amount of cash consideration to be paid in
respect of each such share of Cyprus Amax common stock in the merger (the
"Cyprus Amax Merger Cash Amount").
3. The aggregate number of shares of Phelps Dodge common stock
actually issued as Cyprus Amax Stock Consideration in the offer will be
subtracted from the Total Cyprus Amax Available Stock (as hereinafter
defined) to determine the number of shares of Phelps Dodge common stock
available to be paid in the merger (the "Aggregate Cyprus Amax Merger Stock
Consideration"). "Total Cyprus Amax Available Stock" equals (i) the number
of shares of Cyprus Amax common stock exchanged in the offer plus the
number of shares of Cyprus Amax common stock to be converted in the merger,
multiplied by (ii) 0.2203.
4. The Aggregate Cyprus Amax Merger Stock Consideration will be
divided by the number of shares of Cyprus Amax common stock to be converted
in the merger, to determine the number of shares of Phelps Dodge common
stock to be issued in respect of each such share of Cyprus Amax common
stock in the merger (the "Cyprus Amax Merger Stock Amount").
27
<PAGE> 32
As of the effective time of the merger, all such shares of Cyprus Amax
common stock shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate or certificates which immediately prior to the effective time
represented outstanding shares of Cyprus Amax common stock shall cease to
have any rights with respect thereto, except the right to receive (x) if
the Merger Consideration includes Phelps Dodge common stock, (i) Phelps
Dodge certificates, (ii) certain dividends and other distributions in
accordance with the merger agreement, and (iii) cash instead of fractional
shares of Phelps Dodge common stock in accordance with the merger
agreement, without interest, and (y) if the Merger Consideration includes
cash, the appropriate cash amounts.
Dissenting Shares. Shares of Cyprus Amax common stock that are outstanding
immediately prior to the time the merger becomes effective and which are held by
persons who have properly demanded appraisal for their shares in accordance with
Section 262 of the Delaware General Corporation Law shall not be converted into
the right to receive the Merger Consideration. Such persons shall be entitled to
receive payment of the appraised value of such shares.
EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES
Exchange Agent. At the time the merger becomes effective, Phelps Dodge
shall enter into an agreement with a bank or trust company that is reasonably
satisfactory to Cyprus Amax, with which Phelps Dodge shall deposit cash and
certificates representing the number of whole shares of Phelps Dodge common
stock issuable pursuant to the merger agreement in exchange for outstanding
shares of Cyprus Amax common stock. Soon after the completion of the merger, we
will send a letter to each person who was a Cyprus Amax stockholder at the time
the merger became effective. The letter will contain instructions on how to
surrender Cyprus Amax stock certificates to the exchange agent and receive
shares of Phelps Dodge and cash. See "-- Consideration to be Received in the
Merger."
Dividends. Holders of Cyprus Amax common stock will not be entitled to
receive any dividends or other distributions payable by Phelps Dodge until they
exchange their Cyprus Amax stock certificates for certificates representing
shares of Phelps Dodge common stock. Once they deliver their Cyprus Amax stock
certificates to the exchange agent, those stockholders will receive, subject to
applicable laws, accumulated dividends and distributions, without interest.
Fractional Shares. No fractional shares of Phelps Dodge common stock will
be issued upon the surrender of certificates representing shares of Cyprus Amax
common stock. No dividend or other distribution of Phelps Dodge will relate to
any such fractional shares and no such fractional shares will entitle the owner
thereof to any voting or other rights of a stockholder of Phelps Dodge.
Holders of Cyprus Amax common stock otherwise entitled to fractional shares
of Phelps Dodge common stock will receive a cash payment instead of such
fractional shares. Following the effective time, the exchange agent will
determine the excess of the number of whole shares of Phelps Dodge common stock
delivered to the exchange agent by Phelps Dodge for distribution to Cyprus Amax
stockholders over the aggregate number of whole shares of Phelps Dodge common
stock to be distributed to Cyprus Amax stockholders. The exchange agent will
then, on behalf of the former stockholders of Cyprus Amax, sell the excess
shares at then prevailing prices on the New York Stock Exchange, all in the
manner provided in the merger agreement.
As soon as practicable after the determination of the amount of cash to be
paid to holders of Cyprus Amax common stock with respect to any fractional share
interests, the exchange agent will make available such amounts to such holders
of Cyprus Amax stock subject to and in accordance with the terms of the merger
agreement.
SURVIVING CORPORATION FOLLOWING THE MERGER
Name of Surviving Corporation. The name of the Surviving Corporation from
and after the effective time of the merger (the "effective time") shall be
"Cyprus Amax Minerals Company" until changed or amended in accordance with
applicable Law.
28
<PAGE> 33
- labor relations; and
- no prior activities conducted by SubC.
All representations and warranties of Phelps Dodge and Cyprus Amax expire
at the time the merger becomes effective.
COVENANTS IN THE MERGER AGREEMENT
The merger agreement provides that, until the merger has been completed,
neither of us will take certain actions without the consent of the other party
or as otherwise permitted by the merger agreement. More specifically, we have
agreed to the following with respect to ourselves and, where applicable, our
subsidiaries, except as otherwise permitted by the merger agreement:
- Conduct of Operations. We will conduct our business operations according
to their ordinary and usual course of business in substantially the same
manner as conducted prior to the merger agreement.
- Preserve Organizations. We will use our reasonable best efforts to
preserve intact our business organizations and goodwill, keep available
the services of our current officers and other key employees, and
preserve our business relationships.
- Parties to Confer. We will confer with each other and report on material
operational matters and the general status of ongoing operations.
- Notice of Certain Events. We will notify each other of certain changes
or events which would have a material adverse effect on Phelps Dodge or
Cyprus Amax, as the case may be.
- Dividends and Reclassifications. We will not declare or pay any
dividends on or make any distribution with respect to our outstanding
shares of stock other than regular quarterly dividends on, in the case of
Phelps Dodge, its common stock, and, in the case of Cyprus Amax, its
common stock and preferred stock, and we will not split, combine or
reclassify any shares of our capital stock.
- Amendments to Plans. We will not enter into or amend our employee
benefit plans or employment agreements, except in the ordinary course of
business consistent with past practice, as otherwise provided in the
merger agreement or as required by law.
- Business Combinations; Assets. We will not enter into any business
combinations, acquisitions or dispositions of material amounts of assets
or securities, or release any material contract rights, in each case not
in the ordinary course of business.
- Governing Documents. We will not propose or adopt any amendments to our
corporate charters or by-laws.
- Issuance of Capital Stock. We will not issue or authorize the issuance
of any shares of our capital stock of any class, except that each of us
is permitted to issue shares of our common stock upon the exercise of
stock options or other rights outstanding on the date of the merger
agreement and in accordance with the terms of such options or other
rights in effect on the date of the merger agreement.
- Repurchase of Stock. We will not purchase or redeem any shares of our
stock or any rights, warrants or options to acquire any such shares,
except in the ordinary course of business in connection with employee
incentive and benefit plans or arrangements in existence on the date of
the merger agreement.
- Indebtedness. We will not incur, assume or prepay any indebtedness or
other material liabilities, other than indebtedness with a wholly owned
subsidiary or between wholly owned subsidiaries.
- Properties and Assets. We will not sell, lease, mortgage or otherwise
encumber or subject to any lien or otherwise dispose of any of our
properties or assets (including securitizations), other than in the
ordinary course of business consistent with past practice.
29
<PAGE> 34
- Tax Treatment. We will not take any actions that would reasonably be
expected to cause the merger not to constitute transactions described in
Section 368(a) of the Internal Revenue Code.
- Tax Election. We will not make any material tax election or settle or
compromise any material tax liability, other than in the ordinary course
of business consistent with past practice. Cyprus Amax may make an
election under Section 338(h)(10) of the tax code relating to the
completed sale of Cyprus Amax Coal Company.
- Agree to Take Actions. We agree not to take any of the foregoing actions
or take any action which would:
- make any of our representations or warranties contained in the merger
agreement untrue or incorrect, or
- result in any of the conditions to the merger set forth in the merger
agreement not being satisfied.
- Investigation. We have agreed that, subject to applicable laws or
regulations, prior to the time the merger becomes effective we will
afford one another's authorized representatives full and complete access
to our properties, books, contracts, commitments and records and any
document filed or received by us pursuant to applicable securities laws.
Also, we will each use our reasonable best efforts to cause our
representatives to furnish promptly to one another any additional
information about our respective businesses and properties as the other
or its duly authorized representatives may reasonably request. However,
neither of us will be required to disclose information to the other that
would cause significant competitive harm to the disclosing party or its
affiliates if the merger is not completed. All confidential information
obtained by Phelps Dodge or Cyprus Amax will be kept confidential.
Confidential information will be used only in connection with
consummating the transactions contemplated by the merger agreement.
STOCKHOLDER APPROVALS AND OTHER COOPERATION
We have agreed that we will together:
- prepare and file with the SEC, as soon as is reasonably practicable, an
information statement to be sent to Cyprus Amax after the offer;
- use our reasonable best efforts to have the information statement cleared
by the SEC;
- amend as necessary the registration statement of which this prospectus is
a part;
- as soon as is reasonably practicable, take all actions required under
state blue sky or securities laws in connection with the issuance of
shares of Phelps Dodge common stock in the merger;
- promptly prepare and file stock exchange listing applications covering
the shares of Phelps Dodge common stock issuable under the merger
agreement and use our reasonable best efforts to obtain, prior to the
time the merger becomes effective, approval for the listing of Phelps
Dodge common stock, subject only to official notice of issuance;
- cooperate with one another in order to lift any injunctions or remove any
other impediment to the consummation of the contemplated transactions;
and
- cooperate with one another in obtaining opinions of Shearman & Sterling,
special counsel to Phelps Dodge, and Wachtell, Lipton, Rosen & Katz,
special counsel to Cyprus Amax, concerning certain tax matters.
Each of us has also agreed:
- that Cyprus Amax will cause the information statement to be mailed to its
stockholders as promptly as practicable after it is cleared by the SEC;
- as soon as practicable following the date of the merger agreement, to
duly call and hold a meeting of our respective stockholders to obtain
approval of the merger and the other contemplated transactions;
30
<PAGE> 35
- subject to our ability to change our recommendation as described under
"--No Solicitation of Alternative Takeover Proposals" below, through our
boards of directors, to recommend to our respective stockholders that
they approve the merger and the other contemplated transactions;
- to use our best efforts to hold our stockholders meetings as soon as
practicable after the date of the merger agreement;
- that Phelps Dodge shall vote, or cause to be voted, all of the Cyprus
Amax common stock then owned by it or any of its subsidiaries or over
which it has direct or indirect voting authority in favor of the approval
of the Phelps Dodge Merger and of the approval and adoption of the merger
agreement; and
- that after Purchaser has purchased shares of Cyprus Amax common stock
through the offer, Phelps Dodge will be entitled to designate a number of
directors on the Cyprus Amax Board that will give Phelps Dodge a
percentage of representation on the Cyprus Amax Board equal to the
percentage of shares of Cyprus Amax common stock that it then owns.
- that the obligation of Phelps Dodge to obtain approvals under antitrust
laws is unconditional and not qualified by best efforts.
In addition, the merger agreement contains general covenants requiring each
of us to take any further action necessary or desirable to carry out the
purposes of the merger agreement and to use reasonable efforts to take all
actions necessary, proper or advisable to consummate the contemplated
transactions. These general requirements are limited so that neither of us will
be required to undertake divestitures which would have material adverse effects
on our companies.
NO SOLICITATION OF ALTERNATIVE TAKEOVER PROPOSALS
Cyprus Amax agreed that it will not, nor will it permit any of its
subsidiaries to, authorize or permit any of their respective directors,
officers, employees or any representative retained by Cyprus Amax or any of its
subsidiaries to, directly or indirectly through another person:
- solicit, initiate or encourage (whether by furnishing information or
otherwise), or take any other action designed to facilitate, any
inquiries or the making of any proposal which constitutes or reasonably
could be expected to lead to any Takeover Proposal (as defined below), or
- participate in any discussions or negotiations regarding any Takeover
Proposal.
A "Takeover Proposal" means, other than the transactions contemplated by
the merger agreement,
- any inquiry, proposal or offer, or any improvement, restatement,
amendment, renewal or reiteration of any such inquiry, proposal or offer,
from any person relating to any direct or indirect acquisition of a
business or equity securities of a Cyprus Amax or any of its
subsidiaries,
- any tender offer or exchange offer that if consummated would result in
any person beneficially owning any class of equity securities of Cyprus
Amax or any of its subsidiaries or
- any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Cyprus Amax or
any of its subsidiaries,
Except as provided in the next two paragraphs, neither the board of
directors of Cyprus Amax nor any committee of such board will do any of the
following:
- withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to the other party, the approval or recommendation by the
board of director or any committee, of the merger or the merger
agreement,
- approve or recommend, or propose publicly to approve or recommend, any
Takeover Proposal, or
- cause Cyprus Amax to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement related to
any Takeover Proposal.
31
<PAGE> 36
However, if the board of directors of Cyprus Amax receives a Takeover
Proposal and the board of directors of Cyprus Amax determines in good faith,
after consultation with outside counsel and its financial advisor that such
Takeover Proposal is reasonably capable of being completed, taking into account
all legal, financial, regulatory and other aspects of the proposal and would, if
consummated, result in a transaction more favorable to Cyprus Amax shareholders
than the transaction contemplated by the merger agreement, the board of
directors of Cyprus Amax may (x) take any of the actions described above or (y)
terminate the merger agreement (and concurrently with or after such termination,
if it so chooses, cause Cyprus Amax to enter into any acquisition agreement with
respect to any Takeover Proposal) but only after the fifth business day
following Phelps Dodge's receipt of written notice advising Phelps Dodge that
the board of directors of Cyprus Amax is prepared to accept a Takeover Proposal,
specifying the material terms and conditions of such Takeover Proposal and
identifying the person making such Takeover Proposal.
Notwithstanding any subsequent determination by the Board of Directors of
Cyprus Amax to change such recommendation, the merger agreement shall be
submitted to the stockholders of Cyprus Amax at the Cyprus Amax stockholder
meeting for the purpose of obtaining the Cyprus Amax stockholder approval and
nothing contained in the merger agreement shall be deemed to relieve Cyprus Amax
of such obligation.
The merger agreement does not prohibit us
- from taking and disclosing to our respective shareholders a position with
respect to a tender offer required by law, or
- from making any disclosure to our respective shareholders if, in the good
faith judgment of the board of directors, after consultation with outside
counsel, failure to disclose would be inconsistent with its obligations
under applicable law.
Each of us has agreed to notify promptly the other party orally and in
writing of any request for information or of any Takeover Proposal, the material
terms and conditions of such request or proposal and the identity of the person
making such request or proposal, and will keep the other party reasonably
informed of the status and details of any such request or proposal.
STOCK OPTIONS AND OTHER STOCK-BASED AWARDS
Simultaneously with the merger, each outstanding option to purchase Cyprus
Amax common stock and related stock appreciation right (SAR), if any, will be
converted into an option (together with an SAR, if applicable) to acquire the
number of shares of Phelps Dodge common stock equal to the number of shares of
Cyprus Amax common stock which could have been obtained upon the exercise of the
option immediately prior to the time the merger becomes effective multiplied by
the Cyprus Amax Stock Consideration.
In the case of an option to purchase Cyprus Amax common stock, the exercise
price per share of Phelps Dodge common stock will be adjusted to equal the
exercise price for such option as in effect immediately prior to the time the
merger becomes effective divided by the Cyprus Amax Stock Consideration. Phelps
Dodge will assume the obligations of Cyprus Amax with respect to such options.
Phelps Dodge will assume the obligations of Cyprus Amax under their respective
option plans and, except as described above, the terms of such options (and
SARs) shall continue to apply in accordance with the terms of the plans and
agreements under which they were issued, including any provisions for
acceleration.
Simultaneously with the merger, each outstanding award (including
restricted stock, performance units, shares units and performance shares) under
any employee incentive or benefit plan or arrangement and non-employee director
plan presently maintained by Cyprus Amax will be converted into a similar
instrument of Phelps Dodge, with appropriate adjustments to preserve the
inherent value of the awards with no detrimental effects on the holders. The
other terms of each award will continue to apply, including any provisions which
the restrictions will have lapsed on or prior to the time the merger becomes
effective, shares of such previously restricted stock will be converted in
accordance with the conversion provisions applicable to other shares of common
stock.
32
<PAGE> 37
Following the completion of the business combination, Phelps Dodge will
reserve for issuance and delivery a sufficient number of shares of Phelps Dodge
common stock upon the exercise of any Cyprus Amax stock options.
BENEFITS MATTERS
It is the intention of the parties that for a period of one year following
the completion of the business combination, Phelps Dodge will maintain the
employee benefit plans of Cyprus Amax generally in accordance with its terms in
effect at the completion of the business combination, with only amendments that
are required by applicable law or permitted by the terms of that agreement, and
which do not adversely affect the rights of participants under such agreement.
In addition, following the completion of the business combination, Phelps Dodge
will guarantee the performance of certain existing employment agreements and
benefit plans of Cyprus Amax.
Phelps Dodge has also agreed that it will
- waive any limitations regarding pre-existing conditions and eligibility
waiting periods under any welfare or employee benefit plan maintained by
Cyprus Amax following the completion of the business combination;
- provide employees of Cyprus Amax with credit for any co-payments and
deductibles paid in the calendar year prior to the completion of the
business combination; and
- generally, treat all service by employees of Cyprus Amax prior to the
completion of the business combination as service with Phelps Dodge under
all compensation and benefit plans and policies of Cyprus Amax.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
Phelps Dodge has agreed that all exculpation and indemnification provisions
now existing in favor of the current or former directors or officers of Cyprus
Amax as provided in its charter or bylaws or in any agreement will survive the
business combination. Phelps Dodge has agreed that, for six years from the time
the business combination becomes effective, it will indemnify such indemnified
parties to the same extent as they were entitled while working on behalf of
Cyprus Amax.
Phelps Dodge has also agreed that, for three years from the time the
business combination becomes effective, it will maintain in effect Cyprus Amax's
current directors' and officers' liability insurance policies for those persons
who are currently covered by the policies. However, Phelps Dodge will not be
required to expend in any one year more than 150% of the annual premiums
currently paid by Cyprus Amax. If the annual premiums of such insurance coverage
exceed the 150% limit, Phelps Dodge only will be obligated to obtain a policy
with the greatest coverage available for a cost not exceeding the limit. Phelps
Dodge is entitled to meet its obligations under this paragraph by covering the
relevant persons under its own insurance policies.
LITIGATION
Prior to the effective time of the merger, each of the parties will
terminate all litigation commenced against the other in connection with the
business combination and the Phelps Dodge exchange offer for Cyprus Amax shares.
Each party will also use its reasonable best efforts to have lawsuits commenced
by third parties in connection with those transactions to be dismissed with
prejudice.
CONDITIONS PRECEDENT TO THE MERGER
The merger agreement contains certain conditions to both parties,
obligations to complete the merger. Neither party will be obligated to complete
the business combination unless at or prior to the time the business combination
becomes effective:
- Stockholder Approval. The approval of the stockholders of Phelps Dodge
and Cyprus Amax have been obtained in accordance with applicable law.
33
<PAGE> 38
- Legality. No statute, rule, regulation, executive order, decree, ruling
or injunction by any tribunal or governmental authority prohibits the
consummation of the merger substantially on the terms contemplated by the
merger agreement.
- Acceptance of Shares. Purchaser shall have accepted for exchange all
shares of Cyprus Amax common stock validly tendered and not withdrawn
pursuant to the offer; provided, however, that this condition shall not
be applicable to the obligations of Purchaser if, in breach of the merger
agreement, Purchaser fails to accept for exchange and exchange any such
shares validly tendered and not withdrawn pursuant to such offer.
TERMINATION
The merger agreement may be terminated at any time prior to the time the
merger becomes effective, in any of the following circumstances:
- by our mutual written consent;
- by either of us if, without fault of either terminating party, the
purchase of Cyprus Amax common stock pursuant to the offer has not
occurred on or before March 31, 2000, which date can be extended by
mutual written consent;
- by either of us if the offer expires or is terminated or withdrawn
without any Cyprus Amax common stock being purchased; or
- by either of us if a court or governmental body has issued an order
(other than a temporary restraining order) enjoining or prohibiting the
purchase of Cyprus Amax common stock pursuant to the offer or the merger,
if such order has become final and nonappealable, so long as the party
seeking to terminate has used its reasonable best efforts to remove or
lift such order; or a statute, rule, regulation, order, injunction or
decree has been enacted, entered or promulgated which prohibits or makes
illegal the consummation of the merger substantially on the terms
contemplated by the merger agreement, and which order, injunction, or
decree has become final and nonappealable; or there shall have been a
failure to obtain any required consent or approval under foreign laws or
regulations which would prohibit consummation of the offer or the merger
or would have a material adverse effect on Phelps Dodge or Cyprus Amax;
- by the Phelps Dodge board of directors, at any time prior to the purchase
of any shares of Cyprus Amax common stock pursuant to the offer, if (i)
the Board of Cyprus Amax or any committee thereof shall have withdrawn or
modified in a manner which is adverse to Phelps Dodge its approval or
recommendation of the offer or the merger agreement, (ii) the Cyprus Amax
board shall have recommended another Takeover Proposal, (iii) there is a
public disclosure of another Takeover Proposal and the Minimum Tender
Condition is not satisfied, or (iv) the representations and warranties of
Cyprus Amax are not correct as of the date of this prospectus and as of
the expiration date of the offer as though made on and as of the date of
this prospectus and the expiration date of the offer except where the
failure of such representations and warranties to be so true and correct
would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Cyprus; and Cyprus shall have
performed or complied in all material respects with all the material
agreements and covenants required by this Agreement and such condition is
not satisfied within 30 days of notice;
- by Cyprus Amax, at any time prior to the acceptance for payment shares of
Cyprus Amax common stock under the offer if there is a material breach of
any of Phelps Dodge's representations, warranties or covenants contained
in the agreement which is not cured within 10 days of notice; and
- by Cyprus Amax in accordance with the provisions described under the
caption "-- No Solicitation of Alternative Takeover Proposals"; provided
that Cyprus Amax shall have complied with all provision of such section
and shall have paid the termination fee described below to Phelps Dodge.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some executive officers of Cyprus Amax and members of the Cyprus Amax board
of directors have interests in the Phelps Dodge/Cyprus Amax merger that are
different from, or in addition to, the interests of
34
<PAGE> 39
stockholders generally. Several executive officers of Cyprus Amax, including one
former officer who is also a director (Mr. Ward), have employment or severance
agreements and are or may become entitled to specific benefits under employee
benefit plans as a result of the Phelps Dodge/Cyprus Amax merger. Each of the
employee-directors and employees who are former directors of Cyprus Amax may be
entitled to receive compensation if the Phelps Dodge/Cyprus Amax merger is
completed. The Cyprus Amax board of directors was aware of and discussed these
potentially conflicting interests when it approved the Phelps Dodge/Cyprus Amax
merger.
CYPRUS AMAX EMPLOYMENT ARRANGEMENTS
Change of control severance agreements are in effect between Cyprus Amax
and seven of its executive officers, including Messrs. Malys, Clevenger, Philip
C. Wolf and John Taraba, and one of its former executive officers (Mr. Ward).
Under the change of control severance agreements, if, during the three-year
period following a change of control, the employment of a covered executive is
terminated by Cyprus Amax other than for cause or due to death or disability, or
employment is terminated by the covered executive for good reason (including a
termination for any reason during the 30-day period following the first
anniversary of a change of control, other than in the case of Mr. Taraba and two
of the three other executive officers), the covered executive will be entitled
to receive a cash severance payment consisting of the following amounts:
- a pro rata annual bonus through the date of termination, based on the
higher of (1) the target annual bonus for the year prior to the change of
control and (2) the annual bonus earned in the most recent fiscal year
following the change of control (the "highest annual bonus") and, in the
case of Mr. Taraba and two of the three other executive officers, based
on the target annual bonus for the year prior to the change of control
(the "target annual bonus"), plus
- three times (two times in the case of one of the other executive
officers) the sum of the covered executive's base salary and the highest
annual bonus (target annual bonus in the case of Mr. Taraba and two of
the three other executive officers).
The change of control severance agreements also provide for the payment of
any unpaid amounts due the executive under other benefit plans of Cyprus Amax
and any employment agreements between Cyprus Amax and the executive, but not for
duplicate benefits. If any amounts payable to the executives under the change of
control severance agreements or otherwise would be subject to the excise tax
under section 4999 of the U.S. tax code, an additional payment will be made so
that after the payment of all income and excise taxes, the covered executive
will be in the same after-tax position as if no excise tax under section 4999
had been imposed. However, if the executive would not receive a net after-tax
benefit of at least $50,000 after making these additional payments, no
additional payments will be made on account of the excise tax, and, instead, the
payments otherwise due to the covered executive will be reduced as necessary to
prevent the application of the excise tax.
The transactions contemplated by the Phelps Dodge/Cyprus Amax merger
agreement will constitute a change of control within the meaning of the change
of control severance agreements. Mr. Ward's employment was terminated on October
21, 1999. The cash severance payment (as described above) payable to Mr. Ward is
$8,029,445. Assuming the Phelps Dodge/Cyprus Amax merger occurs on November 30,
1999, if the employment of Messrs. Malys, Clevenger, Wolf and Taraba were to be
terminated immediately following the effective time of the merger, the estimated
amounts of the cash severance payments (as described above) payable to each of
these executive officers would be $1,932,958; $1,969,250; $1,458,500; and
$1,122,975, respectively. Assuming the Phelps Dodge/Cyprus Amax merger occurs on
November 30, 1999, if the employment of the three other executive officers were
to be terminated immediately following the effective time of the merger, the
estimated aggregate amount of the cash severance payments (as described above)
payable to these executive officers as a group would be $2,608,458.
Employment agreements are also in effect between Cyprus Amax and each of
Messrs. Ward, Malys, Clevenger, Wolf and Taraba. Pursuant to Mr. Ward's
employment agreement, if his employment is terminated by Cyprus Amax other than
due to breach of covenant, or by Mr. Ward for good reason, he will be entitled
to receive a payment equal to his salary and bonus through December 31, 2000,
plus the actuarial
35
<PAGE> 40
equivalent of the retirement benefits under the Cyprus Amax retirement plans
calculated as if he had remained employed through December 31, 2000. Mr. Ward's
employment was terminated on October 21, 1999. The additional retirement benefit
payable pursuant to the terms of Mr. Ward's employment agreement is $7,058,907.
Pursuant to the employment agreements with each of Messrs. Malys, Clevenger,
Wolf and Taraba, if the employment of the executive is terminated by Cyprus Amax
other than for cause, or by the executive for good reason, the executive will be
entitled to receive a payment equal to the accrued benefit under the Cyprus Amax
retirement plans calculated as if the executive had remained employed until the
date he would have first been eligible to receive an immediately payable
retirement benefit (but for no less than an 18-month period). The factors and
assumptions used to calculate these amounts vary over time; however, based on
reasonable factors and assumptions and assuming the Phelps Dodge/Cyprus Amax
merger occurs on November 30, 1999, if the employment of Messrs. Malys,
Clevenger, Wolf and Taraba were to be terminated immediately following the
effective time of the merger, the estimated amounts of the additional retirement
benefits payable pursuant to the terms of the employment agreements to each of
these executive officers is $490,900, $1,024,300, $676,600, and $513,300,
respectively. In addition, the employment agreements provide that Mr. Ward and
these executives will be entitled to receive retiree welfare benefit coverage
and outplacement services. The payments under the employment agreements may not
duplicate any amounts payable under the change of control severance agreements.
OTHER CYPRUS AMAX PLANS
CYPRUS AMAX SUPPLEMENTAL RETIREMENT PLANS
The completion of the exchange offer by Phelps Dodge resulted in a change
of control under the Cyprus Amax supplemental retirement plan, pursuant to which
participants became entitled to receive immediately, unless otherwise elected by
the participant, the actuarial equivalent of a participant's vested accrued
benefit under the plan. The completion of the exchange offer by Phelps Dodge
also resulted in a change of control under the Cyprus Amax full retirement
benefit plan, pursuant to which benefits under the plan fully vested and
participants became entitled to receive, unless otherwise elected by the
participant, the actuarial equivalent of the participant's benefit under the
plan computed as of the date of the change of control.
CYPRUS AMAX STOCK-BASED RIGHTS
Any option or stock appreciation right to acquire shares of Cyprus Amax
stock that is not exercised before the completion of the Phelps Dodge/Cyprus
Amax merger will be converted into an option to purchase or right with respect
to the number of shares of Phelps Dodge common stock equal to 0.3500 Phelps
Dodge common shares times the number of shares of Cyprus Amax common stock which
would have been obtained upon the exercise of the option immediately prior to
the time the Phelps Dodge/Cyprus Amax merger becomes effective.
The completion of the exchange offer by Phelps Dodge resulted in a change
of control under Cyprus Amax's stock-based plans, pursuant to which unvested
stock options became fully vested and exercisable and all restrictions
(including all performance goals) on restricted stock awards lapsed or were
considered to be earned in full. In addition, pursuant to one of the Cyprus Amax
stock-based plans, upon the change of control of Cyprus Amax, each participant
became entitled to the immediate payment of the deferred cash incentive award,
to be used as a tax reimbursement, that was granted in connection with
restricted stock awarded under the plan. In connection with such change of
control:
- the estimated number of shares of Cyprus Amax common stock underlying
awards of stock options held by Messrs. Ward, Malys, Clevenger, Wolf and
Taraba and the three other executive officers as a group that vested as a
result of such change of control is 1,241,667; 185,000; 187,500; 124,000;
73,000; and 191,000, respectively;
- the estimated number of shares of Cyprus Amax restricted stock held by
Messrs. Ward, Malys, Clevenger, Wolf and Taraba and the three other
executive officers as a group that became free of restrictions as a
result of such change of control is 350,000; 114,850; 104,460; 70,798;
49,900; and 109,223, respectively; and
36
<PAGE> 41
- the estimated aggregate number of shares of Cyprus Amax common stock
underlying stock options held by nonemployee directors and former
directors that will vest as a result of the Cyprus Amax merger is 27,000.
