-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VBHRMkPD2Haeva7TRjlO2u/0IQutLsVqV/SgHRnlFUYeFg6q/5fBvSN8fWma5VT5 TcFSc31Xk8jmXDW/jPf1lQ== 0000950130-99-005167.txt : 19990910 0000950130-99-005167.hdr.sgml : 19990910 ACCESSION NUMBER: 0000950130-99-005167 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19990909 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ASARCO INC CENTRAL INDEX KEY: 0000007649 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY SMELTING & REFINING OF NONFERROUS METALS [3330] IRS NUMBER: 134924440 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: SEC FILE NUMBER: 005-31638 FILM NUMBER: 99708134 BUSINESS ADDRESS: STREET 1: 180 MAIDEN LN CITY: NEW YORK STATE: NY ZIP: 10038 BUSINESS PHONE: 2125102000 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN SMELTING & REFINING CO DATE OF NAME CHANGE: 19760607 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ASARCO INC CENTRAL INDEX KEY: 0000007649 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY SMELTING & REFINING OF NONFERROUS METALS [3330] IRS NUMBER: 134924440 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 180 MAIDEN LN CITY: NEW YORK STATE: NY ZIP: 10038 BUSINESS PHONE: 2125102000 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN SMELTING & REFINING CO DATE OF NAME CHANGE: 19760607 SC 14D9 1 SCHEDULE 14D-9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- SCHEDULE 14D-9 SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------- ASARCO Incorporated (Name of Subject Company) ASARCO Incorporated (Name of Person(s) Filing Statement) Common Stock, No Par Value Per Share (Title of Class of Securities) 043413103 (CUSIP Number of Class of Securities) Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 180 Maiden Lane New York, New York 10038 (212) 510-2000 (Name, address and telephone number of person authorized to receive notice and communications on behalf of the person(s) filing statement). With Copies to: J. Michael Schell Margaret L. Wolff Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022 (212) 735-3000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Item 1. Security and Subject Company. The name of the subject company is ASARCO Incorporated, a New Jersey corporation ("ASARCO"). The address of the principal executive offices of ASARCO is 180 Maiden Lane, New York, New York 10038. The title of the class of equity securities to which this Statement relates is the common stock, no par value per share, of ASARCO (the "ASARCO Common Stock"), including the associated preferred share purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated as of January 28, 1998, between ASARCO and The Bank of New York, as amended (the "ASARCO Rights Plan"). Except where the context otherwise requires, all references herein to the ASARCO Common Stock shall include the Rights. Item 2. Tender Offer of the Bidder. This Statement relates to the exchange offer for all of the outstanding shares of ASARCO Common Stock which is described in a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") of Phelps Dodge Corporation, a New York corporation ("Phelps Dodge"), and AAV Corporation, a Delaware corporation and a wholly owned subsidiary of Phelps Dodge, filed with the Securities and Exchange Commission (the "Commission") on September 3, 1999, which incorporates the prospectus (the "Phelps Dodge Prospectus") of Phelps Dodge contained in the Registration Statement on Form S-4 of Phelps Dodge filed with the Commission on August 27, 1999, as amended by Amendment No. 1 thereto filed with the Commission on September 1, 1999 and Amendment No. 2 thereto filed with the Commission on September 2, 1999 (the "Phelps Dodge Form S-4"). According to the Schedule 14D-1, Phelps Dodge is offering, upon the terms and subject to the conditions set forth in the Phelps Dodge Prospectus and in a related Letter of Transmittal (together, the "Phelps Dodge Offer"), to exchange .4098 of a share of common stock of Phelps Dodge (the "Phelps Dodge Common Stock") for each outstanding share of ASARCO Common Stock validly tendered and not properly withdrawn on or prior to the expiration date of the Phelps Dodge Offer. According to the Schedule 14D-1, Phelps Dodge intends, as soon as practicable after consummation of the Phelps Dodge Offer, to seek to merge ASARCO with a subsidiary of Phelps Dodge. According to the Schedule 14D-1, the principal executive offices of Phelps Dodge are located at 2600 North Central Avenue, Phoenix, Arizona 85004. Item 3. Identity and Background. (a) The name and business address of ASARCO, which is the person filing this Statement, are set forth in Item 1 above. (b) Except as described (i) in this Statement, (ii) on pages 10 through 20 of ASARCO's Proxy Statement, dated March 15, 1999 (the "1999 ASARCO Proxy Statement"), sent by ASARCO to its stockholders in connection with its Annual Meeting of Stockholders held on April 28, 1999, which are filed as Exhibit 1 to this Statement and incorporated herein by reference, (iii) under the headings "Interests of Certain Persons in the Merger--ASARCO Employment Agreements," "--ASARCO Stock Based Plans," "--Other ASARCO Plans," "-- Indemnification and Insurance," "The Merger Agreement--Stock Options and Other Stock-Based Awards," "--Benefit Matters," "--Indemnification; Directors' and Officers' Insurance" and "Directors and Management Following the Business Combination" on pages 62 through 64, 66, 72 through 73 and 79, respectively, of the joint proxy statement and prospectus of ASARCO, Cyprus Amax Minerals Company ("Cyprus Amax") and Asarco Cyprus Incorporated ("Asarco Cyprus"), dated August 20, 1999 (the "Joint Proxy Statement and Prospectus"), sent by ASARCO to its stockholders in connection with the special meeting of its stockholders to be held on September 30, 1999, which are filed as Exhibit 2 to this Statement and incorporated herein by reference, and (iv) under the heading "Interests of Certain Persons in the Merger" on page 13 of the Current Report on Form 8-K of Asarco Cyprus, dated August 20, 1999, sent by ASARCO to its stockholders in connection with the special meeting of its stockholders to be held on September 30, 1999, which is filed as Exhibit 3 to this statement and incorporated herein by reference, there are no material contracts, agreements, arrangements or understandings, or any actual or potential conflicts of interest between 1 ASARCO or its affiliates and (1) its executive officers, directors or affiliates or (2) Phelps Dodge, its executive officers, directors or affiliates. The consummation of the Phelps Dodge Offer on the terms described in the Phelps Dodge Prospectus would constitute a change in control for purposes of the contracts, agreements and arrangements described in the 1999 ASARCO Proxy Statement and the Joint Proxy Statement and Prospectus which description is incorporated herein by reference. Phelps Dodge Overseas Capital Corporation, a wholly owned subsidiary of Phelps Dodge, and ASARCO are among the parties to an agreement among stockholders, dated as of January 2, 1996, regarding their respective stock holdings in Southern Peru Copper Corporation ("SPCC"). The agreement gives each party the right to nominate a number of SPCC directors in proportion with the party's stock ownership, and requires each party to vote its stock to elect those directors. From 1995 through 1998, Phelps Dodge Sales Company Incorporated, a wholly owned subsidiary of Phelps Dodge, was party to a contract with SPCC to purchase 4,800 metric tons of copper from 1995-1997 and 2,400 metric tons of copper in 1998 for $14,095,465 in 1995, $10,993,828 in 1996, $10,925,043 in 1997 and $3,966,730 in 1998. Item 4. The Solicitation or Recommendation. (a) Recommendation of the ASARCO Board of Directors As more fully described below, the ASARCO Board of Directors has unanimously rejected the Phelps Dodge Offer as inadequate and not in the best interests of ASARCO and its stockholders. The ASARCO Board of Directors unanimously recommends that all holders of ASARCO Common Stock reject the Phelps Dodge Offer and not tender their shares to Phelps Dodge. The ASARCO Board of Directors has unanimously reaffirmed its determination that the terms of the Business Combination with Cyprus Amax are fair to, and in the best interests of, ASARCO and its stockholders. (b) Background; Reasons for the ASARCO Board's Recommendation On July 15, 1999, Asarco Cyprus, ACO Acquisition Corp., a New Jersey corporation and a wholly owned subsidiary of Asarco Cyprus ("ACO"), CAM Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Asarco Cyprus ("CAM"), ASARCO and Cyprus Amax entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which, subject to the satisfaction or waiver of certain conditions, ACO will be merged with and into ASARCO (the "ASARCO Merger") and CAM will be merged with and into Cyprus Amax (the "Cyprus Merger" and, together with the ASARCO Merger, the "Mergers" or the "Business Combination"). At the effective time of the Business Combination, (i) each outstanding share of ASARCO Common Stock will be converted into the right to receive one share (the "ASARCO Exchange Ratio") of common stock, par value $.01 per share, of Asarco Cyprus (the "Asarco Cyprus Common Stock"), with cash being paid in lieu of fractional shares, (ii) each outstanding share of Cyprus Amax Common Stock will be converted into the right to receive 0.765 shares (the "Cyprus Exchange Ratio") of Asarco Cyprus Common Stock, with cash being paid in lieu of fractional shares and (iii) each outstanding share of Cyprus Amax preferred stock will be converted into a share of Asarco Cyprus preferred stock with substantially identical terms, preferences, limitations, privileges and rights. On August 10, 1999, Francis R. McAllister, Chairman of the Board and Chief Executive Officer of ASARCO, and Milton H. Ward, the Chairman, President and Chief Executive Officer of Cyprus Amax, each received a telephone call from Douglas C. Yearley, Chairman and Chief Executive Officer of Phelps Dodge. In each call Mr. Yearley said Phelps Dodge wished to propose a three-way combination of ASARCO, Cyprus Amax and Phelps Dodge and requested a prompt meeting to discuss the proposal. Later that day, Messrs. McAllister and Ward replied to the proposal with a letter saying that the Merger Agreement prohibited both ASARCO and Cyprus Amax from discussing a business combination with any third parties and declining Mr. Yearley's request for a meeting. 2 On August 11, 1999, Messrs. McAllister and Ward received the following letter from Phelps Dodge: "August 11, 1999 "Mr. Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 180 Maiden Lane New York, NY 10038 "Mr. Milton H. Ward Chairman, Chief Executive Officer and President Cyprus Amax Minerals Company 9100 East Mineral Circle Englewood, CO 80112 "Dear Frank and Milt: "We are disappointed that you have declined to meet with us. As you know from our telephone conversations, we have considered your pending business combination and would like to discuss with you our proposal, described in more detail below, to combine all three of our companies in a negotiated transaction. "We believe that a three-way combination of Phelps Dodge, Asarco and Cyprus Amax would create superior shareholder value for the shareholders of Asarco and Cyprus Amax. A three-way combination, by creating a lower-cost global competitor, would also benefit the employees and customers of all three companies. For these reasons, we are approaching you to discuss the concept of a three-way combination. "We propose that all of the outstanding common stock of both Asarco and Cyprus Amax be exchanged for Phelps Dodge common stock. The transaction would be tax-free to your shareholders. "A combination of these businesses would result in cost savings well in excess of the amounts you have indicated to be achievable through your pending merger. Preliminarily we estimate that the annual cash cost savings reach at least $150 million. "We propose to reward your shareholders for these substantial incremental benefits by offering your shareholders an exchange ratio 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. These exchange ratios preserve the relative economics of your proposed combination and imply premiums of approximately 25% based on current market prices for Asarco and Cyprus Amax. "We believe this proposal creates superior value for your shareholders based on: . the sizeable premium we are offering which, in effect, represents up-front payment to your shareholders for the substantial cost savings we expect to achieve; . their opportunity to participate in the ongoing value creation of the combined company; and . our planned continuation of the current $2.00 per share Phelps Dodge common stock dividend resulting in substantial dividend increases for both Asarco and Cyprus Amax shareholders to 3.76 times the level contemplated in your pending merger. "Our preference is for a combination of all three companies, which would of course involve the consent of both Asarco and Cyprus Amax to a modification of your existing agreement. 3 "Since your merger agreement has not been publicly filed, we have not had the opportunity to review its terms. Based on your August 10, 1999 letter, it is unclear to us whether discussions may proceed once you receive a written proposal such as this letter. In any event, if necessary under your merger agreement, we request that you grant one another waivers to allow meetings with us on our proposal which, as discussed below, would be far more favorable to your shareholders than your proposed merger. "We are confident that the market reaction to a three-way combination would be positive. In particular we believe the market would recognize: . the significantly stronger ability of the combined company, relative to the Asarco/Cyprus Amax combination, to integrate southwest U.S. mining operations, administrative functions in Chile and Peru and world-wide exploration and development activities; . the financial strength of the combined company and ability to create a world class portfolio of cost competitive mining assets; . a strong and deep management team, at both the operating and corporate levels, with strong credibility in the marketplace; . the ability to eliminate substantial overhead, exploration, purchasing and other expenses through the consolidation; . the tremendous operating leverage of the combined company, together with enough diversity in other businesses to mitigate cyclical downturns; . the ability of the combined company to reduce capital expenditures; . a strong, liquid balance sheet, with excellent access to capital; and . how all of these factors would build greater shareholder value, on an ongoing basis, for the shareholders of all three companies. "This is intended to be a confidential proposal which is subject to the execution of a definitive merger agreement and receipt of customary approvals, including approval by our respective Boards of Directors and shareholders. We have conducted in-depth analyses of the proposed three-way combination from a regulatory perspective and have concluded that it will be possible to obtain the necessary approvals on a timely basis. "We believe that our proposal is substantially more attractive to your shareholders than your pending merger. In addition to the sizeable premium we are offering, your shareholders would participate, through their ongoing Phelps Dodge common stock ownership, in a larger enterprise with greater realizable cost savings and synergies, a stronger portfolio of cost competitive assets and a deep management team with a strong operating record. We have no doubt that your shareholders will enthusiastically embrace our proposal once they learn of it. "We have discussed this proposal with our Board, which fully supports it. We are confident of our ability, with your cooperation, to complete this transaction as quickly as your proposed two-party Asarco/Cyprus Amax merger. "We are firmly committed to moving forward quickly to consummate this transaction. As we mentioned, we would be happy to meet with you in New York or another mutually convenient location to amplify our proposal. In any event, we would appreciate a response by 5:00 p.m., New York time, on Wednesday, August 18, 1999. Sincerely, /s/ /s/ Douglas C. Yearley J. Steven Whisler Chairman and Chief Executive Officer President and Chief Operating Officer" 4 On August 12, 1999, Messrs. McAllister and Ward telephoned Mr. Yearley in response to his August 11 letter and reiterated that both ASARCO and Cyprus Amax were prohibited from discussing a business combination with any third parties pursuant to the terms of the Merger Agreement. On August 12, 1999, Messrs. Yearley and J. Steven Whisler, President and Chief Operating Officer of Phelps Dodge, sent substantially identical letters to the ASARCO Board of Directors and the Cyprus Amax Board of Directors describing the proposal outlined in the previous letter to the chief executive officers, respectively, and asking once again that the Boards of ASARCO and Cyprus Amax carefully consider the merger proposal and that they authorize the commencement of negotiations. On August 19, 1999, the ASARCO Board of Directors and the Cyprus Amax Board of Directors, together with their respective legal and financial advisors, met separately to consider the unsolicited proposal from Phelps Dodge. Both the ASARCO Board of Directors and the Cyprus Amax Board of Directors unanimously determined that pursuing the Business Combination was in best interests of ASARCO and Cyprus Amax stockholders, respectively, and reconfirmed their respective recommendations of the Business Combination. In the morning of August 20, 1999, Messrs. Ward and McAllister telephoned Mr. Yearley to tell him that their Boards of Directors had declined to pursue the three-way combination proposal by Phelps Dodge. After Messrs. Ward and McAllister were unsuccessful in reaching Mr. Yearley, they sent the following letter: "August 20, 1999 "Mr. Douglas C. Yearley Chairman, President and Chief Executive Officer Phelps Dodge Corporation 2600 North Central Avenue Phoenix, AZ 85004-3050 Dear Doug: "We have tried to reach you this morning to convey the response of our respective Boards and to share with you the attached press release. "Each of our companies has convened its Board and received thorough presentations from financial and legal advisors. After full consideration of your proposal, each Board unanimously decided that it was in the best interests of its shareholders to pursue the Asarco Cyprus merger. That is what we intend to do. Sincerely, /s/ /s/ Francis R. McAllister Milton H. Ward Chairman and Chief Chairman, Chief Executive Executive Officer Officer and President Asarco Incorporated Cyprus Amax Minerals Company" Subsequently, Cyprus Amax and ASARCO issued the following joint press release: "DENVER and NEW YORK--August 20, 1999--Cyprus Amax Minerals (NYSE:CYM) and ASARCO Incorporated (NYSE:AR) announced that they have set shareholder meetings for September 30, 1999 to approve their previously announced merger of equals. Asarco Cyprus Incorporated will be the largest publicly traded copper company with an estimated cash cost of under 50 cents. Definitive proxy materials will be mailed to shareholders of record on August 25, 1999. 5 "Cyprus and Asarco also announced that joint Asarco and Cyprus merger teams are reviewing all operating and administrative aspects of the new organization to identify organizational and other profit driven changes in the way they do business. The companies have engaged outside consultants to assist in identification of cost savings to facilitate the process. As a result of these reviews, the estimate of annual expense reductions is now approaching $200 million including $50 million in reduced administrative and overhead costs, $50 million from lower costs of purchased materials and services, $25 million in other costs and $75 million in lower depreciation. As part of the cost reductions, Cyprus' Denver office will be closed and Asarco's New York office will be downsized and relocated to New Jersey. In addition, the companies believe the merger will provide the flexibility to rationalize higher cost production during periods of low copper prices, which could be expected to result in operational cash improvements approaching $75 million annually. "Cyprus and Asarco also jointly reported that the Boards of both companies had received an unsolicited proposal from Phelps Dodge Corporation to negotiate an agreement for Phelps Dodge to acquire both companies for stock. Phelps Dodge proposed an exchange of .3756 of a Phelps Dodge share for each Asarco share and .2874 of a Phelps Dodge share for each Cyprus share. Phelps Dodge's proposal is subject to a number of contingencies. "On August 19, 1999, the Asarco Board of Directors and the Cyprus Amax Board of Directors, together with their respective legal and financial advisors, met separately to consider the unsolicited proposal from Phelps Dodge. Both the Asarco Board of Directors and the Cyprus Amax Board of Directors determined that pursuing the Asarco Cyprus merger was in best interests of Asarco and Cyprus Amax stockholders, respectively, and reconfirmed their respective recommendations of the merger. "Since the merger announcement, both Boards noted that the share prices of Cyprus and Asarco have outperformed the other U.S. listed copper companies. Asarco Cyprus expects that at its estimated cash costs of under 50 cents per pound, it will require a copper price of less than 65 cents per pound to breakeven on a net earnings basis. Asarco Cyprus will have a strong, experienced management team and the financial capacity to further enhance operating efficiencies, expand or develop low cost copper properties and otherwise rationalize operations to achieve optimum operating levels." In the afternoon of August 20, 1999, Mr. Yearley and Mr. J. Steven Whisler, President and Chief Operating Officer of Phelps Dodge, conducted an analysts' conference telephone call in which they announced that Phelps Dodge planned to offer 0.4098 of a share of Phelps Dodge Common Stock to ASARCO stockholders and 0.3135 of a share of Phelps Dodge Common Stock to Cyprus Amax stockholders. Late in the evening of August 20 Messrs. Yearley and Whisler sent the following letter to the ASARCO Board of Directors and a substantially identical letter to the Cyprus Amax Board of Directors. "August 20, 1999 "Board of Directors of ASARCO Incorporated c/o Mr. Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 180 Maiden Lane New York, NY 10038 "Gentlemen: "We are disappointed in your response to our proposed three-way combination of Asarco, Cyprus Amax and Phelps Dodge. As you know, we have on three recent occasions requested the opportunity to discuss our proposal, which we believe would be far superior to your shareholders than your proposed combination with Cyprus Amax. 6 "We are particularly disappointed that instead of accepting our previous requests to meet to discuss our proposal to acquire Asarco for a substantial premium, you chose today to announce unilaterally our interest in acquiring Asarco and Cyprus Amax and to reject our proposal in favor of your no-premium merger proposal with Cyprus Amax. This appears consistent with the manner in which you have chosen to treat your own shareholders by announcing just today, at the same time you first disclosed the terms of your July 15 merger agreement, that the record date for your shareholder vote on the no-premium merger with Cyprus Amax would be August 25. Since trades after today will settle after August 25, this effectively precluded any significant trading in the market on an informed basis before the determination of shareholders eligible to vote at your meeting. "In light of your unilateral announcement, we have no other choice than to publicly announce our proposal to enter into a business combination with Asarco and Cyprus Amax, so that share owners of all three companies are fully informed. "Terms of our Proposal "We propose a business combination of Phelps Dodge and Asarco pursuant to which all of the outstanding common stock of Asarco would be exchanged for Phelps Dodge common stock at an exchange ratio of 0.4098 Phelps Dodge common shares for each Asarco common share. We are also independently proposing to Cyprus Amax a business combination of Phelps Dodge and Cyprus Amax pursuant to which all of the outstanding common stock of Cyprus Amax would be exchanged for Phelps Dodge common stock at an exchange ratio of 0.3135 Phelps Dodge common shares for each Cyprus Amax common share. Based on share prices for the three companies' common shares before trading was halted this morning, these ratios imply a premium of approximately 30% for Asarco and a premium of approximately 29% for Cyprus Amax, while preserving the relative economics of the exchange ratio under your proposed combination with Cyprus Amax. "Following the combination, we plan to continue the current $2.00 per share Phelps Dodge common dividend. This would result in a substantial dividend increase for Asarco shareholders to 4.1 times the dividend contemplated in your proposed merger with Cyprus Amax. "Our proposed transaction would be tax-free for your shareholders. In addition, through their ownership of Phelps Dodge common stock, your shareholders would continue to participate in the ongoing value creation of the combined company. Although we prefer a transaction involving all three companies, we are prepared to enter into a negotiated business combination with either Asarco or Cyprus Amax, regardless of whether the other company is willing to proceed on a negotiated basis. "We believe that consideration in the form of Phelps Dodge common stock should be particularly attractive to your shareholders. Over the past several years Phelps Dodge's stock price has significantly outperformed the stock prices of Asarco and Cyprus Amax. As a result of Phelps Dodge's higher dividend, the level of outperformance is even greater when viewed on the basis of the total return to shareholders assuming reinvestment of dividends. Over the past 10 years Phelps Dodge's total return has been 161% as compared to negative 20% and negative 26% for Asarco and Cyprus Amax, respectively. Similarly, over the past 15 years, Phelps Dodge's total return has been 1,024% as compared to 25% for Asarco and 102% for Cyprus Amax. We are very proud of this strong management and operational track record over a difficult copper environment. 7 "The Combined Company "We believe that our proposal presents a unique opportunity to create a large, resource-rich portfolio of lower-cost global copper assets with enhanced flexibility to deliver superior results in all business cycles. Our proposal would create a much stronger company than would your proposed merger with Cyprus Amax through: . the significantly stronger ability of the combined company, relative to the Asarco-Cyprus Amax combination, to integrate southwestern U.S. mining operations, administrative functions in the U.S., Chile and Peru, and worldwide exploration and development activities; . the financial strength of the combined company and ability to create a world class portfolio of cost-competitive mining assets; . a strong and deep management team, at both the operating and corporate levels, with strong credibility in the marketplace; . the ability to eliminate substantial overhead, exploration, purchasing and other expenses through the consolidation; . the tremendous operating leverage of the combined company, together with enough diversity in other businesses to mitigate cyclical downturns; . the immediate and substantial accretion to the cash flow of the combined company resulting from the transaction; . the significant accretion to earnings per share of the combined company beginning in the second year after closing, 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; . the total current annual copper production of the combined company of 3.8 billion pounds and attributable copper reserves of 80 billion pounds; . the increased ability of the combined company to compete for world-class projects; . the ability of the combined company to reduce capital expenditures; . the strong, liquid balance sheet of the combined company, with excellent access to capital; and . the way all of these factors would build greater shareholder value, on an ongoing basis, for the shareholders of all three companies. "Through the measures described above we estimate that in a three-way combination we could achieve approximately $200 million in annual cash cost savings, fully phased in by the end of the second year after closing of the transaction. In addition, we expect lower depreciation of approximately $65 million annually, bringing total estimated annual savings to approximately $265 million. These cost savings are based on public information and our expectation that we can deliver at least $75 million in incremental savings above the new cash synergy figure of $125 million that you have projected in the proposed Asarco-Cyprus Amax combination. This does not include any cost savings from the rationalization of high-cost production during periods of low copper prices. "Following the combination, we would expect to operate all properties in accordance with Phelps Dodge's disciplined management approach. This means that each property would be run on a basis intended to earn in excess of the cost of capital over a full copper price cycle. We believe that Phelps Dodge's management team has the credibility to make the tough decisions necessary to rapidly integrate all three businesses and to create value for shareholders. 8 "A three-way combination, by creating a more efficient global competitor, would also benefit the employees and customers of all three companies. We have conducted an in-depth analysis of the three-way combination from a regulatory perspective and have concluded that it will be possible to obtain the necessary approvals on a timely basis. "Our Board of Directors has authorized this proposal and we are resolutely committed to its consummation. We are confident that your shareholders will find our proposal to be a unique and compelling opportunity. We continue to prefer to proceed on a mutually satisfactory, negotiated basis but are prepared to pursue all other avenues should that be necessary. We are ready to meet with you or your management at any time. Sincerely, /s/ /s/ Douglas C. Yearley J. Steven Whisler Chairman and President and Chief Executive Officer Chief Operating Officer" On August 23, 1999, the ASARCO Board of Directors and the Cyprus Amax Board of Directors each met with their respective legal and financial advisors to consider the August 20 revised unsolicited proposal from Phelps Dodge. At the August 23, 1999 meeting the ASARCO Board of Directors received reports from the management and their financial and legal advisors concerning the revised Phelps Dodge proposal, discussions with Cyprus Amax concerning the proposal and various strategic matters relating to the proposal. The ASARCO Board of Directors unanimously concluded that the proposal should be rejected and that all reasonable and appropriate steps should be taken to complete successfully the combination with Cyprus Amax. At that meeting, the Board also discussed financial and strategic responses to the unsolicited revised proposal from Phelps Dodge and authorized management to take all appropriate action in coordination with Cyprus Amax to respond to the Phelps Dodge proposal for the purpose of protecting the stockholder value generated by the Business Combination between ASARCO and Cyprus Amax. Following discussion between Cyprus Amax and ASARCO, on August 25, 1999, Mr. McAllister discussed with the ASARCO Board of Directors the response to Phelps Dodge's proposal and the terms of a modification of their current proposed merger of equals. It was the sense of the ASARCO Board that the merger of equals should be pursued. In addition, on August 25, 1999 the Cyprus Amax Board of Directors met with its legal and financial advisors and approved several items previously discussed with ASARCO as set forth in the following joint press release issued by ASARCO and Cyprus Amax on August 25, 1999 (the "Revised ASARCO/Cyprus Amax Proposal"): "Denver, CO and New York, NY, August 25, 1999--Cyprus Amax Minerals Company (NYSE:CYM) and ASARCO Incorporated (NYSE:AR) today jointly announced that they have improved the terms of their own combination transaction. In addition they have written to Phelps Dodge outlining their willingness to negotiate with Phelps Dodge on terms included in the letter. According to the letter, Asarco and Cyprus Amax would be willing to proceed with a three-way combination with Phelps Dodge if its proposed exchange ratios are increased, if Phelps Dodge fully underwrites the risk of antitrust problems with its proposal and if the contract terms mirror those of the Asarco/Cyprus contract. Asarco and Cyprus Amax said the exchange ratios they would require were .5300 of a Phelps Dodge share for Asarco holders and .4055 of a Phelps Dodge share for Cyprus Amax holders. The letter to Phelps Dodge is attached. 9 "The two companies also said they have decided to improve the financial terms of their own combination by including a special payment of $5.00 per share to the stockholders of the combined Asarco Cyprus Incorporated. The special payment would be paid to stockholders as soon as possible after consummation of the merger. Asarco and Cyprus Amax emphasized that they were proceeding with their two-way combination which, subject to stockholder approval, will close on September 30, 1999. "Speaking together, Milton H. Ward, Chairman and Chief Executive Officer of Cyprus Amax and Francis R. McAllister, Chairman and Chief Executive Officer of Asarco said "Our response to Phelps Dodge evidences our intent to secure the best value for our shareholders whether through a three way combination including Phelps Dodge or through consummation of the merger previously announced. We have presented very simple terms to Phelps Dodge which we believe recognize the contributions our two companies make to a three way combination. The proposal previously communicated by Phelps Dodge fails to reward our stockholders for the values derived from the Asarco Cyprus transaction. Our proposed exchange ratio gives recognition to the fact that our shareholders will be contributing approximately 50% of the value of a three way combination.' "We intend to move forward to complete our own merger transaction as soon as possible and as a sign of confidence of our ability to achieve cost reductions of at least $200 million annually, Asarco Cyprus will make a special payment to shareholders when the merger closes. This special $5.00 per share payment reflects the Boards' and managements' confidence in their ability to deliver benefits from the merger. Asarco Cyprus is expected to have in excess of $1 billion in cash at the time of closing and the Boards of both companies have agreed that Asarco Cyprus will pursue the sale of Cyprus Amax's investments in Kinross Gold and its Australian coal holdings and Asarco's specialty chemicals business. We would expect the sales to be completed within six months after closing. Proceeds are expected to approach $1 billion and cash taxes would be minimized due to tax benefits from the sale of the Kinross shares. Proceeds would be used to pay down debt and improve the liquidity of the company.' "Messrs. Ward and McAllister stated that they and their respective Boards are committed to maximizing shareholder value and will continue to do so after the merger is completed. In order to ensure that Phelps Dodge or any interested buyer is able to present a bona fide proposal to acquire 100% of the stock of the Company, during the first 90 days following completion of the merger, stockholders will have the right to call a meeting to redeem the rights plan. In addition, change in control provisions in any employment contracts entered into by the Company will be waived for that same 90 day period." On August 25, 1999, Messrs. Ward and McAllister also sent the following letter to Mr. Yearley which was attached to the August 25 press release: "August 25, 1999 "Mr. Douglas C. Yearley Chairman, President and Chief Executive Officer Phelps Dodge Corporation 2600 North Central Avenue Phoenix, AZ 85004-3050 Dear Doug: "We and our respective boards have considered your revised proposal to acquire our companies. We have the following issues with your proposal: "1. The exchange ratios proposed in your August 20 press release do not allocate to Cyprus Amax and Asarco holders a fair share of the value created by uniting their two companies. We are 10 prepared to negotiate a transaction with Phelps Dodge that would provide our holders with .4055 shares of Phelps Dodge common stock for each Cyprus Amax share, and .5300 Phelps Dodge shares for each Asarco share. "2. In order for us to proceed with Phelps Dodge, you must make clear that Phelps Dodge will undertake all actions necessary to secure regulatory approval for your proposed transaction including any divestiture or similar action required, and will provide credible assurances that such regulatory approval will be forthcoming. The statements in your letters concerning antitrust issues are not sufficient on this point. "3. You have not proposed a form of contract for your transaction. We would be prepared to proceed on the basis of representations, warranties and covenants made by Cyprus Amax and Asarco to each other in their merger agreement, with similar representations, warranties and covenants made by Phelps Dodge. "4. Your letter did not indicate whether your proposal was subject to due diligence. A due diligence requirement introduces substantial uncertainty as to your proposal. We would expect, as part of our effort to close our pending merger or any potential transaction with you as quickly as possible, that you would not require any further due diligence with respect to either Cyprus Amax or Asarco. "We strongly believe that the combination of Cyprus Amax and Asarco, without the effect of combining further with Phelps Dodge, provides greater value to Cyprus Amax and Asarco holders than your August 20 proposal, poses fewer regulatory issues and can be completed more quickly. Accordingly, we will be proceeding to present that transaction to our stockholders and to closing on September 30, 1999. We are prepared, however, to negotiate a transaction that involves all three companies that satisfies all the foregoing requirements. For your information, we are attaching to this letter a copy of the press release Asarco and Cyprus Amax issued today concerning our response to Phelps Dodge. We also want to advise you that apart from this communication, neither party has waived any of its legal or other rights, or rights or obligations under our merger agreement. Sincerely, /s/ /s/ Francis R. McAllister Milton H. Ward Chairman and Chief Chairman, Chief Executive Executive Officer Officer and President ASARCO Incorporated Cyprus Amax Minerals Company" At its August 25, 1999 meeting, the Cyprus Amax Board of Directors reconfirmed its recommendation that stockholders vote for adoption of the Merger Agreement with ASARCO. In approving the Revised ASARCO/Cyprus Amax Proposal and reconfirming its recommendation to the stockholders, the Cyprus Amax Board of Directors consulted with its financial and legal advisors and considered a variety of factors, including the following: 1. The Board of Directors considered the advantages that the Business Combination between Cyprus Amax and ASARCO provides to Cyprus Amax and its stockholders, including that the combined Asarco Cyprus would be a stronger, more efficient competitor in the copper industry, would have an improved ability to meet the challenges of low copper prices, would be better able to benefit from and would generate substantial cash flow during the periods of strong copper prices, would be able to lower costs through increased purchasing power, and would have increased capitalization. 11 2. The Board of Directors considered that Merrill Lynch Pierce, Fenner & Smith Incorporated, Cyprus Amax's financial advisor, rendered its oral opinion at the August 25, 1999 board meeting that, as of such date, the exchange ratio in the Merger Agreement with ASARCO was fair from a financial point of view to the stockholders of Cyprus Amax. 3. The Board of Directors considered that the special payment of $5.00 per share to the stockholders of the combined Asarco Cyprus would enable stockholders to receive an immediate and significant cash benefit from the Business Combination, while leaving the combined company with a strong balance sheet and sufficient liquidity. 4. The Board of Directors considered that the Revised ASARCO/Cyprus Amax Proposal allows Cyprus Amax to continue to pursue the Business Combination with ASARCO on a basis that does not preclude Phelps Dodge (or any other potential merger partner) from subsequently completing a business combination with the combined company, while preserving the opportunity for stockholders to realize the benefits of the merger with ASARCO, even if Phelps Dodge determines not to pursue its proposal. 5. The Board of Directors considered the fact that the Business Combination with ASARCO is the subject of a definitive agreement, as well as the terms and conditions of the Merger Agreement, whereas the Phelps Dodge proposal is highly contingent and no form of contract has been proposed. 6. The Board considered that the Phelps Dodge proposal does not pay Cyprus Amax stockholders a sufficient price to reflect the contribution of Cyprus Amax to a three-way combination of Cyprus Amax, ASARCO and Phelps Dodge. 7. The Board of Directors considered that the joint Cyprus Amax/ASARCO letter to Phelps Dodge dated August 25, 1999, provided stockholders the opportunity to accept a transaction involving Cyprus Amax, ASARCO and Phelps Dodge if Phelps Dodge was willing to provide certain assurances as to the terms of its proposal and to pay Cyprus Amax stockholders a sufficient price to reflect the contribution of Cyprus Amax to a three-way combination of Cyprus Amax, ASARCO and Phelps Dodge. On August 25, 1999, Phelps Dodge issued the following press release: "PHOENIX, Aug. 25--Phelps Dodge Corporation (NYSE: PD) confirmed that it has received a letter from Asarco Incorporated (NYSE: AR) and Cyprus Amax Minerals Company (NYSE: CYM) and issued the following response: "The proposal put forth by Asarco and Cyprus Amax does not change Phelps Dodge's commitment to complete a three-way combination that is beneficial to shareholders of all three companies. While Phelps Dodge will review the most recent proposal from Asarco and Cyprus Amax, we believe that the Phelps Dodge proposal, which already provides Asarco and Cyprus Amax shareholders a 30% premium, a $2.00 annual dividend and very substantial participation in the greater upside potential of the three-way combination, is fully priced based on public information and Phelps Dodge's best estimates of the real, achievable cost synergies in a three-way combination. Phelps Dodge indicated that the economic aspects of Asarco and Cyprus Amax's proposed three-way merger terms are totally unreasonable and would deliver nearly all of the economic value of the three-way combination to Asarco and Cyprus shareholders.' "Douglas C. Yearley, Chairman and Chief Executive Officer of Phelps Dodge, added, "If Asarco and Cyprus Amax are truly interested in a negotiated transaction and not just posturing, we would be more than willing to begin real discussions. Neither company has attempted to sit down with us." Phelps Dodge indicated that it intends to complete its review in the near term and to make a more definitive and comprehensive response thereafter." 12 On August 27, 1999, Phelps Dodge issued the following press release: "August 27, 1999--Phelps Dodge Corporation (NYSE: PD) announced today that it has filed registration materials with the Securities and Exchange Commission for exchange offers for all outstanding Asarco Incorporated (NYSE: AR) and Cyprus Amax Minerals Company (NYSE: CYM) common shares. Phelps Dodge will commence the exchange offers as soon as the registration statements are declared effective. "In addition, the Company filed preliminary proxy materials with the Securities and Exchange Commission to solicit proxies from Asarco and Cyprus Amax stockholders to vote against the proposed merger of Asarco and Cyprus Amax. Asarco and Cyprus Amax have set shareholder meetings for September 30, 1999 to vote on their proposed merger. "Separately, Phelps Dodge announced that it has commenced litigation in New Jersey and Delaware against Asarco and Cyprus Amax, respectively, and their directors, for breaching their fiduciary duties by impermissibly prohibiting directors from informing themselves of any third-party merger or acquisition proposal and providing excessive break-up fees. "While we continue to prefer negotiated transactions, we are committed to this compelling three-way combination, and are taking all necessary steps to complete it,' said Douglas C. Yearley, Chairman and Chief Executive Officer of Phelps Dodge. "If Asarco and Cyprus Amax are truly interested in a negotiated transaction we are ready to begin discussions immediately. We continue to believe our offer is fully priced and compelling. We are confident that shareholders of Asarco and Cyprus Amax will recognize that our proposals are clearly superior to the Asarco/Cyprus Amax no-premium two-way merger. We view the September 30 vote as a referendum. If Asarco and Cyprus Amax shareholders do approve their two-way combination, we will withdraw our substantial premium proposal and will not bid further."' On August 27, 199 Phelps Dodge sent the following letter to Messrs. Ward and McAllister: "Mr. Francis R. McAllister Mr. Milton H. Ward Chairman and Chief Executive Officer Chairman, Chief Executive and President ASARCO Incorporated Cyprus Amax Minerals Company 180 Maiden Lane 9100 East Mineral Circle New York, NY 10038 Englewood, CO 80112 "Dear Frank and Milt: "We continue to believe that our proposed three-way combination is clearly superior for your shareholders than your proposed no-premium, two-party transaction. Our fully priced proposal provides a substantial premium, our $2.00 annual dividend and opportunity for participation in greater upside potential. "In your August 25 letter to us you identified four issues with our proposal. We are prepared to accept three of your points. On the fourth point, your demand on exchange ratios, we hope that you will reconsider your unreasonable position and sit down at the table with us to complete our proposed three-way combination. "Should you proceed to complete your two-way merger, you will proceed alone because we will withdraw our substantial premium proposal and will not bid further. Your September 30 vote will be a referendum on our proposal. "Your proposal on exchange ratios is so unreasonable that its sincerity is questionable. It seems to be premised on the flawed assumption that since your combined production would be comparable to Phelps Dodge's, you should be valued at the same level as Phelps Dodge. Of course, this is clearly not what investors believe since it is not reflected in the relative market valuations of the three companies. The simplistic assumption you seem to be making fails to reflect Phelps Dodge's long track record of 13 making tough management decisions and delivering significantly greater value to shareholders than either ASARCO or Cyprus Amax. Over a fifteen year period we have delivered total returns to shareholders of 1,024% in contrast to 25% for ASARCO and 102% for Cyprus Amax. "Moreover, based on the information in your August 20 Form S-4 registration statement, it appears that the conclusions arrived at by your own investment bankers do not support your exchange ratio demand. The exchange ratios you have demanded would deliver nearly all of the incremental value to be derived from a three-way combination to your shareholders and very little to our shareholders. This is, as you no doubt anticipated, completely unacceptable to us. "In addition, we don't believe that your shareholders will be fooled by the flawed measures you announced which purport to accommodate the possibility of a third party transaction during the 90 days following completion of your merger. None of your public statements address in any meaningful way all of the many steps that would be necessary to give your shareholders a realistic opportunity to benefit from an attractive third party proposal. Among the additional matters that would have to be addressed if you were serious about accommodating third party transactions would be to eliminate your staggered Board and the highly unusual management entrenchment arrangements built into your two-party merger agreement. "Those unusual management-entrenchment provisions guarantee no change in the roles of the proposed four senior executives of the ASARCO- Cyprus combined company prior to the 2002 annual meeting except upon a vote of 75% of the Board. Since management will hold 25% of the Board seats, this effectively requires a unanimous vote of the non-management directors. Because your Board is divided into three classes, this means that a buyer of 100% of the outstanding stock of the ASARCO-Cyprus combined company would not be able to obtain management control for nearly three years. "Indeed, even in the two aspects of your 90-day proposal for which you try to take credit, there is confusion, contradiction and unnecessary complexity. You propose an unspecified shareholder mechanism to redeem your poison pill which is inevitably more cumbersome than simple Board action. Secondly, we noted with interest the statement in your August 25 press release that "In addition, change in control provisions in any employment contracts entered into by the Company will be waived for that same 90 day period.' We were therefore surprised to read the contradictory statement in the Form 8-K you filed yesterday that: "The rights and benefits under the existing [change of control] arrangements with the employees . . . of each of Cyprus Amax and ASARCO, however, will remain in full force and effect and will be unaffected during the 90 days following completion of the business combination, as will any rights under arrangements entered into with such employees in substitution for any existing arrangements.' "Frankly, we believe that all of your statements concerning the 90-day period are no more than a public relations gambit. There is no evidence in your conduct to date that you have any willingness to pursue transactions that are in the best interests of your shareholders. With regard to the three points in your August 25 letter other than the exchange ratio, we are pleased to confirm that: . We are prepared to enter into a merger agreement with substantially the same representations, warranties and covenants as those contained in your July 15 merger agreement. . This proposal is not subject to due diligence. . We have studied the regulatory issues carefully and are confident that all necessary regulatory approvals for our three-way combination will be obtained on a timely basis. We would be pleased to give you strong contractual assurances on this point. If you take seriously your fiduciary duty and want to inform yourselves about a compelling transaction that would be in the best interests of your shareholders, let's sit down and negotiate. If not, your shareholders will decide which alternative they prefer on September 30. 14 Sincerely, /s/ /s/ Douglas C. Yearley J. Steven Whisler Chairman and President and Chief Executive Officer Chief Operating Officer"