INDEMNITY AND INSURANCE
The Phelps Dodge/Cyprus Amax merger agreement requires Phelps Dodge to
provide officers and directors of Cyprus Amax with liability insurance
arrangements that are at least comparable to those in effect at the time the
merger agreement was signed for a period of three years following the business
combination. Phelps Dodge will not be required to expend in any one year more
than 150% of the annual premiums currently paid by Cyprus Amax. If the annual
premiums of such insurance coverage exceed the 150% limit, Phelps Dodge only
will be obligated to obtain a policy with the greatest coverage available for a
cost not exceeding the limit. Phelps Dodge is entitled to meet these obligations
by covering the relevant persons under its own insurance policies.
The Phelps Dodge/Cyprus Amax merger agreement also requires Phelps Dodge to
indemnify officers and directors of Cyprus Amax to the fullest extent permitted
by applicable law, and to the same extent that they were indemnified while
working on behalf of Cyprus Amax, for a period of six years following the
business combination. See "The Phelps Dodge/Cyprus Amax Merger
Agreement -- Indemnification; Directors' and Officers' Insurance."
RELATIONSHIPS WITH PHELPS DODGE
Shares of Apache Nitrogen Products, Inc. are held 49.2% by Phelps Dodge,
and 11.42% by Cyprus Miami Mining Corporation and 0.66% by Cyprus Mines
Corporation, both subsidiaries of Cyprus Amax. Apache Nitrogen has contracts
with several affiliates of Cyprus Amax, including the shareholders of Apache
Nitrogen and Cyprus Sierrita Corporation, Cyprus Bagdad Copper Corporation,
Cyprus Tohono Corporation and Cyprus Mineral Park Corporation, for the sale of
ANFO, an explosive mixture. Sales to Phelps Dodge annually range from $16-17
million, and sales to Cyprus Amax annually range from $6-8 million.
Phelps Dodge and Cyprus Amax are parties to a loan agreement, dated as of
October 22, 1999, pursuant to which Cyprus Amax agreed to lend to Phelps Dodge
$175 million at an interest rate of 6% per annum. The loan matures on December
15, 1999.
37
<PAGE> 42
MARKET PRICES AND DIVIDENDS
Phelps Dodge common shares are listed and principally traded on the NYSE
under the symbol "PD". Cyprus Amax common shares are listed and principally
traded on the NYSE under the symbol "CYM". The following table sets forth, for
the periods indicated, (1) the high and low last reported prices per Phelps
Dodge share and Cyprus Amax share, in each case as reported on the New York
Stock Exchange Composite Transaction Tape; and (2) the cash dividends per Phelps
Dodge share and Cyprus Amax share.
<TABLE>
<CAPTION>
PHELPS DODGE COMMON STOCK CYPRUS AMAX COMMON STOCK
-------------------------------- ---------------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter.................................. $79 $68 $0.50 $24 7/8 $21 1/4 $0.20
Second Quarter................................. 89 5/8 70 1/4 0.50 26 3/8 21 5/8 0.20
Third Quarter.................................. 87 15/16 75 1/16 0.50 26 13/16 22 3/8 0.20
Fourth Quarter................................. 79 13/16 59 7/8 0.50 25 14 7/16 0.20
1998
First Quarter.................................. $69 1/4 $58 1/16 $0.50 $17 7/8 $14 $0.20
Second Quarter................................. 71 3/4 56 1/8 0.50 17 7/8 13 0.20
Third Quarter.................................. 62 9/16 43 7/8 0.50 13 13/16 9 3/16 0.20
Fourth Quarter................................. 61 3/4 49 9/16 0.50 14 3/8 9 0.20
1999
First Quarter.................................. $61 5/16 $41 7/8 $0.50 $13 1/8 $ 9 3/8 $0.20
Second Quarter................................. 70 5/8 48 7/8 0.50 16 1/16 11 3/8 0.05
Third Quarter.................................. 66 3/4 55 1/16 0.50 19 5/8 12 7/8 0.05
Fourth Quarter (through November 1)............ 58 7/8 53 20 7/16 19 1/8 0.05
</TABLE>
On August 19, 1999, the last full trading day before Phelps Dodge publicly
announced its proposal to combine with Cyprus Amax, the reported high, low and
closing prices per Phelps Dodge common share and Cyprus Amax common share were
as follows:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C>
Phelps Dodge................................................ 58 15/16 57 11/16 58 9/16
Cyprus Amax................................................. 14 1/2 13 1/2 14 1/2
</TABLE>
On November 1, 1999, the most recent practicable date prior to the filing
of this Information Statement, the reported closing prices per Phelps Dodge
common share and Cyprus Amax common share were as follows: $56 and $19 7/16,
respectively.
WE URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS FOR PHELPS DODGE AND CYPRUS
AMAX COMMON SHARES.
38
<PAGE> 43
PHELPS DODGE CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
The following is a summary of selected consolidated financial data of
Phelps Dodge for each of the years in the five-year period ended December 31,
1998 and the six-month periods ended June 30, 1999 and 1998. This information is
derived from the selected audited financial data of Phelps Dodge contained in
Phelps Dodge's Annual Report on Form 10-K for the year ended December 31, 1998
and from the unaudited financial statements of Phelps Dodge contained in Phelps
Dodge's Quarterly Report on Form 10-Q for the period ended June 30, 1999, which
are incorporated by reference herein, and from Phelps Dodge's Quarterly Report
on Form 10-Q for the period ended June 30, 1998. See "Incorporation of Certain
Documents by Reference" on page 65. You should read this summary together with
these financial statements and their accompanying notes.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Sales........................ $1,354 $1,593 $3,063 $3,914 $3,787 $4,185 $3,289
Operating income (loss)...... (27)(a) 348(b) 423(c) 611(d) 713(e) 1,101(f) 400(g)
Earnings (loss) before
minority interests......... (61) 208 199 414 478 760 279
Minority interests........... -- (4) (8) (5) (16) (13) (8)
Net earnings (loss).......... (61) 204 191 409 462 747 271
Net earnings (loss) per
Common Share:
-- Basic................... $(1.04) $ 3.49 $ 3.28 $ 6.68 $ 7.02 $10.72 $ 3.84
-- Diluted................. $(1.04) $ 3.48 $ 3.26 $ 6.63 $ 6.98 $10.66 $ 3.82
Cash dividend per Common
Share...................... $ 1.00 $ 1.00 $ 2.00 $ 2.00 $ 1.95 $ 1.80 $ 1.69
BALANCE SHEET DATA
Cash and marketable
securities................. $ 144 $ 336 $ 222 $ 158 $ 470 $ 609 $ 287
Working capital.............. 196 516 329 350 736 950 558
Total assets................. 4,902 5,061 5,037 4,965 4,816 4,646 4,134
Stockholder's Equity......... 2,373 2,621 2,587 2,510 2,756 2,678 2,188
OTHER FINANCIAL DATA
Book value per common
share...................... $40.91 $44.66 $44.68 $42.81 $42.59 $39.04 $30.95
Debt as a % of
capitalization(h).......... 30.5% 26.6% 27.6% 27.7% 18.8% 20.2% 23.6%
Cash provided from operating
activities................. $ 46 $ 109 $ 378 $ 765 $ 838 $ 959 $ 543
</TABLE>
- ---------------
(a) Includes non-recurring restructuring charges of $83.0.
(b) Includes before-tax gain of $186.1 from the disposition of a 90 percent
interest in Accuride Corporation.
(c) Includes before-tax gain of $198.7 from the disposition of the 100 percent
interest in Accuride Corporation and a non-recurring, before-tax provision
of $7.8 for curtailments and indefinite closures primarily at Phelps Dodge
Mining Company.
(d) Includes $45.9 charge primarily for additional provisions of $23.0 for
estimated future costs associated with environmental matters and $19.1 for a
voluntary early retirement program.
(e) Includes reclamation reserves of $10.0 for the court-ordered rescission of a
1986 sale of property in Maspeth, New York, by the Corporation to the United
States Postal Service.
(f) Includes before-tax gain of $26.8 from the disposition of a Phelps Dodge
Industries' operating facility.
(g) Includes $98.7 charge for environmental costs and a before-tax loss of $59.0
for the disposition of certain operating facilities and mining properties.
(h) Total capitalization includes Debt, Minority Interest and Stockholders'
Equity.
39
<PAGE> 44
CYPRUS AMAX MINERALS COMPANY
SELECTED HISTORICAL FINANCIAL DATA
The following is a summary of selected consolidated financial data of
Cyprus Amax for each of the years in the five-year period ended December 31,
1998 and the six-month periods ended June 30, 1999 and 1998. This information is
derived from the Form S-4 Registration Statement filed by Asarco Cyprus
Incorporated in connection with the proposed Asarco-Cyprus Amax merger. This
information is only a summary and should be read together with the financial
statements and accompanying notes contained in Cyprus Amax's Annual Report on
Form 10-K for the year ended December 31, 1998, Cyprus Amax's Quarterly Report
on Form 10-Q for the period ended June 30, 1999 and Cyprus Amax's Quarterly
Report on Form 10-Q for the period ended June 30, 1998. See "Incorporation of
Certain Documents by Reference" on page 65.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- ----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(a)
Revenue.............................. $ 561 $ 870 $1,661 $1,978 $1,584 $1,908 $1,540
Operating income (loss).............. (13) 18 52 249 63 485 202
Income (loss) from Continuing
Operations(b)...................... (77) (53) (134) 89 15 367 104
Net Income (loss)(c)................. (74) (32) (75) 69 77 124 175
Earnings (loss) per Common Share:
Income (loss) from Continuing
Operations(b).................... $(0.95) $(0.67) $(1.65) $ 0.76 $(0.04) $ 3.75 $ 0.92
Net earnings (loss)(c)............. $(0.92) $(0.44) $(1.02) $ .54 $ 0.62 $ 1.13 $ 1.69
Cash Dividend per Common Share....... $ 0.25 $ 0.40 $ 0.80 $ 0.80 $ 0.80 $ 0.80 $ 0.90
BALANCE SHEET DATA
Cash and Cash Equivalents............ $1,275 $ 180 $ 353 $ 250 $ 193 $ 191 $ 139
Working capital...................... 970 232 250 297 304 292 423
Total assets......................... 4,746 5,441 5,341 6,459 6,786 6,196 5,407
Long-Term Debt and Capital Lease
Obligations........................ 1,525 1,791 1,718 2,202 2,554 1,877 1,391
Stockholders' Equity................. 2,059 2,264 2,157 2,330 2,360 2,365 2,329
OTHER FINANCIAL DATA
Book Value Per Common Share.......... $20.17 $22.21 $21.32 $22.99 $23.43 $23.62 $23.39
Long-Term Debt/Total
Capitalization(d).................. 42.3% 43.8% 43.9% 46.9% 50.4% 42.6% 37.4%
Net Long-Term Debt/Total
Capitalization(d)(e)............... 10.7% 41.2% 38.4% 44.0% 48.4% 40.0% 34.9%
Cash Provided by Operating
Activities......................... $ 47 $ 129 $ 237 $ 481 $ 440 $ 675 $ 110
</TABLE>
- ---------------
(a) The Cyprus Amax historical consolidated income statement data has been
restated to reflect the Domestic Coal Division as a Discontinued Operation
due to its sale effective June 30, 1999.
(b) Income (loss) from Continuing Operations reflects net after-tax copper
charges of $94 for environmental remediation liabilities and write-downs,
net after-tax gains of $123 from the sale of the lithium business, an
Oakbridge coal mine in Australia, and real estate, a net after-tax charge of
$22 for legal settlements, a net after-tax charge of $37 for Cyprus Amax's
share of the Kinross asset impairment and the sale by Kinross of the
pre-merger Amax Gold hedging portfolio, and an after-tax charge of $4 for
various special items in 1998; an after-tax charge of $13 for the write-
down of Oakbridge's Clarence mine in Australia, favorable tax adjustments of
$38, an after-tax gain of $19 on the sale of Kubaka to Amax Gold, and an
after-tax charge of $5 for the costs of redeeming the 9 7/8% Notes in 1997;
an after-tax charge of $74 for environmental remediation liabilities, costs
to temporarily close a copper mine, the write-down of the net assets of the
Guanaco gold mine, and an unrelated favorable tax adjustment for Amax Gold
in 1996; an after-tax charge of $4 to write-down assets of an Oakbridge mine
in Australia in 1995; and an after-tax gain of $21 for various special items
in 1994.
(c) Discontinued Operations for the six months ended June 30, 1999 included
earnings from the domestic coal business of $16 after-tax and a $13
after-tax loss on the sale of the coal assets. In addition, for the six
months ended June 30, 1998 and for the years 1994 through 1998, the results
have been restated to reflect the Domestic Coal Division as a discontinued
operation. Discontinued
(footnotes continued on next page)
40
<PAGE> 45
Operations included for the six months ended 1998 after-tax earnings of $21;
after-tax earnings of $59 that reflects a loss on the sale of certain
eastern and midwestern coal properties of $12 and favorable legal
settlements of $5 for 1998; after-tax loss of $20 that reflects charges of
$66 for write-downs for 1997; after-tax earnings of $62 for 1996; after-tax
loss of $243 that reflects a charge of $334 for the write-down of certain
coal assets and provisions for associated liabilities for 1995; and
after-tax earnings of $62 that reflects a write-down of $8 for the Orchard
Valley mine for 1994. Also in 1994 Discontinued Operations included income
from the Oil and Gas business for the first quarter of 1994 of $7 after-tax
and a $2 after-tax gain on the sale of Cyprus Amax-owned oil and gas assets.
(d) Total Capitalization includes Debt and Capital Lease Obligations, Minority
Interest and Stockholders' Equity.
(e) Net Long-Term Debt includes Long-term debt less Cash and Cash Equivalents.
41
<PAGE> 46
COMPARATIVE PER SHARE DATA
The following table presents historical per common share information for
Phelps Dodge and Cyprus Amax, and the pro forma and equivalent pro forma per
common share data giving effect to the combination of Phelps Dodge and Cyprus
Amax, for the six months ended June 30, 1999 and the year ended December 31,
1998. The pro forma combined per share information does not purport to represent
what the combined financial position or results of operations would actually
have been if the combination had occurred at January 1, 1998, nor is it
necessarily indicative of Phelps Dodge's future consolidated results of
operations or financial position. The information tabled below should be read in
conjunction with the historical financial statements of the combining
corporations incorporated by reference in this Information Statement, the
"Selected Historical Financial Data" of Phelps Dodge and Cyprus Amax on pages 39
through 41 and the "Unaudited Pro Forma Combined Financial Information" on page
43.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Per common share
Historical:
Phelps Dodge
Book value(1)..................................... $40.91 $44.68
Net income(loss)
Basic.......................................... (0.98) 3.28
Diluted........................................ (0.98) 3.26
Cash dividends.................................... 1.00 2.00
Cyprus Amax
Book value(1)..................................... 20.17 21.32
Net income(loss) from continuing operations
Basic.......................................... (0.95) (1.65)
Diluted........................................ (0.95) (1.65)
Cash dividends.................................... 0.25 0.80
Pro forma:
Combined Phelps Dodge and Cyprus Amax
Book value(1)..................................... 44.56 48.24
Income(loss) from continuing operations--Basic and
Diluted........................................ (1.85) 0.33
Cash dividends(2)................................. 1.00 2.00
Cyprus Amax Equivalent(3)
Book value(1)..................................... 15.60 16.88
Income(loss) from continuing operations--Basic and
Diluted........................................ (0.65) 0.12
Cash dividends.................................... 0.35 0.70
</TABLE>
- -------------------------
(1) Book value per share is determined as at June 30, 1999 and December 31,
1998.
(2) Pro forma combined cash dividends per share of Phelps Dodge common stock
reflect Phelps Dodge's historical dividend rate per share declared in the
periods presented.
(3) Pro forma combined equivalent per share of Cyprus Amax common stock reflects
the pro forma combined per share of Phelps Dodge's common stock amount
multiplied by the exchange ratio of 0.3500 shares of Phelps Dodge stock for
each share of Cyprus Amax.
42
<PAGE> 47
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information is derived
from the historical consolidated financial statements of Phelps Dodge and Cyprus
Amax. The Unaudited Pro Forma Combined Financial Information is prepared using
the purchase method of accounting, with Phelps Dodge treated as the acquirer and
as if the transaction had been completed as of January 1, 1998, for statement of
operations purposes and on June 30, 1999, for balance sheet purposes.
The Unaudited Pro Forma Combined Financial Information is based upon the
historical financial statements of Phelps Dodge and Cyprus Amax adjusted to give
effect to the proposed business combination. The pro forma assumptions and
adjustments for each transaction scenario are described in the accompanying
notes presented on the following pages. The assumptions and related pro forma
adjustments have been developed from information from the December 31, 1998,
Form 10-K filing and June 30, 1999, Form 10-Q filing of Cyprus Amax, the Form
8-K filing dated June 30, 1999, of Cyprus Amax, the merger agreement among
Phelps Dodge, CAV Corporation and Cyprus Amax dated September 30, 1999 (the
"Cyprus Merger Agreement") and the Form S-4 registration statement of Asarco
Cyprus Incorporated filed on August 20, 1999 in connection with the proposed
Asarco-Cyprus Amax merger. Such pro forma adjustments have been included only to
the extent known and reasonably available.
Phelps Dodge has agreed to combine its business with Cyprus Amax pursuant
to the Cyprus Merger Agreement. Upon the October 15, 1999 expiration of the
Phelps Dodge offer to acquire Cyprus Amax common shares, approximately 81.5
million, or 89.6%, of the Cyprus Amax common shares outstanding were purchased
by Phelps Dodge. Phelps Dodge has the right and obligation to acquire the
remaining Cyprus Amax common shares outstanding pursuant to the Cyprus Merger
Agreement. Accordingly, the Unaudited Pro Forma Combined Financial Information
reflects the purchase by Phelps Dodge of all outstanding Cyprus Amax common
shares. Phelps Dodge has not had an opportunity to complete due diligence
procedures. Such information and procedures may provide Phelps Dodge with
additional information that could materially affect the purchase price paid for
the acquisition of Cyprus Amax, the purchase price allocation and, accordingly,
the assumptions and pro forma adjustments. Identified factors which may have a
significant impact on the basis and results of the combination are described in
Note 2 of the accompanying notes to the Unaudited Pro Forma Combined Balance
Sheet and Combined Statements of Operations.
Furthermore, the ultimate determination of the purchase price paid for the
acquisition of Cyprus Amax may change significantly from the current estimate.
For the purpose of this Unaudited Pro Forma Combined Financial Information, the
purchase price has been estimated based upon the market price of $53.5625 for
each Phelps Dodge common share, that being the closing market price at October
5, 1999. The final purchase price will be based largely upon the average market
price of Phelps Dodge common stock at the earlier of the dates the combination
is announced or consummated between Phelps Dodge and Cyprus Amax. As a result of
these uncertainties, the final determination and allocation of purchase price
may differ from the amounts assumed in this Unaudited Pro Forma Combined
Financial Information and those differences may be material.
The Unaudited Pro Forma Combined Financial Information is provided for
illustrative purposes only and does not purport to represent what the actual
consolidated results of operations or the consolidated financial position of
Phelps Dodge would have been had the acquisition of Cyprus Amax occurred on the
date assumed, nor is it necessarily indicative of future consolidated operating
results or financial position.
The Unaudited Pro Forma Combined Financial Information does not include the
realization of cost savings from operating efficiencies, synergies or other
restructurings resulting from the transaction and does not contemplate the
liabilities that may be incurred in any related restructurings. Also, the
Unaudited Pro Forma Combined Financial Information does not reflect the impact
of any potential sale of acquired assets. However, prior to the acquisition of
Cyprus Amax by Phelps Dodge, Cyprus Amax sold its approximately 30% interest in
Kinross Gold Corporation ("Kinross") for net cash proceeds of $232 million.
Cyprus Amax estimates a gain of approximately $50 million from the Kinross sale.
The Unaudited Pro Forma Combined Financial Information does not reflect the
sale. In addition, the managements of Phelps Dodge and Cyprus Amax are in the
process of assessing and formulating their integration plans, which are expected
to include employee separations, elimination of duplicative facilities, employee
relocations and other restructuring
43
<PAGE> 48
actions. The final result of these plans could result in material revisions to
the estimated liabilities reflected in the Unaudited Pro Forma Combined
Financial Information. Managements believe these costs could range between $25
million and $40 million.
This Unaudited Pro Forma Combined Financial Information should be read in
conjunction with the separate historical consolidated financial statements and
accompanying notes of Phelps Dodge and Cyprus Amax that are incorporated by
reference in this Information Statement. You should not rely on the Unaudited
Pro Forma Combined Financial Information as an indication of the consolidated
results of operations or financial position that would have been achieved if the
business combination had taken place earlier or of the consolidated results of
operations or financial position of Phelps Dodge after the completion of such
transaction.
44
<PAGE> 49
PHELPS DODGE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
PHELPS DODGE AND CYPRUS AMAX COMBINED
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PRO FORMA PRO FORMA
PHELPS DODGE CYPRUS AMAX ADJUSTMENTS COMBINED
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Sales and other operating revenues....... $1,354 561 -- 1,915
------ --- ---- -----
Operating costs and expenses
Cost of products sold.................. 1,073 428 -- 1,501
Depreciation, depletion
and amortization.................... 144 104 3(I) 251
Selling and general administrative
expense............................. 60 34 -- 94
Exploration and research expense....... 21 8 -- 29
Non-recurring charges and provision for
asset dispositions*................. 83 -- -- 83
------ --- ---- -----
1,381 574 3 1,958
------ --- ---- -----
Operating income (loss).................. (27) (13) (3) (43)
Interest expense....................... (48) (69) (9)(E) (126)
Capitalized interest................... -- 2 -- 2
Miscellaneous income and
expense, net........................ (7) 7 -- --
------ --- ---- -----
Income (loss) before taxes, minority
interests and equity in net earnings of
affiliated companies................... (82) (73) (12) (167)
Provision for taxes on income.......... 19 14 2(F) 35
Minority interests in consolidated
subsidiaries........................ 1 -- -- 1
Equity in net earnings (losses) of
affiliated companies................ 5 (18) -- (13)
------ --- ---- -----
Income (loss) from continuing
operations............................. (57) (77) (10) (144)
Preferred stock dividends.............. -- (9) 9(E) --
------ --- ---- -----
Income (loss) from continuing operations
applicable to common shares............ $ (57) (86) (1) (144)
====== === ==== =====
Net earnings (loss) per share
Basic.................................. $(0.98) (1.85)
Diluted................................ $(0.98) (1.85)
Weighted average shares outstanding
Basic.................................. 57.8 77.8
Diluted................................ 57.8 77.8
</TABLE>
- ------------
* See historical financial statements incorporated by reference in this
Information Statement for a description of non-recurring charges and provision
for asset dispositions.
45
<PAGE> 50
PHELPS DODGE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
PHELPS DODGE AND CYPRUS AMAX COMBINED
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------- PRO FORMA PRO FORMA
PHELPS DODGE CYPRUS AMAX ADJUSTMENTS COMBINED
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Sales and other operating revenues.... $3,064 1,661 (218)(A) 4,507
------ ----- ---- -----
Operating costs and expenses
Cost of products sold................. 2,361 1,087 (42)(A) 3,406
Depreciation, depletion and
amortization..................... 293 255 (7)(A)
6(I) 547
Selling and general administrative
expense.......................... 123 105 (4)(A) 224
Exploration and research expense.... 55 44 -- 99
Non-recurring charges and provision
for asset dispositions*.......... (191) 118 (154)(A) (227)
------ ----- ---- -----
2,641 1,609 (201) 4,049
------ ----- ---- -----
Operating income (loss)............... 423 52 (17) 458
Interest expense.................... (97) (157) (19)(E) (273)
Capitalized interest................ 2 1 -- 3
Miscellaneous income and expense,
net.............................. 9 17 -- 26
------ ----- ---- -----
Income (loss) before taxes, minority
interests and equity in net earnings
of affiliated companies............. 337 (87) (36) 214
Provision for taxes on income....... (134) 5 5(F) (124)
Minority interests in consolidated
subsidiaries..................... (8) 1 -- (7)
Equity in net earnings (losses) of
affiliated companies............. (4) (53) -- (57)
------ ----- ---- -----
Income (loss) from continuing
operations.......................... 191 (134) (31) 26
Preferred stock dividends........... -- (19) 19(E) --
------ ----- ---- -----
Income (loss) from continuing
operations applicable to common
shares.............................. $ 191 (153) (12) 26
====== ===== ==== =====
Net earnings (loss) per share
Basic............................... $ 3.28 0.33
Diluted............................. $ 3.26 0.33
Weighted average shares outstanding
Basic............................... 58.2 78.8
Diluted............................. 58.5 79.1
</TABLE>
- ------------
* See historical financial statements incorporated by reference in this
Information Statement for a description of non-recurring charges and provision
for asset dispositions.
46
<PAGE> 51
PHELPS DODGE CORPORATION
PRO FORMA COMBINED BALANCE SHEET
PHELPS DODGE AND CYPRUS AMAX COMBINED
JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------- PRO FORMA PRO FORMA
PHELPS DODGE CYPRUS AMAX ADJUSTMENTS COMBINED
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................... $ 144 1,275 (691)(B)
(41)(B)
(20)(C)
(45)(D)
(5)(E) 617
Accounts receivable, net.................... 396 37 -- 433
Inventories................................. 263 239 4(D) 506
Supplies.................................... 104 55 -- 159
Prepaid expenses............................ 15 74 (5)(D) 84
Deferred income taxes....................... 45 32 -- 77
------ ----- ------ -----
Current assets............................ 967 1,712 (803) 1,876
Investments and long-term accounts
receivable................................ 95 340 -- 435
Property, plant and equipment, net.......... 3,501 2,546 85(D) 6,132
Other assets and deferred charges........... 339 148 41(B)
5(E) 533
------ ----- ------ -----
Total Assets......................... $4,902 4,746 (672) 8,976
====== ===== ====== =====
LIABILITIES
Short-term debt............................. $ 214 249 -- 463
Current portion of long-term debt........... 62 79 -- 141
Accounts payable and accrued expenses....... 456 324 20(J) 800
Dividends payable........................... 29 9 -- 38
Accrued income taxes........................ 11 81 -- 92
------ ----- ------ -----
Current liabilities....................... 772 742 20 1,534
Long-term debt.............................. 801 1,525 244(E)
(42)(D) 2,528
Deferred income taxes....................... 493 14 11(F) 518
Other liabilities and deferred credits...... 376 386 52(D) 814
------ ----- ------ -----
2,442 2,667 285 5,394
------ ----- ------ -----
Minority interests in consolidated
subsidiaries................................ 86 20 -- 106
------ ----- ------ -----
Shareholders' equity
Common shares............................... 362 1 (1)(H)
125(G) 487
Treasury shares............................. -- (86) 86(A) --
Preferred shares............................ -- 5 (5)(E) --
Capital in excess of par value.............. 5 2,912 (86)(A)
(2,826)(H)
30(B)
947(G) 982
Retained earnings........................... 2,198 (768) 768(H) 2,198
Accumulated other comprehensive income
(loss).................................... (183) (5) 5(H) (183)
Other....................................... (8) -- -- (8)
------ ----- ------ -----
Total Shareholders' Equity........... 2,374 2,059 (957) 3,476
------ ----- ------ -----
Total Liabilities and Shareholders'
Equity............................. $4,902 4,746 (672) 8,976
====== ===== ====== =====
</TABLE>
47
<PAGE> 52
COMBINATION OF PHELPS DODGE AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Financial Information has been derived
from historical consolidated financial statements of Phelps Dodge and Cyprus
Amax incorporated by reference into this Information Statement. See Phelps Dodge
"Unaudited Pro Forma Combined Financial Information" on page 43 of this
Information Statement.
Pro forma adjustments have been included only to the extent reasonably
available. Additional information may exist that could materially affect the
assumptions and related pro forma adjustments.
2. THE OFFER
Phelps Dodge has agreed to a business combination with Cyprus Amax pursuant
to the Cyprus Merger Agreement through an offering to exchange all the issued
and outstanding Cyprus Amax common shares for a combination of Phelps Dodge
common shares and cash.
Phelps Dodge offered to exchange $7.61176875 net in cash plus 0.2203 shares
of Phelps Dodge common stock for each outstanding share of Cyprus Amax common
stock, on a fully prorated basis. Cyprus Amax shareholders had the right to
elect to receive either $20.54 in cash or 0.3500 shares of Phelps Dodge common
stock for each Cyprus Amax common share that was validly tendered and not
properly withdrawn, subject, in each case, to proration if the stock portion or
the cash portion of the offer is oversubscribed. Upon the October 15, 1999
expiration of the Phelps Dodge offer, approximately 81.5 million, or 89.6%, of
the Cyprus Amax common shares outstanding were purchased by Phelps Dodge. Phelps
Dodge has the right and obligation to acquire the remaining Cyprus Amax common
shares outstanding pursuant to the Cyprus Merger Agreement.
The funds for the cash consideration in connection with the exchange of all
Cyprus Amax common shares outstanding are expected to be obtained from cash on
hand, borrowings under Phelps Dodge's revolving credit facility with The Chase
Manhattan Bank, and from a bridge financing revolving credit facility with
Citibank, N.A. The Chase revolving credit facility allows borrowings up to $1
billion until its scheduled maturity on June 25, 2002 and allows for two,
one-year renewals beyond the scheduled maturity with approvals of those lenders
representing at least two-thirds of the commitments provided by the facility.
The commitment for the bridge financing revolving credit facility provides for
borrowings of $650 million and a termination on January 31, 2000. Both revolving
credit facilities bear interest at variable rates which approximate 6.75 percent
on October 5, 1999. Phelps Dodge expects to replace the borrowings under the
bridge financing revolving credit facility with long-term financing after the
acquisition of Cyprus Amax.
48
<PAGE> 53
COMBINATION OF PHELPS DODGE AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
The transaction would be accounted for under the purchase method. The
purchase price for the business combinations is estimated as follows (dollars in
millions and shares in thousands except per share data):
<TABLE>
<CAPTION>
CYPRUS
AMAX
--------
<S> <C>
Common shares outstanding (as reported in the merger
agreement with Cyprus Amax)............................... 90,867
Exchange offer ratio of Phelps Dodge common shares for each
common share.............................................. 0.2203
Phelps Dodge common shares to be issued..................... 20,018
Closing market price of each Phelps Dodge common share on
October 5, 1999........................................... $53.5625
========
Fair value of Phelps Dodge common shares issued, comprising
par value of $125 ($6.25 per share) and capital in excess
of par of $947............................................ $ 1,072
Cash Consideration of $7.61176875 for each Cyprus Amax
common share.............................................. 691
Redemption of Cyprus Amax Series A Preferred Stock (Note
3E)....................................................... 244
Estimated fair value of Cyprus Amax outstanding options (as
reported in the Cyprus Merger Agreement).................. 30
Estimated transaction costs................................. 20
--------
Purchase price.............................................. $ 2,057
========
</TABLE>
3. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
The following assumptions and related pro forma adjustments give effect to
the proposed business combination of Phelps Dodge and Cyprus Amax as if such
combination occurred on January 1, 1998, for the Unaudited Pro Forma Combined
Statements of Operations for the six-month interim period ended June 30, 1999,
and for the year ended December 31, 1998, respectively, and on June 30, 1999,
for the Unaudited Pro Forma Combined Balance Sheet.
The Unaudited Pro Forma Combined Financial Information is provided for
illustrative purposes only and does not purport to represent what the actual
consolidated results of operations or the consolidated financial position of
Phelps Dodge would have been had the business combination with Cyprus Amax
occurred on the respective dates assumed, nor is it necessarily indicative of
future consolidated operating results or financial position.
Future cash cost savings are not recognized in this Unaudited Pro Forma
Combined Financial Information. Non-recurring items related to 1998 and the
six-month interim period ended June 30, 1999 are included (see "Selected
Historical Financial Data" at pages 39 through 41 for a summary of non-recurring
items and special charges).
(A) Reclassifications have been made to the Cyprus Amax historical
consolidated financial information to conform to Phelps Dodge's
presentation. The historical financial information of Cyprus Amax excludes
the results of operations and assets of its discontinued Coal segment.
Cyprus Amax's historical financial information for the year ended December
31, 1998, also has been adjusted to exclude the identifiable results of
recurring operations of its Lithium segment which was sold in October 1998.
49
<PAGE> 54
COMBINATION OF PHELPS DODGE AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
BALANCE SHEET SIX MONTHS YEAR ENDED
AT JUNE 30, ENDED DECEMBER 31,
1999 JUNE 30, 1999 1998
------------- ------------- ------------
(IN $ MILLIONS)
<S> <C> <C> <C>
Reclassification adjustments:
Treasury shares.............. 86
Capital in excess of par
value..................... (86)
Elimination of recurring
results from sold Lithium
segment:
Sales and other operating
revenues.................. (64)
Cost of products sold........ (42)
Depreciation, depletion and
amortization expense...... (7)
Selling and general
administrative expense.... (4)
Reclassification of gain on
sale of Lithium segment:
Sales and other revenues..... (154)
Non-recurring charges and
provisions for asset
dispositions.............. 154
</TABLE>
(B) This pro forma adjustment represents payment of the cash component
of the purchase price of $691 million, the estimated fair value of Cyprus
Amax outstanding stock options of $30 million and the funding of certain
Cyprus Amax benefits of $41 million.
(C) Phelps Dodge estimates it will incur approximately $20 million of
transaction costs, consisting primarily of investment bankers, attorneys
and accountant fees, and financial printing and other charges. These
estimates are preliminary and therefore are subject to change.
(D) The business combination will be accounted for using the purchase
method of accounting in accordance with generally accepted accounting
principles. Accordingly, the assets and liabilities of Cyprus Amax will be
recorded at their estimated fair values.
Phelps Dodge has not completed its due diligence necessary to
determine the fair value of its assets or liabilities or to identify
unknown liabilities or obligations. Pro forma adjustments to allocate the
purchase price have been recorded in the Unaudited Pro Forma Combined
Financial Information on the basis of fair values reported for certain
assets and liabilities by Cyprus Amax. Because fair value information for
the remaining assets and liabilities and any possible identifiable
intangible assets is incomplete, the excess of the estimated purchase price
over the historical net book values (as amended) of Cyprus Amax's assets
acquired has been allocated as an increase to its combined net property,
plant and equipment.
Additionally, Phelps Dodge believes that cost savings will be realized
upon the consolidation and integration of Cyprus Amax. Phelps Dodge has not
developed formal plans for combining the operations. Accordingly,
additional liabilities may be incurred in connection with the business
combination and any ultimate restructuring. These additional liabilities
and costs have not been contemplated in the Unaudited Pro Forma Combined
Financial Information because information necessary to reasonably estimate
such costs and to formulate detailed restructuring plans is not yet
complete. Accordingly, the allocation of the purchase price cannot be
estimated with a reasonable degree of accuracy and may differ materially
from the amounts assumed in the Unaudited Pro Forma Combined Financial
Information.
50
<PAGE> 55
COMBINATION OF PHELPS DODGE AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
A merger agreement by and between Asarco and Cyprus Amax had a $40
million termination fee for Asarco and $45 million for Cyprus Amax under
certain circumstances. Cyprus Amax paid Asarco $45 million when the
agreement was terminated. The Unaudited Pro Forma Combined Financial
Information has been adjusted to give effect to payment of the termination
fee.
The pro forma purchase price allocation adjustments are estimated as
follows (in millions):
<TABLE>
<S> <C>
Reduction of debt to fair value (as reported in Cyprus
Amax's June 30, 1999, Form 10-Q).......................... $ 42
Increase in LIFO based inventory to replacement cost (as
reported in Cyprus Amax's December 31, 1998, Form 10-K)... $ 4
Excess projected benefit obligation over the fair value of
pension plan assets (as reported in Cyprus Amax's December
31, 1998, Form 10-K, comprising a $5 million reduction of
prepaid expenses and other assets and a $52 million
increase in other liabilities and deferred credits)....... $ 57
Increase in deferred tax liabilities (Note F)............... $ 11
Increase in net property, plant and equipment (derived)..... $ 85
</TABLE>
(E) The pro forma adjustments reflect the issuance of $244 million of
debt to finance the redemption of all outstanding shares of Cyprus Amax's
Series A Preferred Stock. Phelps Dodge has obtained bridge financing of $1
billion with a one-year term as described in Note 2. The bridge financing
is expected to be replaced with long-term financing. Ten-year debt has been
assumed for purposes of the pro forma adjustments. Interest is estimated to
be fixed at 7.75% resulting in annual interest expense of $19 million. The
interest rate estimate was based upon current ten-year treasury bill rates
plus commercially indicative rate basis points. A change in the interest
rate on the debt by 1/8 percent would impact annual interest expense by
approximately $300,000. Debt issue costs associated with the debt are
estimated to be approximately $5 million with annual amortization of
approximately $500,000.
(F) The estimated income tax effect of the pro forma adjustments has
been recorded based upon the estimated effective tax rate of approximately
15% for Cyprus Amax which rate has been derived from public quarterly and
annual filings. The business combination is expected to be a tax-free
transaction with Cyprus Amax's historical tax bases surviving for income
tax reporting purposes.
A provision for pro forma income tax expense has been recorded for pro
forma adjustments to the Pro Forma Combined Statements of Operations
resulting from pro forma purchase price allocation adjustments and other
items.
Cyprus Amax has reported $176 million of U.S. net operating loss
carryforwards through 1998, expiring from 1999 to 2012, which along with
other deferred tax assets are subject to an existing valuation allowance.
The net operating loss carryforwards may be subject to annual limitations
after the acquisition because of the change in ownership rules. The annual
limits will be calculated as the long-term tax exempt rate (currently
5.18%) times the fair market value of Cyprus Amax. Once all facts are
known, the annual limits may necessitate an increase in the consolidated
valuation allowance for deferred tax assets.
Pro forma income tax expense and deferred tax allocations recorded
upon consummation of the business combination could vary significantly from
the pro forma estimates because information regarding Cyprus Amax's income
tax reporting has not yet been fully evaluated.
(G) This pro forma adjustment reflects the issue of 20,018,000 shares
of Phelps Dodge common stock in connection with the exchange offers for all
the outstanding common shares of Cyprus Amax. The
51
<PAGE> 56
COMBINATION OF PHELPS DODGE AND CYPRUS AMAX
NOTES TO THE UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION -- (CONTINUED)
common stock of Phelps Dodge represents common shares of $125 million at
$6.25 per share par value and capital in excess of par of $947 million.
(H) These pro forma adjustments eliminate the historical shareholders'
equity accounts of Cyprus Amax.
(I) This pro forma adjustment records the estimated increase in
depreciation, depletion and amortization expense related to the pro forma
increase in property, plant and equipment recorded in connection with the
business combination purchase price allocation. Because fair value
information regarding the composition of Cyprus Amax's property, plant and
equipment is not yet complete, actual adjustments to depreciation,
depletion and amortization expense could differ substantially from these
estimates.
(J) This pro forma adjustment recognizes certain change of control
obligations arising from the merger of Cyprus Amax and Phelps Dodge.
(K) Pro forma weighted average common stock and common stock
equivalents outstanding are estimated as follows (in millions):
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1999 1998
---------------- ----------------
BASIC DILUTED BASIC DILUTED
----- ------- ----- -------
<S> <C> <C> <C> <C>
Average number of Phelps Dodge
common shares outstanding......... 57.8 57.8 58.2 58.5
Phelps Dodge common shares to be
issued in connection with the
business combination (Note 2)..... 20.0 20.0 20.0 20.0
Pro forma potential common shares... -- -- 0.6 0.6
---- ---- ---- ----
77.8 77.8 78.8 79.1
==== ==== ==== ====
</TABLE>
The average number of common shares outstanding for the six months ended
June 30, 1999, does not include Cyprus Amax's outstanding stock options or other
common stock equivalents, which represent approximately 600,000 potential Phelps
Dodge common shares, because the impact on unaudited pro forma net loss per
share is anti-dilutive.
52
<PAGE> 57
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP OF DIRECTORS AND MANAGEMENT OF THE COMPANY
The following table sets forth the beneficial ownership of Company common
stock as of October 24, 1999, except as otherwise noted, by (a) each current
director, (b) the Company's chief executive officer during the last completed
fiscal year, (c) the Company's four most highly compensated executive officers
other than the chief executive officer at the end of the last completed fiscal
year, and (d) all directors and executive officers as a group. Unless otherwise
specified, the directors and executive officers have sole voting and investment
power with respect to these securities. The Company currently has Series A
convertible preferred stock issued and outstanding, none of which is
beneficially owned by directors or executive officers.
<TABLE>
<CAPTION>
SHARES OF COMPANY COMMON STOCK
--------------------------------------------------------------
ADDITIONAL SHARES
DEEMED
BENEFICIALLY BENEFICIALLY PERCENT OF
NAME OWNED(A) OWNED(B) TOTAL CLASS
- ---- ------------ ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Milton H. Ward....................... 3,092,595 0 3,092,595 3.3%
William C. Bousquette................ 8,000 29,244 37,244 (a)
Manuel J. Iraola..................... 0 0 0 (a)
J. Steven Whisler.................... 0 0 0 (a)
Douglas C. Yearley................... 0 0 0 (a)
Gerald J. Malys...................... 306,326 0 306,326 (a)
Jeffery G. Clevenger................. 237,353 0 237,353 (a)
Garold R. Spindler(c)................ 0 0 0 (a)
Philip C. Wolf....................... 132,004 0 132,004 (a)
All directors and executive officers
as a group (13 persons)............ 4,169,280 29,244 4,198,524 4.5%
</TABLE>
- ---------------
(a) All directors and executive officers as a group (13 persons) beneficially
own 4.5% of the outstanding Company common stock, including 3.3%
beneficially owned by Mr. Ward. No other individual director or executive
officer beneficially owns 1% or more of the outstanding Company common
stock.
(b) Units denominated as Company common stock equivalents held in the Deferred
Compensation Plan for Non-Employee Directors. Mr. Bousquette elected to
participate in the plan during 1999. The units are rounded to the nearest
whole share.
(c) Mr. Spindler left Cyprus Amax on June 30, 1999, in conjunction with the sale
of the Company's U.S. coal assets.
The shares shown in the above table include:
- Shares which certain persons have the right to acquire within 60 days
through the exercise of stock options issued under the Cyprus Amax Stock
Plan for Non-Employee Directors. These shares include 8,000 shares for
Mr. Bousquette.
- Shares which certain persons have the rights to acquire within 60 days
through the exercise of stock options issued under the Cyprus Amax
Management Incentive Program. These shares include 2,739,588 for Mr.
Ward; 191,476 for Mr. Malys; 128,200 for Mr. Clevenger; and 131,956 for
Mr. Wolf. The stock options exercisable under this program and the Cyprus
Amax Stock Plan for Non-Employee Directors total 3,431,316 for all
directors and executive officers as a group.
- Shares acquired through the employee savings plan for which the trustee
has shared voting and investment power. These shares include 3,007 for
Mr. Ward; 4,693 for Mr. Clevenger; 48 for Mr. Wolf; and 9,531 for all
executive officers as a group. The shares reported are rounded to the
nearest whole share.
53
<PAGE> 58
BENEFICIAL OWNERSHIP OF CERTAIN SHAREHOLDERS
The following table sets forth information about the only shareholder the
Company knows is the beneficial owner of more than 5% of the Company's common
stock. The information is based on information from public filings as of October
28, 1999 and on information from Phelps Dodge Corporation. The percentage shown
is based on shares outstanding on October 15, 1999.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OWNED COMMON STOCK
- ---------------- ------------------- -------------
<S> <C> <C>
CAV Corporation and......................................... 81,499,599 89.6%
Phelps Dodge Corporation(a)
2600 North Central Avenue
Phoenix, AZ 85004-3014
</TABLE>
- ---------------
(a) Phelps Dodge Corporation, through its wholly owned subsidiary CAV
Corporation, acquired approximately 81,499,599 shares of Cyprus Amax common
stock in Phelps Dodge's exchange offer that expired on October 15, 1999.
54
<PAGE> 59
COMPARISON OF RIGHTS OF HOLDERS OF
PHELPS DODGE SHARES AND CYPRUS AMAX SHARES
Upon completion of Phelps Dodge/Cyprus Amax merger, the shareholders of
Cyprus Amax will become shareholders of Phelps Dodge, rather than shareholders
of Cyprus Amax. As Phelps Dodge shareholders, the rights of former Cyprus Amax
shareholders will be governed by Phelps Dodge's charter and by-laws, which
differ in certain material respects from Cyprus Amax's charter and by-laws. In
addition, New York is the jurisdiction of incorporation of Phelps Dodge, while
Delaware is the jurisdiction of incorporation of Cyprus Amax. As Phelps Dodge
shareholders, the rights of former Cyprus Amax shareholders will therefore be
governed by the New York Business Corporation Law (NYBCL) instead of the
Delaware General Corporation Law (DGCL).
The following is a comparison of:
- the current rights of Cyprus Amax shareholders under the DGCL and the
Cyprus Amax charter and by-laws; and
- the rights Cyprus Amax shareholders would have as Phelps Dodge
shareholders under the NYBCL and the Phelps Dodge charter and by-laws
upon the consummation of the Phelps Dodge/Cyprus Amax merger.
The comparison summarizes the material differences but is not intended to
list all differences and is qualified by reference to New York law, Delaware
law, the Phelps Dodge charter and by-laws and the Cyprus Amax charter and
by-laws.
COMPARISON OF CHARTER AND BY-LAW PROVISIONS
<TABLE>
<CAPTION>
CYPRUS AMAX PHELPS DODGE
----------------------------- -----------------------------
<S> <C> <C>
BOARD OF DIRECTORS
Classified Board Divided into three classes, Divided into three classes,
as nearly equal in number as as nearly equal in number as
possible, with each class possible, with each class
serving a staggered serving a staggered
three-year term. three-year term.
Removal of Directors Under Cyprus Amax's charter A director may be removed by
and by-laws, a director may the stockholders only for
be removed only for cause, cause.
and only by the affirmative
vote of holders of 75% of the
outstanding voting stock. The
DGCL generally provides that
directors may be removed,
with or without cause, by
stockholder majority vote. An
exception applies to
corporations with classified
boards like Cyprus Amax.
Unless the charter provides
otherwise, stockholders of
such a corporation may remove
directors only for cause.
Filling of Board Vacancies With some exceptions, Vacancies on the board of
vacancies on the board may be directors may be filled only
filled by majority vote of by vote of the directors.
the remaining directors then
in office.
Size of Board Board must consist of not Board must consist of not
less than three directors, as less than 9 nor more than 12
fixed
</TABLE>
55
<PAGE> 60
<TABLE>
<CAPTION>
CYPRUS AMAX PHELPS DODGE
----------------------------- -----------------------------
<S> <C> <C>
from time to time by directors, as fixed from time
resolution of the board. The to time by resolution of the
current number of directors board. The current number of
is 5. directors is 11.
STOCKHOLDER MEETINGS
Annual Meeting Held on date fixed by board. Held on the first Wednesday
in May, or on another date
fixed by the board from time
to time.
Calling a Special Meeting Only the Chairman of the Only the board of directors
Board, the President, the or the Chairman of the Board
board of directors or the may call a special meeting.
holders of a majority of the
voting stock may call a
special meeting.
Quorum Requirements The presence, in person or by Generally, the presence, in
proxy, of the holders of person or by proxy, of the
33 1/3% of the outstanding holders of a majority of the
voting stock constitutes a shares entitled to vote at
quorum at the meeting. the meeting constitutes a
quorum for that meeting.
Certain Voting Requirements Stockholder action approving Phelps Dodge's charter and
a merger or consolidation or by- laws contain no
a sale of all or comparable supermajority
substantially all of Cyprus voting requirements. Under
Amax's assets requires the the NYBCL, the consummation
affirmative vote by the by Phelps Dodge of a merger,
holders of the majority of consolidation or disposition
outstanding voting stock; of substantially all of its
stockholder action on other assets requires the approval
matters, except for elections of two- thirds of all the
of directors, certain shares of Phelps Dodge
amendments of organizational entitled to vote on the
documents and certain proposal including, in
transactions with the certain situations, the
beneficial owner of more than affirmative vote by the
10% of any class of capital holders of a majority of all
stock of Cyprus Amax, outstanding shares of each
requires affirmative vote of class or series of shares.
the majority of votes cast at Abstentions have the effect
a meeting. Abstentions have of a vote against a proposed
the effect of a vote against matter only if the
a proposed matter only if the affirmative vote required is
affirmative vote required is that of the majority of the
that of the majority of the total votes represented by
total votes represented by the outstanding voting stock.
the outstanding voting stock.
Cyprus Amax's charter
requires the vote of 75% of
the outstanding shares of
Cyprus Amax's voting stock,
voting together as a single
class, for the approval of
business combinations
specified in the
</TABLE>
56
<PAGE> 61
<TABLE>
<CAPTION>
CYPRUS AMAX PHELPS DODGE
----------------------------- -----------------------------
<S> <C> <C>
charter, including certain
transactions involving
beneficial owners of 10% or
more of Cyprus Amax's
outstanding voting stock.
Business combinations include
any merger or consolidation
of Cyprus Amax with any
interested stockholder, any
sale, lease or other
disposition of Cyprus Amax
assets having a fair market
value of $50 million or more
to an interested stockholder,
the issuance or transfer of
Cyprus Amax securities to an
interested stockholder for
consideration having a fair
market value of $50 million
or more, the adoption of any
plan or proposal by or on
behalf of an interested
stockholder for the
liquidation or dissolution of
Cyprus Amax in which the
interested stockholder
receives anything other than
cash, or any transaction
which has the effect of
increasing the proportionate
share of any class of Cyprus
Amax's stock owned by the
interested stockholder. The
charter's supermajority
requirements do not apply if
a majority of Cyprus Amax's
disinterested directors
approve the transaction and
certain other conditions are
met.
Separately, Cyprus Amax's
charter precludes Cyprus
Amax, among other things,
from repurchasing its stock,
securities convertible into
its stock, or similar
securities from an interested
stockholder who has
beneficially owned such
securities for less than two
years before the repurchase,
without the affirmative vote
of a majority of Cyprus
Amax's voting stock
(excluding voting stock owned
by the interested
stockholder), voting as a
single class, subject to some
exceptions.
</TABLE>
57
<PAGE> 62
<TABLE>
<CAPTION>
CYPRUS AMAX PHELPS DODGE
----------------------------- -----------------------------
<S> <C> <C>
Stockholder Action by Written Stockholder action must be Stockholder action must be
Consent taken at an annual or special taken at an annual or special
meeting and not by written meeting and not by written
consent. consent, except that the
NYBCL permits stockholder
action by unanimous written
consent.
Advance Notice for To bring a matter (including Generally, to bring a matter
Stockholder Nominations and the nomination of directors) (including the nomination of
Other Business before an annual meeting, a directors) before an annual
stockholder generally must meeting, a stockholder must
give notice of a proposed give notice not less than 60
matter not less than 90 days days nor more than 90 days
prior to the anniversary of prior to the meeting, but if
the previous year's meeting, the meeting is scheduled for
but if less than 70 days a day other than the first
notice of the annual meeting Wednesday in May and less
is given to stockholders, a than 70 days' notice is given
stockholder must give notice or prior public announcement
of a proposed matter by the is made to stockholders, a
tenth day following the date stockholder must give notice
at which notice of the annual by the tenth day following
meeting was mailed. Cyprus the date at which notice of
Amax's by-laws contain the annual meeting was mailed
requirements as to the form or announcement thereof made.
and content of the notice. If the number of directors to
be elected at the election
meeting is increased or there
is a vacancy to be filled at
the election meeting in a
class of directors whose
terms do not expire at the
election meeting and there is
no public announcement at
least 70 days prior to the
election meeting naming all
of the nominees for director
or specifying the size of the
increased board of directors
or the number of directors to
be elected, a nominating
stockholder's notice is
timely if given by the tenth
day following the date on
which the public announcement
is first made, but only with
respect to nominees for any
positions created by the
increase or vacancy. Phelps
Dodge's by-laws contain
requirements as to the form
and content of the
stockholder's notice.
</TABLE>
58
<PAGE> 63
<TABLE>
<CAPTION>
CYPRUS AMAX PHELPS DODGE
----------------------------- -----------------------------
<S> <C> <C>
AMENDMENTS TO ORGANIZATIONAL
DOCUMENTS
Certificate of Incorporation Generally may be amended by Under the NYBCL, subject to
board resolutions and the limited exceptions,
affirmative vote by the amendments to Phelps Dodge's
holders of a majority of the charter must be approved by
outstanding voting stock, vote of a majority of all
except that amendments to outstanding shares entitled
provisions relating to the to vote on the proposed
directors, stockholder amendment, except that
nominations and action, charter provisions requiring
by-law amendments, and a greater or class vote may
certain transactions with only be amended by such vote.
beneficial owners of 10% or In addition, an amendment
more of the outstanding that negatively affects in
common stock require the certain ways holders of
affirmative vote of the shares of a class or series
holders of 75% of the requires authorization by a
outstanding voting stock. majority of the votes of all
outstanding shares of the
class or series.
By-laws Generally may be amended by Phelps Dodge's by-laws permit
the affirmative vote of the the amendment of the by-laws
holders of a majority of the by a vote of a majority of
voting stock at the relevant all the directors at any
meeting, or by the regular or special meeting of
affirmative vote of a the board, except that
majority of the board. provisions relating to the
Amendments to certain repurchase of stock by Phelps
provisions of Cyprus Amax's Dodge may only be amended by
charter governing the majority vote of the
by-laws, including those stockholders. Generally,
relating to stockholder under the NYBCL, the by-laws
meetings and action, and the may also be amended by a
number, election and removal majority of the votes cast by
of directors, require the the shares entitled to vote
affirmative vote of the in the election of any
holders of 75% of the directors.
outstanding voting stock.
CAPITALIZATION
Authorized Stock Common stock: 150 million Common stock: 200 million
shares; preferred stock: 20 shares; preferred stock: 6
million shares. million shares.
Preferred Stock The board is authorized to The board is authorized to
issue preferred stock from issue preferred stock from
time to time in one or more time to time in one or more
series, with terms to be series, with terms to be
fixed by the board. fixed by the board.
Rights Plans Cyprus Amax has a rights Phelps Dodge has a rights
agreement, dated as of agreement, dated as of
February 28, 1999. The rights February 5, 1998. The rights
agreement triggers upon the agreement triggers upon the
acquisition by a third party acquisition by a third party
of 15% of Cyprus Amax's of 20% of Phelps Dodge's
</TABLE>
59
<PAGE> 64
<TABLE>
<CAPTION>
CYPRUS AMAX PHELPS DODGE
----------------------------- -----------------------------
<S> <C> <C>
outstanding common stock. The outstanding common stock. The
board may redeem rights at board may redeem rights at
any time prior to the time any time prior to the time
such an acquisition takes such an acquisition takes
place. place.
Share Repurchases Cyprus Amax may generally The NYBCL prohibits Phelps
repurchase its own shares, Dodge from repurchasing more
although there are specific than 10% of its stock for
restrictions on such more than market value from a
repurchases when the seller stockholder who has held the
is a beneficial owner of 10% stock for less than two
or more of the voting power years, unless the repurchase
of the outstanding voting is approved by the board and
stock. by majority vote of the
outstanding voting stock.
Phelps Dodge's by-laws
provide that Phelps Dodge may
repurchase its stock only in
the regular course of
legitimate business or for
the purpose of retiring the
stock.
EXCULPATION AND Cyprus Amax's charter Phelps Dodge's charter
INDEMNIFICATION OF provides that no director provides that the personal
DIRECTORS, OFFICERS AND will be personally liable for liability of Phelps Dodge's
EMPLOYEES damages for breach of directors for any breach of
fiduciary duty, except in duty in such capacity is
cases where the director's eliminated to the fullest
acts or omissions breached extent permitted by the
his duty of loyalty to the NYBCL. The NYBCL permits
corporation or its Phelps Dodge to eliminate or
stockholders, were not in limit the personal liability
good faith or involved of directors to Phelps Dodge
intentional misconduct or a or its shareholders for
knowing violation of law, or damages for any breach of
provided an improper personal duty in such capacity except
benefit to the director. liability (i) of a director
(a) whose acts or omissions
The Cyprus Amax by-laws were in bad faith, involved
provide that Cyprus Amax will intentional misconduct or a
indemnify any director or knowing violation of law, (b)
officer to the fullest extent who personally gained a
permitted by law if such financial profit or other
director or officer is advantage to which he or she
involved in litigation by was not legally entitled or
reason of the fact that he is (c) whose acts violated
(or was) a director or certain provisions of New
officer, and provide in York law or (ii) for acts or
addition that Cyprus Amax may omissions prior to the
indemnify any person, other adoption in 1988 of Phelps
than a director or officer, Dodge's charter amendment.
if such person is involved in
litigation by reason of the Phelps Dodge's by-laws
fact that he is (or was) an provide that Phelps Dodge
employee. will indemnify any person
involved in litigation by
reason of the fact that he is
or was a director or officer
of Phelps Dodge, unless
</TABLE>
60
<PAGE> 65
<TABLE>
<CAPTION>
CYPRUS AMAX PHELPS DODGE
----------------------------- -----------------------------
<S> <C> <C>
the director's or officer's
acts were committed in bad
faith or were the result of
his active and deliberate
dishonesty and were material
to the proceeding or the
director or officer
personally gained in fact a
financial profit or other
advantage to which he was not
legally entitled. Further,
Phelps Dodge's directors and
officers are covered by
insurance policies maintained
against certain liabilities,
including liabilities arising
under the Securities Act of
1933.
</TABLE>
COMPARISON OF CERTAIN STATUTORY PROVISIONS
APPRAISAL RIGHTS
Cyprus Amax Stockholder Rights
Under Delaware law, appraisal rights, or rights of a stockholder to receive
the fair value of his stock in connection with a merger or consolidation, may be
available in connection with a merger or consolidation in certain specific
situations. Appraisal rights are not available to a corporation's stockholders
under Delaware law where the corporation is to be the surviving corporation and
no vote of its stockholders is required to approve the merger.
In addition, unless otherwise provided in the certificate of incorporation,
no appraisal rights are available under Delaware law to holders of shares of any
class of stock which is either (1) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by NASD or (2) held of record by more than 2,000 stockholders, unless
such stockholders are required by the terms of the merger to accept anything
other than:
- shares of stock of the surviving corporation;
- shares of stock of another corporation which, as of the effective date of
the merger or consolidation, are the kind described in clauses (1) and
(2) above;
- cash instead of fractional shares of such stock; or
- any combination of the consideration described in the three bullet items
above.