On September 3, 1999, Phelps Dodge commenced the Phelps Dodge Offer and filed the Schedule 14D-1 with the Commission. In addition, on such date Phelps Dodge commenced a separate offer to exchange 0.3135 of a share of Phelps Dodge Common Stock for each share of Cyprus Amax Common Stock. ASARCO Board's Recommendation On September 8, 1999, the ASARCO Board of Directors met with ASARCO's management and legal and financial advisors to consider the Phelps Dodge Offer. At such meeting, the ASARCO Board of Directors unanimously (i) determined to reject the Phelps Dodge Offer as inadequate and not in the best interests of ASARCO and its stockholders, (ii) determined to recommend that all holders of ASARCO Common Stock reject the Phelps Dodge Offer and not tender their shares to Phelps Dodge and, (iii) reaffirmed its determination that the terms of the Business Combination with Cyprus Amax are fair to, and in the best interests of, ASARCO and its stockholders. Reasons for the ASARCO Board's Recommendation In reaching its conclusions and recommendations described above, the ASARCO Board of Directors considered a number of factors, including the following: 1. The advantages to the stockholders of ASARCO by virtue of becoming stockholders of Asarco Cyprus through the Business Combination, including: . ASARCO stockholders retain 36.5% of the $275 million of annual savings created by the Business Combination (as opposed to the 15.9% of the savings expected from the Phelps Dodge Offer). . Asarco Cyprus will have cash costs of 50 cents per pound of copper and a break-even price of below 65 cents per pound of copper. . Asarco Cyprus will generate significant earnings and cash flow accretion. . Asarco Cyprus will have a larger ore reserve base than Phelps Dodge. . Asarco Cyprus will have a strong balance sheet and sufficient liquidity. . Asarco Cyprus will be the largest publicly traded copper company. 2. The fact that the Phelps Dodge Offer inequitably fails to compensate ASARCO and Cyprus Amax stockholders for their relative contribution to a three-way combination with Phelps Dodge. 3. The written opinion, dated September 8, 1999, of Credit Suisse First Boston Corporation ("Credit Suisse First Boston") to the effect that, as of the date of such opinion and based upon and subject to the matters set forth therein, the exchange ratio of 0.4098 of a share of Phelps Dodge Common Stock for each outstanding share of ASARCO Common Stock provided for in the Phelps Dodge Offer was inadequate, from a financial point of view, to such holders. A copy of the opinion of Credit Suisse First Boston, which sets forth the matters considered, assumptions made, and limitations on the review undertaken by Credit Suisse First Boston, is attached hereto as Exhibit 5 and is incorporated herein by reference. Credit Suisse First Boston's opinion is addressed to the ASARCO Board of Directors, addresses only the inadequacy, from a financial point of view, to the holders of ASARCO Common Stock of the 0.4098 exchange ratio provided for in the Phelps Dodge Offer and does not constitute a recommendation to any stockholder as to any matter relating to the Phelps Dodge Offer or the Business Combination. Stockholders are urged to read the opinion of Credit Suisse First Boston in its entirety. 15 4. The special $5.00 per share payment to stockholders of Asarco Cyprus immediately following the Business Combination enables ASARCO stockholders to receive an immediate and significant cash payment. 5. A three-way combination raises serious issues under the antitrust laws, which in turn create doubts about the viability of the transaction. In this connection, the ASARCO Board considered that the Phelps Dodge Offer is conditioned upon the expiration or earlier termination of the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and that Phelps Dodge has not yet even filed the required notification under the HSR Act. In contrast, the applicable waiting period for the Business Combination between ASARCO and Cyprus Amax has expired. 6. The Phelps Dodge Offer is highly conditional. Specifically, it is subject to the following conditions, among others: . Minimum Condition. At least 20,841,952 shares of ASARCO Common Stock (52.4% of the total number currently outstanding) must be tendered. . HSR Condition. The applicable waiting period under the HSR Act must have expired or been terminated. In addition, according to Phelps Dodge, certain large shareholders of ASARCO may be required to file and await expiration of a waiting period in order to receive more than $15 million worth of Phelps Dodge Common Stock. This could entail an escrow of shares due to any holder who fails to make the required filing or whose waiting period has not expired. . Phelps Dodge Stockholder Approval. The shareholders of Phelps Dodge must approve the Phelps Dodge Offer at a meeting presently scheduled to be held October 13. . Rights Condition. The Asarco Board of Directors must redeem the Rights issued under the ASARCO Rights Plan or the ASARCO Rights Plan must otherwise be rendered inapplicable to the Phelps Dodge Offer. . Takeover Defense Condition. Phelps Dodge must get more than 80% of the outstanding shares of Asarco Common Stock in the Phelps Dodge Offer or the terms of Article 7 of ASARCO's Restated Certificate of Incorporation must be rendered inapplicable to the Phelps Dodge Offer. . Other Conditions. The Merger Agreement must have been terminated. A tax opinion from Phelps Dodge's own counsel must be rendered to Phelps Dodge -- which the Board noted is a condition completely in Phelps Dodge's control. In light of the highly conditional nature of the Phelps Dodge Offer the Board of Directors of ASARCO considered that on September 30 the Business Combination will be the only possible transaction which is capable of providing immediate and substantial value to stockholders. 7. Consummation of the Business Combination will in no way impede any offer that Phelps Dodge might wish to make after September 30 or, indeed, that any other third party might wish to make. The foregoing discussion of the information and factors considered by the ASARCO Board of Directors is not intended to be exhaustive but includes all material factors considered by the Board. The ASARCO Board of Directors did not assign relative weights to the foregoing factors or determine that any factor was of particular importance, and individual directors may have given differing weights to different factors. Rather, the Board viewed its position and recommendation as being based on the totality of the information presented to and considered by it. THE ASARCO BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALL HOLDERS OF ASARCO COMMON STOCK REJECT THE PHELPS DODGE OFFER AND NOT TENDER THEIR SHARES TO PHELPS DODGE. THE ASARCO BOARD OF DIRECTORS HAS UNANIMOUSLY REAFFIRMED ITS DETERMINATION THAT THE TERMS OF THE BUSINESS COMBINATION WITH CYPRUS AMAX ARE FAIR TO, AND IN BEST INTERESTS OF, ASARCO AND ITS STOCKHOLDERS. 16 This Statement does not constitute a solicitation of proxies for any meeting of ASARCO's stockholders. Such solicitation by ASARCO is being made only pursuant to separate proxy materials complying with the requirements of Section 14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition, this Statement is neither an offer to sell nor a solicitation of offers to buy any securities which may be issued in the Business Combination. The issuance of such securities will be registered under the Securities Act of 1933, as amended (the "Securities Act"), and such securities will be offered only by means of a prospectus complying with the requirements of the Securities Act. Item 5. Persons Retained, Employed or to be Compensated. Pursuant to the terms of the engagement of Credit Suisse First Boston, ASARCO has agreed to pay Credit Suisse First Boston upon completion of the Business Combination with Cyprus Amax an aggregate fee of $4.7 million for its financial advisory services. In addition, for additional services in connection with the Phelps Dodge Offer, Credit Suisse First Boston will be paid additional fees in an amount that will be mutually agreed upon. ASARCO also has agreed to reimburse Credit Suisse First Boston for all of its out-of- pocket expenses, including the fees and expenses for legal counsel and any other advisor retained by Credit Suisse First Boston, and to indemnify Credit Suisse First Boston and related persons and entities against liabilities, including liabilities under the federal securities laws, arising out of Credit Suisse First Boston's engagement. Credit Suisse First Boston has in the past provided financial services to ASARCO and Cyprus Amax unrelated to the Business Combination and the Phelps Dodge Offer, for which Credit Suisse First Boston has received compensation. In the ordinary course of business, Credit Suisse First Boston and its affiliates may actively trade the debt and equity securities of ASARCO, Phelps Dodge and Cyprus Amax for their own accounts and for the accounts of customers and, accordingly, may at any time hold long or short positions in such securities. ASARCO has retained Morrow & Co. ("Morrow") to assist ASARCO in connection with its communications with its stockholders with respect to, and to provide other services to ASARCO in connection with, the Business Combination and the Phelps Dodge Offer. Morrow will receive reasonable customary compensation for its services and reimbursement of out-of-pocket expenses in connection therewith. ASARCO has agreed to indemnify Morrow against certain liabilities arising out of or in connection with its engagement. ASARCO has retained Kekst & Co. ("Kekst") as its public relations advisor in connection with the Business Combination and the Phelps Dodge Offer. Kekst will receive reasonable and customary compensation for its services and reimbursement of out-of-pocket expenses arising out of or in connection with its engagement. Except as set forth above, neither ASARCO nor any person acting on its behalf has employed, retained or compensated any other person to make any solicitations or recommendations to stockholders on its behalf concerning the Business Combination or the Phelps Dodge Offer. Item 6. Recent Transactions and Intent With Respect to Securities. (a) To the best knowledge of ASARCO, no transactions in ASARCO Common Stock have been effected during the past 60 days by ASARCO or any executive officer, director, affiliate or subsidiary of ASARCO. (b) To the best knowledge of ASARCO, its executive officers, directors, affiliates and subsidiaries do not presently intend to tender, pursuant to the Phelps Dodge Offer, any shares of ASARCO Common Stock which are held of record or are beneficially owned by such persons or to otherwise sell any such shares. Item 7. Certain Negotiations and Transactions by Subject Company. (a) and (b) Item 4 above contains a description of the various contacts between ASARCO and Phelps Dodge and meetings of the ASARCO Board of Directors between August 10, 1999, the date of Mr. Yearley's 17 initial communication with ASARCO, and September 8, 1999, the date on which the Phelps Dodge Offer and the Business Combination were reviewed and considered by the Board of Directors of ASARCO with the assistance of ASARCO's management and its legal and financial advisors. As more fully described in Item 4, at its September 8, 1999 meeting, the Board of Directors of ASARCO unanimously (i) determined to reject the Phelps Dodge Offer as inadequate and not in the best interests of ASARCO and its stockholders, (ii) determined to recommend that all holders of ASARCO Common Stock reject the Phelps Dodge Offer and not tender their shares to Phelps Dodge and (iii) reaffirmed its determination that the terms of the Business Combination with Cyprus Amax are fair to, and in the best interests of, ASARCO and its stockholders. The factors considered by the ASARCO Board of Directors in making its determinations with respect to the Business Combination and the Phelps Dodge Offer are described in Item 4 above. At its September 8 meeting, the ASARCO Board of Directors determined to postpone the occurrence of a Distribution Date (as defined in the ASARCO Rights Plan) as a result of the public announcement of the Phelps Dodge Offer until such later date as determined by the ASARCO Board of Directors. Except as described in this Item 7 and under Item 4 above, ASARCO is not engaged in any negotiation in response to the Phelps Dodge Offer which relates to or would result in (i) an extraordinary transaction, such as a merger or reorganization, involving ASARCO or any of its subsidiaries, (ii) a purchase, sale or transfer of a material amount of assets of ASARCO or any of its subsidiaries, (iii) a tender offer for or other acquisition of securities by or of ASARCO or (iv) a material change in the present capitalization or dividend policy of ASARCO. Item 8. Additional Information to be Furnished. Litigation. On August 24, 1999, Phelps Dodge and its directly owned subsidiary AAV Corporation ("AAV") 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 stockholder records from ASARCO. This action is captioned Phelps Dodge Corp. and AAV Corp. v. ASARCO Inc., Docket No. MER-C-81-99. ASARCO opposed the application and argument was heard before Judge Judith Yaskin on August 26, 1999. At the hearing, the Court ruled that stockholder 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 Commission. In addition, Phelps Dodge commenced an action in the Superior Court of the State of New Jersey against ASARCO, its Board of Directors and Cyprus Amax, alleging that ASARCO and its Board of Directors, aided and abetted by Cyprus Amax, breached their fiduciary duties to ASARCO stockholders. Specifically, Phelps Dodge alleges that ASARCO and its directors have breached their fiduciary duties by entering into the Merger Agreement which purportedly restricts ASARCO's ability to consider Phelps Dodge's proposal. Phelps Dodge has also challenged the termination fee payable by ASARCO in certain circumstances. Furthermore, Phelps Dodge also challenges corporate governance provisions in the Merger Agreement claiming that they allegedly disenfranchise stockholders. The complaint also alleges that ASARCO and Cyprus Amax have set their stockholder meetings and record dates to favor their own Mergers and have sought to favor and entrench management at the expense of stockholders. Furthermore, the complaint claims that ASARCO's failure to redeem or amend the ASARCO Rights Plan constitutes a breach of its fiduciary duties. Phelps Dodge is seeking injunctive relief to remedy these alleged breaches of duty, including enjoining the Business Combination and 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 court stayed the action in favor of parallel litigation in Delaware, provided that ASARCO and the members of the ASARCO Board of Directors consent to personal jurisdiction there. In the Delaware lawsuit, Phelps Dodge has sued Cyprus Amax and its Board of Directors in the Court of Chancery of the State of Delaware, alleging that they, aided and abetted by ASARCO, breached their fiduciary duties. This lawsuit is based on substantially the same facts and circumstances alleged in the New Jersey action. 18 In addition, a purported class action captioned Sterns v. McAllister, et al., has been brought in the Superior Court of the State of New Jersey against ASARCO and the ASARCO Board of Directors alleging that the defendants breached their fiduciary duties to stockholders by entering into the Merger Agreement and by failing to maximize shareholder value in ASARCO. The Sterns complaint seeks both equitable relief and damages. In addition, a number of Cyprus Amax stockholders have filed class action lawsuits in the Court of Chancery of the State of Delaware, alleging that Cyprus Amax and its board of directors have breached their fiduciary duties based on substantially the same facts alleged in the Phelps Dodge actions. ASARCO has been named as a defendant in two of these actions, accused of aiding and abetting the alleged breaches of fiduciary duty. These actions seek to enjoin the Business Combination, in addition to other equitable relief and damages. The ASARCO Rights Plan. The ASARCO Rights Plan provides for the issuance of one Right for each outstanding share of ASARCO Common Stock. Each Right entitles the holder to purchase one one-hundredth of a share of Junior Participating Preferred Stock, without par value, at a price of $90.00 per one one-hundredth of a share. Initially, the Rights will be evidenced by certificates representing shares of ASARCO Common Stock and will be transferable only in connection with the transfer of the underlying common stock. No separate certificates representing the Rights will be distributed. The Rights will separate from the shares of ASARCO Common Stock and be represented by separate certificates on the earlier of (i) the close of business on the tenth business day after a person acquires 15% of the outstanding shares of ASARCO Common Stock or (ii) the close of business on the tenth business day (unless the Board of Directors of ASARCO sets a later date) after a person commences a tender or exchange offer which would result in such person being the beneficial owner of 15% of the outstanding shares of ASARCO Common Stock (the earlier of (i) and (ii), the "Distribution Date"). After the Rights separate from the shares of ASARCO Common Stock, certificates representing the Rights (the "Rights Certificates") will be mailed to record holders of ASARCO Common Stock. Once distributed, the Rights will be represented solely by the Rights Certificates. All shares of ASARCO Common Stock issued prior to the date the Rights separate from the ASARCO Common Stock will be issued with the Rights attached. The Rights will not be exercisable until the date the Rights separate from the ASARCO Common Stock. The Rights will expire on January 31, 2008 unless earlier redeemed by ASARCO. If an acquiror becomes the beneficial owner of 15% or more of the outstanding shares of ASARCO Common Stock (except pursuant to a tender or exchange offer for all outstanding shares of ASARCO Common Stock at a price and on terms determined by 2/3 of the continuing directors to be in the best interests of ASARCO and it shareholders), then each Right will become exercisable and will entitle the holder to purchase a number of shares of ASARCO Common Stock having a then current market value of twice the exercise price of each Right. If an acquiror becomes the beneficial owner of 15% or more of the outstanding shares of ASARCO Common Stock and either (i) ASARCO merges into another entity and is not the surviving corporation, (ii) another entity merges into ASARCO and all or part of the outstanding shares of ASARCO Common Stock are changed into or exchanged for securities of another entity or cash or any other property or (iii) ASARCO sells more than 50% of its assets or earning power to another entity, each Right will entitle the holder to purchase a number of shares of common stock of such other entity having a then current market value of twice the exercise price of each Right. Under the ASARCO Rights Plan, any Rights that are or were owned by an acquiror of more than 15% of the outstanding shares of ASARCO Common Stock will be null and void. The Board of Directors of ASARCO may, at its option, redeem all of the outstanding Rights under the ASARCO Rights Plan prior to the earlier of (1) the tenth business day following the date at which an acquiror obtains 15% or more of the outstanding shares of ASARCO Common Stock or (2) the final expiration date of 19 the ASARCO Rights Plan. The redemption price under the ASARCO Rights Plan will be $0.01 per Right, subject to adjustment. The right to exercise the Rights will terminate upon the action of the Board of Directors of ASARCO ordering the redemption of the Rights and the only right of the holders of the Rights will be to receive the redemption price. Holders of Rights have no rights as shareholders of ASARCO, including the right to vote or receive dividends, simply by virtue of holding the Rights. The ASARCO Rights Plan provides that ASARCO may amend the provisions of the ASARCO Rights Plan, except for those governing the redemption price of the Rights, without the approval of the holders of the Rights, prior to (1) the tenth business day after an acquiror acquires 15% or more of the outstanding shares of ASARCO Common Stock or (2) the tenth business after someone commences a tender or exchange offer which would result in such person being the beneficial owner of 15% or more of the outstanding shares of ASARCO Common Stock. However, after the date that an acquiror acquires 15% or more of the outstanding shares of ASARCO Common Stock or the date that someone commences a tender offer which would result in such person being the beneficial owner of 15% or more of the outstanding shares of ASARCO Common Stock, ASARCO may not amend the ASARCO Rights Plan in any way which would adversely affect the interests of the holders of Rights Certificates. On July 15, 1999, the ASARCO Board of Directors amended the ASARCO Rights Plan such that the ASARCO Rights Plan was made inapplicable to the transactions contemplated by the Merger Agreement. On September 8, the ASARCO Board of Directors determined to postpone the occurrence of a Distribution Date as a result of the public announcement of the Phelps Dodge Offer until such later date as determined by the ASARCO Board of Directors. Antitakeover Provisions. Sections 14A:10A-4 and -5 of the New Jersey Business Corporation Act restricts the ability of certain persons to acquire control of a New Jersey corporation. In general, a New Jersey corporation with its principal executive offices or significant operations in New Jersey 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 stock acquisition. Covered business combinations include certain mergers, dispositions of assets or shares and recapitalizations. An interested stockholder is generally a stockholder owning at least 10% of the voting power of a corporation's outstanding shares. In addition, New Jersey corporations may not engage at any time with any interested shareholder in a business combination other than (i) a business combination approved by the board of directors of such corporation prior to the stock acquisition,(ii) a business combination approved by the affirmative vote of the holders of 66 2/3% of the voting stock not beneficially owned by such interested shareholder at a meeting for such purpose, or (iii) a business combination in which the interested shareholder pays a formula price designed to ensure that all other shareholders receive at least the highest price per share paid by such interested shareholder. A New Jersey corporation may not opt out of the foregoing provisions and the ASARCO Board of Directors has taken the necessary action to make the foregoing provisions of New Jersey law inapplicable to the Business Combination and the related transactions. The ASARCO certificate of incorporation provides that certain transactions, including a merger, significant asset sales and certain issuances or transfers of securities, with the beneficial owner of more than 10% of any class of capital stock of ASARCO generally require the affirmative vote of the holders of 80% of the outstanding shares of all classes of stock, voting together as a single class. The ASARCO certificate of incorporation also provides that certain affiliated transactions with an interested stockholder or any affiliate of an interested shareholder of ASARCO require, in addition to any vote required by law or in the ASARCO certificate of incorporation or by-laws, approval by a majority of the continuing directors. 20 "Affiliated transaction" is defined in ASARCO's certificate of incorporation, and generally includes significant transactions involving aggregate fair market value or commitments of more than $10 million or more than 1% of ASARCO's consolidated assets, and certain other material arrangements. "Interested Stockholder" is also defined in the ASARCO certificate of incorporation and generally means a beneficial owner of voting stock representing 10% or more of the votes entitled to be cast by the holders of all then outstanding shares of voting stock of ASARCO. "Continuing director" is also defined in the ASARCO certificate of incorporation and generally means a director that is not affiliated with the interested stockholder and that was a director before the stockholder became an interested stockholder. The ASARCO Board of Directors has taken the necessary action to make the foregoing provisions of the ASARCO certificate of incorporation inapplicable to the Business Combination and the related transactions. Item 9. Material to be Filed as Exhibits.
Exhibit No. ----------- Exhibit 1. Pages 10 through 20 of the Proxy Statement, dated March 15, 1999, relating to ASARCO's 1999 Annual Meeting of Stockholders. Exhibit 2. Pages 62 through 64, 66, 72 through 73 and 79 of the Joint Proxy Statement and Prospectus of ASARCO and Cyprus Amax, dated August 20, 1999, relating to ASARCO's Special Meeting of Stockholders scheduled to be held on September 30, 1999. Exhibit 3. Page 13 of the Form 8-K of Asarco Cyprus, dated August 20, 1999. Exhibit 4. Letter to Stockholders of ASARCO, dated September 9, 1999.* Exhibit 5. Opinion of Credit Suisse First Boston Corporation, dated September 8, 1999.* Exhibit 6. Complaint filed in Phelps Dodge v. ASARCO et al., Superior Court of New Jersey Chancery Division: Mercer County, August 27, 1999. Exhibit 7. Complaint filed in Sterns v. McAllister et al., Superior Court of New Jersey Chancery Division: Mercer County, August 24, 1999. Exhibit 8. Complaint filed in Greenfield v. Osborne, et al., Superior Court of New Jersey Chancery Division: Mercer County, August 25, 1999. Exhibit 9. Complaint filed in Steiner v. Cyprus Amax et al., Court of Chancery of the State of Delaware in and for New Castle County, August 23, 1999. Exhibit 10. Complaint filed in Miller v. Cyprus Amax et al., Court of Chancery of the State of Delaware in and for New Castle County, August 23, 1999. Exhibit 11. Complaint filed in Bruno v. Stookey et al., Court of Chancery of the State of Delaware in and for New Castle County, August 24, 1999. Exhibit 12. Complaint filed in Green v. Stookey et al., Court of Chancery of the State of Delaware in and for New Castle County, August 24, 1999. Exhibit 13. Complaint filed in Lifshitz v. Stookey et al., Court of Chancery of the State of Delaware in and for New Castle County, August 24, 1999. Exhibit 14. Complaint filed in Klotz v. Ward et al., Court of Chancery of the State of Delaware in and for New Castle County, August 24, 1999. Exhibit 15. Complaint filed in Grill v. Stookey, et al., Court of Chancery of the State of Delaware in and for New Castle County, August 26, 1999. Exhibit 16. Complaint filed in Phelps Dodge et al v. Cyprus Amax et al., Court of Chancery for the State of Delaware in and for New Castle County, August 27, 1999. Exhibit 17. Press Release issued by ASARCO Incorporated and Cyprus Amax Minerals Company on September 9, 1999.
- -------- * Included with Schedule 14D-9 mailed to stockholders. 21 SIGNATURE After reasonable inquiry and to the best of its knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. ASARCO INCORPORATED /s/ Francis R. McAllister By __________________________________ Name: Francis R. McAllister Title:Chairman and Chief Executive Officer Dated: September 9, 1999 22 EX-99.1 2 PAGES 10 THROUGH 20 OF THE PROXY STATEMENT EXHIBIT 99.1 COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Organization and Compensation Committee of the Board of Directors has furnished the following report on executive compensation. The compensation of Asarco's executive officers other than those who are also directors is reviewed and established annually by the Organization and Compensation Committee of the Board of Directors. For officers who were also directors in 1998 (Messrs. Osborne, McAllister and Morano) the Committee made compensation recommendations to the Board absent those officers, which established their compensation. The Board did not modify or reject in any material way the Committee's recommendations for 1998 compensation. The Committee met a total of seven times during 1998. Long-term incentive compensation awards for 1998 to officers and other salaried employees were approved by the Committee (and recommended to the Board with respect to Messrs. Osborne and McAllister) at the Committee's January 1998 meeting. The Company retains an independent compensation consulting organization to advise and assist the Company and the Committee in connection with compensation matters. During 1998 the consulting organization made recommendations to the Committee on base salary, cash incentive compensation and long-term incentive compensation matters for the Chief Executive Officer and each other Asarco executive position. Such recommendations included target levels for base salary and cash incentive compensation, long-term income targets, weighting of stock option and restricted stock values, and appropriate stock option and restricted stock valuation methods. The Committee carefully considered the recommendations and acted within the scope of the recommendations in these areas. Asarco's executive officer compensation is composed of base salary and incentive compensation. The Company's policy for base salary for executive officers is to establish par compensation levels for each position based on competitive data and the responsibilities and value of each executive position to the Company. The Committee considers compensation information from other companies in the mining and metals industry. It also considers compensation information from smaller, larger and comparably sized companies in other industries. The Committee then considers individual and corporate performance in establishing salary levels within a competitive range. The Committee believes that the S&P Metals Miscellaneous Group, which includes only four metals companies in addition to the Company, and the S&P 500 Index, both used for comparing shareholder returns, do not necessarily represent the Company's most direct competitors for executive talent. In making decisions that affect executive compensation the Committee reviews three different comparator groups proposed by its independent consultants: one group includes 13 process- oriented companies; another group is comprised of 50 companies engaged in heavy industry; and a third group consists of approximately 175 companies having annual revenues of $1 billion to $6 billion (the "Comparator Groups"). These groups represent companies whose operational and performance characteristics are capable of comparison with those of the Company, allowing for meaningful comparisons of executive compensation. The Comparator Groups include three of the five companies in the S&P Metals Miscellaneous Group and approximately 110 companies in the S&P 500 Index. Base salaries for the Company's executive officers in 1998 were slightly above the median of the Comparator Groups studied by the Committee and represented a slightly greater percentage of total 10 compensation, relative to the median for the Comparator Groups. Because the cyclical nature of the Company's business can result in significant changes in incentive compensation from year to year the Committee believes that compensation levels are more stable and, accordingly, more competitive when base salaries comprise a larger portion of total cash compensation. In general, the Committee structures total compensation for each salaried position to be approximately at the median of total compensation for comparable positions among the Comparator Groups. Although the Company's base salaries are set at levels intended to be competitive with the Company's industry peers, the Committee also takes into consideration the Company's performance relative to companies in the Comparator Groups as part of its compensation review. In this regard, the Company's success in meeting transactional, operational and financial objectives are all taken into consideration. Because the relative importance of each objective may change over time, the Committee does not set fixed Company performance targets for purposes of setting base salaries. The Company's success or failure in achieving certain objectives or financial results, however, will generally affect executive salaries. Thus, in a downward part of the business cycle, salary increases may be delayed or salaries even reduced; in strong financial years, the Company may award larger increases. In 1998, base salaries for Mr. McAllister and Mr. Morano were increased effective February 1, 1998, by 16.7% and 9.4%, respectively, associated with the promotion of Mr. McAllister to President and Mr. Morano to Executive Vice President. The salary of one other officer was increased by 6.8% effective April 1, 1998, in connection with a promotion. Base salaries for other executive officers have not been increased since May 1997. Incentive compensation consists of cash incentive compensation awarded annually if justified, and long-term incentive compensation. Long-term incentive compensation combines restricted stock and stock options and is designed to link the interests of executive officers with those of stockholders by providing each executive an incentive to manage the business as an owner with an equity stake. Annual cash incentive payments are determined under the Asarco Incentive Compensation Plan and the Asarco Incentive Compensation Plan for Senior Officers ("Senior Officers' Plan"), which are administered by the Organization and Compensation Committee. Approximately 75% of all active salaried employees of the Company are eligible for annual cash incentive compensation payments under the Incentive Compensation Plan. The sole purpose of the Senior Officers' Plan, which covers only the five most highly compensated officers with respect to a year in which compensation is awarded, is to assure current federal income tax deductibility of incentive compensation earned by those five officers whose compensation might otherwise not be deductible under the Internal Revenue Code. Incentive awards to the five covered officers are determined pursuant to the Senior Officers' Plan and the Incentive Compensation Plan, and to the extent they exceed award levels under the Senior Officers' Plan, such awards may not be deductible. The Asarco Compensation Deferral Plan permits officers and eligible employees to defer all or a portion of awards made under the Incentive Compensation Plan (and, if applicable, the Senior Officers' Plan), and to defer that portion of salary that could have been deferred under the Savings Plan but for limitations imposed by the Internal Revenue Code. Under the Incentive Compensation Plan, a target level of annual incentive compensation is established for each eligible employee based on the level of responsibility attached to such employee's position with the Company. For executive officers these targets are set slightly below 11 competitive median levels to compensate for salary targets which are set slightly above competitive median levels. The officers' levels of responsibility are determined by the Committee after review of substantially equivalent positions among the Comparator Groups. Awards to employees are increased or decreased from a predetermined target level, based upon performance measured at three levels: individual, operating unit or staff group and Company-wide. Incentive compensation for the Company's executive officers, and particularly for the Chief Executive Officer, is determined by individual and Company performance levels. Company performance in 1998 was evaluated against objectives previously established by the Board of Directors. In November 1998 and January 1999 the Committee concluded that, although the Company had made favorable progress in 1998 towards goals in areas including reduction of copper operating costs and sale of non-core assets, no incentive compensation should be awarded under the Incentive Compensation Plan or the Senior Officers' Plan with respect to 1998 in view of the Company's net loss for the year. In meetings in April, June and September 1998, followed in each case by discussion with the Board, the Committee developed a new formula-based incentive compensation plan for the Company, which was approved by the Board in October 1998 effective for the year beginning January 1, 1999. The revised Asarco Incentive Compensation Plan has been designed, among other things, to reward management for achieving and exceeding annual Return on Equity ("ROE") targets approved by the Board. The ROE targets will be reviewed by the Board each year and may be revised by the Board in response to changes in the Company's strategy. If minimum or better ROE targets are achieved, incentive compensation will be paid, subject to adjustments for overall corporate and for unit or performance management group performance, and also for individual performance. In January 1998 the Committee approved awards of stock options and restricted stock to the Company's officers other than Messrs. Osborne and McAllister, and recommended to the Board awards to those officers. These awards were made within long-term incentive income targets based upon analyses by the Company's compensation consultant. The consultant supplements data from the Comparator Groups with broad based survey data to develop target levels of "long-term gain opportunity" for various levels of total compensation, with greater percentages of long-term gain opportunity attaching to higher responsibility levels. The Company's consultant surveys a broader group of companies than those in the Comparator Groups so as to provide a more complete analysis of competitive long- term incentive compensation award levels. The Company normally makes long-term incentive awards on an annual basis and has not established specific stock ownership objectives for its officers. In 1998, long-term incentive compensation awards to the Company's executive officers were at the median of awards made by the companies included in the Comparator Groups and the consultant's surveys. In making 1998 long-term incentive awards the Committee also considered each officer's performance. The Committee also considered outstanding options and shares of restricted stock previously awarded to the executive officers. In the case of the Chief Executive Officer the Committee also considered his performance and responsibility in establishing the Company's strategic goals and directing all elements of its performance. In July 1998 the Committee approved an award of 118,075 stock options exercisable at the then current market price of $21.75 per share to a broad group of 1,217 of the Company's middle 12 management and other employees. The options were granted during a period when the Company was deferring any general salary increases in view of low copper prices. In meetings in October and November 1998 the Committee determined that it would be in the best interests of the Company for Mr. Osborne to be entitled to an office and certain executive-level services following his retirement. The Committee recommended to the Board, and the Board approved, a one-year consulting agreement under which Mr. Osborne will provide consulting services to the Company for a daily consulting fee of $4,500 with an annual minimum of 23 consulting days of service. The Company agreed to nominate Mr. Osborne for re- election in April 1999 as a Company director for a term ending April 2001. Section 162(m) of the Internal Revenue Code eliminates the Company's Federal income tax deductions for certain compensation in excess of $1 million paid in a taxable year to each of the Company's five highest paid officers as reported in the proxy statement, unless compensation programs meet certain requirements, principally concerning the adoption of fixed targets. Accordingly, changes in Asarco executive compensation programs for annual incentive compensation and for stock option grants as a result of the provision were approved by Asarco shareholders in 1996. While the Company considers that restricted stock provides a form of long-term compensation the value of which is directly related to Company stock performance, the Committee believes that it is not practical to change the Company's restricted stock plan provisions to meet the requirements of Section 162(m). The Committee intends, to the extent practicable, to preserve deductibility under the Internal Revenue Code of compensation paid to the Company's executive officers. Although compensation paid is generally deductible, certain compensation paid to some executives may not be deductible. Willard C. Butcher, Chairman James W. Kinnear Martha T. Muse John D. Ong James Wood 13 EXECUTIVE COMPENSATION Set forth below is certain information concerning the annual and long-term compensation for services in all capacities to the Company for fiscal years 1998, 1997 and 1996 of the Company's Chief Executive Officer and the other four most highly compensated executive officers of the Company: SUMMARY COMPENSATION TABLE
LONG TERM --------- ANNUAL COMPENSATION COMPENSATION AWARDS ------------------- ------------------- SECURITIES OTHER UNDERLYING NAME AND ANNUAL RESTRICTED STOCK OPTIONS ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) (SHARES) COMPENSATION(3) ------------------------------------------------------------------------------------------------------ Richard de J. Osborne. 1998 $885,000 $ 24,969 $528,710 73,950 $26,550 Chairman of the 1997 865,000 $957,000 25,588 577,500 67,500 25,950 Board and Chief 1996 811,672 485,000 28,850 539,750 50,000 24,350 Executive Officer Francis R. McAllister 1998 518,750 --- 21,969 140,270 27,500 15,563 President and Chief 1997 441,668 335,300 22,588 159,500 25,500 13,250 Operating Officer 1996 419,008 172,600 25,850 142,875 19,000 12,570 Kevin R. Morano 1998 382,258 --- 24,969 116,532 22,500 11,468 Executive Vice President 1997 345,340 259,700 25,588 140,250 21,800 10,360 1996 324,672 141,800 28,150 114,300 15,200 9,740 Robert J. Muth 1998 300,000 --- 21,969 75,530 15,200 9,000 Vice President 1997 296,668 76,500 22,588 88,000 15,200 8,900 1996 286,672 74,300 24,825 76,200 10,400 8,600 Augustus B. Kinsolving 1998 299,004 --- 20,969 64,740 12,600 1,600 Vice President and 1997 295,004 132,500 22,588 77,000 12,600 1,600 General Counsel 1996 283,672 75,200 25,850 62,250 9,000 1,500
(1) Represents annual retainer, stock award and fees received for services as a director of Southern Peru Copper Corporation. (2) Dollar values of restricted stock awards are shown as of the date of grant. The number and dollar value of shares of restricted stock holdings owned at December 31, 1998, and still subject to restrictions are as follows: Mr. Osborne, 61,500 shares/$930,188; Mr. McAllister, 16,520 shares/$249,865; Mr. Morano,13,840 shares/$209,330; Mr. Muth, 8,800 shares/$133,100 and Mr. Kinsolving, 7,600 shares/$114,950. Restrictions on such shares lapse in equal installments over five years beginning with the grant dates which occurred during the period from January 1994 through January 1998, except upon a change of control, in which case all shares vest immediately. Cash dividends paid on shares of restricted stock are not subject to restrictions. (3) Amounts shown reflect matching contributions made by the Company for the named individuals under the Company's Savings Plan and Compensation Deferral Plan (formerly the Supplemental Savings Plan). The Savings Plan is a qualified defined contribution profit sharing plan available generally to all United States salaried employees with one month of service with the Company. Savings Plan contributions are immediately vested and may be withdrawn subject to certain restrictions, penalties and suspension periods. The Compensation Deferral Plan is a non-qualified deferred compensation plan that allows eligible employees to defer that portion of their salary that could have been deferred under the Savings Plan but for limitations imposed by the Internal Revenue Code, and to defer all or part of their eligible incentive compensation, as provided in the Plan. Salary deferrals are eligible for a Company matching contribution under the Plan. Matching contributions under both plans may not exceed 3% of the employee's salary. Compensation deferred and amounts contributed by the Company may be withdrawn subject to certain restrictions and penalties. Deferrals of incentive compensation are not eligible for a Company matching contribution. 14 OPTION GRANTS Set forth below is further information on grants of stock options under the Company's 1996 Stock Incentive Plan for the period January 1, 1998 to December 31, 1998. No stock appreciation rights ("SARs") were granted in 1998 or outstanding as of December 31, 1998. OPTION GRANTS IN LAST FISCAL YEAR