In addition, appraisal rights are not available under Delaware law in the
event of the sale of all or substantially all of a corporation's assets or the
adoption of an amendment to its certificate of incorporation, unless such rights
are granted in the corporate charter. The Cyprus Amax charter does not grant
such rights.
Phelps Dodge Stockholder Rights
Under New York law, appraisal rights are generally available in connection
with a merger or consolidation, except that no appraisal rights are available:
- to the stockholder of a parent corporation merging with its subsidiary
where the parent owns at least 90% of the subsidiary's outstanding stock
and certain additional requirements are met;
- to the stockholder of the surviving corporation in a merger (other than a
merger described in the previous bullet item) unless the merger adversely
affects rights of the shares held by the stockholder in a certain way; or
61
<PAGE> 66
- to a shareholder of shares of any class or series of stock listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers.
Under the statutory provisions described above, since shares of Phelps Dodge
common stock are listed on the New York Stock Exchange, Phelps Dodge common
stockholders are not entitled to appraisal rights in connection with a merger or
consolidation.
Appraisal rights are also available under the NYBCL in connection with the
sale, lease, exchange or other disposition of all or substantially all of a
corporation's assets other than a transaction wholly for cash where shareholder
approval is conditioned upon the corporation's dissolution and the distribution
of all of the corporation's net assets within one year after the transaction.
Further, appraisal rights are available in connection with a share exchange
between two corporation as authorized by the NYBCL, except with respect to
shares of a subject corporation that are not acquired in the exchange or that
are listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers.
In addition, appraisal rights are available to a shareholder of a
subsidiary corporation that merges with its parent corporation, or is acquired
by it in a share exchange, where the parent owns at least 90% of the
subsidiary's outstanding stock and certain additional requirements are met.
Appraisal rights are also available to a shareholder who is not entitled to
vote with respect to a plan of merger or consolidation and whose shares will be
canceled or exchanged in the merger or consolidation for cash or other
consideration other than shares of the surviving or consolidated corporation or
another corporation.
CERTAIN BUSINESS COMBINATIONS
Cyprus Amax Stockholder Rights
Delaware law restricts the ability of certain persons to acquire control of
a Delaware corporation.
Under the DGGL, if a person acquires 15% or more of the stock of a Delaware
corporation without the approval of the board of directors of that corporation,
thereby becoming an interested stockholder, that person generally may not engage
in certain transactions with the corporation for a period of three years unless
one of the following three exceptions applies:
- the board of directors approved the acquisition of stock or the
transaction prior to the time that the person became an interested
stockholder;
- upon consummation of the transaction in which the person became an
interested stockholder, the interested stockholder became an 85% owner of
the voting stock of the corporation in the transaction, excluding voting
stock owned by directors who are also officers and certain employee stock
plans; or
- the transaction is approved by the board of directors and by the
affirmative vote of 66 2/3% of the outstanding voting stock which is not
owned by the interested stockholder.
The Cyprus Amax charter provides that certain transactions with the
beneficial owner of 10% of the voting power of the outstanding voting stock,
including a merger, significant dispositions of assets, certain issuances or
transfers of securities, certain plans of liquidation and dissolution, and
certain reclassifications of securities, generally require the affirmative vote
of 75% of the voting power of the outstanding shares of stock entitled to vote
in the election of directors, unless Cyprus Amax's disinterested directors
approve the transaction and certain other conditions are met.
62
<PAGE> 67
Phelps Dodge Stockholder Rights
New York law restricts the ability of certain persons to acquire control of
a Delaware corporation.
In general, a New York corporation may not engage in a business combination
with an interested stockholder for a period of five years following the
interested stockholder's becoming such. Such a business combination would be
permitted where it is approved by the board of directors prior to the interested
stockholder's becoming such, or within 30 days thereafter, if a good faith
proposal regarding a business combination is made in writing.
Covered business combinations include certain mergers and consolidations,
dispositions of assets or stock, plans for liquidation or dissolution,
reclassifications of securities, recapitalizations and similar transactions. An
interested stockholder is generally a stockholder owning at least 20% of a
corporation's outstanding voting stock.
In addition, New York corporations may not engage at any time with any
interested stockholder in a business combination other than:
- a business combination approved by the board of directors prior to the
stock acquisition, or where the acquisition of the stock had been
approved by the board of directors prior to the stock acquisition,
- a business combination approved by the affirmative vote of the holders of
a majority of the outstanding voting stock not beneficially owned by the
interested stockholder at a meeting for that purpose no earlier than five
years after the stock acquisition, or
- a business combination in which the interested stockholder pays a formula
price designed to ensure that all other stockholders receive at least the
highest price per share paid by the interested stockholder and that meets
certain other requirements.
Phelps Dodge is governed by the NYBCL, as described above. Phelps Dodge's
charter does not contain a provision regarding transactions with interested
stockholders.
63
<PAGE> 68
FORWARD-LOOKING INFORMATION
The U.S. securities laws provide a "safe harbor" for certain
forward-looking statements. This Information Statement contains forward-looking
statements, including statements concerning the business, future financial
position, results of operations, business strategy, estimated cost savings and
other benefits of Cyprus Amax's business combination with Phelps Dodge, plans as
to dividends and plans and objectives of management for future operations of
Phelps Dodge and Cyprus Amax. Forward-looking statements can be found, among
other places, under "Background of the Transaction." Generally, the words
"will," "may," "should," "continue," "believes," "expects," "anticipates" or
similar expressions identify forward-looking statements. Forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially from those projected. Statements regarding the expected
benefits of the business combination, the expected commencement dates of
operations, projected quantities of future production, capital costs, production
rates and other operating and financial data are based on expectations that
Phelps Dodge believes are reasonable, but we and Phelps Dodge can give no
assurance that such expectations will prove to have been correct.
Factors that could cause actual results to differ materially include, among
others:
- the possibility that Phelps Dodge will be unable to realize the expected
cost savings and other benefits from the combination;
- difficulties related to the integration of the businesses of Phelps Dodge
and Cyprus Amax;
- general U.S. and international economic, financial market and political
conditions;
- political and economic risks associated with operations outside the U.S.;
- the cyclical and volatile price of copper and other metals;
- unanticipated ground, water, weather or operating conditions or force
majeure events;
- unanticipated ore grade and geological problems or metallurgical and
other processing problems;
- delays in the receipt of or failure to receive necessary government
permits;
- changes in laws or regulations or the interpretation and enforcement
thereof;
- labor relations and accidents; and
- environmental risks.
Many such factors are beyond Cyprus Amax's or Phelps Dodge's ability to control
or predict. Readers are cautioned not to put undue reliance on forward-looking
statements. We and Phelps Dodge disclaim any intent or obligation to update
these forward-looking statements, whether as a result of new information, future
events or otherwise.
64
<PAGE> 69
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Information Statement incorporates by reference the documents set
forth below that Phelps Dodge or Cyprus Amax have previously filed with the
Securities and Exchange Commission (the "SEC"). These documents contain
important information about Phelps Dodge and Cyprus Amax and their financial
condition.
Cyprus Amax has supplied all information contained or reflected in this
Information Statement relating to Cyprus Amax. If you are a shareholder, the
Company may have previously sent you some of the documents incorporated herein
by reference.
DOCUMENTS INCORPORATED BY REFERENCE ARE AVAILABLE WITHOUT CHARGE UPON
WRITTEN OR ORAL REQUEST TO: CORPORATE SECRETARY, CYPRUS AMAX MINERALS COMPANY,
9100 EAST MINERAL CIRCLE, ENGLEWOOD, COLORADO 80112, TELEPHONE (303) 643-5000.
DELIVERY WILL BE MADE BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN
ONE BUSINESS DAY OF RECEIPT OF THE REQUEST.
The following documents filed with the SEC by Phelps Dodge are incorporated
herein by reference.
(i) Phelps Dodge's Annual Report on Form 10-K for the year ended
December 31, 1998 (revised information regarding Phelps Dodge's exploration
and mining properties is set forth in Schedule B to Phelps Dodge's
Definitive Proxy Statement, dated September 13, 1999, for the special
meeting of Phelps Dodge stockholders to be held on October 13, 1999, as
incorporated herein by reference);
(ii) Phelps Dodge's Proxy Statement for the Annual Meeting of Phelps
Dodge Stockholders held on May 5, 1999;
(iii) Phelps Dodge's Quarterly Reports on Form 10-Q for the periods
ended March 31, 1999, June 30, 1999 and September 30, 1999;
(iv) Phelps Dodge's Annual Report on Form 11-K for the fiscal year
ended December 31, 1998;
(v) Phelps Dodge's Current Reports on Form 8-K dated August 23, 1999,
August 26, 1999, September 3, 1999, September 22, 1999, September 30, 1999,
October 6, 1999, October 8, 1999, October 13, 1999 and October 22, 1999;
(vi) Phelps Dodge Definitive Proxy Statement for the special meeting
of Asarco shareholders to be held on September 30, 1999;
(vii) Phelps Dodge's Definitive Proxy Statement for the special
meeting of Cyprus Amax stockholders to be held on September 30, 1999; and
(viii) Phelps Dodge's Definitive Proxy Statement, dated September 13,
1999, for the special meeting of Phelps Dodge stockholders to be held on
October 13, 1999, as supplemented on September 22, 1999, October 1, 1999
and October 8, 1999.
The following documents filed with the SEC by Cyprus Amax are incorporated
herein by reference:
(i) Cyprus Amax's Annual Report on Form 10-K for the year ended
December 31, 1998;
(ii) Cyprus Amax's Proxy Statement for the Annual Meeting of
Shareholders held on May 6, 1999;
(iii) Cyprus Amax's Information Statement dated October 13, 1999;
(iv) Cyprus Amax's Quarterly Reports on Form 10-Q for the periods
ended March 31, 1999, June 30, 1999 and September 30, 1999; and
(v) Cyprus Amax's Current Reports on Form 8-K dated February 24, 1999,
July 14, 1999, July 21, 1999, September 28, 1999 and October 22, 1999.
All documents filed by Phelps Dodge or Cyprus Amax pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 from the date
of this Information Statement to the date of the Special Meeting shall also be
deemed to be incorporated herein by reference.
65
<PAGE> 70
SCHEDULE A
DIRECTORS AND EXECUTIVE OFFICERS OF CYPRUS AMAX MINERALS COMPANY
The name, business address, present principal occupation or employment and
five-year employment history of each of the directors and executive officers of
Cyprus Amax Minerals Company are set forth below. Unless otherwise indicated,
each occupation set forth opposite an individual's name refers to employment
with Cyprus Amax and each individual has held such occupation for at least the
last five years. Each director and executive officer listed below is a citizen
of the United States.
<TABLE>
<CAPTION>
POSITION WITH CYPRUS AMAX; PRINCIPAL
OCCUPATION OR EMPLOYMENT; 5-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- --------------------------------------------- ---------------------------------------------------
<S> <C>
J. Steven Whisler Mr. Whisler has been a Cyprus Amax director since
Phelps Dodge Corporation October 1999. He has been President and Chief
2600 North Central Avenue Operating Officer of Phelps Dodge Corporation since
Phoenix, AZ 85004-3104 December 1997, and President of Phelps Dodge Mining
Company, a division of Phelps Dodge, from 1991 to
October 1998. He was a Senior Vice President of
Phelps Dodge from 1988 to December 1997 and Vice
President of Phelps Dodge from 1987 until 1988. He
was General Counsel of Phelps Dodge from 1987 until
1991. He is a director of Phelps Dodge Corporation,
Burlington Northern Santa Fe Corporation and
Southern Peru Copper Corporation. Age 44.
Douglas C. Yearley Mr. Yearley has been a Cyprus Amax director and
Phelps Dodge Corporation Chairman of the Board, President and Chief
2600 North Central Avenue Executive Officer of Cyprus Amax since October
Phoenix, AZ 85004-3014 1999. He has been Chairman of the Board and Chief
Executive Officer of Phelps Dodge Corporation since
1989. He was President of Phelps Dodge from 1991
until December 1997. He was President of Phelps
Dodge Industries, a division of Phelps Dodge, from
1988 until 1990, Executive Vice President of Phelps
Dodge from 1987 until 1989 and Senior Vice
President of Phelps Dodge from 1982 through 1986.
He is a director of Phelps Dodge Corporation, 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.
Age 63.
Manuel J. Iraola Mr. Iraola has been a Cyprus Amax director since
Phelps Dodge Corporation October 1999. He has been President of Phelps Dodge
2600 North Central Avenue Industries, a division of Phelps Dodge Corporation,
Phoenix, AZ 85004-3014 since 1995, and a Senior Vice President of Phelps
Dodge since 1995. From 1992 until 1995 he was
President of Phelps Dodge International
Corporation. He is a director of Phelps Dodge
Corporation. Age 51.
</TABLE>
SCH-1
<PAGE> 71
<TABLE>
<CAPTION>
POSITION WITH CYPRUS AMAX; PRINCIPAL
OCCUPATION OR EMPLOYMENT; 5-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- --------------------------------------------- ---------------------------------------------------
<S> <C>
Milton H. Ward Mr. Ward has been a Cyprus Amax director since
Cyprus Amax Minerals Company 1992. He was Chairman of the Board, President and
9100 East Mineral Circle Chief Executive Officer of Cyprus Amax until
Englewood, CO 80012 October 1999, serving as Co-Chairman until November
1995. He was Chairman of the Board and Chief
Executive Officer of Amax Gold Inc. until 1998. He
is a director of the National Mining Association.
Age 67.
William C. Bousquette Mr. Bousquette has been a Cyprus Amax director
3086 Purchase Street since 1991. He has been an independent businessman
Purchase, NY 10577 since 1996. He was a Senior Vice President and
Chief Financial Officer of Texaco Inc. from 1995 to
1996, Executive Vice President and Chief Financial
Officer of Tandy Corporation from 1994 to 1995, and
Chief Executive Officer of TE Electronics, a
subsidiary of Tandy Corporation, from 1993 to 1994.
He is a director of O'Sullivan Industries Holdings,
Inc. and Intertan, Inc. Age 63.
Jeffrey G. Clevenger Mr. Clevenger has been Executive Vice President of
Cyprus Amax Minerals Company Cyprus Amax since January 1998. He previously held
9100 East Mineral Circle the position of Senior Vice President, Copper. Age
Englewood, CO 80012 50.
Gerald J. Malys Mr. Malys has been a Senior Vice President of
Cyprus Amax Minerals Company Cyprus Amax since October 1998 and Chief Financial
9100 East Mineral Circle Officer of Cyprus Amax since 1989. Age 55.
Englewood, CO 80012
David H. Watkins Mr. Watkins has been a Senior Vice President,
Cyprus Amax Minerals Company Exploration of Cyprus Amax since 1994. Age 55.
9100 East Mineral Circle
Englewood, CO 80012
Philip C. Wolf Mr. Wolf is a Senior Vice President, General
Cyprus Amax Minerals Company Counsel and Secretary of Cyprus Amax. Age 52.
9100 East Mineral Circle
Englewood, CO 80012
Robin J. Hickson Mr. Hickson has been a Vice President, Engineering
Cyprus Amax Minerals Company and Development of Cyprus Amax since November 1994.
9100 East Mineral Circle He previously served as Senior Vice President of
Englewood, CO 80012 Cyprus Climax Metals Company. Age 55.
</TABLE>
SCH-2
<PAGE> 72
<TABLE>
<CAPTION>
POSITION WITH CYPRUS AMAX; PRINCIPAL
OCCUPATION OR EMPLOYMENT; 5-YEAR
NAME AND BUSINESS ADDRESS EMPLOYMENT HISTORY
- --------------------------------------------- ---------------------------------------------------
<S> <C>
Farokh S. Hakimi Mr. Hakimi has been a Vice President and Treasurer
Cyprus Amax Minerals Company of Cyprus Amax since January 1998. He previously
9100 East Mineral Circle held various positions in Cyprus Amax's Treasury
Englewood, CO 80012 group and Coal Marketing and Planning and Economics
group. Age 51.
John Taraba Mr. Taraba is a Vice President and Controller of
Cyprus Amax Minerals Company Cyprus Amax. Age 51.
9100 East Mineral Circle
Englewood, CO 80012
</TABLE>
SCH-3
<PAGE> 73
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
PHELPS DODGE CORPORATION
CAV CORPORATION
AND
CYPRUS AMAX MINERALS COMPANY
DATED AS OF SEPTEMBER 30, 1999
A-1
<PAGE> 74
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE OFFER
SECTION 1.1 The Cyprus Offer............................................ 2
SECTION 1.2 Cyprus Elections............................................ 2
SECTION 1.3 Cyprus Action............................................... 3
SECTION 1.4 Parent Action............................................... 4
SECTION 1.5 Expiration or Termination of Offer.......................... 4
ARTICLE II
THE CYPRUS MERGER; CLOSING
SECTION 2.1 The Cyprus Merger........................................... 4
SECTION 2.2 The Closing................................................. 5
SECTION 2.3 Effective Time.............................................. 5
SECTION 2.4 Effects of the Cyprus Merger................................ 5
SECTION 2.5 Directors and Officers...................................... 5
ARTICLE III
EFFECT OF THE CYPRUS MERGER ON THE STOCK OF
CYPRUS; EXCHANGE OF CERTIFICATES
SECTION 3.1 Effect on Cyprus Stock and SubC Stock....................... 5
SECTION 3.2 Exchange of Certificates.................................... 7
SECTION 3.3 Dissenting Shares........................................... 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Organization, Qualification, Etc............................ 10
SECTION 4.2 Capital Stock............................................... 11
SECTION 4.3 Corporate Authority Relative to This Agreement.............. 11
SECTION 4.4 Non-Contravention; Consents and Approvals................... 12
SECTION 4.5 Reports and Financial Statements............................ 13
SECTION 4.6 Environmental Matters....................................... 13
SECTION 4.7 Employee Benefit Plans; ERISA............................... 14
Information Statement; Phelps Dodge Proxy Statement;
SECTION 4.8 Registration Statement; Other Information................... 16
SECTION 4.9 Cyprus Rights Plan.......................................... 17
SECTION 4.10 Tax Matters................................................. 17
SECTION 4.11 Opinion of Financial Advisors............................... 18
SECTION 4.12 Required Vote............................................... 18
SECTION 4.13 Absence of Certain Changes.................................. 18
SECTION 4.14 No Undisclosed Material Liabilities......................... 19
SECTION 4.15 Labor Relations............................................. 19
SECTION 4.16 No Prior Activities......................................... 20
</TABLE>
A-2
<PAGE> 75
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE V
COVENANTS AND AGREEMENTS
SECTION 5.1 Conduct of Business Pending the Effective Time.............. 20
SECTION 5.2 Investigation............................................... 21
SECTION 5.3 Stockholder Approvals and Other Cooperation................. 22
SECTION 5.4 Affiliate Agreements........................................ 24
Cyprus Employee Stock Options, Incentive and Benefit
SECTION 5.5 Plans....................................................... 24
SECTION 5.6 Filings; Other Action....................................... 25
SECTION 5.7 Further Assurances.......................................... 26
SECTION 5.8 Takeover Statute............................................ 26
SECTION 5.9 No Solicitation by Cyprus................................... 26
SECTION 5.10 Public Announcements........................................ 28
SECTION 5.11 Indemnification and Insurance............................... 28
SECTION 5.12 Accountants' "Comfort" Letters.............................. 28
SECTION 5.13 Additional Reports.......................................... 28
SECTION 5.14 Disclosure Schedule Supplements............................. 28
SECTION 5.15 Certain Litigation.......................................... 29
SECTION 5.16 Shareholder Litigation...................................... 29
SECTION 5.17 Section 16(b)............................................... 29
SECTION 5.18 Change of Control Agreements................................ 29
ARTICLE VI
CONDITIONS TO THE CYPRUS MERGER
Conditions to Each Party's Obligation to Effect the Cyprus
SECTION 6.1 Merger...................................................... 30
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
SECTION 7.1 Termination................................................. 30
SECTION 7.2 Termination by Parent....................................... 31
SECTION 7.3 Termination by Cyprus....................................... 31
SECTION 7.4 Effect of Termination....................................... 31
SECTION 7.5 Termination Fee............................................. 31
SECTION 7.6 Amendment or Supplement..................................... 32
SECTION 7.7 Extension of Time, Waiver, Etc.............................. 32
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 No Survival of Representations and Warranties............... 33
SECTION 8.2 Expenses.................................................... 33
SECTION 8.3 Counterparts; Effectiveness................................. 33
SECTION 8.4 Governing Law............................................... 33
SECTION 8.5 Notices..................................................... 33
SECTION 8.6 Assignment; Binding Effect.................................. 34
SECTION 8.7 Severability................................................ 34
SECTION 8.8 Enforcement of Agreement.................................... 34
SECTION 8.9 Entire Agreement; No Third-Party Beneficiaries.............. 34
SECTION 8.10 Headings.................................................... 34
</TABLE>
A-3
<PAGE> 76
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 8.11 Definitions................................................. 35
SECTION 8.12 Finders or Brokers.......................................... 35
SECTION 8.13 Cyprus Actions Following the Offer.......................... 35
LIST OF EXHIBITS
EXHIBIT A -- FORM OF CYPRUS AFFILIATE LETTER
LIST OF ANNEXES
ANNEX A -- CONDITIONS TO THE CYPRUS OFFER
</TABLE>
A-4
<PAGE> 77
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION
------------ -------
<S> <C>
accumulated funding deficiency.............................. 4.7(d)
affiliates.................................................. 8.11
Aggregate Cyprus Merger Cash Consideration.................. 3.1(b)
Aggregate Cyprus Merger Stock Consideration................. 3.1(b)
Agreement................................................... Preamble
Antitrust Laws.............................................. 5.6(b)
ASARCO...................................................... 7.5(b)
ASARCO Merger Agreement..................................... 7.5(b)
Certificates................................................ 3.1(b)
Closing..................................................... 2.2
Closing Date................................................ 2.2
Code........................................................ Recitals
Combination................................................. Recitals
Common Shares Trust......................................... 2(e)(iii)
Confidentiality Agreement................................... 5.2(a)
Continuing Director......................................... 7.6
control..................................................... 8.11
Current Representing Party Group............................ 4.10(a)
Cyprus...................................................... Preamble
Cyprus Acquisition Agreement................................ 5.9(b)
Cyprus Amax Minerals Company................................ 2.4(b)
Cyprus Award................................................ 5.5(b)
Cyprus Board................................................ 1.3(a)
Cyprus Cash Consideration................................... Recitals
Cyprus Cash Election Shares................................. 1.2(a)
Cyprus Cash Proration Factor................................ 1.2(b)
Cyprus Common Stock......................................... 2.1(b)
Cyprus Disclosure Schedule.................................. Article IV
Cyprus Employees............................................ 5.5(e)
Cyprus Excess Shares........................................ 3.2(e)(ii)
Cyprus Indemnified Parties.................................. 5.11(a)
Cyprus Maximum Cash Consideration........................... 1.2(b)
Cyprus Maximum Stock Consideration.......................... 1.2(c)
Cyprus Merger............................................... 2.1(a)
Cyprus Merger Cash Amount................................... 3.1(b)
Cyprus Merger Stock Amount.................................. 3.1(b)
Cyprus Non-Electing Proration Factor........................ 1.2(d)
Cyprus Non-Electing Shares.................................. 1.2(a)
Cyprus Notice............................................... 5.9(a)
Cyprus Offer................................................ Recitals
Cyprus Option Plans......................................... 5.5(a)
Cyprus Policy............................................... 5.11(b)
Cyprus Preferred Stock...................................... 3.1(c)
Cyprus SAR.................................................. 5.5(a)
Cyprus Shareholder Approval................................. 4.12(b)
Cyprus Shareholder Meeting.................................. 5.3(c)(iii)
Cyprus Stock Consideration.................................. Recitals
Cyprus Stock Election Shares................................ 1.2(a)
Cyprus Stock Options........................................ 5.5(a)
</TABLE>
A-5
<PAGE> 78
<TABLE>
<CAPTION>
DEFINED TERM SECTION
------------ -------
<S> <C>
Cyprus Stock Proration Factor............................... 1.2(c)
Cyprus Takeover Proposal.................................... 5.9(a)
Cyprus Termination Fee...................................... 7.5
DGCL........................................................ 2.1(a)
Dissenting Cyprus Shares.................................... 3.3(a)
Effective Time.............................................. 2.3
Employee Benefit Plan....................................... 4.7(g)(i)
Encumbrance................................................. 4.1(c)
Environmental Claim......................................... 4.6(d)(i)
Environmental Law........................................... 4.6(d)(ii)
Environmental Permits....................................... 4.6(a)
ERISA....................................................... 4.7(g)(iii)
ERISA Affiliate............................................. 4.7(g)(iv)
Exchange Act................................................ 1.3(b)
Exchange Agent.............................................. 3.2(a)
Exchange Fund............................................... 3.2(a)
Foreign Plan................................................ 4.7(g)(ii)
GAAP........................................................ Recitals
Governmental Entity......................................... 4.4(a)
Hazardous Materials......................................... 4.6(d)(iii)
HSR Act..................................................... 5.6(b)
Information Statement....................................... 4.8
IRS......................................................... 4.7(b)
Law......................................................... 4.4(a)
Material Adverse Effect..................................... 4.1(a)
Merger Consideration........................................ 3.1(b)
Minimum Condition........................................... 1.1
Multiemployer Plan.......................................... 4.7(a)
NYSE........................................................ 3.2(e)(ii)
Offer Documents............................................. 1.4
Parent...................................................... Preamble
Parent Certificates......................................... 3.2(a)
Parent Common Stock......................................... Recitals
Parent Disclosure Schedule.................................. Article IV
Parent Shareholder Approval................................. 4.12(a)
Parent Shareholder Meeting.................................. 5.3(c)(ii)
Past Representing Party Group............................... 4.10(a)
person...................................................... 8.11
Phelps Dodge Proxy Statement................................ 5.3(c)(ii)
Plan........................................................ 4.7(g)(iii)
Registration Statement...................................... 5.3(a)(i)
Representing Party.......................................... Article IV
Representing Party Affiliated Group......................... 4.10(a)
Representing Party Agreements............................... 4.4(a)
Representing Party's Disclosure Schedule.................... Article IV
Required Statutory Approvals................................ 4.4(b)
Required Third Party Consents............................... 4.4(b)
Schedule 14D-1.............................................. 1.4
Schedule 14D-9.............................................. 1.3(b)
SEC......................................................... 4.5(a)
SEC Reports................................................. 4.5
</TABLE>
A-6
<PAGE> 79
<TABLE>
<CAPTION>
DEFINED TERM SECTION
------------ -------
<S> <C>
Securities Act.............................................. 4.5
Share Issuance.............................................. 4.3(a)
Significant Subsidiaries.................................... 8.11
SubC........................................................ Preamble
Subsidiaries................................................ 8.11
Surviving Corporation....................................... 2.1(a)
Tax Certificates............................................ 5.3(a)(v)
Tax Return.................................................. 4.10
Taxes....................................................... 4.10
Termination Date............................................ 5.1
</TABLE>
A-7
<PAGE> 80
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 30, 1999 (this
"Agreement"), among PHELPS DODGE CORPORATION, a New York corporation ("Parent"),
CAV CORPORATION, a Delaware corporation ("SubC"), and CYPRUS AMAX MINERALS
COMPANY, a Delaware corporation ("Cyprus").
WHEREAS, Parent and Cyprus desire to combine their respective businesses
upon the terms and subject to the conditions in this Agreement (the
"Combination");
WHEREAS, (i) Parent is a corporation organized and existing under the laws
of the State of New York; and (ii) Cyprus is a corporation organized and
existing under the laws of the State of Delaware;
WHEREAS, Parent has formed SubC, a wholly owned subsidiary of Parent, and
all the outstanding capital stock of SubC is owned by Parent;
WHEREAS, the Board of Directors of each of Parent and Cyprus deem it
advisable and in the best interests of their shareholders to effect the
Combination by causing Cyprus to become a subsidiary of Parent pursuant to the
Cyprus Merger as provided for in this Agreement;
WHEREAS, in furtherance of the Combination, Parent has caused SubC to
commence an exchange offer, which Parent shall cause SubC to amend in accordance
with the terms of this Agreement (as so amended, the "Cyprus Offer"), to acquire
all of the issued and outstanding shares of Cyprus Common Stock (as hereinafter
defined), for either $20.54 per share, net to the seller in cash, without
interest (the "Cyprus Cash Consideration") or 0.3500 of a share of common stock
of Parent, par value $6.25 per share ("Parent Common Stock") (the "Cyprus Stock
Consideration"), subject to the election and proration provisions of this
Agreement and to the terms and conditions of this Agreement and the Cyprus
Offer;
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Combination and also to
prescribe various conditions to the Combination;
WHEREAS, for U.S. federal income tax purposes, it is intended that the
Cyprus Merger will qualify as a transaction described in Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended that the
transactions contemplated by this Agreement will be accounted for as a purchase
transaction in accordance with United States generally accepted accounting
principles ("GAAP");
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, and fully intending to be
legally bound hereby, the parties agree as follows:
A-8
<PAGE> 81
ARTICLE I
THE OFFER
SECTION 1.1. The Cyprus Offer.
The obligation of Parent to accept for payment and pay for Cyprus Common
Stock tendered pursuant to the Cyprus Offer shall be subject to the condition
(the "Minimum Condition") that the Cyprus Common Stock, when added to the Cyprus
Common Stock already owned by Parent, shall constitute at least a majority of
the then outstanding Cyprus Common Stock on a fully diluted basis (including,
without limitation, all Cyprus Common Stock issuable upon the conversion of any
convertible securities or upon the exercise of any options, warrants or rights)
having been validly tendered and not withdrawn prior to the expiration of the
Cyprus Offer and also shall be subject to the satisfaction of the other
conditions set forth in Annex A hereto. Parent expressly reserves the right to
waive any such condition, to increase the price per share of Cyprus Common Stock
payable in the Cyprus Offer, and to make any other changes in the terms and
conditions of the Cyprus Offer; provided, however, that, without the prior
written consent of Cyprus, no change may be made to the Minimum Condition or
which decreases the price per share of Cyprus Common Stock payable in the Cyprus
Offer, which changes the form of consideration payable in the Cyprus Offer,
which reduces the maximum number of shares of Cyprus Common Stock to be acquired
in the Cyprus Offer, which imposes conditions to the Cyprus Offer in addition to
those set forth in Annex A hereto, or which amends any other term of the Cyprus
Offer in any manner adverse to the holders of the Cyprus Common Stock. Without
the prior written consent of Cyprus, Parent will not waive the Minimum Condition
if, as a result, SubC would acquire less than a majority of the Cyprus Common
Stock outstanding. The Cyprus Cash Consideration shall, subject to applicable
withholding of taxes, be net to the seller in cash, upon the terms and subject
to the conditions of the Cyprus Offer. Subject to the terms and conditions of
the Cyprus Offer, Parent shall accept for payment and purchase, as soon as
permitted under the terms of the Cyprus Offer, and shall pay the Cyprus Cash
Consideration and issue Parent Common Stock in payment of the Cyprus Stock
Consideration, as promptly as practicable after expiration of the Cyprus Offer
for, all shares of Cyprus Common Stock validly tendered and not withdrawn.
SECTION 1.2 Cyprus Elections.
(a) Subject to Sections 1.2(b), (c) and (d) below, each holder of Cyprus
Common Stock shall be entitled, with respect to each share of Cyprus Common
Stock held by such holder, to elect to receive either the Cyprus Cash
Consideration or the Cyprus Stock Consideration. Cyprus shares that are validly
tendered and not withdrawn and (i) covered by elections to receive the Cyprus
Cash Consideration are referred to herein as "Cyprus Cash Election Shares", (ii)
covered by elections to receive the Cyprus Stock Consideration are referred to
herein as "Cyprus Stock Election Shares" and (iii) not covered by a valid
election to receive either the Cyprus Cash Consideration or the Cyprus Stock
Consideration are referred to herein as "Cyprus Non-Electing Shares".
(b) Excess of Cash Elections. If the aggregate Cyprus Cash Consideration
elected in respect of all Cyprus Cash Election Shares exceeds $7.61176875
multiplied by the total number of Cyprus shares outstanding immediately prior to
closing of the Offer (the "Cyprus Maximum Cash Consideration"), the following
will occur:
1. Each Cyprus Cash Election Share will be exchanged in the Offer for
(i) $20.54 multiplied by a fraction (the "Cyprus Cash Proration Factor"),
the numerator of which is the Cyprus Maximum Cash Consideration and the
denominator of which is the number of Cyprus Cash Election Shares
multiplied by $20.54, and (ii) a number of shares of Parent Common Stock
equal to 0.3500 multiplied by 1 minus the Cyprus Cash Proration Factor.
2. Each Cyprus Stock Election Share and each Cyprus Non-Electing Share
will be exchanged for 0.3500 of a share of Parent Common Stock.
A-9
<PAGE> 82
(c) Excess of Stock Elections. If the aggregate Cyprus Stock Consideration
elected in respect of all Cyprus Stock Election Shares exceeds 0.2203 multiplied
by the total number of Cyprus shares outstanding immediately prior to closing of
the Offer (the "Cyprus Maximum Stock Consideration"), the following will occur:
1. Each Cyprus Stock Election Share will be exchanged in the Offer for
(i) a number of shares of Parent Common Stock equal to 0.3500 multiplied by
a fraction (the "Cyprus Stock Proration Factor"), the numerator of which is
the Cyprus Maximum Stock Consideration and the denominator of which is the
number of Cyprus Stock Election Shares multiplied by 0.3500, and (ii) cash
in an amount equal to $20.54 multiplied by 1 minus the Cyprus Stock
Proration Factor.
2. Each Cyprus Cash Election Share and each Cyprus Non-Electing Share
will be exchanged for $20.54, without interest.
(d) No Excess of Cash or Stock Elections. In the event that neither Section
1.2(b) or 1.2(c) above is applicable, the following will occur:
1. Each Cyprus Cash Election Share will be exchanged for $20.54 in
cash without interest.
2. Each Cyprus Stock Election Share will be exchanged for 0.3500 of a
share of Parent Common Stock.
3. Each Cyprus Non-Electing Share will be exchanged for (i) an amount
in cash without interest equal to $20.54 multiplied by a fraction (the
"Cyprus Non-Electing Proration Factor"), the numerator of which is the
difference between the Cyprus Cash Number (as hereinafter defined) less the
number of Cyprus Cash Election Shares and the denominator of which is the
number of Cyprus Non-Electing Shares; and (ii) a number of shares of Parent
Common Stock equal to 0.3500 multiplied by 1 minus the Cyprus Non-Electing
Proration Factor. For purposes of this Section 1.2(d), the Cyprus Cash
Number is determined by dividing the Cyprus Maximum Cash Consideration by
$20.54.
SECTION 1.3 Cyprus Action.
(a) Cyprus hereby approves of and consents to the Cyprus Offer and
represents that (i) the Cyprus Board of Directors (the "Cyprus Board"), at a
meeting duly called and held on September 30, 1999, has unanimously (A)
determined that this Agreement and the transactions contemplated hereby,
including each of the Cyprus Offer and the Cyprus Merger, are fair to and in the
best interests of the holders of Cyprus Common Stock, (B) approved and adopted
this Agreement and the transactions contemplated hereby and (C) recommended that
the stockholders of Cyprus accept the Cyprus Offer and approve and adopt this
Agreement and the transactions contemplated hereby, and (ii) Merrill Lynch & Co.
has delivered to the Cyprus Board an written opinion that the consideration to
be received by the holders of Cyprus Common Stock pursuant to each of the Cyprus
Offer and the Cyprus Merger is fair to the holders of Cyprus Common Stock from a
financial point of view. Cyprus hereby consents to the inclusion in the Offer
Documents of the recommendation of the Cyprus Board described in the immediately
preceding sentence. Cyprus has been advised by each of its directors and
executive officers that they intend either to tender all Cyprus Common Stock
beneficially owned by them to Parent pursuant to the Cyprus Offer or to vote
such Cyprus Common Stock in favor of the approval and adoption by the
stockholders of Cyprus of this Agreement and the transactions contemplated
hereby.
(b) As soon as reasonably practicable after the date hereof, Cyprus shall
file with the SEC an amendment to its Solicitation/Recommendation Statement on
Schedule 14D-9 (together with all amendments and supplements thereto, the
"Schedule 14D-9") containing, subject to the fiduciary duties of the Cyprus
Board under applicable law as advised in writing by independent counsel, the
recommendation of the Cyprus Board described in Section 1.3(a) and shall
disseminate the Schedule 14D-9 to the extent required by Rule 14d-9 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
any other applicable federal securities laws. Cyprus and Parent agree to correct
promptly any information provided by either of them for use in the Schedule
14D-9 which shall have become false or misleading, and Cyprus further agrees to
take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed
with
A-10
<PAGE> 83
the SEC and disseminated to holders of Cyprus Common Stock, in each case as and
to the extent required by applicable federal securities laws.
SECTION 1.4 Parent Action.
As soon as reasonably practicable after the date hereof, Parent shall file
with the SEC an amendment to its Tender Offer Statement on Schedule 14D-1
(together with all amendments and supplements thereto, the "Schedule 14D-1")
with respect to the Cyprus Offer. The Schedule 14D-1 shall contain the terms and
conditions of the Cyprus Offer in accordance with the terms of this Agreement
and shall contain or incorporate by reference an offer to purchase and the
related letter of transmittal (the Schedule 14D-1, such offer to purchase and
related letter of transmittal, together with all supplements and amendments
thereto being referred to herein collectively as the "Offer Documents"). As soon
as reasonably practicable after the date hereof, Parent shall disseminate the
Schedule 14D-1 to the extent required by Rule 14d-3 promulgated under the
Exchange Act and any other applicable federal securities laws. Parent and Cyprus
agree to correct promptly any information provided by either of them for use in
the Schedule 14D-1 which shall have become false or misleading, and Parent
further agrees to take all steps necessary to cause the Schedule 14D-1 as so
corrected to be filed with the SEC and disseminated to holders of Cyprus Common
Stock, in each case as and to the extent required by applicable federal
securities laws.
SECTION 1.5 Expiration or Termination of Offer.
Parent and SubC agree that, without the prior written consent of Cyprus,
SubC shall not terminate or withdraw the Cyprus Offer or extend the expiration
date of the Cyprus Offer unless at the expiration date of the Cyprus Offer the
conditions to the Cyprus Offer described in Annex A hereto shall not have been
satisfied or earlier waived. If, at the expiration date of the Cyprus Offer, the
conditions to the Cyprus Offer described in Annex A hereto shall not have been
satisfied or earlier waived but there is a reasonable possibility that such
conditions may be satisfied prior to March 31, 2000, Parent shall extend the
expiration date of the Cyprus Offer for an additional period or periods of time,
each of which being no longer than five business days, until, the date such
conditions are satisfied or earlier waived and SubC becomes obligated to accept
for payment and pay for shares of Cyprus Common Stock tendered pursuant to the
Cyprus Offer; provided, however, that if the condition to the Cyprus Offer
described in clause (e) of Annex A hereto has not been satisfied at the
expiration date and Parent has given notice of the breach that has caused such
condition not to be satisfied, Parent and SubC shall have no further obligation
to extend the expiration date of the Cyprus Offer if such breach has not been
cured within 30 days of such notice.
ARTICLE II
THE CYPRUS MERGER; CLOSING
SECTION 2.1. The Cyprus Merger.
(a) Upon the terms and subject to the conditions set forth in this
Agreement and in accordance with the Delaware General Corporation Law (the
"DGCL"), SubC shall merge with Cyprus (the "Cyprus Merger") at the Effective
Time. SubC shall be the surviving corporation in the Cyprus Merger (the
"Surviving Corporation"). From and after the Effective Time, the identity and
separate existence of Cyprus shall cease.
(b) In connection with the Cyprus Merger, Parent shall reserve a sufficient
number of shares of Parent Common Stock, prior to the Cyprus Merger, to permit
the issuance of shares of Parent Common Stock (i) to the holders of common
stock, no par value per share, of Cyprus (the "Cyprus Common Stock") as of the
Effective Time in accordance with the terms of this Agreement and (ii) upon the
exercise of Cyprus Stock Options being assumed by Parent in accordance with
Section 5.5 hereof.
A-11
<PAGE> 84
SECTION 2.2 The Closing.
The closing of the Cyprus Merger (the "Closing") will take place at 10:00
a.m. local time on the day following the last to occur of the Parent Shareholder
Meeting and the Cyprus Shareholder Meeting (the "Closing Date"), but shall in no
event be later than the second business day after satisfaction or waiver of the
conditions set forth in Article VI unless another time or date is agreed to by
the parties hereto. The Closing will be held at the offices of Shearman &
Sterling, 599 Lexington Avenue, New York, NY, unless another place is agreed to
by the parties hereto.
SECTION 2.3 Effective Time.
Subject to the provisions of this Agreement, as soon as practicable on or
after the Closing Date, SubC and Cyprus shall file with the Secretary of State
of the State of Delaware a certificate of merger duly completed and executed in
accordance with the relevant provisions of the DGCL and shall make all other
filings required under the DGCL to effect the Cyprus Merger. The Cyprus Merger
shall become effective at the actual time of the filing of such certificate of
merger or at such other later time as is reasonably specified in the certificate
of merger (the time at which the Cyprus Merger becomes fully effective being
hereinafter referred to as the "Effective Time").
SECTION 2.4 Effects of the Cyprus Merger.
(a) DGCL. The Cyprus Merger shall have the effects set forth in Section 259
of the DGCL.
(b) Name of Surviving Corporation. The name of the Surviving Corporation
from and after the Effective Time shall be "Cyprus Amax Minerals Company" until
changed or amended in accordance with applicable Law.
(c) Charter Documents. At the Effective Time, the Certificate of
Incorporation and the Bylaws of SubC, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation and Bylaws,
respectively, of the Surviving Corporation.
SECTION 2.5 Directors and Officers.
The directors of SubC at the Effective Time shall be the directors of the
Surviving Corporation until their respective successors are duly elected and
qualified, as the case may be. The officers of SubC at the Effective Time shall
be the officers of the Surviving Corporation until their respective successors
are duly appointed.
ARTICLE III
EFFECT OF THE CYPRUS MERGER ON THE STOCK OF
CYPRUS; EXCHANGE OF CERTIFICATES
SECTION 3.1 Effect on Cyprus Stock and SubC Stock.
As of the Effective Time, by virtue of the Cyprus Merger and without any
action on the part of SubC, Cyprus or the holders of any securities of SubC or
Cyprus:
(a) Cancellation of Treasury Stock. Each share of Cyprus Common Stock
that is owned directly by Parent, Cyprus or any of their respective
Subsidiaries (but not including any such shares owned by employees or
employee benefit or pension plans) shall automatically be cancelled and
retired and shall cease to exist, and no consideration shall be delivered
in exchange therefor.
(b) Conversion of Cyprus Common Stock. Subject to Section 3.2(e), each
issued and outstanding share of Cyprus Common Stock (other than shares to
be cancelled in accordance with Section 3.1(a)) shall be converted into the
Cyprus Stock Consideration, the Cyprus Cash Consideration or a combination
thereof, in each case determined pursuant to this Section 3.1(b) (such
consideration being referred to herein as the "Merger Consideration"). If
Section 1.2(b) is applicable to the Cyprus Offer, each
A-12
<PAGE> 85
outstanding share of Cyprus Common Stock will be converted in the Cyprus
Merger into the right to receive the Cyprus Stock Consideration. If Section
1.2(c) is applicable to the Cyprus Offer, each outstanding share of Cyprus
Common Stock will be converted in the Cyprus Merger into the right to
receive the Cyprus Cash Consideration. If neither Section 1.2(b) nor 1.2(c)
is applicable, each outstanding share of Cyprus Common Stock will be
converted in the Cyprus Merger into (i) an amount of cash equal to the
Cyprus Merger Cash Amount (as hereinafter defined), without interest, and
(ii) a number of shares of Parent Common stock equal to the Cyprus Merger
Stock Amount (as hereinafter defined). The Cyprus Merger Cash Amount and
the Cyprus Merger Stock Amount will be determined as follows:
1. The aggregate amount of Cyprus Cash Consideration actually paid
in the Cyprus Offer will be subtracted from the Total Cyprus Available
Cash (as hereinafter defined) to determine the amount of cash available
to be paid in the Cyprus Merger (the "Aggregate Cyprus Merger Cash
Consideration"). For purposes of this Section, Total Cyprus Available
Cash equals (i) the number of shares of Cyprus Common Stock exchanged in
the Cyprus Offer plus the number of shares of Cyprus Common Stock to be
converted in the Cyprus Merger, multiplied by (ii) $7.61176875.
2. The Aggregate Cyprus Merger Cash Consideration will be divided
by the number of shares of Cyprus Common Stock to be converted in the
Cyprus Merger, to determine the amount of cash consideration to be paid
in respect of each such share of Cyprus Common Stock in the Cyprus
Merger (the "Cyprus Merger Cash Amount").
3. The aggregate number of shares of Parent Common Stock actually
issued as Cyprus Stock Consideration in the Cyprus Offer will be
subtracted from the Total Cyprus Available Stock (as hereinafter
defined) to determine the number of shares of Parent Common Stock
available to be paid in the Cyprus Merger (the "Aggregate Cyprus Merger
Stock Consideration"). For purposes of this Section, Total Cyprus
Available Stock equals (i) the number of shares of Cyprus Common Stock
exchanged in the Cyprus Offer plus the number of shares of Cyprus Common
Stock to be converted in the Cyprus Merger, multiplied by (ii) 0.2203.
4. The Aggregate Cyprus Merger Stock Consideration will be divided
by the number of shares of Cyprus Common Stock to be converted in the
Cyprus Merger, to determine the number of shares of Parent Common Stock
to be issued in respect of each such share of Cyprus Common Stock in the
Cyprus Merger (the "Cyprus Merger Stock Amount").
As of the Effective Time, all such shares of Cyprus Common Stock
shall no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Cyprus Common Stock (the "Certificates") shall
cease to have any rights with respect thereto, except the right to
receive (x) if the Merger Consideration includes Parent Common Stock,
(i) Parent Certificates, (ii) certain dividends and other distributions
in accordance with Section 3.2(c), and (iii) cash in lieu of fractional
shares of Parent Common Stock in accordance with Section 3.2(e), without
interest, and (y) if the Merger Consideration includes cash, the
appropriate cash amounts.
(c) Redemption of Cyprus Preferred Stock. Immediately prior to the
Effective Time, each issued and outstanding share of $4.00 Series A
Convertible Preferred Stock of Cyprus (the "Cyprus Preferred Stock") shall
be redeemed by Cyprus. Cyprus shall give the required notice of redemption
sufficient to allow for such redemption.
(d) Conversion of Common Stock of SubC. Each issued and outstanding
share of common stock, par value $.01 per share, of SubC shall be converted
into one fully paid and nonassessable share of common stock of the
Surviving Corporation.
A-13
<PAGE> 86
SECTION 3.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent shall enter into an
agreement with such bank or trust company as may be designated by it and
reasonably satisfactory to Cyprus (the "Exchange Agent"), which shall provide
that Parent shall deposit with the Exchange Agent as of the Effective Time, for
the benefit of the holders of shares of Cyprus Common Stock, for exchange in
accordance with this Article III, through the Exchange Agent, cash and
certificates ("Parent Certificates") representing the number of whole shares of
Parent Common Stock issuable or payable pursuant to Section 3.1 in exchange for
outstanding shares of Cyprus Common Stock (such cash and shares of Parent Common
Stock, together with any dividends or distributions with respect to such Parent
Common Stock with a record date after the Effective Time, any Cyprus Excess
Shares and any cash (including cash proceeds from the sale of the Cyprus Excess
Shares) payable in lieu of any fractional shares of Parent Common Stock being
hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate whose shares were converted into the Merger Consideration pursuant
to Section 3.1 (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the cash and/or Certificate
shall pass, only upon delivery of the Certificate to the Exchange Agent and
shall be in such form and have such other provisions as Parent may reasonably
specify), and (ii) instructions for use in effecting the surrender of the
Certificate in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor, cash and/or a Parent Certificate representing
that number of whole shares of Parent Common Stock which such holder has the
right to receive pursuant to the provisions of this Article III, certain
dividends or other distributions in accordance with Section 3.2(c) and cash in
lieu of any fractional share in accordance with Section 3.2(e), and the
Certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Cyprus Common Stock not registered in the transfer
records of Cyprus, cash and/or a Parent Certificate representing the proper
number of shares of Parent Common Stock may be issued to a person other than the
person in whose name the Certificate so surrendered is registered if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer, and the person requesting such issuance shall pay all transfer or
other non-income Taxes required by reason of the issuance of shares of Parent
Common Stock and/or cash to a person other than the registered holder of such
Certificate or establish to the satisfaction of Parent that such Tax has been
paid or is not applicable. Until surrendered as contemplated by this Section
3.2, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender of Cyprus Certificates,
cash and/or Parent Certificates representing the number of whole shares of
Parent Common Stock into which the shares of Cyprus Common Stock formerly
represented by such Certificate have been converted, certain dividends or other
distributions in accordance with Section 3.2(c) and cash in lieu of any
fractional share in accordance with Section 3.2(e). No interest will be paid or
will accrue on any cash payable to holders of Certificates pursuant to the
provisions of this Article III.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 3.2(e), and all such dividends, other distributions and cash in lieu
of fractional shares of Parent Common Stock shall be paid by Parent to the
Exchange Agent and shall be included in the Exchange Fund, in each case until
the surrender of such Certificate in accordance with this Article III. Subject
to the effect of applicable escheat or similar Laws, following surrender of any
such Certificate there shall be paid to the holder of the Parent Certificate
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock and the amount of any
cash payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 3.2(e), and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a
A-14
<PAGE> 87
record date after the Effective Time but prior to such surrender and with a
payment date subsequent to such surrender payable with respect to such whole
shares of Parent Common Stock.
(d) No Further Ownership Rights in Cyprus Common Stock. All cash and/or
shares of Parent Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms of this Article III (including any
cash paid pursuant to this Article III) shall be deemed to have been issued (and
paid) in full satisfaction of all rights pertaining to the shares of Cyprus
Common Stock theretofore represented by such Certificates, subject, however, to
the Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have been
authorized or made by Cyprus on such shares of Cyprus Common Stock which remain
unpaid at the Effective Time, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the shares
of Cyprus Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent for any reason, they shall be cancelled and
exchanged as provided in this Article III, except as otherwise provided by Law.
(e) No Fractional Shares.
(i) No Parent Certificates or scrip representing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution of Parent shall relate to such
fractional share interests, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of
Parent.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent will determine the excess of (A) the number of whole shares
of Parent Common Stock delivered to the Exchange Agent by Parent pursuant
to Section 3.2(a) for exchange pursuant to Section 3.1 for outstanding
shares of Cyprus Common Stock over (B) the aggregate number of whole shares
of Parent Common Stock to be distributed to holders of Cyprus Common Stock
pursuant to Section 3.2(b) (such excess being herein called the "Cyprus
Excess Shares"). Following the Effective Time, the Exchange Agent will, on
behalf of former shareholders of Cyprus, sell the Cyprus Excess Shares at
then-prevailing prices on the New York Stock Exchange, Inc. (the "NYSE"),
all in the manner provided in Section 3.2(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will be
executed on the NYSE through one or more member firms of the NYSE and will
be executed in round lots to the extent practicable. The Exchange Agent
will use reasonable efforts to complete the sale of the Excess Shares as
promptly following the Effective Time as, in the Exchange Agent's sole
judgment, is practicable consistent with obtaining the best execution of
such sales in light of prevailing market conditions. Until the net proceeds
of such sale or sales have been distributed to the holders of Cyprus Common
Stock, the Exchange Agent will hold such proceeds in trust for the holders
of Cyprus Common Stock (the "Common Shares Trust"). Parent will pay all
commissions, transfer Taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent incurred in
connection with such sale of the Excess Shares. The Exchange Agent will
determine the portion of the Common Shares Trust to which each holder of
Cyprus Common Stock is entitled, if any, by multiplying the amount of the
aggregate net proceeds comprising the Common Shares Trust by a fraction,
the numerator of which is the amount of the fractional share interest to
which such holder of Cyprus Common Stock is entitled (after taking into
account all shares of Cyprus Common Stock held at the Effective Time by
such holder) and the denominator of which is the aggregate amount of
fractional share interests to which all holders of Cyprus Common Stock are
entitled.
(iv) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Cyprus Common Stock with respect to
any fractional share interests, the Exchange Agent will make available such
amounts to such holders of Cyprus Common Stock subject to and in accordance
with the terms of Section 3.2(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates six months after the
Effective Time shall be delivered to Parent upon demand, and any holders of the
Certificates who have not theretofore complied with this Article III shall
thereafter
A-15
<PAGE> 88
look only to Parent for payment of their claim for Merger Consideration, any
cash in lieu of fractional shares of Parent Common Stock and any dividends or
distributions with respect to Parent Common Stock.
(g) No Liability. None of Parent, SubC, Cyprus or the Exchange Agent shall
be liable to any person in respect of any shares of Parent Common Stock (or
dividends or distributions with respect thereto) or cash from the Exchange Fund
in each case delivered to a public official pursuant to any applicable abandoned
property, escheat or similar Law. If any Certificate shall not have been
surrendered prior to seven years after the Effective Time (or immediately prior
to such earlier date on which any Merger Consideration, any cash payable to the
holder of such Certificate pursuant to this Article III or any dividends or
distributions payable to the holder of such Certificate would otherwise escheat
to or become the property of any governmental body or authority) any such Merger
Consideration or cash, dividends or distributions in respect of such Certificate
shall, to the extent permitted by applicable Law, become the property of the
related Surviving Corporation, free and clear of all claims or interest of any
person previously entitled thereto.
(h) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate, the
Merger Consideration and, if applicable, any cash in lieu of fractional shares,
and unpaid dividends and distributions on shares of Parent Common Stock as may
be deliverable in respect thereof pursuant to this Agreement.
SECTION 3.3 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, shares
of Cyprus Common Stock that are outstanding immediately prior to the Effective
Time and which are held by persons who shall have properly demanded in writing
appraisal for such shares of Cyprus Common Stock in accordance with Section 262
of the DGCL (collectively, the "Dissenting Cyprus Shares") shall not be
converted into or represent the right to receive the Merger Consideration as
provided in Section 3.1(b). Such persons shall be entitled to receive payment of
the appraised value of such shares of Cyprus Common Stock held by them in
accordance with the provisions of Section 262 of the DGCL, except that all
Dissenting Cyprus Shares held by persons who shall have failed to perfect or who
effectively shall have withdrawn or lost their right to appraisal of such shares
under Section 262 shall thereupon be deemed to have been converted into, as of
the Effective Time, the Merger Consideration (subject to the proration
procedures set forth in Section 3.1(b)) upon surrender of the Certificate
therefor in the manner provided in Section 3.2.
(b) Cyprus shall give Parent (i) prompt notice of any demands for appraisal
received by Cyprus, withdrawals of such demands and any other instruments served
pursuant to the DGCL and received by Cyprus, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to demands for
appraisal under the DGCL. Cyprus shall not, except with the prior written
consent of Parent, make any payment with respect to any demands for appraisal or
offer to settle or settle any such demands.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Except (i) as set forth in the disclosure schedule delivered by Parent to
Cyprus prior to the execution of this Agreement (the "Parent Disclosure
Schedule"), Parent hereby represents and warrants to Cyprus, and (ii) as set
forth in the disclosure schedule delivered by Cyprus to Parent prior to the
execution of this Agreement (the "Cyprus Disclosure Schedule"), Cyprus hereby
represents and warrants to Parent, in each case as set forth in this Article IV,
with the party making such representations and warranties being referred to as
the "Representing Party" and such Representing Party's Disclosure Schedule as
the "Representing Party's Disclosure Schedule." Notwithstanding the foregoing,
any representation or warranty which expressly refers to Parent or Cyprus is
being made solely by Parent or Cyprus, as the case may be.
A-16
<PAGE> 89
SECTION 4.1 Organization, Qualification, Etc.
(a) The Representing Party is a corporation duly organized, validly
existing and in good standing (or other equivalent status) under the laws of the
jurisdiction of its incorporation and has the corporate power and authority to
own, operate and lease all of its properties and assets and to carry on its
business as it is now being conducted or presently proposed to be conducted and
is duly qualified to do business and is in good standing (or other equivalent
status) in each jurisdiction in which the ownership, operation or leasing of its
properties or assets or the conduct of its business requires such qualification,
except for jurisdictions in which the failure to be so qualified or in good
standing (or other equivalent status) would not, individually or in the
aggregate, have a Material Adverse Effect on the Representing Party and its
Subsidiaries, taken as a whole. As used in this Agreement, any reference to any
state of facts, event, change or effect having a "Material Adverse Effect" on or
with respect to a Representing Party, means such state of facts, event, change
or effect that has had or would reasonably be expected to have a material
adverse effect on the business, results of operations or financial condition of
the Representing Party and its Subsidiaries, taken as a whole; provided,
however, that any adverse effect that copper prices have had or may have on the
business, results of operations or financial condition of the Representing Party
and its Subsidiaries, taken as a whole, shall not be deemed a Material Adverse
Effect for purposes of this Agreement. The copies of each Representing Party's
Certificate of Incorporation and Bylaws which have been delivered to the other
Representing Party are complete and correct and in full force and effect.
(b) Each of the Representing Party's Significant Subsidiaries is a
corporation duly organized, validly existing and in good standing (or other
equivalent status) under the laws of its jurisdiction of incorporation or
organization, has the power and authority to own, operate and lease its
properties and to carry on its business as it is now being conducted or
presently proposed to be conducted, and is duly qualified to do business and is
in good standing (or equivalent status) in each jurisdiction in which the
ownership, operation or leasing of its properties or assets or the conduct of
its business requires such qualification, except for jurisdictions in which the
failure to be so qualified or in good standing (or other equivalent status)
would not, individually or in the aggregate, have a Material Adverse Effect on
the Representing Party. Each Representing Party has made available to the other
Representing Party complete and correct copies of the certificate of
incorporation, bylaws or other similar governing documents which are in full
force and effect for each of such Representing Party's Significant Subsidiaries
that are not directly or indirectly wholly owned.
(c) All the outstanding shares of capital stock of, or other ownership
interests in, the Representing Party's Subsidiaries are validly issued, fully
paid and non-assessable and are owned of record and beneficially by such
Representing Party, directly or indirectly, free and clear of all Encumbrances.
As used in this Agreement, the term "Encumbrance" means any mortgage, pledge,
lien, charge, encumbrance, defect, security interest, claim, option or
restriction of any kind. There are no (i) securities of the Representing Party
or any of its Subsidiaries convertible into or exchangeable or exercisable for
shares of capital stock or other voting securities or ownership interests in any
of the Representing Party's Subsidiaries, (ii) warrants, calls, options or other
rights to acquire from the Representing Party or any of its Subsidiaries, or any
obligations of the Representing Party or any of its Subsidiaries to issue, any
capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable or exercisable for, any capital
stock, voting securities or ownership interests in any of the Representing
Party's Subsidiaries, or (iii) obligations of the Representing Party or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any outstanding
securities of the Representing Party's Subsidiaries or to issue, deliver or
sell, or cause to be issued, delivered or sold, any such securities.