GRANT INDIVIDUAL GRANTS VALUE ----------------- ----- NUMBER OF SHARES UNDERLYING% OF TOTAL OPTIONS EXERCISE GRANT DATE OPTIONS GRANTED TO EMPLOYEES OR BASE EXPIRATION PRESENT NAME GRANTED(1) IN FISCAL YEAR PRICE $/SH DATE VALUE(2) - --------------------------------------------------------------------------------------------------- Richard de J. Osborne. 73,950 15.1% $21.58 1/27/08 $359,323 Francis R. McAllister. 27,500 5.6% $21.58 1/27/08 133,623 Kevin R. Morano. 22,500 4.6% $21.58 1/27/08 109,328 Robert J. Muth 15,200 3.1% $21.58 1/27/08 73,857 Augustus B. Kinsolving 12,600 2.6% $21.58 1/27/08 61,223
(1) The options were awarded under the Company's stockholder-approved 1996 Stock Incentive Plan. The option price per share equals the fair market value of the Company's Common Stock on the date of grant. The options provide for limited rights exercisable upon the occurrence of specified events that may materially affect the value of the Company's Common Stock and are designated as such by the Committee that administers the Plan, including a tender or exchange offer for shares of the Company's Common Stock, the replacement of a majority of the Board as a result of a proxy contest, a merger or reorganization of the Company, or a liquidation or dissolution of the Company. If an exercise event occurs, the holder is entitled to receive the cash value of the options at the highest market value that the shares traded over a period of sixty days preceding the event or, in the event of the consummation of a tender offer, the tender offer price, in each case, less the exercise price. (2) Based on the Black-Scholes option pricing model, a widely recognized method of valuing options. The following assumptions were used in determining the value of the options using the model: expected volatility of 29.4% based on actual monthly volatility for the preceding five years, risk-free rate of return of 5.6% based on the yield of the five year U.S. treasury note as of the grant date, annual dividend rate of $0.94 per share based on average dividends paid per share over the preceding ten years, and exercise of the option five years after the grant date. The actual value, if any, an executive may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised, so that there is no assurance the value realized by an executive will be at or near the value estimated by the Black-Scholes model. The model is used for valuing market traded options and is not directly applicable to valuing stock options granted under the Company's Stock Incentive Plan which cannot be sold. 15 OPTION EXERCISES AND FISCAL YEAR-END VALUES Set forth below is information concerning stock option exercises by named executive officers during 1998, including the aggregate value of gains on the date of exercise, the number of shares covered by exercisable options and the value of "in-the-money" options as of December 31, 1998. All outstanding options were exercisable at December 31, 1998. AGGREGATED OPTION EXERCISES IN 1998 AND DECEMBER 31, 1998 OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT YEAR END IN-THE MONEY SHARES ACQUIRED VALUE EXERCISABLE/ OPTIONS AT NAME ON EXERCISE REALIZED UNEXERCISABLE(1) YEAR END(2) - ------------------------------------------------------------------------------------------------------ Richard de J. Osborne. __ __ 399,450 -- Francis R. McAllister. 9,000 $ 13,290 151,840 __ Kevin R. Morano __ 93,200 __ Robert J. Muth 52,614 Augustus B. Kinsolving 2,044 $6,457 (3) 73,300 __
(1) The above officers held no unexercisable options at December 31, 1998. (2) Based on the New York Stock Exchange--Composite Transactions price for the Company's Common Stock of $15.125 on December 31, 1998. (3) All after- tax net value realized was received in shares of Common Stock. 16 SHAREHOLDER RETURN PERFORMANCE PRESENTATION Set forth below is a line graph comparing the yearly percentage change in the cumulative total return on the Company's Common Stock against the cumulative total return on the S&P Composite 500 Stock Index and the S&P Metals Miscellaneous Group Index for the five year period 1993 to 1998. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN ASARCO INCORPORATED, S&P 500 INDEX & S&P METALS MISC. GROUP INDEX COMP OF FIVE YEAR "Asarco" "S&P 500" "S&P Metal" 1993 100 100 100 1994 126.44 101.32 116.76 1995 145.19 139.40 129.16 1996 116.06 171.41 131.78 1997 107.58 228.59 88.58 1998 74.77 293.92 63.72 *TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS **ASSUMES $100 INVESTED ON 12/31/93 IN ASARCO COMMON STOCK, S&P 500 INDEX & S&P METALS GROUP INDEX The preceding chart analyzes the total return on Asarco's Common Stock compared to the S&P 500 and the S&P Metals Miscellaneous Group over the five year period commencing December 31, 1993. In the first year of this period, through December 31, 1994, Asarco's stock had a positive return of 26.4%, the S&P 500 returned 1.3% and the S&P Metal Miscellaneous Group returned 16.8%. In 1995, the return for Asarco's stock was a positive 14.8% compared to positive returns of 37.6% for the S&P 500 and 10.6% for the S&P Metals Miscellaneous Group. In 1996, Asarco's stock provided a negative return of 20.1% compared to positive returns of 23.0% for the S&P 500 and 2.0% for the S&P Metals Miscellaneous Group. In 1997, Asarco's return was a negative 7.3%, the S&P 500 returned a positive 33.4% and the S&P Metals Miscellaneous Group returned a negative 32.8%. In 1998, Asarco's stock provided a negative return of 30.5% compared to a positive return of 28.6% for the S&P 500 and a negative return of 28.1% for the S&P Metals Miscellaneous Group. 17 RETIREMENT PLANS The following table shows the estimated amount of annual retirement income (calculated as a single life annuity benefit) payable to employees for life, commencing at normal retirement at age 65 in 1999, under the Company's qualified Retirement Benefit Plan for Salaried Employees ("Plan"), covering substantially all salaried employees, a prior plan of the Company and a supplemental retirement benefit plan (the "Supplemental Plan"). The Supplemental Plan is a non-qualified supplemental retirement benefit plan under which any benefits not payable from Plan assets by reason of the limitations imposed by the Internal Revenue Code of 1986, as amended (the "Code") and the loss due to the deferrals of salaries made under the Company's Deferred Income Benefit System and the Compensation Deferral Plan are paid from the Company's general corporate funds. The table assumes Social Security benefit levels as in effect on January 1, 1999. PENSION PLAN TABLE APPROXIMATE ANNUAL RETIREMENT BENEFITS --------------------------------------
FINAL AVERAGE 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS COMPENSATION OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE ---------- ---------- ---------- ---------- ---------- $300,000 64,525 86,033 107,541 129,049 150,557 400,000 87,025 116,033 145,041 174,049 203,057 500,000 109,525 146,033 182,541 219,049 255,557 600,000 132,025 176,033 220,041 264,049 308,057 700,000 154,525 206,033 257,541 309,049 360,557 800,000 177,025 236,033 295,041 354,049 413,057 900,000 199,525 266,033 332,541 399,049 465,557 1,000,000 222,025 296,033 370,041 444,049 518,057 1,100,000 244,525 326,033 407,541 489,049 570,557 1,200,000 267,025 356,033 445,041 534,049 623,057 1,300,000 289,525 386,033 482,541 579,049 675,557 1,400,000 312,025 416,033 520,041 624,049 728,057 1,500,000 334,525 446,033 557,541 669,049 780,557 1,600,000 357,025 476,033 595,041 714,049 833,057 1,700,000 379,525 506,033 632,541 759,049 885,557 1,800,000 402,025 536,033 670,041 804,049 938,057 1,900,000 424,525 566,033 707,541 849,049 990,557 2,000,000 447,025 596,033 745,041 894,049 1,043,057
Benefits are calculated using a final average earnings formula (i.e., average of the highest consecutive 60 months of the last 120 months of compensation received "Final Average Compensation"), minus a Social Security offset. As of January 31, 1999, the following officers had completed the number of years of service indicated opposite their names: Richard de J. Osborne, 24 years; Francis R. McAllister, 32 years; Kevin R. Morano, 20 years; Robert J. Muth, 30 years and Augustus B. Kinsolving, 24 years. Under the Plan and Supplemental Plan, the amounts of covered compensation of such persons for calendar year 1998 were Richard de J. Osborne, $1,842,000, Francis R. McAllister, $854,050, Kevin R. 18 Morano, $641,958, Robert J. Muth, $376,500 and Augustus B. Kinsolving, $431,504 and consisted of basic salary and cash incentive compensation payments in the year received as shown in the Summary Compensation Table and in prior proxy statements. Cash incentive compensation payments are generally received in the year following that in which they are earned. Messrs. Osborne, Muth and Kinsolving are eligible to receive additional benefits, not included in the amounts shown in the table, under the Company's supplemental plan for designated officers hired in mid-career (the "Mid-Career Plan"). The Mid-Career Plan provides supplemental retirement benefits out of the general funds of the Company for officers holding the rank of Vice President or higher who are determined by the Organization and Compensation Committee to have had prior business or professional experience valuable to the Company and relevant to the positions for which they were employed by the Company, and who at retirement or termination of employment with the consent of the Company will have been with the Company as a Vice President or higher for 10 years or more. The Mid-Career Plan provides for annual benefits equal to 55% of the Final Average Compensation, which amount is reduced by any benefits payable by the Company or any other employer under any other pension plan not attributable to the employee's contributions, and by all Social Security benefits payable at the time of retirement or early termination. All benefits under the Mid-Career Plan are forfeited by a participant who prior to attaining age 65 terminates employment with the Company without its consent, except in the case of a change in control. Participants in the Supplemental Plan and the Mid-Career Plan receive their benefits in a lump-sum payment at retirement (which payment may be deferred) unless they elect, in accordance with the terms of the plan, to receive an annuity benefit. EMPLOYMENT AGREEMENTS The Company has employment agreements which provide for severance payments in certain events to Messrs. Osborne, McAllister, Morano, Muth and Kinsolving and six other key executive officers. The employment agreements are for a term of one year, renewable automatically on a year-to-year basis unless terminated by the Company at least nine months prior to the anniversary date, except that they continue in effect for not less than three years following occurrence of a change in control of the Company. If, as a result of a change in control, the executive's employment is terminated, his responsibilities are materially reduced, or his salary, bonus or benefits are adversely affected, the executive is entitled to receive from the Company as severance pay one lump-sum payment equal to the total of three times such executive's annual base salary, average incentive compensation payments received for the higher of the three or five years immediately preceding the date of termination or the change in control, and the annual cost to the Company of certain benefits such executive is entitled to receive immediately preceding the date of termination. The executive would also be entitled to continuation of health and other insurance benefits for a period of three years following termination. Upon termination by the Company after a change in control, under the agreements each executive is also entitled to payment from the Company of the value of such executive's stock options. The amount of the severance payment from the Company will also include an amount necessary to reimburse each executive for any excise taxes imposed by the Code in respect of such payments. In addition, the Supplemental Plan and the Mid-Career Plan provide for lump-sum payment of accrued benefits upon a change in control. The employment agreements also provide that following the occurrence of a potential change in control of the Company each executive officer will remain in the employ of the Company for 180 days. Under the agreements, change in 19 control as to an executive shall not be deemed to have occurred if the event first giving rise to the change in control involves a publicly-announced transaction or publicly-announced proposed transaction which at the time of the announcement has not been previously approved by the Company's Board of Directors and the executive is part of a purchasing group proposing the transaction. Also, there is deemed to be no change in control as to an executive if the executive is part of a purchasing group which consummates a change in control transaction. No change in control shall occur under the agreements in a merger or consolidation approved by the stockholders in which the voting securities of the Company continue to represent 50% or more of the voting power of the Company or surviving entity, or in a merger or consolidation in which no person or entity acquires more than 50% of the voting securities of the Company. In November 1998 the Company entered into a one-year consulting agreement with Mr. Richard de J. Osborne to take effect upon his retirement as Chief Executive Officer in April 1999. See "Committee Report on Executive Compensation" above in this proxy statement. 20 EX-99.2 3 PAGES 62 THROUGH 64 OF THE JOINT PROXY STATEMENT EXHIBIT 99.2 INTERESTS OF CERTAIN PERSONS IN THE MERGER The executive officers of ASARCO and Cyprus Amax and the members of the ASARCO and Cyprus Amax boards of directors have interests in the business combination that are different from, or in addition to, the interests of stockholders generally. Several executive officers of ASARCO and Cyprus Amax, including some officers who are also directors, have employment or severance agreements and are or may become entitled to specific benefits under employee benefit plans as a result of the business combination. Each of the employee- directors of ASARCO and Cyprus Amax may be entitled to receive compensation if the business combination is completed. The ASARCO and Cyprus Amax boards of directors were aware of and discussed these potentially conflicting interests when they approved the business combination. ASARCO Employment Agreements ASARCO has entered into change of control employment agreements with nine of its executive officers, including Messrs. McAllister, Morano, Dowd, Kinsolving and Paul, which provide for severance payments following termination of their employment with ASARCO. The employment agreements are for a term of one year, renewable automatically on a year-to-year basis unless terminated by ASARCO at least nine months prior to the anniversary date. The employment agreements continue in effect for not less than three years following occurrence of a change of control of ASARCO. The ASARCO merger will constitute a change of control for purposes of the ASARCO employment agreements. If, as a result of a change in control, the executive's employment is involuntarily terminated within three years of the change of control, the executive is entitled to receive from ASARCO as severance pay a lump-sum payment equal to the total of three times such executive's: . annual base salary, . average incentive compensation payments received for the highest of either the three-year or five-year period immediately preceding the date of termination or the change of control, and . the annual cost to ASARCO of certain benefits such executive is entitled to receive immediately preceding the date of termination. Involuntary termination following a change of control includes instances where: . the executive's responsibilities or status are materially diminished without his consent, . the executive's annual base salary is reduced or not increased by a minimum percentage following a change of control, or the executive is not paid an annual bonus in accordance with bonus policies in effect prior to the change of control, . ASARCO (or a successor) fails to continue any incentive, bonus, compensation, pension or other employee benefit plan prior to or following the change of control, . ASARCO's principal executive offices are relocated outside the Borough of Manhattan, . the executive's vacation days are reduced, . ASARCO (or a successor) fails to pay the executive's compensation or deferred compensation, or . the successor corporation does not assume and agree to perform the employment agreement. The executive would also be entitled to continuation of health and other insurance benefits for a period of three years following termination. Upon such a termination after a change of control, each executive is also entitled to payment from ASARCO of the value of the executive's stock options. The amount of the severance payment from ASARCO will also include any amount necessary to make whole the executive with respect to any excise taxes imposed by section 4999 of the Internal Revenue Code in respect of the payments described above. The amounts Messrs. McAllister, Morano, Dowd, Kinsolving and Paul would receive (exclusive of amounts payable under ASARCO's non-qualified supplemental retirement benefit plans which are separately 62 described below) if their employment were involuntarily terminated immediately following approval of the ASARCO merger proposal by ASARCO stockholders including the estimated payment for excise taxes imposed by section 4999 of the Internal Revenue Code are $4.99 million; $2.54 million; $1.32 million; $2.08 million; and $1.28 million, respectively. The aggregate amount the four other executive officers with change of control employment agreements would receive if their employment were involuntarily terminated immediately following approval of the ASARCO merger proposal by ASARCO stockholders is $4.95 million. As provided for in the merger agreement, Mr. McAllister will serve as President and Co-Chief Executive Officer of Asarco Cyprus and Mr. Morano will serve as Executive Vice President and Chief Financial Officer of Asarco Cyprus following the mergers. ASARCO Stock Based Plans When ASARCO stockholders approve the ASARCO merger proposal, all outstanding options awarded prior to the announcement of the proposed ASARCO merger will become fully vested and exercisable. Any option that is not exercised before the date the ASARCO merger becomes effective will be converted into an immediately exercisable option to purchase the number of shares of Asarco Cyprus common stock equal to the number of shares of ASARCO common stock which could have been obtained upon the exercise of the option immediately prior to the time the ASARCO merger becomes effective. The estimated number of ASARCO shares underlying unvested options that will become exercisable by Messrs. McAllister, Morano and Dowd as a result of the approval of the ASARCO merger proposal by ASARCO stockholders is 22,000; 3,000; and 11,000, respectively. Messrs. Kinsolving and Paul do not hold any unvested options. The estimated aggregate number of ASARCO shares underlying unvested options that will become exercisable by all other executive officers as a result of the approval of the ASARCO merger proposal by ASARCO stockholders is 7,800. In addition, upon stockholder approval of the ASARCO merger proposal, all outstanding awards of restricted stock will become fully vested. The number of ASARCO shares awarded as restricted stock to Messrs. McAllister, Morano, Dowd, Kinsolving and Paul that will vest as a result of stockholder approval of the ASARCO merger proposal is 31,820; 17,520; 6,440; 8,340; and 5,460, respectively, and 19,270 for all other executive officers. Other ASARCO Plans ASARCO Supplemental Retirement Benefit Plan The supplemental retirement benefit plan is a non-qualified supplemental retirement benefit plan under which any benefits not payable under ASARCO's tax qualified pension plans because of limitations imposed by the Internal Revenue Code, or due to the deferrals of salaries made under ASARCO's deferred income benefit system and the compensation deferral plan are paid from ASARCO's general corporate funds. The supplemental retirement benefit plan provides that the participants, including the executives named above, will receive a lump sum payment of their accrued benefits under the plan, discounted for present value, when a change of control occurs. The business combination will constitute a change of control for the purposes of the supplemental retirement benefit plan. Unless participants waive their rights to immediate payment under the plan, they will receive their benefits in a lump sum payment immediately following stockholder approval of the ASARCO merger. ASARCO Supplemental Pension Plan for Designated Officers Hired in Mid- Career The supplemental pension plan for designated officers hired in mid-career provides supplemental retirement benefits for officers holding the rank of vice president or higher who are determined by the compensation committee of ASARCO to have . prior business or professional experience valuable to ASARCO and relevant to the positions for which they were employed by ASARCO, and 63 . who at retirement or termination of employment with the consent of ASARCO will have been an employee of ASARCO as a vice president or higher for 10 years or more. The supplemental pension plan for designated officers hired in mid-career provides for annual benefits equal to 55% of the executive's final average compensation which is the average of the sixty highest monthly amounts of the executive's compensation in the 120 months preceding his retirement or termination. This amount will be reduced by any benefits payable by ASARCO or any other employer under any other pension plan not attributable to the employee's contributions, and by all Social Security benefits payable at the time of retirement or early termination. The supplemental pension plan for designated officers hired in mid-career provides that the executives will receive a lump sum payment of their accrued benefits under the plan, discounted for present value and early commencement of benefits, when a change of control occurs. The business combination will constitute a change of control for purposes of the supplemental pension plan. Unless participating executives waive their right to immediate payment under the plan, they will receive their benefits in a lump sum payment immediately following stockholder approval of the ASARCO merger. Deferred Compensation Plans The Deferred Fee Plan for Directors permits non-employee directors, and the Compensation Deferral Plan permits eligible employees of ASARCO, to defer payment of portions of their compensation until retirement or termination from ASARCO. ASARCO also maintains a Directors' Deferred Payment Plan for non- employee directors which provides for deferred benefits payable following termination of service. Each of the plans provide that plan participants will receive a lump sum payment of the value of their account upon a change of control of ASARCO. The approval of the ASARCO merger proposal by stockholders of ASARCO will constitute such a change of control. Unless participants waive their rights to immediate payment under the plans, they will receive their account balances under the plans in a lump sum payment immediately following stockholder approval of the ASARCO merger. 64 Indemnification and Insurance The merger agreement requires Asarco Cyprus to provide officers and directors of ASARCO and 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. Asarco Cyprus will not be required to expend in my one year more than 150% of the annual premiums currently paid by ASARCO or Cyprus Amax, as the case may be. If the annual premiums of such insurance coverage exceed the 150%, limit, Asarco Cyprus only will be obligated to obtain a policy with the greatest coverage available for a cost not exceeding the limit. Asarco Cyprus is entitled to meet these obligations by covering the relevant persons under its own insurance policies. The merger agreement also requires Asarco Cyprus to indemnify officers and directors of ASARCO and 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 or ASARCO, for a period of six years following the business combination. See "The Merger Agreement--Indemnification, Directors' and Officers' Insurance." 66 Stock Options and Other Stock-Based Awards At the time the mergers become effective, each outstanding option and related stock appreciation right (SAR), if any, will be converted into an option (together with an SAR, if applicable) to acquire: . in the case of an option to purchase ASARCO common stock, the number of shares of Asarco Cyprus common stock equal to the number of shares of ASARCO common stock which could have been obtained upon the exercise of the option immediately prior to the time the mergers become effective, and . in the case of an option to purchase Cyprus Amax common stock, the number of shares of Asarco Cyprus 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 mergers become effective multiplied by 0.765. In the case of an option to purchase ASARCO common stock, the exercise price per share of Asarco Cyprus common stock will not be adjusted at the time the mergers become effective. In the case of an option to purchase Cyprus Amax common stock, the exercise price per share of Asarco Cyprus common stock will be adjusted to equal the exercise price for such option as in effect immediately prior to the time the mergers 72 become effective divided by 0.765. Asarco Cyprus will assume the obligations of Cyprus Amax and ASARCO with respect to such options. Asarco Cyprus will assume the obligations of ASARCO and 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. Following the completion of the business combination, Asarco Cyprus will reserve for issuance and delivery a sufficient number of shares of Asarco Cyprus common stock upon the exercise of any ASARCO stock options or Cyprus Amax stock options. Simultaneously with each of the mergers, each outstanding award (including restricted stock, performance units, share units and performance shares) under any employee incentive or benefit plan or arrangement and non-employee director plan presently maintained by either of us will be converted into a similar instrument of Asarco Cyprus, 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 providing for acceleration. With respect to any restricted stock awards as to which the restrictions will have lapsed on or prior to the time the mergers become effective, shares of such previously restricted stock will be converted in accordance with the conversion provisions applicable to other shares of common stock. Benefits Matters It is the intention of the parties that for a period of one year following the completion of the business combination, Asarco Cyprus will maintain the employee benefit plans of ASARCO and Cyprus Amax generally in accordance with their terms in effect at the completion of the business combination. In addition, following the completion of the business combination, Asarco Cyprus will guarantee the performance of certain existing employment agreements and benefit plans of each of ASARCO and Cyprus Amax. Asarco Cyprus 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 ASARCO or Cyprus Amax following the completion of the business combination; . provide employees of ASARCO and 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 ASARCO and Cyprus Amax prior to the completion of the business combination its service with Asarco Cyprus under all compensation and benefit plans and policies of ASARCO and Cyprus Amax. Indemnification; Directors' and Officers' Insurance Asarco Cyprus has agreed that all exculpation and indemnification provisions now existing in favor of the current or former directors or officers of each of Cyprus Amax or ASARCO as provided in their respective charter or by- laws or in ,my agreement will survive the business combination. Asarco Cyprus 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 either Cyprus Amax or ASARCO. Asarco Cyprus has also agreed that, for three years from the time the business combination becomes effective, it will maintain in effect ASARCO's and Cyprus Amax's current directors' and officers' liability insurance policies for those persons who are currently covered by the policies. However, Asarco Cyprus will not be required to expend in any one year more than 150% of the annual premiums currently paid by ASARCO or Cyprus Amax, as the case may be. If the annual premiums of such insurance coverage exceed the 150% limit, Asarco Cyprus only will be obligated to obtain a policy with the greatest coverage available for a cost not exceeding the limit. Asarco Cyprus is entitled to meet its obligations under this paragraph by covering the relevant persons under its own insurance policies. 73 DIRECTORS AND MANAGEMENT FOLLOWING THE BUSINESS COMBINATION Directors The merger agreement provides that, immediately following the completion of the business combination, the Asarco Cyprus Board of Directors will have 16 members divided into three classes with each class serving a staggered three year term (other than two of the initial three classes which will serve one and two years, respectively). Two classes of directors will consist of five directors each and one class of directors will consist of six directors. Eight members will be designated by ASARCO and eight members will be designated by Cyprus Amax. ASARCO and Cyprus Amax will select their designees from the current members of the board of directors of ASARCO and Cyprus Amax, respectively. If an individual selected consents to serve as a director of Asarco Cyprus, he or she will be elected as a director of Asarco Cyprus. Messrs. Ward, McAllister, Clevenger and Morano will serve as directors of Asarco Cyprus, and Mr. Ward will serve as Chairman of the Board. ASARCO and Cyprus Amax have not yet selected the other directors who will serve on the Asarco Cyprus Board. Committees of the Board of Directors Under the Asarco Cyprus by-laws, membership on each of the committees of the Asarco Cyprus board initially will consist of an equal number of the directors designated by ASARCO and Cyprus Amax. Committee structure and membership will be determined by the Asarco Cyprus Board of Directors at or shortly after the completion of the business combination. Compensation of Directors Directors who are employees of Asarco Cyprus will not receive any compensation for service on the Asarco Cyprus board. The specific terms of the compensation to be paid to non-employee directors of Asarco Cyprus have not yet been determined. Management The merger agreement provides that from the time the mergers become effective, Mr. Ward, Chairman, President and Chief Executive Officer of Cyprus Amax, and Mr. McAllister, President and Chief Executive Officer of ASARCO, will share responsibility for the management of Asarco Cyprus, as Chairman of the Board and Co-Chief Executive Officer, and President and Co-Chief Executive Officer, respectively. At the next annual meeting of Asarco Cyprus expected to be held in April 2000, Mr. McAllister will become the sole Chief Executive Officer and President of Asarco Cyprus. Following the first annual meeting of Asarco Cyprus expected to be held in April 2000, and until December 31, 2000, Mr. Ward will continue to participate actively in managing the consolidation of the operations of ASARCO and Cyprus, realizing the synergies expected to be derived from the mergers and exploring growth opportunities for Asarco Cyprus. Mr. McAllister wilt become Chairman, President and Chief Executive Officer of Asarco Cyprus following Mr. Ward's retirement on December 31, 2000. In addition, Mr. Clevenger will be Executive Vice President and Chief Operating Officer of Asarco Cyprus, and Mr. Morano will be Executive Vice President and Chief Financial Officer of Asarco Cyprus, following the completion of the mergers. Both Messrs. Clevenger and Morano will also be directors of Asarco Cyprus. The remaining key executive officers of Asarco Cyprus will be jointly designated by Messrs. McAllister and Ward, with the advice and consent of the Asarco Cyprus Board of Directors. Any changes to the above arrangements between the effective time of the mergers and the annual meeting of Asarco Cyprus stockholders in 2002 will require the affirmative vote of 75% of the Asarco Cyprus Board of Directors. 79 EX-99.3 4 PAGE 13 OF THE FORM 8-K OF ASARCO CYPRUS EXHIBIT 99.3 Interests of Certain Persons in the Merger As stated in the joint August 25, 1999 press release, Asarco Cyprus will not enter into change of control agreements that may become operative during the 90 days following completion of the business combination. The rights and benefits under the existing arrangements with the employees (including the executive officers, as described in the joint proxy statement and prospectus in "Interests of Certain Persons in the Merger") of each of Cyprus Amax and ASARCO, however, will remain in full force and effect and will be unaffected during the 90 days following completion of the business combination, as will any rights under arrangements entered into with such employees in substitution for any existing arrangements. 13 EX-99.4 5 LETTER TO STOCKHOLDERS OF ASARCO EXHIBIT 99.4 [ASARCO Letterhead] September 9, 1999 Dear Fellow Stockholders: As you may be aware, Phelps Dodge Corporation has commenced an unsolicited exchange offer for the Company's common stock. After careful consideration, your Board of Directors has unanimously rejected Phelps Dodge's offer as inadequate and not in the best interests of the Company and its stockholders. Accordingly, the Board unanimously recommends that you reject the offer and not tender your shares to Phelps Dodge. Your Board of Directors has unanimously reaffirmed its determination that the terms of the business combination with Cyprus Amax are fair to, and in the best interests of, ASARCO and its stockholders. In arriving at its determination and recommendation, the Board gave careful consideration to a number of factors which are described on pages 15 through 16 in the enclosed Schedule 14D-9, including the opinion of Credit Suisse First Boston Corporation, the Company's financial advisor, that, as of the date of such opinion and based upon and subject to the matters set forth therein, the exchange ratio of 0.4098 of a share of Phelps Dodge common stock for each outstanding share of ASARCO common stock provided for in the Phelps Dodge exchange offer was inadequate from a financial point of view to the holders of ASARCO common stock. Additional information with respect to the Board's decision and its actions is contained in the enclosed Schedule 14D-9, and we urge you to consider this information carefully. Your Board of Directors and I greatly appreciate your continued support and encouragement. Sincerely, /s/ Francis R. McAllister Francis R. McAllister Chairman of the Board and Chief Executive Officer EX-99.5 6 OPINION OF CREDIT SUISSE FIRST BOSTON CORP. EXHIBIT 99.5 [LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION] September 8, 1999 Board of Directors ASARCO Incorporated 180 Maiden Lane New York, New York 10038 Members of the Board: You have asked us to advise you with respect to the adequacy to the holders of the common stock of ASARCO Incorporated ("ASARCO"), other than Phelps Dodge Corporation ("Phelps Dodge") and its affiliates, from a financial point of view of the Exchange Ratio (defined below) set forth in the Prospectus, dated September 2, 1999, of Phelps Dodge and related Letter of Transmittal (collectively, the "ASARCO Exchange Offer/Prospectus") relating to the proposed exchange offer by AAV Corporation, a wholly owned subsidiary of Phelps Dodge ("AAV"), for all of the outstanding shares of the common stock, no par value (the "ASARCO Common Stock"), including the associated preferred share purchase rights, of ASARCO (the "ASARCO Exchange Offer"). Pursuant to, and subject to the terms and conditions of the ASARCO Exchange Offer, each outstanding share of ASARCO Common Stock would be exchanged for 0.4098 (the "Exchange Ratio") of a share of the common stock, par value $6.25 per share, of Phelps Dodge (the "Phelps Dodge Common Stock"). As more fully set forth in a separate Prospectus, dated September 2, 1999, of Phelps Dodge and related Letter of Transmittal (collectively, the "Cyprus Exchange Offer/Prospectus" and, together with the ASARCO Exchange Offer/Prospectus, the "Exchange Offer/Prospectuses"), CAV Corporation, a wholly owned subsidiary of Phelps Dodge ("CAV"), also has commenced an exchange offer for all of the outstanding shares of the common stock, no par value (the "Cyprus Common Stock"), including the associated preferred share purchase rights, of Cyprus Amax Minerals Company ("Cyprus") pursuant to which each outstanding share of Cyprus Common Stock would be exchanged for 0.3135 of a share of Phelps Dodge Common Stock (the "Cyprus Exchange Offer" and, together with the ASARCO Exchange Offer, the "Exchange Offers"). In arriving at our opinion, we have reviewed and considered the Agreement and Plan of Merger, dated as of July 15, 1999, by and among ASARCO Cyprus Incorporated ("ACI"), ACO Acquisition Corp., CAM Acquisition Corp., ASARCO and Cyprus, the Joint Proxy Statement and Prospectus, dated August 20, 1999, of ASARCO and Cyprus, the Exchange Offer/Prospectuses, the Tender Offer Statement on Schedule 14D-1 of Phelps Dodge and AAV, dated September 3, 1999, with respect to the ASARCO Exchange Offer, the Tender Offer Statement on Schedule 14D-1 of Phelps Dodge and CAV, dated September 3, 1999, with respect to the Cyprus Exchange Offer, and a draft, dated September 8, 1999, of the Solicitation/Recommendation Statement on Schedule 14D-9 of ASARCO (the "ASARCO Schedule 14D-9") with respect to the ASARCO Exchange Offer. We have also reviewed certain publicly available business and financial information relating to ASARCO, Cyprus and Phelps Dodge, and certain other information relating to ASARCO and Cyprus, including financial forecasts, provided to or discussed with us by ASARCO and Cyprus, and have met with the managements of ASARCO and Cyprus to discuss the businesses and prospects of ASARCO and Cyprus. We have also considered certain financial and stock market data of ASARCO, Cyprus and Phelps Dodge, and we have compared those data with similar data for other publicly held companies in businesses similar to ASARCO, Cyprus and Phelps Dodge, and we have considered, to the extent publicly available, the financial terms of certain other business combinations and other transactions which have recently been effected. We also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which we deemed relevant. In connection with our review, we have not assumed any responsibility for independent verification of any of the foregoing information and we have relied on its being complete and accurate in all material respects. With respect to the financial forecasts provided to or discussed with us by the managements of ASARCO and Cyprus, you have informed us, and we have assumed, that such forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the managements of ASARCO and Cyprus as to the future financial performance of ASARCO and Cyprus and the strategic benefits and potential synergies (including the amount, timing and achievability thereof) anticipated to result from the proposed merger Board of Directors ASARCO Incorporated September 8, 1999 Page 2 transaction involving ASARCO and Cyprus (the "Merger") and the best currently available estimates and judgments of the management of ASARCO as to the strategic benefits and potential synergies (including the amount, timing and achievability thereof) anticipated to result from the transactions contemplated by the ASARCO Exchange Offer or the Exchange Offers, as the case may be. We also have assumed, with your consent, that both the ASARCO Exchange Offer and the Merger would be treated as tax-free transactions for federal income tax purposes. We have not been requested to make, and have not made, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of ASARCO, Cyprus or Phelps Dodge, nor have we been furnished with any such evaluations or appraisals. As you are aware, we have not had access to non- public information regarding Phelps Dodge, nor have we had an opportunity to conduct customary due diligence with respect to business, financial or other information relating to Phelps Dodge. Our opinion is necessarily based upon information available to us, and financial, economic, market and other conditions as they exist and can be evaluated, on the date hereof. We are not expressing any opinion as to what the value of the Phelps Dodge Common Stock or the common stock of ACI (the "ACI Common Stock") actually would be if and when issued pursuant to the proposed ASARCO Exchange Offer or the Merger, as the case may be, or the prices at which the Phelps Dodge Common Stock or the ACI Common Stock would trade or otherwise be transferable subsequent to the proposed ASARCO Exchange Offer or the Merger, as the case may be. We are acting as financial advisor to ASARCO in connection with the proposed Merger and the ASARCO Exchange Offer and will receive a fee for such services. We have in the past provided financial services to ASARCO and Cyprus unrelated to the proposed Merger and the ASARCO Exchange Offer, for which services we have received compensation. In the ordinary course of business, Credit Suisse First Boston and its affiliates may actively trade the debt and equity securities of ASARCO, Phelps Dodge and Cyprus for their own accounts and for the accounts of customers and, accordingly, may at any time hold long or short positions in such securities. It is understood that this letter is for the information of the Board of Directors of ASARCO in connection with its consideration of the proposed ASARCO Exchange Offer, does not constitute a recommendation to any stockholder as to whether or not such stockholder should exchange shares of ASARCO Common Stock pursuant to the ASARCO Exchange Offer or how such stockholder should vote with respect to any matters relating to the ASARCO Exchange Offer or the Merger, and is not to be quoted or referred to, in whole or in part, in any registration statement, prospectus or proxy statement, or in any other document used in connection with the offering or sale of securities, nor shall this letter be used for any other purposes, without our prior written consent, except that this letter may be attached in its entirety as an exhibit to the ASARCO Schedule 14D-9 relating to the ASARCO Exchange Offer. Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio is inadequate, from a financial point of view, to the holders of ASARCO Common Stock (other than Phelps Dodge and its affiliates). Very truly yours, CREDIT SUISSE FIRST BOSTON CORPORATION EX-99.6 7 COMPLAINT FILED IN PHELPS DODGE V. ASARCO ET AL. EXHIBIT 99.6 LOWENSTEIN SANDLER, PC 65 Livingston Avenue Roseland, New Jersey 07068 (973) 597-2500 (tel) (973) 597-2400 (fax) Attorneys for Plaintiffs Phelps Dodge Corporation and AAV Corporation | PHELPS DODGE CORPORATION | SUPERIOR COURT OF NEW a New York Corporation and | JERSEY AAV Corporation, a Delaware | CHANCERY DIVISION: MERCER corporation | COUNTY | Plaintiffs, | DOCKET NO. | v. | | ASARCO INCORPORATED, a New | VERIFIED COMPLAINT FOR Jersey corporation, Francis R. McAllister, | DECLARATORY AND INJUNCTIVE Richard de J. Osborne, Vincent A. Calarco, | RELIEF John D. Ong, Kevin R. Morano, Michael T. | Nelligan, Manuel T. Pacheco, James Wood, | James C. Cotting, David C. Garfield, E. | Gordon Gee, James Kinnear and | CYPRUS AMAX MINERALS | COMPANY, a Delaware corporation, | | Defendants. | ___________________________________________|