(d) Except for the Representing Party's Subsidiaries, as set forth in
Section 4.1(d) of the Representing Party's Disclosure Schedule or the
Representing Party's (or any of its Subsidiaries') SEC Reports, and in respect
of minerals exploration or development agreements in the ordinary course of
business, the Representing Party (excluding employee pension or benefit plans)
does not own any securities of, or have any debt or equity investment in, or
loans outstanding to, any corporation, partnership, joint venture, limited
liability company or other entity. The Representing Party is not subject to any
contractual obligation under which it may be required to advance or contribute
capital to any entity, except in respect of minerals exploration or development
agreements in the ordinary course of business.
A-17
<PAGE> 90
SECTION 4.2 Capital Stock.
(a) Section 4.2(a) of the Representing Party's Disclosure Schedule sets
forth as of September 28, 1999:
(i) the number of authorized shares of each class or series of capital
stock of the Representing Party;
(ii) the number of shares of each class or series of capital stock of
the Representing Party which are issued and outstanding;
(iii) the number of shares of each class or series of capital stock
which are held in the treasury of such Representing Party;
(iv) the number of shares of each class or series of capital stock of
the Representing Party which are reserved for issuance, indicating each
specific reservation; and
(v) the number of shares of each class or series of capital stock of
such Representing Party which are subject to employee stock options or
other rights to purchase or receive capital stock granted under such
Representing Party's stock option or other stock based employee or
non-employee director benefit plans, indicating the name of the plan, the
date of grant, the number of shares and the exercise price thereof.
(b) All of the issued and outstanding shares of capital stock of the
Representing Party have been validly issued and are fully paid and
nonassessable. Except as set forth in Section 4.2(a) of the Representing Party's
Disclosure Schedule, there are no authorized, issued, reserved for issuance or
outstanding (i) shares of capital stock or voting securities of the Representing
Party, (ii) securities convertible into or exchangeable for shares of capital
stock or voting securities of the Representing Party, (iii) warrants, calls,
options or other rights to acquire from the Representing Party or any of its
Subsidiaries, or any obligation of the Representing Party or any of its
Subsidiaries to issue, any shares of capital stock or voting securities or
securities convertible into or exchangeable or exercisable for capital stock or
voting securities of the Representing Party, and (iv) there are no outstanding
obligations of the Representing Party to repurchase, redeem or otherwise acquire
any such securities or to issue, deliver or sell, or cause to be issued,
delivered or sold, any such securities.
SECTION 4.3 Corporate Authority Relative to This Agreement.
(a) Parent has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of Parent, and, except for the approval of the issuance of the Parent
Common Stock in the Cyprus Merger (the "Share Issuance") by its shareholders, no
other corporate proceedings on the part of Parent are necessary to authorize the
consummation of the transactions contemplated hereby. The Board of Directors of
Parent has determined that the transactions contemplated by this Agreement are
in the best interest of Parent and its shareholders and recommends to such
shareholders that they approve the Share Issuance. This Agreement has been duly
and validly executed and delivered by Parent and, assuming this Agreement
constitutes a valid and binding agreement of the other parties hereto, this
Agreement constitutes a valid and binding agreement of Parent, enforceable
against Parent in accordance with its terms (except insofar as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally, or by principles
governing the availability of equitable remedies).
(b) Parent has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of Parent, and, except for the Share Issuance by its shareholders, no
other corporate proceedings on the part of Parent are necessary to authorize the
consummation of the transactions contemplated hereby. The Board of Directors of
Parent has determined that the transactions contemplated by this Agreement are
in the best interest of Parent and its shareholders and recommends to such
shareholders that they approve the Share Issuance. This Agreement has been duly
and validly executed and delivered by Parent and, assuming this
A-18
<PAGE> 91
Agreement constitutes a valid and binding agreement of the other parties hereto,
this Agreement constitutes a valid and binding agreement of Parent, enforceable
against Parent in accordance with its terms (except insofar as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally, or by principles
governing the availability of equitable remedies).
(c) Cyprus has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Cyprus Board
and, except for the approval of this Agreement by its shareholders, no other
corporate proceedings on the part of Cyprus are necessary to authorize the
consummation of the transactions contemplated hereby. The Cyprus Board has taken
all appropriate action so that neither Parent nor SubC will be an "interested
stockholder" within, the meaning of (i) Section 203 of the DGCL or (ii) the
Certificate of Incorporation of Cyprus by virtue of Parent and SubC entering
into this Agreement and consummating the transactions contemplated hereby. The
Cyprus Board has determined that the transactions contemplated by this Agreement
are in the best interest of Cyprus and its shareholders and to recommend to such
shareholders that they approve this Agreement. This Agreement has been duly and
validly executed and delivered by Cyprus and, assuming this Agreement
constitutes a valid and binding agreement of the other parties hereto, this
Agreement constitutes a valid and binding agreement of Cyprus, enforceable
against Cyprus in accordance with its terms (except insofar as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally or by principles governing
the availability of equitable remedies).
SECTION 4.4 Non-Contravention; Consents and Approvals.
(a) None of the execution, delivery or performance of this Agreement by the
Representing Party or the consummation by such Representing Party of the
transactions contemplated hereby will (i) violate the certificate of
incorporation or the bylaws or other similar governing documents of the
Representing Party or any of its Subsidiaries, (ii) except for the Required
Third Party Consents, result in the violation or breach of or constitute (with
or without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, vesting, payment, exercise, acceleration,
suspension or revocation) under any of the provisions of any note, bond,
mortgage, deed of trust, security interest, indenture, license, contract,
agreement, plan or other instrument or obligation to which the Representing
Party or any of its Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound (the "Representing Party Agreements"),
(iii) except for the Required Statutory Approvals, violate any order, writ,
injunction, decree, judgment, permit, license, statute, law, ordinance, policy,
rule or regulation ("Law") of any court, tribunal or administrative,
governmental or regulatory body, agency, commission, division, department,
public body or other authority, whether federal, state, local or foreign
(individually, a "Governmental Entity") applicable to the Representing Party or
any of its Subsidiaries or any of their respective property or assets, or (iv)
result in the creation or imposition of any Encumbrance on any asset of the
Representing Party or any of its Subsidiaries, except in the case of clauses
(ii), (iii) and (iv) for violations, breaches, defaults, terminations,
cancellations, accelerations or creations which would not in the aggregate have
a Material Adverse Effect on the Representing Party and its Subsidiaries, taken
as a whole, or prevent or delay the consummation of the transactions
contemplated hereby.
(b) Section 4.4(b)(i) of the Representing Party's Disclosure Schedule sets
forth a list of all third party consents and approvals required to be obtained
under the Representing Party Agreements prior to the consummation of the
transactions contemplated by this Agreement the failure of which to obtain would
have, individually or in the aggregate, a Material Adverse Effect on the
Representing Party and its Subsidiaries, taken as a whole (the "Required Third
Party Consents"). Section 4.4(b)(ii) of the Representing Party's Disclosure
Schedule sets forth a list of all notices to, filings and registrations with,
and permits, authorizations, consents and approvals of, Governmental Entities
required to be made or obtained from Governmental Entities prior to the
consummation of the transactions contemplated by this Agreement the failure of
which to obtain would have, individually or in the aggregate, a Material Adverse
Effect on the Representing Party and its Subsidiaries, taken as a whole (the
"Required Statutory Approvals").
A-19
<PAGE> 92
SECTION 4.5 Reports and Financial Statements.
The Representing Party has previously furnished or made available to the
other Representing Party complete and correct copies of:
(a) such Representing Party's (and any of its Subsidiaries') Annual
Reports on Form 10-K filed with the Securities and Exchange Commission (the
"SEC") for each of the years ended December 31, 1996 through 1998;
(b) such Representing Party's (and any of its Subsidiaries') Quarterly
Reports on Form 10-Q filed with the SEC for the each of the fiscal quarters
ended following such Representing Party's last fiscal year-end;
(c) each definitive proxy statement filed by such Representing Party
or any of its Subsidiaries with the SEC since March 1, 1996;
(d) each final prospectus filed by such Representing Party with the
SEC since December 31, 1995; and
(e) all Current Reports on Form 8-K filed by such Representing Party
with the SEC since January 1, 1998.
As of their respective dates, such reports, proxy statements and
prospectuses (collectively, with any amendments, supplements and exhibits
thereto, the "SEC Reports") (i) complied as to form in all material respects
with the applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the Exchange Act and the rules and regulations promulgated
thereunder, and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information contained in any SEC
Report of the Representing Party has been revised or superseded by an SEC Report
subsequently filed by the Representing Party, none of the Representing Party's
SEC Reports contains any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited consolidated interim financial statements included in the Representing
Party's SEC Reports (including any related notes and schedules) fairly present
the financial position of the Representing Party and its consolidated
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end adjustments), in each case in accordance with past practice
and GAAP consistently applied during the periods involved (except as otherwise
disclosed in the notes thereto). Since January 1, 1998, the Representing Party
has timely filed all reports, registration statements and other filings required
to be filed by it with the SEC under the rules and regulations of the SEC.
SECTION 4.6 Environmental Matters.
(a) Except for Environmental Claims disclosed in or referred to in Section
4.6(b) of the Disclosure Schedule, as of the date of this Agreement, each of the
Representing Party and its Subsidiaries has obtained all licenses, permits,
authorizations, approvals and consents from Governmental Entities which are
required under any applicable Environmental Law in respect of its business,
properties, assets and operations ("Environmental Permits"), except (i) for such
permits as to which due and proper application is pending, and (ii) for such
failures to have Environmental Permits which, individually or in the aggregate,
are not reasonably expected to have a Material Adverse Effect on the
Representing Party and its Subsidiaries, taken as a whole. Each of such
Environmental Permits is in full force and effect, and each of the Representing
Party and its Subsidiaries is in compliance with the terms and conditions of all
such Environmental Permits and with all applicable Environmental Laws, except
for such exceptions as would not, individually or in the aggregate, have a
Material Adverse Effect on the Representing Party and its Subsidiaries, taken as
a whole.
(b) Except for Environmental Claims disclosed in or referred to in Section
4.6(b) of the Disclosure Schedule, as of the date of this Agreement, there is no
Environmental Claim filed, pending, or to the best
A-20
<PAGE> 93
knowledge of the Representing Party threatened or in process, against the
Representing Party or any of its Subsidiaries or any person whose liability for
such Environmental Claim the Representing Party or any of its Subsidiaries has
or may have retained or assumed either contractually or by operation of Law,
that would, individually or in the aggregate, have a Material Adverse Effect on
the Representing Party and its Subsidiaries, taken as a whole.
(c) Except as disclosed or referred to in Section 4.6(c) of the Disclosure
Schedule, no Encumbrances have arisen under or pursuant to any Environmental Law
on any property, site or facility owned, operated or leased by the Representing
Party or any of its Subsidiaries, except for such Encumbrances which would not,
individually or in the aggregate, have a Material Adverse Effect on the
Representing Party and its Subsidiaries, taken as a whole, and no action of any
Governmental Entity has been taken or, to the best knowledge of the Company, is
threatened or in process which could subject any of such properties to such
Encumbrances, except for such action which would not, individually or in the
aggregate, have a Material Adverse Effect on the Representing Party and its
Subsidiaries, taken as a whole.
(d) As used in this Agreement:
(i) "Environmental Claim" means any claim, action, cause of action,
order, investigation or notice (written or oral) by any person alleging
potential or actual liability (including, without limitation, potential or
actual liability for investigation, evaluation, cleanup, removal actions,
remedial actions, response actions, natural resources damages, property
damages, personal injuries or penalties) arising out of, based on or
resulting from any Environmental Law, including any claim under CERCLA, and
shall include any request for information under CERCLA or any comparable
state or local Law.
(ii) "Environmental Law" means any Law relating to (a) the environment
or pollution, environmental matters, the protection of the environment, or
the protection of human health and safety from environmental concerns, (b)
actual or threatened emissions, discharges, or releases of pollutants,
contaminants, chemicals or solid, industrial, toxic or hazardous
substances, wastes or constituents into the environment, and (c) the
presence, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
(iii) "Hazardous Materials" mean (a) any petroleum or petroleum
products and radioactive materials, (b) any chemicals, constituents,
materials, or substances defined or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous substances," "toxic substances" and related materials,
as such materials are defined in any Environmental Law, and (c) any other
chemical, material or substance, exposure to which is prohibited, limited
or regulated by any Governmental Entity.
SECTION 4.7 Employee Benefit Plans; ERISA.
(a) Except as set forth in the Representing Party's SEC Reports or as would
not have a Material Adverse Effect on the Representing Party and its
Subsidiaries, taken as a whole, (i) all Employee Benefit Plans (other than any
Employee Benefit Plan that is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA (a "Multiemployer Plan")) of the Representing Party are
in material compliance with all applicable requirements of Law, including ERISA
and the Code, and (ii) neither the Representing Party nor any of its
Subsidiaries nor any ERISA Affiliate has any liabilities or obligations with
respect to any such Employee Benefit Plans, whether accrued, contingent or
otherwise, that are not otherwise reflected on the Representing Party's
financial statements, nor to the best knowledge of the Representing Party, are
any such liabilities or obligations expected to be incurred. Except as described
in the Representing Party's (or any of its Subsidiaries') SEC Reports or as set
forth in Section 4.7(a) of the Representing Party's Disclosure Schedule, the
execution and delivery of, and performance of the transactions contemplated by
this Agreement will not (either alone or upon the occurrence of any additional
or subsequent events) constitute an event under any Employee Benefit Plan of the
Representing Party that will or may result in acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee. The only severance agreements or
severance policies applicable to the Representing Party or any of
A-21
<PAGE> 94
its Subsidiaries are the agreements and policies specifically described in
Section 4.7(a) of the Representing Party's Disclosure Schedule.
(b) With respect to each of its Plans, the Representing Party has
heretofore made available to the other Representing Party complete and correct
copies of each of the following documents, as applicable: (i) a copy of the Plan
and any amendments thereto; (ii) a copy of the most recent annual report; (iii)
a copy of the most recent actuarial report; (iv) a copy of the most recent
Summary Plan Description and all material modifications; (v) a copy of the trust
or other funding agreement and any amendments thereto; and (vi) the most recent
determination letter received from the Internal Revenue Service (the "IRS") with
respect to each Plan that is intended to be qualified under Section 401 of the
Code and all notices of reportable events received following receipt of such
letter. Each Representing Party will deliver to the other Representing Party a
copy of each Foreign Plan within thirty days following the date hereof.
(c) Section 4.7(c) of the Representing Party's Disclosure Schedule sets
forth a list of each employee of the Representing Party (or any Subsidiary) who
is a party to any agreement (whether written or oral) with respect to such
person's employment by the Representing Party or a Subsidiary, other than offer
letters which do not have guaranteed periods of employment and statutory
employment agreements under foreign Laws, and which provide for annual
compensation in excess of $100,000. The Representing Party has made available to
the other Representing Party a complete and correct copy of each such written
employment agreement, a complete and correct summary of each such oral
agreement.
(d) No liability under Title IV of ERISA has been incurred by the
Representing Party or any ERISA Affiliate within the past six years that has not
been satisfied in full. To the best knowledge of the Representing Party, no
condition exists that presents a material risk to the Representing Party, any of
its Subsidiaries or any ERISA Affiliate of incurring a liability under such
Title that is reasonably likely to have a Material Adverse Effect on the
Representing Party. The Pension Benefit Guaranty Corporation has not instituted
proceedings to terminate any of the Employee Benefit Plans, and, to the
knowledge of the Representing Party, no condition exists that presents a
material risk that such proceedings will be instituted. Except as would not have
a Material Adverse Effect on the Representing Party, with respect to each of the
Employee Benefit Plans that is subject to Title IV of ERISA, the present value
of accrued benefits under such Employee Benefit Plan, based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such Employee Benefit Plan's actuary with respect to such Employee
Benefit Plan, did not, as of its latest valuation date, exceed the then current
value of the assets of such Employee Benefit Plan allocable to such accrued
benefits, and there have been no changes since such latest valuation date which
would cause the present value of such accrued benefits to exceed the current
value of such assets. None of the Employee Benefit Plans or any trust
established thereunder has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, as of the last day of the most recent fiscal year of each of the
Employee Benefit Plans ended prior to the date of this Agreement. None of the
Employee Benefit Plans is a Multiemployer Plan. To the knowledge of the
Representing Party each of the Employee Benefit Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the Code is so qualified and
the trusts maintained thereunder are exempt from taxation under Section 501(a)
of the Code. No Employee Benefit Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with respect to
current or former employees after retirement or other termination of service
(other than coverage mandated by applicable Law or benefits, the full cost of
which is borne by the current or former employee). There are no material pending
or threatened claims by or on behalf of any Employee Benefit Plan, by any
employee or beneficiary covered under any such Employee Benefit Plan, or
otherwise involving any such Employee Benefit Plan (other than routine claims
for benefits). No prohibited transaction has occurred with respect to any
Employee Benefit Plan that would result, directly or indirectly, in the
imposition of an excise Tax or other liability under the Code or ERISA, except
for such a Tax or other liability that would not have a Material Adverse Effect.
Except as would not have a Material Adverse Effect on the Representing Party,
with respect to each Foreign Plan: (i) all amounts required to be reserved on
account of each Foreign Plan have been so reserved in accordance with reasonable
accounting practices prevailing in the country where such Foreign Plan is
established, and (ii) each Foreign Plan required to be registered with a
Governmental Entity has been registered, has been maintained in good standing
with the appropriate
A-22
<PAGE> 95
Governmental Entities, and has been maintained and operated in accordance with
its terms and applicable Law.
(e) No director or officer or other employee of such Representing Party
will become entitled to any termination, retirement, severance or similar
payment, benefit or enhanced or accelerated benefit (including any acceleration
of vesting or lapse of restrictions, repurchase rights or obligations with
respect to any employee stock option or other benefit under any stock option
plan or incentive or compensation plan or arrangement) as a result of the
transactions contemplated by this Agreement (either standing alone or in
conjunction with any additional or subsequent events).
(f) Any amount or other entitlement that could be received (whether in cash
or property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of the
Representing Party or any of its affiliates who is a "disqualified individual"
(as such term is defined in proposed Treasury Regulation Section 1.280G-1) under
any employee benefit plan or other compensation arrangement currently in effect
would not be characterized as an "excess parachute payment" or a "parachute
payment" (as such terms are defined in Section 280G(b)(1) of the Code).
(g) As used in this Agreement:
(i) "Employee Benefit Plan" means any material Plan entered into,
established, maintained, sponsored, contributed to or required to be
contributed to by the Representing Party, any of its Subsidiaries or ERISA
Affiliates for the benefit of the current or former employees or directors
of the Representing Party or any of its Subsidiaries and existing on the
date of this Agreement or at any time subsequent thereto and on or prior to
the Effective Time;
(ii) "Foreign Plan" shall refer to each material plan, program or
contract that is subject to or governed by the Laws of any jurisdiction
other than the United States, and which would have been treated as an
Employee Benefit Plan had it been a United States plan, program or
contract;
(iii) "Plan" means any employment, bonus, incentive compensation,
deferred compensation, pension, profit sharing, retirement, stock purchase:
stock option, stock ownership, stock appreciation rights, phantom stock,
leave of absence, layoff, vacation, day or dependent care, legal services,
cafeteria, life, health, medical, accident, disability, worker's
compensation or other insurance, severance, separation, termination, change
of control or other benefit plan, agreement, practice policy, program or
arrangement of any kind, whether written or oral, other than a Foreign
Plan, including, but not limited to any "employee benefit plan" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations thereunder ("ERISA"); and
(iv) "ERISA Affiliate" means, with respect to any Representing Party,
any entity, trade or business that is a member of the same controlled group
as such Representing Party (within the meaning of Sections 414(b), (c), (m)
or (o) of the Code).
SECTION 4.8 Information Statement; Phelps Dodge Proxy Statement;
Registration Statement; Other Information.
None of the information with respect to the Representing Party or its
Subsidiaries to be included in the Schedule 14D-9, the Schedule 14D-1, the
Information Statement, the Phelps Dodge Proxy Statement or the Registration
Statement will, in the case of the Information Statement, the Schedule 14D-9,
the Schedule 14D-1 or any amendments thereof or supplements thereto, at the time
that such document is mailed, in the case of the Information Statement and the
Phelps Dodge Proxy Statement, at the time of the Parent Shareholder Meeting and
the Cyprus Shareholder Meeting, respectively, or, in the case of the
Registration Statement, at the time it becomes effective, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that no
representation is made by the Representing Party with respect to information
supplied in writing by the other Representing Party or any of its affiliates
specifically for inclusion in the Information Statement. The Information
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations
A-23
<PAGE> 96
promulgated thereunder. The letters to shareholders, notices of meeting, proxy
statement and forms of proxies to be distributed to stockholders in connection
with the Cyprus Merger and any schedules required to be filed with the SEC in
connection therewith are collectively referred to herein as the "Information
Statement."
SECTION 4.9 Cyprus Rights Plan.
Cyprus represents and warrants that the Cyprus Board has taken all
necessary action to render the Rights Agreement between Cyprus and The Bank of
New York, dated as of February 28, 1999, inapplicable to the transactions
contemplated by this Agreement.
SECTION 4.10 Tax Matters.
(a) All federal, state, local and foreign Tax Returns required to be filed
by or on behalf of the Representing Party, each of its Subsidiaries, and each
affiliated, combined, consolidated or unitary group of which the Representing
Party or any of its Subsidiaries (i) is a member (a "Current Representing Party
Group") or (ii) was a member during six years prior to the date hereof but is
not currently a member, but only insofar as any such Tax Return relates to a
taxable period ending on a date within the last six years (a "Past Representing
Party Group," together with Current Representing Party Groups, a "Representing
Party Affiliated Group") have been timely filed, and all such Tax Returns filed
are complete and accurate except to the extent any failure to file or any
inaccuracies in filed Tax Returns would not, individually or in the aggregate,
have a Material Adverse Effect on such Representing Party (it being understood
that the representations made in this Section, to the extent that they relate to
Past Representing Party Groups, are made to the knowledge of the Representing
Party). All Taxes due and owing by the Representing Party, any Subsidiary of the
Representing Party or any Representing Party Affiliated Group have been paid, or
adequately reserved for, except to the extent any failure to pay or reserve
would not, individually or in the aggregate, have a Material Adverse Effect on
the Representing Party. There is no audit examination, deficiency, refund
litigation, proposed adjustment or matter in controversy with respect to any
Taxes due and owing by the Representing Party, any Subsidiary of the
Representing Party or any Representing Party Affiliated Group which would,
individually or in the aggregate, have a Material Adverse Effect on the
Representing Party; provided that in no event shall the existence of a proposed
adjustment or matter in controversy with respect to Taxes be deemed to have or
contribute to a Material Adverse Effect for any purpose under this Agreement to
the extent that such proposed adjustment or matter in controversy has been
specifically reserved for or paid as of the date of this Agreement. All
assessments for Taxes due and owing by the Representing Party, any Subsidiary of
the Representing Party or any Representing Party Affiliated Group with respect
to completed and settled examinations or concluded litigation have been paid. As
soon as practicable after the public announcement of the execution of the
Agreement, the Representing Party will provide the other party with written
schedules of (i) the taxable years of the Representing Party for which the
statutes of limitations with respect to federal income Taxes have not expired,
and (ii) with respect to federal income Taxes, those years for which
examinations have been completed, those years for which examinations are
presently being conducted, and those years for which examinations have not yet
been initiated. The Representing Party and each of its Subsidiaries have
complied in all material respects with all rules and regulations relating to the
withholding of Taxes, except to the extent any such failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect on the
Representing Party.
(b) Neither the Representing Party nor any of its Subsidiaries has (i)
entered into a closing agreement or similar agreement with a taxing authority
relating to Taxes of the Representing Party or any of its Subsidiaries with
respect to a taxable period for which the statute of limitations is still open,
or (ii) with respect to U.S. federal income Taxes, granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any such income Tax, in either case, that is still outstanding.
There are no Liens relating to Taxes upon the assets of the Representing Party
other than Liens relating to Taxes not yet due, except as would not have a
Material Adverse Effect on the Representing Party. Neither the Representing
Party nor any of its Subsidiaries is a party to any agreement relating to the
allocating or sharing of Taxes, other than an agreement with each other.
A-24
<PAGE> 97
(c) Neither the Representing Party nor any of its Subsidiaries knows of any
fact or has taken any action that could reasonably be expected to prevent the
Cyprus Offer together with the Cyprus Merger from constituting a reorganization
under Section 368(a) of the Code.
For purposes of this Agreement: (i) "Taxes" means any and all federal,
state, local, foreign or other taxes of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any taxing authority, including, without limitation,
taxes or other charges on or with respect to income, franchise, windfall or
other profits, gross receipts, property, sales, use, severance, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation, or net worth, and taxes or other charges in the nature of excise,
withholding, ad valorem or value added, and (ii) "Tax Return" means any return,
report or similar statement (including the attached schedules) required to be
filed with respect to any Tax, including, without limitation, any information
return, claim for refund, amended return or declaration of estimated Tax.
SECTION 4.11 Opinion of Financial Advisors.
The Cyprus Board has received the opinion of Merrill Lynch & Co., dated the
date of this Agreement, substantially to the effect that, as of such date, the
consideration to be received by the holders of Cyprus Common Stock in the Cyprus
Offer and the Cyprus Merger is fair to the holders of Cyprus Common Stock from a
financial point of view.
SECTION 4.12 Required Vote.
(a) The affirmative vote of the holders of shares of Parent Common Stock
representing a majority of the shares voting at the Parent Shareholders Meeting
provided that at least 50% of the Parent Common Stock entitled to vote thereon
at the Parent Shareholders Meeting (the "Parent Shareholder Approval") is
required to approve the Cyprus Offer, the Cyprus Merger and the Share Issuance.
No other vote of the shareholders of Parent is required by Law, the Certificate
of Incorporation or the Bylaws of Parent or otherwise in order for Parent to
consummate the Cyprus Offer, the Cyprus Merger and the transactions contemplated
hereby.
(b) The affirmative vote of the holders of shares of Cyprus Common Stock
representing a majority of all shares entitled to vote at the Cyprus Shareholder
Meeting (the "Cyprus Shareholder Approval") is required to approve this
Agreement. No other vote of the shareholders of Cyprus is required by Law, the
Certificate of Incorporation or the Bylaws of Cyprus or otherwise in order for
Cyprus to consummate the Cyprus Merger and the transactions contemplated hereby.
SECTION 4.13 Absence of Certain Changes.
Since December 31, 1998, and, other than with respect to clause (a) below,
prior to the date hereof, except as set forth in the Representing Party's (or
any of its Subsidiaries') SEC Reports filed prior to the date hereof, the
Representing Party and its Subsidiaries have conducted their respective
businesses in the ordinary course, consistent with past practice and there has
not been:
(a) any event, occurrence or development (including the discovery of
new or additional information concerning an existing environmental
condition) which, individually or in the aggregate, would have a Material
Adverse Effect on the Representing Party;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the
Representing Party (other than regular quarterly cash dividends payable by
the Representing Party in respect of shares of its capital stock consistent
with past practice) or any repurchase, redemption or other acquisition by
the Representing Party or any of its Subsidiaries of any outstanding shares
of its capital stock (except (x) as required by the terms of any employee
or stock option plan or compensation plan or arrangement, (y) in accordance
with any dividend reinvestment plan as in effect as of the date of this
Agreement in the ordinary course of operation of such plan consistent with
past practice, and/or (z) as otherwise permitted by Section 5.1);
A-25
<PAGE> 98
(c) any amendment of any material term of any outstanding security of
the Representing Party or any of its Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) the
Representing Party or any of its Subsidiaries relating to its assets or
business (including the acquisition or disposition of any material amount
of assets) or any relinquishment by the Representing Party or any of its
Subsidiaries of any contract or other right, in either case, material to
the Representing Party and its Subsidiaries taken as a whole, other than
transactions, commitments, contracts, agreements or settlements (including,
without limitation, settlements of litigation and tax proceedings) in the
ordinary course of business consistent with past practice and those
contemplated by this Agreement;
(e) any change prior to the date hereof in any method of accounting or
accounting practice by the Representing Party or any of its Subsidiaries,
except for any such change which is not material or which is required by
reason of a concurrent change in GAAP;
(f) any (i) grant of any severance or termination pay to (or amendment
to any such existing arrangement with) any director, officer or employee of
the Representing Party or any of its Subsidiaries, (ii) entering into of
any employment, deferred compensation, supplemental retirement or other
similar agreement (or any amendment to any such existing agreement) with
any director, officer or employee of the Representing Party or any of its
Subsidiaries, (iii) increase in, or accelerated vesting and/or payment of,
benefits under any existing severance or termination pay policies or
employment agreements or (iv) increase in or enhancement of any rights or
features related to compensation, bonus or other benefits payable to
directors, officers or employees of the Representing Party or any of its
Subsidiaries, in each case, other than in the ordinary course of business
consistent with past practice or as permitted by this Agreement; or
(g) any material Tax election made or changed, any material audit
settled or any material amended Tax Returns filed.
SECTION 4.14 No Undisclosed Material Liabilities.
There are no liabilities of the Representing Party or any Subsidiary of the
Representing Party of any kind whatsoever, whether accrued, contingent,
absolute, determined or determinable, other than:
(a) liabilities which, individually or in the aggregate, would not
have a Material Adverse Effect on the Representing Party;
(b) liabilities disclosed in the SEC Reports of the Representing
Party; and
(c) liabilities under or arising as a result of this Agreement.
SECTION 4.15 Labor Relations.