Plaintiffs Phelps Dodge Corporation and AAV Corporation (collectively, "Phelps Dodge"), by and through their undersigned attorneys, upon knowledge as to themselves and their own acts and upon information and belief as to all other matters, allege as follows: NATURE OF THE ACTION -------------------- 1. On July 15, 1999, ASARCO Incorporated ("ASARCO") and Cyprus Amax Minerals Company ("Cyprus Amax") announced a non-premium proposed merger (the "ASARCO Cyprus Merger"). Their merger agreement (the "Merger Agreement") -- which was not publicly disclosed until August 20, more than a month after the announcement -- is illegal. It purports to prohibit directors of a New Jersey corporation from receiving, gathering, providing or exchanging information concerning any merger or acquisition proposal by Phelps Dodge (or any other --- interested party) until the stockholders of both companies vote on the ASARCO Cyprus Merger. It cannot be terminated to pursue a clearly superior transaction, such as the three-way combination proposed by Phelps Dodge. It imposes draconian financial penalties -- in excess of 6% of the market capitalization of ASARCO -- if the deal is not consummated according to management's plan. In short, this Merger Agreement is dead on arrival, a fact that likely explains why the companies secreted it so long. 2. The Merger Agreement's "No Solicitation" provisions -- in reality, "no-see, no-hear, no-talk" provisions -- are particularly outrageous. The directors of ASARCO and Cyprus Amax have contracted away their duty of care; they are not permitted ever to learn about, let alone evaluate meaningfully, any alternative proposal -- no matter how compelling, financially rewarding and industrially sound. And, while the Merger Agreement makes the gracious concession of supposedly permitting the directors to change or withdraw their 2 recommendation of the ASARCO Cypress Merger, it renders that right meaningless. A director cannot make an informed decision about the merits of a proposed ------ transaction -- or, equally important, the relative merits of two strategic alternatives -- without the ability to communicate freely with interested parties. This Court has never sanctioned what this Merger Agreement purports to do: require directors to keep their eyes wide shut. ------- 3. Apparently not content to hide behind the Merger Agreement's lock-up provisions, ASARCO and Cyprus Amax have engaged in a persistent pattern of conduct that reeks of entrenchment and undue defensiveness. Among other things they have: . attempted to rig the proxy process -- Blasius Indus., Inc. v. ----------------------- Atlas Corp., 564 A.2d 651 (Del. Ch. 1988), be damned -- by ----------- setting meeting and record dates designed to favor unfairly man agement's preferred transaction; . opposed Phelps Dodge's lawful requests for stockholder list information to allow Phelps Dodge to communicate directly -- and on a level playing field -- with the companies' owners; . granted senior management compensation and benefits packages that not only lavishly "reward" entrenchment, but unfairly shift value from stockholders to management; 3 . included in the Merger Agreement Provisions that virtually guarantee the jobs of senior management through 2002; and . stood -- and hid -- behind the Merger Agreement's unlawful restrictions, refusing to meet, discuss or exchange information with Phelps Dodge concerning its proposal. This is not the conduct of responsible boards of directors. 4. ASARCO's directors have abdicated their responsibilities. Their actions to date should be enjoined, and they should be required to act in accordance with law going forward. THE PARTIES ----------- 5. Plaintiff Phelps Dodge is a New York corporation with its principal executive offices in Phoenix, Arizona. Phelps Dodge is one of the world's leading producers of copper and has achieved its premier status through safe, efficient and environmentally sound production of low-cost, high-quality metals and minerals. Phelps Dodge beneficially owns common stock of both ASARCO and Cyprus Amax. 6. Plaintiff AAV Corporation is a Delaware corporation directly owned by Phelps Dodge. AAV Corporation owns 100 shares of common stock of ASARCO. 7. Defendant ASARCO is a New Jersey corporation with its principal place of business in New York, New York. ASARCO is a leading producer of copper, specialty 4 chemicals and aggregates. ASARCO's copper business includes integrated mining, smelting and refining operations in North America and Peru. 8. Defendant Francis R. McAllister ("McAllister") has been Chairman and Chief Executive Officer of Defendant ASARCO since 1992. He is a director of ASARCO and owes fiduciary duties to ASARCO and its shareholders. 9. Defendants Richard de J. Osborne, Vincent A. Calarco, John D. Ong, Kevin R. Morano, Michael T. Nelligan, Manuel T. Pacheco, James Wood, James C. Cotting, David C. Garfield, E. Gordon Gee and James Kinnear (the "Director Defen dants") are current directors of ASARCO and all owe fiduciary duties to ASARCO and its shareholders. 10. Defendant Cyprus Amax is a Delaware corporation with its principal place of business in Englewood, Colorado. Cyprus Amax is a diversified mining company engaged in the exploration for and extraction, processing and marketing of mineral resources including, copper, molybdenum, coal and gold. 11. Phelps Dodge has commenced a parallel action alleging, inter alia, ----- ---- breaches of fiduciary duty against Cyprus Amax, its President, Chairman and Chief Executive Officer, Milton H. Ward ("Ward") and its directors in the Court of Chancery of the State of Delaware. 5 FACTUAL BACKGROUND ------------------ I. The Proposed Merger of ASARCO and Cyprus Amax --------------------------------------------- 12. On July 15, 1999, ASARCO and Cyprus Amax announced a so-called "merger of equals" under which ASARCO shareholders are to receive one share of stock in the merged company and Cyprus Amax shareholders are to receive 0.765 shares per share of Cyprus Amax stock they currently hold. The proposed new company, ASARCO Cyprus Incorporated ("ASARCO Cyprus"), would have its corporate headquarters in New York City and its operations headquarters in Tempe, Arizona. ASARCO shareholders would receive no premium by way of the transaction. 13. ASARCO Cyprus would have a sixteen person board of directors with eight members nominated by ASARCO and eight by Cyprus Amax. Ward, Cyprus Amax's Chairman, President and Chief Executive Officer, and McAllister, ASARCO's Chairman and Chief Executive Officer, would serve as Co-Chief Executive Officers and directors of ASARCO Cyprus. 14. The market reaction to the proposed no-premium merger was hardly inspired, pushing both companies' stock prices down. On July 14, 1999, the common stock of Cyprus Amax and ASARCO was trading at highs of 14-1/2 and 19- 1/2, respectively. On July 19, 1999, the common stock of Cyprus Amax and ASARCO was trading at highs of 14 and 19-1/6, respectively. Although the ASARCO Cyprus Merger initially included projected cash 6 synergies of $100 million per year, plus reduced depreciation of $50 million annually due to the write-down of certain assets (this estimate was later increased to $200 million), the market has not recognized any incremental value in the current share prices of either company. The proposed merger has also been criticized for its lack of a plan to integrate operations, and its lack of asset rationalization. 15. The details of the Merger Agreement were not finally disclosed to the public until August 20, 1999, over a month after the merger was announced and only after ASARCO and Cyprus Amax publicized that they were rejecting a three- way merger proposed by Phelps Dodge. By hiding the self-serving restrictive provisions of their Merger Agreement from public view, the directors of ASARCO and Cyprus Amax have attempted to shield their true objective of entrenching their positions even at the expense of a better proposal for their shareholders. II. The CEOs of ASARCO and Cyprus Amax Refuse to Talk with Phelps Dodge ------------------------------------------------------------------- 16. The three-way merger proposal offered by Phelps Dodge was made on August 10, 1999, when Douglas Yearley, CEO of Phelps Dodge ("Yearley"), telephoned Cyprus Amax's Ward and ASARCO's McAllister, who were meeting together in New York. 17. This proposal was immediately -- and summarily -- rejected. At approximately 6:45 that evening, a few hours after the proposal was made, McAllister and Ward forwarded a short letter to Yearley which stated simply that pursuant to the terms of the Merger 7 Agreement, Ward and McAllister felt they "were not at liberty to have a discussion of the nature you were suggesting today." A copy of the Merger Agreement was not provided to Phelps Dodge, and thus it was unclear at that stage why the CEOs of ASARCO and Cyprus Amax would not even entertain discussions with Phelps Dodge. 18. On August 11, 1999, Yearley and Phelps Dodge President, J. Steven Whisler, again requested a meeting with Cyprus Amax and ASARCO, in a letter to Ward and McAllister laying out the basic terms of the proposed merger. The letter explained "that a three-way combination . . . would create superior shareholder value for the shareholders of ASARCO and Cyprus Amax." Under the proposed merger, "all the outstanding common stock of both ASARCO and Cyprus Amax [would] be exchanged for Phelps Dodge common stock" and "[t]he transaction would be tax free" to ASARCO and Cyprus Amax shareholders. 19. Specifically, the August 11 letter stated that Phelps Dodge was prepared to offer shareholders of ASARCO and Cyprus Amax an exchange ratio 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. These exchange ratios represented a premium of approximately 25%, based on the then-market prices for ASARCO and Cyprus Amax shares. Because the benefits to the shareholders of ASARCO and Cyprus Amax of a three-way merger with Phelps Dodge are significantly greater than the currently proposed ASARCO Cyprus Merger, Phelps Dodge once again urged McAllister and Ward to consider the 8 proposal. The CEOs of ASARCO and Cyprus Amax did not wait long, however, before refusing to consider the proposed three-way merger. 20. On the morning of August 12, 1999, Yearley received a telephone call from McAllister and Ward again refusing to discuss Phelps Dodge's proposal. Once again, the CEOs of ASARCO and Cyprus Amax did not explain what prevented them from even talking to Phelps Dodge. 21. Ward and McAllister's stubborn refusals to communicate with Phelps Dodge demonstrated that there would be no serious consideration of a three-way merger of Phelps Dodge, Cyprus Amax and ASARCO. Their conduct strongly suggests their true motive is to entrench and perpetuate their current positions and lucrative compensation packages through the creation of ASARCO Cyprus, while abandoning their duties to act in the best interests of their companies and shareholders by exploring a merger with Phelps Dodge. In short, the CEOs of ASARCO and Cyprus Amax are depriving the stockholders of their companies of the opportunity to consider a premium proposal from which the shareholders stand to benefit significantly. III. The Superiority of the Phelps Dodge Proposal -------------------------------------------- 22. An analysis of the three-way merger proposed by Phelps Dodge demon strates compelling benefits to all three companies. These include: 9 . a significant premium, of approximately 30% as of the August 20, 1999 proposal date, and a quadrupling of divi dends to shareholders; . the increased ability of the combined company to integrate southwest U.S. mining operations, administrative functions in Chile and Peru and worldwide exploration and development activities; . the increased financial strength of the combined company and its ability to create a world-class portfolio of cost-competitive mining assets; . a formidable management team, at both the operating and corporate levels, with solid credibility in the marketplace; . the capacity to eliminate substantial overhead, exploration, purchasing and other expenses through consolidation; . tremendous operating leverage, together with sufficient diversity in other businesses to mitigate cyclical downturns; . the ability of the combined company to reduce capital expenditures; 10 . a strong liquid balance sheet, with excellent access to capital; and . the combination of all of these factors, creating greater shareholder value on an ongoing basis for the shareholders of all three companies. 23. In addition the three-way transaction proposed by Phelps Dodge would bring significant benefits to shareholders of all three corporations. Specifically, a three-way merger would lead to cost savings well in excess of the amounts that could be achieved through the pending ASARCO Cyprus Merger. Phelps Dodge estimates that the annual cash cost savings would be at least $200 million, with additional non-cash savings of approximately $65 million per year from lower depreciation charges. 24. Over the past few years, Phelps Dodge stock has significantly outper formed the stock of both ASARCO and Cyprus Amax. Furthermore, Phelps Dodge stock has yielded a total return of 161% over the past ten years, compared to total returns of negative 20% for ASARCO stock and negative 26% for Cyprus Amax stock. 25. Moreover, the benefits of the Phelps Dodge proposal remain superior to the terms of the ASARCO Cyprus Merger regardless of whether both or only one of ASARCO or Cyprus Amax accept the proposal. For shareholders of ASARCO, a significant premium is still 11 better than the no-premium ASARCO Cyprus Amax alternative. The consummation of the ASARCO Cyprus Merger, however, would prelude this possibility. 26. The metals and mining industry is undergoing a phase of rapid consolidation. In view of this dynamic environment and the numerous compelling benefits to ASARCO, Cyprus Amax and Phelps Dodge, a summary rejection of the Phelps Dodge proposal is as incomprehensible as it is unjustifiable. IV. The Board of Directors' Public Rejection of the Phelps Dodge ------------------------------------------------------------------- Proposal -------- 27. In the face of the adamant refusal by the CEOs of both ASARCO and Cyprus Amax to give any consideration to Phelps Dodge's proposal, Phelps Dodge sent letters on August 12, 1999 to the boards of directors of both companies, outlining the proposed three-way transaction and the ensuing benefits to all three companies and their shareholders. In these letters, Phelps Dodge also indicated that its proposal with respect to ASARCO was not contingent on Cyprus Amax's acceptance of the proposal and vice versa. 28. On August 20, 1999, Cyprus Amax and ASARCO publicly rejected Phelps Dodge's "unsolicited proposal." In a joint news release (the "August 20 News Release"), Cyprus Amax and ASARCO stated that each of their respective boards had met separately to consider the proposal, and determined that "pursuing the ASARCO Cyprus Merger was in [the] best interests of ASARCO and Cyprus Amax stockholders, respectively . . . ." Cyprus 12 Amax and ASARCO's joint news release stated only that "Phelps Dodge's proposal is subject to a number of contingencies." 29. The boards of Cyprus Amax and ASARCO refrained from stating the basis for their decision to reject the Phelps Dodge proposal and did not identify the "contingencies" they were referring in the August 20 News Release. Most certainly, they made no effort to discuss and negotiate any such "contingencies." Consequently, Defendants unjustifiably continue to deprive ASARCO stockholders of the opportunity to decide for themselves which transaction is in fact in their best interests. 30. That same day, following ASARCO and Cyprus Amax's public rejection of the Phelps Dodge proposal, Phelps Dodge outlined a revised proposal even more beneficial to the shareholders of ASARCO and Cyprus Amax. Each share of ASARCO common stock would be converted into 0.4098 Phelps Dodge common shares, representing a significant premium of approximately 30% to ASARCO shareholders, based upon share prices of ASARCO and Phelps Dodge before trading was halted that morning. Each share of Cyprus Amax common stock would be converted into 0.3135 Phelps Dodge common shares, representing an approximate 29% premium for Cyprus Amax shareholders, based upon share prices of Cyprus Amax and Phelps Dodge before trading was halted that morning. 13 31. The market and financial community responded overwhelmingly favorably to the Phelps Dodge proposal, and the shares of all three companies rose during trading on August 20. 32. On August 24, 1999, The Wall Street Journal reported that Cyprus Amax shareholders were eager to embrace a deal with Phelps Dodge. One money manager with a big stake in Cyprus Amax commented: "[l]ong term, ASARCO Cyprus is a good combination, but a combination of Phelps, ASARCO and Cyprus is a great combination." 33. Even Cyprus Amax commented to Bloomberg News that it was prepared to convene a board meeting to study the increased offer. Gerald Malys, Chief Financial Officer of Cyprus Amax, informed Bloomberg that Cyprus Amax and ASARCO had rejected the initial offer because it did not offer enough of a premium. He added that Cyprus Amax and ASARCO need to begin conversations about the Phelps Dodge proposal, stating: "I don't think there is any choice in this game but to listen to what goes on. We need to look at it, they (ASARCO) need to look at it, we need to talk to each other." Yet the Merger Agreement and the continued resistance of McAllister, Ward and the boards of directors of ASARCO and Cyprus Amax remain roadblocks to any such discussions -- and thus the proper discharge of the boards' fiduciary duties. V. The Unreasonable Terms of the ASARCO Cyprus Merger Agreement ------------------------------------------------------------ 14 34. Until August 20, 1999, the provisions of the Merger Agreement between ASARCO and Cyprus Amax were hidden from their respective shareholders and the public. On that day, ASARCO and Cyprus Amax filed an S-4 Registration Statement, attaching the Merger Agreement. The Merger Agreement contains a number of noteworthy "no-see, no-hear, no-talk" provisions that reflect patent violations of the fiduciary duties owed by the boards of ASARCO and Cyprus Amax. These provisions are transparent efforts to protect a non-premium deal and to entrench management at the expense of shareholders. 35. Sections 5.10(a)(i) and 5.11(a)(i) of the Merger Agreement restrain both parties, their directors, officers, employees and representatives from directly or indirectly soliciting, initiating or encouraging (whether by furnishing information or otherwise), or taking 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." A Takeover Proposal is defined as an 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 party or any of its subsidiaries. 36. More egregiously, Sections 5.10(a)(ii) and 5.11(a)(ii) restrain both parties, their directors, officers, employees, and representatives from "participat[ing] in any discussions or negotiations regarding any [alternative] Takeover Proposal." Thus, the Merger 15 Agreement purports to restrain the ASARCO board from discussing an unsolicited bid that is demonstrably superior to the ASARCO Cyprus Merger. 37. Sections 5.10(b) and 5.11(b) further prohibit the boards of directors of either company from withdrawing or modifying their approval or recommendation of the ASARCO Cyprus Merger or the Merger Agreement. The boards may withdraw their recommendation to approve the merger only if they determine in good faith, based on the advice of outside counsel, that a failure to do so would constitute a breach of fiduciary duties owed by the respective boards to their shareholders. 38. The sole power that the boards of ASARCO and Cyprus Amax have if they determine that the ASARCO Cyprus Merger is not in fact in the best interests of their shareholders is to recommend that the shareholders vote against approving the merger. The boards of directors of ASARCO and Cyprus Amax do not have the power to terminate the Merger Agreement, nor may they stop the vote from occurring. 39. Section 7.1(e) of the Merger Agreement permits ASARCO to terminate the Merger Agreement if Cyprus Amax breaches Section 5.10 of the Merger Agreement, and Section 7.1(f) entitles Cyprus Amax to terminate the Merger Agreement if ASARCO is in breach of Section 5.11. Under Sections 7.3(a)(ii) and (b)(ii), if one party is entitled to terminate the Merger Agreement due to the other party's breach of its obligation not to consider or negotiate other proposals, the party who may terminate the Merger Agreement is entitled to 16 $45 million (the "Termination Fee"). This is a grossly excessive termination fee and, in the case of ASARCO, would amount to 6% of its equity value. 40. Under Sections 7.3(a)(i) and (b)(i) of the Merger Agreement, Cyprus Amax or ASARCO could be subjected to this severe Termination Fee simply because, in light of another Takeover Proposal, its shareholders voted against the merger. The only way in which the Termination Fee would not apply is if the other party's shareholders also voted against the transaction, or if a transaction pursuant to another Takeover Proposal was not consummated within 18 months. 41. As a consequence of these provisions, the boards of ASARCO and Cyprus Amax are not allowed to consider superior offers or proposals and are thereby restrained from acting in the best interests of their shareholders. In addition, the substantial Termination Fee acts as a great disincentive for ASARCO and Cyprus Amax to negotiate with anyone but each other -- and for shareholders to vote down the ASARCO Cyprus Amax Merger Agreement. Although the Merger Agreement contains a provision which would allow the boards of directors to withdraw their recommendations in order to fulfill their fiduciary duties, it is impossible to see how this would occur if the directors have been effectively precluded from obtaining information about and considering in an informed way any other offers or proposals. 42. In other words, the boards of ASARCO and Cyprus Amax have tied their hands by agreeing not to solicit, encourage, or facilitate inquiries by furnishing information, and 17 not to participate in discussion with respect to any other proposals. It would be difficult, if not impossible, for them to make any meaningful analysis of another pro posal, such as Phelps Dodge's, let alone to make any recommendation to the shareholders of ASARCO other than to vote in favor of the ASARCO Cyprus Merger. The restrictions contained in the Merger Agreement render it impossible for the boards of ASARCO and Cyprus Amax to make an informed decision as to whether the ASARCO Cyprus Merger is, or is not, in the best interests of their shareholders. McAllister and the Director Defendants of ASARCO should not be allowed to hide behind unreasonable provisions in the Merger Agreement as justification for their refusal to allow their shareholders to consider a far superior proposal. 43. Moreover, there is a great financial incentive for the boards to push ahead with their merger even at the expense of foregoing a better offer for their shareholders. The ASARCO Cyprus Form S-4 Registration Statement discloses that "[e]ach of the employee-directors of ASARCO and Cyprus Amax may be entitled to receive compensation if the business combination is completed." Even if certain directors or senior officers are no longer employed by the merged company, the Merger Agreement ensures that they are entitled to large severance payments. In other words, directors and certain senior officers of ASARCO and Cyprus Amax are rewarded whether they continue to be employed by ASARCO Cyprus or not. The key, however, is that the Merger Agreement be protected. If the Merger 18 Agreement were to be terminated, the Director Defendants would be entitled neither to continued employment by ASARCO Cyprus, nor to the large severance payments. 44. Finally, Section 3.2 of the Merger Agreement further demonstrates the degree to which the directors of ASARCO and Cyprus Amax have sought to entrench their positions. It states that any change to the "key executive officers" of ASARCO Cyprus prior to the stockholder meeting in the year 2002 requires the affirmative vote of at least three-quarters of the directors constituting the entire board of directors of ASARCO Cyprus. What this means is that any change in management effectively requires a unanimous vote of the twelve non-management directors. VI. ASARCO and Cyprus Amax Seek To Manipulate the Merger Vote --------------------------------------------------------- 45. The August 20 News Release stated that proxy materials relating to the ASARCO Cyprus Merger would be mailed to shareholders of record on August 25, 1999, and that shareholder meetings have been set for September 30, 1999. This timetable in fact contravenes New York Stock Exchange Rules and was designed to further the interests of the directors over the shareholders. 46. Section 4 of the New York Stock Exchange Rules regulates shareholder meetings and proxies. Section 401.02 explicitly provides that "[a] minimum of ten days' notice is required prior to the record date . . . established . . . for determination of shareholders entitled to vote at the meeting." ASARCO and Cyprus Amax gave only seven 19 days' notice to the NYSE of the August 25, 1999 record date, and did not make the record date public until August 20, 1999. 47. Although the NYSE has opted not to take action against the companies for their failure to observe this rule, expediting the record date nonetheless demonstrates the haste with which ASARCO and Cyprus Amax are proceeding in order to have their merger approved by shareholders of both companies. 48. This abbreviated schedule is no accident. Ward, McAllister and the boards of their companies seek to prevent more recent shareholders, who would be aware of and therefore more likely to be in favor of the Phelps Dodge proposal, from being able to vote on the ASARCO Cyprus Merger. Defendants seek to preempt the normal flow of trading and movement in the market of each company's shares in order to ensure that the shareholders of record entitled to vote upon the ASARCO Cyprus Merger are those who would be more likely to vote in favor of it. 49. In addition, Phelps Dodge has sought shareholder lists and related materials from Cyprus Amax and ASARCO. As of the date of the filing of this com plaint, Cyprus Amax has not responded to a letter requesting the materials dated August 23, 1999. ASARCO outright opposed an application Phelps Dodge made to a New Jersey court seeking the information. On August 26, 1999, the court ruled that documents and records must be turned over to Phelps Dodge within forty-eight hours of the filing of its preliminary proxy materials. In light of the schedule ASARCO and Cyprus Amax have set for their 20 shareholder meetings, the delay and refusal to turn over shareholder lists is further evidence of entrenchment. VII ASARCO and Cyprus Amax Issue an Ultimatum to Phelps Dodge --------------------------------------------------------- 50. Instead of agreeing to engage in real discussions with Phelps Dodge, late in the afternoon of August 25, 1999, ASARCO and Cyprus Amax issued a joint ultimatum to Phelps Dodge in the form of a news release (the "August 25 News Release") and a letter from McAllister and Ward to Yearley. Although the August 25 News Release characterized the letter as a "willingness to negotiate," the terms demanded by the CEOs of ASARCO and Cyprus Amax are so unreasonable that their negotiating posture is illusory and their entrenchment motive all the more apparent. 51. The conditions, which no company would accept under similar circum stances, include a requirement that the exchange ratio be increased to 0.4055 shares of Phelps Dodge common stock for each Cyprus Amax share, and 0.5300 Phelps Dodge shares for each ASARCO common share. This demand amounts to a premium of 70% to 80% of the companies' stock prices after the announcement of ----- their no-premium merger but before the first public disclosure of Phelps Dodge's ------ initial proposal. ASARCO and Cyprus Amax may be feeling pressure from their shareholders to negotiate with Phelps Dodge, but making unreasonable and unacceptable demands is nothing more than a ploy to deflect shareholder attention while pursuing the ASARCO Cyprus Merger. 21 52. These outrageous demands amount to an unreasonable ultimatum to Phelps Dodge and make other supposed examples of their willingness to negotiate all the more illusory. The August 25 News Release reports that during the first ninety days after completion of the ASARCO Cyprus Merger, Ward and McAllister will offer their shareholders the right to call a meeting to consider a "bona fide" proposal. During this time period, ASARCO and Cyprus Amax will allow for a redemption of their shareholder rights plan and a waiver of any change of control provisions in employment contracts. In light of ASARCO's and Cyprus Amax's conduct to date - and the delay and burden associated with such a special meeting - such "promises" ring hollow. And the companies' statements regarding employments are so cryptic - and even contradictory - as to be indecipherable. 53. Indeed, the August 25 News Release also announced an equally illusory attempt at resuscitating shareholder interest in the ASARCO Cyprus Merger itself. ASARCO and Cyprus Amax now say that they will improve the terms of their deal by including a "special payment" of $5.00 per share to the shareholders of the merged entity, to be paid as soon as possible after the consummation of the merger. This "special payment" does not alter the fundamental economics of the ASARCO Cyprus Merger, nor does it offer the stockholders of ASARCO and Cyprus Amax greater value than Phelps Dodge's premium proposal. 22 54. Nothing in the August 25 News Release or the letter detracts from one fundamental fact: ASARCO and Cyprus Amax have not changed the unreasonable terms of their Merger Agreement preventing serious consideration of the Phelps Dodge proposal. If there were any doubt, ASARCO and Cyprus Amax "emphasized" in the August 25 News Release that they were sticking to their schedule of shareholder meet ings for September 30, 1999 to vote on their merger. In their letter to Yearley, Ward and McAllister made clear that "apart from this communication, neither party has waived any of its legal or other rights, or rights or obligations under our merger agreement." In other words, the "no-see, no-hear, no-talk" and other illegal provisions of the Merger Agreement remain intact. 55. The August 25 letter shows that Ward and McAllister have put their interests before the interests of the ASARCO and Cyprus Amax shareholders. The letter states: "[w]e strongly believe that the combination of Cyprus Amax and ASARCO, without the effect of combining further with Phelps Dodge, provides greater value to Cyprus Amax and ASARCO holders than your August 20 proposal." In other words, Ward and McAllister believe that no premium is better than the significant premium offered by Phelps Dodge. Although that may be true for Ward and McAllister, it cannot be true for the shareholders of their companies. 23 56. On August 25, 1999 Phelps Dodge issued a news release confirming that it had received ASARCO and Cyprus Amax's letter, but that the letter was not accompanied by any offer to negotiate, talk or exchange information. 57. On August 27, 1999, Phelps Dodge filed a Form S-4 Registration State ment with respect to its proposal, and announced its intention to offer to exchange shares of Phelps Dodge common stock for ASARCO and Cyprus Amax shares (the "Exchange Offer"). However, the Exchange Offer cannot be consummated unless, among other things, the Director Defendants amend the onerous terms of the shareholder rights agreement (the "Rights Agreement" or the "Poison Pill") or redeem the rights provided therein. VII. ASARCO'S Failure to Redeem or Amend its Shareholder Rights Agreement -------------------------------------------------------------------- 58. In July 1989, ASARCO adopted a shareholder rights agreement (the "Rights Plan" or "Poison Pill"), which was amended on September 24, 1992. Under the Rights Plan, ASARCO's board has authorized and delivered a dividend of one preferred share purchase right (a "Right") for each share of common stock of the company outstanding on August 7, 1989. Each Right represents the right to purchase a unit consisting of 1/100 of a share (a "Unit") of Junior Preferred Stock at a price of $90 per Unit. 59. Distribution of the Rights is triggered by the earliest of the following events: (i) the tenth day after the first public announcement by ASARCO or an Acquiring Person (defined as any person who is the beneficial owner of 15% or more of the common stock 24 then outstanding) that an Acquiring Person has become such; or (ii) the close business on the tenth business day (or such later date as the Board shall determine) after the date that a tender or exchange offer by any Person, other than an associated person, is commenced within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such person would be the beneficial owner of 15% or more of the shares of common stock then outstanding. 60. The Rights Plan contains a "flip-in" prevision. Under this provision, if any person becomes an Acquiring Person other than pursuant to an offer for all outstanding shares of common stock which the independent directors determine to be fair to and otherwise in the best interests of the company and its stockholders, or as a result of the repurchase of common stock by the company, each holder of a Right will be able to purchase shares under preferential terms. Specifically, he or she will have the right to receive common stock having a value equal to two times the exercise price of the Right. This flip-in provision dilutes the Acquiring Person's holdings and increases the number of shares that the Acquiring Person would have to purchase in order to consummate a merger. 61. The Rights Plan also contains a "flip-over" provision, which arises if, following the time a person becomes an Acquiring Person, ASARCO is acquired in a merger or other business transaction in which it is not the surviving company or 50% or more of ASARCO's assets or earning power is sold or transferred to any other person. The "flip-over" provision entitles each Right holder to receive, upon exercise, common 25 stock of the acquiring company having a value equal to two times the exercise price of the Right. 62. In January 1998 the board of ASARCO approved the extension of the 1989 Rights Plan by adopting the 1998 Rights Plan, which is substantially similar to the 1989 Rights Plan. Each of the new Rights entitle the registered holder to purchase from the Company a share of its Junior Preferred Stock, at a price of $90.00 per 1/110th of a share. The new rights are redeemable under certain circumstances at $0.01 per Right and will expire, unless redeemed earlier, on January 31, 2008. 63. Due to the prohibitive costs this Poison Pill imposes on an Acquiring Person, no tender offer or exchange offer that would trigger the Rights can practically be consummated unless ASARCO's board redeems the Rights or amends the Poison Pill. ASARCO's board can redeem the Rights at a redemption price of $0.01 per Right. In addition, ASARCO's board can amend the Rights Plan, as it did on July 15, 1999 to accommodate the ASARCO Cyprus Merger. Accordingly, simply by refusing to redeem the Rights or to amend the Rights Plan, ASARCO's board can block offers regardless of the interests of ASARCO's shareholders. The triggering of the Poison Pill would be particularly unjustified given the premium price and fair structure proposed by Phelps Dodge. 64. Although confronted by the premium offered by the Phelps Dodge proposal, ASARCO's board has not redeemed the Rights. Thus, it is clear that the Poison 26 Pill serves only one purpose: entrenchment of the Director Defendants for their own personal gain and at the expense of their duty to act in the best interests of ASARCO's shareholders. A failure by ASARCO and the Director Defendants to redeem the Rights or to amend the Rights Plan would be a breach of the Director Defendants' fiduciary duties, because such failure will effectively hinder the shareholders of ASARCO from exercising their fundamental rights to determine the future of the company they own and will preclude them from the benefit of a superior transaction. DECLARATORY RELIEF ------------------ 65. ASARCO and Cyprus Amax's immediate public rejection of Phelps Dodge's attempts to negotiate a business combination and their failure to take necessary steps to place the matter before the shareholders of both companies indicate that there is a substantial controversy between the parties. The adverse legal interests of the parties are real and immediate. 66. The granting of the requested declaratory relief will serve the public interest by affording relief from uncertainty and by avoiding delay as well as conserving judicial resources by avoiding piecemeal litigation. IRREPARABLE INJURY ------------------ 27 67. Defendants' unwillingness to consider Phelps Dodge's proposed three- way transaction will prevent Phelps Dodge's proposal from being placed before the shareholders of both companies for their consideration. Should this occur, the shareholders of ASARCO and Cyprus Amax, including Phelps Dodge, will be deprived of the unique opportunity to decide which merger proposal is more beneficial to them. 68. The terms of the Merger Agreement, by prohibiting the boards of ASARCO and Cyprus Amax from considering and negotiating alternative proposals, effectively prevent the boards from complying with their fiduciary duties to act in the best interests of their companies. 69. In addition Phelps Dodge, as a potential party to a three-way transaction, will be deprived of the unique opportunity to enter into a business combination that would provide it with substantial benefits, including increased efficiency and international competitiveness. 70. The resulting injury to Phelps Dodge will not be compensable in money damages and Plaintiffs, as well as other ASARCO and Cyprus Amax shareholders, have no adequate remedy at law. COUNT ONE --------- Breach of Duty of Care by Defendants ------------------------------------ 71. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 70 as if fully set forth herein. 28 72. The Director Defendants owe a duty of care to plaintiffs. This duty requires that they make good faith efforts to be informed and to exercise appropriate judgment. Failure of a board of directors to inform itself fully of all reasonably available material information, including alternatives, before arriving at a decision constitutes a breach of this duty. 73. The Director Defendants, in agreeing to and continuing to abide by terms in the Merger Agreement that prevent them from fulfilling their fiduciary duties, have breached their duty of care. By prohibiting themselves from obtaining information or considering other potentially superior offers Defendants have precluded the possibility of making an informed recommendation to shareholders of ASARCO and Cyprus Amax. Even though they claim that they are willing to negotiate with Phelps Dodge, the unreasonable conditions in their August 25 letter render any such willingness completely illusory. In addition, ASARCO and Cyprus Amax have reaffirmed the onerous provisions of their Merger Agreement. 74. Plaintiffs seek: (i) a declaration that McAllister and the Director Defendants breached their duty to exercise due care in failing to make reasonable efforts to obtain information about the Phelps Dodge proposal; (ii) a declaration that McAllister and the Director Defendants breached their duty of care in determining that the ASARCO Cyprus Merger was in the best interests of their shareholders, without a reconfirmation of the fairness opinion of their financial advisors; (iii) an injunction compelling McAllister and the 29 Director Defendants to inform themselves adequately and to consider the Phelps Dodge proposal; (iv) an injunction compelling McAllister and the Director Defendants to submit the Phelps Dodge Proposal to the shareholders of ASARCO and (v) an injunction preventing Defendants from taking any further steps to proceed with the proposed ASARCO Cyprus Merger. COUNT TWO --------- Breach of Fiduciary Duties by McAllister and the Director Defendants -------------------------------------------------------------------- 75. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 74 as if fully set forth herein. 76. McAllister and the Director Defendants stand in a fiduciary relationship with ASARCO shareholders, including Phelps Dodge. As fiduciaries, they owe the highest duties of care, loyalty and good faith. 77. The proposal for a three-way merger is non-coercive, nondiscriminatory, and poses no threat to ASARCO's corporate policies and effectiveness. Phelps Dodge's proposal represents a substantial premium over the current market price of ASARCO's stock and the value of the Cyprus Amax non- premium alternative. 78. The failure of McAllister and the Director Defendants to determine that the proposed three-way merger is in the best interests of ASARCO and its shareholders - or even to consider the question seriously - constitutes a violation of the fiduciary duties owed by them. 30 79. The failure of McAllister and the Director Defendants even to assess whether the proposed three-way merger is in the best interests of ASARCO and its shareholders is a violation of the fiduciary duties owed by them. 80. Plaintiffs seek: (i) a declaration that the failure of McAllister and the Director Defendants to consider the Phelps Dodge proposal and to determine that the proposed three-way merger is in the best interests of ASARCO's shareholders is a breach of fiduciary duty; (ii) an injunction compelling McAllister and the Director Defendants to consider the Phelps Dodge proposal; (iii) an injunction compelling McAllister and the Director Defendants to submit the Phelps Dodge proposal to the shareholders of ASARCO; and (iv) an injunction preventing Defendants from taking any further steps to proceed with the proposed ASARCO Cyprus Merger. 81. Plaintiffs have no adequate remedy at law. COUNT THREE ----------- The $45 Million Termination Fee is Unenforceable ------------------------------------------------ 82. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 81 as if fully set forth herein. 83. McAllister and the Director Defendants stand in a fiduciary relationship with ASARCO shareholders, including Phelps Dodge. As fiduciaries, they owe the highest duties of care, loyalty and good faith. 31 84. Director Defendants breached their fiduciary duties in agreeing to a Termination Fee in the grossly excessive sum of $45 million, and in agreeing that such Termination Fee would apply even if the shareholders of ASARCO voted against the ASARCO Cyprus Merger. 85. Plaintiffs seek a declaration that agreeing to a Termination Fee of $45 million is a breach of fiduciary duty. 86. Plaintiffs have no adequate remedy at law. COUNT FOUR ---------- The Coercive Vote Should be Enjoined ------------------------------------ 87. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 86 as if fully set forth herein. 88. The scheduled September 30, 1999 vote by the ASARCO stockholders on the ASARCO Cyprus Merger will be improperly and illegally coercive. Stockholders will be wrongfully coerced into voting in favor of the merger because, as Defendants have structured the Merger Agreement, ASARCO will have to pay to Cyprus Amax a grossly excessive Termination Fee if the ASARCO stockholders fail to approve the merger. The vote of the ASARCO stockholders will also be wrongfully coerced because they know that the ASARCO Cyprus Amax transaction is the only business combination the Director Defendants will approve and thus, due to the Director Defendants' breaches of fiduciary duties, is the only transaction whereby ASARCO can be consolidated with another entity. 32 89. Plaintiffs seek an injunction enjoining the September 30, 1999 vote, or, alternatively, enjoining Defendants from taking any actions to consummate the ASARCO Cyprus Merger. 90. Plaintiffs have no adequate remedy at law. COUNT FIVE ---------- Phelps Dodges' Proposal Must be Submitted to Shareholders of ASARCO ------------------------------------------------------------------- 91. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 90 as if fully set forth herein. 92. The proposal for a three-way merger is non-coercive, nondiscriminatory, and poses no threat to ASARCO's corporate policies and effectiveness, and represents a substantial premium over the current market price of ASARCO's stock. 93. McAllister and the Director Defendants may not improperly prevent the shareholders of ASARCO from considering the Phelps Dodge proposal. Nor may they improperly manipulate the voting process, as they already have attempted to do. Any meeting of ASARCO's shareholders to vote upon the ASARCO Cyprus Merger must include a consideration of the Phelps Dodge proposal, which is superior and more beneficial to ASARCO's shareholders than the ASARCO-Cyprus Amax Merger Agreement. The failure of McAllister and the Director Defendants to put the Phelps Dodge proposal before the shareholders of ASARCO is a breach of their fiduciary duties. 33 94. Plaintiffs seek: (i) a declaration that the failure of McAllister and the Director Defendants to submit the Phelps Dodge proposal for consideration by ASARCO's shareholders is a breach of fiduciary duty; (ii) an injunction compelling McAllister and the Director Defendants to submit the Phelps Dodge proposal to ASARCO's shareholders at any meeting of ASARCO's shareholders to consider the ASARCO Cyprus Merger; and (iii) an injunction preventing McAllister and the Director Defendants from taking any further steps to proceed with the proposed ASARCO Cyprus Merger until ASARCO's shareholders have been given the opportunity to consider the three-way transaction proposed by Phelps Dodge. 95. Plaintiffs have no adequate remedy at law. COUNT SIX --------- Failure to Amend or Redeem the Poison Pill ------------------------------------------ 96. Phelps Dodge repeats and realleges each and every allegation set forth in paragraphs 1 through 95 as if fully set forth herein. 97. The proposal for a three-way merger is non-coercive, nondiscriminatory, and represents a substantial premium of the market price of ASARCO and Cyprus Amax stock. The Phelps Dodge proposal poses no threat to ASARCO's corporate policies and effectiveness, and represents a substantial premium over the current market price of ASARCO's stock. 34 98. The failure of McAllister and the Director Defendants to redeem the Rights or to amend the Rights Agreement, or to otherwise make it inapplicable to the Phelps Dodge proposal, is a severe and inappropriate response to the proposed three-way merger. In addition, McAllister and the Director Defendants' failure to redeem the Rights or to amend the Rights Agreement is a breach of the fiduciary duties owed by them to ASARCO's shareholders. 99. The application of the Rights Agreement, or the adoption of any other defensive measures, to impede or preclude the consideration and/or consummation of the three-way merger proposed by Phelps Dodge is a violation of the fiduciary duties owed by McAllister and the Director Defendants. The Phelps Dodge Exchange Offer is incapable of completion unless the Poison Pill is redeemed or amended. 100. Plaintiffs seek: (i) a declaration that the failure of McAllister and the Director Defendants to redeem the Rights or to amend the Rights Agreement to make it inapplicable to the Phelps Dodge proposal is a breach of fiduciary duty; (ii) an injunction compelling McAllister and the Director Defendants to redeem the Rights or to otherwise amend the Rights Agreement to make it inapplicable to the Phelps Dodge proposal; and (iii) an injunction enjoining McAllister and the Director Defendants from applying the Rights Agreement or adopting any other defensive measures aimed at impeding the three-way merger proposed by Phelps Dodge. 101. Plaintiffs have no adequate remedy at law. 35 COUNT SEVEN ----------- Cyprus Amax's Aiding and Abetting of Defendants' Breaches --------------------------------------------------------- 102. Phelps Dodge repeats and realleges each and every allegation set forth in paragraphs 1 through 101 as if fully set forth herein. 103. Defendants have breached their fiduciary duties to ASARCO and to its shareholders. 104. Cyprus Amax has aided and abetted Defendants in the breach of their fiduciary duties. As a direct participant in the purported "merger of equals," Cyprus Amax knew of, and in fact actively encouraged and participated in, the breach of fiduciary duties set forth herein. ASARCO and Cyprus Amax have entered into a Merger Agreement which prohibits the consideration of other, even superior, alternatives and provides Cyprus Amax with an unjustifiably large Termination Fee. Cyprus Amax induced Defendants to breach their fiduciary duties in order to obtain the substantial financial benefits that the ASARCO Cyprus Merger would provide, at the expense of ASARCO's stockholders. 105. Plaintiffs seek an injunction preventing Cyprus Amax, its employees, agents and all persons acting on its behalf, from aiding and abetting McAllister and 36 the Director Defendants' breach of fiduciary duties to ASARCO and its shareholders, with respect to the ASARCO Cyprus Merger and the Phelps Dodge proposal. 106. Plaintiffs have no adequate remedy at law. WHEREFORE, Phelps Dodge respectfully requests that the Court enter an order: . declaring that (i) the failure to make good faith efforts to obtain information about reasonable alternatives such as the Phelps Dodge proposal in order to make an informed decision about the ASARCO Cyprus Merger; and (ii) the failure to obtain a reconfirmation of the fairness opinion of their financial advisors is a breach of the Director Defendants' duty of care which they owe to ASARCO and its shareholders; . declaring that the failure to (i) adequately consider Phelps Dodge's offer; (ii) determine that the Phelps Dodge proposal is in the best interest of ASARCO's shareholders; (iii) submit Phelps Dodge's proposed three-way merger to the shareholders of ASARCO; and (iv) render inapplicable the Poison Pill by redeeming the Rights or amending the Rights Agreement, constitute a 37 breach of McAllister and the Director Defendants' fiduciary duties; . compelling McAllister and the Director Defendants to render inapplicable to the Phelps Dodge proposal the Poison Pill by redeeming the Rights or amending the Rights Agreement; . compelling Defendants to consider the Phelps Dodge proposal and to take all steps necessary to provide Plaintiffs with a fair and equal opportunity to enter into a transaction with ASARCO and Cyprus Amax, including submitting the proposal to ASARCO's shareholders; . preliminarily and permanently enjoining Defendants from taking any further steps to proceed with the proposed ASARCO Cyprus Merger until the shareholders of ASARCO have been given the opportunity to consider the three-way transaction proposed by Phelps Dodge; . preliminarily and permanently enjoining the adoption or exercise of any measures by ASARCO or McAllister and the Director Defendants which have the effect of 38 impeding, frustrating or interfering with the Phelps Dodge proposal, including without limitation payment of the Termination Fee; . preliminarily and permanently enjoining ASARCO, its employees, agents and all persons acting on its behalf, from aiding and abetting McAllister and the Director Defendants' breach of their fiduciary duties to ASARCO's stockholders; . granting damages for all incidental injuries suffered as a result of Defendants' unlawful conduct; . awarding Phelps Dodge its costs and expenses in this action, including reasonable attorneys' fees; and . granting such other and further relief as the Court deems just and proper. Dated: August 27, 1999 ___________________________ Douglas S. Eakeley LOWENSTEIN SANDLER PC 65 Livingston Avenue Roseland, New Jersey 07068 Tel: (973) 597-2500 Fax: (973) 597-2400 Attorneys for Plaintiffs 39 Of Counsel: Stuart J. Baskin Alan S. Goudiss SHEARMAN & STERLING 599 Lexington Avenue New York, New York 10022 Tel: (212) 848-4000 Fax: (212) 848-7179 John Hall DEBEVOISE & PLIMPTON 875 Third Avenue New York, New York 10022 Tel: (212) 909-6000 Fax: (212) 909-6836 40 EX-99.7 8 COMPLAINT FILED IN STERNS V. MC ALLISTER ET AL. EXHIBIT 99.7 LITE DePALMA GREENBERG & RIVAS, LLC Bruce D. Greenberg, Esq. Allya Z. Lite, Esq. Two Gateway Center, 12th Floor Newark, New Jersey 07102-5003 (973) 623-3000 WOLF POPPER LLP Marian P. Rosner, Esq. Paul O. Paradis, Esq. 845 Third Avenue New York, New York 10022 (212) 759-4600 Attorneys for Plaintiff - ------------------------------------- x MAURICE A. STERNS, : SUPERIOR COURT OF NEW JERSEY : CHANCERY DIVISION: Plaintiff, : MERCER COUNTY : -against- : Docket No. : FRANCIS R. MCALLISTER, KEVIN R. : Civil Action MORANO, RICHARD DE J. OSBORNE, : DOUGLAS E. MCALLISTER, MICHAEL T. : NELLIGAN, MANUEL T. PACHECO, JAMES : CLASS ACTION COMPLAINT WOOD, VINCENT A. CALARCO, JOHN D. : ONG, JAMES C. COTTING, DAVID C. GAR : FIELD, E. GORDON GEE, JAMES W. : KINNEAR, and ASARCO INCORPORATED, : : Defendants. : : - ------------------------------------- x Plaintiff, Maurice A. Sterns, by his attorneys, alleges for his Complaint, upon informa tion and belief, except for paragraph 2 hereof, which is alleged upon personal knowledge, as follows: SUMMARY OF ACTION ----------------- 1. Plaintiff brings this action on behalf of himself and all other public shareholders of defendant Asarco Incorporated ("Asarco" or the "Company") against Asarco and the directors of Asarco, for breaching their fiduciary duties to Asarco's shareholders. These defendants are causing the Company to summarily reject an offer to Asarco shareholders (the "Offer") by Phelps Dodge Corporation ("Phelps Dodge") to purchase both Asarco and its previously announced planned merger partner Cyprus Amax Minerals Co. ("Cyprus Amax") in a three way merger for approximately $2.66 billion in Phelps Dodge common stock, despite the fact that the Offer presents a substantial, approximately 30% premium over the trading price of Asarco's (as well as Cyprus Amax's) public shares as of August 19, 1999, the date the Boards of Asarco and Cyprus Amax both rejected Phelps Dodge's initial offer; and the Offer represents a potential economic opportunity to Asarco's shareholders to realize the full value of their investment in Asarco. Defendants' summary rejection of the Offer has no reasonable corporate purpose whatsoever and forecloses an opportunity for shareholders to realize the full value of their Asarco shares that would otherwise not be available to them. Plaintiff seeks, inter alia, an order ----- ---- enjoining defendants from summarily rejecting the Offer without giving it fair consideration, becoming fully informed as to the fairness of the Offer, and taking all steps 2 necessary to maximize shareholder value. Plaintiff further seeks an Order compelling defendants to fully and fairly inform Asarco shareholders concerning the Offer. THE PARTIES ----------- 2. Plaintiff resides at 3601 Underwood Drive, Chevy Chase, Maryland. Plaintiff owns shares of common stock of defendant Asarco and has been the owner continuously of such shares since prior to the wrongs complained of herein. 3. Defendant Asarco is a corporation organized and existing under the laws of the State of New Jersey, with its principal place of business located at 180 Maiden Lane, New York, New York 10038. Asarco produces nonferrous metals, principally copper, as well as lead, zinc and silver. The Company also produces specialty chemicals and aggregates. Asarco's copper business includes integrated mining, smelting, and refining operations in North America and Peru. Asarco's competitors in the copper business include Cyprus Amax, and Phoenix, Arizona- based Phelps Dodge, the nation's largest copper producer. 4. Cyprus Amax, a Delaware corporation, with principal executive offices located in Englewood, Colorado, is a producer of copper, coal and molybdenum, and explores for minerals worldwide. Cyprus Amax also holders a 31% interest in Kinross Gold Corporation, a Canadian company that acquires, develops and operates precious and base metal properties, emphasizing gold and copper mining. 5. Defendant Francis R. McAllister ("F. McAllister") is the Chairman of the Board of Directors, Chief Executive Officer, and a director of Asarco. 3 6. Defendant Kevin R. Morano ("Morano") is President, Chief Operating Officer, and a director of Asarco. 7. Defendant Richard de J. Osborne ("Osborne") retired recently - on April 28, 1999 - as Chairman and Chief Executive Officer of Asarco, and is currently a director of the Company. 8. Defendant Douglas E. McAllister ("D. McAllister") is Vice President, Government Affairs, and a director of Asarco. 9. Defendants Michael T. Nelligan ("Nelligan"), Manuel T. Pacheco ("Pacheco"), James Wood ("Wood"), Vincent A. Calarco ("Calarco"), John D. Ong ("Ong"), James C. Cotting ("Cotting"), David C. Garfield ("Garfield"), E. Gordon Gee ("Gee"), and James W. Kinnear ("Kinnear"), are all directors of Asarco. 10. The above-named individual defendants (collectively, the "Individual Defen dants"), as officers and/or directors of Asarco and/or as significant shareholders of Asarco, owe fiduciary duties of good faith, loyalty, fair dealing, due care, and candor to plaintiff and the other members of the Class (as defined below). 11. Each of the Individual Defendants receives annual compensation from Asarco and has a personal and financial interest in thwarting any threat to the continued incumbency and control of Asarco's current management, in derogation of their fiduciary duties. 12. Defendants' conduct, as more fully described herein, has been orchestrated to protect the positions and corresponding perquisites and other benefits received by the 4 Individual Defendants as officers and/or directors of Asarco, and the agreements pertaining to same reached between Asarco and Cyprus Amax. Defendant are breaching their fiduciary duties to plaintiff and the members of the Class (as defined below) by summarily rejecting the Offer without adequate investigation, market check, or any other procedures to determine whether the Offer presents an opportunity to maximize the value of Asarco shares, thus wrongfully depriving plaintiff and the members of the Class of the full value of their shares. Moreover, because Asarco has already been "put in play" by virtue of its previously an nounced intended merger with Cyprus Amax, defendants are obligated to obtain maximum possible value for Asarco's public shareholders, which duty they are breaching by virtue of the conduct described herein. CLASS ACTION ALLEGATIONS ------------------------ 13. Plaintiff brings this action pursuant to Rule 4:32 of the New Jersey Court Rules, on behalf of himself and all other stockholders of Asarco as of August 24, 1999 (the "Class"). Excluded from the Class are defendants herein, members of their immediate families, and any subsidiary, firm, trust, corporation, or other entity related to or affiliated with any of the defendants and their successors in interest, who are or will be threatened with injury arising from defendants' actions. 14. This action is properly maintainable as a class action for the following reasons: (a) The Class is so numerous that joinder of all members is impracticable. While the exact number of class members is unknown to plaintiff at this time and can be 5 ascertained only through appropriate discovery, there are more than 39 million shares of Asarco common stock outstanding held by thousands of shareholders of record. The holders of these are believed to be geographically dispersed throughout the United States. Asarco's stock is listed and actively traded on the New York Stock Exchange. (b) There are questions of law and fact that are common to members of the Class and thus predominate over questions affecting only individual members. The common questions include, inter alia, the following: ----- ---- (i) whether defendants have engaged in conduct constituting unfair dealing to the detriment of the Class; (ii) whether defendants' summary rejection of the Offer is grossly unfair to the Class; (iii) whether defendants are engaging in a plan or scheme to thwart and/or summarily reject offers that may maximize the value of shareholders' investment in Asarco, to the detriment of the Class; (iv) whether defendants are engaging in a plan or scheme to entrench and/or enrich themselves (whether such plan or scheme is de vised solely among themselves or pursuant to agreement with Cyprus Amax) at the expense of the public stockholders of 6 Asarco and/or unfairly to obtain for themselves the benefits and business of the Company; (v) whether plaintiff and the other members of the Class would be irreparably damaged if defendants' summary rejection of the Offer is not enjoined; (vi) whether defendants have breached fiduciary and other common law duties owed by them to the Class; and (vii) whether defendants have failed to take appropriate measures to ensure the realization of the maximum value of the Asarco stock held by the Class. (c) The claims of plaintiff are typical of the other members of the Class and plaintiff has no interest that is adverse or antagonistic to the interest of the Class. (d) Plaintiff is committed to prosecuting this action and has retained counsel competent and experienced in litigation of this nature. Plaintiff is an adequate representative of the Class and will fairly and adequately protect the interest of the Class. (e) Plaintiff anticipates that there will be no difficulty in the management of this litigation. (f) A class action is superior to other available methods for adjudication of this controversy. SUBSTANTIVE ALLEGATIONS ----------------------- 7 A. Announcement of the Asarco-Cyprus Amax Merger --------------------------------------------- 15. On July 15, 1999, Asarco and Cyprus Amax announced that they had agreed to merge in a stock-for-stock transaction in which Cyprus Amax holders will receive 0.765 of a share in the combined entity for each of their shares, and will own 63.5% of the new company. Asarco shareholders will receive one share of the new entity for each Asarco share they currently own. The transaction provided for essentially no premium for either company under then- current market prices of their respective stocks. B. The Offer by Phelps Dodge ------------------------- 16. On August 20, 1999, Asarco and Cyprus Amax issued a joint press release in which they disclosed that "the Boards of both companies had received an unsolicited proposal from Phelps Dodge Corporation to negotiate an agreement for Phelps Dodge to acquire both companies for stock. Phelps Dodge proposed an exchange of .3756 of a Phelps Dodge share of each Asarco share and .2874 of a Phelps Dodge share for each Cyprus share. . . ." This offer valued Asarco and Cyprus Amax at a total of approximately $2.39 billion, at the current stock prices of each of the three companies. The press release further stated that on August 19, 1999, the Boards of both Asarco and Cyprus Amax had met separately to consider this proposal and has determined to reject it, and instead to proceed with the two-party merger between Asarco and Cyprus Amax, citing simply "the best interests of Asarco and Cyprus Amax stockholders," without any further elaboration. 8 17. On August 20, 1999, following the announcement of the rejection of its initial offer, Phelps Dodge raised its bid for both companies. In a letter to the Boards of both Asarco and Cyprus Amax, made public by its inclusion in a Schedule 14A proxy filing with the United States Securities and Exchange Commission ("SEC"), Phelps Dodge outlined its latest proposal as follows: We propose a business combination of Phelps Dodge and Asarco pursuant to which all of the outstanding common stock of Asarco would be exchanged for Phelps Dodge common stock at an exchange ratio of 0.4098 Phelps Dodge common shares for each Asarco common share. We are also independently propos ing to Cyprus Amax a business combination of Phelps Dodge and Cyprus Amax pursuant to which all of the outstanding common stock at an exchange ratio of 0.3135 Phelps Dodge common shares for each Cyprus Amax common share. 18. As the August 20 Phelps Dodge letter pointed out, based on the current trading prices of all three companies' stocks (which would have presumably already factored any anticipated beneficial effects of a purely two-way merger between Asarco and Cyprus Amax), this revised Offer represented a premium of approximately $24.05 per share, or $960 million), and a premium of approximately 29% for Cyprus Amax (valuing Cyprus Amax at $18.40 per share, or $1.7 billion). 19. As the August 20 Phelps Dodge letter also pointed out, "Following the combination, we plan to continue the current $2.00 per share Phelps Dodge common dividend. This would result in a substantial dividend increase for Asarco shareholders to 4.1 times the dividend contemplated in your proposed merger with Cyprus Amax." 9 20. In spite of this lucrative revised Offer to Asarco's shareholders by Phelps Dodge, Asarco and Cyprus Amax again rejected said Offer outright. Thus, in response to this rejection, Phelps Dodge stated in the above-cited letter to Asarco: We are disappointed in your response to our proposed three-way combination of Asarco, Cyprus Amax and Phelps Dodge. As you know, we have on three recent occasions re quested the opportunity to discuss our proposal, which we be lieve would be far superior to your shareholders than your pro posed combination with Cyprus Amax. We are particularly disappointed that instead of accept ing our previous requests to meet to discuss our proposal to acquire Asarco for a substantial premium, you chose today to announce unilaterally our interest in acquiring Asarco and Cy prus Amax and to reject our proposal in favor of your no-pre mium merger proposal with Cyprus Amax. This appears consis tent with the manner in which you have chosen to treat you own shareholders by announcing just today, at the same time you first disclosed the terms of your July 15 merger agreement, that the record date for your shareholders vote on the no-premium merger with Cyprus Amax would be August 25. Since trades after today will settle after August 25, this effectively precluded any significant trading in the market on an informed basis before the determination of shareholders eligible to vote at your meeting. In light of your unilateral announcement, we have no other choice than to publicly announce our proposal to enter into a business combination with Asarco and Cyprus Amax, so that shareholders of all three companies are fully informed. 21. It has since been disclosed in The Wall Street Journal and over the ----------------------- Dow Jones News Service on August 24, 1999, that the Asarco-Cyprus Amax merger - ---------------------- agreement prohibits either company from negotiating with third parties. According to the agreement, neither 10 company can "withdraw or modify, or propose publicly to withdraw or modify ... the approval or recommendation by the board" of the merger agreement. 22. The Offer presents plaintiff and the Class an outstanding opportunity to maximize the value of their Asarco shares for the following reasons: (a) The Offer, even as it now stands without any meaningful consideration and due diligence by Asarco or negotiations between Phelps Dodge and Asarco, would permit plaintiff and the Class to materially increase the value of their investment in the Company. (b) The Offer represents a 30% premium over Asarco's trading price at the close of business on August 19, 1999, before Phelps Dodge's interest in acquiring Asarco and Cyprus Amax became public, and a price that presumably already reflected any anticipated benefits of an Asarco-Cyprus Amax merger. (c) Over the past several years Phelps Dodge's stock price has significantly outperformed the stock prices of Asarco and Cyprus Amax. As a result of Phelps Dodge's higher dividend, the level of outperformance is even greater when viewed on the basis of the total return to shareholders assuming reinvestment of dividends. Over the past 10 years Phelps Dodge's total return has been 161%, as compared to negative 20% for Asarco, and negative 26% for Cyprus Amax. Similarly, over the past 15 years, Phelps Dodge's total return has been 1.024%, as compared to 255% for Asarco, and 102% for Cyprus Amax. 11 (d) As stated in Phelps Dodge's August 20, 1999 letter, the proposed three-way merger would generate estimated annual cost savings of an additional $75 million over and beyond the $125 million in estimated cost savings from an Asarco-Cyprus Amax merger. (e) A merger with Phelps Dodge, the nation's largest copper producer, would have several significant benefits over the Asarco-Cyprus Amax merger, due in part to Phelps Dodge's size, management team, and resource-rich portfolio of global copper assets, including: (i) the significantly stronger ability of the combined company, relative to the Asarco-Cyprus Amax combination, to integrate southwestern U.S. mining operations, administrative functions in the U.S., Chile and Peru, and worldwide exploration and devel opment activities; (ii) the financial strength of the combined company and ability to create a world-class portfolio of non-competitive mining assets; (iii) a strong and deep management team, at both the operating and corporate levels, with strong credibility in the marketplace; (iv) the ability to eliminate substantial overhead, exploration, pur chasing and other expense through the three-way consolidation; 12 (v) the tremendous operating leverage of the combined company, together with enough diversity in other business to mitigate cyclical downturns; (vi) the immediate and substantial accretion to the cash flow of the combined company resulting from the transaction; (vii) the significant accretion to earnings per share of the combined entity beginning in the second year after closing, based on the current portfolio of the combined companies and analyst's esti mates of copper prices of $0.80 to $0.85 per pound in 2001; (viii) the total current annual copper production of the combined company of 3.8 billion pounds and attributable copper reserves of 80 billion pounds; (ix) the increased ability of the combined company to compete for world-class projects. (f) The market showed great enthusiasm for the disclosure on August 20, 1999 of Phelps Dodge's proposal. The market price of common shares of Asarco immediately rose $4.00 per share, from $18-7/16 at the close of trading on August 19, 1999 to $22-7/16 at the close of trading on August 20, 1999, and a high of $22 1/2 on the following Monday, August 23, 1999. 13 (g) The Offer represents a possible opportunity to maximize shareholder value even in excess of the $2.66 billion offered for both Asarco and Cyprus Amax through negotiation of the Offer and putting either Asarco alone or Asarco together with Cyprus Amax up for auction. CAUSE OF ACTION AGAINST ALL DEFENDANTS -------------------------------------- 23. The Individual Defendants have breached their fiduciary duties to plaintiff and the Class by rejecting out-of-hand without fully evaluating or becoming fully informed with regard to the Offer and without taking any steps to maximize shareholder value for plaintiff and the members of the Class, and by entering into an agreement with Cyprus Amax to prohibit either party from negotiating with third parties. 24. Because Asarco has already been "put in play" by virtue of its previously announced intended merger with Cyprus Amax, the Individual Defendants are obligated to obtain the maximum possible value of Asarco public shareholders, which duty they are breaching by virtue of their refusal to consider the substantial superior Offer - providing a 30% premium to Asarco's shareholders - proposed by Phelps Dodge. 25. By virtue of the acts and conduct herein, the Individual Defendants are not acting in good faith and have breached their fiduciary and other common law duties that they owe to plaintiff and the other members of the Class, have engaged in unfair dealing for their own benefit and the detriment of the Class, and have pursued a course of conduct designed to entrench themselves in their positions of control within the Company. 14 26. The Individual Defendants have violated their fiduciary duties owed to plaintiff and the other members of the Class in that they have not and are not exercising independent business judgment and have acted and are acting to the detriment of the Class in order to benefit themselves and solidify their positions of control and enjoyment of the perquisites of office, and/or to preserve the agreements regarding same already reached between them and Cyprus Amax. 27. As a result of the foregoing, defendant's summary rejection of the Offer is a breach of defendants' fiduciary duties and should be enjoined. 28. Plaintiff lacks an adequate remedy at law. WHEREFORE, plaintiff demands judgment as follows: (a) declaring this action to be a proper class action and certifying plaintiff as the representative of the Class; (b) declaring defendants' rejection of the Offer to be a breach of defendant's fiduciary duties of loyalty, due care, good faith, fair dealing, and candor to plaintiff and the Class; (c) ordering the Individual Defendants to carry out their fiduciary duties to plaintiff and the other members of the Class by: (i) Requiring defendants to consider the Offer in good faith, to take all possible measures to maximize the value of Asarco stock by, for example, engaging in a course of due diligence and negotiat 15 ing with Phelps Dodge, or otherwise maximizing the value of the Company to plaintiff and the Class; and (ii) requiring defendants to make full and fair disclosure of the Offer, the negotiations between Asareo and Phelps Dodge, and all other matters concerning a possible acquisition or merger of Asarco that a reasonable investor would consider important; (d) ordering defendants, jointly and severally, to pay to plaintiff and other members of the Class all damages suffered and to be suffered by them as a result of the acts and transactions alleged herein; (e) awarding plaintiff the costs and disbursements of this action, including a reasonable allotment for plaintiff's attorneys' and expert's fees; and (f) granting such other and further relief as the Court may deem just and equitable. LITE DePALMA GREENBERG & RIVAS, LLC By: _________________________________ Bruce D. Greenberg Allyn Z. Lite Two Gateway Center, 12/th/ Floor Newark, New Jersey 07102-5003 (73) 623-3000 Attorneys for Plaintiff 16 EX-99.8 9 COMPLAINT FILED IN GREENFIELD V. OSBORNE, ET AL. EXHIBIT 99.8 TRUJILLO RODRIGUEZ & RICHARDS, LLC 3 Kings Highway East Haddonfield, NJ 08033 (609) 795-9002 Attorneys for Plaintiff and the Class - - - - - - - - - - - - - - - - - - - - - - - x RICHARD D. GREENFIELD, on behalf of : SUPERIOR COURT OF NEW JERSEY himself and all others similarly situated, : CHANCERY DIVISION : MERCER COUNTY Plaintiff, : : Docket No.: vs. : : RICHARD DeJONGH OSBORNE, KEVIN R. : MORANO, VINCENT A. CALARCO, : CIVIL ACTION MANUEL T. PACHECO, MARTHA T. : ------------ MUSE, JOHN D. ONG, JAMES W. : KINNEAR, JAMES WOOD, DR. E. GORDON : GEE, FRANCIS R. McALLISTER, JAMES C. : CLASS ACTION COMPLAINT COTTING, DAVID C. GARFIELD, MICHAEL : T. NELLIGAN, WILLARD CARLISLE : BUTCHER, ASARCO, INC. and CYPRUS : AMAX MINERALS CO. : : Defendants. : - - - - - - - - - - - - - - - - - -- - - - - - x Plaintiff Richard D. Greenfield, by his attorneys, for his Complaint, alleges upon personal knowledge and belief as to his own acts and upon information and belief as to all other matters, based upon investigation of counsel, as follows: NATURE OF THE ACTION -------------------- 1. This action arises from breaches of fiduciary duties in connection with a merger agreement entered into between Cyprus Amax Minerals Co. ("Cyprus Amax") and Asarco Inc. ("Asarco") for totally insufficient consideration and in breach of defendants' fiduciary duties. Plaintiff alleges that he and a proposed class of public shareholders of Asarco common stock are entitled to enjoin the proposed transaction or, alternatively, to recover damages in the event that the transaction is consummated. Plaintiff brings this action on behalf of the public holders of the outstanding common shares of Asarco for injunctive and other relief in connection with an improperly negotiated and structured merger conceived by defendants as detailed below. THE PARTIES ----------- 2. Plaintiff has been, at all times relevant to this action an owner of Asarco common stock. 3. Defendant Asarco is a New Jersey corporation with its executive offices located at 180 Maiden Lane, New York, New York 10038. Asarco is a producer of nonferrous metals, principally copper, lead, zinc, and silver. 4. Defendant Francis R. McAllister is Chairman of the Board, Chief Executive Officer and a director of Asarco. 5. Defendant Kevin Morano is President, Chief Operating Officer and a director of Asarco. 2 6. The other individual defendants Richard DeJongh Osborne, Vincent A. Calarco, Manuel T. Pacheco, Martha T. Muse, John D. Ong, James W. Kinnear, James Wood, Dr. E. Gordon Gee, James C. Cotting, David C. Garfield, Michael T. Nelligan and Willard Carlisle Butcher constitute the entire board of directors of Asarco. 7. The individual defendants, as directors of Asarco owe fiduciary duties of good faith, loyalty, fair dealing, due care, and full disclosure to plaintiff and the other members of the Class (as defined below). 8. Defendant, Cyprus Amax is a Delaware corporation with its principal place of business at 9100 East Mineral Circle, Englewood, CO 80112. Cyprus Amax is a holding company that mines, processes and markets coal, iron ore and gold. Cyprus Amax has knowledge of the facts and circumstances described below. Therefore, Cyprus Amax has knowingly participated in the breaches of fiduciary duty described herein and is liable as an aider and abettor and for inducement of the individual defendants to breach their fiduciary duties owed to plaintiff and the Class. CLASS ACTION ALLEGATIONS ------------------------ 9. Plaintiff brings this action pursuant to the provisions of R.4:32 - of the New Jersey Court Rules on behalf of himself and all other shareholders of Asarco as of July 15, 1999 (except the defendants herein and any persons, firm, trust, corporation, or other entity related to or affiliated with them and their successors in interest), who are or will be threatened with injury arising from defendants' actions, as is more fully described herein (the "Class"). 3 10. This action is properly maintainable as a class action for the following reasons: a. The Class is so numerous that joinder of all members is impracticable. There are thousands of shareholders of record of Asarco stock and many more beneficial owners who are members of the Class. b. Members of the Class are scattered throughout the United States and are so numerous that it is impracticable to bring them all before this Court. c. There are questions of law and fact that are common to the Class and that predominate over questions affecting any individual class member. The common question include, inter alia, the following: ----- ---- (1) Whether the transaction as negotiated and structured denies shareholder information (particularly with respect to the value of their shares) necessary to make an informed decision whether to sell their shares; (2) Whether defendants have violated their fiduciary duties by contracting away their obligations to fully inform themselves regarding the value of Asarco; (3) Whether the individual defendants, as directors of Asarco have fulfilled, and are capable of fulfilling, their fiduciary duties to plaintiff and the other members of the Class, including their duties of entire fairness, loyalty, due care, and full disclosure; (4) Whether Cyprus Amax has aided and abetted the individual defendants' breaches of fiduciary duties and otherwise induced them to do so; and 4 (5) Whether plaintiff and the other members of the Class would be irreparably damaged were defendants not enjoined from the conduct described herein. d. The claims of plaintiff are typical of the claims of the other members of the Class in that all members of the Class will be damaged by defendants' actions. e. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. Plaintiff is an adequate representative of the Class. f. A class action is superior to any other method available for the fair and efficient adjudication of this controversy since it would be impractical and undesirable for each of the members of the Class, who has suffered or will suffer damages, to bring separate actions in various parts of the country. g. The prosecution of separate actions by individual members of the Class would create a risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for the party opposing the Class. 11. At all relevant times the shares of Asarco were publicly traded on the New York Stock Exchange. SUBSTANTIVE ALLEGATIONS ----------------------- 12. On a date prior to July 15, 1999, the individual defendants determined to put Asarco "in play" by causing it to enter into a business combination with Cyprus Amax. Once "in play," the individual defendants were legally obligated pursuant to their duty of loyalty to obtain for plaintiff and the Class the best possible price or terms for their Asarco shares. 5 13. On July 15, 1999 Cyprus Amax and Asarco announced that they had entered into a merger agreement and that it had been unanimously approved by the Boards of Directors of both companies. The deal was described by both Cyprus Amax and Asarco as a merger of equals. 14. The terms of the transaction provided that Cyprus Amax shareholders will receive 0.765 shares of Asarco Cyprus common stock for each share of Cyprus Amax common stock they own and Asarco shareholders will receive one (1) share of Asarco Cyprus common stock for each share of Asarco common stock they own (the "Transaction"). Defendants McAllister and Morano would be principal beneficiaries of such a transaction since Cyprus Amax chairman is due to retire next year. 15. The Wall Street Journal ("WSJ") reported on August 23rd, 1999 --------------------------- that although the merger agreement was entered into by Cyprus Amax and Asarco on July 15, 1999, they waited until August 20th to file the month-old agreement and only then disclosed that the record date for the shareholders to vote at the September 30th shareholder meeting would be Wednesday, August 25, 1999. The WSJ --- reported in the same article that although the Company had disclosed the record date to the New York Stock Exchange earlier, it did not make its announcement public regarding the record date until Friday, August 20th. Not surprisingly, Cyprus Amax and Asarco also announced on August 20th that Phelps Dodge Corporation ("Phelps Dodge") had made previously concealed bids for both companies or a combined Cyprus Asarco company. 16. Defendants' maneuvers were clearly designed to make sure that only those shareholders who own shares of record by August 25th can vote at the shareholder meeting. Douglas 6 Yearley, Chairman and CEO of Phelps Dodge was reported in the WSJ as observing --- that, since trades on August 20th will settle after August 25, such record date effectively precludes any significant trading in the market on an informed basis before the determination of shareholders eligible to vote. Yearley was quoted in the WSJ as stating that defendants' tactics amounted to a "shareholder squeeze --- play". 17. Phelps Dodge responded to defendants' August 20th announcement by offering to enter into a three-way merger that would result in $265 million in annual cost savings to the combination of all three companies. Phelps Dodge proposed a business combination pursuant to which all of the outstanding common stock of Asarco would be exchanged for Phelps Dodge common stock at an exchange ratio of 0.4098 Phelps Dodge common shares for each Asarco common share. Phelps Dodge also proposed to Cyprus Amax a business combination of Phelps Dodge and Cyprus Amax pursuant to which all outstanding common stock of Cyprus Amax would be exchanged for Phelps Dodge common stock in an exchange ratio of 0.3135 Phelps Dodge common shares for each Cyprus Amax common share. Based on share prices for the three companies' common shares before trading was halted on Friday, August 20th, the ratios provided for a premium of approximately 30% for Asarco and a premium of approximately 29% for Cyprus Amax. Phelps Dodge also made it clear to both Cyprus Amax and Asarco that although its preference was for a transaction involving all three companies, it was willing to consider a negotiated business combination with either Asarco or Cyprus Amax regardless of whether the other company was willing to proceed on a negotiated basis. 7 18. Phelps Dodge's offer of August 20th was driven in part by the apparent unwillingness of the Board of Directors of both companies to even discuss the proposal notwith standing serious overtures by Phelps Dodge and, in particular, the fiduciary obligations of Asarco's Board. Defendants' actions are all the more egregious in that they rejected the Phelps Dodge proposal in favor of the no-premium merger proposal improperly negotiated in July between Cyprus Amax and Asarco. 19. The individual defendants, in violation of their fiduciary duties owed to plaintiff and the Class, negotiated a merger agreement which strictly prohibits any solicitation or indeed discussion of bids or potential bids, and does not therefore provide for a bona fide fiduciary "out" of the Cyprus Amax ---- ---- merger deal, including responding to a proposal that would be more advantageous to Asarco shareholders. Therefore, while the Board of Asarco could withdraw its recommendation to the shareholders that they vote in favor of the Transaction, the Board has by contract prohibited and denied itself access to the very information it would need to challenge that recommendation and cause the Board to withdraw that recommendation. In other words Asarco directors have attempted to contract away their fiduciary responsibility and obligations to explore in good faith all information which would shed light upon the value of the shares of Asarco, to seek the best price for Asarco shares and have further breached their fiduciary duties by failing to provide the shareholders with this needed and material information in a timely and reasonable manner. 20. The individual defendants were and are under a continuing duty to fully inform themselves before taking action or agreeing to refrain from taking action, to elicit, promote, 8 consider and evaluate reasonable and bona fide offers for Asarco to assure that ---- ---- a "level playing field" exists when more than one bidder for the Company emerges, and not to favor one bidder over another, unless it is designed to assure and is reasonably related to achieving the best transaction for the Asarco shareholders. The individual defendants breached their fiduciary duty by, among other matters, failing to fully inform themselves about available alternatives to the Transaction, including a transaction with Phelps Dodge, and without fully informing themselves about the value of Asarco. They have further breached their duty to plaintiff and the other Asarco shareholders by not obtaining for them the best price for Asarco shares. 21. If the breaches of fiduciary duty described herein are permitted to continue, the Asarco shareholders will forever lose the opportunity to have the value of their Company arrived at through competitive bidding on a level playing field and the opportunity to consider any other bidders which may come forward. 22. By reason of the foregoing acts, practices and course of conduct of defendants, plaintiff and the other members of the Class have been and will be damaged because they will not receive their fair proportion of the value of Asarco's assets and business, which far exceeds the Transaction consideration, in the unfair Transaction at issue, have been and will be prevented from making an informed decision whether to approve the Transaction, and will wrongfully impede consideration of any other third party offer for greater consideration, including the Phelps Dodge offer. 9 23. Defendant Cyprus Amax has acted and is acting with knowledge that the other defendants are in breach of their fiduciary duties to Asarco shareholders (owed to them by virtue of the merger agreement) and have intentionally, recklessly or negligently induced, aided and abetted such breaches of fiduciary duties by the directors of Asarco. 24. Unless enjoined by this Court, defendants will continue to breach their fiduciary duties owed to plaintiff and the Class and will consummate the Transaction to the irreparable harm of plaintiff and the Class. 25. Plaintiff and the other members of the Class have no adequate remedy at law. PRAYER FOR RELIEF ----------------- WHEREFORE, plaintiff, on behalf of himself and all others similarly situated, prays for relief and judgment as follows: a. For an order certifying the Class under the appropriate provisions of R. 4:32 of the New Jersey Court Rules and appointing plaintiff - and his counsel to represent the Class; b. Ordering defendants to carry out their fiduciary duties to plaintiff and the other members of the Class, including those of duty of care, loyalty, full disclosure, and entire fairness; c. Granting preliminary and permanent injunctive relief against the consummation of the Transaction as described herein; d. Ordering the individual defendants to explore alternatives and to negotiate in good faith with all interested persons, including but not limited to Phelps Dodge. 10 e. In the event the Transaction is consummated, rescinding the Transaction and awarding rescissory damages; f. Ordering defendants, jointly and severally, to pay to plaintiff and to other members of the Class all damages suffered and to be suffered by them as the result of the acts alleged herein; g. Awarding plaintiff the costs and disbursements of this action including allowances for plaintiff's reasonable attorneys and experts fees; and h. Granting such other and further relief as the Court deems just, proper and equitable. Dated: August 25, 1999 TRUJILLO RODRIGUEZ & RICHARDS, LLC By:___________________________________ Lisa J. Rodriguez 3 Kings Highway East Haddonfield, NJ 08033 (609) 795-9002 LIEBENBERG & WHITE Ann D. White The Pavillion 261 Old York Road, Suite 810 Jenkintown, PA 19046 (215) 481-0272 Attorneys for Plaintiff and the Class 11 EX-99.9 10 COMPLAINT FILED IN STEINER V. CYPRUS AMAX ET AL. EXHIBIT 99.9 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - - - - - - - - - - - - - - - - - - - x KENNETH STEINER, : : Civil Action No. 17384 Plaintiff, : : -against- : : CYPRUS AMAX MINERALS CO., MILTON H. : WARD, LINDA G. ALVARADO, GEORGE S. : ANSELL, ALLEN BORN, WILLIAM C. : BOUSQUETTE, THOMAS V. FALKIE, ANNE : MAYNARD GRAY, ROCKWELL A. : SCHNABEL, THEODORE M. SOLSO, JOHN : HOYT STOOKEY, JAMES A. TODD, JR., : BILLIE B. TURNER and ASARCO INC., : : Defendants. : - - - - - - - - - - - - - - - - - - - x COMPLAINT --------- Plaintiff, by and through his attorneys, alleges upon information and belief except as to himself and his own actions, which he alleges upon knowledge, as follows: SUMMARY OF ACTION ----------------- 1. This action arises from breaches of fiduciary duties in connection with a merger agreement entered into by Cyprus Amax Minerals Co. ("Cyprus Amax") and Asarco Inc. ("Asarco") for grossly inadequate consideration and in breach of defendants' fiduciary duties. Plaintiff alleges that he and other public shareholders of Cyprus Amax common stock are entitled to enjoin the proposed transaction or, alternatively, to recover damages in the event that the transaction is consummated. Plaintiff brings this action on behalf of the public holders of the outstanding common shares of Cyprus Amax for injunctive and other relief in connection with an improperly negotiated and structured merger conceived by defendants hereinafter described. One effect of the negotiation and structure of the transaction is to deny shareholders important information regarding the value of their shares of Cyprus Amax. 2. The result of defendants' actions is that the ASARCO and Cyprus Amax merger provides no premium for the public shareholders in a transaction which was unfairly negotiated and structured to avoid purposely any superior bid for Cyprus Amax or the Cyprus Amax - Asarco combined entity. THE PARTIES ----------- 3. Plaintiff has been, at all times relevant to this action an owner of CYPRUS AMAX common stock. 4. Defendant Cyprus Amax is a Delaware corporation with its principal executive offices located at 9100 East Mineral Circle, Englewood, CO 80112. Cyprus Amax is a holding company with subsidiaries which explore for, extract, process and market coal, copper, iron ore and gold. Cyprus Amax currently has over 90 million shares of common stock outstanding held by approximately 37,000 shareholders of record. 2 5. Defendant Milton H. Ward is Chairman of the Board, President, Chief Executive Officer and a director of Cyprus Amax. His recent compensation according to the March 99 proxy exceeds $3 million. 6. The other individual defendants Linda G. Alvarado, George S. Ansell, Allen Born, William C. Bousquette, Thomas V. Falkie, Anne Maynard Gray, Rockwell A. Schnabel, Theodore M. Solso, John Hoyt Stookey, James A. Todd, Jr., and Billie B. Turner with defendant Ward constitute the entire board of directors of Cyprus Amax. 7. The individual defendants, as directors of Cyprus Amax owe fiduciary duties of good faith, loyalty, fair dealing, due care, and full disclosure to plaintiff and the other members of the Class (as defined below). 8. Defendant Asarco is a New Jersey corporation with its principal place of business at 180 Maiden Lane, New York, New York 10038-4925. Asarco inter alia mines, smelts, refines and sells copper, silver, lead, zinc and gold - ----- ---- ore molybdenum. Asarco has knowledge of the facts and circumstances described below. Therefore, Asarco has knowingly participated in the breaches of fiduciary duty described herein and is liable as an aider and abettor. CLASS ACTION ALLEGATIONS ------------------------ 9. Plaintiff brings this action pursuant to Rule 23 of the Rules of this Court, on behalf of themselves and all other shareholders of Cyprus Amax as of July 15, 1999 (except the defendants herein and any persons, firm, trust, corporation, or other entity related to or 3 affiliated with them and their successors in interest), who are or will be threatened with injury arising from defendants' actions, as is more fully described herein (the "Class"). 10. This action is properly maintainable as a class action for the following reasons: a. The Class is so numerous that joinder of all members is impracticable. There are approximately 37,000 record shareholders of CYPRUS AMAX stock and many more beneficial owners who are members of the Class. b. Members of the Class are scattered throughout the United States and are so numerous that it is impracticable to bring them all before this Court. c. There are questions of law and fact that are common to the Class and that predominate over questions affecting any individual class member. The common questions include, inter alia, the following: ----- ---- (1) Whether the transaction as negotiated and structured denies shareholders information (particularly with respect to the value of their shares) necessary to make an informed decision whether to sell their shares; (2) Whether defendants have violated their fiduciary duties by contracting away their obligations to fully inform themselves regarding the value of Cyprus Amax; (3) Whether the individual defendants, as directors of Cyprus Amax have fulfilled, and are capable of fulfilling, their fiduciary duties to plaintiff and the other 4 members of the Class, including their duties of entire fairness, loyalty, due care, and full disclosure; (4) Whether Asarco has aided and abetted the individual defendants' breaches of fiduciary duties; and (5) Whether plaintiff and the other members of the Class would be irreparably damaged were defendants not enjoined from the conduct described herein. d. The claims of plaintiff is typical of the claims of the other members of the class in that all members of the Class will be damaged by defendants' actions. e. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. Plaintiff is adequate representatives of the Class. f. A class action is superior to any other method available for the fair and efficient adjudication of this controversy since it would be impractical and undesirable for each of the members of the Class, who has suffered or will suffer damages, to bring separate actions in various parts of the country. g. The prosecution of separate actions by individual members of the Class would create a risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for the party opposing the Class. 5 11. At all relevant times the shares of CYPRUS AMAX were publicly traded on the New York Stock Exchange. THE CHALLENGED COURSE OF CONDUCT -------------------------------- 12. On July 15, 1999 Cyprus Amax and Asarco announced an agreement unanimously approved by the Boards of both companies, for the combination of the two companies in a merger of equals transaction. 13. Under the terms of the transaction, Cyprus Amax shareholders will receive 0.765 shares of Asarco Cyprus common stock for each share of Cyprus Amax common stock they own and Asarco shareholders will receive one (1) share of Asarco Cyprus common stock for each share of Asarco common stock they own (the "Transaction"). 14. Although Cyprus Amax and Asarco entered into a merger agreement on or about July 15, 1999, they waited until August 20th to file their merger agreement and only then disclosed that the record date for the shareholders to vote at the September 30th shareholder meeting would be Wednesday, August 25, 1999. While the Company apparently obtained a waiver from the New York Stock Exchange and disclosed the record date to the New York Stock Exchange earlier, it did not make its announcement public regarding the record date until Friday, August 20th. Not coincidentally, Cyprus Amax and Asarco also announced on August 20th that Phelps Dodge Corporation ("Phelps Dodge") had made bids for both companies or a combined Cyprus Asarco company. The defendants' tactics are clear: Only those shareholders who own shares of record by August 25th can vote at the shareholder meeting. As Phelps Dodge observed, 6 since trades on August 20 will settle after August 25, such record date effectively precludes any significant trading in the market on an informed basis before the determination of shareholders eligible to vote. As the Chairman of Phelps Dodge aptly noted, the various tactics by defendants amount to "shareholder squeeze play". 