As of the date of this Agreement: (i) Section 4.15 of the Representing
Party's Disclosure Schedule sets forth a complete list of each collective
bargaining agreement to which the Representing Party or any of its Subsidiaries
is a party, (ii) no labor organization or group of employees of the Representing
Party (or any of its Subsidiaries) has made a pending demand for recognition or
certification, and there are no representation or certification proceedings or
petitions seeking a representation proceeding presently pending or, to the
knowledge of the Representing Party, threatened to be brought or filed, with the
National Labor Relations Board or any other labor relations tribunal or
authority, and (iii) there are no organizing activities, strikes, work
stoppages, slowdowns, lockouts, material arbitrations or material grievances, or
other material labor disputes pending or, to the knowledge of the Representing
Party, threatened against or involving the Representing Party or any of its
Subsidiaries.
A-26
<PAGE> 99
SECTION 4.16 No Prior Activities.
SubC was formed for the purpose of effecting a business combination
transaction with Cyprus, has no Subsidiaries and has not undertaken any business
or other activities other than in connection with pursuing such business
combination and entering into this Agreement and engaging in the transactions
contemplated hereby.
ARTICLE V
COVENANTS AND AGREEMENTS
SECTION 5.1 Conduct of Business Pending the Effective Time.
From and after the date hereof and prior to the Effective Time or the date,
if any, on which this Agreement is earlier terminated pursuant to Section 7.1
(the "Termination Date"), and except as may be agreed in writing by the other
parties hereto, or as may be provided for or permitted pursuant to this
Agreement or as disclosed on the Cyprus Disclosure Schedule:
(a) each of the parties shall, and shall cause each of its
Subsidiaries to, conduct its operations according to their ordinary and
usual course of business in substantially the same manner as heretofore
conducted;
(b) each of the parties shall use its reasonable best efforts, and
cause each of its Subsidiaries to use its reasonable best efforts, to
preserve intact its business organizations and goodwill, keep available the
services of its current officers and other key employees and preserve its
relationships with those persons having business dealings with it
(including its relationships with customers, suppliers, employees and
business partners);
(c) each of the parties shall confer at such times as any of the other
parties may reasonably request with one or more representatives of such
requesting party to report material operational matters and the general
status of ongoing operations (to the extent such requesting party
reasonably requires such information);
(d) each of the parties shall notify the other parties of any
emergency or other change in the normal course of its or its Subsidiaries'
respective businesses or in the operation of its or its Subsidiaries,
respective properties and of any complaints or hearings (or communications
indicating that the same may be contemplated) of any Governmental Entity if
such emergency, change, complaint, investigation or hearing would have a
Material Adverse Effect on such party;
(e) none of the parties shall, and none of the parties shall permit
any of its Subsidiaries to, (i) declare, set aside, authorize or pay any
dividends on or make any distribution with respect to its outstanding
shares of stock, except in the case of Parent for regular quarterly cash
dividends on the outstanding shares of Parent Common Stock, in the case of
Cyprus for regular quarterly cash dividends on the outstanding shares of
Cyprus Common Stock and Cyprus Preferred Stock; or (ii) split, combine or
reclassify any of its shares of capital stock;
(f) none of the parties shall, and none of the parties shall permit
any of its Subsidiaries to, except (i) in the ordinary course of business
consistent with past practice, (ii) as otherwise provided in this Agreement
or (iii) as required by applicable Law, adopt or amend any Employee Benefit
Plan;
(g) none of the parties shall, and none of the parties shall permit
any of its Subsidiaries to, authorize, propose or announce an intention to
authorize or propose, or enter into an agreement with respect to, any
merger, consolidation or business combination (other than the Cyprus
Merger), any acquisition of a material amount of assets or securities, any
disposition of a material amount of assets or securities (except as set
forth in Section 5.1(g) of the Cyprus Disclosure Schedule) or any release
or relinquishment of any material contract rights, in each case not in the
ordinary course of business;
A-27
<PAGE> 100
(h) none of the parties shall, and none of the parties shall permit
its Subsidiaries to, propose or adopt any amendments to its certificate of
incorporation or by-laws or other similar governing documents;
(i) none of the parties shall, and none of the parties shall permit
any of its Subsidiaries to, issue or authorize the issuance of, or agree to
issue or sell any shares of their capital stock of any class (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), except for the issuance of
shares of Parent Common Stock by Parent and Cyprus Common Stock by Cyprus
upon the exercise of stock options or other rights to acquire such party's
capital stock, in each case which securities, options and rights are
outstanding as of the date of this Agreement (or as set forth on Section
4.7(a) of the Cyprus Disclosure Schedule) and such issuance is made in
accordance with the terms of such securities, options and rights in effect
on the date of this Agreement;
(j) none of the parties shall, and none of the parties shall permit
any of its Subsidiaries to, except in the ordinary course of business in
connection with employee incentive and benefit plans, programs or
arrangements in existence on the date hereof, purchase or redeem any shares
of its stock or any rights, warrants or options to acquire any such shares;
(k) none of the parties shall, and none of the parties shall permit
any of its Subsidiaries to, incur, assume or prepay any indebtedness or any
other material liabilities, other than indebtedness between such party and
a wholly owned Subsidiary or between wholly owned Subsidiaries, provided,
in either such case, such wholly owned Subsidiaries remain wholly owned
Subsidiaries, and other than in the ordinary course of business consistent
with past practice;
(l) none of the parties shall, and none of the parties shall permit
any of its Subsidiaries to, sell, lease, license, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any of its
properties or assets (including securitizations), other than in the
ordinary course of business consistent with past practice and other than
the consummation of contracts of sale executed and delivered prior to the
date hereof;
(m) none of the parties shall, and none of the parties shall permit
any of its Subsidiaries to, take any action that would reasonably be
expected to cause the Cyprus Merger not to constitute transactions
described in Section 368(a) of the Code;
(n) none of the parties shall, and none of the parties shall permit
any of its Subsidiaries to, make any material Tax election or settle or
compromise any material Tax liability, other than in the ordinary course of
business consistent with past practice and except that Cyprus may make one
or more Section 338(h)(10) elections (and corresponding state and local
elections) relating to the sale of the Cypress Amax Coal Company and its
Subsidiaries; and
(o) none of the parties shall, and none of the parties shall permit
any of its Subsidiaries to, agree, in writing or otherwise, to take any of
the foregoing actions or take any action which would (i) make any
representation or warranty made by such party in Article IV hereof untrue
or incorrect or (ii) result in any of the conditions to the Cyprus Merger
set forth in Article VI not being satisfied.
SECTION 5.2 Investigation.
(a) Each of Cyprus on the one hand and Parent on the other hand shall (and
shall cause its respective Subsidiaries to) afford to the other and the other's
officers, employees, accountants, counsel and other authorized representatives
full and complete access on reasonable prior notice during normal business
hours, throughout the period prior to the earlier of the Effective Time or the
Termination Date, to its and its Subsidiaries' properties, contracts,
commitments, books, and records (including but not limited to Tax Returns) and
any report, schedule or other document filed or received by it or any of its
Subsidiaries pursuant to the requirements of federal or state securities laws or
filed with or sent to the SEC, the Department of Justice, the Federal Trade
Commission or any other Governmental Entity and shall use their reasonable best
efforts to cause their respective representatives and Subsidiaries to furnish
promptly to one another such additional financial and operating data and other
information as to its and its Subsidiaries' respective businesses and properties
as the other or its duly authorized representatives may from time to time
reasonably
A-28
<PAGE> 101
request; provided that nothing herein shall require any of Parent or Cyprus or
any of their respective Subsidiaries to disclose any information to the other
that would cause significant competitive harm to such disclosing party or its
affiliates if the transactions contemplated by this Agreement are not
consummated. Cyprus hereby agrees that it will treat any such information in
accordance with the Confidentiality Agreement, dated as of May 18, 1999 between
Cyprus and ASARCO Incorporated (the "Confidentiality Agreement").
Notwithstanding any provision of this Agreement to the contrary, no party shall
be obligated to make any disclosure in violation of applicable laws or
regulations.
(b) Each of Parent and Cyprus will not, and will cause its officers,
employees, accountants, counsel and representatives not to, use any information
obtained pursuant to this Section 5.2 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement. Pending
consummation of the transactions herein contemplated, each of Parent and Cyprus
will keep confidential, and will cause its officers, employees, accountants,
counsel and representatives to keep confidential, all information and documents
obtained pursuant to this Section 5.2 unless such information (i) was already
known to it, (ii) becomes available to it from other sources not known by it to
be bound by a confidentiality obligation, (iii) is independently acquired by it
as a result of work carried out by any of its employees or representatives to
whom no disclosure of such information has been made, or (iv) is disclosed with
the prior written approval of the other party. Upon any termination of this
Agreement, each of Parent and Cyprus will, upon request by the other party,
collect and deliver to the other party all documents obtained by it or any of
its officers, employees, accountants, counsel and representatives then in their
possession and any copies thereof. Each of Parent and Cyprus and their
respective representatives shall not contact any distributors, suppliers,
employees or customers of the other party in connection with or in discussion of
the transactions contemplated hereby without the other party's prior consent.
SECTION 5.3 Stockholder Approvals and Other Cooperation.
(a) If required by law, as soon as practicable following consummation of
the Offer, Parent and Cyprus shall together, or pursuant to any reasonable
allocation of responsibility between them:
(i) prepare and file confidentially with the SEC as soon as is
reasonably practicable the Information Statement in preliminary form and
promptly cause Parent to amend as necessary the registration statement on
Form S-4 under the Securities Act (Registration No. 333-86063), which was
declared effective by the SEC on September 2, 1999, with respect to the
Parent Common Stock issuable in the Cyprus Merger (collectively, the
"Registration Statement"), and shall use their reasonable best efforts to
have the Information Statement cleared by the SEC under the Exchange Act;
(ii) as soon as is reasonably practicable, take all such action as may
be required under state blue sky or securities laws in connection with the
issuance of shares of Parent Common Stock in the Cyprus Merger and as
contemplated by this Agreement;
(iii) promptly prepare and file with the NYSE and such other stock
exchanges as shall be agreed upon listing applications covering the shares
of Parent Common Stock issuable in the Cyprus Merger, upon exercise of
Cyprus stock options, warrants, conversion rights or other rights or
vesting or payment of other Cyprus equity-based awards and use its
reasonable best efforts to obtain, prior to the Effective Time, approval
for the listing of such Parent Common Stock, subject only to official
notice of issuance;
(iv) cooperate with one another in order to lift any injunctions or
remove any other impediment to the consummation of the transactions
contemplated herein; and
(v) cooperate with one another in obtaining (i) an opinion of Shearman
& Sterling, special counsel to Parent, dated as of the date of the
Effective Time, to the effect that the Cyprus Offer together with the
Cyprus Merger will qualify as a reorganization under Section 368(a) of the
Code, and (ii) an opinion of Wachtell, Lipton, Rosen & Katz, special
counsel to Cyprus, dated as of the date of the Effective Time, to the
effect that the Cyprus Offer together with the Cyprus Merger will qualify
as a reorganization under Section 368(a) of the Code. In connection
therewith, each of Cyprus and Parent shall deliver to Shearman & Sterling
and Wachtell, Lipton, Rosen & Katz customary representation letters in
substan-
A-29
<PAGE> 102
tially the form previously reviewed by such counsel (the representation
letters referred to in this sentence are, collectively, the "Tax
Certificates").
(b) Subject to the limitations contained in Section 5.2, Parent on the one
hand and Cyprus on the other hand shall each furnish to the other and to the
other's counsel all such information as may be required in order to effect the
foregoing actions and each represents and warrants to the other that no
information furnished by it in connection with such actions or otherwise in
connection with the consummation of the transactions contemplated by this
Agreement will contain any untrue statement of a material fact or omit to state
a material fact required to be stated in order to make any information so
furnished, in light of the circumstances under which it is so furnished, not
misleading.
(c) (i) Cyprus shall cause the Information Statement to be mailed to
Cyprus's shareholders, in each case as promptly as practicable after the
Registration Statement (and any post-effective amendments thereto) is declared
effective under the Securities Act.
(ii) Parent shall hold a meeting of its stockholders (the "Parent
Shareholder Meeting") as provided in the Phelps Dodge Proxy Statement dated
September 13, 1999 as supplemented by the Proxy Statement Supplement dated
September 22, 1999 (as the same may be further amended or supplemented, the
"Phelps Dodge Proxy Statement") for the purpose of obtaining the Parent
Shareholder Approval. Parent shall, through its Board of Directors, recommend to
its shareholders the approval of the Share Issuance and the other transactions
contemplated hereby unless the Board of Directors of Parent determines in good
faith, after consultation with outside counsel, that to do so would be
inconsistent with its obligations under applicable Law.
(iii) Cyprus shall, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Cyprus Shareholder Meeting") for the purpose of obtaining the
Cyprus Shareholder Approval. Cyprus shall, subject to Section 5.9(b), through
the Cyprus Board, recommend to its shareholders the adoption of this Agreement,
the Cyprus Merger and the other transactions contemplated hereby.
(iv) Each of Parent and Cyprus will use their best efforts to hold the
Parent Shareholder Meeting and the Cyprus Shareholder Meeting as soon as
practicable after the date hereof.
(v) Parent shall vote, or cause to be voted, all of the Cyprus Common
Stock then owned by it or any of its Subsidiaries or over which it has direct or
indirect voting authority in favor of the approval of the Cyprus Merger and of
the approval and adoption of this Agreement.
(d) Promptly upon the purchase by SubC of shares of Cyprus Common Stock
pursuant to the Cyprus Offer, and from time to time thereafter, Parent shall be
entitled to designate up to such number of directors, rounded up to the next
whole number, on the Cyprus Board as shall give Parent representation on the
Cyprus Board equal to the product of the total number of directors on the Cyprus
Board (giving effect to the directors elected pursuant to this sentence)
multiplied by the percentage that the aggregate number of such shares
beneficially owned by Parent and affiliates of Parent following such purchase
bears to the total number of such shares then outstanding, and Cyprus shall, at
such time, promptly take all actions necessary to cause Parent's designees to be
elected as directors, including increasing the size of the Cyprus Board or
securing the resignations of incumbent directors or both. At such times, Cyprus
shall use its best efforts to cause persons designated by Parent to constitute
the same percentage as persons designated by Parent shall constitute of such
Board of each committee of such Board, in each case only to the extent permitted
by applicable law. Notwithstanding the foregoing, until the earlier of (i) the
time Parent acquires a majority of the then outstanding shares on a fully
diluted basis and (ii) the Effective Time, Cyprus shall use its best efforts to
ensure that all the members of the Cyprus Board and each committee of the Cyprus
Board as of the date hereof who are not employees of Cyprus shall remain members
of the Cyprus Board and of such committees. Cyprus shall promptly take all
actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder in order to fulfill its obligations under this Section
5.3(d) and shall include in its Schedule 14D-9 such information with respect to
Cyprus and its officers and directors as is required under Section 14(f) and
Rule 14f-1 to fulfill such obligations. Parent shall supply to Cyprus and be
solely responsible
A-30
<PAGE> 103
for any information with respect to it and its nominees, officers, directors and
affiliates required by such Section 14(f) and Rule 14f-1. Following the election
of designees of Parent pursuant to this Section 5.3(d), prior to the Effective
Time, any amendment of this Agreement or the Certificate of Incorporation or
By-laws of Cyprus, any termination of this Agreement by Cyprus or any extension
by Cyprus of the time for the performance of any of the obligations or other
acts of Parent or waiver of any of Cyprus' rights hereunder shall require the
concurrence of a majority of the directors of Cyprus then in office who are
neither (i) designees of Parent nor (ii) employees of Cyprus.
SECTION 5.4 Affiliate Agreements.
Cyprus shall, as soon as practicable, deliver to Parent a list (reasonably
satisfactory to counsel for Parent), setting forth the names and addresses of
all persons who will be, at the time of the Cyprus Shareholder Meeting, in
Cyprus' reasonable judgment, "affiliates" of Cyprus for purposes of Rule 145
under the Securities Act. Cyprus shall furnish such information and documents as
Parent may reasonably request for the purpose of reviewing such list. Cyprus
shall use its reasonable best efforts to cause each person who is identified as
an "affiliate" in the list furnished pursuant to this Section to execute a
written agreement on or prior to the mailing of the Information Statement, in
substantially the form of Exhibit A hereto.
SECTION 5.5 Cyprus Employee Stock Options, Incentive and Benefit Plans.
(a) Simultaneously with the Cyprus Merger, (i) each outstanding option
("Cyprus Stock Options") and related stock appreciation right ("Cyprus SAR"), if
any, to purchase or acquire a share of Cyprus Common Stock under employee
incentive or benefit plans, programs or arrangements and non-employee director
plans presently maintained by Cyprus ("Cyprus Option Plans") shall be converted
into an option (together with a related stock appreciation right of Parent, if
applicable) to purchase the number of shares of Parent Common Stock equal to the
Cyprus Stock Consideration times the number of shares of Cyprus Common Stock
which could have been obtained prior to the Effective Time upon the exercise of
each such option, at an exercise price per share equal to the exercise price for
each such share of Cyprus Common Stock subject to an option (and related Cyprus
SAR, if any) under the Cyprus Option Plans divided by the Cyprus Stock
Consideration, and all references to Cyprus in each such option (and related
Cyprus SAR, if any) shall be deemed to refer to Parent, where appropriate, and
(ii) Parent shall assume the obligations of Cyprus under the Cyprus Option
Plans. The other terms of each such Cyprus Stock Option and Cyprus SAR, and the
plans under which they were issued, shall continue to apply in accordance with
their terms, including any provisions providing for acceleration of vesting or
payment.
(b) Simultaneously with the Cyprus Merger, each outstanding award including
restricted stock, performance units, share units and performance shares ("Cyprus
Award") under any employee incentive or benefit plans, programs or arrangements
and non-employee director plans presently maintained by Cyprus which provide for
grants of equity-based awards shall be amended or converted into a similar
instrument of Parent, in each case with such adjustments to the terms of such
Cyprus Awards as are appropriate to preserve the value inherent in such Cyprus
Awards with no detrimental effects on the holders thereof. The other terms of
each Cyprus Award, and the plans or agreements under which they were issued,
shall continue to apply in accordance with their terms, including any provisions
providing for acceleration. With respect to any restricted stock awards as to
which the restrictions shall have lapsed on or prior to the Effective Time in
accordance with the terms of the applicable plans or award agreements, shares of
such previously restricted stock shall be converted in accordance with the
provisions of Section 3.1(b).
(c) Prior to the Effective Time, Cyprus shall amend each of its employee
incentive or benefit plans, programs and arrangements and non-employee director
plans, to the extent necessary and appropriate, to reflect the transactions
contemplated by this Agreement, including, but not limited to the conversion of
shares of Cyprus Common Stock held or to be awarded or paid pursuant to such
benefit plans, programs or arrangements into shares of Parent Common Stock, on a
basis consistent with the transactions contemplated by this Agreement and, to
the extent not inconsistent with the transactions contemplated by this
Agreement, the terms of such plans, programs and arrangements. At or prior to
the Effective Time, Parent shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Parent Common Stock for
A-31
<PAGE> 104
delivery upon exercise of the Cyprus Stock Options. As soon as practicable after
the Effective Time, Parent shall file a registration statement on Form S-3 or
Form S-8, as the case may be (or any successor or other appropriate forms), with
respect to the Parent Common Stock subject to such Cyprus Stock Options, and
shall maintain the effectiveness of such registration statement and the current
status of the prospectus or prospectuses contained therein, for so long as such
Cyprus Stock Options remain outstanding.
(d) Parent and its Subsidiaries and affiliates agree to honor in accordance
with their terms the Cyprus Employee Benefit Plans, including, without
limitation, any rights or benefits arising thereunder as a result of the
transactions contemplated by this Agreement (either alone or in combination with
any other event). It is the intention of the parties hereto that, for a period
of one year from the Effective Time, Parent and its Subsidiaries continue to
maintain the Cyprus Employee Benefit Plans, in each case in accordance with
their terms as in effect at the Effective Time, with only such amendments as are
required by applicable law or permitted by the terms thereof as in effect at the
Effective Time, and which do not adversely affect the rights of participants (or
their beneficiaries) thereunder.
(e) Parent shall take, and shall cause the Surviving Corporation and its
Subsidiaries and all other affiliates of Parent to take, the following actions:
(i) waive any limitations regarding pre-existing conditions and eligibility
waiting periods under any welfare or other employee benefit plan maintained by
any of them for the benefit of employees of Cyprus or any of its Subsidiaries
immediately prior to the Effective Time (the "Cyprus Employees") or in which
Cyprus Employees participate after the Effective Time, (ii) provide each Cyprus
Employee with credit for any co-payments and deductibles paid prior to the
Effective Time for the calendar year in which the Effective Time occurs, in
satisfying any applicable deductible or out-of-pocket requirements under any
welfare plans that such employees are eligible to participate in after the
Effective Time, and (iii) for all purposes (other than for purposes of benefit
accruals under any defined benefit pension plan) under all compensation and
benefit plans and policies applicable to Cyprus Employees, treat all service by
Cyprus Employees with Cyprus or any of its Subsidiaries or affiliates before the
Effective Time as service with Parent and its Subsidiaries and affiliates.
(f) As of the Effective Time, Parent shall guarantee the performance of the
employment contracts and Cyprus Employee Benefit Plans in accordance with their
respective terms and the terms of this Agreement. Notwithstanding anything
contained herein or in any employment contract or Cyprus Employee Benefit Plan
to the contrary, Parent acknowledges and agrees that, for purposes of all
employment contracts and Cyprus Employee Benefit Plans, the transactions
contemplated by this Agreement are, or will be deemed to be, a "change of
control."
SECTION 5.6 Filings; Other Action.
(a) Subject to the terms and conditions herein provided, Parent and Cyprus
shall (i) promptly make all filings necessary in connection with their
respective Required Statutory Approvals, (ii) use reasonable best efforts to
cooperate with one another in (x) determining whether any filings are required
to be made with, or consents, permits, authorizations or approvals are required
to be obtained from, any third party or other governmental or regulatory bodies
or authorities of federal, state, local and this and such required to be foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby thereby and (y)
timely making all such filings and timely seeking all consents, permits,
authorizations or approvals, including such party's Required Third Party
Consents. The parties shall cooperate with one another in connection with the
making of all such filings, including providing copies of all such documents to
the non-filing or non-submitting party and its advisors prior to filing or
otherwise submitting.
(b) (i) Without limiting the generality of the undertakings of Parent and
Cyprus pursuant to Section 5.6(a), Parent agrees to obtain the expiration or
termination of the applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and applicable
foreign statutes, rules, regulations, orders, decrees, administrative and
judicial doctrines and other laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization,
restraint of trade or limitation of competition (collectively, "Antitrust
Laws"), which obligation shall be
A-32
<PAGE> 105
unconditional and shall be not be qualified by best efforts (regardless of
whether fulfillment of such obligation would have a Material Adverse Effect on
Parent or Cyprus). The existence of the condition set forth in Section 6.1(a)
shall not limit or diminish Parent's obligations pursuant to the foregoing
sentence or relieve Parent of any liability or damages that may result from its
breach of its obligations under this Section 5.7(b)(i) (nor limit the
obligations of Cyprus pursuant to the following sentence or relieve them of any
liability or damages that may result from their breach of obligations under this
Section 5.7(b)(i)). In connection with the foregoing, Cyprus will cooperate with
and assist Parent, and, with respect to matters that are within its power or
control will use its best efforts to promptly (i) take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable Antitrust Laws and regulations to consummate the
transactions contemplated by this Agreement as soon as practicable, including,
without limitation, preparing and filing as promptly as practicable all
documentation to effect all necessary filings, notices, petitions, statements,
registrations, submissions of information, applications and other documents, and
(ii) obtain and maintain all approvals, consents, registrations, permits,
authorizations and other confirmations required to be obtained from any third
party that are necessary, proper or advisable to consummate the Cyprus Merger
and the other transactions contemplated by this Agreement. At Parent's request,
Cyprus will commit to and implement any divestiture, hold separate or similar
transaction or action with respect to any asset or business of Cyprus, which
commitment and implementation may, at Cyprus' option, be conditioned upon and
effective as of the Closing Date. Subject to applicable laws relating to the
exchange of information, Parent and Cyprus shall have the right to review in
advance, and to the extent practicable each will consult one another on, all the
information relating to their respective Subsidiaries, that appears in any
filing made with, or written materials submitted to, any third party and/or any
Governmental Entity in connection with the Cyprus Merger and the other
transactions contemplated by this Agreement.
(ii) In furtherance and not in limitation of the foregoing, and to the
extent that any such action has not heretofore been taken or completed, each of
Parent and Cyprus agrees to (i) make an appropriate filing of a Notification and
Report Form pursuant to the HSR Act with respect to the transactions
contemplated hereby as promptly as practicable and in any event within ten
business days of the date hereof, (ii) supply as promptly as practicable any
additional information and documentary material that may be requested pursuant
to the HSR Act and (iii) complete the review process under the HSR Act to permit
the consummation of the Cyprus Merger including, but not limited to, causing the
expiration of termination of the applicable waiting periods under the HSR Act as
soon as practicable.
SECTION 5.7 Further Assurances.
In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each of the parties to this Agreement shall take all
such necessary action.
SECTION 5.8 Takeover Statute.
If any "fair price," "moratorium," "control share acquisition" or other
form of antitakeover statute or regulation shall become applicable to the
transactions contemplated hereby, Cyprus and the Cyprus Board shall grant such
approvals and take such actions as are reasonably necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of such statute or regulation on the transactions contemplated hereby.
SECTION 5.9 No Solicitation by Cyprus.
(a) Cyprus shall not, nor shall it permit any of its Subsidiaries to,
authorize or permit any of its directors, officers or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action designed to
facilitate, any inquiries or the making of any proposal which constitutes any
Cyprus Takeover Proposal (or reasonably could be expected to lead to a Cyprus
Takeover Proposal) or (ii) participate in any discussions or negotiations
A-33
<PAGE> 106
regarding any Cyprus Takeover Proposal; provided, however, that if the Cyprus
Board determines in good faith, after consultation with its outside counsel and
its financial advisor, that such Cyprus Takeover Proposal is reasonably capable
of being completed, taking into account all legal, financial, regulatory and
other aspects of the proposal and would, if consummated, result in a transaction
more favorable to Cyprus' shareholders than the transaction contemplated by this
Agreement, Cyprus may, in response to a Cyprus Takeover Proposal which was not
solicited by it or which did not otherwise result from a breach of this Section
5.9(a), and subject to providing prior written notice of its decision to take
such action to Parent (the "Cyprus Notice") (x) furnish information with respect
to Cyprus and its subsidiaries to any person making a Cyprus Takeover Proposal
pursuant to a customary confidentiality agreement (as determined by Cyprus after
consultation with its outside counsel) and (y) participate in discussions or
negotiations regarding such Cyprus Takeover Proposal. For purposes of this
Agreement, "Cyprus Takeover Proposal" means any inquiry, proposal or offer (or
any improvement, restatement, amendment, renewal or reiteration thereof) from
any person relating to any direct or indirect acquisition or purchase of a
business or shares of any class of equity securities of Cyprus or any of its
Subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning any class of equity securities of
Cyprus or any of its Subsidiaries, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Cyprus or any of its Subsidiaries, other than the transactions
contemplated by this Agreement (including the items listed on Section 5.1(g) of
the Cyprus Disclosure Schedule).
(b) Except as expressly permitted by this Section 5.9, neither the Cyprus
Board nor any committee thereof shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Parent, the
recommendation by such Board or such committee of the Cyprus Merger or this
Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any Cyprus Takeover Proposal or (iii) cause Cyprus to enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement (each, a "Cyprus Acquisition Agreement") related to any Cyprus
Takeover Proposal. Notwithstanding the foregoing, in the event that the Cyprus
Board receives a Cyprus Takeover Proposal and the Cyprus Board determines in
good faith, after consultation with its outside counsel and its financial
advisor, that such Cyprus Takeover Proposal is reasonably capable of being
completed, taking into account all legal, financial, regulatory and other
aspects of the proposal and would, if consummated, result in a transaction more
favorable to Cyprus' shareholders than the transaction contemplated by this
Agreement, the Cyprus Board may (x) take any of the actions described in clauses
(i), (ii) or (iii) above or (y) terminate this Agreement (and concurrently with
or after such termination, if it so chooses, cause Cyprus to enter into any
Cyprus Acquisition Agreement with respect to any Cyprus Takeover Proposal) but
only after the fifth business day following Parent's receipt of written notice
advising Parent that the Cyprus Board is prepared to accept a Cyprus Takeover
Proposal, specifying the material terms and conditions of such Cyprus Takeover
Proposal and identifying the person making such Cyprus Takeover Proposal.
(c) In addition to the obligations of Cyprus set forth in paragraphs (a)
and (b) of this Section 5.9, Cyprus shall immediately advise Parent orally and
in writing of any request for information or of any Cyprus Takeover Proposal,
including the material terms and conditions of such request or Cyprus Takeover
Proposal and the identity of the person making such request or Cyprus Takeover
Proposal. Cyprus will keep Parent reasonably informed of the status and details
(including amendments or proposed amendments) of any such request or Cyprus
Takeover Proposal.
(d) Nothing contained in this Section 5.9 shall prohibit Cyprus from taking
and disclosing to its shareholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to Cyprus'
shareholders if, in the good faith judgment of the Cyprus Board, after
consultation with outside counsel, failure so to disclose would be inconsistent
with its obligations under applicable Law. At the meeting of the Cyprus Board at
which this Agreement was considered, authorized and approved, held September 30,
1999, the Cyprus Board unanimously declared it advisable that Cyprus's
shareholders adopt and approve this Agreement. Notwithstanding any subsequent
determination by the Cyprus Board to change such recommendation, this Agreement
shall be submitted to the shareholders of Cyprus at the Cyprus Shareholder
Meeting for the purpose of obtaining the Cyprus Shareholder Approval and nothing
contained herein shall be deemed to relieve Cyprus of such obligation.