15. Given defendants' unilateral announcement on August 20th regarding Phelps Dodge's previous bid, on August 20, 1999 Phelps Dodge went public with a sweetened offer for both companies. On August 20, Phelps Dodge offered a three-way merger that would result in $265 million in annual cost savings, including streamlining copper operations in the Southwest and combining the administrative functions in the U.S., Chile and Peru, plus lower depreciation. Phelps Dodge proposing to Cyprus Amax a business combination of Phelps Dodge and Cyprus Amax pursuant to which all outstanding common stock of Cyprus Amax would be exchange for Phelps Dodge common stock in an exchange ratio of 0.3135 Phelps Dodge common shares for each Cyprus Amax common share. Phelps Dodge has also proposed a business combination pursuant to which all of the outstanding common stock of Asarco would be exchange for Phelps Dodge common stock at an exchange ratio of 0.4098 Phelps Dodge common shares for each Asarco common share. Based on share prices for the three companies' common shares before trading was halted on Friday, August 20th, the ratios implied a premium of approximately 30% for Asarco and a premium of approxi mately 29% for Cyprus Amax, while preserving the relative economics of the exchange ratio under the proposed combination of Cyprus Amax and Asarco. Moreover, the proposed transaction would be tax free to the 7 shareholders. Phelps Dodge also made it clear to both Cyprus Amax and Asarco that although it preferred a transaction involving all three companies, they were prepared to enter into a negotiated business combination with either Asarco or Cyprus Amax regardless of whether the other company was willing to proceed on a negotiated basis. 16. The public announcement of the August 20th bid by Phelps Dodge was precipitated in part by Asarco's and Cyprus' refusal to even meet and discuss the proposal notwithstanding several overtures by Phelps Dodge and to reject out of hand any proposal in favor of the no-premium merger proposal improperly negotiated in July between Cyprus Amax and Asarco. 17. In violation of their fiduciary duties the individual defendants negotiated a merger agreement which strictly prohibits any solicitation or indeed discussion of bids or potential bids, and does not therefore provide for a bona fide fiduciary out. Therefore, while the Board of Cyprus Amax could ---- ---- withdraw its recommendation to the shareholders that they vote in favor of the Transaction, the Board has by contract prohibited and denied itself access to the very information it would need to challenge that recommendation and cause the Board to withdraw that recommenda tion. In other words, Cyprus Amax directors have contracted away their fiduciary responsibility and obligations to explore in good faith all information which would shed light upon the value of the shares of Cyprus Amax and have further breached their duties by failing to provide the shareholders with this needed and material information. 8 18. The individual defendants were and are under a continuing duty to fully inform themselves before taking action, or agreeing to refrain from taking action, to elicit, promote, consider and evaluate reasonable and bona fide ---- ---- offers for Cyprus Amax, to assure that a "level playing field" exists when more than one bidder for the Company emerges, and not to favor one bidder over another, unless it is designed to assure and is reasonably related to achieving the best transaction for the Cyprus Amax shareholders. The individual defendants breached their fiduciary duty by, among other matters, failing to fully inform themselves about available alternatives to the Transaction, including a transaction with Phelps Dodge, and without fully informing themselves about the value of Cyprus Amax. 19. If the breaches of fiduciary duty described herein are permitted to continue, the Cyprus Amax shareholders will forever lose the opportunity to have the value of their Company arrived at through competitive bidding on a level playing field and the opportunity to consider any other bidders which may come forward. 20. By reason of the foregoing acts, practices and course of conduct of defendants, plaintiff and the other members of the Class have been and will be damaged because they will not receive their fair proportion of the value of Cyprus Amax's assets and business, which far exceeds (and could very well be negotiated to an even higher level) the Transaction consideration, in the unfair Transaction at issue, have been and will be prevented from making an informed decision whether to approve the Transaction, and will wrongfully impede consideration of any other third party offer for greater consideration, including the Phelps Dodge offer. 9 21. Unless enjoined by this Court, defendants will continue to breach their fiduciary duties owed to plaintiff and the Class and will consummate the Transaction to the irreparable harm of plaintiff and the Class. 22. Plaintiff and the other members of the Class have no adequate remedy at law. 23. WHEREFORE, plaintiff demands judgment as follows: a. Declaring this to be a proper class action and naming plaintiff as Class representative and his attorneys as Class counsel; b. Ordering defendants to carry out their fiduciary duties to plaintiff and the other members of the Class, including those of duty of care, loyalty, full disclosure, and entire fairness; c. Granting preliminary and permanent injunctive relief against the consummation of the Transaction as described herein; d. Ordering the individual defendants to explore alternatives and to negotiate in good faith with all interested persons, including but not limited to Phelps Dodge. e. In the event the Transaction is consummated, rescinding the Transaction and awarding rescissory damages; f. Ordering defendants, jointly and severally, to pay to plaintiff and to other members of the Class all damages suffered and to be suffered by them as the result of the acts alleged herein; 10 g. Ordering defendants, jointly and severally, to account to plaintiff and the Class for all profits realized and to be realized by them as a result of the actions complained of and, pending such accounting, to hold such profits in a constructive trust for the benefit of plaintiff and other members of the Class; h. Awarding plaintiff the costs and disbursements of the action including allowances for plaintiff's reasonable attorneys and experts fees; and i. Granting such other and further relief as may be just and proper in the premises. Dated: August 23, 1999 CHIMICLES & TIKELLIS LLP ------------------------------ Pamela S. Tikellis James C. Strum One Rodney Square P.O. Box 1035 Wilmington, Delaware 19899 11 OF COUNSEL: WOLF, HALDENSTEIN, ADLER, FREEMAN & HERZ, LLP 270 Madison Avenue New York, NY 10016 (212) 545-4600 12 EX-99.10 11 COMPLAINT FILED IN MILLER C. CYPRUS AMAX ET AL. EXHIBIT 99.10 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - ------------------------------------------ x CHARLES MILLER, : : Plaintiff, : : v. : Civil Action No.: : CYPRUS AMAX MINERALS CO., MILTON H. : WARD, LINDA G. ALVARADO, GEORGE S. : ANSELL, ALLEN BORN, WILLIAM C. : BOUSQUETTE, THOMAS V. FALKIE, ANNE : MAYNARD GRAY, ROCKWELL A. SCHNABEL, : THEODORE M. SOLSO, JOHN HOYT STOOKEY, : JAMES A. TODD, JR., BILLIE B. TURNER and : ASARCO INC., : : Defendants. : : - ------------------------------------------ x COMPLAINT --------- Plaintiff, by and through his attorneys, alleges upon information and belief except as to himself and his own actions, which he alleges upon knowledge, as follows: SUMMARY OF ACTION ----------------- 1. This action arises from breaches of fiduciary duties in connection with a merger agreement entered into by Cyprus Amax Minerals Co. ("Cyprus Amax") and Asarco Inc. ("Asarco") for grossly inadequate consideration and in breach of defendants' fiduciary duties. Plaintiff alleges that he and other public shareholders of Cyprus Amax common stock are entitled to enjoin the proposed transaction or, alternatively, to recover damages in the event that the transaction is consummated. Plaintiff brings this action on behalf of the public holders of the outstanding common shares of Cyprus Amax for injunctive and other relief in connection with an improperly negotiated and structured merger conceived by defendants hereinafter described. One effect of the negotiation and structure of the transaction is to deny shareholders important information regarding the value of their shares of Cyprus Amax. 2. The result of defendants' actions is that the ASARCO and Cyprus Amax merger provides no premium for the public shareholders in a transaction which was unfairly negotiated and structured to avoid purposely any superior bid for Cyprus Amax or the Cyprus Amax - Asarco combined entity. THE PARTIES ----------- 3. Plaintiff has been, at all times relevant to this action an owner of CYPRUS AMAX common stock. 4. Defendant Cyprus Amax is a Delaware corporation with its principal executive offices located at 9100 East Mineral Circle, Englewood, CO 80112. Cyprus Amax is a holding company with subsidiaries which explore for, extract, process and market coal, copper, iron ore and gold. Cyprus Amax currently has over 90 million shares of common stock outstanding held by approximately 37,000 shareholders of record. 2 5. Defendant Milton H. Ward is Chairman of the Board, President, Chief Executive Officer and a director of Cyprus Amax. His recent compensation according to the March 99 proxy exceeds $3 million. 6. The other individual defendants Linda G. Alvarado, George S. Ansell, Allen Born, William C. Bousquette, Thomas V. Falkie, Anne Maynard Gray, Rockwell A. Schnabel, Theodore M. Solso, John Hoyt Stookey, James A. Todd, Jr., and Billie B. Turner with defendant Ward constitute the entire board of directors of Cyprus Amax. 7. The individual defendants, as directors of Cyprus Amax owe fiduciary duties of good faith, loyalty, fair dealing, due care, and full disclosure to plaintiff and the other members of the class (as defined below). 8. Defendant Asarco is a New Jersey corporation with its principal place of business at 180 Maiden Lane, New York, New York 10038-4925. Asarco inter alia mines, smelts, refines and sells copper, silver, lead, zinc and gold - ----- ---- ore molybdenum. Asarco has knowledge of the facts and circumstances described below. Therefore, Asarco has knowingly participated in the breaches of fiduciary duty described herein and is liable as an aider and abettor. CLASS ACTION ALLEGATIONS ------------------------ 9. Plaintiff brings this action pursuant to Rule 23 of the Rules of this Court, on behalf of themselves and all other shareholders of Cyprus Amax as of July 15, 1999 (except the defendants herein and any persons, firm, trust, corporation, or other entity related to or affiliated 3 with them and their successors in interest), who are or will be threatened with injury arising from defendants' actions, as is more fully described herein (the "Class"). 10. This action is properly maintainable as a class action for the following reasons: a. The Class is so numerous that joinder of all members is impractica ble. There are approximately 37,000 record shareholders of CYPRUS AMAX stock and many more beneficial owners who are members of the Class. b. Members of the Class are scattered throughout the United States and are so numerous that it is impracticable to bring them all before this Court. c. There are questions of law and fact that are common to the Class and that predominate over questions affecting any individual class member. The common questions include, inter alia, the following; ----- ---- (1) Whether the transaction as negotiated and structured denies shareholders information (particularly with respect to the value of their shares) necessary to make an informed decision whether to sell their shares; (2) Whether defendants have violated their fiduciary duties by contracting away their obligations to fully inform themselves regarding the value of Cyprus Amax; (3) Whether the individual defendants, as directors of Cyprus Amax have fulfilled, and are capable of fulfilling, their fiduciary duties to plaintiff and the other members of the Class, including their duties of entire fairness, loyalty, due care, and full disclosure; 4 (4) Whether Asarco has aided and abetted the individual defendants' breaches of fiduciary duties; and (5) Whether plaintiff and the other members of the Class would be irreparably damaged were defendants not enjoined from the conduct described herein. d. The claims of plaintiff is typical of the claims of the other members of the class in that all members of the Class will be damaged by defendants' actions. e. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. Plaintiff is adequate representatives of the Class. f. A class system is superior to any other method available for the fair and efficient adjudication of this controversy since it would be impractical and undesirable for each of the members of the Class, who has suffered or will suffer damages, to bring separate actions in various parts of the country. g. The prosecution of separate actions by individual members of the Class would create a risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for the party opposing the Class. 11. At all relevant times the shares of CYPRUS AMAX were publicly traded on the New York Stock Exchange. 5 THE CHALLENGED COURSE OF CONDUCT -------------------------------- 12. On July 15, 1999 Cyprus Amax and Asarco announced an agreement unanimously approved by the Boards of both companies, for the combination of the two companies in a merger of equals transaction. 13. Under the terms of the transaction, Cyprus Amax shareholders will receive 0.765 shares of Asarco Cyprus common stock for each share of Cyprus Amax common stock they own and Asarco shareholders will receive one (1) share of Asarco Cyprus common stock for each share of Asarco common stock they own. (the "Transaction"). 14. Although Cyprus Amax and Asarco entered into a merger agreement on or about July 15, 1999, they waited until August 20/th/ to file their merger agreement and only then disclosed that the record date for the shareholders to vote at the September 30/th/ shareholder meeting would be Wednesday, August 25, 1999. While the Company apparently obtained a waiver from the New York Stock Exchange and disclosed the record date to the New York Stock Exchange earlier, it did not make its announcement public regarding the record date until Friday, August 20/th/. Not coincidentally, Cyprus Amax and Asarco also announced on August 20/th/ that Phelps Dodge Corporation ("Phelps Dodge") had made bids for both companies or a combined Cyprus Asarco company. The defendants' tactics are clear: Only those shareholders who own shares of record by August 25/th/ can vote at the shareholder meeting. As Phelps Dodge observed, since trades on August 20 will settle after August 25, such record date effectively precludes any significant trading in the market on an informed basis before the determination of shareholders eligible to vote. As 6 the Chairman of Phelps Dodge aptly noted, the various tactics by defendants amount to "shareholder squeeze play." 15. Given defendants' unilateral announcement on August 20/th/ regarding Phelps Dodge's previous bid, on August 20, 1999, Phelps Dodge went public with a sweetened offer for both companies. On August 20, Phelps Dodge offered a three-way merger that would result in $265 million in annual cost savings, including streamlining copper operations in the Southwest and combining the administrative functions in the U.S., Chile and Peru, plus lower depreciation. Phelps Dodge proposing to Cyprus Amax a business combination of Phelps Dodge and Cyprus Amax, pursuant to which all outstanding common stock of Cyprus Amax would be exchange for Phelps Dodge common stock in an exchange ratio of 0.3135 Phelps Dodge common shares for each Cyprus Amax common share. Phelps Dodge has also proposed a business combination pursuant to which all of the outstanding common stock of Asarco would be exchange for Phelps Dodge common stock at an exchange ratio of 0.4098 Phelps Dodge common shares for each Asarco common share. Based on share prices for the three companies' common shares before trading was halted on Friday, August 20/th/, the ratios implied a premium of approximately 30% for Asarco and a premium of approximately 29% for Cyprus Amax, while preserving the relative economics of the exchange ratio under the proposed combination of Cyprus Amax and Asarco. Moreover, the proposed transaction would be tax free to the shareholders. Phelps Dodge also made it clear to both Cyprus Amax and Asarco that although it preferred a transaction involving all three companies, they were prepared to enter into a negotiated business combination with either Asarco 7 or Cyprus Amax regardless of whether the other company was willing to proceed on a negotiated basis. 16. The public announcement of the August 20/th/ bid by Phelps Dodge was precipitated in part by Asarco's and Cyprus' refusal to even meet and discuss the proposal notwithstanding several overtures by Phelps Dodge and to reject out of hand any proposal in favor of the no-premium merger proposal improperly negotiated in July between Cyprus Amax and Asarco. 17. In violation of their fiduciary duties the individual defendants negotiated a merger agreement which strictly prohibits any solicitation or indeed discussion of bids or potential bids, and does not therefore provide for a bona fide fiduciary out. Therefore, while the Board of Cyprus Amax could ---- ---- withdraw its recommendation to the shareholders that they vote in favor of the Transaction, the Board has by contract prohibited and denied itself access to the very information it would need to challenge that recommendation and cause the Board to withdraw that recommendation. In other words, Cyprus Amax directors have contracted away their fiduciary responsibility and obligations to explore in good faith all information which would shed light upon the value of the shares of Cyprus Amax and have further breached their duties by failing to provide the shareholders with this needed and material information. 18. The individual defendants were and are under a continuing duty to fully inform themselves before taking action, or agreeing to refrain from taking action, to elicit, promote, consider and evaluate reasonable and bona fide ---- ---- offers for Cyprus Amax, to assure that a "level 8 playing field" exists when more than one bidder for the Company emerges, and not to favor one bidder over another, unless it is designed to assure and is reasonably related to achieving the best transaction for the Cyprus Amax shareholders. The individual defendants breached their fiduciary duty by, among other matters, failing to fully inform themselves about available alternatives to the Transaction, including a transaction with Phelps Dodge, and without fully informing themselves about the value of Cyprus Amax. 19. If the breaches of fiduciary duty described herein are permitted to continue, the Cyprus Amax shareholders will forever lose the opportunity to have the value of their Company arrived at through competitive bidding on a level playing field and the opportunity to consider any other bidders which may come forward. 20. By reason of the foregoing acts, practices and course of conduct of defendants, plaintiffs and the other members of the Class have been and will be damaged because they will not receive their fair proportion of the value of Cyprus Amax's assets and business, which far exceeds (and could very well be negotiated to an even higher level) the Transaction consideration, in the unfair Transaction at issue, have been and will be prevented from making an informed decision whether to approve the Transaction, and will wrongfully impede consideration of any other third party offer for greater consideration, including the Phelps Dodge offer. 21. Unless enjoined by this Court, defendants will continue to breach their fiduciary duties owed to plaintiff and the Class and will consummate the Transaction to the irreparable harm of plaintiff and the Class. 9 22. Plaintiff and the other members of the Class have no adequate remedy at law. 23. WHEREFORE, plaintiff demands judgment as follows: a. Declaring this to be a proper class action and naming plaintiff as Class representative and his attorneys as Class counsel; b. Ordering defendants to carry out their fiduciary duties to plaintiff and the other members of the Class, including those of duty of care, loyalty, full disclosure, and entire fairness; c. Granting preliminary and permanent injunctive relief against the consummation of the Transaction as described herein; d. Ordering the individual defendants to explore alternatives and to negotiate in good faith with all interested persons, including but not limited to Phelps Dodge. e. In the event the Transaction is consummated, rescinding the Transaction and awarding rescissory damages; f. Ordering defendants, jointly and severally, to pay to plaintiff and to other members of the Class all damages suffered and to be suffered by them as the result of the acts alleged herein; g. Ordering defendants, jointly and severally, to account to plaintiff and the Class for all profits realized and to be realized by them as a result of the actions complained of 10 and, pending such accounting, to hold such profits in a constructive trust for the benefit of plaintiff and other members of the Class; h. Awarding plaintiff the costs and disbursements of the action including allowances for plaintiff's reasonable attorneys and experts fees; and i. Granting such other and further relief as may be just and proper in the premises. Dated: August 23, 1999 CHIMICLES & TIKELLIS LLP --------------------------- Pamela S. Tikellis James C. Strum One Rodney Square P. 0. Box 1035 Wilmington, Delaware 19899 OF COUNSEL: Goodkind, Labaton, Rudoff & Sucharow, LLP 100 Park Avenue, 12th Floor New York, NY 10017 (212) 907-0700 11 EX-99.11 12 COMPLAINT FILED IN BRUNO V. STOOKEY ET AL. EXHIBIT 99.11 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - ------------------------------------------------ x DANIEL BRUNO, On Behalf Of Himself And All Others : Similarly Situated, : : Plaintiff, : : -against- : Civil Action No.: : JOHN HOYT STOOKEY, THEODORE M. SOLSO, : ANNE MAYNARD GRAY, ROCKWELL A. : SHCHNABEL, BILLIE B. TURNER, MILTON H. : WARD, WILLIAM C. BOUSQUETTE, LINDA G. : ALVARADO, THOMAS V. FALKIE, GEORGE S. : ANSELL and CYPRUS AMAX MINERALS COM : PANY, : : Defendants. : : - ------------------------------------------------ x CLASS ACTION COMPLAINT ---------------------- Plaintiff, by his attorneys, alleges upon information and belief, except as to paragraph 1 which plaintiff alleges upon knowledge, as follows: 1. Plaintiff Daniel Bruno is a stockholder of defendant Cyprus Amax Minerals Company ("Cyprus Amax" or the "Company"), and has been a Cyprus Amax shareholder at all times relevant hereto. 2. Defendant Cyprus Amax is a Delaware corporation with its principal executive offices located at 9100 East Mineral Circle, Englewood, Colorado 80112. Cyprus Amax produces copper, coal, and molybdenum, and explores for minerals worldwide. As of August 3, 1999, there were over 90 million shares of Cyprus Amax common stock outstanding. 3. The individual defendants have constituted the Board of Directors of Cyprus Amax at all times relevant hereto. 4. In addition to serving as a Cyprus Amax director, individual defendant Milton H. Ward ("Ward") has been Chairman of the Board, President and Chief Executive Officer of Cyprus Amax since 1992. Those positions constitute his principal occupation. In calendar 1998, Ward received a salary of $1,133,524, a bonus of $975,000 and long-term compensation awards valued in excess of $1.5 million. 5. The Individual Defendants, as officers and/or directors of Cyprus Amax, have a fiduciary relationship and responsibility to plaintiff and the other common public stockholders of Cyprus Amax, and owe to plaintiff and the other Cyprus Amax stockholders the highest obligations of good faith, loyalty, fair dealing, due care and candor. CLASS ACTION ALLEGATIONS ------------------------ 6. Plaintiff brings this action on his own behalf and as a class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all common stockholders of Cyprus Amax or their successors in interest, who are being and will be harmed by defendants' actions described below (the "Class"). Excluded from the Class are defendants herein and any person, firm, trust, corporation or other entity related to or affiliated with any of defendants. 7. This action is properly maintainable as a class action because: 2 a. The Class is so numerous that joinder of all members is impractica ble. As of August 3, 1999, there were more than 90 million Cyprus Amax shares outstanding, held by hundreds, if not thousands, of stockholders located throughout the United States. b. There are questions of law and fact which are common to the Class including: whether the Individual Defendants have breached fiduciary duties to Cyprus Amax's public stockholders and whether plaintiff and the other Class members would be irreparably damaged if the defendants are not enjoined in the manner described below: c. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. The claims of plaintiff are typical of the claims of the other members of the Class and plaintiff has the same interests as the other members of the Class. Accordingly, plaintiff is an adequate representative of the Class and will fairly and adequately protect the interests of the Class. d. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for defendants, or adjudications with respect to individual members of the Class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests. 3 e. The defendants have acted, or refused to act, on grounds generally applicable to, and causing injury to, the Class and, therefore, preliminary and final injunctive relief on behalf of the Class as a whole is appropriate. CLAIM FOR RELIEF ---------------- 8. On July 15, 1999, Cyprus Amax and ASARCO Incorporated ("Asarco") announced an agreement for the combination of the two companies in a merger-of- equals transaction (the "Merger"). The new company, to be named Asarco Cyprus Incorporated, would be the largest publicly traded copper company in the world. Under the terms of the transaction, Cyprus Amax common shareholders would receive 0.765 shares of Asarco Cyprus common stock for each share of Cyprus Amax common stock they own and ASARCO shareholders would receive one share of Asarco Cyprus common stock for each share of ASARCO common stock they own. It was anticipated that approximately 169 million shares of Asarco Cyprus common stock will be issued, of which Cyprus Amax shareholders will own 69.2 million shares or 63.5 percent following the Merger. 9. The Merger agreement provides that Asarco Cyprus would have a 16- person board with eight members nominated by Cyprus Amax and eight by ASARCO. Ward would be the co-Chief Executive Officer and Chairman of the combined entity. 10. The foregoing exchange ratio offers no premium to the pre- existing market value of the Cyprus Amax stock. Although the Merger agreement permits the Cyprus Amax Board to terminate the Merger if in the exercise of their fiduciary duties they determined that another 4 proposal offered a superior transaction, the Merger agreement expressly precludes both ASARCO and Cyprus Amax from entering into discussions with any third party (the "No-Talk Provision"). 11. Some time between July 15, 1999 and August 19, 1999, Phelps Dodge Corporation ("Phelps Dodge") made an unsolicited proposal to acquire both Cyprus Amax and ASARCO. Phelps Dodge offered .2874 Phelps Dodge share for each Cyprus Amax share, and .3756 Phelps Dodge share for each ASARCO share. 12. The exchange ratios contemplated by Phelps Dodge's initial offer represented a premium to the trading price of Cyprus Amax common stock. Based on Phelps Dodge's closing price of $58-9/16 on August 19, 1999, its bid valued Cyprus Amax at $16.83 a share -- over $2 per share or approximately 16% more than the $14.50 closing price of Cyprus Amax common stock on August 19, 1999. In addition, the proposal would result in a dividend increase for Cyprus Amax shareholders to 4.1 times the dividend contemplated to be paid by Asarco Cyprus. Moreover, over the past ten years, Phelps Dodge's total return has been 161% as compared to negative 26% for Cyprus Amax and negative 20% for ASARCO. A combination of the three companies would create a larger, more efficient, financially stronger company with a stronger balance sheet and enhanced earnings and cash flow. 13. Notwithstanding that the Phelps Dodge offer represented a far better value for Cyprus Amax shareholders, the Individual Defendants spurned at least three efforts by Phelps Dodge to discuss its offer and on August 19, 1999 voted to reject the Phelps Dodge offer. Citing 5 the No-Talk Provision, they refused to discuss the offer with Phelps Dodge. Both the ASARCO and Cyprus Amax boards reaffirmed their determination to proceed with the Merger. 14. Phelps Dodge is known in the copper industry as an aggressive cost cutter willing to terminate personnel in order to enhance revenues. Accordingly, Ward's job could be in jeopardy if Phelps Dodge were to acquire Cyprus Amax. Moreover, Phelps Dodge would have no motivation to maintain the Board structure contemplated by the Merger agreement. 15. ASARCO and Cyprus Amax did not publicly disclose the Phelps Dodge offer or the text of the Merger agreement until August 20, 1999. On that date, Cyprus Amax and ASARCO also disclosed that the record date for shareholders to vote at the September 30 shareholders' meeting to consider the Merger would be Wednesday, August 25, 1999. Cyprus Amax had apparently sought and obtained a waiver of the New York Stock Exchange minimum requirement for the time between the announcement that a record date has been set and the record date itself. Since it takes three days to clear transactions and only shareholders who own shares on the record date can vote at a meeting, this late announcement of the record date limits informed market trading and the ability of shareholders who prefer the Phelps Dodge offer to purchase additional shares to vote against the Merger. 16. On August 20, 1999, Phelps Dodge improved its offer to 0.4098 Phelps Dodge share for each ASARCO share and 0.3135 Phelps Dodge share for each Cyprus Amax share, valuing Cyprus Amax at $1.68 billion or $18.54 per share, a premium of approximately 29% to the pre-existing market price. 6 17. Phelps Dodge also indicated that it would be willing to improve upon its offer for Cyprus Amax dependent on discussions with the Company. 18. Phelps Dodge also announced that it is willing to acquire either Cyprus Amax or ASARCO individually. 19. On August 22, 1999, Phelps Dodge announced its intention to pursue a proxy contest against the Merger. 20. In light of the foregoing, the Individual Defendants' fiduciary obligations require them to: a. undertake an appropriate evaluation of Cyprus Amax's worth as a merger/acquisition candidate; b. take all appropriate steps to enhance Cyprus Amax's value and attractiveness as a merger/acquisition candidate; c. take all appropriate steps to obtain the best available transaction for Cyprus Amax, including but not limited to, engaging in serious negotiations with Phelps Dodge or its representatives; d. act independently so that the interests of Cyprus Amax's public stockholders will be protected; e. adequately ensure that no conflicts of interest exist between defendants' own interests and their fiduciary obligation to maximize stockholder value or, if such 7 conflicts exist, to ensure that all conflicts be resolved in the best interests of Cyprus Amax's public stockholders; and f. insure that they and Cyprus Amax's shareholders have available all information material to decisions on a major corporate transaction, including the highest consideration each potential acquiror is prepared to offer and the terms and conditions of each offeror's proposal. 21. By agreeing to the No-Talk Provision, the Individual Defendants breached their fiduciary duties. They contracted away their ability to inform themselves adequately to make judgments in the best interests of all Cyprus Amax shareholders, and to obtain information to convey to Cyprus Amax shareholders to enable them to exercise an informed franchise on the Merger. 22. The Individual Defendants have also manipulated the setting of a record date for the shareholders' meeting on the Merger in order to improve the prospects for shareholder approval of the Merger. 23. As a result of defendants' breaches of fiduciary duties, plaintiff and the other members of the Class have been and will be damaged in that they will not be able to exercise fully informed voting judgment on the Merger and will be prevented from obtaining the best available transaction. 8 24. Unless enjoined by this Court, defendants will continue to breach their fiduciary duties owed to plaintiff and the other members of the Class, all to the irreparable harm of the Class. 25. Plaintiff and the other members of the Class have no adequate remedy at law. WHEREFORE, plaintiff prays for judgment and relief as follows: A. Ordering that this action may be maintained as a class action and certifying plaintiff as Class representatives; B. Declaring that defendants breached their fiduciary and other duties to plaintiff and the other members of the Class; C. Entering an order or orders requiring defendants to take the steps set forth hereinabove and declaring the No-Talk Provision void and non- enforceable; D. Awarding compensatory damages against defendants individually and severally in an amount to be determined; E. Awarding plaintiff the costs and disbursements of this action, including fees and experts' fees; and F. Granting such other and further relief as the Court may deem just and proper. 9 ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A. By: Suite 1401, Mellon Bank Center 919 North Market Street P.O. Box 1070 Wilmington, Delaware 19899 (302) 656-4433 Attorneys for Plaintiff OF COUNSEL: BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP 1285 Avenue of the Americas New York, New York 10019 (122) 554-1400 Dated: August 24, 1999 10 EX-99.12 13 COMPLAINT FILED IN GREEN V. STOOKEY ET AL. EXHIBIT 99.12 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - ----------------------------------- x PAUL GREEN, : : Plaintiff, : : -against- : : Civil Action No. 17383 NC JOHN HOYT STOOKY, THEODORE M. : SOLSO, ANN MAYNARD GRAY, : ROCKWELL A. SCHNABEL, BILLIE B. : TURNER, MILTON H. WARD, WILLIAM : C. BOUSQUETTE, LINDA G. ALVARADO, : THOMAS V. FALKIE, GEORGE S. : ANSELL and CYPRUS AMAX MINERALS : COMPANY, : : Defendants. : - ----------------------------------- x CLASS ACTION COMPLAINT ---------------------- Plaintiff, by his attorneys, alleges upon information and belief, except as to paragraph 1 which plaintiff alleges upon knowledge, as follows: 1. Plaintiff Paul Green is a stockholder of defendant Cyprus Amax Minerals Company ("Cyprus Amax" or the "Company"), and has been a Cyprus Amax shareholder at all times relevant hereto. 2. Defendant Cyprus Amax is a Delaware corporation with its principal executive offices located at 9100 East Mineral Circle, Englewood, Colorado 80112. Cyprus Amax produces copper, coal, and molybdenum, and explores for minerals worldwide. As of August 3, 1999, there were over 90 million shares of Cyprus Amax common stock outstanding. 3. The individual defendants have constituted the Board of Directors of Cyprus Amax at all times relevant hereto. 4. In addition to serving as a Cyprus Amax director, individual defendant Milton H. Ward ("Ward") has been Chairman of the Board, President and Chief Executive officer of Cyprus Amax since 1992. Those positions constitute his principal occupation. In calendar 1998, Ward received a salary of $1,133,524, a bonus of $975,000 and long-term compensation awards valued in excess of $1.5 million. 5. The Individual Defendants, as officers and/or directors of Cyprus Amax, have a fiduciary relationship and responsibility to plaintiff and the other common public stockholders of Cyprus Amax, and owe to plaintiff and the other Cyprus Amax stockholders the highest obligations of good faith, loyalty, fair dealing, due care and candor. CLASS ACTION ALLEGATIONS ------------------------ 6. Plaintiff brings this action on his own behalf and as a class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all common stockholders of Cyprus Amax or their successors in interest, who are being and will be harmed by defendants' actions described below (the "Class"). Excluded from the Class 2 are defendants herein and any person, firm, trust, corporation, or other entity related to or affiliated with any of defendants. 7. This action is properly maintainable as a class action because: a. The Class is so numerous that joinder of all members is impracticable. As of August 3, 1999, there were more than 90 million Cyprus Amax shares outstanding, held by hundreds, if not thousands, of stockholders located throughout the United States. b. There are questions of law and fact which are common to the Class including: whether the Individual Defendants have breached fiduciary duties to Cyprus Amax's public stockholders and whether plaintiff and the other Class members would be irreparably damaged if the defendants are not enjoined in the manner described below. c. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. The claims of plaintiff are typical of the claims of the other members of the Class and plaintiff has the same interests as the other members of the Class. Accordingly, plaintiff is an adequate representative of the Class and will fairly and adequately protect the interests of the Class. d. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying adjudications with 3 respect to individual members of the Class which would establish incompatible standards of conduct for defendants, or adjudications with respect to individual members of the Class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests. e. The defendants have acted, or refused to act, on grounds generally applicable to, and causing injury to, the Class and, therefore, preliminary and final injunctive relief on behalf of the Class as a whole is appropriate. CLAIM FOR RELIEF ---------------- 8. On July 15, 1999, Cyprus Amax and ASARCO Incorporated ("Asarco") announced an agreement for the combination of the two companies in a merger-of- equals transaction (the "Merger"). The new company, to be named Asarco Cyprus Incorporated, would be the largest publicly traded copper company in the world. Under the terms of the transaction, Cyprus Amax common shareholders would receive 0.765 shares of Asarco Cyprus common stock for each share of Cyprus Amax common stock they own and ASARCO shareholders would receive one share of Asarco Cyprus common stock for each share of ASARCO common stock they own. It was anticipated that approximately 109 million shares of Asarco Cyprus common stock will be issued, of which Cyprus Amax shareholders will own 69.2 million shares or 63.5 percent following the Merger. 4 9. The Merger agreement provides that Asarco Cyprus would have a 16- person board with eight members nominated by Cyprus Amax and eight by ASARCO. Ward would be the co-Chief Executive officer and Chairman of the combined entity. 10. The foregoing exchange ratio offers no premium to the pre- existing market value of the Cyprus Amax stock. Although the Merger agreement permits the Cyprus Amax Board to terminate the Merger if in the exercise of their fiduciary duties they determined that another proposal offered a superior transaction, the Merger agreement expressly precludes both ASARCO and Cyprus Amax from entering into discussions with any third party (the "No-Talk Provision"). 11. Some time between July 15, 1999 and August 19, 1999, Phelps Dodge Corporation ("Phelps Dodge") made an unsolicited proposal to acquire both Cyprus Amax and ASARCO. Phelps Dodge offered .2874 Phelps Dodge share for each Cyprus Amax share, and .3756 Phelps Dodge share for each ASARCO share. 12. The exchange ratios contemplated by Phelps Dodge's initial offer represented a premium to the trading price of Cyprus Amax common stock. Based on Phelps Dodge's closing price of $58-9/16 on August 19, 1999, its bid valued Cyprus Amax at $16.83 a share -- over $2 per share or approximately 16% more than the $14.50 closing price of Cyprus Amax common stock on August 19, 1999. In addition, the proposal would result in a dividend increase for Cyprus Amax shareholders to 4.1 times 5 the dividend contemplated to be paid by Asarco Cyprus. Moreover, over the past ten years, Phelps Dodge's total return has been 161% as compared to negative 26% for Cyprus Amax and negative 20% for ASARCO. A combination of the three companies would create a larger, more efficient, financially stronger company with a stronger balance sheet and enhanced earnings and cash flow. 13. Notwithstanding that the Phelps Dodge offer represented a far better value for Cyprus Amax shareholders, the Individual Defendants spurned at least three efforts by Phelps Dodge to discuss its offer and on August 19, 1999 voted to reject the Phelps Dodge offer. Citing the No-Talk Provision, they refused to discuss the offer with Phelps Dodge. Both the ASARCO and Cyprus Amax Boards reaffirmed their determination to proceed with the Merger. 14. Phelps Dodge is known in the copper industry as an aggressive cost cutter willing to terminate personnel in order to enhance revenues. Accordingly, Ward's job could be in jeopardy if Phelps Dodge were to acquire Cyprus Amax. Moreover, Phelps Dodge would have no motivation to maintain the Board structure contemplated by the Merger agreement. 15. ASARCO and Cyprus Amax did not publicly disclose the Phelps Dodge offer or the text of the Merger Agreement until August 20, 1999. On that date, Cyprus Amax and ASARCO also disclosed that the record date for shareholders to vote at the September 30 shareholders' meeting to consider the Merger would be Wednesday, 6 August 25, 1999. Cyprus Amax had apparently sought and obtained a waiver of the New York Stock Exchange minimum requirement for the time between the announce ment that a record date has been set and the record date itself. Since it takes three days to clear transactions and only shareholders who own shares on the record date can vote at a meeting, this late announcement of the record date limits informed market trading and the ability of shareholders who prefer the Phelps Dodge offer to purchase additional shares to vote against the Merger. 16. On August 20, 1999, Phelps Dodge improved its offer to 0.4098 Phelps Dodge share for each ASARCO share and 0.3135 Phelps Dodge share for each Cyprus Amax share, valuing Cyprus Amax at $1.68 billion or $18.54 per share, a premium of approximately 29% to the pre-existing market price. 17. Phelps Dodge also indicated that it would be willing to improve upon its offer for Cyprus Amax dependent on discussions with the Company. 18. Phelps Dodge also announced that it is willing to acquire either Cyprus Amax or ASARCO individually. 19. On August 22, 1999, Phelps Dodge announced its intention to pursue a proxy contest against the Merger. 20. In light of the foregoing, the Individual Defendants fiduciary obligations require them to: 7 a. undertake an appropriate evaluation of Cyprus Amax's worth as a merger/acquisition candidate; b. take all appropriate steps to enhance Cyprus Amax's value and attractiveness as a merger/acquisition candidate; c. take all appropriate steps to obtain the best available transaction for Cyprus Amax, including but not limited to, engaging in serious negotiations with Phelps Dodge or its representatives; d. act independently so that the interests of Cyprus Amax's public stockholders will be protected; e. adequately ensure that no conflicts of interest exist between defendants' own interests and their fiduciary obligation to maximize stockholder value or, if such conflicts exist, to ensure that all conflicts be resolved in the best interests of Cyprus Amax's public stockholders; and f. insure that they and Cyprus Amax 's shareholders have available all information material to decisions on a major corporate transaction, including the highest consideration each potential acquiror is prepared to offer and the terms and conditions of each offeror's proposal. 21. By agreeing to the No-Talk Provision, the Individual Defendants breached their fiduciary duties. They contracted away their ability to inform themselves adequately to make judgments in the beat interests of all Cyprus Amax shareholders, 8 and to obtain information to convey to Cyprus Amax shareholders to enable them to exercise an informed franchise on the Merger. 22. The Individual Defendants have also manipulated the setting of a record date for the shareholders' meeting on the Merger in order to improve the prospects for shareholder approval of the Merger. 23. As a result of defendants' breaches of fiduciary duties, plaintiff and the other members of the Class have been and will be damaged in that they will not be able to exercise fully informed voting judgment on the merger and will be prevented from obtaining the best available transaction. 24. Unless enjoined by this Court, defendants will continue to breach their fiduciary duties owed to plaintiff and the other members of the Class, all to the irreparable harm of the Class. 25. Plaintiff and the other members of the Class have no adequate remedy at law. WHEREFORE, plaintiff prays for judgment and relief as follows: A. Ordering that this action may be maintained as a class action and certifying plaintiff as Class representatives; B. Declaring that defendants breached their fiduciary and other duties to plaintiff and the other members of the Class; 9 C. Entering an order or orders requiring defendants to take the steps set forth hereinabove and declaring the No-Talk Provision void and non- enforceable; D. Awarding compensatory damages against defendants individually and severally in an amount to be determined; E. Awarding plaintiff the costs and disbursements of this action, including fees and experts' fees; and F. Granting such other and further relief as the Court may deem just and proper. 10 ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A. By: --------------------------- Suite 1401, Mellon Bank Center 919 North Market Street P.O. Box 1070 Wilmington, Delaware 19899 (302) 656-4433 Attorneys for Plaintiff OF COUNSEL: ABBEY, GARDY SQUITIERI, LLP 212 East 39th Street New York, New York 10016 (212) 889-3700 LAW OFFICES OF JEFFREY S. ABRAHAM 60 East 42nd Street, Suite 4700 New York, New York 10165 (212) 692-0555 Dated: August 24, 1999 11 EX-99.13 14 COMPLAINT FILED IN LIFSHITZ V. STOOKEY ET AL. EXHIBIT 99.13 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - - - - - - - - - - - - - - - - - - - x DANIEL LIFSHITZ, : : Plaintiff, : : -against- : Civil Action No. 17386 : JOHN HOYT STOOKEY, THEODORE M. : SOLSO, ANN MAYNARD GRAY, : ROCKWELL A. SCHNABEL, BILLIE B. : TURNER, MILTON H. WARD, WILLIAM C. : BOUSQUETTE, LINDA G. ALVARDO, : THOMAS V. FALKIE, GEORGE S. ANSELL : and CYPRUS AMAX MINERALS COMPANY, : : Defendants. : - - - - - - - - - - - - - - - - - - - x CLASS ACTION COMPLAINT ---------------------- Plaintiff, by his attorneys, alleges upon information and belief, except as to paragraph 1 which plaintiff alleges upon knowledge, as follows: 1. Plaintiff Daniel Lifshitz is a stockholder of defendant Cyprus Amax Minerals Company ("Cyprus Amax" or the "Company"), and has been a Cyprus Amax shareholder at all times relevant hereto. 2. Defendant Cyprus Amax is a Delaware corporation with its principal executive offices located at 9100 East Mineral Circle, Englewood, Colorado 80112. Cyprus Amax produces copper, coal, and molybdenum, and explores for minerals worldwide. As of August 3, 1999, there were over 90 million shares of Cyprus Amax common stock outstanding. 3. The individual defendants have constituted the Board of Directors of Cyprus Amax at all times relevant hereto. 4. In addition to serving as a Cyprus Amax director, individual defendant Milton H. Ward ("Ward") has been Chairman of the Board, President and Chief Executive Officer of Cyprus Amax since 1992. Those positions constitute his principal occupation. In calendar 1998, Ward received a salary of $1,133,524, a bonus of $975,000 and long-term compensation awards valued in excess of $1.5 million. 5. The Individual Defendants, as officers and/or directors of Cyprus Amax, have a fiduciary relationship and responsibility to plaintiff and the other common public stockholders of Cyprus Amax, and owe to plaintiff and the other Cyprus Amax stockholders the highest obligations of good faith, loyalty, fair dealing, due care and candor. CLASS ACTION ALLEGATIONS ------------------------ 6. Plaintiff brings this action on his own behalf and as a class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all common stockholders of Cyprus Amax or their successors in interest, who are being and will be harmed by defendants' actions described below (the "Class"). Excluded from the Class are defendants herein and any person, firm, trust, corporation, or other entity related to or affiliated with any of defendants. 2 7. This action is properly maintainable as a class action because: a. The Class is so numerous that joinder of all members impracticable. As of August 3, 1999, there were more than 90 million Cyprus Amax shares outstanding, held by hundreds, if not thousands, of stockholders located throughout the United States. b. There are questions of law and fact which are common to the Class including: whether the Individual Defendants have breached fiduciary duties to Cyprus Amax's public stockholders and whether plaintiff and the other Class members would be irreparably damaged if the defendants are not enjoined in the manner described below. c. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. The claims of plaintiff are typical of the claims of the other members of the Class and the plaintiff has the same interests as the other members of the Class. Accordingly, plaintiff is an adequate representative of the Class and will fairly and adequately protect the interests of the Class. d. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for defendants, or adjudications with respect to individual members of the Class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests. 3 e. The defendants have acted, or refused to act, on grounds generally applicable to, and causing injury to, the Class and, therefore, preliminary and final injunctive relief on behalf of the Class as a whole is appropriate. CLAIM FOR RELIEF ---------------- 8. On July 15, 1999, Cyprus Amax and ASARCO Incorporated ("Asarco") announced an agreement for the combination of the two companies in a merger-of- equals transaction (the "Merger"). The new company, to be named Asarco Cyprus Incorporated, would be the largest publicly traded copper company in the world. Under the terms of the transaction, Cyprus Amax common shareholders would receive 0.765 shares of Asarco Cyprus common stock for each share of Cyprus Amax common stock they own and ASARCO shareholders would receive one share of Asarco Cyprus common stock for each share of ASARCO common stock they own. It was anticipated that approximately 109 million shares of Asarco Cyprus common stock will be issued, of which Cyprus Amax shareholders will own 69.2 million shares of 63.5 percent following the Merger. 9. The Merger agreement provides that Asarco Cyprus would have a 16- person board with eight members nominated by Cyprus Amax and eight by ASARCO. Ward would be the co-Chief Executive Officer and Chairman of the combined entity. 10. The foregoing exchange ratio offers no premium to the pre- existing market value of the Cyprus Amax stock. Although the Merger agreement permits the Cyprus Amax Board to terminate the Merger if in the exercise of their fiduciary duties they 4 determined that another proposal offered a superior transaction, the Merger agreement expressly precludes both ASARCO and Cyprus Amax from entering into discussions with any third party (the "No-Talk Provision"). 11. Some time between July 15, 1999 and August 19, 1999, Phelps Dodge Corporation ("Phelps Dodge") made an unsolicited proposal to acquire both Cyprus Amax and ASARCO. Phelps Dodge offered .2874 Phelps Dodge share for each Cyprus Amax share, and .3756 Phelps Dodge share for each ASARCO share. 12. The exchange ratios contemplated by Phelps Dodge's initial offer represented a premium to the trading price of Cyprus Amax common stock. Based on Phelps Dodge's closing price of $58-9/16 on August 19, 1999, its bid valued Cyprus Amax at $16.83 a share - over $2 per share or approximately 16% more than the $14.50 closing price of Cyprus Amax common stock on August 19, 1999. In addition, the proposal would result in a dividend increase for Cyprus Amax shareholders to 4.1 times the dividend contemplated to be paid by Asarco Cyprus. Moreover, over the past ten years, Phelps Dodge's total return has been 161% as compared to negative 26% for Cyprus Amax and negative 20% ASARCO. A combination of the three companies would create a larger, more efficient, financially stronger company with a stronger balance sheet and enhanced earnings and cash flow. 13. Notwithstanding that the Phelps Dodge offer represented a far better value for Cyprus Amax shareholders, the Individual Defendants spurned at least three efforts by Phelps Dodge to discuss its offer and on August 19, 1999 voted to reject the Phelps 5 Dodge offer. Citing the No-Talk Provision, they refused to discuss the offer with Phelps Dodge. Both the ASARCO and Cyprus Amax Boards reaffirmed their determination to proceed with the Merger. 14. Phelps Dodge is known in the copper industry as an aggressive cost cutter willing to terminate personnel in order to enhance revenues. Accordingly, Ward's job could be in jeopardy if Phelps Dodge were to acquire Cyprus Amax. Moreover, Phelps Dodge would have no motivation to maintain the Board structure contemplated by the Merger agreement. 15. ASARCO and Cyprus Amax did not publicly disclose the Phelps Dodge offer or the text of the Merger agreement until August 20, 1999. On that date, Cyprus Amax and ASARCO also disclosed that the record date for shareholders to vote at the September 30 shareholders' meeting to consider the Merger would be Wednesday, August 25, 1999. Cyprus Amax had apparently sought and obtained a waiver of the New York Stock Exchange minimum requirement for the time between the announcement that a record date has been set and the record date itself. Since it takes three days to clear transactions and only shareholders who own shares on the record date can vote at a meeting, this late announcement of the record date limits informed market trading and the ability of shareholders who prefer the Phelps Dodge offer to purchase additional shares to vote against the Merger. 6 16. On August 20, 1999, Phelps Dodge improved its offer to 0.4098 Phelps Dodge share for each ASARCO share and 0.3135 Phelps Dodge share for each Cyprus Amax share, valuing Cyprus Amax at $1.68 billion or $18.54 per share, a premium of approximately 29% to the pre-existing market price. 17. Phelps Dodge also indicated that it would be willing to improve upon its offer for Cyprus Amax dependent on discussions with the Company. 18. Phelps Dodge also announced that it is willing to acquire either Cyprus Amax or ASARCO individually. 19. On August 22, 1999, Phelps Dodge announced its intention to pursue a proxy contest against the Merger. 20. In light of the foregoing, the Individual Defendants fiduciary obligations require them to: a. undertake an appropriate evaluation of Cyprus Amax's worth as a merger/acquisition candidate; b. take all appropriate steps to enhance Cyprus Amax's value and attractiveness as a merger/acquisition candidate; c. take all appropriate steps to obtain the best available transaction for Cyprus Amax, including but not limited to, engaging in serious negotiations with Phelps Dodge or its representatives; 7 d. act independently so that the interests of Cyprus Amax's public stockholders will be protected; e. adequately ensure that no conflicts of interest exist between defendants' own interests and their fiduciary obligation to maximize stockholder value or, if such conflicts exist, to ensure that all conflicts be resolved in the best interests of Cyprus Amax's public stockholders; and f. insure that they and Cyprus Amax's shareholders have available all information material to decisions on a major corporate transaction, including the highest consideration each potential acquiror is prepared to offer and the terms and conditions of each offeror's proposal. 21. By agreeing to the No-Talk Provision, the Individual Defendants breached their fiduciary duties. They contracted away their ability to inform themselves adequately to make judgments in the best interests of all Cyprus Amax shareholders, and to obtain information to convey to Cyprus Amax shareholders to enable them to exercise an informed franchise on the Merger. 22. The Individual Defendants have also manipulated the setting of a record date for the shareholders' meeting on the Merger in order to improve the prospects for shareholder approval of the Merger. 23. As a result of defendants' breaches of fiduciary duties, plaintiff and the other members of the Class have been and will be damaged in that they will not be able 8 to exercise fully informed voting judgment on the Merger and will be prevented from obtaining the best available transaction. 24. Unless enjoined by this Court, defendants will continue to breach their fiduciary duties owed to plaintiff and the other members of the Class, all to the irreparable harm of the Class. 25. Plaintiff and the other members of the Class have no adequate remedy at law. WHEREFORE, plaintiff prays for judgment and relief as follows: A. Ordering that this action may be maintained as a class action and certifying plaintiff as Class representatives; B. Declaring that defendants breached their fiduciary and other duties to plaintiff and the other members of the Class; C. Entering an order or orders requiring defendants to take the steps set forth hereinabove and declaring the No-Talk Provision void and non- enforceable; D. Awarding compensatory damages against defendants individually and severally in an amount to be determined; E. Awarding plaintiff the costs and disbursements of this action, including fees and experts' fees; and F. Granting such other and further relief as the Court may deem just and proper. 9 ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A. By: -------------------------------- Suite 1401, Mellon Bank Center 919 North Market Street P.O. Box 1070 Wilmington, Delaware 19899 (302) 656-4433 Attorneys for Plaintiff OF COUNSEL: BERNSTEIN LIEBHARD & LIFSHITZ, LLP 10 East 40/th/ Street New York, New York 10016 (212) 779-1414 Dated: August 24, 1999 10 EX-99.14 15 COMPLAINT FILED IN KLOTZ V. WARD ET AL. EXHIBIT 99.14 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - - - - - - - - - - - - - - - - - - - x : ANDREW KLOTZ, : : Plaintiff, : : v. : Civil Action No. 17385NC : MILTON H. WARD; LINDA G. : ALVARDO; GEORGE S. ANSELL; : ROCKWELL A. SCHNABEL; WILLIAM : C. BOUSQUETTE; THOMAS V. FALKIE; : ANN MAYNARD GRAY; THEODORE M. : SOLSO; JOHN H. STOOKEY; BILLIE : B. TURNER; ALLEN BORN; JAMES : A. TODD, JR.; and CYPRUS AMAX : MINERALS COMPANY, : : Defendants. : : - - - - - - - - - - - - - - - - - - - x COMPLAINT --------- Plaintiff, Andrew Klotz, by his attorneys, alleges upon information and belief, except as to paragraph 1 which is alleged upon personal knowledge, as follows: THE PARTIES ----------- 1. Plaintiff Andrew Klotz is the owner of shares of the common stock of Cyprus Amax Minerals Company ("Cyprus" or the "Company") and has been the owner of such shares continuously since prior to the wrongs complained of herein. 2. Cyprus is a corporation duly existing and organized under the laws of the State of Delaware, with its principal executive offices located at 9100 East Mineral Circle, Englewood, Colorado. Cyprus is a diversified mining company engaged in the exploration for and extraction, processing, and marketing of mineral resources. 3. Defendant Milton H. Ward is and at all times relevant hereto has been President, Chairman of the Board, and Chief Executive Officer of Cyprus. 4. Defendants Linda G. Alvardo, George S. Ansell, Rockwell A. Schnabel, William C. Bousquette, Thomas V. Falkie, Ann Maynard Gray, Theodore M. Solso, John H. Stookey, Billie B. Turner, Allen Born, and James A. Todd, Jr. are and at all times relevant hereto have been directors of Cyprus. 5. The defendants referred to in paragraphs 3 and 4 are collectively referred to herein as the "Individual Defendants." 6. By reason of the defendants' positions with the Company as officers and/or directors, they are in a fiduciary relationship with plaintiff and the other public stockholders of Cyprus, and owe plaintiff and the other members of the class the highest obligations of good faith, fair dealing, due care, loyalty, and full and candid disclosure. CLASS ACTION ALLEGATIONS ------------------------ 7. Plaintiff brings this action on his own behalf and as a class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of the public holders of Cyprus common stock (the "Class"). Excluded from the Class are defendants herein and any person, firm, trust, corporation or other entity related to or affiliated with any of the defendants. 8. This action is properly maintainable as a class action. 9. The Class is so numerous that joinder of all members is impracticable. As of August 24, 1999, there were approximately 90.5 million shares of Cyprus common stock outstanding owned by hundreds, if not thousands of members of the Class. 10. There are questions of law and fact which are common to the Class and which predominate over questions affecting any individual Class members, including the following: (a) whether defendants have breached their fiduciary and other common law duties owed by them to plaintiff and the other members of the Class; and (b) whether the Class is entitled to injunctive relief or damages as a result of the wrongful conduct committed by defendants. 11. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. Plaintiff's claims are typical of the claims of the other members of the Class and plaintiff has the same interests as the other members of the Class. Accordingly, plaintiff is an adequate representative of the Class and will fairly and adequately protect the interests of the Class. 12. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for defendants, or adjudications with respect to individual members of the Class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests. 13. Defendants have acted on grounds generally applicable to the Class with respect to the matters complained of herein, thereby making appropriate the relief sought herein with respect to the Class as a whole. SUBSTANTIVE ALLEGATIONS ----------------------- 14. On July 15, 1999, Cyprus and ASARCO Incorporated ("Asarco") announced that they had signed a definitive merger agreement (the "Merger Agreement") under which the companies would combine in a merger-of-equals transaction. 15. The new entity would be named Asarco Cyprus Incorporated ("ACI"). Under the terms of the Merger Agreement, Cyprus shareholders would receive 0.765 shares of ACI common stock for each share of Cyprus stock held. Asarco shareholders would receive one share of ACI common stock for each share of Asarco common stock held. 16. ACI's Board of directors would have 16 members, eight from Asarco and eight members from Cyprus. Defendant Ward would serve as co-CEO and Chairman of ACI through April 2000 and remain Chairman of ACI until his retirement. 17. The exchange ratio for which the Merger Agreement provides offers no premium to the pre-existing market value of the Cyprus Amax stock. Although the Merger agreement permits the Cyprus Amax Board to terminate the Merger if in the exercise of their fiduciary duties they determine that another proposal offers a superior transaction, the Merger agreement expressly precludes both ASARCO and Cyprus Amax from entering into discussions with any third party (the "No-Talk Provision"). 18. Shortly after the Merger Agreement was signed, Phelps Dodge Corporation ("Phelps") contacted Cyprus to discuss an alternative proposal which would involve the combination of Phelps, Cyprus, and Asarco. 19. Despite three separate requests for discussion, defendants completely refused to negotiate with Phelps. On August 20, 1999, Cyprus unilaterally announced Phelps' interest in a three-way combination and its rejection of the Phelps' offer in favor of its previous agreement with Asarco. 20. Also on August 20, 1999, Cyprus finally announced the terms of its Merger Agreement with Asarco. The record date to vote on the Merger was set for August 25, 1999. By setting this record date so close to the rejection of Phelps' bid and the announced details of the Asarco merger, Cyprus has effectively precluded any significant trading in the market on an informed basis before the determination of shareholders eligible to vote at the Company's meeting. 21. Frustrated with Cyprus' actions, Phelps decided to publicly announce a "sweetened" proposal for an alternative combination. Phelps announced that it was willing to acquire Cyprus for 0.3135 shares of Phelps' common stock, representing a premium of 29% for Cyprus shareholders. The Merger Agreement with Asarco does not give Cyprus shareholders any premium. In addition, Phelps disclosed that it would continue to distribute its $2.00 per share dividend, a dividend 4.1 times greater than the dividend proposed to Cyprus shareholders under the terms of the Asarco Merger Agreement. Phelps stated that it would prefer a three-way combination, but would be willing to purchase Cyprus independently. 22. The defendants were and are under a duty: (a) to act in the interests of Class members; (b) to maximize shareholder value; (c) to undertake an appropriate evaluation of the Company's net worth as a merger/acquisition candidate; (d) to act in accordance with their fundamental duties of due care and loyalty; and (e) to insure that they and Cyprus Amax's shareholders have available all information material to decisions on a major corporate transaction, including the highest consideration each potential acquiror is prepared to offer and the terms and conditions of each offeror's proposal. 23. By the acts, transactions and courses of conduct alleged herein, defendants breached their fiduciary duties to plaintiff and the other members of the Class, and are attempting unfairly to deprive plaintiff and other members of the Class of the fair value of their investment in Cyprus. 24. The Individual Defendants have refused to enter into any negotiations with Phelps in an attempt to entrench themselves in their positions with the Company and to protect their substantial salaries and prestigious positions. Defendants' placement of their own interests ahead of the interests of Cyprus shareholders is in direct violation of their fiduciary duties. 25. By agreeing to the No-Talk Provision, the Individual Defendants breached their fiduciary duties. They contracted away their ability to inform themselves adequately to make judgments in the best interests of all Cyprus Amax shareholders, and to obtain information to convey to Cyprus Amax shareholders to enable them to exercise an informed franchise on the Merger. 26. The Individual Defendants have also manipulated the setting of a record date for the shareholders' meeting on the Merger in order to improve the prospects for shareholder approval of the Merger. 27. As a result of the actions of defendants, plaintiff and the other members of the Class will be prevented from obtaining appropriate consideration for their shares of Cyprus common stock. 28. Unless enjoined by this Court, the defendants will continue to breach their fiduciary duties and prevent the Class from receiving its fair share of Cyprus' valuable assets and businesses. 29. Plaintiff and the Class have no adequate remedy at law. WHEREFORE, plaintiff demands judgment and preliminary and permanent relief, including injunctive relief, in its favor and in favor of the Class and against defendants as follows: 1. Declaring that this action is properly maintainable as a class action; 2. Directing the Individual Defendants to adequately ensure that no conflicts of interest exist between the Individual Defendants and their fiduciary obligation to maximize shareholder value or, if such conflicts exist, to ensure that all conflicts are resolved in the best interests of Cyprus' public stockholders; 3. Entering an order or orders requiring defendants to take the steps set forth hereinabove and declaring the No-Talk Provision void and non-enforceable; 4. Enjoining defendants from consummating the merger with Asarco, or a business combination with any other third party, unless and until the Company adopts and implements a procedure or process, such as an auction, to obtain the highest possible price for the Company; 5. Awarding plaintiff the costs and disbursements of this action, including reasonable attorneys' and experts' fees; and 6. Granting such other and further relief as this Court may deem just and proper. ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A. By: ------------------------------------- Suite 1401, Mellon Bank Center P.O. Box 1070 Wilmington, DE 19899 (302) 656-4433 Attorneys for Plaintiff OF COUNSEL: SCHIFFRIN & BARROWAY, LLP Marc A. Topaz Gregory M. Castaldo Three Bala Plaza East Suite 400 Bala Cynwyd, PA 19004 (610) 667-7706 August 24, 1999 EX-99.15 16 COMPLAINT FILED IN GRILL V. STOOKEY, ET AL. EXHIBIT 99.15 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY - ------------------------------------- x MAX GRILL, : : Civil Action No. Plaintiff, : 17396NC : -against- : : JOHN HOYT STOOKEY, THEODORE M. : SOLSO, ANN MAYNARD GRAY, : ROCKWELL A. SCHNABEL, BILLIE B. : TURNER, MILTON H. WARD, WILLIAM C. : BOUSQUETTE, LINDA G. ALVARDO, : THOMAS V. FALKIE, GEORGE S. ANSELL : and CYPRUS AMAX MINERALS COMPANY, : : Defendants. : - ------------------------------------- x CLASS ACTION COMPLAINT ---------------------- Plaintiff, by his attorneys, alleges upon information and belief, except as to paragraph 1 which plaintiff alleges upon knowledge, as follows: 1. Plaintiff Max Grill is a stockholder of defendant Cyprus Amax Minerals Company ("Cyprus Amax" or the "Company"), and has been a Cyprus Amax shareholder at all times relevant hereto. 2. Defendant Cyprus Amax is a Delaware corporation with its principal executive offices located at 9100 East Mineral Circle, Englewood, Colorado 80112. Cyprus Amax produces copper, coal, and molybdenum, and explores for minerals worldwide. As of August 3, 1999, there were over 90 million shares of Cyprus Amax common stock outstanding. 3. The individual defendants have constituted the Board of Directors of Cyprus Amax at all times relevant hereto. 4. In addition to serving as a Cyprus Amax director, individual defendant Milton H. Ward ("Ward") has been Chairman of the Board, President and Chief Executive Officer of Cyprus Amax since 1992. Those positions constitute his principal occupation. In calendar 1998, Ward received a salary of $1,133,524, a bonus of $975,000 and long-term compensation awards valued in excess of $1.5 million. 5. The Individual Defendants, as officers and/or directors of Cyprus Amax, have a fiduciary relationship and responsibility to plaintiff and the other common public stockholders of Cyprus Amax, and owe to plaintiff and the other Cyprus Amax stockholders the highest obligations of good faith, loyalty, fair dealing, due care and candor. CLASS ACTION ALLEGATIONS ------------------------ 6. Plaintiff brings this action on his own behalf and as a class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all common stockholders of Cyprus Amax or their successors in interest, who are being and will be harmed by defendants' actions described below (the "Class"). Excluded from the Class are defendants herein and any person, firm, trust, corporation, or other entity related to or affiliated with any of defendants. 7. This action is properly maintainable as a class action because: 2 a. The Class is so numerous that joinder of all members is impractica ble. As of August 3, 1999, there were more than 90 million Cyprus Amax shares outstanding, held by hundreds, if not thousands, of stockholders located throughout the United States. b. There are questions of law and fact which are common to the Class including: whether the Individual Defendants have breached fiduciary duties to Cyprus Amax's public stockholders and whether plaintiff and the other Class members would be irreparably damaged if the defendants are not enjoined in the manner described below. c. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. The claims of plaintiff are typical of the claims of the other members of the Class and plaintiff has the same interests as the other members of the Class. Accordingly, plaintiff is an adequate representative of the Class and will fairly and adequately protect the interests of the Class. d. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying adjudications with respect to individual members of the Class which would establish incompatible standards of conduct for defendants, or adjudications with respect to individual members of the Class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests. 3 e. The defendants have acted, or refused to act, on grounds generally applicable to, and causing injury to the Class and, therefore, preliminary and final injunctive relief on behalf of the Class as a whole is appropriate. CLAIM FOR RELIEF ---------------- 8. On July 15, 1999, Cyprus Amax and ASARCO Incorporated ("Asarco") announced an agreement for the combination of the two companies in a merger-of- equals transaction (the "Merger"). The new company, to be named Asarco Cyprus Incorporated, would be the largest publicly traded copper company in the world. Under the terms of the transaction, Cyprus Amax common shareholders would receive 0.765 shares of Asarco Cyprus common stock for each share of Cyprus Amax common stock they own and ASARCO shareholders would receive one share of Asarco Cyprus common stock for each share of ASARCO common stock they own. It was anticipated that approximately 109 million shares of Asarco Cyprus common stock will be issued, of which Cyprus Amax shareholders will own 69.2 million shares or 63.5 percent following the Merger. 9. The Merger agreement provides that Asarco Cyprus would have a 16- person board with eight members nominated by Cyprus Amax and eight by ASARCO. Ward would be the co-Chief Executive Officer and Chairman of the combined entity. 10. The foregoing exchange ratio offers no premium to the pre- existing market value of the Cyprus Amax stock. Although the Merger agreement permits the Cyprus Amax Board to terminate the Merger if in the exercise of their fiduciary duties they determined that 4 another proposal offered a superior transaction, the Merger agreement expressly precludes both ASARCO and Cyprus Amax from entering into discussions with any third party (the "No-Talk Provision"). 11. Some time between July 15, 1999 and August 19, 1999, Phelps Dodge Corporation ("Phelps Dodge") made an unsolicited proposal to acquire both Cyprus Amax and ASARCO. Phelps Dodge offered .2874 Phelps Dodge share for each Cyprus Amax share, and .3756 Phelps Dodge share for each ASARCO share. 12. The exchange ratios contemplated by Phelps Dodge's initial offer represented a premium to the trading price of Cyprus Amax common stock. Based on Phelps Dodge's closing price of $58-9/16 on August 19, 1999, its bid valued Cyprus Amax at $16.83 a share -- over $2 per share or approximately 16% more than the $14.50 closing price of Cyprus Amax common stock on August 19, 1999. In addition, the proposal would result in a dividend increase for Cyprus Amax shareholders to 4.1 times the dividend contemplated to be paid by Asarco Cyprus. Moreover, over the past ten years, Phelps Dodge's total return has been 161% as compared to negative 26% for Cyprus Amax and negative 20% for ASARCO. A combination of the three companies would create a larger, more efficient, financially stronger company with a stronger balance sheet and enhanced earnings and cash flow. 13. Notwithstanding that the Phelps Dodges offer represented a far better value for Cyprus Amax shareholders, the Individual Defendants spurned at least three efforts by Phelps Dodge to discuss its offer and on August 19, 1999 voted to reject the the Phelps Dodge 5 offer. Citing the No-Talk Provision, they refused to discuss the offer with Phelps Dodge. Both the ASARCO and Cyprus Amax Boards reaffirmed their determination to proceed with the Merger. 14. Phelps Dodge is known in the copper industry as an aggressive cost cutter willing to terminate personnel in order to enhance revenues. Accordingly, Ward's job could be in jeopardy if Phelps Dodge were to acquire Cyprus Amax. Moreover, Phelps Dodge would have no motivation to maintain the Board structure contemplated by the Merger agreement. 15. ASARCO and Cyprus Amax did not publicly disclose the Phelps Dodge offer or the text of the Merger agreement until August 20, 1999. On that date, Cyprus Amax and ASARCO also disclose that the record date for shareholders to vote at the September 30 shareholders' meeting to consider the Merger would be Wednesday, August 25, 1999. Cyprus Amax had apparently sought and obtained a waiver of the New York Stock Exchange minimum requirement for the time between the announcement that a record date has been set and the record date itself. Since it takes three days to clear transactions and only shareholders who own shares on the record date can vote at a meeting, this late announcement of the record date limits informed market trading and the ability of shareholders who prefer the Phelps Dodge offer to purchase additional shares to vote against the Merger. 16. On August 20, 1999, Phelps Dodge improved its offer to 0.4098 Phelps Dodge share for each ASARCO share and 0.3135 Phelps Dodge share for each Cyprus Amax 6 share, valuing Cyprus Amax at $1.68 billion or $18.54 per share, a premium of approximately 29% to the pre-existing market price. 17. Phelps Dodge also indicated that it would be willing to improve upon its offer for Cyprus Amax dependent on discussions with the Company. 18. Phelps Dodge also announced that it is willing to acquire either Cyprus Amax or ASARCO individually. 19. On August 22, 1999, Phelps Dodge announced its intention to pursue a proxy contest against the Merger. 20. In light of the foregoing, the Individual Defendants fiduciary obligations require them to: a. undertake an appropriate evaluation of Cyprus Amax's worth as a merger/acquisition candidate; b. take all appropriate steps to enhance Cyprus Amax's value and attractiveness as a merger/acquisition candidate; c. take all appropriate steps to obtain the best available transaction for Cyprus Amax, including but not limited to, engaging in serious negotiations with Phelps Dodge or its representatives; d. act independently so that the interests of Cyprus Amax's public stockholders will be protected; 7 e. adequately ensure that no conflicts of interest exist between defendants, own interests and their fiduciary obligation to maximize stockholder value or, if such conflicts exist, to ensure that all conflicts be resolved in the best interests of Cyprus Amax's public stockholders; and f. insure that they and Cyprus Amax's shareholders have available all information material to decisions on a major corporate transaction, including the highest consideration each potential acquiror is prepared to offer and the terms and conditions of each offeror's proposal. 21. By agreeing to the No-Talk Provision, the Individual Defendants breached their fiduciary duties. They contracted away their ability to inform themselves adequately to make judgments in the best interests of all Cyprus Amax shareholders, and to obtain information to convey to Cyprus Amax shareholders to enable them to exercise an informed franchise on the Merger. 22. The Individual Defendants have also manipulated the setting of a record date for the shareholders' meeting on the Merger in order to improve the prospects for share holder approval of the Merger. 23. As a result of defendants' breaches of fiduciary duties, plaintiff and the other members of the Class have been and will be damaged in that they will not be able to exercise fully informed voting judgment on the Merger and will be prevented from obtaining the best available transaction. 8 24. Unless enjoined by this Court, defendants will continue to breach their fiduciary duties owed to plaintiff and the other members of the Class, all to the irreparable harm to the Class. 25. Plaintiff and the other members of the Class have no adequate remedy at law. WHEREFORE, plaintiff prays for judgment and relief as follows: A. Ordering that this action may be maintained as a class action and certify ing plaintiff as Class representatives; B. Declaring that defendants breached their fiduciary and other duties to plaintiff and the other members of the Class; C. Entering an order or orders requiring defendants to take the steps set forth hereinabove and declaring the No-Talk Provision void and non- enforceable; D. Awarding compensatory damages against defendants individually and severally in an amount to be determined; E. Awarding plaintiff the costs and disbursements of this action, including fees and experts' fees; and F. Granting such other and further relief as the Court may deem just and proper. 9 ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A. By:_____________________________________________ Suite 1401, Mellon Bank Center 919 North Market Street P.O. Box 1070 Wilmington, Delaware 19899 (302) 656-4433 Attorneys for Plaintiff OF COUNSEL: STULL STULL & BRODY 6 East 45th Street New York, NY 10017 (212) 687-7230 Dated: August 26, 1999 10 EX-99.16 17 COMPLAINT FILED IN PHELPS DODGE ET. AL V.CYBRUS AMAX ET. AL EXHIBIT 99.16 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY PHELPS DODGE CORPORATION, ) a New York corporation and ) CAV CORPORATION, a Delaware corporation, ) ) Plaintiff, ) v. ) C.A. No. 17398-NC ) CYPRUS AMAX MINERALS ) COMPANY, a Delaware corporation, ) COMPLAINT FOR DECLARATORY Milton H. Ward, Linda G. Alvarado, ) AND INJUNCTIVE RELIEF George S. Ansell, Rockwell A. Schnabel, ) Thomas V. Falkie, Ann Maynard Gray, ) Theodore M. Solso, John H. Stookey, ) Billie B. Turner and ) ASARCO INCORPORATED, a ) New Jersey corporation, ) Defendants. ) Plaintiffs Phelps Dodge Corporation and CAV Corporation (collectively, "Phelps Dodge"), by and through their undersigned attorneys, upon knowledge as to themselves and their own acts and upon information and belief as to all other matters, allege as follows: NATURE OF THE ACTION -------------------- 1. On July 15, 1999, ASARCO Incorporated ("ASARCO") and Cyprus Amax Minerals Company ("Cyprus Amax") announced a non-premium proposed merger (the "ASARCO Cyprus Merger"). Their merger agreement (the "Merger Agreement") -- which was not publicly disclosed until August 20, more than a month after the announcement -- is illegal. It purports to prohibit directors of a Delaware corporation from receiving, gathering, providing or exchanging information concerning any merger or acquisition proposal by Phelps --- Dodge (or any other interested party) until the stockholders of both companies vote on the ASARCO Cyprus Merger. It cannot be terminated to pursue a clearly superior transaction, such as the three-way combination proposed by Phelps Dodge. It imposes draconian financial penalties -- in excess of 6% of the market capitalization of ASARCO -- if the deal is not consummated according to management's plan. In short, this Merger Agreement is dead on arrival, a fact that likely explains why the companies secreted it so long. 2. The Merger Agreement's "No Solicitation" provisions -- in reality, "no-see, no-hear, no-talk" provisions -- are particularly outrageous. The directors of Cyprus Amax and ASARCO have contracted away their duty of care; they are not permitted even to learn about, let alone evaluate meaningfully, any alternative proposal -- no matter how compelling, financially rewarding and industrially sound. And, while the Merger Agreement makes the gracious concession of supposedly permitting the directors to change or withdraw their recom mendation of the ASARCO Cyprus Merger, it renders that right meaningless. A director cannot make an informed decision about the merits of a proposed ------ transaction -- or, equally important, the relative merits of two strategic alternatives -- without the ability to communicate freely with interested parties. This Court has never sanctioned what this Merger Agreement purports to do: require directors to keep their eyes wide shut. ------- 3. Apparently not content to hide behind the Merger Agreement's lock-up provisions, ASARCO and Cyprus Amax have engaged in a persistent pattern of conduct that reeks of entrenchment and undue defensiveness. Among other things, they have: 2 . attempted to rig the proxy process -- Blasius Indus., Inc. v. Atlas ------------------------------ Corp., 564 A.2d 651 (Del. Ch. 1989), be damned -- by setting meeting and ----- record dates designed to favor unfairly management's preferred transaction; . opposed Phelps Dodge's lawful requests for stockholder list information to allow Phelps Dodge to communicate directly -- and on a level playing field -- with the companies' owners; . granted senior management compensation and benefits packages that not only lavishly "reward" entrenchment, but unfairly shift value from stockholders to management; . included in the Merger Agreement provisions that virtually guarantee the jobs of senior management through 2002; and . stood -- and hid -- behind the Merger Agreement's unlawful restrictions, refus ing to meet, discuss or exchange information with Phelps Dodge concerning its proposal. This is not the conduct of responsible boards of directors. 4. Cyprus Amax's directors have abdicated their responsibilities. Their actions to date should be enjoined, and they should be required to act in accordance with law going forward. THE PARTIES ----------- 5. Plaintiff Phelps Dodge is a New York corporation with its principal executive offices in Phoenix, Arizona. Phelps Dodge is one of the world's leading producers of copper and has achieved its premier status through safe, efficient and environmentally sound 3 production of low-cost, high-quality metals and minerals. Phelps Dodge beneficially owns common stock of both ASARCO and Cyprus Amax. 6. Plaintiff CAV Corporation is a Delaware corporation directly owned by Phelps Dodge. CAV Corporation owns 100 shares of common stock of Cyprus Amax. 7. Defendant Cyprus Amax is a Delaware corporation with its principal place of business in Englewood, Colorado. Cyprus Amax is a diversified mining company engaged in the exploration for and extraction, processing and marketing of mineral resources, including copper, molybdenum, coal and gold. 8. Defendant Milton H. Ward ("Ward") has been Chairman, Chief Executive Officer and President of Defendant Cyprus Amax since 1992. He is a director of Cyprus Amax and owes fiduciary duties to Cyprus Amax and its shareholders. 9. Defendants Linda G. Alvarado, George S. Ansell, Rockwell A. Schnabel, Thomas V. Falkie, Ann Maynard Gray, Theodore M. Solso, John H. Stookey and Billie B. Turner (the "Director Defendants") are current directors of Cyprus Amax and all owe fiduciary duties to Cyprus Amex and its shareholders. 10. Defendant ASARCO is a New Jersey corporation with its principal place of business in New York, New York. ASARCO is a leading producer of copper, specialty chemicals and aggregates, and is registered to do business in Delaware. The Company's copper business includes integrated mining, smelting and refining operations in North America and Peru. 4 11. Phelps Dodge has commenced a parallel action alleging, inter ----- alia, breaches of fiduciary duty against ASARCO, its Chairman and Chief - ---- Executive Officer, Francis R. McAllister ("McAllister"), and its directors in the Superior Court of the State of New Jersey. FACTUAL BACKGROUND ------------------ I. The Proposed Merger of ASARCO and Cyprus Amax --------------------------------------------- 12. On July 15, 1999, ASARCO and Cyprus Amax announced a so-called "merger of equals" under which ASARCO shareholders are to receive one share of stock in the merged company and Cyprus Amax shareholders are to receive 0.765 shares per share of Cyprus Amax stock they currently hold. The proposed new company, ASARCO Cyprus Incorporated ("ASARCO Cyprus"), would have its corporate headquarters in New York City and its opera tions headquarters in Tempe, Arizona. Cyprus Amax shareholders would receive no premium by way of the transaction, 13. ASARCO Cyprus would have a sixteen person board of directors with eight members nominated by ASARCO and eight by Cyprus Amax. Ward, Cyprus Amax's Chairman, President and Chief Executive Officer, and McAllister, ASARCO's Chairman and Chief Executive Officer, would serve as Co-Chief Executive Officers and directors of ASARCO Cyprus. 14. The market reaction to the proposed no-premium merger was hardly inspired, pushing both companies' stock prices down. On July 14, 1999, the common stock of Cyprus Amax and ASARCO was trading at highs of 14-1/2 and 19- 1/2, respectively. On July 19, 1999, the common stock of Cyprus Amex and ASARCO was trading at highs of 14 and 19-1/16, respectively. Although the ASARCO Cyprus Merger initially included projected cash 5 synergies of $100 million per year, plus reduced depreciation of $50 million annually due to the write-down of certain assets (this estimate was later increased to $200 million), the market has not recognized any incremental value in the current share prices of either company. The proposed merger has also been criticized for its lack of a plan to integrate operations, and its lack of asset rationalization. 15. The details of the Merger Agreement were not finally disclosed to the public until August 20, 1999, over a month after the merger was announced and only after ASARCO and Cyprus Amax publicized that they were rejecting a three-way merger proposed by Phelps Dodge. By hiding the self-serving restrictive provisions of their Merger Agreement from public view, the directors of ASARCO and Cyprus Amax have attempted to shield their true objective of entrenching their positions even at the expense of a better proposal for their shareholders. II. The CEOS of ASARCO and Cyprus Amex Refuse to Talk with Phelps Dodge ------------------------------------------------------------------- 16. The time-way merger proposal offered by Phelps Dodge was made on August 10, 1999, when Douglas Yearley, CEO of Phelps Dodge ("Yearley"), telephoned Cyprus Amax's Ward and ASARCO's McAllister, who were meeting together in New York. 17. This proposal was immediately -- and summarily -- rejected. At approximately 6:45 that evening, a few hours after the proposal was made, McAllister and Ward forwarded a short letter to Yearley which stated simply that pursuant to the terms of the Merger Agreement, Ward and McAllister felt they "were not at liberty to have a discussion of the nature you were suggesting today." Exhibit 1. A copy of the Merger Agreement was not provided to 6 Phelps Dodge, and thus it was unclear at that stage why the CEOs of ASARCO and Cyprus Amax would not even entertain discussions with Phelps Dodge. 18. On August 11, 1999, Yearley and Phelps Dodge President, J. Steven Whisler, again requested a meeting with Cyprus Amax and ASARCO, in a letter to Ward and McAllister laying out the basic terms of the proposed merger. Exhibit 2. The letter explained "that a three-way combination . . . would create superior shareholder value for the shareholders of ASARCO and Cyprus Amax." Under the proposed merger, "all of the outstanding common stock of both ASARCO and Cyprus Amax [would] be exchanged for Phelps Dodge common stock" and "[t]he transaction would be tax free" to ASARCO and Cyprus Amax shareholders. 19. Specifically, the August 11 letter stated that Phelps Dodge was prepared to offer shareholders of ASARCO and Cyprus Amax an exchange ratio of 0.3756 Phelps Dodge common shares for each ASARCO common share, and 0.2874 Phelps Dodge common shams for each Cyprus Amax common share. These exchange ratios represented a premium of approxi mately 25%, based on the then-market prices for ASARCO and Cyprus Amax shares. Because the benefits to the shareholders of ASARCO and Cyprus Amax of a three-way merger with Phelps Dodge are significantly greater than the currently proposed ASARCO Cyprus Merger, Phelps Dodge once again urged McAllister and Ward to consider the proposal. The CEOs of ASARCO and Cyprus Amax did not wait long, however, before refusing to consider the proposed three-way merger. 20. On the morning of August 12,1999, Yearley received a telephone call frorn McAllister and Ward again refusing to discuss Phelps Dodge's proposal. Once again, the 7 CEOs of ASARCO and Cyprus Amax did not explain what prevented them from even talking to Phelps Dodge. 21. Ward and McAllister's stubborn refusals to communicate with Phelps Dodge demonstrated that there would be no serious consideration of a three-way merger of Phelps Dodge, Cyprus Amax and ASARCO. Their conduct strongly suggests their true motive is to entrench and perpetuate their current positions and lucrative compensation packages through the creation of ASARCO Cyprus, while abandoning their duties to act in the best interests of their companies and shareholders by exploring a merger with Phelps Dodge. In short, the CEOs of ASARCO and Cyprus Amax are depriving the stockholders of their companies of the opportunity to consider a premium proposal from which the shareholders stand to benefit significantly. III. The Superiority of the Phelps Dodge Proposal -------------------------------------------- 22. An analysis of the three-way merger proposed by Phelps Dodge demon strates compelling benefits to all three companies. These include: (a) a significant premium, of approximately 30% as of the August 20, 1999 proposal date, and a quadrupling of dividends to sharehold ers; (b) the increased ability of the combined company to integrate south west U.S. mining operations, administrative functions in Chile and Peru and worldwide exploration and development activities; 8 (c) the increased financial strength of the combined company and its ability to create a world-class portfolio of cost- competitive mining assets; (d) a formidable management team, at both the operating and corpo rate levels, with solid credibility in the marketplace; (e) the capacity to eliminate substantial overhead, exploration, pur chasing and other expenses through consolidation; (f) tremendous operating leverage, together with sufficient diversity in other businesses to mitigate cyclical downturns; (g) the ability of the combined company to reduce capital expendi tures; (h) a strong liquid balance sheet, with excellent access to capital; and (i) the combination of all of these factors, creating greater shareholder value on an ongoing basis for the shareholders of all three companies. 