A-34
<PAGE> 107
SECTION 5.10 Public Announcements.
Parent on the one hand and Cyprus on the other hand will consult with and
provide each other the reasonable opportunity to review and comment upon any
press release prior to the issuance of any press release relating to this
Agreement or the transactions contemplated herein and shall not issue any such
press release prior to such consultation except as may be required by Law or by
obligations pursuant to any listing agreement with any national securities
exchange.
SECTION 5.11 Indemnification and Insurance.
(a) Parent agrees that all rights to exculpation and indemnification for
acts or omissions occurring prior to the Effective Time now existing in favor of
the current or former directors or officers (the "Cyprus Indemnified Parties")
of Cyprus as provided in its charter or by-laws or in any agreement shall
survive the Cyprus Merger and shall continue in full force and effect in
accordance with their terms. For six years from the Effective Time, Parent shall
indemnify the Cyprus Indemnified Parties to the same extent as such Cyprus
Indemnified Parties are entitled to indemnification pursuant to the preceding
sentence.
(b) For three years from the Effective Time, Parent shall maintain in
effect Cyprus' current directors' and officers' liability insurance policy (the
"Cyprus Policy") covering those persons who are currently covered by the Cyprus
Policy (a copy of which has been heretofore delivered to Parent); provided,
however, that in no event shall Parent be required to expend in any one year an
amount in excess of 150% of the annual premiums currently paid by Cyprus for
such insurance, and provided further that if the annual premiums of such
insurance coverage exceed such amount, Parent shall be obligated to obtain a
policy with the greatest coverage available for a cost not exceeding such
amount; and provided further that Parent may meet its obligations under this
paragraph by covering the above people under Parent's insurance policy or
policies on the terms described above.
SECTION 5.12 Accountants' "Comfort" Letters.
Parent on the one hand and Cyprus on the other hand will each use
reasonable best efforts to cause to be delivered to the other two letters from
their respective independent accountants, one dated a date within two business
days before the date of the Registration Statement (as amended in accordance
with Section 5.3(a)(i)) and one dated a date within two business days before the
Effective Time, in form and substance reasonably satisfactory to the recipient
and customary in scope for comfort letters delivered by independent accountants
in connection with registration statements similar to the Registration
Statement.
SECTION 5.13 Additional Reports.
Parent on the one hand and Cyprus on the other hand shall each furnish to
the other copies of any reports of the type referred to in Section 4.5 which it
files with the SEC on or after the date hereof, and each of Parent and Cyprus,
as the case may be, represents and warrants that as of the respective dates
thereof, such reports will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statement therein, in light of the circumstances under which they were
made, not misleading. Any unaudited consolidated interim financial statements
included in such reports (including any related notes and schedules) will fairly
present the financial position of Parent and its consolidated Subsidiaries or
Cyprus and its consolidated Subsidiaries, as the case may be, as of the dates
thereof and the results of operations and changes in financial position or other
information included therein for the periods or as of the date then ended
(subject, where appropriate, to normal year-end adjustments), in each case in
accordance with past practice and GAAP consistently applied during the periods
involved (except as otherwise disclosed in the notes thereto).
SECTION 5.14 Disclosure Schedule Supplements.
From time to time after the date of this Agreement and prior to the
Effective Time, Parent will promptly supplement or amend the Parent Disclosure
Schedule with respect to any matter hereafter arising which, if existing or
occurring at or prior to the date of this Agreement, would have been required to
be set forth or
A-35
<PAGE> 108
described in the Parent Disclosure Schedule or which is necessary to correct any
information in a schedule or in any representation and warranty of Parent which
has been rendered inaccurate thereby. From time to time after the date of this
Agreement and prior to the Effective Time, Cyprus will promptly supplement or
amend the Cyprus Disclosure Schedule with respect to any matter hereafter
arising which, if existing or occurring at or prior to the date of this
Agreement, would have been required to be set forth or described in the Cyprus
Disclosure Schedule or which is necessary to correct any information in a
schedule or in any representation and warranty of Cyprus which has been rendered
inaccurate thereby, other than Section 5.1(g) thereof which Cyprus shall have no
authority to amend. For purposes of determining the accuracy of the
representations and warranties of Parent and Cyprus contained in this Agreement
in order to determine the fulfillment of the conditions set forth in Article VI,
the Parent Disclosure Schedule and the Cyprus Disclosure Schedule shall be
deemed to include only that information contained therein on the date of this
Agreement and shall be deemed to exclude any information contained in any
subsequent supplement or amendment thereto.
SECTION 5.15 Certain Litigation.
Each of the parties shall prior to or at the Effective Time cease,
terminate and dismiss, with prejudice, any and all actions, proceedings or
lawsuits initiated, commenced or filed by such party against the other party in
connection with (i) the Combination and (ii) Parent's exchange offers dated as
of September 3, 1999, as amended, for Cyprus and each of the parties shall use
its reasonable best efforts to cause any and all actions, proceedings or
lawsuits initiated, commenced or filed by third parties in connection with the
transactions in the above (i) and (ii) to cease, terminate or be dismissed, with
prejudice.
SECTION 5.16 Shareholder Litigation.
Each of Parent on the one hand and Cyprus on the other hand shall give the
other the reasonable opportunity to participate in the defense of any
shareholder litigation against Parent or Cyprus, as applicable, and its
directors relating to the transactions contemplated by this Agreement.
SECTION 5.17 Section 16(b).
Parent and Cyprus shall take all steps reasonably necessary to cause the
transactions contemplated hereby and any other dispositions of equity securities
of Cyprus (including derivative securities) or acquisitions of Parent equity
securities (including derivative securities) in connection with this Agreement
by each individual who is a director or officer of Cyprus to be exempt under
Rule 16b-3 under the Exchange Act.
SECTION 5.18 Change of Control Agreements.
Cyprus has change of control employment agreements with the 16 people
listed in Section 5.18(a) of the Cyprus Disclosure Schedule which provide
certain benefits upon a termination of employment for "good reason" or other
than for "cause" following the Effective Time. Parent shall take all appropriate
steps necessary to, and will, give reasonable advance notice prior to the
Effective Time of its intention to offer employment (including the proposed
terms thereof), or not to offer employment, to each of the aforementioned 16
people and will make such offers in the former case, all sufficiently in advance
of the Effective Time to afford such offerees reasonable time prior to the
Effective Time to decide whether or not to accept the employment offered prior
to the Effective Time. Cyprus has previously made written disclosure to ASARCO
for each of such 16 people and for all such people in the aggregate of the total
estimated amount payable to such people for all obligations owed to them by
Cyprus under all contractual and plan arrangements with such people assuming
that the employment of each such person was terminated effective as of December
31, 1999 (except that retirement and supplemental retirement benefits are
calculated as of January 1, 1999).
A-36
<PAGE> 109
ARTICLE VI
CONDITIONS TO THE CYPRUS MERGER
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Cyprus
Merger.
The respective obligations of Parent and Cyprus to effect the Cyprus Merger
shall be subject to the fulfillment at or prior to the Effective Time of the
following conditions:
(a) The Parent Shareholder Approval and the Cyprus Shareholder
Approval necessary to consummate the transactions contemplated by this
Agreement shall have been obtained, all in accordance with applicable Law.
(b) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
court or other tribunal or governmental body or authority which prohibits
or makes illegal the consummation of the Cyprus Merger substantially on the
terms contemplated hereby. In the event any order, decree or injunction
shall have been issued, each party shall use its reasonable efforts to
remove any such order, decree or injunction.
(c) SubC shall have accepted for exchange all shares of Cyprus Common
Stock validly tendered and not withdrawn pursuant to the Cyprus Offer;
provided, however, that this condition shall not be applicable to the
obligations of SubC if, in breach of this Agreement, SubC fails to accept
for exchange and exchange any such shares validly tendered and not
withdrawn pursuant to such Offer.
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
SECTION 7.1 Termination.
This Agreement may be terminated at any time prior to the Effective Time:
(a) by mutual consent of the Boards of Directors of Parent and Cyprus;
(b) by either Parent or Cyprus if, without fault of such terminating
party, the purchase of Cyprus Common Stock pursuant to the Cyprus Offer
shall not have occurred on or before March 31, 2000, which date may be
extended by mutual written consent of the parties hereto;
(c) by Parent or Cyprus if the Cyprus Offer expires or is terminated
or withdrawn pursuant to its terms without any Cyprus Common Stock being
purchased thereunder; or
(d) by either Parent or Cyprus if any court of competent jurisdiction
or other governmental body shall have issued an order (other than a
temporary restraining order), decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the purchase of Cyprus
Common Stock pursuant to the Cyprus Offer or the Cyprus Merger, and such
order, decree, ruling or other action shall have become final and
nonappealable; provided that the party seeking to terminate this Agreement
shall have used its reasonable best efforts, subject to Section 5.7, to
remove or lift such order, decree or ruling; or any statute, rule,
regulation, order, injunction or decree shall have been enacted, entered,
promulgated or enforced by any court, administrative agency or commission
or other governmental authority or instrumentality which prohibits or makes
illegal the consummation of the Cyprus Offer or the Cyprus Merger and
which, in the case of any such order, injunction or decree, shall have
become final and nonappealable; or there shall have been a failure to
obtain any required consent or approval under foreign laws or regulations
which would prohibit the consummation of the Cyprus Offer or the Cyprus
Merger or would have a material adverse effect on Parent or on Cyprus.
A-37
<PAGE> 110
SECTION 7.2 Termination by Parent.
This Agreement may be terminated and the Cyprus Offer and the Cyprus Merger
may be abandoned by action of the Board of Directors of Parent, at any time
prior to the purchase of Cyprus Common Stock pursuant to the Cyprus Offer, if
(a) the Cyprus Board shall withdraw, modify or change its recommendation or
approval in respect of this Agreement or the Cyprus Offer in a manner adverse to
Parent, (b) the Cyprus Board shall have recommended any proposal other than by
Parent in respect of a Cyprus Takeover Proposal, (c) a Cyprus Takeover Proposal
other than by Parent shall be publicly disclosed and at the scheduled expiration
of the Cyprus Offer the Minimum Tender Condition shall not have been satisfied,
or (d) the condition to the Cyprus Offer described in clause (e) of Annex A
hereto shall not have been satisfied within 30 days of notice that such
condition has not been satisfied.
SECTION 7.3 Termination by Cyprus.
This Agreement may be terminated and the Cyprus Merger may be abandoned by
action of the Cyprus Board, at any time prior to the acceptance for payment of
shares under the Cyprus Offer, (a) if there shall be a material breach of any of
Parent's representations, warranties or covenants hereunder, which breach shall
not be cured within ten days of notice thereof, or (b) provided Cyprus is not in
breach of any obligation under this Agreement, to allow Cyprus to enter into an
agreement in respect of a Cyprus Takeover Proposal which the Cyprus Board
determines is reasonably capable of being completed, taking into account all
legal, financial, regulatory and other aspects of the proposal and would, if
consummated, result in a transaction more favorable to Cyprus' shareholders than
the transaction contemplated by this Agreement (provided that such termination
pursuant to this clause (b) shall not be effective unless and until Cyprus shall
have paid to Parent the fee described in Section 7.5 hereof and shall have
complied with Section 5.9(c) and the notice provisions of Section 5.9(b)).
Section 7.4 Effect of Termination.
In the event of termination of this Agreement pursuant to Section 7.1, all
rights and obligations under this Agreement as between Parent and Cyprus shall
terminate (except for the provisions of Sections 5.2, 7.5 and 8.2), and there
shall be no other liability on the part of Parent on the one hand or Cyprus on
the other hand to the other except liability arising out of a willful and
material breach of this Agreement.
SECTION 7.5 Termination Fee.
(a) In the event that (i) after the date hereof and prior to the Cyprus
Shareholder Meeting a Cyprus Takeover Proposal shall have been made known to
Cyprus or any of its Subsidiaries or shall have been made directly to its
shareholders generally or any person shall have publicly announced an intention
(whether or not conditional) to make a Cyprus Takeover Proposal and thereafter
this Agreement is terminated by either Parent or Cyprus pursuant to Section
7.1(b) or (ii) this Agreement is terminated by Cyprus pursuant to Section
7.3(b), then Cyprus shall promptly pay Parent a fee equal to $45 million (the
"Cyprus Termination Fee"), payable by wire transfer of same day funds; provided,
however, that no Cyprus Termination Fee shall be payable to Parent pursuant to
this paragraph unless and until within 18 months of such termination Cyprus or
any of its Subsidiaries enters into any Cyprus Acquisition Agreement or
consummates any Cyprus Takeover Proposal (for the purposes of the foregoing
proviso the terms "Cyprus Acquisition Agreement" and "Cyprus Takeover Proposal"
shall have the meanings assigned to such terms in Section 5.9 (except that the
reference to the "acquisition or purchase of a business or shares of any class
of equity securities of Cyprus or any of its Subsidiaries" in the definition of
"Cyprus Takeover Proposal" in Section 5.9 shall be deemed to be a reference to
the "acquisition or purchase of a business that constitutes 20% or more of the
net revenues, net income or the assets of Cyprus and its Subsidiaries, taken as
a whole, or 20% of any class of equity securities of Cyprus or any of its
Subsidiaries," but such reference shall not include either of the items set
forth in Section 5.1(g) of the Cyprus Disclosure Schedule)) in which event the
Termination Fee shall be payable upon the first to occur of such events. Cyprus
acknowledges that the agreements contained in this Section 7.5(a) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Parent would not enter into this Agreement;
accordingly, if Cyprus fails promptly to pay the Cyprus Termination Fee, and, in
A-38
<PAGE> 111
order to obtain such payment, Parent commences a suit which results in a
judgment against Cyprus for the Cyprus Termination Fee, Cyprus shall pay to
Parent its costs and expenses (including attorneys' fees and expenses) in
connection with such suit, together with interest on the amount of the Cyprus
Termination Fee at the prime rate of Citibank N.A. in effect on the date such
payment was required to be made.
(b) In the event of termination of this Agreement pursuant to Section
7.1(b) unless Cyprus is at fault in respect thereof, Section 7.1(c), Section
7.1(d) or Section 7.3(a), Parent shall reimburse Cyprus for any termination fee
that it has paid to ASARCO Incorporated ("ASARCO") under Section 7.3 of the
Agreement and Plan of Merger, dated as of July 15, 1999, among Asarco Cyprus
Incorporated, ACO Acquisition Corp., CAM Acquisition Corp., ASARCO Incorporated
and Cyprus Amax Minerals Company (the "ASARCO Merger Agreement") or under
paragraph 3 of Amendment No. 1, dated September 27, 1999, to the ASARCO Merger
Agreement; provided, however, that Parent shall have no obligation to reimburse
Cyprus for any termination fee paid to ASARCO in the event that this Agreement
is terminated as a result of the failure of the condition to the Cyprus Offer
set forth in paragraph (e) of Annex A hereto.
SECTION 7.6 Amendment or Supplement.
At any time before or after approval of the matters presented in connection
with the Combination by the shareholders of Cyprus and prior to the Effective
Time, this Agreement may be amended or supplemented in writing by Parent and
Cyprus with respect to any of the terms contained in this Agreement; provided,
however, that, following the purchase of Cyprus Common Stock pursuant to the
Cyprus Offer, this Agreement shall not be amended or supplemented unless any
such amendment or supplement is approved by the vote of the majority of
Continuing Directors of Cyprus; and provided further that following approval by
the shareholders of Parent and Cyprus there shall be no amendment or change to
the provisions hereof with respect to the Merger Consideration as provided
herein nor any amendment or change not permitted under applicable Law, without
further approval by the shareholders of Cyprus. For purposes of this Agreement,
"Continuing Director" shall mean a director who either was a member of the
Cyprus Board prior to the time that Parent exercised its rights under Section
5.3(d) or who subsequently became a director of Cyprus and whose election, or
nomination for election by the stockholders of Cyprus, was approved by a vote of
at least three-quarters of the Continuing Directors then on the Cyprus Board.
SECTION 7.7 Extension of Time, Waiver, Etc.
At any time prior to the Effective Time, Parent on the one hand and Cyprus,
as the case may be, on the other hand, may:
(a) extend the time for the performance of any of the obligations or
acts of the other party;
(b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered pursuant
hereto; or
(c) subject to the proviso of Section 7.6, waive compliance with any
of the agreements or conditions of the other party contained herein.
Notwithstanding the foregoing, no failure or delay by any party in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
A-39
<PAGE> 112
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 No Survival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Cyprus Merger.
SECTION 8.2 Expenses.
Whether or not the Cyprus Merger is consummated, all costs and expenses
incurred in connection with the Cyprus Merger, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, except that (i) the filing fee in connection with any HSR Act filing
or any other Required Statutory Approval, (ii) the commissions and other
out-of-pocket transaction costs, including the expenses and compensation of the
Exchange Agent, incurred in connection with the sale of Excess Shares, and (iii)
all transfer Taxes, shall be shared equally by Parent and Cyprus.
SECTION 8.3 Counterparts; Effectiveness.
This Agreement may be executed in two or more consecutive counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument, and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered (by telecopy or otherwise) to the other parties.
SECTION 8.4 Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to the principles of conflicts of
laws thereof, except to the extent the provisions of this Agreement are
expressly governed by or derive their authority from the DGCL.
SECTION 8.5 Notices.
All notices and other communications hereunder shall be in writing
(including telecopy or similar writing) and shall be effective (a) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified in
this Section 8.5 and the appropriate telecopy confirmation is received or (b) if
given by any other means, when delivered at the address specified in this
Section 8.5:
To Parent or SubC:
Phelps Dodge Corporation
2600 North Central Avenue
Phoenix, Arizona 85004-3014
copies to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: David W. Heleniak
Telecopy: (212) 848-7179
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Michael W. Blair
Telecopy: (212) 909-6836
A-40
<PAGE> 113
To Cyprus:
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, Colorado 80112
Attention: Philip C. Wolf, Esq.
Telecopy: (303) 643-5049
copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Elliott V. Stein
Telecopy: (212) 403-2000
SECTION 8.6 Assignment; Binding Effect.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of Law or otherwise) without the prior written consent of the other parties.
Subject to the preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
SECTION 8.7 Severability.
Any term or provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, such provision shall be interpreted to be only so broad as is
enforceable.
SECTION 8.8 Enforcement of Agreement.
The parties hereto agree that money damages or other remedy at law would
not be sufficient or adequate remedy for any breach or violation of, or a
default under, this Agreement by them and that in addition to all other remedies
available to them, each of them shall be entitled to the fullest extent
permitted by Law to an injunction restraining such breach, violation or default
or threatened breach, violation or default and to any other equitable relief,
including, without limitation, specific performance, without bond or other
security being required.
SECTION 8.9 Entire Agreement;
No Third-Party Beneficiaries. This Agreement and the Confidentiality
Agreement constitute the entire agreement, and supersede all other prior
agreements and understandings, both written and oral, between the parties, or
any of them, with respect to the subject matter hereof and thereof and, except
for the provisions of Section 5.5(f) (with respect only to those individuals
listed in Section 5.18(a) of the Cyprus Disclosure Schedule) and Section 5.11
hereof, is not intended to and shall not confer upon any person other than the
parties hereto any rights or remedies hereunder; provided that if the Cyprus
Merger has not been consummated before the 120th day following the acceptance
for payment of shares under the Cyprus Offer, as of such 120th day, each of the
shareholders of Cyprus (other than Parent and SubC) shall have the right to
enforce the obligations of Parent and SubC to consummate the Cyprus Merger and
the shareholders' right to receive the Merger Consideration.
SECTION 8.10 Headings.
Headings of the Articles and Sections of this Agreement are for convenience
of the parties only, and shall be given no substantive or interpretive effect
whatsoever.
A-41
<PAGE> 114
SECTION 8.11 Definitions.
References in this Agreement to "Subsidiaries" of any person shall mean any
corporation or other form of legal entity of which more than 50% of the
outstanding voting securities are on the date hereof directly or indirectly
owned by such person. References in this Agreement to "Significant Subsidiaries"
shall mean Subsidiaries which constitute "significant subsidiaries" under Rule
405 promulgated by the SEC under the Securities Act. References in this
Agreement (except as specifically otherwise defined) to "affiliates" shall mean,
as to any person, any other person which, directly or indirectly, controls, or
is controlled by, or is under common control with, such person. As used in this
definition, "control" (including, with its correlative meanings, "controlled by"
and "under common control with") shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of management or
policies of a person, whether through the ownership of securities or partnership
of other ownership interests, by contract or otherwise. References in the
Agreement to "person" shall mean an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including, without
limitation, a governmental body or authority. Notwithstanding the foregoing,
Parent shall not be deemed to be an "affiliate" or a "Subsidiary" of Cyprus.
SECTION 8.12 Finders or Brokers.
Except for Merrill Lynch & Co. with respect to Cyprus, a copy of whose
engagement agreement has been or will be provided to Parent, neither Cyprus nor
any of their respective Subsidiaries has employed any investment banker, broker,
finder or intermediary in connection with the transactions contemplated hereby
who might be entitled to any fee or any commission in connection with or upon
consummation of the Cyprus Merger.
SECTION 8.13 Cyprus Actions Following the Offer.
Following the purchase of Cyprus Common Stock pursuant to the Cyprus Offer,
no action may be taken by Cyprus under this Agreement (including, without
limitation, termination pursuant to Section 7.1 and any waiver and any extension
under Section 7.7) unless any such action is approved by the vote of the
majority of the Continuing Directors of Cyprus.
A-42
<PAGE> 115
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
PHELPS DODGE CORPORATION
By: /s/ Douglas C. Yearley
------------------------------------
Name: Douglas C. Yearley
Title: Chairman and CEO
CAV CORPORATION
By: /s/ Ramiro G. Peru
------------------------------------
Name: Ramiro G. Peru
Title: Vice President and Treasurer
CYPRUS AMAX MINERALS COMPANY
By: /s/ Milton H. Ward
------------------------------------
Name: Milton H. Ward
Title: President and Chief Executive
Officer
A-43
<PAGE> 116
ANNEX A
CONDITIONS TO THE CYPRUS OFFER
Notwithstanding any other provision of our Offer, we shall not be required
to accept for exchange or exchange any Cyprus Amax Common Stock, may postpone
the acceptance for exchange of or exchange for tendered Cyprus Amax Common
Stock, and may, in our sole discretion, terminate or amend the Offer as to any
Cyprus Amax Common Stock not then exchanged (a) if at the expiration date, any
of the Minimum Tender Condition or the Phelps Dodge Stockholder Approval
Condition (each as defined in the Prospectus dated September 22, 1999 relating
to the Offer by Phelps Dodge for shares of Cyprus Amax Common Stock) has not
been satisfied or (b) if on or after the date of the prospectus and at or prior
to the expiration date, any of our other conditions are not satisfied. The
conditions are as follows:
(a) The shares of our common stock which shall be issued to Cyprus
Amax stockholders in the Offer and the Phelps Dodge/Cyprus Amax merger have
been authorized for listing on the NYSE, subject to official notice of
issuance;
(b) Registration Statement No. 333-86061 and any post-effective
amendments thereto shall be effective under the Securities Act, and no stop
order suspending the effectiveness of the Registration Statement shall have
been issued nor shall there have been proceedings for that purpose
initiated or threatened by the SEC and we shall have received all necessary
state securities law or "blue sky" authorizations;
(c) No temporary restraining order, preliminary or permanent
injunction or other order or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Offer or any of the other transactions contemplated
by the Prospectus dated September 22, 1999 (the "Prospectus") shall be in
effect; no statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any court,
administrative agency or commission or other governmental authority or
instrumentality which prohibits, or makes illegal the consummation of our
Offer; nor shall there have been a failure to obtain any required consent
or approval under foreign laws or regulations which would prohibit the
consummation of the Offer or would have a material adverse effect on Parent
or on Cyprus Amax;
(d) There shall not have been after the date of this Agreement any (i)
amendment of the Code, (ii) amendment or adoption of final or temporary
Treasury Regulations under the Code, (iii) Internal Revenue Service revenue
ruling, revenue procedures, technical advice memorandum or notices, or (iv)
final decision of a court of competent jurisdiction, in each case that
would be inconsistent with the Cyprus Merger qualifying as a reorganization
under Section 368(a) of the Code; and
(e) The representations and warranties of Cyprus in this Agreement
shall be true and correct (without giving effect to any qualification as to
"materiality" or "Material Adverse Effect" set forth therein) as of the
date of the Prospectus and as of the expiration date as though made on and
as of the date of the Prospectus and the expiration date except where the
failure of such representations and warranties to be so true and correct
would not reasonably be expected to have, individually or in the aggregate
a Material Adverse Effect (as defined therein) on Cyprus; and Cyprus shall
have performed or complied in all material respects with all the material
agreements and covenants required by this Agreement.
The foregoing conditions are solely for our benefit and we may assert them
regardless of the circumstances giving rise to any such conditions (including
any action or inaction by us). We may waive these conditions in whole or in part
(other than the Phelps Dodge Stockholder Approval Condition and the condition
relating to effectiveness of the Registration Statement). The determination as
to whether any condition has been satisfied shall be deemed a continuing right
which may be asserted at any time and from time to time. Notwithstanding the
fact that we reserve the right to assert the failure of a condition following
acceptance for exchange but prior to exchange in order to delay exchange or
cancel its obligation to exchange properly tendered Cyprus Amax Common Stock, we
will either promptly exchange such Cyprus Common Stock or promptly return such
Cyprus Common Stock.
A-44
<PAGE> 117
ANNEX B
[LETTERHEAD OF MERRILL LYNCH]
September 30, 1999
Board of Directors
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, CO 80112
Members of the Board of Directors:
Cyprus Amax Minerals Company (the "Company"), Phelps Dodge Corporation (the
"Acquiror") and CAV Corporation, a newly formed, wholly owned subsidiary of the
Acquiror (the "Acquisition Sub"), propose to enter into the Agreement and Plan
of Merger among Phelps Dodge Corporation, CAV Corporation and Cyprus Amax
Minerals Company (the "Agreement") pursuant to which (i) the Acquisition Sub
would commence an exchange offer (the "Offer") for all outstanding shares of
common stock, no par value, of the Company (the "Company Shares") for either, at
the election of the stockholder, (x) 0.3500 of a share of common stock, $6.25
par value, of the Acquiror (the "Acquiror Shares") or (y) $20.54 per share, net
to the seller in cash, without interest, each subject to the election and
proration provisions of the Agreement (the "Offer Consideration") and (ii) the
Acquisition Sub would be merged with the Company in a merger (the "Merger") in
which each Company Share not acquired in the Offer, other than Company Shares
held by the Acquiror, the Company or their respective subsidiaries, would be
converted into 0.2203 of an Acquiror Share and $7.61 in cash, without interest
(the "Merger Consideration" and together with the Offer Consideration, the
"Consideration"), subject to the proration provisions of the Agreement. The
Offer and the Merger, taken together, are referred to as the "Transaction".
You have asked us whether, in our opinion, the Consideration is fair from a
financial point of view to the stockholders of the Company.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Company and the Acquiror that we deemed to be relevant;
(2) Reviewed publicly available analysts' forecasts with respect to the
Acquiror;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects of the
Company, as well as the amount and timing of the cost savings and related
expenses and synergies expected to result from the Transaction (the "Expected
Synergies") furnished to us by the Company;
(4) Conducted discussions with members of senior management and
representatives of the Company concerning the matters described in clauses 1, 2
and 3 above, as well as their business and prospects before and after giving
effect to the Transaction and the Expected Synergies;
(5) Reviewed the market prices and valuation multiples for the Company
Shares and the Acquiror Shares and compared them with those of certain publicly
traded companies that we deemed to be relevant;
(6) Reviewed the results of operations of the Company and the Acquiror and
compared them with those of certain publicly traded companies that we deemed to
be relevant;
(7) Reviewed the terms of the Acquiror's exchange offer for ASARCO
Incorporated set forth in Amendment No. 1 to the Schedule 14D-1 filed September
22, 1999;
(8) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial and legal
advisors;
(9) Reviewed the potential pro forma impact of the Transaction;
(10) Reviewed a draft dated September 29, 1999 of the Agreement; and
B-1
<PAGE> 118
(11) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Acquiror or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or the Acquiror. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Company, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of the Company's management as to the expected
future financial performance of the Company and the Expected Synergies. In
preparing our opinion we were not provided with financial forecasts with respect
to the Acquiror other than certain publicly available analysts' earnings
forecasts which we discussed with the Company's management and on which we
relied. With respect to the financial forecast information contained in such
publicly available analysts' forecasts, we have assumed that they reflect the
best currently available estimates as to the future financial performance of the
Acquiror. We have further assumed that the Transaction will qualify as a
tax-free reorganization for U.S. federal income tax purposes. We have also
assumed that the final form of the Agreement will be substantially similar to
the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Transaction, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Transaction.
We are acting as financial advisor to the Company in connection with the
Transaction and will receive a fee from the Company for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. We have, in the past, provided
financial advisory and financing services to the Company and/or its affiliates
and may continue to do so and have received, and may receive, fees for the
rendering of such services. In addition, in the ordinary course of our business,
we may actively trade the Company Shares and other securities of the Company, as
well as the Acquiror Shares and other securities of the Acquiror, for our own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Transaction and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote on the proposed Transaction or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Company Shares will trade following the announcement or consummation of the
Transaction.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration is fair from a financial point of view
to the stockholders of the Company.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
B-2