23. In addition, the three-way transaction proposed by Phelps Dodge would bring significant benefits to shareholders of all three corporations. Specifically, a three-way merger would lead to cost savings well in excess of the amounts that could be achieved through the pending ASARCO Cyprus Merger. Phelps Dodge estimates that the annual cash cost savings would be at least $200 million, with additional non-cash savings of approximately $65 million per year from lower depreciation charges. 9 24. Over the past few years, Phelps Dodge stock has significantly outper formed the stock of both ASARCO and Cyprus Amax. Furthermore, Phelps Dodge stock has yielded a total return of 161% over the past ten years, compared to total returns of negative 20% for ASARCO stock and negative 26% for Cyprus Amax stock. 25. Moreover, the benefits of the Phelps Dodge proposal remain superior to the terms of the ASARCO Cyprus Merger regardless of whether both or only one of ASARCO or Cyprus Amax accept the proposal. For shareholders of Cyprus Amax, a significant premium is still better than the no-premium ASARCO Cyprus Amax alternative. The consummation of the ASARCO Cyprus Merger, however, would prelude this possibility. 26. The metals and mining industry is undergoing a phase of rapid consolida tion. In view of this dynamic environment and the numerous compelling benefits to ASARCO, Cyprus Amax and Phelps Dodge, a summary rejection of the Phelps Dodge proposal is as incomprehensible as it is unjustifiable. IV. The Boards of Directors' Public Rejection of the Phelps Dodge Proposal ---------------------------------------------------------------------- 27. In the face of the adamant refusal by the CEOs of both ASARCO and Cyprus Amax to give any consideration to Phelps Dodge's proposal, Phelps Dodge sent letters on August 12, 1999 to the boards of directors of both companies, outlining the proposed three-way transaction and the ensuing benefits to all three companies and their shareholders. Exhibit 3. In these letters, Phelps Dodge also indicated that its proposal with respect to Cyprus Amax was not contingent on ASARCO's acceptance of the proposal and vice versa. 28. On August 20,1999, Cyprus Amax and ASARCO publicly rejected Phelps Dodge's "unsolicited proposal." In a joint news release (the "August 20 News Release"), Cyprus 10 Amax and ASARCO stated that each of their respective boards had met separately to consider the proposal, and determined that "pursuing the ASARCO Cyprus Merger was in [the] best interests of ASARCO and Cyprus Amax stockholders, respectively. . . ." Cyprus Amax and ASARCO's joint news release stated only that "Phelps Dodge's proposal is subject to a number of contingencies." Exhibit 4. 29. The boards of Cyprus Amax and ASARCO refrained from stating the basis for their decision to reject the Phelps Dodge proposal and did not identify the "contingen cies" they were referring in the August 20 News Release. Most certainly, they made no effort to discuss and negotiate any such "contingencies." Consequently, Defendants unjustifiably continue to deprive Cyprus Amax stockholders of the opportunity to decide for themselves which transaction is in fact in their best interests. 30. That same day, following ASARCO and Cyprus Amax's public rejection of the Phelps Dodge proposal, Phelps Dodge outlined a revised proposal even more beneficial to the shareholders of ASARCO and Cyprus Amax. Each share of ASARCO common stock would be converted into 0.4098 Phelps Dodge common shares, representing a significant premium of approximately 30% to ASARCO shareholders, based upon share prices of ASARCO and Phelps Dodge before trading was halted that morning. Each share of Cyprus Amax common stock would be converted into 0.3135 Phelps Dodge common shares, representing an approximate 29% premium for Cyprus Amax shareholders, based upon share prices of Cyprus Amax and Phelps Dodge before trading was halted that morning. Exhibit 5. 11 31. The market and financial community responded overwhelmingly favorably to the Phelps Dodge proposal, and the shares of all three companies rose during trading on August 20. 32. On August 24, 1999, The Wall Street Journal reported that Cyprus Amax shareholders were eager to embrace a deal with Phelps Dodge. One money manager with a big stake in Cyprus Amax commented: "[l]ong term, ASARCO Cyprus is a good combination, but a combination of Phelps, ASARCO and Cyprus is a great combination." 33. Even Cyprus Amax commented to Bloomberg News that it was prepared to convene a board meeting to study the increased offer. Gerald Malys, Chief Financial Officer of Cyprus Amax, informed Bloomberg that Cyprus Amax and ASARCO had rejected the initial offer because it did not offer enough of a premium. He added that Cyprus Amax and ASARCO need to begin conversations about the Phelps Dodge proposal, stating: "I don't think there is any choice in this game but to listen to what goes on. We need to look at it, they (ASARCO) need to look at it, we need to talk to each other." Yet the Merger Agreement and the continued resistance of McAllister, Ward and the boards of directors of ASARCO and Cyprus Amax remain road blocks to any such discussions -- and thus the proper discharge of the boards' fiduciary duties. V. The Unreasonable Terms of the ASARCO Cyprus Merger Agreement ------------------------------------------------------------ 34. Until August 20, 1999, the provisions of the Merger Agreement between ASARCO and Cyprus Amax were hidden from their respective shareholders and the public. On that day, ASARCO and Cyprus Amax filed an S-4 Registration Statement, attaching the Merger Agreement. The Merger Agreement contains a number of noteworthy "no-see, no-hear, no-talk" provisions that reflect patent violations of the fiduciary duties owed by the boards of ASARCO 12 and Cyprus Amax. These provisions are transparent efforts to protect a non- premiurn deal and to entrench management at the expense of shareholders. 35. Sections 5.10(a)(i) and 5.11(a)(i) of the Merger Agreement restrain both parties, their directors, officers, employees and representatives from directly or indirectly soliciting, initiating or encouraging (whether by furnishing information or otherwise), or taking 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." A Takeover Proposal is defined as any inquiry, proposal or offer, or any improvement, restatement, amend ment, 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 party or any of its subsidiaries. 36. More egregiously, Sections 5.10(a)(ii) and 5.11(a)(ii) restrain both parties, their directors, officers, employees, and representatives from "participat[ing] in any discussions or negotiations regarding any [alternative] Takeover Proposal." Thus the Merger Agreement, purports to restrain the Cyprus Amax board from discussing an unsolicited bid that is demonstra bly superior to the ASARCO Cyprus Merger. 37. Sections 5.10(b) and 5.11(b) further prohibit the boards of directors of either company from withdrawing or modifying their approval or recommendation of the ASARCO Cyprus Merger or the Merger Agreement. The boards may withdraw their recommendation to approve the merger only if they determine in good faith, based on the advice of outside counsel, that a failure to do so would constitute a breach of fiduciary duties owed by the respective boards to their shareholders. 13 38. The sole power that the boards of ASARCO and Cyprus Amax have if they determine that the ASARCO Cyprus Merger is not in fact in the best interests of their shareholders is to recommend that the shareholders vote against approving the merger. The boards of directors of ASARCO and Cyprus Amax do not have the power to terminate the Merger Agreement, nor may they stop the vote from occurring. 39. Section 7.1(e) of the Merger Agreement permits ASARCO to terminate the Merger Agreement if Cyprus Amax breaches Section 5.10 of the Merger Agreement and Section 7.1(f) entities Cyprus Amax to terminate the Merger Agreement if ASARCO is in breach of Section 5.11. Under Sections 7.3(a)(ii) and (b)(ii), if one party is entitled to terminate the Merger Agreement due to the other party's breach of its obligation not to consider or negotiate other proposals, the party who may terminate the Merger Agreement is entitled to $45 million (the "Termination Fee"). This is a grossly excessive termination fee and, in the case of ASARCO, would amount to 6% of its equity value. 40. Under Sections 7.3(a)(i) and (b)(i) of the Merger Agreement, Cyprus Amax or ASARCO could be subjected to this severe Termination Fee simply because, in light of another Takeover Proposal, its shareholders voted against the merger. The only way in which the Termination Fee would not apply is if the other party's shareholders also voted against the transaction, or if a transaction pursuant to another Takeover Proposal was not consummated within 18 months. 41. As a consequence of these provisions, the boards of ASARCO and Cyprus Amax are not allowed to consider superior offers or proposals and are thereby restrained from acting in the best interests of their shareholders. In addition, the substantial Termination Fee acts 14 as a great disincentive for ASARCO and Cyprus Amax to negotiate with anyone but each other -- and for shareholders to vote down the ASARCO Cyprus Amax Merger Agreement. Although the Merger Agreement contains a provision which would allow the boards of directors to withdraw their recommendations in order to fulfill their fiduciary duties, it is impossible to see how this would occur if the directors have been effectively precluded from obtaining information about and considering in an infomed way any other offers or proposals. 42. In other words, the boards of ASARCO and Cyprus Amax have tied their hands by agreeing not to solicit, encourage, or facilitate inquiries by furnishing information, and not to participate in discussions with respect to any other proposals. It would be difficult, if not impossible, for them to make any meaningful analysis of another proposal, such as Phelps Dodge's, let alone to make any recommendation to the shareholders of Cyprus Amax other than to vote in favor of the ASARCO Cyprus Merger. The restrictions contained in the Merger Agreement render it impossible for the boards of ASARCO and Cyprus Amax to make an informed decision as to whether the ASARCO Cyprus Merger is, or is not, in the best interests of their shareholders. Ward and the Director Defendants of Cyprus Amax should not be allowed to hide behind unreasonable provisions in the Merger Agreement as justification for their refusal to allow their shareholders to consider a for superior proposal. 43. Moreover, there is great financial incentive for the boards to push ahead with their merger even at the expense of foregoing a better offer for their shareholders. The ASARCO Cyprus Form S-4 Registration Statement discloses that "[e]ach of the employee directors of ASARCO and Cyprus Amax may be entitled to receive compensation if the business combination is completed." Even if certain directors or senior officers are no longer employed 15 by the merged company, the Merger Agreement ensures that they are entitled to large severance payments. In other words, directors and certain senior officers of ASARCO and Cyprus Amax are rewarded whether they continue to be employed by ASARCO Cyprus or not. The key, however, is that the Merger Agreement be protected. If the Merger Agreement were to be terminated, the Director Defendants would be entitled neither to continued employment by ASARCO Cyprus, nor to the large severance payments. 44. Finally, Section 3.2 of the Merger Agreement futher demonstrates the degree to which the directors of ASARCO and Cyprus Amax have sought to entrench their positions. It states that any change to the "key executive officers" of ASARCO Cyprus prior to the stockholder meeting in the year 2002 requires the affirmative vote of at least three-quarters of the directors constituting the entire board of directors of ASARCO Cyprus. What this means is that any change in management effectively requires the unanimous vote of the twelve non management directors. VI. ASARCO and Cyprus Amax Seek To Manipulate the Merger Vote --------------------------------------------------------- 45. The August 20 News Release stated that proxy materials relating to the ASARCO Cyprus Merger would be mailed to shareholders of record on August 25, 1999, and that shareholder meetings have been set for September 30, 1999. This timetable in fact contra venes New York Stock Exchange Rules and was designed to further the interests of the directors over the shareholders. 46. Section 4 of the New York Stock Exchange Rules regulates shareholder meetings and proxies. Section 401.02 explicitly provides that "[a] minimum of ten days' notice is required prior to the record date ... established ... for determination of shareholders entitled to 16 vote at the meeting." ASARCO and Cyprus Amax gave only seven days' notice to the NYSE of the August 25, 1999 record date, and did not make the record date public until August 20, 1999. 47. Although the NYSE has opted not to take action against the companies for their failure to observe this rule, expediting the record date nonetheless demonstrates the haste with which ASARCO and Cyprus Amax are proceeding in order to have their Merger approved by shareholders of both companies. 48. This abbreviated schedule is no accident. Ward, McAllister and the boards of their companies seek to prevent more recent shareholders, who would be aware of and therefore more likely to be in favor of the Phelps Dodge proposal, from being able to vote on the ASARCO Cyprus Merger. Defendants seek to preempt the normal flow of trading and move ment in the market of each company's shares in order to ensure that the shareholders of record entitled to vote upon the ASARCO Cyprus Mager are those who would be more likely to vote in favor of it. 49. In addition, Phelps Dodge has sought shareholder lists and related materials from Cyprus Amax and ASARCO. As of the date of the filing of this complaint, Cyprus Amax has not responded to a letter requesting the materials dated August 23, 1999. ASARCO outright opposed an application Phelps Dodge made to a New Jersey court seeking the information. On August 26,1999, the court ruled that documents and records must be turned over to Phelps Dodge within forty-eight hours of the filing of its preliminary proxy materials. In light of the schedule ASARCO and Cyprus Amax have set for their shareholder meetings, the delay and refusal to turn over shareholder lists is further evidence of entrenchment. VII. ASARCO and Cyprus Amax Issue an Ultimatum to Phelps Dodge --------------------------------------------------------- 17 50. Instead of agreeing to engage in real discussions with Phelps Dodge, late in the afternoon of August 25,1999, ASARCO and Cyprus Amax issued a joint ultimatum to Phelps Dodge in the form of a news release (the "August 25 News Release") and a letter from McAllister and Ward to Yearley. Although the August 25 News Release characterized the letter as a "willingness to negotiate," the terms demanded by the CEOs of ASARCO and Cyprus Amax are so unreasonable that their negotiating posture is illusory and their entrenchment motive all the more apparent. 51. The conditions, which no company would accept under similar circum stances, include a requirement that the exchange ratio be increased to 0.4055 shares of Phelps Dodge common stock for each Cyprus Amax share, and 0.5300 Phelps Dodge shares for each ASARCO common share. This demand amounts to a premium of 70% to 80% of the companies' stock prices after the announcement of ----- their no-premium merger but before the first public disclosure of Phelps Dodge's ------ initial proposal. Exhibit 6. ASARCO and Cyprus Amax may now be feeling pressure from their shareholders lo negotiate with Phelps Dodge, but making unrea sonable and unacceptable demands is nothing more than a ploy to deflect shareholder attention while pursuing the ASARCO Cyprus Merger. 52. These outrageous demands amount to an unreasonable ultimatum to Phelps Dodge and make other supposed examples of their willingness to negotiate all the more illusory. The August 25 News Release reports that during the first ninety days after completion of the ASARCO Cyprus Merger, Ward and McAllister will offer their shareholders the right to call a meeting to consider a "bona fide" proposal. During this time period, ASARCO and Cyprus Amax will allow for a redemption of their shareholder rights plan and a waiver of any change of 18 control provisions in employment contracts. In light of ASARCO's and Cyprus Amax's conduct to date and the delay -- and burden associated with such a special meeting -- such "promises" ring hollow. And the companies' statements regarding employment contracts are so cryptic -- and even contradictory -- as to be indecipherable. 53. Indeed, the August 25 News Release also announced an equally illusory attempt at resuscitating shareholder interest in the ASARCO Cyprus Merger itself. ASARCO and Cyprus Amax now say they will improve the terms of their deal by including a "special payment" of $5.00 per share to the shareholders of the merged entity, to be paid as soon as possible after the consummation of the merger. This "special payment" does not alter the fundamental economics of the ASARCO Cyprus Merger, nor does it offer the stockholders of ASARCO and Cyprus Amax greater value than Phelps Dodge's premium proposal. 54. Nothing in the August 25 News Release or the letter detracts from one fundamental fact: ASARCO and Cyprus Amax have not changed the unreasonable terms of their Merger Agreement preventing any serious consideration of the Phelps Dodge proposal. If there were any doubt, ASARCO and Cyprus Amax "emphasized" in the August 25 News Release that they were sticking to their schedule of shareholder meetings for September 30, 1999 to vote on their merger. In their letter to Yearley, Ward and McAllister made clear that "apart from this communication, neither party has waived any of its legal or other rights, or rights or obligations under our merger agreement."Exhibit 6. In other words, the "no-see, no-hear, no-talk" and other illegal provisions of the Merger Agreement remain intact. 55. The August 25 letter shows that Ward and McAllister have put their interests before the interests of the ASARCO and Cyprus Amax shareholders. The letter states: 19 "[w]e strongly believe that the combination of Cyprus Amax and ASARCO, without the effect of combining further with Phelps Dodge, provides greater value to Cyprus Amax and ASARCO holders than your August 20 proposal. "In other words, Ward and McAllister believe that no premium is better than the significant premium offered by Phelps Dodge. Although that may be true for Ward and McAllister, it cannot be true for the shareholders of their companies. 56. On August 25, 1999 Phelps Dodge issued a news release confirming that it had received ASARCO and Cyprus Amax's letter, but that the letter was not accompanied by any offer to negotiate, talk or exchange information. Exhibit 7. 57. On August 27,1999, Phelps Dodge filed a Form S-4 Registration State ment with respect to its Proposal, and announced its intention to offer to exchange shares of Phelps Dodge common stock for ASARCO and Cyprus Amax shares (the "Exchange Offer"). However, the Exchange Offer cannot be consummated unless, among other things, the Director Defendants amend the onerous terms of the shareholder rights agreement (the "Rights Agree ment" or the "Poison Pill") or redeem the rights provided therein. VII. Cyprus Amax's Failure to Redeem or Amend its Shareholder Rights Agreement ------------------------------------------------------------------------- 58. In February 1999, Cyprus Amax adopted the Poison Pill, which was amended on July 15, 1999. Under the Rights Agreement, Cyprus Amax's board has authorized and delivered a dividend of one preferred share purchase right (a "Right") for each share of common stock of the company outstanding on February 28, 1999. Each Right represents the right to purchase 1/100 of a share of Series A Preferred Stock at a price of $50 per 1/100 of Series A Preferred Stock. Each share of Series A Preferred Stock has 100 times the voting power of each share of common stock. 20 59. Distribution of the Rights is triggered by the earliest of the following events: (i) the tenth day after the first public announcement by Cyprus Amax or an Acquiring Person (defined as any person who is the beneficial owner of 15% or more of the common stock then outstanding) that an Acquiring Person has become such; or (ii) the tenth business day after the commencement of or the first public announcement of the intention of any person other than the company, or other associated persons, to commence a tender or exchange offer, the consum mation of which would result in any Person becoming the beneficial owner of common stock aggregating 15% or more of the then outstanding common stock. 60. The Rights Agreement contains a "flip-in" provision. Under this provi sion, if any person becomes an Acquiring Person, each holder of a Right will be able to purchase shares under preferential terms. Specifically, he or she will have the right to purchase that number of shares of common stock, which at the time the person became an Acquiring Person had it market value of twice the exercise price, at the current exercise price multiplied by the number of 1/100 of a share of Series A Preferred Stock. This flip-in provision dilutes the Acquiring Person's holdings and increases the number of shares that the Acquiring Person would have to purchase in order to consummate a merger. 61. The Rights Agreement also contains a "flip-over" provision, which arises if, following the time a person becomes an Acquiring Person, (i) Cyprus Amax shall consolidate with, or merge into, any other person, (ii) any person shall consolidate or merge with Cyprus Amax and Cyprus Amax is the continuing corporation of such merger, and in connection with such merger, all or part of the common shares shall be changed into or exchanged for stock or other securities of any other person or cash or any other property, or (iii) 50% or more of Cyprus 21 Amax's assets or earning power are transferred to any other person other than Cyprus Amax or a wholly owned subsidiary. This "flip-over" provision entitles each Right holder to buy, at the current exercise price multiplied by the number of 1/100 Series A Preferred Stock, common stock of the acquiring company with a then market value equal to two times the exercise price. 62. Due to the prohibitive costs this Poison Pill imposes on an Acquiring Person, no tender offer or exchange offer that would trigger the Rights can practically be consummated unless Cyprus Amax's board redeems the Rights or amends the Poison Pill. Cyprus Amax's board can redeem the Rights at a redemption price of $0.01 per Right. In addition, Cyprus Amax's board can amend the Rights Agreement, as it did on July 15, 1999 to accommodate the ASARCO Cyprus Merger. Accordingly, simply by refusing to redeem the Rights or to amend the Rights Agreement, Cyprus Amax's board can block offers regardless of the interests of Cyprus Amax's shareholders. The triggering of the Poison Pill would be particularly unjustified given the premium price and fair structure proposed by Phelps Dodge. 63. The continued maintenance of the Poison Pill in relation to Phelps Dodge serves only one purpose: entrenchment of the Director Defendants for their own personal gain and at the expense of their duty to act in the best interests of Cyprus Amax's shareholders. A failure by Cyprus Amax and the Director Defendants to redeem the Rights or to amend the Rights Agreement would be a breach of the Director Defendants' fiduciary duties, because such failure will effectively hinder the shareholders of Cyprus Amax from exercising their fundamen tal rights to determine the future of the company they own. DECLARATORY RELIEF ------------------ 22 64. ASARCO and Cyprus Amax's indicate public rejection of Phelps Dodge's attempts to negotiate a business combination and their failure to take necessary steps to place the matter before the shareholders of both companies indicate that there is a substantial controversy between the parties. The adverse legal interests of the parties are real and immediate. 65. The granting of the requested declaratory relief will serve the public interest by affording relief from uncertainty and by avoiding delay as well as conserving judicial resources by avoiding piecemeal litigation. IRREPARABLE INJURY ------------------ 66. Defendants' unwillingness to consider Phelps Dodge's proposed three-way transaction will prevent Phelps Dodge's proposal from being placed before the shareholders of both companies for their consideration. Should this occur, the shareholders of ASARCO and Cyprus Amax, including Phelps Dodge, will be deprived of the unique opportunity to decide which merger proposal is more beneficial to them. 67. The terms of the Merger Agreement, by prohibiting the boards of ASARCO and Cyprus Amax from considering and negotiating alternative proposals, effectively prevent the boards from complying with their fiduciary duties to act in the best interests of their companies. 23 68. In addition, Phelps Dodge, as a potential party to a three-way transaction, will be deprived of the unique opportunity to enter into a business combination that would provide it with substantial benefits, including increased efficiency and international competitive ness. 69. The resulting injury to Phelps Dodge will not be compensable in money damages and Plaintiffs, as well as other ASARCO and Cyprus Amax shareholders, have no adequate remedy at law. COUNT ONE --------- Breach of Duty of Care by Defendants ------------------------------------ 70. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 69 as if fully set forth herein. 71. The Director Defendants owe a duty of care to plaintiffs. This duty requires that they make good faith efforts to be informed and to exercise appropriate judgment. Failure of a board of directors to inform itself fully of all reasonably available material informa tion, including alternatives, before arriving at a decision constitutes a breach of this duty. 72. The Director Defendants, in agreeing to and continuing to abide by terms in the Merger Agreement that prevent them from fulfilling their fiduciary duties, have breached their duty of care. By prohibiting themselves from obtaining information or considering other potentially superior offers, Defendants have precluded the possibility of making an informed recommendation to shareholders of ASARCO and Cyprus Amax. Even though they claim that they are willing to negotiate with Phelps Dodge, the unreasonable conditions in their August 25 24 letter render any such willingness completely illusory. In addition, ASARCO and Cyprus Amax have reaffirmed the onerous provisions of their Merger Agreement. 73. Plaintiffs seek: (i) a declaration that Ward and the Director Defendants breached their duty to exercise due care in failing to make reasonable efforts to obtain informa tion about the Phelps Dodge proposal; (ii) a declaration that Ward and the Director Defendants breached their duty of care in determining that the ASARCO Cyprus Merger was in the best interests of their shareholders, without a reconfirmation of the fairness opinion of their financial advisors; (iii) an injunction compelling Ward and the Director Defendants to inform themselves adequately and to consider the Phelps Dodge proposal; (iv) an injunction compelling Ward and the Director Defendants to submit the Phelps Dodge Proposal to the shareholders of Cyprus Amax; and (v) an injunction preventing Defendants from taking any further steps to proceed with the proposed ASARCO Cyprus Merger. COUNT TWO --------- Breach of Fiduciary Duties by Ward and the Director Defendants -------------------------------------------------------------- 74. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs I through 73 as if fully set forth herein. 75. Ward and the Director Defendants stand in a fiduciary relationship with Cyprus Amax shareholders, including Phelps Dodge. As fiduciaries, they owe the highest duties of care, loyalty and good faith. 76. Three proposal for a three-way merger is non-coercive, nondiscriminatory, and poses no threat to Cyprus Amax's corporate policies and effectiveness. Phelps Dodge's 25 proposal represents a substantial premium over the current market price of Cyprus Amax's stock and the value of the ASARCO non-premium alternative. 77. The failure of Ward and the Director Defendants to determine that the proposed three-way merger is in the best interests of Cyprus Amax and its shareholders -- or even to consider the question seriously -- constitutes a violation of the fiduciary duties owed by them. 78. The failure of Ward and the Director Defendants even to assess whether the proposed three-way merger is in the best interests of Cyprus Amax and its shareholders is a violation of the fiduciary duties owed by them. 79. Plaintiffs seek: (i) a declaration that the failure of Ward and the Director Defendants to consider the Phelps Dodge proposal and to determine that the proposed three-way merger is in the best interests of Cyprus Amax's shareholders is a breach of fiduciary duty; (ii) an injunction compelling Ward and the Director Defendants to consider the Phelps Dodge proposal; (iii) an injunction compelling Ward and the Director Defendants to submit the Phelps Dodge proposal to the shareholders of Cyprus Amax; and (iv) an injunction preventing Defendants from taking any further steps to proceed with the proposed ASARCO Cyprus Merger. 80. Plaintiffs have no adequate remedy at law. COUNT THREE ----------- The $45 Million Termination Fee is Unenforceable ------------------------------------------------ 81. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 80 as if fully set forth herein. 26 82. Ward and the Director Defendants stand in a fiduciary relationship with Cyprus Amax shareholders, including Phelps Dodge. As fiduciaries, they owe the highest duties of care, loyalty and good faith. 83. The Director Defendants breached their fiduciary duties in agreeing to a Termination Fee in the grossly excessive sum of $45 million, and in agreeing that such Termination Fee would apply even if the shareholders of Cyprus Amax voted against the ASARCO Cyprus Merger. 84. Plaintiffs seek a declaration that agreeing to a Termination Fee of $45 million is a breach of fiduciary duty. 85. Plaintiffs have no adequate remedy at law. COUNT FOUR The Coercive Vote Should Be Enjoined ------------------------------------ 86. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 85 as if fully set forth herein. 87. The scheduled September 30, 1999 vote by the Cyprus Amax stockholders on the ASARCO Cyprus Merger will be improperly and illegally coercive. Stockholders will be wrongfully coerced into voting in favor of the merger because, as Defendants have structured the Merger Agreement, Cyprus Amax will have to pay to ASARCO a grossly excessive Termination Fee if the Cyprus Amax stockholders fail to approve the merger. The vote of the Cyprus Amax stockholders will also be wrongfully coerced because they know that the ASARCO Cyprus transaction is the only business combination the Director Defendants will approve and thus, due 27 to the Director Defendants' breaches of fiduciary duties, is the only transaction whereby Cyprus Amax can be consolidated with another entity. 88. Plaintiffs seek an injunction enjoining the September 30, 1999 vote, or, alternatively, enjoining Defendants from taking any actions to consummate the ASARCO Cyprus Merger. 89. Plaintiffs have no adequate remedy at law. COUNT FIVE ---------- Phelps Dodges' Proposal Must be Submitted to Shareholders of Cyprus Amax ------------------------------------------------------------------------ 90. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 99 as if fully set forth herein. 91. The proposal for a three-way merger is non-coercive, nondiscriminatory, and poses no threat to Cyprus Amax's corporate policies and effectiveness, and represents a substantial premium over the current market price of Cyprus Amax's stock. 92. Ward and the Director Defendants may not improperly prevent the shareholders of Cyprus Amax from considering the Phelps Dodge Proposal. Nor may they improperly manipulate the voting process, as they already have attempted to do. Any meeting of Cyprus Amax's shareholders to vote upon the ASARCO Cyprus Merger must include a consider ation of the Phelps Dodge proposal, which is superior and more beneficial to Cyprus Amax's shareholders than the ASARCO- Cyprus Amax Merger Agreement. The failure of Ward and the Director Defendants to put the Phelps Dodge proposal before the shareholders of Cyprus Amax is a breach of their fiduciary duties. 28 93. Plaintiffs seek: (i) a declaration that the failure of Ward and the Director Defendants to submit the Phelps Dodge proposal for consideration by Cyprus Amax's sharehold ers is a breach of fiduciary duty; (ii) an injunction compelling Ward and the Director Defendants to submit the Phelps Dodge proposal to Cyprus Amax's shareholders at any meeting of Cyprus Amax's shareholders to consider the ASARCO Cyprus Merger; and (iii) an injunction preventing Ward and the Director Defendants from taking any further steps to proceed with the proposed ASARCO Cyprus Merger until Cyprus Amax's shareholders have been given the opportunity to consider the three-way transaction proposed by Phelps Dodge. 94. Plaintiffs have no adequate remedy at law. COUNT SIX --------- Failure to Amend or Redeem the Poison Pill ------------------------------------------ 95. Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 94 as if fully set forth herein. 96. The proposal for a three-way merger is non-coercive, nondiscriminatory, and represents a substantial premium over the market price of ASARCO and Cyprus Amax stock. The Phelps Dodge proposal posts no threat to Cyprus Amax's corporate policies and effectiveness. 97. The failure of Ward and the Director Defendants to redeem the Rights or to amend the Rights Agreement, or to otherwise make it inapplicable to the Phelps Dodge proposal, is a severe and inappropriate response to the proposed three-way merger. In addition, Ward and the Director Defendants' failure to redeem the Rights or to amend the Rights Agree ment is a breach of the fiduciary duties owed by them to Cyprus Amax's shareholders. 29 98. The application of the Rights Agreement, or the adoption of any other defensive measures, to impede or preclude the consideration and/or consummation of the three way merger proposed by Phelps Dodge is a violation of the fiduciary duties owed by Ward and the Director Defendants. The Phelps Dodge Exchange Offer is incapable of completion unless the Poison Pill is redeemed or amended. 99. Plaintiffs seek: (i) a declaration that the failure of Ward and the Director Defendants to redeem the Rights or to amend the Rights Agreement to make it inapplicable to the Phelps Dodge proposal is a breach of fiduciary duty; (ii) an injunction compelling Ward and the Director Defendants to redeem the Rights or to otherwise amend the Rights Agreement to make it inapplicable to the Phelps Dodge proposal; and (iii) an injunction enjoining Ward and the Director Defendants from applying the Rights Agreement or adopting any other defensive measures aimed at impeding the three-way merger proposed by Phelps Dodge. 100 Plaintiffs have no adequate remedy at law. COUNT SEVEN ----------- Breach of Fiduciary Duty: Section 203 of the Delaware General Corporation Law ------------------------------------------------------------------------------ 101 Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 100 as if fully set forth herein. 102 Section 203 of the Delaware General Corporation Law, 8 DEL. C. ------- (S) 203, entitled "Business Combinations with Interested Stockholers," applies to any Delaware corpora tion that has not opted out of such statute's coverage. 103 Section 203 provides that, if a person acquires 15% or more of a com pany's stock, such "interested stockholder" may not engage in a "business combination" with the 30 company (which includes mergers or consolidations) for three years after the person becomes an interested stockholder, unless: (i) prior to the 15% acquisition, the board of directors has approved either the acquisition or the business combination; (ii) the interested stockholder acquires 85% of the corporation's voting stock in the transaction in which it crosses the 15% threshold; or (iii) on or subsequent to the date of the 15% acquisition, the business combination is approved by the board of directors and authorized at an annual or special meeting of stock holders by the affirmative vote of at least 66-2/3% of the outstanding voting stock which is not owned by the interested stockholder. Section 203 is intended to prevent coercive and inadequate tender or exchange offers. 104 Cyprus Amax's board may not properly use Section 203 to prevent Cyprus Amax's stockholders from considering Phelps Dodge's three-way merger proposal, nor to prevent substantive negotiations between ASARCO, Cyprus Amax and Phelps Dodge that could lead to a deal among the three companies. The true purpose of Section 203, to allow a board of directors to ensure that its shareholders receive the highest possible value for their shares, would be thwarted. Defendants should not be permitted to use Section 203 to preclude consideration of all possible alternatives to their preferred transaction or to deny stockholders the right to vote on other offers. 105 According to Section 203, Defendants have the power to render the section inapplicable to Phelps Dodge's proposal by approving the three-way merger. The Defendants' failure to approve Phelps Dodge's proposal and to take other steps necessary to render Section 203 inapplicable prevents Cyprus Amax's shareholders from considering a combination that will 31 be more beneficial to them than the purported "merger of equals" between ASARCO and Cyprus Amax. The Defendants are therefore in breach of their fiduciary duties. 106 Plaintiffs seek: (i) a declaration that the application of Section 203 to impede or frustrate the Phelps Dodge proposal is a breach of fiduciary duty; and (ii) an injunction compelling Ward and the Director Defendants to approve the Phelps Dodge proposal, thereby rendering Section 203 inapplicable. 107 Plaintiffs have no adequate remedy at law. COUNT EIGHT ----------- ASARCO's Aiding and Abetting of Defendants' Breaches ---------------------------------------------------- 108 Plaintiffs repeat and reallege each and every allegation set forth in paragraphs 1 through 107 as if fully set forth herein. 109 Defendants have breached their fiduciary duties to Cyprus Amax and to its shareholders. 110 ASARCO has aided and abetted Defendants in the breach of their fiduciary duties. As a direct participant in the purported "merger of equals," ASARCO knew of, and in fact actively encouraged and participated in, the breach of fiduciary duties set forth herein. ASARCO and Cyprus Amax have entered into a Merger Agreement which prohibits the consideration of other, even superior, alternatives and provides ASARCO with an unjustifiably large Termination Fee. ASARCO induced Defendants to breach their fiduciary duties in order to obtain the substantial financial benefits that the ASARCO Cyprus Merger would provide, at the expense of Cyprus Amax's stockholders. 32 111 Plaintiffs seek an injunction preventing ASARCO, its employees, agents and all persons acting on its behalf, from aiding and abetting Ward and the Director Defendants' breach of fiduciary duties to Cyprus Amax and its shareholders, with respect to the ASARCO Cyprus Merger and the Phelps Dodge proposal. 112 Plaintiffs have no adequate remedy at law. WHEREFORE, Phelps Dodge respectfully requests that the Court enter an order: 1. declaring that (i) the failure to make good faith efforts to obtain information about reasonable alternatives such as the Phelps Dodge proposal in order to make an informed decision about the ASARCO Cyprus Merger; and (ii) the failure to obtain a reconfirma tion of the fairness opinion of their financial advisors, is a breach of the Director Defendants' duty of care which they owe to Cyprus Amax and its shareholders; 2. declaring that the failure to (i) adequately consider Phelps Dodge's offer; (ii) determine that the Phelps Dodge proposal is in the best interest of Cyprus Amax's shareholders; (iii) submit Phelps Dodge's proposed three-way merger to the shareholders of Cyprus Amax; (iv) render inapplicable the Poison Pill by redeeming the Rights or amending the Rights Agreement; and (iv) render inapplicable Section 203 by approving the Phelps Dodge proposal, constitute a breach of Ward and the Director Defendants' fiduciary duties; 3. compelling Ward and the Director Defendants to render inapplica ble to the Phelps Dodge proposal the Poison Pill by redeeming the Rights or amending the Rights Agreement; 33 4. compelling Ward and the Director Defendants to render Section 203 inapplicable to the three-way merger proposed by Phelps Dodge by approving the Phelps Dodge proposal; 5. compelling Defendants to consider the Phelps Dodge proposal and to take all steps necessary to provide Plaintiffs with a fair and equal opportunity to enter into a transaction with ASARCO and Cyprus Amax, including submitting the proposal to Cyprus Amax's shareholders; 6. temporarily, preliminarily and permanently enjoining Defendants from taking any further steps to proceed with the proposed ASARCO Cyprus Merger until the shareholders of Cyprus Amax have been given the opportunity to consider the three-way transaction proposed by Phelps Dodge; 7. temporarily, preliminarily and permanently enjoining the adoption or exercise of any measures by Cyprus Amax or Ward and the Director Defendants which have the effect of impeding, frustrating or interfering with the Phelps Dodge proposal; 8. temporarily, preliminarily and permanently enjoining ASARCO, its employees, agents and all persons acting on its behalf, from aiding and abetting Ward and the Director Defendants' breach of their fiduciary duties to Cyprus Amax's stockholders; 9. granting damages for all incidental injuries suffered as a result of Defendants' unlawful conduct; 10. awarding Phelps Dodge its costs and expenses in this action, including reasonable attorneys' fees; and 34 11. granting such other and further relief as the Court deems just and proper. Dated: Wilmington, Delaware August 27, 1999 -------------------------------------- R. Franklin Balotti Gregory P. Williams RICHARDS, LAYTON & FINGER, P.A. One Rodney Square P.O. Box 551 Wilmington, Delaware 19899 (302) 658-6541 Attorneys for Plaintiffs Of Counsel: Stuart J. Baskin Alan S. Goudiss SHEARMAN & STERLING 599 Lexington Avenue New York, New York 10022 (212) 848-4000 John Hall DEBEVOISE & PLIMPTON 875 Third Avenue New York, New York 10022 (212) 909-6000 35 EX-99.17 18 PRESS RELEASE EXHIBIT 99.17 [LOGO] CYPRUS AMAX ASARCO NEWS MINERALS COMPANY FOR IMMEDIATE RELEASE CYPRUS AMAX AND ASARCO BOARDS REJECT PHELPS DODGE EXCHANGE OFFERS URGE SHAREHOLDERS TO VOTE FOR ASARCO CYPRUS MERGER ON SEPTEMBER 30 DENVER, CO., and NEW YORK, NY, September 8, 1999 Cyprus Amax Minerals Company (NYSE:CYM) and ASARCO Incorporated (NYSE:AR) today announced 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. The Boards also unanimously recommended that their shareholders reject the exchange offers and not tender their shares, and unanimously reaffirmed that the terms of the Asarco Cyprus business combination are fair to, and in the best interests of, their shareholders. In their recommendations to their shareholders, the Cyprus Amax and Asarco Boards cited, among other things: * The advantages to the shareholders of becoming shareholders in Asarco Cyprus, including, that they retain 100% of the $275 million of annual savings created by the combination. * The Phelps Dodge exchange offers are inadequate and fail to compensate Cyprus Amax and Asarco shareholders for their relative contribution to a three-way combination with Phelps Dodge. * The opinion, rendered on September 8, 1999, of their respective financial advisors that the consideration offered to the shareholders is inadequate to such holders from a financial point of view. * The special $5.00 per share cash payment to the stockholders of Asarco Cyprus immediately following the combination provides them with immediate and significant value. * A three-way combination raises substantial issues under the antitrust laws. The Boards noted that the Phelps Dodge exchange offers are conditioned on the expiration of the Hart-Scott antitrust waiting period but Phelps Dodge has not even filed the required notification yet. In contrast, the applicable waiting period for the Asarco Cyprus combination has already expired. * The highly conditional nature of the Phelps Dodge exchange offers, including with respect to antitrust regulatory approval and Phelps Dodge's own stockholder approval which is not being sought until after the Cyprus Amax and Asarco September 30 shareholder meeting date. Accordingly, each Board recommends to its shareholders that they do not tender their shares to Phelps Dodge and strongly urges them to vote in favor of the Asarco Cyprus combination on September 30. Milton H. Ward, Chairman and Chief Executive Officer of Cyprus Amax and Francis R. McAllister, Chairman and Chief Executive Officer of Asarco, speaking together said, "It is absolutely clear from Phelps Dodge's actions over the course of the last few weeks that it is trying to coerce Cyprus Amax and Asarco shareholders into a situation that is not in their best interests. First, Phelps Dodge's opportunistic and inadequate exchange offers do not give our shareholders their fair ownership interest in the combined entity. Second, a three-way combination with Phelps Dodge raises substantial antitrust issues that Phelps Dodge has not yet begun to address. Third, Phelps Dodge has never offered any persuasive reason why it would walk away if our shareholders approve our two-way combination, if in fact Phelps Dodge is sincere in wanting to merge with both companies." Messrs. Ward and McAllister went on to say that "The Boards of Cyprus Amax and Asarco are committed to achieving the best value for their shareholders and will not sacrifice their shareholders' interest for Phelps Dodge's own agenda, which is to maximize value for Phelps Dodge and its shareholders. It is for this reason that we strongly recommend shareholders vote for the Asarco Cyprus transaction on September 30." Cyprus Amax and Asarco also announced today that they were each filing with the Securities and Exchange Commission, and will mail to their shareholders, a Solicitation/Recommendation Statement on Schedule 14D-9 setting forth the Board's formal recommendation with respect to the Phelps Dodge exchange offer and the reasons for the recommendation. Additional information with respect to each Board's decision to recommend that shareholders reject the Phelps Dodge offer is contained in the Schedule 14D-9. Actual results may vary materially from any forward-looking statement the companies make. Refer to the cautionary statement risk factors contained in Cyprus Amax's and Asarco's 1998 Form 10K's. -----END PRIVACY-ENHANCED MESSAGE-----